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we seek to deliver pay-for-performance while meeting the following objectives : attract , motivate and retain highly qualified executives ; establish challenging , but realistic performance objectives , story_separator_special_tag this management 's discussion and analysis of financial condition and results of operations should be read in conjunction with our consolidated financial statements , and the notes and schedules related thereto , which are included in this annual report . company overview nuverra environmental solutions , inc. is among the largest companies in the united states dedicated to providing comprehensive , full-cycle environmental solutions to customers focused on the development and ongoing production of oil and natural gas from shale formations . our strategy is to provide one-stop , total environmental solutions and wellsite logistics management , including delivery , collection , treatment , recycling , and disposal of solid and liquid materials that are used in and generated by the drilling , completion , and ongoing production of shale oil and natural gas . we operate in shale basins where customer exploration and production ( “ e & p ” ) activities are predominantly focused on shale oil and natural gas as follows : oil shale areas : includes our operations in the bakken and eagle ford shale areas . natural gas shale areas : includes our operations in the marcellus , utica , and haynesville shale areas . we support our customers ' demand for diverse , comprehensive and regulatory compliant environmental solutions required for the safe and efficient drilling , completion and production of oil and natural gas from shale formations . current services , as well as prospective services in which we have made investments , include ( i ) logistics managements , including via procurement , delivery , collection , storage , treatment , recycling and disposal of solid and liquid materials and waste products ; ( ii ) temporary and permanent water midstream assets , consisting of temporary and permanent pipeline facilities and other waste management infrastructure assets ; ( iii ) equipment rental and staging services ; and ( iv ) other ancillary services for e & p companies focused on the extraction of oil and natural gas resources from shale formations . we utilize a broad array of assets to meet our customers ' logistics and environmental management needs . our logistics assets include trucks and trailers , temporary and permanent pipelines , temporary and permanent storage facilities , ancillary rental equipment , treatment facilities , and liquid and solid waste disposal sites . we continue to expand our suite of solutions to customers who demand safety , environmental compliance and accountability from their service providers . as a result of our historical acquisition activity to expand our presence in existing shale basins , access new markets and to expand the breadth and scope of services we provide , we have accumulated a large level of indebtedness . due to the continued decline in oil and natural gas prices , and the resulting decrease in drilling and completion activities , there was lower demand for our services during 2016. the decreased demand for our services impacts our overall liquidity and our ability to generate sufficient cash to meet our debt obligations and operating needs . see the `` liquidity and capital resources '' discussion later in this section for further details . trends affecting our operating results our results are driven by demand for our services , which are in turn affected by e & p spending trends in the shale areas in which we operate , in particular the level of drilling activity ( which impacts the amount of environmental waste products being managed ) and active wells ( which impacts the amount of produced water being managed ) . in general , drilling activity in the oil and natural gas industry is affected by the market prices ( or anticipated prices ) for those commodities . persistent low natural gas prices have resulted in reduced drilling activity in “ dry ” gas shale areas such as the haynesville and marcellus shale areas where natural gas is the predominant natural resource . in addition , the low natural gas prices have in the past caused many natural gas producers to curtail capital budgets and these cuts in spending curtailed drilling programs , as well as discretionary spending on well services in certain shale areas , and accordingly reduced demand for our services in these areas . as a result of the decline in oil prices that began in the fourth quarter of 2014 and continued throughout 2015 and 2016 , drilling and completion activities in the oil and `` wet '' gas basins such as the eagle ford , utica and bakken shale areas experienced a dramatic decline . accordingly , our customer base reduced their capital programs and drilling and completion activity levels during both 2015 and 2016. due to oil prices remaining more stable in early 2017 , we are beginning to see drilling and completion activities increase in all basins . we would expect continued stability or further price growth to lead to increased drilling and completion activities by our customer base during 2017 when compared to 2016. increased drilling and completion activities would likely lead to a higher demand for our services in 2017 ; however , there is no guarantee that oil prices will remain stable , drilling and completion activities in basins will continue to increase , or we will see an increase in a demand for our services in 2017 . story_separator_special_tag 44 results of operations year ended december 31 , 2015 compared to the year ended december 31 , 2014 the following table sets forth for each of the periods indicated our statements of operations data and expresses revenue and expense data as a percentage of total revenues for the periods presented ( dollars in thousands ) : replace_table_token_8_th non-rental revenue non-rental revenue for the year ended december 31 , 2015 was $ 327.7 million , down $ 135.8 million , or 29.3 % , from $ 463.4 million for the year ended december 31 , 2014. in the rocky mountain division , lower drilling and completion activities during the year , as well as pricing pressures , led to lower non-rental revenue as compared to the prior year . lower non-rental revenue in the southern division was driven by our exit from the mississippian shale area and tuscaloosa marine shale logistics business , pricing pressures and overall reduced drilling and completion activities . these decreases were partially offset in the northeast division due to increased activities from an expanded customer base as compared to the same period in the prior year , and an increase in water treatment revenues as a result of the aws expansion completed in july 2014. rental revenue rental revenue consists of fees charged to customers for use of equipment owned by us over the term of the rental period , as well as other fees charged to customers for items such as delivery and pickup . rental revenue for the year ended december 31 , 2015 was $ 29.0 million , down $ 43.8 million , or 60.1 % , from $ 72.9 million for the year ended december 31 , 2014. the decrease was the result of lower utilization of our rental fleet primarily in the rocky mountain and southern divisions , in conjunction with the reduction in drilling and completion activities due to lower oil prices . direct operating expenses direct operating expenses for the year ended december 31 , 2015 were $ 279.9 million , compared to $ 392.5 million for the year ended december 31 , 2014 , a decrease of 28.7 % . the decrease in direct operating expenses was primarily attributable to lower compensation expenses and fuel costs , as well as repairs and maintenance costs associated with decreased activities . 45 additionally , we implemented various cost-management initiatives to reduce direct operating expenses given the decrease in activities due to lower oil and natural gas prices . general and administrative expenses general and administrative expenses for the year ended december 31 , 2015 were $ 39.3 million , down $ 19.9 million from $ 59.2 million for the year ended december 31 , 2014. the decrease in general and administrative expenses is primarily due to a decrease in business activities and our cost-management initiatives , which resulted in lower bad debt expense and lower compensation expense during the year ended december 31 , 2015. additionally , the year ended december 31 , 2014 included $ 2.1 million of integration and rebranding costs , along with $ 6.3 million of legal and environmental expenses for certain litigation , which did not occur in such magnitude in 2015. depreciation and amortization depreciation and amortization for the year ended december 31 , 2015 was $ 70.5 million , down approximately $ 15.4 million from $ 85.9 million for the year ended december 31 , 2014. the decrease was primarily attributable to the write-off of the intangible assets in the rocky mountain division as of december 31 , 2014 , resulting from the long-lived asset impairment charges totaling $ 112.4 million in 2014. impairment of long-lived assets no charges were recorded to the impairment of long-lived assets line for the year ended december 31 , 2015. the long-lived asset impairment charges of $ 112.4 million for the year ended december 31 , 2014 consisted of the write-off of our customer relationship intangible assets located in our rocky mountain division following impairment testing that resulted from triggering events that occurred during the three months ended december 31 , 2014 , including the significant decline in oil and natural gas prices and the market price of the our common stock . impairment of goodwill goodwill impairment amounted to $ 104.7 million for the year ended december 31 , 2015 and related to our rocky mountain division , thereby eliminating all remaining goodwill on the consolidated balance sheet , as a result of our annual impairment test during the three months ended september 30 , 2015. for the year ended december 31 , 2014 , total goodwill impairment charges were $ 304.0 million and represented a $ 33.8 million , $ 66.9 million , and $ 203.3 million reduction of the carrying value of goodwill associated with our northeast , southern and rocky mountain divisions , respectively , following impairment testing that resulted from triggering events that occurred throughout the year , including the significant decline in oil and natural gas prices and the market price of our common stock , as well as a redefinition of our reporting unit structure . other , net we recorded a charge totaling approximately $ 7.1 million in the year ended december 31 , 2015 to restructure our business in certain shale basins and reduce costs , including an exit from the mississippian shale area and the tuscaloosa marine shale logistics business . included in the $ 7.1 million of restructuring charges is approximately $ 5.9 million for the impairment of certain assets in the mississippian shale area . see note 7 in the notes to the consolidated financial statements herein for further discussion .
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results of operations year ended december 31 , 2016 compared to the year ended december 31 , 2015 the following table sets forth for each of the periods indicated our statements of operations data and expresses revenue and expense data as a percentage of total revenues for the periods presented ( dollars in thousands ) : replace_table_token_7_th non-rental revenue non-rental revenue consists of fees charged to customers for the sale and transportation of fresh water and saltwater by our fleet of logistics assets and or through water midstream assets owned by us to customer sites for use in drilling and completion activities and from customer sites to remove and dispose of flowback and produced water originating from oil and natural gas wells . non-rental revenue also includes fees for solids management services . non-rental revenue for the year ended december 31 , 2016 was $ 139.9 million , down $ 187.8 million , or 57.3 % , from $ 327.7 million for the year ended december 31 , 2015 . continued lower drilling and completion activities in all divisions during 2016 , as well as pricing pressures , led to lower non-rental revenue for the year ended december 31 , 2016 as compared to the year ended december 31 , 2015 . the primary driver of the decreased demand in the basins we serve was a 57 % decline in average operating oil rigs from those operating in the prior year . rental revenue rental revenue consists of fees charged to customers for use of equipment owned by us over the term of the rental period , as well as other fees charged to customers for items such as delivery and pickup .
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you should review the risk factors section 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 . introduction and overview of operations we are an integrated facilities-based communications services provider offering a portfolio of international and domestic voice , wireless , internet , voip , data and data center services to customers located primarily in australia , canada and the united states . our primary markets are australia and canada where we have deployed significant network infrastructure . we classify our services into three categories : growth services , traditional services and international carrier services . our focus is on expanding our growth services , which includes our broadband , sme voip , australian on-net local services , data , and data center services , to fulfill the demand for high quality , competitively priced communications services . this demand is being driven , in part , by the globalization of the world 's economies , the global trend toward telecommunications deregulation and the migration of communication traffic to the internet . we manage our traditional services , which includes our domestic and international long-distance voice , prepaid cards , dial-up internet services and australian off-network local services for cash flow generation that we reinvest to develop and market our growth services , particularly in our primary markets of australia and canada . we provide our international carrier services voice termination services to other telecommunications carriers and resellers requiring ip or time-division multiplexing access . generally , we price our services competitively with the major carriers and service providers operating in our principal service regions . we seek to generate net revenue through sales and marketing efforts focused on customers with significant communications needs , including small and medium enterprises ( smes ) , multinational corporations , residential customers , and other telecommunications carriers and resellers . industry trends have shown that the overall market for domestic and international long-distance voice , prepaid cards and dial-up internet services has declined in favor of internet-based , wireless and broadband communications . our challenge concerning net revenue in recent years has been to overcome declines in long-distance voice minutes of use per customer as more customers are using wireless devices and the internet as alternatives to the use of wireline phones . also , product substitution ( e.g. , wireless/internet for fixed line voice ) has resulted in revenue declines in our long-distance voice services . additionally , we believe that because deregulatory influences have begun to affect telecommunications markets outside the united states , the deregulatory trend is resulting in greater competition from the existing wireline and wireless competitors and from more recent entrants , such as cable companies and voip companies , which could continue to affect adversely our net revenue per minute , as well as minutes of use . more recently , adverse global economic conditions have resulted in a contraction of spending by business and residential customers generally which , we believe , has had an adverse effect on our net revenues . in order to manage our network transmission costs , we pursue a flexible approach with respect to the management of our network capacity . in most instances , we ( 1 ) optimize the cost of traffic by using the least expensive cost routing , ( 2 ) negotiate lower variable usage-based costs with domestic and foreign service providers , ( 3 ) negotiate additional and lower cost foreign carrier agreements with the foreign incumbent carriers and others , and ( 4 ) continue to expand/reduce the capacity of our network when traffic volumes justify such actions . 59 our overall margin may fluctuate based on the relative volumes of international versus domestic long-distance services ; international carrier services versus business and residential long-distance services ; prepaid services versus traditional post-paid voice services ; internet , voip and data services versus fixed line voice services ; the amount of services that are resold ; and the proportion of traffic carried on our network versus resale of other carriers ' services . our margin is also affected by customer transfer and migration fees . we generally pay a charge to install and transfer a new customer onto our network and to migrate broadband and local customers . however , installing and migrating customers to our network infrastructure enables us to increase our margin on such services as compared to resale of services using other carriers ' networks . selling , general and administrative expenses are comprised primarily of salaries and benefits , commissions , occupancy costs , sales and marketing expenses , advertising , professional fees , and other administrative costs . all selling , general and administrative expenses are expensed when incurred . emphasis on cost containment and the shift of expenditures from non-revenue producing expenses to sales and marketing expenses has been heightened since growth in net revenue has been under pressure . emergence from voluntary reorganization under chapter 11 proceedings on march 16 , 2009 , the holding companies filed chapter 11 cases in the bankruptcy court for reorganization relief under chapter 11 of the bankruptcy code . subsequently , the holding companies sought and received an order directing the joint administration of the chapter 11 cases under the caption in re : primus telecommunications group , incorporated , et al. , debtors , case no . 09-10867. on april 24 , 2009 , an unsecured creditors ' committee was appointed by the united states trustee . on april 27 , 2009 , the bankruptcy court approved the holding companies ' use of a disclosure statement dated april 27 , 2009 ( the disclosure statement ) to solicit votes on the plan of reorganization . the disclosure statement was distributed to holders of record ( as of april 27 , 2009 ) of claims against , and interests in , the holding companies who were entitled to vote on the plan of reorganization ( the record date ) . story_separator_special_tag as a result of the merger , arbinet became a wholly-owned subsidiary of the company . 61 in connection with the merger , each share of arbinet 's common stock , par value $ 0.001 per share , issued and outstanding immediately prior to the effective time of the merger was canceled and converted into the right to receive 0.5817 of a share of company common stock . the value of primus shares issued as merger consideration was based upon the closing price of primus common stock as of february 25 , 2011 of $ 15.60 per share . the exchange of 5,557,525 eligible arbinet shares for 3,232,812 primus common stock equivalents equated to a purchase value of approximately $ 50.6 million . this includes the issued and outstanding shares of arbinet and arbinet 's outstanding warrants , options , stock appreciation rights and other equity awards that were exercised prior to the effective date of the merger or subject to accelerated vesting features due to a change in control . the company is in the process of integrating arbinet 's operations into its international carrier services segment . the combined company is expected to be well positioned to capitalize on its long established experience in carrier telecom operations and to expand its global voice and data operations to meet the evolving demands of telecom operators worldwide . with its enhanced scale and market position , the combined company is expected to enable international carrier services customers to access additional networks and termination routes at competitive rates . the combined company is expected to have a diversified product portfolio of international voice and data services across all international carrier services customer segments . the combined company would become the only major global provider to offer international carrier services customers options to either acquire direct international connections through traditional interconnect arrangements or manage their access needs through the exchange . the arbinet acquisition is accounted for under the acquisition method of accounting in accordance with asc 805 , business combinations. under the acquisition method of accounting , assets acquired and liabilities assumed are measured at fair value as of february 28 , 2011. the fair value of the consideration transferred and the assets acquired and liabilities assumed were determined by the company and in doing so management relied in part upon a third-party valuation report to measure the identifiable intangible assets , property and equipment acquired . in accordance with asc no . 805 , the allocation of the consideration value is subject to additional adjustment until the company has completed its analysis . the company 's analysis and any additional adjustments are required to be made by february 28 , 2012 , the one year anniversary of the date of the acquisition , to provide the company with the time to complete the valuation of its assets and liabilities . the consolidated financial statements of the company issued after the merger will reflect only the operations of the combined business after the merger and will not be restated retroactively to reflect the historical financial position or results of operations of arbinet . the company 's acquisition of arbinet was an all stock transaction and the merger agreement was based upon a primus common stock per share price of $ 9.57. the exchange formula provided by the merger agreement established the number of common shares required to consummate the merger . the number of common shares established by the merger agreement remained constant from the execution of the merger agreement through the closing date , february 28 , 2011 , and as a result , increases in the market price of primus 's common stock had the effect of increasing the total fair value of the consideration and therefore increased the amount of the purchase price allocable to goodwill . on february 28 , 2011 , the final consideration to be allocated to arbinet 's net assets under asc no . 805 was valued at approximately $ 50.6 million and was based upon a primus common stock per share price of $ 15.60. the significant increase in the fair value of the consideration to be allocated to arbinet 's net assets as compared to the company 's initial valuation of arbinet triggered the requirement for the company to perform a goodwill impairment test upon completion of its acquisition accounting . the company recorded the preliminary purchase accounting during the first quarter of 2011. see note 5acquisitions and note 7goodwill and other intangible assets to the notes to our consolidated financial statements included elsewhere in this report . given the above , the company had goodwill arising from the acquisition of arbinet that was considered impaired upon implementing the purchase accounting of arbinet 's net assets . the company performed step 1 62 and step 2 testing for goodwill impairment during the first quarter 2011 and , as a result , recognized an impairment expense of $ 14.7 million during the first quarter 2011. recent developments involving existing notes that may impact future results and liquidity on july 7 , 2011 , holding in connection with the consummation of the exchange offers and the consent solicitation , issued $ 240.2 million aggregate principal amount of 10 % notes . the 10 % notes bear interest at a rate of 10.00 % per annum , payable semi-annually in arrears in cash on april 15 and october 15 of each year , commencing october 15 , 2011. the 10 % notes will mature on april 15 , 2017. the 10 % notes and related guarantees are secured by a pledge of and first lien security interest in ( subject to certain exceptions ) substantially all of the assets of holding and the guarantors of the 10 % notes , including group ( guarantors ) , including a first-priority pledge of all of the capital stock held by holding , the guarantors and each subsidiary of the group that is a foreign subsidiary holding company ( which pledge , in the case of the capital stock of each non-u.s. subsidiary and each subsidiary of the group that is a foreign
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results of operations the following information for the years ended december 31 , 2011 , 2010 and 2009 reflects all the items included in consolidated statements of operations as a percentage of net revenue : replace_table_token_13_th 72 the following information reflects net revenue by product line for the years ended december 31 , 2011 , 2010 and 2009 ( in thousands , except percentages ) and is provided for informational purposes and should be read in conjunction with the consolidated financial statements and notes . replace_table_token_14_th results of operations for the year ended december 31 , 2011 as compared to the year ended december 31 , 2010 net revenue : net revenue , exclusive of the currency effect , increased $ 199.2 million , or 27.0 % , to $ 936.5 million for the year ended december 31 , 2011 from $ 737.3 million for the year ended december 31 , 2010. inclusive of the currency effect which accounted for an increase of $ 52.8 million , net revenue increased $ 252.0 million to $ 989.3 million for the year ended december 31 , 2011 from $ 737.3 million for the year ended december 31 , 2010. replace_table_token_15_th canada : canada net revenue , exclusive of the currency effect , increased $ 5.2 million , or 2.3 % , to $ 236.4 million for the year ended december 31 , 2011 from $ 231.2 million for the year ended december 31 , 2010. the net revenue increase is primarily attributable to an increase of $ 9.3 million in retail voice services , an increase of $ 2.3 million in data and hosting services , an increase of $ 1.8 million in voip services , and an increase of $ 1.6 million in internet services offset , in part , by a decrease of $ 6.9 million in prepaid voice services , a decrease of $ 2.1 million in local services and a decrease of $ 0.8 million in wireless and other services .
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certain of the leases provide for escalating rents over the lives of the leases story_separator_special_tag the following discussion should be read in conjunction with our consolidated financial statements and related notes and other financial information appearing elsewhere in this form 10-k. in addition to historical information , the following discussion and other parts of this form 10-k contain forward-looking information that involves risks and uncertainties . our actual results could differ materially from those anticipated by this forward-looking information due to the factors discussed under `` risk factors , '' `` forward-looking statements '' and elsewhere in this form 10-k. certain tabular information will not foot due to rounding . overview we are one of the largest distributors of residential and non-residential roofing materials in the united states and canada . we are also a distributor of other building materials , including siding , windows , specialty lumber products and waterproofing systems for residential and nonresidential building exteriors . we purchase products from a large number of manufacturers and then distribute these goods to a customer base consisting of contractors and , to a lesser extent , general contractors , retailers and building material suppliers . we currently carry up to 10,000 skus through 194 branches in the united states and canada . in fiscal year 2011 , approximately 92 % of our net sales were in the united states . we stock one of the most extensive assortments of high-quality branded products in the industry , enabling us to deliver products to our customers on a timely basis . execution of the operating plan at each of our branches drives our financial results . revenues are impacted by the relative strength of the residential and non-residential roofing markets we serve . we strive for an appropriate mix of residential , non-residential and complementary product sales in all of our regions but allow each of our branches to influence its own marketing plan and mix of products based upon its local market . we differentiate ourselves from the competition by providing customer services , including job site delivery , tapered insulation layouts and design and metal fabrication , and by providing credit . we consider customer relations and our employees ' knowledge of roofing and exterior building materials to be important to our ability to increase customer loyalty and maintain customer satisfaction . we invest significant resources in training our employees in sales techniques , management skills and product knowledge . while we consider these attributes important drivers of our business , we continually pay close attention to controlling operating costs . our growth strategy includes both internal growth ( opening branches , growing sales with existing customers , adding new customers and introducing new products ) and acquisition growth . our main acquisition strategy is to target market leaders in geographic areas that we do not service . our may 2011 acquisition of enercon products ( “ enercon ” ) is one example of this approach . enercon is a roofing distributor with six locations in western canada . headquartered within its branch in edmonton , enercon also has branches in calgary , regina and saskatoon and two branches in vancouver , with no branch overlap with our existing operations . in addition , we also acquire smaller companies to supplement branch openings within existing markets . our april 2010 acquisition of louisiana roofing supply , a single location distributor of residential and commercial roofing products located in baton rouge , louisiana , which we integrated into our west end roofing siding and windows region in the southwest , is an example of such an acquisition . general we sell all materials necessary to install , replace and repair residential and non-residential roofs , including : ● shingles ; ● single-ply roofing ; ● metal roofing and accessories ; ● modified bitumen ; ● built up roofing ; ● insulation ; ● slate and tile ; ● fasteners , coatings and cements ; and ● other roofing accessories . we also sell complementary building products such as : ● vinyl siding ; ● doors , windows and millwork ; ● wood and fiber cement siding ; ● residential insulation ; and ● waterproofing systems . 19 of 65 the following is a summary of our net sales by product group ( in thousands ) for the last three full fiscal years ( “ 2011 ” , “ 2010 ” and “ 2009 ” ) . percentages may not total due to rounding . replace_table_token_5_th we have approximately 40,000 customers , none of which represents more than 2 % of our net sales . many of our customers are small to mid-size contractors with relatively limited capital resources . we maintain strict credit approval and review policies , which has helped to keep losses from customer receivables within our expectations . in 2011 , bad debts were slightly higher than normal levels at 0.4 % of net sales but still within our tolerance in consideration of the continued challenging economic and credit climate . our expenses consist primarily of the cost of products purchased for resale , labor , fleet , occupancy , and selling and administrative expenses . we compete for business and may respond to competitive pressures at times by lowering prices in order to maintain our market share . since 1997 , we have made twenty-five strategic and complementary acquisitions and opened 38 new branches ( two of which have been closed ) . we opened three new branches in 2011 , none in 2010 and three in 2009. we slowed the pace of new branch openings since 2007 , mostly as a result of the economic downturn . typically , when we open a new branch , we transfer a certain level of existing business from an existing branch to the new branch . this allows the new branch to commence with a base business and also allows the existing branch to target other growth opportunities . story_separator_special_tag we estimate that inflation in our product costs had no material impact on product costs in 2010 compared to 2009 ; however average selling prices were generally lower . we had 253 business days in both 2010 and 2009. net sales by geographical region , excluding acquired branches , grew or ( declined ) as follows : northeast 2.8 % ; mid-atlantic 7.4 % ; southeast ( 10.4 % ) ; southwest ( 32.6 % ) ; midwest ( 9.2 % ) ; west ( 15.2 % ) ; and canada 10.3 % . these variations were primarily caused by short-term factors such as local economic conditions , weather conditions and storm activity . the product group sales for our existing markets were as follows : for the fiscal years ended replace_table_token_12_th for 2010 , our acquired markets had product group sales of $ 8.9 , $ 15.3 and $ 2.1 million in residential roofing products , non-residential roofing products and complementary building products , respectively . total 2010 existing market sales of $ 1,583.7 million plus 2010 sales from acquired markets of $ 26.3 million equals our reported 2010 sales of $ 1,610.0 million . prior year sales by product group are presented in a manner consistent with the current year 's product classifications . we believe the existing market information is useful to investors because it helps explain organic growth or decline . gross profit replace_table_token_13_th our existing market gross profit decreased $ 56.1 million or 13.6 % in 2010 , while our acquired market gross profit contributed $ 5.1 million . our overall and existing market gross margin decreased to 22.4 % in 2010 from 23.7 % in 2009. the margin rate decrease in our existing markets resulted primarily from approximately equal impacts generated by a more competitive market and a higher sales mix of non-residential roofing products , which typically have lower gross margins . these negative factors were partially offset by higher 2010 vendor incentive income , primarily from short-term buying programs . direct sales ( products shipped by our vendors directly to our customers ) , which typically have substantially lower gross margins than our warehouse sales , represented 20.3 % and 19.0 % of our net sales in 2010 and 2009 , respectively . the slight increase in the percentage of direct sales was primarily attributable to the higher mix of non-residential roofing product sales . there were no material regional impacts from changes in the direct sales mix of our geographical regions . operating expenses replace_table_token_14_th 24 of 65 our existing market operating expenses decreased by $ 21.6 million or 7.1 % in 2010 to $ 280.3 million from $ 301.9 million in 2009 , while our acquired markets incurred $ 6.3 million in operating expenses . the following factors were the leading causes of our lower operating expenses in our existing markets : · savings of $ 9.8 million in payroll and related costs , due to a lower employee headcount , lower incentive-based pay , and lower related benefits ( including a lower profit-sharing accrual ) ; · savings of $ 6.9 million in other general & administrative expenses from a reduction in the provision for bad debts of $ 4.7 million , reduced claim costs in our self-insurance programs and certain cost saving actions ; · reduced depreciation and amortization expense of $ 3.1 million due mostly to lower amortization of intangible assets ; · savings of $ 1.1 million in various selling expenses , such as reduced credit card fees due to the lower sales volume and certain cost saving actions , partially offset by higher fuel costs ; and · savings of $ 0.7 million in warehouse expenses mainly due to lower branch closing costs . in 2010 , we expensed a total of $ 9.9 million for the amortization of intangible assets recorded under purchase accounting compared to $ 12.2 million in 2009. our existing market operating expenses as a percentage of net sales increased to 17.7 % in 2010 from 17.4 % in 2009 due to the reductions outlined above offset by a larger percentage decline in net sales . interest expense interest expense decreased $ 4.7 million to $ 18.2 million in 2010 from $ 22.9 million in 2009. this decrease was primarily due to lower debt and the expiration of certain interest derivatives that carried higher interest rates than the rates on our current derivatives and lower variable interest rates on the unhedged components of our debt . interest expense would have been $ 8.9 and $ 8.3 million less in 2010 and 2009 , respectively , without the impact of our derivatives . income taxes income tax expense decreased to $ 20.8 million in 2010 from $ 33.9 million in 2009 and our effective income tax rate decreased to 37.6 % from 39.3 % in 2009. the 2010 income tax expense includes benefits from the reversals of certain discrete tax reserves and releases of valuation allowances on certain deferred tax assets totaling $ 1.4 million and from a higher percentage of canadian income in 2010 than in 2009. seasonality and quarterly fluctuations in general , sales and net income are highest during our first , third and fourth fiscal quarters , which represent the peak months of construction and reroofing , especially in our branches in the northeastern u.s. and in canada . we have historically incurred low net income levels or net losses during the second quarter when our sales are substantially lower . we generally experience an increase in inventory , accounts receivable and accounts payable during the third and fourth quarters of the year as a result of the seasonality of our business . our peak cash usage generally occurs during the third quarter , primarily because accounts payable terms offered by our suppliers typically have due dates in april , may and june , while our peak accounts receivable collections typically occur from june through november .
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results of operations the following discussion compares our results of operations for 2011 , 2010 and 2009. the following table shows , for the periods indicated , information derived from our consolidated statements of operations expressed as a percentage of net sales for the periods presented . percentages may not total due to rounding . replace_table_token_6_th 20 of 65 2011 compared to 2010 the following table shows a summary of our results of operations for 2011 and 2010 , broken down by existing markets and acquired markets . replace_table_token_7_th net sales consolidated net sales increased $ 207.5 million , or 12.9 % , to $ 1,817.4 million in 2011 from $ 1,610.0 million in 2010. existing market sales increased $ 146.6 million or 9.3 % ( 8.8 % based on the same number of business days ) , while acquired market sales increased $ 60.9 million due to a full year 's sales impact from the 2010 acquisitions and the impact from the may 2011 enercon acquisition . we attribute the existing market sales increase primarily to the following factors : · strong growth in the markets affected by this spring 's hail storms ; · continued strong growth in non-residential roofing activity in most of the other regions ; and · industry-wide increases in asphalt shingle and other prices ; partially offset by : · volume declines in residential re-roofing activity in a few regions . in 2011 , we acquired six branches , opened three new branches , and closed three branches . we estimate the impact of inflation or deflation on our sales and gross profit by looking at changes in our net product costs and invoiced gross margins , and since last year we experienced an approximate 4 % increase in residential roofing product costs and approximately 4-7 % increases in non-residential and complementary product costs .
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understanding of our business taken as a whole , we present the discussion in management 's discussion and analysis of financial condition and results of operations on a consolidated basis . overview autonation , inc. , through its subsidiaries , is the largest automotive retailer in the united states . as of december 31 , 2018 , we owned and operated 326 new vehicle franchises from 239 stores located in the united states , predominantly in major metropolitan markets in the sunbelt region . our stores , which we believe include some of the most recognizable and well known in our key markets , sell 33 different new vehicle brands . the core brands of new vehicles that we sell , representing approximately 92 % of the new vehicles that we sold in 2018 , are manufactured by toyota ( including lexus ) , honda , ford , general motors , fca us , mercedes-benz , nissan , bmw , and volkswagen ( including audi and porsche ) . as of december 31 , 2018 , we also owned and operated 85 autonation-branded collision centers , and together with our vehicle dealerships , our autonation usa stores , and our automotive auctions , we owned and operated over 325 locations coast to coast . we offer a diversified range of automotive products and services , including new vehicles , used vehicles , “ parts and service ” ( also referred to as “ customer care ” ) , which includes automotive repair and maintenance services as well as wholesale parts and collision businesses , and automotive “ finance and insurance ” products ( also referred to as “ customer financial services ” ) , which include vehicle service and other protection products , as well as the arranging of financing for vehicle purchases through third-party finance sources . as of december 31 , 2018 , we had three reportable segments : domestic , import , and premium luxury . our domestic segment is comprised of retail automotive franchises that sell new vehicles manufactured by general motors , ford , and fca us . our import segment is comprised of retail automotive franchises that sell new vehicles manufactured primarily by toyota , honda , and nissan . our premium luxury segment is comprised of retail automotive franchises that sell new vehicles manufactured primarily by mercedes-benz , bmw , audi , lexus , and jaguar land rover . the franchises in each segment also sell used vehicles , parts and automotive repair and maintenance services , and automotive finance and insurance products . for the year ended december 31 , 2018 , new vehicle sales accounted for approximately 55 % of our total revenue , and approximately 15 % of our total gross profit . used vehicle sales accounted for approximately 24 % of our total revenue , and approximately 10 % of our total gross profit . our parts and service and finance and insurance operations , while comprising approximately 21 % of total revenue , contributed approximately 75 % of our gross profit . market conditions full-year u.s. industry new vehicle unit sales were 17.3 million in 2018 , as compared to 17.2 million in 2017 and 17.5 million in 2016 . we currently expect that full-year u.s. industry new vehicle unit sales in 2019 will decrease to the high 16 million unit level . however , actual sales may materially differ . based on industry data , vehicle leasing and manufacturer incentives remain at historically-high levels . to the extent that vehicle manufacturers reduce their support for these programs , u.s. industry and our new vehicle unit retail sales could be adversely impacted . in addition , an increase in off-lease supply of late-model used vehicles could benefit retail used vehicle unit volume but adversely impact retail new vehicle unit volume and pricing . a rise in interest rates has adversely impacted interest expense on variable rate debt such as vehicle floorplan payables and commercial paper notes . consumer borrowing rates , which are generally based on the same underlying benchmark interest rates , have increased over the past two years . if interest rates continue to rise , there may be an adverse impact on vehicle sales and vehicle affordability due to the direct relationship between interest rates and monthly loan payments , a critical factor for many vehicle buyers . 23 story_separator_special_tag new vehicle inventory , in part due to incentives provided by manufacturers to promote sales of new vehicles and our inventory management practices . we monitor our new vehicle inventory values as compared to net realizable values , and as a result , our new vehicle inventory balance was net of cumulative write-downs of $ 0.5 million at december 31 , 2018 , and $ 2.2 million at december 31 , 2017 . we recondition the majority of used vehicles acquired for retail sale in our parts and service departments and capitalize the related costs to the used vehicle inventory . we monitor our used vehicle inventory values as compared to net realizable values . typically , used vehicles that are not sold on a retail basis are sold at wholesale auctions . our used vehicle inventory balance was net of cumulative write-downs of $ 3.2 million at december 31 , 2018 , and $ 4.1 million at december 31 , 2017 . parts , accessories , and other inventory are carried at the lower of acquisition cost or net realizable value . we estimate the amount of potentially damaged and or obsolete inventory based upon historical experience , manufacturer return policies , and industry trends . our parts , accessories , and other inventory balance was net of cumulative write-downs of $ 6.4 million at december 31 , 2018 , and $ 5.2 million at december 31 , 2017 . story_separator_special_tag chargebacks are influenced by the volume of vehicle sales in recent years , commission levels , product penetration , product mix , and increases or decreases in early termination rates resulting from cancellation of vehicle service contracts and other vehicle protection products , defaults , refinancings , payoffs before maturity , and other factors . while we consider these factors in the estimation of our chargeback liability , actual events may differ from our estimates , which could result in an adjustment to our estimated liability for chargebacks . the increase in our liability for chargebacks is largely attributable to increases in commission levels received upon the sale of vehicle service contracts and product penetration in recent years , as well as product mix . our actual chargeback experience has not been materially different from our recorded estimates . a 10 % change in our estimated cancellation rates would have changed our estimated liability for chargebacks at december 31 , 2018 , by approximately $ 12.8 million . see note 9 of the notes to consolidated financial statements for more information regarding chargeback liabilities . 26 reported operating data years ended december 31 , ( $ in millions , except per vehicle data ) 2018 vs. 2017 2017 vs. 2016 2018 2017 variance favorable / ( unfavorable ) % variance 2016 variance favorable / ( unfavorable ) % variance revenue : new vehicle $ 11,751.6 $ 12,180.8 $ ( 429.2 ) ( 3.5 ) $ 12,255.8 $ ( 75.0 ) ( 0.6 ) retail used vehicle 4,807.6 4,577.1 230.5 5.0 4,481.7 95.4 2.1 wholesale 315.7 301.3 14.4 4.8 513.6 ( 212.3 ) ( 41.3 ) used vehicle 5,123.3 4,878.4 244.9 5.0 4,995.3 ( 116.9 ) ( 2.3 ) finance and insurance , net 981.4 939.2 42.2 4.5 894.6 44.6 5.0 total variable operations ( 1 ) 17,856.3 17,998.4 ( 142.1 ) ( 0.8 ) 18,145.7 ( 147.3 ) ( 0.8 ) parts and service 3,447.6 3,398.3 49.3 1.5 3,321.4 76.9 2.3 other 108.9 137.9 ( 29.0 ) 141.9 ( 4.0 ) total revenue $ 21,412.8 $ 21,534.6 $ ( 121.8 ) ( 0.6 ) $ 21,609.0 $ ( 74.4 ) ( 0.3 ) gross profit : new vehicle $ 516.1 $ 588.4 $ ( 72.3 ) ( 12.3 ) $ 635.8 $ ( 47.4 ) ( 7.5 ) retail used vehicle 327.6 308.0 19.6 6.4 334.9 ( 26.9 ) ( 8.0 ) wholesale 14.1 7.2 6.9 ( 17.3 ) 24.5 used vehicle 341.7 315.2 26.5 8.4 317.6 ( 2.4 ) ( 0.8 ) finance and insurance 981.4 939.2 42.2 4.5 894.6 44.6 5.0 total variable operations ( 1 ) 1,839.2 1,842.8 ( 3.6 ) ( 0.2 ) 1,848.0 ( 5.2 ) ( 0.3 ) parts and service 1,555.3 1,490.7 64.6 4.3 1,434.7 56.0 3.9 other 2.8 25.5 ( 22.7 ) 30.5 ( 5.0 ) total gross profit 3,397.3 3,359.0 38.3 1.1 3,313.2 45.8 1.4 selling , general , and administrative expenses 2,509.8 2,436.2 ( 73.6 ) ( 3.0 ) 2,349.4 ( 86.8 ) ( 3.7 ) depreciation and amortization 166.2 158.6 ( 7.6 ) 143.4 ( 15.2 ) franchise rights impairment 8.1 — ( 8.1 ) — — other income , net ( 64.7 ) ( 79.2 ) ( 14.5 ) ( 69.1 ) 10.1 operating income 777.9 843.4 ( 65.5 ) ( 7.8 ) 889.5 ( 46.1 ) ( 5.2 ) non-operating income ( expense ) items : floorplan interest expense ( 130.4 ) ( 97.0 ) ( 33.4 ) ( 76.5 ) ( 20.5 ) other interest expense ( 119.4 ) ( 120.2 ) 0.8 ( 115.5 ) ( 4.7 ) interest income 1.1 1.0 0.1 1.1 ( 0.1 ) other income , net 0.2 9.3 ( 9.1 ) 3.7 5.6 income from continuing operations before income taxes $ 529.4 $ 636.5 $ ( 107.1 ) ( 16.8 ) $ 702.3 $ ( 65.8 ) ( 9.4 ) retail vehicle unit sales : new vehicle 310,839 329,116 ( 18,277 ) ( 5.6 ) 337,622 ( 8,506 ) ( 2.5 ) used vehicle 237,722 234,148 3,574 1.5 225,713 8,435 3.7 548,561 563,264 ( 14,703 ) ( 2.6 ) 563,335 ( 71 ) — revenue per vehicle retailed : new vehicle $ 37,806 $ 37,011 $ 795 2.1 $ 36,300 $ 711 2.0 used vehicle $ 20,224 $ 19,548 $ 676 3.5 $ 19,856 $ ( 308 ) ( 1.6 ) gross profit per vehicle retailed : new vehicle $ 1,660 $ 1,788 $ ( 128 ) ( 7.2 ) $ 1,883 $ ( 95 ) ( 5.0 ) used vehicle $ 1,378 $ 1,315 $ 63 4.8 $ 1,484 $ ( 169 ) ( 11.4 ) finance and insurance $ 1,789 $ 1,667 $ 122 7.3 $ 1,588 $ 79 5.0 total variable operations ( 2 ) $ 3,327 $ 3,259 $ 68 2.1 $ 3,311 $ ( 52 ) ( 1.6 ) ( 1 ) total variable operations includes new vehicle , used vehicle ( retail and wholesale ) , and finance and insurance results . ( 2 ) total variable operations gross profit per vehicle retailed is calculated by dividing the sum of new vehicle , retail used vehicle , and finance and insurance gross profit by total retail vehicle unit sales . 27 replace_table_token_7_th 28 same store operating data we have presented below our operating results on a same store basis to reflect our internal performance . the “ same store ” amounts presented below include the results of our stores for the identical months in each period presented in the comparison , commencing with the first full month in which the store was owned by us . for example , the results for a store acquired in february 2017 would be included only in our same store comparison of 2018 to 2017 , not in our same store comparison of 2017 to 2016 . therefore , the amounts presented in the year 2017 column that is being compared to the year 2018 column may differ from the amounts presented in the year 2017 column that is being compared to the year 2016 column .
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results of operations we had net income from continuing operations of $ 395.9 million and diluted earnings per share of $ 4.34 in 2018 , as compared to net income from continuing operations of $ 435.0 million and diluted earnings per share of $ 4.43 in 2017 , and net income from continuing operations of $ 431.7 million and diluted earnings per share of $ 4.16 in 2016 . our used vehicle gross profit increased 8 % , our finance and insurance gross profit increased 4 % , and our parts and service gross profit increased 4 % , each as compared to 2017 , due in part to our brand extension strategy . these increases were partially offset by a decrease in new vehicle gross profit of 12 % . our new vehicle unit volume and new vehicle gross profit on a per vehicle retailed ( “ pvr ” ) basis were adversely impacted by competitive market conditions , including disruptive manufacturer marketing and sales incentive programs and an increase in off-lease supply of late-model used vehicles , in a plateauing sales environment . sg & a expenses increased , as compared to 2017 , due to investments related to our brand extension strategy , as well as increases in costs associated with our self-insurance programs , including less favorable claims experience and higher premiums , deductibles , and hail-related losses . floorplan interest expense also increased as compared to the prior year period , primarily due to higher average interest rates .
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the aggregate future minimum lease commitments for operating leases at december 31 , 2013 are as follows : 53 replace_table_token_21_th note story_separator_special_tag the following discussion should be read in conjunction with selected financial data ( item 6 ) , and our consolidated financial statements and related notes contained elsewhere in this report . overview of conmed corporation conmed corporation ( “ conmed ” , the “ company ” , “ we ” or “ us ” ) is a medical technology company with an emphasis on surgical devices and equipment for minimally invasive procedures and monitoring . the company 's products are used by surgeons and physicians in a variety of specialties including orthopedics , general surgery , gynecology , neurosurgery , and gastroenterology . during 2011 and 2012 , we undertook a variety of restructuring initiatives aimed at improving efficiency and internal effectiveness . these initiatives included changes in management lines of reporting and culminated in the implementation of a functional organizational structure . under the new structure , we are now organized by function rather than by operating segment . executives reporting in to the ceo include those responsible for operations and supply chain management , research and development , sales , marketing and certain corporate functions . our chief operating decision maker ( the ceo ) evaluates the various global product portfolios on a net sales basis and evaluates profitability , investment and cash flow metrics on a consolidated worldwide basis due to shared infrastructure and resources . as a result , we have discontinued accounting and reporting for our businesses as five separate , operating segments . effective january 1 , 2013 , we are accounting and reporting for our business as a single segment entity engaged in the development , manufacturing and sale on a global basis of surgical devices and related equipment . as part of this reporting structure change , we also restructured our product lines . orthopedic surgery consists of sports medicine instrumentation and small bone , large bone and specialty powered surgical instruments and service fees related to the promotion and marketing of sports medicine allograft tissue . general surgery consists of a complete line of endo-mechanical instrumentation for minimally invasive laparoscopic and gastrointestinal procedures , a line of cardiac monitoring products as well as electrosurgical generators and related instruments . surgical visualization consists of 2d and 3d video systems for use in minimally invasive orthopedic and general surgery . these product lines as a percentage of consolidated net sales are as follows : replace_table_token_7_th a significant amount of our products are used in surgical procedures with approximately 80 % of our revenues derived from the sale of disposable products . our capital equipment offerings also facilitate the ongoing sale of related disposable products and accessories , thus providing us with a recurring revenue stream . we manufacture substantially all of our products in facilities located in the united states and mexico . we market our products both domestically and internationally directly to customers and through distributors . international sales approximated 50 % , 50 % and 51 % in 2011 , 2012 and 2013 , respectively . business environment and opportunities the aging of the worldwide population along with lifestyle changes , continued cost containment pressures on healthcare systems and the desire of clinicians and administrators to use less invasive ( or noninvasive ) procedures are important trends which are driving the long-term growth in our industry . we believe that with our broad product offering of high quality surgical and patient care products , we can capitalize on this growth for the benefit of the company and our shareholders . in order to further our growth prospects , we have historically used strategic business acquisitions and exclusive distribution relationships to continue to diversify our product offerings , increase our market share and realize economies of scale . we have a variety of research and development initiatives focused in each of our principal product lines as continued innovation and commercialization of new proprietary products and processes are essential elements of our long-term growth strategy . our reputation as an innovator is exemplified by recent new product introductions such as the y-knot® flex system for instability repairs featuring the smallest double-loaded ( 1.8mm ) anchors available and curved , flexible instrumentation to help 21 surgeons achieve ideal anchor placement and the y-knot® rc anchors for rotator cuffs are the world 's only self-punching all-suture anchors which helps simplify techniques while its small size is designed to improve placement options ; the new d4000 resection system featuring an intuitive touchscreen display and direct pump integration for a seamless clinical experience ; the im8000 2dhd camera system can be used in multi-specialty procedures and includes a new autoclavable camera head featuring proprietary cmos technology for clear , crisp imagery and a new ls8000 led light source providing improved light sensitivity for clearer visualization ; the new hall 50 powered instrument system can be used in total joint replacements featuring lighter , ergonomically-designed handpieces to provide a comfortable , high-performance clinical experience while the new hall ul-approved autoclavable lithium batteries deliver dependable , long-lasting power and the unique , multi-tray system also provides hospitals with new levels of sterilization convenience ; the new gs2000 50l insufflator features the market 's fastest flow rate and a dual-tank shuttle valve system to help provide clear and consistent laparoscopic visualization ; the entriport line of trocars help deliver effective sealing and clear visualization in a wide range of sizes optimal for nearly every minimally invasive abdominal surgical application ; our new d-flex probes were designed for use with the da vinci® surgical system and enable non-contact hemostasis with argon gas and our detachatip® iii multi-use endosurgery instruments offer the optimal blend of performance and cost efficiency - combining precise , reliable , and comfortable performance with dramatically reduced procedural costs . story_separator_special_tag limited warranties are provided for capital equipment sales and provisions for warranty are provided at the time of product sale based upon an analysis of historical data . amounts billed to customers related to shipping and handling have been included in net sales . shipping and handling costs included in selling and administrative expense were $ 13.0 million , $ 12.8 million and $ 12.6 million for 2011 , 2012 and 2013 , respectively . we sell to a diversified base of customers around the world and , therefore , believe there is no material concentration of credit risk . we assess the risk of loss on accounts receivable and adjust the allowance for doubtful accounts based on this risk assessment . historically , losses on accounts receivable have not been material . management believes that the allowance for doubtful accounts of $ 1.4 million at december 31 , 2013 is adequate to provide for probable losses resulting from accounts receivable . inventory valuation we write-off excess and obsolete inventory resulting from the inability to sell our products at prices in excess of current carrying costs . the markets in which we operate are highly competitive , with new products and surgical procedures introduced on an on-going basis . such marketplace changes may result in our products becoming obsolete . we make estimates regarding the future recoverability of the costs of our products and record a provision for excess and obsolete inventories based on historical experience , expiration of sterilization dates and expected future trends . if actual product life cycles , product demand or acceptance of new product introductions are less favorable than projected by management , additional inventory write-downs may be required . goodwill and intangible assets we have a history of growth through acquisitions . assets and liabilities of acquired businesses are recorded at their estimated fair values as of the date of acquisition . goodwill represents costs in excess of fair values assigned to the underlying net assets of acquired businesses . effective january 1 , 2013 , we are reporting our business as a single operating segment , and goodwill as a single reporting unit . changes in our structure are further discussed in note 8 to the consolidated financial statements . customer relationships , trademarks , tradenames , patents , and other intangible assets primarily represent allocations of purchase price to identifiable intangible assets of acquired businesses . promotional , marketing and distribution rights represent intangible 23 assets created under our sports medicine joint development and distribution agreement ( the `` jdda '' ) with musculoskeletal transplant foundation ( “ mtf ” ) . we have accumulated goodwill of $ 248.4 million and other intangible assets of $ 319.4 million as of december 31 , 2013 . in accordance with fasb guidance , goodwill and intangible assets deemed to have indefinite lives are not amortized , but are subject to at least annual impairment testing . it is our policy to perform our annual impairment testing in the fourth quarter . the identification and measurement of goodwill impairment involves the estimation of the fair value of our business . estimates of fair value are based on the best information available as of the date of the assessment , which primarily incorporate management assumptions about expected future cash flows and other valuation techniques . future cash flows may be affected by changes in industry or market conditions or the rate and extent to which anticipated synergies or cost savings are realized with newly acquired entities . during 2013 , we completed our goodwill impairment testing with data as of october 1 , 2013. we performed a step 1 impairment test in accordance with asc 350 utilizing the market capitalization approach to determine whether the fair value of a reporting unit is less than its carrying amount . based upon our assessment , we believe the fair value continues to exceed carrying value by 99 % . during 2011 , we estimated the fair value of the legacy conmed patient care reporting unit ( refer to note 8 for discussion regarding the change in operating segments ) utilizing both a market-based approach and an income approach . under the income approach , we utilized a discounted cash flow valuation methodology and measured the goodwill impairment in accordance with asc 350 . the first step of the impairment test determined the carrying value exceeded fair value and therefore we proceeded to step 2. under step 2 , we calculated the amount of impairment loss by measuring the amount the carrying value of goodwill exceeded the implied fair value of the goodwill . we determined the goodwill of our legacy conmed patient care reporting unit was impaired as a result of lower future earnings due to pricing pressures in a number of our product lines and consequently we recorded a goodwill impairment charge of $ 60.3 million to reduce the carrying amount of the reporting unit 's goodwill to its implied fair value . intangible assets with a finite life are amortized over the estimated useful life of the asset and are evaluated each reporting period to determine whether events and circumstances warrant a revision to the remaining period of amortization . intangible assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that its carrying amount may not be recoverable . the carrying amount of an intangible asset subject to amortization is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use of the asset . an impairment loss is recognized by reducing the carrying amount of the intangible asset to its current fair value . customer relationship assets arose principally as a result of the 1997 acquisition of linvatec corporation . these assets represent the acquisition date fair value of existing customer relationships based on the after-tax income expected to be derived during their estimated remaining useful life .
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consolidated results of operations the following table presents , as a percentage of net sales , certain categories included in our consolidated statements of comprehensive income for the periods indicated : 25 replace_table_token_8_th 2013 compared to 2012 sales for 2013 were $ 762.7 million , a decrease of $ 4.4 million ( -0.6 % ) compared to sales of $ 767.1 million in 2012 with the decreases occurring in our orthopedic surgery and visualization product lines . in local currency , excluding the effects of the hedging program , sales increased 0.2 % . sales of capital equipment decreased $ 2.2 million ( -1.4 % ) to $ 153.7 million in 2013 from $ 155.9 million in 2012 ; sales of single-use products decreased $ 2.2 million ( -0.4 % ) to $ 609.0 million in 2013 from $ 611.2 million in 2012 . in local currency , excluding the effects of the hedging program , sales of capital equipment decreased 0.8 % while single-use increased 0.4 % . orthopedic surgery sales decreased $ 3.7 million ( -0.9 % ) in 2013 to $ 410.2 million from $ 413.9 million in 2012 mainly due to lower sales in our resection product offerings and large bone burs and blades . in local currency , excluding the effects of the hedging program , sales increased 0.1 % . general surgery sales remained relatively flat with a $ 0.1 million ( 0.0 % ) increase in 2013 to $ 286.7 million from $ 286.6 million in 2012 mainly due to increased sales in our endomechanical , gastrointestinal and pulmonary product offerings offset by decreased sales in our advanced energy and patient monitoring product offerings . in local currency , excluding the effects of the hedging program , sales increased 0.5 % .
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both atlantic aviation and the mic hawaii businesses are classified as essential services businesses and remain fully operational . the businesses have implemented pandemic response plans and are following guidance from the centers for disease control and prevention ( cdc ) as well as federal , state , and local governments with respect to conducting operations safely . to the extent possible , and where permitted by local guidelines , both atlantic aviation and our mic hawaii businesses are facilitating vaccination of their employees against covid-19 . in addition to standard operating procedures designed to maintain safe operations , our businesses have implemented additional measures including : ( i ) a work from home policy for all employees that are able to do so ; ( ii ) enhancing cleaning and disinfecting of facilities ; ( iii ) limiting interactions between employees and customers through social distancing ; ( iv ) mandating the use of personal protective equipment by employees ; ( v ) modifying shift schedules to reduce exposure between shifts ; and ( vi ) educating customers on alternative payment and customer care options as a means of limiting interactions with employees at mic hawaii . both atlantic aviation and mic hawaii are engaged in ongoing communications with employees , customers , vendors , lenders , and other stakeholders to keep them apprised of their response to the pandemic . consistent with recommendations of federal , state , and local authorities , our businesses have developed protocols and plans that we believe will allow staff and customers to access their facilities safely and effectively and they are implementing these as local conditions permit . covid-19 continues to negatively affect the performance of our remaining operating businesses . federal , state , and local governments have implemented pandemic response measures including social distancing , quarantines , travel restrictions , prohibitions on public gatherings , and stay-at-home orders that have significantly reduced business-related and international ga flight activity and the demand for fuel and ancillary services provided by atlantic aviation and resulted in a significant decline in economic activity and the number of visitors to hawaii . while ga flight activity recovered significantly in the second half of 2020 from the low levels recorded in late march and april , the financial performance of the business has yet to recover to pre-covid levels . while the increases in positive cases and infection rates in the fourth quarter appear to have had a limited effect on overall flight activity relative to levels in the third quarter , there can be no certainty that this trend will continue if the severity of the pandemic continues or worsens . the near absence of tourism in hawaii from april through mid-october significantly reduced gas sales during that period . the reopening of hawaii to tourism in mid-october has resulted in an increase in demand for gas on the part of resorts and restaurants , although both tourism and gas sales remain well below pre-covid levels . in general , the travel and tourism industries , and the businesses reliant on them , have been negatively affected by the pandemic . continued stability or further increases in ga flight activity that benefits atlantic aviation will depend upon the duration of the pandemic , any governmental response including renewed travel restrictions , and the state of the u.s. and global economies , as well as increases in business , international , and event-driven activity all of which are uncertain . visitor arrivals to hawaii , the primary driver of increases in demand for gas in hawaii , improved gradually during the fourth quarter over the third quarter following quarantine exemption for visitors with evidence of a negative covid-19 test prior to arrival in the islands , however further improvement is uncertain . the approval of multiple covid-19 vaccines may reduce the duration of the pandemic , however , the availability , distribution , and willingness of the public to accept the vaccines is also uncertain . further , changes in consumer travel preferences , the availability of commercial flights , and other factors remain unknown . to ensure that each of atlantic aviation and hawaii gas are prudently managing their liquidity and mitigating the impact of reduced activity levels , the businesses have implemented cost saving initiatives including hiring freezes , reductions in regular hours and overtime , furloughs , deferral of maintenance and repair work where such deferral will not jeopardize regulatory compliance or safety , and reductions in other general and administrative expenses . we believe these actions will support the liquidity of both businesses and , together with cash generated from operations , will be sufficient to fund their ongoing operations and the growth projects to which they have committed . to increase our available cash at the onset of the pandemic , we drew on certain of our revolving credit facilities that added to our approximately $ 300 million of cash on hand in mid-march . we drew $ 599 million on our holding company revolving credit facility and $ 275 million on the atlantic aviation revolving credit facility in mid-march . the $ 275 million drawn on the 40 results of operations : consolidated — ( continued ) atlantic aviation revolving credit facility was subsequently repaid on april 30 , 2020. on may 4 , 2020 , the atlantic aviation revolving credit facility commitments were reduced to $ 10 million , and further reduced to $ 1 million by december 31 , 2020 , solely with respect to letters of credit then outstanding . during the second half of 2020 , we fully repaid the drawn balance on our holding company revolving credit facility . we remain confident in our ability to fund our ongoing operations , meet our financial obligations , and fund the various investments to which our businesses have committed . story_separator_special_tag the decrease in cash interest expense primarily reflects a decrease in the weighted average interest rate of debt facilities , partially offset by higher average debt balances and lower interest income earned during 2020. see discussions of interest expense for each of our operating businesses below . other expense , net other expense , net , for 2020 reflects the write-off of projects no longer considered viable , partially offset by $ 3 million of fee income recognized from a previously owned majority interest in a renewable power development business . other expense , net , for 2019 includes the write-off of costs associated with projects related to the importation of bulk lng that were terminated by hawaii gas , partially offset by fee income from a third-party developer of renewable power facilities . the relationship with the developer concluded during july 2019. discontinued operations during the quarter ended september 30 , 2020 , imtt was classified as held for sale and its results of operations for current and prior comparable periods were reported as part of discontinued operations . as part of classifying imtt as held for sale , the company recognized an impairment of the imtt disposal group of $ 750 million , which included a goodwill impairment of $ 725 million , during the quarter ended september 30 , 2020. upon completion of the imtt transaction on december 23 , 2020 , we recognized a book loss on sale of approximately $ 25 million . discontinued operations in 2019 reflect the operating results of imtt , the gain on sale of our wind and solar power generating facilities , and the gain on sale of our majority interest in a renewable power development business . income taxes we file a consolidated federal income tax return that includes the financial results of our remaining operating businesses , atlantic aviation and mic hawaii , and our discontinued operations , imtt , through the date of sale . pursuant to a tax sharing agreement , these businesses pay mic an amount equal to the federal income tax each would pay on a standalone basis if they were not part of the consolidated group . excluding the taxable gain resulting from the imtt transaction described below , the current federal tax liability for 2020 was $ 3 million . in addition , our businesses file income tax returns and may pay taxes in the state and local jurisdictions in which they operate . the current state income tax liability from continuing operations for 2020 was $ 3 million . in calculating our state income tax liability , we have provided a valuation allowance for certain state income tax nol carryforwards , the use of which is uncertain . during the quarter ended september 30 , 2020 , we increased our deferred tax liability by $ 158 million as it became probable that imtt would be sold in a taxable transaction . the increase represented the tax expense on the difference between our book and tax basis in our investment in imtt . subsequent to the close of the imtt transaction in december 2020 , we reclassified the liability to current and reduced the tax to $ 126 million . the reduction primarily reflected the tax benefit of the disposition payment ( currently in escrow ) and the final determination of the tax basis of our investment in imtt , which increased due to higher than forecasted taxable income generated prior to completion of the imtt transaction , as fewer assets were placed in service for tax purposes resulting in lower bonus tax depreciation during mic 's ownership period . in 2019 , we incurred $ 30 million in current federal income tax liability and $ 9 million in current state income tax liability from discontinued operations primarily from the gain on sale of the renewable businesses during the year . 44 results of operations : consolidated — ( continued ) earnings before interest , taxes , depreciation , and amortization ( ebitda ) excluding non-cash items and free cash flow in addition to our results under u.s. gaap , we use the non-gaap measures ebitda excluding non-cash items and free cash flow to assess the performance and prospects of our businesses . we measure ebitda excluding non-cash items as it reflects our businesses ' ability to effectively manage the amount of products sold or services provided , the operating margin earned on those transactions , and the management of operating expenses independent of the capitalization and tax attributes of those businesses . we believe investors use ebitda excluding non-cash items primarily as a measure of the operating performance of mic 's businesses and to make comparisons with the operating performance of other businesses whose depreciation and amortization expense may vary from ours , particularly where acquisitions and other non-operating factors are involved . we define ebitda excluding non-cash items as net income ( loss ) or earnings — the most comparable gaap measure — before interest , taxes , depreciation and amortization , and non-cash items including impairments , unrealized derivative gains and losses , adjustments for other non-cash items , and pension expense reflected in the statements of operations . other non-cash items excludes the adjustment to bad debt expense related to the specific reserve component , net of recoveries . ebitda excluding non-cash items also excludes base management fees and performance fees , if any , whether paid in cash or stock . our businesses are characteristically owners of high-value , long-lived assets capable of generating substantial free cash flow . we define free cash flow as cash from operating activities — the most comparable gaap measure — less maintenance capital expenditures and adjusted for changes in working capital . we use free cash flow as a measure of our ability to fund acquisitions , invest in growth projects , reduce or repay indebtedness , and or return capital to shareholders .
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results of operations ” for discussions around the components of ebitda excluding non-cash items on a consolidated basis from continuing operations and for each of our operating businesses and corporate and other above . 57 liquidity and capital resources — ( continued ) the decrease in consolidated cash provided by operating activities in 2020 compared with 2019 was primarily due to : a decrease in ebitda excluding non-cash items , which reflects the impact of covid-19 to our remaining operating businesses , as well as the disposition payment ( currently in escrow ) and transaction costs primarily related to the imtt transaction ; partially offset by federal income tax liability recorded and paid in 2019 in relation to a gain on sale of our renewable power generation business ( current tax expense was recorded in discontinued operations ) ; an increase in the change in accounts receivable resulting from a decline in sales activity and lower retail prices on jet fuel ; a provision recorded for remediating certain environmental matters at atlantic aviation ; and decrease in cash interest expense . we believe our operating activities overall provide a source of sustainable and stable cash flows over the long-term with the opportunity for future growth as a result of : consistent customer demand driven by the basic nature of the services provided ; our strong competitive position due to factors including : ◦ high initial development and construction costs ; ◦ difficulty in obtaining suitable land on which to operate ; ◦ concessions , leases , or customer contracts ; ◦ required government approvals , which may be difficult or time-consuming to obtain ; ◦ lack of immediate cost-effective alternatives for the services provided ; and product/service pricing that we expect will keep pace with cost increases as a result of : ◦ consistent demand ; ◦ limited alternatives ; ◦ contractual terms ; and ◦ regulatory rate setting .
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certain statements we make under this item 7 constitute “ forward-looking statements ” under the private securities litigation reform act of 1995. see “ special note regarding forward-looking statements and projections ” in “ part i ” preceding “ item 1 - business. ” you should consider our forward-looking statements in light of the risks discussed under the heading “ risk factors ” in item 1a above , as well as our consolidated financial statements , related notes and other financial information appearing elsewhere in this report and our other filings with the securities and exchange commission . the wendy 's company is the parent company of its 100 % owned subsidiary holding company , wendy 's restaurants , llc ( “ wendy 's restaurants ” ) . the principal 100 % owned subsidiary of wendy 's restaurants is wendy 's international , llc and its subsidiaries ( “ wendy 's ” ) . wendy 's franchises and operates wendy 's ® quick-service restaurants specializing in hamburger sandwiches throughout north america ( defined as the united states of america ( the “ u.s. ” ) and canada ) . wendy 's also has franchised restaurants in 29 foreign countries and u.s. territories . the company manages and internally reports its business geographically . the operation and franchising of wendy 's restaurants in north america comprises virtually all of our current operations and represents a single reportable segment . the revenues and operating results of wendy 's restaurants outside of north america are not material . the results of operations discussed below may not necessarily be indicative of future results . the company 's fiscal reporting periods consist of 52 or 53 weeks ending on the sunday closest to december 31 and are referred to herein as ( 1 ) “ the year ended december 31 , 2017 ” or “ 2017 , ” which consisted of 52 weeks , ( 2 ) “ the year ended january 1 , 2017 ” or “ 2016 , ” which consisted of 52 weeks , and ( 3 ) “ the year ended january 3 , 2016 ” or “ 2015 , ” which consisted of 53 weeks . all references to years and quarters relate to fiscal periods rather than calendar periods . executive overview our business as of december 31 , 2017 , the wendy 's restaurant system was comprised of 6,634 restaurants , of which 337 were owned and operated by the company . all of our company-operated restaurants are located in the u.s. as a result of the company completing its initiative during the second quarter of 2015 to sell all company-operated restaurants in canada to franchisees . wendy 's operating results are impacted by a number of external factors , including commodity costs , labor costs , intense price competition , unemployment , general economic trends and weather . wendy 's long-term growth opportunities include ( 1 ) systemwide same-restaurant sales growth through continuing core menu improvement , product innovation , customer count growth and strategic price increases on our menu items , ( 2 ) system investment in our image activation program , which includes innovative exterior and interior restaurant designs for our new and reimaged restaurants and focused execution of operational excellence , ( 3 ) growth in new restaurants , including global growth , ( 4 ) increased restaurant utilization in various dayparts and brand access utilizing mobile technology , ( 5 ) building shareholder value through financial management strategies and ( 6 ) our system optimization initiative . 33 key business measures we track our results of operations and manage our business using the following key business measures , which include non-gaap financial measures : same-restaurant sales - we report same-restaurant sales commencing after new restaurants have been open for 15 continuous months and as soon as reimaged restaurants reopen . this methodology is consistent with the metric used by our management for internal reporting and analysis . the table summarizing same-restaurant sales below in “ results of operations ” provides the same-restaurant sales percent changes . same-restaurant sales exclude the impact of currency translation . restaurant margin - we define restaurant margin as sales from company-operated restaurants less cost of sales divided by sales from company-operated restaurants . cost of sales includes food and paper , restaurant labor and occupancy , advertising and other operating costs . restaurant margin is influenced by factors such as price increases , the effectiveness of our advertising and marketing initiatives , featured products , product mix , fluctuations in food and labor costs , restaurant openings , remodels and closures and the level of our fixed and semi-variable costs . systemwide sales - systemwide sales is a non-gaap financial measure , which includes sales by both company-operated restaurants and franchised restaurants . franchised restaurants ' sales are reported by our franchisees and represent their revenues from sales at franchised wendy 's restaurants . the company 's consolidated financial statements do not include sales by franchised restaurants to their customers . the company believes systemwide sales data is useful in assessing consumer demand for the company 's products , the overall success of the wendy 's brand and , ultimately , the performance of the company . the company 's royalty revenues are computed as percentages of sales made by wendy 's franchisees . as a result , sales by wendy 's franchisees have a direct effect on the company 's royalty revenues and therefore on the company 's profitability . average unit volumes - we calculate company-operated restaurant average unit volumes by summing the average weekly sales of all company-operated restaurants which reported sales during the week . franchised restaurant average unit volumes is a non-gaap financial measure , which includes sales by franchised restaurants , which are reported by our franchisees and represent their revenues from sales at franchised wendy 's restaurants . the company 's consolidated financial statements do not include sales by franchised restaurants to their customers . the company believes franchised restaurant average unit volumes is useful information for the same reasons described above for “ systemwide sales. story_separator_special_tag 35 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > the decrease in general and administrative expenses during 2016 was primarily due to decreases in ( 1 ) employee compensation and related expenses primarily as a result of changes in staffing driven by our system optimization initiative and ( 2 ) incentive compensation accruals due to a decrease in operating performance as compared to plan in 2016 versus 2015. these decreases in general and administrative expenses were partially offset by increases in ( 1 ) severance expense , ( 2 ) legal reserves and ( 3 ) professional services due to legal and other costs associated with the cybersecurity incident ( see “ item 1a . risk factors ” and “ item 8. financial statements and supplementary data , ” note 23 to the consolidated financial statements for further information ) . replace_table_token_18_th the decrease in restaurant depreciation and amortization during 2017 was primarily due to a decrease in depreciation on assets sold under our system optimization initiative of $ 4.0 million , partially offset by the impact of capital leases resulting from facilitating franchisee-to-franchisee restaurant transfers during 2017. corporate and other depreciation expense increased due to an increase in depreciation and amortization for technology investments . the decrease in restaurant depreciation and amortization during 2016 was primarily due to decreases in ( 1 ) depreciation on assets sold or classified as held for sale under our system optimization initiative of $ 19.5 million and ( 2 ) accelerated depreciation on existing assets that are being replaced as part of our image activation program of $ 6.0 million . replace_table_token_19_th during 2017 , system optimization losses ( gains ) , net included a loss of $ 43.6 million resulting from the davco and npc transactions . during 2016 and 2015 , the company sold 310 and 327 company-operated restaurants to franchisees , respectively , under its system optimization initiative . see note 2 of the financial statements and supplementary data contained in item 8 herein for further discussion . 40 replace_table_token_20_th in may 2017 , the company initiated a new plan to further reduce its g & a expenses . during 2017 , the company recognized costs associated with this plan totaling $ 21.7 million , which primarily included ( 1 ) severance and related employee costs of $ 15.0 million , ( 2 ) share-based compensation of $ 5.1 million and ( 3 ) third-party and other costs of $ 1.1 million . in november 2014 , the company initiated a plan to reduce its g & a expenses . the plan included a realignment and reinvestment of resources to focus primarily on accelerated restaurant development and consumer-facing restaurant technology to drive long-term growth . the company achieved the majority of the expense reductions through the realignment of its u.s. field operations and savings at its restaurant support center in dublin , ohio , which was substantially completed by the end of the second quarter of 2015. during 2016 , costs primarily included recruitment and relocation costs . in 2015 , costs primarily included ( 1 ) share-based compensation expense of $ 5.6 million , ( 2 ) severance and related employee costs of $ 3.0 million and ( 3 ) recruitment and relocation costs of $ 1.7 million . the company did not incur any expenses during 2017 and does not expect to incur additional costs related to the plan . during 2017 , 2016 and 2015 , the company recognized costs associated with its system optimization initiative totaling $ 0.9 million , $ 9.4 million and $ 11.6 million , respectively . during 2017 , costs primarily included professional fees . during 2016 , costs primarily included professional fees of $ 7.4 million and accelerated amortization of previously acquired franchise rights of $ 1.6 million . in 2015 , costs primarily included accelerated amortization of previously acquired franchise rights of $ 6.4 million and professional fees of $ 3.4 million . replace_table_token_21_th the changes in impairment charges were primarily driven by variations in losses from the remeasurement of properties to fair value upon determination that the assets will be leased and or subleased to franchisees in connection with the sale of company-operated restaurants . such impairment charges totaled $ 0.2 million , $ 14.0 million and $ 19.2 million during 2017 , 2016 and 2015 , respectively . impairment of long-lived assets also decreased during 2016 due to lower impairment charges resulting from closing company-operated restaurants and classifying such surplus properties as held for sale . replace_table_token_22_th other operating expense ( income ) , net during 2017 and 2016 includes costs incurred to provide information technology and other services to our franchisees totaling $ 13.7 million and $ 5.2 million , respectively . in addition , 2017 includes costs related to facilitating franchisee-to-franchisee restaurant transfers of $ 2.6 million . 2016 includes a gain recognized on a lease buyout during the first quarter of 2016 . 41 replace_table_token_23_th interest expense , net increased during 2017 primarily due to an increase in capital lease obligations resulting from facilitating franchisee-to-franchisee restaurant transfers and subleasing such properties to the franchisee . the increase in interest expense , net during 2016 was primarily a result of the company completing a $ 2,275.0 million securitized financing facility on june 1 , 2015. the proceeds were used to repay all amounts outstanding on the term a loans and term b loans under the company 's 2013 restated credit agreement . the securitized financing facility includes the series 2015-1 class a-2 notes , which are comprised of fixed interest rate notes , and the series 2015-1 class a-1 notes , which allow for the issuance up to $ 150.0 million of variable funding notes . the principal amounts outstanding on the series 2015-1 class a-2 notes significantly exceed the amounts that were outstanding on the term a loans and term b loans . in addition , the series 2015-1 class a-2 notes bear fixed-rate interest at rates higher than our historical effective interest rates on our variable interest rate term a loans and term b loans .
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results of operations as a result of the sale of the bakery discussed below in “ net income from discontinued operations , ” the bakery 's results of operations for the period from december 29 , 2014 through may 31 , 2015 have been included in “ income from discontinued operations , net of income taxes ” in the table below . the tables included throughout results of operations set forth in millions the company 's consolidated results of operations for the years ended december 31 , 2017 , january 1 , 2017 and january 3 , 2016 ( except average unit volumes , which are in thousands ) . replace_table_token_6_th 36 replace_table_token_7_th replace_table_token_8_th the tables below present key business measures which are defined and further discussed in the “ executive overview ” section included herein . replace_table_token_9_th ( a ) excludes the impact of the 53 rd week in 2015 . ( b ) includes international franchised restaurants same-restaurant sales ( excluding venezuela due to the impact of venezuela 's highly inflationary economy ) . 37 replace_table_token_10_th ( a ) during 2017 and 2016 , north america systemwide sales increased 3.0 % and 2.5 % , respectively , international franchised sales increased 14.8 % and 5.8 % , respectively , and global systemwide sales increased 3.5 % and 2.6 % , respectively , on a constant currency basis . 2016 growth rates exclude the impact of the 53 rd week in 2015 . ( b ) excludes venezuela due to the impact of venezuela 's highly inflationary economy . ( c ) excludes the impact of the 53 rd week in 2015 . ( d ) the decrease in average unit volumes for international franchised restaurants is primarily driven by changes in the countries and territories in which the franchised restaurants operate , as well as the impact of foreign currency translation .
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the results of operations from our assets contributed to enlink are included in our consolidated financial statements for all periods presented . additionally , the results of operations for all assets contributed to enlink are included in our consolidated financial statements subsequent to the completion of the transaction . the portions of enlink 's net earnings and stockholders ' equity not attributable to devon 's controlling interest are shown separately as noncontrolling interests in our consolidated comprehensive statements of earnings and consolidated balance sheets . finally , we completed our asset divestitures of certain u.s. and canadian properties through two significant transactions . on april 1 , 2014 , we sold canadian conventional assets for $ 2.8 billion ( $ 3.125 billion canadian dollars ) , and on august 29 , 2014 , we sold certain u.s. assets for $ 2.2 billion . 26 key measures of our performance are summarized below . replace_table_token_14_th ( 1 ) core earnings and core earnings per share attributable to devon are financial measures not prepared in accordance with accounting principles generally accepted in the u.s. ( gaap ) . for a description of core earnings and core earnings per share attributable to devon , as well as reconciliations to the comparable gaap measures , see non-gaap measures in this item 7 . ( 2 ) computed as revenues from commodity sales and marketing and midstream operations , less expenses for lease operations , marketing and midstream operations , cash-based general and administrative , production and property taxes and net financing costs , with the result divided by total production . our 2014 net earnings attributable to devon , core earnings , core earnings per share and core operating income per boe all increased compared to 2013. the improved 2014 results were driven primarily by increases in production from our retained properties , particularly higher-margin liquids volumes , combined with higher gas and bitumen price realizations . enlink 's earnings growth also contributed to improved 2014 results . these factors , along with our portfolio transformation , drove higher earnings and operating cash flow in 2014. business and industry outlook north american crude oil and natural gas prices have historically been volatile based on supply and demand dynamics , and we expect this volatility to continue into 2015. in the second half of 2014 , crude oil prices began a rapid and significant decline as global supply outpaced demand . the decline increased further following opec 's announcement in late november 2014 that it would not reduce its production targets . this decline continued into 2015 but has started to stabilize with the west texas intermediate ( wti ) benchmark generally ranging between $ 45- $ 50 per barrel throughout january and early february 2015. if wti remained at this level throughout 2015 , our realized crude price , excluding the effects of hedges , would decrease approximately 50 % compared to 2014. although natural gas prices improved in 2014 compared to 2013 , natural gas continues to be challenged due to an imbalance between supply and demand across north america . we expect most natural gas benchmark prices to be lower in 2015 , as supply continues to surpass demand . our industry will be challenged by lower commodity prices . however , we have strategically positioned our company so that we can prudently continue investing in our portfolio of assets . first , following our 2014 asset divestitures our portfolio is more focused , and we will concentrate our capital programs on the highest return assets in our portfolio . we exited 2014 with a production profile comprised of roughly 35 percent oil , 20 percent natural gas liquids and 45 percent natural gas . recognizing the relative value of crude oil , we are devoting the vast majority of our 2015 capital investment toward growing our oil production , particularly the sweet grades of oil found in the u.s. 27 second , we have hedged approximately 50 percent of our projected 2015 crude production at a floor price of $ 91 per barrel and approximately 40 percent of our natural gas production at $ 4.17 per mcf . these 2015 contracts had an approximate value of $ 2 billion at december 31 , 2014. additionally , costs for the services we use are declining in response to lower commodity prices . these factors will partially mitigate the effects of lower commodity prices . finally , enlink 's growth as a result of recent acquisitions and planned asset dropdowns from devon will generate additional cash resources that can be used for our capital investment . nevertheless , lower commodity prices create headwinds on our business . therefore , we are projecting a 20 percent decrease in capital spending in 2015. such spending will be focused on the oily assets in our portfolio currently generating the highest returns . with this focus on our highest return assets , we expect growth in oil production to be between 20 and 25 percent in 2015. story_separator_special_tag the changes in fair value resulted from new positions and settlements that occurred during each period , as well as the relationships between contract prices and the associated forward curves . including the cash settlements discussed above , our oil , gas and ngl derivatives generated net gains of $ 2.0 billion in 2014 , incurred net losses of $ 191 million in 2013 and generated net gains of $ 693 million in 2012. marketing and midstream revenues and operating expenses replace_table_token_20_th 2014 vs. 2013 marketing and midstream operating profit increased $ 339 million , or 66 percent , from the year ended december 31 , 2013 to the yearended december 31 , 2014 . story_separator_special_tag 2013 vs. 2012 production and property taxes increased primarily due to an increase in our u.s. revenues , on which the majority of our production taxes are assessed . depreciation , depletion and amortization ( dd & a ) replace_table_token_24_th a description of how dd & a of our oil and gas properties is calculated is included in note 1 to the financial statements included in item 8. financial statements and supplementary data of this report . generally , when reserve volumes are revised up or down , the dd & a rate per unit of production will change inversely . however , when the depletable base changes , the dd & a rate moves in the same direction . the per unit dd & a rate is not affected by production volumes . absolute or total dd & a , as opposed to the rate per unit of production , generally moves in the same direction as production volumes . 2014 vs. 2013 dd & a from our oil and gas properties increased in 2014 largely due to higher dd & a rates . the higher rates resulted from our oil and gas drilling and development activities and the geosouthern acquisition , which were partially offset by the asset impairments recognized in 2013 and the asset divestitures . other dd & a increased primarily due to the enlink transaction . 2013 vs. 2012 oil and gas property dd & a decreased $ 61 million largely as a result of the asset impairment charges recognized in 2012 and 2013. depreciation and amortization on our other properties increased $ 30 million largely from the construction of our new headquarters in oklahoma city and natural gas pipeline development in the cana-woodford shale . asset impairments replace_table_token_25_th for further discussion of our goodwill and property and equipment impairments , see note 12 and note 5 , respectively , in item 8. financial statements and supplementary data. 35 restructuring costs replace_table_token_26_th for further discussion of our canadian divestitures , office consolidation and offshore divestiture restructuring activities and consolidated financial statements impact , see note 6 in item 8. financial statements and supplementary data. gains on asset sales in conjunction with the divestiture of certain canadian properties , we recognized gains in the first and second quarters of 2014. under full cost accounting rules , sales or dispositions of oil and gas properties are generally accounted for as adjustments to capitalized costs , with no recognition of a gain or loss . however , if not recognizing a gain or loss on the disposition would otherwise significantly alter the relationship between a cost center 's capitalized costs and proved reserves , then a gain or loss must be recognized . our canadian divestitures significantly altered such relationship . therefore , we recognized a total gain of $ 1.1 billion ( $ 0.6 billion after-tax ) during 2014. net financing costs replace_table_token_27_th 2014 vs. 2013 net financing costs increased primarily due to higher average borrowings resulting from the enlink and geosouthern transactions . additionally , we incurred a $ 40 million early retirement premium related to the redemption of our 2.4 % $ 500 million senior notes due 2016 , 1.2 % $ 650 million senior notes due 2016 and 1.875 % $ 750 million senior notes due 2017 prior to their maturity . in conjunction with the early retirement , we also expensed $ 8 million in remaining unamortized discount and issuance costs . 2013 vs. 2012 net financing costs increased primarily due to additional debt borrowings and associated fees , partially offset by lower weighted-average interest rates and higher capitalized interest . borrowings were primarily used to fund capital expenditures in excess of our operating cash flow and to provide funding for our eagle ford acquisition which closed in the first quarter of 2014 . 36 income taxes the following table presents our total income tax expense ( benefit ) and a reconciliation of our effective income tax rate to the united states statutory income tax rate . replace_table_token_28_th for further discussion of our income tax expense ( benefit ) , see note 7 in item 8. financial statements and supplementary data. earnings ( loss ) from discontinued operations in 2012 , we incurred a loss related to discontinued operations of $ 16 million ( $ 21 million net of taxes ) for the sale of our assets in angola . there were no operating revenues related to discontinued operations during 2012. in 2014 and 2013 , there were no earnings or losses associated with discontinued operations . capital resources , uses and liquidity sources and uses of cash the following table presents the major source and use categories of our cash and cash equivalents . replace_table_token_29_th operating cash flow continuing operations net cash provided by operating activities continued to be a significant source of capital and liquidity in 2014. our operating cash flow increased 10 percent during 2014 primarily due to higher realized prices and 37 liquids production growth , partially offset by higher expenses . our operating cash flow increased 10 percent during 2013 primarily due to higher commodity prices and production growth , partially offset by higher expenses . excluding the $ 6.5 billion attributable to the geosouthern and other acquisitions , our operating cash flow funded approximately 86 percent of our cash payments for capital expenditures during 2014. leveraging our liquidity , we used cash balances , short-term debt and divestiture proceeds to fund the remainder of our cash-based capital expenditures . divestitures of property and equipment during 2014 , we completed our canadian asset divestiture program and received proceeds of approximately $ 2.9 billion .
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results of operations all amounts in this document related to our international operations for the year ended december 31 , 2012 are presented as discontinued . therefore , all results from those operations are excluded in the results of operations section unless otherwise noted . 28 oil , gas and ngl production replace_table_token_15_th 29 oil , gas and ngl pricing replace_table_token_16_th ( 1 ) prices presented exclude any effects due to oil , gas and ngl derivatives . ( 2 ) the reported canadian gas volumes include 21 and 25 mmcf per day for the years ended 2014 and 2013 , respectively , that are produced from certain of our leases and then transported to our jackfish operations where the gas is used as fuel . however , the revenues and expenses related to this consumed gas are eliminated in our consolidated financial results . with the sale of the vast majority of the canadian gas business in the second quarter of 2014 , the impact of the eliminated gas revenues more significantly impacts our gas price . commodity sales the volume and price changes in the tables above caused the following changes to our oil , gas and ngl sales . replace_table_token_17_th volumes 2014 vs. 2013 oil , gas and ngl sales increased $ 985 million due to volumes . the primary driver of the increase resulted from a 74 percent increase in our u.s. oil production . such growth resulted from our recently acquired eagle ford properties and the continued development of our properties in the permian basin and mississippian-woodford trend properties . in addition , we continue to grow our ngl production from these plays , which resulted in $ 131 million of additional sales .
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the following tables provide a summary of the activity in the allowance for credit losses allocated by loan class for 2011 and 2010. replace_table_token_47_th replace_table_token_48_th the following tables include impairment story_separator_special_tag the following discussion compares the company 's financial condition at december 31 , 2011 to its financial condition at december 31 , 2010 and the results of operations for the years ended december 31 , 2011 , 2010 , and 2009. this discussion should be read in conjunction with the consolidated financial statements and the notes thereto appearing in item 8 of part ii of this annual report . performance overview the company recorded a net loss of $ 897 thousand in 2011 , compared to a net loss of $ 1.7 million for 2010 and net income of $ 5.4 million for 2009. the basic and diluted loss per common share was $ 0.11 for 2011 and $ 0.20 for 2010. the basic and diluted earnings per common share was $ 0.64 for 2009. when comparing 2011 to 2010 , the principal factors resulting in the lower net loss were a $ 1.7 million decrease in goodwill and other intangible assets impairment charges and a $ 1.6 million decrease in the provision for credit losses , which were partially offset by a decline in net interest income of $ 2.9 million . during 2011 , the economic downturn continued to negatively impact our loan portfolio performance and our overall financial performance . for 2010 , the main contributors to the net loss were goodwill and other impairment charges of $ 3.1 million and a higher provision for credit losses of $ 12.1 million when compared to 2009. during 2009 , net income available to common stockholders was negatively impacted by dividends and discount accretion associated with the sale and subsequent redemption of the company 's series a preferred stock issued to the united states department of the treasury ( the “ treasury ” ) under the treasury 's troubled asset relief program capital purchase program ( the “ tarp cpp ” ) . the impact on 2009 earnings from the preferred stock activity was $ 1.9 million . return on average assets was ( 0.08 ) % for 2011 , compared to ( 0.15 ) % for 2010 and 0.48 % for 2009. return on average stockholders ' equity for 2011 was ( 0.74 ) % , compared to ( 1.33 ) % for 2010 and 4.00 % for 2009. average assets were $ 1.140 billion for 2011 , a slight increase when compared to 2010. average loans decreased 3.7 % to $ 873.2 million while average earning assets increased slightly to $ 1.069 billion . average deposits increased 1.2 % to $ 992.1 million while average stockholders ' equity decreased 3.3 % to $ 121.5 million for 2011. comparing 2010 to 2009 , average assets increased less than 1.0 % , average loans decreased less than 1.0 % , and average earning assets remained relatively unchanged . average deposits increased 3.2 % while average stockholders ' equity decreased 7.0 % for 2010. critical accounting policies the company 's consolidated financial statements are prepared in accordance with accounting principles generally accepted in the united states of america and follow general practices within the industries in which it operates . application of these principles requires management to make estimates , assumptions , and judgments that affect the amounts reported in the financial statements and accompanying notes . these estimates , assumptions , and judgments are based on information available as of the date of the financial statements ; accordingly , as this information changes , the financial statements could reflect different estimates , assumptions , and judgments . certain policies inherently have a greater reliance on the use of estimates , assumptions , and judgments and as such have a greater possibility of producing results that could be materially different than originally reported . estimates , assumptions , and judgments are necessary when assets and liabilities are required to be recorded at fair value , when a decline in the value of an asset not carried on the financial statements at fair value warrants an impairment write-down or valuation reserve to be established , or when an asset or liability needs to be recorded contingent upon a future event . carrying assets and liabilities at fair value inherently results in more financial statement volatility . the fair values and the information used to record valuation adjustments for certain assets and liabilities are based either on quoted market prices or are provided by other third-party sources , when available . the most significant accounting policies that the company follows are presented in note 1 to the consolidated financial statements . these policies , along with the disclosures presented in the notes to the financial statement and in this discussion , provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined . based on the valuation techniques used and the sensitivity of financial statement amounts to the methods , assumptions , and estimates underlying those amounts , management has determined that the accounting policy with respect to the allowance for credit losses to be the accounting area that requires the most subjective or complex judgments , and , as such , could be most subject to revision as new information becomes available . accordingly , the allowance for credit losses is considered to be a critical accounting policy , along with goodwill and other intangible assets and fair value , as discussed below . the allowance for credit losses represents management 's estimate of credit losses inherent in the loan portfolio as of the balance sheet date . story_separator_special_tag the net interest spread , which is the difference between the average yield on earning assets and the rate paid for interest-bearing liabilities , was 3.52 % for 2011 , 3.76 % for 2010 and 3.52 % for 2009 . 24 the following table sets forth the major components of net interest income , on a tax-equivalent basis , for the years ended december 31 , 2011 , 2010 , and 2009. replace_table_token_10_th ( 1 ) all amounts are reported on a tax-equivalent basis computed using the statutory federal income tax rate of 34.0 % for 2011 and 2010 and 34.2 % for 2009 , exclusive of the alternative minimum tax rate and nondeductible interest expense . the tax-equivalent adjustment amounts used in the above table to compute yields aggregated $ 219 thousand in 2011 , $ 265 thousand in 2010 and $ 317 thousand in 2009 . ( 2 ) average loan balances include nonaccrual loans . ( 3 ) interest income on loans includes amortized loan fees , net of costs , and all are included in the yield calculations . ( 4 ) interest expense on money market and savings deposits includes expense on deposits related to the promontory insured network deposits program . the interest expense for these deposits was $ 1.3 million for 2011 , $ 429 thousand for 2010 and $ 8 thousand for 2009. on a tax-equivalent basis , total interest income was $ 51.1 million for 2011 , compared to $ 55.7 million for 2010 and $ 59.1 million for 2009. for 2011 , average earning assets remained relatively unchanged but yields earned decreased 44 basis points , mainly due to loan activity , which reduced interest income by $ 4.6 million when compared to 2010. during 2011 , average loans decreased $ 33.6 million and the yield earned on loans decreased 29 basis points . interest income for 2010 also declined when compared to 2009 mainly due to a decrease of $ 6.9 million in average loans and a decrease of 31 basis points in the yield on loans . excluding average nonaccrual loans , the yield on loans would have been 5.78 % , 5.97 % and 6.15 % for 2011 , 2010 , and 2009 , respectively . the changes in all other average earning assets included increases in interest-bearing deposits with other banks and taxable investment securities of $ 44.4 million and $ 7.9 million , respectively , when compared to 2010 and decreases in federal funds sold and tax-exempt investment securities of $ 16.0 million and $ 1.6 million , respectively , when compared to 2010. during 2011 , the investment of excess cash from customers ' deposits shifted from federal funds sold to interest-bearing deposits in other banks , primarily with the federal reserve bank , to take advantage of higher yields on these deposits . similarly for 2010 , average taxable investment securities and interest-bearing deposits increased while average federal funds sold and tax-exempt investment securities decreased . as a percentage of total average earning assets , loans , investment securities , federal funds sold and interest-bearing deposits were 81.7 % , 10.6 % , 2.2 % and 5.5 % , respectively , for 2011. the comparable percentages were 84.9 % , 10.0 % , 3.7 % , and 1.4 % , respectively , for 2010 and , 85.5 % , 8.6 % , 5.6 % and 0.3 % , respectively , for 2009. the yields on all other earning assets in 2011 declined when compared to 2010 except for the yield on interest-bearing deposits which increased four basis points . likewise , the yields on all other earning assets decreased in 2010 when compared to yields in 2009 except for the yield on federal funds sold which increased one basis point . when comparing 2011 to 2010 , the overall decrease in yields on earning assets produced $ 3.0 million less in interest income and the decrease in average balances of earning assets produced $ 1.7 million less in interest income , as seen in the rate/volume variance analysis below . both rate and volume variances for interest income were primarily impacted by loan activity . in 2010 , the $ 3.4 million decrease in interest income was almost all due to lower rates . 25 interest expense was $ 11.1 million for 2011 , compared to $ 12.8 million for 2010 and $ 17.4 million for 2009. although overall volume increased slightly , lower rates paid for interest-bearing liabilities were the main reason for the decrease in interest expense in 2011. a similar situation prevailed during 2010 , with overall volumes of interest-bearing liabilities increasing but rates decreasing enough to reduce interest expense . interest expense on time deposits ( certificates of deposit of $ 100,000 or more and other time deposits ) had the largest effect on the decrease in interest expense , declining $ 2.4 million when compared to 2010. the decrease in interest expense was due to a decrease of $ 20.1 million in average time deposits and a decrease of 42 basis points on rates paid on these deposits when compared to 2010. the decrease in average time deposits reflected a decrease in the company 's liquidity needs and the lower rates reflected current market conditions . for 2010 , average time deposits decreased $ 22.8 million and rates paid decreased 90 basis points when compared to 2009. during 2011 , average interest-bearing demand deposits and money market and savings deposits increased $ 22.5 million , offsetting the decline in average time deposits . the rates paid on average interest-bearing demand deposits decreased 3 basis points but the rates paid on money market and savings deposits increased 24 basis points . the changes in average balances and rates paid on these deposits increased interest expense by $ 669 thousand when compared to 2010. interest expense for money market deposits included $ 881.5 thousand more in 2011 than in 2010 related to the promontory insured network deposits program ( the “ ind program ” ) .
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review of financial condition asset and liability composition , capital resources , asset quality , market risk , interest sensitivity and liquidity are all factors that affect our financial condition . assets total assets increased 2.5 % from $ 1.130 billion at december 31 , 2010 to $ 1.158 billion at december 31 , 2011. total assets increased 2.3 % from the end of 2009 to the end of 2010. average total assets were $ 1.140 billion , $ 1.137 billion and $ 1.129 billion for 2011 , 2010 and 2009 , respectively . the loan portfolio is the primary source of our income , and it represented 81.7 % , 84.9 % and 85.5 % of average earning assets for 2011 , 2010 and 2009 , respectively . funding for loans is provided primarily by core deposits . additional funding is obtained through short-term and long-term borrowings . average total deposits increased 1.2 % to $ 992.1 million at december 31 , 2011 , compared to a 3.2 % increase for 2010. deposits provided funding for approximately 92.8 % , 91.8 % and 88.9 % of average earning assets for 2011 , 2010 and 2009 , respectively . the following table sets forth the average balance of the components of average earning assets as a percentage of total average earning assets for the year ended december 31. replace_table_token_14_th interest-bearing deposits with other banks and federal funds sold we invest excess cash balances ( i.e . , the excess cash remaining after funding loans and investing in securities with deposits and borrowings ) in interest-bearing accounts and federal funds sold offered by our correspondent banks . these liquid investments are maintained at a level necessary to meet immediate liquidity needs .
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the plan authorizes the issuance of up to 75,000 shares of quaker common stock in accordance with the terms of the plan in payment of all or a portion of the annual cash retainer payable to each of the company 's non-employee directors in 2013 and subsequent years story_separator_special_tag story_separator_special_tag margin-right : 0pt '' > investments , goodwill , intangible assets , income taxes , financing operations , restructuring , incentive compensation plans ( including equity-based compensation ) , pensions and other postretirement benefits , and contingencies and litigation . quaker bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . however , actual results may differ from these estimates , under different assumptions or conditions . quaker believes the following critical accounting policies describe the more significant judgments and estimates used in the preparation of its consolidated financial statements : 1. accounts receivable and inventory exposures — quaker establishes allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments . if the financial condition of quaker 's customers were to deteriorate , resulting in an impairment of their ability to make payments , additional allowances may be required . as part of its terms of trade , quaker may custom manufacture products for certain large customers and or may ship product on a consignment basis . further , a significant portion of quaker 's revenues is derived from sales to customers in industries where a number of bankruptcies have occurred in past years and where companies have experienced financial difficulties . when a bankruptcy occurs , quaker must judge the amount of proceeds , if any , that may ultimately be received through the bankruptcy or liquidation process . these matters may increase the company 's exposure , should a bankruptcy occur , and may require a write down or a disposal of certain inventory due to its estimated obsolescence or limited marketability . reserves for customers filing for bankruptcy protection are generally established at 75-100 % of the amount outstanding at the bankruptcy filing date . however , initially establishing a reserve and the amount thereto is dependent on the company 's evaluation of likely proceeds to be received from the bankruptcy process , which could result in the company recognizing minimal or no reserve at the date of bankruptcy . large and or financially distressed customers are generally reserved for on a specific review basis , while a general reserve is maintained for other customers based on historical experience . the company 's consolidated allowance for doubtful accounts was $ 6.5 million and $ 7.1 million at december 31 , 2014 and december 31 , 2013 , respectively . the company recorded a reduction in its provision for doubtful accounts of $ 0.3 million in 2014 , compared to increases to its provision for doubtful accounts of $ 1.1 million and $ 2.1 million in 2013 and 2012 , respectively . changing the recorded provisions by 10 % would have increased or decreased the company 's pre-tax earnings by less than $ 0.1 million , approximately $ 0.1 million and approximately $ 0.2 million in 2014 , 2013 and 2012 , respectively . 2. environmental and litigation reserves — accruals for environmental and litigation matters are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated . accrued liabilities are exclusive of claims against third parties and are not discounted . environmental costs and remediation costs are capitalized if the costs extend the life , increase the capacity or improve the safety or efficiency of the property from the date acquired or constructed , and or mitigate or prevent contamination in the future . estimates for accruals for environmental matters are based on a variety of potential technical solutions , governmental regulations and other factors , and are subject to a large range of potential costs for remediation and other actions . a considerable amount of judgment is required in determining the most likely estimate within the range of total costs , and the factors determining this judgment may vary over time . similarly , reserves for litigation and similar matters are based on a range of potential outcomes and require considerable judgment in determining the most probable outcome . if no amount within the range is considered more probable than any other amount , the company accrues the lowest amount in that range in accordance with generally accepted accounting principles . see note 23 of notes to consolidated financial statements , which appears in item 8 of this report . 3. realizability of equity investments — quaker holds equity investments in various foreign companies , whereby it has the ability to influence , but not control , the operations of the entity and its future results . quaker would record an impairment charge to an investment , if it believed a decline in value that was other than temporary occurred . future adverse changes in market conditions , poor operating results of underlying investments , devaluation of foreign currencies or other events or circumstances could result in losses or an inability to recover the carrying value of the investments . these indicators may result in an impairment charge in the future . story_separator_special_tag the company completed its annual impairment assessment as of the end of the third quarter of 2014 , and no impairment charge was warranted . furthermore , the estimated fair value of each of the company 's reporting units substantially exceeded its carrying value , with none of the company 's reporting units at risk for failing step one of the goodwill impairment test . the company 's consolidated goodwill and indefinite-lived intangible assets at december 31 , 2014 and december 31 , 2013 were $ 79.0 million and $ 59.3 million , respectively . the company currently uses a wacc of 12 % and , at september 30 , 2014 , this assumption would have had to increase by more than 8.9 percentage points before any of the company 's reporting units would fail step one of the impairment analysis . further , at september 30 , 2014 , the company 's estimate of future nopat would have had to decrease by more than 38.2 % before any of the company 's reporting units would fail step one of the impairment analysis . 6. postretirement benefits — the company provides certain pension and other postretirement benefits to current employees , former employees and retirees . independent actuaries , in accordance with accounting principles generally accepted in the united states , perform the required valuations to determine benefit expense and , if necessary , non-cash charges to equity for additional minimum pension liabilities . critical assumptions used in the actuarial valuation include the weighted average discount rate , rates of increase in compensation levels , and expected long-term rates of return on assets . if different assumptions were used , additional pension expense or charges to equity might be required . the company 's u.s. pension plan year-end is november 30 , and the measurement date is december 31. the following table highlights the potential impact on the company 's pre-tax earnings , due to changes in assumptions with respect to the company 's pension plans , based on assets and liabilities at december 31 , 2014 : replace_table_token_4_th liquidity and capital resources quaker 's cash and cash equivalents decreased to $ 64.7 million at december 31 , 2014 from $ 68.5 million at december 31 , 2013. the $ 3.8 million decrease was the net result of $ 54.7 million of cash provided by operating activities , $ 84.5 million of cash used in investing activities , $ 30.2 million of cash provided by financing activities and $ 4.2 million of a decrease due to foreign exchange . at 16 december 31 , 2014 , the company held approximately $ 60.4 million of its total cash and cash equivalents among its foreign subsidiaries , which is subject to possible limitations on repatriation to the united states . net cash flows provided by operating activities decreased $ 19.1 million to $ 54.7 million in 2014 compared to $ 73.8 million in 2013 , as the company 's improved operating performance in 2014 was offset by higher working capital investment . specifically , the company had higher cash outflow from accounts receivables due to increased sales at the end of 2014 and a delay in the timing of cash receipts in certain regions . a key driver in the delayed timing was a significant increase in the level of bank acceptance drafts that the company received on outstanding receivables in its asia/pacific region . this type of payment carries with it extended terms , if the company chooses not to immediately exchange it with the respective issuing bank for a discounted amount . to date , all of the company 's bank acceptance drafts have been carried to their full term . overall , the current year marked an uncommon increase in the use of such methods of payment by the company 's customers , which it expects to be at a more stable level in the next year . in addition to its receivables , the company had higher cash outflows from inventory due to re-establishing safety stock levels , that were low at year-end 2013 , and less cash inflows from accounts payable and accrued liabilities , primarily related to higher annual incentive compensation payouts on the company 's improved performance in the prior year . in addition , the company 's operating cash flow comparison was affected by a $ 2.0 million dividend distribution received in the prior year from its captive insurance equity affiliate and , also , the prior year mineral oil excess tax refund discussed below . net cash flows used in investing activities increased $ 72.1 million to $ 84.5 million in 2014 compared to $ 12.4 million in 2013 , which was primarily the result of higher payments for acquisitions and property , plant and equipment . during 2014 , the company invested $ 73.5 million for acquisitions that primarily related to its purchase of ecli , for its north american segment , and binol , for its emea segment , whereas , in 2013 , the company invested $ 2.5 million for a business that primarily related to tin plating and a chemical milling maskants distribution network for its north american segment . related to property , plant and equipment , the company had $ 1.6 million of higher investments in 2014 primarily due to information technology development , capital improvements and other related initiatives primarily in its emea and north america segments , partially offset by higher payments during 2013 to expand the company 's asia/pacific facilities . these cash outflows were net of higher cash flow from changes in the company 's restricted cash in 2014 , which is dependent upon the timing of claims and payments associated with the subsidiary 's asbestos litigation .
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executive summary quaker chemical corporation is a leading global provider of process fluids , chemical specialties , and technical expertise to a wide range of industries , including steel , aluminum , automotive , mining , aerospace , tube and pipe , cans , and others . for nearly 100 years , quaker has helped customers around the world achieve production efficiency , improve product quality , and lower costs through a combination of innovative technology , process knowledge , and customized services . headquartered in conshohocken , pennsylvania usa , quaker serves businesses worldwide with a network of dedicated and experienced professionals whose mission is to make a difference . overall , the company performed very well in 2014 , as its sales and earnings continued a trend of year-over-year growth and , also , solid cash flow generation . the company 's 2014 performance was driven by a 5 % increase in net sales on increased product volumes , which was consistent with the growth of its gross profit on stable margins of 35.7 % and 35.8 % in 2014 and 2013 , respectively . selling , general and administrative expenses ( “ sg & a ” ) increased $ 6.0 million from 2013 , due to several factors including higher acquisition-related costs and higher labor-related costs on increased sales and merit inflation , net of lower incentive compensation and the effects of foreign currency exchange rate translation . however , sg & a , as a percentage of sales , decreased to 25.6 % from 26.0 % in 2013 , which increased the company 's operating income to 10.1 % of sales in 2014 compared to 9.8 % in 2013. the year-over-year improvement in the company 's operating performance was negatively impacted by other items , such as lower other income and a higher tax rate , as compared to 2013 , which are further discussed in the company 's consolidated operations review section of this item , below .
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as of december 31 , 2017 , the company has a valuation allowance of approximately $ 9.2 million related to foreign net operating loss carryforwards ( “ nol ” ) of approximately $ 38.2 million for which it is more likely than not that the tax benefit will not be realized . the amount of the valuation allowance represented an increase of approximately $ 2.1 million story_separator_special_tag the information in this report contains forward-looking statements within the meaning of section 27a of the securities act of 1933 , as amended , and section 21e of the securities exchange act of 1934 , as amended . such statements are based upon current expectations , assumptions , estimates and projections about travelzoo and our industry . these forward-looking statements are subject to the many risks and uncertainties that exist in our operations and business environment that may cause actual results , performance or achievements of travelzoo to be different from those expected or anticipated in the forward-looking statements . any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements . for example , words such as “ may ” , “ will ” , “ should ” , “ estimates ” , “ predicts ” , “ potential ” , “ continue ” , “ strategy ” , “ believes ” , “ anticipates ” , “ plans ” , “ expects ” , “ intends ” , and similar expressions are intended to identify forward-looking statements . travelzoo 's actual results and the timing of certain events could differ significantly from those anticipated in such forward-looking statements . factors that might cause or contribute to such a discrepancy include , but are not limited to , those discussed elsewhere in this report in the section entitled “ risk factors ” and the risks discussed in our other sec filings . the forward-looking statements included in this report reflect the beliefs of our management on the date of this report . travelzoo undertakes no obligation to update publicly any forward-looking statements for any reason , even if new information becomes available or other circumstances occur in the future . 32 overview travelzoo® provides our 28 million members insider deals and one-of-a-kind experiences personally reviewed by one of our deal experts around the globe . with more than 25 offices worldwide , we have our finger on the pulse of outstanding travel , entertainment , and lifestyle experiences . for over 15 years we have worked in partnership with more than 2,000 top travel suppliers—our long-standing relationships give travelzoo members access to the very best deals . our publications and products include the travelzoo website ( travelzoo.com ) , the travelzoo iphone and android apps , the travelzoo top 20 e-mail newsletter , and the newsflash e-mail alert service . we operate the travelzoo network , a network of third-party websites that list deals published by travelzoo . our travelzoo website includes local deals and getaway listings that allow our members to purchase vouchers for deals from local businesses such as spas , hotels and restaurants . we receive a percentage of the face value of the voucher from the local businesses . more than 2,000 companies use our services , including air france , air new zealand , british airways , cathay pacific airways , ctrip , emirates , etihad , expedia , fairmont hotels and resorts , hawaiian airlines , hilton hotels & resorts , intercontinental hotels group , jpb corporation , lion world travel , lufthansa , nexus holidays , princess cruises , royal caribbean , singapore airlines , starwood hotels & resorts worldwide , tourism australia , tourism ireland , and united airlines . during the first quarter of 2017 , the company discontinued the operations of its supersearch and fly.com products to focus on its global travelzoo® brand and reflected the revenues and expenses for these products as discontinued operations , net of taxes , for the current and prior periods presented . see `` note 11 : discontinued operations '' to the accompanying unaudited consolidated financial statement for further information . we have three operating segments based on geographic regions : asia pacific , europe and north america . asia pacific consists of our operations in australia , china , hong kong , japan , taiwan , and southeast asia . europe consists of our operations in france , germany , spain , and the u.k. north america consists of our operations in canada and the u.s. for the year ended december 31 , 2017 , asia pacific operations were 7 % of revenues , european operations were 32 % of revenues and north american op erations were 61 % of our total revenues . financial information with respect to our business segments and certain financial information about geographic areas appears in note 10 to the accompanying consolidated financial statements . when evaluating the financial condition and operating performance of the company , management focuses on financial and non-financial indicators such as growth in the number of members to the company 's newsletters , operating margin , growth in revenues in the absolute and relative to the growth in reach of the company 's publications measured as revenue per member and revenue per employee as a measure of productivity . how we generate revenues our revenues are advertising revenues , consisting primarily of listing fees paid by travel , entertainment and local businesses to advertise their offers on travelzoo 's media properties . listing fees are based on audience reach , placement , number of listings , number of impressions , number of clicks , number of referrals , or percentage of the face value of vouchers sold . insertion orders are typically for periods between one month and twelve months and are not automatically renewed . merchant agreements for local deals and getaway advertisers are typically for twelve months and are not automatically renewed . we have two separate groups of our advertising products : travel and local . story_separator_special_tag if we are able to increase the reach of our publications , we still may not be able to or want to increase rates given market conditions such as intense competition in our industry . we have not had any significant rate increase in recent years due to intense competition in our industry . even if we increase our rates , the increased price may reduce the amount of advertisers willing to advertise with us and , therefore , decrease our revenue . we may need to decrease our rates based on competitive market conditions and the performance of our audience in order to maintain or grow our revenue . we do not know what our cost of revenues as a percentage of revenues will be in future periods . our cost of revenues may increase if the face value of vouchers that we sell for local deals and getaway increases or the total number of vouchers sold increases because we have credit card fees based upon face value of vouchers sold , due to customer service costs related to vouchers sold and due to refunds to members on vouchers sold . our cost of revenues are expected to increase due to our effort to develop our hotel booking platform as well . we expect fluctuations in cost of revenues as a percentage of revenues from quarter to quarter . some of the fluctuations may be significant and have a material impact on our results of operations . we do not know what our sales and marketing expenses as a percentage of revenue will be in future periods . increased competition in our industry may require us to increase advertising for our brand and for our products . in order to increase the reach of our publications , we have to acquire a significant number of new members in every quarter and continue to promote our brand . one significant factor that impacts our advertising expenses is the average cost per acquisition of a new member . 34 increases in the average cost of acquiring new members may result in an increase of sales and marketing expenses as a percentage of revenue . we believe that the average cost per acquisition depends mainly on the advertising rates which we pay for media buys , our ability to manage our member acquisition efforts successfully , the regions we choose to acquire new members and the relative costs for that region , and the degree of competition in our industry . we may decide to accelerate our member acquisition for various strategic and tactical reasons and , as a result , increase our marketing expenses . we expect the average cost per acquisition to increase with our increased expectations for the quality of the members we acquire . we may see an unique opportunity for a brand marketing campaign that will result in an increase of marketing expenses . in addition , there may be a significant number of members that cancel or we may cancel their subscription for various reasons , which may drive us to spend more on member acquisition in order to replace the lost members . further , we expect to continue our strategy over time to replicate our business model in selected foreign markets to result in a significant increase in our sales and marketing expenses and have a material adverse impact on our results of operations . for example , in august of 2015 we acquired our asia pacific business , with the intent to increase our investment in audience in this region . due to the continued desire to grow our business in asia pacific , europe and north america , we expect relatively high level of sales and marketing expenses in the foreseeable future . we expect fluctuations in sales and marketing expenses as a percentage of revenue from year to year and from quarter to quarter . some of the fluctuations may be significant and have a material impact on our results of operations . we expect increased marketing expense to spur continued growth in members and revenue in future periods ; however , we can not be assured of this due to the many factors that impact our growth in members and revenue . we expect to adjust the level of such incremental spending during any given quarter based upon market conditions , as well as our performance in each quarter . we have increased and may continue to increase our spending on sales and marketing to increase the number of our members and address the growing audience from mobile and social media channels , as well as to increase our analytic capabilities to continuously improve the presentation of our offerings to our audience . we do not know what our product development expenses as a percentage of revenue will be in future periods . there may be fluctuations that have a material impact on our results of operations . product development changes may lead to reductions of revenue based on changes in presentation of our offerings to our audience . we expect our efforts on developing our product and services will continue to be a focus in the future , which may lead to increased product development expenses . this increase in expense may be the result of an increase in headcount , the compensation related to existing headcount and the increased use of professional services . we expect our continued expansion into foreign markets and development of new advertising formats to result in a significant additional increase in our product development expenses . we expect to incur additional costs related to the development of our hotel platform capabilities , which we are developing , in part , to address the shift to mobile devices . we also may increase our investment in product development to ensure our products are suited for different regions such as asia pacific . in addition , we expect to incur additional costs related to the development of our search capabilities of our website and mobile applications .
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results of operations the following table sets forth , as a percentage of total revenues , the results from our operations for the periods indicated . replace_table_token_5_th 36 operating metrics the following table sets forth operating metrics in asia pacific , europe and north america : replace_table_token_6_th ( 1 ) members represent individuals who are signed up to receive one or more of our free email publications that present our travel , entertainment and local deals . ( 2 ) annual revenue divided by number of members at the beginning of the year . ( 3 ) annual revenue divided by number of employees at the end of the year ( in thousands ) . 37 revenues the following table sets forth the breakdown of revenues ( in thousands ) by category and segment . travel revenue includes travel publications ( top 20 , website , newsflash , travelzoo network ) , getaway vouchers and hotel platform . local revenue includes local deals vouchers and entertainment offers ( vouchers and direct bookings ) . replace_table_token_7_th asia pacific asia pacific revenues decreased $ 2.2 million or 22 % in 2017 compared to 2016. this decrease was primarily due to the decrease in travel revenues , the decrease in local revenues and a $ 341,000 negative impact from foreign currency movements relative to the u.s. dollar . the decrease in travel revenues of $ 1.5 million was primarily due to the decreased number of e-mails sent . the decrease in local revenues of $ 301,000 was primarily due to the decreased number of local deals vouchers sold . asia pacific revenues decreased $ 951,000 or 9 % in 2016 compared to 2015. this decrease was primarily due to the decrease in travel revenues and the decrease in local revenues offset partially by a $ 207,000 positive impact from foreign currency movements relative to the u.s. dollar .
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in addition , the following discussion should be read in connection with the information presented in our consolidated financial statements and the related notes to our consolidated financial statements . company overview we are a leading global printed circuit board ( pcb ) manufacturer , focusing on quick-turn and volume production of technologically complex pcbs and electro-mechanical solutions ( e-m solutions ) . we focus on providing time-to-market and volume production of advanced technology products and offer a one-stop manufacturing solution to our customers from engineering support to prototype development through final mass production . this one-stop manufacturing solution allows us to align technology development with the diverse needs of our customers and to enable them to reduce the time required to develop new products and bring them to market . we serve a diversified customer base consisting of approximately 1,500 customers in various markets throughout the world , including manufacturers of networking/communications infrastructure products , smartphones and touchscreen tablets , as well as the aerospace and defense , automotive components , high-end computing , and medical , industrial and instrumentation related products . our customers include both original equipment manufacturers ( oems ) and electronic manufacturing services ( ems ) providers . recent developments on may 31 , 2015 , we completed the acquisition of viasystems for total consideration of $ 248.8 million in cash and 15.1 million shares of ttm common stock with a fair value of $ 149.0 million , and thereby acquired all of the outstanding shares of capital stock and other equity rights of viasystems . additionally , in connection with the completion of the acquisition , we assumed and refinanced viasystems ' debt , which was approximately $ 669.0 million as of may 31 , 2015. viasystems was a worldwide provider of complex multi-layer rigid , flexible , and rigid-flex pcbs and custom electronic assemblies . the acquisition of viasystems has had and will continue to have a significant effect on our operations and financial results . we have greatly increased and diversified our revenue base and added the fast growing automotive end market to our portfolio of markets we serve . our financial results for the year ended january 2 , 2017 demonstrate the benefits of this diversification along with our strong operational execution and focus on realizing synergies from the integration . these results are reflected in improved gross and operating margins for the year ended january 2 , 2017 as compared to the year ended december 28 , 2015. on september 29 , 2015 we announced a consolidation plan that resulted in the closure of our facilities in cleveland , ohio , milpitas , california and juarez , mexico ( the consolidation plan ) . the consolidation plan was part of our integration strategy to improve total plant utilization , operational performance and customer focus following our acquisition of viasystems . in accordance with the consolidation plan , we combined our cleveland and milpitas facilities into our north jackson , ohio and silicon valley , california facilities , respectively , and closed our juarez facility . as a result , during the year ended january 2 , 2017 , we recognized total restructuring charges of $ 8.9 million . these charges primarily represent severance expense associated with the consolidation plan and other global realignment restructuring efforts . as of january 2 , 2017 , we have incurred approximately $ 16.3 million of restructuring charges since the september 29 , 2015 announcement . on september 27 , 2016 , we issued new $ 775.0 million term b loans ( term loan b ) at an interest rate of libor , with a 1.0 % libor floor , plus 4.25 % , a reduction of 75 basis points from the previous term loan credit agreement ( term loan ) , and repaid in full the remaining outstanding balance of the term loan . this transaction was accounted for as an extinguishment of debt and accordingly , we recognized a loss of $ 47.8 million primarily associated with the write off of the remaining unamortized debt discount and issuance costs . 42 additionally , on september 27 , 2016 , we amended our u.s. asset-based lending credit agreement ( u.s. abl ) to increase the amount available to $ 200.0 million , reduce the applicable margin by 25 basis points for both eurodollar loans and abr loans , and reduce the letters of credit facilities to $ 50 million . on december 22 , 2016 , we amended our asia asset-based lending credit agreement ( asia abl ) to reduce the interest margin by 35 basis points . during the year ended january 2 , 2017 , we made net debt principal payments totaling $ 217.6 million , representing normally scheduled principal payments as well as additional prepayments of principal . financial overview for the fiscal year 2016 , we experienced higher demand in our automotive and aerospace and defense end markets and additional sales from the full year contribution of viasystems compared to that of fiscal year 2015. this increase in sales resulted in higher capacity utilization at our automotive focused facilities resulting in higher gross margins . additionally , we have improved operating efficiencies at certain of our north american plants . we operate on a 52 or 53 week year ending on the monday nearest december 31. fiscal 2016 consisted of 53 weeks ended on january 2 , 2017 with the additional week included in the fourth quarter . we estimate the additional week contributed approximately $ 29.2 million of additional revenue and approximately $ 1.1 million of additional operating income for the year ended january 2 , 2017. fiscal year 2015 and 2014 were 52 weeks ended december 28 , 2015 and december 29 , 2014 , respectively . while our customers include both oems and ems providers , we measure customers based on oem companies as they are the ultimate end customers . story_separator_special_tag although this inventory is typically supported by valid purchase orders , should these customers ultimately not purchase these inventories , our results of operations and financial condition would be adversely affected . sales returns and allowances we derive revenues primarily from the sale of pcbs and custom electronic assemblies using customer-supplied engineering and design plans . we recognize revenue when persuasive evidence of a sales arrangement exists , the sales terms are fixed or determinable , title and risk of loss have transferred , and collectability is reasonably assured generally when products are shipped to the customer . we provide our customers a limited right of return for defective pcbs and backplane assemblies . we accrue an estimate for sales returns and allowances at the time of sale using our judgment based on historical results and anticipated returns as a result of current period sales . to the extent actual experience varies from our historical experience , revisions to these allowances may be required . long-lived assets we have significant long-lived tangible and intangible assets consisting of property , plant and equipment , definite-lived intangibles , and goodwill . we review these assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable . in addition , we perform an impairment test related to goodwill at least annually . as necessary , we make judgments regarding future cash flow forecasts in the assessment of impairment . during the fourth quarter of each year , and when events and circumstances warrant an evaluation , we perform an impairment assessment of goodwill , which may require the use of a fair-value based analysis . we first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount . if we conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying amount , we conduct a two-step quantitative goodwill impairment test . we determine the fair value of our reporting units based on discounted cash flows and market approach analyses as considered necessary . we consider factors such as the state of the economy and reduced expectations for future cash flows coupled with a decline in our market capitalization for a sustained period as indicators for potential goodwill impairment . if the reporting unit 's carrying amount exceeds its estimated fair value , a second step must be performed to measure the amount of the goodwill impairment loss , if any . the second step compares the implied fair value of the reporting unit 's goodwill , determined in the same manner as the amount of goodwill recognized in a business combination , with the carrying amount of such goodwill . if the carrying amount of the reporting unit 's goodwill exceeds the implied fair value of that goodwill , an impairment loss is recognized in an amount equal to that excess . we periodically evaluate whether events and circumstances have occurred , such that the potential for reduced expectations for future cash flows coupled with a further decline in the market price of our stock and market capitalization may indicate that the remaining balance of goodwill and definite-lived intangible assets may not be recoverable . if factors indicate that assets are impaired , we would be required to reduce the carrying value of our goodwill and definite-lived intangible assets which may result in an impairment charge . we also assess other long-lived assets , specifically definite-lived intangibles and property , plant and equipment , for potential impairment given similar impairment indicators . when indicators of impairment exist related to our long-lived tangible assets and definite-lived intangible assets , we use an estimate of the undiscounted net cash flows and comparison to like-kind assets , as appropriate , in measuring whether the carrying amount of the assets is recoverable . measurement of the amount of impairment , if any , is based upon the difference between the asset 's carrying value and estimated fair value . fair value is determined through various valuation techniques , including cost-based , market and income approaches as considered necessary , which involve judgments related to future cash flows and the application of the appropriate valuation model . during the years ended 2016 and 2014 we recorded impairment charges to reduce the carrying value of certain long-lived assets in the pcb operating segment . see note 4 to our consolidated financial statements . 45 assets held for sale we classify assets to be sold as assets held for sale when ( i ) we have approved and commit to a plan to sell the asset , ( ii ) the asset is available for immediate sale in its present condition , ( iii ) an active program to locate a buyer and other actions required to sell the asset have been initiated , ( iv ) the sale of the asset is probable , ( v ) the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value , and ( vi ) it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn . assets classified as held for sale are recorded at the lower of the carrying amount or fair value less the cost to sell . assets held for use if a decision to dispose of an asset or a business is made and the held for sale criteria are not met , it is considered held for use . assets of the business are evaluated for recoverability in the following order : ( i ) assets other than goodwill , property and intangibles ; ( ii ) property and intangibles subject to amortization ; and ( iii ) goodwill .
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results of operations we operate on a 52 or 53 week year ending on the monday nearest december 31. fiscal 2016 consisted of 53 weeks ended on january 2 , 2017 with the additional week included in the fourth quarter . we estimate the additional week contributed approximately $ 29.2 million of additional revenue and approximately $ 1.1 million of additional operating income for the year ended january 2 , 2017. fiscal year 2015 and 2014 were 52 weeks ended december 28 , 2015 and december 29 , 2014 , respectively . the viasystems acquisition occurred on may 31 , 2015. accordingly , the results of operations of viasystems are not included in our fiscal year 2014 , and our fiscal year 2015 only includes the last seven fiscal months 46 viasystems ' 2015 results of operations . the acquisition has had and will continue to have a significant effect on our operations as discussed in the various comparisons noted below . the following table sets forth the relationship of various items to net sales in our consolidated statements of operations : replace_table_token_10_th we have reviewed our reportable operating segments and determined that we continue to have two reportable operating segments : pcb and e-m solutions . the pcb reportable segment is comprised of multiple operating segments . this determination was made based on the criteria of earning revenues and incurring expenses , our organizational structure which has segment managers who report to the chief operating decision maker , discrete financial information , and the aggregation of similar operating segments into reportable operating segments .
