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factors that could cause or contribute to such differences include , but are not limited to , those identified below , and those discussed in the section titled “ risk factors ” and elsewhere in this annual report on form 10-k. our historical results are not necessarily indicative of the results to be expected for any future period , and results for any interim period are not necessarily indicative of the results to be expected for the full year . 34 overview we design , manufacture and sell dc power generators , renewable energy and cooling systems for applications primarily in the telecommunications market and , to a lesser extent , in other markets , including military , electric vehicle charging , marine and industrial within the telecommunications market , our dc power systems provide reliable and low-cost dc power to service applications that do not have access to the utility grid ( i.e. , prime power applications ) or have critical power needs and can not be without power in the event of utility grid failure ( i.e. , back-up power applications ) . within this market , we offer the following three configurations of our dc power systems , with output power ranging from 5 kw to 30 kw : ● dc base power systems . these systems integrate a dc generator and automated controls with remote monitoring , which are typically contained within an environmentally regulated enclosure . ● dc hybrid power systems . these systems incorporate lithium-ion batteries ( or other advanced battery chemistries ) with our proprietary battery management system , or bms , into our standard dc power systems . ● dc solar hybrid power systems . these systems incorporate photovoltaic and other sources of renewable energy into our dc hybrid power system . our dc power systems are available in diesel , natural gas , lpg / natural gas and renewable formats , with diesel , natural gas and propane gas being the predominate formats . during the years ended december 31 , 2020 and 2019 , 96 % and 96 % , respectively , of our total net sales were within the telecommunications market . in 2020 , 81 % of our total net sales were derived primarily from three customers which are in the telecommunications industry and each accounted for 52 % , 15 % and 14 % of total net sales for 2020. in 2019 , we had 91 % of our total net sales derived from our three largest customers which are in the telecommunications industry and each accounted for 68 % , 17 % and 6 % of our total net sales for 2019. in march 2020 , the world health organization declared the outbreak of covid-19 a global pandemic , and , in the following weeks , many u.s. states and foreign countries issued lockdown orders negatively impacting the operations of our manufacturing facilities and customer demand for our products . since then , the covid-19 situation within the u.s. and foreign countries has rapidly escalated . we have implemented new procedures to support the health and safety of our employees and we are following all guidelines issued by the u.s. centers for disease control and prevention , as well as federal , state and regional public health authorities . our manufacturing facilities have remained opened with certain limitations and restrictions to comply covid-19 safety guidelines and provide a safe work environment for our employees . covid-19 , has had and is likely to continue to have , a material and substantial adverse impact on our results of operations including , among others , a decrease in our sales , delays in sourcing of raw materials from suppliers which , in turn , has raised liquidity concerns . in addition , our inventory write-off increased during 2020 due to current uncertainties regarding specific product shipments . our business is directly dependent upon , and correlates closely with , the marketing levels and ongoing business activities of our existing customers and suppliers . in the event of a continued widespread economic downturn caused by covid-19 , we will likely experience a further reduction in current projects , longer sales and collection cycles , deferral or delay of purchase commitments for our dc power systems , a reduction in our manufacturing functionality , higher than normal inventory levels , a reduction in the availability of qualified labor , and increased price competition , all of which could substantially adversely affect our net revenues and our ability to remain a going concern . during december 2020 , the food and drug administration authorized the release of vaccines to help control covid-19 . although there are many unknown factors of its success to control covid-19 and the timeline of making the vaccine available to a great majority of people around the world , we believe these are significant events aimed to control covid-19 that may lead to improvements to the global economy and to our business . 35 the extent of the impact of covid-19 on our operational and financial performance will depend on certain developments , including the duration and spread of the outbreak , the impact on our customers and our sales cycles , the impact on our customer , employee or industry events , and the effect on our vendors , all of which are uncertain and can not be predicted . at this point , we are uncertain of the full magnitude that the pandemic may have on our financial condition , liquidity and future results of operations . critical accounting policies the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america ( “ gaap ” ) requires management to make certain estimates and assumptions that affect the reported amounts of assets , liabilities , revenues and expenses , and the disclosure of contingent assets and liabilities . on an ongoing basis , management reviews its estimates and if deemed appropriate , those estimates are adjusted . story_separator_special_tag jumpstart our business startups act of 2012 on april 5 , 2012 , the jobs act was enacted . section 107 of the jobs act provides that an “ emerging growth company ” can take advantage of the extended transition period provided in section 7 ( a ) ( 2 ) ( b ) of the securities act for complying with new or revised accounting standards . in other words , an “ emerging growth company ” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies . we have irrevocably elected not to avail ourselves of this extended transition period and , as a result , we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies . we are in the process of evaluating the benefits of relying on other exemptions and reduced reporting requirements provided by the jobs act . subject to certain conditions set forth in the jobs act , if as an “ emerging growth company ” we choose to rely on such exemptions , we may not be required to , among other things , ( i ) provide an auditor 's attestation report on our system of internal controls over financial reporting pursuant to section 404 , ( ii ) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the dodd-frank wall street reform and consumer protection act , ( iii ) comply with any requirement that may be adopted by the public company accounting oversight board regarding mandatory audit firm rotation or a supplement to the auditor 's report providing additional information about the audit and the financial statements ( auditor discussion and analysis ) , and ( iv ) disclose certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the chief executive officer 's compensation to median employee compensation . these exemptions will apply until we no longer meet the requirements of being an “ emerging growth company. ” we will remain an “ emerging growth company ” until the earliest of ( i ) the last day of the fiscal year in which we have total annual gross revenues of $ 1 billion or more ; ( ii ) december 31 , 2021 ( the last day of our fiscal year following the fifth anniversary of the date of the completion of our initial public offering ) ; ( iii ) the date on which we have issued more than $ 1.07 billion in nonconvertible debt during the previous three years ; or ( iv ) the date on which we are deemed to be a large accelerated filer under the rules of the sec . financial performance summary – year ended december 31 , 2020 our net sales for the year ended december 31 , 2020 , were $ 9,031 , as compared to $ 24,801 for the year ended december 31 , 2019. we reported a net loss of $ 10,871 for 2020 , as compared to net loss of $ 4,045 for 2019. we believe this decline in revenues is primarily due to our tier-1 telecommunications customers shifting their investments to the deployment of their new 5g networks rather than making investments in back-up power generators . we also believe that covid-19 has had a negative impact on our customers ' ability to deploy new systems due to precautionary measures focused at slowing down the spread of covid-19 within their employee base . the focus on the deployment of new 5g networks has had a direct negative impact on our ability to increase sales of our products to our tier-1 telecommunications customers . during 2020 , our international sales increased to $ 1,522 , as compared to $ 230 during 2019. the increase was due primarily to shipments of our new lpg dc power systems during the second half of 2020. our sales backlog as of december 31 , 2020 , was $ 4,239 , with 65 % of that amount being attributable to u.s. telecommunications customers , 21 % to telecommunications customers outside the u.s. , 2 % to military customers , and 12 % to other customer in other markets . the recent increase in our backlog is as a result of u.s. tier-1 wireless carriers increasing their orders of our dc backup power systems . during the fourth quarter of 2020 , we believe the major tier-1 wireless providers reached a point in the implementation of their 5g programs where they are starting to increase orders on backup power solutions . in december 2020 , our backlog increased by $ 2.0 million primarily from sales orders from our largest tier-1 telecommunications customer . with the release of covid-19 vaccines in december 2020 , we remain hopeful that the global economy will gradually return to normality allowing us to expand our sales and marketing initiatives . we are also working on expanding our research and development capacity to enhance our sales support and new product development programs . we are focused on diversifying our customer base within the telecom market while seeking new opportunities in other markets . 38 we anticipate that our future sales will improve as the u.s. economy recovers from the impact of the covid-19 pandemic , our u.s. telecommunications customers return to their backup power programs , and we succeed in diversifying our customer base . however , the full impact of the covid-19 pandemic on our financial and operating performance will depend significantly on the duration and severity of the outbreak , the actions taken to contain or mitigate its impact , disruption to our supply chain , and the pace with which our clients return to more normalized purchasing behavior , among others factors beyond our knowledge or control . see section “ risk factors ” in this annual report for additional considerations .
| results of operations the tables presented below , which compare our results of operations from one period to another , present the results for each period , the change in those results from one period to another in both dollars and percentage change , and the results for each period as a percentage of net revenues . the columns present the following : ● the first two data columns in each table show the absolute results for each period presented . ● the columns entitled “ dollar variance ” and “ percentage variance ” shows the change in results , both in dollars and percentages . these two columns show favorable changes as a positive and unfavorable changes as negative . for example , when our net revenues increase from one period to the next , that change is shown as a positive number in both columns . conversely , when expenses increase from one period to the next , that change is shown as a negative in both columns . ● the last two columns in each table show the results for each period as a percentage of net revenues . comparison of the years ended december 31 , 2020 and 2019 replace_table_token_1_th 39 net sales . net sales decreased by $ 15,770 , or 64 % , to $ 9,031 for the year ended december 31 , 2020 , as compared to $ 24,801 for the year ended december 31 , 2019. the decrease was primarily due to a decrease in sales of our dc power systems to u.s. tier-1 telecommunications customers .
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factors that could cause actual results to differ materially include the following : our dependence upon information systems and the ability to transition to a new erp system without business disruption and in a timely and cost efficient manner ; our ability to integrate acquisitions , and effectively manage and implement our growth strategies ; our ability to manage the potential adverse effects of operating in foreign jurisdictions , including , adverse changes in economic , political and market conditions in europe , latin america , and in brazil , venezuela , and argentina in particular ; our ability to hedge or mitigate the effects of fluctuations in foreign exchange rates ; our dependence on vendors , product supply , and availability ; our ability to decrease our cost structure in response to competitive price pressures and changes in demand for our products ; our ability to compete in new and existing markets that are highly competitive ; our ability to anticipate adverse changes in tax laws , accounting rules , and other laws and regulations ; our ability to effectively manage and implement our growth strategies ; our ability to manage our business when general economic conditions are poor ; our ability to retain and expand our existing and new customer relationships ; our ability to manage and limit our credit exposure due to the deterioration in the financial condition of our customers ; our ability to retain key employees , particularly senior management ; our ability to centralize certain functions to provide efficient support to our business ; our ability to manage and negotiate successful pricing and stock rotation opportunities associated with inventory value decreases ; our ability to remain profitable in the face of narrow margins ; our ability to manage loss , disclosure or misappropriation of , or access to , information or other breaches of our information security ; our dependence on third-party freight carriers ; our ability to manage the distribution channels ; our ability to increase our business in brazil ; our exposure to the volatility of earnings due to changes in fair value of assets and liabilities , including changes in the fair value of our earn-out obligation to the sellers of cdc , changes in accounting principles , and our ability to make estimates and the assumptions underlying the estimates , which could have an effect on earnings ; our ability to avoid goodwill and long-lived asset impairments resulting in material non-cash charges to earnings ; our ability to manage disruptions or loss of certain assets from terrorist or military operations ; our ability to obtain required capital at acceptable terms to fund our working capital and growth strategies ; and our ability to resolve or settle potentially adverse litigation matters . additional discussion of these and other factors affecting our business and prospects is contained in our periodic filings with the sec , copies of which can be obtained under the `` investors relations '' tab on our website at www.scansource.com . please refer to the cautionary statements and important factors discussed in item 1a . `` risk factors '' in this annual report on form 10-k for further information . this discussion and analysis should be read in conjunction with item 6 . `` selected financial data '' and the consolidated financial statements and the notes thereto included elsewhere in this annual report on form 10-k. we caution readers not to place undue reliance on forward-looking statements . we undertake no obligation to update publicly or otherwise revise any forward-looking statements , whether as a result of new information , future events or other factors that affect the subject of these statements , except where we are expressly required to do so by law . overview scansource , inc. is a leading international wholesale distributor of specialty technology products . scansource , inc. and its subsidiaries ( the `` company '' ) provide value-added distribution services for approximately 290 technology manufacturers and sells to approximately 28,000 resellers in the following specialty technology markets : pos and barcode , security and communications . the company operates in the united states , canada , latin america , and europe and uses centralized distribution centers for major geographic regions . the company distributes to the united states and canada from its southaven , mississippi distribution center ; to latin america principally from distribution centers located in florida , mexico and brazil ; and to europe from its distribution center in belgium . the company distributes products for many of its key vendors in all of its geographic markets ; however certain vendors only allow distribution to specific geographies . the company 's key vendors in barcode technologies include bematech , cisco , datalogic , datamax-o'neil , elo , epson , honeywell , intermec by honeywell , motorola , ncr , toshiba global commerce solutions and zebra technologies . the company 's key vendors for security technologies include arecont , axis , bosch , cisco , datacard , exacq technologies , fargo , hid , march networks , panasonic , ruckus wireless , samsung , sony and zebra card . the company 's key vendors in communications technologies include aruba , avaya , audiocodes , cisco , dialogic , extreme networks , meru networks , plantronics , polycom , shoretel and sonus . 22 index to financial statements during fiscal year 2014 , the barcode & security distribution segment added 3d printing solutions to their product offerings that are targeted at the manufacturing , healthcare , aerospace , and automotive markets . in april 2014 , it was announced that zebra technologies intends to purchase motorola solutions ' enterprise business . zebra technologies and motorola solutions represent key vendors in our barcode technologies business . in the fourth quarter of fiscal 2013 , we announced a new management structure to enhance our worldwide technology markets focus and growth strategy . this worldwide management structure creates new leadership roles and reporting segments to globally leverage the company 's leadership in specific technology markets . story_separator_special_tag as this competition could affect both our market share and pricing of our products , we may change our strategy in order to effectively compete in the marketplace . cost control/profitability our operating income growth is driven not only by gross profits but by a disciplined control of operating expenses . our operations feature scalable information systems , streamlined management , and centralized distribution , enabling us to achieve the economies of scale necessary for cost-effective order fulfillment . from inception , we have managed our general and administrative expenses by maintaining strong cost controls . however , in order to continue to grow in our markets , we have continued to invest in new technologies , specifically , security , communication and 3d technology ; increased marketing efforts to recruit resellers ; and enhanced employee benefit plans to retain employees . evaluating financial condition and operating performance in addition to disclosing results that are determined in accordance with united states generally accepted accounting principles ( `` gaap '' ) , we also disclose certain non-gaap financial measures , including adjusted net income and adjusted eps , return on invested capital ( `` roic '' ) , and `` constant currency '' a measure that excludes the translation exchange impact from changes in foreign currency exchange rates between reporting periods . we use non-gaap financial measures to better understand and evaluate performance , including comparisons from period to period . these non-gaap financial measures have limitations as analytical tools , and the non-gaap financial measures that we report may not be comparable to similarly titled amounts reported by other companies . analysis of results and outlook on a non-gaap basis should be considered in addition to , and not in substitution for or as superior to , measurements of financial performance prepared in accordance with gaap . adjusted net income and adjusted eps to evaluate current period performance on a clearer and more consistent basis with prior periods , we disclose adjusted net income and adjusted diluted eps . results for the current year ended june 30 , 2014 excluded a legal recovery , net of attorney fees . results for the year ended june 30 , 2013 excluded charges associated with the impairment of our old erp project using microsoft dynamics ax software and goodwill in two of our reporting units , and costs associated with tax compliance and personnel replacement in the company 's belgian office . please see notes 1 , 5 and 14 of the notes to consolidated financial statements for additional information on these items . we believe that these historical items are outside of our normal operating expenses . adjusted net income and adjusted diluted eps are useful in better assessing and understanding our operating performance , especially when comparing results with previous periods or forecasting results for future periods . below , we are providing a non-gaap reconciliation of net income and earnings per share adjusted for the costs and charges mentioned above : 24 index to financial statements replace_table_token_5_th return on invested capital management uses roic as a performance measurement to assess efficiency at allocating capital under the company 's control to generate returns . management believes this metric balances the company 's operating results with asset and liability management , is not impacted by capitalization decisions and is considered to have a strong correlation with shareholder value creation . in addition , it is easily computed , communicated and understood . roic also provides management a measure of the company 's profitability on a basis more comparable to historical or future periods . roic assists us in comparing our performance over various reporting periods on a consistent basis because it removes from our operating results the impact of items that do not reflect our core operating performance . we believe the calculation of roic provides useful information to investors and is an additional relevant comparison of our performance during the year . in addition , the company 's board of directors uses roic in evaluating business and management performance . certain management incentive compensation targets are set and measured relative to roic . we calculate roic as earnings before interest expense , income taxes , depreciation and amortization ( `` ebitda '' ) divided by invested capital . invested capital is defined as average equity plus average daily funded interest-bearing debt for the period . the following table summarizes annualized return on invested capital ratio for the fiscal years ended june 30 , 2014 , 2013 , and 2012 , respectively . management adjusted the calculation of roic to exclude the impact of legal recoveries , net of attorney fees for the current year ended june 30 , 2014. management also adjusted the calculation of roic to exclude the impact of erp and goodwill impairment charges and costs associated with belgian tax compliance for the year ended june 30 , 2013. management believes these adjustments provide a measure of the company 's profitability on a basis more comparable to historical or future periods . had management not adjusted for the above mentioned items , the roic would have been 17.4 % and 9 % for the fiscal year ended june 30 , 2014 and 2013 , respectively . we believe the calculation of roic including adjusted ebitda and adjusted average equity provides useful information to investors and is an additional relevant comparison of our performance during the year . replace_table_token_6_th 25 index to financial statements the components of our roic calculation and reconciliation to the company 's financial statements are shown , as follows : replace_table_token_7_th replace_table_token_8_th ( a ) includes a legal recovery , net of attorney fees for the year ended june 30 , 2014 and includes non-cash impairment charges , and expenses associated with belgian tax compliance and personnel replacement costs , including related professional fees for year ended june 30 , 2013 . ( b ) average funded debt is calculated as the daily average amounts outstanding on our short-term and long-term interest-bearing debt .
| results of operations the following table sets forth for the periods indicated certain income and expense items as a percentage of net sales : replace_table_token_9_th comparison of fiscal years ended june 30 , 2014 and 2013 26 index to financial statements currency in this management discussion and analysis , we make references to `` constant currency , '' a non-gaap performance measure , that excludes the foreign exchange rate impact from fluctuations in the weighted average foreign exchange rates between reporting periods . certain financial results are adjusted by translating current period results from currencies other than the u.s. dollar using the comparable weighted average foreign exchange rates from the prior year period . this information is provided to view financial results without the impact of fluctuations in foreign currency rates , thereby enhancing comparability between reporting periods . net sales the company has two reportable segments , which are based on product sales . the following table summarizes the company 's net sales results by product categories and by geographic location for the comparable fiscal years ending june 30th : segments replace_table_token_10_th geographic sales replace_table_token_11_th worldwide barcode & security the barcode & security distribution segment consists of sales to technology resellers in our scansource pos & barcode business units in north america , europe and latin america and our scansource security business unit in north america . during fiscal year 2014 net sales for this segment increased $ 45.0 million or 2.5 % compared to the prior fiscal year . on a constant currency basis , net sales for fiscal 2014 increased $ 46.4 million or 2.5 % compared to prior year . the increase is primarily due to growth in all business units within worldwide barcode & security , with the exception of the miami export business .
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to the extent additional information becomes available , such accruals are adjusted to reflect the revised estimated probable outcome . derivative financial instruments we measure all derivative instruments at fair value and report them on our consolidated balance sheet as assets or liabilities . we maintain written policies and procedures that permit , under appropriate circumstances and subject to proper authorization , the use of derivative financial instruments solely for hedging purposes . the use of derivative financial instruments for trading or story_separator_special_tag the following discussion and analysis should be read in conjunction with the consolidated financial statements and the corresponding notes included elsewhere in this form 10-k. certain percentages presented in this discussion and analysis are calculated from the underlying whole-dollar amounts and therefore may not recalculate from the rounded numbers used for disclosure purposes . certain amounts in the 2013 and 2012 consolidated financial statements have been reclassified to conform to the 2014 presentation . forward-looking financial information provided in this management 's discussion and analysis does not include estimated results of operations , cash flows or financial position related to the pending biomet merger , except for certain costs and expenses we expect to incur that are necessary to consummate the merger and that we will incur for integration planning prior to the merger closing . the biomet merger is expected to be a transformational event for us and have significant effects on all aspects of our business . this management 's discussion and analysis of our historical financial condition and results of operations on a standalone basis is not indicative of the financial condition and results of operations for future periods on a combined company basis following the merger . executive level overview 2014 results our 2014 sales results reflected increased growth as compared with 2013. sales from recent product introductions , such as persona the personalized knee system , as well as a stable joint replacement market , drove sales volume and product mix growth . this was partially offset by continued pricing pressure , negative effects from changes in foreign currency exchange rates , and a year-over-year decline in sales of our transposal fluid waste management system . despite the increase in net sales , net earnings decreased , driven by increased spending on our operational excellence initiatives , integration planning expenses related to the pending biomet merger , a $ 70.0 million contingent legal liability recognized in 2014 , and increased debt issuance costs and unused commitment fees recognized on new debt facilities that we entered into in may 2014 in order to fund the pending biomet merger . 2015 outlook the pending biomet merger , which we expect to close in the first quarter of 2015 , will have a significant impact on our 2015 operating results . this report does not include guidance for 2015 on a combined company basis . however , for zimmer on a standalone basis , we project that our net sales will face significant headwinds from the u.s. dollar strengthening against the euro , japanese yen and various other currencies around the world based upon recent foreign currency exchange rates . additionally for net sales , we expect to experience volume and mix growth from a stable joint replacement market and continued pricing pressure . in regards to expenses on a zimmer standalone basis , due to our hedging program , we project that the expected decrease in net sales caused by changes in foreign currency exchange rates will be partially offset by hedge gains to be recognized in 2015. we expect research and development ( r & d ) spending will remain similar compared to prior years as a percentage of net sales . for our selling , general and administrative ( sg & a ) expenses , we expect to continue to realize efficiencies from our operational excellence initiatives . however , since many of our fixed sg & a expenses are denominated in u.s. dollars , such as corporate and business unit headquarter expenses and intangible asset amortization , our sg & a expenses may not decrease in similar proportion to net sales decreases expected from changes in foreign currency exchange rates . story_separator_special_tag colspan= '' 6 '' style= '' border-bottom:1px solid # 000000 '' valign= '' bottom '' > year ended december 31 , 2014 2013 prior year gross margin 72.2 % 74.8 % lower average selling prices ( 0.6 ) ( 0.4 ) average cost per unit 0.4 ( 1.2 ) excess and obsolete inventory 0.4 ( 0.2 ) discontinued products and other certain excess and obsolete inventory charges 0.9 ( 1.0 ) certain inventory and manufacturing related charges related to quality 0.1 ( 0.3 ) foreign currency hedges 0.5 0.5 inventory step-up 0.1 ( 0.1 ) u.s. medical device excise tax ( 0.5 ) ( 0.2 ) other ( 0.2 ) 0.3 current year gross margin 73.3 % 72.2 % the increase in gross margin percentage in 2014 compared to 2013 was primarily due to significant excess and obsolete inventory charges recorded in 2013 related to products we intend to discontinue . we also recognized higher hedge gains in 2014 from our foreign currency hedging program compared to 2013. under the hedging program , for derivatives which qualify as hedges of future cash flows , the effective portion of changes in fair value is temporarily recorded in other comprehensive income and then recognized in cost of products sold when the hedged items affect earnings . further , we experienced improved product category mix , resulting in lower average costs per unit sold . these favorable items were partially offset by lower average selling prices and the u.s. medical device excise tax . story_separator_special_tag percent , respectively . the variation of our etr has largely been affected by special items , certain claims , goodwill impairment charges and a $ 34.3 million benefit in 2012 from the recognition of deferred tax assets related to a legal entity restructuring . higher special items and certain claims expense favorably affect our etr because most of these expenses have been incurred within jurisdictions with higher tax rates , resulting in lower taxable income in these higher tax jurisdictions . goodwill impairment negatively affects our etr because no tax benefit is recorded on the charge . in 2014 , a portion of our special items were for non-deductible expenses incurred related to the pending biomet merger , which increased our etr relative to 2013. in 2013 , in addition to the effect of special items and certain claims , our etr benefited from the retroactive reinstatement of the r & d tax credit and other tax benefits applicable to us that applied to 2012 and 2013. due to the timing of the extension and the applicable rules of accounting principles generally accepted in the united states of america ( gaap ) , we recognized the 2012 benefit in 2013. despite the $ 34.3 million benefit in 2012 from the recognition of deferred tax assets related to a legal entity restructuring , the 2012 etr was higher than 2014 and 2013 due to the goodwill impairment charge and lower certain claims and special items expenses . the items discussed accounted for the majority of the variation in our etrs in the past three years . segment operating profit for our reporting segments , operating profit increased in europe and asia pacific in 2014 compared to 2013 , while in the americas it decreased . the decrease in the americas was primarily from lower gross profit due to lower sales and the effect of the u.s. medical device excise tax . in europe , the increase in operating profit was driven by increased sales coupled with controlled operating expenses . operating expenses increased at a lower percentage compared to sales increases due to our operational excellence initiatives and the nature of fixed versus variable expenses resulting in operating margin expansion in europe . the increase in operating profit in asia pacific was driven by increases in sales from volume and product mix . while changes in foreign currency exchange rates tempered sales growth in asia pacific , this decline was largely offset by increased hedge gains recorded in 2014 versus 2013. non-gaap operating performance measures we use financial measures that differ from financial measures determined in accordance with gaap to evaluate our operating performance . these non-gaap financial measures exclude the impact of inventory step-up , certain inventory and manufacturing related charges connected to quality enhancement and remediation efforts , certain claims , goodwill impairment , special items , other expenses related to financing obtained for the pending biomet merger and any related effects on our income tax provision associated with 25 zimmer holdings , inc. 2014 form 10-k annual report these items . we use this information internally and believe it is helpful to investors because it allows more meaningful period-to-period comparisons of our ongoing operating results , it helps to perform trend analysis and to better identify operating trends that may otherwise be masked or distorted by these types of items , and it provides a higher degree of transparency of certain items . certain of these non-gaap financial measures are used as metrics for our incentive compensation programs . our non-gaap adjusted net earnings used for internal management purposes for the years ended december 31 , 2014 , 2013 and 2012 were $ 1,041.0 million , $ 988.4 million , and $ 932.5 million , respectively , and our non-gaap adjusted diluted earnings per share were $ 6.06 , $ 5.75 , and $ 5.30 , respectively . the following are reconciliations from our gaap net earnings and diluted earnings per share to our non-gaap adjusted net earnings and non-gaap adjusted diluted earnings per share used for internal management purposes ( in millions , except per share amounts ) . replace_table_token_9_th * the tax effect is calculated based upon the statutory rates for the jurisdictions where the items were incurred . replace_table_token_10_th * the tax effect is calculated based upon the statutory rates for the jurisdictions where the items were incurred . liquidity and capital resources cash flows provided by operating activities were $ 1,052.8 million in 2014 , compared to $ 963.1 million in 2013. the principal source of cash from operating activities was net earnings . non-cash items included in net earnings accounted for another $ 346.4 million of operating cash in 2014. all other items of operating cash flows reflect a use of $ 12.6 million of cash in 2014 , compared to a use of $ 84.9 million in 2013. the increased cash flows provided by operating activities in 2014 were primarily due to improved cash flows generated from receivables collections , especially in europe , lower funding necessary for our u.s. pension plans , and receipt of insurance proceeds related to durom cup product liability claims . these favorable items were partially offset by higher tax payments for certain unresolved matters in order to limit the potential impact of irs interest charges and inventory investments . at december 31 , 2014 , we had 64 days of sales outstanding in trade accounts receivable , which was 1 day less than at december 31 , 2013. our days of sales outstanding reflect the reimbursement patterns of the healthcare industry in the markets where we compete . collection of trade accounts receivable is influenced by insurance reimbursements and government budgets , among other things . days of sales outstanding are lowest in our americas reporting segment , as the u.s. healthcare system has a higher percentage of private-pay insurers who generally pay more quickly than government-based healthcare systems .
| results of operations net sales by reportable segment the following tables present net sales by reportable segment and the components of the percentage changes ( dollars in millions ) : replace_table_token_2_th 20 zimmer holdings , inc. 2014 form 10-k annual report replace_table_token_3_th foreign exchange as used in the tables in this report represents the effect of changes in foreign currency exchange rates on sales growth . net sales by product category the following tables present net sales by product category and the components of the percentage changes ( dollars in millions ) : replace_table_token_4_th replace_table_token_5_th 21 zimmer holdings , inc. 2014 form 10-k annual report the following table presents net sales by product category by region ( dollars in millions ) : replace_table_token_6_th demand ( volume and mix ) trends increased volume and changes in the mix of product sales contributed 4 percentage points of year-over-year sales growth in 2014 , which was a lower growth rate than experienced in 2013 compared to 2012. in 2013 , accelerated growth was fueled by the introduction of new products , such as persona the personalized knee system and the transposal fluid waste management system . in 2014 , while new products continued to drive sales growth , their impact on a year-over-year basis was not as significant . we believe long-term indicators point toward sustained growth driven by an aging global population , growth in emerging markets , obesity , proven clinical benefits , new material technologies , advances in surgical techniques and more active lifestyles , among other factors . in addition , demand for clinically proven premium products and patient specific devices are expected to continue to positively affect sales growth in markets that recognize the value of these advanced technologies .
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under his employment agreement story_separator_special_tag financial condition and results of operations statement regarding forward-looking disclosure this annual report on form 10-k includes “ forward-looking statements ” which represent our expectations or beliefs concerning future events that involve risks and uncertainties , including those associated with the effect of weather conditions on our financial performance , the price and supply of the products that we sell , the consumption patterns of our customers , our ability to obtain satisfactory gross profit margins , our ability to obtain new customers and retain existing customers , our ability to make strategic acquisitions , the impact of litigation , our ability to contract for our current and future supply needs , natural gas conversions , future union relations and the outcome of current and future union negotiations , the impact of current and future governmental regulations , including environmental , health , and safety regulations , the ability to attract and retain employees , customer credit worthiness , counterparty credit worthiness , marketing plans , general economic conditions and new technology . all statements other than statements of historical facts included in this report including , without limitation , the statements under “ management 's discussion and analysis of financial condition and results of operations ” and elsewhere herein , are forward-looking statements . without limiting the foregoing , the words “ believe , ” “ anticipate , ” “ plan , ” “ expect , ” “ seek , ” “ estimate , ” and similar expressions are intended to identify forward-looking statements . although we believe that the expectations reflected in such forward-looking statements are reasonable , we can give no assurance that such expectations will prove to be correct and actual results may differ materially from those projected as a result of certain risks and uncertainties . these risks and uncertainties include , but are not limited to , those set forth in this report under the headings “ risk factors ” and “ business strategy. ” important factors that could cause actual results to differ materially from our expectations ( “ cautionary statements ” ) are disclosed in this report . all subsequent written and oral forward-looking statements attributable to star or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements . unless otherwise required by law , we undertake no obligation to update or revise any forward-looking statements , whether as a result of new information , future events or otherwise after the date of this report . impact on liquidity of increases in wholesale product cost our liquidity is adversely impacted in times of increasing wholesale product costs , as we must use more cash to fund our hedging requirements as well as the increased levels of accounts receivable and inventory . this may result in higher interest expense as a result of increased working capital borrowing to finance higher receivables and or inventory balances . we may also incur higher bad debt expense and credit card processing costs as a result of higher selling prices as well as higher vehicle fuel costs due to the increase in energy costs . our liquidity can also be adversely impacted by sudden and sharp decreases in wholesale product costs , due to the increased margin requirements for futures contracts and collateral requirements for options and swaps that we use to manage market risks . home heating oil price volatility volatility , which is reflected in the wholesale price of home heating oil , has a larger impact on our business when prices rise , as consumer price sensitivity to heating costs increases , often leading to increased gross customer losses . as a commodity , the price of home heating oil is generally impacted by many factors , including economic and geopolitical forces . the price of home heating oil is closely linked to the price refiners pay for crude oil , which is the principal cost component of home heating oil . the volatility in the wholesale cost of home heating oil , as measured by the new york mercantile exchange ( “ nymex ” ) , for the fiscal years ending september 30 , 2014 , through 2018 , on a quarterly basis , is illustrated in the following chart ( price per gallon ) : replace_table_token_9_th 31 on november 30 , 2018 , the nymex ultra low sulfur diesel contract closed at $ 1.85 per gallon or $ 0.20 per gallon lower than the average of $ 2.05 in fiscal 2018. income taxes new federal income tax legislation on december 22 , 2017 , the tax cuts and jobs act ( the “ tax reform act ” ) was enacted into law . the tax reform act contains several key tax provisions that will impact the company , including the reduction of the corporate federal income tax rate from 35 % to 21 % effective january 1 , 2018. in addition , between september 28 , 2017 and december 31 , 2022 , the tax reform act allows for the full depreciation , in the year acquired , for certain fixed assets purchased in that year ( also known as 100 % bonus depreciation ) . during fiscal 2018 , the company recorded an $ 11.1 million discrete income tax benefit for the re-measurement of deferred tax assets and liabilities due to the change in the federal corporate income tax rate on which the deferred taxes are based . excluding the $ 11.1 million benefit recorded to income tax expense , our combined federal , state , and local effective income tax rate was reduced from 43.1 % at september 30 , 2017 to 29.6 % for the twelve months ended september 30 , 2018. book versus tax deductions the amount of cash flow that we generate in any given year depends upon a variety of factors including the amount of cash income taxes that we are required to pay , which will increase as tax depreciation and amortization decreases . the amount of depreciation and amortization that we deduct for book ( i.e. story_separator_special_tag when a customer moves out of an existing home , we count the “ move out ” as a loss , and if we are successful in signing up the new homeowner , the “ move in ” is treated as a gain . 33 customer gains and losses of home heating oil and propane customers replace_table_token_11_th replace_table_token_12_th for the twelve months ended september 30 , 2018 , the company lost 14,600 accounts ( net ) , or 3.2 % , of our home heating oil and propane customer base , compared to 6,800 accounts lost ( net ) , or 1.5 % , of our home heating oil and propane customer base , during the twelve months ended september 30 , 2017. our net customer attrition was worse by 7,800 accounts . while our gross customer gains were 1,900 accounts higher than the prior year 's comparable period , our gross customer losses were 9,700 accounts higher . gross customer losses exceeded the prior year primarily due to the price of home heating oil and propane , credit issues , and service disruptions . the wholesale cost of home heating oil increased by $ 0.4667 per gallon year-over-year , putting additional price pressure on retaining our customer base and attracting new customers as price protected customers renewed their plan , after the heating season , product cost rose by $ 0.5817 per gallon . in addition , the extremely cold temperatures experienced at the end of december 2017 and in early january 2018 , stressed our ability to service our customers at times , resulting in higher delivery and service losses . the majority of the increase in gross customer losses occurred during the third and fourth quarter of fiscal 2018 , i.e. , after the heating season when it is easier for a customer to discontinue service with us . in addition , higher prices also drove up customer account balances resulting in higher credit-related losses . for fiscal 2017 , our net customer attrition improved by 16,700 accounts as we lost 6,800 accounts ( net ) , or 1.5 % , of our home heating oil and propane customer base , compared to 23,500 accounts lost ( net ) , or 5.1 % of our home heating oil and propane customer base , during the prior year 's comparable period . the net customer attrition rate improved by 3.6 % . our gross customer gains were 2,600 higher than the prior year 's comparable period and our gross customer losses were lower by 14,100 accounts . during the first fiscal quarter of fiscal 2017 , net customer attrition improved by 6,600 accounts due to competitive margin management , certain marketing incentives , and more normal weather conditions , as we believe that customers did not see a need during the prior fiscal year first quarter ( a very warm period ) for the higher level of service that we can provide . during the second and third quarters of fiscal 2017 , net customer attrition improved by 4,400 compared to the prior year period . gross customer gains were higher by 100 accounts , and gross customer losses improved by 4,300 accounts . in the fourth quarter of fiscal 2017 , net customer attrition improved by 5,700 accounts due largely to a reduction in gross customer losses of 4,700 accounts versus the fourth quarter of fiscal 2016. we believe that the modest increase in gross customer gains during the second , third and fourth quarters of fiscal 2017 can be in part attributable to competitive margin management and marketing incentives and that the lower level of gross customer losses reflect the impact of increased expenditures in the customer experience area and our focus on customer satisfaction and retention efforts . also , in the fourth quarter of fiscal 2016 , our losses were impacted by the purging of certain customers that were deemed to be inactive . 34 during fiscal 2018 , we estimate that we lost 1 . 3 % of our home heating oil and propane accounts to natural gas conversions versus 1.2 % for fiscal 2017 and 1.3 % for fiscal 2016. losses to natural gas in our footprint for the heating oil and propane industry could be greater or less than the company 's estimates . conversions to natural gas may continue as it remains less expensive than home heating oil on an equivalent btu basis . seasonality the following matters should be considered in analyzing our financial results . our fiscal year ends on september 30. all references to quarters and years respectively in this document are to the fiscal quarters and years unless otherwise noted . the seasonal nature of our business has resulted , on average , during the last five years , in the sale of approximately 30 % of our volume of home heating oil and propane in the first fiscal quarter and 50 % of our volume in the second fiscal quarter , the peak heating season . approximately 25 % of our volume of other petroleum products is sold in each of the four fiscal quarters . we generally realize net income in both of these quarters and net losses during the quarters ending june and september . in addition , sales volume typically fluctuates from year to year in response to variations in weather , wholesale energy prices and other factors . acquisitions during fiscal 2018 , the company completed six acquisitions . the timing of these transactions and the types of products sold by the acquired companies will impact year-over-year comparisons . the following table details the company 's acquisition activity and the volumes sold by the acquired company during the 12-month period prior to the date of acquisition . replace_table_token_13_th degree day a “ degree day ” is an industry measurement of temperature designed to evaluate energy demand and consumption . degree days are based on how far the average daily temperature departs from 65°f .
| consolidated results of operations the following is a discussion of the consolidated results of operations of star and its subsidiaries and should be read in conjunction with the historical financial and operating data and notes thereto included elsewhere in this annual report . 35 fiscal year ended september 30 , 2018 compared to fiscal year ended september 30 , 2017 volume for fiscal 2018 , retail volume of home heating oil and propane sold increased by 40.3 million gallons , or 12.7 % , to 357.2 million gallons , compared to 316.9 million gallons for fiscal 2017. for those locations where we had existing operations during both periods , which we sometimes refer to as the “ base business ” ( i.e. , excluding acquisitions ) , temperatures ( measured on a heating degree day basis ) for fiscal 2018 were 9.0 % colder than fiscal 2017 but 4.7 % warmer than normal , as reported by noaa . for fiscal 2018 , net customer attrition for the base business was 3.2 % . the impact of fuel conservation , along with any period-to-period differences in delivery scheduling , the timing of accounts added or lost during the fiscal years , equipment efficiency , and other volume variances not otherwise described , are included in the chart below under the heading “ other. ” an analysis of the change in the retail volume of home heating oil and propane , which is based on management 's estimates , sampling , and other mathematical calculations and certain assumptions , is found below : replace_table_token_14_th the following chart sets forth the percentage by volume of total home heating oil sold to residential variable-price customers , residential price-protected customers , and commercial/industrial/other customers for fiscal 2018 compared to fiscal 2017 : replace_table_token_15_th volume of other petroleum products sold increased by 26.2 million gallons , or 23.4 % , to 138.3 million gallons for fiscal 2018 , compared to 112.1 million gallons for fiscal 2017 , mainly attributable to acquisitions .
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this annual report on form 10-k includes forward-looking statements within the meaning of the private securities litigation reform act of 1995. all statements other than statements of historical fact , including statements regarding prospects or future results of operations or financial position , made in this annual report on form 10-k are forward-looking . we use words such as anticipates , believes , expects , future , intends , and similar expressions to identify forward-looking statements . forward-looking statements reflect management 's current expectations and are inherently uncertain . actual results could differ materially for a variety of reasons , including , among others : the effects on the airline industry and the global economy of events such as terrorist activity and the covid-19 pandemic , changes in oil prices and other disruptions to the world markets ; trends in the airline industry and our ability to capitalize on those trends , including growth rates of markets and other economic factors ; risks associated with owning and leasing jet engines and aircraft ; our ability to successfully negotiate equipment purchases , sales and leases , to collect outstanding amounts due and to control costs and expenses ; changes in interest rates and availability of capital , both to us and our customers ; our ability to continue to meet the changing customer demands ; regulatory changes affecting airline operations , aircraft maintenance , accounting standards and taxes ; and the market value of engines and other assets in our portfolio . these risks and uncertainties , as well as other risks and uncertainties that could cause our actual results to differ significantly from management 's expectations , are described in greater detail in item 1a “ risk factors ” of part i which , along with the other discussion in this report , describes some , but not all , of the factors that could cause actual results to differ significantly from management 's expectations . general . our core business is acquiring and leasing commercial aircraft and aircraft engines and related aircraft equipment pursuant to operating leases , all of which we sometimes collectively refer to as “ equipment. ” as of december 31 , 2020 , the majority of our leases were operating leases with the exception of certain failed sale-leaseback transactions classified as notes receivable under the guidance provided by asc 842. as of december 31 , 2020 , we had 70 lessees in 41 countries . our portfolio is continually changing due to acquisitions and sales . as of december 31 , 2020 , our $ 1,886.6 million equipment held for operating lease portfolio and $ 158.7 million notes receivable represented 291 engines , eight aircraft , one marine vessel and other leased parts and equipment . as of december 31 , 2020 , we also managed 400 engines , aircraft and related equipment on behalf of other parties . our wholly owned subsidiary willis asset management limited ( “ willis asset management ” ) is focused on the engine management and consulting business . willis aeronautical services , inc. ( “ willis aero ” ) is a wholly owned subsidiary whose primary focus is the sale of aircraft engine parts and materials through the acquisition or consignment of aircraft and engines . in 2011 we entered into an agreement with mitsui & co. , ltd. to participate in a joint venture formed as a dublin-based irish limited company , wmes , for the purpose of acquiring and leasing jet engines . each partner holds a 50 % interest in the joint venture . wmes owns a lease portfolio , inclusive of a note receivable , of 36 engines and five aircraft with a net book value of $ 289.2 million at december 31 , 2020. our investment in the joint venture was $ 37.4 million as of december 31 , 2020. in 2014 we entered into an agreement with casc to participate in casc willis , a new joint venture based in shanghai , china . each partner holds a 50 % interest in the joint venture . the company acquires and leases jet engines to chinese airlines and 24 concentrates on meeting the fast-growing demand for leased commercial aircraft engines and aviation assets in the people 's republic of china . casc willis owned a lease portfolio of four engines with a net book value of $ 50.1 million as of december 31 , 2020. our investment in the joint venture was $ 15.9 million as of december 31 , 2020. we actively manage our portfolio and structure our leases to maximize the residual values of our leased assets . our leasing business focuses on popular stage iv commercial jet engines manufactured by cfmi , general electric , pratt & whitney , rolls royce and international aero engines . these engines are the most widely used engines in the world , powering airbus , boeing , bombardier and embraer aircraft . covid-19 impact . throughout the next year , we plan to continue to stay focused on cost control and remain prudent with our capital expenditures . we have temporarily closed our headquarters and other offices , required our employees and contractors to predominately work remotely , and implemented travel restrictions , all of which represent a significant disruption in how we operate our business . we have taken various proactive actions in an attempt to mitigate the financial impact of the covid-19 pandemic . additionally , during 2020 , 9 % of our employees have been either furloughed , or subject to a form of reduced compensation . the operations of our partners and customers have likewise been disrupted . the worldwide spread of the covid-19 virus has resulted in a global slowdown of economic activity . while the duration and extent of the covid-19 pandemic depends on future developments that can not be accurately predicted at this time , such as the extent and effectiveness of containment actions , it has had an adverse effect on the global economy and the ultimate societal and economic impact of the covid-19 pandemic remains unknown . story_separator_special_tag long-lived assets and certain identifiable intangibles to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable , and long-lived assets and certain identifiable intangibles to be disposed of are reported at the lower of carrying amount or fair value less cost to sell . on a quarterly basis , management monitors the lease portfolio for events which may indicate that a particular asset may need to be evaluated for potential impairment . these events may include a decision to part-out or sell an asset , knowledge of specific damage to an asset , or supply/demand events which may impact the company 's ability to lease an asset in the future . on an annual basis , even absent any such ‘ triggering event ' , we evaluate the carrying value of the assets in our lease portfolio to determine if any impairment exists . impairment may be identified by several factors , including , comparison of estimated sales proceeds or forecasted undiscounted cash flows over the life of the asset with the asset 's book value . if the forecasted undiscounted cash flows are less than the book value , the asset is written down to its fair value . when evaluating for impairment , we test at the individual asset level ( e.g. , engine or aircraft ) , as each asset generates its own stream of cash flows , including lease rents , maintenance reserves and repair costs . we must make assumptions which underlie the most significant and subjective estimates in determining whether any impairment exists . those estimates , and the underlying assumptions , are as follows : fair value – we determine fair value by reference to independent appraisals , quoted market prices ( e.g. , an offer to purchase ) and other factors such as current data from airlines , engine manufacturers and mro providers as well as specific market sales and repair cost data . future cash flows – when evaluating the future cash flows that an asset will generate , we make assumptions regarding the lease market for specific engine models , including estimates of market lease rates and future demand . these assumptions are based upon lease rates that we are obtaining in the current market as well as our expectation of future demand for the specific engine/aircraft model . if the forecasted undiscounted cash flows and fair value of our long-lived assets decrease in the future we may incur impairment charges . management continuously monitors the aviation industry and evaluates any trends , events or uncertainties involving airlines , individual aircraft and engine models , as well as the engine leasing and sale market which would materially affect the methodology or assumptions employed by wlfc . we do not consider there to be any trends , events or uncertainties that currently exist or that are reasonably likely to occur that would materially affect our methodology or assumptions . however , should any arise , we will adjust our methodology and our disclosure accordingly . spare parts inventory is stated at lower of cost or net realizable value . an impairment charge for excess or inactive inventory is recorded based upon an analysis that considers current inventory levels , historical usage patterns , future sales expectations and salvage value . accounting for maintenance expenditures and maintenance reserves . use fees received are recognized in revenue as maintenance reserve revenue if they are not reimbursable to the lessee . use fees that are reimbursable are recorded as a maintenance reserve liability until they are reimbursed to the lessee , the lease terminates , or the obligation to reimburse the lessee for such reserves ceases to exist , at which time they are recognized in revenue as maintenance reserve revenue . our expenditures for maintenance are expensed as incurred . expenditures that meet the criteria for capitalization are recorded as an addition to equipment recorded on the balance sheet . recent accounting pronouncements the most recent adopted and to be adopted accounting pronouncements are described in note 1 ( x ) to our consolidated financial statements included in this annual report on form 10-k. 26 story_separator_special_tag sale to third-party or for part-out and an adjustment of the carrying value of seven impaired engines . write-down of equipment was $ 18.2 million for the year ended december 31 , 2019 reflecting the write-down of 11 engines due to a management decision to monetize the engines either by sale to a third-party or for part-out and an adjustment of the carrying value of seven impaired engines . general and administrative expenses . general and administrative expenses decreased 21.5 % to $ 67.9 million for the year ended december 31 , 2020 compared to $ 86.5 million in 2019. the decrease , when compared to the prior year period , primarily reflects no bonus accrual in the current year due to operating performance as well as the effect of reduced business travel spending and procurement of outside services . technical expense . technical expenses consist of the cost of engine repairs , engine thrust rental fees , outsourced technical support services , sublease engine rental expense , engine storage and freight costs . these expenses decreased 19.6 % to $ 6.5 million for the year ended december 31 , 2020 , compared to $ 8.1 million in 2019. the decrease is primarily due to a decrease in technical support services driven by lower industry-wide demand due to impact of the covid-19 pandemic . net finance costs . net finance costs increased 0.9 % to $ 67.7 million in the year ended december 31 , 2020 , from $ 67.1 million for the year ended december 31 , 2019. the increase was primarily due to a loss on debt extinguishment of $ 4.7 million , partly offset by lower interest expense as a result of lower interest rates in 2020 as compared to the prior year period . income taxes .
| results of operations year ended december 31 , 2020 compared to the year ended december 31 , 2019 revenue is summarized as follows : replace_table_token_2_th lease rent revenue . lease rent revenue consists of rental income from long-term and short-term engine leases , aircraft leases , and other leased parts and equipment . lease rent revenue decreased by $ 47.8 million , or 25.1 % , to $ 142.9 million for the year ended december 31 , 2020 from $ 190.7 million for the year ended december 31 , 2019. the decrease is primarily due to lower average utilization and rent concessions for reduced rent of $ 6.5 million given during 2020 , directly related to impacts of the covid-19 pandemic , when compared to the prior year . during the year ended december 31 , 2020 , we purchased equipment ( including capitalized costs ) totaling $ 409.3 million , which primarily consisted of 38 engines and other parts and equipment purchased for our lease portfolio . during the year ended december 31 , 2019 , 45 engines , 6 aircraft , one marine vessel and other lease equipment were added to our lease portfolio at a total cost of $ 289.4 million ( including capitalized costs ) . one customer accounted for 11.4 % of total lease rent revenue during the year ended december 31 , 2020 and no customers accounted for more than 10 % of total lease rent revenue during the year ended december 31 , 2019. the aggregate net book value of equipment held for lease at december 31 , 2020 and 2019 was $ 1,886.6 million and $ 158.7 million notes receivable and $ 1,650.9 million and $ 38.1 million notes receivable , respectively , an increase of 14.3 % . average utilization ( based on net book value ) was approximately 84 % and 88 % for the year ended december 31 , 2020 and 2019 , respectively . maintenance reserve revenue .
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f-11 expected term : the expected term calculation for option awards considers a combination of the company 's historical and estimated future exercise behavior . forfeiture rate : the company elects to recognize actual forfeitures of stock-based awards as they occur . if any of the assumptions used in the option-pricing model change significantly , stock-based compensation for future awards may differ materially compared to the awards granted . debt issuance costs the company incurs debt issuance costs in connection with its debt facilities and related amendments . amounts paid directly to lenders are classified as issuance costs and are recorded as a reduction of the carrying value of the debt . debt issuance costs are amortized using the effective interest rate method to interest expense on the company 's consolidated statements of operations . see note 9 – debt for additional details . convertible notes the company accounts for convertible notes in accordance with asc topic 470-20 , debt with conversion and other options . convertible notes are classified as liabilities measured at amortized cost , net of debt discounts from the allocation of proceeds . interest expense is recognized using the effective interest method over the expected term of the debt instrument pursuant to asc topic 835 , interest . beneficial conversion feature if the amount allocated to the convertible notes results in an effective per share conversion price that is less than the fair value of the company 's common stock on the commitment date , the intrinsic value of this beneficial conversion feature is recorded as a discount to the convertible notes , with a corresponding increase to additional paid in capital . the beneficial conversion feature discount is equal to the difference between the effective conversion price and the fair value of the company 's common stock at the commitment date , unless limited by the remaining proceeds allocated to the convertible notes . earnings per common share basic earnings ( loss ) per share is computed by dividing net income ( loss ) attributable to common stockholders by the weighted-average number of common stock outstanding during the period , without consideration story_separator_special_tag in the company 's 201 9 annual report on form 10-k . a discussion of other expenses ( income ) and losses ( gains ) , net for the year ended december 31 , 2018 is included below to reflect the revised amounts related to the correction of a prior period error . t he results of operations of bite squad are included in our consolidated financial statements beginning on the acquisition date , january 17 , 2019 ( see part ii , item 8 , note 3 – business combinations of this form 10-k ) . revenue replace_table_token_4_th revenue increased for the year ended december 31 , 2020 compared to december 31 , 2019 , primarily as a result of improved revenue unit economics . the average order size increased to $ 41.86 from $ 36.15 , an improvement of 16 % , while average daily orders decreased in the year ended december 31 , 2020 compared to december 31 , 2019 , partially as a result of market closures in late 2019 and early 2020. included in revenue for the year ended december 31 , 2019 is $ 3,005 related to a cumulative adjustment to setup and integration fee revenue as a result of contract modifications made in july 2019 and the effect of such modifications on our measure of progress towards the performance obligations . the cumulative adjustment to revenue was partially offset by write-offs of uncollected setup and integration fees within accounts receivable of $ 797 and refunds of previously paid setup and integration fees of $ 320. operations and support replace_table_token_5_th operations and support expenses decreased in dollar terms and as a percentage of revenue for the year ended december 31 , 2020 compared to december 31 , 2019 , primarily as a result of lower driver operations cost relating to the change to independent contractor drivers . sales and marketing replace_table_token_6_th sales and marketing expense decreased in dollar terms and as a percentage of revenue in the year ended december 31 , 2020 compared to december 31 , 2019 , primarily as a result of decreased advertising spend of approximately $ 28,483 , as well as staff reductions and the consolidation of sales and marketing functions in the second half of 2019 and early 2020. research and development replace_table_token_7_th research and development expense decreased in dollar terms and as a percentage of revenue in the year ended december 31 , 2020 compared to december 31 , 2019 , primarily due to the capitalization of increased software development costs during 2020 as further features and functionality were incorporated into the platforms . 38 story_separator_special_tag december 31 , 2020 , the company had $ 2,726 of outstanding short-term loans for insurance financing . we currently expect that our cash on hand and estimated cash flow from operations will be sufficient to meet our working capital needs beyond twelve months ; however , there can be no assurance that we will generate cash flow at the levels we anticipate . we may use cash on hand to repay additional debt or to acquire or invest in complementary businesses , products and technologies . we continually evaluate additional opportunities to strengthen our liquidity position , fund growth initiatives and or combine with other businesses by issuing equity or equity-linked securities ( in public or private offerings ) and or incurring additional debt . however , market conditions , our future financial performance or other factors may make it difficult or impossible for us to access sources of capital , on favorable terms or at all , should we determine in the future to raise additional funds . story_separator_special_tag we are continuously reviewing our liquidity and anticipated working capital needs , particularly in light of the uncertainty created by the covid-19 pandemic . thus far , we have been able to operate effectively during the pandemic , however , the potential impacts and duration of the covid-19 pandemic on the economy and on our business , in particular , may be difficult to assess or predict . capital expenditures our main capital expenditures relate to the purchase of tablets for restaurants on the platforms and investments in the development of the platforms , which are expected to increase as we continue to grow our business . our future capital requirements and the adequacy of available funds will depend on many factors , including those set forth under part i , item 1a , risk factors in this form 10-k. 40 cash flow the following table sets forth our summary cash flow information for the periods indicated : replace_table_token_12_th cash flows provided by ( used in ) operating activities for the year ended december 31 , 2020 , net cash provided by operating activities was $ 38,445 , compared to net cash used in operating activities of $ 73,477 for the year ended december 31 , 2019 , primarily reflecting the effects of the implementation of various initiatives aimed at improving operations and profitability . the increase in net cash used in operating activities for the year ended december 31 , 2019 compared to 2018 primarily reflected an increase in new market launch activities in 2019 relative to 2018. operating activities during the years ended december 31 , 2019 and 2018 included the payment of business combination-related expenses of $ 6,956 and $ 5,768 , respectively . cash flows used in investing activities for the year ended december 31 , 2020 , net cash used in investing activities included $ 3,982 of costs for internally developed software , $ 1,555 for the purchase of property and equipment and $ 628 for the acquisition of intangible assets . net cash used in investing activities for the year ended december 31 , 2019 included $ 192,568 for the acquisition of bite squad , $ 1,805 for internally developed software , $ 1,636 for the purchase of property and equipment , and $ 695 for the acquisition of intangible assets . net cash used in investing activities for the year ended december 31 , 2018 primarily consisted of $ 3,750 for the purchase of property and equipment . property and equipment is comprised primarily of computer tablets for restaurants on the platforms . the tablets remain our property . we control software applications and updates on the tablets , and the tablets are programmed exclusively for the platforms . we also periodically purchase office furniture , equipment , computers and software and leasehold improvements . cash flows provided by financing activities for the year ended december 31 , 2020 , net cash provided by financing activities included $ 47,574 of net proceeds from the sales of common stock under the company 's atm program and $ 4,753 of borrowings under short-term loans for insurance financing , less $ 22,594 of payments on the term loans and $ 5,632 of payments on short-term loans for insurance financing . for the year ended december 31 , 2019 , net cash provided by financing activities included net proceeds from the issuance of common stock of $ 45,823 , proceeds from the issuance of term loans of $ 42,080 and $ 7,875 of borrowings under a short-term loan for the company 's annual insurance premium financing , less $ 4,931 of payments on short-term loans for insurance financing . for the year ended december 31 , 2018 , net cash provided by financing activities included $ 143,648 of net cash assumed from the landcadia business combination and $ 85,000 of proceeds from the issuance of the term loans and notes , less $ 3,050 of related debt issuance costs . during the year ended december 31 , 2018 , we borrowed $ 5,000 under an unsecured line of credit and repaid in full the $ 5,000 of borrowings . additionally , we borrowed $ 2,172 under a short-term loan to finance a portion of our insurance premium obligations and made repayments of $ 1,514 on such loan during the year ended december 31 , 2018 . 41 contractual obligations and other commitments at december 31 , 2020 , we had corporate offices in lake charles and lafayette , louisiana , as well as smaller offices across the united states . our office leases expire on various dates through august 2026. we recognize rent expense on a straight-line basis over the relevant lease period . our debt and interest payments , future minimum payments under non-cancellable operating leases for equipment and office facilities and payments related to our medical contingency were as follows as of december 31 , 2020 : replace_table_token_13_th ( 1 ) debt includes principal amounts due under the debt facility and notes as of december 31 , 2020. see part ii , item 8 , note 9 – debt of this form 10-k for additional details . ( 2 ) loan agreements include principal payments due under short-term loans to finance certain insurance premiums and principal payments for promissory notes related to acquisitions . see part ii , item 8 , note 9 – debt of this form 10-k for additional details . ( 3 ) interest due on debt assumes all interest payments are paid in cash . interest on the notes assumes no conversion prior to the maturity of the notes . ( 4 ) in november 2017 , guarantee insurance company ( “ gic ” ) , the company 's former workers ' compensation insurer , was ordered into receivership for purposes of liquidation by the second judicial circuit court in leon county , florida . at the time of the court order , gic was administering the company 's outstanding workers
| general and administrative replace_table_token_8_th general and administrative expense decreased in dollar terms and as a percentage of revenue in the year ended december 31 , 2020 compared to december 31 , 2019 , due to decreased travel , entertainment and other related expenses as a result of covid-19 and stock-based compensation expenses . additionally , included in general and administrative expense during the year ended december 31 , 2019 are $ 6,956 of business combination-related professional and other costs associated with the bite squad merger . depreciation and amortization replace_table_token_9_th depreciation and amortization expense decreased in dollar terms and as a percentage of revenue in the year ended december 31 , 2020 compared to december 31 , 2019 , primarily as a result of the write-down of the carrying value of intangible assets to their implied fair values in september 2019 in connection with the company 's goodwill impairment analysis . goodwill impairment during the year ended december 31 , 2019 , we recognized a non-cash goodwill impairment charge of $ 119,212 to write down the carrying value of goodwill to its implied fair value . the primary factor contributing to a reduction in the fair value was the sustained decline in the company 's stock price in 2019 , resulting in a market capitalization that was significantly lower than the carrying value of the company 's consolidated stockholders ' equity . see part ii , item 8 , note 7 – goodwill and intangible assets for additional details . intangible and other asset impairments replace_table_token_10_th the sustained decline in the company 's stock price during 2019 resulted in a non-cash intangible asset impairment charge in the year ended december 31 , 2019 of $ 71,982 to write down the carrying value of certain intangible assets to their implied fair values .
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statements contained in this item 7 : management 's discussion and analysis of financial condition and results of operations that are not historical facts may be forward-looking statements . such statements are subject to certain risks and uncertainties , which could cause actual results to differ materially from those projected . some of the information presented is forward-looking in nature , including information concerning projected future occupancy rates , rental rate increases , property development timing and investment amounts . although the information is based on our current expectations , actual results could vary from expectations stated in this report . numerous factors will affect our actual results , some of which are beyond our control . these include the breadth and duration of the current economic recession and its impact on our tenants , the strength of commercial and industrial real estate markets , market conditions affecting tenants , competitive market conditions , interest rate levels , volatility in our stock price and capital market conditions . you are cautioned not to place undue reliance on this information , which speaks only as of the date of this report . we assume no obligation to update publicly any forward-looking information , whether as a result of new information , future events , or otherwise , except to the extent we are required to do so in connection with our ongoing requirements under federal securities laws to disclose material information . for a discussion of important risks related to our business , and related to investing in our securities , including risks that could cause actual results and events to differ materially from results and events referred to in the forward-looking information , see item 1a : risk factors and the discussion under the captions “ —forward-looking statements ” above and “ —liquidity and capital resources ” below . in light of these risks , uncertainties and assumptions , the forward-looking events discussed in this report might not occur . executive summary through our interest in hudson pacific properties , l.p. ( our operating partnership ) and its subsidiaries , at december 31 , 2011 our consolidated office portfolio consisted of approximately 3.6 million square feet , and our media and entertainment portfolio consisted of 0.9 million square feet . as of december 31 , 2011 , our consolidated office portfolio was 91.0 % leased ( including leases not yet commenced ) . our media and entertainment properties were 70.1 % leased for the trailing 12-month period ended december 31 , 2011 . current year acquisitions , repositionings and financings . acquisitions . in the third quarter of 2011 we completed three acquisitions , including 604 arizona , 275 brannan , and 625 second street on july 26 , 2011 , august 18 , 2011 and september 9 , 2011 , respectively . on november 22 , 2011 we acquired 6922 hollywood boulevard . on december 16 , 2011 we acquired 6050 sunset and 1445 beachwood , which 34 together comprise 20,261 square feet of office property ancillary to our sunset gower property . dispositions . we did not dispose of any properties in 2011 . repositionings . we generally select a property for repositioning at the time we purchase it . we often strategically purchase properties with large vacancies or expected near-term lease roll-over and use our knowledge of the property and submarket to determine the optimal use and tenant mix . a repositioning can consist of a range of improvements to a property , and may involve a complete structural renovation of a building to significantly upgrade the character of the property , or it may involve targeted remodeling of common areas and tenant spaces to make the property more attractive to certain identified tenants . because each repositioning effort is unique and determined based on the property , tenants and overall trends in the general market and specific submarket , the results are varying degrees of depressed rental revenue and occupancy levels for the affected property , which impacts our results and , accordingly , comparisons of our performance from period to period . the repositioning process generally occurs over the course of months or even years . although usually associated with newly-acquired properties , repositioning efforts can also occur at properties we already own ; repositioning properties discussed in the context of this paragraph exclude acquisition properties where the plan for improvement is implemented as part of the acquisition . during 2011 , we completed our repositioning of our 875 howard street property and acquired 275 brannan for purposes of repositioning . financings . on february 11 , 2011 , we closed a five-year term loan totaling $ 92.0 million with wells fargo bank , n.a . secured by our sunset gower and sunset bronson media and entertainment campuses . proceeds from the loan were used to fully refinance a $ 37.0 million mortgage loan secured by our sunset bronson property that was scheduled to mature on april 30 , 2011. the remaining proceeds were used to partially pay down our $ 200.0 million secured credit facility . on june 1 , 2011 we repaid the $ 14.3 million loan secured by our tierrasanta property , on september 1 , 2011 we repaid the $ 43.0 million loan secured by our first financial property , and on december 12 , 2011 we repaid the $ 30.0 million loan secured by our 10950 washington property . story_separator_special_tag future economic downturns or regional downturns affecting our submarkets or downturns in our tenants ' industries that impair our ability to renew or re-let space and the ability of our tenants to fulfill their lease commitments , as in the case of tenant bankruptcies , could adversely affect our ability to maintain or increase rental rates at our properties . in addition , growth in rental revenue will also partially depend on our ability to acquire additional properties that meet our investment criteria . conditions in our markets the properties in our portfolio are all located in california submarkets . positive or negative changes in economic or other conditions in california , including the state budgetary shortfall , employment rates , natural hazards and other factors , may impact our overall performance . operating expenses our operating expenses generally consist of utilities , property and ad valorem taxes , insurance and site maintenance costs . increases in these expenses over tenants ' base years are generally passed on to tenants in our full-service gross leased properties and are generally paid in full by tenants in our net lease properties . certain of our properties have been reassessed for property tax purposes as a result of our initial public offer or their subsequent acquisition and other reassessments remain pending . in the case of completed reassessments , the amount of property taxes we pay reflect the valuations established with the county assessors for the relevant locations of each property as of the initial public offering or their subsequent acquisition . with respect to pending reassessments , we similarly expect the amount of property taxes we pay to reflect the valuations established with such county assessors . taxable reit subsidiary as part of the formation transactions , we formed hudson pacific services , inc. , or our services company , a maryland corporation that is wholly owned by our operating partnership . we have elected , together with our services company , to treat 36 our services company as a taxable reit subsidiary for federal income tax purposes , and we may form additional taxable reit subsidiaries in the future . our services company generally may provide both customary and non-customary services to our tenants and engage in other activities that we may not engage in directly without adversely affecting our qualification as a reit . our services company and its wholly owned subsidiaries provide a number of services to certain tenants at our media and entertainment properties and , from time to time , one or more taxable reit subsidiaries may provide services to our tenants at these and other properties . in addition , our operating partnership has contributed some or all of its interests in certain wholly owned subsidiaries or their assets to our services company . we currently lease space to wholly owned subsidiaries of our services company at our media and entertainment properties and may , from time to time , enter into additional leases with one or more taxable reit subsidiaries . any income earned by our taxable reit subsidiaries will not be included in our taxable income for purposes of the 75 % or 95 % gross income tests , except to the extent such income is distributed to us as a dividend , in which case such dividend income will qualify under the 95 % , but not the 75 % , gross income test . because a taxable reit subsidiary is subject to federal income tax , and state and local income tax ( where applicable ) , as a regular c corporation , the income earned by our taxable reit subsidiaries generally will be subject to an additional level of tax as compared to the income earned by our other subsidiaries . critical accounting policies our discussion and analysis of the historical financial condition and results of operations of hudson pacific properties , inc. are based upon our financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles ( “ gaap ” ) . the preparation of these financial statements in conformity with gaap requires management to make estimates and assumptions in certain circumstances that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses in the reporting period . actual amounts may differ from these estimates and assumptions . we have provided a summary of our significant accounting policies in the notes to our financial statements included elsewhere in this annual report on form 10-k. we have summarized below those accounting policies that require material subjective or complex judgments and that have the most significant impact on our financial conditions and results of operations . we evaluate these estimates on an ongoing basis , based upon information currently available and on various assumptions that we believe are reasonable as of the date hereof . other companies in similar businesses may use different estimation policies and methodologies , which may impact the comparability of our results of operations and financial conditions to those of other companies . investment in real estate properties the properties in our portfolio are carried at cost , less accumulated depreciation and amortization . we account for the cost of an acquisition , including the assumption of liabilities , to the acquired tangible assets and identifiable intangibles based on their estimated fair values in accordance with gaap . we assess fair value based on estimated cash flow projections that utilize appropriate discount and or capitalization rates and available market information . estimates of future cash flows are based on a number of factors , including historical operating results , known and anticipated trends , and market and economic conditions . the fair value of tangible assets of an acquired property considers the value of the property as if it was vacant . acquisition-related expenses are expensed in the period incurred .
| results of operations the following table identifies each of the properties in our portfolio acquired through december 31 , 2011 and their date of acquisition . replace_table_token_12_th ( 1 ) we acquired a 51 % joint venture interest in the rincon center property on december 16 , 2010. on april 29 , 2011 we acquired the remaining 49 % interest in the rincon center property for approximately $ 38.7 million ( before closing costs and prorations ) . all amounts and percentages used in this discussion of our results of operations are calculated using the numbers presented in the financial statements contained in this report rather than the rounded numbers appearing in this discussion . 39 comparison of the year ended december 31 , 2011 to the year ended december 31 , 2010 revenue total office revenue . total office revenue consists of rental revenue , tenant recoveries and other revenue . total office revenues increased $ 78.7 million , or 297.0 % , to $ 105.2 million for the year ended december 31 , 2011 compared to $ 26.5 million for the year ended december 31 , 2010 . the period over period changes in the items that comprise total revenue are attributable primarily to the factors discussed below . office rental revenue . office rental revenue includes rental revenues from our office properties and percentage rent on retail space contained within those properties . total office rental revenue increased $ 53.1 million , or 238.7 % , to $ 75.3 million for the year ended december 31 , 2011 compared to $ 22.2 million for the year ended december 31 , 2010 . the increase in rental revenue from a year ago was primarily the result of rental revenue from office properties acquired during the third and fourth quarters of 2010 and 2011. office tenant recoveries . office tenant recoveries increased $ 19.0 million , or 609.5 % , to $ 22.1
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accordingly , we express no such opinion . our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements , whether due to error or fraud , and performing procedures that respond to those risks . such procedures included examining , on a test basis , evidence regarding the amounts and disclosures in the consolidated financial statements . our audit also included evaluating the accounting principles used and significant estimates made by management , as well as evaluating the overall presentation of the consolidated financial statements . we believe that our audit provide a reasonable basis for our opinion . baker tilly virchow krause , llp new york , new york we have served as the company 's auditor since 2017. april 13 , 2018 f- 2 report of independent registered public accounting firm the board of directors and shareholders siebert financial corp. we have audited the accompanying consolidated statement of financial condition of siebert financial corp. and subsidiaries ( the `` company `` ) as of december 31 , 2016 , and the related consolidated statements of operations , changes in stockholders ' equity , and cash flows for the year then ended . these financial statements are the responsibility of the company 's management . our responsibility is to express an opinion on these financial statements based on our audit . we conducted our audit in accordance with the standards of the public company accounting oversight board ( united states ) . those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement . the company is not required to have , nor were we engaged to perform , an audit of its internal control over financial reporting . our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances , but not for the purpose of expressing an opinion on the effectiveness of the company 's internal control over financial reporting . accordingly , we express no such opinion . an audit includes examining , on a test basis , evidence supporting the amounts and disclosures in the financial statements . an audit also includes assessing the accounting principles used and significant estimates made by management , as well as evaluating the overall financial statement presentation . we believe that our audit provides a reasonable basis for our opinion . in our opinion , the financial statements referred to above present fairly , in all material respects , the consolidated financial position of siebert financial corp. and subsidiaries as of december 31 , 2016 , and the consolidated results of their operations and their cash flows for the year then ended , in conformity with accounting principles generally accepted in the united states of america . eisneramper llp eisneramper llp new york , new york april 4 , 2017 f- 3 siebert financial corp. and subsidiaries consolidated statements of financial condition replace_table_token_10_th see notes to consolidated financial statements . f- 4 siebert financial corp. and subsidiaries consolidated statements of operations replace_table_token_11_th see notes to consolidated financial statements . f- 5 siebert financial corp. and subsidiaries consolidated statement of changes in stockholders ' equity years ended december 31 , 2017 and 2016 replace_table_token_12_th see notes to consolidated financial statements . f- 6 siebert financial corp. and subsidiaries consolidated statements of cash flows replace_table_token_13_th see notes to consolidated financial statements . f- 7 siebert financial corp. and subsidiaries notes to consolidated financial statements note a – business order siebert financial corp. ( “ siebert ” “ company ” or “ parent ” ) , through its wholly owned subsidiary muriel siebert & co. , inc. ( “ msco ” ) , engages in the business of providing discount brokerage services for customers , and trading securities for its own account story_separator_special_tag this discussion should be read in conjunction with our audited consolidated financial statements and the notes thereto contained elsewhere in this annual report . the following table sets forth certain metrics as of december 31 , 2017 and 2016 , which we use in evaluating our business . replace_table_token_4_th description : total retail trades represents retail trades that generate commissions . average commission per retail trade represents the average commission generated for all types of retail customer trades . retail customer net worth represents the total value of securities and cash in the retail customer accounts before deducting margin debits . retail customer money market fund value represents all retail customers accounts invested in money market funds . retail customer margin debit balances represents credit extended to our customers to finance their purchases against current positions . retail customer accounts with positions represent retail customers with cash and or securities in their accounts . we , like other securities firms , are directly affected by general economic and market conditions including fluctuations in volume and prices of securities , changes and the prospect of changes in interest rates , and demand for brokerage and investment banking services , all of which can affect our profitability . in addition , in periods of reduced financial market activity , profitability is likely to be adversely affected because certain expenses remain relatively fixed , including salaries and related costs , portions of communications costs and occupancy expenses . accordingly , earnings for any period should not be considered representative of earnings to be expected for any other period . 21 competition continues to intensify among all types of brokerage firms , including established discount brokers and new firms entering the on-line brokerage business . electronic trading continues to account for an increasing amount of trading activity , with some firms charging very low trading execution fees that are difficult for any conventional discount firm to meet . some of these brokers , however , impose asset based charges for services such as mailing , transfers and handling exchanges which we story_separator_special_tag accordingly , we express no such opinion . our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements , whether due to error or fraud , and performing procedures that respond to those risks . such procedures included examining , on a test basis , evidence regarding the amounts and disclosures in the consolidated financial statements . our audit also included evaluating the accounting principles used and significant estimates made by management , as well as evaluating the overall presentation of the consolidated financial statements . we believe that our audit provide a reasonable basis for our opinion . baker tilly virchow krause , llp new york , new york we have served as the company 's auditor since 2017. april 13 , 2018 f- 2 report of independent registered public accounting firm the board of directors and shareholders siebert financial corp. we have audited the accompanying consolidated statement of financial condition of siebert financial corp. and subsidiaries ( the `` company `` ) as of december 31 , 2016 , and the related consolidated statements of operations , changes in stockholders ' equity , and cash flows for the year then ended . these financial statements are the responsibility of the company 's management . our responsibility is to express an opinion on these financial statements based on our audit . we conducted our audit in accordance with the standards of the public company accounting oversight board ( united states ) . those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement . the company is not required to have , nor were we engaged to perform , an audit of its internal control over financial reporting . our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances , but not for the purpose of expressing an opinion on the effectiveness of the company 's internal control over financial reporting . accordingly , we express no such opinion . an audit includes examining , on a test basis , evidence supporting the amounts and disclosures in the financial statements . an audit also includes assessing the accounting principles used and significant estimates made by management , as well as evaluating the overall financial statement presentation . we believe that our audit provides a reasonable basis for our opinion . in our opinion , the financial statements referred to above present fairly , in all material respects , the consolidated financial position of siebert financial corp. and subsidiaries as of december 31 , 2016 , and the consolidated results of their operations and their cash flows for the year then ended , in conformity with accounting principles generally accepted in the united states of america . eisneramper llp eisneramper llp new york , new york april 4 , 2017 f- 3 siebert financial corp. and subsidiaries consolidated statements of financial condition replace_table_token_10_th see notes to consolidated financial statements . f- 4 siebert financial corp. and subsidiaries consolidated statements of operations replace_table_token_11_th see notes to consolidated financial statements . f- 5 siebert financial corp. and subsidiaries consolidated statement of changes in stockholders ' equity years ended december 31 , 2017 and 2016 replace_table_token_12_th see notes to consolidated financial statements . f- 6 siebert financial corp. and subsidiaries consolidated statements of cash flows replace_table_token_13_th see notes to consolidated financial statements . f- 7 siebert financial corp. and subsidiaries notes to consolidated financial statements note a – business order siebert financial corp. ( “ siebert ” “ company ” or “ parent ” ) , through its wholly owned subsidiary muriel siebert & co. , inc. ( “ msco ” ) , engages in the business of providing discount brokerage services for customers , and trading securities for its own account story_separator_special_tag this discussion should be read in conjunction with our audited consolidated financial statements and the notes thereto contained elsewhere in this annual report . the following table sets forth certain metrics as of december 31 , 2017 and 2016 , which we use in evaluating our business . replace_table_token_4_th description : total retail trades represents retail trades that generate commissions . average commission per retail trade represents the average commission generated for all types of retail customer trades . retail customer net worth represents the total value of securities and cash in the retail customer accounts before deducting margin debits . retail customer money market fund value represents all retail customers accounts invested in money market funds . retail customer margin debit balances represents credit extended to our customers to finance their purchases against current positions . retail customer accounts with positions represent retail customers with cash and or securities in their accounts . we , like other securities firms , are directly affected by general economic and market conditions including fluctuations in volume and prices of securities , changes and the prospect of changes in interest rates , and demand for brokerage and investment banking services , all of which can affect our profitability . in addition , in periods of reduced financial market activity , profitability is likely to be adversely affected because certain expenses remain relatively fixed , including salaries and related costs , portions of communications costs and occupancy expenses . accordingly , earnings for any period should not be considered representative of earnings to be expected for any other period . 21 competition continues to intensify among all types of brokerage firms , including established discount brokers and new firms entering the on-line brokerage business . electronic trading continues to account for an increasing amount of trading activity , with some firms charging very low trading execution fees that are difficult for any conventional discount firm to meet . some of these brokers , however , impose asset based charges for services such as mailing , transfers and handling exchanges which we
| results of operations year ended december 31 , 2017 compared to year ended december 31 , 2016 revenues . total revenues for 2017 were $ 13,110,000 , an increase of $ 3,298,000 , or 33.6 % from the prior year , primarily due to including revenue of approximately $ 1.6 million arising out of the assets purchased from stockcross and other interest bearing earnings . commission and fee income increased $ 3,139,000 or 37.8 % from the prior year , to $ 11,433,000 primarily due to the stockcross asset acquisition and an increase in fees from our money management activity and market rate increases . trading gains increased $ 718,000 , or 78.0 % to $ 1,639,000 from the prior year , primarily due to the stockcross asset acquisition . income from interest and dividends decreased $ 532,000 , or 96.6 % , to $ 19,000 from the prior year due to the distribution of interest bearing assets at the end of 2016. expenses . total expenses for 2017 were $ 10.8 million , a decrease of $ 4.6 million or 29.9 % from the prior year , primarily due to non-recurring expenses of $ 2,205,000 associated with the change of control of the company in december 2016 and modified cost structure . employee compensation and benefit costs increased $ 192,000 , or 3.9 % , from the prior year to $ 5.1 million , primarily due to an increase in the number of employees resulting from the stockcross asset acquisition . clearing fees increased $ 165,000 , or 19.1 % , from the prior year to $ 1,031,000 , primarily due to expense associated with the stockcross asset acquisition .
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the company enters into derivative financial instruments from time to time to protect the value or fix the amount of certain obligations in terms of its functional story_separator_special_tag presentation this discussion should be read in conjunction with our audited financial statements and related notes included elsewhere in this document . the following discussion ( as well as other discussions in this document ) contains forward-looking statements . please see “ cautionary statement regarding forward-looking statements ” for a discussion of uncertainties , risks and assumptions associated with these statements . the company rollins , inc. ( the “ company ” ) was originally incorporated in 1948 under the laws of the state of delaware as rollins broadcasting , inc. the company is an international service company with headquarters located in atlanta , georgia , providing pest and termite control services through its wholly-owned subsidiaries to both residential and commercial customers in north america , australia , and europe with international franchises in central america , south america , the caribbean , the middle east , asia , the mediterranean , europe , africa , and mexico . services are performed through a contract that specifies the treatment and the pricing arrangement with the customer . the company has only one reportable segment , its pest and termite control business . the company 's results of operations and its financial condition are not reliant upon any single customer or a few customers or the company 's foreign operations . overview story_separator_special_tag to 50.9 % for 2016 due to favorable service salary cost as we utilize boss , our crm and operating system and vrm to improve our customer routing and scheduling to maximize efficiencies . we had lower administrative salaries as we maximize our efficiencies and lower insurance and claims as we saw reductions in our actuarial calculations on future losses and lower vehicle loss expenses . the favorable margins were partially offset by higher fleet costs as gasoline prices rose and leased vehicle costs as we replace our fleet and materials and supplies as we increase termite treatments . we experienced good cost controls across most spending categories during 2017 compared to 2016 . 15 depreciation and amortization for the twelve months ended december 31 , 2017 , depreciation and amortization increased $ 5.7 million , or 11.2 % compared to the twelve months ended december 31 , 2016. the dollar increase was primarily due to depreciation increasing $ 2.7 million or 10.7 % as we continue to depreciate our crm software boss , while amortization of intangible assets increased $ 3.0 million or 11.5 % for 2017 due to the additional amortization of customer contracts of northwest exterminating , as well as several other acquisitions over the last year . sales , general and administrative for the twelve months ended december 31 , 2017 , sales , general and administrative ( sg & a ) expenses increased $ 12.9 million , or 2.6 % compared to the twelve months ended december 31 , 2016. sg & a decreased to 30.1 % of revenues for the year ended december 31 , 2017 compared to 31.2 % in 2016. the company had a one-time tax event to dissolve its subsidiary , kinro investment inc. in 2016. this increased sg & a expense $ 9.1 million or 0.6 percentage points due to the one-time tax event that was offset as a credit in income tax expense . administrative salaries were relatively flat to prior year as we reduced the number of temporary personnel working on the boss system . personnel related costs were marginally lower as we experienced leveling of our premiums . gains in these areas were partially offset by higher sales salaries , fleet expense , and contractor expenses for various projects as well as the aforementioned 2016 foreign tax withholding expense . gain on sales of assets , net gain on sales of assets , net decreased to $ 0.2 million for the year ended december 31 , 2017 compared to $ 0.8 million in 2016. the company recognized gains from the sale of owned vehicles and owned property in 2017 and 2016. interest income , net interest income , net for each of the years ended december 31 , 2017 and 2016 was $ 0.3 million and $ 0.2 million , respectively . interest income for each year is due to interest received on cash balances in the company 's various cash accounts . taxes the company 's effective tax rate increased to 39.2 % in 2017 compared to 35.8 % in 2016 , due primarily to the effects of the tcja in 2017 , a one-time tax event in 2016 and differences in state and foreign income taxes . the estimated impact of the enactment of the tcja was an $ 11.6 million increase to tax expense , which was a direct decrease to net income . the $ 11.6 million increase in tax was as follows : ( $ 8.0 million from transition tax on foreign earnings , $ 2.9 million from the revaluation of deferred tax assets , and $ 0.7 million from reductions in tax benefits on stock compensation ) . the increase due to the tcja was partially offset by a reduction related to the implementation of asu 2016-09 that was a $ 4.0 million benefit . management believes that the corporate tax rate in 2018 will be in the mid 20 % range with a lower rate in the first quarter 2018 adjusted throughout the year to the mid 20 % range for the year . story_separator_special_tag the increases were offset by decreases as a percentage of revenue by administrative salaries as we continue to grow revenue with a static headcount , personnel related expense margin decreased due to lower than expected healthcare claims , and decreases in insurance claims as we continue to focus on efficiency and safety , and telephone costs as we negotiate contracts for internet service . gain on sales of assets , net gain on sales of assets , net decreased to $ 0.8 million for the year ended december 31 , 2016 compared to $ 2.0 million gain in 2015. the company recognized gains from the sale of owned vehicles and owned property in 2016 and 2015. the decrease was due to the company selling two buildings in 2015. interest ( income ) /expense , net interest income , net for each of the years ended december 31 , 2016 and 2015 was $ 0.2 million . interest income for each year is due to interest received on cash balances in the company 's various cash accounts . 17 taxes the company 's effective tax rate decreased to 35.8 % in 2016 compared to 37.4 % in 2015 , due primarily to a one-time tax event in 2016 and differences in state and foreign income taxes . liquidity and capital resources cash and cash flow cash from operating activities is the principal source of cash generation for our businesses . the most significant source of cash in rollins ' cash flow from operations is customer-related activities , the largest of which is collecting cash resulting from services sales . the most significant operating use of cash is to pay our suppliers , employees , tax authorities and others for a wide range of material and services . the company 's cash and cash equivalents at december 31 , 2017 , 2016 , and 2015 were $ 107.1 million , $ 142.8 million , and $ 134.6 million , respectively . replace_table_token_13_th cash provided by operating activities the company 's operations generated cash of $ 235.4 million for the year ended december 31 , 2017 primarily from net income of $ 179.1 million , compared with cash provided by operating activities of $ 226.5 million in 2016 and $ 196.4 million in 2015. the company believes its current cash and cash equivalents balances , future cash flows expected to be generated from operating activities and available borrowings under its $ 175.0 million credit facility will be sufficient to finance its current operations and obligations , and fund expansion of the business for the foreseeable future . the company 's made no contributions to the rollins , inc. and its wholly-owned subsidiaries ' defined benefit retirement plans ( the “ plans ” ) during the year ended december 31 , 2017. the plans were fully-funded with a prepaid balance . we contributed $ 3.3 million and $ 5.0 million during the years ended december 31 , 2016 and 2015 , respectively , as a result of the plans ' funding status . the company 's management is not expecting to make a contribution during fiscal year 2018. in the opinion of management , additional plan contributions , if any , will not have a material effect on the company 's financial position , results of operations or liquidity . cash used in investing activities the company used $ 154.2 million on investing activities for the year ended december 31 , 2017 compared to $ 76.8 million and $ 69.9 million during 2016 and 2015 , respectively , and of that , invested approximately $ 24.7 million in capital expenditures during 2017 compared to $ 33.1 million and $ 39.5 million during 2016 and 2015 , respectively . capital expenditures for the year consisted primarily of property purchases , equipment replacements and technology related projects . the company expects to invest between $ 25.0 million and $ 28.0 million in 2018 in capital expenditures . during 2017 , the company 's and its subsidiaries acquired northwest exterminating as well as several small companies for a total of $ 130.2 million compared to $ 46.3 million and $ 33.5 million in acquisitions during 2016 and 2015 , respectively . the expenditures for the company 's acquisitions were funded with cash on hand . the company continues to seek new acquisitions . cash used in financing activities the company used cash of $ 130.3 million on financing activities for the year ended december 31 , 2017 , compared to $ 136.4 million and $ 97.2 million during 2016 and 2015 , respectively . a total of $ 122.0 million was paid in cash dividends ( $ 0.56 per share ) during the year ended december 31 , 2017 including a special dividend paid in december 2017 of $ 0.10 per share , compared to $ 109.0 million in cash dividends paid ( $ 0.50 per share ) during the year ended december 31 , 2016 , including a special dividend paid in december 2016 of $ 0.10 per share and $ 91.8 million paid in cash dividends ( $ 0.42 per share ) during the year ended december 31 , 2015 , including a special dividend paid in december 2015 of $ 0.10 per share . 18 the company did not purchase shares on the open market during the year ended december 31 , 2017 while using $ 8.2 million to repurchase 0.8 million shares of its common stock at a weighted average price of $ 27.19 per share during 2016 and $ 0.4 million to purchase 19 thousand shares at an weighted average price of $ 22.42 in 2015. there remain 5.1 million shares authorized to be repurchased under prior board approval . the company repurchased $ 8.2 million , $ 8.4 million , and $ 7.0 million of common stock for the years ended december 31 , 2017 , 2016 and 2015 , respectively , from employees for the payment of taxes on vesting restricted shares .
| results of operations replace_table_token_12_th general operating comments 2017 marked the company 's 20th consecutive year of improved revenues and profits . revenues for the year rose 6.4 percent to $ 1.674 billion compared to $ 1.573 billion for the prior year . income before income taxes increased 13.0 % to $ 294.5 million compared to $ 260.6 million the prior year . net income increased 7.0 % to $ 179.1 million , with earnings per diluted share of $ 0.82 compared to $ 167.4 million , or $ 0.77 per diluted share for the prior year . the company 's 2017 net income was negatively affected by the 2017 tax cuts and jobs act ( “ tcja ” ) which was signed in to law on december 22 , 2017. the estimated negative impact of the enactment of the tcja was an $ 11.6 million increase to tax expense , which was a direct decrease to net income . the $ 11.6 million increase in tax was as follows : $ 8.0 million from transition tax on foreign earnings , $ 2.9 million from the revaluation of deferred tax assets , and $ 0.7 million from reductions in tax benefits on stock compensation . this resulted in a $ 0.05 per diluted share decrease in net income for the year . net income excluding the effect of the tcja increased 13.9 % to $ 190.7 million or $ 0.87 per share . net income and diluted earnings per share excluding the effect of the tcja are non-gaap financial measures . management believes these measures help investors understand the effect of these on reported results . all of the company 's business lines experienced growth for the year , with residential pest control revenues up 6.4 % , commercial pest control revenues up 5.1 % and termite and ancillary services revenues up 9.7 % . 14 during the year , the company increased its presence around the world with the addition of 11 new orkin international franchises .
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during the year ended december 31 , 2011 we recorded a total of approximately $ 232,000 in interest expense related to the principal balance of the senior convertible secured notes – 2011 . 7. fair value measurements accounting guidance defines fair value , establishes a framework for measuring fair value , and expands disclosure requirements about fair value measurements . the accounting guidance does not mandate any new fair value measurements and is applicable to assets and liabilities that are required to be recorded at fair value under other accounting pronouncements . there were no assets or liabilities recorded at fair value on a recurring basis in 2013 and 2012. the three levels of the fair value hierarchy are described as follows : level 1 : applies to assets or liabilities for which story_separator_special_tag results of operations the following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes thereto included elsewhere in this annual report . overview neonode develops and licenses user interfaces and optical infrared touch technology . our patented technology offers multiple features including the ability to sense an object 's size , depth , velocity , pressure , and proximity to any type of surface . we license our multi-touch technology to oems and odms who incorporate it into devices that they produce and sell . as of december 31 , 2013 , we had thirty-three technology license agreements with global oems and odms . this compares with twenty-four and twelve technology license agreements as of december 31 , 2012 and 2011 , respectively . during the year ended december 31 , 2013 , we had twelve customers using our touch technology in products that were being shipped to customers . in 2013 , we received license fees from customers such as leap frog and oregon scientific ( which are shipping children 's tablets ) , one laptop per child ( which is shipping a laptop/tablet ) and volvo ( which is shipping after-market installed touch for their automobile infotainment systems ) and . the majority of our license fees earned in 2013 , 2012 and 2011 were from customer shipments of e-reader products . we expect license fees earned from customer shipments of e-readers to decrease as a percentage of total revenue as other customer products are introduced to the market . in the fourth quarter of 2012 , amazon discontinued shipping a kindle e-reader product that incorporated our touch technology . amazon accounted for less than 1 % of our total net revenue in 2013 , 32 % of our total net revenue in 2012 and 40 % of our total net revenue in 2011. we anticipate other customers will initiate product shipments as they complete their final product development and manufacturing cycle throughout 2014 and 2015. current and future drivers of the touch technology market include laptop computers , all-in-one and computer monitors running microsoft windows 8 and google chrome operating systems , mobile phones , printers , automotive , household appliances , tablets , e-readers , navigation screens , etc . the proliferation and mass market acceptance of touch technology have prompted new applications and uses for existing and new offerings , thus making the production and utilization of these modules one of the fastest growing tech segments . the typical product development and release cycle is six to thirty-six months with new customers while existing customer lead times are typically six to nine months . during the initial cycle , there are three phases : evaluation , design , and commercialization . in the evaluation phase , prospects validate our technology and may produce short runs of prototype products . during the design phase , product development and solution definition begins . this design phase tends to be the longest and delays typically occur which may extend the term of the overall cycle . in the final phase , commercialization , the customer enters into full production mode , ships products to the market and we earn license revenue . our oem and odm customers use our touch technology in controller chips we developed in collaboration with texas instruments . in connection with the first generation nn1001 controller chip , we are obligated to contribute $ 500,000 of non-recurring engineering ( “ nre ” ) development costs to texas instruments based on a fee of $ 0.08 per unit for each of the first one million units shipped and $ 0.05 for the next eight million units shipped . through december 31 , 2013 , we have made total payments of $ 270,000 to texas instruments for the nn1001 controller chip . no amounts were recorded in the years ended december 31 , 2012 and 2011 because no nn1001 shipments occured during those periods . in connection with the next generation nn1002 controller chip , we are obligated to contribute $ 500,000 of nre to texas instruments based on a fee of $ 0.25 per unit for each of the first two million units shipped . the nn1002 is currently in development and has not been released to mass production . the nn1001 and nn1002 can only be sold to customers who have a technology license agreement with neonode . 19 critical accounting policies and estimates the consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the united states of america ( “ u.s . gaap ” ) and include the accounts of neonode inc. and its wholly owned subsidiaries . all inter-company accounts and transactions have been eliminated in consolidation . the consolidated balance sheet at december 31 , 2012 and the consolidated statements of operations , comprehensive loss and cash flows for the years ended december 31 , 2012 and 2011 include our accounts and those of our wholly owned subsidiary , neonode technologies ab ( sweden ) ( “ ntab ” ) . story_separator_special_tag if it is determined that the customer will be unable to meet its financial obligation , such as in the case of a bankruptcy filing , deterioration in the customer 's operating results or financial position or other material events impacting its business , we record a specific allowance to reduce the related receivable to the amount we expect to recover . should all efforts fail to recover the related receivable , we will write-off the account . we also record an allowance for all customers based on certain other factors including the length of time the receivables are past due and historical collection experience with customers . research and development research and development ( “ r & d ” ) costs are expensed as incurred . r & d costs consist mainly of personnel related costs in addition to some external consultancy costs such as testing , certifying and measurements . stock-based compensation expense we measure the cost of employee services received in exchange for an award of equity instruments , including share options , based on the fair value of the award on the grant date , and recognize the value as compensation expense over the period the employee is required to provide services in exchange for the award , usually the vesting period , net of estimated forfeitures . we account for equity instruments issued to non-employees at their fair value . the measurement date for the fair value for the equity instruments issued is determined at the earlier of ( i ) the date at which a commitment for performance by the consultant or vendor is reached , or ( ii ) the date at which the consultant or vendor 's performance is complete . in the case of equity instruments issued to consultants , the fair value of the equity instruments is primarily recognized over the term of the consulting agreement . the fair value of the stock-based compensation is periodically re-measured and income or expense is recognized during the vesting term . when determining stock-based compensation expense involving options and warrants , we determine the estimated fair value of options and warrants using the black-scholes option pricing model . foreign currency translation and transaction gains and losses the functional currency of our foreign subsidiaries is the applicable local currency , the swedish krona or the japanese yen . the translation from swedish krona or japanese yen to u.s. dollars is performed for balance sheet accounts using current exchange rates in effect at the balance sheet date and for income statement accounts using a weighted average exchange rate during the period . gains or ( losses ) resulting from translation are included as a separate component of accumulated other comprehensive income ( loss ) . gains or ( losses ) resulting from foreign currency transactions are included in general and administrative expenses in the accompanying consolidated statements of operations and were ( $ 155,000 ) , ( $ 50,000 ) and $ 44,000 during the years ended december 31 , 2013 , 2012 and 2011 , respectively . foreign currency translation gains or ( losses ) were $ 6,000 , ( $ 8,000 ) and $ 76,000 during the years ended december 31 , 2013 , 2012 and 2011 , respectively . 21 net loss per share net loss per share amounts have been computed based on the weighted-average number of shares of common stock outstanding during the years ended december 31 , 2013 , 2012 and 2011. net loss per share , assuming dilution amounts from common stock equivalents , is computed based on the weighted average number of shares of common stock and potential common stock equivalents outstanding during the period . the weighted average number of shares of common stock and potential common stock equivalents used in computing the net loss per share for years ended december 31 , 2013 , 2012 and 2011 exclude the potential common stock equivalents , as the effect would be anti-dilutive . comprehensive loss our comprehensive loss includes foreign currency translation gains and losses . the cumulative amount of translation gains and losses are reflected as a separate component of stockholders ' equity in the consolidated balance sheets , as accumulated other comprehensive income . cash flow information cash flows in foreign currencies have been converted to u.s. dollars at an approximate weighted average exchange rate for the respective reporting periods . the weighted average exchange rate for the consolidated statements of operations was 6.51 , 6.78 and 6.50 swedish krona to one u.s. dollar for the years ended december 31 , 2013 , 2012 and 2011 , respectively . the exchange rate for the consolidated balance sheets was 6.48 and 6.52 swedish krona to one u.s. dollar as of december 31 , 2013 and 2012 , respectively . the weighted-average exchange rate for the consolidated statement of operations and of comprehensive loss was 97.58 japanese yen to one u.s. dollar for the year ended december 31 , 2013. the exchange rate for the consolidated balance sheet was 105.22 japanese yen to one u.s. dollar as of december 31 , 2013. deferred revenue as of december 31 , 2013 and 2012 , we have $ 2.5 million and $ 2.1 million , respectively , of deferred license fee revenue related to prepayments for future license fees from three customers and a total of $ 1.2 million and $ 0.6 million , respectively , of deferred engineering development fees from twenty-one and thirteen customers , respectively . we defer the license fees until we have met all accounting requirements for revenue recognition as per unit royalty products are distributed or licensed by our customers and the engineering development fee revenue until such time as the engineering work has been completed and accepted by our customers . new accounting pronouncements proposed amendments to current accounting standards . the financial accounting standards board ( “ fasb ” ) is currently working on current amendments to existing accounting standards governing a number of areas including , but not limited to , revenue recognition and lease accounting .
| results of operations net revenue net revenues for the year ended december 31 , 2013 was $ 3.7 million , compared to $ 7.1 million and $ 6.1 million for the years ended december 31 , 2012 and 2011 , respectively . our net revenues for the year ended december 31 , 2013 included $ 2.9 million from technology license fees from product shipments from twelve customers and $ 800,000 in non-recurring engineering services related to our touch technology from twenty-two customers . our net revenues for the year ended december 31 , 2012 included $ 6.2 million from technology license fees from product shipments from eight customers and $ 925,000 in non-recurring engineering services related to our touch technology from fifteen customers . our net revenues for the year ended december 31 , 2011 included $ 5.8 million from technology license fees from four customers and $ 287,000 in non-recurring engineering services related to our touch technology from six customers . the decrease in overall net revenues in the year ended december 31 , 2013 compared to the year ended december 31 , 2012 is primarily due to a decrease in license fees primarily from amazon , which did not include our technology in its kindle paperwhite e-reader . amazon contributed approximately 32 % of our total net revenues during the year ended december 31 , 2012 compared to less than 1 % in the year ended december 31 , 2013. the decrease in net revenues earned from amazon was partially offset by an increase in net revenues earned from kobo inc. , leap frog enterprises inc. and netronix inc. effective october 16 , 2013 , we determined it was appropriate to recognize licensing revenue in the period in which royalty reports are received , from customers . prior to october 16 , 2013 , we recognized licensing revenue in the period in which the products were distributed by our customers .
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the guidance is effective in annual and interim periods in fiscal years beginning after december 15 , 2018. early adoption is story_separator_special_tag overview wsfs financial corporation ( the company or wsfs ) is a savings and loan holding company headquartered in wilmington , delaware . substantially all of our assets are held by the company 's subsidiary , wilmington savings fund society , fsb ( wsfs bank of the bank ) , one of the ten oldest bank and trust companies continuously operating under the same name in the u.s. at $ 7.2 billion in assets and $ 19.0 billion in assets under management ( aum ) and administration as of december 31 , 2018 , wsfs bank is also the largest locally-managed bank and trust company headquartered in delaware and the delaware valley . as a federal savings bank , which was formerly chartered as a state mutual savings bank , the bank enjoys broader fiduciary powers than most other financial institutions . a fixture in the community , the bank has been in operation for more than 185 years . in addition to its focus on stellar customer experiences , wsfs bank has continued to fuel growth and remain a leader in our community . we are a relationship-focused , locally-managed banking institution . we state our mission simply : “ we stand for service. ” our strategy of “ engaged associates , living our culture , making a better life for all we serve ” focuses on exceeding customer expectations , delivering stellar experiences and building customer advocacy through highly-trained , relationship-oriented , friendly , knowledgeable and empowered associates . our core banking business is commercial lending primarily funded by customer-generated deposits , which primarily generates net interest income . we have built a $ 4.0 billion commercial loan portfolio by recruiting the best seasoned commercial lenders in our markets and offering the high level of service and flexibility typically associated with a community bank . we fund this business primarily with deposits generated through commercial relationships and retail deposits . as of december 31 , 2018 , we service our customers primarily from our 76 offices located in delaware ( 45 ) , pennsylvania ( 29 ) , virginia ( 1 ) and nevada ( 1 ) and through our website at www.wsfsbank.com . we also offer a broad variety of consumer loan products , retail securities and insurance brokerage services through our retail branches and mortgage and title services through those branches and through pennsylvania-based wsfs mortgage . wsfs mortgage is a mortgage banking company and abstract and title company specializing in a variety of residential mortgage and refinancing solutions . on august 7 , 2018 , wsfs and beneficial bancorp , inc. ( beneficial ) entered into an agreement and plan of reorganization , ( as amended from time to time , the merger agreement ) pursuant to which , and subject to the terms and conditions of the merger agreement , among other things , ( i ) beneficial will merge with and into wsfs , with wsfs continuing as the surviving corporation ( the merger ) and ( ii ) simultaneously , beneficial bank will merge with and into wsfs bank , with wsfs bank continuing as the surviving bank ( the bank merger and , together with the merger , the mergers ) . subject to the terms and conditions of the merger agreement , stockholders of beneficial will receive 0.3013 shares of wsfs common stock and $ 2.93 in cash for each share of beneficial common stock . our stockholders approved the mergers at a special meeting held on december 12 , 2018 , and beneficial 's stockholders approved the mergers at a special meeting held on december 6 , 2018. the mergers , which are subject to customary closing conditions , are expected to close on march 1 , 2019 . our cash connect ® segment is a premier provider of atm vault cash , smart safe and other cash logistics services in the u.s. cash connect ® manages over $ 1.0 billion in total cash and services 24,300 non-bank atms and approximately 2,300 smart safes nationwide . cash connect ® provides related services such as online reporting and atm cash management , predictive cash ordering , armored carrier management , atm processing equipment sales and deposit safe cash logistics . cash connect ® also operates 441 atms for the bank , which has the largest branded atm network in our market . as a provider of atm vault cash to the u.s. atm industry , cash connect ® is exposed to substantial operational risk , including theft of cash from atms , armored vehicles , or armored carrier terminals , as well as general risk of accounting errors or fraud . this risk is managed through a series of financial controls , automated tracking and settlement systems , contracts , and other risk mitigation strategies , including both loss prevention and loss recovery strategies . throughout its 18 -year history , cash connect ® periodically has been exposed to theft from armored courier companies and consistently has been able to recover losses through its risk management strategies , although there can be no guarantees that we will be able to recover future losses . 43 our wealth management segment provides a broad array of planning and advisory services , investment management , trust services , and credit and deposit products to individual , corporate , and institutional clients through multiple integrated businesses . combined , these businesses had $ 19.0 billion of assets under management ( aum ) and assets under administration ( aua ) at december 31 , 2018 . wsfs wealth investments provides financial advisory services along with insurance and brokerage products . cypress , a registered investment adviser , is a fee-only wealth management firm managing a “ balanced ” investment style portfolio focused on preservation of capital and generating current income . story_separator_special_tag 2018 compared with 2017 : credit/debit card and atm fees increase d $ 7.7 million , or 21 % , in 2018 compared to 2017 reflecting the impact of new products and expanded revenue sources . investment management and fiduciary income increase d $ 4.5 million , or 13 % , in 2018 compared to 2017 , primarily reflecting growth in our trust business . fees for cash management and other services in our cash connect ® segment increased $ 1.8 million , mainly due to an increase in courier income and smart safe revenue . partially offsetting these increases was a $ 1.4 million decrease resulting from the planned surrender of our boli policies early in 2018 . 2017 compared with 2016 : credit/debit card and atm fees increase d $ 6.2 million , or 21 % , in 2017 compared to 2016 reflecting the impact of new products and expanded revenue sources . investment management and fiduciary income increase d $ 9.4 million , or 37 % , in 2017 compared to 2016 reflecting growth in several business lines . fees from mortgage banking activities decrease d $ 1.1 million or 15 % when compared to 2016 , primarily due to our ongoing strategy of selling most newly-originated residential mortgages in the secondary market . fees for cash management and other services in our cash connect ® segment increased $ 1.8 million , due to several new services and product enhancements . 48 noninterest expenses noninterest expense in 2018 decrease d $ 1.4 million to $ 225.0 million from $ 226.5 million in 2017 . excluding the non-routine and other one-time items listed in the table below , noninterest expense increased $ 19.7 million , or 9 % , to $ 228.2 million in 2018 from $ 208.5 million in 2017 . noninterest expense in 2017 increased $ 37.8 million to $ 226.5 million from $ 188.7 million in 2016 . excluding the non-routine and other one-time items listed in the table below , noninterest expense increased $ 28.4 million , or 16 % , to $ 208.5 million in 2017 from $ 180.1 million in 2016 . replace_table_token_14_th ( 1 ) corporate development costs in 2018 were primarily attributable to our anticipated merger with beneficial . in 2016 , these costs were primarily attributable to our acquisitions of penn liberty , powdermill and west capital . ( 2 ) adjusted noninterest expense is non-gaap financial measure . the company 's management believes that non-gaap measures provide a useful understanding of ongoing operations , enhance comparability of results of operations with prior periods and show the effects of significant gains and changes in the periods presented . the company 's management believes that investors may use these non-gaap measures to analyze the company 's performance without the impact of unusual items or events that may obscure trends in the company 's underlying performance . this non-gaap data should be considered in addition to results prepared in accordance with gaap , and is not a substitute for , or superior to , gaap results . adjusted non-interest expense in 2018 excludes ( i ) a $ 7.9 million insurance recovery related to our settlement of a legal claim , ( ii ) an insurance recovery related to a significant and unusual fraud loss , and ( iii ) corporate development costs relating to our anticipated merger with beneficial . 2018 compared with 2017 : the increase of $ 19.7 million in adjusted noninterest expense in 2018 was mainly due to higher compensation to support franchise growth and superior performance against peer groups and high strategic plan targets for full-year 2018 , and higher variable funding and operating costs to support cash connect ® revenue growth , which included a non-recurring timing adjustment of $ 0.9 million resulting from shifting to the accrual basis of accounting from cash basis for one of cash connect ® 's funding sources . 2017 compared with 2016 : contributing to the $ 28.4 million increase in adjusted noninterest expense in 2017 when compared to 2016 was ongoing operating costs from the full-year impact of the additions of penn liberty , powdermill , and west capital in the second half of 2016. also contributing to the increase was higher compensation and related costs due to added staff to support the company 's overall growth . income taxes we recorded $ 36.1 million of income tax expense for the year ended december 31 , 2018 compared to income tax expense of $ 58.2 million and $ 33.1 million for the years ended december 31 , 2017 and 2016 , respectively . the effective tax rates for the years ended december 31 , 2018 , 2017 and 2016 were 21.1 % , 53.7 % , and 34.0 % , respectively . the higher tax expense and effective tax rates in 2017 were due to a re-measurement of our deferred tax asset resulting from the tax reform act and the tax impact of our decision to surrender our boli policies in 2018. volatility in effective tax rates is also impacted by the level of pretax income or loss , combined with the amount of tax-free income as well as the effects of stock compensation tax benefits , consistent with our adoption during 2016 of asu 2016-09 , improvements to employee share-based payment accounting , compensation - stock compensation , compensation - stock compensation ( topic 718 ) . the provision for income taxes includes federal , state and local income taxes that are currently payable or deferred because of temporary differences between the financial reporting basis and the tax reporting basis of the assets and liabilities . for additional information , including the impact of the tax reform act on the 2017 effective tax rate , see note 15 to the consolidated financial statements . 49 segment information for financial reporting purposes , our business has three reporting segments : wsfs bank , cash connect ® , and wealth management . the wsfs bank segment provides loans and other financial products to commercial and retail customers .
| results of operations 2018 compared with 2017 we recorded net income of $ 134.7 million , or $ 4.19 per diluted common share , for the year ended december 31 , 2018 , an increase of $ 84.5 million compared to $ 50.2 million , or $ 1.56 per diluted common share , for the year ended december 31 , 2017 . results in 2018 included a partial recovery related to a legal settlement of $ 7.9 million and corporate development costs of $ 6.5 million related to our pending acquisition of beneficial , compared to $ 0.9 million of similar costs in 2017 . results for 2017 were impacted by the enactment of the tax cuts and jobs act ( tax reform act ) in december 2017 , which required us to re-measure our deferred tax asset , resulting in a tax charge of $ 14.5 million in the quarter ended december 31 , 2017 . additionally , and related to this tax change , we decided to surrender all of our bank-owned life insurance ( boli ) policies in 2018 , resulting in an additional tax charge of $ 8.0 million for the quarter ended december 31 , 2017 , and we also contributed $ 1.5 million ( pre-tax ) to the wsfs foundation in the same quarter . further , during the first quarter of 2018 , we agreed to the settlement of a legal claim , which resulted in legal expense of $ 12.0 million recorded in the fourth quarter of 2017 . net interest income for the year ended december 31 , 2018 was $ 246.5 million , an increase of $ 25.2 million compared to 2017 . our provision for loan losses increase d $ 2.2 million in 2018 , primarily due to loan portfolio growth and the deterioration of three large relationships , which more than offset the generally favorable portfolio migration in 2018 .
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words such as “ anticipates , ” “ expects , ” “ intends , ” “ plans , ” “ will , ” “ may , ” “ continue , ” “ believes , ” “ seeks , ” “ estimates , ” “ would , ” “ could , ” “ should , ” “ targets , ” “ projects , ” and variations of these words and similar expressions are intended to identify forward-looking statements . the forward-looking statements contained in this annual report on form 10-k include statements as to : · our future operating results ; · our business prospects and the prospects of our portfolio companies ; · our relationships with third parties including venture capital investors ; · the impact and timing of our unfunded commitments ; · the expected market for venture capital investments ; · the performance of our existing portfolio and other investments we may make in the future ; · the impact of investments that we expect to make ; · actual and potential conflicts of interest with tpc and our adviser and its senior investment team and investment committee ; · our contractual arrangements and relationships with third parties ; · the dependence of our future success on the general economy and its impact on the industries in which we invest ; · the ability of our portfolio companies to achieve their objectives ; · our expected financings and investments ; · the ability of our adviser to attract , retain and have access to highly talented professionals , including our adviser 's senior management team ; · our ability to qualify and maintain our qualification as a ric and as a bdc ; · the adequacy of our cash resources and working capital ; and · the timing of cash flows , if any , from the operations of our portfolio companies . these statements are not guarantees of future performance and are subject to risks , uncertainties , and other factors , some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements , including without limitation : · an economic downturn could impair our portfolio companies ' ability to continue to operate , which could lead to the loss of some or all of our investments in such portfolio companies ; · a contraction of available credit and or an inability to access the equity markets could impair our lending and investment activities ; · interest rate volatility could adversely affect our results , particularly when we elect to use leverage as part of our investment strategy ; 70 · currency fluctuations could adversely affect the results of our investments in foreign companies , particularly to the extent that we receive payments denominated in foreign currency rather than u.s. dollars ; and · the risks , uncertainties and other factors we identify in “ risk factors ” in this annual report on form 10-k under part 1a and in our other filings with the sec . although we believe that the assumptions on which these forward-looking statements are based are reasonable , any of those assumptions could prove to be inaccurate , and as a result , the forward-looking statements based on those assumptions also could be inaccurate . important assumptions include our ability to originate new loans and investments , certain margins and levels of profitability and the availability of additional capital . in light of these and other uncertainties , the inclusion of a projection or forward-looking statement in this annual report on form 10-k should not be regarded as a representation by us that our plans and objectives will be achieved . these risks and uncertainties include those described in “ risk factors ” in this annual report on form 10-k under part 1a . you should not place undue reliance on these forward-looking statements , which apply only as of the date of this annual report on form 10-k. overview we are an externally managed , closed-end , non-diversified management investment company that has elected to be regulated as a bdc under the 1940 act . we have elected to be treated , and intend to qualify annually thereafter , as a ric under subchapter m of the code for u.s. federal income tax purposes beginning with our taxable year ending december 31 , 2014. our shares are currently listed on the new york stock exchange ( the “ nyse ” ) under the symbol “ tpvg ” . our 6.75 % notes due 2020 ( the `` 2020 notes '' ) are currently listed on the nyse under the symbol “ tpvz ” . our investment objective is to maximize our total return to stockholders primarily in the form of current income and , to a lesser extent , capital appreciation by primarily lending with warrants to venture growth stage companies focused in technology , life sciences and other high growth industries which are backed by tpc 's select group of leading venture capital investors . we were formed to expand the venture growth stage business segment of tpc 's global investment platform and are the primary vehicle through which tpc focuses its venture growth stage business . tpc is widely recognized as a leading global financing provider devoted to serving venture capital-backed companies with creative , flexible and customized debt financing , equity capital and complementary services throughout their lifespan . tpc is located on sand hill road in silicon valley and has a primary focus in technology , life sciences and other high growth industries . we commenced investment activities on march 5 , 2014. in order to expedite the ramp-up of our investment activities and further our ability to meet our investment objectives , on march 5 , 2014 , we acquired our initial portfolio . the net consideration paid was approximately $ 121.7 million which reflected approximately $ 123.7 million of investments less approximately $ 2.0 million of prepaid interest and the fair value of unfunded commitments . story_separator_special_tag as of december 31 , 2014 , one of our customers was publicly traded . at december 31 , 2014 , the 46 debt investments with an aggregate fair value of approximately $ 247.6 million had a weighted average loan to enterprise value at the time of underwriting ratio of approximately 9.1 % . 72 the following tables provide information on the cost , fair value , and net unrealized gains ( losses ) of our investments in companies along with the number of companies in our portfolio as of december 31 , 2015 and december 31 , 2014. replace_table_token_5_th replace_table_token_6_th * represents non-duplicative number of companies . the following tables show the fair value of the portfolio of investments , by industry and the percentage of the total investment portfolio , as of december 31 , 2015 and december 31 , 2014. replace_table_token_7_th 73 replace_table_token_8_th * less than 0.05 % . the following tables present the product type of our debt investments as of december 31 , 2015 and december 31 , 2014. replace_table_token_9_th as of december 31 , 2014 debt investments by financing product ( dollars in thousands ) fair value percentage of total debt investments growth capital loans $ 246,311 99.5 % equipment financings 1,298 0.5 total debt investments $ 247,609 100.0 % approximately 18.0 % and 20.5 % of the debt investments in our portfolio as of december 31 , 2015 and december 31 , 2014 , respectively , based on the aggregate fair value , consisted of growth capital loans where the borrower has a term loan facility , with or without an accompanying revolving loan , in priority to our senior lien . investment activity during the year ended december 31 , 2015 , we entered into fifteen new commitments with eight new customers , six existing customers and one previous customer totaling $ 213.8 million , funded seventeen debt investments for approximately $ 101.3 million in principal value , acquired warrants representing approximately $ 1.8 74 million of value and exercised warrants into equity with a cost basis of approximately $ 0.2 million in one company , and made two equity investments of approximately $ 0.7 million . during the period from march 5 , 2014 ( commencement of operations ) to december 31 , 2014 , we entered into fifteen new commitments with eleven new customers and four existing customers totaling $ 269.5 million , we funded 32 debt investments for approximately $ 159.4 million in principal balance , acquired warrants representing approximately $ 3.5 million of value , and made two equity investments totaling approximately $ 0.5 million . during the year ended december 31 , 2015 , we had prepayments from six of our portfolio companies for approximately $ 73.4 million in principal value . during the period from march 5 , 2014 ( commencement of operations ) to december 31 , 2014 , we had prepayments from two of our portfolio companies for approximately $ 27.7 million in principal value . as of december 31 , 2015 , our unfunded commitments to twelve companies totaled approximately $ 190.0 million ; as of december 31 , 2014 , our unfunded commitments to eleven companies totaled $ 211.0 million . during the year ended december 31 , 2015 , $ 35.0 million in unfunded commitments were terminated , $ 98.5 million in unfunded commitments expired and approximately $ 101.3 million were funded . during the period from march 5 , 2014 ( commencement of operations ) to december 31 , 2014 , $ 50.3 million in unfunded commitments expired and approximately $ 159.4 million were funded . the following table provides additional information on our unfunded commitments regarding milestones , expirations , the companies ' industries , and types of loans . replace_table_token_10_th our credit agreements with our customers contain customary lending provisions which allow us relief from funding obligations for previously made commitments in instances where the underlying company experiences materially adverse events that affect the financial condition or business outlook for the company . since these commitments may expire without being drawn upon , unfunded commitments do not necessarily represent future cash requirements or future earning assets for the company . we generally expect approximately 75 % of our gross unfunded commitments to eventually be drawn before the expiration of their corresponding availability periods . the fair value at the inception of the agreement of the delay draw credit agreements with our customers is equal to the fees and or warrants received to enter into these agreements , taking into account the remaining terms of the agreements and the counterparties ' credit profile . the unfunded commitment liability reflects the fair value of these future funding commitments . as of december 31 , 2015 and december 31 , 2014 , the fair value for these unfunded commitments totaled approximately $ 1.1 million and $ 2.1 million , respectively , and was included in “ other accrued expenses and liabilities ” in our consolidated statements of assets and liabilities . our level of investment activity can vary substantially from period to period as our adviser chooses to slow or accelerate new business originations depending on market conditions , rate of investment of tpc 's select group of leading venture capital investors , our adviser 's knowledge , expertise and experience , our funding capacity 75 ( including availability under our credit facilities and our ability or inability to raise equity or debt capital ) , and other market dynamics .
| review quarterly . white ( 2 ) performing at expectations and or reasonably close to it . reasonable financial or enterprise profile , value or coverage . all new loans are initially graded white . contact portfolio company regularly in no event less than quarterly . yellow ( 3 ) performing generally below expectations and or some proactive concern . adequate financial or enterprise profile , value or coverage . contact portfolio company monthly or more frequently as determined by our adviser 's investment committee ; contact investors . orange ( 4 ) needs close attention due to performance materially below expectations , weak financial and or enterprise profile , concern regarding additional capital or exit equivalent . contact portfolio company weekly or more frequently as determined by our adviser 's investment committee ; contact investors regularly ; our adviser forms a workout group to minimize risk of loss . red ( 5 ) serious concern/trouble due to pending or actual default or equivalent . may experience partial and or full loss . maximize value from assets . as of december 31 , 2015 and december 31 , 2014 , the weighted average investment ranking of our debt investment portfolio was 2.23 and 2.06 , respectively . during the year ended december 31 , 2015 , there were five changes within the credit categories . one borrower with a principal balance of $ 5.0 million was upgraded from white ( 2 ) to clear ( 1 ) . one borrower with a principal balance of $ 6.9 million was downgraded from white ( 2 ) to yellow ( 3 ) . two borrowers , virtual instruments corporation with principal balance of $ 25.6 million and mind candy limited with principal balance of $ 10.0 million , were downgraded from yellow ( 3 ) to orange ( 4 ) . the other downgrade included the debt investments that were initially to coraid , inc. , which were assumed by intermodal data , inc. as part of the foreclosure agreement it entered into to purchase certain assets and assume the outstanding obligations owed to us .
