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however , any future dividends will be reviewed individually and declared by our board of directors at its discretion , dependent on our assessment of the company 's financial condition and business outlook at the applicable time . outlook we are pleased with the company 's 2018 financial results . overall demand remains solid , as incoming orders increased 5.7 % in 2018 as compared to 2017 across the majority of our markets . we ended 2018 with a backlog of orders of $ 113.7 million which is consistent with the backlog at the end of 2017. as material costs have risen primarily as a result of inflation and tariffs , we have implemented pricing actions that we expect to offset these inflationary pressures and will continue to closely monitor material costs and pricing going forward . our underlying fundamentals remain strong and we believe that we remain well positioned to drive long-term growth . our strong balance sheet provides us with the flexibility to continue to evaluate acquisition opportunities and new product development that we expect will help add value to our operations over the longer term . in addition , increased emphasis on infrastructure improvements at both the federal and state levels , coupled with the impact of lower taxes , could be other positive factors over the next several years . results of operations 2018 compared to 2017 : in 2017 , due primarily to the continued decreased demand for barge pumps for the marine transportation market driven by low oil prices and overcapacity of inland barges , the bayou city pump company ( bayou ) reporting unit recorded pre-tax non-cash goodwill and intangible asset impairment charges of $ 4.1 million . see note 9 to the consolidated financial statements , goodwill and other intangible assets . in 2018 and 2017 , due to increased employee retirements and related lump sum pension payments , the company recorded u.s. gaap-required and actuarially-determined $ 2.9 million and $ 4.0 million non-cash pension settlement charges , respectively . net sales year ended december 31 , 2018 2017 $ change % change net sales $ 414,334 $ 379,389 $ 34,945 9.2 % net sales for 2018 were $ 414.3 million compared to $ 379.4 million for 2017 , an increase of 9.2 % or $ 34.9 million . domestic sales increased 12.4 % or $ 30.0 million and international sales increased 3.5 % or $ 4.9 million compared to 2017 . 14 sales in our water markets increased 9.9 % or $ 25.9 million in 2018 compared to 2017. sales in the municipal market increased $ 8.1 million and sales in the fire protection market increased $ 7.0 million , which were both driven by domestic sales related to infrastructure needs and improved economic conditions . sales in the construction market increased $ 6.2 million due primarily to increased oil and gas drilling activity , and sales of repair parts increased $ 4.2 million driven by favorable economic conditions . in addition , sales in the agriculture market increased $ 0.4 million . sales increased 7.6 % or $ 9.0 million in our non-water markets during 2018 compared to 2017. sales in the industrial and petroleum markets increased a combined $ 9.8 million due principally to increased capital spending related to oil and gas drilling activity . these increases were partially offset by decreased sales in the oem market of $ 0.8 million . international sales were $ 142.5 million in 2018 compared to $ 137.6 million in 2017 and represented 34.4 % and 36.3 % of total sales for the company in each of the two years , respectively . international sales increased in all markets except the oem and agriculture markets . cost of products sold and gross profit replace_table_token_7_th gross profit was $ 109.9 million for 2018 , resulting in gross margin of 26.5 % , compared to gross profit of $ 101.2 million and gross margin of 26.7 % for 2017. gross margin decreased 20 basis points largely driven by an unfavorable lifo impact of 70 basis points , partially offset by lower healthcare expense . selling , general and administrative ( sg & a ) expenses replace_table_token_8_th sg & a expenses were $ 59.3 million and 14.3 % of net sales for 2018 compared to $ 55.5 million and 14.6 % of net sales for 2017. in 2018 , a special cash bonus paid to all employees impacted sg & a expenses by $ 1.3 million or 30 basis points . excluding this special cash bonus , sg & a expenses as a percentage of sales improved 60 basis points as a result of leverage from increased sales volume . operating income replace_table_token_9_th operating income was $ 50.6 million , resulting in operating margin of 12.2 % for 2018 , compared to operating income of $ 41.6 million and operating margin of 11.0 % for 2017. included in 2018 operating income was a special cash bonus paid to all employees of $ 1.3 million or 30 basis points . included in 2017 operating income 15 were non-cash impairment charges of $ 4.1 million or 100 basis points . excluding these items , operating margin improved 50 basis points due principally to leverage from increased sales volume and lower healthcare expense , partially offset by an unfavorable lifo impact . net income replace_table_token_10_th the company 's effective tax rate decreased to 20.5 % for 2018 from 32.6 % for 2017 , due primarily to the impact of the tax act enacted in december 2017. the effective tax rate for 2018 also benefited by 120 basis points from pension plan contributions eligible for tax deduction at the 35.0 % federal corporate tax rate for 2017 rather than the 21.0 % rate for 2018. the company 's current estimate of its full year 2019 effective income tax rate is between 22 % and 24 % . the increase in net income in 2018 compared to the same period in 2017 was due primarily to increased sales volume and the decrease in the effective tax rate . story_separator_special_tag net income in 2016 included a non-cash impairment charge of $ 1.2 million , net of income taxes . the effective tax rate in 2017 included $ 0.4 million net impact of the tax act enacted on december 22 , 2017. earnings per share for 2017 included non-cash impairment charges of $ 0.10 per share and a non-cash pension settlement charge of $ 0.10 per share . earnings per share for 2016 included a non-cash impairment charge of $ 0.05 per share partially offset by a gain on the sale of property , plant and equipment of $ 0.02 per share . liquidity and sources of capital cash and cash equivalents totaled $ 46.5 million and there was no outstanding bank debt at december 31 , 2018. in addition , the company had $ 23.1 million available in bank lines of credit after deducting $ 7.9 million in outstanding letters of credit primarily related to customer orders . the company was in compliance with its debt covenants , including limits on additional borrowings and maintenance of certain operating and financial ratios , at all times in 2018 and 2017. capital expenditures for 2019 , which are expected to consist principally of building expansion and machinery and equipment purchases , are estimated to be in the range of $ 15- $ 20 million and are expected to be financed through internally generated funds . during 2018 , 2017 and 2016 , the company financed its capital improvements and working capital requirements principally through internally generated funds . free cash flow , a non-gaap measure for reporting cash flow , is defined by the company as adjusted earnings before interest , income taxes and depreciation and amortization , less capital expenditures and dividends . 18 the company believes free cash flow provides investors with an important perspective on cash available for investments , acquisitions and working capital requirements . the following table reconciles adjusted earnings before interest , income taxes and depreciation and amortization as reconciled above to free cash flow : replace_table_token_15_th financial cash flow replace_table_token_16_th the change in cash provided by operating activities in 2018 compared to 2017 was primarily due to an increase in inventories and accounts receivable driven by increased sales volume , and increased income tax payments . the change in cash provided by operating activities in 2017 compared to 2016 was primarily due to a decrease in accounts receivable , more than offset by increased inventories and decreased commissions payable and benefit obligations . during 2018 , investing activities of $ 7.5 million primarily consisted of a $ 3.0 million decrease in short-term investments and $ 10.9 million of capital expenditures for machinery and equipment offset by $ 0.5 million of proceeds from the sale of property , plant and equipment . during 2017 , investing activities of $ 10.4 million primarily consisted of a $ 3.0 million increase in short-term investments and $ 7.8 million of capital expenditures for machinery and equipment offset by $ 0.3 million of proceeds from the sale of property , plant and equipment . during 2016 , investing activities of $ 8.5 million primarily consisted of capital expenditures for machinery and equipment , a new operations facility in africa , and other building improvements totaling $ 6.9 million as well as a payment for an acquisition , net of cash acquired , of $ 3.0 million , offset by proceeds from the sale of property , plant , and equipment of $ 1.4 million . net cash used for financing activities consisted of dividend payments of $ 65.6 million during 2018 , including $ 52.2 million related to a special dividend , $ 12.3 million during 2017 and $ 11.2 million during 2016. the company currently expects to continue its exceptional history of paying regular quarterly dividends and increased annual dividends . however , any future dividends will be reviewed individually and declared by our board of directors at its discretion , dependent on our assessment of the company 's financial condition and business outlook at the applicable time . 19 contractual obligations capital commitments in the table below include contractual commitments to purchase machinery and equipment that have been approved by the board of directors . the capital commitments do not represent the entire anticipated purchases in the future , but represent only those substantive items for which the company is contractually obligated as of december 31 , 2018. also , the company has some operating leases for certain offices , manufacturing facilities , land , office equipment and automobiles . rental expenses relating to these leases were $ 1.0 million in 2018 , $ 0.9 million in 2017 and $ 1.1 million in 2016. the following table summarizes the company 's contractual obligations at december 31 , 2018 : replace_table_token_17_th critical accounting policies the accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the united states . when more than one accounting principle , or the method of its application , is generally accepted , management selects the principle or method that is appropriate in the company 's specific circumstances . application of these accounting principles requires management to make estimates about the future resolution of existing uncertainties ; as a result , actual results could differ from these estimates . in preparing these consolidated financial statements , management has made its best estimates and judgments of the amounts and disclosures included in the consolidated financial statements , giving due regard to materiality . the company does not believe there is a great likelihood that materially different amounts would be reported under different conditions or using different assumptions pertaining to the accounting policies described below . revenue recognition the company accounts for revenue in accordance with accounting standards codification ( asc ) 606 , revenue from contracts with customers , under which the unit of account is a performance obligation . substantially all of our revenue is derived from fixed-price customer contracts and the majority of our customer contracts have a single performance obligation .
| executive overview the following discussion of results of operations includes certain non-gaap financial data and measures such as adjusted earnings before interest , taxes , depreciation and amortization and adjusted earnings per share amounts which exclude non-cash pension settlement charges in 2018 and 2017 and non-cash impairment charges relating to goodwill and other intangible assets in 2017 and 2016. management utilizes these adjusted financial data and measures to assess comparative operations against those of prior periods without the distortion of non-comparable factors . the gorman-rupp company believes that these non-gaap financial data and measures also will be useful to investors in assessing the strength of the company 's underlying operations from period to period . provided below is a reconciliation of adjusted earnings per share amounts and adjusted earnings before interest , taxes , depreciation and amortization . replace_table_token_6_th the gorman-rupp company ( we , our , gorman-rupp or the company ) is a leading designer , manufacturer and international marketer of pumps and pump systems for use in diverse water , wastewater , construction , dewatering , industrial , petroleum , original equipment , agriculture , fire protection , heating , ventilating and air conditioning ( hvac ) , military and other liquid-handling applications . the company attributes its success to long-term product quality , applications and performance combined with timely delivery and service , and continually seeks to develop initiatives to improve performance in these key areas . gorman-rupp actively pursues growth opportunities through organic growth , international business expansion and acquisitions . we regularly invest in training for our employees , in new product development and in modern manufacturing equipment , technology and facilities all designed to increase production efficiency and capacity and drive growth by delivering innovative solutions to our customers . we believe that the diversity of our markets is a major contributor to the generally stable financial growth we have produced over the past 85 years .
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it also provides a brief description of significant transactions and events that affect the comparability of financial results and a discussion of the progress being made on our strategic initiatives . consolidated results of operations . this section , beginning on page 31 , provides an analysis of our consolidated results of operations for the three years ended december 31 , 2016 . segment results of operations . this section , beginning on page 36 , provides an analysis of each business segment for the three years ended december 31 , 2016 as well as corporate items and eliminations . 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 46 , provides an analysis of our cash flows for the three years ended december 31 , 2016 . we also discuss restrictions on cash movements , future commitments and capital resources . critical accounting policies , estimates and recent accounting pronouncements . this section , beginning on page 49 , 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 51 , provides a discussion of off-balance sheet arrangements to the extent they exist . in addition , we provide a tabular discussion of contractual obligations , discuss any significant commitments or contingencies and customer concentration . overview our business we are a premier marketplace and transaction solutions provider for the real estate , mortgage and consumer debt industries . altisource 's proprietary business processes , vendor and electronic payment management software and behavioral science-based analytics improve outcomes for marketplace participants . our business segments are based upon our organizational structure , which focuses primarily on the services offered , and are consistent with the internal reporting used by our chief executive officer to evaluate operating performance and to assess the allocation of our resources . we classify our businesses into three reportable segments . the mortgage services segment provides loan servicers , originators , rental property investors and real estate consumers with products , services and technologies that span the mortgage and real estate lifecycle . the financial services segment provides collection services primarily to debt originators and servicers ( e.g. , credit card , auto lending , retail credit and mortgage ) and customer relationship management services primarily to the utility , insurance and hotel industries . the technology services segment provides software and data analytics solutions that support the management of mortgage and real estate activities and marketplace transactions across the mortgage and real estate lifecycles and it infrastructure management services . in addition , corporate items and eliminations include eliminations of transactions between reportable segments , interest expense and costs related to corporate support functions including executive , finance , law , compliance , human resources , vendor management , risk management and sales and marketing costs not allocated to the business units . corporate items and eliminations also include the cost of certain facilities . we classify revenue in three categories : service revenue , revenue from reimbursable expenses and non-controlling interests . in evaluating our performance , we focus on service revenue . service revenue consists of amounts attributable to our fee-based services . reimbursable expenses and non-controlling interests are pass-through items for which we earn no margin . reimbursable expenses consist of amounts we incur on behalf of our customers in performing our fee-based services that we pass directly on to our customers without a markup . non-controlling interests represent the earnings of lenders one and wholesale one , consolidated entities not owned by altisource , and are included in revenue and reduced from net income to arrive at net income attributable to altisource . 27 we have prepared our consolidated financial statements in accordance with accounting principles generally accepted in the united states of america ( “ gaap ” ) . strategy and growth initiatives altisource provides a suite of mortgage , real estate and consumer debt services , leveraging our technology platform and global operations . altisource is focused on becoming one of the premier providers of mortgage and real estate marketplaces and related services to a broad and diversified customer base . within the mortgage and real estate markets , we facilitate transactions and provide products , solutions and services related to home sales , home purchases , home rentals , home maintenance , mortgage origination and mortgage servicing . strategically , we are focused on ( 1 ) our four key business initiatives discussed below , ( 2 ) continuing to strengthen our compliance management system and ( 3 ) maintaining strong performance and relationships with our strategic customers . each of our four key business initiatives positions altisource to grow and diversify our customer and revenue base . we believe these initiatives address very large markets and directly leverage our core competencies and distinct competitive advantages . our four strategic initiatives and a brief description of each follow : mortgage market : grow our servicer solutions business ( the products , services and technologies typically used or licensed by loan servicers ) : we are focused on growing referrals from our existing customer base , expanding the service and proprietary technology offerings to our customer base , and attracting new customers to our offerings . we have a strong and growing customer base that includes ocwen , a gse and several top ten bank servicers . even as loan delinquencies return to historical norms , we believe there is a very large addressable market for our offerings . we believe we are one of only a few providers with a broad suite of servicer solutions , nationwide coverage and demonstrated scalability . story_separator_special_tag technology services revenue from ocwen and investment in technologies provided to ocwen ; on july 29 , 2016 , we acquired certain assets and assumed certain liabilities of granite for $ 9.5 million ; on october 9 , 2015 , we acquired rentrange and investability for $ 24.8 million composed of $ 17.5 million in cash at closing and 247 thousand shares of restricted common stock of the company with a value of $ 7.3 million as of the closing date ; on july 17 , 2015 , we acquired castleline for $ 33.4 million . the purchase consideration was composed of $ 12.3 million of cash at closing , $ 10.5 million of cash payable over four years from the acquisition date and 495 thousand shares of restricted common stock of the company with a value of $ 14.4 million as of the closing date . of the cash payable following acquisition , $ 3.8 million is contingent on certain future employment conditions of certain of the sellers , and therefore excluded from the purchase price ; in 2015 , we paid the former owners of equator $ 0.5 million to extinguish any liability for the equator earn out . in connection with this settlement , we reduced the liability for the equator earn out to $ 0 and recognized a $ 7.6 million increase in earnings ; during 2015 , we recognized a loss on the sale of equity securities of hlss , net of dividends received , of $ 1.9 million ; effective march 31 , 2015 , we terminated the data access and services agreement with ocwen ( “ data access agreement ” ) ; on november 21 , 2014 , we acquired owners for a purchase price of $ 19.8 million ; in the fourth quarter of 2014 , we discontinued our lender placed insurance brokerage line of business ; on september 12 , 2014 , we acquired mortgage builder for an initial purchase price of $ 15.7 million ; on august 1 , 2014 , we amended our senior secured term loan agreement and increased our borrowings by $ 200.0 million to $ 594.5 million ; bad debt expense was higher in 2014 , driven primarily from the default management services business . a change in many of our default management services customers ' business models and fourth quarter 2014 discussions with these customers led us to believe that a portion of the accounts receivable balance was no longer collectible ; and 29 the effective income tax rates for the years ended december 31 , 2016 , 2015 and 2014 were 29.2 % , 15.6 % and 6.9 % , respectively . the variability in the effective income tax rate is primarily from changes in the mix of taxable income across the jurisdictions in which we operate . 30 consolidated results of operations summary consolidated results following is a discussion of our consolidated results of operations for the years ended december 31 , 2016 , 2015 and 2014 . for a more detailed discussion of the factors that affected the results of our business segments in these periods , see “ segment results of operations ” below . the following table sets forth information on our results of operations for the years ended december 31 : replace_table_token_10_th ( 1 ) these are non-gaap measures that are defined and reconciled to the corresponding gaap measures on pages 25 and 26 . n/m — not meaningful . 31 revenue we recognized service revenue of $ 942.6 million , $ 940.9 million and $ 938.7 million for the years ended december 31 , 2016 , 2015 and 2014 , respectively . the increase in service revenue for the year ended december 31 , 2016 was primarily driven by revenue growth in the mortgage services segment from an early 2015 change in the pricing and billing model for preservation services on new ocwen reo referrals that resulted in certain services that were historically reimbursable expenses revenue becoming service revenue and increased volumes of higher value property preservation referrals . this increase was partially offset by lower service revenue in the technology services and financial services segments . service revenue in the technology services segment declined from lower rates charged to ocwen for certain software services , decreases in it infrastructure services , which are typically billed on a cost plus basis , and a decline in the number of loans on realservicing . during the fourth quarter of 2015 , we began transitioning resources supporting ocwen 's technology infrastructure to ocwen as a part of the previously announced separation of technology infrastructure . these transitions continued throughout 2016. service revenue in the financial services segment declined from lower customer relationship management business as we have severed relationships with and reduced the volume of services provided to certain clients that were not profitable to us , and we experienced a reduction in volume from the transition of services provided to one customer to another . the increase in service revenue for 2015 compared to 2014 was primarily due to revenue expansion in the asset management services businesses primarily from growth in both the number of non-ocwen and ocwen reo properties sold on hubzu ® , increased volumes of property preservation services for residential , higher revenue from software development and a full year of revenue from the september 2014 acquisition of mortgage builder . in addition , in early 2015 , the pricing model to ocwen for reo preservation services within asset management services changed , as described above . these increases were largely offset by the discontinuation of the lender placed insurance brokerage line of business in the fourth quarter of 2014 , lower equator revenue from the full amortization of acquisition related deferred revenue in 2014 , fewer property valuation services referrals , decreased property inspection volumes , lower mortgage charge-off collections and a decrease in it infrastructure services . certain of our revenues are impacted by seasonality .
| segment results of operations the following section provides a discussion of pretax results of operations of our business segments . transactions between segments are accounted for as third party arrangements for purposes of presenting segment results of operations . intercompany transactions primarily consist of it infrastructure management services , which are billed on a cost plus basis , and professional services billed by technology services . we reflect these as service revenue in the technology services segment and technology and telecommunications costs within cost of revenue and sg & a in the segment receiving the services . financial information for our segments is as follows : replace_table_token_13_th n/m — not meaningful . 36 replace_table_token_14_th n/m — not meaningful . replace_table_token_15_th n/m — not meaningful . 37 mortgage services revenue revenue by service line was as follows for the years ended december 31 : replace_table_token_16_th we recognized service revenue of $ 749.9 million for the year ended december 31 , 2016 , an 11 % increase compared to the year ended december 31 , 2015 . the increase was primarily due to revenue growth in the asset management services businesses from an early 2015 change in the pricing and billing model for preservation services on new ocwen reo referrals that resulted in certain services that were historically reimbursable expenses revenue becoming service revenue , increased volumes of higher value property preservation referrals and growth in the percentage of homes sold through auction on hubzu . revenue growth in origination services was from new customers and volume growth with existing customers . these increases were partially offset by decreases in residential property valuation services , insurance services and default management services , from a decline in the average number of delinquent loans serviced by ocwen .
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to determine revenue recognition for arrangements that are within the scope of financial accounting standards board ( `` fasb `` ) accounting standards codification ( `` asc `` ) topic 606 , revenue from contracts with customers ( `` asc 606 `` ) , the company performs the following five steps : ( i ) identify the contract ( s ) with a customer , ( ii ) identify the promises and distinct performance obligations in the contract , ( story_separator_special_tag the following discussion and analysis of financial condition and results of operations is provided to enhance the understanding of , and should be read in conjunction with , part i , item 1 , `` business '' and item 8 , `` financial statements and supplementary data . '' for information on risks and uncertainties related to our business that may make past performance not indicative of future results , or cause actual results to differ materially from any forward-looking statements , see `` special note regarding forward-looking statements , '' and part i , item 1a , `` risk factors . '' financial overview we have incurred significant losses since our inception . we anticipate that we may continue to incur significant losses for the foreseeable future , and we may never achieve or maintain profitability . our historical collaboration and licensing revenues were generated under a business model from which we have gradually transitioned , and we do not expect to expend significant resources servicing our historical collaborations in the future . we may enter into strategic transactions for individual platforms or programs in the future from which we may generate new collaboration and licensing revenues . we continue to generate product and service revenues through our trans ova and exemplar subsidiaries , and in 2020 , both of these subsidiaries generated positive segment adjusted ebitda . products currently in our clinical pipeline will require regulatory approval and or commercial scale-up before they may commence significant product sales and operating profits . in january 2020 , as part of our efforts to focus our business on the healthcare industry , we sold a number of our non-healthcare assets to ts biotechnology and separately sold our interest in enviroflight to darling , referred to collectively as the transactions . we determined that the assets , liabilities and operations sold in the transactions collectively met the criteria for discontinued operations and have been reclassified and presented as such for all periods . as a result of market uncertainty driven by the covid-19 pandemic and the state of the energy sector raising significant challenges for the strategic alternatives pursued by mbp titan , beginning in the second quarter of 2020 and throughout the remainder of 2020 , we suspended mbp 70 table of contents titan 's operations , preserved certain of mbp titan 's intellectual property , terminated all of its personnel , and undertook steps to dispose of its other assets and obligations . the wind down of mbp titan 's activities was substantially complete by december 31 , 2020 , with the final disposition of certain property and equipment and the facility operating lease occurring in january 2021. as of december 31 , 2020 , we determined that the assets , liabilities , and expenses related to the discontinued operations of mbp titan met the criteria for discontinued operations . see `` notes to the consolidated financial statements - note 3 '' appearing elsewhere in this annual report for further discussion of discontinued operations . additionally , as we continue our efforts to focus our business and generate additional capital , we may be willing to enter into transactions involving one or more of our operating segments and reporting units for which we have goodwill and intangible assets . these efforts could result in us identifying impairment indicators or recording impairment charges in future periods . in addition , market changes and changes in judgments , assumptions and estimates that we have made in assessing the fair value of goodwill could cause us to consider some portion or all of certain assets to become impaired . sources of revenue historically , we have derived our collaboration and licensing revenues through agreements with counterparties for the development and commercialization of products enabled by our technologies . generally , the terms of these collaborations provide that we receive some or all of the following : ( i ) technology access fees upon signing ; ( ii ) reimbursements of costs incurred by us for our research and development and or manufacturing efforts related to specific applications provided for in the collaboration ; ( iii ) milestone payments upon the achievement of specified development , regulatory and commercial activities ; and ( iv ) royalties on sales of products arising from the collaboration . our technology access fees and milestone payments may be in the form of cash or securities of the collaborator . our collaborations contain multiple arrangements , and we typically defer revenues from the technology access fees and milestone payments received and recognize such revenues in the future over the anticipated performance period . we are also entitled to sublicensing revenues in those situations where our collaborators choose to license our technologies to other parties . as we continue to shift our focus on our healthcare business , we have and may continue to mutually terminate collaboration agreements or repurchase rights to the exclusive fields from collaborators , relieving us of any further performance obligations under the agreement . upon such circumstances or when we determine no further performance obligations are required of us under an agreement , we may recognize any remaining deferred revenue as either collaboration revenue or as a reduction of operating expense , depending on the circumstances . see `` notes to the consolidated financial statements - note 6 '' appearing elsewhere in this annual report for a discussion of changes to our significant collaborations . we generate product and service revenues primarily through sales of products or services that are created from technologies developed or owned by us . story_separator_special_tag other significant sg & a expenses include rent and utilities , insurance , accounting , and legal services ( including the cost of settling any claims and lawsuits ) , and expenses associated with obtaining and maintaining our intellectual property . sg & a expenses may fluctuate in the future depending on the scaling of our corporate functions required to support our corporate initiatives , and the outcomes of legal claims and assessments against us . other income ( expense ) , net we historically held equity securities and preferred stock of private and publicly traded companies , including investments received and or purchased from certain collaborators . these equity securities and preferred stock were recorded at fair value at each reporting date . unrealized appreciation ( depreciation ) resulting from fair value adjustments were reported as other income ( expense ) in the consolidated statements of operations . in january 2020 , as part of the ts biotechnology sale , we sold our remaining equity securities and investment in preferred stock , and therefore , no future gains ( losses ) will be incurred . interest expense is expected to increase in future periods due to the noncash amortization of the long-term debt discount and debt issuance costs related to the convertible notes due july 2023. interest income consists of interest earned on our cash and cash equivalents and short-term investments and may fluctuate based on amounts invested and current interest rates . dividend income historically consisted of the monthly preferred stock dividends received from our investments in preferred stock , all of which have been liquidated as of december 31 , 2020. equity in net income ( loss ) of affiliates equity in net income or loss of affiliates is our pro-rata share of our equity method investments ' operating results , adjusted for accretion of basis difference . we account for investments in our jvs using the equity method of accounting since we have the ability to exercise significant influence , but not control , over the operating activities of these entities . we previously accounted for our investments in start-up entities backed by harvest using the equity method of accounting . in december 2020 , we entered into an agreement with harvest to resolve matters related to the parties ' contractual and equity relationships and our remaining equity interests in start-up entities backed by harvest were terminated . 73 table of contents segment performance we use segment adjusted ebitda as our primary measure of segment performance . we define segment adjusted ebitda as net loss before ( i ) interest expense , ( ii ) income tax expense or benefit , ( iii ) depreciation and amortization , ( iv ) stock-based compensation expense , ( v ) loss on settlement agreements where noncash consideration is paid , ( vi ) adjustments for accrued bonuses paid in equity awards , ( vii ) loss on impairment of goodwill and other noncurrent assets , ( viii ) equity in net loss of affiliates , and ( ix ) recognition of previously deferred revenue associated with upfront and milestone payments as well as cash outflows from capital expenditures and investments in affiliates . corporate expenses are not allocated to the segments and are managed at a consolidated level . see `` notes to the consolidated financial statements - note 20 '' appearing elsewhere in this annual report for further discussion of segment adjusted ebitda . story_separator_special_tag by an increase in legal fees associated with litigation matters , including our settlement with the sec . 77 table of contents comparison of the year ended december 31 , 2019 to the year ended december 31 , 2018 the following table summarizes our results of operations for the years ended december 31 , 2019 and 2018 , together with the changes in those items in dollars and as a percentage : replace_table_token_12_th ( 1 ) including $ 11,832 and $ 55,573 from related parties for the years ended december 31 , 2019 and 2018 , respectively . ( 2 ) see `` notes to the consolidated financial statements - note 3 '' appearing elsewhere in this annual report . 78 table of contents collaboration and licensing revenues the following table shows the collaboration and licensing revenue recognized for the years ended december 31 , 2019 and 2018 , together with the changes in those items . replace_table_token_13_th ( 1 ) for the years ended december 31 , 2019 and 2018 , revenue recognized from collaborations with harvest start-up entities include thrive agrobiotics , inc. ; exotech bio , inc. ; and ad skincare , inc. for the year ended december 31 , 2018 , revenues recognized from collaborations with harvest start-up entities also include genten therapeutics , inc. and crs bio , inc. collaboration and licensing revenues decreased $ 55.5 million , or 80 percent , from the year ended december 31 , 2018 primarily due to the reacquisition of rights previously licensed to certain collaborators , including ziopharm , ares trading , and certain of the harvest start-up entities , the result of which eliminated or substantially reduced revenues generated from those collaborations . additionally , in 2018 , we recognized additional revenues which arose from the acceleration of previously deferred revenue upon mutual termination of certain collaborations . product revenues and gross margin product revenues decreased $ 4.7 million , or 17 percent , from the year ended december 31 , 2018. the decrease in product revenues was primarily due to lower customer demand in the beef and dairy industries resulting in fewer sales of pregnant cows and calf products . gross margin on products declined in the current period as a result of fewer products sold . service revenues and gross margin service revenues decreased $ 0.6 million , or 1 percent , from the year ended december 31 , 2018. trans ova 's service revenues and gross margin thereon declined slightly due to fewer services performed and underutilized capacity as a result of lower customer demand .
| results of operations comparison of the year ended december 31 , 2020 to the year ended december 31 , 2019 the following table summarizes our results of operations for the years ended december 31 , 2020 and 2019 , together with the changes in those items in dollars and as a percentage : replace_table_token_8_th ( 1 ) including $ 3,053 and $ 11,832 from related parties for the years ended december 31 , 2020 and 2019 , respectively . ( 2 ) see `` notes to the consolidated financial statements - note 3 '' appearing elsewhere in this annual report . 74 table of contents collaboration and licensing revenues the following table shows the collaboration and licensing revenue recognized for the years ended december 31 , 2020 and 2019 , together with the changes in those items . replace_table_token_9_th ( 1 ) for the year ended december 31 , 2019 , revenue recognized from collaborations with harvest start-up entities include thrive agrobiotics , inc. ; exotech bio , inc. ; and ad skincare , inc. collaboration and licensing revenues increased $ 7.1 million , or 51 percent , over the year ended december 31 , 2019 primarily due to the accelerated recognition of previously deferred revenue upon the mutual terminations of collaborations with castle creek and oragenics in 2020. this increase was partially offset by a decrease in collaboration revenues related to programs that have been paused since the second half of 2019 while the other parties evaluate the status of the projects and their desired future development activities . product revenues and gross margin product revenues increased $ 0.6 million , or 2 percent , over the year ended december 31 , 2019. the increase in product revenue was primarily due to higher customer demand for animal products .
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because we elected to account for the credit card receivables underlying our formerly off-balance-sheet securitization structures at fair value , accounting rules require that we account for the notes payable issued by such securitization structures at fair value as well . for all of our other credit card receivables that have never been owned by our formerly off-balance-sheet securitization structures , we have not elected the fair value option , and we record such receivables at net realizable value within loans and fees receivable , net on our consolidated balance sheets . for story_separator_special_tag the following discussion should be read in conjunction with our consolidated financial statements and the related notes included therein , where certain terms ( including trust , subsidiary and other entity names and financial , operating and statistical measures ) have been defined . this management 's discussion and analysis of financial condition and results of operations includes forward-looking statements . we base these forward-looking statements on our current plans , expectations and beliefs about future events . there are risks , including the factors discussed in “ risk factors ” in item 1a and elsewhere in this report , that our actual experience will differ materially from these expectations . for more information , see “ cautionary notice regarding forward-looking statements '' at the beginning of this report . in this report , except as the context suggests otherwise , the words “ company , ” “ atlanticus holdings corporation , ” “ atlanticus , ” “ we , ” “ our , ” “ ours ” and “ us ” refer to atlanticus holdings corporation and its subsidiaries and predecessors . overview we utilize proprietary analytics and a flexible technology platform to provide various credit and related financial services and products to or associated with the financially underserved consumer credit market . currently , within our credit and other investments segment , we are applying the experiences gained and infrastructure built from funding over $ 25 billion in consumer loans over our 19-year operating history to originate a range of consumer loan products through our primary consumer brand , fortiva . as part of this brand , we market fortiva retail credit , fortiva personal loans and fortiva credit cards through multiple channels , including retail point-of-sale , direct mail solicitation , internet-based marketing and partnerships with third parties who have relationships with our core customers . in our point-of-sale channel , we partner with retailers and service providers in various industries across the u.s. to offer fortiva retail credit to their customers for the purchase of a variety of goods and services including consumer electronics , furniture , elective medical procedures , educational services and home-improvements . our flexible technology platform allows us to integrate our paperless process and instant decision-making capabilities with our partners ' technology infrastructure . these products are often extended to customers who may have been declined under traditional financing options . we specialize in providing this `` second-look '' credit service . additionally , we are able to market our general purpose fortiva personal loans and fortiva credit cards directly to consumers through additional channels , which enables us to reach consumers through a diverse origination platform that includes direct mail , internet-based marketing and through partnerships . our technology platform and proprietary analytics enable us to make instant credit decisions utilizing hundreds of inputs , from multiple sources and thereby offer credit to consumers overlooked by traditional providers of credit . by offering a range of products through a multitude of channels , we seek to provide the right type of credit , whenever and wherever the consumer has a need . using our infrastructure and technology platform , we also provide loan servicing , including underwriting , marketing , customer service and collections operations for third parties . also through our credit and other investments segment , we engage in testing and limited investment in consumer finance technology platforms as we seek to capitalize on our expertise and infrastructure . beyond these activities within our credit and other investments segment , we continue to collect on portfolios of credit card receivables . these receivables include both receivables we originated through third-party financial institutions and portfolios of receivables we purchased from third-party financial institutions . one of our portfolios of credit card receivables is encumbered by non-recourse structured financing , and for this portfolio our principal remaining economic interest is the servicing compensation we receive as an offset against our servicing costs given that the likely future collections on the portfolio are insufficient to allow for full repayment of the financing . additionally , we report within our credit and other investments segment the income earned from an investment in an equity-method investee that holds credit card receivables for which we are the servicer . lastly , we report within our credit and other investments segment , gains associated with investments previously made in consumer finance technology platforms . these include investments in companies engaged in mobile technologies , marketplace lending and other financial technologies . these investments are carried at the lower of cost or market valuation , and the remaining associated book value as of december 31 , 2015 is negligible given variations in the ascribed values since acquisition . some of these investees have raised , and continue to seek , capital at valuations substantially in excess of our associated book value . however , none of these companies are publicly-traded , there are no pending liquidity events , and 19 ascribing value to these investments at this time would be speculative . based on the performance and or marketability of these investments in future periods , we could have material gains for our remaining ownership in these or other investment assets . story_separator_special_tag as of the date of this report , we have received substantially all of such refunds , and we will be reversing in the first quarter of 2016 the £3.4 million ( $ 5.0 million ) of vat review-related liabilities that we had accrued on our december 31 , 2015 consolidated balance sheet . offsetting these declines are : general increases in other expenses including customer acquisition , underwriting costs and third party costs associated with ongoing information technology upgrades ; and slightly higher 2015 salaries and benefits costs resulting from growth in our new credit product offerings . a portion of our operating costs are variable based on the levels of accounts we market and receivables we service ( both for our own account and for others ) and the pace and breadth of our search for , acquisition of and introduction of new business lines , products and services . however , a number of our operating costs are fixed and until recently have comprised a larger percentage of our total costs based on the ongoing contraction of our credit card and auto finance loans and fees receivable levels . this trend is gradually reversing , however , as we continue to grow our earning assets ( including loans and fees receivable ) based principally on growth of our point-of-sale finance product offerings and to a lesser extent , growth within our car operations . we continue to perform extensive reviews of all areas of our businesses for cost savings opportunities to better align our costs with our portfolio of managed receivables . notwithstanding our cost-control efforts and focus , we expect increased levels of expenditures associated with growth in our point-of-sale , direct-to-consumer and credit card product operations . while we have greater control over our variable expenses , it is difficult ( as explained above ) for us to appreciably reduce our fixed and other costs associated with an infrastructure ( particularly within our credit and other investments segment ) that was built to support levels of managed receivables that are significantly higher than both our current levels and the levels that we expect to see in the near future . at this point , our credit and other investments segment cash inflows are sufficient to cover its direct variable costs and a portion , but not all , of its share of overhead costs ( including , for example , corporate-level executive and administrative costs and our convertible senior notes interest costs ) . as such , if we are unable to contain overhead costs or expand revenue-earning activities to levels commensurate with such costs , then , depending upon the earnings generated from our auto finance segment and our liquidating credit card portfolios , we may experience continuing pressure on our ability to achieve consistent profitability . noncontrolling interests . we reflect the ownership interests of noncontrolling holders of equity in our majority-owned subsidiaries as noncontrolling interests in our consolidated statements of operations . unless we enter into significant new majority-owned subsidiary ventures with noncontrolling interest holders in the future , we expect to have negligible noncontrolling interests in our majority-owned subsidiaries and negligible allocations of income or loss to noncontrolling interest holders in future quarters . income taxes . we experienced an effective income tax expense rate of 51.7 % for the year ended december 31 , 2015 compared to an effective income tax benefit rate of 126.8 % for the year ended december 31 , 2014. our effective income tax expense rate for the year ended december 31 , 2015 reflects in part , the establishment of a valuation allowance against our u.k.-related deferred tax assets . our effective income tax benefit rate for the year ended december 31 , 2014 resulted principally from ( 1 ) changes in valuation allowances against income statement-oriented federal , foreign and state deferred tax assets with the most significant benefits related to the complete release of all federal tax-related valuation allowances and ( 2 ) the reversal of excess prior year interest accruals on our then-accrued prior year liabilities for uncertain tax positions , such reversal of excess interest accruals resulting from a favorable settlement ( relative to accrued prior year liabilities for uncertain tax positions ) reached with the internal revenue service ( “ irs ” ) in december 2014 and the favorable resolution of accrued prior year liabilities for uncertain state tax positions . we report potential accrued interest and penalties related to both our accrued liabilities for uncertain tax positions and unpaid tax liabilities within our income tax benefit or expense line item on our consolidated statements of operations . we likewise report the reversal of such accrued interest and penalties within the income tax benefit or expense line item to the 24 extent that we resolve our liabilities for uncertain tax positions or our unpaid tax liabilities in a manner favorable to our accruals therefor . considering both the aforementioned accruals and reversals , we experienced net charges for interest and penalties of $ 0.3 million in 2015. during the year ended december 31 , 2014 , the effect of interest and penalties on our income tax benefit was a $ 8.9 million net increase in our income tax benefit ( representing the net of the release of $ 11.2 million of prior year interest and penalty accruals associated with then-uncertain tax liabilities , $ 0.3 million of new accruals in 2014 associated with uncertain tax liabilities in 2014 , and $ 2.0 million of accrued interest and penalties related to unpaid tax liabilities ) .
| consolidated results of operations replace_table_token_2_th year ended december 31 , 2015 , compared to year ended december 31 , 2014 total interest income . total interest income consists primarily of finance charges and late fees earned on our point-of-sale and direct-to-consumer finance products , credit card and auto finance receivables . period-over-period results reflect continued growth in our auto finance receivables and our point-of-sale finance and direct-to-consumer products , offset , however , by continued net liquidations of our historical credit card receivable portfolios over the past year . we are currently experiencing continued growth in our point-of-sale and direct-to-consumer finance products and our car receivables—growth which we expect to result in net period over period growth in our total interest income for these operations over the next few quarters . future periods ' growth is also dependent on the addition of new retail partners for our point-of-sale operations as well as continued growth within existing partnerships and continued growth within our direct-to-consumer finance product . this 21 growth was delayed late in the first quarter of 2014 as a significant retail partner underwent a product shift that resulted in the suspension of new account originations with us for both our installment lending product as well as our rent-to-own product . despite anticipated increases in our point-of-sale and direct-to-consumer finance products , continued net liquidations of our historic credit card receivables will continue to offset expected increases and could continue to result in overall net declines in interest income period over period . interest expense . variations in interest expense are due to our debt facilities being repaid commensurate with net liquidations of the underlying credit card , auto finance and installment loan receivables that serve as collateral for the facilities offset by new borrowings associated with growth in our point-of-sale and direct-to-consumer finance products and car operations as evidenced within note 9 , “ notes payable , ” to our consolidated financial statements .
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( 4 ) available-for-sale securities a comparison of amortized cost and estimated fair values of available-for-sale securities as of december 31 , 2007 and 2006 follows : replace_table_token_42_th replace_table_token_43_th gross gains of approximately $ 22,000 were recognized in 2007 , gross gains of approximately $ 117,000 were recognized in 2006 and gross gains of approximately $ 346,000 were recognized in 2005 on available-for-sale securities . available-for-sale securities with a carrying value of approximately $ 883.1 million at december 31 , 2007 were pledged to secure public and trust funds on deposit and for other purposes . included in available-for-sale securities at december 31 , 2007 , were securities with a story_separator_special_tag overview the company is a regional financial holding company with approximately $ 13.2 billion in assets headquartered in tupelo , mississippi . the company 's wholly-owned banking subsidiary has commercial banking operations in mississippi , tennessee , alabama , arkansas , texas , louisiana , florida and missouri . the bank and its consumer finance , credit insurance , insurance agency and brokerage subsidiaries provide commercial banking , leasing , mortgage origination and servicing , insurance , brokerage and trust services to corporate customers , local governments , individuals and other financial institutions through an extensive network of branches and offices . management 's discussion and analysis provides a narrative discussion of the company 's financial condition and results of operations for the previous three years . for a complete understanding of the following discussion , you should refer to the consolidated financial statements and related notes presented elsewhere in this report . this discussion and analysis is based on reported financial information , and certain amounts for prior years have been reclassified to conform with the current financial statement presentation . the information that follows is provided to enhance comparability of financial information between years and to provide a better understanding of the company 's operations . as a financial holding company , the financial condition and operating results of the company are heavily influenced by economic trends nationally and in the specific markets in which the company 's subsidiaries provide financial services . most of the revenue of the company is derived from the operation of its principal operating subsidiary , the bank . the financial condition and operating results of the bank are affected by the level and volatility of interest rates on loans , investment securities , deposits and other borrowed funds , and the impact of economic downturns on loan demand and creditworthiness of existing borrowers . the financial services industry is highly competitive and heavily regulated . the company 's success depends on its ability to compete aggressively within its markets while maintaining sufficient asset quality and cost controls to generate net income . the table below summarizes key indicators of the company 's financial performance for the years ended december 31 , 2007 , 2006 and 2005 . 24 replace_table_token_20_th the increase in the company 's net income for 2007 when compared to 2006 was primarily attributable to the increase in its net interest revenue . the primary source of revenue for the company is the amount of net interest revenue earned by the bank . net interest revenue is the difference between interest earned on loans and investments and interest paid on deposits and other obligations . net interest revenue for 2007 was $ 422.9 million , compared to $ 385.8 million for 2006 and $ 355.6 million for 2005. net interest revenue is affected by the general level of interest rates , changes in interest rates and changes in the amount and composition of interest earning assets and interest bearing liabilities . the company 's long-term objective is to manage those assets and liabilities to maximize net interest revenue , while balancing interest rate , credit , liquidity and capital risks . in 2007 , net interest revenue was significantly impacted by the acquisition of the signature bank in the first quarter of 2007. also in 2007 , the company 's net interest revenue continued to be positively impacted by increases in interest rates earned on loans and investment securities as well as the increased loan demand throughout most of the bank 's markets and the company 's continued focus on funding this growth with maturing investment securities and lower-cost liabilities . while the increase in net interest revenue in 2007 compared to 2006 positively impacted net income , the provision for credit losses increased in 2007 when compared to 2006 , negatively impacting net income . the increase in the provision for credit losses for 2007 was a result of the loan growth experienced during 2007 as well as a result of the reduction in credit reserves related to hurricane katrina in 2006. during 2005 , the company increased its provision by $ 7.6 million related to the expected impact of hurricane katrina on the mississippi gulf coast region . because the actual effect of hurricane katrina on the company 's customers was less than what was originally estimated in 2005 , the company reversed $ 5.9 million of the allowance for credit losses that was related to hurricane katrina during 2006. net charge-offs remained fairly stable in 2007 at 0.14 % of average loans after decreasing to 0.15 % of average loans in 2006 from 0.23 % of average loans in 2005 as a result of improved asset quality . because mortgage lending decisions are based on conservative lending policies , the company continues to have nominal exposure , approximately $ 329,000 as of december 31 , 2007 , to the credit issues affecting the sub-prime residential mortgage market . the company has taken steps to diversify its revenue stream by increasing the amount of revenue received from mortgage lending operations , insurance agency activities , brokerage and securities activities and other activities that generate fee income . management believes this diversification is important to reduce the impact of fluctuations in net interest revenue on the overall operating results of the company . noninterest revenue for 2007 was $ 231.8 million , compared to $ 206.1 story_separator_special_tag the company does not hedge the change in fair value of msrs and , therefore , the company is susceptible to significant fluctuations in the fair value of its msrs in changing interest rate environments . at december 31 , 2007 , the company 's mortgage servicing asset was valued at $ 32.5 million . pension and postretirement benefits accounting for pension and other postretirement benefit amounts is another area where the accounting guidance requires management to make various assumptions in order to appropriately value any related asset or liability . estimates that the company makes to determine pension-related assets and liabilities include actuarial assumptions , expected long-term rate of return on plan assets , rate of compensation increase for participants and discount rate . estimates that the company makes to determine asset and liability amounts for other postretirement 26 benefits include actuarial assumptions and a discount rate . changes in these estimates could impact earnings . for example , lower expected long-term rates of return on plan assets could negatively impact earnings , as would lower estimated discount rates or higher rates of compensation increase . in estimating the projected benefit obligation , actuaries must make assumptions about such factors as mortality rate , turnover rate , retirement rate , disability rate and the rate of compensation increases . the company accounts for the over-funded or under-funded status of its defined benefit and postretirement plans as an asset or liability in its consolidated balance sheets and recognizes changes in that funded status in the year in which the changes occur through comprehensive income as required by sfas no . 158 employers ' accounting for defined benefit pension and other postretirement plans an amendment of sfas no . 87 , 88 , 106 and 132r which was adopted on december 31 , 2006. the adoption of sfas no . 158 had no material impact on the regulatory requirements for capital of the company . in accordance with sfas no . 87 , employers ' accounting for pensions , the company calculates the expected return on plan assets each year based on the balance in the pension asset portfolio at the beginning of the year and the expected long-term rate of return on that portfolio . in determining the reasonableness of the expected rate of return , the company considers a variety of factors including the actual return earned on plan assets , historical rates of return on the various asset classes of which the plan portfolio is comprised and current/prospective capital market conditions and economic forecasts . the company used an expected rate of return of 8 % on plan assets for 2007. the discount rate is the rate used to determine the present value of the company 's future benefit obligations for its pension and other postretirement benefit plans . the company determines the discount rate to be used to discount plan liabilities at the measurement date with the assistance of our actuary using the citigroup pension liability curve . the company developed a level equivalent yield using the expected cash flows from the bancorpsouth , inc. retirement plan based on the december 31 , 2007 citigroup pension discount curve . the citigroup pension liability curve is published on the society of actuaries website along with a background paper on this interest rate curve . based on this analysis , the company established its discount rate assumption for determination of the projected benefit obligation of the pension plans at 6.33 % based on a december 31 , 2007 measurement date . story_separator_special_tag non-accrual loans are included in loans ( net of unearned income ) . ( 3 ) includes taxable equivalent adjustments to interest of $ 4,445,000 , $ 4,304,000 and $ 3,509,000 in 2007 , 2006 and 2005 , respectively , using an effective tax rate of 35 % . ( 4 ) includes taxable equivalent adjustment to interest of $ 2,168,000 , $ 2,706,000 and $ 3,258,000 in 2007 , 2006 and 2005 , respectively , using an effective tax rate of 35 % . 29 net interest revenue may also be analyzed by segregating the rate and volume components of interest revenue and interest expense . the table below presents an analysis of rate and volume change in net interest revenue from 2006 to 2007 and from 2005 to 2006. changes that are not solely a result of volume or rate have been allocated to volume . replace_table_token_22_th interest rate sensitivity the interest rate sensitivity gap is the difference between the maturity or repricing opportunities of interest sensitive assets and interest sensitive liabilities for a given period of time . a prime objective of asset/liability management is to maximize net interest margin while maintaining a reasonable mix of interest sensitive assets and liabilities . the following table presents the company 's interest rate sensitivity at december 31 , 2007 : 30 replace_table_token_23_th in the event interest rates decline after 2007 , based on this interest rate sensitivity gap , it is likely that the company would experience slightly increased net interest revenue in the following one-year period , as the cost of funds will decrease at a more rapid rate than interest revenue on interest earning assets . conversely , in the event interest rates increase after 2007 , based on this interest rate sensitivity gap , the company would likely experience decreased net interest revenue in the following one-year period . it should be noted that the balances shown in the table above are at december 31 , 2007 and may not be reflective of positions at other times during the year or in subsequent periods . allocations to specific interest rate sensitivity periods are based on the earlier of maturity or repricing dates . provisions for credit losses and allowance for credit losses the provision for credit losses is the periodic cost of providing an allowance or reserve for estimated probable losses on loans and leases .
| results of operations net interest revenue net interest revenue increased 9.6 % to $ 422.9 million in 2007 from $ 385.8 million in 2006 , which represented an increase of 8.5 % from $ 355.6 million in 2005. the increase in net interest revenue for 2007 and 2006 is related to the combination of growth in loans and the company 's continued focus on funding this growth with maturing investment securities and lower-cost liabilities . the increase in net interest revenue for 2007 was also attributed to the acquisition of the signature bank during the first quarter of 2007. net interest revenue is the difference between interest revenue earned on assets such as loans , leases and securities , and interest expense paid on liabilities such as deposits and borrowings , and continues to provide the company with its principal source of revenue . net interest revenue is affected by the general level of interest rates , changes in interest rates and changes in the amount and composition of interest earning assets and interest bearing liabilities . the company 's long-term objective is to manage interest earning assets and interest bearing liabilities to maximize net interest revenue , while balancing interest rate , credit , liquidity and capital risks . for purposes of the following discussion , revenue from tax-exempt loans and investment securities has been adjusted to a fully taxable equivalent basis , using an effective tax rate of 35 % .
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our investment strategy focuses on , and our portfolio consists of , two categories of agency rmbs : ( i ) traditional pass-through agency rmbs , such as mortgage pass-through certificates issued by fannie mae , freddie mac or ginnie mae ( the “ gses ” ) and collateralized mortgage obligations ( “ cmos ” ) issued by the gses ( “ pt rmbs ” ) and ( ii ) structured agency rmbs , such as interest-only securities ( “ ios ” ) , inverse interest-only securities ( “ iios ” ) and principal only securities ( “ pos ” ) , among other types of structured agency rmbs . we were formed by bimini in august 2010 , commenced operations on november 24 , 2010 and completed our initial public offering ( “ ipo ” ) on february 20 , 2013. we are externally managed by bimini advisors , an investment adviser registered with the securities and exchange commission ( the “ sec ” ) . our business objective is to provide attractive risk-adjusted total returns over the long term through a combination of capital appreciation and the payment of regular monthly distributions . we intend to achieve this objective by investing in and strategically allocating capital between the two categories of agency rmbs described above . we seek to generate income from ( i ) the net interest margin on our leveraged pt rmbs portfolio and the leveraged portion of our structured agency rmbs portfolio , and ( ii ) the interest income we generate from the unleveraged portion of our structured agency rmbs portfolio . we intend to fund our pt rmbs and certain of our structured agency rmbs through short-term borrowings structured as repurchase agreements . pt rmbs and structured agency rmbs typically exhibit materially different sensitivities to movements in interest rates . declines in the value of one portfolio may be offset by appreciation in the other . the percentage of capital that we allocate to our two agency rmbs asset categories will vary and will be actively managed in an effort to maintain the level of income generated by the combined portfolios , the stability of that income stream and the stability of the value of the combined portfolios . we believe that this strategy will enhance our liquidity , earnings , book value stability and asset selection opportunities in various interest rate environments . we operate so as to qualify to be taxed as a real estate investment trust ( “ reit ” ) under the internal revenue code of 1986 , as amended ( the “ code ” ) . we generally will not be subject to u.s. federal income tax to the extent that we currently distribute all of our reit taxable income ( as defined in the code ) to our stockholders and maintain our reit qualification . the company 's common stock trades on the new york stock exchange under the symbol “ orc ” . capital raising activities on february 23 , 2017 , we entered into an equity distribution agreement , as amended and restated on may 10 , 2017 ( the “ may 2017 equity distribution agreement ” ) with two sales agents pursuant to which we could offer and sell , from time to time , up to an aggregate amount of $ 125,000,000 of shares of our common stock in transactions that were deemed to be “ at the market ” offerings and privately negotiated transactions . we issued a total of 12,299,032 shares under the may 2017 equity distribution agreement for aggregate gross proceeds of $ 125.0 million , and net proceeds of approximately $ 122.9 million , net of commissions and fees , prior to its termination . 45 on august 2 , 2017 , we entered into another equity distribution agreement ( the “ august 2017 equity distribution agreement ” ) with two sales agents pursuant to which we could offer and sell , from time to time , up to an aggregate amount of $ 125,000,000 of shares of our common stock in transactions that were deemed to be “ at the market ” offerings and privately negotiated transactions . through december 31 , 2019 , we issued a total of 15,123,178 shares under the august 2017 equity distribution agreement for aggregate gross proceeds of $ 125.0 million , and net proceeds of approximately $ 123.1 million , net of commissions and fees , prior to its termination . on july 30 , 2019 , we entered into an underwriting agreement ( the “ underwriting agreement ” ) with morgan stanley & co. llc , citigroup global markets inc. and j.p. morgan securities llc , as representatives of the underwriters named therein , relating to the offer and sale of 7,000,000 shares of the company 's common stock at a price to the public of $ 6.55 per share . the underwriters purchased the shares pursuant to the underwriting agreement at a price of $ 6.3535 per share . the closing of the offering of 7,000,000 shares of common stock occurred on august 2 , 2019 , with net proceeds to us of approximately $ 44.2 million after deduction of underwriting discounts and commissions and other estimated offering expenses payable by us . on january 23 , 2020 , we entered into an equity distribution agreement ( the “ january 2020 equity distribution agreement ” ) with three sales agents pursuant to which we may offer and sell , from time to time , up to an aggregate amount of $ 200,000,000 of shares of our common stock in transactions that are deemed to be “ at the market ” offerings and privately negotiated transactions . through february 21 , 2020 , we issued a total of 2,004,432 shares under the january 2020 equity distribution agreement for aggregate gross proceeds of $ 12.4 million , and net proceeds of approximately $ 12.2 million , net of commissions and fees . stock repurchase program on july 29 , 2015 , the company 's board of directors authorized the repurchase of up to 2,000,000 shares of our common stock . story_separator_special_tag interest expense , including the effect of derivative instruments for the period , is referred to as economic interest expense . net interest income , when calculated to include the effect of derivative instruments for the period , is referred to as economic net interest income . this presentation includes gains or losses on all contracts in effect during the reporting period , covering the current period as well as periods in the future . we believe that economic interest expense and economic net interest income provide meaningful information to consider , in addition to the respective amounts prepared in accordance with gaap . the non-gaap measures help management to evaluate its financial position and performance without the effects of certain transactions and gaap adjustments that are not necessarily indicative of our current investment portfolio or operations . the unrealized gains or losses on derivative instruments presented in our statements of operations are not necessarily representative of the total interest rate expense that we will ultimately realize . this is because as interest rates move up or down in the future , the gains or losses we ultimately realize , and which will affect our total interest rate expense in future periods , may differ from the unrealized gains or losses recognized as of the reporting date . our presentation of the economic value of our hedging strategy has important limitations . first , other market participants may calculate economic interest expense and economic net interest income differently than the way we calculate them . second , while we believe that the calculation of the economic value of our hedging strategy described above helps to present our financial position and performance , it may be of limited usefulness as an analytical tool . therefore , the economic value of our investment strategy should not be viewed in isolation and is not a substitute for interest expense and net interest income computed in accordance with gaap . 49 the tables below present a reconciliation of the adjustments to interest expense shown for each period relative to our derivative instruments , and the income statement line item , gains ( losses ) on derivative instruments , calculated in accordance with gaap for the years ended december 31 , 2019 , 2018 and 2017 and each quarter during 2019 , 2018 and 2017. replace_table_token_5_th 50 economic interest expense and economic net interest income ( in thousands ) interest expense on borrowings gains ( losses ) on derivative instruments net interest income gaap attributed economic gaap economic interest interest to current interest net interest net interest income expense period ( 1 ) expense ( 2 ) income income ( 3 ) three months ended december 31 , 2019 $ 37,529 $ 20,022 $ 3,823 $ 16,199 $ 17,507 $ 21,330 september 30 , 2019 35,907 22,321 1,244 21,077 13,586 14,830 june 30 , 2019 36,455 22,431 1,464 20,967 14,024 15,488 march 31 , 2019 32,433 18,892 2,427 16,465 13,541 15,968 december 31 , 2018 37,001 19,740 784 18,956 17,261 18,045 september 30 , 2018 39,054 18,892 271 18,621 20,162 20,433 june 30 , 2018 38,591 16,579 ( 852 ) 17,431 22,012 21,160 march 31 , 2018 39,935 15,149 ( 3,011 ) 18,160 24,786 21,775 december 31 , 2017 40,098 13,555 ( 3,763 ) 17,318 26,543 22,780 september 30 , 2017 38,974 12,638 ( 3,761 ) 16,399 26,336 22,575 june 30 , 2017 34,579 8,763 ( 3,654 ) 12,417 25,816 22,162 march 31 , 2017 32,311 6,715 ( 3,193 ) 9,908 25,596 22,403 years ended december 31 , 2019 $ 142,324 $ 83,666 $ 8,958 $ 74,708 $ 58,658 $ 67,616 december 31 , 2018 154,581 70,360 ( 2,808 ) 73,168 84,221 81,413 december 31 , 2017 145,962 41,671 ( 14,371 ) 56,042 104,291 89,920 ( 1 ) reflects the effect of derivative instrument hedges for only the period presented . ( 2 ) calculated by adding the effect of derivative instrument hedges attributed to the period presented to gaap interest expense . ( 3 ) calculated by adding the effect of derivative instrument hedges attributed to the period presented to gaap net interest income . net interest income during the year ended december 31 , 2019 , we generated $ 58.7 million of net interest income , consisting of $ 142.3 million of interest income from rmbs assets offset by $ 83.7 million of interest expense on borrowings . for the comparable period ended december 31 , 2018 , we generated $ 84.2 million of net interest income , consisting of $ 154.6 million of interest income from rmbs assets offset by $ 70.4 million of interest expense on borrowings . the $ 12.3 million decrease in interest income was driven by a 18 basis point ( `` bps '' ) decrease in yield on average rmbs , combined with a $ 147.4 million decrease in average rmbs . the $ 13.3 million increase in interest expense for the year ended december 31 , 2019 was driven by a 47 bps increase in the average cost of funds , partially offset by a $ 105.9 million decrease in average borrowings . for the year ended december 31 , 2017 , we generated $ 104.3 million of net interest income , consisting of $ 146.0 million of interest income from rmbs assets offset by $ 41.7 million of interest expense on borrowings . the $ 8.6 million increase in interest income for the year ended december 31 , 2018 , compared to the year ended december 31 , 2017 , was due almost entirely to a 24 bps increase in yield on average rmbs , combined with a $ 3.8 million increase in average rmbs during the period . the $ 28.7 million increase in interest expense for the year ended december 31 , 2018 was due to a $ 116.9 million increase in average borrowings , combined with a $ 28.7 million increase in the average cost of funds .
| results of operations described below are the company 's results of operations for the years ended december 31 , 2019 , as compared to the company 's results of operations for the years ended december 31 , 2018 and 2017. net income ( loss ) summary net income for the year ended december 31 , 2019 was $ 24.3 million , or $ 0.43 per share . net loss for the year ended december 31 , 2018 was $ 44.4 million , or $ 0.85 per share . net income for the year ended december 31 , 2017 was $ 2.0 million , or $ 0.05 per share . the components of net income ( loss ) for the years ended december 31 , 2019 , 2018 and 2017 are presented in the table below : replace_table_token_4_th gaap and non-gaap reconciliations in addition to the results presented in accordance with gaap , our results of operations discussed below include certain non-gaap financial information , including “ net earnings excluding realized and unrealized gains and losses ” , “ economic interest expense ” and “ economic net interest income. ” net earnings excluding realized and unrealized gains and losses we have elected to account for our agency rmbs under the fair value option . securities held under the fair value option are recorded at estimated fair value , with changes in the fair value recorded as unrealized gains or losses through the statements of operations . in addition , we have not designated our derivative financial instruments in hedge accounting relationships , but rather hold them for economic hedging purposes . changes in fair value of these instruments are presented in a separate line item in the company 's statements of operations and not included in interest expense . as such , for financial reporting purposes , interest expense and cost of funds are not impacted by the fluctuation in value of the derivative instruments .