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( 4 ) such options vest over a four-year period from the date of grant , may 1 , 2015 , with one-fourth ( 1/4 ) of the options vesting on the first anniversary of each such grant , and the remaining options vesting thereafter in equal monthly increments equal to one-forty-eighth ( 1/48 ) of the options over the next three years , based on continuing service to the company . employment agreement and potential payments upon termination or change of control bio-path subsidiary has entered into an employment agreement with its chief executive officer , peter h. nielsen , dated may 1 , 2007 ( the “ nielsen employment agreement ” ) . we have not entered into employment agreements with any of our other neos . the nielsen employment agreement provides for a base salary , as approved by the compensation committee , of $ 400,000 . the nielsen employment agreement provides that mr. nielsen is entitled to certain severance payments and benefits in the event he is terminated without cause ( as defined in the nielsen employment agreement ) or resigns for good reason ( as defined in the nielsen employment agreement ) , subject to mr. nielsen 's continued compliance with the confidentiality agreement ( as defined in story_separator_special_tag in addition to historical information , this annual report on form 10-k contains forward-looking statements that involve significant risks and uncertainties , which may cause our actual results to differ materially from plans and results discussed in forward-looking statements . we encourage you to review the risks and uncertainties , discussed in “ item 1a . risk factors ” and “ cautionary note regarding forward-looking statements , ” included elsewhere in this annual report on form 10-k. the risks and uncertainties can cause actual results to differ significantly from those forecasted in forward-looking statements or implied in historical results and trends . the following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and related notes included elsewhere in this annual report on form 10-k. overview we are a clinical and preclinical stage oncology focused antisense drug development company utilizing a novel technology that achieves systemic delivery for target specific protein inhibition for any gene product that is over-expressed in disease . our drug delivery and antisense technology , called dnabilize , is a platform that uses p-ethoxy , which is a dna backbone modification that is intended to protect the dna from destruction by the body 's enzymes when circulating in vivo , incorporated inside of a neutral charged lipid bilayer . we believe this combination allows for high efficiency loading of antisense dna into non-toxic , cell-membrane-like structures for delivery of the antisense drug substance into cells . in vivo , the dnabilize delivered antisense drug substances are systemically distributed throughout the body to allow for reduction or elimination of proteins in blood diseases and solid organs . using dnabilize as a platform for drug manufacturing , we currently have two antisense drug candidates in development to treat a total of five different disease indications . our lead drug candidate , bp1001 , targets the protein grb2 and is preparing to enter the efficacy portion of phase ii clinical trials for aml and the safety segment of a phase ii clinical trial for blast phase and accelerated phase cml . bp1001 is also in preclinical studies for solid tumors , including tnbc and ibc . our second drug candidate , bp1002 , targets the protein bcl2 , which is responsible for driving cell proliferation in up to 60 % of all cancers . bp1002 is in preparation for an ind application and expected to begin a phase i clinical trial for lymphoma in 2016. we currently maintain the license agreement with md anderson , under which we license from md anderson the delivery technology platform and bp1001 and bp1002 . we are developing antisense drug candidates to treat cancer and autoimmune disorders where targeting a single protein may be advantageous and result in reduced adverse effects as compared to small molecule inhibitors with off-target and non-specific effects . we have composition of matter and method of use intellectual property for the manufacture of neutral charged dna-liposome complexes . as of december 31 , 2015 , we had an accumulated deficit of $ 25.4 million . our net loss was $ 5.5 million , $ 4.5 million and $ 3.3 million for the years ended december 31 , 2015 , 2014 and 2013 , respectively . we expect to continue to incur significant operating losses and we anticipate that our losses may increase substantially as we expand our drug development programs and commercialization efforts . to achieve profitability , we must enter into license or development agreements with third parties , or successfully develop and obtain regulatory approval for one or more of our drug candidates and effectively commercialize any drug candidates we develop . in addition , if we obtain regulatory approval of one or more of our drug candidates , we expect to incur significant commercialization expenses related to product sales , marketing , manufacturing and distribution . there can be no assurance that we will be able to raise additional capital when needed or on terms that are favorable to us , if at all . even if we succeed in developing and commercializing one or more of our drug candidates , we may not be able to generate sufficient revenue and we may never be able to achieve or sustain profitability . financial operations overview revenue to date , we have not generated any revenues . our ability to generate revenues from our drug candidates , which we do not expect will occur for many years , if ever , will depend heavily on the successful development and eventual commercialization of our drug candidates . story_separator_special_tag the net proceeds from the registered direct public offering , after deducting the placement agent 's fees and expenses , our estimated offering expenses , and excluding the proceeds from the exercise of the warrants issued in the offering , were approximately $ 13.8 million . the offering closed on january 21 , 2014 . 45 “ at the market ” offering on june 24 , 2015 , we entered into a controlled equity offering sm sales agreement ( the “ sales agreement ” ) with cantor fitzgerald & co. ( “ cantor fitzgerald ” ) , as sales agent , pursuant to which we may offer and sell , from time to time , through cantor fitzgerald shares of our common stock . sales of shares of common stock under the sales agreement will be made pursuant to the shelf registration statement and a related prospectus supplement filed with the sec on june 25 , 2015 , for an aggregate offering price of up to $ 25.0 million . under the sales agreement , cantor fitzgerald may sell shares by any method deemed to be an “ at the market ” offering as defined in rule 415 under the securities act or any other method permitted by law , including in privately negotiated transactions . we will pay cantor fitzgerald a commission of 3.4 % of the aggregate gross proceeds from each sale of shares under the sales agreement and have agreed to provide cantor fitzgerald with customary indemnification and contribution rights . we have also agreed to reimburse cantor fitzgerald for certain specified expenses . as of december 31 , 2015 , we have not offered or sold any shares of common stock under the sales agreement . future capital requirements we expect to continue to incur significant operating expenses in connection with our ongoing activities , including conducting clinical trials , manufacturing and seeking regulatory approval of our drug candidates , bp1001 and bp1002 . accordingly , we will continue to require substantial additional capital to fund our projected operating requirements . such additional capital may not be available when needed or on terms favorable to us . in addition , we may seek additional capital due to favorable market conditions or strategic considerations , even if we believe we have sufficient funds for our current and future operating plan . there can be no assurance that we will be able to continue to raise additional capital through the sale of our securities in the future . our future capital requirements may change and will depend on numerous factors , which are discussed in detail in “ item 1a . risk factors ” of this annual report on form 10-k. off-balance sheet arrangements as of december 31 , 2015 , we did not have any material off-balance sheet arrangements . contractual obligations and commitments the following table sets forth a summary of our commitments as of december 31 , 2015 : replace_table_token_6_th ( 1 ) in april 2014 , we entered into a lease for a larger office space , which we occupied as of august 2014. the remaining lease payments due under this lease as of december 31 , 2015 are approximately $ 303,000. critical accounting policies our management 's discussion and analysis of our financial condition and results of operations are based on our financial statements , which have been prepared in conformity with gaap in the united states . the preparation of such financial statements has required our management to make assumptions , estimates and judgments that affect the amounts reported in the financial statements , including the notes thereto , and related disclosures of commitments and contingencies , if any . we consider our critical accounting policies to be those that require the more significant judgments and estimates in the preparation of financial statements , including the following : principles of consolidation — the consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiary , bio-path , inc. all intercompany accounts and transactions have been eliminated in consolidation . related party — based on its stock ownership in the company during 2014 and 2013 , md anderson met the criteria to be deemed a related party of the company . research and development – related party expense has been consolidated with research and development expense on our financial statements in 2015 as md anderson is no longer a greater than 5 % stockholder in the company . for the years ending december 31 , 2014 and 2013 , md anderson related party research and development expense was approximately $ 197,000 and $ 116,000 , respectively . md anderson related party research and development expense for the year ending december 31 , 2014 included license expense of approximately $ 50,000 for the license annual maintenance fee and approximately $ 31,000 for license patent expenses not capitalized in the technology license other asset and clinical trial hospital expense of approximately $ 116,000. as of december 31 , 2014 , we had approximately $ 67,000 in accrued research and development related expense for the clinical trial and approximately $ 100,000 in accrued license payments for past patent expenses and the annual license maintenance fee . see notes 4 and 5 to the financial statements included elsewhere in this annual report on form 10-k. for the year ended december 31 , 2013 , we had approximately $ 116,000 in research and development related party expense , which consisted of clinical trial hospital expense of approximately $ 52,000 and license expense of approximately $ 64,000 , including license maintenance fees of approximately $ 50,000 and approximately $ 14,000 in patent expenses not capitalized in the technology license other asset . 46 cash and cash equivalents — we consider all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents . concentration of credit risk — financial instruments that potentially subject us to a significant concentration of credit risk consist of cash .
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results of operations comparisons of the year ended december 31 , 2015 to the year ended december 31 , 2014 research and development expenses . our research and development expense , which includes non-cash stock-based compensation expense and amortization expense related to the license agreement , was $ 3.0 million for the year ended december 31 , 2015 , an increase of $ 1.2 million compared to the year ended december 31 , 2014. the increase in research and development expense was primarily due to increased clinical trial expenses , manufacturing development , preclinical studies and personnel costs associated with the addition of our support staff hired in the second half of 2014. these were partially offset by a decrease in drug material used in 2015. research and development – related party expense has been consolidated with research and development expense on our financial statements in 2015 as md anderson is no longer a greater than 5 % stockholder in the company . 43 replace_table_token_2_th general and administrative expenses . our general and administrative expense was $ 2.5 million for the year ended december 31 , 2015 , a decrease of $ 0.3 million compared to the year ended december 31 , 2014. the decrease in general and administrative expense was primarily due to decreased management and administrative personnel costs . replace_table_token_3_th net loss . our net loss was $ 5.5 million for the year ended december 31 , 2015 , an increase of $ 0.9 million compared the year ended december 31 , 2014. net loss per share , both basic and diluted , was $ 0.06 per share for the year ended december 31 , 2015 compared to $ 0.05 per share for the year ended december 31 , 2014. comparisons of the year ended december 31 , 2014 to the year ended december 31 , 2013 research and development expenses .
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as such , the carrying amounts for these swaps are designated to be level 2 fair values and totaled $ 2.2 million as of december 31 , 2011. the carrying value of these swaps is included in other long-term liabilities on the accompanying story_separator_special_tag general the company believes these record results validate our efforts to build an organization with a diversified earnings base that is less dependent on the highly cyclical class 8 truck sales market . for 15 years , the company has worked to position itself as a service solutions provider to the commercial vehicle industry . these efforts include focusing on expanding its capabilities in less cyclical aftermarket operations , broadening the depth of its commercial vehicle product offerings and expanding its network of rush truck centers . the company 's aftermarket capabilities now include a wide range of services and products such as a fleet of mobile service units , mobile technicians who staff customers ' facilities , a proprietary line of parts and accessories , new diagnostic and analysis capabilities , factory certified service for alternative fuel vehicles and assembly service for specialized bodies and equipment . as a result of the company 's efforts to expand aftermarket capabilities , aftermarket operations currently account for more than 60 % of the company 's total gross profits . once primarily focused on class 8 truck sales , the company has now expanded its commercial vehicle product line to include medium-duty and light-duty trucks , buses and vocational specialty vehicles such as refuse trucks , tow trucks and truck-mounted cranes . the company has developed relationships with a more diverse customer base across a wide range of market segments , resulting in our ability to offer a complete range of solutions from sales of new vehicles to aftermarket support for vehicles in operation . the company has a track record of growth through acquisitions and additions of dealerships within its current areas of responsibility . it now operates a contiguous network of 70 rush truck centers across the united states . the company believes that this geographic diversity will more effectively allow the company to withstand regional economic downturns and expand service capabilities that better match the footprint of its customer base . the company encourages its customers to expect more because it is confident that it has built a network of rush truck centers that can provide its customers with any service they need related to their commercial vehicles and help create efficiencies in their businesses . the company 's long-term goal has been to provide its customers with more services so that it can minimize its dependence on the cyclical class 8 truck sales market for operating profits . 23 the company expects u.s. class 8 retail sales will remain on pace to reach approximately 200,000 to 215,000 units in 2012 , just slightly above historical replacement levels , an approximate 15 % to 24 % increase over 2011. u. s. retail sales for class 4 through 7 are expected to reach 163,000 units in 2012 , a 13 % increase over 2011. the company has been able to increase its share of class 8 u.s. retail sales by nearly 30 % since 2009 through acquisitions and increased sales at its existing dealerships . likewise , the company 's class 4 through 7 medium-duty market share has expanded by nearly 45 % during this same time period . a.c.t . research co. , llc ( a.c.t . research ) , a truck industry data and forecasting service provider , currently predicts 2012 u.s. class 8 truck sales to reach 214,000 units , up from 174,000 units sold in 2011. a.c.t . research currently predicts u.s. class 4-7 retail sales in 2012 to be 163,000 units , up from 144,233 units in 2011. the company believes that it is in the beginning of a multi-year improving truck market as current sales levels of both class 8 and medium-duty trucks have been below historical replacement levels for the last five years . in 2011 , the company 's class 8 retail sales increased by 91 % over 2010 , far outpacing the u.s. class 8 truck market , which increased by 58 % . the company 's class 8 truck sales accounted for 5.2 % of the u.s. class 8 retail truck sales market in 2011. the increase in the class 8 truck sales was primarily the result of continued strong demand by oilfield services customers and replacement purchases by large fleet customers . similarly , rush 's u.s. class 4 through 7 medium-duty commercial vehicle sales were up 94 % over 2010 , significantly outpacing the u.s. class 4 through 7 market , which increased by 23 % . rush 's medium-duty retail sales accounted for 3.8 % of u.s. class 4 through 7 retail sales in 2011. the majority of our medium-duty growth was achieved through navistar division dealerships and ford and isuzu dealerships in texas , florida , oklahoma and california that were acquired during 2010 and 2011. the company continues to pursue its acquisition strategy . in the fourth quarter , the company purchased certain assets of west texas peterbilt , which included five locations in west texas , and peck road ford in whittier , california . the company now operates five ford franchises and sixteen isuzu franchises in its network of rush truck centers . the acquisition of west texas peterbilt expanded the company 's representation of peterbilt in texas to include the entire state . improvements to the company 's existing network of rush truck centers continue . the company relocated its dealerships in ft. worth , texas and orlando , florida at the end of 2011. in 2012 , the company plans to relocate its phoenix , arizona , open a new rush bus center in houston to better serve its bus customers in the houston market and construct a new dealership facility in corpus christi , texas . story_separator_special_tag such events may include , but are not limited to , strategic decisions made in response to economic and competitive conditions or the impact of the current economic environment . the company has historically performed an annual impairment review of goodwill during the fourth quarter of each year , however , an interim evaluation of goodwill was required during the second quarter of 2009 due to general motors ' decision to terminate production of medium-duty gmc trucks , which resulted in the winding-down of the company 's medium-duty gmc truck franchises . the goodwill allocation was based on the relative fair values of the medium-duty gmc truck franchises and the portion of the company 's truck segment remaining . the company 's truck segment recorded a non-cash charge of $ 0.8 million related to the impairment of the goodwill of its medium-duty gmc truck franchises . see note 17 for further discussion of the wind-down of the company 's medium-duty gmc truck franchise agreements . 25 goodwill was tested for impairment during the fourth quarter of 2011 and no impairment write down was required . the fair value of each of our reporting units exceeded the carrying value of its net assets . as a result , we were not required to conduct the second step of the impairment test . the company does not believe any of its reporting units are at risk of failing step one of the impairment test . insurance accruals the company is partially self-insured for a portion of the claims related to its property and casualty insurance programs , requiring it to make estimates regarding expected losses to be incurred . the company engages a third party administrator to assess any open claims and the company adjusts its accrual accordingly on an annual basis . the company is also partially self-insured for a portion of the claims related to its worker 's compensation and medical insurance programs . the company uses actuarial information provided from third party administrators to calculate an accrual for claims incurred , but not reported , and for the remaining portion of claims that have been reported . changes in the frequency , severity , and development of existing claims could influence the company 's reserve for claims and financial position , results of operations and cash flows . the company does not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions it used to calculate its self-insured liabilities . however , if actual results are not consistent with our estimates or assumptions , the company may be exposed to losses or gains that could be material . a 10 % change in the company 's estimate would have changed its reserve for these losses at december 31 , 2011 by $ 0.8 million . accounting for income taxes management judgment is required to determine the provisions for income taxes and to determine whether deferred tax assets will be realized in full or in part . deferred income 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 . when it is more likely than not that all or some portion of specific deferred income tax assets will not be realized , a valuation allowance must be established for the amount of deferred income tax assets that are determined not to be realizable . accordingly , the facts and financial circumstances impacting state deferred income tax assets are reviewed quarterly and management 's judgment is applied to determine the amount of valuation allowance required , if any , in any given period . the company 's income tax returns are periodically audited by tax authorities . these audits include questions regarding our tax filing positions , including the timing and amount of deductions . in evaluating the exposures associated with the company 's various tax filing positions , the company adjusts its liability for unrecognized tax benefits and income tax provision in the period in which an uncertain tax position is effectively settled , the statute of limitations expires for the relevant taxing authority to examine the tax position , or when more information becomes available . the company 's liability for unrecognized tax benefits contains uncertainties because management is required to make assumptions and to apply judgment to estimate the exposures associated with its various filing positions . the company 's effective income tax rate is also affected by changes in tax law , the level of earnings and the results of tax audits . although the company believes that the judgments and estimates are reasonable , actual results could differ , and the company may be exposed to losses or gains that could be material . an unfavorable tax settlement generally would require use of the company 's cash and result in an increase in its effective income tax rate in the period of resolution . a favorable tax settlement would be recognized as a reduction in the company 's effective income tax rate in the period of resolution . the company 's income tax expense includes the impact of reserve provisions and changes to reserves that it considers appropriate , as well as related interest . derivative instruments and hedging activities the company utilizes derivative financial instruments to manage its interest rate risk . the types of risks hedged are those relating to the variability of cash flows and changes in the fair value of the company 's financial instruments caused by movements in interest rates . the company assesses hedge effectiveness at the inception and during the term of each hedge . derivatives are reported at fair value on the accompanying consolidated balance sheets . 26 the effective portion of the gain or loss on the company 's cash flow hedges are reported as a component of accumulated other comprehensive loss .
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results of operations the following discussion and analysis includes the company 's historical results of operations for 2011 , 2010 and 2009. the following table sets forth for the years indicated certain financial data as a percentage of total revenues : replace_table_token_4_th 27 the following table sets forth the unit sales and revenue for new heavy-duty , new medium-duty and used commercial vehicles and the absorption rate for the years indicated ( revenue in millions ) : replace_table_token_5_th ( 1 ) includes sales of glider kits , truck bodies , trailers and other new equipment . industry we currently operate in the commercial vehicle market . there has historically been a high correlation between new product sales in the commercial vehicle market and the rate of change in u.s. industrial production and the u.s. gross domestic product . heavy-duty truck market the company serves the u.s. retail heavy-duty truck market , which is affected by a number of factors relating to general economic conditions , including fuel prices , government regulation , interest rate fluctuations , economic recessions , other methods of transportation and customer business cycles . in addition , unit sales of new commercial vehicles have historically been subject to substantial cyclical variation based on general economic conditions . according to data published by a.c.t . research , in recent years total u.s. retail sales of new class 8 trucks have ranged from a low of approximately 97,000 in 2009 to a high of approximately 291,000 in 2006. class 8 trucks are defined by the american automobile association as trucks with a minimum gross vehicle weight rating above 33,000 pounds . the company 's share of the u.s. class 8 truck sales market increased to 5.2 % in 2011 , up from 4.3 % in 2010. typically , class 8 trucks are assembled by manufacturers utilizing certain components that may be manufactured by other companies , including engines , transmissions , axles , wheels and other components .
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when the fair value of the collateral is based on an observable market price or a current appraised value , we record the foreclosed asset at level 2. when an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price , we record the foreclosed asset at level 3. deposits . deposits are carried at historical cost . the carrying amounts of deposits from savings and money market accounts are deemed to approximate fair value as they either have no stated maturities or short-term maturities . certificates of deposit are estimated utilizing discounted cash flow techniques . the interest rates applied are rates currently being offered for similar certificates of deposit . borrowings . the fair value of borrowings is the carrying amount for those borrowings that mature on a daily basis . the fair value of term borrowings is derived by calculating the discounted value of story_separator_special_tag overview the following discussion presents information about our consolidated results of operations , financial condition , liquidity and capital resources and should be read in conjunction with our consolidated financial statements and the notes thereto included in item 8 of this report . our principal operating subsidiary is pacific mercantile bank ( the “ bank ” ) , which is a california state chartered bank . the bank accounts for substantially all of our consolidated revenues , expenses and income and our consolidated assets and liabilities . accordingly , the following discussion focuses primarily on the bank 's results of operations and financial condition . as of december 31 , 2019 , our total assets , net loans and total deposits were $ 1.4 billion , $ 1.1 billion and $ 1.2 billion , respectively . the bank , which is headquartered in orange county , california , approximately 40 miles south of los angeles , conducts a commercial banking business in orange , los angeles , san bernardino and san diego counties in southern california . the bank is also a member of the federal reserve system and its deposits are insured , to the maximum extent permitted by law , by the federal deposit insurance corporation ( the “ fdic ” ) . for the years ended december 31 , 2019 , 2018 and 2017 , we operated as one reportable segment , commercial banking . unless the context otherwise requires , the “ company , ” “ we , ” “ our , ” “ ours , ” and “ us ” refer to pacific mercantile bancorp and its consolidated subsidiaries . story_separator_special_tag our certificates of deposit for the years ended december 31 , 2019 and 2018 was $ 6.0 million and $ 5.3 million , respectively , with a cost of funds of 2.26 % and 1.70 % on average balances of $ 265.9 million and $ 315.2 million , respectively . 2018 vs. 2017 . total interest expense increased 73.9 % to $ 13.6 million for the year ended december 31 , 2018 from $ 7.8 million for the year ended december 31 , 2017 . the increase was primarily due to an increase in the volume of and average cost of funds of our interest-bearing liabilities to 1.60 % at december 31 , 2018 from 1.05 % at december 31 , 2017 , which consisted of deposits , borrowings and junior subordinated debentures , which was primarily the result of new client acquisition , our decision to increase the rate of interest paid on our certificates of deposit resulting from the rising interest rate environment , and an increase in our fhlb borrowings . interest expense on our certificates of deposit for the years ended december 31 , 2018 and 2017 was $ 5.3 million and $ 3.8 million , respectively , with a cost of funds of 1.70 % and 1.26 % , on average balances of $ 315.2 million and $ 298.5 million , respectively . net interest margin one of the principal determinants of a bank 's income is its net interest income , which is the difference between ( i ) the interest that a bank earns on loans , investment securities and other interest earning assets , on the one hand , and ( ii ) its interest expense , which consists primarily of the interest it must pay to attract and retain deposits and the interest that it pays on borrowings and other interest-bearing liabilities , on the other hand . as a general rule , all other things being equal , the greater the difference or “ spread ” between the amount of our interest income and the amount of our interest expense , the greater will be our net income ; whereas , a decline in that difference or “ spread ” will generally result in a decline in our net income . a bank 's interest income and interest expense are affected by a number of factors , some of which are outside of its control , including national and local economic conditions and the monetary policies of the federal reserve board which affect interest 30 rates , competition in the market place for loans and deposits , the demand for loans and the ability of borrowers to meet their loan payment obligations . net interest income , when expressed as a percentage of total average interest earning assets , is a banking organization 's “ net interest margin. ” as a result of the federal reserve board decreasing interest rates by 75 basis points in 2019 , we experienced a reduction in our net interest margin . story_separator_special_tag noninterest income increased by $ 953 thousand , or 20.6 % , for the year ended december 31 , 2019 as compared to the year ended december 31 , 2018 , primarily as a result of : net gain on sale of sba loans of $ 1.0 million during the year ended december 31 , 2019 as compared to no sba sales during the same period in 2018 ; and an increase of $ 233 thousand in deposit related fees , credit card fees and loan service fees during the year ended december 31 , 2019 as compared to the same period in 2018 ; partially offset by a decrease of $ 223 thousand in other non-interest income during the year ended december 31 , 2019 as compared to the same period in 2018 due to decreased foreign exchange and trade income in 2019 ; and a gain of $ 48 thousand on the sale of securities available for sale during the year ended december 31 , 2018 that did not occur in the same period in 2019 . 2018 vs. 2017 . during the year ended december 31 , 2018 , noninterest income increased by $ 261 thousand , or 6.0 % , to $ 4.6 million from $ 4.4 million for the year ended december 31 , 2017 , primarily as a result of : an increase in loan servicing and referral fees during the year ended december 31 , 2018 as compared to the same period in 2017 ; and an increase of $ 52 thousand in gain on sale of securities available-for-sale during the year ended december 31 , 2018 compared to the same period in 2017 ; partially offset by a decrease in other noninterest income attributable to recoveries of fees on previously charged off loans during the second quarter of 2017 for which a similar level of recoveries did not occur during the year ended december 31 , 2018. noninterest expense the following table sets forth the principal components and the amounts of , and the percentage changes in , noninterest expense in the years ended december 31 , 2019 , 2018 and 2017 . 33 replace_table_token_11_th ( 1 ) other operating expenses primarily consist of telephone , investor relations , promotional , regulatory expenses , and correspondent bank fees . 2019 vs. 2018 . noninterest expense increased $ 1.2 million , or 3.3 % , for the year ended december 31 , 2019 as compared to the year ended december 31 , 2018 , primarily as a result of : an increase of $ 1.5 million in our professional fees primarily related to higher legal fees in 2019 and the recovery of legal fees attributable to the payoff of a loan relationship in 2018 that was previously on nonaccrual status ; and an increase of $ 247 thousand in occupancy and equipment expense related to building and equipment maintenance ; and an increase of $ 503 thousand in data processing fees primarily related to a higher credit card and deposit volume ; and an increase in various expense accounts related to the normal course of operating , including expenses related to loan production and business development ; partially offset by a decrease of $ 338 thousand in salaries and employee benefits primarily related to a decrease in employee benefits and incentive compensation partially offset by severance payments and acceleration of equity awards of a former executive ; and a decrease of $ 500 thousand in our fdic insurance expenses as the result of a lower rate and rebate . 2018 vs. 2017 . during the year ended december 31 , 2018 , noninterest expense decreased by $ 788 thousand , or 2.1 % , to $ 37.0 million from $ 37.8 million for the year ended december 31 , 2017 , primarily as a result of : a decrease of $ 1.7 million in our professional fees primarily related to lower legal fees in the first quarter of 2018 , the recovery of legal fees attributable to the payoff of a loan relationship in the second quarter of 2018 that was previously on nonaccrual status and the recovery of legal fees in the third quarter of 2018 related to a loan relationship that was fully charged off in previous years ; partially offset by an increase of $ 772 thousand in salaries and employee benefits primarily related to an increase in employee compensation expense ; an increase of $ 123 thousand in other real estate owned expense during the year ended december 31 , 2018 as compared to the same period in 2017 ; and an increase in various expense accounts related to the normal course of operating , including expenses related to loan production and business development during the year ended december 31 , 2018 as compared to the year ended december 31 , 2017. provision for ( benefit from ) income tax during the year ended december 31 , 2019 , we had an income tax expense of $ 2.1 million . the income tax expense during the year ended december 31 , 2019 is primarily a result of our operating income partially offset by an adjustment made to our deferred tax asset in the fourth quarter to true up stock based compensation . accounting rules specify that management must evaluate the deferred tax asset on a recurring basis to determine whether enough positive evidence exists to determine whether it is more-likely-than-not that the deferred tax asset will be available to offset or reduce future taxes . the tax code allows net operating losses incurred prior to december 31 , 2017 to be carried forward for 20 years from the date of the loss , and based on 34 its evaluation , management believes that the company will be able to realize the deferred tax asset within the period that our net operating losses may be carried forward .
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results of operations operating results for the years ended december 31 , 2019 , 2018 , and 2017 our operating results for the year ended december 31 , 2019 , compared to december 31 , 2018 , and for the year ended december 31 , 2018 , compared to december 31 , 2017 , were as follows : replace_table_token_7_th interest income 2019 vs. 2018 . total interest income increased 5.0 % to $ 65.7 million for the year ended december 31 , 2019 from $ 62.5 million for the year ended december 31 , 2018 . this increase is primarily due to an increase in interest income on loans and short term investments during the year ended december 31 , 2019 compared to the prior year due to an increase in average balances , as well as an increase in the average yields . during the years ended december 31 , 2019 and 2018 , interest income on loans was $ 59.3 million and $ 57.6 million , respectively , yielding 5.39 % and 5.38 % on average loan balances of $ 1.10 billion and $ 1.07 billion , respectively . the increase in the average loan balances is attributable to an increase in loan demand . the average yield on interest-earning assets was 4.77 % for the year ended december 31 , 2019 compared to 4.78 % for the year ended december 31 , 2018 . during the year s ended december 31 , 2019 and 2018 , interest income from our securities available-for-sale and stock , was $ 1.1 million and $ 1.2 million , yielding 2.90 % and 2.92 % on average balances of $ 36.7 million and $ 39.7 million , respectively .
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the loss of story_separator_special_tag overview keytronicems is a leader in electronic manufacturing services and solutions to original equipment manufacturers of a broad range of products . we provide engineering services , worldwide procurement and distribution , materials management , world-class manufacturing and assembly services , in-house testing , and unparalleled customer service . our international production capability provides our customers with benefits of improved supply-chain management , reduced inventories , lower transportation costs , and reduced product fulfillment time . we continue to make investments in all of our operating facilities to give us the production capacity and logistical advantages to continue to win new business . the following information should be read in conjunction with the consolidated financial statements included herein and with item 1a , risk factors . our mission is to provide our customers with superior manufacturing and engineering services at the lowest total cost for the highest quality products , and create long-term mutually beneficial business relationships by employing our “ trust , commitment , results ” philosophy . executive summary after strong year-over-year growth in the first half of fiscal 2013 , our revenue decreased slightly in the second half . this was primarily due to the anticipated slowdown from a large customer that reduced its production requirements in the second quarter . although we saw a continued ramp up of new programs in the second half of fiscal 2013 , those increases did not yet offset the decreased demand from this one customer . however , we maintained strong operating efficiencies and significantly strengthened our balance sheet and paid off our revolving line of credit . during fiscal year 2013 we set a new record for annual revenue of $ 361.0 million , a 4.2 percent growth as compared to sales of $ 346.5 million in fiscal year 2012 . the increase in net sales was primarily driven by an increasingly diverse mix of new customer programs . at the end of fiscal year 2013 , we were generating revenue from 183 separate programs and 56 distinct customers as compared to 165 programs and 48 customers at the end of fiscal year 2012 . these new customers have programs that represent small annual sales while others have multi-million-dollar potenti al . moving into the first quarter of fiscal 2014 , we are currently seeing a reduction in orders from another large customer and a few of our new programs are not ramping up as rapidly as anticipated . net sales for the first quarter of fiscal year 2014 are expected to be within the range o f $ 73 million to $ 78 million . future results will depend on actual levels of customers ' orders , the timing of the start up of production of new product programs and the potential impact of the macroeconomic uncertainty . we believe that we are well positioned in the ems industry to continue expansion of our customer base and continue long-term growth . the concentration of our largest customers decreased during fiscal year 2013 with the top five customers ' sales decreasing to 71 percent of total sales in 2013 from 73 percent in 2012 , and 62 percent in 2011 . our current customer relationships involve a variety of products , including consumer electronics , electronic storage devices , plastics , household products , gaming devices , specialty printers , telecommunications , industrial equipment , military supplies , computer accessories , electronic whiteboards , medical , educational , irrigations , automotive , transportation management , robotics , rfid , power supply and offroad vehicle equipment . the growth during fiscal year 2013 was powered by an increasingly diverse mix of new customer programs . gross profit as a percent of sales was 9.6 percent in fiscal year 2013 compared to 8.6 percent for the prior fiscal year . this 1.0 percentage point increase in gross profit as a percentage of net sales during fiscal year 2013 as compared to fiscal year 2012 is primarily related to a 1.9 percentage point improvement in material costs , as a percent of sales , partially offset by a 0.9 percentage point increase in certain overhead costs as we brought on additional headcount and equipment to support new customer programs . the level of gross margin is impacted by product mix , timing of the start up of new programs , facility utilization , pricing within the electronics industry and material costs , which can fluctuate significantly from quarter to quarter and year to year . operating income as a percentage of sales for fiscal year 2013 was 5.0 percent compared to 4.1 percent for fiscal year 2012 . the increase in operating income as a percentage of sales was due to an increase in gross margin , while keeping operating expenses relatively flat and by improving efficiencies during fiscal year 2013 . net income for fiscal year 2013 was $ 12.6 million or $ 1.15 per diluted share , as compared to net income of $ 11.6 million or $ 1.10 per diluted share for fiscal year 2012 . the increase in net income for fiscal year 2013 as compared to fiscal year 2012 was primarily due to the increase in net sales that led an improvement in our gross margin and operating income , partially offset by an increase in income tax expense . 18 we maintain a strong balance sheet with a current ratio of 2.9 and a long-term debt to equity ratio of 0.01 . total cash provided by operating activities as defined on our cash flow statement was $ 29.3 million during fiscal year 2013 . we maintain sufficient liquidity for our expected future operations . we did not have an outstanding balance on our revolving line of credit with wells fargo bank , n.a . as of june 29 , 2013 . as a result , $ 30.0 million remained available to borrow as of june 29 , 2013 . story_separator_special_tag the net warranty expense was approximately $ 65,000 and $ 158,000 in fiscal years 2012 and 2011 , respectively . gross profit gross profit as a percentage of net sales was 8.6 percent , and 8.1 percent in fiscal years 2012 and 2011 , respectively . the 0.5 percentage point increase in gross profit as a percentage of net sales during fiscal year 2012 as compared to fiscal year 2011 is primarily related to a 2.3 percentage point improvement in leveraging of certain overhead costs , as a percent of sales , partially offset by a 1.8 percentage point increase in material costs , as a percent of sales , resulting from higher material content in certain new customer programs and changes in product mix . we took early pay discounts to suppliers that totaled approximately $ 932,000 and $ 678,000 , in fiscal years 2012 and 2011 , respectively . early pay discounts will fluctuate based on our liquidity and changes in the discounts and terms offered by our suppliers . changes in gross profit margins reflect the impact of a number of factors that can vary from period to period , including product mix , start-up costs and efficiencies associated with new programs , product life cycles , sales volumes , capacity utilization of our resources , management of inventories , component pricing and shortages , end market demand for customers ' products , fluctuations in and timing of customer orders , and competition within the ems industry . these and other factors can cause variations in operating results . there can be no assurance that gross margins will not decrease in future periods . research , development and engineering research , development and engineering expenses ( rd & e ) consists principally of employee related costs , third party development costs , program materials , depreciation and allocated information technology and facilities costs . total rd & e expense was $ 4.4 million and $ 3.8 million in fiscal years 2012 and 2011 , respectively . this $ 0.6 million increase is primarily the result of increased headcount and to a lesser extent higher incentive compensation . total rd & e expenses as a percent of net sales were 1.3 percent and 1.5 percent in fiscal years 2012 and 2011 , respectively . this 0.2 percentage point improvement in rd & e is primarily related to our continued success in leveraging operating expenses as a percent of net sales . selling , general and administrative selling , general and administrative expenses ( sg & a ) consist principally of salaries and benefits , advertising and marketing programs , sales commissions , travel expenses , provision for doubtful accounts , facilities costs , and professional services . total sg & a expenses were $ 11.0 million and $ 9.9 million in fiscal years 2012 , and 2011 , respectively . this $ 1.1 million increase is primarily related to an increase in headcount . total sg & a expenses as a percent of net sales were 3.2 percent , and 3.9 percent in fiscal years 2012 , and 2011 , respectively . this 0.7 percentage point improvement in sg & a is primarily related to our continued success in leveraging operating expenses as a percent of net sales . interest expense we had net interest expense of $ 0.5 million , and $ 0.5 million in fiscal years 2012 and 2011 , respectively . interest expense for fiscal year 2012 remained relatively flat as did the average balance and interest rate compared to fiscal year 2011 . 23 income tax provision we had an income tax expense of $ 2.2 million during fiscal year 2012 as compared to an income tax expense of $ 746,000 in fiscal year 2011. the income tax expense recognized during fiscal 2012 was primarily a function of u.s. and foreign taxes recognized at the statutory rates offset by the net benefit associated with federal research and development tax credits and changes in potential foreign tax credits . the income tax expense recognized during fiscal 2011 was primarily a function of u.s. and foreign taxes recognized at the statutory rates offset by the net benefit associated with federal research and development tax credits , the release of the valuation allowance in china , and changes in potential foreign tax credits . due to increased profitability , revenue growth , and new customer programs , we utilized all remaining domestic net operating loss carryforwards ( nols ) during fiscal year 2012. furthermore , all previous nol carryforwards in china have been fully utilized as well . as a result , there is no remaining deferred tax asset as of june 30 , 2012 related to nols . in addition , we reviewed our requirements for liquidity domestically to fund our revenue growth and to look for potential future acquisitions . we continue to anticipate repatriating a portion of our unremitted foreign earnings . the associated taxes and potential foreign tax credits were first included in the income tax benefit that was realized during fiscal year 2010 and certain changes in the estimates of foreign earnings and profits and tax pools resulted in the recognition of additional tax benefits during fiscal years 2011 and 2012. for further information on taxes please review footnote 5 of the “ notes to consolidated financial statements ” . capital resources and liquidity operating cash flow net cash provided by operating activities for fiscal year 2013 was $ 29.3 million compared to net cash used in operating activities of $ 5.1 million and $ 2.6 million in fiscal years 2012 and 2011 , respectively . cash flows provided by operating activities increased primarily due to a drop in working capital caused by decreased revenue in the fourth quarter of fiscal 2013 when compared to fiscal 2012. the decreased revenue allowed the company to decrease its accounts receivable and inventories . additionally , the company improved its inventory turns through better management of order quantities and requiring certain customer payments on aged inventory purchased to forecast but subsequently not consumed .
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results of operations comparison of the fiscal year ended june 29 , 2013 with the fiscal year ended june 30 , 2012 the following table sets forth for the periods indicated certain items of the consolidated statements of income expressed as a percentage of net sales . the financial information and discussion below should be read in conjunction with the consolidated financial statements and notes contained in this annual report . replace_table_token_5_th net sales the increase in net sales from prior year was primarily driven by an approximate $ 11.7 million increase in revenues related to new programs for both new and longstanding customers and to a lesser extent a net $ 5.5 million increase related to increased demand from current customer programs , which was partially offset by the previously disclosed slowdown from the large customer that began to reduce production levels in the second quarter of fiscal year 2013. in addition , the increases were negatively impacted by $ 2.6 million related to customer program losses . the negative impact resulting from the previously discussed slowdown of demand from one of our larger customers is reflected in the analysis above . the following table shows the revenue by industry sectors as a percentage of revenue for fiscal years 2013 and 2012 : replace_table_token_6_th we provide services to customers in a number of industries and produce a variety of products for our customers in each industry . as we continue to diversify our customer base and win new customers we will continue to see a change in the industry concentrations of our revenue . 19 sales to foreign locations outside the united states represented 31.8 percent , and 40.6 percent of our total net sales in fiscal years 2013 , and 2012 , respectively . cost of sales total cost of sales as a percentage of net sales was 90.4 percent and 91.4
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servicing rights when mortgage and sba loans are sold with servicing retained , servicing rights are initially recorded at fair value with the income story_separator_special_tag overview during 2014 , the company reported net income available to common shareholders of approximately $ 38.4 million , or $ 1.48 per share , compared to $ 18.3 million , or $ 0.76 per share , in 2013. the company 's net income as a percentage of average assets for 2014 and 2013 was 1.08 % and 0.70 % , respectively , while the company 's net income as a percentage of average shareholders ' equity was 12.40 % and 8.06 % , respectively . highlights of the company 's performance in 2014 include the following : the company completed the acquisition of coastal , increasing total assets by approximately $ 449.0 million , total loans by approximately $ 279.4 million and total deposits by approximately $ 369.0 million . the acquisition added six retail offices and increased the company 's presence in the savannah , georgia market . the company recorded $ 27.4 million in additional goodwill and $ 4.6 million in core deposit intangibles associated with the merger . a total of 1,598,998 shares of common stock were issued to the former shareholders of coastal . non-accrual loans , excluding purchased loans , decreased approximately $ 7.5 million , or 25.6 % , to $ 21.7 million during 2014. legacy oreo ( excluding purchased oreo and oreo sourced from purchased loans ) decreased slightly from $ 33.4 million at december 31 , 2013 to $ 33.2 million at december 31 , 2014. net charge-offs for 2014 declined to 0.31 % of total legacy loans , compared to 0.69 % for 2013. total credit costs for the year ended december 31 , 2014 decreased approximately $ 7.8 million , or 29.0 % , compared to 2013. credit costs include the loan loss provision , losses on the sale of problem loans or oreo and carrying costs associated with problem loans or oreo , such as property taxes , legal expenses and maintenance . provision for loan loss expense for 2014 amounted to approximately $ 5.6 million , compared to $ 11.5 million for 2013. tangible common equity to tangible assets increased from 6.83 % at december 31 , 2013 to 7.42 % at december 31 , 2014. tangible common book value per share increased 11.3 % from $ 9.87 at december 31 , 2013 to $ 10.99 at december 31 , 2014. total assets increased $ 369.4 million during 2014 , ending the year at $ 4.0 billion . during 2014 , the company continued to use the cash flows from covered assets ( including loans , oreo and the indemnification asset from fdic-assisted acquisitions ) to grow traditional earning assets . as such , the company reduced covered assets by approximately $ 143.7 million and grew legacy loans by $ 271.4 million during 2014. net income from the company 's mortgage division increased 94.4 % during 2014 to $ 6.2 million . net income in the division grew significantly faster than their rate of revenue growth , resulting from operating efficiencies in the division . the company 's net interest margin decreased slightly to 4.59 % in 2014 , from 4.74 % in 2013. lower yields on most earning asset classes were offset by lower funding costs . deposit costs , the company 's largest funding expense , continued to decline from 0.34 % in 2013 to 0.30 % in 2014 , due to shifts in the deposit mix . critical accounting policies ameris has established certain accounting and financial reporting policies to govern the application of accounting principles generally accepted in the united states of america ( gaap ) in the preparation of our financial statements . our significant accounting policies are described in note 1 to the consolidated financial statements . certain accounting policies involve significant judgments and assumptions by management which have a material impact on the carrying value of certain assets and liabilities ; management considers these accounting policies to be critical accounting policies . the judgments and assumptions used by management are based on historical experience and other factors which are believed to be reasonable under the circumstances . because of the nature of the judgments and assumptions made by management , actual results could differ from the judgments and estimates adopted by management which could have a material impact on the carrying values of assets and liabilities and the results of our operations . we believe the following accounting policies applied by ameris represent critical accounting policies . allowance for loan losses we believe the allowance for loan losses is a critical accounting policy that requires the most significant judgments and estimates used in the preparation of our consolidated financial statements . the allowance for loan losses represents management 's estimate of probable incurred losses in the company 's loan portfolio . calculation of the allowance for loan losses represents a critical accounting estimate due to the significant judgment , assumptions and estimates related to the amount and timing of estimated losses , consideration of subjective environmental factors and the amount and timing of cash flows related to impaired loans . 29 index to financial statements management believes that the allowance for loan losses is adequate . while management uses available information to recognize losses on loans , future additions to the allowance for loan losses may be necessary based on changes in economic conditions . in addition , various regulatory agencies , as an integral part of their examination processes , periodically review the company 's allowance for loan losses . such agencies may require the company to recognize additions to the allowance for loan losses based on their judgments about information available to them at the time of their examination . story_separator_special_tag subsequent increases in cash flows result in a reversal of the provision for loan losses to the extent of prior charges and adjusted accretable yield which will have a positive impact on interest income . in addition , purchased loans without evidence of credit deterioration are also handled under this method . income taxes gaap requires the asset and liability approach for financial accounting and reporting for deferred income taxes . we use the asset and liability method of accounting for deferred income taxes and provide deferred income taxes for all significant income tax temporary differences . see note 16 , income taxes , in the notes to consolidated financial statements for additional details . as part of the process of preparing our consolidated financial statements we are required to estimate our income taxes in each of the jurisdictions in which we operate . this process involves estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items , such as gains on fdic-assisted transactions and the provision for loan losses , for tax and financial reporting purposes . these differences result in deferred tax assets and liabilities that are included in our consolidated balance sheet . we must also assess the likelihood that our deferred tax assets will be recovered from future taxable income , and to the extent we believe that recovery is not likely , we must establish a valuation allowance . significant management judgment is required in determining our provision for income taxes , our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets . to the extent we establish a valuation allowance or adjust this allowance in a period , we must include an expense within the tax provisions in the statement of income . we have recorded on our consolidated balance sheet net deferred tax assets of $ 17.8 million as of december 31 , 2014 , compared to $ 16.5 million at december 31 , 2013. purchase accounting adjustments related to the coastal and prosperity acquisitions , totaling $ 12.4 million , net operating loss carryforwards , totaling $ 12.1 million , and allowances for loan losses associated with loans where no loss has yet been recorded for tax purposes , totaling $ 7.4 million , represent the company 's largest deferred tax assets . deferred gains on fdic-assisted transactions , totaling $ 8.8 million , and purchase accounting adjustments related to the coastal and prosperity acquisitions , totaling $ 7.2 million , represent the company 's largest deferred tax liabilities . long-lived assets , including intangibles during 2014 , the bank recorded new goodwill totaling $ 27.4 million related to the acquisition of coastal . during 2013 , the bank recorded new goodwill totaling $ 34.1 million related to the acquisition of prosperity . the company recorded an additional $ 1.1 million of goodwill during 2014 related to prosperity , for total goodwill recorded of $ 35.2 million in the prosperity acquisition . at december 31 , 2014 , the company 's balance of intangible assets totaled $ 8.2 million and is being amortized over its previously determined useful life . during 2014 , the bank recorded new core deposit intangibles totaling $ 4.6 million in the acquisition of coastal , and during 2013 , the bank recorded new core deposit intangibles totaling $ 4.4 million in the acquisition of prosperity . net income/ ( loss ) and earnings per share the company 's net income available to common shareholders during 2014 was approximately $ 38.4 million , or $ 1.46 per diluted share , compared to $ 18.3 million , or $ 0.75 per diluted share , in 2013 , and $ 10.9 million , or $ 0.46 per diluted share , in 2012. for the fourth quarter of 2014 , the company recorded net income available to common shareholders of approximately $ 10.6 million , or $ 0.39 per diluted share , compared to $ 966,000 , or $ 0.04 per diluted share , for the quarter ended december 31 , 2013 , and $ 3.6 million , or $ 0.15 per diluted share , for the quarter ended december 31 , 2012 . 31 index to financial statements earning assets and liabilities average earning assets were approximately $ 3.30 billion in 2014 , compared to approximately $ 2.47 billion in 2013. the earning asset and interest-bearing liability mix is regularly monitored to maximize the net interest margin and , therefore , increase return on assets and shareholders ' equity . the following statistical information should be read in conjunction with the remainder of management 's discussion and analysis of financial condition and results of operation and the consolidated financial statements and related notes included elsewhere in this annual report and in the documents incorporated herein by reference . the following tables set forth the amount of our interest income or interest expense for each category of interest-earning assets and interest-bearing liabilities and the average interest rate for total interest-earning assets and total interest-bearing liabilities , net interest spread and net interest margin on average interest-earning assets . federally tax-exempt income is presented on a taxable-equivalent basis assuming a 35 % federal tax rate . replace_table_token_4_th 32 index to financial statements story_separator_special_tag margin-bottom:0pt ; font-size:10pt ; font-family : times new roman '' > other income increased $ 3.9 million , or 70.2 % , from $ 5.6 million in 2013 to $ 9.5 million in 2014. the company 's recent efforts to build a sba division resulted in significant gains in revenue and net income . during 2014 , the company recorded $ 3.9 million of gains on sales of sba loans and $ 1.0 million of sba servicing fee income , compared to gains on sales of sba loans of $ 1.5 million and sba servicing fee income of $ 611,000 in 2013. service charges on deposit accounts increased 25.9 % in 2014 , the result of acquisition activity as well as successful efforts on commercial deposit accounts .
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results of operations net interest income net interest income represents the amount by which interest income on interest-earning assets exceeds interest expense incurred on interest-bearing liabilities . net interest income is the largest component of our income and is affected by the interest rate environment and the volume and composition of interest-earning assets and interest-bearing liabilities . our interest-earning assets include loans , investment securities , interest-bearing deposits in banks and federal funds sold . our interest-bearing liabilities include deposits , other short-term borrowings , fhlb advances and subordinated debentures . 2014 compared to 2013. for the year ended december 31 , 2014 , interest income was $ 164.6 million , an increase of $ 38.2 million , or 30.3 % , compared to the same period in 2013. average earning assets increased $ 830.8 million , or 33.6 % , to $ 3.30 billion for the year ended december 31 , 2014 , compared to $ 2.47 billion as of december 31 , 2013. yield on average earning assets on a taxable equivalent basis decreased during 2014 to 5.03 % , compared to 5.15 % for the year ended december 31 , 2013. however , lower yields on most earning assets have been offset by lower funding costs . interest expense on deposits and other borrowings for the year ended december 31 , 2014 was $ 14.7 million , compared to $ 10.1 million for the year ended december 31 , 2013. the company 's funding mix continued to improve during 2014 , leading to savings in cost of funds .
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you can identify these statements by forward-looking words such as anticipate , intend , plan , continue , could , grow , may , potential , predict , strive , estimate , believe , expect and similar expressions that convey uncertainty of future events or outcomes . any forward-looking statements herein are made pursuant to the safe harbor provision of the private securities litigation reform act of 1995. our actual results could differ materially from the results anticipated by these forward-looking statements as a result of many known and unknown factors that are beyond our ability to control or predict , including but not limited to those discussed above in risk factors and elsewhere in this report . see also special cautionary notice regarding forward-looking statements at the beginning of item 1. business. critical accounting policies and estimates we have based the following discussion and analysis of financial condition and results of operations on our consolidated financial statements , which we have prepared in accordance with u.s. generally accepted accounting principles . the preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities , and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period . note 1 to the consolidated financial statements for the fiscal year ended april 30 , 2018 , describes the significant accounting policies that we have used in preparing our consolidated financial statements . on an ongoing basis , we evaluate our estimates , including , but not limited to , those related to revenue/collectability , stock-based compensation , income taxes and business combination . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . our actual results could differ materially from these estimates under different assumptions or conditions . we believe the critical accounting policies listed below affect significant judgments and estimates used in the preparation of the financial statements . revenue recognition . we recognize revenue predominantly in accordance with the software revenue recognition topic of the financial accounting standards board 's ( fasb ) accounting standards codification . we recognize license revenues in connection with license agreements for standard proprietary software upon delivery of the software , provided we deem collection to be probable , the fee is fixed or determinable , there is persuasive evidence of an arrangement , and vendor-specific objective evidence ( vsoe ) exists with respect to any undelivered elements of the arrangement . we generally bill maintenance fees annually in advance and recognize the resulting revenues ratably over the term of the maintenance agreement . we derive revenues from services which primarily include consulting , implementation , training , software as a service ( saas ) , hosting and managed services . we bill for these services primarily under time and materials arrangements and recognize fees as we perform the services . deferred revenues represent advance payments or billings for software licenses , services , and maintenance billed in advance of the time we recognize revenues . we record revenues from sales of third-party products in accordance with principal agent considerations within the revenue recognition topic of the fasb accounting standards codification . furthermore , we evaluate sales through our indirect channel on a case-by-case basis to determine whether the transaction should be recorded gross or net , including but not limited to assessing whether or not we ( 1 ) act as principal in the transaction , ( 2 ) take title to the products , ( 3 ) have risks and rewards of ownership , such as the risk of loss for collection , delivery , or returns , and ( 4 ) act as an agent or broker with compensation on a commission or fee basis . accordingly , our sales through the dmi channel are typically recorded on a gross basis . generally , our software products do not require significant modification or customization . installation of the products is routine and is not essential to their functionality . our sales frequently include maintenance contracts and professional services with the sale of our software licenses . we have established vsoe for our maintenance contracts and professional services . we determine fair value based upon the prices we charge to customers when we sell these elements separately . we defer maintenance revenues , including those sold with the initial license fee , based on vsoe , and recognize the revenue ratably over the maintenance contract period . we recognize consulting and training service revenues , including those sold with license fees , as we perform the services based on their 43 established vsoe . we determine the amount of revenue we allocate to the licenses sold with services or maintenance using the residual method of accounting . under the residual method , we allocate the total value of the arrangement first to the undelivered elements based on their vsoe and allocate the remainder to license fees . saas revenues are recognized ratably over the subscription term as the customer has no ability to take delivery of the software , and the underlying arrangements typically include a single fee for the service that is billed monthly , quarterly or annually . stock-based compensation . we estimate the value of options granted on the date of grant using the black-scholes option pricing model . management judgments and assumptions related to volatility , the expected term and the forfeiture rate are made in connection with the calculation of stock compensation expense . we periodically review all assumptions used in our stock option pricing model . changes in these assumptions could have a significant impact on the amount of stock compensation expense . income taxes . story_separator_special_tag revenues replace_table_token_5_th for the year ended april 30 , 2018 , the 6 % increase in total revenues was attributable primarily to a 11 % increase in services and other revenue , a 3 % increase in maintenance revenues partially offset by a 2 % decrease in license revenues . for the year ended april 30 , 2017 , the 7 % decrease in total revenues was attributable primarily to a 29 % decrease in license revenue , a 5 % decrease in services and other revenues partially offset by a 4 % increase in maintenance revenues . due to intensely competitive markets , we discount license fees from our published list price due to pricing pressure in our industry . numerous factors contribute to the amount of the discounts provided , such as previous customer purchases , the number of customer sites utilizing the software , the number of modules purchased and the number of users , type of platform deployment , as well as the overall size of the contract . while all these factors affect the discount amount of one contract , the overall percentage discount has not materially changed in the recent reported fiscal periods . the change in our revenues from period to period is primarily due to the volume of products and related services sold in any period and the amounts of products or modules purchased with each sale . international revenues represented approximately 19 % of total revenues for the year ended april 30 , 2018 , 18 % of total revenues for the year ended april 30 , 2017 , and 17 % for the year ended april 30 , 2016. our international revenues may fluctuate substantially from period to period primarily because we derive these revenues from a relatively small number of customers in a given period . license revenues replace_table_token_6_th for the year ended april 30 , 2018 , license fee revenues decreased by 2 % when compared to the previous year due primarily to lower overall business information technology spending . scm experienced a 1 % decrease in license fees primarily due to the increased sales of our products on our cloud services platform that require revenue to be deferred over the life of the contracted period , which is typically one to three years . our other business segment experienced a 12 % decrease in license fees for the year ended april 30 , 2018 when compared to the same period in the prior year due to the timing of selling into the installed customer base . scm constituted 99 % , 99 % and 98 % of our total license fee revenues for the years ended april 30 , 2018 , 2017 and 2016 , respectively . 48 for the year ended april 30 , 2017 , license fee revenues decreased by 29 % when compared to the previous year due primarily to the economic uncertainty related to the brexit vote in the united kingdom , u.s. elections and lower overall business information technology spending . scm experienced a 28 % decrease in license fees partly due to the overall uncertainty in the direction of the global economy and increased sales of our products on our cloud services platform that require revenue to be deferred over the life of the contracted period , which is typically one to three years . our other business segment experienced a 64 % decrease in license fees for the year ended april 30 , 2017 when compared to the same period in the prior year due to the overall uncertainty in the direction of the global economy and to the timing of selling into the installed customer base . the direct sales channel provided approximately 85 % of license fee revenues for the year ended april 30 , 2018 , compared to approximately 77 % in fiscal 2017 and 79 % in fiscal 2016. the increase in direct license fees from fiscal 2017 to fiscal 2018 was largely the result of higher overall business information technology spending , particularly at our direct channel which tends to be larger size transactions . the decrease in direct license fees from fiscal 2016 to fiscal 2017 was largely the result of economic uncertainty related to the brexit vote in the united kingdom , u.s. elections and lower overall business information technology spending , particularly at our direct channel which tends to be larger size transactions . for the year ended april 30 , 2018 , our margins after commissions on direct sales were approximately 84 % , and our margins after commissions on indirect sales were approximately 36 % . for the year ended april 30 , 2017 , our margins after commissions on direct sales were approximately 85 % , and our margins after commissions on indirect sales were approximately 46 % . for the year ended april 30 , 2016 , our margins after commissions on direct sales were approximately 85 % , and our margins after commissions on indirect sales were approximately 48 % . the margins after commissions were relatively consistent as a range of 84 % to 85 % for direct and a range of 36 % and 48 % for indirect sales . the indirect channel margins for the fiscal year decreased when compared to the same periods in the prior year due to the mix of value-added reseller ( var ) commission rates . dmi is the source of the bulk of our indirect sales and the commission percentage varies based on whether the sale is domestic or international . services and other revenues replace_table_token_7_th the 11 % increase in services and other revenues for the year ended april 30 , 2018 when compared to fiscal 2017 was due primarily to our scm segment which increased 22 % in services and other revenues for the year ended april 30 , 2018 when compared to fiscal 2017 as a result of an increase in services revenue related to our cloud services area and utilization from project implementation services .
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results of operations the following table sets forth certain revenue and expense items as a percentage of total revenues for the three years ended april 30 , 2018 , 2017 , and 2016 and the percentage increases and decreases in those items for the years ended april 30 , 2018 and 2017 : replace_table_token_4_th 45 nmnot meaningful economic overview and significant trends in our business corporate capital spending trends and commitments are the primary determinants of the size of the market for business software . corporate capital spending is , in turn , a function of general economic conditions in the u.s. and abroad and in particular may be affected by conditions in u.s. and global credit markets . in recent years , the weakness in the overall global economy and the u.s. economy in particular has resulted in reduced expenditures in the business software market . in april 2018 , the international monetary fund ( imf ) provided an update to the world economic outlook ( weo ) for the 2018 and 2019 world economic growth forecast . the update noted that , the upswing in global investment and trade continued in the second half of 2017. at 3.8 percent , global growth in 2017 was the fastest since 2011. with financial conditions still supportive , global growth is expected to tick up to a 3.9 percent rate in both 2018 and 2019. advanced economies will grow faster than potential this year and next ; euro area economies are set to narrow excess capacity with support from accommodative monetary policy , and expansionary fiscal policy will drive the us economy above full employment .
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, pcbs populated with electronic components ) , which serve as the foundation of sophisticated electronic products . we focus on providing time-to-market and advanced technology products and offer a one-stop manufacturing solution to our customers from engineering support to prototype development through final volume production . this one-stop manufacturing solution allows us to align technology development with the diverse needs of our customers and to enable them to reduce the time required to develop new products and bring them to market . we serve a diversified customer base consisting of approximately 1,000 customers in various markets throughout the world , including manufacturers of networking/communications infrastructure products , smartphones and touchscreen tablets , as well as the aerospace and defense , high-end computing , and industrial/medical industries . our customers include both original equipment manufacturers and electronic manufacturing services providers . on september 21 , 2014 , ttm , viasystems , and merger sub entered into the merger agreement under which , subject to the satisfaction of certain conditions , we expect to acquire all outstanding shares of viasystems for a combined consideration of $ 11.33 in cash and 0.706 shares of ttm common stock per outstanding share of viasystems common stock , which based on the closing market price on december 31 , 2014 was valued at $ 16.65 per share of viasystems common stock , or approximately $ 361.7 million . the total purchase price of the transaction , including debt assumed , is approximately $ 992.5 million , which was based on the closing market price on december 31 , 2014 and is subject to change prior to the consummation of the merger . concurrently with the execution of the merger agreement , we obtained a debt financing commitment in an aggregate amount of $ 1,115 million in connection with financing the transactions contemplated by the merger agreement . assuming consummation of the merger , we intend to use the aggregate proceeds of such financing arrangements to finance the merger , to refinance certain existing indebtedness of viasystems , to refinance certain of our existing indebtedness , and to pay the fees and expenses incurred in connection with the merger . we are in the process of finalizing the specific financing arrangements . our asia pacific operating segment experiences revenue fluctuations , caused in part by seasonal patterns in the touchscreen tablet and cellular phone industries , which together have become a significant portion of the end markets we serve . this seasonality typically results in higher net sales in the third and fourth quarters due to end customer demand to meet fourth quarter sales of consumer electronics products and lower sales in the first and second quarters . lower sales in the first and second quarters can present utilization challenges for us which negatively impact gross margin . additionally , our labor costs in china have increased significantly over the past several years as a result of mandated increases in the minimum wage and other competitive dynamics , and we operate in a priced competitive industry . the impact of these items , if not offset by yield and productivity improvements and other cost efficiencies , may reduce our gross margins in the future . during the year ended december 29 , 2014 , we experienced a decline in gross and operating margins in our asia pacific operating segment resulting from the underutilization of certain advanced technology production facilities and an unexpected power outage . we experienced underutilization in the first and second quarters of 2014 caused by an increase in capacity to service an expected higher level of business which did not materialize . additionally , in the third quarter of 2014 , we experienced a 5 day production shut down due to an unexpected 43 power outage at one of our advanced technology production facilities which negatively impacted our productivity and yield improvement efforts as we were launching new products and significantly ramping for increased volumes . although we believe these to be unique challenges , we may experience similar challenges in the future which could negatively impact gross margins . while our customers include both oems and ems providers , we measure customers based on oem companies as they are the ultimate end customers . sales to our 5 largest customers accounted for 44 % , 41 % and 33 % of our net sales in 2014 , 2013 and 2012 , respectively . we sell to oems both directly and indirectly through ems providers . the following table shows the percentage of our net sales attributable to each of the principal end markets we served for the periods indicated : replace_table_token_9_th ( 1 ) sales to ems companies are classified by the end markets of their oem customers . ( 2 ) certain reclassifications of prior year end market percentages have been made to conform to the current year presentation . beginning in the first quarter of 2013 , we reclassified substrate pcbs , which were included in the other end market , into the end markets that the substrate pcbs are sold into predominantly cellular phone . ( 3 ) smartphones are included in the cellular phone end market , touchscreen tablets are included in the computing/storage/peripherals end market and other mobile devices such as e-readers are included in the other end market . purchase orders may be cancelled prior to shipment . we charge customers a fee , based on percentage completed , if an order is cancelled once it has entered production . we derive revenues primarily from the sale of pcbs and backplane assemblies using customer-supplied engineering and design plans . we recognize revenues when persuasive evidence of a sales arrangement exists , the sales terms are fixed or determinable , title and risk of loss have transferred , and collectability is reasonably assured generally when products are shipped to the customer . net sales consist of gross sales less an allowance for returns , which typically have been less than 3 % of gross sales . story_separator_special_tag we consider factors such as the state of the economy and reduced expectations for future cash flows coupled with a decline in our market capitalization for a sustained period as indicators for potential goodwill impairment . if the reporting unit 's carrying amount exceeds its estimated fair value , a second step must be performed to measure the amount of the goodwill impairment loss , if any . the second step compares the implied fair value of the reporting unit 's goodwill , determined in the same manner as the amount of goodwill recognized in a business combination , with the carrying amount of such goodwill . if the carrying amount of the reporting unit 's goodwill exceeds the implied fair value of that goodwill , an impairment loss is recognized in an amount equal to that excess . for the year ended december 31 , 2012 our assessment of goodwill impairment indicated that the carrying value of goodwill for our asia pacific reporting unit , in our asia pacific operating segment , was in excess of fair value , and therefore goodwill was impaired . see note 4 to our consolidated financial statements . we periodically evaluate whether events and circumstances have occurred , such that the potential for reduced expectations for future cash flows coupled with a further decline in the market price of our stock and market capitalization may indicate that the remaining balance of goodwill and definite-lived intangible assets may not be recoverable . if factors indicate that assets are impaired , we would be required to reduce the carrying value of our goodwill and definite-lived intangible assets which may result in an impairment charge . we also assess other long-lived assets , specifically definite-lived intangibles and property , plant and equipment , for potential impairment given similar impairment indicators . when indicators of impairment exist related to our long-lived tangible assets and definite-lived intangible assets , we use an estimate of the undiscounted net cash flows and comparison to like-kind assets , as appropriate , in measuring whether the carrying amount of the assets is recoverable . measurement of the amount of impairment , if any , is based upon the difference between the asset 's carrying value and estimated fair value . fair value is determined through various valuation techniques , including cost-based , market and income approaches as considered necessary , which involve judgments related to future cash flows and the application of the appropriate valuation model . during the years ended 2014 , 2013 and 2012 , we recorded impairment charges to reduce the carrying value of certain long-lived assets in the asia pacific operating segment . see notes 4 and 5 to our consolidated financial statements . assets held for sale we classify assets to be sold as assets held for sale when ( i ) we have approved and commit to a plan to sell the asset , ( ii ) the asset is available for immediate sale in its present condition , ( iii ) an active program to locate a buyer and other actions required to sell the asset have been initiated , ( iv ) the sale of the asset is probable , ( v ) the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value , and ( vi ) it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn . assets classified as held for sale are recorded at the lower of the carrying amount or fair value less the cost to sell . assets held for use if a decision to dispose of an asset or a business is made and the held for sale criteria are not met , it is considered held for use . assets of the business are evaluated for recoverability in the following order : ( i ) assets other than goodwill , property and intangibles ; ( ii ) property and intangibles subject to amortization ; and ( iii ) goodwill . in evaluating the recoverability of property and intangible assets subject to amortization , in a held for use business , the carrying value is first compared to the sum of the undiscounted cash flows expected to result from the use and eventual disposition . if the carrying value exceeds the undiscounted expected cash flows , then a fair value analysis is performed . an impairment charge is recognized if the carrying value exceeds the fair value . derivative instruments and hedging activities as a matter of policy , we use derivatives for risk management purposes , and we do not use derivatives for speculative purposes . derivatives are typically entered into as hedges of changes in interest rates , currency exchange rates , and other risks . 46 when we determine to designate a derivative instrument as a cash flow hedge , we formally document the hedging relationship and its risk management objective and strategy for undertaking the hedge , the hedging instrument , the hedged item , the nature of the risk being hedged , how the hedging instrument 's effectiveness in offsetting the hedged risk will be assessed , and a description of the method of measuring ineffectiveness . we also formally assess , both at the hedge 's inception and on an ongoing basis , whether the derivative that is used in hedging transactions is highly effective in offsetting changes in cash flows of hedged items . derivative financial instruments are recognized as either assets or liabilities on the consolidated balance sheet with measurement at fair value . fair value of the derivative instruments is determined using pricing models developed based on the underlying swap interest rate , foreign currency exchange rates , and other observable market data as appropriate . the values are also adjusted to reflect nonperformance risk of the counterparty and our company , as necessary .
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results of operations the following table sets forth the relationship of various items to net sales in our consolidated statement of operations : replace_table_token_10_th we manage our worldwide operations based on two geographic operating segments : 1 ) asia pacific , which consists of five pcb fabrication plants and 2 ) north america , which consists of seven domestic pcb fabrication plants , including a facility that provides follow-on value-added services primarily for one of the pcb fabrication plants , and one backplane assembly plant in shanghai , china , which is managed in conjunction with our u.s. operations . each segment operates predominantly in the same industry with production facilities that produce customized products for their customers and use similar means of product distribution . 48 the following table compares net sales by reportable segment for the years ended 2014 , 2013 and 2012 : replace_table_token_11_th net sales total net sales decreased $ 42.5 million , or 3.1 % , from $ 1,368.2 million for the year ended december 30 , 2013 to $ 1,325.7 million for the year ended december 29 , 2014. net sales for the asia pacific segment , excluding inter-segment sales , decreased $ 38.4 million , or 4.5 % , from $ 847.4 million in the year ended december 30 , 2013 to $ 809.0 million for the year ended december 29 , 2014. this decrease was primarily due to the absence of net sales resulting from the sale of a controlling equity interest in a subsidiary in the second quarter of 2013 , combined with lower demand in our computing/storage/peripherals and cellular phone end markets in the first and second quarters of 2014. this decrease was partially offset by higher demand in our cellular phone end market in the second half of 2014. the overall decline in demand resulted in a 12 % decrease in pcb shipments from the year december 30 , 2013 , and was partially offset by a 9 % increase in
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the three levels of the fair value hierarchy are as follows : level 1 story_separator_special_tag this section of form 10-k generally discusses 2020 and 2019 events and results and year-to-year comparisons between 2020 and 2019. discussions of 2018 items and year-to-year comparisons between 2019 and 2018 that are not included in this form 10-k can be found in “ management 's discussion and analysis of financial condition and results of operations ” in part ii , item 7 of our annual report on form 10-k for the fiscal year ended february 1 , 2020. in management 's discussion and analysis , we explain the general financial condition and the results of operations for our company , including , factors that affect our business , analysis of annual changes in certain line items in the consolidated financial statements , performance of each of our operating segments , expenditures incurred for capital projects and sources of funding for future expenditures . as you read management 's discussion and analysis , please refer to our consolidated financial statements and related notes , included in “ item 8. financial statements and supplementary data ” of this form 10-k. key events and recent developments several key events have had or are expected to have a significant effect on our operations . they are listed below : impact of covid-19 the covid-19 pandemic has materially affected , and likely will continue to affect , our financial condition and results of operations for the foreseeable future . as you review the management 's discussion and analysis of financial condition and results of operations , please keep in mind the following . as an essential business , our stores and distribution centers have remained open during the pandemic ; however , our business trends and financial results are materially different than what we expected . we estimate that our increased costs related to covid-19 for premium pay including bonuses , supplies , protective equipment , and similar items in fiscal 2020 was $ 279.0 million . although we believe that the pandemic has resulted in higher sales at family dollar , we also believe it has resulted in significantly lower sales at dollar tree during the easter season in 2020 and in our party departments . in addition , as a result of fewer customer trips , sales in certain consumable departments such as snacks and candy have been lower . we have experienced fewer customer visits and higher average ticket . the mix and profit margin of products being purchased by our customers has been different and has changed during 2020. as demand for essential goods , including cleaning supplies and sanitizer , household products , paper goods , food and over-the-counter medicine , increased to unprecedented levels , both our domestic suppliers and distribution centers were stressed to keep up with the demand . we expect this disruption with certain vendors and skus to continue into 2021. the effect of covid-19-related stimulus purchases for some other non-essential items may create additional disruptions . we have implemented several changes to support our associates in adhering to cdc recommendations . we have : ◦ activated our business response team to communicate , assess and address potential exposure throughout the organization ; ◦ provided personal protective equipment including masks , gloves and sanitizers for our store and distribution center associates ; ◦ deployed plexiglass sneeze guards for all registers at all stores ; ◦ deployed hand sanitizer stands in each of our stores ; ◦ equipped stores , distribution centers and the store support center with necessary supplies for enhanced cleaning protocol ; ◦ provided wage premiums for all store and distribution center hourly associates , excluding hourly-paid store managers ; ◦ provided minimum guaranteed sales bonuses for each store manager as well as “ thank you ” bonuses and bonuses for certain salaried associates in our field operations and distribution centers ; ◦ provided pay continuation for associates who test positive or who are group 1 associates who have to self-quarantine ; ◦ created a “ store ” within each distribution center to allow our associates to shop for needed supplies at work when supplies were scarce in retail locations ; ◦ eliminated all non-essential air travel ; ◦ utilized technology options for all large group meetings ; ◦ prohibited external visitors ' access to the store support center ; ◦ enabled the majority of our store support center teams to work remotely ; ◦ enabled contactless payments to our pos systems for our customers ; 28 ◦ followed local municipality , county , and state guidelines and regulations needed to be open as an essential business ; ◦ encouraged safe social distancing protocols for our customers with signing , graphics and communications ; ◦ enabled health prescreening questionnaire for all store and distribution associates before entering work ; and ◦ established temperature check protocols for our associates at all distribution centers and the store support center . given the level of volatility and uncertainty surrounding the future impact of covid-19 on our customers , suppliers and the broader economies in the locations that we operate as well as uncertainty around the future impact on our supply chain , it is challenging to predict our future operations and financial results . following is a discussion of the impacts that we have seen and the factors which could influence our future performance . during march 2020 , our dollar tree and family dollar stores began to experience a significant increase in customer demand and sales related to essential products and comparable store net sales increased significantly . however , beginning the last week of march 2020 and continuing into april during the peak of the easter selling season , comparable store net sales at our dollar tree stores decreased . beginning in mid-april , comparable store net sales at our dollar tree stores increased as the comparable easter period from 2019 had passed . story_separator_special_tag ◦ during the first quarter of 2018 , we refinanced our long-term debt obligations as follows : ▪ we completed the registered offering of $ 750.0 million of senior floating rate notes due 2020 , $ 1.0 billion of 3.70 % senior notes due 2023 , $ 1.0 billion of 4.00 % senior notes due 2025 and $ 1.25 billion of 4.20 % senior notes due 2028 ; ▪ we entered into a credit agreement for a $ 782.0 million term loan facility and a $ 1.25 billion revolving credit facility ; ▪ we used the proceeds of the above offerings to repay the $ 2,182.7 million outstanding under our senior secured credit facilities and redeem the remaining $ 2.5 billion outstanding under our acquisition debt , resulting in the acceleration of the expensing of $ 41.2 million of deferred financing costs and our incurring $ 114.3 million in prepayment penalties . ◦ during the fourth quarter of 2018 , we prepaid the $ 782.0 million outstanding under the term loan facility and accelerated the expensing of $ 1.5 million of deferred financing costs . ◦ during the fourth quarter of 2019 , we prepaid $ 500.0 million of the $ 750.0 million senior floating rate notes due 2020 and accelerated the expensing of $ 0.3 million of deferred financing costs . ◦ during the first quarter of 2020 , we repaid the remaining $ 250.0 million outstanding under the senior floating rate notes . ◦ during the first quarter of 2020 , we preemptively drew $ 750.0 million on our revolving credit facility to reduce our exposure to potential short-term liquidity risk in the banking system as a result of the covid-19 pandemic , all of which was repaid by the end of the third quarter of 2020 . ◦ during the fourth quarter of 2020 , we repaid the $ 300.0 million 5.00 % senior notes that we assumed upon the acquisition of family dollar . overview we are a leading operator of more than 15,600 retail discount stores and we conduct our operations in two reporting segments . our dollar tree segment is the leading operator of discount variety stores offering merchandise predominantly at the fixed price of $ 1.00. our family dollar segment operates general merchandise retail discount stores providing consumers with a selection of competitively-priced merchandise in convenient neighborhood stores . our net sales are derived from the sale of merchandise . two major factors tend to affect our net sales trends . first is our success at opening new stores . second is the performance of stores once they are open . sales vary at our existing stores from one year to the next . we refer to this as a change in comparable store net sales , because we include only those stores that are open throughout both of the periods being compared , beginning after the first fifteen months of operation . we include sales from stores expanded or remodeled during the year in the calculation of comparable store net sales , which has the effect of increasing our comparable store net sales . the term ‘ expanded ' also includes stores that are relocated . stores that have been re-bannered are considered to be new stores and are not included in the calculation of the comparable store net sales change until after the first fifteen months of operation under the new brand . 30 at january 30 , 2021 , we operated stores in 48 states and the district of columbia , as well as stores in five canadian provinces . a breakdown of store counts and square footage by segment for the years ended january 30 , 2021 and february 1 , 2020 is as follows : replace_table_token_7_th stores are included as re-banners when they close or open , respectively . comparable store net sales for dollar tree may be negatively affected when a family dollar store is re-bannered near an existing dollar tree store . the average size of stores opened in 2020 was approximately 8,640 selling square feet ( or about 10,800 gross square feet ) for the dollar tree segment and 8,460 selling square feet ( or about 10,360 gross square feet ) for the family dollar segment . for 2021 , we continue to plan to open stores that are 8,000 - 10,000 selling square feet ( or about 10,000 - 12,000 gross square feet ) for the dollar tree segment and 7,000 - 10,000 selling square feet ( or about 9,000 - 12,000 gross square feet ) for the family dollar segment . we believe that these size stores are in the ranges of our optimal sizes operationally and give our customers a shopping environment which invites them to shop longer , buy more and make return visits . fiscal 2020 , fiscal 2019 and fiscal 2018 each included 52 weeks . the percentage change in comparable store net sales on a constant currency basis for the fiscal year ended january 30 , 2021 , as compared with the preceding year , is as follows : replace_table_token_8_th constant currency basis refers to the calculation excluding the impact of currency exchange rate fluctuations . we calculated the constant currency basis change by translating the current year 's comparable store net sales in canada using the prior year 's currency exchange rates . we believe that the constant currency basis provides a more accurate measure of comparable store net sales performance . comparable store net sales are positively affected by our expanded and relocated stores , which we include in the calculation , and are negatively affected when we open new stores , re-banner stores or expand stores near existing stores . dollar tree initiatives we believe that our dollar tree initiatives continue to positively affect our comparable store net sales . in fiscal 2019 , we introduced our crafter 's square initiative in more than 650 stores . this offering includes a new expanded assortment of arts and crafts supplies .
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results of operations our results of operations as a percentage of net sales and year-over-year changes are discussed in the following section . net sales replace_table_token_9_th the increase in net sales from 2019 to 2020 was a result of comparable store net sales increases in the family dollar and dollar tree segments and sales of $ 852.4 million at new stores . these sales increases were partially offset by lost sales resulting from store closures during fiscal 2019 in connection with our family dollar segment store optimization program . enterprise comparable store net sales increased 6.1 % on a constant currency basis in 2020 , as a result of a 20.0 % increase in average ticket and an 11.6 % decrease in customer traffic . comparable store net sales increased 6.0 % when including the impact of canadian currency fluctuations . on a constant currency basis , comparable store net sales increased 10.5 % in the family dollar segment and 2.2 % in the dollar tree segment . lower traffic resulting from the covid-19 pandemic negatively affected easter sales in the dollar tree segment in the first quarter of fiscal 2020. gross profit replace_table_token_10_th the increase in gross profit margin from 2019 to 2020 was a result of the net of the following : occupancy costs decreased 40 basis points as a result of the leverage from the increase in comparable store net sales . markdown costs decreased 25 basis points resulting primarily from the prior year including markdowns related to family dollar store closures and clearance sales as well as lower promotional activity in the current year on the family dollar segment as a result of the increase in sales of discretionary product . both segments also had higher sell-through of both christmas and halloween merchandise .
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( 18 ) includes 333,334 shares that mr. wasserman has the right to acquire at within 60 days upon exercise of stock options . ( 19 ) includes 106,666 shares that ms. strumingher has the right to acquire at within 60 days upon exercise of stock options . ( 20 ) includes 5,595 shares held by mr. kirkland . ( 21 ) the business address for george karfunkel is 1671 52nd street , brooklyn , ny 11204 . ( 22 ) the business address for pro-mall international , ltd. is p.o . box 1586 , georgetown , grand cayman , cayman island ky1-1110.based on information made available to the company , gustavo moriera de souza is the beneficial owner of pro-mall international , ltd. rbc trust company is story_separator_special_tag introduction and certain cautionary statements the following discussion and analysis of the financial condition and results of our operations should be read in conjunction with our consolidated financial statements and related notes and schedules included elsewhere in this annual report . this discussion contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those discussed below . factors that could cause or contribute to such differences include , but are not limited to , intensified competition and or operating problems in its operating business projects and their impact on revenues and profit margins or additional factors , and those discussed in the section entitled “ risk factors ” in part i , item 1a of this annual report . in addition , certain information presented below is based on unaudited financial information . there can be no assurance that there will not be changes to this information once audited financial information is available . completed merger on july 27 , 2011 , the company entered into the merger agreement by and among merger sub , a delaware corporation and a wholly-owned subsidiary of the company , sg building , a delaware corporation ( known as sg blocks , inc. prior to the merger ) , and certain stockholders of sg building . the merger agreement provides for the merger of merger sub with and into sg building , with sg building surviving the merger and becoming a wholly-owned subsidiary of the company . upon consummation of the merger on november 4 , 2011 , sg building became the principal operating business of the company and the company was renamed sg blocks , inc. the merger was a reverse merger that will be accounted for as a recapitalization of sg building , and accordingly sg building is deemed to be the accounting acquirer . the following summaries of the merger and related transactions , the merger agreement and the other agreements entered into by the parties are qualified in their entirety by reference to the text of the agreements , certain of which are attached as exhibits hereto and are incorporated herein by reference . on november 4 , 2011 , pursuant to the terms of the merger agreement , the merger was consummated and merger sub was merged with and into sg building , with sg building surviving the merger and becoming a wholly-owned subsidiary , and only operating business of the company . in connection with the merger , ( i ) each of the 1,786,000 shares of sg building common stock which were outstanding immediately prior to the effective date of the merger were exchanged for 20.1851851852 shares of the company 's common stock and ( ii ) each of the 51,750 outstanding sg building warrants were cancelled and substituted with company warrants of a similar tenor to purchase an aggregate of 1,044,584 shares of the company 's common stock . also , in connection with the merger , 408,750 shares of the company 's common stock were issued for services related to the merger . 18 the number of shares of common stock of the company issued and outstanding immediately following the consummation of the merger on november 4 , 2011 is summarized as follows : number of shares sg building shares outstanding prior to the merger 1,786,000 share exchange ratio ( 20.1851851852 to 1 ) 20.1851851852 x 36,050,764 sg blocks shares outstanding prior to the merger 3,269,992 shares issued in connection with the merger 408,750 39,729,506 in connection with the merger agreement , the company entered into an escrow agreement with former shareholders of sg building in order to provide for any payment to which the company may be entitled with respect to post-closing rights to indemnification under the merger agreement . under the terms of the escrow agreement , the former stockholders of sg building placed in escrow ( with an independent escrow agent ) a total of 817,500 shares of common stock received by them in the merger . such shares of common stock held in escrow will be the company 's sole remedy for rights to indemnification under the merger agreement . claims for indemnification may be asserted by the company until the 5 th business day after the company has filed the annual report on form 10-k with the securities and exchange commission for the year ended december 31 , 2011. general sg building , our wholly-owned subsidiary and only operating business , offers the construction industry a safer , greener , faster , longer lasting and more economical alternative to conventional construction methods . sg building redesigns , repurposes , and converts heavy-gauge steel cargo shipping containers into safe green building blocks for commercial , industrial , and residential building construction . sg building is a provider of code engineered cargo shipping containers that it modifies and delivers to meet the growing demand for safe and green construction . rather than consuming new steel and lumber , sg building capitalizes on the structural engineering and design parameters a shipping container must meet and repurposes them for use in building . story_separator_special_tag in the ordinary course of business , sg building enters into agreements with third parties that include indemnification provisions which , in its judgment , are normal and customary for companies in its industry sector . these agreements are typically with consultants and certain vendors . pursuant to these agreements , sg building generally agrees to indemnify , hold harmless , and reimburse indemnified parties for losses suffered or incurred by the indemnified parties with respect to actions taken or omitted by sg building . the maximum potential amount of future payments sg building could be required to make under these indemnification provisions is unlimited . sg building has not incurred material costs to defend lawsuits or settle claims related to these indemnification provisions . as a result , the estimated fair value of liabilities relating to these provisions is minimal . accordingly , sg building has no liabilities recorded for these provisions as of december 31 , 2011 . 22 critical accounting estimates and new accounting pronouncements critical accounting estimates the preparation of financial statements in accordance with accounting principals generally accepted in the united states requires management to make estimates and assumptions that affect reported amounts and related disclosures in the financial statements . management considers an accounting estimate to be critical if it requires assumptions to be made that were uncertain at the time the estimate was made , and changes in the estimate or different estimates that could have been selected could have a material impact on our consolidated results of operations or financial condition . share-based payments . the company adopted authoritative accounting guidance which establishes standards for share-based transactions in which we receive employee 's services in exchange for equity instruments , such as common stock . these authoritative accounting standards require that we expense the fair value of stock options and similar awards , as measured on the awards ' grant date . the company estimates the value of stock awards using internally developed valuation models . the determination of the fair value of share-based payment awards on the date of grant is affected by our stock price as determined by the valuation model and the assumptions used regarding a number of complex and subjective variables . if factors change and the company employs different assumptions in the application of the relevant accounting guidance in future periods , the compensation expense that it records may differ significantly from what it has recorded in the current period . there is a high degree of subjectivity involved when determining the fair value of our stock to estimate share-based compensation . consequently , there is a risk that the company 's estimates of the fair values of its share-based compensation awards on the grant dates may bear little resemblance to the actual values realized upon the exercise , expiration , early termination or forfeiture of those share-based payments . employee stock grants may be forfeited as worthless or otherwise result in zero value as compared to the fair values originally estimated on the grant date and reported in the company 's consolidated financial statements . alternatively , value may be realized from these instruments that are significantly in excess of the fair values originally estimated on the grant date and reported in the company 's consolidated financial statements . derivative instruments . since inception , sg building has issued warrants to purchase its common stock and convertible notes . in connection with the merger each of the 51,750 outstanding sg building warrants were cancelled and substituted with company warrants of a similar tenor to purchase an aggregate of 1,044,584 of the company 's common stock . in accordance with current accounting guidelines , the company has treated these derivative financial instruments as liabilities on its balance sheet , measured at fair value at issuance date , and re-measured at fair value on each reporting date . the company records changes in the fair value of these derivative liabilities in income or loss on each balance sheet date . the company uses both a black-scholes option and lattice pricing model , which uses the underlying price of its common stock as one of the inputs to determine the fair value at issuance date and at each subsequent reporting period . as a result , the fair value of the derivative instruments is impacted by changes in the market price of its common stock . the market price of the company 's common stock can be volatile and is subject to factors beyond the company 's control . these factors include , but are not limited to , trends in the industries in which the company operates , the market of otc bulletin board quoted stocks in general and sales of the company 's common stock . as a result , the value of its common stock may change from measurement date to measurement date , thereby resulting in fluctuations in the fair value of the derivative instruments , which can materially impact its operating results . revenue recognition . the company ( through sg building ) accounts for its long-term contracts associated with the design , engineering , manufacture and project management of building projects and related services , using the percentage-of-completion accounting method . under this method , revenue is recognized based on the extent of progress towards completion of the long-term contract . contract costs include all direct material and labor costs and those indirect costs related to contract performance . general and administrative costs , marketing and business development expenses and pre-project expenses are charged to expense as incurred . provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined . changes in job performance , job conditions and estimated profitability , including those arising from contract penalty provisions , and final contract settlements may result in revisions to costs and income and are recognized in the period in which the revisions are determined .
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results of operations years ended december 31 , 2011 , 2010 and 2009 : year ended december 31 replace_table_token_1_th year ended december 31 , 2011 compared to the year ended december 31 , 2010 : revenue revenue for the year ended december 31 , 2011 was $ 3,964,796 compared to $ 1,916,565 for the year ended december 31 , 2010. this increase of $ 2,048,231 results from significantly increased block “ green steel ” sales to three customers ( approximately $ 2,400,000 of sales in 2011 ) offset by a decrease of approximately $ 200,000 in engineering and project management jobs during 2011 . 19 the decrease of sales in engineering and project management jobs resulted from sg building having fewer customers in these product areas with lower contracted dollar amounts than during 2010. the reduced number of customers and sales revenue in these product areas is due to management 's decision to focus resources on larger block “ green steel ” projects and thus forgoing proposing on additional engineering and project management jobs during 2011. cost of revenue and gross profit cost of revenue increased by $ 2,068,759 to $ 3,407,918 for the year ended december 31 , 2011 from $ 1,339,159 for the year ended december 31 , 2010. the increase in cost of revenue results from an increase in sales as well as a decrease in gross profit percentage .
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( 7 ) includes ( i ) 1,366,230 shares of common stock and ( ii ) 973,429 shares of common stock subject to currently exercisable warrants held by hound partners offshore fund , lp . 42 ( 8 ) includes ( i ) 150,012 shares of common stock held by mr. rubenstein , ( ii ) 20,000 shares of common stock subject to currently exercisable stock options held by mr. rubenstein , and ( iii ) 792,726 , 583,483 , 309,316 , 194,810 and 1,049 shares of common stock held by woodland venture fund , seneca ventures , woodland partners , brookwood partners , l.p. and marilyn rubenstein , respectively . the aforementioned beneficial ownership by mr. rubenstein is based upon amendment no . 7 to schedule 13d jointly filed by mr. rubenstein and related parties with the securities and exchange commission on november 14 , 2007 and a form 4 filed by mr. rubenstein with the securities and exchange commission on october 26 , 2007. barry rubenstein and woodland services corp. are the general partners of woodland venture fund and seneca ventures . barry rubenstein is the general partner of brookwood partners , l.p. barry rubenstein is the president and sole director of woodland services corp. marilyn rubenstein is the wife of barry rubenstein . barry rubenstein , by virtue of being a general partner of woodland venture fund , seneca ventures and brookwood partners , l.p. and the president and sole director of woodland services corp. , may be deemed to have the sole power to vote and dispose of the securities held by woodland venture fund , seneca ventures , woodland partners and brookwood partners , l.p. the address of barry rubenstein is 68 wheatley road , brookville , new york 11545 . ( 9 ) includes ( i ) 792,726 shares of common stock owned by woodland venture fund and ( ii ) 583,483 shares of common stock owned by seneca ventures . woodland services corp. and barry rubenstein are the general partners of woodland venture fund and seneca ventures . the aforementioned beneficial ownership of woodland services corp. is based upon amendment no . 7 to schedule 13d jointly filed by woodland services corp. and related parties with the securities and exchange commission on november 14 , 2007. barry rubenstein , by virtue of being president and the sole director of woodland services corp. , may be deemed to have the sole power to vote and dispose of the shares owned by woodland services corp. the address of woodland services corp. is 68 wheatley road , brookville , new york 11545 . ( 10 ) emigrant capital corporation ( “ emigrant capital ” ) is a wholly owned subsidiary of emigrant savings bank ( “ esb ” ) , which is a wholly-owned subsidiary of emigrant bancorp , inc. ( “ ebi ” ) which is a wholly-owned subsidiary of new york private bank & trust corporation ( “ nypbtc ” ) . the paul milstein revocable 1998 trust ( the “ trust ” ) owns 100 % of the voting stock of nypbtc . esb , ebi , nypbtc and the trust each may be deemed to be the beneficial owner of the shares of common stock and warrants held by emigrant capital . the aforementioned is based upon a schedule 13g/a filed jointly by emigrant capital , esb , ebi , nypbtc , the trust and others with the securities and exchange commission on january 12 , 2005. howard milstein , by virtue of being an officer of new york private bank and trust corporation and trustee of the paul milstein revocable 1998 trust , both indirect owners of emigrant capital corporation , may be deemed to have sole power to vote and dispose of the securities owned by emigrant capital corporation . the address of emigrant capital corporation is 6 east 43 rd street , 8 th floor , new york , new york 10017 . 43 ( 11 ) includes ( i ) 27,757 shares of common stock , ( ii ) 224,000 shares of common stock subject to currently exercisable stock options owned by mr. kahn and ( iii ) 15,118 shares of common stock owned by stephanie kahn , a daughter of david kahn and 34,000 shares of common stock subject to currently exercisable stock options held by stephanie kahn and rebecca kahn , also a daughter of david kahn . ( 12 ) includes 50,000 shares of common stock and 127,500 shares subject to currently exercisable stock options issued to mr. pons . does not include options to purchase 22,500 shares that are not currently exercisable . ( 13 ) includes 15,000 shares of common stock subject to currently exercisable stock options issued to mr. pearlman . does not include options to purchase 60,000 shares that are not currently exercisable . ( 14 ) includes 2,500 shares subject to currently exercisable options issued to mr. ohana . does not include options to purchase 22,500 shares that are not currently exercisable . the equity compensation plan information presented in item 5 of this annual report is incorporated herein in its entirety . item 13. certain relationships and related transactions and director independence on april 16 , 2010 , our board of directors approved a three year extension of the expiration dates ( which were to expire in 2010 ) for certain outstanding options and warrants to purchase an aggregate of 1,205,000 shares of our common stock , exercisable at $ 0.68 per share , held by corey m. horowitz , our chairman and chief executive officer , and an story_separator_special_tag overview our principal business is the acquisition , development , licensing and protection of our intellectual property . story_separator_special_tag under the terms of the agreement , we have certain obligations to cisco and if we materially breach such terms , cisco will be entitled to stop paying royalties to us . this would have a material adverse effect on our business , financial condition and results of operations . for more details about the july 2010 settlement , please see our current reports on form 8-k filed with the securities and exchange commission on july 20 , 2010 and june 1 , 2011. for the years ended 2011 and 2010 , our royalty revenue from cisco constituted 87 % and 79 % of our revenue , respectively . due to our annual royalty rate structure with cisco which includes declining rates as the volume of poe product sales increase during the year , royalties from cisco are anticipated to be highest in the first quarter of the year and decline for each of the remaining quarters of the year . at december 31 , 2011 , we had net operating loss carryforwards ( nols ) totaling approximately $ 27,000,000 expiring through 2029 , with a future tax benefit of approximately $ 9,450,000. during 2011 , as a result of the company 's recent results and projected future operating results , management determined that a portion of the nol was more likely than not to be utilized resulting in the recording of a one-time , non-cash tax benefit . accordingly , at december 31 , 2011 , $ 6,903,000 has been recorded as a deferred tax benefit on the company 's balance sheet and $ 6,903,000 ( or $ 0.22 per share on a diluted basis ) has also been recorded as income for the year ended december 31 , 2011. to the extent that we earn income in the future , we will report income tax expense and such expense attributable to 25 federal income taxes will reduce the recorded income tax benefit asset reflected on the balance sheet . management will continue to evaluate the recoverability of the nol and adjust the deferred tax asset appropriately . utilization of nol credit carryforwards can be subject to a substantial annual limitation due to ownership change limitations that could occur in the future , as required by section 382 of the internal revenue code of 1986 , as amended , as well as similar state provisions . story_separator_special_tag times new roman ; font-size : 10pt '' > we have financed our operations primarily from royalty revenue from licensing our remote power patent . in accordance with our patent litigation settlement achieved in july 2010 , we received aggregate upfront payments of approximately $ 32 million and cisco agreed to pay us quarterly royalties ( which began for the first quarter of 2011 ) ( see note j [ 2 ] to our financial statements included in this annual report ) . as of december 31 , 2011 our principal sources of liquidity consisted of working capital of approximately of $ 20,402,000 which includes cash and cash equivalents of approximately $ 20,661,000. as of march 1 , 2012 , we had cash and cash equivalents of approximately $ 20,500,000. we believe based on our current cash position and projected licensing revenue from our existing licensing agreements that we will have sufficient cash to fund our operations for the foreseeable future , although this may not be the case . we maintain our cash primarily in savings accounts . we do not have any derivative financial instruments . accordingly , we do not believe that our investments have significant exposure to interest rate risk . working capital decreased by $ 204,000 to $ 20,402,000 at december 31 , 2011 from $ 20,606,000 at december 31 , 2010. the decrease in working capital was primarily due to decreased cash and cash equivalents of $ 687,000 , an investment in marketable securities of $ 556,000 and decreased royalty receivables of $ 579,000 partially offset by decreased current liabilities of $ 439,000 . 27 net cash provided by ( used in ) operating activities for 2011 was $ 1,967,000 compared to net cash provided of $ 19,994,000 for 2010. the net cash provided by operating activities for 2010 includes $ 19,236,000 of net income primarily due to receipt of $ 32,320,000 from settlement of our patent litigation in july 2010 . ( see note j [ 2 ] to our financial statements included in this annual report ) . the cash provided from operating activities for 2011 resulted from increases in deferred tax assets of $ 6,903,000 and security deposits of $ 13,000 and a decrease in accounts payable and accrued expenses of $ 527,000 plus non-cash items including stock based compensation of $ 303,000 , depreciation and amortization of $ 9,000 and non-cash consulting fees of $ 5,000. cash used in investing activities was $ 561,000 which was due to the purchase of a bond . the net cash flows from financing activities for 2011 was $ 2,093,000 consisting of $ 163,000 of proceeds received from the exercise of options offset by repurchase of treasury stock of $ 1,973,000 and shares delivered for withholding taxes of $ 283,000. off-balance sheet arrangements we do not have any off-balance sheet arrangements . contractual obligations we do not have any long-term debt , capital lease obligations , operating lease obligations , purchase obligations or other long-term liabilities except for the lease obligations set forth in note e [ 3 ] to our financial statements included in this annual report . critical accounting policies : patents : we own patents that relate to various telecommunications and data networking technologies . we capitalize the costs associated with acquisition , registration and maintenance of the patents and amortize these assets over their remaining useful lives on a straight-line basis . revenue recognition : we recognize revenue received from the licensing of our intellectual property in accordance with staff accounting bulletin no . 104 , “ revenue recognition ” ( “
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results of operations : year ended december 31 , 2011 compared to year ended december 31 , 2010 revenue . we had revenue of $ 7,398,000 for the year ended december 31 , 2011 ( “ 2011 ” ) as compared to revenue of $ 33,037,000 for the year ended december 31 , 2010 ( “ 2010 ” ) . all such revenue was related to the receipt of royalties pursuant to license agreements for our remote power patent . the revenue for 2010 includes $ 32,320,000 received from the settlement of our patent litigation in july 2010 ( see note j [ 2 ] to our financial statements included in this annual report ) . excluding the july 2010 settlement payments of $ 32,320,000 , royalty revenue was $ 717,000 for 2010 as compared to royalty revenue of $ 7,398,000 for 2011. cost of revenue . we had a cost of revenue of $ 2,160,000 and $ 9,595,000 for 2011 and 2010 , respectively . included in the cost of revenue for 2010 were significant costs associated with the settlement of our patent litigation in july 2010 ( see note j [ 2 ] to our financial statements included in this annual report ) including contingent legal fees of $ 7,471,000 payable to our patent litigation counsel ( see note e [ 2 ] to our financial statements included in this annual report ) and $ 1,651,000 of bonus compensation payable to our chairman and chief executive officer pursuant to his employment agreement ( see note i to our financial statements included in this annual report ) . included in the cost of revenue for 2011 were contingent legal fees of $ 1,736,000 incurred to our patent litigation counsel and $ 370,000 of bonus compensation payable to our chairman and chief executive officer pursuant to his employment agreement . gross profit . the gross profit for 2011 was $ 5,292,000 or 71.5 % of our revenue as compared to $ 23,442,000 or 70.9 % of our revenue .
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the debentures imposed certain covenants on the company including restrictions against paying cash dividends or distributions on shares of its outstanding common stock . the debentures were secured by all of the company 's assets under the terms of a security agreement it entered into with the investors dated december 10 , 2009. in evaluating the accounting for the convertible debentures , the company considered whether the conversion option related to the convertible debentures required bifurcation and separate accounting as a liability at fair value . because the conversion option entitled the holder to convert to a fixed number of shares at a fixed price , the company was not required to bifurcate the conversion option and the related debt host . similarly , the warrant contract entitled the holder to convert to a fixed number of shares at a fixed price and was therefore recorded in stockholders ' equity . of the gross proceeds , approximately $ 786,000 was allocated to the debentures and approximately $ 226,000 to the warrants . the value of the warrants was estimated using a black-scholes option pricing model . the amount allocated to the warrants was recorded as a discount on the debentures and was being amortized to interest expense in the accompanying statements of operations over the term of the debentures . in addition , based on the conversion price of $ 0.75 and relative value of the debentures , a beneficial conversion feature of approximately $ 402,000 was recorded as an additional discount on the debentures and was being amortized to interest expense in the accompanying statements of operations over the term of the debentures . the fair value of the vested warrants was estimated on the grant date using the black-scholes option pricing model with the following assumptions : risk-free interest rate 2.19 % expected term ( in years ) 5 stock price volatility 207 % expected dividend yield 0 % credit facility in january 2011 , the company entered into a loan and security agreement with its primary operating bank . the loan agreement permits the company to borrow , repay , and re-borrow , from time to time until january 31 , 2013 , up to $ 400,000 subject to the terms and conditions of the agreement . the company 's obligations under the loan agreement are secured by a security interest in its equipment and other personal property . interest on the credit facility accrues at an annual rate equal to one percentage point above the prime rate , fixed on the date of each advance . interest on the outstanding amount under the loan agreement is payable monthly . the loan agreement contains customary covenants for credit facilities of this type , including limitations on the disposition of assets , mergers and reorganizations . the company is also obligated to meet certain financial covenants under the loan agreement , including minimum liquidity , for which the company was in compliance as of september 30 , 2012 and 2011. the company had no amounts outstanding under this credit facility as of september 30 , 2012 . 4. stockholders ' equity common stock in october 2010 , the company sold 500,000 shares of common stock at $ 1.50 per share to accredited investors in a private placement , resulting in net proceeds of $ 750,000 . in december 2010 , the company issued 1,418,573 shares of common stock upon the conversion of outstanding convertible debentures as discussed in greater detail in note 3. f-16 in may 2011 , the company entered into a securities purchase agreement with certain accredited investors pursuant to which the company sold to the investors an aggregate of 2,857,143 shares of the company 's common stock at a purchase price of $ 5.25 per share for aggregate gross proceeds of $ 15,000,000 . the company paid cash compensation of approximately $ 1,050,000 in placement agent fees and reimbursed $ 25,000 of placement agent out-of-pocket expenses incurred in connection with the financing . in addition , the company incurred legal fees of approximately $ 80,000 in connection with the private placement , resulting in net proceeds of approximately $ 13,845,000 . warrants historically , the company has granted warrants to purchase its common stock to service providers and investors . as of september 30 , 2012 , there were warrants to purchase 6,667 shares of the company 's common stock outstanding with an exercise price of $ 0.91 per share , subject to adjustment for stock splits , stock dividends and the like . these warrants expire in december 2014. in connection with the issuance of shares of common stock to john h. harland story_separator_special_tag you should read this discussion together with the financial statements , related notes and other financial information included in this form 10-k. the following discussion may contain predictions , estimates and other forward-looking statements that involve a number of risks and uncertainties , including those discussed under item 1arisk factors and elsewhere in this form 10-k. these risks could cause our actual results to differ materially from any future performance suggested below . please see important note about forwardlooking statements at the beginning of this form 10-k. overview mitek systems , inc. is engaged in the development , sale and service of its proprietary software solutions related to mobile imaging solutions and intelligent character recognition software . we apply our patented technology in image capture , correction and intelligent data extraction in the mobile financial and business applications market . our technology for extracting data from any image taken using camera-equipped smartphones and tablets enables the development of consumer-friendly software products that use the camera as a simple mechanism to enter data and complete transactions . story_separator_special_tag we may have difficulty meeting changing market conditions and developing enhancements to our software applications on a timely basis in order to maintain our competitive advantage . our continued growth will ultimately depend upon our ability to develop additional software products and attract strategic alliances that sell such technologies . 20 story_separator_special_tag roman '' > in january 2011 , we entered into a loan and security agreement with our primary operating bank . the loan agreement permits us to borrow , repay and re-borrow , from time to time until january 31 , 2013 , up to $ 400,000 subject to the terms and conditions of the agreement . our obligations under the loan agreement are secured by a security interest in our equipment and other personal property . interest on the credit facility accrues at an annual rate equal to one percentage point above the prime rate , fixed on the date of each advance . interest on the outstanding amount under the loan agreement is payable monthly . the loan agreement contains customary covenants for credit facilities of this type , including limitations on the disposition of assets , mergers and reorganizations . we are also obligated to meet certain financial covenants under the loan agreement , including minimum liquidity , for which we were in compliance as of september 30 , 2012. we had no amounts outstanding under this credit facility as of september 30 , 2012. net cash ( used in ) provided by operating activities net cash used in operating activities during the fiscal year ended september 30 , 2012 was $ 1,778,764 and resulted primarily from hiring additional personnel and other investments in the business . the primary non-cash adjustments to operating activities were stock-based compensation expense of $ 2,599,858 , accretion and amortization on debt securities of $ 261,398 and depreciation and amortization of $ 231,981. these changes in cash used in operating activities were offset by a decrease in accounts receivable of $ 1,862,555 associated with decreased sales and the timing of customer billings and receipt of payments and an increase in deferred revenue of $ 758,855. net cash provided by operating activities during the fiscal year ended september 30 , 2011 was $ 316,168. the primary non-cash adjustments to operating activities were stock-based compensation expense of $ 1,271,238 , non-cash interest expense on the convertible debentures of $ 384,124 , and depreciation and amortization of $ 179,291. cash provided by operating activities also increased due to increases in accrued payroll and related taxes and accounts payable of $ 299,478 and $ 130,393 , respectively , associated with the growth of our business . these changes in cash provided by operating activities were offset by an increase in accounts receivable of $ 1,750,636 associated with increased sales and the timing of customer billings and receipt of payments . net cash provided by investing activities net cash provided by investing activities was $ 2,107,767 during fiscal year 2012 , which consisted of $ 14,635,005 related to the sale and maturity of investments , partially offset by investments of $ 12,187,523 , and $ 339,715 related to the purchase of property and equipment . during the fiscal year ended september 30 , 2011 , net cash used in investing activities was $ 10,819,081 , which consisted of $ 10,614,723 related to the purchase of investments and $ 204,358 related to the purchase of property and equipment . net cash provided by financing activities net cash provided by financing activities was $ 717,371 during fiscal year 2012 , which included net proceeds of $ 732,287 from the exercise of stock options partially offset by principal payments on capital lease obligations of $ 14,916. during the fiscal year ended september 30 , 2011 , net cash provided by financing activities included net proceeds of $ 14,595,366 from private placements of our common stock during fiscal year 2011 and $ 258,214 from the exercise of warrants and stock options . 23 other liquidity matters on september 30 , 2012 , we had investments of $ 7,905,227 , designated as available-for-sale marketable securities , which consisted of commercial paper and corporate issuances , carried at fair value as determined by quoted market prices for identical or similar assets , with unrealized gains and losses , net of tax , and reported as a separate component of stockholders ' equity . all securities whose maturity or sale is expected within one year are classified as current on the balance sheet . all other securities are classified as long-term on the balance sheet . at september 30 , 2012 , we had $ 5,819,537 of our available-for-sale securities classified as current and $ 2,085,690 classified as long-term . at september 30 , 2011 , we had $ 10,187,638 of our available-for-sale securities classified as current and $ 417,230 classified as long-term . we had working capital of $ 11,001,447 at september 30 , 2012 , compared to $ 17,343,700 at september 30 , 2011. based on our current operating plan , we believe the current cash balance and cash expected to be generated from operations will be adequate to satisfy our working capital needs for the next 12 months . critical accounting policies our financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the u.s. ( gaap ) . preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets , liabilities , stockholders ' equity , revenue , expenses and related disclosure of contingent assets and liabilities . management regularly evaluates its estimates and assumptions .
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results of operations comparison of the year ended september 30 , 2012 and 2011 the following table summarizes certain aspects of our results of operations for the year ended september 30 , 2012 compared to the year ended september 30 , 2011 ( in thousands , except percentages ) : replace_table_token_2_th revenue total revenue decreased $ 1,173,292 , or 11 % , to $ 9,092,683 in 2012 compared to $ 10,265,975 in 2011. the decrease was primarily due to a decrease in sales of software licenses of $ 1,736,383 , or 21 % , to $ 6,386,361 in 2012 compared to $ 8,122,744 in 2011. the decrease in software license revenue primarily relates to decreases in sales of our mobile deposit ® and imagenet ® products due to fewer large software licenses by partners and customers in 2012 , compared to 2011. maintenance and professional services revenue increased $ 563,091 , or 26 % , to $ 2,706,322 in 2012 compared to $ 2,143,231 in 2011 primarily due to an increase in recurring maintenance contracts , as well as additional software product sales during 2012. cost of revenue cost of revenue includes the costs of royalties for third party products embedded in our products , personnel costs related to software support and billable professional services engagements , amortization of capitalized software development costs , cost of reproduction of compact discs and other media devices , and shipping costs . cost of revenue increased $ 92,186 , or 8 % , to $ 1,263,920 in 2012 compared to $ 1,171,734 in 2011. the increase is primarily due to an increase in personnel costs related to software support due to additional headcount and increased professional services activity on billable engagements . as a percentage of revenue , cost of revenue increased to 14 % in 2012 compared to 11 % in 2011 primarily due to a smaller mix of higher margin mobile products .
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in addition to affiliations with abc , cbs and fox , our secondary channels are affiliated with numerous smaller networks and program services including , among others , the cw network or the cw plus network ( collectively , “ cw ” ) , my network ( “ my ” or “ my network ” ) , the metv network ( “ metv ” ) , this tv network ( “ this tv ” ) , antenna tv ( “ ant. ” ) , telemundo ( “ tel. ” ) , cozi , heroes and icons ( “ h & i ” ) and movies ! network ( “ movies ” ) . certain of our secondary digital channels are affiliated with more than one network simultaneously . we also broadcast local news/weather channels in some markets ( “ news ” ) . our combined tv station group reaches approximately 10.1 % of total united states television households . based on the consolidated results of the four nielsen “ sweeps ” periods in 2016 , our television stations ( including those acquired in january 2017 ) achieved the # 1 ranking in overall audience in 40 of our 54 markets and the # 1 ranking in local news audience in 39 of our markets . in addition , our stations achieved the # 1 or # 2 ranking in both overall audience and news audience in 52 of our 54 markets . for further information please refer to our markets and stations table in item 1. recent acquisitions and divestitures on february 16 , 2016 , we completed the acquisition of the television and radio broadcast assets of schurz communications , inc. ( “ schurz ” ) for an adjusted purchase price of $ 443.1 million plus transaction related expenses ( the “ schurz acquisition ” ) . to facilitate the regulatory approval of the schurz acquisition , we ( i ) exchanged the assets of kake-tv ( abc ) ( and its satellite stations ) for the assets of lockwood broadcasting , inc. 's television station wbxx-tv ( cw ) and $ 11.2 million of cash , on february 1 , 2016 ; ( ii ) exchanged the assets of wsbt-tv for the assets of sinclair broadcast group , inc. 's television station wluc-tv ( nbc/fox ) on february 16 , 2016 ; and ( iii ) sold the schurz radio broadcast assets to three separate radio broadcasters on february 16 , 2016 ( collectively with the schurz acquisition , the “ schurz acquisition and related transactions ” ) . 37 on may 13 , 2016 , we announced that we agreed to acquire television stations wdtv-tv ( cbs ) and wvfx-tv ( fox , cw ) , a legal duopoly in the clarksburg-weston , west virginia television market ( the “ clarksburg acquisition ” ) from withers broadcasting company of west virginia and withers broadcasting company of clarksburg , llc ( collectively “ withers ” ) for a maximum total purchase price of $ 26.5 million in cash . on june 1 , 2016 , we made a partial payment of $ 16.5 million to withers and acquired the non-license assets of these stations . also , on that date we began to provide services to withers under a local programming and marketing agreement ( an “ lma ” ) . subject to regulatory approval , we currently expect to complete this acquisition later in the first quarter or in the second quarter of 2017. on june 27 , 2016 , we completed the acquisition of kyes-tv ( my , ant . ) , in the anchorage , alaska television market , from fireweed communications , llc ( the “ kyes-tv acquisition ” ) for a purchase price of $ 0.5 million , plus transaction related expenses . collectively , we refer to the stations acquired and retained in 2016 , as well as those which we began operating under an lma in 2016 , as the “ 2016 acquired stations. ” for a more detailed discussion of the 2016 acquired stations , including the consideration paid to complete such transactions and their impact on our operations since the respective acquisition dates , see note 2 “ acquisitions and dispositions. ” during 2015 , we completed six acquisitions which collectively added seven television stations in six markets ( four new markets ) to our operations , and we refer to those stations as the “ 2015 acquired stations. ” during 2014 , we completed seven acquisitions which collectively added 22 television stations in 12 markets ( 10 new markets ) to our operations , and we refer to those stations as the “ 2014 acquired stations. ” unless the context requires otherwise , we refer to the 2016 acquired stations , the 2015 acquired stations and the 2014 acquired stations , collectively , as the “ acquired stations. ” on january 13 , 2017 , we acquired ktvf-tv ( nbc ) , kxdf-tv ( cbs ) , and kfxf-tv ( fox ) in the fairbanks , alaska television market , from tanana valley television company and tanana valley holdings , llc for $ 8.0 million ( the “ fairbanks acquisition ” ) . we completed the fairbanks acquisition with cash on hand . on january 17 , 2017 , we acquired two television stations that were divested by nextstar broadcasting group , inc. ( “ nexstar ” ) upon its merger with media general , inc. ( “ media general ” ) : wbay-tv ( abc ) , in the green bay , wisconsin television market ( the “ green bay acquisition ” ) , and kwqc-tv ( nbc ) , in the davenport , iowa , rock island , illinois , and moline , illinois ( or “ quad cities ” ) television market ( the “ davenport acquisition ” ) , for an adjusted purchase price of $ 269.9 million . we completed these acquisitions with cash on hand . story_separator_special_tag approximately 61 % of the net revenues of our television stations for the year ended december 31 , 2016 were generated from local advertising ( including political advertising revenues ) , which is sold primarily by a station 's sales staff directly to local accounts . approximately 12 % of the net revenues of our television stations for the year ended december 31 , 2016 were generated from national advertising , which is also sold by a station 's sales staff to national accounts . at the beginning of 2016 , we terminated substantially all of our national sales representation agreements . in 2015 and 2014 , these firms also contributed to the sales of advertising contracts to national accounts . 39 broadcast advertising revenue is generally highest in the second and fourth quarters each year . this seasonality results partly from increases in advertising in the spring and in the period leading up to and including the holiday season . broadcast advertising revenue is also generally higher in even-numbered years , due to spending by political candidates , political parties and special interest groups during the “ on year ” of the two-year political advertising cycle . this political spending typically is heaviest during the fourth quarter of such years . our primary broadcasting operating expenses are employee compensation , related benefits and programming costs . in addition , the broadcasting operations incur overhead expenses , such as maintenance , supplies , insurance , rent and utilities . a large portion of the operating expenses of our broadcasting operations is fixed . our total revenue for 2016 increased from 2015 primarily as a result of the impact from our 2016 acquired stations and 2015 acquired stations . our retransmission consent revenue increased in 2016 compared to 2015 due to increased subscriber rates and the impact from our acquired stations . local and national advertising revenue also included approximately $ 8.2 million of advertising revenue related to our broadcasts of the 2016 olympic games in 2016. local and national advertising revenue included approximately $ 1.6 million of revenue from the broadcast of the 2016 super bowl on our cbs channels , an increase of approximately $ 0.1 million compared to the $ 1.5 million of revenue from the broadcast of the 2015 super bowl on our nbc channels . automotive advertisers have traditionally accounted for a significant portion of our revenue . for the years ended december 31 , 2016 and 2015 , we derived approximately 22 % and 24 % , respectively , of our total broadcast advertising revenue from customers in the automotive industry . strong demand for our advertising inventory from political advertisers can require significant use of available inventory , which in turn can lower our advertising revenue from our non-political advertising revenue categories in the even numbered “ on-year ” of the two year political advertising cycle . these temporary declines would be expected to reverse themselves in the odd numbered “ off-year ” of the two year political advertising cycle . while our revenues have experienced a gradual improvement as a result of improvements in general economic conditions in recent years , revenue remains under pressure from the internet as a competitor for advertising spending . we continue to enhance and market our internet websites in an effort to generate additional revenue . our aggregate internet revenue is derived from both advertising and sponsorship opportunities directly on our websites . we continue to monitor our operating expenses and seek opportunities to reduce them where possible . our total operating expenses for the year ended december 31 , 2016 increased over 2015 amounts primarily due to the addition of the 2016 acquired stations and the 2015 acquired stations , as well as to increases in salaries , transaction expenses , non-cash compensation , severance , healthcare expense , and payroll taxes . reclassification of revenue through 2015 , we reported our local television advertising revenues and our internet advertising revenues ( internet/digital/mobile ) separately . in 2016 , we began reporting a single line item identified as “ local ( including internet/digital/mobile ) ” that combines both our local television advertising revenues and our internet/digital/mobile advertising revenues . because this revenue primarily originates within each local market in which we operate and is sold by the same local sales force , we believe this classification is more consistent and more representative of our operating focus , to maximize all aspects of local revenue . prior period amounts presented herein have been reclassified to reflect our current presentation . 40 please see our “ results of operations ” and “ liquidity and capital resources ” sections below for further discussion of our operating results . revenue set forth below are the principal types of revenue , less agency commissions , earned by us for the periods indicated and the percentage contribution of each to our total revenue ( dollars in thousands ) : replace_table_token_7_th risk factors the broadcast television industry is reliant primarily on advertising revenue and faces significant competition . for a discussion of certain other presently known , significant factors that may affect our business , see “ item 1a . risk factors ” included herein . story_separator_special_tag roman '' > 42 amortization of intangible assets amortization of intangible assets totaled $ 16.6 million and $ 12.0 million for 2016 and 2015 , respectively . amortization expense increased in 2016 compared to 2015 due to the amortization expense associated with the acquisition of finite-lived intangible assets of the 2016 acquired stations and the 2015 acquired stations . interest expense interest expense increased $ 22.8 million , or 31 % , to $ 97.2 million for 2016 compared to 2015. interest expense increased due to an increase in our average principal outstanding , partially offset by a decrease in our average interest rates . our average debt balance was $ 1.6 billion and $ 1.2 billion during 2016 and 2015 , respectively . our average debt balance increased as a result of increased borrowings used to finance our acquisitions .
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results of operations year ended december 31 , 2016 ( “ 2016 ” ) compared to year ended december 31 , 2015 ( “ 2015 ” ) revenue total revenue increased $ 215.1 million , or 36 % , to $ 812.5 million for 2016 compared to 2015. local advertising revenue increased approximately $ 66.9 million , or 20 % , to $ 403.3 million . national advertising revenue increased approximately $ 17.2 million , or 21 % , to $ 98.4 million . the 2016 acquired stations and the 2015 acquired stations had a significant impact on our revenues together accounting for approximately $ 187.8 million and $ 23.2 million of our total revenue in 2016 and 2015 , respectively . local and national advertising revenue in 2016 benefited from approximately $ 8.2 million earned from the broadcast of the 2016 summer olympic games on our nbc channels . there was no corresponding olympic games advertising revenue during 2015. in 2016 , local and national advertising revenue included approximately $ 1.6 million of revenue from the broadcast of the 2016 super bowl on our cbs channels , an increase of approximately $ 0.1 million from the $ 1.5 million of revenue from the broadcast of the 2015 super bowl on our nbc channels . excluding the impact of the 2016 acquired stations and the 2015 acquired stations : local revenue decreased by $ 6.7 million and national revenue decreased $ 6.2 million in 2016 compared to 2015 , in part , as a result of inventory displacement resulting from increased political advertising revenue ; retransmission consent revenue increased $ 12.8 million in 2016 compared to 2015 , primarily due to increased subscriber rates ; and political advertising revenue increased $ 50.1 million , in 2016 compared to 2015 , reflecting increased advertising from political candidates and special interest groups during the “ on year ” of the two-year political advertising cycle .
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at december 31 , 2015 , the company had federal and state net operating loss carryforwards of story_separator_special_tag you should read the following discussion and analysis of financial condition and results of operations together with item 6. selected financial data and our financial statements and related notes included elsewhere in this annual report on form 10-k. this discussion and other parts of this annual report on form 10-k contain forward-looking statements that involve risk and uncertainties , such as statements of our plans , objectives , expectations and intentions . our actual results could differ materially from those discussed in these forward-looking statements . factors that could cause or contribute to such differences include , but are not limited to , those discussed in item 1a . risk factors of this annual report on form 10-k. overview chemocentryx is a biopharmaceutical company focused on discovering , developing and commercializing orally-administered therapeutics to treat orphan and rare diseases , autoimmune diseases , inflammatory disorders and cancer . our pipeline comprises the following programs : orphan and rare diseases : ccx168 is an orally-administered complement inhibitor targeting the c5a receptor ( c5ar ) and is being developed for orphan and rare diseases , including anti-neutrophil cytoplasmic antibody , or anca , associated vasculitis , or aav , atypical hemolytic uremic syndrome , or ahus , and immunoglobulin a-mediated nephropathy , or igan . ccx168 has successfully completed and reported positive clinical data from the first phase ii clinical trial in patients with aav , known as the clear trial . this study met its primary endpoint whereby treatment with ccx168 demonstrated numerical superiority and statistical non-inferiority in birmingham vasculitis activity score , or bvas , response relative to standard of care . the second phase ii clinical trial in patients with aav , the classic trial , is ongoing in north america and we expect to report top-line data from this trial in mid 2016. following classic data in mid 2016 , we plan to conduct end-of-phase ii meetings with regulatory agencies and initiate the phase iii development program in patients with aav by the end of 2016. phase ii pilot clinical trials with ccx168 in patients with ahus and igan are ongoing . immuno-oncology : ccx872 is being evaluated in patients with non-resectable pancreatic cancer , and is our second inhibitor of the chemokine receptor known as ccr2 . ccx872 completed phase i clinical development in healthy volunteers . a phase ib clinical trial in patients with advanced pancreatic cancer is ongoing . having recently presented pharmacodynamic and pharmacokinetic , or pk , data from the first step of the study , we expect to report early objective response rate data in the first half of 2016 and initial progression free survival , or pfs , data in the second half of 2016. chemoattractant receptor targets ccr1 , ccr4 , ccr5 , cxcr2 , cxcr7 we believe these chemokine and chemoattractant receptors play an important role in establishing a tumor microenvironment that suppresses a cytotoxic immune response . we have discovered small molecule inhibitors targeting these chemoattractant receptors , which may be developed in certain oncology indications targeting both solid and liquid tumors . we believe that such immunotherapeutic agents could be administered as stand-alone therapies or result in a synergistic effect when given in combination with traditional chemotherapies or other immunotherapies , such as programmed cell death protein 1 , or pd-1/programmed death ligand 1 , or pd-l1 antibodies . chronic kidney disease : ccx140 is an inhibitor of the chemokine receptor known as ccr2 ( distinct from ccx872 above ) and is being developed as an orally administered therapy for the treatment of diabetic nephropathy , or dn , 64 a form of chronic kidney disease . we have successfully completed and reported positive data from a phase ii clinical trial in patients with dn . the trial met its primary endpoint by demonstrating that treatment with 5mg of ccx140 given orally once daily added to a standard of care angiotensin converting enzyme , or ace , inhibitor or angiotensin ii receptor blocker , or arb treatment resulted in a statistically significant improvement in urinary albumin to creatinine ratio , or uacr , beyond that achieved with standard of care alone . we are preparing to conduct an end-of-phase ii meeting with the u.s. food and drug administration , or fda . other inflammatory and autoimmune diseases : th-17 cell-driven inflammation and ccr6 th-17 driven cells have been implicated in a variety of autoimmune and inflammatory diseases such as psoriasis , rheumatoid arthritis , and asthma . th-17 cells express high levels of the chemokine receptor known as ccr6 , which induces their migration to and activation within disease sites . we have a preclinical program in the inhibition of ccr6 which has produced several unique ccr6 inhibitor leads that are now being optimized through medicinal chemistry approaches , which we plan to advance to a clinical candidate . vercirnon ( also known as traficet-en , or ccx282 ) is an inhibitor of the chemokine receptor known as ccr9 , and being developed as an orally administered therapy for the treatment of patients with moderate-to-severe crohn 's disease . vercirnon is ready to continue development in phase iii with a partner , should an alliance partner be identified for this program . ccx507 is our second generation ccr9 inhibitor for the treatment of inflammatory bowel disease , or ibd . ccx507 has successfully completed phase i clinical development , which demonstrated that ccx507 was safe and well-tolerated , and blocked ccr9 on circulating leukocytes . we also presented preclinical data with ccx507 in combination with an anti- a 4ß7 or anti-tnf antibody showing combined treatment reduced the severity of colitis better than monotherapy with either drug alone . all of our drug candidates are wholly owned and being developed independently by us . our strategy also includes identification of next generation compounds related to our drug candidates , all of which have been internally discovered . story_separator_special_tag for 66 multiple element arrangements entered into prior to our adoption of accounting standards update , or asu no.2009-13 , revenue recognition multiple deliverable revenue arrangements , on january 1 , 2011 , intellectual property rights granted were not considered to be separable from the activity of providing research and development services because the intellectual property right does not have stand-alone value separate from the research and development services provided or evidence of fair value does not exist for the undelivered research and development services . accordingly , we account for our collaboration agreements as a combined unit of accounting . the revenue from up-front payments is recognized on a straight-line basis over the estimated term of the research and development obligations covered under the research and development collaboration agreement . we periodically review the basis for our estimates , and we may change the estimates if circumstances change . these changes can significantly increase or decrease the amount of revenue recognized . as we applied our policy to our collaboration arrangements , we made judgments which affected the pattern of revenue recognition . for instance , in our former arrangement with glaxo group limited , or gsk , an affiliate of glaxosmithkline , we were obligated to provide research and development services . we recognized revenue from up-front payments over the estimated period of our performance of the research and development services , which ended in october 2013 , the completion date of the phase ii clinical trial for the last of the drug candidates to be developed under the gsk alliance . in february 2012 , we shortened the term of our performance obligation and associated period over which the up-front payments were recognized under our arrangement with gsk following the decision by us and gsk not to advance ccx832 or its two designated back-up compounds . this change in estimate was accounted for prospectively and we revised the estimated period of performance prospectively in 2012 to end by october 2013 , which increased the annualized revenue recognition by approximately $ 0.9 million per year . we follow the milestone method of recognizing revenue from milestones and milestone payments are recorded as revenue in full upon achievement of the milestone if there is substantive uncertainty at the date the arrangement is entered into that the event will be achieved and the achievement of the milestone is based on our performance . clinical trial accruals and related expenses we accrue and expense costs for clinical trial activities performed by third parties , including clinical research organizations , or cros , and clinical investigators , based upon estimates made as of the reporting date of the work completed over the life of the individual study in accordance with agreements established with cros and clinical trial sites . some cros invoice us on a monthly basis , while others invoice upon milestones achieved and the expense is recorded as services are rendered . we determine the estimates of clinical activities incurred at the end of each reporting period through discussion with internal personnel and outside service providers as to the progress or stage of completion of trials or services , as of the end of each reporting period , pursuant to contracts with numerous clinical trial centers and cros and the agreed upon fee to be paid for such services . the significant factors considered in estimating accruals include the number of patients enrolled and the percentage of work completed to date . costs of setting up clinical trial sites for participation in the trials that are paid for in advance are expensed over the estimated set-up period . while the set-up periods vary from one arrangement to another , such set-up periods generally take from two to six months . such set-up activities include clinical site identification , local ethics committee submissions , regulatory submissions , clinical investigator kick-off meetings and pre-study site visits . clinical trial site costs related to patient enrollments are accrued as patients are entered into the trial . to date , we have not experienced significant changes in our estimates of clinical trial accruals after a reporting period . however , due to the nature of estimates , we can not assure you that we will not make changes to our estimates in the future as we become aware of additional information about the status or conduct of our clinical trials . 67 stock-based compensation stock-based compensation cost is measured at the grant date , based on the fair value of the award , and is recognized as an expense over the employee 's requisite service period on a straight line basis . the fair value of the stock options is estimated using the black-scholes valuation model . we recorded non-cash stock-based compensation expense of $ 9.0 million , $ 8.2 million , and $ 6.2 million for the years ended december 31 , 2015 , 2014 , and 2013 , respectively . at december 31 , 2015 and 2014 , we had $ 12.6 million and $ 13.1 million , respectively , of total unrecognized stock-based compensation expense , net of estimated forfeitures , related to employee stock options that will be recognized over a weighted-average period of 2.36 years and 2.56 years , respectively . we expect to continue to grant stock options in the future , and to the extent that we do , our actual stock-based compensation expense recognized in future periods will likely increase . prior to our ipo , our board of directors , with the assistance of management and independent consultants , performed fair value analyses for the valuation of our common stock .