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the company 's participation percentage in such return differentials is then multiplied by aum to determine the performance fees earned . in general , returns are calculated on an annualized basis over the contract 's measurement period , which usually extends to three years . performance fees are generally payable annually or quarterly . fulcrum fee arrangements require a reduction in the base fee , or allow for a performance fee if the relevant investment strategy underperforms or outperforms story_separator_special_tag overview we are an investment management firm that utilizes a classic value investment approach across all of our investment strategies . we currently manage assets in a variety of value-oriented investment strategies across a wide range of market capitalizations in both u.s. and non-u.s. capital markets . at december 31 , 2017 , our assets under management , or aum , was approximately $ 38.5 billion . we manage separate accounts on behalf of institutions , act as sub-investment adviser for a variety of sec-registered mutual funds and non-u.s. funds , and act as investment adviser for the pzena mutual funds , certain private placement funds and non-u.s. funds . we function as the sole managing member of our operating company , pzena investment management , llc ( the “ operating company ” ) . as a result , we : ( i ) consolidate the financial results of our operating company with our own , and reflect the membership interest in it that we do not own as a non-controlling interest in our consolidated financial statements ; and ( ii ) recognize income generated from our economic interest in our operating company 's net income . as of december 31 , 2017 , the holders of our class a common stock and the holders of class b units of our operating company held approximately 26.3 % and 73.7 % , respectively , of the economic interests in the operations of our business . the company also serves as the general partner of pzena investment management , lp , a partnership formed with the objective of aggregating employee ownership in one entity . certain of our named executive officers and employees have interests in pzena investment management , lp and certain estate planning vehicles through which they indirectly own class b units of our operating company . as of december 31 , 2017 , through direct and indirect interests , our five named executive officers ; 38 other employee members ; and certain other members of our operating company , including one of our directors , his related entities , and certain former employees , collectively held 49.4 % , 4.7 % , and 19.6 % of the economic interests in our operating company , respectively . net income gaap diluted net income and gaap diluted earnings per share were $ 40.1 million and $ 0.40 , respectively , for the year ended december 31 , 2017 , $ 39.6 million and $ 0.58 , respectively , for the year ended december 31 , 2016 , and $ 33.8 million and $ 0.50 , respectively , for the year ended december 31 , 2015 . during the year-ended december 31 , 2017 , the calculation of diluted earnings per share resulted in an increase in earnings per share . therefore , diluted earnings per share is assumed to be equal to basic earnings per share . in evaluating the results of operations , we also review non-gaap measures of earnings , which are adjusted to exclude changes in the deferred tax asset and corresponding liability to the company 's selling and converting shareholders associated with a change in the calculation of historical 754 step-ups , the release of the valuation allowance in the fourth quarter of 2016 , the impact of the tax cuts and jobs act enacted in the fourth quarter of 2017 , as well as certain non-recurring charges recognized in operating expenses during 2015. we believe that these gaap adjustments add a measure of non-operational complexity that partially obscures a clear understanding of the underlying performance of our business . we use these non-gaap measures to assess the strength of the underlying operations of the business . we believe that these adjustments , and the non-gaap measures derived from them , provide information to better analyze our operations between periods , and over time . investors should consider these non-gaap measures in addition to , and not as a substitute for , financial measures prepared in accordance with gaap . as adjusted , non-gaap diluted net income and non-gaap diluted earnings per share were $ 44.7 million and $ 0.63 , respectively , for the year ended december 31 , 2017 , and $ 31.4 million and $ 0.46 , respectively , for the year ended december 31 , 2016 , $ 34.5 million and $ 0.51 , respectively , for the year ended december 31 , 2015 . gaap and non-gaap net income for diluted earnings per share generally assumes all operating company membership units are converted into company stock at the beginning of the reporting period , and the resulting change to our gaap and non-gaap net income associated with our increased interest in the operating company is taxed at our historical effective tax rate , exclusive of the adjustments related to our tax receivable agreement and the associated liability to selling and converting shareholders , the adjustments related to the non-recurring charges recognized in operating expenses , and other adjustments as noted above . our effective tax rate , exclusive of these adjustments , was 36.7 % for the year ended december 31 , 2017 and approximately 36.8 % and 37.1 % for the years ended december 31 , 2016 and 2015 , respectively . see “ operating results — income tax expense/ ( benefit ) ” below . story_separator_special_tag our expenses may fluctuate due to a number of factors , including the following : 29 variations in the level of total compensation expense due to , among other things , bonuses , awards of equity to our employees and employee members of our operating company , changes in our employee count and mix , and competitive factors ; and general and administrative expenses , such as rent , professional service fees and data-related costs , incurred , as necessary , to run our business . other income/ ( expense ) other income/ ( expense ) is derived primarily from investment income or loss arising from our consolidated subsidiaries and interest income generated on our cash balances . other income/ ( expense ) is also affected by changes in our estimates of the liability due to our selling and converting shareholders associated with payments owed to them under the tax receivable agreement which was executed in connection with our reorganization and initial public offering on october 30 , 2007. as discussed further below under “ tax receivable agreement , ” this liability represents 85 % of the amount of cash savings , if any , in u.s. federal , state , and local income tax that we realize as a result of the amortization of the increases in tax basis generated from our acquisitions of our operating company 's units from our selling and converting shareholders . we expect the interest and investment components of other income/ ( expense ) , in the aggregate , to fluctuate based on market conditions and the performance of our consolidated subsidiaries and other investments . non-controlling interests we are the sole managing member of our operating company and control its business and affairs and , therefore , consolidate its financial results with ours . in light of our employees ' and outside investors ' direct and indirect interests in our operating company ( as noted in `` item 1 — business — overview '' ) , we have reflected their membership interests as a non-controlling interest in our consolidated financial statements . as of december 31 , 2017 , the holders of our class a common stock and the holders of class b units of our operating company held approximately 26.3 % and 73.7 % , respectively , of the economic interests in the operations of our business . in addition , our operating company consolidates the results of operations of the private investment partnerships and pzena-branded mutual funds over which we exercise a controlling influence . non-controlling interests recorded in our consolidated financial statements include the non-controlling interests of the outside investors in these consolidated subsidiaries . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > to 3,000 th largest , based on market capitalization . this strategy was launched in january 1996. at december 31 , 2017 , the small cap focused value strategy generated a one-year annualized gross return of 4.8 % , underperforming its benchmark . this underperformance was primarily driven by our stock selection in the healthcare sector and our overexposure to the producer durables and technology sectors . this underperformance was partially offset by our stock selection in the materials sector . 33 international focused value . this strategy reflects a portfolio composed of approximately 30 to 50 stocks drawn generally from a universe of 1,500 of the largest companies across the world excluding the united states , based on market capitalization . this strategy was launched in january 2004. at december 31 , 2017 , the international focused value strategy generated a one-year annualized gross return of 27.8 % , outperforming its benchmark . the largest positive contributors were our stock selection in the financial services and materials sectors , partially offset by our stock selection in the information technology sector . mid cap focused value . this strategy reflects a portfolio composed of approximately 30 to 40 stocks drawn generally from a universe of u.s. listed companies ranked from the 201 st to 1,200 th largest , based on market capitalization . this strategy was launched in september 1998. at december 31 , 2017 , the mid cap focused value strategy generated a one-year annualized gross return of 15.8 % , outperforming its benchmark . the outperformance was driven primarily by our stock selection in the financial services sector and over exposure to the producer durables sector , partially offset by our stock selection in the energy sector . our earnings and cash flows are heavily dependent upon prevailing financial market conditions . significant increases or decreases in the various securities markets , particularly the equities markets , can have a material impact on our results of operations , financial condition , and cash flows . 34 in december 2017 , we changed the classification of our aum to better reflect the composition of our client base . we now group our assets into three new categories : separately managed accounts , sub-advised accounts , and pzena funds , which better illustrate the characteristics inherent in our client relationships . historical data has been reclassified for all periods presented and did not impact reported totals of aum . the change in aum in our separately managed accounts , sub-advised accounts and pzena funds for the years ended december 31 , 2017 , 2016 , and 2015 is described below . inflows are composed of the investment of new or additional assets by new or existing clients . outflows consist of redemptions of assets by existing clients . replace_table_token_11_th during the year ended december 31 , 2017 , our aum increased $ 8.5 billion , or 28.3 % , from $ 30.0 billion at december 31 , 2016 . this increase is primarily due to market appreciation and net inflows during the year ended december 31 , 2017 . at december 31 , 2017 , we managed $ 15.0 billion in separately managed accounts , $ 21.8 billion in sub-advised accounts , and $ 1.7 billion in pzena funds , for a total of $ 38.5 billion in assets .
| operating results assets under management and flows as of december 31 , 2017 , our approximately $ 38.5 billion of aum was invested in a variety of value-oriented investment strategies , representing distinct capitalization segments of u.s. and non-u.s. equity markets . the performance of our largest investment strategies as of december 31 , 2017 is further described below . we follow the same investment process for each of these strategies . our investment strategies are distinguished by the market capitalization ranges from which we select securities for their portfolios , which we refer to as each strategy 's investment universe , as well as the regions in which we invest and the degree to which we concentrate on a limited number of holdings . while our investment process includes ongoing review of companies in the investment universes described below , our actual investments may include companies outside of the relevant market capitalization range at the time of our investment . in addition , the number of holdings typically found in the portfolios of each of our investment strategies may vary , as described below . 30 the following tables describe the allocation of our aum among our investment strategies and the domicile of our accounts , as of december 31 , 2017 , 2016 and 2015 : replace_table_token_7_th replace_table_token_8_th the following table indicates the annualized returns , gross and net ( which represents annualized returns prior to , and after , payment of advisory fees , respectively ) , of our largest investment strategies from their inception to december 31 , 2017 , and in the five-year , three-year , and one-year periods ended december 31 , 2017 , relative to the performance of the market index which is often used by our clients to compare the performance of the relevant investment strategy .
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( 4 ) stockholders ' equity earnings per share basic earnings per share has been computed by dividing earnings available to common stockholders by the weighted average number of common shares outstanding during the respective period . diluted earnings per share has been computed by dividing earnings available to common stockholders by the weighted average shares outstanding during the respective period , after adjusting for the potential dilution of options to purchase the company 's common stock , assumed story_separator_special_tag company overview , geographic locations and principal products and services euronet is a leading electronic payments provider . we offer payment and transaction processing and distribution solutions to financial institutions , retailers , service providers and individual consumers . our primary product offerings include comprehensive atm , pos , card outsourcing , card issuing and merchant acquiring services , software solutions , electronic distribution of prepaid mobile airtime and other electronic payment products , foreign currency exchange services and global money transfer services . we operate in the following three segments : the eft processing segment , which processes transactions for a network of 40,354 atms and approximately 293,000 pos terminals across europe , the middle east , asia pacific , and the united states . we provide comprehensive electronic payment solutions consisting of atm cash withdrawal and deposit services , atm network participation , outsourced atm and pos management solutions , credit and debit card outsourcing , dcc , and other value added services . through this segment , we also offer a suite of integrated electronic financial transaction software solutions for electronic payment and transaction delivery systems . the epay segment , which provides distribution , processing and collection services for prepaid mobile airtime and other electronic content . we operate a network of approximately 719,000 pos terminals providing electronic processing of prepaid mobile airtime top-up services and other electronic content in europe , the middle east , asia pacific , the united states and south america . we also provide vouchers and physical gift fulfillment services in europe . the money transfer segment , which provides global consumer-to-consumer money transfer services , primarily under the brand names ria , ime and xe and global account-to-account money transfer services under the brand names xe and hifx . we offer services under the brand names ria and ime through a network of sending agents , company-owned stores ( primarily in north america , europe and malaysia ) and our websites ( riamoneytransfer.com and online.imeremit.com ) , disbursing money transfers through a worldwide correspondent network that includes approximately 369,000 locations . xe is a provider of foreign currency exchange information and offers money transfer services on its currency data websites ( xe.com and x-rates.com ) . we offer services under the brand name xe through our websites ( www.xe.com and https : //transfer.xe.com ) and through our xe and hifx customer service representatives . in addition to money transfers , we also offer customers bill payment services ( primarily in the u.s. ) , payment alternatives such as money orders and prepaid debit cards , comprehensive check cashing services for a wide variety of issued checks , along with competitive foreign currency exchange services and prepaid mobile top-up . through our hifm brand , we offer cash management solutions and foreign currency risk management services to small-to-medium sized businesses . we have six processing centers in europe , five in asia pacific and two in north america . we have 36 principal offices in europe , 14 in asia pacific , nine in north america , three in the middle east , two in south america and one in africa . our executive offices are located in leawood , kansas , usa . with approximately 72 % of our revenues denominated in currencies other than the u.s. dollar , any significant changes in foreign currency exchange rates will likely have a significant impact on our results of operations ( for a further discussion , see item 1a - risk factors and item 7a - quantitative and qualitative disclosures about market risk ) . sources of revenues and cash flow euronet primarily earns revenues and income from atm management fees , transaction fees , commissions and foreign currency exchange margin . each operating segment 's sources of revenues are described below . eft processing segment — revenues in the eft processing segment , which represented approximately 30 % of total consolidated revenues for the year ended december 31 , 2018 , are derived from fees charged for transactions made by cardholders on our proprietary network of atms , fixed management fees and transaction fees we charge to customers for operating atms and processing debit and credit cards under outsourcing and cross-border acquiring agreements , foreign currency exchange margin on dcc transactions , domestic and international surcharge , foreign currency dispensing and other value added services such as advertising , prepaid telecommunication recharges , bill payment , and money transfers provided over atms . revenues in this segment are also derived from cardless payment , banknote recycling , tax refund services , license fees , professional services and maintenance fees for proprietary application software and sales of related hardware . 40 epay segment — revenues in the epay segment , which represented approximately 29 % of total consolidated revenues for the year ended december 31 , 2018 , are primarily derived from commissions or processing fees received from mobile phone operators for the processing and distribution of prepaid mobile airtime and commissions earned from the distribution of other electronic content , vouchers , and physical gifts . the proportion of epay segment revenues earned from the distribution of prepaid mobile phone time as compared with other electronic products has decreased over time , and non-mobile content now produces approximately 62 % of epay segment revenues . story_separator_special_tag these agreements tend to cover large numbers of atms , so significant increases and decreases in our pool of managed atms could result from the acquisition or termination of one or more of these management contracts . therefore , the timing of both current and new contract revenues is uncertain and unpredictable . software products are an integral part of our product lines , and our investment in research , development , delivery and customer support reflects our ongoing commitment to an expanded customer base . epay segment — the continued expansion and development of the epay segment business will depend on various factors , including , but not necessarily limited to , the following : our ability to maintain and renew existing agreements , and to negotiate new agreements in additional markets with mobile operators , digital content providers , agent financial institutions and retailers ; our ability to use existing expertise and relationships with mobile operators , digital content providers and retailers to our advantage ; the continued use of third-party providers such as ourselves to supply electronic processing solutions for existing and additional digital content ; the development of mobile phone networks in the markets in which we do business and the increase in the number of mobile phone users ; the overall pace of growth in the prepaid mobile phone and digital content market , including consumer shifts between prepaid and postpaid services ; our market share of the retail distribution capacity ; the development of new technologies that may compete with pos distribution of prepaid mobile airtime and other products ; the level of commission that is paid to the various intermediaries in the electronic payment distribution chain ; our ability to fully recover monies collected by retailers ; our ability to add new and differentiated products in addition to those offered by mobile operators ; our ability to develop and effectively market additional value added services ; 42 our ability to take advantage of cross-selling opportunities with our eft processing and money transfer segments , including providing money transfer services through our distribution network ; and the availability of financing for further expansion . in all of the markets in which we operate , we are experiencing significant competition which will impact the rate at which we may be able to grow organically . competition among prepaid mobile airtime and electronic content distributors results in the increase of commissions paid to retailers and increases in retailer attrition rates . to grow , we must capture market share from other prepaid mobile airtime and electronic content distributors , offer a superior product offering and demonstrate the value of a global network . in certain markets in which we operate , many of the factors that may contribute to rapid growth ( growth in electronic content , expansion of our network of retailers and access to products of mobile operators and other content providers ) remain present . money transfer segment — the continued expansion and development of our money transfer segment business will depend on various factors , including , but not necessarily limited to , the following : the continued growth in worker migration and employment opportunities ; the mitigation of economic and political factors that have had an adverse impact on money transfer volumes , such as changes in the economic sectors in which immigrants work and the developments in immigration policies in the countries in which we operate ; the continuation of the trend of increased use of electronic money transfer and bill payment services among high-income individuals , immigrant workers and the unbanked population in our markets ; our ability to maintain our agent and correspondent networks ; our ability to offer our products and services or develop new products and services at competitive prices to drive increases in transactions ; the development of new technologies that may compete with our money transfer network , and our ability to acquire , develop and implement new technologies ; the expansion of our services in markets where we operate and in new markets ; our ability to strengthen our brands ; our ability to fund working capital requirements ; our ability to recover from agents funds collected from customers and our ability to recover advances made to correspondents ; our ability to maintain compliance with the regulatory requirements of the jurisdictions in which we operate or plan to operate ; our ability to take advantage of cross-selling opportunities with our epay segment , including providing prepaid services through our stores and agents worldwide ; our ability to leverage our banking and merchant/retailer relationships to expand money transfer corridors to europe , asia and africa , including high growth corridors to central and eastern european countries ; the availability of financing for further expansion ; the ability to maintain banking relationships necessary for us to service our customers ; our ability to successfully expand our agent network in europe using our payment institution licenses under the second payment services directive ( `` psd2 '' ) and using our various licenses in the united states ; our ability to provide additional value-added products under the xe brand ; and , the considerations regarding the use of our various trade names within the money transfer business . the accounting policies of each segment are the same as those referenced in the summary of significant accounting policies ( see note 3 , summary of significant accounting policies and practices , to the consolidated financial statements ) . for all segments , our continued expansion may involve additional acquisitions that could divert our resources and management time and require integration of new assets with our existing networks and services . our ability to effectively manage our growth has required us to expand our operating systems and employee base , particularly at the management level , which has added incremental operating costs . an inability to continue to effectively manage expansion could have a material adverse 43 effect on our business , growth , financial condition or results of operations .
| summary our annual consolidated revenues increased by 13 % for 2018 compared to 2017 and by 15 % for 2017 compared to 2016 . the increases in revenues for 2018 and 2017 were primarily due to an increase in the number of atms under management , along with an increase in demand for dcc , domestic and international surcharge and other value added services in our eft processing segment , growth in the number of money transfers processed by the core ria business , and an increase in the number of non-mobile transactions processed by our epay subsidiaries . these increases were partly offset by decreases in the number of prepaid mobile transactions processed by our epay subsidiaries . the october 2016 acquisition of yourcash contributed to the increase in number of atms and transactions processed in our eft processing segment in 2017 and 2016. the increases in operating income for 2018 and 2017 were primarily due to the increase in atms under management , along with the increase in demand for dcc , domestic and international surcharge and other value added services , the increase in the number of money transfer transactions processed , and the increase in the number of non-mobile transactions processed for epay . these increases were partly offset by a decrease in the number of prepaid mobile transactions processed . the increases in operating income for 2018 and 2017 were partially offset by charges of $ 7.0 million and $ 34.1 million for goodwill and acquired intangible assets impairments , respectively .
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the section entitled risk factors set forth in part i , item 1a of this report , and similar discussions in our other sec filings , describe some of the important factors , risks and uncertainties that may affect our business , results of operations and financial condition and could cause actual results to differ materially from those expressed or implied by these or any other forward-looking statements made by us or on our behalf . you are cautioned not to place undue reliance on these forward-looking statements , which are based on current expectations and reflect management 's opinions only as of the date thereof . we do not assume any obligation to revise or update forward-looking statements . finally , our historic results should not be viewed as indicative of future performance . overview we are one of the largest online providers of aftermarket auto parts , including body parts , engine parts , and performance parts and accessories . our user-friendly websites provide customers with a broad selection of skus , with detailed product descriptions and photographs . our proprietary product database maps our skus to product applications based on vehicle makes , models and years . we principally sell our products to individual consumers through our network of websites and online marketplaces . our flagship websites are located at www.autopartswarehouse.com , www.jcwhitney.com and www.automd.com and our corporate website is located at www.usautoparts.net . we believe our strategy of disintermediating the traditional auto parts supply chain and selling products directly to customers over the internet allows us to more efficiently deliver products to our customers while generating higher margins . our history . we were formed in delaware in 1995 as a distributor of aftermarket auto parts and launched our first website in 2000. we rapidly expanded our online operations , increasing the number of skus sold through our e-commerce network , adding additional websites , improving our internet marketing proficiency and commencing sales in online marketplaces . additionally , in august 2010 , through our acquisition of whitney automotive group , inc. ( referred to herein as wag ) , we expanded our product-lines and increased our customer reach in the do-it-yourself ( diy ) automobile and off-road accessories market . as a result , our business has grown since 2000. we have had a decline in our revenues and incurred losses in 2011 , 2012 and 2013 , which may continue in 2014. international operations . in april 2007 , we established offshore operations in the philippines . our offshore operations allow us to access a workforce with the necessary technical skills at a significantly lower cost than comparably experienced u.s.-based professionals . our offshore operations are responsible for a majority of our website development , catalog management , and back office support . our offshore operations also house our main call center . we had 945 employees in the 24 philippines as of december 29 , 2012. in january 2013 , we laid off 163 employees in the philippines which reduced our workforce to 782 in the philippines . we had 714 employees in the philippines as of december 28 , 2013. we believe that the cost advantages of our offshore operations provide us with the ability to grow our business in a cost-effective manner . acquisitions . from time to time , we may acquire certain businesses , websites , domain names , or other assets . in 2009 , we completed the acquisition of the assets of a small website and the related domain names which further expanded and enhanced our product offering and our ability to reach more customers . in the first quarter of 2010 , we completed two additional website and domain name asset acquisitions , which increased our net sales and internet traffic . in august 2010 , go fido , inc. , a wholly-owned subsidiary of ours , completed the purchase of all of the outstanding capital stock of automotive specialty accessories and parts , inc. and its wholly-owned subsidiary wag . wag 's midwest facility expanded our distribution network and the merchandise wag offers extended our go-to market product-lines into all terrain vehicles , recreational vehicles and motorcycles , and provided us with deep product knowledge into niche segments like jeep , volkswagen and trucks . this expansion of our product line increased our customer reach in the diy automobile and off-road accessories market . related to the wag acquisition , the company incurred acquisition and integration related costs of $ 7.4 million for the fiscal year 2011. currently , we do not intend to pursue any acquisition opportunities in the near future . our credit agreement with jpmorgan currently restricts our ability to enter into any acquisitions without prior permission from jpmorgan . to understand revenue generation through our network of e-commerce websites , we monitor several key business metrics , including the following : replace_table_token_4_th 1 unique visitors do not include traffic from media properties ( e.g . automd ) . 2 as we consolidate to a smaller number of websites , we changed the measurement source of our consolidated unique visitor data to a different third-party provider of that data in the first quarter of 2013. previously reported operating metrics data for fiscal year 2012 and 2011 were revised to conform to the current third-party provider 's data . unique visitors : a unique visitor to a particular website represents a user with a distinct ip address that visits that particular website . we define the total number of unique visitors in a given month as the sum of unique visitors to each of our websites during that month . we measure unique visitors to understand the volume of traffic to our websites and to track the effectiveness of our online marketing efforts . the number of unique visitors has historically varied based on a number of factors , including our marketing activities and seasonality . included in the unique visitors are mobile device based customers , who are becoming an increasing part of our business . story_separator_special_tag net sales for the third and fourth quarters of 2011 have been included for comparative purposes only . replace_table_token_5_th like most e-commerce retailers , our success depends on our ability to attract online consumers to our websites and convert them into customers in a cost-effective manner . historically , marketing through search engines provided the most efficient opportunity to reach millions of online auto part buyers . we are included in search results through paid search listings , where we purchase specific search terms that will result in the inclusion of our listing , and algorithmic searches that depend upon the searchable content on our websites . in 2013 , we decreased the amount we spent on paid search listings , as we have determined that it does not generate a sufficient amount of revenues to justify the expense . algorithmic listings can not be purchased and instead are determined and displayed solely by a set of formulas utilized by the search engine . we have had a history of success with our search engine marketing techniques , which gave our different websites preferred positions in search results . but search engines , like google , revise their algorithms regularly in an attempt to optimize their search results . in fiscal years 2012 and 2013 , we were negatively impacted by the changes in methodology for how google displayed or selected our different websites for customer search results , which reduced our unique visitor count and adversely 26 affected our financial results . our unique visitor count decreased by 36 million , or 21 % , for fiscal year 2013 to 132.9 million unique visitors compared to 168.9 million unique visitors in fiscal year 2012. we believe we were affected by these search engine algorithm changes due to the use of our product catalog across multiple websites . to address this issue we consolidated to a significantly smaller number of websites to ensure unique catalog content . as we are significantly dependent upon search engines for our website traffic , if we are unable to attract unique visitors , our business and results of operations will suffer . barriers to entry in the automotive aftermarket industry are low , and current and new competitors can launch websites at a relatively low cost . due to a number of factors , including the rise of online marketplaces , it is easier for a traditional offline supplier to begin selling online and compete with us . these larger suppliers have access to merchandise at lower costs , enabling them to sell products at lower prices while maintaining adequate gross margins . our financial results were negatively impacted by the increased level of competition . total orders for fiscal year 2013 went down by 20 % to 1.9 million compared to 2.4 million for fiscal year 2012 and our average order value went down marginally by $ 2.4 , or 2 % , for fiscal year 2013 to $ 111.9 compared to $ 114.3 in fiscal year 2012 as a result of increased pricing competition . our current and potential customers may decide to purchase directly from our suppliers . continuing increased competition from our suppliers that have access to products at lower prices than us could result in reduced sales , lower operating margins , reduced profitability , loss of market share and diminished brand recognition . in addition , some of our competitors have used and may continue to use aggressive pricing tactics . we expect that competition will further intensify in the future as internet use and online commerce continue to grow worldwide . we took a number of steps during 2013 to attempt to reduce the selling prices of our products while increasing margins , which are discussed below . total expenses , which primarily consisted of cost of sales and operating costs , decreased in fiscal year 2013 compared to the same period in 2012. components of our cost of sales and operating costs are described in further detail under basis of presentation below . personnel costs decreased in fiscal year 2013 compared to fiscal year 2012. our employees at the end of fiscal year 2013 decreased by about 25 % to 1,032 compared to 1,370 at the end of fiscal year 2012. our employees in the philippines decreased to 714 at the end of fiscal year 2013 compared to 945 at the end of fiscal year 2012. in the first half of 2013 , as part of our initiatives to reduce labor costs and improve operating efficiencies in response to the challenges in the marketplace and general market conditions , we reduced our workforce by 191 employees ( for additional details , refer to note 12-restructuring costs of the notes to consolidated financial statements , included in part i , item 1 of this report ) . while we have and continue to undertake several initiatives to improve revenues and reduce the losses in 2014 , if the downward trend in our revenues and net loss continue in 2014 , we may be required to further reduce our labor costs . in addition to the decrease in personnel costs , total expenses decreased in fiscal year 2013 compared to fiscal year 2012 primarily due to the decrease in lower impairment losses , reduction in advertising expense , and lower depreciation and amortization due to certain property and equipment and intangible assets that were fully depreciated , fully amortized or impaired . overall , we expect a reduced downward trend on our revenues and net loss into the first half of 2014 due to the initiatives we have implemented .
| results of operations the following table sets forth selected statement of operations data for the periods indicated , expressed as a percentage of net sales : replace_table_token_7_th 30 fifty-two weeks ended december 28 , 2013 compared to the fifty-two weeks ended december 29 , 2012 net sales and gross margin replace_table_token_8_th net sales decreased $ 49.3 million , or 16.2 % , for fiscal year 2013 compared to fiscal year 2012. our net sales consisted of online sales , which included mobile based online sales , representing 90.0 % of the total for fiscal year 2013 ( compared to 91.8 % in fiscal year 2012 ) , and offline sales , representing 10.0 % of the total for fiscal year 2013 ( compared to 8.2 % in fiscal year 2012 ) . the net sales decrease was due to a decline of $ 49.7 million , or 17.8 % , in online sales , partially offset by a $ 0.5 million , or 2.0 % , increase in offline sales . included in the net sales decrease of 16.2 % in fiscal year 2013 , is a decrease in net sales channels , excluding websites we retired in 2013 , of 8.5 % . online sales decreased primarily due to a 21 % reduction in unique visitors , a 20 % reduction in total number of orders and a decline in average order value by 2 % . the overall decrease in unique visitors was due to a reduction in customer traffic as a result of changes search engines made to the algorithms that search engines use to optimize their search results . also , our revenues were negatively impacted by the increased competition as described in further detail under executive summary above . our offline sales , which consist of our kool-vue and wholesale operations , continued to show growth .
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( incorporated by reference from exhibit 10.1 to form 8-k , dated january 12 , 2012 ) . 10.22 amended and restated line of credit promissory note , dated as of january 1 , 2012 , by wilhelmina international , inc. for the benefit of amegy bank national association ( incorporated by reference from exhibit 10.2 to form 8-k , dated january 12 , 2012 ) . 10.23 first amendment to pledge and security agreement , dated as of january 1 , 2012 , by and among wilhelmina international , inc. , the guarantor signatories thereto and amegy bank national association ( incorporated by reference from exhibit 10.3 to form 8-k , dated january 12 , 2012 ) . * 10.24 employment agreement , dated as of august 29 , 2012 , by and between wilhelmina international , inc. and alex vaickus ( incorporated by reference from exhibit 10.1 to form 8-k , dated september 25 , 2012 ) . * 10.25 stock option letter agreement , dated as of september 25 , 2012 , by and between wilhelmina international , inc. and alex vaickus ( incorporated by reference from exhibit 10.2 to form 8-k , dated september 25 , 2012 ) . 10.26 second amendment to credit agreement , dated as of october 24 , 2012 , by and between wilhelmina international , inc. and amegy bank national association ( incorporated by reference from exhibit 10.1 to form 8-k , dated october 24 , 2012 ) . 10.27 second amended and restated line of credit promissory note , dated as of october 24 , 2012 , by wilhelmina international , inc. for the benefit of amegy bank national association ( incorporated by reference from exhibit 10.2 to form 8-k , dated october 24 , 2012 ) . 10.28 second amendment to pledge and security agreement , dated as of october 24 , 2012 , by and among wilhelmina international , inc. , the guarantor signatories thereto and amegy bank national association ( incorporated by reference from exhibit 10.3 to form 8-k , dated october 24 , 2012 ) . 10.29 letter agreement , dated as of april 24 , 2013 , by and between wilhelmina international , inc. and ronald l. chez ( incorporated by reference from exhibit 10.1 to form 8-k , dated april 23 , 2013 ) . 14.1 wilhelmina international , inc. code of business conduct and ethics ( incorporated by reference from exhibit 14.1 to form 8-k , dated april 21 , 2009 ) . 36 16.1 burton , mccumber & cortez , l.l.p . letter , dated september 28 , 2012 ( incorporated by reference from exhibit 16.1 to form 8-k , dated september 27 , 2012 ) . 21.1 list of subsidiaries incorporated by reference from exhibit 21.1 to form story_separator_special_tag the following is a discussion of the company 's financial condition and results of operations comparing the calendar years ended december 31 , 2013 and 2012. you should read this section in conjunction with the company 's consolidated financial statements and the notes thereto that are incorporated herein by reference and the other financial information included herein and the notes thereto . story_separator_special_tag wam business , when compared to the gross billings across the core modeling and wam businesses for the year ended december 31 , 2012. gross billings of the wam business decreased due to reduced fixed payments earned under a product licensing agreement ( per the terms of the contract ) and due to the expiration of another product licensing agreement ( per the terms of the contract ) , which the company was a party to , with a former talent . management expects gross billings and operating results from the wam business to continue to decline in 2014 as compared to 2013 , as a result of expiring product licensing agreements . gross billings of the wam division represented approximately 5 % of total gross billings for the year ended december 31 , 2013 , compared to approximately 16 % for the year end december 31 , 2012. revenues the increase in revenues for the year ended december 31 , 2013 , is attributable to the increases in gross billings of the core modeling business , partially offset by a decline in revenues from the wam business ( as discussed above ) . license fees and other income license fees and other income include the following : product licensing agreements between the company , its clients and talent , whereby the company participates in the sharing of royalties . during the year ended december 31 , 2013 , royalties from these licensing agreements totaled approximately $ 180,000 , compared to $ 1,252,000 for the year ended december 31 , 2012. as previously mentioned , fixed royalty payments earned have declined under a product licensing agreement ( per the terms of the contract ) and due to the expiration of another product licensing agreement ( per the terms of the contract ) , which the company was a party to , with a former talent . management expects royalty payments earned to continue to decline in 2014 , as a result of expiring product licensing agreements . 12 an agreement between the company and an unconsolidated affiliate to provide management and administrative services , as well as sharing of space . for each of the years ended december 31 , 2013 and december 31 , 2012 , management fee and rental income from the unconsolidated affiliate amounted to approximately $ 110,000. franchise revenues from independently owned model agencies that use the wilhelmina trademark name and various services provided by the company . story_separator_special_tag the company received reimbursement from the landlord in early 2014. corporate overhead corporate overhead expenses include public company costs , director and executive officer compensation , directors ' and officers ' insurance , legal , audit and professional fees , corporate office rent and travel . corporate overhead decreased for the year ended december 31 , 2013 , when compared to the year ended december 31 , 2012 , due to a decline in stock exchange fees , executive search fees and travel . asset impairment charge each reporting period , the company assesses whether events or circumstances have occurred which indicate that the carrying amount of an intangible asset exceeds its fair value . if the carrying amount of the intangible asset exceeds its fair value , an asset impairment charge will be recognized in an amount equal to that excess . no asset impairment charges were incurred during the year ended december 31 , 2013 and december 31 , 2012. interest expense the increase in interest expense for the year ended december 31 , 2013 , when compared to the year ended december 31 , 2012 , is the result of an increase in average borrowings under the credit agreement . income taxes generally , the company 's combined effective tax rate is high relative to reported net income as a result of certain amounts of amortization expense and corporate overhead not being deductible or attributable to states in which it operates . currently , the majority of taxes being paid by the company are state taxes , not federal taxes . the company operates in three states which have relatively high tax rates : california , new york and florida . the company 's combined ( federal and state ) effective tax rate would be even higher if it were not for federal net operating loss carryforwards available to offset current federal taxable income . after adjusting for taxable income in 2013 , the company had federal income tax loss carryforwards of approximately $ 3,000,000 , which begin expiring in 2019. a portion of the company 's federal net operating loss carryforwards were utilized to offset federal taxable income generated during the year ended december 31 , 2013. realization of the company 's carryforwards is dependent on future taxable income . as of december 31 , 2013 , management determined that the deferred tax asset ( `` dta '' ) valuation allowance of approximately $ 2,500,000 should be reversed . the decision to reverse the dta valuation allowance is based on the sustained profitability by the company in recent years and management 's expectation of sufficient profitability in subsequent years which will utlize the net operating losses . as a result of the dta allowance reversal , net income for the year ended december 31 , 2013 increased by approximately $ 2,170,000 . 14 as defined in the internal revenue code , ownership changes may limit the amount of net operating loss carryforwards that can be utilized annually to offset future taxable income . liquidity and capital resources the company 's cash balance increased to $ 2,776,000 at december 31 , 2013 , from $ 1,145,000 at december 31 , 2012. for the year ended december 31 , 2013 , cash balances increased as a result of cash flows from operations of approximately $ 2,932,000 before the payment of approximately $ 454,000 in settlement of foreign withholding tax claims for tax years 2006 and 2008. the company offset approximately $ 454,000 of its remaining approximately $ 509,000 miami earnout obligation ( as of december 31 , 2012 ) for losses incurred in the settlement of these foreign withholding claims for tax years 2006 and 2008. cash flow from operations were also utilized during the year ended december 31 , 2013 , to make payments under the credit agreement with amegy of $ 450,000 , to repurchase 2,263,110 shares of the company 's common stock , totaling approximately $ 410,000 and to purchase approximately $ 421,000 of fixed assets . as previously discussed approximately $ 270,000 of the fixed asset purchases related to leasehold improvements and fixtures in the new york office , of which $ 190,000 were reimbursed by the landlord in early 2014. the company 's primary liquidity needs are for financing working capital associated with the expenses it incurs in performing services under its client contracts . generally , the company incurs significant operating expenses with payment terms shorter than its average collections on billings . amegy credit agreement on october 24 , 2012 , the company executed and closed a second amendment to its revolving credit agreement with amegy ( the `` second credit agreement amendment '' ) , which amended and replaced the terms of the credit agreement , as previously amended . under the terms of the second credit agreement amendment , ( 1 ) total availability under the revolving credit facility is $ 5,000,000 , ( 2 ) the borrowing base is 75 % of eligible accounts receivable ( as defined in the credit agreement ) and ( 3 ) the company 's minimum net worth covenant is $ 22,000,000. the maturity date of the facility is october 15 , 2015. under the terms of the second amended and restated promissory note evidencing the company 's obligation to repay advances under the facility , the interest rate on borrowings is prime rate plus 1 % . as of march 31 , 2014 , the company had no outstanding borrowings under the credit agreement . the credit agreement contains certain representations and warranties and affirmative and negative covenants . amounts outstanding under the credit agreement may be accelerated and become immediately due and payable upon the occurrence of an event of default . all indebtedness and other obligations of the company under the credit agreement are secured by all of the assets of the company and its subsidiaries , provided , however , that the collateral does not include the intellectual property
| overview the company 's primary business is fashion model management , which is headquartered in new york city . the company 's predecessor was founded in 1967 by wilhelmina cooper , a renowned fashion model , and is one of the oldest , best known and largest fashion model management companies in the world . since its founding , it has grown to include operations located in los angeles and miami , as well as a growing network of licensees comprising leading modeling agencies in various local markets across the u.s. , as well as in panama , thailand , dubai , vancouver and tokyo . the company provides traditional , full-service fashion model and talent management services , specializing in the representation and management of models , entertainers , artists , athletes and other talent to various customers and clients , including retailers , designers , advertising agencies and catalog companies . the business of talent management firms , such as wilhelmina , depends heavily on the state of the advertising industry , as demand for talent is driven by internet , print and tv advertising campaigns for consumer goods and retail clients . wilhelmina believes it has strong brand recognition which enables it to attract and retain top agents and talent to service a broad universe of clients . in order to take advantage of these opportunities and support its continued growth , the company will need to continue to successfully allocate resources and staffing in a way that enhances its ability to respond to these new opportunities . the company continues to focus on cutting costs , recruiting top agents when available and scouting and developing new talent . although wilhelmina has a large and diverse client base , it is not immune to global economic conditions . wilhelmina closely monitors economic conditions , client spending and other factors and continually looks for ways to reduce costs , manage working capital and conserve cash .
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proposed merger on january 28 , 2007 , laureate entered into a definitive agreement and plan of merger ( the merger agreement ) with wengen alberta , limited partnership , an alberta limited partnership ( wengen ) and l curve sub inc. , a direct subsidiary of wengen ( merger sub ) , under which merger sub will merge ( the merger ) with and into laureate , with laureate surviving . wengen is owned by an investment group consisting of douglas l. becker , laureate 's chairman and chief executive officer , kohlberg kravis roberts & co. , citigroup private equity , s.a.c . capital management , llc , spg partners , bregal investments , caisse de depot et placement du quebec , sterling capital , makena capital , torreal s.a. and southern cross capital . under the terms of the merger agreement , laureate stockholders will receive $ 60.50 in cash for each share of laureate common stock they own . completion of the merger is subject to customary conditions , including , among others , the approval of the merger and the merger agreement by laureate 's common stockholders , the availability to wengen and the merger sub of debt financing , expiration or termination of applicable waiting periods under the hart-scott-rodino antitrust improvements act of 1976 and certain responses from the united states department of education . the merger agreement was filed in a current report on form 8-k filed with the securities and exchange commission on january 29 , 2007. the foregoing description of the merger agreement is qualified in its entirety by reference to the full text of the merger agreement . acquisitions during the third quarter of 2006 the company purchased the remaining 20 % of decon and desarollo de la educacion superior s.a. , which are the holding companies that control and operate udla and unab . during the fourth quarter of 2006 the company purchased an additional 10 % interest in uvm . also in 2006 the company acquired a 50 % interest in ch holdings netherlands bv , a 100 % interest in iede chile , and a 100 % interest in compania de servicios educativos . during 2005 the company purchased a 51 % ownership of a private for profit company which owns and manages uam , a 45 % interest in cyprus college , a 100 % interest in unitec and an 80 % interest in universidad del noroeste . in 2004 the company acquired the remaining 49 % of walden , the remaining 22.25 % of uem , a 100 % interest in kit elearning bv , a 100 % interest in iede spain , an 80 % interest in upc , a 100 % interest in ulacit , and an 80 % interest in udla in ecuador . refer to note 5 to the consolidated financial statements for further discussion of these transactions . sale of business units during the third quarter of 2006 , the company sold the operations of institut francais de gestion langues ( ifg langues ) , a non-strategic part of ifg . also , during the first quarter of 2005 , the company completed the sale of its wall street institute ( wsi ) business . during 2004 , the company terminated its program in india and sold its remaining k-12 educational services businesses . on june 30 , 2003 , the company completed the sale to educate , inc. ( educate ) , a company newly-formed by apollo management l.p. ( apollo ) , of substantially all of the company 's k-12 segments . the operations and cash flows of the business components comprising ifg langues , wsi , india , and k-12 educational services were eliminated from ongoing operations as a result of the sale or abandonment and the company does not have any significant continuing involvement in the operations after the disposal transactions . therefore , these operations are classified as discontinued operations for all periods . refer to note 4 to the consolidated financial statements for more information regarding these transactions . 25 critical accounting policies and estimates the company 's accounting policies are more fully described in note 2 to the consolidated financial statements . as disclosed in note 1 to the consolidated financial statements , the preparation of financial statements in conformity with accounting principles generally accepted in the united states requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes . future events and their effects can not be determined with absolute certainty . therefore , the determination of estimates requires the exercise of judgment . actual results inevitably will differ from those estimates , and these differences may be material to the financial statements . the company believes the following key accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements and are critical to its business operations and the understanding of its results of operations . revenue recognition . effective january 1 , 2006 , the company made a voluntary preferential change in its revenue recognition policies regarding semester-based tuition for its campus-based universities . the universities now recognize tuition revenue ratably on a weekly straight-line basis over each academic session instead of the previously used monthly straight-line basis . this change was made to improve transparency and the correlation between the company 's enrollments , revenues , and actual academic calendars . refer to note 2 to the consolidated financial statements for further discussion . tuition revenue is reported net of scholarships and other discounts . all other revenue is recognized as earned over the appropriate service period , including the company 's online business . dormitory revenues are recognized over the occupancy period . textbook sales and the related cost of the textbooks are recognized at the beginning of each academic quarter with respect to students who are attending courses in which textbooks are charged separately from tuition . story_separator_special_tag if the recorded amount of goodwill exceeds this implied fair value , an impairment charge is recorded for the excess . other intangible assets include acquired student rosters , accreditation , tradenames , non-competition agreements and curriculum . the assumptions used to calculate the initial fair value of these identified intangible assets included estimates of future operating results and cash flows , as well as discount rates and weighted average costs of capital for each acquisition . accreditations and tradenames have indefinite lives . useful lives , which range from 2 to 7 years , are assigned to all other intangible assets based upon estimated matriculation rates and other factors . if the company used different assumptions and estimates in the calculation of the initial fair value of identified intangible assets and the estimation of the related useful lives , the amounts allocated to these assets , as well as the related amortization expense , could have been significantly different than the amounts recorded . in assessing the recoverability of the company 's goodwill and other intangible assets , the company must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets . if these estimates or their related assumptions change in the future , the company may be required to record impairment charges for these assets not previously recorded . income taxes . the company earns a significant portion of its income from subsidiaries located in countries outside of the united states . at december 31 , 2006 , undistributed earnings of foreign subsidiaries totaled approximately $ 573.5 million . deferred tax liabilities have not been recognized for undistributed earnings because it is management 's intention to permanently reinvest such undistributed earnings outside of the united states . apb opinion no . 23 , accounting for income taxes special areas , requires that a company evaluate its circumstances to determine whether or not there is sufficient evidence to support the assertion that it has or will reinvest undistributed foreign earnings indefinitely . the company 's assertion that earnings from its foreign operations will be permanently reinvested is supported by projected working capital and long-term capital needs in each subsidiary location in which the earnings are generated . additionally , the company believes that it has the ability to permanently reinvest foreign earnings based on a review of projected cash flows from domestic operations , projected working capital and liquidity for both short-term and long-term domestic needs , and the expected availability of debt or equity markets to provide funds for those domestic needs . if circumstances change and it becomes apparent that some or all of the undistributed earnings of the company 's foreign subsidiaries will be remitted to the united states in the foreseeable future , the company will be required to recognize deferred tax expense and liabilities on those amounts . 27 the company records a valuation allowance to reduce its deferred tax assets to the amount that it believes is more likely than not to be realized . the company also has considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the amount of valuation allowance needed . if the company were to determine that it would not be able to realize all or part of its net deferred tax assets in the future , an adjustment to the deferred tax assets would be charged to income in the period such determination was made . likewise , should the company determine that it would be able to realize its deferred tax assets in the future in excess of its net recorded amount , an adjustment to the valuation allowance would increase income in the period such determination was made . on july 13 , 2006 , the financial accounting standards board ( fasb ) issued fasb interpretation no . 48 . accounting for uncertainty in income taxes , ( fin 48 ) . fin 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise 's financial statements in accordance with sfas no . 109 , accounting for income taxes . fin 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return . fin 48 also provides guidance on derecognition , classification , interest and penalties , accounting in interim periods , disclosure , and transition . fin 48 is effective for fiscal years beginning after december 15 , 2006. the company will adopt fin 48 effective january 1 , 2007. the cumulative effect of adopting fin 48 will be recorded as an adjustment to beginning retained earnings in the first quarter of 2007. the company 's evaluation of the effect of fin 48 is ongoing . impact of recently issued accounting standards . in september 2006 , the fasb issued sfas no . 157 , fair value measurements , ( sfas 157 ) , which defines fair value , establishes a framework for measuring fair value in accordance with generally accepted accounting principles , and expands disclosures about fair value measurements . sfas 157 is effective in fiscal years beginning after november 15 , 2007. the company will adopt sfas 157 on january 1 , 2008. the company does not expect that the adoption of this standard will have a material effect on the company 's financial position or results of operations . in september 2006 , the fasb issued sfas no . 158 , employers ' accounting for defined benefit and other postretirement plans , an amendment of fasb statements no . 87 , 106 , and 132 ( r ) , ( sfas 158 ) . sfas 158 requires companies to recognize a net liability or asset and an offsetting adjustment to accumulated other comprehensive income to report the funded status of defined benefit pension and other postretirement benefit plans . sfas no .
| results of operations the company 's three continuing reportable segments generate revenues as follows : · latin america and europe both earn tuition and related fees paid by the students of the company 's campus-based higher education institutions . · laureate online education earns revenues from instructional services that are provided through an online format , as well as other forms of distance learning . enrollments management closely follows trends in new and total enrollment because total enrollment growth is highly correlated with revenue growth . new enrollments are particularly important as they impact future results . 28 enrollment reporting each of laureate 's higher education institutions has a different enrollment cycle depending on geography and academic program . each school has a primary intake at the start of each academic year , during which most of the enrollment occurs . the first quarter coincides with the primary intakes for the company 's higher education institutions in south america ( chile , brazil , ecuador and peru ) . the third quarter coincides with the primary intakes for mexico and central america ( costa rica , panama and honduras ) , as well as for schools in the mediterranean region ( spain and cyprus ) , switzerland , u.s. and france . seasonality most of the schools in the company 's network have a summer break when classes are generally not in session and during which minimal revenues are recognized . operating expenses , however , do not fully correlate to the enrollment and revenue cycles , as the schools continue to incur fixed expenses during summer breaks . as a result , the fourth quarter is the company 's strongest quarter because all of its higher education institutions are in session . the second quarter is also strong as most schools have classes in session , although the company 's largest school , located in mexico , is in session for only part of that quarter .
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banking regulations may limit the amount of story_separator_special_tag operations the following discussion and analysis provides information about the more significant factors that impacted the financial condition and results of operations of the company for the years ended december 31 , 2020 , 2019 and 2018. this discussion and analysis should be read in conjunction with the company 's consolidated financial statements and accompanying notes and other selected financial data presented elsewhere in this report . refer to item 7 , “ management 's discussion and analysis of financial condition and results of operations ” included in the company 's annual report on form 10-k/a filed with the sec on march 6 , 2020 and incorporated herein by reference for a discussion and analysis of the more significant factors that affected periods prior to 2019. executive overview cass provides payment and information processing services to large manufacturing , distribution and retail enterprises from its offices/locations in st. louis , missouri , columbus , ohio , greenville , south carolina , wellington , kansas , jacksonville , florida , breda , netherlands , basingstoke , united kingdom , and singapore . the company 's services include freight invoice rating , payment processing , auditing , and the generation of accounting and transportation information . cass also processes and pays energy invoices , which include electricity and gas as well as waste and telecommunications expenses , and is a provider of telecom expense management solutions . cass solutions include a b2b payment platform for clients that require an agile 18 fintech partner . additionally , the company offers an on-line platform to provide generosity services for faith-based and non-profit organizations . the company 's bank subsidiary , the “ bank , ” supports the company 's payment operations . the bank also provides banking services to its target markets , which include privately-owned businesses and faith-based ministries in the st. louis metropolitan area as well as other selected cities in the united states . the specific payment and information processing services provided to each customer are developed individually to meet each customer 's requirements , which can vary greatly . in addition , the degree of automation such as electronic data interchange , imaging , work flow , and web-based solutions varies greatly among customers and industries . these factors combine so that pricing varies greatly among the customer base . in general , however , cass is compensated for its processing services through service fees and investment of account balances generated during the payment process . the amount , type , and calculation of service fees vary greatly by service offering , but generally follow the volume of transactions processed . interest income from the balances generated during the payment processing cycle is affected by the amount of time cass holds the funds prior to payment and the dollar volume processed . both the number of transactions processed and the dollar volume processed are therefore key metrics followed by management . other factors will also influence revenue and profitability , such as changes in the general level of interest rates , which have a significant effect on net interest income . the funds generated by these processing activities are invested in overnight investments , investment grade securities , advances to payees , and loans generated by the bank . the bank earns most of its revenue from net interest income , or the difference between the interest earned on its loans and investments and the interest paid on its deposits and other borrowings . the bank also assesses fees on other services such as cash management services . industry-wide factors that impact the company include the willingness of large corporations to outsource key business functions such as freight , energy , telecommunication and environmental payment and audit . the benefits that can be achieved by outsourcing transaction processing , and the management information generated by cass ' systems can be influenced by factors such as the competitive pressures within industries to improve profitability , the general level of transportation costs , deregulation of energy costs , and consolidation of telecommunication providers . economic factors that impact the company include the general level of economic activity that can affect the volume and size of invoices processed , the ability to hire and retain qualified staff , and the growth and quality of the loan portfolio . the general level of interest rates also has a significant effect on the revenue of the company . as discussed in greater detail in item 7a , “ quantitative and qualitative disclosures about market risk , ” a decline in the general level of interest rates can have a negative impact on net interest income and conversely , a rise in the general level of interest rates can have a positive impact on net interest income . the cost of fuel is another factor that has a significant impact on the transportation sector . as the price of fuel goes up or down , the company 's earnings increase or decrease with the dollar amount of transportation invoices . in 2020 , total fee revenue and other income decreased $ 9,628,000 , or 9 % , net interest income after provision for credit losses decreased $ 2,651,000 , or 6 % , total operating expenses decreased $ 5,154,000 , or 4 % , and net income decreased $ 5,228,000 , or 17 % . this performance in 2020 was negatively impacted by the covid-19 global pandemic . for payment processing services , business closures have led to a decrease in the number of transactions and dollars processed due to the decline in customers ' business activity , which resulted in a negative effect on total fee revenue and other income . additionally , the federal reserve 's actions to lower the federal funds rate adversely impacted net interest income . total operating expenses decreased as the lower number of transactions processed had a corresponding reduction in personnel expense and covid-19 limited employee travel-related expenses . story_separator_special_tag 20 the federal reserve also took action to lower the federal funds rate in connection with covid-19 relief , adversely affecting the company 's net interest income and operating results for fiscal 2020 tied to banking services . the federal reserve has indicated that it will retain the current low level interest rates until the economy has stabilized . bank regulatory agencies and various governmental authorities are urging financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations because of the effects of covid-19 . accordingly , and in coordination with its primary regulators , the company deferred borrower principal payments on loans during the second quarter of 2020 , on an as needed basis , for periods of up to six months . there were no borrowers remaining on deferred terms at the end of the third quarter of 2020. in response to covid-19 , the cares act was adopted on march 27 , 2020. the cares act provides for an estimated $ 2.2 trillion to fight the covid-19 pandemic and stimulate the economy by supporting individuals and businesses through loans , grants , tax changes , and other types of relief . among other things , the cares act established the paycheck protection program ( “ ppp ” ) , which allows entities to apply for low-interest private loans to fund payroll and other costs which , subject to certain conditions and qualifications , are partially or fully forgivable . in support of the cares act , the bank had processed nearly 350 applications for ppp loans of approximately $ 170,000,000 during the year ended december 31 , 2020 to provide much-needed cash to small business and self-employed taxpayers during the covid-19 crisis . the loans were primarily made to existing bank customers and are 100 % guaranteed by the small business administration and helped offset the near-zero interest rate environment . cass remains committed to creating a safe and healthy environment for employees while offering assurance that it remains a financially strong service provider possessing the resources necessary to weather this pandemic in support of its valued customers . in late fiscal 2020 , vaccines effective in combatting covid-19 were approved by health agencies and began to be administered . however , initial quantities of vaccines are limited and full administration of the covid-19 vaccines is unlikely to occur in most jurisdictions until mid- to late-2021 . the timeline and outlook of economic recovery from covid-19 is unknown at this time , and prolonged , extensive business interruptions would continue to adversely affect the company 's operations and financial results . given these and other uncertainties discussed throughout this report , the company remains subject to heightened risk , and the aggregate impact that covid-19 could have on the company 's financial condition and operating results is presently unknown . for further discussion on covid-19 and its impact on the company , refer to item 8 , “ financial statements and supplementary data—note 1. summary of results replace_table_token_2_th ( 1 ) presented on a tax-equivalent basis . the results of 2020 compared to 2019 include the following significant items : overall , the company 's revenue and profitability declined , primarily as a result of the covid-19 global pandemic . for payment processing services , business closures have led to a decrease in the number of transactions and dollars processed due to the decline in customers ' business activity . covid-19 , along with a constriction in manufacturing activity for a portion of the year , had a negative effect on payment processing fees , processing volume , and invoice dollars processed and paid which decreased 10 % , 5 % , and 7 % , respectively . average earning assets increased 14 % and net interest income after provision for credit losses decreased 6 % year over year . the federal reserve 's actions to lower the federal funds rate adversely impacted net interest income after provision 21 for credit losses and the net interest rate margin . the increase in average earning assets , driven by government stimulus programs , partially offset the impact of the near-zero interest rate environment on the company 's net interest margin . there was a provision for credit losses recorded of $ 810,000 in 2020 compared to $ 250,000 in 2019. there were gains from the sale of securities of $ 1,075,000 and $ 19,000 in 2020 and 2019 , respectively . operating expenses decreased $ 5,154,000 or 4 % , as the decrease in the number of transactions processed had a corresponding decrease in personnel expense . in addition , covid-19 limited employee travel-related expenses . fee revenue and other income the company 's fee revenue is derived mainly from transportation and facility payment and processing fees . as the company provides its processing and payment services , it is compensated by service fees which are typically calculated on a per-item basis , discounts received for services provided to carriers and by the accounts and drafts payable balances generated in the payment process which can be used to generate interest income . processing volumes , fee revenue and other income were as follows : replace_table_token_3_th ( 1 ) includes energy , telecom and environmental fee revenue and other income in 2020 compared to 2019 include the following significant pre-tax components : in the transportation sector , invoice transaction and dollar volume decreased 8 % and 6 % , respectively , as the global pandemic reduced customers ' business activities . the manufacturing industry , which represents an important component of the transportation customer base , was constricted for a portion of the year before slowly opening back up towards the latter half of 2020. expense management transaction volume decreased 1 % and dollar volume decreased 10 % as governmental restrictions in the restaurant , retail , and hospitality sectors curtailed business hours and consumers continued to be cautious about travel and entertainment , both creating lower utility usage .
| summary of nonperforming assets replace_table_token_10_th ( 1 ) in october 2017 , one nonaccrual loan with a balance of $ 215,000 was paid in full . in february 2016 , one nonaccrual loan with a balance of $ 2,727,000 was paid in full . operating expenses operating expenses in 2020 compared to 2019 include the following significant pre-tax components : personnel expense decreased $ 3,021,000 , or 3 % , to $ 88,062,000 as covid-19 caused a decrease in invoice processing volumes and a corresponding decrease in personnel expense . promotional expense decreased $ 1,654,000 , or 43 % , as employee travel-related expenses were limited throughout the year . income tax expense income tax expense in 2020 totaled $ 5,165,000 compared to $ 7,062,000 in 2019. when measured as a percent of pre-tax income , the company 's effective tax rate was 17 % in 2020 and 19 % in 2019. the decrease in the effective tax rate in 2020 compared to 2019 was primarily due to tax-exempt income from municipal bonds being a larger percentage of total pretax income , in addition to the eligibility of additional tax credits . investment portfolio investment portfolio changes from december 31 , 2019 to december 31 , 2020 : state and political subdivision securities decreased $ 18,473,000 , or 6 % , to $ 305,974,000. u.s. government agency securities decreased $ 45,966,000 to $ 51,752,000. the investment portfolio provides the company with a significant source of earnings , secondary source of liquidity , and mechanisms to manage the effects of changes in loan demand and interest rates . therefore , the size , asset allocation and maturity distribution of the investment portfolio will vary over time depending on management 's assessment of current and future interest rates , changes in loan demand , changes in the 28 company 's sources of funds and the economic outlook .
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critical accounting policies management 's discussion and analysis of our consolidated financial statements and results of operations is based upon our consolidated financial statements included as part of this document . the preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses and related disclosures of contingent assets and liabilities . on an ongoing basis , we evaluate these estimates , including those related to bad debts , inventories , income taxes , impairment of long-lived assets , and contingencies and litigation . we base these estimates on historical experiences 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 available from other sources . actual results may differ from these estimates under different assumptions or conditions . we believe that the following critical accounting policies affect management 's more significant judgments and estimates used in the preparation of its consolidated financial statements . for a detailed discussion on the application of these and other accounting policies , see note a to the consolidated financial statements , included in this annual report . certain of our accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates . by their nature , these judgments are subject to an inherent degree of uncertainty and actual results could differ from these estimates . these judgments are based on our historical experience , terms of existing contracts , current economic trends in the industry , information provided by our customers , and information available from outside sources , as appropriate . our critical accounting policies include : income taxes : the company recognizes a liability or asset for the deferred tax consequences of temporary differences between the tax basis of assets or liabilities and their reported amounts in the consolidated financial statements . these temporary differences may result in taxable or deductible amounts in future years when the reported amounts of the assets or liabilities are recovered or settled . the deferred tax assets are reviewed periodically for recoverability and a valuation allowance is provided whenever it is more likely than not that a deferred tax asset will not be realized . after a review of projected taxable income and the components of the deferred tax asset in accordance with applicable accounting guidance it was determined that it is more likely than not that the tax benefits associated with the remaining components of the deferred tax assets will not be realized . this determination was made based on the company 's history of losses from operations and the uncertainty as to whether the company will generate sufficient taxable income to use the deferred tax assets prior to their expiration . accordingly , a valuation allowance was established to fully offset the value of the deferred tax assets . our ability to realize the tax benefits associated with the deferred tax assets depends primarily upon the timing of future taxable income and the expiration dates of the components of the deferred tax assets . if sufficient future taxable income is generated , we may be able to offset a portion of future tax expenses . the company follows asc 740-10 which provides guidance for tax positions related to the recognition and measurement of a tax position taken or expected to be taken in a tax return and requires that we recognize in our consolidated financial statements the impact of a tax position , if that position is more likely than not to be sustained upon an examination , based on the technical merits of the position . interest and penalties , if any , related to income tax matters are recorded as income tax expenses . 12 revenue recognition : the company 's primary source of revenue is the sale of safety and security products based upon purchase orders or contracts with customers . revenue is recognized at a point in time once the company has determined that the customer has obtained control over the product . control is typically deemed to have been transferred to the customer when the product is shipped or delivered to the customer . customers may not return , exchange or refuse acceptance of goods without our approval . generally , the company does not grant extended payment terms . shipping and handling costs associated with outbound freight , after control over a product has transferred to a customer , are accounted for as a fulfillment cost and are recorded in selling , general and administrative expense . the amount of revenue recognized reflects the consideration to which the company expects to be entitled to receive in exchange for products sold . revenue is recorded at the transaction price net of estimates of variable consideration . the company uses the expected value method based on historical data in considering the impact of estimates of variable consideration , which may include trade discounts , allowances , product returns ( including rights of return ) or warranty replacements . estimates of variable consideration are included in revenue to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur . we have established allowances to cover anticipated doubtful accounts based upon historical experience . inventories : inventories are valued at the lower of cost or net realizable value . cost is determined on the first in/first out method . we evaluate inventories on a quarterly basis and write down inventory that is deemed obsolete or unmarketable in an amount equal to the difference between the cost of inventory and the estimated net realizable value based upon assumptions about future demand and market conditions . off-balance sheet arrangements . we have not created , and are not party to , any special-purpose story_separator_special_tag critical accounting policies management 's discussion and analysis of our consolidated financial statements and results of operations is based upon our consolidated financial statements included as part of this document . the preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses and related disclosures of contingent assets and liabilities . on an ongoing basis , we evaluate these estimates , including those related to bad debts , inventories , income taxes , impairment of long-lived assets , and contingencies and litigation . we base these estimates on historical experiences 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 available from other sources . actual results may differ from these estimates under different assumptions or conditions . we believe that the following critical accounting policies affect management 's more significant judgments and estimates used in the preparation of its consolidated financial statements . for a detailed discussion on the application of these and other accounting policies , see note a to the consolidated financial statements , included in this annual report . certain of our accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates . by their nature , these judgments are subject to an inherent degree of uncertainty and actual results could differ from these estimates . these judgments are based on our historical experience , terms of existing contracts , current economic trends in the industry , information provided by our customers , and information available from outside sources , as appropriate . our critical accounting policies include : income taxes : the company recognizes a liability or asset for the deferred tax consequences of temporary differences between the tax basis of assets or liabilities and their reported amounts in the consolidated financial statements . these temporary differences may result in taxable or deductible amounts in future years when the reported amounts of the assets or liabilities are recovered or settled . the deferred tax assets are reviewed periodically for recoverability and a valuation allowance is provided whenever it is more likely than not that a deferred tax asset will not be realized . after a review of projected taxable income and the components of the deferred tax asset in accordance with applicable accounting guidance it was determined that it is more likely than not that the tax benefits associated with the remaining components of the deferred tax assets will not be realized . this determination was made based on the company 's history of losses from operations and the uncertainty as to whether the company will generate sufficient taxable income to use the deferred tax assets prior to their expiration . accordingly , a valuation allowance was established to fully offset the value of the deferred tax assets . our ability to realize the tax benefits associated with the deferred tax assets depends primarily upon the timing of future taxable income and the expiration dates of the components of the deferred tax assets . if sufficient future taxable income is generated , we may be able to offset a portion of future tax expenses . the company follows asc 740-10 which provides guidance for tax positions related to the recognition and measurement of a tax position taken or expected to be taken in a tax return and requires that we recognize in our consolidated financial statements the impact of a tax position , if that position is more likely than not to be sustained upon an examination , based on the technical merits of the position . interest and penalties , if any , related to income tax matters are recorded as income tax expenses . 12 revenue recognition : the company 's primary source of revenue is the sale of safety and security products based upon purchase orders or contracts with customers . revenue is recognized at a point in time once the company has determined that the customer has obtained control over the product . control is typically deemed to have been transferred to the customer when the product is shipped or delivered to the customer . customers may not return , exchange or refuse acceptance of goods without our approval . generally , the company does not grant extended payment terms . shipping and handling costs associated with outbound freight , after control over a product has transferred to a customer , are accounted for as a fulfillment cost and are recorded in selling , general and administrative expense . the amount of revenue recognized reflects the consideration to which the company expects to be entitled to receive in exchange for products sold . revenue is recorded at the transaction price net of estimates of variable consideration . the company uses the expected value method based on historical data in considering the impact of estimates of variable consideration , which may include trade discounts , allowances , product returns ( including rights of return ) or warranty replacements . estimates of variable consideration are included in revenue to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur . we have established allowances to cover anticipated doubtful accounts based upon historical experience . inventories : inventories are valued at the lower of cost or net realizable value . cost is determined on the first in/first out method . we evaluate inventories on a quarterly basis and write down inventory that is deemed obsolete or unmarketable in an amount equal to the difference between the cost of inventory and the estimated net realizable value based upon assumptions about future demand and market conditions . off-balance sheet arrangements . we have not created , and are not party to , any special-purpose
| general we are in the business of marketing and distributing safety and security products which are primarily manufactured in the peoples republic of china . our consolidated financial statements detail our sales and other operational results , and for the fiscal years ended march 31 , 2020 and 2019 report the financial results of the hong kong joint venture ( eyston ) that is accounted for using the equity method of accounting through the date of the sale of the company 's 50 % interest on march 31 , 2020. accordingly , the following discussion and analysis of the fiscal years ended march 31 , 2020 and 2019 relate to the operational results of the company and its consolidated subsidiary only and includes the company 's equity share of losses in the hong kong joint venture . a discussion and analysis of the hong kong joint venture 's operational results for these periods is presented below under the heading “ hong kong joint venture. ” in light of the shutdowns , quarantines and other restrictions and delays in operations and travel caused by or related to covid-19 in hong kong , the prc and the united states , the company has experienced delays in shipping and receiving of products . as the company 's products are sold primarily to the construction industry and do-it-yourself centers , restrictions and limitations imposed by the covid-19 pandemic have had a negative impact on the company 's sales . the company is not yet able to quantify the full impact of the covid-19 pandemic on its sales and financial results , but believes that the pandemic was a factor in significantly lower sales for the fourth quarter of its fiscal year ended march 31 , 2020 when compared to sales for the 2019 period . our overall sales are primarily dependent upon the strength of the u.s. housing market .
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the complaint sought to certify a class of plaintiffs , consisting of central american mothers and children who ( i ) have been or will be detained in ice family detention facilities since june 2014 , ( ii ) have been or will be determined to have a credible fear of persecution in their home country under federal asylum laws and ( iii ) are eligible for release on bond pursuant to certain federal statutes but have been or will be denied such release after being subject to an ice custody determination that took deterrence story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this report . this discussion contains forward-looking statements that involve risks and uncertainties . 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 described under risk factors and included in other portions of this report . overview as of december 31 , 2014 , we owned or controlled 52 correctional and detention facilities and managed an additional 12 facilities owned by our government partners , with a total design capacity of approximately 84,500 beds in 19 states and the district of columbia . we are the nation 's largest owner of privatized correctional and detention facilities and one of the largest prison operators in the united states . our size and experience provide us with significant credibility with our current and prospective customers , and enable us to generate economies of scale in purchasing power for food services , health care and other supplies and services we offer to our government partners . we are a real estate investment trust , or reit . we began operating as a reit for federal income tax purposes effective january 1 , 2013. see item 1. business overview for a description of how we are organized and provide correctional services and conduct other operations through taxable reit subsidiaries , or trss , in order to comply with reit qualification requirements . we believe that operating as a reit maximizes our ability to create stockholder value given the nature of our assets , helps lower our cost of capital , draws a larger base of potential stockholders , provides greater flexibility to pursue growth opportunities , and creates a more efficient operating structure . our business we are compensated for providing correctional bed space and operating and managing prisons and correctional facilities at an inmate per diem rate based upon actual or minimum guaranteed occupancy levels . the expansion of the prison population in the united states has led to overcrowding in the federal and state prison systems , providing us with opportunities for growth . federal , state , and local governments are constantly under budgetary constraints putting pressure on governments to control correctional budgets , including per diem rates our customers pay to us as well as pressure on appropriations for building new prison capacity . our federal partners have continued to manage their budgets under continuing resolutions which has created short-term challenges and lead to reductions in inmate populations . several of our state partners are projecting modest increases in tax revenues and improvements in their budgets which has resulted in our ability to secure recent per diem increases at certain facilities . however , all of our state partners have balanced budget requirements , which may force them to further reduce their expenses if their tax revenues , which typically lag the overall economy , do not meet their expectations . additionally , actions to manage their expenses could include reductions in inmate populations . we believe the long-term growth opportunities of our business remain very attractive as certain states consider efficiency , savings , and offender programming opportunities we can provide . further , we expect our partners to continue to face challenges in maintaining old facilities , and developing new facilities and additional capacity which could result in future demand for the solutions we provide . 48 governments continue to experience many significant spending demands which have constrained correctional budgets limiting their ability to expand existing facilities or construct new facilities . we believe the outsourcing of prison management services to private operators allows governments to manage increasing inmate populations while simultaneously controlling correctional costs and improving correctional services . we believe our customers discover that partnering with private operators to provide residential services to their offenders introduces competition to their prison system , resulting in improvements to the quality and cost of corrections services throughout their correctional system . further , the use of facilities owned and managed by private operators allows governments to expand correctional capacity without incurring large capital commitments and allows them to avoid long-term pension obligations for their employees . we also believe that having beds immediately available to our partners provides us with a distinct competitive advantage when bidding on new contracts . while we have been successful in winning contract awards to provide management services for facilities we do not own , and will continue to pursue such management contracts selectively , we believe the most significant opportunities for growth are in providing our government partners with available beds within facilities we currently own or that we develop . we also believe that owning the facilities in which we provide management services enables us to more rapidly replace business lost compared with managed-only facilities , since we can offer the same beds to new and existing customers and , with customer consent , may have more flexibility in moving our existing inmate populations to facilities with available capacity . our management contracts generally provide our customers with the right to terminate our management contracts at any time without cause . we have staff throughout the organization actively engaged in marketing our available capacity to existing and prospective customers . historically , we have been successful in substantially filling our inventory of available beds and the beds that we have constructed . story_separator_special_tag we re-perform the impairment analyses on an annual basis for each of the idle facilities and evaluate on a quarterly basis market developments for the potential utilization of each of these facilities in order to identify events that may cause us to reconsider our most recent assumptions . such events could include negotiations with a prospective customer for the utilization of an idle facility at terms significantly less favorable than used in our most recent impairment analysis , or changes in legislation surrounding a particular facility that could impact our ability to house certain types of inmates at such facility , or a demolition or substantial renovation of a facility . further , a substantial increase in the number of available beds at other facilities we own could lead to a deterioration in market conditions and cash flows that we might be able to obtain under a new management contract at our idle facilities . we have historically secured contracts with customers at existing facilities that were already operational , allowing us to move the existing population to other idle facilities . although they are not frequently received , an unsolicited offer to purchase any of our idle facilities at amounts that are less than the carrying value could also cause us to reconsider the assumptions used in our most recent impairment analysis . in the fourth quarter of 2014 , we made the decision to actively pursue the sale of the queensgate correctional facility , idle since 2009 , and the mineral wells pre-parole transfer facility , idle since 2013. we acquired the queensgate and mineral wells facilities in 1998 and 1995 , respectively , in connection with separate business combination transactions . we reviewed comparable sales data and concluded that either the exit value in the principle market or comparable sales prices for similar properties in the respective geographical areas represented the fair value of these non-core assets . we determined the principle market for these non-core assets will be buyers who intend to use the assets for purposes other than correctional facilities . the aggregate net book value of these facilities prior to the evaluation for impairment was $ 28.8 million and , as a result of the impairment indicator resulting from the potential sale of the facilities , we recorded non-cash impairments totaling $ 27.8 million during the fourth quarter of 2014 to write down the book values of the queensgate and mineral wells facilities to the estimated fair values . in the third quarter of 2014 , we entered into a purchase and sale agreement with a third party to sell our idled houston educational facility in houston , texas for $ 4.5 million . the houston educational facility was another non-core asset that was previously leased to a charter school operator . we closed on the sale during the fourth quarter of 2014. the net book value of this facility prior to the evaluation for impairment was $ 6.4 million and , as a result of the impairment indicator resulting from the potential sale of the facility , we recorded a non-cash impairment of $ 2.2 million during the second quarter of 2014 to write-down the book value of the facility to the estimated fair value . the potential sale price was used as a proxy for the fair value of the facility during the second quarter of 2014 to evaluate and record the impairment . in performing our annual impairment analyses , the estimates of recoverability are initially based on projected undiscounted cash flows that are comparable to historical cash flows from 51 management contracts at similar facilities to the idled facilities and sensitivity analyses that consider reductions to such cash flows . our sensitivity analyses included reductions in projected cash flows by as much as half of the historical cash flows generated by the respective facility as well as prolonged periods of vacancies . in all cases , the projected undiscounted cash flows in our analyses as of december 31 , 2014 , exceeded the carrying amounts of each facility by material amounts . our impairment evaluations also take into consideration our historical experience in securing new management contracts to utilize facilities that had been previously idled for periods comparable to or in excess of the periods that our currently idle facilities have been idle . such previously idled facilities are currently being operated under contracts that generate cash flows resulting in the recoverability of the net book value of the previously idled facilities by substantial amounts . due to a variety of factors , the lead time to negotiate contracts with our federal and state partners to utilize idle bed capacity is generally lengthy and has historically resulted in periods of idleness similar to the ones we are currently experiencing at our idle facilities . as a result of our analyses , and with the exception of the impairment charges taken on our non-core assets , we determined each of these assets to have recoverable values in excess of the corresponding carrying values . however , we can provide no assurance that we will be able to secure agreements to utilize our idle facilities , or that we will not incur impairment charges in the future . by their nature , these estimates contain uncertainties with respect to the extent and timing of the respective cash flows due to potential delays or material changes to historical terms and conditions in contracts with prospective customers that could impact the estimate of cash flows . notwithstanding the effects the recent economic downturn has had on our customers ' demand for prison beds in the short term which has led to our decision to idle certain facilities , we believe the long-term trends favor an increase in the utilization of our correctional facilities and management services .
| results of operations our results of operations are impacted by the number of facilities we owned and managed , the number of facilities we managed but did not own , the number of facilities we leased to other operators , and the facilities we owned that were not in operation . the following table sets forth the changes in the number of facilities operated for the years ended december 31 , 2014 , 2013 , and 2012. replace_table_token_4_th 54 year ended december 31 , 2014 compared to the year ended december 31 , 2013 during the year ended december 31 , 2014 , we generated net income of $ 195.0 million , or $ 1.66 per diluted share , compared with net income of $ 300.8 million , or $ 2.70 per diluted share , for the previous year . net income was negatively impacted during 2014 by the aforementioned $ 30.0 million of asset impairments , net of taxes , or $ 0.26 per diluted share , at the houston educational facility , queensgate correctional facility , and mineral wells pre-parole transfer facility . when compared to 2013 , per share results during 2014 were also negatively impacted by the issuance of 13.9 million shares of common stock in connection with the payment of a special dividend on may 20 , 2013. net income was favorably impacted during 2013 by the income tax benefit of $ 137.7 million recorded during the first quarter of 2013 , or $ 1.24 per diluted share , due to the revaluation of certain deferred tax assets and liabilities and other income taxes associated with the reit conversion effective january 1 , 2013. in addition , results for 2013 were favorably impacted by a tax benefit of $ 4.9 million , or $ 0.04 per share , due to certain tax strategies implemented during the second quarter of 2013 that resulted in a further reduction in income taxes .
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icrc 's largest contract was with the u.s. department of transportation maritime administration ( `` marad '' ) for services performed on the port of anchorage intermodal expansion project in alaska ( the `` piep '' ) . the marad contract expired on may 31 , 2012 , when the option year was not exercised . upon evaluating the impact of the elimination of this piep program from icrc 's business base , we determined that expected financial results of our remaining construction management services business would not justify our continuation of its operations . we have commenced efforts to sell icrc and held preliminary discussions with potential buyers , however , there is no assurance that we will succeed in selling icrc . on february 20 , 2013 we signed a letter of intent with a prospective buyer to sell icrc . we expect to close on the transaction during the first half of 2013. organization and segments our business is managed under operating groups consisting of one or more divisions or wholly owned subsidiaries that perform our services . we have four reportable segments aligned with our management groups : 1 ) federal ; 2 ) international ; 3 ) it , energy and management consulting ; and 4 ) supply chain management . federal group - our federal group provides engineering , technical , management , and integrated logistics support services to u.s. military branches , government agencies and other customers . these services include full life cycle engineering , logistics , maintenance , field support , and refurbishment services to extend and enhance the life of existing vehicles and equipment ; comprehensive systems and software engineering , systems technical support , configuration management , obsolescence management , prototyping services , technology insertion programs , and technical documentation and data packages ; and management and execution of government programs under large multiple award contracts . this group provides its services to the u.s. army , army reserve , marine corps , and other customers . significant current work efforts for this group include our ongoing u. s. army reserve vehicle refurbishment program and various vehicle and equipment maintenance and sustainment programs for u. s. army commands . significant work efforts in prior years included task orders performed under our u.s. army cecom rapid response ( `` r2 '' ) contract , which expired in 2011. international group – our international group provides engineering , industrial , logistics , maintenance , information technology , fleet-wide ship and aircraft support , and foreign military sales services to the u.s. military branches , government agencies , and other customers . these services include program management , engineering , technical support , logistics services , and follow-on technical support for ship reactivations and transfers ; field engineering , ship repair and modernization , ship systems installations , ordnance engineering , facility operations , war reserve materials management , and it systems integration ; aircraft sustainment and maintenance services ; and management , maintenance , storage and disposal support for seized and forfeited general property programs . this group provides its services to the u.s. navy , air force , department of treasury , department of justice , bureau of alcohol , tobacco , firearms and explosives ( `` atf '' ) , and other customers . significant current work efforts for this group include ongoing assistance to the u.s. navy in executing its foreign military sales ( `` fms '' ) program for surface ships sold , leased or granted to foreign countries , various task orders under the u.s. air force contract field teams ( `` cft '' ) program , and management of department of treasury and atf seized and forfeited general property programs ( `` seized asset programs '' ) . -19- it , energy and management consulting group - our it , energy and management consulting group consists of our wholly owned subsidiaries energetics incorporated ( `` energetics '' ) , g & b solutions , inc. ( `` g & b '' ) , and akimeka , llc ( `` akimeka '' ) . this group provides technical and consulting services primarily to various dod and civilian government agencies , including the u.s. departments of defense , energy , homeland security , commerce , interior , labor , agriculture and housing and urban development ; the social security administration ; the pension benefit guaranty corporation ; the national institutes of health ; customers in the military health system ; and other government agencies and commercial clients . energetics provides technical , policy , business , and management support in areas of energy modernization , clean and efficient energy , climate change mitigation , infrastructure protection , and measurement technology . effective january 1 , 2013 , the businesses of g & b and akimeka were combined , with integration expected to be substantially complete in late 2013. the combined g & b and akimeka businesses offer solutions in fields that include medical logistics , medical command and control , e-health , information assurance , public safety , enterprise architecture development , information assurance/business continuity , program and portfolio management , network it services , systems design and integration , quality assurance services , and product and process improvement services . supply chain management group – our supply chain management group provides sourcing , acquisition , scheduling , transportation , shipping , logistics , data management , and other services to assist our clients with supply chain management efforts . this group is comprised of our wheeler bros. , inc. ( `` wbi '' ) subsidiary , acquired in june 2011 , and other vse supply chain management work . significant current work efforts for this group include wbi 's ongoing managed inventory program ( `` mip '' ) for usps and direct sales to other clients . replace_table_token_6_th management outlook we continue to improve our operating margins and maintain operating income levels in a very challenging environment that has caused our revenue levels to decline . story_separator_special_tag net income and other comprehensive income has been presented in two separate but consecutive statements for the current reporting period and prior comparative period in our consolidated financial statements . critical accounting policies our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the united states , which require us to make estimates and assumptions . we believe the following critical accounting policies affect the more significant accounts , particularly those that involve judgments , estimates and assumptions used in the preparation of our consolidated financial statements . revenue recognition substantially all of our work is performed for our customers on a contract basis . the three primary types of contracts used are time and materials , cost-type , and fixed-price . revenues result from work performed on these contracts by our employees and our subcontractors and from costs for materials and other work related costs allowed under our contracts . revenues for time and materials contracts are recorded on the basis of contract allowable labor hours worked multiplied by the contract defined billing rates , plus the direct costs and indirect cost burdens associated with materials and subcontract work used in performance on the contract . generally , profits on time and materials contracts result from the difference between the cost of services performed and the contract defined billing rates for these services . revenues on cost-type contracts are recorded as contract allowable costs are incurred and fees are earned . our fms program contract is a cost plus award fee contract . this contract has terms that specify award fee payments that are determined by performance and level of contract activity . award fees are made during the year through a contract modification authorizing the award fee that is issued subsequent to the period in which the work is performed . we recognize award fee income on the fms program contract when the fees are fixed or determinable . due to such timing , and to fluctuations in the level of revenues , profits as a percentage of revenues on this contract will fluctuate from period to period . revenue recognition methods on fixed-price contracts will vary depending on the nature of the work and the contract terms . revenues on fixed-price service contracts are recorded as work is performed , typically ratably over the service period . revenues on fixed-price contracts that require delivery of specific items are recorded based on a price per unit as units are delivered . substantially all of the wbi 's revenues result from a management inventory program ( `` mip '' ) that supplies vehicle parts to clients . we recognize revenue from the sale of vehicle parts when the product is used by the customer . revenues by contract type for the years ended december 31 were as follows ( in thousands ) : replace_table_token_8_th -22- a significant portion of our time and materials revenues in 2011 and 2010 were from our r2 contract , which expired in january 2011. wbi revenues are classified as fixed-price revenue . accordingly , the percentages of work performed by contract type will differ from year to year . we will occasionally perform work at risk , which is work performed prior to the government formalizing funding for such work . revenue related to work performed at risk is not recognized until it can be reliably estimated and its realization is probable . we recognize this `` risk funding '' as revenue when the associated costs are incurred or the work is performed . we are at risk of loss for any risk funding not received . revenues recognized as of december 31 , 2012 include approximately $ 7.1 million for which we had not received formalized funding , which includes approximately $ 3.9 million of risk funding associated with our expired marad contract . we believe that we are entitled to reimbursement and expect to receive all of this funding . long-lived assets in assessing the recoverability of long-lived assets , we must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the assets . if these estimates or their related assumptions change in the future , we may be required to record impairment charges not previously recorded for these assets . earn-out obligations in connection with acquisitions completed after january 1 , 2009 , the effective date of new accounting rules for business combinations , we estimate the fair value of any earn-out payments by using the expected cash flow approach with probability-weighted revenue inputs and using an appropriate discount rate . interest expense and subsequent changes in the fair value of the earn-out obligations are recognized in earnings for the period of the change . in connection with acquisitions completed before january 1 , 2009 , payments made related to earn-out arrangements are recorded as goodwill . goodwill and intangible assets goodwill is subject to a review for impairment at least annually . we perform this review at the beginning of our fourth quarter and whenever events or changes in circumstances indicate that the carrying value may not be recoverable . the impairment assessment requires us to estimate the fair value of our reporting units and involves the use of subjective assumptions . in 2012 , we recorded a goodwill impairment charge for our discontinued icrc subsidiary of approximately $ 6.0 million and an impairment charge of $ 1.5 million for icrc 's trade name . during 2012 , we began amortizing the trade name of g & b .
| results of operations replace_table_token_9_th our revenues decreased by approximately $ 34 million or 6 % for the year ended december 31 , 2012 as compared to the prior year . the change in revenues for this period resulted from a decrease in our federal group of approximately $ 44 million ; a decrease in our international group of approximately $ 40 million ; a decrease in our it , energy , and management consulting group of approximately $ 13 million ; and an increase in our supply chain management group of approximately $ 62 million , attributable primarily to the inclusion of wbi in our operating results for a full year in 2012 as compared to a partial year in 2011. our revenues decreased by approximately $ 230 million or 28 % for the year ended december 31 , 2011 as compared to the prior year . the change in revenues for this period resulted from a decrease in our federal group of approximately $ 271 million ; a decrease in our international group of approximately $ 55 million ; an increase in our it , energy , and management consulting group of approximately $ 12 million , attributable primarily to the inclusion of full year revenues of akimeka in 2011 as compared to partial year revenues in 2010 ; and to the inclusion of wbi revenues of approximately $ 83 million in our operating results for a partial year in 2011. replace_table_token_10_th selling , general and administrative expenses consist primarily of costs and expenses that are not chargeable or reimbursable on our operating unit contracts . this includes costs associated with the acquisition of wbi in 2011 , and expenses associated with a work share agreement with a subcontractor and legal fees associated with protested contract awards in 2011 and 2012. our operating income increased by approximately $ 15 million or 42 % in 2012 as compared to 2011.
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common stockholders are entitled to receive dividends , as may be declared by the board of directors , if any , subject to the preferential dividend rights of the holders of the series a and b preferred stock . as of december 31 , 2014 , no dividends have been declared . 13. commitments and contingencies operating leases in may 2013 , the company entered into a lease for office space in burlington , massachusetts . the lease is for a 42-month term with minimum monthly lease payments beginning at $ 17,588 per month and escalating over the lease term . the company provided a letter of credit to the lessor in the amount of $ 98,000 as a security deposit pursuant to the lease agreement to secure its obligations under the lease . during january 2015 , this letter of credit was reduced to $ 74,000 pursuant to the original lease agreement . story_separator_special_tag the following discussion and analysis of financial condition and results of operations should be read in conjunction with item 6. selected financial data and our consolidated financial statements and related notes appearing elsewhere in this annual report . this discussion and analysis and other parts of this annual report contain forward-looking statements based upon current beliefs , plans and expectations that involve risks , uncertainties and assumptions , such as statements regarding our plans , objectives , expectations , intentions and projections . our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors , including those set forth under item 1a . risk factors . you should carefully read the risk factors section of this annual report to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements . please also see the section entitled special note regarding forward-looking statements. overview we are a specialty pharmaceutical company focused on the development and commercialization of novel , injectable pain therapies . we are targeting anti-inflammatory and analgesic therapies for the treatment of patients with musculoskeletal conditions , beginning with osteoarthritis , a type of degenerative arthritis , referred to as oa . our broad and diversified portfolio of product candidates addresses the oa pain treatment spectrum , from moderate to severe pain , and provides us with multiple unique opportunities to achieve our goal of commercializing novel , patient-focused pain therapies . our pipeline consists of three proprietary product candidates : fx006 , a sustained-release , intra-articular steroid ; fx007 , a trka receptor antagonist for post-operative pain ; and fx005 , a sustained-release intra-articular p38 map kinase inhibitor . we retain the exclusive worldwide rights to our product candidates . we were incorporated in delaware in november 2007 , and to date we have devoted substantially all of our resources to our development efforts relating to our product candidates , including conducting clinical trials with our product candidates , providing general and administrative support for these operations and protecting our intellectual property . we do not have any products approved for sale and have not generated any revenue from product sales . from our inception through december 31 , 2014 , we have funded our operations primarily through the sale of our common stock and convertible preferred stock and , to a lesser extent , debt financing . from our inception through december 31 , 2014 , we have raised $ 244.4 million from such transactions , including from our initial and follow-on public offerings . until such time , if ever , as we can generate substantial product revenue , we expect to finance our cash needs through a combination of equity offerings , debt financings , government or third-party funding , and licensing or collaboration arrangements . we have incurred net losses in each year since our inception in 2007. our net losses were $ 27.3 million , $ 18.2 million , and $ 15.0 million for the years ended december 31 , 2014 , 2013 and 2012 , respectively . as of december 31 , 2014 , we had an accumulated deficit of $ 93.5 million . substantially all of our net losses resulted from costs incurred in connection with our development programs and from general and administrative expenses associated with our operations . we expect to continue to incur significant expenses and increasing operating losses for the foreseeable future . we anticipate that our expenses will increase substantially in connection with our ongoing activities , as we : continue the development of our lead product candidate , fx006 , including our on-going and future clinical trials ; seek to obtain regulatory approvals for fx006 ; continue to scale-up manufacturing activities including the supply of clinical trial materials and registration batches ; prepare for the potential launch and commercialization of fx006 , if approved ; 68 establish a sales and marketing infrastructure for the commercialization of fx006 , if approved ; expand our development activities and advance additional product candidates ; maintain , expand and protect our intellectual property portfolio ; and add operational , financial and management information systems and personnel , including personnel to support our product development and commercialization efforts and operations as a public company . we do not expect to generate revenue from product sales unless and until we successfully complete development and obtain marketing approval for one or more of our product candidates , which we expect will take a number of years and is subject to significant uncertainty . accordingly , we anticipate that we will need to raise additional capital prior to commercialization of fx006 and completing clinical development of any of our other product candidates . until such time that we can generate substantial revenue from product sales , if ever , we expect to finance our operating activities through a combination of equity offerings , debt financings , government or other third-party funding and collaborations , and licensing arrangements . story_separator_special_tag we will continue to incur expenses related to net amortization of premiums on marketable securities for as long as we hold these investments . income taxes as of december 31 , 2014 , we had $ 45.7 million and $ 41.5 million of federal and state net operating loss carryforwards , respectively , and $ 2.1 million and $ 1.6 million of federal and state research and development tax credit carryforwards , respectively , available to offset our future taxable income , if any . these federal net operating loss carryforwards and research and development tax credit carryforwards expire at various dates beginning in 2029 , if not utilized and are subject to review and possible adjustment by the internal revenue service . the state net operating loss carryforwards and research and development tax credit carryforwards expire at various dates beginning in 2030 and 2025 , respectively , if not utilized and are subject to review and possible adjustment by the state tax authorities . at december 31 , 2014 , a full valuation allowance was recorded against our net operating loss carryforwards and our research and development tax credit carryforwards . if we experience a greater than 50 percent aggregate change in ownership of certain stockholders over a three-year period , utilization of our then-existing net operating loss carryforwards and research and development tax credit carryforwards will be subject to an annual limitation . critical accounting policies and significant judgments and estimates our management 's discussion and analysis of our financial condition and results of operations is based on our financial statements , which we have prepared in accordance with generally accepted accounting principles in the united states , or gaap . the preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of our financial statements , and the reported revenue and expenses during the reported periods . we evaluate these estimates and judgments , including those described below , on an ongoing basis . we base our estimates on historical experience , known trends and events , contractual milestones 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 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 . while our significant accounting policies are more fully described in note 3 to our consolidated financial statements appearing elsewhere in this form 10-k , we believe that the estimates and assumptions involved in the following accounting policies may have the greatest potential impact on our financial statements and , therefore , consider these to be critical for fully understanding and evaluating our financial condition and results of operations . research and development costs as part of the process of preparing our financial statements , we are required to estimate our accrued and third-party prepaid research and development expenses . we base our accrued expenses related to clinical trials on 71 estimates of patient enrollment and related expenses at clinical investigator sites , as well as estimates for services received and efforts expended pursuant to contracts with multiple research institutions and cros that conduct and manage clinical trials on our behalf . we review new and open contracts and communicate with applicable internal and vendor personnel to identify services that have been performed on our behalf and estimate the level of service performed and the associated costs incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost for accrued expenses . the majority of our service providers invoice us monthly in arrears for services performed ; however , some require advanced payments . for any services that require such advanced payments , we perform a review , with applicable internal and vendor personnel , to estimate the level of services that have been performed and the associated costs that have been incurred at each reporting period . we accrue expenses related to clinical trials based on contractual amounts applied to the level of patient enrollment and activity according to the protocol . we make estimates of our accrued and prepaid expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us . if timelines or contracts are modified based upon changes in the clinical trial protocol or scope of work to be performed , we modify our estimates of accrued expenses accordingly on a prospective basis . 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 . to date , we have not adjusted our estimates at any particular balance sheet date in any material amount . stock-based compensation we measure stock-based awards granted to employees and directors at fair value on the date of the grant and recognize the corresponding compensation expense for those awards , net of estimated forfeitures , over the requisite service period , which is generally the vesting period of the respective award , using the straight-line method . we measure stock-based awards granted to non-employees for services received based on the fair value of the equity instrument issued . the measurement date of the fair value of the equity instrument issued to non-employees is the earlier of the date on which the counterparty 's performance is complete or the date on which there is a commitment to perform . the fair value of each stock-based award granted is estimated using the black-scholes option-pricing model . until february 11 , 2014 , we were a private company and we lacked company-specific historical and implied volatility information .
| results of operations year ended december 31 , 2014 compared to year ended december 31 , 2013 the following table summarizes our results of operations for the years ended december 31 , 2014 and 2013 ( certain items may not foot due to rounding ) : replace_table_token_7_th research and development expenses replace_table_token_8_th research and development expenses were $ 17.9 million and $ 11.1 million for the years ended december 31 , 2014 and 2013 , respectively . the increase of $ 6.9 million was primarily due to $ 6.0 million in development expense related to our fx006 program , $ 0.4 million related to our fx007 program , as well as , an increase of $ 1.9 million in personnel and other costs , offset by a decrease of $ 1.4 million in development expenses related to our fx005 program . the increase of $ 6.0 million in the fx006 program expenses related to costs associated with our pivotal phase 2b clinical trial and material costs related to this trial , as well as , start-up costs for the phase 3 clinical trial . the increase of $ 1.9 million in personnel and other costs , including stock 73 compensation and consulting expenses , primarily related to an increase in headcount . the decrease of $ 1.4 million in fx005 program expenses was due to the completion of toxicology and pharmacology studies in 2013. the increase of $ 0.4 million in fx007 program expenses was due to an increase in preclinical studies . general and administrative expenses general and administrative expenses were $ 9.1 million and $ 6.7 million for the years ended december 31 , 2014 and 2013 , respectively .
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the company must then assess the likelihood that its deferred tax assets will be recovered from story_separator_special_tag 16 american dg energy inc. you should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes appearing elsewhere in this 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 “ item 1a . risk factors ” beginning on page 10 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 primarily derive sales from selling energy in the form of electricity , heat , hot water and cooling to our customers under long-term energy sales agreements ( with a typical term of 10 to 15 years ) . the energy systems are owned by us and are installed in our customers ' buildings . each month we obtain readings from our energy meters to determine the amount of energy produced for each customer . we multiply these readings by the appropriate published price of energy ( electricity , natural gas or oil ) from our customers ' local energy utility , to derive the value of our monthly energy sale , less the applicable negotiated discount . our revenues per customer on a monthly basis vary based on the amount of energy produced by our energy systems and the published price of energy ( electricity , natural gas or oil ) from our customers ' local energy utility that month . our revenues commence as new energy systems become operational . as of december 31 , 2014 , we had 123 energy systems operational . in some cases the customer may choose to own the energy system rather than have it owned by american dg energy . in this case , we account for revenue and costs using the percentage-of-completion method of accounting . under the percentage-of-completion method of accounting , revenues are recognized by applying percentages of completion to the total estimated revenues for the respective contracts . costs are recognized as incurred . the percentages of completion are determined by relating the actual cost of work performed to date to the current estimated total cost at completion of the respective contracts . when the estimate on a contract indicates a loss , the company 's policy is to record the entire expected loss , regardless of the percentage of completion . the excess of contract costs and profit recognized to date on the percentage-of-completion accounting method in excess of billings is recorded as unbilled revenue . billings in excess of related costs and estimated earnings is recorded as deferred revenue . customers may buy out their long-term obligation under energy contracts and purchase the underlying equipment from the company . any resulting gain on these transactions is recognized over the payment period in the accompanying consolidated statements of operations . revenues from operation and maintenance services , including shared savings are recorded when provided and verified . we have experienced total net losses since inception of approximately $ 35.2 million . for the foreseeable future , we expect to experience continuing operating losses and negative cash flows from operations as our management executes our current business plan . the cash and cash equivalents available at december 31 , 2014 will , we believe , provide sufficient working capital to meet our anticipated expenditures including installations of new equipment for the next twelve months ; however , as we continue to grow our business by adding more energy systems , the cash requirements will increase . we believe that our cash and cash equivalents available at december 31 , 2014 and our ability to control certain costs , including those related to general and administrative expenses , will enable us to meet our anticipated cash expenditures through march 31 , 2016. beyond march 31 , 2016 , we may need to raise additional capital through a debt financing or equity offering to meet our operating and capital needs . there can be no assurance , however , that we will be successful in our fundraising efforts or that additional funds will be available on acceptable terms , if at all . if we are unable to raise additional capital in 2016 we may need to terminate certain of our employees and adjust our current business plan . financial considerations may cause us to modify planned deployment of new energy systems and we may decide to suspend installations until we are able to secure additional working capital . we will evaluate possible acquisitions of , or investments in , businesses , technologies and products that are complementary to our business . however , we are not currently engaged in such discussions . the company 's operations are comprised of one business segment . our business is selling energy in the form of electricity , heat , hot water and cooling to our customers under long-term sales agreements . related party transactions see `` note 8 - related parties '' to the consolidated financial statements contained herin . story_separator_special_tag 18 american dg energy inc. other income ( expense ) , net our other income ( expense ) , net , in 2014 was an expense of $ 2,042,234 compared to an expense of $ 986,286 for the same period in 2013 . other income ( expense ) , net , includes interest and other income , interest expense , debt conversion inducement expense , loss on extinguishment of debt and change in fair value of warrant liability . interest and other income was $ 92,928 in 2014 compared to $ 49,291 for the same period in 2013 . story_separator_special_tag on may 23 , 2011 and november 30 , 2011 , the company issued $ 19,400,000 aggregate principal amount of debentures to john hatsopoulos , the company 's chief executive officer and a principal owner of the company . see financial statements , note 4 `` convertible debentures '' for the details and a full history of these convertible debentures . on august 28 , 2013 , after the closing of trading on the nyse-mkt , the company , entered into a subscription agreement with charles t. maxwell , the company 's chairman of the board , or the investor , selling to the charles t. maxwell ira an aggregate of 300,000 shares of the company 's common stock , $ .001 par value per share , or the securities , at a purchase price of $ 1.55 per share for an aggregate purchase price of $ 465,000. on september 4 , 2013 , after the closing of trading on the nyse-mkt , the company , entered into a subscription agreement with frost gamma investments trust , or the trust , an accredited investor , by selling to the trust an aggregate of 333,334 shares of the company 's common stock at a per share price of $ 1.50 for an aggregate purchase price of $ 500,001. on august 6 , 2014 , in a public offering , the company issued ; 2,650,000 shares of its common stock , three-year warrants to purchase up to 2,829,732 shares and five-year warrants to purchase an additional 112,538 to the underwriters with an exercise price of $ 1.8875 per share for net proceeds of $ 3,269,275 . on october 3 , 2014 , the company consummated a series of transactions whereby , under an agreement with the holders of the company 's existing 6 % senior unsecured convertible debentures due 2018 , or the convertible debentures , it paid the interest due under the convertible debentures through the next semiannual payment date of november 25 , 2014 by delivering to the holders of the convertible debentures 1,164,000 shares of common stock of its subsidiary eurosite power , which were owned by the company . the company also delivered 8,245,000 additional shares of eurosite power it owned to the holders of the convertible debentures for prepayment of all interest which would become due under the convertible debentures through the maturity date of may 25 , 2018. following the payment of all current and future interest under the convertible debentures , the company exchanged the convertible debentures which bore interest at an annual rate of 6 % for non-interest bearing convertible debentures with all other terms including the principal amount , maturity date , and conversion terms and privileges remaining unchanged.the face amount of the convertible debentures at december 31 , 2014 was $ 19,400,000. on june 14 , 2013 , eurosite power entered into subscription agreements with certain investors , including the company , for a private placement of an aggregate principal amount of $ 4,000,000 of 4 % senior convertible notes due 2015. in connection with the private placement , the company exchanged certain notes it held , which had a principal balance of $ 1,100,000 , for a like principal amount of the 4 % senior convertible notes due 2015 and paid in cash any accrued but unpaid interest on those notes . effective april 15 , 2014 and april 24 , 2014 eurosite power , entered into subscription agreements with john n. hatsopoulos , the co-chief executive officer , certain other investors and a principal owner of the company for the sale of a $ 1,450,000 , 4 % senior convertible note due 2018. on october 3 , 2014 , eurosite power , entered into convertible note amendment agreements , or the note amendment agreements , with the company , john n. hatsopoulos and a principal owner of the company , as well as certain separate convertible note conversion agreements , or the note conversion agreements , with certain other investors , whereby 20 american dg energy inc. $ 3,050,000 of eurosite power 's convertible notes were converted into 6,100,000 shares of eurosite power common stock at a conversion price of $ 0.50 per share . on september 19 , 2014 , john hatsopoulos loaned eurosite power $ 3,000,000 without interest pursuant to a promissory note ( the `` loan '' ) . the loan matures upon a substantial capital raise or on september 19 , 2019. prepayment of principal may be made at any time without penalty . the proceeds of the loan will be used in connection with the development and installation of current and new energy systems in the united kingdom and europe . on december 30 , 2014 , the eurosite power amended and restated the existing promissory note to provide for interest at a rate of 1.85 % . see financial statements , note 4 `` convertible debentures '' for the details of these convertible notes and convertible notes amendment agreements . critical accounting policies the preparation of financial statements in conformity with accounting principles generally accepted in the u.s. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements , the reported amounts of revenues and expenses during the reporting period , and the disclosure of contingent assets and liabilities at the date of the financial statements . actual results could differ from those estimates . management believes the following critical accounting policies involve more significant judgments and estimates used in the preparation of our consolidated financial statements . partnerships , joint ventures and entities under common control certain contracts are executed jointly through partnerships and joint ventures with unrelated third parties . the company consolidates all joint ventures and partnerships in which it owns , directly or indirectly , 50 % or more of the membership interests and any variable interest entities ( vie ) in which it has a controlling financial interest .
| results of operations 17 american dg energy inc. fiscal year ended december 31 , 2014 compared with fiscal year ended december 31 , 2013 revenues revenues in 2014 were $ 8,567,553 compared to $ 7,461,880 for the same period in 2013 , an increase of $ 1,105,673 or 14.8 % . the increase in revenues was primarily due to higher energy production and units operational in the united kingdom ( uk ) . our on-site utility energy revenues in 2014 increased to $ 7,808,933 compared to $ 7,164,226 for the same period in 2013 , an increase of $ 644,707 or 9.0 % . as part of our on-site utility energy revenue , the revenue recognized from demand response activity was $ 247,518 and $ 112,405 , for the years ended december 31 , 2014 and 2013 , respectively . our turnkey and other revenues in 2014 increased to $ 758,620 compared to $ 297,654 for the same period in 2013 . the revenue from our turnkey projects can vary substantially per period . during 2014 , we operated 123 energy systems , at 69 locations , representing 8,186 kw of installed electricity plus thermal energy , compared to 109 energy systems at 64 locations , representing 7,278 kw of installed electricity plus thermal energy for the same period in 2013 . the revenue per customer on a monthly basis is based on the sum of the amount of energy produced by our energy systems , which is derived by the monthly published price of energy ( electricity , natural gas or oil ) from our customers ' local utility , less the discounts we provide our customers . our revenues commence as new energy systems become operational . cost of sales cost of sales , including depreciation , in 2014 was $ 8,481,780 compared to $ 6,245,598 for the same period in 2013 , an increase of $ 2,236,182 or 35.8 % .
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our stores offer an extensive range of automotive products and services , including new and used vehicles ; parts and service , which include repair and maintenance services , replacement parts , and collision repair service ; and finance and insurance products . for the year ended december 31 , 2019 , our new vehicle revenue brand mix consisted of 45 % imports , 34 % luxury , and 21 % domestic brands . our revenues are derived primarily from : ( i ) the sale of new vehicles ; ( ii ) the sale of used vehicles to individual retail customers ( `` used retail '' ) and to other dealers at auction ( `` wholesale '' ) ( the terms `` used retail '' and `` wholesale '' collectively referred to as `` used '' ) ; ( iii ) repair and maintenance services , including collision repair , the sale of automotive replacement parts , and the reconditioning of used vehicles ( collectively referred to as `` parts and service '' ) ; and ( iv ) the arrangement of third-party vehicle financing and the sale of a number of vehicle protection products ( defined below and collectively referred to as `` f & i '' ) . we evaluate the results of our new and used vehicle sales based on unit volumes and gross profit per vehicle sold , our parts and service operations based on aggregate gross profit , and our f & i business based on f & i gross profit per vehicle sold . our continued organic growth is dependent upon the execution of our balanced automotive retailing and service business strategy , the continued strength of our brand mix , and the production and allocation of desirable vehicles from the automobile manufacturers whose brands we sell . our vehicle sales have historically fluctuated with product availability as well as local and national economic conditions , including consumer confidence , availability of consumer credit , fuel prices , and employment levels . additionally , our ability to sell certain new and used vehicles can be negatively impacted by a number of factors , some of which are outside of our control and may include manufacturer imposed stop-sales or open safety recalls , primarily due to , but not limited to , vehicle safety concerns or a vehicle 's failure to meet environmental related requirements . further , governmental actions , such as changes in , or the imposition of , tariffs or trade restrictions on imported goods , may adversely affect vehicle sales and depress demand . however , we believe that the impact on our business of any future negative trends in new vehicle sales would be partially mitigated by ( i ) the expected relative stability of our parts and service operations over the long-term , ( ii ) the variable nature of significant components of our cost structure , and ( iii ) our diversified brand and geographic mix . the seasonally adjusted annual rate ( `` saar '' ) of new vehicle sales in the u.s. during 2019 was 17.0 million compared to 17.3 million in 2018 . the automotive retail business continues to benefit from the availability of credit to consumers , strong consumer confidence and historically low unemployment levels . demand for new vehicles is generally highest during the second , third , and fourth quarters of each year and , accordingly , we expect our revenues to generally be higher during these periods . we typically experience higher sales of luxury vehicles in the fourth quarter , which have higher average selling prices and gross profit per vehicle retailed . revenues and operating results may be impacted significantly from quarter-to-quarter by changing economic conditions , vehicle manufacturer incentive programs , adverse weather events , or other developments outside our control . our gross profit margin varies with our revenue mix . sales of new vehicles generally result in a lower gross profit margin than used vehicle sales , sales of parts and service , and sales of f & i products . as a result , when used vehicle , parts and service , and f & i revenue increase as a percentage of total revenue , we expect our overall gross profit margin to increase . selling , general , and administrative ( `` sg & a '' ) expenses consist primarily of fixed and incentive-based compensation , advertising , rent , insurance , utilities , and other customary operating expenses . a significant portion of our cost structure is variable ( such as sales commissions ) , or controllable ( such as advertising ) , which we believe allows us to adapt to changes in the retail environment over the long-term . we evaluate commissions paid to salespeople as a percentage of retail vehicle gross profit , advertising expense on a per vehicle retailed ( `` pvr '' ) basis , and all other sg & a expenses in the aggregate as a percentage of total gross profit . we had total available liquidity of $ 472.9 million as of december 31 , 2019 , which consisted of cash and cash equivalents of $ 3.5 million , $ 132.1 million of funds in our floor plan offset accounts , $ 190.0 million of availability under our new vehicle floor plan facility that is able to be convert to our revolving credit facility , $ 47.3 million of availability under our revolving credit facility , and $ 100.0 million of availability under our used vehicle revolving floor plan facility . for further discussion of our liquidity , please refer to `` liquidity and capital resources '' below . 32 critical accounting policies and significant estimates preparation of financial statements in conformity with accounting principles generally accepted in the united states of america , requires management to make estimates and assumptions , that affect the amounts of assets and liabilities and disclosures of contingent assets and liabilities , as of the date of the financial statements , and reported amounts of revenues and expenses during the periods presented . story_separator_special_tag expenses associated with employee medical , workers compensation , property , and general liability claims , including premiums for insurance coverage , for the years ended december 31 , 2019 , 2018 , and 2017 , totaled $ 33.3 million , $ 29.9 million , and $ 27.9 million , respectively . 34 results of operations the year ended december 31 , 2019 compared to the year ended december 31 , 2018 replace_table_token_5_th 35 replace_table_token_6_th total revenue during 2019 increase d by $ 335.9 million ( 5 % ) compared to 2018 , due to a $ 74.6 million ( 2 % ) increase in new vehicle revenue , a $ 159.2 million ( 8 % ) increase in used vehicle revenue , a $ 78.4 million ( 10 % ) increase in parts and service revenue and a $ 23.7 million ( 8 % ) increase in f & i revenue . the $ 65.9 million ( 6 % ) increase in gross profit during 2019 was the result of a $ 4.4 million ( 3 % ) increase in used vehicle gross profit , a $ 23.7 million ( 8 % ) increase in f & i gross profit and a $ 43.5 million ( 8 % ) increase in parts and service gross profit , partially offset by a $ 5.7 million ( 3 % ) decrease in new vehicle gross profit . our total gross profit margin increase d 20 basis points from 16.0 % in 2018 to 16.2 % in 2019 . income from operations during 2019 increase d by $ 14.1 million ( 5 % ) compared to 2018 , primarily due to a $ 65.9 million ( 6 % ) increase in gross profit , partially offset by a $ 44.0 million ( 6 % ) increase in selling , general , and administrative expenses , a $ 3.4 million increase in franchise rights impairment , a $ 2.5 million ( 7 % ) increase in depreciation and amortization expenses , and a $ 1.9 million increase in other operating expenses ( income ) , net . total other expenses ( income ) , net decrease d by $ 5.0 million in 2019 , primarily due to an $ 11.7 million increase in gain on divestitures and a $ 0.5 million decrease in swap interest expense in 2019 , partially offset by a $ 5.4 million increase in floor plan interest expense , and a $ 1.8 million increase in other interest expense , net . as a result , income before income taxes increase d by $ 19.1 million ( 8 % ) to $ 243.9 million in 2019 . the $ 2.7 million ( 5 % ) increase in income tax expense was primarily attributable to the 8 % increase in income before taxes , partially offset by a 3 % decrease associated with a lower effective tax rate . overall , net income increase d by $ 16.4 million ( 10 % ) from $ 168.0 million in 2018 to $ 184.4 million in 2019 . on january 1 , 2019 , we adopted asc 842 , utilizing the optional transition relief method , which allowed for the effective date of the new leases standard as the date of initial application . our prior period comparative information has not been adjusted and continues to be reported under accounting standards in effect for those periods . the adoption of this accounting standard had a minimal impact on the financial results of the company for the twelve months ended december 31 , 2019 . for additional information related to the impacts from the adoption of this update , please refer to note 18 `` leases '' within the accompanying consolidated financial statements . on january 1 , 2019 , the company adopted asu 2017-12. this update aligns the recognition and presentation , which are to be applied prospectively , of the effects of the hedging instrument and the hedged item in the financial statements . as a result of the adoption of this update , the company 's swap interest expense is now presented within other interest expense , net . please refer to note 14 `` financial instruments and fair value '' within the accompanying consolidated financial statements for additional details regarding the company 's interest rate swap agreements . we assess the organic growth of our revenue and gross profit on a same store basis . we believe that our assessment on a same store basis represents an important indicator of comparative financial performance and provides relevant information to assess our performance . as such , for the following discussion , same store amounts consist of information from dealerships for 36 identical months in each comparative period , commencing with the first month we owned the dealership . additionally , amounts related to divested dealerships are excluded from each comparative period . new vehicle— replace_table_token_7_th 37 new vehicle metrics— replace_table_token_8_th new vehicle revenue increase d by $ 74.6 million ( 2 % ) , as a result of a 2 % increase in revenue per new vehicle sold , same store new vehicle revenue decrease d by $ 60.8 million ( 2 % ) as a result of a 3 % decrease in new vehicle units sold , partially offset by an increase in revenue per new vehicle sold . the 3 % decrease in same store unit sales volume was driven by a 3 % and 13 % decrease in import and domestic units , respectively , partially offset by a 4 % increase in luxury units . same store new vehicle gross profit in 2019 decrease d by $ 12.4 million ( 8 % ) , as a result of a 4 % decrease in gross profit per new vehicle sold , and a 3 % decrease in unit volumes . same store new vehicle gross margin decrease d 30 basis points to 4.1 % in 2019 , as a result of margin pressure across our brand offerings , but particularly our import brands , which decreased 50 basis points from 2.9 % in 2018 to 2.4
| results of operations the year ended december 31 , 2018 compared to the year ended december 31 , 2017 replace_table_token_14_th 44 replace_table_token_15_th total revenue during 2018 increased by $ 417.9 million ( 6 % ) compared to 2017 , due to a $ 227.6 million ( 6 % ) increase in new vehicle revenue , a $ 138.3 million ( 8 % ) increase in used vehicle revenue , a $ 34.9 million ( 4 % ) increase in parts and service revenue and a $ 17.1 million ( 6 % ) increase in f & i revenue . the $ 47.1 million ( 4 % ) increase in gross profit during 2018 was the result of a $ 7.8 million ( 6 % ) increase in used vehicle gross profit , a $ 17.1 million ( 6 % ) increase in f & i gross profit and a $ 26.0 million ( 5 % ) increase in parts and service gross profit , partially offset by a $ 3.8 million ( 2 % ) decrease in new vehicle gross profit . our total gross profit margin decreased 40 basis points from 16.4 % in 2017 to 16.0 % in 2018 , primarily due to margin pressure in our new vehicle and used vehicle business lines . income from operations during 2018 increased by $ 23.2 million ( 8 % ) compared to 2017 , primarily due to a $ 47.1 million increase in gross profit and a $ 2.4 million decrease in other operating ( income ) expense , net , partially offset by a $ 26.1 million increase in selling , general and administrative expenses and a $ 1.6 million ( 5 % ) increase in depreciation and amortization expense .
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story_separator_special_tag the following discussion should be read in conjunction with our financial statements and accompanying notes included in item 8 of this annual report on form 10-k. general we are a reit primarily engaged in the business of investing , on a leveraged basis , in residential mortgage assets , including agency mbs , non-agency mbs , residential whole loans and crt securities . our principal business objective is to deliver shareholder value through the generation of distributable income and through asset performance linked to residential mortgage credit fundamentals . we selectively invest in residential mortgage assets with a focus on credit analysis , projected prepayment rates , interest rate sensitivity and expected return . at december 31 , 2016 , we had total assets of approximately $ 12.5 billion , of which $ 9.6 billion , or 76.6 % , represented our mbs portfolio . at such date , our mbs portfolio was comprised of $ 3.7 billion of agency mbs and $ 5.8 billion of non-agency mbs which includes $ 3.2 billion of legacy non-agency mbs and $ 2.7 billion of mbs that are primarily structured with a contractual coupon step-up feature where the coupon increases up to 300 basis points at 36 months from issuance or sooner ( or 3 year step-up securities ) . these 3 year step-up securities are primarily backed by securitized re-performing and non-performing loans . in addition , at december 31 , 2016 , we had approximately $ 1.4 billion in residential whole loans acquired through our consolidated trusts , which represented approximately 11.3 % of our total assets . our remaining investment-related assets were primarily comprised of collateral obtained in connection with reverse repurchase agreements , cash and cash equivalents ( including restricted cash ) , crt securities , reo , mbs-related receivables , and derivative instruments . the results of our business operations are affected by a number of factors , many of which are beyond our control , and primarily depend on , among other things , the level of our net interest income , the market value of our assets , which is driven by numerous factors , including the supply and demand for residential mortgage assets in the marketplace , the terms and availability of adequate financing , general economic and real estate conditions ( both on a national and local level ) , the impact of government actions in the real estate and mortgage sector , and the credit performance of our credit sensitive residential mortgage assets . our net interest income varies primarily as a result of changes in interest rates , the slope of the yield curve ( i.e. , the differential between long-term and short-term interest rates ) , borrowing costs ( i.e. , our interest expense ) and prepayment speeds on our mbs , the behavior of which involves various risks and uncertainties . interest rates and conditional prepayment rates ( or cprs ) ( which measure the amount of unscheduled principal prepayment on a bond as a percentage of the bond balance ) , vary according to the type of investment , conditions in the financial markets , competition and other factors , none of which can be predicted with any certainty . with respect to our business operations , increases in interest rates , in general , may over time cause : ( i ) the interest expense associated with our borrowings to increase ; ( ii ) the value of our mbs portfolio and , correspondingly , our stockholders ' equity to decline ; ( iii ) coupons on our arm-mbs to reset , on a delayed basis , to higher interest rates ; ( iv ) prepayments on our mbs to decline , thereby slowing the amortization of our mbs purchase premiums and the accretion of our purchase discounts ; and ( v ) the value of our derivative hedging instruments and , correspondingly , our stockholders ' equity to increase . conversely , decreases in interest rates , in general , may over time cause : ( i ) the interest expense associated with our borrowings to decrease ; ( ii ) the value of our mbs portfolio and , correspondingly , our stockholders ' equity to increase ; ( iii ) coupons on our arm-mbs to reset , on a delayed basis , to lower interest rates ; ( iv ) prepayments on our mbs to increase , thereby accelerating the amortization of our mbs purchase premiums and the accretion of our purchase discounts ; and ( v ) the value of our derivative hedging instruments and , correspondingly , our stockholders ' equity to decrease . in addition , our borrowing costs and credit lines are further affected by the type of collateral we pledge and general conditions in the credit market . our investments in residential mortgage assets expose us to credit risk , generally meaning that we are subject to credit losses due to the risk of delinquency , default and foreclosure on the underlying real estate collateral . ( see part i , item 1a. , “ risk factors - credit and other risks related to our investments ” , of this annual report on form 10-k. ) we believe the discounted purchase prices paid on certain of these investments mitigate our risk of loss in the event that , as we expect on most such investments , we receive less than 100 % of the par value of these investments . our investment process for credit sensitive assets focuses primarily on quantifying and pricing credit risk . 36 the table below presents the composition of our mbs portfolios with respect to repricing characteristics as of december 31 , 2016 : replace_table_token_4_th ( 1 ) does not include principal payments receivable in the amount of $ 2.6 million . ( 2 ) does not reflect $ 2.7 billion of 3 year step-up securities , which are securitized financial instruments primarily backed by both fixed rate and hybrid re-performing and non-performing loans . story_separator_special_tag even though the majority of our investments have interest rates that adjust over time based on short-term changes in corresponding interest rate indices ( typically following an initial fixed-rate period for our hybrids ) , the interest rates we pay on our borrowings will typically change at a faster pace than the interest rates we earn on our investments . in order to reduce this interest rate risk exposure , we may enter into derivative instruments , which at december 31 , 2016 were comprised of swaps . our swap derivative instruments are designated as cash-flow hedges against a portion of our current and forecasted libor-based repurchase agreements . our swaps do not extend the maturities of our repurchase agreements ; they do , however , lock in a fixed rate of interest over their term for the notional amount of the swap corresponding to the hedged item . during 2016 , we did not enter into any new swaps and had swaps with an aggregate notional amount of $ 150.0 million and a weighted average fixed-pay rate of 1.03 % amortize and or expire . at december 31 , 2016 , we had swaps designated in hedging relationships with an aggregate notional amount of $ 2.9 billion with a weighted average fixed-pay rate of 1.87 % and a weighted average variable interest rate received of 0.72 % . recent market conditions and our strategy during 2016 , we continued to invest in residential mortgage assets , including both mbs , crt securities and , through consolidated trusts , residential whole loans . at december 31 , 2016 , our mbs portfolio was approximately $ 9.6 billion compared to $ 11.2 billion at december 31 , 2015 . at december 31 , 2016 , our total investment in residential whole loans was $ 1.4 billion compared to $ 895.1 million at december 31 , 2015 . at december 31 , 2016 , $ 5.8 billion , or 60.9 % of our mbs portfolio was invested in non-agency mbs . during the year ended december 31 , 2016 , the fair value of our non-agency mbs holdings decreased by $ 595.0 million . the primary components of the change during the year in these non-agency mbs include $ 2.3 billion of principal repayments and other principal reductions and the sale of non-agency mbs with a fair value of $ 85.6 million partially offset by $ 1.7 billion of purchases ( at a weighted average purchase price of 99.3 % ) , and an increase reflecting non-agency mbs price changes of $ 55.2 million . at december 31 , 2016 , $ 3.7 billion , or 39.1 % of our mbs portfolio was invested in agency mbs . during the year ended 2016 , the fair value of our agency mbs decreased by $ 1.0 billion . this was due to $ 967.5 million of principal repayments , $ 36.9 million of premium amortization and a $ 9.3 million decrease in net unrealized gains . in this low interest rate environment , we continue to invest in more credit sensitive , less interest sensitive residential mortgage assets . during the year ended december 31 , 2016 , we purchased , through consolidated trusts , approximately $ 659.4 million of residential whole loans with an unpaid principal balance of approximately $ 810.4 million . at december 31 , 2016 , our total recorded investment in residential whole loans was $ 1.4 billion . of this amount , $ 590.5 million is presented as residential whole loans at carrying value and $ 814.7 million as residential whole loans at fair value in our consolidated balance sheets . for the year ended december 31 , 2016 , we recognized approximately $ 23.9 million of income on residential whole loans held at carrying value in interest income on our consolidated statements of operations , representing an effective yield of 6.13 % ( excluding servicing costs ) . in addition , we recorded a net gain on residential whole loans held at fair value of $ 59.7 million in other income , net in our consolidated statements of operations for the year ended december 31 , 2016 . during 2016 we purchased $ 194.9 million of crt securities , which are debt obligations issued by fannie mae and freddie mac . at december 31 , 2016 , our investments in these securities totaled $ 404.9 million . 38 we currently expect to continue to seek more credit sensitive , less interest rate sensitive residential mortgage assets during 2017 , including residential whole loans non-agency mbs and crt securities . in order to achieve our current investment strategy , interest rate sensitive agency mbs may continue to run off without reinvestment in this asset class . our book value per common share was $ 7.62 as of december 31 , 2016 . book value per common share increased from $ 7.47 as of december 31 , 2015 due primarily to the impact of fair value changes of legacy non-agency mbs , crt securities and swaps , partially offset by a decline in fair value changes on our agency mbs and the impact of discount accretion income on legacy non-agency mbs that was recognized and declared as dividends during the year . at the end of 2016 , the average coupon on mortgages underlying our agency mbs was slightly higher compared to the end of 2015 , due to upward resets on hybrid and arm-mbs within the portfolio . as a result , the coupon yield on our agency mbs portfolio increased to 2.82 % for 2016 from 2.78 % for 2015 . the net agency mbs yield decreased to 1.95 % for 2016 , from 2.00 % for 2015 primarily due to an increase in premium amortization as a result of higher cprs in 2016 compared to 2015. the net yield for our legacy non-agency mbs portfolio was 7.90 % for 2016 compared to 7.62 % for 2015 .
| results of operations year ended december 31 , 2016 compared to the year ended december 31 , 2015 general for 2016 , we had net income available to our common stock and participating securities of $ 297.7 million , or $ 0.80 per basic and diluted common share , unchanged compared to net income available to common stock and participating securities for 2015 of $ 298.2 million , or $ 0.80 per basic and diluted common share . net interest income net interest income represents the difference between income on interest-earning assets and expense on interest-bearing liabilities . net interest income depends primarily upon the volume of interest-earning assets and interest-bearing liabilities and the corresponding interest rates earned or paid . our net interest income varies primarily as a result of changes in interest rates , the slope of the yield curve ( i.e. , the differential between long-term and short-term interest rates ) , borrowing costs ( i.e. , our interest expense ) and prepayment speeds on our mbs . interest rates and cprs ( which measure the amount of unscheduled principal prepayment on a bond as a percentage of the bond balance ) vary according to the type of investment , conditions in the financial markets , and other factors , none of which can be predicted with any certainty . the changes in average interest-earning assets and average interest-bearing liabilities and their related yields and costs are discussed in greater detail below under “ interest income ” and “ interest expense. ” for 2016 , our net interest spread and margin were 2.11 % and 2.45 % , respectively , compared to a net interest spread and margin of 2.33 % and 2.65 % , respectively , for 2015 . our net interest income decreased by $ 51.4 million , or 16.3 % , to $ 263.8 million from $ 315.2 million for 2015 .