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during 2020 , we recognized $ 3.6 million of revenue that was included in deferred revenue at december 31 , 2019 and increased deferred revenue by $ 3.8 million , excluding amounts recognized as revenue during 2020. our fees are variable month to month and are generally billed per member per month ( “ pmpm ” ) or billed based on a combination of pmpm and member visits to a network story_separator_special_tag please read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes included under item 8 . `` financial statements and supplementary data '' of this report . overview tivity health , inc. ( the “ company ” ) , was founded and incorporated in delaware in 1981. through our four programs , silversneakers ® senior fitness , prime ® fitness , wholehealth living tm , and wisely well tm , we are focused on becoming the modern destination for healthy living , especially for seniors and older adults . we offer silversneakers to members of medicare advantage , medicare supplement , and group retiree plans . we also offer prime fitness , a fitness facility access program , through commercial health plans , employers , and other sponsoring organizations . our national network of fitness centers delivers both silversneakers and prime fitness . our fitness networks encompass approximately 16,000 partner locations and nearly 1,000 alternative locations that provide classes outside of traditional fitness centers . we also offer virtual fitness experiences , including live instructor-led classes . through our wholehealth living program , which we sell primarily to health plans , we offer a continuum of services related to complementary , alternative , and physical medicine . our wholehealth living network includes relationships with approximately 18,000 complementary , alternative , and physical medicine practitioner locations to serve individuals through health plans and employers who seek health services such as chiropractic care , acupuncture , physical therapy , occupational therapy , massage therapy , and more . finally , through our wisely well brand , we offer meals designed to support individuals and caregivers who are seeking meal convenience as well as those recovering after a hospitalization or living with chronic conditions . effective as of december 9 , 2020 , we completed the sale of nutrisystem , inc. ( “ nutrisystem ” ) , a wholly owned subsidiary of the company that included the nutrisystem ® and south beach diet ® programs , to kns acquisition corp. ( “ kainos ” ) pursuant to terms of a stock purchase agreement ( the “ purchase agreement ” ) , dated october 18 , 2020 , by and among the company , kainos , and kainos ns holdings lp . at the closing ( the “ closing ” ) of the transactions contemplated by the purchase agreement ( the “ transactions ” ) , nutrisystem , inc. and its subsidiaries were acquired by , and became wholly owned subsidiaries of , kainos . pursuant to the terms of the purchase agreement , kainos paid to the company an aggregate purchase price , after giving effect to customary indebtedness and cash adjustments , of approximately $ 559 million , which amount is subject to a customary working capital adjustment post-closing . we used the significant majority of the net proceeds from the divestiture to pay down $ 519 million of principal on the term loans under our credit agreement . results of operations for nutrisystem have been classified as discontinued operations for all periods presented in the consolidated financial statements , and all related assets and liabilities have been classified as discontinued operations at december 31 , 2019. the company is headquartered at 701 cool springs boulevard , franklin , tennessee 37067. covid-19 in january 2020 , the secretary of hhs declared a national public health emergency due to a novel strain of coronavirus , which causes the disease known as “ covid-19. ” in march 2020 , the world health organization characterized the outbreak of covid-19 as a global pandemic , and covid-19 continues to spread throughout the united states and other countries . many state and local governments , together with public health officials , have recommended and mandated precautions to mitigate the spread of covid-19 , including ordering closure of certain businesses and imposing stay-at-home orders and social distancing guidelines for individuals . such measures have resulted in significantly reduced demand for many businesses that have continued in operation . by march 31 , 2020 , substantially all of the fitness centers in our national network were temporarily closed , which had an adverse impact on our results from continuing operations for the first quarter of 2020 because a significant portion of revenues from our silversneakers program is based on member visits to a fitness partner location . a substantial number of our fitness partner locations remained closed through april , with some locations reopening in may and additional locations reopening in june and throughout the third quarter of 2020. due to a resurgence of covid-19 cases throughout the country , some fitness partner locations were closed again during the 24 fourth quarter of 2020. for the month of december 2020 , approximately 7 4 % of our fitness partner locations reported at least one visit from our silversneakers program . from april through december 2020 , the average monthly total participation levels of our silversneakers members were significantly below historical levels , and we also experienced a decline in paid subscribers for prime fitness , each of which adversely impacted revenues from continuing operations . we are unable to predict with certainty how many of our fitness partner locations will be subject to any operational restrictions in the future and for what duration , or the level of member participation at our fitness partner locations . story_separator_special_tag , during a crisis , disaster , or pandemic ) , which may result in additional costs and or may negatively impact productivity and cause other disruptions to our business ; our ability to enforce our intellectual property rights ; the risk that our indebtedness may limit our ability to adapt to changes in the economy or market conditions , expose us to interest rate risk for the variable rate indebtedness and require a substantial portion of cash flows from operations to be dedicated to the payment of indebtedness ; our ability to service our debt , make principal and interest payments as those payments become due , and remain in compliance with our debt covenants ; our ability to obtain adequate financing to provide the capital that may be necessary to support our current or future operations ; counterparty risk associated with our interest rate swap agreements ; and other risks detailed in this report and our other filings with the securities and exchange commission . we undertake no obligation to update or revise any such forward-looking statements . 26 critical accounting policies we describe our significant accounting policies in note 1 of the notes to the consolidated financial statements . we prepare the consolidated financial statements in conformity with generally accepted accounting principles in the united states ( “ u.s . gaap ” ) , which requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and related disclosures at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . actual results may differ from those estimates . we believe the following accounting policies are the most critical in understanding the estimates and judgments that are involved in preparing our financial statements and the uncertainties that could impact our results of operations , financial condition , and cash flows . revenue recognition beginning in 2018 , we account for revenue from contracts with customers in accordance with accounting standards codification ( “ asc ” ) topic 606 “ revenue from contracts with customers ” ( “ asc topic 606 ” ) . the unit of account in asc topic 606 is a performance obligation , which is a promise in a contract to transfer to a customer either a distinct good or service ( or bundle of goods or services ) or a series of distinct goods or services provided over a period of time . asc topic 606 requires that a contract 's transaction price , which is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer , is to be allocated to each performance obligation in the contract based on relative standalone selling prices and recognized as revenue when or as the performance obligation is satisfied . we earn revenue from continuing operations primarily from thre e p r o g ra m s : silversneakers s e nior fitness , prime fitness and wholehealth living . we provide the silversne a k e rs seni o r fitn e ss pro g ram to me m bers of med i care advant ag e and m edic a re supple m ent plans through our contracts with those plans . we offer prime fitness , a fitness facility access program , through contracts with commercial health plans , employers , and other sponsoring organizations that allow their members to individually purchase the program . we sell our wholehealth living program primarily to health plans . the significant majority of our customer contracts contain one performance obligation - to stand ready to provide access to our network of fitness locations and fitness programming - which is satisfied over time as services are rendered each month over the contract term . there are generally no performance obligations that are unsatisfied at the end of a particular month . there was no material revenue recognized during the year ended december 31 , 2020 from performance obligations satisfied in a prior period . our fees are variable month to month and are generally billed per member per month ( “ pmpm ” ) or billed based on a combination of pmpm and member visits to a network location . we bill pmpm fees by multiplying the contractually negotiated pmpm rate by the number of members eligible for or receiving our services during the month . we bill for member visits approximately one month in arrears once actual member visits are known . payments from customers are typically due within 30 days of invoice date . when material , w e capitalize costs to obtain contracts with customers and amortize them over the expected recovery period . our customer contracts include variable consideration , which is allocated to each distinct month over the contract term based on eligible members and or member visits each month . the allocated consideration corresponds directly with the value to our customers of our services completed for the month . under the majority of our contracts , we recognize revenue each month using the practical expedient available under asc 606-10-55-18 , which provides that revenue is recognized in the amount for which we have the right to invoice . asc 606-10-50-14 ( b ) provides an optional exemption , which we have elected to apply , from disclosing remaining performance obligations when revenue is recognized from the satisfaction of the performance obligation in accordance with the “ right to invoice ” practical expedient . although we evaluate our financial performance and make resource allocation decisions based upon the results of our single operating and reportable segment , we believe the following information depicts how our revenues and cash flows from continuing operations are affected by economic factors .
| executive overview of results the key financial results for the year ended december 31 , 2020 are : revenues of $ 437.7 million for the year ended december 31 , 2020 compared to $ 633.1 million for the year ended december 31 , 2019 ; and pre-tax income from continuing operations of $ 74.4 million for the year ended december 31 , 2020 compared to $ 65.5 million for the year ended december 31 , 2019. pre-tax income from continuing operations for 2020 includes : 30 o $ 43.5 million of interest expense compared to $ 41.8 million for 2019 ; o $ 12.2 million of marketing expenses , compared to $ 17.7 million for 2019 ; o $ 6.6 million of ceo transition costs compared to $ 0 for 2019 ; o $ 5.7 million of transition , acquisition , and integration costs compared to $ 26.2 million for 2019 ; o $ 4.4 million of restructuring and related charges compared to $ 1.9 million for 2019 ; o $ 3.4 million of strategic project costs compared to $ 0 for 2019. loss from discontinued operations , net of income tax benefit , of $ 280.5 million for the year ended december 31 , 2020 compared to $ 332.0 million for the year ended december 31 , 2019. results of operations the following table sets forth the components of the consolidated statements of operations for the years ended december 31 , 2020 , 2019 , and 2018 expressed as a percentage of revenues from continuing operations . replace_table_token_6_th ( 1 ) figures may not add due to rounding .
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, cash monthly contractual rent , due to us from our customers under the terms of non-cancelable operating leases in effect as of december 31 , 2012 were as follows ( in thousands ) : replace_table_token_32_th the schedule does not reflect future rental story_separator_special_tag the following discussion and analysis of results of operations and financial condition should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this report . overview dct industrial trust inc. is a leading industrial real estate company that owns , operates and develops high-quality bulk distribution and light industrial properties in high-volume distribution markets in the u.s. and mexico . dct is the sole general partner of , and as of december 31 , 2012 owned an approximate 93.3 % ownership interest in dct industrial operating partnership l.p. , a delaware limited partnership . our primary business objectives are to maximize long-term growth in funds from operations , or ffo , as defined on page 38 , the net asset value of our portfolio and total shareholder returns . in our pursuit of these long-term objectives , we seek to : maximize cash flows from existing properties ; deploy capital into high quality acquisitions and development opportunities which meet our asset location and financial criteria ; and recycle capital by selling assets that no longer fit our investment criteria and reinvesting the proceeds into higher growth opportunities . outlook we seek to maximize long-term earnings growth and value within the context of overall economic conditions , primarily through increasing rents and operating income at existing properties and acquiring and developing high-quality properties in major distribution markets . fundamentals for industrial real estate continue to modestly improve in response to general improvement in the economy . according to national statistics , net absorption ( the net change in total occupied space ) of industrial real estate turned positive in the second quarter of 2010 and national occupancy rates have increased each quarter since then . we expect moderate economic growth to continue throughout 2013 , which should result in continued positive demand for warehouse space as companies expand their distribution and production platforms . rental rates in our markets appeared to have bottomed and in a number of markets have begun to increase , although they do generally remain below peak levels . rental concessions , such as free rent , have also begun to decline in most markets . consistent with recent experience and based on current market conditions , we expect average net effective rental rates on new leases signed in 2013 to be slightly higher than the rates on expiring leases . as positive net absorption of warehouse space continues , we expect the rental rate environment to continue to improve . according to a national research company , average market rental rates nationally are expected to continue to increase moderately in 2013 as vacancy rates drop below 10 % of available supply . new development has begun to increase modestly in certain markets where fundamentals have improved more rapidly , however construction levels are still very modest in absolute terms and well below peak levels and we expect they will remain so until rental rates , other leasing fundamentals and the availability of financing improve sufficiently to justify new construction on a larger scale . with limited new supply in the near term , we expect that the operating environment will become increasingly favorable for landlords with meaningful improvement of rental and occupancy rates . for dct industrial , we expect same store net operating income to be higher in 2013 than it was in 2012 , primarily as a result of higher occupancy in 2013 , which is expected to be somewhat offset by the impact of declining rental rates on leases signed in 2012 compared to expiring leases , most of which were signed prior to the market downturn . 38 in terms of capital investment , we will continue to pursue acquisitions of well-located distribution facilities at prices where we can apply our leasing experience and market knowledge to generate attractive returns . going forward , we will pursue the acquisition of buildings and land and consider selective development of new buildings in markets where we perceive demand and market rental rates will provide attractive financial returns . we anticipate having sufficient liquidity to fund our operating expenses , including costs to maintain our properties and distributions , though we may finance investments , including acquisitions and developments , with the issuance of new shares , proceeds from asset sales or through additional borrowings . please see liquidity and capital resources for additional discussion . inflation although the u.s. economy has recently experienced a slight decrease in inflation rates , and a wide variety of industries and sectors are affected differently by changing commodity prices , inflation has not had a significant impact on us in our markets . most of our leases require the customers to pay their share of operating expenses , including common area maintenance , real estate taxes and insurance , thereby reducing our exposure to increases in costs and operating expenses resulting from inflation . in addition , most of our leases expire within five years which enables us to replace existing leases with new leases at then-existing market rates . story_separator_special_tag files for bankruptcy protection and fails to make contractual payments beyond any allowance , we may recognize additional bad debt expense in future periods equal to the net outstanding balances , which include amounts recognized as straight-line revenue not realizable until future periods . in connection with property acquisitions qualifying as business combinations , we may acquire leases with rental rates above or below the market rental rates . such differences are recorded as an intangible lease asset or liability and amortized to rental revenues over the reasonably assured term of the related leases . story_separator_special_tag buildings under redevelopment require significant construction activities prior to being placed back into service . we generally do not depreciate properties classified as redevelopment until the date that the redevelopment properties are ready for their intended use . 43 real estate , including land , building , building and land improvements , and tenant improvements , leasehold improvements , leasing costs and intangible lease assets and liabilities are stated at historical cost less accumulated depreciation and amortization , unless circumstances indicate that the cost can not be recovered , in which case , the carrying value of the property is reduced to estimated fair value . our estimate of the useful life of our assets is evaluated upon acquisition and when circumstances indicate a change in the useful life , which requires significant judgment regarding the economic obsolescence of tangible and intangible assets . impairment of properties investments in properties classified as held for use are carried at cost and evaluated for impairment at least annually and when events or changes in circumstances indicate that the carrying amounts of these assets may not be fully recoverable . as we selectively dispose of non-strategic assets and redeploy the proceeds into higher growth assets , our intended hold period may change due to our intention to sell or otherwise dispose of an asset . as a result , we would reevaluate whether that asset is impaired . depending on the carrying value of the property at that time and the amount that we estimate we would receive on disposal , we may record an impairment loss . other indicators include the point at which we deem a building to be held for sale or when a building remains vacant significantly longer than expected . for investments in properties that we intend to hold long-term , the recoverability is based on the estimated future undiscounted cash flows . if the asset carrying value is not recoverable on an undiscounted cash flow basis , the amount of impairment is measured as the difference between the carrying value and the fair value of the asset and is reflected in impairment losses on the consolidated statements of operations . the determination of fair value of real estate assets to be held for use is derived using the discounted cash flow method and involves a number of management assumptions relating to future economic events that could materially affect the determination of the ultimate value , and therefore , the carrying amounts of our real estate . such assumptions are management 's estimates and include , but are not limited to , projected vacancy rates , rental rates , property operating expenses and capital expenditures . the capitalization rate is also a significant driving factor in determining the property valuation and requires management 's judgment of factors such as market knowledge , market supply and demand factors , historical experience , lease terms , customer 's financial strength , economy , demographics , environment , property location , visibility , age , physical condition and expected return requirements , among other things . the aforementioned factors are taken as a whole by management in determining the valuation of investment property . the valuation is sensitive to the actual results of many of these uncertain factors , either individually or taken as a whole . should the actual results differ from management 's estimates , the valuation could be negatively affected and may result in additional impairments recorded in the consolidated financial statements . investments in properties classified as held for sale are measured at the lower of their carrying amount or fair value ( typically , the contracted sales price ) less costs to sell . impairment of assets held for sale is a component of income ( loss ) from discontinued operations in the consolidated statements of operations and is further detailed in notes to consolidated financial statements note 15discontinued operations and assets held for sale. impairment of investments in and advances to unconsolidated joint ventures we evaluate our investments in unconsolidated entities for impairment whenever events or changes in circumstances indicate that there may be an other-than-temporary decline in value . to do so , we calculate the estimated fair value of the investment using a market , income or replacement cost approach , or combination thereof . the amount of impairment recognized , if any , would be the excess of the investment 's carrying amount over its estimated fair value . we consider various factors to determine if a decline in the value of the investment is other-than-temporary , which include but are not limited to , the age of the venture , our intent and ability to retain our investment in the entity , the financial condition and long-term prospects of the entity , expected term of the investment and the relationships with the other joint venture partners and its lenders . if we believe that the decline in the fair value is temporary , no impairment is recorded . the aforementioned factors are taken as a 44 whole by management in determining the valuation of our investment property . should the actual results differ from management 's estimates , the valuation could be negatively affected and may result in additional impairments in the consolidated financial statements . results of operations summary of the year ended december 31 , 2012 compared to the year ended december 31 , 2011 as of december 31 , 2012 , the company owned interests in , managed or had under development approximately 75.6 million square feet of properties leased to approximately 870 customers , including 14.2 million square feet of unconsolidated properties on behalf of four institutional capital management joint venture partners and we consolidated 399 operating properties , four redevelopment properties , three development properties and three properties which were held for sale . as of december 31 , 2011 , we consolidated 408 operating properties and one redevelopment property .
| summary of significant transactions significant transactions for the year ended december 31 , 2012 acquisitions during the year ended december 31 , 2012 , we acquired 32 buildings totaling approximately 6.2 million square feet . these properties were acquired for a total purchase price of $ 338.4 million , excluding our existing ownership of 20 % in the six properties previously held by dct fund i ( see notes to the consolidated financial statements , note 4investments in and advances to unconsolidated joint ventures for further detail related to the buyout of our joint venture partner 's interest ) . during the year ended december 31 , 2012 , we acquired seven land parcels for future development which total approximately 216.4 acres located in the chicago , southern california , seattle , atlanta and houston markets and one shell complete building totaling approximately 0.3 million square feet located in houston . the land parcels and shell complete building were acquired from unrelated third-parties for a total purchase price of $ 72.1 million . 39 development activities during 2012 , we continued to expand our development activities . the table below represents a summary of our consolidated development activity as of december 31 , 2012. replace_table_token_14_th ( 1 ) this is the projected stabilization date . ( 2 ) the completion date represents the date of building shell-completion . as of december 31 , 2012 , we also had two build-to-suit under contract for sale projects underway . during the year ended december 31 , 2012 , we recognized development profits , net of tax of approximately $ 0.3 million related to the development of one 61,000 square foot project which is under contract to be sold to a third-party for a total of $ 8.0 million . the other project was under contract , but as development activities recently commenced , no profit was earned and recognized .
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acquired impaired loans have experienced a deterioration of credit quality from origination to acquisition for which it is probable that united will be unable to collect all contractually required payments receivable , including both principal and interest . in the assessment of credit quality , numerous assumptions , interpretations and judgments must be made , based on internal and third-party credit quality information and ultimately the determination as to the probability that all contractual cash flows will not be able to be collected . this is a point in time assessment and inherently subjective due to the nature of the available information and judgment involved . subsequent to the acquisition date , united continues to estimate the amount and timing of cash flows expected to be collected on acquired impaired loans . increases in expected cash flows will generally result in a recovery of any previously recorded allowance for loan losses , to the extent applicable , and or a reclassification from the nonaccretable difference to accretable yield , which will be recognized prospectively . the present value of any decreases in expected cash flows after the acquisition date will generally result in an impairment charge recorded as a provision for loan losses , resulting in an increase to the allowance for loan losses . 34 for acquired performing loans , the difference between the acquisition date fair value and the contractual amounts due at the acquisition date represents the fair value adjustment . fair value adjustments may be discounts ( or premiums ) to a loan 's cost basis and are accreted ( or amortized ) to interest income over the loan 's remaining life using the level yield method . subsequent to the acquisition date , the methods utilized to estimate the required allowance for loan losses for these loans is similar to originated loans . see note b and d , notes to consolidated financial statements for additional information regarding united 's acquired loans disclosures . income taxes united 's calculation of income tax provision is inherently complex due to the various different tax laws and jurisdictions in which we operate and requires management 's use of estimates and judgments in its determination . the current income tax liability also includes income tax expense related to our uncertain tax positions as required in asc topic 740 , income taxes. changes to the estimated accrued taxes can occur due to changes in tax rates , implementation of new business strategies , resolution of issues with taxing authorities and recently enacted statutory , judicial and regulatory guidance . these changes can be material to the company 's operating results for any particular reporting period . the analysis of the income tax provision requires the assessments of the relative risks and merits of the appropriate tax treatment of transactions , filing positions , filing methods and taxable income calculations after considering statutes , regulations , judicial precedent and other information . united strives to keep abreast of changes in the tax laws and the issuance of regulations which may impact tax reporting and provisions for income tax expense . united is also subject to audit by federal and state authorities . because the application of tax laws is subject to varying interpretations , results of these audits may produce indicated liabilities which differ from united 's estimates and provisions . united continually evaluates its exposure to possible tax assessments arising from audits and records its estimate of probable exposure based on current facts and circumstances . the potential impact to united 's operating results for any of the changes can not be reasonably estimated . see note m , notes to consolidated financial statements for information regarding united 's asc topic 740 disclosures . use of fair value measurements united determines the fair value of its financial instruments based on the fair value hierarchy established in asc topic 820 , whereby the fair value of certain assets and liabilities is an exit price , representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants . asc topic 820 establishes a three-level hierarchy for disclosure of assets and liabilities recorded at fair value . the classification of assets and liabilities within the hierarchy is based on whether the inputs in the methodology for determining fair value are observable or unobservable . observable inputs reflect market-based information obtained from independent sources ( level 1 or level 2 ) , while unobservable inputs reflect management 's estimate of market data ( level 3 ) . for assets and liabilities that are actively traded and have quoted prices or observable market data , a minimal amount of subjectivity concerning fair value is needed . prices and values obtained from third party vendors that do not reflect forced liquidation or distressed sales are not adjusted by management . when quoted prices or observable market data are not available , management 's judgment is necessary to estimate fair value . at december 31 , 2014 , approximately 10.62 % of total assets , or $ 1.31 billion , consisted of financial instruments recorded at fair value . of this total , approximately 94.09 % or $ 1.23 billion of these financial instruments used valuation methodologies involving observable market data , collectively level 1 and level 2 measurements , to determine fair value . approximately 5.91 % or $ 77.41 million of these financial instruments were valued using unobservable market information or level 3 measurements . most of these financial instruments valued using unobservable market information were trup cdos classified as available-for-sale . story_separator_special_tag at december 31 , 2014 , only $ 4.14 million or less than 1 % of total liabilities were recorded at fair value . this entire amount was valued using methodologies involving observable market data . united does not believe that any changes in the unobservable inputs used to value the financial instruments mentioned above would have a material impact on united 's results of operations , liquidity , or capital resources . see note u for additional information regarding asc topic 820 and its impact on united 's financial statements . any material effect on the financial statements related to these critical accounting areas is further discussed in this management 's discussion and analysis of financial condition and results of operations . 35 2014 compared to 2013 financial condition summary united 's total assets as of december 31 , 2014 were $ 12.33 billion which was an increase of $ 3.59 billion or 41.14 % from december 31 , 2013 , primarily the result of the acquisition of virginia commerce bancorp , inc. ( virginia commerce ) after the close of business on january 31 , 2014. portfolio loans increased $ 2.40 billion or 35.80 % , cash and cash equivalents increased $ 336.45 million or 80.76 % , investment securities increased $ 426.70 million or 47.98 % , goodwill increased $ 334.25 million or 89.00 % , other assets increased $ 79.62 million or 24.68 % , bank premises and equipment increased $ 7.62 million or 10.91 % and interest receivable increased $ 5.67 million or 21.26 % due primarily to the virginia commerce merger . total liabilities increased $ 2.98 billion or 38.72 % from year-end 2013. this increase in total liabilities was due mainly to an increase of $ 2.42 billion or 36.61 % and $ 534.52 million or 53.11 % in deposits and borrowings , respectively , mainly due to the virginia commerce acquisition . shareholders ' equity increased $ 614.43 million or 58.98 % from year-end 2013 due primarily to the acquisition of virginia commerce . the following discussion explains in more detail the changes in financial condition by major category . cash and cash equivalents cash and cash equivalents at december 31 , 2014 increased $ 336.45 million or 80.76 % from year-end 2013. of this total increase , interest-bearing deposits with other banks increased $ 295.54 million or 105.14 % as united placed excess cash in an interest-bearing account with the federal reserve . in addition , cash and due from banks increased $ 40.91 million or 30.34 % and federal funds sold were flat . during the year of 2014 , net cash of $ 144.79 million and $ 396.46 million was provided by operating activities and financing activities , respectively , while $ 204.80 million was used in investing activities . further details related to changes in cash and cash equivalents are presented in the consolidated statements of cash flows . securities total investment securities at december 31 , 2014 increased $ 426.70 million or 47.98 % from year-end 2013. virginia commerce added $ 476.54 million in investment securities , including purchase accounting amounts , upon consummation of the acquisition . securities available for sale increased $ 405.10 million or 52.25 % . this change in securities available for sale reflects $ 461.76 million acquired from virginia commerce , $ 531.13 million in sales , maturities and calls of securities , $ 445.48 million in purchases , and an increase of $ 29.72 million in market value . securities held to maturity declined $ 1.66 million or 4.04 % from year-end 2013 due to calls and maturities of securities . other investment securities increased $ 23.25 million or 31.81 % from year-end 2013. virginia commerce added $ 14.78 million in other investment securities . otherwise , federal reserve bank ( frb ) stock increased $ 13.05 million and fhlb stock decreased $ 4.76 million . the following is a summary of available for sale securities at december 31 : replace_table_token_5_th 36 the following is a summary of held to maturity securities at december 31 : replace_table_token_6_th at december 31 , 2014 , gross unrealized losses on available for sale securities were $ 17.47 million . securities in an unrealized loss position at december 31 , 2014 consisted primarily of trup cdos and agency commercial mortgage-backed securities . the trup cdos relate mainly to underlying securities of financial institutions . the agency commercial mortgage-backed securities relate mainly to income-producing multifamily properties and provide a guaranty of full and timely payments of principal and interest by fannie mae or freddie mac . as of december 31 , 2014 , united 's mortgage-backed securities had an amortized cost of $ 876.05 million , with an estimated fair value of $ 884.85 million . the portfolio consisted primarily of $ 547.87 million in agency residential mortgage-backed securities with a fair value of $ 555.73 million , $ 11.47 million in non-agency residential mortgage-backed securities with an estimated fair value of $ 12.02 million , and $ 316.71 million in commercial agency mortgage-backed securities with an estimated fair value of $ 317.10 million . as of december 31 , 2014 , united 's asset-backed securities had an amortized cost of $ 8.00 million , with an estimated fair value of $ 8.03 million . as of december 31 , 2014 , united 's corporate securities had an amortized cost of $ 93.02 million , with an estimated fair value of $ 76.41 million . the portfolio consisted primarily of $ 51.33 million in trup cdos with a fair value of $ 39.56 million and $ 33.04 million in single issue trust preferred securities with an estimated fair value of $ 27.43 million . the portfolio also included other corporate securities with an amortized cost of $ 5.02 million and an estimated fair value of $ 5.16 million . in addition to these trust preferred securities , the company held positions in various other corporate securities
| financial condition summary united 's total assets as of december 31 , 2013 were $ 8.74 billion which was an increase of $ 315.31 million or 3.74 % from december 31 , 2012. the increase was primarily the result of a $ 193.17 million or 2.97 % increase in portfolio loans and a $ 159.94 million or 21.93 % increase in investment securities . the $ 193.17 million increase in portfolio loans , net of unearned income , was mainly due to a $ 119.69 million or 21.73 % increase in construction and land development loans , a $ 28.31 million or 10.02 % increase in consumer loans , and a $ 64.69 million or 1.68 % increase in the total commercial , financial and agricultural loans category . within the commercial , financial and agricultural loans category , commercial real estate loans increased $ 177.37 million or 10.19 % while commercial loans ( not secured by real estate ) and owner-occupied commercial real estate loans decreased $ 38.73 million or 2.81 % and $ 73.94 million or 10.14 % , respectively . partially offsetting these increases in portfolio loans was a decrease of $ 16.87 million or less than 1 % in residential real estate loans . investment securities increased $ 159.94 million or 21.93 % due mainly to a $ 149.66 million increase in securities available 58 for sale . this change in securities available for sale reflects $ 697.05 million in sales , maturities and calls of securities , $ 845.91 million in purchases , and a decrease of $ 2.30 million in market value . securities held to maturity decreased $ 2.50 million or 5.76 % from year-end 2012 due to calls and maturities of securities . other investment securities increased $ 12.78 million or 21.20 % from year-end 2012 due to net purchases of $ 13.13 million in fhlb stock .
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customers selling equipment through our sales channels include end users ( such as construction companies ) , equipment dealers , and other equipment owners ( such as rental companies ) . our customers participate in a variety of sectors , including heavy construction , transportation , agriculture , energy , and mining . approximately half of what we sold during 2016 transacted online ; through either online simulcast auction participation , or through equipmentone . in 2016 , of the $ 4.3 billion of all items sold by us , $ 2.1 billion were sold to online buyers through these online solutions . we operate worldwide with locations in more than 15 countries , including the united states , canada , australia , the united arab emirates , and the netherlands . our corporate headquarters are located near vancouver , canada . we are a public company listed on both the new york stock exchange ( “ nyse ” ) and toronto stock exchange ( “ tsx ” ) under the ticker symbol “ rba ” and , as of december 31 , 2016 , we had total equity market capitalization of approximately $ 3.6 billion . on november 4 , 2015 , we acquired a 75 % interest in xcira llc ( “ xcira ” ) , a florida-based company specializing in software and technology solutions related to online auction bidding and sales . ritchie bros. was one of xcira 's first customers , and has worked very closely with xcira over the past 14 years to customize xcira 's solutions to meet our needs . xcira primarily operates in the industrial auction space , but also offers solutions to auto , art , and other luxury item auctioneers . on february 19 , 2016 , we acquired a 100 % interest in mascus international holding bv ( “ mascus ” ) , an amsterdam-based company that operates a global online portal for the sale and purchase of heavy equipment and vehicles , with the largest online market presence in europe for heavy machinery and trucks . mascus offers subscriptions to equipment dealers , brokers , exporters , and equipment manufacturers to list equipment available for sale . in addition to online listing services , they also provide online advertising services , business tools , and other software solutions to many of the world 's leading equipment dealerships and equipment manufacturers . founded in scandinavia , mascus has expanded over the past several years and now includes operations across europe , asia , africa , and north america , catering to the construction , transport , agriculture , material handling , forestry , and grounds-care industries . on july 12 , 2016 , we completed our acquisition of the 49 % non-controlling interest in ritchie bros. financial services ( “ rbfs ” ) . rbfs provides equipment buyers with the confidence to make offers on equipment , trucks and other industrial assets , with pre-approved loans and financing arrangements . the business finances all brands of equipment and provides equipment buyers with the option to purchase assets at ritchie bros. auctions , ritchie bros. equipmentone , or through other brand solutions . ritchie bros. 46 rbfs has arrangements with a diverse group of financial partners to provide lending solutions that meet the specific needs of equipment owners and dealers . services offered include pre-approved commercial equipment financing , re-financing , and leasing , as well as equipment dealer financing . also on july 12 , 2016 , we announced our minority investment in machinio corp. ( “ machinio ” ) , a global search engine for finding , buying , and selling used machinery and equipment . with more active listings than any other website , machinio is the most comprehensive real-time database of for-sale listings . machinio connects hundreds of thousands of buyers each month with thousands of used machinery dealers from all over the world . having launched in late 2012 , machinio is now the fastest growing online platform for used machinery . on august 1 , 2016 , we acquired substantially all of the assets of petrowsky auctioneers ( “ petrowsky ” ) , a connecticut-based company that sold nearly $ 50 million worth of equipment and other assets at auctions in 2015 , mostly in the new england , united states region . on august 29 , 2016 , we entered into an agreement and plan of merger ( the “ merger agreement ” ) pursuant to which ritchie bros. agreed to acquire a 100 % interest in ironplanet holdings , inc. ( “ ironplanet ” ) , a private company based in the united states , for approximately $ 740 million in cash plus the assumption of unvested equity interests in ironplanet , subject to adjustment . under the terms of the merger agreement , a wholly-owned subsidiary of the company will merge with and into ironplanet , with the latter surviving the merger as a wholly-owned subsidiary of the company ( the “ merger ” ) . ironplanet sold approximately $ 787 million worth of equipment and other assets through its sales channels during 2015 , and has achieved a 25.2 % compounded growth rate in assets sold from 2013 through 2015. consummation of the merger is subject to customary conditions , including ( i ) the expiration or termination of the applicable waiting period under the hart-scott-rodino antitrust improvements act of 1976 , as amended , and procurement of certain foreign antitrust clearances ; ( ii ) the absence of a material adverse change with respect to ironplanet since the date of the merger agreement , as described in the merger agreement ; ( iii ) the committee on foreign investment in the united states having provided written notice to the effect that review of the transactions contemplated by the merger agreement has been concluded and has terminated all action under section 721 of the defense production act of 1950 , as amended ; and ( iv ) absent termination of ironplanet 's registrations or withdrawal of registrations under the international traffic in arms regulations , the united states department of state story_separator_special_tag we use revenue rate , which is calculated by dividing revenues by gap , to determine the amount of gap changes that flow through to our revenues . we are committed to pursuing growth initiatives that will further enhance our sector reach , drive geographic depth , meet a broader set of customer needs , and add scale to our operations . · on august 1 , 2016 , we acquired petrowsky , significantly enhancing our market presence in the new england , united states region and providing ritchie bros. with a new live reserve auction platform . petrowsky 's auction sales are well aligned with ritchie bros. ' sector focus as they cater largely to equipment sellers in the construction and transportation industries . petrowsky also serves customers selling assets in the underground utility , waste recycling , marine , and commercial real estate industries . the business operates one permanent auction site , in north franklin , united states , which will continue to hold auctions , and also specializes in off-site auctions held on the land of the consignor . all petrowsky auctions are also simulcast live online , allowing online bidders to participate . the petrowsky brand will be maintained as a brand extension within the ritchie bros. family of brands , given its strong and loyal customer base and its offering of reserve auction options . · on august 29 , 2016 , we announced the merger agreement with ironplanet . we believe that the merger will accelerate our customer-centric , multi-channel diversification strategy by increasing customer choice , enhancing online offerings , and providing penetration into large , additional sectors . the merger is expected to significantly increase revenue and net income by using the strength of our balance sheet . founded in 1999 , ironplanet complements ritchie bros. ' primarily end-user customer base , as it focuses largely on the needs of corporate accounts , equipment manufacturers , dealers , and government entities in equipment disposition solutions . it conducts sales primarily through online-only platforms , with weekly online auctions and in other equipment marketplaces . · on august 29 , 2016 , we entered into the alliance , which provides that upon consummation of the merger , caterpillar shall designate ritchie bros. as a ‘ preferred ' but nonexclusive provider of online and on-site auctions and marketplaces ( including those of ironplanet ) in the countries where we do business . in exchange for this designation , caterpillar will receive commission rate discounts to our standard rates , as well access to certain data and information . we believe the alliance will significantly strengthen our relationship with caterpillar dealers . · on november 15 , 2016 , we acquired substantially all of the assets of kramer . this acquisition is expected to significantly strengthen our penetration of canada 's agricultural sector and add key talent to our canadian ag sales and operations teams . operating for more than 65 years , kramer has established a leading market position in alberta , saskatchewan , and manitoba as a premier agricultural auctioneers , offering both on-the-farm and on site live auctions for customers selling equipment , livestock , and real-estate in the agricultural sector . the family-owned and operated business has developed deep , loyal customer relationships over three generations of management by the kramer family . like us , kramer conducts its auctions on an unreserved basis . equipmentone is a key part of a full-service offering to provide our customers with a menu of options that cater to their needs at different points of their asset disposition journey . the strategy of offering equipmentone and other sales channels alongside our core auction service is a key step in developing a truly multi-channel offering to our market . · during 2016 , gtv at equipmentone increased 23 % compared to 2015 . · our equipmentone marketplace was expanded into canada in the third quarter of 2015 , contributing full year revenues in 2016 . · equipmentone launched its enterprise software solution ( “ ess ” ) in 2016 , which provides a portal for dealer-to-dealer equipment sales . dealer-to-dealer sales accounted for $ 29.6 million of the total $ 148.0 million of gtv in 2016 , generating revenues of $ 0.6 million . ritchie bros. 49 the addition of ritchie bros. private treaty and mascus ( our listing service ) , as well as the acquisition of the minority interest in ritchie bros. financial services , will also contribute to revenue and earnings growth for the company . · on february 19 , 2016 , we acquired mascus , a leading global online equipment listing service . the acquisition expands the breadth of equipment disposition and management solutions we can offer our customers . mascus operates a vibrant online equipment listing service with over 360,000 items for sale and 3.3 million monthly website visits across 58 countries and in 42 languages . the business also provides equipment sellers with a turn-key suite of business tools and software solutions . mascus customers will benefit from our deep equipment experience and extensive global buying audience , providing further global exposure for mascus equipment listings . · on july 12 , 2016 , we completed our acquisition of the 49 % non-controlling interest in rbfs and announced our strategic investment in machinio . in 2015 , rbfs received more than $ 1 billion of credit applications and facilitated $ 222 million in equipment financing for ritchie bros. customers – representing 31 % growth in funded loans compared to 2014 , and 116 % growth compared to 2013. rbfs acts as an intermediary with select lending partners to find financing solutions for customers purchasing equipment , including loans and lease-to-own programs . rbfs does not utilize ritchie bros. capital in its financing activities . these corporate development initiatives are expected to help position us for future growth and further extend our involvement in the digital innovation of the equipment industry . we will also continue to focus on accelerating our strategic accounts growth and improving the overall performance and use of our underwritten contracts .
| results of operations replace_table_token_8_th gross auction proceeds 2016 performance gap was $ 4.3 billion for 2016 , a 2 % increase over 2015. included in gap for 2016 is $ 148.0 million of gtv from our online marketplaces , which represents a 23 % increase over gtv of $ 120.0 million in 2015 . 2016 gtv includes $ 29.6 million of assets that transacted on a dealer-to-dealer basis on equipmentone 's online marketplaces primarily due to the launch of equipmentone 's ess in 2016. revenues earned on these dealer-to-dealer transactions were $ 0.6 million in 2016. dealer-to-dealer transactions on equipmentone 's online marketplaces were not significant prior to the introduction of ess in 2016. the increase in gap is primarily due to an increase in the number of core auction lots year-over-year . the total number of lots at industrial and agricultural auctions grew 12 % , increasing to 437,300 in 2016 from 390,300 in 2015. however , core auction gap decreased 9 % on a per-lot basis to $ 9,600 in 2016 from $ 10,600 in 2015. this decrease is primarily due to the mix and age of equipment that came to market in 2016. we also believe the macro economic environment uncertainties , particularly in north america , negatively impacted equipment demand and pricing and contributed to the decrease in core auction gap per lot year-over-year . we saw a peak in used equipment values in the first quarter of 2015 that did not recur in 2016. ritchie bros. 53 gap , on a u.s. dollar basis , grew in canada and the united states in 2016 compared to 2015. however , this growth was partially offset by a reduction in gap in europe over the same comparative period .
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restricted cash the company classifies as restricted cash all cash pledged as collateral to secure obligations and all cash whose use is otherwise limited by contractual provisions , including cash on deposit in reserve accounts relating to the commercial mortgage pass-through certificates , series 2007-1 issued in the company 's securitization transaction and the secured cellular site revenue notes , series 2010-1 class c , series 2010-2 class c and series 2010-2 class f , assumed by the company as a result of the acquisition of certain legal entities from unison holdings , llc and unison site management ii , l.l.c . short-term investments and available-for-sale securities as of december 31 , 2011 and 2010 , short-term investments and available-for-sale securities include highly-liquid investments of approximately $ 22.3 million and $ 46.2 million , respectively , with original maturities in excess of three months . as of december 31 , 2011 and 2010 , the company 's story_separator_special_tag the discussion and analysis of our financial condition and results of operations that follow are based upon our consolidated financial statements , which have been prepared in accordance with gaap . the preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities , revenues and expenses , and the related disclosure in our financial statements . actual results may differ significantly from these estimates under different assumptions or conditions . this discussion should be read in conjunction with our consolidated financial statements herein and the accompanying notes thereto , and the information set forth under the caption critical accounting policies and estimates beginning on page 54. our continuing operations are reported in three segments , domestic rental and management , international rental and management and network and development services . management focuses on segment gross margin and segment operating profit as a means to measure operating performance in our business segments . we define segment gross margin as segment revenue less segment operating expenses , excluding stock-based compensation recorded in costs of operations ; depreciation , amortization and accretion ; selling , general , administrative and development expense ; and other operating expense . we define segment operating profit as segment gross margin less selling , general , administrative and development expense attributable to the segment , excluding stock-based compensation expense and corporate expenses . segment gross margin and segment operating profit for the rental and management segments also include interest income , tv azteca , net ( see note 19 to our consolidated financial statements included herein ) . these measures of segment gross margin and segment operating profit are also before interest income , interest expense , loss on retirement of long-term obligations , other income ( expense ) , net income attributable to noncontrolling interest , income ( loss ) on equity method investments , income taxes and discontinued operations . executive overview our primary business is leasing antenna space on multi-tenant communications sites to wireless service providers , radio and television broadcast companies , wireless data providers , government agencies and municipalities and tenants in a number of other industries . in addition to the communications sites in our portfolio , we hold property interests that we lease to communications service providers and third-party tower operators . we also manage rooftop and tower sites for property owners under various contractual arrangements . we refer to this business as our rental and management operations , which accounted for approximately 98 % of our total revenues for the year ended december 31 , 2011 and include our domestic rental and management segment and our international rental and management segment . through our network development services segment , we offer tower-related services domestically , including site acquisition , zoning and permitting services and structural analysis services , which primarily support our site leasing business and the addition of new tenants and equipment on our sites . we began operating as a reit for federal income tax purposes effective january 1 , 2012. the following table details the number of communications sites we own or operate in the countries in which we operate as of december 31 , 2011 : replace_table_token_7_th 30 the majority of our tenant leases with wireless carriers are typically for an initial non-cancellable term of five to ten years , with multiple five-year renewal terms thereafter . accordingly , nearly all of the revenue generated by our rental and management operations during the year ended december 31 , 2011 is recurring revenue that we should continue to receive in future periods . the tenant leases in place as of december 31 , 2011 , will generate approximately $ 18.5 billion of non-cancellable future tenant lease revenue , absent the impact of straight-line lease accounting . in addition , most of our tenant leases have provisions that periodically increase the rent due under the lease . these contractual rent escalations are typically annual and based on a fixed percentage ( on average approximately 3.5 % in the u.s. ) , inflation , or a fixed percentage plus inflation . revenue generated by rent increases based on fixed escalation clauses is recognized on a straight-line basis over the non-cancellable term of the applicable agreement . we also routinely seek to extend our leases with our tenants , which increases the non-cancellable term of the lease and creates incremental growth in our revenues . the revenues generated by our rental and management operations may also be affected by cancellations of existing tenant leases . as discussed above , most of our tenant leases with wireless carriers and broadcasters are multi-year contracts , which typically may not be cancelled or , in some instances , may be cancelled only upon payment of a termination fee . accordingly , revenue lost from either cancellations of leases at the end of their terms or rent negotiations historically have not had a material adverse effect on the revenues generated by our rental and management operations . story_separator_special_tag replace_table_token_8_th ( 1 ) the majority of sites acquired or constructed in 2011 were in brazil , colombia , ghana , india , mexico and south africa ; in 2010 were in chile , colombia , india and peru ; and in 2009 were in brazil and india . network development services segment revenue growth . as we continue to focus on growing our rental and management operations , we anticipate that our network development services revenue will continue to represent a small percentage of our total revenues . through our network development services segment , we offer tower-related services , including site acquisition , zoning and permitting services and structural analysis services , which primarily support our site leasing business and the addition of new tenants and equipment on our sites . 32 rental and management operations expenses . our rental and management operations expenses include our direct site level expenses and consist primarily of ground rent , property taxes , repairs and maintenance and power and fuel costs , some of which may be passed through to our customers . these segment level expenses exclude all segment and corporate level selling , general , administrative and development expenses , which are aggregated into one line item entitled selling , general , administrative and development expense . in general , our rental and management segment level selling , general , administrative and development expenses do not significantly increase as a result of adding incremental tenants to our legacy sites and typically increase only modestly year-over-year . as a result , leasing additional space to new tenants on our legacy sites provides significant incremental cash flow . in geographic areas where we have recently launched operations or are focused on materially expanding our site footprint , we may incur additional segment level selling , general , administrative and development expenses as we increase our presence in these areas . our profit margin growth is therefore positively impacted by the addition of new tenants to our legacy sites and can be temporarily diluted by our development activities . reit conversion . effective january 1 , 2012 , we reorganized our operations to qualify as a reit for federal income tax purposes . the reit tax rules require that we derive most of our income , other than income generated by a trs , from investments in real estate , which for us will primarily consist of income from the leasing of our communications sites . a reit is not permitted to retain earnings and profits accumulated either during the years it was taxed as a c corporation or by its trss that have been converted to qualified reit subsidiaries , and must make one or more distributions to stockholders that equal or exceed that accumulated amount . in december 2011 , we paid the pre-reit distribution to our stockholders of approximately $ 137.8 million . we intend to commence paying regular distributions in 2012. the amount , timing and frequency of future distributions , however , will be at the sole discretion of our board of directors and will be declared based upon various factors , many of which are beyond our control , including , our financial condition and operating cash flows , the amount required to maintain reit status and reduce any income and excise taxes that we otherwise would be required to pay , limitations on distributions in our existing and future debt instruments , our ability to utilize nols to offset , in whole or in part , our distribution requirements , limitations on our ability to fund distributions using cash generated through our trss and other factors that our board of directors may deem relevant . for more information on the requirements to qualify as a reit , see item 1 of this annual report under the caption businessoverview , and item 1a of this annual report under the caption risk factorsfailure to make required distributions would subject us to additional federal corporate income tax , which may limit our ability to fund these distributions using cash generated through our trss and certain of our business activities may be subject to corporate level income tax and foreign taxes , which reduce our cash flows , and will have potential deferred and contingent tax liabilities. non-gaap financial measures included in our analysis of our results of operations are discussions regarding earnings before interest , taxes , depreciation , amortization and accretion , as adjusted ( adjusted ebitda ) . we define adjusted ebitda as net income before : income ( loss ) on discontinued operations , net ; income ( loss ) from equity method investments ; income tax provision ( benefit ) ; other income ( expense ) ; loss on retirement of long-term obligations ; interest expense ; interest income ; other operating expenses ; depreciation , amortization and accretion ; and stock-based compensation expense . adjusted ebitda is not intended to replace net income or any other performance measures determined in accordance with gaap . rather , adjusted ebitda is presented as we believe it is a useful indicator of our current operating performance . we believe that adjusted ebitda is useful to an investor in evaluating our operating performance because ( 1 ) it is the primary measure used by our management team for purposes of decision making and for evaluating the performance of our operating segments ; ( 2 ) it is a component of the calculation used by our lenders to determine compliance with certain debt covenants ; ( 3 ) it is widely used in the 33 tower industry to measure operating performance as depreciation , amortization and accretion may vary significantly among companies depending upon accounting methods and useful lives , particularly where acquisitions and non-operating factors are involved ; ( 4 ) it provides investors with a meaningful measure for evaluating our period to period operating performance by eliminating items which are not operational in nature ; and ( 5 ) it provides investors with a measure for comparing our results of operations to those of different companies by excluding the
| results of operations years ended december 31 , 2011 and 2010 ( in thousands ) revenue replace_table_token_9_th total revenues for the year ended december 31 , 2011 increased 23 % to $ 2,443.5 million . the increase was primarily attributable to an increase in both of our rental and management segments , including organic revenue growth attributable to our legacy sites and revenue growth attributable to the approximately 18,290 new communications sites , and property interests that we lease to communications service providers and third-party tower operators under approximately 1,810 communications sites , acquired since january 1 , 2010. domestic rental and management segment revenue for the year ended december 31 , 2011 increased 11 % to $ 1,744.3 million . this growth was comprised of : approximately 9 % from organic revenue growth , which was due to the incremental revenue generated from adding new tenants to legacy sites , existing tenants adding more equipment to legacy sites , contractual rent escalations , and a positive impact from straight-line lease accounting due to extending thousands of leases with one of our major tenants , partially offset by tenant lease cancellations ; and revenue growth of approximately 2 % , which was a result of the construction or acquisition of approximately 1,420 new domestic communications sites and the acquisition of property interests that we lease to communications service providers and third-party tower operators under approximately 1,810 communications sites since january 1 , 2010. international rental and management segment revenue for the year ended december 31 , 2011 increased 73 % to $ 641.9 million .
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we believe this strategy results in higher quality , more cost effective and focused solutions for our customers . our products are marketed under a variety of brand names that we believe are characterized as having a very high level of precision and quality . our global operations enable us to produce a wide variety of products in strategically effective geographic locations that also optimize our resources for specific technologies , sensors , assemblies , and systems . the company also has a long heritage of innovation in precision foil resistors , foil strain gages , and sensors that convert mechanical inputs into an electronic signal for display , processing , interpretation , or control by our instrumentation and systems products . our advanced sensor product line continues this heritage by offering high-quality foil strain gages produced in a proprietary , highly automated environment . precision sensors are essential to the accurate measurement , resolution and display of force , weight , pressure , torque , tilt , motion , or acceleration , especially in the legal-for-trade , commercial , and industrial marketplaces . this expertise served as a foundation for our expansion into strain gage instrumentation , load cells , transducers , weighing modules , and complete systems for process control and on-board weighing . although our products are typically used in the industrial market , our advanced sensors have been used in a consumer electronics product and are being evaluated for other non-industrial applications . the precision sensor market is integral to the development of intelligent products across a wide variety of end markets upon which we focus , including medical , agricultural , transportation , industrial , avionics , military , and space applications . we believe that as original equipment manufacturers ( “ oems ” ) continue a drive to make products “ smarter , ” they will integrate more sensors and related systems into their solutions to link the mechanical/physical world with digital control and or response . we believe this offers a substantial growth opportunity for our products and expertise . impact of covid-19 on our business as the covid-19 pandemic began to unfold around the world , the company took measures to protect its employees and customers . those measures included suspending business travel , enabling certain employees to work from home , implementing workplace distancing , and adjusting work shifts to minimize employees ' contact with other employees . while the majority of the company 's operations were able to operate despite the impacts from the covid-19 pandemic , the company 's force sensors manufacturing facility in india had operated at partial capacity as a result of government-mandated restrictions . the company received approval from the indian government to operate its facility without limitations on july 1 , 2020 , and since that date , has been operating at pre-pandemic capacity . as of march 11 , 2021 , all of the company 's facilities are operating without limitations with the company implementing covid-19 best practices with respect to working conditions and enabling some employees to work remotely where possible . nonetheless , given the impacts to date and the ongoing uncertainty concerning the magnitude of the impact and duration of the covid-19 pandemic , the ongoing economic disruption may continue to adversely affect the company 's business and financial results . story_separator_special_tag style= '' margin-bottom:8pt ; margin-top:8pt ; text-align : justify '' > another important indicator of demand in our industry is the book-to-bill ratio , which is the ratio of the amount of product ordered during a period compared with the product that we ship during that period . a book-to-bill ratio that is greater than one indicates that demand is higher than current revenues and manufacturing capacities , and it indicates that we may generate increasing revenues in future periods . conversely , a book-to-bill ratio that is less than one is an indicator of lower demand compared to existing revenues and current capacities and may foretell declining sales . we focus on our inventory turnover as a measure of how well we are managing our inventory . we define inventory turnover for a financial reporting period as our costs of products sold for the four fiscal quarters ending on the last day of the reporting period divided by our average inventory ( computed using each quarter-end balance ) for this same period . a higher level of inventory turnover reflects more efficient use of our capital . the quarter-to-quarter trends in these financial metrics can also be an important indicator of the likely direction of our business . the following table shows net revenues , gross profit margin , the end-of-period backlog , the book-to-bill ratio , and the inventory turnover for our business as a whole during the five quarters beginning with the fourth quarter of 2019 and through the fourth quarter of 2020 ( dollars in thousands ) : replace_table_token_2_th - 28 - replace_table_token_3_th net revenues for the fourth quarter of 2020 increased 11.7 % from the net revenues of $ 67.5 million reported in the third quarter of 2020 , and increased 9.1 % from $ 69.1 million for the comparable prior year period . net revenues in the foil technology products segment of $ 36.5 million in the fourth quarter of 2020 increased 10.9 % from $ 32.9 million in the third quarter of 2020 , and increased 23.1 % from $ 29.6 million in the fourth quarter of 2019. the sequential and year over year increases in revenues was primarily attributable to an increase in our advanced sensors product line primarily in our consumer-related markets and higher sales of precision resistors and our pacific instruments product line in the avionics , military and space market . sequentially , the increase in revenue reflected higher precision resistor sales in the test and measurement market , an increase in our pacific instruments product line in the avionics , military and space market , and an increase in our advanced sensors product line primarily in our consumer-related markets . story_separator_special_tag - 30 - acquisition strategy we expect to continue to make strategic acquisitions where opportunities present themselves to grow our segments . historically , our growth and acquisition strategy has been largely focused on vertical product integration , using our foil strain gages in our force sensor products , and incorporating those products into our weighing and control systems . the acquisitions of stress-tek and kelk , each of which employ our foil strain gages to manufacture load cells for their systems , continued this strategy . additionally , the kelk acquisition resulted in the acquisition of certain optical sensor technology . the pacific instruments acquisition significantly broadened our existing data acquisition offerings and opened new markets for us . our most recent acquisition , dsi , expands our position in the steel market . we expect to expand our expertise , and our acquisition focus , outside our traditional vertical approach to other precision sensor solutions in the fields of measurement of force , weight , pressure , torque , tilt , motion , and acceleration . we believe acquired businesses will benefit from improvements we implement to reduce redundant functions and from our current global manufacturing and distribution footprint . research and development research and development will continue to play a key role in our efforts to introduce innovative products to generate new sales and to improve profitability . we expect to continue to expand our position as a leading supplier of precision foil technology products . we believe our r & d efforts should provide us with a variety of opportunities to leverage technology , products , and our manufacturing base in order to ultimately improve our financial performance . the amount charged to expense for research and development aggregated $ 12.6 million , $ 12.1 million , and $ 11.8 million for the years ended december 31 , 2020 , 2019 , and 2018 , respectively . cost management to be successful , we believe we must seek new strategies for controlling operating costs . through automation in our plants , we believe we can optimize our capital and labor resources in production , inventory management , quality control , and warehousing . we are in the process of moving some manufacturing to more cost effective locations . this may enable us to become more efficient and cost competitive , and also maintain tighter controls of the operation . production transfers , facility consolidations , and other long-term cost-cutting measures require us to initially incur significant severance and other exit costs . we are realizing the benefits of our restructuring through lower labor costs and other operating expenses , and expect to continue reaping these benefits in future periods . however , these programs to improve our profitability also involve certain risks which could materially impact our future operating results , as further detailed in part i , item 1a “ risk factors ” of this annual report on form 10-k. the company recorded restructuring costs of $ 0.9 million , $ 2.3 million , and $ 0.3 million during the years ended december 31 , 2020 , 2019 , and 2018 , respectively . in 2020 and 2018 , restructuring costs were comprised primarily of employee termination costs , including severance and statutory retirement allowances . in 2019 , restructuring costs included $ 1.2 million of employee termination costs , including severance and statutory retirement allowances incurred in connection with various cost reduction programs , and $ 1.1 million of other exit costs associated with the closure and downsizing of facilities as part of the manufacturing transitions of the company 's force sensors products to facilities in india and china . we are evaluating plans to further reduce our costs by consolidating additional manufacturing operations . these plans may require us to incur restructuring and severance costs in future periods . while streamlining and reducing fixed overhead , we are exercising caution so that we will not negatively impact our customer service or our ability to further develop products and processes . foreign currency we are exposed to foreign currency exchange rate risks , particularly due to transactions in currencies other than the functional currencies of certain subsidiaries . u.s. gaap requires that entities identify the “ functional currency ” of each of their subsidiaries and measure all elements of the financial statements in that functional currency . a subsidiary 's functional currency is the currency of the primary economic environment in which it operates . in cases where a subsidiary is relatively self-contained within a particular country , the local currency is generally deemed to be the functional currency . however , a foreign subsidiary that is a direct and integral component or extension of the parent company 's operations generally would have the parent company 's currency as its functional currency . we have subsidiaries that fall into each of these categories . - 31 - foreign subsidiaries which use the local currency as the functional currency our operations in europe , canada , and certain locations in asia primarily generate and expend cash using local currencies , and accordingly , these subsidiaries utilize the local currency as their functional currency . for those subsidiaries where the local currency is the functional currency , assets and liabilities in the consolidated balance sheets have been translated at the rate of exchange as of the balance sheet date . translation adjustments do not impact the results of operations and are reported as a separate component of equity . for those subsidiaries where the local currency is the functional currency , revenues and expenses are translated at the average exchange rate for the year . while the translation of revenues and expenses into u.s. dollars does not directly impact the consolidated statements of operations , the translation effectively increases or decreases the u.s. dollar equivalent of revenues generated and expenses incurred in those foreign currencies .
| overview of financial results vpg reports in three product segments : the foil technology products segment , the force sensors segment , and the weighing and control systems segment . the foil technology products reporting segment is comprised of the foil resistor and strain gage operating segments . the force sensors reporting segment is comprised of transducers , load cells , and modules . the weighing and control systems reporting segment is comprised of complete systems which include load cells and instrumentation for weighing , force control and force measurement for a variety of uses such as process control and on-board weighing applications . net revenues for the year ended december 31 , 2020 were $ 269.8 million compared to net revenues of $ 284.0 million for the year ended december 31 , 2019. net earnings attributable to vpg stockholders for the year ended december 31 , 2020 were $ 10.8 million , or $ 0.79 per diluted share , compared to $ 22.2 million , or $ 1.63 per diluted share , for the year ended december 31 , 2019 . - 26 - the results of operations for the years ended december 31 , 2020 and 2019 include items affecting comparability as listed in the reconciliations below . the reconciliations below include certain financial measures which are not recognized in accordance with u.s. generally accepted accounting principles ( `` gaap '' ) , including adjusted gross profits , adjusted gross profit margin , adjusted operating income , adjusted operating margin , adjusted net earnings , and adjusted net earnings per diluted share . these non-gaap measures should not be viewed as an alternative to gaap measures of performance . non-gaap measures such as adjusted gross profits , adjusted gross profit margin , adjusted operating income , adjusted operating margin , adjusted net earnings , and adjusted net earnings per diluted share do not have uniform definitions .