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results of operations revenues we have not generated any revenue from product sales . for the year ended december 31 , 2013 our revenues were derived from contract revenue , up-front payments and development milestone payments from our former collaborator partner , gsk . total revenues , as compared to the prior years , were as follows ( in thousands ) : replace_table_token_6_th our product development and commercialization agreement with gsk ended in november 2013 , and therefore no revenue was recorded in 2014 and 2015. the decrease in total revenues from 2013 to 2014 was due to funding of clinical support in 2013 from our former partner , gsk , for ccx168 , our c5ar inhibitor , for the treatment of aav . research and development expenses research and development expenses represent costs incurred to conduct basic research , the discovery and development of novel small molecule therapeutics , development of our suite of proprietary drug discovery 68 technologies , preclinical studies and clinical trials of our drug candidates . we expense all research and development expenses as they are incurred . these expenses consist primarily of salaries and related benefits , including stock-based compensation , third-party contract costs relating to research , formulation , manufacturing , preclinical study and clinical trial activities , laboratory consumables , and allocated facility costs .
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aspen insurance holdings limited by : christopher o'kane name : christopher o'kane title : chief executive officer date : february 22 , 2018 power of attorney know all men by these presents , that the undersigned directors and officers of the company , a bermuda limited liability company , which is filing a form 10-k with the securities and exchange commission , washington , d.c. 20549 under the provisions of the securities act of 1934 hereby constitute and appoint christopher o'kane and scott kirk , and each of them , the individual 's true and lawful attorneys-in-fact and agents , with full power of substitution and resubstitution , for the person story_separator_special_tag the following is a discussion and analysis of our financial condition and results of operations for the twelve months ended december 31 , 2017 , 2016 and 2015 . this discussion and analysis should be read in conjunction with our audited consolidated financial statements and related notes contained in this report . this discussion contains forward-looking statements that involve risks and uncertainties and that are not historical facts , including statements about our beliefs and expectations . our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors , including those discussed below and particularly under the headings “ risk factors , ” “ business ” and “ cautionary statement regarding forward-looking statements ” contained in item 1a , item 1 , and part i of this report , respectively . aspen 's year in review the insurance and reinsurance industry continued to be challenged in 2017 as a result of the impact of a series of costly catastrophe events and losses . in addition , although rates generally increased following the catastrophes in the third and fourth quarters of 2017 , the industry has experienced years of rate reductions across many lines of business in both insurance and reinsurance . business portfolio optimization . in 2017 , we launched a comprehensive program to enhance operating effectiveness and efficiency across our organization and enhance our market position ( the “ effectiveness and efficiency program ” ) . the effectiveness and efficiency program is intended to allow us to be a more nimble organization with faster decision-making ability and a more competitive expense ratio . we expect the effectiveness and efficiency program to deliver cumulative total expense savings of approximately $ 160 million over the next three years . we expect to achieve approximately $ 30 million of the savings in 2018 , $ 55 million in 2019 and $ 75 million in 2020 , after which run-rate savings are expected to be approximately $ 80 million per year . we expect approximately 70 % of the total expected savings to benefit our insurance segment . we likewise expect to incur pre-tax charges of approximately $ 95 million to implement the effectiveness and efficiency program and achieve the expected savings , the majority of which we expect will be incurred in 2018 and 2019. approximately $ 50 million of this charge is for employee severance , benefits and related expenses , $ 30 million for business transformation and effectiveness and efficiency program costs , and $ 15 million for outsourcing and premises . we also expect to spend a total of approximately $ 55 million in incremental capital expenditure , primarily information technology , in 2018 and 2019 that we expect to be amortized over a period of three to five years from the start of 2020. in 2017 , we have recognized $ 15.2 million of expense associated with the effectiveness and efficiency program . in our insurance segment , we experienced a significant underwriting loss due to a combination of catastrophe losses and an increased incidence of large losses and attritional losses . gross written premium for the insurance segment was $ 1.81 billion in 2017 , an increase of 4.5 % from 2016 . our combined ratio in insurance was 117.9 % in 2017 compared to 99.6 % in 2016 . in our reinsurance segment , our results were dominated by the significant level of natural catastrophe losses primarily in the u.s. gross written premium for the reinsurance segment for 2017 was $ 1.55 billion , an increase of 9.6 % from 2016 , with growth primarily in specialty lines . the combined ratio was 125.1 % in 2017 compared to 90.0 % in 2016 . on december 18 , 2017 , the company acquired through its wholly-owned subsidiary , aspen u.s. holdings , a 23.2 % share of crop re services llc ( “ crop re ” ) , a newly formed u.s.-based subsidiary of cgb diversified services , inc ( “ cgb ds ” ) in exchange for the sale of ag logic holdings , llc and its affiliates ( “ agrilogic ” ) , the company 's u.s. crop insurance business . for further information regarding this transaction , see note 6 of our consolidated financial statements , “ investments. ” total ceded written premiums in 2017 increase d by $ 595.1 million compared to 2016 . ceded written premiums increased in both our insurance and reinsurance segments due to the purchase of a whole account quota share contract . ceded reinsurance premiums increased for our insurance segment due to the restructure of our ceded reinsurance arrangements through the use of significant quota share reinsurance arrangements and the recognition of ceded premiums to reinstate cover following catastrophe and other large losses . ceded premiums also increased in the reinsurance segment due to increased gross written premiums written in conjunction with increased retrocession to third parties , an increase in ceded reinsurance premiums following the sale of agrilogic in december 2017 and due to the recognition of additional ceded premiums as a result of reinstating cover following catastrophe losses . capital management . we continue to focus on capital management and maintain our capital at an appropriate level . in 2017 , we repurchased 648,941 ordinary shares for a total consideration of $ 30.0 million . story_separator_special_tag we recognized a tax credit in 2017 of $ 15.4 million ( 2016 — $ 6.1 million expense ; 2015 — $ 14.4 million expense ) , equivalent to a consolidated rate on our loss before tax of 5.5 % in 2017 compared to a consolidated rate on our profit before tax of 2.9 % in 2016 and 4.3 % in 2015 . the income tax credit for 2017 takes into account a tax credit associated with the adoption of asu 2016-09 , “ compensation - stock compensation ” and a tax credit regarding deductions available for certain research and development expenditure . the tax credit in 2017 has not been materially affected by the u.s. tax cuts and jobs act which was 77 signed on december 22 , 2017. the impact of the u.s. federal income tax rate reduction from 34 % to 21 % has been reflected in measuring deferred taxes . the effective tax rate for the year is subject to revision in future periods if circumstances change and depends on the relative profitability of the business underwritten in bermuda ( where the rate of tax on corporate profits is zero ) , the united kingdom ( where the corporation tax rate is 19 % and will be reduced to 17 % effective april 1 , 2020 ) and the united states ( where the federal income tax rate was previously 34 % and has been reduced to 21 % effective january 1 , 2018 ) . the tax in each of the years is representative of the geographic spread of our business between taxable and non-taxable jurisdictions in such years . net income . we reported a net loss after taxes of $ 266.4 million in 2017 compared to net income of $ 203.4 million in 2016 and net income of $ 323.1 million in 2015 . the net loss in 2017 was primarily due to the $ 625.5 million decrease in underwriting income resulting mainly from a $ 409.6 million increase in catastrophe losses , a $ 330.7 million reduction in net earned premiums and a $ 23.9 million reduction in reserve releases , partially offset by a $ 116.3 million reduction in expenses . the decrease in income after tax in 2016 compared to 2015 was due primarily to a $ 137.7 million decrease in underwriting income resulting from higher catastrophe losses , lower reserve releases and increased expenses partially offset by growth in premiums earned . other comprehensive income . total other comprehensive income decreased by $ 50.8 million ( 2016 — $ 64.7 million decrease ) , net of taxes , for the twelve months ended december 31 , 2017 . this consists of a net unrealized loss of $ 9.2 million in the available for sale investment portfolio ( 2016 — $ 28.8 million net unrealized loss ) largely attributable to the impact of rising interest rates on our bond portfolios , a $ 3.6 million reclassification of net realized gains to net income ( 2016 — $ 8.9 million reclassified realized gains ) , a $ 2.6 million unrealized gain ( 2016 — $ 0.7 million unrealized gain ) on the hedged derivative contracts and an unrealized loss in foreign currency translation of $ 40.6 million ( 2016 — $ 27.7 million unrealized loss ) largely attributable to the impact from the continued strengthening of the u.s. dollar . dividends . in april 2017 , the board approved an increase in the quarterly dividend on our ordinary shares from $ 0.22 per ordinary share to $ 0.24 per ordinary share ( 2016 — $ 0.22 quarterly dividend ; 2015 — $ 0.20 quarterly dividend ) . this resulted in total ordinary dividends for 2017 of $ 56.2 million ( 2016 — $ 52.7 million ; 2015 — $ 50.9 million ) . dividends paid on the outstanding preference shares in 2017 were $ 36.2 million ( 2016 — $ 41.8 million ; 2015 — $ 37.8 million ) . the reduction in dividends in 2017 was due to the redemption of the 7.401 % and 7.250 % preference shares . shareholders ' equity and financial leverage . total shareholders ' equity decrease d by $ 719.8 million from $ 3,648.3 million as at december 31 , 2016 to $ 2,928.5 million as at december 31 , 2017 . the most significant movements were : a decrease of $ 365.4 million in retained earnings due to the net loss of $ 266.4 million and the payment of $ 92.4 million in ordinary and preference share dividends ; a reduction of $ 50.8 million in other comprehensive income ; the redemption of $ 133.2 million 5,327,500 7.401 % preference shares ; the redemption of $ 160.0 million 6,400,000 7.250 % preference shares ; and the repurchase of 648,941 ordinary shares for $ 30.0 million through open market and other repurchases . as at december 31 , 2017 , our total shareholders ' equity included preference shares with a total value as measured by their respective liquidation preferences of $ 525.0 million ( 2016 — $ 818.2 million ) less issue costs of $ 13.1 million ( 2016 — $ 21.1 million ) . our senior notes were the only material debt issued by aspen holdings as at december 31 , 2017 and 2016 totaling $ 549.5 million and $ 549.3 million , respectively . in addition to the senior notes , we also reported $ 86.6 million ( 2016 — $ 223.4 million ) of debt issued by silverton . for further information relating to silverton , refer to note 7 of our consolidated financial statements , “ variable interest entities. ” management monitors the ratio of the total of debt and hybrids to total capital , with total capital being defined as shareholders ' equity plus outstanding debt and excluding loan notes issued by variable interest entities . as at december 31 , 2017 , the debt to capital ratio was 15.8 % ( 2016 — 13.1 % ) .
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operating highlights gross written premiums of $ 3,360.9 million in 2017 , an increase of 6.8 % from 2016 . combined ratio of 125.7 % for 2017 , including $ 561.9 million , or 24.6 percentage points of pre-tax catastrophe losses , net of reinsurance and reinstatements , compared with 98.5 % for 2016 , which included $ 164.4 million or 6.3 percentage points of pre-tax catastrophe losses , net of reinsurance and reinstatements , and 91.9 % for 2015 , which included $ 90.5 million or 3.7 percentage points of pre-tax catastrophe losses , net of reinsurance and reinstatements . net favorable development on prior year loss reserves of $ 105.4 million , or 4.6 combined ratio points , for 2017 compared with $ 129.3 million , or 4.9 combined ratio points , for 2016 , and $ 156.5 million , or 6.3 combined ratio points , for 2015 . annualized net return on average equity of an 11.1 % loss for 2017 compared with a 5.4 % gain in 2016 and a 10.0 % gain in 2015 . gross written premiums . the changes in our segments ' gross written premiums for the twelve months ended december 31 , 2017 , 2016 and 2015 were as follows : replace_table_token_13_th in 2017 , gross written premiums in our reinsurance segment increase d by 9.6 % compared to 2016 due primarily to growth in specialty reinsurance business lines . the 4.5 % increase in gross written premiums in our insurance segment in 2017 was due to growth in financial and professional lines insurance . overall gross written premiums in 2017 increased by 6.8 % . in 2016 gross written premiums increased by 5.0 % compared to 2015 due primarily to growth in specialty reinsurance and casualty reinsurance business lines . ceded written premiums . ceded written premiums in 2017 increased by 107.6 % compared to 2016 .
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medley may also earn consulting fees for providing non-advisory services related to our managed funds . these fees are recognized as revenue over the period to which the fees directly relate . f- 14 medley management inc. notes to story_separator_special_tag the following discussion and analysis should be read in conjunction with our audited consolidated financial statements and related notes as of december 31 , 2018 and 2017 and for the years ended december 31 , 2018 , 2017 and 2016 included in this form 10-k. 43 overview we are an alternative asset management firm offering yield solutions to retail and institutional investors . we focus on credit-related investment strategies , primarily originating senior secured loans to private middle market companies in the u.s. that have revenues between $ 50 million and $ 1 billion . we generally hold these loans to maturity . our national direct origination franchise provides capital to the middle market in the u.s. over the past 17 years , we have provided capital to over 400 companies across 35 industries in north america . we manage three permanent capital vehicles , two of which are bdcs and one interval fund , as well as long-dated private funds and smas , focusing on senior secured credit . permanent capital vehicles : mcc , sic and strf , have a total aum of $ 1.9 billion as of december 31 , 2018 . long-dated private funds and smas : mof ii , mof iii , mof iii offshore , mcof , aspect , aspect b , mcc jv , sic jv and smas , have a total aum of $ 2.8 billion as of december 31 , 2018 . as of december 31 , 2018 , we had $ 4.7 billion of aum , $ 1.9 billion in permanent capital vehicles and $ 2.8 billion in long-dated private funds and smas . our aum as of december 31 , 2018 declined by 9 % year over year which was driven primarily by mcc , due to voluntarily satisfying and terminating its commitments under its revolving credit facility with ing capital llc in accordance with its terms , along with changes in fund values . our compounded annual aum growth rate from december 31 , 2010 through december 31 , 2018 was 21 % and our compounded annual fee earning aum growth rate was 15 % , both of which have been driven in large part by the growth in our permanent capital vehicles . as of december 31 , 2018 , we had $ 2.8 billion of fee earning aum which consisted of $ 1.8 billion in permanent capital vehicles and $ 1.0 billion in long-dated private funds and smas . typically the investment periods of our institutional commitments range from 18 to 24 months and we expect our fee earning aum to increase as capital commitments included in aum are invested . in general , our institutional investors do not have the right to withdraw capital commitments and , to date , we have not experienced any withdrawals of capital commitments . for a description of the risk factor associated with capital commitments , see “ risk factors – third-party investors in our private funds may not satisfy their contractual obligation to fund capital calls when requested , which could adversely affect a fund 's operations and performance ” included in this annual report on form 10-k. direct origination , careful structuring and active monitoring of the loan portfolios we manage are important success factors in our business , which can be adversely affected by difficult market and political conditions . since our inception in 2006 , we have adhered to a disciplined investment process that employs these principles with the goal of delivering strong risk-adjusted investment returns while protecting investor capital . we believe that our ability to directly originate , structure and lead deals enables us to achieve these goals . in addition , the loans we manage generally have a contractual maturity of between three and seven years and are typically floating rate , which we believe positions our business well for rising interest rates . the significant majority of our revenue is derived from management fees , which include base management fees earned on all of our investment products as well as part i incentive fees earned from our permanent capital vehicles and certain of our long-dated private funds . our base management fees are generally calculated based upon fee earning assets and paid quarterly in cash . our part i incentive fees are typically calculated based upon net investment income , subject to a hurdle rate , and are also paid quarterly in cash . we also may earn carried interest from our long-dated funds and contractual performance fees from our smas . typically , these fees are 15.0 % to 20.0 % of the total return above a hurdle rate . carried interest represent fees that are a capital allocation to the general partner or investment manager , are accrued quarterly and paid after the return of all invested capital and an amount sufficient to achieve the hurdle rate of return . we also may receive incentive fees related to realized capital gains in our permanent capital vehicles and certain of our long-dated private funds that we refer to as part ii incentive fees . part ii incentive fees are payable annually and are calculated at the end of each applicable year by subtracting ( i ) the sum of cumulative realized capital losses and unrealized capital depreciation from ( ii ) cumulative aggregate realized capital gains . if the amount calculated is positive , then the part ii incentive fee for such year is equal to 20 % of such amount , less the aggregate amount of part ii incentive fees paid in all prior years . if such amount is negative , then no part ii incentive fee will be payable for such year . as our investment strategy is focused on generating yield from senior secured credit , historically we have not generated part ii incentive fees . story_separator_special_tag from and after the time that the substantial ownership requirement is no longer satisfied , the class b common stock will entitle medley group llc , without regard to the number of shares of class b common stock held by it , to a number of votes that is equal to the aggregate number of llc units held by all non-managing members of medley llc that do not themselves hold shares of class b common stock and entitle each other holder of class b common stock , without regard to the number of shares of class b common stock held by such other holder , to a number of votes that is equal to the number of llc units held by such holder . at the completion of our ipo , our pre-ipo owners were comprised of all of the non-managing members of medley llc . however , medley llc may in the future admit additional non-managing members that would not constitute pre-ipo owners . if at any time the ratio at which llc units are exchangeable for shares of our class a common stock changes from one-for-one as set forth in the exchange agreement , the number of votes to which class b common stockholders are entitled will be adjusted accordingly . holders of shares of our 45 class b common stock will vote together with holders of our class a common stock as a single class on all matters on which stockholders are entitled to vote generally , except as otherwise required by law . other than medley management inc. , holders of llc units , including our pre-ipo owners , are , subject to limited exceptions , prohibited from transferring any llc units held by them upon consummation of our ipo , or any shares of class a common stock received upon exchange of such llc units , until the third anniversary of our ipo without our consent . thereafter and prior to the fourth and fifth anniversaries of our ipo , such holders may not transfer more than 33 1/3 % and 66 2/3 % , respectively , of the number of llc units held by them upon consummation of our ipo , together with the number of any shares of class a common stock received by them upon exchange therefor , without our consent . while this agreement could be amended or waived by us , our pre-ipo owners have advised us that they do not intend to seek any waivers of these restrictions . the diagram below depicts our organizational structure ( excluding those operating subsidiaries with no material operations or assets ) as of march 25 , 2019 : ( 1 ) the class b common stock provides medley group llc with a number of votes that is equal to 10 times the aggregate number of llc units held by all non-managing members of medley llc . from and after the time that the substantial ownership requirement is no longer satisfied , the class b common stock will provide medley group llc with a number of votes that is equal to the aggregate number of llc units held by all non-managing members of medley llc that do not themselves hold shares of class b common stock . ( 2 ) if our pre-ipo owners exchanged all of their vested and unvested llc units for shares of class a common stock , they would hold 81.0 % of the outstanding shares of class a common stock , entitling them to an equivalent percentage of economic interests and voting power in medley management inc. , medley 46 group llc would hold no voting power or economic interests in medley management inc. and medley management inc. would hold 100 % of outstanding llc units and 100 % of the voting power in medley llc . ( 3 ) medley llc holds 96.5 % of the class b economic interests in medley ( aspect ) management llc . ( 4 ) medley llc holds 100 % of the outstanding common interest , and db med investor i llc holds 100 % of the outstanding preferred interest in each of medley seed funding i llc and medley seed funding ii llc . ( 5 ) medley seed funding iii llc holds 100 % of the senior preferred interest , strategic capital advisory services , llc holds 100 % of the junior preferred interest , and medley llc holds 100 % of the common interest in strf advisors llc . ( 6 ) medley llc holds 95.5 % of the class b economic interests in mcof management llc . ( 7 ) medley llc holds 100 % of the outstanding common interest , and db med investor ii llc holds 100 % of the outstanding preferred interest in medley seed funding iii llc . ( 8 ) medley gp holdings llc holds 95.5 % of the class b economic interests in mcof gp llc . ( 9 ) certain employees , former employees and former members of medley llc hold approximately 40 % of the limited liability company interests in mof ii gp llc , the entity that serves as general partner of mof ii , entitling the holders to share the carried interest earned from mof ii . ( 10 ) medley gp holdings llc holds 96.5 % of the class b economic interests in medley ( aspect ) gp llc . ( 11 ) certain employees of medley llc hold approximately 70.1 % of the limited liability company interests in medley caddo investors llc , entitling the holders to share the carried earned from caddo investors holdings i llc . ( 12 ) certain employees of medley llc hold approximately 69.9 % of the limited liability company interests in medley real d investors llc , entitling the holders to share the carried earned from medley real d ( annuity ) llc . ( 13 ) certain employees of medley llc hold approximately 70.2 % of the limited liability company interests in medley avantor investors llc , entitling the holders to share the carried earned from medley tactical opportunity llc .
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results of operations the following table and discussion sets forth information regarding our consolidated results of operations for the years ended december 31 , 2018 , 2017 and 2016 . the audited consolidated financial statements of medley have been prepared on substantially the same basis for all historical periods presented . replace_table_token_13_th year ended december 31 , 2018 compared to year ended december 31 , 2017 revenues management fees . total management fees decreased by $ 11.0 million , or 19 % , to $ 47.1 million for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 . 58 our management fees from permanent capital vehicles decreased by $ 10.8 million during the year ended december 31 , 2018 compared to the same period in 2017 . the decrease was primarily due to lower base management fees from both sic and mcc as a result of a decrease in fee earning assets under management , as well as a $ 4.7 million decrease in part 1 incentive fees from sic . our management fees from long-dated private funds and smas decreased by $ 0.3 million to $ 14.6 million during the year ended december 31 , 2018 , compared to the same period in 2017 . performance fees . we did not recognize any performance fees during the year ended december 31 , 2018 compared to a reversal of performance fees of $ 2.0 million during the same period 2017 . as a result of the adoption of the new revenue recognition standard on january 1 , 2018 , we did not recognize any performance fees during 2018 as we determined that it was not probable that a significant reversal of such fees would not occur in the future . other revenues and fees .
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executive summary we are a specialty finance company that acquires and manages mortgage-related assets , including residential mortgage-backed securities , or `` rmbs , '' backed by prime jumbo , alt-a , manufactured housing , and subprime residential mortgage loans , rmbs for which the principal and interest payments are guaranteed by a u.s. government agency or a u.s. government-sponsored enterprise , residential mortgage loans , mortgage-related derivatives , commercial mortgage-backed securities , or `` cmbs , '' commercial mortgage loans and other commercial real estate debt , as well as corporate debt and equity securities , and derivatives . we also may opportunistically acquire and manage other types of financial asset classes , such as securities backed by consumer and commercial assets , or `` abs , '' non-mortgage-related derivatives , and real property . we are externally managed and advised by our manager , an affiliate of ellington . ellington is a registered investment adviser with a 19-year history of investing in a broad spectrum of mortgage-backed securities , or `` mbs , '' and related derivatives . effective january 1 , 2013 , we conduct all of our operations and business activities through ellington financial operating partnership llc , our consolidated operating partnership subsidiary ( the `` operating partnership '' ) . as of december 31 , 2013 , we have an ownership interest of approximately 99.2 % in the operating partnership . the interest of approximately 0.8 % not owned by us represents the interest in the operating partnership that is owned by an affiliate of our manager and certain related parties , and is reflected in our financial statements as a non-controlling interest . our primary objective is to generate attractive , risk-adjusted total returns for our shareholders . we seek to attain this objective by utilizing an opportunistic strategy to make investments , without restriction as to ratings , structure , or position in 52 the capital structure , that we believe compensate us appropriately for the risks associated with them rather than targeting a specific yield . our evaluation of the potential risk-adjusted return of any potential investment typically involves weighing the potential returns of such investment under a variety of economic scenarios against the perceived likelihood of the various scenarios . potential investments subject to greater risk ( such as those with lower credit ratings and or those with a lower position in the capital structure ) will generally require a higher potential return to be attractive in comparison to investment alternatives with lower potential return and a lower degree of risk . however , at any particular point in time , depending on how we perceive the market 's pricing of risk both generally and across sectors , we may favor higher-risk assets or we may favor lower-risk assets , or a combination of the two in the interests of portfolio diversification or other considerations . through december 31 , 2013 , our non-agency rmbs strategy has been the primary driver of our risk and return , and we expect that this will continue . however , while we believe opportunities in mbs remain plentiful , we believe other asset classes offer attractive returns as well as asset diversification . these asset classes include residential and commercial mortgage loans , which can be performing or non-performing . we purchased our first pool of non-performing residential loans in december 2013. we also have investments in small balance distressed commercial loans and in collateralized loan obligations , or `` clos . '' we believe that ellington 's proprietary research and analytics allows our manager to identify attractive assets in these classes , value these assets , monitor and forecast the performance of these assets , and opportunistically hedge our risk with respect to these assets . we continue to maintain a highly leveraged portfolio of agency rmbs to take advantage of opportunities in that market sector and to maintain our exclusion from regulation as an investment company under the investment company act . unless we acquire very substantial amounts of whole mortgage loans or there are changes to the rules and regulations applicable to us under the investment company act , we expect that we will always maintain some core amount of agency rmbs . we also use leverage in our non-agency strategies , albeit significantly less leverage than that used in our agency rmbs strategy . through december 31 , 2013 , we financed our asset purchases almost exclusively through reverse repurchase agreements , or `` reverse repos , '' which we account for as collateralized borrowings . in january 2012 , we completed a small resecuritization transaction using one of our non-agency rmbs assets ; this transaction is accounted for as a collateralized borrowing and is classified on our consolidated statement of assets , liabilities , and equity as `` securitized debt . '' this securitized debt represents long-term financing for the related asset , in contrast to our reverse repos collateralized by non-agency assets , which typically have 30 to 180 day terms . however , we expect to continue to obtain the vast majority of our financing through the use of reverse repos . the strategies that we employ are intended to capitalize on opportunities in the current market environment . we intend to adjust our strategies to changing market conditions by shifting our asset allocations across various asset classes as credit and liquidity trends evolve over time . we believe that this flexibility , combined with ellington 's experience , will help us generate more consistent returns on our capital throughout changing market cycles . in may 2013 , we completed a follow-on common share offering which resulted in net proceeds of $ 125.3 million , after offering costs . proceeds from the offering were fully deployed during the second quarter into our targeted assets . in the latter part of the second quarter of 2013 , we increased our level of cash holdings , both as a buffer against increased market volatility and so as to be able to take advantage of potential investment opportunities . story_separator_special_tag the asset purchase program and the maintenance of a low federal funds rate , among various other measures , were put into place by the federal reserve in response to the elevated level of u.s. unemployment and the slow pace of the economic recovery in the aftermath of the 2008 financial crisis . the stated goal of the federal reserve 's actions , in implementing these policies , was to maintain downward pressure on longer-term interest rates , support mortgage markets , and help to make broader financial conditions more accommodative . during the middle and second half of 2013 , as the u.s. unemployment rate declined and the economy continued to show signs of improvement , market speculation about the timing of a decision by the federal reserve to taper its monthly asset purchases caused interest rates to rise and prices of long-dated u.s. treasury securities and agency rmbs to fall . in fact , all major fixed income sectors experienced substantial price declines during this period , including u.s. treasury securities , agency rmbs , and to a lesser extent credit-sensitive sectors such as high-yield corporate bonds and non-agency mbs . agency rmbs were especially hard-hit through the end of the year , as heavy selling by mutual bond funds , exchange-traded 54 funds , and mortgage reits exacerbated the price declines and overall volatility . by december 31 , 2013 , the benchmark 10-year u.s. treasury yield had risen to 3.03 % , up from 1.76 % as of december 31 , 2012. following the december 2013 and january 2014 taper announcements , interest rates declined significantly . by february 28 , 2014 , the 10-year u.s. treasury yield had fallen back to 2.65 % , and prices of agency rmbs have rallied as a result . as an example , the price of tba 30-year fannie mae 3.5 % s , a widely traded agency rmbs , rose to 101.41 as of february 28 , 2014 , up from 99.34 as of december 31 , 2013. the decline in interest rates is likely due , at least in part , to a market perception of a lower level of uncertainty around future federal reserve actions . notwithstanding the recent decline in interest rates and the greater clarity around federal reserve asset purchasing activities , we believe that there remains substantial risk that interest rates could begin to rise again . this reinforces the importance of our ability to hedge interest rate risk in both our agency rmbs and non-agency mbs portfolios using a variety of tools , including tbas , interest rate swaps , and various other instruments . housing and mortgage market statistics the following table demonstrates the decline in residential mortgage delinquencies and foreclosure inventory on a national level , as reported by corelogic in its december 2013 national foreclosure report : as of number of units ( 1 ) december 2013 december 2012 seriously delinquent mortgages 1,978 2,637 foreclosure inventory 837 1,217 ( 1 ) shown in thousands of units . note : seriously delinquent mortgages are ninety days and over in delinquency and include foreclosures and reo property . as the above table indicates , both the number of seriously delinquent mortgages and the number of homes in foreclosure have declined significantly over the past year . this decline supports the thesis that as homeowners have re-established equity in their homes through recovering real estate prices , they have become less likely to become delinquent and default on their mortgages . another interesting development can be seen in monthly delinquency roll rate statistics , as shown in the following table : replace_table_token_8_th note : current includes loans that are 30 and 60 days delinquent ; 90+ excludes foreclosures and reo property . roll rates represent the rates at which mortgages move from one category to another toward foreclosure . as can be seen in the table above , between july 2013 and october 2013 , the rate at which mortgages have been rolling from current to 90+ days delinquent has grown from 0.35 % in july to 0.37 % in october . we view these levels as generally indicative of a healthy mortgage environment . the rise in transition speeds from 90+ days delinquent to foreclosure is mainly attributable to the declining supply of delinquent mortgages , rather than the ability of courts and servicers to initiate a greater number of foreclosure proceedings . the large increase in cure rates ( foreclosure to current ) for mortgages in foreclosure is in large part the result of increased loan modification rates that have accompanied large-scale servicing transfers in recent months from less efficient to more efficient servicers . data released by s & p indices for its s & p/case-shiller home price indices for december 2013 showed that , on average , home prices had increased from december 2012 by 13.6 % for its 10-city composite and by 13.4 % for its 20-city composite , resulting in its best calendar year return since 2005. compared to november 2013 , the 10-city composite remained relatively unchanged , while the 20-city composite declined 0.1 % . according to the report , home prices remain below the peak levels of 2006 , but , on average , are back to their late-2004 levels for both the 10- and 20-city composites . as additional evidence of an improving housing market , single-family housing starts have increased 9.8 % as compared to one year ago , up from 620,000 starts in december 2012 to 681,000 starts in december 2013. finally , as indicated in the table above , as of december 2013 the national inventory of foreclosed homes fell to 837,000 units , a 31 % decline when compared to december 2012 ; this represented the twenty-sixth consecutive month with a year-over-year decline and the lowest level in six years . as a result , there are much fewer unsold foreclosed homes overhanging the housing market than there were a year ago .
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results of operations for the years ended december 31 , 2013 , 2012 , and 2011 the table below represents the net increase in equity resulting from operations for the years ended december 31 , 2013 , 2012 , and 2011. replace_table_token_11_th results of operations for the years ended december 31 , 2013 and 2012 summary of net increase in shareholders ' equity from operations our net increase in shareholders ' equity from operations ( `` net income '' ) for the years ended december 31 , 2013 and 2012 was $ 78.5 million and $ 97.1 million , respectively . the decrease in our net income period over period was primarily driven by a decline in net realized and unrealized gains on our investments and financial derivatives , partially offset by an increase in our net investment income . total return based on changes in `` net asset value '' or `` book value '' for our common shares was 14.2 % for the year ended december 31 , 2013 as compared to 22.2 % for the year ended december 31 , 2012 . average shareholders ' equity for the year ended december 31 , 2013 was $ 585.7 million as compared to $ 432.5 million for the comparable period of 2012. total return on our common shares is calculated based on changes in net asset value per share or book value per share and assumes reinvestment of dividends . net investment income net investment income was $ 49.7 million for the year ended december 31 , 2013 as compared to $ 24.2 million for the year ended december 31 , 2012 . net investment income consists of interest income less total expenses .
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we are using our cash to fund shareholder dividends , with annual increases in each of the past 34 years , and to fund capital expenditures , acquisitions and share repurchases . in 2019 , the return of cash to our shareholders through dividends and share repurchases was $ 397.3 million . on a long-term basis , we expect a combination of acquisitions and share repurchases to add about 2 % to earnings per share growth . in 2019 , we achieved further growth of our business with net sales rising 0.8 % over the 2018 level due to the following factors : we grew volume and product mix , with increases in both our consumer and flavor solutions segments . this added 2.5 % of sales growth . the increases were driven by new products as well as growth in the base business . pricing actions contributed 0.2 % of the increase in net sales . net sales growth was negatively impacted by fluctuations in currency rates that reduced sales growth by 1.9 % . excluding this impact , we grew sales 2.7 % on a constant currency basis . operating income was $ 957.7 million in 2019 and $ 891.1 million in 2018. we recorded $ 20.8 million and $ 16.3 million of special charges in 2019 and 2018 , respectively , related to organization and streamlining actions . in 2018 , we also recorded $ 22.5 million of transaction and integration expenses related to our acquisition of rb foods that reduced operating income . in 2019 , compared to the year-ago period , the favorable impact of higher sales , $ 118.9 million of cost savings from our cci program , including organization and streamlining actions , and the impact of the previously mentioned 2018 integration costs more than offset increased conversion costs , higher stock-based compensation expense , and the unfavorable impact of foreign currency exchange rates . excluding special charges together with , for 2018 , transaction and integration expenses related to our acquisition of rb foods , adjusted operating income was $ 978.5 million in 2019 , an increase of 5.2 % , compared to $ 929.9 million in the year-ago period . in constant currency , adjusted operating income rose 6.7 % . for further details and a reconciliation of non-gaap to reported amounts , see non-gaap financial measures . 19 diluted earnings per share was $ 5.24 in 2019 and $ 7.00 in 2018. the year-on-year decrease in earnings per share was driven mainly by the significant reduction in the non-recurring benefit of the u.s. tax act and , to a much smaller extent , by a higher amount of shares outstanding and by increased special charges in 2019 as compared to 2018. those unfavorable impacts in 2019 were partially offset by higher operating income as previously described , by the absence of transaction and integration expenses , by lower interest expense and by higher income from unconsolidated operations in 2019 as compared to 2018. special charges lowered earnings per share by $ 0.12 and $ 0.10 in 2019 and 2018 , respectively . transaction and integration expenses lowered earnings per share by $ 0.13 in 2018. a non-recurring benefit from the u.s. tax act increased diluted earnings per share by $ 0.01 and $ 2.26 in 2019 and 2018 , respectively . excluding the effects of special charges , transaction and integration expenses , and the non-recurring benefit of the u.s. tax act , adjusted diluted earnings per share was $ 5.35 in 2019 and $ 4.97 in 2018 , or an increase of 7.6 % . 2020 outlook we are well-positioned for another year of underlying solid performance in 2020. in 2020 , we expect to grow net sales 2 % to 4 % over 2019 's net sales of $ 5,347.4 million . that anticipated 2020 sales growth is primarily driven by new products , brand marketing , expanded distribution and the impact of pricing actions , which , in conjunction with cost savings , are expected to offset an anticipated mid-single digit cost increase . that increase consists entirely of organic growth as we do not currently anticipate an incremental sales impact from acquisitions in 2020. we expect our 2020 gross profit margin to be 25 to 75 basis points higher in 2020 than in 2019 , in part driven by our cci-led cost savings . in 2020 , we expect operating income , compared to 2019 's operating income of $ 957.7 million , to range from comparable to an increase of 2 % ; that range includes an estimated 600 basis point unfavorable impact from expenses related to the investment in our global erp replacement . our expectations for 2020 operating income reflect the impact of lower special charges , estimated at $ 8 million in 2020 compared to $ 20.8 million in 2019. excluding special charges ( but including the estimated 600 basis point unfavorable impact from expenses related to our global erp investment ) , we expect 2020 's adjusted operating income , compared to 2019 's adjusted operating income of $ 978.5 million , to range from a decline of 1 % to an increase of 1 % . our cci-led cost savings target in 2020 is approximately $ 105 million . in 2020 , we expect to support our sales growth with a mid-single-digit increase in brand marketing . story_separator_special_tag asia/pacific region to a newly constructed facility in thailand . replace_table_token_6_th transaction and integration expenses related to the rb foods acquisition totaled $ 22.5 million for 2018. these costs primarily consisted of outside advisory , service and consulting costs ; employee-related costs , and other costs related to the acquisition . replace_table_token_7_th operating income increased by $ 66.6 million , or 7.5 % , from $ 891.1 million in 2018 to $ 957.7 million in 2019. an absence of transaction and integration expenses in 2019 , compared to $ 22.5 million related to our acquisition of rb foods in 2018 , more than offset a $ 4.5 million increase in special charges in 2019 from $ 16.3 million in 2018 to $ 20.8 million in 2019. operating income as a percent of net sales rose by 110 basis points in 2019 , from 16.8 % in 2018 to 17.9 % in 2019 as a result of the factors previously described . our operating income as a percent of net sales in 2019 was impacted by two large , but substantially offsetting items : ( i ) expenses associated with our investment in a global erp platform in support of our ge business transformation initiative that decreased operating income as a percent of sales by approximately 35 basis points in 2019 ; and ( ii ) a one-time fiscal 2019 expense reduction from the alignment of an employee benefit plan to our global standard that increased operating income as a percent of sales by approximately 40 basis points in 2019. excluding the effect of special charges and transaction and integration expenses previously described , adjusted operating income was $ 978.5 million in 2019 as compared to $ 929.9 million in 2018 , an increase of $ 48.6 million or 5.2 % over the 2018 level . adjusted operating income as a percent of sales rose by 80 basis points in 2019 , from 17.5 % in 2018 to 18.3 % in 2019. replace_table_token_8_th interest expense was $ 9.4 million lower for 2019 as compared to the prior year primarily due to a decline in average total borrowings . other income , net for 2019 increased by $ 1.9 million from the 2018 level due principally to higher non-service cost income associated with our pension and postretirement benefit plans and higher interest income , which was partially offset by a gain on the sale of a building which was reflected in our 2018 results and did not recur in 2019. replace_table_token_9_th the provision for income taxes is based on the then-current estimate of the annual effective tax rate adjusted to reflect the tax impact of items discrete to the fiscal period . we record tax expense or tax benefits that do not relate to ordinary income in the current fiscal year discretely in the period in which such items occur pursuant to the requirements of u.s. gaap . examples of such types of discrete items not related to ordinary income of the current fiscal year include , but are not limited to , excess tax benefits associated with share-based payments to employees , changes in estimates of the outcome of tax matters related to prior years ( including reversals of reserves upon the lapsing of statutes of limitations ) , provision-to-return adjustments , and the settlement of tax audits and , beginning in 2019 , the tax effects of intra-entity asset transfers ( other than inventory ) . as more fully described in note 12 of the accompanying financial statements , the u.s. tax act was enacted in december 2017. the u.s. tax act significantly changed u.s. corporate income tax laws by , among other things , reducing the u.s. corporate income tax rate to 21 % beginning on january 1 , 2018 and creating a territorial tax system with a one-time transition tax on previously deferred post-1986 foreign earnings of u.s. subsidiaries . under gaap ( specifically , asc topic 740 , income taxes ) , the effects of changes in tax rates and laws on deferred tax 22 balances are recognized in the period in which the new legislation is enacted . we recorded a net benefit of $ 301.5 million associated with the u.s. tax act during 2018. this amount includes a $ 380.0 million benefit from the revaluation of our net u.s. deferred tax liabilities as of january 1 , 2018 , based on the new lower corporate income tax rate offset , in part , by an estimated net transition tax impact of $ 78.5 million . that net transition tax impact is comprised of the mandated one-time transition tax on previously deferred post-1986 foreign earnings of u.s. subsidiaries estimated at $ 75.3 million , together with additional foreign withholding taxes of $ 7.9 million associated with previously unremitted prior year earnings of certain foreign subsidiaries that were no longer considered indefinitely reinvested as of the effective date of the u.s. tax act and that were subsequently repatriated in 2018 , less a $ 4.7 million reduction in our fiscal 2018 income taxes directly resulting from the transition tax . in addition , in 2019 , we recorded a benefit of $ 1.5 million relating to an adjustment to a prior year tax accrual associated with the u.s. tax act . the effective tax rate was an expense of 19.2 % in 2019 as compared to a benefit of 21.2 % in 2018. the effective tax rate benefit of 21.2 % in 2018 includes the non-recurring net tax benefit of $ 301.5 million associated with the u.s. tax act , as more fully described above , that had a ( 40.7 ) % impact on 2018 's effective tax rate .
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overview the following management 's discussion and analysis of financial condition and results of operations ( md & a ) is intended to help the reader understand mccormick & company , incorporated , our operations and our present business environment . md & a is provided as a supplement to , and should be read in conjunction with , our financial statements and the accompanying notes thereto contained in item 8 of this report . we use certain non-gaap information that we believe is important for purposes of comparison to prior periods and development of future projections and earnings growth prospects . this information is also used by management to measure the profitability of our ongoing operations and analyze our business performance and trends . the dollar and share information in the charts and tables in the md & a are in millions , except per share data . mccormick is a global leader in flavor . the company manufactures , markets and distributes spices , seasoning mixes , condiments and other flavorful products to the entire food industry–retailers , food manufacturers and foodservice businesses . we manage our business in two operating segments , consumer and flavor solutions , as described in item 1 of this report . our long-term annual growth objectives in constant currency are to increase sales 4 % to 6 % , increase adjusted operating income 7 % to 9 % and increase adjusted earnings per share 9 % to 11 % . sales growth : over time , we expect to grow sales with similar contributions from : 1 ) our base business–driven by brand marketing support , customer intimacy , expanded distribution and category growth ; 2 ) new products ; and 3 ) acquisitions . base business –we expect to drive sales growth by optimizing our brand marketing investment through improved speed , quality and effectiveness . we measure the return on our brand marketing investment and have identified digital marketing as one of our highest return investments in brand marketing support .
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( a development stage company ) jerusalem , israel we have audited the consolidated statements of expenses , changes in stockholders ' deficit , and cash flows for the period from april 12 , story_separator_special_tag the following discussion and analysis of our financial conditions and results of operations should be read in conjunction with our accompanying consolidated financial statements and notes thereto for the years ended august 31 , 2013 and 2012. in addition to our consolidated financial statements , the following discussion contains forward-looking statements that reflect our plans , estimates and beliefs . our actual results could differ materially from those discussed in the forward-looking statements . factors that could cause or contribute to these differences include those discussed below and elsewhere in this annual report on form 10-k , particularly in “ cautionary statement regarding forward-looking statements ” and “ item 1a . risk factors. ” overview of operations we are a pharmaceutical company currently engaged in the research and development of innovative pharmaceutical solutions , including an orally ingestible insulin capsule to be used for the treatment of individuals with diabetes , and the use of orally ingestible capsules or pills for delivery of other polypeptides . short term business strategy we plan to conduct further research and development on the technology covered by the patent application “ methods and composition for oral administration of proteins , ” which we acquired from hadasit in 2006 and which is pending in various foreign jurisdictions , as well as the other patents we have filed in various foreign jurisdictions since then , as discussed above under “ item 1. business—description of business—patents and licenses ” and “ item 1a . risk factors. ” through our research and development efforts , we are seeking to develop an oral dosage form that will withstand the harsh chemical environment of the stomach and intestines and will be effective in delivering active insulin or other proteins , such as exenatide , for the treatment of diabetes . the enzymes and vehicles that are added to the proteins in the formulation process must not modify the proteins chemically or biologically , and the dosage form must be safe to ingest . we plan to continue to conduct clinical trials to show the effectiveness of our technology . in december 2012 , we filed an ind application with the fda to begin a phase 2 clinical trial of our orally ingested insulin capsule , in order to evaluate the safety , tolerability and efficacy of our oral insulin capsule on type 2 diabetic volunteers . we have been communicating with the fda regarding such phase 2b ind application , and , according to the fda 's request , are conducting a phase 2a sub study before we may proceed with the phase 2b clinical trial . we expect to begin the phase 2b clinical trial in the second quarter of 2014. we also began conducting a clinical trial of our orally ingested exenatide in january 2013 , and commenced a first human clinical trial on healthy volunteers with our oral insulin capsule delivered in combination with our oral exenatide capsule . clinical trials are planned in order to substantiate our results as well as for purposes of making future filings for drug approval . we also plan to conduct further research and development by deploying our proprietary drug delivery technology for the delivery of other polypeptides in addition to insulin , and to develop other innovative pharmaceutical products . long term business strategy if our oral insulin capsule or other drug delivery solutions show significant promise in clinical trials , we plan to ultimately seek a strategic commercial partner , or partners , with extensive experience in the development , commercialization , and marketing of insulin applications and or other orally digestible drugs . we anticipate such partner or partners would be responsible for , or substantially support , late stage clinical trials ( phase 3 ) to increase the likelihood of obtaining regulatory approvals and registrations in the appropriate markets in a timely manner . we further anticipate that such partner , or partners , would also be responsible for sales and marketing of our oral insulin capsule in these markets . such planned strategic partnership , or partnerships , may provide a marketing and sales infrastructure for our products as well as financial and operational support for global clinical trials , post marketing studies , label expansions and other regulatory requirements concerning future clinical development in the united states and elsewhere . any future strategic partner , or partners , may also provide capital and expertise that would enable the partnership to develop new oral dosage form for other polypeptides . while our strategy is to partner with an appropriate party , no assurance can be given that any third party would be interested in partnering with us . under certain circumstances , we may determine to develop one or more of our oral dosage form on our own , either world-wide or in select territories . 29 other planned strategic activities in addition to developing our own oral dosage form drug portfolio , we are , on an on-going basis , considering in-licensing and other means of obtaining additional technologies to complement and or expand our current product portfolio . our goal is to create a well-balanced product portfolio that will enhance and complement our existing drug portfolio . story_separator_special_tag allowance in respect of deferred tax assets is provided if , based upon the weight of available evidence , it is more likely than not that some or all of the deferred tax assets will not be realized . we have provided a full valuation allowance with respect to our deferred tax assets . story_separator_special_tag the research and development costs include stock based compensation costs , which during the year ended august 31 , 2013 totaled $ 346,961 , as compared to $ 98,688 during the year ended august 31 , 2012. the increase is mainly attributable to the options granted to employees and directors of the company in august 2012. government grants the government of israel encourages research and development projects through the ocs , pursuant to the law for the encouragement of industrial research and development , 1984 , as amended , or the r & d law . under the r & d law , a research and development plan that meets specified criteria is eligible for a grant of up to 50 % of certain approved research and development expenditures . each plan must be approved by the ocs . in the years ended august 31 , 2013 and 2012 , we recognized research and development grants in an amount of $ 309,155 and $ 372,959 , respectively . as of august 31 , 2013 , we had no contingent liabilities to the ocs . under the terms of the grants we received from the ocs , we are obligated to pay royalties of 3 % to 3.5 % on all revenues derived from the sale of the products developed pursuant to the funded plans , including revenues from licensed ancillary services . pursuant to a proposed amendment to the r & d law , our royalty rate may be 3 % to 6 % per annum . royalties are payable up to 100 % of the amount of such grants , or up to 300 % as detailed below , linked to the u.s. dollar , plus annual interest at libor . the r & d law generally requires that a product developed under a program be manufactured in israel . however , upon notification to the ocs ( and provided that the ocs does not object within 30 days ) , up to 10 % of a company 's approved israeli manufacturing volume , measured on an aggregate basis , may be transferred outside of israel . in addition , upon the approval of the ocs , a greater portion of the manufacturing volume may be performed outside of israel , provided that the grant recipient pays royalties at an increased rate , which may be substantial , and the aggregate repayment amount is increased up to 300 % of the grant , depending on the portion of the total manufacturing volume that is performed outside of israel . the r & d law further permits the ocs , among other things , to approve the transfer of manufacturing rights outside of israel in exchange for an import of different manufacturing into israel as a substitute , in lieu of the increased royalties . the r & d law also allows for the approval of grants in cases in which the applicant declares that part of the manufacturing will be performed outside of israel or by non-israeli residents and an ocs research committee is convinced that doing so is essential for the execution of the program . this declaration will be a significant factor in the determination of the ocs as to whether to approve a program and the amount and other terms of benefits to be granted . for example , an increased royalty rate and repayment amount might be required in such cases . 33 the r & d law also provides that know-how developed under an approved research and development program may not be transferred to third parties in israel without the approval of the research committee . such approval is not required for the sale or export of any products resulting from such research or development . the r & d law further provides that the know-how developed under an approved research and development program may not be transferred to any third parties outside israel absent ocs approval which may be granted under special circumstances such as those noted in the following cases : ( a ) the grant recipient pays to the ocs a portion of the sale price paid in consideration for such ocs-funded know-how or the price paid in consideration for the sale of the grant recipient itself , as the case may be ( according to certain formulas ; the portion to be paid in respect of a sale of the grant recipient itself changed under the applicable rules that came into effect in november 2012 ) ; ( b ) the grant recipient receives know-how from a third party in exchange for its ocs-funded know-how ; or ( c ) such transfer of ocs-funded know-how arises in connection with certain types of cooperation in research and development activities . the r & d law imposes reporting requirements with respect to certain changes in the ownership of a grant recipient . the r & d law requires the grant recipient and its controlling shareholders and foreign interested parties to notify the ocs of any change in control of the recipient or a change in the holdings of the means of control of the recipient that results in a non-israeli becoming an interested party in the recipient , and requires the new interested party to undertake to the ocs to comply with the r & d law . in addition , the rules of the ocs may require additional information or representations in respect of certain such events . for this purpose , “ control ” is defined as the ability to direct the activities of a company other than any ability arising solely from serving as an officer or director of the company . a person is presumed to have control if such person holds 50 % or more of the means of control of a company . “ means of control ” refers to voting rights or the right to appoint directors or the chief executive officer .
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results of operations critical accounting policies our significant accounting policies are more fully described in the notes to our accompanying consolidated financial statements . we believe that the accounting policies below are critical for one to fully understand and evaluate our financial condition and results of operations . the discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements , which we prepared in accordance with u.s. generally accepted accounting principles . the preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements , as well as the reported revenues and expenses during the reporting periods . on an ongoing basis , we evaluate such estimates and judgments . we base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . marketable securities : consist mainly of equity securities classified as available-for-sale and are recorded at fair value . until august 26 , 2013 , the fair value of the restricted securities was measured based on the quoted prices of the otherwise identical unrestricted securities , adjusted for the effect of the restriction by applying a proper discount . the discount was determined with reference to other similar restricted instruments . similar securities , with no restriction on tradability , are quoted on an active market .
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cash was paid in lieu of fractional shares of our common shares . excluding repurchased shares , all references to common shares and related per share amounts in this document and related disclosures have been adjusted to reflect the stock dividend for all periods presented . cash cash consists of cash deposited in banks story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements and related notes beginning on page f-1 . this discussion contains forward-looking statements that involve risks and uncertainties . our future results may differ materially from those disclosed herein as a result of significant risks and uncertainties and various factors described in this report . these risks and uncertainties are discussed in greater detail in item 1a , “ risk factors. ” consolidated results of operations for the year ended december 31 , 2019 , we reported a net loss of $ 8.4 million , or $ 0.25 per fully diluted share . for the year ended december 31 , 2018 , we reported net income of $ 63.6 million , or $ 1.83 per fully diluted share . for the year ended december 31 , 2017 we reported net income of $ 50.3 million , or $ 1.42 per fully diluted share . the following is a comparison of selected data from our results of operations : replace_table_token_5_th replace_table_token_6_th 49 in presenting our results in the following discussion and analysis of our results of operations , we have included certain non-generally accepted accounting principles ( “ non-gaap ” ) financial measures within the meaning of regulation g as promulgated by the sec . we believe that these non-gaap measures , specifically the current accident year non-catastrophe loss , expense and combined ratios , which may be defined differently by other companies , better explain our results of operations in a manner that allows for a more complete understanding of the underlying trends in our business . however , these measures should not be viewed as a substitute for those determined in accordance with united states generally accepted accounting principles ( “ gaap ” ) . reconciliations of these financial measures to their most directly comparable gaap measures are included in the table below . replace_table_token_7_th ( 1 ) for purposes of calculating the percentage points impact on the loss , expense and combined ratios , earned premiums were adjusted to exclude outward reinstatement and other catastrophe-related premium adjustments of $ 0.8 million , $ 9.0 million and $ 17.9 million the years ended december 31 , 2019 , 2018 and 2017 . ( 2 ) catastrophe losses ' percentage point impact are calculated as the difference between the reported combined ratio and the combined ratio excluding incurred catastrophe losses and associated reinstatement and other catastrophe-related premium adjustments . gross written and earned premiums consolidated gross written and earned premiums by our four primary insurance lines were as follows : replace_table_token_8_th gross written premiums increased $ 174.0 million , or 5.9 % , for the year ended december 31 , 2019 , as compared to the year ended december 31 , 2018. our u.s. operations experienced growth in all major lines of business during 2019 , as its gross written premiums increased $ 167.1 million , or 9.9 % , during the comparative periods . international operations gross written premiums increased a modest $ 7.0 million , or 0.6 % , in 2019 as compared to 2018 , primarily due to growth in our professional , property and liability lines , partially offset by reductions in specialty lines . both u.s. operations and international operations saw overall rate increases for the year ended december 31 , 2019 . 50 consolidated earned premiums were relatively flat for the comparative periods , decreasing $ 2.2 million , or 0.1 % . earned premiums in our u.s. operations increased $ 40.8 million , or 3.8 % , while international operations ' earned premiums decreased $ 42.9 million , or 6.6 % . in both segments , we have decreased our percentage of net retained premiums ( net written premiums as a percentage of gross written premiums ) , and , as a result , our net earned premiums , due in large part to an increase in the ongoing strategic use of reinsurance programs , most notably within property lines , as part of overall risk management initiatives . we also increased our use of third-party capital in international operations . gross written and earned premiums increased for the year ended december 31 , 2018 as compared to the same period ended 2017 , driven by the growth in all major lines of our u.s. operations , led by our liability and professional lines . international operations experienced increases in both gross written and earned premiums during 2018 as compared to 2017 , primarily due to growth in our property , liability and professional lines , as well as the timing of the ariel re acquisition . ariel re has a significant property contract that is subject to renewal in january of each year . the ariel re transaction closed in february 2017 ; as such the january 2017 gross written premiums for ariel re is not included while the 2018 renewal is included in our gross written premiums . as part of the full integration of the reinsurance business of ariel re , beginning in 2018 we changed the capital structure supporting that business by introducing certain third-party trade capital to participate in the exposures we underwrite . this trade capital receives a corresponding proportion of the gross written premiums . as such , this structure has the effect of reducing the gross written premiums reported in our financial statements . in exchange , we receive certain remuneration for generating this business and for the underlying underwriting performance . there was no such structure for our ariel re business in 2017. our gross written and earned premiums are further discussed by reporting segment and major lines of business under the heading “ segment results ” below . story_separator_special_tag no significant changes in methodologies were made to estimate the reserves since the last reporting date ; however , at each reporting date we reassess the actuarial estimate of the reserve for loss and loss adjustment expenses and record our best estimate . consistent with prior reserve valuations , as claims data becomes more mature for prior accident years , actuarial estimates were refined to weigh certain actuarial methods more heavily in order to respond to any emerging trends in the paid and reported loss data . while prior accident years ' net reserves for losses and loss adjustment expenses for some lines of business have developed favorably in recent years , this does not imply that more recent accident years ' reserves also will develop favorably ; pricing , reinsurance costs , legal environment , general economic conditions including changes in inflation and many other factors impact our ultimate loss estimates . consolidated gross reserves for loss and loss adjustment expenses were $ 5,157.6 million ( including $ 238.5 million of reserves attributable to our syndicate 1200 and 1910 trade capital providers ) , $ 4,654.6 million ( including $ 226.2 million of reserves attributable to our syndicate 1200 and 1910 trade capital providers ) and $ 4,201.0 million ( including $ 226.8 million of reserves attributable to syndicate 1200 's trade capital providers ) as of december 31 , 2019 , 2018 and 2017 , respectively . management has recorded its best estimate of loss reserves at each date based on current known facts and circumstances . due to the significant uncertainties inherent in the estimation of loss reserves , there can be no assurance that future loss development , favorable or unfavorable , will not occur . 52 underwriting , acquisition and insurance expenses consolidated underwriting , acquisition and insurance expenses were $ 665.8 million , $ 654.7 million and $ 635.4 million for the years ended december 31 , 2019 , 2018 and 2017 , respectively . the consolidated expense ratios were 38.5 % , 37.8 % and 40.4 % for the years ended december 31 , 2019 , 2018 and 2017 , respectively . the increase in expenses in 2019 compared to 2018 includes additional operating expenses of approximately $ 9 million related to costs associated with a reduction in workforce , an allowance for doubtful accounts related to our european business unit , and adjustments to underwriting expenses based on certain costs previously allocated to investment income and trade capital providers . the improvement in 2018 compared to 2017 reflects the benefits of scale due to increased net earned premiums , including the favorable year-over-year impact of the aforementioned $ 20.8 million reduction in net earned premiums in 2017 related to one-time catastrophe and risk-management reinsurance purchases , as well as lower operating costs within the reinsurance business unit of our international operations due to expenses attributable to third-party capital providers . partially offsetting these lower operating costs were the continued investments in people and technology in strategic growth areas of our business . interest expense consolidated interest expense was $ 33.6 million , $ 31.6 million and $ 27.7 million for the years ended december 31 , 2019 , 2018 and 2017 , respectively . the increase in 2019 when compared to 2018 was attributable to increased short-term libor rates concentrated during the first six months of 2019. the increase in 2018 was primarily attributable to increases in short-term libor rates throughout the year ended december 31 , 2018 , as compared to the same period in 2017. additionally , during 2018 we incurred a full twelve months of interest expense on the debt acquired as part of the february 6 , 2017 ariel re acquisition and the $ 125.0 million term loan entered into during the first quarter of 2017 to help fund that transaction . comparatively , these same debt instruments accrued interest at a lower rate and for less than the full twelve months during the year ended december 31 , 2017. foreign currency exchange gains/losses consolidated foreign currency exchange gains were $ 9.6 million and $ 0.1 million for the years ended december 31 , 2019 and december 31 , 2018 , respectively , as compared to losses of $ 6.3 million for the year ended december 31 , 2017 . the changes in the foreign currency exchange gains/losses were due to fluctuations of the u.s. dollar , on a weighted average basis , against the currencies in which we transact our business . for the year ended december 31 , 2019 , the foreign currency exchange gain was driven by the u.s. dollar strengthening against the euro and the australian dollar , partially offset by the u.s. dollar weakening against british pound and the canadian dollar . for the year ended december 31 , 2018 , the small foreign currency exchange gain was driven by the u.s. dollar strengthening against the british pound . for the year ended december 31 , 2017 , the foreign currency exchange losses were driven by the u.s. dollar weakening against the british pound , the euro , the canadian dollar and the australian dollar . other corporate expenses during the year ended december 31 , 2019 , we incurred substantial non-recurring costs associated with a number of activities that began with first quarter proxy solicitation efforts and shareholder engagement . the costs associated with these and other activities , which included responding to a subpoena from the sec , a separation agreement with our former ceo , and exiting certain contractual obligations related to sponsorships , aviation and other corporate assets are recorded in the line item “ other corporate expenses ” in the company 's consolidated statements of ( loss ) income . for the year ended december 31 , 2019 , other corporate expenses were $ 37.6 million . there were no comparable costs incurred during the year ended december 31 , 2018. all of these other corporate expenses have been excluded from the calculation of our expense ratio .
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segment results we are primarily engaged in writing property and casualty insurance and reinsurance . we have two primary reporting segments : u.s. operations and international operations . additionally , we have a run-off lines segment for products that we no longer underwrite . we consider many factors , including the nature of each segment 's insurance and reinsurance products , production sources , distribution strategies and regulatory environment , in determining how to aggregate reporting segments . our reportable segments include four primary insurance and reinsurance services and offerings as follows : property includes both property insurance and reinsurance products . insurance products cover commercial properties primarily in north america with some international covers . reinsurance covers underlying exposures located throughout the world , including the united states . these offerings include coverages for man-made and natural disasters . liability includes a broad range of primary and excess casualty products for risks on both an admitted and non-admitted basis in the united states . internationally , argo group underwrites worldwide casualty risks primarily exposed in the united kingdom , canada , and australia . professional includes various professional lines products including errors & omissions , management liability ( including directors and officers ) and cyber liability coverages . specialty includes niche insurance coverages including marine & energy , accident & health and surety product offerings . in evaluating the operating performance of our segments , we focus on core underwriting and investing results before consideration of realized gains or losses from the sales of investments . intersegment transactions are allocated to the segment that initiated the transaction . realized investment gains and losses are reported as a component of the corporate and other segment , as decisions regarding the acquisition and disposal of securities reside with the corporate investment function and are not under the control of the individual business segments .
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you should not place undue reliance on these statements because they are subject to numerous uncertainties and factors relating to our operations and business environment , all of which are difficult to predict and many of which are beyond our control . these statements often include words such as may , will , should , believe , expect , anticipate , intend , plan , estimate or similar expressions . these statements are based on assumptions that we have made in light of our experience in the industry as well as our perceptions of historical trends , current conditions , expected future developments and other factors we believe are appropriate under the circumstances . as you read and consider this annual report on form 10-k , you should understand that these statements are not guarantees of performance or results . they involve known and unknown risks , uncertainties and assumptions . although we believe that these forward looking statements are based on reasonable assumptions , you should be aware that many factors could affect our actual financial results or results of operations and could cause actual results to differ materially from those in the forward looking statements . these factors include but are not limited to : our dependence on a limited number of clients in a limited number of industries ; worldwide political , economic or business conditions ; negative public reaction in the u.s. or elsewhere to offshore outsourcing ; fluctuations in our earnings ; our ability to attract and retain clients ; our ability to successfully consummate or integrate strategic acquisitions ; restrictions on immigration ; our ability to hire and retain enough sufficiently trained employees to support our operations ; our ability to grow our business or effectively manage growth and international operations ; increasing competition in our industry ; telecommunications or technology disruptions ; our ability to withstand the loss of a significant customer and to effectively and efficiently manage any disentanglement relationships regulatory , legislative and judicial developments , including changes to or the withdrawal of governmental fiscal incentives ; technological innovation ; political or economic instability in the geographies in which we operate ; unauthorized disclosure of sensitive or confidential client and customer data ; and adverse outcome of our disputes with the indian tax authorities . these and other factors are more fully discussed elsewhere in this annual report on form 10-k. these and other risks could cause actual results to differ materially from those implied by forward looking statements in this annual report on form 10-k. the forward looking statements made by us in this annual report on form 10-k , or elsewhere , speaks only as of the date on which they were made . new risks and uncertainties come up from time to time , and it is 44 impossible for us to predict these events or how they may affect us . we have no obligation to update any forward looking statements in this annual report on form 10-k after the date of this annual report on form 10-k , except as required by federal securities laws . executive overview we are a leading provider of business process solutions to fortune 500 and global 2000 companies . working as a strategic partner , we help our clients simplify and streamline business operations , manage compliance , create new channels for growth , and better adapt to change . our solutions integrate operations management with analytics and business transformation to deliver actionable business insights and long-term business impact . we help shape our clients ' operating environments through process and technology interventions and analytics driven insights into business performance with the goal of increasing quality and productivity while improving risk management and control . we changed our reporting segments nomenclature in 2014 to operations management ( previously called outsourcing services ) and analytics and business transformation ( previously called transformation services ) in order to more accurately reflect the changing nature of our engagements with our clients . for comparability with our prior periods , the business composition of each segment remains unchanged . our global delivery network spreads across the united states , europe and asia . we operate nineteen operations centers in india , six operations centers in the u.s. , five operations centers in the philippines and one operations center in each of bulgaria , romania and the czech republic . in addition to these operations centers , we acquired multiple regional offices in the u.s. as part of our acquisitions of blue slate solutions , llc ( blue slate ) and overland holdings , inc. ( overland ) during the year ended december 31 , 2014. on july 1 , 2014 , we acquired blue slate . prior to its acquisition , blue slate was a business process management ( bpm ) and technology solutions company that specializes in transforming operations through business process automation , use of innovative technologies , data integration and analytics . blue slate helps clients achieve large productivity improvements , develop an agile and cost-effective operating model , enhance customer satisfaction and deliver measurable return on their investments . on october 24 , 2014 , we acquired overland . prior to its acquisition , overland specialized in providing premium audit services , commercial and residential underwriting surveys and loss control services to more than 300 property and casualty ( p & c ) insurers using a bpaas model . overland offers services including physical audit , telephone audit , and government inspection and has developed an automated premium audit solution auditstream ® . overland also offers survey products and services to homeowners and commercial insurance carriers through castle high value surveys ® . revenues on november 1 , 2013 , we received a notice of termination from the travelers indemnity company ( travelers ) under the professional services agreement , dated as of march 7 , 2006 , between us and travelers ( as amended from time to time , the services agreement ) . revenues from travelers were $ 8.2 million and $ 46.2 story_separator_special_tag these transaction-based pricing models place the focus on operating efficiency in order to maintain our operating margins . in addition , we have also observed that prospective larger clients are entering into multi-vendor relationships with regard to their outsourcing needs . we believe that the trend toward multi-vendor relationships will continue . a multi-vendor relationship allows a client to seek more favorable pricing and other contract terms from each vendor , which can result in significantly reduced operating margins from the provision of services to such client for each vendor . to the extent our large clients expand their use of multi-vendor relationships and are able to extract more favorable contract terms from other vendors , our operating margins and revenues may be reduced with regard to such clients if we are required to modify the terms of our relationships with such clients . within our operations management solutions , we also offer software to provide bpaas services for our insurance and healthcare clients . we have added these capabilities through acquisitions over the last few years . depending on the software , the fees derived may be based on licenses , installation , support and maintenance , and or recoveries from claims . we believe our proprietary software technology will be an important source of growth in the future as clients choose to transfer certain business functions to a third-party-owned technology provider . as we increase our capabilities utilizing technology service platforms and other software-based services , we expect that revenues from such services will continue to grow in proportion to our total revenues . revenues from annual maintenance and support contracts for our software platforms provide us with a relatively predictable revenue base and are generally recognized ratably over the terms of the contracts . new license sales and implementation projects have a long selling cycle and it is difficult to predict the timing of when such new contracts will be signed , which may lead to fluctuations in our revenues over the short term . analytics and business transformation : our analytics and business transformation solutions include our analytics , operations consulting , and finance transformation services . these services focus on improving our clients ' operating environments , whether or not they are managed by us , through cost reduction , additional insight for business forecasting , enhanced efficiency and productivity , improved effectiveness of business decisions and creation of an improved risk and control environment . we actively cross-sell and , where appropriate , integrate our analytics and business transformation solutions with operations management as part of a comprehensive solution for our clients . our analytics solutions involve accessing and analyzing large volumes of data from multiple data sources to generate insights about past business performance or predict future business outcomes . in order to provide services , we leverage a large pool of analytics professionals and data scientists who deploy our proprietary analytics tools and methodologies to help clients better utilize their data to generate actionable business insights . these insights generated by our analytics tools , statistical models and data scientists assist clients in making quicker , more accurate and data-driven business decisions , which we believe leads to better business outcomes and tangible financial benefits . our analytics and business transformation solutions consist of both recurring and specific projects with contract terms generally not exceeding one to three years . these contracts also usually contain provisions permitting termination of the contract after a short notice period . the short-term nature and specificity of these projects could lead to further material fluctuations and uncertainties in the revenues generated from these businesses . our analytics and business transformation services can be affected by variations in business cycles . we have experienced a significant increase in demand for our annuity-based analytics and business transformation solutions , with the majority of our revenue generated from engagements that are contracted for one- to three-year terms . we anticipate that revenues from our analytics and business transformation services will grow as we expand our service offerings and client base , both organically and through acquisitions . 47 expenses cost of revenues our cost of revenues primarily consists of : employee costs , which include salary , bonus and other compensation expenses ; recruitment and training costs ; employee insurance ; transport and meals ; rewards and recognition for certain employees ; and non-cash stock compensation expense ; and costs relating to our facilities and communications network , which include telecommunication and it costs ; facilities and customer management support ; operational expenses for our outsourcing centers ; rent expenses ; and travel and other billable costs to our clients . the most significant components of our cost of revenues are employee compensation , recruitment , training , transport , meals , rewards and recognition and employee insurance . salary levels , employee turnover rates and our ability to efficiently manage and utilize our employees significantly affect our cost of revenues . salary increases for most of our operations personnel are generally awarded each year effective april 1. accordingly , employee costs are generally lower in the first quarter of each year compared to the rest of the year . we make every effort to manage employee and capacity utilization and continuously monitor service levels and staffing requirements . although we generally have been able to reallocate our employees as client demand has fluctuated , a contract termination or significant reduction in work assigned to us by a major client could cause us to experience a higher-than-expected number of unassigned employees , which would increase our cost of revenues as a percentage of revenues until we are able to reduce or reallocate our headcount . a significant increase in the turnover rate among our employees , particularly among the highly skilled workforce needed to execute certain services , would increase our recruiting and training costs and decrease our operating efficiency , productivity and profit margins .
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results of operations the following table summarizes our results of operations for the years ended december 31 , 2014 , 2013 and 2012 : replace_table_token_3_th 54 year ended december 31 , 2014 compared to year ended december 31 , 2013 revenues replace_table_token_4_th the decrease in revenues from our operations management services of $ 6.3 million was primarily due to the decrease in revenues from travelers of $ 36.4 million ( $ 26.0 million due to the reimbursement of disentanglement costs and $ 10.4 million due to certain services being transitioned away throughout 2014 ) during the year ended december 31 , 2014 compared to the year ended december 31 , 2013 , and $ 4.6 million due to net impact of depreciation of the indian rupee and appreciation of the u.k. pound sterling against the u.s. dollar during the year ended december 31 , 2014 compared to the year ended december 31 , 2013. this decrease was offset by an increase in revenues from the overland acquisition aggregating to $ 12.2 million and net volume increases from our existing and new clients of $ 22.5 million . the increase in revenues from our analytics and business transformation services of $ 27.1 million was primarily driven by an increase in revenues of $ 21.4 million in our recurring and project-based engagements in analytics and an increase in revenues of $ 7.3 million from our finance transformation and operations consulting services , including $ 4.4 million from the blue slate acquisition . this increase was offset by a decrease in revenues from travelers of $ 1.6 million due to services being transitioned away in 2014. revenues from new clients for analytics and business transformation services were $ 6.6 million and $ 3.0 million during the year ended december 31 , 2014 and 2013 , respectively . cost of revenues replace_table_token_5_th the increase in cost of revenues was primarily due to an increase in employee-related costs of $ 40.1
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the company paid the shareholders of sym-bio approximately $ 51.2 million in cash for this acquisition plus an additional amount of $ 12.5 million held in an escrow account for contingencies , of which $ 7.3 million is for potential additional contingent consideration with a fair value of $ 6.9 million at the acquisition date . the excess of the purchase price over the fair value of the acquired net assets has been allocated to goodwill , none of which 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 . the fiscal year ended january 2 , 2011 included 52 weeks . the fiscal years ended january 3 , 2010 and december 28 , 2008 included 53 weeks and 52 weeks , respectively . the fiscal year ended january 1 , 2012 will include 52 weeks . overview of fiscal year 2010 during fiscal year 2010 , we continued to see positive signs of recovery from the global economic contraction across most of our end markets and geographies , in addition to good performance from investments in our ongoing technology and sales and marketing initiatives . our overall sales in fiscal year 2010 increased $ 153.6 million , or 10 % , as compared to fiscal year 2009 , reflecting an increase of $ 64.7 million , or 9 % , in our human health segment sales and an increase of $ 88.9 million , or 11 % , in our environmental health segment sales . the increase in our human health segment sales during fiscal year 2010 was due primarily to increased demand for our medical imaging products with the expansion of panel usage for diagnostic , oncology and non-medical applications and the easing of capital budget constraints in major hospitals in the diagnostics market , as well as increased growth in the academic sector for both instruments and reagents in the research market . these increases were partially offset by the impact of lower birth rates in the united states and tight inventory management in state and national labs for neonatal screening in the diagnostics market , as well as continued constrained capital spending within our pharmaceutical customers in the research market , particularly in the area of high throughput screening . customer consolidations in the pharmaceutical market also had an unfavorable impact on our research business . the increase in our environmental health segment sales during fiscal year 2010 was due primarily to the increase in our onesource ® multivendor service offering , which we expanded in markets beyond our traditional customer base and services , as well as growth in our environmental , food and consumer safety and testing products . we also experienced continued growth in traditional chemical markets with the reduction of constraints on capital purchases to rebuild capacity as a result of the cyclical recovery and increased demand after the extended period of delayed capital investment . in our human health segment , we experienced strong growth in sales in the diagnostics market related to increased demand for our medical imaging products and continued growth in our prenatal offerings within the genetic screening business during fiscal year 2010 as compared to fiscal year 2009. the increased demand for our medical imaging products resulted from improved market conditions that lessened the constraints on medical providers ' capital budgets , allowing us to increase our customer base , as well as expanding into non-medical applications . the performance within our genetic screening business was driven by continued expansion of prenatal screening platforms , with broad-based growth experienced across all major geographies , particularly in china with continued expansion of our newborn screening business through our acquisition of sym-bio lifescience co. , ltd. ( sym-bio ) in fiscal year 2009. in the research market , demand for our reagents and 32 instrumentation was encouraging in the academic sector . we saw strong demand for our high-end opera ® cellular imaging systems , enspire plate readers and proprietary alpha detection reagents , which are all specifically developed to address the growing needs of the academic sector . we are refocusing resources to meet our pharmaceutical customer 's evolving needs . as these customers shift their spending on downstream technologies in pre-clinical research , we are well positioned with our in-vivo imaging offering , available through our newly acquired visen business . as the rising cost of healthcare continues to be one of the critical issues facing our customers , we anticipate that even with continued pressure on lab budgets and credit availability , the benefits of providing earlier detection of disease , which can result in savings of long-term health care costs as well as creating better outcomes for patients , are increasingly valued and we expect to see continued growth in these markets . story_separator_special_tag 2009 compared to 2008. cost of sales for fiscal year 2009 was $ 851.8 million , as compared to $ 926.0 million for fiscal year 2008 , a decrease of approximately $ 74.2 million , or 8 % . as a percentage of sales , cost of sales decreased to 54.9 % in fiscal year 2009 from 55.8 % in fiscal year 2008 , resulting in an increase in gross margin of approximately 90 basis points to 45.1 % in fiscal year 2009 from 44.2 % in fiscal year 2008. amortization of intangible assets increased and was $ 36.3 million for fiscal year 2009 , as compared to $ 35.7 million for fiscal year 2008. stock option expense decreased and was $ 1.2 million for fiscal year 2009 , as compared to $ 1.4 million for fiscal year 2008. the amortization of purchase accounting adjustments to record the inventory from certain acquisitions completed in fiscal year 2009 added an expense of approximately $ 1.1 million for fiscal year 2009. the increase in gross margin was primarily the result of the combined favorable impact of changes in product mix , especially growth in sales of higher gross margin product offerings , productivity improvements and cost containment initiatives , partially offset by lower demand . selling , general and administrative expenses 2010 compared to 2009. selling , general and administrative expenses for fiscal year 2010 were $ 490.7 million , as compared to $ 468.3 million for fiscal year 2009 , an increase of approximately $ 22.4 million , or 5 % . as a percentage of sales , selling , general and administrative expenses were 28.8 % in fiscal year 2010 , compared to 30.2 % in fiscal year 2009. amortization of intangible assets increased and was $ 16.6 million for fiscal year 2010 , as compared to $ 15.8 million for fiscal year 2009. stock option expense decreased and was $ 5.1 million for fiscal year 2010 , as compared to $ 6.3 million for fiscal year 2009. the gain on the sale of a facility in boston , massachusetts that was damaged in a fire in march 2005 was $ 3.4 million for fiscal year 2010. purchase accounting adjustments for contingent consideration and other acquisition costs related to certain acquisitions added an expense of $ 2.8 million for fiscal year 2010 and $ 1.7 million for fiscal year 2009. the increase in selling , general and administrative expenses was primarily the result of increased sales and marketing expenses , particularly in emerging territories , increased pension expense and foreign exchange , partially offset by cost containment initiatives . 34 2009 compared to 2008. selling , general and administrative expenses for fiscal year 2009 were $ 468.3 million , as compared to $ 486.4 million for fiscal year 2008 , a decrease of approximately $ 18.1 million , or 4 % . as a percentage of sales , selling , general and administrative expenses were 30.2 % in fiscal year 2009 , compared to 29.3 % in fiscal year 2008. amortization of intangible assets increased and was $ 15.8 million for fiscal year 2009 , as compared to $ 15.0 million for fiscal year 2008. stock option expense decreased and was $ 6.3 million for fiscal year 2009 , as compared to $ 7.3 million for fiscal year 2008. purchase accounting adjustments for contingent consideration and other acquisition costs related to certain acquisitions completed in fiscal year 2009 added an expense of approximately $ 1.7 million for fiscal year 2009. the decrease in selling , general and administrative expenses was primarily the result of cost containment initiatives , partially offset by increased sales and marketing expenses , particularly in emerging territories , increased pension expenses and foreign exchange . research and development expenses 2010 compared to 2009. research and development expenses for fiscal year 2010 were $ 95.4 million , as compared to $ 90.8 million for fiscal year 2009 , an increase of $ 4.6 million , or 5 % . as a percentage of sales , research and development expenses decreased to 5.6 % in fiscal year 2010 , as compared to 5.9 % in fiscal year 2009. amortization of intangible assets decreased and was $ 1.6 million for fiscal year 2010 , as compared to $ 2.0 million for fiscal year 2009. research and development expenses also included stock option expense of $ 0.4 million for each of the fiscal years 2010 and 2009. we directed research and development efforts similarly during fiscal years 2010 and 2009 , primarily toward the diagnostics and research markets within our human health segment , and the environmental and safety , and laboratory service and support markets within our environmental health segment , in order to help accelerate our growth initiatives . 2009 compared to 2008. research and development expenses for fiscal year 2009 were $ 90.8 million , as compared to $ 93.0 million for fiscal year 2008 , a decrease of $ 2.3 million , or 2 % . as a percentage of sales , research and development expenses increased to 5.9 % in fiscal year 2009 , as compared to 5.6 % in fiscal year 2008. amortization of intangible assets decreased and was $ 2.0 million for fiscal year 2009 , as compared to $ 2.1 million for fiscal year 2008. research and development expenses also included stock option expense of $ 0.4 million for each of the fiscal years 2009 and 2008. we directed research and development efforts similarly during fiscal years 2009 and 2008 , primarily toward the diagnostics and research markets within our human health segment , and the environmental and safety , and laboratory service and support markets within our environmental health segment , in order to help accelerate our growth initiatives . restructuring and lease charges , net we have undertaken a series of restructuring actions related to the impact of acquisitions and divestitures , alignment with our growth strategy and the integration of our business units .
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fiscal year 2009 operating activities . net cash provided by continuing operations was $ 127.8 million for fiscal year 2009 , as compared to net cash provided by continuing operations of $ 170.8 million for fiscal year 2008 , a decrease of $ 42.9 million . the decrease in cash provided by operating activities for fiscal year 2009 was a result of income from continuing operations of $ 74.3 million , depreciation and amortization of $ 80.8 million and restructuring and lease charges , net of $ 18.0 million . these amounts were partially offset by a net increase in working capital of $ 45.3 million . contributing to the net increase in working capital in fiscal year 2009 , excluding the effect of foreign exchange rate fluctuations , was an increase in accounts receivable of $ 30.4 million , which included the repayment and termination of our accounts receivable securitization facility for $ 40.0 million , a decrease in accounts payable of $ 10.4 million and an increase in inventory of $ 4.5 million . the increase in inventory was primarily the result of lower sales volume and expanding the amount of inventory held at sales locations within our environmental health and human health segments to improve responsiveness to customer requirements .
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additionally , 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 . overview we are a biopharmaceutical company engaged in the discovery , acquisition , development and commercialization of proprietary drug therapeutics for addressing significant unmet medical needs in the u.s. , europe as well as international markets . our primary therapeutic focus is oncology , including the treatment of chronic cancer pain , but we are also developing therapeutic products for other indications , including immunology and infectious diseases . we currently have two clinical development programs underway : ( i ) cynviloq , our lead oncology drug product candidate , a polymeric , albumin-free nanoparticle paclitaxel formulation , and ( ii ) resiniferatoxin , or rtx , a non-opiate , ultra-potent and selective agonist of the trpv-1 receptor for intractable pain in end-stage disease . our pipeline also includes preclinical fully human therapeutic monoclonal antibodies ( mabs ) , including our fully human anti- pd-l1 and anti-pd-1 checkpoint inhibitors derived from our proprietary g-mab ® library platform , antibody drug conjugates ( adcs ) , bispecific antibodies ( bsabs ) , as well as chimeric antigen receptor tumor-attacking neukoplast® ( car.tnk , pronounced “ cartank ” ) for adoptive cellular immunotherapies ( aci ) . our objective is to develop our antibody drug products and adoptive cellular immunotherapies as : ( i ) first in class ( fic ) , and or ( ii ) best in class ( bic ) , which may offer greater efficacy and or fewer adverse events or side effects as compared to existing drugs . 52 through december 31 , 2014 , we identified and further developed a number of potential drug product candidates across various therapeutic areas , and intend to select several lead product candidates to further advance into preclinical development activities in 2015. it is too early to assess which of these candidates , if any , will merit further evaluation in clinical trials . our libraries were designed to facilitate the rapid identification and isolation of highly specific , antibody therapeutic product candidates that are fully-human and that bind to disease targets appropriate for antibody therapy . we built our initial antibody expression and production capabilities to enable us to make sufficient product material to conduct preclinical safety and efficacy testing in animal models . although we intend to retain ownership and control of product candidates by advancing the development , we regularly also consider partnerships with pharmaceutical or biopharmaceutical companies in order to balance the risks and costs associated with drug discovery and development and maximize our stockholders ' returns . our partnering objectives include generating revenue through license fees , milestone-related development fees and royalties by licensing rights to our product candidates . significant 2014 developments bank loan and security agreement . in march 2014 , we entered into an amended and restated loan and security agreement , increasing the september 2013 facility to $ 12.5 million from $ 5.0 million , with the same two banks , which was funded at closing . the interest rate on the amended and restated loan is 7.95 % per annum . in october 2014 , we entered into a second amendment to the amended and restated loan and security agreement which extended the interest only period from october 1 , 2014 to may 1 , 2015 , after which equal monthly payments of principal and interest are due until the loan maturity date of september 30 , 2017. underwritten public offering . in may 2014 , we closed an underwritten public offering of 4,765,000 shares of common stock , at $ 5.25 per share , and in june 2014 , closed the full exercise of the over-allotment option granted to the representative of the underwriters to purchase an additional 714,750 shares of its common stock , with total gross proceeds of $ 28.8 million , before underwriting discounts and commissions and other offering expenses payable by us . agreement with morphotek . in june 2014 , we entered into a collaboration agreement with morphotek , inc. , or morphotek , to generate novel adcs based on a morphotek antibody linked to chemotherapeutic agents using proprietary adc technology . under the terms of the agreement , we received $ 200,000 during 2014 upon the completion and delivery of the agreed upon initial quantity of adc 's and we will receive future research fees , milestone payments and royalties on future net sales . additionally , we have the potential to receive up to $ 50 million upon the successful attainment of key milestones . agreement with lee 's pharmaceutical . i n october 2014 , we entered into a license agreement with china oncology focus limited , an affiliate of lee 's pharmaceutical holdings limited , or lee 's pharma , pursuant to which lee 's pharma licensed our fully human immune-oncology anti-pd-l1 monoclonal antibody sti-a1014 . under the terms of the agreement , lee 's pharma received exclusive rights to develop and commercialize the sti-a1014 for the greater chinese market , including mainland china , hong kong , macau , and taiwan . in turn , we received an up-front payment of $ 1.0 million recorded as deferred revenue at december 31 , 2014 , and will receive potential future milestone payments and royalties on future net sales . in total , we have the potential to receive more than $ 46 million upon the successful attainment of key milestones , excluding royalties , and retain all the rights to use data generated by lee 's pharma for territories outside of the greater chinese market . additionally , lee 's pharma purchased 400,000 shares of our common stock at a price of $ 9.00 per share , or an aggregate of $ 3.6 million , before commissions . joint venture agreement . story_separator_special_tag in connection with the loan agreement , we have a security interest in all of ark 's assets , including ark 's intellectual property , until the loan is repaid in full . during the period from ark 's inception in february 2014 through december 31 , 2014 , we paid for certain general , administrative and research and development expenses totaling $ 991,000. the intercompany balances associated with these transactions have been eliminated in consolidation . story_separator_special_tag research and development activities and our be registration trial and activities to advance rtx into clinical trials and potentially pursue other human indications , and to fund ark activities in advance of ark securing stand-alone financing . we expect research and development expenses to increase in absolute dollars as we : ( i ) advance our cynviloq be registration trial and pursue other potential indications , including expenses incurred under agreements with cros and investigative sites that conduct our clinical trials , the cost of acquiring , developing and manufacturing clinical trial materials , and other regulatory operating activities , ( ii ) incur incremental expenses associated with our efforts to further advance a number of potential drug candidates into preclinical development activities , ( iii ) continue to identify and advance a number of fully human therapeutic antibody and adc preclinical drug 55 candidates , ( iv ) incur higher salary , lab supply and infrastructure costs incurred in connection with supporting all of our programs , and ( v ) invest in our jv 's or other third party agreements . acquired in-process research and development expenses . acquired in-process research and development expenses for the years ended december 31 , 2014 and 2013 were $ 209 and $ 5,986 , respectively . acquired in-process research and development expenses for the year ended december 31 , 2014 include the costs associated with a research agreement . acquired in-process research and development expenses for the year ended december 31 , 2013 include ( i ) the costs associated with entering into a termination and release agreement with opko whereby we terminated the opko license in its entirety , ( ii ) the purchase price of tocosol , and ( iii ) the purchase price of the license rights to rtx . general and administrative expenses . general and administrative expenses for the years ended december 31 , 2014 and 2013 were $ 9,987 and $ 6,317 , respectively . general and administrative expenses consist primarily of salaries and personnel related expenses for executive , finance and administrative personnel , stock-based compensation expense , professional fees , infrastructure expenses , legal and accounting expenses and other general corporate expenses . the increase of $ 3,670 is primarily attributable to higher salaries and related compensation expenses , stock-based compensation , legal costs related to general corporate and ip matters , consulting and business development expenses and higher compliance costs associated with our public reporting obligations , and to fund ark activities in anticipation of ark securing stand-alone financing . we expect general and administrative expenses to increase in absolute dollars as we : ( i ) incur incremental expenses associated with expanded operations and development efforts , compliance with our public reporting obligations , ( ii ) and increased infrastructure costs , and ( iii ) invest in our jv 's or other third party agreements . intangible amortization . intangible amortization for the years ended december 31 , 2014 and 2013 was $ 2,345 and $ 804 , respectively . the increase resulted primarily from the acquisition and amortization of intangible license rights from igdrasol and from acquired technology and customer relationships from concortis , all acquired in the latter part of 2013. interest expense . interest expense for the years ended december 31 , 2014 and 2013 was $ 1,629 and $ 253 , respectively . the increase in interest expense resulted primarily from higher average borrowings under the amended loan and security agreement entered into in march 2014. interest income . interest income for the years ended december 31 , 2014 and 2013 was $ 12 and $ 10 , respectively . the increase in interest income resulted from higher average cash balances in 2014 as compared to the same period in 2013. we expect that continued low interest rates will significantly limit our interest income in the near term . income tax benefit . income tax benefit for the years ended december 31 , 2014 and 2013 was $ 1,702 and $ 0 , respectively . the increase in income tax benefit resulted mainly from the amortization and decrease of deferred tax liabilities , return to provision true-ups . net loss . net loss for the years ended december 31 , 2014 and 2013 was $ 34,657 and $ 21,911 , respectively . the increase in net loss is mainly attributable to the expanded research and development , intangible amortization and general and administrative activities . comparison of the years ended december 31 , 2013 and 2012 revenues . revenues were $ 460 for the year ended december 31 , 2013 , as compared to $ 584 for the year ended december 31 , 2012. the net decrease of $ 124 is due to decreased activities under two active grants received from the national institute of allergy and infectious diseases , a division of the national institutes of health , or nih , in the year ended december 31 , 2013 as compared to three active grants for the year ended december 31 , 2012. in may 2010 , we were awarded an advanced technology small business technology transfer research grant to support our program to generate and develop novel antibody therapeutics and vaccines to combat staph infections , including methicillin-resistant staph , or the staph grant award . the project period for the phase 1 staph grant award covered a two-year period which commenced in june 2010 and ended in may 2012 , with a total grant award of $ 600. we recorded revenue associated with the grant as the related costs and expenses were incurred .
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results of operations the following discussion of our operating results explains material changes in our results of operations for the years ended december 31 , 2014 , 2013 and 2012. the discussion should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this form 10-k. comparison of the years ended december 31 , 2014 and 2013 ( figures in 000 's unless otherwise specified ) revenues . revenues were $ 3,825 for the year ended december 31 , 2014 , as compared to $ 460 for the year ended december 31 , 2013. the net increase of $ 3,365 is primarily due to sales and service revenues of $ 3,337 generated from the sale of customized reagents and providing contract development services from the concortis operations that was acquired in december 2013. activities under our active grants for the year ended december 31 , 2014 were higher than in the corresponding period of 2013 due primarily to an increase in active grants in the year ending december 31 , 2014 as compared to the active grants in the same period of 2013. in june 2012 , we were awarded a third advanced technology small business technology transfer research grant , with an initial award of $ 300,000 , to support our program to generate and develop novel human antibody therapeutics to combat staph infections , including methicillin-resistant staph , or the staph grant ii award . the project period for the phase i grant covers a two- 54 year period which commenced in june 2012 , with a total grant award of $ 600,000. the staph grant ii award revenues for the years ended december 31 , 2014 , 2013 and 2012 , were $ 150 , $ 308 and $ 129 , respectively in june 2014 , the niaid awarded us a phase ii sttr grant to support the advanced preclinical development of human bispecific antibody therapeutics to prevent and treat staphylococcus aureus ( s.
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there can be no assurance the products will receive the necessary clearance . if the company is denied clearance or clearance is delayed , it may have a material adverse impact on the company . the company 's products are concentrated in rapidly-changing , highly-competitive markets , which are characterized by rapid technological advances , changes in customer requirements and evolving regulatory requirements and industry standards . any failure by the company to anticipate or to respond adequately to technological developments in its industry , changes in customer requirements or changes in regulatory requirements or industry standards or any significant delays in the development or introduction of products or services could have a material adverse effect on the company 's business , operating results and future cash flows . story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with selected consolidated financial data and our consolidated financial statements and related notes appearing in this annual report on form 10-k ( annual report ) . some of the information contained in this discussion and analysis or set forth elsewhere in this annual report include historical information and other information with respect to our plans and strategy for our business and contain forward-looking statements that involve risks , uncertainties and assumptions . our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors , including but not limited to those set forth under the “ risk factors ” section of this report and elsewhere in this annual report . overview vanda pharmaceuticals inc. ( we , our or vanda ) is a leading global biopharmaceutical company focused on the development and commercialization of innovative therapies to address high unmet medical needs and improve the lives of patients . we strive to advance novel approaches to bring important , new medicines to market through responsible innovation . we are committed to the use of technologies that support sound science , including genetics and genomics , in drug discovery , clinical trials and the commercial positioning of our products . our commercial portfolio is currently comprised of two products , hetlioz ® for the treatment of non-24-hour sleep-wake disorder ( non-24 ) and fanapt ® for the treatment of schizophrenia . hetlioz ® is the first treatment for non-24 approved by the fda . in addition , we have a number of drugs in development , including : hetlioz ® ( tasimelteon ) for the treatment of jet lag disorder , smith-magenis syndrome ( sms ) , pediatric non-24 and delayed sleep phase disorder ( dspd ) ; fanapt ® ( iloperidone ) for the treatment of bipolar disorder and a long acting injectable ( lai ) formulation program for the treatment of schizophrenia ; tradipitant ( vly-686 ) , a small molecule neurokinin-1 receptor ( nk-1r ) antagonist , for the treatment of atopic dermatitis , gastroparesis and motion sickness ; vtr-297 , a small molecule histone deacetylase ( hdac ) inhibitor for the treatment of hematologic malignancies and with potential use as a treatment for several oncology indications ; vqw-765 , a small molecule nicotinic acetylcholine receptor partial agonist , with potential use for the treatment of psychiatric disorders ; and portfolio of cystic fibrosis transmembrane conductance regulator ( cftr ) activators and inhibitors for the treatment of dry eye and ocular inflammation and for the treatment of secretory diarrhea disorders , including cholera . operational highlights tradipitant results from the epione study of tradipitant in the treatment of pruritus in atopic dermatitis were reported today . we will reassess epione 2 and determine next steps . enrollment in the phase iii study of tradipitant in gastroparesis ( vp-vly-686-3301 ) is ongoing . we expect to complete the phase iii program of tradipitant in motion sickness and file an nda with the fda in 2020. we continue to engage with the fda over the requirement of a nine-month dog toxicity study . hetlioz ® we submitted an snda for hetlioz ® in sms , including data for a liquid formulation , and expect regulatory action by the fda in 2020. we continue to pursue approval for hetlioz ® in the treatment of jet lag disorder . a clinical program for hetlioz ® in dspd is ongoing . 56 fanapt ® a phase iii study of fanapt ® in bipolar disorder is ongoing . development of the lai formulation of fanapt ® is ongoing . since we began operations , we have devoted substantially all of our resources to the in-licensing , clinical development and commercialization of our products . our ability to generate meaningful product sales and achieve profitability largely depends on our level of success in commercializing hetlioz ® and fanapt ® in the u.s. and europe , on our ability , alone or with others , to complete the development of our products , and to obtain the regulatory approvals for and to manufacture , market and sell our products . the results of our operations will vary significantly from year-to-year and quarter-to-quarter and depend on a number of factors , including risks related to our business , risks related to our industry , and other risks which are detailed in risk factors reported in item 1a of part i of this annual report . as described in part i , item 3 , legal proceedings , of this annual report , we have initiated lawsuits to enforce our patent rights against certain generic pharmaceutical companies . critical accounting policies the preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of our financial statements , as well as the reported revenues and expenses during the reported periods . story_separator_special_tag uncertainties related to variable consideration are generally resolved in the quarter subsequent to period end , with the exception of medicaid rebates , which are dependent upon the timing of when states submit reimbursement claims , and product returns which are resolved during the product expiry period specified in the customer contract . we currently record sales allowances for the following : prompt-pay : specialty pharmacies and wholesalers are offered discounts for prompt payment . we expect that the specialty pharmacies and wholesalers will earn prompt payment discounts and , therefore , deduct the full amount of these discounts from total product sales when revenues are recognized . rebates : allowances for rebates include mandated discounts under the medicaid drug rebate program as well as contracted rebate programs with other payors . rebate amounts owed after the final dispensing of the product to a benefit plan participant are based upon contractual agreements or legal requirements with public sector benefit providers , such as medicaid . the allowance for rebates is based on statutory or contracted discount rates and estimated patient utilization . chargebacks : chargebacks are discounts that occur when contracted indirect customers purchase directly from specialty pharmacies and wholesalers . contracted indirect customers , which currently consist primarily of public health service institutions , non-profit clinics , and federal government entities purchasing via the federal supply schedule , generally purchase the product at a discounted price . the specialty pharmacy or wholesaler , in turn , charges back the difference between the price initially paid by the specialty pharmacy or wholesaler and the discounted price paid to the specialty pharmacy or wholesaler by the contracted customer . medicare part d coverage gap : medicare part d prescription drug benefit mandates manufacturers to fund approximately 50 % of the medicare part d insurance coverage gap for prescription drugs sold to eligible patients through 2018. public law no . 115-123 , also known as the bipartisan budget act of 2018 enacted on february 9 , 2018 increased the manufacturer discount from 50 % to 70 % effective in 2019 for applicable drugs . we account for the medicare part d coverage gap using a point of sale model . estimates for expected medicare part d coverage gap are based in part on historical activity and , where available , actual and pending prescriptions when we have validated the insurance benefits . service fees : we receive sales order management , data and distribution services from certain customers . these fees are based on contracted terms and are known amounts . we accrue service fees at the time of revenue recognition , resulting in a reduction of product sales and the recognition of an accrued liability , unless it is a payment for a distinct good or service from the customer in which case the fair value of those distinct goods or services are recorded as selling , general and administrative expense . co-payment assistance : patients who have commercial insurance and meet certain eligibility requirements may receive co-payment assistance . co-pay assistance utilization is based on information provided by our third-party administrator . product returns : we generally offer direct customers a limited right to return as contractually defined with our customers . we consider several factors in the estimation process , including expiration dates of product shipped to customers , inventory levels within the distribution channel , product shelf life , historical return activity , including activity for product sold for which the return period has past , prescription trends and other relevant factors . we do not expect returned goods to be resalable . there was no right of return asset as of december 31 , 2019 or 2018 . 58 the following table summarizes sales discounts and allowance activity as of and for the years ended december 31 , 2019 , 2018 and 2017 : replace_table_token_3_th the provision for rebates and chargebacks of $ 59.4 million and $ 59.3 million for the years ended december 31 , 2019 and 2018 , respectively , primarily represents medicaid rebates applicable to sales of fanapt ® and hetlioz ® . the provision for discounts , returns and other of $ 26.9 million and $ 23.8 million for the years ended december 31 , 2019 and 2018 , primarily represents wholesaler distribution fees applicable to sales of fanapt ® and , to a lesser extent , estimated product returns of fanapt ® , as well as co-pay assistance costs and prompt pay discounts applicable to the sales of both hetlioz ® and fanapt ® . stock-based compensation . compensation costs for all stock-based awards to employees and directors are measured based on the grant date fair value of those awards and recognized over the period during which the employee or director is required to perform service in exchange for the award . we use the black-scholes-merton option pricing model to determine the fair value of stock options . the determination of the fair value of stock options on the date of grant using an option pricing model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables . these variables include the expected stock price volatility over the expected term of the awards , actual and projected employee stock option exercise behaviors , risk-free interest rate and expected dividends . expected volatility rates are based on the historical volatility of our publicly traded common stock and other factors . the risk-free interest rates are based on the u.s. treasury yield for a period consistent with the expected term of the option in effect at the time of the grant . we have never paid cash dividends to our stockholders and do not plan to pay dividends in the foreseeable future . as stock-based compensation expense recognized in the consolidated statements of operations is based on awards ultimately expected to vest , it has been reduced for estimated forfeitures .
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results of operations we anticipate that our results of operations will fluctuate for the foreseeable future due to several factors , including our and our partners ' ability to successfully commercialize our products , any possible payments made or received pursuant to license or collaboration agreements , progress of our research and development efforts , the timing and outcome of clinical trials and related possible regulatory approvals . since our inception , we have incurred significant losses resulting in an accumulated deficit of $ 220.7 million as of december 31 , 2019 . our total stockholders ' equity was $ 410.9 million as of december 31 , 2019 . year ended december 31 , 2019 compared to year ended december 31 , 2018 revenues . total revenues increased by $ 34.1 million , or 18 % , to $ 227.2 million for the year ended december 31 , 2019 compared to $ 193.1 million for the year ended december 31 , 2018 . revenues were as follows : replace_table_token_4_th 60 hetlioz ® product sales , net increased by $ 27.1 million , or 23 % , to $ 143.0 million for the year ended december 31 , 2019 compared to $ 115.8 million for the year ended december 31 , 2018 . the increase to net product sales was attributable to an increase in volume and an increase in price net of deductions . fanapt ® product sales , net increased by $ 6.9 million , or 9 % , to $ 84.2 million for the year ended december 31 , 2019 compared to $ 77.3 million for the year ended december 31 , 2018 . the increase to net product sales was attributable to an increase in price net of deductions . cost of goods sold .
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the estimated fair values of the participation units owned by the plan in pooled separate accounts were based on quoted redemption values and adjusted for management fees and asset charges , as determined by the recordkeeper , on the last business day of the story_separator_special_tag the following discussion and analysis of our results of operations and financial position should be read together with our consolidated financial statements and accompanying notes , which are contained in “ item 8. financial statements and supplementary data , ” as well as “ item 6. selected financial data. ” the discussion of the comparison of our 2019 and 2018 results was previously presented in the ma nagement 's discussion & analysis in part ii , item 7 of the company 's annual report on form 10-k filed with the sec on february 21 , 2020 , and has been omitted from this section pursuant to instruction 1 to item 303 ( a ) of regulation s-k. company background and strategy rogers corporation designs , develops , manufactures and sells high-performance and high-reliability engineered materials and components to meet our customers ' demanding challenges . we operate three strategic operating segments : advanced connectivity solutions ( acs ) , elastomeric material solutions ( ems ) and power electronics solutions ( pes ) . the remaining operations , which represent our non-core businesses , are reported in the other operating segment . during the first quarter of 2021 , we completed the realignment of our strategic business segments to reflect the combination of our acs and pes businesses resulting in a new strategic business segment , advanced electronics solutions ( aes ) . the combination of these two complementary businesses with capabilities in both high power and high frequency applications is expected to enhance our overall value proposition to customers in multiple high-growth markets . we have a history of innovation and have established innovation centers for our research and development ( r & d ) activities in chandler , arizona ; burlington , massachusetts ; eschenbach , germany ; and suzhou , china . we are headquartered in chandler , arizona . our growth strategy is based upon the following principles : ( 1 ) market-driven organization , ( 2 ) innovation leadership , ( 3 ) synergistic mergers and acquisitions , and ( 4 ) operational excellence . as a market-driven organization , we are focused on growth drivers , including advanced mobility and advanced connectivity . more specifically , in addition to the impact covid-19 discussed below , the key medium- to long-term trends currently affecting our business include the increasing use of advanced driver assistance systems ( adas ) and increasing electrification of vehicles , including electric and hybrid electric vehicles ( ev/hev ) , in the automotive industry and the growth of 5g smartphones in the portable electronics industry . in addition to our focus on advanced mobility and advanced connectivity in the automotive , portable electronics and telecommunications industries , we sell into a variety of other markets including general industrial , aerospace and defense , mass transit , renewable energy and connected devices . our sales and marketing approach is based on addressing these trends , while our strategy focuses on factors for success as a manufacturer of engineered materials and components : performance , quality , service , cost , efficiency , innovation and technology . we have expanded our capabilities through organic investment and strive to ensure high quality solutions for our customers . we continue to review and re-align our manufacturing and engineering footprint in an effort to attain a leading competitive position globally . we have established or expanded our capabilities in various locations in support of our customers ' growth initiatives . we seek to enhance our operational and financial performance by investing in research and development , manufacturing and materials efficiencies , and new product initiatives that respond to the needs of our customers . we strive to evaluate operational and strategic alternatives to improve our business structure and align our business with the changing needs of our customers and major industry trends affecting our business . executive summary the following key highlights and factors should be considered when reviewing our results of operations , financial position and liquidity : in 2020 as compared to 2019 , our net sales decreased by 10.7 % to $ 802.6 million , our gross margin increased 140 basis points to 36.4 % from 35.0 % , and operating income as a percentage of net sales decreased 390 basis points to 8.4 % from 12.3 % . we made $ 248.0 million of discretionary principal payments on our revolving credit facility during the second , third and fourth quarters of 2020 , partially offset by $ 150.0 million in borrowings under our revolving credit facility during the first quarter of 2020 as a precautionary measure in order to increase our cash position and preserve financial flexibility given current uncertainty in the global markets resulting from the covid-19 pandemic . we terminated the interest rate swap on september 30 , 2020. as a result , we settled the interest rate swap for $ 2.4 million on october 2 , 2020 , representing the fair value of the interest rate swap on the date of termination . both rogers and the counterparties released each other from all obligation under the interest rate swap agreement , including 20 the obligation to exchange , at specified intervals , the difference between fixed and floating interest amounts calculated by reference to the agreed upon notional principal amount of $ 75.0 million . we commenced manufacturing footprint optimization plans involving certain europe and asia manufacturing locations , primarily impacting our pes and acs operating segments , and we recognized $ 12.3 million of restructuring charges in 2020 related to this project . we incurred incremental direct costs of $ 4.9 million in 2020 , due to the covid-19 pandemic . story_separator_special_tag the lower net sales in the 4g and 5g wireless infrastructure markets in our acs operating segment reflected the waning of 4g infrastructure spending by telecommunications companies in anticipation of 5g , as well as the impacts of trade tensions , increased competition and design changes by telecommunications equipment original equipment manufacturers ( oems ) , which reduced our materials content in 5g base stations . the lower net sales in the automotive market was largely due to the impacts of the covid-19 pandemic . we anticipate a strong recovery in the automotive market in 2021 following industry disruptions that occurred in the first half of 2020 due to the covid-19 pandemic . in particular , we anticipate higher net sales for adas applications in 2021 driven by increased adoption of safety features in newer vehicles . additionally , we anticipate higher net sales in the aerospace and defense market in 2021 driven by funding of technology programs such as advanced defense and radar systems . operating income decreased by 21.5 % in 2020 from 2019. the decrease in operating income was primarily due to lower volume and unfavorable absorption of fixed overhead costs , partially offset by lower freight , duties and tariffs costs , including the recognition of a $ 3.3 million recovery of previous duty taxes paid due to a change in chinese tariff regulations , yield improvements and lower fixed overhead costs . additionally , our acs operating segment incurred $ 4.6 million of restructuring and impairment charges in 2020. as a percentage of net sales , operating income in 2020 was 14.2 % , an approximately 120 basis point decrease as compared to 15.4 % in 2019. the incremental direct costs associated with the temporary additional benefits established under our dependent care , premium pay and sick pay programs in response to the covid-19 pandemic , as well as the additional safety supplies , impacted acs operating income by approximately $ 1.9 million in 2020. elastomeric material solutions ( dollars in thousands ) 2020 2019 net sales $ 328,177 $ 361,603 operating income $ 30,817 $ 57,080 ems net sales decreased by 9.2 % in 2020 compared to 2019. the decrease in net sales was primarily driven by lower net sales in the general industrial , mass transit , consumer and automotive markets , partially offset by higher net sales in the ev/hev and portable electronics markets . net sales were not materially impacted by changes in foreign currencies . the lower net sales in the automotive , mass transit and general industrial markets was largely due to the impacts of the covid-19 pandemic . we anticipate higher net sales in the ev/hev market in 2021 driven by continued strong demand . additionally , we anticipate a strong recovery in the automotive market in 2021 following industry disruptions that occurred in the first half of 2020 due to the covid-19 pandemic . lastly , we anticipate higher net sales in the portable electronics market in 2021 due to anticipated continuation of strong demand for 5g smartphones , tempered by the uncertain impacts from the fire at our utis manufacturing facility in early february 2021. operating income decreased by 46.0 % in 2020 from 2019. as a result of the acceleration of amortization expense related to the dsp customer relationships and trademarks and trade names definite-lived other intangible assets , we recognized an additional $ 27.4 million of amortization expense in 2020. the decrease in operating income was also due to lower volume and unfavorable absorption of fixed overhead costs , offset by favorable product mix and lower fixed overhead costs . as a percentage of net sales , operating income in 2020 was 9.4 % , an approximately 640 basis point decrease as compared to 15.8 % in 2019. the incremental direct costs associated with the temporary additional benefits established under our dependent care , premium pay and sick pay programs in response to the covid-19 pandemic , as well as the additional safety supplies , impacted ems operating income by approximately $ 1.9 million in 2020 . 25 the increase in amortization expense in 2020 from 2019 was due to the acceleration of amortization expense related to our dsp customer relationships and trademarks and trade names definite-lived other intangible assets , which were both accelerated to be fully amortized by december 31 , 2020 due to an adjustment to their remaining useful lives . we recognized an additional $ 27.4 million of amortization expense in 2020 due to this acceleration . the increase in amortization expense in 2020 is offset by a decrease in forecasted amortization expense in future years . for additional information , refer to “ note 6 – goodwill and other intangible assets ” to “ item 8. financial statements and supplementary data. ” power electronics solutions ( dollars in thousands ) 2020 2019 net sales $ 189,980 $ 198,535 operating income ( loss ) $ ( 6,179 ) $ ( 1,437 ) pes net sales decreased by 4.3 % in 2020 compared to 2019. the decrease in net sales was primarily driven by lower net sales in the mass transit , industrial power and vehicle electrification markets , partially offset by higher net sales in the ev/hev and renewable energy markets . net sales were favorably impacted by foreign currency fluctuations of $ 1.0 million , or 0.5 % , due to the appreciation in value of the euro relative to the u.s. dollar . the lower net sales in industrial power market in our pes operating segment was due to a slowdown in industrial automation demand due to the impacts of the covid-19 pandemic combined with customer inventory rebalancing , which began in mid-2019 and continued through most of the first half of 2020. the lower net sales in the vehicle electrification market in our pes operating segment was due to the covid-19 impacts on the automotive sector in the first half of 2020 , partially offset by a recovery in the second half of 2020. we anticipate higher net sales in 2021 in the ev/hev market driven by continued strong demand .
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results of operations the following table sets forth , for the periods indicated , selected operations data expressed as a percentage of net sales . replace_table_token_2_th net sales and gross margin replace_table_token_3_th net sales decreased by 10.7 % in 2020 compared to 2019. our acs , ems and pes operating segments had net sales decreases of 15.1 % , 9.2 % and 4.3 % , respectively . the decrease in net sales was primarily driven by significantly lower net sales in the 4g and 5g wireless infrastructure markets in our acs operating segment , as well as lower net sales in the automotive market in our acs operating segment , lower net sales in the general industrial , mass transit , consumer and automotive markets in our ems operating segment and lower net sales in the mass transit , industrial power and vehicle electrification markets in our pes operating segment . the decrease in net sales was partially offset by higher net sales in the aerospace and defense market in our acs operating segment , higher net sales in the ev/hev and portable electronics markets in our ems operating segment and higher net sales in the ev/hev and renewable energy markets in our pes operating segment . net sales were not materially impacted by changes in foreign currencies . the lower net sales in the 4g and 5g wireless infrastructure markets in our acs operating segment reflected the waning of 4g infrastructure spending by telecommunications companies in anticipation of 5g , as well as the impacts of trade tensions , increased competition and design changes by telecommunications equipment original equipment manufacturers ( oems ) , which reduced our materials content in 5g base stations . the lower net sales in the automotive , mass transit and general industrial markets was largely due to the impacts of the covid-19 pandemic .
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the placement story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes and other financial information included elsewhere in this annual report 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 described under the heading “ cautionary note regarding forward-looking statements ” elsewhere in this annual report on form 10-k. you should review the disclosure under the heading “ risk factors ” in this annual report on form 10-k for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . operating overview we are a clinical-stage biotechnology company developing gene regulatory and immuno-oncology therapeutics based on our proprietary spherical nucleic acid , or sna , technology . snas are nanoscale constructs consisting of densely packed synthetic nucleic acid sequences that are radially arranged in three dimensions . we believe the design of our snas gives rise to distinct chemical and biological properties that may provide advantages over other nucleic acid therapeutics and enable therapeutic activity outside of the liver . since our snas have shown in a phase 1 clinical trial and in preclinical studies that they can cross certain biological barriers when administered locally , we believe that they have the therapeutic potential to target diseases not typically addressed with other nucleic acid therapeutics . we have demonstrated the ability to cross certain biological barriers in a phase 1 clinical trial of our lead therapeutic candidate , ast-005 , and in preclinical studies of two other therapeutic candidates , xcur17 and ast-008 , both of which we are advancing to the clinic . ast-005 is an sna targeting tumor necrosis factor , or tnf , for the treatment of mild to moderate psoriasis that is intended to be administered locally in a gel to psoriatic lesions . in a completed phase 1 clinical trial , ast-005 , when topically administered to the skin of patients with mild to moderate psoriasis , resulted in no drug associated adverse events , and demonstrated a reduction of tumor necrosis factor messenger rna , or tnf mrna . the tnf mrna reduction elicited by the highest strength of ast-005 gel was statistically significant when compared to the effects of the vehicle . while we did not observe an antipsoriatic effect in our phase 1 clinical trial , we believe this is due to the short duration of the treatment . the results of a clinical trial with etanercept , a systemic tnf inhibitor , indicate that at least four weeks of therapy is required before antipsoriatic efficacy can be observed . on december 2 , 2016 , we entered into a research collaboration , option and license agreement with purdue referred to as the purdue collaboration . purdue has the option to obtain from us the full worldwide development and commercial rights to ast-005 , an option to obtain three additional collaboration targets and a further option to obtain from us the full worldwide development and commercial rights to any therapeutic candidates developed targeting the three additional collaboration targets . additionally , purdue has rights of first offer to some potential collaboration targets . these rights of first offer are subject to limitations in time and scope . in connection with the purdue collaboration , we received a non-refundable development fee of $ 10.0 million . in addition , we are eligible to receive up to $ 776.5 million upon successful completion of certain research , regulatory and commercial sales milestones . we can not assure you that these milestones will be achieved as they are subject to highly significant risks and uncertainties , many of which are outside of our control . in the event a therapeutic candidate subject to the collaboration results in commercial sales , we are eligible to receive royalties ranging from the low single digits to a maximum of 10 % on future net sales of such commercialized therapeutic candidates . pursuant to the purdue collaboration , purdue is conducting a phase 1b clinical trial in psoriasis patients in germany to evaluate the effect of higher concentrations of ast-005 gel on tnf mrna and downstream mrna expression . patient dosing is complete and no serious adverse events have been reported . we expect to have the topline results of the clinical trial in early 2018. our second therapeutic candidate , xcur17 , is an sna targeted to il-17ra for the treatment of mild to moderate psoriasis . we filed a cta for a phase 1 clinical trial of xcur17 in patients with psoriasis in germany in 88 the third quarter of 2017. our cta was approved in february 2018 and we expect the first patient in our phase 1 clinical trial to be dosed in early 2018. we expect this clinical trial to be completed in mid-2018 . our third therapeutic candidate , ast-008 , is an sna consisting of toll-like receptor 9 , or tlr9 , agonists designed for immuno-oncology applications . ast-008 has exhibited anti-tumor activity as both a monotherapy and in combination with certain checkpoint inhibitors across a range of preclinical models of solid and hematological cancers . in the third quarter of 2017 , we received an authorization from the mhra to conduct a phase 1 clinical trial with ast-008 . we began subject dosing in our phase 1 clinical trial for ast-008 in the fourth quarter of 2017. we expect this trial to be completed in mid-2018 . we ultimately plan to clinically advance ast-008 in combination with checkpoint inhibitors . since our inception in 2011 , we have devoted substantial resources to the research and development of snas and the protection and enhancement of our intellectual property . story_separator_special_tag exicure opco was determined to be the accounting acquirer based on the terms of the merger and other factors including : ( i ) legacy exicure opco shareholders own approximately 94 % of the combined company on a fully diluted basis immediately following the closing of the merger , ( ii ) legacy exicure opco directors will hold all six board seats of the combined company , and ( iii ) legacy exicure opco management will hold all key positions in management of the combined company . the transaction is accounted for as an asset acquisition rather than a business combination because as of the acquisition date , max-1 did not meet the definition of a business as defined by u.s. generally accepted accounting principles , or gaap . consequently , the assets , liabilities and operations that are reflected in exicure 's historical financial statements prior to the merger will be those of exicure opco , and the consolidated financial statements after completion of the merger will include the assets , liabilities and results of operations of exicure opco up to the day prior to the closing of the merger and the assets , liabilities and results of operations of the combined company from and after the closing date of the merger . the assets and liabilities of max-1 included in the accompanying consolidated financial statements are recorded at the historical cost basis of max-1 . 90 private placement following the effective time of the merger , we held several closings of the private placement on september 26 , 2017 , october 27 , 2017 and november 2 , 2017 in which we sold to accredited investors approximately $ 31.5 million worth of shares of common stock ( before deducting placement agent fees and expenses which are approximately $ 4.0 million ) , or 10,504,196 shares , at a price of $ 3.00 per share . also , we granted the investors in the private placement registration rights requiring us to register those shares of common stock for public resale . the then existing stockholders of exicure opco who agreed to become parties to the registration rights agreement also became entitled to such registration rights . we filed and caused to become effective a registration statement with the sec on february 6 , 2018 registering the resale of 39,714,143 shares of our common stock ( including shares underlying warrant agreements ) issued in connection with the merger and the private placement . each investor in any subsequent closing of the private placement , or a subsequent closing , was required to represent that , at the time of the applicable closing , it ( i ) had a substantive , pre-existing relationship with us , or had direct contact with the company or the placement agents or other enumerated parties outside of the private placement , ( ii ) was not identified or contacted through the marketing of the private placement , and ( iii ) did not independently contact us as a result of general solicitation by means of any of our sec filings , any press release or any other public disclosure disclosing the material terms of the private placement . segment reporting we view our operations and manage our business as one segment , which is the discovery , research and development of treatments based on our sna technology . critical accounting policies and significant judgments and estimates our management 's discussion and analysis of financial condition and results of operations is based on our financial statements , which have been prepared in accordance with gaap . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements , as well as the revenue and expenses incurred during the reported periods . we base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not apparent from other sources . changes in estimates are reflected in reported results for the period in which they become known . actual results may differ from these estimates under different assumptions or conditions . while our significant accounting policies are described in the notes to our financial statements appearing in this annual report on form 10-k , we believe that the following critical accounting policies are most important to understanding and evaluating our reported financial results . revenue recognition we recognize revenue when the following criteria have been met : ( 1 ) persuasive evidence of an arrangement exists ; ( 2 ) delivery has occurred or services have been rendered and risk of loss has passed ; ( 3 ) the fee is fixed or determinable ; and ( 4 ) collectability is reasonably assured . when payments are received in advance of recognizing revenue , we include the amount in deferred revenue on the balance sheet . amounts deferred that are not anticipated to be recognized as revenue within a year of the balance sheet date are classified as noncurrent liabilities . we have generated all of our revenue to date through our research collaboration , license , and option agreement with purdue or as a primary contractor or as a subcontractor on government grants . we have not generated any commercial product revenue . historically , our research collaborations and grants have been either as a direct contractor or as a sub-awardee on contracts funded by various governmental agencies . 91 in arrangements involving the delivery of more than one element , each required deliverable is evaluated to determine whether it qualifies as a separate unit of accounting . the determination is based on whether the deliverable has “ standalone value ” to the customer .
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results of operations comparison of the years ended december 31 , 2017 and 2016 the following table summarizes the results of our operations for the years ended december 31 , 2017 and 2016 : replace_table_token_3_th revenue the following table summarizes our revenue recognized during the periods indicated : replace_table_token_4_th we recognized revenue of $ 9.7 million and $ 1.0 million for the years ended december 31 , 2017 and 2016 , respectively . in connection with the purdue collaboration , we received a non-refundable development fee of $ 10.0 million in december 2016 which was deferred and is recognized as collaboration revenue over the period in which the revenue is earned . all of our revenue recognized during the year ended december 31 , 2017 was in connection with the purdue collaboration and included $ 1.4 million of research and development activities that is reimbursable by purdue and is presented on a gross basis in the accompanying consolidated statement of operations . we recognized $ 0.7 million of collaboration revenue in the year ended december 31 , 2016 related to one month of amortization of deferred revenue mentioned above . the grant income revenue of $ 0.3 million recognized during the year ended december 31 , 2016 related to our performance as a primary contractor or as a subcontractor on government grants that concluded in early 2016. we did not have any active grants as of december 31 , 2017 and 2016 . 97 we do not intend for government grants to be a principal commercial or strategic focus , but will evaluate opportunities when consistent with our strategic priorities . we do not expect to generate any product revenue for the foreseeable future .