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for those securities that are not convertible into a class of common stock , the “ two class ” method of computing income ( loss ) per share is used . pension - the company records annual pension costs based on calculations , which include various actuarial assumptions including discount rates , compensation increases and other assumptions involving demographic factors . the company reviews its actuarial assumptions on an annual basis and makes modifications to the assumptions based on current rates and trends . the company believes that the assumptions used in recording its pension obligations are reasonable based on its experience , market conditions and inputs from its actuaries . f- 13 innodata inc. and subsidiaries notes to financial statements deferred revenue - deferred revenue represents payments received from clients in advance of providing services and amounts deferred if conditions for revenue recognition have not been met . included in accrued expenses on the accompanying consolidated balance sheets is deferred revenue amounting to $ 1.1 million for each of the years ended december 31 , 2019 and 2018. recent accounting pronouncements – in january 2016 , the financial accounting standards board ( fasb ) issued asu no . 2016-01 , “ financial instruments – overall ( subtopic 825-10 ) : recognition and measurement of financial assets and financial liabilities ” ( asu 2016-01 ) , which updates certain aspects of recognition , measurement , presentation and disclosure of financial instruments . the company adopted this standard in the first quarter of 2019 , and it did not have a material impact on the company 's consolidated financial statements . in august 2018 , the fasb issued asu no . 2018-14 , “ compensation-retirement benefits-defined benefit plans-general : disclosure framework-changes to the disclosure requirements for defined benefit plans ” ( asu 2018-14 ) , that makes changes to the disclosure requirements for employers that sponsor defined benefit pension and or other postretirement benefit plans . story_separator_special_tag the following discussion should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this report which are hereby incorporated by reference . in addition to historical information , this discussion includes forward-looking information that involves risks and assumptions based upon management 's current expectations . our actual results could differ materially from the results referred to in forward-looking statements . see “ forward-looking statements ” included elsewhere in this report . correction of errors in the quarter ended december 31 , 2019 , we identified and corrected an error in our accounting for foreign currency remeasurement of refundable taxes in our indian subsidiary under asc 830 foreign currency matters . we also identified and corrected an overstatement of two long-standing accruals that we deemed to be no longer necessary . due to these errors , our direct operating costs were understated , our refundable tax was overstated , and our liabilities were overstated as of december 31 , 2018. we assessed the materiality of these errors in accordance with staff accounting bulletin no . 99 , materiality , and determined that the errors were immaterial to each of the previously reported periods . to correct this error , we have restated our consolidated balance sheet as of december 31 , 2018 , and consolidated statement of operations and comprehensive loss , consolidated statement of stockholders ' equity and consolidated statement of cash flows for the year ended december 31 , 2018. see note 1 to consolidated financial statements included in item 8 of this annual report for further information , as well as reconciliations of the effects of the restatement on our financial statements for the period indicated . executive overview we are a global data engineering company . we operate in three reporting segments : digital data solutions ( dds ) , synodex and agility . 29 the following table sets forth certain financial data for the two years ended december 31 , 2019 : replace_table_token_0_th adjusted ebitda in addition to measures of financial performance presented in our consolidated financial statements , we monitor “ adjusted ebitda ” to help us evaluate our ongoing operating performance including our ability to operate the business effectively . we define adjusted ebitda as net income ( loss ) attributable to innodata inc. and its subsidiaries in accordance with u.s. gaap before income taxes , depreciation and amortization of intangible assets , impairment charges , stock-based compensation , and loss attributable to non-controlling interests and interest income ( expense ) . we believe adjusted ebitda is useful to our management and investors in evaluating our operating performance and for operational decision-making purposes . in particular , adjusted ebitda facilitates period-to-period comparisons of our operating results on a consistent basis by excluding items that are not reflective of our core operations or are not within our control and helps us identify underlying trends in our business . in this regard , we believe it provides useful information about our operating results , enhances the overall understanding of our past performance and future prospects and allows for greater transparency with respect to key metrics used by the management in our operational decision-making . we also use this measure to establish operational goals for managing our business and evaluating our performance . adjusted ebitda has limitations as an analytical tool and should not be considered in isolation or as a substitute for results reported under u.s. gaap . story_separator_special_tag our canadian subsidiaries also have research and development credits available to reduce taxable income in future years , which may be carried forward indefinitely . the potential benefits from these balances have not been recognized for financial statement purposes . 35 tax assessments in september 2015 , our indian subsidiary was subject to an inquiry by the service tax department in india regarding the classification of services provided by this subsidiary , asserting that the services provided by this subsidiary fall under the category of online information and database access or retrieval services ( oid services ) , and not under the category of business support services ( bs services ) that are exempt from service tax as historically indicated in the subsidiary 's service tax filings . we disagree with the service tax department 's position . in november 2019 , the commissioner of central tax , gst & central excise issued an order confirming the service tax department 's position . we are vigorously contesting this order in an appeal to the customs , excise and service tax appellate tribunal . in the event the service tax department is ultimately successful in proving that the services fall under the category of oid services , the revenues earned by our indian subsidiary for the period july 2012 through november 2016 would be subject to a service tax of between 12.36 % and 15 % , and this subsidiary may also be liable to pay interest and penalties . the revenue of our indian subsidiary during this period was approximately $ 66.0 million . in accordance with new rules promulgated by the service tax department , as of december 1 , 2016 service tax is no longer applicable to oid or bs services . based on our counsel 's assessment , we have not recorded any tax liability for this case . in a separate action relating to service tax refunds , in october 2016 , our indian subsidiary received notices from the indian service tax department in india seeking to reverse service tax refunds of approximately $ 160,000 previously granted to our indian subsidiary for three quarters in 2014 , asserting that the services provided by this subsidiary fall under the category of oid services and not bs services . the appeal was determined in favor of the service tax department . we disagree with the basis of this decision and are contesting it vigorously . we expect delays in our indian subsidiary receiving further service tax refunds until this matter is adjudicated with finality , and currently have service tax credits of approximately $ 1.0 million recorded as a receivable . based on our counsel 's assessment , we have not recorded any tax liability for this case . net loss we had a net loss of $ 1.6 million during the year ended december 31 , 2019 , compared to a net loss of $ 0.3 million during the year ended december 31 , 2018. net loss for the year ended december 31 , 2019 included a one-time charge of $ 400,000 for an assessment of retroactive foreign social security contributions as a result of a decision by the supreme court of india that affects companies generally . the dds segment was breakeven for the year ended december 31 , 2019 , compared to a net income of $ 1.6 million for the year ended december 31 , 2018 , net of intersegment profits . the decrease in net income of $ 1.6 million was attributable to lower revenues of $ 2.2 million , higher operating expenses of $ 0.8 million , a decrease in tax provisions of $ 0.7 million , and a decrease in goodwill impairment of $ 0.7 million . net income for the synodex segment was breakeven for the year ended december 31 , 2019 , compared to net income of $ 0.4 million for the year ended december 31 , 2018 , net of intersegment profits . the decrease was primarily due to revenue timing from one client partially offset by an increase in volume from one existing client , volume from a new client and an increase in the cost of hardware and software upgrades expensed during the year . net loss for the agility segment was $ 1.6 million for the year ended december 31 , 2019 , compared to a net loss of $ 2.3 million for the year ended december 31 , 2018. the $ 0.7 million improvement was the result of higher revenues offset in part by increased expenditures to support revenue growth . adjusted ebitda adjusted ebitda for the year ended december 31 , 2019 was $ 3.3 million compared to an adjusted ebitda of $ 6.4 million for the year ended december 31 , 2018 , a decrease of $ 3.1 million . 36 adjusted ebitda for the dds segment was $ 3.2 million and $ 6.7 million for the years ended december 31 , 2019 and 2018 , respectively , a decrease of $ 3.5 million or approximately 52 % . the decrease was primarily attributable to a higher net loss of $ 1.6 million , a lower tax provision of $ 0.7 million , lower depreciation and amortization of $ 0.5 million and $ 0.7 million of goodwill impairment for the year ended december 31 , 2018. adjusted ebitda for the synodex segment was $ 0.1 million and $ 0.4 million for the years ended december 31 , 2019 and 2018 , respectively , a decrease of $ 0.3 million . the decrease was primarily due to revenue timing from one client partially offset by an increase in volume from one existing client and volume from a new client and an increase in the cost of hardware and software upgrades expensed during the year .
| results of operations year ended december 31 , 2019 compared to the year ended december 31 , 2018 revenues total r evenues were $ 55.9 million for the year ended december 31 , 2019 , a 3 % decrease from $ 57.4 million for the year ended december 31 , 2018. revenues from the dds segment were $ 41.3 million and $ 43.5 million for the years ended december 31 , 2019 and 2018 , respectively , a decline of $ 2.2 million or approximately 5 % . the decline was due to lower revenue from the top two clients of dds . revenues from the synodex segment were $ 3.9 million and $ 4.1 million for the years ended december 31 , 2019 and 2018 , respectively , a decrease of $ 0.2 million or approximately 5 % . the decrease was primarily due to reduction in volume from two existing clients partially offset by an increase in volume from one existing client and volume from a new client . revenues from the agility segment were $ 10.7 million and $ 9.8 million for the year ended december 31 , 2019 and 2018 , respectively , an increase of $ 0.9 million or approximately 9 % . the increase was attributable to higher revenues from subscriptions to our agility media database . two clients in the dds segment generated approximately 26 % and 30 % of the company 's total revenues in the fiscal years ended december 31 , 2019 and 2018 , respectively . no other client accounted for 10 % or more of total revenues during these periods . further , in the years ended december 31 , 2019 and 2018 , revenues from non-u.s. clients accounted for 55 % and 56 % of the company 's revenues , respectively .
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factors that might cause such a difference include , but are not limited to : ( 1 ) deterioration in the credit quality of peoples ' loan portfolio , which may adversely impact the provision for loan losses ; ( 2 ) competitive pressures among financial institutions or from non-financial institutions may increase significantly , including product and pricing pressures and peoples ' ability to attract , develop and retain qualified professionals ; ( 3 ) changes in the interest rate environment due to economic conditions and or the fiscal policies of the u.s. government and federal reserve board , which may adversely impact interest margins ; ( 4 ) the success , impact , and timing of peoples ' business strategies , including the integration of recently completed acquisitions , expansion of consumer lending activity and rebranding efforts ; ( 5 ) adverse changes in the economic conditions and or activities , including impacts from the implementation of the budget control act of 2011 and the american taxpayer relief act of 2012 , as well as continuing economic uncertainty in the u.s. , the european union , and other areas , which could decrease sales volumes and increase loan delinquencies and defaults ; ( 6 ) changes in prepayment speeds , loan originations and charge-offs , which may be less favorable than expected and adversely impact the amount of interest income generated ; ( 7 ) legislative or regulatory changes or actions , including in particular the dodd-frank wall street reform and consumer protection act of 2010 and the regulations promulgated and to be promulgated thereunder , which may subject peoples , its subsidiaries or one or more acquired companies to a variety of new and more stringent legal and regulatory requirements which adversely affect their respective businesses ; ( 8 ) changes in accounting standards , policies , estimates or procedures which may adversely affect peoples ' reported financial condition or results of operations ; ( 9 ) adverse changes in the conditions and trends in the financial markets , which may adversely affect the fair value of securities within peoples ' investment portfolio and interest rate sensitivity of peoples ' consolidated balance sheet ; ( 10 ) peoples ' ability to receive dividends from its subsidiaries ; ( 11 ) peoples ' ability to maintain required capital levels and adequate sources of funding and liquidity ; ( 12 ) the impact of larger or similar financial institutions encountering problems , which may adversely affect the banking industry and or peoples ' business generation and retention , funding and liquidity ; ( 13 ) the costs and effects of regulatory and legal developments , including the outcome of potential regulatory or other governmental inquiries and legal proceedings and results of regulatory examinations ; ( 14 ) peoples ' ability to secure confidential information through the use of computer systems and telecommunications networks , including those of our third-party vendors and other service providers , may prove inadequate , which could adversely affect customer confidence in peoples and or result in peoples incurring a financial loss ; ( 15 ) the overall adequacy of peoples ' risk management program ; and ( 16 ) other risk factors relating to the banking industry or peoples as detailed from time to time in peoples ' reports filed with the securities and exchange commission ( “ sec ” ) , including those risk factors included in the disclosure under `` item 1a . risk factors '' of this form 10-k. all forward-looking statements speak only as of the filing date of this form 10-k and are expressly qualified in their entirety by the cautionary statements . although management believes the expectations in these forward-looking statements are based on reasonable assumptions within the bounds of management 's knowledge of peoples ' business and operations , it is possible that actual results may differ materially from these projections . additionally , peoples undertakes no obligation to update these forward-looking statements to reflect events or circumstances after the filing date of this form 10-k or to reflect the occurrence of unanticipated events except as may be required by applicable legal requirements . copies of documents filed with the sec are available free of charge at the sec 's website at www.sec.gov and or from peoples bancorp inc. 's website – www.peoplesbancorp.com under the “ investor relations ” section . 26 the following discussion and analysis of peoples ' consolidated financial statements is presented to provide insight into management 's assessment of the financial results and condition for the periods presented . this discussion and analysis should be read in conjunction with the audited consolidated financial statements and notes thereto , as well as the ratios and statistics , contained elsewhere in this form 10-k. summary of significant transactions and events the following is a summary of transactions or events that have impacted or are expected by management to impact peoples ' results of operations or financial condition : ◦ during the second quarter of 2012 , peoples became more active with its merger and acquisition activities . these activities included the merger transactions with sistersville bancorp , inc. ( `` sistersville '' ) and its wholly-owned subsidiary , first federal savings bank , announced on june 5 , 2012 and subsequently completed on september 14 , 2012 , and the purchase of a small financial advisory book of business in wood county , west virginia . in the third quarter of 2012 , peoples purchased another small financial advisory book of business in gallipolis , ohio . these transactions are more fully described in note 18 of the notes to the consolidated financial statements . in addition , peoples ' management team continues to evaluate other acquisition opportunities involving banks , insurance agencies and wealth management providers located in ohio , west virginia and kentucky . on january 2 , 2013 , peoples insurance acquired a commercial insurance agency office and related customer accounts in the pikeville , kentucky area . story_separator_special_tag critical accounting policies the accounting and reporting policies of peoples conform to generally accepted accounting principles in the united states of america ( “ us gaap ” ) and to general practices within the financial services industry . a summary of significant accounting policies is contained in note 1 of the notes to the consolidated financial statements . while all of these policies are important to understanding the consolidated financial statements , certain accounting policies require management to exercise judgment and make estimates or assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes . these estimates and assumptions are based on information available as of the date of the consolidated financial statements ; accordingly , as this information changes , the consolidated financial statements could reflect different estimates or assumptions . management has identified the accounting policies described below as those that , due to the judgments , estimates and assumptions inherent in the policies , are critical to an understanding of peoples ' consolidated financial statements and management 's discussion and analysis of financial condition and results of operations . income recognition interest income on loans and investment securities is recognized by methods that result in level rates of return on principal amounts outstanding , including yield adjustments resulting from the amortization of loan costs and premiums on investment securities and accretion of loan fees and discounts on investment securities . since mortgage-backed securities comprise a sizable portion of peoples ' investment portfolio , a significant increase in principal payments on those securities could impact interest income due to the corresponding acceleration of premium amortization or discount accretion . management 's analysis at december 31 , 2012 showed changes in prepayments could cause an approximately 10 basis point change in peoples ' net interest margin from quarter-to-quarter . peoples discontinues the accrual of interest on a loan when conditions cause management to believe collection of all or any portion of the loan 's contractual interest is doubtful . such conditions may include the borrower being 90 days or more past due on any contractual payments or current information regarding the borrower 's financial condition and repayment ability . all unpaid accrued interest deemed uncollectible is reversed , which would reduce peoples ' net interest income . interest received on nonaccrual loans is included in income only if principal recovery is reasonably assured . 28 allowance for loan losses in general , determining the amount of the allowance for loan losses requires significant judgment and the use of estimates by management . peoples maintains an allowance for loan losses based on a quarterly analysis of the loan portfolio and estimation of the losses that are probable of occurrence within the loan portfolio . this formal analysis determines an appropriate level and allocation of the allowance for loan losses among loan types and the resulting provision for loan losses by considering factors affecting losses , including specific losses , levels and trends in impaired and nonperforming loans , historical loan loss experience , current national and local economic conditions , volume , growth and composition of the portfolio , regulatory guidance and other relevant factors . management continually monitors the loan portfolio through peoples bank 's credit administration department and loan loss committee to evaluate the adequacy of the allowance . the provision could increase or decrease each quarter based upon the results of management 's formal analysis . the amount of the allowance for loan losses for the various loan types represents management 's estimate of probable losses from existing loans . management evaluates lending relationships deemed to be impaired on an individual basis and makes specific allocations of the allowance for loan losses for each relationship based on discounted cash flows using the loan 's initial effective interest rate or the fair value of the collateral for certain collateral dependent loans . for all other loans , management evaluates pools of homogeneous loans ( such as residential mortgage loans and consumer loans ) and makes general allocations for each loan pool based upon historical loss experience . while allocations are made to specific loans and pools of loans , the allowance is available for all loan losses . this evaluation of individual impaired loans requires management to make estimates of the amounts and timing of future cash flows on impaired loans , which consist primarily of loans placed on nonaccrual status , restructured or internally classified as substandard or doubtful . these reviews are based upon specific quantitative and qualitative criteria , including the size of the loan , the loan cash flow characteristics , loan quality ratings , value of collateral , repayment ability of borrowers , and historical experience factors . allowances for homogeneous loans are evaluated based upon historical loss experience , adjusted for qualitative risk factors , such as trends in losses and delinquencies , growth of loans in particular markets , and known changes in economic conditions in each lending market . as part of the process of identifying the pools of homogenous loans , management takes into account any concentrations of risk within any portfolio segment , including any significant industrial concentrations . consistent with the evaluation of allowances for homogenous loans , the allowance relating to the overdraft privilege program is based upon management 's monthly analysis of accounts in the program . this analysis considers factors that could affect losses on existing accounts , including historical loss experience and length of overdraft . there can be no assurance the allowance for loan losses will be adequate to cover all losses , but management believes the allowance for loan losses at december 31 , 2012 was adequate to provide for probable losses from existing loans based on information currently available . while management uses available information to estimate losses , the ultimate collectibility of a substantial portion of the loan portfolio , and the need for future additions to the allowance , will be based on changes in economic conditions and other relevant factors .
| executive summary net income available to common shareholders for the year ended december 31 , 2012 was $ 20.4 million , compared to $ 11.2 million in 2011 and $ 3.5 million in 2010 , representing earnings per diluted common share of $ 1.92 , $ 1.07 and $ 0.34 , respectively . the higher earnings in both 2012 and 2011 were largely attributable to the impact of continued asset quality improvement . peoples also generated positive operating leverage during 2012 as growth in total revenue was larger than the growth in total non-interest expenses . in 2012 , peoples had a recovery of loan losses of $ 4.7 million as several asset quality metrics maintained favorable trends . the favorable trends resulted in net charge-offs of $ 1.2 million for 2012 , which were significantly less than the amounts recorded in 2011 and 2010 due largely to higher recoveries in 2012 . in comparison , peoples recorded provision for loan losses of $ 8.0 million for 2011 and $ 26.9 million for 2010. these provisions represented amounts needed to maintain the adequacy of the allowance for loan losses . 32 net interest income and margin were relatively stable in 2012 compared to 2011 , due to the reduction in interest income being offset by the reduction of interest expense . the slight net interest margin compression was a result of long-term interest rates remaining at historically low levels . net interest income decreased 10 % to $ 54.0 million in 2011 compared to 2010 , as the impact of the sustained low interest rate environment and lower average loan balances caused a decline in interest income that exceeded the reduction in funding costs . net interest margin remained relatively even through 2011 .
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deferred share unit incentive plan on april 4 , 2017 , the company adopted a deferred share unit plan ( the “ dsu plan ” ) . on may 24 , 2017 , at the company 's annual general meeting of shareholders , the dsu plan was approved . the purpose of the dsu plan is to allow the company to grant deferred share units ( “ dsus ” ) , each of which is a unit that is equivalent in value to a common share , to directors , officers and employees of the company or a subsidiary of the company ( “ eligible persons ” ) in recognition of their contributions and to provide for an incentive for their continuing relationship with the company . the granting of such dsus is intended to promote a greater alignment of the interests of eligible persons with the interests of shareholders . as at december 31 , 2017 , the maximum aggregate number of common shares that could be issued under the dsu plan and the 2006 plan was 16,239,299 , representing 10 % of the number of issued and outstanding common shares on that date ( on a non-diluted basis ) . as at december 31 , 2017 , the company had stock options to potentially acquire 4,477,000 common shares outstanding under the 2006 plan ( representing approximately 2.76 % of the outstanding common shares ) , leaving up to 11,762,299 common shares available for future grants under the dsu plan and under the 2006 plan ( combined ) based on the number of outstanding common shares as at that date on a non-diluted basis ( representing an aggregate of approximately 7.24 % of the outstanding common shares ) . in accordance with the company 's dsu plan , on october 23 , 2017 the company granted each of the members of the board of directors ( other than those directors nominated for election by paulson & co. , inc. ) 129,687 dsus with a grant date fair value ( defined as the weighted average of the prices at which the common shares traded on the tsx for the five trading days immediately preceding the grant ) of cad 0.62 per grant , or an aggregate of cad 482,436. the dsus entitle the holders to receive shares of the company 's common stock without the payment of any consideration . the dsus vested immediately upon being granted but the shares of common stock underlying the dsus are not deliverable to the grantee until the grantee is no longer serving on the company 's board of directors . 64 dsus outstanding are as follows : replace_table_token_27_th obligation to issue shares following the resignation of director mark hamilton on november 6 , 2017 , the company recorded an obligation to issue 129,687 dsus valued at $ 63,593 ( cad 80,406 ) . share-based payments during the year ended december 31 , 2017 , the company granted 250,000 stock options and 778,122 dsus for common stock of the company . share-based compensation for the year ended december 31 , 2017 totaled $ 443,556 ( $ 61,998 related to options and $ 381,558 related to dsus ) . of the total expense for the year ended december 31 , 2017 , $ 384,516 is included in consulting fees , $ 58,192 in wages and benefits and $ 848 in investor relations in the statement of operations and comprehensive loss . during the years ended story_separator_special_tag current business activities general livengood gold project developments during the year ended december 31 , 2017 and to the date of this annual report on form 10-k , the company progressed on a number of opportunities with the potential for optimization and reducing the costs of building and operating a mine at the project . outside consultants were retained to conduct additional metallurgical tests and engineering , including confirmation of the flow sheet and optimizing the operating costs . these inputs were used to evaluate several scenarios , ultimately selecting a project that would process 52,600 tons per day and produce 6.8 million ounces of gold over 23 years . this improved configuration would reduce the capital costs ( “ capex ” ) by 34 % or $ 950 million to $ 1.84 billion , the process operating cost ( “ process opex ” ) by 28 % or $ 2.97 per ton to $ 7.48 per ton , and the all-in costs to $ 1,247 per ounce , all as compared to the 100,000 tons per day project evaluated in the september 2013 feasibility study . livengood gold project – ni 43-101 report of 2016 pre-feasibility study results the company announced the results of a pre-feasibility study ( “ 2016 pfs ” ) on september 8 , 2016. on october 24 , 2016 , the company filed a technical report on sedar entitled “ ni 43-101 technical report pre-feasibility study of the livengood gold project , livengood , alaska , usa ” dated october 24 , 2016 ( “ october report ” ) that summarized the results of the 2016 pfs on the livengood gold project . during the first quarter of 2017 , it was determined that the calculation of all-in sustaining costs for the livengood project ( “ aisc ” ) , as contained in table 22-2 on page 22-7 of the october report , was incorrect as it included , contrary to world gold council guidance , both initial capital costs and mining and income taxes in the aisc calculation . the company issued a news release on march 8 , 2017 advising that as a result of the restatement , the aisc for the livengood gold project located near fairbanks , alaska , is projected to be $ 976/oz . story_separator_special_tag the size of the gold resource , the favorable location , and the proven team are some of the reasons the company would potentially attract a strategic partner with a long term development horizon who understands the project is highly leveraged to gold prices . 41 results of operations story_separator_special_tag no options during the year ended december 31 , 2016 compared to 2,135,200 options during the year ended december 31 , 2015. at december 31 , 2016 there was unrecognized compensation expense of c $ 38,644 related to non-vested options outstanding . the cost is expected to be recognized over a weighted-average remaining period of approximately 0.21 years . 43 share based payment charges were allocated as follows : replace_table_token_11_th excluding share-based payment charges of $ 76,910 and $ 400,095 , respectively , wages and benefits decreased to $ 2,119,681 for the year ended december 31 , 2016 from $ 2,159,515 for the year ended december 31 , 2015. the closure of the colorado office during 2015 contributed to lower wages and benefits expenses partially offset by higher healthcare premiums as a result of the base for the employee healthcare programs moving from colorado to alaska . excluding share-based payment charges of $ 25,013 and $ 113,150 , respectively , consulting fees were $ 238,321 for the year ended december 31 , 2016 compared to $ 305,274 for the year ended december 31 , 2015. the decrease of $ 66,953 is primarily due to lower consulting fees paid for chief financial officer services during 2016 as compared to 2015. excluding share-based payments , all other operating expense categories reflected only moderate changes period over period . other items amounted to other expense of $ 1,076,740 during the year ended december 31 , 2016 compared to other income of $ 1,637,352 in the year ended december 31 , 2015. total other expense in 2016 resulted from the unrealized loss on the revaluation of the derivative liability of $ 794,169. this unrealized loss was caused by the increase in the price per ounce of gold during 2016 and is compared to an unrealized gain of $ 800,000 during 2015 which resulted from a decrease in the price of gold during 2015. in addition to the unrealized loss on the derivative liability , the company had a foreign exchange loss of $ 340,551 during the year ended december 31 , 2016 compared to a gain of $ 990,690 during the year ended december 31 , 2015 as a result of the impact of exchange rates on certain of the company 's u.s. dollar cash balances . the average exchange rate during the year ended december 31 , 2016 was c $ 1 to us $ 0.7548 compared to c $ 1 to us $ 0.7820 for the year ended december 31 , 2015. available-for-sale securities were deemed not to be impaired for the year ended december 31 , 2016 compared to a loss of $ 219,402 related to the other than temporary impairment of certain available-for-sale securities during the year ended december 31 , 2015. liquidity and capital resources the company has no revenue generating operations from which it can internally generate funds . to date , the company 's ongoing operations have been predominantly financed through sale of its equity securities by way of private placements and the subsequent exercise of share purchase and broker warrants and options issued in connection with such private placements . however , the exercise of warrants/options is dependent primarily on the market price and overall market liquidity of the company 's securities at or near the expiry date of such warrants/options ( over which the company has no control ) and therefore there can be no guarantee that any existing warrants/options will be exercised . there are currently no warrants outstanding . as at december 31 , 2017 , the company reported cash and cash equivalents of $ 2,244,466 compared to $ 22,466,493 at december 31 , 2016. payment of the land derivative of approximately $ 14.7 million , operating expenditures on the livengood gold project of approximately $ 5.9 million and a negative foreign currency translation impact of approximately $ 0.4 million resulted in a decrease in cash and cash equivalents of approximately $ 20.2 million through december 31 , 2017. on march 13 , 2018 , the company completed a non-brokered private placement pursuant to which it issued 24,000,000 common shares at $ 0.50 per share for gross proceeds of $ 12.0 million . the company intends to use the funds for continuation of optimization studies to further improve and de-risk the project , required environmental baseline studies , and for general working capital purposes . as at december 31 , 2017 , management believes that the company has sufficient financial resources to maintain its operations for the next twelve months . 44 the company had no cash flows from investing activities during the years ended december 31 , 2017 and december 31 , 2016. financing activities during the year ended december 31 , 2017 included payment of the final derivative payment of approximately $ 14.7 million . share issuance costs included $ 45,000 related to a non-brokered private placement of common shares in december 2014 and $ 7,646 related to the share issuance to the previous ceo . in may 2017 , the company recognized an obligation to issue 206,024 common shares to the company 's previous chief executive officer , thomas irwin , with a value of $ 99,492. on july 13 , 2017 , the company issued the common shares in full satisfaction of the obligation .
| summary of quarterly results replace_table_token_7_th replace_table_token_8_th significant fluctuations in the company 's quarterly net loss have mainly been the result of changes in operating costs and the valuation of the company 's derivative liability . the fluctuation in the derivative liability was caused by changes in the price of gold during the period along with the expected price of gold through the term of the derivative liability , which was paid in january 2017. the following table presents the unrealized gain or loss on the valuation of the derivative for each quarterly period during the year ended december 31 , 2016 : replace_table_token_9_th year ended december 31 , 2017 compared to year ended december 31 , 2016 the company had cash and cash equivalents of $ 2,244,466 at december 31 , 2017 compared to $ 22,466,493 at december 31 , 2016. the company incurred a net loss of $ 6,432,057 for the year ended december 31 , 2017 , compared to a net loss of $ 7,190,628 for the year ended december 31 , 2016. the following discussion highlights certain selected financial information and changes in operations between the year ended december 31 , 2017 and the year ended december 31 , 2016. mineral property expenditures were $ 2,446,934 for the year ended december 31 , 2017 compared to $ 2,648,631 for the year ended december 31 , 2016. the decrease of $ 201,697 is due to reduced expenditures for metallurgical studies and engineering and the company limiting field activities to the continuation of critical environmental baseline work while moving forward with a multi-phase metallurgical test work program .
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item 12 certain relationships and related transactions , and director independence the information required by item 12 is set forth in the 2011 proxy statement under the caption certain relationships and related transactions and director independence , and is incorporated herein by reference . item 13 principal accounting fees and services the information required by item 13 is set forth in the 2011 proxy statement under the caption principal accounting firm services and fees , and is incorporated herein by reference . part iv item 14 story_separator_special_tag overview huttig is a distributor of building materials used principally in new residential construction and in home improvement , remodeling and repair work . we distribute our products through 27 distribution centers serving 41 states and sell primarily to building materials dealers , national buying groups , home centers and industrial users , including makers of manufactured homes . our products fall into three categories : ( i ) millwork , which includes doors , windows , moulding , stair parts and columns , ( ii ) general building products , which include composite decking , connectors , fasteners , housewrap , roofing products and insulation , and ( iii ) wood products , which include engineered wood products , such as floor systems , as well as wood panels and lumber . industry conditions the downturn in the residential construction market is in its fifth consecutive year and has become one of the most severe housing downturns in u.s. history . our sales depend heavily on the strength of local and national new residential construction , home improvement and remodeling markets . during the past five years , our results of -14- operations have been adversely affected by the severe downturn in new housing activity in the united states . while we expect the severe downturn in new residential construction to continue to adversely affect our operating results into 2011 , we anticipate a slight increase in housing starts in 2011 versus 2010 based on recent signs of economic stabilization coupled with industry forecasts for 2011. in reaction to the housing downturn , the company has been restructuring its operations since the second quarter of 2006. since then , the company closed , consolidated or sold 20 distribution centers . additionally , the company reduced its workforce by approximately 1,300 and had approximately 900 employees at the end of 2010. these actions , along with other cost reduction efforts , are primarily responsible for an approximate $ 100 million reduction in operating expenses from 2006 to 2010. various factors historically have caused our results of operations to fluctuate from period to period . these factors include levels of construction , home improvement and remodeling activity , weather , prices of commodity wood and steel products , interest rates , competitive pressures , availability of credit and other local , regional , national and economic conditions . many of these factors are cyclical or seasonal in nature . we anticipate that further fluctuations in operating results from period to period will continue in the future . our first quarter and fourth quarter are generally adversely affected by winter weather patterns in the midwest and northeast , which typically result in seasonal decreases in levels of construction activity in these areas . because much of our overhead and expenses remain relatively fixed throughout the year , our operating profits tend to be lower during the first and fourth quarters . we believe we have the product offering , distribution channel , personnel , systems infrastructure and financial and competitive resources necessary for continued operations . our future revenues , costs and profitability , however , are all likely to be influenced by a number of risks and uncertainties , including those in item 1a risk factors . critical accounting policies we prepare our consolidated financial statements in accordance with u.s. generally accepted accounting principles , which require management to make estimates and assumptions . management bases these estimates and assumptions on historical results and known trends as well as management forecasts . actual results could differ from these estimates and assumptions . accounts receivable trade accounts receivable consist of amounts owed for orders shipped to customers and are stated net of an allowance for doubtful accounts . huttig 's corporate management establishes an overall credit policy for sales to customers and delegates responsibility for most credit decisions to credit personnel located within huttig 's two regions . the allowance for doubtful accounts is determined based on a number of factors including when customer accounts exceed 90 days past due and specific customer account reviews . our credit policies , together with careful monitoring of customer balances , have resulted in bad debt expense of approximately 0.1 % of net sales in 2010 , 0.2 % in 2009 and 0.3 % during 2008. due to the current downturn in new housing activity , we expect that our bad debt expense could increase as our customers experience greater financial difficulties . inventory inventories are valued at the lower of cost or market . we utilize the lifo cost method to value the majority of our inventories . we review inventories on hand and record a provision for slow-moving and obsolete inventory based on historical and expected sales . valuation of goodwill and other long-lived assets we test the carrying value of our goodwill at each reporting unit for impairment on an annual basis and between annual tests in certain circumstances when there are indicators of potential impairment . the carrying value of goodwill is considered impaired when a reporting unit 's fair value is less than its carrying value . in that event , goodwill impairment is recognized to the extent recorded goodwill exceeds the implied fair value of that goodwill . circumstances that can lead to interim goodwill testing include significant negative variances from forecasted sales or operating profits or changes in other circumstances that indicate the carrying amount of goodwill may not be recoverable . story_separator_special_tag gross margin decreased approximately 31 % to $ 84.1 million , or 18.5 % of sales , in 2009 as compared to $ 122.4 million , or 18.2 % of sales , in 2008. the gross margin in 2009 reflects a $ 0.9 million lifo liquidation benefit due to branch closures , which was partially offset by a $ 0.6 million net write down of inventory at closed branches , while 2008 reflected a $ 1.0 million charge from a net write down and liquidation of inventory at closed branches . excluding these adjustments , our gross margins were 18.4 % and 18.3 % in 2009 and 2008 , respectively . lifo valuation adjustments favorably impacted our 2009 gross margins and unfavorably impacted our 2008 gross margins . we estimate these lifo valuation adjustments were largely offset by the impact from temporary pricing volatility associated with our metal fastener inventory . the 2009 and 2008 gross margins were also negatively impacted by pricing pressure in the down housing market , which pressure may continue into 2010. operating expenses including goodwill impairment charges decreased $ 53.3 million to $ 106.7 million , or 23.4 % of sales , in 2009 , compared to $ 160.0 million , or 23.8 % of sales , in 2008. operating expenses for 2009 include $ 2.1 million of expenses comprised of a $ 1.0 million goodwill impairment charge and $ 1.1 million of branch closure costs related to the shut down or consolidation of three branches during 2009. operating expenses for 2008 include $ 10.8 million of expenses primarily comprised of an $ 8.7 million goodwill impairment charge and $ 2.1 million of branch closure costs associated with the shut down or consolidation of five branches during 2008. excluding these 2009 and 2008 charges , operating expenses decreased by $ 44.5 million in 2009 , primarily due to a lower employee headcount and a lower cost structure , as a result of prior restructuring activities , as well as lower variable costs associated with decreased sales volumes . we recorded total stock-based compensation expense of $ 0.9 million in 2009 compared to $ 1.3 million in 2008. our results for the year ended december 31 , 2009 included a gain on disposal of capital assets of $ 1.5 million primarily from the sale of two previously closed facilities . the results for the year ended december 31 , 2008 included a gain on disposal of capital assets of $ 1.0 million primarily from the sale of a previously closed facility . net interest expense was $ 1.5 million in 2009 compared to $ 2.6 million in 2008 primarily due to lower average debt outstanding and lower libor-based borrowing rates in 2009 versus 2008. additionally , we reduced the credit facility size from $ 160.0 million to $ 120.0 million in 2009. income tax benefit as a percentage of pre-tax loss for 2009 and 2008 was approximately 12 % and 10 % , respectively . in 2009 , we benefited from a change in federal tax law that allowed us to carry back 2008 operating losses to prior years and receive tax refunds . in 2008 , we were able to carry back the 2007 federal net operating loss -18- to prior years and receive tax refunds . at december 31 , 2009 , our federal net operating loss carry forward is approximately $ 42.6 million . as a result of the foregoing factors , we incurred a loss from continuing operations of $ 19.8 million in 2009 as compared to a loss from continuing operations of $ 35.2 million in 2008. discontinued operations we recorded a $ 0.7 million after tax loss from discontinued operations related to a note receivable impairment and environmental and litigation expenses in 2009 compared to a $ 0.2 million after tax loss for environmental and litigation expenses in 2008 associated with previously reported discontinued operations . liquidity and capital resources we depend on cash flow from operations and funds available under our revolving credit facility to finance seasonal working capital needs , capital expenditures and any acquisitions that we may undertake . our working capital requirements are generally greatest in the second and third quarters , which reflect the seasonal nature of our business . the second and third quarters are also typically our strongest operating quarters , largely due to more favorable weather throughout many of our markets compared to the first and fourth quarters . we typically generate cash from working capital reductions in the fourth quarter of the year and build working capital during the first quarter in preparation for our second and third quarters . we also maintain significant inventories to meet rapid delivery requirements of our customers and to enable us to obtain favorable pricing , delivery and service terms with our suppliers . at december 31 , 2010 and 2009 , inventories constituted approximately 37 % and 33 % of our total assets , respectively . we also closely monitor operating expenses and inventory levels during seasonally affected periods and , to the extent possible , manage variable operating costs to minimize seasonal effects on our profitability . operations cash from operating activities increased by $ 6.3 million to a usage of $ 7.1 million in 2010 , compared to a $ 13.4 million usage of cash in 2009. in 2010 , our net loss decreased $ 1.6 million compared to 2009. the net loss included goodwill impairment charges of $ 1.0 million in 2009. accounts receivable decreased by $ 4.7 million during 2010 compared to an increase of $ 8.8 million a year ago . days sales outstanding ( dso ) decreased by 3.9 days to 32.8 days at december 31 , 2010 from 36.7 days at december 31 , 2009 based on annualized fourth quarter sales and quarter ended accounts receivable balances for the respective periods . the decrease in dso is directly related to extended terms provided in the fourth quarter of 2009 to a small number of large credit worthy customers .
| results of operations fiscal 2010 compared to fiscal 2009 continuing operations net sales from continuing operations were $ 467.7 million in 2010 , which were $ 12.5 million , or approximately 3 % , higher than 2009. this increase was attributable to a slight increase in new housing activity as new housing starts in the united states increased 6 % , holding at 0.6 million in both 2010 and 2009 , including 0.5 million single family starts in 2010 versus 0.4 million in 2009 , based on data from the u.s. census bureau . we believe there was a general trend to build smaller homes in 2010 as compared to 2009. sales in all major product categories changed as follows in 2010 from 2009. millwork sales increased 10 % in 2010 to $ 224.4 million . building product sales decreased 7 % in 2010 to $ 193.7 million . wood products increased 20 % to $ 49.6 million in 2010 with a 5 % increase in sales of engineered wood products and a 24 % increase in sales of other wood products . sales of building products decreased due to lower roofing , fastener , house wrap and insulation sales in 2010 compared to 2009. fluctuations across product categories can occur based on , among other things , new product incentives , promotions , changes in product lines , commodity pricing and weather . gross margin increased approximately 1 % to $ 85.2 million , or 18.2 % of sales , in 2010 as compared to $ 84.1 million , or 18.5 % of sales , in 2009. the gross margin in 2009 reflects a $ 0.9 million lifo liquidation benefit due to branch closures , which was partially offset by a $ 0.6 million net write down of inventory at closed branches .
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6 edison international dividend policy in december 2015 , edison international declared a 15 % increase to the annual dividend rate from $ 1.67 per share to $ 1.92 per share . edison international plans to increase its dividends to common shareholders at a higher than industry average growth rate within its target payout ratio of 45 % to 55 % of sce earnings in steps over time . regulatory proceedings 2015 general rate case on november 5 , 2015 , the cpuc approved a final decision in sce 's 2015 grc . the decision authorized a revenue requirement of $ 5.182 billion for 2015. the final decision authorized a ratemaking methodology that escalates capital additions by 2 % for both 2016 and 2017 and allows operation and maintenance expense to be escalated for 2016 and 2017 through the use of various escalation factors for labor , non-labor and medical expenses . the methodology adopted in the decision results in a revenue requirement of $ 5.391 billion for 2016 and $ 5.663 billion for 2017. the final decision was retroactive to january 1 , 2015 and includes provisions related to tax repair deductions and for revenue adjustments discussed below . tax repair deductions and memorandum account certain capital expenditures qualify as repairs for income tax purposes and are currently deductible . in each grc , sce forecasts its federal and state taxes , including expected deductions for tax repairs ( `` tax repair deductions '' ) . income tax benefits from tax repair deductions are flowed through to customers in establishing the authorized revenue requirement . the effect of flow-through treatment of income taxes is to lower current customer rates but increase future customer rates for recovery of deferred income taxes . actual tax repair deductions exceeded forecasted tax repair deductions during 2012 – 2014. as part of the final decision in sce 's 2015 grc , the cpuc adopted a rate base offset to reduce authorized revenue in 2015 and future rate cases for income tax benefits related to 2012 – 2014 tax repair deductions which were in excess of forecast and did not flow-through to customers . the final decision included $ 324 million of rate base offset to sce 's cpuc jurisdictional rate base and directed the amount to be amortized over 27 years on a straight line basis . previously , sce recognized earnings and a regulatory asset of $ 382 million for deferred income taxes related to 2012 – 2014 tax repair deductions . as a result of the cpuc 's rate base offset , sce wrote down this regulatory asset in full . the after-tax charge was reflected in `` income tax expense '' on the consolidated statements of income . the amount of tax repair deductions the cpuc used to establish the rate base offset was based on sce 's forecast of 2012 – 2014 tax repair deductions from the notice of intent filed in the 2015 grc . the amount of tax repair deductions included in the notice of intent was less than the actual tax repair deductions sce reported on its 2012 through 2014 income tax returns . in february 2016 , sce made an advice filing with the cpuc to reduce sce 's base revenue requirement balancing account by $ 234 million during 2016 through 2020 subject to the outcome of audits that may be conducted by tax authorities . sce does not expect to record a gain or loss from this advice filing . the advice filing is subject to review and revision by the cpuc . the 2015 grc also established a tax accounting memorandum account ( referred to as “ tama ” ) , which provides that additional 2015 – 2017 tax benefits or costs associated with the following events be tracked : ( 1 ) tax accounting method changes , ( 2 ) changes in tax laws and regulations impacting depreciation or tax repair deductions , ( 3 ) forecasted and actual differences in tax repair deductions , and ( 4 ) the impact , if any , of a private letter ruling related to compliance with normalization regulations of the irs . as a result of this memorandum account together with the balancing account discussed below , any differences between the forecasted tax repair deductions and actual tax repair deductions for 2015 – 2017 will be adjusted annually through customer rates . tax repair deductions during 2015 exceeded the amounts forecasted in the 2015 grc . as a result , sce recorded a regulatory liability of $ 212 million at december 31 , 2015 , for refunds to customers . 7 pole loading and deteriorated poles balancing account ( “ pldpba ” ) the 2015 grc established a balancing account for pole loading and deteriorated poles for 2015 – 2017. as a result of the balancing account , authorized grc revenue for operation and maintenance expenses for the pole loading program and capital revenue requirement for both pole loading and deteriorated poles programs will be adjusted to recorded amounts subject to a maximum amount for the years 2016 and 2017 in the aggregate . sce is authorized to recover the revenue requirement associated with up to 115 % of the authorized spending ( operation and maintenance expenses and capital expenditures ) during 2016 and 2017 for the pole loading and deteriorated poles programs ( there was no maximum amount applicable to 2015 or prior years ) . sce would not be entitled to the capital revenues requirement for capital expenditures in excess of the maximum amounts . under pldpba , sce earns a return on the rate base applicable to the pole loading and deteriorated pole programs . story_separator_special_tag the rate base for these programs averaged $ 625 million during 2015 , which exceeded the baseline included in the 2015 grc of $ 296 million . as a result , sce recorded additional income during 2015 of $ 26 million through the pldpba . this account also reflects the impact from the difference between recorded and authorized operation and maintenance expenses and repair and cost of removal tax deductions related to these programs . the regulatory liability recorded for refunds to customers under pldpba was $ 36 million at december 31 , 2015. cost of capital on november 25 , 2015 , the executive director of the cpuc granted the joint request submitted by sce , pg & e , sdg & e , and socalgas ( collectively , the `` joint investor-owned utilities '' ) for a one-year extension of the due date for the joint investor-owned utilities to file their next cost of capital applications . as extended , the joint investor-owned utilities must file their next cost of capital applications by april 20 , 2017 instead of april 20 , 2016. sce 's authorized rate of return and capital structure for cpuc-related activities will remain unchanged through december 31 , 2017. the executive director noted that , in order to effectuate the joint investor-owned utilities ' agreement that their cost of capital would not be adjusted for 2017 , they would need to submit a petition to the cpuc requesting that it modify its existing decision establishing the automatic adjustment mechanism . the joint investor-owned utilities submitted their petition in december 2015. on february 12 , 2016 , the cpuc issued a proposed decision approving the joint investor-owned utilities ' petition . a final decision is expected by the end of february 2016. energy efficiency incentive mechanism in 2015 , the cpuc awarded sce incentives of $ 29 million for the 2011 – 2014 energy efficiency program years . in september 2015 , the cpuc granted turn and ora petitions and requests for rehearing of prior cpuc decisions related to $ 74.5 million of incentive awards that sce received for savings achieved by its 2006 – 2008 energy efficiency programs . the turn and ora petitions allege that ex parte communications between pg & e and the former president of the cpuc , which were disclosed in an october 2014 report filed by pg & e , taint the entire 2010 energy efficiency decision and that the decision should be vacated . sce disputes the assertion that sce should be at risk to repay previously awarded incentives . sce can not predict the outcome of these petitions . ferc formula rates in december 2015 , sce filed its 2016 annual update with the ferc with the rates effective from january 1 , 2016 to december 31 , 2016. the update provided support for an increase in sce 's transmission revenue requirement of $ 182 million or 20 % over amounts currently authorized in rates . the increase is mainly due to the completion of several major transmission projects in 2014 and refunds from prior periods . permanent retirement of san onofre and san onofre oii settlement in november 2014 , the cpuc approved the san onofre oii settlement agreement that sce had entered into with turn , ora , sdg & e , the coalition of california utility employees , and friends of the earth . the san onofre oii settlement agreement resolved the cpuc 's investigation regarding the steam generator replacement project at san onofre and the related outages and subsequent shutdown of san onofre . the san onofre oii settlement agreement does not affect proceedings related to recoveries from third parties , but does describe how shareholders and customers will share any recoveries . for further discussion of third-party recoveries , including claims against mhi , see `` notes to consolidated financial statements—note 11. commitments and contingencies—contingencies—san onofre related matters . '' 8 challenges related to san onofre cpuc proceedings a federal lawsuit challenging the cpuc 's authority to permit rate recovery of san onofre costs and an application to the cpuc for rehearing of its decision approving the san onofre oii settlement agreement were filed in november and december 2014 , respectively . in april 2015 , the federal lawsuit was dismissed with prejudice and the plaintiffs in that case appealed the dismissal to the ninth circuit in may 2015. both the appeal and the application for rehearing remain pending . also in april 2015 , the alliance for nuclear responsibility ( `` a4nr '' ) filed a petition to modify the cpuc 's decision approving the san onofre oii settlement agreement based on sce 's alleged failures to disclose communications between sce and cpuc decision-makers pertaining to issues in the san onofre oii . the petition seeks the reversal of the decision approving the san onofre oii settlement agreement and reopening of the oii proceeding . subsequently , turn and ora filed responses supporting a4nr 's petition to reopen the san onofre oii proceeding . in august 2015 , ora filed its own petition to modify the cpuc 's decision approving the san onofre oii settlement agreement seeking to set aside the settlement and reopen the san onofre oii proceeding . sce and sdg & e responded to this petition in september 2015. both petitions remain pending before the cpuc . in july 2015 , a purported securities class action lawsuit was filed in federal court against edison international , its chief executive officer and chief financial officer and was later amended to include sce 's former president as a defendant . the lawsuit alleges that the defendants violated the securities laws by failing to disclose that edison international had ex parte contacts with cpuc decision-makers regarding the san onofre oii that were either unreported or more extensive than initially reported . the complaint purports to be filed on behalf of a class of persons who acquired edison international common stock between
| results of operations sce sce 's results of operations are derived mainly through two sources : utility earning activities – representing revenue authorized by the cpuc and ferc which is intended to provide sce a reasonable opportunity to recover its costs and earn a return on its net investment in generation , transmission and distribution assets . the annual revenue requirements are comprised of authorized operation and maintenance costs , depreciation , taxes and a return consistent with the capital structure . also , included in utility earnings activities are revenues or penalties related to incentive mechanisms , other operating revenue , and regulatory charges or disallowances . utility cost-recovery activities – representing cpuc- and ferc-authorized balancing accounts which allow for recovery of specific project or program costs , subject to reasonableness review or compliance with upfront standards . utility cost-recovery activities include rates which provide recovery , subject to reasonableness review of , among other things , fuel costs , purchased power costs , public purpose related-program costs ( including energy efficiency and demand-side management programs ) and certain operation and maintenance expenses . revenue impact of 2015 grc decision as indicated in the table below , revenue in the 2015 grc decision is lower than the amount authorized in 2014 due to lower operation and maintenance costs and income taxes . accordingly , sce will refund $ 451 million to customers beginning in january 2016. the following table summarizes the 2015 grc decision compared to the amounts of revenue currently authorized : replace_table_token_7_th 1 authorized revenue for operation and maintenance costs decreased due to : $ 72 million reduction in cost-recovery activities , which does not impact earnings , primarily for pension , postretirement benefits other than pensions ( pbop ) , medical and results sharing costs . these cost-recovery activities are recorded through balancing accounts , which allow for recovery of these specific projects or program costs , subject to reasonableness review .
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significant deferred tax assets and liabilities consist of the following : replace_table_token_26_th as of december 31 , 2017 , the company has recorded a valuation allowance on a portion of its u.s. domestic deferred tax assets of approximately $ 2.8 million related to state net operating losses . the remaining valuation allowance on deferred tax assets approximates $ 29.5 million and is associated primarily with operations in germany , the uk , and india including losses that are both operating and capital in nature story_separator_special_tag certain statements set forth below under this caption constitute forward-looking statements . see “ special note regarding forward-looking statements ” in item 1 `` business '' of this annual report on form 10-k for additional factors relating to such statements , and see “ risk factors ” in item 1a for a discussion of certain risks applicable to our business , financial condition and results of operations . overview we design , manufacture , sell , and support power conversion products that transform power into various usable forms . our products enable manufacturing processes that use thin film technology for various products , such as semiconductor devices , flat panel displays , thin film renewables , architectural glass , optical coating and consumer products decorative and functional coating . we also supply thermal instrumentation products for advanced temperature measurement and control in the thin film process for these same markets . our power control modules provide power control solutions for industrial applications where heat treatment and processing are used such as glass manufacturing , metal fabrication and treatment , material and chemical processing . our high voltage power supplies and modules are used in applications such as semiconductor ion implantation , scanning electron microscopy , chemical analysis such as mass spectrometry and various applications using x-ray technology and electron guns for both analytical and processing applications . our network of global service support centers provides a recurring revenue opportunity as we offer repair services , conversions , upgrades , and refurbishments and used equipment to companies using our products . driven by continuing technology migration and changing customers demand the markets we serve are constantly changing in terms of advancement in applications , core technology and competitive pressures . new products we design for capital equipment manufacturers typically have a lifespan of five to ten years . our success and future growth depends on our products being designed into our customers new generations of equipment as they develop new technologies and applications . we must work with these 25 manufacturers early in their design cycles to modify , enhance and upgrade our products or design new products that meet the requirements of their new systems . the design win process is highly competitive and we may win or lose new design wins for our existing customers or new customers next generations of equipment . in case existing or new customers do not choose our products as a result of the development , evaluation and qualification efforts related to the design win process , our market share will be reduced , the potential revenues related to the lifespan of our customers ' products , which can be 5-10 years , will not be realized , and our business , financial condition and results of operations would be materially and adversely impacted . we enter 2018 looking to strengthen our position and grow revenue through new products , design wins , new applications and geographical growth , continuously emphasizing margin expansion , cash generation and cost improvement . critical accounting estimates the preparation of consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the united states of america ( “ u.s . gaap ” ) requires management to make judgments , assumptions , and estimates that affect the amounts reported . note 1. operations and summary of significant accounting policies and estimates in item 8 `` financial statements and supplementary data '' describes the significant accounting policies used in the preparation of our consolidated financial statements . the accounting positions described below are significantly affected by critical accounting estimates . such accounting positions require significant judgments , assumptions , and estimates to be used in the preparation of the consolidated financial statements , actual results could differ materially from the amounts reported based on variability in factors affecting these statements . revenue recognition we recognize revenue from product sales upon transfer of title and risk of loss to our customers provided that there is evidence of an arrangement , the sales price is fixed or determinable , and the collection of the related receivable is reasonably assured . in most transactions , we have no obligations to our customers after the date products are shipped , other than pursuant to warranty obligations . shipping and handling fees billed to customers , if any , are recognized as revenue . the related shipping and handling costs are recognized in cost of sales . we maintain a credit approval process and we make significant judgments in connection with assessing our customers ' ability to pay at the time of shipment . despite this assessment , from time to time , our customers are unable to meet their payment obligations . we continuously monitor our customers ' credit worthiness and use our judgment in establishing a provision for estimated credit losses based upon our historical experience and any specific customer collection issues that we have identified . while such credit losses have historically been within our expectations and the provisions established , a significant change in the liquidity or financial position of our customers could have a material adverse impact on the collectability of accounts receivable and our future operating results . additionally , if our credit loss rates prove to be greater than we currently estimate , we record additional reserves for doubtful accounts . inventory we value our inventory at the lower of cost ( first-in , first-out method ) or market . story_separator_special_tag we make adjustments to these reserves when facts and circumstances change , such as the closing of a tax audit or the refinement of an estimate . to the extent that the final tax outcome of these matters is different than the amounts recorded , such differences will affect the provision for income taxes in the period in which such determination is made and could have a material impact on our financial condition and operating results . the provision for income taxes includes the effects of any reserves that we believe are appropriate , as well as the related net interest and penalties . for more details see note . 4 income taxes in item 8 `` financial statements and supplementary data . '' on december 22 , 2017 , the u.s. enacted the 2017 tax cuts and jobs act ( the tax act ) into law and the new legislation contains several key tax provisions that affected us , including a one-time mandatory transition tax on our accumulated foreign earnings and a reduction of the corporate income tax rate to 21 % , effective january 1 , 2018 , among others . we are required to recognize the effect of the tax law changes in the period of enactment , such as determining the transition tax , re-measuring our u.s. deferred tax assets and liabilities as well as reassessing the net realizability of our deferred tax assets and liabilities . in december 2017 , the sec staff issued staff accounting bulletin no . 118 , income tax accounting implications of the tax cuts and jobs act ( sab 118 ) , which allows us to record provisional amounts during a measurement period not to extend beyond one year of the enactment date . since the tax act was passed late in the fourth quarter of 2017 , and ongoing guidance and accounting interpretation is expected over the next 12 months , we consider the accounting for the transition tax , deferred tax re-measurements , and other items to be incomplete due to the forthcoming guidance and our ongoing analysis of final year-end data and tax positions . we expect to complete our analysis within the measurement period in accordance with sab 118 . 27 business environment and trends semiconductors investment in semiconductor capital equipment increased approximately 31 % year over year in 2017. sales to our semiconductor oem customers continued to increase quarter over quarter throughout the year . sales in the fourth quarter of 2017 represented a record for our semiconductor business . the semiconductor market is being driven by the rapid adoption of solid-state drives ( ssd ) deploying the latest 3d-nand memory devices and a ramp of advanced logic devices at the 10nm technology node . the industry 's transition to 3d memory devices and advanced logic is generating increasing demand for rf power supplies , matches and accessories . the growing number of steps associated with the deposition and etch processes is driving an increase in the number of process chambers per fab and higher content of more advanced power solutions per chamber . as etching processes become more challenging due to increasing aspect ratios in advanced 3d devices , more advanced rf technology that includes pulsing and increased control and instrumentation is needed . we are capitalizing on these trends and providing a broader range of more complex combinations of rf power and frequencies and launching more capable matching networks to manage and control the delivered power . industrial power customers in the industrial capital equipment market incorporate our industrial process power and specialty power products into a wide variety of equipment used in applications such as thin films , advanced material fabrication , and analytical instrumentation . in industrial applications , we remain focused on taking our products into new applications and world regions , increasing our penetration into asia , europe and north america . in 2017 , we made gains across an array of industries . the flat panel display market showed continued strength with the ongoing ramp of oled mobile screen capacity . demand for our products used in many industrial thin film coating and specialty power markets increased , particularly in manufacturing areas for products such as solar panels , consumer device coatings , flat panel displays and analytical instrumentation . our thermal process control and measurement instruments are also making gains in north america , where we have focused for regional expansion . results of continuing operations our analysis presented below is organized to provide the information we believe will facilitate an understanding of our historical performance and relevant trends going forward , and should be read in conjunction with our consolidated financial statements , including the notes thereto , in item 8 `` financial statements and supplementary data '' of this annual report on form 10-k. advanced energy is organized as a single business unit , which principally serves oem and end customers in the semiconductor , flat panel display , high and low voltage , solar panel , and other capital equipment markets . as of december 31 , 2015 we discontinued our inverter products manufacturing and sales . all prior periods disclosed have been recast to reflect continuing operations . results of discontinued operations are reflected as `` income ( loss ) from discontinued operations , net of income taxes '' in our consolidated statements of operations . see note 3. discontinued operations in item 8 `` financial statements and supplementary data . ''
| results compared to 2015 sales total sales for the year ended december 31 , 2016 increased 16.6 % to $ 483.7 million from $ 414.8 million for the year ended december 31 , 2015 . the increase in sales was due to the rebound in the semiconductor market after a pause in the fourth quarter of 2015 as well as continued growth in our global support business . in 2016 , sales in our semiconductor market increased 22.5 % to $ 326.3 million , and 67.5 % of sales , from $ 266.5 million , and 64.2 % of sales in 2015 . these increases were driven by strong market conditions across the semiconductor market driven by our leadership in etch applications , specifically related to advanced memory and transition to 3dnand , along with advances in logic technology . sales to the industrial capital equipment markets increased 0.1 % to $ 84.3 million in 2016 from $ 84.2 million in 2015 . the industrial markets we serve include solar panels , flat panel display , architectural glass , analytical instrumentation and other industrial manufacturing markets . our customers in these markets are primarily global and regional original equipment manufacturers . sales to the industrial capital equipment markets as a percentage of total sales decreased to 17.4 % in 2016 from 20.3 % in 2015 , due primarily to the strong growth in sales in our semiconductor market . global support revenue increased by 14.0 % to $ 73.1 million , and 15.1 % of sales from $ 64.1 million , and 15.5 % of sales in 2015 . increased global service sales was due to share gains as well as growth in the installed base . despite this growth , global support revenue as a percentage of total sales decreased due to the strong growth in sales in our semiconductor market .
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hasbro applies these principles to leverage its beloved owned and controlled brands , including littlest pet shop , magic : the gathering , monopoly , my little pony , nerf , play-doh and transformers , as well as its premier partner brands . from toys and games , to television programming , motion pictures , digital gaming and a comprehensive licensing program , hasbro fulfills the fundamental need for play and connection for children and families around the world . the company 's wholly owned hasbro studios creates entertainment brand-driven storytelling across mediums , including television , film and more . these illustrate successful execution of its brand blueprint . at the center of this blueprint , hasbro re-imagines , re-invents and re-ignites its owned and controlled brands and imagines , invents and ignites new brands , through toy and game innovation , immersive entertainment offerings , including television programming and motion pictures , and a broad range of licensed products , ranging from traditional to high-tech , under well-known brand names structured within the company 's brand architecture and offering consumers the ability to experience the company 's brands in all areas of their lives . to accomplish these objectives , the company offers consumers the ability to experience its branded play through innovative toys and games , digital media , lifestyle licensing and publishing and entertainment , including television programming and motion pictures . the company 's focus remains on growing its owned and controlled brands and the brands of its partners , developing new and innovative products and brands which respond to market insights , offering entertainment experiences which allow consumers to experience the company 's brands across multiple forms and formats , and optimizing efficiencies within the company to increase operating margins and maintain a strong balance sheet . hasbro earns revenue and generates cash primarily through the sale of a broad variety of toy and game products and distribution of television programming based on the company 's properties , as well as through the out-licensing of rights for use of its properties in connection with complementary products , including digital media and games and lifestyle products , offered by third parties , or in certain situations , toy products where the company considers the out-licensing of brands to be more effective . the company 's brand architecture includes franchise brands , key partner brands , challenger brands , gaming mega brands and new brands . the company 's franchise and challenger brands represent company-owned brands or brands which if not entirely owned are broadly controlled by the company , and have been successful over the long term . franchise brands are the company 's most significant owned or controlled brands which it believes have the ability to deliver significant revenue over the long-term . challenger brands are brands which have not yet achieved franchise brand status , but have the potential to do so with investment and time . the company 's franchise brands are littlest pet shop , magic : the gathering , monopoly , my little pony , nerf , play-doh and transformers , while challenger brands include baby alive , furreal friends , furby , kre-o , playskool and playskool heroes . the company has a large portfolio of owned and controlled brands which can be introduced in new forms and formats over time . these brands may also be further extended by 29 pairing a licensed concept with an owned or controlled brand . by focusing on these brands , the company is working to build a more consistent revenue stream and basis for future growth , and to leverage profitability . during 2014 net revenues from the company 's franchise brands increased by 31 % and totaled 55 % of total consolidated net revenues . the company 's innovative product offerings encompass a broad variety of toys including boys ' action figures , vehicles and play sets , girls ' toys , electronic toys , plush products , preschool toys and infant products , electronic interactive products , creative play and toy-related specialty products . games offerings include board , off-the-board , digital , card , electronic , trading card and role-playing games . while hasbro believes it has built a more sustainable revenue base by developing and maintaining its owned or controlled brands and avoiding reliance on licensed entertainment properties , it continues to selectively enter into or leverage existing strategic licenses which complement its brands and key strengths and allow the company to offer innovative products based on movie , television and other entertainment properties owned by third parties . the company 's primary licenses include its agreements with marvel characters b.v. ( marvel ) for characters in the marvel universe , including spider-man and the avengers ; lucas licensing , ltd. ( lucas ) , related to the star wars brand ; sesame workshop , related to the sesame street characters and rovio entertainment ltd. related to the angry birds brand . both marvel and lucas are owned by the walt disney company ( disney ) . in 2013 , the company and disney amended both the marvel and lucas agreements which extended the term of the license for marvel characters through 2020 and provides additional guaranteed royalty payments with respect to both marvel and star wars products in anticipation of expected future motion pictures and other related entertainment through 2020. in september 2014 , the company 's strategic merchandising relationship with disney expanded to include product offerings , specifically small and fashion dolls , based on the popular disney princess and frozen brands , commencing in 2016. also in 2014 the company entered into an agreement with disney allowing the company to offer certain products based on the disney descendants brand beginning in 2015. in addition to offering products based on licensed entertainment properties , the company also offers products which are licensed from outside inventors . sales of marvel products are dependent upon the number and type of theatrical releases in any given year . story_separator_special_tag this plan included an approximate 10 % workforce reduction , facility consolidations and process improvements which reduce redundancy and increase efficiencies . from 2012 through 2014 , the company incurred aggregate restructuring and related pension charges of $ 84,972 and product-related charges of $ 19,736 related to this plan . through 2014 , the company recognized gross cost savings , before restructuring costs , from these actions of approximately $ 90,000. these savings are prior to other costs which have or are anticipated to increase in 2014 and in future years , such as compensation costs and other investments in certain components of the business . the company 's business is highly seasonal with a significant amount of revenues occurring in the second half of the year . in each of 2014 and 2013 , the second half of the year accounted for 65 % of net revenues while the second half of 2012 accounted for 64 % of net revenues . 31 hasbro sells its products both within the united states and throughout international markets . in recent years , the company 's international segment net revenues have experienced growth as the company has sought to increase its global presence . net revenues of the company 's international segment represented 47 % , 46 % and 44 % of total net revenues in 2014 , 2013 and 2012 , respectively . the company has driven international growth by opportunistically opening offices in certain markets , primarily emerging markets , to develop this greater global presence . the company believes emerging markets offer greater opportunity for revenue growth than in developed economies which have faced challenging economic environments in recent years . in 2014 , 2013 and 2012 , net revenues from emerging markets increased by 20 % , 25 % and 16 % , respectively . the company 's business is separated into three principal business segments , u.s. and canada , international and entertainment and licensing . the u.s. and canada segment develops , markets and sells both toy and game products in the united states and canada . the international segment consists of the company 's european , asia pacific and latin and south american toy and game marketing and sales operations . the company 's entertainment and licensing segment includes the company 's lifestyle licensing , digital licensing and gaming , movie and television entertainment operations . in addition to these three primary segments , the company 's world-wide manufacturing and product sourcing operations are managed through its global operations segment . the company is committed to returning excess cash to its shareholders through share repurchases and dividends . as part of this initiative , from 2005 through 2013 , the company 's board of directors ( the board ) adopted seven successive share repurchase authorizations with a cumulative authorized repurchase amount of $ 3,325,000. at december 28 , 2014 , the company had $ 64,151 remaining available under theses authorizations . during the three years ended 2014 , the company spent a total of $ 663,385 , to repurchase 13,453 shares in the open market . the company intends to , at its discretion , opportunistically repurchase shares in the future subject to market conditions , the company 's other potential uses of cash and the company 's levels of cash generation . subsequent to year-end , in february 2015 , the company 's board of directors approved an eighth share repurchase authorization for $ 500,000. in addition to the share repurchase program , the company also seeks to return excess cash through the payment of quarterly dividends . in february 2015 the company 's board announced a 7 % increase in the company 's quarterly dividend rate to $ 0.46 per share from the prior year quarterly dividend of $ 0.43 per share . this was the eleventh dividend increase in the previous 12 years . during that period , the company has increased its quarterly cash dividend from $ 0.03 to $ 0.46 per share . 32 story_separator_special_tag solidier and guardians of the galaxy . during 2013 , sales of marvel products were primarily related to iron man , supported by the 2013 major motion picture release of iron man 3 and were lower than 2012 , which included sales of avengers and spider-man related to the 2012 major motion picture releases of marvel 's the avengers and the amazing spider-man . games : net revenues in the games category decreased 4 % in 2014 compared to 2013 and increased 10 % in 2013 compared to 2012. net revenues in both 2014 and 2013 include the acquisition of backflip . franchise brands magic : the gathering and monopoly continued to grow in 2014 and 2013. in 2014 , higher net revenues from other games brands including simon , specifically simon swipe , the game of life , trouble and dungeons & dragons were more than offset by lower net revenues from other games brands , primarily duel masters , angry birds and twister . in 2013 , several brands contributed to games category growth including , but not limited to , magic : the gathering , jenga , including sales of products co-branded under angry birds , elefun & friends , monopoly , duel masters , and twister , including twister rave . these higher net revenues were partially offset by lower net revenues from other game brands , including battleship and scrabble . girls : net revenues in the girls ' category increased 2 % in 2014 compared to 2013 and 26 % in 2013 compared to 2012 , primarily related to higher net revenues from franchise brands , my little pony and nerf rebelle in 2014 and 2013. net revenues related to furby also contributed to higher net revenues in 2013 compared to 2012 , however , declined in 2014 compared to 2013. lower net revenues from littlest pet shop and furreal friends , partially offset growth in the girls ' category .
| summary the components of the results of operations , stated as a percent of net revenues , are illustrated below for the three fiscal years ended december 28 , 2014. replace_table_token_4_th results of operations the fiscal years ended december 28 , 2014 and december 29 , 2013 were each fifty-two week periods while the fiscal year ended december 30 , 2012 was a fifty-three week period . net earnings , including the impact of noncontrolling interests in backflip , for the fiscal years ended december 28 , 2014 and december 29 , 2013 were $ 413,310 and $ 283,928 , respectively . net earnings attributable to hasbro , inc. for the fiscal year ended december 28 , 2014 was $ 415,930 , or $ 3.20 per diluted share , compared to $ 286,198 , or $ 2.17 per diluted share , and $ 335,999 , or $ 2.55 per diluted share , in fiscal 2013 and 2012 , respectively . net earnings and diluted earnings per share for each fiscal year in the three years ended december 28 , 2014 include certain charges and benefits as described below . net earnings for the year ended december 28 , 2014 included charges , net of tax of $ 18,072 , or $ 0.14 per diluted share , related to the restructuring of the company 's equity investment in its joint venture television network with discovery . the company also had charges from other restructuring activities , net of tax , of $ 5,156 , or $ 0.04 per diluted share . the company 's results also include a gain on the sale of intellectual property license rights , net of tax , of $ 23,892 , or $ 0.18 per diluted share , and a net favorable tax benefit of $ 6,570 , or $ 0.05 per diluted share , related to the settlement of certain tax examinations .
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at closing , liberator acquired 972,000 shares ( 80.7 % ) of the company from belmont for a total of two hundred forty thousand five hundred dollars ( $ 240,500 ) in addition to the issuance by the company of two hundred fifty thousand ( 250,000 ) warrants to purchase an equal number of shares of the company 's common stock with an exercise price of twenty five cents ( $ 0.25 ) , the issuance by the company to belmont of a total of one million five hundred thousand ( 1,500,000 ) shares of the company 's common stock with seven hundred fifty thousand ( 750,000 ) shares delivered at closing and the balance of seven hundred fifty thousand ( 750,000 ) shares to be delivered on the one ( 1 ) year anniversary of the closing . the first block of 750,000 shares were issued to belmont on december 9 , 2009. the company was required to deliver the balance of 750,000 shares of common stock on september 2 , 2010 , provided , however , that in the event that the company or liberator made a claim for indemnification pursuant to section 7 ( a ) of the stock purchase agreement prior to such date , the number of balance shares would have been reduced by the result of the following amount : ( a ) the amount of the indemnity claim pursuant to section 7 ( a ) ; divided by ( b ) the five ( 5 ) day average price per share of the company 's common stock as quoted on the over-the-counter bulletin board or other electronic quotation system . as of september 2 , 2010 , the company has not issued the 750,000 shares of common stock , and the company is currently re-negotiating the terms of this agreement with belmont . pursuant to a private placement memorandum and subscription agreement , on january 29 , 2010 , the company issued 1,000,000 shares of common stock to 12 individuals and entities for an aggregate amount of $ 300,000 . all of the shares were sold to “ accredited investors ” as defined in 501 ( a ) of the securities act . pursuant to rule 506 , all shares purchased in the regulation d rule 506 offering were restricted in accordance with rule 144 of the securities act of 1933. pursuant to an engagement letter with new castle financial services , on january 29 , 2010 , the company issued 100,000 shares of common stock to new castle financial services with respect to investment banking and financial services performed by new castle financial services in connection with the above private placement . such securities were not registered under the securities act of 1933. the issuance of these shares was exempt from registration pursuant to section 4 ( 2 ) of the securities act of 1933. in addition , the company paid new castle financial services a fee of 10 % of the gross proceeds , plus a 2 % non-accountable expense allowance , and reimbursed them for $ 12,500 in expenses . pursuant to a private placement memorandum and subscription agreement , on april 30 , 2010 , the company issued 166,666 shares of common stock to 1 individual for an aggregate amount of $ 50,000 . all of the shares were sold to an “ accredited investor ” as defined in 501 ( a ) of the securities act . pursuant to rule 506 , all shares purchased in the regulation d rule 506 offering story_separator_special_tag this discussion summarizes the significant factors affecting the results of operations and financial condition of the company during the fiscal years ended june 30 , 2010 and 2009 and should be read in conjunction with our financial statements and accompanying notes thereto included elsewhere herein . certain information contained in this “ management 's discussion and analysis of financial condition and results of operations ” are “ forward-looking statements. ” statements that are not historical in nature and which may be identified by the use of words like “ expects , ” “ assumes , ” “ projects , ” “ anticipates , ” “ estimates , ” “ we believe , ” “ could be ” and other words of similar meaning , are forward-looking statements . these statements are based on management 's expectations and assumptions and are subject to risks and uncertainties that may cause actual results to differ materially from those expressed . our actual results may differ materially from the results discussed in this section because of various factors , including those set forth elsewhere herein . see “ forward-looking statements ” included in this report . overview of the company and business segments we are a provider of goods and information to consumers who believe that sensual pleasure and fulfillment are essential to a well-lived and healthy life . the information that we provide consists primarily of product demonstration videos that the company shows on its websites and instructional dvds that the company sells . established with the conviction that sensual pleasure and fulfillment are essential to a well-lived and healthy life , liberator bedroom adventure gear ® was created to empower exploration , fantasy and the communication of desire , no matter the person 's shape , size or ability . products include the original liberator shapes and furniture , sophisticated lingerie and latex apparel , pleasure objects , as well as bath and body , bedding and home décor . liberator is a growing consumer brand that celebrates intimacy by inspiring romantic imagination . liberator bedroom adventure gear is a love-style brand that exists in a space where the act of love meets art and invention . story_separator_special_tag we value inventory at the lower of cost or market on an item-by-item basis and establish reserves equal to all or a portion of the related inventory to reflect situations in which the cost of the inventory is not expected to be recovered . this requires us to make estimates regarding the market value of our inventory , including an assessment for excess and obsolete inventory . once we establish an inventory reserve amount in a fiscal period , the reduced inventory value is maintained until the inventory is sold or otherwise disposed of . in evaluating whether inventory is stated at the lower of cost or market , management considers such factors as the amount of inventory on hand , the estimated time required to sell such inventory , the foreseeable demand within a specified time horizon and current and expected market conditions . based on this evaluation , we record adjustments to cost of goods sold to adjust inventory to its net realizable value . these adjustments are estimates , which could vary significantly , either favorably or unfavorably , from actual requirements if future economic conditions , customer demand or other factors differ from expectations . finished goods and goods in process include a provision for manufacturing overhead , including depreciation . 11 accounting for income taxes . we account for uncertain tax positions using the more-likely-than-not recognition threshold . our practice is to recognize interest and or penalties related to income tax matters in income tax expense . as of june 30 , 2010 and june 30 , 2009 , we had not recorded any tax liabilities for uncertain tax positions . we estimate 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 property and equipment depreciation , for tax and financial reporting purposes . actual income taxes could vary from these estimates due to future changes in income tax law or results from final tax examination reviews . we record valuation allowances to reduce our deferred tax assets to an amount that we believe is more likely than not to be realized . we consider estimated future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance . if we determine that it is more likely than not that we will not realize all or part of our deferred tax assets in the future , we will record an adjustment to the carrying value of the deferred tax asset , which would be reflected as income tax expense . conversely , if we determine we will realize a deferred tax asset , which currently has a valuation allowance , we will reverse the valuation allowance , which would be reflected as an income tax benefit . during fiscal 2009 and 2010 , we recorded valuation allowances against deferred income tax assets of $ 700,419 and $ 378,803 , respectively , representing the amount of our deferred income tax assets in excess of our deferred income tax liabilities . we recorded the valuation allowance because management was unable to conclude , in light of the cumulative losses we have realized for the three year period ended june 30 , 2010 , that realization of the net deferred income tax asset was more likely than not . impairment of long-lived assets . long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable . recoverability of assets to be held and used is measured by a comparison of the carrying amounts of such assets to future net cash flows expected to be generated by the assets . if such assets are considered to be impaired , the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets . new accounting pronouncements please refer to note c , “ summary of significant accounting policies—recent accounting pronouncements ” to our financial statements included in this report for a discussion on the impact of the adoption of new accounting pronouncements . story_separator_special_tag 0pt '' > 13 at june 30 , 2010 , decreases in accounts payable required $ 668,707 in cash during fiscal 2010 compared to providing $ 633,674 in cash during fiscal 2009. at june 30 , 2010 , increases in accrued payroll and related expenses provided $ 129,802 in cash compared to $ 16,916 in the prior fiscal year . the increase in accrued payroll and related expenses is primarily due to the timing of the pay day at the end of the fiscal year relative to the end of the pay period and the accrual of $ 76,838 in deferred compensation expense . operating activities required $ 1,661,640 of our cash flow in fiscal 2010. this compares with net cash provided by operating activities of $ 252,097 in fiscal 2009. cash used in investing activities in fiscal 2010 was $ 189,178 compared to $ 352,392 in fiscal 2009 and consisted of capital expenditures for machinery , equipment and software . at june 30 , 2010 , we had $ 320,184 outstanding on our line of credit , compared to an outstanding balance of $ 171,433 at june 30 , 2009. on may 17 , 2010 , oneup innovations , inc. , our wholly owned subsidiary , entered into a credit facility to provide it with an asset based line of credit of up to $ 600,000 against 80 % of eligible accounts receivable ( as defined in the agreement . )
| results of operations overview comparisons of selected consolidated statements of operations data as reported herein follow for the periods indicated : replace_table_token_4_th replace_table_token_5_th other revenues consist principally of shipping and handling fees derived from our direct business . 12 replace_table_token_6_th fiscal year ended june 30 , 2010 compared to the fiscal year ended june 30 , 2009 net sales for the twelve months ended june 30 , 2010 increased from the comparable prior year period by $ 819,208 , or 8 % . the increase in sales was substantially due to an increase in sales through the wholesale channel and , to a lesser extent , higher sales of liberator products through the direct sales channel . the direct sales channel , which consists of consumer sales through our two websites and , to a lesser extent , our factory store , increased from approximately $ 5.1 million in the twelve months ended june 30 , 2009 to approximately $ 5.4 million in the twelve months ended june 30 , 2010 , an increase of approximately 4 % . we attribute this increase to a stabilization of the u.s. economy and more typical levels of consumer spending on discretionary purchases . as a result of an ongoing focus on our wholesale business , sales to wholesale customers increased approximately 18 % from the prior year . wholesale customers include liberator products sold to distributors and retailers and private label items sold to other resellers . the wholesale category also includes contract manufacturing services , which consists of specialty items that are manufactured in small quantities for certain customer , and which , to date , has not been a material part of our business . gross profit , derived from net sales less the cost of product sales , includes the cost of materials , direct labor , manufacturing overhead and depreciation .
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in january 2010 , the fasb issued asu 2010-02 , `` consolidation ( topic 810 ) : accounting and reporting for decreases in ownership of a subsidiary `` ( `` asu 2010-02 `` ) . this amendment to topic 810 clarifies , but does not change , the scope of current us gaap . it clarifies the decrease in ownership provisions of subtopic 810-10 and removes the potential conflict between guidance in that subtopic and asset derecognition and gain or loss recognition guidance that may exist in other us gaap . an entity will be required to follow the amended guidance beginning in the period that it first adopts fas 160 ( now included in subtopic 810-10 ) . for those entities that have already adopted fas 160 , the amendments are effective at the beginning of the first interim or annual reporting period ending on or after december 15 , 2009 story_separator_special_tag our business is subject to many risks and uncertainties which may affect our future financial performance . for a discussion of our risk factors , see `` part iitem 1a . risk factors . '' overview the following overview is a top level discussion of our financial results , as well as trends that have , or that we reasonably believe will , impact our operations . management believes that an understanding of these trends and drivers is important in order to understand our results for fiscal 2010 , as well as our future prospects . this summary is not intended to be exhaustive , nor is it intended to be a substitute for the detailed discussion and analysis provided elsewhere in this annual report on form 10-k and in other documents we have filed with the sec . overview of financial results for fiscal 2010 the video games industry in north america and europe reported retail software sales of $ 19.0 billion in the twelve months ended march 31 , 2010 , down 12 % from the prior-year period , according to the npd group , chart track and gfk . despite these challenging conditions and a weak macroeconomic environment , we achieved the following in fiscal 2010 : 1 ) we generated higher net sales in fiscal 2010 than in fiscal 2009 , 2 ) we reduced our loss per share by 98 % , to $ 0.13 in fiscal 2010 down from $ 6.45 in fiscal 2009 , and 3 ) we generated significant operating cash flow . additionally , in the twelve months ended march 31 , 2010 , we gained market share both in the u.s. and globally according to the npd group , chart track and gfk ; we were the number four independent publisher in the u.s. with a 4.9 % share , up from 3.6 % a year ago ; and we were the number four independent publisher globally with a 4.4 % share , up from 3.7 % a year ago . our net loss attributable to thq inc. ( `` net loss '' ) for fiscal 2010 was $ 9.0 million , or $ 0.13 per diluted share , compared to a net loss of $ 431.1 million , or $ 6.45 per diluted share ( inclusive of a gain on sale of discontinued operations , net of tax , of $ 2.1 million ) for fiscal 2009. our profitability is dependent upon revenue from the sales of our video games . net sales increased 8 % in fiscal 2010 , to $ 899.1 million from $ 830.0 million in fiscal 2009. the increase in net sales was primarily due to net sales of ufc 2009 undisputed at a higher average selling price compared to games sold in the same period last year . our profitability is also affected by the costs and expenses associated with developing and publishing our games . these costs and expenses include both cost of sales and operating expenses . our gross profit as a percent of net sales , increased 19 points in fiscal 2010 , to 30 % from 11 % in fiscal 2009. the increase in our gross profit as a percent of net sales was primarily due to decreases in software amortization and royalties expense because of non-cash charges of $ 63.3 million in fiscal 2009 related to the write-off of capitalized software for games that were cancelled as part of our fiscal 2009 business realignment , and additional amortization expense in fiscal 2009 as a result of lower projected gross sales on various titles . additionally , the decrease in cost of sales as a percent of net sales in fiscal 2010 was due to sales of games at higher average selling prices as compared to fiscal 2009 , led by the fiscal 2010 first quarter release of ufc 2009 undisputed . our profitability is also affected by our operating expenses , which decreased by $ 196.6 million in fiscal 2010 , to $ 282.7 million from $ 479.3 million in fiscal 2009. the decrease was primarily due to a non-cash goodwill impairment charge of $ 118.8 million in fiscal 2009 and lower costs in fiscal 2010 due to our fiscal 2009 business realignment . our principal source of cash is from sales of interactive software games designed for play on video game consoles , handheld devices and pcs , including via the internet . our principal uses of cash are for product purchases of discs and cartridges along with associated manufacturer 's royalties , payments to external developers and licensors , the costs of internal software development , and selling and marketing expenses . story_separator_special_tag sales of used video games large retailers , such as gamestop , have increased their focus on selling used video games , which provides higher margins for the retailers than sales of new games . this focus reduces demand for new copies of our games . we believe customer retention through compelling online play and downloadable content offers may reduce consumers ' propensity to trade in games . increasing shift to online content and digital downloads the interactive entertainment software industry is delivering a growing amount of games , downloadable content and product add-ons by direct digital download through the internet and gaming consoles . we believe that much of the growth in the industry will come via online distribution such as massively multi-player games ( both subscription and free-to-play ) , casual micro-transaction based games , paid downloadable content and digital downloads of games . accordingly , we plan to continue integrating a digital strategy into all of our key franchises . sales concentration of top titles during the last fiscal year , the majority of money spent by consumers on video game software was spent on select top titles . we expect this trend to continue into fiscal 2011. additionally , the cost to develop video games , especially core games , has increased significantly over the last few years . current generation consoles have functionality that allows us to deliver exciting gaming experiences at high quality levels , but this increased functionality also increases the overall cost to develop games . accordingly , our software development costs have increased as we developed more games for these consoles . because of the demand for select `` hit '' titles and the increased core game development investment , we believe that it is important to focus our core game development efforts on bringing a smaller number of high-quality , competitive products to market . this focus may lower our net sales and profitability in any given quarter , as we 25 generally aim to ship games only when we believe the quality is high and the competitive window is most advantageous . foreign currency exchange rates impact on results of operations approximately 38 % of our net sales for fiscal 2010 was produced by sales outside of north america . we are exposed to significant risks of foreign currency fluctuation , primarily from receivables denominated in foreign currency , and are subject to transaction gains and losses , which are recorded as a component in determining net income . the income statements of our non-u.s. operations are translated into u.s. dollars at the month-to-date average exchange rates for each applicable month in a period . to the extent the u.s. dollar strengthens against foreign currencies , as it did during fiscal 2010 , the translation of these foreign currency denominated transactions results in decreased net sales , operating expenses and income from our non-u.s. operations . similarly , our net sales , operating expenses and income from our non-u.s. operations will increase if the u.s. dollar weakens against foreign currencies . seasonality the interactive entertainment software industry is highly seasonal . sales are typically significantly higher during the third quarter of our fiscal year , due primarily to the increased demand for interactive games during the holiday buying season . story_separator_special_tag tagged table -- > software amortization and royalties expense consists of amortization of capitalized payments made to third-party software developers and amortization of capitalized internal studio development costs . commencing upon product release , capitalized software development costs are amortized to software amortization and royalties based on the ratio of current gross sales to total projected gross sales . in fiscal 2010 , software amortization and royalties as a percentage of net sales decreased by 13.8 points as compared to fiscal 2009. the decrease was primarily due to higher amortization in fiscal 2009 due to non-cash charges of $ 63.3 million related to the write-off of capitalized software for games that were cancelled as part of our fiscal 2009 business realignment and additional amortization expense in fiscal 2009 as a result of lower projected gross sales on various titles . also contributing to the decrease was lower development costs on ufc 2009 undisputed in relation to its total projected gross sales as compared to most titles recognized in fiscal 2009. cost of saleslicense amortization and royalties ( in thousands ) replace_table_token_11_th license amortization and royalties expense consists of royalty payments due to licensors , which are expensed at the higher of ( 1 ) the contractual royalty rate based on actual net product sales for such license , or ( 2 ) an effective rate based upon total projected net sales for such license . net sales of games based on licensed properties represented 69 % and 66 % of our total net sales in fiscal 2010 and fiscal 2009 , respectively . in fiscal 2010 , license amortization and royalties as a percentage of net sales increased slightly , primarily due to the higher mix of sales from titles based on licensed properties . cost of salesventure partner expense ( in thousands ) replace_table_token_12_th venture partner expense is related to the license agreement that the thq / jakks pacific llc ( `` llc '' ) joint venture , comprised of thq and jakks pacific , inc. ( `` jakks '' ) , had with wwe . in august 2009 , we settled our preferred return dispute with jakks at a 40 % lower payment rate , which resulted in a benefit of $ 24.2 million . in december 2009 , as the result of various settlement agreements entered into between thq , jakks and wwe , we recorded expense of $ 29.5 million . in addition , on december 31 , 2009 , the llc was dissolved , the wwe license held by the llc was terminated , and a new eight-year license was entered into directly between thq and wwe . accordingly , the final expenses related to the joint venture were recorded as of december 31 , 2009 .
| results of operations comparison of fiscal 2010 to fiscal 2009 net sales our net sales are principally derived from sales of interactive software games designed for play on video game consoles , handheld devices and pcs , including digitally via the internet . fiscal 2010 net sales were primarily driven by sales of our first game based on the ufc franchise , ufc 2009 undisputed , as well as wwe smackdown vs. raw 2010 and catalog titles . net sales increased by $ 69.1 million in fiscal 2010 to $ 899.1 million , from $ 830.0 million in fiscal 2009. net sales by new releases and catalog titles the following table details our net sales by new releases ( titles initially released in the respective fiscal year ) and catalog titles ( titles released in fiscal years previous to the respective fiscal year ) for fiscal 2010 and fiscal 2009 ( in thousands ) : replace_table_token_7_th net sales of our new releases increased by $ 113.9 million in fiscal 2010 as compared to fiscal 2009 primarily due to sales of ufc 2009 undisputed , which was initially released in the three months ended june 30 , 2009 on xbox 360 and ps3 , at a premium price ( e.g . msrp of $ 59.99 in the united states ) .
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for performance obligations consisting of licenses and other promises , the company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and , if over time , the appropriate method of measuring progress for purposes of recognizing revenue from non- refundable , up-front fees . the company evaluates the measure of progress each reporting period and , if necessary , adjusts the measure of performance and related revenue recognition . if the license to the company 's intellectual property is determined to be distinct from the other performance obligations identified in the arrangement , the company will recognize revenue from non-refundable , up-front fees allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license . milestones and royalties 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 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 “ 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 . overview we are a clinical-stage biotechnology company that discovers and develops anticalin-based drugs to target validated disease pathways in unique and transformative ways . our clinical pipeline includes an inhaled il-4rα antagonist anticalin protein to treat moderate-to-severe asthma and an immuno-oncology ( io ) bispecific targeting 4-1bb and her2 . proprietary to us , anticalin proteins are a novel class of therapeutics validated in the clinic and through partnerships with leading pharmaceutical companies . our core anticalin technology and platform were developed in germany , and we have collaborations with major multi-national pharmaceutical companies . in particular , we have an alliance with astrazeneca to treat respiratory diseases and partnerships with servier and seagen , both in io . our development programs include : prs-060/azd1402 , our lead respiratory program partnered with astrazeneca , a drug candidate that antagonizes il-4rα , thereby inhibiting il-4 and il-13 , two cytokines known to be key mediators in the inflammatory cascade that drive the pathogenesis of asthma and other inflammatory diseases . we continue to research and develop additional respiratory drug candidates beyond prs-060/azd1402 , both within and outside of the astrazeneca alliance . in addition to prs-060/azd1402 , the astrazeneca alliance includes four respiratory programs , the targets and disease areas of which are undisclosed . we retain co-development and co- 92 commercialization rights to two out of the four programs beyond prs-060/az1402 . our portfolio also includes several respiratory programs outside of the astrazeneca collaboration . cinrebafusp alfa , our lead io program , is a fusion protein , comprising a her2-targeting antibody genetically linked to 4-1bb-targeting anticalin proteins . cinrebafusp alfa is designed to drive tumor localized t cell activation through tumor-targeted drug clustering mediated by her2 expressed on tumor cells . this program was the first bispecific t cell co-stimulatory agonist to enter clinical development . additional io drug candidates beyond cinrebafusp alfa that are multispecific anticalin-based fusion proteins designed to engage immunomodulatory targets , comprising a variety of multifunctional biotherapeutics , including prs-344 , a bispecific antibody-anticalin fusion protein comprising an pd-l1-targeting antibody genetically fused to anticalin proteins specific for 4-1bb . prs-344 is being developed as part of our io collaboration with servier . other io drug candidates are being developed as part of our collaboration with servier and seagen . our programs are in varying stages : prs-060/azd1402 was tested in a nebulized formulation in 54 healthy volunteers at nominal dose levels ranging from 0.25 mg to 400 mg in a phase 1 sad study . data from that study were presented at the american thoracic society international conference in may 2019 showing that prs-060/azd1402 was well tolerated when given as single inhaled or intravenous doses to healthy volunteers and there was systemic target engagement ( as measured by pstat6 inhibition ) . we presented interim data from the prs-060/azd1402 phase 1 mad study at the european respiratory society international congress in october 2019 and reported that prs-060/azd1402 was safe and well tolerated at all doses , led to a statistically significant reduction in feno , a validated biomarker for eosinophilic airway inflammation , and showed dose-dependent systemic target engagement in patients with mild asthma and elevated levels of feno ( ≥ 35ppb ) . in that study , during the treatment period , 30 patients were randomized to receive delivered doses of prs-060/azd1402 ranging from 2 mg to 60 mg ( 5 mg to 150 mg administered through a nebulizer ( nominal dose ) ) twice daily for nine consecutive days and one final dose on the 10th day , and 12 patients were randomized to receive placebo at the same intervals . statistically significant and pronounced inhibition of feno relative to placebo was observed at all doses . when comparing the 20 mg prs-060/azd1402 powered cohort ( n=12 ) to placebo , the primary statistical analysis using the emax model demonstrated a 36 % relative reduction in feno ( p-value < 0.0001 ) . systemic target engagement was dose-dependent and closely aligned with systemic exposure of the drug , consistent with results of the phase 1 sad study . story_separator_special_tag ◦ we achieved a key development milestone during 2020 for one of the programs in the seagen collaboration , a bispecific tumor-targeted costimulatory agonist , triggering a $ 5.0 million milestone . we also handed the program over to seagen , which is responsible for further advancement and funding of the asset . the program is one of up to three potential programs in the seagen alliance , and we believe the achieved milestone further validates our approach and leadership in immuno-oncology bispecifics , complementing the encouraging clinical data seen with cinrebafusp alfa . since inception , we have devoted nearly all of our efforts and resources to our research and development activities and have incurred significant net losses . for the years ended december 31 , 2020 and 2019 , we reported net losses of $ 37.2 million and $ 25.5 million , respectively . as of december 31 , 2020 , we had an accumulated deficit of $ 211.4 million . we expect to continue incurring substantial losses for the next several years as we continue to develop our clinical and preclinical drug candidates and programs . our operating expenses are comprised of research and development expenses and general and administrative expenses . we have not generated any revenues from product sales to date , and we do not expect to generate revenues from product sales for the foreseeable future . our revenues for the fiscal years ended december 31 , 2020 and 2019 were from license and collaboration agreements with our partners . a significant portion of our operations are conducted in countries other than the united states . since we conduct our business in u.s. dollars , our main exposure , if any , results from changes in the exchange rates between the euro and the u.s. dollar . at each period end , we remeasure assets and liabilities to the functional currency of that entity ( for example , u.s. dollar payables recorded by pieris pharmaceuticals gmbh ) . remeasurement gains and losses are recorded in the statement of operations line item ‘ other income ( expense ) , net ' . all assets and liabilities denominated in euros are translated into u.s. dollars at the exchange rate on the balance sheet date . revenues and expenses are translated at the weighted average rate during the period . equity transactions are translated using historical exchange rates . all adjustments resulting from translating foreign currency financial statements into u.s. dollars are included in accumulated other comprehensive loss . key financial terms and metrics 94 the following discussion summarizes the key factors our management believes are necessary for an understanding of our consolidated financial statements . revenues we have not generated any revenues from product sales to date and we do not expect to generate revenues from product sales for the foreseeable future . our revenues for the last two years have been primarily from the license and collaboration agreements with astrazeneca , servier and seagen . the revenues from astrazeneca , servier and seagen have been comprised primarily of upfront payments , research and development services and milestone payments . for additional information about our revenue recognition policy , see “ note 2-summary of significant accounting policies ” . research and development expenses the process of researching and developing drugs for human use is lengthy , unpredictable , and subject to many risks . we expect to continue incurring substantial expenses for the next several years as we continue to develop our clinical and preclinical drug candidates and programs . we are unable , with any certainty , to estimate either the costs or the timelines in which those expenses will be incurred . our current development plans focus on the following programs : our lead respiratory program , prs-060/azd1402 and our other respiratory programs , our io programs , currently comprised of cinrebafusp alfa as well as multiple additional proprietary and partnered programs , including prs-344 . these programs consume a large proportion of our current , as well as projected , resources . our research and development costs include costs that are directly attributable to the creation of certain of our anticalin drug candidates and are comprised of : internal recurring costs , such as personnel-related costs ( salaries , employee benefits , equity compensation and other costs ) , materials and supplies , facilities and maintenance costs attributable to research and development functions ; and fees paid to external parties who provide us with contract services , such as preclinical testing , manufacturing and related testing and clinical trial activities . general and administrative expenses general and administrative expenses consist primarily of salaries , employee benefits , equity compensation , and other personnel-related costs associated with executive , administrative and other support staff . other significant general and administrative expenses include the costs associated with professional fees for accounting , auditing , insurance costs , consulting and legal services , along with facility and maintenance costs attributable to general and administrative functions . story_separator_special_tag pursue ; the cost , timing and outcomes of regulatory approvals ; the cost and timing of establishing sales , marketing and distribution capabilities ; the terms and timing of any collaborative , licensing and other arrangements that we may establish ; the timing , receipt and amount of sales , profit sharing or royalties , if any , from our potential products ; the cost of preparing , filing , prosecuting , defending and enforcing any patent claims and other intellectual property rights ; the extent to which we acquire or invest in businesses , products or technologies , although we currently have no commitments or agreements relating to any of these types of transactions ; and the effects of the covid-19 pandemic and the cost and timing of actions taken to contain it . in addition , any unfavorable development or delay in the progress of our core clinical-stage programs including cinrebafusp alfa and prs-060/azd1402 could have a material adverse impact on our ability to raise additional capital .
| results of operations comparison of years ended december 31 , 2020 and december 31 , 2019 the following table sets forth our revenues and operating expenses for the fiscal years ended december 31 , 2020 and 2019 ( in thousands ) : replace_table_token_0_th revenues 95 the following table provides a comparison of revenues for the years ended december 31 , 2020 and 2019 ( in thousands ) : replace_table_token_1_th the $ 8.2 million decrease in revenue from contracts with customers for the year ended december 31 , 2020 compared to the year ended december 31 , 2019 is driven by the following : ◦ lower net revenue on the astrazeneca collaboration agreement in 2020 compared to 2019. revenue in 2019 benefited from the termination of certain performance obligations along with higher level of activities on prs-060 . ◦ lower revenue on the aska arrangement due to delivery of the final clinical report and arrangement completion in 2019 . ◦ overall decrease partially offset by higher net revenue on the servier collaboration agreement in 2020 compared to 2019. revenue recorded in 2020 benefited from the discontinuance of an early-stage program . ◦ overall decrease partially offset by the achievement in 2020 of a $ 5.0 million milestone related to the go decision on the first program under the seagen agreement . collaboration revenue decreased by $ 8.8 million in the year ended december 31 , 2020 compared to the year ended december 31 , 2019. collaboration revenue recorded in 2019 benefited from the termination of the co-development of prs-332 by servier for strategic reasons and ongoing activities across multiple programs . revenue recorded in 2020 benefited , to a much lesser extent than in 2019 , from the discontinuance of an early-stage program .
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this discussion and analysis should be read in conjunction with the consolidated financial statements and other financial schedules included in this annual report . the financial condition and results of operations presented are not indicative of future performance . strategic overview enb financial corp and its wholly owned subsidiary , ephrata national bank , are committed to remaining an independent community bank serving the greater communities surrounding lancaster county , pennsylvania . the corporation 's roots date back to the april 11 , 1881 charter granted to ephrata national bank by the office of the comptroller of the currency . the bank 's growth has been entirely organic over 138 years of existence . the board and management are committed to the principals and values that have served the company well over this long history . in order to remain an independent bank of undisputed integrity , the board and management 's desire is to produce strong financial results that will ensure trust from the bank 's depositors and favorable returns to the shareholder over the long term . every three years management and the board evaluate and revise the strategic plan to ensure the continuing success of the corporation into the future . this endeavor is designed to continually sharpen the products and services the bank provides in a manner that best serves the customer and attains the financial performance that shareholders expect . in the most recent strategic plan that covers the years 2019 to 2021 , the board and management laid out a five-point plan to ensure success in the next three years and beyond . succession planning and managing leadership changes were a key element of this strategic plan . the board and management also set into place bold goals to further strengthen the corporation 's financial performance ratios so the corporation is in a position to outperform the local peer group . the most visible of those targets is to meet and exceed a return on assets of over 1.00 % and to maintain a return on stockholder 's equity of over 10.0 % , with a target range of 10.5 % to 11.0 % . management also desired to reduce the efficiency ratio under 70 % for 2019 with a three-year goal of reducing to no greater than 68.5 % . management views return on assets as the best overall indicator of a financial institution 's performance . management and the board believe that achieving a higher return on assets will directly correlate to improved earnings per share and dividends per share , and higher book value of common stock , which in the end will produce higher returns to the shareholder . story_separator_special_tag nii : · the rates charged on interest earning assets and paid on interest bearing liabilities · the average balance of interest earning assets and interest bearing liabilities the federal funds rate , the prime rate , the shape of the u.s. treasury curve , and other wholesale funding curves , all affect nii . the federal reserve controls the federal funds rate , which is one of a number of tools available to the federal reserve to conduct monetary policy . the federal funds rate , and guidance on when the rate might be changed , is often the focal point of discussion regarding the direction of interest rates . during 2019 , the federal funds rate was decreased three times between july and october taking the rate to 1.75 % by december 31 , 2019. with the recent declines in the federal funds rate , the u.s. treasury yield curve became flatter . a flat yield curve generally signals the end of a period of economic expansion and the beginning of a recession . long-term rates like the ten-year u.s. treasury were 283 basis points under the 4.75 % prime rate as of december 31 , 2019. long-term treasury rates declined steadily throughout 2019 , and with the decreases in the federal reserve short-term rates , the yield curve remained essentially flat throughout the year . management had not anticipated the three fed rate decreases in the second half of 2019. with the current flat yield curve , it does make increasing asset yield much more difficult , which adds strain to nii and nim . the prime rate is generally used by commercial banks to extend variable rate loans to business and commercial customers . for many years , the prime rate has been set at 300 basis points , or 3.00 % higher , than the federal funds rate and typically moves when the federal funds rate changes . as such , the prime rate decreased to 4.75 % on december 31 , 2019 , after three rate declines in 2019. the corporation 's prime-based loans generally reprice a day after the federal reserve rate movement . as a result of the higher rates at the beginning of 2019 before the federal reserve began cutting rates , the corporation 's nii on a tax equivalent basis increased in 2019 with the corporation 's margin increasing to 3.53 % for the year , compared to 3.46 % in 2018. loan yields were higher in 2019 due to the higher rates at the beginning of the year and the full effect of the federal reserve rate decreases not being felt until late in the year and going forward . the corporation 's nii for 2019 increased substantially over 2018 , by $ 3,494,000 , or 10.5 % . management 's asset liability sensitivity measurements continue to show a benefit to both margin and nii given further federal reserve rate increases . actual results over the past two years have confirmed the asset sensitivity of the corporation 's balance sheet . however , in a down-rate environment , the margin and nii would suffer unless balance sheet growth is enough to offset lower asset yields . deposit rates were not increased throughout 2019 and some cd promotional rates were discontinued in the third quarter after nearly a full year of two odd-term cd specials . story_separator_special_tag during 2019 , additional loan volume added $ 3,998,000 to net interest income , and higher yields primarily due to the multiple prime rate increases throughout 2018 caused a $ 1,347,000 increase , resulting in a net increase of $ 5,345,000. lower balances in the securities portfolio caused a decrease of $ 493,000 in net interest income , while slightly higher yields on securities caused a $ 170,000 increase , resulting in a net decrease of $ 323,000. some of the reduction in municipal securities can be directly attributed to funding loan growth . the average balance of interest bearing liabilities increased by 7.9 % during 2019 , driven by the growth in deposit balances . deposit rates increased throughout 2019 and higher balances of deposits both resulted in higher interest expense . higher interest rates contributed to $ 1,411,000 of interest expense increase while higher balances caused $ 73,000 of increased expense , resulting in total increased interest expense of $ 1,485,000. out of all the corporation 's deposit types , interest-bearing demand deposits reprice the most rapidly , as these rates can be adjusted higher after a federal reserve rate increase in order for the corporation to remain competitive . demand deposit interest expense increased a total of $ 1,125,000 in 2019 , with $ 992,000 due to higher rates and $ 132,000 due to higher balances . interest expense on time deposit balances increased a total of $ 356,000. higher interest rates caused an increase of $ 419,000 , while lower balances caused a decrease of $ 63,000 , resulting in the net increase in interest expense of $ 356,000. the average balance of short-term and long-term borrowings increased by $ 4.2 million , or 5.8 % , from december 31 , 2018 , to december 31 , 2019. the increase in total borrowings increased interest expense by $ 74,000. the increase 36 enb financial corp management 's discussion and analysis in interest rates increased interest expense by $ 187,000 , as long-term borrowings at lower rates matured and were replaced with new advances at higher rates . the aggregate of these amounts was an increase in interest expense of $ 261,000 related to total borrowings . the following table shows a more detailed analysis of net interest income on an fte basis shown with all the major elements of the corporation 's balance sheet , which consists of interest earning and non-interest earning assets and interest bearing and non-interest bearing liabilities . additionally , the analysis provides the net interest spread and the net yield on interest earning assets . the net interest spread is the difference between the yield on interest earning assets and the interest rate paid on interest bearing liabilities . the net interest spread has the deficiency of not giving credit for the non-interest bearing funds and capital used to fund a portion of the total interest earning assets . for this reason , management emphasizes the net yield on interest earning assets , also referred to as the net interest margin ( nim ) . the nim is calculated by dividing net interest income on an fte basis into total average interest earning assets . the nim is generally the benchmark used by analysts to measure how efficiently a bank generates nii . 37 enb financial corp management 's discussion and analysis comparative average balance sheets and net interest income ( taxable equivalent basis , dollars in thousands ) replace_table_token_10_th ( a ) includes balances of non-accrual loans and the recognition of any related interest income . average balances also include net deferred loan costs of $ 1,753,000 in 2019 , $ 1,429,000 in 2018 , and $ 1,098,000 in 2017. such fees recognized through income and included in the interest amounts totaled ( $ 523,000 ) in 2019 , ( $ 534,000 ) in 2018 , and ( $ 445,000 ) in 2017 . ( b ) net interest spread is the arithmetic difference between the yield on interest earning assets and the rate paid on interest bearing liabilities . ( c ) net yield , also referred to as net interest margin , is computed by dividing net interest income ( fte ) by total interest earning assets . ( d ) securities recorded at amortized cost . unrealized holding gains and losses are included in non-interest earning assets . 38 enb financial corp management 's discussion and analysis the corporation 's interest income increased substantially , more than compensating for the increase in interest expense , resulting in a nim of 3.53 % for 2019 , an increase from the nim of 3.46 % for 2018. the yield earned on assets increased 22 basis points while the rate paid on liabilities also increased 22 basis points . the yield on total securities only increased by two basis points for the year while the loan yield increased more significantly by 20 basis points during 2019 due to the federal reserve increases through late 2018. the three federal reserve rate decreases in the second half of 2019 did not have the full impact on lowering loan yield in 2019. the full impact will be felt in 2020. loan yields increased significantly during 2018 and throughout the first six months of 2019 with the higher prime rate and higher yields on fixed-rate loans . however , with the recent declines in interest rates generally and the prime rate specifically , loan yields are once again being challenged . growth in the loan portfolio coupled with better yields prior to the third quarter of 2019 on variable rate loans caused loan interest income to increase through december 31 , 2019. loan interest income increased $ 5,346,000 , or 19.0 % , for the year ended december 31 , 2019 , compared to 2018. loan pricing was challenging in early 2018 as a result of competition resulting in fixed-rate loans being priced at very low levels and variable-rate loans priced at the prime rate or below .
| results of operations overview the corporation recorded net income of $ 11,395,000 for the year ended december 31 , 2019 , a 16.9 % increase from the $ 9,749,000 earned during the same period in 2018. the 2018 net income was 53.7 % higher than the 2017 net income of $ 6,344,000. earnings per share , basic and diluted , were $ 2.01 in 2019 , compared to $ 1.71 in 2018 , and $ 1.12 in 2017. the increase in the corporation 's 2019 earnings was caused primarily by an increase in net interest income of $ 3.5 million , or 10.5 % , compared to an increase of $ 2.9 million , or 9.8 % in 2018. net interest income accounts for 76 % of the gross income stream of the corporation . the corporation 's net interest margin increased in 2019 to 3.53 % , from 3.46 % in 2018. loan yields increased as a result of four federal reserve rate increases in 2018 , lifting the yields on the corporation 's variable rate loans . even though the federal reserve cut rates three times in the last half of 2019 , the pickup in yield throughout the first part of the year served to increase loan yield for the year . this coupled with volume growth in the loan portfolio , increased loan interest income by $ 5.4 million , or 19.1 % .
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subject to the chief executive officer 's continued employment with the company through the applicable vesting date , one-third of the options under the option award will vest and become exercisable on each of january 15 , 2018 , 2019 and 2020. the fair value of the option award as of the date of the grant was $ 2.0 million as determined by an story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations in conjunction with “ selected financial data ” and our consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. in addition to historical information , this discussion and analysis contains forward-looking statements relating to future events and the future performance of marketaxess that are based on our current expectations , assumptions , estimates and projections about us and our industry . these forward-looking statements involve risks and uncertainties . our actual results and timing of various events could differ materially from those anticipated in such forward-looking statements as a result of a variety of factors , as more fully described in this section , in “ item 1a . risk factors ” and elsewhere in this annual report on form 10-k. we undertake no obligation to update publicly any forward-looking statements for any reason , even if new information becomes available or other events occur in the future . executive overview marketaxess operates a leading electronic trading platform that enables fixed-income market participants to efficiently trade corporate bonds and other types of fixed-income instruments using our patented trading technology . over 1,200 institutional investor and broker-dealer firms are active users of our trading platform , accessing global liquidity in u.s. high-grade corporate bonds , emerging markets and high-yield bonds , european bonds , u.s. agency bonds , municipal bonds , credit default swaps and other fixed-income securities . through our open trading protocols , we execute trades in certain bonds between and among institutional investor and broker-dealer clients in an all-to-all trading environment on a matched principal basis . we also offer a number of trading-related products and services , including : market data to assist clients with trading decisions ; connectivity solutions that facilitate straight-through processing ; technology services to optimize trading environments ; and execution services for exchange-traded fund managers and other clients . through our trax ® division , we also offer a range of pre- and post-trade services , including trade matching , regulatory transaction reporting , and market and reference data across a range of fixed-income and other products . our platform 's innovative technology solutions are designed to increase the number of potential trading counterparties on our electronic trading platform and create a menu of solutions to address different trade sizes and bond liquidity characteristics . our traditional request-for-quote model allows our institutional investor clients to simultaneously request competing , executable bids or offers from our broker-dealer clients and execute trades with the broker-dealer of their choice from among those that choose to respond . our open trading protocols complement our request-for-quote model by increasing the number of potential counterparties and improving liquidity by allowing all participants to interact anonymously in an all-to-all trading environment . our platform also provides our broker-dealer clients a solution that enables them to efficiently reach our institutional investor clients for the distribution and trading of bonds . the majority of our revenues are derived from commissions for trades executed on our platform and distribution fees that are billed to our broker-dealer clients on a monthly basis . we also derive revenues from information and post-trade services , technology products and services , investment income and other income . our expenses consist of employee compensation and benefits , depreciation and amortization , technology and communication expenses , professional and consulting fees , occupancy , marketing and advertising and other general and administrative expenses . our objective is to provide the leading global electronic trading platform for fixed-income securities , connecting broker-dealers and institutional investors more easily and efficiently , while offering a broad array of information , trading and technology services to market participants across the trading cycle . the key elements of our strategy are : to innovate and efficiently add new functionality and product offerings to the marketaxess platform that we believe will help to increase our market share with existing clients , as well as to expand our client base ; to leverage our existing client network and technology to increase the number of potential counterparties and improve liquidity by developing and deploying a wide range of electronic trading protocols to complement our traditional request-for-quote model and allowing broker-dealers and institutional investors to interact in our all-to-all open trading tm environment ; to leverage our existing technology and client relationships to deploy our electronic trading platform into additional product segments within the fixed-income securities markets and deliver fixed-income securities-related technical services and products ; to continue building our existing service offerings so that our electronic trading platform is more fully integrated into the workflow of our broker-dealer and institutional investor clients and to continue to add functionality to allow our clients to achieve a fully automated end-to-end straight-through processing solution ( automation from trade initiation to settlement ) ; to add new content and analytical capabilities to bondticker and expand axess all , the first intra-day trade tape for the european fixed income market , and our other data service offerings provided by trax ® to improve the value of the information we provide to our clients ; and to continue to increase and supplement our internal growth by entering into strategic alliances , or acquiring businesses or technologies that will enable us to enter new markets , provide new products or services , or otherwise enhance the value of our platform to our clients . for example , the acquisition of xtrakter limited ( “ xtrakter ” ) in february 2013 provided us with an expanded set of technology solutions ahead of incoming pre-and post-trade transparency mandates from mifid ii 43 in europe . story_separator_special_tag mifid ii and mifir were approved in june 2014 and introduce changes in market structure designed to : ( i ) enhance pre- and post-trade transparency for fixed income instruments with the scope of requirements calibrated for liquidity , ( ii ) increase and enhance post-trade reporting obligations with a requirement to submit post-trade data to approved reporting mechanisms , ( iii ) ensure trading of certain derivatives occurs on regulated trading venues and ( iv ) establish a consolidated tape for trade data . while some of the technical advice underpinning mifid ii have not yet been finalized , mifid ii will have a significant impact in these areas , as well as on corporate governance and investor protection . mifid ii and mifir are expected to take effect in january 2018. the final rules may have an adverse effect on our operations or our ability to provide our electronic trading platform in a manner that can successfully compete against other types of regulated and non-regulated venues for the fixed-income trading needs of our clients . in addition , mifid ii is expected to cause us to expend significantly more compliance , business and technology resources , incur additional operational costs and create additional regulatory exposure for our trading and post-trade businesses . while we generally believe the net impact of the rules and regulations may be positive for our businesses , unintended consequences of the rules and regulations may adversely affect us in ways yet to be determined . in june 2016 , the u.k. voted in an advisory referendum to leave the european union ( commonly referred to as “ brexit ” ) . the follow-up to the referendum is not yet clear as the u.k. government has not yet delivered an official notice of withdrawal . however , depending on the terms negotiated between e.u . member states and the u.k. following brexit , our u.k. subsidiaries may not be able to rely on the existence of a “ passporting ” regime that allows immediate access to the single e.u . market and we may need to establish one or more new regulated subsidiaries in the e.u . in order to provide our trading platform and certain post-trade services to clients in the e.u . rapid technological changes we must continue to enhance and improve our electronic trading platform . the electronic financial services industry is characterized by increasingly complex systems and infrastructures and new business models . our future success will depend on our ability to enhance our existing products and services , develop and or license new products and technologies that address the increasingly sophisticated and varied needs of our existing and prospective broker-dealer and institutional investor clients and respond to technological advances and emerging industry standards and practices on a cost-effective and timely basis . we have been issued 13 patents covering our most significant trading protocols and other aspects of our trading system technology . trends in our business the majority of our revenues are derived from commissions for transactions executed on our platform between and among our institutional investor and broker-dealer clients and monthly distribution fees . we believe that there are five key variables that impact the notional value of such transactions on our platform and the amount of commissions and distribution fees earned by us : the number of participants on our platform and their willingness to originate transactions through the platform ; the number of institutional investor and broker-dealer clients on the platform and the frequency and competitiveness of the price responses they provide on our platform ; the number of markets for which we make trading available to our clients ; the overall level of activity in these markets ; and the level of commissions that we collect for trades executed through the platform . we believe that overall corporate bond market trading volume is affected by various factors including the absolute levels of interest rates , the direction of interest rate movements , the level of new issues of corporate bonds and the volatility of corporate bond spreads versus u.s. treasury securities . because a significant percentage of our revenue is tied directly to the volume of securities traded on our platform , it is likely that a general decline in trading volumes , regardless of the cause of such decline , would reduce our revenues and have a significant negative impact on profitability . commission revenue commissions are generally calculated as a percentage of the notional dollar volume of bonds traded on our platform and vary based on the type , size , yield and maturity of the bond traded . under our transaction fee plans , bonds that are more actively traded or that have shorter maturities are generally charged lower commissions , while bonds that are less actively traded or that have longer maturities generally command higher commissions . 45 u.s. high-grade corporate bond commissions . our u.s. high-grade corporate bond fee plans generally incorporate variable transaction fees and distributi on fees billed to our broker-dealer clients on a monthly basis . certain dealers participate in fee programs that do not contain monthly distribution fees and instead incorporate additional per transaction execution fees and minimum monthly fee commitments . under these fee plans , we electronically add the transaction fee to the spread quoted by the broker-dealer client . the u.s. high-grade transaction fee is generally designated in basis points in yield and , as a result , is subject to fluctuation depending o n the duration of the bond traded . the average u.s. high-grade fees per million may vary in the future due to changes in yield , years-to-maturity and nominal size of bonds traded on our platform . other credit commissions . other credit includes eurobonds , emerging markets bonds , high-yield bonds and municipal bonds . commissions for other credit products generally vary based on the type of the instrument traded using standard fee schedules .
| results of operations year ended december 31 , 2016 compared to year ended december 31 , 2015 overview total revenues increased by $ 66.8 million or 22.0 % to $ 369.9 million for the year ended december 31 , 2016 from $ 303.1 million for the year ended december 31 , 2015. this increase in total revenues was primarily due to an increase in commission revenue of $ 66.1 million . an 11.8 % change in the average foreign currency exchange rates of the british pound sterling compared to the u.s. dollar from 2015 compared to 2016 had the effect of decreasing revenues by $ 5.9 million for the year ended december 31 , 2016. total expenses increased by $ 23.1 million or 14.9 % to $ 178.3 million for the year ended december 31 , 2016 from $ 155.2 million for the year ended december 31 , 2015. this increase was primarily due to higher employee compensation and benefits of $ 12.9 million , professional and consulting fees of $ 4.1 million , marketing and advertising costs of $ 2.8 million , general and administrative costs of $ 2.6 million and technology and communication expenses of $ 1.4 million .
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” legacy interest holders are entitled to receive priority distributions in an aggregate amount equal to $ 476.0 million and up to an additional $ 89.0 million from participation in subsequent distributions of cash depending on the performance of the great park venture . the holders of the percentage interests will receive all other distributions . the operating company owns 37.5 % of the great park venture 's percentage interests as of december 31 , 2019 . the great park venture has made distributions to the holders of legacy interests in the aggregate amount of $ 355.0 million as of december 31 , 2019 . in january 2020 , the great park venture made distributions to the holders of legacy interests in the aggregate amount of $ 76.3 million . the great park venture is the owner of great park neighborhoods , a mixed-use , master-planned community located in orange county , california . the company , through the a & r dma , manages the planning , development and story_separator_special_tag forward-looking statements the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated audited financial statements and related notes included elsewhere in this report . this discussion contains forward-looking statements and involves numerous risks and uncertainties , including but not limited to those described in the “ item 1a . risk factors ” section of this report . actual results could differ materially from those set forth in any forward-looking statements . see “ cautionary statement regarding forward-looking statements. ” overview our company we conduct all of our business in or through our operating company , five point operating company , lp ( the “ operating company ” ) . we are , through a wholly owned subsidiary , the sole managing general partner and owned , as of december 31 , 2019 , approximately 62.4 % of the operating company . the operating company directly or indirectly owns equity interests in : five point land , llc ( “ fpl ” ) , which owns the newhall land & farming company , a california limited partnership , the entity that is developing valencia ( formerly known as newhall ranch ) , our community in northern los angeles county , california ; the shipyard communities , llc ( the “ san francisco venture ” ) , which is developing candlestick and the san francisco shipyard , our communities in the city of san francisco , california ; heritage fields llc ( the “ great park venture ” ) , which is developing great park neighborhoods , our community in orange county , california ; five point communities , lp and five point communities management , inc. ( together , the “ management company ” ) , which have historically managed the development of great park neighborhoods and valencia ; and five point office venture holdings i , llc ( the “ gateway commercial venture ” ) , which owns the five point gateway campus , our commercial office campus located within the great park neighborhoods . the operating company consolidates and controls the management of all of these entities except for the great park venture and the gateway commercial venture . the operating company owns a 37.5 % percentage interest in the great park venture and a 75 % interest in the gateway commercial venture and accounts for its interest in both using the equity method . the management company performs development management services for the great park venture and property management services for the gateway commercial venture . please review “ our communities ” and “ commercial ” under part i , item 1 of this report for a description of each of our communities and our commercial venture . operational highlights in 2019 , we continued our horizontal land development activities at valencia by investing in the community 's infrastructure , including grading and utility improvements , and in the fourth quarter we entered into purchase and sale agreements to sell 781 homesites . we closed on 711 of the homesites in the fourth quarter , 42 resulting in gross proceeds of approximately $ 135.2 million . the remaining homesites are anticipated to close in the first half of 2020. in san francisco , in early 2019 , we mutually agreed to unwind the partnership with macerich resulting in us making a principal payment of $ 65.1 million related to an outstanding promissory note . concurrently , we were released from certain obligations , including the obligation to convey certain parcels at candlestick to the partnership , which has allowed us to redesign the property for alternative uses . we recognized a noncash gain in 2019 of $ 64.9 million as a result of the macerich partnership unwind . in the fourth quarter , we received approval from the city of san francisco on our revised development plan for the first phase of candlestick that is currently planned to include approximately 750,000 square feet of office space , 1,600 homes and 300,000 square feet of lifestyle amenities . in 2019 , the great park venture entered into purchase and sale agreements to sell 660 homesites . the great park venture closed escrow on 587 of the homesites in 2019 and 73 of the homesites are anticipated to close in 2020. gross proceeds received by the great park venture on the closed sales were approximately $ 255.4 million . in early 2020 , the great park venture made a distribution of $ 76.3 million to the holders of legacy interests , reducing the remaining aggregate distributions to the holders of legacy interests to approximately $ 134.0 million . of the remaining $ 134.0 million , the first $ 45.0 million will be paid to the holders of legacy interests prior to the commencement of distributions to the holders of percentage interests . see note 4 to our consolidated financial statements included under part ii , item 8 of this report for additional discussion of distribution priorities at the great park venture . story_separator_special_tag we recognized a gain of $ 6.7 million as a result of the sale . san francisco segment located almost equidistant between downtown san francisco and the san francisco international airport , candlestick and the san francisco shipyard consist of approximately 800 acres of bayfront property in the city of san francisco . candlestick and the san francisco shipyard are designed to include approximately 12,000 homesites and approximately 6.3 million square feet of commercial space . on may 2 , 2016 , the san francisco venture transferred to a joint venture ( “ cphp ” ) between an affiliate of lennar and an affiliate of castlelake l.p. ( “ castlelake ” ) certain assets and liabilities of the san francisco venture , including property within the san francisco shipyard known as the phase 1 land ( the “ separation transaction ” ) . cphp is responsible for current and future residential construction on the phase 1 land . we are not entitled to any of the proceeds from future sales of homes on the phase 1 land ( although we will receive a marketing fee for each home sold ) . cphp was also transferred the ownership interest in a joint venture ( the “ mall venture ” ) formed with affiliates of the macerich company ( “ macerich ” ) that intended to construct an urban retail outlet shopping district ( the “ retail project ” ) at candlestick . following the separation transaction , we were obligated to complete certain development activities and convey the parcels of property to the mall venture upon which the retail project was to be developed . in early 2019 , following discussions with the members of the mall venture , we and the members of the mall venture decided not to proceed with the retail project . as part of the termination of the retail project , we were released from our obligation to convey parcels of property on which the retail project was intended to be developed by the mall venture . we were also released from certain development obligations . as a result of the termination of the retail project , we recognized a gain of $ 64.9 million , representing the settlement of the contingent consideration pertaining to the development obligations and relief from the conveyance of these parcels . additionally , we repaid macerich a $ 65.1 million obligation related to a promissory note in the same amount , plus $ 11.1 million of accrued interest associated with the promissory note . the san francisco venture also issued an aggregate of 436,498 of its class a units ( while we concurrently issued 436,498 of our class b common shares ) to affiliates of lennar and castlelake and concurrently received a contribution of $ 5.5 million from affiliates of lennar and castlelake . in october 2019 , we received approval from the city of san francisco on a revised development plan for the first phase of candlestick that is currently planned to include approximately 750,000 square feet of office space , 1,600 homes , and 300,000 square feet of lifestyle amenities centered around retail and entertainment . as currently planned , candlestick ultimately is expected to include approximately 7,000 homes . our development at candlestick and the san francisco shipyard is not subject san francisco 's proposition m growth control measure , which imposes annual limitations on office development and is applicable to all other developers with projects in the city . this means the full amount of permitted commercial square footage at candlestick and the san francisco shipyard can be constructed as we determine , including all at once , even though proposition m may delay new office developments elsewhere in san francisco . in 2018 , our disposition and development agreement with the city of san francisco was amended to increase the total amount of commercial use at candlestick and the san francisco shipyard by over two million square feet , most of which we anticipate will be for office use , and increases our total commercial space to approximately 6.3 million square feet . 48 at the san francisco shipyard , approximately 408 acres are still owned by the u.s. navy and will not be conveyed to us until the u.s. navy satisfactorily completes its finding of suitability to transfer , or “ fost , ” process , which involves multiple levels of environmental and governmental investigation , analysis , review , comment and approval . based on our discussions with the u.s. navy , we had previously expected the u.s. navy to deliver this property between 2019 and 2022. however , allegations that tetra tech , inc. and tetra tech ec , inc ( collectively , “ tetra tech ” ) , a contractor hired by the u.s. navy , misrepresented sampling results at the san francisco shipyard have resulted in data reevaluation , governmental investigations , criminal proceedings , lawsuits , and a determination by the u.s. navy and other regulatory agencies to undertake additional sampling . as part of the 2018 congressional spending bill , the u.s. department of defense allocated $ 36.0 million to help fund resampling efforts at the san francisco shipyard . an additional $ 60.4 million to fund resampling efforts was approved as part of a 2019 military construction spending bill . these activities have delayed the remaining land transfers from the u.s. navy and could lead to additional legal claims or government investigations , all of which could in turn further delay or impede our future development of such parcels . our development plans were designed with the flexibility to adjust for potential land transfer delays , and we have the ability to shift the phasing of our development activities to account for potential delays caused by u.s. navy retesting , but there can be no assurance that these matters and other related matters that may arise in the future will not materially impact our development plans .
| results of operations the following tables and related discussions on the results of operations are for the fiscal years ended december 31 , 2019 and 2018. refer to item 7 , “ management 's discussion and analysis of financial 44 condition and results of operations ” under part ii of our annual report on form 10-k for the fiscal year ended december 31 , 2018 for financial data and related discussions on results of operations for the fiscal years ended december 31 , 2018 and 2017. the company the following table summarizes our consolidated historical results of operations for the years ended december 31 , 2019 and 2018 . replace_table_token_2_th revenues . revenues increased by $ 135.4 million , to $ 184.4 million for the year ended december 31 , 2019 , from $ 49.0 million for the year ended december 31 , 2018 . the increase in revenues was primarily due to land sales at our valencia segment ( formerly newhall ) in 2019 . 45 cost of land sales . the higher cost of land sales for the year ended december 31 , 2019 was primarily due to the land sale at our valencia segment . cost of management services . cost of management services increased by $ 4.5 million , or 18.9 % , to $ 28.5 million for the year ended december 31 , 2019 , from $ 24.0 million for the year ended december 31 , 2018 . the increase was primarily due to an increase in intangible asset amortization expense at our great park segment . selling , general , and administrative . selling , general , and administrative expenses increased by $ 4.6 million , or 4.7 % , to $ 103.6 million for the year ended december 31 , 2019 , from $ 99.0 million for the year ended december 31 , 2018 . the increase was primarily attributable to an increase in employee related expenses .