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a discussion of our results of operations and liquidity for fiscal 2018 compared to fiscal 2017 can be found under item 7 in our annual report on form 10-k for the fiscal year ended december 31 , 2018 , filed on march 1 , 2019 , which is available free of charge on the sec 's website at www.sec.gov and our investor relations website at ir.corporate.discovery.com . business overview we are a global media company that provides content across multiple distribution platforms , including linear platforms such as pay-tv , fta and broadcast television , authenticated tve applications , digital distribution arrangements , content licensing arrangements and dtc subscription products . for a discussion of our global portfolio of networks and joint ventures see our business overview set forth in item 1 , “ business ” in this annual report on form 10-k. our objectives are to invest in content for our networks to build viewership , optimize distribution revenue , capture advertising sales and create or reposition branded channels and businesses that can sustain long-term growth and occupy a desired content niche with strong consumer appeal . our strategy is to maximize the distribution , ratings and profit potential of each of our branded networks . in addition to growing distribution and advertising revenues for our branded networks , we are extending content distribution across new platforms , including brand-aligned websites , on-line streaming , mobile devices , vod and broadband channels , which provide promotional platforms for our television content and serve as additional outlets for advertising and distribution revenue . audience ratings are a key driver in generating advertising revenue and creating demand on the part of cable television operators , dth satellite operators , telecommunication service providers , and other content distributors , that deliver our content to their customers . our content spans genres including survival , natural history , exploration , sports , general entertainment , home , food and travel , heroes , adventure , crime and investigation , health and kids . we have an extensive library of high-definition content and own rights to much of our content and footage , which enables us to exploit our library to launch brands and services into new markets quickly . our content can be re-edited and updated in a cost-effective manner to provide topical versions of subject matter that can be utilized around the world on a variety of platforms . although the company utilizes certain brands and content globally , we classify our operations in two reportable segments : u.s. networks , consisting principally of domestic television networks and digital distribution arrangements , and international networks , consisting primarily of international television networks and digital distribution arrangements . in addition , other consists principally of a production studio , and prior to the sale of the education business in april 2018 , curriculum-based education products and services ( see note 3 to the accompanying consolidated financial statements . ) our segment presentation aligns with our management structure and the financial information management uses to make strategic and operating decisions , such as the allocation of resources and business performance assessments . for further discussion of our company , segments in which we do business , and our content development activities and revenues , see our business overview set forth in item 1 , `` business '' in this annual report on form 10-k. story_separator_special_tag supplemented by revenue earned from svod content licensing and other emerging forms of digital distribution . the largest component of distribution revenue is comprised of linear distribution services for rights to our networks from cable , dth satellite and telecommunication service providers . we have contracts with distributors representing most cable and satellite service providers around the world , including the largest operators in the u.s. and major international distributors . distribution revenues are largely dependent on the rates negotiated in the agreements , the number of subscribers that receive our networks or content , the number of platforms covered in the distribution agreement , and the market demand for the content that we provide . from time to time , renewals of multi-year carriage agreements include significant year one market adjustments to re-set subscriber rates , which then increase at rates lower than the initial increase in the following years . in some cases , we have provided distributors launch incentives , in the form of cash payments or free periods , to carry our networks . distribution revenue also includes fees charged for bulk content arrangements and other subscription services for episodic content . these digital distribution revenues are impacted by the quantity , as well as the quality , of the content we provide . distribution revenue increase d 7 % for the year ended december 31 , 2019 . excluding the impact of foreign currency fluctuations , distribution revenue increase d 9 % . on a pro forma combined basis excluding the impact of foreign currency fluctuations , distribution revenue increase d 5 % . on a pro forma combined basis , excluding the impact of foreign currency fluctuations , the increase was primarily a result of an increase of 5 % at both u.s. networks and international networks . increases at u.s. networks were attributable to increases in contractual affiliate rates and additional carriage on virtual multichannel video programming distributors , partially offset by a decline in overall subscribers . increases at international networks were primarily attributable to the impact of certain content licensing arrangements in our latin america business unit , higher affiliate rates in europe and monetization of dtc initiatives in europe and asia . we also generate other revenue associated with content production from our production studio . prior to the sale of the education business in april 2018 , we generated other revenue from curriculum-based products and services , the licensing of our brands for consumer products and third-party content sales . other revenue decrease d 47 % for the year ended december 31 , 2019 . excluding the impact of foreign currency fluctuations , other revenue decrease d 45 % . story_separator_special_tag the decrease in income tax expense for the year ended december 31 , 2019 was primarily attributable to the discrete , one-time , non-cash deferred tax benefit of $ 445 million from legal entity restructurings discussed below . additionally , the decrease in income tax expense was attributable to a decrease in the provision for uncertain tax positions and a decrease in the effect of foreign operations , which was mainly driven by the establishment of certain valuation allowances during the year ended december 31 , 2018 that did not recur in 2019 , and a tax benefit realized during the year ended december 31 , 2019 from the final regulations related to the determination of the foreign tax credit released by the u.s. treasury department and irs in december 2019. this decrease was partially offset by an increase in income and the impact of a goodwill impairment charge that was non-deductible for tax purposes during the year ended december 31 , 2019 . finally , the income tax expense for the year ended december 31 , 2018 included a one-time discrete tax benefit from u.s. legislative changes that extended the accelerated deduction of qualified film productions . 42 we carried out numerous internal transactions during the year ended december 31 , 2019 that were intended to integrate assets acquired from the scripps networks business with the discovery business ; streamline and simplify our corporate entity structures ; simplify our internal financing structures ; respond to the expected exit of the united kingdom from the european union ; make our managerial structures and processes more efficient and nimble ; and reduce costs associated with the maintenance of legal entities . these transactions included mergers , liquidations , and intercompany sales among members of the consolidated discovery group . some of these transactions have resulted in changes in certain of our deferred tax items , which are based on differences between the book versus tax bases of the assets and liabilities and on certain tax attributes , such as net operating loss carryovers . the items involved in these restructurings relate to a variety of jurisdictions in our international networks segment . recent changes in accounting for intercompany transactions have also impacted our effective tax rate . for example , following our adoption of accounting standards update 2016-16 , effective january 1 , 2018 , the income tax effects of intercompany transfers will be recognized in the period in which the transfer occurs , rather than amortized over time , which will increase the impact of such transfers on our effective tax rate in the periods in which the transfers occur . moreover , u.s. tax reform has a continued effect as the u.s. treasury department issues final regulations clarifying application of the new law ; and several tax controversies have come to resolution . the net effect of the various changes in our deferred tax balances and related valuation allowances has been the recognition of a one-time , non-cash deferred income tax benefit of $ 445 million during the year ended december 31 , 2019 . segment results of operations – 2019 vs. 2018 we evaluate the operating performance of our operating segments based on financial measures such as revenues and adjusted oibda . adjusted oibda is defined as operating income excluding : ( i ) employee share-based compensation , ( ii ) depreciation and amortization , ( iii ) restructuring and other charges , ( iv ) certain impairment charges , ( v ) gains and losses on business and asset dispositions , ( vi ) certain inter-segment eliminations related to production studios , ( vii ) third-party transaction costs directly related to the acquisition and integration of scripps networks and other transactions , and ( viii ) other items impacting comparability , such as the non-cash settlement of a withholding tax claim . we use this measure to assess the operating results and performance of our segments , perform analytical comparisons , identify strategies to improve performance , and allocate resources to each segment . we believe adjusted oibda is relevant to investors because it allows them to analyze the operating performance of each segment using the same metric management uses . we exclude share-based compensation , restructuring and other charges , certain impairment charges , gains and losses on business and asset dispositions , and acquisition and integration costs from the calculation of adjusted oibda due to their impact on comparability between periods . we also exclude the depreciation of fixed assets and amortization of intangible assets , as these amounts do not represent cash payments in the current reporting period . certain corporate expenses and inter-segment eliminations related to production studios are excluded from segment results to enable executive management to evaluate segment performance based upon the decisions of segment executives . adjusted oibda should be considered in addition to , but not a substitute for , operating income , net income and other measures of financial performance reported in accordance with u.s. generally accepted accounting principles ( “ gaap ” ) . effective january 1 , 2019 , our definition of adjusted oibda was modified to exclude all employee share-based compensation , whereas only mark-to-market share-based compensation was previously excluded . over time , the company has moved to a higher percentage of equity-classified awards ( in lieu of liability-classified awards , which require mark-to-market accounting ) under its stock incentive plans and expects to continue this practice in future periods . since most equity classified awards are non-cash expenses not entirely under management control , we have elected to exclude all share-based compensation from adjusted oibda beginning in 2019. the revised definition of adjusted oibda was used by our chief operating decision maker in evaluating segment performance in 2019. accordingly , prior period amounts have been recast to reflect the current definition .
| results of operations the discussion below compares our actual results for the year ended december 31 , 2019 to the year ended december 31 , 2018 , as well as our actual results for the year ended december 31 , 2019 to pro forma combined results for the year ended december 31 , 2018 , as if the scripps networks acquisition occurred on january 1 , 2017. scripps networks was acquired on march 6 , 2018 . management believes reviewing our actual operating results in addition to combined pro forma results is useful in identifying trends in , or reaching conclusions regarding , the overall operating performance of our businesses . our combined u.s. networks , international networks and corporate and inter-segment eliminations pro forma information is based on the historical operating results of the respective businesses as applicable to each segment and includes adjustments directly attributable to the prior year scripps networks acquisition as if it had occurred on january 1 , 2017 , such as : 1. the impact of the purchase price allocation to the fair value of assets , liabilities , and noncontrolling interests , such as intangible amortization ; 2. adjustments to remove items associated with the acquisition of scripps networks that will not have a continuing impact on the combined entity , such as transaction costs and the impact of employee retention agreements ; and 3. changes to align accounting policies . 38 adjustments do not include costs related to integration activities , cost savings or synergies that have been or may be achieved by the combined businesses . pro forma amounts are not necessarily indicative of what our results would have been had we operated scripps networks since january 1 , 2017 and should not be taken as indicative of the company 's future consolidated results of operations .
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the company considers factors such as the duration , severity and the reason for the decline in value , the potential recovery period and our intent to sell . for debt securities , we also consider whether ( i ) it is more likely than not that the company will be required to sell the debt securities before recovery of their amortized cost basis and ( ii ) the amortized cost basis can not be recovered as a result of credit losses . during the quarter ended december 31 , 2018 , the company did not recognize any other-than-temporary impairment losses . all marketable securities with unrealized losses have been in a loss position for less than twelve months . note 13. defined contribution plan the company sponsors an employee retirement plan qualifying under section 401 ( k ) of the internal revenue code for all eligible employees in the united states . employees become eligible to contribute to the plan upon meeting certain age requirements and 30 days of service . for the years ended december 31 , 2018 and 2017 , the company has not made any matching contributions to the plan . note 14. income taxes due to reported losses , the company recorded no income tax expense for the years ended december 31 , 2018 and 2017 . a reconciliation of the expected income tax story_separator_special_tag the following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the notes to those financial statements appearing elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements that involve significant risks and uncertainties . our actual results could differ materially from those discussed in these forward-looking statements . factors that could cause or contribute to such differences include , but are not limited to , those set forth in part i , item 1a . risk factors , of this annual report on form 10-k. overview unless otherwise indicated , references to `` xeris , '' the `` company , '' `` we , '' `` our '' and `` us '' in this annual report on form 10-k refer to xeris pharmaceuticals , inc. we are a specialty pharmaceutical company leveraging our novel technology platforms , xerisol and xeriject , to develop and commercialize ready-to-use , non-aqueous formulation injectable and infusible drug formulations . we have developed a ready-to-use , room-temperature stable liquid glucagon formulation that , unlike any currently available products , can be administered without any preparation or reconstitution . our lead product candidate , gvoke hypopen , delivers ready-to-use glucagon via a commercially-available auto-injector for the treatment in people with diabetes of severe hypoglycemia , a potentially life-threatening condition . we have completed three phase 3 clinical trials for our gvoke hypopen and submitted a new drug application , or nda , to the u.s. food & drug administration , or the fda , in august 2018. the fda has set june 10 , 2019 as the prescription drug user fee act , or pdufa , action goal date for our nda . if our nda is approved at that time , we believe we will have the first ready-to-use , room-temperature stable liquid glucagon formulation that can be administered without any preparation or reconstitution . additionally , through our interactions with the european medicines agency , or ema , regarding our development path in europe , we have finalized our regulatory plan and initiated a requisite phase 3 pivotal trial to support our european marketing authority application , or maa . we also are applying our novel ready-to-use , room-temperature stable liquid glucagon formulation for the management of hypoglycemia associated with additional intermittent and chronic conditions with significant unmet medical need . in addition , we are applying our technology platforms to convert other commercially-available drugs into ready-to-use , room-temperature stable liquid formulations to address the needs in multiple therapeutic areas and conditions , including epilepsy and diabetes . we have begun building out our commercial organization , including individuals in operations and marketing as well as medical affairs , in preparation for a commercial launch of the gvoke hypopen in the united states in the second half of 2019. outside the united states we plan to pursue development and commercialization partnerships . we currently contract with third parties for the manufacture , assembly , testing , packaging , storage and distribution of our products . since our inception in 2005 , we have devoted substantially all of our resources to research and development initiatives , undertaking preclinical studies of our product candidates , conducting clinical trials of our most advanced product candidates , organizing and staffing our company and raising capital . we do not have any products approved for sale and have not generated any revenue from product sales . we have funded our operations to date primarily with proceeds from the sale of preferred and common stock , bank financings and grant awards received from the national institutes of health , or nih , and other philanthropic organizations . in particular , we have received cash proceeds of $ 104.9 million from sales of our preferred stock , $ 35.0 million from drawdowns of the loan and security agreement , $ 10.6 million from grant awards from the nih and other philanthropic organizations , and $ 98.3 million from our june 2018 initial public offering , or ipo , of our common stock pursuant to a registration statement on form s-1 , as amended . in the ipo , we sold an aggregate of 6,555,000 shares of our common stock under the registration statement at a public offering price of $ 15.00 per share , including 855,000 shares of our common stock pursuant to the exercise of the underwriters ' option to purchase additional shares . net proceeds were $ 88.9 million after deducting underwriting discounts and commissions as well as other offering expenses . story_separator_special_tag 91 income tax we have incurred operating losses since inception and therefore do not have any taxable income . as of december 31 , 2018 , we had $ 108.8 million in federal net operating loss carryforwards and $ 35.6 million of various state net operating loss carryforwards , $ 5.8 million in federal research and orphan drug credits that begin to expire in 2025 , as well $ 0.2 million of state research and development credits that will begin to expire in 2022. story_separator_special_tag development and clinical operations , including completion of our planned phase 2 and phase 3 clinical trials , as well as commercialization of our product candidates will depend on the amount and timing of cash received from planned financings . our future capital requirements will depend on many factors , including : 93 < the costs , timing and outcome of regulatory review of our gvoke hypopen ; < the costs , timing and outcomes of clinical trials and regulatory reviews associated with our product candidates ; < the costs of commercialization activities , including product marketing , sales and distribution ; < the costs of preparing , filing and prosecuting patent applications and maintaining , enforcing and defending intellectual property-related claims ; < the emergence of competing technologies and products and other adverse marketing developments ; < the effect on our product development activities of actions taken by the fda or other regulatory authorities ; < our degree of success in commercializing gvoke hypopen , if approved ; and < the number and types of future products we develop and commercialize . until we obtain regulatory approval to market our product candidates , if ever , we can not generate revenues from sales of our products . even if we are able to sell our products , we may not generate a sufficient amount of product revenues to finance our cash requirements . accordingly , we may need to obtain additional financing in the future which may include public or private debt and equity financings . there can be no assurance that such funding may be available to us on acceptable terms , or at all , or that we will be able to successfully commercialize our product candidates . the issuance of equity securities may result in dilution to stockholders . if we raise additional funds through the issuance of debt securities , these securities may have rights , preferences and privileges senior to those of our common stock and the terms of the debt securities could impose significant restrictions on our operations . the failure to raise funds as and when needed could have a negative impact on our financial condition and ability to pursue our business strategies . if additional funding is not secured when required , we may need to delay or curtail our operations until such funding is received , which would have a material adverse impact on our business prospects and results of operations . cash flows replace_table_token_9_th the increase in cash used in operating activities for the year ended december 31 , 2018 when compared to the year ended december 31 , 2017 was primarily due to an increase in net loss from operations resulting from increased spending on research and development and selling , general and administrative expenses . the increase in cash used by investing activities for the year ended december 31 , 2018 when compared to the year ended december 31 , 2017 was primarily due to purchases of short-term investments with a portion of the net proceeds from the ipo . the increase in cash provided by financing activities for the year period ended december 31 , 2018 when compared to the year ended december 31 , 2017 was primarily due to the net proceeds from the ipo of $ 88.9 million after deducting payments for ipo costs , net proceeds from the loan and security agreement of $ 34.7 million and net proceeds from the sale of series c preferred stock of $ 4.4 million , partially offset by net proceeds from the sale of series c preferred stock of $ 35.0 million in the prior year . 94 contractual obligations and commitments during the year ended december 31 , 2018 we entered into additional leases for office space in chicago as well as executed the loan and security agreement . as of december 31 , 2018 , we were obligated to pay the following amounts : replace_table_token_10_th in the first quarter of 2018 , the company signed a new lease for office space in chicago , illinois . in the fourth quarter of 2018 , we signed an amendment to this lease to occupy additional space and expects to relocate from our existing premises to this additional space in march 2019. the lease term expires on june 30 , 2031. we enter into contracts in the normal course of business with clinical trial sites , manufacturing organizations and vendors for preclinical studies , research supplies and other services and products for operating purposes . these contracts generally provide for termination after a notice period , and , therefore , are cancellable contracts and not included in the table above . off-balance sheet arrangements as of december 31 , 2018 , we had unused letters of credit of $ 143,000 that are used to secure leases . internal controls our internal policies and procedures relating to control over financial reporting are designed to provide reasonable assurance as to the reliability of our financial reporting . during 2017 , we identified a material weakness in our internal control over financial reporting due to a lack of proper segregation of duties within our finance and accounting function , as one individual had control over two or more phases of a transaction or operation . this weakness was due to our inability to implement the appropriate segregation of duties within our historical enterprise resource planning system .
| results of operations the following table summarizes our results of operations for the years ended december 31 , 2018 and 2017 : replace_table_token_6_th gross profit gross profit increased by $ 0.9 million for the year ended december 31 , 2018 when compared to the year ended december 31 , 2017 , primarily driven by an increase in grant income of $ 0.8 million . this increase was primarily driven by several clinical trials and preclinical studies for our chi and pbh programs and our diazepam formulation for the treatment of epileptic seizures for which we received grants . research and development expenses the following table summarizes our research and development expenses by functional area for the years ended december 31 , 2018 and 2017 : replace_table_token_7_th 92 the following table summarizes our research and development expenses by program for the years ended december 31 , 2018 and 2017 : replace_table_token_8_th research and development expenses increased $ 20.5 million for the year ended december 31 , 2018 when compared to the year ended december 31 , 2017. these increases were primarily driven by increased product development expenses of $ 12.2 million in support of our gvoke hypopen nda filing and additional pipeline programs as well as the manufacturing of commercial supplies of the gvoke hypopen prior to fda approval , increased personnel expenses of $ 4.2 million due to additional headcount and other employee-related costs , and increased expenses of $ 4.1 million associated with our clinical and preclinical trials .
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for 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 the notes accompanying those statements appearing elsewhere in this annual report on form 10-k. the results described below are not necessarily indicative of the results to be expected in any future periods . company overview multiplan is a leading value-added provider of data analytics and technology-enabled end-to-end cost management , payment and revenue integrity solutions to the u.s. healthcare industry . we are also one of the largest independent ppos in the u.s. , with contracted providers in all 50 states and the district of columbia . we are committed to helping healthcare payors manage the cost of care , improve their competitiveness and inspire positive change . leveraging sophisticated technology , data analytics and a team-rich industry experience , multiplan interprets clients ' needs and customizes innovative solutions through the following offerings : analytics-based services : data-driven algorithms which detect claims over-charges and recommend or negotiate fair reimbursement ; network-based services : contracted discounts with healthcare providers , including one of the largest independent preferred provider organizations in the united states , and outsourced network development and or management services ; and payment integrity services : data , technology , and clinical expertise deployed to identify and remove improper and unnecessary charges before or after claims are paid , or to identify and help restore and preserve underpaid premium dollars . our customers almost entirely are payors . we offer these payors a single electronic gateway to a comprehensive set of services in each of the three categories ( analytics-based services , network-based services , and payment integrity services ) , which are used in combination or individually to reduce the medical cost burden on healthcare payors and patients while fostering efficient payments to the providers . these offerings have enabled us to maintain long-term relationships with a number of our customers , including relationships of over 25 years with some of the nation 's largest commercial payors . for the year ended december 31 , 2020 , our expansive network included access to over 1,200,000 healthcare providers and our comprehensive services identified approximately $ 18.8 billion in potential medical cost savings . the transactions on july 12 , 2020 , churchill entered into the merger agreement by and among first merger sub , second merger sub , holdings , and multiplan parent . on october 8 , 2020 , the merger agreement was consummated and the transactions were completed . the transactions were accounted for as a reverse recapitalization , with no goodwill or other intangible assets recorded , in accordance with gaap . under this method of accounting , churchill was treated as the `` acquired '' company for financial reporting purposes with multiplan parent determined to be the accounting acquiror . this determination was primarily based on the existing multiplan parent stockholders being the majority stockholders and holding majority voting power in the combined company , multiplan parent 's senior management comprising the majority of senior management of the combined company , and the ongoing operations of multiplan parent comprising the ongoing operations of the combined company . accordingly , for accounting purposes , the transactions were treated as the equivalent of multiplan parent issuing shares for the net assets of churchill , accompanied by a recapitalization . the net assets of churchill were recognized at fair value ( where were consistent with carrying value ) , with no goodwill or other intangible assets recorded . see note 4 the transactions of the note to the consolidated financial statements included in this annual report on form 10-k for further information on the transactions . as a consequence of the transactions , we became the successor to an sec-registered and nyse-listed company . hst acquisition on november 9 , 2020 , the company acquired hst , a healthcare technology company that enables value-driven health benefit plan designs featuring reference-based pricing and tools to engage health plan members and providers in making the 43 best use of available benefits both before and after care delivery . the company acquired 100 percent of the voting equity interests of hst . the results of operations and financial condition of hst have been included in the company 's consolidated results from the date of acquisition . through december 31 , 2020 , hst 's impact on revenues and net earnings was not material . in connection with the hst acquisition , the company incurred transaction costs . the transaction costs have been expensed as incurred and these amounts , totaling $ 0.9 million for the year ended december 31 , 2020 , are included in general and administrative expenses in the accompanying consolidated statements of ( loss ) income and comprehensive ( loss ) income . uncertainty relating to the covid-19 pandemic covid-19 has negatively impacted our business , results of operations and financial condition during 2020. effects from covid-19 began to impact our business in first quarter 2020 with various federal , state , and local governments and private entities mandating restrictions on travel , restrictions on public gatherings , closure of non-essential commerce , and shelter in place orders . the company experienced an approximately 4.6 % decline in revenues for the year ended december 31 , 2020 compared to 2019 primarily due to reduced volume from customers as a result of restrictions on elective medical procedures and non-essential medical services . the extent of the ultimate impact will depend on the severity and duration of the pandemic . future developments are highly uncertain , including the widespread availability and distribution of covid-19 vaccines , the emergence of highly contagious variants , and any actions taken by federal , state and local governments such as economic relief efforts , as well as u.s. and global economies and consumer behavior and health care utilization patterns . we have temporarily closed all of our offices and restricted travel due to concern for our employees ' health and safety and also in compliance with state shelter in place orders . story_separator_special_tag as expenditures continue to rise , stakeholders and especially payors , are becoming increasingly focused on solutions that reduce medical costs and improve payment accuracy . components of results of operations revenues we generate revenues from several sources including : ( i ) analytics-based services that use our leading and proprietary information technology platform to offer customers solutions to reduce medical costs , ( ii ) network-based services that process claims at a discount compared to billed fee-for-service rates and by using an extensive network and ( iii ) payment integrity services that use data , technology , and clinical expertise to identify improper , unnecessary and excessive charges . payors compensate us through either a psav achieved or a pepm rate . costs of services ( exclusive of depreciation and amortization of intangible assets ) costs of services ( exclusive of depreciation and amortization of intangible assets ) consist of all costs specifically associated with claims processing activities for customers , sales and marketing , and the development and maintenance of our networks , analytics-based solutions , and payment integrity solutions . two of the largest components in costs of services are personnel 45 expenses and access and bill review fees . access and bill review fees include fees for accessing non-owned third-party provider networks , expenses associated with vendor fees for database access and systems technology used to reprice claims , and outsourced services . third-party network expenses are fees paid to non-owned provider networks used to supplement our owned network assets to provide more network claim savings to our customers . general and administrative expenses general and administrative expenses include corporate management and governance functions composed of general management , legal , treasury , tax , real estate , financial reporting , auditing , benefits and human resource administration , communications , public relations , billing and information management . in addition , general and administrative expenses include taxes , insurance , advertising , transaction costs , and other general expenses . depreciation expense depreciation expense consists of depreciation and amortization of property and equipment related to our investments in leasehold improvements , furniture and equipment , computer hardware and software , and internally generated capitalized software development costs . we provide for depreciation and amortization on property and equipment using the straight-line method to allocate the cost of depreciable assets over their estimated useful lives . amortization of intangible assets amortization of intangible assets includes amortization of the value of our customer relationships and provider network which were identified in valuing the intangible assets in connection with the june 6 , 2016 acquisition by h & f . the acquisition of hst contributed to an increase in intangibles of $ 32.2 million for customer relationships , trademarks , and technology . interest expense interest expense consists of accrued interest and related interest payments on our outstanding long-term debt and amortization of debt issuance costs , discounts on the term loan g , 7.125 % notes , 5.750 % notes and senior convertible pik notes and senior pik notes . interest expense for the year ended december 31 , 2020 included a $ 2.3 million out-of-period adjustment to recognize expense for the portions of debt issuance costs related to amounts of principal loan prepayments of term loan g made i n the years ended december 31 , 2019 , 2018 , and 2017. interest income interest income consists primarily of bank interest . gain or loss on debt extinguishment the loss on debt extinguishment of $ 103.0 million for the year ended december 31 , 2020 consists of : the repayment of $ 369.0 million of indebtedness under our term loan facility as a result of which we wrote off $ 0.6 million of the term loan discount and $ 1.6 million of debt issuance costs ; the redemption in full of the 7.125 % notes , for which we paid a redemption premium of $ 55.6 million and wrote off unamortized debt issuance costs of $ 18.0 million and the unamortized debt premium of $ 8.6 million ; and the redemption in full of the senior pik notes , for which we paid a redemption premium of $ 23.6 million and wrote off unamortized debt issuance costs of $ 6.5 million and the unamortized debt discount of $ 5.7 million . the gain on debt extinguishment for the year ended december 31 , 2019 consists of the $ 18.5 million gain on the repurchase and cancellation of $ 121.3 million of senior pik notes in 2019. the cash repurchase of $ 101.0 million senior pik notes resulted in the recognition of a gain of $ 18.5 million as well as a write off of the pro-rate share of debt issue costs of $ 1.0 million and discount of $ 0.8 million . loss on investments loss on investments consists of the changes in the fair value of the company 's investments . for the year ended december 31 , 2020 , the loss of $ 12.2 million primarily results from the decrease in the fair value of the shares held in treasury for the purpose of facilitating the transactions . the shares held in treasury were purchased in august 2020 for a total amount of 46 $ 100.6 million excluding fees and commissions , and upon the consummation of the transactions the fair value of the shares had decreased to $ 89.5 million . change in fair value of private placement warrants and unvested founder shares for the year ended december 31 , 2020 , the change in fair value of private placement warrants and unvested founder shares was $ 35.4 million . the company remeasures at each reporting period the fair value of the private placement warrants and unvested founder shares . from the consummation of the transactions to december 31 , 2020 , the fair value of the private placement warrants and the unvested founder shares decreased by $ 11.5 million and $ 23.9 million , respectively .
| cash flow summary the following table is derived from our consolidated statements of cash flows : replace_table_token_8_th cash flows from operating activities for the year ended december 31 , 2020 as compared to the year ended december 31 , 2019 cash flows from operating activities provided $ 377.4 million for the year ended december 31 , 2020 and $ 284.3 million for the year ended december 31 , 2019. this $ 93.1 million , or 32.7 % , increase in cash flows from operating activities was primarily the result of increases in net income after adjusting for non-cash items of $ 69.4 million and changes in net working capital of $ 23.7 million . the increase of net income adjusted for non-cash items of $ 69.4 million was due to an increase of non-cash items of $ 599.7 million partially offset by an increase in net loss of $ 530.3 million . the $ 599.7 million increase in non-cash items was primarily due to an increase in stock-based compensation of $ 420.9 million , increase in loss on extinguishment of debt of $ 121.4 million , change in the deferred tax benefit of $ 66.4 million , loss on investments of $ 12.2 million , and the increase in non-cash interest costs of $ 9.5 million including increases in debt issue costs , increases in depreciation expense of $ 4.8 million , increase in amortization of intangible assets $ 0.6 million , and loss on disposal of assets of $ 0.4 million , offset by the change in fair value of private placement warrants and unvested founder shares of $ 35.4 million and decrease in the amortization of right-of-use-asset of $ 1.2 million .
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the company 's products are also sold to other oems of commercial vehicles ( medium-duty trucks , heavy-duty trucks and buses ) and off-highway vehicles ( agricultural and construction machinery and marine applications ) . we also manufacture and sell our products to certain tier one vehicle systems suppliers and into the aftermarket for light , commercial and off-highway vehicles . the company operates manufacturing facilities serving customers in europe , asia , the americas and africa and is an original equipment supplier to every major automotive oem in the world . the company 's products fall into two reporting segments : engine and drivetrain . the engine segment 's products include turbochargers , timing devices and chains , emissions systems and thermal systems . the drivetrain segment 's products include transmission components and systems , awd torque transfer systems and rotating electrical devices . results of operations a summary of our operating results for the years ended december 31 , 2015 , 2014 and 2013 is as follows : replace_table_token_8_th 27 non-comparable items impacting the company 's earnings per diluted share and net earnings the company 's earnings per diluted share were $ 2.70 , $ 2.86 and $ 2.70 for the years ended december 31 , 2015 , 2014 and 2013 , respectively . the company believes the following table is useful in highlighting non-comparable items that impacted its earnings per diluted share : replace_table_token_9_th a summary of non-comparable items impacting the company 's net earnings for the years ended december 31 , 2015 , 2014 and 2013 is as follows : year ended december 31 , 2015 : the company incurred restructuring expense of $ 65.7 million , associated with both the drivetrain and engine segments and a global realignment plan . the drivetrain segment charges mostly represent expenses associated with severance agreements with three labor unions at separate facilities in western europe for approximately 450 employees , as well as restructuring of the 2015 remy international , inc. ( `` remy '' ) acquisition . the engine segment charges primarily relate to the restructuring of the 2014 gustav wahler gmbh u. co. kg and its general partner ( `` wahler '' ) acquisition . these expenses included $ 41.5 million related to employee termination benefits and $ 11.7 million of other expenses . both the drivetrain and engine restructuring actions are designed to improve the future profitability and competitiveness of each segment . the company estimates that additional restructuring expense of approximately $ 4 million will be incurred related to the drivetrain segment . also included in the restructuring amount above is $ 12.5 million related to a global realignment plan intended to enhance treasury management flexibility by creating a legal entity structure that better aligns with the company 's business strategy . the company incurred a non-cash settlement loss of $ 25.7 million related to a lump-sum pension de-risking disbursement made to an insurance company to unconditionally and irrevocably guarantee all future payments to certain participants that were receiving payments from the u.s. pension plan . the company recorded $ 21.8 million for merger and acquisition expenses primarily related to the remy acquisition . this amount includes $ 13.0 million related to investment banker fees and $ 8.8 million related to professional fees . the company recorded a $ 10.8 million gain on the previously held equity interest in beru diesel start systems pvt . ltd. ( `` beru diesel '' ) as a result of acquiring the remaining 51 % of this joint venture . the company recorded tax benefits of $ 9.9 million , $ 9.0 million , $ 3.8 million and $ 3.7 million primarily related to foreign tax incentives and tax settlements , the pension settlement loss , merger and acquisition expense and restructuring expense , respectively . 28 year ended december 31 , 2014 : the company incurred restructuring expense of $ 90.8 million , primarily associated with both the drivetrain and engine segments . the drivetrain segment charges primarily represent a continuation of expenses associated with the first quarter 2014 finalization of severance agreements with two labor unions at separate facilities in western europe for approximately 350 employees . the engine segment charges primarily relate to the restructuring of the wahler acquisition . these expenses included $ 57.9 million related to employee termination benefits and $ 20.9 million of other expenses . additionally , the company also recorded restructuring charges of $ 12.0 million related to a global realignment plan intended to enhance treasury management flexibility by creating a legal entity structure that better aligns with the company 's business strategy . both the drivetrain and engine restructuring actions are designed to improve the future profitability and competitiveness of each segment . the company incurred intangible asset impairment losses of $ 10.3 million related to the engine segment , primarily driven by the decision to discontinue the use of an unamortized trade name . the company incurred a settlement loss of $ 3.1 million related to lump-sum payments made to former employees of the company to discharge its obligation under the u.s pension plan . the company recorded tax benefits of $ 15.3 million , $ 0.4 million and $ 1.1 million related to restructuring expense , intangible asset impairment losses and the pension settlement loss , respectively . year ended december 31 , 2013 : the company incurred restructuring expense of $ 39.8 million , primarily due to the initiation of drivetrain segment actions designed to improve future profitability and competitiveness . this expense included $ 24.8 million of fixed asset impairment , $ 10.4 million related to employee termination benefits , $ 4.0 million related to a global realignment plan intended to enhance treasury management flexibility by creating a legal entity structure that better aligns with the company 's business strategy and $ 0.6 million of other expense . the company incurred intangible asset impairment losses of $ 12.5 million related to drivetrain segment customer relationships and an engine segment unamortized trade name . the company incurred $ 11.3 million of expense related to a program termination agreement . story_separator_special_tag additionally , the effective tax rate includes a tax benefit of $ 9.9 million primarily related to foreign tax incentives and tax settlements . excluding the impact of these non-comparable items , the company 's annual effective tax rate associated with ongoing operations for 2015 was 29.8 % . the effective tax rate of 29.9 % for the year ended december 31 , 2014 includes tax benefits of $ 15.3 million , $ 0.4 million and $ 1.1 million related to restructuring expense , intangible asset impairment losses and the pension settlement loss discussed in note 3 , `` other expense , net , '' to the consolidated financial statements in item 8 of this report . excluding the impact of these non-comparable items , the company 's annual effective tax rate associated with ongoing operations for 2014 was 28.5 % . the effective tax rate of 25.1 % for the year ended december 31 , 2013 includes tax benefits of $ 5.1 million , $ 2.0 million , $ 3.8 million and $ 2.1 million related to restructuring expense , intangible asset impairment losses , program termination agreement and retirement related obligations discussed in note 3 , `` other expense , net , '' to the consolidated financial statements in item 8 of this report . this rate also includes a net tax benefit of $ 11.7 million , which is comprised of tax benefits of $ 6.7 million related to the extension of the federal research and development credit and other international tax provisions resulting from the retroactive impact of u.s. legislation enacted in january 2013 , $ 2.2 million related to 2012 provision to return and other tax adjustments and $ 8.0 million related to the reversal of certain state deferred tax asset valuation allowances , partially offset by a $ 5.2 million tax expense related to comprehensive income and other tax adjustments . excluding the impact of these non-comparable items , the company 's annual effective tax rate associated with ongoing operations for 2013 was 25.9 % . net earnings attributable to the noncontrolling interest , net of tax of $ 36.7 million for the year ended december 31 , 2015 increased by $ 5.0 million and $ 10.0 million compared to the years ended december 31 , 2014 and 2013 , respectively . the increase during the year ended december 31 , 2015 compared to the years ended december 31 , 2014 and 2013 was primarily related to higher sales and earnings by the company 's joint ventures . story_separator_special_tag style= '' font-family : arial ; font-size:11pt ; '' > on march 16 , 2015 , borgwarner inc. issued $ 500 million in 3.375 % senior notes due march 2025 and $ 500 million in 4.375 % senior notes due march 2045. interest is payable semi-annually in arrears on march 15 and september 15 of each year . the company used the net proceeds from this offering for general corporate purposes , including , but not limited to , repurchasing shares of the company 's common stock pursuant to our previously announced $ 1 billion share repurchase program and repaying u.s. short-term debt . these senior notes are not guaranteed by any of borgwarner inc. 's subsidiaries . the company has a $ 1 billion multi-currency revolving credit facility which includes a feature that allows the company 's borrowings to be increased to $ 1.25 billion . the facility provides for borrowings through june 30 , 2019. the company has one key financial covenant as part of the credit agreement which is a debt to ebitda ( `` earnings before interest , taxes , depreciation and amortization '' ) ratio . the company was in compliance with the financial covenant at december 31 , 2015 and expects to remain compliant in future periods . at december 31 , 2015 and december 31 , 2014 , the company had no outstanding borrowings under this facility . the company 's commercial paper program allows the company to issue short-term , unsecured commercial paper notes up to a maximum aggregate principal amount outstanding of $ 1 billion . under this program , the company may issue notes from time to time and will use the proceeds for general corporate purposes . at december 31 , 2015 and 2014 , the company had outstanding borrowings of $ 215.0 million and $ 460.9 million , respectively , under this program , which is classified in the consolidated balance sheets in notes payable and other short-term debt . the total current combined borrowing capacity under the multi-currency revolving credit facility and commercial paper program can not exceed $ 1 billion . in addition to the credit facility , the company 's universal shelf registration has an unlimited amount of various debt and equity instruments that could be issued . on february 11 , 2015 , april 29 , 2015 , july 29 , 2015 and november 11 , 2015 , the company 's board of directors declared quarterly cash dividends of $ 0.13 per share of common stock . these dividends were paid in the twelve months ended december 31 , 2015. the company 's net debt to net capital ratio was 35.4 % at december 31 , 2015 versus 12.8 % at december 31 , 2014. from a credit quality perspective , the company has a credit rating of baa1 from moody 's and bbb+ from both standard & poor 's and fitch ratings . on march 5 , 2015 , moody 's upgraded the company 's credit rating from baa2 to baa1 . the current outlook from moody 's , standard & poor 's and fitch ratings is stable . none of the company 's debt agreements require accelerated repayment in the event of a downgrade in credit ratings .
| results by reporting segment the company 's business is comprised of two reporting segments : engine and drivetrain . these segments are strategic business groups , which are managed separately as each represents a specific grouping of related automotive components and systems . the company allocates resources to each segment based upon the projected after-tax return on invested capital ( `` roic '' ) of its business initiatives . roic is comprised of adjusted ebit after deducting notional taxes compared to the projected average capital investment required . adjusted ebit is comprised of earnings 31 before interest , income taxes and noncontrolling interest ( “ ebit '' ) adjusted for restructuring , goodwill impairment charges , affiliates ' earnings and other items not reflective of ongoing operating income or loss . adjusted ebit is the measure of segment income or loss used by the company . the company believes adjusted ebit is most reflective of the operational profitability or loss of our reporting segments . the following tables show segment information and adjusted ebit for the company 's reporting segments . net sales by reporting segment replace_table_token_11_th adjusted earnings before interest , income taxes and noncontrolling interest ( `` adjusted ebit '' ) replace_table_token_12_th the engine segment 's net sales for the year ended december 31 , 2015 decreased $ 205.9 million , or 3.6 % , and segment adjusted ebit decreased $ 23.3 million , or 2.5 % , from the year ended december 31 , 2014. excluding the impact of weakening foreign currencies , primarily the euro , the 2014 wahler acquisition and the 2015 beru diesel acquisition , net sales increased 6.7 % from the year ended december 31 , 2014 primarily due to higher sales of light vehicle turbochargers , partially offset by weak commercial vehicle markets around the world . the segment adjusted ebit margin was 16.4 % for the year ended december 31 , 2015 , up from 16.2 % in the year ended december 31 , 2014 .
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the unaudited pro forma information does not consider any changes to the provision for credit losses resulting from recording loan assets at fair value . additionally , columbia expects to achieve further operating cost savings and other business synergies , including story_separator_special_tag this discussion should be read in conjunction with our consolidated financial statements and related notes in “ item 8. financial statements and supplementary data ” of this report . in the following discussion , unless otherwise noted , references to increases or decreases in average balances in items of income and expense for a particular period and balances at a particular date refer to the comparison with corresponding amounts for the period or date for the previous year . critical accounting policies we have established certain accounting policies in preparing our consolidated financial statements that are in accordance with accounting principles generally accepted in the united states . our significant accounting policies are presented in note 1 to the consolidated financial statements in “ item 8. financial statements and supplementary data ” of this report . certain of these policies require the use of judgments , estimates and economic assumptions which may prove inaccurate or are subject to variation that may significantly affect our reported results of operations and financial position for the periods presented or in future periods . management believes that the judgments , estimates and economic assumptions used in the preparation of the consolidated financial statements are appropriate given the factual circumstances at the time . we consider the following policies to be most critical in understanding the judgments that are involved in preparing our consolidated financial statements . allowance for loan and lease losses the alll is established to absorb known and inherent losses in our loan and lease portfolio . our methodology in determining the appropriate level of the alll includes components for a general valuation allowance in accordance with the contingencies topic of the financial accounting standards board accounting standards codification ( “ fasb asc ” ) , a specific valuation allowance in accordance with the receivables topic of the fasb asc and an unallocated component . both quantitative and qualitative factors are considered in determining the appropriate level of the alll . quantitative factors include loss experience over a historical base period , estimated loss emergence period , and the evaluation of specific loss estimates for problem loans . qualitative factors include existing general economic and business conditions in our market areas as well as the duration of the current business cycle . these qualitative factors have a high degree of subjectivity . changes in any of the factors mentioned could have a significant impact on our calculation of the alll . our alll policy and the judgments , estimates and economic assumptions involved are described in greater detail in the “ allowance for loan and lease losses and unfunded commitments and letters of credit ” section of this discussion and in note 1 to the consolidated financial statements in “ item 8. financial statements and supplementary data ” of this report . business combinations the company applies the acquisition method of accounting for business combinations . under the acquisition method , the acquiring entity in a business combination recognizes 100 percent of the assets acquired and liabilities assumed at their acquisition date fair values . management utilizes prevailing valuation techniques appropriate for the asset or liability being measured in determining these fair values . any excess of the purchase price over amounts allocated to assets acquired , including identifiable intangible assets , and liabilities assumed is recorded as goodwill . where amounts allocated to assets acquired and liabilities assumed is greater than the purchase price , a bargain purchase gain is recognized . acquisition-related costs are expensed as incurred . purchased credit impaired loans loans acquired at a discount for which it is probable that all contractual payments will not be received are generally accounted for under asc topic 310-30 , loans and debt securities acquired with deteriorated credit quality ( “ asc 310-30 ” ) . in addition , certain purchased loans with evidence of deteriorated credit quality may be accounted for under this topic even if it is not yet probable that all contractual payments will not be received . these loans are recorded at fair value at the time of acquisition . estimated credit losses are included in the determination of fair value , and therefore , an allowance for loan losses is not recorded on the acquisition date . the excess of expected cash flows at acquisition over the initial investment in acquired loans ( “ accretable yield ” ) is recorded as interest income over the life of the loans if the timing and amount of the future cash flows is reasonably estimable . subsequent to acquisition , the company aggregates individual loans with common risk characteristics into pools of loans . increases in estimated cash flows over those expected at the acquisition date are recognized as interest income , prospectively . decreases in expected cash flows after the acquisition date are recognized by recording an allowance for loan losses . 31 loans accounted for under asc 310-30 are generally considered accruing and performing loans as the loans accrete interest income over the estimated life of the loan when cash flows are reasonably estimable . accordingly , purchased credit impaired loans that are contractually past due are still considered to be accruing and performing loans . if the timing and amount of future cash flows is not reasonably estimable , the loans may be classified as nonaccrual loans and the purchase price discount on those loans is not recorded as interest income until the timing and amount of future cash flows can be reasonably estimated . fdic loss-sharing asset in conjunction with certain of the fdic-assisted acquisitions , the bank entered into loss-sharing agreements with the fdic . story_separator_special_tag changes attributable to the combined effect of volume and interest rates have been allocated proportionately to the changes due to volume and the changes due to interest rates : changes in net interest income replace_table_token_9_th the following table shows the impact to interest income of incremental accretion income as well as the net interest margin and operating net interest margin for the periods presented : replace_table_token_10_th ( 1 ) operating net interest margin ( tax equivalent ) is a non-gaap financial measure . see non-gaap financial measures section of “ item 7. management 's discussion and analysis of financial conditions and results of operations. ” 36 comparison of 2015 with 2014 taxable-equivalent net interest income totaled $ 334.5 million in 2015 , compared with $ 312.1 million for 2014 . the increase in net interest income during 2015 resulted from the increase in the size of the loan and securities portfolios , partially offset by lower incremental accretion on acquired loans as well as lower yields on loans and securities . the incremental accretion income represents the amount of income recorded on the acquired loans above the contractual rate stated in the individual loan notes . the additional interest income stems from the net discount established at the time these loan portfolios were acquired . the company 's net interest margin ( tax equivalent ) decreased from 4.76 % for the year ended december 31 , 2014 to 4.35 % for the current year due primarily to the decreased impact of accretion income on the loan portfolio as well as lower yields on loans and securities . the company 's operating net interest margin ( tax equivalent ) decreased from 4.21 % for the year ended december 31 , 2014 to 4.15 % for the current year due to lower rates on loans due to the overall decreasing trend in rates . for a discussion of the methodologies used by management in recording interest income on loans , please see “ critical accounting policies ” section of this discussion and note 1 to the consolidated financial statements in “ item 8. financial statements and supplementary data ” of this report . comparison of 2014 with 2013 taxable-equivalent net interest income totaled $ 312.1 million in 2014 , compared with $ 297.1 million for 2013 . the increase in net interest income during 2014 resulted from the increase in the size of the loan portfolio as well as lower rates paid on deposits . these increases were partially offset by lower incremental accretion on acquired loans . the incremental accretion income represents the amount of income recorded on the acquired loans above the contractual rate stated in the individual loan notes . the additional income stems from the discount established at the time these loan portfolios were acquired , and increases net interest income . the company 's net interest margin ( tax equivalent ) decreased from 5.16 % for the year ended december 31 , 2013 to 4.76 % for the year ended december 31 , 2014 due to the decreased impact of accretion income on the loan portfolio . the company 's operating net interest margin ( tax equivalent ) decreased from 4.32 % in 2013 to 4.21 % for 2014 . the decrease was due to the combination of lower rates on loans as well as securities due to the overall decreasing trend in rates . provision for loan and lease losses the company accounts for the credit risk associated with lending activities through its allowance for loan and lease losses and provision for loan and lease losses . the provision is the expense recognized in the consolidated statements of income to adjust the allowance to the levels deemed appropriate by management , as determined through its application of the company 's allowance methodology procedures . for discussion of the methodology used by management in determining the adequacy of the alll see the “ allowance for loan and lease losses and unfunded commitments and letters of credit ” and “ critical accounting policies ” sections of this discussion . the company recorded provision expense of $ 8.6 million and $ 6.7 million in 2015 and 2014 , respectively and a provision recapture of $ 101 thousand in 2013 . the provision recorded in 2015 reflects management 's ongoing assessment of the credit quality of the company 's loan portfolio , which is impacted by various economic trends . additional factors affecting the provision include net charge-offs , credit quality migration , size and composition of the loan portfolio and changes in the economic environment during the period . see “ allowance for loan and lease losses and unfunded commitments and letters of credit ” section of this discussion for further information on factors considered by the company in assessing the credit quality of the loan portfolio and establishing the allowance for loan and lease losses . for the years ended december 31 , 2015 , 2014 and 2013 , net loan charge-offs amounted to $ 10.0 million , $ 9.6 million , and $ 9.7 million , respectively . 37 noninterest income the following table presents the significant components of noninterest income and the related dollar and percentage change from period to period : replace_table_token_11_th comparison of 2015 with 2014 the $ 14.7 million increase in noninterest income before the change in fdic loss-sharing asset and investment securities gains from the prior year was primarily due to both an increase of $ 6.3 million in service charges and other fees as well as an increase of $ 6.8 million in other noninterest income . the increase in service charges and other fees and a portion of the increase in other noninterest income was due to the increased customer base from organic growth as well as the intermountain acquisition . also contributing to the increase in other noninterest income was a $ 3.1 million current year adjustment to the mortgage repurchase liability related to our acquisition of west coast .
| financial summary income statement consolidated net income for 2015 was $ 98.8 million , or $ 1.71 per diluted common share , compared with net income of $ 81.6 million , or $ 1.52 per diluted common share , in 2014 . ◦ net interest income for 2015 increased 7 % to $ 324.9 million compared to $ 304.0 million for 2014 . interest income was $ 328.9 million in 2015 , compared to $ 308.0 million in 2014 . the increase was primarily due to higher loan and securities balances , partially offset by lower earning rates . interest expense remained relatively flat compared to 2014 , despite higher average interest-bearing liability balances . ◦ provision expense on loans was $ 8.6 million in 2015 , compared to provision expense of $ 6.7 million in 2014 . the loan provision for the current year was driven by growth in the loan portfolio and net charge-offs . ◦ noninterest income was $ 91.5 million for 2015 , an increase from $ 59.8 million for 2014 . the increase was due to lower charge recorded in 2015 for the fdic loss-sharing asset as well as an increase of $ 6.3 million in service charges and other fees compared to 2014 . ◦ noninterest expense increased $ 26.9 million , or 11 % to $ 266.1 million for 2015 due to additional ongoing noninterest expense resulting from the fourth quarter 2014 acquisition of intermountain community bancorp ( “ intermountain ” ) . balance sheet total assets at december 31 , 2015 were $ 8.95 billion , up 4 % from $ 8.58 billion at the end of 2014 . the company is well capitalized with a total risk-based capital ratio of 12.94 % at december 31 , 2015 . ◦ investment securities available for sale at december 31 , 2015 were $ 2.16 billion , up 3 % from $ 2.10 billion at december 31 , 2014 .
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3. accounts receivable accounts receivables consist of the following at december 31 : replace_table_token_11_th as of december 31 , 2014 and 2013 , the company had no allowance for doubtful trade accounts receivable . f - 11 4. inventories inventories consist of the following at december 31 : replace_table_token_12_th 5. property , plant and equipment property , plant and equipment consist of the following at december 31 : replace_table_token_13_th depreciation expense was $ 83 thousand and $ 91 thousand for 2014 and 2013 , respectively . repairs and maintenance expense was $ 22 thousand and $ 19 thousand for 2014 and 2013 , respectively . in conjunction with the suspension of mti micro operations in late 2011 , sales of certain surplus equipment on hand were made during 2013. this resulted in a net gain on sale of $ 13 thousand for 2013. as of december 31 , 2013 all $ 13 thousand in sales proceeds were received . 6. income taxes income tax benefit ( expense ) for each of the years ended december 31 consists of the following : replace_table_token_14_th the significant components of deferred income tax ( expense ) benefit from operations before non-controlling interest for each of the years ended december 31 consists of the following : replace_table_token_15_th f - 12 the company 's effective income tax rate from operations before non-controlling interest differed from the federal statutory rate for each of the years ended december 31 as follows : replace_table_token_16_th pre-tax income ( loss ) before non-controlling interests was $ 700 thousand and $ 3.6 million for 2014 and 2013 , respectively . the company was entitled to a research tax credit for qualifying amounts paid or incurred on or before december 31 , 2011 , for which the company made the appropriate filings in 2013. given the uncertain nature of the tax benefit , the company did not take a tax position with regards to these credits . during 2014 , the company determined that realization of this asset was more likely than not and recognized a tax benefit of $ 210 thousand for qualifying amounts incurred in 2009. deferred tax assets : deferred tax assets are determined based on the temporary differences between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates . temporary differences , net operating loss carryforwards and tax credit carryforwards that give rise to deferred tax assets and liabilities are summarized as follows as of december 31 : replace_table_token_17_th as of december 31 , 2014 , the company has approximately $ 450 thousand of research and development tax credit carry forwards , which begin to expire in 2018 , and approximately $ 54 thousand of alternative minimum tax credit carry forwards , which have no expiration date . valuation allowance : the company provides for recognition of deferred tax assets if the realization of such assets is more likely than not to occur in accordance with accounting standards that address income taxes . significant management judgment is required in determining the period in which the reversal of a valuation allowance should occur . the company has considered all available evidence , both positive and negative , such as historical levels of income and future forecasts of taxable income amongst other items , in determining its valuation allowance . in addition , the company 's assessment requires us to schedule future taxable income in accordance with accounting standards that address income taxes to assess the appropriateness of a valuation allowance which further requires the exercise of significant management judgment . f - 13 the company has determined that it expects to generate sufficient levels of pre-tax earnings in the future to realize the net deferred tax assets recorded on the balance sheet at december 31 , 2014. the company has projected such pre-tax earnings utilizing a combination of historical and projected results , taking into consideration existing levels of permanent differences , non-deductible expense and the reversal of significant temporary differences . we project that our taxable income for the next three years is adequate to ensure the realizability of the $ 1.3 million of deferred tax assets recorded on our balance sheet at december 31 , 2014. in the event that actual results differ from these estimates or we adjust these estimates in future periods , we may need to adjust the recorded valuation allowance , which could materially impact our financial position and results of operations . we will continue to evaluate the ability to realize our deferred tax assets and related valuation allowance on a quarterly basis . the valuation allowance at december 31 , 2014 and 2013 was $ 16.7 million and $ 16.8 million , respectively . activity in the valuation story_separator_special_tag the following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this annual report . this discussion contains forward-looking statements , which involve risk and uncertainties . our actual results could differ materially from those anticipated in the forward-looking statements as a result of certain factors , including those discussed in item 1a : risk factors and elsewhere in this annual report . overview mti 's core business is conducted through mti instruments , inc. , a wholly-owned subsidiary and the sole component of the company 's test and measurement instrumentation segment . the company also operated in a new energy segment with business conducted through mti microfuel cells , inc. until december 31 , 2013 ( date of mti micro deconsolidation ) . in august 2014 , its management changed mti micro 's name to meoh power , inc. mti continues to retain our equity ownership in that entity as discussed below . story_separator_special_tag line of credit on may 5 , 2014 , the company entered into a new revolving line of credit with bank of america , n.a . ( the bank ) to replace mti instruments ' line of credit as discussed below . the company may borrow under the line of credit from time to time up to $ 1 million to support its working capital needs . the line of credit is available until july 31 , 2015 and may be renewed subject to all the terms and conditions as set forth in the loan agreement ( the loan ) . the loan is payable no later than the expiration date of the loan , currently july 31 , 2015 , and interest is payable on the last day of each month beginning on may 30 , 2014 and until payment has been made in full . the interest rate on funds borrowed under the line of credit is equal to the libor daily floating rate plus 2.75 % . the loan is secured by equipment and fixtures , inventory and receivables owned by the company and guaranteed by mti instruments . the company is required to hold a balance of $ 0 for 30 consecutive days during the period from may 5 , 2014 through july 31 , 2015 , and each subsequent one-year period of the loan , if any . upon the occurrence of an event of default , the bank may set off against our repayment obligations any amounts we maintain at the bank . the company is also subject to other restrictions as set forth in the loan . as of december 31 , 2014 , there were no amounts outstanding under the line of credit . on september 20 , 2011 , mti instruments entered into a working capital line of credit with first niagara bank , n.a . under this agreement , mti instruments could borrow from time to time up to $ 400 thousand to support its working capital needs . the note was payable upon demand , and the interest rate on the note was equal to the prime rate with a floor of 4.0 % per annum . the note was secured by a lien on all of the assets of mti instruments and was guaranteed by the company . the line of credit was renewed on september 23 , 2013 and expired on june 30 , 2014. under this line of credit , mti instruments was required to maintain a line balance of $ 0 for 30 consecutive days during each calendar year . as of december 31 , 2013 , there were no amounts outstanding under the line of credit . backlog , inventory and accounts receivable at december 31 , 2014 , the company 's order backlog was $ 665 thousand , compared to $ 198 thousand at december 31 , 2013. the increase in backlog was due to additional capacitance and fiber-optic products , along with a wafer metrology tool , in process at the end of the year . our inventory turnover ratios and average accounts receivable days outstanding for the years ended december 31 , 2014 and 2013 and their changes are as follows : replace_table_token_4_th the improvement in inventory turns is due to a 7 % decrease in average inventory balances on 5 % higher sales during the comparable periods . the average accounts receivable days ' outstanding decreased three days in 2014 compared with 2013 due to the increase in sales to the u.s. government , which pays within 30 days . off-balance sheet arrangements we have no off balance sheet arrangements . critical accounting policies and significant judgments and estimates the prior discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america . note 2 of the consolidated financial statements included in this annual report on form 10-k includes a summary of our most significant accounting policies . the preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets , liabilities , revenue , expenses , and related disclosure of assets and liabilities . on an ongoing basis , we evaluate our estimates and judgments , including those related to revenue recognition , inventories , income taxes and share-based compensation . we base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . periodically , our management reviews our critical accounting estimates with the audit committee of our board of directors . 17 the significant accounting policies that we believe are most critical to aid in fully understanding and evaluating our consolidated financial statements include the following : revenue recognition . we recognize product revenue when there is persuasive evidence of an arrangement , delivery of the product to the customer or distributor has occurred , at which time title generally is passed to the customer or distributor , and we have determined that collection of a fixed fee is probable , all of which occur upon shipment of the product . if the product requires that we provide installation , all revenue related to the product is deferred and recognized upon the completion of the installation . inventory . inventory is valued at the lower of cost or the current estimated market value of the inventory .
| results of operations results of operations for the year ended december 31 , 2014 compared to the year ended december 31 , 2013. test and measurement instrumentation segment product revenue : product revenue consists of revenue recognized from the test and measurement instrumentation product lines . product revenue in our test and measurement instrumentation segment for the year ended december 31 , 2014 increased by $ 429 thousand , or 5.1 % , to $ 8.8 million in 2014 from $ 8.4 million in 2013. this increase in product revenue was attributable to an increase in both instruments for automated manufacturing and engine vibration and balancing system activity under government contracts as noted below . for the year ended december 31 , 2014 , the largest commercial customer for the segment was an asian customer , which accounted for 8.3 % of annual product revenue . in 2013 , the largest commercial customer for the segment was an asian customer , which accounted for 6.8 % of annual product revenue . the u.s. air force was the largest government customer for the years ended december 31 , 2014 and 2013 , and accounted for 27.9 % and 27.2 % , respectively of annual product revenue . 14 information regarding government contracts included in product revenue is as follows : replace_table_token_2_th ( 1 ) contract values represent maximum potential values at time of contract placement and may not be representative of actual results . ( 2 ) date represents expiration of contract , including the exercise of option extensions . cost of product revenue : cost of product revenue includes the direct material and labor cost as well as an allocation of overhead costs that relate to the manufacturing of products we sell . in addition , cost of product revenue also includes the labor and material costs incurred for product maintenance , replacement parts and service under our contractual obligations .