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these forward-looking statements are not guarantees of future performance and are subject to risks , uncertainties and assumptions , including , among other things , information set forth in part i , item 1arisk factors. in making these statements , we are not undertaking to address or update these factors in future filings or communications regarding our business or results except as required by law . in light of these risks , uncertainties and assumptions , the forward-looking events discussed in this report might not occur . there may also be other risks that we are unable to predict at this time . any of these risks and uncertainties may cause actual results to differ materially from the results discussed in the forward-looking statements . overview we are a holding company that provides financial guaranty insurance products to participants in the global credit derivatives markets , structured finance capital markets and municipal finance capital markets . we also provide asset management services to specific segments of the structured finance capital markets . we participate in our target markets both as a provider of credit protection through the sale of financial guaranty insurance products , for risk-based revenues , and as an asset manager , for fee-based revenues . we conduct our financial guaranty insurance businesses through aca financial guaranty corporation , our a rated , regulated insurance subsidiary . approximately 85 % of our assets on an unconsolidated basis represent our 100 % indirect ownership interest in aca financial guaranty . aca financial guaranty 52 provides financial guaranty insurance policies for our public finance business , for the credit swaps in our structured credit business and for certain other transactions described in other. we conduct our asset management business through aca management , l.l.c. , a wholly-owned indirect subsidiary of aca financial guaranty . additionally , in january 2007 , we obtained a license from the fsa to conduct a european asset management business , which will be done through our wholly-owned indirect subsidiary aca capital management ( u.k. ) pte . limited . as of december 31 , 2006 , we had credit exposure of $ 46.3 billion and our assets under management for third parties were $ 15.7 billion . our financial results include three principal operating lines of business : structured credit and public finance , which are both financial guaranty insurance lines of business , and our cdo asset management business . we have a fourth line of business , other , which encompasses specified insurance transactions in areas in which we are no longer active , including industry loss warranty transactions , trade credit reinsurance and insurance of certain asset-backed securitizations , principally , manufactured housing . our lines of business constitute segments for accounting purposes . through our structured credit line of business , we select , structure and sell credit protection , principally in the form of insured credit swaps , against a variety of asset classes in the institutional fixed income markets . at december 31 , 2006 , structured credit also included the consolidated results of the credit fund . the credit fund was created in 2006 to leverage our expertise in the capital and credit markets and as an asset manager . the fund primarily invests in fixed income securities , particularly in the asset-backed sector . within structured credit , our principal revenues are net insured credit swap revenue and net investment income , which includes amounts received from the credit fund and its allocated portion of aca financial guaranty 's investment portfolio income . generally , we receive insured credit swap fees in quarterly installments over the life of the related swaps which is typically in the range of 5 to 7 years . the principal expenses of this line of business are its allocated portion of corporate-wide operating expenses , interest expense and depreciation and amortization . it also incurs direct interest expense related to the financing of our consolidated credit fund purchased investments . we enter into our insured credit swaps with an intent that they remain outstanding for the entire term of the contract . these insured credit swaps are accounted for at fair value because they do not qualify for the financial guarantee scope exception under fas no . 133 , accounting for derivative instruments and certain hedging activities , as amended ( fas 133 ) . changes in the fair value of these contracts are required to be marked to market under the requirements of fas 133 and are recorded , together with the related fixed quarterly premium payments payable to us under the insured credit swaps , under the caption net insured credit swap revenue . since our insured credit swap transactions are not actively traded securities and have no observable market price , we utilize comprehensive internally developed models to estimate changes in fair value . we expect the fair values of these insured credit swaps to fluctuate primarily based on changes in credit spreads and the credit quality of the underlying referenced entities . when we hold these insured credit swaps for the entire term of the contract , the cumulative changes in fair value will net to zero at the end of the term , provided that we do not incur credit losses on the contract . in certain circumstances , we may agree with a counterparty to terminate an insured credit swap transaction prior to its maturity ( such as on request of the counterparty or for risk management purposes , such as in connection with a deterioration of the underlying portfolio ) and may experience realized gains or losses in connection with the early termination of such transactions . in our public finance line of business , we provide financial guaranty insurance policies guaranteeing the timely payment of interest and the ultimate payment of principal on municipal debt obligations . our principal revenues in this line of business are premiums earned on our financial guaranty insurance policies and its allocated portion of corporate-wide investment income . story_separator_special_tag the related insured credit swap premiums are included in net insured credit swap revenue and are generally received in quarterly fixed payments over the life of the related swaps . obtaining the fair value ( as such term is defined in fas 133 ) for such instruments requires the use of management judgment . these instruments are valued using pricing models based on the net present value of expected future cash flows and observed prices for other transactions bearing similar risk characteristics . the fair value of these instruments is included in derivative assets or derivative liabilities . we do not believe that our insured credit swaps meet the scope exception of fas 133 , paragraph 10d , as amended by fas 149 , because there is no contractual requirement that the protection purchaser be exposed to the underlying risk . net insured credit swap revenue includes insured credit swap premiums received and realized and unrealized gains and losses on such credit swaps . derivative contracts . all derivative instruments are recognized in our consolidated balance sheet as either assets or liabilities depending on the fair value to us as a credit protection seller as of the determination date . all derivative instruments are measured at estimated fair value . we value derivative contracts based on quoted market prices , when available . however , if quoted prices are not available , the fair value is estimated using valuation models specific to the type of credit protection . valuation models include the use of management estimates and current market information . we utilize both proprietary and vendor based models ( including rating agency models ) and a variety of market data to provide the best estimate of fair value . some of the more significant types of market data that influence our models include , but are not limited to , credit ratings , interest rates , credit spreads , default probabilities and recovery rates . if management 's underlying assumptions for evaluating fair value prove to be inaccurate , there could be material changes in our consolidated operating results . policy acquisition costs . policy acquisition costs include those expenses that relate primarily to and vary with premium production . such costs are comprised primarily of premium taxes , personnel and personnel related expenses of individuals involved in underwriting , and certain rating-agency and legal fees for municipal and non-derivative structured finance business . anticipated claims and claim adjustment expenses are considered in determining the recoverability of acquisition costs . net acquisition costs are deferred and amortized over the period in which the related premiums are earned . in connection with its review of certain accounting standards for financial guaranty insurance contracts , the fasb is considering potential changes relating to deferred policy acquisition costs . see fasb financial guaranty insurance project for further explanation of potential changes . loss and loss adjustment expenses . financial guaranty loss and loss adjustment expense reserves are established on our non-derivative exposure in an amount equal to our estimate of identified or case- 55 specific reserves and non-specific reserves , including cost of settlement , on the obligations aca financial guaranty has incurred . in determining our accounting policy for loss reserves , we rely primarily on fas 60 , accounting and reporting by insurance enterprises ( fas 60 ) . however , fas 60 was adopted when the financial guaranty industry was just beginning . as a result , fas 60 did not contemplate the specific attributes of financial guaranty insurance as distinct from other forms of insurance . in particular , financial guaranty insurance is considered a short-duration insurance product ; however , it has features that are more akin to long-duration contracts in that the term of some insured obligations can be as long as 30 years or more and the contracts are generally irrevocable . under fas 60 , accounting for losses differs for short-duration and long-duration contracts . because of this inconsistency , we also apply fas 5 , accounting for contingencies ( fas 5 ) in the determination of our loss reserves . specifically , fas 5 requires the establishment of reserves when it is probable that a liability has been incurred at the reporting date , but only to the extent the loss can be reasonably estimated . we understand that methods of determining non-specific reserves vary within the financial guaranty industry . fasb is considering whether additional accounting guidance is necessary to address the calculation of the reserves in the financial guaranty industry . it is possible that as a result of fasb 's deliberations , the financial guaranty industry , including us , may have to change aspects of its accounting policies in this regard . the fasb 's proposed guidance in the form of an exposure draft is expected to be issued in early 2007. see fasb financial guaranty insurance project for further explanation of potential changes . the financial guaranty insurance policies we issue insure scheduled payments of principal and interest due on various types of financial obligations against a payment default on such payments by the issuers of the obligations . active surveillance of our insured portfolio tracks the performance of insured obligations from period to period . we establish loss and loss adjustment expenses , or lae , reserves based on surveillance group reports , the latest available industry data , and analysis of historical default and recovery experience for the relevant sectors of the fixed-income market . together the case reserves and non-specific reserves represent management 's estimate of incurred losses on our non-derivative insured portfolio exposures . case specific reserves are reserves created on those obligations identified as currently or likely to be in default , and represent the present value , discounted at the u.s. treasury note rate applicable to the term of the underlying insured obligations , of the expected lae payments , net of estimated recoveries ( under salvage , subrogation or other recovery rights ) .
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results of operations summary of consolidated results the following describes our consolidated financial results for the years ended december 31 , 2006 , 2005 and 2004 and our financial condition as of december 31 , 2006 and 2005. in order to understand our consolidated financial results , we perform a detailed segment by segment analysis for our lines of business and therefore , to augment the segments discussion , the following consolidated discussion has been prepared to describe ( 1 ) revenue and expense items that are allocated to our four lines of business and ( 2 ) the results of our lines of business : structured credit , public finance , cdo asset management and other . the accounting policies of our lines of business are the same as those described in the summary of critical accounting policies and estimates above . our two financial guaranty insurance lines of business , structured credit and public finance , are presented as separate lines of business . items not directly 58 attributable are allocated to each operating line of business . allocated items consist of investment income from aca financial guaranty 's investment portfolio , realized gains and losses on that investment portfolio , interest expense on the corporate debt at the holding company level , all operating expenses , non-cdo related depreciation and amortization expenses and income taxes . income and expense items that are directly attributable to a business line are recorded as such . the company 's consolidated net income for 2006 was $ 58.7 million , or $ 1.89 per diluted share , as compared to $ 28.8 million , or $ 0.96 per diluted share , in 2005 , an increase of $ 29.9 million .
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the pharmaceutical segment includes human health pharmaceutical and vaccine products marketed either directly by the company or through joint ventures . human health pharmaceutical products consist of therapeutic and preventive agents , generally sold by prescription , for the treatment of human disorders . the company sells these human health pharmaceutical products primarily to drug wholesalers and retailers , hospitals , government agencies and managed health care providers such as health maintenance organizations , pharmacy benefit managers and other institutions . vaccine products consist of preventive pediatric , adolescent and adult vaccines , primarily administered at physician offices . the company sells these human health vaccines primarily to physicians , wholesalers , physician distributors and government entities . the company also has animal health operations that discover , develop , manufacture and market animal health products , including vaccines , which the company sells to veterinarians , distributors and animal producers . additionally , the company has consumer care operations that develop , manufacture and market over-the-counter , foot care and sun care products , which are sold through wholesale and retail drug , food chain and mass merchandiser outlets , as well as club stores and specialty channels . overview the company 's revenue performance in 2013 was tempered by ongoing business challenges , including recent product patent expiries and ongoing global efforts toward health care cost containment that continue to exert pressure on product pricing and market access . worldwide sales were $ 44.0 billion in 2013 , a decline of 7 % compared with 2012 , including a 2 % unfavorable effect from foreign exchange . the decline was driven primarily by the recent loss of market exclusivity for several products , particularly singulair , a medicine indicated for the chronic treatment of asthma and the relief of symptoms of allergic rhinitis , as well as maxalt , a product for acute treatment of migraine , propecia , a product for the treatment of male pattern hair loss , and temodar , a treatment for certain types of brain tumors . the company experienced a significant and rapid decline in sales of these products following loss of market exclusivity . these declines were partially offset by higher sales of vaccines , immunology , diabetes and hiv products . the company continued to successfully execute on its cost reduction initiatives in 2013. marketing and administrative expenses and research and development costs were down over $ 1.5 billion on a combined basis in 2013 as compared with 2012 reflecting targeted reductions in promotional spending and lower costs as a result of portfolio prioritization . in an effort to drive further company-wide efficiencies , merck is taking several strategic and operating actions in response to its business challenges and the rapidly changing external environment it is facing that are designed to drive short- and long-term growth . in october 2013 , the company announced a multi-year global initiative to sharpen its commercial and research and development focus designed to enable merck to better allocate its resources on candidates that it believes are capable of providing unambiguous , promotable advantages to patients and payers . this includes bolstering its pipeline and implementing a more agile operating model , with a significantly reduced , more flexible cost structure while still maintaining a high level of cash returned to shareholders . geographically , the company will increase its focus on ten prioritized markets , which account for the majority of revenue in its pharmaceutical and vaccine business . these markets are the united states , japan , france , germany , canada , united kingdom , china , brazil , russia and korea . the company will continue to invest in high-growth and key emerging markets . within the core human pharmaceutical and vaccine business , merck will continue to support its in-line portfolio and prepare for promising launches in the pipeline . the company will increase its focus on the key therapeutic areas that meet unmet medical needs , provide the best opportunities for the business and deliver the greatest value for customers – diabetes , acute hospital care , vaccines and oncology . as part of its intensified portfolio assessment process , the company has divested a portion of its u.s. ophthalmics business and sold the u.s. marketing rights for saphris , 35 an antipsychotic indicated for the treatment of schizophrenia and bipolar i disorder in adults . the company 's portfolio assessment process is ongoing and future product divestitures may occur . in addition , in january 2014 , the company announced that it was evaluating the respective roles of merck 's animal health and consumer care businesses in the company 's strategy for long-term value creation . the company expects to complete the evaluation process and take action , if any , in 2014. the company could reach different decisions about the two businesses . the company 's re-focused research and development efforts include programs such as the company 's anti-pd-1 immunotherapy ( mk-3475 ) in oncology , which has received a breakthrough therapy designation from the u.s. food and drug administration ( the “ fda ” ) for advanced melanoma , merck 's bace inhibitor for alzheimer 's disease ( mk-8931 ) , the company 's all oral combination regimen for the treatment of chronic hepatitis c virus infection ( mk-5172/mk-8742 ) , and v503 , a nine-valent human papillomavirus ( “ hpv ” ) vaccine . in january 2014 , the company announced it has initiated the rolling submission of a biologics license application ( “ bla ” ) to the fda for mk-3475 in patients with advanced melanoma who have previously been treated with ipilimumab . during 2013 , the company received a breakthrough therapy designation for mk-5172/mk-8742 and has advanced the combination into phase 2b in a diverse range of chronic hepatitis c patients . the company has initiated phase 3 trials for its bace inhibitor ( mk-8931 ) and filed a bla with the fda for v503 . merck is pursuing emerging product opportunities independent of therapeutic area or modality and is building its biologics capabilities . story_separator_special_tag under the asr , merck repurchased 105 million shares of common stock for $ 5 billion utilizing funding from an underwritten public debt offering . also , in november 2013 , merck 's board of directors raised the company 's quarterly dividend to $ 0.44 per share from $ 0.43 per share . earnings per common share assuming dilution attributable to common shareholders ( “ eps ” ) for 2013 were $ 1.47 compared with $ 2.00 in 2012 . eps in both years reflect a net unfavorable impact resulting from acquisition-related costs and restructuring costs , and certain other items . non-gaap eps , which excludes these items , were $ 3.49 in 2013 compared with $ 3.82 in 2012 ( see “ non-gaap income and non-gaap eps ” below ) . the decline in non-gaap eps in 2013 as compared with 2012 was due primarily to lower sales reflecting the loss of market exclusivity for certain products , particularly singulair , lower equity income and higher foreign exchange losses , partially offset by lower operating expenses . eps in 2013 benefited from lower average shares outstanding due to the asr program discussed above . competition and the health care environment competition the markets in which the company conducts its business and the pharmaceutical industry are highly competitive and highly regulated . the company 's competitors include other worldwide research-based pharmaceutical companies , smaller research companies with more limited therapeutic focus , and generic drug and consumer and animal health care manufacturers . the company 's operations may be adversely affected by generic and biosimilar competition as the company 's products mature , as well as technological advances of competitors , industry consolidation , patents granted to competitors , competitive combination products , new products of competitors , the generic availability of competitors ' branded products , and new information from clinical trials of marketed products or post-marketing surveillance . in addition , patent positions are increasingly being challenged by competitors , and the outcome can be highly uncertain . an adverse result in a patent dispute can preclude commercialization of products or negatively affect sales of existing products and could result in the recognition of an impairment charge with respect to intangible assets associated with certain products . competitive pressures have intensified as pressures in the industry have grown . the effect on operations of competitive factors and patent disputes can not be predicted . pharmaceutical competition involves a rigorous search for technological innovations and the ability to market these innovations effectively . with its long-standing emphasis on research and development , the company is well positioned to compete in the search for technological innovations . additional resources required to meet market challenges include quality control , flexibility to meet customer specifications , an efficient distribution system and a 37 strong technical information service . the company is active in acquiring and marketing products through external alliances , such as joint ventures and licenses , and has been refining its sales and marketing efforts to further address changing industry conditions . however , the introduction of new products and processes by competitors may result in price reductions and product displacements , even for products protected by patents . for example , the number of compounds available to treat a particular disease typically increases over time and can result in slowed sales growth or reduced sales for the company 's products in that therapeutic category . the highly competitive animal health business is affected by several factors including regulatory and legislative issues , scientific and technological advances , product innovation , the quality and price of the company 's products , effective promotional efforts and the frequent introduction of generic products by competitors . the company 's consumer care operations face competition from other consumer health care businesses as well as retailers who carry their own private label brands . the company 's competitive position is affected by several factors , including regulatory and legislative issues , scientific and technological advances , the quality and price of the company 's products , promotional efforts and the growth of lower cost private label brands . health care environment global efforts toward health care cost containment continue to exert pressure on product pricing and market access . in the united states , federal and state governments for many years also have pursued methods to reduce the cost of drugs and vaccines for which they pay . for example , federal laws require the company to pay specified rebates for medicines reimbursed by medicaid and to provide discounts for outpatient medicines purchased by certain public health service entities and hospitals serving a disproportionate share of low income or uninsured patients . against this backdrop , the united states enacted major health care reform legislation in 2010 , which began to be implemented in 2010. various insurance market reforms have advanced and will continue through full implementation in 2014. the law is expected to expand access to health care to about 32 million americans by the end of the decade who did not previously have insurance coverage . with respect to the effect of the law on the pharmaceutical industry , the law increased the mandated medicaid rebate from 15.1 % to 23.1 % , expanded the rebate to medicaid managed care utilization , and increased the types of entities eligible for the federal 340b drug discount program . the law also requires pharmaceutical manufacturers to pay a 50 % point of service discount to medicare part d beneficiaries when they are in the medicare part d coverage gap ( i.e. , the so-called “ donut hole ” ) . approximately $ 280 million , $ 210 million and $ 150 million was recorded by merck as a reduction to revenue in 2013 , 2012 and 2011 , respectively , related to the donut hole provision . also , pharmaceutical manufacturers are now required to pay an annual health care reform fee .
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operating results sales worldwide sales totaled $ 44.0 billion in 2013 , a decline of 7 % compared with $ 47.3 billion in 2012. the sales decline was driven primarily by lower sales of singulair . the patents that provided u.s. market exclusivity and market exclusivity in a number of major european markets for singulair expired in august 2012 and february 2013 , respectively , and the company experienced a significant and rapid decline in singulair sales in those markets thereafter . foreign exchange unfavorably affected global sales performance by 2 % in 2013. the revenue decline in 2013 also reflects lower sales of maxalt , cozaar and hyzaar , treatments for hypertension , temodar , clarinex , a non-sedating antihistamine , pegintron , a treatment for chronic hepatitis c , propecia , fosamax , a treatment for osteoporosis , and vytorin , a cholesterol modifying medicine . these declines were partially offset by growth in gardasil , a vaccine to help prevent certain diseases caused by four types of hpv , remicade and simponi , treatments for inflammatory diseases , janumet , a treatment for type 2 diabetes , isentress , a treatment for hiv-1 infection , dulera inhalation aerosol , a combination medicine for the treatment of asthma , and zostavax , a vaccine to help prevent shingles ( herpes zoster ) . sales in the united states were $ 18.2 billion in 2013 , a decline of 11 % compared with $ 20.4 billion in 2012. the sales decrease was driven primarily by lower sales of singulair , as well as maxalt , temodar , victrelis , an oral medicine for the treatment of chronic hepatitis c virus , and clarinex , partially offset by higher sales of gardasil , zetia , a cholesterol absorption inhibitor , and dulera inhalation aerosol .
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on january 19 , 2016 , the company changed its name to global self storage , inc. from self storage group , inc. , changed its sec registration from an investment company to an operating company reporting under the exchange act , and listed its common stock on nasdaq under the symbol “ self ” . our store operations generated most of our net income for all periods presented herein . accordingly , a significant portion of management 's time is devoted to seeking to maximize cash flows from our existing stores , as well as seeking investments in additional stores . the company expects to continue to earn a majority of its gross income from its store operations as its current store operations continue to develop and as it makes additional store acquisitions . over time , the company expects to divest its remaining portfolio of investment securities and use the proceeds to acquire and operate additional stores . the company expects its income from investment securities to continue to decrease as it continues to divest its holdings of investment securities . story_separator_special_tag roman ; font-size:10pt ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > 7,238,819 during 2017 , an increase of $ 2,421,984 , or 50.3 % . the increase was primarily attributable to the additional in come from the stores acquired in 2016. the remaining increase in rental revenue was due primarily to an increase in rental and occupancy rates . other store related income consists of customer insurance fees , sales of storage supplies , and other ancillary revenues . other store related income increased from $ 159,529 in 2016 to $ 233,974 in 2017 , an increase of $ 74,445 , or 46.7 % . this increase was primarily attributable to increased insurance fees on the stores acquired in 2016 and a smaller increase in same-store property related income mainly attributable to increased insurance participation and higher average occupancy . operating expenses total expenses increased from $ 4,910,662 during the period from january 19 , 2016 to december 31 , 2016 to $ 6,795,322 during 2017 , an increase of $ 1,884,660 , or 38.4 % . store operating expenses increased from $ 2,155,492 in 2016 to $ 3,140,650 in 2017 , an increase of $ 985,158 , or 45.7 % , which was primarily attributable to the increased expenses associated with newly acquired stores . depreciation and amortization increased from $ 813,796 in 2016 to $ 1,495,606 in 2017 , an increase of $ 681,810 , or 83.8 % . this increase was primarily attributable to depreciation and amortization expense related to the 2016 acquisitions . general and administrative expenses increased from $ 1,406,441 during the period from january 19 , 2016 to december 31 , 2016 to $ 1,927,585 during 2017 , an increase of $ 521,144 , or 24.7 % . the change is primarily attributable to an increase in legal , accounting , compliance , and investor relations and capital market consulting expenses . the change is also attributable to one-off regulatory filings , the creation of the company 's 2017 equity incentive plan , and comprehensive changes to our charter and bylaws to complete the transformation from an investment company to an operating company . going forward , although we currently expect some general and administrative expense reductions associated with our discontinued registration as an investment company , we are incurring and expect to continue to incur a number of new expenses related to , among other things , the company 's current reporting and regulatory requirements . for the period january 1 , 2016 to january 18 , 2016 , the company was a registered investment company and applied the accounting guidance in asc 946. business development and store acquisition related costs decreased from $ 449,738 during 2016 to 14,295 during 2017. business development and store acquisition-related costs are non-recurring and fluctuate based on periodic investment activity . operating income operating income increased from $ 65,702 during the period from january 19 , 2016 to december 31 , 2016 to $ 677,471 during 2017 , an increase of $ 611,769 or 931.1 % . other income ( expense ) interest expense on loans increased from $ 456,719 during the year ended december 31 , 2016 to $ 880,834 during the year ended december 31 , 2017 , which included amortization of the loan procurement expenses of $ 42,434 and $ 21,217 , respectively . the increase is primarily attributable to the loan agreement being in place the entire duration of 2017 as compared to the partial duration in 2016. for the year ended december 31 , 2017 , there were no realized gains from the sale of investment securities compared to $ 602,428 during 2016. dividend and interest income was $ 57,073 during 2017 compared to $ 172,724 during 2016. the decrease is primarily due to a decrease in dividend income attributable to fewer investment securities held by the company in 2017. net income ( loss ) for the year ended december 31 , 2017 , the net loss was $ 146,290 or $ 0.02 per share . 27 non-gaap measures funds from operations ( “ ffo ” ) and ffo per share are non-gaap measures defined by the national association of real estate investment trusts ( “ nareit ” ) and are considered helpful measures of reit performance by reits and many reit analysts . nareit defines ffo as a reit 's net income , excluding gains or losses from sales of property , and adding back real estate depreciation and amortization . ffo and ffo per share are not a substitute for net income or earnings per share . ffo is not a substitute for gaap net cash flow in evaluating our liquidity or ability to pay dividends , because it excludes financing activities presented on our statements of cash flows . in addition , other reits may compute these measures differently , so comparisons among reits may not be helpful . story_separator_special_tag were essential in building local brand loyalty resulting in powerful referral and word-of-mouth market demand for our storage units and services . another significant contributing factor to our results was our revenue rate management program which helped increase our total annualized revenue per leased square foot by 9.0 % for the three months ended december 31 , 2017 versus the three months ended december 31 , 2016 , and by 9.2 % for the twelve months ended december 31 , 2017 versus the twelve months ended december 31 , 2016 . 29 these results are summarized as follows : same - store properties replace_table_token_3_th same - store properties replace_table_token_4_th 30 * from time to time , as guided by market conditions , net leasable square footage , net leased square footage and total available storage units at our properties may increase or decrease as a result of consolidation , div ision or reconfiguration of storage units . similarly , leasable square footage may increase or decrease due to expansion or redevelopment of our properties . the following table presents a reconciliation of same-store net operating income to net income as presented on our consolidated statements of operations for the periods indicated : replace_table_token_5_th ( 1 ) for comparability purposes , the same-store information presented for the period from january 1 , 2016 to january 18 , 2016 under investment company accounting and for the period from january 19 , 2016 through december 31 , 2016 under operating company accounting are presented combined for the twelve months of 2016. management believes this presentation is more meaningful to investors as there was no significant change in same-store revenue streams and other financial metrics or the same-store non-financial statistical information as a result of our change in status from an investment company to an operating company . the following table presents the combined adjustment for the period january 1 , 2016 to january 18 , 2016. net income $ 45,399 adjustments : general and administrative 111,247 depreciation and amortization 54,084 dividend and interest income ( 2,958 ) other property expenses 5,309 combined adjustment for the period january 1 , 2016 to january 18 . 2016 $ 213,081 31 analysis of same-store revenue for the three months ended december 31 , 2017 , the 8.1 % revenue increase was due primarily to a 9.0 % increase in total annualized revenue per leased square foot . for the twelve months ended december 31 , 2017 , the 8.2 % revenue increase was due primarily to a 9.2 % increase in total annualized revenue per leased square foot . the increase in total annualized revenue per leased square foot was due primarily to annual existing tenant rent increases , an increase in available traditional and climate-controlled leasable square feet compared to available leasable parking square feet , and , to a lesser extent , increased move-in rental rates and decreased move-in rent “ specials ” discounting . same store average overall square foot occupancy for all of the company 's stores combined increased to 91.2 % in the twelve months ended december 31 , 2017 from 90.8 % in the twelve months ended december 31 , 2016. we believe that high occupancies help maximize our rental income . we seek to maintain an average square foot occupancy level at about 90 % by regularly adjusting the rental rates and promotions offered to attract new tenants as well as adjusting our online marketing efforts in order to generate sufficient move-in volume to replace tenants that vacate . demand fluctuates due to various local and regional factors , including the overall economy . demand is generally higher in the summer months than in the winter months and , as a result , rental rates charged to new tenants are typically higher in the summer months than in the winter months . we currently expect rental income growth , if any , to come from a combination of the following : ( i ) continued existing tenant rent increases , ( ii ) higher rental rates charged to new tenants , ( iii ) lower promotional discounts , and ( iv ) higher occupancies . our future rental income growth will also be dependent upon many factors for each market that we operate in including , among other things , demand for self storage space , the level of competitor supply of self storage space , and the average length of stay of our tenants . increasing existing tenant rental rates , generally on an annual basis , is a key component of our revenue growth . we typically determine the level of rental increases based upon our expectations regarding the impact of existing tenant rate increases on incremental move-outs . we currently expect existing tenant rent increases in 2018 to be slightly less than the prior year . we believe that the current trends in move-in , move-out , in place contractual rents , and occupancy levels are consistent with our current expectation of continued revenue growth . however , such trends , when viewed in the short-term , are volatile and not necessarily predictive of our revenues going forward because they may be subject to many short-term factors . such factors include , among others , initial move-in rates , seasonal factors , the unit size and geographical mix of the specific tenants moving in or moving out , the length of stay of the tenants moving in or moving out , changes in our pricing strategies , and the degree and timing of rate increases previously passed to existing tenants . importantly , we continue to refine our ongoing revenue management program which includes regular internet data scraping of local competitors ' prices . we do this in order to maintain our competitive market price advantage for our various sized storage units at our stores . this program helps us maximize each store 's occupancies and our self storage revenue and noi .
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financial condition and results of operations our financing strategy is to minimize the cost of our capital in order to maximize the returns generated for our stockholders . for future acquisitions , the company may use various financing and capital raising alternatives including , but not limited to , debt and or equity offerings , credit facilities , mortgage financing , and joint ventures with third parties . 25 on june 24 , 2016 , certain wholly owned subsidiaries ( “ secured subsidiaries ” ) of the company entered into a loan agreement and certain other related agreements ( collectively , the “ loan agreement ” ) between the secured subsidiaries and insurance strateg y funding iv , llc ( the “ lender ” ) . under the loan agreement , the secured subsidiaries are borrowing from lender in the principal amount of $ 20 million pursuant to a promissory note ( the “ promissory note ” ) . the promissory note bears an interest rate equal to 4.192 % per annum and is due to mature on july 1 , 2036. pursuant to a security agreement ( the “ security agreement ” ) , the obligations under the loan agreement are secured by certain real estate assets owned by the secured subsidiaries . j.p. morgan investmen t management , inc. acted as special purpose vehicle agent of the lender . the company entered into a non-recourse guaranty on june 24 , 2016 ( the “ guaranty , ” and together with the loan agreement , the promissory note and the security agreement , the “ loan docu ments ” ) to guarantee the payment to lender of certain obligations of the secured subsidiaries under the loan agreement . the loan documents require the secured subsidiaries and the company to comply with certain covenants , including , among others , a minimum net worth test and other customary covenants .
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unless otherwise indicated or the context otherwise requires , all references to the “ company , ” “ evoqua , ” “ evoqua water technologies corp. , ” “ ewt holdings i corp , ” “ we , ” “ us , ” “ our ” and similar terms refer to evoqua water technologies corp. , together with its consolidated subsidiaries . unless otherwise specified , all dollar amounts in this section are referred to in millions . our fiscal year ends on september 30 of each year and references in this section to a year refer to our fiscal year . as such , references to : 2020 relates to the fiscal year ended september 30 , 2020 , 2019 relates to the fiscal year ended september 30 , 2019 and 2018 relates to the fiscal year ended september 30 , 2018. overview and background we are a leading provider of mission critical water treatment solutions , offering services , systems and technologies to support our customers ' full water lifecycle needs . with over 200,000 installations worldwide , we hold leading positions in the industrial , commercial and municipal water treatment markets in north america . we offer a comprehensive portfolio of differentiated , proprietary technology solutions sold under several market-leading and well-established brands to our global customer base . we have worked to protect water , the environment and our employees for over 100 years . as a result , we have earned a reputation for quality , safety and reliability and are sought out by our customers to solve the full range of their water treatment needs , and maintaining our reputation is critical to the success of our business . our solutions are designed to ensure that our customers have the quantity and quality of water that meets their unique specifications . we enable our customers to achieve lower costs through greater uptime , throughput and efficiency in their operations and support their regulatory compliance and environmental sustainability . we deliver and maintain these mission critical solutions through the largest service network in north america , assuring our customers continuous uptime with 92 service branches as of september 30 , 2020. we have an extensive service and support network , and as a result , we have certified evoqua service technicians within approximately a two-hour drive from more than 90 % of our industrial north american customers ' sites . our vision “ to be the world 's first choice for water solutions ” and our values of “ integrity , customers , performance and sustainable ” foster a corporate culture that is focused on establishing a workforce that is enabled , empowered and accountable , which creates a highly entrepreneurial and dynamic work environment . our purpose is “ transforming water . enriching life. ” we draw from a long legacy of water treatment innovations and industry firsts , supported by more than 1,300 granted or pending patents , which in aggregate are imperative to our business . our core technologies are primarily focused on removing impurities from water , rather than neutralizing them through the addition of chemicals , and we are able to achieve purification levels which are 1,000 times greater than typical drinking water . business segments for the year ended september 30 , 2020 , we served our customers through two segments : integrated solutions and services , a group entirely focused on engaging directly with end users , and applied product technologies , a group focused on developing product platforms to be sold primarily through third party channels . our segments draw from the same reservoir of leading technologies , shared manufacturing infrastructure , common business processes and corporate philosophies . the key factors used to identify our reportable segments are the organization and alignment of our internal operations , the nature of the products and services and customer type . within the integrated solutions and services segment , we primarily provide tailored solutions in collaboration with our customers backed by life‑cycle services including on‑demand water , outsourced water ( formerly 53 known as build-own-operated ) , recycle and reuse and emergency response service alternatives to improve operational reliability , performance and environmental compliance . within the applied product technologies segment , we provide a highly differentiated and scalable range of products and technologies specified by global water treatment designers , oems , engineering firms and integrators . we evaluate our business segments ' operating results based on income from operations and net income ( loss ) before interest expense , income tax benefit ( expense ) and depreciation and amortization ( “ ebitda ” ) on a segment basis . corporate activities include general corporate expenses , elimination of inter-segment transactions , interest income and expense and other unallocated charges , which have not been allocated to business segments . as such , the segment results provided herein may not be comparable to other companies . in addition , our chief operating decision maker uses adjusted ebitda of each reportable segment to evaluate the operating performance of such segments . adjusted ebitda of the reportable segments does not include certain unallocated charges that are presented within corporate activities . these unallocated charges include certain restructuring and other business transformation charges that have been incurred to align and reposition the company to the current reporting structure , acquisition related costs ( including transaction costs , integration costs and recognition of backlog intangible assets recorded in purchase accounting ) and share-based compensation charges . for the years ended september 30 , 2020 , 2019 and 2018 , our segments accounted for the following percentage of our revenues : replace_table_token_3_th organic growth drivers market growth we maintain a leading position among customers in growing industries that utilize water as a critical part of their operations or production processes , including pharmaceuticals and health sciences , microelectronics , food and beverage , hydrocarbon and chemical processing , power , general manufacturing , municipal drinking and wastewater , marine and aquatics . story_separator_special_tag 55 during the year ended september 30 , 2020 , we acquired a 60 % investment position in san diego-based frontier water systems , llc ( “ frontier ” ) , completed the sale of the memcor product line to dupont de nemours , inc. ( “ dupont ” ) , and acquired the assets of privately held aquapure technologies ( “ aquapure ” ) . the aggregate purchase price paid by dupont for the memcor product line was $ 110.0 million in cash , subject to certain adjustments . following adjustments for cash and net working capital , gross proceeds paid by dupont were $ 131.0 million . the company recognized a $ 57.7 million net pre-tax benefit on the sale of the memcor product line , net of $ 8.3 million of discretionary compensation payments to employees in connection with the transaction and $ 2.1 million in transaction costs incurred . the company and dupont have a history of collaboration , and following the sale , dupont continues to supply the company with memcor products . during the year ended september 30 , 2019 , we acquired all of the issued and outstanding equity securities of atg uv technology limited ( “ atg uv ” ) . see note 3 , “ acquisitions and divestitures , ” in item 8 in this annual report for a complete discussion . we will continue to actively evaluate acquisition opportunities that are consistent with our business strategy . we maintain a robust pipeline of potential acquisition targets , developed by our management team as well as various outside industry experts and consultants . key factors and trends affecting our business and financial statements various trends and other factors affect or have affected our operating results , including : impact of the covid-19 pandemic . our business has been considered essential under federal and local standards , and we have maintained business continuity at our critical service branches and manufacturing facilities to date . we have taken measures to protect our employees , including implementation of remote working practices where possible and managing our supply chain to ensure that necessary personal protective equipment is available to our personnel . we have also taken certain cost reduction actions , some of which are temporary in nature , such as reduction of marketing travel activity as well as deferment of headcount additions to preserve liquidity and reallocated existing resources to maintain productivity levels where feasible . we continue to evaluate the impact of the pandemic on our business and how the economic downturn resulting from the pandemic might affect our customers ' willingness to make capital expenditures and our ability to collect from our customers . for more information regarding factors and events that may impact our business , results of operations and financial condition from the effects of the covid-19 pandemic , see item 1a . “ risk factors-the covid-19 pandemic and other future public health crises or pandemics could materially and adversely affect our business , results of operations and financial condition. ” overall economic trends . the overall economic environment and related changes in industrial , commercial and municipal spending impact our business . in general , positive conditions in the broader economy promote industrial , commercial and municipal customer spending , while economic weakness results in a reduction of new industrial , commercial and municipal project activity . macroeconomic factors that can affect customer spending patterns , and thereby our results of operations , include population growth , total water consumption , municipal budgets , employment rates , business conditions , the availability of credit or capital , interest rates , tax rates , imposition of tariffs and regulatory changes . since the businesses of our customers vary in cyclicality , periodic downturns in any specific sector typically have modest impacts on our overall business . for example , the recent weakness in global oil markets has created , and may continue to create , some weakness in demand from customers that we serve in the oil and gas industry . additionally , the covid-19 pandemic has increased economic uncertainty and has caused an economic slowdown that is likely to continue and may result in a sustained global recession . changes in costs and availability . we have significant exposures to certain commodities , including steel , caustic , carbon , calcium nitrate and iridium , and volatility in the market price and availability of these commodity input materials has a direct impact on our costs and our business . for example , restrictions on international trade , including tariffs imposed by the u.s. government and other governments , as well as supply chain disruptions caused by the covid-19 pandemic , have increased and could further increase the cost of certain materials and have restricted and could further restrict availability of certain commodities , which may result in delays in our execution of projects . although we have offset a portion of these 56 cost increases through price increases , there can be no assurance that we will be able to continue to recuperate additional cost increases from our customers through product price increases . if we are unable to manage commodity fluctuations through pricing actions , cost savings projects and sourcing decisions as well as through consistent productivity improvements , it may adversely impact our gross profit and gross margin . further , additional potential acquisitions and international expansion will place increased demands on our operational , managerial , administrative and other resources . managing our growth effectively will require us to continue to enhance our management systems , financial and management controls and information systems . we will also be required to hire , train and retain operational and sales personnel , which affects our operating margins . inflation and deflation trends .
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consolidated results revenues -revenues decreased $ 14.9 million , or 1.0 % , to $ 1,429.5 million in the year ended september 30 , 2020 from $ 1,444.4 million in the prior year . the following table provides the change in revenues from product sales and revenues from services , respectively : replace_table_token_14_th revenues from product sales decreased $ 11.2 million , or 1.3 % from the prior year . this decrease in product sales was primarily due to the divestiture of the memcor product line of $ 44.4 million in the current year . aftermarket product revenues declined $ 40.7 million in the current year and was related to the divestiture of the memcor product line as well as site closures and delays due to covid-19 . the aftermarket revenue decrease was offset by an increase in capital revenues of $ 29.5 million . this increase was primarily related to projects in the microelectronics end market as well as $ 15.7 million related to the acquisitions of atg uv and frontier . revenues from services decreased $ 3.7 million , or 0.6 % from the prior year . this decrease was driven by the impact of covid-19 shut-downs and delays , primarily in refining and oil and gas end markets , as well as the timing of completion of certain large projects in the prior year . this decrease was partially offset by price realization related to established service contracts . cost of sales and gross margin -total gross margin increased to 31.5 % in the year ended september 30 , 2020 from 29.5 % in the prior year . the following table provides the change in cost of product sales and cost of services , respectively , along with related gross margins : replace_table_token_15_th the gross margin for product sales increased 2.3 % from the prior year .
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companies have the option of applying the provisions of asu 2014-09 either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying this guidance recognized at the date of initial application . early adoption is not permitted . the new guidance is effective for us beginning january 1 , 2017. we are currently evaluating the method and impact that adopting this new accounting standard will have on our consolidated financial statements . note 2. restatement we have restated our consolidated financial statements as of december 31 , 2013 , and for the years ended december 31 , 2013 story_separator_special_tag restatement of previously issued financial statements we have restated our consolidated financial statements as of december 31 , 2013 , and for the years ended december 31 , 2013 and 2012 and our unaudited quarterly financial information for the first three quarters in the year ended december 31 , 2014 and for each of the quarters in the year ended december 31 , 2013 , to correct errors in prior periods primarily related to ( i ) a long-term contract ( “ contract ” ) following the discovery of misconduct by employees in the recording of direct labor costs to the contract from 2009 through the third quarter 2014 which resulted in the identification of a forward loss provision that should have been recorded in 2009 and the impact on subsequent periods of adjustments to the forward loss provision based on information available at the time ( “ forward loss adjustments ” ) ; and ( ii ) the year end reconciliation of income taxes payable and deferred tax balances identified errors primarily in 2013 , 2012 , and 2011 ( “ tax adjustments ” ) . the misconduct and its related financial impact were concealed from our senior management , internal auditors , and external auditors . the forward loss adjustments were based on certain assumptions and estimates . to determine the loss on the contract , we estimated the number of units we would have expected to ship over the life of the contract at inception of the contract using external market industry data for fiscal years 2009 , 2010 , 2011 , 2012 , and 2013. we used data obtained directly from the customer for 2014 and 2015. the total estimated costs at any given point in time would typically include actual historical costs up to that time plus the estimated cost to produce units to be delivered . in addition , the estimated total cost for the life of the contract includes certain inefficiencies on labor , material , and overhead costs during the initial start-up period . however , as we progress along the learning curve , the direct labor hours and overhead rates are expected to decrease as we gain technical knowhow and efficiency in producing the product . as a result of the misconduct by the employees in the recording of direct labor hours to the contract , the historical actual direct labor hours charged to the contract were inaccurate . as a result , we estimated the costs to complete future units at the end of each period based on an estimate of the direct labor hours chargeable to the contract , including consideration of anticipated learning curve efficiencies that would decrease the direct labor hours over the remaining term of the contract . further , we used the actual direct labor hours incurred by the employees assigned to the contract as a basis for projecting future hours , less an estimate of the time not allocable to the contract . using this model , we calculated the forward loss adjustments from the inception of the contract in 2009 through the expected life of the contract . as a result of the forward loss adjustments , cost of goods sold increased ( decreased ) approximately $ 6.7 million in 2009 , $ 1.3 million in 2010 , $ ( 0.3 ) million in 2011 , $ ( 2.2 ) million in 2012 , $ ( 0.9 ) million in 2013 , and $ ( 0.8 ) million in the nine months ended september 27 , 2014. the tax adjustments were necessary as a result of certain calculation errors . the tax adjustments resulted in a net decrease to income tax expense of approximately $ 0.9 million in 2013 and zero in 2012. the tax adjustments in 2011 resulted in a reduction to the carrying value of goodwill totaling approximately $ 4.0 million due to a calculation error in the original purchase price allocation and subsequent performance of step 2 of our annual goodwill impairment analysis related to deferred income taxes and thus , ( i ) reduced deferred income taxes by approximately $ 2.7 million and ( ii ) generated a pre-tax goodwill impairment charge of approximately $ 1.4 million . further , the tax adjustments in 2011 reduced deferred tax assets by approximately $ 1.6 million that were established as a result of shared-based compensation expenses recorded previously and should have been reduced as the tax deductions were utilized . moreover , the restated amounts include previously identified and disclosed immaterial adjustments . the amounts in this item 7 of this annual report on form 10-k are reflective of the restatement which includes previously identified and disclosed immaterial adjustments . see note 2 to our consolidated financial statements included in part iv , item 15 ( a ) of this annual report on form 10-k for additional information . see part ii , item 9a of this annual report on form 10-k for information regarding our controls and procedures . overview ducommun incorporated ( “ ducommun , ” “ the company , ” “ we , ” “ us ” or “ our ” ) is a leading global provider of engineering and manufacturing services for high-performance products and high-cost-of failure applications used primarily in the aerospace , defense , industrial , natural resources , medical and other industries . story_separator_special_tag the following financial items have been added back to our net income when calculating ebitda and adjusted ebitda : amortization expense may be useful to investors because it represents the estimated attrition of our acquired customer base and the diminishing value of product rights ; depreciation may be useful to investors because it generally represents the wear and tear on our property and equipment used in our operations ; asset impairments ( including goodwill ) may be useful to our investors because it generally represents a decline in value in our assets used in our operations ; merger–related expenses may be useful to investors for determining current cash flow ; interest expense may be useful to investors for determining current cash flow ; and income tax expense may be useful to investors because it represents the taxes which may be payable for the period and the change in deferred taxes during the period , and may reduce cash flow available for use in our business . reconciliations of net income to ebitda and adjusted ebitda and the presentation of adjusted ebitda as a percentage of net sales were as follows : replace_table_token_4_th ( 1 ) 2013 includes asset impairment charges for production of contracts for the embraer legacy 450/500 contracts and boeing 777 wing tip contract . ( 2 ) 2012 include merger-related transaction costs and change-in-control provision for certain labarge key executives and employees arising in connection with the labarge acquisition . adjusted ebitda increased in 2014 compared to 2013 primarily due to fourth quarter 2013 charges of approximately $ 14.1 million for the embraer legacy 450/500 and boeing 777 wing tip contracts . adjusted ebitda decreased in 2013 over 2012 primarily due to decreased net sales , mainly in non-aerospace and defense end-use markets , fourth quarter charges of approximately $ 14.1 million for the embraer legacy 450/500 and boeing 777 wing tip contracts , and higher inventory reserve charges . 28 story_separator_special_tag december 31 , 2014 , compared to approximately $ 620.0 million at december 31 , 2013 , as shown in more detail below . the decrease in backlog was primarily in the defense technologies end-use markets . approximately $ 447.4 million of total backlog is expected to be delivered during 2015 . the following table summarizes our backlog for 2014 and 2013 : 33 replace_table_token_9_th 34 2013 compared to 2012 the following table sets forth net revenues , selected financial data , the effective tax rate and diluted earnings per share : replace_table_token_10_th nm = not meaningful 35 net revenues by end-use market and operating segment net revenues by end-use market and operating segment during 2013 and 2012 , respectively , were as follows : replace_table_token_11_th net revenues for 2013 reflected the growth in the aerospace and defense end-use markets , which were more than offset by lower revenues in the non-aerospace and defense end-use markets . net revenues by major customers a significant portion of our net revenues are from our top ten customers as follows : replace_table_token_12_th net revenues decreased approximately $ 10.4 million , or 1 % , to approximately $ 736.7 million for the fiscal year ended december 31 , 2013 from approximately $ 747.0 million for the fiscal year ended december 31 , 2012. the lower net revenues was primarily the result of lower revenues in the non-a & d markets that was partially offset by higher revenues in commercial aerospace and defense technologies . gross profit gross profit decreased in 2013 primarily due to lower net revenues and fourth quarter charges of approximately $ 14.1 million in the das operating segment . the fourth quarter charges were comprised of asset impairment charges on production costs of contracts of approximately $ 5.7 million on the embraer legacy 450/500 contracts and approximately $ 1.3 million on the 36 boeing 777 wing tip contract ; forward loss reserves of approximately $ 3.9 million on the embraer legacy 450/500 contracts and approximately $ 1.3 million on the boeing 777 wing tip contract ; and inventory reserves of approximately $ 1.9 million on the embraer legacy 450/500 contracts . gross profit margins as a percentage of net sales decreased in 2013 primarily due to unfavorable product mix , the impact of lower net sales in the non-aerospace and defense end-use markets and the charges discussed above . selling , general and administrative expenses sg & a expenses decreased in 2013 primarily due to lower accrued compensation and benefits costs and partially offset by a charge of $ 0.6 million of expenses due to a workers ' compensation insurance payroll audit and $ 0.5 million of expenses related to the debt repricing , as discussed in interest expense below , and increased professional fees . interest expense interest expense decreased in 2013 primarily due to lower outstanding debt balances during the year as a result of our voluntary prepayments and a lower interest rate on the term loan beginning in april 2013 as a result of our debt repricing . see note 7 to our consolidated financial statements included in part iv , item 15 ( a ) of this annual report on form 10-k for further information . income tax expense we recorded an income tax benefit of approximately $ 2.0 million ( an effective tax benefit rate of 21.2 % ) in 2013 , compared to an income tax expense of approximately $ 6.5 million ( an effective tax rate of 26.9 % ) in 2012. our effective tax benefit rate of approximately 21.2 % in 2013 was lower than the federal statutory rate of 35.0 % primarily due to the benefit of the federal qualified domestic production activities deduction and the federal research and development tax credit . these benefits were approximately $ 0.8 million and $ 4.5 million , respectively .
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results of operations 2014 compared to 2013 the following table sets forth net revenues , selected financial data , the effective tax rate and diluted earnings per share : replace_table_token_5_th nm = not meaningful 29 net revenues by end-use market and operating segment net revenues by end-use market and operating segment during 2014 and 2013 , respectively , were as follows : replace_table_token_6_th net revenues for 2014 were approximately $ 742.0 million compared to approximately $ 736.7 million for 2013. the net revenue increase reflects an approximate 14 % increase in revenue in the commercial aerospace end-use markets and an approximate 7 % increase in revenue in the non-aerospace and defense end-use markets , partially offset by an approximate 8 % decrease in revenue in the military and space end-use markets . net revenues by major customers a significant portion of our net revenues are from our top ten customers as follows : replace_table_token_7_th the revenues from boeing and raytheon are diversified over a number of commercial , military and space programs and were made by both operating segments . gross profit gross profit margin and dollars increased in 2014 primarily due to reversal of forward loss reserve as a result of a settlement with a customer , a favorable product mix , an approximately $ 0.8 million workers ' compensation audit refund related to prior 30 years , combined with charges in the prior year of approximately $ 14.1 million in the das operating segment , partially offset by an increase in accrued compensation and benefit costs . selling , general and administrative expenses ( “ sg & a ” ) sg & a expenses increased in 2014 primarily due to to higher accrued compensation and benefit costs that was partially offset by lower non-recurring professional fees and the prior year included an approximate $ 0.5 million charge related to our debt repricing transaction .
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in june 2016 , the fasb issued asu 2016-13 , financial instruments—credit losses ( topic 326 ) : measurement of credit losses on financial instruments . this standard significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income , including trade receivables . the standard requires an entity to estimate its lifetime “ expected credit loss ” for such assets at inception , and record an allowance that , when deducted from the amortized cost basis of the financial asset , presents the net amount expected to be collected on the financial asset . for public business entities that are sec filers , the amendments in this update are effective for fiscal years beginning after december 15 , 2019 , including interim periods within those fiscal years . early adoption is permitted for annual periods beginning after december 15 , 2018 , and interim periods therein . the company is currently evaluating the impact of the adoption of the standard on its consolidated financial statements and disclosures . in january 2017 , the fasb issued asu 2017-04 , intangibles – goodwill and other ( topic 350 ) : simplifying the test for goodwill impairment . this asu simplifies how an entity is required to test goodwill for impairment by eliminating step two from the goodwill impairment test . step two measures a goodwill impairment loss by comparing the implied fair value of a reporting unit 's goodwill with the carrying amount of that goodwill . under this standard , an entity will recognize an impairment charge for the amount by which the carrying value of a reporting unit exceeds its fair value . the standard is effective for any interim goodwill impairment tests in fiscal years beginning after december 15 , 2019 and is to be applied prospectively . early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after january 1 , 2017. the company early adopted as of december 31 , 2018 in its annual goodwill impairment test . 49 3. acquisitions on march 7 , 2018 , the company entered into an agreement to purchase two bgr franchise locations in maryland . the company closed on the purchase of the annapolis , md location in the first quarter of 2018 and the company closed on the colombia , md location as of october 1 , 2018. total consideration consisted of $ 30,000 in cash paid and a seller note of $ 9,600 upon the closing of the first location and $ 20,000 in cash and a seller note of $ 187,000 upon closing of the second location in october . the company allocates the purchase price as of the date of acquisition based on the estimated fair value of the acquired assets and assumed liabilities . the purchase accounting for this acquisition is complete as of december 31 , 2018. no proforma information is included as the proforma impact of the acquisition is not material to the consolidated financial statements as of december 31 , 2018 . 4. investments investments at cost consist of the following at december 31 , 2018 and 2017 : replace_table_token_20_th chanticleer investors llc – the company invested $ 800,000 during 2011 and 2012 in exchange for a 22 % ownership stake in chanticleer investors , llc , which in turn holds a 3 % interest in hooters of america , the operator and franchisor of the hooters brand worldwide . as a result , the company 's effective economic interest in hooters of america is approximately 0.6 % . 5. property and equipment , net property and equipment , net consists of the following at december 31 , 2018 and 2017 : replace_table_token_21_th depreciation and amortization expense story_separator_special_tag you should read the following discussion of our results of operations and financial condition together with the selected financial data and our audited consolidated financial statements as of and for the year ended december 31 , 2018 including the notes thereto , included in this report . the discussion below contains forward-looking statements and involves numerous risks and uncertainties , including , but not limited to , those described in item 1a . “ risk factors ” . actual results may differ materially from those contained in any forward-looking statements . forward-looking statements speak only as of the date they are made . we undertake no obligation to update or revise such statements to reflect new circumstances or unanticipated events as they occur , and you are urged to review and consider disclosures that we make in this and other reports that discuss factors germane to our business . story_separator_special_tag vertical-align : top '' > ● cost of sales in the just fresh business remained relatively consistent percentage-wise compared with fiscal year 2017 . ● costs of sales in the hooters business improved in our us locations , while costs increased in our uk and south africa locations as food and alcohol costs increased . 24 restaurant operating expenses restaurant operating expenses increased 0.6 % to $ 23.6 million for the year ended december 31 , 2018 from $ 23.4 million for the year ended december 31 , 2017. restaurant operating expenses by concept are summarized below for each period : replace_table_token_5_th as a percent of restaurant revenues , operating expenses increased to 59.4 % for the year ended december 31 , 2018 from 57.9 % for the year ended december 31 , 2017. operating expenses increased due to the opening of new stores in the better burger group , increases in wage rates and delivery services charges and penalties and interest charges associated with delinquent payroll taxes across all concepts . story_separator_special_tag the level of additional cash needed to fund operations and our ability to conduct business for the next twelve months will be influenced primarily by the following factors : ● our ability to access the capital and debt markets to satisfy current obligations and operate the business ; ● our ability to refinance or otherwise extend maturities of current debt obligations ; ● the level of investment in acquisition of new restaurant businesses and entering new markets ; ● our ability to manage our operating expenses and maintain gross margins as the company grows ; ● popularity of and demand for the company 's fast-casual dining concepts ; and ● general economic conditions and changes in consumer discretionary income . we have typically funded our operating costs , acquisition activities , working capital requirements and capital expenditures with proceeds from the issuances of our common stock and other financing arrangements , including convertible debt , lines of credit , notes payable , capital leases , and other forms of external financing . our operating plan for the next twelve months contemplates opening at least four additional company owned stores as well as growing our franchising businesses at little big burger and bgr . we have contractual commitments related to store construction of approximately $ 803,000 , of which we expect approximately $ 125,000 to be funded by private investors and approximately $ 678,000 will be funded internally by the company . of the $ 678,000 to be funded by the company , $ 439,000 is expected to be returned to the company via tenant improvement refunds . we also have $ 6 million of principal due on our debt obligations within the next 12 months and $ 9 million due within the next 15 months plus interest . in addition , if we fail to meet various debt covenants going forward and are notified of the default by the noteholders of the 8 % non-convertible secured debentures , we may be assessed additional default interest and penalties which would increase our obligations . we expect to be able to refinance our current debt obligations during 2019 and are also exploring the sale of certain assets and raising additional capital . in may 2018 , the company completed the sale of 403,214 shares of common stock at a price of $ 3.50 per common share for proceeds of $ 1.4 million . refer to note 16 regarding the sale of certain assets in 2019. however , we can not provide assurance that we will be able to refinance our long-term debt or sell assets or raise additional capital . 27 as we execute our growth plans over the next 12 months , we intend to carefully monitor the impact of growth on our working capital needs and cash balances relative to the availability of cost-effective debt and equity financing . in the event that capital is not available , or we are unable to refinance our debt obligations or obtain waivers , we may then have to scale back or freeze our organic growth plans , sell assets on less than favorable terms , reduce expenses , and or curtail future acquisition plans to manage our liquidity and capital resources . we may also incur financial penalties or other negative actions from our lenders if we are not able to refinance or otherwise extend or repay our current obligations or obtain waivers . in addition , our business is subject to additional risks and uncertainties , including , but not limited to , those described in item 1a . “ risk factors ” . critical accounting policies the company 's significant accounting policies are more fully described in note 1 of notes to the consolidated financial statements in item 8. the preparation of the company 's consolidated financial statements in conformity with accounting principles generally accepted in the united states requires the use of estimates and assumptions to determine certain assets , liabilities , revenues and expenses . management bases these estimates and assumptions upon the best information available at the time of the estimates or assumptions . the company 's estimates and assumptions could change materially as conditions within and beyond our control change . accordingly , actual results could differ materially from estimates . the company believes that the following are its most significant accounting policies : revenue recognition on january 1 , 2018 , the company adopted asu 2014-09 , revenue from contracts with customers ( topic 606 ) , using the modified retrospective method applied to those contracts which were not completed as of december 31 , 2017. the company elected a practical expedient to aggregate the effect of all contract modifications that occurred before the adoption date , which did not have a material impact to our consolidated financial statements . results for reporting periods beginning on or after january 1 , 2018 are presented under accounting standards codification topic 606 ( “ asc 606 ” ) . prior period amounts were not revised and continue to be reported in accordance with asc topic 605 ( “ asc 605 ” ) , the accounting standard then in effect . upon adoption , the company recorded a decrease to opening stockholders ' equity of $ 1,042,000 with a corresponding increase of $ 1,042,000 in deferred revenue . additional franchise income of $ 83,000 was recognized during the year-ended december 31 , 2018 under asc 606 , compared to what would have been recognized under asc 605. prior to the adoption of asc 606 , the company 's initial franchise fees were recorded as deferred revenue when received and proportionate amounts were recognized as revenue when certain milestones such as completion of employee training , lease signing , and store opening were achieved .
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overview we are in the business of owning , operating and franchising fast casual and full-service dining concepts in the united states and internationally . we own , operate and franchise a system-wide total of 49 fast casual restaurants specializing the “ better burger ” category of which 34 are company-owned and 15 are operated by franchisees under franchise agreements . american burger company ( “ abc ” ) is a fast-casual dining chain consisting of 7 locations in new york and the carolinas , known for its diverse menu featuring , customized burgers , milk shakes , sandwiches , fresh salads and beer and wine . bgr : the burger joint ( “ bgr ” ) , consists of 11 company-owned locations in the united states and 12 franchisee-operated locations in the united states and the middle east . little big burger ( “ lbb ” ) consists of 16 company-owned locations in oregon , washington and north carolina and 3 franchisee-operated locations in california and texas . we also own and operate just fresh , our healthier eating fast casual concept with 5 company owned locations in charlotte , north carolina . just fresh offers fresh-squeezed juices , gourmet coffee , fresh-baked goods and premium-quality , made-to-order sandwiches , salads and soups . we own and operate 8 hooters full-service restaurants in the united states , south africa , and the united kingdom . hooters restaurants are casual beach-themed establishments featuring music , sports on large flat screens , and a menu that includes seafood , sandwiches , burgers , salads , and of course , hooters original chicken wings and the “ nearly world famous ” hooters girls . as of december 31 , 2018 , our system-wide store count totaled 62 locations , consisting of 47 company-owned locations and 15 franchisee-operated locations .
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the company 's interests in these operations are recorded in the statements of operations as equity in losses story_separator_special_tag you should read the following discussion of our financial condition and results of operations together with the audited consolidated financial statements and notes to the financial statements included elsewhere in this annual report . this discussion contains forward-looking statements that involve risks and uncertainties . the forward-looking statements are not historical facts , but rather are based on current expectations , estimates , assumptions and projections about our industry , business and future financial results . our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors , including those discussed under item 1a.—risk factors and other sections in this annual report . executive overview live nation continued to see strong demand for live events in 2018 , powering the concerts center of our business flywheel and leading to another record year for all three of our segments . our execution of our key strategic initiatives is elevating the live experience through our concerts , sponsorship & advertising and ticketing businesses to maximize benefits to the fans , to the many artists and teams with whom we work , and to our stockholders . we entered new markets during the year and introduced additional ticketing products that we believe provide growth for years to come . the rapidly changing technology landscape offers unique challenges that we met with transparency and through innovative solutions , while delivering record numbers in our key financial and operational metrics . our total revenue for the year was $ 10.8 billion , making this our thirteenth consecutive year of revenue growth and giving us , once again , our highest revenue year ever . our concerts , sponsorship & advertising and ticketing segments all reported double-digit revenue growth as a result of both record attendance at our concerts and record ticket sales in our ticketing business . our focus on amplifying and growing our concert flywheel continues to deliver benefits ; the unique power of the live concert experience enables fans around the world to connect with artists and each other and provides us the platform to connect with the fans . our overall revenue in 2018 increased by $ 1.1 billion , or 11 % , on a reported and constant currency basis as compared to last year . the increase was largely driven by growth in our concerts segment due to a higher number of events , fans , and average per show revenue we are generating from the events . ticketing increased as well , with strong growth in concert event ticket sales in north america as well as the continued expansion of our resale business . sponsorship & advertising again delivered strong growth over the prior year due to a number of new strategic multi-year deals as well as growth in our european festival sponsorship business . our operating results improved this year , compared to 2017 , due to both improved business performance as well as the impact of the legal settlement accrued in 2017. as the leading global live event and ticketing company , we believe that we are well-positioned to provide the best service to artists , teams , fans and venues and therefore drive growth across all our businesses . we believe that by leveraging our leadership position in the entertainment industry to reach fans through the live concert experience , we will sell more tickets and uniquely engage more advertising partners . by advancing innovation in ticketing technology , we will continue to improve the fan experience by offering increased and more diversified , secure choices in an expanded ticketing marketplace . this gives us a compelling opportunity to grow our fan base and our results . our concerts segment was the largest contributor to our overall revenue growth in 2018 , with an increase of $ 878.0 million , or 11 % , on a reported basis as compared to last year , or $ 852.4 million , also 11 % , without the impact of changes in foreign exchange rates . this higher revenue was due to additional arena and amphitheater shows , regional acquisitions in the united states and festival growth worldwide . some of the biggest tours in 2018 featured beyoncé and jay-z , p ! nk , justin timberlake , imagine dragons and bruno mars . overall , concerts attendance grew by 6.5 million to nearly 93 million fans , a record for the company , and an increase of 8 % over the prior year . we continued to expand our global festival portfolio in 2018 , adding brands , including isle of wight , to our strong roster and growing total festival attendance . our amphitheater shows were strong in 2018 as well , with the dave matthews band , jason aldean and kendrick lamar all playing to sold out audiences over the summer . the growth of our amphitheater onsite business continued in 2018 , with a focus on expanding our food and beverage point of sale systems , optimizing beverage sizing and pricing , and developing new premium programs for parking and vip areas . these programs helped grow our ancillary revenue per fan at our amphitheaters by approximately $ 3 in 2018. another of our ongoing priorities is to grow our ticket revenue by optimizing ticket pricing based on demand . we saw success in this area globally this year , by increasing the price for our best available seats in our amphitheaters and arenas by double-digits . our concerts operating results for the year improved over the prior year largely due to the impact of these business improvements and strategic initiatives . we will continue to look for expansion opportunities , both domestically and internationally , as well as ways to market our events more effectively , in order to continue to expand our fan base and geographic reach and thereby sell more tickets and onsite products . story_separator_special_tag 29 ticketing our ticketing segment is primarily an agency business that sells tickets for events on behalf of its clients and retains a portion of the service charges as our fee . gross transaction value ( “ gtv ” ) represents the total amount of the transaction related to a ticket sale and includes the face value of the ticket as well as the service charge . service charges are generally based on a percentage of the face value or a fixed fee . we sell tickets through websites , mobile apps , ticket outlets and telephone call centers . our ticketing sales are impacted by fluctuations in the availability of events for sale to the public , which may vary depending upon scheduling by our clients . we also offer ticket resale services , sometimes referred to as secondary ticketing , principally through our integrated inventory platform , league/team platforms and other platforms internationally . our ticketing segment manages our online activities including enhancements to our ticketing websites and product offerings . through our websites , we sell tickets to our own events as well as tickets for our clients and provide event information . revenue related to ticketing service charges is recognized when the ticket is sold for our outside clients . for our own events , where our concert promoters control ticketing , revenue is deferred and recognized when the event occurs . to judge the health of our ticketing segment , we primarily review the gtv and the number of tickets sold through our ticketing operations , the number of clients renewed or added and the average royalty rate paid to clients who use our ticketing services . in addition , we review the number of visits to our websites , cost of customer acquisition , the purchase conversion rate , the overall number of customers in our database , the number and percentage of tickets sold via mobile and the number of app installs . for business that is conducted in foreign markets , we also compare the operating results from our foreign operations to prior periods without the impact of changes in foreign exchange rates . key operating metrics replace_table_token_5_th _ ( 1 ) events generally represent a single performance by an artist . fans generally represent the number of people who attend an event . festivals are counted as one event in the quarter in which the festival begins , but the number of fans is based on the days the fans were present at the festival and thus can be reported across multiple quarters . events and fan attendance metrics are estimated each quarter . ( 2 ) the fee-bearing tickets estimated above include primary and secondary tickets that are sold using our ticketmaster systems or that we issue through affiliates . this metric includes primary tickets sold during the year regardless of event timing , except for our own events where our concert promoters control ticketing and which are reported when the events occur . the non-fee-bearing tickets estimated above include primary tickets sold using our ticketmaster systems , through season seat packages and our venue clients ' box offices , along with tickets sold on our ‘ do it yourself ' platform . 30 non-gaap measures reconciliation of adjusted operating income ( loss ) aoi is a non-gaap financial measure that we define as operating income ( loss ) before certain stock-based compensation expense , loss ( gain ) on disposal of operating assets , depreciation and amortization ( including goodwill impairment ) , amortization of non-recoupable ticketing contract advances and acquisition expenses ( including transaction costs , changes in the fair value of accrued acquisition-related contingent consideration obligations , and acquisition-related severance and compensation ) . we use aoi to evaluate the performance of our operating segments . we believe that information about aoi assists investors by allowing them to evaluate changes in the operating results of our portfolio of businesses separate from non-operational factors that affect net income ( loss ) , thus providing insights into both operations and the other factors that affect reported results . aoi is not calculated or presented in accordance with gaap . a limitation of the use of aoi as a performance measure is that it does not reflect the periodic costs of certain amortizing assets used in generating revenue in our business . accordingly , aoi should be considered in addition to , and not as a substitute for , operating income ( loss ) , net income ( loss ) , and other measures of financial performance reported in accordance with gaap . furthermore , this measure may vary among other companies ; thus , aoi as presented herein may not be comparable to similarly titled measures of other companies . 31 the following table sets forth the reconciliation of aoi to operating income ( loss ) : replace_table_token_6_th aoi margin aoi margin is a non-gaap financial measure that we calculate by dividing aoi by revenue . we use aoi margin to evaluate the performance of our operating segments . we believe that information about aoi margin assists investors by allowing them to evaluate changes in the operating results of our portfolio of businesses separate from non-operational factors that affect net income ( loss ) , thus providing insights into both operations and the other factors that affect reported results . aoi margin is not calculated or presented in accordance with gaap . a limitation of the use of aoi margin as a performance measure is that it does not reflect the periodic costs of certain amortizing assets used in generating revenue in our business . accordingly , aoi margin should be considered in addition to , and not as a substitute for , operating income ( loss ) margin , and other measures of financial performance reported in accordance with gaap . furthermore , this measure may vary among other companies ; thus , aoi margin as presented herein may not be comparable to similarly titled measures of other companies .
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consolidated results of operations replace_table_token_10_th * percentages are not meaningful . * * see “ —non-gaap measures ” above for definition of constant currency . 36 selling , general and administrative expenses selling , general and administrative expenses for the year ended december 31 , 2017 include a $ 110.0 million legal settlement entered into in january 2018 , which was accrued in the ticketing segment . corporate corporate expenses increased $ 18.4 million , or 14 % , during the year ended december 31 , 2018 as compared to the prior year primarily due to higher stock-based compensation expense associated with the issuance of deferred stock awards in december 2017 along with higher headcount and annual salary increases . interest expense interest expense increased $ 31.8 million , or 30 % , during the year ended december 31 , 2018 as compared to the prior year primarily due to additional interest costs from the 5.625 % senior notes and the 2.5 % convertible senior notes due 2023 , issued in march 2018. our debt balances , excluding unamortized debt discounts , were $ 2.9 billion and $ 2.3 billion as of december 31 , 2018 and 2017 , respectively .
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years ended december 31 , 2000 vs. 1999 1999 vs. 1998 increase ( decrease ) due to increase ( decrease ) due to volume rate total volume rate total ( dollars in thousands ) interest-earnings assets : loans $ 4,438 $ 1,299 $ 5,737 $ 3,768 $ ( 831 ) $ 2,937 securities 1,656 307 1,963 669 ( 147 ) 522 federal funds sold ( 214 ) 38 ( 176 ) ( 275 ) ( 29 ) ( 304 ) interest-bearing deposits in other financial institutions ( 75 ) ( 75 ) 46 ( 1 ) 45 total increase ( decrease ) in interest income 5,805 1,644 7,449 4,208 ( 1,008 ) 3,200 interest-bearing liabilities : now , savings and money market accounts 769 701 1,470 534 22 556 time deposits 2,112 1,456 3,568 1,326 ( 516 ) 810 other borrowed funds 452 146 598 99 90 189 long-term debt 600 600 total increase ( decrease ) in interest expense 3,933 2,303 6,236 1,959 ( 404 ) 1,555 increase ( decrease ) in net interest income $ 1,872 $ ( 659 ) $ 1,213 $ 2,249 $ ( 604 ) $ 1,645 provision for loan losses the company 's provision for loan losses is established through charges to operating income in the form of the provision in order to bring the total allowance for loan losses to a level deemed appropriate by management of the company based on such factors as historical experience , the volume and type of lending conducted by the company , the amount of nonperforming assets , regulatory policies , generally accepted accounting principles , general economic conditions , and other factors related to the collectability of loans in the company 's portfolio . the company 's provision for loan losses during the twelve months ended december 31 , 2000 was $ 595,000 compared with $ 310,000 during the twelve months ended december 31 , 1999 , an increase of $ 285,000. the increase in the provision was due in part to the growth in average loans outstanding from $ 213.7 million for 1999 to $ 268.0 million for 2000 , an increase of $ 54.3 million or 25.4 % . good asset quality is still reflected as net charge-offs remain at manageable levels totaling $ 508,000 , or 0.19 % of average loans in 2000 compared with $ 177,000 , or 0.08 % of average loans in 1999. the company 's provision for loan losses decreased from $ 540,000 in 1998 to $ 310,000 in 1999 as a result of strong asset quality and low net charge-offs for the year . noninterest income noninterest income is an important source of revenue for financial institutions . the company 's primary sources of noninterest income are service charges on deposit accounts and other banking service related fees . noninterest income for the year ended december 31 , 2000 was $ 3.7 million , an increase of $ 349,000 from $ 3.4 million in 1999 and up from $ 2.8 million in 1998. the year ended december 31 , 2000 reflected an increase in service charge income of $ 495,000 over the same period 1999 and $ 1.1 million over the same period 1998 , representing a 26.0 % and a 79.3 % increase respectively . this results in annual percentage increases of 10.3 % and 31.7 % for the years ended december 31 , 2000 and 1999 , respectively . -22- the following table presents for the periods indicated the major categories of noninterest income : years ended december 31 , 2000 1999 1998 ( dollars in thousands ) service charges $ 2,396 $ 1,901 $ 1,336 fee income 663 518 434 net realized ( loss ) gain on securities transactions ( 34 ) 11 81 fiduciary income 109 63 46 earnings from key-man life insurance 234 192 89 gain on sale of loans 674 gain ( loss ) on sale of assets 38 330 ( 23 ) other noninterest income 317 359 189 total noninterest income $ 3,723 $ 3,374 $ 2,826 the increase in noninterest income from 1999 to 2000 resulted primarily from service charges and fee income due to an increase in the number of deposit accounts . additionally , the company 's increased emphasis on fee-based services resulted in greater income from check cashing , atm fees , appraisal fees and wire transfer fees . noninterest expense for the years ended december 31 , 2000 , 1999 and 1998 , noninterest expense totaled $ 12.1 million , $ 10.3 million and $ 8.5 million , respectively . the $ 1.9 million , or 18.3 % increase in 2000 was primarily the result of additional operating expenses incurred in connection with the addition of the sulphur springs and commerce locations acquired from first american in september 1999. these new locations as well as customer growth in various other markets contributed to the increase in employee compensation and benefits as the company 's average full-time equivalent employees grew from 158 at december 31 , 1999 to 192 at december 31 , 2000. employee compensation and benefits increased from $ 5.7 million in 1999 to $ 6.8 million in 2000 , an increase of $ 1.1 million or 19.9 % . in addition , bank premises and fixed asset expense increased from $ 1.4 million to $ 1.8 million , an increase of $ 353,000 or 25.1 % . advertising expense increased from $ 231,000 in 1999 to $ 357,000 in 2000 , an increase of $ 126,000 or 54.5 % primarily due to the company retaining an ad agency to enhance advertising campaigns . legal and professional fees increased $ 59,000 or 11.8 % due to independent loan review expenses and additional bankruptcy and litigation proceedings relating to loan customers . story_separator_special_tag the company 's commercial lending products include business loans , commercial real estate loans , equipment loans , working capital loans , term loans , revolving lines of credit and letters of credit . most commercial loans are collateralized and on payment programs . the purpose of a particular loan generally determines its structure . in almost all cases , the company requires personal guarantees on commercial loans to help assure repayment . the company 's commercial mortgage loans are generally secured by first liens on real estate , typically have fixed interest rates and amortize over a 10 to 15 year period with balloon payments due at the end of one to five years . in underwriting commercial mortgage loans , consideration is given to the property 's operating history , future operating projections , current and projected occupancy , location and physical condition . the underwriting analysis also includes credit checks , appraisals and a review of the financial condition of the borrower . the company makes loans to finance the construction of residential and , to a limited extent , nonresidential properties . construction loans generally are secured by first liens on real estate . the company conducts periodic inspections , either directly or through an agent , prior to approval of periodic draws on these loans . underwriting guidelines similar to those described above are also used in the company 's construction lending activities . in keeping with the community-oriented nature of its customer base , the company provides construction and permanent financing for churches located within its market area . -25- the company rarely makes loans at its legal lending limit . lending officers are assigned various levels of loan approval authority based upon their respective levels of experience and expertise . loans above $ 600,000 are evaluated and acted upon by the executive committee , which meets weekly and are reported to the board of directors . the company 's strategy for approving or disapproving loans is to follow conservative loan policies and underwriting practices which include : ( i ) granting loans on a sound and collectible basis ; ( ii ) investing funds properly for the benefit of shareholders and the protection of depositors ; ( iii ) serving the legitimate needs of the community and the company 's general market area while obtaining a balance between maximum yield and minimum risk ; ( iv ) ensuring that primary and secondary sources of repayment are adequate in relation to the amount of the loan ; ( v ) developing and maintaining adequate diversification of the loan portfolio as a whole and of the loans within each category ; and ( vi ) ensuring that each loan is properly documented and , if appropriate , insurance coverage is adequate . the company 's loan review and compliance personnel interact daily with commercial and consumer lenders to identify potential underwriting or technical exception variances . in addition , the company has placed increased emphasis on the early identification of problem loans to aggressively seek resolution of the situations and thereby keep loan losses at a minimum . management believes that this strict adherence to conservative loan policy guidelines has contributed to the company 's below average level of loan losses compared to its industry peer group over the past few years . the company 's loans collateralized by one to four family residential real estate generally are originated in amounts of no more than 90 % of the lower of cost or appraised value . the company requires mortgage title insurance and hazard insurance in the amount of the loan . of the mortgages originated , the company generally retains mortgage loans with short terms or variable rates and sells longer-term fixed-rate loans that do not meet the company 's credit underwriting standards . prior to the acquisition of first american , the company sold such loans to texas independent bank mortgage company , however , since the first american acquisition , the company sells these loans directly into the secondary market . as of december 31 , 2000 , the company 's one to four family residential real estate loan portfolio was $ 102.6 million . of this amount , $ 37.9 million is repriceable in one year or less and an additional $ 46.8 million is repriceable from one year to five years . these high percentages in short-term real estate loans reflect the company 's commitment to reducing interest rate risk . the company provides a wide variety of consumer loans including motor vehicle , watercraft , education loans , personal loans ( collateralized and uncollateralized ) and deposit account collateralized loans . the terms of these loans typically range from 12 to 72 months and vary based upon the nature of collateral and size of loan . as of december 31 , 2000 , the company had no indirect consumer loans , indicating a preference to maintain personal banking relationships and strict underwriting standards . during the last two years , management has placed tighter controls on consumer credit due to record high personal bankruptcy filings nationwide . the contractual maturity ranges of the commercial , industrial and real estate construction loan portfolio and the amount of such loans with predetermined interest rates in each maturity range as of december 31 , 2000 , are summarized in the following table : december 31 , 2000 one year or less after one through five years after five years total ( dollars in thousands ) commercial and industrial $ 40,201 $ 27,168 $ 6,312 $ 73,681 real estate construction 6,681 635 7,316 total $ 46,882 $ 27,803 $ 6,312 $ 80,997 loans with a predetermined interest rate $ 42,497 $ 13,995 $ 462 $ 56,954 loans with a floating interest rate 24,043 24,043 total $ 66,540 $ 13,995 $ 462 $ 80,997 -26- nonperforming assets the company has several procedures in place to assist it in maintaining the overall quality of its loan portfolio .
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of financial condition and results of operations certain statements in this annual report on form 10-k include forward-looking information 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 are subject to the safe harbor created by those sections . these forward-looking statements involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements . such risks and uncertainties include , but are not limited to , the factors listed above and those described in this discussion and analysis . see special cautionary notice regarding forward looking information. management 's discussion and analysis of financial condition and results of operations analyzes the major elements of the company 's balance sheets and statements of earnings . this section should be read in conjunction with the company 's consolidated financial statements and accompanying notes and other detailed information appearing elsewhere in this annual report on form 10-k. overview net earnings available to common shareholders were $ 2.5 million , $ 3.1 million and $ 2.6 million for the years ended december 31 , 2000 , 1999 and 1998 , respectively , and net earnings per common share were $ 0.80 , $ 1.03 and $ 0.95 for these same periods . the decrease in earnings from 1999 to 2000 resulted primarily from an increase in interest expense caused by higher cost of funds and a growth in interest bearing liabilities and an increase in noninterest expenses offset by an increase in noninterest income . average costing liabilities increased $ 77.9 million from $ 230.8 million in 1999 to $ 308.8 million in 2000. average cost of funds were 4.55 % for the twelve months ended december 31 , 1999 compared to 5.42 % for the same period in 2000 , an increase of 19.1 % .
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( 7 ) accrued expenses the major components of accrued expenses are as follows : replace_table_token_21_th ( 8 ) lease commitments the company currently leases stores , distribution and headquarters facilities under non-cancelable operating leases . the company 's leases generally contain multiple renewal story_separator_special_tag throughout this section , the big 5 sporting goods corporation ( we , our , us ) fiscal years ended december 29 , 2013 , december 30 , 2012 and january 1 , 2012 are referred to as fiscal 2013 , 2012 and 2011 , respectively . the following discussion and analysis of our financial condition and results of operations for fiscal 2013 , 2012 and 2011 includes information with respect to our plans and strategies for our business and should be read in conjunction with the consolidated financial statements and related notes , the risk factors and the cautionary statement regarding forward-looking information included elsewhere in this annual report on form 10-k. our fiscal year ends on the sunday nearest december 31. fiscal 2013 , 2012 and 2011 each included 52 weeks . overview we are a leading sporting goods retailer in the western united states , operating 429 stores in 12 states under the name big 5 sporting goods at december 29 , 2013. we provide a full-line product offering in a traditional sporting goods store format that averages approximately 11,000 square feet . our product mix includes athletic shoes , apparel and accessories , as well as a broad selection of outdoor and athletic equipment for team sports , fitness , camping , hunting , fishing , tennis , golf , snowboarding and roller sports . we believe that over our 59-year history we have developed a reputation with the competitive and recreational sporting goods customer as a convenient neighborhood sporting goods retailer that consistently delivers value on quality merchandise . our stores carry a wide range of products at competitive prices from well-known brand name manufacturers , including adidas , coleman , easton , new balance , nike , reebok , spalding , under armour and wilson . we also offer brand name merchandise produced exclusively for us , private label merchandise and specials on quality items we purchase through opportunistic buys of vendor over-stock and close-out merchandise . we reinforce our value reputation through weekly print advertising in major and local newspapers , direct mailers and digital marketing designed to generate customer traffic , drive sales and build brand awareness . we also maintain social media sites to enhance distribution capabilities for our promotional offers and to enable communication with our customers . throughout our history , we have emphasized controlled growth . in fiscal 2013 , we opened 17 new stores , three of which were relocations , and closed two stores , both of which were relocations . in fiscal 2012 , we opened 14 new stores , three of which were relocations , and closed six stores , two of which were relocations . for fiscal 2014 , we expect to open approximately 15 net new stores . the following table summarizes our store count for the periods presented : replace_table_token_7_th ( 1 ) stores that are relocated are classified as new stores . sales from the prior location are treated as sales from a closed store and thus are excluded from same store sales calculations . 27 story_separator_special_tag style= '' border-collapse : collapse '' width= '' 100 % '' > advertising expense for fiscal 2013 decreased by $ 1.4 million , due primarily to lower newspaper advertising , partially offset by increases in digital marketing programs and other advertising to support sales . administrative expense for fiscal 2013 increased by $ 4.4 million , primarily reflecting higher employee labor and benefit-related expense , added costs related to our new e-commerce initiative and increases in other administrative expense to support our growth . also , administrative expense for fiscal 2013 reflected a pre-tax charge of $ 1.0 million related to legal settlements . in fiscal 2012 , we recorded a pre-tax charge of $ 1.2 million related to store closing costs and a pre-tax non-cash impairment charge of $ 0.2 million related to certain underperforming stores . these charges are further discussed in notes 4 , 5 and 14 to the consolidated financial statements included in part ii , item 8 , financial statements and supplementary data , of this annual report on form 10-k. interest expense . interest expense decreased by $ 0.5 million , or 20.8 % , to $ 1.7 million in fiscal 2013 from $ 2.2 million in fiscal 2012. the decrease in interest expense reflects the combined impact of a decrease in average debt levels of $ 22.2 million to $ 44.0 million in fiscal 2013 from $ 66.2 million in fiscal 2012 , as well as a decrease in average interest rates of 10 basis points to 2.1 % in fiscal 2013 from 2.2 % in fiscal 2012 , due mainly to lower applicable margins under our credit agreement . income taxes . the provision for income taxes was $ 17.7 million for fiscal 2013 compared with $ 8.9 million for fiscal 2012. this increase was primarily due to higher pre-tax income and a higher effective tax rate in fiscal 2013. our effective tax rate was 38.8 % for fiscal 2013 compared with 37.3 % for fiscal 2012. the increased effective tax rate year over year primarily reflected the impact of lower overall income tax credits as a percentage of pre-tax income for fiscal 2013 , partially offset by the retroactive reinstatement of the work opportunity tax credit ( wotc ) for 2012 that resulted from enactment of the american taxpayer relief act of 2012. reinstatement of wotc reduced the effective tax rate for the first quarter of fiscal 2013 by 137 basis points . fiscal 2012 compared to fiscal 2011 net sales . story_separator_special_tag we ended fiscal 2013 with $ 9.4 million of cash and cash equivalents compared with $ 7.6 million in fiscal 2012. after reducing our long-term debt by $ 16.0 million , or 25.2 % , during fiscal 2012 , we further decreased our long-term debt by $ 4.5 million , or 9.5 % , during fiscal 2013 to $ 43.0 million from $ 47.5 million at the end of fiscal 2012. the following table summarizes our cash flows from operating , investing and financing activities for each of the past three fiscal years : replace_table_token_9_th the seasonality of our business historically provides greater cash flows from operations during the holiday and winter selling season . we use operating cash flows and borrowings under our revolving credit facility to fund inventory increases in anticipation of the holidays and our inventory levels are normally at their highest in the months leading up to christmas . as holiday sales typically reduce inventory levels , this reduction , combined with net income , historically provides us with strong cash flows from operations at the end of our fiscal year . for fiscal 2013 , while we increased inventory purchases in the months leading up to christmas , weaker-than-anticipated sales during the fourth quarter of fiscal 2013 resulted in higher-than-expected inventory levels and lower operating cash flows in the fourth quarter of fiscal 2013. however , healthy net sales and net income for the full fiscal year 2013 contributed sufficient levels of operating cash flows that allowed us to pay down debt balances year over year . for fiscal 2012 , we increased inventory purchases in the months leading up to christmas , resulting in a higher accounts payable balance at year-end compared to fiscal 2011. additionally , improved net sales and net income in fiscal 2012 compared with fiscal 2011 contributed to higher operating cash flows which allowed us to significantly pay down debt balances year over year . for fiscal 2011 , we strategically increased merchandise inventory levels to add certain new products to stimulate sales and also purchased inventory earlier in the year to mitigate the impact of product cost inflation and potential delivery delays . reduced inventory purchases in the fourth quarter of fiscal 2011 resulted in lower accounts payable as a percentage of inventory . also , weaker-than-anticipated sales during fiscal 2011 , particularly in the fourth quarter , resulted in higher inventory levels and reduced operating cash flows for the year , contributing to higher debt balances year over year . operating activities . net cash provided by operating activities for fiscal 2013 , 2012 and 2011 was $ 26.3 million , $ 39.6 million and $ 2.2 million , respectively . the decrease in cash provided by operating activities for fiscal 2013 compared to fiscal 2012 was due primarily to higher inventory levels , which reflected softer-than-anticipated sales in the fourth quarter of fiscal 2013. furthermore , the timing of inventory purchases resulted in higher funding of accounts payable in fiscal 2013 when compared to fiscal 2012. the impact of higher inventory 32 was partially offset by higher net income for fiscal 2013. the increase in cash provided by operating activities for fiscal 2012 compared to fiscal 2011 primarily reflected higher accounts payable year over year due mainly to the timing of inventory purchases . inventory purchases were higher in the fourth quarter of fiscal 2012 compared to the fourth quarter of fiscal 2011 , which resulted in a higher accounts payable balance at the end of fiscal 2012. also contributing to the improved operating cash flow in fiscal 2012 over fiscal 2011 was a smaller increase in inventory , higher net income and increased accrued expenses related primarily to employee benefit-related accruals and a liability for store closings . investing activities . net cash used in investing activities for fiscal 2013 , 2012 and 2011 was $ 22.0 million , $ 12.7 million and $ 12.0 million , respectively . in fiscal 2012 and 2011 , we received proceeds of $ 0.3 million and $ 0.5 million , respectively , as part of a local utility rebate program related to the implementation of a green energy system at our distribution center , and in fiscal 2011 we received proceeds of $ 0.5 million from the sale of owned real property . our capital spending is primarily for new store openings , store-related remodeling , distribution center and corporate headquarters ' costs and computer hardware and software purchases . capital expenditures by category for each of the last three fiscal years are as follows : replace_table_token_10_th our capital expenditures included 17 new stores in fiscal 2013 , 14 new stores in fiscal 2012 and 13 new stores in fiscal 2011. the higher capital expenditures in fiscal 2013 also reflected an increased investment in existing store remodeling to support our merchandising initiatives and added costs related to the development of an e-commerce platform . capital expenditures in fiscal 2013 , 2012 and 2011 also included amounts related to our computer system replacement program as well as enhanced security measures to support our infrastructure . financing activities . net cash used in financing activities for fiscal 2013 and 2012 was $ 2.5 million and $ 24.2 million , respectively , and net cash provided by financing activities for fiscal 2011 was $ 9.1 million . for fiscal 2013 , we used cash provided from operating activities primarily to pay dividends , pay down borrowings from our revolving credit facility and make capital lease payments . these payments were partially offset by proceeds received from the exercise of employee share option awards . for fiscal 2012 , we used cash provided from operating activities to pay down borrowings from our revolving credit facility , pay dividends , make capital lease payments and purchase treasury stock . for fiscal 2011 , cash provided by financing activities primarily reflected increased borrowings under our revolving credit facility , partially offset by dividend payments and capital lease payments .
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executive summary our improved operating results for fiscal 2013 compared to fiscal 2012 were mainly attributable to our higher sales levels , including an increase in same store sales of 3.9 % . we believe our higher same store sales reflected favorable customer response to changes in our merchandise offering and new marketing initiatives , higher demand for firearm and ammunition products , and improved sales of winter merchandise in the first quarter of fiscal 2013. we also believe our operating results for fiscal 2012 and 2011 , and to a lesser extent for fiscal 2013 , reflected challenging macroeconomic conditions in our markets resulting primarily from the lingering effects of the economic recession . net sales for fiscal 2013 increased 5.6 % to $ 993.3 million compared to fiscal 2012. the increase in net sales was primarily attributable to increased same store sales of 3.9 % combined with added revenue from new stores . net income for fiscal 2013 increased 87.4 % to $ 27.9 million , or $ 1.27 per diluted share , compared to $ 14.9 million , or $ 0.69 per diluted share , for fiscal 2012. the increase was driven primarily by higher net sales and higher merchandise margins , partially offset by increased selling and administrative expense and higher income tax expense . gross profit for fiscal 2013 represented 33.1 % of net sales , compared with 32.2 % in the prior year . merchandise margins were 50 basis points higher than the prior year , combined with reduced distribution and store occupancy expense as a percentage of net sales . selling and administrative expense for fiscal 2013 increased 1.6 % to $ 281.3 million , or 28.3 % of net sales , compared to $ 276.8 million , or 29.4 % of net sales , for fiscal 2012. the increase was primarily attributable to higher store-related expense , excluding occupancy , as a result of new store openings and increased employee labor and benefit-related expense .
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the forward-looking statements contained in this section involve a number of risks and uncertainties , including : statements concerning the impact of a protracted decline in the liquidity of credit markets ; the general economy , including interest and inflation rates , and its impact on the industries in which we invest ; our future operating results , our business prospects and the adequacy of our cash resources and working capital ; the ability of our portfolio companies to achieve their objectives ; our ability to make investments consistent with our investment objectives , including with respect to the size , nature and terms of our investments ; the ability of new mountain finance advisers bdc , l.l.c . ( the `` investment adviser '' ) or its affiliates to attract and retain highly talented professionals ; actual and potential conflicts of interest with the investment adviser and new mountain capital , l.l.c . ( `` new mountain capital '' , defined as new mountain capital group , l.l.c . and its affiliates ) ; and the risk factors set forth in item 1a.—risk factors . forward-looking statements are identified by their use of such terms and phrases such as `` anticipate '' , `` believe '' , `` continue '' , `` could '' , `` estimate '' , `` expect '' , `` intend '' , `` may '' , `` plan '' , `` potential '' , `` project '' , `` seek '' , `` should '' , `` target '' , `` will '' , `` would '' or similar expressions . actual results could differ materially from those projected in the forward-looking statements for any reason , including the factors set forth in item 1a.—risk factors contained in this annual report . we have based the forward-looking statements included in this report on information available to us on the date of this report . we assume no obligation to update or revise publicly any forward-looking statements , whether as a result of new information , future events or otherwise , except as required by law . although we undertake no obligation to revise or update any forward-looking statements , you are advised to consult any additional disclosures that we may make directly to you or through reports that we have filed or in the future may file with the united states securities and exchange commission ( `` sec '' ) , including annual reports on form 10-k , registration statements on form n-2 , quarterly reports on form 10-q and current reports on form 8-k. 55 overview we are a delaware corporation that was originally incorporated on june 29 , 2010 and completed our initial public offering ( `` ipo '' ) on may 19 , 2011. we are a closed-end , non-diversified management investment company that has elected to be regulated as a business development company ( `` bdc '' ) under the investment company act of 1940 , as amended ( the `` 1940 act '' ) . as such , we are obligated to comply with certain regulatory requirements . we have elected to be treated , and intend to comply with the requirements to continue to qualify annually , as a regulated investment company ( `` ric '' ) under subchapter m of the internal revenue code of 1986 , as amended ( the `` code '' ) . nmfc is also registered as an investment adviser under the investment advisers act of 1940 , as amended ( the `` advisers act '' ) . the investment adviser is a wholly-owned subsidiary of new mountain capital . new mountain capital is a firm with a track record of investing in the middle market . new mountain capital focuses on investing in defensive growth companies across its private equity , public equity and credit investment vehicles . the investment adviser manages our day-to-day operations and provides us with investment advisory and management services . new mountain finance administration , l.l.c . ( the `` administrator ” ) , a wholly-owned subsidiary of new mountain capital , provides the administrative services necessary to conduct our day-to-day operations . our wholly-owned subsidiary , new mountain finance holdings , l.l.c . ( “ nmf holdings ” or the `` predecessor operating company '' ) , is a delaware limited liability company whose assets are used to secure nmf holdings ' credit facility . nmf ancora holdings inc. ( `` nmf ancora '' ) , nmf qid ngl holdings , inc. ( “ nmf qid ” ) and nmf yp holdings inc. ( `` nmf yp '' ) , our wholly-owned subsidiaries , are structured as delaware entities that serve as tax blocker corporations which hold equity or equity-like investments in portfolio companies organized as limited liability companies ( or other forms of pass-through entities ) . we consolidate our tax blocker corporations for accounting purposes . the tax blocker corporations are not consolidated for income tax purposes and may incur income tax expense as a result of their ownership of the portfolio companies . additionally , our wholly-owned subsidiary , new mountain finance servicing , l.l.c . ( `` nmf servicing '' ) serves as the administrative agent on certain investment transactions . new mountain finance sbic l.p. ( `` sbic i '' ) and its general partner , new mountain finance sbic g.p. , l.l.c . ( `` sbic i gp '' ) , are organized in delaware as a limited partnership and limited liability company , respectively . during the year ended december 31 , 2017 , new mountain finance sbic ii , l.p. ( “ sbic ii '' ) and its general partner , new mountain finance sbic ii g.p. , l.l.c . ( “ sbic ii gp ” ) , were organized in delaware as a limited partnership and limited liability company , respectively . sbic i , sbic i gp , sbic ii and sbic ii gp are our consolidated wholly-owned direct and indirect subsidiaries . story_separator_special_tag critical accounting policies the preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the united states of america ( `` gaap '' ) 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 revenues and expenses during the periods reported . actual results could materially differ from those estimates . we have identified the following items as critical accounting policies . basis of accounting we consolidate our wholly-owned direct and indirect subsidiaries : nmf holdings , nmf servicing , nmnlc , sbic i , sbic i gp , sbic ii , sbic ii gp , nmf ancora , nmf qid and nmf yp . we are an investment company following accounting and reporting guidance as described in accounting standards codification topic 946 , financial services—investment companies , ( `` asc 946 '' ) . valuation and leveling of portfolio investments at all times consistent with gaap and the 1940 act , we conduct a valuation of assets , which impacts our net asset value . we value our assets on a quarterly basis , or more frequently if required under the 1940 act . in all cases , our board of directors is ultimately and solely responsible for determining the fair value of our portfolio investments on a quarterly basis in good faith , including investments that are not publicly traded , those whose market prices are not readily available and any other situation where our portfolio investments require a fair value determination . security transactions are accounted for on a trade date basis . our quarterly valuation procedures are set forth in more detail below : ( 1 ) investments for which market quotations are readily available on an exchange are valued at such market quotations based on the closing price indicated from independent pricing services . ( 2 ) investments for which indicative prices are obtained from various pricing services and or brokers or dealers are valued through a multi-step valuation process , as described below , to determine whether the quote ( s ) obtained is representative of fair value in accordance with gaap . 57 a. bond quotes are obtained through independent pricing services . internal reviews are performed by the investment professionals of the investment adviser to ensure that the quote obtained is representative of fair value in accordance with gaap and if so , the quote is used . if the investment adviser is unable to sufficiently validate the quote ( s ) internally and if the investment 's par value or its fair value exceeds the materiality threshold , the investment is valued similarly to those assets with no readily available quotes ( see ( 3 ) below ) ; and b. for investments other than bonds , we look at the number of quotes readily available and perform the following procedures : i. investments for which two or more quotes are received from a pricing service are valued using the mean of the mean of the bid and ask of the quotes obtained ; ii . investments for which one quote is received from a pricing service are validated internally . the investment professionals of the investment adviser analyze the market quotes obtained using an array of valuation methods ( further described below ) to validate the fair value . if the investment adviser is unable to sufficiently validate the quote internally and if the investment 's par value or its fair value exceeds the materiality threshold , the investment is valued similarly to those assets with no readily available quotes ( see ( 3 ) below ) . ( 3 ) investments for which quotations are not readily available through exchanges , pricing services , brokers , or dealers are valued through a multi-step valuation process : a. each portfolio company or investment is initially valued by the investment professionals of the investment adviser responsible for the credit monitoring ; b. preliminary valuation conclusions will then be documented and discussed with our senior management ; c. if an investment falls into ( 3 ) above for four consecutive quarters and if the investment 's par value or its fair value exceeds the materiality threshold , then at least once each fiscal year , the valuation for each portfolio investment for which we do not have a readily available market quotation will be reviewed by an independent valuation firm engaged by our board of directors ; and d. when deemed appropriate by our management , an independent valuation firm may be engaged to review and value investment ( s ) of a portfolio company , without any preliminary valuation being performed by the investment adviser . the investment professionals of the investment adviser will review and validate the value provided . for investments in revolving credit facilities and delayed draw commitments , the cost basis of the funded investments purchased is offset by any costs/netbacks received for any unfunded portion on the total balance committed . the fair value is also adjusted for the price appreciation or depreciation on the unfunded portion . as a result , the purchase of a commitment not completely funded may result in a negative fair value until it is called and funded . the values assigned to investments are based upon available information and do not necessarily represent amounts which might ultimately be realized , since such amounts depend on future circumstances and can not be reasonably determined until the individual positions are liquidated . due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value , the fair value of our investments may fluctuate from period to period and the fluctuations could be material . gaap fair value measurement guidance classifies the inputs used in measuring fair value into three levels as follows : level i—quoted prices ( unadjusted ) are available in active markets for identical investments and we have the ability to access such quotes as of the reporting date .
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results of operations under gaap , our ipo did not step-up the cost basis of the predecessor operating company 's existing investments to fair market value at the ipo date . since the total value of the predecessor operating company 's investments at the time of the ipo was greater than the investments ' cost basis , a larger amount of amortization of purchase or original issue discount , and different amounts in realized gain and unrealized appreciation , may be recognized under gaap in each period than if the step-up had occurred . this will remain until such predecessor investments are sold , repaid or mature in the future . we track the transferred ( or fair market ) value of each of the predecessor operating company 's investments as of the time of the ipo and , for purposes of the incentive fee calculation , adjusts income as if each investment was purchased at the date of the ipo ( or stepped up to fair market value ) . the respective `` adjusted net investment income '' ( defined as net investment income adjusted to reflect income as if the cost basis of investments held at the ipo date had stepped-up to fair market value as of the ipo date ) is used in calculating both the incentive fee and dividend payments . as of december 31 , 2017 , all predecessor investments have been sold or matured . see item 8.—financial statements and supplementary data—note 5. agreements for additional details . the following table for the year ended december 31 , 2017 is adjusted to reflect the step-up to fair market value and the allocation of the incentive fees related to hypothetical capital gains out of the adjusted post-incentive fee net investment income .
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our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors , including those discussed in the section entitled “ risk factors ” and in other parts of this annual report on form 10-k. overview we are a biopharmaceutical company dedicated to the development of innovative therapeutics for neurotology . we pioneered the application of drug delivery technology to the ear in order to develop products that achieve sustained drug exposure from a single local administration . this approach is covered by a broad patent estate and is being utilized to develop a pipeline of products addressing important unmet medical needs including ménière 's disease , hearing loss and tinnitus . otividex is a steroid in development for the treatment of ménière 's disease . two phase 3 trials in ménière 's disease patients were completed in the second half of 2017. the averts-2 trial , conducted in europe , achieved its primary endpoint ( p value = 0.029 ) , while the averts-1 trial , conducted in the united states , did not ( p value = 0.62 ) . based on a type c meeting with the fda , we believe that one additional successful pivotal trial is sufficient to support the u.s. registration of otividex in ménière 's disease . we are enrolling patients in a phase 3 trial for ménière 's disease with results expected in the first half of 2020. gacyclidine is a potent and selective n-methyl-d-aspartate ( nmda ) receptor antagonist in development for the treatment of tinnitus . a phase 1 clinical safety trial has been successfully completed using oto-311 , a poloxamer-based formulation of gacyclidine , with no safety concerns observed . we have shifted development to oto-313 , an alternative formulation of gacyclidine that has improved properties compared to oto-311 . we expect to initiate a phase 1/2 clinical trial for oto-313 in tinnitus patients in the second quarter of 2019 with top-line results available in the first half of 2020. oto-413 is a sustained exposure formulation of brain-derived neurotrophic factor ( bdnf ) in development for the repair of cochlear synaptopathy , an underlying pathology in age-related and noise-induced hearing loss that manifests as speech-in-noise hearing difficulty ( problem understanding speech in a noisy setting ) . we expect to initiate a phase 1/2 clinical trial for oto-413 in hearing loss patients in the third quarter of 2019 with top-line results available in the second half of 2020. oto-510 is a sustained-exposure formulation of an undisclosed small molecule otoprotectant in development for the prevention of cisplatin induced hearing loss ( cihl ) . cihl is an important unmet medical need with no approved therapies and approximately 500,000 patients including 5,000 children undergoing chemotherapy with ototoxic platinum-based agents each year in the united states . we expect to initiate activities to support an investigational new drug application ( ind ) for oto-510 in cihl the regeneration of cochlear hair cells is an active area of research in the neurotology field because of its potential to improve hearing function in patients with severe loss . in our oto-6xx program , we have demonstrated regeneration of hair cells in a nonclinical proof-of-concept model using a class of small molecules formulated for sustained-exposure local delivery , and have selected a lead compound for development . in addition , we developed , received fda approval for and commercially launched otiprio ® ( ciprofloxacin otic suspension ) for use during tympanostomy tube placement ( ttp ) surgery in pediatric patients . otiprio was also approved by the fda for the treatment of acute otitis externa ( aoe ) . we have entered into a partnership with privately held mission pharmacal company ( mission ) to support the promotion of otiprio for the treatment of aoe in pediatrician and primary care physician offices as well as urgent care clinics in the united states . 63 we have a limited operating history . since our inception in 2008 , we have devoted substantially all our efforts to developing and commercializing otiprio , developing our current product candidates , and providing general and administrative support for these operations . as of december 31 , 2018 , we had cash , cash equivalents and short-term investments of $ 97.3 million . we have never been profitable , and as of december 31 , 2018 , we had an accumulated deficit of $ 415.2 million . our net losses were $ 50.4 million , $ 90.1 million and $ 110.6 million for the years ended december 31 , 2018 2017 and 2016 , respectively . substantially all our net losses have resulted from research and development expenses related to our clinical trials and product development activities , commercialization expenses to launch otiprio in the u.s. market , and other general and administrative expenses . we expect to continue to incur significant expenses and operating losses for the foreseeable future as we continue to develop , seek regulatory approval , and , if approved , commercialize our product candidates . in the near term , we anticipate our expenses will continue to be substantial as we : conduct clinical development of otividex ; conduct nonclinical and clinical development of oto-313 , oto-413 and oto-510 ; contract to manufacture our product candidates ; evaluate opportunities for development of additional product candidates ; maintain and expand our intellectual property portfolio ; hire additional staff as necessary to execute our product development plan ; and operate as a public company . we will require additional financing to complete the development of and , if approved , commercialize , otividex , oto-313 , oto-413 and any other product candidates . we believe we will continue to expend substantial resources for the foreseeable future for the development of otividex , oto-313 , oto-413 and any other product candidates we may choose to pursue . these expenditures will include costs associated with marketing and selling any products approved for sale , manufacturing , preparing regulatory submissions , and conducting nonclinical studies and clinical trials . story_separator_special_tag similarly , otiprio manufacturing equipment was impaired in 2017. these expenses were recorded in cost of product sales on the statement of operations . research and development expenses our research and development expenses primarily consist of costs associated with the nonclinical and clinical development of our product candidates and the development of otiprio for additional indications . 65 our research an d development expenses include : employee-related expenses , including salaries , benefits , travel and stock-based compensation expense ; external development expenses incurred under arrangements with third parties , such as fees paid to contract research organizations ( cros ) in connection with nonclinical studies and clinical trials , costs of acquiring and evaluating clinical trial data such as investigator grants , patient screening fees , laboratory work and statistical compilation and analysis , and fees paid to consultants and our scientific advisory board ; costs to acquire , develop and manufacture clinical trial materials , including fees paid to contract manufacturers ; payments related to licensed product candidates and technologies ; costs related to compliance with drug development regulatory requirements ; and facilities , depreciation and other allocated expenses , which include direct and allocated expenses for rent and maintenance of facilities , depreciation of leasehold improvements and equipment , and laboratory and other supplies . we expense our internal and third-party research and development expenses as incurred . the following table summarizes our research and development expenses ( in thousands ) for otiprio and our product candidates : replace_table_token_1_th we expect our research and development expenses to continue to be substantial for the foreseeable future as we advance our product candidates through their respective development programs . the process of conducting nonclinical studies and clinical trials necessary to obtain regulatory approval is costly and time consuming . we may never succeed in achieving regulatory approval for our product candidates . the probability of success will be affected by numerous factors , including nonclinical data , clinical data , competition , manufacturing capability and commercial viability . we are responsible for all of the research and development costs for our programs . completion dates and completion costs can vary significantly for each of our clinical development programs and are difficult to predict . we therefore can not estimate with any degree of certainty the costs we will incur in connection with development of our product candidates . we anticipate that we will make determinations as to which programs and product candidates to pursue and how much funding to direct to each program and product candidate on an ongoing basis in response to the results of ongoing and future clinical trials , regulatory developments , and our ongoing assessments as to each current or future product candidate 's commercial potential . we may need to raise substantial additional capital in the future to complete the development of and , if approved , commercialize , our product candidates . we may enter into collaborative agreements in the future in order to conduct clinical trials and gain regulatory approval of our product candidates , particularly in markets outside of the united states . we can not forecast which programs or product candidates may be subject to future collaborations , when such arrangements will be secured , if at all , and to what degree such arrangements would affect our development plans and overall capital requirements . 66 the costs of clinical trials may vary significantly over the life of a program owing to t he following : per patient trial costs ; the number of sites included in the trials ; the countries in which the trials are conducted ; the length of time required to enroll eligible patients ; the number of patients that participate in the trials ; the number of doses that patients receive ; the drop-out or discontinuation rates of patients ; potential additional safety monitoring or other studies requested by regulatory agencies ; the duration of patient follow-up ; the phase of development of the product candidate ; and the efficacy and safety profile of the product candidate . selling , general and administrative expenses our selling , general and administrative expenses consist primarily of employee-related expenses , including salaries , benefits , travel and stock-based compensation expense , as well as other related costs for our employees and consultants in executive , administrative , finance and human resource functions . other selling , general and administrative expenses include facility-related costs not otherwise included in research and development , costs associated with prosecuting and maintaining our patent portfolio and corporate legal expenses , costs required for public company activities and infrastructure necessary for the general conduct of our business , and otiprio product support expenses and profit-sharing fees payable to mission , which are reduced by payments received from mission under the co-promotion agreement . we expect our selling , general and administrative expenses to be substantial as we support development of our product candidates , and as we incur ongoing expenses related to audit , legal , regulatory , and tax-related services associated with maintaining compliance with stock exchange listing and sec requirements , director 's and officer 's liability insurance premiums , and investor relations-related expenses . other income other income primarily consists of interest income earned on cash and cash equivalents and short-term investments . critical accounting policies and significant judgments and estimates our financial statements are prepared in accordance with generally accepted accounting principles in the united states of america . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities , and expenses and the disclosure of contingent assets and liabilities in our financial statements . on an ongoing basis , we evaluate our estimates and assumptions , including those related to net product sales , accrued expenses and stock-based compensation .
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results of operations comparison of the years ended december 31 , 2018 and 2017 the following table sets forth the significant components of our results of operations for the years ended december 31 , 2018 and 2017 ( in thousands ) : replace_table_token_2_th product sales , net . otiprio is sold in the united states upon delivery to our network of specialty distributors who fill orders received from hospitals , ambulatory surgery centers and physician offices , who are the primary end user customers of otiprio . net product sales represent revenues for otiprio sold to our distributors during this period . product sales are recorded net of estimated chargebacks , government rebates and distributor fees . cost of product sales . cost of product sales in 2018 is less than cost of product sales in 2017 primarily due to a 2017 write-down of excess inventory of $ 1.5 million , and an impairment of otiprio manufacturing equipment of $ 0.4 million . research and development expenses . the decrease of $ 10.9 in research and development expenses resulted from decreased spending for a number of activities including : ( i ) a net $ 10.5 million decrease in otividex clinical trial and development costs due to the completion and early termination of our otividex clinical trials in 2017 , which was partially offset by an increase in clinical trial costs from the otividex phase 3 trial initiated in the third quarter of 2018 ; ( ii ) a $ 2.2 million decrease in otiprio related expenses mainly due to costs incurred in 2017 related to filing our otiprio supplemental new drug application for aoe ; ( iii ) a decrease of $ 2.6 million in other research and development costs , including professional services ; and ( iv ) a $ 1.7 million decrease in personnel costs , including stock-based compensation expense , due to a reduction in headcount .
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the convertible notes bear interest at a rate of 6.5 % per year , payable semi-annually in arrears on february 15th and august 15th of each year . the convertible notes mature on august story_separator_special_tag story_separator_special_tag ottom:0px '' > 22 restructuring and impairment charges increased significantly in 2012 compared with 2011. the primary driver of the impairment charges taken against goodwill and property , plant and equipment in the current year was the decline in profitability of our solar pastes business and the related impact on the forecast for electronic materials . in addition to the impacts related to electronic materials , we continued to aggressively liquidate our portfolio of real estate related to idled facilities that is classified as held for sale , which drove incremental impairment charges during the year . our idled facilities are principally located in europe , which continued to experience difficult economic conditions . idled assets in france , the netherlands and the u.s. were sold in 2012. the restructuring charges incurred in 2012 primarily related to our performance coatings business in europe and the disposal of the leased corporate aircraft . interest expense interest expense in 2012 did not change significantly from 2011. the components of interest expense are as follows : replace_table_token_7_th income tax expense in 2012 , income tax expense was $ 109.5 million , while in the prior year , we recorded income tax expense of $ 19.3 million . the current year tax expense was driven by a $ 182.7 million charge to increase the valuation allowances to more accurately measure the portion of the deferred tax assets that more likely than not will be realized , a $ 4.1 million charge related to the expiration of certain tax credits , and the tax impact of the goodwill impairment . the prior year expense was also affected by an $ 11.3 million charge to increase the valuation allowances related to deferred tax assets . comparison of the years ended december 31 , 2011 and 2010 for the year ended december 31 , 2011 , ferro net income was $ 5.1 million , compared with net income of $ 15.4 million in 2010. for the year ended december 31 , 2011 , ferro net income attributable to common shareholders was $ 4.2 million , or $ 0.05 per share , reflecting $ 0.2 million of preferred stock dividends , compared with ferro net income attributable to common shareholders of $ 13.2 million , or $ 0.15 per share , reflecting $ 0.7 million of preferred stock dividends , in 2010. net sales replace_table_token_8_th 23 net sales increased by 2.6 % in the year ended december 31 , 2011 , compared with the prior year . changes in product prices and mix , together with changes in foreign currency exchange rates , were the primary drivers of the increased sales . increased sales of precious metals , driven by higher prices for silver , also contributed to the overall sales growth . lower sales volume had a negative effect on sales , particularly in the electronic materials segment . the lower sales volume also was the result of decisions we made in 2010 to exit certain markets served by the color and glass performance materials and electronic materials segments . for the year , changes in product prices and mix accounted for approximately 10 % of sales growth , and changes in foreign currency exchange rates contributed an additional 2 % to higher sales . lower sales volume reduced sales by approximately 9 % . higher precious metal prices contributed approximately 1 % to the overall sales increase during the year , including effects from changes in volume and prices of the precious metals . gross profit gross profit declined during 2011 primarily as a result of reduced sales volume of conductive pastes used in solar cell applications . in addition , increased raw material costs and product mix changes combined to reduce gross profit or to limit the growth in gross profit in certain business segments where sales increased . in aggregate , raw material costs increased by approximately $ 113 million during 2011 and these increased costs were offset by increased product prices . gross profit percentage declined to 19.1 % of net sales from 21.8 % of net sales in the prior-year period . charges that were primarily related to residual costs at closed manufacturing sites involved in earlier restructuring initiatives reduced gross profit by $ 4.8 million during 2011. gross profit was reduced by charges of $ 9.0 million during 2010 , primarily due to costs related to manufacturing rationalization activities . selling , general and administrative expense selling , general and administrative ( sg & a ) expenses were $ 335.3 million in 2011 and $ 279.7 million in 2010 , $ 55.6 million higher in 2011 compared with 2010. as a percentage of net sales , sg & a expenses increased 2.3 % to 15.6 % in 2011 , compared with 13.3 % in 2010. the most significant driver of the increase in sg & a expenses in 2011 was a result of the retrospective application of the change in accounting principle that was elected during the third quarter of 2012 , under which we now recognize actuarial gains and losses on our defined benefit pension and other postretirement benefit plans in the year in which the gains or losses occur . also contributing to the increase from 2010 were increased costs related to an initiative to streamline and standardize business processes and improve management information systems tools , unfavorable foreign currency exchange impacts , costs at idled sites that were closed as part of historical restructuring actions , and higher stock-based compensation expense . story_separator_special_tag partially offsetting the favorable impact of price on gross margin were slightly higher raw material costs in 2012 compared with 2011. sg & a expenses were down approximately $ 1 million in 2012 compared with 2011. pharmaceuticals replace_table_token_17_th sales in pharmaceuticals declined in 2012 compared with 2011 due to changes in product pricing and mix . additionally , pharmaceuticals incurred higher manufacturing costs in 2012 , which negatively impacted gross profit and segment income . 27 replace_table_token_18_th the primary driver of the decrease in net sales , both in the united states and in international regions , was the underperformance of electronic materials . electronic materials net sales were down approximately $ 329 million in 2012 compared with 2011 , of which approximately $ 264 million was in the united states and approximately $ 65 million was in international regions , principally asia-pacific . the decline in electronic materials in the united states was partially mitigated by higher sales in color and glass performance materials . in addition to the impact of electronic materials , the balance of the international sales decline was due to lower sales emanating from europe in other segments . sales that are recorded in each region include products exported to customers located in other regions . comparison of the years ended december 31 , 2011 and 2010 electronic materials replace_table_token_19_th sales declined in electronic materials primarily as a result of reduced demand for conductive pastes used in solar cell applications . the decline in demand for these products was a consequence of lower end-market demand and excess inventory of completed solar power modules . due to the excess inventory and reduced demand , solar cell production was significantly reduced by our customers . we decided to exit the market for commodity dielectric materials during 2010. as a result , the absence of sales of these products in 2011 also contributed to the lower sales volume in electronic materials during the year . lower sales volume reduced sales by approximately $ 124 million compared with the prior year . changes in product pricing and mix offset approximately $ 60 million of the sales decline during the year , and changes in foreign currency exchange rates increased sales by an additional $ 12 million . sales of precious metals increased by $ 12 million within the electronic materials business , including the effects of increased metal prices and reduced sales volume . the costs of precious metals are passed through to our customers as an element of our product prices . sales of products produced in the u.s. and europe declined , while sales of products produced in asia increased during 2011. operating income declined primarily due to a $ 53 million reduction in gross profit driven by the lower sales volume of conductive pastes , which was only partially offset by increased sales volume of other electronic materials products . performance coatings replace_table_token_20_th 28 sales increased in performance coatings primarily due to higher product prices and changes in foreign currency exchange rates , partially offset by reduced sales volume . the higher product prices were largely due to higher raw material costs compared with the prior year . changes in product prices and mix accounted for approximately $ 49 million of the sales growth during the year . changes in foreign currency exchange rates added an additional $ 15 million to the sales growth . lower sales volume offset approximately $ 16 million of the growth in sales . sales increased in the europe-middle east-africa region , with additional sales growth contributions from latin america , the u.s. , and asia-pacific . operating profit increased as a result of an approximately $ 3 million increase in gross profit . color and glass performance materials replace_table_token_21_th sales increased in color and glass performance materials as a result of higher product prices , changes in product mix and changes in foreign currency exchange rates . partially offsetting the increases was a decline in sales volume . sales volume of certain metal oxide products was curtailed as a result of the closing of a manufacturing plant in portugal , and sales volume was also lower due to reduced precious metal preparations sales as a result of a business divestiture during 2010. changes in product prices and mix increased sales by approximately $ 38 million , and changes in foreign currency exchange rates contributed an additional $ 14 million to sales growth during the year . lower sales volume reduced sales growth by approximately $ 38 million . the sales growth was primarily driven by increased sales in europe-middle east-africa . operating profit increased as a result of a $ 4 million increase in gross profit . the increase in gross profit was driven by the benefits from manufacturing rationalization activities completed in prior periods . during the second half of 2011 , both gross profit and sg & a expenses were negatively impacted by costs associated with consolidating production from a plant in austria to one of our existing plants in germany . polymer additives replace_table_token_22_th sales increased in polymer additives primarily as a result of higher product prices . the higher product prices largely reflected higher raw material costs compared with the prior year . changes in product prices and mix increased sales by approximately $ 37 million during 2011. changes in foreign currency exchange rates increased sales by approximately $ 4 million , while lower sales volume reduced sales by $ 6 million . sales increased in the u.s. and europe-middle east-africa , the primary regions where we market our polymer additives . operating income declined as a result of a $ 3 million decline in gross profit caused by changes in product mix , increased manufacturing costs , and increased sg & a expense , which was approximately $ 1 million unfavorable to the prior year . 29 specialty plastics replace_table_token_23_th sales increased in specialty plastics primarily as a result of changes in product prices and mix , which were partially offset by the effects of lower sales volume .
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overview during 2012 , we experienced continued decline in the performance of our electronic materials segment , specifically our solar pastes , metal powders and surface finishing products businesses , which ultimately led us to begin exploring strategic options for the solar pastes business during the third quarter of 2012. we also 20 experienced weak demand in europe , with our color and glass performance materials , performance coatings and polymer additives segments the most significantly impacted . on february 6 , 2013 , we sold assets related to solar pastes and exited the product line . to further address the challenges that we are facing , in the second quarter of 2012 , we initiated cost cutting initiatives to reduce the cost structure of the performance coatings business in europe . we have also taken action to improve electronic materials results through actions to restructure the management team and significantly reduce operating costs . additionally , we have announced cost savings initiatives that are aimed at driving efficiencies across our global footprint . we expect to achieve $ 25 million to $ 30 million of cost savings in 2013 and more than $ 50 million in 2014 through a combination of improved manufacturing efficiency and consolidation of certain global commercial and support functions .
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as a result of the business combination , ( i ) wsc 's consolidated financial results for periods prior to november 29 , 2017 reflect the financial results of williams scotsman international , inc. ( “ wsii ” ) and its consolidated subsidiaries , as the accounting predecessor to wsc , and ( ii ) for periods from and after this date , wsc 's financial results reflect those of wsc and its consolidated subsidiaries ( including wsii and its subsidiaries ) as the successor following the business combination . we use certain non-gaap financial information that we believe is important for purposes of comparison to prior periods and development of future projections and earnings growth prospects . this information is also used by management to measure the profitability of our ongoing operations and analyze our business performance and trends . reconciliations of non-gaap measures are provided in item 6 or where presented . executive summary as of december 31 , 2017 , our branch network included over 100 locations and additional drop lots to better service our more than 35,000 customers across the united states , canada , and mexico . we offer our customers an extensive selection of “ ready to work ” modular space and portable storage solutions with over 75,000 modular space units and over 19,000 portable storage units in our fleet . in 2017 , we completed a series of strategic transactions including the acquisition of the williams scotsman family of companies transforming wsc into an independent public corporation and acquired a leading national competitor , positioning us as a clear market leader in the modular space and portable storage solutions markets . through these actions , we have continued to focus on our core priorities of growing modular leasing revenues by increasing modular space units on rent and delivering “ ready to work ” solutions to our customers with vaps , as well as focusing on continually improving the overall customer experience . for the year ended december 31 , 2017 , key drivers of financial performance include : increased total revenues by $ 19.3 million , or 4.5 % increased the modular - us segment revenues which represents 88.1 % of 2017 revenue , by $ 27.4 million , or 7.5 % , through : – average modular space monthly rental rate growth of 7.6 % to $ 538 through increases both in the price of our units , as well as increased vaps pricing and penetration – increased average modular space units on rent by nearly 800 units , or 2.2 % – these increases in average units on rent drove average modular space monthly utilization up by 190 basis points ( “ bps ” ) during the year to 73.9 % with positive momentum exiting the year averaging 75.0 % in the fourth quarter decreased total revenues of $ 8.3 million , or 13.4 % in the the modular - other north america segment which represents 12.0 % of 2017 , driven primarily by a single project that reached completion in july 2016. the completion of this project drove $ 10.2 million of the revenue decline , and contributed to decreases in the following metrics : – average modular space monthly rental rate declined 22.3 % to $ 532 – average modular space units on rent declined by 331 units , or 6.1 % for the year , however the segment experienced positive momentum during 2017 with average modular space units on rent in the fourth quarter up 427 units , or 8.6 % year over year – average modular space monthly utilization decreased by 260 bps during the year to 52.2 % , but had utilization of 55.8 % in the fourth quarter generated combined adjusted ebitda of $ 123.9 million between the modular - us segment and the modular - other north america segment , which was reduced by $ 15.1 million to $ 108.8 million consolidated adjusted ebitda as a result of corporate & other selling , general and administrative costs related to the algeco group 's corporate costs incurred prior to , or in connection with , the business combination . these corporate costs are considered discrete costs in 2017. secured long-term financing that positions us well relative to other us modular space competitors to pursue organic and inorganic growth opportunities , such as the acquisition of acton mobile . 41 business environment and outlook our customers operate in a diversified set of end markets , including commercial and industrial , construction , education , energy and natural resources , government and other end-markets . we track several market leading indicators including those related to our two largest end markets , the commercial and industrial segment and the construction segment , which collectively accounted for nearly 80 % of our revenues in the year ended december 31 , 2017 . market fundamentals underlying these markets are currently favorable , and we expect continued modest market growth in the next several years . current events , such as tax reform , discussions of increased infrastructure spending , and rebuilding in areas impacted by natural disasters in 2017 across the united states also provide us confidence in continued demand for our products . although only 12.0 % of our revenues for the year ended december 31 , 2017 were from the modular - other north america segment , markets in canada , including alaska , and mexico , appear to have stabilized from the declines experienced over the last several years related to the energy markets . however , competitive pressures in these markets may continue to depress pricing given current levels of supply in the market until utilization across the industry improves . tax reform impact on business outlook on december 22 , 2017 , the us government enacted comprehensive tax legislation , commonly referred to as the tax cuts and jobs act ( “ tax act ” ) . story_separator_special_tag we intend to grow the business by continuing to improve the quality , delivery and service of our products and by continuing to introduce new and innovative products and services that complement our core offering to the most attractive industry and geographic end-markets . optimizing cash flow through strategic deployment of capital and operational efficiencies . we have implemented a number of lease fleet management initiatives designed to improve operations and increase profitability , efficiency and operating leverage . we maintain a disciplined focus on our return on capital . as part of this discipline , we diligently consider the potential returns and opportunity costs associated with each investment we make . we continually assess both our existing lease fleet and customer demand for opportunities to deploy capital more efficiently . we manage our maintenance capital expenditures as well as growth capital expenditures to best fit the economic conditions at the time . within our existing lease fleet , we examine the potential cash and earnings generation of an asset sale versus continuing to lease the asset . in addition , we examine the relative benefits of organic expansion opportunities versus expansion through acquisition to obtain a favorable return on capital . we have a proven track record of efficiently integrating acquisitions and quickly eliminating operational redundancies , while maintaining acquired customer relationships . leveraging scale via acquisitions . the us market for modular space and portable storage solutions is highly fragmented , with approximately 60 % of the market supplied by regional and local competitors . we have the broadest network of operating branches in north america , as well as a highly scalable corporate center and management information systems , which positions us well to acquire and integrate other companies . we intend to pursue acquisitions that will provide immediate increased scale efficiencies to our platform , allowing us to improve returns generated by the acquired assets . our acquisition strategy could require substantial additional equity and debt financing . factors affecting our business natural disasters in the third quarter of 2017 , there were several natural disasters in the united states and mexico , including hurricane harvey , hurricane irma , hurricane maria and an earthquake in mexico city . we were not significantly impacted by hurricane maria or the earthquake in mexico . due to our risk management program , hurricane harvey and hurricane irma , as well as other natural disasters , are not expected to have a materially adverse impact on our financial position . we expect that the property losses , incremental costs and lost revenues associated with the third quarter 's natural disasters will be fully covered under our insurance policies . components of our consolidated historical results of operations revenue our revenue consists mainly of leasing , services and sales revenue . we derive our leasing and services revenue primarily from the leasing of modular space and portable storage units . included in modular leasing revenue are vaps , such as rentals of steps , ramps , furniture , air conditioners , wireless internet access points , damage waivers and service plans . modular delivery and installation revenue includes fees that we charge for the delivery , setup , knockdown and pick-up of leasing equipment to and from customers ' premises and repositioning leasing equipment . wsii 's former remote accommodations leasing and services revenue , which were carved out in connection with the business combination and are not part of our business , were comprised of the leasing and operation of its remote workforce accommodations where it provided housing , catering and transportation to meet its customers ' requirements . 43 the key drivers of changes in our leasing revenue are : the number of units in our modular lease fleet ; the average utilization rate of our modular lease units ; and the average monthly rental rate per unit , including vaps . the average utilization rate of our modular lease units is the ratio of ( i ) the average number of units in use during a period ( which includes units from the time they are leased to a customer until the time they are returned to us ) to ( ii ) the average total number of units available for lease in our modular fleet during a period . our average monthly rental rate per unit for a period is equal to the ratio of ( i ) our rental income for that period including vaps but excluding delivery and installation services , to ( ii ) the average number of modular lease units rented to our customers during that period . the table below sets forth the average number of units on rent in our modular lease fleet , the average utilization of our modular lease units , and the average monthly rental rate per unit , including vaps : replace_table_token_26_th in addition to leasing revenue , we also generate revenue from sales of new and used modular space and portable storage units to our customers , as well as delivery , installation , maintenance , removal services and other incidental items related to accommodations services for our customers . included in our sales revenue are charges for modifying or customizing sales equipment to customers ' specifications . gross profit we define gross profit as the difference between total revenue and cost of revenue . cost of revenues associated with our leasing business includes payroll and payroll-related costs for branch personnel , material and other costs related to the repair , maintenance , storage and transportation of rental equipment . cost of revenues associated with wsii 's former remote accommodations business include the costs of running its owned and operated facilities , such as employee costs , catering , transportation , occupancy and other facilities and services costs . cost of revenue also includes depreciation expense associated with our rental equipment and wsii 's former remote accommodations equipment . cost of revenues associated with our new unit sales business includes the cost to purchase , assemble , transport and customize units that are sold .