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our operating segments , which also represent our reporting units , are comprised of several vertically integrated businesses . when an individual business within an integrated operating segment is divested , goodwill is allocated to that business based on its fair value relative to the fair value of its operating segment . other intangible assets include values assigned to customer relationships , franchise agreements , other municipal agreements , non-compete agreements and trade names and are amortized generally on a straight-line basis over periods ranging from 1 to 20 years . asset impairments we continually consider whether events or changes in circumstances have occurred that may warrant revision of the estimated useful lives of our long-lived assets ( other than goodwill ) or whether the remaining balances of those assets should be evaluated for possible impairment . long-lived assets include , for example , capitalized landfill costs , other property and equipment , and identifiable intangible assets . events or changes in story_separator_special_tag you should read the following discussion in conjunction with our audited consolidated financial statements and the notes thereto included elsewhere in item 8 of this form 10-k. this discussion may contain forward-looking statements that anticipate results that are subject to uncertainty . we discuss in more detail various factors that could cause actual results to differ from expectations in item 1a , risk factors in this form 10-k. overview republic is the second largest provider of services in the domestic non-hazardous solid waste industry , as measured by revenue . as of december 31 , 2016 , we operated in 39 states and puerto rico through 333 collection operations , 204 transfer stations , 192 active landfills , 64 recycling centers , 7 treatment , recovery and disposal facilities , and 10 salt water disposal wells . we also operated 71 landfill gas and renewable energy projects and had post-closure responsibility for 124 closed landfills . revenue for the year ended december 31 , 2016 increased by 3.0 % to $ 9,387.7 million compared to $ 9,115.0 million in 2015 . this change in revenue is due to increases in average yield of 2.1 % , volume of 1.0 % , acquisitions , net of divestitures of 0.6 % , and recycled commodities of 0.5 % , partially offset by decreases in fuel recovery fees of 0.8 % and energy services of 0.4 % . the following table summarizes our revenue , costs and expenses for the years ended december 31 , 2016 , 2015 and 2014 ( in millions of dollars and as a percentage of revenue ) : replace_table_token_6_th our pre-tax income was $ 965.9 million , $ 1,195.9 million and $ 885.3 million for 2016 , 2015 and 2014 , respectively . our net income attributable to republic services , inc. was $ 612.6 million , or $ 1.78 per diluted share for 2016 , compared to $ 749.9 million , or $ 2.13 per diluted share , for 2015 , and $ 547.6 million , or $ 1.53 per diluted share , for 2014 . during each of 2016 , 2015 and 2014 , we recorded a number of charges , other expenses and benefits that impacted our pre-tax income , net income attributable to republic services , inc. ( net income – republic ) and diluted earnings per share as noted in the following table ( in millions , except per share data ) . additionally , see our “ cost of operations , ” “ selling , general and administrative expenses ” and “ income taxes ” discussions contained in the results of operations section of this management 's discussion and analysis of financial condition and results of operations for a discussion of other items that impacted our earnings . 27 replace_table_token_7_th ( 1 ) the aggregate effect of the noted items to adjusted diluted earnings per share totals to $ 0.01 for the year ended december 31 , 2014. we believe that presenting adjusted pre-tax income , adjusted net income – republic , and adjusted diluted earnings per share , which are not measures determined in accordance with accounting principles generally accepted in the united states ( u.s. gaap ) , provides an understanding of operational activities before the financial effect of certain items . we use these measures , and believe investors will find them helpful , in understanding the ongoing performance of our operations separate from items that have a disproportionate effect on our results for a particular period . we have incurred comparable charges and costs and have recorded similar recoveries in prior periods , and similar types of adjustments can reasonably be expected to be recorded in future periods . in the case of the bridgeton remediation charges and insurance recovery , we are adjusting such amounts due to their significant effect on our operating results ; however , in the ordinary course of our business , we often incur remediation charges and recoveries that we do not adjust from our operating results . our definition of adjusted pre-tax income , adjusted net income – republic , and adjusted diluted earnings per share may not be comparable to similarly titled measures presented by other companies . withdrawal costs - multiemployer pension funds . during 2016 and 2015 , we recorded charges to earnings of $ 5.6 million and $ 4.5 million , respectively , for withdrawal events at the multiemployer pension plan to which we contribute related to our operations in puerto rico . during 2014 , we recorded charges to earnings of $ 1.5 million , primarily related to costs associated with our 2013 withdrawal from the central states , southeast and southwest areas pension fund ( the fund ) . restructuring charges . in january 2016 , we realigned our field support functions by combining our three regions into two field groups , consolidating our areas and streamlining select operational support roles at our phoenix headquarters . these changes included reducing administrative staffing levels , relocating office space and closing certain office locations . story_separator_special_tag 29 adjusted diluted earnings per share the following is a summary of anticipated adjusted diluted earnings per share for the year ending december 31 , 2017 compared to the actual adjusted diluted earnings per share for the year ended december 31 , 2016. adjusted diluted earnings per share is not a measure determined in accordance with u.s. gaap : replace_table_token_8_th the 2017 anticipated adjusted diluted earnings per share assumes an effective tax rate of approximately 39.5 % . we believe that the presentation of adjusted diluted earnings per share , which excludes withdrawal costs - multiemployer pension funds , restructuring charges , loss on extinguishment of debt , and ( gain ) loss on business dispositions and impairments , net , provides an understanding of operational activities before the financial effect of certain items . we use this measure , and believe investors will find it helpful , in understanding the ongoing performance of our operations separate from items that have a disproportionate effect on our results for a particular period . we have incurred comparable charges and costs in prior periods , and similar types of adjustments can reasonably be expected to be recorded in future periods . our definition of adjusted diluted earnings per share may not be comparable to similarly titled measures presented by other companies . property and equipment , net in 2017 , we anticipate receiving approximately $ 975 million of property and equipment , net of proceeds from sales of property and equipment , as follows : replace_table_token_9_th story_separator_special_tag /tr > acquisitions increased revenue by 2.2 % primarily due to the acquisitions of rainbow disposal co. , inc. in october 2014 , tervita , llc ( tervita ) in february 2015 , and our waste management contract with the county of sonoma , california that was executed in april 2015. cost of operations cost of operations includes labor and related benefits , which consists of salaries and wages , health and welfare benefits , incentive compensation and payroll taxes . it also includes transfer and disposal costs representing tipping fees paid to third party disposal facilities and transfer stations ; maintenance and repairs relating to our vehicles , equipment and containers , including related labor and benefit costs ; transportation and subcontractor costs , which include costs for independent haulers that transport our waste to disposal facilities and costs for local operators who provide waste handling services associated with our national accounts in markets outside our standard operating areas ; fuel , which includes the direct cost of fuel used by our vehicles , net of fuel tax credits ; disposal franchise fees and taxes , consisting of landfill taxes , municipal franchise fees , host community fees and royalties ; landfill operating costs , which includes financial assurance , leachate disposal , remediation charges and other landfill maintenance costs ; risk management costs , which includes casualty insurance premiums and claims ; cost of goods sold , which includes material costs paid to suppliers associated with recycled commodities ; and other , which includes expenses such as facility operating costs , equipment rent and gains or losses on sale of assets used in our operations . 32 the following table summarizes the major components of our cost of operations for the years ended december 31 , 2016 , 2015 and 2014 ( in millions of dollars and as a percentage of revenue ) : replace_table_token_12_th these cost categories may change from time to time and may not be comparable to similarly titled categories used by other companies . as such , you should take care when comparing our cost of operations by cost component to that of other companies . cost of operations - 2016 compared to 2015 our cost of operations increased for 2016 compared to 2015 , primarily as a result of the following : labor and related benefits increased due to increased hourly and salaried wages as a result of merit increases , increased headcount , higher collection volumes and acquisitions . additionally , there was an increase in health care costs . transfer and disposal costs increased primarily due to higher collection volumes . during both 2016 and 2015 , approximately 68 % of the total waste volume we collected was disposed at landfill sites that we own or operate ( internalization ) . maintenance and repairs expense increased due to higher collection volumes , cost of parts , internal labor , third party truck repairs , vehicle complexity and costs associated with our fleet maintenance initiative . transportation and subcontract costs increased primarily due to higher collection and transfer station volumes , partially offset by lower fuel surcharges due to the decline in diesel fuel . our fuel costs decreased due to lower prices of diesel fuel and our continued conversion to lower cost compressed natural gas ( cng ) . the national average fuel cost per gallon for 2016 was $ 2.30 compared to $ 2.71 for 2015 , a decrease of $ 0.41 or approximately 15 % . at current consumption levels , we believe a twenty-cent per gallon change in the price of diesel fuel would change our fuel costs by approximately $ 25 million per year . offsetting these changes in fuel expense would be changes in our fuel recovery fee charged to our customers . at current participation rates , we believe a twenty-cent per gallon change in the price of diesel fuel changes our fuel recovery fee by approximately $ 25 million per year . franchise fees and taxes increased primarily due to volume increases in our landfill line of business . landfill operating expenses increased due to volume increases in our landfill line of business and increased leachate transportation and disposal costs . additionally , during 2015 we recorded favorable remediation adjustments that did not recur for the same period in 2016. risk management expenses increased primarily due to favorable actuarial developments in our workers ' compensation program recorded during 2015 that were less favorable for 2016 , coupled with continued unfavorable actuarial development in our vehicle liability insurance program .
| results of operations revenue we generate revenue primarily from our solid waste collection operations . our remaining revenue is from other services , including transfer station , landfill disposal , recycling , and energy services . our residential and small-container commercial collection operations in some markets are based on long-term contracts with municipalities . certain of our municipal contracts have annual price escalation clauses that are tied to changes in an underlying base index such as a consumer price index . we generally provide small-container commercial and large-container industrial collection services to customers under contracts with terms up to three years . our transfer stations , landfills and , to a lesser extent , our recycling facilities generate revenue from disposal or tipping fees charged to third parties . in general , we integrate our recycling operations with our collection operations and obtain revenue from the sale of recycled commodities . our revenue from energy services consists mainly of fees we charge for the treatment of liquid and solid waste derived from the production of oil and natural gas . other revenue consists primarily of revenue from national accounts , which represents the portion of revenue generated from nationwide or regional contracts in markets outside our operating areas where the associated waste handling services are subcontracted to local operators . consequently , substantially all of this revenue is offset with related subcontract costs , which are recorded in cost of operations .
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all references to “ notes ” in this item 7 refer to the “ notes to consolidated financial statements ” included in item 8 of the annual report on form 10-k. the following discussion and certain other sections of this annual report on form 10-k contain statements reflecting our views about our future performance that constitute “ forward-looking statements ” within the meaning of the safe harbor provisions of the u.s. private securities litigation reform act of 1995. these forward-looking statements are based on current expectations , estimates , forecasts and projections about the industry and markets in which we operate and our beliefs and assumptions . any statements contained herein ( including without limitation statements to the effect that we or our management “ believes , ” “ expects , ” “ anticipates , ” “ plans ” and similar expressions ) that are not statements of historical fact should be considered forward-looking statements . these statements are not guarantees of future performance and involve certain risks , uncertainties and assumptions that are difficult to predict . there are a number of important factors that could cause actual results to differ materially from those indicated by such forward-looking statements . these factors include , without limitation , those set forth , or incorporated by reference , above under the heading “ cautionary statement as to forward-looking information. ” we do not intend to update publicly any forward-looking statements whether as a result of new information , future events or otherwise . overview we are a well-known international manufacturer of highly engineered precision bearings and components . our precision solutions are integral to the manufacture and operation of most machines and mechanical systems , reduce wear to moving parts , facilitate proper power transmission and reduce damage and energy loss caused by friction . while we manufacture products in all major bearing categories , we focus primarily on the higher end of the bearing market where we believe our value added manufacturing and engineering capabilities enable us to differentiate ourselves from our competitors and enhance profitability . we believe our unique expertise has enabled us to garner leading positions in many of the product markets in which we primarily compete . with 43 facilities , of which 36 are manufacturing facilities in six countries , we have been able to significantly broaden our end markets , products , customer base and geographic reach . we have a fiscal year consisting of 52 or 53 weeks , ending on the saturday closest to march 31. based on this policy fiscal year 2018 and fiscal year 2017 had 52 weeks ; fiscal 2016 contained 53 weeks . we currently operate under four reportable business segments : plain bearings ; roller bearings ; ball bearings ; and engineered products . the following further describes these reportable segments : plain bearings . plain bearings are produced with either self-lubricating or metal-to-metal designs and consists of several sub-classes , including rod end bearings , spherical plain bearings and journal bearings . unlike ball bearings , which are used in high-speed rotational applications , plain bearings are primarily used to rectify inevitable misalignments in various mechanical components . roller bearings . roller bearings are anti-friction bearings that use rollers instead of balls . we manufacture four basic types of roller bearings : heavy duty needle roller bearings with inner rings , tapered roller bearings , track rollers and aircraft roller bearings . ball bearings . we manufacture four basic types of ball bearings : high precision aerospace , airframe control , thin section and commercial ball bearings which are used in high-speed rotational applications . engineered products . engineered products consists of highly engineered hydraulics , fasteners , collets and precision components used in aerospace , marine and industrial applications . purchasers of bearings and engineered products include industrial equipment and machinery manufacturers , producers of commercial and military aerospace equipment such as missiles and radar systems , agricultural machinery manufacturers , construction , energy , mining and specialized equipment manufacturers , marine products , automotive and commercial truck manufacturers . the markets for our products are cyclical , and we have endeavored to mitigate this cyclicality by entering into sole-source relationships and long-term purchase agreements , through diversification across multiple market segments within the aerospace and industrial segments , by increasing sales to the aftermarket and by focusing on developing highly customized solutions . 21 currently , our strategy is built around maintaining our role as a leading manufacturer of precision bearings and components through the following efforts : ● developing innovative solutions . by leveraging our design and manufacturing expertise and our extensive customer relationships , we continue to develop new products for markets in which there are substantial growth opportunities . ● expanding customer base and penetrating end markets . we continually seek opportunities to access new customers , geographic locations and bearing platforms with existing products or profitable new product opportunities . ● increasing aftermarket sales . we believe that increasing our aftermarket sales of replacement parts will further enhance the continuity and predictability of our revenues and enhance our profitability . such sales included sales to third party distributors , sales to oems for replacement products and aftermarket services . we will increase the percentage of our revenues derived from the replacement market by continuing to implement several initiatives . ● pursuing selective acquisitions . the acquisition of businesses that complement or expand our operations has been and continues to be an important element of our business strategy . we believe that there will continue to be consolidation within the industry that may present us with acquisition opportunities . we have demonstrated expertise in acquiring and integrating bearing and precision engineered component manufacturers that have complementary products or distribution channels and provide significant potential for margin enhancement . we have consistently increased the profitability of acquired businesses through a process of methods and systems improvement coupled with the introduction of complementary and proprietary new products . story_separator_special_tag sales are often made pursuant to sole-source relationships , long-term agreements and purchase orders with our customers . we recognize revenues principally from the sale of products at the point of passage of title , which is at the time of shipment , except for certain customers for which it occurs when the products reach their destination . we also recognize revenue on a ship-in-place basis for three customers who have required that we hold the product after final production is complete . in this case , a written agreement has been executed ( at the customer 's request ) whereby the customer accepts the risk of loss for product that is invoiced under the ship-in-place arrangement . for each transaction for which revenue is recognized under a ship-in-place arrangement , all final manufacturing inspections have been completed and customer acceptance has been obtained . in fiscal 2018 , 2.9 % of our total net sales were recognized under ship-in-place transactions compared to 2.6 % in fiscal 2017. sales to the industrial market accounted for 38 % and 34 % of our net sales for the fiscal years 2018 and 2017 , respectively . sales to the aerospace and defense markets accounted for 62 % and 66 % of our net sales for the same periods . aftermarket sales of replacement parts for existing equipment platforms and aftermarket services represented approximately 37 % of our net sales for fiscal 2018. we continue to develop our oem relationships which have established us as a leading supplier on many important industrial , aerospace and defense platforms . over the past several years , we have experienced increased demand from the replacement parts market , particularly within the diversified industrial sectors ; one of our business strategies has been to increase the proportion of sales derived from this sector and from aerospace and defense . we believe these activities increase the stability of our revenue base , strengthen our brand identity and provide multiple paths for revenue growth . approximately 12 % of our net sales were generated by our international facilities for fiscal 2018 and 2017 , respectively . we expect that this proportion will increase as we seek to increase our penetration of foreign markets . our top ten customers generated 36 % and 37 % of our net sales in fiscal 2018 and fiscal 2017 , respectively . out of the 36 % of net sales generated by our top ten customers during the fiscal year ended march 31 , 2018 , 21 % of net sales were generated by our top four customers compared to 22 % for the comparable period last fiscal year . 23 cost of revenues cost of sales includes employee compensation and benefits , raw materials , outside processing , depreciation of manufacturing machinery and equipment , supplies and manufacturing overhead . approximately 10 % to 17 % of our costs , depending on product mix , are attributable to raw materials and purchased components , a majority of which are related to steel and related products . during fiscal 2018 , steel prices remained flat with slight variances up and down throughout the fiscal year . when we do experience raw material inflation , we offset these cost increases by changing our buying patterns , expanding our vendor network and passing through price increases when possible . the overall impact on raw material costs for this fiscal year was not material as a percent change on a year over year basis . we monitor gross margin performance through a process of monthly operation reviews with all our divisions . we develop new products to target certain markets allied to our strategies by first understanding volume levels and product pricing and then constructing manufacturing strategies to achieve defined margin objectives . we only pursue product lines where we believe that the developed manufacturing process will yield the targeted margins . management monitors gross margins of all product lines on a monthly basis to determine which manufacturing processes or prices should be adjusted . fiscal 2018 compared to fiscal 2017 story_separator_special_tag left '' > roller bearing segment : replace_table_token_16_th net sales increased $ 22.5 million , or 20.6 % , compared to fiscal 2017. this was attributable to a 38.5 % increase in net sales to the industrial sector mainly driven by the mining , general industrial and energy markets . aerospace sales increased 6.6 % primarily driven by the defense oem markets . the roller bearings segment achieved a gross margin of $ 55.0 million , or 41.7 % of sales , in fiscal 2018 compared to $ 41.7 million , or 38.1 % of sales , in fiscal 2017. the increase in gross margin was due to the impact of increased industrial volume as well as cost efficiencies achieved during the year . ball bearing segment : replace_table_token_17_th net sales increased $ 9.4 million , or 16.0 % , for fiscal 2018 compared to fiscal 2017. this was attributable to net sales increases to the industrial sector of 19.9 % driven by the semiconductor , general industrial , and energy markets . aerospace sales increased 6.5 % driven by the aerospace oem market . gross margin for the year was $ 28.0 million , or 41.2 % of sales , compared to $ 22.8 million , or 39.0 % of sales , during fiscal 2017. this increase as a percentage of sales was primarily due to increased volumes and a favorable product mix . engineered products segment : replace_table_token_18_th net sales increased $ 8.6 million or 5.1 % , in fiscal 2018 compared to the same period last fiscal year . our industrial sales increased 14.2 % due primarily to marine and european markets during the year . aerospace sales increased by 0.6 % million primarily due to the defense oem markets . organically , sales grew by approximately 6.2 % in fiscal 2018 compared to the same period last fiscal year .
| results of operations replace_table_token_8_th net sales increased $ 59.5 million , or 9.7 % , for fiscal 2018 over fiscal 2017. this was mainly the result of a 21.1 % increase in net sales to the industrial markets of $ 44.6 million combined with a 3.7 % increase in aerospace net sales of $ 14.9 million . organic sales increased 10.0 % year over year , with an increase of 21.1 % in the industrial markets and 4.1 % in the aerospace markets . the increase in industrial sales was mostly attributable to an increase in marine , mining , semicon , energy , and general industrial activity . the increase in aerospace was primarily driven by aerospace oem , both defense and commercial . net income increased by $ 16.5 million to $ 87.1 million for fiscal 2018 compared to fiscal 2017. the net income of $ 87.1 million in fiscal 2018 was affected by restructuring and integration costs of $ 7.0 million , a $ 4.9 million tax benefit related to the adoption of asu 2016-09 , the impact of the new tax legislation signed during the third quarter and $ 0.4 million in foreign exchange loss offset by $ 0.4 million of discrete tax benefits . net income for fiscal 2017 was affected by $ 0.3 million in costs associated with the sargent acquisition and $ 4.9 million in costs related to restructuring offset by $ 0.2 million of discrete tax benefit and $ 0.2 million of foreign exchange gain . gross margin replace_table_token_9_th gross margin increased $ 28.5 million , or 12.4 % , for fiscal 2018 compared to the same period last fiscal year . the increase in gross margin was mainly driven by higher sales and cost efficiencies achieved during the current period . gross margins in fiscal 2018 were impacted by lower production runs and startup costs on new commercial aerospace programs .
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generally , the amortization periods for these policies approximate the estimated lives of the policies . for certain products , policyholders can elect to modify product benefits , features , rights , or coverages by exchanging a contract for a new contract or by amendment , endorsement , or rider to a contract , or by the election of a feature or coverage within a contract . these transactions are known as internal replacement transactions . internal replacement transactions wherein the modification does not substantially change the policy are accounted for as continuations of the replaced contracts . unamortized deferred story_separator_special_tag the discussion and analysis presented in this section should be read in conjunction with the `` cautionary statement regarding forward-looking statements '' included below the , `` risk factors '' included in item 1a , `` selected financial data '' included in item 6 , and the consolidated financial statements and notes thereto included in item 8. story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > percent in 2013 compared to 2012 , driven by higher large case commercial market sales . persistency in 2013 declined slightly but remains strong for all lines of business . our closed block segment reported an increase in operating income of 14.6 percent in 2013 relative to 2012. net investment income increased 3.4 percent in 2013 compared to 2012 due to higher invested asset levels . risk results in 2013 were slightly favorable for both individual disability and long-term care relative to the prior year . our investment portfolio continues to perform well , and our invested asset quality remains strong . the net unrealized gain on our fixed maturity securities was $ 4.1 billion at december 31 , 2013 compared to $ 7.2 billion at december 31 , 2012 , with the decline due primarily to an increase in u.s. treasury rates during 2013. we believe our capital and financial positions are strong . at december 31 , 2013 , the risk-based capital ( rbc ) ratio for our traditional u.s. insurance subsidiaries , calculated on a weighted average basis using the naic company action level formula , was approximately 405 percent , compared to 396 percent at december 31 , 2012. during 2013 , we repurchased 11.2 million shares of unum group common stock at a cost of $ 318.6 million under our share repurchase program . cash equivalents and marketable securities held at unum group and our other intermediate holding companies are a significant source of liquidity for us and were approximately $ 514 million at december 31 , 2013 , relative to $ 805 million at december 31 , 2012. the decline was due primarily to repurchases of our common stock and a capital contribution related to our 2013 re-domestication of a captive reinsurance subsidiary . 2013 unclaimed death benefits reserve increase beginning in 2011 , a number of state regulators began requiring insurers to cross-check specified insurance policies with the social security administration 's death master file to identify potential matches . if a potential match was identified , insurers were requested to determine if benefits were due , locate beneficiaries , and make payments where appropriate . we initiated this process where requested , and in 2012 we began implementing this process in all states on a forward-looking basis . we believe adopting this process , which reflects an evolving regulatory and industry practice , is in the best interest of our customers . therefore , in addition to implementing this on a forward-looking basis , in 2013 we began an initiative to search for potential claims from previous years . during the fourth quarter of 2013 , we completed our assessment of benefits which we estimate will be paid under this initiative , and as such , established additional reserves for payment of these benefits . claim reserves were increased $ 49.1 million for unum us group life , $ 26.3 million for unum us voluntary life , and $ 20.1 million for colonial life voluntary life , for a total reserve increase of $ 95.5 million . these reserve adjustments decreased net income $ 62.1 million . although the legal and regulatory environment continues to evolve , we believe our decision to adopt this claims practice and establish additional reserves is in the best interests of our customers . 2013 group life waiver of premium benefit reserve reduction within our unum us segment , we offer group life insurance coverage which consists primarily of renewable term life insurance and includes a provision for waiver of premium , if disabled . the group life waiver of premium benefit ( group life waiver ) provides for continuation of life insurance coverage when an insured , or the employer on behalf of the insured , is no longer paying premium because the employee is not actively at work due to a disability . the group life waiver claim reserve is the present value of future anticipated death benefits reflecting the probability of death while remaining disabled . claim reserves are calculated using assumptions based on past experience adjusted for current trends and any other factors that would modify past experience and are subject to revision as current claim experience emerges and alters our view of future expectations . the two fundamental assumptions in the development of the group life waiver reserve are mortality and recovery . our emerging experience and that which continues to emerge within the industry indicate an increase in life expectancies , which decreases the ultimate anticipated death benefits to be paid under the group life waiver benefit . emerging experience also reflects an improvement in claim recovery rates , which also lessens the likelihood of payment of a death benefit while the insured is disabled . 33 during the fourth quarter of 2013 , we completed a review of our assumptions and modified our mortality and claim recovery assumptions for our unum us group life waiver reserves and , as a result , reduced the applicable claim reserves by $ 85.0 million and increased net income $ 55.2 million . story_separator_special_tag we believe the need for our products and services remains strong , and we intend to continue protecting our solid margins and returns through our pricing and risk actions . during 2014 , we will continue to invest in our infrastructure and our employees , with a focus on quality and simplification of processes and product offerings . our strategy will be centered on maintaining a strong customer focus while providing an innovative product portfolio of financial protection choices to deepen employee coverages , broaden e mployer relationships , and open new markets . we believe that consistent operating results , combined with the implementation of strategic initiatives and the effective deployment of capital , should allow us to meet our long-term financial objectives . 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. reserves for policy and contract benefits reserves for policy and contract benefits are our largest liabilities and represent claims that we estimate we will eventually pay t o 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 . reserves for policy and contract benefits equaled $ 40.5 billion and $ 39.9 billion at december 31 , 2013 and 2012 , respectively , or approximately 79.8 percent and 74.4 percent of our total liabilities , respectively . reserves ceded to reinsurers were $ 6.8 billion and $ 6.7 billion at december 31 , 2013 and 2012 , respectively , 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 , long-term care , and other 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 . in establishing policy reserves , we use assumptions that reflect our best estimate while considering the potential for adverse variances in actual future experience , which results in a total policy reserve balance that has an embedded reserve for adverse deviation . we do not , however , establish an explicit and separate reserve as a provision for adverse deviation from our assumptions . 35 we perform loss recognition tests on our policy reserves annually , or more frequently if appropriate , using best estimate assumptions as of the date of the test , without a provision for adverse deviation . we group the policy reserves for each major product line within a segment when we perform the loss recognition tests . if the policy reserves determined using these best estimate assumptions are higher than our existing policy reserves net of any deferred acquisition cost balance , the existing policy reserves are increased or deferred acquisition costs are reduced to immediately recognize the deficiency . thereafter , the policy reserves for the product line are calculated using the same method we used for the loss recognition testing , referred to as the gross premium valuation method , wherein we use our best estimate as of the gross premium valuation ( loss recognition ) date rather than the initial policy issue date to determine the expected future claims , commissions , and expenses we will pay and the expected future gross premiums we will receive . because the key policy reserve assumptions for policy persistency , mortality and morbidity , and discount rates are all locked in at policy issuance based on assumptions appropriate at that time , policy reserve assumptions are generally not changed due to a change in claim status from active to disabled subsequent to policy issuance . therefore , we maintain policy reserves for a policy for as long as the policy remains in-force , even after a separate claim reserve is established . incidence rates in industry standard valuation tables for policy reserves have traditionally included all lives , active and disabled . in addition , the waiver of premium provision provides funding for the policy reserve while a policyholder is disabled . as a result , the funding mechanisms and the cost of claims are aligned and require a policy reserve to be held while on claim .
| executive summary throughout 2013 , we remained focused on profitable top-line growth in select markets and a disciplined investment strategy , as we continued to drive effectiveness in our operating performance and to generate consistent , sustainable capital available for deployment . a discussion of our operating performance and capital management follows . 2013 operating performance and capital management for 2013 , we reported net income of $ 858.1 million , or $ 3.23 per diluted common share , compared to net income of $ 894.4 million , or $ 3.17 per diluted common share , in 2012. included in these results are net realized investment gains and losses and non-operating retirement-related gains or losses . also included are fourth quarter 2013 adjustments for a reserve increase related to unclaimed death benefits ( $ 95.5 million before tax and $ 62.1 million after tax , or $ 0.24 per diluted common share ) and a reserve reduction related to group life waiver of premium benefits ( $ 85.0 million before tax and $ 55.2 million after tax , or $ 0.21 per diluted common share ) . adjusting for these items , after-tax operating income was $ 882.5 million , or $ 3.32 per diluted common share , in 2013 , compared to $ 887.5 million , or $ 3.15 per diluted common share , in 2012. total operating revenue , which excludes net realized investment gains and losses , was 1.1 percent lower in 2013 relative to 2012 , with slight declines in both premium income and net investment income .
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cash , restricted cash , and cash equivalents our cash and cash equivalents include cash and liquid financial instruments , including money market story_separator_special_tag overview expedia group is one of the world 's largest travel companies . we help knock down the barriers to travel , making it easier , more enjoyable , more attainable and more accessible . we bring the world within reach for customers and partners around the globe . we leverage our platform and technology capabilities across an extensive portfolio of businesses and brands to orchestrate the movement of people and the delivery of travel experiences on both a local and global basis . we make available , on a stand-alone and package basis , travel services provided by numerous lodging properties , airlines , car rental companies , destination service providers , cruise lines , vacation rental property owners and managers , and other travel product and service companies . we also offer travel and non-travel advertisers access to a potential source of incremental traffic and transactions through our various media and advertising offerings on our websites . for additional information about our portfolio of brands , see the disclosure set forth in part i , item 1 , business , under the caption “ management overview. ” all percentages within this section are calculated on actual , unrounded numbers . trends the travel industry , including offline agencies , online agencies and other suppliers of travel products and services , has historically been characterized by intense competition , as well as rapid and significant change . generally , 2017 and 2018 represented years of continuing growth for the travel industry . however , political instability , geopolitical conflicts , acts of terrorism , significant fluctuations in currency values , sovereign debt issues , natural disasters and macroeconomic concerns are examples of events that contribute to a somewhat uncertain environment , which could have a negative impact on the travel industry in the future . for additional information about our growth strategy for expedia group , see the disclosure set forth in part i , item 1 , business , under the caption “ growth strategy. ” online travel increased usage and familiarity with the internet are driving rapid growth in online penetration of travel expenditures . according to phocuswright , an independent travel , tourism and hospitality research firm , in 2019 , over 45 % of u.s. and european leisure and unmanaged corporate travel expenditures are expected to occur online . online penetration rates in the emerging markets , such as asia pacific and latin american regions , are lagging behind that of the united states and europe , and are estimated to be in the range of 35 % to 45 % in 2019. these penetration rates increased over the past few years , and are expected to continue growing , which presents an attractive growth opportunity for our business , while also attracting many competitors to online travel . this competition intensified in recent years , and the industry is expected to remain highly competitive for the foreseeable future . in addition to the growth of online travel agencies , airlines and lodging companies aggressively pursued direct online distribution of their products and services . competitive entrants such as “ metasearch ” companies , including kayak.com ( owned by booking holdings ) , trivago ( in which expedia group owns a majority interest ) as well as tripadvisor , introduced differentiated features , pricing and content compared with the legacy online travel agency companies , as well as various forms of direct or assisted booking tools . in addition , the increasing popularity of the “ sharing economy , ” accelerated by online penetration , has had a direct impact on the travel and lodging industry . businesses such as airbnb , homeaway ( which expedia acquired in december 2015 ) and booking.com ( owned by booking holdings ) have emerged as the leaders , bringing incremental alternative accommodation and vacation rental inventory to the market . many other competitors , including vacation rental metasearch players , continue to emerge in this space , which is expected to continue to grow as a percentage of the global accommodation market . furthermore , we see increased interest in the online travel industry from search engine companies as evidenced by recent innovations including direct booking functionality and product enhancements by companies such as google . finally , traditional consumer ecommerce and group buying websites expanded their local offerings into the travel market by adding hotel offers to their websites . for additional detail regarding the competitive trends and risks we face , see part i item 1 business - `` competition , '' and part i , item 1a , risk factors - `` we operate in an increasingly competitive global environment. ” the online travel industry also saw the development of alternative business models and variations in the timing of payment by travelers and to suppliers , which in some cases place pressure on historical business models . in particular , the agency hotel model saw rapid adoption in europe . expedia group distributes both merchant ( expedia collect ) and agency ( hotel collect ) hotel offerings for our hotel supply partners through both agency-only contracts as well as our hybrid etp program , which offers travelers the choice of whether to pay expedia group at the time of booking or pay the hotel at the time of stay . intense competition also historically led to aggressive marketing efforts by the travel suppliers and intermediaries , and a meaningful unfavorable impact on our overall marketing efficiencies and operating margins . we manage our selling and marketing spending on a brand basis , making decisions in each applicable market that we think are appropriate based on the relative growth opportunity and the expected returns and the competitive environment . story_separator_special_tag given current volatility , it is uncertain whether the recent increases in fuel prices will drive further increases in airfares , particularly when considering planned supply increases through capacity additions . we can encounter 38 pressure on air remuneration as air carriers combine and as certain supply agreements renew , and continue to add airlines to ensure local coverage in new markets . air ticket volumes increased 32 % in 2016 ( excluding elong ) , primarily due to the acquisition of orbitz , 4 % in 2017 , and 5 % in 2018. as a percentage of our total worldwide revenue in 2018 , air accounted for 8 % . advertising & media our advertising and media business is principally driven by revenue generated by trivago , a leading hotel metasearch website , in addition to expedia group media solutions , which is responsible for generating advertising revenue on our global online travel brands . in 2018 , we generated a total of $ 1.1 billion of advertising and media revenue , a slight increase from 2017 , representing 10 % of our total worldwide revenue . in 2018 , trivago shifted its operational focus , reducing marketing spend to better balance revenue and profit growth . the lower marketing spend negatively impacted revenue growth , while benefiting profitability . we expect that trend to continue in the first half of 2019. seasonality we generally experience seasonal fluctuations in the demand for our travel services . for example , traditional leisure travel bookings are generally the highest in the first three quarters as travelers plan and book their spring , summer and winter holiday travel . the number of bookings typically decreases in the fourth quarter . because revenue for most of our travel services , including merchant and agency hotel , is recognized as the travel takes place rather than when it is booked , revenue typically lags bookings by several weeks for our hotel business and can be several months or more for our vacation rental business . historically , homeaway has seen seasonally stronger bookings in the first quarter of the year , with the relevant stays occurring during the peak summer travel months . the seasonal revenue impact is exacerbated with respect to income by the nature of our variable cost of revenue and direct sales and marketing costs , which we typically realize in closer alignment to booking volumes , and the more stable nature of our fixed costs . furthermore , operating profits for our primary advertising business , trivago , have typically been experienced in the second half of the year , particularly the fourth quarter , as selling and marketing costs offset revenue in the first half of the year as we typically increase marketing during the busy booking period for spring , summer and winter holiday travel . as a result on a consolidated basis , revenue and income are typically the lowest in the first quarter and highest in the third quarter . the continued growth of our international operations , advertising business or a change in our product mix , including the growth of homeaway , may influence the typical trend of the seasonality in the future , and there may also be business or market driven dynamics that result in short-term impacts to revenue or profitability that differ from the typical seasonal trends . as homeaway has further shifted to a predominately transaction-based business model for vacation rental listings and its booking window elongates , its seasonal trends are more pronounced than our other traditional leisure businesses . critical accounting policies and estimates critical accounting policies and estimates are those that we believe are important in the preparation of our consolidated financial statements because they require that we use judgment and estimates in applying those policies . we prepare our consolidated financial statements and accompanying notes in accordance with generally accepted accounting principles in the united states ( “ gaap ” ) . preparation of the consolidated financial statements and accompanying notes requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements as well as revenue and expenses during the periods reported . we base our estimates on historical experience , where applicable , and other assumptions that we believe are reasonable under the circumstances . actual results may differ from our estimates under different assumptions or conditions . there are certain critical estimates that we believe require significant judgment in the preparation of our consolidated financial statements . we consider an accounting estimate to be critical if : it requires us to make an assumption because information was not available at the time or it included matters that were highly uncertain at the time we were making the estimate ; and changes in the estimate or different estimates that we could have selected may have had a material impact on our financial condition or results of operations . for more information on each of these policies , see note 2 — significant accounting policies , in the notes to consolidated financial statements . we discuss information about the nature and rationale for our critical accounting estimates below . 39 accounting for certain merchant revenue we accrue the cost of certain merchant revenue based on the amount we expect to be billed by suppliers . in certain instances when a supplier invoices us for less than the cost we accrued , we generally reduce our merchant accounts payable and the supplier costs within net revenue six months in arrears , net of an allowance , when we determine it is not probable that we will be required to pay the supplier , based on historical experience . actual revenue could be greater or less than the amounts estimated due to changes in hotel billing practices or changes in traveler behavior .
| results of operations revenue replace_table_token_4_th in 2018 , revenue increased primarily driven by growth in the core ota segment , including growth at brand expedia , expedia partner solutions and hotels.com , as well as growth at homeaway . in 2017 , revenue increased primarily driven by growth in the core ota segment , including growth at brand expedia and expedia partner solutions , as well as growth at homeaway and trivago . 45 replace_table_token_5_th _ ( 1 ) includes third-party revenue from trivago as well as our transaction-based websites . lodging revenue increased 13 % in 2018 on a 13 % increase in room nights stayed driven by growth in hotels.com , expedia partner solutions and homeaway . lodging revenue increased 14 % in 2017 primarily due to a 16 % increase in room nights stayed driven by growth in brand expedia , homeaway and expedia partner solutions , partially offset by a 2 % decline in revenue per room night . worldwide air revenue increased 12 % in 2018 due to a 5 % increase in air tickets sold as well as a 7 % increase in revenue per ticket . air revenue growth for 2018 included an approximately 3 % benefit due to an accounting change related to classification of certain fees , which were previously recorded as contra-revenue but now classified as cost of revenue with no net impact to operating income . worldwide air revenue increased 1 % in 2017 due to 4 % increase in air tickets sold , partially offset by a 3 % decrease in revenue per ticket . advertising and media revenue increased 2 % in 2018 due to continued growth at expedia group media solutions , offset by declines at trivago . advertising and media revenue increased 33 % in 2017 primarily due to growth at trivago and expedia group media solutions .
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key products include hoists , actuators , cranes , rigging tools , and digital power control systems . the company is focused on serving commercial and industrial applications that require the safety and quality provided by the company 's superior design and engineering know-how . founded in 1875 , we have grown to our current size and leadership position through organic growth and acquisitions . we developed our leading market position over our 141 -year history by emphasizing technological innovation , manufacturing excellence and superior after-sale service . in addition , acquisitions significantly broadened our product lines and services and expanded our geographic reach , end-user markets and customer base . ongoing initiatives include growing revenue by increasing our penetration of the asian , latin american and european marketplaces , pursuing new products and targeted vertical markets , and by improving our productivity . in accordance with our strategy , we have been investing in our sales and marketing activities , new product development and “ lean ” efforts across the company . shareholder value will be enhanced through continued emphasis on market expansion , customer satisfaction , new product development , manufacturing efficiency , cost containment , and efficient capital investment . our revenue base is geographically diverse with approximately 37 % derived from customers outside the u.s. for the year ended march 31 , 2016. we believe this will help balance the impact of changes that will occur in local economies , as well as , benefit the company from growth in emerging markets . as in the past , we monitor both u.s. and eurozone industrial capacity utilization statistics as indicators of anticipated demand for our products . since their june 2009 trough , these statistics have improved and have remained stable over the past year . in addition , we continue to monitor the potential impact of other global and u.s. trends including industrial production , energy costs , steel price fluctuations , interest rates , foreign currency exchange rates and activity of end-user markets around the globe . from a strategic perspective , we are investing in global markets and new products as we focus on our greatest opportunities for growth . we maintain a strong north american market share with significant leading market positions in hoists , lifting and sling chain , forged attachments , actuators , and digital power and motion control systems for the material handling industry . we seek to maintain and enhance our market share by focusing our sales and marketing activities toward select north american and global market sectors including energy , automotive , heavy oem , entertainment , and construction and infrastructure . regardless of the economic climate and point in the economic cycle , we constantly explore ways to increase our operating margins as well as further improve our productivity and competitiveness . we have specific initiatives related to improved customer satisfaction , reduced defects , shortened lead times , improved inventory turns and on-time deliveries , reduced warranty costs , and improved working capital utilization . the initiatives are being driven by the continued implementation of our “ lean ” efforts which are fundamentally changing our manufacturing and business processes to be more responsive to customer demand and improving on-time delivery and productivity . in addition to “ lean , ” we are working to achieve these strategic initiatives through product simplification , the creation of centers of excellence , and improved supply chain management . we are also aggressively pursuing cost reduction opportunities to enhance future margins . we continuously monitor market prices of steel . we purchase approximately $ 30,000,000 to $ 40,000,000 of steel annually in a variety of forms including rod , wire , bar , structural and others . generally , as we experience fluctuations in our costs , we reflect them as price increases or surcharges to our customers with the goal of being margin neutral . we are also looking for opportunities for growth via strategic acquisitions or joint ventures . the focus of our acquisition strategy centers on product line expansion in alignment with our existing core product offering and opportunities for non-u.s. market penetration . we operate in a highly competitive and global business environment . we face a variety of opportunities in those markets and geographies , including trends toward increased utilization of the global labor force and the expansion of market opportunities in asia and other emerging markets . while we continue to execute our long-term growth strategy , we are supported by our solid capital structure , including our cash position and flexible debt structure . 28 story_separator_special_tag style= '' line-height:120 % ; text-align : justify ; font-size:10pt ; '' > other income ( expense ) , net was $ 462,000 and $ 1,393,000 in fiscal 2015 and 2014 , respectively . the fiscal 2014 balance included a gain on the sale of equity securities received in an insurance company demutualization . no similar gain was recorded in fiscal 2015. income tax expense ( benefit ) as a percentage of income from continuing operations before income tax expense was 24.5 % and 28.8 % in fiscal 2015 and 2014 , respectively . these percentages vary from the u.s. statutory rate primarily due to varying effective tax rates at the company 's foreign subsidiaries , and the jurisdictional mix of taxable income for these subsidiaries . for fiscal 2015 , income tax expense as a percentage of income before income taxes was favorably effected by the utilization of certain tax credits relating to previous fiscal years . the credits result in an income tax benefit of $ 1,431,000 for the year ended march 31 , 2015. in addition , the cost of the bond redemption resulted in lower taxable income in the u.s. , our highest statutory tax rate jurisdiction . 30 liquidity and capital resources cash and cash equivalents totaled $ 51,603,000 , $ 63,056,000 , and $ 112,309,000 at march 31 , 2016 , 2015 and 2014 , respectively . story_separator_special_tag the borrowers entered into a new $ 150,000,000 senior secured revolving credit facility ( `` new revolving credit facility '' ) and established a new $ 125,000,000 delayed draw senior secured term loan facility ( “ term loan ” ) . the company 's replaced revolving credit facility was terminated in connection with this transaction . both the new revolving credit facility and the term loan have five-year terms maturing in 2020. the new revolving credit facility has an initial term ending january 23 , 2020 and the term loan has a term ending february 19 , 2020. the terms of the new credit agreement include the following : term loan : an aggregate $ 125,000,000 secured term loan facility which requires quarterly principal amortization of 2.5 % with the remaining principal due at maturity date . new revolving credit facility : an aggregate $ 150,000,000 secured revolving credit facility which includes sublimits for the issuance of standby letters of credit , swingline loans and multi-currency borrowings in certain specified foreign currencies . fees and interest rates : commitment fees and interest rates are determined on the basis of either a eurocurrency rate or a base rate plus an applicable margin based upon the company 's total leverage ratio ( as defined in the new credit agreement ) . accordion feature : provisions permitting a borrower from time to time to increase the aggregate amount of the credit facility by up to $ 75,000,000 , with a minimum increase of $ 20,000,000 . prepayments : provisions permitting a borrower to voluntarily prepay either the term loan or new revolving credit facility in whole or in part at any time , and provisions requiring certain mandatory prepayments of the term loan or new revolving credit facility on the occurrence of certain events which will permanently reduce the commitments under the new credit agreement , each without premium or penalty . reduction of commitment : a borrower may irrevocably cancel , in whole or in part , the unutilized portion of the commitments under the new credit agreement in excess of any outstanding loans , the stated amount of all outstanding letters of credit and all unreimbursed amounts drawn under any letters of credit . 32 covenants : provisions containing covenants required of the company and its subsidiaries including various affirmative and negative financial and operational covenants . key financial covenants include a minimum fixed charge coverage ratio of 1.25x ; a maximum total leverage ratio , net of cash , of 3.50x ( which may be temporarily increased following a material acquisition , which may be elected two times over the course of the new credit agreement , ( i ) if financed by secured debt the total leverage rate as at the end of the fiscal quarter in which such material acquisition occurs and the three fiscal quarters immediately thereafter , shall not be greater than 4.00:1.00 and as at the end of any fiscal quarter thereafter , the total leverage ratio shall not be greater than 3.50:1.00 , and ( ii ) if financed with unsecured or subordinated indebtedness , the total leverage ratio at the end of the fiscal quarter in which such material acquisition occurs and at the end of any fiscal quarter thereafter , shall not be greater than 4.50:1.00 , and permit the secured leverage ratio , to be greater than 3.25:1.00 ) , and maximum capital expenditures of $ 30 million per fiscal year ( $ 40 million following a material acquisition ) with the ability to transfer any unused portion of expenditure to the immediately following fiscal year . our actual fixed charges coverage ratio and total leverage ratio , as calculated per the terms of our new revolving credit facility , were 3.20x and 2.90x , respectively , at march 31 , 2016. the new revolving credit facility is secured by all u.s. inventory , receivables , equipment , real property , subsidiary stock ( limited to 65 % of non-u.s. subsidiaries ) and intellectual property . the new credit agreement allows , but limits our ability to pay dividends . on february 19 , 2015 , the company borrowed $ 124,442,000 under the term loan . the term loan proceeds were net of fees paid to creditors of $ 558,000 which were accounted for as a debt discount . on february 23 , 2015 the company redeemed all of the outstanding $ 150,000,000 of the 7 7 / 8 % notes . the aggregated price paid for the redemption was $ 156,630,000 , including a 3.938 % call premium or $ 5,907,000 , and $ 723,000 of accrued interest on the 7 7/8 % notes . the redemption was funded by the term loan and cash on hand . the unused portion of the new revolving credit facility totaled $ 64,341,000 net of outstanding borrowings of $ 155,000,000 and outstanding letters of credit of $ 5,659,000 as of march 31 , 2016 . the outstanding letters of credit at march 31 , 2016 consisted of $ 1,136,000 in commercial letters of credit and $ 4,523,000 of standby letters of credit . the gross balances of deferred financing costs were $ 1,825,000 as of march 31 , 2016 and 2015 , respectively . the accumulated amortization balances were $ 425,000 and $ 61,000 as of march 31 , 2016 and 2015 , respectively . on june 22 , 2007 , the company recorded a capital lease resulting from the sale and partial leaseback of its facility in charlotte , nc under a 10 year lease agreement . the company also has capital leases on certain production machinery and equipment . the outstanding balance on the capital lease obligations of $ 1,590,000 and $ 2,270,000 as of march 31 , 2016 and 2015 , respectively , are included in current portion of long-term debt and senior debt in the consolidated balance sheets .
| results of operations fiscal 2016 compared to 2015 fiscal 2016 sales were $ 597,103,000 , an increase of 3.0 % , or $ 17,460,000 compared with fiscal 2015 sales of $ 579,643,000 . sales for the year were positively impacted by $ 74,267,000 due to acquisitions and $ 5,605,000 by price increases . sales for the year were negatively impacted $ 33,082,000 due to a decrease in sales volume . the decline in sales volume was due to industrial recessions caused by weakness in oil & gas , mining , heavy oem , and commercial construction markets affecting our north american hoist and rigging and latin american operations . unfavorable foreign currency translation reduced sales by $ 29,330,000 . our gross profit was $ 187,263,000 and $ 181,607,000 or 31.4 % and 31.3 % of net sales in fiscal 2016 and 2015 , respectively . the fiscal 2016 increase in gross profit of $ 5,656,000 or 3.1 % is the result of $ 24,316,000 from our recent acquisitions , $ 5,605,000 in price increases , $ 769,000 in reduced material costs , and $ 830,000 in reduced plant consolidation activities , offset by $ 11,438,000 in decreased volume , $ 3,337,000 in lower productivity due to reduced fixed cost absorption and inventory adjustments , net of other manufacturing costs , $ 2,051,000 in increased product liability costs , and $ 429,000 in facility impairment costs for a property held for sale . the translation of foreign currencies had an unfavorable impact on gross profit of $ 8,609,000. selling expenses were $ 72,858,000 and $ 69,819,000 or 12.2 % and 12.0 % of net sales in fiscal years 2016 and 2015 , respectively . the acquisitions of magnetek and stb added an additional $ 7,640,000 in selling expense for the year ended march 31 , 2016. the consolidation of two warehouses and the closure of another added $ 859,000 to selling costs .
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item 14. principal accounting fees and services the information required by this item is incorporated herein by reference from the information in our proxy statement for our 2021 annual meeting of stockholders , which we will file with the sec within 120 days of the end of the fiscal year to which this annual report on form 10-k relates . 134 table of contents part iv item 15. exhibits and financial statement schedules ( a ) documents filed as part of this annual report 1. financial statements the financial statements of axcella health inc. are included in item 8 of this annual report on form 10-k. 2. financial statement schedules all financial statements schedules are omitted as they are either not required or the information is otherwise included in the consolidated financial statements and related notes . 3. exhibits the exhibits required by item 601 of regulation s-k and item 15 ( b ) of this annual report are listed in the exhibit index below . the exhibits listed in the exhibit index are incorporated by reference herein . ( b ) exhibit index exhibit no . exhibit index 3.1 restated certificate of incorporation of the registrant ( incorporated by reference to exhibit 3.3 to the registrant 's current report on form 8-k ( file no . 001-38901 ) filed with the securities and exchange commission on may 13 , 2019 ) . 3.2 amended and restated bylaws of registrant ( incorporated by reference to exhibit 3.4 to the registrant 's current report on form 8-k ( file no . 001-38901 ) filed with the securities and exchange commission on may 1 7 , 2019 ) . 3.3 amendment to the amended and restated bylaws of registrant ( incorporated by reference to exhibit 3.1 to the registrant 's current report on form 8-k ( file no . 001-38901 ) filed with the securities and exchange commission on may 8 , 2020 ) . 4.1 specimen stock certificate evidencing shares of common stock ( incorporated by reference to exhibit 4.1 to the registrant 's amendment no . 1 to the registration statement on form s-1/a ( file no . 333-230822 ) filed with the securities and exchange commission on april 30 , 2019 ) . 4.2 fifth amended and restated investors ' rights agreement among the registrant and certain of its stockholders , dated november 30 , 2018 ( incorporated by reference to exhibit 4.2 to the registrant 's registration statement on form s-1 ( file no . 333-230822 ) filed with the securities and exchange commission on april 12 , 2019 ) . 4.3 description of the registrant 's securities ( incorporated by reference to exhibit 4.3 to the registrant 's annual report on form 10-k filed with the securities and exchange commission on march 23 , 2020 ) . 10.1 # 2010 stock incentive plan , as amended ( incorporated by reference to exhibit 10.1 to the registrant 's amendment no . 1 to the registration statement on form s-1 ( file no . 333-230822 ) filed with the securities and exchange commission on april 30 , 2019 ) . 10.2 # 2019 stock option and incentive plan and forms of award agreements thereunder ( incorporated by reference to exhibit 10.2 to the registrant 's amendment no . 2 to the registration statement on form s-1 ( file no . 333-230822 ) filed with the securities and exchange commission on may 6 , 2019 ) . 10.3 # 2019 employee stock purchase plan ( incorporated by reference to exhibit 10.3 to the registrant 's amendment no . 1 to the registration statement on form s-1 ( file no . 333-230822 ) filed with the securities and exchange commission on april 30 , 2019 ) . 10.4 # senior executive cash incentive bonus plan ( incorporated by reference to exhibit 10.4 to the registrant 's amendment no . 1 to the registration statement on form s-1 ( file no . 333-230822 ) filed with the securities and exchange commission on april 30 , 2019 ) . 135 table of contents 10.5 # amended and restated employment agreement between the registrant and william hinshaw , dated december 20 , 2018 ( incorporated by reference to exhibit 10.5 to the registrant 's amendment no . 2 to the registration statement on form s-1 ( file no . 333-230822 ) filed with the securities and exchange commission on may 6 , 2019 ) . 10.6 # employment agreement between the registrant and shreeram aradhye , dated january 1 , 2019 ( incorporated by reference to exhibit 10.1 to the registrant 's quarterly report on form story_separator_special_tag the following discussion of the financial condition and results of operations should be read in conjunction with the consolidated financial statements and the related notes thereto included elsewhere in this annual report . in addition to historical information , this discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . we caution you that forward-looking statements are not guarantees of future performance , and that our actual results of operations , financial condition and liquidity , and the developments in our business and the industry in which we operate , may differ materially from the results discussed or projected in the forward-looking statements contained in this annual report . we discuss risks and other factors that we believe could cause or contribute to these potential differences elsewhere in this annual report , including under part i , item 1a . “ risk factors ” and under “ special note regarding forward-looking statements. story_separator_special_tag components of our consolidated results of operations revenue to date , we have not generated any revenue from product sales and do not expect to generate any revenue from the sale of products in the near future . if our development efforts for our product candidates are successful and result in regulatory approval or we execute license or collaboration agreements with third parties , we may generate revenue in the future from product sales , payments from collaborations or license agreements that we may enter into with third parties , or any combination thereof . research and development expenses our research and development expenses consist primarily of costs incurred in connection with our research activities , including our drug discovery efforts , and the development of our product candidates , which include : direct external research and development expenses , including fees , reimbursed materials and other costs paid to consultants , contractors , contract manufacturing organizations , or cmos and clinical research organizations , or cros , in connection with our clinical and preclinical development and manufacturing activities ; employee-related expenses , including salaries , related benefits and stock-based compensation expense for employees engaged in research and development functions ; expenses incurred in connection with the preclinical and clinical development of our product candidates , including any clinical studies , planned clinical trials and other research programs , including under agreements with third parties , such as consultants , contractors and cros ; the cost of developing and scaling our manufacturing process and manufacturing products for use in our preclinical studies , clinical studies and clinical trials , including under agreements with third parties , such as consultants , contractors and cmos ; patent-related costs incurred in connection with filing and prosecuting patent applications ; and facilities , depreciation and other expenses , which include direct and allocated expenses for rent and maintenance of facilities and insurance . 106 table of contents we expense research and development costs as incurred . we often contract with cros and cmos to facilitate , coordinate and perform agreed-upon research , design , development , and manufacturing of our product candidates . to ensure that research and development costs are expensed as incurred , we record monthly accruals for clinical studies and manufacturing costs based on the work performed under the contract . these cro and cmo contracts typically call for the payment of fees for services at the initiation of the contract and or upon the achievement of certain clinical or manufacturing milestones . in the event that we prepay cro or cmo fees , we record the prepayment as a prepaid asset and amortize the asset into research and development expense over the period of time the contracted research and development or manufacturing services are performed . most professional fees , including project and clinical management , data management , monitoring and manufacturing fees are incurred throughout the contract period . these professional fees are expensed based on their estimated percentage of completion at a particular date . our cro and cmo contracts generally include pass through fees . pass through fees include , but are not limited to , regulatory expenses , investigator fees , travel costs and other miscellaneous costs and raw materials . we expense the costs of pass through fees under our cro and cmo contracts as they are incurred , based on the best information available to us at the time . a significant portion of our research and development costs are not tracked by project as they benefit multiple projects or our technology platform , and , as such , are not separately classified . research and development expenses may fluctuate from period to period depending upon the stage of certain projects and the stage of preclinical and clinical activities and development . many factors can affect the cost and timing of our clinical studies and planned clinical trials , including , without limitation , slow patient enrollment and the availability of supplies , including as a result of the covid-19 pandemic , and real or perceived lack of effect on biology or safety of our product candidates . in addition , the development of all of our product candidates may be subject to extensive governmental regulation . these factors make it difficult for us to predict the timing and costs of the further development of our product candidates . see “ risk factors ” for further discussion of these and additional risks and uncertainties associated with product development and commercialization that may significantly affect the timing and cost of our research and development expenses and our ability to obtain regulatory approval for and successfully commercialize our product candidates . we expect research and development expenses to increase as we advance existing product candidates into additional clinical trials and clinical studies and develop new product candidates . general and administrative expenses general and administrative expenses consist primarily of salaries , benefits , travel and stock-based compensation expense for personnel in executive , finance and administrative functions . general and administrative expenses also include professional fees for legal , consulting , accounting and audit services . we anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research and development of our product candidates . we also anticipate that we will incur increased finance , accounting , audit , legal , compliance , director and officer insurance costs as well as investor and public relations expenses associated with operating as a public company .
| consolidated results of operations comparison of the years ended december 31 , 2020 and 2019 the following table summarizes our consolidated results of operations for the years ended december 31 , 2020 and 2019 ( in thousands ) : replace_table_token_0_th research and development expenses the following table summarizes our research and development expenses incurred during the years ended december 31 , 2020 and 2019 ( in thousands ) : replace_table_token_1_th the increase of $ 0.8 million in salary and benefits-related costs resulted from higher average salaries , bonuses , and promotions for personnel in research and development . stock-based compensation expense also contributed to the year-over-year growth in salary and benefits-related costs due to an increase in the number of awards granted . clinical research and outside services costs decreased by $ 5.1 million due to lower costs associated with clinical studies ' expenses as we completed our axa1125-003 and axa1665-002 , and the closure of our axa1957-002 pediatric study . 108 table of contents general and administrative expenses the following table summarizes our general and administrative expenses incurred during the years ended december 31 , 2020 and 2019 ( in thousands ) : replace_table_token_2_th salary and benefits-related costs grew by $ 0.8 million due to the hiring of additional personnel in our general and administrative functions to support our operations . stock-based compensation expense also contributed to the year-over-year growth in salary and benefits-related costs due to an increase in the number of awards granted . other contract services and outside costs decreased by $ 0.6 million , driven by decreases in professional and legal fees , largely as a result of one-time expenses related to becoming a public company in 2019. facility-related and other costs increased by $ 0.8 million due to a standard increase in annual rent expense and an increase in purchased software costs .
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turn 's recommendation also included a reduction in revenue requirement related to income tax repair deductions that originated during the period 2012 – 2014. a final 2015 grc decision is not expected until later in 2015. sce expects to recognize revenue based on the 2014 authorized revenue requirement until a grc decision is issued . the cpuc has approved the establishment of a grc memorandum account , which will make the 2015 revenue requirement ultimately adopted by the cpuc effective as of january 1 , 2015. sce can not predict the revenue requirement the cpuc will ultimately authorize or provide assurance on the timing of a final decision . cost of capital in december 2014 , the cpuc granted a one-year extension of the date to april 2016 when sce must file the next cost of capital mechanism application , due to the stability of interest rates since the last cost of capital filing in 2012. as a result , sce 's current authorized cost of capital mechanism is extended through 2016 , subject to the trigger mechanism . the cost of capital trigger mechanism provides for an automatic annual adjustment to sce 's authorized cost of capital in september if the utility bond index changes beyond certain thresholds . the adjustment would apply to the following calendar year . the return on common equity will remain at 10.45 % for 2015 and 2016 , subject to any index changes that exceed the thresholds for 2016. edison international dividend policy in december 2014 , edison international declared a 17.6 % increase to the annual dividend rate from $ 1.42 per share to $ 1.67 per share . edison international plans to increase its dividends to common shareholders to its target payout ratio of approximately 45 % to 55 % of sce earnings in steps over time . permanent retirement of san onofre and san onofre oii settlement replacement steam generators were installed at san onofre in 2010 and 2011. on january 31 , 2012 , a leak suddenly occurred in one of the heat transfer tubes in san onofre 's unit 3 steam generators . the unit was safely taken off-line and subsequent inspections revealed excessive tube wear . unit 2 was off-line for a planned outage when areas of unexpected tube wear were also discovered . on june 6 , 2013 , sce decided to permanently retire and decommission units 2 and 3. settlement of san onofre cpuc proceedings in october 2012 , the cpuc issued an oii that consolidated all san onofre issues in related cpuc regulatory proceedings to consider appropriate cost recovery for all san onofre costs , including among other costs , the cost of the steam generator replacement project , substitute market power costs , capital expenditures , and operation and maintenance costs . on november 20 , 2014 , the cpuc approved the amended and restated settlement agreement ( the `` san onofre oii settlement agreement '' ) that sce had entered into with turn , the ora , sdg & e , the coalition of california utility employees , and friends of the earth ( together , the `` settling parties '' ) . the san onofre oii settlement agreement resolved the cpuc 's oii and related proceedings regarding the steam generator replacement project at san onofre and the related outage and subsequent shutdown of san onofre . the san onofre oii settlement agreement does not affect proceedings related to recoveries from third parties described below , but does describe how shareholders and customers will share any 6 potential recoveries . sce has recorded the effects of the san onofre oii settlement agreement . such amounts do not reflect any recoveries from third parties by sce . a lawsuit challenging the cpuc 's authority to permit rate recovery of san onofre costs and an application for rehearing of the cpuc 's decision approving the san onofre oii settlement agreement were filed in november and december 2014 , respectively . on february 9 , 2015 , sce filed in the oii proceeding a late-filed notice of ex parte communication regarding a meeting in march 2013 between an sce senior executive and the president of the cpuc , both of whom have since retired from their respective positions . in response , the alliance for nuclear responsibility , one of the intervenors in the oii , filed an application requesting that the cpuc institute an investigation into whether sanctions should be imposed on sce in connection with the ex parte communication . the application requests that the cpuc order sce to produce all ex parte communications between sce and the cpuc or its staff since january 31 , 2012 and all internal sce unprivileged communications that discuss such ex parte communications . third-party recoveries san onofre carries accidental property damage and carried accidental outage insurance issued by neil and has placed neil on notice of claims under both policies . for further discussion of potential neil insurance recoveries and how they would be shared with customers and sce , see `` notes to consolidated financial statements—note 11. commitments and contingencies—contingencies—san onofre related matters . '' sce is also pursuing claims against mhi , which designed and supplied the rsgs . in october 2013 , sce sent mhi a formal request for binding arbitration under the auspices of the international chamber of commerce in accordance with the purchase contract seeking damages for all losses . in the request for arbitration , sce alleges contract and tort claims and seeks at least $ 4 billion in damages on behalf of itself and its customers and in its capacity as operating agent for san onofre . story_separator_special_tag mhi has denied any liability and has asserted counterclaims for $ 41 million , for which sce has denied any liability . the other co-owners ( sdg & e and riverside ) have been added as additional claimants in the arbitration , with party status . for further discussion of potential recoveries from mhi and how they would be shared with customers , see `` notes to consolidated financial statements—note 11. commitments and contingencies—contingencies—san onofre related matters . '' rate impacts due to the implementation of the settlement as of december 31 , 2014 , including the refund of revenue related to the steam generator replacement project , the refund of the difference between authorized and recorded operation and maintenance expenses for 2013 and 2014 , the refund from the reduction of returns on the balance of its san onofre investment and the other elements of the settlement will result in a refund to customers of approximately $ 540 million . such refunds under the san onofre oii settlement agreement were effectuated through a reduction in sce 's erra undercollection . at december 31 , 2014 , sce 's erra undercollection was $ 1.03 billion . the erra undercollection is expected to continue to decrease during 2015 assuming : approval of sce 's request to classify the majority of costs incurred at san onofre since june 7 , 2013 as decommissioning costs and provide reimbursement from sce 's nuclear decommissioning trust ; and approval of sce 's 2015 erra forecast application , with implementation of revised rates occurring during the first quarter of 2015. these decreases will be impacted by over/undercollection of purchased power and fuel costs during 2015 , including changes in natural gas and power prices . sce may finance unrecovered power procurement-related costs with commercial paper or other borrowing , subject to availability in the capital markets . delays in approval of rate increases to recover undercollection of fuel and purchase power costs would adversely impact sce 's liquidity . for further information on 2015 erra forecast application , see `` liquidity—regulatory proceedings—erra forecast filing – 2015 . '' 7 nrc proceedings for information on the nrc proceedings , see `` notes to consolidated financial statements—note 11. commitments and contingencies—contingencies—san onofre related matters . '' decommissioning the decommissioning of a nuclear plant requires the management of three related activities : radiological decommissioning , non-radiological decommissioning and the management of spent nuclear fuel . the decommissioning process is expected to take many years . in june 2013 , sce began the initial activity phase of radiological decommissioning by filing with the nrc a certification of permanent cessation of power operations at san onofre . notifications of permanent removal of fuel from the reactor vessels were provided in june and july 2013 for units 3 and 2 , respectively . on september 23 , 2014 , sce submitted its post-shutdown decommissioning activities report ( `` psdar '' ) , irradiated fuel management plan and decommissioning cost estimate for san onofre , units 2 and 3 to the nrc . these submittals were subject to a ninety-day period for nrc review and acceptance , which expired on december 27 , 2014. sce is now permitted to start major radiological decommissioning activities pursuant to nrc regulations , provided sce obtains all necessary environmental permits for decommissioning . during the second quarter of 2014 , sce updated its decommissioning cost estimate based on a site specific assessment . the decommissioning cost estimate in 2014 dollars is $ 4.4 billion ( sce share – $ 3.3 billion ) and includes costs from june 7 , 2013 through to the respective completion dates to decommission san onofre units 2 and 3 estimated to be in 2052. the decommissioning cost estimate is subject to a number of estimates including the cost of burial of nuclear waste , cost of removal of property , site remediation costs as well as a number of other assumptions and estimates , including when the federal government may remove spent fuel canisters from the san onofre site , as to which there can be no assurance . the cost estimate is subject to change and such changes may be material . sce 's share of the present value of decommissioning costs using current discount rates was $ 3.0 billion at december 31 , 2014. for further information , see `` notes to consolidated financial statements—note 1. summary of significant accounting policies—asset retirement obligation . '' sce has nuclear decommissioning trust funds for san onofre units 2 and 3 of $ 3.4 billion as of december 31 , 2014. if the decommissioning cost estimate and assumptions regarding trust performance do not change , sce believes that future contributions to the trust funds will not be necessary . the cpuc must issue an order granting prior approval for withdrawal of decommissioning trust funds . sce has filed a request with the cpuc to authorize release of trust funds for costs up to a specified cost cap of $ 214 million to cover sce 's share of 2013 decommissioning costs . the request also seeks cpuc approval for a process by which sce will be able to seek the release of trust funds to cover decommissioning costs incurred in 2014 and future periods until the cpuc approves a permanent san onofre decommissioning plan and cost recovery mechanism . depending on the ultimate interpretation of irs regulations , which address the taxation of a qualified nuclear decommissioning trust , sce may be restricted from withdrawing amounts from the qualified decommissioning trusts to pay for independent spent fuel storage installation ( `` isfsi '' ) where sce is seeking , or plans to seek , recovery of the isfsi costs in litigation against the doe . for further information , see `` notes to consolidated financial statements—note 11. commitments and contingencies—contingencies—spent nuclear fuel . '' sce intends to participate as part of an industry coalition in working with the irs and the department of treasury
| results of operations sce sce 's results of operations are derived mainly through two sources : utility earning activities – representing revenue authorized by the cpuc and ferc which is intended to provide sce a reasonable opportunity to recover its costs and earn a return on its net investment in generation , transmission and distribution assets . the annual revenue requirements are comprised of authorized operation and maintenance costs , depreciation , taxes and a return consistent with the capital structure . also , included in utility earnings activities are revenues or penalties related to incentive mechanisms , other operating revenue , and regulatory charges or disallowances . utility cost-recovery activities – representing cpuc- and ferc-authorized balancing accounts which allow for recovery of specific project or program costs , subject to reasonableness review or compliance with upfront standards . utility cost-recovery activities include rates which provide recovery , subject to reasonableness review of , among other things , fuel costs , purchased power costs , public purpose related-program costs ( including energy efficiency and demand-side management programs ) and certain operation and maintenance expenses . the following table is a summary of sce 's results of operations for the periods indicated . replace_table_token_4_th 1 see use of non-gaap financial measures in `` management overview—highlights of operating results . '' 10 utility earning activities 2014 vs 2013 utility earning activities were primarily affected by the following : higher operating revenue of $ 229 million due to : an increase in cpuc-related revenue of $ 370 million primarily related to the increase in authorized revenue to support rate base growth , including $ 30 million of additional revenue from revisions to its 2012 – 2014 grc revenue requirement related to deferred income taxes .
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these statements relate to , among other things , our strategy ; our expected research and development ( “ r & d ” ) and general and administrative ( “ g & a ” ) expenses in 2018 ; the sufficiency of our cash and cash equivalents to meet our obligations ; our anticipated need for additional capital ; the potential impact on us of recent u.s. tax legislation ; and our estimates of certain future contractual obligations . forward-looking statements may include words such as “ aim , ” “ anticipate , ” “ assume , ” “ believe , ” “ contemplate , ” “ continue , ” “ could , ” “ due , ” “ estimate , ” “ expect , ” “ goal , ” “ intend , ” “ may , ” “ objective ” “ plan , ” “ predict , ” “ potential , ” “ positioned , ” “ seek , ” “ should , ” “ target , ” “ will , ” “ would ” and other similar expressions that are predictions of or indicate future events and future trends , or the negative of these terms or other comparable terminology . forward-looking statements are subject to risks and uncertainties , and actual events or results may differ materially . factors that could cause our actual results to differ materially include , but are not limited to , the risks and uncertainties listed below as well as those discussed under item 1a - risk factors of this form 10-k. our ability to obtain additional financing in future offerings and or obtain funding from future collaborations ; our operating losses ; our ability to successfully complete research and development of our drug candidates ; 43 our ability to develop , manufacture and commercialize products ; our collaboration with roche pursuant to the license agreement ; our ability to protect our patents and other intellectual property ; our ability to hire and retain key employees ; tax treatment of our separation from elan and subsequent distribution of our ordinary shares ; our ability to maintain financial flexibility and sufficient cash , cash equivalents and investments and other assets capable of being monetized to meet our liquidity requirements ; potential disruptions in the u.s. and global capital and credit markets ; government regulation of our industry ; the volatility of our ordinary share price ; business disruptions ; and the other risks and uncertainties described in item 1a - risk factors of this form 10-k. we undertake no obligation to revise or update any forward-looking statements to reflect any event or circumstance that arises after the date of this report . this discussion should be read in conjunction with the consolidated financial statements and notes presented in item 8 of this form 10-k. overview prothena corporation plc is a global , late-stage clinical biotechnology company establishing fully-integrated research , development and commercial capabilities and focused on advancing new therapies in the neuroscience and orphan disease categories . fueled by its deep scientific understanding built over decades of research in protein misfolding , prothena seeks to fundamentally change the course of progressive diseases associated with this biology . our pipeline of antibody-based product candidates targets a number of potential indications including al amyloidosis ( neod001 ) , parkinson 's disease and other related synucleinopathies ( prx002/rg7935 ) and attr amyloidosis ( prx004 ) . the company continues to advance additional discovery programs where our deep scientific understanding of disease pathology can be leveraged . we have a number of discovery-stage programs targeting proteins implicated in diseases across the neuroscience and orphan categories , including tau and aβ for the potential treatment of alzheimer 's disease and other neurodegenerative disorders and alect2 for the potential treatment of alect2 amyloidosis . we were formed on september 26 , 2012 under the laws of ireland and re-registered as an irish public limited company on october 25 , 2012. our ordinary shares began trading on the nasdaq global market under the symbol “ prta ” on december 21 , 2012 and currently trade on the nasdaq global select market . critical accounting policies and estimates management 's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements , which have been prepared in accordance with the accounting principles generally accepted in the u.s. ( “ gaap ” ) . the preparation of these consolidated financial statements requires us to make estimates and assumptions for the reported amounts of assets , liabilities , revenues , expenses and related disclosures . we believe the following policies to be critical to the judgments and estimates used in the preparation of our financial statements . revenue recognition revenue is recognized when earned and non-refundable , when payment is reasonably assured , and when there is no future obligation with respect to the revenue , in accordance with the terms prescribed in the applicable contract . multiple element arrangements our revenues are generated primarily through our license , development and commercialization agreement . these types of agreements generally contain multiple elements , or deliverables , which may include ( i ) licenses to our technology , ( ii ) research and development ( “ r & d ” ) activities to be performed on behalf of the collaborative partner , and ( iii ) in certain cases , services or 44 obligations in connection with the manufacturing or supply of preclinical and clinical material . payments to us under these arrangements typically include one or more of the following : non-refundable , upfront license fees ; funding of research and or development efforts ; milestone payments ; and royalties on future product sales . revenue under license , development and commercialization agreements is recognized based on the performance requirements of the contract . determinations of whether persuasive evidence of an arrangement exists and whether delivery has occurred or services have been rendered are based on management 's judgments regarding the fixed nature of the fees charged for deliverables and the collectability of those fees . story_separator_special_tag commercial milestones are typically achieved when an approved pharmaceutical product reaches certain defined levels of net royalty sales by the licensee of a specified amount within a specified period . commercial milestone payments and milestone payments that are not deemed to be substantive will be accounted for as a contingent revenue payment with revenue recognized when all contingencies are lifted , which is expected to be upon achievement of the milestone , assuming all revenue recognition criteria are met . profit share revenue for agreements , with profit sharing arrangements , we will record our share of the pre-tax commercial profit as collaboration revenue when the profit sharing can be reasonably estimated and collectability is reasonably assured . if profit sharing estimates are materially different from actual results it could impact the amount of revenue recognized in future periods . if the profit share can not be reasonably estimated or collectability of the profit share amount is not reasonably assured , our portion of the profit share it could impact the amount of revenue recognized in future periods . royalty revenue we will recognize revenue from royalties based on licensees ' sales of our products or products using its technologies . royalties are recognized as earned in accordance with the contract terms when royalties from licensees can be reasonably estimated and collectability is reasonably assured . if we can no longer estimate royalty revenue or our estimates are materially different from actual results it could impact the amount of revenue recognized in future periods . build-to-suit lease accounting in certain lease arrangements , we are involved in the construction of the building . to the extent we are involved with structural improvements of the construction project or take construction risk prior to the commencement of a lease , financial accounting standards board , or fasb , accounting standards codification , or asc , 840-40 , leases – sale-leaseback transactions ( subsection 05-5 ) , requires us to be considered the owner for accounting purposes of these types of projects during the construction period . therefore , we record an asset in property and equipment , net on the consolidated balance sheets , including capitalized interest costs , for the replacement cost of the pre-existing building plus the amount of estimated construction costs and tenant improvements incurred by the landlord and us as of the balance sheet date . we record a corresponding build-to-suit lease obligation on our consolidated balance sheets representing the amounts paid by the lessor . once construction is complete , we consider the requirements for sale-leaseback accounting treatment , including evaluating whether all risks of ownership have been transferred back to the landlord , as evidenced by a lack of continuing involvement in the leased property . if the arrangement does not qualify for sale-leaseback accounting treatment , the building asset remains on our consolidated balance sheets at its historical cost , and such asset is depreciated over its estimated useful life of 30 years . we bifurcate our lease payments into a portion allocated to the building , and a portion allocated to the parcel of land on which the building has been built . the portion of the lease payments allocated to the land are treated for accounting purposes as operating lease payments , and therefore recorded as rent expense in the consolidated statements of operations . the portion of the lease payments allocated to the building is further bifurcated into a portion allocated to interest expense and a portion allocated to reduce the build-to-suit lease obligation . the interest rate used for the build-to-suit lease obligation represents our estimated incremental borrowing rate , adjusted to reduce any built in loss . the initial recording of these assets and liabilities is classified as non-cash investing and financing items , respectively , for purposes of the consolidated statements of cash flows . the most significant estimates used by management in accounting for build-to-suit leases and the impact of these estimates are as follows : expected lease term- our expected lease term includes the contractual lease period . the expected lease term is used in determining the depreciable life of the asset or the straight-line rent recognition period for the portion of the lease payment allocable to the land component . incremental borrowing rate- we estimate our incremental borrowing rate . for build-to-suit leases recorded on our consolidated balance sheets with a related build-to-suit lease obligation , the incremental borrowing rate is used in allocating our rental payments between interest expense and a reduction of the outstanding build-to-suit lease obligation . fair market value of leased asset- the fair market value of a build-to-suit lease property is based on replacement cost of the pre-construction shell and comparable market data . fair market value is used in determining the amount of the property asset and related build-to-suit lease obligation to be recognized on our consolidated balance sheet for build-to-suit leases . 46 research and development we expense r & d costs as incurred . r & d expenses include , but are not limited to , salary and benefits , share-based compensation , clinical trial activities , drug development and manufacturing prior to fda approval and third-party service fees , including clinical research organizations and investigative sites . we recognize costs for certain development activities , such as clinical trials , based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment , clinical site activations , or information provided to us by our vendors on their actual costs incurred . the objective of our accrual policy is to match the recording of the expenses in our consolidated financial statements to the actual services we have received and efforts we have expended . as such , expense accruals related to clinical trials are recognized based on our estimate of the degree of completion of the events specified in the specific clinical study or trial contract .
| results of operations comparison of years ended december 31 , 2017 , 2016 and 2015 revenue replace_table_token_3_th total revenue was $ 27.5 million , $ 1.1 million and $ 1.6 million for the years ended december 31 , 2017 , 2016 and 2015 , respectively . collaboration revenue includes milestone payments and reimbursements under our license agreement with roche . the portion of the amounts recognized as collaboration revenue for the milestone and the development reimbursements were based on the relative selling price method in applying multiple element accounting . see note 8 to the consolidated financial statements “ roche license agreement ” for more information . collaboration revenue for the year ended december 31 , 2017 consisted of a clinical milestone from roche of $ 30.0 million ( of which $ 26.6 million was recognized as collaboration revenue ) and reimbursement for research services of $ 0.9 million , while collaboration revenue for the year ended december 31 , 2016 consisted of reimbursement for research services of $ 1.1 million . conversely , collaboration revenue for the year ended december 31 , 2015 consisted of the following amounts from roche under the license agreement : reimbursement for development costs of $ 5.1 million ( of which $ 0.2 million was recognized as collaboration license revenue ) and reimbursement for research services of $ 1.4 million . operating expenses replace_table_token_4_th total operating expenses consist of r & d expenses and general and administrative ( “ g & a ” ) expenses . our operating expenses were $ 182.8 million , $ 160.6 million and $ 81.5 million for the years ended december 31 , 2017 , 2016 and 2015 , respectively . our r & d expenses primarily consist of personnel costs and related expenses , including share-based compensation and external costs associated with nonclinical activities and drug development related to our drug programs , including neod001 , prx002/rg7935 , prx003 , prx004 and our discovery programs .
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we have arrangements with three of our executive officers pursuant to which the termination of their employment under certain circumstances would result in lump sum payments to them . termination under such circumstances at december 31 , 2016 could have resulted in payments aggregating $ 6.1 million . ( 12 ) quarterly financial data ( unaudited ) : replace_table_token_26_th the quarterly information presented above reflects , in the opinion of management , all adjustments necessary for a fair presentation of the results for the interim periods presented . 50 item 9. changes in and disagreements with accountants on accounting and financial disclosure . none . item 9a . controls and procedures . our management , with the participation of our chief executive officer and our chief financial officer , evaluated our disclosure controls and procedures ( as defined in exchange act rules 13a-15 ( e ) and 15d-15 ( e ) ) as of december 31 , 2016. based upon this evaluation , our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures , as defined in rule 13a-15 ( e ) under the securities exchange act of 1934 , were effective as of december 31 , 2016. there were no changes in our internal control over financial reporting for the fourth fiscal quarter ended december 31 , 2016 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting . management 's report on internal control over financial reporting our management , including our chief executive officer and chief financial officer , is responsible for establishing and maintaining adequate internal control over financial reporting as defined in rule 13a-15 ( f ) under the securities exchange act of 1934 , as amended . our internal control system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles . all internal control systems , no matter how well designed , have inherent limitations . a system of internal control may become inadequate over time because of changes in conditions or deterioration in the degree of compliance with the policies or procedures . therefore , even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation . our management assessed the effectiveness story_separator_special_tag overview we develop and manufacture products primarily for medical applications . we market components to other equipment manufacturers for incorporation in their products and sell finished devices to physicians , hospitals , clinics and other treatment centers . our medical products primarily serve the fluid delivery , cardiovascular , and ophthalmology markets . our other medical and non-medical products include valves and inflation devices used in marine and aviation safety products . in 2016 , approximately 37 percent of our sales were outside the united states . our products are used in a wide variety of applications by numerous customers . we encounter competition in all of our markets and compete primarily on the basis of product quality , price , engineering , customer service and delivery time . our strategy is to provide a broad selection of products in the areas of our expertise . r & d efforts are focused on improving current products and developing highly-engineered products that meet customer needs and serve niche markets with meaningful sales potential . proposed new products may be subject to regulatory clearance or approval prior to commercialization and the time period for introducing a new product to the marketplace can be unpredictable . we also focus on controlling costs by investing in modern manufacturing technologies and controlling purchasing processes . we have been successful in consistently generating cash from operations and have used that cash to reduce or eliminate indebtedness , to fund capital expenditures , to make investments , to repurchase stock and to pay dividends . 20 our strategic objective is to further enhance our position in our served markets by : ● focusing on customer needs ; ● expanding existing product lines and developing new products ; ● maintaining a culture of controlling cost ; and ● preserving and fostering a collaborative , entrepreneurial management structure . for the year ended december 31 , 2016 , we reported revenues of $ 143.5 million , operating income of $ 39.1 million and net income of $ 27.6 million . story_separator_special_tag credit in december 2015. this amount also included an adjustment for recalculation of these tax credits from prior years resulting from a new regulation issued by the treasury department which favorably impacted the benefits provided to the company under these rules . benefits from r & d tax credits totaled $ 1.1 million in 2016 , $ 2.3 million in 2015 and $ 393,000 in 2014. benefits from tax incentives for domestic production totaled $ 1.2 million in 2016 , $ 1.4 million in 2015 and $ 1.3 million in 2014. benefits from changes in uncertain tax positions totaled $ 120,000 in 2016 , $ 9,000 in 2015 and $ 217,000 in 2014. we expect our effective tax rate for 2017 to be approximately 33.0 percent . accounting for stock based awards could create volatility in our effective tax rate depending upon the amount of exercise or vesting activity from these activities . liquidity and capital resources at december 31 , 2016 , we had a $ 40.0 million revolving credit facility with a money center bank that could be utilized for the funding of operations and for major capital projects or acquisitions , subject to certain limitations and restrictions . interest under the credit facility was assessed at 30-day , 60-day or 90-day libor , as selected by us , plus one percent and was payable monthly . story_separator_special_tag as a result of the adoption , a tax benefit of $ 687,000 was recorded in 2016 reflecting the excess tax benefits resulting from the vesting of restricted stock and restricted stock units . prior to adoption , this amount would have been recorded as additional paid-in capital . this change could create future volatility in our effective tax rate depending upon the amount of exercise or vesting activity from our stock based awards . this adoption also impacted the computation of diluted shares outstanding for all 2016 reporting periods as we excluded the excess tax benefits from the assumed proceeds available to repurchase shares in the computation of our diluted earnings per share . the effect of this change on our diluted earnings per share was not significant . the excess tax benefit recorded in 2016 was included in our consolidated statements of cash flows as an operating activity rather than as a financing activity as was done in prior years . there were no restatements of cash flows from operating activities or cash flows from financing activities for the years 2015 and 2014 because we elected to adopt this change on a prospective basis . asu 2016-09 also requires the presentation of employee taxes paid by the company through the withholding of shares as a financing activity on the statement of cash flows , which is how we had previously reflected these items . in january 2016 , the fasb issued asu 2016-01 , financial instruments - overall ( subtopic 825-10 ) : recognition and measurement of financial assets and financial liabilities . the main objective of this update is to enhance the reporting model for financial instruments in order to provide users of financial statements with more decision-useful information . the new guidance addresses certain aspects of recognition , measurement , presentation , and disclosure of financial instruments . this asu is effective for fiscal years beginning after december 15 , 2017 , including interim periods within those fiscal years . we are currently evaluating the new guidance to determine the impact it may have on our consolidated financial statements . in november 2015 , the fasb issued asu 2015-17 , balance sheet classification of deferred taxes ( asu 2015-17 ) which requires that deferred tax liabilities and assets be classified as noncurrent on the balance sheet . the current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount is not affected by this guidance . asu 2015-17 is effective for annual and interim periods beginning after december 15 , 2016 but early application is permitted and the guidance may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented . the company does not anticipate a material impact on its consolidated financial statements at the time of adoption of this new standard . 24 in may 2014 , the fasb issued asu 2014-09 , revenue from contracts with customers ( asu 2014-09 ) . asu 2014-09 requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers . asu 2014-09 will replace most existing revenue recognition guidance in united states generally accepted accounting principles when it becomes effective . in july 2015 , the fasb voted to delay the effective date of asu 2014-09 by one year , making it effective for fiscal years , and interim periods within those years , beginning after december 15 , 2017 , with early adoption permitted as of the original effective date . asu 2014-09 permits the use of either the retrospective or cumulative effect transition method . we plan on adopting the asu in the first quarter of the year ended december 31 , 2018. the company has not yet selected a transition method and is currently evaluating the effect that our pending adoption of this guidance will have on our consolidated financial statements and related disclosures . we anticipate our assessment to be completed by december 31 , 2017. based on our existing evaluation process , we have not identified any revenue stream that would be materially impacted . from time to time , new accounting standards updates applicable to us are issued by the fasb which we will adopt as of the specified effective date . unless otherwise discussed , we believe the impact of recently issued standards updates that are not yet effective will not have a material impact on our consolidated financial statements upon adoption . critical accounting policies the discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . in the preparation of these financial statements , we make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosures of contingent assets and liabilities . we believe the following discussion addresses our most critical accounting policies and estimates , which are those that are most important to the portrayal of our financial condition and results and require management 's most difficult , subjective and complex judgments , often as a result of the need to make estimates about the effect of matters that are inherently uncertain . actual results could differ significantly from those estimates under different assumptions and conditions . from time to time , we accrue legal costs associated with certain litigation . in making determinations of likely outcomes of litigation matters , we consider the evaluation of legal counsel knowledgeable about each matter , case law and other case-specific issues . we believe these accruals are adequate to cover the legal fees and expenses associated with litigating these matters .
| results of operations our net income was $ 27.6 million , or $ 15.12 per basic and $ 14.85 per diluted share , in 2016 compared to $ 28.9 million , or $ 15.67 per basic and $ 15.47 per diluted share , in 2015 and net income of $ 27.8 million , or $ 14.20 per basic and $ 14.08 per diluted share , in 2014. revenues were $ 143.5 million in 2016 compared with $ 145.7 million in 2015 and $ 140.8 million in 2014. our 2016 revenues were negatively impacted by the strong u. s. dollar in our international markets and lower sales prices in certain markets . the four percent revenue increase in 2015 over 2014 was generally attributable to higher sales volumes . annual revenues by product lines were as follows ( in thousands ) : replace_table_token_3_th our cost of goods sold was $ 75.9 million in 2016 , $ 74.8 million in 2015 and $ 72.2 million in 2014. increased compensation costs , depreciation and repair costs partially offset by reduced utilities and reduced supplies were the primary contributors to the increase in cost of goods sold in 2016 over 2015. higher sales volume along with increased compensation costs , supplies and utilities partially offset by improved manufacturing efficiencies were the primary contributors to the increase in cost of goods sold in 2015 over 2014. gross profit in 2016 was $ 67.6 million compared with $ 71.0 million in 2015 and $ 68.5 million in 2014. our gross profit was 47 percent of revenues in 2016 and 49 percent of revenues in both 2015 and 2014. the decrease in gross profit percentage in 2016 from 2015 was primarily related to reduced sales , lower sales prices and increased manufacturing costs .
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as an approximation , a truck has a capacity of 20-25 tons of aggregates ; a railcar has a capacity of 4-5 truckloads ; a barge has a capacity of 65 truckloads and our ocean vessels have the capacity of 2,500 truckloads . part ii 34 strong financial foundation our strong balance sheet gives us the financial flexibility to implement our strategy and initiatives and allows us to negotiate from a position of strength . we have a well-established set of priorities with respect to capital allocation , as follows : 1. operating capital ( maintain and grow value of franchise ) 2. growth capital ( including greenfields and business acquisitions ) 3. dividend growth with earnings ( with a keen focus on sustainability ) 4. return excess cash to shareholders ( primarily via share repurchases ) our first and highest use of cash is to maintain and protect our valuable franchise by keeping our operations in good working order to ensure the timely delivery of goods and services to our customers . this cash use takes the form of operating and maintenance capital and the requirements expand and contract as volume changes . our second priority is to grow and expand our franchise . we do this through internal growth projects and business acquisitions . internal growth projects have generally been among our highest returning projects and include the opening of greenfield production and or distribution sites and the acquisition of new reserves . for business acquisitions , we tend to look for small bolt-on acquisitions which are easy to integrate and will pursue large business combinations that are the right fit and the right price . we use strategic and returns-based criteria to price potential acquisitions and are disciplined in our approach . we look at a lot of potential acquisitions and only make offers on a few . our third priority is dividend growth to a level that we confidently believe we can maintain through the cycle . and finally , if there is excess cash after fulfilling the first three capital allocation priorities , we will consider returning cash to shareholders via share repurchases . additionally , our leverage , as measured by total debt to adjusted ebitda , has improved from 6.5x at december 31 , 2012 to 2.2x as of december 31 , 2019 , well within our stated leverage target of 2.0 to 2.5x . over that period , we also improved the structure of our debt ( average maturity from 7 years to 14 years ) and reduced the cost of the debt ( weighted average interest rate from 7.55 % to 4.36 % ) . part ii 35 results of operations total revenues are primarily derived from our product sales of aggregates , asphalt mix and ready-mixed concrete , and include freight & delivery costs that we pass along to our customers to deliver these products . we also generate service revenues from our asphalt construction paving business and services related to our aggregates business . we present separately our discontinued operations , which consists of our former chemicals business . the following table highlights significant components of our consolidated operating results including ebitda and adjusted ebitda . consolidated operating results highlights replace_table_token_8_th 1 non-gaap measures are defined and reconciled within this item 7 under the caption reconciliation of non-gaap measures . part ii 36 net earnings for 2019 were $ 617.7 million ( $ 4.63 per diluted share ) compared to $ 515.8 million ( $ 3.85 per diluted share ) in 2018 and $ 601.2 million ( $ 4.46 per diluted share ) in 2017. e ach year 's results were impacted by discrete items , as follows : earnings for 2019 include : pretax gains of $ 13.4 million related to the sale of real estate and businesses pretax charges of $ 10.8 million for property donation pretax charges of $ 3.0 million associated with divested operations pretax charges of $ 1.7 million associated with non-routine business development pretax charges of $ 6.5 million for restructuring earnings for 2018 include : $ 0.6 million of tax expense related to tcja pretax gains of $ 2.9 million related to the sale of businesses pretax charges of $ 18.5 million associated with divested operations pretax gains of $ 2.3 million for business interruption claims pretax charges of $ 5.2 million associated with non-routine business development pretax charges of $ 6.2 million for restructuring pretax interest charges of $ 7.4 million related to early debt retirements earnings for 2017 include : $ 297.0 million of net tax benefits ( tcja — $ 268.2 million , and partial release of the alabama nol carryforward valuation allowance — $ 28.8 million ) pretax gains of $ 10.5 million related to the sale of real estate and businesses pretax charges of $ 4.3 million for property donation pretax charges of $ 18.1 million associated with divested operations pretax charges of $ 6.7 million for one-time employee bonuses pretax charges of $ 3.1 million associated with non-routine business development , net of an asset purchase agreement termination fee pretax charges of $ 1.9 million for restructuring a pretax loss on debt purchases of $ 148.0 million presented as a component of interest expense earnings from continuing operations before income taxes year-over-year changes in earnings from continuing operations before income taxes are summarized below : replace_table_token_9_th part ii 37 operating results by segment we present our results of operations by segment at the gross profit level . story_separator_special_tag concrete segment gross profit was $ 43.2 million , down 14 % from 2018 on a 4 % decline in shipments ( 2 % same-store ) . while material margins per cubic yard improved 2 % ( 2 % same-store ) , unit profitability ( as measured by gross profit per cubic yard ) declined 10 % ( 12 % same-store ) due primarily to reduced volume leverage on fixed cost . concrete segment sales concrete gross profit and cash gross profit in millions in millions 4. calcium calcium segment gross profit increased 13 % from 2018 to $ 3.1 million . calcium segment sales calcium gross profit and cash gross profit in millions in millions in total , the 2019 gross profit contribution from our three non-aggregates ( asphalt , concrete and calcium ) segments was $ 109.3 million , a $ 0.2 million increase over 2018 , and a $ 29.7 million or 21 % decrease from 2017. part ii 41 selling , administrative and general ( sag ) expenses in millions as a percentage of total revenues , sag expense was : 7.5 % in 2019 — decreased 0.10 percentage points ( 10 basis points ) 7.6 % in 2018 — decreased 0.75 percentage points ( 75 basis points ) 8.4 % in 2017 — decreased 0.45 percentage points ( 45 basis points ) our comparative total company employment levels at year end : increased 6 % in 2019 increased 6 % in 2018 increased 11 % in 2017 increases in our employment levels were partially driven by our acquisitions ( s ee note 19 “ acquisitions and divestitures ” in item 8 “ financial statements and supplementary data ” ) . as noted above , 2019 sag expenses were $ 370.5 million or 7.5 % as a percentage of total revenues , down from 7.6 % in 2018. we remain focused on further leveraging our overhead structure . gain on sale of property , plant & equipment and businesses in millions the 2019 gain on sale of property , plant & equipment and businesses of $ 23.8 million includes : ( 1 ) $ 4.1 million of pretax gain from the sale of two aggregates operations in georgia , ( 2 ) the reversal of a contingent payable related to the 2017 department of justice required divestiture of former aggregates usa operations and ( 3 ) $ 9.3 million of pretax gain related to property donations . the 2018 gain on sale of property , plant & equipment and businesses of $ 14.9 million includes $ 2.9 million of pretax gain from the sale of our ready-mixed concrete operations in georgia , $ 3.8 million of pretax gain related to the sale of mitigation credits and $ 1.3 million of pretax gain from the sale of one of the replaced self-unloading ships . the 2017 gain on sale of property , plant & equipment and businesses of $ 17.8 million includes $ 8.0 million of pretax gain from a swap of ready-mixed concrete operations for an asphalt operation ( all in arizona ) and $ 2.5 million of pretax gain related to a property donation . see note 19 “ acquisitions and divestitures ” in item 8 “ financial statements and supplementary data. ” part ii 42 other operating expense , net other operating expense , which has an approximate run-rate of $ 12.0 million a year ( exclusive of discrete items ) , is composed of various operating items not specifically presented in the accompanying consolidated statements of comprehensive income . the total other operating expense , net and significant items included in the total were : $ 31.6 million in 2019 — includes discrete items as follows : $ 10.8 million of charges related to property donations $ 3.0 million of charges associated with divested operations , composed entirely of environmental liability accruals associated with previously divested properties $ 6.5 million of managerial restructuring charges $ 34.8 million in 2018 — includes discrete items as follows : $ 5.2 million of non-routine business development charges $ 18.5 million of charges associated with divested operations $ 6.2 million of managerial restructuring charges $ 47.3 million in 2017 — includes discrete items as follows : $ 3.1 million of non-routine business development charges , net of a termination fee . these net charges were composed of $ 11.1 million of non-routine business development charges partially offset by an $ 8.0 million credit related to an asset purchase agreement termination fee $ 18.1 million of charges associated with divested operations including $ 16.6 million of environmental liability accruals related to the hewitt landfill matter ( see note 12 “ commitments and contingencies ” in item 8 “ financial statements and supplementary data ” ) $ 6.7 million of one-time cash bonuses for non-incentive eligible employees ( $ 1,000 per employee ) $ 4.3 million of charges related to a property donation other nonoperating income , net other nonoperating income ( 2019 — $ 9.2 million , 2018 — $ 13.0 million and 2017 — $ 13.4 million ) is composed primarily of pension and postretirement benefit costs ( excluding service costs ) , foreign currency transaction gains/losses , rabbi trust gains/losses and net earnings/losses of nonconsolidated equity method investments . part ii 43 interest expense in millions interest expense was $ 130.2 million in 2019 compared to $ 138.0 million in 2018 and $ 295.5 million in 2017. interest expense for 2017 included $ 148.0 million of charges related to the 2017 debt purchases . see note 6 “ debt ” in item 8 “ financial statements and supplementary data ” for additional discussion . income taxes our income tax expense ( benefit ) from continuing operations for the years ended december 31 is shown below : replace_table_token_10_th the $ 29.8 million increase in our 2019
| executive summary financial summary for 2019 ( compared to 2018 ) total revenues increased $ 546.2 million , or 12 % , to $ 4,929.1 million gross profit increased $ 155.0 million , or 14 % , to $ 1,255.9 million aggregates segment sales increased $ 476.6 million , or 14 % , to $ 3,990.3 million aggregates segment freight-adjusted revenues increased $ 346.9 million , or 13 % , to $ 3,014.2 million shipments increased 7 % , or 14.1 million tons , to 215.5 million tons same-store shipments increased 6 % , or 12.2 million tons , to 213.5 million tons freight-adjusted sales price increased 6 % , or $ 0.74 per ton same-store freight-adjusted sales price increased 6 % , or $ 0.74 per ton segment gross profit increased $ 154.8 million , or 16 % , to $ 1,146.6 million asphalt , concrete and calcium segment gross profit increased $ 0.2 million , or 0 % , to $ 109.3 million , collectively selling , administrative and general ( sag ) expenses increased 11 % to $ 370.5 million and decreased 0.10 percentage points ( 10 basis points ) as a percentage of total revenues operating earnings increased $ 129.7 million , or 17 % , to $ 877.5 million earnings from continuing operations before income taxes were $ 757.7 million compared to $ 623.3 million earnings from continuing operations were $ 622.5 million , or $ 4.67 per diluted share , compared to $ 517.8 million , or $ 3.87 per diluted share discrete items in 2019 include : pretax gains of $ 13.4 million for the sale of businesses and property donation pretax charges of $ 10.8 million for property donation pretax charges of $ 3.0 million for divested operations pretax charges of $ 1.7 million associated with non-routine business development pretax charges of $ 6.5 million for restructuring discrete items
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on june 17 , 2013 , in connection with our acquisition of all of the outstanding membership interests of resonant llc in an exchange transaction , the founders exchanged their story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations in conjunction with the consolidated financial statements and the related notes to the consolidated financial statements included later in this annual report on form 10-k. in addition to historical financial information , the following discussion contains forward-looking statements that reflect our plans , estimates , beliefs and expectations that involve risks and uncertainties . our actual results and the timing of events could differ materially from those discussed in these forward-looking statements . factors that could cause or contribute to these differences include those discussed below and elsewhere in this annual report on form 10-k , particularly in “ risk factors ” and “ special note regarding forward-looking statements. ” overview resonant is a late-stage development company creating innovative filter designs for radio frequency , or rf , front-ends for the mobile device industry . the rf front-end is the circuitry in a mobile device responsible for analog signal processing and is located between the device 's antenna and its digital baseband . we use a fundamentally new technology called infinite synthesized networks ® , or isn ® , to configure and connect resonators , the building blocks of rf filters . filters are a critical component of the rf front-end used to select desired radio frequency signals and reject unwanted signals . we are using isn to develop new classes of filter designs . our inception date is may 29 , 2012. we commenced business on july 6 , 2012 and completed our initial public offering , or ipo , on may 29 , 2014 , or ipo date . we plan to commercialize our technology by creating filter designs that address the problems created by the growing number of frequency bands in the rf front-end of mobile devices . we are developing a series of single-band surface acoustic wave , or saw , filter designs for frequency bands presently dominated by larger and more expensive bulk acoustic wave , or baw , filters . we are also developing multiplexer filter designs for 2 or more bands to address the carrier aggregation , or ca , requirements of our customers . finally , we are developing reconfigurable filter designs to replace multiple filters for multiple bands . in order to succeed , we must convince rf front-end suppliers that our filter designs can significantly reduce the size and cost of their products . we continued to make progress during 2015 in the development of our technology in all areas of rf filter design . we have completed the development of a single-band filter design ( a duplexer ) that currently is being qualified by a third-party fab , and we have several other single-band filter designs in various stages of development and commercialization . in the fourth quarter of 2015 , we began to investigate the feasibility of using our technology to design multiplexers to address the complexities of carrier aggregation , and have commenced the initial design parameters for a couple of potential multiplexers . during 2015 , we produced initial parts for a reconfigurable filter that reconfigures between two bands , which parts are currently being optimized , and commenced development of a filter reconfigurable between three bands . we believe licensing our designs is the most direct and effective means of delivering our solutions to the market . our target customers make part or all of the rf front-end . we intend to retain ownership of our designs , and we expect to be compensated through license fees and royalties based on sales of rf front-end filters that incorporate our designs . we currently do not intend to manufacture or sell any physical products or operate as a contract design company developing designs for a fee . we anticipate a significant delay between the start of a design and the start of royalty payments under a particular license . in some cases , we may grant the customer a limited period of exclusivity on a specific design or frequency band to enable the customer to be the first to market with the design . we do not expect any of these exclusivity provisions to have any long-term duration nor prevent us from concurrently working on filter designs in other bands for other customers . we plan to pursue filter design projects with potential customers and other strategic partners . these types of arrangements may subsidize filter design costs , as well as offer complementary technology and market intelligence . however , we intend to retain ownership of our technology , designs and related improvements . our goal is to establish and leverage alliances with new customers , who will help grow the market for our designs by integrating them with their own proprietary technology and products , thus combining their own particular strengths with ours to provide an extensive array of solutions . we are using the net proceeds from our ipo for product development to commercialize our technology , research and development , the development of our patent strategy and expansion of our patent portfolio , as well as for working capital and other general corporate purposes . our anticipated costs include employee salaries and benefits , compensation paid to consultants , capital costs for research and other equipment , costs associated with development activities including travel and administration , legal expenses , sales and marketing costs , general and administrative expenses , and other costs associated with 28 a late-stage , publicly-traded technology company . however , this is highly dependent on the nature of our development efforts and our success in commercialization . we anticipate adding employees for research and development , as well as general and administrative functions , to support our efforts . story_separator_special_tag we also continue to have discussions with potential lenders , potential customers and or strategic corporate partners that may provide funding to us through debt instruments or the licensing of future filter designs or development projects . there can be no assurance that additional financing will be available to us on acceptable terms , or at all . additionally , if we issue additional equity securities to raise funds , whether to potential customers or other investors , the ownership percentage of our existing stockholders would be reduced . new investors may demand rights , preferences or privileges senior to those of existing holders of common stock . additionally , we may be limited as to the amount of funds we can raise pursuant to the continued listing requirements of nasdaq . if we can not raise needed funds , we might be forced to make substantial reductions in our operating expenses , which could adversely affect our ability to implement our business plan and ultimately our viability as a company . our consolidated financial statements have been prepared assuming that we will continue as a going concern . the factors described above raise substantial doubt about our ability to continue as a going concern . the consolidated financial statements do not include any adjustments that might result from this uncertainty . cash flow analysis operating activities used cash of $ 4.6 million in 2014 and $ 7.4 million in 2015. the increase is primarily the result of increased expenses following our ipo in june 2014 and an increase in expenses associated with being a public company . these cash uses were partially offset by non-cash expenses including stock-based compensation and depreciation and amortization . additionally , 2014 included significant offsets to the net loss from the fair value change in the warrant and derivative liabilities and the amortization of deferred finance costs . investing activities used cash of $ 9.1 million in 2014 and provided cash of $ 4.2 million in 2015. the use of cash in 2014 was primarily a result of the purchase of investments held to maturity and capital expenditures related to the completion of our office headquarters . the cash provided in 2015 was primarily a result of the net redemptions of investments held to maturity offset by the purchase of $ 100,000 related to the restricted cash commitment attributable to our corporate credit cards , capital expenditures and our investment in patents . financing activities provided cash of $ 16.2 million in 2014 and used cash of $ 45,000 in 2015. for the 2014 period , cash provided was a result of funding from our ipo offset by ipo costs . for the 2015 period , cash used in financing activities resulted from of the payment of withholding taxes related to the issuance of common stock as compensation to employees . off-balance sheet transactions we do not have any off-balance sheet arrangements . contractual obligations and known future cash requirements indemnification agreements in the ordinary course of business , we may enter into agreements of varying scope and terms pursuant to which we agree to indemnify customers , vendors , lessors , business partners and other parties with respect to certain matters , including , but not limited to , losses arising out of breach of such agreements , services to be provided by us or from intellectual property infringement claims made by third parties . in addition , we have entered into indemnification agreements with directors and certain officers and employees that will require us , among other things , to indemnify them against certain liabilities that may arise by reason of their status or service as directors , officers or employees . we are currently indemnifying pursuant to these arrangements , certain of our officers and directors and the underwriter of our ipo against claims asserted in the putative securities class action lawsuit and related purported shareholder derivate action filed in the united states district court for the central district of california , discussed in part i , item 3 , “ legal proceedings , ” of this annual report on form 10-k. no other demands have been made upon us to provide indemnification under such agreements and there are no other claims that we are aware of that could have a material effect on our consolidated balance sheets , consolidated statements of operations , consolidated statements of stockholders ' equity or consolidated statements of cash flows . operating leases we lease various office facilities , including our corporate headquarters in goleta , california and our office in burlingame , california , under operating lease agreements that expire through july 2017. the terms of the lease agreements provide for rental payments on a graduated basis . we recognize rent expense on a straight-line basis over the lease periods . 31 commitments as of december 31 , 2015 , our principal commitments consisted of obligations under the operating leases for our offices . the following table summarizes our future minimum payments under these arrangements as of december 31 , 2015 : payments due by period contractual obligations total less than 1 year 1-3 years 3-5 years more than 5 years operating lease commitments $ 295,000 $ 205,000 $ 90,000 none none critical accounting policies and estimates our discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements , which have been prepared in conformity with accounting principles generally accepted in the united states of america . certain accounting policies and estimates are particularly important to the understanding of our financial position and results of operations and require the application of significant judgment by our management or can be materially affected by changes from period to period in economic factors or conditions that are outside of our control . as a result , they are subject to an inherent degree of uncertainty . in applying these policies , our management uses their judgment to determine the appropriate assumptions to be used in the determination of certain estimates .
| results of operations comparison of the years ended december 31 , 2014 and 2015 research and development . research and development expenses consist of the direct engineering and other costs associated with the development and commercialization of our technology , including the development of filter designs for our customers . these consist primarily of the cost of employees and consultants , and to a lesser extent costs for equipment , software and supplies . we also include the costs for our intellectual property development program under research and development . this program focuses on patent strategy and invention extraction . research and development expenses increased from $ 2.5 million in the year ended december 31 , 2014 , or 2014 , to $ 3.6 million in the year ended december 31 , 2015 , or 2015. the increase of $ 1.1 million is the result of the increased payroll , benefit costs , consulting costs and development costs related to increased activity on our various filter designs under development . we have expanded our research and development employees from 13 as of the end of 2014 to 17 employees as of december 31 , 2015. general and administrative expenses . general and administrative expenses include salaries , taxes and employee benefits for the executives and administrative staff . it also includes expenses for corporate overhead such as rent for our facilities , travel expenses , telecommunications , investor relations , insurance , professional fees and business consulting fees .
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specified remaining net tangible assets were assigned to opco at the transferor 's carryover basis resulting in an adjustment , through nhi 's capital in excess of par value to our equity method investment in story_separator_special_tag the following discussion and analysis is based primarily on the consolidated financial statements of national health investors , inc. for the periods presented and should be read together with the notes thereto contained in this annual report on form 10-k. other important factors are identified in “ item 1. business ” and “ item 1a . risk factors ” above . executive overview national health investors , inc. , is a self-managed real estate investment trust ( `` reit '' ) specializing in sale-leaseback , joint-venture , mortgage and mezzanine financing of need-driven and discretionary senior housing and medical investments . our portfolio consists of real estate investments in independent , assisted and memory care communities , entrance-fee communities , senior living campuses , skilled nursing facilities , specialty hospitals and medical office buildings . other investments include mortgages and notes , the preferred stock and marketable securities of other reits , and a joint venture structured to comply with the provisions of the reit investment diversification empowerment act of 2007 ( “ ridea ” ) . through this ridea joint venture , we invest in facility operations managed by independent third-parties . we fund our real estate investments primarily through : ( 1 ) cash flow , ( 2 ) debt offerings , including bank lines of credit and ordinary term debt , and ( 3 ) the sale of equity securities . portfolio at december 31 , 2014 , our continuing operations consisted of investments in real estate and mortgage and other notes receivable involving 183 facilities located in 31 states . these investments involve 106 senior housing communities , 71 skilled nursing facilities , 4 hospitals , 2 medical office buildings and other notes receivable . these investments ( excluding our corporate office of $ 900,000 ) consisted of properties with an original cost of approximately $ 1,987,949,000 , rented under triple-net leases to 24 lessees , and $ 63,630,000 aggregate carrying value of mortgage and other notes receivable due from 15 borrowers . we classify all of the properties in our portfolio as either senior housing or medical properties . we further classify our senior housing communities as either need-driven ( assisted and memory care communities and senior living campuses ) or discretionary ( independent living and entrance-fee communities . ) medical properties within our portfolio include skilled nursing facilities , medical office buildings and specialty hospitals . 26 the following tables summarize our investments in real estate and mortgage and other notes receivable as of december 31 , 2014 ( dollars in thousands ) : replace_table_token_5_th replace_table_token_6_th 27 for the year ended december 31 , 2014 , operators of facilities which provided more than 3 % of our total revenues were ( in alphabetical order ) : bickford senior living ; brookdale senior living ; fundamental ; health services management ; holiday retirement ; legend healthcare ; and national healthcare corp. as of december 31 , 2014 , our average effective annualized rental income was $ 7,870 per bed for snfs , $ 13,057 per unit for alfs , $ 14,489 per unit for ilfs , $ 24,383 per unit for efcs , $ 41,798 per bed for hospitals , and $ 11 per square foot for mobs . we invest a portion of our funds in the preferred and common shares of other publicly held healthcare reits to ensure a substantial portion of our assets are invested for real estate purposes . at december 31 , 2014 , such investments had a carrying value of $ 53,635,000 . areas of focus we are evaluating and will potentially make additional investments during 2015 while we continue to monitor and improve our existing properties . we seek tenants who will become mission-oriented partners in relationships where our business goals are aligned . this approach fuels steady , and thus , enduring growth for those partners and for nhi . following the recent federal reserve policy statement assuring near-zero interest rates for a “ considerable time , ” we expect debt costs to remain attractive in the near term and , as a result , increased competition for healthcare assets should continue . within our industry , demand for healthcare real estate has been intensified by the availability of senior unsecured debt at historically low rates . as a result of the availability of debt and equity capital , a multitude of buyers seeking investment opportunities , including unlisted reits and private equity funds , threaten to result in an oversold market and have led nhi to more value-based investment judgments . as capitalization rates have fallen for existing healthcare facilities , there has been increased interest in constructing new facilities in hopes of generating better returns on invested capital . using our relationship-driven model , we look for opportunities to support new and existing tenants and borrowers , with the capital needed to expand existing facilities and to initiate ground-up development of new facilities in markets where there is demonstrated demand for a particular product type . the projects we agree to finance have attractive upside potential and are expected to provide above-average returns to our shareholders to mitigate the risks inherent with property development and construction . for the year ended december 31 , 2014 , approximately 37 % of our revenue from continuing operations has come from operators of our skilled nursing facilities that receive a significant portion of their revenue from governmental payors , primarily medicare and medicaid . such revenues are subject annually to statutory and regulatory changes , and in recent years , have been reduced due to federal and state budgetary pressures . in 2009 , we began to diversify our portfolio by directing a significant portion of our investments into properties which do not rely primarily on medicare and medicaid reimbursement , but rather on private pay sources . story_separator_special_tag we calculate our fixed charge coverage ratio as approximately 6.8x for the year ended december 31 , 2014 ( see page 50 for a discussion of adjusted ebitda and a reconciliation to our net income ) . on an annualized basis , our consolidated debt-to-adjusted ebitda ratio is 4.1x . 29 according to a 2011 estimate by the u.s. department of health and human services , the number of americans 65 and older is expected to grow 36 % between 2010 and 2020 , compared to a 9 % growth rate for the general population . an increase in this age demographic is expected to increase demand for senior housing properties of all types in the coming decades . there is increasing demand for private-pay senior housing properties in countries outside the u.s. , as well . we therefore consider real estate and note investments with u.s. entities who seek to expand their senior housing operations into countries where local-market demand is sufficiently demonstrated . strong demographic trends provide the context for continued growth in 2015 and the years ahead . we plan to fund any new real estate and mortgage investments during 2015 using our liquid assets and debt financing . should the weight of additional debt as a result of new acquisitions suggest the need to rebalance our capital structure , we would then expect to access the capital markets through an atm or other equity offerings . our disciplined investment strategy implemented through measured increments of debt and equity sets the stage for annual dividend growth , continued low leverage , a portfolio of diversified , high-quality assets , and business relationships with experienced tenants and borrowers who we make our priority . these continue to be the key drivers of our business plan . critical accounting policies we prepare our consolidated financial statements in conformity with accounting principles generally accepted in the united states of america . these accounting principles require us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . actual results could differ from those estimates and cause our reported net income to vary significantly from period to period . if actual experience differs from the assumptions and other considerations used in estimating amounts reflected in our consolidated financial statements , the resulting changes could have a material adverse effect on our consolidated results of operations , liquidity and or financial condition . we consider an accounting estimate or assumption critical if : 1. the nature of the estimates or assumptions is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change ; and 2. the impact of the estimates and assumptions on financial condition or operating performance is material . our significant accounting policies and the associated estimates , judgments and the issues which impact these estimates are as follows : valuations and impairments the majority of our tenants and borrowers are in the long-term health care industry ( snfs and alfs ) where snfs derive their revenues primarily from medicare , medicaid and other government programs . amounts paid under these government programs are subject to legislative and government budget constraints . from time to time , there may be material changes in government reimbursement . in the past , snfs have experienced material reductions in government reimbursement . the long-term health care industry has experienced significant professional liability claims which has resulted in an increase in the cost of insurance to cover potential claims . these factors have combined to cause a number of bankruptcy filings , bankruptcy court rulings and court judgments affecting our lessees and borrowers . in prior years , we have determined that impairment of certain of our investments had occurred as a result of these events . we evaluate the recoverability of the carrying values of our properties on a property-by-property basis . on a quarterly basis , we review our properties for recoverability when events or circumstances , including significant physical changes in the property , significant adverse changes in general economic conditions and significant deteriorations of the underlying cash flows of the property , indicate that the carrying amount of the property may not be recoverable . the need to recognize an impairment charge is based on estimated undiscounted future cash flows from a property compared to the carrying value of that property . if recognition of an impairment charge is necessary , it is measured as the amount by which the carrying amount of the property exceeds the fair value of the property . for notes receivable , we evaluate the estimated collectibility of contractual loan payments and general economic conditions on an instrument-by-instrument basis . on a quarterly basis , we review our notes receivable for ability to realize on such notes when events or circumstances , including the non-receipt of contractual principal and interest payments , significant deteriorations of the financial condition of the borrower and significant adverse changes in general economic conditions , indicate that the carrying amount of the note receivable may not be recoverable . if necessary , impairment is measured as the amount by which 30 the carrying amount exceeds the fair value as measured by the discounted cash flows expected to be received under the note receivable or , if foreclosure is probable , the fair value of the collateral securing the note receivable . we evaluate our marketable equity securities for other-than-temporary impairments . an impairment of a marketable equity security would be considered “ other-than-temporary ” unless we have the ability and intent to hold the investment for a period of time sufficient for a forecasted market price recovery up to ( or beyond ) the cost of the investment and evidence indicates the cost of the investment is recoverable within a reasonable period of time .
| results of operations the significant items affecting revenues and expenses are described below ( in thousands ) : replace_table_token_12_th 37 financial highlights of the year ended december 31 , 2014 , compared to 2013 were as follows : rental income increased $ 60,250,000 primarily as a result of new real estate investments . during 2013 we completed $ 748,939,000 of new real estate investments . during 2014 we completed $ 555,453,000 of new real estate investments . the increase in rental income included a $ 9,993,000 increase in straight-line rent adjustments . generally accepted accounting principles require rental income to be recognized on a straight-line basis over the term of the lease to give effect to scheduled rent escalators . future increases in rental income depend on our ability to make new investments which meet our underwriting criteria . interest income from mortgage and other notes decreased $ 620,000 primarily due to the settlement of outstanding notes receivable balances from eldertrust and seniortrust , partially offset by interest income on a note receivable from sycamore which began in july 2013. unless we continue to make new investments in loans , our interest income will continue to decrease due to the normal amortization and scheduled maturities of our loans . depreciation expense recognized in continuing operations increased $ 17,977,000 compared to the prior year primarily due to new real estate investments completed during 2013 and 2014. interest expense relates to borrowings on our credit facility , the convertible senior notes issued in march 2014 and debt assumed in the acquisition of real estate .