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asu 2011-08 amends existing guidance by giving an entity the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than the carrying amount . the more-likely-than-not threshold is defined as having a likelihood of more than 50 percent . if an entity determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount , then it is necessary to perform the two-step goodwill impairment test , as currently prescribed by fasb accounting standards codification topic 350. otherwise , the two-step goodwill impairment test is not required . the adoption of this standard did not have a material effect on our consolidated financial statements . ( 2 ) business acquisitions anasazi software , inc. on november 26 , 2012 , we completed the purchase of 100 % of the outstanding stock of anasazi software , inc. story_separator_special_tag the following management discussion and analysis ( md & a ) is intended to help the reader understand our results of operations and financial condition . this md & a is provided as a supplement to , and should be read in conjunction with , our financial statements and the accompanying notes to the financial statements ( notes ) . our fiscal year ends on the saturday closest to december 31. fiscal years 2012 , 2011 and 2010 each consisted of 52 weeks and ended on december 29 , 2012 , december 31 , 2011 and january 1 , 2011 , respectively . all references to years in this md & a represent fiscal years unless otherwise noted . management overview our revenues are primarily derived by selling , implementing and supporting software solutions , clinical content , hardware , devices and services that give health care providers secure access to clinical , administrative and financial data in real time , allowing them to improve quality , safety and efficiency in the delivery of health care . our fundamental strategy centers on creating organic growth by investing in research and development ( r & d ) to create solutions and services for the health care industry . this strategy has driven strong growth over the long-term , as reflected in five- and ten-year compound annual revenue growth rates of 12 % or more . this growth has also created an important strategic footprint in health care , with cerner ® solutions licensed by approximately 10,000 facilities around the world , including more than 2,700 hospitals ; 4,150 physician practices ; 45,000 physicians ; 550 ambulatory facilities , such as laboratories , ambulatory centers , behavioral health centers , cardiac facilities , radiology clinics and surgery centers ; 800 home health facilities ; 45 employer sites and 1,750 retail pharmacies . selling additional solutions back into this client base is an important element of our future revenue growth . we are also focused on driving growth through market share expansion by strategically aligning with health care providers that have not yet selected a supplier and by displacing competitors in health care settings that are looking to replace their current supplier . we expect to drive growth through new initiatives and services that reflect our ongoing ability to innovate and expand our reach into health care . examples of these include our careaware ® health care device architecture and devices , employer services , cerner itworks services , cerner revworks services , and solutions on our healthe intent platform . finally , we believe there is significant opportunity for growth outside of the united states , with many non-u.s. markets focused on hcit as part of their strategy to improve the quality and lower the cost of health care . beyond our strategy for driving revenue growth , we are also focused on earnings growth . similar to our history of growing revenue , our net earnings have increased at compound annual rates of more than 20 % over the most recent five- and ten-year periods . we expect to drive continued earnings growth through ongoing revenue growth coupled with margin expansion , which we expect to achieve through efficiencies in our implementation and operational processes and by leveraging r & d investments and controlling general and administrative expenses . we are also focused on continuing to deliver strong levels of cash flow , which we expect to do by continuing to grow earnings and prudently managing capital expenditures . story_separator_special_tag that typically have longer contract terms . a summary of total backlog at the end of 2012 and 2011 follows : replace_table_token_5_th costs of revenue cost of revenues as a percentage of total revenues was 23 % in 2012 , compared to 20 % in the same period of 2011 . the higher cost of revenues as a percent of revenue was driven by a higher mix of technology resale , which carries a higher cost of revenue . cost of revenues includes the cost of reimbursed travel expense , sales commissions , third party consulting services and subscription content and computer hardware , devices and sublicensed software purchased from manufacturers for delivery to clients . it also includes the cost of hardware maintenance and sublicensed software support subcontracted to the manufacturers . such costs , as a percent of revenues , typically have varied as the mix of revenue ( software , hardware , devices , maintenance , support , services and reimbursed travel ) carrying different margin rates changes from period to period . cost of revenues does not include the costs of our client service personnel who are responsible for delivering our service offerings . such costs are included in sales and client service expense . operating expenses total operating expenses increased 14 % to $ 1.5 billion in 2012 , compared with $ 1.3 billion in 2011 . sales and client service expenses as a percent of total revenues were 38 % in 2012 , compared to 39 % in the same period of 2011 . story_separator_special_tag other , net operating results not attributed to an operating segment include expenses , such as centralized professional services costs , software development , marketing , general and administrative , stock-based compensation , depreciation , and amortization . these expenses increased 15 % to $ 847.7 million in 2012 from $ 735.2 million in 2011 . this increase was primarily due to growth in corporate and development personnel costs . 26 fiscal year 2011 compared to fiscal year 2010 replace_table_token_8_th revenues & backlog revenues increased 19 % to $ 2.2 billion in 2011 , as compared to $ 1.9 billion in 2010 . system sales increased 28 % to $ 706.7 million in 2011 from $ 550.8 million in 2010 . the increase in system sales was driven by strong increases in licensed software , technology resale , and subscriptions . support and maintenance revenues increased 6 % to $ 550.6 million in 2011 compared to $ 517.5 million in 2010 . this increase was attributable to continued success at selling cerner millennium applications and implementing them at client sites . services revenue increased 20 % to $ 901.2 million in 2011 compared to $ 749.5 million in 2010 . this increase was driven by growth in cernerworks managed services as a result of continued demand for our hosting services and an increase in professional services due to increased implementation activities and growth in cerner itworks services . contract backlog , which reflects new business bookings that have not yet been recognized as revenue , increased 26 % in 2011 compared to 2010 . this increase was driven by growth in new business bookings during 2011 , including continued strong levels of managed services and cerner itworks bookings that typically have longer contract terms . a summary of total backlog at the end of 2011 and 2010 follows : replace_table_token_9_th 27 costs of revenue cost of revenues as a percentage of total revenues was 20 % of total revenues in 2011 , as compared to 17 % of total revenues in 2010 . the higher cost of revenues as a percent of revenue was primarily driven by a higher mix of technology resale , which carries a higher cost of revenue , and a slightly higher level of third party consulting costs . operating expenses total operating expenses increased 11 % in 2011 to $ 1.3 billion as compared to $ 1.2 billion in 2010 . sales and client service expenses as a percent of total revenues were 39 % in 2011 , as compared to 42 % in 2010 . these expenses increased 13 % to $ 870.0 million in 2011 , from $ 767.2 million in 2010 . the increase in these expenses was primarily attributable to growth in the managed services business and a higher level of professional services expenses . the decrease as a percent of revenue reflected efficiencies in our implementation and operational processes . software development expenses as a percent of revenue were 13 % in 2011 , as compared to 15 % in 2010 . these expenses increased 5 % in 2011 to $ 286.8 million , from $ 272.9 million in 2010 . expenditures for software development in 2011 reflected continued development and enhancement of the cerner millennium platform and software solutions and investments in new growth initiatives . although these expenses increased in 2011 , the reduction as a percent of revenue reflected our ongoing efforts to control spending relative to revenue growth . a summary of our total software development expense in 2011 and 2010 is as follows : replace_table_token_10_th general and administrative expenses as a percent of total revenues were 7 % in 2011 and 2010 . these expenses increased 11 % to $ 144.9 million in 2011 from $ 130.5 million in 2010 . an increase in corporate personnel costs accounted for the majority of the overall increase in general and administrative expenses , as we increased personnel to support our overall revenue growth . non-operating items interest income increased to $ 15.2 million in 2011 from $ 10.3 million in 2010 due primarily to growth in investments and related increase in investment returns . interest expense decreased to $ 5.3 million in 2011 from $ 6.9 million in 2010 due to payment on our long-term debt . our effective tax rate was 35 % in 2011 , as compared to 34 % in 2010 . the increase was attributable to the mix of domestic and foreign earnings . 28 operations by segment the following table presents a summary of our operating segment information for the years ended 2011 and 2010 : replace_table_token_11_th domestic segment revenues increased 21 % to $ 1.9 billion in 2011 from $ 1.6 billion in the same period in 2010 . this increase was driven by growth across all business models , with particular strength in licensed software , technology resale , professional services and managed services . cost of revenues increased to 20 % of revenues in 2011 , compared to 17 % in 2010 . the higher cost of revenues as a percent of revenue was primarily driven by a higher mix of technology resale , which carries a high cost of revenue , and an increase in third party consulting costs . operating expenses increased 5 % to $ 439.5 million in 2011 , from $ 417.2 million in 2010 , due primarily to growth in managed services and professional services expense . global segment revenues increased 7 % to $ 308.7 million in 2011 from $ 287.7 million in 2010 . global revenues increased due to an increase in licensed software and managed services revenue , which was partially offset by a decrease in professional services and technology resale revenue . the global comparisons were also impacted by a change in certain contract accounting estimates during the first quarter of 2010. cost of revenues was 18 % and 17 % in 2011 and 2010 , respectively . the higher cost of revenues in 2011 was primarily driven by an increase in third party professional services costs .
| results overview the company delivered strong levels of bookings , revenues , earnings and cash flows in 2012 . new business bookings revenue in 2012 , which reflects the value of executed contracts for software , hardware , professional services and managed services , was $ 3.1 billion , which is an increase of 15 % compared to $ 2.7 billion in 2011 . our 2012 revenues increased 21 % to $ 2.7 billion compared to $ 2.2 billion in 2011 . the year-over-year increase in revenue reflects improved economic conditions , ongoing demand related to the hitech act , and increased contributions form new initiatives , such as device resale , cerner itworks and cerner revworks . our 2012 net earnings increased 30 % to $ 397.2 million compared to $ 306.6 million in 2011 . diluted earnings per share increased 28 % to $ 2.26 compared to $ 1.76 in 2011 . the 2012 and 2011 net earnings and diluted earnings per share reflect the impact of stock-based compensation expense . the effect of these expenses reduced the 2012 net earnings and diluted earnings per share by $ 23.5 million and $ 0.13 , and the 2011 earnings and diluted earnings per share by $ 18.2 million and $ 0.11 , respectively . the growth in net earnings and diluted earnings per share was driven primarily by strong revenue growth and continued progress with our margin expansion initiatives , including efficiencies in our implementation and operational 22 processes , leveraging r & d investments and controlling general and administrative expenses . our full-year 2012 operating margin of 21.4 % reflects an increase of 50 basis points compared to 2011 , which was driven by strong margin expansion in our core business that was somewhat offset by record levels of lower-margin technology resale . we had cash collections of receivables of $ 2.7 billion in 2012 compared to $ 2.2 billion in 2011 .
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50 ( 4 ) information regarding mr. schuler is based solely on a schedule 13d/a filed with the sec on june 23 , 2015. according to such schedule 13d/a , mr. schuler reported sole voting and dispositive power as to 3,684,008 shares and shared voting and dispositive power as to 11,282,499 shares . ( 5 ) information regarding mr. scully is based solely on a schedule 13d/a filed with the sec on january 7 , 2016. according to such schedule 13d/a , mr. scully reported sole voting power and sole dispositive power as to all of the shares . ( 6 ) includes 710,366 shares held by birchview fund , llc and 39,330 shares subject to warrants held by birchview fund , llc . dr. strobeck is the sole member of birchview capital gp , llc ( the `` gp `` ) , the general partner of birchview capital , lp ( the `` investment manager `` ) , which is the investment manager of birchview fund , llc ( the `` fund `` ) and the sole member of birchview partners , llc ( the `` manager `` ) , which is a member of the fund . dr. strobeck disclaims section 16 beneficial ownership of the shares of common stock held by the fund ( collectively , the `` fund shares `` ) , except to the extent of his pecuniary interest , if any , in the fund shares by virtue of his membership interest in the gp . also includes 66,664 shares held in accounts for minor children for which dr. strobeck serves as a custodian , 14,949 shares held by dr. strobeck 's spouse as custodian for their children , and 6,819 shares held indirectly by a trust for the benefit of dr. strobeck 's children . dr. strobeck is a trustee of the trust . dr. strobeck disclaims beneficial ownership of these shares except to the extent of his pecuniary interest in them , if any . dr. strobeck resigned from our board on january 10 , 2017 . ( 7 ) includes 15,991 shares held for dr. peoples in the company 's 401 ( k ) plan . ( 8 ) includes 14,696 shares held for mr. shaulson in the company 's 401 ( k ) plan . ( 9 ) includes 8,224 shares owned by dr. sinskey 's spouse and 1,666 shares owned by a trust over which dr. sinskey may be deemed to share voting and investment power . dr. sinskey disclaims beneficial ownership of such shares . ( 10 ) includes 27,092 shares held for ms. brum in the company 's 401 ( k ) plan . ( 11 ) includes 25,854 shares held for dr. snell in the company 's 401 ( k ) plan . ( 12 ) includes a total of 104,917 shares held for current executive officers and mr. shaulson , our former president and chief executive officer , in the company 's 401 ( k story_separator_special_tag the following discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto included in this annual report on form 10-k. all dollar amounts are stated in thousands . overview yield10 bioscience , inc. is an agricultural bioscience company focusing on the development of step-change increases in food and feed crop yield to enhance global food security . according to a united nations report , food production must be increased by over 70 percent in the next 35 years to feed the growing global population , which is expected to increase from 7 billion to more than 9.6 billion by 2050. yield10 is focused on new agricultural biotechnology approaches , using two proprietary discovery platforms , to improve fundamental crop yield through enhanced photosynthetic carbon capture and increased carbon utilization efficiency where the additional captured carbon is targeted to increase seed yield . these platforms are based on the principle that plants which capture and utilize carbon more efficiently generate benefits in the form of more robust crops with increased seed yield . yield10 is working to develop , translate and demonstrate the commercial value of new genetically engineered yield trait genes and to identify genome editing targets for improved crop performance in several key food and feed crops , including canola , soybean , rice and corn . yield10 bioscience is headquartered in woburn , massachusetts and has an additional agricultural science facility with greenhouses in saskatoon , saskatchewan , canada . collaborative arrangements we are not currently participating in any collaborative arrangements . our historical strategy for collaborative arrangements has been to retain substantial participation in the future economic value of our technology while receiving current cash payments to offset research and development costs and working capital needs . by their nature , our collaborative agreements have been complex , containing multiple elements covering a variety of present and future activities . our near-term strategic business plan includes the identification of third parties who will enter into collaborative arrangements with us to further research and development of new agricultural biotechnology to advance increases in crop yield . government grants as of december 31 , 2016 , proceeds of $ 1,268 remain available under our u.s. government grants . this includes amounts for reimbursement to our subcontractors , as well as reimbursement for our employees ' time , benefits and other expenses related to future performance . story_separator_special_tag the company 's ability to continue operations after its current cash resources are exhausted depends on its ability to obtain additional financing through , among other sources , public or private equity financing , secured or unsecured debt financing , equity or debt bridge financing , additional government research grants or collaborative arrangements with third parties , as to which no assurances can be given . we do not know whether additional financing will be available on terms favorable or acceptable to the company when needed , if at all . if adequate additional funds are not available when required , or if we are unsuccessful in entering collaborative arrangements for further research , we may be forced to curtail our research efforts , explore strategic alternatives and or wind down our operations and pursue options for liquidating our remaining assets , including intellectual property and equipment . based on our cash forecast , we have determined that the company 's present capital resources are not sufficient to fund our planned operations for a twelve month period , and therefore , raise substantial doubt about its ability to continue as a going concern . although we have $ 20,000 of availability under our equity facility with aspire , market conditions likely will limit the extent to which the company can draw on this facility . we continue to face significant challenges and uncertainties and , as a result , our available capital resources may be consumed more rapidly than currently expected due to ( a ) changes we may make to the business that affect ongoing operating expenses ; ( b ) changes we may make to our business strategy ; ( c ) changes in our research and development spending plans ; and ( d ) other items affecting our forecasted level of expenditures and use of cash resources . our present capital resources will not be sufficient to fund our planned operations for a twelve month period , and therefore , raise substantial doubt about our ability to continue as a going concern . during 2016 , we completed a strategic restructuring of our operations to focus on the yield10 bioscience business . we reduce staffing levels to twenty full-time employees and incurred restructuring costs for contract termination and employee post-termination benefits of approximately $ 3,525 which are primarily reflected in discontinued operations within the company 's statement of operations . at december 31 , 2016 , $ 2,048 of these restructuring charges remain outstanding and are required to be paid out through may 2018. we currently anticipate that we will use approximately $ 7,500 - $ 8,000 of cash during 2017 , including anticipated payments for restructuring costs . this estimated cash usage for operations is significantly less than cash used for operations of $ 14,700 and $ 21,863 during the years ended december 31 , 2016 and 2015 , respectively , and the reduction is primarily the result of our restructuring efforts . on october 7 , 2015 , we entered into a common stock purchase agreement with aspire under which aspire is committed to purchase , at our direction , up to an aggregate of $ 20,000 of shares of our common stock over a 30 month period that will end on may 8 , 2018. common stock may be sold from time to time at the company 's option under pricing formulas based on prevailing market prices around the time of each sale . the extent to which we utilize the facility with aspire as a source of funding will depend on a number of factors , including the prevailing market price of our common stock , the volume of trading in our common stock and the extent to which we are able to secure funds from other sources . the purchase agreement contains limitations on the number of shares that we may issue to aspire . additionally , we and aspire may not effect any sales of shares of our common stock under the purchase agreement during the continuance of an event of default or on any trading day that the closing sale price of our common stock is less than $ 0.50 per share . at december 31 , 2016 , the market price for the company 's common stock was below $ 0.50 and the full $ 20,000 remained available under the purchase agreement with aspire . on december 30 , 2016 , the market price for our common stock closed at $ 0.35 per share . we will need additional capital to fully implement our business , operating and development plans and to support our capital needs . the timing , structure and vehicles for obtaining future financing are under consideration , but there can be no assurance that such financing efforts will be successful . if we do not receive additional funding during 2017 , we may be forced to wind down our business , or have to delay , scale back or otherwise modify our business plans , research and development activities and other operations , and or seek strategic alternatives . 36 if we issue equity or debt securities to raise additional funds , ( i ) the company may incur fees associated with such issuance , ( ii ) our existing stockholders will experience dilution from the issuance of new equity securities , ( iii ) the company may incur ongoing interest expense and be required to grant a security interest in company assets in connection with any debt issuance , and ( iv ) the new equity or debt securities may have rights , preferences and privileges senior to those of our existing stockholders . in addition , utilization of our net operating loss and research and development credit carryforwards may be subject to significant annual limitations under section 382 of the internal revenue code of 1986 due to ownership changes resulting from future equity financing transactions . if we raise additional funds through collaboration
| results of operations the consolidated financial statements for the two years ending december 31 , 2016 , have been presented to reflect the former biopolymer operations of yield10 bioscience as a discontinued operation . 33 comparison of the years ended december 31 , 2016 and 2015 revenue replace_table_token_2_th total revenue from continuing operations was $ 1,159 and $ 1,350 for the years ended december 31 , 2016 and 2015 , respectively , and was derived solely from our research grants . the $ 191 decrease in grant revenue for the year ended december 31 , 2016 , is primarily the result of the refabb grant that ended in february 2016. during the year ended december 31 , 2016 , we did not recognize any further revenue from the refabb grant . during the year ended december 31 , 2015 , $ 1,028 was recognized from this grant . no revenue was recognized from the refabb grant during 2016. partially offsetting this decrease were increased grant revenues of $ 1,126 recognized from our two camelina grants . we anticipate that grant revenue will increase over the next twelve months as we continue to make progress on our current outstanding grants while seeking to obtain and apply resources to additional government grants during 2017. expenses replace_table_token_3_th research and development expenses research and development expenses from continuing operations were $ 5,670 and $ 6,602 for the years ended december 31 , 2016 and 2015 , respectively . the decrease of $ 932 was primarily due to a decrease in employee compensation and related benefit expenses . employee compensation and related benefit expenses were $ 2,624 and $ 3,247 for the years ended december 31 , 2016 and 2015 , respectively . the decrease of $ 623 is primarily attributable to decreases in headcount and the elimination of the 2016 bonuses as a result of our strategic restructuring and ongoing efforts to conserve cash .
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forward-looking statements and assumptions this annual report on form 10-k and the documents incorporated by reference herein , if any , contain “ 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 . these forward-looking statements can be identified by terminology such as “ may ” , “ will ” , “ should ” , “ intend ” , “ expect ” , “ plan ” , “ budget ” , “ forecast ” , “ anticipate ” , “ believe ” , “ estimate ” , “ predict ” , “ potential ” , “ continue ” , “ evaluating ” or similar words . statements that contain these words should be read carefully because they discuss our future expectations , contain projections of our future results of operations or of our financial position or state other forward-looking information . examples of forward-looking statements include , among others , statements that we make regarding our expected operating results , the adoption and sale of our products in various geographic regions , anticipated levels of capital expenditures and the sources of funding therefore , and our strategy for growth , product development , market position , financial results and reserves . these forward-looking statements reflect our best judgment about future events and trends based on the information currently available to us . however , there will likely be events in the future that we are not able to predict or control . the factors listed under the caption “ risk factors ” , as well as cautionary language in this annual report on form 10-k , provide examples of risks , uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements . you should be aware that the occurrence of the events described under the caption “ risk factors ” and elsewhere in this annual report on form 10-k could have a material adverse effect on our business , results of operations and financial position , and actual events and results of operations may vary materially from our current expectations . background we design and manufacture instruments and equipment used by the oil and gas industry to acquire seismic data in order to locate , characterize and monitor hydrocarbon producing reservoirs . the company also designs and manufactures non-seismic products , including industrial products , offshore cables , thermal printing equipment and film . see the information under the heading “ business ” in this annual report on form 10-k. consolidated results of operations as we have reported in the past , our revenue and operating profits have varied significantly from quarter-to-quarter , and even year-to-year , and are expected to continue that trend in the future , especially when our quarterly or annual financial results are impacted by the presence or absence of relatively large , but somewhat erratic , shipments of permanent seabed reservoir monitoring systems and or wireless data acquisition systems for land and marine applications . 19 we report and evaluate financial information for two segments : seismic and non-seismic . summary financial data by business segment follows ( in thousands ) : replace_table_token_5_th overview during fiscal year 2013 and through the first half of fiscal year 2014 , we experienced very strong market demand in both north american and international markets for our wireless gsx channels and geophone sensors . also during that period , we reported significant revenue from our seismic reservoir products , primarily from the statoil order . early in calendar year 2014 , we began to experience a softening in the demand for our seismic exploration products , particularly in north america , as capital budgets for oil and gas producers were trending away from exploration-focused activities toward production and exploitation activities . during this period oil production in north america 's unconventional shale reservoirs increased , as did oil production from non-opec countries , resulting in an oversupply of crude oil in the world market . since july 2014 , market prices for a barrel of crude oil declined from over $ 100 to approximately $ 40 today . with the decline in oil and natural gas prices , exploration and production companies have experienced a significant reduction in cash flows resulting in sharp reductions in their capital spending budgets for oil and gas exploration activities , including seismic activities . in addition , the statoil order was completed in april 2014 and we have not received any new orders for permanent reservoir monitoring systems since that time . as a result of these factors , revenue from our seismic business segment for fiscal year 2015 declined to $ 60.6 million ( a 71.8 % reduction from fiscal year 2014 ) resulting in the segment 's operating loss of $ 42.7 million . we expect sales of our seismic products , and in particular our traditional and wireless products , to be lower until crude oil prices stabilize and industry conditions improve . we expect these challenging industry conditions to negatively impact the demand for our seismic products throughout fiscal year 2016. fiscal year 2015 compared to fiscal year 2014 consolidated revenue for fiscal year 2015 decreased $ 152.0 million , or 64.2 % , from fiscal year 2014. the decrease in revenue was primarily attributable to substantially lower product demand in our seismic business segmen t. we had a consolidated gross profit ( loss ) of $ ( 11.2 ) million for fiscal year 2015 , which was $ 107.7 million less than our consolidated gross profit for fiscal year 2014. the decrease in gross profit was caused by a number of factors , including ( i ) significantly lower seismic product revenue , ( ii ) unabsorbed fixed manufacturing costs due to low factory utilization , ( iii ) fixed depreciation expenses from our rental equipment during periods of low rental equipment utilization , ( iv ) a sales mix containing a concentration of significantly lower-margin products caused by story_separator_special_tag if we were to repatriate the cash held by our foreign subsidiaries , we would be required to accrue and pay income taxes in the united states . we recently amended our credit agreement which reduced our borrowing availability to $ 30.0 million with amounts available for borrowing determined by a borrowing base . at september 30 , 2015 , we had no outstanding long-term debt or borrowings under the credit agreement and our borrowing availability under the credit facility was $ 29.9 million . at september 30 , 2015 , we were in compliance with all covenants under the credit agreement and we expect to remain in compliance with all covenants throughout fiscal year 2016. we currently do not anticipate the need to borrow from the credit agreement during fiscal year 2016 ; however , we can make no assurance that we will not do so . during these difficult times , we are remaining focused on cash preservation and cost reduction . since april 2014 , we have reduced our workforce by 32 % . in addition , we have eliminated significant cash incentive compensation costs , redundant facility costs , and other discretionary costs while concurrently seeking to retain key employees in line with our business strategy . we expect to continue these cash preservation efforts throughout fiscal year 2016. as a result of the significant losses we experienced in fiscal year 2015 , we expect to receive a $ 17.3 million income tax refund from the u.s. department of treasury in our second fiscal quarter ending march 31 , 2016. we believe the combination of this cash refund , together with expected cash proceeds from executed rental contracts , existing cash balances , short-term investments and available borrowings under the credit agreement , will be sufficient to finance our operating losses and planned capital expenditures for the next twelve months . fiscal year 2014 at september 30 , 2014 , we had $ 33.4 million in cash and cash equivalents . for fiscal year 2014 , we generated approximately $ 67.7 million of cash from operating activities . sources of cash generated in our operating activities included our net income of $ 36.9 million . our net income included net non-cash charges of $ 26.2 million for deferred income taxes , depreciation , amortization , accretion , stock-based compensation , inventory obsolescence and bad debts . other sources of cash and changes in working capital included ( i ) a $ 25.6 million decrease in trade accounts and notes receivable due to reduced product shipments in the fourth quarter of fiscal year 2014 compared to the prior year period and ( ii ) a $ 12.4 million decrease in costs and estimated earnings in excess of billings due to the completion of revenue recognition of the statoil order . these sources of cash were primarily offset by ( i ) a $ 11.8 million decrease in accounts payable due to a reduction in inventory buying activities caused by the slowdown in customer orders , ( ii ) a $ 9.0 million adjustment to transfer gross profits from rental equipment sales to investing activities since such transactions involve the sale of long-lived assets and ( iii ) a $ 10.5 million increase in inventories ( excluding the impact of $ 10.7 million of non-cash transfers of inventories to our rental equipment fleet ) . for fiscal year 2014 , we used approximately $ 36.7 million of cash in investing activities . the primary use of cash was for capital expenditures of $ 33.5 million , including $ 26.7 million to expand our rental equipment fleet and $ 6.8 million for property and equipment . cash of $ 21.6 million was used to purchase short-term investments in order to enhance investment earnings on our available cash resources . these uses of cash were partially offset by $ 16.4 million of proceeds from the sale of used rental equipment . for fiscal year 2014 , we used approximately $ 0.3 million of cash in financing activities . we received cash proceeds of $ 0.6 million from the exercise of stock options and the associated tax benefit related to such exercised stock options . these proceeds were more than offset by the payment of $ 0.9 million outstanding under our credit agreement . 24 fiscal year 2013 at september 30 , 2013 , we had $ 2.7 million in cash and cash equivalents . for fiscal year 2013 , we used approximately $ 57.2 million of cash from operating activities . sources of cash generated in our operating activities included our net income of $ 69.6 million . additional sources of cash included net non-cash charges of $ 13.1 million for deferred income taxes , depreciation , amortization , accretion , stock-based compensation , inventory obsolescence and bad debts and a $ 3.3 million increase accrued expenses and other . these sources of cash were offset by uses of cash which included ( i ) a $ 73.4 million increase in inventories due to current and expected future production for the statoil order and for production of marine and land wireless products in anticipation of future orders , ( ii ) a $ 33.7 million increase in trade accounts and notes receivable primarily resulting from increased sales and the timing of cash collections , ( iii ) a $ 13.6 million adjustment to transfer gross profits from rental equipment sales to investing activities since such transactions involve the sale of long-lived assets , ( iv ) a $ 12.4 million increase in costs and estimated earnings in excess of billings for the statoil order ( v ) a $ 7.5 million decrease in deferred revenue primarily due to the revenue recognition of advance payments received from shell brasil petróleo ltda , ( vi ) a $ 1.1 million decrease in income tax payable resulting from the timing of our income tax payments , ( vii ) a $ 0.7 million increase in prepaid income taxes related to intercompany product sales , ( viii ) a $ 0.3 million increase in prepaid expenses and other current
| segment results of operations seismic products fiscal year 2015 compared to fiscal year 2014 revenue revenue from our seismic products for the fiscal year ended september 30 , 2015 decreased by $ 154.4 million , or 71.8 % , from the prior fiscal year . the components of this decrease include the following : · traditional exploration product revenue – for the fiscal year ended september 30 , 2015 , revenue from our traditional products decreased $ 21.9 million , or 42.1 % from the prior fiscal year . the decrease reflects lower demand for our geophone and marine products due to the soft industry conditions described above . in addition , the first quarter results of the prior year period included large orders for geophones which accompanied the sale of gsx wireless systems . · wireless exploration product revenue – for the fiscal year ended september 30 , 2015 , revenue from our gsx and obx wireless products decreased by $ 53.6 million , or 68.1 % , from the prior fiscal year . these results reflect declines in both product and rental revenue and are a direct result of reduced demand caused by soft industry conditions . · reservoir product revenue – for the fiscal year ended september 30 , 2015 , revenue from our reservoir products decreased $ 78.9 million , or 93.6 % , from the prior fiscal year . the decrease in revenue was primarily due to the delivery in fiscal year 2014 of $ 71.5 million of permanent reservoir monitoring systems , including $ 62.1 million relating to the statoil order . no orders for permanent reservoir monitoring systems were received or delivered in fiscal year 2015. we continue to actively market these products to our customers .
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discretionary employer profit sharing contributions become fully vested after six years of service by the participant . for the 401 ( k ) portion of the plan , westwood provided a match of up story_separator_special_tag you should read the following discussion and analysis in conjunction with selected consolidated financial data included in this report , as well as our consolidated financial statements and related notes thereto appearing elsewhere in this report . forward-looking statements statements in this report and the annual report to stockholders that are not purely historical facts , including , without limitation , statements about our expected future financial position , results of operations or cash flows , as well as other statements including , without limitation , words such as anticipate , believe , plan , estimate , expect , intend , should , could , goal , may , target , designed , on track , comfortable with , optimistic and other similar expressions , constitute forward-looking statements within the meaning of section 27a of the securities act of 1933 , as amended , and section 21e of the securities exchange act of 1934 , as amended . because forward-looking statements relate to the future , they are subject to inherent uncertainties , risks and changes in circumstances that are difficult to predict and many of which are outside of our control . actual results , our financial condition , and the timing of some events could differ materially from those projected in or contemplated by the forward-looking statements . therefore , you should not rely on any of these forward-looking statements . important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include , among others : our ability to identify and market services that appeal to our customers ; the significant concentration of our revenues in four of our customers ; our relationships with investment consulting firms ; our relationships with current and potential customers ; our ability to retain qualified personnel ; our ability to develop and market new investment strategies successfully ; our ability to maintain our fee structure in light of competitive fee pressures ; competition in the marketplace ; downturns in financial markets ; new legislation adversely affecting the financial services industries ; interest rates ; changes in our effective tax rate ; our ability to maintain an effective system of internal controls ; and other risks as detailed from time to time in our sec reports . additional factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements are discussed under the section entitled risk factors and elsewhere in this report . the forward-looking statements are based only on currently available information and speak only as of the date of this report . we are not obligated and do not undertake an obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances occurring after the date of this report or to reflect the occurrence of unanticipated events or otherwise . overview we manage investment assets and provide services for our clients through our two subsidiaries , westwood management and westwood trust . westwood management provides investment advisory services to corporate retirement plans , public retirement plans , endowments and foundations , the westwood funds tm , other mutual funds , individuals and clients of westwood trust . westwood trust provides trust and custodial services and participation in common trust funds that it sponsors to institutions and high net worth individuals . our revenues are generally derived from fees based on a percentage of assets under management and at december 31 , 2011 westwood management and westwood trust collectively managed assets valued at approximately $ 13.1 billion . we have been providing investment advisory services since 1983 and , according to recognized industry sources including morningstar , inc. , our principal investment strategies have consistently ranked above median performance within their peer groups when measured over multi-year periods . 21 with respect to the bulk of our client assets under management , we utilize a value investment style focused on achieving superior long-term , risk-adjusted returns by investing in companies with high levels of free cash flow , improving returns on equity , strengthening balance sheets and well positioned for growth but whose value is not fully recognized in the marketplace . this investment approach is designed to preserve capital during unfavorable periods and provide superior real returns over the long term . our investment teams have significant industry experience . our founder , susan m. byrne , has over forty years of investment experience . our investment team has average investment experience of fifteen years while one third of our team has worked together at westwood for over ten years . we have focused on building a foundation in terms of personnel and infrastructure to support a potentially much larger business . we have also developed investment strategies that we believe will be desirable within our target institutional , private wealth and mutual fund markets . the cost of developing new products and the organization as a whole has resulted in our incurring expenses that , in some cases , do not currently have significant offsetting revenues . we believe that the appropriate foundation and products are now in place and believe that investors will recognize the value in these products , thereby generating new revenue streams for westwood . story_separator_special_tag also included are assets acquired in the mccarthy transaction representing institutional and high net worth clients for which westwood provides investment management and advisory services . mutual funds include the westwood funds tm , a family of mutual funds for which westwood management serves as advisor . 23 roll-forward of assets under management replace_table_token_8_th the increase in assets under management for the twelve months ended december 31 , 2011 was primarily due to new inflows of $ 2.4 billion , partially offset by outflows of $ 1.8 billion and market depreciation of $ 63 million . inflows were driven primarily by additional inflows into institutional separate accounts , subadvisory mandates and the westwood funds tm . outflows were primarily related to outflows and some account closings by institutional separate account clients and subadvisory mandates and outflows from the westwood funds tm . replace_table_token_9_th the increase in assets under management for the twelve months ended december 31 , 2010 was primarily due to market appreciation of $ 1.6 billion , the acquisition of $ 1.1 billion of assets in the mccarthy transaction and new inflows of $ 1.4 billion , partially offset by outflows of $ 1.9 billion . inflows were driven primarily by additional inflows into the westwood funds tm , institutional separate accounts and subadvisory mandates . outflows were primarily related to rebalancing and some account closings by institutional separate account clients and outflows from subadvisory mandates and the westwood funds tm . replace_table_token_10_th 24 the increase in assets under management for the twelve months ended december 31 , 2009 was primarily due to new inflows of $ 2.1 billion and market appreciation of $ 1.7 billion , partially offset by outflows of $ 947 million . inflows were driven primarily by new institutional separate accounts and subadvisory mandates , additional inflows into the westwood funds tm , institutional separate accounts and subadvisory mandates , new private wealth accounts and inflows into existing private wealth accounts . outflows were primarily related to rebalancing and some account closings by institutional separate account clients and outflows from subadvisory mandates and the westwood funds tm . story_separator_special_tag sales and marketing . sales and marketing costs increased by 43 % to $ 823,000 in 2010 compared with $ 576,000 in 2009. the increase was primarily the result of increased travel related to european marketing tours with subadvisory partner pictet & cie and increased direct marketing expenses . westwood mutual funds . westwood mutual funds expenses increased 10 % to $ 662,000 in 2010 compared with $ 600,000 in 2009. this increase was primarily due to an increase of $ 133,000 in expense related to recording to fair value the deferred acquisition liability from a fund acquisition we made in 2009 and an increase of $ 86,000 in shareholder servicing fees due to higher fund assets . partially offsetting these increases was a net decrease in professional and legal fees due to the acquisition of the philadelphia fund and its reorganization into the westwood largecap value fund in 2009. in 2010 we incurred costs related to the reorganization of the mccarthy multi-cap stock fund , which was acquired in november 2010 , into the westwood dividend growth fund . information technology . information technology expense increased by 11 % to $ 1.4 million in 2010 compared with $ 1.2 million in 2009. the increase is primarily due to increases of $ 94,000 in software maintenance and licenses and $ 37,000 for research tools . professional services . professional services expense increased by 92 % to $ 2.9 million in 2010 compared with $ 1.5 million in 2009 primarily due to an increase of $ 759,000 in legal and other professional fees related to the mccarthy acquisition and other growth initiatives undertaken in 2010 and a $ 600,000 increase in advisory fees paid to external subadvisors for common trust funds sponsored by westwood trust that were temporarily invested in passive index funds in 2009. general and administrative . general and administrative expenses increased by 9 % to $ 2.8 million in 2010 compared with $ 2.6 million in 2009 primarily due to an increase of $ 142,000 in amortization of intangible assets acquired in acquisitions made in 2009 and 2010. provision for income taxes . provision for income taxes increased by 46 % to $ 6.4 million in 2010 compared with $ 4.4 million in 2009 primarily due to higher income before taxes . the increase in the effective tax rate from 35.9 % in 2009 to 36.3 % in 2010 was primarily due to more taxable income in the higher federal income tax bracket . supplemental financial information as supplemental information , we are providing non-generally accepted accounting principles ( non-gaap ) performance measures that we refer to as economic earnings and economic expenses . we provide these measures in addition to , but not as a substitute for , net income and total expenses , which are reported on a u.s. generally accepted accounting principles ( gaap ) basis . management and the board of directors review economic earnings and economic expenses to evaluate ongoing performance , allocate resources and review dividend policy . we believe that these non-gaap performance measures , while not substitutes for gaap net income and total expenses , are useful for both management and investors to evaluate our underlying operating and financial performance and our available resources . we do not advocate that investors consider these non-gaap measures without considering financial information prepared in accordance with gaap . in calculating economic earnings , we add to net income the non-cash expense associated with equity-based compensation awards of restricted stock and stock options , amortization of intangible assets and the deferred taxes related to the tax-basis amortization of goodwill . we define economic expenses as total expenses less non-cash equity-based compensation expense and amortization of intangible assets .
| results of operations the following table and discussion of our results of operations is based upon data derived from our consolidated statements of income contained in our consolidated financial statements and should be read in conjunction with these statements , which are included elsewhere in this report . replace_table_token_11_th year ended december 31 , 2011 compared to year ended december 31 , 2010 total revenue . in 2011 our total revenues increased by 25 % to $ 68.9 million compared with $ 55.3 million in 2010. asset-based advisory fees increased by 29 % to $ 54.2 million in 2011 from $ 42.2 million in 2010 due to higher average assets under management primarily due to assets acquired in the mccarthy transaction in november 2010 as well as net inflows of assets . we earned a performance-based advisory fee of $ 1.0 million in 2011 compared to no performance-based fees in 2010. trust fees increased by 12 % to $ 13.5 million in 2011 from $ 12.1 million in 2010 due to higher average assets under management primarily due to net inflows of assets . other revenues , which generally consist of interest and investment income , decreased by 80 % to $ 219,000 in 2011 compared with $ 1.1 million in 2010 primarily due to a $ 1.0 million decrease in unrealized gains , partially offset by a $ 124,000 increase in net realized gains . employee compensation and benefits .
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overview with revenues of $ 4.2 billion , we are a leading provider of business process services with expertise in transaction-intensive processing , analytics and automation . we serve as a trusted business partner in both the front office and back office , enabling personalized , seamless interactions on a massive scale that improve end-user experience . headquartered in florham park , new jersey , we have a team of approximately 63,000 people as of december 31 , 2020 , servicing customers from service centers in 22 countries . in 2020 , 10 % of our revenue was generated outside the u.s. our reportable segments correspond to how we organize and manage the business and are aligned to the industries in which our clients operate . we organize and manage our businesses through three reportable segments . commercial industries – our commercial industries segment provides business process services and customized solutions to clients in a variety of industries . across the commercial industries segment , we operate on our clients ' behalf to deliver mission-critical solutions and services to reduce costs , improve efficiencies and enable revenue growth for our clients and their consumers and employees . government services – our government services segment provides government-centric business process services to u.s. federal , state and local and foreign governments for public assistance , health services , program administration , transaction processing and payment services . our solutions in this segment help governments respond to changing rules for eligibility and increasing citizen expectations . transportation – our transportation segment provides systems and support , as well as revenue-generating services , to government clients . on behalf of government agencies and authorities in the transportation industry , we deliver mission-critical mobility and payment solutions that improve automation , interoperability and decision-making to streamline operations , increase revenue and reduce congestion while creating safer communities and seamless travel experiences for consumers . cndt 2020 annual report 33 significant 2020 actions story_separator_special_tag 1pt ; text-align : right ; vertical-align : top '' > cndt 2020 annual report 34 supporting our associates with a number of specific initiatives , including making improvements to our policies to extend short term disability , providing extra supplemental sick leave coverage and introducing a hardship leave policy . increased sanitation and social distancing for required on-site essential associates . at the end of 2020 , approximately 75 % of our workforce had shifted to work-from-home . we will start a slow and measured approach to bring associates back to our offices , as appropriate . this will be a phased process based on the specific covid-19 conditions in certain geographies , as well as , business requirements . as the crisis continues , we may revise our approach to these initiatives or take additional actions to meet the needs of our employees , customers and their end-users as well as the company 's needs and to continue to provide our mission-critical services and solutions . for the year ended december 31 , 2020 , we estimated an $ 85 million unfavorable impact on revenue was attributable to the covid-19 pandemic or covid-19 related effects . in addition to reductions in certain direct costs , we also achieved certain temporary cost savings associated with our cost reduction program which were estimated to be $ 59 million for the year ended december 31 , 2020. these temporary cost actions were primarily driven by pandemic related furloughs , reduced travel , vendor and facilities spend . the estimated effect of the covid-19 pandemic on our pre-tax income , which includes the net revenue impact , incremental costs and benefit from temporary cost savings was a reduction of $ 23 million for the year ended december 31 , 2020. refer to the discussion of results of operations below for additional discussion of covid-19 pandemic related effects . critical accounting policies the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america ( u.s. gaap ) requires us to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying consolidated financial statements and notes thereto . in preparing our consolidated financial statements , we have made our best estimates and judgments of certain amounts included in the consolidated financial statements giving due consideration to materiality . however , application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and , as a result , actual results could differ from these estimates . senior management has discussed the development and selection of the critical accounting policies , estimates and related disclosures included herein with the audit committee of the board of directors . we consider these as critical to understanding our consolidated financial statements , as their application places the most significant demands on management 's judgment , since financial reporting results rely on estimates of the effects of matters that are inherently uncertain . in instances where different estimates could have reasonably been used , we disclose the impact of these different estimates on our operations . in certain instances , the accounting rules are prescriptive ; therefore , it would not have been possible to reasonably use different estimates . changes in assumptions and estimates are reflected in the period in which they occur . the impact of such changes could be material to our results of operations and financial condition in any quarterly or annual period . specific risks associated with these critical accounting policies are discussed in the md & a , where such policies affect our reported and expected financial results . for a detailed discussion of the application of these and other accounting policies , refer to note 1 – basis of presentation and summary of significant accounting policies to the consolidated financial statements . leases the company determines if an arrangement is a lease at the inception of the contract and whether that lease meets the classification criteria of a finance or operating lease . story_separator_special_tag based on our quantitative assessments , we concluded that the fair value of our reporting units exceeded their respective carrying values and , accordingly , we did not record any goodwill impairment charge in the year ended december 31 , 2020. during 2019 , we performed interim goodwill impairment assessments for all our reporting units which resulted in a cumulative impairment charge of $ 2.0 billion . refer to note 9 – goodwill and intangible assets , net to the consolidated financial statements for details regarding the facts and circumstances that led to this impairment charge . income taxes we are subject to income taxes in the united states and numerous foreign jurisdictions . the determination of our provision for income taxes requires significant judgment , the use of estimates and the interpretation and application of complex tax laws . our provision is based on nonrecurring events as well as recurring factors , including the taxation of foreign income . in addition , our provision will change based on discrete or other nonrecurring events such as audit settlements , tax law changes , changes in valuation allowances and other factors , that may not be predictable . in the event that there is a significant unusual or one-time item recognized in our operating results , the taxes attributable to that item would be separately calculated and recorded at the same time as the unusual or one-time item . we record the estimated future tax effects of temporary differences between the tax bases of assets and liabilities and amounts reported in our consolidated balance sheets , as well as operating loss and tax credit carryforwards . we follow very specific and detailed guidelines in each tax jurisdiction regarding the recoverability of any tax assets recorded in our consolidated balance sheets and provide valuation allowances as required . we regularly review our deferred tax assets for recoverability considering historical profitability , projected future taxable income , the expected timing of the reversals of existing temporary differences and tax planning strategies . gross deferred tax assets of $ 294 million and $ 309 million had valuation allowances of $ 83 million and $ 72 million at december 31 , 2020 and 2019 , respectively . we are subject to ongoing tax examinations and assessments in various jurisdictions . accordingly , we may incur additional tax expense based upon our assessment of the more-likely-than-not outcomes of such matters . in addition , when applicable , we adjust previously recorded tax expense to reflect examination results . our ongoing assessments of the more-likely-than-not outcomes of examinations and related tax positions require judgment and can materially increase or decrease our effective tax rate , as well as impact our operating results . unrecognized tax benefits were $ 23 million , $ 24 million and $ 20 million at december 31 , 2020 , 2019 and 2018 , respectively . refer to note 16 – income taxes to the consolidated financial statements for additional information regarding deferred income taxes and unrecognized tax benefits . cndt 2020 annual report 37 loss contingencies we are currently involved in various claims and legal proceedings . at least quarterly , we review the status of each significant matter and assess its potential financial exposure considering all available information including , but not limited to , the impact of negotiations , settlements , rulings , advice of legal counsel and other updated information and events pertaining to a particular matter . if the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated , we accrue a liability for the estimated loss . significant judgment is required in both the determination of probability and the determination as to whether an exposure is reasonably estimable . because of uncertainties related to these matters , accruals are based only on the best information available at the time . as additional information becomes available , we reassess the potential liability related to pending claims and litigation and may revise estimates . these revisions in the estimates of the potential liabilities could have a material impact on the results of operations and financial position . refer to note 17 – contingencies and litigation to the consolidated financial statements for additional information regarding loss contingencies . recent accounting changes see note 1 – basis of presentation and summary of significant accounting policies for information on accounting standards adopted during the current year , as well as recently issued accounting standards not yet required to be adopted and the expected impact of the adoption of these accounting standards . to the extent we believe the adoption of new accounting standards has had or will have a material impact on our consolidated results of operations , financial condition or liquidity , we also discuss the impact in the applicable section ( s ) of this md & a . other developments sec rule - modernize and enhance management 's discussion and analysis and other financial disclosures in november 2020 , the sec adopted amendments to modernize , simplify and enhance certain financial disclosures called for by regulation s-k , and related rules and forms , in a manner that reduces the costs and burdens on registrants while continuing to provide material information to investors . the amendments are also designed to improve the readability and navigability of disclosure documents , and discourage repetition and disclosure of immaterial information .
| strong new business signings results – a strong year of new business with total contract value ( tcv ) signings of $ 1,934 million in 2020 , representing an increase of 94 % compared to that of the prior year period . draw down on revolver – in march 2020 , we drew down $ 150 million of our $ 750 million senior credit facility ( revolver ) as a precautionary measure in response to the covid-19 pandemic . this amount was repaid in december 2020. cost savings initiative – beginning in the first quarter of 2020 , we expanded the focus of our efficiency initiatives to include both permanent and temporary cost efficiencies , aimed to offset as much of the covid-19 related negative impacts as possible . we announced an initial target amount of approximately $ 100 million of cost savings impact in 2020 and subsequently increased this amount throughout the year . we achieved approximately $ 145 million of cost savings impact in 2020 in both permanent savings , such as headcount and vendor optimization , and temporary savings , such as furloughs and reduced travel . operational improvements – we have made significant progress on our “ growth ” , “ quality ” , and “ efficiency ” initiatives by leveraging changes to people , process , and technology . specific actions have included standardizing governance processes for client implementations , account management , and incident response , centralizing and enhancing the salesforce , restructuring to leverage a shared services model and addressing spans and layers , instituting a global it command center , continuing to make progress on the data center consolidation plan , among others . these actions have resulted in improvements across the “ growth ” , “ quality ” , and “ efficiency ” pillars . for example , we have shown a significant reduction of the number of technology-related incidents and outages , improvements in associate satisfaction survey results , and increases in service level agreement payments from customers .
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summary of unvested options at june 30 , 2011 replace_table_token_35_th total non-cash compensation costs included in the consolidated statements of operations in story_separator_special_tag forward looking statements our disclosure and analysis in this report contains forward-looking information that involves risks and uncertainties . our forward-looking statements express our current expectations or forecasts of possible future results or events , including projections of future performance , statements of management 's plans and objectives , future contracts , and forecasts of trends and other matters . forward-looking statements speak only as of the date of this filing , and we undertake no obligation to update or revise such statements to reflect new circumstances or unanticipated events as they occur . you can identify these statements by the fact that they do not relate strictly to historic or current facts and often use words such as anticipate , estimate , expect , believe , will likely result , outlook , project and other words and expressions of similar meaning . no assurance can be given that the results in any forward-looking statements will be achieved and actual results could be affected by one or more factors , which could cause them to differ materially . for these statements , we claim the protection of the safe harbor for forward-looking statements contained in the private securities litigation reform act of 1995. among these risks and uncertainties are the following : the ability of magellan and santos to complete and implement the terms of the santos asset swap/sales agreement and gas sales contract , including securing the customary approvals necessary to complete the asset swap , the future outcome of the negotiations by santos with its customers for gas sales contracts for the remaining uncontracted reserves in the amadeus basin , the production volume at mereenie and whether it will be sufficient to trigger the bonus amounts provided for in the santos asset swap/sales agreement , the ability of the company to successfully develop its existing assets , the ability of the company to secure gas sales contracts for the uncontracted reserves at dingo , the ability of the company to implement a successful exploration program , pricing and production levels from the properties in which magellan and mpal have interests , the extent of the recoverable reserves at those properties , the profitable integration of acquired businesses , including nautilus poplar llc , the likelihood of success of the drilling program at the poplar fields by the company 's new farm-in partner , vaalco energy , and the results of the ongoing production well tests in the u.k. in addition , mpal has a large number of exploration permits and faces the risk that any wells drilled may fail to encounter hydrocarbons in commercially recoverable quantities . any forward-looking information provided in this report should be considered with these factors in mind . magellan assumes no obligation to update any forward-looking statements contained in this report , whether as a result of new information , future events or otherwise . executive summary overview magellan is an oil and gas investment company , whose strategy is to create long-term value through the acquisition and redevelopment of under-exploited natural gas and oil reserves . although magellan has been in existence for decades , particularly in australia , the company began the transformation to an active international e & p development platform only in the past two years . during this time , the company has assembled a new management team with experience in oil and gas operations , project development , finance , and management . this team has worked to rationalize magellan 's legacy assets , contracts , and holding structures , while positioning the company to unlock the value of the most promising of these assets and expanding its scope to gain access to new growth opportunities . in the past year , the company dedicated significant time and resources to pursuing the acquisition of santos ' 40 % interest in a contingent 6.6 tcf gas field in the northern territory , australia , the evans shoal field . this transaction would likely have been transformational for magellan . the development of the field using methanol technology represented a creative solution to an otherwise long-term , stranded natural gas field . despite spirited effort , due to factors outside of the company 's control , magellan and santos agreed that the transaction would not be completed . the company had committed a $ 25 million towards the acquisition of the evans shoal field through two deposits and was returned a $ 10 million on july 22 , 2011 . 30 as a result , the company continued with a review of its assets and developed a rationalization plan . on september 14 , 2011 , magellan entered into an agreement with santos to swap its interest in the mereenie field for the purchase of the remaining interest in the producing palm valley gas field and exploration dingo field , all three fields located in the amadeus basin , onshore australia . upon completion of this transaction , which is subject to customary approvals and expected to close in the very near future , the company will receive the new asset interests described above , a cash contribution of a $ 25 million , and further subsequent bonus payments contingent upon future production , with a cumulative possible value of a $ 17.5 million . in addition , the company also entered into a long term gas supply agreement with santos for its palm valley gas field , which will provide incremental revenue and cash flows to support the company 's ongoing operations in australia . in parallel , the company focused on its under-developed , multiple formation , producing oil field in montana , the poplar field . story_separator_special_tag pty ltd ( magellan nt ) , a wholly owned subsidiary of mpal , entered into a sale agreement ( santos sa ) with santos qnt pty ltd ( santos qnt ) and santos limited ( santos entities ) . the santos sa provides for the transfer of magellan nt 's 35 % interest in the mereenie oil and gas field to the santos entities and the transfer of the santos entities 47.977 % interest in the palm valley gas field and the 65.6635 % interest in the dingo gas field to magellan nt subject to the satisfaction of certain conditions . the cash consideration payable to magellan nt is a $ 25 million plus a bonus amount based on mereenie future production levels . upon completion of the santos sa , magellan nt entered into a gas supply and purchase agreement ( the gspa ) with the santos entities on september 14 , 2011 , and provides for the sale by magellan nt to the santos entities of a total contract gas quantity of 25.65pj over the anticipated 17 year term of the gspa . on september 2 , 2011 , the company signed and closed a purchase and sale agreement with the owners of nautilus technical group llc , ( nautilus technical ) , and eastern rider llc , ( eastern rider ) , ( collectively the sellers ) , resulting in the company owning 100 % of nautilus poplar and , directly or indirectly through nautilus , a 100 % working interest in the poplar field , aside from certain working interest owners in the northwest poplar fields . the company paid the sellers total cash consideration of $ 4.0 million dollars . on september 7 , 2011 , the company and vaalco energy ( usa ) inc. ( vaalco ) signed a definitive lease purchase and sale agreement ( the vaalco lpsa ) . vaalco also agreed to drill three wells , at its sole expense as operator , to the bakken formation and to formations below the bakken ( the deep intervals ) in poplar field . upon completion of three ( 3 ) new wells in the deep intervals of the poplar field , vaalco will earn a 65 % working interest in the deep intervals within the poplar field . one well will be spud on or before june 1 , 2012 and the second and third will be spud on or before december 31 , 2012. one well will be drilled horizontally to test the bakken formation , one well will be drilled vertically to test the red river formation , and a third will be targeted at vaalco 's discretion . 32 the company will retain a 35 % working interest in the deep intervals and will continue to hold its current interest in all formations above the bakken formation , including the currently producing charles and tyler formations where all poplar proved and probable reserves are located . story_separator_special_tag is a newer , less mature shale play , where magellan is a 50 % partner with celtique energie . the weald basin shale play is unexplored and is based on the lower jurassic ( liassic ) shale which lies in both the oil and gas window . there are currently no producing wells in the license area ; however , with the recent developments in shale development technology , coupled with the basin 's proximity to u.k. and nw european oil and gas markets and infrastructure , these licenses are an attractive opportunity for near term development . the company 's goal is to establish near-term monetization and strategic drilling programs for u.k. shale acreage . 34 critical accounting estimates oil and gas properties the company follows the successful efforts method of accounting for its oil and gas operations . under this method , the costs of successful wells , development dry holes , productive leases , and permit and concession costs are capitalized and amortized on a units-of-production basis over the life of the related reserves . cost centers for amortization purposes are determined on a field-by-field basis . the company records its proportionate share in joint venture operations in the respective classifications of assets , liabilities and expenses . unproved properties with significant acquisition costs are periodically assessed for impairment in value , with any impairment charged to expense . the successful efforts method also imposes limitations on the carrying or book value of proved oil and gas properties . oil and gas properties are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable . in general , analyses are based on proved developed reserves , except in circumstances where it is probable that additional resources will be developed and contribute to cash flows in the future . for palm valley , future undiscounted cash flows were based upon the quantities of gas currently committed to the contract and estimated sales subsequent to the contract . if such new contracts are effected , the proved developed reserves will be increased to the lesser of the risk adjusted probable and possible reserves or the newly contracted quantities . exploratory drilling costs are initially capitalized pending determination of proved reserves but are charged to expense if no proved reserves are found . other exploration costs , including geological and geophysical expenses , leasehold expiration costs and delay rentals , are expensed as incurred . because the company follows the successful efforts method of accounting , the results of operations may vary materially from quarter to quarter . an active exploration program may result in greater exploration and dry hole costs . historically , we have adjusted our depletion rates during the year when new reserve information is available .
| operational results australia mpc 's australia sale volumes , net of royalties , were .71 bcf of gas and 55 mbbls of oil for the years ended june 30 , 2011 or a 79 % decrease in gas sales and 57 % decrease in oil sales for the years ended june 30 , 2010. the decrease in gas sales is due primarily to the term end of the msa4 agreement and the decrease in oil sales is due primarily to the sale of the cooper basing and nockatunga assets mereenie : there were no gas sales from mereenie for the years ended june 30 , 2011. the mereenie producers continued to supply pwc 's gas requirements on a reasonable endeavors basis to supplement blacktip gas sales until early february 2010. the principal mereenie contracts and supply obligations under the various agreements expired in january and june 2009 , and september 2010. magellan nt has entered into the santos sa to transfer all of the company 's interest in the mereenie field to the santos entities with effect july 1 , 2011 , as described above . palm valley : the palm valley gas contract expires in january 2012. magellan nt has entered into the santos sa to receive all of the santos entities ' interest in the palm valley and dingo fields with effect july 1 , 2011 , as described above . upon completion of the agreements , the company will own 100 % of the palm valley and dingo gas fields and will have 25.65pj of gas contracted under the gspa with the santos entities . dingo : mpal has a 34.34 % interest in the dingo gas field which is held under retention license no . 2 in the amadeus basin in the northern territory . no market has emerged for gas volumes that have been discovered in the dingo gas field .