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business segment results years ended december 31 , 2017 , 2016 and 2015 replace_table_token_28_th 49 replace_table_token_29_th replace_table_token_30_th modular - us segment comparison of years ended december 31 , 2017 and 2016 revenue : total revenue increased $ 27.4 million , or 7.5 % , to $ 392.9 million for the year ended december 31 , 2017 from $ 365.5 million for the year ended december 31 , 2016 . modular leasing revenue increased $ 26.1 million , or 11.0 % , driven by improved pricing and volumes . average modular space monthly rental rates in the modular - us segment increased 7.6 % for the year ended december 31 , 2017 , and average modular space units on rent increased nearly 800 units , or 2.2 % , resulting in utilization improvements of 190 bps on our modular space fleet . improved pricing was driven by a combination of our price optimization tools and processes , as well as by continued growth in our “ ready to work ” solutions and increased vaps penetration across our customer base . improved volumes were driven by a 5.1 % increase in modular space deliveries during the year , and due to a partial month of units on rent acquired as part of the acton acquisition that closed on december 20 , 2017. modular delivery and installation revenues increased $ 6.6 million , or 8.9 % , due to the increased delivery volumes and due to higher pricing per transaction as compared to 2016. new unit sales revenue decreased $ 5.5 million , or 15.8 % as a result of a continued strategic shift away from this revenue stream in order to focus our sales team on pursuing recurring rental revenue streams . rental unit sales revenue increased $ 0.2 million , or 1.1 % , offsetting a portion of the decrease .
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furthermore , it is still too early to understand the impact , if any , of mers ( middle east respiratory syndrome ) on consumer spending in asia , including the impact on tourism in the region . within the u.s. , a prolonged and tough winter season impacted demand during the first half of calendar 2015 , however certain limited and recent factors within the u.s. , including an improvement in the labor market and modest growth in overall consumer spending , suggest a potential moderate strengthening in the u.s. economic outlook . it is still , however , too early to understand what kind of sustained impact this will have on consumer discretionary spending . if the global macroeconomic environment remains volatile or worsens , the constrained level of worldwide consumer spending and modified consumption behavior may continue to have a negative effect on our outlook . we will continue to monitor these risks and trends and evaluate and adjust our operating strategies and cost management opportunities to mitigate the related impact on our results of operations , while remaining focused on the long-term growth of our business and protecting the value of our brands . as discussed in part i , item 1 - `` business '' and as part of our transformation plan as described in note 3 , `` transformation and other actions , '' in fiscal 2015 , we have reduced the number of retail stores and total square footage within north america , as we continue to optimize our real estate position . we expect this trend to continue in the next fiscal year with the anticipated closure of approximately 15-20 north america retail stores in fiscal 2016 , attributable to our transformation plan . we expect to continue to see modest to no growth in north america outlet store square footage as we continue to optimize our real estate position across channels by expanding our most productive stores to accommodate a broader expression of lifestyle assortment while continuing to assess opportunities to close under-performing stores . within our international segment , we are expecting to reflect modest growth in our store count over the next few years , particularly within mainland china and europe . lastly , within stuart weitzman , we are expecting modest growth in our real estate position over the next year . for a detailed discussion of significant risk factors that have the potential to cause our actual results to differ materially from our expectations , see part i , item 1a - `` risk factors '' included in this annual report on form 10-k. 30 summary — fiscal 2015 in fiscal 2015 , coach , inc. reported net sales of $ 4.19 billion ( including $ 43.0 million attributable to the stuart weitzman brand ) , net income of $ 402.4 million and net income per diluted share of $ 1.45 . this compares to net sales of $ 4.81 billion , net income of $ 781.3 million , and net income per diluted share of $ 2.79 in fiscal 2014 . in fiscal 2015 , the comparability of our operating results has been affected by $ 145.9 million of pretax charges ( $ 107.8 million after tax , or $ 0.39 per diluted share ) related to our transformation plan , $ 24.6 million of pretax charges ( $ 21.0 million after tax , or $ 0.08 per diluted share ) related to acquisition charges associated with the stuart weitzman brand . these fiscal 2015 actions taken together increased the company 's selling , general and administrative ( `` sg & a '' ) expenses by $ 160.8 million and cost of sales by $ 9.7 million , negatively impacting net income by $ 128.8 million , or $ 0.47 per diluted share . in fiscal 2014 , the comparability of our operating results was affected by $ 131.5 million of pretax charges ( $ 88.3 million after tax or $ 0.31 per diluted share ) related to our transformation plan . these fiscal 2014 actions increased the company 's sg & a expenses by $ 49.3 million and cost of sales by $ 82.2 million , negatively impacting net income by $ 88.3 million , or $ 0.31 per diluted share . our operating performance for fiscal 2015 reflected a decline in net sales of 12.8 % , primarily due to our north america business partially offset by a $ 43.0 million contribution from the stuart weitzman brand . excluding the effects of foreign currency , net sales decreased 10.6 % . our gross profit decreased by 11.8 % to $ 2.91 billion during fiscal 2015 which included the negative impact of charges under our transformation plan of $ 5.0 million and stuart weitzman purchase accounting related items of $ 4.7 million . excluding our transformation plan and acquisition-related charges in fiscal 2015 and fiscal 2014 , gross profit decreased by 13.6 % , to $ 2.92 billion . sg & a expenses increased by 5.2 % to $ 2.29 billion during fiscal 2015 . excluding charges under our transformation plan and acquisition-related charges in fiscal 2015 and fiscal 2014 , sg & a expenses remained fairly consistent . net income decreased in fiscal 2015 as compared to fiscal 2014 , due to a decrease in operating income of $ 502.1 million , partially offset by a $ 131.8 million decrease in our provision for income taxes . net income per diluted share decreased primarily due to lower net income . excluding charges under our transformation plan and acquisition-related charges in fiscal 2015 and charges under our transformation plan in fiscal 2014 , net income and net income per diluted share decreased 38.9 % and 38.2 % , respectively . fiscal 2015 compared to fiscal 2014 the following table summarizes results of operations for fiscal 2015 compared to fiscal 2014 . all percentages shown in the table below and the discussion that follows have been calculated using unrounded numbers . story_separator_special_tag since the end of fiscal 2014 , we opened 28 net new stores , with 16 net new stores in mainland china , hong kong and macau and japan , and 12 net new stores in the other regions . other net sales increased 66.0 % or $ 40.6 million to $ 102.1 million , primarily due to the impact of the stuart weitzman acquisition . 33 gross profit gross profit decreased 11.8 % or $ 388.4 million to $ 2.91 billion in fiscal 2015 from $ 3.30 billion in fiscal 2014 . gross margin for fiscal 2015 was 69.4 % as compared to 68.6 % in fiscal 2014 . excluding items affecting comparability of $ 9.7 million in fiscal 2015 and $ 82.2 million in fiscal 2014 , gross profit decreased 13.6 % or $ 460.9 million to $ 2.92 billion from $ 3.38 billion in fiscal 2014 , and gross margin was 69.6 % in fiscal 2015 as compared to 70.3 % in fiscal 2014 . excluding items affecting comparability , the gross margin decreased 70 basis points , as described below . north america gross profit decreased 21.0 % or $ 418.1 million to $ 1.57 billion in fiscal 2015 . gross margin decreased 50 basis points from 64.3 % in fiscal 2014 to 63.8 % in fiscal 2015 . the decrease in gross margin is primarily attributable to the impact of decreased promotional activity on an elevated product assortment . specifically , the impact of a higher mix of elevated product sales primarily in our outlet stores , which contained higher average unit costs , negatively impacted gross margin by 120 basis points . this decrease was mostly offset by lower promotional activity , mainly as a result of the scale-back of promotional events within our outlet channel which favorably impacted gross margin by 90 basis points . international gross profit decreased 3.6 % or $ 46.5 million to $ 1.25 billion in fiscal 2015 . gross margin decreased 180 basis points from 78.8 % in fiscal 2014 to 77.0 % in fiscal 2015 . the decrease in gross margin is primarily due to a less favorable geographic mix of our sales and unfavorable effects of foreign currency , which in aggregate negatively impacted gross margin by 110 basis points , particularly as a result of a decline in net sales in japan , coupled with the growth of our international wholesale business , as well as the impact of stronger elevated product sales which carry higher average unit costs , negatively impacting gross margin by 60 basis points and to a lesser extent increased promotional activity . other gross profit increased 57.2 % or $ 21.1 million to $ 58.0 million in fiscal 2015 . this increase is substantially attributable to the acquisition of the stuart weitzman brand during the fourth quarter of fiscal 2015 . corporate unallocated gross profit increased $ 55.1 million from a loss of $ 27.9 million in fiscal 2014 to a profit of $ 27.2 million in fiscal 2015 . excluding items affecting comparability of $ 9.7 million in fiscal 2015 and $ 82.2 million in fiscal 2014 , corporate unallocated gross profit decreased by $ 17.4 million from $ 54.3 million in fiscal 2014 to $ 36.9 million in fiscal 2015 , primarily due to increased inventory reserves and less favorable production variances . selling , general and administrative expenses sg & a expenses are comprised of four categories : ( i ) selling ; ( ii ) advertising , marketing and design ; ( iii ) distribution and customer service ; and ( iv ) administrative . selling expenses include store employee compensation , occupancy costs and supply costs , wholesale and retail account administration compensation globally and international operating expenses . these expenses are affected by the number of company-operated stores open during any fiscal period and store performance , as compensation and rent expenses vary with sales . advertising , marketing and design expenses include employee compensation , media space and production , advertising agency fees , new product design costs , public relations and market research expenses . distribution and customer service expenses include warehousing , order fulfillment , shipping and handling , customer service , employee compensation and bag repair costs . administrative expenses include compensation costs for “ corporate ” functions including : executive , finance , human resources , legal and information systems departments , as well as corporate headquarters occupancy costs , consulting fees and software expenses . administrative expenses also include global equity compensation expense . the company includes inbound product-related transportation costs from our service providers within cost of sales . the company , similar to some companies , includes certain transportation-related costs related to our distribution network in selling , general and administrative expenses rather than in cost of sales ; for this reason , our gross margins may not be comparable to that of entities that include all costs related to their distribution network in cost of sales . sg & a expenses increased 5.2 % or $ 113.7 million to $ 2.29 billion in fiscal 2015 as compared to $ 2.18 billion in fiscal 2014 . as a percentage of net sales , sg & a expenses increased to 54.6 % during fiscal 2015 as compared to 45.3 % during fiscal 2014 . excluding items affecting comparability of $ 160.8 million in fiscal 2015 and $ 49.3 million in fiscal 2014 , sg & a expenses increased $ 2.2 million from fiscal 2014 ; and sg & a expenses as a percentage of net sales increased , due to deleveraging as net sales have declined , to 50.8 % in fiscal 2015 from 44.3 % in fiscal 2014 . selling expenses were $ 1.53 billion , or 36.6 % of net sales , in fiscal 2015 compared to $ 1.55 billion , or 32.2 % of net sales , in fiscal 2014 .
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executive overview coach , inc. is a leading new york design house of modern luxury accessories and lifestyle brands . the coach brand was established in new york city in 1941 , and has a rich heritage of pairing exceptional leathers and materials with innovative design . coach , inc. operates in three segments : north america , international and other ( which includes the stuart weitzman brand acquired by the company in the fourth quarter of fiscal 2015 ) . the north america segment includes sales to north american customers through coach-operated stores ( including the internet ) and sales to north american wholesale customers . the international segment includes sales to customers through coach-operated stores ( including the internet ) and concession shop-in-shops in japan and mainland china , coach-operated stores and concession shop-in-shops in hong kong , macau , singapore , taiwan , malaysia , south korea , the united kingdom , france , ireland , spain , portugal , germany , italy , belgium and the netherlands , as well as sales to wholesale customers and distributors in approximately 45 countries . other , consists of sales and expenses generated by the coach brand in other ancillary channels , including licensing and disposition . other also consists of sales and expenses generated by the stuart weitzman brand during the final two months of fiscal 2015. as the company 's business model is based on multi-channel global distribution , our success does not depend solely on the performance of a single channel or geographic area . in order to drive growth within our global business , we are focused on four key initiatives , which directly align with the coach brand transformation plan , described below : grow our business in north america and worldwide , by transforming from a leading international accessories company into a global lifestyle brand , anchored in luxury accessories .
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currently , the u.s. government , including the department of defense ( dod ) , is operating under a continuing resolution ( cr ) that provides funding at fiscal year ( fy ) 2012 levels through march 2013. a cr does not generally fund new program starts or new multi-year contracts . a series of crs over the past several years has negatively impacted the flow of contract awards , particularly in our shorter-cycle information systems and technology business group . while u.s. military budgets are generally driven by national security requirements , the country 's current fiscal shortfall is negatively influencing defense spending . the budget control act of 2011 ( bca ) mandated a $ 487 billion , or approximately 8 percent , reduction to previously-planned defense funding over the next decade . these cuts were incorporated into the fy 2013 proposed defense budget . in addition , the bca included a sequester mechanism that would impose an additional $ 500 billion of defense cuts over nine years starting in fy 2013 , which represents approximately 9 percent of planned defense funding over the period . if sequestration is triggered , the fy 2013 defense budget could be lowered by as much as $ 40 to $ 50 billion , or approximately 9 percent . however , how these reductions would be implemented has not been defined . congress recently extended the deadline for resolving sequestration to march 1 , 2013. as of february 7 , 2013 , a solution has not been identified . for fy 2013 , the president requested total defense funding of $ 525 billion , which is down from fy 2012 funding of $ 531 billion . we anticipate that congress will consider the fy 2013 defense spending bill in conjunction with the expiration of the current cr at the end of march . at that time , the cr will either be extended through the government 's year end , thereby keeping fy 2013 spending at fy 2012 levels , or the fy 2013 funding bill will be passed . the president has not yet published the fy 2014 budget request , although the fy 2014 topline mandated by budget reduction legislation is $ 527 billion . because budget expenditures lag congressional funding , our associated revenues and earnings in a given year do not correspond directly with the current year budgeted amounts . in addition to the impact of u.s. budget deficit reduction negotiations , defense spending decisions over the next several years may also be shaped by the ongoing quadrennial defense review ( qdr ) , an analysis of military priorities and requirements commissioned every four years . we expect defense funding requirements to continue to be influenced by the following : the imperative to provide support for the warfighter in the face of threats posed by an uncertain global security environment , including the dod 's increased emphasis on the asia-pacific region ; the number of troops deployed globally , coupled with the overall size of the u.s. military ; the need to reset and replenish equipment and supplies damaged and consumed in iraq and afghanistan since 2001 ; and the need to modernize defense infrastructure to address the evolving requirements of modern-day warfare , including an emphasis on soldier survivability , enhanced battlefield communications and new 26 technologies in the intelligence , surveillance and reconnaissance , unmanned systems and cyberspace arenas . despite these budget uncertainties , the long-term outlook for our u.s. defense business is buoyed by the relevance of our programs to the military 's funding priorities , the diversity of our programs and customers within the budget , our insight into customer requirements stemming from our incumbency on core programs , our ability to evolve our products to address a fast-changing threat environment and our proven track record of successful contract execution . we continue to pursue opportunities presented by international demand for military equipment and information technologies from our indigenous international operations and through exports from our u.s. businesses . while the revenue potential can be significant , international defense budgets , much like u.s. budgets , are subject to unpredictable issues of contract award timing , changing priorities and overall spending pressures . as a result of the demonstrated success of our products and services , we would expect our international sales and exports to grow subject to overall economic conditions . in our aerospace group , business-jet market conditions were steady in 2012. the group benefited from robust flying hours across the installed base of gulfstream aircraft , improved large-cabin order interest from north american corporate customers and lower customer contract defaults . we expect our continued investment in new aircraft products to support aerospace 's long-term growth , as evidenced by the group 's newest aircraft offerings , the g280 and the g650 . similarly , we believe that aircraft-service revenues provide the group diversified exposure to aftermarket sales fueled by continued growth in the global installed business-jet fleet . results of operations introduction an understanding of our accounting practices is important to an evaluation of our operating results . we recognize the majority of our revenues using the percentage-of-completion method of accounting . the following paragraphs explain how this method is applied in recognizing revenues and operating costs in our aerospace and defense business groups . in the aerospace group , contracts for new aircraft have two major phases : the manufacture of the “ green ” aircraft and the aircraft 's outfitting , which includes exterior painting and installation of customer-selected interiors . we record revenues on these contracts at the completion of these two phases : when green aircraft are delivered to and accepted by the customer , and when the customer accepts final delivery of the outfitted aircraft . revenues in the aerospace group 's other original equipment manufacturers ( oems ) completions and services businesses are recognized as work progresses or upon delivery of services . story_separator_special_tag mobile communication support revenues increased in 2012 primarily due to higher maintenance and long-term support activity on the u.k.-based bowman communications systems program . 30 service operating costs increased in 2012 compared with 2011. the increase in service operating costs primarily due to volume consisted of the following : primary changes due to volume : ship engineering and repair $ 298 mobile communication support 76 374 intangible asset impairment 191 other changes , net 26 total increase $ 591 the intangible asset impairment is in jet aviation 's maintenance business and discussed in conjunction with the aerospace business group 's operating results . no other changes were material . review of 2010 vs. 2011 replace_table_token_14_th our revenues and operating costs were up slightly in 2011 compared with 2010. revenues increased in the aerospace group , primarily driven by initial green deliveries of the new g650 aircraft . this increase was partially offset by lower revenues in the information systems and technology group 's mobile communication systems business . operating costs also increased due to the impairment of an intangible asset in our aerospace group . as a result , operating earnings and margins declined in 2011. product revenues and operating costs replace_table_token_15_th product revenues were lower in 2011 compared with 2010 due to lower revenues on mobile communication products and on several ship construction programs , most significantly on the ddg-1000 and ddg-51 destroyers and commercial product-carrier programs . these decreases were partially offset by higher aircraft manufacturing , outfitting and completions revenues due to initial green deliveries of the g650 aircraft . product operating costs were lower in 2011 compared with 2010 primarily due to volume . however , the decrease in volume was partially offset by an impairment of an intangible asset in the completions business in our aerospace group . service revenues and operating costs replace_table_token_16_th 31 service revenues increased in 2011 compared with 2010 as growth on it support and modernization programs for the dod and the intelligence community , coupled with the acquisition of vangent , inc. , resulted in higher it services revenues . additionally , the growing global installed base of business-jet aircraft and increased flying hours across the installed base resulted in higher aircraft services revenues . service operating costs increased in 2011 compared with 2010 primarily due to volume . other information goodwill impairment in 2012 , we recorded a $ 2 billion goodwill impairment in the information systems and technology group discussed below in conjunction with the business group 's operating results and in the application of critical accounting policies . g & a expenses as a percentage of revenues , g & a expenses were 6 percent in 2010 , 6.2 percent in 2011 and 7.2 percent in 2012 . the increase in 2012 is due , in part , to restructuring-related charges in our european military vehicles business discussed below in conjunction with the combat systems business group 's operating results . we expect g & a expenses in 2013 to be approximately 6.5 percent of revenues . interest , net net interest expense was $ 157 in 2010 , $ 141 in 2011 and $ 156 in 2012 . the 2012 increase in interest expense is due to the $ 750 net increase in long-term debt beginning in july 2011 . we expect full-year 2013 net interest expense to be approximately $ 90 . the significant expected decrease from 2012 results from our debt refinancing completed in december 2012 that lowered the weighted-average interest rate on our outstanding debt from 3.9 percent to 2.2 percent . see note j to the consolidated financial statements for additional information regarding our debt obligations . other , net in 2012 , other expense included a $ 123 loss on the redemption of debt associated with the refinancing discussed above . in 2011 , other income consisted primarily of a $ 38 gain from the sale of a business in our combat systems group . effective tax rate our effective tax rate was 30.7 percent in 2010 , 31.4 percent in 2011 and 161.4 percent in 2012 . the significant increase in 2012 was primarily due to the largely non-deductible goodwill impairment of $ 2 billion recorded in the information systems and technology group and , to a lesser extent , the establishment of valuation allowances related to deferred tax assets in our international operations . for further discussion and a reconciliation of our effective tax rate from the statutory federal rate , see note e to the consolidated financial statements . we anticipate an effective tax rate of approximately 32 percent in 2013 . discontinued operations in 2011 , we recognized a $ 13 loss , net of taxes , in discontinued operations from the settlement of an environmental matter associated with a former operation of the company . we also increased our estimate of the continued legal costs associated with the a-12 litigation as a result of the u.s. supreme court 's decision that extended the timeline associated with the litigation , resulting in a $ 13 loss , net of taxes . see note n to the consolidated financial statements for further discussion of the a-12 litigation . 32 story_separator_special_tag # 0070c0 ; padding-left:2px ; padding-top:2px ; padding-bottom:2px ; padding-right:2px ; '' > total decrease $ ( 835 ) in 2012 , revenues were up slightly in the group 's u.s. military vehicles business . revenues increased due to the december 2011 acquisition of force protection , inc. , higher volume on several international light armored vehicle ( lav ) programs and the start of the technology development phase of the army 's ground combat vehicle ( gcv ) program . these increases were largely offset by lower volume on the domestic stryker , abrams and mine-resistant , ambush-protected ( mrap ) vehicle programs .
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review of business groups following is a discussion of the operating results and outlook for each of our business groups . for the aerospace group , results are analyzed with respect to specific lines of products and services , consistent with how the group is managed . for the defense groups , the discussion is based on the types of products and services each group offers with a supplemental discussion of specific contracts and programs when significant to the group 's results . information regarding our business groups also can be found in note q to the consolidated financial statements . aerospace review of 2011 vs. 2012 replace_table_token_17_th the aerospace group 's revenues increased in 2012 compared to 2011 . the increase consisted of the following : aircraft manufacturing , outfitting and completions $ 917 aircraft services ( 30 ) pre-owned aircraft 27 total increase $ 914 aircraft manufacturing , outfitting and completions revenues include the manufacture and outfitting of gulfstream business-jet aircraft as well as completions of aircraft produced by other oems . aircraft manufacturing , outfitting and completions revenues increased in 2012 primarily due to increased deliveries of the g650 aircraft . the group 's operating earnings increased in 2012 . the increase consisted of the following : aircraft manufacturing , outfitting and completions $ 333 aircraft services ( 198 ) pre-owned aircraft ( 1 ) g & a/other expenses ( 5 ) total increase $ 129 earnings from the manufacture and outfitting of gulfstream aircraft increased $ 136 , or over 10 percent , in 2012 compared with 2011 primarily due to green deliveries of the g650 aircraft . earnings from other oem completions were up $ 197 in 2012 as operational performance improved . operating earnings in 2011 were negatively impacted by $ 78 of losses on several completions projects and a $ 111 impairment of the completions business contract and program intangible asset as a result of these losses and lower revenues .
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34 overview we are an international facilities-based technology and communications company focused on providing our business and residential customers with a broad array of integrated services and solutions necessary to fully participate in our rapidly evolving digital world . we believe we are the world 's most inter-connected network and our platform empowers our customers to rapidly adjust digital programs to meet immediate demands , create efficiencies , accelerate market access , and reduce costs – allowing customers to rapidly evolve their it programs to address dynamic changes without distraction from their core competencies . with approximately 450,000 route miles of fiber optic cable globally , we are among the largest providers of communications services to domestic and global enterprise customers . our terrestrial and subsea fiber optic long-haul network throughout north america , europe , latin america and asia pacific connects to metropolitan fiber networks that we operate . we provide services in over 60 countries , with most of our revenue being derived in the u.s. impact of covid-19 pandemic in response to the safety and economic challenges arising out of the covid-19 pandemic and in an attempt to mitigate the negative impact on our stakeholders , we have taken a variety of steps to ensure the availability of our network infrastructure , to promote the safety of our employees and customers , to enable us to continue to adapt and provide our products and services worldwide to our customers , and to strengthen our communities . these steps have included : taking the fcc 's `` keep americans connected pledge , '' under which we waived certain late fees and suspended the application of data caps and service terminations for non-payment by certain consumer and small business customers through the end of the second quarter of 2020 ; establishing new protocols for the safety of our on-site technicians and customers , including our `` safe connections '' program ; adopting a rigorous employee work-from-home policy and substantially restricting non-essential business travel , each of which remains in place ; continuously monitoring our network to enhance its ability to respond to changes in usage patterns ; donating products or services in several of our communities to enhance their abilities to provide necessary support services ; and taking steps to maintain our internal controls and the security of our systems and data in a remote work environment . as the pandemic continues and vaccination rates increase , we expect to revise our responses or take additional steps to adjust to changed circumstances . social distancing , business and school closures , travel restrictions , and other actions taken in response to the pandemic have impacted us , our customers and our business since march 2020. in particular , during the second half of 2020 , we rationalized our lease footprint and ceased using 16 leased property locations that were underutilized due to the covid-19 pandemic . the company determined that they no longer needed the leased space and , due to the limited remaining term on the contracts , concluded that the company had neither the intent nor ability to sublease the properties . as a result , we incurred accelerated lease costs of approximately $ 41 million . in conjunction with our plans to continue to reduce costs , we expect to continue our real estate rationalization efforts and incur additional costs in 2021. additionally , as discussed further elsewhere herein , we are tracking pandemic impacts such as : ( i ) increases in certain revenue streams and decreases in others ( including late fee revenue ) , ( ii ) increases in allowances for credit losses each quarter since the start of the pandemic , ( iii ) increase in overtime expenses and ( iv ) delays in our cost transformation initiatives . thus far , these changes have not materially impacted our financial performance or financial position . this could change , however , if the pandemic intensifies or economic conditions deteriorate . the impact of the pandemic during 2021 will materially depend on additional steps that we may take in response to the pandemic and various events outside of our control , including the pace of vaccinations worldwide , the length and severity of the health crisis and economic slowdown , actions taken by governmental agencies or legislative bodies , and the impact of those events on our employees , suppliers and customers . for additional information , see the risk factor disclosures set forth or referenced in item 1a of part ii of this report . 35 for additional information on the impacts of the pandemic , see the remainder of this item , including `` —liquidity and capital resources — overview of sources and uses of cash , '' and `` — pension and post-retirement benefit obligations . '' reporting segments our reporting segments are organized by customer demographics . at december 31 , 2020 , they consisted of : international and global accounts management ( `` igam '' ) segment . under our igam segment , we provided our products and services to approximately 200 global enterprise customers and three operating regions : europe middle east and africa , latin america and asia pacific ; enterprise segment . under our enterprise segment , we provided our products and services to large and regional domestic and global enterprises , as well as the public sector , which includes the u.s. federal government , state and local governments and research and education institutions ; small and medium business ( `` smb '' ) segment . under our smb segment , we provided our products and services to small and medium businesses directly and indirectly through our channel partners ; wholesale segment . under our wholesale segment , we provided our products and services to a wide range of other communication providers across the wireline , wireless , cable , voice and data center sectors . our wholesale customers range from large global telecom providers to small regional providers ; and consumer segment . under our consumer segment , we provided our products and services to residential customers . story_separator_special_tag operating expenses the following tables summarize our operating expenses : replace_table_token_6_th cost of services and products ( exclusive of depreciation and amortization ) cost of services and products ( exclusive of depreciation and amortization ) decreased by $ 200 million for the year ended december 31 , 2020 as compared to the year ended december 31 , 2019. the decrease in costs of services and products ( exclusive of depreciation and amortization ) was primarily due to reductions in ( i ) salaries and wages and employee-related expense from lower headcount directly related to operating and maintaining our network and from lower medical costs from the covid-19 pandemic , ( ii ) professional fees from contractors and consultants , ( iii ) facility costs from lower space and power expenses , and ( iv ) lower commissions due to increased commission deferrals . these reductions were partially offset by increases in severance expense , higher network expense as a result of project impairments and higher voice usage from conferencing sales . 38 cost of services and products ( exclusive of depreciation and amortization ) decreased by $ 865 million for the year ended december 31 , 2019 as compared to the year ended december 31 , 2018. the decrease in costs of services and products ( exclusive of depreciation and amortization ) was primarily due to reductions in ( i ) salaries and wages and employee-related expenses from lower headcount directly related to operating and maintaining our network , ( ii ) network expenses and voice usage costs , ( iii ) customer premises equipment costs from lower sales , ( iv ) content costs from prism tv , and ( v ) lower space and power expenses . these reductions were partially offset by increases in direct taxes and fees , professional services , customer installation costs and right of way and dark fiber expenses . selling , general and administrative selling , general and administrative expenses decreased by $ 251 million for the year ended december 31 , 2020 as compared to the year ended december 31 , 2019. the decrease in selling , general and administrative expenses was primarily due to reductions in salaries and wages and employee-related expenses from lower headcount and lower medical costs from the covid-19 pandemic , lower workers compensation expenses and lower professional fees . these reductions were partially offset by increases in the allowance for credit losses related to the impact of the covid-19 pandemic and property and other taxes . selling , general and administrative expenses decreased by $ 450 million for the year ended december 31 , 2019 as compared to the year ended december 31 , 2018. the decrease in selling , general and administrative expenses was primarily due to reductions in salaries and wages and employee-related expenses from lower headcount , contract labor costs , lower rent expense in 2019 and from higher exited lease obligations in 2018 , hardware and software maintenance costs , marketing and advertising expenses , bad debt expense , property and other taxes and an increase in the amount of labor capitalized or deferred and gains on the sale of assets . these reductions were slightly offset by higher professional fees , network infrastructure maintenance expenses and commissions . depreciation and amortization the following tables provide detail of our depreciation and amortization expense : replace_table_token_7_th depreciation expense decreased by $ 126 million for the year ended december 31 , 2020 as compared to the year ended december 31 , 2019 primarily due to a $ 239 million reduction attributable to the impact of annual rate depreciable life changes , partially offset by $ 156 million of higher depreciation expense associated with net growth in depreciable assets . depreciation expense decreased by $ 250 million for the year ended december 31 , 2019 as compared to the year ended december 31 , 2018 , primarily due to the impact of the full depreciation in 2018 of plant , property , and equipment assigned a one year life at the time we acquired level 3 of $ 200 million , the impact of annual rate depreciable life changes of $ 108 million , and the discontinuation of depreciation on failed-sale-leaseback assets on $ 69 million . these decreases were partially offset by higher depreciation expense of $ 93 million associated with net growth in depreciable assets and increases associated with changes in our estimates of the remaining economic life of certain network assets of $ 34 million . amortization expense increased by $ 7 million for the year ended december 31 , 2020 as compared to the year ended december 31 , 2019 primarily due to increases associated with the net growth in amortizable assets of $ 54 million and the accelerated amortization for a decommissioned applications of $ 31 million . these increases were partially offset by a decrease of $ 70 million from the use of accelerated amortization methods for a portion of the customer intangibles . 39 amortization expense decreased by $ 41 million for the year ended december 31 , 2019 as compared to the year ended december 31 , 2018. the decrease in amortization expense was primarily due to a $ 71 million decrease associated with the use of accelerated amortization methods for a portion of the customer intangibles and a $ 25 million decrease associated with annual rate amortizable life changes of software for the period . these decreases were partially offset by an increase in amortization of $ 55 million associated with net growth in amortizable assets for the period . goodwill impairments we are required to perform impairment tests related to our goodwill annually , which we perform as of october 31 , or sooner if an indicator of impairment occurs . when we performed our annual impairment test in the fourth quarter of 2020 we concluded that the estimated fair value of our consumer , wholesale , small and medium business and emea reporting units were less than our carrying value of equity for such reporting units and we recorded a non-cash non-tax-deductible goodwill impairment charge of approximately $ 2.6
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other consolidated results the following tables summarize our total other expense , net and income tax expense : replace_table_token_8_th _ nm percentages greater than 200 % and comparison between positive and negatives values or to/from zero values are considered not meaningful . interest expense interest expense decreased by $ 353 million for the year ended december 31 , 2020 as compared to the year ended december 31 , 2019. the decrease in interest expense was primarily due to a decrease in average long-term debt from $ 35.4 billion to $ 33.3 billion and a decrease in the average interest rate of 5.75 % to 5.23 % . interest expense decreased by $ 156 million for the year ended december 31 , 2019 as compared to the year ended december 31 , 2018. the decrease in interest expense was primarily due to a decrease in long-term debt from an average of $ 36.9 billion in 2018 to $ 35.4 billion in 2019 . 40 other ( expense ) income , net other ( expense ) income , net reflects certain items not directly related to our core operations , including losses and gains on extinguishments of debt , our share of income from partnerships we do not control , interest income , gains and losses from non-operating asset dispositions , foreign currency gains and losses and components of net periodic pension and postretirement benefit costs . replace_table_token_9_th _ nm percentages greater than 200 % and comparison between positive and negatives values or to/from zero values are considered not meaningful . the significant decline in pension and post retirement net periodic expense for the year ended december 31 , 2020 as compared to the year ended december 31 , 2019 is driven by a decline in interest cost due to lower discount rates .
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derivative valuations reflect the value of the instrument including the value associated with any material counterparty risk . economic hedges . in december 2015 , in anticipation of the acquisition of veda group limited ( `` veda `` ) , we purchased foreign currency options to buy australian dollars with a weighted average strike price of $ 0.7225 and a notional value of 1.0 billion australian dollars . these foreign currency options ( `` options `` ) were designed to act as story_separator_special_tag as used herein , the terms equifax , the company , we , our and us refer to equifax inc. , a georgia corporation , and its consolidated subsidiaries as a combined entity , except where it is clear that the terms mean only equifax inc. all references to earnings per share data in management 's discussion and analysis , or md & a , are to diluted earnings per share , or eps , unless otherwise noted . diluted eps is calculated to reflect the potential dilution that would occur if stock options or other contracts to issue common stock were exercised and resulted in additional common shares outstanding . business overview we are a leading global provider of information solutions , employment and income verifications and human resources business process outsourcing services . we leverage some of the largest sources of consumer and commercial data , along with advanced analytics and proprietary technology , to create customized insights which enable our business customers to grow faster , more efficiently and more profitably , and to inform and empower consumers . businesses rely on us for consumer and business credit intelligence , credit portfolio management , fraud detection , decisioning technology , marketing tools , debt management and human resources-related services . we also offer a portfolio of products that enable individual consumers to manage their financial affairs and protect their identity . our revenue stream is diversified among businesses across a wide range of industries , international geographies and individual consumers . on february 24 , 2016 , we completed the acquisition of veda for cash consideration plus debt assumed of approximately $ 1.9 billion . we financed the cash portion of the purchase price through a combination of new debt , including the term loan , the 364-day revolver , and commercial paper . refer to note 5 for further information on debt . segment and geographic information segments . the usis segment , the largest of our four segments , consists of three service lines : online information solutions ; mortgage solutions ; and financial marketing services . online information solutions and mortgage solutions revenue is principally transaction-based and is derived from our sales of products such as consumer and commercial credit reporting and scoring , identity management , fraud detection and modeling services . usis also markets certain decisioning software services , which facilitate and automate a variety of consumer and commercial credit-oriented decisions . financial marketing services revenue is principally project and subscription based and is derived from our sales of batch credit and consumer wealth information such as those that assist clients in acquiring new customers , cross selling to existing customers and managing portfolio risk . the international segment consists of europe , asia pacific , latin america and canada . following the acquisition of veda , we have created an asia pacific reporting unit which consists mainly of our australia and new zealand operations . canada 's services are similar to our usis offerings , while europe , asia pacific and latin america are made up of varying mixes of service lines that are in our usis reportable segment . in europe , asia pacific and latin america , we also provide information and technology services to support lenders and other creditors in the collections and recovery management process . the workforce solutions segment consists of the verification services and employer services business lines . verification services revenue is transaction-based and is derived primarily from employment and income verification . employer services revenues are derived from our provision of certain human resources business process outsourcing services that include both transaction and subscription based product offerings . these services include unemployment claims management , employment-based tax credit services and other complementary employment-based transaction services . global consumer solutions revenue is both transaction and subscription based and is derived from the sale of credit monitoring and identity theft protection products , which we deliver electronically to consumers primarily via the internet in the u.s. , canada , and the u.k. we reach consumers directly and indirectly through partners . we also sell consumer and credit information to resellers who combine our information with other information to provide direct to consumer monitoring , reports and scores . geographic information . we currently have significant operations in the following countries : argentina , australia , canada , chile , costa rica , ecuador , el salvador , honduras , india , mexico , new zealand , paraguay , peru , portugal , the republic of ireland , spain , the u.k. , uruguay and the u.s. we also offer equifax branded credit services in india and russia through joint ventures , we have investments in consumer and or commercial credit information companies through joint 29 ventures in cambodia , malaysia and singapore , and have an investment in a consumer and commercial credit information company in brazil . of the countries we operate in , 73 % of our revenue was generated in the u.s. during the twelve months ended december 31 , 2016 . key performance indicators . management focuses on a variety of key indicators to monitor operating and financial performance . these performance indicators include measurements of operating revenue , change in operating revenue , operating income , operating margin , net income , diluted earnings per share , cash provided by operating activities and capital expenditures . key performance indicators for the twelve months ended december 31 , 2016 , 2015 and 2014 , include the following : replace_table_token_5_th * amounts above also include capital expenditures in accounts payable . story_separator_special_tag interest expense and other income ( expense ) , net replace_table_token_9_th interest expense increased in 2016 , when compared to 2015 , due to an overall increase in our consolidated debt outstanding as of december 31 , 2016 to fund the acquisition of veda in 2016. our average cost of debt decreased in 2016 compared to the prior year , due to the higher balance of low rate commercial paper outstanding and lower long-term rates related to the issuance of 2.3 % and 3.25 % senior notes . 32 interest expense decreased in 2015 , when compared to 2014 , due to an overall decrease in our consolidated debt outstanding as of december 31 , 2015. our average cost of debt increased slightly in 2015 compared to the prior year , due to the higher ratio of higher interest debt and the low balance of low rate commercial paper outstanding . the decrease in other income ( expense ) , net , in 2016 is due to 2016 foreign exchange losses related to the veda acquisition and the 2015 income from the settlement of escrow amounts related to an acquisition from january 2014 which did not recur in 2016. these items were partially offset by the impairment of our cost method investment in brazil in the second quarter of 2015 which did not recur in 2016. the increase in other income ( expense ) , net , in 2015 is due to income from the settlement of escrow amounts related to an acquisition from january 2014 , and the gain on foreign currency options put in place as an economic hedge of veda 's purchase price . this was partially offset by the impairment of our cost method investment in brazil in the second quarter of 2015. income taxes replace_table_token_10_th overall , our effective tax rate was 32.0 % for 2016 , up from 31.7 % for the same period in 2015. the 2016 rate benefited by 2 % due to international related items , specifically higher earnings in lower tax jurisdictions and the rationalization of the structure of foreign subsidiaries . this was offset by other non-recurring permanent items that benefited the 2015 tax rate including the settlement of escrow related to a past acquisition and state law changes , that did not recur in 2016. overall , our effective tax rate was 31.7 % for 2015 , down from 34.9 % for the same period in 2014. the 2015 rate benefited by 2 % due to international related items specifically the increased recognition of foreign tax credits , and a permanent item associated with the settlement of escrows related to past acquisitions , and 1.4 % due to state tax law changes . net income replace_table_token_11_th consolidated net income increased by $ 60.3 million , or 14 % , in 2016 compared to 2015 due to increased operating income in our usis and workforce solutions businesses . this increase was partially offset by declines due to foreign 33 exchange rates that impacted the international operating segment , the increase in interest expense , as well as increased corporate expenses as described below . consolidated net income increased by $ 60.8 million , or 16 % , in 2015 compared to 2014 due to increased operating income in our usis and workforce solutions businesses . this increase was partially offset by declines due to foreign exchange rates that impacted the international operating segment , declines in the global consumer solutions operating segment , as well as increased corporate expenses due significantly to the realignment of our internal resources , and increases in people costs . story_separator_special_tag records to the work number database . revenue increased 25 % in 2015 compared to prior year , due to strong growth in mortgage , auto , pre-employment screening and government verticals , and continued addition of new records to the work number database . employer services . revenue grew 24 % in 2016 , as compared to 2015 due to growth in our workforce analytics and other employer services businesses . revenue grew 8 % in 2015 , as compared to 2014. revenue growth was due to continued higher employment based tax credit activity due to the delayed approval of the federal work opportunity tax credit program for 2014 , as well as growth in our employer-based compliance solutions and workforce analytics business . workforce solutions operating margin . operating margin increased 420 basis points to 42.1 % in 2016 as compared to 37.9 % in 2015. margin expansion in 2016 was driven by strong revenue growth in 2016. operating margin increased 510 basis points to 37.9 % in 2015 as compared to 32.8 % in 2014. margin expansion in 2015 was driven by product mix , as well as strong revenue growth in 2015. global consumer solutions replace_table_token_15_th revenue increased 16 % for 2016 , as compared to prior year . local currency revenue grew 18 % in 2016 , principally due to the growth of direct to consumer reseller revenue , and to a lesser extent , due to consumer direct revenue growth 36 globally . local currency fluctuations against the u.s. dollar negatively impacted revenue by $ 5.4 million , or 2 % , for 2016. operating margin increased in 2016 to 27.9 % as compared to 27.5 % in the prior year , due to lower marketing expenses partially offset by higher production costs due to reseller product mix and increases in partner implementation costs . revenue increased 18 % for 2015 , as compared to prior year . local currency revenue grew 19 % in 2015 , principally due to the growth of direct to consumer reseller revenue , and to a lesser extent , due to consumer direct revenue growth in the u.k. and the u.s. local currency fluctuations against the u.s. dollar negatively impacted revenue by $ 5.2 million , or 1 % , for 2015. operating margin decreased in 2015 to 27.5 % as compared to 31.8 % in prior year , due to higher technology and marketing expenses .
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segment financial results u.s. information solutions replace_table_token_12_th u.s. information solutions revenue increased 6 % in 2016 as compared to the prior year . usis realized solid growth from our mortgage business , as well as continued revenue growth in the automotive and financial services verticals . u.s. information solutions revenue increased 8 % in 2015 as compared to the prior year . usis realized solid growth from our mortgage business , as well as continued revenue growth in the automotive and financial services verticals . online information solutions . revenue for 2016 increased 4 % when compared to the prior year , due to higher average revenue per unit and increased volumes to mortgage resellers , auto , and other resellers . revenue also benefited from growth in identity and fraud solutions . revenue for 2015 increased 8 % when compared to the prior year , due to higher average revenue per unit and increased volumes to mortgage resellers , auto , and other resellers . revenue also benefited from growth in identity and fraud solutions . mortgage solutions . revenue increased 15 % in 2016 when compared to prior year , driven by a strong market for refinancing and purchase activity , as well as growth from other mortgage product offerings . revenue increased 17 % in 2015 when compared to prior year , driven by a strong market for refinancing and purchase activity , as well as growth from other mortgage product offerings . financial marketing services . revenue increased 5 % in 2016 as compared to 2015. the increases were driven by growth in our credit marketing services due to increased demand from financial services customers . revenue increased 5 % in 2015 as compared to 2014. the increases were driven by growth in our credit marketing services due to increased demand from financial services customers . u.s. information solutions operating margin . usis operating margin increased to 43.4 % in 2016 as compared to 2015 of 41.9 % .
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our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors , including those discussed in item 1a . “ risk factors ” and “ forward-looking statements. ” we have acquired and initiated a number of businesses during the periods presented and addressed in this management 's discussion and analysis of financial condition and results of operations . our financial statements include the results of operations of those businesses from the date acquired or when they commenced operations . this management 's discussion and analysis of financial condition and results of operations has been updated to reflect the revision of our financial statements for entities which have been treated as discontinued operations . overview we are a diversified international transportation services company that operates automotive and commercial truck dealerships principally in the united states , canada and western europe , and distributes commercial vehicles , diesel engines , gas engines , power systems and related parts and services principally in australia and new zealand . we employ nearly 27,000 people worldwide . in 2018 , our business generated $ 22.8 billion in total revenue , which is comprised of approximately $ 20.8 billion from retail automotive dealerships , $ 1.4 billion from retail commercial truck dealerships and $ 0.6 billion from commercial vehicle distribution and other operations . we generated $ 3.4 billion in gross profit , which is comprised of $ 3.1 billion from retail automotive dealerships , $ 211.5 million from retail commercial truck dealerships and $ 144.8 million from commercial vehicle distribution and other operations . retail automotive dealership . we believe we are the second largest automotive retailer headquartered in the u.s. as measured by the $ 20.8 billion in total retail automotive dealership revenue we generated in 2018. as of december 31 , 2018 , we operated 345 retail automotive franchises , of which 154 franchises are located in the u.s. and 191 franchises are located outside of the u.s. the franchises outside the u.s. are located primarily in the u.k. in 2018 , we retailed and wholesaled more than 644,000 vehicles . we are diversified geographically , with 55 % of our total retail automotive dealership revenues in 2018 generated in the u.s. and puerto rico and 45 % generated outside the u.s. we offer over 40 vehicle brands , with 70 % of our retail automotive dealership revenue in 2018 generated from premium brands , such as audi , bmw , land rover , mercedes-benz and porsche . each of our franchised dealerships offers a wide selection of new and used vehicles for sale . in addition to selling new and used vehicles , we generate higher-margin revenue at each of our dealerships through maintenance and repair services and the sale and placement of third-party finance and insurance products , third-party extended service and maintenance contracts , and replacement and aftermarket automotive products . in 2018 , we acquired an additional 11.4 % interest in the jacobs group , one of our german automotive dealership joint ventures , and now own a 79.4 % interest in the jacobs group . we also operate fourteen stand-alone used vehicle supercenters in the u.s. and the u.k. which retail and wholesale previously owned vehicles under a one price , “ no-haggle ” methodology . we acquired carsense in the u.s. and carshop in the u.k. in the first quarter of 2017 and acquired the car people in the u.k. in january 2018. our carsense operations in the u.s. consist of five locations operating in the philadelphia and pittsburgh , pennsylvania market areas , including southern new jersey . our carshop operations in the u.k. consist of five retail locations and a vehicle preparation center operating principally throughout southern england . the car people operations in the u.k. consist of four retail locations operating across northern england , which complement carshop 's southern england locations . carshop and the car people currently operate as one reportable segment ( “ stand-alone used international ” ) and we anticipate that both will begin to operate under the carshop name in 2019. for the year ended december 31 , 2018 , these stand-alone used vehicle dealerships retailed 71,013 units and generated $ 1.3 billion in revenue . retail automotive dealerships represented 91.5 % of our total revenues and 89.6 % of our total gross profit in 2018. retail commercial truck dealership . we operate a heavy and medium duty truck dealership group known as premier truck group ( “ ptg ” ) with locations in texas , oklahoma , tennessee , georgia , and canada . as of december 31 , 2018 , 34 ptg operated twenty locations , offering primarily freightliner and western star branded trucks . one of these locations was acquired in april 2018 in canada . ptg also offers a full range of used trucks available for sale as well as service and parts departments , providing maintenance and repair services . this business represented 6.0 % of our total revenues and 6.2 % of our total gross profit in 2018. commercial vehicle distribution . we are the exclusive importer and distributor of western star heavy duty trucks ( a daimler brand ) , man heavy and medium duty trucks and buses ( a vw group brand ) , and dennis eagle refuse collection vehicles , together with associated parts , across australia , new zealand and portions of the pacific . this business , known as penske commercial vehicles australia ( “ pcv australia ” ) , distributes commercial vehicles and parts to a network of more than 70 dealership locations , including nine company-owned retail commercial vehicle dealerships . we are also a leading distributor of diesel and gas engines and power systems , principally representing mtu , detroit diesel , allison transmission , mtu onsite energy , and rolls royce power systems . story_separator_special_tag equity in earnings of affiliates represents our share of the earnings from our investments in joint ventures and other non-consolidated investments , including ptl . the future success of our business is dependent upon , among other things , general economic and industry conditions ; our ability to consummate and integrate acquisitions ; the level of vehicle sales in the markets where we operate ; our ability to increase sales of higher margin products , especially service and parts sales ; our ability to realize returns on our significant capital investment in new and upgraded dealership facilities ; the success of our distribution of commercial vehicles , engines , and power systems ; and the return realized from our investments in various joint ventures and other non-consolidated investments . see item 1a . “ risk factors ” and “ forward-looking statements ” below . critical accounting policies and estimates the preparation of financial statements in accordance with accounting principles generally accepted in the united states of america requires the application of accounting policies that often involve making estimates and employing judgments . such judgments influence the assets , liabilities , revenues and expenses recognized in our financial statements . management , on an ongoing basis , reviews these estimates and assumptions . management may determine that modifications in assumptions and estimates are required , which may result in a material change in our results of operations or financial position . the following are the accounting policies applied in the preparation of our financial statements that management believes are most dependent upon the use of estimates and assumptions . revenue recognition dealership vehicle , parts and service sales . we record revenue for vehicle sales at a point in time when vehicles are delivered , which is when the transfer of title , risks and rewards of ownership and control are considered passed to the customer . we record revenue for vehicle service and collision work over time as work is completed , and when parts are delivered to our customers . sales promotions that we offer to customers are accounted for as a reduction of revenues at 36 the time of sale . rebates and other incentives offered directly to us by manufacturers are recognized as a reduction of cost of sales . reimbursements of qualified advertising expenses are treated as a reduction of selling , general and administrative expenses . the amounts received under certain manufacturer rebate and incentive programs are based on the attainment of program objectives , and such earnings are recognized either upon the sale of the vehicle for which the award was received , or upon attainment of the particular program goals if not associated with individual vehicles . taxes collected from customers and remitted to governmental authorities are recorded on a net basis ( excluded from revenue ) . during 2018 , 2017 , and 2016 , we earned $ 699.4 million , $ 693.9 million , and $ 654.9 million , respectively , of rebates , incentives and reimbursements from manufacturers , of which $ 680.0 million , $ 675.3 million , and $ 638.2 million , respectively , was recorded as a reduction of cost of sales . the remaining $ 19.4 million , $ 18.6 million , and $ 16.7 million , was recorded as a reduction of selling , general and administrative expenses during 2018 , 2017 , and 2016 , respectively . dealership finance and insurance sales . subsequent to the sale of a vehicle to a customer , we sell installment sale contracts to various financial institutions on a non recourse basis ( with specified exceptions ) to mitigate the risk of default . we receive a commission from the lender equal to either the difference between the interest rate charged to the customer and the interest rate set by the financing institution or a flat fee . we also receive commissions for facilitating the sale of various products to customers , including guaranteed vehicle protection insurance , vehicle theft protection and extended service contracts . these commissions are recorded as revenue at a point in time when the customer enters into the contract . payment is typically due and collected within 30 days subsequent to the execution of the contract with the customer . in the case of finance contracts , a customer may prepay or fail to pay their contract , thereby terminating the contract . customers may also terminate extended service contracts and other insurance products , which are fully paid at purchase , and become eligible for refunds of unused premiums . in these circumstances , a portion of the commissions we received may be charged back based on the terms of the contracts . the revenue we record relating to these transactions is net of an estimate of the amount of chargebacks we will be required to pay . our estimate is based upon our historical experience with similar contracts , including the impact of refinance and default rates on retail finance contracts and cancellation rates on extended service contracts and other insurance products . aggregate reserves relating to chargeback activity were $ 26.0 million and $ 24.9 million as of december 31 , 2018 and december 31 , 2017 , respectively . commercial vehicle distribution . we record revenue from the distribution of vehicles , engines , and other products at a point in time when delivered , which is when the transfer of title , risks and rewards of ownership and control are considered passed to the customer . we record revenue for service or repair work over time as work is completed , and when parts are delivered to our customers . for our long-term power generation contracts , we record revenue over time as services are provided in accordance with contract milestones . refer to the disclosures provided in part ii , item 8 , note 2 of the notes to our consolidated financial statements for additional detail on revenue recognition .
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results of operations the following tables present comparative financial data relating to our operating performance in the aggregate and on a “ same-store ” basis . dealership results are included in same-store comparisons when we have consolidated the acquired entity during the entirety of both periods being compared . as an example , if a dealership were acquired on january 15 , 2016 , the results of the acquired entity would be included in annual same-store comparisons beginning with the year ended december 31 , 2018 and in quarterly same-store comparisons beginning with the quarter ended june 30 , 2017. the results for 2018 include a tax benefit of $ 11.6 million , or $ 0.14 per share , recorded in the third quarter of 2018 for final adjustments to our provisional estimates per the u.s. tax cuts and jobs act and related staff accounting bulletin no . 118 ( discussed in “ income taxes ” within part ii , item 8 , note 17 ) . the results for 2018 also include a net benefit totaling $ 4.0 million after tax , or $ 0.05 per share , consisting of a $ 22.7 million net gain related to the sale of several retail automotive dealerships , partially offset by valuation adjustments with respect to certain franchised dealerships totaling $ 18.7 million . 39 retail automotive dealership new vehicle data ( in millions , except unit and per unit amounts ) replace_table_token_5_th units retail unit sales of new vehicles decreased from 2017 to 2018 due to an 8,962 unit , or 3.8 % , decrease in same-store new retail unit sales , coupled with a 3,848 unit decrease from net dealership divestitures . new units decreased 6.1 % in the u.s. and 3.7 % internationally . same-store units decreased 2.9 % in the u.s. due to a decrease in premium , volume foreign , and domestic brand sales .
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car rental fleet vehicles are depreciated over a period between 12 and 18 months . leasehold improvements and equipment under capital lease are depreciated over the shorter of the term of the lease or the estimated useful life of the asset , not to exceed 40 years . expenditures relating to recurring repair and maintenance are expensed as incurred . expenditures that increase the useful life or substantially increase the serviceability of an existing asset are capitalized . when equipment is sold or otherwise disposed of , the cost and related accumulated depreciation are removed from the balance sheet , with any resulting gain or loss being reflected in income . income taxes tax regulations may require items to be included in our tax return at different times than those items are reflected in our financial statements . some of the differences are permanent , such as expenses that are not deductible on our tax return , and some are temporary differences , story_separator_special_tag results of operations this management 's discussion and analysis of financial condition and results of operations contains forward-looking statements that involve risks and uncertainties . our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors , including those discussed in item 1a . risk factors and forward looking statements. we have acquired and initiated a number of businesses during the periods presented and addressed in this management 's discussion and analysis of financial condition and results of operations . our financial statements include the results of operations of those businesses from the date acquired or when they commenced operations . this management 's discussion and analysis of financial condition and results of operations has been updated to reflect the revision of our financial statements for entities which have been treated as discontinued operations through december 31 , 2012. overview we are the second largest automotive retailer headquartered in the u.s. as measured by the $ 13.2 billion in total revenue we generated in 2012. as of december 31 , 2012 , we operated 344 retail automotive franchises , of which 173 franchises are located in the u.s. and 171 franchises are located outside of the u.s. the franchises outside the u.s. are located primarily in the u.k. in 2012 , we retailed and wholesaled more than 402,000 vehicles . we are diversified geographically , with 64 % of our total revenues in 2012 generated in the u.s. and puerto rico and 36 % generated outside the u.s. we offer approximately 40 vehicle brands , with 96 % of our total retail revenue in 2012 generated from brands of non-u.s. based manufacturers , and 70 % generated from premium brands , such as audi , bmw , mercedes-benz and porsche . each of our dealerships offers a wide selection of new and used vehicles for sale . in addition to selling new and used vehicles , we generate higher-margin revenue at each of our dealerships through maintenance and repair services and the sale and placement of third-party finance and insurance products , third-party extended service and maintenance contracts and replacement and aftermarket automotive products . we also hold a 9.0 % ownership interest in penske truck leasing co. , l.p. ( ptl ) , a leading provider of transportation services and supply chain management . ptl operates and maintains more than 200,000 vehicles and serves customers in north america , south america , europe and asia and is one of the largest purchasers of commercial trucks in north america . product lines include full-service truck leasing , truck rental and contract maintenance , logistics services such as dedicated contract carriage , distribution center management , transportation management and acting as lead logistics provider . the general partner of ptl is penske truck leasing corporation , a wholly-owned subsidiary of penske corporation , which , together with other wholly-owned subsidiaries of penske corporation , owns 41.1 % of ptl . the remaining 49.9 % of ptl is owned by general electric capital corporation ( gecc ) . we account for our investment in ptl under the equity method , and we therefore record our share of ptl 's earnings each quarter on our statements of operations under the caption equity in earnings of affiliates which also includes the results of our other investments . outlook the level of new automotive unit sales in our markets affects our results . the new vehicle market and the amount of customer traffic visiting our dealerships have improved during the past few years , and there are market expectations for continued improvement in the automotive market in the u.s. over the next several years . during 2012 , 14.5 million cars and light trucks were sold in the u.s. , representing a 13 % improvement over the 12.8 million cars and light trucks sold during 2011. we believe the u.s. automotive market will continue to improve based upon industry forecasts from companies such as jd power , coupled with demand in the marketplace , an aging vehicle population , lower cost of credit for consumers , and the planned introduction of new models by many different vehicle brands . vehicle registrations in the u.k. were 2.04 million during 2012 , compared to 1.94 million during 2011 , representing an increase of 5.3 % . based on industry forecasts from entities such as the society of motor manufacturers and traders ( www.smmt.co.uk ) , we believe despite domestic and international economic concerns , the u.k. market will continue to grow as a result of u.k. motorists responding positively to new products and the latest fuel-efficient technology . we also expect continued resiliency in premium brand sales in the u.k. in 2013. see item 1a . risk factors. operating overview new and used vehicle revenues include sales to retail customers and to leasing companies providing consumer automobile leasing . story_separator_special_tag finance and insurance sales subsequent to the sale of a vehicle to a customer , we sell installment sale contracts to various financial institutions on a non-recourse basis ( with specified exceptions ) to mitigate the risk of default . we receive a commission from the lender equal to either the difference between the interest rate charged to the customer and the interest rate set by the financing institution or a flat fee . we also receive commissions for facilitating the sale of various third-party insurance products to customers , including credit and life insurance policies and extended service contracts . these commissions are recorded as revenue at the time the customer enters into the contract . in the case of finance contracts , a customer may prepay or fail to pay their contract , thereby terminating the contract . customers may also terminate extended service contracts and other insurance products , which are fully paid at purchase , and become eligible for refunds of unused premiums . in these circumstances , a portion of the commissions we received may be charged back based on the terms of the contracts . the revenue we record relating to these transactions is net of an estimate of the amount of chargebacks we will be required to pay . our estimate is based upon our historical experience with similar contracts , including the impact of refinance and default rates on retail finance contracts and cancellation rates on extended service contracts and other insurance products . aggregate reserves relating to chargeback activity were $ 23.4 million and $ 21.0 million as of december 31 , 2012 and 2011 , respectively . impairment testing franchise value impairment is assessed as of october 1 every year and upon the occurrence of an indicator of impairment through a comparison of its carrying amount and estimated fair value . an indicator of impairment exists if the carrying value of a franchise exceeds its estimated fair value and an impairment loss may be recognized up to that excess . the fair value of franchise value is determined using a discounted cash flow approach , which includes assumptions about revenue and profitability growth , franchise profit margins , and our cost of capital . we also evaluate our franchise agreements in connection with the annual impairment testing to determine whether events and circumstances continue to support our assessment that the franchise agreements have an indefinite life . goodwill impairment is assessed at the reporting unit level as of october 1 every year and upon the occurrence of an indicator of impairment . our operations are organized by management into operating segments by line of business and geography . we have determined that we have two reportable segments as defined in generally accepted accounting principles for segment reporting , including : ( i ) retail , consisting of our automotive retail operations , and ( ii ) other , consisting of our pag investments operating segment , which includes our investments in non-automotive retail operations , and our hertz rental business operating segment . we have determined that the dealerships in each of our operating segments within the retail reportable segment are components that are aggregated into four geographical reporting units for the purpose of goodwill impairment testing , as they ( a ) have similar economic characteristics ( all are automotive dealerships having similar margins ) , ( b ) offer similar products and services ( all sell new and used vehicles , service , parts and third-party finance and insurance products ) , ( c ) have similar target markets and customers ( generally individuals ) and ( d ) have similar distribution and marketing practices ( all distribute products and services through dealership facilities that market to customers in similar fashions ) . the goodwill included in our other reportable segment relates to our hertz rental business operating segment and was initially recorded in the fourth quarter of 2012. we prepare a qualitative assessment of the carrying value of goodwill in our retail reportable segment using the criteria in asc 350-20-35-3 to determine whether it is more likely than not that a reporting unit 's fair value is less than its carrying value . if it were determined through the qualitative assessment that a reporting unit 's fair value is more likely than not greater than its carrying value , additional analysis would be unnecessary . during 2012 , we concluded that it was not more likely than not that any of the four reporting units ' fair value were less than their carrying amount . if the additional impairment testing was necessary , we would have estimated the fair value of our reporting units using an income valuation approach . the income valuation approach estimates our 26 enterprise value using a net present value model , which discounts projected free cash flows of our business using our weighted average cost of capital as the discount rate . in connection with this process , we also reconcile the estimated aggregate fair values of our reporting units to our market capitalization . we believe that this reconciliation process is consistent with a market participant perspective . this consideration would also include a control premium that represents the estimated amount an investor would pay for our equity securities to obtain a controlling interest and other significant assumptions including revenue and profitability growth , franchise profit margins , residual values and our cost of capital . investments we account for each of our investments under the equity method , pursuant to which we record our proportionate share of the investee 's income each period . the net book value of our investments was $ 303.2 million and $ 298.6 million as of december 31 , 2012 and 2011 , respectively . investments for which there is not a liquid , actively traded market are reviewed periodically by management for indicators of impairment .
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results of operations the following tables present comparative financial data relating to our operating performance in the aggregate and on a same-store basis . dealership results are included in same-store comparisons when we have consolidated the acquired entity during the entirety of both periods being compared . as an example , if a dealership was acquired on january 15 , 2010 , the results of the acquired entity would be included in annual same store comparisons beginning with the year ended december 31 , 2012 and in quarterly same store comparisons beginning with the quarter ended june 30 , 2011 . 2012 compared to 2011 and 2011 compared to 2010 ( in millions , except unit and per unit amounts ) our results for 2012 include costs of $ 17.8 million ( $ 13.0 million after-tax ) , or $ 0.14 per share , relating to the redemption of $ 375.0 million aggregate principal amount of our previously outstanding 7.75 % notes . our results for 2011 include a net income tax benefit of $ 11.0 million , or $ 0.12 per share , reflecting a positive adjustment from the resolution of certain tax items in the u.k. of $ 17.0 million , or $ 0.19 per share , partially offset by a reduction in u.k. deferred tax assets of $ 6.0 million , or $ 0.07 per share . our results for 2010 include a gain of $ 5.3 million ( $ 3.6 million after-tax ) , or $ 0.04 per share , relating to a gain on the sale of an investment , a gain of $ 1.6 million ( $ 1.1 million after-tax ) , or $ 0.01 per share , relating to the repurchase of $ 155.7 million aggregate principal amount of our previously outstanding 3.5 % senior subordinated convertible notes , and a charge of $ 4.1 million ( $ 2.8 million after-tax ) , or $ 0.03 per share , associated with costs related to franchise closure and relocation costs .
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accordingly , temporary impairments are accounted for based upon the classification of the related securities as either available for sale or held to maturity . temporary impairments on available for sale securities are recognized , on a tax-effected basis , through other comprehensive income ( “ oci ” ) with offsetting entries adjusting the carrying value of the securities and the balance of deferred taxes . conversely , the carrying values of held to maturity securities are not adjusted for temporary impairments . information concerning the amount and duration of temporary impairments on both available for sale and held to maturity securities is generally disclosed in the notes to the con solidated financial statements . other-than-temporary impairments are accounted for based upon several considerations . first , other-than-temporary impairments on debt securities that the company has decided to sell as of the close of a fiscal period , or will , more likely than not , be required to sell prior to the full recovery of fair value to a level equal to or exceeding amortized cost , are recognized in earnings . if neither of these conditions regarding the likelihood of the sale of debt securities are applicable , then the other-than-temporary impairment is bifurcated into credit-related and noncredit-related components . a credit-related impairment represents the amount by which the present value of the cash flows that are expected to be collected on a debt security fall below its amortized cost . the noncredit-related component represents the remaining portion of the impairment not otherwise designated as credit-related . credit-related other-than-temporary impairments are recognized in earnings and noncredit-related other-than-temporary impairments are recognized in oci . equity securities on which there is an unrealized loss that is deemed other-than-temporary are written down to fair value with the writ e-down recognized in earnings . deferred income taxes the company records income taxes using the asset and liability method . accordingly , deferred tax assets and liabilities : ( i ) are recognized for the expected future tax consequences of events that have been recognized in the consolidated financial statements or the consolidated and separate entity tax returns ; ( ii ) are attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases ; and ( iii ) are measured using enacted tax rates expected to apply in the years when those temporary differences are expected to be recovered or settled . in assessing the realizability of deferred tax assets , management considers whether it is more likely than not that some portion of the deferred tax assets will not be realized . in making this assessment , management considers the profitability of current core operations , future market growth , forecasted earnings , future taxable income , and ongoing , feasible and permissible tax planning strategies . deferred tax assets have been reduced by a valuation allowance for all portions determined not likely to be realized . the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income tax expense in the period of enactment . the valuation allowance is adjusted , by a charge or credit to income tax expense , as changes in facts and circumstances warrant . fair value measurements management uses its best judgment in estimating fair value measurements of the company 's financial instruments ; however , there are inherent weaknesses in any estimation technique . management utilized various inputs to determine fair value including but not limited to the use of , valuation techniques based on various assumptions , including , but not limited to cash flows , discount rates , rate of return , adjustments for nonperformance and liquidity , quoted market prices , and appraisals . therefore , for substantially all financial instruments , the fair value estimates herein are not necessarily indicative of the amounts the company could have realized in a sales transaction on the dates indicated . the estimated fair value amounts have been measured as of their respective year-ends and have not been re- evaluated or updated for purposes of these consolidated financial statements subsequent to those respective dates . as such , the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amo unts reported at each year-end . 32 financial condition at december 31 , 201 5 and 201 4 total assets increased by $ 317.0 million , or 2 4 . 3 % , to $ 1 . 6 18 billion at december 31 , 201 5 from $ 1 . 302 billion at december 31 , 201 4 . the increase in total as sets resulted primarily from an increase in net loans receivable of $ 2 12 . 3 million , partially offset by a decrease in other real estate owned of $ 1.9 million . management is focusing on maintaining adequate liquidity in anticipation of funding loans in the loan pipeline as well as seeking opportunities to purchase loans in the secondary market that provide competitive returns but meet our internal underwriting guidelines . it is our intention to grow our assets at a measured pace consistent with our capital levels and as business opportunities permit . organic growth should occur consistent with our strategic plan under which we anticipate opening additional branch offices in 201 6 . total cash and cash equivalents in creased by $ 10 0 . 5 million , or 312.9 % , to $ 1 32.6 million at december 31 , 201 5 from $ 32.1 million at december 31 , 201 4 . loans receivable , net increased by $ 212 . story_separator_special_tag for each category of interest-earning assets and interest-bearing liabilities , information is provided on changes attributable to ( i ) changes in average volume ( changes in average volume multiplied by old rate ) ; ( ii ) changes in rate ( change in rate multiplied by old average volume ) ; ( iii ) changes due to combined changes in rate and volume ; and ( iv ) the net change . replace_table_token_23_th 36 results of operations for the years ended december 31 , 2015 and 2014 net income was $ 7.0 million for the year ended december 31 , 2015 , compared with $ 7.6 million for the year ended december 31 , 2014. net income decreased due to higher non-interest expense , partially offset by increases in net interest income and non-interest income for the year ended december 31 , 2015 , as compared with the year ended december 31 , 2014. net interest income increased by $ 3.6 million , or 7.3 % , to $ 53.5 million for the year ended december 31 , 2015 from $ 49.9 million for the year ended december 31 , 2014. the increase in net interest income resulted primarily from an increase in the average balance of interest- earning assets of $ 223.7 million , or 18.4 % , to $ 1.439 billion for the year ended december 31 , 2015 from $ 1.215 billion for year ended december 31 , 2014 , partly offset by a decrease i n the average yield on interest- earning assets of 28 basis points to 4.68 % for the year ended december 31 , 2015 from 4.96 % for the year ended december 31 , 2014. the average balance of interest-bearing liabilities increased by $ 200.3 million , or 19.8 % , to $ 1.215 billion for the year ended december 31 , 2015 from $ 1.014 billion for the year ended december 31 , 2014 , and the average cost of interest bearing liabilities in creased by 12 basis points to 1.14 % for year ended december 31 , 2015 from 1.02 % for the year ended december 31 , 2014. net interest margin was 3.72 % for the year ended december 31 , 2015 , and 4 . 11 % for the year ended december 31 , 2014. interest income on loans receivable increased by $ 8.7 million , or 15.2 % , to $ 66.6 million for the year ended december 31 , 2015 from $ 57.9 million for the year ended december 31 , 2014. the increase was primarily attributable to an increase in the average balance of loans receivable of $ 243.6 million , or 21.8 % , to $ 1.360 billion for the year ended december 31 , 2015 from $ 1.117 billion for the year ended december 31 , 2014 , partially offset by a decrease in the average yield on loans receivable to 4.90 % for the year ended december 31 , 2015 from 5.18 % for the year ended december 31 , 2014 . the increase in the average balance of loans receivable was the result of our comprehensive loan growth strategy . the decrease in average yield reflects the competitive price environment prevalent in the company 's primary market area on loan facilities as well as the repricing downward of certain variable rate loans . interest income on securities decreased by $ 1.6 million , or 71.5 % , to $ 651,000 for the year ended december 31 , 2015 from $ 2.3 million for the year ended december 31 , 2014. this decrease was primarily due to a decrease in the average balance of securities of $ 53.6 million or 73.0 % to $ 19.8 million for the year ended december 31 , 2015 from $ 73.4 million for the year ended december 31 , 2014 , partly offset by an increase in the average yield of securities to 3.28 % for the year ended december 31 , 2015 from 3.11 % for the year ended december 31 , 2014 . investment securities totaling approximately $ 100.5 million were sold in the third quarter of 2014. interest income on other interest-earning assets increased by $ 46,000 , or 83.6 % , to $ 101,000 for the year ended december 31 , 2015 from $ 55,000 for the year ended december 31 , 2014. this increase was primarily due to an increase of 136.3 % , in the average balance of other interest-earning assets to $ 58.4 million for the year ended december 31 , 2015 from $ 24.7 million for the year ended december 31 , 2014 , partly offset by a decrease in the average yield on other interest-earning assets to 0.17 % for the year ended december 31 , 2015 from 0.22 % for the year ended december 31 , 2014. total interest expense increased by $ 3.6 million , or 34.6 % , to $ 13.9 million for the year ended december 31 , 2015 from $ 10.3 million for the year ended december 31 , 2014. the increase resulted primarily from a n increase in in the average balance of interest- bearing liabilities of $ 200.3 million , or 19.8 % , to $ 1.215 billion for the year ended december 31 , 2015 from $ 1.015 billion for the year ended december 31 , 2014 and an increase in the cost of interest-bearing liabilities of 12 basis points to 1.14 % for the year ended december 31 , 2015 from 1.02 % for the year ended december 31 , 2014. the increase in the average rate on interest-bearing liabilities was due to competitive forces in attracting new deposits and a change in the mix of funding sources and terms , including higher cost listing service certificates of deposit and brokered certificates of deposit , to support aggressive loan growth . the provision for loan losses totaled $ 2 . 3 million and $ 2.8 million for the years ended december 31 , 2015 and 2014 , respectively .
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ion and results of operations general this discussion , and other written material , and statements management may make , may contain certain forward-looking statements regarding the company 's prospective performance and strategies 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 . the company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the private securities litigation reform act of 1995 , and is including this statement for purposes of said safe harbor provisions . forward-looking information is inherently subject to risks and uncertainties , and actual results could differ materially from those currently anticipated due to a number of factors , which include , but are not limited to , factors discussed in the company 's annual report on form 10-k and in other documents filed by the company with the securities and exchange commission . forward-looking statements , which are based on certain assumptions and describe future plans , strategies and expectations of the company , are generally identified by the use of the words “ plan , ” “ believe , ” “ expect , ” “ intend , ” “ anticipate , ” “ estimate , ” “ project , ” “ may , ” “ will , ” “ should , ” “ could , ” “ predicts , ” “ forecasts , ” “ potential , ” or “ continue ” or similar terms or the negative of these terms . the company 's ability to predict results or the actual effects of its plans or strategies is inherently uncertain . accordingly , actual results may differ mater ially from anticipated results .
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superannuation is a defined contribution plan in which retirement benefits are determined by the contribution accumulated over the working life plus investment earnings within story_separator_special_tag overview greenhill is a leading independent investment bank that provides financial and strategic advice on significant domestic and cross-border mergers and acquisitions , restructurings , financings , capital raisings and other strategic transactions to a diverse client base , including corporations , partnerships , institutions and governments . we act for clients located throughout the world from our global offices in the united states , united kingdom , germany , sweden , australia , japan , canada and brazil . our revenues are principally derived from advisory services on mergers and acquisitions ( or m & a ) , financings and restructurings and are primarily driven by total deal volume and the size of individual transactions . additionally , our global capital advisory group provides fund placement and other capital raising advisory services to real estate and private equity fund managers and sponsors , where revenues are driven primarily by the amount of capital raised . greenhill was established in 1996 by robert f. greenhill , the former president of morgan stanley and former chairman and chief executive officer of smith barney . since our founding , greenhill has grown steadily , through recruiting talented managing directors and other senior professionals from major investment banks , independent financial advisory firms and other institutions , with a range of geographic , industry and transaction specialties as well as high-level corporate and other relationships , as well as through training , developing and promoting professionals internally . since the opening of our original office in new york , we have expanded beyond merger and acquisition advisory services to include financing , restructuring and capital raising advice , have expanded the breadth of our sector expertise to cover substantially all major industries and have expanded globally to 13 offices across five continents . since the time of our ipo in 2004 , we have sought to increase our industry sector and geographic coverage through the opportunistic recruitment of new managing directors . as we have grown , we have added client facing managing directors , mostly through outside hires , with sector experience in communications , consumer goods & retail , energy , financial services , gaming and hospitality , healthcare , industrials , pharmaceuticals , real estate and technology . we also have sought to expand our geographic reach both through recruiting managing directors in new locations as well as through strategic acquisitions such as our 2006 acquisition of beaufort partners limited ( now greenhill canada ) in canada and our 2010 acquisition of caliburn partnership pty limited ( now greenhill australia ) in australia . additionally , we have expanded the breadth of our advisory services through the recruitment of a team of managing directors focused on real estate capital advisory , through the hiring of managing directors to focus on financing advisory and through our recently announced acquisition of cogent , which is headquartered in dallas , and is focused on advisory services related to the secondary fund placement market . through our recruiting and acquisition activity , we have significantly increased our geographic reach by adding offices in the united states , canada , japan , australia , sweden and brazil . our most robust period of growth occurred in the three years following the onset of the financial crisis in 2008 , when many industry sector managing directors sought to transition from highly regulated , large , diversified financial institutions to independent advisory firms such as greenhill . while we continue to focus on managing our business in a disciplined manner , and over the past three years have recruited fewer managing directors as compared to the period from 2008 through 2010 , we intend to continue our efforts to recruit new managing directors with industry sector experience and or geographic reach who can help expand our advisory capabilities . we had 66 client facing managing directors as of january 1 , 2015 , and added one additional managing director and announced the addition of 2 more managing directors ( through february 24 , 2015 ) and will add 8 more managing directors when we complete the acquisition of cogent , which is anticipated to occur around the end of the first quarter of 2015. prior to 2011 , we also engaged in merchant banking activities , consisting primarily of management of and investment in greenhill 's merchant banking funds , gcp i , gcp ii , gcp iii , gsavp and gcp europe , which are families of merchant banking funds . at the time of our exit from such activities an entity principally owned by former greenhill employees and independent from greenhill , took over the management of our merchant banking funds . since our exit from the merchant banking business , we have sought to realize value from our remaining principal investments and have sold or transferred substantially all of our investments in previously sponsored merchant banking funds and our previous investment in iridium . beginning in 2011 , as a result of our exit from the management of the merchant banking funds , we no longer generated management fees . since 2011 , our investment revenues consist entirely of gains ( or losses ) realized on the sale of our investments in the merchant banking funds and iridium , and changes in the unrealized value of the estimated fair market value and quoted values of such investments . as a result of the monetization of substantially all of our investments , we do not expect to report meaningful investment revenues or losses in future periods . at december 31 , 2014 , we held remaining investments in merchant banking funds with an estimated fair value of $ 4.2 million . at december 31 , 2014 , we employed 305 people . we strive to maintain a work environment that fosters professionalism , excellence , diversity , and cooperation among our employees worldwide . story_separator_special_tag in aggregate during 2014 , we returned $ 92.5 million to our shareholders in the form of dividends and share repurchases and we have now returned over $ 1 billion to our shareholders since the time of our ipo . our board has authorized up to $ 75 million of additional share repurchases in 2015. to finance a portion of the acquisition of cogent , we plan to borrow $ 45 million , which will be payable over a three period . as a result , we expect to use a portion of our operating cash flow to repay borrowings in lieu of repurchasing shares of our common stock . we expect the acquisition of cogent , which is subject to the applicable regulatory approvals and other customary conditions , to close around the end of the first quarter of 2015. cogent has a total of 38 employees , including eight managing directors , with its principal office in dallas and additional locations in london , new york , san francisco and singapore . cogent 's operating margins have been strong and we expect that the transaction will be accretive . we generally experience significant variations in revenues during each quarterly period . these variations can generally be attributed to the fact that our revenues are usually earned in large amounts throughout the year upon the successful completion of a transaction or restructuring or closing of a fund , the timing of which is uncertain and is not subject to our control . as a result , our quarterly results vary and our results in one period may not be indicative of our results in any future period . story_separator_special_tag style= '' line-height:120 % ; text-align : justify ; padding-left:48px ; font-size:10pt ; '' > the acquisition by alcoa inc. of firth rixson limited ; the sale of at & t 's wireline operations in the state of connecticut to frontier communications ; 28 the combination of crosstex energy , inc. and crosstex energy , l.p. with substantially all of devon energy corporation 's u.s. midstream assets to create enlink midstream , llc and enlink midstream partners , lp ; the sale of flint group to a consortium consisting of goldman sachs merchant banking and koch industries ; the global licensing and supply agreement of mannkind corporation with sanofi for afrezza ; the merger of qr energy , lp with breitburn energy partners lp ; the representation of tesco plc on the formation of a joint venture with china resources enterprise ltd. ; and the merger by tui ag with tui travel plc . during 2014 , our capital advisory group served as global placement agent on behalf of real estate and private equity funds for eight final closings of the sale of limited partnership interests in such funds . capital advisory fees for 2014 were $ 31.4 million compared to $ 30.9 million for 2013 , reflecting an increase of $ 0.5 million , or 2 % . for 2014 , we generated 11 % of our advisory revenues from our capital advisory business , which was consistent with the prior year . we earned advisory revenues from 135 different clients in 2014 and 143 clients in 2013 . of this group of clients , 39 % were new to us in 2014 compared to 35 % in 2013 . we earned $ 1 million or more from 63 clients in 2014 , up 9 % compared to 58 in 2013 . the ten largest fee-paying clients contributed 43 % of our total revenues in both 2014 and 2013 , and four of the top ten largest fee-paying clients in 2014 had in a prior year been among our ten largest fee-paying clients . there were no clients in 2014 who represented greater than 10 % of our revenues , while one client in 2013 ( advice to coventry health care , inc. in connection with its sale to aetna ) represented approximately10 % of our revenues . 2013 versus 2012 . advisory revenues were $ 287.0 million for the year ended december 31 , 2013 compared to $ 291.5 million for the year ended december 31 , 2012 , which represents a decrease of 2 % . the slight decrease in our 2013 advisory revenues , as compared to 2012 , resulted from a decrease in announcement and opinion fees and retainer fees , largely offset by an increase in fees from completed assignments , which were generally larger in scale than in 2012 , and greater fund placement fees . prominent advisory assignments completed in 2013 include : the acquisition by actavis , inc. of warner chilcott plc ; the sale of aegis group plc to dentsu inc. ; the acquisition by asml holding nv of cymer , inc. ; the capital raising for cerberus institutional real estate partners iii , l.p. ; the sale of coventry health care , inc. to aetna ; the merger of det norske veritas of norway with germanischer lloyd of germany ; the sale of glaxosmithkline 's nutritional drinks brands lucozade and ribena to suntory beverage & food ltd. ; the sale by the hartford financial services group , inc. of its individual life insurance business to prudential financial , inc. ; the acquisition by inergy lp from crestwood holdings of crestwood holdings ' general partner interest and incentive distribution right interest in crestwood midstream ; and the sale by supervalu inc. of its new albertsons , inc. subsidiary to an investor group led by cerberus capital management l.p. during 2013 , our capital advisory group served as global placement agent on behalf of real estate and private equity funds for seven final closings of the sale of limited partnership interests in such funds and two secondary market sales of limited partnership interests , achieving similar results to 2012 . capital advisory fees for 2013 were $ 30.9 million compared to $ 25.8 million for 2012 , 29 reflecting an increase of $ 5.1 million , or 20 % .
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results of operations the following tables set forth data relating to the firm 's sources of revenues : historical revenues by source replace_table_token_5_th advisory revenues historical advisory revenues by client location replace_table_token_6_th 27 historical advisory revenues by industry replace_table_token_7_th we operate in a highly competitive environment where there are no long-term contracted sources of revenue . each revenue-generating engagement is separately awarded and negotiated . our list of clients with whom there are active engagements changes continually . to develop new client relationships , and to develop new engagements from historic client relationships , we maintain , on an ongoing basis , an active business dialogues with a large number of clients and potential clients . we have gained a significant number of new clients each year through our business development initiatives , through recruiting additional senior investment banking professionals who bring with them client relationships and expertise in certain industry sectors or geographies and through referrals from members of boards of directors , attorneys and other parties with whom we have relationships . at the same time , we lose clients each year as a result of the sale or merger of a client , a change in a client 's senior management team , turnover of our senior banking professionals , competition from other investment banks and other causes . a majority of our advisory revenue is contingent upon the closing of a merger , acquisition , financing , restructuring , fund raising or similar transaction . a transaction can fail to be completed for many reasons , including failure to agree upon final terms with the counterparty , failure to secure necessary board or shareholder approvals , failure to secure necessary financing , failure to achieve necessary regulatory approvals and adverse market conditions .
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the results for 2018 also included the effect of merger expenses totaling $ 11.8 million ( an after tax impact of $ 0.24 per share ) , which were associated with the acquisition of washingtonfirst bankshares , inc. ( “ washingtonfirst ” ) , compared to $ 1.3 million for 2019 , which are associated with the pending acquisition of revere bank that is expected close in the beginning of the second quarter of 2020. these results reflect the impact of following events : total loans at december 31 , 2019 increased 2 % compared to december 31 , 2018. during this period , the company experienced 7 % growth in total commercial loans as investor real estate loans and owner occupied real estate loans grew by 11 % and 7 % , respectively . the impact of commercial loan growth was offset by the decline in the mortgage loan portfolio due to the impact of mortgage loan refinance activity driven by the current interest rate environment and the sale of the majority of new mortgage loan production and the decline in consumer loan balances . total deposits grew 9 % compared to the end of 2018. deposit growth reduced the loan-to-deposit ratio to 104 % at the end of 2019 compared to 111 % at the end of 2018. the year-over-year deposit growth included an 8 % increase in noninterest-bearing deposits , a 13 % increase in core interest-bearing deposits and a 38 % reduction in wholesale deposits . the net interest margin was 3.51 % in 2019 , compared to 3.60 % in 2018 . the provision for loan losses was $ 4.7 million for 2019 compared to $ 9.0 million for 2018 , reflecting the overall improvement in the qualitative credit metrics of the loan portfolio during the previous twelve months in addition to lower loan growth than experienced in the prior year . non-interest income increased 17 % to $ 71.3 million for 2019 , compared to $ 61.1 million for 2018. excluding life insurance mortality proceeds of $ 0.6 million and $ 1.6 million in 2019 and 2018 , respectively , non-interest income increased 19 % . this increase was driven by income from mortgage banking activities , which increased 108 % from the prior year , to $ 14.7 million for the year ended december 31 , 2019 , as a result of the rise in mortgage lending activity during the year . non-interest expense decreased $ 0.7 million to $ 179.1 million for 2019 compared to $ 179.8 million for the prior year . the prior year included $ 11.8 million in merger expenses compared to $ 1.3 million for the current year . excluding merger expenses , non-interest expense rose 6 % , driven primarily by increases in salaries and benefits . a portion of the increases in non-interest expense was offset by the significant decrease in fdic insurance during the year . the non-gaap efficiency ratio was 51.52 % for 2019 compared to 50.87 % for 2018 . during the fourth quarter of 2019 , the company repurchased 668,191 shares of common stock at an average price of $ 36.34 per share as part of its existing share repurchase program the company successfully issued $ 175 million in subordinated debt in november 2019. the debt will provide capital to support future growth in the real estate lending portfolio and fund anticipated future redemptions of existing higher priced funding sources . 34 the national economy , as well as the mid-atlantic region in which the company operates , continued to exhibit a solid economic performance throughout 2019. consumer confidence remains high as a result of certain positive economic trends such as reduced lending rates , low unemployment , stable housing prices and solid performance in the financial markets . these positive trends have been tempered by economic concerns over a lack of wage growth , the political environment , trade turmoil and the impact of regional conflict . these factors act to constrain economic activity from time to time on the part of both large and small businesses . despite the mixed business environment , the company has experienced consistent growth in focused areas while maintaining strong levels of liquidity , capital and credit quality . 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 , 2019 , the bank remained above all “ well-capitalized ” regulatory requirement levels . tangible book value per common share increased by 9 % to $ 22.37 from $ 20.45 at december 31 , 2018. the company 's credit quality remained strong as non-performing assets represented 0.50 % of total assets at december 31 , 2019 compared to 0.46 % at december 31 , 2018. the ratio of net charge-offs to average loans was 0.03 % for 2019 , compared to 0.01 % for the prior year . total assets at december 31 , 2019 increased 5 % compared to december 31 , 2018. total loans at december 31 , 2019 , were $ 6.7 billion compared to $ 6.6 billion at december 31 , 2018. during this period , the composition of the portfolio shifted as total commercial loans grew 7 % while mortgage loans declined 8 % due to the refinance activity and the strategic decision to sell the majority of new mortgage loan production . consumer loans experienced a 10 % decline related to recent mortgage refinancing activity . during this period , total funded commercial loan production was a record $ 884 million . story_separator_special_tag management believes that the allowance for loan losses is adequate . however , the determination of the allowance requires significant judgment , and estimates of probable losses in the lending portfolio can vary significantly from the amounts actually observed . while management uses available information to recognize probable losses , future additions or reductions to the allowance may be necessary based on changes in the composition of loans in the portfolio and changes in the financial condition of borrowers as a result of changes in economic conditions . in addition , various regulatory agencies , as an integral part of their examination process , and independent consultants engaged by the company periodically review the loan portfolio and the allowance . such reviews may result in additional provisions based on their judgments of information available at the time of each examination . the company 's allowance for loan losses has two basic components : a general allowance ( asc 450 reserves ) reflecting historical losses by loan category , as adjusted by several qualitative factors whose effects are not reflected in historical loss ratios , and specific allowances ( asc 310 reserves ) for individually identified impaired loans . each of these components , and the allowance methodology used to establish them , are described in detail in note 1 of the notes to the consolidated financial statements included in this report . the amount of the allowance is reviewed monthly by the risk committee of the board of directors and formally approved quarterly by that same committee of the board . general allowances are based upon historical loss experience by portfolio segment measured over the prior eight quarters and weighted equally . the historical loss experience is supplemented by the inclusion of qualitative risk factors to address various risk characteristics of the company 's loan portfolio including : trends in delinquencies and other non-performing loans ; changes in the risk profile related to large loans in the portfolio ; changes in the categories of loans comprising the loan portfolio ; concentrations of loans to specific industry segments ; changes in economic conditions on both a local , regional and national level ; changes in the company 's credit administration and loan portfolio management processes ; and 36 quality of the company 's credit risk identification processes . the general allowance comprised 90 % of the total allowance at december 31 , 2019 and 2018 , respectively . the general allowance is calculated in two parts based on an internal risk classification of loans within each portfolio segment . allowances on loans considered to be “ criticized ” and “ classified ” under regulatory guidance are calculated separately from loans considered to be “ pass ” rated under the same guidance . this segregation allows the company to monitor the allowance applicable to higher risk loans separate from the remainder of the portfolio in order to better manage risk and ensure the sufficiency of the allowance for loan losses . the portion of the allowance representing specific allowances is established on individually impaired loans . as a practical expedient , for collateral dependent loans , the company measures impairment based on the fair value of the collateral less costs to sell the underlying collateral . 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 10 % of the total allowance at december 31 , 2019 and 2018 , respectively . 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 . 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 .
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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_14_th 59 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_15_th ( 1 ) gross interest income that would have been recorded in 2019 if non-accrual loans shown above had been current and in accordance with their original terms was $ 1.9 million . no interest income was accrued 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 $ 7.6 million at december 31 , 2019. 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 . ( 3 ) purchased credit impaired loans are not included in non-performing loans disclosure . as of december 31 , 2019 these loans totaled $ 13.1 million . 60 market risk management the company 's net income is largely dependent on its net interest income .
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at september 30 , 2019 and september 30 , 2018 , the story_separator_special_tag ( dollars in millions , except per share and per unit amounts ) introduction this section analyzes the financial condition and results of operations of spire inc. ( the “ company ” ) , spire missouri inc. , and spire alabama inc. spire missouri , spire alabama and spire energysouth are wholly owned subsidiaries of the company . spire missouri , spire alabama and the subsidiaries of spire energysouth are collectively referred to as the “ utilities. ” the subsidiaries of spire energysouth are spire gulf . and spire mississippi . this section includes management 's view of factors that affect the respective businesses of the company , spire missouri and spire alabama , explanations of financial results including changes in earnings and costs from the prior periods , and the effects of such factors on the company 's , spire missouri 's and spire alabama 's overall financial condition and liquidity . unless otherwise indicated , references to years herein are references to the fiscal years ending september 30 for the company and its subsidiaries . reference is made to “ item 1a . risk factors ” and “ forward-looking statements , ” which describe important factors that could cause actual results to differ from expectations and non-historical information contained herein . in addition , the following discussion should be read in conjunction with the audited financial statements and accompanying notes thereto of spire , spire missouri and spire alabama included in “ item 8. financial statements and supplementary data. ” overview the company has two reportable business segments : gas utility and gas marketing . nearly all of spire 's earnings are derived from its gas utility segment , which reflects the regulated activities of the utilities . due to the seasonal nature of the utilities ' business and the spire missouri rate design , earnings of spire and each of the utilities are typically concentrated during the heating season of november through april each fiscal year . gas utility - spire missouri spire missouri is missouri 's largest natural gas distribution utility and is regulated by the mopsc . spire missouri serves st. louis and eastern missouri through spire missouri east and serves kansas city and western missouri through spire missouri west . spire missouri purchases natural gas in the wholesale market from producers and marketers and ships the gas through interstate pipelines into our distribution facilities for sale to residential , commercial and industrial customers . spire missouri also transports gas through its distribution system for certain larger customers who buy their own gas on the wholesale market . spire missouri delivers natural gas to customers at rates and in accordance with tariffs authorized by the mopsc . the earnings of spire missouri are primarily generated by the sale of heating energy . the rate design for each service territory serves to lessen the impact of weather volatility on its customers during cold winters and stabilize spire missouri 's earnings . on november 19 , 2019 , the missouri western court of appeals issued rulings ( “ isrs rulings ” ) that determined certain capital investments in 2016 through 2018 were not eligible for recovery under the infrastructure system replacement surcharge . the isrs rulings upheld appeals by the office of public counsel that disallowed recovery of portions of spire missouri 's isrs , overturned three prior mopsc decisions , and ordered refunds to customers of certain amounts deemed not eligible for isrs recovery . ultimately , the mopsc will define its process to enact the decision and the appropriate refund , if any , at a later date should the decision ultimately stand . 27 spire missouri strongly disagrees with the isrs rulings , plans to vigorously defend its position , and is evaluating its legal and regulatory options in response . spire missouri has recorded an estimate of the maximum impact of the isrs rulings based on its interpretation of the rulings and evidence available at the time of this filing . as of september 30 , 2019 , spire missouri recorded an estimated $ 12.2 regulatory liability for this matter by reducing revenue for the fiscal year ended 2019. there are two components of this provision . the first relates to a $ 4 . 2 refund ordered by the isrs rulings for amounts collected prior to the last rate case , after which recoveries of related authorized revenues became part of base rates that went into effect in april 2018 . the second component relates to an estimate of $ 8 . 0 for revenues associated with the june 2018 isrs filing that was approved by the mopsc in september 2018. the after-tax impact of the provision reduced net income by $ 9.3 , or $ 0.18 per diluted share . additional isrs revenues are currently under appeal related to the january 2019 isrs filings with annual authorized revenue of $ 12.4. the estimated amount earned in fiscal year 2019 under this isrs order was $ 4.6. additionally , in future periods spire missouri will evaluate the need for an adjustment to the provision based upon new information and further developments . gas utility - spire alabama spire alabama is the largest natural gas distribution utility in the state of alabama and is regulated by the apsc . spire alabama 's service territory is located in central and northern alabama . among the cities served by spire alabama are birmingham , the center of the largest metropolitan area in the state , and montgomery , the state capital . spire alabama purchases natural gas through interstate and intrastate suppliers and distributes the purchased gas through its distribution facilities for sale to residential , commercial and industrial customers and other end-users of natural gas . spire alabama also provides transportation services to large industrial and commercial customers located on its distribution system . story_separator_special_tag the purchased gas adjustment clause of spire missouri , spire gulf and spire mississippi and the gas supply adjustment rider of spire alabama allow the utilities to flow through to customers , subject to prudence review by the public service commissions , the cost of purchased gas supplies , including costs , cost reductions and related carrying costs associated with the use of derivative instruments to mitigate volatility in the cost of natural gas . as of september 30 , 2019 , spire missouri had active derivative positions , but spire alabama has had no gas supply derivative instrument activity since 2010. the utilities believe they will continue to be able to obtain sufficient gas supply . the price of natural gas supplies and other economic conditions may affect sales volumes , due to the conservation efforts of customers , and cash flows associated with the timing of collection of gas costs and related accounts receivable from customers . the utilities rely on short-term credit and long-term capital markets , as well as cash flows from operations , to satisfy their seasonal cash requirements and fund their capital expenditures . the utilities access the commercial paper market through a program administered by the holding company , which then loans borrowed funds to the utilities . the utilities directly access the long-term bond market . access to debt markets is dependent on current conditions in the credit and capital markets . management focuses on maintaining a strong balance sheet and believes the utilities currently have adequate access to credit and capital markets and will have sufficient capital resources to meet their foreseeable obligations . see the capital resources section for additional information . gas marketing spire marketing is engaged in the marketing of natural gas and providing energy services to both on-system utility transportation customers and customers outside of the utilities ' traditional service areas . spire marketing utilizes its natural gas supply agreements , transportation agreements , park and loan agreements , storage agreements and other executory contracts to support a variety of services to its customers at competitive prices . it closely monitors and manages the natural gas commodity price and volatility risks associated with providing such services to its customers through the use of a variety of risk management activities , including the use of exchange-traded/cleared derivative instruments and other contractual arrangements . spire marketing is committed to managing commodity price risk while it seeks to expand the services that it now provides . nevertheless , income from the gas marketing operations is subject to more fluctuations in market conditions than the utilities ' operations . the gas marketing business is directly impacted by the effects of competition in the marketplace , the impacts of new infrastructure , surplus natural gas supplies , and the addition of new demand from exports , power generation and industrial load . spire marketing 's management expects a growing need for marketing services across the country as customers manage seasonal variability and marketplace volatility . in addition to its operating cash flows , spire marketing relies on spire 's parental guaranties to secure its purchase and sales obligations of natural gas , and it also has access to spire 's liquidity resources . a large portion of spire marketing 's receivables are from customers in the energy industry . it also enters into netting arrangements with many of its energy counterparties to reduce overall credit and collateral exposure . on a net dollar exposure basis , approximately 75 % of spire marketing 's customers are utilities or utility affiliates . although spire marketing 's uncollectible amounts are closely monitored and have not been significant , increases in uncollectible amounts from customers are possible and could adversely affect gas marketing 's liquidity and results of operations . 30 spire marketing carefully monitors the creditworthiness of counterparties to its transactions . it performs in-house credit reviews of potential customers and may require credit assurances such as prepayments , letters of credit or parental guaranties when appropriate . credit limits for customers are established and monitored . as a result of infrastructure optimization activities and an abundance of natural gas supply , spire marketing can not be certain that all of its wholesale purchase and sale transactions will settle physically . as such , certain transactions are designated as trading activities for financial reporting purposes , due to their settlement characteristics . results of operations from trading activities are reported on a net basis in gas marketing operating revenues ( or expenses , if negative ) , which may cause volatility in the company 's operating revenues , but have no effect on operating income or net income . in the course of its business , spire marketing enters into commitments associated with the purchase or sale of natural gas . in accordance with u.s. gaap , some of its purchase and sale transactions are not recognized in earnings until the natural gas is physically delivered , while other energy-related transactions , including those designated as trading activities , are required to be accounted for as derivatives with the changes in their fair value ( representing unrealized gains or losses ) recorded in earnings in periods prior to settlement . because related transactions of a purchase and sale strategy may be accounted for differently , there may be timing differences in the recognition of earnings under gaap and economic earnings realized upon settlement . the company reports both gaap and net economic earnings ( non-gaap ) , as discussed below . non-gaap measures net income , earnings per share and operating income reported by spire , spire missouri and spire alabama are determined in accordance with gaap . spire , spire missouri and spire alabama also provide the non-gaap financial measures of net economic earnings , net economic earnings per share and contribution margin .
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summary operating results replace_table_token_13_th operating revenues during the year ended september 30 , 2019 increased $ 6.2 from the same period last year . revenues were impacted primarily by the $ 9.4 increase attributable to the new rate design ( net of tcja giveback ) , combined with higher isrs charges of $ 8.7 , and customer growth of $ 2.7. these positive impacts on the revenue growth were partly offset by $ 12.2 in impacts relating to isrs rulings and volume impacts ( net of weather mitigation ) of $ 3.6. contribution margin for the year ended september 30 , 2019 increased $ 11.0 from the prior year . contribution margin benefited from the $ 9.4 increase attributable to the new rate design ( net of tcja giveback ) , combined with higher isrs charges of $ 8.7 , customer growth of $ 2.7 , and the $ 2.8 increase due to the combined impacts of volumetric usage and higher off-system sales . these positive impacts were only partly offset by the $ 12.2 in adjustments relating to the isrs rulings . o & m expenses for the year ended september 30 , 2019 were $ 11.0 lower than the prior year . removing last year 's $ 38.4 of missouri rate case write-offs , and the $ 16.9 net year-over-year increase due to the transfer of mix of service and non-service postretirement benefits costs to other income and expense , o & m increased $ 10.5. of this increase , $ 9.0 relates to higher employee benefits and energy efficiency costs that resulted from the 2018 missouri rate cases . depreciation and amortization increased $ 8.7 , reflecting continued infrastructure investments throughout missouri . interest expense in the current year was $ 2.8 greater than prior year , the result of higher short-term borrowings and higher average effective interest rates . income taxes were $ 45.9 higher for the year ended september 30 , 2019 versus the prior year .
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the following table summarizes the differences between the statutory u.s. federal and effective income tax rates on continuing operations : replace_table_token_43_th lp and its domestic subsidiaries are subject to u.s. federal income tax as well as income taxes of multiple state jurisdictions . its foreign subsidiaries are subject to income tax in canada , chile , peru and brazil . during 2011 , the u.s. internal revenue service initiated an audit of tax years 2007 through 2009. lp protested certain proposed adjustments and requested review by the irs appeals office story_separator_special_tag overview general our products are used primarily in new home construction , repair and remodeling , and outdoor structures . we also market and sell our products in light industrial and commercial construction and we have a modest export business . our manufacturing facilities are primarily located in the u.s. and canada , but we also operate two facilities in chile and one facility in brazil . to serve these markets , we operate in four segments : north america oriented strand board ( osb ) ; siding ; engineered wood products ( ewp ) ; and south america . osb is the most significant segment , accounting for 44 % of continuing sales in 2014 , 51 % in 2013 and 48 % in 2012 . osb is sold as a commodity for which sales prices fluctuate daily based on market factors over which we have little or no control . we can not predict whether the prices of our products will remain at current levels , increase or decrease in the future . factors affecting our results revenues and operating costs . we derive our revenues from sales of our products . the unit volumes of products sold and the prices at which sales are made determine the amount of our revenues . these volumes and prices are affected by the overall level of demand for , and supply of , products of the type we sell and comparable or substitute products , and by competitive conditions . our operating results reflect the relationship between the amount of our revenues and our costs of production and other operating costs and expenses . our costs of production are affected by , among other factors , costs of raw materials ( primarily wood fiber and various petroleum-based resins ) and energy costs , which in turn are affected by the overall market supply of and demand for these manufacturing inputs . demand for building products demand for our products correlates to a significant degree to the level of residential construction activity in north america , which historically has been characterized by significant cyclicality . this activity can be further delineated into three areas : ( 1 ) new home construction ; ( 2 ) repair and remodeling ; and ( 3 ) outdoor structures . new home construction . demand for our products correlates to a significant degree to the level of new home construction activity in north america , which historically has been characterized by significant cyclicality . the u.s. census bureau reported that actual single and multi-family housing starts in 2014 were about 9 % higher than 2013 , which were about 19 % higher than such housing starts in 2012. we believe that the level of building continues to be impacted by delayed household formations due to the sluggish economy and a more restrictive mortgage market . while near term residential construction is constrained in the u.s. , positive long-term fundamentals exist . increased immigration , the changing age distribution of the population , the high number of adults living with their parents and historically low interest rates are expected to lead to more household formations . the chart below , which is based on data published by u.s. census bureau , provides a graphical summary of new housing starts for single and multi-family in the u.s. showing actual and rolling five and ten year averages for housing starts . 20 repair and remodeling . demand for building materials to support home improvement projects is largely tied to the size and age of the existing housing stock in north america and consumer confidence . in this regard , the 1970s and 1980s had some of the highest levels of building activity . this puts these homes at an age of approximately 30-40 years , which has been shown to be consistent with the highest per home expenditure rate on repair and remodeling . with the rise in the number and scale of home improvement stores in north america , individuals now have ready and convenient access to obtain the building materials needed for repair and remodeling , as well as increased access to installation services . supply of building products osb is a commodity product , and it is , along with all of our products , subject to competition from manufacturers worldwide . product supply is influenced primarily by fluctuations in available manufacturing capacity and imports . according to fea ( forest economic advisors , llc ) , total north american osb annual production capacity is projected to increase by approximately 1.6 billion square feet in the period from 2015 to 2018 while plywood production capacity is projected to increase by 0.2 billion square feet for the same period . according to fea , osb accounted for approximately 66 % of north american structural panel production capacity in 2014 , with plywood accounting for the remainder . putting demand and supply together as noted above , demand for building products is influenced by the general economy , demographics and need for housing . in the case of osb , generally , lower demand coupled with higher production capacity will result in lower pricing . the chart below , as calculated by fea ( as of december 2014 ) , shows the demand capacity ratio ( demand divided by supply ) for osb in 2010 through 2014 as well as fea 's forecast through 2018 based upon estimated future demand and supply . 21 product pricing . story_separator_special_tag the carrying amount of a long-lived asset or groups of long-lived assets is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the assets or group of assets . the key assumptions in estimating these cash flows relate to future production volumes , pricing of commodity or specialty products and future estimates of expenses to be incurred as reflected in our long-range internal planning models . our assumptions regarding pricing are based upon the average pricing over the commodity cycle ( generally five years ) due to the inherent volatility of commodity product pricing , and reflect our assessment of information gathered from industry research firms , research reports published by investment analysts and other published forecasts . our assumptions regarding expenses reflect our expectation that we will continue to reduce production costs to offset inflationary impacts . when impairment is indicated for assets held and used in our operations , the book values of the affected assets are written down to their estimated fair value , which is generally based upon discounted future cash flows associated with the affected assets . when impairment is indicated for assets to be disposed of , the book values of the affected assets are written down to their estimated fair value , less estimated selling costs . consequently , a determination to dispose of particular assets can require us to estimate the net sales proceeds expected to be realized upon such disposition , which may be less than the estimated undiscounted future net cash flows associated with such assets prior to such determination , and thus require an impairment charge . in situations where we have experience in selling assets of a similar nature , we may estimate net sales proceeds on the basis of that experience . in other situations , we hire independent appraisers to estimate net sales proceeds . due to the numerous variables associated with our judgments and assumptions relating to the valuation of assets in these circumstances , and the effects of changes in circumstances affecting these valuations , both the precision and reliability of the resulting estimates of the related impairment charges are subject to substantial uncertainties and , as additional information becomes known , we may change our estimates significantly . income taxes . the determination of the provision for income taxes , and the resulting current and deferred tax assets and liabilities , involves significant management judgment , and is based upon information and estimates available to management at the time of such determination . the final income tax liability to any taxing jurisdiction with respect to any calendar year will ultimately be determined long after our financial statements have been published for that year . we maintain reserves for known estimated tax exposures in federal , state and international jurisdictions ; however , actual results may differ materially from our estimates . judgment is also applied in determining whether deferred tax assets will be realized in full or in part . when we consider it to be more likely than not that all or some portion of a deferred tax asset will not be realized , a valuation allowance is established for the amount of the deferred tax asset that is estimated not to be realizable . as of december 31 , 2014 , we had established valuation allowances against certain deferred tax assets , primarily related to state and foreign carryovers of net operating losses , credits and capital losses . we have not established valuation allowances against other deferred tax assets based upon positive evidence such as recent earnings history , generally improving economic conditions and deferred tax liabilities which we anticipate to reverse within the carry forward period . accordingly , changes in facts or circumstances affecting the likelihood of realizing a deferred tax asset could result in the need to record additional valuation allowances . pension plans . most of our u.s. employees and many of our canadian employees participate in defined benefit pension plans sponsored by lp . we account for the consequences of our sponsorship of these plans in accordance with accounting principles generally accepted in the u.s. , which require us to make actuarial assumptions that are used to calculate the related assets , liabilities and expenses recorded in our financial statements . while we believe we have a reasonable basis for these assumptions , which include assumptions regarding long-term rates of return on plan assets , life expectancies , rates of increase in salary levels , rates at which future values should be discounted to determine present values and other matters , the amounts of our pension related assets , liabilities and expenses recorded in our financial statements would differ if we used other assumptions . see further discussion related to pension plans below under the heading “ defined benefit pension plans ” and in note 13 of the notes to the consolidated financial statements included in item 8 of this report . 24 warranty obligations . customers are provided with a limited warranty against certain defects associated with our products for periods of up to fifty years . we estimate the costs to be incurred under these warranties and record a liability in the amount of such costs at the time product revenue is recognized . factors that affect our warranty liability include the historical and anticipated rates of warranty claims and the cost of resolving such . we periodically assess the adequacy of our recorded warranty liability for each product and adjust the amounts as necessary . while we believe we have a reasonable basis for these assumptions , actual warranty costs in the future could differ from our estimates . non-gaap financial measures in evaluating our business , we utilize several non-gaap financial measures .
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results of operations we reported net loss of $ 75.4 million ( $ ( 0.53 ) per diluted share ) in 2014 , which was comprised of loss from continuing operations of $ 73.4 million ( $ ( 0.52 ) per diluted share ) and a loss from discontinued operations of $ 2.0 million ( $ 0.01 per diluted share ) . this compares to net income of $ 177.1 million ( $ 1.23 per diluted share ) in 2013 , which was comprised of income from continuing operations of $ 177.4 million ( $ 1.23 per diluted share ) and a loss from discontinued operations of $ 0.3 million ( $ 0.00 per diluted share ) . we reported net income of $ 28.8 million ( $ 0.20 per diluted share ) in 2012 , which was comprised of income from continuing operations of $ 29.5 million ( $ 0.20 per diluted share ) and a loss from discontinued operations of $ 0.7 million ( $ 0.00 per diluted share ) . net sales in 2014 were $ 1.9 billion , a decrease of 7 % from 2013 net sales of $ 2.1 billion . net sales in 2013 as compared to 2012 were higher by 23 % . sales in 2014 were negatively impacted by decreases in osb selling prices relative to 2013 and 2012 . our results of operations for each of our segments are discussed below , as are results of operations for the “ other ” category which comprises other products that are not individually significant . see note 24 of the notes to the consolidated financial statements included in item 8 of this report for further information regarding our segments . osb our osb segment manufactures and distributes osb structural panel products in north america and certain export markets . osb is an innovative , affordable and environmentally smart product made from wood strands arranged in layers and bonded with resin .
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useful life ( in years ) estimated fair value intangible assets : developed technology 7 $ 9,394,000 the following table summarizes the fair value of the assets acquired and liabilities assumed at the date of acquisition ( in thousands ) : estimated fair value current assets $ story_separator_special_tag overview we are a biotechnology company dedicated to the development of novel treatments and devices for a range of disorders using cells as a key part of the therapy . we are presently focused on developing our primary product , cytori cell therapy , for patients with scleroderma hand dysfunction , orthopedic disorders , cardiovascular disease , urinary incontinence and thermal burns combined with radiation injury . we are actively investigating broadening the use of our technology platform into other areas as well , through internal research and that of our partners . cytori cell therapy consist of a heterogeneous population of specialized cells including stem cells that are involved in response to injury , repair and healing . these cells are extracted from an adult patient 's own adipose ( fat ) tissue using our fully automated , enzymatic , sterile celution ® system devices and consumable sets at the place where the patient is receiving their care ( i.e . there is no off-site processing or manufacturing ) . cytori cell therapy can either be administered to the patient the same day or banked for future use . an independent published study has demonstrated that cytori 's proprietary process results in higher nucleated cell viability , less residual enzyme activity , less processing time , and improved economics in terms of cell progenitor output compared to other semi-automated and automated processes available . in addition to our targeted therapeutic development , we have continued to upgrade and sell our celution® system under select medical device clearances to customers developing new therapeutic applications for cytori cell therapy in europe , japan , and other regions . the sales enhance the body of clinical feasibility data using our technology that could lead to new indications and intellectual property , contribute to near term marginal profit that partially offset our operating expenses and provide the basis for further partnerships and commercial experience that should facilitate future product revenue growth . development pipeline the primary therapeutic areas currently in the development pipeline are scleroderma , orthopedics , cardiovascular disease , specifically heart failure due to ischemic heart disease , and the treatment of thermal burns . in january 2015 , the fda granted unrestricted ide approval for a pivotal clinical trial , named the ‘ star ' trial , to evaluate cytori cell therapy as a potential treatment for impaired hand function in scleroderma , a rare autoimmune disease affecting approximately 50,000 patients in the united states . the star trial is a 48 week , randomized , double blind , placebo-controlled pivotal clinical trial of 80 patients in the united states . the trial evaluates the safety and efficacy of a single administration of cytori cell therapy in scleroderma patients affecting the hands and fingers . based on our internal analysis of the clinical and commercial chances of success , we have decided that scleroderma will be our most advanced clinical indication as it is a phase iii pivotal study . in the later part of 2014 , we received approval by the fda to begin a u.s. ide pilot ( phase iia/b ) trial of cytori cell therapy in patients with osteoarthritis of the knee . the trial , called act-oa , is a 90 patient , randomized , double-blind , placebo control study involving two dose escalations of cytori cell therapy , a low dose and a high dose conducted over 48 weeks . the randomization is 1:1:1 between the control , low dose and high dose groups . the first patient was enrolled in february 2015. cardiovascular disease remains a target therapeutic application of cytori cell therapy . the athena and athena ii trial programs sought to evaluate the safety and feasibility of cytori cell therapy in patients with heart failure due to ischemic heart disease . in 2014 , we truncated enrollment at 31 patients in the u.s. athena trials as a result of delays associated with reviews of safety data . while the trials received fda approval to proceed , we elected to stop enrollment in order to examine 6 and 12 month data in 2015 and with the analysis , strategically examine further investments in the cardiac program . another therapeutic target under evaluation is stress urinary incontinence in men following radical prostatectomy , which is based on positive data reported in a peer reviewed journal . 29 cytori cell therapy is also being developed for the treatment of thermal burns combined with radiation injury . in the third quarter of 2012 , we were awarded a contract to develop a new countermeasure for thermal burns valued at up to $ 106 million with the u.s. department of health and human service 's biomedical advanced research and development authority ( barda ) . the initial base period included $ 4.7 million over two years and covered preclinical research and continued development of cytori 's celution® system to improve cell processing . the additional contract options , if fully executed , could cover our clinical development through fda approval under a device-based pma regulatory pathway . the cost-plus-fixed-fee contract is valued at up to $ 106 million , with a guaranteed two-year base period of approximately $ 4.7 million . we submitted reports to barda in late 2013 detailing the completion of the objectives in the initial contract . an in-process review meeting in the first half of 2014 confirmed completion of the proof of concept phase . in august and december , 2014 , barda awarded to us contract options of $ 14 million . the options allow for continuation of research , regulatory , clinical , and other activities required for approval and completion of a pilot clinical trial using cytori cell therapy ( dcct-10 ) for the treatment of thermal burns combined with radiation injury . story_separator_special_tag however , within general and administrative expenses we had a decrease in salary and related benefits expense ( excluding share-based compensation ) of $ 730,000 related to a decrease of headcount of 13 full-time equivalent employees , partially offset by an increase in professional services ( which includes legal and consulting services ) of $ 702,000. for the year ended december 31 , 2013 as compared to the same period in 2012 , the general and administrative expenses ( excluding share-based compensation ) increased due to non-cash accounts receivable charges of $ 1,141,000 , an increase in professional services of $ 301,000 and were offset by reduced labor costs . the future : based on cost curtailment initiatives implemented throughout 2014 , we expect general and administrative expenditures to decrease modestly in 2015. stock-based compensation expenses stock-based compensation expenses include charges related to options and restricted stock awards issued to employees , directors and non-employees along with charges related to the employee stock purchases under the employee stock purchase plan ( espp ) . we measure stock-based compensation expense based on the grant-date fair value of any awards granted to our employees . such expense is recognized over the period of time that employees provide service to us and earn all rights to the awards . 33 the following table summarizes the components of our stock-based compensation for the years ended december 31 , 2014 , 2013 and 2012 : replace_table_token_9_th most of the share-based compensation expenses for the years ended december 31 , 2014 , 2013 and 2012 related to the vesting of stock option and restricted stock awards to employees . the decrease in share-based compensation for the year ended december 31 , 2014 as compared to the same period in 2013 is primarily due to the decrease in headcount of 37 full-time equivalent employees , the stock price decrease experienced in 2014 and share-based compensation expense reversals due to option cancellations . see note 16 to the consolidated financial statements included elsewhere herein for disclosure and discussion of share-based compensation . the decrease in share-based compensation for the year ended december 31 , 2013 as compared to the same period in 2012 is primarily due to restricted stock awards granted to our executive team during 2012. see note 16 to the consolidated financial statements included elsewhere herein for disclosure and discussion of share-based compensation . the future . we expect to continue to grant options and stock awards to our employees , directors , and , as appropriate , to non-employee service providers . in addition , previously-granted options will continue to vest in accordance with their original terms . as of december 31 , 2014 , the total compensation cost related to non-vested stock options and stock awards not yet recognized for all our plans is approximately $ 3,944,000 , which is expected to be recognized as a result of vesting under service conditions over a weighted average period of 1.77 years . change in fair value of warrant liability the following is a table summarizing the change in fair value of warrant liability for the years ended december 31 , 2014 , 2013 and 2012 : replace_table_token_10_th the change in fair value of our warrant liability for the year ended december 31 , 2014 , is due to warrants issued in connection with this issuance of series a 3.6 % convertible preferred stock in october 2014 , as well as warrants re-priced related to our loan agreement . for the years ended december 31 , 2013 and 2012 , the balance relates to warrants issued in 2008 in connection with a private placement that expired in august 2013. the future : future changes in the fair value of the warrant liability will be recognized in earnings until such time as the warrants ' exercise price becomes fixed , or warrants are exercised or expire . change in fair value of option liability the following is a table summarizing the change in fair value of option liability for the years ended december 31 , 2014 , 2013 and 2012 : replace_table_token_11_th 34 changes in fair value of our put option liability are due to changes in assumptions used in estimating the value of the put , such as bankruptcy threshold for cytori , fair value of the olympus joint venture , volatility and others . the put was cancelled as a result of the joint venture termination agreement executed in 2013. financing items the following table summarizes interest income , interest expense , and other income and expenses for the years ended december 31 , 2014 , 2013 and 2012 : replace_table_token_12_th · interest expense increased for the year ended december 31 , 2014 as compared to 2013 , due to cash interest and non-cash amortization of debt and warrant costs related to our $ 27.0 million term loan executed in june 2013 , and increased accretion expense related to our joint venture liability . · we recorded a beneficial conversion feature of $ 1,169,000 in december of 2014 , related to the issuance of our series a 3.6 % convertible preferred stock . the fair value of the common stock into which the series a 3.6 % preferred stock was convertible on the respective dates of issuance of the preferred stock exceeded the proceeds allocated to the series a 3.6 % convertible preferred stock , resulting in a beneficial conversion feature . · interest expense increased for the year ended december 31 , 2013 as compared to 2012 due to cash interest and non-cash amortization of debt issuance costs and debt discount for our $ 27.0 million term loan executed in june 2013 . · the changes in other income ( expense ) in 2014 , 2013 and 2012 resulted primarily from changes in foreign currency exchange rates . · in connection with the june 2013 loan agreement , a loss on debt extinguishment was recorded that relates to the payoff of the prior loan obligation . see note 11 to the consolidated financial statements for further information .
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results of operations product revenues product revenues consisted of revenues primarily from our celution® and stemsource® cell banks . the following table summarizes the components for the years ended december 31 , 2014 , 2013 and 2012 : replace_table_token_3_th a majority of our product revenue in 2014 was derived from japan . with two new regenerative medicine laws in japan going into effect in november 2014 that removed regulatory uncertainties and provided a clear path for us to offer cytori cell therapy in japan , we expect continued demand from researchers at academic hospitals seeking to perform investigator-initiated and funded studies . we experienced a decrease in product revenue during the year ended december 31 , 2014 as compared to the same period in 2013 , primarily due to decreased activities with our licensee and distributor lorem vascular , who purchased the initial stocking order of approximately $ 1.8m in late 2013 that did not recur in 2014 , decreased revenue in europe of $ 0.7 million , offset by increased revenues in japan of approximately $ 1.0 million . revenue deferred in the years ended december 31 , 2014 , and 2013 was $ 1.4 million , and $ 3.6 million , respectively . there was no comparable revenue deferral in the year ended december 31 , 2012. the future : we expect to continue to generate product revenues from a mix of celution® and stemsource® system and consumables sales . we will sell the products to a diverse group of customers in europe , asia and north america , who may apply the products towards reconstructive surgery , soft tissue repair , research , aesthetics , and cell and tissue banking as approved in each country . additionally , as a result of class i device clearance for celution® and a number of our other products in japan , we anticipate selling these products to researchers at academic hospitals seeking to perform investigator-initiated and funded studies using cytori 's cell therapy .