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2017-11 , earnings per share ( topic 260 ) , distinguishing liabilities from equity ( topic 480 ) , derivatives and hedging ( topic 815 ) ” ( “ asu 2017-11 ” ) . asu 2017-11 changed the classification analysis of certain equity-linked financial instruments ( or embedded features within such instruments ) with down round features . when determining whether certain financial instruments should be classified as liabilities or equity instruments , a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity 's own stock . the amendments also clarify existing disclosure requirements for equity-classified instruments . as a result , a freestanding equity-linked financial instrument ( or embedded conversion option ) would no longer be accounted for as a derivative liability at fair value as a result of the existence of a down round feature . for freestanding equity classified financial instruments , the amendments require entities that present earnings per share ( “ eps ” ) in accordance with asc 260 to recognize the effect of the down round feature when it is triggered . that effect is treated as a dividend and as a reduction of income available to common shareholders in basic eps . in addition , convertible instruments with embedded conversion options that have down round features are now subject to the specialized guidance for contingent beneficial conversion features in asc 470-20 , “ debt—debt with conversion and other options . ” asu 2017-11 became effective for the company on january 1 , 2019 , and this update did not have a significant impact on the company 's consolidated financial statements . story_separator_special_tag the following discussion of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this annual report on form 10-k. the various sections of this discussion contain a number of forward-looking statements , all of which are based on our current expectations and could be materially affected by the uncertainties and risk factors described throughout this annual report . see “ special note regarding forward-looking statements. ” our actual results may differ materially . overview our business adma biologics , inc. ( the “ company , ” “ adma , ” “ we , ” “ us ” or “ our ” ) is an end-to-end commercial biopharmaceutical company dedicated to manufacturing , marketing and developing specialty plasma-derived biologics for the treatment of immunodeficient patients at risk for infection and others at risk for certain infectious diseases . our targeted patient populations include immune-compromised individuals who suffer from an underlying immune deficiency disorder or who may be immune-suppressed for medical reasons . we currently have three products with u.s. food and drug administration ( the “ fda ” ) approval , all of which are currently marketed and commercially available : ( i ) bivigam ( immune globulin intravenous , human ) , an intravenous immune globulin ( “ ivig ” ) product indicated for the treatment of primary humoral immunodeficiency ( “ pi ” ) , also known as primary immunodeficiency disease ( “ pidd ” ) , and for which we received fda approval on may 9 , 2019 and commenced commercial sales in august 2019 ; ( ii ) asceniv ( immune globulin intravenous , human – slra 10 % liquid ) , an ivig product indicated for the treatment of pi , for which we received fda approval on april 1 , 2019 and commenced first commercial sales in october 2019 ; and ( iii ) nabi-hb ( hepatitis b immune globulin , human ) , which is indicated for the treatment of acute exposure to blood containing hbsag and other listed exposures to hepatitis b. we seek to develop a pipeline of plasma-derived therapeutics , including a product based on our most recently approved patent application under u.s. patent no . 10,259,865 related to methods of treatment and prevention of s. pneumonia infection for an immunoglobulin manufactured to contain standardized antibodies to numerous serotypes of s. pneumoniae . our products and product candidates are intended to be used by physician specialists focused on caring for immune-compromised patients with or at risk for certain infectious diseases . we manufacture these products at our fda-licensed , 400,000-liter annual capacity plasma fractionation and purification facility located in boca raton , florida ( the “ boca facility ” ) . based on current production yields and our ongoing supply chain enhancement and capacity expansion initiatives , we believe this facility has the potential to produce quantities of our immune globulin ( “ ig ” ) products of more than $ 250 million in annual revenue beginning in 2024 as well as achieving profitability during the first quarter of 2024 , as we ramp-up production over the next three to five years . through our adma biocenters subsidiary , we currently operate as an fda-approved source plasma collection organization in the u.s. this business unit , which we refer to as our plasma collection centers business segment , provides us with a portion of our blood plasma for the manufacture of our products and product candidates , and also allows us to sell certain quantities of source plasma to customers for further manufacturing . as a part of our planned supply chain robustness initiative , we opened two new plasma collection centers during 2020 , and we now have seven plasma collection centers in various stages of approval and development , including three that are fully operational and collecting plasma . with respect to our fully operational plasma collection centers , two hold fda licenses and the third has a biologics license application ( “ bla ” ) pending an fda decision expected in the fourth quarter of 2021. in addition , one of our fda-approved plasma collection centers also has approvals from the korean ministry of food and drug safety ( “ mfds ” ) , as well as fda approval to implement a hepatitis b immunization program . story_separator_special_tag commercial sales of asceniv commenced in october of 2019. nabi-hb nabi-hb is a hyperimmune globulin that is rich in antibodies to the hepatitis b virus . nabi-hb is a purified human polyclonal antibody product collected from plasma donors who have been previously vaccinated with a hepatitis b vaccine . nabi-hb is indicated for the treatment of acute exposure to blood containing hbsag , prenatal exposure of infants born to hbsag-positive mothers , sexual exposure to hbsag-positive persons and household exposure to persons with acute hepatitis b virus infection in specific , listed settings . hepatitis b is a potentially life-threatening liver infection caused by the hepatitis b virus . it is a major global health problem . it can cause chronic infection and puts people at high risk of death from cirrhosis and liver cancer . nabi-hb has a well-documented record of long-term safety and effectiveness since its initial market introduction . the fda approved nabi-hb on march 24 , 1999. production of nabi-hb at the boca facility has continued under our leadership since the third quarter of 2017. in early 2018 , we received authorization from the fda for the release of our first commercial batch of nabi-hb for commercial distribution in the u.s. and we continue to manufacture nabi-hb under hhs license no . 2019. impact of the covid-19 crisis we continue to closely monitor ongoing developments in connection with the covid-19 pandemic and its impacts to our commercial manufacturing operations and plasma collections facilities , including but not limited to potential disruptions to our supply chain operations , including collections of source plasma , procurement of raw materials and packaging materials , a portion of which are sourced internationally , and testing of finished drug product that is required prior to its availability for commercial sale . such testing has historically been performed by contract laboratories outside the united states . in addition , travel and other restrictions that have been implemented in the united states have impacted our commercial engagement efforts with respect to some of our products , including bivigam and asceniv , as trade shows , industry and medical conferences and other events we had been planning to utilize and exhibit and attend with our staff to increase awareness of our products by physicians and payers remain subject to reduction in scope , rescheduling or outright cancellation due to the pandemic . we have experienced some delays with our third-party vendors and testing laboratories which perform final drug product gmp release testing . in response to these delays , we have added additional release testing laboratories to our fda-approved consortium listed in our drug approval documents which we believe has adequately addressed this issue . in july 2020 , we began receiving fda lot releases with testing data from our new testing laboratory vendor . in addition , due to previous state and local “ shelter-in-place ” orders , as well as ongoing requirements around physical distancing , we have experienced , and may experience in the future , lower than normal donor collections at our fda-approved plasma collection centers . we were also subject to delays in shipments of source plasma from our contracted third-party suppliers , as well as delays in deliveries for personal protective equipment , reagents and other non-plasma raw materials and supplies used in the manufacture and distribution of our products . we have also experienced supply chain delays as a result of certain of our suppliers diverting significant resources towards the rapid development and distribution of covid-19 vaccines . in addition , we have experienced challenges with respect to our customer engagement initiatives , as our sales and medical affairs field forces face difficulties communicating directly with physicians and other healthcare professionals and the cancellation or postponement of a number of key scientific and medical conferences , further limiting our ability to communicate with potential customers . we have implemented a comprehensive suite of virtual engagement initiatives , though clinician engagement remains lower due to continuing covid-19-related priorities at u.s. medical centers . 55 as of the date of this report , we do not believe that the operations and immunoglobulin and plasma products production at our boca facility , our contract fill/finishers or our plasma collection facilities have been significantly impacted by the covid-19 pandemic . as a result , as of the date of this report , we have not experienced , and currently do not anticipate , any material impairments with respect to any of our long-lived assets , including our property and equipment , goodwill or intangible assets . although the covid-19 pandemic has not , to date , materially adversely impacted our capital and financial resources , due to the economic uncertainty that has resulted from the pandemic , and the potential impact of such to our stakeholders , we are unable to predict with certainty any potential impacts to our business . although we believe the effects of the covid-19 pandemic on our business and our operations will be temporary , at the present time we are unable to determine the ultimate duration of the pandemic or its long-term effects on , among other things , the global , national or local economies , the capital and credit markets , our workforce , our customers or our suppliers . as a result , we are unable to predict whether the covid-19 crisis will have a material adverse impact on our business , financial condition , liquidity and results of operations . story_separator_special_tag 0.5in ; text-align : left ; '' > all equity-based payments , including grants of stock options and restricted stock units ( “ rsus ” ) are recognized at their estimated fair value at the date of grant , and compensation expense is recognized on a straight-line basis over the grantee 's requisite vesting period . during the year ended december 31 , 2020 , we granted rsus to members of our board of directors and certain members of our management and employees representing an aggregate of 361,000 shares of common stock .
| results of operations critical accounting policies and estimates this management 's discussion and analysis of financial condition and results of operations is based on our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america ( “ u.s . gaap ” ) . the preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues and expenses . on an ongoing basis , we evaluate these estimates and assumptions , including those described below . we base our estimates on our historical experience and on various other assumptions that we believe to be reasonable under the circumstances . these estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results and experiences may differ materially from these estimates . significant estimates include the realizable value of accounts receivable , valuation of inventory , assumptions used in projecting future liquidity and capital requirements , assumptions used in the fair value of awards granted under our equity incentive plans and warrants issued in connection with the issuance of notes payable and the valuation allowance for our deferred tax assets . some of the estimates and assumptions we have to make under u.s. gaap require difficult , subjective and or complex judgments about matters that are inherently uncertain and , as a result , actual results could differ from those estimates . due to the estimation processes involved , the following summary of accounting policies and their application are considered to be critical to understanding our business operations , financial condition and results of operations .
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some of the information contained in this discussion and analysis or set forth elsewhere in this information statement , including information with respect to our plans and strategy for our business and related financing , includes forward-looking statements that involve risks and uncertainties . see “ cautionary note regarding forward-looking statements. ” our actual results may differ materially from those described below . you should read the “ risk factors ” section of this information statement 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 healthy functional beverage company engaged in the development , marketing , sales and distribution of a portfolio of rtd better-for-you beverages including competitive entrants currently in the kombucha , rtd tea , premium bottled water , and energy drinks segments . we differentiate our brands through functional characteristics and ingredients and offer all natural and certified organic products , with no hfcs , no gmos , no preservatives , and only all natural flavors , fruits , and ingredients and extended shelf life 's or shelf stable technical advantages . we manufacture our products in our own fully-integrated manufacturing facilities and through a network of six additional manufacturers strategically located throughout the united states . our products are currently distributed in 10 countries internationally , and in 46 states domestically through a hybrid of four routes to market including our own dsd system that reaches more than 6,000 outlets , and to more than 20,000 other outlets throughout the united states directly through customer 's warehouses , through our network of dsd partners , and through our network of brokers and natural product distributors . our products are sold through multiple channels including major grocery retail , natural food retail , specialty outlets , hypermarkets , club stores , pharmacies , convenience stores and gas stations . we market our products using a range of marketing mediums including in-store merchandising and promotions , experiential marketing , events , and sponsorships , digital marketing and social media , direct marketing , and traditional media including print , radio , outdoor , and tv . story_separator_special_tag our xing acquisition . ● gross margin . gross margin for the year ended december 31 , 2016 ( successor ) was 22.9 % , an increase of 10.0 % and a decrease of 7.4 % from our gross margin of 12.9 % for the nine months ended ( successor ) and 30.3 % for the three months ended march 31 , 2015 ( predecessor ) . the increase in gross margin was due to several factors , including ( 1 ) an increase in gross sales , ( 2 ) reduced freight costs and manufacturing labor , and ( 3 ) improved raw material and packaging supply costs including gaining the benefits of increased scale . ● operating expenses . during the year ended december 31 , 2016 ( successor ) , our operating expenses were $ 9,422,983 , a combined increase of $ 8,178,174 as compared to $ 1,000,453 for the nine months ended december 31 , 2015 ( successor ) and $ 244,356 for the three months ended march 31 , 2015 ( predecessor ) . the increase was attributable to ( 1 ) transactional costs totaling $ 1,714,463. on a pro forma basis , which does not include nonrecurring costs of $ 1,714,463 attributable to our xing acquisition , our operating expenses were $ 7,708,520 for the year ended december 31 , 2016 . 20 recent developments on january 10 , 2017 , our wholly owned subsidiary , nabc properties , llc , entered into a purchase and sale agreement with an unaffiliated third party . pursuant to the agreement , nabc properties , llc entered into a commitment to sell the property located at 1700 e 68 th avenue , denver , co 80229 for a purchase price of $ 8,900,000 . $ 100,000 of the purchase price was paid upon execution of the agreement , with the balance of $ 8,800,000 to be paid on or before march 31 , 2017. the agreement contains a lease back provision , whereby nabc properties , llc shall lease the property for an initial term of ten years , with an option to extend for two successive five year periods . the lease cost is $ 52,000 per month for the initial year , with two percent annual increases . uncertainties in our business we believe that the key uncertainties in our business are as follows : ● we believe that expanding our marketing activities , which may result in significant operating expenses , will be necessary in order to increase product awareness and brand loyalty in order to compete with our competitors , including large and well established brands with access to significant capital resources ● customer trends and tastes can change for a variety of reasons including health consciousness , government regulations and variation in demographics . we will need to be able to adapt to changing preferences in the future . ● our sales growth is dependent upon maintaining our relationships with existing and future customers , which includes sales to large retailers . successor and predecessor financial presentation throughout the consolidated financial statements and in this management 's discussion and analysis of financial condition and results of operation section , we refer to “ successor ” and “ predecessor ” . for periods after the acquisition of the búcha ® live kombucha brand ( since april 1 , 2015 ) , our operating results and cash flows are referred to as successor . for periods prior to the acquisition of the búcha® live kombucha brand , our operating results and cash flows are referred to as predecessor . where tables are presented in this md & a , a black line separates the successor and predecessor financial information to highlight the lack of comparability between the periods . story_separator_special_tag we estimate our capital needs over the next twelve-month period to be $ 500,000 , which can be funded from the profits of the combined xing , búcha operations . if our own combined financial resources and current cash-flows from operations are insufficient to satisfy our capital requirements , we may seek to sell additional equity or debt securities or obtain additional credit facilities . any sale of additional equity securities will result in dilution to our stockholders . the incurrence of indebtedness will result in increased debt service obligations and could require us to agree to operating and financial covenants that could restrict our operations or modify our plans to grow the business . financing may not be available in amounts or on terms acceptable to us , if at all . any failure by us to raise additional funds on terms favorable to us , or at all , will limit our ability to expand our business operations and could harm our overall business prospects . 23 during the year ended december 31 , 2016 , the company borrowed $ 200,000 in the form of a convertible promissory note , which included warrants , from an unaffiliated third party . during the year , the convertible promissory note , and warrants were converted into shares of series b preferred stock . during the year ended december 31 , 2016 , we entered into a $ 4,500,000 promissory note issued in connection with our xing acquisition . the promissory note related to our xing acquisition accrues interest at a rate of 1.00 % per annum , which shall begin to accrue on january 1 , 2017. interest shall be due and payable in arrears on the first day of each month beginning on february 1 , 2017 through the maturity date . the maturity date of the promissory note is june 30 , 2017. working capital replace_table_token_4_th current assets are primarily comprised of accounts receivable and inventories , which accounts for 47.3 % and 44.2 % of our current assets as of december 31 , 2016 and which accounts for 49.4 % and 37.3 % of our current assets as of december 31 , 2015 , respectively . current liabilities are comprised of accounts payable and accrued expenses and , as of december 31 , 2016 , a current portion ( $ 4,562,179 ) of a note payable , which is due on june 30 , 2017. increases in our reported assets and liabilities are attributable to our june 30 , 2016 acquisition of xing 's net assets for $ 19,995,000. the purchase price was allocated to the net assets acquired as follows : replace_table_token_5_th the acquisition was consummated on june 30 , 2016 , and as such , the company assessed the fair value of the various net assets acquired . the company identified other intangible assets , such as customer lists that were recognized apart from goodwill , and recorded at fair value . the $ 4,506,227 of goodwill currently recognized is deductible for income tax purposes over the next fifteen years . cash flows replace_table_token_6_th 24 operating activities net cash provided by operating activities for the year ended december 31 , 2016 ( successor ) was $ 975,176. our net cash used in operating activities for the nine months ended december 31 , 2015 ( successor ) was ( $ 633,982 ) . net cash provided by operating activities for the three months ended march 31 , 2015 ( predecessor ) was $ 24,330. investing activities net cash used in investing activities is primarily driven by our acquisition of xing on december 31 , 2016 ( successor ) , whereby we paid $ 8,500,000 , and the acquisition of b & r liquid adventure on april 1 , 2015 ( successor ) , whereby we paid $ 400,000. net cash used in investing activities for the year ended december 31 , 2016 was $ ( 8,547,198 ) . net cash used in investing activities during the nine months ended december 31 , 2015 ( successor ) and three months ended march 31 , 2015 ( predecessor ) were ( $ 28,351 ) and ( $ 11,688 ) . the primary cause for the change from period to period was cash proceeds and cash payments on discontinued operations and the acquisition of b & r liquid adventure during the year ended december 31 , 2015 ( successor ) . financing activities for the year ended december 31 , 2016 ( successor ) , net cash provided by financing activities of $ 8,057,254 was due to us borrowing ( i ) $ 10,700,000 from us bank to finance the xing acquisition . the $ 10.7 million in debt was secured in two separate notes with u.s. bank ; one note for $ 4.8 million , which is secured by our denver , colorado property ; and another revolving note of $ 5.9 million , which is secured by the company 's inventories and receivables . $ 2,200,000 of the $ 10,700,000 was used to pay off the balance from the previous mortgagor and the remaining $ 8.5 million was used to fund the xing acquisition . there was additional debt of ( ii ) $ 200,000 from an unrelated party pursuant to a convertible note payable ( that has since been converted ) . net cash provided by financing activities during the nine months ended december 31 , 2015 ( successor ) was $ 248,054. net cash used in financing activities during the three months ended march 31 , 2015 ( predecessor ) was ( $ 70,874 ) . the primary cause for the change from period to period was cash proceeds and cash payments on notes payables and net factoring advances during the year ended december 31 , 2015 ( successor ) . off-balance sheet arrangements we have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition , changes in financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources that is material to stockholders .
| highlights we generate revenue through the commercialization of our portfolio of brands to consumers via our retailer partners . the following are highlights of our operating results for the year ended december 31 , 2016 ( successor ) , as well as for the nine months ended december 31 , 2015 ( successor ) and three months ended march 31 , 2015 ( predecessor ) on a standalone , pre-acquisition basis : the following are highlights of our operating results for the year ended december 31 , 2016 : ● revenue . during the year ended december 31 , 2016 ( successor ) , we generated revenue of $ 25,301,806. our revenue for the period is primarily attributed to our acquisition of the xing brands and the related increase in demand for xing products , as well as expanded distribution on the búcha live kombucha brand . the 2016 revenue reflects full year búcha , inc. results but only 6 months of xing performance as it was acquired june 30 , 2016 . ● gross margin . gross margin was 23 % , and gross profit was $ 5,796,226 for the year ended december 31 , 2016 ( successor ) . our margin during the year ended december 31 , 2016 was due to a trending improvement in cost of goods sold related to raw material sourcing . cost of goods sold remains the company 's most significant opportunity to improve net profitability . our cost of goods sold for the year ended december 31 , 2016 ( successor ) , was $ 19,505,580. as part of the newly integrated company , we are pursuing a top to bottom review of every cost input and pursuing all potential cost synergies from the combination of our prior business with the newly acquired xing brands . ● operating expenses .
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” our actual results could differ materially from those anticipated by such forward-looking statements due to factors discussed under “ risk factors ” and “ cautionary statement regarding forward-looking statements ” appearing elsewhere in this form 10-k. overview gamco ( new york stock exchange ( “ nyse ” ) : gbl ) , a company incorporated under the laws of delaware , is a widely-recognized provider of investment advisory services to 24 open-end funds , 16 closed-end funds , one société d'investissement à capital variable ( “ sicav ” ) , and approximately 1,700 institutional and private wealth management ( “ institutional and pwm ” ) investors principally in the united states ( “ u.s. ” ) . we generally manage assets on a fully discretionary basis and invest in a variety of u.s. and international securities through various investment styles including value , growth , non-market correlated , and convertible securities . our revenues are based primarily on the company 's level of assets under management ( “ aum ” ) and fees associated with our various investment products . since our inception in 1977 , our value assets are identified with our research-driven approach to equity investing and our private market value ( pmv ) with a catalyst tm investment approach . as of december 31 , 2019 , we had $ 36.5 billion of aum . we conduct our investment advisory business principally through two subsidiaries , which are registered investment advisors : gabelli funds , llc ( open-end and closed-end funds ) ( “ gabelli funds ” ) and gamco asset management inc. ( institutional and pwm ) ( “ gamco asset ” ) . g.distributors , llc ( “ g.distributors ” ) , our broker-dealer subsidiary , acts as an underwriter and distributor of our open-end funds . organizational chart this is the current organizational chart of the company : story_separator_special_tag results of operations investment advisory and incentive fees , which are based on the amount and composition of aum in our funds and institutional and pwm accounts , and distribution fees represent our largest source of revenues . in addition to the general level and trends of the stock market , growth in revenues depends on good investment performance , which influences the value of existing aum as well as contributes to higher investment and lower redemption rates and facilitates the ability to attract additional investors while maintaining current fee levels . growth in aum is also dependent on being able to access various distribution channels , which is usually based on several factors , including performance and service . a majority of our cash inflows to mutual fund products have come through third party distribution programs , including no-transaction fee programs . we have also been engaged to act as a sub-advisor for other much larger financial services companies with much larger sales distribution organizations . these sub-advisory clients are subject to business combinations that may result in the termination of the relationship . the loss of a sub-advisory relationship could have a significant impact on our financial results in the future . advisory fees from the funds , and sub-advisory accounts are computed daily or weekly based on average net assets . advisory fees from institutional and pwm clients are generally computed quarterly based on account values as of the end of the preceding quarter . these revenues are based on aum which is highly correlated to the stock market and can vary in direct proportion to movements in the stock market and the level of sales compared with redemptions , financial market conditions , and the fee structure for aum . revenues derived from the equity-oriented portfolios generally have higher advisory fee rates than fixed income portfolios . 26 we also receive incentive fees from certain institutional and pwm clients , which are based upon meeting or exceeding a specific benchmark index or indices . these fees are recognized at the end of the stipulated contract period , which may be quarterly or annually , for the respective account . advisory fees on assets attributable to certain of the closed-end preferred shares are earned at year-end if the total return to common shareholders of the closed-end fund for the calendar year exceeds the dividend rate of the preferred shares . these fees are recognized at the end of the measurement period . distribution fees and other income primarily include distribution fee revenue earned in accordance with rule 12b-1 of the investment company act of 1940 , as amended ( “ company act ” ) , along with sales charges and underwriting fees associated with the sale of the mutual funds plus other revenues . distribution fees fluctuate based on the level of aum and the amount and type of mutual funds sold directly by g.distributors or through various distribution channels . compensation costs include variable and fixed compensation and related expenses paid to officers , portfolio managers , sales , trading , research , and all other professional staff ( “ teammates ” ) . variable compensation paid to sales teammates and portfolio management generally represents 40 % of revenues and is the largest component of total compensation costs . distribution costs include marketing , product distribution , and promotion costs . the management fee is incentive-based and entirely variable compensation in the amount of 10 % of the aggregate pre-tax profits , which is paid to mr. mario j. gabelli ( “ mr . gabelli ” ) or his designee for acting as ceo pursuant to his 2008 employment agreement so long as he is an executive of gbl and devotes the substantial majority of his working time to the business . other operating expenses include general and administrative operating costs . non-operating income/ ( loss ) includes gain/ ( loss ) from investments , net ( which includes both realized and unrealized gains and losses from securities ) , interest and dividend income , and interest expense . the gain/ ( loss ) from investments , net is derived from our proprietary investment portfolio consisting of various public investments . story_separator_special_tag during 2019 and 2018 , the ceo compensation waiver reduced management fee expense by $ 4.2 million and $ 9.9 million , respectively , while the amortization of the dccas increased it by $ 4.5 million and $ 7.2 million , respectively . distribution costs , which include marketing , promotion , and distribution costs decreased $ 5.0 million , or 12.8 % , to $ 34.2 million in 2019 from $ 39.2 million in 2018 , driven by a decrease in average open-end equity mutual funds aum of 14.4 % . other operating expenses were $ 26.7 million in 2019 compared to $ 22.7 million in 2018 , an increase of $ 4.0 million or 17.6 % . the increase primarily resulted from a $ 4.4 million increase in sub-advisory fee expense relating to higher incentive fees of $ 4.5 million from the sicav less a $ 0.5 million decline in research services fees . operating income operating income decreased $ 68.8 million , or 36.8 % , to $ 118.0 million for 2019 versus $ 186.8 million in 2018. this decrease primarily resulted from lower revenues of $ 29.1 million , a lower ceo compensation waiver of $ 29.3 million , and higher dcca amortization expense of $ 15.7 million in 2019 as compared to 2018. operating margin was 37.8 % for the year ended december 31 , 2019 , versus 54.7 % in the prior year period . the decrease in operating margin was due primarily to higher variable compensation costs and management fee expense related to the reduced ceo compensation waiver and higher dcca amortization 2019 as compared to in 2018. operating income before management fee was $ 128.0 million for the year ended of 2019 , versus $ 195.8 million in the prior year . operating margin before management fee was 41.0 % in the 2019 period versus 57.3 % in the 2018 period . the reconciliation of operating income before management fee and operating margin before management fee , both of which are non-gaap measures , to their respective generally accepted accounting principles ( “ gaap ” ) measures is provided at the end of this section . non-operating income/ ( loss ) total non-operating loss was $ 9.3 million for the year ended december 31 , 2019 , compared to a loss of $ 32.1 million in 2018. this is comprised of net loss from investments of $ 5.4 million in 2019 as compared to a net loss from investments of $ 25.2 million in 2018 ; interest and dividend income of $ 3.2 million in 2019 versus $ 2.2 million in 2018 ; interest expense of $ 2.6 million in 2019 as compared to $ 3.5 million in 2018 ; and shareholder-designated contributions of $ 4.5 million in 2019 and $ 5.7 million in 2018. the effective tax rate was 24.6 % for the year ended december 31 , 2019 , versus 24.2 % for the year ended december 31 , 2018. non-gaap information and reconciliation operating income before management fee expense is used by management for purposes of evaluating its business operations . we believe this measure is useful in illustrating the operating results of the company as management fee expense is based on pre-tax income before management fee expense , which includes non-operating items including gain/ ( loss ) from investments , net from our proprietary investment portfolio , interest and dividend income , interest expense , and shareholder-designated contribution . we believe that an investor would find this useful in analyzing our business operations without the impact of the non-operating items such as trading and investment portfolios , interest and dividend income , interest expense , or shareholder-designated contribution . reconciliation of gaap financial measures to non-gaap ( in thousands ) : replace_table_token_7_th 29 deferred compensation the company deferred , through dccas , the cash compensation of the ceo relating to all of 2016 ( “ 2016 dcca ” ) , the first half of 2017 ( “ first half 2017 dcca ” ) , and the fourth quarter of 2017 ( “ fourth quarter 2017 dcca ” ) to provide the company with flexibility to pay down debt and enhance our ability to execute lift-outs , make acquisitions , and seed new products . we have made substantial progress toward this objective , having reduced our debt since the november 2015 spin-off of associated capital group , inc. , resulting in standard & poor 's march 2019 reaffirmation of our investment grade rating of bbb- and stable outlook . the dccas deferred the ceo 's compensation expense by amortizing it over each dcca 's respective vesting period . the ceo was not entitled to receive the compensation until the end of each respective vesting period , so u.s. gaap specifies that the expense is amortized over the vesting period . the 2016 dcca was expensed ratably over 4 years , the first half 2017 dcca was expensed ratably over 18 months , and the fourth quarter 2017 dcca was expensed ratably over 18 months . in addition to the ratable vesting , the expense was marked to market at each reporting period as the dcca expense was indexed to gbl 's stock price . notwithstanding its ability to settle these agreements in stock , gamco made a cash payment to the ceo on each respective vesting date . while the agreements did not change the original calculation of the ceo 's compensation , our reporting under u.s. gaap for his compensation did change due to the ratable vesting and the indexing to the gbl stock price . the original value of the dccas was based on the compensation earned in the period divided by the volume weighted average price ( “ vwap ” ) of the gbl stock price for the period ( “ original vwap ” ) to calculate the number of restricted stock units ( “ rsus ” ) granted .
| 2019 business and investment highlights · we announced that howard m. green , c.p.a . joined gamco as senior vice president of corporate development on march 18 , 2019. howard green has more than 25 years of experience in leadership roles as a senior financial executive in wealth management , fintech and international financial firms , including broker-dealers and asset managers . · the transition of the majority of the client portfolios of trevor , stewart , burton & jacobsen was completed and was reflected in our aum as of march 31 , 2019 . · we introduced the gabelli innovations trust to launch two funds , the gabelli media mogul tm fund and the gabelli pet parents ' tm fund which began operating as traditional open-end mutual funds under the new trust on april 1 , 2019 . 23 · gamco repurchased 1.2 million shares of gbl class a stock in a private transaction on april 16 , 2019 , reducing the shares of class a stock outstanding by 12.4 % to 8.6 million and total shares outstanding from 28.8 million to 27.6 million . · gamco asset management hosted its 34 th annual client symposium with over 350 investors in attendance . 2019 inductees to our hall of fame were denise ramos ( itt ) , jay hooley ( state street ) , amin khoury ( klx ) , and cristina stenbeck ( kinnevik ab ) . bruce greenwald was honored as the 15th recipient of the graham and dodd , murray , greenwald prize for value investing . · the gabelli dividend & income trust completed an offering of $ 50 million of 5.375 % series h cumulative preferred shares on june 4 , 2019. the preferred stock is perpetual , non-callable for five years , and was issued at $ 25 per share . · peter tcherepnine officially joined gamco from loeb partners corporation and the assets were reflected in our aum as of june 30 , 2019 .
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the fair value of the stock options granted are estimated at the date of grant using a black-scholes option pricing model . option pricing model input assumptions such as expected term , expected volatility and risk-free interest rate impact the fair value estimate . further , the forfeiture rate impacts the amount of aggregate compensation . these assumptions are subjective and are generally derived from external ( such as , risk-free rate of interest ) and historical data ( such as , volatility factor , expected term and forfeiture rates ) . future grants of equity awards story_separator_special_tag executive overview the company has determined it could best assist healthcare providers in improving their revenue cycle management by providing solutions and services in the middle portion of the revenue cycle , that is , the revenue cycle operations from initial charge capture to bill drop . we continue to make decisions supporting our focus in the middle of the revenue cycle . in late fiscal 2017 , the company introduced a new product for the middle of the revenue cycle , evaluator . this product has significant implications to the timing and accuracy of our customers ' invoicing through rules that are created to review the accuracy of invoicing prior to the physical invoices being released . this is a notable change to existing processes of our customers . the development activities continued through the end of fiscal 2018. there are continued development efforts planned for evaluator in fiscal 2021 , generally , in the same levels as fiscal 2020. with the focus on the middle of the revenue cycle , the company is committed to leading an industry movement to improve hospitals ' financial performance by moving billing interventions upstream , to improve coding accuracy before billing , enabling our customers to reduce revenue leakage , mitigate both under-billing and over-billing risk , and reduce denials and days in accounts receivable . 20 by narrowing our focus to the middle of the revenue cycle , we believe there is a distinct and compelling value proposition that can help us attract more customers . by innovating new technologies , we have been able to expand our target markets beyond just hospitals and into outpatient centers , clinics and physician practices . our coding solutions like cdi , physician query , abstracting and evaluator are competitive in the market and enabled us to engage five significant new evaluator customers in fiscal year 2020. these five new evaluator customers are some of the largest names in healthcare as we moved upstream to customers that were more likely to change their internal processes to the pre-bill audit . the company divested its ecm assets on february 24 , 2020. as discussed above , such divestiture is consistent with the company 's efforts to focus on the middle of the revenue cycle and its pre-bill technology , evaluator . management believes that the revenue cycle technology platforms have higher growth opportunities than its legacy products , including the ecm assets . the company accounted for the sale of the ecm assets as a sale of assets . see note 13 – discontinued operations to our consolidated financial statements included in part ii , item 8 , “ financial statements and supplementary data ” . the company has continued to implement and maintain tight cost and investment controls so that the transition to focusing our efforts in the middle of the revenue cycle has not resulted in a negative impact to our cash flows . while there have been lower revenues in the most recent fiscal years , the company 's earnings and ebitda have expanded and the company is focused on achieving cash generation . during fiscal 2019 , the company recorded non-recurring costs that are added back to adjusted ebitda . these costs include ; ( i ) $ 789,000 for executive transition , ( ii ) $ 388,000 for severance related to the company 's previously disclosed workforce rationalization plan , ( iii ) $ 150,000 related to the extinguishment of the wells fargo term loan and revolving credit facility , and ( iv ) $ 230,000 related to professional fees associated with the company 's correction of immaterial errors . regardless of the state of the affordable care act , the healthcare industry continues to face sweeping changes and new standards of care that are putting greater pressure on healthcare providers to be more efficient in every aspect of their operations . we believe these changes represent ongoing opportunities for our company to work with our direct customers and partner with various resellers to provide information technology solutions to help providers meet these new requirements . near the end of the company 's fiscal year ended january 31 , 2020 , the covid-19 pandemic emerged globally , and it continued through the company 's fiscal year ended january 31 , 2021. the pandemic , and its attendant economic damage , has had an adverse impact on our revenue and may continue to adversely affect our business , results of operations and financial condition . the ultimate extent of its impact on us will depend on future developments , which are highly uncertain and can not be predicted , including new information that may emerge concerning the severity of the pandemic and actions taken to contain or prevent its further spread , including the widespread availability and use of effective vaccines , among others . these and other potential impacts of covid-19 could therefore continue to materially and adversely affect our business , results of operations and financial condition . 21 story_separator_special_tag text-align : justify ; text-indent : 0.25in '' > 25 selling , general and administrative expense replace_table_token_5_th general and administrative expenses consist primarily of compensation and related benefits , reimbursable travel and entertainment expenses related to our executive and administrative staff , general corporate expenses , amortization of intangible assets , and occupancy costs . story_separator_special_tag the company refinanced its term loan and revolving credit facility to a new bank on december 12 , 2019. upon completion of the refinancing , the company had charges to income for ( i ) the write-off of deferred finance cost on the refinanced debt and ( ii ) legal and finance cost to close out the previous indebtedness . aggregate extinguishment costs of $ 150,000 were recorded in the fourth quarter of fiscal 2019. the decrease in miscellaneous expense in fiscal 2020 as compared to fiscal 2019 was primarily a result of losses reported in fiscal 2019 from ( i ) certain failed financing cost , and ( ii ) the purchase of certain options from a terminated employee that were about to expire . other items reported in miscellaneous expense are the valuation adjustments on the montefiore minimum royalty liability and certain foreign exchange losses . refer to note 12 – commitments and contingencies to our consolidated financial statements included in part ii , item 8 , “ financial statements and supplementary data ” for further information concerning the resolution of the montefiore liability . 28 provision for income taxes we recorded an income tax benefit from continuing operations of $ 1,260,000 and $ 1,632,000 in fiscal 2020 and fiscal 2019 , respectively . refer to note 7 - income taxes to our consolidated financial statements included in part ii , item 8 , “ financial statements and supplementary data ” for details on the provision for income taxes . the income tax benefit from continuing operations was netted with the income tax provision on discontinued operations as disclosed in prior filings resulting in $ 0 federal tax expense in fiscal 2020. the company has a substantial amount of net operating losses for federal and state income tax purposes . use of non-gaap financial measures in order to provide investors with greater insight and allow for a more comprehensive understanding of the information used by management and the board of directors in its financial and operational decision-making , the company has supplemented the consolidated financial statements presented on a gaap basis in this report with the following non-gaap financial measures : ebitda , adjusted ebitda , adjusted ebitda margin and adjusted ebitda per diluted share . these non-gaap financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of company results as reported under gaap . the company compensates for such limitations by relying primarily on our gaap results and using non-gaap financial measures only as supplemental data . we also provide a reconciliation of non-gaap to gaap measures used . investors are encouraged to carefully review this reconciliation . in addition , because these non-gaap measures are not measures of financial performance under gaap and are susceptible to varying calculations , these measures , as defined by the company , may differ from and may not be comparable to similarly titled measures used by other companies . ebitda , adjusted ebitda , adjusted ebitda margin , and adjusted ebitda per diluted share we define : ( i ) ebitda as net earnings ( loss ) before net interest expense , income tax expense ( benefit ) , depreciation and amortization ; ( ii ) adjusted ebitda as net earnings ( loss ) before net interest expense , income tax expense ( benefit ) , depreciation , amortization , stock-based compensation expense , and in the company 's fiscal year ended january 31 , 2020 adjusted ebitda , transaction related expenses and other expenses that do not relate to our core operations such as severances and impairment charges ; ( iii ) adjusted ebitda margin as adjusted ebitda as a percentage of gaap net revenue ; and ( iv ) adjusted ebitda per diluted share as adjusted ebitda divided by adjusted diluted shares outstanding . ebitda , adjusted ebitda , adjusted ebitda margin and adjusted ebitda per diluted share are used to facilitate a comparison of our operating performance on a consistent basis from period to period and provide for a more complete understanding of factors and trends affecting our business than gaap measures alone . these measures assist management and the board and may be useful to investors in comparing our operating performance consistently over time as they remove the impact of our capital structure ( primarily interest charges ) , asset base ( primarily depreciation and amortization ) , items outside the control of the management team ( taxes ) and expenses that do not relate to our core operations including : transaction-related expenses ( such as professional and advisory services ) , corporate restructuring expenses ( such as severances ) and other operating costs that are expected to be non-recurring in nature . adjusted ebitda removes the impact of share-based compensation expense , which is another non-cash item . adjusted ebitda per diluted share includes incremental shares in the share count that are considered anti-dilutive in a gaap net loss position . the board of directors and management also use these measures ( i ) as one of the primary methods for planning and forecasting overall expectations and for evaluating , on at least a quarterly and annual basis , actual results against such expectations ; and ( ii ) as a performance evaluation metric in determining achievement of certain executive and associate incentive compensation programs . our lender uses a measurement that is similar to the adjusted ebitda measurement described herein to assess our operating performance . the lender under our loan and security agreement requires delivery of compliance reports certifying compliance with financial covenants , certain of which are based on a measurement that is similar to the adjusted ebitda measurement reviewed by our management and board of directors . 29 ebitda , adjusted ebitda and adjusted ebitda margin are not measures of liquidity under gaap or otherwise , and are not alternatives to cash flow from continuing operating activities , despite the advantages regarding the use and analysis of these measures as mentioned above .
| results of operations statements of operations for the fiscal years ended january 31 ( in thousands ) : replace_table_token_1_th ( 1 ) non-gaap measure meaning net earnings ( loss ) before net interest expense , tax expense ( benefit ) , depreciation , amortization , stock-based compensation expense , transactional and other expenses that do not relate to our core operations . see “ use of non-gaap financial measures ” below for additional information and reconciliation . 22 the following table sets forth , for each fiscal year indicated , certain operating data as percentages of total revenues : statements of operations ( 1 ) replace_table_token_2_th ( 1 ) because a significant percentage of the operating costs are incurred at levels that are not necessarily correlated with revenue levels , a variation in the timing of systems sales and installations and the resulting revenue recognition can cause significant variations in operating results . as a result , period-to-period comparisons may not be meaningful with respect to the past results nor are they necessarily indicative of the future results of the company in the near or long-term . the data in the table is presented solely for the purpose of reflecting the relationship of various operating elements to revenues for the periods indicated . 23 comparison of fiscal year 2020 with 2019 revenues replace_table_token_3_th proprietary software and term licenses — proprietary software revenues recognized in fiscal 2020 were $ 437,000 , as compared to $ 941,000 in fiscal 2019. the decreased fiscal 2020 revenues as compared to fiscal 2019 revenues are primarily attributable to two larger perpetual license sales of our streamline health® abstracting . during fiscal 2020 , the company 's distributor partners experienced a slower sales cycle as their customers , which are hospital systems , prioritized addressing the covid-19 pandemic over software projects .
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our forward-looking statements are based on certain assumptions and expectations of future events that may not be accurate or realized . these statements , as well as our historical performance , are not guarantees of future performance . forward-looking statements also involve risks and uncertainties that are beyond our control . additionally , there may be other risks and uncertainties that we are unable to identify at this time or that we do not currently expect to have a material impact on our business . factors that could cause or contribute to these differences include , but are not limited to , the risks , uncertainties , and other factors discussed within item 1a – risk factors . this md & a should be read in conjunction with the consolidated financial statements and the related notes thereto included elsewhere in this annual report on form 10-k. overview we are a leading , global provider of performance chemicals that are key inputs in end-products and processes in a variety of industries . we deliver customized solutions with a wide range of industrial and specialty chemical products for markets , including plastics and coatings , refrigeration and air conditioning , general industrial , electronics , mining , and oil refining . our principal products include refrigerants , industrial fluoropolymer resins , sodium cyanide , performance chemicals and intermediates , and tio 2 pigment . we manage and report our operating results through three reportable segments : fluoroproducts , chemical solutions , and titanium technologies . the fluoroproducts segment is a leading , global provider of fluoroproducts , including refrigerants and industrial fluoropolymer resins . the chemical solutions segment is a leading , north american provider of industrial chemicals used in gold production , industrial , and consumer applications . the titanium technologies segment is a leading , global provider of tio2 pigment , a premium white pigment used to deliver whiteness , brightness , opacity , and protection in a variety of applications . recent developments corpus christi , texas during the fourth quarter of 2018 , we reached mechanical completion of our new opteon tm refrigerants facility in corpus christi , texas . this facility will enable us to triple the global capacity of opteon tm over the next few years to meet increasing market demands for environmentally-sustainable refrigerants and blends . fayetteville , north carolina we , along with the nc deq , have filed a proposed consent order intended to comprehensively address issues , novs , and court filings made by the nc deq regarding our fayetteville , north carolina facility and resolve litigations filed by the nc deq and cape fear river watch , a non-profit organization . pursuant to the proposed consent order , which is subject to approval by the court , we will agree to pay $ 13 million to cover a civil penalty and investigative costs and will take additional actions to address site surface water , groundwater , and air emissions . at december 31 , 2018 , we have accrued an estimated liability for this matter of $ 75 million . capital allocation for the year ended december 31 , 2018 , we returned $ 792 million in cash to our shareholders by purchasing $ 644 million in our issued and outstanding common stock under our share repurchase programs , and through the payment of $ 148 million in cash dividends . subsequent to december 31 , 2018 , we purchased an additional $ 150 million of our issued and outstanding common stock under the 2018 share repurchase program . on february 13 , 2019 , our board of directors increased the authorization amount of our 2018 share repurchase program from $ 750 million to $ 1.0 billion . 34 the chemours company our results of operations and business highlights the following table sets forth our results of operations for the years ended december 31 , 2018 , 2017 , and 2016. replace_table_token_2_th net sales the following table sets forth the impacts of price , volume , currency , and portfolio and or other changes on our total net sales for the years ended december 31 , 2018 and 2017. replace_table_token_3_th our net sales increased by $ 455 million ( or 7 % ) to $ 6.6 billion for the year ended december 31 , 2018 , compared with net sales of $ 6.2 billion for the same period in 2017. the increase in our net sales for the year ended december 31 , 2018 was primarily attributable to a 7 % increase in price , driven by higher average global selling prices for ti-pure tm tio 2 pigment in our titanium technologies segment , improved pricing for fluoropolymers products in our fluoroproducts segment , and higher average selling prices across all product lines in our chemical solutions segment . in addition , net sales for the year ended december 31 , 2018 increased by 1 % from favorable foreign currency movements . these increases were partially offset by a 1 % decrease in volume , which was primarily attributable to lower demand for ti-pure tm tio 2 pigment in our titanium technologies segment . our net sales increased by $ 783 million ( or 15 % ) to $ 6.2 billion for the year ended december 31 , 2017 , compared with net sales of $ 5.4 billion for the same period in 2016. the increase in our net sales for the year ended december 31 , 2017 was primarily attributable to an 11 % increase in volume , driven by higher demand for ti-pure tm tio 2 pigment in our titanium technologies segment , the increased adoption of opteon tm refrigerants and higher demand for fluoropolymers products in our fluoroproducts segment , and increased volume across most businesses in the chemical solutions segment . story_separator_special_tag 36 the chemours company our equity in earnings of affiliates was largely unchanged at $ 33 million and $ 29 million for the years ended december 31 , 2017 and 2016 , respectively . interest expense , net our interest expense , net decreased by $ 19 million ( or 9 % ) to $ 195 million for the year ended december 31 , 2018 , compared with interest expense , net of $ 214 million for the same period in 2017. the decrease in our interest expense , net for the year ended december 31 , 2018 was primarily attributable to increases in both interest income and capitalized interest , the latter being attributable to ongoing progress on our opteon tm refrigerants facility in corpus christi , texas during 2018 , and the construction of our new mining solutions facility , prior to its suspension during the first half of 2018. our interest expense , net decreased by $ 5 million ( or 2 % ) to $ 214 million for the year ended december 31 , 2017 , when compared with interest expense , net of $ 219 million for the same period in 2016. the decrease in our interest expense , net for the year ended december 31 , 2017 was primarily attributable to decreased interest from the repricing of our senior secured term loan in 2017 , as well as lower outstanding principal amounts on the same . this decrease was partially offset by additional interest from the issuance of our 5.375 % senior unsecured notes due may 2027 in 2017 . ( loss ) gain on extinguishment of debt for the year ended december 31 , 2018 , we recognized a combined loss on extinguishment of debt of $ 38 million in connection with the amendment and restatement of our credit agreement , and our tender offers to purchase any and all of our outstanding euro-denominated 6.125 % senior unsecured notes due may 2023 and a portion of our outstanding u.s. dollar-denominated 6.625 % senior unsecured notes due may 2023. for the year ended december 31 , 2017 , we recognized a loss on extinguishment of debt of $ 1 million in connection with an amendment to our then-existing credit agreement . for the year ended december 31 , 2016 , we recognized a gain on extinguishment of debt of $ 6 million , which is the net result of a $ 10 million gain in connection with the open market repurchases of certain portions of our senior unsecured notes , and a $ 4 million loss on the write-off of certain unamortized debt issuance costs in connection with the reduction in commitment on our then-existing revolving credit facility . other income , net our other income , net increased by $ 49 million ( or 43 % ) to $ 162 million for the year ended december 31 , 2018 , compared with other income , net of $ 113 million for the same period in 2017. the increase in our other income , net for the year ended december 31 , 2018 was primarily attributable to a $ 49 million increase in miscellaneous income , which included increased eu quota authorization sales in our fluoroproducts segment , and a $ 42 million gain on the sale of our linden , new jersey site . these increases were partially offset by decreases in royalty income and non-operating pension and other post-retirement employee benefit income . our other income , net decreased by $ 154 million ( or 58 % ) to $ 113 million for the year ended december 31 , 2017 , compared with other income , net of $ 267 million for the same period in 2016. the decrease in our other income , net for 2017 was primarily attributable to gains of $ 169 million and $ 89 million on the sales of our c & d business and our aniline facility in beaumont , texas during 2016 , respectively . this decrease was partially offset by a $ 3 million gain on favorable foreign currency movements for the year ended december 31 , 2017 , compared with a $ 57 million foreign currency loss due to a strengthening of the u.s. dollar against the mexican peso for the same period in 2016. provision for ( benefit from ) income taxes our provisions for income taxes amounted to $ 159 million and $ 165 million for the years ended december 31 , 2018 and 2017 , respectively , and our benefit from income taxes amounted to $ 18 million for the year ended december 31 , 2016 , which represented effective tax rates of 14 % , 18 % , and 164 % , respectively . the $ 6 million decrease in our provision for income taxes for the year ended december 31 , 2018 , when compared with the same period in 2017 , was primarily attributable to the decreased federal corporate income tax rate under u.s. tax reform . in addition , our provision for income taxes for the year ended december 31 , 2018 included $ 14 million in windfall benefit from our share-based payments , a $ 15 million benefit from the release of a valuation allowance against our foreign tax credits , and a net $ 10 million benefit from certain other provisions of u.s. tax reform . these decreases were partially offset by additional tax expense resulting from increased profitability , and the geographical mix of our earnings . 37 the chemours company the $ 183 million increase in our provision for income taxes for the year ended december 31 , 2017 , when compared with the same period in 2016 , was primarily attributable to increased profitability and the geographic mix of our earnings . these increases were partially offset by $ 22 million in windfall benefit from our share-based payments , a $ 6 million benefit from the release of reserves for uncertain tax positions , and a $ 3 million net benefit from our provisional estimates for u.s. tax reform .
| segment reviews adjusted earnings before interest , income taxes , depreciation , and amortization ( “ adjusted ebitda ” ) represents our primary measure of segment performance and is defined as income ( loss ) before income taxes , excluding the following : interest expense , depreciation , and amortization ; non-operating pension and other post-retirement employee benefit costs , which represent the component of net periodic pension ( income ) costs excluding the service cost component ; exchange ( gains ) losses included in other income ( expense ) , net ; restructuring , asset-related , and other charges ; asset impairments ; ( gains ) losses on sales of assets and businesses ; and , other items not considered indicative of our ongoing operational performance and expected to occur infrequently . a reconciliation of adjusted ebitda to net income ( loss ) for the years ended december 31 , 2018 , 2017 , and 2016 is included in “ non-gaap financial measures ” within this md & a and in “ note 27 – geographic and segment information ” to the consolidated financial statements . the following table sets forth our total adjusted ebitda by segment for the years ended december 31 , 2018 , 2017 , and 2016. replace_table_token_4_th 38 the chemours company fluoroproducts the following chart sets forth the net sales , adjusted ebitda , and adjusted ebitda margin amounts for our fluoroproducts segment for the years ended december 31 , 2018 , 2017 , and 2016. replace_table_token_5_th the following table sets forth the impacts of price , volume , currency , and portfolio and or other changes on our fluoroproducts segment 's net sales for the years ended december 31 , 2018 and 2017. replace_table_token_6_th segment net sales segment net sales increased by $ 208 million ( or 8 % ) to $ 2.9 billion for the year ended december 31 , 2018 , compared with segment net sales of $ 2.7 billion for the same period in 2017. the increase to segment net sales for the year ended december 31 , 2018 was
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the company adopted this standard on january 1 , 2018 story_separator_special_tag this section presents management 's perspective on our financial condition and results of operations and highlights material changes to the financial condition and results of operations as of and for the year ended december 31 , 2018 . the following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes contained herein . general we are a bank holding company that operates through two reportable segments : bank and investment management . through tristate capital bank , a pennsylvania chartered bank ( the “ bank ” ) , the bank seg ment provides commercial banking services to middle-market businesses and private banking services to high-net-worth individuals and trusts . the bank segment generates most of its revenue from interest on loans and investments , loan related fees including swap fees , and liquidity and treasury management related fees . its primary source of funding for loans is deposits and its secondary source of funding is borrowings . its largest expenses are interest on these deposits and borrowings , and salaries and related empl oyee benefits . through chartwell investment partners , llc , an sec registered investment adviser ( “ chartwell ” ) , the investment manage ment segment provides advisory and sub-advisory investment management services primarily to institutional investors , mutual funds and individual investors . it also supports marketing efforts for chartwell 's proprietary investment products through chartwell tsc securities corp. , our registered broker/dealer subsidiary ( “ ctsc securities ” ) . the investment management segme nt generates its revenue from investment management fees earned on assets under management and its largest expenses are salaries and related employee benefits . this discussion and analysis presents our financial condition and results of operations on a consolidated basis , except where significant segment disclosures are necessary to better explain the operations of each segment and related variances . in particular , the discussion and analysis of non-interest income and non-interest expense is reported by segment . we measure our performance primarily through our net income available to common shareholders , earnings per common share and total revenue . other salient metrics include the ratio of allowance for loan losses to loans ; net interest margin ; the efficiency ratio of the bank segment ; assets under management ; ebitda of the investment management segment ; return on average assets ; return on average common equity ; and regulatory leverage and risk-based capital ratios . executive overview tristate capital holdings , inc. ( “ we , ” “ us , ” “ our , ” the “ holding company , ” the “ parent company , ” or the “ company ” ) is a bank holding company headquartered in pittsburgh , pennsylvania . the company has three wholly owned subsidiaries : the bank , chartwell , and ctsc securities . through the bank , we serve middle-market businesses in our primary markets throughout the states of pennsylvania , ohio , new jersey and new york . we also serve high-net-worth individuals and trusts on a national basis through our private banking channel . we market and distribute our products and services through a scalable , branchless banking model , which creates significant operating leverage throughout our business as we continue to grow . through chartwell , our investment management subsidiary , we provide investment management services primarily to institutional investors , mutual funds and individual investors on a national basis . ctsc securities , our broker/dealer subsidiary , supports marketing efforts for chartwell 's proprietary investment products that require sec or finra licensing . 2018 compared to 2017 operating performance for the year ended december 31 , 2018 , our net income available to common shareholders was $ 52.3 million compared to $ 38.0 million in 2017 , an increase of $ 14.3 million , or 37.7 % . this increase was primarily due to the net impact of ( 1 ) a $ 22.1 million , or 24.1 % , increase in our net interest income ; ( 2 ) a decrease in the credit to provision for loan losses of $ 418,000 ; ( 3 ) an increase of $ 951,000 , or 2.0 % , in non-interest income ; ( 4 ) an increase of $ 9.7 million , or 10.6 % , in our non-interest expense ; ( 5 ) a $ 3.5 million decrease in income taxes ; and ( 6 ) an increase in preferred stock dividends of $ 2.1 million . our diluted eps was $ 1.81 for the year ended december 31 , 2018 , compared to $ 1.32 in 2017 . the increase in diluted eps is a result of our continued growth in net income available to common shareholders . for the year ended december 31 , 2018 , total revenue increased $ 23.4 million , or 16.9 % , to $ 161.4 million from $ 138.0 million in 2017 , driven by higher net interest income and swap fees for the bank , as well as higher investment management fees for chartwell . our net interest margin was 2.26 % for the year ended december 31 , 2018 , as compared to 2.25 % in 2017 . the increase in net interest margin for the year ended december 31 , 2018 , was driven by an increase in the yield on loans , largely offset by an increase in the cost of funds . 48 our non-interest income is largely comprised of investment management fees for chartwell , which totaled $ 37.6 million for the year ended december 31 , 2018 , as compared to $ 37.1 million in 2017 . the increase was driven by higher assets under management related to the columbia acquisition and net inflows , partially offset by market depreciation . story_separator_special_tag total deposits increased $ 700.8 million , or 21.3 % , to $ 3.99 billion as of december 31 , 2017 , from $ 3.29 billion , as of december 31 , 2016 . adverse-rated credits to total loans declined to 0.71 % at december 31 , 2017 , from 1.25 % at december 31 , 2016. the allowance for loan losses to loans decreased to 0.34 % as of december 31 , 2017 , from 0.55 % as of december 31 , 2016. the trend of our allowance for loan losses reflects the change in composition of our loan portfolio over recent years , with a continued decrease in adverse-rated credits and a much larger percentage of the portfolio in loans secured by marketable securities . our book value per common share increased $ 1.23 , or 9.9 % , to $ 13.61 as of december 31 , 2017 , from $ 12.38 as of december 31 , 2016 , largely as a result of an increase in our net income , partially offset by the issuance of restricted stock and the purchase of treasury shares during year ended december 31 , 2017. results of operations net interest income net interest income represents the difference between the interest received on interest-earning assets and the interest paid on interest-bearing liabilities . net interest income is affected by changes in the volume of interest-earning assets and interest-bearing liabilities and changes in interest yields earned and interest rates paid . net interest income comprised 70.3 % , 66.2 % and 61.7 % of total revenue for the years ended december 31 , 2018 , 2017 and 2016 , respectively . the table below reflects an analysis of net interest income , on a fully taxable equivalent basis , for the periods indicated . the adjustment to convert certain income to a fully taxable equivalent basis consists of dividing tax-exempt income by one minus the statutory federal income tax rate of 21 % for 2018 and 35.0 % for 2017 and 2016 . replace_table_token_15_th ( 1 ) net interest margin is calculated on a fully taxable equivalent basis . the following table provides information regarding the average balances and yields earned on interest-earning assets and the average balances and rates paid on interest-bearing liabilities for the years ended december 31 , 2018 , 2017 and 2016 . non-accrual loans are included in the calculation of average loan balances , while interest payments collected on non-accrual loans are recorded as a reduction to principal . where applicable , interest income and yield are reflected on a fully taxable equivalent basis , and have been adjusted based on the statutory federal income tax rate of 21 % for 2018 and 35.0 % for 2017 and 2016 . 50 replace_table_token_16_th ( 1 ) interest income and net interest margin are calculated on a fully taxable equivalent basis . net interest income for the years ended december 31 , 2018 and 2017 . net interest income , calculated on a fully taxable equivalent basis , increased $ 21.9 million , or 23.9 % , to $ 113.5 million for the year ended december 31 , 2018 , from $ 91.6 million in 2017 . the increase in net interest income for the year ended december 31 , 2018 , was primarily attributable to a $ 948.7 million , or 23.3 % , increase in average interest-earning assets driven primarily by loan growth . the increase in net interest income reflects an increase of $ 65.4 million , or 48.6 % , in interest income , partially offset by an increase of $ 43.4 million , or 101.2 % , in interest expense . net interest margin increased to 2.26 % for the year ended december 31 , 2018 , as compared to 2.25 % in 2017 , driven by a higher yield on our loan portfolio , largely offset by the higher cost of deposits and fhlb borrowings . 51 the increase in interest income on interest-earning assets was primarily the result of an increase in average total loans , which are our primary earning assets , of $ 788.4 million , or 21.2 % and an increase of 71 basis points in yield on our loans . the most significant factor driving the yield on our loan portfolio was the effect of four federal reserve 's increases in 2018 to the target federal funds rate on our floating-rate loans , which was partially offset by the shift toward lower-risk marketable-securities-backed private banking loans . the overall yield on interest-earning assets increased 68 basis points to 3.98 % for the year ended december 31 , 2018 , as compared to 3.30 % in 2017 , primarily from the higher loan yields . the increase in interest expense on interest-bearing liabilities was primarily the result of an increase of 75 basis points in the average rate paid on our average interest-bearing liabilities , as well as an increase of $ 841.0 million , or 23.1 % , in average interest-bearing liabilities for the year ended december 31 , 2018 , compared to 2017 . the increase in average rate paid was reflective of increases in rates paid in all interest-bearing deposit categories and fhlb borrowings , which was driven by the effect of four federal reserve 's increases in 2018 to the target federal funds rate on our variable-rate liabilities . the increase in average interest-bearing liabilities was driven primarily by an increase of $ 429.8 million in average money market deposit accounts , an increase of $ 276.6 million in average interest-bearing checking accounts and an increase of $ 104.1 million in average certificates of deposit . net interest income for the years ended december 31 , 2017 and 2016 . net interest income , calculated on a fully taxable equivalent basis , increased $ 16.5 million , or 22.0 % , to $ 91.6 million for the year ended december 31 , 2017 , from $ 75.1 million in 2016 .
| summary of significant accounting policies and note 6 , allowance for loan losses , for more details on the company 's allowance for loan losses . the following table summarizes the allowance for loan losses , as of the dates indicated : replace_table_token_27_th as of december 31 , 2018 , we had specific reserves totaling $ 437,000 related to impaired loans with an aggregated total outstanding balance of $ 2.2 million . as of december 31 , 2017 , we had specific reserves totaling $ 2.5 million related to impaired loans with an aggregated total outstanding balance of $ 3.2 million . all loans with specific reserves were on non-accrual status as of december 31 , 2018 and december 31 , 2017 . the following tables summarize allowance for loan losses and the percentage of loans by loan category , as of the dates indicated : replace_table_token_28_th allowance for loan losses as of december 31 , 2018 and 2017 . our allowance for loan losses was $ 13.2 million , or 0.26 % of loans , as of december 31 , 2018 , as compared to $ 14.4 million , or 0.34 % of loans , as of december 31 , 2017 , which reflects the change in composition of our loan portfolio over the past year , with a higher percentage of the portfolio in private banking loans secured by marketable securities , and also a decline in our adverse-rated credits . our allowance for loan losses related to private banking loans increased $ 365,000 to $ 1.9 million as of december 31 , 2018 , as compared to $ 1.6 million as of december 31 , 2017 , which was attributable to higher general reserves due to growth in this portfolio and higher specific reserves on non-performing loans .
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replace_table_token_6_th premiums written and earned in 2014 were approximately $ 21.0 billion and $ 20.5 billion , respectively , which represented increases of 9.8 % and 10.4 % , respectively compared to premiums written and earned in 2013. these increases were attributable to an increase in voluntary auto policies-in-force of 6.6 % during the past twelve months and increased average premium per policy . voluntary auto new business sales increased about 1.8 % in 2014 as compared to 2013. voluntary auto policies-in-force at december 31 , 2014 were approximately 821,000 higher than at december 31 , 2013. losses and loss adjustment expenses incurred in 2014 increased $ 1.7 billion ( 11.7 % ) to $ 15.9 billion . the ratio of losses and loss adjustment expenses incurred to premiums earned ( the loss ratio ) was 77.7 % in 2014 compared to 76.7 % in 2013. in 2014 , claims frequencies for property damage and collision coverages increased in the three to four percent range over 2013 , partially due to more severe winter weather in the first quarter of 2014. claims frequencies for bodily injury coverage increased about one percent , while frequencies for personal injury protection decreased three to four percent . physical damage severities increased one to two percent in 2014 and bodily injury severities decreased in the one to two percent range from severities in 2013. overall , personal injury protection severities were relatively flat although we experienced relatively large , but offsetting , changes by jurisdiction . in both 2014 and 2013 , losses and loss adjustment expenses incurred were favorably impacted by reductions of estimates for prior years ' losses . underwriting expenses in 2014 increased $ 223 million ( 7.0 % ) to $ 3.4 billion . the increase reflected the increased policy acquisition costs to generate the growth in policies-in-force and increased other operating expenses . the ratio of underwriting expenses to premiums earned ( the expense ratio ) was 16.6 % in 2014 and 17.2 % in 2013. premiums written in 2013 were $ 19.1 billion , an increase of 11.4 % over premiums written in 2012. premiums earned in 2013 increased approximately $ 1.8 billion ( 10.9 % ) to approximately $ 18.6 billion . the growth in premiums reflected an increase in voluntary auto policies-in-force of 7.8 % and to a lesser degree , higher average premiums per policy . the increase in policies-in-force reflected a 12.1 % increase in voluntary auto new business sales . voluntary auto policies-in-force at december 31 , 2013 were approximately 898,000 greater than at december 31 , 2012. losses and loss adjustment expenses incurred in 2013 increased $ 1.6 billion ( 12.2 % ) to $ 14.3 billion . the loss ratio was 76.7 % in 2013 compared to 75.9 % in 2012. in 2013 , claims frequencies for property damage and collision coverages generally increased in the two to four percent range and physical damage claims severities increased in the three to four percent range as compared to 2012. in addition , average bodily injury claims frequencies increased in the one to two percent range . bodily injury claims severities increased in the one to three percent range , although severities for personal injury protection coverage declined , primarily in florida . in 2012 , we incurred losses of approximately $ 490 million related to hurricane sandy . in both 2013 and 2012 , losses and loss adjustment expenses incurred were favorably impacted by reductions of estimates for prior years ' losses . underwriting expenses incurred in 2013 declined $ 170 million ( 5.1 % ) to $ 3.2 billion . underwriting expenses in 2012 were impacted by a change in u.s. gaap concerning deferred policy acquisition costs . excluding the effects of the accounting change , the expense ratio in 2013 declined by approximately 0.4 percentage points from 2012 . 34 management 's discussion ( continued ) insuranceunderwriting ( continued ) general re through general re , we conduct a reinsurance business offering property and casualty and life and health coverages to clients worldwide . we write property and casualty reinsurance in north america on a direct basis through general reinsurance corporation and internationally through germany-based general reinsurance ag and other wholly-owned affiliates . property and casualty reinsurance is also written in broker markets through faraday in london . life and health reinsurance is written in north america through general re life corporation and internationally through general reinsurance ag . general re strives to generate underwriting profits in essentially all of its product lines . our management does not evaluate underwriting performance based upon market share and our underwriters are instructed to reject inadequately priced risks . general re 's underwriting results are summarized in the following table . amounts are in millions . replace_table_token_7_th property/casualty property/casualty premiums written and earned in 2014 increased $ 285 million ( 9.6 % ) and $ 96 million ( 3.2 % ) , respectively , compared to 2013. adjusting for changes in foreign currency exchange rates , the increases in premiums written and earned in 2014 were $ 246 million ( 8.3 % ) and $ 100 million ( 3.3 % ) , respectively . the increases were primarily due to treaty participations as well as growth in our facultative and primary casualty businesses . our underwriters continue to exercise discipline by declining business where prices are deemed inadequate and remain prepared to increase premium volume when appropriate prices are attained relative to the risks assumed . our combined property/casualty business produced pre-tax underwriting gains in 2014 of $ 170 million compared to $ 148 million in 2013. in 2014 and 2013 , our property business generated pre-tax underwriting gains of $ 466 million and $ 153 million , respectively . underwriting results in 2014 reflected no significant catastrophe events as compared to 2013 which included $ 400 million of catastrophe losses primarily attributable to a hailstorm ( $ 280 million ) and floods ( $ 120 million ) in europe . story_separator_special_tag the property/casualty business generated pre-tax underwriting gains of $ 1.7 billion in 2014 compared to $ 1.2 billion in 2013. there were no losses from significant catastrophe events during 2014. our property business , including property catastrophe business , generated pre-tax underwriting gains of approximately $ 700 million in 2014 compared to underwriting gains of about $ 800 million in 2013. the swiss re quota-share contract produced pre-tax underwriting gains of $ 283 million in 2014 and $ 351 million in 2013 , primarily attributable to reductions in estimates of ultimate liabilities for prior years ' losses . bhrg 's underwriting results can be significantly impacted by foreign currency transaction gains or losses associated with certain reinsurance liabilities of u.s.-based subsidiaries ( primarily arising under retroactive reinsurance contracts ) , which are denominated in foreign currencies . underwriting results included foreign currency exchange rate gains of $ 315 million in 2014 compared to losses of $ 28 million in 2013 . 36 management 's discussion ( continued ) insuranceunderwriting ( continued ) berkshire hathaway reinsurance group ( continued ) property/casualty ( continued ) premiums earned from property/casualty business in 2013 declined $ 973 million ( 16 % ) compared to 2012. premiums earned in 2013 from the swiss re quota-share contract were approximately $ 1.5 billion in 2013 compared to $ 3.4 billion in 2012. property catastrophe premiums earned in 2013 aggregated $ 801 million , a decline of 2 % versus 2012. premiums earned in 2013 from other property/casualty business , increased $ 981 million ( 52 % ) over 2012 , which was primarily attributable to increased property quota-share business . bhrg 's property/casualty business generated a pre-tax underwriting gain of $ 695 million in 2012. underwriting results in 2012 included losses incurred of $ 364 million attributable to hurricane sandy . underwriting results in 2012 also included foreign currency transaction losses of $ 123 million . retroactive reinsurance retroactive reinsurance policies provide indemnification of losses and loss adjustment expenses with respect to past loss events , and related claims are generally expected to be paid over long periods of time . premiums and limits of indemnification are often very large in amount . at the inception of a contract , deferred charge assets are recorded for the excess , if any , of the estimated ultimate losses payable over the premiums earned . deferred charges are subsequently amortized over the estimated claims payment period using the interest method , which reflects estimates of the timing and amount of loss payments . the original estimates of the timing and amount of loss payments are periodically analyzed against actual experience and revised based on an actuarial evaluation of the expected remaining losses . amortization charges and deferred charge adjustments resulting from changes to the estimated timing and amount of future loss payments are included in periodic earnings . on july 17 , 2014 , national indemnity company ( nico ) , the lead insurance entity of bhrg , entered into a retroactive reinsurance agreement with liberty mutual insurance company ( lmic ) . the agreement provides that nico reinsure substantially all of lmic 's unpaid losses and allocated loss adjustment expense liabilities related to ( a ) asbestos and environmental claims from policies incepting prior to 2005 and ( b ) workers ' compensation claims occurrences arising prior to january 1 , 2014 , in excess of an aggregate retention of approximately $ 12.5 billion and subject to an aggregate limit of $ 6.5 billion . the premiums earned in 2014 and the consideration paid to nico with respect to this contract was approximately $ 3.0 billion . underwriting losses from retroactive reinsurance policies were $ 905 million in 2014 , $ 321 million in 2013 and $ 201 million in 2012. in each year , underwriting losses included deferred charge amortization . in addition , underwriting results were impacted in 2014 and 2013 by increases in the estimated ultimate liabilities related to these policies , partially offset by increases in related deferred charge balances . in 2014 , we increased estimated ultimate liabilities for contracts written in prior years by approximately $ 825 million , substantially all of which was recorded in the fourth quarter . in the fourth quarter of 2014 , we increased ultimate liability estimates on remaining asbestos claims and re-estimated the timing of future payments of such liabilities as a result of actuarial analysis . the increase in ultimate liabilities , net of related deferred charge adjustments , produced incremental pre-tax underwriting losses in the fourth quarter of approximately $ 500 million . gross unpaid losses from retroactive reinsurance contracts were approximately $ 24.3 billion at december 31 , 2014 , $ 17.7 billion at december 31 , 2013 and $ 18.0 billion at december 31 , 2012. unamortized deferred charges related to bhrg 's retroactive reinsurance contracts were approximately $ 7.7 billion at december 31 , 2014 , $ 4.25 billion at december 31 , 2013 and $ 3.9 billion at december 31 , 2012. the increases in unpaid losses and unamortized deferred charges during 2014 were primarily related to the lmic contract . as previously indicated , deferred charge balances will be charged to pre-tax earnings in the future . life and annuity life and annuity premiums earned in 2014 declined $ 628 million ( 19 % ) compared to premiums earned in 2013. the decline was primarily attributable to a 22 % decline in premiums earned from annuity contracts and also from two unusually large transactions in 2013 which produced net premiums of approximately $ 400 million . the two transactions were as follows : ( 1 ) a new variable annuity guarantee contract , which produced premiums earned of $ 1.7 billion , and ( 2 ) an amendment of an existing yearly renewable term life reinsurance contract with swiss re life & health america inc. ( srlha ) , which resulted in return premiums of about $ 1.3 billion .
| results of operations net earnings attributable to berkshire hathaway shareholders for each of the past three years are disaggregated in the table that follows . amounts are after deducting income taxes and exclude earnings attributable to noncontrolling interests . amounts are in millions . replace_table_token_4_th through our subsidiaries , we engage in a number of diverse business activities . our operating businesses are managed on an unusually decentralized basis . there are essentially no centralized or integrated business functions ( such as sales , marketing , purchasing , legal or human resources ) and there is minimal involvement by our corporate headquarters in the day-to-day business activities of the operating businesses . our senior corporate management team participates in and is ultimately responsible for significant capital allocation decisions , investment activities and the selection of the chief executive to head each of the operating businesses . it also is responsible for establishing and monitoring berkshire 's corporate governance practices , including , but not limited to , communicating the appropriate tone at the top messages to its employees and associates , monitoring governance efforts , including those at the operating businesses , and participating in the resolution of governance-related issues as needed . the business segment data ( note 23 to the accompanying consolidated financial statements ) should be read in conjunction with this discussion . our insurance businesses generated after-tax earnings from underwriting in each of the last three years , including $ 1.7 billion in 2014. periodic earnings from insurance underwriting are significantly impacted by the magnitude of catastrophe loss events occurring during the period . in 2014 , we did not incur any losses from significant catastrophe events , compared to after-tax losses of approximately $ 285 million in 2013 and $ 725 million in 2012. our railroad business earnings increased 2.0 % in 2014 , although earnings were negatively impacted by various service-related challenges during the year .
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each share of series a is convertible into ac common stock at any time at the option of the holder by dividing the preferred original issue price by the conversion price at the time of conversion , which as of december 31 , 2010 is equal to the purchase price of $ 0.4421 . the conversion price is subject to adjustment , as defined . the only election right for series a is to vote along with ac common stockholders to elect two directors to the board . each share of series a has voting rights equal to the number of ac common shares as if converted . 68 series b convertible preferred stock in 2006 , ac issued 16,847,826 shares of series b convertible preferred stock ( series b ) at $ 0.46 per share for an aggregate price of $ 7,750,000 . the holders of the series b are entitled to receive a cash dividend in preference over shares of ac common stock and series a stockholders of ac at a rate of 8 % of the issued price , per annum . upon liquidation , the series b holders have preference to any distributions of any of ac 's assets equal to the preferred original issue price plus any unpaid dividends after series c and series d preferences have been paid . at any time on or after january 7 , 2015 , the series b stockholders have the right to redeem shares equal to the redemption price upon written request of at least 55 % of the holders of series b. each share of series b is convertible into ac common stock at any time at the option of the holder by dividing the preferred original issue price by the conversion price at the time of conversion , which as of december 31 , 2010 is equal to the purchase price of $ 0.46 . the conversion price is subject to adjustment , as defined . the holders of a majority of the series b , c and d preferred stock have the right to elect three directors to the board . also , series b , c and d will vote together with series a and ac common stockholders to elect two directors to the board . each share of series b , c and d has voting rights equal to the number of ac common shares as if converted . ac is accreting dividends on story_separator_special_tag overview on september 30 , 2011 , lectec completed its business combination with ac in accordance with the terms of the merger agreement . pursuant to the merger agreement , merger sub merged with and into ac , with ac continuing after the merger as the surviving corporation and a wholly owned subsidiary of lectec . immediately following the merger , lectec changed its name to axogen , inc. in october 2011 , axogen , inc. moved its corporate headquarter facilities ( principal executive office ) from texarkana , texas to 13859 progress blvd. , suite 100 , alachua , florida 32615. for accounting purposes , ac was identified as the acquiring entity and lectec as the acquired entity . the merger was accounted for using the purchase method of accounting for financial reporting purposes . the purchase method requires the identification of the acquiring entity , based on the criteria of accounting standards codification 805-10-55-12 , accounting for business combinations . under purchase accounting , the assets and liabilities of an acquired company ( lectec ) as of the effective date of the acquisition were recorded at their respective estimated fair values and added to those of the acquiring company . accordingly , the consolidated financial statements and related footnote disclosures presented for periods prior to the merger are those of ac alone . the consolidated statement of operations for the year ended december 31 , 2011 and 2010 include the operations and cash flows of ac through september 30 , 2011 and the combined operations and cash flows of the company subsequent to the merger . the common stock of ac has been retrospectively adjusted to reflect the exchange ratio of one share of ac common stock for 0.03727336 share of the company 's common shares as established in the merger agreement . historical results for lectec prior to the merger are not included in the company 's consolidated financial statements . axogen is a regenerative medicine company with a portfolio of proprietary products and technologies for peripheral nerve reconstruction and regeneration . peripheral nerves provide the pathways for both motor and sensory signals throughout the body and their damage can result in the loss of function and feeling . in order to improve surgical reconstruction and regeneration of peripheral nerves , axogen has developed and licensed technologies , which are used in its products . its product portfolio includes avance ® nerve graft , which axogen believes is the first and only commercially available allograft nerve for bridging nerve discontinuities ( a gap created when the nerve is severed ) , axoguard ® nerve connector , a coaptation aid allowing for close approximation of severed nerves , and axoguard ® nerve protector , an implant that protects nerves during the body 's healing process after surgery . revenue from the distribution of these products is the main contributor to axogen 's total reported sales and has been the key component of its growth to date . axogen revenues increased in the fourth quarter and the twelve months of 2011 compared to the fourth quarter and the twelve months of 2010 , respectively , as a result of increased penetration into key accounts and establishing new accounts through both its direct sales force and independent distributors . story_separator_special_tag axogen has continued to broaden its sales and marketing focus which is expected to have a positive contribution to its revenue growth in the long term , even though in the near term revenue growth may lag behind expense increase . from may 2009 to december 2010 , axogen temporarily stopped the manufacturing of avance nerve graft due to adequate inventory . in january 2011 , axogen resumed the manufacturing of avance nerve graft , and as a result has incurred higher processing and testing fees , travel costs and temporary labor costs compared to the same periods last year . in addition , to adequately reflect the amount of inventory , axogen reviewed and adjusted inventories and established reserves . in reviewing inventory expiration axogen wrote off inventory for products manufactured in early 2009. axogen believes that it has the necessary inventories and manufacturing capabilities for its anticipated sales growth . 45 story_separator_special_tag months , and is subject to prepayment penalties . under this agreement , axogen is required to make interest only payments for the first 12 months , and payments of both interest and straight line amortization of principal for the remaining 30 months . the interest rate is 9.9 % per annum , and interest is computed on the basis of a 360-day year and the actual number of days elapsed during which such interest accrues . the midcap loan contains customary affirmative and negative covenants , including , without limitation , ( i ) covenants requiring axogen to comply with applicable laws , provide to midcap copies of axogen 's 47 financial statements , maintain appropriate levels of insurance and protect , defend and maintain the validity and enforceability of axogen 's material intellectual property , ( ii ) covenants restricting axogen 's ability to dispose of all or any part of its assets ( subject to certain exceptions ) , engage in other lines of business , changes in its senior management , enter into merger or consolidation transactions , incur or assume additional indebtedness , or incur liens on its assets , and ( iii ) covenants requiring the company to meet certain minimum net invoiced revenue , as defined in the agreement , or maintain a cash balance of 80 % of the loan principal amount . the midcap loan is secured by all of axogen 's assets . the lenders also received a ten-year warrant to purchase 89,686 shares of axogen 's common stock at $ 2.23 per share . on april 21 , 2008 , axogen entered into a loan and security agreement with oxford finance corporation and atel ventures , inc. , as subsequently amended ( the 2008 loan and security agreement ) , which provided for a loan with an aggregate principal amount of $ 7.5 million . the loan 's maturity date was october 1 , 2011. the loan boar interest at a rate of 18 % per month and was secured by all of axogen 's assets . on september 30 , 2011 , axogen paid in full the entire outstanding balance of the 2008 loan and security agreement , using the proceeds from the midcap loan . on june 11 , 2010 , axogen entered into convertible debt agreements for an aggregate principal amount of $ 3.7 million with 8 % interest and principal and interest payable in full on june 30 , 2013 , as amended . the convertible debt agreements were collateralized by a third lien on certain property and were subordinated to the 2008 loan and security agreement . immediately prior to the closing of the merger , the convertible debt agreements pursuant to their terms automatically converted into ac common stock which was then exchanged for company common stock pursuant to the terms of the merger agreement . on may 3 , 2011 , axogen issued an 8 % convertible note payable to lectec corporation for $ 500,000. on may 31 , 2011 , axogen issued additional convertible notes payable under the same terms of which $ 2,000,000 was issued to lectec and $ 500,000 was issued to certain ac shareholders . on august 29 , 2011 , axogen issued an additional subordinated secured convertible promissory note in the principal amount of $ 2,000,000 to lectec and $ 500,000 to certain ac shareholders . these notes were collateralized by all of axogen 's assets and subordinated to the 2008 loan and security agreement . immediately prior to the closing of the merger , the notes held by investors other than lectec automatically convert into ac 's common stock which was then exchanged for lectec common stock pursuant to the terms of the merger agreement . immediately after to the closing of the merger , the notes held by lectec were retired . the company had no material commitments for capital expenditures at december 31 , 2011 or 2010. cash flow information axogen had working capital of approximately $ 8.8 million and a current ratio of 5.4 at december 31 , 2011 , compared to a working capital deficit of $ 4,120,000 and a current ratio of ( 0.56 ) at december 31 , 2010. the increase in working capital and the current ratio at december 31 , 2011 , compared to december 31 , 2010 , was primarily due to the merger . the company believes it has sufficient cash resources to meet its liquidity requirements for the next 12 months . axogen 's future capital requirements depend on a number of factors , including , without limitation , revenue increases consistent with its business plan , cost of products and acquisition and or development of new products . as described in long-term debt above , axogen must also comply with the covenants in the midcap loan agreement to meet certain minimum net invoiced revenue or maintain a cash balance of 80 % of the loan principal amount . as a result of axogen 's continuing capital needs and other
| results of operations comparison of the years ended december 31 , 2011 and 2010 revenues revenues for the year ended december 31 , 2011 increased 61.4 % to approximately $ 4,849,000 as compared to approximately $ 3,004,000 for the year ended december 31 , 2010 principally due to increased sales penetration into key accounts . gross profit gross profit for the year ended december 31 , 2011 increased 49.0 % to approximately $ 2,423,000 as compared to approximately $ 1,626,000 for the year ended december 31 , 2010 , primarily attributable to the increased revenues in 2011 , partially offset by a $ 614,000 inventory write-off for expiring inventory and a $ 214,000 write-off for raw material obsolescence in 2011 , and higher processing and testing fees , travel costs and temporary labor costs due to the resumption of the manufacturing of avance ® nerve graft since january 2011. costs and expenses total cost and expenses increased 53.8 % to approximately $ 9,392,000 for the year ended december 31 , 2011 as compared to approximately $ 6,107,000 for the year ended december 31 , 2010. these increases were primarily due to increasing sales and marketing activities , increases in salaries as axogen hires to meet growth needs and increased general and administrative costs associated with securing additional funding prior to the merger and in connection with the merger . as a percentage of revenues , total operating expenses were 193.7 % for the year ended december 31 , 2011 compared to 203.3 % for the year ended december 31 , 2010. such lower total costs and expenses a percentage of revenue were a result of such increased expenses being absorbed by increased revenues .
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we were incorporated under the maryland general corporation law on february 9 , 2011. we are a specialty finance company focused on providing financing solutions primarily to lower middle-market companies in the united states and canada . we provide customized financing solutions focused primarily on senior secured , junior secured and unitranche secured ( a combination of senior secured and junior secured debt in the same facility in which we syndicate a “ first out ” portion of the loan to an investor and retain a “ last out ” portion of the loan ) debt and , to a lesser extent , unsecured subordinated debt and equity , including equity co-investments in preferred and common stock , and warrants . our shares are currently listed on the nasdaq global select market under the symbol “ mrcc ” . our investment objective is to maximize the total return to our stockholders in the form of current income and capital appreciation through investment in senior secured , unitranche secured and junior secured debt and , to a lesser extent , subordinated debt and equity investments . we seek to use our extensive leveraged finance origination infrastructure and broad expertise in sourcing loans to invest in primarily senior secured , unitranche secured and junior secured debt of middle-market companies . our investments will generally range between $ 2.0 million and $ 18.0 million each , although this investment size may vary proportionately with the size of our capital base . as of december 31 , 2018 , our portfolio included approximately 79.3 % senior secured debt , 10.6 % unitranche secured debt , 3.8 % junior secured debt and 6.3 % equity securities , compared to december 31 , 2017 , when our portfolio included approximately 78.5 % senior secured debt , 8.2 % unitranche secured debt , 7.8 % junior secured debt and 5.5 % equity securities . we expect that the companies in which we invest may be leveraged , often as a result of leveraged buy-outs or other recapitalization transactions , and , in certain cases , will not be rated by national ratings agencies . if such companies were rated , we believe that they would typically receive a rating below investment grade ( between bb and ccc under the standard & poor 's system ) from the national rating agencies . while our primary focus is to maximize current income and capital appreciation through debt investments in thinly traded or private u.s. companies , we may invest a portion of the portfolio in opportunistic investments in order to seek to enhance returns to stockholders . such investments may include investments in high-yield bonds , distressed debt , private equity or securities of public companies that are not thinly traded and securities of middle-market companies located outside of the united states . we expect that these public companies generally will have debt securities that are non-investment grade . on february 28 , 2014 , our wholly-owned subsidiary , monroe capital corporation sbic , lp ( “ mrcc sbic ” ) , a delaware limited partnership , received a license from the small business administration ( “ sba ” ) to operate as a small business investment company ( “ sbic ” ) under section 301 ( c ) of the small business investment act of 1958. mrcc sbic commenced operations on september 16 , 2013. see “ sba debentures ” below for more information . on september 12 , 2018 , we closed a public offering of $ 69.0 million in aggregate principal amount of senior unsecured notes ( “ 2023 notes ” ) . the 2023 notes will mature on october 31 , 2023. see “ 2023 notes ” below for more information . investment income we generate interest income on the debt investments in portfolio company investments that we originate or acquire . our debt investments , whether in the form of senior secured , unitranche secured or junior secured debt , typically have an initial term of three to seven years and bear interest at a fixed or floating rate . in some instances we receive payments on our debt investment based on scheduled amortization of the outstanding balances . in addition , we receive repayments of some of our debt investments prior to their scheduled maturity date . in some cases , our investments provide for deferred interest of payment-in-kind ( “ pik ” ) interest . in addition , we may generate revenue in the form of commitment , origination , amendment , structuring or due diligence fees , fees for providing managerial assistance and consulting fees . loan origination fees , original issue discount and market discount or premium are capitalized , and we accrete or amortize such amounts as interest income . we record prepayment premiums and prepayment gains ( losses ) on loans as interest income . as the frequency or volume of the repayments which trigger these prepayment premiums and prepayment gains ( losses ) may fluctuate significantly from period to period , the associated interest income recorded may also fluctuate significantly from period to period , the associated interest income recorded may also fluctuate significantly from period to period . interest and fee income is recorded on the accrual basis to the extent we expect to collect such amounts . interest income is accrued based upon the outstanding principal amount and contractual terms of debt and preferred equity investments . interest is accrued on a daily basis . all other income is recorded into income when earned . we record fees on loans based on the determination of whether the fee is considered a yield enhancement or payment for a service . if the fee is considered a yield enhancement associated with a funding of cash on a loan , the fee is generally deferred and recognized into interest income using the effective interest method if captured in the cost basis or using the straight-line method if the loan is unfunded and therefore there is no cost basis . story_separator_special_tag mc advisors ' analysts will monitor performance using standard industry software tools to provide consistent disclosure of performance . when necessary , mc advisors will update our internal risk ratings , borrowing base criteria and covenant compliance reports . 51 as part of the monitoring process , mc advisors regularly assesses the risk profile of each of our investments and rates each of them based on an internal proprietary system that uses the categories listed below , which we refer to as mc advisors ' investment performance rating . for any investment rated in grades 3 , 4 or 5 , mc advisors , through its internal portfolio management group ( “ pmg ” ) , will increase its monitoring intensity and prepare regular updates for the investment committee , summarizing current operating results and material impending events and suggesting recommended actions . the pmg is responsible for oversight and management of any investments rated in grades 3 , 4 , or 5. mc advisors monitors and , when appropriate , changes the investment ratings assigned to each investment in our portfolio . in connection with our valuation process , mc advisors reviews these investment ratings on a quarterly basis , and our board of directors ( the “ board ” ) reviews and affirms such ratings . a definition of the rating system follows : investment performance risk rating summary description grade 1 includes investments exhibiting the least amount of risk in our portfolio . the issuer is performing above expectations or the issuer 's operating trends and risk factors are generally positive . grade 2 includes investments exhibiting an acceptable level of risk that is similar to the risk at the time of origination . the issuer is generally performing as expected or the risk factors are neutral to positive . grade 3 includes investments performing below expectations and indicates that the investment 's risk has increased somewhat since origination . the issuer may be out of compliance with debt covenants ; however , scheduled loan payments are generally not past due . grade 4 includes an issuer performing materially below expectations and indicates that the issuer 's risk has increased materially since origination . in addition to the issuer being generally out of compliance with debt covenants , scheduled loan payments may be past due ( but generally not more than six months past due ) . grade 5 indicates that the issuer is performing substantially below expectations and the investment risk has substantially increased since origination . most or all of the debt covenants are out of compliance or payments are substantially delinquent . investments graded 5 are not anticipated to be repaid in full and we will reduce the fair market value of the loan to the amount we expect to recover . our investment performance risk ratings do not constitute any rating of investments by a nationally recognized statistical rating organization or reflect or represent any third-party assessment of any of our investments . in the event of a delinquency or a decision to rate an investment grade 4 or grade 5 , the pmg , in consultation with the investment committee , will develop an action plan . such a plan may require a meeting with the borrower 's management or the lender group to discuss reasons for the default and the steps management is undertaking to address the under-performance , as well as amendments and waivers that may be required . in the event of a dramatic deterioration of a credit , mc advisors and the pmg form a team or engage outside advisors to analyze , evaluate and take further steps to preserve our value in the credit . in this regard , we would expect to explore all options , including in a private equity sponsored investment , assuming certain responsibilities for the private equity sponsor or a formal sale of the business with oversight of the sale process by us . the pmg and the investment committee have extensive experience in running debt work-out transactions and bankruptcies . the following table shows the distribution of our investments on the 1 to 5 investment performance rating scale as of december 31 , 2018 ( in thousands ) : replace_table_token_9_th the following table shows the distribution of our investments on the 1 to 5 investment performance rating scale as of december 31 , 2017 ( in thousands ) : replace_table_token_10_th 52 as of december 31 , 2018 , we had five borrowers with loans or preferred equity securities on non-accrual status ( curion holdings , llc ( “ curion ” ) promissory notes , education corporation of america ( “ eca ” ) , incipio , llc ( “ incipio ” ) third lien tranches , millennial brands llc ( “ millennial ” ) , and rockdale blackhawk , llc ( “ rockdale ” ) pre-petition debt ) , and these investments totaled $ 16.8 million in fair value , or 3.0 % of our total investments at fair value . the curion promissory notes and the incipio third lien tranches were obtained in restructurings during the year ended december 31 , 2018 for no cost . as of december 31 , 2017 , we had two borrowers with loans and preferred equity securities on non-accrual status ( millennial and tpp operating , inc. ( “ tpp ” ) ) , and these investments totaled $ 8.5 million in fair value , or 1.7 % of our total investments at fair value . loans or preferred equity securities are placed on non-accrual status when principal , interest or dividend payments become materially past due , or when there is reasonable doubt that principal , interest or dividends will be collected . story_separator_special_tag style= '' font : 10pt times new roman , times , serif ; margin : 0pt 0 '' > net change in unrealized gain ( loss ) for the years ended december 31 , 2018 , 2017 and 2016 , our investments had $ 2.9 million , ( $ 13.1 ) million and $ 1.3 million of net change in unrealized gain ( loss ) , respectively .
| results of operations operating results were as follows ( in thousands ) : replace_table_token_11_th investment income the composition of our investment income was as follows ( in thousands ) : replace_table_token_12_th the increase in investment income of $ 7.3 million during the year ended december 31 , 2018 is primarily due to an increase in average outstanding loan balances and an increase in dividend income due to our investment in slf , partially offset by a decrease in prepayment gain ( loss ) . the increase in investment income of $ 6.1 million during the year ended december 31 , 2017 is primarily due to an increase in average outstanding loan balances and an increase in prepayment loan activity , partially offset by a decrease in dividend income . the decrease in dividend income during the year ended december 31 , 2017 , as compared to the prior years , is driven by a decrease in dividend income from our investment in rockdale of $ 3.5 million . 53 operating expenses the composition of our operating expenses was as follows ( in thousands ) : replace_table_token_13_th ( 1 ) during the years ended december 31 , 2018 , 2017 and 2016 , mc advisors waived part one incentive fees ( based on net investment income ) of zero , $ 308 thousand and $ 273 thousand , respectively . incentive fees during the years ended december 31 , 2018 and 2017 were limited by zero and $ 0.4 million due to the incentive fee limitation , respectively . see note 6 in our attached consolidated financial statements for additional information on the incentive fee limitation .
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this report contains forward looking statements within the meaning of section 27a of the securities act of 1933 , as amended ( the `` securities act '' ) , and section 21e of the securities exchange act of 1934 , as amended ( the `` exchange act '' ) . these forward looking statements represent plans , estimates , objectives , goals , guidelines , expectations , intentions , projections and statements of our beliefs concerning future events , business plans , objectives , expected operating results and the assumptions upon which those statements are based . forward looking statements include without limitation , any statement that may predict , forecast , indicate or imply future results , performance or achievements , and are typically identified with words such as `` may , '' `` could , '' `` should , '' `` will , '' `` would , '' `` believe , '' `` anticipate , '' `` estimate , '' `` expect , '' `` intend , '' `` plan , '' or words or phases of similar meaning . these forward looking statements are based largely on our expectations and are subject to a number of known and unknown risks and uncertainties that are subject to change based on factors which are , in many instances , beyond our control . actual results , performance or achievements could differ materially from those contemplated , expressed , or implied by the forward looking statements . the following factors , among others , could cause our financial performance to differ materially from that expressed in such forward looking statements : the strength of the united states economy , in general , and the strength of the local economies in which we conduct operations ; geopolitical conditions , including acts or threats of terrorism , actions taken by the united states or other governments in response to acts or threats of terrorism and or military conflicts , which could impact business and economic conditions in the united states and abroad ; the effects of , and changes in , trade , monetary and fiscal policies and laws , including interest rate policies of the federal reserve board , inflation , interest rate , market and monetary fluctuations ; results of examinations of us by our regulators , including the possibility that our regulators may , among other things , require us to increase our allowance for credit losses , to write-down assets or to hold more capital ; changing bank regulatory conditions , policies or programs , whether arising as new legislation or regulatory initiatives , that could lead to restrictions on activities of banks generally , or our subsidiary bank in particular , more restrictive regulatory capital requirements , increased costs , including deposit insurance premiums , regulation or prohibition of certain income producing activities or changes in the secondary market for loans and other products ; the timely development of competitive new products and services and the acceptance of these products and services by new and existing customers ; the willingness of customers to substitute competitors ' products and services for our products and services ; the impact of changes in financial services policies , laws and regulations , including laws , regulations and policies concerning taxes , banking , securities and insurance , and the application thereof by regulatory bodies ; 39 the effect of changes in accounting policies and practices , as may be adopted from time-to-time by bank regulatory agencies , the securities and exchange commission , the public company accounting oversight board or the financial accounting standards board ; technological and social media changes ; cybersecurity breaches and threats that cause the bank to sustain financial losses ; the effect of acquisitions we may make , including , without limitation , the failure to achieve the expected revenue growth and or expense savings from such acquisitions ; the growth and profitability of noninterest or fee income being less than expected ; changes in the level of our nonperforming assets and charge-offs ; changes in consumer spending and savings habits ; unanticipated regulatory or judicial proceedings ; and the factors discussed under the caption `` risk factors '' in this report . if one or more of the factors affecting our forward looking information and statements proves incorrect , then our actual results , performance or achievements could differ materially from those expressed in , or implied by , forward looking information and statements contained in this report . you should not place undue reliance on our forward looking information and statements . we will not update the forward looking statements to reflect actual results or changes in the factors affecting the forward looking statements . general the company is a growth-oriented , one-bank holding company headquartered in bethesda , maryland , which is currently celebrating eighteen years of successful operations . the company provides general commercial and consumer banking services through the bank , its wholly owned banking subsidiary , a maryland chartered bank which is a member of the federal reserve system . the company was organized in october 1997 , to be the holding company for the bank . the bank was organized in 1998 as an independent , community oriented , full service banking alternative to the super regional financial institutions , which dominate the company 's primary market area . the company 's philosophy is to provide superior , personalized service to its customers . the company focuses on relationship banking , providing each customer with a number of services and becoming familiar with and addressing customer needs in a proactive , personalized fashion . the bank currently has a total of twenty one branch offices , including nine in northern virginia , seven in montgomery county , maryland , and five in washington , d.c. the bank offers a broad range of commercial banking services to its business and professional clients as well as full service consumer banking services to individuals living and or working primarily in the bank 's market area . story_separator_special_tag the company has had the financial resources to meet , and has remained committed to meeting , the credit needs of its community , resulting in substantial growth in the bank 's loan portfolio during 2016. furthermore , the company 's capital position was enhanced in 2016 by very strong and 41 consistent earnings and a successful subordinated debt offering in july 2016. the company believes its strategy of remaining growth-oriented , retaining talented staff and maintaining focus on seeking quality lending and deposit relationships has proven successful and is evidenced in its financial and performance ratios . additionally , the company believes such focus and strategy of relationship building has fostered future growth opportunities , as the company 's reputation in the marketplace has continued to grow . at december 31 , 2016 , the company had total assets of approximately $ 6.89 billion , total loans of $ 5.68 billion , total deposits of $ 5.72 billion and twenty one branches in the washington , d.c. metropolitan area . operating in the more competitive economic environment of 2016 , the bank was able to produce solid growth in both deposits and loans . additionally , the bank was able to grow its net interest spread earnings substantially , maintain an above average net interest margin , retain a strong position regarding asset quality , and generate enhanced operating leverage due to its seasoned and professional staff . the company increased its net income in each quarter of 2016 , continuing a trend of consecutive quarterly increases dating to the first quarter of 2009. critical accounting policies the company 's consolidated financial statements are prepared in accordance with gaap and follow general practices within the banking industry . 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 consolidated financial statements ; accordingly , as this information changes , the consolidated 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 a 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 . investment securities the fair values and the information used to record valuation adjustments for investment securities available-for-sale are based either on quoted market prices or are provided by other third-party sources , when available . the company 's investment portfolio is categorized as available-for-sale with unrealized gains and losses net of income tax being a component of shareholders ' equity and accumulated other comprehensive income ( loss ) . business combinations business combinations are accounted for by applying the acquisition method in accordance with accounting standards codification ( `` asc '' ) topic 805 , `` business combinations. `` under the acquisition method , identifiable assets acquired and liabilities assumed , and any non-controlling interest in the acquiree at the acquisition date are measured at their fair values as of that date , and are recognized separately from goodwill . results of operations of the acquired entities are included in the consolidated statement of income from the date of acquisition . adjustments to fair value for credit and current interest rate considerations at the date of acquisition are subsequently amortized to interest income and interest expense based on the remaining life of the asset or liability . ongoing assessments of fair value are made at each balance sheet date . 42 allowance for credit losses the allowance for credit losses is an estimate of the losses that may be sustained in our loan portfolio . the allowance is based on two principles of accounting : ( a ) asc topic 450 , `` contingencies , '' which requires that losses be accrued when they are probable of occurring and are estimable and ( b ) asc topic 310 , `` receivables , '' which requires that losses be accrued when it is probable that the company will not collect all principal and interest payments according to the contractual terms of the loan . the loss , if any , can be determined by the difference between the loan balance and the value of collateral , the present value of expected future cash flows , or values observable in the secondary markets . three components comprise our allowance for credit losses : a specific allowance , a formula allowance and a nonspecific or environmental factors allowance . each component is determined based on estimates that can and do change when actual events occur . the specific allowance allocates a reserve to identified impaired loans . impaired loans are assigned specific reserves based on an impairment analysis . under asc topic 310 , `` receivables , '' a loan for which reserves are individually allocated may show deficiencies in the borrower 's overall financial condition , payment record , support available from financial guarantors and for the fair market value of collateral . when a loan is identified as impaired , a specific reserve is established based on the company 's assessment of the loss that may be associated with the individual loan . the formula allowance is used to estimate the loss on internally risk rated loans , exclusive of those identified as requiring specific reserves . the portfolio of unimpaired loans is stratified by loan type and risk assessment .
| results of operations overview for the year ended december 31 , 2016 , the company 's net income was $ 97.7 million , a 16 % increase over the $ 84.2 million for the year ended december 31 , 2015. net income available to common shareholders for the year ended december 31 , 2016 was $ 97.7 million as compared to $ 83.6 million for the same period in 2015 , a 17 % increase . net income available to common shareholders in 2016 was $ 2.91 per basic common share and $ 2.86 per diluted common share , as compared to $ 2.54 per basic common share and $ 2.50 per diluted common share for 2015 , a 15 % increase per basic and a 14 % increase per diluted common share , respectively . for the year ended december 31 , 2016 , the company reported a return on average assets ( `` roaa '' ) of 1.52 % as compared to 1.49 % for the year ended december 31 , 2015 , while the return on average common equity ( `` roace '' ) for the year ended december 31 , 2016 was 12.27 % , as compared to 12.32 % for the year ended december 31 , 2015. the company 's earnings are largely dependent on net interest income , the difference between interest income and interest expense , which represented 90 % of total revenue ( defined as net interest income plus noninterest income ) for the full year in each of 2016 and 2015. the net interest margin , which measures the difference between interest income and interest expense ( i.e.
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we recognize stock-based compensation expense for our stock option awards over the requisite service period of the award story_separator_special_tag of operations overview m/i homes , inc. and subsidiaries ( the “ company ” or “ we ” ) is one of the nation 's leading builders of single-family homes , having sold over 118,200 homes since commencing homebuilding activities in 1976. the company 's homes are marketed and sold primarily under the m/i homes brand ( m/i homes and showcase collection ( exclusively by m/i ) ) . in addition , the hans hagen brand is used in older communities in our minneapolis/st . paul , minnesota market . the company has homebuilding operations in columbus and cincinnati , ohio ; indianapolis , indiana ; chicago , illinois ; minneapolis/st . paul , minnesota ; detroit , michigan ; tampa , sarasota and orlando , florida ; austin , dallas/fort worth , houston and san antonio , texas ; and charlotte and raleigh , north carolina . in the first quarter of 2019 , we decided to wind down our washington , d.c. operations , which we substantially completed by the end of 2019. see note 15 to our consolidated financial statements for more information regarding our decision to wind down our operations in washington , d.c. and our re-evaluation of our reporting segments as a result of this wind-down . included in this management 's discussion and analysis of financial condition and results of operations are the following topics relevant to the company 's performance and financial condition : application of critical accounting estimates and policies ; results of operations ; discussion of our liquidity and capital resources ; summary of our contractual obligations ; discussion of our utilization of off-balance sheet arrangements ; and impact of interest rates and inflation . application of critical accounting estimates and policies the preparation of financial statements 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 and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period . management bases its estimates and assumptions on historical experience and various other factors that it believes 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 . on an ongoing basis , management evaluates such estimates and assumptions and makes adjustments as deemed necessary . actual results could differ from these estimates using different estimates and assumptions , or if conditions are significantly different in the future . see “ forward - looking statements ” above in part i. listed below are those estimates and policies that we believe are critical and require the use of complex judgment in their application . our critical accounting estimates should be read in conjunction with the notes to our consolidated financial statements . revenue recognition . revenue and the related profit from the sale of a home and revenue and the related profit from the sale of land to third parties are recognized in the financial statements on the date of closing if delivery has occurred , title has passed to the buyer , all performance obligations ( as defined below ) have been met , and control of the home or land is transferred to the buyer in an amount that reflects the consideration we expect to be entitled to in exchange for the home or land . if not received immediately upon closing , cash proceeds from home closings are held in escrow for the company 's benefit , typically for up to three days , and are included in cash , cash equivalents and restricted cash on the consolidated balance sheets . sales incentives vary by type of incentive and by amount on a community-by-community and home-by-home basis . the costs of any sales incentives in the form of free or discounted products and services provided to homebuyers are reflected in land and housing costs in the consolidated statements of income because such incentives are identified in our home purchase contracts with homebuyers as an intrinsic part of our single performance obligation to deliver and transfer title to their home for the transaction price stated in the contracts . sales incentives that we may provide in the form of closing cost allowances are recorded as a reduction of housing revenue at the time the home is delivered . we record sales commissions within selling expenses in the consolidated statements of income when incurred ( i.e . when the home is delivered ) as the amortization period is generally one year or less and therefore capitalization is not required as part of the practical expedient for incremental costs of obtaining a contract . contract liabilities include customer deposits related to sold but undelivered homes . substantially all of our home sales are scheduled to close and be recorded to revenue within one year from the date of receiving a customer deposit . contract liabilities 23 expected to be recognized as revenue , excluding revenue pertaining to contracts that have an original expected duration of one year or less , is not material . a performance obligation is a promise in a contract to transfer a distinct good or service to the customer . a contract 's transaction price is allocated to each distinct performance obligation and recognized as revenue when , or as , the performance obligation is satisfied . all of our home purchase contracts have a single performance obligation as the promise to transfer the home is not separately identifiable from other promises in the contract and , therefore , not distinct . our performance obligation , to deliver the agreed-upon home , is generally satisfied in less than one year from the original contract date . story_separator_special_tag if communities are not recoverable based on estimated future undiscounted cash flows , the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets . the fair value of a community is estimated by discounting management 's cash flow projections using an appropriate risk-adjusted interest rate . as of december 31 , 2019 , we utilized discount rates ranging from 13 % to 16 % in our valuations . the discount rate used in determining each asset 's estimated fair value reflects the inherent risks associated with the related estimated cash flow stream , as well as current risk-free rates available in the market and estimated market risk premiums . our quarterly assessments reflect management 's best estimates . due to the inherent uncertainties in management 's estimates and uncertainties related to our operations and our industry as a whole as further discussed in “ item 1a . risk factors ” in part i of this annual report on form 10-k , we are unable to determine at this time if and to what extent continuing future impairments will occur . additionally , due to the volume of possible outcomes that can be generated from changes in the various model inputs for each community , we do not believe it is possible to create a sensitivity analysis that can provide meaningful information for the users of our financial statements . warranty reserves . we record warranty reserves to cover our exposure to the costs for materials and labor not expected to be covered by our subcontractors to the extent they relate to warranty-type claims . warranty reserves are established by charging cost of sales and crediting a warranty reserve for each home delivered . the warranty reserves for the company 's home builder 's limited warranty ( “ hblw ” ) are established as a percentage of average sales price and adjusted based on historical payment patterns determined , generally , by geographic area and recent trends . factors that are given consideration in determining the hblw reserves include : ( 1 ) the historical range of amounts paid per average sales price on a home ; ( 2 ) type and mix of amenity packages added to the home ; ( 3 ) any warranty expenditures not considered to be normal and recurring ; ( 4 ) timing of payments ; ( 5 ) improvements in quality of construction expected to impact future warranty expenditures ; and ( 6 ) conditions that may affect certain projects and require a different percentage of average sales price for those specific projects . changes in estimates for warranties occur due to changes in the historical payment experience and differences between the actual payment pattern experienced during the period and the historical payment pattern used in our evaluation of the warranty reserve balance at the end of each quarter . actual future warranty costs could differ from our current estimated amount . our warranty reserves for our 30-year ( offered on all homes sold after april 25 , 1998 and on or before december 1 , 2015 in all of our markets except our texas markets ) , 15-year ( offered on all homes sold after december 1 , 2015 in all of our markets except our texas markets ) and 10-year ( offered on all homes sold in our texas markets ) transferable structural warranty programs are established on a per-unit basis . while the structural warranty reserve is recorded as each house is delivered , the sufficiency of the structural warranty per unit charge and total reserve is reevaluated on an annual basis , with the assistance of an actuary , using our own historical data and trends , as well as industry-wide historical data and trends , and other project specific factors . the reserves are also evaluated quarterly and adjusted if we encounter activity that is not consistent with the historical experience used in the annual analysis . these reserves are subject to variability due to uncertainties regarding structural defect claims for products we build , the markets in which we build , claim settlement history , insurance and legal interpretations , among other factors . while we believe that our warranty reserves are sufficient to cover our projected costs , there can be no assurances that historical data and trends will accurately predict our actual warranty costs . see note 1 and note 8 to our consolidated financial statements for additional information related to our warranty reserves . story_separator_special_tag 2019 as a result of an increase in the number of loan originations and an increase in the average loan amount , partially offset by lower margins on loans sold during the period than we experienced in 2018 , primarily in the first quarter of 2019. total gross margin ( total revenue less total land and housing costs ) increased $ 45.7 million in 2019 compared to 2018 as a result of a $ 42.5 million improvement in the gross margin of our homebuilding operations and a $ 3.2 million improvement in the gross margin of our financial services operations . with respect to our homebuilding gross margin , our gross margin on homes delivered ( housing gross margin ) improved $ 44.1 million , due to the 9 % increase in the number of homes delivered and a decline of $ 0.8 million in asset impairment charges . our housing gross margin percentage improved 30 basis points from 17.6 % in the prior year to 17.9 % in 2019 . exclusive of the acquisition-related charges and asset impairment charges in 2019 and 2018 , our adjusted housing gross margin percentage remained flat at 18.1 % in both 2019 and 2018 . our gross margin on land sales ( land gross margin ) declined $ 1.5 million in 2019 compared to 2018 as a result of the mix of lots sold in the current year compared to the prior year .
| results of operations overview for the year ended december 31 , 2019 , we achieved record levels of new contracts , homes delivered , revenue and pre-tax income . the improved profitability is attributable primarily to the increase in homes delivered and improved overhead leverage . we also incurred lower acquisition-related expenses in 2019 . additionally , our complementary financial services business also achieved record revenue and a record number of loans originated in 2019 . fundamental housing market factors were favorable in 2019 , including steady increases in employment , continued low mortgage rates , relatively high consumer confidence , and a limited supply of homes available for sale . although we believe housing market conditions will remain relatively favorable during 2020 , we also believe rising land and construction costs may continue to impose pressure on housing affordability in many of our markets . 25 favorable market conditions along with the continued execution of our strategic business initiatives enabled us to achieve the following record results in 2019 in comparison to the year ended december 31 , 2018 : new contracts increased 16 % to 6,773 contracts - a record high for our company homes delivered increased 9 % to 6,296 homes - a record high for our company total sales value in backlog increased 18 % to $ 1,058 million - a year-end record for our company revenue increased 9 % to $ 2.50 billion - a record high for our company income before income taxes increased 18 % to $ 166.0 million - a record high for our company number of active communities at december 31 , 2019 increased 8 % to 225 - an all-time record for our company in addition to the record results described above , our number of homes in backlog increased 22 % , and our company-wide absorption pace of sales per community for 2019 was 2.6 per month compared to 2.4 per month in 2018.
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we commenced our operations in april 1994. our assets are held by and all operations are conducted through , directly or indirectly , the operating partnership , of which we are the sole general partner and held a 96.59 % interest as of december 31 , 2011. we are operating so as to qualify as a reit for federal income tax purposes . the following should be read in conjunction with the consolidated financial statements of agree realty corporation , including the respective notes thereto , which are included elsewhere in this annual report on form 10-k. recent accounting pronouncements effective january 1 , 2012 , a new accounting standard modifies the options for presentation of other comprehensive income . the new standard will require us to present comprehensive income in either a single continuous statement or two separate but consecutive statements . this guidance does not change the items that must be reported in other comprehensive income . we expect the adoption will impact our financial statement disclosures . effective january 1 , 2012 , guidance on how to measure fair value and on what disclosures to provide about fair value measurements will be converged with international standards . the adoption will require additional disclosures regarding fair value measurement , however , we do not expect the adoption will have a material effect on our financial statements . critical accounting policies critical accounting policies are those that are both significant to the overall presentation of our financial condition and results of operations and require management to make difficult , complex or subjective judgments . for example , significant estimates and assumptions have been made with respect to revenue recognition , capitalization of costs related to real estate investments , potential impairment of real estate investments , operating cost reimbursements , and taxable income . minimum rental income attributable to leases is recorded when due from tenants . certain leases provide for additional percentage rents based on tenants ' sales volumes . these percentage rents are recognized when determinable by us . in addition , leases for certain tenants contain rent escalations and or free rent during the first several months of the lease term ; however , such amounts are not material . real estate assets are stated at cost less accumulated depreciation . all costs related to planning , development and construction of buildings prior to the date they become operational , including interest and real estate taxes during the construction period , are capitalized for financial reporting purposes and recorded as property under development until construction has been completed . the viability of all projects under construction or development are regularly evaluated under applicable accounting requirements , including requirements relating to abandonment of assets or changes in use . to the extent a project , or individual components of the project , are no longer considered to have value , the related capitalized costs are charged against operations . subsequent to completion of construction , expenditures for property maintenance are charged to operations as incurred , while significant renovations are capitalized . depreciation of the buildings is recorded on the straight-line method using an estimated useful life of forty years . we evaluate real estate for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable through the estimated undiscounted future cash flows from the use of these assets . when any such impairment exists , the related assets will be written down to fair value and such excess carrying value is charged to income . the expected cash flows of a project are dependent on estimates and other factors subject to change , including ( 1 ) changes in the national , regional , and or local economic climates , ( 2 ) competition from other shopping centers , stores , clubs , mailings , and the internet , ( 3 ) increases in operating costs , ( 4 ) bankruptcy and or other changes in the condition of third parties , including tenants , ( 5 ) expected holding period , and ( 6 ) availability of credit . these factors could cause our expected future cash flows from a project to change , and , as a result , an impairment could be considered to have occurred . during 2011 and 2010 we recorded impairment charges of $ 13.5 million and $ 8.14 million , respectively , related to the carrying value of our real estate assets . 28 substantially all of our leases contain provisions requiring tenants to pay as additional rent a proportionate share of operating expenses ( “ operating cost reimbursements ” ) such as real estate taxes , repairs and maintenance , insurance , etc . the related revenue from tenant billings is recognized in the same period the expense is recorded . we have elected to be taxed as a reit under the internal revenue code since our 1994 tax year . as a result , we are not subject to federal income taxes to the extent that we distribute annually at least 90 % of our reit taxable income to our stockholders and satisfy certain other requirements defined in the internal revenue code . we established trs entities pursuant to the provisions of the reit modernization act . our trs entities are able to engage in activities resulting in income that previously would have been disqualified from being eligible reit income under the federal income tax regulations . as a result , certain activities of our company which occur within our trs entities are subject to federal and state income taxes . as of december 31 , 2011 and 2010 , we had accrued a deferred income tax amount of $ 705,000. in addition , we have recorded an income tax liability of $ 128,000 and $ 17,000 as of december 31 , 2011 and 2010 respectively . story_separator_special_tag sale of three properties during 2010. the properties we disposed were located in santa barbara , california , marion oaks , florida and aventura , florida . story_separator_special_tag liquidity and capital resources our principal demands for liquidity are operations , distributions to our stockholders , debt repayment , development of new properties , redevelopment of existing properties and future property acquisitions . we intend to meet our short-term liquidity requirements , including capital expenditures related to the leasing and improvement of the properties , through cash flow provided by operations and the credit facility . we believe that adequate cash flow will be available to fund our operations and pay dividends in accordance with reit requirements for at least the next 12 months . we may obtain additional funds for future development or acquisitions through other borrowings or the issuance of additional shares of common stock . although market conditions have limited the availability of new sources of financing and capital , which may have an impact on our ability to obtain financing for planned new development projects in the near term , we believe that these financing sources will enable us to generate funds sufficient to meet both our short-term and long-term capital needs . we completed a secondary offering of 1,495,000 shares of common stock in january/february of 2012. the offering , which included the full exercise of the overallotment option by the underwriters , raised net proceeds of approximately $ 35.1 million after deducting the underwriting discount and other expenses . the proceeds from the offering were used to pay down amounts outstanding under the credit facility and for general corporate purposes . our cash flows from operations decreased $ 614,000 to $ 25,497,000 in 2011 , compared to $ 26,111,000 in 2010. cash used in investing activities decreased $ 3,936,000 to $ 29,252,000 in 2011 , compared to $ 33,188,000 in 2010. cash provided by financing activities decreased $ 1,817,000 to $ 5,165,000 in 2011 , compared to $ 6,982,000 in 2010. our cash and cash equivalents increased by $ 1,505,000 to $ 2,003,000 as of december 31 , 2011 as a result of the foregoing factors . 31 during 2011 , we spent approximately $ 497,000 at our existing community shopping centers for tenant improvement or allowance costs , $ 197,000 for leasing commissions and $ 75,000 for other capital items . we intend to maintain a ratio of total indebtedness ( including construction or acquisition financing ) to total market capitalization of 65 % or less . nevertheless , we may operate with debt levels which are in excess of 65 % of total market capitalization for extended periods of time . at december 31 , 2011 , our ratio of indebtedness to total market capitalization was approximately 34.2 % . this ratio increased from 27.4 % as of december 31 , 2010 as a result of a decrease in the market value of our common stock and the increase in debt due to our 2011 property acquisitions . dividends during the quarter ended december 31 , 2011 , we declared a quarterly dividend of $ .40 per share . the cash dividend was paid on january 3 , 2012 to holders of record on december 19 , 2011. during the quarter ending march 31 , 2012 , we declared a quarterly dividend of $ .40 per share . the cash dividend will be paid on april 10 , 2012 to holders of record on march 30 , 2012. debt in october 2011 , we , through the operating partnership , closed on the $ 85 million unsecured revolving credit facility , which is guaranteed by our company . subject to customary conditions , at our option , total commitments under the credit facility may be increased up to an aggregate of $ 135 million . we intend to use borrowings under the credit facility for general corporate purposes , including working capital , capital expenditures , repayment of indebtedness or other corporate activities . the credit facility matures on october 26 , 2014 , and may be extended for two one-year terms to october 2016 , subject to certain conditions . borrowings under the credit facility bear interest at libor plus a spread of 175 to 260 basis points depending on our leverage ratio . as of december 31 , 2011 , we had approximately $ 56,444,000 in principal amount outstanding under the credit facility bearing a weighted average interest rate of 2.18 % . the credit facility replaced our $ 55 million and $ 5 million credit facilities . the net proceeds from the credit facility were used to repay outstanding indebtedness under our former $ 55 million and $ 5 million credit facilities . at december 31 , 2010 , $ 25,380,254 was outstanding under our $ 55 million credit facility with a weighted average interest rate of 1.26 % , and $ 3,000,000 was outstanding under our $ 5 million credit facility with a weighted average interest rate of 2.50 % . the credit facility contains customary covenants , including financial covenants regarding debt levels , total liabilities , tangible net worth , fixed charge coverage , unencumbered borrowing base properties , permitted investments etc . we were in compliance with the covenant terms at december 31 , 2011. as of december 31 , 2011 , we had total mortgage indebtedness of $ 62,854,057. of this total mortgage indebtedness , $ 39,703,979 is fixed rate , self-amortizing debt with a weighted average interest rate of 7.64 % , and $ 23,150,078 bears interest at 150 basis points over libor ( or 1.78 % as of december 31 , 2011 ) and has a maturity date of july 14 , 2013 , which can be extended at our option for two additional years . in january 2009 , we entered into an interest rate swap agreement that fixes the interest rate during the initial term of this variable rate mortgage indebtedness at 3.744 % . the mortgage loans encumbering our properties are generally non-recourse , subject to certain exceptions for which we would be liable for any resulting losses incurred by the lender .
| results of operations comparison of year ended december 31 , 2011 to year ended december 31 , 2010 minimum rental income increased $ 2,316,000 , or 8 % , to $ 32,671,000 in 2011 , compared to $ 30,355,000 in 2010. rental income increased $ 3,137,000 due to the acquisition of 10 properties in 2011 along with the full year impact of nine properties acquired in 2010. the increase was also the result of the development of a walgreens drug store in ann arbor , michigan in september 2010 , the development of a walgreens drug store located in atlantic beach , florida in october 2010 , the development of a walgreens drug store in st augustine shores , florida in november 2010 along with the redevelopment of dick 's sporting goods in boynton beach , florida in october 2010. our revenue increases from these developments amounted to $ 1,724,000. rental revenue decreased $ 2,466,000 due to the closure of borders stores due to the bankruptcy liquidation . in addition , rental income decreased $ 79,000 as a result of other rental income adjustments . percentage rents were $ 35,000 in 2011 and 2010. operating cost reimbursements decreased $ 34,000 , or 1 % , to $ 2,570,000 in 2011 , compared to $ 2,604,000 in 2010. operating cost reimbursements decreased due to the net decrease in recoverable property operating expenses as explained below . we earned development fee income of $ 895,000 in 2011 related to a project we have completed in berkeley , california . we recognized $ 590,000 of development fee income in 2010 related to a project that we completed in oakland , california . we do not have any additional anticipated development fee projects . other income increased $ 52,000 to $ 150,000 in 2011 , compared to $ 98,000 in 2010 due primarily to non-recurring fee income .
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such disposals would have met the criteria to be reported as discontinued operations in accordance with asu 2014-08. in may 2015 , the fasb issued asu 2015-07 , “ fair value measurements ( topic 820 ) : disclosures for investments in certain entities that calculate net asset value per share ( or its equivalent ) ” ( “ asu 2015-07 ” ) . asu 2015-07 removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient . asu 2015-07 also removes the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset story_separator_special_tag this document contains statements that constitute “ forward-looking statements ” within the meaning of section 21e of the securities exchange act of 1934 , as amended ( the “ exchange act ” ) , and section 27a of the securities act of 1933 , as amended . the words “ expect , ” “ estimate , ” “ anticipate , ” “ predict , ” “ believe ” and similar expressions and variations thereof are intended to identify forward-looking statements . these statements appear in a number of places in this document and include statements regarding the intent , belief or current expectations of twenty-first century fox , inc. , its directors or its officers with respect to , among other things , trends affecting twenty-first century fox , inc. 's financial condition or results of operations . the readers of this document are cautioned that any forward-looking statements are not guarantees of future performance and involve risks and uncertainties . more information regarding these risks , uncertainties and other factors is set forth under the heading “ risk factors ” in item 1a of this annual report on form 10-k ( the “ annual report ” ) . twenty-first century fox , inc. does not ordinarily make projections of its future operating results and undertakes no obligation ( and expressly disclaims any obligation ) to publicly update or revise any forward-looking statements , whether as a result of new information , future events or otherwise , except as required by law . readers should carefully review this document and the other documents filed by twenty-first century fox , inc. with the securities and exchange commission ( the “ sec ” ) . this section should be read together with the audited consolidated financial statements of twenty-first century fox , inc. and related notes set forth elsewhere in this annual report . introduction management 's discussion and analysis of financial condition and results of operations is intended to help provide an understanding of twenty-first century fox , inc. and its subsidiaries ' ( together , “ twenty-first century fox ” or the “ company ” ) financial condition , changes in financial condition and results of operations . this discussion is organized as follows : · overview of the company 's business - this section provides a general description of the company 's businesses , as well as developments that occurred either during the fiscal year ended june 30 , ( “ fiscal ” ) 2016 or early fiscal 2017 that the company believes are important in understanding its results of operations and financial condition or to disclose known trends . · results of operations - this section provides an analysis of the company 's results of operations for fiscal 2016 , 2015 and 2014. this analysis is presented on both a consolidated and a segment basis . in addition , a brief description is provided of significant transactions and events that impact the comparability of the results being analyzed . · liquidity and capital resources - this section provides an analysis of the company 's cash flows for fiscal 2016 , 2015 and 2014 , as well as a discussion of the company 's outstanding debt and commitments , both firm and contingent , that existed as of june 30 , 2016. included in the discussion of outstanding debt is a discussion of the amount of financial capacity available to fund the company 's future commitments and obligations , as well as a discussion of other financing arrangements . · critical accounting policies - this section discusses accounting policies considered important to the company 's financial condition and results of operations , and which require significant judgment and estimates on the part of management in application . in addition , note 2 to the accompanying consolidated financial statements of twenty-first century fox summarizes the company 's significant accounting policies , including the critical accounting policy discussion found in this section . 35 overview of the company 's business the company is a diversified global media and entertainment company , which manages and reports its businesses in the following segments : · cable network programming , which principally consists of the production and licensing of programming distributed primarily through cable television systems , direct broadcast satellite operators , telecommunication companies and online video distributors in the united states ( “ u.s. ” ) and internationally . · television , which principally consists of the broadcasting of network programming in the u.s. and the operation of 28 full power broadcast television stations , including 11 duopolies , in the u.s. ( of these stations , 17 are affiliated with the fox broadcasting company ( “ fox ” ) , 10 are affiliated with master distribution service , inc. ( “ mynetworktv ” ) and one is an independent station ) . · filmed entertainment , which principally consists of the production and acquisition of live-action and animated motion pictures for distribution and licensing in all formats in all entertainment media worldwide , and the production and licensing of television programming worldwide . · direct broadcast satellite television , which consisted of the distribution of programming services via satellite , cable and broadband directly to subscribers in italy , germany and austria . story_separator_special_tag in several of these agreements , other parties control certain distribution rights . the filmed entertainment segment records the amounts received for the sale of an economic interest as a reduction of the cost of the film , as the investor assumes full risk for that portion of the film asset acquired in these transactions . the substance of these arrangements is that the third-party investors own an interest in the film and , therefore , receive a participation based on the third-party investors ' contractual interest in the profits or losses incurred on the film . consistent with the requirements of financial accounting standards board ( “ fasb ” ) accounting standards codification ( “ asc ” ) 926 , “ entertainment—films ” ( “ asc 926 ” ) , the estimate of the third-party investor 's interest in profits or losses on the film is based on total estimated ultimate revenues . operating costs incurred by the filmed entertainment segment include : exploitation costs , primarily theatrical prints and advertising and home entertainment marketing and manufacturing costs ; amortization of capitalized production , overhead and interest costs ; and participations and talent residuals . selling , general and administrative expenses include salaries , employee benefits , rent and other routine overhead expenses . other business developments see note 3 – acquisitions , disposals and other transactions , under the heading “ fiscal 2016 ” , and note 7 – investments , under the heading “ other ” , to the accompanying consolidated financial statements of twenty-first century fox for a discussion of the company 's business developments . 37 story_separator_special_tag roman ; font-size:10pt ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > 39 other , net – replace_table_token_9_th for additional details on other , net , see note 22 – additional financial information to the accompanying consolidated financial statements of twenty-first century fox under the heading “ other , net ” . income tax expense – the company 's tax provision and related effective tax rate of 27 % for fiscal 2016 was lower than the statutory rate of 35 % primarily due to a 3 % rate reduction from the company 's foreign operations and a 4 % rate reduction from increased tax amortization deductions for certain film and television properties as a result of a ruling that was received by the company . in addition , increases in the net provision for uncertain tax positions were substantially offset by the final settlement of a foreign matter . the company 's tax provision and related effective tax rate of 13 % for fiscal 2015 was lower than the statutory rate of 35 % primarily due to the income tax benefits associated with the reversal of previously recorded valuation allowances related to capital loss carryforwards and foreign tax credit carryforwards utilized to offset the income tax liability from the disposition of the dbs businesses . the reversal of the valuation allowance yielded an aggregate income tax benefit of 17 % for the year . the company also recognized a benefit of approximately 3 % associated with the recognition of various tax benefits . these benefits primarily related to the reversal of additional valuation allowances related to the company 's foreign tax credit carryforwards as the company separately determined that it was more likely than not that the company would utilize these credit carryforwards before they expire . net income – net income decreased for fiscal 2016 , as compared to fiscal 2015 , primarily due to the comparative effect of the gain on the sale of the dbs businesses in november 2014 and a decrease in equity ( losses ) earnings of affiliates . 40 results of operations—fiscal 2015 versus fiscal 2014 the following tables set forth the company 's operating results for fiscal 2015 , as compared to fiscal 2014 , including presentation of revenues by component excluding the dbs segment and related intersegment eliminations . replace_table_token_10_th replace_table_token_11_th * * not meaningful overview – the company 's revenues decreased 9 % for fiscal 2015 , as compared to fiscal 2014. the changes in revenues were primarily due to the effect of the sale of the dbs businesses in november 2014. excluding the activity of the dbs businesses , the company 's revenues increased 3 % for fiscal 2015 , as compared to fiscal 2014 , primarily due to higher affiliate fee revenue partially offset by a decrease in advertising revenue . the increase in affiliate fee revenue was primarily attributable to higher average rates per subscriber across most channels and the 41 effect of the acquisition of the majority interest in the yes network in february 2014. the decrease in advertising revenue for fiscal 2015 was primarily due to the comparative effect of the broadcast of super bowl xlviii in february 2014 and lower general entertainment primetime ratings at fox . the strengthening of the u.s. dollar against local currencies resulted in a revenue decrease of approximately $ 625 million for fiscal 2015 , as compared to fiscal 2014. operating expenses decreased 12 % for fiscal 2015 , as compared to fiscal 2014 , primarily due to the sale of the dbs businesses in november 2014 partially offset by increases at the cable network programming segment . during fiscal 2015 , operating expenses at the cable network programming segment increased approximately $ 1 billion primarily due to higher programming costs including star sports ' broadcast of the international cricket council ( “ icc ” ) cricket world cup matches , fox sports 1 's ( “ fs1 ” ) inaugural broadcast of major league baseball ( “ mlb ” ) regular season and playoff games and the continued investment in new shows at fx networks suite of channels ( “ fx ” ) . selling , general and administrative expenses decreased 8 % for fiscal 2015 , as compared to fiscal 2014 , primarily due to the sale of the dbs businesses in november 2014 partially offset by increases at the cable network programming segment of approximately $ 255 million .
| results of operations results of operations—fiscal 2016 versus fiscal 2015 the following tables set forth the company 's operating results for fiscal 2016 , as compared to fiscal 2015 , including presentation of revenues by component excluding the dbs segment and related intersegment eliminations . replace_table_token_6_th replace_table_token_7_th * * not meaningful overview – the company 's revenues decreased 6 % for fiscal 2016 , as compared to fiscal 2015. the changes in revenues were primarily due to the effect of the sale of the dbs businesses in november 2014. excluding the activity of the dbs businesses , the company 's revenues increased 1 % for fiscal 2016 , as compared to fiscal 2015 , primarily due to higher affiliate fee and advertising revenues partially offset by lower content revenue . the increase 38 in affiliate fee revenue was primarily due to higher average rates per subscriber across most channels , and the increase in advertising revenue was led by higher pricing at fox news channel ( “ fox news ” ) and increases at the international cable channels . the decrease in content revenue was primarily attributable to lower worldwide home entertainment and theatrical revenues and the effect of the disposition of shine group in december 2014. the strengthening of the u.s. dollar against local currencies resulted in a revenue decrease of approximately $ 725 million for fiscal 2016 , as compared to fiscal 2015 . operating expenses decreased 8 % for fiscal 2016 , as compared to fiscal 2015 , primarily due to the sale of the dbs businesses in november 2014 and shine group in december 2014 partially offset by higher operating expenses at the cable network programming and television segments . selling , general and administrative expenses decreased 3 % for fiscal 2016 , as compared to fiscal 2015 , primarily due to the sale of the dbs businesses and shine group partially offset by higher selling , general and administrative expenses at the cable network programming segment .