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program fees represent monthly fees charged to dealers for access to our credit approval processing system ( “ caps ” ) ; administration , servicing and collection services offered by us ; documentation related to or affecting our program ; and all tangible and intangible property owned by credit acceptance . we charge a monthly fee of $ 599 to dealers participating in our portfolio program and we story_separator_special_tag the following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes contained in item 8 of this form 10-k , which is incorporated herein by reference . overview we offer financing programs that enable automobile dealers to sell vehicles to consumers , regardless of their credit history . our financing programs are offered through a nationwide network of automobile dealers who benefit from sales of vehicles to consumers who otherwise could not obtain financing ; from repeat and referral sales generated by these same customers ; and from sales to customers responding to advertisements for our financing programs , but who actually end up qualifying for traditional financing . for the year ended december 31 , 2020 , consolidated net income was $ 421.0 million , or $ 23.47 per diluted share , compared to $ 656.1 million , or $ 34.57 per diluted share , for the same period in 2019 and $ 574.0 million , or $ 29.39 per diluted share , for the same period in 2018. the decrease in 2020 consolidated net income was primarily due to an increase in our provision for credit losses primarily due to our adoption of cecl on january 1 , 2020. the growth in 2019 consolidated net income was primarily due to an increase in the average balance of our loan portfolio . covid-19 continues to be widespread in the united states . in an effort to contain the virus , authorities have implemented various measures , including travel bans , stay-at-home orders and shutdowns of non-essential businesses . these measures have caused a significant decline in economic activity and a dramatic increase in unemployment . while the prevalence , severity and impact of such restrictions have lessened and unemployment rates have improved , uncertainty remains as to when economic conditions will return to normalcy and whether further restrictions may be required . starting in mid-march , we experienced a substantial reduction in demand for our product and a significant decline in cash flows from our loan portfolio that lasted through mid-april , after which collections and new loan volumes improved significantly . starting in late july and continuing through the end of the year , we experienced another substantial reduction in demand for our product . as the virus is not yet fully contained , the ultimate impact of the pandemic on our business is not yet known . the impact will depend on future developments , including , but not limited to , the duration of the pandemic , its severity , the actions to contain the disease or mitigate its impact , additional federal stimulus measures and enhanced unemployment benefits , if any , and the duration , timing and severity of the impact on consumer behavior and economic activity . results for the year ended december 31 , 2020 include a provision for credit losses of $ 556.9 million reflecting the adoption of cecl on january 1 , 2020 and the impact of changes in the amount and timing of forecasted future net cash flows from our loan portfolio . under cecl , we are required to record a provision for credit losses for every new loan at the time that loan is originated equal to the difference between the amount we paid to acquire the loan and the present value of forecasted net cash flows using an effective interest rate prescribed under cecl . the effective interest rate under cecl is calculated assuming 100 % of the contractually scheduled payments of each loan is received . since we do not expect to receive this amount , the effective rate under cecl is higher than the rate we expect to earn . using the higher effective rate prescribed by cecl to record the loan results in a value for each loan that is less than the amount we paid to acquire the loan . this difference is recorded as an allowance for credit losses along with a corresponding provision for credit losses . for the year ended december 31 , 2020 , we recorded provision for credit losses of $ 518.6 million , related to new consumer loan assignments . over the life of the loan , we expect to record an amount equivalent to this provision for credit losses as finance charge revenue , which will be recognized using the same effective interest rate used to record the loan . the remaining provision for credit losses of $ 38.3 million for the year ended december 31 , 2020 , reflected changes in our estimates of the amount and timing of future net cash flows from our loan portfolio discussed below . under cecl , the net present value of the change in our net cash flow forecast is recorded as a provision for credit losses or reversal of provision for credit losses . critical success factors critical success factors include our ability to accurately forecast consumer loan performance , access capital on acceptable terms , and maintain or grow consumer loan volume at the level and on the terms that we anticipate , with an objective to maximize economic profit . economic profit is a non-gaap financial measure we use to evaluate our financial results and determine incentive compensation . economic profit measures how efficiently we utilize our total capital , both debt and equity , and is a function of the return on capital in excess of the cost of capital and the amount of capital invested in the business . story_separator_special_tag 28 the following table presents forecasted consumer loan collection rates , advance rates , the spread ( the forecasted collection rate less the advance rate ) , and the percentage of the forecasted collections that had been realized as of december 31 , 2020. all amounts , unless otherwise noted , are presented as a percentage of the initial balance of the consumer loan ( principal + interest ) . the table includes both dealer loans and purchased loans . replace_table_token_13_th ( 1 ) represents advances paid to dealers on consumer loans assigned under our portfolio program and one-time payments made to dealers to purchase consumer loans assigned under our purchase program as a percentage of the initial balance of the consumer loans . payments of dealer holdback and accelerated dealer holdback are not included . ( 2 ) presented as a percentage of total forecasted collections . the risk of a material change in our forecasted collection rate declines as the consumer loans age . for 2016 and prior consumer loan assignments , the risk of a material forecast variance is modest , as we have currently realized in excess of 90 % of the expected collections . conversely , the forecasted collection rates for more recent consumer loan assignments are less certain as a significant portion of our forecast has not been realized . the spread between the forecasted collection rate and the advance rate has ranged from 19.8 % to 29.3 % over the last 10 years . the spread was at the high end of this range in 2011 , when the competitive environment was unusually favorable , and much lower during other years ( 2015 through 2020 ) when competition was more intense . the increase in the spread from 2019 to 2020 was primarily the result of the performance of 2020 consumer loans , which has exceeded our initial estimates by a greater margin than those assigned to us in 2019 , partially offset by a lower initial forecast on 2020 consumer loans . the following table compares our forecast of consumer loan collection rates as of december 31 , 2020 with the forecasts at the time of assignment , for dealer loans and purchased loans separately : replace_table_token_14_th ( 1 ) the forecasted collection rates presented for dealer loans and purchased loans reflect the consumer loan classification at the time of assignment . 29 the following table presents forecasted consumer loan collection rates , advance rates , and the spread ( the forecasted collection rate less the advance rate ) as of december 31 , 2020 for dealer loans and purchased loans separately . all amounts are presented as a percentage of the initial balance of the consumer loan ( principal + interest ) . replace_table_token_15_th ( 1 ) the forecasted collection rates and advance rates presented for dealer loans and purchased loans reflect the consumer loan classification at the time of assignment . ( 2 ) represents advances paid to dealers on consumer loans assigned under our portfolio program and one-time payments made to dealers to purchase consumer loans assigned under our purchase program as a percentage of the initial balance of the consumer loans . payments of dealer holdback and accelerated dealer holdback are not included . although the advance rate on purchased loans is higher as compared to the advance rate on dealer loans , purchased loans do not require us to pay dealer holdback . the spread on dealer loans increased from 21.0 % in 2019 to 21.5 % in 2020 primarily as a result of the performance of the 2020 consumer loans in our dealer loan portfolio , which has exceeded our initial estimates by a greater margin than those assigned to us in 2019 , partially offset by a lower initial forecast on 2020 consumer loans in our dealer loan portfolio . the spread on purchased loans increased from 19.5 % in 2019 to 19.9 % in 2020 primarily as a result of the performance of the 2020 consumer loans in our purchased loan portfolio , which has exceeded our initial estimates by a greater margin than those assigned to us in 2019 , partially offset by a lower initial forecast on 2020 consumer loans in our purchased loan portfolio . access to capital our strategy for accessing capital on acceptable terms needed to maintain and grow the business is to : ( 1 ) maintain consistent financial performance ; ( 2 ) maintain modest financial leverage ; and ( 3 ) maintain multiple funding sources . our funded debt to equity ratio was 2.0 to 1 as of december 31 , 2020. we currently utilize the following primary forms of debt financing : ( 1 ) a revolving secured line of credit ; ( 2 ) warehouse facilities ; ( 3 ) term abs financings ; and ( 4 ) senior notes . consumer loan volume the following table summarizes changes in consumer loan assignment volume in each of the last three years as compared to the same period in the previous year : replace_table_token_16_th ( 1 ) represents advances paid to dealers on consumer loans assigned under our portfolio program and one-time payments made to dealers to purchase consumer loans assigned under our purchase program . payments of dealer holdback and accelerated dealer holdback are not included . 30 consumer loan assignment volumes depend on a number of factors including ( 1 ) the overall demand for our financing programs , ( 2 ) the amount of capital available to fund new loans , and ( 3 ) our assessment of the volume that our infrastructure can support . our pricing strategy is intended to maximize the amount of economic profit we generate , within the confines of capital and infrastructure constraints . during 2020 , unit and dollar volumes decreased 7.5 % and 3.5 % , respectively , as the number of active dealers declined 5.3 % while average volume per active dealer decreased 2.5 % .
| results of operations the following is a discussion of our 2020 and 2019 results of operations and income statement data on a consolidated basis , including year-to-year comparisons between 2020 and 2019. discussions of 2018 items and year-to-year comparisons between 2019 and 2018 that are not included in this form 10-k can be found in “ management 's discussion and analysis of financial condition and results of operations ” in part ii , item 7 of the company 's annual report on form 10-k for the year ended december 31 , 2019. the financial accounting standards board issued a new accounting standard ( known as cecl ) that changed how we account for our loans effective january 1 , 2020. the net loan income ( finance charge revenue less provision for credit losses expense ) that we recognize over the life of a loan equals the cash we collect from the underlying consumer loan less the cash we pay to the dealer . while the total amount of net loan income we will recognize over the life of the loan is not impacted by cecl , the timing of when we will recognize this income has changed significantly from our prior accounting method . we believe that recognizing net loan income on a level-yield basis over the life of the loan based on expected future net cash flows matches the economics of our business . we believe cecl diverges from economic reality by requiring us to recognize a significant provision for credit losses expense at the time of assignment for amounts we never expected to realize and finance charge revenue in subsequent periods that is significantly in excess of our expected yields .
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4. discontinued operations in connection with the decision to sell monarch in december 2014 , the operating results associated with the monarch business are classified as discontinued operations net of applicable taxes in the consolidated statements of operations 78 for all periods presented , and the assets and liabilities associated with this business are classified as assets of discontinued operations and liabilities of discontinued operations , as appropriate , in the consolidated balance sheets for all applicable periods presented . the components of discontinued operations , net of tax are as follows ( in thousands ) : replace_table_token_48_th the components of assets of discontinued operations and liabilities of discontinued operations are as follows ( in thousands ) : replace_table_token_49_th the canadian business is committed , under various letters of credit and surety bonds , to perform certain development and construction activities and provide certain story_separator_special_tag business overview our principal business is residential homebuilding and the development of lifestyle communities with operations geographically focused in arizona , california , colorado , florida , and texas . our homes appeal to entry-level , move-up , 55+ and luxury homebuyers , with a focus on move-up customers in high-growth markets . our homebuilding company operates under our taylor morrison and darling homes brand names . our business is organized into ten homebuilding operating divisions , and a mortgage division , which are managed as three reportable segments : east , west and mortgage operations , as follows : east houston ( which includes a taylor morrison division and a darling homes division ) , austin , dallas , north florida and west florida west phoenix , northern california , southern california and denver mortgage operations mortgage and financial services ( tmhf ) we offer single family attached and or detached homes and revenue is recognized when the homes are completed and delivered to the buyers . our primary costs are the acquisition of land in various stages of development and the construction costs of the homes we sell . our mortgage operations reportable segment provides financial services to customers in the united states through our wholly owned mortgage subsidiary , tmhf . revenues from loan origination are recognized at the time the related real estate transactions are completed , usually upon the close of escrow . on january 28 , 2015 , we completed the sale of our monarch business for total proceeds of approximately cad $ 570 million . through this strategic sale , we were able to capture what we believe was an attractive valuation for this asset at a time when market dynamics are changing . by exiting the canadian business , we will focus solely on u.s. operations , where we believe we can reinvest proceeds from the sale of monarch in new and existing markets to generate higher returns to maximize shareholder value . industry overview and current market developments we believe that a fundamental housing recovery is still underway on a national basis , driven by consumers who are increasingly optimistic about their economic prospects , and we believe the recovery is supported by certain positive economic and demographic factors , including decreasing unemployment , increasing home values , improving household balance sheets , declines in new and existing for-sale home inventory and low interest rates supporting affordability and home ownership . while we were encouraged by certain positive and improved trends during 2014 , several challenges still exist that may impact the speed of the recovery , such as lingering unemployment concerns , stagnation in real wages and real or perceived personal wealth , national and global economic uncertainty and a continuing restrictive mortgage lending environment . we are additionally challenged by shortages in the labor supply , specifically as it relates to qualified tradespeople . nevertheless , we believe we are in an upward business cycle in most of our markets as the ability to deliver homes to prospective buyers still lags behind demand and the availability of new and pre-owned homes remains constrained . land acquisition and development because the housing market is cyclical , and home price movement between the peak and trough of the cycle can be significant , we seek to adhere to our core operating principles through these cycles to drive consistent long-term performance . based on our current land position , we expect to drive revenue by opening new communities from our existing land supply . we believe land supply provides us with the opportunity to increase community count prospectively . we also currently own or have an option to purchase the majority of the land on which we expect to close homes during 2015. during the next twelve months we expect to open communities in geographic markets in line with consumer demand . 39 our approach in allocating capital and managing our land portfolio has been to acquire assets that have attractive characteristics , including good access to schools , shopping , recreation and transportation facilities . in connection with our overall land inventory management process , our management team reviews these considerations , as well as other financial metrics , in order to decide the highest and best use of our capital . we intend to maintain a consistent approach to land positioning within our regions , markets and communities in the foreseeable future in an effort to concentrate a greater amount of our land inventory in areas that have the attractive characteristics referred to above . we also intend to continue to combine our land development expertise with our homebuilding operations to increase the flexibility of our business , to enhance our margin performance and to control the timing of delivery of lots . from time to time , we may sell land in our communities if we believe it is best for our overall operations . we do not expect such sales to have a significant effect on our overall results , but they may impact our overall gross margins . story_separator_special_tag mortgage operations revenue loan origination revenue ( including title fees , points , closing costs ) is recognized at the time the related real estate transactions are completed , usually upon the close of escrow . all of the loans tmhf originates are sold to third party investors within a short period of time , within than 20 business days , on a non-recourse basis . since tmhf does not have continuing involvement with the transferred assets , we derecognize the mortgage loans at the time of sale , based on the difference between the selling price and carrying value of the related loans upon sale , recording a gain/loss on sale . 41 real estate inventory valuation and costing inventory consists of land , land under development , homes under construction , completed homes , and model homes , which are stated at cost . in addition to direct carrying costs , we also capitalize interest , real estate taxes , and related development costs that benefit the entire community , such as field construction supervision and related direct overhead . home construction costs are accumulated and charged to cost of sales at home closing using the specific identification method . land acquisition , development , interest , real estate taxes and overhead are allocated to homes and units using methods that approximate the relative sales value method . these costs are capitalized to inventory from the point development begins to the point construction is completed . changes in estimated costs to be incurred in a community are generally allocated to the remaining homes on a prospective basis . for those communities that have been temporarily closed or development has been discontinued , we do not allocate interest or other costs to the community 's inventory until activity resumes . we assess the recoverability of our land inventory in accordance with the provisions of asc topic 360 , property , plant , and equipment . we review our real estate inventory for indicators of impairment by community during each reporting period . if indicators of impairment are present for a community , we first perform an undiscounted cash flow analysis to determine if the carrying value of the assets in that community exceeds the undiscounted cash flows . if the carrying value of the assets exceeds their estimated undiscounted cash flows , then the assets are deemed to be impaired and are recorded at fair value as of the assessment date . these cash flows are significantly impacted by various estimates of sales prices , construction costs , sales pace , and other factors . the discount rate used in determining each asset 's fair value depends on the community 's projected life and development stage . when an impairment charge for a community is determined , the charge is then allocated to each lot in the community in the same manner as land and development costs are allocated to each lot . inventory within each community is categorized as construction in progress and finished homes , residential land and lots developed and under development , or land held for development , based on the stage of production or plans for future development . our estimate of undiscounted cash flows from these communities may change with market conditions and could result in a need to record impairment charges to adjust the carrying value of these assets to their estimated fair value . several factors could lead to changes in the estimates of undiscounted future cash flows for a given community . the most significant of these include pricing and incentive levels actually realized in the community , the rate at which the homes are sold and changes in the costs incurred to develop lots and construct homes . pricing and incentive levels are often interrelated with sales pace within a community , and price reductions generally lead to an increase in sales pace . further , both of these factors are heavily influenced by the competitive pressures facing a given community from both new homes and existing homes , some of which may result from foreclosures . if conditions worsen in the broader economy , the homebuilding industry or specific markets in which we operate , and as we re-evaluate specific community pricing and incentives , construction and development plans and our overall land sale strategies , we may be required to evaluate additional communities or re-evaluate previously impaired communities for potential impairment . for assets that are currently mothballed ( i.e. , strategic long-term land positions not currently under development or subject to an active selling effort ) , assumptions are based on current development plans and current price pace and house costs of similar communities . these evaluations may result in additional impairment charges . the life cycle of a community generally ranges from three to five years , commencing with the acquisition of unentitled or entitled land , continuing through the land development phase and concluding with the sale , construction and delivery of homes . actual community lives will vary based on the size of the community , the sales absorption rate and whether we purchased the property as raw land or as finished lots . we capitalize certain interest costs to inventory during the development and construction periods . capitalized interest is charged to cost of sales when the related inventory is delivered or when the related inventory is charged to cost of sales . insurance costs , self-insurance reserves and warranty reserves we have certain deductible amounts under our workers ' compensation , automobile and general liability insurance policies , and we record expense and liabilities for the estimated costs of potential claims for construction defects . we also generally require our sub-contractors and design professionals to indemnify us for liabilities arising from their work , subject to certain limitations .
| results of operations the following table sets forth our results of operations : replace_table_token_13_th 44 year ended december 31 , 2014 compared to year ended december 31 , 2013 average active selling communities replace_table_token_14_th consolidated : average active selling communities increased 30.4 % , primarily due to significant additions in our west florida and phoenix divisions . we opened new communities and completed existing communities throughout all of our markets during 2014. we open communities when we believe we have the greatest probability of capitalizing on favorable market conditions in which the community is located . east : the number of average active selling communities in the east segment increased , primarily due to the opening of 28 new communities in west florida . sales pace in the east segment decreased to 2.1 homes per month per community for the year ended december 31 , 2014 from 2.2 homes per month per community in the prior year period . timing of community openings and our continued efforts to increase sales prices and margins in order to maximize returns in our communities were the main reasons for the decrease in sales pace for the year ended december 31 , 2014. west : the number of average active selling communities in the west segment increased due to 19 new community openings in our phoenix division and 17 new community openings in our northern california division . net sales orders replace_table_token_15_th ( 1 ) net sales orders represent the number and dollar value of new sales contracts executed with customers . consolidated : the increase in the value of sales orders , average selling prices and the number of net homes sold in 2014 compared to 2013 was driven by consumer demand , prompting an increase in active selling communities . consumer demand increased as a result of historically low interest rates and stabilizing macroeconomic conditions relative to the prior comparable period .
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you should read this discussion in conjunction with our consolidated financial statements , including the notes thereto , appearing elsewhere in this report or incorporated herein by reference . this discussion and analysis contains forward ‑looking statements . please refer to the sections of this report entitled “ cautionary statement concerning forward ‑looking statements ” and “ item 1a . risk factors ” for discussion of some of the uncertainties , risks and assumptions associated with these statements . overview through skywest airlines and expressjet , we operate the largest regional airline in the united states . as of december 31 , 201 5 , skywest airlines and expressjet offered scheduled passenger and air freight service with approximately 3,600 total daily departures to destinations in the united states , canada , mexico and the caribbean . as of d ecember 31 , 201 5 , we had a combined fleet of 702 aircraft consisting of the following : replace_table_token_10_th * other aircraft consist ed of leased airc raft removed from service that we re in the process of being returned to the lessor and owned airc raft removed from service that we re held for sale . for the year ended december 31 , 201 5 , approximately 57 . 5 % of our aggregate capacity was operated for united , approximately 3 3 . 2 % was operated for delta , approximately 6.4 % was operated for american and approximately 2.9 % was operated for alaska . under our fixed ‑fee arrangements , three components have a significant impact on comparability of revenue and operating expense for the periods presented in this report . the first item is the reimbursement of fuel expense , which is a directly ‑reimbursed expense under all of our fixed ‑fee arrangements . if we purchase fuel directly from vendors , our major partners reimburse us for fuel expense incurred under each respective fixed ‑fee contract , and we record such reimbursement as passenger revenue . thus , the price volatility of fuel and the volume of fuel expensed under our fixed ‑fee arrangements during a particular period will impact our fuel expense and our passenger revenue during the period equally , with no impact on our operating income . over the past few years , some of our major airline partners have purchased an increased volume of fuel directly from vendors on flights we operated under our fixed ‑fee contracts , which has decreased both revenue and operating expenses compared to previous periods presented in this report . the second item is the reimbursement of landing fees and station rents , which is a directly ‑reimbursed expense under all of our fixed ‑fee arrangements . our major partners reimburse us for landing fees and station rent expense incurred under each respective fixed ‑fee contract , and we record such reimbursement as passenger revenue . over the past few years , some of our major airline partners have paid an increased volume of landing fees and station rents directly to our vendors on flights we operated under our flying contracts , which has also decreased both revenue and operating expenses compared to previous periods presented in this report . the third item is the compensation we receive for engine maintenance under our fixed ‑fee arrangements . under our united crj and e175 fixed-fee contracts , american fixed-fee contracts , and alaska fixed ‑fee contracts , a portion of our compensation is based upon fixed hourly rates the aircraft is in operation , which is intended to cover various operating costs , including engine maintenance costs ( “ fixed ‑rate engine contracts ” ) . under the compensation structure 32 for our delta connection and united erj145 flying contracts , our major partner reimburses us for engine maintenance expense when the expense is incurred as a pass ‑through cost ( “ directly ‑reimbursed engine contracts ” ) . we use the direct ‑expense method of accounting for our crj200 regional jet aircraft engine overhaul costs and , accordingly , we recognize engine maintenance expense on our crj200 engines on an as ‑incurred basis . under the direct ‑expense method , the maintenance liability is recorded when the maintenance services are performed ( “ crj200 engine overhaul expense ” ) . because we use the direct ‑expense method of accounting for our crj200 engine expense , and because we recognize revenue using the applicable fixed hourly rates under our fixed ‑rate engine contracts , the number of engine maintenance events and related expense we incur may vary between reporting period s under the fixed ‑rate engine contracts without a corresponding change to our passenger revenues that may impact t he comparability of our operating income for the presented reporting periods . because we recognize revenue in the same amount and in the same period when we incur engine maintenance expense on engines operating under our directly ‑ reimbursed engine contracts , the number of engine events and related expense we incur each reporting period does not have a direct impact on the comparability of our operating income for the presented reporting periods . we have an agreement with a third ‑party vendor to provide long ‑term engine maintenance covering scheduled and unscheduled repairs for engines on our crj700s and e175s operating under our fixed ‑ rate engine contracts ( a “ power-by- the - hour agreement ” ) . under the terms of the power-by-the-hour agreement , we are obligated to pay a set dollar amount per engine hour flown on a monthly basis and the vendor assumes the obligation to repair the engines at no additional cost to us , subject to certain specified exclusions . thus , under the power-by-the-hour agreement , we expense the engine maintenance costs as flight hours are incurred on the engines and using the contractual rate set forth in the agreement . story_separator_special_tag critical accounting policies are those policies that are most important to the preparation of our consolidated financial statements and require management 's subjective and complex judgments due to the need to make estimates about the effect of matters that are inherently uncertain . our critical accounting policies relate to revenue recognition , aircraft maintenance , aircraft leases , impairment of long ‑lived assets and intangibles , stock ‑based compensation expense and fair value as discussed below . the application of these accounting policies involves the exercise of judgment and the use of assumptions as to future uncertainties and , as a result , actual results will likely differ , and could differ materially , from such estimates . revenue recognition passenger and ground handling revenues are recognized when service is provided . under our fixed-fee and pro ‑rate flying agreements with our code ‑share partners , revenue is considered earned when each flight is completed . our agreements with our code ‑share partners contain certain provisions pursuant to which the parties could terminate the respective agreement , subject to certain rights of the other party , if certain performance criteria are not maintained . our revenues could be impacted by a number of factors , including changes to the applicable code ‑share agreements , contract modifications resulting from contract renegotiations and our ability to earn incentive payments contemplated under applicable agreements . in the event contracted rates are not finalized at a quarterly or annual financial statement date , we record that period 's revenues based on the lower of the prior period 's approved rates adjusted for the current contract negotiations and our estimate of rates that will be implemented . also , in the event we have a reimbursement dispute with a major partner at a quarterly or annual financial statement date , we evaluate the dispute under established revenue recognition criteria and , provided the revenue recognition criteria have been met , we recognize revenue for that period based on our estimate of the resolution of the dispute . accordingly , we are required to exercise judgment and use assumptions in the application of our revenue recognition policy . maintenance we use the direct ‑expense method of accounting for our regional jet aircraft engine overhaul costs . under this method , the maintenance liability is not recorded until the maintenance services are performed . with respect to skywest airlines , a third ‑party vendor provides our long ‑term engine services covering the scheduled and unscheduled repairs for engines on our crj700s and e175s operated under our fixed ‑rate engine contracts . under the terms of the vendor agreement , we pay a set dollar amount per engine hour flown on a monthly basis and the third ‑party vendor assumes the obligation to repair the engines at no additional cost to us , subject to certain specified exclusions . thus , under the third ‑party vendor agreement , we expense the engine maintenance costs as flight hours are incurred on the engines and using the contractual rate set forth in the agreement . 35 aircraft leases the majority of skywest airlines ' aircraft are leased from third parties , while the majority of expressjet 's aircraft flying for delta and american are debt ‑financed . all of expressjet 's erj145 aircraft flying for united are leased from united for nominal amount s and all of expressjet 's erj145 aircraft flying for american are leased from american for nominal amount s . in order to determine the proper classification of our leased aircraft as either operating leases or capital leases , we must make certain estimates at the inception of the lease relating to the economic useful life and the fair value of an asset as well as select an appropriate discount rate to be used in discounting future lease payments . these estimates are utilized by management in making computations as required by existing accounting standards that determine whether the lease is classified as an operating lease or a capital lease . all of our aircraft leases have been classified as operating leases , which results in rental payments being charged to expense over the terms of the related leases . additionally , operating leases are not reflected in our consolidated balance sheet and accordingly , neither a lease asset nor an obligation for future lease payments is reflected in our consolidated balance sheets . see “ recent a ccounting p ronouncements ” set forth below for a discussion of a recently-adopted new accounting standard that is likely to have an impact on our aircraft lease accounting beginning in 2019. impairment of long ‑lived assets as of december 31 , 201 5 , we had approximately $ 3 . 5 billion of property and equipment and related assets net of accumulated depreciation . additionally , as of december 31 , 201 5 , we had approximately $ 1 0 . 5 million in intangible assets . in accounting for these long ‑lived and intangible assets , we make estimates about the expected useful lives of the assets , the expected residual values of certain of these assets , and the potential for impairment based on the fair value of the assets and the cash flows they generate . we recorded an intangible of approximately $ 33.7 million relating to the acquisition of atlantic southeast in september 2005. th at intangible is being amortized over fifteen years under the straight ‑line method . as of december 31 , 201 5 , we had recorded $ 2 3 . 3 million in accumulated amortization expense . factors indicating potential impairment include , but are not limited to , significant decreases in the market value of the long ‑lived assets , a significant change in the condition of the long ‑lived assets and operating cash flow losses associated with the use of the long ‑lived assets .
| results of operations 201 5 compared to 2014 operational statistics . the following table sets forth our major operational statistics and the associated percentages of change for the periods identified below . replace_table_token_12_th revenues . total operating revenues decreased $ 141.9 million , or 4.4 % , during the year ended december 31 , 201 5 , compared to the year ended december 31 , 201 4 primarily due to a decrease in our fleet size as further explained in the p assenger revenues section below . under certain of our fixed-fee flying contracts , certain expenses are subject to direct reimbursement from our major partners and we record such reimbursements as passenger revenue . these reimbursed expenses include fuel , landing fees , station rents and certain engine maintenance expenses . our fuel expense , landing fees , station rents and directly ‑reimbursed engine expense decreased by $ 7 3 . 1 million during the year ended december 31 , 201 5 , as compared to the year ended december 31 , 201 4 , due primarily to ( i ) our major partners purchasing an increased volume of fuel , landing fees and station rents directly from vendors on flights we operated under our fixed-fee flying agreements and ( ii ) a reduction in the number of engine maintenance events . the following table summarizes the amount of fuel , landing fees , station rents , and engine maintenance incurred under our fixed-fee agreements and the direct reimbursement was included in our passenger revenues for the periods indicated ( dollar amounts in thousands ) . replace_table_token_13_th passenger revenues . passenger revenues decreased $ 1 38 . 0 million , or 4 . 4 % , during year ended december 31 , 201 5 , compared to the year ended december 31 , 201 4 .
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of one year or less . total remaining contract revenue for contracts with original duration of greater than one year expected to be recognized in the future related to performance obligations that are unsatisfied at december 31 , 2019 approximated $ 1,097,000 , of which $ 1,037,000 and $ 60,000 are expected to be recognized during 2020 and 2021 , respectively . ( 4 ) equity investments we make equity investments to promote business and strategic story_separator_special_tag overview we are a leading provider of analytics and insights that facilitate measurement and improvement of the patient and employee experience while also increasing patient engagement and customer loyalty for healthcare organizations . our solutions enable our clients to understand the voice of the customer with greater clarity , immediacy and depth . our heritage , proprietary methods , and holistic approach enable our partners to better understand the people they care for and design experiences that inspire loyalty and trust , while also facilitating regulatory compliance and the shift to population-based health management . our ability to measure what matters most and systematically capture , analyze and deliver insights based on self-reported information from patients , families and consumers is critical in today 's healthcare market . we believe that access to and analysis of our extensive consumer-driven information is becoming more valuable as healthcare providers increasingly need to more deeply understand and engage the people they serve to build customer loyalty . our portfolio of subscription-based solutions provides actionable information and analysis to healthcare organizations across a range of mission-critical , constituent-related elements , including patient experience , service recovery , care transitions , health risk assessments , employee engagement , reputation management , and brand loyalty . we partner with clients across the continuum of healthcare services . our clients include integrated health systems , post-acute providers and payer organizations . we believe this cross-continuum positioning is a unique and an increasingly important capability as evolving payment models drive healthcare providers and payers towards a more collaborative and integrated service model . critical accounting policies and estimates the preparation of financial statements requires management to make estimates and assumptions that affect amounts reported therein . the following areas are considered critical accounting estimates because they involve significant judgments or assumptions , involve complex or uncertain matters or they are susceptible to change and the impact could be material to our financial condition or operating results : ● revenue recognition ; ● valuation of goodwill and identifiable intangible assets ; and ● income taxes . revenue recognition we derive a majority of our revenue from annually renewable subscription-based service agreements with our customers . see notes 1 and 3 to our consolidated financial statements for a description of our revenue recognition policies . our revenue arrangements with a client may include combinations of more than one service offering which may be executed at the same time , or within close proximity of one another . we combine contracts with the same customer into a single contract for accounting purposes when the contract is entered into at or near the same time and the contracts are negotiated as a single performance obligation . for contracts that contain more than one separately identifiable performance obligation , the total transaction price is allocated to the identified performance obligations based upon the relative stand-alone selling prices of the performance obligations . the stand-alone selling prices are based on an observable price for services sold to other comparable customers , when available , or an estimated selling price using a cost-plus margin or residual approach . we estimate the total contract consideration we expect to receive for variable arrangements based on the most likely amount we expect to earn from the arrangement based on the expected quantities . we only include some or a portion of variable consideration in the transaction price when it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur . we consider the sensitivity of the estimate , our relationship and experience with the client and variable services being performed , the range of possible revenue amounts and the magnitude of the variable consideration to the overall arrangement . our fixed , non-subscription arrangements typically require us to perform an unspecified amount of services for a fixed price during a fixed period of time . revenues are recognized over time based upon the costs incurred to date in relation to the total estimated contract costs . in determining cost estimates , management uses historical and forecasted cost information which is based on estimated volumes , external and internal costs and other factors necessary in estimating the total costs over the term of the contract . changes in estimates are accounted for using a cumulative catch up adjustment which could impact the amount and timing of revenue for any period . if management made different judgments and estimates , then the amount and timing of revenue for any period could differ from the reported revenue . 15 valuation of goodwill and identifiable intangible assets intangible assets include customer relationships , trade names , technology , and goodwill . intangible assets with estimable useful lives are amortized over their respective estimated useful lives to their estimated residual values and reviewed for impairment with other long-lived assets in the related asset group whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable . we review intangible assets with indefinite lives for impairment annually as of october 1 and whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable . when performing the impairment assessment , we will first assess qualitative factors to determine whether it is necessary to recalculate the fair value of the intangible assets with indefinite lives . story_separator_special_tag other income ( expense ) decreased to other expense of $ 566,000 in 2018 , compared to other income of $ 64,000 in 2017 primarily due to increased interest expense , partially offset by other income . interest expense increased to $ 1.5 million due to interest related to the new term loan originated in april 2018. other income increased to $ 885,000 primarily due to revaluation on intercompany transactions due to changes in the foreign exchange rate . provision for income taxes . provision for income taxes was $ 4.7 million ( 13.4 % effective tax rate ) in 2018 , compared to $ 11.3 million ( 33.1 % effective tax rate ) in 2017. the effective tax rate was lower in 2018 mainly due to income tax benefits from the recapitalization , due to accelerated vesting of restricted stock and settlement of options of $ 1.1 million , and the reduction in the corporate tax rate from 35 % to 21 % as a result of the tax act . in addition , we had increased tax benefits of $ 1.6 million related to the vesting and exercise of stock awards , net of certain excess compensation limits , a tax depreciation method change election for software development costs creating an income tax benefit of $ 308,000 and decreased non-deductible recapitalization expenses of $ 361,000. this was partially offset by decreased tax expense of $ 1.1 million in 2017 due to tax act related adjustments . see note 7 to our consolidated financial statements for more details on tax adjustments related to the tax act . inflation and changing prices inflation and changing prices have not had a material impact on revenue or net income in the last three years . 18 liquidity and capital resources we believe that our existing sources of liquidity , including cash and cash equivalents , borrowing availability , and operating cash flows will be sufficient to meet our projected capital and debt maturity needs and dividend policy for the foreseeable future and therefore we feel that our working capital deficit has little impact on our liquidity . cash dividends in the aggregate amount of $ 19.4 million were declared in 2019 with $ 14.2 million paid in 2019 and the remaining $ 5.2 million paid in january 2020. the dividends were paid from cash on hand and $ 4.5 million in borrowings on our line of credit . as of december 31 , 2019 , our principal sources of liquidity included $ 13.5 million of cash and cash equivalents , up to $ 15 million of unused borrowings under our line of credit and up to $ 15 million on our delayed draw term note . of this cash , $ 3.9 million was held in canada . the delayed draw term note can only be used to fund permitted future business acquisitions or repurchasing our common stock . working capital we had a working capital deficit of $ 9.0 million and $ 18.7 million on december 31 , 2019 and 2018 , respectively . the change was primarily due to a decrease in dividends payable of $ 11.9 million , and an increase in other current assets of $ 1.7 million . these were partially offset by an increase in other current liabilities of $ 841,000 , an increase in current portion of notes payable of $ 711,000 , an increase of accounts payable of $ 666,000 , an increase in accrued expenses $ 574,000 , and a decrease of $ 887,000 in prepaid expenses . dividends payable decreased due to a special dividend of $ 12.4 million that was declared in 2018 and paid in january of 2019. deferred contract costs , net increased due to growth in capitalized commission and incentives directly related to new sales . other current liabilities increased due to adoption of accounting standards update ( “ asu ” ) 2016-02 , leases ( topic 842 ) ( “ topic 842 ” or the “ new leases standard ” ) and deferred income benefits from the state payroll and sales tax incentives . topic 842 requires lessees to recognize a lease liability and a right-of-use ( “ rou ” ) asset on the balance sheet for operating leases . accounts payable and accrued expenses increased and prepaid expenses decreased due to timing of payment for services and supplies . our working capital is significantly impacted by our large deferred revenue balances which will vary based on the timing and frequency of billings on annual agreements . the deferred revenue balances as of december 31 , 2019 and december 31 , 2018 , were $ 16.4 million and $ 16.2 million , respectively . the deferred revenue balance is primarily due to timing of initial billings on new and renewal contracts . we typically invoice clients for services before they have been completed . billed amounts are recorded as billings in excess of revenue earned , or deferred revenue , on our consolidated financial statements , and are recognized as income when earned . in addition , when work is performed in advance of billing , we record this work as revenue earned in excess of billings , or unbilled revenue . substantially all deferred revenue and all unbilled revenue will be earned and billed respectively , within 12 months of the respective period ends . cash flow analysis a summary of operating , investing , and financing activities are shown in the following table : replace_table_token_4_th cash flows from operating activities cash flows from operating activities consist of net income adjusted for non-cash items including depreciation and amortization , deferred income taxes , share-based compensation and related taxes , reserve for uncertain tax positions , loss on disposal of property and equipment and the effect of working capital changes .
| results of operations the following table and graphs set forth , for the periods indicated , selected financial information derived from our consolidated financial statements , including amounts expressed as a percentage of total revenue and the percentage change in such items versus the prior comparable period ( please note that all columns may not add up to 100 % due to rounding ) . the trends illustrated in the following table and graphs may not necessarily be indicative of future results . the discussion that follows the information should be read in conjunction with our consolidated financial statements . replace_table_token_3_th year ended december 31 , 2019 , compared to year ended december 31 , 2018 revenue . revenue in 2019 increased 6.9 % to $ 128.0 million , compared to $ 119.7 million in 2018 , which was driven primarily due to new customer sales , as well as increases in sales to the existing client base . our solutions within the voc platform in 2019 accounted for 62.7 % of total revenue compared to 49.6 % in 2018. the remaining revenue consists of legacy experience and governance solutions . clients with agreements for multiple solutions represented 27 % of our client base at the end of 2019 , up from 24 % at the end of 2018. direct expenses . direct expenses decreased 2.4 % to $ 46.4 million in 2019 , compared to $ 47.6 million in 2018. this was due to a decrease in variable expenses of $ 2.6 million , partially offset by an increase in fixed expenses of $ 1.4 million . variable expenses decreased mainly due to less postage , printing and paper costs due to lower volumes and changes in survey methodologies . fixed expenses increased primarily as a result of increased salary and benefit costs in the customer service and information technology areas partially offset by $ 730,000 of state payroll and sales tax incentives and lower contracted services .
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the following discussion and analysis of our financial condition and results of operations generally discusses 2019 and 2018 items and year-over-year comparisons between 2019 and 2018. a detailed discussion of 2017 items and year-over-year comparisons between 2018 and 2017 that are not included in this annual report on form 10-k can be found in “ management 's discussion and analysis of financial condition and results of operations ” in part ii , item 7 of our annual report on form 10-k for the year ended december 31 , 2018. general business fleetcor is a leading global business payment solutions company that simplifies the way businesses manage and pay their expenses . the fleetcor portfolio of brands help companies automate , secure , digitize and control payments on behalf of their employees and suppliers . we serve businesses , partners , merchants and consumer and payment networks in north america , latin america , europe , and asia pacific . fleetcor 's predecessor company was organized in the united states in 1986 , and fleetcor had its initial public offering in 2010 ( nyse : flt ) . fleetcor has two reportable segments , north america and international . we report these two segments as they reflect how we organize and manage our employees around the world , manage operating performance , contemplate the differing regulatory environments in north america versus other geographies , and help us isolate the impact of foreign exchange fluctuations on our financial results . our payment solutions provide our customers with a payment method designed to be superior to and more robust and effective than what they use currently , whether they use a competitor 's product or another alternative method such as cash or check . our solutions are comprised of payment products , networks and associated services . we group our payment solutions into five primary categories : fuel , lodging , tolls , corporate payments and gift . additionally , we provide other complementary payment products including fleet maintenance , employee benefits and long haul transportation-related services . each category is unique in its focus , customer base and target markets , but they also share a number of characteristics : customers are primarily businesses , have recurring revenue models , have specialized networks which create barriers to entry , have high ebitda margins , and have similar selling systems . our products are used in more than 100 countries around the world , with our primary geographies being the u.s. , brazil and the u.k. , which combined accounted for approximately 87 % of our revenue in 2019. fleetcor 's payment products generally function like a charge card , prepaid card , one-time use virtual card , and electronic rfid ( radio-frequency identification ) , etc . while the actual payment mechanisms vary from category to category , they are structured to afford control and reporting to the end customer . fleetcor uses both proprietary and third-party networks to deliver its payment solutions . fleetcor owns and operates proprietary networks with well-established brands throughout the world , bringing incremental sales and loyalty to affiliated merchants . third-party networks are used to broaden payment product acceptance and use . fleetcor capitalizes on its products ' specialization with sales and marketing efforts by deploying product-dedicated sales forces to target specific customer segments . we market our products directly through multiple sales channels , including field sales , telesales and digital marketing , and indirectly through our partners , which include major oil companies , leasing companies , petroleum marketers , value-added resellers ( vars ) and referral partners . we believe that our size and scale , product breadth and specialization , geographic reach , proprietary networks , robust distribution capabilities and advanced technology contribute to our industry leading position . 50 executive overview we operate in two segments , which we refer to as our north america and international segments . our revenue is generally reported net of the cost for underlying products and services purchased through our payment products . in this report , we refer to this net revenue as “ revenue '' . see “ results of operations ” for additional segment information . revenues , net , by segment . for the years ended december 31 , 2019 and 2018 , our north america and international segments generated the following revenue ( in millions ) : replace_table_token_2_th revenues , net , net income and net income per diluted share . set forth below are revenues , net , net income and net income per diluted share for the years ended december 31 , 2019 and 2018 ( in millions , except per share amounts ) . replace_table_token_3_th adjusted net income and adjusted net income per diluted share . set forth below are adjusted net income and adjusted net income per diluted share for the years ended december 31 , 2019 and 2018 ( in millions , except per share amounts ) . replace_table_token_4_th adjusted net income and adjusted net income per diluted share are supplemental non-gaap financial measures of operating performance . see the heading entitled “ management 's use of non-gaap financial measures ” for more information and a reconciliation of the non-gaap financial measure to the most directly comparable financial measure calculated in accordance with gaap . we use adjusted net income and adjusted net income per diluted share to eliminate the effect of items that we do not consider indicative of our core operating performance on a consistent basis . sources of revenue fleetcor offers a variety of business payment solutions that help to simplify , automate , secure , digitize and effectively control the way businesses manage and pay their expenses . we provide our payment solutions to our business , merchant , consumer and payment network customers in more than 100 countries around the world today , although we operate primarily in 3 geographies , with approximately 87 % of our business in the u.s. , the u.k. and brazil . story_separator_special_tag in the card programs where it is paid , merchant commissions equal the 53 difference between the price paid by us to the merchant and the merchant 's wholesale cost of the underlying products or services . the adoption of asc 606 on january 1 , 2018 , resulted in a change in the presentation of amounts previously classified as merchant commissions , resulting in these amounts being recorded within revenues , net in periods beginning in 2018. processing —our processing expense consists of expenses related to processing transactions , servicing our customers and merchants , bad debt expense and cost of goods sold related to our hardware sales in certain businesses . effective with the adoption of asc 606 on january 1 , 2018 , certain third party processing expenses are netted with consolidated revenues , where the network is considered to be our customer . selling —our selling expenses consist primarily of wages , benefits , sales commissions ( other than merchant commissions ) and related expenses for our sales , marketing and account management personnel and activities . general and administrative —our general and administrative expenses include compensation and related expenses ( including stock-based compensation ) for our executives , finance and accounting , information technology , human resources , legal and other administrative personnel . also included are facilities expenses , third-party professional services fees , travel and entertainment expenses , and other corporate-level expenses . depreciation and amortization —our depreciation expenses include depreciation of property and equipment , consisting of computer hardware and software ( including proprietary software development amortization expense ) , card-reading equipment , furniture , fixtures , vehicles and buildings and leasehold improvements related to office space . our amortization expenses include amortization of intangible assets related to customer and vendor relationships , trade names and trademarks , software and non-compete agreements . we are amortizing intangible assets related to business acquisitions and certain private label contracts associated with the purchase of accounts receivable . other operating expense , net —our other operating , net includes other operating expenses and income items that do not relate to our core operations or that occur infrequently . investment loss , net —our investment results primarily relate to impairment charges related to our investments and unrealized gains and losses related to a minority investment in a marketable security . other expense ( income ) , net —our other expense ( income ) , net includes proceeds/costs from the sale of assets , foreign currency transaction gains or losses and other miscellaneous operating costs and revenue . interest expense , net —our interest expense , net includes interest expense on our outstanding debt , interest income on our cash balances and interest on our interest rate swaps . provision for income taxes —our provision for income taxes consists primarily of corporate income taxes related to profits resulting from the sale of our products and services on a global basis . factors and trends impacting our business we believe that the following factors and trends are important in understanding our financial performance : global economic conditions —our results of operations are materially affected by conditions in the economy generally , both in north america and internationally . factors affected by the economy include our transaction volumes , the credit risk of our customers and changes in tax laws across the globe . these factors affected our businesses in both our north america and international segments . foreign currency changes —our results of operations are significantly impacted by changes in foreign currency rates ; namely , by movements of the australian dollar , brazilian real , british pound , canadian dollar , czech koruna , euro , mexican peso , new zealand dollar and russian ruble , relative to the u.s. dollar . approximately 60 % , and 61 % of our revenue in 2019 and 2018 , respectively , was derived in u.s. dollars and was not affected by foreign currency exchange rates . see “ results of operations ” for information related to foreign currency impact on our total revenue , net . fuel prices —our fleet customers use our products and services primarily in connection with the purchase of fuel . accordingly , our revenue is affected by fuel prices , which are subject to significant volatility . a change in retail fuel prices could cause a decrease or increase in our revenue from several sources , including fees paid to us based on a percentage of each customer 's total purchase . changes in the absolute price of fuel may also impact unpaid account balances and the late fees and charges based on these amounts . we believe approximately 13 % and 14 % of revenues , net were directly impacted by changes in fuel price in 2019 and 2018 , respectively . 54 fuel-price spread volatility —a portion of our revenue involves transactions where we derive revenue from fuel-price spreads , which is the difference between the price charged to a fleet customer for a transaction and the price paid to the merchant for the same transaction . in these transactions , the price paid to the merchant is based on the wholesale cost of fuel . the merchant 's wholesale cost of fuel is dependent on several factors including , among others , the factors described above affecting fuel prices . the fuel price that we charge to our customer is dependent on several factors including , among others , the fuel price paid to the merchant , posted retail fuel prices and competitive fuel prices . we experience fuel-price spread contraction when the merchant 's wholesale cost of fuel increases at a faster rate than the fuel price we charge to our customers , or the fuel price we charge to our customers decreases at a faster rate than the merchant 's wholesale cost of fuel . the inverse of these situations produces fuel-price spread expansion . we believe approximately 5 % of revenues , net were directly impacted by fuel-price spreads in each of 2019 and 2018 , respectively .
| results of operations year ended december 31 , 2019 compared to the year ended december 31 , 2018 the following table sets forth selected consolidated statement of income and selected operational data for the years ended december 31 , 2019 and 2018 ( in millions , except percentages ) * . replace_table_token_6_th * the sum of the columns and rows may not calculate due to rounding . revenues our consolidated total revenues , net increased from $ 2,433.5 million in 2018 to $ 2,648.8 million in 2019 , an increase of $ 215.4 million , or 8.8 % . the increase was primarily due to : organic growth of approximately 11 % on a constant fuel price , fuel spread margin , foreign currency and pro forma basis , driven by increases in both volume and revenue per transaction in certain of our payment programs . the impact of acquisitions completed during 2019 contributed approximately $ 40 million in additional revenue . although we can not precisely measure the impact of the macroeconomic environment , in total we believe it had a negative impact on our consolidated revenue for 2019 over 2018 of approximately $ 59 million . foreign exchange rates had an unfavorable impact on consolidated revenues of approximately $ 61 million due to unfavorable fluctuations in foreign exchange rates primarily in brazil and the u.k. and lower fuel prices of $ 4 million , partially offset by favorable fuel spread margins of approximately $ 6 million . the increases were partially offset by a net decrease to consolidated revenues of approximately $ 33 million due to the disposition of the chevron fuel portfolio during the fourth quarter of 2018 . 57 north america segment revenues . north america revenues , net increased from $ 1,571.5 million in 2018 to $ 1,708.5 million in 2019 , an increase of $ 137.1 million , or 8.7 % .
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for geographies outside the united states , we are evaluating the most efficient path to reach patients , including through potential collaborations . tazemetostat is covered by claims of u.s. and european composition of matter patents , which are expected to expire in 2032 , exclusive of any patent term or other extensions . tazemetostat has been granted fast track designation by the fda in patients with relapsed or refractory fl , with or without activating ezh2 mutations , relapsed or refractory dlbcl with ezh2 activating mutations and metastatic or locally advanced epithelioid sarcoma who have progressed on or following an anthracycline-based treatment regimen . the fda has also granted orphan drug designation to tazemetostat for the treatment of patients with fl , malignant rhabdoid tumors , or mrt , soft tissue sarcoma , or sts , and mesothelioma . the orphan drug designation for the treatment of mrt applies to ini1-negative mrt as well as smarca4-negative malignant rhabdoid tumor of ovary , or mrto . beyond tazemetostat , we are building an early pipeline to further support our leadership in epigenetics . we are developing our wholly-owned g9a candidate , ezm8266 , for the treatment of people with sickle cell disease . we have completed ind-enabling studies for this program and plan to begin clinical evaluation with a safety and dose-finding study in the second half of 2019. in november 2018 , we entered a strategic collaboration with boehringer ingelheim international gmbh , or boehringer ingelheim , focused on the research , development and commercialization of novel small molecule inhibitors , discovered by us , directed toward two previously unaddressed epigenetic targets as potential therapies for people with cancer . specifically , these targets are enzymes within the helicase and histone acetyltransferase , or hat , families that when dysregulated have been linked to the development of cancers that currently lack therapeutic options . we also have collaborations with glaxo group limited ( an affiliate of glaxosmithkline ) , or gsk , focused on the development of prmt inhibitors discovered by us , and with celgene corporation and celgene rivot ltd. , an affiliate of celgene corporation , which we collectively refer to as celgene , focused on the development of pinometostat and small molecule inhibitors directed to three hmt targets . through december 31 , 2018 , we have raised an aggregate of $ 988.2 million to fund our operations , of which $ 232.8 million was non-equity funding through our collaboration agreements , $ 679.4 million was from the sale of common stock in our public offerings and $ 76.0 million was from the sale of redeemable convertible preferred stock . as of december 31 , 2018 , we had $ 240.3 million in cash , cash equivalents and marketable securities . 81 we commenced active operations in early 2008 , and since inception , have incurred significant operating losses . as of december 31 , 2018 , our accumulated deficit totaled $ 586.7 million . as a late stage company , we expect to continue to incur significant expenses and operating losses over the next several years . our net losses may fluctuate significantly from quarter to quarter and year to year . we expect our expenses to increase in connection with our ongoing activities , including our continued execution on our clinical development and commercialization plans for tazemetostat . collaborations refer to item 1 , business -- our collaborations and note 9 , collaborations , of the notes to our consolidated financial statements in item 15 of this annual report on form 10-k for a description of the key terms of our arrangements with boehringer ingelheim , eisai , celgene and gsk , as well as the related accounting and revenue recognition considerations . results of operations for the years ended december 31 , 2018 , 2017 and 2016 collaboration revenue the following is a comparison of collaboration revenue for the years ended december 31 , 2018 , 2017 , and 2016 : replace_table_token_4_th replace_table_token_5_th our revenue consists of collaboration revenue , including amounts recognized from deferred revenue related to upfront payments for licenses or options to obtain licenses in the future , research and development services revenue earned and milestone payments earned under collaboration and license agreements with our collaboration partners . the following tables summarize our collaboration revenue , by collaboration partner , for the years ended december 31 , 2018 , 2017 , and 2016 : replace_table_token_6_th 82 replace_table_token_7_th collaboration revenue for the year ended december 31 , 2018 increased $ 11.7 million as compared to the year ended december 31 , 2017 , primarily as a result of the achievement of a $ 12.0 million milestone and a $ 8.0 million milestone under our agreement with gsk and $ 1.7 million related to the commencement of services under our agreement with boehringer ingelheim during 2018 , as compared to the achievement of a $ 10.0 million milestone with gsk in 2017. collaboration revenue for the year ended december 31 , 2017 increased $ 2.0 million as compared to the year ended december 31 , 2016 , primarily as a result of the achievement of a $ 10.0 million milestone under our agreement with gsk during 2017 as compared to the achievement of a $ 6.0 million milestone under our agreement with gsk during 2016 and the recognition of $ 1.9 million in upfront revenue under our agreement with celgene in 2016. gsk . story_separator_special_tag 84 during the year ended december 31 , 2017 total research and development expenses increased by $ 18.2 million compared to the year ended december 31 , 2016 , primarily due to increased tazemetostat manufacturing activities , tazemetostat clinical development , expansion of activities related to our drug platform and target families , and research activities related to advancing our next development candidate . the following table illustrates the components of our research and development expenses : replace_table_token_10_th replace_table_token_11_th external research and development costs include external manufacturing costs related to the acquisition of active pharmaceutical ingredient and manufacturing of clinical drug supply , ongoing clinical trial costs , discovery and preclinical research in support of the tazemetostat program and expenses associated with our companion diagnostic program . external research and development expenses for tazemetostat and related ezh2 programs decreased $ 4.7 million for the year ended december 31 , 2018 compared to the year ended december 31 , 2017. the decrease in tazemetostat related spending in the year ended december 31 , 2018 is primarily a result of a decreased clinical spending as a result of the partial clinical holds on the enrollment of new patients in the united states , france and germany , offset by an increase in tazemetostat manufacturing costs . external research and development expenses for tazemetostat and related ezh2 programs increased $ 14.3 million for the year ended december 31 , 2017 compared to the year ended december 31 , 2016. the increase in tazemetostat related spending in the year ended december 31 , 2017 is primarily a result of a significant increase in tazemetostat manufacturing and clinical trial activities in 2017 as compared to 2016. external research and development expenses for pinometostat and related dot1l programs for the year ended december 31 , 2018 decreased $ 0.8 million when compared to the year ended december 31 , 2017. there were no costs incurred related to pinometostat in 2018. the costs incurred related to pinometostat in the year ended december 31 , 2017 were primarily associated with costs attributed to the crada with the nci . external research and development expenses for pinometostat decreased by $ 1.8 million for the year ended december 31 , 2017 compared to 2016. the decline in program spending reflects our completion of the pinometostat phase 1 clinical trials during the fourth quarter of 2016 and the associated reduction in costs . the costs incurred related to pinometostat in year ended december 31 , 2016 are primarily associated with study closeout and final reporting activities on the phase 1 clinical trials , as well as costs attributed to the crada with the nci entered into in october 2016 . 85 external research and development expenses for discovery and preclinical stage product programs decreased $ 1.9 million for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 , primarily related to decreased spending for discovery research activities , offset by increased development activities related to our novel g9a program , ezm8266 , for the potential treatment of sickle cell disease . external research and development expenses for discovery and preclinical stage product programs decreased $ 1.0 million for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 , primarily related to a greater focus on more mature existing targets and reduced efforts on the discovery of new chemical matter . unallocated personnel and other expenses are comprised of compensation expenses for our full-time research and development employees and other general research and development expenses . unallocated personnel and other expenses for the year ended december 31 , 2018 increased $ 3.5 million compared to the year ended december 31 , 2017. the increase in unallocated personnel and other expenses was primarily due to growth in our internal development functions and the associated third-party costs to support tazemetostat and the anticipated submission of our first nda in the second quarter of 2019. unallocated personnel and other expenses for the year ended december 31 , 2017 increased $ 6.7 million compared to the year ended december 31 , 2016. the increase in unallocated personnel and other expenses in the year ended december 31 , 2017 was primarily due to the expansion of our development organization to support expanded tazemetostat clinical trials , chemistry , manufacturing and controls , translational medicine , data analytics and regulatory activities . costs incurred in 2016 related to the expansion of our development organization to support expanded tazemetostat clinical trials , chemistry , manufacturing and controls , translational medicine , data analytics and regulatory activities . we expect research and development expenses will remain consistent in 2019 , as we continue our clinical trial expenses for tazemetostat and focus on our most advanced discovery stage research programs . general and administrative general and administrative expenses consist primarily of salaries and related benefits , including stock-based compensation , related to our executive , finance , intellectual property , business development and support functions . other general and administrative expenses include allocated facility-related costs not otherwise included in research and development expenses , travel expenses and professional fees for auditing , tax and legal services , including intellectual property and general legal services . the following is a comparison of general and administrative expenses for the years ended december 31 , 2018 , 2017 , and 2016 : replace_table_token_12_th replace_table_token_13_th 86 for the year ended december 31 , 2018 , our general and administrative expenses increased $ 6.8 million compared to the year ended december 31 , 2017 , primarily due to an increase in medical affairs and commercial costs as a result of organizational development in preparation for commercialization of tazemetostat . for the year ended december 31 , 2017 , our general and administrative expenses increased $ 8.8 million compared to the year ended december 31 , 2016 , primarily due to an increase in consulting services as a result of rapid organizational development , including preparation for commercialization , and increased intellectual property legal fees associated with potential drug research candidates .
| financial condition and results of operations our management 's discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements included in this annual report on form 10-k , which have been prepared by us in accordance with accounting principles generally accepted in the united states , or gaap , and with regulation s-x promulgated under the securities exchange act of 1934 , as amended . this discussion and analysis should be read in conjunction with these consolidated financial statements and the notes thereto included elsewhere in this annual report on form 10-k. some of the information contained in this discussion and analysis or set forth elsewhere in this annual report on form 10-k , including information with respect to our plans and strategy for our business , includes forward-looking statements that involve risks and uncertainties . as a result of many factors , including those factors set forth in part i , item 1a . risk factors of this annual report on form 10-k , our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview we are a late-stage biopharmaceutical company that is committed to rewriting treatment for people with cancer and other serious diseases through the discovery , development , and commercialization of novel epigenetic medicines . by focusing on the genetic drivers of disease , our science seeks to match targeted medicines with the patients who need them . we are developing our lead product candidate , tazemetostat , an oral , first-in-class , selective small molecule inhibitor of the ezh2 histone methyltransferase , or hmt , for the treatment of a broad range of cancer types in multiple treatment settings , and developing our novel g9a program , ezm8266 , for the treatment of sickle cell disease , or scd .