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in order to comply with the terms of the safe harbor , the company notes that a variety of factors could cause the company 's actual results and experience to differ materially from the anticipated results or expectations expressed in the company 's forward-looking statements . the risks and uncertainties that may affect the operations , performance , development and results of the company 's business include , but are not limited to , those set forth in the following discussion and within item 1a risk factors of this annual report on form 10-k. all of these factors are difficult to predict and many are beyond the company 's control . accordingly , while the company believes its forward-looking statements to be reasonable , there can be no assurance that they will approximate actual experience or that the expectations derived from them will be realized . when used in the company 's documents or news releases , the words anticipate , believe , intend , plan , estimate , expect , objective , projection , forecast , budget , assume , indicate or similar words or future or conditional verbs such as will , would , should , can , could or may are intended to identify forward-looking statements . forward-looking statements reflect the company 's current expectations only as of the date they are made . the company assumes no duty to update these statements should expectations change or actual results differ from current expectations except as required by applicable laws and regulations . overview resources is an energy services company primarily engaged in the regulated sale and distribution of natural gas to approximately 59,100 residential , commercial and industrial customers in roanoke , virginia and the surrounding localities , through its roanoke gas company ( roanoke gas ) subsidiary . resources also provides certain unregulated services through roanoke gas and utility information system services through rgc ventures of virginia , inc. , which operates as the utility consultants and application resources . the company also formed a new wholly-owned 13 subsidiary , rgc midstream , llc ( midstream ) , which was created to invest in the mountain valley pipeline ( mvp ) project . on october 1 , 2015 , midstream executed the agreements to become a 1 % member in the mvp project . more information is provided under the equity investment in mountain valley pipeline section below . the unregulated operations represent less than 3 % of revenues and margins of resources . the utility operations of roanoke gas are regulated by the virginia state corporation commission ( scc ) , which oversees the terms , conditions , and rates to be charged to customers for natural gas service , safety standards , extension of service , accounting and depreciation . the company is also subject to federal regulation from the department of transportation in regard to the construction , operation , maintenance , safety and integrity of its transmission and distribution pipelines . the federal energy regulatory commission ( ferc ) regulates prices for the transportation and delivery of natural gas to the company 's distribution system and underground storage services . the company is also subject to other regulations which are not necessarily industry specific . the company is committed to the safe and reliable delivery of natural gas to its customers . since 1991 , the company has placed an emphasis on the modernization of its distribution system through the renewal and replacement of its cast iron and bare steel natural gas distribution pipelines . with recent regulatory actions placing a greater emphasis on pipeline safety , the company continues to focus its efforts on completing its renewal and replacement program . management anticipates replacing all remaining cast iron and bare steel pipe within the next two years and expects to continue its renewal program with plans to replace first generation pre-1973 plastic pipe . the company is also dedicated to the safeguarding of its information technology systems . these systems contain confidential customer , vendor and employee information as well as important financial data . there is risk associated with the unauthorized access of this information with a malicious intent to corrupt data , cause operational disruptions , or compromise information . management believes it has taken reasonable security measures to protect these systems from cyber security attacks and other types of breaches ; however , there can be no guarantee that a breach will not occur . in the event of a breach , the company will execute its security incident response plan to assist with managing the incident . the company also maintains cyber-insurance coverage to mitigate financial implications resulting from a breach of confidential information . over 97 % of the company 's revenues are derived from the sale and delivery of natural gas to roanoke gas customers . the scc authorizes the rates and fees the company charges its customers for these services . these rates are designed to provide the company with the opportunity to recover its gas and non-gas expenses and to earn a reasonable rate of return for shareholders based on normal weather . normal weather refers to the average number of heating degree days ( an industry measure by which the average daily temperature falls below 65 degrees fahrenheit ) over the previous 30-year period . as the company 's business is seasonal in nature , volatility in winter weather and the commodity price of natural gas , can impact the effectiveness of the company 's rates in recovering its costs and providing a reasonable return for its shareholders . in order to mitigate the effect of weather variations , the company has certain approved rate mechanisms in place that help provide stability in earnings , adjust for volatility in the price of natural gas and provide a return on increased infrastructure investment . story_separator_special_tag therefore , when inventory balances decline due to a reduction in commodity prices , net income will decline as carrying cost revenues decrease by a greater amount than short-term financing costs decrease . the inverse occurs when inventory costs increase . the company 's non-gas rates provide for the recovery of non-gas related expenses and a reasonable return to shareholders . these rates are determined based on the filing of a formal rate application with the scc utilizing historical information including investment in natural gas facilities . generally , investments related to extending service to new customers are recovered through the non-gas rates currently in place . the investment in replacing and upgrading existing infrastructure is not recoverable until a formal rate application is made to include the additional investment and new non-gas rates are approved . the save plan and rider provides the company with the ability to recover costs related to these investments on a prospective basis rather than on a historical basis . the save plan provides a mechanism to recover the related depreciation and expenses and provide a return on rate base of the additional capital investments related to improving the company 's infrastructure until such time a formal rate application is filed to incorporate this investment in the company 's non-gas rates . as the company did not file for an increase in the non-gas rates during the prior year and the level of capital investment continues to grow , save plan revenues have increased significantly . the company recognized approximately $ 1,308,000 , $ 292,000 and $ 169,000 in save plan revenues for years ended september 30 , 2015 , 2014 and 2013. save revenues will be included as part of the new non-gas base rates the next time the company files for a non-gas rate increase . additional information regarding the save rider is provided under the regulatory affairs section . 15 the economic environment has a direct correlation with business and industrial production , customer growth and natural gas utilization . the local economy has lost some key business activities over the last year as some companies have either shut down or relocated all or portions of their operations elsewhere . in addition , a couple of the company 's larger industrial customers have reduced natural gas consumption amid lower production activities . the impact of these relocations or the duration of these curtailments is unknown at this time . however , despite these losses , the local economy appears relatively stable and should continue to slowly improve absent a major economic setback , on either a local or national level . story_separator_special_tag margin-left:4 % '' > the table below reflects operating revenues , volume activity and heating degree-days . operating revenues replace_table_token_9_th total gas utility operating revenues for the year ended september 30 , 2014 increased by 19 % from the year ended september 30 , 2013. the increase in gas revenues was primarily attributable to a combination of a 7 % increase in total delivered natural gas volumes , a 30 % per decatherm increase in the average commodity price of natural gas , implementation of a non-gas rate increase and higher save plan revenues . the increase in delivered volumes was driven by the colder winter heating season where total heating degree days increased by 9 % over fiscal 2013 and were above the 30-year average by the same percentage . transportation and interruptible volumes , which are primarily driven by production activities rather than weather , increased by 6 % . other revenues decreased by 3 % due to the completion of a one-time project during the prior year more than offsetting increases in the level of certain other contract services during fiscal 2014 . 18 gross margin replace_table_token_10_th regulated natural gas margins from utility operations increased by 6 % from fiscal 2013 , primarily as a result of higher residential and commercial sales volumes , the implementation of a non-gas rate increase and the addition of the save plan rider . residential and commercial volumes ( which are strongly correlated to the weather ) increased due to the much colder winter season . the higher margins generated by the increased residential and commercial volume were mostly offset by a net wna refund of $ 563,000 recognized in fiscal 2014. the company also implemented a non-gas rate increase effective november 1 , 2013 and an increased save plan rider beginning january 1 , 2014. the non-gas rate increase was designed to provide approximately $ 887,000 in additional annual non-gas revenues . the implementation of the increased non-gas rates in november 2013 accounted for approximately $ 422,000 of the increase in customer base charges , a flat monthly fee billed to each natural gas customer , and $ 474,000 of the additional volumetric revenue . the save plan rider provided an additional $ 123,000 in margin . icc revenues continued to decline with a $ 58,000 reduction in fiscal 2014 compared to fiscal 2013 due to the larger storage withdrawals and lower icc factor . other margins , consisting of non-utility related services , increased by $ 68,097 due to an increased level of activity under one of the contracted services . the service contracts that comprise most of the non-utility related activities are subject to annual or semi-annual renewal provisions and the potential exists that these contracts may not be renewed or extended by the customer . in addition , the level of activity under these contracts will fluctuate based on customer requirements . the changes in the components of the gas utility margin are summarized below : replace_table_token_11_th operations and maintenance expense operations and maintenance expenses increased by $ 529,789 , or 4 % , in fiscal 2014 compared with fiscal 2013 primarily due to higher labor costs , contracted services , bad debt expense and corporate insurance expense more than offsetting significant reductions in employee benefit costs and greater capitalization of company overheads on construction projects and lng ( liquefied natural gas ) production .
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results of operations fiscal year 2015 compared with fiscal year 2014 the table below reflects operating revenues , volume activity and heating degree-days . operating revenues replace_table_token_5_th delivered volumes replace_table_token_6_th total gas utility operating revenues for the year ended september 30 , 2015 decreased by 9 % from the year ended september 30 , 2014 primarily due to lower gas costs and a reduction in natural gas deliveries . the average commodity price of natural gas declined by 21 % per decatherm sold . delivered volumes declined due in part to weather , as reflected in the decline in residential and commercial volumes , and a reduction in industrial consumption . residential and commercial deliveries tend to be more weather sensitive as reflected by a decline of 1 % in volumes on 2 % fewer heating degree days . transportation and interruptible volumes , which are primarily driven by production activities rather than weather , decreased by 5 % . other revenues decreased by 5 % as well . gross margin replace_table_token_7_th regulated natural gas margins from utility operations increased by 3 % from fiscal 2014 , primarily as a result of higher save plan revenues and customer base charges more than offsetting lower volumetric margins and icc revenues . save plan revenues increased by $ 1,016,000. as the company continues to invest in eligible save plan infrastructure , the associated save plan revenues will continue to increase . customer base charges also increased due 16 to modest customer growth . as discussed above , volumetric margin declined due to a reduction in total volumes delivered . residential and commercial volumes declined primarily due to slightly warmer weather . interruptible and transportation volumes declined due to the loss of a customer and decreased usage at two of the company 's largest customers . the effect of the warmer weather was mitigated in part by the wna mechanism .
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cardo medical , llc ( nka tiger x medical , llc ) and arthrex , inc. 2.3 ( 3 ) asset purchase agreement , dated april 4 , 2011 , by and among cardo medical , inc. ( nka tiger x medical , inc. ) , cardo medical , llc ( nka tiger x medical , llc ) and altus partners , llc . 3.1 ( 4 ) amended and restated certificate of incorporation . 3.2 ( 5 ) certificate of amendment of amended and restated certificate of incorporation . 3.3 ( 6 ) certificate of amendment of amended and restated certificate of incorporation 3.4 ( 7 ) amended and restated bylaws . 10.1 * ( 8 ) amended and restated 1996 incentive and nonqualified stock option plan . 35 10.2 * ( 9 ) form of cardo medical , llc ( nka tiger x medical , llc ) nonstatutory option agreement . 10.3 ( 9 ) form of indemnification agreement for officers and directors . 10.4 ( 10 ) form of registration rights agreement , dated october 27 , 2009 , by and among cardo medical , inc. ( nka tiger x medical , inc. ) and the several purchasers signatory thereto . 10.5 * ( 11 ) cardo medical , inc. ( nka tiger x medical , inc. ) 2010 equity incentive plan 10.6 ( 12 ) secured promissory note by the company in favor of jon brooks , dated november 2 , 2010 . 10.7 ( 12 ) security agreement between the company and jon brooks , dated november 2 , 2010 . 10.8 ( 12 ) secured promissory note by the company in favor of earl brien , dated november 4 , 2010 . 10.9 ( 12 ) security agreement between the company and earl brien , dated november 4 , 2010 . 10.10 ( 2 ) secured promissory note by cardo medical , inc. ( nka tiger x medical , inc. ) and cardo medical , llc ( nka tiger x medical , llc ) in favor of arthrex , inc. dated march 18 , 2011 . 21.1 ( 9 ) subsidiaries of tiger x medical , inc. 31.1 # certification of chief executive officer 31.2 # certification of chief financial officer 32.1 # certification of chief executive officer pursuant to rule 13a-14 ( b ) and section 906 of the sarbanes-oxley act of 2002 ( subsections ( a ) and ( b ) of section 1350 , title 18 , united states code ) 32.2 # certification of chief financial officer pursuant to rule 13a-14 ( b ) and section 906 of the sarbanes-oxley act of 2002 ( subsections ( a ) and ( b ) of section 1350 , title 18 , united states code ) 101.ins # xbrl instance document 101.sch # xbrl taxonomy extension schema 101.cal # xbrl taxonomy extension calculation linkbase 101.def # xbrl taxonomy extension definition linkbase 101.lab # xbrl taxonomy extension label linkbase 101.pre # xbrl taxonomy extension presentation linkbase # filed herewith . * management compensation plan or agreement . ( 1 ) previously filed as an exhibit to the current report on form 8-k filed by us on january 27 , 2011 . ( 2 ) previously filed as an exhibit to the current report on form 8-k filed by us on march 24 , 2011 . ( 3 ) previously filed as an exhibit to the current report on form 8-k filed by us on april 8 , 2011 . ( 4 ) previously filed as an exhibit to the current report on form 8-k filed by us on march 18 , 2008 . ( 5 ) previously filed as an annex to the information statement on schedule 14c filed by us on september 30 , 2008 . ( 6 ) previously filed as an exhibit to the current report on form 8-k filed by us on june 16 , 2011 . ( 7 ) previously filed as an exhibit to the current report on form 8-k filed by us on february 1 , 2008 . ( 8 ) previously filed as an exhibit to the annual report on form 10-ksb filed by us on september 28 , 1998 . ( 9 ) previously filed as an exhibit to the current report on form 8-k filed by us on september 9 , 2008 . ( 10 ) previously filed as an exhibit to the current report on form 8-k filed by us on october 29 , 2009 . 36 ( 11 ) previously filed as an exhibit to the quarterly report on form 10-q filed by us on august 12 , 2010 . ( 12 ) previously filed as an exhibit to the current report on form 8-k filed by us on november 8 , 2010 . 37 signatures pursuant to the requirements of section 13 or 15 ( d ) of the securities and exchange act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . tiger x medical , inc. dated : march 25 , 2016 andrew a. brooks andrew a. brooks chief executive officer pursuant to the requirements of the securities and exchange act of 1934 , this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated . signature title date andrew a. brooks chairman of the board and chief executive officer march 25 , 2016 andrew a. brooks and interim chief financial officer ( principal executive officer ) ( principal financial and accounting officer ) jonathan brooks director march 25 , 2016 jonathan brooks stephen liu director march 25 , 2016 stephen liu thomas h. morgan director march 25 , 2016 thomas h. morgan ronald n. richards director march 25 , 2016 ronald n. richards steven d. rubin director march 25 , 2016 steven d. rubin subbarao uppaluri director march 25 , 2016 story_separator_special_tag cardo medical , llc ( nka tiger x medical , llc ) and arthrex , inc. 2.3 ( 3 ) asset purchase agreement , dated april 4 , 2011 , by and among cardo medical , inc. ( nka tiger x medical , inc. ) , cardo medical , llc ( nka tiger x medical , llc ) and altus partners , llc . 3.1 ( 4 ) amended and restated certificate of incorporation . 3.2 ( 5 ) certificate of amendment of amended and restated certificate of incorporation . 3.3 ( 6 ) certificate of amendment of amended and restated certificate of incorporation 3.4 ( 7 ) amended and restated bylaws . 10.1 * ( 8 ) amended and restated 1996 incentive and nonqualified stock option plan . 35 10.2 * ( 9 ) form of cardo medical , llc ( nka tiger x medical , llc ) nonstatutory option agreement . 10.3 ( 9 ) form of indemnification agreement for officers and directors . 10.4 ( 10 ) form of registration rights agreement , dated october 27 , 2009 , by and among cardo medical , inc. ( nka tiger x medical , inc. ) and the several purchasers signatory thereto . 10.5 * ( 11 ) cardo medical , inc. ( nka tiger x medical , inc. ) 2010 equity incentive plan 10.6 ( 12 ) secured promissory note by the company in favor of jon brooks , dated november 2 , 2010 . 10.7 ( 12 ) security agreement between the company and jon brooks , dated november 2 , 2010 . 10.8 ( 12 ) secured promissory note by the company in favor of earl brien , dated november 4 , 2010 . 10.9 ( 12 ) security agreement between the company and earl brien , dated november 4 , 2010 . 10.10 ( 2 ) secured promissory note by cardo medical , inc. ( nka tiger x medical , inc. ) and cardo medical , llc ( nka tiger x medical , llc ) in favor of arthrex , inc. dated march 18 , 2011 . 21.1 ( 9 ) subsidiaries of tiger x medical , inc. 31.1 # certification of chief executive officer 31.2 # certification of chief financial officer 32.1 # certification of chief executive officer pursuant to rule 13a-14 ( b ) and section 906 of the sarbanes-oxley act of 2002 ( subsections ( a ) and ( b ) of section 1350 , title 18 , united states code ) 32.2 # certification of chief financial officer pursuant to rule 13a-14 ( b ) and section 906 of the sarbanes-oxley act of 2002 ( subsections ( a ) and ( b ) of section 1350 , title 18 , united states code ) 101.ins # xbrl instance document 101.sch # xbrl taxonomy extension schema 101.cal # xbrl taxonomy extension calculation linkbase 101.def # xbrl taxonomy extension definition linkbase 101.lab # xbrl taxonomy extension label linkbase 101.pre # xbrl taxonomy extension presentation linkbase # filed herewith . * management compensation plan or agreement . ( 1 ) previously filed as an exhibit to the current report on form 8-k filed by us on january 27 , 2011 . ( 2 ) previously filed as an exhibit to the current report on form 8-k filed by us on march 24 , 2011 . ( 3 ) previously filed as an exhibit to the current report on form 8-k filed by us on april 8 , 2011 . ( 4 ) previously filed as an exhibit to the current report on form 8-k filed by us on march 18 , 2008 . ( 5 ) previously filed as an annex to the information statement on schedule 14c filed by us on september 30 , 2008 . ( 6 ) previously filed as an exhibit to the current report on form 8-k filed by us on june 16 , 2011 . ( 7 ) previously filed as an exhibit to the current report on form 8-k filed by us on february 1 , 2008 . ( 8 ) previously filed as an exhibit to the annual report on form 10-ksb filed by us on september 28 , 1998 . ( 9 ) previously filed as an exhibit to the current report on form 8-k filed by us on september 9 , 2008 . ( 10 ) previously filed as an exhibit to the current report on form 8-k filed by us on october 29 , 2009 . 36 ( 11 ) previously filed as an exhibit to the quarterly report on form 10-q filed by us on august 12 , 2010 . ( 12 ) previously filed as an exhibit to the current report on form 8-k filed by us on november 8 , 2010 . 37 signatures pursuant to the requirements of section 13 or 15 ( d ) of the securities and exchange act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . tiger x medical , inc. dated : march 25 , 2016 andrew a. brooks andrew a. brooks chief executive officer pursuant to the requirements of the securities and exchange act of 1934 , this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated . signature title date andrew a. brooks chairman of the board and chief executive officer march 25 , 2016 andrew a. brooks and interim chief financial officer ( principal executive officer ) ( principal financial and accounting officer ) jonathan brooks director march 25 , 2016 jonathan brooks stephen liu director march 25 , 2016 stephen liu thomas h. morgan director march 25 , 2016 thomas h. morgan ronald n. richards director march 25 , 2016 ronald n. richards steven d. rubin director march 25 , 2016 steven d. rubin subbarao uppaluri director march 25 , 2016
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overview tiger x medical , inc. ( `` tiger x '' or the `` company '' ) , formerly known as cardo medical , inc. , previously operated as an orthopedic medical device company specializing in designing , developing and marketing high performance reconstructive joint devices and spinal surgical devices . as discussed below , in 2011 we entered into an asset purchase agreement to sell substantially all of our assets in the reconstructive division to arthrex , inc. ( `` arthrex '' ) . additionally , we completed the sale of substantially all of the assets in the spine division in 2011. our continuing operations include the collection and management of our royalty income earned in connection with the asset purchase agreement with arthrex , as well as continuing to promote our former products sold to arthrex through participation in mobile teaching labs , seminars and live surgery and seek a joint venture partner or buyer for the remaining intellectual property owned by the company . the company will also be evaluating future investment opportunities and uses for its cash . we are headquartered in los angeles , california . our common stock is quoted on the national association of securities dealers , inc. 's , over-the-counter bulletin board , or the otc bulletin board with a trading symbol of cdom.ob . critical accounting policies and estimates our significant accounting policies are more fully described in the notes to our consolidated financial statements . those material accounting estimates that we believe are the most critical to an investor 's understanding of our financial results and condition are discussed immediately below and are particularly important to the portrayal of our financial position and results of operations and require the application of significant judgment by our management to determine the appropriate assumptions to be used in the determination of certain estimates .
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while we believe these expectations , assumptions , estimates and projections are reasonable , such forward-looking statements are only predictions and involve known and unknown risks , uncertainties and other factors , many of which are outside of our control , which could cause our actual results , performance or achievements to differ materially from any results , performance or achievements expressed or implied by such forward-looking statements . these risks , uncertainties and other factors include , but are not limited to : our significant debt and ability to incur substantially more debt ; our future cash flow and earnings ; our ability to meet our debt obligations ; 24 the impact of payments received from the government and third-party payors on our revenues and results of operations ; the impact of the economic and employment conditions in the united states on our business and results of operations ; the impact of recent healthcare reform ; the impact of our highly competitive industry on patient volumes ; the impact of recruitment and retention of quality psychiatrists and other physicians on our performance ; the impact of competition for staffing on our labor costs and profitability ; our dependence on key management personnel , key executives and our local facility management personnel ; compliance with laws and government regulations ; the impact of claims brought against our facilities ; the impact of governmental investigations , regulatory actions and whistleblower lawsuits ; difficulties in successfully integrating the yfcs , phc and haven facilities and operations or realizing the potential benefits and synergies of these acquisitions ; difficulties in acquiring facilities in general and acquiring facilities from not-for-profit entities due to regulatory scrutiny ; difficulties in improving the operations of the facilities we acquire ; the impact of unknown or contingent liabilities on facilities we acquire ; the impact of state efforts to regulate the construction or expansion of healthcare facilities on our ability to operate and expand our operations ; the impact of controls designed to reduce inpatient services on our revenues ; the impact of fluctuations in our operating results , quarter to quarter earnings and other factors on the price of our common stock ; the impact of different interpretations of accounting principles on our results of operations or financial condition ; the impact of an increase in uninsured and underinsured patients or the deterioration in the collectability of the accounts of such patients on our results of operations ; the impact of legislative and regulatory initiatives relating to privacy and security of patient health information and standards for electronic transactions ; the impact of the trend for insurance companies and managed care organizations to enter into sole source contracts on our ability to obtain patients ; the fact that we have not been required to comply with regulatory requirements applicable to reporting companies until recently ; our status as a controlled company ; and the other risks described under the heading risk factors in item 1a given these risks and uncertainties , you are cautioned not to place undue reliance on such forward-looking statements . these risks and uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements . these forward-looking statements are made only as of the date of this annual report on form 10-k. we do not undertake and specifically decline any obligation to update any such statements or to publicly announce the results of any revisions to any such statements to reflect future events or developments . overview our business strategy is to acquire and develop inpatient behavioral healthcare facilities and improve our operating results within our inpatient facilities and our other behavioral healthcare operations . our goal is to improve the operating results of our facilities by providing high quality services , expanding referral networks and marketing initiatives while meeting the increased demand for behavioral healthcare services through expansion of our current locations as well as developing new services within existing locations . on march 1 , 2012 , we completed the acquisition of three inpatient behavioral healthcare facilities with a combined 166 licensed beds from haven for $ 91.0 million of cash consideration . also on march 1 , 2012 , we amended our senior secured credit facility to provide an incremental $ 25.0 million of term loans and increase the revolving credit facility by $ 45.0 million , from $ 30.0 million to $ 75.0 million . we used the net proceeds from the sale of our common stock , the incremental term loans of $ 25.0 million and a $ 5.0 million borrowing under the revolving credit facility to fund the acquisition of the haven facilities . on december 20 , 2011 , we completed the offering of 9,583,332 shares of our common stock ( including shares sold pursuant to the exercise of the over-allotment option that we granted to the underwriters as part of the offering ) at a price of $ 7.50 per share . the net proceeds to us from the sale of the shares , after deducting the underwriting discount of approximately $ 3.8 million and additional offering-related expenses of approximately $ 0.9 million , were approximately $ 67.2 million . 25 on november 1 , 2011 , we completed our acquisition of phc , a leading national provider of inpatient and outpatient mental health and drug and alcohol addiction treatment programs in delaware , michigan , nevada , pennsylvania , utah and virginia . in connection with the acquisition , we issued $ 150.0 million of our senior notes and used the proceeds of such debt issuance primarily to pay a cash distribution of $ 74.4 million to existing acadia stockholders , repay phc debt of $ 26.4 million , fund the $ 5.0 million cash portion of the acquisition consideration issued to the holders of phc 's class b common stock , pay a $ 20.6 million fee to terminate the professional services agreement between acadia and waud capital partners and pay transaction-related expenses . the senior notes were issued at a discount of $ 2.5 million . story_separator_special_tag other operating expenses consist primarily of purchased services , utilities , insurance , travel and repairs and maintenance expenses . other operating expenses were $ 6.9 million for the year ended december 31 , 2010 , or 11.1 % of revenue , compared to $ 6.7 million for the year ended december 31 , 2009 , or 13.6 % of revenue . same-facility other operating expenses were $ 6.1 million in 2010 , or 10.8 % of revenue , compared to $ 6.7 million in 2009 , or 13.6 % of revenue . this decrease in same-facility other operating expenses as a percent of revenue is primarily attributable to improved operating efficiencies . depreciation and amortization . depreciation and amortization expense was $ 1.0 million for the year ended december 31 , 2010 , or 1.6 % of revenue , compared to $ 1.0 million for the year ended december 31 , 2009 , or 2.0 % of revenue . interest expense . interest expense was $ 0.7 million for the year ended december 31 , 2010 compared to $ 0.8 million for the year ended december 31 , 2009. liquidity and capital resources historical cash used in continuing operating activities for the year ended december 31 , 2011 was $ 18.6 million compared to cash provided by continuing operating activities of $ 8.1 million for the year ended december 31 , 2010. the decrease in cash provided by continuing operating activities is primarily attributable to transaction-related expenses of $ 41.5 million partially offset by cash provided by continuing operating activities of the yfcs facilities acquired on april 1 , 2011 and the phc facilities acquired on november 1 , 2011. as of december 31 , 2011 , our working capital of $ 71.9 million , including cash and cash equivalents of $ 61.1 million , was higher than normal because of the proceeds from our offering of common stock completed on december 20 , 2011 that were not used until the completion of the acquisition of the haven facilities on march 1 , 2012. days sales outstanding as of december 31 , 2011 was 38 compared to 31 as of december 31 , 2010. cash used in continuing investing activities for the year ended december 31 , 2011 was $ 225.3 million compared to $ 1.5 million for the year ended december 31 , 2010. cash used in continuing investing activities for the year ended december 31 , 2011 primarily consisted of cash paid for the yfcs and phc acquisitions of $ 206.4 million , cash paid for capital expenditures of $ 9.6 million and cash paid for real estate acquisitions of $ 8.7 million . cash used for routine and expansion capital expenditures was approximately $ 3.5 million and $ 6.1 million , respectively , for the year ended december 31 , 2011. we define expansion capital expenditures as those that increase the capacity of our facilities or otherwise enhance revenue . routine or maintenance capital expenditures were approximately 1.6 % of our revenue for the year ended december 31 , 2011. cash used in continuing investing activities for the year ended december 31 , 2010 consisted primarily of $ 1.5 million in cash paid for capital expenditures . cash provided by financing activities for the year ended december 31 , 2011 was $ 298.7 million whereas cash used in financing activities was $ 2.6 million for the year ended december 31 , 2010. cash provided by financing activities for the year ended december 31 , 2011 primarily consisted of borrowings on long-term debt of $ 282.5 million , contributions from holdings of $ 51.0 million and the proceeds from the issuance of common stock of $ 68.1 million , partially offset by the cash distribution paid to equity holders of $ 74.4 million , principal payments on long-term debt of $ 5.1 million , repayments of long-term debt of $ 10.0 million , payment of debt issuance costs of $ 12.1 million , payment of equity issuance costs of $ 0.9 million and distributions to equity holders of $ 0.4 million . cash used in financing activities for the year ended december 31 , 2010 primarily consisted of capital distributions of $ 2.3 million . 29 senior secured credit facility to finance our acquisition of yfcs and refinance our $ 10.0 million secured promissory note that was outstanding at december 31 , 2010 , we entered into the senior secured credit facility , administered by bank of america , n.a. , on april 1 , 2011. the senior secured credit facility included $ 135.0 million of term loans and a revolving credit facility of $ 30.0 million . as of december 31 , 2011 , we had $ 29.6 million of availability under our revolving line of credit , which reflected the total revolving credit facility of $ 30.0 million less an undrawn letter of credit of $ 0.4 million . on march 1 , 2012 , we amended our senior secured credit facility to provide an incremental $ 25.0 million of term loans and increase the revolving credit facility by $ 45.0 million , from $ 30.0 million to $ 75.0 million . we used the incremental term loans of $ 25.0 million and a $ 5.0 million borrowing under the revolving credit facility to partially fund the acquisition of the haven facilities on march 1 , 2012. subsequent to the amendment of the senior secured credit facility and acquisition of the haven facilities on march 1 , 2012 , we have $ 69.6 million of availability under our revolving line of credit , subject to customary debt incurrence tests .
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results of operations the following table illustrates our consolidated results of operations from continuing operations for the respective periods shown ( dollars in thousands ) : replace_table_token_3_th year ended december 31 , 2011 compared to the year ended december 31 , 2010 revenue before provision for doubtful accounts . revenue before provision for doubtful accounts increased $ 160.3 million , or 249.1 % , to $ 224.6 million for the year ended december 31 , 2011 compared to $ 64.3 million for the year ended december 31 , 2010. the increase relates primarily to the $ 152.6 million of revenue generated during 2011 from the yfcs facilities acquired on april 1 , 2011 and the phc facilities acquired on november 1 , 2011. the remainder of the increase in revenue before provision for doubtful accounts is attributable to same-facility revenue before provision for doubtful accounts growth of $ 7.7 million , or 12.0 % , on same-facility growth in patient days of 13.3 % . provision for doubtful accounts . the provision for doubtful accounts was $ 3.2 million for the year ended december 31 , 2011 , or 1.4 % of revenue before provision for doubtful accounts , compared to $ 2.2 million for the year ended december 31 , 2010 , or 3.5 % of revenue before provision for doubtful accounts . the decrease in the provision for doubtful accounts is attributable to the lower volumes of private pay admissions and bad debts associated with the facilities acquired from yfcs on april 1 , 2011. the same-facility provision for doubtful accounts was $ 2.3 million for the year ended december 31 , 2011 , or 3.2 % of revenue before provision for doubtful accounts , compared to $ 2.2 million for the year ended december 31 , 2010 , or 3.5 % of revenue before provision for doubtful accounts . salaries , wages and benefits . salaries , wages and benefits ( swb ) expense was $ 156.6 million for the year ended december 31 , 2011 compared to $ 38.7
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if we determine that is more likely than not that the fair value of the company is less than its recorded value , then we are required to perform story_separator_special_tag results of operations for the two years ended december 31 , 2016 : story_separator_special_tag style= '' line-height:120 % ; padding-top:10px ; text-align : left ; font-size:10pt ; '' > revenue from sales of smt and high precision 3d oem sensors increased by $ 5.8 million or 44 % to $ 18.8 million in 2016 , and decreased by $ 2.5 million or 16 % to $ 13.0 million in 2015 , from $ 15.5 million in 2014. revenue increases in 2016 resulted from a significant rebound in sales of legacy 2d laseralign sensors to oem customers , as well as sales of 3d mrs sensors to kla-tencor and nordson , and from an $ 800,000 order for 3d mrs-enabled sensors from a major new customer for a general purpose metrology application related to the inspection of finished goods . the rebound in sales of 2d laseralign sensors was driven by one oem customer which experienced a significant increase in sales of its products that incorporate our sensors . revenue decreases in 2015 resulted from soft demand for legacy 2d laseralign sensors from oem customers selling into china , when market conditions were challenging . sales to kla-tencor are expected to continue to increase as our sensors are incorporated into a growing portion of kla-tencor 's back-end semiconductor packaging inspection systems . nordson introduced its 3d mrs-equipped aoi system at the ipc apex expo trade show in march 2016 to a very favorable reception . we believe that sales of sensors under our nordson supply agreement should be a positive contributor to our future sales growth . in addition , we believe that our major new customer using our 3d mrs-enabled sensors to inspect finished goods could generate significant sales in the future . revenue from sales of semiconductor sensors , principally our wafersense ® and reticlesense ® product lines , increased by $ 2.4 million or 31 % to $ 10.1 million in 2016 , and increased by $ 82,000 or 1 % to $ 7.7 million in 2015 , from $ 7.6 million in 2014. the sales increases in 2016 were due in part to our new auto-multi sensors that combine leveling , vibration and humidity measurements into an all-in-one wireless , real-time device . sales increases were also due to increased customer awareness and improved account penetration at major semiconductor manufacturers and capital equipment suppliers . sales of semiconductor sensors in 2015 were negatively impacted by a general slowdown in the semiconductor capital equipment market and production delays impacting sales of our new auto-multi sensors . we anticipate that the benefits from growing market awareness and new product introductions will lead to additional wafersense ® and reticlesense ® sales in future periods . we also are increasing our sales of wafersense ® and reticlesense ® products to manufacturers of flat panel displays , as these customers have determined that these products are able to significantly improve their manufacturing processes and yields . 24 revenue from sales of smt inspection systems increased by $ 15.1 million or 111 % to $ 28.7 million in 2016 , and decreased by $ 4.5 million or 25 % to $ 13.6 million in 2015 , from $ 18.1 million in 2014. revenue from smt inspection systems in 2016 resulted from strong demand for our entire portfolio of smt inspection system products , including sq3000 3d mrs-enabled aoi systems and recognition of $ 5.7 million in revenue from sales of mx600 memory module inspection systems . strong sales growth from sq3000 systems in 2016 was due in part to follow-on orders totaling approximately $ 4.7 million from a key customer that manufactures a next-generation consumer electronics product . the decline in sales of smt inspection systems in 2015 resulted from lower sales of older more established spi and 2d aoi systems , offset in part by initial sales of the mx600 and sq3000 products . we believe a growing number of companies are transitioning from 2d aoi to 3d aoi systems to meet the increasingly demanding inspection requirements of the electronics and industrial markets . we believe sales of our new 3d mrs enabled aoi products will represent an increasing percentage of our total aoi and spi product sales in the future . we expect that the competitive advantages of our unique 3d mrs technology will provide us with an opportunity to capture meaningful market share in the 3d aoi systems market . revenue from sales of 3d scanning solutions and services increased by $ 1.8 million or 27 % to $ 8.7 million in 2016 , and increased by $ 1.5 million or 29 % to $ 6.9 million in 2015 , from $ 5.3 million in 2014. revenue increases in 2016 were due to strong sales of computed tomography or x-ray scanning ( ct ) systems , mainly to a single customer , and reflects our ability to provide a comprehensive offering of training , installation and support services . we believe future revenue growth from sales of 3d scanning solutions and services will be determined in large part by market acceptance of our new mrs-equipped cybergage®360 3d scanning system . we sold two cybergage360 systems in the fourth quarter of 2016. after starting slowly in the first half of 2017 , we anticipate steadily increasing sales of cybergage360 by the end of 2017. export revenue totaled $ 53.5 million or 81 % of total revenue in 2016 , compared to $ 29.7 million or 72 % of total revenue in 2015 , and $ 34.1 million or 73 % of total revenue in 2014. the increase in export revenue as a percentage of total revenue in 2016 was due to the large increase in sales of smt inspection systems , a higher proportion of which are generally sold outside the united states as compared to our other products . story_separator_special_tag during the fourth quarter of 2016 , we substantially reduced the valuation allowances recorded against our united states and singapore based deferred tax assets , primarily due to significant improvement in our operating results and financial outlook . in analyzing the need for valuation allowances , we first considered our history of cumulative operating results for income tax purposes over the past three years in each of the tax jurisdictions in which we operate , our financial performance in recent quarters , statutory carry forward periods and tax planning alternatives . finally , we considered both our near and long-term financial outlook . after considering all available evidence both positive and negative , we concluded that a substantial reduction in the valuation allowances recorded against our united states and singapore based deferred tax assets was appropriate . the $ 9.6 million reduction in valuation allowances for 2016 caused us to recognize a significant non-cash income tax benefit . the reduction resulted from utilization of available net operating loss carryforwards and our determination that significant valuation allowances were no longer needed due to the improvement in our operating results and financial outlook . for the first three quarters of 2016 , we reported very little income tax expense due to utilization of our available net operating loss carryforwards . the corresponding reductions in our valuation allowances reduced reported income tax expense . because a significant portion of the valuation allowances have been reversed , we anticipate that reported income tax expense for gaap purposes will increase in future periods . the timing of cash payments for income taxes is not impacted . we file income tax returns in the u.s. federal jurisdiction , and various state and foreign jurisdictions . our federal income tax returns for years after 2012 are still subject to examination by the internal revenue service . we are no longer subject to state and local income tax examinations for years prior to 2012. the inland revenue authority of singapore recently completed a review of our 2012 income tax return . the review did not result in payment of any additional tax or any change in our taxable income . 26 liquidity and capital resources our cash and cash equivalents increased by $ 6.4 million in 2016 , principally resulting from $ 9.1 million of cash provided by operating activities , proceeds of $ 6.2 million from sales and maturities of marketable securities , and proceeds of $ 646,000 from stock option exercises and share purchases under our employee stock purchase plan . cash provided by these activities was offset in part by purchases of marketable securities totaling $ 8.1 million and purchases of fixed assets and capitalized patent costs totaling $ 1.4 million . our cash and cash equivalents fluctuate in part because of sales and maturities of marketable securities and investment of cash balances in marketable securities , and from other sources of cash . accordingly , we believe the combined balances of cash and marketable securities provide a more reliable indication of our available liquidity than cash balances alone . combined balances of cash and marketable securities increased by $ 8.3 million to $ 25.9 million as of december 31 , 2016 from $ 17.6 million as of december 31 , 2015. operating activities provided $ 9.1 million of cash in 2016. cash provided by operations included net income of $ 11.6 million , including a $ 5.3 million deferred income tax benefit and non-cash expenses totaling $ 2.6 million for depreciation and amortization , provision for doubtful accounts , non-cash gains from foreign currency transactions and equity-based compensation costs . changes in operating assets and liabilities providing cash included a decrease in inventories of $ 1.0 million , an increase in accounts payable of $ 550,000 and an increase in accrued expenses of $ 1.9 million . changes in operating assets and liabilities using cash included an increase in accounts receivable of $ 2.8 million , an increase in other assets of $ 346,000 and a decrease in advance customer payments of $ 153,000. inventories decreased due to customer acceptance of our remaining mx600 backlog , offset in part by new purchases of inventory needed to manufacture products for future sales requirements . the accounts payable increase resulted from the timing of new inventory purchases and payments to suppliers . accrued expenses were higher mainly due to incentive compensation and warranty accruals resulting from our improved financial performance and higher sales levels . accounts receivable increased because sales were $ 2.1 million higher in the fourth quarter of 2016 , when compared to the fourth quarter of 2015. other assets increased due to payments for income tax deposits and recoverable goods and services taxes . the small decrease in advance customer payments resulted from the timing of cash collections and recognition of revenue for transactions that were previously deferred . operating activities used $ 2.4 million of cash in 2015. cash used by operations included our net loss of $ 2.1 million , which included non-cash expenses totaling $ 2.2 million for depreciation and amortization , provision for doubtful accounts , deferred taxes , non-cash gains from foreign currency transactions and stock compensation expenses . changes in operating assets and liabilities providing cash included an increase in accounts payable of $ 1.1 million . changes in operating assets and liabilities using cash included increases in inventories of $ 2.5 million , accounts receivable of $ 161,000 and a decrease in accrued expenses of $ 1.0 million . the increase in inventories and accounts payable was related to the timing of inventory purchases needed for higher customer demand , as reflected in our large year end backlog , and new large orders received subsequent to year end .
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general overview our products are sold primarily into the electronics assembly , dram and flash memory , and semiconductor fabrication capital equipment markets . we sell products in these markets both to original equipment manufacturers ( oems ) of production equipment and to end-user customers that assemble circuit boards and semiconductor wafers and devices . our wholly owned subsidiary , laser design , inc. ( ldi ) , provides 3d scanning solutions and services to the global 3d scanner and services metrology markets . our recent and planned product introductions are designed to strengthen our competitive position in our current markets and expand into adjacent markets . we believe 3d inspection represents a high-growth segment of both the electronic assembly market and the semiconductor market . for this reason , we are working to strategically reposition our company as a developer , manufacturer and global leader of high-precision 3d sensors . a key element in our strategic re-positioning is the development of new high precision 3d sensors based on our proprietary mrs technology . mrs technology inhibits reflections that can result in measurement inaccuracies , which is particularly critical for inspecting shiny objects . we believe that mrs is a break-through optical technology for high-end inspection applications , with the potential to expand our markets in the future . in the existing markets for our smt , semiconductor inspection and 3d scanning solutions , we are seeing a growing number of opportunities because of our 3d mrs technology platform , and we are introducing new products based on mrs technology that we believe present a significant opportunity for increased revenues . we have entered into a mutually exclusive agreement to supply kla-tencor with high-precision 3d sensor subsystems for its back-end semiconductor packaging inspection systems . we also have entered into an agreement to supply nordson-yestech with high precision 3d sensor subsystems for the smt market .
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the following table displays additional information regarding gross unrealized losses and fair value by major security 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 years 2014 , 2013 and 2012 contained 52 weeks . unless otherwise stated , all years and dates refer to the company 's fiscal year and fiscal periods . unless the context otherwise requires , references in this document to `` we , '' `` us , '' `` our '' and similar terms refer to garmin ltd. and its subsidiaries . unless otherwise indicated , dollar amounts set forth in the tables are in thousands , except per share data . overview we are a leading worldwide provider of navigation , communications and information devices , most of which are enabled by global positioning system , or gps , technology . 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 . 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 . 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 . 41 for information on each of the following critical accounting policies and or estimates , refer to the discussion in the notes to the consolidated financial statements as indicated in the table below : revenue recognition note 2 - summary of significant accounting policies trade accounts receivable note 2 - summary of significant accounting policies loan receivable note 2 - summary of significant accounting policies warranties note 2 - summary of significant accounting policies inventory note 2 - summary of significant accounting policies investments note 2 - summary of significant accounting policies & note 3 - marketable securities income taxes note 2 - summary of significant accounting policies & note 6 - income taxes stock based compensation note 2 - summary of significant accounting policies & note 9 - stock compensation plans accounting terms and characteristics net sales our net sales are primarily generated through sales to our retail partners , dealer and distributor network and to original equipment manufacturers . refer to the revenue recognition discussion in note 2 to the consolidated financial statements . our sales are largely of a consumer nature ; therefore , backlog levels are not necessarily indicative of our future sales results . we aim to achieve a quick turnaround on orders we receive , and we typically ship most orders within 72 hours . net sales are subject to seasonal fluctuation . typically , sales of our consumer products are highest in the second quarter , due to increased demand during the spring and summer season , and in the fourth quarter , due to increased demand during the holiday buying season . our aviation products do not experience much seasonal variation , but are more influenced by the timing of aircraft certifications and the release of new products when the initial demand is typically the strongest . story_separator_special_tag by segment results are discussed above . other income ( expense ) replace_table_token_17_th the average return on cash and investments during the fiscal years of 2014 and 2013 were 1.3 % and 1.4 % , respectively . the slight increase in interest income was offset by fewer capital gains on investments in 2014 , which is recorded as other income . foreign currency gains and losses for the company are primarily tied to movements by the taiwan dollar , the euro , and the british pound sterling in relation to the u.s. dollar . the taiwan dollar is the functional currency of garmin corporation . the u.s. dollar remains the functional currency of garmin ( europe ) ltd. the euro is the functional currency of most european subsidiaries . as these entities have grown , currency fluctuations can generate material gains and losses . additionally , euro-based inter-company transactions can also generate currency gains and losses . due to the relative size of the entities using a functional currency other than the taiwan dollar , the euro and the british pound sterling , currency fluctuations related to these entities are not expected to have a material impact on the company 's financial statements . the majority of the $ 4.3 million currency loss in the fiscal year 2014 was due to the strengthening of the u.s. dollar compared to the euro and the british pound sterling . the strengthening of the u.s. dollar compared to the taiwan dollar contributed an offsetting gain . the movements of the taiwan dollar and euro/british pound sterling have offsetting impacts when the currencies move congruently against the u.s. dollar due to the use of the taiwan dollar for manufacturing costs and cash held in non-functional currency while the euro and british pound sterling transactions relate primarily to revenue . during fiscal year 2014 , the u.s. dollar strengthened 11.4 % compared to the euro and 5.5 % compared to the british pound sterling resulting in a net loss of $ 43.7 million . this was more than offset as the u.s. dollar strengthened 5.5 % compared to the taiwan dollar resulting in a gain of $ 44.8 million . the remaining net currency loss of $ 5.4 million is related to other currencies and timing of transactions . the majority of the $ 35.5 million currency gain in 2013 was due to the strengthening of the u.s. dollar compared to the taiwan dollar . the weakening of the u.s. dollar compared to the euro and british pound sterling contributed additional gains . during 2013 , the u.s. dollar weakened 4.1 % and 2.2 % , respectively , relative to the euro and british pound sterling resulting in a foreign currency gain of $ 7.5 million in garmin ltd. and our european subsidiaries . the u.s. dollar strengthened 3.3 % against the taiwan dollar resulting in a $ 30.2 million foreign currency gain due to the fluctuation of asset balances throughout the year . the net result of these currency moves combined with other losses of $ 2.1 million , and the timing of transactions during the year was a net gain of $ 35.5 million for the company . 49 income tax provision our income tax expense increased by $ 318.4 million , to $ 359.5 million for the fiscal year 2014 , from $ 41.1 million for the fiscal year 2013. contributing to the significant increase were : · tax expense of $ 307.6 million associated with the inter-company restructuring discussed below , · expiration of certain taiwan tax holidays and · research and development tax credits of $ 6.3 million related to 2012 which were recognized when the related legislation was enacted in january 2013. partially offset by favorable impacts including : · release of uncertain tax position reserves due to expiration of certain statutes of limitations or completion of tax audits of $ 83.9 million in fiscal year 2014 compared to releases of $ 79.9 million in fiscal year 2013. in the third quarter of 2014 , the company initiated an inter-company restructuring that realigned our corporate entity structure . this change in corporate structure provides access to historical earnings that were previously permanently reinvested and allows us to efficiently repatriate future earnings . as a result of the change in corporate structure , garmin recorded tax expense of $ 307,635. the first cash tax payment of $ 78,137 associated with the restructuring was made in the third quarter of 2014. we anticipate paying approximately $ 185,000 in the second quarter of 2015. the remainder of the accrued tax will be paid incrementally as the cash is repatriated . the company expects the effective income tax rate to be between 16-17 % in 2015. net income ( loss ) as a result of the various factors noted above , net income decreased 41 % to $ 364.2 million for the fiscal year 2014 compared to $ 612.4 million for fiscal year 2013. comparison of 52-weeks ended december 28 , 2013 and december 29 , 2012 net sales replace_table_token_18_th net sales decreased 3 % in 2013 when compared to the year-ago period . the decrease was driven by the automotive/mobile segment which posted a 13 % decline with offsetting growth in outdoor , fitness , marine and aviation . automotive/mobile revenue remains the largest portion of our revenue mix at 49 % in 2013 , compared to 55 % in 2012 . 50 total unit sales decreased 10 % to 13.9 million units in 2013 from 15.4 million units in 2012. the decrease in unit sales volume was attributable to reduced automotive/mobile volumes due to penetration rates and competing technologies . this decline was partially offset by growth in each of the other segments . automotive/mobile segment revenue decreased 13 % from the year-ago period , as volumes decreased 17 % partially offset by average selling price ( asp ) improvement due to the amortization of previously deferred revenue exceeding current year revenue deferrals in 2013 and increased auto oem contribution with a higher asp .
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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_6_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 . 44 replace_table_token_7_th replace_table_token_8_th replace_table_token_9_th 45 comparison of 52-weeks ended december 27 , 2014 and december 28 , 2013 net sales replace_table_token_10_th net sales increased 9 % in 2014 when compared to the year-ago period . all segments , excluding automotive/mobile , grew in the fiscal year 2014. automotive/mobile revenue remains the largest portion of our revenue mix at 43 % in the fiscal year 2014 compared to 49 % in the fiscal year 2013. total unit sales increased 9 % to 15.1 million units in 2014 from 13.9 million units in 2013. the increase in unit sales volume was attributable to growth in all segments except automotive/mobile which had volume decline due to penetration rates and competing technologies . automotive/mobile segment revenue decreased 5 % from fiscal year 2013 , as a 10 % volume decline and slight average selling price ( asp ) decline , were partially offset by amortization of previously deferred revenue exceeding current period revenue deferrals and increased auto oem contributions . revenues in our fitness segment increased 60 % from fiscal year 2013 on the strength of wellness products first introduced in 2014 , and recent biking and running product introductions . aviation revenues increased 14 % from fiscal year 2013 as both oem market share gains and aftermarket strength contributed to growth .
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we bring a depth of expertise in strategy , operations , advisory services , technology and analytics to drive lasting and measurable results in the healthcare , higher education , life sciences and commercial sectors . through focus , passion and collaboration , we provide guidance and services to support organizations as they contend with the change transforming their industries and businesses . we provide our services and manage our business under four operating segments : healthcare , education and life sciences , business advisory , and all other . see part i—item 1 . `` business—overview—our services ” and note 18 “ segment information ” within the notes to our consolidated financial statements for a discussion of our four segments . 20 how we generate revenues a large portion of our revenues is generated by our full-time consultants who provide consulting services to our clients and are billable to our clients based on the number of hours worked . a smaller portion of our revenues is generated by our other professionals , also referred to as full-time equivalents , some of whom work variable schedules as needed by our clients . full-time equivalent professionals consist of our cultural transformation consultants from our studer group solution , which include coaches and their support staff , specialized finance and operational consultants , and our employees who provide software support and maintenance services to our clients . we translate the hours that these other professionals work on client engagements into a full-time equivalent measure that we use to manage our business . we refer to our full-time consultants and other professionals collectively as revenue-generating professionals . revenues generated by our full-time consultants are primarily driven by the number of consultants we employ and their utilization rates , as well as the billing rates we charge our clients . revenues generated by our other professionals , or full-time equivalents , are largely dependent on the number of consultants we employ , their hours worked , and billing rates charged . revenues generated by our coaches are largely dependent on the number of coaches we employ and the total value , scope , and terms of the consulting contracts under which they provide services , which are primarily fixed-fee contracts . we generate our revenues from providing professional services under four types of billing arrangements : fixed-fee ( including software license revenue ) , time-and-expense , performance-based , and software support and maintenance and subscriptions . in fixed-fee billing arrangements , we agree to a pre-established fee in exchange for a predetermined set of professional services . we set the fees based on our estimates of the costs and timing for completing the engagements . it is the client 's expectation in these engagements that the pre-established fee will not be exceeded except in mutually agreed upon circumstances . we generally recognize revenues under fixed-fee billing arrangements using a proportionate performance approach , which is based on work completed to-date versus our estimates of the total services to be provided under the engagement . contracts within our studer group solution are fixed-fee partner contracts with multiple deliverables , which primarily consist of coaching services , as well as seminars , materials and software products ( “ partner contracts ” ) . revenues for coaching services and software products are generally recognized on a straight-line basis over the length of the contract . all other revenues under partner contracts are recognized at the time the service is provided . fixed-fee arrangements also include software licenses for our revenue cycle management software and research administration and compliance software . licenses for our revenue cycle management software are sold only as a component of our consulting projects , and the services we provide are essential to the functionality of the software . therefore , revenues from these software licenses are recognized over the term of the related consulting services contract . license revenue from our research administration and compliance software is generally recognized in the month in which the software is delivered . fixed-fee engagements represented 47.4 % , 58.0 % , and 50.3 % of our revenues for the years ended december 31 , 2016 , 2015 , and 2014 , respectively . time-and-expense billing arrangements require the client to pay based on the number of hours worked by our revenue-generating professionals at agreed upon rates . time-and-expense arrangements also include certain speaking engagements , conferences , and publications purchased by our clients outside of partner contracts within our studer group solution . we recognize revenues under time-and-expense billing arrangements as the related services or publications are provided . time-and-expense engagements represented 38.7 % , 28.7 % , and 28.3 % of our revenues in 2016 , 2015 , and 2014 , respectively . in performance-based fee billing arrangements , fees are tied to the attainment of contractually defined objectives . we enter into performance-based engagements in essentially two forms . first , we generally earn fees that are directly related to the savings formally acknowledged by the client as a result of adopting our recommendations for improving operational and cost effectiveness in the areas we review . second , we have performance-based engagements in which we earn a success fee when and if certain predefined outcomes occur . often , performance-based fees supplement our time-and-expense or fixed-fee engagements . we do not recognize revenues under performance-based billing arrangements until all related performance criteria are met . performance-based fee revenues represented 8.9 % , 8.7 % , and 17.2 % of our revenues in 2016 , 2015 , and 2014 , respectively . the level of performance-based fees earned may vary based on our clients ' risk sharing preferences and the mix of services we provide . performance-based fee arrangements may cause significant variations in revenues , operating results , and average billing rates due to our level of execution and the timing of achievement of the performance-based criteria . clients that have purchased one of our software licenses can pay an annual fee for software support and maintenance . story_separator_special_tag ( 3 ) average billing rate per hour for our full-time billable consultants is calculated by dividing revenues for a period by the number of hours worked on client assignments during the same period . ( 4 ) the business advisory segment includes our india enterprise solutions and analytics practice , formerly known as rittman mead consulting private limited ( `` rittman mead india '' ) , a business that we acquired in july 2015. the average billing rate per hour for this practice is lower than our overall average billing rate per hour for the business advisory segment . absent the impact of our india enterprise solutions and analytics practice , the average billing rate per hour for business advisory for the year ended december 31 , 2016 and 2015 would have been $ 225 and $ 256 , respectively . ( 5 ) consists of cultural transformation consultants within our studer group solution , which include coaches and their support staff , consultants who work variable schedules as needed by our clients , and full-time employees who provide software support and maintenance services to our clients . n/m - not meaningful non-gaap measures we also assess our results of operations using certain non-gaap financial measures . these non-gaap financial measures differ from gaap because the non-gaap financial measures we calculate to measure adjusted earnings before interest , taxes , depreciation and amortization ( “ ebitda ” ) , adjusted net income from continuing operations , and adjusted diluted earnings per share from continuing operations exclude a number of items required by gaap , each discussed below . these non-gaap financial measures should be considered in addition to , and not as a substitute for or superior to , any measure of performance , cash flows , or liquidity prepared in accordance with gaap . our non-gaap financial measures may be defined differently from time to time and may be defined differently than similar terms used by other companies , and accordingly , care should be exercised in understanding how we define our non-gaap financial measures . our management uses the non-gaap financial measures to gain an understanding of our comparative operating performance , for example when comparing such results with previous periods or forecasts . these non-gaap financial measures are used by management in their financial and operating decision making because management believes they reflect our ongoing business in a manner that allows for meaningful period-to-period comparisons . management also uses these non-gaap financial measures when publicly providing our business outlook , for internal management purposes , and as a basis for evaluating potential acquisitions and dispositions . we believe that these non-gaap financial measures provide useful information to investors and others in understanding and evaluating huron 's current operating 24 performance and future prospects in the same manner as management does and in comparing in a consistent manner huron 's current financial results with huron 's past financial results . the reconciliations of these financial measures from gaap to non-gaap are as follows ( in thousands , except per share amounts ) : replace_table_token_7_th replace_table_token_8_th these non-gaap financial measures include adjustments for the following items : restructuring charges : we have incurred charges due to the restructuring of various parts of our business . these restructuring charges have primarily consisted of costs associated with office space consolidations , including the accelerated depreciation of certain leasehold improvements , and severance charges . we have excluded the effect of the restructuring charges from our non-gaap measures because the amount of each restructuring charge is significantly affected by the timing and size of the restructured business or component of a business . litigation and other gains , net : we have excluded the effects of the net remeasurement gains and losses related to contingent acquisition liabilities recorded in 2016 , 2015 , and 2014 and the litigation gain recorded in 2015 to permit comparability with periods that were not impacted by these items . amortization of intangible assets : we have excluded the effect of amortization of intangible assets from the calculation of adjusted net income from continuing operations presented above . amortization of intangibles is inconsistent in its amount and frequency and is significantly affected by the timing and size of our acquisitions . non-cash interest on convertible notes : we incur non-cash interest expense relating to the implied value of the equity conversion component of our $ 250 million principal amount of 1.25 % convertible senior notes due 2019 ( the “ convertible notes ” ) that we issued in september 2014. the value of the equity conversion component is treated as a debt discount and amortized to interest expense over the life of the convertible notes using the effective interest rate method . we exclude this non-cash interest expense that does not represent cash interest payments 25 from the calculation of adjusted net income from continuing operations as management believes that this non-cash expense is not indicative of the ongoing performance of our business . tax effect : the non-gaap income tax adjustment reflects the incremental tax rate applicable to the non-gaap adjustments . net tax ( benefit ) expense related to “ check-the-box ” elections : we have excluded the effects of our “ check-the-box ” elections to treat two of our wholly-owned foreign subsidiaries in the fourth quarter of 2015 and one of our wholly-owned foreign subsidiaries in the first quarter of 2014 as disregarded entities for u.s. federal income tax purposes because their exclusion permits comparability with periods that were not impacted by these items . income tax expense , interest and other expenses , depreciation and amortization : we have excluded the effects of interest and other expenses , income tax expense , and depreciation and amortization in the calculation of ebitda as these are customary exclusions as defined by the calculation of ebitda to arrive at meaningful earnings from core operations excluding the effect of such items .
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segment results healthcare revenues healthcare segment revenues increased $ 31.1 million , or 7.5 % , to $ 446.9 million for the year ended december 31 , 2015 , from $ 415.8 million for the year ended december 31 , 2014. revenues for 2015 included $ 79.8 million from our acquisition of studer group completed in 2015 , and $ 10.7 million of incremental revenues due to the full year impact in 2015 of our acquisition of vonlay completed in 2014. revenues for 2015 were negatively impacted by a $ 0.8 million charge related to the fair value adjustment of deferred revenue acquired in the studer group acquisition . the $ 0.8 million charge reflected the total fair value adjustment . during 2015 , revenues from fixed-fee engagements , time-and-expense engagements , performance-based arrangements , and software support and maintenance arrangements represented 75.7 % , 7.2 % , 11.7 % , and 5.4 % of this segment 's revenues , respectively , compared to 65.0 % , 5.4 % , 24.8 % , and 4.8 % , respectively , in 2014. of the overall $ 31.1 million increase in revenues , $ 80.0 million was attributable to an increase in revenue from our full-time equivalents , partially offset by a $ 48.9 million decrease in revenue attributable to our full-time billable consultants . 32 the increase in revenue attributable to our full-time equivalents reflected increases in both the average number of full-time equivalents and revenue per full-time equivalent in 2015 compared to 2014 , and is primarily the result of our studer group acquisition . the decrease in revenue attributable to our full-time billable consultants reflected decreases in the average billing rate and consultant utilization rate , partially offset by an increase in the average number of full-time billable consultants . this decrease in revenue was largely driven by lower performance-based fees , a decrease in revenue in our cost and clinical solutions , and project timing , all compared to the prior year .
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additional information related to the term loans is provided in note story_separator_special_tag the following discussion and analysis of financial condition and results of operations is provided to enhance the understanding of , and should be read in conjunction with , part i , item 1 , “ business ” and item 8 , “ financial statements and supplementary data. ” for information on risks and uncertainties related to our business that may make past performance not indicative of future results , or cause actual results to differ materially from any forward-looking statements , see “ general , ” and part i , item 1a , “ risk factors. ” overview we are the leading global leaf tobacco supplier . we derive most of our revenues from sales of processed tobacco to manufacturers of tobacco products throughout the world and from fees and commissions for specific services . we hold a strategic position in the world leaf markets where we work closely with both our customers and farmers to ensure that we deliver a compliant product that meets our customers ' needs while promoting a strong supplier base . we adapt to meet changes in customer requirements as well as broader changes in the leaf markets while continuing to provide the stability of supply and high level of service that distinguishes us in the marketplace . we believe that we have successfully met the needs of both our customers and suppliers while adapting to changes in leaf markets . consequently , we have delivered strong results to our shareholders . over the last three fiscal years , we have strengthened our balance sheet by repaying almost $ 100 million in debt , generated over $ 450 million in net cash flow from operations , and returned almost $ 240 million to our shareholders through a combination of dividends and share repurchases . despite smaller crops , rising leaf production costs , and margin pressures in most regions , we delivered better performance in fiscal year 2013 than we had anticipated at the beginning of the fiscal year . some of this success was attributable to the sale of previously uncommitted inventories and carryover shipments of the prior year 's large african and south american crops . in addition , we benefited from lower selling , general , and administrative costs . certain of these costs reductions were unpredictable - such as currency remeasurement and exchange gains - and may not be recurring , while others were a result of our targeted cost reduction and efficiency improvement efforts . we also performed well in the face of a challenging environment in fiscal year 2014. due to larger crops , shipping volumes in the second half of fiscal year 2014 exceeded those in the comparable period of fiscal year 2013. these increased volumes partially offset lower levels of carryover volumes in the first half of fiscal year 2014 , weaker margins in brazil from volatile brazilian leaf markets , and negative foreign currency remeasurement and exchange loss comparisons . our higher working capital cash requirements in fiscal year 2014 were a sharp contrast to the returns of working capital seen in fiscal year 2013 , when we had the advantage of sales of uncommitted inventory and large carryover crops that bolstered cash flows . in fiscal year 2014 , purchases of larger crops , tighter margins in brazil from higher green leaf costs , and investments in production growth in africa utilized much of the substantial levels of cash flow from fiscal year 2013. given fiscal year 2015 's oversupplied market conditions , we are pleased with the results we achieved . we ended the year with strong fourth quarter results , which helped to bring our segment operating earnings for the fiscal year in line with our expectations . we also realized higher margins , maintained our solid financial position , and returned over $ 90 million to our shareholders in dividends and share repurchases this fiscal year . we believe that our performance demonstrates our ability to execute well on our objective of delivering a compliant product in an efficient manner to our customers , under challenging circumstances . we are well-positioned as we enter fiscal year 2016 with substantial cash balances and manageable uncommitted inventory levels . markets in africa and brazil have opened at a similar pace compared to fiscal year 2015 , and crop qualities are mixed , with production volumes expected to be lower in most origins . although we are not seeing significant delays in customer orders , we expect shipping instructions to be weighted towards the second half of our fiscal year . in addition , while our own leaf inventories are well-managed , global tobacco leaf inventory volumes are high . this may have the effect of extending the duration of the oversupply conditions , despite reduced new crop production and a more positive outlook for demand from some customers based on recent recoveries in certain of their retail markets . looking beyond near-term market conditions , we are optimistic about the future as we believe there are several trends in our business that could provide opportunities for us to increase our market share and to offer additional services to our customers . we have recently seen an increase in the level of supply chain services , which include direct purchasing , that we provide our customers , notably in the united states , mexico , brazil , and the dominican republic . we believe these moves acknowledge the efficiencies and services that global leaf suppliers bring to the entire supply chain . in addition , we believe that compliant leaf requirements and reduction in sourcing complexity will continue to be important to our customers and should favor stable global leaf suppliers who are able to meet these requirements . 18 story_separator_special_tag december 30 , 2014 , the company executed a new senior unsecured credit facility agreement with a group of banks , which consolidated and extended maturities of its previous short-term revolving credit and long-term borrowing facilities . story_separator_special_tag the consolidated effective income tax rates on pretax earnings were approximately 33 % and 32 % for the fiscal years ended march 31 , 2014 and 2013 , respectively . the rates for both periods were lower than the 35 % federal statutory rate mainly because of the effect of changes in exchange rates on deferred income tax assets and liabilities , as well as lower effective rates on dividend income from certain foreign subsidiaries . in the first fiscal quarter of 2014 , we recorded an $ 81.6 million gain resulting from the favorable conclusion during the quarter of a longstanding lawsuit challenging the brazilian government 's denial of our rights to claim certain excise tax credits generated in previous years . the outcome of the case entitles us to the previously denied excise tax credits , as well as additional credits for interest from the dates the tax credits should have been available ( approximately $ 104 million at the date the lawsuit was concluded ) . all avenues of appeal by either party were exhausted , and we are now permitted to utilize the total amount of the credits to offset future federal tax obligations for a period of up to five years . the amount of the gain , which is reported in other income , reflects our current estimate of the actual tax credits that are likely to be realized before they expire . on october 15 , 2013 , we repaid at maturity $ 200 million principal amount of 5.2 % medium term notes . subsequently , we entered into a $ 175 million senior term loan agreement with a group of banks . the loan is unsecured and matures in five years . loans outstanding under the agreement currently bear interest at libor plus 1.50 % and may be prepaid at any time without premium or penalty . the financial covenants under the new term loan agreement are substantially similar to those of our $ 450 million senior unsecured committed revolving credit facility , including maintaining a minimum level of tangible net worth and observing limits on debt levels . accounting pronouncements we adopted financial accounting standards board ( `` fasb '' ) accounting standards update 2013-02 , “ comprehensive income ( topic 220 ) : reporting of amounts reclassified out of accumulated other comprehensive income , ” effective at the beginning of fiscal year 2014. the new guidance requires companies to report the effect of significant reclassifications out of accumulated other comprehensive income ( loss ) on the respective line items in net income unless the amounts are not reclassified in their entirety to net income . for amounts that are not reclassified in their entirety to net income in the same reporting period , companies are required to cross-reference other disclosures that provide additional detail about those amounts . since the new guidance requires additional disclosures only , it did not have any impact on our results of operations , cash flows , or financial position . the required disclosures are provided in note 16 to the consolidated financial statements in item 8. in may 2014 , the fasb issued accounting standards update no . 2014-09 , “ revenue from contracts with customers ” ( “ asu 2014-09 ” ) , which supersedes substantially all of the current revenue recognition guidance under u.s. generally accepted accounting principles ( “ u.s . gaap ” ) . asu 2014-09 was developed under a joint project with the international accounting standards board ( “ iasb ” ) to improve and converge the existing revenue recognition accounting guidance in u.s. gaap and international accounting standards . under asu 2014-09 , the central underlying principle is to recognize revenues when promised goods or services are transferred to customers at an amount determined by the consideration a company expects to receive for those goods or services . the guidance outlines a five-step process for determining the amount and timing of revenue to be recognized from those arrangements . it is more principles-based than the existing guidance under u.s. gaap , and therefore is expected to require more management judgment and involve more estimates than the current guidance . asu 2014-09 is effective for annual periods beginning after december 15 , 2016 , including all interim periods within the year of adoption . however , the fasb has recently proposed a one-year deferral of the effective date . companies are allowed to select between two transition methods : ( 1 ) a full retrospective transition method with the application of the new guidance to each prior reporting period presented , or ( 2 ) a retrospective transition method 21 that recognizes the cumulative effect on prior periods at the date of adoption together with additional footnote disclosures . assuming the proposed one-year deferral of the effective date is issued by the fasb as expected , we would expect to adopt asu 2014-09 effective april 1 , 2018 , which is the beginning of our fiscal year ending march 31 , 2019. we are currently evaluating the impact that the adoption of asu 2014-09 will have on our consolidated financial statements and have not made any decision on the method of adoption . 22 liquidity and capital resources overview our working capital requirements in fiscal year 2015 were lower compared to fiscal year 2014 primarily due to lower crop purchase volumes and green tobacco prices . however , market oversupply conditions , which delayed purchasing , processing , and crop shipments this year , extended the duration of our working capital needs in most origins . we generated $ 226.5 million in net cash flows to fund our operating activities during the fiscal year , and our liquidity was sufficient to meet our needs . we also continued our conservative financial policies , maintained our discipline on using our free cash flow , and returned funds to shareholders . our liquidity and capital resource requirements are predominately short-term in nature and primarily relate to working capital required for tobacco crop purchases .
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results of operations amounts described as net income and earnings per diluted share in the following discussion are attributable to universal corporation and exclude earnings related to non-controlling interests in subsidiaries . the total for segment operating income referred to in the discussion below is a non-gaap financial measure . this measure is not a financial measure calculated in accordance with gaap and should not be considered as a substitute for net income , operating income , cash flows from operating activities or any other operating performance measure calculated in accordance with gaap , and it may not be comparable to similarly titled measures reported by other companies . we have provided a reconciliation of the total for segment operating income to consolidated operating income in note 15 . `` operating segments '' to the consolidated financial statements in item 8. we evaluate our segment performance excluding certain significant charges or credits . we believe this measure , which excludes these items that we believe are not indicative of our core operating results , provides investors with important information that is useful in understanding our business results and trends . fiscal year ended march 31 , 2015 , compared to the fiscal year ended march 31 , 2014 net income for the fiscal year ended march 31 , 2015 , was $ 114.6 million , or $ 4.06 per diluted share , compared with last year 's net income of $ 149.0 million , or $ 5.25 per diluted share . last year 's results included a gain of $ 81.6 million before tax ( $ 53.1 million after tax , or $ 1.87 per diluted share ) , from the favorable outcome of litigation in brazil related to previous years ' excise tax credits .
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pursuant to the license agreement , the company paid $ 750,000 to lilly within 30 days of the execution of the license agreement , which was recorded as research and development expense in the accompanying statements of operations for the year ended december 31 , 2015. upon the company undertaking a nine-month toxicology study in non-human primates and delivering a final story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes included elsewhere in this annual report on form 10-k. 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 . you should review the “ risk factors ” section of this annual report on form 10-k for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview we are a biopharmaceutical company that is developing innovative drug candidates to make a difference in the lives of patients with neurological and psychiatric disorders . we have a portfolio of clinical and preclinical compounds that we believe are best in class due to their unique mechanism of action and where human proof of concept has been established for the compound or the target . at december 31 , 2016 , we had $ 5.1 million in cash and cash equivalents and $ 4.3 million in current liabilities . accordingly , we do not have sufficient funds to finance our continuing operations beyond the short term . we must secure additional financing to further advance any of our product candidates , including our planned initiation of a phase 2/3 clinical trial with cerc-501 as an adjunctive treatment of major depressive disorder , or mdd , in the next year , and our plan to commence phase 1 development of cerc-611 in 2017. other than three third-party sponsored trials of cerc-501 , we do not have any ongoing clinical trials of our product candidates and we do not currently have the capital to undertake any such trials . we are continuing preclinical development of our preclinical product candidate , cerc-611 , but we would require additional funding to advance it into clinical trials . cerc-501 is a potent and selective kappa opioid receptor , or kor , antagonist being developed as an adjunctive treatment of mdd . kors are believed to play key roles in modulating stress , mood and addictive behaviors , which form the basis of co‑occurring disorders . we plan to initiate a phase 2/3 clinical study in inadequately treated subjects with mdd currently on antidepressants in the next year , subject to the availability of additional funding . currently , three externally funded clinical trials are being conducted to evaluate the use of cerc-501 in treating depressive symptoms , stress-related smoking relapse and cocaine addiction . one trial is being conducted under the auspices of the national institute of mental health , the second trial is a collaboration between cerecor and yale university with funding from the national institutes of health and the third trial is being conducted at rockefeller university hospital with funding from a private foundation . cerc-301 is an oral , nr2b specific n-methyl-d-aspartate , or nmda , receptor antagonist being developed as an adjunctive treatment of mdd . cerc-301 belongs to a class of compounds known as antagonists , or inhibitors , of the nmda receptor , a receptor subtype of the glutamate neurotransmitter system that is responsible for controlling neurological adaptation . we believe cerc-301 has the potential to produce a significant reduction in depression symptoms in a matter of days , as compared to weeks or months with conventional therapies , because it specifically blocks the nmda receptor subunit 2b , or nr2b . we believe this mechanism of action may provide rapid and significant antidepressant activity without the adverse side effect profile of non-selective nmda receptor antagonists , such as ketamine . we are currently evaluating potential next steps for this program . cerc-611 is a potent and selective transmembrane ampa receptor regulatory proteins , or tarp , γ-8-dependent α-amino-3-hydroxy-5-methyl-4-isoxazolepropionic acid receptor antagonist , which we plan to develop as an adjunctive therapy for the treatment of partial-onset seizures , with or without secondarily generalized seizures , in patients with epilepsy . we intend to file an investigational new drug application with the fda and thereafter commence phase 1 development in 2017 , subject to the availability of additional funding . cerc-406 is our lead preclinical candidate from our proprietary platform of compounds that inhibit catechol-o-methyltransferase , or comt , within the brain , which we refer to as our comti platform . we intend to develop cerc‑406 for the treatment of residual cognitive impairment symptoms in patients with mdd , subject to the availability of additional funding . further development of our product candidates will not be possible unless we secure additional funding . our strategy is to seek funding for our operations from further offerings of equity and debt securities , non-dilutive financing arrangements such as federal grants , collaboration agreements or out-licensing arrangements , and to explore strategic alternatives such as an acquisition , merger , or business combination . however , we may be unable to raise additional funds or enter into such other agreements or transactions on favorable terms , or at all . if we fail to raise capital or enter into such other arrangements or 73 transactions in the short term , we will have to significantly delay , scale back or discontinue the development and or commercialization of one or more of our product candidates or cease our operations altogether . story_separator_special_tag internal costs include : personnel-related expenses , including salaries , benefits and stock-based compensation expense ; consulting costs related to our internal research and development programs ; allocated facilities , depreciation and other expenses , which include rent and utilities , as well as other supplies ; and product liability insurance . research and development costs are expensed as incurred . we record costs for some development activities , such as clinical trials , based on an evaluation of the progress to completion of specific tasks using data such as subject enrollment , clinical site activations or information provided to us by our vendors . we track external costs by discovery program and subsequently by product candidate once a product candidate has been selected for development . product candidates in later stage clinical development generally have higher research and development expenses than those in earlier stages of development , primarily due to the increased size and duration of the clinical trials . as of december 31 , 2016 , we had eight full-time employees who were primarily engaged in research and development . we expect our research and development expenses to decrease significantly in 2017 , unless the necessary capital is raised to fund the further development of our product candidates . general and administrative expenses general and administrative expenses consist primarily of professional fees , patent costs and salaries , benefits and related costs for executive and other personnel , including stock‑based compensation and travel expenses . other general and administrative expenses include facility‑related costs , communication expenses and professional fees for legal , including patent‑related expenses , consulting , tax and accounting services , insurance , depreciation and general corporate expenses . we expect our general and administrative expenses to decrease in 2017. change in fair value of warrant liability , unit purchase option liability and investor rights obligation in connection with the issuance of our term debt facility in august 2014 , we issued warrants to purchase 625,208 shares of series b convertible preferred stock . upon the closing of our initial public offering , or ipo , in october 2015 these warrants became warrants to purchase 22,328 shares of common stock , in accordance with their terms . these warrants represent a freestanding financial instrument that is indexed to an obligation , which we refer to as the warrant liability . these 75 warrants are classified as a liability at fair value . this liability is remeasured at each balance sheet date and the change in fair value is recorded within our statement of operations . as part of our ipo , the underwriter received a unit purchase option , or upo , to purchase up to 40,000 units , whereby a unit is comprised of one share of our common stock , one class a warrant to purchase one share of our common stock and one class b warrant to purchase one-half share of our common stock . the upo is classified as a liability at its respective fair value . this liability is remeasured at each balance sheet date and the change in fair value is recorded within our statement of operations . our obligation to issue additional shares of our series b preferred stock as part of the series b preferred stock offering was accounted for as a freestanding financial instrument , which we referred to as the investor rights obligation . the investor rights obligation expired upon the closing of our ipo in accordance with its terms , and the related liability was reduced to zero at that time . interest expense , net net interest expense is primarily related to interest payments pursuant to the terms of our term debt facility entered into in august 2014 , as well as the amortization of the debt discounts and premiums and deferred financing fees in connection with such term debt facility . critical accounting policies and significant judgments and estimates this discussion and analysis of our financial condition and results of operations is based on our financial statements , which have been prepared in accordance with generally accepted accounting principles in the united states of america , or gaap . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported 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 . on an ongoing basis , we evaluate our estimates and assumptions , including those related to clinical and preclinical trial expenses and stock‑based compensation . actual results may differ from these estimates under different assumptions or conditions . while our significant accounting policies are more fully described in note 2 to the audited financial statements appearing at the end of this annual report on form 10-k , we believe the following accounting policies are critical to the portrayal of our financial condition and results . we have reviewed these critical accounting policies and estimates with the audit committee of our board of directors . grant revenue recognition we recognize grant revenue when there is ( i ) reasonable assurance of compliance with the conditions of the grant and ( ii ) reasonable assurance that the grant will be received . we recognize revenue under grants in earnings on a systemic basis in the period the related expenditures for which the grants are intended to compensate are incurred . research and development expenses research and development costs are expensed as incurred . we rely heavily on third parties to conduct preclinical and clinical trials , as well as for the manufacture of our clinical trial supplies .
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results of operations comparison of the years ended december 31 , 2016 and 2015 grant revenue the following table summarizes our grant revenue for the years ended december 31 , 2016 and 2015 : year ended december 31 , 2016 2015 ( in thousands ) grant revenue $ 1,153 $ — grant revenue was $ 1.2 million for the year ended december 31 , 2016 and was comprised of revenue from two research and development grants awarded during the year . in april 2016 , we were awarded a research and development grant of $ 1.02 million from the national institute on drug abuse at the national institutes of health , or the nida grant . this grant provided additional resources for the completed phase 2 clinical trial of cerc-501 . in july 2016 , we were awarded a research and development grant of approximately $ 1.0 million from the national institute on alcohol abuse and alcoholism at the national institutes of health , or the niaaa grant . this grant provides additional resources to progress the development of cerc-501 for the treatment of alcohol use disorder . for the year ended december 31 , 2016 , grant revenue recognized from the nida grant was $ 1.02 million and grant revenue recognized from the niaaa grant was $ 132,000. we did not have grant revenue in the 2015 period . research and development expenses the following table summarizes our research and development expenses for the years ended december 31 , 2016 and 2015 : 80 replace_table_token_6_th research and development expenses were $ 10.2 million for the year ended december 31 , 2016 , an increase of $ 3.6 million compared to the 2015 period .
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we continue to believe that our strategy of delivering a broad set of financial protection choices to employees while also enabling employers to define their financial contribution in support of those choices should enable us to continue in a leadership position in our markets over the long term a discussion of our operating performance and capital management follows . 2012 operating performance and capital management for 2012 , we reported net income of $ 894.4 million , or $ 3.17 per diluted common share , compared to 2011 net income of $ 284.2 million , or $ 0.94 per diluted common share . after-tax operating income , which excludes several non-operating items as itemized in our `` reconciliation of non-gaap financial measures '' contained herein in item 7 , was $ 887.5 million , or $ 3.15 per diluted common share , in 2012 compared to $ 905.4 million , or $ 2.98 per diluted common share , in 2011. total operating revenue by segment increased in 2012 relative to 2011 , driven by growth in our premium income . total operating income by segment was lower in 2012 compared to 2011 , with growth in our unum us and colonial life segments offset by lower income in our other segments . although our total operating income by segment declined in 2012 , we reported year-over-year earnings per share growth due to our capital management strategy of returning capital to shareholders through repurchases of our common stock . see additional information in `` 2011 long-term care review and individual disability closed block reserves , '' `` consolidated operating results , '' and `` reconciliation of non-gaap financial measures '' contained herein in item 7. our unum us segment reported an increase in segment operating income of 3.7 percent in 2012 compared to 2011 , with growth in premium income , consistent risk results , and continued favorable expense management . although unum us premium income increased 3.7 percent in 2012 compared to 2011 , the ongoing high levels of unemployment and the competitive environment continue to pressure our premium income growth . in particular , premium growth from existing customers continues to be unfavorably impacted by lower salary growth and lower growth in the number of employees covered under existing policies . the benefit ratio for our unum us segment for 2012 was generally consistent with the level reported in 2011 , with favorable supplemental and voluntary risk results offset by less favorable risk results for group disability and group life . unum us sales increased 7.5 percent in 2012 compared to 2011 , with growth in each of our product lines and in each of our major market segments . premium persistency was above or generally consistent with the levels of 2011 for most of our product lines and remains high relative to historical levels . our unum uk segment reported a decrease in segment operating income of 30.3 percent in 2012 relative to 2011 , as measured in unum uk 's local currency , due primarily to adverse risk results in our group life product line . premium income grew 2.2 percent in 2012 relative to 2011 as a result of premium rate increases and growth in existing customer accounts , partially offset by lower premium persistency . premium growth continues to be pressured due to the challenging economic and competitive pricing environment in the u.k. as well as our initiation of premium rate increases . the benefit ratio for unum uk was 77.9 percent in 2012 compared to 71.8 percent in 2011 , driven by adverse risk results in group life and slightly less favorable group disability risk results . unum uk sales decreased 5.1 percent in 2012 compared to 2011 , as measured in unum uk 's local currency , with lower group life , group critical illness , and individual disability product line sales , partially offset by higher sales in group long-term disability . premium persistency declined , as expected , primarily as a result of our premium rate increases . our colonial life segment reported an increase in segment operating income of 1.6 percent in 2012 compared to 2011 , with higher operating revenue partially offset by less favorable risk results and higher amortization of deferred acquisition costs . premium income grew 5.2 percent in 2012 compared to 2011. the benefit ratio for colonial life was 52.5 percent in 2012 compared to 51.9 percent in 2011 due to less favorable risk results in the life and cancer and critical illness lines of business , partially offset by a more favorable benefit ratio for the accident , sickness , and disability line of business . colonial life sales decreased 1.1 percent in 2012 compared to 2011 , with a slight increase in core commercial market segment sales , which we define as accounts with fewer than 1,000 lives , offset by declines in large case commercial market segment sales and sales in the public sector market . persistency continues to be strong and was higher for all product lines in 2012 compared to 2011 . 30 our closed block segment reported a decrease in segment operating income of 22.9 percent in 2012 relative to 2011 , excluding the charges discussed in `` 2011 long-term care review and individual disability closed block reserves '' contained herein in item 7. also excluding these charges , individual disability risk results were favorable compared to 2011 due to higher claim recovery rates and a decrease in reserves for existing claims , while long-term care risk results were unfavorable compared to the prior year due to higher claim incidence rates , partially offset by higher claim resolutions . our investment portfolio continues to perform well , although our net investment income declined slightly in 2012 compared to 2011 , primarily due to a decline in yield in invested assets as we continue to invest new cash flows at lower rates . story_separator_special_tag we also changed our mortality assumptions to reflect emerging experience due to an increase in life expectancies which increases the ultimate number of people who will utilize long-term care benefits and also lengthens the amount of time a claimant receives long-term care benefits . we changed our morbidity assumptions to reflect emerging industry experience as well as our own company experience . while our morbidity experience is still emerging and is not fully credible , we modified our assumptions to align more closely with the recently published industry study . using our revised best estimate assumptions , as of december 31 , 2011 we determined that deferred acquisition costs of $ 196.0 million , as adjusted for the january 1 , 2012 retrospective adoption of the accounting standards update related to deferred acquisition costs , were not recoverable and that our policy and claim reserves should be increased by $ 573.6 million to reflect our current estimate of future benefit obligations . these charges decreased our 2011 net income by $ 500.3 million . the increase in reserves represented a 10.5 percent increase in long-term care policy and claim reserves as of december 31 , 2011 , which equaled $ 5.4 billion subsequent to the charge . claim reserve increase for individual disability closed block business claim reserves supporting our individual disability closed block of business are calculated using assumptions based on actual experience believed to be currently appropriate . claim reserves are subject to revision as current claim experience emerges and alters our view of future expectations . claim resolution rates , which measure the resolution of claims from recovery , deaths , settlements , and benefit expirations , are very sensitive to operational and environmental changes and can be volatile . our claim resolution rate assumption used in determining reserves is our expectation of the resolution rate we will experience over the life of the block of business . we are now able , with a higher degree of confidence , to assess our own experience for older ages in our long duration lifetime claim block as our data has become credible . there is very little industry experience for lifetime disability benefits , as our insurance companies were the primary disability companies in the insurance industry at the time lifetime disability benefits were offered . these benefits were offered during the 1980s and 1990s , recent enough such that claimants are just reaching the older ages and providing us with data to build our claim experience base . emerging experience indicates a longer life expectancy for our older age , longer duration disabled claimants , which lengthens the time a claimant receives disability benefits . as a result of this experience , as of december 31 , 2011 we adjusted our mortality assumption within our claim resolution rate assumption and , as a result , increased our claim reserves for our individual disability closed block of business by $ 183.5 million and decreased net income by $ 119.3 million . the increase in reserves represented a 1.5 percent increase in individual disability policy and claim reserves as of december 31 , 2011 , which equaled $ 11.9 billion subsequent to the charge . critical accounting estimates we prepare our financial statements in accordance with gaap . the preparation of financial statements in conformity with gaap requires us to make estimates and assumptions that affect amounts reported in our financial statements and accompanying notes . estimates and assumptions could change in the future as more information becomes known , which could impact the amounts reported and disclosed in our financial statements . the accounting estimates deemed to be most critical to our financial position and results of operations are those related to reserves for policy and contract benefits , deferred acquisition costs , valuation of investments , pension and postretirement benefit plans , income taxes , and contingent liabilities . for additional information , refer to our significant accounting policies in note 1 of the `` notes to consolidated financial statements '' contained herein in item 8 . 32 reserves for policy and contract benefits our largest liabilities are reserves for claims that we estimate we will eventually pay to our policyholders . the two primary categories of reserves are policy reserves for claims not yet incurred and claim reserves for claims that have been incurred or are estimated to have been incurred but not yet reported to us . these reserves equaled $ 39.9 billion and $ 39.3 billion at december 31 , 2012 and 2011 , respectively , or approximately 74.4 percent and 76.5 percent of our total liabilities , respectively . reserves ceded to reinsurers were $ 6.7 billion at both december 31 , 2012 and 2011 , and are reported as a reinsurance recoverable in our consolidated balance sheets . policy reserves policy reserves are established in the same period we issue a policy and equal the difference between projected future policy benefits and future premiums , allowing a margin for expenses and profit . these reserves relate primarily to our traditional non interest-sensitive products , including our individual disability and voluntary benefits products in our unum us segment ; individual disability products in our unum uk segment ; disability and cancer and critical illness policies in our colonial life segment ; and individual disability and long-term care products in our closed block segment . the reserves are calculated based on assumptions that were appropriate at the date the policy was issued and are not subsequently modified unless the policy reserves become inadequate ( i.e . loss recognition occurs ) . persistency assumptions are based on our actual historical experience adjusted for future expectations . claim incidence and claim resolution rate assumptions related to mortality and morbidity are based on actual experience or industry standards adjusted as appropriate to reflect our actual experience and future expectations . discount rate assumptions are based on our current and expected net investment returns .
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consolidated operating results replace_table_token_7_th n.m. = not a meaningful percentage in describing our results , we may at times note certain items and exclude the impact on financial ratios and metrics to enhance the understanding and comparability of our operational performance and the underlying fundamentals , but this exclusion is not an indication that similar items may not recur . see `` reconciliation of non-gaap financial measures '' as follows for additional discussion of these items . also , as previously discussed , effective january 1 , 2012 , we adopted an accounting standards update regarding the capitalization of costs associated with the acquisition of insurance contracts and applied the amendments retrospectively . prior period results have been adjusted to reflect our retrospective adoption . see note 1 of the `` notes to consolidated financial statements '' contained herein in item 8 for further discussion . the comparability of our financial results between years is affected by the fluctuation in the british pound sterling to dollar exchange rate . the functional currency of our u.k. operations is the british pound sterling . in periods when the pound weakens relative to the preceding period , as occurred in 2012 compared to 2011 , translating into dollars decreases current period results relative to the prior periods . in periods when the pound strengthens relative to the preceding period , as occurred in 2011 compared to 2010 , translating pounds into dollars increases current period results relative to the prior period . our weighted average pound/dollar exchange rate was 1.584 , 1.603 , and 1.543 for the years ended 2012 , 2011 , and 2010 , respectively .
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md & a is provided as a supplement to , and should be read in conjunction with , our audited consolidated financial statements and the accompanying notes to consolidated financial statements and other disclosures included in this annual report on form 10-k ( including the disclosures under part i , item 1a , “ risk factors ” ) . our consolidated financial statements have been prepared in accordance with u.s. generally accepted accounting principles and are presented in u.s. dollars . management overview gilead sciences , inc. ( gilead , we , our or us ) , incorporated in delaware on june 22 , 1987 , is a research-based biopharmaceutical company that discovers , develops and commercializes innovative medicines in areas of unmet medical need . with each new discovery and investigational drug candidate , we strive to transform and simplify care for people with life-threatening illnesses around the world . we have operations in more than 35 countries worldwide , with headquarters in foster city , california . gilead 's primary areas of focus include hiv/aids , liver diseases , hematology/oncology and inflammation/respiratory diseases . we seek to add to our existing portfolio of products through our internal discovery and clinical development programs and through product acquisition and in-licensing strategies . our portfolio of marketed products includes ambisome ® , atripla ® , biktarvy ® , cayston ® , complera ® /eviplera ® , descovy ® , emtriva ® , epclusa ® , genvoya ® , harvoni ® , hepsera ® , letairis ® , odefsey ® , ranexa ® , sovaldi ® , stribild ® , truvada ® , tybost ® , vemlidy ® , viread ® , vosevi ® , yescarta tm and zydelig ® . we have u.s. and international commercial sales operations , with marketing subsidiaries in over 35 countries . we also sell and distribute certain products through our corporate partners under royalty-paying collaborative agreements . 2017 business highlights 2017 was marked by operational excellence across our business , as we accomplished many key goals that position us for future growth . during 2017 , we observed strong performance in our hiv and cardiovascular products . we continued to execute on and maximize the opportunity in hcv in a changing competitive landscape . in addition , we continued to advance our product pipeline across our therapeutic areas with the goal of delivering best-in-class drugs that advance the current standard of care and or address unmet medical need . recent key developments include : key announcements fda granted priority review for our new drug application ( nda ) for biktarvy , our fixed-dose combination of bictegravir ( bic ) , a novel investigational integrase strand transfer inhibitor , and emtricitabine/tenofovir alafenamide ( taf ) , for the treatment of hiv-1 infection . in addition , our marketing authorization application for biktarvy has been fully validated and is now under evaluation by the european medicines agency ( ema ) . we received u.s. food and drug administration ( fda ) approval for biktarvy on february 7 , 2018. european commission granted marketing authorization for vemlidy , a once-daily tablet for the treatment of chronic hepatitis b virus ( hbv ) infection in adults and adolescents ( aged 12 years and older with body weight at least 35 kg ) . european commission and fda approved vosevi , a once-daily single tablet regimen for the treatment of hcv infection in adults with genotype 1-6. vosevi is the first and only single tablet regimen for patients who have previously failed therapy with direct-acting antiviral ( daa ) treatments and is the latest regimen in our portfolio of sofosbuvir-based hcv daa treatments . we announced a new licensing agreement with the medicines patent pool ( mpp ) , a united nations-backed public health organization , to expand access to bic . through this agreement , mpp can sub-license rights to bic to generic drug companies in india , china and south africa to manufacture therapies containing bic for distribution in certain low- and middle-income countries . china food and drug administration approved sovaldi for the treatment of hcv infection . sovaldi was approved for the treatment of adults and adolescents ( aged 12 to 18 years ) infected with hcv genotypes 1 , 2 , 3 , 4 , 5 or 6 as a component of a combination antiviral treatment regimen . sovaldi is our first hcv medicine approved in china . fda approved expanded labeling for epclusa , the first all-oral , pan-genotypic , once-daily single tablet regimen for the treatment of adults with hcv infection , to include use in patients co-infected with hiv . european commission extended marketing authorization for harvoni to include the treatment of hcv infection in adolescents infected with genotype 1 , 3 , 4 , 5 or 6. harvoni is the first daa regimen to receive marketing authorization in the european union extended for use in the adolescent population . 42 fda approved supplemental indications for harvoni and sovaldi for the treatment of hcv infection in adolescents without cirrhosis or with compensated cirrhosis , 12 years of age and older , or weighing at least 35 kilograms . harvoni was approved for pediatric patients with genotype 1 , 4 , 5 or 6 hcv infection . sovaldi was approved for pediatric patients with genotype 2 or 3 hcv infection , in combination with ribavirin . acquisitions in october 2017 , we completed a tender offer for all of the outstanding common stock of kite pharma , inc. ( kite ) for $ 180 per share in cash , or approximately $ 11.2 billion , excluding approximately $ 0.7 billion relating to the portion of the replaced stock-based awards attributable to the post combination period . story_separator_special_tag in addition , we believe truvada for pre-exposure prophylaxis ( prep ) will continue to be an integral part of our growth in hiv in the united states as communities embrace the public health benefits of prevention . in hcv , we expect a decline in product sales in all major markets as a result of increased competition . hcv revenues are driven by four variables : patient starts , net pricing , market share and treatment duration . treatment duration has stabilized as a variable and pricing of all regimens has gravitated towards the 8-week regimen price . we anticipate both pricing and market share to stabilize by mid-2018 with more predictable , but slightly declining , patient starts moving forward . in cell therapy , we will continue to promote the use of yescarta in the united states and prepare for anticipated approval in europe . we will continue to help ensure patient access to our products around the world , including through our gilead access program , under which more than 10 million people receive our hiv medicines in low- and middle-income countries . our progress on all of these initiatives is subject to a number of uncertainties , including , but not limited to , the continuation of an uncertain global macroeconomic environment ; additional pricing pressures from payers and competitors ; slower than anticipated growth in our hiv products ; an increase in discounts , chargebacks and rebates due to ongoing contracts and future negotiations with commercial and government payers ; market share and price erosion caused by the introduction of generic versions of truvada outside the united states and viread and letairis in the united states ; inaccuracies in our hcv patient start estimates ; potential amendments to the affordable care act or other government action that could have the effect of lowering prices ; a larger than anticipated shift in payer mix to more highly discounted payer segment ; and volatility in foreign currency exchange rates . 2017 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > of our total antiviral product sales for 2017 , 2016 and 2015 , respectively . in 2017 , product sales were $ 3.1 billion in the united states , $ 704 million in europe and $ 613 million in other international locations . in 2016 , product sales were $ 4.9 billion in the united states , $ 1.8 billion in europe and $ 2.3 billion in other international locations . in 2015 , product sales were $ 10.1 billion in the united states , $ 2.2 billion in europe and $ 1.6 billion in other international locations . the decreases in 2017 compared to 2016 in all major markets were primarily due to lower sales volume . in the united states , the decrease in 2016 compared to 2015 was primarily due to lower sales volume and a lower average net selling price , which was partially offset by a favorable revision to our sales return reserve of $ 181 million recorded during the second quarter of 2016. the number of patients that started treatment with harvoni in the united states peaked in the first half of 2015 , as many warehoused patients initiated treatment after the product launch . in europe , the decrease in 2016 compared to 2015 was primarily due to lower sales volume and unfavorable foreign currency exchange , net of hedges . in other international locations , the increase in 2016 compared to 2015 was primarily due to higher sales in japan . sales in japan were $ 1.8 billion in 2016 compared to $ 1.0 billion in 2015 , driven by higher sales volume , partially offset by a mandatory price reduction of 32 % that was effective april 1 , 2016. epclusa epclusa was approved by fda and the european commission in june and july 2016 , respectively . epclusa sales accounted for 15 % and 6 % of our total antiviral product sales for 2017 and 2016 , respectively . in 2017 , product sales were $ 2.4 billion in the united states , $ 869 million in europe and $ 237 million in other international 46 locations . in 2016 , product sales were $ 1.6 billion in the united states , $ 141 million in europe and $ 20 million in other international locations . the increases in 2017 compared to 2016 in all major markets were primarily due to higher sales volume , partially offset by a decrease in average net selling price . sovaldi sovaldi sales accounted for 4 % , 14 % and 17 % of our total antiviral product sales for 2017 , 2016 and 2015 , respectively . in 2017 , product sales were $ 130 million in the united states , $ 258 million in europe and $ 576 million in other international locations . in 2016 , product sales were $ 1.9 billion in the united states , $ 891 million in europe and $ 1.2 billion in other international locations . in 2015 , product sales were $ 2.4 billion in the united states , $ 1.6 billion in europe and $ 1.3 billion in other international locations . the decreases in 2017 compared to 2016 in all major markets were primarily due to lower sales volume driven by a shift in the market from sovaldi to epclusa . in the united states , the decrease in 2016 compared to 2015 was primarily due to lower sales volume , partially offset by a favorable revision to our sales return reserve of $ 98 million recorded during the second quarter of 2016. in europe , the decrease in 2016 compared to 2015 was primarily due to lower sales volume . in other international locations , the slight decrease was primarily due to lower sales in japan . sales in japan were $ 635 million in 2016 compared to $ 878 million in 2015 due to a mandatory price reduction of 32 % that was effective april 1 , 2016 and lower sales volume .
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results of operations total revenues the following table summarizes the period over period changes in our product sales and royalty , contract and other revenues : replace_table_token_4_th product sales 2017 compared to 2016 total product sales were $ 25.7 billion in 2017 , compared to $ 30.0 billion in 2016 , primarily due to a decrease in antiviral product sales . antiviral product sales , which include sales of our hiv , hbv and hcv products , were $ 23.3 billion in 2017 , compared to $ 27.7 billion in 2016 . hiv and hbv product sales were $ 14.2 billion in 2017 , compared to $ 12.9 billion in 2016 . the increase was primarily driven by the continued uptake of our taf-based products , partially offset by decreases in sales of tenofovir disoproxil ( tdf ) -based products . hcv product sales , which consist of harvoni , epclusa , sovaldi and vosevi , were $ 9.1 billion in 2017 , compared to $ 14.8 billion in 2016 . the declines of our hcv product sales across all major markets were a result of increased competition and lower total market patient starts . other product sales , which include sales of letairis , ranexa and ambisome , were $ 2.3 billion in 2017 , an increase of 5 % compared to $ 2.2 billion in 2016 . letairis is expected to face generic competition in the united states starting in july 2018. of our product sales in 2017 , 29 % were generated outside the united states . we faced exposure to movements in foreign currency exchange rates , primarily in the euro . we used foreign currency exchange contracts to hedge a percentage of our foreign currency exposure . foreign currency exchange , net of hedges , had an unfavorable impact of $ 117 million on our 2017 product sales compared to 2016 .
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we also operate 88 dd 's discounts locations in seven states that feature a more moderately-priced assortment of first-quality , in-season , name brand apparel , accessories , footwear , and home fashions for the entire family at everyday savings of 20 % to 70 % off moderate department and discount store regular prices . our primary objective is to pursue and refine our existing off-price strategies to maintain or improve profitability and improve financial returns over the long term . in establishing appropriate growth targets for our business , we closely monitor market share trends for the off-price industry . total aggregate sales for the five largest off-price retailers in the united states increased 6 % during 2011 on top of an 8 % increase in 2010. the 6 % off-price growth in 2011 compares favorably to total national apparel sales which increased 4 % , according to data published by the npd group , inc. , a leading provider of comprehensive consumer and retail information worldwide . we believe that the stronger relative sales gains of the off-price retailers during 2011 and 2010 were driven mainly by an increased focus on value by consumers over the past few years . our sales and earnings gains in 2011 continued to benefit from efficient execution of our off-price model throughout all areas of our business . our merchandise and operational strategies are designed to take advantage of the expanding market share of the off-price industry as well as the ongoing customer demand for name brand fashions for the family and home at compelling everyday discounts . looking ahead to 2012 , we are planning further reductions in average store inventory levels while continuing to maintain strict controls on operating expenses as part of our strategy to help maximize our profitability . we refer to our fiscal years ended january 28 , 2012 , january 29 , 2011 , and january 30 , 2010 as fiscal 2011 , fiscal 2010 , and fiscal 2009 , respectively . fiscal 2011 , 2010 , and 2009 each had 52 weeks . 19 story_separator_special_tag 1.5pt solid ; width : 100 % ; border-bottom : black 1.5pt solid '' > replace_table_token_9_th 22 operating activities net cash provided by operating activities was $ 820.1 million , $ 673.0 million , and $ 888.4 million in fiscal 2011 , 2010 , and 2009 , respectively . the primary sources of cash provided by operating activities in fiscal 2011 , 2010 , and 2009 were net earnings excluding non-cash expenses for depreciation and amortization . our primary source of operating cash flow is the sale of our merchandise inventory . we regularly review the age and condition of our merchandise and are able to maintain current merchandise inventory in our stores through replenishment processes and liquidation of slower-moving merchandise through clearance markdowns . net cash from operations increased in 2011 compared to 2010 primarily due to higher net earnings and lower working capital used to purchase additional packaway inventory . we expect to continue to take advantage of packaway inventory opportunities to deliver bargains to our customers . as a regular part of our business , packaway inventory levels will vary over time based on availability of compelling opportunities in the marketplace . packaway merchandise is purchased with the intent that it will be stored in our warehouses until a later date . the timing of the release of packaway inventory to our stores is principally driven by the product mix and seasonality of the merchandise , and its relation to the company 's store merchandise assortment plans . as such , the aging of packaway varies by merchandise category and seasonality of purchase , but typically packaway remains in storage less than six months . changes in packaway inventory levels impact our operating cash flow . at the end of fiscal 2011 , packaway inventory was 49 % of total inventory compared to 47 % and 38 % at the end of fiscal 2010 and 2009 , respectively . packaway inventory as a percentage of our total inventory has increased since 2010 as we took advantage of the increased availability of compelling opportunities in the marketplace . the change in total merchandise inventory , net of the related change in accounts payable , resulted in a use of cash of approximately $ 55 million and $ 112 million for fiscal 2011 and 2010 , respectively . accounts payable leverage ( defined as accounts payable divided by merchandise inventory ) decreased to 67 % as of january 28 , 2012 from 71 % as of january 29 , 2011 as a result of higher packaway inventory . we believe that our existing cash balances , cash flows from operations , available bank credit lines and trade credit are adequate to meet our liquidity needs for at least the next twelve months . investing activities net cash used in investing activities was $ 471.8 million , $ 196.8 million , and $ 136.8 million in fiscal 2011 , 2010 , and 2009 , respectively . the increase in cash used for investing activities for fiscal 2011 , compared to the prior year was primarily due to higher capital expenditures and a transfer of funds into restricted accounts to serve as collateral for our insurance obligations . in fiscal 2011 , 2010 , and 2009 , our capital expenditures were $ 416.3 million , $ 198.7 million , and $ 158.5 million , respectively . our capital expenditures include costs for fixtures and leasehold improvements to open new stores and costs to implement information technology systems , build or expand distribution centers , and various other expenditures related to our stores , buying , and corporate offices . we opened 80 , 56 , and 56 new stores in fiscal 2011 , 2010 , and 2009 , respectively . in april 2011 , we purchased a 449,000 square foot warehouse for packaway storage in riverside , california for $ 20.5 million . story_separator_special_tag the initial terms of these leases are either two or three years , and we typically have options to renew the leases for two to three one-year periods . alternatively , we may purchase or return the equipment at the end of the initial or each renewal term . we have guaranteed the value of the equipment of $ 1.2 million at the end of the respective initial lease terms , which is included in other synthetic lease obligations in the table above . we lease a 1.3 million square foot distribution center in perris , california . the land and building for this distribution center are financed by the lessor under a $ 70 million ten-year synthetic lease that expires in july 2013. rent expense on this center is payable monthly at a fixed annual rate of 5.8 % on the lease balance of $ 70 million . at the end of the lease term , we have the option to either refinance the $ 70 million synthetic lease facility , purchase the distribution center at the amount of the then-outstanding lease obligation , or arrange a sale of the distribution center to a third party . if the distribution center is sold to a third party for less than $ 70 million , we have agreed under a residual value guarantee to pay the lessor any shortfall amount up to $ 56 million . as of january 28 , 2012 , we have accrued approximately $ 4.6 million related to an estimated shortfall in the residual value guarantee recorded in accrued expenses and other in the accompanying consolidated balance sheets . the synthetic lease agreement includes a prepayment penalty for early payoff of the lease . our contractual obligation of $ 56 million is included in other synthetic lease obligations in the above table . 25 we have also recognized a liability and corresponding asset for the inception date estimated fair values of the distribution center and pos synthetic lease residual value guarantees . as of january 28 , 2012 we have approximately $ 1.4 million of residual value guarantee asset and liability . these residual value guarantees are amortized on a straight-line basis over the original terms of the leases . the current portion of the related asset and liability is recorded in prepaid expenses and other and accrued expenses , respectively , and the long-term portion of the related assets and liabilities is recorded in other long-term assets and other long-term liabilities , respectively , in the accompanying consolidated balance sheets . we lease three warehouses . two of the warehouses are in carlisle , pennsylvania with leases expiring in 2013 and 2014. the third warehouse is in fort mill , south carolina , with a lease expiring in 2013. the leases for all three of these warehouses contain renewal provisions . we also own a 423,000 square foot warehouse in fort mill , south carolina and a 449,000 square foot warehouse in riverside , california . all five of these warehouses are used to store our packaway inventory . we also lease a 10-acre parcel that has been developed for trailer parking adjacent to our perris , california distribution center . we lease approximately 181,000 square feet of office space for our corporate headquarters in pleasanton , california , under several facility leases . the terms for these leases expire between 2014 and 2015 and contain renewal provisions . we lease approximately 201,000 and 26,000 square feet of office space for our new york city and los angeles buying offices , respectively . the lease terms for these facilities expire in 2021 and 2014 , respectively , and contain renewal provisions . purchase obligations . as of january 28 , 2012 we had purchase obligations of approximately $ 1,243 million . these purchase obligations primarily consist of merchandise inventory purchase orders , commitments related to store fixtures and supplies , and information technology service and maintenance contracts . merchandise inventory purchase orders of $ 1,172 million represent purchase obligations of less than one year as of january 28 , 2012. commercial credit facilities the table below presents our significant available commercial credit facilities at january 28 , 2012 : replace_table_token_12_th for additional information relating to this credit facility , refer to note d of notes to the consolidated financial statements . revolving credit facility . at january 28 , 2012 , we had available a $ 600 million unsecured revolving credit facility with our banks . this credit facility expires in march 2016 and contains a $ 300 million sublimit for issuance of standby letters of credit . interest on this credit facility is based on libor plus an applicable margin ( currently 150 basis points ) and is payable upon maturity but not less than quarterly . our borrowing ability under this credit facility is subject to our maintaining certain financial ratios . as of january 28 , 2012 we had no borrowings outstanding or letters of credits issued under this facility and were in compliance with the covenants . as of january 28 , 2012 , our $ 600 million credit facility remains in place and available . 26 the synthetic lease facilities described above , as well as our revolving credit facility and senior notes , have covenant restrictions requiring us to maintain certain interest coverage and other financial ratios . in addition , the interest rates under the revolving credit facility may vary depending on actual interest coverage ratios achieved . as of january 28 , 2012 , we were in compliance with these covenants . standby letters of credit and collateral trust . in july 2011 , we entered into new standby letters of credit outside of our revolving credit facility and set up a trust to collateralize our insurance obligations . as of january 28 , 2012 we had $ 45.3 million in standby letters of credit which are collateralized by restricted cash and cash equivalents and $ 21.3 million in a collateral trust consisting of restricted cash , cash equivalents , and investments .
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results of operations the following table summarizes the financial results for fiscal 2011 , 2010 , and 2009 : replace_table_token_5_th all share and per share amounts have been adjusted for the two-for-one stock split effective december 15 , 2011. stores . total stores open at the end of fiscal 2011 , 2010 , and 2009 were 1,125 , 1,055 , and 1,005 , respectively . the number of stores at the end of fiscal 2011 , 2010 , and 2009 increased by 7 % , 5 % , and 5 % from the respective prior years . our expansion strategy is to open additional stores based on market penetration , local demographic characteristics , competition , expected store profitability , and the ability to leverage overhead expenses . we continually evaluate opportunistic real estate acquisitions and opportunities for potential new store locations . we also evaluate our current store locations and determine store closures based on similar criteria . replace_table_token_6_th sales . sales for fiscal 2011 increased $ 742.2 million , or 9.4 % , compared to the prior year due to the opening of 70 net new stores during 2011 , and a 5 % increase in sales from comparable stores ( defined as stores that have been open for more than 14 complete months ) . sales for fiscal 2010 increased $ 681.9 million , or 9.5 % , compared to the prior year due to the opening of 50 net new stores during 2010 , and a 5 % increase in sales from comparable stores . 20 our sales mix is shown below for fiscal 2011 , 2010 , and 2009 : replace_table_token_7_th we intend to address the competitive climate for off-price apparel and home goods by pursuing and refining our existing strategies and by continuing to strengthen our organization , to diversify our merchandise mix , and to more fully develop our organization and systems to improve regional and local merchandise offerings .
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the company determines the expected long-term rate of return on plan assets by performing a detailed analysis of historical and expected returns based on the strategic asset allocation approved by the board of directors and the underlying return fundamentals of each asset class . the company 's historical experience with the pension fund asset performance is also considered . 43 replace_table_token_36_th replace_table_token_37_th 401 ( k ) plan the domestic employees of the company participate in the mfri , inc. employee savings and protection plan , which is applicable to all employees except employees covered by collective bargaining agreement benefits . the plan allows employee pretax payroll contributions of up to 16 % of total compensation . the company matches 50 % of each participant 's contribution , up to a maximum of 3 % of each participant 's salary . contributions to the 401 ( k ) plan were $ 558 thousand and $ 436 thousand for the years ended january 31 , 2012 and 2011 , respectively . deferred compensation plans the company has deferred compensation agreements with key employees . vesting is based on years of service . life insurance contracts have been purchased which may be used to fund the company 's obligation under these agreements . multi-employer plans the company contributes to a multi-employer plan for certain collective bargaining u.s. employees and for foreign employees according to their countries requirements . the risks of participating in this multi-employer plan are different from a single employer plan in the following aspects : assets contributed to the multi-employer by one employer may be used to provide benefits to employees of other participating employers . 44 if a participating employer ceases contributing to the plan , the unfunded obligations of the plan may be inherited by the remaining participating employers if the company chooses to stop participating in the multi-employer plan , the company may be required to pay those plans an amount based on the underfunded status of the plan , referred to as a withdrawal liability . the company has assessed and determined that the multi-employer plans to which it contributes is not significant to the company 's consolidated financial statements . the company does not expect to incur a withdrawal liability or expect to significantly increase its contribution over the remainder of the contract period . the company made contributions to the bargaining unit supported multi-employer pension plan resulting in expense of approximately $ 2.5 million and $ 2.3 million for the years ended january 31 , 2012 and 2011 , respectively . 45 note 10 - stock options under the 2004 story_separator_special_tag the statements contained under the caption md & a and other information contained elsewhere in this annual report , which can be identified by the use of forward-looking terminology such as `` may , '' `` will , '' `` expect , '' `` continue , '' `` remains , '' `` intend , '' `` aim , '' `` should , '' `` prospects , '' `` could , '' `` future , '' `` potential , '' `` believes , '' `` plans , '' `` likely '' and `` probable '' or the negative thereof or other variations thereon or comparable terminology , constitute `` forward-looking statements '' within the meaning of section 27a of the securities act of 1933 , as amended and section 21e of the securities exchange act of 1934 , as amended and are subject to the safe harbors created thereby . these statements should be considered as subject to the many risks and uncertainties that exist in the company 's operations and business environment . such risks and uncertainties could cause actual results to differ materially from those projected as a result of many factors , including but not limited to those under the heading item 1a . risk factors . story_separator_special_tag new start-up facility were recorded to cost of goods sold , general and administrative and selling expenses . piping systems ' domestic sales and earnings are seasonal , typically lower during the fourth and first quarters due to unfavorable weather for construction over much of north america and are correspondingly higher during the second and third quarters . replace_table_token_3_th despite significant sales drops in the middle east and india , net sales of $ 97 million decreased only 7 % from $ 104.6 million , in the prior-year due to reduced activity at the u.a.e . facility and no large project related revenue at the india facility , partially offset by a rise in domestic oil and gas product sales . gross margin decreased to 15 % of net sales from 26 % of net sales in the prior-year due to lower volume at the u.a.e . facility and no large project related activity at the india facility . in the second quarter , piping systems incurred a one-time extended service claim of approximately $ 0.6 million . general and administrative expense decreased to $ 9 million or 9.5 % of net sales in 2011 from $ 10 million or 9.9 % of net sales in 2010 . the reduction in general and administrative expenses was due to lower profit based management incentive compensation , legal expenses and reduced staffing at the u.a.e . location , partially offset by increased healthcare costs . selling expense increased to $ 4 million or 4 % of net sales in 2011 from $ 3 million or 3 % of net sales in 2010 . this increase was due to a change in the domestic sales commission program , which resulted in higher sales commission expense in the period . filtration products the timing of large orders can have a material effect on net sales and gross profit from period to period . pricing on large orders was extremely competitive and therefore resulted in relatively low gross margins in all periods . story_separator_special_tag as of january 31 , 2011 and january 31 , 2012 , no valuation allowance was deemed necessary on all domestic deferred tax assets except for certain state net operating losses , ( `` nol '' ) . the company believes that it will be more likely than not that the research and development credits will be utilized within the next five years ; therefore , the company has released the valuation allowance of $ 0.8 million for the $ 1.3 million research and development credits established in 2009. another contributing factor to the unusual etr is the valuation allowance set up on the nol in saudi arabia . the company does not record a tax benefit for its start-up entities . as of january 31 , 2012 , the company had undistributed earnings of foreign subsidiaries for which deferred taxes have not been provided . the company intends and has the ability to reinvest these earnings for the foreseeable future outside the u.s. if these amounts were distributed to the u.s. , in the form of dividends or otherwise , the company would be subject to additional u.s. income taxes . determination of the amount of unrecognized deferred income tax liabilities on these earnings is not practicable because such liability , if any , is dependent on circumstances existing if and when remittance occurs . a reconciliation of the etr to the u.s. statutory tax rate is as follows : replace_table_token_6_th for further information , see note 8 - income taxes in the notes to consolidated financial statements . liquidity and capital resources cash and cash equivalents as of january 31 , 2012 were $ 4.2 million as compared to $ 16.7 million at january 31 , 2011 . the decrease was primarily for the new facility in saudi arabia . the company 's working capital was $ 43 million at january 31 , 2012 compared to $ 59 million at january 31 , 2011 . cash used in operations in 2011 was $ 0.2 million compared to cash provided by operations of $ 8.7 million at january 31 , 2011 . in july 2011 , the company recorded a one-time $ 1.8 million tax expense associated with a $ 3.1 million repatriation of foreign earnings . this tax expense included a payment of $ 0.5 million to the foreign tax authority and an accrual of $ 1.3 million u.s. tax on foreign source income . no cash will be paid for this tax in the u.s. since the company has a net operating loss carryforward for fed eral income taxes . the company does not intend to repatriate remaining unremitted foreign earnings and anticipates reinvesting these earnings overseas to fund current working capital requirements and expansion in foreign markets . if the company repatriates unremitted foreign earnings , it will have negative tax implications . 14 net cash used in investing activities in 2011 included $ 10 million for capital expenditures , primarily for machinery and equipment in piping systems of which $ 6.6 million was related to the new plant in saudi arabia . the company estimates that capital expenditures for 2012 will be approximately $ 8 million , of which the company may finance capital expenditures through real estate mortgages , equipment financing loans , internally generated funds and its revolving line of credit . the majority of such expenditures relates to foreign growth within piping systems . debt totaled $ 37.4 million at january 31 , 2012 , a decrease of $ 2 million since january 31 , 2011 . net cash used by financing activities was $ 1.9 million . other long-term liabilities of $ 5.1 million were composed primarily of accrued pension cost and deferred compensation . the following table summarizes the company 's estimated contractual obligations at january 31 , 2012 . replace_table_token_7_th notes to contractual obligations table ( 1 ) interest obligations exclude floating rate interest on debt payable under the domestic revolving line of credit . based on the amount of such debt at january 31 , 2012 , and the weighted average interest rate of 3.51 % on that debt , such interest was being incurred at an annual rate of approximately $ 0.8 million . ( 2 ) scheduled maturities , including interest . ( 3 ) term loan obligations exclude floating rate interest on term loan with a january 31 , 2012 balance of $ 1.1 million . based on the amount of such debt as of january 31 , 2012 , and the weighted average interest rate of 3.34 % on that debt , such interest was being incurred at an annual rate of approximately $ 42 thousand . ( 4 ) minimum contractual amounts , assuming no changes in variable expenses . ( 5 ) includes expected employer contributions for fiscal year ending january 31 , 2012 and estimated future benefit payments reflecting expected future service . ( 6 ) non-qualified deferred compensation plan - the company has deferred compensation agreements with key employees . vesting is based on years of service . life insurance contracts have been purchased which may be used to fund the company 's obligation under these agreements . payment estimates calculated by the third party administrator , have been included . ( 7 ) refer to the proxy statement for a description of compensation plans for named executive officers . ( 8 ) refer to note 8 - income taxes in the notes to consolidated financial statements for a description of the uncertain tax position obligations . financing on july 11 , 2002 , the company entered into a secured loan and security agreement with a financial institution ( `` loan agreement '' ) .
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consolidated results of operations replace_table_token_2_th * net of order cancelled after january 31 , 2012 due to technical matters mfri , inc. is engaged in the manufacture and sale of products in three reportable segments : piping systems , filtration products and industrial process cooling . piping systems ' domestic sales and earnings are seasonal , typically lower during the fourth and first quarters due to unfavorable weather for construction over much of north america and are correspondingly higher during the second and third quarters . the company website address is www.mfri.com . the analysis presented below and discussed in more detail throughout the md & a was organized to provide instructive information for understanding the business going forward . however , this discussion should be read in conjunction with the consolidated financial statements in item 8 of this report , including the notes thereto . an overview of the segment results is provided in note 1 - business and segment information to the consolidated financial statements in item 8 of this report . critical accounting policies and estimates md & a discusses the consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . management believes that judgments and estimates related to the following critical accounting policies could materially affect the consolidated financial statements : revenue recognition percentage of completion revenue recognition inventory income taxes equity-based compensation fair value of financial instruments in the fourth quarter of 2011 , there were no changes in the above critical accounting policies .
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the abatement period ended subsequent to year-end in january 2021. in circumstances where we agreed to a rent deferral that is to be repaid over a period of time , and where the terms of the lease and amounts paid under the lease were substantially the same , we continued to recognize the same amount of gaap lease revenue each period to the extent the amounts were probable of collection . the amounts we agreed to defer impacted our cash flows from operations . the following chart summarizes our 2020 rent collections : replace_table_token_13_th despite our continued strong rent collections subsequent to the outbreak of the covid-19 pandemic , the duration of the pandemic and the potential ongoing impacts of the virus on our tenants ' ability to conduct their business should additional governmental restrictions be implemented , could have a significant negative impact on our ability to continue to collect future rents . property dispositions from time to time , we strategically dispose of properties , primarily when we believe the risk profile has changed and become misaligned with our then current risk-adjusted return objectives . the resulting gains or losses on dispositions may materially impact our operating results , and the recognition of a gain or loss on the sale of real estate varies from transaction to transaction based on fluctuations in asset prices and demand in the real estate market at the time a property is listed for sale . as a result of the covid-19 pandemic , we have seen a slowdown in real estate transactions and weakening market conditions for several property types resulting from an increase in vacant rental space . although we were able to dispose of properties during the year ended december 31 , 2020 at advantageous prices , in the short term , the slowdown in market activity may inhibit our ability to further dispose of properties we have identified for disposition , including those leased by tenants that experience significant credit deterioration as a result of the covid-19 pandemic , and the price at which we are able to sell the properties may be negatively impacted . we will continue to monitor the pandemic 's impact and continue to selectively dispose of properties when advantageous to do so . lease renewals and occupancy as of december 31 , 2020 , the abr weighted average remaining term of our portfolio was approximately 10.7 years , excluding renewal options , and approximately 10.2 % of our leases ( based on abr ) will expire prior to january 1 , 2026. the stability of the rental revenue generated by our properties depends principally on our tenants ' ability to pay rent and our ability to collect rents , renew expiring leases or re-lease space upon the expiration or other termination of leases , lease currently vacant properties , and maintain or increase rental rates at our leased properties . to the extent our properties become vacant and are not subject to a lease , we would forego rental income while remaining responsible for the payment of property taxes and maintaining the property until it is re-leased , which could 55 negatively impact our operating results . our occupancy rates have remained strong during the covid-19 pandemic , standing at 99.2 % as of december 31 , 2020 based on rentable square footage . additionally , when negotiating covid-19 related rent relief agreements , we have sought to extend lease terms where possible to preserve the continuity of tenants and long-term cash flows derived from our portfolio . while we believe our portfolio 's diversity should allow us to manage the impact the covid-19 pandemic may have on lease renewals and occupancy , we continue to monitor the pandemic 's effects on several industries in which our tenants operate , such as bankruptcies by large retailers , continued or increased occupancy limits established by local governments on the casual dining industry , as well as the potential long-term effects on the demand for and utilization of office space as more companies consider adopting work from home models . acquisition activity our historical growth in revenues and earnings has been achieved through rent escalations associated with existing in-place leases , coupled with rental income generated from accretive property acquisitions . our ability to grow revenue will depend , to a significant degree , on our ability to identify and complete acquisitions that meet our investment criteria . changes in capitalization rates , interest rates , or other factors may impact our acquisition opportunities in the future . market conditions may also impact the total returns we can achieve on our investments . our acquisition volume also depends on our ability to access third-party debt and equity financing . the covid-19 pandemic caused a slowdown in acquisition volume , and we did not acquire any new properties during the first ten months of 2020. we returned to growth through acquisitions during the fourth quarter , investing $ 100.3 million excluding capitalized acquisition expenses in 19 properties at a weighted average initial capitalization rate of 6.9 % . we continue to build and evaluate a robust pipeline of potential investment opportunities , predominantly focused on industrial , healthcare , quick-service restaurant , and select retail property sectors . net lease terms substantially all of our leases are net leases pursuant to which our tenant generally is obligated to pay all expenses associated with the leased property including real estate taxes , insurance , maintenance , repairs , and capital costs . story_separator_special_tag we have yet to see the long-term effects of the pandemic and the extent to which it may impact our tenants in the future . a prolonged exposure to the negative economic impacts of the pandemic may result in additional tenant bankruptcies . impairments we review long-lived assets to be held and used for possible impairment when events or changes in circumstances indicate that their carrying amounts may not be recoverable . if , and when , such events or changes in circumstances are present , an impairment exists to the extent the carrying value of the asset or asset group exceeds the sum of the undiscounted cash flows expected to result from the use of the asset or asset group and its eventual disposition . such cash flows include expected future operating income , as adjusted for trends and prospects , as well as the effects of demand , competition , and other factors . significant judgment is made as to if and when impairment should be taken . if our strategy , or one or more of the assumptions described above , changes in the future , we may have to recognize an impairment . indications of a tenant 's inability to continue as a going concern , changes in our view or strategy relative to a tenant 's business or industry as a result of the covid-19 pandemic , or changes in our long-term hold strategies , could each be indicative of an impairment triggering event . for the year ended december 31 , 2020 , we recognized $ 19.1 million of impairment charges , mainly resulting from changes in our long-term hold strategy with respect to the individual properties , which was due in part to unfavorable market trends resulting from the covid-19 pandemic in geographic areas where we have vacant properties being marketed for re-lease or sale . we face the risk of additional impairments depending on the long-term effects of the covid-19 pandemic and the extent to which it may impact our tenants in the future . story_separator_special_tag during the year ended december 31 , 2020 , along with associated general and administrative expenses . in 2020 , we achieved costs savings from our internalized structure , as the increase in general and administrative expenses is less than the combined decrease in asset management , property management , and disposition fees incurred during the year ended december 31 , 2020 under our prior externally managed structure . provision for impairment of investment in rental properties during the year ended december 31 , 2020 , we recognized $ 19.1 million of impairment on our investments in rental properties , compared to $ 3.5 million during the year ended december 31 , 2019 , respectively . the following table presents the impairment charges for their respective periods : replace_table_token_16_th the timing and amount of impairment fluctuates from period to period depending on the specific facts and circumstances . we took a majority of the 2020 impairment during the third quarter , which primarily related to an increased likelihood that we would sell an asset that was vacated through a tenant 's bankruptcy . we continued to market the asset for lease or sale , and subsequent to year end , we signed a long-term lease with a new tenant . other income ( expenses ) replace_table_token_17_th interest expense increased interest expense during the year ended december 31 , 2020 , as compared to the year ended december 31 , 2019 , reflects increased average outstanding borrowings in the comparable period . we incurred incremental revolver and term loan borrowings in august 2019 to fund a significant acquisition and in february 2020 in connection with the internalization . these borrowings were unhedged and bore interest at a variable rate based on libor , which decreased from 1.76 % at december 31 , 2019 to 0.14 % at december 31 , 2020. as a result , we benefited from declining interest rates during the period of time they were outstanding . the borrowings were fully repaid in september 2020 with proceeds from our ipo . 59 gain on sale of real estate our recognition of a gain or loss on the sale of real estate varies from transaction to transaction based on fluctuations in asset prices and demand in the real estate market . during the year ended december 31 , 2020 , we recognized gains of $ 15.0 million on the sale of 24 properties , compared to gains of $ 29.9 million on the sale of 49 properties during the year ended december 31 , 2019. there was an increase in the sale of properties during 2019 as a result of our deleveraging plans following the significant industrial and office portfolio acquisition in august 2019. the decrease in the sale of properties during 2020 was a result of a shift in our deleveraging to employ proceeds from the ipo , rather than gains on sales of properties , to reduce leverage , as well as a general decrease in market activity resulting from the covid-19 pandemic in 2020. income taxes the decrease in income taxes during 2020 is mainly attributable to federal and state taxes paid in 2019 by our taxable reit subsidiary as a result of our deleveraging plans subsequent to our significant industrial and office portfolio acquisition in august 2019. change in fair value of earnout liability as part of the internalization we may be required to pay additional earnout consideration if certain milestones are achieved during the earnout periods . during 2020 , we recorded the fair value of this contingent consideration in the consolidated balance sheets , and updated the fair value at the end of each reporting period . to the extent the change in fair value relates to a portion of the earnout consideration that is classified as a liability , we record the change through earnings . we estimate the fair value of the earnout liability by considering weighted-average
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results of operations our historical results of operations for the years ended december 31 , 2020 and 2019 , discussed below , include the payment of asset and property management fees that we no longer pay following the internalization , and do not include the full extent of expected direct compensation expense associated with employees employed by us following the internalization or incremental general and administrative expenses . discussion of our results of operations for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 was previously filed in our annual report on form 10-k for the year ended december 31 , 2019. see item 7 . “ management 's discussion and analysis of financial condition and results of operations ” under the heading “ results of operations—year ended december 31 , 2019 compared to year ended year ended december 31 , 2018 . ” overview as of december 31 , 2020 , our real estate investment portfolio included 640 commercial real estate properties with locations in 41 states and one real estate property located in british columbia , canada , and leased to tenants in various industries . all but eight of our properties were subject to a lease as of december 31 , 2020 . 57 year ended december 31 , 2020 compared to year ended year ended december 31 , 2019 lease revenues , net replace_table_token_14_th the increase in lease revenues , net for the year ended december 31 , 2020 , was primarily attributable to growth in our real estate portfolio through accretive property acquisitions during 2019. in 2019 , we significantly increased the size of our portfolio , adding 74 new properties at an aggregate purchase price of approximately $ 1.0 billion , excluding capitalized acquisition costs .