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the growth in ocwen 's residential loan portfolio serviced benefits both the mortgage services and technology services segments . in 2011 , we principally invested in insurance services ( e.g. , title ) and mortgage origination services . partially offsetting our service revenue growth in mortgage services and technology services was a decline in the financial services segment . the decline in financial services is attributable to overall economic conditions , the movement of some collection work to india at lower fees and collector performance particularly in 2009 and 2010 resulting in decreased total placements . the increase in reimbursable expenses over the three year period is due to the expansion of our asset management and default services businesses over the same period . our revenues are seasonal . more specifically , financial services revenue tends to be higher in the first quarter as borrowers may utilize tax refunds to pay debts and generally declines throughout the year . mortgage services revenue is impacted by sales of residential homes which tend to be at their lowest level during fall and winter months and highest during spring and summer months . 26 cost of revenue cost of revenue principally includes payroll and employee benefits associated with personnel employed in customer service and operations roles , fees paid to external providers related to provision of services , reimbursable expenses , technology and telephony expenses as well as depreciation and amortization of operating assets . the components of cost of revenue were as follows for the years ended december 31 , 2011 , 2010 and 2009 : replace_table_token_13_th the increase in cost of revenue is directly attributable to our investments in personnel and technology principally to support the increase in ocwen 's residential loan servicing portfolio , the development of new mortgage and real estate portfolio management services and growth in third party vendor costs . as a percent of service revenue , compensation and benefits declined for each period presented as a result of investments in training , technology and process improvement and , in 2011 , the weakening of the indian rupee . two factors mitigate initiatives meant to improve employee productivity . first , in anticipation of ocwen 's boarding of significant loan servicing portfolios ( as occurred in september 2010 , september 2011 and expected in the first half of 2012 ) , we have had to hire personnel three to six months in advance in order to adequately train such persons in the delivery of our services . second , as we develop new services , we invest heavily in personnel to ensure high quality delivery of services until such time as we deploy technology and process improvement to improve productivity at reduced costs . outside fees and services consists principally of vendor costs that are not passed through at cost as reimbursable expenses . these principally include certain valuation and pre-foreclosure asset management services . the increase of these costs as a percent of service revenue in 2011 is principally due to the timing and magnitude of loans boarded by ocwen during the year and the mix of mortgage services provided . we intend to reduce outside fees and services as a percent of service revenue over time through deployment of our next generation vendor and process management technologies , beginning in the second half of 2012 and continuing through 2013. our gross margins can vary significantly from period to period . the most significant factors contributing to variability include seasonality , mix of services delivered , timing of investments in new services and hiring of staff in advance of new business and the timing of when loans are boarded by our customers . 27 selling , general and administrative expenses selling , general and administrative expenses include payroll , employee benefits , occupancy and other costs associated with personnel employed in executive , sales , marketing , human resources and finance roles . this category also includes professional fees , depreciation and amortization on non-operating assets . the components of selling , general and administrative expenses were as follows for the years ended december 31 , 2011 , 2010 and 2009 : replace_table_token_14_th n/m not meaningful . selling , general and administrative costs on a consolidated basis began to stabilize in 2011. the significant increase over the periods presented is principally attributable to increased costs associated with being a newly formed public company and increased occupancy related costs to support the growth in operations as previously described . compensation and benefits increased over the periods presented as we developed separate support functions including accounting , law and human resources . in addition , contributing to the increase in 2011 and 2010 was increased equity compensation for senior executives . professional services expense decreased in the most recent period principally due to a focus on reduced legal costs through increased compliance , particularly within our financial services segment . the 2009 period includes one-time expenses associated with the separation ( $ 3.4 million ) and litigation costs ( $ 1.4 million ) . other costs principally include travel related expenditures , bank charges and reserves for doubtful accounts . in 2009 , this category also includes one-time facility closure costs of $ 1.9 million in the financial services segment ( see note 11 to the consolidated financial statements ) . income from operations as a percent of service revenue increased 330 basis points compared to 2010 principally as a result of our ability to leverage support costs as our revenue grew significantly . 28 income tax ( provision ) /benefit our income tax provision / ( benefit ) was $ 7.9 million , $ ( 0.4 ) million and $ 11.6 million in 2011 , 2010 and 2009 , respectively . story_separator_special_tag cost of revenues increased for the periods presented due to investments in personnel and vendor costs to support the increase in ocwen 's residential loan servicing portfolio as well as the development of new mortgage and real estate portfolio management services . the most significant factors impacting gross profit margins as a percent of service revenue are investments in personnel and third party vendor costs . although we have been able to generally maintain or improve our margins in a period of accelerated growth , over time we will seek to reduce employee and vendor costs as a percent of service revenue principally through deployment of our next generation vendor , process and payment management technologies beginning in the second half of 2012 and continuing through 2013. our margins also can vary substantially based upon when servicing is acquired by ocwen . typically , compensation and benefits will increase in anticipation of an acquisition as we hire and train personnel to deliver services in advance of the actual boarding of loans . subsequently , as new loans are boarded , for the first couple of months post boarding , we tend to deliver an elevated level of valuations and pre-foreclosure services for which we incur substantially more outside fees and services when compared to asset management services . when compared to 2010 , gross profits as a percent of service revenue declined in 2011 principally due to additional investment in personnel to support the boarding of loans in september and november 2011 and to prepare for loans we expect ocwen to board in 2012. in addition , we continue to invest in personnel to develop our newer services including insurance and origination services . gross profit margins as a percent of service revenue improved in 2010 when compared to 2009 as a result of services being more weighted towards asset management services which tend to have higher margins as a result of less outside fees and services . 33 selling , general and administrative expenses replace_table_token_21_th n/m not meaningful . selling , general and administrative expenses increased over the three year period principally due to the exponential growth in the segment which required investments in facilities , technology and other general and administrative costs . as this segment continues to grow , we should begin to leverage selling , general and administrative expenses resulting in increased margins . the increase in 2010 was also as a result of the classification of certain compensation and benefit costs related to segment management and marketing previously being captured either in cost of revenue or as a component of the corporate segment . in addition , professional services fees such as those associated with the external audit increased in 2010 as a result of being a public company for a full year . 34 financial services the following table presents our results of operations for our financial services segment for the years ended december 31 : replace_table_token_22_th n/m not meaningful . in 2011 , we reorganized our reporting structure within this segment in that certain services originally part of component services and other in the mortgage services segment are now classified as part of customer relationship management in our financial services segment . our leadership team is focused on disciplined floor management , delivering more services over our global delivery platform , expanding our quality and analytical initiatives and investing in new technology . in july 2011 , we purchased the assembled workforce of a sub-contractor in india that performs asset recovery services . for periods prior to the acquisition , the costs paid to the sub-contractor were included as a component of outside fees and services . since acquisition , the costs have been recorded as employee costs , technology or occupancy as appropriate which has resulted in movement between cost of revenue and selling , general and administrative expense categories . 35 revenue replace_table_token_23_th n/m not meaningful . in our financial services segment , we generate revenue from asset recovery management fees we earn for collecting amounts due to our customers and from fees we earn for performing customer relationship management for our customers . financial services revenue declined over the three year period due to a decline in revenue attributable to asset recovery management , primarily associated with one of the segment 's largest customers . the decline was due to the general economic environment which has kept collection rates depressed and also the result of the client shifting work to the company 's global delivery platform . our global delivery platform consists of highly trained specialists in various geographic regions . the use of specialists in certain countries may result in lower commission rates paid by clients but results in higher margins principally due to the lower employee cost structure . these declines were partially offset by growth in new asset recovery management accounts , which drove an increase in associated revenues , and growth in our customer relationship management operations . cost of revenue replace_table_token_24_th n/m not meaningful . 36 cost of revenues as percent of service revenue has remained flat over the periods presented as we have actively worked to manage our cost structure in a declining revenue environment . we principally managed our cost structure through a reduction in compensation and benefit costs both through reduction in overall headcount as well as expanding our use of our global workforce . the decline in compensation and benefits in 2011 is mostly offset by the acquisition of a sub-contractor , as previously described , for which costs incurred prior to the acquisition were recorded in outside fees and services . since acquisition , costs have been recorded as employee costs , technology or occupancy as appropriate which has also resulted in movement between cost of revenue and selling , general and administrative expense categories . cost of revenues in 2010 decreased as compared to 2009 principally due to a reduction in compensation and benefits as
| consolidated results of operations . this section , beginning on page 24 , provides an analysis of our consolidated results of operations for the three years ended december 31 , 2011. segment results of operations . this section , beginning on page 29 , provides an analysis of each business segment for the three years ended december 31 , 2011 as well as our corporate segment . in addition , we discuss significant transactions , events and trends that may affect the comparability of the results being analyzed . liquidity and capital resources . this section , beginning on page 41 , provides an analysis of our cash flows for the three years ended december 31 , 2011. we also discuss restrictions on cash movements , future commitments and capital resources . critical accounting judgments . this section , beginning on page 42 , identifies those accounting principles we believe are most important to our financial results and that require significant judgment and estimates on the part of management in application . we provide all of our significant accounting policies in note 2 to the accompanying consolidated financial statements . other matters . this section , beginning on page 43 , provides a discussion of off-balance sheet arrangements to the extent they exist . in addition , we provide a tabular discussion of contractual obligations and discuss any significant commitments or contingencies . forward-looking statements this annual report on form 10-k and certain information incorporated herein by reference contain forward-looking statements within the safe harbor provisions of the private securities litigation reform act of 1995. these statements may relate to , among other things , future events or our future performance or financial condition . words such as anticipate , intend , expect , may , could , should , would , plan , estimate , seek , believe and similar expressions are intended to identify such forward-looking statements .
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on april 3 , 2013 the company commenced a modified dutch auction self-tender offer to repurchase up to $ 130 million of its common stock at a price per share within the range of $ 32.00 to $ 36.00 . a modified dutch auction self-tender offer allows stockholders to indicate how many shares and at what price within the company 's specified range ( in increments of $ 0.25 per share ) they wish to tender . when the tender offer expired , based upon the number of shares tendered and the prices specified by the tendering stockholders , the company determined the purchase price , which was the lowest price story_separator_special_tag overview we derive revenues from memberships to our research and data products and services , performing advisory services and consulting projects , and hosting events . we offer contracts for our research products that are typically renewable annually and payable in advance . research revenues are recognized as revenue ratably over the term of the contract . accordingly , a substantial portion of our billings are initially recorded as deferred 15 revenue . clients purchase advisory services independently and or to supplement their memberships to our research . billings attributable to advisory services and consulting projects are initially recorded as deferred revenue . advisory service revenues , such as workshops , speeches and advisory days , are recognized when the customer receives the agreed upon deliverable . consulting project revenues , which generally are short-term in nature and based upon fixed-fee agreements , are recognized as the services are provided . event billings are also initially recorded as deferred revenue and are recognized as revenue upon completion of each event . our primary operating expenses consist of cost of services and fulfillment , selling and marketing expenses and general and administrative expenses . cost of services and fulfillment represents the costs associated with the production and delivery of our products and services , including salaries , bonuses , employee benefits and stock-based compensation expense for research and consulting personnel and all associated editorial , travel , and support services . selling and marketing expenses include salaries , sales commissions , bonuses , employee benefits , stock-based compensation expense , travel expenses , promotional costs and other costs incurred in marketing and selling our products and services . general and administrative expenses include the costs of the technology , operations , finance , and human resources groups and our other administrative functions , including salaries , bonuses , employee benefits , and stock-based compensation expense . overhead costs such as facilities and annual fees for cloud-based information technology systems are allocated to these categories according to the number of employees in each group . deferred revenue , agreement value , client retention , dollar retention , enrichment and number of clients are metrics we believe are important to understanding our business . we believe that the amount of deferred revenue , along with the agreement value of contracts to purchase research and advisory services , provide a significant measure of our business activity . we define these metrics as follows : deferred revenue billings in advance of revenue recognition as of the measurement date . agreement value the total revenues recognizable from all research and advisory service contracts in force at a given time ( but not including advisory-only contracts ) , without regard to how much revenue has already been recognized . no single client accounted for more than 2 % of agreement value at december 31 , 2014. client retention the percentage of client companies with memberships expiring during the most recent twelve-month period that renewed one or more of those memberships during that same period . dollar retention the percentage of the dollar value of all client membership contracts renewed during the most recent twelve-month period to the total dollar value of all client membership contracts that expired during the period . enrichment the percentage of the dollar value of client membership contracts renewed during the most recent twelve-month period to the dollar value of the corresponding expiring contracts . clients we count as a single client the various divisions and subsidiaries of a corporate parent and we also aggregate separate instrumentalities of the federal , state , and provincial governments as single clients . client retention , dollar retention , and enrichment are not necessarily indicative of the rate of future retention of our revenue base . a summary of our key metrics is as follows ( dollars in millions ) : replace_table_token_4_th 16 replace_table_token_5_th deferred revenue at december 31 , 2014 decreased 5 % compared to the prior year . when including the amount of future invoicing for contracts at december 31 , 2014 , the combined amount of deferred revenue and future invoicing decreased 6 % compared to the prior year . the decrease in deferred revenue and future invoicing was due to ( 1 ) the difference in foreign currency rates in 2014 compared to 2013 that resulted in a 2 % decrease , and ( 2 ) a shift in the timing of the contract renewal date of approximately $ 10 million of contracts from december 2014 to january 2015 that resulted in an approximate 4 % decrease . deferred revenue at december 31 , 2013 increased 2 % compared to the prior year . however when including the amount of future invoicing for contracts at december 31 , 2013 , the combined amount of deferred revenue and future invoicing was flat compared to the prior year . the change in deferred revenue plus future invoicing for both 2014 and 2013 is reflective of the fact that contract bookings and revenue have grown at essentially the same rates during 2014 and 2013. agreement value increased 7 % at december 31 , 2014 compared to the prior year and decreased 2 % at december 31 , 2013 compared to the prior year . story_separator_special_tag we evaluate the recoverability of deferred commissions at each balance sheet date . stock-based compensation . stock-based compensation is recognized as an expense based upon the fair value of the award at the time of grant . the determination of the fair value of stock-based compensation requires significant judgment and the use of estimates , particularly surrounding assumptions such as stock price volatility , expected option lives , dividend yields and forfeiture rates . these estimates involve inherent uncertainties and the application of management judgment . as a result , if circumstances change and we use different assumptions , our stock-based compensation expense could be materially different in the future . expected volatility is based , in part , on the historical volatility of our common stock as well as management 's expectations of future volatility over the expected term of the awards granted . the development of an expected life assumption involves projecting employee exercise behaviors ( expected period between stock option vesting dates and stock option exercise dates ) . expected dividend yields are based on expectations of current and future dividends , if any . we are also required to estimate future forfeitures of stock-based awards for recognition of compensation expense . we will record additional expense if the actual forfeitures are lower than estimated and will record a recovery of prior recognized expense if the actual forfeitures are higher than estimated . the actual expense recognized over the vesting period will only be for those awards that vest . if our actual forfeiture rate is materially different from our estimates , or if our estimates of forfeitures are modified in a future period , the actual stock-based compensation expense could be significantly different from what we have recorded in the current period . 18 non-marketable investments . we hold minority interests in technology-related investment funds with a book value of $ 3.8 million at december 31 , 2014. these investment funds are not publicly traded , and , therefore , because no established market for these securities exists , the estimate of the fair value of our investments requires significant judgment . investments that are accounted for using the cost method are valued at cost unless an other-than-temporary impairment in their value occurs . for investments that are accounted for using the equity method , we record our share of the investee 's operating results each period . we review the fair value of our investments on a regular basis to evaluate whether an other-than-temporary impairment in the investment has occurred . we record impairment charges when we believe that an investment has experienced a decline in value that is other-than-temporary . future adverse changes in market conditions or poor operating results of underlying investments could result in losses or an inability to recover the carrying value of the investments that may not be reflected in an investment 's current carrying value , thereby possibly requiring an impairment charge in the future . goodwill , intangible assets and other long-lived assets . as of december 31 , 2014 , we had $ 80.1 million of goodwill and intangible assets with finite lives recorded on our consolidated balance sheet . goodwill is required to be measured for impairment at least annually or whenever events indicate that there may be an impairment . in order to determine if an impairment exists , we compare each of our reporting unit 's carrying value to the reporting unit 's fair value . determining the reporting unit 's fair value requires us to make estimates of market conditions and operational performance . absent an event that indicates a specific impairment may exist , we have selected november 30 as the date to perform the annual goodwill impairment test . the annual assessment of goodwill can be based on either a quantitative or qualitative assessment , or a combination of both . we completed the annual goodwill impairment testing as of november 30 , 2014 utilizing a qualitative assessment and concluded that the fair values of each of our reporting units more likely than not continues to exceed their respective carrying values . future events could cause us to conclude that impairment indicators exist and that goodwill associated with our acquired businesses is impaired . any resulting impairment loss could have a material adverse impact on our results of operations . in connection with our new organizational structure , goodwill was allocated to our new reporting units ( which are our three business segments ) on a relative fair value basis . the research and products reporting units were allocated $ 77.4 million and $ 2.6 million of goodwill , respectively , as of january 1 , 2014 while the project consulting reporting unit was allocated zero goodwill . we performed an interim quantitative impairment test and concluded that the fair values of the research and products reporting units substantially exceeded their respective carrying values . intangible assets with finite lives as of december 31 , 2014 consist primarily of acquired customer relationships and were valued according to the future cash flows they are estimated to produce . these assigned values are amortized on a basis which best matches the periods in which the economic benefits are expected to be realized . tangible assets with finite lives consist of property and equipment , which are depreciated over their estimated useful lives . we continually evaluate whether events or circumstances have occurred that indicate that the estimated remaining useful life of our intangible and long-lived tangible assets may warrant revision or that the carrying value of these assets may be impaired . to compute whether intangible assets have been impaired , the estimated undiscounted future cash flows for the estimated remaining useful life of the assets are compared to the carrying value . to the extent that the future cash flows are less than the carrying value , the assets are written down to their estimated fair value . income taxes .
| segment results at the end of 2013 we reorganized our fulfillment organization into a single global research organization and a single global product organization to better support our client base by facilitating better research collaboration and quality , promoting a more uniform client experience and improved customer satisfaction , and encouraging innovation . during 2013 we also established a dedicated consulting organization to provide research-based project consulting services to our clients , allowing our research personnel to spend additional time on writing research and providing shorter-term advisory services . as of january 1 , 2014 we conformed our internal reporting to match the new organizational structure and as such we are reporting segment information for the newly formed research , product and project consulting organizations . the 2013 and 2012 segment amounts have been reclassified to conform to the current presentation . the research segment includes the costs of our research personnel who are responsible for writing the research and performing the webinars and inquiries for our roleview product . in addition , the research personnel deliver advisory services ( such as workshops , speeches and advisory days ) and a portion of our project consulting services . revenue in this segment includes only revenue from advisory services and project consulting services that are delivered by the research personnel in this segment . during 2013 , we began to transition the delivery of project consulting to a dedicated project consulting organization . the transition was essentially complete by the end of 2014 such that the vast majority of project consulting will be delivered by the project consulting organization in 2015 . 26 the product segment includes the costs of the product management organization that is responsible for product pricing and packaging and the launch of new products . in addition , this segment includes the costs of our data , forrester leadership boards and events organizations .
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the accounting standard provides a framework for measuring fair value under generally accepted accounting principles in the united states and requires expanded disclosures regarding fair value measurements . fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability ( an exit price ) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date . the accounting standard also establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs , where available , and minimize the use of unobservable inputs when measuring fair value . the standard describes three levels of inputs that may be used to measure fair value : level 1 — quoted prices in active markets for identical assets or liabilities . level story_separator_special_tag overview we provide content delivery and cloud infrastructure services for accelerating and improving the delivery of content and applications over the internet . we primarily derive income from the sale of services to customers executing contracts with terms of one year or longer , which we refer to as recurring revenue contracts or long-term contracts . these contracts generally commit the customer to a minimum monthly level of usage with additional charges applicable for actual usage above the monthly minimum . in recent years , we have also entered into increasing numbers of customer contracts that have minimum usage commitments that are based on quarterly , annual or longer periods . having a consistent and predictable base level of income is important to our financial success . accordingly , to be successful , we must maintain our base of recurring revenue contracts by eliminating or reducing lost recurring revenue due to price reductions and customer cancellations or terminations and build on that base by adding new customers and increasing the number of services and features that our existing customers purchase . at the same time , we must manage the rate of growth in our expenses as we invest in strategic initiatives that we anticipate will generate future revenue growth . accomplishing these goals requires that we compete effectively in the marketplace on the basis of quality , price and the attractiveness of our services and technology . this management 's discussion and analysis of financial condition and results of operations , or md & a , should be read in conjunction with our consolidated financial statements and notes thereto that appear elsewhere in this annual report on form 10-k. see “ risk factors ” elsewhere in this annual report on form 10-k for a discussion of certain risks associated with our business . the following discussion contains forward-looking statements . the forward-looking statements do not include the potential impact of any mergers , acquisitions , divestitures , or other events that may be announced after the date hereof . recent event on february 8 , 2012 , we announced the resignation of j. donald sherman as our chief financial officer effective on february 29 , 2012 and the appointment of james benson , akamai 's senior vice president of finance , as his successor effective as of march 1 , 2012. overview of financial results our increase in net income in 2011 as compared to 2010 and 2009 reflected the success of our efforts to increase our recurring revenues while effectively managing the expenses needed to support such growth . the following sets forth , as a percentage of revenues , consolidated statements of operations data for the years indicated : replace_table_token_3_th we were profitable for fiscal years 2011 , 2010 and 2009 ; however , we can not guarantee continued profitability or profitability at the levels we have recently experienced for any period in the future . we have observed the following trends and events that are likely to have an impact on our financial condition and results of operations in the foreseeable future : 20 revenues and customers in recent years , we have been able to offset lost committed recurring revenues by adding new customers and increasing sales of incremental services to our existing customers . a continuation of this trend could lead to increased overall revenues ; however , any such increased revenues would be offset if we experience lower traffic from non-committed revenues or declines in the prices we charge . if we do not offset lost committed revenues in this manner , our overall revenues will decrease . our unit prices offered to some customers have declined as a result of increased competition . these price reductions primarily impacted customers for which we deliver high volumes of traffic over our network , such as digital media customers . if we continue to experience decreases in unit prices and are unable to offset such reductions with increased traffic , enhanced efficiencies in our network , lower co-location and bandwidth expenses , or increased sales of incremental services to existing customers , our revenues and profit margins could decrease . during 2011 , we experienced a moderation in the rate of traffic growth in our video and software download solutions as compared prior periods . if this trend continues , our ability to generate revenue growth could be adversely impacted . historically , we have experienced seasonal variations of higher revenues in the fourth quarter of the year and lower revenues during the summer months . we primarily attribute such variations to patterns of usage of e-commerce services by our retail customers . if this trend continues , our ability to generate quarterly revenue growth on a sequential basis could be impacted . during 2011 , revenues derived from customers outside the united states accounted for 29 % of our total revenues . story_separator_special_tag revenue is recognized only when the price is fixed or determinable , persuasive evidence of an arrangement exists , the service is performed and collectability of the resulting receivable is reasonably assured . we primarily derive revenues from the sale of services to customers executing contracts with terms of one year or longer . these contracts generally commit the customer to a minimum monthly , quarterly or annual level of usage and specify the rate at which the customer must pay for actual usage above the monthly , quarterly or annual minimum . for these services , we recognize the monthly minimum as revenue each month , provided that an enforceable contract has been signed by both parties , the service has been delivered to the customer , the fee for the service is fixed or determinable and collection is reasonably assured . should a customer 's usage of our service exceed the monthly minimum , we recognize revenue for such excess usage in the period of the usage . for annual or other non-monthly period revenue commitments , we recognize revenue monthly based upon the customer 's actual usage each month of the commitment period and only recognize any remaining committed amount for the applicable period in the last month thereof . we typically charge customers an integration fee when the services are first activated . the integration fees are recorded as deferred revenue and recognized as revenue ratably over the estimated life of the customer arrangement . we also derive revenue from services sold as discrete , non-recurring events or based solely on usage . for these services , we recognize revenue once the event or usage has occurred . when more than one element is contained in a revenue arrangement , we determine the fair value for each element in the arrangement based on vendor-specific objective evidence , or vsoe , for each respective element , including any renewal rates for services contractually offered to the customer . for arrangements in which we are unable to establish vsoe , third-party evidence , or tpe , of the fair value of each element is determined based upon the price charged when the element is sold separately by another vendor . for arrangements in which we are unable to establish vsoe or tpe for each element , we use the best estimate of selling price , or besp , to determine the fair value of the separate deliverables . we allocate arrangement consideration across the multiple elements using the relative selling price method . 22 at the inception of a customer contract for service , we make an estimate as to that customer 's ability to pay for the services provided . we base our estimate on a combination of factors , including the successful completion of a credit check or financial review , our collection experience with the customer and other forms of payment assurance . upon the completion of these steps , we recognize revenue monthly in accordance with our revenue recognition policy . if we subsequently determine that collection from the customer is not reasonably assured , we record an allowance for doubtful accounts and bad debt expense for all of that customer 's unpaid invoices and cease recognizing revenue for continued services provided until cash is received from the customer . changes in our estimates and judgments about whether collection is reasonably assured would change the timing of revenue or amount of bad debt expense that we recognize . we also sell our services through a reseller channel . assuming all other revenue recognition criteria are met , we recognize revenue from reseller arrangements based on the reseller 's contracted non-refundable minimum purchase commitments over the term of the contract , plus amounts sold by the reseller to its customers in excess of the minimum commitments . amounts attributable to this excess usage are recognized as revenue in the period in which the service is provided . from time to time , we enter into contracts to sell our services to unrelated companies at or about the same time we enter into contracts to purchase products or services from the same companies . if we conclude that these contracts were negotiated concurrently , we record as revenue only the net cash received from the vendor , unless the product or service received has a separate and identifiable benefit and the fair value to us of the vendor 's product or service can be objectively established . we may from time to time resell licenses or services of third parties . we record revenue for these transactions on a gross basis when we have risk of loss related to the amounts purchased from the third party and we add value to the license or service , such as by providing maintenance or support for such license or service . if these conditions are present , we recognize revenue when all other revenue recognition criteria are satisfied . deferred revenue represents amounts billed to customers for which revenue has not been recognized . deferred revenue primarily consists of the unearned portion of monthly billed service fees , prepayments made by customers for future periods , deferred integration and activation set-up fees and amounts billed under customer arrangements with extended payment terms . accounts receivable and related reserves : trade accounts receivable are recorded at the invoiced amounts and do not bear interest . in addition to trade accounts receivable , our accounts receivable balance includes unbilled accounts that represent revenue recorded for customers that is typically billed within one month . we record reserves against our accounts receivable balance . these reserves consist of allowances for doubtful accounts and revenue from certain customers on a cash-basis . increases and decreases in the allowance for doubtful accounts are included as a component of general and administrative expenses . increases in the reserve for cash-basis customers are recorded as reduction of revenue . the reserve for cash-basis customers increases as services are provided to customers for which collection is no longer reasonably assured .
| results of operations revenues . total revenues increased 13 % , or $ 135.0 million , to $ 1,158.5 million for the year ended december 31 , 2011 as compared to $ 1,023.6 million for the year ended december 31 , 2010 . total revenues increased 19 % , or $ 163.8 million , to $ 1,023.6 million for the year ended december 31 , 2010 as compared to $ 859.8 million for the year ended december 31 , 2009 . the following table quantifies the increase in revenues attributable to the different industry verticals in which we sell our services ( in millions ) : replace_table_token_4_th we believe that the continued growth in use of the internet by businesses and consumers was the principal factor driving increased purchases of our services during each of the last several years . we expect this trend to continue in 2012 but at lower rates of growth due to general economic conditions and competitive factors . the increase in revenues for 2011 as compared to 2010 , as well as 2010 as compared to 2009 , was driven by increased revenues from our media and entertainment vertical due to traffic growth , partially offset by reduced prices charged to our customers . revenues from our commerce and enterprise verticals increased due to growth in application and cloud performance solutions sold to customers in these verticals . revenues from our high tech vertical in 2011 as compared to 2010 remained relatively flat as increased demand for application and cloud performance solutions offset the decline in software download revenues . the increase in revenues from our high tech vertical in 2010 as compared to 2009 , was due to an increase in traffic growth as well as an increase in demand for our application and cloud performance solution services .
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the credit quality of loans in the residential portfolio segment may be impacted by fluctuations in home values , unemployment , general economic conditions , borrowers ' financial circumstances and , to a lesser extent in the current economic environment , fluctuations in interest rates . the new residential and home equity portfolio segments story_separator_special_tag the following discussion and analysis is intended to assist readers in understanding the consolidated financial condition and results of operations of bankunited , inc. and its subsidiaries ( the `` company '' , `` we '' , `` us '' and `` our '' ) and should be read in conjunction with the consolidated financial statements , accompanying footnotes and supplemental financial data included herein . in addition to historical information , this discussion contains forward-looking statements that involve risks , uncertainties and assumptions that could cause actual results to differ materially from management 's expectations . factors that could cause such differences are discussed in the sections entitled `` forward-looking statements '' and `` risk factors . '' we assume no obligation to update any of these forward-looking statements . overview story_separator_special_tag href= '' https : //www.sec.gov/archives/edgar/data/0001504008/000104746913001550/ # bg19301a_main_toc '' > economic conditions in the florida market , while improving , remain under stress . continued economic stress may lead to elevated levels of non-performing assets or impact our ability to sustain the trajectory of new loan growth . management expects that the company and the banking industry as a whole may be required by market forces and or regulation to operate with higher capital ratios than in the recent past . uncertainty about the full impact of new regulation may present challenges in the execution of our business strategy and the management of non-interest expense . for additional discussion , see `` regulation and supervision . '' impact of acquisition accounting , aci loan accounting and the loss sharing agreements the application of acquisition accounting , accounting for loans acquired with evidence of deterioration in credit quality since origination ( `` aci '' or `` acquired credit impaired '' loans ) and the provisions of the loss sharing agreements have had a material impact on our financial condition and results of operations . the more significant ways in which our financial statements have been impacted are summarized below and discussed in more detail throughout this `` management 's discussion and analysis of financial condition and results of operations '' : under the acquisition method of accounting , all of the assets acquired and liabilities assumed in the fsb acquisition were initially recorded on the consolidated balance sheet at their estimated fair values as of may 21 , 2009. these estimated fair values differed materially from the carrying amounts of many of the assets acquired and liabilities assumed as reflected in the financial statements of the failed bank immediately prior to the fsb acquisition . in particular , the carrying amount of investment securities , loans , the fdic indemnification asset , goodwill and other intangible assets , net deferred tax assets , deposit liabilities , and fhlb advances were materially impacted by these adjustments , which continue to affect the reported amounts of such assets and liabilities ; interest income , interest expense and the net interest margin reflect the impact of accretion of the fair value adjustments made to the carrying amounts of interest earning assets and interest bearing liabilities in conjunction with the fsb acquisition ; the estimated fair value at which the acquired loans were initially recorded by the company was significantly less than the unpaid principal balances of the loans . no allowance for loan and lease losses was recorded with respect to acquired loans at the fsb acquisition date . the write-down of loans to fair value in conjunction with the application of acquisition accounting and credit protection provided by the loss sharing agreements reduces the impact of the provision for loan losses related to the acquired loans on the results of operations ; acquired investment securities were recorded at their estimated fair values at the fsb acquisition date , significantly reducing the potential for other-than-temporary impairment charges in periods subsequent to the fsb acquisition for the acquired securities . certain of the acquired investment securities are covered under the loss sharing agreements . the impact on results of operations of any future other-than-temporary impairment charges related to covered securities would be significantly mitigated by indemnification by the fdic ; an indemnification asset related to the loss sharing agreements with the fdic was recorded in conjunction with the fsb acquisition . the loss sharing agreements afford the company significant protection against future credit losses related to covered assets ; non-interest income includes the effect of accretion of discount on the indemnification asset ; non-interest income includes gains and losses associated with the resolution of covered assets and the related effect of indemnification under the terms of the loss sharing agreements . the 35 impact of gains or losses related to transactions in covered loans and other real estate owned is significantly mitigated by indemnification by the fdic ; aci loans that are contractually delinquent may not be reflected as nonaccrual loans or non-performing assets due to the accounting treatment accorded such loans under accounting standards codification ( `` asc '' ) section 310-30 , `` loans and debt securities acquired with deteriorated credit quality . '' these factors may impact the comparability of our financial performance to that of other financial institutions . critical accounting policies and estimates our consolidated financial statements are prepared in accordance with u.s. generally accepted accounting principles and follow general practices within the banking industry . application of these principles requires management to make complex and subjective estimates and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable and appropriate under current circumstances . story_separator_special_tag subsequent to foreclosure , valuations are periodically performed , and the assets are carried at the lower of cost or fair value less estimated costs to sell . significant property improvements that enhance the salability of the property are capitalized to the extent that the carrying value does not exceed estimated realizable value . legal fees , maintenance and other direct costs of foreclosed properties are expensed as incurred . given the large number of oreo properties and the judgment involved in estimating fair value of the properties , 37 accounting for oreo is regarded as a critical accounting policy . estimates of value of oreo properties are typically based on real estate appraisals performed by independent appraisers . in some cases , if an appraisal is not available , values may be based on brokers ' price opinions . these values are generally updated as appraisals become available . equity based compensation prior to the consummation of the ipo , bufh had issued equity awards in the form of profits interest units ( `` pius '' ) to certain members of management . compensation expense related to pius was based on the fair value of the underlying units on the date of the consolidated financial statements . at the time of the ipo , the pius were exchanged for a combination of vested and unvested shares and vested and unvested options . the fair value of pius and options issued in exchange for pius was estimated using a black-scholes option pricing model , which incorporated significant assumptions as to expected volatility , dividends , terms , risk free rates and , prior to the ipo , equity value per share . changes in these underlying assumptions would have had a potentially material effect on the values assigned to these instruments . determining the fair value of the pius and the options issued in exchange for the pius is considered a critical accounting estimate because it requires significant judgments and because of the potential materiality of the amounts involved . see notes 1 and 17 to our consolidated financial statements for further information about equity based compensation awards and the techniques used to value them . fair value measurements the company measures certain of its assets and liabilities at fair value on a recurring or non-recurring basis . assets and liabilities measured at fair value on a recurring basis include investment securities available for sale , derivative instruments and , for periods prior to the ipo , the liability for pius . assets that may be measured at fair value on a non-recurring basis include oreo , impaired loans , loans held for sale , intangible assets and assets acquired and liabilities assumed in business combinations . the consolidated financial statements also include disclosures about the fair value of financial instruments that are not recorded at fair value . fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date . inputs used to determine fair value measurements are prioritized into a three level hierarchy based on observability and transparency of the inputs , summarized as follows : level 1observable inputs that reflect quoted prices in active markets , level 2inputs other than quoted prices in active markets that are based on observable market data , and level 3unobservable inputs requiring significant management judgment or estimation . when observable market inputs are not available , fair value is estimated using modeling techniques such as discounted cash flow analyses and option pricing models . these modeling techniques utilize assumptions that we believe market participants would use in pricing the asset or the liability . particularly for estimated fair values of assets and liabilities categorized within level 3 of the fair value hierarchy , the selection of different valuation techniques or underlying assumptions could result in fair value estimates that are higher or lower than the amounts recorded or disclosed in our consolidated financial statements . considerable judgment may be involved in determining the amount that is most representative of fair value . 38 because of the degree of judgment involved in selecting valuation techniques and underlying assumptions , fair value measurements are considered critical accounting estimates . notes 1 , 4 , and 20 to our consolidated financial statements contain further information about fair value estimates . recent accounting pronouncements see note 1 to our consolidated financial statements for a discussion of recent accounting pronouncements . results of operations net interest income net interest income is the difference between interest earned on interest earning assets and interest incurred on interest bearing liabilities and is the primary driver of core earnings . net interest income is impacted by the relative mix of interest earning assets and interest bearing liabilities , the ratio of interest earning assets to total assets and of interest bearing liabilities to total funding sources , movements in market interest rates , levels of non-performing assets and pricing pressure from competitors . the mix of interest earning assets is influenced by loan demand and by management 's continual assessment of the rate of return and relative risk associated with various classes of earning assets . the mix of interest bearing liabilities is influenced by management 's assessment of the need for lower cost funding sources weighed against relationships with customers and growth requirements and is impacted by competition for deposits in the company 's markets and the availability and pricing of other sources of funds . net interest income is also impacted by the accounting for aci loans and to a declining extent , the accretion of fair value adjustments recorded in conjunction with the fsb acquisition . aci loans were initially recorded at fair value , measured based on the present value of expected cash flows .
| performance highlights in evaluating our financial performance , we consider the level of and trends in net interest income , the net interest margin and interest rate spread , the allowance and provision for loan losses , performance ratios such as the return on average assets and return on average equity , asset quality ratios including the ratio of non-performing loans to total loans , non-performing assets to total assets , and portfolio delinquency and charge-off trends . we consider growth in the loan portfolio and trends in deposit mix . we analyze these ratios and trends against our own historical performance , our budgeted performance and the financial condition and performance of comparable financial institutions in our region and nationally . performance highlights include : net income for the year ended december 31 , 2012 was $ 211.3 million or $ 2.05 per diluted share , compared to $ 63.2 million or $ 0.62 per diluted share for the year ended december 31 , 2011. earnings for 2012 generated a return on average stockholders ' equity of 12.45 % and a return on average assets of 1.71 % . results for 2011 reflected a one-time charge of $ 110.4 million recorded in conjunction with the company 's ipo . net interest income for 2012 was $ 597.6 million , an increase of $ 98.4 million over the prior year . the net interest margin , calculated on a tax-equivalent basis , decreased to 6.04 % for 2012 from 6.21 % for 2011. the decline in the net interest margin resulted from a decrease in the average yield on interest earning assets , partially offset by a decrease in the average rate paid on interest bearing liabilities . the primary driver of the decrease in the average yield on interest earning assets was a shift in the composition of the loan portfolio away from higher yielding covered loans into new loans originated at lower current market rates of interest .
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housing affordability and decreased inventory home levels in many markets resulted in solid financial and operational performance for the overall homebuilding sector . the variability between individual markets was more prevalent in 2014 as local economic and employment situations influenced demand , returning to trends experienced in prior homebuilding cycles . we are committed to our plan of strategically positioning ourselves in many of the top housing markets in the country and continue to actively source land in well-located communities within those locations . we offer our buyers energy efficient features coupled with the ability to personalize their homes and we provide a home warranty , successfully setting us apart from the competition we face with resale homes . story_separator_special_tag required by financial accounting standards board ( “ fasb ” ) accounting standards codification ( “ asc ” ) 360-10 , property , plant and equipment . inventory includes the costs of land acquisition , land development and home construction , capitalized interest , real estate taxes , direct overhead costs incurred during development and home construction that benefit the entire community , less impairments , if any . land and development costs are typically allocated and transferred to homes under construction when home construction begins . home construction costs are accumulated on a per-home basis . cost of home closings includes the specific construction costs of the home and all related allocated land acquisition , land development and other common costs ( both incurred and estimated to be incurred ) based upon the total number of homes expected to be closed in each community or phase . any changes to the estimated total development costs of a community or phase are allocated to the remaining homes in the community or phase . when a home closes , we may have incurred costs for goods and services that have not yet been paid . therefore , an accrual to capture such obligations is recorded in connection with the home closing and charged directly to cost of sales . we rely on certain estimates to determine our construction and land development costs . construction and land costs are comprised of direct and allocated costs , including estimated future costs . in determining these costs , we compile project budgets that are based on a variety of assumptions , including future construction schedules and costs to be incurred . it is possible that actual results could differ from these budgeted amounts for various reasons , including construction delays , labor or material shortages , increases in costs that have not yet been committed , changes in governmental requirements , or other unanticipated issues encountered during construction and development and other factors beyond our control . to address uncertainty in these budgets , we assess , update and revise project budgets on a regular basis , utilizing the most current information available to estimate construction and land costs . typically , an entitled community 's life cycle ranges from three to five years , commencing with the acquisition of the land , continuing through the land development phase and concluding with the sale , construction and closing of the homes . actual community lives will vary based on the size of the community , the absorption rates and whether the land purchased was raw land or finished lots . master-planned communities encompassing several phases and super-block land parcels may have significantly longer lives and projects involving smaller finished lot purchases may be significantly shorter . all of our land inventory and related real estate assets are reviewed for recoverability , as our inventory is considered “ long-lived ” in accordance with gaap . impairment charges are recorded to write down an asset to its estimated fair value if the undiscounted cash flows expected to be generated by the asset are lower than its carrying amount . our determination of fair value is based on projections and estimates . changes in these expectations may lead to a change in the outcome of our impairment analysis , and actual results may also differ from our assumptions . our analysis is conducted if indicators of a decline in value of our land and real estate assets exist . if an asset is deemed to be impaired , the impairment recognized is measured as the amount by which the assets ' carrying amount exceeds their fair value . the impairment of a community is allocated to each lot on a straight-line basis . goodwill goodwill represents the excess of the purchase price paid over the fair value of the net assets acquired in business combinations . goodwill was $ 33.0 million and $ 10.2 million as of december 31 , 2014 and december 31 , 2013 , respectively . in accordance with asc 350 , intangibles , goodwill and other ( `` asc 350 '' ) , we analyze goodwill on an annual basis ( or whenever indicators of impairment exist ) through a qualitative assessment to determine whether it is necessary to perform a two-step goodwill impairment test . asc 350 states that an entity may assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount , including goodwill . such qualitative factors include : ( 1 ) macroeconomic conditions , such as a deterioration in general economic conditions , ( 2 ) industry and market considerations such as deterioration in the environment in which the entity operates , ( 3 ) cost factors such as increases in raw materials , labor costs , etc. , and ( 4 ) overall financial performance such as negative or declining cash flows or a decline in actual or planned revenue or earnings . if the qualitative analysis determines that additional impairment testing is required , the two-step impairment testing in accordance with asc 350 would be initiated . our qualitative analysis performed in 2014 included a review of the operating environment for the reporting unit carrying goodwill . story_separator_special_tag our time based awards generally vest on a pro-rata basis over either three or five years , and our performance awards cliff vest in the third year . 30 home closing revenue , home orders and order backlog - segment analysis the composition of our closings , home orders and backlog is constantly changing and is based on a dissimilar mix of communities between periods as new projects open and existing projects wind down . further , individual homes within a community can range significantly in price due to differing square footage , option selections , lot sizes and quality and location of lots ( e.g . cul-de-sac , view lots , greenbelt lots ) . these variations result in a lack of meaningful comparability between our home orders , closings and backlog due to the changing mix between periods . the tables on the following pages present operating and financial data that we consider most critical to managing our operations ( dollars in thousands ) : 31 replace_table_token_6_th n/a – not applicable n/m - not meaningful 32 replace_table_token_7_th n/a – not applicable n/m - not meaningful 33 replace_table_token_8_th ( 1 ) home orders for any period represent the aggregate sales price of all homes ordered , net of cancellations . we do not include orders contingent upon the sale of a customer 's existing home as a sales contract until the contingency is removed . n/a – not applicable n/m - not meaningful 34 replace_table_token_9_th ( 1 ) home orders for any period represent the aggregate sales price of all homes ordered , net of cancellations . we do not include orders contingent upon the sale of a customer 's existing home as a sales contract until the contingency is removed . n/a – not applicable n/m - not meaningful 35 replace_table_token_10_th replace_table_token_11_th ( 1 ) cancellation rates are computed as the number of canceled units for the period divided by the gross sales units for the same period . n/a – not applicable 36 replace_table_token_12_th ( 1 ) our backlog represents net sales that have not closed . n/a – not applicable n/m - not meaningful 37 replace_table_token_13_th ( 1 ) our backlog represents net sales that have not closed . n/a – not applicable n/m - not meaningful 38 fiscal 2014 compared to fiscal 2013 companywide . home closings revenue for the year ended december 31 , 2014 increased 20.1 % to $ 2.1 billion when compared to the prior year , due to a 603-unit increase in units closed and a $ 26,400 increase in average closing price . home orders also increased to $ 2.2 billion on 5,944 units in 2014 as compared to $ 2.0 billion on 5,615 units in 2013. the value on orders was largely boosted by an average sales price increase of $ 23,500. increases in average sales prices were seen in many of our markets as a result of community location , larger product offerings and to a lesser extent , pricing appreciation . buyer confidence helped to maintain a low cancellation rate of 14.0 % in 2014 as compared to 12.8 % in 2013 , resulting in a 261-unit , or 14.1 % , increase in our year-end backlog , ending 2014 with 2,114 homes valued at $ 846.5 million as compared to 1,853 homes valued at $ 686.7 million in 2013. growth in our new markets from the legendary communities acquisition and the continuing growth in tennessee and improvements in texas contributed to the year-over-year growth , helping to offset some of the declines experienced in the west region during the year , particularly in arizona . our operating results reflect the improving economy during the year , coupled with increased consumer confidence and mortgage rates that are still near historic lows . we also benefited from our successful land positions , desirable home designs and industry-leading energy efficiency innovations . our average active community count increased 20.5 % to 229 communities at the end of 2014 as compared to 188 in 2013 , largely driven by the new communities in georgia and south carolina from our acquisition of legendary communities . west . in 2014 , home closings units decreased 12.1 % , which was nearly offset by a $ 44,200 or 11.8 % increase in average sales price , generating $ 909.1 million in home closing revenue for the year ended december 31 , 2014 compared to $ 925.4 million in 2013. similarly , the $ 39,500 or 10.1 % increase in average sales price on orders nearly offset the 318 or 12.9 % drop in units year over year , ending the year with $ 923.8 million in orders on 2,140 units as compared to $ 963.9 million on 2,458 units . these results led to ending backlog in the region of $ 311.8 million on 672 units versus $ 297.1 million on 705 units in the prior year . the increases in average sales prices that helped offset the decline in volume in the region are largely due to our 2014 mix being made up of larger homes and more desirable communities than that of 2013. our reduction in orders per average active community in the region to 27.1 for the year ended december 31 , 2014 as compared to 34.1 over the prior year is largely due to the softening of the arizona market in 2014 that impacted demand . california and colorado orders pace also declined from 2013 ; however , those markets still performed at a pace exceeding our company average with 33.6 and 34.2 orders per average community , respectively , during 2014. we strategically increased our active community count in california in the last half of the year in order to capitalize on the good demand that market continues to exhibit . orders in arizona moderated in 2014 and home prices dipped accordingly , although due to a shift to larger homes , our average sales price on orders improved year over year .
| summary company results total home closing revenue was $ 2.1 billion for the year ended december 31 , 2014 , increasing 20.1 % from $ 1.8 billion for 2013. total home closing revenue for the year ended december 31 , 2013 was 50.6 % higher than the $ 1.2 billion recorded for the year ended december 31 , 2012. these strong revenue results generated net income of $ 142.2 million compared to $ 124.5 million in 2013 and $ 105.2 million in 2012. our 2014 results include $ 66.2 million of taxes . our 2013 results include $ 53.2 million of taxes and $ 3.8 million of early debt extinguishment costs . 2012 results included $ 5.8 million from loss on early extinguishment of debt , an $ 8.7 million charge for litigation accruals and reflect a $ 76.3 million benefit from income taxes due to the reversal of most of our deferred tax asset valuation allowance . company-wide both units and average sales prices in closings and backlog results experienced healthy year-over-year increases in 2014. overall order growth , however , was more tempered during 2014 , reflecting the stabilization of and slowing in certain of our markets . at december 31 , 2014 , our backlog of $ 846.5 million was up 23.3 % from $ 686.7 million at december 31 , 2013 . increased community count and higher average sales prices in 2014 are largely responsible for the increase in ending backlog volume and value . our average sales price for homes in backlog increased 8.0 % to $ 400,400 from $ 370,600 at december 31 , 2013 primarily due to our mix of homes shifting to higher-priced markets and states . overall increases year-over-year are partially attributable to our market expansion as a result of our recent acquisitions .
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overview we are a non-asset based transportation and logistics services company providing customers domestic and international freight forwarding services and other value added supply chain management services , including customs and property brokerage , order fulfillment , inventory management and warehousing . we are executing a strategy to expand our operations through a combination of organic growth and the strategic acquisition of non-asset based transportation and logistics providers meeting our acquisition criteria . our first acquisition of airgroup corporation ( airgroup ) was completed on january 1 , 2006. airgroup , headquartered in bellevue , washington , is a non-asset based logistics company providing domestic and international freight forwarding services through a network of independent agent offices across north america . we continue to seek additional companies as suitable acquisition candidates and have completed seven acquisitions since our acquisition of airgroup . in november 2007 , we acquired certain assets of automotive services group in detroit , michigan to service the automotive industry . in september 2008 , we acquired adcom express , inc. d/b/a adcom worldwide ( adcom ) , adding an additional 30 locations across north america and 23 augmenting our overall domestic and international freight forwarding capabilities . in april 2011 , we acquired dba distribution services , inc. , d/b/a distribution by air ( dba ) , adding an additional 26 locations across north america , further expanding our physical network and service capabilities . in december 2011 , we acquired the assets and operations of laredo , texas based isla international ltd , ( isla ) to serve as our gateway to mexico . in february 2012 , we acquired the assets and operations of new york-jfk based brunswicks logistics , inc. d/b/a albs logistics , inc. ( albs ) , a strategic location for domestic and international logistics services . in november 2012 , we acquired certain assets of los angeles , california based marvir logistics , inc. , ( marvir ) an independent agent , operating partner since 2006 providing domestic and international logistics services . on december 31 , 2012 , we acquired international freight systems of oregon , inc. ( ifs ) an independent operating partner since january 2007 providing domestic and international logistics services . in connection with our 2008 acquisition of adcom , we changed the name of airgroup corporation to radiant global logistics , inc. to better position our centralized back-office operations to service our multi-brand network . today , rgl , through the radiant , airgroup , adcom and dba network brands , has a diversified account base including manufacturers , distributors and retailers using a network of independent carriers through a combination of strategically positioned , company owned and independent agent offices . our growth strategy continues to focus on both organic growth and growth through acquisitions . for organic growth , we will focus on strengthening and retaining existing , and expanding new customer agency relationships . since our acquisition of airgroup in january 2006 , we have focused our efforts on the build-out of our network of independent agency offices , as well as enhancing our back-office infrastructure , transportation and accounting systems . we also continue to search for targets that fit within our acquisition criteria . performance metrics our principal source of income is derived from freight forwarding services . as a freight forwarder , we arrange for the shipment of our customers ' freight from point of origin to point of destination . generally , we quote our customers a turnkey cost for the movement of their freight . our price quote will often depend upon the customer 's time-definite needs ( first day through fifth day delivery ) , special handling needs ( heavy equipment , delicate items , environmentally sensitive goods , electronic components , etc . ) , and the means of transport ( motor carrier , air , ocean or rail ) . in turn , we assume the responsibility for arranging and paying for the underlying means of transportation . our transportation revenue represents the total dollar value of services we sell to our customers . our cost of transportation includes direct costs of transportation , including motor carrier , air , ocean and rail services . we act principally as the service provider to add value in the execution and procurement of these services to our customers . our net transportation revenue ( gross transportation revenue less the direct cost of transportation ) is the primary indicator of our ability to source , add value and resell services provided by third parties , and is considered by management to be a key performance measure . in addition , management believes measuring its operating costs as a function of net transportation revenue provides a useful metric , as our ability to control costs as a function of net transportation revenue directly impacts operating earnings . our operating results will be affected as acquisitions occur . since all acquisitions are made using the purchase method of accounting for business combinations , our financial statements will only include the results of operations and cash flows of acquired companies for periods subsequent to the date of acquisition . our gaap-based net income will be affected by non-cash charges relating to the amortization of customer related intangible assets and other intangible assets attributable to completed acquisitions . under applicable accounting standards , purchasers are required to allocate the total consideration in a business combination to the identified assets acquired and liabilities assumed based on their fair values at the time of acquisition . the excess of the consideration paid over the fair value of the identifiable net assets acquired is to be allocated to goodwill , which is tested at least annually for impairment . applicable accounting standards require that we separately 24 account for and value certain identifiable intangible assets based on the unique facts and circumstances of each acquisition . story_separator_special_tag when fair values are not available , we estimate fair value using the expected future cash flows discounted at a rate commensurate with the risks associated with the recovery of the asset . assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell . as a non-asset based carrier we do not own transportation assets . we generate the major portion of our air and ocean freight revenues by purchasing transportation services from direct ( asset-based ) carriers and reselling those services to our customers . based upon the terms in the contract of carriage , revenues related to shipments where we issue a house airway bill or a house ocean bill of lading are recognized at the time the freight is tendered to the direct carrier at origin . costs related to the shipments are also recognized at this same time based upon anticipated margins , contractual arrangements with direct carriers , and other known factors . the estimates are routinely monitored and compared to actual invoiced costs . the estimates are adjusted as deemed necessary by us to reflect differences between the original accruals and actual costs of purchased transportation . this method generally results in recognition of revenues and purchased transportation costs earlier than the preferred methods under gaap which do not recognize revenue until a proof of delivery is received or which recognize revenue as progress on the transit is made . our method of revenue and cost recognition does not result in a material difference from amounts that would be reported under such other methods . story_separator_special_tag font-size:10pt ; font-family : times new roman '' > our net income was $ 3.7 million for the year ended june 30 , 2013 , reflecting a 92.4 % increase in results of less than $ 1.8 million as compared to net income of $ 1.9 million for the year ended june 30 , 2012 , driven principally by the increased efficiency of leveraging our scalable back office infrastructure , favorable write-down of 28 contingent consideration , offset by higher depreciation and amortization costs as well as increased lease termination costs . driven principally by the increased amortization of intangibles resulting from our recent acquisition activities offset partially by the change from contingent consideration and from the non-recurring items identified below . our net income for the current year also reflected a decrease in results of operations related to greater transition costs associated with the dba transaction for the current year as compared to the prior year period , which had only one quarter of transition costs . although we do not believe the deterioration in gaap-based earnings is reflective of the true earnings power of the business , our near-term earnings have and will continue to be negatively impacted as a result of these incremental non-cash charges and other non-recurring costs including , lost revenue experienced by our los angeles dba office , and the legal expenses incurred in connection with the legal proceedings relating to the dba acquisition , although it is our expectation that some or all of these amounts may be recoverable in our claims brought against the former dba shareholders . the following table provides a reconciliation for the fiscal years ended june 30 , 2013 and 2012 of adjusted ebitda to net income , the most directly comparable gaap measure in accordance with sec regulation g ( in thousands ) : replace_table_token_4_th we had adjusted ebitda of $ 10.7 million and $ 7.5 million for years ended june 30 , 2013 and 2012 , respectively . ebitda is a non-gaap measure of income and does not include the effects of interest and taxes , and excludes the non-cash effects of depreciation and amortization on long-term assets . companies have some discretion as to which elements of depreciation and amortization are excluded in the ebitda calculation . we exclude all depreciation charges related to furniture and equipment , all amortization charges , including amortization of leasehold improvements and other intangible assets . we then further adjust ebitda to exclude changes in contingent consideration , expenses specifically attributable to acquisitions , extraordinary items , costs related to share-based compensation expense , and other non-cash charges . our ability to generate adjusted ebitda ultimately limits the amount of debt that we may carry and is a good indicator of our financial flexibility and capacity to complete additional acquisitions in compliance with the caltius financing . a violation of this covenant in the caltius financing would greatly limit our financial flexibility , reduce available liquidity , and absent a waiver , could give rise to an event of default under the caltius financing . for the forgoing reasons , we believe that the caltius financing is material to our operations and that adjusted ebitda is important to an evaluation of our financial condition and liquidity . while management considers ebitda and adjusted ebitda useful in analyzing our results , it is not intended to replace any presentation included in our consolidated financial statements . 29 supplemental pro forma information basis of presentation the results of operations discussion that appears below has been presented utilizing a combination of historical and , where relevant , pro forma unaudited information to include the effects on our consolidated financial statements of our acquisitions of isla , albs , marvir and ifs . the pro forma results are developed to reflect a consolidation of the historical results of operations of the company and adjusted to include the historical results of isla , albs , marvir and ifs , as if we had acquired all of them as of july 1 , 2011. the pro forma results are also adjusted to reflect a consolidation of the historical results of operations of isla , albs , marvir and ifs , and the company as adjusted to reflect the amortization of acquired intangibles .
| results of operations fiscal year ended june 30 , 2013 , compared to fiscal year ended june 30 , 2012 the following table summarizes transportation revenue , cost of transportation and net transportation revenue ( in thousands ) for the fiscal years ended june 30 , 2013 and 2012 : replace_table_token_2_th 26 we generated transportation revenue of $ 310.8 million and net transportation revenue of $ 88.4 million for the year ended june 30 , 2013 , as compared to transportation revenue of $ 297.0 million and net transportation revenue of $ 84.7 million for the year ended june 30 , 2012. domestic and international transportation revenue was $ 167.4 million and $ 143.4 million , respectively , for the year ended june 30 , 2013 , compared with $ 169.2 million and $ 127.8 million , respectively , for the year ended june 30 , 2012. the increase in transportation revenue is due principally to incremental revenues attributed to our acquisitions of isla and albs . cost of transportation was 71.5 % of transportation revenue for the years ended june 30 , 2013 and 2012. net transportation margins were 28.5 % of transportation revenue for the years ended june 30 , 2013 and 2012. the following table compares condensed consolidated statements of income data as a percentage of our net transportation revenue ( in thousands ) for the fiscal years ended june 30 , 2013 and 2012 : replace_table_token_3_th agent commissions were $ 52.5 million for the year ended june 30 , 2013 , an increase of 0.1 % from $ 52.4 million for the year ended june 30 , 2012. as a percentage of net revenues , agent commissions decreased to 59.3 % for the year ended june 30 , 2013 , from 61.9 % for the year ended june 30 , 2012. the decrease as a percentage of net revenues is a result of our recent acquisitions of isla , albs , marvir and ifs , which added company-owned locations , which are not paid commissions , in laredo , new york-jfk ,
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a company 's internal control over financial reporting includes those policies and procedures that ( i ) pertain to the story_separator_special_tag the following 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 the results discussed in the forward-looking statements . factors that might cause a difference include , but are not limited to , those discussed under item 1a . risk factors in this annual report on form 10-k. the following section is qualified in its entirety by the more detailed information , including our financial statements and the notes thereto , which appears elsewhere in this annual report . overview organization we are a diversified , global company that provides products , services and solutions to enhance the quality and comfort of air in homes and buildings , transport and protect food and perishables and increase industrial productivity and efficiency . our business segments consist of climate and industrial , both with strong brands and leading positions within their respective markets . we generate revenue and cash primarily through the design , manufacture , sale and service of a diverse portfolio of industrial and commercial products that include well-recognized , premium brand names such as trane ® , ingersoll-rand ® , thermo king ® , american standard ® and club car ® . to achieve our mission of being a world leader in creating comfortable and efficient environments , we continue to focus on increasing our recurring revenue stream from parts , service , used equipment and rentals ; and to continuously improve the efficiencies and capabilities of the products and services of our high-potential businesses . we also continue to focus on operational excellence strategies as a central theme to improving our earnings and cash flows . trends and economic events we are a global corporation with worldwide operations . as a global business , our operations are affected by worldwide , regional and industry-specific economic factors , as well as political factors , wherever we operate or do business . our geographic and industry diversity , as well as the diversity of our product sales and services , has helped mitigate the impact of any one industry or the economy of any single country on our consolidated operating results . given the broad range of products manufactured and geographic markets served , management uses a variety of factors to predict the outlook for the company . we monitor key competitors and customers in order to gauge relative performance and the outlook for the future . in addition , our order rates are indicative of future revenue and thus a key measure of anticipated performance . in those industry segments where we are a capital equipment provider , revenues depend on the capital expenditure budgets and spending patterns of our customers , who may delay or accelerate purchases in reaction to changes in their businesses and in the economy . current market conditions , including challenges in international markets , continue to impact our financial results . uneven global commercial new construction activity is negatively impacting the results of our commercial heating , ventilation and air conditioning ( hvac ) business . however , we believe the commercial hvac equipment replacement and aftermarket is slowly recovering . we have seen slower worldwide industrial equipment and aftermarket activity . while u.s. residential and consumer markets continue to be a challenge , we continue to see improvements in the u.s. new builder and replacement markets . the residential hvac business also continues to be impacted by a mix shift to units with a lower seasonal energy efficiency rating ( seer ) . as economic conditions stabilize , we expect slight revenue growth along with benefits from restructuring and productivity programs . despite the current market environment , we believe we have a solid foundation of global brands and leading market shares in all of our major product lines . our growing geographic and industry diversity coupled with our large installed product base provides growth opportunities within our service , parts and replacement revenue streams . in addition , we are investing substantial resources to innovate and develop new products and services which we expect will drive our future growth . 21 significant events in 2013 allegion spin-off on december 1 , 2013 ( the distribution date ) , we completed the spin-off of our commercial and residential security businesses to our shareholders ( the spin-off ) . on the distribution date , each of our shareholders of record as of the close of business on november 22 , 2013 ( the record date ) received one ordinary share of allegion , plc ( allegion ) for every three ingersoll-rand plc ordinary shares held as of the record date . allegion is now an independent public company trading under the symbol “ alle ” on the new york stock exchange . after the distribution date , we do not beneficially own any allegion ordinary shares ( other than approximately 7,045 shares received in a deferred compensation trust upon the spin-off as a result of the trust holding ordinary shares of ingersoll-rand plc as of the record date ) , and will no longer consolidate allegion into our financial results . beginning in the fourth quarter of 2013 , allegion 's historical financial results for periods prior to the distribution date will be reflected in our consolidated financial statements as a discontinued operation . see “ discontinued operations and divestitures ” within management 's discussion and analysis of financial condition and results of operations and also note 16 to the consolidated financial statements for a further discussion of our discontinued operations . senior notes due 2019 , 2023 , and 2043 in june 2013 , we issued $ 1.55 billion principal amount of senior notes in three tranches through our wholly-owned subsidiary , ingersoll-rand global holding company limited ( ir-global ) pursuant to rule 144a of the u.s. securities act of 1933 ( securities act ) . the tranches consist of $ 350 million of 2.875 story_separator_special_tag as we move forward to resolve these matters with the irs , the reserves established may be adjusted . although we continue to contest the irs 's position , there can be no assurance that we will be successful . if the irs 's position with respect to the 2002-2006 tax years is ultimately sustained we would be required to record additional charges and the resulting liability will have a material adverse impact on our future results of operations , financial condition and cash flows . 2014 dividend increase and share repurchase program in february 2014 , we announced an increase in our quarterly share dividend from $ 0.21 to $ 0.25 per share beginning with our march 2014 payment . the dividend is payable march 31 , 2014 to shareholders of record on march 14 , 2014. in february 2014 , our board of directors authorized the repurchase of up to $ 1.5 billion of our ordinary shares under a new share repurchase program upon completion of the current share repurchase program . the new share repurchase program is expected to begin in the second quarter of 2014. share repurchases will be made from time to time at the discretion of management subject to market conditions , regulatory requirements and other considerations . 2013 share repurchase program in december 2012 , our board of directors authorized the repurchase of up to $ 2.0 billion of our ordinary shares under a share repurchase program . the share repurchase program began in april 2013. during 2013 we repurchased 20.8 million shares for $ 1.2 billion , excluding commissions . these repurchases were accounted for as a reduction of ordinary shares and capital in excess of par value as they were canceled upon repurchase . 2011 share repurchase program our 2011 share repurchase program was authorized by our board of directors in april 2011 and was completed in april 2013. during the year ended december 31 , 2012 , we repurchased 18.4 million shares for approximately $ 0.8 billion , excluding commissions . significant events in 2012 2012 dividend increase in december 2012 , we announced an increase in our quarterly share dividend from $ 0.16 to $ 0.21 per share beginning with our march 2013 payment . pension and other postretirement plan amendments on june 8 , 2012 , our board of directors approved amendments to our retirement plans for certain u.s. and puerto rico non-bargained employees . eligible non-bargained employees hired prior to july 1 , 2012 were given a choice of remaining in their respective defined benefit plan until the plan freezes on december 31 , 2022 or freezing their accrued benefits in their respective defined benefit plan as of december 31 , 2012 and receiving an additional 2 % non-matching company contribution into the company 's applicable defined contribution plan . eligible employees hired or rehired on or after july 1 , 2012 will automatically receive the 2 % non-matching company contribution into the applicable defined contribution plan in lieu of participating in the defined benefit plan . beginning january 1 , 2023 , all eligible employees will receive the 2 % non-matching contribution into the applicable defined contribution plan . on february 1 , 2012 , our board of directors approved amendments to our postretirement medical plan with respect to post-65 retiree medical coverage . effective january 1 , 2013 , we discontinued offering company-sponsored retiree medical coverage for certain individuals age 65 and older . we transitioned affected individuals to coverage through the individual medicare market and will provide a tax-advantaged subsidy to those retirees eligible for subsidized company coverage that can be used toward reimbursing premiums and other qualified medical expenses for individual medicare supplemental coverage that is purchased through our third-party medicare coordinator . see note 10 to the consolidated financial statements for a further discussion of these amendments . 23 significant events in 2011 dividend increase in april 2011 , we increased our quarterly stock dividend from $ 0.07 to $ 0.12 per share beginning with our june 2011 payment . in december 2011 , we announced an increase in our quarterly stock dividend from $ 0.12 per share to $ 0.16 per share beginning with our march 2012 payment . divested operations on september 30 , 2011 and november 30 , 2011 , we completed transactions to sell our hussmann refrigerated display case business to a newly-formed affiliate ( hussmann parent ) of private equity firm clayton dubilier & rice , llc ( cd & r ) . these transactions included the equipment business and certain of the service branches in the u.s. and canada , and the equipment , service and installation businesses in mexico , chile , australia , new zealand , and japan ( hussmann business ) and the remaining north american hussmann service and installation branches ( hussmann branches ) . we negotiated the final terms of the transaction to include our ownership of a portion of the common stock of hussmann parent , which represents significant continuing involvement . therefore , the results of hussmann are included in continuing operations for all periods presented , with our ownership interest reported using the equity method of accounting subsequent to september 30 , 2011. see “ discontinued operations and divestitures ” within management 's discussion and analysis of financial condition and results of operations and also note 16 to the consolidated financial statements for a further discussion of our divested operations . 24 results of operations - for the years ended december 31 replace_table_token_6_th net revenues net revenues for the year ended december 31 , 2013 increased by 3.0 % , or $ 362.2 million , compared with the same period of 2012 , which primarily resulted from the following : volume/product mix 2.3 % pricing 0.7 % total 3.0 % the increase in revenues was primarily driven by volume improvements within the climate segment and improved pricing for both climate and industrial .
| review of business segments the segment discussions that follow describe the significant factors contributing to the changes in results for each segment included in continuing operations . in the fourth quarter of 2013 , the company realigned its organizational structure to provide a greater focus on growth , continue implementation of business operating systems , build on our successful operational excellence philosophy and reduce complexity and costs . the company 's new reporting structure includes the climate and industrial segments . 26 segment operating income is the measure of profit and loss that our chief operating decision maker uses to evaluate the financial performance of the business and as the basis for performance reviews , compensation and resource allocation . for these reasons , we believe that segment operating income represents the most relevant measure of segment profit and loss . we may exclude certain charges or gains from operating income to arrive at a segment operating income that is a more meaningful measure of profit and loss upon which to base our operating decisions . we define segment operating margin as segment operating income as a percentage of net revenues . climate our climate segment delivers energy-efficient solutions globally and includes trane ® and american standard ® heating & air conditioning which provide heating , ventilation and air conditioning ( hvac ) systems , and commercial and residential building services , parts , support and controls ; and thermo king ® transport temperature control solutions . on september 30 , 2011 and november 30 , 2011 , we completed transactions to sell hussmann to a newly-formed affiliate ( hussmann parent ) of private equity firm clayton dubilier & rice , llc ( cd & r ) . as part of the deal terms we have an ongoing equity interest in hussmann parent , therefore operating results continue to be recorded within continuing operations .
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our ability to generate sufficient cash flow from operations , draw on our revolving credit facility or access the capital markets to make scheduled payments on our debt obligations will depend on our future financial performance , which will be affected by a range of economic , competitive and business factors , many of which are outside of our control . for example , we may not generate sufficient cash flow from our operations to repay amounts due on our debt securities when they mature in 2023 , 2025 , 2030 and 2036. if we do not generate sufficient cash flow from operations or have availability to borrow on our revolving credit facility to satisfy our debt obligations , we would expect to undertake alternative financing plans , such as refinancing or restructuring our debt , selling assets , reducing or delaying capital investments or seeking to raise additional capital . we may not be able to consummate any such transactions at all or on a timely basis or on terms , and for proceeds , that are acceptable to us . these transactions may not be permitted under the terms of our various debt instruments then in effect . our inability to generate sufficient cash flow to satisfy our debt obligations or to timely refinance our obligations on acceptable terms could adversely affect our ability to serve our customers or we may not be able to continue our operations as planned . changes in the company 's credit ratings could increase cost of funding . our credit ratings are important to our cost of capital . the major rating agencies routinely evaluate our credit profile and assign debt ratings to reliance . this evaluation is based on a number of factors , which include financial strength , business and financial risk , as well as transparency with rating agencies and timeliness of financial reporting . any downgrade in our credit rating could increase our cost of capital and have a material adverse effect on our business , financial condition , results of operations or cash flows . we are permitted to incur more debt , which may intensify the risks associated with our current leverage , including the risk that we will be unable to service our debt or that our credit rating may be downgraded . we may incur substantial additional indebtedness in the future . although the terms governing our indebtedness contain restrictions on our ability to incur additional indebtedness , these restrictions are subject to numerous qualifications and exceptions , and the indebtedness we may incur in compliance with these restrictions could be substantial . if we incur additional debt , the risks associated with our leverage , including the risk that we will be unable to service our debt or that we may be subject to a credit rating downgrade , may increase . our acquisition strategy and growth capital expenditures may require access to external capital , and limitations on our access to external financing sources could impair our ability to grow . we may have to rely on external financing sources , including commercial borrowings and issuances of debt and equity securities , to fund our acquisitions and growth capital expenditures . limitations on our access to external financing sources , whether due to tightened capital markets , more expensive capital or otherwise , could impair our ability to execute our growth strategy . because all of our available borrowing capacity on our revolving credit facility bears interest at rates that fluctuate with changes in certain prevailing short-term interest rates , if we increase our leverage in the future we are vulnerable to changes in interest rate increases . the available borrowing on our revolving credit facility bears interest at rates that fluctuate with changes in certain short-term prevailing interest rates , primarily based on the london interbank offered rate for deposits of u.s. dollars ( “ libor ” ) . libor tends to fluctuate based on general interest rates , rates set by the federal reserve and other central banks , the supply of and demand for credit in the london interbank market and general economic conditions . as of december 31 , 2020 , we had $ 1.46 billion available for borrowing on our revolving credit facility with interest on borrowings at variable rates based on libor . we currently do not use derivative financial instruments to manage the potential impact of interest rate risk . accordingly , our interest expense for any particular period will fluctuate based on libor and other variable interest rates if we borrow on our revolving credit facility . on july 27 , 2017 , the financial conduct authority ( the authority that regulates libor ) announced that it intends to stop compelling banks to submit rates for the calculation of libor . on november 30 , 2020 , ice benchmark administration , the administrator of usd libor announced that it intended to consult on ceasing publication of one-week and two-month usd libor by december 31 , 2021 and does not intend to cease publication of the remaining usd 26 libor tenors until june 30 , 2023 , providing additional time for existing contracts that are dependent on libor to mature . financial industry working groups are developing replacement rates and methodologies to transition existing agreements that depend on libor as a reference rate ; however , we can provide no assurance that market-accepted rates and transition methodologies will be available and finalized at the time of libor cessation . if clear market standards and transition methodologies have not developed by the time libor becomes unavailable , we may have difficulty reaching agreement on acceptable replacement rates under our revolving credit facility . if we are unable to negotiate replacement rates on favorable terms , it could have a material adverse effect on our earnings and cash flows . item 1b . unresolved staff comment s none . story_separator_special_tag since there is no nationally-recognized industry index consisting of metals service center companies to be used as a peer group index , reliance constructed the industry peer group . as of december 31 , 2020 , the industry peer group consisted of olympic steel inc. , which has securities listed for trading on nasdaq ; ryerson holding corporation and worthington industries , inc. , each of which has securities listed for trading on the nyse ; and russel metals inc. , which has securities listed for trading on the toronto stock exchange . the returns of each member of the industry peer group are weighted according to that member 's stock market capitalization . 28 the stock price performance shown on the graph below is not necessarily indicative of future price performance . comparison of 5 year cumulative total return among reliance steel & aluminum co. , the s & p 500 index , the russell 2000 index and an industry peer group copyright© 2021 standard & poor 's , a division of s & p global . all rights reserved . copyright© 2021 russell investment group . all rights reserved . replace_table_token_7_th 29 item 6. selected financial dat a we have derived the following selected consolidated financial data for each of the five years ended december 31 , 2020 from our audited consolidated financial statements . the information below should be read in conjunction with part ii , item 7 “ management 's discussion and analysis of financial condition and results of operations ” and the consolidated financial statements and related notes thereto included in part ii , item 8 “ financial statements and supplementary data. ” selected consolidated financial data replace_table_token_8_th ( 1 ) gross profit , calculated as net sales less cost of sales , is a non-gaap financial measure as it excludes depreciation and amortization expense associated with the corresponding sales . about half of our orders are basic distribution with no processing services performed . for the remainder of our sales orders , we perform “ first-stage ” processing , which is generally not labor intensive as we are simply cutting the metal to size . because of this , the amount of related labor and overhead , including depreciation and amortization , is not significant and is excluded from cost of sales . therefore , our cost of sales is substantially comprised of the cost of the material we sell . we use gross profit as shown above as a measure of operating performance . gross profit is an important operating and financial measure , as fluctuations in our gross profit can have a significant impact on our earnings . gross profit , as presented , is not necessarily comparable with similarly titled measures for other companies . ( 2 ) income tax provision ( benefit ) includes a provisional $ 207.3 million net tax benefit in 2017 relating to the tax cuts and jobs act of 2017. see note 11 — “ income taxes ” of part ii , item 8 “ financial statements and supplementary data ” for further information on the impact of the tax legislation . ( 3 ) includes finance lease obligations . 30 item 7. management 's discussion and analysis story_separator_special_tag roman ' , 'times ' , 'serif ' ; font-size:10pt ; text-align : justify ; text-indent:18pt ; margin:0pt ; '' > in addition , when volume or pricing increases , our working capital ( primarily accounts receivable and inventories ) requirements typically increase , resulting in lower levels of cash flow from operations , which may also require us to increase our outstanding debt and incur higher interest expense . conversely , when customer demand falls , our operations typically generate increased cash flow as our working capital needs decrease . 32 acquisitions 2019 acquisition on december 31 , 2019 , we acquired fry steel company ( “ fry steel ” ) . fry steel is a general line and long bar distributor located in santa fe springs , california . fry steel performs cutting services on its diverse product assortment and provides “ in-stock ” next day delivery of its products . fry steel 's net sales in 2020 were $ 76.1 million . 2018 acquisitions on november 1 , 2018 , we acquired all metals holding , llc , including its operating subsidiaries all metals processing & logistics , inc. and all metals transportation and logistics , inc. ( collectively , “ all metals ” ) . all metals is headquartered in spartanburg , south carolina with an additional facility in cartersville , georgia . all metals specializes in toll processing for automotive , construction , appliance and other end markets , and provides value-added transportation and logistics services for metal products from six strategically located terminals throughout the southeastern united states . all metals ' net sales in 2020 were $ 25.3 million . on august 1 , 2018 , we acquired kms fab , llc and kms south , inc. ( collectively , “ kms ” or the “ kms companies ” ) . the kms companies are headquartered in luzerne , pennsylvania . the kms companies specialize in precision sheet metal fabrication ranging from prototypes to large production runs which utilize a wide variety of metals and fabrication methods including laser cutting , stamping , turret punching , machining , powder coating and welding . kms ' net sales in 2020 were $ 18.8 million . on march 1 , 2018 , we acquired dubose national energy services , inc. ( “ dubose energy ” ) and its affiliate , dubose national energy fasteners & machined parts , inc. ( “ dubose fasteners ” and , together with dubose energy , “ dubose ” ) . dubose is headquartered in clinton , north carolina . dubose specializes in fabrication , supply and distribution of metal and metal products to the nuclear industry , including utilities , component manufacturers and contractors . dubose 's net sales in 2020 were $ 47.4 million .
| of financial condition and results of operations this management 's discussion and analysis of financial condition and results of operations should be read in conjunction with the other sections of this annual report on form 10-k , including the consolidated financial statements and related notes contained in item 8 , and the discussion of cautionary statements and significant risks to the company 's business under item 1a “ risk factors ” of this annual report on form 10-k. overview while our financial results in 2020 decreased from record levels in 2019 largely due to challenging economic circumstances as a result of covid-19 , we believe that our results demonstrated the strength and resiliency of our business model . certain key results for 2020 included the following : ● net sales of $ 8.81 billion in 2020 , down $ 2.16 billion , or 19.7 % , from $ 10.97 billion in 2019 due to a 10.8 % decline in tons sold and 9.6 % decline in our average selling price per ton sold ; ● record gross profit margin of 31.5 % ( or 31.9 % , excluding the impact of $ 38.2 million of restructuring charges ) in 2020 eclipsed our prior record gross profit margin of 30.3 % in 2019 ; ● record quarterly gross profit margin of 33.0 % ( or 32.9 % , excluding the impact of $ 1.4 million of restructuring credits ) in the fourth quarter of 2020 ; ● same-store selling , general and administrative ( “ sg & a ” ) expense in 2020 declined $ 241.0 million , or 11.5 % , from 2019 , consistent with the 10.8 % decline in our tons sold ; ● pretax income of $ 478.2 million , down $ 451.1 million , or 48.5 % , from record pretax income of $ 929.3 million in 2019. pretax income margin of 5.4 % in 2020 compared to 8.5 % in 2019. pretax income in 2020 was negatively impacted by
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overview alarm.com is the leading platform for the intelligently connected property . we offer a comprehensive suite of cloud-based solutions for smart residential and commercial properties , including interactive security , video monitoring , intelligent automation , energy management and wellness solutions . millions of property owners depend on our technology to intelligently secure , automate and manage their residential and commercial properties . in the last year alone , our platforms processed more than 200 billion data points generated by over 100 million connected devices . we believe that this scale of subscribers , connected devices and data operations makes us the leader in the connected property market . our solutions are delivered through an established network of over 9,000 trusted service providers , who are experts at selling , installing and supporting our solutions . we primarily generate software-as-a-service , or saas , and license revenue through our service provider partners , who resell these services and pay us monthly fees . our service provider partners have indicated that they typically have three to five-year service contracts with residential and commercial property owners who use our solutions . we also generate hardware and other revenue , primarily from our service provider partners and distributors . our hardware sales include connected devices that enable our services , such as video cameras , video recorders , gateway modules and smart thermostats . we believe that the length of our service relationships with residential and commercial property owners , combined with our robust platforms and approximately 20 years of operating experience , contribute to a compelling business model . our technology platforms are designed to make connected properties safer , smarter and more efficient . our solutions are used in both smart residential and commercial properties , which we refer to as the connected property market and we have designed our technology platforms for all market participants . this includes not only the residential and commercial property owners who subscribe to our services , but also the hardware partners who manufacture devices that integrate with our platforms and the service provider partners who install and maintain our solutions . our service provider partners can deploy our interactive security , video monitoring , intelligent automation and energy management solutions as stand-alone offerings or as combined solutions to address the needs of a broad range of customers . our technology enables subscribers to seamlessly connect to their property through our family of mobile apps , websites , and new engagement platforms like voice control through amazon echo and google home , wearable devices like the apple watch , and tv platforms such as apple tv and amazon fire tv . executive overview and highlights of 2019 and 2018 results we primarily generate saas and license revenue , our largest source of revenue , through our service provider partners who resell our services and pay us monthly fees . our service provider partners sell , install and support alarm.com solutions that enable residential and commercial property owners to intelligently secure , connect , control and automate their properties . our service provider partners have indicated that they typically have three to five -year service contracts with residential or commercial property owners . our subscribers consist of all of the properties maintained by those residential and commercial property owners to which we are delivering at least one of our solutions . we derive a portion of our revenue from licensing our intellectual property to third parties on a per customer basis . saas and license revenue represented 67 % , 69 % and 70 % of our revenue in 2019 , 2018 and 2017 , respectively . we also generate saas and license revenue from monthly fees charged to service providers on a per subscriber basis for access to our non-hosted software platform , or software platform . the non-hosted software for interactive security , automation and related solutions is typically deployed and operated by the service provider in its own network operations center . software license revenue represented 9 % , 10 % and 9 % of our revenue in 2019 , 2018 and 2017 , respectively . we also generate revenue from the sale of hardware , including video cameras , video recorders , cellular radio modules , thermostats , image sensors and other peripherals , that enables our solutions . we have a rich history of innovation in cellular technology that enables our robust saas offering . our hardware and other revenue also includes our revenue from the sale of perpetual licenses that provide our customers in the commercial market the right to use our video surveillance software for an indefinite period of time in exchange for a one-time license fee . hardware and other revenue represented 33 % , 31 % and 30 % of 52 our revenue in 2019 , 2018 and 2017 , respectively . we typically expect hardware and other revenue to fluctuate as a percentage of total revenue . highlights of our financial performance for the periods covered in this annual report include : saas and license revenue increase d 16 % to $ 337.4 million in 2019 from $ 291.1 million in 2018 . saas and license revenue increase d 23 % to $ 291.1 million in 2018 from $ 236.3 million in 2017 . total revenue increase d 19 % to $ 502.4 million in 2019 from $ 420.5 million in 2018 . total revenue increase d 24 % to $ 420.5 million in 2018 from $ 338.9 million in 2017 . net income attributable to common stockholders was $ 53.5 million in 2019 , $ 21.5 million in 2018 and $ 29.2 million in 2017 . adjusted ebitda , a non-gaap measurement of operating performance , increase d to $ 108.3 million in 2019 from $ 93.1 million in 2018 . adjusted ebitda increase d to $ 93.1 million in 2018 from $ 71.6 million in 2017 . story_separator_special_tag our saas and license revenue renewal rate is calculated across our entire subscriber base on the alarm.com platform , including subscribers whose contract with their service provider reached the end of its contractual term during the measurement period , as well as subscribers whose contract with their service provider has not reached the end of its contractual term during the measurement period , and is not intended to estimate the rate at which our subscribers renew their contracts with our service provider partner s. we believe that our saas and license revenue renewal rate allows us to measure our ability to retain and grow our saas and license revenue and serves as an indicator of the lifetime value of our subscriber base . leases ( topic 842 ) on february 25 , 2016 , the financial accounting standards board , or fasb , issued accounting standards update , or asu , 2016-02 , “ leases ( topic 842 ) ” or topic 842 , which requires lessees to recognize operating and financing lease liabilities and corresponding right-of-use , or rou , assets on the balance sheet . the update also requires improved disclosures to help users of financial statements better understand the amount , timing and uncertainty of cash flows arising from leases . in july 2018 , the fasb amended the update to allow entities to apply the transition requirements of topic 842 at the adoption date rather than at the beginning of the earliest comparative period presented . accordingly , the amendments in topic 842 were effective for us beginning january 1 , 2019. on january 1 , 2019 , we adopted topic 842 by applying the modified retrospective approach to all of our leases in effect as of that date . we used the optional transition method , which required us to record the initial effect of topic 842 as a cumulative-effect adjustment to retained earnings on january 1 , 2019. additionally , we elected to use the package of practical expedients for the adoption of topic 842 , which allowed us not to reassess : ( i ) whether any expired or existing contracts are or contain leases , ( ii ) lease classification for any expired or existing leases and ( iii ) whether initial direct costs for any existing leases qualify for capitalization under topic 842. we also used the hindsight practical expedient when determining the lease term and assessing impairment of rou assets . 54 the adoption of topic 842 resulted in the recording of the following amounts on our consolidated balance sheets ( in thousands ) : replace_table_token_9_th the adoption of topic 842 did not materially impact our consolidated statements of operations , consolidated statement of equity and consolidated statements of cash flows . components of operating results our fiscal year ends on december 31. the key elements of our operating results include : revenue we derive our revenue from three primary sources : the sale of cloud-based saas services on our integrated alarm.com platform , the sale of licenses and services on the software platform and the sale of hardware products . we sell our platform and hardware solutions to service provider partners that resell our solutions and hardware to residential and commercial property owners , who are the service provider partners ' customers . saas and license revenue . we generate the majority of our saas and license revenue primarily from monthly fees charged to our service provider partners sold on a per subscriber basis for access to our cloud-based intelligently connected property platform and related solutions . our fees per subscriber vary based upon the service plan and features utilized . we offer multiple service level packages for our platform solutions including a range of solutions and a range of a la carte add-ons for additional features . the fee paid by our service provider partners each month for the delivery of our solutions is based on the combination of packages and add-ons enabled for each subscriber . we utilize tiered pricing plans where our service provider partners may receive prospective pricing discounts driven by volume . we also generate saas and license revenue from the fees paid to us when we license our intellectual property to third parties for use of our patents . in addition , in certain markets our energyhub subsidiary sells its demand response service for an annual service fee , with pricing based on the number of subscribers or amount of aggregate electricity demand made available for a utility 's or market 's control . software license revenue . our saas and license revenue also includes our software license revenue from monthly fees charged to service providers sold on a per subscriber basis for access to our software platform . the non-hosted software for interactive security , automation and related solutions is typically deployed and operated by the service provider in its own network operations center . our agreements for the software platform solution typically include software and services , such as post-contract customer support , or pcs . hardware and other revenue . we generate hardware and other revenue primarily from the sale of video cameras , video recorders and cellular radio modules that provide access to our cloud-based platforms and , to a lesser extent , the sale of other devices , including image sensors and peripherals . we primarily transfer hardware to our customers upon delivery to the customer , which corresponds with the time at which the customer obtains control of the hardware . we record a reserve against revenue for hardware returns based on historical returns . our hardware and other revenue also includes our revenue from the sale of perpetual licenses that provide our customers in the commercial market the right to use our openeye video surveillance software for an indefinite period of time in exchange for a one-time license fee , which is generally paid at contract inception .
| results of operations the following table sets forth our selected consolidated statements of operations and data as a percentage of revenue for the periods presented ( in thousands ) . certain previously reported amounts in the consolidated statements of operations for the years ended december 31 , 2018 and 2017 have been reclassified to conform to our current presentation to reflect interest income as a separate line item , which was previously included in other income , net . consolidated statements of operations replace_table_token_10_th _ ( 1 ) excludes amortization and depreciation shown in operating expenses below . ( 2 ) operating expenses include stock-based compensation expense as follows ( in thousands ) : replace_table_token_11_th 58 the following table sets forth the components of cost of revenue as a percentage of revenue : replace_table_token_12_th comparison of years ended december 31 , 2019 to december 31 , 2018 the following tables in this section set forth our selected consolidated statements of operations ( in thousands ) , data for the percentage change and data as a percentage of revenue for the years ended december 31 , 2019 and 2018 . certain previously reported amounts in the consolidated statements of operations for the year ended december 31 , 2018 have been reclassified to conform to our current presentation to reflect interest income as a separate line item , which was previously included in other income , net . revenue replace_table_token_13_th the $ 81.9 million increase in total revenue in 2019 as compared to 2018 was the result of a $ 46.3 million , or 16 % , increase in our saas and license revenue and a $ 35.6 million , or 27 % , increase in our hardware and other revenue . our software license revenue included within saas and license revenue increase d $ 2.1 million to $ 43.4 million in 2019 as compared to $ 41.3 million during 2018 .
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asu 2015-03 requires an entity to present such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset . amortization of the costs will continue to be reported as interest expense . the asu is effective for annual reporting periods beginning after december 15 , 2015 , with early adoption permitted . the new guidance will be applied retrospectively to each prior period presented . we have elected to early adopt the provisions of asu 2015-03 as of december 31 , 2015. the adoption of the asu resulted in a reclassification of approximately $ 5.8 million and $ 7.4 million on our december 31 , 2015 and 2014 consolidated balance sheets , respectively , between prepaid and other assets and our total note payable outstanding . of these amounts , approximately $ 1.5 million is netted against the current portion of our note payable outstanding for all periods presented . the adoption of the asu was not deemed to have a material impact on our consolidated balance sheets . f- 11 in may 2014 , the fasb issued asu no . 2014-09 , revenue from contracts with customers ( `` asu 2014-09 `` ) , which supersedes nearly all existing revenue recognition guidance under gaap . the core principle of asu 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services . asu 2014-09 defines a five step process to achieve this core principle and , in doing so , more judgment and estimates may be required within the revenue recognition process than are required under existing gaap . under asu 2015-14 , revenue from contracts with customers ( topic 606 ) : deferral of effective date , the revenue standard is effective for annual periods beginning after december 15 , 2017 , and interim periods therein , using either of the following transition methods : ( i ) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients , or ( ii ) a retrospective approach with the cumulative effect of initially adopting asu 2014-09 recognized at story_separator_special_tag disclosure regarding forward looking statements this annual report on form 10-k includes 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 ( “ forward looking statements ” ) . all statements other than statements of historical fact included in this report are forward looking statements . in the normal course of our business , we , in an effort to help keep our shareholders and the public informed about our operations , may from time-to-time issue certain statements , either in writing or orally , that contains or may contain forward-looking statements . although we believe that the expectations reflected in such forward looking statements are reasonable , we can give no assurance that such expectations will prove to have been correct . generally , these statements relate to business plans or strategies , projected or anticipated benefits or other consequences of such plans or strategies , past and possible future , of acquisitions and projected or anticipated benefits from acquisitions made by or to be made by us , or projections involving anticipated revenues , earnings , levels of capital expenditures or other aspects of operating results . all phases of our operations are subject to a number of uncertainties , risks and other influences , many of which are outside of our control and any one of which , or a combination of which , could materially affect the results of our proposed operations and whether forward looking statements made by us ultimately prove to be accurate . such important factors ( “ important factors ” ) and other factors could cause actual results to differ materially from our expectations are disclosed in this report , including those factors discussed in “ item 1a . risk factors. ” all prior and subsequent written and oral forward looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the important factors described below that could cause actual results to differ materially from our expectations as set forth in any forward looking statement made by or on behalf of us . overview 3pea international , inc. is a vertically integrated provider of innovative prepaid card programs and processing services for corporate , consumer and government applications . our payment solutions are utilized by our corporate customers as a means to increase customer loyalty , reduce administration costs and streamline operations . public sector organizations can utilize the solutions to disburse public benefits or for internal payments . we market our prepaid debit card solutions under our paysign brand . as we are a payment processor and debit card program manager , we derive our revenue from all stages of the debit card lifecycle . we provide a card processing platform consisting of proprietary systems and innovative software applications based on the unique needs of our programs . we have extended our processing business capabilities through our proprietary paysign platform . we design and process prepaid programs that run on the platform through which our customers can define the services they wish to offer cardholders . through the paysign platform , we provide a variety of services including transaction processing , cardholder enrollment , value loading , cardholder account management , reporting , and customer service . the paysign platform was built on modern cross-platform architecture and designed to be highly flexible , scalable and customizable . story_separator_special_tag the platform has allowed 3pea to significantly expand its operational capabilities by facilitating our entry into new markets within the payments space through its flexibility and ease of customization . the paysign platform delivers cost benefits and revenue building opportunities to our partners . we have developed prepaid card programs for corporate and incentive rewards including , but not limited to healthcare reimbursement payments , pharmaceutical co-pay assistance , donor payments for source plasma and automobile dealership incentives . we are expanding our product offering to include additional corporate incentive products , payroll cards , general purpose re-loadable cards , travel cards , and expense reimbursement cards . our cards are offered to end users through our relationships with bank issuers . we are a vertically integrated payment processor and debit card program manager offering innovative payment solutions to corporations , government agencies , universities and other organizations . our payment solutions are utilized by our customers as a means to increase customer loyalty , reduce administration costs and streamline operations . we market our prepaid debit card solutions under our paysign brand . as we are a payment processor and debit card program manager , we derive our revenue from all stages of the debit card lifecycle . these revenues can include fees from program set-up ; customization and development ; data processing and report generation ; card production and fulfillment ; transaction fees derived from card usage ; inactivity fees ; card replacement fees and program administration fees . we provide an in-house customer service center which includes live bi-lingual phone operators staffed 24/7 , for incoming calls . we also provide in house interactive voice response and two way sms messaging platforms . 21 the company divides prepaid cards into two general categories : corporate and consumer reloadable , and non-reloadable cards . reloadable cards : these types of cards are generally incentive , payroll or considered general purpose reloadable ( “ gpr ” ) cards . payroll cards are issued to an employee by an employer to receive the direct deposit of their payroll . gpr cards can also be issued to a consumer at a retail location or mailed to a consumer after completing an on-line application . gpr cards can be reloaded multiple times with a consumer 's payroll , government benefit , a federal or state tax refund or through cash reload networks located at retail locations . reloadable cards are generally open loop cards as described below . non-reloadable cards : these are generally one-time use cards that are only active until the funds initially loaded to the card are spent . these types of cards are gift or incentive cards . these cards may be open loop or closed loop . normally these types of cards are used for purchase of goods or services at retail locations and can not be used to receive cash . these prepaid cards may be open loop , closed loop or semi-closed loop . open loop cards can be used to receive cash at atm locations or purchase goods or services by pin or signature at retail locations . these cards can be used virtually anywhere that the network brand ( visa , mastercard , discover , etc . ) is accepted . closed loop cards can only be used at a specific merchant . semi-closed loop cards can be used at several merchants such as a shopping mall . the prepaid card market is one of the fastest growing segments of the payments industry in the u.s. this market has experienced significant growth in recent years due to consumers and merchants embracing improved technology , greater convenience , more product choices and greater flexibility . prepaid cards have also proven to be an attractive alternative to traditional bank accounts for certain segments of the population , particularly those without , or who could not qualify for , a checking or savings account . we have developed prepaid card programs for healthcare reimbursement payments , pharmaceutical assistance , plasma donor remuneration , corporate and incentive rewards and expense reimbursement cards . we plan to expand our product offering to include payroll cards , general purpose re-loadable cards and travel cards . our cards are offered to end users through our relationships with bank issuers . our products and services are aimed at capitalizing on the growing demand for stored value and reloadable atm/prepaid card financial products in a variety of market niches . our proprietary platform is scalable and customizable , delivering cost benefits and revenue building opportunities to partners . we manage all aspects of the debit card lifecycle , from managing the card design and approval processes with banking partners and card associations , to production , packaging , distribution , and personalization . we also oversee inventory and security controls , renewals , lost and stolen card management and replacement . currently , we are focusing our marketing efforts on the healthcare reimbursement market , pharmaceutical marketing or drug sampling market , source plasma donation payments and the corporate incentive card market targeting automotive and other market niches . as part of our platform expansion development process , we evaluate current and emerging technologies for applicability to our existing and future software platform . to this end , we engage with various hardware and software vendors in evaluation of various infrastructure components . where appropriate , we use third-party technology components in the development of our software applications and service offerings . third-party software may be used for highly specialized business functions , which we may not be able to develop internally within time and budget constraints . our principal target markets for processing services include prepaid card issuers , retail and private-label issuers , small third-party processors , and small and mid-size financial institutions in the united states and in emerging international markets . the company has begun to devote more extensive resources to sales and marketing activities as we have
| results of operations in 2015 we increased our focus on sales while continuing to invest in our core infrastructure , platform development and the addition of essential personnel in order to allow us to successfully scale our business . despite a reduction in revenue from our pharmaceutical co-pay assistance programs , we increased our footprint in the plasma donation compensation space from 78 plasma donation centers utilizing the paysign solution on december 31 , 2014 to 91 on december 31 , 2015. fiscal years ended december 31 , 2015 and 2014 revenues for the year ended december 31 , 2015 were $ 8,107,541 , a decrease of $ 2,185,639 compared to the year ended december 31 , 2014 , when revenues were $ 10,293,180. the decrease in revenue was primarily due to a decrease in our healthcare reimbursement payments and pharmaceutical co-pay assistance programs . the company experienced an increase in revenue from its plasma donation compensation programs in 2015 and expects revenue from plasma donation programs to increase in 2016. we believe the company will resume revenue growth in 2016 and beyond as a result of growth in our corporate incentive programs . cost of revenues for the year ended december 31 , 2015 were $ 4,019,514 , a decrease of $ 635,201 compared to the year ended december 31 , 2014 , when cost of revenues were $ 4,654,715. our costs of revenues have decreased substantially as a result of lower revenues in our pharmaceutical programs which was offset by increases in revenues from our plasma donation compensation programs . cost of revenues constituted approximately 50 % and 45 % of total revenues in 2015 and 2014 , respectively . cost of revenues is comprised of transaction processing fees , data connectivity and data center expenses , network fees , bank fees , card production costs , customer service and program management expenses , application integration setup , and sales and commission expense .
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these increases were partially offset by a decrease in our legacy stations ' revenue from local and national advertising of $ 41.5 million , primarily due to changes in the mix between our local , national , and political advertising during an election year . our adoption of the new revenue accounting guidance also decreased our barter revenue ( and the related barter expense ) by $ 42.5 million , but did not impact our income from operations , our net income or our cash flows . during 2018 , our board of directors declared quarterly dividends of $ 0.375 per share of our outstanding common stock , or total dividend payments of $ 68.6 million . during 2018 , we repurchased a total of 751,920 shares of our class a common stock for $ 50.5 million , funded by cash on hand . on april 26 , 2018 , our board of directors approved an increase in our share repurchase authorization to repurchase up to an additional $ 200.0 million of our class a common stock . as of december 31 , 2018 , the remaining available amount under the share repurchase authorization was $ 201.9 million , inclusive of the 2018 additional authorization and the remaining balance under our prior authorization . 2018 acquisitions acquisition date purchase price assets acquired lkqd january 16 , 2018 $ 97.0 million in cash acquired the outstanding equity of lkqd . whdf first closing on july 15 , 2018 second closing on november 9 , 2018 $ 2.3 million paid in cash at first closing $ 0.7 million paid in cash at second closing acquired the assets of whdf , a full power television station in the huntsville , alabama market and an affiliate of cw . krbk first closing on august 1 , 2018 second closing on november 1 , 2018 $ 15.1 million paid in cash at first closing $ 2.5 million paid in cash at second closing acquired the assets of krbk , a full power television station in the springfield , missouri market and an affiliate of fox . khii provided certain services through tba effective on november 1 , 2018 completed the station acquisition on january 28 , 2019 $ 0.1 million paid in cash as advance payment $ 6.4 million paid in cash at final closing we consolidated certain assets of khii in december 2018 due to our controlling financial interest . khii is a full power television station affiliated with mntv in the honolulu , hawaii market a nd its satellite stations kgmv serving wailuku , hawaii and kgmd serving hilo , hawaii markets . the purchase price for the lkqd acquisition was funded by a combination of a borrowing under our revolving credit facility and cash on hand . the acquisition of lkqd broadened and diversified our digital portfolio with technologies that are complementary to our current offerings of digital solutions and services for media publishers , and multi-platform marketing solutions for local and national advertisers . 38 the purchase prices to acquire whdf and krbk were funded by cash on hand . these acquisitions created two new duopolies for nexstar . we previously provided programming and sales services to these stations under tbas from july 15 , 2018 through november 9 , 2018 for whdf and from august 1 , 2018 through november 1 , 2018 for krbk . effective november 1 , 2018 , we began managing some elements of khii 's operation under a tba until the completion of the acquisition . on december 17 , 2018 , we obtained fcc approval for the acquisition and became the primary beneficiary of our variable interests in khii . therefore , as of this date , the stations ' assets that we agreed to acquire pursuant to a purchase agreement , and transactions thereafter , were consolidated into our financial statements . on january 28 , 2019 , we completed the acquisition and paid the remaining purchase price of $ 6.4 million , funded by cash on hand . the tba with khii was terminated as of this date . merger agreement with tribune on november 30 , 2018 , we entered into a definitive merger agreement with tribune to acquire tribune 's outstanding equity for $ 46.50 per share in a cash transaction . all equity-based awards of tribune that are outstanding prior to the merger will vest in full and will be converted into the right to receive the same cash consideration . the estimated total purchase price is valued at $ 6.4 billion , consisting of the merger cash consideration and the refinancing of tribune 's outstanding debt . tribune shareholders will be entitled to additional cash consideration of approximately $ 0.30 per share per month if the transaction has not closed by august 31 , 2019 , pro-rated for partial months and less an adjustment for any dividends declared on or after september 1 , 2019. tribune currently owns , operates or provides services to 42 television stations . we and tribune plan to divest certain of our stations in connection with the proposed merger in order to comply with fcc media ownership rules . the merger agreement contains certain termination rights for both us and tribune . if the merger agreement is terminated in connection with tribune entering into a definitive agreement with respect to a superior proposal , as well as under certain other circumstances , the termination fee payable by tribune to us will be $ 135 million . if the merger agreement is terminated because the required tribune stockholder vote is not obtained at a stockholder meeting duly held for such purpose , tribune will be required to reimburse us for our costs and expenses incurred in connection with the transaction in an amount not to exceed $ 15 million . either party may terminate the merger agreement if the merger is not consummated on or before an end date of november 30 , 2019 , with an automatic extension to february 29 , 2020 , if necessary to obtain regulatory approval under circumstances specified in the merger agreement . story_separator_special_tag the operating revenue of our stations is derived substantially from broadcast and website advertising revenue , which is affected by a number of factors , including the economic conditions of the markets in which we operate , the demographic makeup of those markets and the marketing strategy we employ in each market . most advertising contracts are short-term and generally run for a few weeks . for the years ended december 31 , 2018 and 2017 , revenue generated from local broadcast advertising represented 73.2 % and 72.9 % , respectively , of our consolidated spot revenue ( total of local and national broadcast advertising revenue , excluding political advertising revenue ) . the remaining broadcast advertising revenue represents inventory sold for national or political advertising . all national and political revenue is derived from advertisements placed through advertising agencies . while the majority of local spot revenue is placed by local agencies , some advertisers place their schedules directly with the stations ' local sales staff , thereby eliminating the agency commission . each station also has an agreement with a national representative firm that provides for sales representation outside the particular station 's market . advertising schedules received through the national representative firm are for national or large regional accounts that advertise in several markets simultaneously . national representative commission rates vary within the industry and are governed by each station 's agreement . another source of revenue for the company that has grown significantly in recent years relates to retransmission of our station signals by cable , satellite and other mvpds . mvpds generally pay for retransmission rights on a rate per subscriber basis . the growth of this revenue stream was primarily due to increases in the subscriber rates paid by mvpds resulting from contract renewals ( retransmission compensation agreements generally have a three-year term ) , scheduled annual escalation of rates per subscriber , and the establishment of distribution agreements with ottds . additionally , the rates per subscriber of newly acquired television stations are converted into our terms which are typically higher than those of other companies because we have been negotiating such agreements for a longer period of time and are , therefore , approximately one full negotiating cycle ahead of our competitors . currently , broadcasters deliver more than 30 % of all television viewing audiences in a pay television household but are paid approximately 12-14 % of the total cable programming fees . nexstar anticipates retransmission fees will continue to increase until there is a more balanced relationship between viewers delivered and fees paid for delivery of such viewers . most of our stations have a network affiliation agreement pursuant to which the network provides programming to the station during specified time periods , including prime time , in exchange for affiliation fees paid to the networks , in most cases , and the right to sell a substantial majority of the advertising time during these broadcasts . network affiliation fees have been increasing industry wide and we expect they will continue to increase over the next several years . 40 each station acquires licenses to broadcast programming in non-news and non-network time periods . the licenses are either purchased from a program distributor for cash and or the program distributor is allowed to sell some of the advertising inventory as compensation to eliminate or reduce the cash cost for the license . the latter practice is referred to as barter broadcast rights . barter broadcast rights were previously recorded as assets and amortized as programming expense over the earlier of the license period or period of usage . upon adoption of the new revenue accounting guidance that took effect on january 1 , 2018 , we no longer recognize assets and expense resulting from these transactions . refer to note 2 – recent accounting pronouncements to our consolidated financial statements in part iv , item 5 ( a ) of this annual report on form 10-k for additional information . our primary operating expenses include employee salaries , commissions and benefits , newsgathering and programming costs . a large percentage of the costs involved in the operation of our stations and the stations we provide services to remains relatively fixed . we guarantee full payment of all obligations incurred under mission 's , marshall 's and shield 's senior secured credit facilities in the event of their default . mission is a guarantor of our senior secured credit facility , our 6.125 % notes and our 5.625 % notes but does not guarantee our 5.875 % notes . marshall and shield do not guarantee any debt within the group . in consideration of our guarantee of mission 's senior secured credit facility , mission has granted us purchase options to acquire the assets and assume the liabilities of each mission station , subject to fcc consent . these option agreements ( which expire on various dates between 2021 and 2028 ) are freely exercisable or assignable by us without consent or approval by mission or its shareholders . we expect these option agreements to be renewed upon expiration . we do not own the consolidated vies or their television stations . however , we are deemed under u.s. gaap to have controlling financial interests in these entities because of ( 1 ) the local service agreements nexstar has with their stations , ( 2 ) our guarantees of the obligations incurred under mission 's , marshall 's and shield 's senior secured credit facilities , ( 3 ) our power over significant activities affecting the vies ' economic performance , including budgeting for advertising revenue , advertising sales and , in some cases , hiring and firing of sales force personnel and ( 4 ) purchase options granted by each vie , exclusive of marshall , which permit nexstar to acquire the assets and assume the liabilities of each of the vies ' stations at any time , subject to fcc consent .
| results of operations the following table sets forth a summary of the company 's operations for the years ended december 31 ( in thousands ) , and each component of operating expense as a percentage of net revenue : replace_table_token_9_th year ended december 31 , 2018 compared to year ended december 31 , 2017 the period-to-period comparability of our consolidated operating results is affected by acquisitions . for each quarter we present , our legacy stations include those stations that we owned or provided services to for the complete quarter in the current and prior years . for our annual and year to date presentations , we combine the legacy stations ' amounts presented in each quarter . revenue local advertising revenue was $ 797.7 million for the year ended december 31 , 2018 , compared to $ 805.4 million for the same period in 2017 , a decrease of $ 7.7 million , or 1.0 % . national advertising revenue was $ 292.2 million for the year ended december 31 , 2018 compared to $ 302.7 million for the same period in 2017 , a decrease of $ 10.4 million , or 3.5 % . our legacy stations ' local and national advertising revenue decreased by $ 41.5 million , which reflected the changes in the mix between our local , national and political advertising revenue during an election year . our station divestitures in 2017 also resulted in a decrease in revenue of $ 0.7 million . these decreases were partially offset by $ 21.7 million incremental revenue during the first quarter of 2018 , resulting from our merger with media general in january 2017 , and $ 2.5 million incremental revenue from station acquisitions in the third and fourth quarters of 2018. our largest advertiser category , automobile , represented approximately 24 % and 25 % of our local and national advertising revenue for each of the years ended december 31 , 2018 and 2017 , respectively .
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3. acquisitions shipstation acquisition and contingent consideration on june 10 , 2014 , we acquired 100 % of the outstanding equity of auctane story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with item 6 . “ selected financial data ” of this report and our financial statements and the related notes thereto included in this report . this discussion contains forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from historical results or anticipated results including those set forth in item 1a . “ risk factors ” of this report . see the discussion of forward-looking statements on page 1 of part i of this report . overview stamps.com ò is the leading provider of internet-based postage solutions . our customers use our service to mail and ship a variety of mail pieces , including postcards , envelopes , flats and packages , using a wide range of united states postal service ( “ usps ” ) mail classes , including first class mail® , priority mail® , priority mail express® , media mail® , parcel select® , and others . customers using our service receive discounted postage rates compared to usps retail rates on certain mail pieces such as first class letters and domestic and international priority mail and priority mail express packages . our customers include individuals , small businesses , home offices , medium-size businesses and large enterprises , and within these segments we target both mailers and shippers . we were the first ever usps-licensed vendor to offer mailing and shipping in a software-only business model in 1999. in addition , we now offer multi-carrier shipping solutions under the brand names shipstation and shipworks as a result of our recent acquisitions . mailing and shipping business references when we refer to our “ mailing and shipping business ” , we are referring to our mailing and shipping services and integrations , mailing & shipping supplies store , branded insurance offering and multi carrier services . we do not include our photostamps business when we refer to our mailing and shipping business . when we refer to our `` core mailing and shipping business '' , we are referring to the portion of our mailing and shipping business targeting our small business , enterprise and high volume shipping customers acquired through our core mailing and shipping marketing channels which include partnerships , online advertising , direct mail , direct sales , traditional media advertising and others . when we refer to our `` non-core mailing and shipping business '' , we are referring to the portion of our mailing and shipping business that targets a more consumer oriented customer through the online enhanced promotion marketing channel . in the online enhanced promotion marketing channel , we work with various companies to advertise our service in a variety of sites on the internet . these companies typically offer an additional promotion ( beyond what we typically offer ) directly to the customer in order to get the customer to try our service and we find that this channel attracts more consumer oriented customers . when we refer to our “ mailing and shipping revenue ” , we are referring to our service , product and insurance revenue generated by all of our mailing and shipping customers . when we refer to our “ core mailing and shipping revenue ” , we are referring to the portion of the service , product and insurance revenue that was generated by customers who were acquired through our core mailing and shipping marketing channels . when we refer to our “ non-core mailing and shipping revenue ” , we are referring to the portion of the service , product and insurance revenue that was generated by customers who were acquired through our online enhanced promotion marketing channel . within our mailing and shipping business , we believe it is useful to discuss our core mailing and shipping business separately from our non-core mailing and shipping business because each business targets and typically serves different customer segments and utilizes different marketing channels to acquire those customers . as a result of these differences , the core and non-core mailing and shipping businesses typically experience different customer and financial metrics results and trends which are best discussed separately from each other . 28 acquisitions on june 10 , 2014 , we acquired 100 % of the outstanding equity of auctane llc , which operates shipstation , in a cash and contingent stock transaction . shipstation , based in austin , texas , offers monthly subscription based e-commerce shipping software primarily under the brands shipstation and auctane . shipstation is a leading web-based shipping software solution that allows online retailers and e-commerce merchants to organize , process , fulfill and ship their orders quickly and easily . shipstation supports automatic order importing from over 50 shopping carts and marketplaces , including ebay , amazon , shopify , bigcommerce , volusion , squarespace and others . shipstation offers multi-carrier shipping options , and automation features like custom hierarchical rules and product profiles that allow customers to easily and automatically optimize their shipping . using shipstation , an online retailer or e-commerce merchant can ship their orders from wherever they sell and however they ship . on august 29 , 2014 , we acquired 100 % of the outstanding equity of interapptive inc , which operates shipworks , in a cash transaction . shipworks based in st. louis , missouri , offers monthly subscription based e-commerce shipping software that provides simple , powerful and easy to use solutions for online sellers . shipworks solutions integrate with over 50 popular online sales and marketplaces systems including ebay , paypal , amazon , yahoo ! and others . shipworks offers multi-carrier shipping options and features including sending email notifications to buyers , updating online order status , generating reports and many more . story_separator_special_tag cost of photostamps revenue increased 21 % to $ 4.5 million in 2014 from $ 3.7 million in 2013. cost of photostamps revenue as a percentage of photostamps revenue increased from 79 % in 2013 to 82 % in 2014. the increase was primarily attributable to the increase in photostamps revenue from high volume business orders . the decrease in photostamps revenue as a percentage of photostamps revenue is primarily due to higher high volume business orders compared to photostamps orders through our website in 2014. high volume business orders have a lower average revenue per photostamps sheet than website orders but have the same associated costs . 32 operating expenses the following table outlines the components of our operating expense and their respective percentages of total revenue for the periods indicated ( in thousands except percentage ) : replace_table_token_12_th sales and marketing sales and marketing expense principally consists of spending to acquire new customers and compensation and related expenses for personnel engaged in sales , marketing , and business development activities . sales and marketing expense increased 11 % to $ 43.7 million in 2014 from $ 39.5 million in 2013. the increase is primarily due to the addition of sales and marketing expense from our shipstation and shipworks acquisitions as well as the increased marketing spending as we continued to focus on acquiring customers in our core mailing and shipping business while spending in our non-core mailing and shipping and photostamps businesses both decreased compared to 2013. ongoing marketing programs include the following : customer referral programs , customer re-marketing efforts , direct mail , online advertising , partnerships , telemarketing , and traditional advertising . research and development research and development expense principally consists of compensation for personnel involved in the development of our services , depreciation of equipment and software and expenditures for consulting services and third party software . research and development expense increased 21 % to $ 13.3 million in 2014 from $ 11.0 million in 2013. the increase is primarily due to the addition of research and development expense from our shipstation and shipworks acquisitions as well as an increase in headcount-related expenses to support our expanded product offerings and technology infrastructure investments . general and administrative general and administrative expense principally consists of compensation and related costs for executive and administrative personnel , fees for legal and other professional services , depreciation of equipment , software and building used for general corporate purposes and amortization of intangible assets . general and administrative expense increased 59 % to $ 25.1 million in 2014 from $ 15.8 million in 2013. general and administrative expense as a percentage of revenue increased to 17 % in 2014 from 12 % in 2013. the increase , both on an absolute basis and as a percentage of revenue , is primarily attributable to ( 1 ) the addition of general and administrative expense from our shipstation and shipworks acquisitions as well as increase in headcount related expenses ( 2 ) headcount and infrastructure investments to support our multi-subsidiary structure post acquisitions as well as the growth in the business , ( 3 ) increased corporate legal expenses not related to our acquisitions ( 4 ) the inclusion of acquisition related legal and accounting related expenses and ( 5 ) the amortization of acquired intangibles in 2014 that we did not have in 2013. contingent consideration charges contingent consideration charges are attributable to the change in the fair value of our contingent consideration liability related to the acquisition of shipstation and were $ 8.4 million in 2014. we did not have this charge in 2013. see note 3 – “ acquisition ” in our notes to consolidated financial statements for further description of our contingent consideration liability related to the acquisition of shipstation . 33 interest and other income , net interest and other income , net primarily consists of interest income from cash equivalents , short-term and long-term investments and rental income from our corporate headquarters in el segundo , california . interest and other income , net decreased 22 % to $ 375,000 in 2014 from $ 480,000 in 2013. the decrease is primarily due to ( 1 ) lower yields on our investment balances including certain investments in our portfolio that matured and were replaced with lower yield investments and ( 2 ) lower cash and investment balances as a result of the use of cash for the acquisitions of shipstation and shipworks . provision for income taxes in 2014 , our net income tax benefit consisted of an income tax benefit resulting from the release of our valuation allowance offset by current income tax expense consisting of federal and state alternative minimum taxes . on june 10 , 2014 we completed our acquisition of shipstation . on august 29 , 2014 we completed our acquisition of shipworks . based on these discrete events , we re-evaluated our forecast of our projected taxable income . as a result , we released a portion of our valuation allowance totaling approximately $ 3.6 million and $ 345,000 during the second and third quarter of 2014 , respectively . after analyzing our deferred tax assets including our remaining tax loss carry-forward and completing our forecast of future income taking into consideration the potential synergies of our acquisitions , we believe we have met the more likely than not threshold that we will be able to utilize our remaining tax loss carry-forwards in the foreseeable future .
| results of operations the results of our operations during the year ended december 31 , 2014 includes operations of shipstation from the period june 10 , 2014 through december 31 , 2014 and shipworks from the period august 29 , 2014 through december 31 , 2014. please see note 3 – “ acquisitions ” in our notes to consolidated financial statements for further description . years ended december 31 , 2014 and 2013 total revenue increased 15 % to $ 147.3 million in 2014 from $ 127.8 million in 2013. mailing and shipping revenue , which includes service revenue , product revenue and insurance revenue , was $ 141.8 million in 2014 , an increase of 15 % from $ 123.1 million in 2013. photostamps revenue increased 16 % to $ 5.4 million in 2014 from $ 4.7 million in 2013. the following table sets forth the breakdown of revenue for 2014 and 2013 and the resulting percent change ( revenue in thousands ) : replace_table_token_6_th core mailing and shipping revenue in 2014 was $ 139.7 million , an increase of 16 % from $ 120.2 million in 2013. non-core mailing and shipping revenue in 2014 was $ 2.1 million , a decrease of 26 % from $ 2.9 million in 2013 . 29 the following table sets forth the breakdown of mailing and shipping revenue , which includes core mailing and shipping revenue and non-core mailing and shipping revenue for 2014 and 2013 and the resulting percent change ( revenue in thousands ) : replace_table_token_7_th the increase in core mailing and shipping revenue was driven by both an increase in annual average paid customers and an increase in annual average revenue per paid customer .