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4. accounts receivable , net accounts receivable , net consist of the following : replace_table_token_9_th f-14 the movement of allowance for doubtful accounts is shown below : replace_table_token_10_th provision for bad debts of story_separator_special_tag you should read the following discussion in conjunction with our consolidated financial statements and related notes included in this annual report on form 10-k ( “ 2019 form 10-k ” ) . this 2019 form 10-k contains certain forward-looking statements within the meaning of the private securities litigation reform act of 1995 ( “ pslra ” ) , section 27a of the securities act of 1933 , as amended ( the “ securities act ” ) , and section 21e of the securities exchange act of 1934 , as amended ( the “ exchange act ” ) , about our expectations , beliefs , or intentions regarding our business , financial condition , results of operations , strategies , or prospects . you can identify forward-looking statements by the fact that these statements do not relate strictly to historical or current matters . rather , forward-looking statements relate to anticipated or expected events , activities , trends , or results as of the date they are made . because forward-looking statements relate to matters that have not yet occurred , these statements are inherently subject to risks and uncertainties that could cause our actual results to differ materially from any future results expressed or implied by the forward-looking statements . many factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements . these factors include those contained in part i , “ item 1a . risk factors ” of this 2019 form 10-k. we do not undertake any obligation to update forward-looking statements , except as required by law . we intend that all forward-looking statements be subject to the safe harbor provisions of pslra . these forward-looking statements are only predictions and reflect our views as of the date they are made with respect to future events and financial performance . overview red violet , inc. ( “ we , ” “ us , ” “ our , ” “ red violet , ” or the “ company ” ) , a delaware corporation , is dedicated to making the world a safer place and reducing the cost of doing business . we specialize in data fusion and analytics , providing cloud-based , mission-critical solutions to enterprises with use cases including fraud detection , risk mitigation , due diligence and marketing . through our intelligent platform , core tm , we uncover the relevance of disparate data points utilizing our analytical capabilities to provide real-time and insightful views of people , businesses , assets and their interrelationships . leveraging proprietary technology and applying machine learning and advanced analytical and decision-making capabilities , core provides compelling solutions to public and private sector organizations through intuitive , easy-to-use analytical applications . we empower clients across markets and industries to better execute all aspects of their business , from managing risk , recovering debt , identifying fraud and abuse , and ensuring legislative compliance , to identifying and acquiring customers . with a massive data repository of approximately nine petabytes of public-record , proprietary and publicly-available data , as well as self-reported consumer information and behavioral signals , we transform data into intelligence for our customers to enable better data-driven decisioning . we presently market our solutions primarily through two brands , idicore , our flagship product , and forewarn ® . idicore is a next-generation , investigative solution used to address a variety of organizational challenges including due diligence , risk mitigation , identity authentication and legislative compliance , by financial services companies , insurance companies , healthcare companies , law enforcement and government , collections , law firms , retail , telecommunication companies , corporate security and investigative firms . forewarn is an app-based solution currently tailored for the real estate industry , providing instant knowledge prior to face-to-face engagement with a consumer , helping professionals identify and mitigate risk . as of december 31 , 2019 and 2018 , idicore had 5,064 and 3,627 billable customers and forewarn had 30,577 and 11,397 users , respectively . we generate substantially all of our revenue from licensing our solutions . customers access our solutions through a hosted environment using an online interface , batch processing , api and custom integrations . we recognize revenue from licensing fees ( a ) on a transactional basis determined by the customer 's usage , ( b ) via a monthly fee or ( c ) from a combination of both . revenue pursuant to pricing contracts containing a monthly fee is recognized ratably over the contract period . pricing contracts are generally annual contracts or longer , with auto renewal . revenue from pricing contracts represented 65 % and 58 % of total revenue for the years ended december 31 , 2019 and 2018 , respectively . our go-to-market strategy leverages ( a ) an inside sales team that cultivates relationships , and ultimately closes business , with their end-user markets , ( b ) a strategic sales team that provides a more personal , face-to-face approach for major accounts within certain industries , and ( c ) distributors , resellers , and strategic partners that have a significant foothold in many of the industries that we have not historically served , as well as to further penetrate those industries that we do serve . our sales model generally begins with a free trial followed by an initial purchase on a transactional basis or minimum-committed monthly spend . as organizations derive benefits from our solutions , we are able to “ land and expand ” within larger organizations as additional use cases expand across departments , divisions and geographic locations and customers become increasingly reliant on our solutions in their daily workflow . story_separator_special_tag revenue recognition on january 1 , 2018 , the company adopted asc 606 , “ revenue from contracts with customers , ” ( “ topic 606 ” ) using the modified retrospective method applied to all contracts that were not completed contracts at the date of initial application . there was no impact on the opening accumulated deficit as of january 1 , 2018 due to the adoption of topic 606. revenue is recognized when control of goods or services is transferred to the company 's customers , in an amount that reflects the consideration the company expects to be entitled to in exchange for those goods or services . the company 's performance obligation is to provide on demand solutions to its customers by leveraging its proprietary technology and applying machine learning and advanced analytics to its massive data repository . the pricing for the customer contracts is based on usage , a monthly fee , or a combination of both . revenue is generally recognized on ( a ) a transactional basis determined by the customers ' usage , ( b ) a monthly fee or ( c ) a combination of both . revenue pursuant to transactions determined by the customers ' usage is recognized when the transaction is complete , and either party may terminate the transactional agreement at any time . revenue pursuant to contracts containing a monthly fee is recognized ratably over the contract period , which is generally 12 months , and the contract shall automatically renew for additional , successive 12-month terms unless written notice of intent not to renew is provided by one party to the other at least 30 days or 60 days prior to the expiration of the then current term . the company 's revenue is recorded net of applicable sales taxes billed to customers . available within topic 606 , the company has applied the portfolio approach practical expedient in accounting for customer revenue as one collective group , rather than individual contracts . based on the company 's historical knowledge of the contracts contained in this portfolio and the similar nature and characteristics of the customers , the company has concluded the financial statement effects are not materially different than if accounting for revenue on a contract by contract basis . revenue is recognized over a period of time since the performance obligation is delivered in a series . the company 's customers simultaneously receive and consume the benefits provided by the company 's performance as and when provided . furthermore , the company has elected the “ right to invoice ” practical expedient , available within topic 606 , as its measure of progress , since it has a right to payment from a customer in an amount that corresponds directly with the value of its performance completed-to-date . the company 's revenue arrangements do not contain significant financing components . for the years ended december 31 , 2019 and 2018 , 65 % and 58 % of total revenue was attributable to customers with pricing contracts , respectively , versus 35 % and 42 % attributable to transactional customers , respectively . pricing contracts are generally annual contracts or longer , with auto renewal . if a customer pays consideration before the company transfers services to the customer , those amounts are classified as deferred revenue . as of december 31 , 2019 and 2018 , the balance of deferred revenue was $ 128 and $ 26 , respectively , all of which is expected to be realized in the next 12 months . in relation to the deferred revenue balance as of december 31 , 2018 , $ 26 was recognized into revenue during the year ended december 31 , 2019 . 23 as of december 31 , 2019 , $ 2 , 929 of revenue is expected to be recognized in the future for performance obligations that are unsatisfied or partially unsatisfied , related to pricing contracts that have a term of more than 12 months . $ 1,820 of revenue will be recognized in 2020 , $ 1 , 106 in 2021 , and $ 3 in 2022. the actual timing of recognition may vary due to factors outside of the company 's control . the company excludes variable consideration related entirely to wholly unsatisfied performance obligations and contracts and recognizes such variable consideration based upon the right to invoice the customer . sales commissions are incurred and recorded on an ongoing basis over the term of the customer relationship . these costs are recorded in sales and marketing expenses . in addition , the company elected the practical expedient to not disclose the value of unsatisfied performance obligations for ( i ) contracts with an original expected length of one year or less and ( ii ) contracts for which the company recognizes revenue at the amount to which it has the right to invoice for services performed . allowances for doubtful accounts we maintain allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments . management determines whether an allowance needs to be provided for an amount due from a customer depending on the aging of the individual receivable balance , recent payment history , contractual terms and other qualitative factors such as status of business relationship with the customer . historically , our estimates for doubtful accounts have not differed materially from actual results . the amount of the allowance for doubtful accounts was $ 0.04 million and $ 0.1 million as of december 31 , 2019 and 2018 , respectively . income taxes we account for income taxes in accordance with asc 740 , “ income taxes , ” which requires the use of the asset and liability method of accounting for income taxes .
| full year financial results for the year ended december 31 , 2019 as compared to the year ended december 31 , 2018 : total revenue increased 86 % to $ 30.3 million . net loss was $ 11.1 million ( including share-based compensation expense of $ 9.9 million ) as compared to $ 6.9 million ( including share-based compensation expense of $ 0.7 million ) . adjusted ebitda was $ 1.9 million as compared to a negative $ 4.3 million . gross profit increased 159 % to $ 15.4 million . gross margin increased to 51 % from 36 % . adjusted gross profit increased 135 % to $ 18.0 million . adjusted gross margin increased to 60 % from 47 % . 26 use and reconciliation of non-gaap financial measures management evaluates the financial performance of our business on a variety of key indicators , including non-gaap metrics of adjusted ebitda , adjusted gross profit and adjusted gross margin . adjusted ebitda is a financial measure equal to net loss , the most directly comparable financial measure based on us gaap , excluding interest income , net , depreciation and amortization , share-based compensation expense , litigation costs , net , sales and use tax expense , insurance proceeds in relation to settled litigation , transition service income , and write-off of long-lived assets and others , as noted in the tables below . we define adjusted gross profit as revenue less cost of revenue ( exclusive of depreciation and amortization ) , and adjusted gross margin as adjusted gross profit as a percentage of revenue .
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as of december 31 , 2014 , our assets consisted of interests in 97 shopping story_separator_special_tag the following discussion should be read in conjunction with the consolidated and combined financial statements and notes thereto that are included in this annual report on form 10-k. overviewbasis of presentation wpg is an indiana corporation that was created to hold the strip center business and smaller enclosed malls of spg and its subsidiaries . on may 28 , 2014 , wpg separated from spg through the distribution of 100 % of the outstanding shares of wpg to the spg shareholders in a tax-free distribution . prior to the separation , wpg was a wholly owned subsidiary of spg . prior to or concurrent with the separation , spg engaged in certain formation transactions that were designed to consolidate the ownership of its interests in the spg businesses and distribute such interests to wpg and its operating partnership , wpg l.p. pursuant to the separation agreement , spg distributed 100 % of the common shares of wpg on a pro rata basis to spg 's shareholders as of the record date . the consolidated and combined financial statements are prepared in accordance with accounting principles generally accepted in the united states of america ( `` gaap '' ) . the consolidated balance sheet as of december 31 , 2014 includes the accounts of the company and wpg l.p. , as well as their wholly-owned subsidiaries . the consolidated and combined statements of operations include the consolidated accounts of the company and the combined accounts of spg businesses . accordingly , the results presented for the year ended december 31 , 2014 reflect the aggregate operations and changes in cash flows and equity on a carve-out basis of the spg businesses for the period from january 1 , 2014 through may 27 , 2014 and on a consolidated basis of the company subsequent to may 27 , 2014. the financial statements for the periods prior to the separation are prepared on a carve-out basis from the consolidated financial statements of spg using the historical results of operations and bases of the assets and liabilities of the transferred businesses and including allocations from spg . all intercompany transactions have been eliminated in consolidation and combination . in the opinion of management , the consolidated and combined financial statements contain all adjustments , consisting of normal recurring accruals , necessary to present fairly the financial position of the company and its results of operations and cash flows for the interim periods presented . the company believes that the disclosures made are adequate to prevent the information presented from being misleading . the combined financial statements prior to the separation include the allocation of certain assets and liabilities that have historically been held at the spg corporate level but which are specifically identifiable or allocable to spg businesses . cash and cash equivalents , short-term investments and restricted funds held by spg were not allocated to spg businesses unless the cash or investments were held by an entity that was transferred to wpg . long-term unsecured debt and short-term borrowings were not allocated to spg businesses as none of the debt recorded by spg is directly attributable to or guaranteed by spg businesses . all intra-company transactions and accounts have been eliminated . the total net effect of the settlement of these intercompany transactions is reflected in the consolidated and combined statements of cash flow as a financing activity and in the consolidated and combined balance sheets as spg equity in spg businesses for periods prior to the separation . the combined historical financial statements prior to the separation do not necessarily include all of the expenses that would have been incurred had we been operating as a separate , stand-alone entity and may not necessarily reflect our results of operations , financial position and cash flows had we been a stand-alone company during the periods presented prior to the separation . our combined historical financial statements include charges related to certain spg corporate functions , including senior management , property management , legal , leasing , development , marketing , human resources , finance , public reporting , tax and information technology . these expenses have been charged based on direct usage or benefit where identifiable , with the remainder charged on a pro rata basis of revenues , headcount , square footage , number of transactions or other measures . we consider the expense allocation methodology and results to 51 be reasonable for all periods presented . however , the charges may not be indicative of the actual expenses that would have been incurred had wpg operated as an independent , publicly-traded company for the periods presented prior to the separation . wpg now incurs additional costs associated with being an independent , publicly traded company , primarily from newly established or expanded corporate functions . we believe that cash flow from operations will be sufficient to fund these additional corporate expenses . prior to the separation , wpg entered into agreements with spg under which spg provides various services to us , including accounting , asset management , development , human resources , information technology , leasing , legal , marketing , public reporting and tax . the charges for the services are based on an hourly or per transaction fee arrangement and pass-through of out-of-pocket costs . in connection with the separation , we incurred $ 38.9 million of expenses , including investment banking , legal , accounting , tax and other professional fees , which are included in spin-off costs for the year ended december 31 , 2014 in the consolidated and combined statements of operations . at the time of the separation , our assets consisted of interests in 98 shopping centers . story_separator_special_tag additionally , the company incurred $ 3.9 million of bridge loan commitment and structuring fees , which are included in deferred costs and other assets as of december 31 , 2014 in the consolidated and combined balance sheets . the company incurred $ 3.7 million of bridge loan commitment and funding fees in 2015 in connection with the funding of the bridge loan . accordingly , the company will record $ 7.6 million of loan cost amortization in 2015. additional transaction costs totaling approximately $ 18.6 million were incurred in 2015 in connection with the closing of the merger . see item 3 , `` legal proceedings '' for a discussion of merger-related litigation . overview we derive our revenues primarily from retail tenant leases , including fixed minimum rent leases , percentage rent leases based on tenants ' sales volumes and reimbursements from tenants for certain expenses . we seek to re-lease our spaces at higher rents and increase our occupancy rates , and to enhance the performance of our properties and increase our revenues by , among other things , adding anchors or big-boxes , re-developing or renovating existing properties to increase the leasable square footage , and increasing the productivity of occupied locations through aesthetic upgrades , re-merchandising and or changes to the retail use of the space . in addition , we believe that there are opportunities for us to acquire additional shopping centers that match our investment criteria . 53 we invest in real estate properties to maximize total financial return which includes both operating cash flows and capital appreciation . we seek growth in earnings , funds from operations , or ffo , and cash flows by enhancing the profitability and operation of our properties and investments . we consider ffo , noi , and comparable property noi ( noi for properties owned and operating in both periods under comparison ) to be key measures of operating performance that are not specifically defined by accounting principles generally accepted in the united states , or gaap . we use these measures internally to evaluate the operating performance of our portfolio and provide a basis for comparison with other real estate companies . reconciliations of these measures to the most comparable gaap measure are included elsewhere in this report . portfolio data the portfolio data discussed in this overview includes key operating statistics including ending occupancy and average base minimum rent per square foot . core business fundamentals in the overall portfolio during 2014 generally improved compared to 2013. ending occupancy for the shopping centers held steady at 92.7 % as of december 31 , 2014 , as compared to 92.8 % as of december 31 , 2013. average base minimum rent per square foot remained stable across the portfolio as the shopping centers saw an increase of 1.6 % . our share of portfolio noi grew by 5.3 % in 2014 as compared to 2013. comparable property noi increased 1.6 % for the portfolio , net of the approximate 165 basis point impact of increased costs associated with the harsh winter weather conditions in the first quarter of 2014. the following table sets forth key operating statistics for the combined portfolio of properties or interests in properties : replace_table_token_16_th ( 1 ) percentages may not recalculate due to rounding . percentage and basis point changes are representative of the change from the comparable prior period . ending occupancy levels and average base minimum rent per square foot . ending occupancy is the percentage of gross leasable area , or gla , which is leased as of the last day of the reporting period . we include all company owned space except for mall anchors , mall majors , office space , mall freestanding and mall outlots in the calculation of ending occupancy . strip center gla included in the calculation relates to all company owned space . average base minimum rent per square foot is the average base minimum rent charge in effect for the reporting period for all tenants that would qualify to be included in ending occupancy . current leasing activities during the year ended december 31 , 2014 , we signed 225 new leases and 582 renewal leases with a fixed minimum rent ( excluding mall anchors and majors , new development , redevelopment , expansion , downsizing , and relocation ) across the portfolio , comprising approximately 2.3 million square feet , essentially all of which related to consolidated properties . during the year ended december 31 , 2013 , we signed 263 new leases and 404 renewal leases , comprising approximately 1.9 million square feet of which 1.7 million square feet related to consolidated properties . the average annual initial base minimum rent 54 for new leases was $ 21.25 psf in 2014 and $ 19.41 psf in 2013 with an average tenant allowance on new leases of $ 31.18 psf and $ 21.06 psf , respectively . critical accounting policies the preparation of financial statements in conformity with gaap requires management to use judgment in the application of accounting policies , including making estimates and assumptions . we base our estimates on historical experience and on various other assumptions believed to be reasonable under the circumstances . these judgments affect the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods . if our judgment or interpretation of the facts and circumstances relating to various transactions had been different , it is possible that different accounting policies would have been applied resulting in a different presentation of our financial statements . from time to time , we reevaluate our estimates and assumptions . in the event estimates or assumptions prove to be different from actual results , adjustments are made in subsequent periods to reflect more current information .
| results of operations the following activities related to redevelopments affected our results in the comparative periods : during the second quarter of 2014 , we commenced redevelopment activities at jefferson valley mall , a 556,000 square foot shopping center located in the new york city area . during the third quarter of 2013 , we opened university town plaza , a 580,000 square foot shopping center located in pensacola , florida , after completion of the redevelopment . the following acquisitions and dispositions affected our results in the comparative periods : on december 1 , 2014 , we acquired our partner 's 50 percent interest in whitehall mall , a 613,000 square foot shopping center located in whitehall , pennsylvania . the property was previously accounted for under the equity method , but is now consolidated as it is wholly owned post-acquisition . on july 17 , 2014 , we sold highland lakes center , a wholly owned shopping center in orlando , florida . on june 23 , 2014 , we sold new castle plaza , a wholly owned shopping center in new castle , indiana . on june 20 , 2014 , we acquired our partner 's 50 percent interest in clay terrace , a 577,000 square foot lifestyle center located in carmel , indiana . the property was previously accounted for under the equity method , but is now consolidated as it is wholly owned post acquisition . on june 18 , 2014 , we acquired our partner 's interest in a portfolio of seven open-air shopping centers , consisting of four centers located in florida , and one each in indiana , connecticut and virginia . the properties were previously accounted for under the equity method , but are now consolidated as four properties are wholly owned and three properties are approximately 88.2 percent owned post acquisition .
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see note 5 , impairment of goodwill and intangible assets. during the third quarter of 2009 , based on continued deterioration in the california real estate market , the company recorded $ 3.3 million in impairment charges to fully write-off an investment in a real estate venture in california . the company initially invested in the venture in 2004 by contributing property and other assets that had been part of one of its former manufacturing sites . during the fourth quarter of 2008 , the following charges were recognized : charges of $ 2.7 million were recorded in the fourth quarter of 2008 related to five of the company 's minority held investments due to deteriorating economic conditions . the company recorded a $ 0.8 million impairment of an intangible asset in the commercial segment that was identified during the annual impairment testing process . an asset classified as held for sale was determined to be impaired and a $ 0.2 million impairment charge was recognized . the company recorded restructuring charges comprised of asset impairment charges of $ story_separator_special_tag overview we are a leading global provider of medical technology products that enable healthcare providers to improve patient outcomes , reduce infections and enhance patient and provider safety . we primarily develop , manufacture and supply single-use medical devices used by hospitals and healthcare providers for common diagnostic and therapeutic procedures in critical care and surgical applications . we serve hospitals and healthcare providers in more than 130 countries and are not dependent upon any one end-market or procedure . we are focused on achieving consistent , sustainable and profitable growth through : the introduction of new products and product line extensions ; expanding our geographic reach ; leveraging our existing distribution channels ; further investment in global sales and marketing ; and select acquisitions which enhance or expedite our development initiatives and our ability to increase our market share . furthermore , we believe our research and development capabilities and our commitment to engineering excellence and lean , low-cost manufacturing allow us to consistently bring cost effective , innovative products to market that improve the safety , efficacy , and quality of healthcare . we provide a broad-based platform of medical products , which we categorize into four groups : critical care , surgical care , cardiac care and oem and development services . we have employed a disciplined portfolio management strategy to transform teleflex into primarily a medical technology company . we expect to continue to increase the relative composition of our medical segment through a combination of portfolio management and organic growth initiatives . we may seek acquisition opportunities that augment our existing medical technology platform and disposition opportunities that enable us to further our transformation into a pure-play medical technology company . furthermore , our commitment to becoming a pure-play global medical technology company involves investing in our medical research and development and sales and marketing initiatives to further expand and strengthen our portfolio of products as well as our ability to penetrate existing and new geographic and therapeutic markets . while we are committed to becoming a pure-play medical technology company , we continue to have businesses that serve other non-medical niche segments of the aerospace and commercial markets with specialty engineered products . we expect to strategically divest our non-core aerospace and commercial segments over time . our aerospace products include cargo-handling systems , containers , and pallets for commercial air cargo . our commercial products include driver controls , engine assemblies and drive parts for the marine industry . 35 our leading brands include : segment brands medical critical care arrow , gibeck , hudsonrci , rüsch , sheridan and vasonova medical surgical care deknatel , pleur-evac , pilling , taut and weck medical cardiac care arrow medical oem and development services beere medical , kmedic , specialized medical devices , deknatel and tfxoem aerospace telair international and nordisk commercial teleflex marine , tfxtreme , seastar , baystar and sierra over the past several years , we significantly changed the composition of our portfolio through acquisitions , principally in our medical segment , and divestitures in both our aerospace and commercial segments . these portfolio actions resulted in a significant expansion of our medical segment operations and a significant reduction in our aerospace and commercial segment operations . as a result , our medical segment now accounts for approximately 80 % of our revenues from continuing operations and over 85 % of our segment operating profit . below is a listing of our more significant acquisitions and divestitures that have occurred since 2007. the results for the acquired businesses are included in their respective segments . see note 18 to our consolidated financial statements included in this annual report on form 10-k filed for additional information regarding our significant divestitures . medical segment january 2011 acquired vasonova inc. , a privately-held company with proprietary intra-vascular catheter navigation technology , to complement the critical care division for an upfront payment of $ 25 million with additional payments of between $ 15 million and $ 30 million to be made based on the achievement of certain regulatory and revenue targets over the next three years . march 2010 sold ssi surgical services inc. business ( ssi ) , a surgical service provider , to a privately-owned healthcare company for approximately $ 25 million and realized a gain of $ 2.2 million , net of tax . october 2007 acquired arrow international , inc. , a leading global supplier of catheter-based medical technology products used for vascular access and cardiac care , for approximately $ 2.1 billion . april 2007 acquired substantially all of the assets of hdj company , inc. , providers of engineering and manufacturing services to medical device manufacturers , for approximately $ 25 million . story_separator_special_tag elective surgeries have been delayed and hospital budgets have been reduced . in certain countries ( mainly germany ) we have seen changes in the local reimbursement to home care patients and pricing impacts on business awarded through the tendering process . these markets have introduced more buying groups and gpo 's driving commodity product pricing downwards . it is possible that funding for publically funded healthcare institutions could be affected in the future as governments make further spending adjustments and enact healthcare reform measures to lower overall healthcare costs . during 2010 , the public healthcare systems in certain countries in western europe , most notably greece , spain , portugal and italy , have experienced reduced liquidity due to recessionary conditions , which has resulted in a slow down in payments to us . we believe this situation will continue unless and until these countries are able to find alternative funding sources to their respective public healthcare sectors . in 2010 , sales into the public hospital systems in these countries were approximately 4 % of our total sales . in asia , recovery from the global recession varies by country . china has announced plans for major healthcare investment targeted at second tier cities/hospitals , which may provide future growth opportunities for us , while slow economic growth and continued pursuit of reimbursement cuts by the public hospital sector in japan will limit growth in that market . aerospace sudden and significant increases in fuel costs in mid-2008 resulted in reductions in capacity for passenger and cargo traffic , and accelerated retirement of older , less fuel efficient aircraft . however , 2009 operating results improved somewhat as the sharp drop in fuel costs toward the end of 2008 partially offset the recession related drop in revenues for both passenger and cargo traffic due to the economic crisis in 2009. the lower traffic reduced demand and made it more difficult to sell cargo containment equipment , but new aircraft production and weight and greenhouse gas reduction objectives have created some opportunities in these markets . in 2010 , conditions in the commercial aviation markets improved , and we believe we are well positioned on certain new airbus and boeing airframes , and we expect deliveries of cargo handling systems to continue at previously expected levels overall , albeit over a slightly longer time horizon than what we initially anticipated . commercial the markets served by our commercial segment are largely affected by the general state of the economy and by consumer confidence . factors such as housing starts , home values , fuel costs , environmental and other regulatory matters all affect the market outlook for the businesses in this segment . very high fuel prices in 2008 began a trend of declining demand in the recreational marine market and the global recession that followed caused this trend to continue in 2009 in spite of moderating fuel costs . in 2010 , although the recreational boating market recovered somewhat 38 from its depressed levels of 2009 , we expect that growth will be limited in our commercial segment until there is more robust global economic growth , the pace of consumer deleveraging slows down and consumer confidence improves . results of operations discussion of growth from acquisitions reflects the impact of a purchased company for up to twelve months beyond the date of acquisition . activity beyond the initial twelve months is considered core growth . core growth excludes the impact of translating the results of international subsidiaries at different currency exchange rates from year to year and the comparable activity of divested companies within the most recent twelve-month period . the following comparisons exclude the impact of the operations of the actuation , heavy lift , ssi , ati and power systems businesses which have been presented in our consolidated financial results as discontinued operations ( see note 18 to our consolidated financial statements included in this annual report on form 10-k and discontinued operations in this management 's discussion and analysis of financial condition and results of operations for discussion of discontinued operations ) . revenues replace_table_token_11_th net revenues increased approximately 2 % to $ 1.80 billion in 2010 from $ 1.77 billion in 2009. core growth was 3 % , which was partially offset by the 1 % decline in revenue attributed to the disposition of a product line in the commercial segment during the first quarter of 2009 and the deconsolidation of a variable interest entity in our medical segment in the first quarter of 2010 due to the adoption of new accounting guidance . core revenues were 7 % higher in the aerospace segment due to improving conditions in commercial aviation markets , and 16 % higher in the commercial segment as recreational boating markets recover from the depressed levels of 2009. core revenues in the medical segment were 1 % higher than 2009 as the negative impact of a voluntary recall of a product in our critical care product group and lower sales of orthopedic devices sold to medical original equipment manufacturers , or oems , was more than offset by higher sales of other critical care and surgical products . net revenues decreased approximately 8 % to $ 1.77 billion in 2009 from $ 1.91 billion in 2008. a reduction in core revenues caused 5 % of the decline while foreign currency movements caused the other 3 % of the decline .
| segment review replace_table_token_19_th the percentage increases or ( decreases ) in revenues during the years ended december 31 , 2010 and 2009 compared to the respective prior years were due to the following factors : replace_table_token_20_th ( a ) dispositions includes the impact of a deconsolidation of a variable interest entity in the medical segment in the first quarter of 2010 as a result of the adoption of new accounting guidance . see note 2 to our consolidated financial statements included in this annual report on form 10-k for information on the new accounting guidance . the following is a discussion of our segment operating results . additional information regarding our segments , including a reconciliation of segment operating profit to income from continuing operations before interest , extinguishments of debt , taxes and minority interest , is presented in note 17 to our consolidated financial statements included in this annual report on form 10-k. medical comparison of 2010 and 2009 medical segment net revenues for 2010 of $ 1,433.3 million were essentially unchanged from the $ 1,434.9 million reported in the same period last year , as core growth of 1 % was offset by the impact of the deconsolidation of a variable interest entity ( 1 % ) . the increase in core revenue was predominantly in the european and asia/latin american critical care product groups and oem specialty sutures and other devices , offset by declines in oem orthopedic implant products and in north american surgical products 43 net revenues for 2010 , 2009 and 2008 by product group for the medical segment are comprised of the following : replace_table_token_21_th ( a ) other in 2009 and 2008 included the net revenues of a variable interest entity that was deconsolidated in the first quarter of 2010 as a result of the adoption of new accounting guidance .
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the impact of the convertible debt is excluded from the computation of diluted earnings per share when interest expense per common share obtainable upon conversion is greater than basic earnings per share . comprehensive ( loss ) income : components of comprehensive ( story_separator_special_tag management 's discussion and analysis of financial condition and results of operations ( md & a ) is designed to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition , results of operations , liquidity and certain other factors that may affect our future results . business description regis corporation owns , franchises and operates beauty salons . as of june 30 , 2015 , the company owned , franchised or held ownership interests in 9,556 locations worldwide . the company 's locations consist of 9,349 company-owned and franchised salons and 207 locations in which we maintain a non-controlling ownership interest of less than 100 % . each of the company 's salon concepts generally offer similar salon products and services and serve the mass market . see discussion within part i , item 1. results of operations beginning with the period ended september 30 , 2012 , the hair restoration centers reportable segment was accounted for as a discontinued operation . see note 2 to the consolidated financial statements . all comparable periods reflect hair restoration centers as a discontinued operation . explanations are primarily for north american value , unless otherwise noted . discontinued operations are discussed at the end of this section . beginning in fiscal year 2014 , costs associated with certain field leaders , excluding salons within the north american premium segment , that were previously recorded within general and administrative expense are now categorized within cost of service and site operating expense as a result of the field reorganization that took place in the fourth quarter of fiscal year 2013. previously , these field leaders did not work on the salon floor daily . as reorganized , these field leaders now spend most of their time on the salon floor leading and mentoring stylists , and serving guests . as a result , district and senior district leader labor costs are now reported within cost of service rather than general and administrative expenses , and their travel costs are reported within site operating expenses rather than general and administrative expenses . 22 beginning in the second quarter of fiscal year 2014 , the company redefined its operating segments to reflect how the chief operating decision maker evaluates the business subsequent to the restructuring of its north american field organization that took place in the fourth quarter of fiscal year 2013 and was completed during the second quarter of fiscal year 2014. see notes 1 and 14 to the consolidated financial statements . prior year amounts for fiscal years 2014 , 2013 and 2012 have been revised . the following is a summary of the impact of revisions on ( loss ) income from continuing operations for fiscal years 2014 and 2013. see note 1 to the consolidated financial statements for further details regarding these revisions : replace_table_token_11_th _ ( 1 ) the company recognizes rental expense on a straight-line basis at the time the leased space becomes available to the company . during the fourth quarter of fiscal year 2015 , the company determined its deferred rent balance was understated by $ 5.3 million . accordingly , the consolidated financial statements have been revised to correctly state its deferred rent balances and rent expense . the revisions resulted in an increase in net loss from continuing operations of $ 0.2 million for fiscal year 2014 and a decrease in net income from continuing operations of $ 0.5 million for fiscal year 2013 . accrued expenses and other noncurrent liabilities increased $ 1.0 and $ 4.2 million , respectively , at june 30 , 2014 and retained earnings at june 30 , 2014 decreased $ 5.2 million as a result of the cumulative adjustment for prior periods . this revision had no impact on cash provided by operations or net increase ( decrease ) in cash and cash equivalents for any year . ( 2 ) also in the fourth quarter of fiscal year 2015 , the company revised certain prior year amounts in the consolidated balance sheet and statement of operations to correctly recognize understatements of self-insurance accruals , interest expense , uncertain tax positions and cash and overstatements of inventory . the impact of these revisions resulted in an increase in net loss from continuing operations of $ 0.8 million for fiscal year 2014 and an increase in net income from continuing operations of $ 2.2 million for fiscal year 2013. accrued expenses and other noncurrent liabilities increased $ 0.8 and $ 0.8 million , respectively , at june 30 , 2014 and retained earnings at june 30 , 2014 decreased by $ 1.6 million as a result of the cumulative adjustment for prior periods . in addition , cash and cash equivalents at june 30 , 2013 increased by $ 0.6 million due to the revisions . 23 story_separator_special_tag franchised locations . total franchised locations open at june 30 , 2014 and 2013 were 2,179 and 2,082 , respectively . the $ 1.8 million increase in royalties and fees was due to increased franchised locations during fiscal year 2014 and same-store sales increases at franchised locations . total franchised locations open at june 30 , 2013 and 2012 were 2,082 and 2,016 , respectively . the $ 0.8 million increase in royalties and fees was due to increased franchised locations during fiscal year 2013 and same-store sales increases at franchised locations . story_separator_special_tag these items were partly offset by cost savings and reduced legal and professional fees . the change in basis points during fiscal year 2015 was also negatively impacted by negative leverage as a result of a decline in same-store sales . g & a declined $ 53.9 million , or 210 basis points as a percent of consolidated revenues , during fiscal year 2014. this improvement was primarily due to the change in expense categorization as a result of the field reorganization . the change in expense categorization accounted for $ 29.6 million of the decrease for fiscal year 2014. the remaining decrease of $ 24.3 million during fiscal year 2015 was primarily due to reduced levels of incentive compensation in our north american value and unallocated corporate segments , cost savings from various initiatives and the field reorganization , reduced health insurance costs and a favorable deferred compensation adjustment within our unallocated corporate segment , partly offset by legal and professional fees . g & a declined $ 22.9 million , or 60 basis points as a percent of consolidated revenues , during fiscal year 2013. this improvement was primarily due to reductions in salaries and benefits from our corporate reorganization executed in the prior year , certain cost savings initiatives in fiscal year 2013 and reduced levels of incentive pay in fiscal year 2013 , partly offset by costs associated with rolling out our new pos system . rent rent expense decreased by $ 13.1 million , or 20 basis points as a percent of consolidated revenues , during fiscal year 2015 primarily due to salon closures , mainly within our north american value and premium segments . the change in basis points during fiscal year 2015 was also impacted by negative leverage associated with this fixed cost category . rent expense decreased by $ 2.9 million during fiscal year 2014 primarily due to salon closures , mainly within our north american value and premium segments . the 90 basis point increase in rent expense as a percent of consolidated revenues during fiscal year 2014 was primarily due to negative leverage associated with this fixed asset category . rent expense decreased by $ 6.2 million during fiscal year 2013 primarily due to salon closures , mainly within our north american value and premium segments . the 50 basis point increase during fiscal year 2013 was primarily due to negative leverage associated with this fixed cost category . depreciation and amortization depreciation and amortization expense ( d & a ) decreased $ 16.9 million , or 80 basis points as a percent of consolidated revenues , during fiscal year 2015 . this decrease was primarily driven by lower depreciation expense on a reduced salon base and reduced fixed asset impairment charges . d & a increased $ 8.0 million , or 80 basis points as a percent of consolidated revenues during fiscal year 2014. this increase was primarily due to increased fixed asset impairment charges recorded in our north american premium and value segments , partly offset by declines in depreciation expense on a reduced salon base . d & a decreased $ 13.2 million , or 40 basis points as a percent of consolidated revenues during fiscal year 2013. this decrease was primarily due to our lapping $ 16.2 million of accelerated amortization associated with the adjustment to the 28 useful life of the company 's previously internally developed pos system . partly offsetting the 40 basis point improvement was $ 1.9 million ( $ 1.2 million net of tax or $ 0.02 per diluted share ) of accelerated depreciation expense in fiscal year 2013 associated with exiting a leased building in conjunction with consolidating the company 's headquarters . goodwill impairment the company did not record a goodwill impairment charge in fiscal year 2015 and 2013. the company recorded a goodwill impairment charge of $ 34.9 million related to the regis salon concept during fiscal year 2014 . the company redefined its operating segments during the second quarter of fiscal year 2014 . in addition , overall performance trends were down . for these reasons , the company was required to perform this goodwill assessment in the second quarter of fiscal year 2014. as a result of this non-cash charge , the company has no further goodwill on its balance sheet associated with the regis salon concept ( north american premium ) . the company remains focused on improving the performance of this business as it stabilizes and turns around the business . see notes 1 and 4 to the consolidated financial statements . interest expense interest expense decreased by $ 12.1 million , or 60 basis points as a percent of consolidated revenues during fiscal year 2015 primarily due the settlement of the $ 172.5 million convertible senior notes in july 2014 , partly offset by interest on the $ 120.0 million senior term notes issued in november 2013. interest expense decreased by $ 14.7 million , or 60 basis points as a percent of consolidated revenues during fiscal year 2014 primarily due to a $ 10.6 million make-whole payment associated with the prepayment of private placement debt in june 2013 and decreased average outstanding debt and related interest rates compared to the prior year . interest expense increased by $ 8.7 million , or 50 basis points as a percent of consolidated revenues during fiscal year 2013 primarily due to a $ 10.6 million make-whole payment associated with the prepayment of private placement debt in june 2013 , partly offset by decreased debt levels as compared to fiscal year 2012. interest income and other , net interest income and other , net was flat during fiscal year 2015 compared to the prior year period .
| consolidated results of operations the following table sets forth , for the periods indicated , certain information derived from our consolidated statement of operations . the percentages are computed as a percent of total revenues , except as otherwise indicated . replace_table_token_12_th ( 1 ) computed as a percent of service revenues and excludes depreciation and amortization expense . ( 2 ) computed as a percent of product revenues and excludes depreciation and amortization expense . ( 3 ) computed as a percent of ( loss ) income from continuing operations before income taxes and equity in loss of affiliated companies . the income tax ( provision ) benefit basis point change is noted as not applicable ( n/a ) as the discussion below is related to the effective income tax rate . 24 consolidated revenues consolidated revenues primarily include revenues of company-owned salons , product and equipment sales to franchisees and franchise royalties and fees . the following tables summarize revenues and same-store sales by concept , as well as the reasons for the percentage change : replace_table_token_13_th _ ( 1 ) same-store sales are calculated on a daily basis as the total change in sales for company-owned locations which were open on a specific day of the week during the current period and the corresponding prior period . quarterly and fiscal year same-store sales are the sum of the same-store sales computed on a daily basis . locations relocated within a one mile radius are included in same-store sales as they are considered to have been open in the prior period . international same-store sales are calculated in local currencies to remove foreign currency fluctuations from the calculation .
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management 's discussion and analysis is provided as a supplement to , and should be read in conjunction with , our consolidated financial statements and the accompanying notes to the consolidated financial statements . forward-looking statements this annual report on form 10-k contains forward-looking statements within the meaning of the private securities litigation reform act of 1995 that involve risks , uncertainties and assumptions that , if they never materialize or if they prove incorrect , could cause our consolidated results to differ materially from those expressed or implied by such forward-looking statements . these forward-looking statements include predictions regarding : our future revenue , cost of revenue , research and development expenses , selling , general and administrative expenses , amortization of intangible assets and gross margin ; our strategy relating to our core markets ; the potential of future product releases ; our product development plans and investments in research and development ; 20 future acquisitions , and anticipated benefits from acquisitions ; international operations and localized versions of our products ; and legal proceedings and litigation matters . you can identify these and other forward-looking statements by the use of words such as may , will , should , expects , plans , anticipates , believes , estimates , predicts , intends , potential , continue or the negative of such terms , or other comparable terminology . forward-looking statements also include the assumptions underlying or relating to any of the foregoing statements . our actual results could differ materially from those anticipated in these forward-looking statements for many reasons , including the risks described in item 1a risk factors and elsewhere in this annual report on form 10-k. you should not place undue reliance on these forward-looking statements , which speak only as of the date of this annual report on form 10-k. we undertake no obligation to publicly release any revisions to the forward-looking statements or reflect events or circumstances after the date of this document . overview nuance communications , inc. is a leading provider of voice and language solutions for businesses and consumers around the world . our technologies , applications and services make the user experience more compelling by transforming the way people interact with devices and systems . our solutions are used every day by millions of people and thousands of businesses for tasks and services such as requesting information from a phone-based self-service solution , dictating medical records , searching the mobile web by voice , entering a destination into a navigation system , or working with pdf documents . our solutions help make these interactions , tasks and experiences more productive , compelling and efficient . our technologies address our four core markets : healthcare . we provide comprehensive dictation and transcription solutions and services that automate the input and management of medical information . our hosted and on-premise solutions provide platforms to generate and distribute clinical documentation through the use of advanced dictation and transcription features , and allow us to deliver scalable , highly productive medical transcription solutions . our solutions also enable us to accelerate future innovation to transform the way healthcare providers document patient care , through improved interface with electronic medical records and extraction of clinical information to support the billing and insurance reimbursement processes . we also offer speech recognition solutions for radiology , cardiology , pathology and related specialties , that help healthcare providers dictate , edit and sign reports without manual transcription . mobile and consumer . our portfolio of mobile and consumer solutions and services includes an integrated suite of voice control and text-to-speech solutions , dictation applications , predictive text technologies , mobile messaging services and emerging services such as dictation , web search and voicemail-to-text . our suite of dragon general purpose desktop and portable computer dictation applications increases productivity by using speech to create documents , streamline repetitive and complex tasks , input data , complete forms and automate manual transcription processes . in particular , we have focused in recent quarters on integrating our dragon technology and brand initiatives across mobile and consumer markets . enterprise . we deliver a portfolio of customer service business intelligence and authentication solutions that are designed to help companies better support , understand and communicate with their customers . our hosted and on-premise solutions include the use of technologies such as speech recognition , natural language understanding , text-to-speech , biometric voice recognition and analytics to automate caller identification and authorization , call steering , completion of tasks such as updates , purchases and information retrieval , and automated outbound notifications . in addition , we offer solutions that can meet customer care needs through direct interaction with thin-client applications on cell phones , enabling customers to very quickly retrieve relevant information . our solutions improve the customer experience , increase the use of self-service and enable new revenue opportunities . 21 imaging . our imaging solutions offer comprehensive pdf applications designed specifically for business users , optical character recognition technology to deliver highly accurate document and pdf conversion , and applications that combine pdf creation with network scanning to quickly enable distribution of documents to users ' desktops or to enterprise applications , as well as software development toolkits for independent software vendors . we leverage our global professional services organization and our extensive network of partners to design and deploy innovative solutions for businesses and organizations around the globe . we market and sell our products directly through a dedicated sales force and through our e-commerce website , and also through a global network of resellers , including system integrators , independent software vendors , value-added resellers , hardware vendors , telecommunications carriers and distributors . confronted by dramatic increases in electronic information , consumers , business personnel and healthcare professionals must use a variety of resources to retrieve information , transcribe patient records , conduct transactions and perform other job-related functions . story_separator_special_tag the annualized line run-rate is determined by the number of lines actually billed in a given quarter , multiplied by four . mobile and consumer revenue increased $ 28.5 million primarily due to contributions from our connected mobile services . additionally , enterprise professional and hosting revenue decreased $ 9.4 million . our backlog hours in enterprise professional services were 328,000 hours as of september 30 , 2010 , compared to 248,000 hours as of september 30 , 2009. enterprise professional services backlog hours reflect the accumulated estimated hours necessary to fulfill all of our existing , executed professional services contracts within the enterprise business , including those that are cancelable by customers , based on the original estimate of hours sold . as a percentage of total revenue , professional services and hosting revenue decreased 1.9 percentage points as compared to the corresponding period in the prior year , primarily due to the strong growth in the product and licensing revenue relative to professional services and hosting revenue . fiscal 2009 compared to fiscal 2008 the increase in professional services and hosting revenue for fiscal 2009 , as compared to fiscal 2008 , consisted of a $ 62.2 million increase in healthcare revenue primarily as a result of our acquisition of escription as well as organic growth of our on-demand solutions . additionally , enterprise revenue increased $ 41.4 million primarily due to contributions from our acquisition of snapin , and growth in our hosted , on-demand solutions . the organic growth together with the acquired revenue streams outpaced the relative growth of our other revenue types , resulting in an 8.1 percentage point increase in professional services and hosting revenue as a percentage of total revenue . maintenance and support revenue maintenance and support revenue primarily consists of technical support and maintenance services . the following table shows maintenance and support revenue , in dollars and as a percentage of total revenue ( dollars in millions ) : replace_table_token_7_th fiscal 2010 compared to fiscal 2009 the increase in maintenance and support revenue for fiscal 2010 , as compared to fiscal 2009 , consisted primarily of a $ 6.5 million increase in enterprise revenue , driven by continued organic growth , a $ 5.6 million increase in healthcare revenue as a result of the expansion of our current installed base and a $ 2.3 million increase in imaging revenue primarily due to contributions from growth in sales of our core imaging products and our acquisition of x-solutions . fiscal 2009 compared to fiscal 2008 the increase in maintenance and support revenue for fiscal 2009 , as compared to fiscal 2008 , consisted primarily of a $ 7.7 million increase related to the expansion of our current installed base of healthcare solutions , and a $ 4.2 million increase in enterprise and a $ 4.0 million increase in mobile and consumer maintenance and support revenue , driven by organic growth . 26 costs and expenses cost of product and licensing revenue cost of product and licensing revenue primarily consists of material and fulfillment costs , manufacturing and operations costs and third-party royalty expenses . the following table shows cost of product and licensing revenue , in dollars and as a percentage of product and licensing revenue ( dollars in millions ) : replace_table_token_8_th fiscal 2010 compared to fiscal 2009 the increase in cost of product and licensing revenue for fiscal 2010 , as compared to fiscal 2009 , was primarily due to a $ 3.1 million increase in mobile and consumer costs related to our predictive text , automotive solutions and our fourth quarter launch of dragon naturally speaking 11 , as well a $ 4.6 million increase in healthcare costs related to increased sales of dragon medical and increased costs in our transcription business . the cost of product and licensing revenue also increased as a result of a $ 2.3 million increase in imaging costs related to our ecopy acquisition and a $ 2.4 million increase in enterprise costs . gross margin relative to our product and licensing revenue remained relatively constant during the period . fiscal 2009 compared to fiscal 2008 the decrease in cost of product and licensing revenue for fiscal 2009 , as compared to fiscal 2008 , was primarily due to a $ 4.6 million decrease in healthcare costs , a $ 2.7 million decrease in imaging costs due to a decline in windows-based software sales , and a $ 1.6 million decrease in mobile and consumer costs as a result of a general decline in consumer spending and a decline in sales of our automotive solutions . the cost of product and licensing revenue decreased as a percentage of revenue due to a change in the revenue mix towards products with higher margins . cost of professional services and hosting revenue cost of professional services and hosting revenue primarily consists of compensation for consulting personnel , outside consultants and overhead , as well as the hardware and communications fees that support our hosted , on-demand solutions . the following table shows cost of professional services and hosting revenue , in dollars and as a percentage of professional services and hosting revenue ( dollars in millions ) : replace_table_token_9_th fiscal 2010 compared to fiscal 2009 the increase in cost of professional services and hosting revenue for fiscal 2010 , as compared to fiscal 2009 , was primarily due to a $ 35.9 million increase in mobile and consumer costs driven by growth in our connected mobile services , a $ 1.5 million increase in healthcare and a $ 1.4 million increase in imaging costs driven by our ecopy acquisition . these increases are partially offset by a $ 12.8 million decrease in enterprise costs . gross margin 27 relative to our professional services and hosting revenue increased 1.3 percentage points primarily due to growth in our higher margin healthcare on-demand business and improved professional services utilization rates .
| results of operations the following table presents , as a percentage of total revenue , certain selected financial data for fiscal 2010 , 2009 and 2008 ( as adjusted for the retrospective application of fasb asc 470-20 in 2009 and 2008 ) . replace_table_token_3_th 23 total revenues the following tables show total revenues from our four core market groups and revenue by geographic location , based on the location of our customers , in dollars and percentage change ( dollars in millions ) : replace_table_token_4_th fiscal 2010 compared to fiscal 2009 the increase in total revenue for fiscal 2010 , as compared to fiscal 2009 , was driven by a combination of organic growth and contributions from acquisitions . the healthcare revenue increase is primarily made up of organic growth in sales of our dragon medical products , on-demand solutions as well as speechmagic solutions . mobile and consumer revenue increased primarily driven by the growth in sales of our predictive text solutions , automotive solutions , connected mobile services and our fourth quarter launch of dragon naturally speaking 11. enterprise revenue decreased as the trend toward customer preference for on-demand solutions continues which impacts the timing of revenue recognition . imaging revenue increased primarily as a result of contributions from our acquisitions of ecopy , inc. and x-solutions group b.v. and growth in our core imaging solutions . based on the location of our customers , the geographic split for fiscal 2010 was 72 % of total revenue in the united states and 28 % internationally , as compared to 74 % of total revenue in the united states and 26 % internationally for the same period last year .
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if the derivative is a hedge , depending on the nature of the story_separator_special_tag overview the following management 's discussion and analysis ( “ md & a ” ) is intended to assist in an understanding of our financial condition and results of operations . this md & a is provided as a supplement to , should be read in conjunction with , and is qualified in its entirety by reference to , our consolidated financial statements and accompanying notes appearing elsewhere in this report . except for the historical information contained herein , the discussions in this md & a contain forward-looking statements that involve risks and uncertainties . our future results could differ materially from those discussed herein . factors that could cause or contribute to such differences include , but are not limited to , those discussed below in this md & a under “ forward-looking statements and factors that may affect future results. ” the following is a list of the sections of this md & a , together with our perspective on their contents , which we hope will assist in reading these pages : business considerations — a general description of our business ; the value drivers of our business ; fiscal 2018 results of operations and liquidity and capital resources key indicators ; and industry-wide opportunities , challenges and risks that are relevant to us in defense , government and commercial markets . operations review — an analysis of our consolidated results of operations and of the results in each of our business segments , to the extent the segment operating results are helpful to an understanding of our business as a whole , for the three years presented in our financial statements . liquidity , capital resources and financial strategies — an analysis of cash flows , funding of pension plans , common stock repurchases , dividends , capital structure and resources , contractual obligations , off-balance sheet arrangements , commercial commitments , financial risk management , impact of foreign exchange and impact of inflation . critical accounting policies and estimates — a discussion of accounting policies and estimates that require the most judgment and a discussion of accounting pronouncements that have been issued but not yet implemented by us and their potential impact on our financial condition , results of operations and cash flows . forward-looking statements and factors that may affect future results — cautionary information about forward-looking statements and a description of certain risks and uncertainties that could cause our actual results to differ materially from our historical results or our current expectations or projections . business considerations general we generate revenue , income and cash flows by developing , manufacturing or providing , and selling advanced , technology-based solutions that solve government and commercial customers ' mission-critical challenges . we support government and commercial customers in more than 100 countries , with our largest customers being various departments and agencies of the u.s. government and their prime contractors . our products , systems and services have defense and civil government applications , as well as commercial applications . as of the end of fiscal 2018 , we had approximately 17,500 employees , including approximately 7,900 engineers and scientists . we generally sell directly to our customers , and we utilize agents and intermediaries to sell and market some products and services , especially in international markets . we structure our operations primarily around the products , systems and services we sell and the markets we serve , and we report the financial results of our continuing operations in the following three reportable segments , which are also referred to as our business segments : communication systems , serving markets in tactical communications and defense products , including tactical ground and airborne radio communications solutions and night vision technology , and in public safety networks ; electronic systems , providing electronic warfare , avionics , and c4isr solutions for defense and classified customers and mission-critical communication systems for civil and military aviation and other customers ; and space and intelligence systems , providing intelligence , space protection , geospatial , complete earth observation , universe exploration , pnt , and environmental solutions for national security , defense , civil and commercial customers , using advanced sensors , antennas and payloads , as well as ground processing and information analytics . as described above and in more detail in note 1 : significant accounting policies under “ principles of consolidation ” and in note 3 : discontinued operations and divestitures in the notes , we completed the divestiture of caprock in the third quarter of fiscal 2017 and the divestiture of it services in the fourth quarter of fiscal 2017. caprock and it services were part of our former critical networks segment and are reported as discontinued operations in this report . our historical financial results 31 have been restated for all periods presented in this report to account for businesses reported as discontinued operations in this report . except for disclosures related to our cash flows , or unless otherwise specified , disclosures in this report relate solely to our continuing operations . in connection with entering into the definitive agreement to sell it services , our other remaining operations that had been part of our former critical networks segment , including our atm business and our pmrf program , were integrated with our electronic systems segment effective for the third quarter of fiscal 2017 , and our critical networks segment was eliminated . the historical results , discussion and presentation of our business segments as set forth in this report reflect the impact of these changes for all periods presented in order to present all segment information on a comparable basis . there is no impact on our previously reported consolidated statements of income , balance sheets or statements of cash flows resulting from these segment changes . story_separator_special_tag however , we remain subject to the spending levels , pace and priorities of the u.s. government as well as international governments and commercial customers , and to general economic conditions that could adversely affect us , our customers and our suppliers . we also remain subject to other risks associated with these markets , including technological uncertainties , adoption of our new products and other risks that are discussed below in this report under “ forward-looking statements and factors that may affect future results ” and in “ item 1a . risk factors ” of this report . 34 operations review consolidated results of operations replace_table_token_5_th _ * not meaningful revenue fiscal 2018 compared with fiscal 2017 : the increase in revenue in fiscal 2018 compared with fiscal 2017 was primarily due to higher dod tactical radio sales in our communication systems segment , reflecting readiness and modernization demand from the u.s. army and u.s. air force , and higher avionics and electronic warfare revenue from long-term avionics platforms , including the f-35 , f/a-18 and f-16 , and higher revenue from c4isr ( including wireless solutions ) in our electronic systems segment . fiscal 2017 compared with fiscal 2016 : the decrease in revenue in fiscal 2017 compared with fiscal 2016 was primarily due to lower tactical communications revenue in our communication systems segment and lower revenue due to the impact of the divestiture of our aerostructures business in the fourth quarter of fiscal 2016 , which contributed $ 60 million of revenue in fiscal 2016 in our electronic systems segment , and the impact of certain environmental and commercial space programs in our space and intelligence systems segment transitioning from a build-out to a sustainment phase , partially offset by higher revenue from the ramp up of the united arab emirates bms-elts integrated battle management system program and from electronic warfare in our electronic systems segment and by $ 36 million of higher revenue from classified customers in our space and intelligence systems segment . see the “ discussion of business segment results of operations ” discussion below in this md & a for further information . 35 gross margin fiscal 2018 compared with fiscal 2017 : gross margin increased in fiscal 2018 compared with fiscal 2017 primarily due to higher revenue , partially offset by a 1 percentage point decrease in gross margin as a percentage of revenue ( “ gross margin percentage ” ) . the decrease in gross margin percentage in fiscal 2018 compared with fiscal 2017 reflected a less favorable mix of program revenue and product sales and an unfavorable impact from the ads-b program , including a favorable contract settlement in the second quarter of fiscal 2017 and the program transition from build-out to sustainment , partially offset by productivity savings and incremental pension income . fiscal 2017 compared with fiscal 2016 : gross margin increased in fiscal 2017 compared with fiscal 2016 primarily due to a 1 percentage point increase in gross margin percentage reflecting cost containment , integration-related synergy savings and higher pension income , partially offset by lower margins from the ads-b program as it transitioned from build-out to sustainment in the third and fourth quarters of fiscal 2017 and the margin impact of lower revenue in our communication systems segment . see the “ discussion of business segment results of operations ” discussion below in this md & a for further information . engineering , selling and administrative expenses fiscal 2018 compared with fiscal 2017 : the increase in engineering , selling and administrative ( “ esa ” ) expenses in fiscal 2018 compared with fiscal 2017 was primarily due to $ 47 million of charges related to our decision to transition and exit a commercial air-to-ground lte radio communications line of business and other items , higher employment and distribution costs and a $ 12 million non-cash adjustment for deferred compensation , partially offset by a $ 53 million reduction in exelis acquisition-related and other charges in fiscal 2018 compared with fiscal 2017. the decrease in esa expenses as a percentage of revenue ( “ esa percentage ” ) in fiscal 2018 compared with fiscal 2017 was primarily due to cost containment . overall company-sponsored r & d costs were $ 311 million in fiscal 2018 compared with $ 310 million in fiscal 2017 . fiscal 2017 compared with fiscal 2016 : the decrease in esa expenses in fiscal 2017 compared with fiscal 2016 was primarily due to cost containment , integration-related synergy savings and a $ 63 million reduction in integration and other costs associated with our acquisition of exelis in the fourth quarter of 2015 , partially offset by the benefit in fiscal 2016 of $ 101 million net liability reduction for certain post-employment benefit plans recorded during the second quarter of fiscal 2016. esa percentage in fiscal 2017 was comparable with fiscal 2016. overall company-sponsored r & d costs were $ 310 million in fiscal 2017 compared with $ 305 million in fiscal 2016 . see the “ discussion of business segment results of operations ” discussion below in this md & a for further information . operating income fiscal 2018 compared with fiscal 2017 : the increase in operating income and comparability of operating income as a percentage of total revenue ( “ operating margin percentage ” ) in fiscal 2018 compared with fiscal 2017 were primarily due to the combined effects of the reasons noted above in this “ consolidated results of operations ” discussion regarding fiscal 2018 and 2017 . fiscal 2017 compared with fiscal 2016 : the increase in operating income and comparability of operating margin percentage in fiscal 2017 compared with fiscal 2016 were primarily due to the combined effects of the reasons noted above in this “ consolidated results of operations ” discussion regarding fiscal 2017 and 2016 .