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in deciding whether a valuation allowance is necessary , gaap requires us to give significant weight to objective evidence . it is difficult to conclude that sufficient taxable income will be generated when there is significant evidence – such as corcept 's substantial cumulative losses – that future taxable income is not assured . because forecasts of taxable income are inherently uncertain and not objectively verifiable , our cumulative losses must weigh heavily in our analysis . we are also required to evaluate and quantify other sources of taxable income , such as the possible reversal of future deferred tax liabilities , should any arise , and the implementation of tax planning strategies . evaluating and quantifying these amounts is difficult and involves significant judgment , based on all of the available evidence and assumptions about our future activities . until the fourth quarter of 2017 , we maintained a valuation allowance on the entire value of our deferred taxes and did not report these amounts in our balance sheet . we also account for uncertain tax positions in accordance with asc 740 , which requires us to adjust our financial statements to reflect only those tax positions that are more-likely-than-not to be sustained upon review by federal or state examiners . we may recognize a tax benefit only if it is more likely than not the tax position will be sustained on examination by the taxing authorities , based on the technical merits of the position . the tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50 % likelihood of being realized upon settlement . our policy is to report interest and penalties related to unrecognized tax benefits as income tax expenses . recently adopted accounting pronouncements in august 2014 , the financial accounting standards board ( “ fasb ” ) issued accounting standards update ( “ asu ” ) no . 2014-15 ( subtopic 205-40 ) , “ presentation of financial statements—going concern : disclosure of uncertainties about an entity 's ability to continue as a going concern ” . we adopted this standard on january 1 , 2017. because we generated cash in 2016 and 2017 and expect to generate cash in 2018 , adoption had no impact on our financial statements . in july 2015 , fasb issued asu no . 2015-11 , simplifying the measurement of inventory , which requires certain inventory to be measured at the lower of cost or net realizable value . we adopted this standard on january 1 , 2017 and it did not have a material impact on our financial statements . in november 2015 , fasb issued asu no . 2015-17 `` balance sheet classification of deferred taxes , `` which requires that deferred tax liabilities and assets be classified as noncurrent . before adoption , companies were required to separate deferred liabilities and assets into current and noncurrent amounts in their balance sheets . we adopted this standard prospectively on january 1 , 2017. prior period balance sheets were not impacted , as we had a full valuation allowance against our deferred taxes , resulting in no deferred taxes being story_separator_special_tag f financial condition and results of operations the following management 's discussion and analysis of financial condition and results of operations ( “ md & a ” ) is intended to help the reader understand our results of operations and financial condition . this md & a is provided as a supplement to , and should be read in conjunction with , our audited financial statements and the accompanying notes to financial statements , risk factors and other disclosures included in this form 10-k. our financial statements have been prepared in accordance with u.s. generally accepted accounting principles ( “ gaap ” ) and are presented in u.s. dollars . we make statements in this section that are forward-looking statements within the meaning of the federal securities laws . for a complete discussion of such forward-looking statements and the potential risks and uncertainties that may affect their accuracy , see “ forward-looking statements ” included in “ risk factors ” in this form 10-k and the “ overview ” and “ liquidity and capital resources ” sections of this md & a . overview we are engaged in the discovery , development and commercialization of drugs that treat severe metabolic , oncologic and psychiatric disorders by modulating the effects of the hormone cortisol . since 2012 , we have marketed korlym , a first-generation cortisol modulator , for the treatment of patients with endogenous cushing 's syndrome . we are developing compounds from our portfolio proprietary , selective cortisol modulators for the treatment of a wide range of serious disorders . cushing 's syndrome korlym to treat patients with cushing 's syndrome . we sell korlym in the united states , using experienced sales representatives who target the endocrinologists and other specialists caring for patients with cushing 's syndrome . we also reach patients directly through web-based initiatives and interactions with patient groups . we use one specialty pharmacy and one specialty distributor to distribute korlym and provide logistical support . to help ensure that no patient is denied access to korlym for financial reasons , we fund our own patient support programs and donate money to independent charitable foundations that help patients with cushing 's syndrome cover the cost of their care , including the cost of korlym . relacorilant ( cort125134 ) to treat patients with cushing 's syndrome . we are conducting a phase 2 trial of our proprietary , selective cortisol modulator , relacorilant , to treat patients with cushing 's syndrome . this open label trial will enroll approximately 30 patients at sites in the united states and europe . story_separator_special_tag 34 contractual obligations and commer cial commitments the following table presents our estimates of obligations under contractual agreements as of december 31 , 2017. replace_table_token_5_th ( 1 ) as of december 31 , 2017 , we had commitments to purchase $ 14.3 million worth of api from pcas to manufacture relacorilant , cort118335 and cort125281 . ( 2 ) in march 2016 , we early terminated our lease and replaced it with a new one effective may 1 , 2016 through march 31 , 2019. on june 1 , 2017 , we amended that lease to add more space . at december 31 , 2017 , the remaining minimum rental payments under this operating lease were $ 1.6 million . we enter into contracts in the normal course of business with cros for preclinical studies and clinical trials . the contracts are cancellable , with varying provisions regarding termination . if a contract with a specific vendor were to be terminated , we would only be obligated for products and services that we had received as of the effective date of the termination and any applicable cancellation fees . we have other contractual payment obligations and purchase commitments , the timing of which are contingent on future events , including the initiation and completion of manufacturing projects . in march 2014 , we entered into an agreement with pcas for the manufacture of mifepristone , the api in korlym , for an initial term of five years , with an automatic extension of one year unless either party gives 12 months ' prior written notice of termination . in april 2014 , we entered into a manufacturing agreement with alcami corporation ( formerly known as aai pharma services corp. ) for the manufacture and packaging of korlym tablets . this agreement has an initial term of three years , with consecutive automatic extensions of two years each , unless either party gives written notice of termination . ( in the case of alcami , notice is due 18 months before the end of the applicable term . for corcept , notice is due 12 months before the end of the applicable term . ) neither agreement requires us to make minimum purchases . purchase commitments will depend on corcept 's requirements . net operating loss carryforwards see note 10 , income taxes in our audited financial statements . off-balance sheet arrangements none . critical accounting policies and estimates our financial statements have been prepared in accordance with gaap , which requires us to make estimates and judgments that affect the amount of assets , liabilities and expenses we report . we base our estimates on historical experience and on other assumptions we believe to be reasonable . actual results may differ from our estimates . net product revenue we primarily sell korlym directly to patients , using a single specialty pharmacy . we recognize revenue upon the delivery of korlym if ( i ) there is persuasive evidence that an arrangement exists with the customer , ( ii ) collectability is reasonably assured and ( iii ) the sales price is fixed or determinable . in order to conclude that the price is fixed or determinable , we must be able to ( i ) calculate gross product revenue from a sale and ( ii ) reasonably 35 estimate the associated net revenue . confirmation of coverage by the patient 's private or government insurance plan or by our own patient assistance program or a third-party charity is a prerequisite for selling korlym to a patient . we provide korlym at no cost to patients without insurance who do not qualify for charitable support . ( see discussion set forth in part iv – item 15 ( 1 ) – financial statements , notes to financial statements , note 2 , significant agreements – commercial agreemen ts . ) . it is our policy that no patient is denied korlym for financial reasons . through august 9 , 2017 our exclusive specialty pharmacy was dohmen life science services ( “ dohmen ” ) . on august 10 , 2017 , optime care , inc. ( “ optime ” ) became our exclusive specialty pharmacy . we donate cash to charities that help patients pay for the treatment of cushing 's syndrome , including the cost of medical and non-medical therapy unrelated to korlym . we do not include payments we receive from these organizations in revenue . we calculate gross product revenues based on the price we charge our customers . we estimate net product revenues by deducting from gross product revenues ( a ) estimated government rebates and chargebacks , ( b ) estimated costs of our patient co-pay assistance program , ( c ) discounts for prompt payment and ( d ) reserves for expected product returns . we record estimates for these deductions at the time we recognize the gross revenue and revise them as new information becomes available . government rebates korlym is eligible for purchase by or qualifies for partial or full reimbursement from medicaid and other government programs . we estimate any government rebate amounts by applying the discount rates applicable to each government-funded program against our sales to patients covered by such programs . allowances for patient assistance program it is our policy that no patient be denied korlym due to inability to pay . we provide financial assistance to eligible patients whose insurance policies require them to pay high deductibles and co-payments and deduct the amount of such assistance from these sales from gross revenue . we determine the amount of such assistance by applying our program guidelines to all eligible sales in the period . sales returns we deduct from each period 's gross revenue the amount of korlym we estimate will be returned .
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results of operations net product revenue – net product revenue is gross product revenue from sales to our customers less deductions for estimated government rebates . for the year ended december 31 , 2017 , we recorded $ 159.2 million in net product revenue , as compared to $ 81.3 million for the year ended december 31 , 2016 and $ 50.3 million for the year ended december 31 , 2015. the increases in net product revenue year over year were primarily driven by increases in our sales volume and price increases . these price increases represented approximately 16.6 percent and 32.1 percent of the increases in net revenue for the years ended december 31 , 2017 and 2016 , respectively . cost of sales – cost of sales includes the cost of api , tableting , packaging , personnel , overhead , stability testing and distribution . cost of sales was $ 3.6 million for the year ended december 31 , 2017 , as compared to $ 2.1 million in the corresponding period in 2016 and $ 1.4 million in the corresponding period in 2015. these increases were due to greater sales volumes , partially offset by reductions in our manufacturing costs . for the year ended december 31 , 2017 , cost of sales was 2.2 percent of our net product revenue , as compared to 2.5 percent in the corresponding period in 2016 and 2.7 percent in the corresponding period in 2015. cost of sales declined as a percentage of net product revenue for the years ended december 31 , 2017 and 2016 due to reduced manufacturing costs and increases in the price of korlym .
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if the asset or liability has a specified ( contractual ) term , a level 2 input must be observable for substantially the full term of the asset or liability . level 2 inputs include the following : ( i ) quoted prices for similar assets or liabilities in active markets ; ( ii ) quoted prices for identical or similar assets or liabilities in markets that are not active ; ( iii ) inputs other than quoted prices that are observable for the asset or liability ; or ( iv ) inputs that are derived principally from , or corroborated by , observable market data by correlation or other means . level 3 inputs are unobservable inputs for the financial asset or liability . ( 56 ) panhandle oil and gas inc. notes to financial statements ( continued ) 1 . summary of significant accounting policies ( continued ) the following table provides fair value measurement information for financial assets and liabilities measured at fair value on a recurring basis . replace_table_token_30_th replace_table_token_31_th level 2 – market approach - t he fair values of the company 's natural gas swaps are based on a third-party pricing model which utilizes inputs that are either readily available in the public market , such as natural gas curves , or can be corroborated from active markets . these values are based upon future prices , time to maturity and other factors . these values are then compared to the values given by our counterparties for reasonableness . level 3 – the fair values of the company 's costless collar contracts are based on a pricing model which utilizes inputs that are unobservable or not readily available in story_separator_special_tag and results of operations business overview the company 's principal line of business is to explore for , develop , produce and sell oil , ngl and natural gas . results of operations are dependent primarily upon : reserve quantities and associated exploration and development costs in finding new reserves ; production quantities and related production costs ; and oil , ngl and natural gas sales prices . natural gas production was 20 % higher in 2013 than in 2012. this production increase is the combined effect of added natural gas production from wells put on production during the first half of 2013 in the fayetteville shale and associated natural gas production from ongoing development on the company 's mineral and leasehold acreage in the following oil and ngl rich plays : ( 26 ) horizontal granite wash and hogshooter in western oklahoma and the texas panhandle horizontal cleveland in western oklahoma and the texas panhandle horizontal marmaton in western oklahoma horizontal tonkawa in western oklahoma horizontal anadarko basin woodford shale in western oklahoma horizontal ardmore basin woodford shale in southern oklahoma development in these plays has also resulted in a 53 % and a 13 % increase in 2013 oil and ngl production , re spectively , as compared to 2012. as of september 30 , 2013 , the company owned an average 3.6 % net revenue interest in 53 wells that were drilling or testing . as these wells begin producing and other scheduled wells are drilled and completed in the abovementioned plays , the company anticipates fiscal 2014 oil and ngl production will increase over that of 2013 , while 2014 natural gas production is expected to remain relatively flat to 2013. the increased production of oil , ngl and natural gas in 2013 , and higher natural gas and oil prices , partially offset by lower ngl prices , resulted in a 48 % increase in revenues from the sale of oil , ngl and natural gas . based on recent forward strip pricing for 2014 , the company expects 2014 average natural gas prices to be slightly higher ( approximately $ 3.40 per mcf ) , oil prices to be lower ( approximately $ 88.00 per bbl ) and ngl prices to remain flat ( approximately $ 28.00 per bbl ) to their corresponding average prices in 2013. the company 's proved developed oil , ngl and natural gas reserves increased in 2013 , compared to 2012 , by 19.3 bcfe , or 26 % . the increase is due primarily to successful drilling activities . management currently expects drilling on the company 's acreage to result in capital expenditures for oil and natural gas activities of approximately $ 33 million during 2014. the company will also continue to evaluate opportunities to acquire mineral acreage or producing properties . acquisitions , if any , will be financed by a combination of available cash and the bank credit facility . the company had no off balance sheet arrangements during 2013 or prior years . the following table reflects certain operating data for the periods presented : ( 27 ) replace_table_token_12_th ( 1 ) proceeds from the sale of ngl in 2011 were included in natural gas sales , and we re therefore included in the price per mcf of natural gas . * the company reported ngl reserves for the first time in its 2011 year-end reserve report . increased drilling activity over the last few year s in several western oklahoma plays which produce significant ngl has resulted in meaningful ngl reserves and production for the company . these reserve and production increases necessitated inclusion of ngl in the 2011 year-end reserve calculation and 2012 production volumes . in quarters prior to 2012 , all ngl sales revenues were included with natural gas sales revenues . results of operations fiscal year 20 1 3 compared to fiscal year 20 1 2 overview the company recorded net income of $ 13,960,049 , or $ 1.67 per share , in 2013 , compared to net income of $ 7,370,996 , or $ 0.88 per share , in 2012 . story_separator_special_tag during the 2012 period , impairment of $ 826,508 was recorded on twelve small fields in oklahoma . loss ( gain ) on asset sales , interest and other loss ( gain ) on asset sales , interest and other was a net gain of $ 785,401 in 2013 , as compared to a net loss of $ 39,493 in 2012. the gain in 2013 was mainly the result of a class action lawsuit settlement of approximately $ 604,000 related to the underpayment of royalty revenues . general and administrative costs ( g & a ) g & a increased $ 413,140 or 6 % in 2013. the increase is primarily related to increases in the following expense categories : personnel $ 442,013 and technical consulting $ 111,832. these were partially offset by decreases in legal fees , board fees and other expenses of $ 140,705 in 2013. the increase in 2013 personnel related expenses was largely the result of restricted stock expense increases of $ 353,044. the increase in technical consulting in 2013 was principally due to increased engineering analysis to evaluate potential acquisitions . the decrease in legal expenses was a result of lower acquisition activity in 2013. the decrease in board fees was the result of fewer members in 2013. provision ( benefit ) for income taxes ( 30 ) the 2013 provision for income taxes of $ 6,730,000 was based on a pre-tax income of $ 20,690,049 , as compared to a provision for income taxes of $ 3,274,000 in 2012 , based on a pre-tax income of $ 10,644,996 . the effective tax rate for 2013 was 33 % , compared to an effective tax rate for 2012 of 31 % . the 2013 effective tax rate increase of 2 % was due to pre-tax income increasing 94 % from 2012 to 2013 , while the excess percentage depletion allowance ( which is a permanent tax benefit ) increased only 25 % over the same period . this resulted in a greater proportion of pre-tax income being subject to income tax and thus increased the effective tax rate . the company 's utilization of excess percentage depletion decreases the provision for income taxes . the benefit of excess percentage depletion is not directly related to the amount of recorded income or loss . accordingly , in cases where the recorded income or loss is relatively small , the proportional effect of the excess percentage depletion on the effective tax rate may become significant . fiscal year 20 12 compared to fiscal year 20 11 overview the company recorded net income of $ 7,370,996 , or $ 0.88 per share , in 2012 , compared to net income of $ 8,493,912 , or $ 1.01 p er share , in 2011. r evenues i ncreased in 2012 primarily due to increased lease bonuses and higher oil and natural gas sales volumes , partially offset by lower natural gas prices . expenses increased due to higher dd & a , loe and g & a in 2012 , partially offset by decreases in the provision for impairment and exploration costs . significant well additions through acquisition and drilling in 2012 increased production volumes and lifting costs , story_separator_special_tag based on a pre-tax income of $ 10,644,996 , as compared to a provision for income taxes of $ 3,192,000 in 2011 , based on a pre-tax income of $ 11 , 685 ,912. the effective tax rate for 2012 was 31 % , compared to an effective tax rate for 2011 of 27 % . the 2012 effective tax rate increase of 4 % was due to increased state income taxes of $ 553,926 , partially offset by an excess percentage depletion benefit increase of $ 112,524. the 2012 state income tax increase was a result of significantly higher lease bonus income in oklahoma , combined with lower intangible drilling cost deductions from oklahoma taxable income . the company 's utilization of excess percentage depletion ( which is a permanent tax benefit ) decreases the provision for income taxes . the benefit of excess percentage depletion is not directly related to the amount of recorded income or loss . accordingly , in cases where the recorded income or loss is relatively small , the proportional effect of the excess percentage depletion on the effective tax rate may become significant . liquidity and capital resources at september 30 , 2013 , the company had positive working capital of $ 7,504,588 , as compared to positive working capital of $ 3,995,103 at september 30 , 2012 . liquidity cash and cash equivalents were $ 2,867,171 as of september 30 , 2013 , compared to $ 1,984,099 at september 30 , 2012 , an increase of $ 883,072 . cash flows for the 12 months ended september 30 are summarized as follows : ( 33 ) replace_table_token_17_th operating activities : net cash provided by operating activities increased $ 12,030,913 during 2013 , as compared to 2012 , the result of the following : receipts of oil , ngl and natural gas sales ( net of production taxes and gathering , transportation and marketing costs ) increased $ 11,844,2 8 1 . i ncreased receipts from partnership distributions o f $ 316,418 combined with lower income tax payments of $ 505,466 . decreased n et realized gains on derivative contracts of $ 448,478 . increased c ash expenditures for f ield related loe of $ 435,800. investing activities : net cas h used in investing activities decreased $ 11,924,285 during 2013 , as compared to 2012 , due to : a decrease in cash used to acquire properties of $ 19,360,371 ( $ 18.8 million was used in the first quarter of 2012 to acquire producing properties , leasehold and mineral acreage in arkansas ) .
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result ing in higher dd & a and loe in 2012. oil , ngl and n atural g as sales oil , ngl and natural gas sales revenues decreased $ 2,650,696 or 6 % for 2012 , as compared to 2011. the decrease was due to lower natural gas prices of 37 % , partially offset by increased oil volumes of 47 % , increased natural gas volumes of 9 % and a 2 % increase in oil prices in 2012. the oil production increase wa s due to continued drilling in western oklahoma oily plays such as the horizontal granite wash , cleveland , tonkawa , marmaton , anadarko basin woodford shale and other plays in oklahoma , west texas , texas panhandle and southeastern new mexico . the natural gas production increase wa s mainly a result of production attributable to the acquisition in the fayetteville shale in arkansas that the compan y completed effective october 25 , 2011. as of september 30 , 201 2 , the company owned an average 3 . 6 % net revenue interest in 62 wells that were drilling or testing . production by quarter for 2012 and 2011 was as follows ( mcfe ) : replace_table_token_15_th lease bonus and rentals ( 31 ) lease bonuses and rentals in creased $ 6,800,234 in 2012. the increase was mainly due to the company leasing 2,743 net mineral acres in roger mills county , oklahoma , for $ 4.8 million . the rights leased were from the surface to 100 feet below the base of the virgilian ( commonly referred to as the tonkawa ) . the company also leased 2,431 net mineral acres in the horizontal mississippian play in northern oklahoma for $ 1.7 million .
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the application of the lifo inventory method did not result in any lifo charges or credits story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes included elsewhere in this annual report for the fiscal year ended january 30 , 2021 ( this `` annual report '' ) . this discussion contains forward-looking statements that involve risks and uncertainties . see the section of this annual report entitled `` cautionary statement regarding forward-looking statements . '' when reviewing the discussion below , you should keep in mind the substantial risks and uncertainties that characterize our business . known material factors that could affect our financial performance and actual results , and could cause actual results to differ materially from those expressed or implied in any forward-looking statements included in this discussion or otherwise made by our management , are described in the `` risk factors '' section of this annual report . any reference in this annual report to `` year '' or any year in particular refers to our fiscal year , which represents the fifty-two or fifty-three week period ending on the saturday closest to january 31. unless otherwise specified , all comparisons or changes regarding 2020 are made to 2019. all statements in this annual report concerning our current and planned operations are modified by reference to our discussion of recent developments related to the covid-19 pandemic , and our ability to carry out our current and planned operations are dependent on further developments associated with the covid-19 pandemic . our fiscal year represents the 52- or 53- week period ending on the saturday closest to january 31. all references in this discussion and analysis to `` 2020 '' , `` 2019 '' and `` 2018 '' or like terms relate to our fiscal years as follows : replace_table_token_3_th overview we are one of the leading full-line sporting goods and outdoor recreation retailers in the united states . our mission is to provide “ fun for all ” and fulfill this mission with a localized merchandising strategy and value proposition that deeply connect with a broad range of consumers . our broad and localized assortment appeals to all ages , incomes and aspirations , including beginning and advanced athletes , families enjoying outdoor recreation , and enthusiasts pursuing their passion for sports and the outdoors . 51 we sell a range of sporting and outdoor recreation products , including sporting equipment , apparel , footwear , camping gear , patio furniture , outdoor cooking equipment , and hunting and fishing gear , among many others . our strong merchandise assortment is anchored by our broad offering of year-round items , such as fitness equipment and apparel , work and casual wear , folding chairs , wagons and tents , training and running shoes , and coolers . we also carry a deep selection of seasonal items , such as sports equipment and apparel , seasonal wear and accessories , hunting and fishing equipment and apparel , patio furniture , trampolines , play sets , bicycles , and severe weather supplies . we provide locally relevant offerings , such as crawfish boilers in louisiana , licensed apparel for area sports fans , baits and lures for area fishing spots , and beach towels in coastal markets . our value-based assortment also includes exclusive products from our portfolio of 19 owned brands . as of january 30 , 2021 , we operated 259 stores that range in size from approximately 40,000 to 130,000 gross square feet , with an average size of approximately 70,000 gross square feet , throughout 16 contiguous states . our stores are supported by over 22,000 team members , three distribution centers , and our rapidly growing e-commerce platform , www.academy.com . we are deepening our customer relationships , further integrating our e-commerce platform with our stores and driving operating efficiencies by developing our omnichannel capabilities , such as our buy-online-pickup-in-store ( `` bopis '' ) program , which we launched in 2019. the following table summarizes store activity for the periods indicated : replace_table_token_4_th trends and other factors affecting our business various trends and other factors affect or have affected our operating results , including : overall economic trends . all of our sales are generated within the united states , making our results of operations highly dependent on the u.s. economy and u.s. consumer discretionary spending . macroeconomic factors that may affect customer spending patterns , and thereby our results of operations , include , but are not limited to : health of the economy ; consumer confidence in the economy ; financial market volatility ; wages , jobs and unemployment trends ; the housing market , including real estate prices and mortgage rates ; consumer credit availability ; consumer debt levels ; gasoline and fuel prices ; interest rates and inflation ; tax rates and tax policy ; immigration policy ; import and customs duties/tariffs and policy ; impact of natural or man-made disasters ; legislation and regulations ; international unrest , trade disputes , labor shortages , and other disruptions to the supply chain ; changes to raw material and commodity prices ; national and international security and safety concerns ; and impact any of public health pandemics . factors that impact consumer discretionary spending , which remains volatile globally , continue to create a complex and challenging retail environment for us . see the section of this annual report entitled `` impact of covid-19 on our business . '' consumer preferences and demands . the level of success we achieve is dependent on , among other factors , how accurately and timely we predict consumer tastes and preferences regarding sporting goods and outdoor recreation merchandise , the level of consumer demand , the availability of merchandise , and the competitive environment . our products must appeal to a broad range of customers whose preferences can not be predicted with certainty and are subject to change . story_separator_special_tag pressure from our competitors could require us to reduce our prices or increase our spending for advertising and promotion . traditional competitors have become increasingly promotional and , if our competitors reduce their prices , it may be difficult for us to reach our net sales goals without reducing our prices , which could impact our margins . we may require significant capital in the future to sustain or grow our business , including our store and e-commerce activities , due to increased competition . 53 sourcing and supply chain management . for our business to be successful , our suppliers must provide us with quality products in substantial quantities , in compliance with regulatory requirements , at acceptable costs and on a timely basis . competition for resources throughout the supply chain , such as production and transportation capacities , has increased . trends affecting the supply chain include the impact of fluctuating prices of labor and raw materials on our suppliers , as well as the impact of the covid-19 pandemic . the merchandise we sell is sourced from a wide variety of domestic and international suppliers and our ability to find qualified suppliers and access merchandise in a timely and efficient manner is often challenging , particularly with respect to merchandise sourced outside the united states . we generally do not have long-term written contracts with our suppliers that would require them to continue supplying us with merchandise , particular payment terms or the extension of credit . as a result , these suppliers could modify the terms of these relationships due to general economic conditions or otherwise . changes in our relationships with our suppliers ( which can occur for various reasons in or out of our control ) also have the potential to increase our expenses and adversely affect our results of operations . moreover , many of our suppliers provide us with merchandise purchasing incentives , such as return privileges , volume purchasing allowances and cooperative advertising , and a decline or discontinuation of these incentives could severely impact our results of operations . in addition , the announcement or imposition of any new or increased tariffs , duties or taxes as a result of trade or political tensions between the united states and other countries or otherwise could adversely affect our supply chain . in recent years , the trump administration imposed multiple rounds of tariffs on exports from china , where we and many of our vendors source commodities . as a result , we have experienced rising inventory costs on owned brand products we directly source from china , as well as national brand products from china that we source through our vendors . these higher inventory costs have resulted in higher prices and or lower margins , thus resulting in a negative impact to net sales and or gross margin . new store openings . we expect that new stores will be a key driver of growth in our net sales and gross margin in the future . our results of operations have been and will continue to be materially affected by the timing and number of new store openings . we are continually assessing the number of locations available that could accommodate our preferred size of stores in markets we would consider and we expect to open eight to 10 new stores per year , starting in 2022 , similar to our growth rates from 2018 through 2019. the performance of new stores may vary depending on various factors such as the store opening date , the time of year of a particular opening , the amount of store opening costs , the amount of store occupancy costs and the location of the new store , including whether it is located in a new or existing market . for example , we typically incur higher than normal team member costs at the time of a new store opening associated with set-up and other opening costs . most of our stores achieve profitability within the first twelve months of opening a store . we believe our real estate strategy has positioned us well for further expansion . however , our planned store expansion will place increased demands on our operational , managerial , administrative and other resources . new stores in new markets , where we are less familiar with the target customer and less well-known by the target customer , may face different or additional risks and increased costs compared to new stores in existing markets . we may have to broaden our assortment to merchandise more locally as we grow into newer markets . managing our growth effectively will require us to continue to enhance our store management systems , financial and management controls and information systems . we will also be required to hire , train and retain store management and store personnel , which , together with increased marketing costs , affects our operating income and net income . interim results and seasonality . our business is subject to seasonal fluctuations . a significant portion of our net sales and profits is driven by summer holidays , such as memorial day , father 's day and independence day , during the second quarter . our net sales and profits are also impacted by the november/december holiday selling season , and in part by the sales of cold weather sporting goods and apparel during the fourth quarter . 53rd week . we operate on the retail industry 's 4-5-4 calendar . the 4-5-4 calendar is a guide for retailers that ensures sales comparability between years by dividing the year into months based on a 4 weeks – 5 weeks – 4 weeks format . every five to six years a week is added to the 4-5-4 fiscal calendar . this anomaly most recently occurred in 2017 , which consisted of 53 weeks , whereas 2018 , 2019 and 2020 each consisted of 52 weeks .
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results of operations 2020 ( 52 weeks ) compared to 2019 ( 52 weeks ) the following table sets forth amounts and information derived from our consolidated statements of income for the periods indicated as follows ( dollar amounts in thousands ) : replace_table_token_5_th * percentages in table may not sum properly due to rounding . * * nm - not meaningful net sales . net sales increased $ 859.3 million , or 17.8 % , in 2020 over the prior year . the 17.8 % increase was driven primarily by 16.1 % of favorable comparable sales , as well as additional net sales generated by new locations . as of fiscal year end 2020 , we had the full benefit of eight stores which were opened during 2019 , partially offset by a reduction of sales due to the closure of two locations during 2019. these stores generated additional net sales of $ 77.7 million , or 1.4 % of net sales . the 16.1 % increase in comparable sales resulted from favorable sales performances across all of our merchandise divisions . the outdoors division increase was primarily driven by strong sales in firearms , ammunition and fishing products . the sports and recreation division sales increased as a result of various products such as fitness equipment and accessories , bikes and barbecues and grills , which were partially offset by declines in team sports . the apparel division increased due to increases in athletic , outdoor and seasonal , and youth apparel divisions , partially offset by declines in sales of licensed apparel resulting from the astros world series appearance in the prior year . the footwear division sales increased primarily driven by increases in the athletic and work footwear categories which were partially offset by declines in team sports footwear sales .
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we offer a full suite of products ( heating units , heating cables , tubing bundles and control systems ) and services ( design optimization , engineering , installation and maintenance services ) required to deliver comprehensive solutions to complex projects . we serve our customers through a global network of sales and service professionals and distributors in more than 30 countries and through our ten manufacturing facilities on three continents . these global capabilities and longstanding relationships with some of the largest multinational oil & gas , chemical processing , power and epc companies in the world have enabled us to diversify our revenue streams and opportunistically access high growth 28 markets worldwide . for fiscal 2019 , approximately 60 % of our revenues were generated outside of the united states . since march 2015 , we have acquired four companies ( ths , unitemp , sumac and ipi ) , that offer complementary products and services to our core thermal solution offerings . we actively pursue both organic and inorganic growth initiatives that serve to advance our corporate strategy . revenue . our revenues are derived from providing customers with a full suite of innovative and reliable process heating solutions , including electric and steam heat tracing , tubing bundles , control systems , design optimization , engineering services , installation services and portable power solutions . additionally , ths offers a complementary suite of advanced heating and filtration solutions for industrial and hazardous area applications . historically , our sales are primarily to industrial customers for petroleum and chemical plants , oil and gas production facilities and power generation facilities . our petroleum customers represent a significant portion of our business . we serve all three major categories of customers in the petroleum industry - upstream exploration/production , midstream transportation and downstream refining . overall , demand for industrial heat tracing solutions falls into two categories : ( i ) new facility construction , which we refer to as greenfield projects , and ( ii ) recurring maintenance , repair and operations and facility upgrades or expansions , which we refer to as mro/ue . greenfield construction projects often require comprehensive heat tracing solutions . we believe that greenfield revenue consists of sales revenue by customer in excess of $ 1 million annually ( excluding sales to resellers ) , and typically includes most orders for projects related to facilities that are new or that are built independent of existing facilities . we refer to sales revenue by customer of less than $ 1 million annually , which we believe are typically derived from mro/ue , as mro/ue revenue . based on our experience , we believe that $ 1 million in annual sales is an appropriate threshold for distinguishing between greenfield revenue and mro/ue revenue . however , we often sell our products to intermediaries or subcontract our services ; accordingly , we have limited visibility into how our products or services may ultimately be used and can provide no assurance that our categorization may accurately reflect the sources of such revenue . furthermore , our customers do not typically enter into long-term forward maintenance contracts with us . in any given year , certain of our smaller greenfield projects may generate less than $ 1 million in annual sales , and certain of our larger plant expansions or upgrades may generate in excess of $ 1 million in annual sales , though we believe that such exceptions are few in number and insignificant to our overall results of operations . ths has been excluded from the greenfield and mro/ue calculations . most of ths 's revenue would be classified as mro/ue under these definitions . we believe that our pipeline of planned projects , in addition to our backlog of signed purchase orders , provides us with visibility into our future revenue . historically we have experienced few order cancellations , and the cancellations that have occurred in the past have not been material compared to our total contract volume or total backlog . the small number of order cancellations is attributable in part to the fact that a large portion of our solutions are ordered and installed toward the end of greenfield project construction . our backlog at march 31 , 2019 was $ 120.0 million , inclusive of $ 26.3 million for ths , as compared to $ 159.6 million at march 31 , 2018 . the timing of recognition of revenue out of backlog is not always certain , as it is subject to a variety of factors that may cause delays , many of which are beyond our control ( such as customers ' delivery schedules and levels of capital and maintenance expenditures ) . when delays occur , the recognition of revenue associated with the delayed project is likewise deferred . cost of sales . our cost of sales includes primarily the cost of raw material items used in the manufacture of our products , cost of ancillary products that are sourced from external suppliers and construction labor cost . additional costs of revenue include contract engineering cost directly associated to projects , direct labor cost , shipping and handling costs , and other costs associated with our manufacturing/fabrication operations . the other costs associated with our manufacturing/fabrication operations are primarily indirect production costs , including depreciation , indirect labor costs , and the costs of manufacturing support functions such as logistics and quality assurance . key raw material costs include polymers , copper , stainless steel , insulating material , and other miscellaneous parts related to products manufactured or assembled as part of our heat tracing solutions . historically , our primary raw materials have been readily available from multiple suppliers and raw material costs have been stable , and we have been generally successful with passing along raw material cost increases to our customers . therefore , increases in the cost of key raw materials of our products have not generally affected our gross margins . story_separator_special_tag revenues realized from mro/ue orders tend to be less cyclical than greenfield projects and more consistent quarter over quarter , although mro/ue revenues are impacted by seasonal factors . mro/ue revenues for the legacy heat tracing business are typically highest during the second and third fiscal quarters , as most of our customers perform preventative maintenance prior to the winter season . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > , on pre-tax net income of $ 33.1 million compared to income tax expense of $ 5.2 million in fiscal 2018 on pre-tax net income of $ 18.4 million , an increase of $ 4.8 million . our effective tax rate was 30.1 % and 28.1 % in fiscal 2019 and fiscal 2018 , respectively . on december 22 , 2017 , the united states enacted significant changes to the u.s. tax law following the passage and signing of h.r.1 , “ an act to provide for reconciliation pursuant to titles ii and v of the concurrent resolution on the budget for fiscal year 2018 ” ( the “ tax act ” ) the tax act included significant changes to existing tax law , including a permanent reduction to the u.s. federal corporate income tax rate from 35 % to 21 % , a one-time repatriation tax on deferred foreign income ( “ transition tax ” ) , deductions , credits and business-related exclusions . see note 17 , “ income taxes , ” to our audited condensed consolidated financial statements included elsewhere in this annual report , for further detail on income taxes . net income available to thermon group holdings , inc. net income available to the company , after non-controlling interest , was $ 22.8 million in fiscal 2019 as compared to $ 11.9 million in fiscal 2018 , an increase of $ 10.9 million or 91.6 % . the increase in fiscal 2019 net income is primarily due to a $ 32.1 million increase in gross profit and a $ 5.7 million decrease in other expenses , partially offset by ( i ) a $ 11.4 million increase in marketing , general and administrative and engineering expense primarily due to the twelve months of ths operations in fiscal 2019 as compared to five months in fiscal 2018 , ( ii ) $ 4.3 million in increased amortization expense as a result of the ths acquired intangible assets , ( iii ) an increase of $ 6.7 million in interest expense and amortization of deferred debt costs relating to our new term loan b credit facility , and ( iv ) a $ 4.8 million increase in income tax expense . year ended march 31 , 2018 ( `` fiscal 2018 '' ) compared to the year ended march 31 , 2017 ( `` fiscal 2017 '' ) see item 7 , “ management 's discussion and analysis of financial condition and results of operations ” in our annual report on form 10-k/a for the fiscal year ended march 31 , 2018 filed with the sec on june 8 , 2018 for a discussion of the results of operations in fiscal 2018 as compared to fiscal 2017. contractual obligations and contingencies contractual obligations . the following table summarizes our significant contractual payment obligations as of march 31 , 2019 and the effect such obligations are expected to have on our liquidity position assuming all obligations reach maturity . replace_table_token_5_th ( 1 ) consists of quarterly scheduled principal payments commencing april 1 , 2018 under our new term loan b credit facility of $ 0.6 million through july 31 , 2024 , with the remaining principal balance being settled with a lump-sum 33 payment of $ 192.8 million due at maturity in october 2024. please see note 11 , “ long-term debt ” in our financial statements , for more information on our new term loan b credit facility . ( 2 ) consists of estimated future term loan interest payments under our credit facility based on our current interest rate as of march 31 , 2019 . ( 3 ) consists of borrowings under our revolving line of credit facility . as of march 31 , 2019 , the interest rate on outstanding borrowings was 4.57 % . ( 4 ) we enter into operating leases in the normal course of business . our operating leases include the leases on certain of our manufacturing and warehouse facilities , in addition to certain offices of our affiliates . ( 5 ) represents the future annual service fees associated with certain information technology service agreements with several vendors . contingencies . we are involved in various legal and administrative proceedings that arise from time to time in the ordinary course of doing business . some of these proceedings may result in fines , penalties or judgments being assessed against us , which may adversely affect our financial results . in addition , from time to time , we are involved in various disputes , which may or may not be settled prior to legal proceedings being instituted and which may result in losses in excess of accrued liabilities , if any , relating to such unresolved disputes . as of march 31 , 2019 , management believes that adequate reserves have been established for any probable and reasonably estimable losses . expenses related to litigation reduce operating income . we do not believe that the outcome of any of these proceedings or disputes would have a significant adverse effect on our financial position , long-term results of operations , or cash flows . it is possible , however , that charges related to these matters could be significant to our results of operations or cash flows in any one accounting period . the company has no outstanding legal matters outside of matters arising in the ordinary course of business . we can give no assurances we will prevail in any of these matters .
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results of operations the following table sets forth data from our statements of operations as a percentage of sales for the periods indicated . replace_table_token_4_th ( 1 ) interest expense in fiscal 2019 and 2018 primarily represents interest expense on the term loan b on outstanding principal balances as of march 31 , 2019 and 2018 of $ 206.5 million and $ 225.0 million , respectively , compared to $ 81.0 million as of march 31 , 2017. further reductions in fiscal 2017 interest expense were due to the difference in interest rates on our term loan a that carried an interest rate that ranged from 2.87 % to 3.62 % after giving effect to our interest rate swaps and the interest rate reductions realized from the first and second amendments to our prior credit agreement . ( 2 ) other expense in fiscal 2018 includes a foreign currency transaction loss of $ 3.3 million in connection with the option contract entered into to secure the ths acquisition purchase price , and a $ 2.3 million loss related to a 31 derivative contract to hedge a $ 112.8 million long-term intercompany loan between canada and the united states related to the ths acquisition . ( 3 ) represents a 25 % equity interest in sumac retained by former sellers . subsequent to july 20 , 2018 , income attributable to non-controlling equity interest represents 12.5 % . see note 12 . `` related party transactions '' to our consolidated financial statements included in item 8 of this annual report for further discussion in connection with decrease in retained sumac equity interest subsequent to march 31 , 2018. year ended march 31 , 2019 ( `` fiscal 2019 '' ) compared to the year ended march 31 , 2018 ( `` fiscal 2018 '' ) revenue . revenue for fiscal 2019 was $ 412.6 million , compared to $ 308.6 million for fiscal 2018 , an increase of $ 104.0
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forward looking statements statements included in this management 's discussion and analysis of financial condition and results of operations and elsewhere in this report that do not relate to present or historical conditions are forward-looking 11 statements within the meaning of that term in section 27a of the securities act of 1933 , as amended , and in section 21e of the securities exchange act of 1934 , as amended . additional oral or written forward-looking statements may be made by us from time to time , and forward-looking statements may be included in documents that are filed with the sec . forward-looking statements involve risks and uncertainties that could cause our results or outcomes to differ materially from those expressed in the forward-looking statements . forward-looking statements may include , without limitation , statements relating to our plans , strategies , objectives , expectations and intentions and are intended to be made pursuant to the safe harbor provisions of the private securities litigation reform act of 1995. words such as believes , forecasts , intends , possible , expects , estimates , anticipates , or plans and similar expressions are intended to identify forward-looking statements . among the important factors on which such statements are based are assumptions concerning the state of the united states economy and the local markets in which our portfolio companies operate , the state of the securities markets in which the securities of our portfolio companies could be traded , liquidity within the united states financial markets , and inflation . forward-looking statements are also subject to the risks and uncertainties described under the caption risk factors contained in part i , item 1a . of this annual report . there may be other factors not identified that affect the accuracy of our forward-looking statements . further , any forward-looking statement speaks only as of the date when it is made and , except as required by law , we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which it is made or to reflect the occurrence of anticipated or unanticipated events or circumstances . new factors emerge from time to time that may cause our business not to develop as we expect , and we can not predict all of them . overview we are an internally managed investment company that lends to and invests in small companies often concurrently with other investors . we have elected to be treated as a business development company ( bdc ) under the investment company act of 1940 , as amended ( the 1940 act ) . as a bdc , we are required to comply with certain regulatory requirements . we have historically made the majority of our investments through our wholly-owned subsidiary , rand capital sbic , inc. ( rand sbic ) , which operates as a small business investment company ( sbic ) and has been licensed by the u.s. small business administration ( sba ) since 2002. during 2017 , we established a second sbic subsidiary , rand capital sbic ii , l.p. ( rand sbic ii ) and began making investments from this sbic subsidiary . we continue to work with the sba in determining an optimal structure within its regulatory parameters which , once completed , may result in new sba leverage commitments in 2018. our principal investment objective is to achieve long-term capital appreciation on our equity investments while maintaining a current cash flow from our debenture and pass-through equity instruments to fund our operating expenses . therefore , we invest in a variety of financial instruments to provide a current return on a portion of the investment portfolio . the equity features contained in our investment portfolio are structured to realize capital appreciation over the long-term and typically do not generate current income in the form of dividends or interest . we have historically made initial investments of $ 500,000 to $ 1,000,000 directly in companies through equity or in debt or loan instruments and frequently provided follow-on investments during our investment tenure . the debt instruments generally have a maturity of not more than five years and usually have detachable equity warrants . interest may be paid currently or deferred , based on the investment structure negotiated . we may exit investments through the maturation of a debt security or when a liquidity event takes place , such as the sale , recapitalization , or initial public offering of a portfolio company . the method and timing of the disposition of our portfolio investments can be critical to the realization of maximum total return . we generally expect to dispose of our equity securities through private sales of securities to other investors or through an outright sale of the portfolio company or a merger . we anticipate our debt investments will be repaid with interest and hope to realize further appreciation from the warrants or other equity type instruments we receive in connection with the investment . we fund new investments and operating expenses through existing cash balances , investment returns , and interest and principal payments from our portfolio companies 12 2017 portfolio and investment activity we believe the change in net asset value over time is the leading valuation metric of our performance . exits from our portfolio holdings are the key driver of growth in net asset value over time . net asset value of our portfolio decreased to $ 5.05 per share , or $ 31.9 million , at december 31 , 2017 , down ( $ 0.11 ) per share , or ( 2.1 % ) , compared with net asset value of $ 5.16 per share , or $ 32.6 million , at the end of the prior year . at year end , the estimated value of our portfolio , which included securities from 30 active companies , was $ 32.3 million . this value included $ 4.4 million in net pre-tax unrealized depreciation . story_separator_special_tag the market approach uses observable prices and other relevant information generated by similar market transactions . it may include the use of market multiples derived from a set of comparables to assist in pricing the investment . additionally , the corporation adjusts valuations if a subsequent significant equity financing has occurred that includes a meaningful portion of the financing by a sophisticated , unrelated new investor . the income approach employs a cash flow and discounting methodology to value an investment . asc 820 classifies the inputs used to measure fair value into the following hierarchy : level 1 : quoted prices in active markets for identical assets or liabilities , used in our valuation at the measurement date . level 2 : quoted prices for similar assets or liabilities in active markets , or quoted prices for identical or similar assets or liabilities in markets that are not active , or other observable inputs other than quoted prices . level 3 : unobservable and significant inputs to determining the fair value . financial assets are categorized based upon the level of judgment associated with the inputs used to measure their fair value . any changes in estimated fair value are recorded in the statement of operations as net ( decrease ) increase in unrealized depreciation or appreciation on investments. 14 under the valuation policy , we value unrestricted publicly traded companies , categorized as level 1 investments , at the average closing bid price for the last three trading days of the reporting period . there were no level 1 or level 2 investments as of december 31 , 2017. in the valuation process , we value restricted securities , categorized as level 3 investments , using information from these portfolio companies , which may include : audited and unaudited statements of operations , balance sheets and operating budgets ; current and projected financial , operational and technological developments of the portfolio company ; current and projected ability of the portfolio company to service its debt obligations ; the current capital structure of the business and the seniority of the various classes of equity if a deemed liquidation event were to occur ; pending debt or capital restructuring of the portfolio company ; current information regarding any offers to purchase the investment , or recent fundraising transactions ; current ability of the portfolio company to raise additional financing if needed ; changes in the economic environment which may have a material impact on the operating results of the portfolio company ; internal circumstances and events that may have an impact ( both positive and negative ) on the operating performance of the portfolio company ; qualitative assessment of key management ; contractual rights , obligations or restrictions associated with the investment ; and other factors deemed relevant by our management to assess valuation . the valuation may be reduced if a portfolio company 's performance and potential have deteriorated significantly . if the factors that led to a reduction in valuation are overcome , the valuation may be readjusted . equity securities equity securities may include preferred stock , common stock , warrants and limited liability company membership interests . the significant unobservable inputs used in the fair value measurement of our equity investments are earnings before interest , taxes and depreciation and amortization ( ebitda ) and revenue multiples , where applicable , the financial and operational performance of the business , and the senior equity preferences that may exist in a deemed liquidation event . standard industry multiples may be used when available ; however , our portfolio companies are typically small and in early stages of development and these industry standards may be adjusted to more closely match the specific financial and operational performance of the portfolio company . due to the nature of certain investments , fair value measurements may be based on other criteria , which may include third party appraisals . significant changes to the unobservable inputs , such as variances in financial performance from expectations , may result in a significantly higher or lower fair value measurement . significant changes in any of these unobservable inputs may result in a significantly higher or lower fair value estimate . another key factor used in valuing equity investments is a significant recent arms-length equity transaction with a sophisticated non-strategic unrelated new investor entered into by the portfolio company . the terms of these equity transactions may not be identical to the equity transactions between the portfolio company and us , and the impact of the difference in transaction terms on the market value of the portfolio company may be difficult or impossible to quantify . when appropriate the black-scholes pricing model is used to estimate the fair value of warrants for accounting purposes . this model requires the use of highly subjective inputs including expected volatility and expected life , in addition to variables for the valuation of minority equity positions in small private and early stage companies . significant changes in any of these unobservable inputs may result in a significantly higher or lower fair value estimate . 15 for recent investments , we generally rely on the cost basis , which is deemed to represent fair value , unless other fair market value inputs are identified causing us to depart from this basis . loans and debt securities the significant unobservable inputs used in the fair value measurement of our loan and debt securities are the financial and operational performance of the portfolio company , similar debt with similar terms with other portfolio companies , current market rates for underlying risks associated with the particular company , as well as the market acceptance of the portfolio company 's products or services and its future performance . these inputs will likely provide an indicator as to the probability of principal recovery of the investment . our debt investments are often junior secured or unsecured debt securities . fair value may also be determined based on other criteria where appropriate .
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results of operations investment income our principal investment objective is to achieve long-term capital appreciation on our equity investments while maintaining a current cash flow from our debenture and pass-through equity instruments to fund expenses . therefore , we invest in a variety of financial instruments to provide a current return on a portion of the investment portfolio . comparison of the years ended december 31 , 2017 and 2016 replace_table_token_13_th investment income increased 41 % , or $ 422,924 , from $ 1,031,858 for the year ended december 31 , 2016 to $ 1,454,782 for the year ended december 31 , 2017. interest from portfolio companies interest from portfolio companies was 51 % higher during the year ended december 31 , 2017 versus the same period in 2016 due to the fact that we have originated more income-producing debt investments in the last year . these new debt instruments were originated from genicon inc. ( genicon ) , ehealth global technologies , inc. ( ehealth ) , empire genomics , llc ( empire genomics ) and several other portfolio companies . the following investments remain on non-accrual status : g-tec natural gas systems ( g-tec ) , first wave products group , llc ( first wave ) and a portion of the mercantile adjustment bureau , llc ( mercantile ) outstanding loan balance . 19 interest from other investments the decrease in interest from other investments was primarily due to lower average cash balances during the year ended december 31 , 2017 versus the year ended december 31 , 2016. dividend and other investment income dividend income is comprised of cash distributions from limited liability companies ( llcs ) and corporations in which we have invested . our investment agreements with certain llcs require those llcs to distribute funds to us for payment of income taxes on our allocable share of the llc 's profits . these portfolio companies may also elect to make additional discretionary distributions .
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( 2 ) the amounts reported in the option awards column reflect the aggregate fair value of share-based compensation awarded during the year computed in accordance with the provisions of asc topic 718. see note 11 to our consolidated audited financial statements regarding assumptions underlying the valuation of equity awards . ( 3 ) the compensation included in the all other compensation column consists of amounts we contributed to our 401 ( k ) plan and medical insurance premiums paid by us on behalf of such individual . ( 4 ) dr. seltzer was appointed as our chief medical officer on may 4 , 2015 . ( 5 ) mr. wolf was appointed as our general counsel on september 28 , 2015. mr. wolf resigned from the company , effective february 7 , 2017 , to pursue other opportunities . narrative disclosure to summary compensation table base salary in 2016 , we paid annualized base salaries of $ 436,000 to dr. broom ; $ 368,740 to dr. seltzer ; and $ 323,200 to mr. wolf . in 2015 , we paid annualized base salaries of $ 414,000 to dr. broom ; $ 358,000 to dr. seltzer ; and $ 320,000 to mr. wolf . in february 2017 , our supervisory board , following approval and recommendation from the compensation committee and consistent with the recommendations of the compensation committee 's independent compensation consultant , approved an increase to the base salaries of our named executive officers for 2017 as follows story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our historical consolidated financial statements and the related notes thereto appearing elsewhere in this annual report . some of the information contained in this discussion and analysis or set forth elsewhere in this annual report , including information with respect to our plans and strategy for our business 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 , our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview we are a clinical stage biopharmaceutical company engaged in the research and development of novel anti-infective agents to treat serious infections , with a focus on the pleuromutilin class of antibiotics . we are developing our lead product candidate , lefamulin , to be the first pleuromutilin antibiotic available for systemic administration in humans . we are developing both intravenous , or iv , and oral formulations of lefamulin for the treatment of community-acquired bacterial pneumonia , or cabp and intend to develop lefamulin for additional indications other than pneumonia . we have initiated two pivotal , international phase 3 clinical trials of lefamulin for the treatment of moderate to severe cabp . these are the first clinical trials we have conducted with lefamulin for the treatment of cabp . we initiated the first of these trials , which we refer to as leap 1 , in september 2015 and initiated the second trial , which we refer to as leap 2 , in april 2016. based on our estimates regarding patient enrollment , we expect to have top-line data available from leap1 in the third quarter of 2017 and top-line data available from leap 2 in the first quarter of 2018. if the results of these trials are favorable , including achievement of the primary efficacy endpoints of the trials , we expect to submit applications for marketing approval for lefamulin for the treatment of cabp in both the united states and europe in 2018. we have completed a phase 2 clinical trial of lefamulin for acute bacterial skin and skin structure infections , or absssi , and seventeen phase 1 clinical trials of lefamulin in which we exposed healthy subjects to single or multiple doses of iv or oral lefamulin . we plan to pursue additional opportunities for lefamulin , including a development program for use in pediatric patients and potentially for the treatment of absssi . in addition , as an antibiotic with potent activity against a wide variety of multi-drug resistant pathogens , including mrsa , we may explore development of lefamulin in further indications , including ventilator-associated bacterial pneumonia , or vabp and hospital-acquired bacterial pneumonia , or habp , sexually transmitted infections , or stis , osteomyelitis , prosthetic joint infections . through our research and development efforts , we have also identified a topical pleuromutilin product candidate , bc-7013 , which has completed a phase 1 clinical trial . we were incorporated in october 2005 in austria under the name nabriva therapeutics forschungs gmbh , a limited liability company organized under austrian law , as a spin-off from sandoz gmbh and commenced operations in february 2006. in 2007 , we transformed into a stock corporation ( aktiengesellschaft ) under the name nabriva therapeutics ag . in 2014 , we established our wholly owned u.s. subsidiary , which began operations in august 2014. since inception , we have incurred significant operating losses . as of december 31 , 2016 , we had an accumulated deficit of $ 204.8 million . to date , we have financed our operations primarily through our 2016 rights offering , our 2015 initial public offering , private placements of our common shares , convertible loans and research and development support from governmental grants and loans . we have devoted substantially all of our efforts to research and development , including clinical trials . our ability to generate profits from operations and remain profitable depends on our ability to successfully develop and commercialize drugs that generate significant revenue . we expect to continue to incur significant expenses and increasing operating losses for at least the next several years . story_separator_special_tag we base our estimates on our limited historical experience , known trends and events and various other factors 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 . our significant accounting policies are described in more detail in the notes to our financial statements appearing at the end of this filing . however , we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our financial condition and results of operations . research premium and grant revenue grant revenue comprises ( 1 ) the research premium from the austrian government , ( 2 ) grants received from the vienna center for innovation and technology ( zentrum für innovation , or zit ) and the vienna business 95 promotion fund ( wiener wirtschaftsförderungsfonds , or wwff ) and ( 3 ) the benefit of government loans at below-market interest rates . please refer to note 3 of our audited consolidated financial statements included elsewhere in this annual report for further details on our grant revenue . the research premium we received from the austrian government was calculated as 10 % of a specified research and development cost base for the years ended december 31 , 2015 and december 31 , 2014. for the year ended december 31 , 2016 , the research premium was calculated as 12 % of a specified research and development cost base . we recognize the research premium , as long as we have incurred research and development expenses . the wwff grant is paid out through the landlord in the form of a monthly reduction in lease payments and is recognized over the period from grant date in march 2010 until end of the lease termination waiver term in december 2017. the zit grants are provided to support specific research projects and are recognized according to the progress of the respective project . all grants are non-refundable as long as the conditions of the grant are met . we are and have been in full compliance with the conditions of the grants and all related regulations . the benefit of a government loan at a below-market rate of interest is treated as a government grant . the benefit due to the difference between the market rate of interest and the rate of interest charged by the governmental organization is measured as the difference between the initial carrying value of the loan and the proceeds received . this benefit is deferred , and recognized through profit and loss over the term of the corresponding liabilities . convertible loans and additional call options between july 2011 and january 2015 , we entered into five convertible loans with certain of our shareholders . under the loans , the lenders had the right to convert their entire claim for repayment of the loans into common shares with contractual preference rights under a shareholders agreement . loans were payable in cash on the respective repayment date if not previously converted . in conjunction with the convertible loan agreements we entered into in 2011 and 2012 , we also granted the lenders additional call options to acquire common shares with contractual preference rights under the shareholders agreement . no transaction costs were incurred in conjunction with our entry into the convertible loan agreements . in connection with our april 2015 financing , all of the lenders under our convertible loan agreements waived all rights and claims they had in connection with the convertible loan agreements . in particular , all call option rights as well as claims on payments of accrued interest were waived . all claims for repayment , excluding accrued interest , under all convertible loan agreements , were converted into common shares with contractual preference rights under the shareholders agreement . any accrued interest , as well as the additional call option rights were forfeited . prior to their conversion in april 2015 , we presented the convertible loans as a liability in the consolidated balance sheet . we also evaluated the requirement to bifurcate embedded options within the convertible loans in accordance with asc 815 , derivatives and hedging , or asc 815. asc 815 provides criteria that , if met , require companies to bifurcate conversion options from their host instruments . these criteria include circumstances in which ( 1 ) the economic characteristics and risks of the embedded option are not clearly and closely related to the economic characteristics and risks of the host contract , ( 2 ) the hybrid instrument is not remeasured at fair value under otherwise applicable generally accepted accounting principles with changes reported in fair value as they occur , and ( 3 ) a separate instrument with the same terms as the embedded option would be considered a derivative instrument . discounts associated with convertible loans were amortized over the term of the related debt using the effective yield method . we also accounted for the additional call options issued with the convertible loans in 2011 and 2012 as well as our loan from kreos capital iv ( uk ) limited , or kreos , in july 2014 , pursuant to asc 815 , which provides a two-step model to be applied in determining whether a financial instrument or an embedded feature is indexed to an issuer 's own stock . due to the circumstances that the additional call options did not meet the fixed for fixed criteria under asc 815-40 , contracts in entity 's own equity , and did not meet the definition of a derivative , the additional call options were classified as a liability .
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results of operations comparison of years ended december 31 , 2015 and 2016 replace_table_token_16_th 104 revenues revenues , consisting primarily of research premium and grant revenue , increased by $ 2.7 million from $ 3.8 million from the year ended december 31 , 2015 to $ 6.5 million for the year ended december 31 , 2016. the change was primarily due to a $ 2.6 million increase in anticipated grant revenue from research premiums provided to us by the austrian government as a result of increases in our applicable research and development expenses . research and development expenses research and development expenses increased by $ 24.4 million from $ 23.6 million for the year ended december 31 , 2015 to $ 48.0 million for the year ended december 31 , 2016. the increase was primarily due to higher costs related to our phase 3 clinical trials of lefamulin . research materials and purchased services for our other programs and initiatives were relatively limited during both periods . staff costs related to research and development increased for the year ended december 31 , 2016 compared to the year ended december 31 , 2015 , primarily due to the addition of employees and increased clinical development costs . general and administrative expenses general and administrative expense increased by $ 5.6 million from $ 7.9 million for the year ended december 31 , 2015 to $ 13.5 million for the year ended december 31 , 2016. the increase was primarily due to increased staff costs related to the hiring of additional employees and increased professional service fees related to operating as a public company .
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9. subsequent events we have received orders from a national fleet for 18 full electric vehicles to be delivered during 2015. we also have orders for 2 e-gen vehicles for the same company , we delivered the first truck on march 24 , 2015 and the second one will be delivered on march 30 , 2015. f- 16 item 9. changes in and disagreements with accountants on accounting and financial disclosure none item 9a . controls and procedures ( a ) evaluation of disclosure controls and procedures our principal executive and principal financial officers have evaluated the effectiveness 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 . they have concluded that , based on such evaluation , our disclosure controls and procedures were effective as of december 31 , 2014 . ( b ) management 's annual report on internal control over financial reporting overview internal control over financial reporting as defined in rules 13a-15 ( f ) and 15d-15 ( f ) refers to the process designed by , or under the supervision of , our principal executive officer and principal financial officer , and effected by our board of directors , management and other personnel , to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the united states of america . management is responsible for establishing and maintaining adequate internal control over financial reporting for amp . internal control over financial reporting can not provide absolute assurance of achieving financial reporting objectives because of its inherent limitations . internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures . internal control over financial reporting also can be circumvented by collusion or improper management override . because of such limitations , there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting . however , these inherent limitations are known features of the financial reporting process . therefore , it is possible to design into the process safeguards to reduce , though not eliminate , this risk . management has used the framework set forth in the report entitled “ internal control -- integrated framework ( 2009 ) ” published by the committee of sponsoring organizations ( “ coso ” ) of the treadway commission to evaluate the effectiveness ofamp 's internal control over financial reporting . a material weakness is a deficiency , or a combination of deficiencies , in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis . management 's assessment as of december 31 , 2014 , our management has assessed the effectiveness of our internal control over financial reporting and has determined that our internal control over financial reporting was effective . we are a smaller reporting company and are therefore exempt from having to obtain an auditors ' report on management 's assertion of the effectiveness of our internal control over financial reporting . based on the measures taken and implemented , management has found them to be effective and has concluded that the material weakness previously reported as been remediated as of december 31 , 2014 . ( c ) changes in internal control over financial reporting there have been no changes in our internal control over financial reporting that occurred during the fourth fiscal quarter of the year ended december 31 , 2014 that have materially affected , or are reasonably likely to materially affect , our internal control over financial reporting . item 9b . other information cash the cash balance at the end of march 2015 is $ 503 thousand . accounts payable the company has numerous delinquent current obligations to suppliers , and business contracts . story_separator_special_tag the following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes that appear elsewhere in this annual report on form 10-k overview and 2014 highlights we design , develop , manufacture , and sell high-performance , medium-duty trucks with advanced powertrain components under the proven workhorse chassis brand . we believe that our vehicles , engineering expertise , innovation , and operational structure differentiate us from traditional truck manufacturers . amp has entered into a purchase agreement with a major transportation company to supply 18 all-electric workhorse e-100 walk in vans to be deployed in the houston-galveston , texas area . the u.s. department of energy ( doe ) selected this project to improve local air quality in the houston-galveston area , which is currently designated as a national ambient air quality non-attainment area . amp 's workhorse e-100 truck is purpose-built to transform the package delivery vehicle market . built on our new , narrow track w88 chassis , the trucks come with a 100 kwh lithium battery pack featuring panasonic 18650 cells that provide power to a 2200 nm ( 268 bhp ) permanent magnet motor powerful enough to eliminate the need for a transmission . the workhorse e-100 is designed and built to meet the transportation company 's daily duty cycle while delivering a zero-emission driving experience and eliminating the consumption of more than 650,000 gallons of diesel fuel over the vehicle 's projected life . story_separator_special_tag our approach is to provide battery-electric power trains utilizing proven , automotive-grade , mass-produced parts in its architecture coupled with in-house control software that we have developed over the last five years . the workhorse custom chassis acquisition includes other important assets including the workhorse brand and logo , intellectual property , schematics , logistical support from up-time parts ( a navistar subsidiary ) and , perhaps most importantly , a network of 400-plus sales and service outlets across north america . we believe combination of amp 's chassis assembly capability , coupled with its ability to offer an array of fuel choices , gives amp/workhorse a unique opportunity in the marketplace . our unique horsefly line of drones is designed to be the ‘ last mile ' solution in delivery logistics . we worked with the university of cincinnati to develop the horsefly to meet the rigors of package delivery and to have eight rotors and redundant systems to ensure safety in the air . today , we estimate that it costs approximately $ 1 to move a 20,000-pound diesel-powered truck one mile . while we believe our workhorse trucks can reduce the standard delivery costs from $ 1 to less than $ 0.30 cents per mile based on current costs of fuel , we expect that having drones handle the last leg of delivery could further potentially reduce the cost to about $ .03 cents for the last mile . the all weather horsefly battery-powered drone will carry up to 10 pounds of cargo with a 15-mile range . it is designed to meet the anticipated faa drone guidelines expected in 2015 , of which there is no guarantee , and is differentiated from other drones as it is designed to work in tandem with a workhorse electric truck . horsefly will deliver packages , loaded on-route by the truck 's driver , to remote locations while the driver continues on the main delivery route . horsefly will then rejoin the truck at its new location after its delivery is completed , saving the fleet operator much of the time and fuel cost of the last , most expensive , mile . also while the horsefly is atop the workhorse truck , it can quickly charge its batteries from the truck 's large battery pack . we believe this implementation is superior to the proposed deployment of other delivery drones wherein the package is loaded at a distant warehouse and the drone must make a round trip flight to the delivery address and back to the warehouse . other applications for the horsefly include transmission line inspections and agricultural surveys . 25 story_separator_special_tag in operations including the investments made in the union city plant . there was $ 23 thousand of cash used in investing activities during the year ended december 31 , 2014. the $ 2.7 million used during the year ended in december 31 , 2013 were mainly invested in the union city plant purchase . cash flows from financing activities net cash provided by financing activities was $ 4.9 million during the year ended december 31 , 2014 and was comprised primarily of $ 5.9 million issuance of stock offset by the capitalization of shareholders ' advances of $ 1.6 million for a net of $ 4.3 million and proceeds from notes payable of $ 1.2 million , offset by payments of $ 326 thousand for long term debt , and repayment of shareholders ' advances of $ 285 thousand . net cash provided by financing activities was $ 5.4 million during the year ended december 31 , 2013 and was comprised primarily of $ 4.3 million of issuance of common stock and the receipt of shareholder advances of $ 1.4 million . credit facility presently we have no revolving credit facility established . there is no guarantee that we will be able to enter into an agreement to establish a line of credit or that if we do enter into such agreement that it will be on favorable terms . off-balance sheet arrangements the company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the company 's financial condition , changes in financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources that are material to investors . federal tax credit qualification by the irs the company has been qualified by the irs for a vehicle federal tax credit of up to $ 7,500. the company joins a list of plug-in electric drive motor vehicle manufacturers , including ford motor company , general motors corporation , tesla , toyota , and 13 ev manufacturers in all , qualifying purchasers for up to a $ 7,500 tax credit when purchasing an electric vehicl e . additionally , many states offer additional sales tax exemptions and zero emission tax credits of up to $ 5,000 that can also be applied to the purchase . 27 california air resources board approval on february 20 , 2013 the california air resource board ( carb ) approved the medium to heavy duty amp commercial truck for sale in the state of california . most other states use this approval for sale of vehicles in their state . critical accounting policies and estimates the following accounting principles and practices of amp are set forth to facilitate the understanding of data presented in the consolidated financial statements : nature of operations a development stage company , amp is a technology-driven business that that plans to deliver a full-performance , all electric , powertrain for medium duty commercial vehicles . operating with three specific approaches , amp converts existing internal combustion engine based vehicles to all electric powertrains , provides original equipment manufacturers ( oem 's ) with amp designed and integrated modular electric components , and provides electric powertrain engineering to end-users . amp has not recorded significant revenue since inception
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results of operations our condensed consolidated statement of operations data for the period presented follows : replace_table_token_5_th revenue we generated revenue of $ 177 thousand for year ended december 31 , 2014 for the delivery of an all-electric para-transit 12 passenger bus to barta ( berks county regional transit authority ) of pennsylvania . we generated revenue of $ 177 thousand for the year ended december 31 , 2013 for half of the order to barta delivered during 2013. direct costs charged to operations were $ 177 thousand for the years ended december 31 , 2014 and 2014. we have received several orders from fleets which we are in the process of filling and that we expect to deliver in the next 12 months . selling , general and administrative expenses selling , general and administrative expenses consist primarily of personnel and facilities costs related to our development including , marketing , sales , executive , finance , human resources , information technology and professional , legal and contract services . selling , general and administrative expenses during the years ended december 31 , 2014 and 2013 were $ 2.9 million and $ 3.1 million , respectively . the $ 186 thousand decrease is mainly due to a reduction in stock based compensation . research and development expenses research and development expenses consist primarily of personnel costs for our teams in engineering and research , prototyping expense , and contract and professional services . union city plant expenses prior to the start of production are also included in research and development expenses . research and development expenses during the years ended in december 31 , 2014 and 2013 were approximately $ 3.4 million and $ 2.9 million respectively . the $ 544 thousand increase is the result of higher engineering consulting expense as well as increments in motors and batteries for e-gen prototypes .
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revenues and direct expenses of these product lines have been reclassified as discontinued operations for fiscal year 2013. the components included in discontinued operations on the consolidated statements of income are as follows ( in thousands ) : fiscal year ended november 30 , 2013 revenue $ 5,786 income before income taxes 2,625 income tax provision ( 130 ) gain on sale , net of tax $ 2,009 income from discontinued operations , net $ story_separator_special_tag forward-looking statements certain statements below about anticipated results and our products and markets are forward-looking statements that are based on our current plans and assumptions . important information about the bases for these plans and assumptions and factors that may cause our actual results to differ materially from these statements is contained below and in item 1a . “ risk factors ” of this annual report on form 10-k. use of constant currency revenue from our international operations has historically represented more than half of our total revenue . as a result , our revenue results have been impacted , and we expect will continue to be impacted , by fluctuations in foreign currency exchange rates . for example , if the local currencies of our foreign subsidiaries weaken , our consolidated results stated in u.s. dollars are negatively impacted . as exchange rates are an important factor in understanding period to period comparisons , we believe the presentation of revenue growth rates on a constant currency basis enhances the understanding of our revenue results and evaluation of our performance in comparison to prior periods . the constant currency information presented is calculated by translating current period results using prior period weighted average foreign currency exchange rates . these results should be considered in addition to , not as a substitute for , results reported in accordance with accounting principles generally accepted in the united states of america ( gaap ) . overview we are a global software company that simplifies the development , deployment and management of business applications on premise or in the cloud , on any platform or device , to any data source , with enhanced performance , minimal it complexity and low total cost of ownership . our comprehensive portfolio of products provides leading solutions for rapid application development , broad data integration and efficient data analysis . our solutions are used across a variety of industries . at the beginning of fiscal year 2015 , we acquired telerik ad , a leading provider of application development tools . telerik enables its 1.7 million strong developer community to create compelling user experiences across cloud , web , mobile and 18 desktop applications . through this acquisition , we provide comprehensive cloud and on-premise platform offerings that enable developers to rapidly create applications , driven by data for any web , desktop or mobile platform . the revenue of telerik is being recognized ratably over the maintenance period , which is generally one year , as vendor specific objective evidence ( or vsoe ) of fair value can not be established for such maintenance . as a result of acquisition accounting , the acquired deferred revenue balance was significantly reduced to reflect its fair value as of the acquisition date . however , we are still incurring the associated costs to fulfill the acquired deferred revenue , which are reflected in our consolidated statement of operations . as a result , our expenses as a percentage of total revenue are higher than we expect they will be in future periods once this acquired deferred revenue balance is recognized . effective september 1 , 2014 , we began operating as three distinct segments : openedge , data connectivity and integration , and application development and deployment , each with dedicated sales , product management and product marketing functions . as a result of these changes , we began segment reporting for our three segments beginning in the fourth fiscal quarter of 2014. the organizational changes we made in october 2015 did not necessitate further changes in our segment reporting . the segment information for the prior periods presented has been restated to reflect the change in our reportable segments . in fiscal year 2015 , we repurchased and retired 1.3 million shares for $ 32.9 million under our fiscal year 2014 share repurchase authorization , leaving $ 14.5 million remaining under the authorization . in september 2015 , our board of directors authorized a new $ 100.0 million share repurchase program , which increased the total authorization to $ 114.5 million . the timing and amount of any shares repurchased will be determined by management based on its evaluation of market conditions and other factors , and the board of directors may choose to suspend , expand or discontinue the repurchase program at any time . we derive a significant portion of our revenue from international operations , which are primarily conducted in foreign currencies . as a result , changes in the value of these foreign currencies relative to the u.s. dollar have significantly impacted our results of operations and may impact our future results of operations . beginning in the fourth quarter of 2014 , the value of the u.s. dollar strengthened in comparison to certain foreign currencies , including in europe , brazil and australia , and continued to strengthen during the first half of 2015. since approximately 35 % of our revenue is denominated in foreign currency , our revenue results have been negatively impacted , and we expect will continue to be impacted , by fluctuations in foreign currency exchange rates . we have evaluated , and expect to continue to evaluate , possible acquisitions and other strategic transactions designed to expand our business and or add complementary products and technologies to our existing product sets . as a result , our expected uses of cash could change , our cash position could be reduced and we may incur additional debt obligations to the extent we complete additional acquisitions . story_separator_special_tag the increase was primarily due to higher compensation-related costs in the general and administrative function as a result of headcount increases due to the impact of the telerik and bravepoint acquisitions . amortization of acquired intangibles fiscal year ended ( in thousands ) november 30 , 2015 november 30 , 2014 percentage change amortization of acquired intangibles $ 12,745 $ 653 1,852 % as a percentage of total revenue 3 % — % amortization of acquired intangibles included in operating expenses primarily represents the amortization of value assigned to intangible assets obtained in business combinations other than assets identified as purchased technology . amortization of acquired intangibles increased $ 12.1 million in fiscal year 2015 as compared to fiscal year 2014. the increase was due to amortization of intangible assets acquired with the modulus , bravepoint and telerik acquisitions , partially offset by decreases due to the completion of amortization of certain intangible assets acquired in prior years . restructuring expenses fiscal year ended ( in thousands ) november 30 , 2015 november 30 , 2014 percentage change restructuring expenses $ 12,989 $ 2,266 473 % as a percentage of total revenue 3 % 1 % 23 we incurred restructuring expenses of $ 13.0 million in fiscal year 2015 as compared to $ 2.3 million in fiscal year 2014. restructuring expenses recorded in fiscal year 2015 relate to the restructuring activities occurring in fiscal years 2015 , 2014 , 2013 and 2012. see note 14 to the consolidated financial statements in item 8 of this form 10-k for additional details , including types of expenses incurred and the timing of future expenses and cash payments . see also the liquidity and capital resources section of this item 7 , management 's discussion and analysis of financial condition and results of operations . acquisition-related expenses fiscal year ended ( in thousands ) november 30 , 2015 november 30 , 2014 percentage change acquisition-related expenses $ 4,239 $ 5,862 ( 28 ) % as a percentage of total revenue 1 % 2 % acquisition-related costs are expensed as incurred and include those costs incurred as a result of a business combination . these costs consist of professional service fees , including third-party legal and valuation-related fees , as well as retention fees , and earn-out payments treated as compensation expense . acquisition-related expenses decreased in fiscal year 2015 compared to fiscal year 2014 due to the completion of earn-out provisions related to the rollbase acquisition as of the end of the second quarter of fiscal year 2015 , as well as the reversal of contingent consideration provisions related to the modulus acquisition , which was credited to the consolidated statement of operations during fiscal year 2015. the decrease was partially offset by retention bonus costs incurred in fiscal year 2015 related to the bravepoint and telerik acquisitions . see note 8 to the consolidated financial statements for additional details . income from operations fiscal year ended ( in thousands ) november 30 , 2015 november 30 , 2014 percentage change income from operations $ 14,754 $ 80,740 ( 82 ) % as a percentage of total revenue 4 % 24 % income from operations decreased $ 66.0 million , or 82 % , in fiscal year 2015 as compared to fiscal year 2014. as discussed above , the decrease was primarily the result of higher expenses resulting from acquisitions , partially offset by higher revenue during fiscal year 2015 compared to fiscal year 2014. with respect to the acquisition of telerik , as a result of acquisition accounting , the acquired deferred revenue balance was significantly reduced to reflect its fair value as of the acquisition date . however , we are still incurring the associated costs to fulfill the acquired deferred revenue . as a result , our expenses as a percentage of total revenue are higher than we expect they will be in future periods once this acquired deferred revenue balance is recognized . income from operations by segment replace_table_token_11_th note that the following expenses are not allocated to our segments as we manage and report our business in these functional areas on a consolidated basis only : product development , corporate marketing , general and administration , amortization of acquired intangibles , stock-based compensation , restructuring , and acquisition-related expenses . 24 other ( expense ) income replace_table_token_12_th total other expense decreased $ 0.5 million , or 18 % , in fiscal year 2015 as compared to fiscal year 2014. the decrease is primarily due to the realized loss incurred of $ 2.6 million resulting from the sale of our auction rate securities , which is included in interest income and other , net for fiscal year 2014 , partially offset by the increase in interest expense due to the new credit facility . the change in foreign currency losses is a result of movements in exchange rates and the impact in fiscal year 2015 on our intercompany receivables and payables denominated in currencies other than local currencies . provision for income taxes fiscal year ended ( in thousands ) november 30 , 2015 november 30 , 2014 percentage change provision for income taxes $ 21,155 $ 28,346 ( 25 ) % as a percentage of total revenue 6 % 9 % our effective tax rate was 171 % in fiscal year 2015 and 36 % in fiscal year 2014. the increase in the effective rate is primarily due to the jurisdictional mix of profits as a result of the acquisition of telerik , where substantial losses are being incurred in bulgaria with a tax benefit at the 10 % statutory rate and other jurisdictions ' earnings , primarily in the united states , are being taxed at higher rates . the loss in bulgaria is primarily due to amortization expense and other acquisition accounting adjustments related to the telerik acquisition . deferred tax liabilities have been established in acquisition accounting for the tax effect of the telerik amortization expense and other purchase accounting adjustments .
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results of operations fiscal year 2015 compared to fiscal year 2014 revenue fiscal year ended percentage change ( in thousands ) november 30 , 2015 november 30 , 2014 as reported constant currency revenue $ 377,554 $ 332,533 14 % 21 % total revenue increased $ 45.0 million , or 14 % , in fiscal year 2015 as compared to fiscal year 2014 . revenue would have increased by 21 % if exchange rates had been constant in fiscal year 2015 as compared to exchange rates in fiscal year 2014. the increase in revenue in fiscal year 2015 was a result of an increase in both license and maintenance and services revenue , primarily due to the impact of our acquisitions of telerik in december 2014 and bravepoint during the fourth fiscal quarter of 2014. changes in prices from fiscal year 2014 to fiscal year 2015 did not have a significant impact on our revenue . 19 license revenue replace_table_token_4_th software license revenue increased $ 12.4 million , or 11 % , in fiscal year 2015 as compared to fiscal year 2014 . software license revenue would have increased by 18 % if exchange rates had been constant in fiscal year 2015 as compared to exchange rates in effect in fiscal year 2014. the increase in license revenue was primarily in the north america and asia pacific regions as a result of incremental license revenue from the acquisition of telerik . in addition to the incremental license revenue from telerik , both openedge and the data connectivity and integration business segment showed strong growth in fiscal year 2015 on a constant currency basis , both to partners , as well as to direct end users . maintenance and services revenue replace_table_token_5_th maintenance and services revenue increased $ 32.6 million in fiscal year 2015 as compared to fiscal year 2014 .
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the company assesses the carrying amount of goodwill by testing for impairment annually and when impairment indicators arise . the impairment test requires allocating goodwill and all other assets and liabilities to assigned reporting units . as of december 31 , 2017 , apache assesses each country as a reporting unit story_separator_special_tag apache corporation , a delaware corporation formed in 1954 , is an independent energy company that explores for , develops , and produces natural gas , crude oil , and natural gas liquids . apache currently has exploration and production operations in three geographic areas : the u.s. , egypt , and offshore the u.k. in the north sea ( north sea ) . apache also has exploration interests in suriname that may , over time , result in a reportable discovery and development opportunity . during 2015 , apache sold its australia lng business and oil and gas assets . results of operations and cash flows from operations for australia are reflected as discontinued operations in the company 's financial statements for all periods presented . the following discussion should be read together with the consolidated financial statements and the notes to consolidated financial statements set forth in part iv , item 15 of this form 10-k , and the risk factors and related information set forth in part i , item 1a and part ii , item 7a of this form 10-k. overview of 2017 results throughout 2017 , apache remained dedicated to its mission to grow the company for the long-term benefit of its shareholders , with a focus on rigorous portfolio management , disciplined financial structure , and optimization of returns . the company focused its capital program on development at alpine high , which commenced production in may , building associated alpine high infrastructure , and increasing production and performance in its other permian basin plays . apache 's u.s. assets are complemented by its international assets in egypt and the north sea , each of which adds to the company 's deep inventory of exploration and development opportunities and generate cash flows in excess of current capital investments , facilitating the company 's ability to develop alpine high while maintaining financial flexibility . additionally , apache monetized certain non-strategic assets that were not accretive to earnings in the near term , including its operations in canada , its interests in the scottish area gas evacuation system ( sage ) in the north sea , and various non-core leasehold positions in the permian . daily production in 2017 averaged 457 mboe/d , a decrease of 12 percent from 2016 reflecting the sale of the company 's canadian operations . excluding production from canada , apache 's worldwide equivalent daily production decreased 8 percent primarily due to natural decline . the production decline was driven by strategic decisions to curtail capital investments in the two preceding years in order to allow costs to re-align with the lower commodity price environment and to allocate a significant portion of capital investments to the development of the alpine high field and infrastructure . during 2017 , apache reported net income attributable to common stock of $ 1.3 billion , or $ 3.41 per diluted common share , compared to a loss of $ 1.4 billion , or $ 3.71 per share in 2016. results for 2017 reflect an increase in commodity prices , which resulted in higher revenues and lower impairment charges compared with the prior year , as well as gains on divestitures and tax benefits recognized upon enactment of u.s. tax reform . revenue gains from significant increases in realized commodity prices mitigated the impact of production declines and loss of production in connection with the sale of our canadian operations . apache generated $ 2.4 billion in cash from operating activities in 2017 , flat with the prior year , and an additional $ 1.4 billion of cash proceeds from non-core asset divestments . apache ended the year with $ 1.7 billion of cash and cash equivalents , an increase of $ 291 million from year-end 2016. in addition , the company reduced debt from prior-year levels , fully maintained its $ 3.5 billion of available committed borrowing capacity , returned $ 380 million of capital to shareholders through dividends , and eliminated over $ 800 million of future asset retirement obligations with the sale of our canadian operations . in response to continued commodity price volatility , in 2017 the company entered into commodity derivatives to secure the pace of its strategically important capital program at alpine high without compromising its financial strength or flexibility . we continuously monitor changes in our operating environment and have the ability , with our dynamic capital allocation process , to adjust our capital investment program to levels that maximize value for our shareholders over the long-term . outlook apache currently plans to invest $ 7.5 billion in its upstream oil and gas activities from 2018 to 2020 , with just under $ 2.5 billion planned for 2018 and slight increases to annual capital spending through 2019 and 2020. additionally , the company anticipates investment of $ 1.0 billion in the midstream development of alpine high over the next three years . this will include approximately $ 500 million in 2018 , with the remainder split between 2019 and 2020. at current pricing , 2018 projected cash flow from operations are estimated to be cash flow neutral based on the upstream capital program , inclusive of the current company dividend of $ 380 million . midstream development and infrastructure build-out will operate at a cash deficit . any cash deficits for 2018 are anticipated to be funded through our existing cash balances ; however , the company continues discussions on strategic midstream monetization and value optimization that could significantly reduce , or even eliminate , the deficit . story_separator_special_tag crude oil revenues 2017 vs. 2016 crude oil revenues for 2017 totaled $ 4.6 billion , a $ 426 million increase from the 2016 total of $ 4.2 billion . an 11 percent decrease in average daily production reduced 2017 revenues by $ 559 million compared to 2016 , while 24 percent higher average realized prices increased revenues by $ 985 million . average daily production in 2017 was 244.3 mb/d , with prices averaging $ 51.46 per barrel . crude oil accounted for 78 percent of apache 's 2017 oil and gas production revenues and 53 percent of its worldwide production . worldwide crude oil production decrease d 31.0 mb/d compared to 2016 , primarily the result of the canada divestitures and natural decline . 2016 vs. 2015 crude oil revenues for 2016 totaled $ 4.2 billion , a $ 935 million decrease from the 2015 total of $ 5.1 billion . a 5 percent decrease in average daily production reduced 2016 revenues by $ 228 million compared to 2015 , while 14 percent lower average realized prices decreased revenues by $ 707 million . average daily production in 2016 was 275.3 mb/d , with prices averaging $ 41.63 per barrel . crude oil accounted for 78 percent of apache 's 2016 oil and gas production revenues and 53 percent of its worldwide production . worldwide crude oil production from continuing operations decrease d 14.4 mb/d compared to 2015 , primarily the result of reduced drilling activity in response to lower commodity prices and natural decline . natural gas revenues 2017 vs. 2016 natural gas revenues for 2017 totaled $ 959 million , an $ 8 million decrease from the 2016 total of $ 967 million . a 13 percent decrease in average production reduced 2017 revenues by $ 148 million compared to 2016 , while 14 percent higher average realized prices increased revenues by $ 140 million . average daily production in 2017 was 958 mmcf/d , with prices averaging $ 2.74 per mcf . natural gas accounted for 16 percent of apache 's 2017 oil and gas production revenues and 35 percent of its worldwide production . worldwide gas production decrease d 145.0 mmcf/d compared to 2016 , primarily the result of the canada divestitures , maintenance activities in the north sea , and natural decline . 2016 vs. 2015 natural gas revenues for 2016 totaled $ 1.0 billion , a $ 209 million decrease from the 2015 total of $ 1.2 billion . a 4 percent decrease in average production reduced 2016 revenues by $ 38 million compared to 2015 , while 14 percent lower average realized prices decreased revenues by $ 171 million . average daily production in 2016 was 1,103 mmcf/d , with prices averaging $ 2.40 per mcf . natural gas accounted for 18 percent of apache 's 2016 oil and gas production revenues and 35 percent of its worldwide production . worldwide gas production from continuing operations decrease d 46.5 mmcf/d compared to 2015 , primarily the result of reduced drilling activity in response to lower commodity prices and natural decline . ngl revenues 2017 vs. 2016 ngl revenues for 2017 totaled $ 330 million , a $ 102 million increase from 2016 . a 15 percent decrease in average production reduced 2017 revenues by $ 58 million compared to 2016 , while 70 percent higher average realized prices increased revenues by $ 160 million . average daily production in 2017 was 53.5 mb/d , with prices averaging $ 16.90 per barrel . ngls accounted for nearly 6 percent of apache 's 2017 oil and gas production revenues and 12 percent of its worldwide production . 33 2016 vs. 2015 ngl revenues for 2016 totaled $ 228 million , essentially unchanged from 2015 . a 1 percent increase in average production was offset by 1 percent lower average realized prices . average daily production in 2016 was 62.7 mb/d , with prices averaging $ 9.92 per barrel . ngls accounted for nearly 4 percent of apache 's 2016 oil and gas production revenues and 12 percent of its worldwide production . operating expenses the table below presents a comparison of the company 's expenses on an absolute dollar basis and an equivalent unit of production ( boe ) basis . the company 's discussion may reference expenses on a boe basis , on an absolute dollar basis or both , depending on context . all operating expenses include costs attributable to a noncontrolling interest in egypt . operating expenses for all periods exclude discontinued operations in australia . replace_table_token_16_th ( 1 ) for expenses impacted by the timing of 2017 and 2016 liftings in the north sea , per-boe calculations are based on sales volumes rather than production volumes . lease operating expenses ( loe ) loe includes several key components , such as direct operating costs , repair and maintenance , and workover costs . direct operating costs generally trend with commodity prices and are impacted by the type of commodity produced and the location of properties ( i.e. , offshore , onshore , remote locations , etc. ) . fluctuations in commodity prices impact operating cost elements both directly and indirectly . they directly impact costs such as power , fuel , and chemicals , which are commodity price based . commodity prices also affect industry activity and demand , thus indirectly impacting the cost of items such as rig rates , labor , boats , helicopters , materials , and supplies . oil , which contributed more than half of apache 's 2017 production , is inherently more expensive to produce than natural gas . repair and maintenance costs are typically higher on offshore properties . during 2017 , loe decreased $ 94 million , or 6 percent , on an absolute dollar basis compared to 2016 . on a per-unit basis , loe increased $ 0.53 , or 7 percent compared to 2016 . during 2016 , loe decreased $ 360 million , or 19 percent , on an absolute dollar basis compared to 2015 .
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operational highlights apache 's deliberate focus on strategic testing and targeted development drilling during the price downturn , in addition to the alpine high discovery , significantly impacted results in its permian basin plays , egypt , and the north sea . key operational highlights for the year include : north america north america onshore production averaged 231 mboe/d , down 16 percent relative to 2016 , reflecting apache 's exit from canada . excluding canada , apache 's onshore equivalent production decreased 8 percent , in line with the company 's expectations given the significant reduction in capital investments over the preceding two years and the allocation of a significant portion of our 2017 capital investments to infrastructure at alpine high . the permian region averaged 16 operated rigs during the year , drilling 215 gross wells , 145 net wells . approximately half of the region 's production is crude oil and 23 percent is ngls . combined , this represents more than a third of apache 's worldwide liquids production for 2017. the region averaged 158 mboe/d and contributed $ 1.8 billion of revenues during 2017. fourth-quarter 2017 production increased 19 percent from the comparative 2016 quarter , a reflection of the success of the midland basin drilling program and the continued production ramp at alpine high . drilling and infrastructure development activities continue at alpine high ; specifically : ◦ first production from the alpine high play was achieved in early may 2017. net production averaged approximately 19.8 mboe/d during the fourth quarter of 2017 and achieved a rate of 25 mboe/d in december prior to shutting down a facility at year-end for capacity expansion . ◦ five processing facilities are currently operating with a combined gross inlet capacity of 330 million cubic feet of natural gas per day ( mmcf/d ) . ◦ during 2017 , apache invested $ 550 million in midstream facilities at alpine high , with development ongoing .
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in addition , financial information for the twelve months ended december 31 , 2011 consists of the consolidated results of xylem on a stand-alone basis for the two months of november and december and the combined results of operations of waterco for ten months on a carve-out basis . the twelve months ended december 31 , 2010 and 2009 consist entirely of the combined results of waterco on a carve-out basis . overview xylem inc. ( xylem or the company ) is a leading equipment and service provider for water and wastewater applications with a broad portfolio of products and services addressing the full cycle of water , from collection , distribution and use to the return of water to the environment . xylem operates in two segments , water infrastructure and applied water . the water infrastructure segment focuses on the transportation , treatment and testing of water , offering a range of products including water and wastewater pumps , treatment and testing equipment , and controls and systems . the applied water segment encompasses all the uses of water and focuses on the residential , commercial , industrial and agricultural markets . the segment 's major products include pumps , valves , heat exchangers , controls and dispensing equipment . xylem inc. ( f/k/a itt wco , inc. ) was incorporated in indiana on may 4 , 2011. the name of the company was changed from itt wco , inc. to xylem inc. on july 14 , 2011. our business focuses on providing technology-intensive equipment and services . we sell our equipment and services via direct and indirect channels that serve the needs of each customer type . on the utility side , we provide over 70 % direct sales with strong application expertise , with the remaining amount going through distribution partners . to end users of water , we provide over 85 % of our sales through long-standing relationships with the world 's leading distributors , with the remainder going direct to customers . the total market opportunity for this equipment and services portion of the water industry supply chain is estimated at $ 280 billion . our product and service offerings are organized into two segments : water infrastructure and applied water . our segments are aligned with each of the sectors in the cycle of water , supply infrastructure and usage applications . water infrastructure serves the supply infrastructure sector with pump systems that transport water from aquifers , lakes , rivers and seas ; with filtration , ultraviolet and ozone systems that provide treatment , making the water fit to use ; and providing pump lift stations that move the wastewater to treatment facilities where our mixers , biological treatment , monitoring , and control systems provide the primary functions in the treatment process . applied water serves the usage applications sector with boosting systems for farming irrigation , pumps for dairy operations , and rainwater reuse systems for small scale crop and turf irrigation . in addition , our pumps , heat exchangers , valves and controls provide cooling to power plants and manufacturing facilities , as well as circulation for food and beverage processing . 33 separation from itt corporation ( itt ) on october 31 , 2011 , itt corporation completed the previously announced spin-off ( the spin-off ) of xylem , formerly itt 's water equipment and services businesses . effective as of 12:01 a.m. , eastern time on october 31 , 2011 ( the distribution date ) , the common stock of xylem was distributed , on a pro rata basis , to itt 's shareholders of record as of the close of business on october 17 , 2011 ( the record date ) . on the distribution date , each of the shareholders of itt received one share of xylem common stock for every one share of common stock of itt held on the record date . the spin-off was completed pursuant to the distribution agreement , dated as of october 25 , 2011 , among itt , exelis inc. and xylem . after the distribution date , itt does not beneficially own any shares of xylem common stock and , following such date , financial results of xylem will not be consolidated in itt 's financial reporting . xylem 's registration statement on form 10 filed with the u.s. securities and exchange commission was declared effective on october 6 , 2011. xylem 's common stock began regular-way trading on the new york stock exchange on november 1 , 2011 under the symbol xyl . story_separator_special_tag style= '' font-family : arial '' > 37 separation costs we had non-recurring pre-tax separation costs of $ 87 million , or $ 72 million after tax , during 2011. the components of separation costs incurred during these periods is presented below ( in millions ) . replace_table_token_12_th ( a ) during the third quarter , we recorded an impairment charge of $ 8 million on one of our facilities in china within our applied water segment . prior to the separation this was a shared facility among certain xylem and itt businesses and in connection with the separation , the removal of certain itt operations triggered an impairment evaluation . the fair value of the applicable assets was calculated using the cost approach . our current estimate of the pre-tax cash impact of the remaining activities associated with the separation ranges from approximately $ 15 million to $ 20 million . operating income we generated operating income of $ 395 million during 2011 , a 1.8 % increase from the prior year , primarily reflecting increased revenues offset , in part , by non-recurring separation costs of $ 87 million . the following table illustrates operating income results by business segments for 2011 and 2010. replace_table_token_13_th 38 the table included below provides a reconciliation from segment operating income to adjusted operating income , and a calculation of the corresponding adjusted operating margin . story_separator_special_tag the frequency and overall impact of such actions subsided and as a result we incurred less cost during 2010. operating income we generated operating income of $ 388 million in 2010 , which reflects an increase from the prior year of 40.6 % . operating margin increased to 12.1 % , a year-over-year increase of 240 basis points . the following table illustrates operating income results of our business segments , including operating margin results for 2010 and 2009 . ( in millions ) replace_table_token_18_th 41 water infrastructure operating income for our water infrastructure segment increased $ 49 million or 21.6 % for 2010 compared with 2009. this increase is primarily attributable to contributions from the nova and godwin acquisitions , which provided combined incremental operating income of $ 28 million during 2010. operating productivity and lower restructuring expense more than offset incremental strategic investments , higher pension costs , and unfavorable foreign currency impacts . as a result , we saw operating margin expansion of 60 basis points over 2009. applied water operating income for our applied water segment increased $ 49 million or 45.0 % for the year ended december 31 , 2010 compared with the prior year . operating productivity , including increased volume , increased price , benefits from our cost savings initiatives , and lower restructuring charges of $ 12 million more than offset incremental costs associated with strategic initiatives . operating margin expansion of 320 basis points over 2009 was largely attributable to these same factors . income tax expense in 2010 and 2009 , we recorded an income tax provision of $ 59 million and $ 14 million , respectively , which represents effective tax rates of 15.2 % and 5.0 % , respectively . for 2010 , the effective tax rate is lower than the federal statutory rate of 35 % due principally to a lower rate incurred on foreign earnings and the favorable impact of the repatriation of foreign earnings net of foreign tax credits . for 2009 , the effective tax rate is lower than the federal statutory rate of 35 % due principally to a lower rate incurred on foreign earnings and the favorable impact of the restructuring of certain legal entities . during 2009 , the company implemented an international restructuring in which it transferred the ownership of its canadian operations to its luxembourg holding company . the transfer will allow the company to recover , in a more tax efficient manner , the earnings and book-to-tax basis differences attributable to our canadian investment . as a result , the company reduced the deferred tax liability related to our investment in canada . liquidity and capital resources the following table summarizes our sources and uses of cash for the three years ended december 31 , 2011. replace_table_token_19_th sources and uses of liquidity operating activities during 2011 , net cash provided by operating activities was $ 449 million , compared to $ 395 million in 2010. the $ 54 million year-over-year increase is primarily the result of lower tax and restructuring payments . this increase was partially offset by net increased uses of cash in working capital driven by spending to support increased sales volumes . during 2010 , net cash provided by operating activities increased by $ 25 million as compared to 2009 , primarily attributable to a $ 88 million increase in net income , excluding non-cash increases in depreciation and amortization , partially offset by a reduced source of cash from working capital . 42 investing activities cash used in investing activities was $ 423 million for 2011 , compared to $ 1,093 million in 2010 and $ 84 million in 2009. we invested $ 309 million related to the acquisition of ysi in 2011 and $ 385 million and $ 580 million related to the acquisitions of nova and godwin pumps , respectively , in 2010. capital expenditures in 2011 were $ 126 million compared to $ 94 million in 2010 and $ 62 million in 2009. the $ 32 million year-over-year increase in capital expenditures in 2011 is primarily due to investments to increase productivity and the expansion of the godwin business . financing activities during 2011 , cash provided by financing activities was $ 172 million , compared to cash provided by financing activities of $ 745 million in 2010 and cash used in financing activities of $ 292 million in 2009. the decline in 2011 is due to net transfers to our former parent , itt , as the net proceeds from the issuance of $ 1.2 billion aggregate amount of senior notes ( described below ) funded a net cash transfer to itt that included the repayment of funds used in the acquisition of ysi . in general , the components of net transfers include : ( i ) cash transfers from the company to parent , ( ii ) cash investments from our parent used to fund operations , capital expenditures and acquisitions , ( iii ) charges ( benefits ) for income taxes , and ( iv ) allocations of the parent company 's corporate expenses described in this report . dividends of $ 19 million were paid in 2011. no dividends were paid in 2010 and 2009. funding and liquidity strategy prior to the spin-off , the majority of our operations participated in u.s. and international cash management and funding arrangements managed by itt where cash was swept from our balance sheet daily , and cash to meet our operating and investing needs was provided as needed from itt . transfers of cash both to and from these arrangements are reflected as a component of parent company investment in the consolidated and combined balance sheets . the cash presented on our balance sheet prior to the spin-off consists primarily of u.s. and international cash from subsidiaries that do not participate in these arrangements . as a result of the separation , our capital structure and sources of liquidity changed significantly . we no longer participate in cash management and funding arrangements with itt .
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executive summary xylem reported revenue for 2011 of $ 3,803 million , an increase of 18.8 % from $ 3,202 million reported in 2010 , due to broad-based growth across both segments . operating income for the year ended 2011 , excluding costs of $ 87 million incurred to execute the separation from itt , was $ 482 million , reflecting an increase of $ 94 million or 24.2 % compared to $ 388 million in 2010. additional financial highlights for 2011 include the following : net income of $ 279 million , or $ 1.50 per diluted share order growth of 18.8 % over the prior year ; organic orders were up 6.7 % revenue increase of 18.8 % from 2010 ; organic revenue was up 7.1 % completion of the ysi incorporated ( ysi ) acquisition , which contributed approximately $ 35 million of revenue to the water infrastructure segment results adjusted net income of $ 358 million , an increase of $ 72 million from 2010 's adjusted net income free cash flow generation of $ 388 million , up $ 87 million from 2010 key performance indicators and non-gaap measures management reviews key performance indicators including revenue , segment operating income and margins , earnings per share , orders growth , and backlog , among others . in addition , we consider certain measures to be useful to management and investors evaluating our operating performance for the periods presented , and provide a tool for evaluating our ongoing operations , liquidity and management of assets . this information can assist investors in assessing our financial performance and measures our ability to generate capital for deployment among competing strategic alternatives and initiatives , including , but not limited to , dividends , acquisitions , share repurchases and debt repayment .
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( story_separator_special_tag the following is an analysis and discussion of the financial condition and results of operations of home bancorp , inc. ( the company ) , and its wholly owned subsidiary , home bank , n.a . ( the bank ) . this discussion and analysis should be read in conjunction with our consolidated financial statements and related notes included herein in part ii , item 8 , financial statements and supplementary data and the description of our business included herein in part 1 , item 1 business . executive overview net income for 2014 totaled $ 9.9 million , an increase of 35.3 % from the $ 7.3 million earned in 2013. diluted earnings per share for 2014 were $ 1.42 , an increase of 34.0 % from the $ 1.06 earned in 2013. key components of the company 's performance in 2014 are summarized below . the company 's financial condition and income as of and for the period ended december 31 , 2014 was impacted by the acquisition of britton & koontz capital corporation ( britton & koontz ) , the holding company for britton & koontz bank , n.a . ( britton & koontz bank ) of natchez , mississippi , on february 14 , 2014. as a result of the acquisition , five former britton & koontz bank branches in west mississippi were added to home bank 's branch office network . two former britton & koontz bank locations in baton rouge were consolidated into existing home bank locations . through the britton & koontz transaction , the company acquired assets of $ 298.9 million , which included loans of $ 161.6 million , and $ 264.5 million in deposits and other liabilities . shareholders of britton and koontz received $ 16.14 per share in cash , yielding an aggregate purchase price of $ 34.5 million . the company incurred $ 2.3 million in pre-tax merger-related expenses during the year ended 2014. see note 3 to the unaudited consolidated financial statements for additional information regarding the acquisition of britton & koontz . assets totaled $ 1.2 billion as of december 31 , 2014 , up $ 237.2 million , or 24.1 % , from december 31 , 2013. the increase was primarily the result of the britton & koontz acquisition . investment securities totaled $ 186.5 million as of december 31 , 2014 , an increase of $ 27.5 million , or 17.3 % , from december 31 , 2013. the increase was driven by $ 98.0 million in securities acquired from britton & koontz as of the date of acquisition . the company subsequently sold $ 65.1 million of investments acquired from britton & koontz . loans as of december 31 , 2014 were $ 909.0 million , an increase of $ 201.5 million , or 28.5 % , from december 31 , 2013. the increase in loans was primarily driven by $ 161.6 million in loans acquired from britton & koontz at the acquisition date . growth in our originated loan portfolio during the year was primarily related to commercial real estate loans , one- to four-family first mortgage loans and commercial and industrial loans . these increases were partially offset by a decrease in our origination of new construction and land loans . as of december 31 , 2014 , covered loans totaled $ 18.6 million , a decrease of $ 3.1 million , or 14.3 % , from december 31 , 2013. net office properties and equipment as of december 31 , 2014 were $ 38.0 million , an increase of $ 7.3 million , or 23.7 % , from december 31 , 2013. the company began 2014 with 22 banking offices . the acquisition of five britton & koontz locations increased our total number of banking offices to 27. total customer deposits as of december 31 , 2014 were $ 993.6 million , an increase of $ 252.3 million , or 34.0 % , from december 31 , 2013. the britton & koontz acquisition added $ 216.6 million in deposits at the acquisition date . the increase in deposits was driven primarily by the acquisition of britton & koontz and strong organic growth . in addition to the deposits assumed from britton & koontz , core deposits increased $ 72.1 million , or 13.1 % , while certificate of deposits decreased $ 36.4 million , or 18.9 % . 20 interest income increased $ 10.6 million , or 24.2 % , in 2014 compared to 2013. the increase was primarily due to higher average volume of interest-earning assets as the result of the britton & koontz acquisition and organic loan growth . interest expense decreased $ 219,000 , or 6.3 % , in 2014 compared to 2013. the decrease was primarily due to lower rates paid on interest-bearing liabilities as the result of reduced market rates and an improved mix of interest-bearing liabilities . the provision for loan losses totaled $ 2.4 million in 2014 , 35.3 % lower than the $ 3.7 million recorded in 2013. at december 31 , 2014 , the company 's ratio of allowance for loan losses to total loans was 0.85 % , compared to 0.98 % at december 31 , 2013. the ratio of the allowance for loan losses to total originated loans was 1.04 % at december 31 , 2014 compared to 1.12 % at december 31 , 2013. net charge-offs for 2014 were $ 1.5 million , or 0.17 % of total loans , compared to $ 2.1 million , or 0.29 % , in 2013. noninterest income increased $ 505,000 , or 6.6 % , in 2014 compared to 2013. the increase was primarily the result of higher service fees and charges ( up $ 1.0 million ) and bank card fees ( up $ 447,000 ) due to the impact of the britton & koontz acquisition and increased customer transactions , which were partially offset by lower gains on sale of securities ( down $ 426,000 ) , gains on the sale of mortgage loans ( down $ 341,000 story_separator_special_tag while management uses the best information available to make loan loss allowance evaluations , adjustments to the allowance may be necessary based on changes in economic and other conditions or changes in accounting guidance . the occ , as an integral part of its examination processes , periodically reviews our allowance for loan losses . the occ may require the recognition of adjustments to the allowance for loan losses based on their judgment of information available to them at the time of their examinations . to the extent that actual outcomes differ from management 's estimates , additional provisions to the allowance for loan losses may be required that would adversely impact earnings in future periods . as part of the risk management program , an independent review is performed on the loan portfolio , which supplements management 's assessment of the loan portfolio and the allowance for loan losses . the result of the independent review is reported directly to the audit committee of the board of directors . acquired loans were recorded at fair value at the date of acquisition with no carryover of the allowance for loan losses . as of december 31 , 2014 , our allowance for loan losses included $ 418,000 allocated to acquired loans with credit quality which had deteriorated since the date of acquisition . our accounting policy for acquired loans is described below . accounting for loans . the following briefly describes the distinction between originated , non-covered acquired and covered loans and certain significant accounting policies relevant to each category . originated loans loans originated for investment are reported at the principal balance outstanding net of unearned income . interest on loans and accretion of unearned income are computed in a manner that approximates a level yield on recorded principal . interest on loans is recorded as income as earned . the accrual of interest on an originated loan is discontinued when it is probable the borrower will not be able to meet payment obligations as they become due . the company maintains an allowance for loan losses on originated loans that represents management 's estimate of probable losses incurred in this portfolio category . 22 non-covered acquired loans non-covered acquired loans are those collectively associated with our acquisitions of gsfc and britton & koontz . these loans were recorded at estimated fair value at the acquisition date with no carryover of the related allowance for loan losses . the non-covered acquired loans were segregated between those considered to be performing ( acquired performing ) and those with evidence of credit deterioration ( acquired impaired ) , and then further segregated into loan pools designed to facilitate the estimation of expected cash flows . the fair value estimate for each pool of acquired performing and acquired impaired loans was based on the estimate of expected cash flows , both principal and interest , from that pool , discounted at prevailing market interest rates . the difference between the fair value of an acquired performing loan pool and the contractual amounts due at the acquisition date ( the fair value discount ) is accreted into income over the estimated life of the pool . management estimates an allowance for loan losses for acquired performing loans using a methodology similar to that used for originated loans . the allowance determined for each loan pool is compared to the remaining fair value discount for that pool . if the allowance amount calculated under the company 's methodology is greater than the company 's remaining discount , the additional amount called for is added to the reported allowance through a provision for loan losses . if the allowance amount calculated under the company 's methodology is less than the company 's recorded discount , no additional allowance or provision is recognized . actual losses first reduce any remaining fair value discount for the loan pool . once the discount is fully depleted , losses are applied against the allowance established for that pool . acquired performing loans are placed on nonaccrual status and considered and reported as nonperforming or past due using the same criteria applied to the originated portfolio . the excess of cash flows expected to be collected from an acquired impaired loan pool over the pool 's estimated fair value at acquisition is referred to as the accretable yield and is recognized in interest income using an effective yield method over the remaining life of the pool . each pool of acquired impaired loans is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows . management recasts the estimate of cash flows expected to be collected on each acquired impaired loan pool periodically . if the present value of expected cash flows for a pool is less than its carrying value , an impairment is recognized by an increase in the allowance for loan losses and a charge to the provision for loan losses . if the present value of expected cash flows for a pool is greater than its carrying value , any previously established allowance for loan losses is reversed and any remaining difference increases the accretable yield which will be taken into interest income over the remaining life of the loan pool . acquired impaired loans are generally not subject to individual evaluation for impairment and are not reported with impaired loans , even if they would otherwise qualify for such treatment . covered loans and the related loss share receivable the loans purchased in the bank 's 2010 acquisition of certain assets and liabilities of statewide bank are covered by loss share agreements between the fdic and the bank that afford the bank significant loss protection . in connection with the transaction , home bank entered into loss sharing agreements with the fdic which cover the acquired loan portfolio ( covered loans ) and repossessed assets ( collectively referred to as covered assets ) .
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results of operations the company earned net income of $ 9.9 million in 2014 , an increase of $ 2.6 million compared to the $ 7.3 million earned in 2013 and an increase of $ 682,000 compared to the $ 9.2 million earned in 2012. diluted earnings per share were $ 1.42 , $ 1.06 and $ 1.28 in 2014 , 2013 and 2012 , respectively . net interest income net interest income is the difference between the interest income earned on interest-earning assets , such as loans and investment securities , and the interest expense paid on interest-bearing liabilities , such as deposits and borrowings . our net interest income is largely determined by our net interest spread , which is the difference between the average yield earned on interest-earning assets and the average rate paid on interest bearing liabilities , and the relative amounts of interest-earning assets and interest-bearing liabilities . net interest income totaled $ 51.0 million in 2014 , an increase of $ 10.8 million , or 26.9 % , compared to the $ 40.2 million earned in 2013. the increase was due to a $ 10.6 million , or 24.2 % , increase in interest income and a $ 219,000 , or 6.3 % , decrease in interest expense . the increase in net interest income in 2014 compared to 2013 was primarily due to an increase in our average loan portfolio and an improved mix of interest-bearing liabilities , primarily as a result of the britton & koontz acquisition . in 2013 , net interest income totaled $ 40.2 million , a decrease of $ 1.0 million , or 2.4 % , compared to the $ 41.2 million earned in 2012. the decline was primarily due to a decrease in the average yield earned on loans . interest expense decreased $ 1.4 million , or 28.7 % , over the same period .
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during the year ended july 31 , story_separator_special_tag special note regarding forward-looking statements this annual report on form 10-k , including the information incorporated by reference herein , contains forward-looking statements within the meaning of section 27a of the securities act , and section 21e of the exchange act . all statements other than statements of historical facts are statements that could be deemed forward-looking statements . in some cases , you 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 . the forward-looking statements contained in this form 10-k involve known and unknown risks , uncertainties and situations that may cause our or our industry 's actual results , level of activity , performance or achievements to be materially different from any future results , levels of activity , performance or achievements expressed or implied by these statements . these forward-looking statements are made in reliance upon the safe harbor provision of the private securities litigation reform act of 1995. these factors include those listed in part i , item 1a.risk factors of this form 10-k and those discussed elsewhere in this form 10-k. we encourage investors to review these factors carefully together with the other matters referred to herein , as well as in the other documents we file with the sec . the company may from time to time make additional written and oral forward-looking statements , including statements contained in the company 's filings with the sec . the company does not undertake to update any forward-looking statement that may be made from time to time by or on behalf of the company . although we believe that , based on information currently available to the company and its management , the expectations reflected in the forward-looking statements are reasonable , we can not guarantee future results , levels of activity , performance or achievements . you should not place undue reliance on these forward-looking statements . overview we provide vehicle sellers with a full range of services to process and sell vehicles primarily over the internet through our virtual bidding second generation internet auction-style sales technology , which we refer to as vb 2 . vehicle sellers consist primarily of insurance companies but also include banks and financial institutions , charities , car dealerships , fleet operators and vehicle rental companies . we sell principally to licensed vehicle dismantlers , rebuilders , repair licensees , used vehicle dealers and exporters ; however at certain locations , we sell directly to the general public . the majority of the vehicles sold on behalf of the insurance companies are either damaged vehicles deemed a total loss or not economically repairable by the insurance companies or are recovered stolen vehicles for which an insurance settlement with the vehicle owner has already been made . we offer vehicle sellers a full range of services that expedite each stage of the salvage vehicle sales process and minimize administrative and processing costs . in the united states and canada , or north america , we sell vehicles primarily as an agent and derive revenue primarily from fees paid by vehicle sellers and vehicle buyers as well as related fees for services such as towing and storage . in the united kingdom , or u.k. , a significant portion of our business is conducted on a principal basis , purchasing salvage vehicles outright from insurance companies and reselling the vehicles for our own account . our revenues consist of sales transaction fees charged to vehicle sellers and vehicle buyers , transportation revenue , purchased vehicle revenues , and other remarketing services . revenues from sellers are generally generated either on a fixed fee contract basis where we collect a fixed amount for selling each vehicle regardless of the selling price of the vehicle or , under our percentage incentive program , or pip program , where our fees are generally based on a predetermined percentage of the vehicle sales price . under the consignment , or fixed fee , program , we generally charge an additional fee for title processing and special preparation . although sometimes included in the consignment fee , we may also charge additional fees for the cost of transporting the vehicle to our facility , storage of the vehicle , and other incidental costs . under the consignment programs , only the fees associated with vehicle processing are recorded in revenue , not the actual 31 sales price ( gross proceeds ) . sales transaction fees also include fees charged to vehicle buyers for purchasing vehicles , storage , loading and annual registration . transportation revenue includes charges to sellers for towing vehicles under certain contracts . transportation revenue also includes towing charges assessed to buyers for delivering vehicles . purchased vehicle revenue includes the gross sales price of the vehicle which we have purchased or are otherwise considered to own and is primarily generated in the u.k. operating costs consist primarily of operating personnel ( which includes yard management , clerical and yard employees ) , rent , contract vehicle towing , insurance , fuel , equipment maintenance and repair , and costs of vehicles we sold under purchase contracts . costs associated with general and administrative expenses consist primarily of executive management , accounting , data processing , sales personnel , human resources , professional fees , research and development and marketing expenses . during fiscal 2004 and fiscal 2008 , we converted all of our north american and u.k. sales , respectively , to an internet-based auction-style model using our vb 2 internet sales technology which employs a two-step bidding process . the first step , called the preliminary bid , allows members to submit bids up to one hour before a real time virtual auction begins . story_separator_special_tag consequently , we recognized in the period earned certain revenues , primarily towing fees , titling fees and other enhancement service fees , which were previously deferred until the period the car associated with those revenues was sold . as a result of this change , we recognized $ 14.4 million in additional revenue for the fiscal year ended july 31 , 2011 , which would have otherwise been recognized in future periods . vehicle sales . we have assumed certain contracts through our u.k. acquisitions that require us to act as a principal , purchasing vehicles from the insurance companies and reselling them for our own account . vehicle sales revenues were $ 159.2 million during fiscal 2011 compared to $ 138.3 million for fiscal 2010 , an increase of $ 20.9 million , or 15.1 % , above fiscal 2010. the increase in vehicle sales revenue was due to the growth in the average selling price of vehicles which resulted in increased revenue of $ 19.1 million . the growth in the average selling price per unit was primarily due to : ( i ) the increase in commodity pricing , particularly the per ton price for crushed car bodies , which has an impact on the ultimate selling price of vehicles sold for scrap and vehicles sold for dismantling and ( ii ) in the u.k. , the continuing beneficial impact of vb 2 which we introduced to the u.k. in 2008 and which expands our buyer base by opening vehicle sales to buyers worldwide . we can not determine which vehicles are sold directly to the end user or for scrap , dismantling , retailing , or export and , accordingly , can not quantify the specific impact of commodity pricing nor can we isolate the impact that vb 2 had on the ultimate selling price of vehicles sold in the u.k. the 35 decline in volume resulted primarily from the migration of certain contracts in the u.k. from the principal model to the agency model and resulted in a reduction in vehicle sales revenue of $ 0.8 million . the beneficial impact on recorded vehicle sales revenue due to the change in the gbp to usd exchange rate was $ 2.1 million . yard operation expenses . yard operation expenses were $ 374.1 million during fiscal 2011 compared to $ 320.2 million for fiscal 2010 , an increase of $ 53.9 million , or 16.8 % , above fiscal 2010. the increase was driven primarily by ( i ) the growth in volume of units processed , ( ii ) the adoption of asu 2009-13 , ( iii ) increase in subhauling costs due to the growth in diesel prices on a year over year basis , and ( iv ) the general growth in program costs associated with new business segments . there was a detrimental impact on yard operating expenses due to the change in the gbp to usd exchange rate of $ 0.8 million . included in yard operation costs were depreciation and amortization expenses which were $ 37.0 million and $ 34.9 million for the fiscal years ended july 31 , 2011 and 2010 , respectively . on august 1 , 2010 we adopted asu 2009-13. consequently , we recognized certain revenues and expenses associated primarily with towing fees , titling fees and seller storage fees , which were previously deferred until the period the car associated with those revenues and expenses was sold . the expenses recognized for the year ended july 31 , 2011 , which would have otherwise been recognized in future periods , was $ 13.5 million . cost of vehicle sales . the cost of vehicles sold was $ 125.2 million during fiscal 2011 compared to $ 104.7 million for fiscal 2010 , an increase of $ 20.5 million , or 19.6 % . the increase in the cost per unit sold represented a $ 19.0 million increase relative to fiscal 2010. unit volume decrease led to a decrease of $ 0.6 million . the detrimental impact on the cost of sales due to the change in the gbp to usd exchange rate was $ 2.1 million . general and administrative expenses . general and administrative expenses , excluding depreciation and amortization , were $ 98.9 million for fiscal 2011 compared to $ 100.6 million for fiscal 2010 , a decrease of $ 1.7 million , or 1.7 % . the decline in general and administrative costs was due primarily to decreased advertising costs and decreased headcount . depreciation and amortization expenses were $ 8.7 million and $ 8.3 million for the fiscal years ended july 31 , 2011 and 2010 , respectively . the detrimental impact on general and administrative expenses due to the change in the gbp to usd exchange rate was $ 0.1 million . other income ( expense ) . total other expense was $ 1.4 million during fiscal 2011 compared to other income of $ 0.4 million for fiscal 2010 , an increase of $ 1.8 million , or 432.4 % . interest expense increased $ 3.9 million as a result of increased borrowing under the new credit facility which is further described in the notes to consolidated financial statements note 9. long-term debt , which is incorporated herein by reference . interest income declined $ 0.3 million due primarily to reduced interest yields and a lower cash balance . other income , net , increased $ 1.7 million due primarily to the gain on sale of assets . income taxes . our effective income tax rates for fiscal 2011 and 2010 were 36.9 % and 36.7 % , respectively . liquidity and capital resources our primary source of working capital is cash generated though operations . potential internal sources of additional working capital are the sale of assets or the issuance of equity through option exercises and shares issued under our employee stock purchase plan . a potential external source of additional working capital is the issuance of debt and equity .
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results of operations fiscal 2012 compared to fiscal 2011 revenues the following table sets forth information on revenue by class ( in thousands , except percentages ) : replace_table_token_10_th service revenues . service revenues were $ 757.3 million during fiscal 2012 compared to $ 713.1 million for fiscal 2011 , an increase of $ 44.2 million , or 6.2 % , above fiscal 2011. growth in unit volume generated $ 33.5 million in additional service revenue relative to last year and was driven primarily by growth in the number of units sold on behalf of franchise and independent car dealerships , new and expanded contracts with insurance companies and the migration from the principal model to the agency model in the u.k. growth in the average revenue per car sold generated $ 11.5 million in additional revenue over last year and was driven by an increase in the average vehicle auction selling price as over 50 % of our service revenue is tied in some manner to the ultimate selling price of the vehicle . we believe the increase in the average vehicle auction selling price was driven primarily by : ( i ) the year over year increase in commodity pricing as we believe that commodity pricing , particularly the per ton price for crushed car bodies , has an impact on the ultimate selling price of vehicles sold for scrap and vehicles sold for dismantling ; ( ii ) the general increase in used car pricing , which we believe has an impact on the average selling price of vehicles which are repaired and retailed or purchased by the end user ; ( iii ) the mix of cars sold as the insurance company cars , which on average command a lower average selling price than non-insurance cars , represented a lower portion of all cars sold ; and ( iv ) in the u.k. , the beneficial impact of vb 2 which we introduced in 2008 and which expands
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f-10 while some contracts include one or more performance obligations ( including the combined elements noted above along with additional ongoing customer support and other hosted services ) , the revenue recognition pattern generally is not impacted by the separate allocations of these obligations because the services are generally satisfied over the same period of time and revenue is recognized over the contract period . discounts provided to customers are recorded as reductions in revenue . commission amortization — we amortize our commission costs to expense on a systemic basis over story_separator_special_tag the following discussion and analysis contains forward-looking statements about trends , uncertainties and our plans and expectations of what may happen in the future . forward-looking statements involve risks and uncertainties that could cause actual events or results to differ materially from the events or results described in the forward-looking statements , including risks and uncertainties described above in “ item 1a . risk factors. ” readers are cautioned not to place undue reliance on forward-looking statements . the forward-looking statements in this report are based upon information available to us on the date of this report . we undertake no obligation to publicly update or revise any forward-looking statements . see “ note on forward-looking statements and risk factors ” in “ item 1. business. ” the following discussion should be read in conjunction with the consolidated financial statements and related notes beginning on page f-1 . overview we are a leader in providing cloud email security , productivity , and compliance solutions . we provide easy-to-use solutions for email encryption , data loss prevention ( “ dlp ” ) , advanced email threat protection , unified archiving , and cloud data backup . as a leading provider of cloud-based security , compliance , and productivity solutions for businesses of all sizes , we are focused on securing data and meeting the compliance needs of organizations with particular emphasis on the healthcare , finance , and government sectors . one of our core competencies is our ability to deliver this complex service offering with a high level of availability , reliability , integrity and security . our 2020 results included record revenues attributable to our ongoing efforts to build a solid and predictable business based on our recurring revenue subscription business model . for 2020 , we continued to benefit from growing concerns about data security and integrity issues as well as the growing acceptance of cloud-based offerings and the growing regulatory compliance burdens on many businesses . for 2020 , we reported revenue of $ 218.5 million , an increase of $ 45.1 million , or 26 % over the prior year . this increase was driven by recognition of twelve full months of sales for the year ended december 31 , 2020 , attributable to our appriver business acquired in february 2019 and by steady additions to the subscriber base , a high rate of existing customer renewals and the realization of previously contracted revenue in our backlog . for the year ended december 31 , 2020 , our gross profit of $ 105.7 million increased 10 % compared to 2019. this increase was driven by new sales . our 2020 operating profit of $ 4.6 million increased $ 13.7 million over the prior year , as the gross profit increase and reductions in general and administrative expenses related to acquisition and integration fees , along with targeted reductions in response to the covid-19 pandemic , were offset by increased research and development and selling and marketing expenses . our $ 6.4 million net loss in 2020 is an improvement of $ 8.2 million compared to our $ 14.6 million net loss in 2019. our 2019 net loss includes a $ 4.5 million income tax benefit resulting from that year 's net loss . other financial highlights backlog was $ 83.4 million at the end of 2020 , compared to $ 89.4 million at the end of 2019. total billings for 2020 were $ 219.1 million , compared to $ 170.2 million for 2019 , representing an increase of 28.7 % . the annual recurring revenue value of our customer subscriptions as of december 31 , 2020 , was $ 237.7 million , compared with $ 209.7 million for the same period in 2019 , representing an increase of $ 28.0 million . our deferred revenue at the end of 2020 was $ 41.5 million , compared with $ 43.3 million at the end of 2019. we generated cash flows from operations of $ 31.3 million during fiscal 2020. our cash and cash equivalents were $ 21.4 million at the end of 2020 , compared with $ 13.3 million at the end of 2019. our services are sold on a subscription basis with contract terms historically ranging from one to five years billed annually . we are increasingly moving toward a monthly billing model . this shift has been largely driven by our recent acquisition activity . we recognize revenue ratably on a monthly basis over the term of the subscription once service commences . 29 we attempt to grow our business by signing new customers to subscription services and or selling new or higher volume services to existing customers ( i.e. , “ upsell ” ) while retaining existing customers through renewal of their subscriptions for successive periods . our backlog consists of the total order value of contracted business that has not yet been recognized into revenue . backlog is calculated by adding to the existing contracted order value the total value of all orders booked in the period ( e.g. , quarterly ) less the value of revenue recognized for that period . although orders historically have been non-cancellable , occasionally we adjust backlog for customer bankruptcy or change of term , but these instances are rare and do not materially impact the backlog amount . the backlog will grow if the value of total orders added in a period exceeds the value of revenue recognized in that period . story_separator_special_tag step 1 : identify the contract ( s ) with a customer : we consider the terms and conditions of the contract and our customary business practice in identifying our contracts . we determine we have a contract with a customer when ( i ) the contract is approved , ( ii ) we can identify each party 's rights regarding the services and products transferred , ( iii ) we can identify the payment terms for the services and products , ( iv ) the contract has commercial substance , and ( v ) it is probable we will be paid . step 2 : identifying the performance obligations in the contract : asc 606 requires identification and disclosure of performance obligations within a revenue contract . a good or service is considered distinct if the customer can both benefit from the good or service on its own or with other resources that are readily available to the customer , and the promise to transfer the good or service is separately identifiable from other promises in the contract . step 3 : determine the transaction price : the transaction price is determined based on the consideration we expect to be entitled to receive in exchange for transferring goods and services to the customer . we include variable consideration in the transaction price if we view it probable that a significant future reduction of cumulative revenue under the contract will not occur . step 4 : allocate the transaction price to the performance obligations in the contract : we allocate transaction prices to each performance obligation based on the stand-alone selling price of our component services . step 5 : recognize revenue when ( or as ) the performance obligation is satisfied : 31 we recognize revenue when the customer obtains control of the product or services , at the amount allocated to the satisfied performance obligation . our performance obligations are generally satisfied over time . while some contracts include one or more performance obligations ( including the combined elements noted above along with additional ongoing customer support and other hosted services ) , the revenue recognition pattern generally is not impacted by the separate allocations of these obligations because the services are generally satisfied over the same period of time and revenue is recognized over the contract period . discounts provided to customers are recorded as reductions in revenue . commission amortization we amortize our commission costs to expense on a systemic basis over the period of expected benefit to the customer . determination of the amortization period requires significant judgement . we apply the practical expedient noted in asc 606-10-104 to account for our commission costs and related amortizations at the portfolio level . additionally , the company has evaluated commissions earned upon contract renewal as compared to initial commissions paid and determined that because commissions paid were not reasonably proportional to their respective contract values , our renewal commissions could not be considered commensurate with the initial commissions paid . we considered our average contract term length and historical customer retention rates to determine an average length of our customer relationships . we also concluded our add-on sales generally occur halfway into our customer relationships , and evaluated our average customer renewal terms . based on these factors we have determined that 8 years , 4 years and 18 months are the appropriate amortization periods for our new , add-on , and renewal sales commission expenses , respectively . we also perform subsequent assessments for impairment of the related deferred cost asset when indicators of impairment are present . following our acquisition of appriver in february 2019 , we additionally evaluated appriver 's sales program to determine whether capitalization of these expenses was appropriate . while we determined certain costs to acquire met the capitalization criteria , we also determined renewal commissions earned were commensurate to the initial sales . based on appriver 's primarily month-to-month commitments the company has chosen to apply the practical expedient approach to immediately recognize such commensurate commission expenses associated with the appriver program . income taxes deferred tax assets are recognized if it is “ more likely than not ” that our benefit of the deferred tax assets will be realized on future federal or state income tax returns . at december 31 , 2020 , we provided a valuation allowance against a significant portion , $ 25.2 million , of our accumulated deferred tax assets . this significant valuation allowance reflects our historical losses and the uncertainty of future taxable income sufficient to utilize net operating loss carryforwards prior to their expiration . our total deferred tax assets not subject to a valuation allowance are valued at $ 32.6 million , and consist of $ 26.9 million for federal net operating loss carryforwards , $ 4.4 million relating to temporary timing differences between u.s. generally accepted accounting principles ( “ gaap ” ) and tax-related expense , $ 1.9 million in federal r & d credits , and $ 1.0 million relating to u.s. state income tax and other credits . these items are offset by a $ 1.6 million deferred tax liability associated with our cloudally acquisition . if our u.s. taxable income increases from its current level in a future period or if the facts and circumstances on which our estimates and assumptions are based were to change , thereby impacting the likelihood of realizing our deferred tax assets , judgment would have to be applied in determining the amount of valuation allowance no longer required . reversal of all or a part of this valuation allowance could have a significant positive impact on operating results in the period that it becomes more likely than not that certain of the company 's deferred tax assets will be realized . alternatively , should our future income decrease from current levels , a resulting increase to all or a part of this valuation allowance could have a significant negative impact on our operating results .