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on december 30 , 2020 , the balances of right-of-use assets and liabilities for the operating leases were approximately $ 0.61 million and $ 0.74 million , respectively , compared to approximately $ 0.94 million , and $ 1.13 million , respectively , on december 31 , 2019. cash payments included in the measurement of our operating lease liabilities were $ 478,461 and $ 460,053 for the twelve-month periods ended december 30 , 2020 and 2019 , respectively . future minimum lease payments under the operating lease at december 31 , 2020 are shown below : replace_table_token_13_th 48 socket mobile , inc. notes to financial statements finance lease obligations the new standard , asu 2016-02 classifies lessee leases into two types , operating and finance . the company leases certain of its equipment under finance leases . the leases are collateralized by the underlying assets . on december 31 , 2020 , the company has no equipment subject to financing arrangement , compared to equipment with a cost of $ 100,584 on december 31 , 2019. the accumulated depreciation of the assets associated with the finance leases as of december 31 , 2019 amounted $ 92,571 . purchase commitments on december 31 , 2020 , the company 's non-cancelable purchase commitments for inventory to be used in the ordinary course of business during 2021 were approximately $ 6,256,000 . legal matters the company is subject to disputes , claims , requests for indemnification and lawsuits arising in the ordinary course of business . under the indemnification provisions of the company 's customer agreements , the company routinely agrees to indemnify and defend its customers against infringement of any patent , trademark , copyright , trade secrets , or other intellectual property rights arising from customers ' legal use of the company 's products or services . the exposure to the company under these indemnification provisions is generally limited to the total amount paid for the indemnified products . however , certain indemnification provisions potentially expose the company to losses in excess of the aggregate amount received from the customer . to date , there have been no claims against the company by its customers pertaining to such indemnification provisions , and no amounts have been recorded . the company is currently not a party to any material legal proceedings . note 6 — stock-based compensation plan stock-based compensation program the company has one share-based compensation plan in effect in the two years presented : the 2004 equity incentive plan ( the “ 2004 plan ” ) . the 2004 plan provides for the grant of incentive stock options , non-statutory stock options , restricted stock , stock appreciation rights , and performance awards to employees , directors , and consultants of the company . upon ratification of the 2004 plan by the shareholders in june 2004 , shares in the 1995 plan that had been reserved but not issued , as well as any shares issued that would otherwise return to the 1995 plan as a result of termination of options or repurchase of shares , were added to the shares reserved for issuance under the 2004 plan . the company grants incentive stock options and restricted stock at an exercise price per share equal to the fair market value per share of common story_separator_special_tag liquidity and capital resources in light of the uncertainty in the economy during the covid-19 global pandemic , the company undertook several actions to strengthen its financial positions and balance sheet including issuing debt , reducing operating expenses , and prioritizing capital expenditures . while the company has the ability to continue to take more of these actions , if needed , it also has the ability to borrow under its existing $ 2.5 million revolving credit facility that matures on january 31 , 2023. at december 31 , 2020 , the company had no outstanding drawings against the revolving credit facility and had cash of approximately $ 2.1 million . overall , the company believes that the available cash , cash flows generated from future operating activities and borrowing capacity will provide the company with continued financial viability and adequate liquidity to fund its operations and support its growth . the company 's cash requirements are subject to change as the business conditions change . as the covid-19 global pandemic is complex and rapidly evolving , the company 's plans may change . although the company saw positive momentum and improved cash generated from operating activities over the second half of 2020 , the company is still unable to predict the duration and severity of this pandemic , which could have a material adverse impact on the company 's future sales , results of operations , financial position and cash flows , particularly if the global pandemic continues to exist or worsens for a prolonged period of time , or if plans to administer vaccines are delayed . any such material adverse impacts could result in the company 's inability to satisfy credit facility covenants and could limit the ability to make future borrowings under credit lines . critical accounting policies our significant accounting policies are described in note 1 to our financial statements for the years ended december 31 , 2020 and 2019. the application of these policies requires us to make estimates and judgments that affect the reported amount of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . we base our estimates on a combination of historical experience and reasonable judgment applied to other facts . actual results may differ from these estimates , and such differences may be material to the financial statements . in addition , the use of different assumptions or judgments may result in different estimates . story_separator_special_tag the annual , or interim , goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount . an impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit 's fair value ; however , the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit . in addition , income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss , if applicable . the company tests its goodwill for impairment annually as of september 30th or more frequently when events or circumstances indicate that the carrying value of the company 's single reporting unit more likely than not exceeds its fair value . as of september 30 , 2020 , the company experienced a triggering event due to a drop in its stock price , which had been negatively impacted by the economic downturn caused by covid-19 pandemic and performed a quantitative analysis for potential impairment of its goodwill . the company 's fair value measurement approach combines the income approach , which estimates fair value based upon projections of future revenues , expenses , and cash flows discounted to its present value , and market valuation technique . the income valuation technique uses estimates and assumptions including the projected future cash flows , discount rate reflecting the risk attributable to the company , perpetual growth rate , and projected future economic and market conditions . under the market approach , the principal assumption included an estimate for a control premium . as a result of the analysis , the company determined the carrying value exceeded its fair value and recorded a non-cash goodwill impairment charge of $ 4,427,000 at september 30 , 2020. no income tax benefit related to this goodwill impairment charge is recorded at september 30 , 2020 . 24 results of operations for years ended december 31 , 2020 and 2019 revenues revenue for 2020 was $ 15.7 million , a decrease of 19 % compared to revenue of $ 19.3 million for 2019. although we saw positive momentum , which included sales growth during the second half of the year , the negative effects from the covid-19 global pandemic in the first half of 2020 were material to the company 's operating results . revenue of companion socketscan products represented 65 % of our revenue and decreased 9 % compared to 2019. our companion durascan products , which are weatherproof and ruggedized and primarily targeted at commercial , industrial , warehousing and outdoor application and their associated customers , represented about 17 % of revenue and decreased 28 % compared to 2019. we upgraded all our durascan products to support themed field-replaceable battery , increased the durability and added healthcare specific options . our attachable scanners , durasled and 800 series , made up of approximately 11 % of our 2020 revenue and decreased approximately 29 % compared to 2019. in 2020 , we expanded our support for apple devices , and now durasled supports iphone 6 , 7 , 8 , iphone x series , se 2020 , and the entire iphone 11 and 12 series . gross margins annual gross margins on revenue increased slightly to 53.1 % in 2020 from 52.5 % in 2019. the improvement in margins was primarily attributed to the reduction in manufacturing overhead , a cost-saving initiative implemented during the year . research and development expense research and development expenses in 2020 were approximately $ 3.1 million , a decrease of 19 % compared to expenses of approximately $ 3.9 million one year ago . decreases in the level of research and development expense was primarily due to a reduction in employee compensation , a short-term cost saving initiative implemented by the company to cope with covid-19 impacts . research and development expenses as a percentage of revenue were 20 % in 2020 and in 2019. we believe that a continued commitment to research and development activities is essential to maintain or achieve a leadership position for our existing products , to provide innovative new product offerings , and to provide engineering support for key customers . in addition , we consider our ability to accelerate time to market for new products to be critical to our revenue growth . therefore , we expect to continue to make significant research and development investments in the future . the investment percentage is impacted by revenue levels and investing cycles . sales and marketing expense sales and marketing expenses in 2020 were approximately $ 2.8 million , a decrease of approximately 6 % compared to $ 3.0 million in 2019. the decrease was primarily due to a reduction in employee compensation , a short-term cost saving initiative implemented by the company to cope with covid-19 impacts . general and administrative expense general and administrative expense in 2020 was $ 2.3 million , a decrease of 12 % compared to $ 2.6 million in 2019. the decrease was primarily due to a reduction in employee compensation , a short-term cost saving initiative implemented by the company to cope with covid-19 impacts . 25 interest expense , net of interest income interest expense and other , net of interest income and other , was approximately $ 97,000 in 2020 compared to approximately $ 101,000 in 2019. interest expense in 2020 were primarily related to the subordinated convertible notes to related parties and interest on bank term loan and credit line facilities . interest expense in 2019 was primarily related to interest on bank term loan and credit line facilities ( see “ note 2 — bank financing arrangements ” for more information ) . average total outstanding balance of bank term loan and credit lines during 2020 was $ 0.48 million , compared to $ 1.49 million during 2019. additionally , interest expense in each of the comparable
| quarterly results of operations the following table sets forth summary quarterly statements of operations data for each of the quarters in 2019 and 2020. this unaudited quarterly information has been prepared on the same basis as the annual information presented elsewhere herein , and , in our opinion , includes all adjustments ( consisting only of normal recurring entries ) necessary for a fair presentation of the information for the quarters presented . the operating results for any quarter are not necessarily indicative of results for any future period . 26 replace_table_token_1_th we generally ship orders as received and therefore quarterly revenue and operating results depend on the volume and timing of orders received during the quarter , which are difficult to forecast . historically , we have recognized a substantial portion of our revenue in the last month of the quarter . operating results may also fluctuate due to factors such as the demand for our products , the size and timing of customer orders , the introduction of new products and product enhancements by us or our competitors , product mix , timing of software enhancements , manufacturing supply shortages , changes in the level of operating expenses , and competitive conditions in the industry . because our staffing and other operating expenses are based on anticipated revenue , a substantial portion of which is not typically generated until the end of each quarter , delays in the receipt of orders can cause significant variations in operating results from quarter to quarter .
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you can identify these forward-looking statements by words such as “ may , ” “ will , ” “ would , ” “ should , ” “ could , ” “ expect , ” “ anticipate , ” “ believe , ” “ estimate , ” “ intend , ” “ plan ” and other similar expressions . these forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in our forward-looking statements . such risks and uncertainties include , among others , those discussed in “ item 1a : risk factors ” of this annual report on form 10-k , as well as in our combined and consolidated financial statements , related notes , and the other information appearing elsewhere in this report and our other filings with the sec . we do not intend , and undertake no obligation , to update any of our forward-looking statements after the date of this report to reflect actual results or future events or circumstances . given these risks and uncertainties , readers are cautioned not to place undue reliance on such forward-looking statements . you should read the following `` management 's discussion and analysis of financial condition and results of operations '' in conjunction with the audited combined and consolidated financial statements and the related notes that appear elsewhere in this report . the separation from ebay on september 30 , 2014 , ebay inc. ( “ ebay ” ) announced its intent to separate its payments business into an independent , publicly-traded company . to accomplish this separation , in january 2015 , ebay incorporated paypal holdings , inc. ( “ paypal holdings ” ) which is now the parent of paypal , inc. and holds directly or indirectly all of the assets and liabilities associated with paypal , inc. in june 2015 , the board of directors of ebay approved the separation ( the `` separation '' ) of ebay 's payments business through the distribution ( the `` distribution '' ) of 100 % of the outstanding common stock of paypal to ebay 's stockholders . paypal holdings ' registration statement on form 10 , as amended , was declared effective by the u.s. securities and exchange commission on june 29 , 2015. on july 17 , 2015 ( the `` distribution date '' ) , paypal holdings became an independent publicly-traded company through the pro rata distribution by ebay of 100 % of the outstanding common stock of paypal holdings to ebay stockholders . each ebay stockholder of record as of the close of business on july 8 , 2015 received one share of paypal holdings common stock for every share of ebay common stock held on the record date . approximately 1.2 billion shares of paypal holdings common stock were distributed on july 17 , 2015 to ebay stockholders . paypal holdings ' common stock began `` regular way '' trading under the ticker symbol `` pypl '' on the nasdaq stock market on july 20 , 2015. prior to the separation , ebay transferred substantially all of the assets and liabilities and operations of ebay 's payments business to paypal holdings , which was completed in june 2015 ( the `` capitalization '' ) . the combined financial statements prior to the capitalization were prepared on a stand-alone basis and were derived from ebay 's consolidated financial statements and accounting records . the combined financial statements reflect our financial position , results of operations , comprehensive income and cash flows as our business was operated as part of ebay prior to the capitalization . following the capitalization , our consolidated financial statements include the accounts of paypal holdings and its wholly-owned subsidiaries . the combined and consolidated financial position , results of operations and cash flows as of dates and for periods prior to the separation may not be indicative of what our financial position , results of operations and cash flows would have been as a separate stand-alone entity during the periods presented , nor are they indicative of what our financial position , results of operations and cash flows may be in the future . for additional information , see `` note 1—overview and summary of significant accounting policies '' to our combined and consolidated financial statements included elsewhere in this annual report on form 10-k. unless otherwise expressly stated or the context otherwise requires , references to “ we , ” “ our , ” “ us , ” “ the company ” and “ paypal ” refer to paypal holdings and its consolidated subsidiaries or , in the case of information as of dates or for periods prior to the separation , the combined and consolidated entities of the payments business of ebay , including paypal , inc. and certain other assets and liabilities that had been historically held at the ebay corporate level but were specifically identifiable and attributable to the payments business . 35 overview net revenues increased $ 1.2 billion , or 15 % in 2015 and $ 1.3 billion , or 19 % in 2014 . the increase was primarily driven by growth in total payment volume ( “ tpv ” ) of 20 % in 2015 and 26 % in 2014 . operating expenses increased $ 1 billion and $ 1.1 billion , or 15 % and 20 % , in 2015 and 2014 , respectively . the increase in 2015 was primarily due to an increase in transaction expense , customer support and operations expense , and transaction and loan losses . the increase in 2014 was primarily due to an increase in transaction expense , higher expenses due to additional sales and marketing programs and product development initiatives , and an increase in transaction and loan losses . operating income increased $ 193 million , or 15 % , in 2015 compared to 2014 , and $ 177 million , or 16 % , in 2014 compared to 2013 . story_separator_special_tag our risk management capabilities allow us to provide these protections , which are generally much broader than those protections provided by other participants in the payments industry . most payments providers do not offer merchant protection in general , and those that do so generally do not provide protection of online or card not present transactions . as a result , merchants may incur losses for chargebacks and other claims on certain transactions when using other payments providers that they would not incur if they had used paypal 's payments services . paypal also provides consumer protection against losses on qualifying purchases and accepts claims for 180 days post transaction in the markets that paypal serves . this protection is generally consistent with , or better than , that offered by other payments providers . we believe that as a result of these programs , consumers can be confident that they will only be required to pay if they receive the product in the condition as described , and merchants can be confident that they will receive payment for the product that they are delivering to the customer . our payments platform and open application programming interfaces ( “ apis ” ) are designed to allow developers to innovate with ease and to offer cutting edge applications to a large ecosystem of merchants and consumers , while at the same time maintaining the security of our customers ' financial information . we provide developers with easy to use , flexible and powerful tools that are designed to leverage our global reach and payment capabilities . our software developer kits ( “ sdks ” ) are specifically focused on the mobile application market and are designed to remove friction by not requiring a redirect to paypal.com or an additional login . we are using a true “ mobile first ” approach to make payments simple and intuitive . 37 information security risks for global payments and technology companies have significantly increased in recent years . although we have not experienced any material impacts relating to cyber-attacks or other information security breaches on our payments platform , there can be no assurance that we are immune to these risks and will not suffer such losses in the future . see “ risk factors-risk factors that may affect our business , results of operations and financial condition-our business is subject to online security risks , including security and privacy breaches. ” we operate globally and in a rapidly evolving regulatory environment characterized by a heightened regulatory focus on all aspects of the payments industry . that focus continues to become even more heightened as regulators on a global basis focus on such important issues as countering terrorist financing , anti-money laundering , privacy and consumer protection . some of the laws and regulations to which we are subject were enacted recently and the laws and regulations applicable to us , including those enacted prior to the advent of digital and mobile payments , are continuing to evolve through legislative and regulatory action and judicial interpretation . non-compliance with laws and regulations , increased penalties and enforcement actions related to non-compliance , changes in laws and regulations or their interpretation , and the enactment of new laws and regulations applicable to us could have a material adverse impact on our business , results of operations and financial condition . therefore , we monitor these areas closely to ensure compliant solutions for our customers who depend on us . impact of foreign currency rates we have significant operations internationally that are denominated in foreign currencies , primarily the british pound , euro , australian dollar and canadian dollar , subjecting us to foreign currency risk which may adversely impact our financial results . the strengthening or weakening of the u.s. dollar versus the british pound , euro , australian dollar and canadian dollar , as well as other currencies in which we conduct our international operations , impacts the translation of our net revenues and expenses generated in these foreign currencies into the u.s. dollar . we generated approximately 50 % of our 2015 net revenues , 52 % of our 2014 net revenues and 52 % of our 2013 net revenues from merchants or consumers domiciled outside of the united states . other than the united states , the united kingdom was the only country where we generated more than 10 % of total net revenues in 2015 , 2014 and 2013 . during each of these periods , we have also generated more than 10 % of total net revenues in the euro zone . because we have generated substantial net revenues internationally in recent periods , including 2015 , 2014 and 2013 , we are subject to the risks of doing business in foreign countries as discussed under “ risk factors—risk factors that may affect our business , results of operations and financial condition. ” we calculate the year-over-year impact of foreign currency movements on our business using prior period foreign currency exchange rates applied to current year transactional currency amounts . while changes in foreign currency exchange rates affect our reported results , we have a foreign exchange exposure management program whereby we designate certain foreign currency exchange contracts as cash flow hedges to help minimize the impact on earnings from foreign currency rate movements . gains and losses from these foreign currency exchange contracts are recognized as a component of transaction revenues in the same period the forecasted transactions impact earnings . in 2015 , foreign currency movements relative to the u.s. dollar negatively impacted net revenues by approximately $ 345 million ( inclusive of a $ 182 million favorable impact from hedging activities ) and favorably impacted operating expenses by approximately $ 310 million . in 2014 , foreign currency movements relative to the u.s. dollar negatively impacted net revenues by approximately $ 58 million ( inclusive of a $ 36 million negative impact from hedging activities ) and favorably impacted operating expenses by approximately $ 55 million .
| financial results net revenues revenue description we earn revenue primarily by processing customer transactions on our payments platform and from other value added services . our revenues are classified into the following two categories : transaction revenues : net transaction fees charged to consumers and merchants based on the volume of activity processed through our payments platform , including our paypal , paypal credit , venmo , braintree and xoom products . other value added services : net revenues derived principally from interest and fees earned on our paypal credit loans receivable portfolio , subscription fees , gateway fees , gain on sale of participation interests in certain consumer loans receivable , revenue share we earn through partnerships , interest earned on certain paypal customer account balances , fees earned through our paydiant products and other services that we provide to consumers and merchants . transaction revenues are generated from fees charged to consumers and merchants on the volume of activity we enable ( “ total payments volume ” or “ tpv ” ) . we define tpv as the value of payments , net of payment reversals , successfully completed through our payments platform , excluding transactions processed through our gateway and paydiant products . growth in tpv is also directly impacted by the payment transactions that we enable on our payments platform . payment transactions are the total number of payments , net of payment reversals , successfully completed through our payments platform , excluding transactions processed through our gateway and paydiant products . we earn additional fees on transactions settled in foreign currencies when we enable cross-border transactions ( i.e. , transactions where the merchant or consumer were in different countries ) .
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factors that may cause such differences include , but are not limited to , availability and cost of financial resources , product demand , market acceptance and other factors discussed in this report under the heading “ risk factors ” . this management 's discussion and analysis of financial condition and results of operations should be read in conjunction with our financial statements and the related notes included elsewhere in this report . overview we are a late-stage biotechnology company focused on designing , developing and commercializing innovative therapies and proprietary medical approaches to stimulate and to guide an anti-tumor immune response for the treatment of cancer . our core platform technology , immunopulse® , is a drug-device therapeutic modality comprised of a proprietary intratumoral electroporation ( “ ep ” ) delivery device . the immunopulse® platform is designed to deliver plasmid dna-encoded drugs directly into a solid tumor and promote an immunological response against cancer . the immunopulse® device can be adapted to treat different tumor types , and consists of an electrical pulse generator , a reusable handle and disposable applicators . our lead product candidate is a dna-encoded interleukin-12 ( “ il-12 ” ) , called tavokinogene telseplasmid ( “ tavo ” ) . the immunopulse® ep platform is used to deliver tavo intratumorally , with the aim of reversing the immunosuppressive microenvironment in the treated tumor . the activation of the appropriate inflammatory response can drive a systemic anti-tumor response against untreated tumors in other parts of the body . in 2017 , we received fast track designation and orphan drug designation from the u.s. food and drug administration ( “ fda ” ) for tavo in metastatic melanoma , which could qualify tavo for expedited fda review , a rolling biologics license application review and certain other benefits . we have completed monotherapy and combination programs and our current focus is to pursue clinical development programs with tavo , in combination with checkpoint inhibitors , in metastatic melanoma , triple negative breast cancer ( “ tnbc ” ) and squamous cell carcinoma head and neck ( “ scchn ” ) . the company intends to continue to pursue other ongoing or potential new trials and studies related to tavo , in various tumor types . in addition to tavo , we have identified and are developing new dna-encoded therapeutic candidates and tumor indications for use with our new visceral lesion applicator ( “ vla ” ) , to target deep visceral lesions , such as liver , lung , bladder , pancreatic and other difficult to treat visceral lesions . performance outlook we expect to use our available working capital in the near term primarily for the advancement of our existing and planned clinical programs , including performance of the keynote-695 and keynote-890 studies and , to a lesser extent , the continuation of our other clinical trials and studies . we anticipate our spending on clinical programs and the development of our next-generation ep device will continue throughout our current fiscal year , primarily in support of the keynote-695 and keynote-890 studies , while our spending on research and development programs will be prioritized , based on our focus on the keynote-695 and keynote-890 studies . we expect our cash-based general and administrative expenses to remain relatively flat in the near term , as we seek to continue to leverage internal resources and automate processes to decrease our outside services expenses . see “ results of operations ” below for more information . 55 results of operations for the year ended july 31 , 2019 compared to the year ended july 31 , 2018 the unaudited financial data for the years ended july 31 , 2019 and july 31 , 2018 is presented in the following table and the results of these two periods are included in the discussion thereafter . replace_table_token_1_th revenue we have not generated any revenue since our inception , and we do not anticipate generating meaningful revenue in the near term . research and development expenses our research and development expenses increased by $ 1.0 million , from $ 17.4 million in the year ended july 31 , 2018 to $ 18.4 million in the year ended july 31 , 2019. this increase was primarily due to the following approximate increases : ( i ) $ 1.6 million in higher payroll and related-benefits expense , of which $ 0.1 million was related to bonus expense and $ 0.4 million was related to severance expense and ( ii ) $ 0.1 million in stock-based compensation expense for employees and consultants . these increases were partially offset by a $ 0.5 million decrease in lower facility rent costs due to moving to a new facility in april 2018 as well as a $ 0.2 million reduction in clinical trial-related costs year-over year to support our various clinical studies . story_separator_special_tag style= '' margin-bottom : 6pt ; border-bottom : black 1.5pt solid '' > 58 as of july 31 , 2019 , the company had cash and cash equivalents of $ 25.1 million , which consisted of cash of $ 6.0 million and cash equivalents of $ 19.1 million . cash flows from financing activities continued to provide the primary source of our liquidity . net cash provided by financing activities was $ 27.2 million during the year ended july 31 , 2019 , which was primarily attributable to the net proceeds received from the alpha holdings agreement and the may 2019 offering we currently estimate our monthly working capital requirements to be approximately $ 2.5 million , although we may modify or deviate from this estimate and it is likely that our actual operating expenses and working capital requirements will vary from our estimate . based on these expectations regarding future expenses , rate of consumption , as well as our current cash levels , we believe our cash resources are insufficient to meet our anticipated needs for the 12 months following the issuance of this report . story_separator_special_tag under the purchase agreement , on any trading day selected by the company , the company had the right , in its sole discretion , to present aspire capital with a purchase notice , directing aspire capital to purchase up to 30,000 shares of the company 's common stock per business day , up to $ 20.0 million of the company 's common stock in the aggregate at a per share price equal to the lesser of : ● the lowest sale price of the company 's common stock on the purchase date ; or ● the arithmetic average of the three ( 3 ) lowest closing sale prices for the company 's common stock during the ten ( 10 ) consecutive trading days ending on the trading day immediately preceding the purchase date . upon execution of the purchase agreement , the company agreed to sell to aspire capital 400,674 shares of common stock for total proceeds , before expenses , of $ 2,000,000. additionally , in april 2019 , the company sold a total of 90,000 shares of its common stock to aspire capital resulting in the company receiving total proceeds , before expenses , of approximately $ 520,000 in cash . there were no underwriting or placement agent fees associated with the offering . on may 27 , 2019 , the company terminated the purchase agreement . alpha holdings on august 31 , 2018 , the company entered into a stock purchase agreement with alpha holdings , inc. ( “ alpha holdings ” ) , pursuant to which the company agreed to issue and sell to alpha holdings shares of its common stock equal to an aggregate amount of up to $ 15.0 million at a market purchase price of $ 15.00 per share , which was the closing price of the company 's common stock the day immediately before the agreement was executed by the parties . on october 9 , 2018 , the company received total proceeds , before expenses , of $ 8.0 million in cash from the offering and issued alpha holdings 533,333 shares of common stock . there were no underwriting or placement agent fees associated with the offering . on december 6 , 2018 , the company received total proceeds , before expenses , of $ 7.0 million in cash from the offering and issued alpha holdings 466,667 shares of common stock . there were no underwriting or placement agent fees associated with the offering . february 2018 offering on february 6 , 2018 , the company completed a follow-on public offering , selling 1,333,333 shares at an offering price of $ 15.00 per share . additionally , the underwriters exercised in full their over-allotment option to purchase an additional 200,000 shares at an offering price of $ 15.00 per share . aggregate gross proceeds from this follow-on public offering , including the exercise of the over-allotment option , were approximately $ 23.0 million , and net proceeds received , after underwriting fees of approximately $ 1.7 million and offering expenses of approximately $ 0.5 million , were approximately $ 20.8 million . 60 november 2017 warrant exercise inducement offering on november 13 , 2017 , the company entered into a warrant exercise agreement with certain holders of outstanding warrants ( the “ original warrants ” ) to purchase up to an aggregate of 550,964 shares of the company 's common stock at an exercise price of $ 16.90 per share . pursuant to the terms of the warrant exercise agreement , each holder agreed to exercise , from time to time and in accordance with the terms of the original warrants , including certain beneficial ownership limitations set forth therein , all original warrants held by it for cash . as a result of the exercise of all of the original warrants , the company received gross proceeds of approximately $ 9.3 million and net proceeds , after deducting estimated expenses paid or payable by the company , of approximately $ 9.1 million . pursuant to the terms of the warrant exercise agreement , and in order to induce each holder to exercise its original warrants , the company issued 137,741 new warrants to purchase a number of shares of its common stock which is equal to 25 % of the number of shares of common stock received by such holders upon the cash exercise of its original warrants . the terms of the inducement warrants are substantially similar to the terms of the original warrants , except that the inducement warrants : ( i ) have an initial exercise price of $ 22.60 per share ; ( ii ) become exercisable on may 13 , 2018 and expire on november 13 , 2019 ; and , ( iii ) contain certain additional transfer restrictions and limitations due to their offer and sale in a private placement offering . also on november 13 , 2017 , and in connection with its entry into the warrant exercise agreement , the company agreed to issue warrants to purchase up to an aggregate of 113,830 shares of its common stock to the accredited investors that participated in the company 's offerings completed in october 2017 , in consideration for such investors agreement to waive certain covenants made by the company to such investors and as an inducement to such investors to exercise certain other warrants to purchase the company 's common stock . the terms of the october 2017 investor warrants are substantially similar to the terms of the new warrants , except that the october 2017 investor warrants will become exercisable only if and when each october 2017 investor exercises in full and for cash the warrants to purchase the company 's common stock that were sold to such investors in the company 's offerings completed in october 2017. the warrants issued in connection with the warrant exercise agreement were considered inducement warrants and are classified in equity .
| general and administrative our general and administrative expenses decreased by $ 6.7 million , from $ 18.7 million in the year ended july 31 , 2018 to $ 12.0 million in the year ended july 31 , 2019. this decrease was largely due to the following approximate decreases : ( i ) $ 5.7 million in stock-based compensation expense primarily related to award cancellations , fewer awards issued , a decrease in the fair value of our stock and the acceleration of certain rsu 's in the prior comparable period ; ( ii ) $ 2.6 million in payroll and related-benefits expense driven by a decrease in headcount , including severance expense for two former executives , and ( iii ) $ 0.2 million decrease in lower facility rent & utilities costs due to moving to a new facility in april 2018. these decreases were partially offset by increases of ( i ) $ 0.9 million in general corporate and legal patent costs ; ( ii ) $ 0.8 million in consulting costs , and ( iii ) $ 0.1 million in travel and travel related expenses relating to corporate development activities . 56 other income , net other income , net , increased by $ 0.1 million , during the year ended july 31 , 2019 as compared to the year ended july 31 , 2018 primarily as a result of higher yields on interest-bearing cash and marketable securities investment accounts . loss on disposal of property and equipment loss on disposal of property and equipment decreased by $ 0.9 million , from $ 0.9 in the year ended july 31 , 2018 to $ 0 in the year ended july 31 , 2019. this decrease was due to the loss on disposal of property and equipment related to our move to a smaller facility in san diego , california .
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under the amendments of asu 2018-07 , most of the guidance on compensation to nonemployees is aligned with the requirements for shared based payments granted to employees in topic 718. the adoption of the asu is not expected to have a material impact on the company 's consolidated financial position , results of operations , equity or cash flows . there are no other new accounting pronouncements that are expected to story_separator_special_tag the following discussion pertains to the results of operations and financial position of the company for each of the three years ended december 31 , 2018 , 2017 , and 2016 and should be read in conjunction with the consolidated financial statements and the notes thereto included elsewhere in this report . overview 2018 was a record year , with sales of $ 6.1 billion , a 12 percent increase from 2017 , primarily due to strong off-road vehicles ( orv ) sales and the 2018 acquisition of boat holdings , llc ( “ boat holdings ” ) . our unit retail sales to customers in north america , excluding boats , increased four percent in 2018. our annual sales to north american customers increased 12 percent and our annual sales to customers outside of north america increased 11 percent in 2018. full year net income of $ 335.3 million was a 94 percent increase from 2017 , with diluted earnings per share increasing 95 percent to $ 5.24 per share . the significant increase was driven by higher volume in 2018 and the negative impact of $ 52.4 million of victory motorcycles® wind-down costs and a $ 55.8 million non-cash write-down of deferred tax assets related to u.s. tax reform in the 2017 comparative period , as well as the positive impact of a $ 13 million gain on the sale of the company 's investment in brammo inc. recorded in 2018. during the third quarter of 2018 , the company completed the acquisition of boat holdings , headquartered in elkhart , indiana . boat holdings added $ 279.7 million of sales in 2018. on january 31 , 2019 , we announced that our board of directors approved a two percent increase in the regular quarterly cash dividend to $ 0.61 per share for the first quarter of 2019 , representing the 24th consecutive year of increased dividends to shareholders effective with the 2019 first quarter dividend . story_separator_special_tag slingshot , partially offset by increased retail sales for indian motorcycles of one percent . north american polaris motorcycle dealer inventory increased low single-digit percent in 2018 versus 2017 levels . sales of motorcycles to customers outside of north america increased approximately 14 percent in 2018 compared to 2017 , due primarily to an 25 increase in indian motorcycle shipments . excluding victory , the average per unit sales price for the motorcycles segment in 2018 decreased four percent compared to 2017 due to a shift in sales mix towards more mid-sized motorcycles . sales of motorcycles , inclusive of pg & a sales , decreased 18 percent to $ 576.0 million for 2017 compared to 2016. the decrease in 2017 sales is due to the january 2017 decision to wind down victory motorcycles , as well as decreased shipments of slingshot , offset by an increase in indian motorcycle shipments of approximately 20 percent . north american industry retail sales , 900cc and above ( including slingshot ) , decreased high-single digits percent in 2017 compared to 2016. over the same period , polaris north american unit retail sales to consumers increased approximately four percent , driven primarily by strong retail sales for indian motorcycles of 15 percent , while slingshot retail sales decreased in the high teens percent . north american polaris motorcycle dealer inventory increased high teens percent in 2017 versus 2016 levels primarily due to stocking at appropriate rfm levels . sales of motorcycles to customers outside of north america decreased approximately two percent in 2017 compared to 2016 , due to victory . excluding victory , sales of motorcycles to customers outside north america increased approximately 20 percent in 2017. excluding victory , the average per unit sales price for the motorcycles segment in 2017 decreased two percent compared to 2016 due to higher sales growth of our lower priced mid-sized motorcycles outpacing the growth of our heavyweight motorcycles . global adjacent markets global adjacent markets sales , inclusive of pg & a sales , increased 12 percent to $ 444.6 million for 2018 compared to 2017. the increase in sales was primarily due to increased sales in our aixam , goupil and government businesses . sales to customers outside of north america increased approximately 14 percent in 2018 compared to 2017. global adjacent markets sales , inclusive of pg & a sales , increased 16 percent to $ 396.8 million for 2017 compared to 2016. the increase in sales is primarily due to increased sales in our aixam , goupil and government businesses . sales to customers outside of north america increased approximately 24 percent in 2017 compared to 2016. aftermarket aftermarket sales , which includes transamerican auto parts ( tap ) , along with our other aftermarket brands of klim , kolpin , proarmor , trail tech and 509 , of $ 889.2 million for 2018 were approximately flat compared to 2017 , due to soft wholesale sales and lower e-commence demand . tap opened nine new 4-wheel parts retail stores in 2018 , bringing the total store count to 93. aftermarket sales increased significantly to $ 884.9 million for 2017 compared to 2016. the increase in sales was primarily due to the acquisition of tap in november 2016 , which drove $ 685.1 million of the increase . story_separator_special_tag 2017 gross profit includes the negative impact of $ 13.0 million of inventory step-up accounting adjustments related to the tap acquisition . boats . segment gross profit , which relates to the boat holdings acquisition which closed on july 2 , 2018 , was $ 46.3 million in 2018 , which includes the negative impact of $ 3.1 million of inventory step-up adjustments . 28 operating expenses : the following table reflects our operating expenses in dollars and as a percentage of sales : replace_table_token_9_th operating expenses for 2018 , in absolute dollars , increased primarily due to the boat holdings acquisition , which closed on july 2 , 2018 , and investments in strategic projects . operating expenses , as a percentage of sales , decreased primarily due to realized efficiencies in selling , marketing , and general and administrative spend along with the addition of boat holdings , which inherently has a lower operating expense to sales ratio . operating expenses for 2017 , as a percentage of sales and in absolute dollars , increased primarily due to the tap acquisition , increased variable compensation expenses , increased research and development expenses and increased selling and marketing costs related to new products , partially offset by decreased legal related expenses . 2017 operating expenses included $ 10.1 million of victory motorcycles wind down costs , $ 14.0 million of tap integration expenses , and $ 9.1 million of corporate restructuring and realignment expenses . income from financial services : the following table reflects our income from financial services : replace_table_token_10_th income from financial services increased 15 percent to $ 87.4 million in 2018 compared to $ 76.3 million in 2017. the increase in 2018 was primarily due to improved retail financing penetration rates and higher income from polaris acceptance due to higher dealer inventory levels . income from financial services decreased three percent to $ 76.3 million in 2017 compared to $ 78.5 million in 2016. the decrease in 2017 was primarily due to a four percent decrease in retail credit contract volume and decreased income generated from the wholesale portfolio due to lower orv dealer inventory levels , partially offset by higher income from the sale of extended service contracts . 29 remainder of the income statement : replace_table_token_11_th interest expense . the increase in 2018 compared to 2017 , was primarily due to increased debt levels to finance the boat holdings acquisition . the increase in 2017 compared to 2016 is primarily due to increased debt levels to finance the tap acquisition . equity in loss of other affiliates . as a result of the decision by the eicher-polaris private limited ( eppl ) board of directors to shut down the operations of the eppl joint venture , we impaired our investment in eppl and incurred additional wind-down related costs in 2018. the impairment and wind-down costs resulted in a year-to-date increase in equity in loss of other affiliates . other ( income ) expense , net . the change in other ( income ) expense , net primarily relates to foreign currency exchange rate movements and the corresponding effects on foreign currency transactions , currency hedging positions and balance sheet positions related to our foreign subsidiaries from period to period . 2018 includes a $ 13.5 million gain on the company 's investment in brammo inc. , while 2017 includes impairment of a cost method investment recorded due to the wind down of victory motorcycles . provision for income taxes . the income tax rate for 2018 was 21.9 % as compared with 45.9 % and 32.0 % in 2017 and 2016 , respectively . the lower income tax rate for 2018 , compared with 2017 was primarily due to the reduction in the federal statutory rate to 21 percent effective during 2018 and a non-cash $ 55.8 million write-down of deferred tax assets as a result of the passing of the u.s. tax reform bill in the fourth quarter of 2017 , offset by a decrease in excess tax benefits related to share based compensation as compared to 2017. the higher income tax rate for 2017 , compared with 2016 was primarily due to a non-cash $ 55.8 million write-down of deferred tax assets as a result of the passing of the u.s. tax reform bill in the fourth quarter of 2017 , offset by favorable changes related to share-based payment accounting and the related excess tax benefits now recognized as a reduction to income tax expense in accordance with asu no . 2016-09. weighted average shares outstanding . the change in the weighted average diluted shares outstanding from 2017 to 2018 and 2016 to 2017 is primarily due to share repurchases under our stock repurchase program . liquidity and capital resources our primary source of funds has been cash provided by operating and financing activities . our primary uses of funds have been for acquisitions , repurchase and retirement of common stock , capital investment , new product development and cash dividends to shareholders . 30 the following table summarizes the cash flows from operating , investing and financing activities for the years ended december 31 , 2018 , 2017 and 2016 : replace_table_token_12_th operating activities : net cash provided by operating activities totaled $ 477.1 million and $ 585.4 million in 2018 and 2017 , respectively . the $ 108.3 million decrease is primarily due to higher factory inventory and the timing of accounts payable and accrued expense payments . net cash provided by operating activities totaled $ 585.4 million and $ 589.6 million in 2017 and 2016 , respectively . the $ 4.2 million decrease is primarily due to timing of accounts payable and accrued expense payments , partially offset by higher factory inventory . investing activities : net cash used for investing activities was $ 959.5 million in 2018 compared to $ 151.1 million in 2017. the primary uses of cash in 2018 were capital expenditures and the acquisition of boat holdings .
| results of operations sales : sales were $ 6,078.5 million in 2018 , a 12 percent increase from $ 5,428.5 million in 2017 . sales for the year ended december 31 , 2018 include $ 279.7 million of net sales related to boat holdings . the following table is an analysis of the year over year percentage change in total company sales for 2018 , 2017 , and 2016 : replace_table_token_4_th the volume increase in 2018 was primarily the result of increased orv shipments , while the volume increase in 2017 is primarily the result of increased orv , snowmobile , and indian motorcycle shipments , partially offset by decreased victory motorcycle volumes due to the wind down of the brand . 2017 victory motorcycles sales decreased by approximately $ 164.0 million from 2016. product mix and price contributed a three percent increase in 2018 , primarily due to higher average selling prices for orvs . product mix and price contributed a one percent increase in 2017 , primarily due to increased sales volumes of higher priced orvs , offset by increased sales of lower priced mid-size motorcycles , and increased promotions . acquisitions contributed a five percent increase for 2018 , primarily due to the boat holdings acquisition in july 2018. acquisitions contributed a 15 percent increase for 2017 primarily due to the tap acquisition in november 2016. the impact from currency rates on our canadian and other foreign subsidiaries ' sales , when translated to u.s. dollars , was flat in 2018 and 2017 , compared to the respective prior years . until july 2018 , the company reported under four segments , however , as a result of the boat holdings acquisition , the company established a fifth reporting segment , boats , which includes the results of boat holdings . the comparative 24 2017 and 2016 results were not required to be reclassified as the new reporting segment structure did not impact historical segments .
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these statements are only predictions . actual events or results may differ materially . these forward-looking statements relate only to events as of the date on which the statements are made and the company undertakes no obligation , other than any imposed by law , to publicly update or revise any forward-looking statements , whether as a result of new information , future events or otherwise . although we believe that the expectations reflected in the forward-looking statements are reasonable , we can not guarantee future results , levels of activity , performance or achievements . executive overview grain & ethanol group the grain & ethanol group operates grain elevators in various states , primarily in the u.s. corn belt . in addition to storage , merchandising and grain trading , the group performs risk management and other services for its customers . during 2010 , the group increased its grain storage capacity by approximately 6.4 million bushels through business acquisitions and expansion at existing locations . the group now has over 107 million bushels of storage capacity . the group is a significant investor in three ethanol facilities located in indiana , michigan and ohio with a nameplate capacity of 275 million gallons . in addition to its investment in these facilities , the group operates the facilities under management contracts and provides grain origination , ethanol and distillers dried grains ( ddg ) marketing and risk management services for which it is separately compensated . the group is also a significant investor in lansing trade group llc ( ltg ) , an established grain merchandising business with operations throughout the country and 21 internationally . ltg continues to increase its capabilities , including ethanol trading , and is exposed to many of the same risks as the company 's grain & ethanol group . this investment provides the group a further opportunity to expand outside of its traditional geographic regions . the agricultural commodity-based business is one in which changes in selling prices generally move in relationship to changes in purchase prices . therefore , increases or decreases in prices of the agricultural commodities that the company deals in will have a relatively equal impact on sales and cost of sales and a minimal impact on gross profit . as a result , changes in sales for the period may not necessarily be indicative of the group 's overall performance and more focus should be placed on changes to merchandising revenues and service income . the ethanol industry has been impacted by the rising corn prices during the year caused by global supply and demand . several existing factors that contribute to greater ethanol production and use are tax credits for blending corn ethanol into gasoline and tariffs that limit the importation of sugar ethanol . in addition , subsequent to year-end , the epa approved an increase in the use of ethanol blends from 10 % to 15 % for light vehicle models 2001 and newer . as the high demand for corn continues into 2011 , the company will continue to monitor the volatility in corn and ethanol prices and its impact on the ethanol llcs closely . rail group the rail group buys , sells , leases , rebuilds and repairs various types of used railcars and rail equipment . the group also provides fleet management services to fleet owners and operates a custom steel fabrication business . the group has a diversified fleet of car types ( boxcars , gondolas , covered and open top hoppers , tank cars and pressure differential cars ) and locomotives and also serves a wide range of customers . during the year , the company purchased a 49.9 % equity stake in the iowa northern railway company ( ianr ) and an affiliate , zephyr holding company ( zephyr ) . ianr operates a 163-mile short line railroad that runs diagonally through iowa from northwest to southeast . with a fleet of 21 locomotives and 500 railcars , ianr primarily serves agribusiness customers and moves more than 50,000 car load per year . zephyr is involved in the development of storage and logistics terminals designed to aid the transloading of various products including ethanol and wind turbine components . railcars and locomotives under management ( owned , leased or managed for financial institutions in non-recourse arrangements ) at december 31 , 2010 were 22,475 compared to 23,804 at december 31 , 2009. the group 's average utilization rate ( railcars and locomotives under management that are in lease service , exclusive of railcars managed for third party investors ) has decreased from 78.1 % for the year ended december 31 , 2009 to 73.6 % for the year ended december 31 , 2010. however , the group ended the year with an improved utilization rate of 81.7 % . after registering nearly a 20 % drop during all of 2009 , rail traffic during all of 2010 posted gains of over 7 % compared to 2009 , but still remains over 12 % behind 2008. we expect the upward trend to continue as the u.s. and world economies continue their recovery . although the company has experienced a decline in utilization in its railcar business , due to the nature of these long-lived assets ( low carrying values and 17 year average remaining useful lives ) , the current economic environment impacting the rail industry would have to persist on a long-term basis for the company 's railcar assets to be impaired and the company does not believe this will occur . the company is optimistic about future utilization as the group ended the year with an improved utilization rate of 81.7 % . the company also continues to evaluate its railcar portfolio to determine if it would be more cost effective to scrap certain cars rather than continue to incur storage costs . story_separator_special_tag operating expenses for the group increased $ 4.4 million , or 7 % , over 2008. approximately $ 2.5 million of this increase is the result of the two new facilities the group acquired in 2008 ( one through a purchase and the other through a leasing arrangement ) . those facilities were acquired in september of 2008 and therefore the prior year expenses only include four months for those facilities compared to a full year for 2009. another $ 1.2 million of the increase is due to increased cost to dry the wet grain received during the fall harvest . the remainder of the increase is spread across several expense items and are primarily 27 employee related costs and costs associated with growth . these expense increases were partially offset by a $ 2.5 million decrease in bad debt expense resulting from reserves taken in 2008 against specific customer receivables for contracts where grain was not delivered and the contracts were subsequently cancelled . interest expense for the group decreased $ 9.3 million , or 50 % , over 2008. the significant increase in commodity prices in 2008 required the company to increase short-term borrowings to cover margin calls which was the main driver for the increased interest costs for the group last year . equity in earnings of affiliates increased $ 13.4 million , or 333 % , from 2008. income from the group 's investment in the three ethanol llcs increased $ 16.5 million , primarily as a result of the significantly improved performance of tame as decreasing corn and natural gas prices have improved margins for that entity . in addition , the company 's share of income from the andersons albion ethanol llc 's business interruption claim from a fire at its facility was $ 1.3 million . income from the group 's investment in lansing trade group llc ( ltg ) decreased $ 3.0 million . rail group replace_table_token_16_th operating results for the rail group decreased $ 20.8 million over 2008. leasing revenues decreased $ 14.6 million , or 16 % , due to the significant decrease in utilization . sales of railcars decreased $ 20.1 million , or 74 % , over 2008. with so many cars in the industry idled , there is not the demand for cars that there was in 2008 and with fewer cars on the rail lines overall , the opportunities for business in the repair and fabrication shops has significantly decreased resulting in a $ 6.4 million decrease in sales in that business . gross profit for the group decreased $ 20.2 million , or 55 % , and is the result of the decreased sales coupled with significantly increased storage costs as many cars remain idle . storage expenses for the group increased $ 3.0 million in 2009 compared to 2008. operating expenses remained relatively flat year-over-year . interest expense for the group increased slightly . plant nutrient group replace_table_token_17_th operating results for the plant nutrient group increased $ 23.6 million over its 2008 results . sales decreased $ 161.2 million , or 25 % , over 2008 due to early 2008 price appreciation in fertilizer which caused the average price per ton sold for the year to be 33 % higher than it was in 2009. as prices started to decline toward the end of 2008 , and sales volume began to decrease , the company was left with a large 28 inventory position valued higher than the market . this resulted in lower-of-cost or market and contract adjustments in the amount of $ 97.2 million in 2008. as a result of these significant write-downs in 2008 , the group 's 2009 gross profit is a $ 25.4 million improvement over the prior year . volume also increased 12 % over 2008. operating expenses for the group increased $ 4.4 million , or 10 % , over 2008 due to the added expenses from the group 's acquisitions during 2008 and 2009. excluding the expenses from these three businesses , expenses decreased $ 2.7 million , primarily in bad debt expense , uninsured losses and performance incentives . interest expense decreased $ 1.7 million , or 30 % , as the drop in fertilizer prices have resulted in less borrowing needs to cover working capital . other income for the group increased $ 0.9 million over 2008 as a result of forfeited customer prepayments . turf & specialty group replace_table_token_18_th operating results for the turf & specialty group increased $ 2.4 million over its 2008 results . sales increased $ 6.5 million , or 5 % . sales in the lawn fertilizer business increased $ 6.4 million , or 6 % , due to a 20 % increase in volume , partially offset by an 11 % decrease in the average price per ton sold . sales in the cob business remained flat . gross profit for the group increased $ 0.8 million , or 3 % . operating expenses for the group decreased $ 0.9 million , or 4 % , over 2008 , and is primarily related to decreased pension expense as a result of the freezing of the company 's defined benefit plan . retail group replace_table_token_19_th operating results for the retail group decreased $ 3.7 million over its 2008 results . sales decreased $ 11.1 million , or 6 % , over 2008 and were experienced in all of the group 's market areas . customer counts decreased 2 % and the average sale per customer decreased 4 % . gross profit decreased $ 4.1 million , or 8 % , due to the decreased sales as well as a half a point decrease in gross margin percentage . as mentioned previously , the group closed its lima , ohio store in the fourth quarter of 2009. operating expenses for the group decreased $ 0.5 million , or 1 % , in spite of $ 0.8 million in severance costs related to the closing of the lima , ohio store .
| operating results the following discussion focuses on the operating results as shown in the consolidated statements of income with a separate discussion by segment . additional segment information is included in note 16 to the company 's consolidated financial statements in item 8 . 23 replace_table_token_8_th comparison of 2010 with 2009 grain & ethanol group replace_table_token_9_th operating results for the grain & ethanol group increased $ 30 million over 2009. sales of grain increased $ 174 million , or 10.5 % , over 2009 and is the result of an 11 % increase in volume . sales of ethanol increased $ 80.4 million , or 20 % , and is the result of an increase in the overall volume by 7 million gallons and a 16.5 % increase in the average price per gallon sold . fees for services provided to the ethanol industry increased $ 0.9 million , or 4.2 % . gross profit increased $ 11.7 million , or 11 % , for the group . basis income was higher than 2009 by $ 18.6 million due to earlier than normal 2010 harvest causing significant basis appreciation . position income increased by $ 7.9 million from 2009 to 2010 primarily as a result of the growth of the ingredient trading area . the harvest occurred earlier in 2010 than 2009 and grain was drier which resulted in $ 11.5 million less service fees than prior year from drying and mixing services ( when wet grain is received into the elevator and dried to an acceptable moisture level ) . in addition , the market value adjustment for customer credit exposure was $ 4.6 million higher for 2010 due to higher grain prices .
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change in control severance policy we do not currently maintain any change in control severance plans or severance policies , except as provided in the executive employment agreements and the 2010 plan and 2017 plan , both of which are discussed in this section . therefore , none of our named executive officers will receive any cash severance payments in the event we undergo a change in control , unless their employment agreement otherwise provides . insurance all full-time employees , including the named executive officers , are eligible to participate in our standard medical , dental , long-term and short-term disability and life insurance plans . the terms of such benefits for the named executive officers are generally the same as those for all other company employees , with the exception of the level of life insurance coverage . we pay approximately 95 % of the annual health insurance premium with employees paying the balance through payroll deductions . we pay for up to $ 1,000,000 of basic life insurance and ad & d insurance for our ceo , cfo , coo and general counsel . all other full-time employees can elect basic life insurance and ad & d insurance coverage equal to their annual salary , up to $ 150,000 , paid by us . 29 401 ( k ) our employees can participate in a 401 ( k ) plan , which is a qualified defined contribution retirement plan , sponsored by insperity , professional employer organization that provides services to us . participants are provided the opportunity to make salary reduction contributions to the plan on a pre-tax basis . we have the ability to make discretionary matching contributions and discretionary profit sharing contributions to such plan . our practice has been to match participant 's contributions up to the first four percent of their annual earnings . the company match is fully vested when made . the company suspended its match in november 2018. other benefits we seek to maintain an open and inclusive culture in our facilities and operations among executives and other company employees . thus , we do not provide executives with separate dining or other facilities , nor do we have programs for providing personal-benefit perquisites to executives , such as defraying the cost of personal entertainment or family travel . our basic health care and other insurance programs are generally the same for all eligible employees , including the named executive officers . summary compensation table the following table summarizes all compensation recorded by us in each of the last two completed fiscal years for : all individuals serving as our principal executive officer or acting in a similar capacity during the year ended december 31 , 2018 ; our two most highly compensated named executive officers at december 31 , 2018 whose annual compensation exceeded $ 100,000 ; and up to two additional individuals for whom disclosure would have been made in this table but for the fact that the individual was not serving as a named executive officer of our company at december 31 , 2018. the value attributable to any option awards is computed in accordance with fasb asc topic 718. the assumptions made in the valuations of the option awards are included in note 12 of the notes to our consolidated financial statements for the year ended december 31 , 2018 appearing later in this report . replace_table_token_4_th on march 1 , 2012 , we entered into employment agreements with each of messrs. howe and ruiz . mr. barrett does not have story_separator_special_tag company overview inuvo is a technology company that provides data-driven platforms that can automatically identify and message online audiences for any product or service across devices , channels and formats , including video , mobile , connected tv , display , social and native . these capabilities allow inuvo 's clients to engage with their customers and prospects in a manner that drives engagement from the first contact with the consumer . inuvo facilitates over a billion marketing messages to consumers every single month and counts among its clients numerous world-renowned names in industries that have included retail , automotive , insurance , health care , technology , telecommunications and finance . inuvo counts among its many contractual relationships , three clients who collectively manage over 50 % of all u.s. digital media budgets . inuvo 's solution incorporates a proprietary form of artificial intelligence , or ai , branded the intentkey . this sophisticated machine learning technology uses interactions with internet content as a source of information from which to predict consumer intent . the ai includes a continually updated database of over 500 million machine profiles which inuvo utilizes to deliver highly aligned online audiences to its clients . inuvo earns revenue when consumers view or click on its client 's messages . inuvo 's business scales through account management activity with existing clients and by adding new clients through sales activity . as part of inuvo 's technology strategy , it owns a collection of websites like alot.com and earnspendlive.com , where inuvo creates content in health , finance , travel , careers , auto , education and living categories . these sites provide the means to test inuvo 's technologies , while also delivering high quality consumers to clients through the interaction with proprietary content in the form of images , videos , slideshows and articles . there are many barriers to entry to inuvo 's business that would require proficiency in large scale data center management , software development , data products , analytics , artificial intelligence , integration to the internet of things , or iot , the relationships required to execute within the iot and the ability to process tens of billions of transactions daily . story_separator_special_tag because our procedures require review of estimates and assumptions throughout the fiscal year , and differences between the estimates and assumptions and the actual results have been minor and immaterial , we have no reason not to believe the accuracy of our estimates and assumptions will continue into future quarters . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > liquidity and capital resources on october 11 , 2018 , we entered into the amended and restated business financing agreement ( the “ amended and restated financing agreement ” ) with western alliance bank . the amended and restated financing agreement , which is secured by all of our assets , superseded in its entirety the prior business financing agreement , as amended , that we entered into on march 1 , 2012 with bridge bank , n.a . which is now owned by western alliance bank . the amended and restated financing agreement does not have a term and either party may terminate upon notice to the other party . as a result of the amended terms of our lending relationship with western alliance bank , we have additional access to credit ( see note 6 in the notes to our audited consolidated financial statements appearing elsewhere in this report ) . during the third quarter of 2017 , we filed an s-3 registration statement with the securities and exchange commission ( `` sec '' ) to replace an existing , expiring s-3 `` shelf '' registration statement , which permits us to offer and sell up to $ 15 million of our securities from time to time in one or more offerings . in may 2018 , we took down from this shelf registration statement approximately $ 2.3 million in the underwritten public offering . the underwritten public offering was 2,860,000 shares of our common stock at a public offering price of $ . 70 per share and an additional 429,000 shares to cover overallotments in connection with the offering . the net proceeds after deducting the underwriting discounts and commissions and estimated offering expenses payable was approximately $ 2.0 million . for the year ended december 31 , 2018 , our revenues declined 7.8 % from the prior year . the lower revenue in 2018 is principally responsible for our $ 5.9 million net loss in 2018. of the $ 5.9 million loss , approximately $ 4.1 million was depreciation , amortization and stock-based compensation expense . further , we had roughly $ 500 thousand of merger related costs and an additional $ 175 thousand dollars in other non-cash accruals . since our credit facility is dependent upon receivables , and we do not know when , if ever , that our revenues will return to historic levels or if we will be able to replace those lost revenues with revenues from other sources , the combination of lower credit availability and recent negative cash flows generated from operating activities introduces potential risk of losing operation without interruption . as described earlier in this report , on november 2 , 2018 , we entered into the merger agreement . at the closing the merger , which is subject to a number of conditions precedent , the company will become a wholly-owned subsidiary of cpt . in addition , on november 1 , 2018 , we borrowed $ 1 million from an affiliate of cpt which we are using for working capital , and on november 2 , 2018 , four directors of the company lent us $ 62,500 each , for an aggregate of $ 250,000 , to cover certain costs associated with the pending merger . in march 2019 , we sold an aggregate of $ 1,440,000 original issue discount unsecured subordinated convertible notes due september 1 , 2020 in a private placement and received $ 1,200,000 in proceeds which we are using for working capital . subject to the terms of the merger agreement and the credit facility with the additional borrowing , together with this additional capital raise , we believe we will have sufficient cash and credit to operate until the merger closes . there are no assurances we will be successful in our efforts to generate revenues , report profitable operations or close the merger in which case we would need to find additional sources of credit and make substantial reductions to operating expense . cash flows - operating net cash used in operating activities was $ 2,100,167 during 2018 . we reported a net loss of $ 5,890,832 , which included non-cash expenses ; depreciation and amortization of $ 3,181,619 and stock-based compensation of $ 915,469 . the change in operating assets and liabilities was a net use of cash of $ 334,674 primarily due to a decrease in the accounts payable balance by $ 4,114,512 , partially offset by a decrease in the accounts receivable balance by $ 4,058,591 . our terms are such that we generally collect receivables prior to paying trade payables . media sales , which are part of the business acquired in 2017 , typically have slower payment terms than the terms of related payables . during 2017 , cash used in operating activities was $ 1,148,281 . we reported a net loss of $ 3,057,700 , which included a deferred income tax benefit of $ 1,406,600 due to the change in tax legislation . additional non-cash expenses included the non-cash expenses of depreciation and amortization of $ 3,029,801 and stock-based compensation expenses of $ 1,279,807 . the change in operating assets and liabilities was a net use of cash of $ 1,396,224 . cash flows - investing net cash used in investing activities was $ 1,634,919 and $ 1,322,930 for 2018 and 2017 , respectively . cash used in investing activities in both years has primarily consisted of capitalized internal development costs . 18 cash flows - financing net cash used in financing activities was $ 120,644 during 2018 net of repayments on
| results of operations replace_table_token_1_th net revenue 16 net revenue for the year ended december 31 , 2018 was $ 73.3 million compared to $ 79.6 million for the year ended december 31 , 2017 . the decline in net revenue was primarily due to the strategic decision to discontinue non-strategic technologies including a proprietary marketing platform . we estimate that the revenue loss associated with this decision was approximately $ 7.2 million in 2018. in addition , we experienced lower monetization for our inventory from our largest demand partner . we have not seen an appreciable change in monetization for our inventory and we do not know whether monetization will return to former levels . cost of revenue cost of revenue is primarily generated by payments to website publishers and app developers that host advertisements we serve and to ad exchanges that provide access to supply inventory where we serve advertisements . the decrease in the cost of revenue in 2018 compared to 2017 is due primarily to lower revenue and to the loss of revenue associated with the discontinuation of non-strategic revenue including a proprietary marketing platform discussed in the net revenue section . operating expenses replace_table_token_2_th operating expenses increased by $ 1.8m or 3.7 % in the twelve months ended december 31 , 2018 as compared to december 31 , 2017. marketing costs include those expenses required to attract an audience to our owned web properties . marketing costs increased 11.5 % in the twelve months ended december 31 , 2018 compared to the same period in 2017. the increase in marketing costs was partially due to adjusting traffic acquisition campaigns as a result of lower monetization experienced in the second half of the year . compensation expense decreased 16.4 % in the twelve months ended december 31 , 2018 due primarily to lower headcount .
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in august 2017 , the fasb issued asu no . 2017-12 , derivatives and hedging ( topic 815 ) : targeted improvements to accounting for hedging activities . this asu amends the hedge accounting recognition and presentation requirements in asc 815 to ( 1 ) improve the transparency and understandability of information conveyed to financial statement users about an entity 's risk management activities by better aligning story_separator_special_tag this discussion and analysis reviews our consolidated financial statements and other relevant statistical data and is intended to enhance your understanding of our financial condition and results of operations . the information in this section has been derived from the consolidated financial statements and footnotes thereto that appear in item 8 of this form 10‑k . the information contained in this section should be read in conjunction with these consolidated financial statements and footnotes and the business and financial information provided in this form 10‑k . overview fs bancorp , inc. and its subsidiary bank , 1st security bank of washington have been serving the puget sound area since 1936. originally chartered as a credit union , previously known as washington 's credit union , the credit union served various select employment groups . on april 1 , 2004 , the credit union converted to a washington state-chartered mutual savings bank . on july 9 , 2012 , the bank converted from mutual to stock ownership and became the wholly owned subsidiary of fs bancorp , inc. the company is relationship-driven delivering banking and financial services to local families , local and regional businesses and industry niches within distinct puget sound area communities , and one loan production office located in the tri-cities , washington . on january 22 , 2016 , the company completed the previously announced branch purchase from bank of america , n.a and acquired $ 186.4 million in deposits and $ 419,000 in loans based on financial information at that date . the four branches are located in the communities of port angeles , sequim , port townsend , and hadlock , washington . the branch purchase expanded our puget sound-focused retail footprint onto the olympic peninsula and provided an opportunity to extend our unique brand of community banking into those communities . the company also maintains its long-standing indirect consumer lending platform which operates throughout the west coast . the company emphasizes long-term relationships with families and businesses within the communities served , working with them to meet their financial needs . the company is actively involved in community activities and events within these market areas , which further strengthens our relationships within those markets . the company focuses on diversifying revenues , expanding lending channels , and growing the banking franchise . management remains focused on building diversified revenue streams based upon credit , interest rate , and concentration risks . our business plan remains as follows : · growing and diversifying our loan portfolio ; · maintaining strong asset quality ; · emphasizing lower cost core deposits to reduce the costs of funding our loan growth ; · capturing our customers ' full relationship by offering a wide range of products and services by leveraging our well-established involvement in our communities and by selectively emphasizing products and services designed to meet our customers ' banking needs ; and · expanding the company 's markets . the company is a diversified lender with a focus on the origination of indirect home improvement loans , also referred to as fixture secured loans , commercial real estate mortgage loans , home loans , commercial business loans and second mortgage/home equity loan products . consumer loans , in particular indirect home improvement loans to finance window replacement , gutter replacement , siding replacement , solar panels , and other improvement renovations , is a large portion of the loan portfolio and have traditionally been the mainstay of our lending strategy . at december 31 , 2017 , consumer loans represented 27.0 % of the company 's total gross loan portfolio , down from 28.9 % at december 31 , 2016 , as real estate loan originations have increased at a faster pace than consumer loan originations during the year ended december 31 , 2017. indirect home improvement lending is dependent on the bank 's relationships with home improvement contractors and dealers . the company funded $ 92.8 million , or approximately 6,000 loans during the year ended december 31 , 2017 , 65 using its indirect home improvement contractor/dealer network located throughout washington , oregon , california , idaho , and colorado with six contractor/dealers responsible for 56.7 % of the funded loans dollar volume . see “ item 1a . risk factors - our business could suffer if we are unsuccessful in making , continuing and growing relationships with home improvement contractors and dealers ” of this form 10‑k . since 2012 , the company has had an emphasis on diversifying lending products by expanding commercial real estate , commercial business and residential lending , while maintaining the current size of the consumer loan portfolio . the company 's lending strategies are intended to take advantage of : ( 1 ) historical strength in indirect consumer lending , ( 2 ) recent market consolidation that has created new lending opportunities and the availability of experienced bankers , and ( 3 ) strength in relationship lending . retail deposits will continue to serve as an important funding source . see “ item 1. business : lending activities ” and “ item 1a . risk factors - risks related to our business ” of this form 10‑k . recently , improvements in the economy , employment rates , stronger real estate prices , and a general lack of new housing inventory has resulted in our significantly increasing originations of construction loans for properties located in our market areas . we anticipate that construction and development lending will continue to be a strong element of our total loan portfolio in future periods . story_separator_special_tag the valuation model incorporates assumptions that market participants would use in estimating future net servicing income , such as the cost to service , the discount rate , the custodial earnings rate , an inflation rate , ancillary income , prepayment speeds , and default rates and losses . servicing assets are evaluated quarterly for impairment based upon the fair value of the rights as compared to amortized cost . impairment is determined by stratifying rights into tranches based on predominant characteristics , such as interest rate , loan type , and investor type . impairment is recognized through a valuation allowance for an individual tranche , to the extent that fair value is less than the capitalized amount for the tranches . if the company later determines that all or a portion of the impairment no longer exists for a particular tranche , a reduction of the allowance may be recorded as a recovery and an increase to income . capitalized servicing rights are stated separately on the consolidated balance sheets and are amortized into noninterest income in proportion to , and over the period of , the estimated future net servicing income of the underlying financial assets . derivative and hedging activity . asc 815 , “ derivatives and hedging , ” requires that derivatives of the company be recorded in the consolidated financial statements at fair value . management considers its accounting policy for derivatives to be a critical accounting policy because these instruments have certain interest rate risk characteristics that change in value based upon changes in the capital markets . the company 's derivatives are primarily the result of its mortgage banking activities in the form of commitments to extend credit , commitments to sell loans , to-be-announced ( “ tba ” ) mortgage backed securities trades and option contracts to mitigate the risk of the commitments to extend credit . estimates of the percentage of commitments to extend credit on loans to be held for sale that may not fund are based upon historical data and current market trends . the fair value adjustments of the derivatives are recorded in the consolidated statements of income with offsets to other assets or other liabilities in the consolidated balance sheets . income taxes . income taxes are reflected in the company 's consolidated financial statements to show the tax effects of the operations and transactions reported in the consolidated financial statements and consist of taxes currently payable plus deferred taxes . accounting standards codification , asc 740 , “ accounting for income taxes , ” requires the asset and liability approach for financial accounting and reporting for deferred income taxes . deferred tax assets and liabilities result from differences between the financial statement carrying amounts and the tax bases of assets and liabilities . they are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled and are determined using the assets and liability method of accounting . the deferred income provision represents the difference between net deferred tax asset/liability at the beginning and end of the reported period . in formulating the deferred tax asset , the company is required to estimate income and taxes in the jurisdiction in which the company operates . this process involves estimating the actual current tax exposure for the reported period together with assessing temporary differences resulting from differing treatment of items , such as depreciation and the provision for loan losses , for tax and financial reporting purposes . deferred tax liabilities occur when taxable income is smaller than reported income on the income statements due to accounting valuation methods that differ from tax , as well as tax rate estimates and payments made quarterly and 67 adjusted to actual at the end of the year . deferred tax liabilities are temporary differences payable in future periods . the company had a net deferred tax liability of $ 607,000 , and $ 1.2 million , at december 31 , 2017 and 2016 , respectively . our business and operating strategy and goals the company 's primary objective is to operate 1st security bank of washington as a well capitalized , profitable , independent , community-oriented financial institution , serving customers in its primary market area defined generally as the greater puget sound market area . the company 's strategy is to provide innovative products and superior customer service to small businesses , industry and geographic niches , and individuals located in its primary market area . services are currently provided to communities through the main office and 11 full-service bank branches , and are supported with 24/7 access to on-line banking and participation in a worldwide atm network . the company focuses on diversifying revenues , expanding lending channels , and growing the banking franchise . management remains focused on building diversified revenue streams based upon credit , interest rate , and concentration risks . the board of directors seeks to accomplish the company 's objectives through the adoption of a strategy designed to improve profitability and maintain a strong capital position and high asset quality . this strategy primarily involves : growing and diversifying the loan portfolio and revenue streams . the company is transitioning lending activities from a predominantly consumer-driven model to a more diversified consumer and business model by emphasizing three key lending initiatives : expansion of commercial business lending programs , increasing in-house originations of residential mortgage loans primarily for sale into the secondary market through the mortgage banking program ; and commercial real estate lending . additionally , the company seeks to diversify the loan portfolio by increasing lending to small businesses in the market area , as well as residential construction lending . maintaining strong asset quality . the company believes that strong asset quality is a key to long-term financial success . the percentage of non-performing loans to total gross loans and the percentage of non-performing assets to total assets were each unchanged at 0.1 % for both december 31 , 2017 and 2016 , respectively .
| general . net income for the year ended december 31 , 2017 , increased $ 3.6 million , or 34.2 % , to $ 14.1 million , from $ 10.5 million for the year ended december 31 , 2016. the increase in net income was primarily a result of an $ 8.2 million , or 21.5 % increase in interest income , a $ 1.7 million reduction in the provision for loan losses , and a $ 505,000 , or 2.1 % increase in noninterest income , partially offset by a $ 5.1 million , or 13.0 % increase in noninterest expense , an $ 890,000 , or 15.9 % increase in the provision for income tax expense , and a $ 770,000 , or 18.5 % increase in interest expense . net interest income . net interest income increased $ 7.4 million , or 21.8 % , to $ 41.2 million for the year ended december 31 , 2017 , from $ 33.9 million for the year ended december 31 , 2016. the increase in net interest income was primarily attributable to a $ 7.7 million , or 21.5 % increase in loan receivable interest income resulting from a $ 130.6 million increase in average loans receivable , net and loans held for sale over the last year , and a $ 476,000 , or 21.2 % increase in interest and dividends on investment securities , and cash and cash equivalents , partially offset by a $ 770,000 or 18.5 % increase in total interest expense . the net interest margin ( “ nim ” ) increased 22 basis points to 4.65 % for the year ended december 31 , 2017 , from 4.43 % for the same period last year . the increased nim reflects continued growth in higher yielding loans , and reductions in securities afs and cash and cash equivalents .
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we also provide proprietary and joint industry studies based on these types of analyses . production enhancement : includes services and products relating to reservoir well completions , perforations , stimulations and production . we provide integrated diagnostic services to evaluate and monitor the effectiveness of well completions and to develop solutions aimed at increasing the effectiveness of enhanced oil recovery projects . general overview we provide services as well as design and produce products which enable our clients to evaluate reservoir performance and increase oil and gas recovery from new and existing fields . these services and products are generally in higher demand when our clients are investing capital in their field development programs that are designed to increase productivity from existing fields or when exploring for new fields . our clients ' investment in capital expenditure programs tends to correlate over the longer term to oil and natural gas commodity prices . during periods of higher , stable prices , our clients generally invest more in capital expenditures and , during periods of lower or volatile commodity prices , they tend to invest less . consequently , the level of capital expenditures by our clients impacts the demand for our services and products . the following table summarizes the annual average and year-end worldwide and u.s. rig counts for the years ended december 31 , 2019 , 2018 and 2017 , as well as the annual average and year-end spot price of a barrel of wti crude , europe brent crude and an mmbtu of natural gas : 2019 2018 2017 baker hughes worldwide average rig count ( 1 ) 2,177 2,211 2,029 baker hughes u.s. average rig count ( 1 ) 944 1,032 875 baker hughes worldwide year-end rig count ( 2 ) 2,043 2,244 2,089 baker hughes u.s. year-end rig count ( 2 ) 804 1,078 930 average crude oil price per barrel wti ( 3 ) $ 56.98 $ 65.23 $ 50.80 average crude oil price per barrel brent ( 4 ) $ 64.28 $ 71.34 $ 54.12 average natural gas price per mmbtu ( 5 ) $ 2.56 $ 3.15 $ 2.99 year-end crude oil price per barrel wti ( 3 ) $ 61.14 $ 45.15 $ 60.46 year-end crude oil price per barrel brent ( 4 ) $ 67.77 $ 50.57 $ 66.73 year-end natural gas price per mmbtu ( 5 ) $ 2.09 $ 3.25 $ 3.69 ( 1 ) twelve month average rig count as reported by baker hughes - worldwide rig count . ( 2 ) year-end rig count as reported by baker hughes - worldwide rig count . ( 3 ) average daily and year-end west texas intermediate crude spot price as reported by the u.s. energy information administration . ( 4 ) average daily and year-end europe brent crude spot price as reported by the u.s. energy information administration . ( 5 ) average daily and year-end henry hub natural gas spot price as reported by the u.s. energy information administration . the prices for both wti and brent crude oil showed improvement during 2017 and continued to strengthen through most of 2018 ; however , they decreased significantly during the last quarter of 2018. in 2019 , crude-oil prices improved during the first few months , and became more stable during the second half of the year . the end result was the average price for crude oil in 2019 was approximately 10 % lower than the average price for 2018. in general , activities associated with the exploration of oil and gas in the u.s. onshore market are more sensitive to changes in the crude-oil commodity prices , as opposed to larger international and offshore projects which take multiple years to plan and develop , and once announced and started , will continue through completion , despite changes in the current price of crude oil . the improvement in crude-oil prices in 2017 and 17 most of 2018 led to elevated levels in u.s. onshore activities associated with both the exploration and production of crude oil . additionally , during this time period , public announcements of investments in larger international and offshore projects were elevated and activity levels began to improve in 2018 and continued to improve into 2019. however , the continued vola tility and lower level of crude- oil prices in the last quarter of 2018 and during 2019 did negatively impact the activity levels in the u.s. onshore market which decreased in 2019. information published by the u.s. energy information administration ( “ eia ” ) , shows that the inventory of wells drilled but uncompleted ( a “ duc ” well ) was 6,566 as of december 31 , 2017 , increasing to a peak in february 2019 at approximately 8,500 , and ending 2019 at 7,573. this data indicates that during the period of higher activity in 2018 , operators were drilling wells but not completing them as the duc inventory grew . however , as activity levels began to fall in late 2018 and into 2019 , and operators began to drill fewer new wells , they were also completing some of the wells that had been previously drilled , which is reflected in the lower duc inventory at december 2019. in north america , the land-based rig count increased 45 % during 2017 and another 19 % during 2018 , which had a positive impact for both services and product sales to this market over this time period . the build in levels of activities on development projects and producing fields in the u.s. unconventional reservoirs during 2017 continued to strengthen during most of 2018 , until october 2018 when the commodity price weakened significantly and activity levels decreased . story_separator_special_tag million in 2019 decreased from $ 153.1 million in 2018 but increased from $ 131.6 million in 2017. as a percentage of product sales revenue , cost of sales increased to 77 % for 2019 from 72 % for 2018 but was improved from 79 % for 2017. cost of product sales expressed as a percentage of product sales revenue is primarily reflective of how our fixed cost structure is absorbed by revenue . general and administrative expense , excluding depreciation general and administrative ( `` g & a '' ) expenses include corporate management and centralized administrative services that benefit our operations . g & a expenses were $ 48.0 million in 2019 compared to $ 62.9 million and $ 47.7 million during 2018 and 2017 , respectively . the variances are primarily due to changes in compensation expense during those periods , including accelerated stock compensation expense of $ 7.2 million in 2019 and $ 9.9 million in 2018 recorded for retirement eligible employees . see note 15 - stock-based compensation for further detail . depreciation and amortization expense depreciation and amortization expense of $ 22.6 million in 2019 is down compared to $ 23.1 million in 2018 and $ 24.5 million in 2017. other ( income ) expense , net the components of other ( income ) expense , net , for the years ended december 31 , 2019 , 2018 and 2017 were as follows ( in thousands ) : replace_table_token_2_th 20 foreign exchange gains and losses for t he years ended december 31 , 2019 , 2018 and 2017 are summarized in the following table ( in thousands ) : replace_table_token_3_th interest expense interest expense increased by $ 1.4 million to $ 14.7 million in 2019 compared to 2018 primarily due to increased average borrowings on our revolving credit facility which were used to fund an acquisition for $ 48.9 million in september 2018. income tax expense our effective tax rate was ( 15 ) % , 24.2 % , and 18.4 % for 2019 , 2018 and 2017 , respectively . income tax benefit of $ 12.3 million in 2019 decreased by $ 37.8 million compared to $ 25.4 million expense in 2018 due to a benefit of $ 60.7 million recognized in 2019 related to corporate restructuring which was partially offset by a charge of $ 26.7 million related to unremitted earnings of foreign subsidiaries that we no longer consider to be indefinitely reinvested . see note 11 - income taxes of the notes to the consolidated financial statements for further detail of income tax expense . segment analysis the following charts and tables summarize the annual revenue and operating results for our two complementary business segments . segment revenue segment revenue replace_table_token_4_th 21 segment operating income for the years ended december 31 , ( dollars in thousands ) 2019 % change 2018 % change 2017 reservoir description $ 55,140 0.5 % $ 54,847 ( 17.5 ) % $ 66,500 production enhancement 38,378 ( 39.1 ) % 63,039 43.3 % 43,987 corporate and other ( 1 ) 3,166 nm 736 nm ( 519 ) operating income $ 96,684 ( 18.5 ) % $ 118,622 7.9 % $ 109,968 ( 1 ) `` corporate and other '' represents those items that are not directly relating to a particular segment . `` nm '' means not meaningful . segment operating income margins ( 1 ) for the years ended december 31 , 2019 2018 2017 margin margin margin reservoir description 13.1 % 13.3 % 16.0 % production enhancement 15.5 % 21.9 % 18.9 % total company 14.5 % 16.9 % 17.0 % ( 1 ) calculated by dividing `` operating income '' by `` revenue '' . reservoir description revenue for our reservoir description segment increased to $ 420.9 million in 2019 compared to $ 413.1 million in 2018 and $ 415.2 million in 2017. reservoir description 's operations are heavily exposed to international and offshore project activity levels , with approximately 80 % of its revenue sourced outside the u.s. improvement in year-over-year financial performance in this segment is a result of increased international and offshore client activity which was partially offset by the sale of businesses , located in the asia-pacific and south america regions , during 2019. we continue to focus on large-scale core analyses and reservoir fluids characterization studies in the asia-pacific areas , offshore europe and africa , offshore south america , north america , and the middle east , as well as both newly developed fields and brownfield extensions in offshore areas such as australia , brazil , guyana , the gulf of mexico , the middle east and the north sea . analysis of crude oil derived products also occurs in every major producing region of the world . operating income increased to $ 55.1 million in 2019 from $ 54.8 million in 2018 primarily due to improved activity levels derived from large capital spending projects in international markets . however , the improved operating income for 2019 was , partially offset by additional expenses associated with employee severance and other cost reduction initiatives of $ 4.0 million . included in both 2019 and 2018 are additional stock compensation expense of $ 4.7 million in 2019 for retirement eligible employees compared to $ 6.3 million in 2018. see note 15 - stock-based compensation for further detail . operating income decreased to $ 54.8 million in 2018 from $ 66.5 million in 2017 , primarily due to lower activity levels in international markets and additional stock compensation expense of $ 6.3 million recorded in 2018 for retirement eligible employees .
| results of operations operating results for the year ended december 31 , 2019 compared to the years ended december 31 , 2018 and 2017 we evaluate our operating results by analyzing revenue , operating income and operating income margin ( defined as operating income divided by total revenue ) . since we have a relatively fixed cost structure , decreases in revenue generally translate into lower operating income results . results for the years ended december 31 , 2019 , 2018 and 2017 are summarized in the following chart : 18 results of operations as a percentage of applicable revenue for the years ended december 31 , 2019 , 2018 and 2017 are as follows ( in thousands , except for per share information ) : 2019 / 2018 2018 / 2017 revenue : 2019 2018 2017 % change services $ 474,193 71.0 % $ 486,820 69.5 % $ 480,264 74.1 < p
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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 . on november 3 , 2009 , legacy merck & co. , inc. and schering-plough corporation ( schering-plough ) merged ( the merger ) . the results of schering-plough 's business have been included in merck 's financial statements only for periods subsequent to the completion of the merger . therefore , merck 's financial results for 2009 do not reflect a full year of schering-plough operations . overview during 2011 , the company focused on accelerating revenue growth , reducing costs to drive efficiencies , allocating resources to drive future growth by making strategic investments in product launches , as well as in the emerging markets , and advancing and augmenting its research and development pipeline . worldwide sales totaled $ 48.0 billion in 2011 , an increase of 4 % compared with $ 46.0 billion in 2010. foreign exchange favorably affected global sales performance by 2 % . the revenue increase was driven largely by growth in januvia and janumet , treatments for type 2 diabetes , singulair , a medicine for the chronic treatment of asthma and the relief of symptoms of allergic rhinitis , isentress , an antiretroviral therapy for use in combination therapy for the treatment of hiv-1 infection , gardasil , a vaccine to help prevent certain diseases caused by four types of human papillomavirus ( hpv ) , simponi , a treatment for inflammatory diseases , rotateq , a vaccine to help protect against rotavirus gastroenteritis in infants and children , zetia , a cholesterol absorption inhibitor , pneumovax , a vaccine to help prevent pneumococcal disease , and bridion , for the reversal of certain muscle relaxants used during surgery . in addition , revenue in 2011 benefited from higher sales of the company 's animal health products and from the launch of victrelis , a treatment for chronic hepatitis c. these increases were partially offset by lower sales of cozaar and hyzaar , treatments for hypertension , which lost patent protection in the united states in april 2010 and in a number of major european markets in march 2010 , as well as by lower sales of caelyx , subutex and suboxone as the company no longer has marketing rights to these products . revenue was also negatively affected by lower sales of vytorin , a cholesterol modifying medicine , temodar , a treatment for certain types of brain tumors , proquad , a pediatric combination vaccine to help protect against measles , mumps , rubella and varicella , and varivax , a vaccine to help prevent chickenpox ( varicella ) . in addition , as discussed below , the ongoing implementation of certain provisions of u.s. health care reform legislation during 2011 resulted in further increases in medicaid rebates and other impacts that reduced revenues . additionally , many countries in the european union ( the eu ) have undertaken austerity measures aimed at reducing costs in health care and have implemented pricing actions that negatively impacted sales in 2011. in april 2011 , merck and johnson & johnson ( j & j ) reached an agreement to amend the agreement governing the distribution rights to remicade and simponi . this agreement concluded the arbitration proceeding 42 j & j initiated in may 2009. under the terms of the amended distribution agreement , merck relinquished marketing rights for remicade and simponi to j & j in territories including canada , central and south america , the middle east , africa and asia pacific effective july 1 , 2011. merck retained exclusive marketing rights throughout europe , russia and turkey ( the retained territories ) . the retained territories represented approximately 70 % of merck 's 2010 revenue of $ 2.8 billion from remicade and simponi . in addition , beginning july 1 , 2011 , all profits derived from merck 's exclusive distribution of the two products in the retained territories are being equally divided between merck and j & j . j & j also received a one-time payment from merck of $ 500 million in april 2011. during 2011 , the company continued the advancement of drug candidates through its pipeline . victrelis , the company 's innovative oral medicine for the treatment of chronic hepatitis c , was approved by the u.s. food and drug administration ( the fda ) and the european commission ( the ec ) . the fda also approved juvisync , a new treatment for type 2 diabetes that combines the active ingredient in the glucose-lowering medication januvia with the cholesterol-lowering medication zocor . in addition , the ec approved zoely , a monophasic combined oral contraceptive tablet for use by women to prevent pregnancy . cubicin , an antibacterial agent with activity against methicillin-resistant staphylococcus aureus ( mrsa ) , for which the company has licensed development and distribution rights in japan , was approved for use in that country . story_separator_special_tag also , the company recorded $ 162 million of expenses for the annual health care reform fee , which the company was required to pay beginning in 2011. the law also increased mandated medicaid rebates , which reduced revenues by approximately $ 179 million and $ 170 million in 2011 and 2010 , respectively . effective december 1 , 2011 , richard t. clark , chairman , retired from the company and the merck board of directors . kenneth c. frazier , merck 's president and chief executive officer , was elected by the board to serve as chairman following mr. clark 's retirement . in november 2011 , merck 's board of directors raised the company 's quarterly dividend to $ 0.42 per share from $ 0.38 per share . earnings per common share assuming dilution attributable to common shareholders ( eps ) for 2011 were $ 2.02 , which reflect a net unfavorable impact resulting from acquisition-related costs , restructuring costs , as well as the charge related to the settlement of the arbitration proceeding with j & j discussed above , partially offset by the favorable impact of certain tax items and gains on the disposition of the company 's interest in the johnson & johnson°merck consumer pharmaceuticals company ( jjmcp ) joint venture and the sale of certain manufacturing facilities and related assets . non-gaap eps in 2011 were $ 3.77 excluding these items ( see non-gaap income and non-gaap eps below ) . 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 health care manufacturers . the company 's operations may be affected by technological advances of competitors , industry consolidation , patents granted to competitors , competitive combination products , new products of competitors , the generic availability of competitors ' branded products , new information from clinical trials of marketed products or post-marketing surveillance and generic competition as the company 's products 44 mature . 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 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 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 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 disproportionate share hospitals ( hospitals meeting certain criteria ) . under the federal vaccines for children entitlement program , the u.s. centers for disease control and prevention ( cdc ) funds and purchases recommended pediatric vaccines at a public sector price for the immunization of medicaid-eligible , uninsured , native american and certain underinsured children . merck is contracted to provide its pediatric vaccines to this program . against this backdrop , the united states enacted major health care reform legislation in 2010 , which began to be implemented in 2011. various insurance market reforms advanced in 2011 and will continue through full implementation in 2014. the new law is expected to expand access to health care to more than 32 million americans by the end of the decade who did not previously have regular access to health care . 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 .
| operating results segment composition reflects certain managerial changes that have been implemented . consumer care product sales outside the united states and canada , previously included in the pharmaceutical segment , are now included in the consumer care segment . segment disclosures for prior years have been recast on a comparable basis with 2011. sales worldwide sales totaled $ 48.0 billion in 2011 , an increase of 4 % compared with $ 46.0 billion in 2010. foreign exchange favorably affected global sales performance by 2 % . the revenue increase was driven largely by growth in januvia and janumet , singulair , isentress , gardasil , simponi , rotateq , zetia , pneumovax and bridion . in addition , revenue in 2011 benefited from higher sales of the company 's animal health products and from the launch of victrelis . these increases were partially offset by lower sales of cozaar and hyzaar which lost patent protection in the united states in april 2010 and in a number of major european markets in march 2010 , as well as by lower sales of caelyx , subutex and suboxone as the company no longer has marketing rights to these products . revenue was also negatively affected by lower sales of vytorin , temodar , proquad and varivax . in addition , as discussed above , the ongoing implementation of certain provisions of u.s. health care reform legislation during 2011 resulted in further increases in medicaid rebates and other impacts that reduced revenues . domestic sales were $ 20.5 billion in 2011 , an increase of 1 % compared with $ 20.2 billion in 2010. the domestic sales increase was driven by higher sales of singulair , januvia , gardasil , janumet , and isentress , as well as by the launch of victrelis . these increases were partially offset by lower sales of cozaar , hyzaar , vytorin , varivax and proquad .
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the company 's previous office lease expired on december 31 , 2012. rent expense incurred by the company under the office leases and other operating leases was $ 541,000 , $ 582,000 and $ 2,819,000 for the years ended december 31 , 2014 , 2013 and 2012 , respectively . the following table illustrates expected future lease payments under all operating leases ( in thousands ) : replace_table_token_35_th 90 targacept , inc. notes to financial statements ( continued ) december 31 , 2014 10. commitments and contingencies ( continued ) story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes included in this annual report . in addition to historical information , the following discussion contains forward-looking statements that involve risks , uncertainties and assumptions . our actual results , performance or experience could differ materially from what is indicated by any forward-looking statement due to various important factors , risks and uncertainties , including , but not limited to , those set forth under cautionary note regarding forward-looking statements , which precedes part i of this annual report , and under risk factors in item 1a of part i of this annual report . overview background we are a biopharmaceutical company that has historically been engaged in the development of novel nnr therapeutics to treat patients suffering from serious nervous system and gastrointestinal/ genitourinary diseases and disorders . our nnr therapeutics selectively target a class of receptors known as neuronal nicotinic receptors , which we refer to as nnrs . nnrs are found on nerve cells throughout the nervous system and serve as key regulators of nervous system activity . however , in light of recent clinical trial disappointments in our development programs for tc-5214 , tc-1734 and tc-5619 , and our decision to discontinue the development of those compounds , we have shifted our strategic emphasis to external business opportunities not related to nnrs . on march 5 , 2015 , we announced our entry into a definitive agreement and plan of merger ( the merger agreement ) with catalyst biosciences , inc. ( catalyst ) , pursuant to which , among other things , subject to the satisfaction or waiver of the conditions set forth in the merger agreement , a wholly-owned subsidiary of ours will be merged with and into catalyst , with catalyst continuing as the surviving corporation and a wholly-owned subsidiary of ours ( the proposed merger ) . immediately following the effective time of the proposed merger , existing catalyst equity holders are expected to own approximately 65 % of the capital stock of the combined company , and existing targacept equity holders are expected to own approximately 35 % of the capital stock of the combined company . prior to the closing of the proposed merger , we also expect to distribute to our stockholders a dividend of approximately $ 37 million in aggregate principal amount of redeemable convertible notes and approximately $ 20 million in cash ( the pre-closing dividend ) . the notes will be convertible into shares of common stock of the combined company at a conversion price of $ 1.31 per share , which represents 130 % of the negotiated per-share value of our assets following the anticipated pre-closing dividend . if , in the future , the redeemable convertible notes are fully converted into targacept common stock , targacept stockholders would own approximately 49 % of the outstanding capital stock of the combined company on a pro forma basis as of the anticipated closing date . targacept stockholders who are entitled to the pre-closing dividend will also be entitled to any net proceeds received as a result of any disposition of targacept 's nnr compounds and related assets that occurs within up to two years after the closing of the proposed merger , unless those assets are sold or otherwise disposed of prior to the closing of the proposed merger . we expect to consummate the proposed merger in the second quarter of 2015. catalyst is a biopharmaceutical company focused on discovering and developing novel biopharmaceutical products based on engineered human proteases . catalyst has designed its proteases to regulate the coagulation ( to promote hemostasis ) and complement cascades ( to prevent inflammation ) . in collaboration with pfizer , catalyst 's lead factor vii product candidate pf-05280602/cb 813d has successfully completed a phase 1 trial in hemophilia patients . in addition , catalyst 's pipeline includes promising drug candidates for hemophilia b ( fix ) , pro-coagulation ( fxa ) and complement disorders ( anti-c3 ) . our business activities are conducted by one operating segment for which we provide information about revenues , profits and losses in our consolidated financial statements . 52 based on years of focused research in the nnr area , and notwithstanding our clinical development setbacks , we continue to believe that compounds that interact selectively with specific nnr subtypes have the potential to achieve positive medical effects by modulating their activity . we have built a patent estate covering the structure or therapeutic use of small molecules designed to regulate activity in the body by selectively affecting specific nnr subtypes . we do not have current plans to continue development of any of our nnr programs internally . instead we would seek to out-license or sell those assets to one or more third parties . our most advanced nnr product candidates are tc-6499 , tc-6683 ( formerly azd1446 ) , tc-5619 , tc-6987 , tc-1734 and tc 5214 , and they are discussed under the caption business in item 1 of part i of this annual report . we were party to a collaboration agreement with astrazeneca focused on compounds that act on the a 4ß2 nnr , which astrazeneca terminated in october 2014 , effective january 2015. under the agreement astrazeneca was granted an exclusive license to tc-6683 and an earlier-stage compound that arose from the preclinical research collaboration conducted under the agreement from january 2006 to january 2010. story_separator_special_tag we deferred recognition of an aggregate of $ 29.0 million received under the agreement and have fully recognized these deferred amounts into revenue over the respective periods discussed in note 12 to our audited financial statements included in this annual report . from time to time we seek and are awarded grants or perform work under grants awarded to third-party collaborators from which we derive revenue . during the third quarter of 2011 , we were awarded a third grant from the michael j. fox foundation for parkinson 's research , or mjff . based on the terms of the grant , we received $ 250,000 upon inception of the grant term and an additional $ 250,000 in march 2012. in addition , we are a subcontractor under a grant awarded to the california institute of technology by the national institute on drug abuse , or nida , part of the national institutes of health , to fund research on innovative nnr-based approaches to the development of therapies for smoking cessation . based on the terms of this arrangement , we received $ 191,000 in may 2012 , $ 93,000 in october 2013 and $ 148,000 in march 2014. funding for awards under federal grant programs is subject to the availability of funds as determined annually in the federal appropriations process . in september 2014 , we entered into a services agreement with a biopharmaceutical company , under which we provided certain clinical development and regulatory consulting services . under the agreement , we expect to receive approximately $ 187,000 for our services over the term of the agreement , which expired on february 28 , 2015. we do not expect ongoing revenue from this agreement or other similar agreements . 54 research and development expenses since our inception , we have focused our activities on drug discovery and development programs . we record research and development expenses as they are incurred . research and development expenses represented approximately 65 % , 76 % and 74 % of our total operating expenses for the years ended december 31 , 2014 , 2013 , and 2012 , respectively . research and development expenses historically include costs associated with : clinical trials , including fees paid to contract research organizations to monitor and oversee some of our trials ; the employment of personnel involved in clinical development , drug discovery , and research activities ; research and development facilities , equipment and supplies ; the screening , identification and optimization of product candidates ; formulation and chemical development ; production of clinical trial materials , including fees paid to contract manufacturers ; nonclinical animal studies , including the costs to engage third-party research organizations ; quality assurance activities ; compliance with fda regulatory requirements ; consulting , license and sponsored research fees paid to third parties ; the development and enhancement of our drug discovery technologies that we refer to as pentad ; depreciation of capital assets used to develop our products ; and stock options granted to personnel in research and development functions . we have historically utilized our research and development personnel and infrastructure resources across several programs , and many of our costs have not been specifically attributable to a single program . accordingly , we can not state precisely our total costs incurred on a program-by-program basis . we have not received fda or foreign regulatory marketing approval for any of our product candidates . our current and future expenditures on development programs are subject to numerous uncertainties in timing and cost to completion . our compounds are tested in numerous preclinical studies for safety , toxicology and efficacy . we then conduct clinical trials for those product candidates that are determined to be the most promising . if we do not establish an alliance or collaboration in which our collaborator assumes responsibility for funding the development of a particular product candidate , we fund these trials ourselves . as we obtain results from clinical trials , we or the collaborator may elect to discontinue or delay trials for some product candidates in order to focus resources on more promising product candidates . completion of clinical trials may take several years or more , and the length of time generally varies substantially according to the type , complexity , novelty and intended use of a product candidate . the cost of clinical trials for a particular product candidate may vary significantly as a result of a variety of factors , including : the number of subjects who participate in the trials ; the number and locations of sites included in the trials ; the length of time required to enroll trial subjects ; the therapeutic areas being investigated ; the duration of the trials and subject follow-up ; the costs of producing supplies of the product candidate needed for trials and regulatory submissions ; 55 the efficacy and safety profile of the product candidate ; and the costs and timing of , and the ability to secure , regulatory approvals . in addition , our strategy includes entering into alliances and collaborations with third parties to participate in the development and commercialization of some of our product candidates . where a third party has responsibility for or authority over any or all of the non-clinical or clinical development of a particular product candidate , the estimated completion date may be largely under control of that third party and not under our control . we can not forecast with any degree of certainty whether any of our product candidates will be subject to future alliances or collaborations or how any such arrangement would affect our development plans or capital requirements . because of this uncertainty , and because of the numerous uncertainties related to clinical trials and drug development generally , we are unable to determine the duration and completion costs of our development programs or whether or when we will generate revenue from the commercialization and sale of any of our product candidates .
| results of operations years ended december 31 , 2014 and december 31 , 2013 net operating revenues replace_table_token_7_th net operating revenues for the year ended december 31 , 2014 decreased by $ 3.4 million as compared to the year ended december 31 , 2013 primarily as a result of a decrease in license fees and milestones from collaborations . license fees and milestones from collaborations for the 2013 period reflected recognition of the remaining $ 3.5 million balance of deferred revenue from payments previously received under our collaboration agreement with astrazeneca , triggered by astrazeneca 's decision to terminate tc-1734 from the collaboration . we have recognized into revenue all amounts that had been previously deferred and , therefore , in future periods , will not recognize any additional revenue related to payments received under our previous collaboration agreements . research and development expenses year ended december 31 , 2014 2013 change ( in thousands ) research and development expenses $ 19,499 $ 38,840 $ ( 19,341 ) research and development expenses for the year ended december 31 , 2014 decreased by $ 19.3 million as compared to the year ended december 31 , 2013. the lower research and development expenses for 2014 were principally attributable to decreases of $ 16.6 million in costs incurred for third-party services associated with our clinical-stage programs to $ 11.5 million from $ 28.1 million for the 2013 period .
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also in our opinion , the company maintained , in all material respects , effective internal control over financial reporting as of december 31 , 2014 , based on criteria established in internal control - integrated framewor k ( 2013 ) issued by the committee of sponsoring organizations of the treadway commission ( coso ) . the company 's management is responsible for these financial statements , for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting , included in management 's report on internal control over financial reporting appearing in item 9a of the company 's 2014 annual report on form 10-k. our responsibility is to express opinions on these financial statements and on the company 's internal control over financial reporting based on our integrated story_separator_special_tag the following discussion and analysis should be read in conjunction with our consolidated financial statements and the notes thereto . we prepared our consolidated financial statements in accordance with gaap . additional sections in this report which should be helpful to the reading of our discussion and analysis include the following : ( i ) a description of our business strategy found in items 1 and 2 “ business and properties— ( c ) narrative description of business—business strategy ; ” ( ii ) a description of developments during 2014 , found in items 1 and 2 “ business and properties— ( a ) general development of business—recent developments ; ” and ( iii ) a description of risk factors affecting us and our business , found in item 1a “ risk factors. ” inasmuch as the discussion below and the other sections to which we have referred you pertain to management 's comments on financial resources , capital spending , our business strategy and the outlook for our business , such discussions contain forward-looking statements . these forward-looking statements reflect the expectations , beliefs , plans and objectives of management about future financial performance and assumptions underlying management 's judgment concerning the matters discussed , and accordingly , involve estimates , assumptions , judgments and uncertainties . our actual results could differ materially from those discussed in the forward-looking statements . factors that could cause or contribute to any differences include , but are not limited to , those discussed below and elsewhere in this report , particularly in item 1a “ risk factors ” and at the beginning of this report in “ information regarding forward-looking statements. ” general our business model , through our ownership and operation of energy related assets , is built to support two principal objectives : helping customers by providing safe and reliable energy , bulk commodity and liquids products transportation , storage and distribution ; and creating long-term value for our shareholders . to achieve these objectives , we focus on providing fee-based services to customers from a business portfolio consisting of energy-related pipelines , natural gas storage , processing and treating facilities , and bulk and liquids terminal facilities . we also produce and sell crude oil . our reportable business segments are based on the way our management organizes our enterprise , and each of our business segments represents a component of our enterprise that engages in a separate business activity and for which discrete financial information is available . our reportable business segments are : natural gas pipelines— ( i ) the ownership and operation of major interstate and intrastate natural gas pipeline and storage systems ; ( ii ) the ownership and or operation of associated natural gas and crude oil gathering systems and natural gas processing and treating facilities ; and ( iii ) the ownership and or operation of ngl fractionation facilities and transportation systems ; co 2 — ( i ) the production , transportation and marketing of co 2 to oil fields that use co 2 as a flooding medium for recovering crude oil from mature oil fields to increase production ; ( ii ) ownership interests in and or operation of oil fields and gas processing plants in west texas ; and ( iii ) the ownership and operation of a crude oil pipeline system in west texas ; terminals— ( i ) the ownership and or operation of liquids and bulk terminal facilities and rail transloading and materials handling facilities located throughout the u.s. and portions of canada that transload and store refined petroleum products , crude oil , condensate , and bulk products , including coal , petroleum coke , cement , alumina , salt and other bulk chemicals and ( ii ) the ownership and operation of our jones act tankers ; products pipelines—the ownership and operation of refined petroleum products and crude oil and condensate pipelines that deliver refined petroleum products ( gasoline , diesel fuel and jet fuel ) , ngl , crude oil , condensate and bio-fuels to various markets , plus the ownership and or operation of associated product terminals and petroleum pipeline transmix facilities ; 39 kinder morgan canada—the ownership and operation of the trans mountain pipeline system that transports crude oil and refined petroleum products from edmonton , alberta , canada to marketing terminals and refineries in british columbia , canada and the state of washington , plus the jet fuel aviation turbine fuel pipeline that serves the vancouver ( canada ) international airport ; and other—primarily includes other miscellaneous assets and liabilities purchased in our 2012 ep acquisition including ( i ) our corporate headquarters in houston , texas ; ( ii ) several physical natural gas contracts with power plants associated with ep 's legacy trading activities ; and ( iii ) other miscellaneous ep assets and liabilities . as an energy infrastructure owner and operator in multiple facets of the various u.s. and canadian energy industries and markets , we examine a number of variables and factors on a routine basis to evaluate our current performance and our prospects for the future . story_separator_special_tag the realized weighted average crude oil price per barrel , with all hedges allocated to oil , was $ 88.41 per barrel in 2014 , $ 92.70 per barrel in 2013 and $ 87.72 per barrel in 2012. had we not used energy derivative contracts to transfer commodity price risk , our crude oil sales prices would have averaged $ 86.48 per barrel in 2014 , $ 94.94 per barrel in 2013 and $ 89.91 per barrel in 2012. the factors impacting our terminals business segment generally differ depending on whether the terminal is a liquids or bulk terminal , and in the case of a bulk terminal , the type of product being handled or stored . as with our refined petroleum products pipeline transportation business , the revenues from our bulk terminals business are generally driven by the volumes we handle and or store , as well as the prices we receive for our services , which in turn are driven by the demand for the products being shipped or stored . while we handle and store a large variety of products in our bulk terminals , the primary products are coal , petroleum coke , and steel . for the most part , we have contracts for this business that have minimum volume guarantees and are volume based above the minimums . because these contracts are volume based above the minimums , our profitability from the bulk business can be sensitive to economic conditions . our liquids terminals business generally has longer-term contracts that require the customer to pay regardless of whether they use the capacity . thus , similar to our natural gas pipeline business , our liquids terminals business is less sensitive to short-term changes in supply and demand . therefore , the extent to which changes in these variables affect our terminals business in the near term is a function of the length of the underlying service contracts ( which on average is approximately four years ) , the extent to which revenues under the contracts are a function of the amount of product stored or transported , and the extent to which such contracts expire during any given period of time . to the extent practicable and economically feasible in light of our strategic plans and other factors , we generally attempt to mitigate the risk of reduced volumes and pricing by negotiating contracts with longer terms , with higher per-unit pricing and for a greater percentage of our available capacity . in addition , weather-related factors such as hurricanes , floods and droughts may impact our facilities and access to them and , thus , the profitability of certain terminals for limited periods of time or , in relatively rare cases of severe damage to facilities , for longer periods . our seven jones act qualified tankers operate in the marine transportation of crude oil , condensate and refined products in the u.s. and are currently operating pursuant to multi-year charters with major integrated oil companies , major refiners and the u.s. military sealift command . the profitability of our refined petroleum products pipeline transportation business is generally driven by the volume of refined petroleum products that we transport and the prices we receive for our services . transportation volume levels are primarily driven by the demand for the refined petroleum products being shipped or stored . demand for refined petroleum products tends to track in large measure demographic and economic growth , and with the exception of periods of time with very high product prices or recessionary conditions , demand tends to be relatively stable . because of that , we seek to own refined petroleum products pipelines located in , or that transport to , stable or growing markets and population centers . the prices for shipping are generally based on regulated tariffs that are adjusted annually based on changes in the u.s. producer price index . our 2015 budget , and related announced expectation to declare dividends of $ 2.00 per share for 2015 , assumes an average wti crude oil price of approximately $ 70 per barrel and an average natural gas price of $ 3.80 per mmbtu in 2015. for 2015 , we estimate that every $ 1 change in the average wti crude oil price per barrel will impact our distributable cash flow by approximately $ 10 million ( approximately $ 7 million of which is attributable to our co 2 business segment ) , and each $ 0.10 per mmbtu change in the average price of natural gas will impact distributable cash flow by approximately $ 3 million . this assumes we do not add additional hedges during the year which could reduce these sensitivities . these sensitivities compare to total anticipated segment earnings before dd & a in 2015 of approximately $ 8 billion ( adding back our share of joint venture dd & a ) . even adjusting for current commodity prices we expect to have significant excess coverage in 2015. the amount that we are able to increase dividends to our shareholders will , to some extent , be a function of our ability to complete successful acquisitions and expansions . we believe we will continue to have opportunities for expansion of our facilities in many markets , and we have budgeted approximately $ 4.4 billion for our 2015 capital expansion program ( including small acquisitions and investment contributions , but excluding our recent acquisition of hiland partners , lp ) . we consider and enter into discussions regarding potential acquisitions and are currently contemplating potential acquisitions . based on our historical record and because there is continued demand for energy infrastructure in the areas we serve , we expect to continue to have such opportunities in the future , although the level of such opportunities is difficult to predict . while there are currently no unannounced purchase agreements for the acquisition of any material business or assets , such transactions can be effected quickly , may occur at any time and may be significant in size relative to our existing assets or operations .
| results of operations non-gaap measures the non-gaap financial measures , dcf before certain items and segment ebda before certain items are presented below under “ —distributable cash flow ” and “ —consolidated earnings results , ” respectively . certain items are items that are required by gaap to be reflected in net income , but typically either do not have a cash impact , or by their nature are separately identifiable from our normal business operations and , in our view , are likely to occur only sporadically . our non-gaap measures described below should not be considered as an alternative to gaap net income or any other gaap measure . dcf before certain items and segment ebda before certain items are not financial measures in accordance with gaap and have important limitations as analytical tools . you should not consider either of these non-gaap measures in 45 isolation or as substitutes for an analysis of our results as reported under gaap . because dcf before certain items excludes some but not all items that affect net income and because dcf measures are defined differently by different companies in our industry , our dcf before certain items may not be comparable to dcf measures of other companies . our computation of segment ebda before certain items has similar limitations . management compensates for the limitations of these non-gaap measures by reviewing our comparable gaap measures , understanding the differences between the measures and taking this information into account in its analysis and its decision making processes . distributable cash flow dcf before certain items is an overall performance metric we use to estimate the ability of our assets to generate cash flows on an ongoing basis and as a measure of cash available to pay dividends . we believe the primary measure of company performance used by us , investors and industry analysts is cash generation performance .
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2018-20 , `` leases : narrow-scope improvements for lessors , `` which is expected to reduce a lessor 's implementation and ongoing costs associated with applying asu 2016-02. asu 2016-02 and the subsequent amendments are effective for interim and annual periods beginning after december 15 , 2018 story_separator_special_tag evergy , inc. story_separator_special_tag purchase $ 450.0 million of evergy common stock . the asr agreements reached final settlement in the fourth quarter of 2018 and resulted in the delivery of 7.9 million shares to evergy based on the average daily volume weighted-average price of evergy common stock during the term of the asr agreements , less a negotiated discount . 30 in november 2018 , evergy entered into an asr agreement with a financial institution to purchase $ 475.0 million of evergy common stock . in december 2018 , the financial institution delivered to evergy 6.4 million shares of common stock , representing a partial settlement of the contract , based on then-current market prices and evergy paid a total of $ 475.0 million . the final number of shares of evergy common stock that evergy may receive or be required to remit upon settlement of the asr agreement will be based on the average daily volume weighted-average price of evergy common stock during the term of the asr agreement , less a negotiated discount . final settlement of the asr agreement will occur by march 2019 , but may occur earlier at the option of the financial institution . evergy expects that the final settlement of the asr agreement will result in the delivery of additional shares of common stock to evergy at no additional cost . see note 17 to the consolidated financial statements for more information regarding evergy 's common stock repurchase program . missouri legislation on june 1 , 2018 , missouri senate bill ( s.b . ) 564 was signed into law by the governor of missouri . most notably , s.b . 564 includes a pisa provision that can be elected by missouri electric utilities to defer to a regulatory asset and recover 85 % of depreciation expense and associated return on investment for qualifying electric plant rate base additions . qualifying electric plant includes all rate base additions with the exception of new coal , nuclear or natural gas generating units or rate base additions that increase revenues by allowing service to new customer premises . the deferred depreciation and return recorded in the associated regulatory asset , except for any prudence disallowances , is required to be included in determining the utility 's rate base during subsequent general rate proceedings subject to a 3 % compound annual growth rate limitation on future electric rates compared with the utility 's rates in effect prior to electing pisa . utilities that elect the pisa provision can make qualifying deferrals of depreciation and return through december 2023 , with a potential extension through december 2028 subject to mpsc approval . except under certain circumstances , utilities that elect the pisa provision must keep base rates constant for three years following the utilities ' last general rate case . kcp & l and gmo have elected the pisa provision of s.b . 564 effective as of january 1 , 2019. regulatory proceedings see note 5 to the consolidated financial statements for information regarding regulatory proceedings . plant retirements in 2017 , westar energy announced plans to retire unit 7 at tecumseh energy center , units 3 and 4 at murray gill energy center and units 1 and 2 at gordon evans energy center , subject to the completion of the merger in 2018. in 2017 , kcp & l and gmo also announced plans to retire kcp & l 's montrose station and gmo 's sibley station . in the fourth quarter of 2018 , westar energy , kcp & l and gmo retired these stations consistent with their previously announced plans . strategy evergy expects to continue operating its vertically integrated utilities within the currently existing regulatory frameworks . evergy 's objectives are to deliver value to shareholders through earnings and dividend growth ; serve customers and communities with reliable service , clean energy and fewer and lower rate increases ; and maintain a rewarding and challenging work environment for employees . significant elements of evergy 's strategy to achieve these objectives include : the realization of a total of approximately $ 550 million of potential net savings from 2018 through 2022 resulting from synergies that are expected to be created as a result of the merger ; the repurchase of approximately 60 million outstanding shares of evergy common stock by mid-2020 ; anticipated rate base investment of approximately $ 6 billion from 2018 through 2022 ; the continued growth of evergy 's renewable energy portfolio as the evergy companies retire older and less efficient fossil fuel plants ; and 31 implementation of the rate orders received by the kcc and mpsc in 2018. see `` cautionary statements regarding certain forward-looking information '' and part i , item 1a , risk factors , for additional information . earnings overview the following table summarizes evergy 's net income and diluted earnings per common share ( eps ) . replace_table_token_10_th net income and diluted eps increased in 2018 compared to 2017 , primarily due to the inclusion of kcp & l 's and gmo 's earnings beginning in june 2018 , higher westar energy retail sales driven by favorable weather and lower income tax expense , partially offset by merger-related costs and reductions of revenue for customer bill credits incurred following the close of the merger . in addition , a higher number of diluted weighted average common shares outstanding due to the issuance of common shares to great plains energy shareholders as a result of the merger diluted earnings per share $ 1.26 for 2018 . for additional information regarding the change in net income , refer to the evergy results of operations section within this md & a . story_separator_special_tag evergy 's continued ability to meet the criteria for recording regulatory assets and liabilities may be affected in the future by restructuring and deregulation in the electric industry or changes in accounting rules . in the event that the criteria no longer applied to all or a portion of evergy 's operations , the related regulatory assets and liabilities would be written off unless an appropriate regulatory recovery mechanism were provided . additionally , these factors could result in an impairment on utility plant assets . see note 5 to the consolidated financial statements for additional information . impairments of assets and goodwill long-lived assets are required to be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable as prescribed under gaap . accounting rules require goodwill to be tested for impairment annually and when an event occurs indicating the possibility that an impairment exists . the goodwill impairment test consists of comparing the fair value of a reporting unit to its carrying amount , including goodwill , to identify potential impairment . in the event that the carrying amount exceeds the fair value of the reporting unit , an impairment loss is recognized for the difference between the carrying amount of the reporting unit and its fair value . evergy 's consolidated operations are considered one reporting unit for assessment of impairment , as management assesses financial performance and allocates resources on a consolidated basis . evergy 's first impairment test for the $ 2,338.9 million of goodwill from the great plains energy and westar energy merger will be conducted on may 1 , 2019. evergy anticipates that the determination of fair value for the reporting unit will consist of two valuation techniques : an income approach consisting of a discounted cash flow analysis and a market approach consisting of a determination of reporting unit invested capital using market multiples derived from the historical revenue , earnings before interest , income taxes , depreciation and amortization , net utility asset values and market prices of stock of peer companies . the results of the two techniques will be evaluated and weighted to determine a point within the range that management considers representative of fair value for the reporting unit , which involves a significant amount of management judgment . the discounted cash flow analysis is most significantly impacted by two assumptions : estimated future cash flows and the discount rate applied to those cash flows . management will determine the appropriate discount rate to be based on the reporting unit 's weighted average cost of capital ( wacc ) . the wacc takes into account both the return on equity authorized by the kcc and mpsc and after-tax cost of debt . estimated future cash flows are based on evergy 's internal business plan , which assumes the occurrence of certain events in the future , such as the outcome of future rate filings , future approved rates of return on equity , anticipated earnings/returns related to future capital investments , continued recovery of cost of service and the renewal of certain contracts . management also makes assumptions regarding the run rate of operations , maintenance and general and administrative costs based on the expected outcome of the aforementioned events . should the actual outcome of some or all of these assumptions 34 differ significantly from the current assumptions , revisions to current cash flow assumptions could cause the fair value of the evergy reporting unit under the income approach to be significantly different in future periods and could result in a future impairment charge to goodwill . the market approach analysis is most significantly impacted by management 's selection of relevant peer companies as well as the determination of an appropriate control premium to be added to the calculated invested capital of the reporting unit , as control premiums associated with a controlling interest are not reflected in the quoted market price of a single share of stock . management will determine an appropriate control premium by using an average of control premiums for recent acquisitions in the industry . changes in results of peer companies , selection of different peer companies and future acquisitions with significantly different control premiums could result in a significantly different fair value of the evergy reporting unit . income taxes income taxes are accounted for using the asset/liability approach . deferred tax assets and liabilities are determined based on the temporary differences between the financial reporting and tax bases of assets and liabilities , applying enacted statutory tax rates in effect for the year in which the differences are expected to reverse . deferred investment tax credits are amortized ratably over the life of the related property . deferred tax assets are also recorded for net operating losses , capital losses and tax credit carryforwards . evergy is required to estimate the amount of taxes payable or refundable for the current year and the deferred tax liabilities and assets for future tax consequences of events reflected in evergy 's consolidated financial statements or tax returns . actual results could differ from these estimates for a variety of reasons including changes in income tax laws , enacted tax rates and results of audits by taxing authorities . this process also requires management to make assessments regarding the timing and probability of the ultimate tax impact from which actual results may differ . evergy records valuation allowances on deferred tax assets if it is determined that it is more likely than not that the asset will not be realized . see note 19 to the consolidated financial statements for additional information . asset retirement obligations evergy has recognized legal obligations associated with the disposal of long-lived assets that result from the acquisition , construction , development or normal operation of such assets . concurrent with the recognition of the liability , the estimated cost of the aro incurred at the time the related long-lived assets were either acquired , placed in service or when regulations establishing the obligation became effective .
| executive summary evergy , inc. is a public utility holding company incorporated in 2017 and headquartered in kansas city , missouri . evergy operates primarily through the following wholly-owned direct subsidiaries : westar energy is an integrated , regulated electric utility that provides electricity to customers in the state of kansas . westar energy has one active wholly-owned subsidiary with significant operations , kge . kcp & l is an integrated , regulated electric utility that provides electricity to customers in the states of missouri and kansas . gmo is an integrated , regulated electric utility that provides electricity to customers in the state of missouri . gpethc owns 13.5 % of transource with the remaining 86.5 % owned by aep transmission holding company , llc , a subsidiary of aep . transource is focused on the development of competitive electric transmission projects . gpethc accounts for its investment in transource under the equity method . 29 westar energy also owns a 50 % interest in prairie wind , which is a joint venture between westar energy and affiliates of aep and berkshire hathaway energy company . prairie wind owns a 108-mile , 345 kv double-circuit transmission line that provides transmission service in the spp . westar energy accounts for its investment in prairie wind under the equity method . westar energy and kge conduct business in their respective service territories using the name westar energy . kcp & l and gmo conduct business in their respective service territories using the name kcp & l . collectively , the evergy companies have approximately 14,500 mws of owned generating capacity and renewable purchased power agreements and engage in the generation , transmission , distribution and sale of electricity to approximately 1.6 million customers in the states of kansas and missouri . the evergy companies assess financial performance and allocate resources on a consolidated basis ( i.e. , operate in one segment ) .
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, ( vii ) income tax impacts , ( viii ) potential recognition of additional proved undeveloped reserves , ( ix ) any potential value added to our proved reserves when testing recoverability from drilling unbooked locations , ( x ) revisions to production curves based on additional data and ( xi ) inherent significant volatility in the commodity prices for oil , ngl and natural gas . each of the above factors is evaluated on a quarterly basis and if there is a material change in any factor it is incorporated into our reserves estimation utilized in our quarterly accounting estimates . we use our reserve estimates to evaluate , also on a quarterly basis , the reasonableness of our resource development plans for our reported proved reserves . changes in circumstance , including commodity pricing , economic factors and the other uncertainties described above may lead to changes in our development plans . below is the hypothetical first-quarter 2021 full cost ceiling calculation . this should not be interpreted to be indicative of our development plan or of our actual future results . each of the uncertainties noted above has been evaluated for material known trends to be potentially included in the estimation of possible first-quarter 2021 effects . based on such review , we determined that commodity prices are the only significant known variable necessary in calculating the following scenario . our hypothetical first-quarter 2021 full cost ceiling calculation has been prepared by substituting ( i ) $ 37.56 per bbl for oil , ( ii ) $ 9.77 per bbl for ngl and ( iii ) $ 1.22 per mcf for natural gas ( collectively , the `` pro forma first-quarter prices '' ) for the respective realized prices as of december 31 , 2020. all other inputs and assumptions have been held constant . accordingly , this estimation strictly isolates the estimated impact of commodity prices on the first-quarter 2021 realized prices that will be utilized in our full cost ceiling calculation . the pro forma first-quarter prices use a slightly modified realized price , calculated as the unweighted arithmetic average of the first-day-of-the-month price for oil , ngl and natural gas for the 11 months ended february 1 , 2021 and holding the february 1 , 2021 prices constant for the remaining twelfth month of the calculation . based solely on the substitution of the pro forma first-quarter prices into our december 31 , 2020 proved reserve estimates , there would be no implied first-quarter 2021 impairment . we believe that substituting these prices into our december 31 , 2020 proved reserve estimates may help provide users with an understanding of the potential impact on our first-quarter 2021 full cost ceiling test . story_separator_special_tag the year ended december 31 , 2020 , we expensed firm transportation payments on excess capacity of $ 4.0 million related to a transportation commitment with a certain pipeline pertaining to the gathering of our production from our established acreage that extends into 2024. see `` —obligations and commitments '' and note 16.c to our consolidated financial statements included elsewhere in this annual report for information regarding our transportation commitments . additionally , we recognized marketing expense due to negative natural gas prices in march 2020. midstream service expenses midstream service expenses decreased for the year ended december 31 , 2020 compared to 2019. these are costs incurred to operate and maintain our ( i ) integrated oil and natural gas gathering and transportation systems and related facilities ( ii ) centralized oil storage tanks , ( iii ) natural gas lift , fuel for drilling and completions activities and centralized compression infrastructure and ( iv ) water storage , recycling and transportation facilities . costs of purchased oil costs of purchased oil increased for the year ended december 31 , 2020 compared to 2019. we are a firm shipper on both the bridgetex and gray oak pipelines , the latter of which we began shipment on during fourth-quarter 2019 , and we utilize purchased oil to fulfill portions of our commitments . in the event our long-haul transportation capacity on the bridgetex pipeline and gray oak pipeline exceeds our net production , consistent with our historic practice , we expect to continue to purchase third-party oil at the trading hubs to satisfy the deficit in our associated long-haul transportation commitments . general and administrative ( `` g & a '' ) g & a , excluding employee compensation expense from our long-term incentive plan ( `` ltip '' ) , decreased for the year ended december 31 , 2020 , compared to 2019 , mainly due to decreases in employee-related costs as a result of the cumulative measures taken during 2020 and 2019 to align our cost structure with operational activity , which included workforce reductions . ltip cash expense increased for the year ended december 31 , 2020 , compared to 2019 , as these types of cash awards were not in place in 2019. ltip non-cash expense increased for the year ended december 31 , 2020 compared to 2019 , but did not change on a per boe basis . see notes 2.p , 9.a and 18 to our consolidated financial statements included elsewhere in this annual report for information regarding our equity-based compensation . 53 g & a are costs incurred for overhead , including payroll and benefits for our corporate staff , costs of maintaining our headquarters , non-production based franchise taxes , audit and other fees for professional services , legal compliance and equity-based compensation . organizational restructuring expenses organizational restructuring expenses are related to our workforce reductions and senior officer retirements in an effort to reduce costs and better position ourselves for the future in response to market condition . we incurred one-time charges comprised of compensation , taxes , professional fees , outplacement and insurance-related expenses during the years ended december 31 , 2020 and 2019. as of december 31 , 2020 story_separator_special_tag , ( vii ) income tax impacts , ( viii ) potential recognition of additional proved undeveloped reserves , ( ix ) any potential value added to our proved reserves when testing recoverability from drilling unbooked locations , ( x ) revisions to production curves based on additional data and ( xi ) inherent significant volatility in the commodity prices for oil , ngl and natural gas . each of the above factors is evaluated on a quarterly basis and if there is a material change in any factor it is incorporated into our reserves estimation utilized in our quarterly accounting estimates . we use our reserve estimates to evaluate , also on a quarterly basis , the reasonableness of our resource development plans for our reported proved reserves . changes in circumstance , including commodity pricing , economic factors and the other uncertainties described above may lead to changes in our development plans . below is the hypothetical first-quarter 2021 full cost ceiling calculation . this should not be interpreted to be indicative of our development plan or of our actual future results . each of the uncertainties noted above has been evaluated for material known trends to be potentially included in the estimation of possible first-quarter 2021 effects . based on such review , we determined that commodity prices are the only significant known variable necessary in calculating the following scenario . our hypothetical first-quarter 2021 full cost ceiling calculation has been prepared by substituting ( i ) $ 37.56 per bbl for oil , ( ii ) $ 9.77 per bbl for ngl and ( iii ) $ 1.22 per mcf for natural gas ( collectively , the `` pro forma first-quarter prices '' ) for the respective realized prices as of december 31 , 2020. all other inputs and assumptions have been held constant . accordingly , this estimation strictly isolates the estimated impact of commodity prices on the first-quarter 2021 realized prices that will be utilized in our full cost ceiling calculation . the pro forma first-quarter prices use a slightly modified realized price , calculated as the unweighted arithmetic average of the first-day-of-the-month price for oil , ngl and natural gas for the 11 months ended february 1 , 2021 and holding the february 1 , 2021 prices constant for the remaining twelfth month of the calculation . based solely on the substitution of the pro forma first-quarter prices into our december 31 , 2020 proved reserve estimates , there would be no implied first-quarter 2021 impairment . we believe that substituting these prices into our december 31 , 2020 proved reserve estimates may help provide users with an understanding of the potential impact on our first-quarter 2021 full cost ceiling test . story_separator_special_tag the year ended december 31 , 2020 , we expensed firm transportation payments on excess capacity of $ 4.0 million related to a transportation commitment with a certain pipeline pertaining to the gathering of our production from our established acreage that extends into 2024. see `` —obligations and commitments '' and note 16.c to our consolidated financial statements included elsewhere in this annual report for information regarding our transportation commitments . additionally , we recognized marketing expense due to negative natural gas prices in march 2020. midstream service expenses midstream service expenses decreased for the year ended december 31 , 2020 compared to 2019. these are costs incurred to operate and maintain our ( i ) integrated oil and natural gas gathering and transportation systems and related facilities ( ii ) centralized oil storage tanks , ( iii ) natural gas lift , fuel for drilling and completions activities and centralized compression infrastructure and ( iv ) water storage , recycling and transportation facilities . costs of purchased oil costs of purchased oil increased for the year ended december 31 , 2020 compared to 2019. we are a firm shipper on both the bridgetex and gray oak pipelines , the latter of which we began shipment on during fourth-quarter 2019 , and we utilize purchased oil to fulfill portions of our commitments . in the event our long-haul transportation capacity on the bridgetex pipeline and gray oak pipeline exceeds our net production , consistent with our historic practice , we expect to continue to purchase third-party oil at the trading hubs to satisfy the deficit in our associated long-haul transportation commitments . general and administrative ( `` g & a '' ) g & a , excluding employee compensation expense from our long-term incentive plan ( `` ltip '' ) , decreased for the year ended december 31 , 2020 , compared to 2019 , mainly due to decreases in employee-related costs as a result of the cumulative measures taken during 2020 and 2019 to align our cost structure with operational activity , which included workforce reductions . ltip cash expense increased for the year ended december 31 , 2020 , compared to 2019 , as these types of cash awards were not in place in 2019. ltip non-cash expense increased for the year ended december 31 , 2020 compared to 2019 , but did not change on a per boe basis . see notes 2.p , 9.a and 18 to our consolidated financial statements included elsewhere in this annual report for information regarding our equity-based compensation . 53 g & a are costs incurred for overhead , including payroll and benefits for our corporate staff , costs of maintaining our headquarters , non-production based franchise taxes , audit and other fees for professional services , legal compliance and equity-based compensation . organizational restructuring expenses organizational restructuring expenses are related to our workforce reductions and senior officer retirements in an effort to reduce costs and better position ourselves for the future in response to market condition . we incurred one-time charges comprised of compensation , taxes , professional fees , outplacement and insurance-related expenses during the years ended december 31 , 2020 and 2019. as of december 31 , 2020
| results of operations revenues sources of our revenue our revenues are derived from the sale of produced oil , ngl and natural gas , the sale of purchased oil and providing midstream services to third parties , all within the continental u.s. and do not include the effects of derivatives . see notes 2.n and 14 to our consolidated financial statements included elsewhere in this annual report below for additional information regarding our revenue recognition policies . 48 the following table presents our sources of revenue as a percentage of total revenues for the periods presented and corresponding changes : replace_table_token_9_th 49 oil , ngl and natural gas sales volumes , revenues and prices the following table presents information regarding our oil , ngl and natural gas sales volumes , sales revenues and average sales prices for the periods presented and corresponding changes : replace_table_token_10_th _ ( 1 ) boe is calculated using a conversion rate of six mcf per one bbl . ( 2 ) the numbers presented in the years ended december 31 , 2020 and 2019 columns are based on actual amounts and are not calculated using the rounded numbers presented in the table above or the table below . ( 3 ) price reflects the average of actual sales prices received when control passes to the purchaser/customer adjusted for quality , certain transportation fees , geographical differentials , marketing bonuses or deductions and other factors affecting the price received at the delivery point . ( 4 ) price reflects the after-effects of our commodity derivative transactions on our average sales prices . our calculation of such after-effects includes settlements of matured commodity derivatives during the respective periods in accordance with gaap and an adjustment to reflect premiums incurred previously or upon settlement that are attributable to commodity derivatives that settled during the respective periods .