| results of operations key indicators : revenue , income from continuing operations , income from continuing operations per diluted common share and income from continuing operations as a percentage of revenue represent key measurements of our value drivers : revenue increased 5 percent to $ 6.2 billion in fiscal 2018 from $ 5.9 billion in fiscal 2017 ; income from continuing operations increased 13 percent to $ 721 million in fiscal 2018 from $ 638 million in fiscal 2017 ; income from continuing operations as a percentage of revenue increased to 12 percent in fiscal 2018 from 11 percent in fiscal 2017 ; and income from continuing operations per diluted common share increased 16 percent to $ 5.94 in fiscal 2018 from $ 5.12 in fiscal 2017 , reflecting both the increase in income from continuing operations as noted above and fewer diluted common shares outstanding due to repurchases of shares of common stock under our repurchase program during fiscal 2018 . refer to md & a heading “ operations review ” below in this report for more information . liquidity and capital resources key indicators : net cash provided by operating activities , return on invested capital , return on average equity , our consolidated total indebtedness to total capital ratio and our net unfunded defined benefit plans liability also represent key measurements of our value drivers : net cash provided by operating activities increased to $ 751 million in fiscal 2018 from $ 569 million in fiscal 2017 ; return on invested capital ( defined as after-tax operating income from continuing operations divided by the two-point average of invested capital at the beginning and end of the fiscal year , where invested capital equals equity plus debt , less cash and cash equivalents ) increased to 13 percent in fiscal 2018 from 11 percent in fiscal 2017 ; return on average equity ( defined as income from continuing operations divided by the two-point
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1 to registration statement on form s-1 filed june 7 , 2013 ( file no . 333-188183 ) and incorporated herein by reference ) 3.4 amendment to articles of story_separator_special_tag the following discussion and analysis 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. overview we operate as two reportable business segments : good times burgers and frozen custard restaurants ( “ good times ” ) and bad daddy 's burger bar restaurants ( “ bad daddy 's ” ) . all of our good times restaurants compete in the quick service drive-through dining industry while our bad daddy 's restaurants compete in the full-service upscale casual dining industry . we believe that providing this additional financial information for each of our brands will provide a better understanding of our overall operating results . refer to note 9 , segment reporting , in the notes to our consolidated financial statements for more information . the company 's fiscal year ends on the last tuesday of september each year . most of our fiscal years have 52 weeks , however we experience a 53 rd week every five or six years . our discussion for fiscal years 2017 and 2016 , which ended on september 26 , 2017 and september 27 , 2016 covers a period of 52 full calendar weeks in fiscal 2017. we transitioned to this 52-week calendar during fiscal 2016 causing that year to have three fewer days than the current year . the following tables present information about our reportable segments for the respective periods , all dollar values are represented in thousands : replace_table_token_5_th ( 1 ) includes direct and allocated corporate general & administrative costs . restaurant operating costs are expressed as a percentage of restaurant sales 24 additional sales data related to bad daddy 's company-owned and joint-venture restaurants : replace_table_token_6_th good times restaurants : we currently operate twenty-eight company-owned and joint venture good times restaurants all in the state of colorado . in addition , we have ten good times franchise restaurants , eight operating in colorado and two in wyoming . our outlook for fiscal 2018 for good times is cautiously optimistic based on the last seven years of positive sales trends ; however , our sales trends are influenced by many factors . we anticipate an approximate 2.5 % to 3.5 % price increase during fiscal 2018 at our good times restaurants . we are continuing to manage our marketing communications to balance growth in customer traffic and the average customer expenditure . bad daddy 's restaurants : we currently operate 24 company-owned and joint venture bad daddy 's restaurants including two restaurants opened subsequent to the fiscal year-end—twelve in colorado and eleven in north carolina and one in oklahoma . we also license one restaurant in north carolina and have a franchise restaurant in south carolina . we expect to open seven additional bad daddy 's restaurants during fiscal 2018. we anticipate an approximate 2 % to 3 % price increase during fiscal 2018 at our bad daddy 's restaurants . results of operations for fiscal 2017 compared to fiscal 2016 net revenues : net revenues for fiscal 2017 increased $ 14,641,000 ( +22.7 % ) to $ 79,080,000 from $ 64,439,000 for fiscal 2016. bad daddy 's concept revenues increased $ 12,845,000 while our good times concept revenues increased $ 1,796,000. good times restaurant sales increased $ 1,828,000 to $ 30,689,000 in fiscal 2017 from $ 28,861,000 in fiscal 2016. same store restaurant sales increased 2.1 % during fiscal 2017 compared to fiscal 2016. restaurants are included in same store sales after they have been open a full fifteen months . restaurant sales increased from the prior year due to the same store sales increase and the opening of one new restaurant in march 2017. the average menu price increase in fiscal 2017 over fiscal 2016 was approximately 3.5 % . franchise revenues decreased $ 32,000 in fiscal 2017 primarily due to a decrease in restaurant sales at the franchise locations . average good times restaurant sales for company-operated restaurants open the entire fiscal year for fiscal 2016 and 2017 were as follows : fiscal 2017 fiscal 2016 company-operated $ 1,095,000 $ 1,088,000 during fiscal 2017 , company-operated good times restaurants ' sales for restaurants that had been open a full fifteen months ranged from a low of $ 631,000 to a high of $ 1,939,000. bad daddy 's restaurant sales increased $ 12,854,000 to $ 47,706,000 in fiscal 2017 from $ 34,855,000 in fiscal 2016 , primarily attributable to the six new restaurants opened in fiscal 2017 and a full year of operations for restaurants opened in the prior fiscal year . bad daddy 's same store restaurant sales increased 1.6 % during fiscal 2017 compared to fiscal 2016. excluding the cherry creek location which continues to be severely impacted by construction in the surrounding area , bad daddy 's same store sales increased 2.2 % for the fiscal year . bad daddy 's restaurants are included in same store sales after they have been open a full eighteen months . the average menu price increase was 1.25 % in 2017 over 2016. there were fourteen restaurants included in the same store sales base at the end of the fiscal year . additionally , net revenues were reduced by $ 6,000 of lower franchise royalties and license fees compared to fiscal 2016. food and packaging costs : for fiscal 2017 , food and packaging costs increased $ 4,664,000 from $ 20,236,000 ( 31.8 % of restaurant sales ) in fiscal 2016 to $ 24,900,000 ( 31.8 % of restaurant sales ) . story_separator_special_tag for fiscal 2017 , depreciation and amortization costs increased $ 675,000 from $ 2,222,000 in fiscal 2016 to $ 2,897,000 in fiscal 2017. good times depreciation costs increased $ 91,000 from $ 746,000 in fiscal 2016 to $ 837,000 in fiscal 2017 , primarily due to the one new restaurant opened in fiscal 2017 and expenditures for equipment in existing restaurants . bad daddy 's depreciation costs increased $ 584,000 from $ 1,476,000 in fiscal 2016 to $ 2,060,000 in fiscal 2017 , the increase was primarily attributable to the six new restaurants opened in fiscal 2017 and a full year of operations for restaurants opened in the prior fiscal year . story_separator_special_tag text-align : left '' > ebitda is defined as net income ( loss ) before interest , income taxes and depreciation and amortization . adjusted ebitda is defined as ebitda , adjusted for non-cash stock based compensation expense , preopening expense , non-recurring acquisition costs , u.s. generally accepted accounting principles ( “ gaap ” ) rent in excess of cash rent , non-cash disposal of assets and non-cash asset impairment charges . adjusted ebitda is intended as a supplemental measure of our performance that is not required by , or presented in accordance with gaap . we believe that ebitda and adjusted ebitda provide useful information to management and investors regarding certain financial and business trends relating to our financial condition and operating results . our management uses ebitda and adjusted ebitda ( i ) as a factor in evaluating management 's performance when determining incentive compensation and ( ii ) to evaluate the effectiveness of our business strategies . we believe that the use of ebitda and adjusted ebitda provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing the company 's financial measures with other restaurants , which may present similar non-gaap financial measures to investors . in addition , you should be aware when evaluating ebitda and adjusted ebitda that in the future we may incur expenses similar to those excluded when calculating these measures . our presentation of these measures should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items . our computation of adjusted ebitda may not be comparable to other similarly titled measures computed by other companies , because all companies do not calculate adjusted ebitda in the same fashion . our management does not consider ebitda or adjusted ebitda in isolation or as an alternative to financial measures determined in accordance with gaap . the principal limitation of ebitda and adjusted ebitda is that they exclude significant expenses and income that are required by gaap to be recorded in the company 's financial statements . some of these limitations are : · adjusted ebitda does not reflect our cash expenditures , or future requirements , for capital expenditures or contractual commitments ; · adjusted ebitda does not reflect changes in , or cash requirements for , our working capital needs ; · adjusted ebitda does not reflect the interest expense , or the cash requirements necessary to service interest or principal payments , on our debts ; · although depreciation and amortization are non-cash charges , the assets being depreciated and amortized will often have to be replaced in the future , and adjusted ebitda does not reflect any cash requirements for such replacements ; · stock based compensation expense is and will remain a key element of our overall long-term incentive compensation package , although we exclude it as an expense when evaluating our ongoing performance for a particular period ; · adjusted ebitda does not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of our ongoing operations ; and · other companies in our industry may calculate adjusted ebitda differently than we do , limiting its usefulness as a comparative measure . because of these limitations , adjusted ebitda should not be considered in isolation or as a substitute for performance measures calculated in accordance with gaap . we compensate for these limitations by relying primarily on our gaap results and using adjusted ebitda only as a supplementary measure . you should review the reconciliation of net loss to ebitda and adjusted ebitda below and not rely on any single financial measure to evaluate our business . 28 the following table reconciles net loss to ebitda and adjusted ebitda ( in thousands ) : replace_table_token_7_th ( a ) depreciation , amortization and preopening expenses are presented net of the share attributable to the non-controlling interest . ( 1 ) represents expenses directly associated with the opening of new restaurants , including preopening rent . ( 2 ) represents non-cash stock based compensation as described in note 10 to the financial statements . ( 3 ) represents the prepayment penalty and write off of unamortized loan fees associated with the retirement of the bridge funding credit facility . ( 4 ) represents the excess of gaap rent recorded in the financial statements over the amount of cash rent incurred . ( 5 ) primarily related to a deferred gain on a previous sale-leaseback transaction on a good times restaurant . liquidity and capital resources cash and working capital : as of september 27 , 2017 , we had a working capital deficit of $ 850,000. our working capital position benefits from the fact that we generally collect cash from sales to customers the same day , or in the case of credit or debit card transactions , within a few days of the related sale , and we typically have two to four weeks to pay our vendors . this benefit may increase when new bad daddy 's and good times restaurants are opened .
| general and administrative costs : general and administrative costs include all corporate and administrative functions . components of this category include corporate , regional and franchise support salaries and benefits ; professional and consulting fees ; travel ; corporate information systems ; training ; board of directors ' expenses ; office rent ; and legal expenses . for fiscal 2017 , general and administrative costs increased $ 714,000 from $ 6,288,000 ( 9.8 % of total revenues ) in fiscal 2016 to $ 7,002,000 ( 8.9 % of total revenue ) . the $ 714,000 increase in general and administrative expenses in fiscal 2017 is primarily attributable to : · increase in payroll and employee benefit costs of $ 382,000 · increase in payroll processing fees of $ 112,000 · net increases in all other expenses of $ 220,000 we expect general and administrative costs to continue to increase as we build up our infrastructure to support the growth of both of our brands but are expected to decrease as a percent of revenue as new restaurants are opened . advertising costs : for fiscal 2017 , advertising costs increased $ 154,000 from $ 1,540,000 ( 2.4 % of restaurant sales ) in fiscal 2016 to $ 1,694,000 ( 2.1 % of restaurant sales ) . good times advertising costs decreased $ 12,000 from $ 1,283,000 ( 4.4 % of restaurant sales ) in fiscal 2016 to $ 1,271,000 ( 4.2 % of restaurant sales ) in fiscal 2017. good times advertising costs consists primarily of contributions made to the advertising materials fund and a regional advertising cooperative based on a percentage of restaurant sales . we anticipate that in fiscal 2017 good times advertising costs will remain consistent with fiscal 2017 as a percentage of restaurant sales and will consist primarily of cable television advertising , social media and on-site and point-of-purchase merchandising .
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the offer letter agreement provides that mr. sawyer will be offered story_separator_special_tag the following discussion of the financial condition and results of operations should be read in conjunction with the financial statements and the related notes included elsewhere in this report . this discussion contains forward-looking statements , which are based on assumptions about the future of the company 's business . the actual results could differ materially from those contained in the forward-looking statements . please read “ forward-looking statements ” included elsewhere in this report for additional information regarding forward-looking statements . overview we are a healthcare company focused on improving breast health through the development of a suite of laboratory services , medical devices and therapeutics . our laboratory services are being developed and conducted by our wholly-owned subsidiary , the national reference laboratory for breast health , inc. ( the “ nrlbh ” ) . the nrlbh has developed and is currently marketing nipple aspirate fluid , or naf , cytology tests and pharmacogenomics tests . our medical devices include the forecyte breast aspirator for distribution outside the united states and the fullcyte breast aspirator for the u.s. market . these devices are intended for the collection of naf for cytological testing at a laboratory . the current version of the forecyte breast aspirator is not cleared by the fda for marketing in the united states ; however , this device is ce-marked and is therefore being commercialized in the eu and the countries of the european free trade association ( efta ) . the fullcyte breast aspirator does not have a ce-mark , but it has been cleared by the fda for the collection of naf for cytological purposes . for this reason the fullcyte device is being commercialized for the u.s. market . other devices under development include intraductal microcatheters for the collection of ductal lavage fluid and for the potential administration of a targeted therapeutic , and various tools for potential use by breast surgeons . in march 2015 , we launched the fullcyte breast aspirator in the united states and the forecyte breast aspirator in the eu and the countries of the efta , initially focusing on the netherlands , germany , switzerland , and the united kingdom . the forecyte breast aspirator will not be launched in the united states unless and until we receive additional regulatory clearance from the fda . we plan to develop certain of our medical devices and laboratory tests so that they can be used as companions to pharmaceutical therapies that we plan to develop . for example , we plan to develop our patented intraductal microcatheters for the potential delivery of a pharmaceutical targeted to a condition called ductal carcinoma in-situ , or dcis , which is the most common type of non-invasive breast cancer . we also plan to develop our medical devices and laboratory tests as companion diagnostics to pharmaceutical therapies to treat women at high risk of breast cancer and for the treatment of ductal hyperplasia or proliferative epithelial disease ( ped ) . these programs are in the early pre-clinical stage and will require testing and are likely to require approval and or clearance from the fda prior to commercialization in the united states . our 2015 objectives consist of the following : ( 1 ) launch and commercialize the fullcyte breast aspirator in the united states : we began the launch of our fullcyte breast aspirator in the united states in march 2015. we have engaged thermo fisher scientific and henry schein medical as our initial u.s. distributors and we plan to build our own specialty sales force . ( 2 ) launch and commercialize the forecyte breast aspirator in the eu : we received ce certificate of conformity from our notified body for the forecyte breast aspirator and collection kits in october 2014 and in march 2015 began the launch of this device in the eu and the countries of the european free trade association ( efta ) , focusing initially on the netherlands , germany , switzerland , and the united kingdom . ( 3 ) maximize total gross revenue from our products and services : we plan to grow our revenue by selling our products and promoting the tests currently being offered by the nrlbh , including naf cytology tests and pharmacogenomics tests , and by developing and commercializing additional laboratory tests . we launched the pharmacogenomics test in october 2014 and processed and reported 527 tests through december 31 , 2014 . ( 4 ) begin one or more clinical studies using our devices and potential pharmaceutical therapy : we plan to develop a pharmaceutical to be delivered through our patented microcatheters , initially to treat dcis . we also plan to develop a pharmaceutical to treat one or more conditions detected by the laboratory tests conducted on the naf specimens collected with our breast aspirator devices . in this fashion , our devices and laboratory tests can be used as companion diagnostics to the therapies we plan to develop . we expect that these therapies and companion diagnostics will initially target dcis , ductal hyperplasia , ped and or high risk women and will require lengthy and costly clinical trials that we will undertake only with input and direction from the fda . many of our medical devices and the nrlbh 's laboratory services , as well as the breast health companion diagnostic systems , are currently under development and , if required by fda , we must receive additional regulatory clearances and or approvals prior to marketing and commercialization . our medical devices our medical devices being commercialized and under development include our breast aspirators , intraductal microcatheters and various tools for breast surgeons . story_separator_special_tag 53 revenue sources our business provides us with two potential revenue sources : ( i ) sales-based revenue from the sale of our medical devices , such as our forecyte breast aspirator and fullcyte breast aspirator and patient kits to distributors , physicians , breast health clinics , and mammography clinics and ( ii ) service , or use-based , revenue from laboratory services performed by the nrlbh , such as preparation and interpretation of the naf samples sent to our laboratory for analysis , pharmacogenomics tests and other tests that may be developed and commercialized by the nrlbh . our main source of revenue beginning in october 2014 has been from pharmacogenomics testing and we anticipate generating additional revenue from other resources when we develop and launch new laboratory tests and or when we further commercialize the fullcyte breast aspirator in the united states and the forecyte breast aspirator outside the united states . we plan to initially sell the breast aspirators and our laboratory services through regional and national specialty product distributors , with independent sales representatives specializing in women 's health , and through our own direct sale force . commercial lease agreements on march 4 , 2011 , we entered into a commercial lease agreement with sanders properties , llc for office space located in seattle , wa . the lease terminated on march 31 , 2014 and provided for monthly rent of $ 1,100 and a security deposit of $ 1,500. on march 20 , 2014 , the company entered into a new agreement with sanders properties which extends the terms of the lease through march 31 , 2015 with a monthly rent of $ 1,150. on december 9 , 2011 , we entered into another commercial lease agreement with fred hutchinson research center for lab and office space located in seattle , wa . the lease provides for monthly rent of $ 16,395 for the period from february 24 , 2012 to august 31 , 2012 , $ 19,923 for the period from september 1 , 2012 to august 31 , 2013 , and $ 20,548 for the period from september 1 , 2013 to november 29 , 2014. the security deposit of $ 32,789 was paid in march 2012 and recorded as security deposit on the consolidated balance sheet . in july 2013 , we entered into an agreement with are llc ( alexandria ) to lease additional office spaces under a separate lease agreement . the lease was from august 2013 through november 2014 , and the gross rent was $ 4,800 per month . on march 24 , 2014 , we entered into another commercial lease agreement with are llc ( alexandria ) which extends the term of the existing lab lease with fred hutchison research center which expires in november 2014 through november 30 , 2016. the lease provided for monthly rent payments of $ 22,736 from december 2014 through november 2015 and $ 23,258 from december 2015 through november 2016. as of december 31 , 2014 we incurred and recorded a security deposit of $ 25,000. for the year ended december 31 , 2014 , we incurred $ 340,938 of rent expenses for the lease , which included leasing office management expenses and the new agreement with are llc . on august 8 , 2014 , we entered into a new commercial lease agreement with the legacy group inc. , to lease office space in seattle , wa in conjunction with expiration of the current office space lease with fred hutchinson research center on november 29 , 2014. the lease provides for monthly rent payments of $ 16,695 from december 1 , 2014 through june 30 , 2015 , $ 17,172 from july 1 , 2015 through june 30 , 2016 and $ 17,649 from july 1 , 2016 through june 30 , 2017. for the year ended december 31 , 2014 , we incurred $ 17,248 of rent expense for the lease . we expect that these laboratory and office facilities will be sufficient to meet our needs for the foreseeable future and we do not expect to need additional space for at least the next 18 months . critical accounting policies and estimates our management 's discussion and analysis of our financial condition and results of operations is based on our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states , or gaap . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities and expenses . on an ongoing basis , we evaluate these estimates and judgments , 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 . while our significant accounting policies are more fully described in note 3 to our financial statements , we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our reported financial results and affect the more significant judgments and estimates that we use in the preparation of our financial statements . 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 and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period . accordingly , actual results could differ from those estimates .
| results of operations comparison of years ended december 31 , 2014 and 2013 revenue and cost of revenue : for the year ended december 31 , 2014 , we had total net revenue of $ 525,954 , consisting of mainly pharmacogenomics testing . this represents a decrease of $ 106,604 , or 17 % , from the total revenue of $ 632,558 from our forecyte device and laboratory testing in the year ended december 31 , 2013. we ceased generating any revenue from october 2013 through october 2014 due to our product recall . substantially all of our revenue for the year ended december 31 , 2014 was recognized during the fourth quarter of 2014 when we launched the new pharmacogenomics testing in our laboratory . in march 2015 , we began the launch of the fullcyte breast aspirator in the u.s. and the forecyte breast aspirator in the eu , focusing initially on the netherlands , germany , switzerland , and the united kingdom . total cost of revenue for the year ended december 31 , 2014 was $ 340,658 and consisted of costs relating to pharmacogenomics testing services ; compared to $ 345,519 for the year ended december 2013 , consisting of $ 105,764 in forecyte laboratory costs and $ 239,755 in forecyte product costs . 2013 cost of revenue also includes $ 149,946 in loss on reduction of inventory to lower of cost market and obsolete inventory due to the recall of masct systems . gross profit for the year ended december 31 , 2014 was $ 185,296 which was entirely attributable to pharmacogenomics testing , as compared to a gross profit of $ 137,093 for the year ended december 31 , 2013 , consisting of $ 303,354 for the naf cytology testing offset by $ 166,261 loss for the product sales of masct .
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· `` financial condition - liquidity and capital resources '' provides an analysis of the registrants ' liquidity positions and credit profiles . this section also includes a discussion of forecasted sources and uses of cash and rating agency actions . · `` financial condition - risk management '' provides an explanation of the registrants ' risk management programs relating to market and credit risk . · `` application of critical accounting policies '' provides an overview of the accounting policies that are particularly important to the results of operations and financial condition of the registrants and that require their management to make significant estimates , assumptions and other judgments of inherently uncertain matters . overview for a description of the registrants and their businesses , see `` item 1 . business . '' business strategy ( all registrants except ppl energy supply ) the strategy for the regulated businesses of wpd , ppl electric , lke , lg & e and ku is to provide efficient , reliable and safe operations and strong customer service , maintain constructive regulatory relationships and achieve timely recovery of costs . these regulated businesses also focus on providing competitively priced energy to customers and achieving stable , long-term growth in earnings and rate base , or rav , as applicable . both rate base and rav are expected to grow for the foreseeable future as a result of significant capital expenditure programs to maintain existing assets and to improve system reliability and , for lke , lg & e and ku , to comply with federal and state environmental regulations related to coal-fired electricity generation facilities . future rav for wpd will also be affected by riio-ed1 , effective april 1 , 2015 , as the recovery period for assets placed in service after that date will be extended from 20 to 45 years , with a transitional arrangement that will gradually change the life over the price control period that will result in an average life of 35 years for rav additions during riio-ed1 . the rav balance at march 31 , 2015 will continue to be recovered over 20 years . in addition , incentive targets have been adjusted in riio-ed1 , resulting in lower overall incentive revenues available to be earned . see `` financial 42 and operational developments - other financial and operational developments - riio-ed1 - fast tracking '' below for additional information . for the u. s. regulated businesses , recovery of capital project costs is attained through various rate-making mechanisms , including periodic base rate case proceedings , ferc formula rate mechanisms , and other regulatory agency-approved recovery mechanisms . in kentucky , the kpsc has adopted a series of regulatory mechanisms ( ecr , dsm , glt , fuel adjustment clause , gas supply clause and recovery on certain construction work-in-progress ) that reduce regulatory lag and provide for timely recovery of and a return on , as appropriate , prudently incurred costs . in pennsylvania , the ferc transmission formula rate , dsic mechanism and other recovery mechanisms are in place to reduce regulatory lag and provide for timely recovery of and a return on , as appropriate , prudently incurred costs . for the u.k. regulated businesses , during the rate review period applicable for the eight year period beginning april 1 , 2015 , 80 % of network related expenditures are added to the rav and , together with adjustments for inflation and a return on the rav , recovered through allowed revenue over 35 years ( 45 years for additions after april 1 , 2023 ) ; rav is intended to represent expenditures that have a long-term benefit to wpd ( similar to capital projects for the u.s. regulated businesses ) with other expenditures being recovered in the current year . the rav balance at march 31 , 2015 will continue to be recovered over 20 years . ( ppl ) earnings generated by ppl 's u.k. subsidiaries are subject to foreign currency translation risk . the u.k. subsidiaries also have currency exposure to the u.s. dollar to the extent they have u.s. dollar denominated debt . to manage these risks , ppl generally uses contracts such as forwards , options and cross currency swaps that contain characteristics of both interest rate and foreign currency exchange contracts . ( ppl and ppl energy supply ) in june 2014 , ppl and ppl energy supply executed definitive agreements with affiliates of riverstone to combine their competitive power generation businesses into a new , stand-alone , publicly traded company named talen energy . under the terms of the agreements , at closing , ppl will spin off to ppl shareowners a newly formed entity , talen energy holdings , inc. ( holdco ) , which at such time will own all of the membership interests of ppl energy supply and all of the common stock of talen energy . immediately following the spinoff , holdco will merge with a special purpose subsidiary of talen energy , with holdco continuing as the surviving company to the merger and as a wholly owned subsidiary of talen energy and the sole owner of ppl energy supply . substantially contemporaneous with the spinoff and merger , rjs power will be contributed by its owners to become a subsidiary of talen energy . following completion of these transactions , ppl shareowners will own 65 % of talen energy and affiliates of riverstone will own 35 % . ppl will have no continuing ownership interest in , control of , or affiliation with talen energy . see `` item 1. business , '' `` item 1a . risk factors '' and `` financial and operational developments - other financial and operational developments - anticipated spinoff of ppl energy supply '' below for additional information . the strategy for ppl energy supply is to optimize the value from its competitive generation asset and marketing portfolios while mitigating near-term volatility in both cash flows and earnings . story_separator_special_tag these and other stringent environmental requirements , combined with low energy margins for competitive generation , have led several energy companies , including ppl , ppl energy supply , lke , lg & e and ku , to announce plans to either temporarily or permanently close or place in long-term reserve status , and or impair certain of their coal-fired generating plants . ( ppl and ppl energy supply ) as a result of current economic and market conditions , the announced transaction with affiliates of riverstone to form talen energy , ppl energy supply 's current sub-investment grade credit rating and talen energy 's expected sub-investment grade credit rating , ppl energy supply continues to monitor its business and operational plans , including capital and operation and maintenance expenditures , its hedging strategies and potential plant modifications to burn lower cost fuels . see `` margins - changes in non-gaap financial measures - unregulated gross energy margins '' below for additional information on energy margins . 2014 energy margins were lower compared to 2013 due to a higher average hedge price in 2013 , partially offset by higher pricing on unhedged generation . ( ppl , lke , lg & e and ku ) as a result of the environmental requirements discussed above , lke projects $ 2.2 billion ( $ 1.1 billion each at lg & e and ku ) in capital investment over the next five years and anticipates retiring five coal-fired units ( three at lg & e in 2015 and two at ku in 2016 ) with a combined summer capacity rating of 724 mw ( 563 mw at lg & e and 161 mw at ku ) . ku retired a 71 mw coal-fired unit at the tyrone plant in february 2013 and a 12 mw gas-fired unit at the haefling plant in december 2013. the retirement of these units is not expected to have a material impact on the financial condition or results of operations of ppl , lke , lg & e and ku . see note 8 to the financial statements for additional information regarding the anticipated retirement of these units as well as the construction of a ngcc in kentucky expected to be operational in may 2015 and a 10 mw solar facility expected to be operational in 2016. the kpsc has adopted a series of regulatory mechanisms ( ecr , dsm , glt , fuel adjustment clause , gas supply clause and recovery on certain construction work-in-progress ) that provide for timely recovery of prudently incurred costs ( including 45 costs associated with environmental requirements ) . the kentucky utility businesses are impacted by changes in customer usage levels , which can be driven by a number of factors including weather conditions and economic factors that impact the load utilized by customers . ( all registrants ) the registrants can not predict the impact that future economic and market conditions and regulatory requirements may have on their financial condition or results of operations . labor union agreements ( ppl , ppl energy supply and ppl electric ) ppl , ppl energy supply and ppl electric finalized a new three-year labor agreement with ibew local 1600 in may 2014 and the agreement was ratified in early june 2014. as part of efforts to reduce operations and maintenance expenses , the new agreement offered a one-time voluntary retirement window to certain bargaining unit employees . as a result , for the year ended december 31 , 2014 , the following total separation benefits have been recorded . replace_table_token_20_th the separation benefits are included in `` other operation and maintenance '' on the statement of income . the liability for pension benefits is included in `` accrued pension obligations '' on the balance sheet at december 31 , 2014. all of the severance compensation was paid in 2014. the remaining terms of the new labor agreement are not expected to have a significant impact on the financial results of ppl , ppl energy supply or ppl electric . anticipated spinoff of ppl energy supply ( ppl , ppl energy supply and ppl electric ) following the announcement of the transaction to form talen energy as discussed in `` item 1. business - general - anticipated spinoff of ppl energy supply '' , efforts were initiated to identify the appropriate staffing for talen energy and for ppl and its subsidiaries following completion of the spinoff . organizational plans and staffing selections were substantially completed in 2014. the new organizational plans identify the need to resize and restructure the organizations . as a result , during 2014 , charges for employee separation benefits were recorded in `` other operation and maintenance '' on the statement of income and in `` other current liabilities '' on the balance sheet as follows . ppl energy ppl ppl supply electric separation benefits $ 36 $ 16 $ 1 number of positions 306 112 14 the separation benefits incurred include cash severance compensation , lump sum cobra reimbursement payments and outplacement services . most separations and payment of separation benefits are expected to occur in 2015. additional employee-related costs to be incurred primarily include accelerated stock-based compensation and pro-rated performance-based cash incentive and stock-based compensation awards primarily for ppl energy supply employees and for ppl employees who will become ppl energy supply employees in connection with the transaction . these costs will primarily be recognized at the spinoff closing date . ppl and ppl energy supply estimate these additional costs will be in the range of $ 30 million to $ 40 million . 46 ( ppl ) as a result of the spinoff announcement , ppl recorded $ 50 million of deferred income tax expense in 2014 to adjust valuation allowances on deferred tax assets primarily for state net operating loss carryforwards that were previously supported by the future earnings of ppl energy supply . in addition , ppl recorded $ 27 million of third-party costs in 2014 related to this transaction .
| results of operations ( ppl ) the discussion for ppl provides a review of results by reportable segment . the `` margins '' discussion provides explanations of non-gaap financial measures ( kentucky gross margins , pennsylvania gross delivery margins and unregulated gross energy margins ) and a reconciliation of non-gaap financial measures to `` operating income . '' the `` statement of income analysis '' discussion addresses significant changes in principal line items on ppl 's statements of income , comparing year-to-year changes . `` segment earnings , margins and statement of income analysis '' is presented separately for ppl . 49 tables analyzing changes in amounts between periods within `` segment earnings '' and `` statement of income analysis '' are presented on a constant u.k. foreign currency exchange rate basis , where applicable , in order to isolate the impact of the change in the exchange rate on the item being explained . results computed on a constant u.k. foreign currency exchange rate basis are calculated by translating current year results at the prior year weighted-average u.k. foreign currency exchange rate . ( subsidiary registrants ) the discussion for each of ppl energy supply , ppl electric , lke , lg & e and ku provides a summary of earnings . the `` margins '' discussion includes a reconciliation of non-gaap financial measures to `` operating income '' and `` statement of income analysis '' addresses significant changes in principal line items on the statements of income comparing year-to-year changes . `` earnings , margins and statement of income analysis '' are presented separately for ppl energy supply , ppl electric , lke , lg & e and ku .
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forward-looking statements usually are denoted by words or phrases such as “ believes , ” “ expects , ” “ projects , ” “ estimates , ” “ anticipates , ” “ will likely result ” or similar expressions . we wish to caution readers that all forward-looking statements are necessarily speculative and not to place undue reliance on forward-looking statements , which speak only as of the date made , and to advise readers that actual results could vary due to a variety of risks and uncertainties . critical accounting policies and estimates use of estimates – we have made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare our financial statements included in item 8 of this annual report on form 10-k in accordance with generally accepted accounting principles in the united states . these estimates have a significant impact on our valuation and reserve accounts relating to the allowance for sales returns and allowances , doubtful accounts , inventory reserves and deferred income taxes . actual results could differ from these estimates . revenue recognition – we recognize revenue when we have evidence of an arrangement , a determinable fee , and when collection is considered to be probable and products are delivered . this occurs upon shipment of the merchandise , which is when legal transfer of title occurs . reserves for sales allowances and customer returns are established based upon historical experience and our estimates of future returns . sales returns for the years ended december 31 , 2017 and 2016 aggregated $ 200,000 and $ 84,000 , respectively . the allowance for sales returns and allowances and doubtful accounts at december 31 , 2017 and 2016 aggregated $ 40,000 and $ 49,000 , respectively . we review the actual sales returns and bad debts for our customers and establish an estimate of future returns and an allowance for doubtful accounts . inventory - inventory , consisting principally of products held for resale , is recorded at the lower of cost ( determined using the first in-first out method ) or net realizable value . we had inventory balances in the amount of $ 4,990,000 and $ 5,055,000 at december 31 , 2017 and 2016 , respectively , which is presented net of valuation allowances of $ 7,848,000 and $ 8,537,000 at december 31 , 2017 and 2016 , respectively . we evaluate inventories to identify excess , high-cost , slow-moving or other factors rendering inventories as unmarketable at normal profit margins . due to the large number of transactions and the complexity of managing and maintaining a large inventory of product offerings , estimates are made regarding adjustments to the cost of inventories . if our assumptions about future demand change , or market conditions are less favorable than those projected , additional write-downs of inventories may be required . in any case , actual amounts could be different from those estimated . regulations - our worldwide operations are subject to local laws and regulations . as such , of particular interest is the european union ( “ eu ” ) directive relating to the restriction of certain hazardous substance ( “ rohs ” ) . on july 1 , 2006 , this directive restricted the distribution of products within the eu containing certain substances , including lead . at the present time , much of our inventory contains substances prohibited by the rohs directive . further , many of our suppliers are not yet supplying rohs compliant products . the legislation is effective and some of our inventory has become obsolete . management has estimated the impact of the legislation and have written down or reserved for related inventories based on amounts expected to be realized given all available current information . actual amounts realized from the ultimate disposition of related inventories could be different from those estimated . deferred taxes – we review the nature of each component of our deferred income taxes for reasonableness . if determined that it is more likely than not that we will not realize all or part of our net deferred tax assets in the future , we record a valuation allowance against the deferred tax assets , which allowance will be charged to income tax expense in the period of such determination . we also consider the scheduled reversal of deferred tax liabilities , tax planning strategies and future taxable income in assessing if deferred tax assets could be realized . we also consider the weight of both positive and negative evidence in determining whether a valuation allowance is needed . however , due to the continued net losses , we have fully reserved a $ 3,018,000 and $ 4,585,000 allowance against our net deferred tax assets at december 31 , 2017 and 2016 , respectively . 8 overview we are primarily focused on supplying odm products for our oem customer 's multi-year turn-key projects . we also distribute discrete semiconductors , commodity integrated circuits ( ics ) , optoelectronic devices and passive components to other electronic distributors , cems and oems , who incorporate them in their products . our core strategy has shifted to primarily focus on higher margin odm projects that require custom products designed for specific applications to oem customers , and away from actively marketing our superstore strategy of maintaining a vast quantity of electronic components to fill customer orders immediately from available stock held in inventory . as a result , we expect our components inventory will be more passively marketed and distributed online for clearance through our internet sales portal , however at potentially lower rates due to the pricing pressures normally attributed with online shopping . in 2017 , we recorded a $ 180,000 increase to our inventory reserves , compared to a $ 3,640,000 increase in 2016. we believe the significant 2016 increase was a reasonable estimate to allow for the story_separator_special_tag forward-looking statements usually are denoted by words or phrases such as “ believes , ” “ expects , ” “ projects , ” “ estimates , ” “ anticipates , ” “ will likely result ” or similar expressions . we wish to caution readers that all forward-looking statements are necessarily speculative and not to place undue reliance on forward-looking statements , which speak only as of the date made , and to advise readers that actual results could vary due to a variety of risks and uncertainties . critical accounting policies and estimates use of estimates – we have made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare our financial statements included in item 8 of this annual report on form 10-k in accordance with generally accepted accounting principles in the united states . these estimates have a significant impact on our valuation and reserve accounts relating to the allowance for sales returns and allowances , doubtful accounts , inventory reserves and deferred income taxes . actual results could differ from these estimates . revenue recognition – we recognize revenue when we have evidence of an arrangement , a determinable fee , and when collection is considered to be probable and products are delivered . this occurs upon shipment of the merchandise , which is when legal transfer of title occurs . reserves for sales allowances and customer returns are established based upon historical experience and our estimates of future returns . sales returns for the years ended december 31 , 2017 and 2016 aggregated $ 200,000 and $ 84,000 , respectively . the allowance for sales returns and allowances and doubtful accounts at december 31 , 2017 and 2016 aggregated $ 40,000 and $ 49,000 , respectively . we review the actual sales returns and bad debts for our customers and establish an estimate of future returns and an allowance for doubtful accounts . inventory - inventory , consisting principally of products held for resale , is recorded at the lower of cost ( determined using the first in-first out method ) or net realizable value . we had inventory balances in the amount of $ 4,990,000 and $ 5,055,000 at december 31 , 2017 and 2016 , respectively , which is presented net of valuation allowances of $ 7,848,000 and $ 8,537,000 at december 31 , 2017 and 2016 , respectively . we evaluate inventories to identify excess , high-cost , slow-moving or other factors rendering inventories as unmarketable at normal profit margins . due to the large number of transactions and the complexity of managing and maintaining a large inventory of product offerings , estimates are made regarding adjustments to the cost of inventories . if our assumptions about future demand change , or market conditions are less favorable than those projected , additional write-downs of inventories may be required . in any case , actual amounts could be different from those estimated . regulations - our worldwide operations are subject to local laws and regulations . as such , of particular interest is the european union ( “ eu ” ) directive relating to the restriction of certain hazardous substance ( “ rohs ” ) . on july 1 , 2006 , this directive restricted the distribution of products within the eu containing certain substances , including lead . at the present time , much of our inventory contains substances prohibited by the rohs directive . further , many of our suppliers are not yet supplying rohs compliant products . the legislation is effective and some of our inventory has become obsolete . management has estimated the impact of the legislation and have written down or reserved for related inventories based on amounts expected to be realized given all available current information . actual amounts realized from the ultimate disposition of related inventories could be different from those estimated . deferred taxes – we review the nature of each component of our deferred income taxes for reasonableness . if determined that it is more likely than not that we will not realize all or part of our net deferred tax assets in the future , we record a valuation allowance against the deferred tax assets , which allowance will be charged to income tax expense in the period of such determination . we also consider the scheduled reversal of deferred tax liabilities , tax planning strategies and future taxable income in assessing if deferred tax assets could be realized . we also consider the weight of both positive and negative evidence in determining whether a valuation allowance is needed . however , due to the continued net losses , we have fully reserved a $ 3,018,000 and $ 4,585,000 allowance against our net deferred tax assets at december 31 , 2017 and 2016 , respectively . 8 overview we are primarily focused on supplying odm products for our oem customer 's multi-year turn-key projects . we also distribute discrete semiconductors , commodity integrated circuits ( ics ) , optoelectronic devices and passive components to other electronic distributors , cems and oems , who incorporate them in their products . our core strategy has shifted to primarily focus on higher margin odm projects that require custom products designed for specific applications to oem customers , and away from actively marketing our superstore strategy of maintaining a vast quantity of electronic components to fill customer orders immediately from available stock held in inventory . as a result , we expect our components inventory will be more passively marketed and distributed online for clearance through our internet sales portal , however at potentially lower rates due to the pricing pressures normally attributed with online shopping . in 2017 , we recorded a $ 180,000 increase to our inventory reserves , compared to a $ 3,640,000 increase in 2016. we believe the significant 2016 increase was a reasonable estimate to allow for the
| results of operations the year ended december 31 , 2017 compared to the year ended december 31 , 2016 net sales were $ 7,622,000 and $ 6,915,000 in 2017 and 2016 , respectively , representing an increase of $ 707,000 or 10.2 % . the increase was primarily due to higher odm project sales . gross profit ( loss ) was $ 3,000,000 and ( $ 748,000 ) in 2017 and 2016 , respectively , which represented 39.4 % and ( 10.8 % ) of net sales for those periods . the gross loss in 2016 was primarily due to the significant increase to our inventory reserves of $ 3,640,000. selling , general and administrative expenses were $ 2,209,000 and $ 2,124,000 in 2017 and 2016 , respectively , which represented 28.9 % and 30.7 % of net sales for those periods . the increase of $ 85,000 was primarily due to travel expenses and professional fees . operating income ( loss ) was $ 791,000 and ( $ 2,872,000 ) in 2017 and 2016 , respectively , which represented 10.4 % and ( 41.5 % ) of net sales for those periods . the operating losses in 2016 was primarily due to the significant increase in our inventory reserves in 2016 of $ 3,640,000. net interest expense was $ 38,000 and $ 48,000 in 2017 and 2016 , respectively . income tax provision was $ 5,000 and $ 20,000 in 2017 and 2016 , respectively . our tax provision is primarily based upon our state income tax liabilities . we recognized net income ( losses ) of $ 701,000 and ( $ 3,111,000 ) in 2017 and 2016 , respectively , which represented 9.2 % and ( 45 % ) of net sales for those periods . 9 liquidity and capital resources we historically have satisfied our liquidity requirements through cash generated from operations , short-term commercial loans , subordinated promissory notes and issuance of equity securities .
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based on our primary business objectives and forecasted operating conditions , our current key priorities and financial strategies include , among other things : acquisition of hotel properties that will be accretive to our portfolio ; disposition of non-core hotel properties ; pursuing capital market activities to enhance long-term stockholder value ; preserving capital , enhancing liquidity , and continuing current cost-saving measures ; implementing selective capital improvements designed to increase profitability ; implementing effective asset management strategies to minimize operating costs and increase revenues ; financing or refinancing hotels on competitive terms ; utilizing hedges and derivatives to mitigate risks ; and making other investments or divestitures that our board of directors deems appropriate . our current investment strategy is to focus on owning predominantly full-service hotels in the upscale and upper upscale segments in domestic and international markets that have revenue per available room ( “ revpar ” ) generally less than twice the national average . our board of directors may change our investment strategy at any time without stockholder approval or notice . recent developments on january 16 , 2018 , we made an additional $ 667,000 investment in openkey , which is a hospitality focused mobile key platform that provides a universal smartphone app for keyless entry into hotel guest rooms . on january 17 , 2018 , we refinanced our $ 376.8 million mortgage loan . the new mortgage loan totaled $ 395.0 million . the new mortgage loan has a two-year initial term and five one-year extension options , subject to the satisfaction of certain conditions . the mortgage loan is interest only and provides for a floating interest rate of libor + 2.92 % . the new mortgage loan is secured by eight hotels : embassy suites portland , embassy suites crystal city , embassy suites orlando , embassy suites santa clara , crowne plaza key west , hilton costa mesa , sheraton minneapolis , and historic inns of annapolis . on february 20 , 2018 , we sold the springhill suites in glen allen , virginia for approximately $ 10.9 million in cash . the sale resulted in a loss of $ 13,000 for the year ended december 31 , 2018 and is included in “ gain ( loss ) on sale of hotel properties ” in the consolidated statement of operations . the company also repaid approximately $ 7.6 million of debt associated with the hotel property . on april 9 , 2018 , we refinanced our $ 971.7 million mortgage loan secured by 22 hotel properties . the new mortgage loan totaled $ 985.0 million , is interest only and provides for a floating interest rate of libor + 3.20 % . the stated maturity is april 2020 with five one-year extension options , subject to the satisfaction of certain conditions . the new mortgage loan is secured by the same 22 hotel properties that include : the courtyard boston downtown , courtyard denver , courtyard gaithersburg , courtyard savannah , hampton inn parsippany , hilton parsippany , hilton tampa , hilton garden inn austin , hilton garden inn bwi , hilton garden inn virginia beach , hyatt windwatch long island , hyatt savannah , marriott dfw airport , marriott omaha , marriott san antonio , marriott sugarland , renaissance palm springs , ritz-carlton atlanta , residence inn tampa , churchill , melrose and silversmith . on may 1 , 2018 , we sold the springhill suites in centreville , virginia for approximately $ 7.5 million in cash . the sale resulted in a gain of approximately $ 98,000 for the year ended december 31 , 2018 and is included in “ gain ( loss ) on sale of hotel properties ” in the consolidated statement of operations . the company also repaid approximately $ 6.6 million of debt associated with the hotel property . on may 10 , 2018 , we sold the residence inn in tampa , fl for approximately $ 24.0 million in cash . the sale resulted in a gain of approximately $ 400,000 for the year ended december 31 , 2018 and is included in “ gain ( loss ) on sale of hotel properties ” 46 in the consolidated statement of operations . the company also repaid approximately $ 22.5 million of debt associated with the hotel property . on june 13 , 2018 , we refinanced seven mortgage loans with existing outstanding balances totaling $ 1.068 billion . the new financing is comprised of six separate mortgage loans that total approximately $ 1.270 billion . each has a two-year initial term with five one-year extension options , subject to the satisfaction of certain conditions . the original principal amounts of each mortgage loan and the hotel properties securing each mortgage loan are set forth in the following table : mortgage loan principal amount ( in thousands ) interest rate secured hotel properties a $ 180,720 libor + 3.65 % courtyard columbus tipton lakes courtyard scottsdale old town residence inn phoenix airport springhill suites manhattan beach springhill suites plymouth meeting residence inn las vegas hughes center residence inn newark b $ 174,400 libor + 3.39 % courtyard newark springhill suites bwi courtyard oakland airport courtyard plano legacy residence inn plano towneplace suites manhattan beach courtyard basking ridge c $ 221,040 libor + 3.73 % sheraton san diego mission valley sheraton bucks county hilton ft. worth hyatt regency coral gables hilton minneapolis d $ 262,640 libor + 4.02 % hilton santa fe embassy suites dulles marriott beverly hills one ocean marriott suites dallas market center e ( 1 ) $ 216,320 libor + 4.36 % marriott memphis east embassy suites philadelphia airport sheraton anchorage lakeway resort & spa marriott fremont f $ 215,120 libor + 3.68 % w atlanta downtown embassy suites flagstaff embassy suites walnut creek marriott bridgewater marriott durham research triangle park _ ( 1 ) on july 3 , 2018 , we purchased $ 56.3 million of mezzanine debt related to the pool e loan that was issued in conjunction with the june 13 , 2018 refinancing . story_separator_special_tag in connection with this acquisition , we closed on a $ 145 million mortgage loan . this mortgage loan is interest only and provides for a floating interest rate of libor + 3.90 % . the stated maturity date of the mortgage loan is february 2022 , with two one-year extension options . the mortgage loan is secured by the embassy suites new york midtown manhattan . as a result of the acquisition , we are entitled to receive $ 19.5 million from ashford llc in the form of future purchases of hotel furniture , fixtures , and equipment at ashford trust properties that will be leased to us by ashford llc rent free . on february 6 , 2019 , we made an additional investment of $ 299,000 in openkey . on february 26 , 2019 , we acquired a 100 % interest in the 178 -room hilton santa cruz/scotts valley for $ 50.0 million . consideration included cash and approximately 1.5 million common units in operating partnership . additionally , we assumed a $ 25.3 million non-recourse mortgage loan . this mortgage loan is interest only and provides for a fixed interest rate of 4.66 % . the stated maturity date of the mortgage loan is march 2025. the mortgage loan is secured by the hilton santa cruz/scotts valley . as a result of the acquisition , we are entitled to receive $ 5.0 million from ashford llc in exchange for future purchases of hotel furniture , fixtures , and equipment at ashford trust properties that will be leased to us by ashford llc rent free . 48 story_separator_special_tag 2018 and 2017 , respectively . we recorded an impairment charge of $ 23.4 million in 2018 which was comprised of a $ 9.9 million impairment charge at the san antonio marriott , a $ 6.7 million impairment charge at the annapolis crowne plaza , a $ 5.1 million impairment charge at the wisconsin dells hilton garden inn and a $ 2.0 million impairment charge at the springhill suites centreville related to its disposition . this increase was partially offset by impairment credits of $ 275,000 from changes in estimates of property damage incurred from hurricanes harvey and irma . we recorded an impairment charge of $ 2.0 million in 2017 for damages to hotel properties from hurricanes harvey and irma and impairment charges totaling $ 8.2 million at the springhill suites centreville and the springhill suites glen allen . transaction costs . transaction costs de creased $ 3,000 or 21.4 % , to $ 11,000 in 2018 compared to 2017 . advisory service fee . the advisory services fee increased $ 15.9 million or 29.9 % , to $ 69.1 million in 2018 compared to 2017 . the advisory services fee represents fees incurred in connection with the advisory agreement between ashford inc. and the company . in 2018 , the advisory services fee was comprised of a base advisory fee of $ 35.5 million , equity-based compensation of $ 25.2 million associated with equity grants of our common stock and ltip units awarded to the officers and employees of ashford inc. and reimbursable expenses of $ 8.4 million . in 2018 , approximately $ 4.5 million of the equity-based compensation expense was related to the accelerated vesting of equity awards granted to one of our executive officers upon his death , in accordance with the terms of the awards . in 2017 , the advisory services fee was comprised of a base advisory fee of $ 34.7 million , equity-based compensation of $ 11.1 million associated with equity grants of our common stock and ltip units awarded to the officers and employees of ashford inc. and reimbursable expenses of $ 7.5 million . corporate , general and administrative . corporate , general and administrative expenses de creased $ 2.4 million , or 17.7 % , to $ 10.9 million during 2018 compared to 2017 . the decrease was primarily attributable to lower transaction , acquisition and management conversion costs of $ 2.5 million and lower public company costs , office expenses , professional fees and other miscellaneous expenses of $ 114,000 in 2018 compared to 2017. gain ( loss ) on sale of hotel properties . gain on the sale of hotel properties was $ 475,000 and $ 14.0 million in the 2018 and 2017 , respectively . the gain in 2018 related to gains from the sales of the tampa residence inn and springhill suites centreville , partially offset by a loss from the sale of the springhill suites glen allen . the gain in 2017 was related to a gain from the sale of the crowne plaza ravinia , partially offset by losses from the sales of the renaissance portsmouth and embassy suites syracuse . 51 equity in earnings ( loss ) of unconsolidated entities . equity in earnings ( loss ) of unconsolidated entities changed $ 6.7 million from an equity in loss of $ 5.9 million in 2017 to equity in earnings of $ 867,000 in 2018. in 2018 we recorded equity in earnings of $ 1.5 million from ashford inc. partially offset by an equity in loss of $ 592,000 from openkey . in 2017 we recorded equity in loss of $ 5.4 million from ashford inc. and $ 481,000 from openkey , partially offset by equity in earnings of $ 52,000 from the aqua u.s. fund . interest income . interest income was $ 4.0 million and $ 2.2 million in 2018 and 2017 , respectively . other income ( expense ) . other income ( expense ) changed $ 3.5 million , from expense of $ 3.4 million in 2017 to income of $ 64,000 in 2018 . in 2018 , we recorded dividend income of $ 603,000 , a realized gain on marketable securities of $ 89,000 and other miscellaneous income of $ 417,000 ; partially offset by expense of $ 1.0 million related to cmbx premiums and interest paid on collateral .
| results of operations revpar is a commonly used measure within the hotel industry to evaluate hotel operations . revpar is defined as the product of the adr charged and the average daily occupancy achieved . revpar does not include revenues from food and beverage or parking , telephone , or other guest services generated by the property . although revpar does not include these ancillary revenues , it is generally considered the leading indicator of core revenues for many hotels . we also use revpar to compare the results of our hotels between periods and to analyze results of our comparable hotels ( comparable hotels represent hotels we have owned for the entire year ) . revpar improvements attributable to increases in occupancy are generally accompanied by increases in most categories of variable operating costs . revpar improvements attributable to increases in adr are generally accompanied by increases in limited categories of operating costs , such as management fees and franchise fees . the following table summarizes the changes in key line items from our consolidated statements of operations for the years ended december 31 , 2018 , 2017 and 2016 ( in thousands ) : replace_table_token_8_th 49 comparison of year ended december 31 , 2018 with year ended december 31 , 2017 all hotel properties owned during the years ended december 31 , 2018 and 2017 have been included in our results of operations during the respective periods in which they were owned . based on when a hotel property was acquired or disposed , operating results for certain hotel properties are not comparable for the years ended december 31 , 2018 and 2017 . the hotel properties listed below are not comparable hotel properties for the periods indicated and all other hotel properties are considered comparable hotel properties .
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the mortgage loan was originally scheduled to mature in may 2017 but , on july 22 , 2010 this mortgage was fully repaid . the company received $ 3.3 million of additional income and prepayment fees in connection with the early payment , which was recorded as other income in the consolidated statement of operations . 82 7. mortgage notes story_separator_special_tag the following analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the notes thereto contained elsewhere in this form 10-k. overview general we were incorporated under the general corporation law of the state of maryland on february 14 , 2003 , primarily for the purpose of investing in and owning net leased industrial and commercial real property and selectively making long-term industrial and commercial mortgage loans . most of the portfolio of real estate that we currently own is leased to a wide cross section of tenants ranging from small businesses to large public companies , many of which are corporations that do not have publicly-rated debt . we have historically entered into , and intend in the future to enter into , purchase agreements for real estate having triple net leases with terms of approximately 10 to 15 years and built in rental rate increases . under a triple net lease , the tenant is required to pay all operating , maintenance and insurance costs and real estate taxes with respect to the leased property . we are actively communicating with buyout funds , real estate brokers and other third parties to locate properties for potential acquisition or to provide mortgage financing in an effort to build our portfolio . at december 31 , 2010 , we owned 65 properties totaling approximately 6.8 million square feet . the total gross investment in these properties was approximately $ 446.4 million at december 31 , 2010. business environment the united states is beginning to recover from the recession that it entered into during late 2007 , though it continues to experience pervasive and fundamental disruptions in its financial and capital markets . unemployment remains high and housing starts are low , and these key economic indicators will need to improve in order for the economy to fully recover . as a result , conditions within the u.s. capital markets generally , and the u.s. real estate capital markets particularly , continue to experience significant dislocation and stress . while we are seeing signs of stabilization in both the equity and debt capital markets , these markets remain challenging and we do not know if adverse conditions will again intensify , nor are we able to gauge the full extent to which the disruptions will affect us . we believe that it will take some time for the united states to fully recover from the recession . as a result , the continued challenging economic conditions could still materially and adversely impact the financial condition of one or more of our tenants and , therefore , could increase the likelihood that a tenant may declare bankruptcy or default upon its payment obligations arising under a related lease . moreover , our ability to make new investments is highly dependent upon our ability to procure external financing . our principal sources of external financing generally include the issuance of equity securities , long-term mortgages secured by properties , and borrowings under our line of credit . the market for long-term mortgages has been limited , as the collateralized mortgage-backed securities , or cmbs , market has experienced significant disruption . with the stresses upon the cmbs market , many banks are not lending on industrial and commercial real estate as they are no longer able to sell these loans to the cmbs market and are not willing or able to keep these loans on their balance sheets . in addition , many banks have significantly curtailed their general lending practices , as they are having difficulty valuing the underlying real estate in this market . we are , however , beginning to see banks that are willing to issue medium-term mortgages , between two and five years , on substantially less favorable terms than were previously available . consequently , we continue to focus on using medium-term mortgages to finance our real estate activities until the market for long-term mortgages returns . 44 recent developments investment activities : on april 15 , 2005 , we originated a mortgage loan in the amount of $ 10.0 million that was collateralized by an office building located in mclean , virginia in which gladstone management corporation , or our adviser , and gladstone administration llc , or our administrator , are subtenants . the mortgage loan was originally set to mature in may 2017 , though , on july 22 , 2010 , it was fully repaid . we received $ 3.3 million of additional income and prepayment fees in connection with the early payment and the proceeds were used to repay a portion of our line of credit . during the year ended december 31 , 2010 , we acquired one property . the property is a 487,121 square foot office/industrial building located in orange city , iowa for approximately $ 12.3 million , including related acquisition expenses . we funded this acquisition through a combination of borrowings from the new line of credit and the assumption of approximately $ 10.8 million of mortgage debt on the property . story_separator_special_tag net proceeds from these sales , after selling commissions and dealer manager fees , were approximately $ 787,000. on february 2 , 2011 , we sold 725,000 shares of our common stock at $ 18.35 per share in an underwritten public offering of our common stock . subsequently , on february 16 , 2011 , we sold an additional 108,750 shares of common stock on the same terms and conditions in connection with the underwriters ' exercise of their over-allotment option . the net proceeds after deducting the underwriting discount and estimated offering expenses were approximately $ 14.3 million . we used the proceeds of the offering to repay a portion of the outstanding balance under our new line of credit . the shares were issued under our effective shelf registration statement on file with the securities and exchange commission , or sec . leasing activities : on may 4 , 2010 , we extended the lease with the tenant that occupies our property located in grand rapids , michigan for a period of 15 years , and the tenant has 2 options to extend the lease for additional periods of 10 years each . the lease was originally set to expire in july 2016 , and will now expire in april 2025. the lease provides for prescribed rent escalations over the life of the lease , with annualized straight line rents of approximately $ 1.1 million . on june 30 , 2010 and july 31 , 2010 , respectively , the leases with the tenants that occupied our properties located in south hadley , massachusetts and richmond , virginia , respectively , expired and currently remain vacant . these two leases comprised approximately 2.6 % of our total annualized rental income . we are actively seeking new tenants for these two properties while concurrently researching alternative uses for these two properties . on september 29 , 2010 , the tenant in our building located in hazelwood , missouri declared bankruptcy . the lease for this property is scheduled to expire in january 2012 , and rental income from this tenant comprises less than 1 % of our total annualized rental income . on march 2 , 2011 , the lease was rejected 46 in the bankruptcy proceedings of our tenant . we have been informed that the rent payments will cease at the end of april 2011. we are taking the appropriate action to re-tenant the property . on october 8 , 2010 , we extended the lease with the tenant that occupies our property located in toledo , ohio for a period of 10 years , and the tenant has 2 options to extend the lease for additional periods of 10 years each . the lease was originally set to expire in december 2010 , and will now expire in december 2020. the lease provides for prescribed rent escalations over the life of the lease , with annualized straight line rents of approximately $ 276,000. on december 14 , 2010 , we released the current tenant in our property located in cumming , georgia from its obligations under their existing lease , and simultaneously signed a lease with a new tenant under substantially the same terms . the new tenant is an atlanta , georgia based hospital system that acquired part of the current tenant 's business , part of which is housed in our cumming , georgia facility . the current tenant is a medical group that continues to lease the remainder of our properties located in georgia under a master lease . in connection with services provided directly by our adviser to the tenant , the tenant paid a real estate advisory fee to our adviser , in the amount of $ 450,000. on december 30 , 2010 , we extended the lease with the tenant that occupies our property located in fridley , minnesota for a period of 10 years , and the tenant has one option to extend the lease for a period of 5 years . the lease was originally set to expire in january 2013 and will now expire in july 2020. the lease provides for prescribed rent escalations over the life of the lease , with annualized straight line rents of approximately $ 812,000. on january 31 , 2011 , we extended the lease with our tenant occupying five of our properties located in decatur , georgia , lawrenceville , georgia , snellville , georgia , covington , georgia , and conyers , georgia . the lease covering all of these properties was extended for an additional five year period , thereby extending the lease until december 2031. the lease was originally set to expire in december 2026. the lease provides for prescribed rent escalations over the life of the lease , with annualized straight line rents of approximately $ 1.6 million . furthermore , the lease grants the tenant four options to extend the lease for a period of five years each . all of our remaining tenants are current and paying in accordance with their leases . diversity of our portfolio gladstone management corporation , or our adviser , seeks to diversify our portfolio to avoid dependence on any one particular tenant , geographic market or tenant industry . by diversifying our portfolio , our adviser intends to reduce the adverse effect on our portfolio of a single under-performing investment or a downturn in any particular industry or geographic market . our largest tenant at december 31 , 2010 comprised approximately 7.4 % of our total rental income , and our largest concentration of properties was located in ohio , which accounted for approximately 18.1 % of our total rental income . the table below reflects the breakdown of our total rental income by tenant industry classification for the years ended december 31 , 2010 and 2009 , respectively : 47 replace_table_token_10_th our adviser and administrator our adviser is led by a management team which has extensive experience purchasing real estate and originating mortgage loans . our adviser is controlled by mr. david gladstone , our chairman and chief executive officer .
| results of operations our weighted-average yield on our occupied portfolio as of december 31 , 2010 was approximately 9.60 % . the weighted-average yield on our occupied portfolio is calculated by taking the annualized straight-line rents , reflected as rental income on our consolidated statements of operations , or mortgage interest payments , reflected as interest income from mortgage notes receivable on our consolidated statements of operations , of each acquisition or mortgage loan as a percentage of the acquisition or loan price , as applicable . the weighted-average yield does not account for the interest expense incurred on the mortgages placed on our properties . a comparison of our operating results for the years ended december 31 , 2010 and 2009 is below : replace_table_token_11_th 52 operating revenues rental income remained relatively flat for the year ended december 31 , 2010 , as compared to the year ended december 31 , 2009 , as two of our tenants vacated their respective properties during 2010 , slightly offset by the acquisition of a property in december 2010. interest income from mortgage notes receivable decreased for the year ended december 31 , 2010 , as compared to the year ended december 31 , 2009 , as our only mortgage loan was fully repaid in july 2010. tenant recovery revenue decreased slightly for the year ended december 31 , 2010 , as compared to the year ended december 31 , 2009 , because one of our tenants that vacated their property during 2010 no longer reimburses us for insurance expense . operating expenses depreciation and amortization expenses remained relatively flat for the year ended december 31 , 2010 , as compared to the year ended december 31 , 2009 , because we only acquired one property in december 2010 , which had a minimal impact on the expense . property operating expenses consist of franchise taxes , management fees , insurance , ground lease payments and overhead expenses paid on behalf of certain of our properties .