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results of operations revenue the following table sets forth a year-over-year comparison of our total revenues : replace_table_token_3_th the $ 45.1 million , or 26 % , increase in revenue in 2020 over 2019 was related in part to recognition of twelve full months in sales for the year ended december 31 , 2020 , attributable to our appriver business acquired in february 2019. the $ 103.0 million or 146 % increase in revenue in 2019 over 2018 was primarily related to our appriver acquisition in february 2019 , which contributed $ 97.8 million for the year-end december 31 , 2019. we additionally grew our revenue for these periods with continued success in our subscription-based business model with both steady additions to the subscriber base and with a high rate of existing customer renewals and the realization of previously contracted revenue in our backlog . in the year ended december 31 , 2020 , excluding our cloudally sales , we categorized our revenue in the following core industry verticals : 21 % healthcare , 17 % financial services , 3 % government sector and 59 % as other . in the year ended december 31 , 2019 , we categorized our revenue in the following core industry verticals : 23 % healthcare , 19 % financial services , 4 % government sector and 54 % as other . additionally , sales continued from a wide base of distributors . approximately 76 % and 74 % of our new business transacted in the year ended december 31 , 2020 and 2019 , respectively , resulted from our partner relationships . while we have continued to add new bundled price offerings to our product portfolio , our list pricing has remained generally consistent during the periods shown above . however , there are no assurances that potential increased competition in this market or other factors , including inflation , will not result in future price erosion .
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cms enterprises , through its subsidiaries and equity investments , is engaged in domestic independent power production , including the development and operation of renewable generation , and the marketing of independent power production . enerbank provides primarily unsecured , fixed-rate installment loans throughout the u.s. to finance home improvements . cms energy and consumers manage their businesses by the nature of services each provides . cms energy operates principally in four business segments : electric utility ; gas utility ; enterprises , its non‑utility operations and investments ; and enerbank . consumers operates principally in two business segments : electric utility and gas utility . cms energy 's and consumers ' businesses are affected primarily by : regulation and regulatory matters state and federal legislation economic conditions weather energy commodity prices interest rates their securities ' credit ratings covid-19 pandemic cms energy and consumers continue to respond to the public health emergency caused by the covid‑19 pandemic by instituting and maintaining measures consistent with guidance provided by local , state , and federal agencies . cms energy and consumers maintain over 60 departmental business continuity plans ; these plans were reviewed and enhanced in early 2020 to ensure readiness for the covid-19 pandemic . cms energy and consumers continue to take steps to protect the safety of employees , customers , and contractors , and have executed their business continuity plans to ensure the continued delivery of critical energy services . additionally , cms energy and consumers have mitigated the potential impact of the pandemic on their liquidity by completing financing transactions and reducing the need for additional external funding . the covid‑19 pandemic is a continually evolving situation . as a result of the pandemic , consumers has experienced a decline in electric deliveries to commercial and industrial customers , offset partially by an increase in deliveries to residential customers . it has also experienced increased uncollectible accounts and workforce-related expenses , among other cost increases directly attributable to the pandemic . consumers anticipates that these trends will continue in the near term . in april 2020 , the mpsc issued an 52 order authorizing consumers to defer incremental uncollectible accounts expense associated with the pandemic . additionally , enerbank anticipates it could experience slower lending growth , higher loan write-offs , and increased loan modifications in the future as a result of the pandemic . the companies can not predict the long-term impact of the pandemic on their business , results of operations , financial condition , capital investment program , liquidity , and cash flows . more detailed discussion of the near-term impacts of and future uncertainties related to the covid‑19 pandemic can be found in item 1a . risk factors and throughout this item 7. management 's discussion and analysis of financial condition and results of operations . the triple bottom line cms energy 's and consumers ' purpose is to achieve world class performance while delivering hometown service . in support of this purpose , the companies employ the “ consumers energy way , ” a lean operating model designed to improve safety , quality , cost , delivery , and employee morale . cms energy and consumers measure their progress toward the purpose by considering their impact on the “ triple bottom line ” of people , planet , and profit , which is underpinned by performance ; this consideration takes into account not only the economic value that the companies create for customers and investors , but also their responsibility to social and environmental goals . the triple bottom line balances the interests of the companies ' employees , customers , suppliers , regulators , creditors , michigan 's residents , the investment community , and other stakeholders , and it reflects the broader societal impacts of the companies ' activities . consumers ' sustainability report , which is available to the public , describes the company 's progress toward world class performance measured in the areas of people , planet , and profit . people : the people element of the triple bottom line represents cms energy 's and consumers ' commitment to their employees , their customers , the residents of local communities in which the companies do business , and other stakeholders . the safety of employees , customers , and the general public is a priority of cms energy and consumers . accordingly , cms energy and consumers have worked to integrate a set of safety principles into their business operations and culture . these principles include complying with applicable safety , health , and security regulations and implementing programs and processes aimed at continually improving safety and security conditions . over the last ten years , consumers ' osha recordable incident rate has decreased by over 53 percent . in response to the covid-19 pandemic , cms energy and consumers have issued a response plan that is focused on the health , safety , and well-being of their co-workers , customers , and communities . cms energy and consumers have aligned with safety and health guidelines from the cdc , osha , and the michigan department of health and human services in order to protect their employees , customers , 53 and contractors to ensure the continued delivery of critical energy services . to align with , and in addition to , these guidelines , cms energy and consumers have : secured the supply chain necessary to provide front-line workers with appropriate personal protective equipment and cleaning supplies worked with local health departments and hospital systems to begin administering vaccinations to essential front-line employees when necessary , sequestered employees with critical roles at generating plants , gas compression facilities , and electric control rooms implemented a paid self-quarantine requirement for employees who are exhibiting symptoms of covid-19 or who have come into contact with a person suspected to have covid-19 prohibited business-related international travel and instituted a mandatory ten-day work remote period for employees who return from personal travel to heavily impacted areas required employees to work remotely when possible when necessary , reduced service at 13 direct payment offices story_separator_special_tag this illustration includes the effects of purchased capacity and energy waste reduction and uses the nameplate capacity of renewable energy sources : in september 2020 , michigan 's governor signed an executive order creating the michigan healthy climate plan , which outlines goals for michigan to achieve economy-wide net-zero greenhouse gas emissions and to be carbon neutral by 2050. the executive order aims for a 28-percent reduction below 2005 levels of greenhouse gas emissions by 2025. consumers has already surpassed the 28-percent reduction milestone for its owned electric generation and previously announced , in february 2020 , a goal of achieving net-zero carbon emissions from its electric business by 2040. in addition to consumers ' efforts to reduce the electric utility 's carbon footprint , it is also making efforts to reduce the gas utility 's methane footprint . in 2019 , consumers released its methane reduction plan , which set a goal of net-zero methane emissions from its natural gas delivery system by 2030. consumers plans to reduce methane emissions from its system by about 80 percent by accelerating the replacement of aging pipe , rehabilitating or retiring outdated infrastructure , and adopting new technologies and practices . the remaining emissions will be offset by purchasing and or producing renewable natural gas . 57 additionally , to advance its environmental stewardship in michigan and to minimize the impact of future regulations , consumers announced the following five‑year targets during 2018 : to reduce its water use by one billion gallons ; since 2017 , consumers reduced its water usage by over 880 million gallons cumulatively to enhance , restore , or protect 5,000 acres of land ; since 2017 , consumers enhanced , restored , or protected over 4,600 acres of land cumulatively to reduce the amount of waste taken to landfills by 35 percent ; compared to 2017 , consumers reduced its waste to landfills by 54 percent in 2020 cms energy , through cms enterprises , continues to pursue further opportunities for the development of renewable generation projects . in july 2020 , cms enterprises purchased an ownership interest in aviator wind , a 525-mw wind generation project in coke county , texas . the project was completed and became operational in september 2020. cms energy and consumers are monitoring numerous legislative , policy , and regulatory initiatives , including those to regulate greenhouse gases , and related litigation . while cms energy and consumers can not predict the outcome of these matters , which could have a material effect on the companies , they intend to continue to move forward with their clean and lean strategy . profit : the profit element of the triple bottom line represents cms energy 's and consumers ' commitment to meeting their financial objectives and providing economic development opportunities and benefits in the communities in which they do business . cms energy 's and consumers ' financial strength allows them to maintain solid investment-grade credit ratings and thereby reduce funding costs for the benefit of customers and investors , to preserve and create jobs , and to reinvest in the communities they serve . in 2020 , cms energy 's net income available to common stockholders was $ 755 million , and diluted eps were $ 2.64. this compares with net income available to common stockholders of $ 680 million and diluted eps of $ 2.39 in 2019. in 2020 , the benefits from gas and electric rate increases and lower operating and maintenance expenses were offset partially by higher depreciation and property taxes reflecting higher capital spending , lower gas sales due primarily to unfavorable weather , and higher donations . a more detailed discussion of the factors affecting cms energy 's and consumers ' performance can be found in the results of operations section that follows this executive overview . consumers has experienced a decline in electric deliveries to commercial and industrial customers as a result of the covid-19 pandemic . over the next five years , consumers expects weather-normalized electric and gas deliveries to remain stable relative to 2020. this outlook reflects the effects of energy waste reduction programs offset largely by modest growth in electric and gas demand . 58 performance : impacting the triple bottom line cms energy and consumers remain committed to achieving world class performance while delivering hometown service and positively impacting the triple bottom line of people , planet , and profit . during 2020 , cms energy and consumers : realized over $ 100 million in cost reductions by leveraging the consumers energy way and through other initiatives named a chief diversity officer responsible for setting and monitoring the companies ' diversity , equity , and inclusion strategy completed a 90-mile gas pipeline construction project to upgrade gas pipelines and infrastructure throughout three michigan counties announced a new parental leave policy for employees , allowing six months of paid leave to mothers and four months of paid leave to a nonbirthing parent pledged to join five other energy companies in facilitating the construction of a midwest electric vehicle charging network cms energy and consumers will continue to utilize the consumers energy way to enable them to achieve world class performance and positively impact the triple bottom line . consumers ' investment plan and the regulatory environment in which it operates also drive its ability to impact the triple bottom line . investment plan : consumers expects to make capital investments of $ 25 billion over the next ten years . over the next five years , consumers expects to make significant expenditures on infrastructure upgrades and replacements and electric supply projects . while it has a large number of potential investment opportunities that would add customer value , consumers has prioritized its spending based on the criteria of enhancing public safety , increasing reliability , maintaining affordability for its customers , and advancing its environmental stewardship . consumers ' investment program is expected to result in annual rate-base growth of six to eight percent . this rate-base growth , together with cost-control measures , should allow consumers to maintain affordable customer prices .
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consumers gas utility results of operations presented in the following table are the detailed changes to the gas utility 's net income available to common stockholders for 2020 versus 2019 ( amounts are presented pre-tax , with the exception of income tax changes ) : replace_table_token_11_th 1 deliveries to end-use customers were 283 bcf in 2020 and 313 bcf in 2019 . 2 see note 3 , regulatory matters . 66 3 see note 4 , contingencies and commitments—consumers gas utility contingencies . 4 see note 14 , income taxes . for detailed changes to the gas utility 's net income available to common stockholders for 2019 versus 2018 , see item 7. management 's discussion and analysis of financial condition and results of operations—results of operations—consumers gas utility results of operations , in the form 10‑k for the fiscal year ended december 31 , 2019 , filed february 6 , 2020 . enterprises results of operations presented in the following table are the detailed after-tax changes to the enterprises segment 's net income available to common stockholders for 2020 versus 2019 : replace_table_token_12_th 1 see note 14 , income taxes . for detailed after-tax changes to the enterprises segment 's net income available to common stockholders for 2019 versus 2018 , see item 7. management 's discussion and analysis of financial condition and results of operations—results of operations—enterprises results of operations , in the form 10‑k for the fiscal year ended december 31 , 2019 , filed february 6 , 2020 . enerbank results of operations presented in the following table are the detailed after-tax changes to enerbank 's net income available to common stockholders for 2020 versus 2019 : replace_table_token_13_th 1 see note 2 , new accounting standards .
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we are under no obligation to update any of the forward-looking statements after the filing of this annual report to conform such statements to actual results or to changes in our expectations . the following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes and other financial information appearing elsewhere in this annual report . readers are also urged to carefully review and consider the various disclosures made by us which attempt to advise interested parties of the factors which affect our business , including without limitation the disclosures made in item 1a of part i of this annual report under the caption “ risk factors. ” risk factors that could cause actual results to differ from those contained in the forward-looking statements include but are not limited to : our history of losses ; our lack of products that have received regulatory approval ; uncertainties inherent in clinical trials and product development programs , including but not limited to the fact that pre-clinical and clinical results may not be indicative of results achievable in other trials or for other indications , that the studies or trials may not be successful or achieve desired results , that preclinical studies and clinical trials may not commence , have sufficient enrollment or be completed in the time periods anticipated , that results from one study may not necessarily be reflected or supported by the results of other similar studies , that results from an animal study may not be indicative of results achievable in human studies , that clinical testing is expensive and can take many years to complete , that the outcome of any clinical trial is uncertain and failure can occur at any time during the clinical trial process , and that our electroporation technology and dna vaccines may fail to show the desired safety and efficacy traits in clinical trials ; the availability of funding ; the ability to manufacture vaccine candidates ; the availability or potential availability of alternative therapies or treatments for the conditions targeted by us or our collaborators , including alternatives that may be more efficacious or cost-effective than any therapy or treatment that we and our collaborators hope to develop ; our ability to receive development , regulatory and commercialization event-based payments under our collaborative agreements ; whether our proprietary rights are enforceable or defensible or infringe or allegedly infringe on rights of others or can withstand claims of invalidity ; and the impact of government healthcare laws and proposals . overview we are a late-stage biotechnology company focused on the discovery , development , and commercialization of dna-based immunotherapies and vaccines that transform the treatment and prevention of cancers and infectious diseases . our dna-based immunotherapies and vaccines , in combination with our proprietary , efficacy-enabling delivery devices , are intended to generate robust immune responses , in particular functional cd8+ killer t cells and antibodies , to fight targeted diseases . our novel syncon ® immunotherapy design has shown the ability to help break the immune system 's tolerance of cancerous cells . our syncon ® product design approach is also intended to facilitate cross-strain protection against known and new unmatched strains of pathogens , such as influenza . our cellectra ® delivery system facilitates optimized cellular uptake of the syncon ® immunotherapies , overcoming a key limitation of other dna-based immunotherapies . human data to date have shown a favorable safety profile of our syncon ® immunotherapies delivered using cellectra ® in over 6,000 administrations across almost 2,000 patients . we or our collaborators are currently conducting or planning clinical studies of our proprietary syncon ® immunotherapies for hpv-caused pre-cancers , including cervical , vulvar , and anal dysplasia ; hpv-caused cancers , including head & neck , cervical , anal , penile , vulvar , and vaginal ; bladder cancer ; glioblastoma multiforme , or gbm ; hepatitis b virus ; hepatitis c virus ; hiv ; ebola ; middle east respiratory syndrome , or mers ; lassa fever ; and zika virus . our corporate strategy is to advance , protect and exploit our differentiated immunotherapy platform . through the use of our unique capabilities on both design and development , we continue to progress and validate an array of cancer and infectious disease immunotherapy and vaccine products . we aim to advance products through to commercialization and continue to leverage third-party resources through collaborations and partnerships , including product license agreements . our partners and collaborators include astrazeneca , regeneron pharmaceuticals , inc. , f. hoffmann-la roche ag/genentech , inc. , apollobio 60 corporation , the bill and melinda gates foundation , the wistar institute , the university of pennsylvania , the parker institute for cancer immunotherapy , coalition for epidemic preparedness innovations ( cepi ) , defense advanced research projects agency ( darpa ) , geneone life science , inc. , plumbline life sciences , inc. , national institutes of health ( nih ) , hiv vaccines trial network ( hvtn ) , national cancer institute ( nci ) , united states military hiv research program , drexel university , and laval university . all of our product candidates are in the research and development phase . we have not generated any revenues from the sale of any products , and we do not expect to generate any such revenues for at least the next several years . we earn revenue from license fees and milestone revenue and collaborative research and development agreements . our product candidates will require significant additional research and development efforts , including extensive preclinical and clinical testing . all product candidates that we advance to clinical testing will require regulatory approval prior to commercial use , and will require significant costs for commercialization . we may not be successful in our research and development efforts , and we may never generate sufficient product revenue to be profitable . as of december 31 , 2018 , we had an accumulated deficit of $ 620.4 million . story_separator_special_tag the transaction price is then allocated to each performance obligation on a relative stand-alone selling price basis , for which we recognize revenue as or when the performance obligations under the contract are satisfied . at the end of each subsequent reporting period , we re-evaluate the probability of achieving such milestones and any related constraint , and if necessary , adjust our estimate of the overall transaction price . any such adjustments are recorded on a cumulative catch-up basis , which would affect license , collaboration or other revenues and earnings in the period of adjustment . royalties for arrangements that include sales-based royalties , including milestone payments based on the level of sales , and for which the license is deemed to be the predominant item to which the royalties relate , we recognize revenue at the later of ( i ) when the related sales occur , or ( ii ) when the performance obligation to which some or all of the royalty has been allocated has been satisfied ( or partially satisfied ) . to date , we have not recognized any royalty revenue resulting from any of our collaborative arrangements . under certain collaborative arrangements , we have been reimbursed for a portion of our research and development ( `` r & d '' ) expenses , including costs of drug supplies . when these r & d services are performed under a reimbursement or cost sharing model with our collaboration partners , we record these reimbursements as a reduction of r & d expense in our consolidated statements of operations . grant revenue we have determined that as of january 1 , 2018 , accounting for our various grant agreements falls under the contributions guidance under subtopic 958-605 , not-for-profit entities-revenue recognition , which is outside the scope of topic 606 , as the government agencies granting us the funds are not receiving reciprocal value for their contributions . beginning on january 1 , 2018 , all contributions received from current grant agreements are recorded as a contra-expense as opposed to revenue on the consolidated statement of operations . valuation of intangible assets and goodwill intangible assets are amortized over their estimated useful lives ranging from 2 to 18 years . acquired intangible assets are continuously being developed for the future economic viability contemplated at the time of acquisition . we are concurrently conducting preclinical studies and clinical trials using the acquired intangibles and have entered into licensing agreements for the use of these acquired intangibles . historically , we have recorded patents at cost and amortized these costs using the straight-line method over the expected useful lives of the patents or 17 years , whichever is less . patent cost consists of the consideration paid for patents and related legal costs . effective as of the acquisition of vgx in 2009 , all new patent costs are expensed as incurred , with patent costs capitalized as of that date continuing to be amortized over the expected life of the patent . license costs are recorded based on the fair value of consideration paid and are amortized using the straight-line method over the shorter of the expected useful life of the underlying patents or the term of the related license agreement to the extent the license has an alternative future use . as of december 31 , 2018 and 2017 , our intangible assets resulting from the acquisition of vgx , inovio as and bioject , and 62 additional intangibles including previously capitalized patent costs and license costs , net of accumulated amortization , totaled $ 4.8 million and $ 6.0 million , respectively . the determination of the value of intangible assets requires management to make estimates and assumptions that affect our consolidated financial statements . we assess potential impairments to intangible assets when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recovered . our judgments regarding the existence of impairment indicators and future cash flows related to intangible assets are based on operational performance of our acquired businesses , market conditions and other factors . if impairment is indicated , we will reduce the carrying value of the intangible asset to fair value . while current and historical operating and cash flow losses are potential indicators of impairment , we believe the future cash flows to be received from our intangible assets will exceed the intangible assets ' carrying value , and accordingly , we have not recognized any impairment losses through december 31 , 2018 . goodwill represents the excess of acquisition cost over the fair value of the net assets of acquired businesses . goodwill is reviewed for impairment at least annually at november 30 , or more frequently if an event occurs indicating the potential for impairment . during our goodwill impairment review , we may assess qualitative factors to determine whether it is more likely than not that the fair value of our reporting unit is less than its carrying amount , including goodwill . the qualitative factors include , but are not limited to , macroeconomic conditions , industry and market considerations , and our overall financial performance . if , after assessing the totality of these qualitative factors , we determine that it is not more likely than not that the fair value of our reporting unit is less than its carrying amount , then no additional assessment is deemed necessary . otherwise , we will proceed to perform the two-step test for goodwill impairment . the first step involves comparing the estimated fair value of the reporting unit with its carrying value , including goodwill . if the carrying amount of the reporting unit exceeds its fair value , we will perform the second step of the goodwill impairment test to determine the amount of loss , which involves comparing the implied fair value of the goodwill to the carrying value of the goodwill .
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results of operations the consolidated financial data for the years ended december 31 , 2018 , 2017 and 2016 is presented in the following table and the results of these periods are used in the discussion thereafter . 63 replace_table_token_3_th comparison of years ended december 31 , 2018 and 2017 revenue revenue primarily consisted of revenue under collaborative research and development arrangements for the year ended december 31 , 2018 , and revenue under collaborative research and development arrangements , grants and government contracts for the year ended december 31 , 2017. our year over year total revenue decreased $ 11.7 million , or 28 % . as of january 1 , 2018 , accounting for our various grant agreements falls under the contributions guidance under subtopic 958-605 , not-for-profit entities-revenue recognition , which is outside the scope of topic 606 , as the government agencies granting us funds are not receiving reciprocal value for their contributions . beginning on january 1 , 2018 , after adopting topic 606 using the modified retrospective transition method , all contributions received from current grant agreements are being recorded as a contra-expense as opposed to revenue on the consolidated statement of operations . for the year ended december 31 , 2018 , $ 9.5 million would have been recorded as grant revenue but under the new guidance was instead recorded as a reduction to research and development expense . see note 2 , summary of significant accounting policies : recent accounting pronouncements , to the consolidated financial statements included in this report for further discussion .
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as such , the value of such options is periodically remeasured and income or expense is recognized over their vesting story_separator_special_tag financial condition and results of operations . you should read the following discussion and analysis of our financial condition and results of operations together with the section entitled “ selected consolidated financial data ” and our consolidated 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 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 . overview we are a leading gene editing company focused on the development of crispr/cas9-based therapeutics . crispr/cas9 is a revolutionary gene editing technology that allows for precise , directed changes to genomic dna . the application of crispr/cas9 for gene editing was co-invented by one of our scientific founders , dr. emmanuelle charpentier , who , along with her collaborators , published work elucidating how crispr/cas9 , a naturally occurring viral defense mechanism found in bacteria , can be adapted for use in gene editing . we are applying this technology to potentially treat a broad set of rare and common diseases by disrupting , correcting or regulating the genes related to the disease . we believe that our scientific expertise , together with our approach , may enable an entirely new class of highly active and potentially curative treatments for patients for whom current biopharmaceutical approaches have had limited success . since our inception in october 2013 , we have devoted substantially all of our resources to initiating the conduct of our research and development efforts , identifying potential product candidates , undertaking drug discovery and preclinical development activities , building and protecting our intellectual property portfolio , organizing and staffing our company , business planning , raising capital , and providing general and administrative support for these operations . to date , we have primarily financed our operations through private placements of our preferred shares , convertible loans and collaboration agreements with strategic partners . from our inception through december 31 , 2016 , we raised an aggregate of $ 308.4 million , of which $ 125.2 million consisted of gross proceeds from private placements of our preferred shares , $ 73.2 million from the issuance of convertible loans , $ 75.0 million from an upfront payment under our collaboration with vertex pharmaceuticals , incorporated , or vertex , and $ 35.0 million from a technology access fee related to our license of technology to casebia therapeutics , llp , our joint venture with bayer healthcare llc , or bayer healthcare . in october 2016 , we issued and sold 4,429,311 of our common shares , including 429,311 common shares sold pursuant to the underwriters ' partial exercise of their option to purchase additional common shares , in our initial public offering , or the ipo , at a public offering price of $ 14.00 per share , for aggregate gross proceeds of approximately $ 62.0 million . concurrent with the ipo , we issued and sold an aggregate of 2,500,000 common shares to bayer global investments bv , or bayer bv , in a private placement , at the ipo price of $ 14.00 a share , for aggregate net proceeds of $ 35.0 million . all of our revenue to date has been collaboration revenue . we have incurred significant net operating losses in every year since our inception and expect to continue to incur net operating losses for the foreseeable future . as of december 31 , 2016 , we had $ 315.5 million in cash and an accumulated deficit of $ 57.1 million . we expect to continue to incur significant expenses and increasing operating losses for the next several years . our net losses may fluctuate significantly from quarter to quarter and year to year . we anticipate that our expenses will increase significantly as we continue our current research programs and development activities ; seek to identify additional research programs and additional product candidates , conduct initial drug application supporting preclinical studies and initiate clinical trials for our product candidates ; initiate preclinical testing and clinical trials for any other product candidates we identify and develop , maintain , expand and protect our intellectual property portfolio , further develop our gene editing platform ; hire additional research , clinical and scientific personnel ; and incur additional costs associated with operating as a public company . collaboration agreement and joint venture agreement in october 2015 , we entered into a strategic research collaboration agreement with vertex focused on the development of crispr/cas9-based therapies . under the terms of our agreement , we received an upfront , nonrefundable payment of $ 75.0 million and $ 30.0 million in convertible loan proceeds . in december 2015 , we entered into an agreement , the jv agreement , with bayer healthcare to create a joint venture , casebia therapeutics llp , ( “ casebia ” or “ the jv ” ) , to discover , develop and commercialize new breakthrough therapeutics to cure blood disorders , blindness and heart disease . we and bayer healthcare each have a 50 % interest in the jv . under the jv agreement , bayer healthcare is making available its protein engineering expertise and relevant disease know-how and we are contributing our proprietary crispr/cas9 gene editing technology and intellectual property . bayer healthcare will also provide up to $ 300.0 million in research and development investments to the jv over the first five years , subject to specified conditions . story_separator_special_tag story_separator_special_tag roman ; font-weight : normal ; text-transform : none ; font-variant : normal ; '' > general and administrative expenses general and administrative expenses increased by $ 8.3 million to $ 13.4 million for the year ended december 31 , 2015 , from $ 5.1 million for the year ended december 31 , 2014. the increase in general and administrative expenses was primarily attributable to increase in employee costs of $ 1.9 million associated with salaries , benefits and equity-based compensation expenses from hiring additional senior personnel , increased consulting and professional fees of $ 3.2 million , including directors ' fees , audit and accounting fees , and consultant fees ; and increased intellectual property costs of $ 1.9 million , including third-party costs to procure the issuance of patents in jurisdictions outside the united states and costs related to the ongoing interference proceedings with respect to our in-licensed intellectual property . other expense , net other expense , net decreased by $ 0.1 million for the year ended december 31 , 2015 due to a decrease in the loss on foreign currency remeasurement of $ 0.2 million , offset by an increase in non-cash interest expense related to the convertible loans of $ 0.1 million . liquidity and capital resources from our inception through december 31 , 2016 , we raised an aggregate of $ 308.4 million , of which $ 125.2 million consisted of gross proceeds from private placements of preferred shares , $ 73.2 million from the issuance of convertible loans , an up-front payment under our collaboration agreement with vertex of $ 75.0 million , and a technology access fee of $ 35.0 million from casebia , pursuant to our jv agreement with bayer healthcare . on october 24 , 2016 , we completed our ipo whereby we sold 4,429,311 common shares , inclusive of 429,311 common shares sold by us pursuant to the partial exercise of an overallotment option granted to the underwriters in connection with the offering , at a price to the public of $ 14.00 per share . the aggregate net proceeds received by us from the offering were $ 53.7 million , after deducting underwriting discounts and commissions and other offering expenses payable by us . concurrent with the ipo , we issued and sold 2,500,000 common shares to bayer bv , at the ipo price $ 14.00 per share , or the concurrent private placement , resulting in aggregate net proceeds of $ 35.0 million in accordance with the terms of our subscription agreement with bayer bv . as of december 31 , 2016 , we had $ 315.5 million in cash , of which approximately $ 309.8 million was held outside of the united states . funding requirements our primary uses of capital are , and we expect will continue to be , research and development activities , compensation and related expenses , laboratory and related supplies , legal and other regulatory expenses , patent prosecution filing and maintenance costs for our licensed intellectual property and general overhead costs . we expect our expenses to increase compared to prior periods in connection with our ongoing activities , particularly as we continue research and development and preclinical activities , initiate preclinical studies to support initial drug applications , and as we begin in 2017 to occupy our new office and laboratory facility . in addition , we expect to incur additional costs associated with operating as a public company . because our research programs are still in preclinical development and the outcome of these efforts is uncertain , we can not estimate the actual amounts necessary to successfully complete the development and commercialization of any future product candidates or whether , or when , we may achieve profitability . until such time as we can generate substantial product revenues , if ever , we expect to finance our cash needs through a combination of equity or debt financings and collaboration arrangements . we are entitled to research payments under our collaboration with vertex . additionally , we are eligible to earn payments , in each case , on a per-product basis under the jv agreement and our collaboration with vertex and casebia . except for these sources of funding , we do not have any committed external source of liquidity . to the extent that we raise additional capital through the future sale of equity or debt securities , the ownership interest of our shareholders will be diluted , and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing shareholders . if we raise additional funds through collaboration arrangements in the future , we may have to relinquish valuable rights to our technologies , future revenue streams 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 future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves . 83 outlook based on our research and development plans and our timing expectations related to the progress of our programs , we expect that the net proceeds from our ipo , including the proceeds from the concurrent private placement with bayer bv , together with our existing cash , will enable us to fund our operating expenses and capital expenditures for at least the next 24 months , without giving effect to any additional proceeds we may receive under our collaboration agreement with vertex and the jv . we have based this estimate on assumptions that may prove to be wrong , and we could use our capital resources sooner than we expect .
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results of operations comparison of years ended december 31 , 2016 , and 2015 the following table summarizes our results of operations for the years ended december 31 , 2016 and 2015 , together with the dollar change in those items : replace_table_token_3_th collaboration revenue collaboration revenue for the year ended december 31 , 2016 was $ 5.2 million , compared to $ 0.2 million for the year ended december 31 , 2015. the increase of $ 5.0 million was primarily due to a full year 's worth of research and development service revenue from the collaboration with vertex of $ 4.0 million , and research and development service revenue of $ 1.2 million under a collaboration agreement with casebia . during the year ended december 31 , 2015 , we recognized $ 0.2 million of research and development service revenue related to the collaboration with vertex . research and development expenses research and development expenses for the year ended december 31 , 2016 was $ 42.2 million , compared to $ 12.6 million for the year ended december 31 , 2015. the increase of $ 29.7 million in research and development expenses was primarily attributable to approximately $ 10.6 million in increased facilities costs including rent and utilities , $ 9.0 million in increased research and development variable process and platform development costs , $ 10.4 million in increased research and development employee compensation costs , partially offset by a $ 0.4 million reduction of license fees and consulting expenses .
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sg & a expenses decreased $ 684 million , or 12 % , primarily driven by a reduction in store related expenses and lower marketing expenses . net loss on a gaap basis was $ 163 million , or ( $ 1.06 ) loss per share . on an adjusted non-gaap basis , our net loss was $ 186 million , or ( $ 1.21 ) loss per share . recent developments as discussed in our 2019 form 10-k , the world health organization declared the outbreak of covid-19 as a pandemic in march 2020. subsequently , covid-19 has continued to spread throughout the united states . as a result , the president of the united states declared a national emergency . federal , state , and local governing bodies mandated various restrictions , including travel restrictions , restrictions on public gatherings , stay at home orders and advisories , and quarantining of people who may have been exposed to the virus . the response to the covid-19 pandemic has negatively affected the global economy , disrupted global supply chains , and created significant disruption in the financial and retail markets , including a decrease in consumer demand for our merchandise . the covid-19 pandemic has had , and will likely continue to have , significant adverse effects on our business including , but not limited to the following : on march 20 , 2020 , the company furloughed 85,000 store and distribution center associates , as well as some corporate office associates , as a result of temporarily closing all of our stores which limited our business to the digital channel . starting on may 4 , 2020 , we began reopening stores in locations where permitted , and had reopened all of our stores as of july 10 , 2020 , and furloughed store and distribution center associates have returned to work . the company experienced a significant decline in sales demand , and expects to continue to experience volatility in demand for its merchandise . we also experienced pressure in gross margin , and continue to expect pressures on gross margin as we expect digital penetration to remain elevated . in addition , during the fourth quarter of 2020 , the company experienced an impact to gross margin from freight surcharges related to increased digital penetration across the retail industry resulting from the covid-19 pandemic . additionally , social distancing measures or changes in consumer spending behaviors due to covid-19 may continue to impact store traffic which could result in a loss of sales and profit . as our stores reopened , we implemented numerous social distancing and safety measures which remain in place . these include providing personal protective equipment to our associates , implementing a more rigorous cleaning process , 22 including enhanced cleaning of high touch surfaces throughout the day , installing protective barriers at all registers , and requiring associates and customers to wear face coverings while inside our stores . to encourage social distancing , we installed social distancing signage and markers throughout the store , closed our fitting rooms , widened aisles by removing in-aisle fixtures , relocated amazon returns to a separate area of the store , and are limiting occupancy in stores as appropriate . we also implemented a new process for handling merchandise returns , reduced store operating hours , and are providing dedicated shopping hours for at-risk individuals . the chart below details costs that we believe are directly attributable to covid-19 : ( dollars in millions ) twelve months ended description classification january 30 , 2021 inventory write-downs cost of merchandise sold $ 187 net compensation and benefits selling , general , and administrative 73 other costs selling , general , and administrative 55 asset write-offs and other impairments , store closing , and other costs 53 total $ 368 in response to covid-19 , we took the following actions to preserve financial liquidity and flexibility during fiscal 2020 : managed inventory receipts meaningfully lower , significantly reduced expenses across all areas of the business including marketing , technology , operations , and payroll , reduced capital expenditures 61 % , suspended share repurchase program , suspended regular quarterly cash dividend beginning in the second quarter of 2020 , replaced and upsized the unsecured $ 1.0 billion revolver with a $ 1.5 billion secured facility , of which all was fully available for utilization as of year-end , issued $ 600 million of 9.5 % notes due 2025 , and completed a sale leaseback for our san bernardino e-commerce fulfillment and distribution center which generated net proceeds of $ 193 million after fees and resulted in a $ 127 million gain . we can not estimate with certainty the length or severity of this pandemic , or the extent to which the disruption may materially impact our consolidated financial statements . for fiscal 2020 , covid-19 had a material adverse effect on our business , financial condition , and results of operations . see `` results of operations '' and `` liquidity and capital resources '' for additional details about our financial results . our vision and strategy as part of our continued efforts to stay ahead in the rapidly changing retail environment , we introduced a new strategic framework in october 2020. the company 's new vision is to be “ the most trusted retailer of choice for the active and casual lifestyle. ” this new strategy is designed to create long-term shareholder value and has four key focus areas : driving top line growth , expanding operating margin , maintaining disciplined capital management , and sustaining an agile , accountable , and inclusive culture . 23 driving top line growth our initiatives include expanding kohl 's active and outdoor business to at least 30 % of net sales , reigniting growth in the women 's business , building a sizable beauty business , driving category productivity and inventory turn , and capturing market share from the retail industry disruption . story_separator_special_tag impairments , store closing , and other costs in 2020 included total asset impairments of $ 68 million , which consisted of $ 51 million related to capital reductions and strategy changes due to covid-19 and $ 17 million related to impairments of corporate facilities and lease assets . it also included a $ 21 million corporate restructuring charge , $ 15 million in brand exit costs , and a $ 2 million contract termination fee due to covid-19 , offset by a $ 13 million gain on an investment previously impaired and $ 4 million gain on lease termination . impairments , store closing , and other costs in 2019 included $ 52 million of asset impairment charges related to the closure of four kohl 's stores and four off-aisle clearance centers , $ 30 million in severance , which included our corporate restructuring effort along with the execution of a voluntary role reduction program , $ 10 million related to brand exits , and a $ 21 million impairment related to technology projects that no longer aligned with our strategic plans . impairments , store closing , and other costs in 2018 included the following expenses related to closing four stores , consolidating call center locations which supported both kohl 's charge and online customers , a voluntary retirement program , and the impairment of certain assets . replace_table_token_6_th during fiscal 2020 , we recognized a gain of $ 127 million from the sale leaseback transaction of our san bernardino e-commerce fulfillment and distribution centers . net interest expense increased in 2020 as a result of higher interest expense due to the outstanding balance on the revolving credit facility which was fully paid in october 2020 , and the $ 600 million of notes issued in april 2020. net interest expense decreased in 2019 due primarily to the benefits of debt reductions in 2018 and adoption of the new lease accounting standard in the first quarter of 2019 . 29 gain on extinguishment of debt of $ 9 million in 2019 resulted from the purchase of leased equipment that was accounted for as a financing obligation . loss on the extinguishment of debt of $ 63 million in 2018 resulted from a $ 413 million make-whole call and a $ 500 million cash tender offer in 2018. income taxes replace_table_token_7_th our effective tax rate in 2020 includes the full year benefit for the net operating loss carryback provision from the cares act enacted on march 27 , 2020. this provision allows losses generated in 2020 to be carried back to the five preceding years , which include years in which the statutory tax rate was 35 % . the effective tax rates in 2019 and 2018 reflect the federal statutory rate of 21 % . gaap to non-gaap reconciliation replace_table_token_8_th we believe adjusted results are useful because they provide enhanced visibility into our ongoing results for the periods excluding the impact of certain items such as those included in the table above . however , these non-gaap financial measures are not intended to replace gaap measures . inflation in addition to covid-19 , we expect that our operations will continue to be influenced by general economic conditions , including food , fuel , and energy prices , higher unemployment , and costs to source our merchandise , including tariffs . there can be no assurances that such factors will not impact our business in the future . 30 liquidity and capital resources financial liquidity and flexibility are a key focus of our response to covid-19 . as previously mentioned , we took various actions during 2020 to preserve our financial liquidity and flexibility . the following table presents our primary uses and sources of cash : cash uses cash sources operational needs , including salaries , rent , taxes , and other operating costs capital expenditures inventory share repurchases dividend payments debt reduction cash flow from operations short-term trade credit , in the form of extended payment terms line of credit under our revolving credit facility issuance of debt our working capital and inventory levels typically build throughout the fall , peaking during the november and december holiday selling season . due to covid-19 , typical working capital and inventory patterns did not occur in 2020. the following table includes cash balances and changes : replace_table_token_9_th ( a ) non-gaap financial measure operating activities operating activities generated cash of $ 1.3 billion in 2020 compared to cash of $ 1.7 billion in 2019. the decrease was primarily attributable to the decline in net income resulting from decreased sales due to the temporary nationwide store closures due to covid-19 and changes in other current and long-term assets offset by the decrease in merchandise inventories . operating activities generated cash of $ 1.7 billion in 2019 compared to cash of $ 2.1 billion in 2018. the decrease was primarily attributable to lower net income and changes in accrued and other operating liabilities . investing activities net cash used in investing activities decreased $ 700 million to $ 137 million in 2020. the decrease was due to reductions in capital spending as part of our response to covid-19 as well as the proceeds from the sale of real estate . net cash used in investing activities increased $ 265 million to $ 837 million in 2019. the increase was primarily due to the investments in our sixth e-commerce fulfillment center , store strategies that include new stores and capital improvements to existing stores , and technology investments . 31 the fo llowing chart summarizes capital expenditures by major category : financing activities financing activities generated cash of $ 347 million in 2020 compared to $ 1.0 billion used in 2019. in march 2020 , we fully drew down our $ 1.0 billion senior unsecured revolver .
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results of operations net sales net sales includes revenue from the sale of merchandise , net of expected returns and shipping revenue . comparable sales is a measure that highlights the performance of our stores and digital channel by measuring the change in sales for a period over the comparable , prior-year period of equivalent length . comparable sales includes all store and digital sales , except sales from stores open less than 12 months , stores that have been closed , and stores where square footage has changed by more than 10 % . we measure the change in digital sales by including all sales initiated online or through mobile applications , including omnichannel transactions which are fulfilled through our stores . as our stores were closed for a period during fiscal 2020 , we have not included a discussion of 2020 comparable sales as we do not believe it is a meaningful metric over this period of time . we measure digital penetration as digital sales over net sales . these amounts do not take into consideration fulfillment node , digital returns processed in stores , and coupon behaviors . comparable sales is a meaningful metric in evaluating our performance of ongoing operations period over period . comparable sales and digital penetration measures vary across the retail industry . as a result , our comparable sales calculation and digital penetration may not be consistent with the similarly titled measures reported by other companies . the following graph summarizes net sales dollars and comparable sales over the prior year : 2020 compared to 2019 net sales decreased $ 3.9 billion , or 20.4 % , to $ 15.0 billion for 2020. the decrease reflects the continued impact of covid-19 which includes the temporary nationwide closure of our stores on march 20 , 2020 resulting in a decrease in transactions . all of our stores reopened during the second quarter of 2020. digital sales increased 29 % for the year .
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operating segments in accordance with asc 280 – segment reporting , segment information reported is built on the basis of internal management data used for performance analysis of businesses and for the allocation of resources ( management approach ) . an operating segment is a component of the company for which separate financial information is available that is evaluated regularly by our chief decision maker in deciding how to allocate resources and assessing performance . our chief operating decision-maker is story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this form 10-k. overview we are a global technology company specializing in digital performance marketing . we strive to deliver post-click sales at scale to advertisers across multiple digital marketing channels and according to the client 's targeted return on investment . we use our proprietary machine-learning algorithms , coupled with large volumes of granular shopping intent data and deep insights into consumer intent and purchasing habits , to price and deliver in real time highly relevant and personalized digital performance advertisements to consumers . by measuring the value we deliver on a post-click sales basis , we make the return on investment transparent and easy to measure for our advertiser clients . we partner with our clients to capture activity on their digital properties and optimize the performance of their advertisements based on that activity and other data . demonstrating the depth and scale of our data , we collected data on over $ 550 billion in sales transactions 1 on our clients ' digital properties in the year ended december 31 , 2016 , whether or not a consumer saw or clicked on an advertisement displayed by criteo . based on this data and our other assets , we delivered targeted advertisements that generated approximately 7.4 billion clicks 1 in the year ended december 31 , 2016. based on these clicks , our clients generated approximately $ 25 billion in post-click sales 1 during this period . we believe post-click sales is a key performance indicator that our clients use to measure the effectiveness of our solution in driving sales and the return on their marketing spend with us . as of december 31 , 2016 , we had over 14,000 clients and in each of the last three years our average client retention rate , as measured on a quarterly basis , was approximately 90 % . we serve a wide range of clients and our revenue is not concentrated within any single client or group of clients . in 2014 , 2015 and 2016 , our largest client represented 2.9 % , 1.9 % and 2.0 % of our revenue , respectively , and in 2016 , our largest 10 clients represented 11.8 % of our revenue in the aggregate . there is no group of customers under common control or customers that are affiliates of each other constituting an aggregate amount equal to 10 % or more of our consolidated revenues , the loss of which would have a material adverse effect on the company . our performance marketing product portfolio is currently comprised of three products : criteo dynamic retargeting , criteo predictive search and criteo sponsored products . in early 2017 , we ceased offering criteo dynamic email to clients . all products leverage the same core technology in the criteo engine , which is comprised of four key components : universal match , product recommendations , predictive bidding and kinetic design . we operate in 91 countries through a network of more than 30 international offices located in europe , the americas and asia-pacific . as a result of our significant international operations , our revenue from outside of france , our home country , accounted for 92.7 % of our revenue for year ended december 31 , 2016 . _ 1 based on criteo dynamic retargeting . 66 the company 's foreign currency risk exposure to the sterling pound , the japanese yen , the brazilian real and the u.s dollar against the euro ( the euro still remains the group 's functional currency ) is described in note 3 to our audited consolidated financial statements included elsewhere in this form 10-k. our financial results include : revenue increased from $ 988.2 million for 2014 to $ 1,323.2 million for 2015 and $ 1,799.1 million for 2016 ; revenue excluding traffic acquisition costs , which we refer to as revenue ex-tac , which is a non-u.s. gaap financial measure , increased from $ 402.8 million for 2014 to $ 534.0 million for 2015 and $ 730.2 million for 2016 ; net income was $ 46.9 million for 2014 , $ 62.3 million for 2015 and $ 87.3 million for 2016 ; and adjusted ebitda , which is a non-u.s. gaap financial measure , increased from $ 105.4 million for 2014 to $ 143.4 million for 2015 and $ 224.6 million for 2016 . please see footnotes 3 and 5 to the other financial and operating data table in “ item 6. selected financial data ” in this form 10-k for a reconciliation of revenue ex-tac to revenue and adjusted ebitda to net income , the most directly comparable financial measures calculated and presented in accordance with u.s. gaap . we are focused on maximizing revenue ex-tac . we believe this focus builds sustainable long-term value for our business and fortifies a number of our competitive strengths , including a highly liquid marketplace for display advertising . as part of this focus , we seek to maximize our percentage of overall marketing spend in the internet display advertising market over the long-term . in addition , this focus enriches liquidity for both advertisers and publishers resulting in more effective advertising for the advertiser , better monetization for the publisher and more relevant advertisements for the user . we believe our results of operations reflect this focus . story_separator_special_tag we generally bill our clients on a monthly basis for each campaign run during the prior month . the monthly fee is based on the campaign 's various real-time cpcs for that month multiplied by the number of clicks generated by users for that month for such cpcs . as we further expand our geographic footprint , acquire new clients and grow our business with existing clients in all markets , develop new products , and expand our business into new marketing channels and industry verticals , we expect our revenue to continue to increase . cost of revenue our cost of revenue primarily includes traffic acquisition costs and other cost of revenue . traffic acquisition cost s. traffic acquisition costs consist primarily of purchases of impressions from publishers on a cpm basis . we purchase impressions directly from publishers or third-party intermediaries , such as advertising exchanges . we recognize cost of revenue on a publisher by publisher basis as incurred . costs owed to publishers but not yet paid are recorded in our consolidated statements of financial position as accounts payable and accrued expenses . we purchase inventory from our direct publishers generally through insertion orders consistent with industry standard terms and conditions for the purchase of internet advertising inventory . pursuant to such arrangements , we purchase impressions on a cpm-basis for users that criteo recognizes on the publishers ' network . such arrangements are cancellable upon short notice and without penalty . as a general rule , our agreements with publishers do not contain spend commitments . we may only enter in commitments to purchase a defined volume of impressions if such commitments are specifically subject to corresponding performance commitments from the publisher.we may require our publishers to deliver higher volumes of impressions , with our commitment to buy being linked to specified performance commitments from the publisher . we may also require our publishers to call us first for the advertising serving , thereby granting us privileged access to qualified digital display advertising inventory , and we may sign more exclusive deals with publishers . over the past few years , real-time automated buying platforms and bidding exchanges have gained significant traction in the internet display advertising market , resulting in a significant increase in the supply of inventory available through such platforms . as part of this expansion , we have integrated our solution with the leading advertising exchanges and developed our own comprehensive inventory management platform , which we refer to as pump . we believe the combination of our extensive direct publisher relationships and access to leading advertising exchanges enhances the breadth and depth of our accessible advertising inventory resulting in deep liquidity for us . we believe that this contributes to increasing the strength of our solution with our clients . for criteo sponsored products , we pay for the inventory of our ecommerce retailer partners on a revenue sharing basis , effectively paying the retailers a portion of the click-based revenue generated by user clicks on the sponsored products advertisements displaying the products of our brand manufacturer clients . for criteo predictive search , we do not purchase search inventory ourselves ; our advertiser clients have direct access to google shopping inventory , and we optimize the bidding price for such inventory on behalf of these clients to maximize the sales generated by their shopping campaigns . for a discussion of the trends we expect to see in traffic acquisition costs , see the section entitled `` —highlights and trends—revenue ex-tac '' in item 7.d—trend information below . other cost of revenue . other cost of revenue includes expenses related to third-party hosting fees , depreciation of data center equipment and data purchased from third parties that we leverage in our solution . we intend to continue to invest additional resources in increasing the capacity of our hosting services infrastructure , and as we enter new markets , we may make additional investments in the acquisition of relevant third-party data . the company does not build or operate its own data centers and none of its research and development personnel is dedicated to revenue generating activities . as a result , we do not include the costs of such personnel in other cost of revenue . 69 operating expenses operating expenses consist of research and development , sales and operations , and general and administrative expenses . salaries , bonuses , equity awards compensation , pension benefits and other personnel-related costs are the most significant components of each of these expense categories . we grew from 810 employees at january 1 , 2014 to 2,503 employees at december 31 , 2016 , and we expect to continue to hire a significant number of new employees in order to support our anticipated revenue growth . we include equity awards compensation expense in connection with grants of share options , warrants , and restricted share units ( `` rsus '' ) in the applicable operating expense category based on the respective equity award recipient 's function ( research and development , sales and operations , general and administrative ) . research and development expense . research and development expense consists primarily of personnel-related costs for our employees working in the engine , platform , product and infrastructure teams , including salaries , bonuses , equity awards compensation and other personnel related costs . our research and development function was supplemented in january 2013 to include a dedicated product organization following the appointment of our chief product officer . also included are non-personnel costs such as subcontracting , consulting and professional fees to third-party development resources , allocated overhead and depreciation and amortization costs . these expenses are partially offset by the french research tax credit that is conditional upon the level of our expenditures in research and development . for additional discussion of the french research tax credit , see the discussion below titled “ —provision for income taxes.
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results of operations for the years ended december 31 , 2014 , 2015 and 2016 revenue replace_table_token_12_th ( * ) growth at constant currency excludes the impact of foreign currency fluctuations and is computed by applying the average exchange rates for the prior year to the following year figures . 2016 compared to 2015 revenue for 2016 increased $ 476.0 million , or 36 % ( or 36 % on a constant currency basis ) , compared to 2015 . excluding the contribution of criteo sponsored products ( formerly hooklogic ) for the period from november 9 , 2016 until december 31 , 2016 , revenue increased $ 430.8 million , or 33 % ( or 32 % on a constant currency basis ) . excluding criteo sponsored products , revenue from new clients contributed 35.7 % to the global year-over-year revenue growth while revenue from existing clients contributed 64.3 % to the global year-over-year revenue growth . this increase in revenue was primarily due to technology improvements , broader access to quality display impressions including new sources of native inventory , and our ability to engage seamlessly with end-customers across desktop and mobile devices , which helped generate more revenue per client , in particular from existing clients . our continuing ability to convert a large portion of our clients to uncapped budgets continued to be a key driver of the increase in revenue per client . the year-over-year increase was the result of our rapid growth across all geographies .
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at december 31 , 2013 and december 31 , 2012 , the unrealized losses included in accumulated other comprehensive income were $ 24.8 million and $ 34.0 million , respectively . the fair value of these interest rate swaps represents the present value of the anticipated net payments the company will make to the counterparty , which , when they occur , are reflected as interest expense on the consolidated statements of income . these payments , together with the variable rate of interest incurred on the underlying debt , result in a fixed rate of interest of 2.55 % plus the applicable margin on the affected borrowings ( $ 945.0 million or 45.9 % of the company 's variable rate debt at december 31 , 2013 ) . the company expects that $ 12.5 million of unrealized losses will be reclassified out of accumulated other comprehensive ( loss story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes included elsewhere in this annual report on form 10-k. some of the information contained in this discussion and analysis or set forth elsewhere in this annual report , including information with respect to our plans and strategy for our business , includes forward-looking statements that involve risks and uncertainties . you should read the risk factors section of this annual report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview our business is currently organized in two reportable segments , product development and integrated healthcare services . product development product development provides services and expertise that allow biopharmaceutical companies to outsource the clinical development process from first-in-man trials to post-launch monitoring . our comprehensive service offering provides the support and functional expertise necessary at each stage of development , as well as the systems and analytical capabilities to help our customers improve product development efficiency and effectiveness . product development is comprised of clinical solutions and services and consulting . clinical solutions and services provides services necessary to develop biopharmaceutical products . these services include project management and clinical monitoring functions for conducting multi-site trials ( generally phase ii-iv ) ( collectively core clinical ) . these also include clinical trial support services that improve clinical trial decision-making , such as global laboratories , data management , biostatistical , safety and pharmacovigilance , early clinical development trials ( generally phase i ) , and strategic planning and design services , which help improve decisions and performance . consulting provides strategy and management consulting services based on life science expertise and advanced analytics , as well as regulatory and compliance consulting services . on september 16 , 2013 , we completed the acquisition of novella for approximately $ 146.6 million in cash ( net of approximately $ 26.2 million of acquired cash ) plus potential earn-out payments totaling up to $ 21.0 million contingent upon the achievement of certain revenue and net new business targets for approximately three years following closing . integrated healthcare services integrated healthcare services provides the healthcare industry with both broad geographic presence and commercial capabilities . our customized commercialization services are designed to accelerate the commercial success of biopharmaceutical and other health-related products . integrated healthcare services provides a broad array of services including commercial services , such as providing contract pharmaceutical sales forces in key geographic markets , as well as a growing number of healthcare business services for the broader healthcare sector . service offerings include commercial services ( sales representatives , strategy , marketing communications and other areas related to commercialization ) , outcome research ( drug therapy analysis , real-world research and evidence-based medicine , including research studies to prove a drug 's value ) and other healthcare services ( comparative and cost-effectiveness research capabilities , clinical management analytics , decision support services , medication adherence and health outcome optimization services , and web-based systems for measuring quality improvement ) . industry outlook the potential of the cro market served by product development is primarily a function of two variables : biopharmaceutical r & d spending and the proportion of this spending that is outsourced ( outsourcing penetration ) . despite continued softness in the economy and concern about global credit markets , we expect outsourced clinical development to cros to grow 6 % -8 % annually from 2013 to 2016. of this annual growth , we believe that up to 2 % will be derived from increased r & d expenditures , with the remainder coming from increased outsourcing penetration . we estimate that overall outsourcing penetration in 2013 was 37 % . we believe that our customers will continue to outsource a greater part of their activities to transform their value chain away from a vertically integrated model and focus on their core competencies to lower risk and improve return , with a focus on selecting outsourcing partners that are able to demonstrate the ability to provide flexible and efficient delivery models that leverage patient data to help biopharmaceutical companies deliver more effective patient outcomes . we believe that increased demand will create new opportunities for biopharmaceutical services companies , particularly those with a global reach . 41 integrated healthcare services historically has focused on biopharmaceutical companies seeking to commercialize their products . the total market served by integrated healthcare services is diverse , which makes it difficult to estimate the current amount of outsourced integrated healthcare services and the expected growth in such services . however , based on our knowledge of these markets we believe that , while the rate of outsourcing penetration varies by market within integrated healthcare services , the overall outsourcing penetration of the estimated $ 94 billion addressable market is not more than 20 % . story_separator_special_tag it costs ( including higher depreciation and amortization expense related to an increase in assets in service ) and ( 3 ) expenses related to the repricing of certain stock options in connection with dividends paid to our shareholders ( resulting in incremental share-based compensation expense of $ 13.6 million ) and a bonus paid to certain option holders ( totaling $ 11.3 million ) . the remaining increase was primarily the result of increases in compensation and related expenses including the impact of merit increases , an increase in headcount and higher incentive compensation . these increases were partially offset by a positive foreign currency impact of approximately $ 17.9 million and a reduction in facility costs due to a consolidation of offices in europe ( including lower depreciation and amortization expense due to fewer assets in service ) . 44 restructuring costs replace_table_token_10_th we recognized $ 14.1 million of restructuring charges , net of reversals for changes in estimates , in 2013 , which was primarily related to our february 2013 restructuring plan to migrate the delivery of services and to reduce anticipated overcapacity in selected areas . these actions are expected to result in severance for approximately 400 positions . we believe that this plan will result in annual cost savings of approximately $ 15.0 to $ 20.0 million . we recognized $ 18.7 million of restructuring charges , net of reversals for changes in estimates , in 2012 , which was primarily related to our may 2012 restructuring plan to reduce staffing overcapacity and to rationalize non-billable support roles . this restructuring action has resulted in the elimination of approximately 280 positions , primarily in europe . we believe that this plan has resulted in annual cost savings of approximately $ 15.0 to $ 25.0 million . we recognized $ 22.1 million of restructuring charges , net of immaterial reversals for changes in estimates , in 2011 , primarily related to our july 2011 restructuring plan to reduce staffing overcapacity and to rationalize non-billable support roles . as part of our july 2011 plan , approximately 290 positions were eliminated , primarily in north america and europe . impairment charges replace_table_token_11_th in 2011 , we recognized a $ 12.2 million impairment on long-lived assets used in our early clinical development services due to a decline in revenue as well as overcapacity in the market for early clinical development services . refer to the related disclosure in our audited consolidated financial statements , included elsewhere in this annual report on form 10-k , for more information on this impairment . interest income and interest expense replace_table_token_12_th interest income includes interest received from bank balances and investments in debt securities . interest expense for 2013 was lower than 2012 primarily due to a decrease in the average debt outstanding in 2013 compared to 2012 resulting from the repayment of the $ 300.0 million term loan , which quintiles transnational holdings inc. obtained in february 2012 and paid in full in may 2013 , or the holdings term loan , the pay down of $ 50.0 million of outstanding indebtedness under our senior secured credit facilities in may 2013 , and the mandatory prepayment of $ 33.8 million of outstanding indebtedness under our senior secured credit facilities in the first quarter of 2013 , offset by the increase that resulted from the $ 175.0 million term loan b-1 , which our wholly-owned subsidiary , quintiles transnational , obtained under the credit agreement governing our senior secured credit facilities in october 2012. in addition , the average rate of interest in 2013 on the term loans under our senior secured credit facilities was lower than it was in 2012 due to ( 1 ) a 50 basis point decrease in the interest rate on the term loan b-2 beginning in august 2013 , pursuant to the terms and conditions in the credit agreement , and ( 2 ) the reductions in the interest rate that resulted from the refinancing transactions in the fourth quarters of 2012 and 2013. interest expense increased in 2012 as compared to 2011 primarily as a result of the holdings term loan which quintiles holdings obtained in february 2012 , and the $ 175.0 million term loan b-1 , which quintiles transnational obtained under its credit agreement in october 2012. see liquidity and capital resources for more information on our debt transactions . 45 loss on extinguishment of debt replace_table_token_13_th in december 2013 , we recognized a $ 3.3 million loss on extinguishment of debt on a portion of the debt retired related to the refinancing of our senior secured credit facilities . the loss on extinguishment of debt included approximately $ 1.6 million of unamortized debt issuance costs , $ 1.6 million of unamortized discount and $ 25,000 of fees and expenses . in may 2013 , we recognized a $ 16.5 million loss on extinguishment of debt related to payment of all amounts outstanding under the holdings term loan and a $ 50.0 million pay down of outstanding indebtedness under our senior secured credit facilities . the loss on extinguishment of debt included approximately $ 5.6 million of unamortized debt issuance costs , $ 4.8 million of unamortized discount and $ 6.1 million of fees and expenses . in 2012 , we recognized a $ 1.3 million loss on extinguishment of debt on a portion of the debt retired related to our 2012 refinancing . the loss on extinguishment of debt included approximately $ 634,000 of unamortized debt issuance costs , $ 631,000 of unamortized discount and $ 10,000 of fees and expenses . in 2011 , we recognized a $ 46.4 million loss on extinguishment of debt on a portion of the debt retired related to our 2011 refinancing and related transactions . the loss on extinguishment of debt included approximately $ 14.1 million of prepayment premiums , $ 15.2 million of unamortized debt issuance costs , $ 7.5 million of unamortized discount and $ 9.6 million of fees and expenses .
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results of operations year ended december 31 , 2013 compared to the year ended december 31 , 2012 and the year ended december 31 , 2012 compared to the year ended december 31 , 2011 backlog and net new business we began 2013 with backlog in place at the beginning of the year of $ 8,704 million , which was 9 % higher than at the beginning of 2012. net new business ( as defined under net new business reporting and backlog in part i , item 1 of this report ) grew 9 % in 2013 to $ 4,899 million from $ 4,501 million in 2012 , driven by growth in both product development and integrated healthcare services . product development 's net new business increased 9 % to $ 3,772 million in 2013 as compared to $ 3,474 million in 2012 , led by increases in core clinical in north america and europe ( including projects awarded under two sole provider arrangements signed in 2013 ) and data management services ( which benefited from functional resourcing and the sole provider arrangements signed during 2013 ) . integrated healthcare services ' net new business grew 10 % in 2013 to $ 1,127 million from $ 1,027 million in 2012 due to an increase in north america and europe . net new business grew 11 % in 2012 to $ 4,501 million , of which $ 1,507 million was generated in the fourth quarter , from $ 4,044 million in 2011 , with the growth driven by product development . product development 's net new business increased 14 % to $ 3,474 million in 2012 , of which $ 1,088 million was generated in the fourth quarter , as compared to $ 3,040 million in 2011 , led by increases in core clinical in europe and north america and increases in our late phase , global laboratory and consulting service offerings .
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over a four-year period , with 25 % of the shares subject to the option vesting on each anniversary of the grant date story_separator_special_tag story_separator_special_tag state of delaware on september 24 , 2012. since our incorporation , we have devoted most of our efforts towards conducting certain clinical trials and preclinical studies related to our vk5211 , vk2809 and vk0214 programs , as well as efforts towards raising capital and building infrastructure . we obtained exclusive worldwide rights to our vk5211 , vk2809 and vk0214 programs and certain other assets pursuant to an exclusive license agreement with ligand pharmaceuticals incorporated , or ligand . the terms of this license agreement are detailed in the master license agreement which we entered into on may 21 , 2014 with ligand , as amended , or the master license agreement . a summary of the master license agreement can be found under the heading “ agreements with ligand— master license agreement ” under part i , “ item 1. business ” of this annual report on form 10-k. financial operations overview revenues to date , we have not generated any revenue . we do not expect to receive any revenue from any drug candidates that we develop unless and until we obtain regulatory approval for , and commercialize , our drug candidates or enter into collaborative agreements with third parties . research and development expenses during the year ended december 31 , 2016 , we charged $ 9,000,499 to research and development expense related to our efforts to conduct phase 2 clinical trials for vk5211 and vk2809 and in vivo studies for vk0214 . during the year ended december 31 , 2017 , we charged $ 13,741,186 to research and development expense related to our continued efforts to conduct phase 2 clinical trials for vk5211 and vk2809 and in vivo studies for vk0214 . we expect that our ongoing research and development expenses will consist of costs incurred for the development of our drug candidates , including , but not limited to : employee and consultant-related expenses , which will include salaries , benefits and stock-based compensation , and certain consultant fees and travel expenses ; expenses incurred under agreements with investigative sites and contract research organizations , or cros , which will conduct a substantial portion of our research and development activities on our behalf ; payments to third-party manufacturers , which will produce our active pharmaceutical ingredients and finished products ; license fees paid to third parties for use of their intellectual property ; and facilities , depreciation and other allocated expenses , which will include direct and allocated expenses for rent and maintenance of facilities and equipment , depreciation of leasehold improvements , equipment and laboratory and other supplies . we expense all research and development costs as incurred . the process of conducting the necessary clinical research to obtain regulatory approval is costly and time consuming and the successful development of our drug candidates is highly uncertain . our future research and development expenses will depend on the clinical success of each of our drug candidates , as well as ongoing assessments of the commercial potential of such drug candidates . in addition , we can not forecast with any degree of certainty which drug candidates may be subject to future collaborations , when such arrangements will be secured , if at all , and to what degree such arrangements would affect our development plans and capital requirements . we expect to incur increased research and development expenses in the future as we continue our efforts towards advancing our vk5211 and vk2809 programs and seek to advance our additional programs . 63 general and administrative expenses our general and administrative expenses have generally increased year-over-year as we have hired additional employees , issued additional equity awards , which has resulted in increased stock-based compensation expense , implemented certain systems to increase efficiency , and incurred additional costs for insurance , legal and accounting related to operating as a public company . we expect that our general and administrative expenses will continue to increase in the future in order to support our expected increase in research and development activities , including increased salaries and other related costs , stock-based compensation and consulting fees for executive , finance , accounting and business development functions . we also expect general and administrative expenses to increase as a result of additional costs associated with being a public company , including expenses related to compliance with the rules and regulations of the sec and the nasdaq stock market llc , additional insurance expenses , investor relations activities and other administration and professional services . other significant costs are expected to include legal fees relating to patent and corporate matters , facility costs not otherwise included in research and development expenses , and fees for accounting and other consulting services . other expense other expense includes the change in fair value of the debt conversion feature liability contained in the ligand note , and its related interest expense , as well as the non-cash amortization of debt discount cost associated with the ligand note , offset by interest income earned from our cash and short-term investments . jobs act we are an “ emerging growth company ” within the meaning of the rules under the securities act , and we utilize certain exemptions from various reporting requirements that are applicable to public companies that are not emerging growth companies . for example , as an emerging growth company , we are not required to provide an auditor 's attestation report on our internal control over financial reporting in this and future annual reports on form 10-k as otherwise required by section 404 ( b ) of the sarbanes-oxley act of 2002 , as amended . story_separator_special_tag research and development costs primarily consist of fees paid to cros and clinical trial sites , employee and consultant related expenses , which include salaries , benefits and stock-based compensation for research and development personnel , external research and development expenses incurred pursuant to agreements with third-party manufacturing organizations , facilities costs , travel costs , dues and subscriptions , depreciation and materials used in preclinical studies , clinical trials and research and development . we estimate our preclinical study and clinical trial expenses based on the services we received pursuant to contracts with research institutions and cros that conduct and manage preclinical studies and clinical trials on our behalf . clinical trial-related contracts vary significantly in length , and may be for a fixed amount , based on milestones or deliverables , a variable amount based on actual costs incurred , capped at a certain limit , or for a combination of these elements . we accrue service fees based on work performed , which relies on estimates of total costs incurred based on milestones achieved , patient enrollment and other events . the majority of our service providers invoice us in arrears , and to the extent that amounts invoiced differ from our estimates of expenses incurred , we accrue for additional costs . the financial terms of these agreements vary from contract to contract and may result in uneven expenses and payment flows . preclinical study and clinical trial expenses include : fees paid to cros , consultants and laboratories in connection with preclinical studies ; fees paid to cros , clinical trial sites , investigators and consultants in connection with clinical trials ; and fees paid to contract manufacturers and service providers in connection with the production , testing and packaging of active pharmaceutical ingredients and drug materials for preclinical studies and clinical trials . payments under some of these agreements depend on factors such as the milestones accomplished , including enrollment of certain numbers of patients , site initiation and the completion of clinical trial milestones . to date , we have not experienced any events requiring us to make material adjustments to our accruals for service fees . if we do not identify costs that we have begun to incur or if we underestimate or overestimate the level of services performed or the costs of these services , our actual expenses could differ from our estimates , which could materially affect our results of operations . adjustments to our accruals are recorded as changes in estimates become evident . furthermore , based on amounts invoiced to us by our service providers , we may also record payments made to those providers as prepaid expenses that will be recognized as expense in future periods as services are rendered . in may 2014 , we entered into the master license agreement , pursuant to which we acquired certain rights to a number of research and development programs from ligand . in doing so , we updated our policy on research and development to include the purchase of rights to intangible assets . in accordance with asc topic 730 , research and development , intangible assets that are acquired and have an alternative future use , as defined , should be capitalized and reported as an intangible asset ; however , the cost of acquired intangible assets that do not have alternative future uses should be reported as research and development expense as incurred . we note 65 that intangible assets acquired that are in the preclinical or clinical stages of development when acquired , and not approved by the u.s. food and drug administration , are deemed to have not satisfied the definition of having an alternative future use , as defined . accordingly , assets acquired in the preclinical and clinical stages of development are expensed as incurred in our statement of operations . patent costs costs related to filing and pursuing patent applications are expensed as incurred to general and administrative expense , as recoverability of such expenditures is uncertain . stock-based compensation we generally use the straight-line or graded vesting method to allocate compensation cost to reporting periods over each optionee 's requisite service period , which is generally the vesting period , and estimates the fair value of stock-based awards or restricted stock units to employees and directors using the black-scholes option-valuation model . for options with a graded vesting schedule , we use the graded vesting schedule to allocate compensation cost to reporting periods . the black-scholes model requires the input of subjective assumptions , including volatility , the expected term and the fair value of the underlying common stock on the date of grant , among other inputs . stock options granted to non-employees are accounted for using the fair value approach . stock options granted to non-employees are subject to periodic revaluation over their vesting terms . for restricted stock and restricted stock unit awards , we generally use the straight-line or graded vesting method to allocate compensation cost to reporting periods over the holder 's requisite service period , which is generally the vesting period , and uses the fair value at grant date to value the awards . for restricted stock that vests upon the satisfaction of certain performance conditions , we recognize stock-based compensation expense when it becomes probable that the performance conditions will be met . at the point that it becomes probable that the performance conditions will be met , we record a cumulative catch-up of the expense from the grant date to the current date , and we then amortize the remainder of the expense over the remaining service period . we account for performance-based restricted stock awards to employees by determining the fair value of the restricted stock award at the date of issuance by using the probability weighted expected return method , and then assessing at each balance sheet date the probability of the performance criteria being met . if the probability of achieving the criteria is deemed less-than-probable , then no expense is recorded .
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financial condition and results of operations . you should read the following discussion and analysis in conjunction with part ii , “ item 8. financial statements and supplementary data ” included below in this annual report on form 10-k. operating results are not necessarily indicative of results that may occur in future periods . the following discussion and analysis of our financial condition and results of operations contains forward-looking statements that involve a number of risks , uncertainties and assumptions . actual events or results may differ materially from our expectations . important factors that could cause actual results to differ materially from those stated or implied by our forward-looking statements include , but are not limited to , those set forth in part i , “ item 1a . risk factors ” in this annual report on form 10-k. all forward-looking statements included in this annual report on form 10-k are based on information available to us as of the time we file this annual report on form 10-k and , except as required by law , we undertake no obligation to update publicly or revise any forward-looking statements . overview we are a clinical-stage biopharmaceutical company focused on the development of novel , first-in-class or best-in-class therapies for metabolic and endocrine disorders . our lead clinical program , vk5211 , is an orally available , non-steroidal selective androgen receptor modulator , or sarm . a sarm is designed to selectively interact with a subset of receptors that have a normal physiologic role of interacting with naturally-occurring hormones called androgens . broad activation of androgen receptors with drugs , such as exogenous testosterone , can stimulate muscle growth and improve bone mineral density , but often results in unwanted side effects such as prostate growth , hair growth and acne . vk5211 is expected to selectively produce the therapeutic benefits of testosterone in muscle and bone tissue , potentially accelerating rehabilitation and improving patient outcomes .
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story_separator_special_tag general greene county bancorp , inc. ( the “ company ” ) is the holding company for the bank of greene county ( the “ bank ” ) , which is a community-based bank offering a variety of financial services to meet the needs of the communities it serves . the bank of greene county is a federally chartered savings bank . the bank of greene county 's principal business is attracting deposits from customers within its market area and investing those funds primarily in loans , with excess funds used to invest in securities . the bank of greene county currently operates 12 full service branches , an administration office and an operations center in new york 's greene , albany , and columbia counties . in june 2004 , greene county commercial bank ( “ gccb ” ) was opened for the limited purpose of servicing local municipalities . gccb is a subsidiary of the bank of greene county , and is a new york state-chartered commercial bank . greene county bancorp , inc. 's stock is traded on the nasdaq capital market under the symbol “ gcbc. ” greene county bancorp , mhc is a mutual holding company that owns 54.7 % of the company . 's outstanding common stock . in june 2011 , greene property holdings , ltd. was formed as a new york corporation that has elected under the internal revenue code to be a real estate investment trust . greene properties holding , ltd. is a subsidiary of the bank of greene county . certain mortgages and notes held by the bank of greene county were transferred to and are beneficially owned by greene property holdings , ltd. the bank of greene county continues to service these loans . overview of the company 's activities and risks greene county bancorp , inc. 's results of operations depend primarily on its net interest income , which is the difference between the income earned on greene county bancorp , inc. 's loan and securities portfolios and its cost of funds , consisting of the interest paid on deposits and borrowings . results of operations are also affected by greene county bancorp , inc. 's provision for loan losses , gains and losses from sales of securities , noninterest income and noninterest expense . noninterest income consists primarily of fees and service charges . greene county bancorp , inc. 's noninterest expense consists principally of compensation and employee benefits , occupancy , equipment and data processing , and other operating expenses . results of operations are also significantly affected by general economic and competitive conditions , changes in interest rates , as well as government policies and actions of regulatory authorities . additionally , future changes in applicable law , regulations or government policies may materially affect greene county bancorp , inc. critical accounting policies greene county bancorp , inc. 's critical accounting policies relate to the allowance for loan losses and the evaluation of securities for other-than-temporary impairment . the allowance for loan losses is based on management 's estimation of an amount that is intended to absorb losses in the existing portfolio . the allowance for loan losses is established through a provision for loan losses based on management 's evaluation of the risk inherent in the loan portfolio , the composition of the portfolio , specific impaired loans and current economic conditions . such evaluation , which includes a review of all loans for which full collectability may not be reasonably assured , considers among other matters , the estimated net realizable value or the fair value of the underlying collateral , economic conditions , historical loan loss experience , management 's estimate of probable credit losses and other factors that warrant recognition in providing for the allowance of loan losses . however , this evaluation involves a high degree of complexity and requires management to make subjective judgments that often require assumptions or estimates about highly uncertain matters . this critical accounting policy and its application are periodically reviewed with the audit committee and the board of directors . securities are evaluated for other-than-temporary impairment by performing periodic reviews of individual securities in the investment portfolio . greene county bancorp , inc. makes an assessment to determine whether there have been any events or economic circumstances to indicate that a security on which there is an unrealized loss , is impaired on an other-than-temporary basis . the company considers many factors , including the severity and duration of the impairment ; the intent and ability of the company to hold the equity security for a period of time sufficient for a recovery in value ; recent events specific to the issuer or industry ; and for debt securities , the intent to sell the security , the likelihood to be required to sell the security before it recovers the entire amortized cost , external credit ratings and recent downgrades . the company is required to record other-than-temporary impairment charges through earnings , if it has the intent to sell , or will more likely than not be required to sell an impaired debt security before a recovery of its amortized cost basis . in addition , the company is required to record other-than-temporary impairment charges through earnings for the amount of credit losses , regardless of the intent or requirement to sell . credit loss is measured as the difference between the present value of an impaired debt security 's cash flows and its amortized cost basis . non-credit related write-downs to fair value must be recorded as decreases to accumulated other comprehensive income as long as the company has no intent or requirement to sell an impaired security before a recovery of amortized cost basis . story_separator_special_tag economic value of equity ( “ eve ” ) is defined as the present value of all future asset cash flows less the present value of all future liability cash flows , or an estimate of the value of the entire balance sheet . the eve measure is limited in that it does not take into account any future change to the balance sheet . the following table presents greene county bancorp , inc. 's eve . the eve table indicates the market value of assets less the market value of liabilities at each specific rate shock environment . these calculations were based upon assumptions believed to be fundamentally sound , although they may vary from assumptions utilized by other financial institutions . the information set forth below is based on data that included all financial instruments as of june 30 , 2014. assumptions made by greene county bancorp , inc. relate to interest rates , loan prepayment rates , core deposit duration , and the market values of certain assets and liabilities under the various interest rate scenarios . actual maturity dates were used for fixed rate loans and certificate accounts . securities were scheduled at either maturity date or next scheduled call date based upon judgment of whether the particular security would be called based upon the current interest rate environment , as it existed on june 30 , 2014. variable rate loans were scheduled as of their next scheduled interest rate repricing date . additional assumptions made in the preparation of the eve table include prepayment rates on loans and mortgage-backed securities . for each interest-bearing core deposit category , a discounted cash flow based upon the decay of each category was calculated and a discount rate applied based on the fhlb fixed rate advance term nearest the average life of the category . the noninterest-bearing category does not use a decay assumption , and the 24 month fhlb advance rate was used as the discount rate . the eve at “ par ” represents the difference between greene county bancorp , inc. 's estimated value of assets and value of liabilities assuming no change in interest rates . the eve for a decrease of 100 , 200 and 300 basis points have been excluded since they would not be meaningful in the interest rate environment as of june 30 , 2014. the following sets forth greene county bancorp , inc. 's eve as of june 30 , 2014. replace_table_token_4_th 1 calculated as the estimated eve divided by the present value of total assets . 2 calculated as the excess ( deficiency ) of the eve ratio assuming the indicated change in interest rates over the estimated eve ratio assuming no change in interest rates . the prolonged low rate environment continues to increase eve sensitivity across the industry , as the decreasing yield on assets increases price sensitivity to large rate shocks . eve sensitivity will increase further as rates rise and loans and investments lose value and move out the sensitivity curve . greene county bancorp , inc. 's eve modeling projects that the eve will decrease in instantaneous rate shocks , however , the level of sensitivity resulting from these rate shocks is within the company 's policy limits and regulatory guidance . in anticipation of rising interest rates from the current historical low rate environment , greene county bancorp , inc. has implemented several strategies to help mitigate the negative impact on eve that would result from rising interest rates . these strategies include shortening the average duration of assets and lengthening the average duration of its liabilities . certain shortcomings are inherent in the methodology used in the above interest rate risk measurements . modeling changes in eve require the making of certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates . gap analysis . the matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are “ interest rate sensitive ” and by monitoring a company 's interest rate sensitivity “ gap. ” an asset or liability is deemed to be interest rate sensitive within a specific time period if it will mature or reprice within that time period . the interest rate sensitivity gap is defined as the difference between the amount of interest-earning assets maturing or repricing within a specific time period and the amount of interest-bearing liabilities maturing or repricing within that same time period . a gap is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities . a gap is considered negative when the amount of interest rate sensitive liabilities exceeds the amount of interest rate sensitive assets . accordingly , during a period of rising interest rates , an institution with a negative gap position generally would not be in as favorable a position , compared with an institution with a positive gap , to invest in higher yielding assets . the resulting yield on the institution 's assets generally would increase at a slower rate than the increase in its cost of interest bearing liabilities . conversely , during a period of falling interest rates , an institution with a negative gap would tend to experience a repricing of its assets at a slower rate than its interest bearing liabilities which , consequently , would generally result in its net interest income growing at a faster rate than an institution with a positive gap position . at june 30 , 2014 , greene county bancorp , inc. 's cumulative one-year and three-year gap positions , the difference between the amount of interest-earning assets maturing or repricing within one year and three years and interest-bearing liabilities maturing or repricing within one year and three years , as a percentage of total interest earning assets were positive 9.73 % and 12.80 % respectively . 27 index certain shortcomings are inherent in this method of analysis .
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summary of significant accounting policies of this report . 41 index unaudited quarterly financial data the following table sets forth a summary of selected financial data at and for the years ended june 30 , 2014 and 2013 and quarter ends within those years . replace_table_token_18_th item
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the interest rates per annum applicable to loans under the credit agreement will be , at the company 's option , equal to a base rate or an adjusted libo rate plus an applicable margin percentage . the applicable margin percentage for base rate loans is 0.20 % to 0.50 % and for adjusted libo rate loans is 1.20 % to 1.50 % , depending on the borrowing availability of the company . the credit agreement contains certain covenants that limit the ability of the company to , among other things : incur or guarantee additional indebtedness ; pay distributions on , redeem or repurchase capital stock or redeem or repurchase subordinated debt ; make investments ; sell assets ; and consolidate story_separator_special_tag the following discussion and analysis should be read in conjunction with item 6 , `` selected financial data '' and our consolidated financial statements and related notes appearing elsewhere in this report . this annual report on form 10-k contains forward-looking statements within the meaning of the private securities litigation reform act of 1995. see `` forward-looking statements '' and part i , item 1a . `` risk factors '' . overview dick 's is an authentic full-line sporting goods retailer offering a broad assortment of brand name sporting goods equipment , apparel and footwear in a specialty store environment . the company also owns and operates golf galaxy , llc , a golf specialty retailer ( `` golf galaxy '' ) . as of january 28 , 2012 , 30 we operated 480 dick 's stores in 43 states and 81 golf galaxy stores in 30 states , with approximately 27.6 million square feet in 43 states on a consolidated basis , the majority of which are located throughout the eastern half of the united states . the company maintains e-commerce operations for both dick 's and golf galaxy . the primary factors that historically influenced the company 's profitability and success have been its growth in the number of stores and selling square footage , positive same store sales and its strong gross profit margins . in the last five years , the company has grown from 294 stores at the end of fiscal 2006 to 561 stores at the end of fiscal 2011 , reflecting both organic growth and acquisitions . the company continues to expand its presence through the opening of new stores to its ultimate goal of at least 900 dick 's locations across the united states . in order to monitor the company 's success , the company 's senior management monitors certain key performance indicators , including : consolidated same store sales performance fiscal 2011 consolidated same store sales increased 2.0 % compared to a 7.2 % increase in fiscal 2010. the company believes that its ability to consistently deliver increases in consolidated same store sales will be a key factor in achieving its targeted levels of earnings per share growth and continuing its store expansion program . operating cash flow the company generated $ 410.4 million of cash flow from operations in fiscal 2011 compared to $ 390.0 million in fiscal 2010. see further discussion of the company 's cash flows in the liquidity and capital resources section herein . the company believes that a key strength of its business has been the ability to consistently generate positive cash flow from operations . strong cash flow generation is critical to the future success of the company , not only to support the general operating needs of the company , but also to fund capital expenditures related to its store network , distribution and administrative facilities , costs associated with continued improvement of information technology tools , costs associated with potential strategic acquisitions that may arise from time to time and shareholder return initiatives , including cash dividends and share repurchases . quality of merchandise offerings to monitor and maintain acceptance of its merchandise offerings , the company monitors sell-throughs , inventory turns , gross margins and markdown rates on a department and style level . this analysis helps the company manage inventory levels to reduce cash flow requirements and deliver optimal gross margins by improving merchandise flow and establishing appropriate price points to minimize markdowns . store productivity to assess store-level performance , the company monitors various indicators , including new store productivity , sales per square foot , store operating contribution margin and store cash flow . new store productivity compares the sales increase for all stores not included in the same store sales calculation with the increase in square footage . executive summary net income for the year ended january 28 , 2012 increased 45 % to $ 263.9 million , or $ 2.10 per diluted share , as compared to net income of $ 182.1 million , or $ 1.50 per diluted share , in fiscal 2010. fiscal 2011 net income included a gain on sale of investment of $ 8.7 million , net of tax , or $ 0.07 per diluted share and an increase to net income of $ 1.3 million , net of tax , or $ 0.01 per diluted share , resulting from a partial reversal of litigation settlement costs previously accrued during fiscal 2010. fiscal 2010 net income included expenses relating to future lease payments and asset impairment charges resulting from the closure of 12 underperforming golf galaxy stores 31 of approximately $ 9.8 million , net of tax , or $ 0.08 per diluted share and a litigation settlement charge of approximately $ 6.5 million , net of tax , or $ 0.05 per diluted share . net sales increased 7 % to $ 5,211.8 million in fiscal 2011 from $ 4,871.5 million in fiscal 2010 due primarily to a 2.0 % increase in consolidated same store sales and the growth of our store network . gross profit increased to 30.60 % in fiscal 2011 as a percentage of net sales from 29.75 % in fiscal 2010 due primarily to higher merchandise margins and leverage of fixed occupancy costs . story_separator_special_tag income from operations income from operations increased $ 83.6 million to $ 309.2 million in fiscal 2010 from $ 225.6 million in fiscal 2009. gross profit increased 19 % to $ 1,449.0 million in fiscal 2010 from $ 1,216.9 million in fiscal 2009. as a percentage of net sales , gross profit increased to 29.75 % in fiscal 2010 from 27.58 % in fiscal 2009. the 217 basis point increase was due primarily to a 140 basis point increase in merchandise margins that resulted from changes in sales mix at our dick 's stores , a reduction in clearance activity at our golf galaxy stores and the inventory liquidation event at the chick 's stores prior to their conversion to dick 's stores in may 2009. gross profit was further impacted by the leverage of fixed occupancy and freight and distribution costs resulting primarily from the increase in consolidated same store sales compared to fiscal 2009. every 10 basis point change in merchandise margin would have impacted fiscal 2010 earnings before income taxes by approximately $ 4 million . selling , general and administrative expenses increased 16 % to $ 1,129.3 million in fiscal 2010 from $ 972.0 million in fiscal 2009 , and as a percentage of net sales , selling , general and administrative expenses increased by 115 basis points . administrative expenses increased 77 basis points as a percentage of net sales from fiscal 2009 primarily due to higher costs related to our relocated corporate 35 headquarters as well as technology and other infrastructure related costs to support our business strategies . in fiscal 2010 , the company recognized expenses of $ 16.4 million relating to future lease obligations and asset impairment charges resulting from the closure of 12 underperforming golf galaxy stores and $ 10.8 million related to a litigation settlement , or 34 basis points and 22 basis points as a percentage of net sales , respectively . advertising expenses increased 17 basis points as a percentage of net sales , resulting from investments in marketing initiatives geared toward pursuing market share gains , which included the promotion of national runner 's month as well as the company 's collaborative marketing initiative with adidas related to the adizero shoe launch . store payroll expenses decreased 31 basis points as a percentage of net sales primarily due to maintaining store payroll at levels similar to fiscal 2009 despite the increase in sales in fiscal 2010. the company recorded $ 10.1 million of merger and integration costs during fiscal 2009. these costs related to the integration of chick 's operations and included duplicative administrative costs and management , advertising and severance expenses associated with the conversions from chick 's stores to dick 's stores . pre-opening expenses increased $ 1.3 million to $ 10.5 million in fiscal 2010 from $ 9.2 million in fiscal 2009. pre-opening expenses were for the opening of 26 new dick 's stores and two new golf galaxy stores , as well as the relocation of two dick 's stores in fiscal 2010 compared to the opening of 24 new dick 's stores and one new golf galaxy store and the relocation of one dick 's store in fiscal 2009. pre-opening expenses in any year fluctuate depending on the timing and number of store openings and relocations . interest expense interest expense increased $ 9.5 million to $ 14.0 million in fiscal 2010 from $ 4.5 million in fiscal 2009. interest expense for fiscal 2010 included $ 10.6 million related to rent payments under the company 's financing lease obligation for its corporate headquarters building , which it began occupying in january 2010. interest expense related to the company 's other debt obligations decreased $ 1.1 million , primarily due to a decrease in average borrowings under the company 's revolving credit facility . the company did not make any borrowings under its revolving credit facility during fiscal 2010. income taxes the company 's effective tax rate was 38.8 % for fiscal 2010 as compared to 39.3 % for fiscal 2009. the effective tax rate for fiscal 2010 reflects the company 's efforts to simplify the organization of its tax entities . liquidity and capital resources overview the company 's liquidity and capital needs have generally been met by cash from operating activities and borrowings under a revolving credit facility . net cash provided by operating activities for fiscal 2011 was $ 410.4 million compared to $ 390.0 million for fiscal 2010. during fiscal 2011 and fiscal 2010 , apart from letters of credit , the company did not borrow amounts under its current or prior credit facility . net cash from operating , investing and financing activities are discussed further below . on december 5 , 2011 , the company entered into a five-year credit agreement with wells fargo bank , national association ( the `` credit agreement '' ) which replaced the company 's then existing credit facility that was terminated . the credit agreement provides for a $ 500 million revolving credit facility , including up to $ 100 million in the form of letters of credit and allows the company , subject to the satisfaction of certain conditions , to request an increase of up to $ 250 million in borrowing availability to the extent that existing or new lenders agree to provide such additional revolving commitments . 36 the credit agreement , which matures on december 5 , 2016 , is secured by a first priority security interest in certain property and assets , including receivables , inventory , deposit accounts and other personal property of the company and is guaranteed by the company 's domestic subsidiaries . the interest rates per annum applicable to loans under the credit agreement will be , at the company 's option , equal to a base rate or an adjusted libo rate plus an applicable margin percentage .
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results of operations the following table presents for the periods indicated selected items in the consolidated statements of income as a percentage of the company 's net sales , as well as the basis point change in percentage of net sales from the prior year : replace_table_token_8_th ( 1 ) revenue from retail sales is recognized at the point of sale , net of sales tax . revenue from e-commerce sales is recognized upon shipment of merchandise and any service-related revenue is recognized as the services are 32 performed . a provision for anticipated merchandise returns is provided through a reduction of sales and cost of goods sold in the period that the related sales are recorded . revenue from gift cards and returned merchandise credits ( collectively the `` cards '' ) are deferred and recognized upon the redemption of the cards . these cards have no expiration date . income from unredeemed cards is recognized on the consolidated statements of income within selling , general and administrative expenses at the point at which redemption becomes remote . the company performs an evaluation of the aging of the unredeemed cards , based on the elapsed time from the date of original issuance , to determine when redemption becomes remote . ( 2 ) cost of goods sold includes the cost of merchandise , inventory shrinkage and obsolescence , freight , distribution and store occupancy costs . store occupancy costs include rent , common area maintenance charges , real estate and other asset-based taxes , store maintenance , utilities , depreciation , fixture lease expenses and certain insurance expenses . ( 3 ) selling , general and administrative expenses include store and field support payroll and fringe benefits , advertising , bank card charges , information systems , marketing , legal , accounting , other store expenses and all expenses associated with operating the company 's corporate headquarters .
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this report contains certain statements that may be deemed forward-looking statements within the meaning of section 21e of the securities exchange act of 1934 , as amended , and section 27a of the securities act of 1933 , as amended . all statements , other than statements of historical fact , that address activities , events or developments that the company 's management intends , expects , projects , believes or anticipates will or may occur in the future are forward-looking statements . such statements are based upon certain assumptions and assessments made by management in light of their experience and their perception of historical trends , current conditions and expected future developments . actual results and the timing of events may differ significantly from those projected in such forward-looking statements due to a number of factors , including those set forth in the section entitled risk factors in item 1a of part i of this annual report . overview organization on october 3 , 2005 , walter energy , inc. ( walter energy , formerly walter industries , inc. ) acquired all outstanding shares of capital stock representing the mueller co. and anvil businesses and contributed them to its u.s. pipe business to form the company as it currently exists . in december 2006 , walter energy distributed to its shareholders all of its equity interests in the company , consisting of all of the company 's outstanding shares of series b common stock . on january 28 , 2009 , each share of series b common stock was converted into one share of series a common stock . references to a fiscal year refer to the 12 months ended september 30 of that calendar year . business the company is a leading north american manufacturer and marketer of a broad range of water infrastructure , flow control and piping component system products for use in water distribution networks and water treatment facilities . we manage our businesses and report operations through three business segments , based largely upon the products that they sell and the customers that they serve : mueller co. , u.s. pipe and anvil . mueller co. mueller co. manufactures and sells , primarily through distributors , valves , fire hydrants and related products primarily to the water and wastewater infrastructure markets . mueller co. 's sales are driven principally by spending on water and wastewater infrastructure upgrade , repair and replacement and construction of new water and wastewater infrastructure . u.s. pipe . u.s. pipe manufactures ductile iron pipe , restraint joints and related products and sells these products and fittings to water infrastructure and wastewater customers . u.s. pipe products are sold primarily to waterworks distributors , contractors , municipalities , utilities and other governmental agencies . anvil . anvil manufactures and sources pipe , fittings , pipe hangers and pipe nipples and a variety of related products and sells these products , primarily through distributors , to a wide variety of end users , including non-residential construction contractors , municipalities , water and wastewater utilities and gas utilities . developments and trends the impact of the overall weakness of the u.s. economy on our end markets continues to affect our operations adversely . net sales have decreased significantly from fiscal 2008 levels . our manufacturing 31 index to financial statements operations include significant fixed costs . as shipment volumes decline , these fixed costs represent a relatively higher percentage of total costs to manufacture our products and our profitability is reduced . reduced profitability consumes our available capital , weakens our financial position and adversely affects compliance with the financial covenants contained in our credit agreements and indentures . see liquidity and capital resources for a detailed description of these financial covenants . we are dependent upon residential and municipal water infrastructure construction activities , which are seasonal due to the impact of cold weather conditions . net sales and operating results have historically been lowest in the three month periods ending december 31 and march 31 when the northern united states and all of canada generally experience weather that significantly restricts construction activity . a significant portion of our net sales is directly related to residential construction , municipal water infrastructure and non-residential construction activity in the united states . various external sources forecast annualized housing starts increase 12 % to 40 % in calendar 2010 compared to calendar 2009. we expect our related sales to lag any recovery in the residential construction market . in addition , we believe municipal water infrastructure spending could be influenced by an increase in demand in the second half of fiscal 2010 primarily driven by stimulus spending . we also expect non-residential construction to decrease in fiscal 2010 as a result of a slowdown in general economic activity . independent forecasts of calendar 2010 non-residential construction activity indicate a decline of 16 % compared to calendar 2009. as a result , most of our manufacturing facilities are operating significantly below their optimal capacities . since the end of fiscal 2008 , we have reduced headcount , consolidated facilities , reduced operating days and reduced overall spending activities in response to lower demand for our products . during the third and fourth quarters of fiscal 2009 , however , we increased production at mueller co. and u.s. pipe compared to the second quarter due to a seasonal uptick in demand . we continually monitor our production activities in response to evolving business conditions and expect to take additional steps to improve inventory turns . restructuring actions at u.s. pipe 's north birmingham facility resulted in lower fixed costs , reduced capacity and a $ 38.5 million non-cash restructuring charge , primarily for impairment of property , plant and equipment , during the year ended september 30 , 2009. in addition to reduced demand in water infrastructure markets , we believe our distributors have also reduced their inventory levels in response to current economic conditions . we expect our distributors to maintain lower inventory levels for the near future . story_separator_special_tag mfc 's fiscal 2009 net sales were approximately $ 107 million and operating results were not material . mfc had approximately $ 42 million of net assets at september 30 , 2009 consisting principally of $ 19.3 million of receivables , $ 25.2 million of inventories , $ 4.7 million of property , plant and equipment , $ 3.5 million of identifiable intangible assets and $ 10.7 million of accounts payable and accrued liabilities . in connection with this agreement , anvil will also enter into a supply agreement with the buyer requiring the buyer to purchase products from anvil over a 3 1 / 2 year period . 33 index to financial statements story_separator_special_tag gross loss for the year ended september 30 , 2009 was $ 5.7 million compared to gross profit of $ 43.8 million in the prior year . gross profit decreased $ 38.0 million due to lower shipment volumes , $ 30.7 million due to higher per-unit overhead costs due to lower production and $ 15.5 million due to higher raw material costs . these decreases were partially offset by $ 17.0 million of manufacturing cost saving actions and $ 14.7 million of higher sales prices . gross margin was ( 1.4 ) % for the year ended september 30 , 2009 compared to 8.0 % in the prior year . gross margin decreased approximately 6 percentage points due to changes in product mix and decreased approximately 3 percentage points due to higher per-unit overhead costs . during the year ended september 30 , 2009 , we recorded impairment and restructuring charges of $ 101.1 million . 36 index to financial statements excluding the impairment and restructuring charges , results from operations decreased $ 42.2 million during the year ended september 30 , 2009 compared to the prior year . this decrease was due to $ 49.5 million of lower gross profit partially offset by $ 7.3 million of lower selling , general and administrative expenses . selling , general and administrative expenses declined due to lower shipment volumes and cost saving actions . anvil net sales for the year ended september 30 , 2009 were $ 469.9 million compared to $ 595.2 during the prior year . net sales decreased $ 139.8 million due to lower shipment volumes and $ 22.3 million due to unfavorable changes in canadian currency exchange rates . these factors were partially offset by $ 36.8 million of higher prices . gross profit for the year ended september 30 , 2009 was $ 128.2 million compared to $ 176.2 million in the prior year . gross profit decreased $ 37.6 million due to lower shipment volumes , $ 31.5 million due to higher per-unit overhead costs due to lower production and $ 20.5 million due to higher raw material costs . these decreases were partially offset by $ 36.8 million of higher sales prices and $ 6.7 million of manufacturing cost saving actions . gross margin was 27.3 % in the year ended september 30 , 2009 compared to 29.6 % in the prior year . gross margin increased approximately 1 percentage point due to changes in product mix , increased approximately 1 percentage point due to higher sales prices exceeding higher raw material costs and decreased approximately 4 percentage points due to higher per-unit overhead costs . during the year ended september 30 , 2009 , we recorded impairment and restructuring charges of $ 96.7 million . excluding the impairment and restructuring charges , income from operations for the year ended september 30 , 2009 was $ 43.3 million compared to $ 74.1 million in the prior year . this decrease was due to $ 48.0 million of lower gross profit , partially offset by $ 17.2 million of lower selling , general and administrative expenses . lower selling , general and administrative expenses were primarily due to a $ 3.5 million gain from the sale of a building during the year ended september 30 , 2009 , lower shipment volumes and cost saving actions . corporate corporate expenses were $ 34.4 million during the year ended september 30 , 2009 compared to $ 39.6 million during the prior year . during the year ended september 30 , 2009 , $ 1.2 million of professional fees were expensed related to the conversion of the series b common stock into series a common stock . corporate expenses otherwise decreased due to personnel and other related cost saving actions . 37 index to financial statements year ended september 30 , 2008 compared to year ended september 30 , 2007 replace_table_token_10_th consolidated analysis net sales . net sales were $ 1,859.3 million for the year ended september 30 , 2008 , an increase of $ 10.3 million , or 0.6 % , from $ 1,849.0 million during fiscal 2007. net sales increased principally due to 38 index to financial statements approximately $ 82 million of higher pricing and approximately $ 21 million due to the favorable impact of canadian foreign currency exchange rates that essentially offset approximately $ 104 million due to reduced volumes . we implemented several price increases during fiscal 2008 , affecting all of our principal products , in response to higher raw material and purchased component costs . as a whole , higher sales prices did not offset higher raw material and purchased component costs until the fourth quarter of fiscal 2008. approximately 15 % of our net sales during fiscal 2008 and fiscal 2007 were denominated in canadian dollars . the canadian dollar was stronger than the u.s. dollar during fiscal 2008 compared to fiscal 2007. sales volumes were lower during fiscal 2008 compared to fiscal 2007 principally due to continued weakness in residential construction . volume declines particularly affected our mueller co. and u.s. pipe businesses . gross profit .
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results of operations year ended september 30 , 2009 compared to year ended september 30 , 2008 replace_table_token_8_th 34 index to financial statements consolidated analysis net sales . net sales for the year ended september 30 , 2009 were $ 1,427.9 million compared to $ 1,859.3 million in the prior year . net sales decreased primarily due to $ 485.7 million of lower shipment volumes and $ 30.2 million due to unfavorable changes in canadian currency exchange rates partially offset by $ 84.5 million of higher prices . gross profit . gross profit for the year ended september 30 , 2009 was $ 256.9 million compared to $ 439.0 million in the prior year . gross profit decreased $ 151.9 million due to lower shipment volumes , $ 106.7 million due to higher per-unit overhead costs due to lower production and $ 48.9 million due to higher raw material costs . these decreases were partially offset by higher sales prices and $ 45.2 million of manufacturing cost saving actions . gross margin decreased to 18.0 % for the year ended september 30 , 2009 compared to 23.6 % in the prior year . gross margin decreased approximately 3 percentage points due to lower shipments of relatively high margin products and higher per-unit overhead costs at mueller co. and decreased approximately 3 percentage points primarily due to higher per-unit overhead costs at u.s. pipe . selling , general and administrative expense . selling , general and administrative expenses for the years ended september 30 , 2009 and 2008 were $ 239.1 million and $ 274.6 million , respectively .
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hdmc manufactures five families of motorcycles : touring , dyna ® , softail ® , sportster ® and v-rod ® . hdfs provides wholesale and retail financing and insurance programs primarily to harley-davidson dealers and customers . the company operates in two business segments : motorcycles & related products ( motorcycles ) and financial services ( financial services ) . the company 's reportable segments are strategic business units that offer different products and services . they are managed separately based on the fundamental differences in their operations . the “ % change ” figures included in the “ results of operations ” section were calculated using unrounded dollar amounts and may differ from calculations using the rounded dollar amounts presented . overview the company 's income from continuing operations for 2012 was $ 623.9 million , or $ 2.72 per diluted share compared to $ 548.1 million , or $ 2.33 per diluted share , in 2011 . the increase in 2012 income from continuing operations was driven by strong financial performance in both the motorcycles and the financial services segments . operating income from the motorcycles segment was up $ 154.3 million over 2011 on a 6.2 % increase in wholesale shipments of harley-davidson motorcycles , lower manufacturing costs and a decrease in restructuring expense . operating income from the financial services segment was also up over the prior year , increasing $ 15.9 million , or 5.9 % , driven primarily by a decrease in interest expense . in 2012 , worldwide independent dealer retail sales of new harley-davidson motorcycles grew 6.2 % compared to 2011 , including a 6.6 % increase in the u.s. and a 5.6 % increase in international markets . the company believes the improvement in retail sales of new harley-davidson motorcycles reflects the strength of the harley-davidson brand and the appeal of model- year 2012 and 2013 products , worldwide dealer efforts and continued investment in growth opportunities around the world . please refer to the “ results of operations 2012 compared to 2011 ” for additional details concerning the results for 2012 . ( 1 ) note regarding forward-looking statements the company intends that certain matters discussed in this report are “ forward-looking statements ” intended to qualify for the safe harbor from liability established by the private securities litigation reform act of 1995. these forward-looking statements can generally be identified as such by reference to this footnote or because the context of the statement will include words such as the company “ believes , ” “ anticipates , ” “ expects , ” “ plans , ” or “ estimates ” or words of similar meaning . similarly , statements that describe future plans , objectives , outlooks , targets , guidance or goals are also forward-looking statements . such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated as of the date of this report . certain of such risks and uncertainties are described in close proximity to such statements or elsewhere in this report , including under the caption “ risk factors ” in item 1a and under “ cautionary statements ” in item 7 of this report . shareholders , potential investors , and other readers are urged to consider these factors in evaluating the forward-looking statements and cautioned not to place undue reliance on such forward-looking statements . the forward-looking statements included in this report are made only as of the date of the filing of this report ( february 22 , 2013 ) , and the company disclaims any obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances . 25 outlook ( 1 ) on january 29 , 2013 the company announced the following expectations for 2013. the company expects to ship 259,000 to 264,000 harley-davidson motorcycles during 2013 , with 71,000 to 76,000 harley-davidson motorcycles expected to ship in the first quarter of 2013 . the 2013 shipment estimates take several factors into consideration , including new model-year 2013 and 2014 products , the continued success of outreach efforts in the u.s. , the improved product availability in the u.s. , continued expansion of the international distribution network and the strong appeal of the harley-davidson brand . at the same time , the company remains cautious on the world economies , in particular in the u.s. and europe . shipment expectations for the first quarter of 2013 reflect an increase of approximately 10 % to 18 % compared to the first quarter of 2012. this increase is expected to be supported by the new surge manufacturing capability launched at the york , pennsylvania ( york ) facility at the start of 2013. the surge manufacturing capabilities at york will rely on a new seasonal workforce and will be supported by similar efforts at the company 's wisconsin manufacturing facilities that supply york . the surge manufacturing capability is expected to enable the company to increase manufacturing capacity in the first half of 2013 to more closely match retail demand . as a result , u.s. retail inventory is expected to increase by the end of the first quarter as dealers replenish inventory to prepare for the 2013 selling season . the company expects to implement surge manufacturing capabilities at its kansas city , missouri ( kansas city ) facility in 2014. consequently , the company expects u.s. retail inventory to be slightly lower on a year over year basis at the end of 2013 as dealers more closely align inventory with the seasonal low point for retail sales in advance of the expected surge manufacturing capability at the kansas city facility . in addition , the company expects full year 2013 gross margin to be between 35.25 % and 36.25 % . in 2013 gross margin is expected to be positively impacted by approximately $ 25 million in incremental restructuring savings , approximately $ 16 million less in temporary inefficiencies , a lower fixed cost per unit on higher production and higher pricing . story_separator_special_tag the company has realized or estimates that it will realize cumulative savings from these restructuring activities , measured against 2008 , as follows : 2009 - $ 91 million ( 91 % operating expense and 9 % cost of sales ) ( actual ) ; 2010 - $ 172 million ( 64 % operating expense and 36 % cost of sales ) ( actual ) ; 2011 - $ 217 ( 51 % operating expense and 49 % cost of sales ) ( actual ) ; 2012 - $ 280 million ( 42 % operating expense and 58 % cost of sales ) ( actual ) ; 2013 - $ 305 million ( approximately 40 % operating expense and approximately 60 % cost of sales ) ( estimated ) ; ongoing annually upon completion - $ 320 million ( approximately 35 % operating expense and approximately 65 % cost of sales ) ( estimated ) . 27 results of operations 2012 compared to 2011 consolidated results replace_table_token_9_th operating income for the motorcycles segment during 2012 improved by $ 154.3 million compared to 2011 driven by a 6.2 % increase in motorcycle shipments , price increases , decreases in manufacturing costs and lower restructuring expenses compared to the prior year . operating income for the financial services segment improved by $ 15.9 million during 2012 primarily due to lower interest expense . please refer to the “ motorcycles and related products segment ” and “ financial services segment ” discussions following for a more detailed discussion of the factors affecting operating income . the effective income tax rate for 2012 was 35.1 % compared to 30.9 % for 2011 . the lower 2011 effective tax rate was mainly driven by a change in the 2011 wisconsin income tax law associated with certain net operating losses , the favorable settlement of an irs audit and the impact of the federal research and development tax credit . in 2011 , the company recognized a $ 51.0 million benefit on income from discontinued operations , driven by the reversal of tax amounts reserved in prior years related to the divestiture of the company 's mv agusta subsidiaries . the amounts had been reserved pending an agreement that the company and the irs reached on the tax treatment of the transaction in december 2011. diluted earnings per share from continuing operations was $ 2.72 in 2012 , up 16.7 % over 2011. the increase in diluted earnings per share was driven primarily by the 13.8 % increase in income from continuing operations , but also benefited from lower diluted weighted average shares outstanding . diluted weighted average share outstanding decreased from 234.9 million in 2011 to 229.2 million in 2012 driven by the company 's repurchase of common stock over the last two years . please refer to `` liquidity and capital resources '' for additional information concerning the company 's share repurchase activity . 28 motorcycles and related products segment harley-davidson motorcycle retail sales worldwide independent dealer retail sales of harley-davidson motorcycles increased 6.2 % during 2012 compared to 2011 . retail sales of harley-davidson motorcycles increased 6.6 % in the united states and 5.6 % internationally in 2012 . international retail sales as a percent of total retail sales were down slightly compared to 2011 reflecting the tough market conditions in europe . international retail sales represented 35.3 % and 35.5 % of total retail sales in 2012 and 2011 , respectively . given the fact that the company 's european business was down in 2012 and the economic concerns that remain in europe for the near term , the company no longer believes it will meet its goal of international retail sales exceeding 40 % of total retail sales by 2014. however , the company continues to believe international retail sales will grow at a faster rate than domestic sales through 2014 ( 1 ) . the following table includes retail unit sales of harley-davidson motorcycles : harley-davidson motorcycle retail sales ( a ) heavyweight ( 651+cc ) replace_table_token_10_th ( a ) data source for retail sales figures shown above is new sales warranty and registration information provided by harley-davidson dealers and compiled by the company . the company must rely on information that its dealers supply concerning retail sales and this information is subject to revision . ( b ) data for europe include austria , belgium , denmark , finland , france , germany , greece , italy , netherlands , norway , portugal , spain , sweden , switzerland and the united kingdom . the following table includes industry retail motorcycle registration data : heavyweight motorcycle registration data ( a ) replace_table_token_11_th ( a ) heavyweight data includes street legal 651+cc models . street legal 651+cc models include on-highway and dual purpose models and three-wheeled vehicles . ( b ) united states industry data is derived from information provided by motorcycle industry council ( mic ) . this third party data is subject to revision and update . prior periods have been adjusted to include all dual purpose models that were previously excluded . 29 ( c ) europe data includes austria , belgium , denmark , finland , france , germany , greece , italy , netherlands , norway , portugal , spain , sweden , switzerland , and the united kingdom . industry retail motorcycle registration data includes 651+cc models derived from information provided by association des constructeurs europeens de motocycles ( acem ) , an independent agency . this third-party data is subject to revision and update . motorcycle unit shipments the following table includes wholesale motorcycle unit shipments for the motorcycles segment : replace_table_token_12_th * custom motorcycle units , as used in this table , include dyna , softail , v-rod and cvo models . during 2012 , wholesale shipments of harley-davidson motorcycles were up 6.2 % compared to the prior year and within the company 's most recent expected shipment range of 245,000 to 250,000 motorcycles .
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segment results the following table includes the condensed statement of operations for the motorcycles segment ( in thousands ) : replace_table_token_13_th 30 the following table includes the estimated impact of the significant factors affecting the comparability of net revenue , cost of goods sold and gross profit from 2011 to 2012 ( in millions ) : replace_table_token_14_th the following factors affected the comparability of net revenue , cost of goods sold and gross profit from 2011 to 2012 : volume increases were driven by the increase in wholesale shipments of motorcycle units as well as higher sales volumes for parts & accessories and general merchandise . on average , wholesale prices on the company 's 2012 and 2013 model year motorcycles are higher than the preceding model years resulting in the favorable impact on revenue and gross profit during the period . foreign currency exchange rates during 2012 resulted in a negative impact on net revenue , which was partially offset by the favorable impact of gains associated with foreign currency hedging included in cost of goods sold . shipment mix changes resulted primarily from favorable product mix changes between motorcycle families . raw material prices were lower in 2012 relative to 2011 primarily due to lower metal costs . manufacturing costs were favorably impacted by savings related to restructuring initiatives . temporary inefficiencies associated with the company 's restructuring and transformation at its york facility were $ 33 million in 2012 compared to $ 32 million in 2011. the net increase in operating expense was primarily due to incremental investments to support the company 's growth initiatives and increases in employee costs including pension . these cost increases were partially offset by lower restructuring expense related to the company 's previously announced restructuring activities as well as lower engineering expense . for further information regarding the company 's previously announced restructuring activities , refer to note 4 of notes to condensed consolidated financial statements .
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this resulted in an adjustment to 2018 technology revenue and profit of $ 53.0 million ( $ 47.7 million , net of tax , or $ 0.65 per diluted share ) . the adjustment represents revenue from software license extensions and renewals , which were contracted for in the fourth quarter of 2017 and properly recorded as revenue at that time under the revenue recognition rules then in effect ( topic 605 ) . topic 606 requires revenue related to software license renewals or extensions to be recorded when the new license term begins , which in the case of the $ 53.0 million , was january 1 , 2018. the company reported 2019 net loss attributable to unisys corporation of $ 17.2 million , or loss of $ 0.31 per share , compared with 2018 net income of $ 75.5 million , or income of $ 1.30 per diluted share . the company 's financial results in the current year were impacted by increases in revenue due to new business principally driven by the company 's u.s. business . in addition , the company recorded a charge of $ 20.1 million on the convertible note exchange as well as $ 28.7 million of cost-reduction and other costs . see note 14 , “ debt , ” and note 3 , “ cost-reduction actions , ” of the notes to consolidated financial statements for further detail . on february 5 , 2020 , the company entered into an asset purchase agreement to sell its u.s. federal business to science applications international corporation for a cash purchase price of $ 1.2 billion , subject to a net working capital adjustment . the u.s. federal business provides certain products and services to u.s. federal government customers . the sale is expected to close in the first half of 2020 and is subject to receipt of regulatory clearance under the hart-scott-rodino antitrust improvements act of 1976 as well as the satisfaction or waiver of other customary closing conditions . the u.s. federal business , which has operations in both of the company 's reporting segments of services and technology , generated 2019 revenue and pre-tax income of approximately $ 725 million and $ 100 million , respectively . the u.s. federal business will be reported as discontinued operations in 2020. when the sale is complete , the company expects to report an after-tax gain on the sale of approximately $ 1 billion . due to the company 's u.s. tax position , no federal income tax is expected to be payable on the sale and , subject to the final purchase price allocation to the assets sold , state income taxes are expected to be minimal . the company primarily intends to use the net proceeds from the sale to redeem its senior secured notes due 2022 and reduce its obligations under its u.s. defined benefit pension plans . in connection with the entry into the asset purchase agreement to sell the u.s. federal business , the company also adopted a tax asset protection plan designed to protect the company 's tax assets in contemplation of the sale transaction . this plan is similar to tax benefit protection plans adopted by other public companies with significant tax attributes and is designed to protect the company 's valuable tax assets by reducing the likelihood of an “ ownership change ” through actions involving the company 's securities . see “ risk factors -- risks related to the announced sale of the company 's u.s. federal business -- an ‘ ownership change ' could limit the company 's ability to utilize net operating losses and certain other tax attributes to offset the gain from the pending sale of the u.s. federal business ” for more information . results of operations story_separator_special_tag and $ 64.3 million , respectively . in 2018 , the provision for income taxes includes expense of $ 5.3 million related to the topic 606 adjustment described above and a benefit of $ 6.6 million due to the release of a valuation allowance on certain deferred tax assets ( net operating losses ) as a result of the identification of an additional source of taxable income available in prior periods . the company evaluates quarterly the realizability of its deferred tax assets by assessing its valuation allowance and by adjusting the amount of such allowance , if necessary . the company records a tax provision or benefit for those international subsidiaries that do not have a full valuation allowance against their deferred tax assets . any profit or loss recorded for the company 's u.s. operations will have no provision or benefit associated with it due to the company 's valuation allowance , except with respect to refundable tax credits and withholding taxes not creditable against future taxable income . as a result , the company 's provision or benefit for taxes may vary significantly period to period depending on the geographic distribution of income . 22 the realization of the company 's net deferred tax assets as of december 31 , 2019 is primarily dependent on forecasted future taxable income within certain foreign jurisdictions . any reduction in estimated forecasted future taxable income may require the company to record an additional valuation allowance against the remaining deferred tax assets . any increase or decrease in the valuation allowance would result in additional or lower income tax expense in such period and could have a significant impact on that period 's earnings . net income attributable to unisys corporation common shareholders for 2019 was a loss of $ 17.2 million , or $ 0.31 per common share , compared with income of $ 75.5 million , or $ 1.30 per diluted common share , in 2018 . segment results the company has two business segments : services and technology . revenue classifications within the services and technology segment are as follows : cloud and infrastructure services . story_separator_special_tag the company believes that it will have adequate sources of liquidity to meet its expected cash requirements through at least february 28 , 2021. cash and cash equivalents at december 31 , 2019 were $ 538.8 million compared with $ 605.0 million at december 31 , 2018 . as of december 31 , 2019 , $ 303.1 million of cash and cash equivalents were held by the company 's foreign subsidiaries and branches operating outside of the u.s. the company may not be able to readily transfer up to one-third of these funds out of the country in which they are located as a result of local restrictions , contractual or other legal arrangements or commercial considerations . additionally , any transfers of these funds to the u.s. in the future may require the company to accrue or pay withholding or other taxes on a portion of the amount transferred . see note 6 , “ income taxes , ” of the notes to consolidated financial statements regarding the company 's intention to indefinitely reinvest earnings of foreign subsidiaries . 24 during 2019 , cash provided by operations was $ 123.9 million compared with cash provided by operations of $ 73.9 million in 2018 . cash used for investing activities in 2019 was $ 158.2 million compared with cash usage of $ 185.0 million in 2018 . net proceeds from investments in 2019 were $ 2.8 million compared with net purchases of $ 14.0 million in 2018 . proceeds from investments and purchases of investments represent derivative financial instruments used to manage the company 's currency exposure to market risks from changes in foreign currency exchange rates . in addition , capital additions of properties were $ 38.0 million in 2019 compared with $ 35.6 million in 2018 , capital additions of outsourcing assets were $ 48.8 million in 2019 compared with $ 73.0 million in 2018 and the investment in marketable software was $ 73.0 million in 2019 compared with $ 80.7 million in 2018 . the decrease in capital expenditures is attributed in part to the company funding some of the 2019 additions by entering into installment payment and vendor agreements . the prior-year period includes net proceeds of $ 19.2 million related to the sale of property in the u.k. cash used for financing activities during 2019 was $ 38.0 million compared with cash used for financing activities of $ 4.8 million in 2018 . the increase in cash usage in the current year is principally due to the convertible notes exchange partially offset by proceeds received from the issuance of debt as described below . at december 31 , 2019 , total debt was $ 579.6 million compared with $ 652.8 million at december 31 , 2018 . the decrease is primarily due to the convertible notes exchange offset in part by the issuance of debt described below . on august 2 , 2019 , the company entered into separate , privately negotiated exchange agreements pursuant to which it ( i ) issued an aggregate of 10,593,930 shares of its common stock , and ( ii ) paid cash in an aggregate amount of $ 59.4 million , such cash amount included $ 3.1 million of accrued and unpaid interest on the exchanged convertible senior notes due 2021 ( the 2021 notes ) up to , but excluding , the settlement date , in exchange for $ 129.3 million in aggregate principal amount of its outstanding 2021 notes . the transactions closed on august 6 , 2019. upon closing , $ 84.2 million aggregate principal amount of 2021 notes remain outstanding . in connection with the transactions , the company unwound a pro rata portion of the capped call transactions that it entered into with the initial purchasers and or affiliates of the initial purchasers of the 2021 notes and received proceeds of $ 7.2 million . following the convertible note exchange , the capped call transactions remaining cover approximately 8.6 million shares of the company 's common stock . as a result of the exchange , the company recognized a charge of $ 20.1 million . on march 27 , 2019 , the company entered into an installment payment agreement ( ipa ) with a syndicate of financial institutions to finance the acquisition of certain software licenses necessary for the provision of services to a client . the ipa was in the amount of $ 27.7 million , of which $ 4.8 million matures on march 30 , 2022 and $ 22.9 million matures on december 30 , 2023. interest accrues at an annual rate of 7.0 % and the company is required to make monthly principal and interest payments on each agreement in arrears . on september 5 , 2019 , the company entered into a vendor agreement in the amount of $ 19.3 million to finance the acquisition of certain software licenses used to provide services to our clients . interest accrues at an annual rate of 5.47 % and the company is required to make annual principal and interest payments in advance with the last payment due on march 1 , 2024. the company has a secured revolving credit facility ( the credit agreement ) that provides for loans and letters of credit up to an aggregate amount of $ 145.0 million ( with a limit on letters of credit of $ 30.0 million ) . the credit agreement includes an accordion feature allowing for an increase in the facility up to $ 150.0 million . availability under the credit facility is subject to a borrowing base calculated by reference to the company 's receivables . at december 31 , 2019 , the company had no borrowings and $ 5.9 million of letters of credit outstanding , and availability under the facility was $ 139.1 million net of letters of credit issued .
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company results revenue for 2019 was $ 2.95 billion compared with $ 2.83 billion for 2018 , an increase of 4.4 % principally due to increases within the company 's u.s. business offset in part by the impact of the $ 53.0 million topic 606 adjustment described above . excluding this adjustment , revenue increased 6.4 % . foreign currency fluctuations had a 3 -percentage-point negative impact on revenue in the current year compared with the year-ago period . services revenue increased 7.0 % and technology revenue decreased 9.7 % year over year with the prior-year topic 606 adjustment primarily contributing to the technology revenue decline . excluding the topic 606 adjustment of $ 53.0 million , technology revenue increased 2.7 % . foreign currency fluctuations had a 3 -percentage-point negative impact on services revenue and a 3 -percentage-point negative impact on technology revenue in the current year compared with the year-ago period . revenue from international operations in 2019 and 2018 was $ 1.40 billion and $ 1.59 billion , respectively . without the topic 606 adjustment , 2018 revenue from international operations was $ 1.54 billion . foreign currency had a 4 -percentage-point 21 negative impact on international revenue in 2019 compared with 2018 . revenue from u.s. operations was $ 1.55 billion in 2019 and $ 1.24 billion in 2018 . excluding the topic 606 adjustment , u.s. revenue was $ 1.23 billion in 2018. during 2019 , the company recognized cost-reduction charges and other costs of $ 28.7 million , principally related to a reduction in employees .
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