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petroleum consultants replace_table_token_17_th february 23 , 2012 mr. mike ulrich enduro royalty trust the bank of new york mellon trust company , n.a . , trustee 919 congress avenue , suite 500 austin , tx 78701 re : evaluationtotal proved reserves pursuant to the guidelines of the enduro royalty trust net profit interests securities and exchange commission for derived from enduro resource partners llc reporting corporate reserves and underlying properties total controlled interests future net revenue texas , louisiana and new mexico properties using yearend sec prices as of december 31 , 2011 dear mr. ulrich : as requested , this report was prepared on february 23 , 2012 for enduro royalty trust ( trust ) for the purpose of submitting our estimates of total proved reserves and forecasts of economics attributable to the trust net profits interests . we evaluated 100 % of the trust reserves , which are made up of oil and gas properties in texas , louisiana and new mexico controlled by enduro resource partners ( company ) . this evaluation utilized an effective date of december 31 , 2011 , was prepared using constant prices and costs , and conforms to item 1202 ( a ) ( 8 ) of regulation s-k and other rules of the securities and exchange commission ( sec ) . composite summaries of the proved reserves for both the total controlled interests and the net profits interests are presented below . total controlled interests replace_table_token_18_th a-1 net profits interests replace_table_token_19_th future revenue is prior to deducting state production taxes and ad valorem taxes . future net cash flow is after deducting these taxes , future capital costs and operating expenses , but before consideration of federal income taxes . in accordance with sec guidelines , the future net cash flow has been discounted at an annual rate of ten percent to determine its present worth . the present worth is shown to indicate the effect of time on the value of money and should not be construed as being the fair market value of the properties . the oil reserves include oil and condensate . oil volumes are expressed in barrels ( 42 u.s. gallons ) . gas volumes are expressed in thousands of standard cubic feet ( mcf ) at contract temperature and pressure base . our estimates are for proved reserves only and do not include any probable or possible reserves nor have any values been attributed to interest in acreage beyond the location for which undeveloped reserves have been estimated . net profit calculation the net profits interests entitle the trust to receive 80 % of the net proceeds attributable to the company interest from the sale of production from the underlying properties . hydrocarbon pricing the base sec oil and gas prices calculated for december 31 , 2011 were $ 96.19/bbl and $ 4.11/mmbtu , respectively . as specified by the sec , a company must use a 12-month average price , calculated as the unweighted arithmetic average of the first-day-of-the-month price for each month within the 12-month period prior to the end of the reporting period . the base oil price is based upon wti-cushing spot prices ( eia ) during 2011 and the base gas price is based upon henry hub spot prices ( eia ) during 2011. the base prices were adjusted for differentials on a per-property basis , which may include local basis differentials , transportation , gas shrinkage , gas heating value ( btu content ) and or crude quality and gravity corrections . after these adjustments , the net realized prices for the sec price case over the life of the proved properties was estimated to be $ 90.08 per barrel for oil and $ 4.31 per mcf for gas . all economic factors were held constant in accordance with sec guidelines . a-2 economic parameters ownership was accepted as furnished and has not been independently confirmed . oil and gas price differentials , lease operating expenses ( loe ) , workover expenses , overhead expenses and investments were calculated and prepared by company and were thoroughly reviewed by us for accuracy and completeness . loe ( column 22 ) was determined at the well level using averages determined from historical lease operating statements . all economic parameters , including expenses and investments , were held constant ( not escalated ) throughout the life of these properties . severance story_separator_special_tag this discussion contains forward-looking statements . please refer to forward-looking statements for an explanation of these types of statements . overview the trust is a statutory trust created under the delaware statutory trust act on may 3 , 2011. the business and affairs of the trust are managed by the trustee . the trustee has no authority over or responsibility for , and no involvement with , any aspect of the oil and gas operations or other activities on the underlying properties . the delaware trustee has only minimal rights and duties that are necessary to satisfy the requirements of the delaware statutory trust act . in connection with the closing of the initial public offering , on november 8 , 2011 , enduro contributed the net profits interest to the trust in exchange for 13,200,000 newly issued trust units . the net profits interest entitles the trust to receive 80 % of the net profits from the sale and production of oil and natural gas attributable to the underlying properties that are produced during the term of the conveyance , which commenced on july 1 , 2011. as of december 31 , 2011 , the underlying properties included interests in 4,278 gross ( 469 net ) producing wells and included 157,627 gross ( 37,764 net ) acres . story_separator_special_tag the trust also incurs , either directly or as a reimbursement to the trustee , legal , accounting , tax and engineering fees , printing costs and other expenses that are deducted by the trust before distributions are made to trust unitholders . the trust also is responsible for paying other expenses incurred as a result of being a publicly traded entity , including costs associated with annual and quarterly reports to trust unitholders , tax return and form 1099 preparation and distribution , nyse listing fees , independent auditor fees and registrar and transfer agent fees . the trust does not have any transactions , arrangements or other relationships with unconsolidated entities or persons that could materially affect the trust 's liquidity or the availability of capital resources . 46 off-balance sheet arrangements the trust has no off-balance sheet arrangements . the trust has not guaranteed the debt of any other party , nor does the trust have any other arrangements or relationships with other entities that could potentially result in unconsolidated debt , losses or contingent obligations other than the commodity hedge contracts disclosed in the section quantitative and qualitative disclosures about market risk. contractual obligations a summary of the trust 's contractual obligations as of december 31 , 2011 is provided in the following table : replace_table_token_8_th ( a ) under the terms of the trust agreement , the trust pays an annual administrative fee of $ 200,000 to the trustee and $ 2,000 to the delaware trustee . because the term of the net profits interest and the trust are not limited , the aggregate amounts of future payments can not be calculated . new accounting pronouncements as the trust 's financial statements are prepared on the modified cash basis , most accounting pronouncements are not applicable to the trust 's financial statements ; therefore , no new accounting pronouncements have been adopted or issued that would impact the financial statements of the trust . critical accounting policies and estimates the trust uses the modified cash basis of accounting to report trust receipts of the net profits interest and payments of expenses incurred . the net profits interest represents the right to receive revenues ( oil and natural gas sales ) , less direct operating expenses ( lease operating expenses and production and property taxes ) and development expenses of the underlying properties plus any payments made or net of payments received in connection with the settlement of certain hedge contracts , multiplied by 80 % . cash distributions of the trust will be made based on the amount of cash received by the trust pursuant to terms of the conveyance creating the net profits interest . the financial statements of the trust , as prepared on a modified cash basis , reflect the trust 's assets , liabilities , trust corpus , earnings and distributions as follows : ( a ) income from net profits interest is recorded when distributions are received by the trust ; ( b ) distributions to trust unitholders are recorded when paid by the trust ; ( c ) trust general and administrative expenses ( which includes the trustee 's fees as well as accounting , engineering , legal , and other professional fees ) are recorded when paid ; ( d ) cash reserves for trust expenses may be established by the trustee for certain expenditures that would not be recorded as contingent liabilities under accounting principles generally accepted in the united states of america ( gaap ) ; 47 ( e ) amortization of the investment in net profits interest is calculated on a unit-of-production basis and is charged directly to trust corpus . such amortization does not affect cash earnings of the trust ; and ( f ) investment in the net profits interest is periodically assessed to determine whether its aggregate value has been impaired below its total capitalized cost based on the underlying properties . if an impairment loss is indicated by the carrying amount of the assets exceeding the sum of the undiscounted expected future net cash flows , then an impairment loss is recognized for the amount by which the carrying amount of the asset exceeds its estimated fair value . while these statements differ from financial statements prepared in accordance with gaap , the modified cash basis of reporting revenues , expenses , and distributions is considered to be the most meaningful because monthly distributions to the trust unitholders are based on net cash receipts . this comprehensive basis of accounting other than gaap corresponds to the accounting permitted for royalty trusts by the u.s. securities and exchange commission as specified by staff accounting bulletin topic 12 : e , financial statements of royalty trusts . the preparation of financial statements requires the trust to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses during the reporting period . actual results could differ from those estimates . oil and gas reserves . the proved oil and gas reserves for the underlying properties are estimated by independent petroleum engineers . reserve engineering is a subjective process that is dependent upon the quality of available data and the interpretation thereof . estimates by different engineers often vary , sometimes significantly . in addition , physical factors such as the results of drilling , testing and production subsequent to the date of an estimate , as well as economic factors such as changes in product prices , may justify revision of such estimates . because proved reserves are required to be estimated using prices at the date of the evaluation , estimated reserve quantities can be significantly impacted by changes in product prices . accordingly , oil and gas quantities ultimately recovered and the timing of production may be substantially different from original estimates . the standardized measure of discounted future net cash flows is prepared using assumptions required by the financial accounting
| results of operations the trust was formed on may 3 , 2011. in connection with the closing of the initial public offering , on november 8 , 2011 , enduro contributed the net profits interest to the trust in exchange for 33,000,000 newly issued trust units . the net profits interest entitles the trust to receive 80 % of the net profits from the sale and production of oil and natural gas attributable to the underlying properties that are produced during the term of the conveyance , which commenced on july 1 , 2011. on november 18 , 2011 , the trust announced a trust distribution to unitholders of record on november 30 , 2011 of $ 10,385,199 or $ 0.314703 per unit , payable on december 14 , 2011. the trust 's first distribution related to net profits generated during the calculation period from july 1 , 2011 through september 30 , 2011 as provided in the conveyance of net profits interest to the trust . the distribution primarily represented oil and natural gas production during the months of june and july 2011 and only a portion of oil production related to august 2011 , while expenses are included for the full three months in the calculation period . subsequent distributions will only cover the net profits attributable to the net profits interest for one month , and , as a result , are likely to be substantially less . 44 the following table displays oil and natural gas sales , volumes and average prices from the underlying properties , representing the amounts included in the net profits calculation for the first distribution . underlying sales volumes average price oil ( bbls ) natural gas ( mcf ) oil ( per bbl ) natural gas ( per mcf ) underlying properties 220,481 1,413,458 $ 89.39 $ 4.63 total capital expenditures included in the net profits calculation during 2011 were approximately $ 3.2 million .
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as a result of this change in estimate , we recorded $ 5.3 million of incremental depreciation expense in 2013 , and recorded a gain of $ 1.5 million within other income ( expense ) in our consolidated statements of operations upon selling these assets in the fourth quarter of 2013. the net effect of these changes was a $ 5.3 million decrease in income from operations , a $ 3.8 million decrease in net income and no impact on reported earnings per share . in the fourth quarter of 2013 , we also changed our estimate of the remaining economic life of certain computer equipment and leasehold improvements in two of our data centers , from approximately ten months to approximately five months . the carrying value of these assets as of september 30 , 2013 was story_separator_special_tag you should read the following discussion of our financial condition and results of operations in conjunction with the consolidated financial statements and the related notes included elsewhere in this annual report on form 10-k. the following discussion contains forward-looking statements that reflect our plans , estimates and beliefs . our actual results could differ materially from those discussed in the forward-looking statements . factors that could cause or contribute to these differences include those discussed below and elsewhere in this annual report on form 10-k , particularly in special note regarding forward-looking statements and risk factors. overview we are a leading social game developer with approximately 108 million average maus for the three months ended december 31 , 2014. we have launched some of the most successful social games in the industry . our games are accessible on facebook and other social networks , mobile platforms and zynga.com . our games are generally available for free , and we generate revenue through the in-game sale of virtual goods , mobile game download fees and advertising services . we are a pioneer and innovator of social games and a leader in making play a core activity on the internet . our objective is to become the worldwide leader in play by connecting the world through games . consistent with our free-to-play business model , compared to all players who play our games in any period , only a small portion of our players are payers . because the opportunity for social interactions increases as the number of players increases , we believe that maintaining and growing our overall number of players , including the number of players who may not purchase virtual goods , is important to the success of our business . as a result , we believe that the number of players who choose to purchase virtual goods will continue to constitute a small portion of our overall players . the games that constitute our top games vary over time but historically the top three revenue-generating games in any period contributed the majority of our revenue . our top three games accounted for 60 % , 54 % and 55 % of our online game revenue in 2014 , 2013 and 2012 , respectively . during 2014 we continued to align our cost-structure with our key strategic initiatives . we reduced our headcount from 2,034 , as of december 31 , 2013 , to 1,974 , as of december 31 , 2014 , and we consolidated certain facilities and data centers . we continue to invest in game development , creating both new games and new features and content in existing games designed to engage our players on mobile devices and on the web . on february 11 , 2014 , we completed the acquisition of 100 % of the equity interests of naturalmotion , naturalmotion 's shareholders and vested option holders received an aggregate of $ 391 million in cash and 39.8 million shares of our class a common stock . naturalmotion possesses industry leading technology and tools and its proven simulation technologies have powered some of the biggest console games and blockbuster movies . zynga 's acquisition of naturalmotion expanded our creative pipeline into two new consumer categoriespeople simulation and racingand provided zynga with cutting-edge technology and tools , including euphoria , that we believe will help fast track zynga 's ability to deliver hit games . how we generate revenue we operate our games as live services that allow players to play for free . we generate revenue primarily from the in-game sale of virtual goods , advertising and mobile game download fees . revenue growth will depend largely on our ability to attract and retain players and more effectively monetize our player base through the sale of virtual goods and advertising . we intend to do this through the launch of new games , enhancements to current games and expansion into new markets and distribution platforms . 50 online game . we provide our players with the opportunity to purchase virtual goods that enhance their game-playing experience . we believe players choose to pay for virtual goods for the same reasons they are willing to pay for other forms of entertainmentthey enjoy the additional playing time or added convenience , the ability to personalize their own game boards , the satisfaction of leveling up and the opportunity for sharing creative expressions . we believe players are more likely to purchase virtual goods when they are connected to and playing with their friends , whether those friends play for free or also purchase virtual goods . players may also elect to pay a one-time download fee to obtain certain mobile games free of third-party advertisements . 2014 was the first year in which our business generated a higher percentage of bookings through mobile platforms than through the facebook platform . for the twelve months ended december 31 , 2014 and 2013 we estimate that we generated 51 % and 27 % of our bookings , respectively , from mobile platforms while 43 % and 69 % of our bookings , respectively , were generated from the facebook platform . story_separator_special_tag we define muus as the number of unique individuals who played any of our games on a particular platform in the 30-day period ending with the measurement date . an individual who plays more than one of our games in a given 30-day period would be counted as a single muu . however , because we can not always distinguish unique individuals playing on multiple platforms , a player playing on two different platforms ( e.g . web and mobile ) in a given 30-day period may be counted as two muus . because many of our players play more than one game in a given 30-day period , muus are always lower than maus in any given time period . average muus for a particular period is the average of the muus at each month-end during that period . we use muus as a measure of total audience reach across our network of games . mups . we define mups as the number of unique players who made a payment at least once during the applicable month through a payment method for which we can quantify the number of unique payers , including payers from certain mobile games . mups does not include payers who use certain payment methods for which we can not quantify the number of unique payers . because we can not always distinguish unique individuals playing on two different social networks , an individual who makes a payment on two different social networks in a given 30-day period may be counted as two mups . mups are presented as an average of the three months in the applicable quarter . we use mups as a measure of the number of unique players who made payments across our network of games each month . 52 abpu . we define abpu as our total bookings in a given period , divided by the number of days in that period , divided by , the average daus during the period . we believe that abpu provides useful information to investors and others in understanding and evaluating our results in the same manner as our management and board of directors . we use abpu as a measure of overall monetization across all of our players through the sale of virtual goods and advertising . our business model for social games is designed so that , as there are more players that play our games , social interactions increase and the more valuable the games and our business become . all engaged players of our games help drive our bookings and , consequently , both online game revenue and advertising revenue . virtual goods are purchased by players who are socializing with , competing against or collaborating with other players , most of whom do not buy virtual goods . accordingly , we primarily focus on bookings , daus , maus , muus , mups and abpu , which together we believe best reflect key audience metrics . the table below shows average daus , maus , muus , mups and abpu for the last eight quarters : replace_table_token_7_th ( 1 ) muus and mups exclude naturalmotion as our systems are unable to distinguish whether a player of a naturalmotion game is also a player of a zynga game so we exclude naturalmotion payers to avoid potential double counting of muus and mups . average daus , maus and muus , grew during the first and second quarter of 2014 and declined in the third and fourth quarters of 2014 and when comparing the three months ended december 31 , 2014 to december 31 , 2013. growth in average daus , maus and muus in the first and second quarters of 2014 was due to increases in mobile users from farmville 2 : country escape and hit it rich ! slots , both launched on mobile platforms in the first half of 2014. average daus and maus also increased due to the inclusion of naturalmotion mobile users from csr racing and clumsy ninja . declines in average daus , maus and muus in the third and fourth quarter of 2014 were due to declines in users for our existing games such as farmville 2 and zynga poker . in addition , mups declined in the three months ended december 31 , 2014 compared to the three months ended december 31 , 2013 , as payers in farmville 2 and zynga poker contributed more mups in 2013 than in 2014. abpu increased in each consecutive quarter in 2014 due to a faster decline in daus in those periods than the decline in bookings . future growth in audience and engagement will depend on our ability to retain current players , attract new players , launch new games and expand into new market and distribution platforms . 53 other metrics although our management primarily focuses on the operating metrics above , we also monitor periodic trends in paying players of our games . the table below shows average monthly unique payer bookings , average mups and unique payer bookings per unique payer for the last eight quarters : replace_table_token_8_th ( 1 ) average monthly unique payer bookings represent the monthly average amount of bookings for the applicable quarter that we received through payment methods for which we can quantify the number of unique payers and excludes bookings from certain payment methods for which we can not quantify the number of unique payers . also excluded are bookings from advertising and naturalmotion . ( 2 ) mups exclude naturalmotion as our systems are unable to distinguish whether a player of a naturalmotion game is also a player of a zynga game so we exclude naturalmotion payers to avoid potential double counting of mups . ( 3 ) monthly unique payer bookings per mup is calculated by dividing average monthly unique payer bookings by average mups . this calculation excludes naturalmotion as we do not have mup data for naturalmotion .
| results of operations the following table sets forth our results of operations for the periods presented as a percentage of revenue for those periods : replace_table_token_9_th 56 revenue replace_table_token_10_th 2014 compared to 2013. total revenue decreased $ 182.9 million in 2014 as a result of a decline in online game revenue offset by an increase in advertising and other revenue . bookings decreased by $ 21.9 million from 2013 to 2014 due to declines in existing games , declines in audience metrics and the lack of successful new launches to offset these declines . abpu increased from $ 0.053 in 2013 to $ 0.071 in 2014 , due to a faster decline in daus than the decline in bookings . daus decreased from 37 million in 2013 to 27 million in 2014 and mups decreased from 1.8 million in 2013 to 1.4 million in 2014. online game revenue decreased $ 222.0 million in 2014 as compared to the same period of the prior year . this decrease is primarily attributable to decreases in revenue from farmville , chefville , castleville , zynga poker , cityville and frontierville in the amounts of $ 87.7 million , $ 37.1 million , $ 36.6 million , $ 35.5 million , $ 23.7 million and $ 13.7 million , respectively . the decreases in online game revenue from these games were due to overall decay rate in bookings and audience metrics . the decrease in online game revenue was partially offset by an increase in online game revenue of $ 47.1 million from hit it rich ! slots . all other games accounted for the remaining net decrease of $ 34.8 million . international revenue as a percentage of total revenue was 38 % and 40 % in 2014 and 2013 , respectively .
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specifically , the asu requires all excess tax benefits and tax deficiencies ( including tax benefits of dividends on share-based payment awards ) to be recognized as income tax expense or benefit in the income statement . in the fourth quarter of 2016 , the corporation elected early adoption of asu 2016-09 , effective january 1 , story_separator_special_tag management 's discussion and analysis of the significant changes in the results of operations , capital resources and liquidity presented in the accompanying consolidated financial statements for codorus valley bancorp , inc. ( “ codorus valley ” or the “ corporation ” ) , a bank holding company , and its wholly owned subsidiary , peoplesbank , a codorus valley company ( “ peoplesbank ” ) , are provided below . codorus valley 's consolidated financial condition and results of operations consist almost entirely of peoplesbank 's financial condition and results of operations . current performance does not guarantee and may not be indicative of similar performance in the future . forward-looking statements management of the corporation has made forward-looking statements in this form 10-k. these forward-looking statements may be subject to risks and uncertainties . forward-looking statements include information concerning possible or assumed future results of operations of the corporation and its subsidiaries . when words such as “ believes , ” “ expects , ” “ anticipates , ” or similar expressions are used in this form 10-k , management is making forward-looking statements . note that many factors , some of which are discussed elsewhere in this report and in the documents that are incorporated by reference , could affect the future financial results of the corporation and its subsidiaries , both individually and collectively , and could cause those results to differ materially from those expressed in the forward-looking statements contained or incorporated by reference in this form 10-k. these factors include , but are not limited to , the following : ● operating , legal and regulatory risks ; ● credit risk , including an increase in nonperforming assets requiring loss provisions and the incurrence of carrying costs related to nonperforming assets ; ● interest rate fluctuations which could increase our cost of funds or decrease our yield on earning assets and therefore reduce our net interest income ; ● declines in the market value of investment securities considered to be other-than-temporary ; ● unavailability of capital when needed or availability at less than favorable terms ; ● unauthorized disclosure of sensitive or confidential client or customer information , whether through a breach of our computer systems or otherwise , may adversely affect the corporation 's operations , net income or reputation ; ● inability to achieve merger-related synergies , and difficulties in integrating the business and operations of acquired institutions ; ● a prolonged economic downturn ; ● political and competitive forces affecting banking , securities , asset management and credit services businesses ; ● the effects of and changes in the rate of fdic premiums , including special assessments ; ● future legislative or administrative changes to u.s. governmental capital programs ; ● enacted financial reform legislation , e.g. , dodd-frank wall street reform and consumer protection act , may have a significant impact on the corporation 's business and results of operations ; and ● the risk that management 's analyses of these risks and forces could be incorrect and or that the strategies developed to address them could be unsuccessful . the corporation undertakes no obligation to publicly revise or update these forward-looking statements to reflect events or circumstances that arise after the date of this report . 29 critical accounting estimates disclosure of codorus valley 's significant accounting policies is included in note 1 in the notes to the consolidated financial statements included in this form 10-k. some of these policies require management to make significant judgments , estimates and assumptions that have a material impact on the carrying value of certain assets and liabilities . management makes significant estimates in determining the allowance for loan losses , valuation of foreclosed real estate , and evaluation of other-than-temporary impairment losses of securities . management considers a variety of factors in establishing allowance for loan losses such as current economic conditions , diversification of the loan portfolio , delinquency statistics , results of internal loan reviews , financial and managerial strength of borrowers , adequacy of collateral , ( if collateral dependent , or present value of future cash flows ) and other relevant factors . there is also the potential for adjustment to the allowance for loan losses as a result of regulatory examinations . foreclosed real estate is initially recorded at fair value minus estimated costs to sell at the date of foreclosure , establishing a new cost basis . appraisals are generally used to determine fair value . after foreclosure , management reviews valuations at least quarterly and adjusts the asset to the lower of cost or fair value minus estimated costs to sell . estimates related to the value of collateral can have a significant impact on whether or not management continues to accrue income on delinquent and impaired loans and on the amounts at which foreclosed real estate is recorded on the statement of financial condition . the corporation records its available-for-sale securities portfolio at fair value . fair values for these securities are determined based on methodologies in accordance with fasb accounting standards codification ( asc ) topic 820. fair values for debt securities are volatile and may be influenced by any number of factors , including market interest rates , prepayment speeds , discount rates , credit ratings and yield curves . fair values for debt securities are based on quoted market prices , where available . if quoted market prices are not available , fair values are based on the quoted prices of similar instruments or an estimate of fair value by using a range of fair value estimates in the market place as a result of the illiquid market specific to the type of security . story_separator_special_tag tax-exempt income . preferred stock dividends for 2015 were $ 120,000 , a decrease of $ 54,000 , compared to $ 174,000 in 2014. the preferred stock dividend rate for both years was 1 percent . on may 30 , 2014 , as reported on a form 8-k filed on the same date , the corporation redeemed $ 13,000,000 of $ 25,000,000 in outstanding shares of series b preferred stock issued under the u.s. treasury 's small business lending fund program , resulting in the reduction in dividends expense for the year . on december 31 , 2015 , total assets were $ 1.46 billion , representing a 20 percent increase compared to total assets of $ 1.21 billion as of december 31 , 2014. asset growth for 2015 occurred primarily in the commercial loan portfolio and was funded by increases in core deposits and low-rate advances from the federal home loan bank of pittsburgh , as well as the loans added as a result of the acquisition of madison bancorp , inc. in january 2015. the growth in core deposits included a $ 28,000,000 increase in the average balance of noninterest bearing deposits for 2015 as compared to 2014 , including $ 6,600,000 of core deposits from the madison acquisition . growing core deposits remains a particular focus of the corporation because the rates paid for such deposits are low , transactional activity on these deposits are a source of fee income , and a core deposit relationship provides the opportunity to cross-sell other financial products and services . the corporation excludes time deposits in its definition of core deposits . cash dividends paid on common shares for the year 2015 totaled $ 0.462 per share , as adjusted for stock dividends , representing an increase of $ 0.038 or 9 percent above the cash dividends of $ 0.424 , as adjusted , paid for the year 2014. the corporation distributed a 5 percent common stock dividend on december 8 , 2015 , the same common stock dividend percentage that was distributed in december 2014 . 34 as a result of profitable operations and the public offering of common stock as previously reported on form 8-ks filed on december 15 , 2015 and december 23 , 2015 , the corporation 's capital level remained sound as evidenced by capital ratios that exceed current regulatory requirements for well capitalized institutions . table 9 - capital ratios , following , shows that both the corporation and peoplesbank were well capitalized for all periods presented . income statement analysis net interest income the corporation 's principal source of revenue is net interest income , which is the difference between ( i ) interest income on earning assets , primarily loans and investment securities , and ( ii ) interest expense incurred on deposits and borrowed funds . fluctuations in net interest income are caused by changes in both interest rates , and the volume and composition of interest rate sensitive assets and liabilities . unless otherwise noted , this section discusses interest income and interest expense amounts as reported in the consolidated statements of income , which are not presented on a tax equivalent basis . net interest income for the year ended december 31 , 2016 , was $ 53,581,000 , an increase of $ 5,753,000 or 12 percent above the full year 2015 net interest income . the increase was supported by a 9 percent increase in the average volume of interest-earning assets , primarily commercial loans . the additional interest income from the increased loan volume was partially offset by the costs associated with the growth in core deposits and higher long-term borrowing costs . the net interest margin , which reflects net interest income on a tax-equivalent basis as a percentage of average interest-earning assets , was 3.89 percent for 2016 , compared to 3.79 percent for 2015. interest income for the full year 2016 totaled $ 62,230,000 , an increase of $ 6,228,000 or 11 percent above 2015. the increase in total interest income was driven by a growth in the average volume of loans which was partially offset by a decrease in the average volume and yield on investment securities . interest earning assets averaged $ 1.40 billion and yielded 4.51 percent ( tax equivalent basis ) for 2016 , compared to $ 1.29 billion and a tax-equivalent yield of 4.43 percent , respectively , for 2015. interest expense for the full year 2016 totaled $ 8,649,000 , an increase of $ 475,000 or 6 percent above 2015. the increase in total interest expense was primarily driven by an increase in volume and rate in core deposits ( the corporation defines core deposits as demand , savings , and money market deposits ) and an increase in the rate paid on long-term borrowings . interest expense on deposits increased $ 372,000 or 6 percent for 2016 compared to 2015 and was primarily attributed to the increase in interest bearing core deposits . the average volume of interest bearing core deposits was $ 581,565,000 for the full year 2016 , a $ 70,630,000 or 14 percent increase above the average volume for 2015. interest expense on long-term debt increased $ 136,000 or 8 percent for 2016. the average rate paid on long-term borrowings in 2016 was 1.65 percent an increase from the average rate paid of 1.55 percent in 2015. long-term debt is comprised of advances from the federal home loan bank of pittsburgh , with intermediate term bullet maturities that supplement deposit funding and provide a partial funding hedge against rising market interest rates . tables 1 and 2 , following , are presented on a tax-equivalent basis to make it easier to compare taxable and tax-exempt assets . interest on tax-exempt assets ( which include securities issued by , or loans made to , state and local governments ) is adjusted based upon a 34 percent federal income tax rate .
| financial highlights executive summary the corporation 's net income available to common shareholders ( earnings ) was $ 13,086,000 for the full year 2016 , compared to $ 11,015,000 of earnings in 2015 , an increase of $ 2,071,000 or 19 percent . ● net interest income for 2016 increased $ 5,753,000 or 12 percent when compared to 2015 , primarily due to an increase in the volume of commercial loans . ● net interest margin ( tax-equivalent basis ) for 2016 was 3.89 percent , compared to 3.79 percent for 2015. the corporation continues to have success in growing low cost core deposits , while maintaining reasonable yields on new loan growth in a highly competitive , low interest rate environment . the average yield on earning assets increased to 4.51 percent in 2016 as compared to 4.43 percent in 2015 and the cost of interest-bearing liabilities increased slightly to 0.76 percent in 2016 , as compared to 0.75 percent in 2015 . ● the loan loss provision for 2016 decreased $ 500,000 compared to 2015 , primary due to a reduction in net charge-offs in 2016 as compared to the prior year . ● noninterest income for 2016 , excluding gains on sales of investment securities , increased $ 1,281,000 or 15 percent when compared to 2015 , primarily due to increases in trust fees , income from mutual fund , annuity and insurance sales , service fees on deposits , income from bank owned life insurance , other income and gains on sales of loans held for sale . gains on sales of investment securities for 2016 decreased $ 298,000 when compared to 2015 . ● noninterest expense for 2016 increased $ 4,196,000 or 11 percent above 2015. personnel , costs associated with other real estate owned , external data processing , debit card processing and marketing expenses accounted for the majority of the increase .
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retail services and service related sales consist of automotive services performed for customers through our company-owned retail channels , story_separator_special_tag overview the goodyear tire & rubber company is one of the world 's leading manufacturers of tires , with one of the most recognizable brand names in the world and operations in most regions of the world . we have a broad global footprint with 47 manufacturing facilities in 21 countries , including the united states . we operate our business through three operating segments representing our regional tire businesses : americas ; europe , middle east and africa ; and asia pacific . during the third quarter of 2018 , we formed a 50/50 joint venture with bridgestone that combined our company-owned wholesale distribution business and bridgestone 's tire wholesale warehouse business to create tirehub , a national tire distributor in the united states . tirehub provides u.s. tire dealers and retailers with a comprehensive range of passenger and light truck tires from two of the world 's leading tire companies , with an emphasis on satisfying the rapidly growing demand for larger rim diameter premium tires . tirehub is now our sole authorized national tire distributor in the united states . tirehub has distribution and warehouse locations throughout the united states and is expected to have the scale to reach the vast majority of retail locations in the u.s. daily . tirehub is also expected to provide a superior , fully integrated distribution , warehousing , sales and delivery solution that is expected to provide enhanced fill rates and turnaround times — enabling dealers to quickly access the products they need and manage the growing complexity in the tire business driven by sku proliferation . story_separator_special_tag million after-tax and minority ) is related to prior years , and lower conversion costs of $ 42 million , primarily in emea and americas . cgs in 2018 included pension expense of $ 15 million compared to $ 16 million in 2017. cgs in 2018 and 2017 also included incremental savings from rationalization plans of $ 41 million and $ 49 million , respectively . cgs in 2018 included accelerated depreciation and asset write-offs of $ 4 million ( $ 3 million after-tax and minority ) . cgs in 2017 included accelerated depreciation and asset write-offs of $ 40 million ( $ 28 million after-tax and minority ) , primarily related to the closure of our manufacturing facility in philippsburg , germany . 23 selling , administrative and general expense sag was $ 2,312 million in 2018 , increasing $ 33 million , or 1.4 % , from $ 2,279 million in 2017. sag was 14.9 % of sales in 2018 compared to 14.8 % of sales in 2017 . the increase in sag was primarily due to inflation , higher advertising costs of $ 19 million , and higher product liability costs of $ 14 million . these increases were partially offset by lower wages and benefits of $ 48 million , primarily related to lower incentive compensation and savings from rationalization plans . sag in 2018 included pension expense of $ 17 million compared to $ 19 million in 2017. sag in 2018 and 2017 also included incremental savings from rationalization plans of $ 34 million and $ 42 million , respectively . rationalizations we recorded net rationalization charges of $ 44 million ( $ 32 million after-tax and minority ) in 2018. net rationalization charges include charges of $ 31 million related to global plans to reduce sag headcount , $ 13 million related to plans to reduce manufacturing headcount and improve operating efficiency in emea , and $ 15 million related to the closure of our tire manufacturing facility in philippsburg , germany . net rationalization charges in 2018 included reversals of $ 19 million for actions no longer needed for their originally intended purposes . we recorded net rationalization charges of $ 135 million ( $ 93 million after-tax and minority ) in 2017. net rationalization charges include charges of $ 46 million related to plans to reduce manufacturing headcount in emea , $ 35 million related to the closure of our tire manufacturing facility in philippsburg , germany , $ 32 million related to global plans to reduce sag headcount , and $ 20 million related to a separate plan to reduce sag headcount in emea . upon completion of the 2018 plans , we estimate that annual segment operating income will improve by approximately $ 38 million ( $ 28 million sag and $ 10 million cgs ) , primarily related to our global plans to reduce sag headcount . the savings realized in 2018 from rationalization plans totaled $ 75 million ( $ 41 million cgs and $ 34 million sag ) . for further information , refer to the note to the consolidated financial statements no . 3 , costs associated with rationalization programs . interest expense interest expense was $ 321 million in 2018 , decreasing $ 14 million from $ 335 million in 2017 . the decrease was due primarily to a decrease in the average interest rate to 5.16 % in 2018 compared to 5.58 % in 2017. this decrease was partially offset by higher average debt balances of $ 6,218 million in 2018 compared to $ 6,001 million in 2017 . interest expense in 2017 included $ 6 million ( $ 4 million after-tax and minority ) of expense related to the write-off of deferred financing fees and unamortized discounts related to the redemption of our $ 700 million 7 % senior notes due 2022. other ( income ) expense other ( income ) expense in 2018 was income of $ 174 million , compared to expense of $ 70 million in 2017 . story_separator_special_tag as required , we finalized our accounting for items previously considered provisional during 2018. at december 31 , 2017 , we recorded an initial non-cash net charge to tax expense of $ 299 million related to the enactment of the tax act . our final accounting has adjusted this non-cash net charge to $ 298 million . this net charge includes a deferred tax charge of $ 384 million primarily from revaluing our net u.s. deferred tax assets to reflect the new u.s. corporate tax rate . no measurement period adjustment was necessary and this calculation is complete . the net charge also originally included a provisional deferred tax benefit of $ 162 million to reverse reserves maintained for the taxation of undistributed foreign earnings under prior law , net of reserves established for foreign withholding taxes consistent with our revised indefinite reinvestment assertion . in the fourth quarter of 2018 , we finalized our accounting and increased the provisional amount by $ 9 million to $ 171 million to reflect u.s. tax guidance issued during the year and to reflect our final indefinite reinvestment assertion . we were able to reasonably estimate the transition tax and recorded an initial provisional tax obligation of $ 77 million at december 31 , 2017. in general , the transition tax imposed by the tax act results in the taxation of our accumulated foreign earnings and profits ( “ e & p ” ) at a 15.5 % rate on liquid assets and 8 % on the remaining unremitted foreign e & p , both net of foreign tax credits . adjusted for u.s. tax guidance issued during 2018 and the impact of changes to e & p of our subsidiaries resulting from the filing of our 2017 corporate income tax return during the fourth quarter of 2018 , we have now finalized our accounting and recognized an additional measurement period adjustment of $ 8 million , resulting in a total transition tax obligation of $ 85 million . on january 15 , 2019 , the irs finalized regulations that govern the transition tax . we are in the process of analyzing these regulations . we do not expect any material impact to our financial statements as a consequence of the final regulations . income tax expense in 2017 was $ 513 million on income before income taxes of $ 878 million . in 2017 , tax expense was unfavorably impacted by net discrete adjustments of $ 294 million due primarily to the net non-cash tax charge of $ 299 million related to the enactment of the tax act as described above . at december 31 , 2018 , our valuation allowance on certain of our u.s. federal , state and local deferred tax assets was $ 113 million , primarily related to deferred tax assets for foreign tax credits as described above , and our valuation allowance on our foreign deferred tax assets was $ 204 million . our losses in various foreign taxing jurisdictions in recent periods represented sufficient negative evidence to require us to maintain a full valuation allowance against certain of our net deferred tax assets . each reporting period we assess available positive and negative evidence and estimate if sufficient future taxable income will be generated to utilize these existing deferred tax assets . we do not believe that sufficient positive evidence required to release all or a significant portion of these valuation allowances will exist within the next twelve months . for further information , refer to the note to the consolidated financial statements no . 6 , income taxes . 25 minority shareholders ' net income minority shareholders ' net income was $ 15 million in 2018 , compared to $ 19 million in 2017 . 2017 compared to 2016 goodyear net income in 2017 was $ 346 million , or $ 1.37 per share , compared to $ 1,264 million , or $ 4.74 per share , in 2016. the decrease in goodyear net income in 2017 was driven by an increase in income tax expense , primarily due to recognition of discrete tax charges in 2017 in connection with changes in u.s. income tax law compared to the recognition of discrete tax benefits in 2016 , primarily due to the release of certain valuation allowances , and lower segment operating income , primarily in americas and emea . these items were partially offset by a decrease in rationalization charges and lower corporate sag , primarily due to lower incentive compensation . net sales net sales in 2017 of $ 15,377 million increased $ 219 million , or 1.4 % , compared to $ 15,158 million in 2016 due to an increase in price and product mix of $ 521 million , primarily driven by the impact of higher raw material costs on pricing , favorable foreign currency translation of $ 178 million , primarily in emea and americas , and higher sales in other tire-related businesses of $ 89 million , driven by higher prices for third-party chemical sales in americas . these increases were partially offset by lower tire unit volume of $ 569 million , primarily in emea and americas . goodyear worldwide tire unit net sales were $ 12,958 million and $ 12,832 million in 2017 and 2016 , respectively . consumer and commercial net sales were $ 9,285 million and $ 2,928 million , respectively , in 2017. consumer and commercial net sales were $ 9,414 million and $ 2,806 million , respectively , in 2016. the following table presents our tire unit sales for the periods indicated : replace_table_token_10_th the decrease in worldwide tire unit sales of 6.9 million units , or 4.2 % , compared to 2016 , included a decrease of 3.8 million replacement tire units , or 3.3 % , comprised primarily of decreases in emea and americas . oe tire units decreased 3.1 million units , or 6.4 % , comprised primarily of decreases in americas and emea .
| results of operations in 2018 , we experienced challenging global industry conditions , including higher raw material costs , foreign currency headwinds due to a strong u.s. dollar , and volatility in emerging markets , including softening industry conditions in china . we experienced a recovery in demand for consumer replacement tires in the united states and europe , driven by our sales of 17-inch and above rim size tires that outperformed the industry . in order to continue to drive growth in our business and address the challenging economic environment , we remain focused on our key strategies by : developing great products and services that anticipate and respond to the needs of consumers ; building the value of our brand , helping our customers win in their markets , and becoming consumers ' preferred choice ; and improving our manufacturing efficiency and creating an advantaged supply chain focused on reducing our total delivered costs , optimizing working capital levels and delivering best in industry customer service . we also announced an increase in the quarterly cash dividend on our common stock , from $ 0.14 per share to $ 0.16 per share , beginning with the december 3 , 2018 payment date . our tire unit shipments in 2018 were consistent with 2017. in 2018 , we realized approximately $ 301 million of cost savings , including raw material cost saving measures of approximately $ 80 million , which exceeded the impact of general inflation . our raw material costs , including cost saving measures , increased by approximately 4 % in 2018 compared to 2017. net sales were $ 15,475 million in 2018 , compared to $ 15,377 million in 2017 . net sales increased in 2018 primarily due to an increase in price and product mix , partially offset by unfavorable foreign currency translation , primarily in americas .
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these forward-looking statements are generally identified by use of the words “ believe , ” “ expect , ” “ intend , ” “ anticipate , ” “ estimate , ” “ project ” or similar expressions . the company and the bank 's ability to predict results or the actual effect of future plans or strategies is inherently uncertain . factors that could have a material adverse effect on the operations of the company and its subsidiaries include , but are not limited to , changes in interest rates , national and regional economic conditions , legislative and regulatory changes , monetary and fiscal policies of the u.s. government , including policies of the u.s. treasury and the federal reserve board , the quality and composition of the loan or investment portfolios , demand for loan products , deposit flows , competition , demand for financial services in the company and the bank 's market area , changes in real estate market values in the company and the bank 's market area , changes in relevant accounting principles and guidelines and cyber security risks . these risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements . except as required by applicable law or regulation , the company does not undertake , and specifically disclaims any obligation , to release publicly the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of the statements or to reflect the occurrence of anticipated or unanticipated events . critical accounting policies critical accounting policies are defined as those that involve significant judgments and uncertainties and could potentially result in materially different results under different assumptions and conditions . the company considers its determination of the allowance for loan losses , the determination of other-than-temporarily impaired securities , the valuation of foreclosed real estate and the valuation of deferred tax assets to be 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 the general practices of the united states banking industry . 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 . when these sources are not available , management makes estimates based upon what it considers to be the best available information . allowance for loan losses the allowance for loan losses is an estimate of the losses that exist in the loan portfolio . the allowance is based on two principles of accounting : ( 1 ) financial accounting standards board ( “ fasb ” ) accounting standards codification ( “ asc ” ) topic 450 “ contingencies , ” which requires that losses be accrued when they are probable of occurring and are estimable and ( 2 ) fasb asc 310 “ receivables , ” which requires that losses be accrued when it is probable that the company will not collect all principal and interest payments according to the contractual terms of the loan . the loss , if any , is determined by the difference between the loan balance and the value of collateral , the present value of expected future cash flows and values observable in the secondary markets . the allowance for loan loss balance is an estimate based upon management 's evaluation of the loan portfolio . the allowance is comprised of a specific and a general component . the specific component consists of management 's evaluation of certain classified and non-accrual loans and their underlying collateral . management assesses the ability of the borrower to repay the loan based upon all information available . loans are examined to determine a specific allowance based upon the borrower 's payment history , economic conditions specific to the loan or borrower and other factors that would impact the borrower 's ability to repay the loan on its contractual basis . depending on the assessment of the borrower 's ability to pay and the type , condition and value of collateral , management will establish an allowance amount specific to the loan . 40 management uses a risk scale to assign grades to commercial real estate , construction and land development , commercial loans and commercial equipment loans . commercial loan relationships with an aggregate exposure to the bank of $ 750,000 or greater are risk rated . residential first mortgages , home equity and second mortgages and consumer loans are monitored on an ongoing basis based on borrower payment history . consumer loans and residential real estate loans are classified as unrated unless they are part of a larger commercial relationship that requires grading or are troubled debt restructures or nonperforming loans with an other assets especially mentioned or higher risk rating due to a delinquent payment history . story_separator_special_tag factors that may affect the company 's ability to achieve sufficient forecasted taxable income include , but are not limited to , the following : increased competition , a decline in net interest margin , a loss of market share , decreased demand for financial services and national and regional economic conditions . the company 's provision for income taxes and the determination of the resulting deferred tax assets and liabilities involve a significant amount of management judgment and are based on the best information available at the time . the company operates within federal and state taxing jurisdictions and is subject to audit in these jurisdictions . for additional information regarding income taxes and deferred tax assets , refer to notes 1 and 12 of the consolidated financial statements . overview community bank of the chesapeake ( the “ bank ” ) is headquartered in southern maryland with branches located in maryland and virginia . the bank is a wholly owned subsidiary of the community financial corporation . the bank conducts business through its main office in waldorf , maryland , and 11 branch offices in waldorf , bryans road , dunkirk , leonardtown , la plata , charlotte hall , prince frederick , lusby , california , maryland ; and king george and fredericksburg , virginia . the company opened a branch in fredericksburg , virginia in july 2014. the company 's second branch in fredericksburg is scheduled to open in downtown during the first quarter of 2016. in addition , the company maintains five loan production offices ( “ lpos ” ) in la plata , prince frederick , leonardtown and annapolis , maryland ; and fredericksburg , virginia . the leonardtown and fredericksburg lpos are co-located with branches . the bank opened its lpo in fredericksburg , virginia during august 2013. the fredericksburg virginia area market is comparable in size to our legacy southern maryland footprint . during the second quarter of 2014 , we continued to execute the bank 's growth strategy and added seasoned lenders and support staff to expand into the city of annapolis and surrounding anne arundel county . we opened the annapolis lpo in october 2014. we are optimistic that our returns on these investments will continue to increase shareholder value . in october 2013 , the company issued 1,591,300 shares of common stock at a price of $ 18.75 per share resulting in net proceeds of $ 27.4 million after commissions and related offering expenses . in addition , the company listed its stock on the nasdaq stock exchange and began trading on the exchange september 27 , 2013 under the ticker symbol “ tcfc. ” the bank has increased assets through loan production . the bank believes that its ability to offer fast , flexible , local decision-making will continue to attract significant new business relationships . the bank focuses its business generation efforts on targeting small and medium sized commercial businesses with revenues between $ 5.0 million and $ 35.0 million as well as local municipal agencies and not-for-profits . the bank 's marketing is also directed towards increasing its balances of transaction deposit accounts , which are all deposit accounts other than certificates of deposit . the bank believes that increases in these account types will lessen the bank 's dependence on higher-cost funding , such as certificates of deposit and borrowings . although management believes that this strategy will increase financial performance over time , increasing the balances of certain products , such as commercial lending and transaction accounts , may also increase the bank 's noninterest expense . the bank recognizes that certain lending and deposit products increase the possibility of losses from credit and other risks . during 2015 , the company made a number of strategic decisions to meet our longer-term objectives of increased profitability and increase shareholder value . the company continued to execute its plans to improve asset quality and to increase transaction deposits . the following is a summary of progress made during 2015 : 42 · improved asset quality – the company has been working in an increasingly assertive manner to reduce its classified assets and will continue to move non-performing or substandard credits that are not likely to become performing or passing credits in a reasonable timeframe off the balance sheet . the company is encouraging existing classified customers to obtain financing with other lenders or enforcing its contractual rights . management believes this strategy is in the best long-term interest of the company . as of december 31 , 2015 total loan delinquency at 1.27 % of loans was in line with the company 's peers . in addition , total classified assets , consisting primarily of classified loans and oreo , were $ 43.3 million at december 31 , 2015 , a reduction of $ 10.7 million , or approximately 19.8 % from $ 54.0 million as of december 31 , 2014. total classified assets as a percentage of assets and risk-based capital decreased from 5.0 % and 39.3 % , respectively , at december 31 , 2014 to 3.8 % and 30.2 % , respectively , at december 31 , 2015. during the fourth quarter of 2015 , the company reduced its classified loans by $ 3.5 million . the majority of the fourth quarter reduction in classified loans resulted in a transfer to oreo of $ 2.7 million of developed real estate . the company is optimistic that these properties will be sold in the near term based on the current valuation , the existing market and tenant occupancy . · increased transaction deposits – the company continued to increase transaction deposits to compliment interest-earning asset growth . our efforts center on providing products and services that serve small and midsize businesses and municipal customers . this has been the primary reason for the decrease in the company 's funding costs .
| earnings summary net income available to common shareholders for 2014 was stable compared to the prior year decreasing $ 161,000 to $ 6.3 million , or 2.5 % , compared to 2013. diluted earnings per share ( “ eps ” ) were $ 1.35 in 2014 , a decrease of $ 0.53 compared to 2013. the decrease in eps was the result of the fourth quarter 2013 capital raise previously discussed . the company 's return on average assets was 0.63 % in 2014 , a decrease of six basis points from 2013. the company 's return on average common stockholders ' equity was 6.69 % in 2014 , a decrease of 269 basis points from 2013. pretax operating income decreased $ 156,000 to $ 10.3 million in 2014 compared to 2013. the decreased income in 2014 was primarily due to the following : · the provision for loan losses increased $ 1.7 million to $ 2.7 million in 2014 due primarily to increases related to specific credits and increased average loan balances . the overall credit quality of our loan portfolio improved after charge-offs were taken and other workout strategies were exercised for challenging credits . at year end , this resulted in lower levels of classified loans and assets compared to the prior year . the general allowance as a percentage of gross loans increased in 2014 to 0.92 % from 0.89 % in 2013. during the same time frame the specific allowance decreased 7 basis point to 0.05 % as a result of charge-offs and specific work out strategies . · noninterest income decreased $ 81,000 to $ 4.1 million for 2014 compared to 2013. lower gains on mortgage loans sales and service charge income were partially offset by increases in gains on the sale of oreo .
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· the methods used to distribute products or provide services — the heavy civil construction services rendered on our projects are performed primarily with our own field work crews ( laborers , equipment operators and supervisors ) and equipment ( backhoes , loaders , dozers , graders , cranes , pug mills , crushers , and concrete and asphalt plants ) . · the nature of the regulatory environment — we perform substantially all of our projects for federal , state and municipal governmental agencies , and all of the projects that we perform are subject to substantially similar regulation under u.s. and state department of transportation rules , including prevailing wage and hour laws ; codes established by the federal government and municipalities regarding water story_separator_special_tag . overview . we are a company that operates in one segment , heavy civil construction , through our subsidiaries , and which specializes in the building , reconstruction and repair of transportation and water infrastructure in texas , utah , nevada , arizona and california and other states where we see opportunities . we have strategically expanded our operations , either by establishing an office in a new market , often after having successfully bid on and completed a project in that market , or by acquiring a company that gives us an immediate entry into a market . on august 1 , 2011 , we expanded our operations into arizona and california with the acquisitions of jbc and myers . critical accounting policies . on an ongoing basis , the company evaluates the critical accounting policies used to prepare its consolidated financial statements , including , but not limited to , those related to : · revenue recognition · contracts receivable , including retainage · valuation of property and equipment , goodwill and other long-lived assets · construction joint ventures · income taxes · segment reporting our significant accounting policies are described in note 1 , and conform to the fasb 's accounting standards codification ( or gaap or asc ) . use of estimates . the preparation of financial statements in conformity with gaap requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities , the disclosure of contingent assets and liabilities at the date of the financial statements , and the reported amounts of revenues and expenses during the reporting period . certain of the company 's accounting policies require higher degrees of judgment than others in their application . these include the recognition of revenue and earnings from construction contracts under the percentage-of-completion method , the valuation of long-lived assets , and income taxes . management continually evaluates all of its estimates and judgments based on available information and experience ; however , actual amounts could differ from those estimates . contract revenue recognition the majority of our contracts with our customers are “ fixed unit price. ” under such contracts , we are committed to providing materials or services required by a contract at fixed unit prices ( for example , dollars per cubic yard of concrete poured or per cubic yard of earth excavated ) . most of our state and municipal contracts provide for termination of the contract for the convenience of the owner , with provisions to pay us only for work performed through the date of termination . credit risk is minimal with public owners since the company ascertains that funds have been appropriated by the governmental project owner prior to commencing work on such projects . while most public contracts are subject to termination at the election of the government entity , in the event of termination the company is entitled to receive the contract price for completed work and reimbursement of termination-related costs . credit risk with private owners is minimized because of statutory mechanics liens , which give the company high priority in the event of lien foreclosures following financial difficulties of private owners . we use the percentage-of-completion accounting method for construction contracts . revenue is recognized as costs are incurred in an amount equal to cost plus the related expected profit based on the percentage of completion method of accounting in the ratio of costs incurred to estimated final costs . our contracts generally take 12 to 36 months to complete . contract costs consist of direct costs on contracts , including labor , materials , amounts payable to subcontractors and those indirect costs related to contract performance , such as indirect salaries and wages , equipment maintenance , repairs , fuel and depreciation , insurance and payroll taxes . contract cost is recorded as incurred , and revisions in contract revenue and cost estimates are reflected in the accounting period when known . 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 changes 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 . an amount attributable to contract claims is included in revenues when realization is probable and the amount can be reasonably estimated . the company generally provides a one to two-year warranty for workmanship under its contracts . warranty claims historically have been insignificant . 25 the accuracy of our revenue and profit recognition in a given period is dependent on the accuracy of our estimates of the revenues and costs to finish uncompleted contracts . our estimates for all of our significant contracts use a highly detailed “ bottom up ” approach , and we believe our experience allows us to produce reliable estimates . however , our projects can be highly complex , and in almost every case , the profit margin estimates for a contract will either increase or decrease to some extent from the amount that was originally estimated at the time of bid . story_separator_special_tag even if our local offices were to be considered separate components of our heavy civil construction operating segment , those components could be aggregated into a single reporting unit for purposes of testing goodwill for impairment under asc 280 and eitf d-101 because our local offices all have similar economic characteristics and are similar in all of the following areas : · the nature of the products and services — each of our local offices perform similar construction projects — they build , reconstruct and repair roads , highways , bridges , light rail and water , waste water and storm drainage systems . · the nature of the production processes — our heavy civil construction services rendered in the construction process for each of our construction projects performed by each local office is the same — they excavate dirt , remove existing pavement and pipe , lay aggregate or concrete pavement , pipe and rail and build bridges and similar large structures in order to complete our projects . · the type or class of customer for products and services — substantially all of our customers are state departments of transportation , cities , counties , and regional water , rail and toll-road authorities . a substantial portion of the funding for the state departments of transportation to finance the projects we construct is furnished by the federal government . · the methods used to distribute products or provide services — the heavy civil construction services rendered on our projects are performed primarily with our own field work crews ( laborers , equipment operators and supervisors ) and equipment ( backhoes , loaders , dozers , graders , cranes , pug mills , crushers , and concrete and asphalt plants ) . · the nature of the regulatory environment — we perform substantially all of our projects for federal , state and municipal governmental agencies , and all of the projects that we perform are subject to substantially similar regulation under u.s. and state department of transportation rules , including prevailing wage and hour laws ; codes established by the federal government and municipalities regarding water and waste water systems installation ; and laws and regulations relating to workplace safety and worker health of the u.s. occupational safety and health administration and to the employment of immigrants of the u.s. department of homeland security . the economic characteristics of our local offices are similar . while profit margin objectives included in contract bids have some variability from contract to contract , our profit margin objectives are not differentiated by our chief operating decision maker or our office management based on local office location . instead , the projects undertaken by each local office are primarily competitively-bid , fixed-unit or negotiated lump-sum price contracts , all of which are bid based on achieving gross margin objectives that reflect the relevant skills required , the contract size and duration , the availability of our personnel and equipment , the makeup and level of our existing backlog , our competitive advantages and disadvantages , prior experience , the contracting agency or customer , the source of contract funding , anticipated start and completion dates , construction risks , penalties or incentives and general economic conditions . story_separator_special_tag size= '' 4 '' style= '' color : black '' / > at december 31 , 2012 , we had approximately 91 contracts-in-progress which were less than 90 % complete of various sizes , of different expected profitability and in various stages of completion . the nearer a contract progresses toward completion , the more visibility we have in refining our estimate of total revenues ( including incentives , delay penalties and change orders ) , costs and gross profit . thus gross profit as a percent of revenues can increase or decrease from comparable and sequential quarters due to variations among contracts and depending upon the stage of completion of contracts . general and administrative expenses general and administrative expenses for 2012 included a full year of general and administrative expenses for jbc and myers which we acquired on august 1 , 2011 as well as an increase in compensation related expenses and professional fees . as a percent of revenues , general and administrative expenses in 2012 were higher at 5.7 % compared with 5.1 % for the prior year and included a signing bonus of $ 250,000 paid to our newly appointed ceo and $ 670,000 in compensation for our retiring ceo . goodwill impairment . during the fourth quarter of 2011 , the company completed an evaluation of the carrying value of goodwill resulting in an impairment charge of $ 67.0 million . this charge had an impact of $ 41.8 million on the net loss attributable to sterling common stockholders ( net of the related tax benefits and reduced for the amount attributable to noncontrolling interest owners ) or $ 2.55 per diluted share . no goodwill impairment charge was recorded in 2012. see note 8 to the consolidated financial statements . income taxes . our effective income tax rates for 2012 and 2011 were ( 3.4 ) % and 32.9 % , respectively , and varied from the statutory rate primarily as a result of net income attributable to noncontrolling interest owners which are taxed to those owners rather than sterling . in addition , the effective tax rate for 2012 was impacted by non-taxable interest income , and the effective tax rate for 2011 was impacted by the portion of the goodwill impairment attributable to goodwill that is not deductible for tax purposes . net income attributable to noncontrolling interests . net income attributable to noncontrolling interest owners increased in 2012 compared with 2011 and is primarily related to net income attributable to the 20 % noncontrolling interest owners in rlw . this subsidiary was 80 % owned until december 31 , 2012 when we acquired the remaining 20 % interest .
| results of operations . backlog at december 31 , 2012 at december 31 , 2012 , our backlog of construction projects was $ 656 million , as compared to $ 616 million at december 31 , 2011. our company was awarded $ 643 million of new contracts in 2012 , excluding acquired contracts , compared to $ 595 million of new contracts in 2011. our contracts are typically completed in 12 to 36 months . at december 31 , 2012 , there was approximately $ 63 million excluded from our consolidated backlog where we were the apparent low bidder , but had not yet been formally awarded the contract or the contract price had not been finalized . backlog includes $ 77 million attributable to our share of estimated revenues related to joint ventures where we are a noncontrolling joint venture partner . as discussed further in “ item 1. business―recent developments―financial results for 2012 , operational issues and outlook for 2013 financial results , ” based on our current estimates , the gross margin in our backlog is lower than the gross margin of 7.5 % realized in 2012 as a result of operational issues and lower infrastructure capital expenditures by federal and state governments . 27 we do , however , expect that our markets will ultimately recover from the conditions discussed in “ item 1. business ” and that our backlog and revenues will grow and gross margins , net income and earnings per share will return to levels more consistent with historical rates of return . however , we can not predict the timing of such a return to historical normalcy in our markets . we believe that the company is in sound financial condition and has the resources and management experience to weather current market conditions and to continue to compete successfully for projects as they become available at acceptable profit margin levels .
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the sale-leaseback is treated by the company as a mere financing and capital lease transaction , rather than a sale of assets ( under which gain or loss is immediately recognized ) under asc 840-40-25-4. all of the leased equipment are included as part of the property , plant and equipment of the company as of december story_separator_special_tag the following discussion of the financial condition and results of operations of the company should be read in conjunction with the selected financial data , the financial statements , and the notes to those statements that are included elsewhere in this annual report . story_separator_special_tag ( representing 71.81 % of total offset printing paper , corrugating medium paper and tissue paper products revenue ) for the year ended december 31 , 2015 , which was an increase of $ 389,343 , or 0.40 % , from $ 96,496,414 in 2014. we sold 268,222 tonnes of corrugating medium paper in the year ended december 31 , 2015 as compared to 265,132 tonnes for 2014 , representing a 1.17 % increase in the quantity sold . as explained above , the slight increase is mainly attributable to the mixed effect of the full year production of light-weight cmp in 2015 while the production in 2014 began in may 2014 and the longer period of temporary production suspension in 2015 than in 2014. asp for regular cmp slightly decreased from $ 363/tonne in 2014 to $ 360/tonne in 2015 , representing a 0.83 % decrease . also , our pm6 production line produced 236,906 tonnes of regular cmp in 2015 , 12,604 tonnes , or 5.32 % , less than in 2014. the pm6 production line 's utilization rates for the year ended december 31 , 2015 and 2014 were 62.31 % and 65.81 % , respectively . our month-over-month asp for regular cmp was mostly stable , around $ 360/tonne in both 2015 and 2014. asp for regular cmp for 2015 was $ 360/tonne , representing a $ 3 ( or 0.83 % ) decrease compared to $ 363/tonne for 2014. we believe that the decrease was a result of the slowdown of china 's economic growth , an over-supply in the chinese paper industry and the depreciation of rmb to usd in 2015. in the fourth quarter of 2015 , asp for regular cmp dropped to $ 344/tonne ( rmb2,147/tonne ) from $ 370/tonne ( rmb2,269/tonne ) , representing a decrease of $ 26 , or 7 % . we consider this drop a sign for the downward pressure on the pricing in the chinese packaging paper industry . asp for light-weight cmp was mostly stable , around $ 370/tonne in both 2015 and 2014. asp for regular cmp for 2015 was $ 367/tonne , representing a $ 2 ( or 0.54 % ) decrease compared to $ 369/tonne for 2014. the government has been requiring outdated paper facilities to close since 2010 and is expected to continue to strictly enforce the mandatory closure of outdated capacity in the next few years . as a result , we estimate that the asps for cmp and other packaging paper will recover and remain relatively stable for 2016 as outdated paper facilities being eliminated , and the paper industry will witness increased competition and higher standards for environmental protection measures . we launched the pm6 production line in december 2011 and have been improving its output capacity in the past few years . the pm6 production line has a designated capacity of 360,000 tonnes/year . the utilization rates for 2015 and 2014 were 62.31 % and 65.81 % , respectively , representing a year-over-year decrease of 3.50 % . regular cmp produced and sold in 2015 was 12,604 tonnes less than in 2014 , as we experienced longer periods of mandated temporary suspension in production in 2015 as mentioned above . we expect to see an increased utilization rate in 2016. quantities of sold cmp that was produced by the pm6 production line from january 2014 to december 2015 are as follows : offset printing paper revenue from offset printing paper was $ 36,323,148 ( representing 26.92 % of the total offset printing paper , corrugating medium paper and tissue paper products revenues ) for the year ended december 31 , 2015 , which was a decrease of $ 1,240,801 , or 3.30 % , from $ 37,563,949 in 2014. we sold 53,137 tonnes of offset printing paper in the year ended december 31 , 2015 compared to 54,774 tonnes in 2014 , a decrease of 1,637 tonnes , or 2.99 % . the decline in quantities produced and sold in 2015 was mainly caused by the longer mandatory production suspension periods discussed above . asp for offset printing paper in 2015 was $ 684/tonne , representing a $ 2 ( or 0.29 % ) decrease compared to $ 686/tonne in 2014. we estimate that the regional market of offset printing paper will continue to be relatively stable and the asp will not experience a significant change in 2016 . 29 tissue paper products we began the commercial production of tissue paper products in wei county industry park in june 2015. we process base tissue paper purchased from long-term cooperative third party and produce finished tissue paper products , including toilet paper , boxed and soft-packed tissues , handkerchief tissues , and paper napkins , as well as bathroom and kitchen paper towels that are marketed and sold under the orient paper brand . we sold 1,307 tonnes of tissue paper products for $ 1,718,303 in 2015. we expect to see increase in production of the tissue paper products in the near future . story_separator_special_tag the overall gross profit margin for offset printing paper , corrugating medium paper and tissue paper products increased by 4.23 % , from 16.60 % for the year ended december 31 , 2014 to 20.83 % for the year ended december 31 , 2015. gross profit margin for regular cmp for the year ended december 31 , 2015 was 20.09 % , 5.67 % higher compared to gross profit margin of 14.42 % for the year ended december 31 , 2014. such increase was primarily the result of the decline in raw materials prices and energy cost in 2015 . 33 gross profit margin for light-weight cmp for the year ended december 31 , 2015 was 30.33 % , 3.09 % higher compared to gross profit margin of 27.24 % for the year ended december 31 , 2014. our offset printing paper has seen a moderate 3.30 % decrease in revenue for the year ended december 31 , 2015 as compared to the year ended december 31 , 2014 , coupled with a 3.26 % year-over-year decrease in offset printing paper cost of sales from 2014 to 2015. gross profit margin for offset printing paper was 18.59 % for the year ended december 31 , 2015 , a decrease of 0.04 % , as compared to 18.63 % for the year ended december 31 , 2014. gross profit margin for tissue paper products for the year ended december 31 , 2015 was 13.69 % . monthly gross profit margins for our corrugating medium paper and offset printing paper for the 24-month period ended december 31 , 2015 are as follows : digital photo paper loss for digital photo paper for the year ended december 31 , 2015 was $ 243,638 ( representing a gross margin of -64.80 % ) , compared with a gross profit of $ 528,366 ( representing a gross margin of 17.72 % ) for the year ended december 31 , 2014. as discussed above , we started the relocation of our pm4 and pm5 production lines in october 2014 , and completed the relocation and resumed commercial production of our digital photo paper in august 2015. the sales in 2015 were not sufficient to cover the depreciation cost charged to this period . we expect that our digital photo paper production will increase in 2016. selling , general and administrative expenses selling , general and administrative expenses for the year ended december 31 , 2015 were $ 9,663,835 , an increase of $ 4,804,620 , or 98.88 % , from $ 4,859,215 for the year ended december 31 , 2014. the increase was mainly due to the increase in the depreciation expenses for our temporarily idle property , plant and equipment at our new tissue paper plant in our wei county industrial park . we believe that our new tissue paper plant will reach its normal production capacity by the second half of year 2016. income from operations operating income for the year ended december 31 , 2015 was $ 18,196,770 , an increase of $ 783,864 , or 4.50 % , from $ 17,412,906 for the year ended december 31 , 2014. the increase was primarily attributable to the increase in gross profit contributed by regular cmp and light-weight cmp as discussed above . other income and expenses interest expense for the year ended december 31 , 2015 increased by $ 1,711,085 from $ 1,446,439 in the year ended december 31 , 2014 to $ 3,157,524. the company had short-term and long-term interest-bearing loans , related party loans and leasing obligations that aggregated $ 42,972,122 as of december 31 , 2015 , as compared to $ 44,254,755 as of december 31 , 2014. the short-term and long-term interest-bearing loans , related party loans and leasing obligations aggregated $ 40,905,866 as of september 30 , 2015 , as compared to $ 32,698,230 as of september 30 , 2014. the amount incurred in the fourth quarter of 2014 was mainly used for the construction of tissue paper production line in wei county . the interests incurred during the year ended december 31 , 2015 and 2014 , were $ 154,930 and $ 698,714 , respectively , and were capitalized as soft-cost of construction-in-progress . the interest incurred in both periods was solely related to the sale-leaseback obligation with china national foreign trade financial & leasing co. , ltd ( “ cnftfl ” ) . 34 net income as a result of the above , net income was $ 11,542,205 for the year ended december 31 , 2015 , a decrease of $ 164,155 , or 1.40 % , from $ 11,706,360 for the year ended december 31 , 2014. accounts receivable net accounts receivable decreased by $ 1,825,727 , or 49 % , to $ 1,904,396 as of december 31 , 2015 , compared to $ 3,730,123 as of december 31 , 2014. we usually collect accounts receivable within 30 days of delivery and completion of sales . inventories our inventories consist of raw materials ( accounting for 76.55 % of the total value of ending inventory as of december 31 , 2015 ) and finished goods . as of december 31 , 2015 , the recorded value of inventory increased by 28.93 % to $ 9,205,420 , from $ 7,139,599 as of december 31 , 2014. the ending balance of recycled paper board and recycled white scrap paper , which are the main raw materials for cmp and offset printing paper , was $ 6,296,575 as of december 31 , 2015 , approximately $ 745,918 , or 13.43 % , higher than the balance of $ 5,550,657 as of december 31 , 2014 , primarily due to the temporary production suspension from december 14 , 2015 to december 29 , 2015. the temporary production suspension also led to the increase in finished goods , including cmp and offset printing paper .
| results of operations revenue for the year ended december 31 , 2015 was $ 135,303,173 , a decrease of $ 1,738,274 , or 1.27 % , from $ 137,041,447 for the previous year . revenue of offset printing paper , corrugating medium paper and tissue paper products revenue from sales of offset printing paper , corrugating medium paper ( “ cmp ” ) and tissue paper products for the year ended december 31 , 2015 was $ 134,927,208 , a slight increase of $ 866,845 , or 0.65 % , from $ 134,060,363 for the year ended december 31 , 2014. our revenue was impacted by : ( i ) the temporary production suspension from august 20 to september 4 , 2015 , mandated by the baoding city government during the iaaf world championship games and the military parade commemorating the 70th anniversary of the end of world war ii in beijing ; ( ii ) temporary production suspension from december 14 , 2015 to december 29 , 2015 , in accordance with a mandate issued by xushui environmental protection bureau of baoding city following beijing 's first red alert for smog ; ( iii ) the full year production of light-weight cmp ( the production line was launched in may 2014 ) , and ( iv ) the launch of the commercial production of tissue paper products in wei county industry park in june 2015. in 2014 , we experienced the two-week mandatory suspension of production from october 30 , 2014 through november 12 , 2014 , which was a shorter period compared to that in 2015. the slight increase in revenues from sales of offset printing paper corrugating medium paper and tissue paper products was primarily a result of : ( i ) the decrease in sales of $ 5,296,016 , or 6.15 % , of regular cmp in 2015 compared to 2014 ; ( ii ) the decrease in sales of $ 1,240,801 , or 3.30 % , of offset printing paper in 2015 compared to 2014 ; ( iii ) the increase in
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37 depreciation , depletion and amortization ( dd & a ) the following tables set forth the components of dd & a and the nature of the variances for the periods presented : replace_table_token_46_th dd & a variance due to production rates total year ended december 31 , 2010 compared to 2009 $ 11,499 $ 8,152 $ 19,651 our average depletion rate decreased by $ 0.18 per mcfe , or 6 % , to $ 2.71 per mcfe in 2010 , from $ 2.89 per mcfe in 2009. the reduction was a result of discoveries and the impact of impairments in 2010. impairments the following table summarizes the impairments recorded for the periods presented : replace_table_token_47_th during 2010 , we incurred impairment charges related to our mid-continent coal bed methane properties as a result of market declines in gas prices and to an area in the anadarko basin of the mid-continent region where we drilled an uneconomic well . in addition , we recorded impairment charges attributable to certain oil and gas inventory assets triggered primarily by declines in asset quality . we also incurred impairment charges on properties in north dakota that were held for sale at the end of 2009. these properties were ultimately sold during 2010. during 2009 , we incurred impairment charges in connection with the initial classification of the gulf coast properties as assets held for sale at their fair value less costs to sell , as well as impairments attributable to tubular inventory and other oil and gas properties . other during 2010 , we recorded a loss of $ 0.7 million on the disposition of our gulf coast properties . the loss reflects final purchase price adjustments associated with the period from the effective date in october 2009 to the closing date in january 2010. the 2009 period reflects a loss on the sales of tubular inventory and well materials . interest expense the following table summarizes the components of our total interest expense for the periods presented : replace_table_token_48_th 38 interest expense increased due to higher interest rates on outstanding borrowings , primarily the 10.375 % senior unsecured notes , or 2016 senior notes , issued in june 2009. we realized higher amortization of the original issue discount and issuance costs on the 2016 senior notes and convertible notes , as well as higher amortization of issuance costs associated with the revolver . in addition , 2009 included a reclassification of expense from accumulated other comprehensive income , or aoci , attributable to the discontinuation of hedge accounting related to our interest rate swaps , as well as a reversal of interest cost attributable to the settlement of various state income tax positions . derivatives the following table summarizes the components of our derivatives income for the periods presented : replace_table_token_49_th cash received for settlements during 2010 was $ 32.8 million as compared to $ 58.1 million during 2009. other other income increased during 2010 due primarily to the gains on the sale of non-operating investments as well as higher interest income on the significantly larger cash balances held following of the disposition of our interests in pvg . income taxes the effective tax benefit rate for continuing operations was 39.6 % for 2010 and 2009. due to the operating losses incurred , we recognized an income tax benefit during both periods . discontinued operations the following table presents a summary of results of operations from discontinued operations for the periods presented : replace_table_token_50_th 1 determined by applying the effective tax rate attributable to discontinued operations to the income from discontinued operations less noncontrolling interests that are fully attributable to pvg 's operations . the disclosures for 2010 provided in the table above reflect the results of operations of pvg through the date of disposition of our entire remaining interest in pvg on june 7 , 2010 . 39 gain on sale of discontinued operations the following table summarizes the determination of the gain recognized upon the disposition of pvg : cash proceeds , net of offering costs ( 8,827,429 units x $ 15.76 per unit ) $ 139,120 carrying value of noncontrolling interests in pvg at date of disposition 382,324 521,444 less : carrying value of pvg 's assets and liabilities at date of disposition ( 434,782 ) 86,662 less : income tax expense ( 35,116 ) gain on sale of discontinued operations , net of tax $ 51,546 noncontrolling interests the decrease in net income attributable to noncontrolling interests during 2010 is directly attributable to the sale of our interests in pvg during june 2010. in september 2009 , our ownership interest in pvg declined from 77.0 % to 51.4 % and in 2010 our ownership interest in pvg declined to zero . 40 liquidity and capital resources sources of liquidity we are currently meeting our capital expenditures and working capital funding requirements with a combination of operating cash flows and borrowings from our revolver . we have no material debt maturities until 2016. our business strategy for 2012 requires capital expenditures in excess of our anticipated operating cash flows . subject to the variability of commodity prices that impact our operating cash flows , anticipated timing of our capital projects and unanticipated expenditures such as acquisitions , we plan to fund our 2012 capital program with operating cash flows and borrowings from our revolver . we expect to supplement these sources of liquidity with proceeds from the sale of non-core assets or , possibly , by accessing the capital markets . there can be no assurance that such actions would be successful , however , in which case we could reduce our 2012 planned capital expenditures . in august 2011 , we entered into the revolver which matures in august 2016. the revolver provides for a $ 300 million revolving commitment , including a $ 20 million sublimit for the issuance of letters of credit . the revolver has a borrowing base of $ 380 million . there is story_separator_special_tag 37 depreciation , depletion and amortization ( dd & a ) the following tables set forth the components of dd & a and the nature of the variances for the periods presented : replace_table_token_46_th dd & a variance due to production rates total year ended december 31 , 2010 compared to 2009 $ 11,499 $ 8,152 $ 19,651 our average depletion rate decreased by $ 0.18 per mcfe , or 6 % , to $ 2.71 per mcfe in 2010 , from $ 2.89 per mcfe in 2009. the reduction was a result of discoveries and the impact of impairments in 2010. impairments the following table summarizes the impairments recorded for the periods presented : replace_table_token_47_th during 2010 , we incurred impairment charges related to our mid-continent coal bed methane properties as a result of market declines in gas prices and to an area in the anadarko basin of the mid-continent region where we drilled an uneconomic well . in addition , we recorded impairment charges attributable to certain oil and gas inventory assets triggered primarily by declines in asset quality . we also incurred impairment charges on properties in north dakota that were held for sale at the end of 2009. these properties were ultimately sold during 2010. during 2009 , we incurred impairment charges in connection with the initial classification of the gulf coast properties as assets held for sale at their fair value less costs to sell , as well as impairments attributable to tubular inventory and other oil and gas properties . other during 2010 , we recorded a loss of $ 0.7 million on the disposition of our gulf coast properties . the loss reflects final purchase price adjustments associated with the period from the effective date in october 2009 to the closing date in january 2010. the 2009 period reflects a loss on the sales of tubular inventory and well materials . interest expense the following table summarizes the components of our total interest expense for the periods presented : replace_table_token_48_th 38 interest expense increased due to higher interest rates on outstanding borrowings , primarily the 10.375 % senior unsecured notes , or 2016 senior notes , issued in june 2009. we realized higher amortization of the original issue discount and issuance costs on the 2016 senior notes and convertible notes , as well as higher amortization of issuance costs associated with the revolver . in addition , 2009 included a reclassification of expense from accumulated other comprehensive income , or aoci , attributable to the discontinuation of hedge accounting related to our interest rate swaps , as well as a reversal of interest cost attributable to the settlement of various state income tax positions . derivatives the following table summarizes the components of our derivatives income for the periods presented : replace_table_token_49_th cash received for settlements during 2010 was $ 32.8 million as compared to $ 58.1 million during 2009. other other income increased during 2010 due primarily to the gains on the sale of non-operating investments as well as higher interest income on the significantly larger cash balances held following of the disposition of our interests in pvg . income taxes the effective tax benefit rate for continuing operations was 39.6 % for 2010 and 2009. due to the operating losses incurred , we recognized an income tax benefit during both periods . discontinued operations the following table presents a summary of results of operations from discontinued operations for the periods presented : replace_table_token_50_th 1 determined by applying the effective tax rate attributable to discontinued operations to the income from discontinued operations less noncontrolling interests that are fully attributable to pvg 's operations . the disclosures for 2010 provided in the table above reflect the results of operations of pvg through the date of disposition of our entire remaining interest in pvg on june 7 , 2010 . 39 gain on sale of discontinued operations the following table summarizes the determination of the gain recognized upon the disposition of pvg : cash proceeds , net of offering costs ( 8,827,429 units x $ 15.76 per unit ) $ 139,120 carrying value of noncontrolling interests in pvg at date of disposition 382,324 521,444 less : carrying value of pvg 's assets and liabilities at date of disposition ( 434,782 ) 86,662 less : income tax expense ( 35,116 ) gain on sale of discontinued operations , net of tax $ 51,546 noncontrolling interests the decrease in net income attributable to noncontrolling interests during 2010 is directly attributable to the sale of our interests in pvg during june 2010. in september 2009 , our ownership interest in pvg declined from 77.0 % to 51.4 % and in 2010 our ownership interest in pvg declined to zero . 40 liquidity and capital resources sources of liquidity we are currently meeting our capital expenditures and working capital funding requirements with a combination of operating cash flows and borrowings from our revolver . we have no material debt maturities until 2016. our business strategy for 2012 requires capital expenditures in excess of our anticipated operating cash flows . subject to the variability of commodity prices that impact our operating cash flows , anticipated timing of our capital projects and unanticipated expenditures such as acquisitions , we plan to fund our 2012 capital program with operating cash flows and borrowings from our revolver . we expect to supplement these sources of liquidity with proceeds from the sale of non-core assets or , possibly , by accessing the capital markets . there can be no assurance that such actions would be successful , however , in which case we could reduce our 2012 planned capital expenditures . in august 2011 , we entered into the revolver which matures in august 2016. the revolver provides for a $ 300 million revolving commitment , including a $ 20 million sublimit for the issuance of letters of credit . the revolver has a borrowing base of $ 380 million . there is
| results of operations year ended december 31 , 2011 compared to the year ended december 31 , 2010 the following table sets forth a summary of certain operating and financial performance for the periods presented : replace_table_token_14_th 26 production the following tables set forth a summary of our total and daily production volumes by product and geographical region for the periods presented : replace_table_token_15_th replace_table_token_16_th replace_table_token_17_th replace_table_token_18_th the decline in total production during 2011 was due primarily to the lack of any significant natural gas drilling since mid-2010 and the subsequent natural production declines as well as the effect of the sale of our arkoma basin properties . the effect of the sale of the arkoma basin properties was approximately 2 bcfe . the natural gas production decline was substantially offset by an increase in oil and ngl production attributable to our drilling activity in the eagle ford shale . approximately 28 % of total production on an equivalent basis in 2011 was attributable to oil and ngls , an increase over the previous year of approximately 59 % . the shift in production mix reflects our focus on emerging oil and liquids-rich plays in the eagle ford shale in texas and the mid-continent region . during 2011 , our eagle ford shale production represented approximately 11 % of our total production . we had no production from this play in 2010 . 27 product revenues and prices the following tables set forth a summary of our revenues and prices per unit of volume by product and geographical region for the periods presented : replace_table_token_19_th replace_table_token_20_th replace_table_token_21_th replace_table_token_22_th 28 as illustrated below , oil and ngl production volume coupled with improved oil and ngl pricing were the significant factors for increasing revenues . the increase was partially offset by lower natural gas production volumes and prices .
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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 set forth under “ risk factors ” or in other parts of this annual report . overview we are a late clinical-stage biopharmaceutical company focused on developing and commercializing novel treatments for gi diseases . our initial product candidate , vonoprazan , is an oral small molecule p-cab . p-cabs are a novel class of medicines that block acid secretion in the stomach . vonoprazan has shown rapid , potent , and durable anti-secretory effects and has demonstrated clinical benefits over the current standard of care as a single agent in the treatment of gerd , and in combination with antibiotics for the treatment of h. pylori infection . takeda developed vonoprazan and has received marketing approval in fourteen countries in asia and latin america . vonoprazan generated approximately $ 650 million in net sales in its fifth full year on the market since its approval in japan in late 2014. in may 2019 , we in-licensed the u.s. , european , and canadian rights to vonoprazan from takeda . we initiated two pivotal phase 3 clinical trials in the fourth quarter of 2019 for vonoprazan : one for the treatment of erosive gerd , also known as erosive esophagitis , and a second for the treatment of h. pylori infection and we completed enrollment in those clinical trials in november 2020 and january 2021 , respectively . we believe that the successful completion of our phase 3 clinical trials , together with the existing clinical data , will support regulatory submissions in 2021 and 2022 for marketing approval for the treatment of h. pylori infection and erosive esophagitis , respectively . in august 2019 , we received qidp and fast track designations from the fda , for vonoprazan tablets in combination with amoxicillin tablets and clarithromycin tablets and with amoxicillin tablets alone for the treatment of h. pylori infection . in november 2020 , we requested additional qidp and fast track designations to include amoxicillin capsules in addition to amoxicillin tablets . the fda granted these additional fast track designations and the request for additional qidp designations remains under review . qidp designation provides potential eligibility for priority review and extension of any regulatory exclusivity awarded if approved . if approved , we plan to independently commercialize vonoprazan in the united states . we also plan to seek commercial partnerships for vonoprazan in europe and canada , expand development of vonoprazan into symptomatic non-erosive gerd , or nerd , and possibly other indications , dosing regimens and alternative formulations and packaging , and in-license or acquire additional clinical or commercial stage product candidates for the treatment of gi diseases in a capital efficient manner . we commenced our operations in 2018 and have devoted substantially all of our resources to date to organizing and staffing our company , business planning , raising capital , in-licensing our initial product candidate , vonoprazan , meeting with regulatory authorities , preparing for and conducting our planned phase 3 clinical trials of vonoprazan , and providing other general and administrative support for these operations . our operations to date have been funded primarily through the issuance of convertible promissory notes , commercial bank debt , the proceeds from our initial public offering and our follow-on public offering . from our inception through december 31 , 2020 , we have raised aggregate gross proceeds of $ 90.3 million from the issuance of convertible promissory notes , $ 50.0 million of commercial bank debt , net proceeds from our initial public offering of $ 191.5 million from the sale of 10,997,630 shares of common stock , which included the exercise in full by the underwriters of their option to purchase 1,434,473 additional shares at a public offering price of $ 19.00 per share , after deducting underwriting discounts , commissions and offering costs , and net proceeds of $ 88.6 million from the sale of 2,250,000 shares of common stock at a public offering price of $ 39.48 per share after deducting underwriting discounts and commissions , and an additional $ 0.2 million in offering costs . as of december 31 , 2020 , we had cash and cash equivalents of $ 287.5 million . based on our current operating plan , we believe that our existing cash and cash equivalents will be sufficient to meet our anticipated cash requirements into the fourth quarter of 2022. we do not have any products approved for sale and have incurred net losses since our inception . our net losses for the years ended december 31 , 2020 and 2019 were $ 129.1 million and $ 255.1 million , respectively . as of december 31 , 2020 , we had an accumulated deficit of $ 385.5 million . our net losses may fluctuate significantly from quarter-to-quarter and year-to-year , depending on the timing of our clinical development activities , other research and development activities and pre-commercialization activities . we expect our expenses and operating 109 losses will increase substantially as we advance vonoprazan through clinical trials , seek regulatory approval for vonoprazan , expand our clinical , regulatory , quality , manufacturing and commercialization capabilities , incur significant commercialization expenses for marketing , sales , manufacturing and distribution if we obtain marketing approval for vonoprazan , protect our intellectual property , expand our general and administrative support functions , including hiring additional personnel , and incur additional costs associated with operating as a public company . we have never generated any revenue and do not expect to generate any revenues from product sales unless and until we successfully complete development and obtain regulatory approval for vonoprazan , which will not be for several years , if ever . story_separator_special_tag in addition , we can not forecast which 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 capital requirements . our future clinical development costs may vary significantly based on factors such as : per patient trial costs ; the number of trials required for approval ; 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 evaluated in the trials ; the drop-out or discontinuation rates of patients ; potential additional safety monitoring requested by regulatory agencies ; the duration of patient participation in the trials and follow-up ; 111 the phase of development of the product candidate ; the efficacy and safety profile of the product candidate ; and delays and cost increases as a result of covid-19 in-process research and development in-process research and development expenses relate to the takeda license , and include the $ 78.9 million purchase price of the acquired research and development assets . the purchase price of the takeda license consisted of the following : ( i ) $ 25.0 million in cash ; ( ii ) issuance to takeda of 1,084,000 shares of our common stock at a fair value of $ 5.9 million ; ( iii ) issuance of the takeda warrant at an initial fair value of $ 47.9 million ; ( iv ) issuance of the takeda warrant right , with a nominal initial fair value due to the low probability of issuance ; and ( v ) $ 0.1 million of transaction costs incurred by us . the fair value of the takeda warrant and takeda warrant right were derived from the model used to estimate the fair value of our common stock and the fair value of the common stock was determined using methodologies , approaches and assumptions consistent with the american institute of certified public accountants accounting and valuation guide : valuation of privately held company equity securities issued as compensation , or the practice aid . the practice aid prescribes several valuation approaches for setting the value of an enterprise , such as the cost , income and market approaches , and various methodologies for allocating the value of an enterprise to its common stock . we utilized a scenario-based analysis that estimated the fair value per share based on the probability-weighted present value of expected future investment returns , considering each of the possible outcomes available to us , including various initial public offering , stay private and dissolution scenarios , and applying a discount for lack of marketability . we considered various stay private scenarios using the income approach and allocated the indicated equity value to each class of equity based on the current-value method . we also considered various initial public offering scenarios based on expected equity values in an initial public offering and allocated the indicated equity value to each class of equity on a fully-diluted basis considering the dilutive impacts of the unsecured convertible promissory notes we issued in may 2019 , or the may 2019 notes , and the lender warrants . there were significant judgments and estimates inherent in the determination of the fair value of our common stock prior to our 2019 ipo . these judgments and estimates included assumptions regarding our future operating performance , the time to complete an initial public offering or other liquidity event and the determination of the appropriate valuation methods . if we had made different assumptions , our fair value per share of common stock could have been significantly different . general and administrative general and administrative expenses consist of salaries and employee-related costs , including stock-based compensation , for personnel in executive , finance , accounting , legal , human resources and other administrative functions , legal fees relating to intellectual property and corporate matters , and professional fees for accounting and consulting services . we anticipate that our general and administrative expenses will increase in the future to support our continued research and development activities , pre-commercial preparation activities for vonoprazan and , if any future product candidate receives marketing approval , commercialization activities . we also anticipate increased expenses related to audit , legal , regulatory , and tax-related services associated with maintaining compliance with exchange listing and sec requirements , director and officer insurance premiums , and investor relations costs associated with operating as a public company . interest income interest income consists of interest on our money market fund . interest expense interest expense consists of interest on our outstanding commercial bank debt at a floating per annum interest rate ( with a floor of 7.25 % ) , which was 7.25 % as of december 31 , 2020 , and amortization of the commercial bank debt discount recorded in connection with the fair value of warrants issued to the lenders , the debt issuance costs incurred and the obligation to make a final payment fee . 112 change in fair value of warrant liabilities in connection with the entry into the loan agreement , we issued the lenders warrants to purchase our capital stock , or the lender warrants . the lender warrants were accounted for as liabilities as they contained a holder put right under which the lenders could have required us to pay cash in exchange for the warrants . we adjusted the carrying value of the lender warrants to their estimated fair value at each reporting date , with any change in fair value of the warrant liabilities recorded as an increase or decrease to change in fair value of warrant liabilities in the statements of operations . the lender warrants were accounted for at fair value using the black-scholes option-pricing model with an expected term equal to the remaining contractual term of the warrants .
| results of operations comparison of the years ended december 31 , 2020 and 2019 the following table summarizes our results of operations for the years ended december 31 , 2020 and 2019 ( in thousands ) : replace_table_token_3_th research and development expenses . research and development expenses were $ 98.1 million and $ 20.4 million for the years ended december 31 , 2020 and 2019 , respectively . the increase of $ 77.7 million consisted of $ 63.0 million of clinical trial costs and $ 5.9 million of chemistry manufacturing and controls ( “ cmc ” ) costs related to vonoprazan , $ 5.6 million of personnel-related expenses , $ 1.4 million of consulting expenses , $ 1.2 million of other operating expenses , and $ 0.6 million of expenses related to regulatory requirements . we expect research and development expenses to decrease in 2021 as we complete the phalcon-ee and phalcon-hp phase 3 clinical trials , and our phase 2 nerd on-demand study commences . in-process research and development expenses . we had no in-process research and development expenses for the year ended december 31 , 2020. the $ 78.9 million of in-process research and development expenses for the year ended december 31 , 2019 consisted of the purchase price for the research and development assets we acquired as part of the takeda license . general and administrative expenses . general and administrative expenses were $ 27.5 million and $ 6.9 million for the years ended december 31 , 2020 and 2019 , respectively .
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see `` part ii - item 7. management 's discussion and analysis of financial condition and results of operations - non-gaap financial measures '' of this report for applicable reconciliation to gaap measure . restructuring charges for 2017 were $ 7.0 million and consisted primarily of severance charges of $ 6.1 million for termination benefits incurred in conjunction with a voluntary early retirement program offered during the first quarter of 2017. restructuring charges , in 2016 , totaled $ 8.3 million with $ 5.3 million related to corporate real estate optimization activities and $ 2.8 million associated with branch closures . at december 31 , 2017 , total loans were $ 24.79 billion , an increase of $ 931.1 million , or 3.9 % , compared to december 31 , 2016 . total average loans were $ 24.40 billion in 2017 , an increase of 5.5 % from a year ago . loan growth was driven by an $ 889.4 million or 17.9 % increase in consumer loans and a $ 479.8 million or 4.2 % increase in c & i loans , partially offset by a $ 438.8 million or 6.0 % decline in cre loans . total average deposits increased $ 1.49 billion , or 6.3 % , to $ 25.37 billion in 2017 from $ 23.88 billion in 2016 . average core deposits were up $ 1.18 billion , or 5.2 % , from 2016 and average non-interest bearing demand deposits as a percentage of total average deposits were 29.0 % for 2017 compared to 29.4 % for 2016 . average core transaction deposit accounts grew $ 1.36 billion , or 7.9 % , from the previous year . see `` part ii - item 7. management 's discussion and analysis of financial condition and results of operations - non-gaap financial measures '' of this report for applicable reconciliation to gaap measures . on november 9 , 2017 , synovus redeemed all of the $ 300.0 million aggregate principal amount of its outstanding 7.875 % senior notes due 2019 . 2017 results include a loss of $ 23.2 million related to early extinguishment of these notes . during january 2016 , synovus repurchased $ 124.7 million of its subordinated notes that matured on june 15 , 2017 in conjunction with synovus ' cash tender offer . results for the year ended december 31 , 2016 included a $ 4.7 million loss relating to this tender offer . during 2017 , synovus repurchased $ 175.1 million , or 4.0 million shares , of common stock through open market transactions under the $ 200 million share repurchase program authorized during the fourth quarter of 2016 for execution during 2017. additionally , cash dividends declared on common stock totaled $ 72.5 million in 2017 , or $ 0.15 per share , representing a 25 % increase from 2016. total shareholders ' equity was $ 2.96 billion at december 31 , 2017 , compared to $ 2.93 billion at december 31 , 2016 . return on average common equity was 9.32 % for 2017 , compared to 8.41 % for 2016. adjusted return on average common equity was 10.86 % for 2017 , compared to 8.82 % for 2016. adjusted return on average tangible common equity was 11.14 % for 2017 , compared to 8.92 % for 2016. see `` part ii - item 7. management 's discussion and analysis of financial condition and results of operations - capital resources '' and `` part ii - item 7. management 's discussion and analysis of financial condition and results of operations - non-gaap financial measures '' of this report for applicable reconciliation to gaap measures . also see `` part ii - item 5. market for registrant 's common equity , related stockholder matters and issuer repurchases of equity securities - share repurchases '' of this report for further discussion regarding synovus ' common stock repurchase program . 2018 capital actions during the fourth quarter of 2017 , the board of directors authorized a new share repurchase program of up to $ 150 million to be completed during 2018. additionally , during january 2018 , the board of directors approved a 67 % increase in the quarterly common stock dividend to $ 0.25 per share , effective with the quarterly dividend payable in april 2018 . 45 2018 outlook for the full year 2018 compared to the full year 2017 , we currently expect : average loan growth of 4 % to 6 % average total deposits growth of 4 % to 6 % net interest income growth of 11 % to 13 % ( 1 ) adjusted non-interest income ( 2 ) growth of 4 % to 6 % total non-interest expense growth of 0 % to 3 % effective income tax rate of 23 % to 24 % net charge-off ratio of 15 to 25 b.p.s common share repurchases of up to $ 150 million ( 1 ) assumes a 25 b.p.s increase in the federal funds rate in march and september 2018. if there are no increases in the federal funds rate in 2018 , net interest income is expected to increase by 9 % to 11 % in 2018 . ( 2 ) see `` part ii - item 7. management 's discussion and analysis of financial condition and results of operations - non-gaap financial measures '' of this report for applicable reconciliation to gaap measure . 46 consolidated financial highlights a summary of synovus ' financial performance for the years ended december 31 , 2017 and 2016 is set forth in the table below . replace_table_token_7_th ( 1 ) see `` part ii - item 7. management 's discussion and analysis of financial condition and results of operations - non-gaap financial measures '' of this report for applicable reconciliation to gaap measures . 47 critical accounting policies the accounting and financial reporting policies of synovus are in accordance with gaap and conform to the accounting and reporting guidelines prescribed by bank regulatory authorities . story_separator_special_tag at december 31 , 2017 , $ 2.00 billion of these investment securities were pledged to secure certain deposits and securities sold under repurchase agreements as required by law and contractual agreements . the investment securities are primarily mortgage-backed securities issued by u.s. government agencies and gses , both of which have a high degree of liquidity and limited credit risk . a mortgage-backed security depends on the underlying pool of mortgage loans to provide a cash flow pass-through of principal and interest . at december 31 , 2017 , all of the collateralized mortgage obligations and mortgage-backed pass-through securities held by synovus were issued or backed by federal agencies or gses . as of december 31 , 2017 and 2016 , the estimated fair value of investment securities available for sale as a percentage of their amortized cost was 98.7 % . the investment securities available for sale portfolio had gross unrealized gains of $ 6.1 million and gross unrealized losses of $ 57.3 million , for a net unrealized loss of $ 51.2 million as of december 31 , 2017 . the investment securities available for sale portfolio had gross unrealized gains of $ 11.1 million and gross unrealized losses of $ 61.5 million , for a net unrealized loss of $ 50.4 million as of december 31 , 2016 . shareholders ' equity included net unrealized losses of $ 43.5 million and $ 44.3 million on the available for sale portfolio as of december 31 , 2017 and 2016 , respectively . the average balance of investment securities available for sale increased to $ 3.85 billion in 2017 from $ 3.57 billion in 2016. the portfolio earned a taxable-equivalent rate of 2.15 % and 1.89 % for 2017 and 2016 , respectively . for the years ended december 31 , 2017 and 2016 , average investment securities available for sale represented 13.34 % and 12.96 % , respectively , of average interest earning assets . the following table shows investment securities available for sale by type as of december 31 , 2017 and 2016 . replace_table_token_8_th 49 the calculation of weighted average yields for investment securities available for sale displayed below is based on the amortized cost and effective yields of each security . the yield on state and municipal securities is computed on a taxable-equivalent basis using the statutory federal income tax rate of 35 % . maturity information is presented based upon contractual maturity . actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties . replace_table_token_9_th 50 loans the following table shows loans by portfolio class and as a percentage of total loans , net of deferred fees and costs , as of december 31 , 2017 and 2016 . replace_table_token_10_th * loan balance in each category is before net deferred fees and costs and is expressed as a percentage of total loans , net of deferred fees and costs . nm - not meaningful total loans ended the year at $ 24.79 billion , a $ 931.1 million or 3.9 % increase from a year ago . loan growth was driven by a $ 479.8 million or 4.2 % increase in c & i loans and a $ 889.4 million or 17.9 % increase in consumer loans , with our lending partnerships portfolio growing $ 669.2 million and consumer mortgages increasing by $ 336.9 million or 14.7 % . this growth was partially offset by a decline in cre loans of $ 438.8 million or 6.0 % . investment properties loans declined by $ 199.2 million or 3.4 % while 1-4 family properties and land & development loans declined by $ 106.9 million , or 12.0 % , and $ 132.7 million , or 21.5 % , respectively . commercial loans the commercial loan portfolio consists of c & i loans and cre loans . total commercial loans at december 31 , 2017 were $ 18.96 billion , or 76.5 % of the total loan portfolio , and grew $ 41.0 million or 0.2 % from december 31 , 2016 . at december 31 , 2017 and 2016 , synovus had 25 and 29 commercial loan relationships , respectively , with total commitments of $ 50 million or more ( including amounts funded ) . the average funded balance of these relationships at december 31 , 2017 and 2016 was approximately $ 35 million and $ 34 million , respectively . commercial and industrial loans the c & i loan portfolio represents the largest category of synovus ' total loan portfolio and is currently concentrated on small to middle market c & i lending dispersed throughout a diverse group of industries primarily in the southeast and other selected areas in the united states . the following table shows the composition of the c & i portfolio aggregated by naics code . the portfolio is relationship focused and , as a result , synovus ' lenders have in-depth knowledge of the borrowers , most of which have guaranty arrangements . c & i loans are originated through synovus ' local markets and the corporate banking group to commercial customers primarily to finance capital expenditures , including real property , plant and equipment , or as a source of working capital . in accordance with synovus ' lending policy , each loan undergoes a detailed underwriting process which incorporates uniform underwriting standards and oversight in proportion to the size and complexity of the lending relationship . 51 replace_table_token_11_th * loan balance in each category expressed as a percentage of total c & i loans . as of december 31 , 2017 , 93 % of c & i loans are secured by real estate , business equipment , inventory , and other types of collateral . total c & i loans at december 31 , 2017 were $ 12.02 billion , or 48.5 % of the total loan portfolio , compared to $ 11.54 billion , or 48.4 % of the total loan portfolio at december 31 , 2016 , an increase of $ 479.8
| overview of 2017 financial results net income available to common shareholders for 2017 was $ 265.2 million , or $ 2.17 per diluted common share , an increase of 12.1 % and 14.9 % , respectively , compared to $ 236.5 million , or $ 1.89 per diluted common share for 2016. adjusted net income per diluted common share was $ 2.53 for 2017 , up 27.7 % compared to $ 1.98 for 2016. return on average assets for 2017 was 0.89 % , up 5 basis points from 2016 . adjusted return on average assets was 1.04 % for 2017 , up 16 basis points from 2016 . the 2017 results include the $ 75 million cabela 's transaction fee , which was partially offset by the effect from certain balance sheet restructuring actions in the third quarter which resulted in pre-tax charges totaling $ 67.6 million . results for 2017 also included $ 47.2 million in provisional tax expense due to the remeasurement of our deferred tax assets and liabilities resulting from federal tax reform . see `` part ii - item 7. management 's discussion and analysis of financial condition and results of operations - non-gaap financial measures '' of this report for applicable reconciliation to gaap measures . total revenues for 2017 were $ 1.37 billion , up 16.7 % compared to 2016. adjusted total revenues , which exclude the cabela 's transaction fee , investment securities ( losses ) gains , net , and decrease in fair value of private equity investments , net , of $ 1.30 billion for 2017 were up 11.1 % compared to 2016. net interest income was $ 1.02 billion in 2017 , up $ 124.1 million , or 13.8 % , compared to 2016. the net interest margin was 3.55 % for 2017 , an increase of 28 basis points from 2016 .
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isobutanol is a four-carbon alcohol that can be sold directly for use as a specialty chemical in the production of solvents , paints and coatings or as a value-added gasoline blendstock . isobutanol can also be converted into butenes using dehydration chemistry deployed in the refining and petrochemicals industries today . the convertibility of isobutanol into butenes is important because butenes are primary hydrocarbon building blocks used in the production of hydrocarbon fuels , lubricants , polyester , rubber , plastics , fibers and other polymers . we believe that the products derived from isobutanol have potential applications in substantially all of the global hydrocarbon fuels markets and in approximately 40 % of the global petrochemicals markets . in order to produce and sell isobutanol made from renewable sources , we have developed the gevo integrated fermentation technology ® ( “ gift ® ” ) , an integrated technology platform for the efficient production and separation of renewable isobutanol . gift ® consists of two components , proprietary biocatalysts that convert sugars derived from multiple renewable feedstocks into isobutanol through fermentation , and a proprietary separation unit that is designed to continuously separate isobutanol during the fermentation process . we developed our technology platform to be compatible with the existing approximately 25 bgpy of global operating ethanol production capacity , as estimated by the renewable fuels association . gift ® is designed to permit ( i ) the retrofit of existing ethanol capacity to produce isobutanol , ethanol or both products simultaneously or ( ii ) the addition of renewable isobutanol or ethanol production capabilities to a facility 's existing ethanol production by adding additional fermentation capacity side-by-side with the facility 's existing ethanol fermentation capacity ( collectively referred to as “ retrofit ” ) . having the flexibility to switch between the production of isobutanol and ethanol , or produce both products simultaneously , should allow us to optimize asset utilization and cash flows at a facility by taking advantage of fluctuations in market conditions . gift ® is also designed to allow relatively low capital expenditure retrofits of existing ethanol facilities , enabling a relatively rapid route to isobutanol production from the fermentation of renewable feedstocks . we believe that our production route will be cost-efficient , will enable relatively rapid deployment of our technology platform and allow our isobutanol and related renewable products to be economically competitive with many of the petroleum-based products used in the chemicals and fuels markets today . 2015 highlights and developments ● we transferred our listing of common stock to the nasdaq capital market® from the nasdaq global market® . our securities began trading on the nasdaq capital market on monday , january 5 , 2015 . ● in february 2015 , we completed the sale of 2,216,667 common stock units and warrants . we received approximately $ 6.6 million in gross proceeds from this offering , not including any future proceeds from the exercise of the warrants . ● in april 2015 , we completed a 1-for-15 reverse stock split that was previously approved by our stockholders at a special meeting held on april 13 , 2015. the reverse stock split was intended to increase the market price per share of our common stock to allow us to maintain the listing of our common stock on the nasdaq capital market . ● in may 2015 , we completed the sale of 4,300,000 common stock units and warrants . we received approximately $ 17.2 million in gross proceeds from the offering , not including any future proceeds from the exercise of the warrants . ● in june 2015 , we entered into an agreement with fcstone merchant services , llc to originate and supply corn for the our production facility in luverne , minnesota ( the “ agri-energy facility ” ) . engaging fcstone to conduct our corn purchasing at luverne is expected to free up more than $ 1 million of working capital , which had previously been tied up in corn inventory . ● in august 2015 , we announced that we entered into worldwide patent cross-license and settlement agreements with butamax advanced biofuels llc ( “ butamax ” ) , e.i . du pont de nemours & company ( “ dupont ” ) and bp biofuels north america llc ( “ bp ” and , together with butamax and dupont , the “ butamax parties ” ) , ending a patent dispute related to technologies for the production of bio-based isobutanol . the settlement ends all of the lawsuits and creates a new relationship between the companies , aimed at leveraging each other 's strengths and accelerating development of 54 competitive supply for bio-based isobutanol . for m ore information regarding the settlement agreement and the cross-license agreement , see item 1 “ business— butamax advanced biofuels llc and item 3 legal proceedings ” . ● in november 2015 , we entered into a license agreement and a joint development agreement with praj industries limited ( `` praj '' ) to enable the licensing of our isobutanol technology to processors of non-corn based sugars , including the majority of praj 's global customer base of ethanol plant owners . ● in december 2015 , we completed the sale of 2,050,000 series a units and 8,000,000 series b units . we received gross proceeds of approximately $ 10 million , not including any future proceeds from the exercise of the warrants . subsequent events ● on january 26 , 2016 , we filed a current report on form 8-k , stating that it had received a letter from the staff of the nasdaq stock market llc ( “ nasdaq ” ) providing notification that , for the previous 30 consecutive business days , the bid price for the company 's common stock had closed below the minimum $ 1.00 per share requirement for continued listing on the nasdaq capital market under nasdaq listing rule 5550 ( a ) ( 2 ) . story_separator_special_tag ● decrease the variable cost of producing isobutanol at our agri-energy facility to a range of $ 3.00- $ 3.50/gallon ( assumes corn price of $ 3.65 per bushel and nets the value of the isobutanol distiller 's grains ( the `` idgs '' ) , enabling isobutanol to be produced at a positive contribution margin , based on an expected average selling price for isobutanol of between $ 3.50- $ 4.50/gallon . ● increase sales of isobutanol into core markets such as the renewable alcohol-to-jet fuel , marina , off-road , isooctane and solvents markets . ● achieve an average quarterly corporate-wide ebitda burn rate ( excluding stock-based compensation ) of $ 3.5- $ 4.5 million per quarter . ● obtain astm international ( “ astm ” ) approval of a revision to astm d7566 ( standard specification for aviation turbine fuel containing synthesized hydrocarbons ) to include alcohol to jet synthetic paraffinic kerosene ( atj-spk ) derived from renewable isobutanol . if such approval is received from astm , this would allow our renewable jet fuel to be used as a blending component in standard jet a-1 for commercial airline use in the u.s. and elsewhere around the globe . as discussed above , the astm process is substantially complete as it relates to the approval of the d02.j ballot . in order to fully complete the process , the astm still needs to close the society review , perform a final ballot tally , and publish the revision of astm d7566 ( standard specification for aviation turbine fuel containing synthesized hydrocarbons ) on its website . a key to achieving the improvements described immediately above will be the successful deployment of approximately $ 5.0 million of capital expenditures at our agri-energy facility in minnesota which has taken place over the last 6 months . these capital improvements are primarily designed to decrease the cost of production for isobutanol by bringing `` in-house '' parts of the process that have previously been done by third parties . key equipment to be installed at the plant include a distillation system to purify isobutanol on-site , an addition to our seed train to allow us to produce its yeast on-site and a stainless steel fermenter to replace one of the existing carbon steel fermenters that has reached the end of its useful life . there can be no assurances that we will be able to achieve the operational and financial targets that we have established for 2016. if the low oil price environment continues , it may negatively impact the prices that we receive for the sale of our isobutanol , ethanol and hydrocarbon products . during 2015 , our revenue was negatively impacted by the low margins that we realized on our sales of ethanol . this may cause us to operate at lower , or negative , operating margins and , as a result , we may not be able to achieve one or more of the operational and financial targets described above . in addition , we may decide to reduce or suspend production of ethanol and or isobutanol at the agri-energy facility . 56 story_separator_special_tag including $ 1.0 million related to a payment we received from toray industries in 2012 for the design and construction of our bio-px demo plant . included in grant and other revenue is revenue associated with research and development and government grant agreements . grant and other revenue decreased in 2014 primarily from a $ 1.4 million decrease in grants received from coca-cola . corn sales for the year ended december 31 , 2013 relate to a one-time sale of excess corn inventory on hand during that period . cost of goods and corn sold . our cost of goods sold during the year ended december 31 , 2014 included $ 31.6 million associated with the production and sale of ethanol and isobutanol optimization costs and $ 4.0 million in depreciation expense . the increase in cost of goods sold is related to the production of very limited quantities of isobutanol and no ethanol at the agri-energy facility in 2013. our cost of goods and corn sold during the year ended december 31 , 2013 primarily includes the following : ( i ) $ 11.9 million in startup costs and fixed production costs of our agri-energy facility ; ( ii ) $ 3.4 million associated with costs related to the sale of excess corn inventory ; ( iii ) $ 2.1 million in depreciation expense ; and ( iv ) $ 0.5 million in non-cash expenses associated with the write-down of our corn inventory and changes in the fair value of our corn forward contracts . 59 research and development . research and development expenses decreased during the year ended december 31 , 2014 primarily due to a $ 2.9 million decrease related to hydrocarbon related activities and a $ 2.8 million decr ease related to reductions in salaries , consultant , contract staff and travel expenses . for the year ended december 31 , 2013 , research and development expenses related to the production of hydrocarbons included costs that were incurred to ( i ) increase our biojet fuel processing capability , ( ii ) test production quantities of biojet fuel for the u.s. air force , u.s. army and u.s. navy and ( iii ) establish a bio-px demonstration plant under our agreement with toray industries . selling , general , administrative and other . the decrease in selling , general , administrative and other expenses during the year ended december 31 , 2014 resulted from decreases of $ 2.8 million in salary and compensation-related expenses associated with an overall reduction in force , $ 3.6 million in legal-related expenses , including expenses in support of our ongoing litigation with butamax , and $ 0.5 million in other selling , general and administrative expenses . interest expense . interest expense increased during the year ended december 31 , 2014 primarily as a result of interest expense associated with the private debt financing of the 2017 notes with whitebox advisors , llc .
| results of operations comparison of the years ended december 31 , 2015 and 2014 ( in thousands ) replace_table_token_5_th revenues . during the twelve months ended december 31 , 2015 , we recognized revenue of $ 27.1 million associated with the sale of 15.1 million gallons of ethanol , as well as isobutanol and related products , an increase in revenue of $ 3.6 million from the twelve months ended december 31 , 2014 primarily related to increased production at the agri-energy facility . hydrocarbon revenue decreased during the twelve months ended december 31 , 2015 primarily as a result of the shipment of bio-px ( “ bio-px ” ) to toray industries in may 2014 for which we recognized $ 1.5 million of revenue . additional decreases in hydrocarbon revenue are a result of a temporary halt in production at our demonstration plant located at the south hampton facility while we renegotiated our contract with south hampton . cost of goods sold . our cost of goods sold during the twelve months ended december 31 , 2015 included $ 33.1 million associated with the production of ethanol , isobutanol and related products and $ 5.7 million in depreciation expense . cost of goods sold increased during the twelve months ended december 31 , 2015 primarily due to increased production of ethanol as compared to the prior year . research and development expense . research and development expenses decreased during the twelve months ended december 31 , 2015 primarily due to a $ 4.1 million decrease related to a reduction in the number of employees , decreased expenditures for consultants and contract staff , a $ 1.7 million decrease in costs related to the south hampton facility , and a $ 1.3 million decrease in lab consumables . selling , general and administrative expense .
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although management believes that the expectations reflected in such forward-looking statements are reasonable , actual results may differ materially from those expressed or implied in such statements . risks and uncertainties that could cause actual results to differ materially include , without limitation : the ever-changing effects of the novel coronavirus ( covid-19 ) pandemic - - the duration , extent and severity of which are impossible to predict , including the possibility of further resurgence in the spread of covid-19 - - on economies ( local , national and international ) and markets , and on our customers , counterparties , employees and third-party service providers , as well as the effects of various responses of governmental and nongovernmental authorities to the covid-19 pandemic , including public health actions directed toward the containment of the covid-19 pandemic ( such as quarantines , shut downs and other restrictions on travel and commercial , social or other activities ) , the development , availability and effectiveness of vaccines , and the implementation of fiscal stimulus packages ; the impact of future governmental and regulatory actions upon our participation in and execution of government programs related to the covid-19 pandemic ; -40- park 's ability to execute our business plan successfully and within the expected timeframe as well as our ability to manage strategic initiatives in light of the impact of the covid-19 pandemic and the various responses to the covid-19 pandemic ; general economic and financial market conditions , specifically in the real estate markets and the credit markets , either nationally or in the states in which park and our subsidiaries do business , may experience a weaker recovery than anticipated , in addition to the continuing impact of the covid-19 pandemic on our customers ' operations and financial condition , either of which may result in adverse impacts on the demand for loan , deposit and other financial services , delinquencies , defaults and counterparties ' inability to meet credit and other obligations and the possible impairment of collectability of loans ; factors that can impact the performance of our loan portfolio , including real estate values and liquidity in our primary market areas , the financial health of our commercial borrowers and the success of construction projects that we finance , including any loans acquired in acquisition transactions ; the effect of monetary and other fiscal policies ( including the impact of money supply and interest rate policies of the federal reserve board ) as well as disruption in the liquidity and functioning of u.s. financial markets , as a result of the covid-19 pandemic and government policies implemented in response thereto , may adversely impact prepayment penalty income , mortgage banking income , income from fiduciary activities , the value of securities , deposits and other financial instruments , in addition to the loan demand and the performance of our loan portfolio , and the interest rate sensitivity of our consolidated balance sheet as well as reduce interest margins ; changes in consumer spending , borrowing and saving habits , whether due to changes in retail distribution strategies , consumer preferences and behavior , changes in business and economic conditions ( including as a result of the covid-19 pandemic and reactions thereto ) , legislative and regulatory initiatives ( including those undertaken in response to the covid-19 pandemic ) , or other factors may be different than anticipated ; changes in unemployment levels in the states in which park and our subsidiaries do business may be different than anticipated due to the continuing impact of the covid-19 pandemic ; changes in customers ' , suppliers ' , and other counterparties ' performance and creditworthiness may be different than anticipated due to the continuing impact of the covid-19 pandemic ; the adequacy of our internal controls and risk management program in the event of changes in the market , economic , operational ( including those which may result from more of our associates working remotely ) , asset/liability repricing , legal , compliance , strategic , cybersecurity , liquidity , credit and interest rate risks associated with park 's business ; competitive pressures among financial services organizations could increase significantly , including product and pricing pressures ( which could in turn impact our credit spreads ) , changes to third-party relationships and revenues , changes in the manner of providing services , customer acquisition and retention pressures , and our ability to attract , develop and retain qualified banking professionals ; uncertainty regarding the nature , timing , cost and effect of changes in banking regulations or other regulatory or legislative requirements affecting the respective businesses of park and our subsidiaries , including major reform of the regulatory oversight structure of the financial services industry and changes in laws and regulations concerning taxes , fdic insurance premium levels , pensions , bankruptcy , consumer protection , rent regulation and housing , financial accounting and reporting , environmental protection , insurance , bank products and services , bank and bank holding company capital and liquidity standards , fiduciary standards , securities and other aspects of the financial services industry , specifically the reforms provided for in the coronavirus aid , relief and economic security ( cares ) act and the follow-up legislation in the consolidated appropriations act , 2021 , the dodd-frank wall street reform and consumer protection act of 2010 ( the “ dodd-frank act ” ) and the basel iii regulatory capital reforms , as well as regulations already adopted and which may be adopted in the future by the relevant regulatory agencies , including the consumer financial protection bureau , the office of the comptroller of the currency , the federal deposit insurance corporation , and the federal reserve board , to implement the provisions of the cares act and the follow-up legislation in the consolidated appropriations act , 2021 , the provisions of the dodd-frank act , and the basel iii regulatory capital reforms ; the effect of changes in accounting policies and practices , as may be adopted by the financial accounting standards board ( the `` fasb '' ) story_separator_special_tag items impacting comparability of period results from time to time , revenue , expenses , and or taxes are impacted by items judged by management of park to be outside of ordinary banking activities and or by items that , while they may be associated with ordinary banking activities , are so unusually large that their outsized impact is believed by management of park at that time to be infrequent or short-term in nature . most often , these items impacting comparability of period results are due to merger and acquisition activities , management restructuring , branch closures , a rebranding initiative , covid-19 related expenses and revenue and expenses related to former vision bank loan relationships . in other cases , they may result from management 's decisions associated with significant corporate actions outside of the ordinary course of business . even though certain revenue and expense items are naturally subject to more volatility than others due to changes in market and economic environment conditions , as a general rule volatility alone does not result in the inclusion of an item as one -42- impacting comparability of period results . for example , changes in the provision for loan losses ( aside from those related to former vision bank loan relationships ) , gains ( losses ) on equity securities , and asset valuation writedowns , reflect ordinary banking activities and are , therefore , typically excluded from consideration as items impacting comparability of period results . management believes the disclosure of items impacting comparability of period results provides a better understanding of our performance and trends and allows management to ascertain which of such items , if any , to include or exclude from an analysis of our performance ; i.e. , within the context of determining how that performance differed from expectations , as well as how , if at all , to adjust estimates of future performance taking such items into account . items impacting comparability of the results of particular periods are not intended to be a complete list of items that may materially impact current or future period performance . non-u.s. gaap ratios park 's management uses certain non-u.s. gaap financial measures to evaluate park 's performance . specifically , management reviews the ratio of tangible equity to tangible assets . management has included in this management 's discussion and analysis of financial condition and results of operation , information relating to the ratio of tangible equity to tangible assets . for the purpose of calculating the ratio of tangible equity to tangible assets , a non-u.s. gaap financial measure , tangible equity is divided by tangible assets . tangible equity equals total shareholders ' equity less goodwill and other intangible assets , in each case at period end . tangible assets equals total assets less goodwill and other intangible assets , in each case at period end . management believes that the disclosure of the ratio of tangible equity to tangible assets presents additional information to the reader of the consolidated financial statements , which , when read in conjunction with the consolidated financial statements prepared in accordance with u.s. gaap , assists in analyzing park 's operating performance , ensures comparability of operating performance from period to period , and facilitates comparisons with the performance of park 's peer financial holding companies and bank holding companies , while eliminating certain non-operational effects of acquisitions . within the `` contractual obligations - capital '' section of this management 's discussion and analysis of financial condition and results of operations , park has provided detail of the reconciliation of tangible equity to total shareholders ' equity and of tangible assets to total assets solely for the purpose of complying with sec regulation g and not as an indication that the ratio of tangible equity to tangible assets is a substitute for the ratio of total shareholders ' equity to total assets as determined in accordance with u.s. gaap . fte ( fully taxable equivalent ) ratios interest income , yields , and ratios on a fte basis are considered non-u.s. gaap financial measures . management believes net interest income on a fte basis provides a clearer picture of the interest margin for comparison purposes . the fte basis also allows management to assess the comparability of revenue arising from both taxable and tax-exempt sources . the fte basis assumes a federal statutory tax rate of 21 % . in the tables included within the `` analysis of earnings - net interest income '' section of this management 's discussion and analysis of financial condition and results of operations , park has provided detail of fte interest income solely for the purpose of complying with sec regulation g and not as an indication that fte interest income , yields and ratios are substitutes for interest income , yields and ratios , as determined in accordance with u.s. gaap . paycheck protection program ( `` ppp '' ) loans park originated $ 543.1 million in loans as part of the ppp . these loans are not typical of park 's loan portfolio in that they are part of a specific government program to support businesses during the covid-19 pandemic and are 100 % guaranteed by the small business administration ( `` sba '' ) . as such , management considers growth in the loan portfolio excluding ppp loans , the total allowance for loan losses on originated loans to total originated loans ratio ( excluding ppp loans ) , and general reserve as a % of total originated loans ( excluding acquisitions ) less impaired commercial loans ( excluding ppp loans ) in addition to the related u.s. gaap metrics which are not adjusted for ppp loans . story_separator_special_tag style= '' bottom:0 ; position : absolute ; width:100 % '' > -45- park considers a loan out of deferral when the first regular payment is due and that payment is subsequently made .
| overview covid-19 considerations banking has been identified by federal and state governmental authorities to be an essential service and park is fully -43- committed to continue serving our customers and communities through the covid-19 public health crisis . for those in our communities experiencing a financial hardship , park has offered various methods of support including loan modifications , payment deferral programs , participation in the ppp , planned participation in additional ppp loans authorized under the consolidated appropriations act , 2021 , and various other case by case accommodations . park has implemented various physical distancing guidelines to help protect associates , such as allowing associates to work from home , where practical , while maintaining customer service via our online banking services , mobile app , and atms , by keeping drive-thru lanes open to serve customers , maintaining selective open branch offices , and offering other banking services by appointment when necessary . during 2020 , park provided calamity pay and special one-time bonuses to certain associates . the cost of the calamity pay and special bonuses amounted to $ 3.6 million for the year ended december 31 , 2020 , and is included within salaries expense . paycheck protection program through december 31 , 2020 , park had approved and funded 4,439 loans totaling $ 543.1 million under the ppp . these ppp loans had an average principal balance of $ 122,000. of the $ 543.1 million in ppp loans , 21 loans totaling $ 68.2 million had a principal balance that was greater than $ 2 million . for its assistance in making and retaining the 4,439 loans , park has received an aggregate of $ 20.2 million in fees from the sba , of which $ 13.7 million were recognized within loan interest income during the year ended december 31 , 2020. park funded the ppp loans with excess on-balance sheet liquidity .
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