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the indenture governing the 2026 notes contains restrictive covenants that may limit our ability to , among other things : incur or guarantee additional indebtedness or issue certain types of preferred stock ; pay dividends on capital stock or redeem , story_separator_special_tag management 's discussion and analysis of financial condition and results of operations should be read in conjunction with the financial statements and related notes included elsewhere in this report . the following discussion contains forward-looking statements that reflect our future plans , estimates , beliefs and expected performance . the forward-looking statements are dependent upon events , risks and uncertainties that may be outside our control . our actual results could differ materially from those discussed in these forward-looking statements . factors that could cause or contribute to such differences are described in “ item 1a . risk factors ” included earlier in this report . please see “ — cautionary note regarding forward-looking statements. ” this section of the form 10-k generally discusses 2019 and 2018 items and year-to-year comparisons between those years . for discussion of our t en months ended december 31 , 2017 and two months ended february 28 , 2017 , as well as the year ended 2018 compared to t en months ended december 31 , 2017 and two months ended february 28 , 2017 , refer to part ii , item 7— `` management 's discussion and analysis of financial condition and results of operations '' of our 2018 annual report on form 10-k . executive overview we are a western united states independent upstream energy company with a focus on onshore , low geologic risk , long-lived , oil reserves in conventional reservoirs . most of our assets are located in the oil-rich reservoirs in the san joaquin basin of california , which has more than 100 years of production history and substantial remaining oil in place . as a result of the substantial data produced over the basin 's long history , its reservoir characteristics are well understood , leading to predictable , repeatable , low geological risk and low-c and , to a lesser extent , in our rockies assets which include low-cost , oil-rich reservoirs in the uinta basin of utah and low geologic risk natural gas resource plays in the piceance basin in colorado . successful execution of our strategy across our low-declining production base and extensive inventory of identified drilling locations will result in our ability to continue returning capital to our stockholders and demonstrate long-term , capital efficient , consistent , and predictable production growth while living within levered free cash flow . effective february 18 , 2020 , berry petroleum corporation changed its name to berry corporation ( bry ) and introduced a new logo . we believe that the name berry corporation ( bry ) is a name that better represents our progressive approach to evolving and growing the business in today 's dynamic oil and gas industry . we are proactively engaging the many forces driving our industry to maximize our assets , create value for shareholders , and support environmental goals that align with a more positive future . one of the more visible elements of our business is our publicly traded stock , and our new logo echoes the public value of the company by using our ticker symbol as an identifiable element of our brand . how we plan and evaluate operations we use levered free cash flow in planning our capital allocation to sustain production levels and fund internal growth opportunities , as well as determine hedging needs . we define levered free cash flow as adjusted ebitda less capital expenditures , interest expense , and dividends . we use the following metrics to manage and assess the performance of our operations and are part of our incentive program for all employees : ( a ) adjusted ebitda ; ( b ) operating expenses ; ( c ) environmental , health & safety ( “ eh & s ” ) results ; ( d ) general and administrative expenses ; and ( e ) production . adjusted ebitda adjusted ebitda is the primary financial and operating measurement that our management uses to analyze and monitor the operating performance of our business . we define adjusted ebitda as earnings before interest expense ; income taxes ; depreciation , depletion , and amortization ( “ dd & a ” ) ; derivative gains or losses net of cash received or 55 index to financial statements and supplementary data paid for scheduled derivative settlements ; impairments ; stock compensation expense ; and other unusual , out-of-period and infrequent items , including restructuring costs and reorganization items . operating expenses we define operating expenses as lease operating expenses , electricity generation expenses , transportation expenses , and marketing expenses , offset by the third-party revenues generated by electricity , transportation and marketing activities , as well as the effect of derivative settlements ( received or paid ) for gas purchases . lease operating expenses include fuel , labor , field office , vehicle , supervision , maintenance , tools and supplies , and workover expenses . taxes other than income taxes are excluded from operating expenses . the electricity , transportation and marketing activity related revenues are viewed and treated internally as a reduction to operating costs when tracking and analyzing the economics of development projects and the efficiency of our hydrocarbon recovery . additionally , we strive to minimize the variability of our fuel gas costs for our steam operations with gas hedges . overall , operating expense is used by management as a measure of the efficiency with which operations are performing . environmental , health & safety like other companies in the oil and gas industry , our operations are subject to stringent federal , state and local laws and regulations governing the discharge of materials into the environment or otherwise relating to environmental protection . current and future laws and regulations can materially impact our exploration , development and production plans . story_separator_special_tag these seasonal conditions can occasionally pose challenges in our operations for meeting well-drilling objectives and increase competition for equipment , supplies and personnel , which could lead to shortages and increase costs or delay operations . for example , our operations may have been and in the future may be impacted by ice and snow in the winter and by electrical storms and high temperatures in the spring and summer , as well as by wild fires and rain . 57 index to financial statements and supplementary data additionally , like other companies in the oil and gas industry , our operations are subject to stringent federal , state and local laws and regulations relating to drilling , completion , well stimulation , operation , maintenance or abandonment of wells or facilities , managing energy , water , land , greenhouse gases or other emissions , protection of health , safety and the environment , or transportation , marketing , and sale of our products . federal , state and local agencies may assert overlapping authority to regulate in these areas . see “ items 1 and 2. business and properties-regulation of health , safety and environmental matters ” for a description of laws and regulations that affect our business . for more information related to regulatory risks , see “ item 1a . risk factors-risks related to our business and industry ” 58 index to financial statements and supplementary data certain operating and financial information the following tables set forth information regarding average daily production , total production , and average prices for the years ended december 31 , 2019 and 2018. replace_table_token_20_th ( 1 ) production represents volumes sold during the period . we also consume a portion of the natural gas we produce on lease to extract oil and gas . ( 2 ) natural gas volumes have been converted to boe based on energy content of six mcf of gas to one bbl of oil . barrels of oil equivalence does not necessarily result in price equivalence . the price of natural gas on a barrel of oil equivalent basis is currently substantially lower than the corresponding price for oil and has been similarly lower for a number of years . for example , in the year ended december 31 , 2019 , the average prices of brent oil and henry hub natural gas were $ 64.16 per bbl and $ 2.56 per mmbtu respectively , resulting in an oil-to-gas ratio of approximately 4 to 1 on an energy equivalent basis . ( 3 ) on november 30 , 2018 , we sold our non-core gas-producing properties and related assets located in the east texas basin . ( 4 ) kern , delivered index is the relevant index used for gas purchases in california . ( 5 ) henry hub is the relevant index used for gas sales in the rockies . the following table sets forth average daily production by operating area for the periods indicated : replace_table_token_21_th 59 index to financial statements and supplementary data ( 1 ) production represents volumes sold during the period . ( 2 ) on november 30 , 2018 , we sold our non-core gas-producing properties and related assets located in the east texas basin . average daily oil production increased 15 % for the year ended december 31 , 2019 compared to the year ended december 31 , 2018. year-over-year daily overall production increased 7 % due to production response from the development capital spending throughout 2019 and 2018 , which more than offset the natural decline of our properties and the sale of our east texas properties in november 2018 california production increased 15 % year-over-year in response to the deployment of the substantial majority of our development capital . this increase strongly demonstrated the ability of our california properties to respond to capital investment . the 2019 development activities accelerated our california production growth during the year , resulting in a 17 % increase from 21.7 mboe/d in the three months ended december 31 , 2018 to 25.5 mboe/d in the three months ended december 31 , 2019 . additionally , our 2019 capital program contributed to the increase in our california proved reserves of 24.5 mmboe , or 23 % before production , resulting in a 299 % replacement ratio . we also replaced 159 % of our total company proved undeveloped drilling location inventory . the production in utah and colorado declined 3 % year-over-year . the overall decline is primarily due to no capital allocated to colorado , while there was a slight increase in utah due to the deployed capital there . additionally , we sold our east texas gas properties in november 2018 . 60 index to financial statements and supplementary data summary by area the following table shows a summary by area of our selected historical financial information and operating data for the periods indicated . california ( san joaquin and ventura basins ) utah ( uinta basin ) colorado ( piceance basin ) year ended december 31 , 2019 year ended december 31 , 2018 year ended december 31 , 2019 year ended december 31 , 2018 year ended december 31 , 2019 year ended december 31 , 2018 ( $ in thousands , unless noted otherwise ) oil , natural gas and natural gas liquids sales $ 498,325 $ 471,802 $ 59,383 $ 65,605 $ 7,740 $ 10,657 operating income ( 1 ) $ 230,500 $ 185,965 $ 7,624 $ 15,066 $ ( 48,955 ) $ 6,346 depreciation , depletion , and amortization ( dd & a ) $ 93,025 $ 72,260 $ 11,754 $ 10,420 $ 1,055 $ 646 impairment of oil and gas properties $ — $ — $ — $ — $ 51,081 $ — average daily production ( mboe/d ) 22.6 19.7 5.0 5.0 1.4 1.7 production ( oil % of total ) 100 % 100 % 54 % 48 % 2 % 1 % realized sales prices : oil ( per bbl ) $ 60.51 $ 65.64 $ 45.72 $ 57.30 $ 52.36 $ 61.50 ngls (
| results of operations replace_table_token_22_th revenues and other oil , natural gas and ngl sales increased $ 13 million to $ 566 million for the year ended december 31 , 2019 from $ 553 million for the year ended december 31 , 2018 . the increase was driven by $ 76 million of higher oil volumes that was partially offset by $ 54 million of lower oil prices and $ 8 million of lower gas and natural gas liquid sales , mainly volume-related . 61 index to financial statements and supplementary data electricity sales represent sales to utilities which decreased by $ 6 million or 17 % , to approximately $ 29 million for the year ended december 31 , 2019 when compared to the year ended december 31 , 2018 . the decrease was due to lower unit sales that were affected by unexpected downtime at our largest cogen during the summer when we receive peak pricing , and lower year-over-year gas pricing . included in the results of our oil derivatives for the year ended december 31 , 2019 were $ 43 million of settlement gains reflecting the positions that expired during the year with hedge prices below the respective brent index prices . during 2019 , the change in brent prices relative to our remaining positions at year end resulted in reduced value , resulting in mark-to-market losses in 2019. losses on oil derivatives were $ 4.6 million for the year ended december 31 , 2018. our losses in 2018 were due to the mark-to-market losses incurred on oil derivatives prior to being terminated in may 2018 and settled with a $ 127 million payment . we terminated these derivatives and entered into new hedges to better align our hedge pricing with the then prevailing market pricing .
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organization main street capital corporation ( `` mscc '' ) was formed in march 2007 for the purpose of ( i ) acquiring 100 % of the equity interests of main street mezzanine fund , lp ( `` msmf '' ) and its general partner , main street mezzanine management , llc , ( ii ) acquiring 100 % of the equity interests of main street capital partners , llc ( the `` internal investment manager '' ) , ( iii ) raising capital in an initial public offering , which was completed in october 2007 ( the `` ipo '' ) , and ( iv ) thereafter operating as an internally managed business development company ( `` bdc '' ) under the investment company act of 1940 , as amended ( the `` 1940 act '' ) . msmf is licensed as a small business investment company ( `` sbic '' ) by the united states small business administration ( `` sba '' ) and the internal investment manager acts as msmf 's manager and investment adviser . because we wholly own the internal investment manager , which employs all of the executive officers and other employees of mscc , we do not pay any external investment advisory fees , but instead we incur the operating costs associated with employing investment and portfolio management professionals through the internal investment manager . the ipo and related transactions discussed above were consummated in october 2007 and are collectively termed the `` formation transactions . '' during january 2010 , mscc acquired ( the `` exchange offer '' ) approximately 88 % of the total dollar value of the limited partner interests in main street capital ii , lp ( `` msc ii '' and , together with msmf , the `` funds '' ) and 100 % of the membership interests in the general partner of msc ii , main street capital ii gp , llc ( `` msc ii gp '' ) . msc ii is an investment fund that operates as an sbic and commenced operations in january 2006. during the first quarter of 2012 , mscc acquired all of the remaining minority ownership of the msc ii limited partnership interests ( the `` final msc ii exchange '' ) . the exchange offer and related transactions , including the acquisition of msc ii gp interests and the final msc ii exchange , are collectively termed the `` exchange offer transactions . '' msc adviser i , llc ( the `` external investment manager '' and , together with the internal investment manager , the `` investment managers '' ) was formed in november 2013 as a wholly owned subsidiary of mscc to provide investment management and other services to parties other than mscc and its subsidiaries ( `` external parties '' ) and receive fee income for such services . mscc has been granted no action relief by the securities and exchange commission ( `` sec '' ) to allow the external investment manager to register as a registered investment adviser ( `` ria '' ) under investment advisers act of 1940 , as amended ( the `` advisers act '' ) . the external investment manager is accounted for as a portfolio investment of mscc , since the external investment manager conducts all of its investment management activities for parties outside of mscc and its consolidated subsidiaries or their portfolio companies . mscc has elected to be treated for federal income tax purposes as a regulated investment company ( `` ric '' ) under subchapter m of the internal revenue code of 1986 , as amended ( the `` code '' ) . as a result , mscc generally will not pay corporate-level federal income taxes on any net ordinary income or capital gains that it distributes to its stockholders . mscc has direct and indirect wholly owned subsidiaries that have elected to be taxable entities ( the `` taxable subsidiaries '' ) . the primary purpose of these entities is to hold certain investments that generate `` pass through '' income for tax purposes . each of the investment managers is also a direct wholly owned 60 subsidiary that has elected to be a taxable entity . the taxable subsidiaries and the investment managers are each taxed at their normal corporate tax rates based on their taxable income . unless otherwise noted or the context otherwise indicates , the terms `` we , '' `` us , '' `` our '' and `` main street '' refer to mscc and its consolidated subsidiaries , which include the funds , the taxable subsidiaries and , beginning april 1 , 2013 , the internal investment manager . overview we are a principal investment firm primarily focused on providing customized debt and equity financing to lower middle market ( `` lmm '' ) companies and debt capital to middle market ( `` middle market '' ) companies . our portfolio investments are typically made to support management buyouts , recapitalizations , growth financings , refinancings and acquisitions of companies that operate in diverse industry sectors . we seek to partner with entrepreneurs , business owners and management teams and generally provide `` one stop '' financing alternatives within our lmm portfolio . we invest primarily in secured debt investments , equity investments , warrants and other securities of lmm companies based in the united states and in secured debt investments of middle market companies generally headquartered in the united states . our principal investment objective is to maximize our portfolio 's total return by generating current income from our debt investments and capital appreciation from our equity and equity related investments , including warrants , convertible securities and other rights to acquire equity securities in a portfolio company . our lmm companies generally have annual revenues between $ 10 million and $ 150 million , and our lmm portfolio investments generally range in size from $ 5 million to $ 50 million . story_separator_special_tag as of december 31 , 2014 , we had middle market portfolio investments in 86 companies , collectively totaling approximately $ 542.7 million in fair value with a total cost basis of approximately $ 561.8 million . the weighted average earnings before interest , taxes , depreciation and amortization ( `` ebitda '' ) for the 86 middle market portfolio companies was approximately $ 77.2 million as of december 31 , 2014. as of december 31 , 2014 , substantially all of our middle market portfolio investments were in the form of debt investments and approximately 85 % of such debt investments at cost were secured by first priority liens on portfolio company assets . the weighted average annual effective yield on our middle market portfolio debt investments was approximately 7.8 % as of december 31 , 2014. as of december 31 , 2013 , we had middle market portfolio investments in 92 companies collectively totaling approximately $ 471.5 million in fair value with a total cost basis of approximately $ 468.3 million . the weighted average ebitda for the 92 middle market portfolio companies was approximately $ 79.0 million as of december 31 , 2013. as of december 31 , 2013 , substantially all of our middle market portfolio investments were in the form of debt investments and approximately 92 % of such debt investments at cost were secured by first priority liens on portfolio company assets . the weighted average annual effective yield on our middle market portfolio debt investments was approximately 7.8 % as of december 31 , 2013. the weighted average annual yields were computed using the effective interest rates for all debt investments at cost as of december 31 , 2014 and 2013 , including amortization of deferred debt origination fees and accretion of original issue discount but excluding fees payable upon repayment of the debt instruments and any debt investments on non-accrual status . our private loan portfolio investments primarily consist of investments in interest-bearing debt securities in companies that are consistent with the size of the companies included in our lmm portfolio or our middle 62 market portfolio , but are investments that have been originated through strategic relationships with other investment funds on a collaborative basis . our private loan portfolio debt investments are generally secured by either a first or second priority lien on the assets of the portfolio company and typically have a term of between three and seven years from the original investment date . as of december 31 , 2014 , we had private loan portfolio investments in 31 companies , collectively totaling approximately $ 213.0 million in fair value with a total cost basis of approximately $ 224.0 million . the weighted average ebitda for the 31 private loan portfolio companies was approximately $ 18.1 million as of december 31 , 2014. as of december 31 , 2014 , approximately 96 % of our private loan portfolio investments were in the form of debt investments and approximately 88 % of such debt investments at cost were secured by first priority liens on portfolio company assets . the weighted average annual effective yield on our private loan portfolio debt investments was approximately 10.1 % as of december 31 , 2014. as of december 31 , 2013 , we had private loan portfolio investments in 15 companies , collectively totaling approximately $ 111.5 million in fair value with a total cost basis of approximately $ 111.3 million . the weighted average ebitda for the 15 private loan portfolio companies was approximately $ 18.4 million as of december 31 , 2013. as of december 31 , 2013 , approximately 95 % of our private loan portfolio investments were in the form of debt investments and approximately 98 % of such debt investments at cost were secured by first priority liens on portfolio company assets . the weighted average annual effective yield on our private loan portfolio debt investments was approximately 11.3 % as of december 31 , 2013. the weighted average annual yields were computed using the effective interest rates for all debt investments at cost as of december 31 , 2014 and 2013 , including amortization of deferred debt origination fees and accretion of original issue discount but excluding fees payable upon repayment of the debt instruments and any debt investments on non-accrual status . as of december 31 , 2014 , we had other portfolio investments in six companies , collectively totaling approximately $ 58.9 million in fair value and approximately $ 56.2 million in cost basis and which comprised approximately 3.8 % of our investment portfolio ( as defined in `` critical accounting policies basis of presentation '' below ) at fair value as of december 31 , 2014. as of december 31 , 2013 , we had other portfolio investments in six companies , collectively totaling approximately $ 42.8 million in fair value and approximately $ 40.1 million in cost basis and which comprised approximately 3.3 % of our investment portfolio at fair value as of december 31 , 2013. as previously discussed , the external investment manager is a wholly owned subsidiary that is treated as a portfolio investment . as of december 31 , 2014 , there was no cost basis in this investment and the investment had a fair value of $ 15.6 million , which comprised 1.0 % of our investment portfolio at fair value . as of december 31 , 2013 , there was no cost basis in this investment and the investment had a fair value of $ 1.1 million , which comprised 0.1 % of our investment portfolio at fair value . our portfolio investments are generally made through mscc and the funds . mscc and the funds share the same investment strategies and criteria , although they are subject to different regulatory regimes . an investor 's return in mscc will depend , in part , on the funds ' investment returns as they are wholly owned subsidiaries of mscc .
| discussion and analysis of results of operations comparison of years ended december 31 , 2014 and 2013 replace_table_token_16_th replace_table_token_17_th ( a ) distributable net investment income and distributable net realized income are net investment income and net realized income , respectively , as determined in accordance with u.s. gaap , excluding the impact of share-based compensation expense which is non-cash in nature . we believe presenting distributable net investment income and distributable net realized income , and related per share amounts , is useful and appropriate supplemental disclosure of information for analyzing our financial performance since share-based compensation does not require settlement in cash . however , distributable net investment income and distributable net realized income are non-u.s. gaap measures and should not be considered as a replacement to net investment income , net realized income , and other earnings measures presented in accordance with u.s. gaap . instead , distributable net investment income and distributable net realized 76 income should be reviewed only in connection with such u.s. gaap measures in analyzing our financial performance . a reconciliation of net investment income and net realized income in accordance with u.s. gaap to distributable net investment income and distributable net realized income is presented in the table above . investment income for the year ended december 31 , 2014 , total investment income was $ 140.8 million , a 21 % increase over the $ 116.5 million of total investment income for the corresponding period of 2013. this comparable period increase was principally attributable to ( i ) a $ 15.9 million increase in interest income from higher average levels of portfolio debt investments , ( ii ) an $ 8.1 million increase in dividend income from investment portfolio equity investments and ( iii ) a $ 0.8 million increase in fee income from higher origination activity and refinancing and prepayment activity , partially offset by a $ 0.6 million decrease in interest and dividend income due to a lower level of marketable securities and idle funds investments .
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we retain full development and commercialization rights for korsuva injection for the treatment of ckd-ap in the u.s. except in the dialysis clinics of fresenius medical care north america ( fmcna ) , where we and vfmcrp will promote korsuva injection under a profit-sharing arrangement . upon entry into the vfmcrp agreement , vfmcrp made a non-refundable , non-creditable $ 50 million upfront payment to us and vifor ( international ) ltd. , or vifor , purchased 1,174,827 shares of our common stock for $ 20 million , at a premium for the price of $ 17.024 per share . in addition , we are eligible to receive from vfmcrp regulatory and commercial milestone payments in the aggregate of up to $ 470 million , consisting of up to $ 30 million in regulatory milestones and up to $ 440 million in tiered commercial milestones , all of which are sales-related . we are also eligible to receive tiered double-digit royalty payments based on annual net sales , as defined , of korsuva ( cr845/difelikefalin ) injection in the licensed territories . in the united states , we and vfmcrp will promote korsuva ( cr845/difelikefalin ) injection in the dialysis clinics of fmcna under a profit-sharing arrangement ( subject to the terms and conditions of the vfmcrp agreement ) based on net fmcna clinic sales recorded by us . 78 in april 2013 , we entered into a license agreement , or the maruishi agreement , with maruishi pharmaceutical co. , ltd. , or maruishi , in japan , under which we granted maruishi an exclusive license , to develop , manufacture and commercialize drug products containing cr845/difelikefalin in japan in the acute pain and uremic pruritus fields . we and maruishi are each required to use commercially reasonable efforts , at our respective expense , to develop , obtain regulatory approval for and commercialize cr845/difelikefalin in the united states and japan , respectively . in addition , we have provided maruishi specific clinical development services for cr845/difelikefalin in maruishi 's field of use between 2013 and 2015. under the terms of the maruishi agreement , we received a non-refundable and non-creditable upfront license fee of $ 15.0 million and are eligible to receive up to an aggregate of $ 6.0 million in clinical development milestones and $ 4.5 million in regulatory milestones . in august 2014 , we received a clinical development milestone payment of $ 0.5 million upon completion by maruishi of a phase 1 clinical trial in japan related to cr845/difelikefalin in acute post-operative pain . in october 2015 , we received a $ 1.7 million milestone payment ( net of contractual foreign currency exchange adjustments of $ 0.3 million ) related to the initiation by maruishi of a phase 2 clinical trial of cr845/difelikefalin in japan for uremic pruritus . in march 2017 , we received a payment of $ 0.8 million in connection with maruishi entering into a sub-license agreement with kissei for the development and sales/marketing of cr845/difelikefalin for the treatment of uremic pruritus in dialysis patients in japan . we are also eligible to receive tiered royalties , with percentages ranging from the low double digits to the low twenties , based on net sales of products containing cr845/difelikefalin in japan , if any , and share in any sub-license fees . in addition , in connection with the maruishi agreement , maruishi purchased 842,105 shares of our common stock for an aggregate purchase price of $ 8.0 million . in april 2012 , we entered into a license agreement , or the ckdp agreement with chong kun dang pharmaceutical corporation , or ckdp , in south korea , under which we granted ckdp an exclusive license to develop , manufacture and commercialize drug products containing cr845/difelikefalin in south korea . we and ckdp are each required to use commercially reasonable efforts , at our respective expense , to develop , obtain regulatory approval for and commercialize cr845/difelikefalin in the united states and south korea , respectively . under the terms of the ckdp agreement , we received a non-refundable and non-creditable upfront license fee of $ 0.6 million and are eligible to receive up to an aggregate of $ 2.3 million in clinical development milestones and $ 1.5 million in regulatory milestones . in addition , ckdp purchased , 69,444 shares of our common stock in consideration for $ 0.4 million . during the year ended december 31 , 2012 , we received $ 0.6 million , net of foreign taxes , from ckdp upon the completion of a phase 2 trial of cr845/difelikefalin in pain in the united states and a phase 1a trial of oral cr845/difelikefalin for uremic pruritus in the united states . during the year ended december 31 , 2015 , we met the milestone criteria , as set forth in the ckdp agreement , for completion of a phase 1b trial of oral cr845/difelikefalin for uremic pruritus in the united states and for completion of a phase 2 trial of cr845/difelikefalin in uremic pruritus patients in the united states for which we received milestone payments totaling $ 0.6 million ( net of south korean withholding tax ) from ckdp . we are also eligible to receive tiered royalties with percentages ranging from the high single digits to the high teens , based on net sales of products containing cr845/difelikefalin in south korea , if any , and share in any sub-license fees . components of operating results 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 foreseeable future . substantially all of our revenue recognized to date has consisted of upfront payments under license agreements with vfmcrp , maruishi and ckdp , and milestone and sub-license payments under license agreements with ckdp and maruishi for cr845/difelikefalin , some or all of which was deferred upon receipt , as well as license agreements for cr665 , our first-generation drug program for which development efforts have ceased and clinical compound sales from certain license agreements . story_separator_special_tag the increase in other g & a operating expenses was primarily the result of an increase in payroll and related costs associated with g & a personnel , partially offset by a decrease in rent , utilities and related costs . for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 , the increase in professional fees and public/investor relations was due primarily to an increase in public/investor relations costs . the increase in stock-based compensation primarily resulted from increased employee headcount , including our current chief financial officer , the acceleration of vesting of outstanding stock option awards upon the retirement of our former chief financial officer , and stock option awards granted to non-employee consultants , which are marked to market each quarter , and resulted from an increase in the market price of our common stock . the decrease in depreciation and amortization expense reflects the acceleration of amortization of our leasehold improvements at our shelton , connecticut facility related to general and administrative activities prior to the relocation of our corporate headquarters in may 2016. the increase in other g & a operating expenses was primarily the result of an increase in personnel-related costs , partially offset by a decrease in rent expense , primarily due to the recognition in 2016 of all of the remaining rent expense allocable to general and administrative activities due during the remaining term of the shelton operating lease . other income replace_table_token_8_th 83 during the year ended december 31 , 2018 compared to the year ended december 31 , 2017 , the increase in other income was primarily due to an increase in dividend and interest income resulting from a higher average balance of our portfolio of investments in the 2018 period . for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 , the increase in other income was primarily due to an increase in dividend and interest income resulting from higher interest rates on a higher average balance of our portfolio of investments in the 2017 period . benefit from income taxes for the years ended december 31 , 2018 , 2017 and 2016 , pre-tax losses were $ 74.4 million , $ 58.3 million and $ 57.7 million , respectively , and we recognized a benefit from income taxes of $ 389 thousand , $ 204 thousand and $ 468 thousand , respectively . the benefit from income taxes relates to state r & d tax credits exchanged for cash pursuant to the connecticut r & d tax credit exchange program , as discussed above . we recognized a full valuation allowance against deferred tax assets at december 31 , 2018 , 2017 and 2016. liquidity and capital resources sources of liquidity since our inception and through december 31 , 2018 , we have raised an aggregate of approximately $ 486.6 million to fund our operations , including ( 1 ) net proceeds of $ 309.8 million from the sale of shares of our common stock in four public offerings , including our initial public offering ; ( 2 ) proceeds of $ 73.3 million from the sale of shares of our convertible preferred stock and from debt financings prior to our initial public offering ; ( 3 ) payments of $ 88.9 million under our license agreements , primarily with vfmcrp , maruishi , ckdp and an earlier product candidate for which development efforts ceased in 2007 ; and ( 4 ) net proceeds of $ 14.6 million from the purchase of our common stock in relation to the license agreement with vfmcrp ( see note 11 of notes to financial statements , collaboration and licensing agreements , in this annual report on form 10-k ) . in order to fund future operations , including our planned clinical trials , we filed a shelf registration statement on form s-3 ( file no . 333-216657 ) , which the securities and exchange commission , or sec , declared effective on march 24 , 2017. the shelf registration statement provides for aggregate offerings of up to $ 250 million of common stock , preferred stock , debt securities , warrants or any combination thereof . the securities registered under this shelf registration statement include unsold securities that had been registered under our previous shelf registration statement ( file no . 333-203072 ) that was declared effective on may 13 , 2015. on april 5 , 2017 , we completed a public offering of 5,117,500 shares of our common stock , including 667,500 shares sold upon the full exercise by the underwriters of their option to buy additional shares p ursuant to our shelf registration statement . we received net proceeds of $ 86.2 million after deducting the underwriting discounts and commissions and offering expenses paid by us . the proceeds of the offering are/were being used to fund our clinical and research development activities , including the ongoing phase 3 program for i.v . korsuva ( cr845/difelikefalin ) in ckd-ap or uremic pruritus , additional trials of oral cr845/difelikefalin in other diseases associated with pruritus , the recently completed phase 2/3 i.v . cr845/difelikefalin adaptive clinical trial in postoperative pain , as well as for working capital and general corporate purposes . 84 on july 18 , 2018 , we entered into an underwriting agreement with jefferies llc and merrill lynch , pierce , fenner & smith incorporated , as representatives of the several underwriters named therein , relating to the issuance and sale by us of up to 5,175,000 shares of our common stock , including 675,000 shares of common stock the underwriters had the option to purchase , at a public offering price of $ 19.00 per share . this offering was made by pursuant to our registration statement on form s-3 ( file no .
| results of operations comparison of the years ended december 31 , 2018 , 2017 and 2016 revenue replace_table_token_4_th license and milestone fee revenue license and milestone fee revenue of $ 13.4 million for the year ended december 31 , 2018 was related to license fees earned by us during the period in connection with the vfmcrp agreement . license and milestone fees revenue for the year ended december 31 , 2017 included $ 530 thousand of the $ 843 thousand sub-license fee earned by us in connection with maruishi 's sub-license agreement with kissei that was allocated to the license fee deliverable under the maruishi agreement . there was no license and milestone fee revenue for the year ended december 31 , 2016 ( see note 11 of notes to financial statements , collaboration and licensing agreements , in this annual report on form 10-k ) . collaborative revenue there was no collaborative revenue for the years ended december 31 , 2018 and 2016. collaborative revenue for the year ended december 31 , 2017 included $ 313 thousand of the $ 843 thousand sub-license fee earned by us in connection with maruishi 's sub-license agreement with kissei that was allocated to the r & d services deliverable under the maruishi agreement ( see note 11 of notes to financial statements , collaboration and licensing agreements , in this annual report on form 10-k ) . 81 clinical compound revenue clinical compound revenue of $ 33 , $ 68 and $ 86 for the years ended december 31 , 2018 , 2017 and 2016 , respectively , related to the sale of clinical compound to maruishi . research and development expense replace_table_token_5_th for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 , the net increase in direct clinical trial costs and related consultant costs primarily resulted from increases totaling $ 37.7 million , mainly from activities related to the two phase 3 studies of i.v .
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the exercise prices are $ 3.00 for options vesting in the first year , $ 4.00 for options vesting in the second year , and $ 5.00 for options vesting in the third year . the company has calculated the estimated fair market value of these options using the black-scholes option pricing model and the following assumptions : term 3 to 5.5 years , stock price $ 2.01 , exercise prices $ 3.00- $ 5.00 , 235 % volatility , 0.80 % risk free rate . on august 5 , 2014 , it was approved at the company 's annual general meeting to increase the number of restricted shares that the company is authorized to issue under the 2011 equity incentive plan to 2,000,000. on august 18 , 2014 , the company granted options to purchase 670,000 shares . these options vest in two equal tranches , the first tranche vests on february 18 , 2015. the second tranche vests on february 18 , 2016. all the options expire four years after their vesting dates . the exercise prices are $ 2.50 for options vesting in the first year and $ 3.00 for options vesting in the second year . the company has calculated the estimated fair market value of these options using the black-scholes option pricing model and the following assumptions : term 4.5 to 5.5 years , stock price $ 1.85 , exercise prices $ 2.50- $ 3.00 , 237 % volatility , 1.58 % risk free rate . on august 18 , 2014 , the company granted options to purchase 60,000 shares . these options vest in equal six monthly installments over three years , starting six months after the date of grant , and expire three years after the vesting dates . the exercise prices are $ 3.00 for options vesting in the first year , $ 4.00 for options vesting in the second year , and $ 5.00 for options vesting in the third year . the company has calculated the estimated fair market value of these options using the black-scholes option pricing model and the following assumptions : term 3.5 to 6 years , stock price $ 1.85 , exercise prices $ 3.00- $ 5.00 , 237 % volatility , 0.89 % risk free rate . during the year ended december 31 , 2014 , 60,000 options expired , following the cessation of a consultant 's contract . f-18 note 8 warrants and options ( continued ) below is a table summarizing the options issued and outstanding as of december 31 , 2015 . below is a table summarizing the options issued and outstanding as of december 31 , 2015 , which have a weighted average exercise price of $ 3.53 per share and a weighted average remaining contractual life of 3.0 years . replace_table_token_14_th total remaining unrecognized compensation cost related to unvested stock options is approximately $ 159,096 and is expected to be recognized over a period of 1.5 years . note 9 - fair value measurements on a recurring basis , we measure certain financial assets and liabilities based upon the fair value hierarchy as described in the company 's significant accounting policies in note 3. the following table presents information about the company 's liabilities measured at fair value as of december 31 , 2015 : replace_table_token_15_th the fair value changes in the fair value of recurring fair value measurements using model-derived valuations in which significant inputs are observable or can be derived principally from , or corroborated by , observable market data ( level 2 ) , relate solely to the derivative liability as follows : balance as of december 31 , 2014 $ 1,577,640 exercise of warrants attached to derivative liability $ ( 74,347 ) adjustment due to expiry of derivative liability $ ( 1,163,549 ) fair value adjustments $ ( 339,744 ) balance as of december 31 , 2015 $ - during the year ended december 31 , 2015 , the company issued warrants for services at fair market value of $ nil , options under the 2011 equity incentive plan at fair market value of $ 950,455 and re-measured options , where their exercise period was extended , to fair market value of $ 705,818 , an increase of $ 20,796 . the company did not issue shares of common stock for services and as at december 31 , 2015 , the company had no derivative liabilities . f-19 note 10 - derivative financial instruments the balance sheet caption derivative liability consists of derivative features embedded in exercisable warrants which have a ratchet provision within their agreements . the balance at december 31 , 2015 and 2014 was $ nil and $ 1,577,640 , respectively . the valuation of the derivative liability is determined using a black-scholes model because that model embodies all of the relevant assumptions that address the features underlying these instruments . significant assumptions used in the black-scholes model at december 31 , 2015 include the following : replace_table_token_16_th note 11 - income taxes the company has estimated net operating losses for the years ended december 31 , 2015 and 2014 of $ 8,774,691 and $ 7,141,271 , respectively , available to offset taxable income in future years . story_separator_special_tag this annual report on form 10-k contains forward-looking statements . these forward-looking statements are not historical facts but rather are based on current expectations , estimates and projections . we may use words such as anticipate , expect , intend , plan , believe , foresee , estimate and variations of these words and similar expressions to identify forward-looking statements . story_separator_special_tag these statements are not guarantees of future performance and are subject to certain risks , uncertainties and other factors , some of which are beyond our control , are difficult to predict and could cause actual results to differ materially from those expressed or forecasted . you should read this report completely and with the understanding that actual future results may be materially different from what we expect . the forward-looking statements included in this report are made as of the date of this report and should be evaluated with consideration of any changes occurring after the date of this report . we will not update forward-looking statements even though our situation may change in the future and we assume no obligation to update any forward-looking statements , whether as a result of new information , future events or otherwise . the following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and the related notes and other financial information included elsewhere in this report . overview we are a clinical-stage life sciences company focused on developing blood based diagnostic tests that meet the need for accurate , fast , cost effective and scalable tests for detecting and diagnosing cancer and other diseases . we have developed twenty eight blood-based assays to date to detect specific biomarkers that can be used individually or in combination to generate a profile which forms the basis of a test for a particular cancer or disease . we intend to commercialize our products in the future through various channels within the european union , the united states and throughout the rest of the world likely beginning with china and india . we are developing blood-based diagnostics for the most prevalent cancers , beginning with colorectal , lung and pancreatic cancer , using our nucleosomics ® biomarker discovery platform . the platform employs a range of simple nuq ® immunoassays on an industry standard elisa format , which allow rapid quantification of epigenetic changes in biofluids ( whole blood , plasma , serum , sputum , urine etc . ) compared to other approaches such as bisulfite conversion and polymerase chain reaction , or pcr . nuq ® biomarkers can be used alone , or in combination to generate profiles related to specific conditions . the first tranche of data released from a large independent trial for colorectal cancer could , if carried through into our screening or symptomatic trials , potentially have a positive impact for broad scale , cost effective , cancer diagnostics . management has identified the specific processes and resources required to achieve the near and medium term objectives of the company 's business plan , including personnel , facilities , equipment , research and testing materials including antibodies and clinical samples , and the protection of intellectual property . to date , operations have proceeded satisfactorily in relation to the business plan . however it is possible that some resources will not readily become available in a suitable form or on a timely basis or at an acceptable cost . it is also possible that the results of some processes may not be as expected and that modifications of procedures and materials may be required . such events could result in delays to the achievement of the near and medium term objectives of the business plan , in particular the progression of clinical validation studies and regulatory approval processes for the purpose of bringing products to the ivd market . we do not anticipate earning significant revenues until such time as we are able to fully market our intended products on the ivd market . for this reason , our auditors stated in their report on our most recent audited financial statements that our losses and negative cash flow from operations raise substantial doubt that we will be able to continue as a going concern without further financing . our ability to continue as a going concern is dependent upon our ability to successfully accomplish our plan of operations described herein , obtain financing and eventually attain profitable operations . liquidity and capital resources as of december 31 , 2015 , the company had cash of $ 5,916,006 and prepayments and other current assets of $ 306,649. the company had current liabilities of $ 1,119,650. this represents a working capital surplus of $ 5,103,005. the company used $ 8,766,323 in net cash for the year ended december 31 , 2015 , compared to $ 4,140,825 for the year ended december 31 , 2014. the increase in cash used year over year was primarily due to an increase in research and development expenditure and legal costs associated with our up-listing onto the nyse mkt . please see results of operations , below for more detail . 33 net cash used in investing activities increased year over year by $ 49,254 to $ 352,243 in the 2015 period , mainly as a result of the purchase of the nucleosomics® wo2005019826 : detection of histone modifications in cell-free nucleosomes patent ( i.e . the patent that underlies the nuq ® -m tests ) from chroma therapeutics limited for $ 55,000. net cash provided by financing activities amounted to $ 12,882,602 for the year ended december 31 , 2015 , compared to $ 5,737,766 for the year ended december 31 , 2014. the company raised approximately $ 9.7 million in net proceeds in february 2015 , when approximately 2.8 million shares of common stock were issued in a public offering at the time of our up-listing to the nyse mkt . we also raised another $ 1.5 million from further issuances in a private placement during the first quarter of 2015 and approximately $ 1.3 million from exercises of warrants and stock options in 2015. a capital lease for three tecan machines resulted in an additional $ 223,152 being raised over this period . this resulted in an increase of cash of $
| results of operations comparison of the years ended december 31 , 2015 and december 31 , 2014 the following table sets forth the company 's results of operations for the year ended on december 31 , 2015 and the comparative period for the year ended december 31 , 2014. replace_table_token_3_th 34 revenues the company 's operations are still predominantly in the development stage . operating expenses the company 's total operating expenses increased $ 4,053,519 , or 68 % , in 2015 compared to 2014. total expenses are comprised of general and administrative expenses , professional fees , salaries and administrative fees and research and development expenses . general and administrative expenses the company 's general and administrative expenses increased $ 369,965 , or 124 % , in 2015 compared to 2014. a large proportion of this increase is due to increased investor relations related travel and conference attendance expenses of $ 131,795 , alongside an increase in insurance costs of $ 134,840. professional fees the company 's professional fees increased $ 1,072,543 , or 201 % , in 2015 compared to 2014. the company incurred significant costs in relation to the up-listing to the nyse mkt in february 2015. during 2015 , there were increases in ( i ) legal fees of $ 567,734 in 2015 as a result of legal activity associated with the up-list to the nyse mkt , capital raising activities and other contractual matters , ( ii ) investor relations services of $ 210,346 , to raise the profile of the company and ( iii ) nyse mkt listing fees of $ 107,083 as compared to 2014. salaries and office administration fees the company 's salaries and office administration fees increased $ 553,316 , or 51 % , in 2015 compared to 2014. this is mainly explained by an increase in equity plan option amortization of $ 468,085 , alongside an increase in salaries and fees of $ 402,085. there was additional compensation for senior executives
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generally , may , could , will , would , expect , believe , estimate , anticipate , intend , continue and similar words identify forward-looking statements . forward-looking statements appearing in this report are made pursuant to the safe harbor provisions of the private securities litigation reform act of 1995. forward-looking statements are based on our current expectations and are subject to risks and uncertainties that can cause actual results and events to differ materially from those set forth in or implied by the forward-looking statements and related assumptions contained in the entire report . such factors include , but are not limited to : product demand and market acceptance risks ; the effect of economic conditions ; weather conditions ; changes in regulatory policy ; the impact of competitive products and pricing ; changes in foreign exchange rates ; product development and commercialization difficulties ; capacity and supply constraints or difficulties ; availability of capital resources ; general business regulations , including taxes and other risks as detailed from time-to-time in the company 's reports and filings filed with the u.s. securities and exchange commission ( the sec ) . it is not possible to foresee or identify all such factors . we urge you to consider these factors carefully in evaluating the forward-looking statements contained in this report . 19 american vanguard corporation and subsidiaries ( dollars in thousands , except per share data ) story_separator_special_tag 2012. the business sells very effective organic aerosol products through home depot stores . these products target crawling , flying or stinging insects . offsetting these gains , we experienced a decline in pharmaceutical sales of approximately 26 % primarily due to generic competition from china . our cost of sales for 2012 was $ 205,065 or 56 % of net sales . this compared to $ 178,012 or 59 % of net sales for 2011. the decline in cost of sales as a percentage of net sales in 2012 arose primarily from these factors . in 2012 the company continued to focus on selling those products having higher margins or lower costs . this included a further drop in manufacturing activities for third parties as increased demand for plant capacity generated less incentive to drive this aspect of the business . typically , such activities enable us to cover costs but do not generate much , if any , gross profit . furthermore , our sales in 2012 have been focused on our strongest brands that are targeted at specific problems that have been impacting agriculture in the year and products that tend to have strong margin performance throughout the supply chain . as detailed in 21 american vanguard corporation and subsidiaries ( dollars in thousands , except per share data ) the table , the change in volume , mix , price and manufacturing activity resulted overall in a 3 % improvement in gross margin to 44 % in 2012 as compared to 41 % for the same period of the prior year . this included the benefit of selling prices that increased on average by 5 % offset by approximately 2 % increase in raw material costs . operating expenses in 2012 increased by $ 17,960 to $ 101,802 or 28 % of sales as compared to $ 83,842 or 28 % in 2011. the differences in operating expenses by department are as follows : replace_table_token_5_th selling expenses increased by $ 2,551 to end at $ 25,869 for the year ended december 31 , 2012 , as compared to the same period of 2011. the main driver for increased overall cost was from expenses in support of our proprietary delivery system and other stewardship activities , wages , and travel expenses to support our growing business . general and administrative expenses increased by $ 8,286 to $ 29,715 for the year ended december 31 , 2012 , as compared to the same period of 2011. the main reasons for the increased costs are ; first , stock based and incentive compensation as a result of our improved overall financial performance ; second , legal and consulting costs related to product defense , creation of our new international structure and creation of our new majority owned subsidiary ; third , additional headcount supporting our expanding business . research , product development costs and regulatory expenses increased by $ 2,709 to $ 20,750 for the year ended december 31 , 2012 , as compared to the same period of 2011. this is mainly due to product defense and development cost in support of our expanding business plus key product development and research headcount . freight , delivery and warehousing costs for the year ended december 31 , 2012 were $ 25,468 or 7 % of sales as compared to $ 21,054 or 7 % of sales for the same period in 2011. total interest expense was $ 2,466 in 2012 , as compared to $ 3,457 in 2011. interest costs are summarized in the following table : replace_table_token_6_th 22 american vanguard corporation and subsidiaries ( dollars in thousands , except per share data ) the company 's average overall debt for the year ended december 31 , 2012 was $ 57,248 as compared to $ 72,908 for the comparable period of the previous year . during the year we operated the business without accessing our revolving debt facility by continued focus on inventory , receivables and program management . as can be seen from the above table , on a gross basis , our effective interest rate increased to 3.7 % as compared to 3.4 % last year . the increase is caused by the fixed interest rate swap , which is required as part of the company 's credit agreement . story_separator_special_tag the cumulative effect of all these factors led to increased demand for the type of crop protection products for corn that the company supplies . overall financial performance ( including net sales and net income ) for the year ended december 31 , 2011 improved as compared to the same period in 2010. our net sales for the period were up approximately 33 % to $ 301,080 as compared to $ 226,859 for the year ended december 31 , 2010. net sales of our crop business in 2011 were $ 272,068 which constitutes an increase of about 34 % over the net sales of $ 203,393 in 2010. net sales of non-crop products for the period were $ 29,012 , which constitutes an increase of about 24 % over the net sales of $ 23,466 in the same period last year . a more detailed discussion of product groups and products having a material effect on net sales for each of the crop and non-crop segments appears below . 24 american vanguard corporation and subsidiaries ( dollars in thousands , except per share data ) further , the company 's 2011 sales benefited from the acquisition of several new products acquired in the second half of 2010. the addition of the insecticides aztec 2.1 , mocap and nemacur accounted for approximately half of the company 's $ 68,675 year-over-year gain in crop sales . we also benefitted from the withdrawal of a competitive insecticide product in the u.s. market , which yielded improved sales of our granular insecticide thimet . with respect to our crop segment , net sales of our insecticides in 2011 were up strongly to $ 137,460 representing an increase of approximately 63 % as compared to $ 84,500 for the comparable period in 2010. within this segment , annual net sales of our granular soil insecticides were up approximately 125 % over the same period , driven by a strong performance from our primary corn soil insecticides aztec , smartchoice , counter and force . this product group also benefitted from the newly acquired mocap and nemacur granular insecticides/nematicides which were purchased in december 2010 despite the fact that we experienced a shortfall in supply of mocap during 2011 from our source . annual net sales of thimet grew by more than one half over the prior year due to increased peanut acres , increased use for nematode control in sugar cane and the above-mentioned substitution for a withdrawn competitive insecticide ( aldicarb ) . among our non-granular insecticide products , overall net sales declined by nearly 12 % . our foliar cotton insecticide , bidrin , decreased compared to the prior year due to severe drought conditions in the southern region . further , sales of bifenthrin , permethrin and orthene declined approximately 27 % as we de-emphasize the applications of these products that have become susceptible to low-priced generic competition ; however , despite the drop in net sales , we experienced improved overall levels of gross profit from these three products . offsetting these declines , sales of our dibrom insecticide , which has historically been used primarily for mosquito control , continued to expand in crop/citrus applications . within the product group of herbicides/fungicides/fumigants , net sales in 2011 were up about 5 % over the 2010 year ( $ 90,782 vs. $ 86,780 ) . within this group we had mixed results . net sales of our herbicide products were up 13 % , led by our post-emergent corn herbicide , impact , which midwest farmers use as a highly effective product to combat the increasing challenge of glyphosate tolerant weeds . our fumigants sales were up modestly as our vapam and k-pam products continue to be u.s. market leaders in this product category . net sales of our fungicides , however , were down during 2011 as compared to 2010 ; this was due to the fact that all domestic sales of pcnb were suspended following the issuance of a ssuro in august 2010 , partially offset by the issuance of new labels in november 2011. within the segment of other products ( which includes plant growth regulators , molluscicides and third party manufacturing activity ) , we experienced a nearly 36 % increase in net sales during 2011 as compared to 2010 ( $ 43,826 vs. $ 32,113 ) . this increase is primarily due to strong sales of folex , a defoliant used in cotton harvest management ; while certain cotton regions experienced severe drought conditions , in other areas , cooler than normal conditions caused the growers to use the product at higher use rates . net sales of folex were also positively impacted by our acquisition of the domestic def ( tribufos ) product line in late july 2010. partially offsetting folex 's gains was a slight drop in net sales of naa , a plant growth regulator primarily used in apples to stop apple drop , the return of bloom , and for thinning blossom . net sales of metaldehyde ( a molluscicide ) were approximately flat over the comparable 2010 period ; and third party manufacturing revenues decreased by approximately $ 4,000 in 2011 as compared to 2010. finally , it should be noted that , included in sales in 2010 was data compensation in the amount of $ 868. there was no similar revenue recorded in 2011. within our non-crop segment , net sales were up by about 24 % ( $ 29,012 v. $ 23,466 ) compared to 2010. on the positive side , naled sales were up despite limited hurricane activity and persistent drought conditions in the southwest , early season river flooding caused greater pest pressure and spraying activity . in the same segment , net sales of pest strips increased 17 % over the prior year as professional pest control operators continue to recognize that our active ingredient , ddvp , is one of the most effective general pest control agents available today .
| results of operations 2012 compared with 2011 : replace_table_token_4_th the 2012 agricultural market conditions were somewhat better than those of 2011. persistent strong global demand for food , animal feed , natural fiber and bio-fuel feed stocks continued to spur higher than normal crop commodity prices . as a result , growers invested more heavily in yield enhancing inputs which fueled demand for many of the company 's most important crop protection products . this was particularly true in corn , where strong demand and a rising crop commodity price led to increased planted acreage in the united states . in 2012 , a record 97 million acres of corn were planted ; over 87 million acres were harvested ; and yield per acre was depressed to approximately 123 bushels from an average yield of closer to 150 bushels in prior years . the drop in yield arose from a persistent drought in parts of the midwest and southwest . this extreme mid-season and late-season drought did not affect the use of the company 's important granular soil insecticides since these products are applied at the time of planting . the drought of 2012 also affected u.s. cotton growers and destroyed nearly 23 % of planted acreage , mostly in texas . however , in other southern and southeastern states weather conditions were somewhat more favorable , allowing amvac to achieve excellent sales of its cotton insecticides and harvest defoliants . adding to the challenges of meeting excess demand and coping with problematic weather , the continuing practice of planting corn on the same acres year-after-year ( versus sequential rotation of corn and soybeans ) has intensified primary & secondary insect pest pressure in the midwest united states . furthermore , over the past few seasons , growers ( particularly of corn ) have increasingly adopted the use of conventional chemistry as an important part of integrated pest management , both to control resistant pests and to help improve yield .
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the company 's reorganization value ( “ equity value ” ) , upon emergence from bankruptcy , was determined to be $ 76.6 million , which represented management 's best estimate of fair value based on a calculation of the present value of the company 's consolidated story_separator_special_tag the following discussion should be read in conjunction with our financial statements and the related notes included in item 8 of this annual report on form 10-k. the following is a discussion and analysis of our results of operations for the periods ended december 31 , 2015 , 2014 and 2013 and the financial condition as of december 31 , 2015 and december 31 , 2014 ( dollars in thousands , except per share data and as otherwise indicated ) . references as used herein , unless the context requires otherwise , to ( i ) the “ company , ” “ we , ” “ us , ” or “ our ” refer to wmih corp. ( formerly wmi holdings corp. ) and its subsidiaries on a consolidated basis ; ( ii ) “ wmih ” refers only to wmih corp. , without regard to its subsidiaries ; ( iii ) “ wmihc ” refers only to wmi holdings corp. , without regard to its subsidiaries ; ( iv ) “ wmmrc ” refers to wm mortgage reinsurance company , inc. ( a wholly-owned subsidiary of wmih ) ; and ( v ) “ wmiic ” refers to wmi investment corp. ( a wholly-owned subsidiary of wmih ) . forward-looking statements and other statements as discussed under “ forward-looking statements ” at the beginning of this report and “ risk factors ” in item 1a of part i of this report , actual results may differ materially from the results contemplated by forward-looking statements . we are not undertaking any obligation to update forward-looking statements or other statements we may make in the following discussion or elsewhere in this document , even though these statements may be affected by events or circumstances occurring after the forward-looking statements were made . therefore , you should not rely on these statements being current as of any time other than the time at which this document was filed with the sec . overview our business strategy and operating environment wmih corp. ( “ wmih ” ) is a corporation duly organized and existing under the laws of the state of delaware . on may 11 , 2015 , wmih merged with its parent corporation , wmi holdings corp. , a washington corporation ( “ wmihc ” ) , with wmih as the surviving corporation in the merger ( the “ merger ” ) . the merger occurred as part of the reincorporation of wmihc from the state of washington to the state of delaware effective may 11 , 2015 ( the “ reincorporation date ” ) . wmih is the direct parent of wmmrc and wmiic . since emergence from bankruptcy on march 19 , 2012 ( the “ effective date ” ) , we had limited operations other than wmmrc 's legacy reinsurance business , which is being operated in runoff mode . we continue to operate wmmrc 's business in runoff mode and our primary strategic objective is to consummate one or more acquisitions of an operating business , either through a merger , purchase , business combination or other form of acquisition , and grow our business . until such time as an acquisition is consummated , we intend to continue to seek , identify and evaluate acquisition opportunities of varying sizes across a broad array of industries for the purpose of facilitating an acquisition by wmih of one or more operating businesses . our management team meets regularly with the corporate strategy and development committee of our board of directors ( the “ cs & d committee ” ) to discuss and evaluate potential acquisition targets . during the year ended december 31 , 2015 , the cs & d committee met formally and informally numerous times to assess various opportunities . in 2015 we have focused primarily on acquisition targets in the financial services industry , including targets with consumer finance , commercial finance , specialty finance , leasing and insurance operations . on january 5 , 2015 , wmih announced that it had completed an offering ( the “ series b preferred stock financing ” ) of 600,000 shares of its 3 % series b convertible preferred stock , par value $ 0.00001 , liquidation preference $ 1,000 per share ( the “ series b preferred stock ” ) , in the amount of aggregate gross proceeds equal to $ 600 million , pursuant to a purchase agreement ( the “ purchase agreement ” ) with citigroup global markets inc. ( “ citi ” ) and kkr capital markets llc ( “ kcm ” ) , an affiliate of kkr fund holdings l.p. ( “ kkr fund ” ) and kkr management holdings l.p. ( “ kkr management ” ) . the initial net proceeds from the series b preferred stock financing in the amount of $ 598.5 million were deposited into an escrow account and initially invested in united states government securities having a maturity of 180 days or less , in certain money market funds , or cash items . the net proceeds of the series b preferred stock financing will be released from escrow to us from time to time in amounts needed to finance our efforts to explore and fund , in whole or in part , acquisitions , whether completed or not , including reasonable attorney fees and expenses , accounting expenses , due diligence and financial advisor fees and expenses . for further information on the series b preferred stock financing , see note 9 : capital stock , to the consolidated financial information in part ii , item 8 of this annual report on form 10-k . story_separator_special_tag within the mortgage reinsurance segment , our current risks arise solely from the reinsurance of mortgage insurance policies that were placed on certain residential mortgage loans prior to bankruptcy of washington mutual , inc. ( “ wmi ” ) . the majority of these policies were required by mortgage lenders as a stipulation to approve the mortgage loans . the mortgage insurance policies protect the beneficiaries of the policy from all or a portion of default-related losses . overview of revenues and expenses because wmih has no current significant operations of its own , its cash flow is derived almost entirely from earnings on its investment portfolio , and payments it receives from , and dividends paid by , wmmrc . at this time , all dividends received by wmih from wmmrc that constitute runoff proceeds must be distributed to holders of wmih 's second lien notes in accordance with the terms of the second lien indenture . wmmrc 's revenues consist primarily of the following : ● net premiums earned on reinsurance contracts ; ● positive changes to ( and corresponding releases from ) loss reserves ; and ● net investment income and net gains ( losses ) on wmmrc 's investment portfolio . wmmrc 's expenses consist primarily of the following : ● underwriting expenses ; and ● general and administrative expenses . results of operations for the years ended december 31 , 2015 , 2014 and 2013 for the year ended december 31 , 2015 , we reported a net operating loss of $ 15.1 million . this result compares to net operating income of $ 3.1 million and $ 0.3 million for the years ended december 31 , 2014 and december 31 , 2013 , respectively . for the years ended december 31 , 2015 and december 31 , 2014 , we reported net loss attributable to common and participating stockholders of $ 79.6 million and $ 6.4 million , respectively . this result compares to net income attributable to common and participating stockholders of $ 0.3 million for the year ended december 31 , 2013. this $ 73.2 million and $ 79.9 million negative change in results when comparing the year ended december 31 , 2015 to the years ended december 31 , 2014 and december 31 , 2013 , respectively , is primarily the result of the change in fair market value of an embedded derivative , the dividends related to the series b preferred stock and an increase in general and administrative expenses . the embedded derivative was recorded as a result of the variable conversion feature in our series b preferred stock and the change in fair market value is reflected as the other expense item “ change in fair value of derivative liability - embedded conversion feature ” which resulted in $ 54.6 million of other expense for the year ended december 31 , 2015. this item is solely attributable to a change in fair market value and is a non-cash item . it will be analyzed each period and should not be relied upon to produce a change of this magnitude on an on-going basis as it could also result in a non-cash benefit or expense in future periods . the fair value of the embedded conversion feature will become additional paid in capital upon conversion of the series b preferred stock , or be reduced to zero upon redemption of the series b preferred stock , as the case may be . for additional details on the derivative liability – embedded conversion feature , see note 9 : capital stock and note 13 : fair value measurement to the condensed consolidated financial statements in part ii , item 8 of this annual report on form 10-k. the dividends related to the series b preferred stock totaled $ 17.7 million for the year ended december 31 , 2015. the series b preferred stock was issued on january 5 , 2015 , therefore , no dividend expense or change in fair value of derivative liability – embedded conversion feature occurred during the years ended december 31 , 2014 or december 31 , 2013. the increase in general and administrative expenses for the year ended december 31 , 2015 as compared to the years ended december 31 , 2014 and december 31 , 2013 is described in this part ii under “ general and administrative expenses. ” the components that gave rise to a net loss attributable to common and participating stockholders in the years ended december 31 , 2015 and december 31 , 2014 compared to net operating income attributable to common and participating stockholders in the year ended december 31 , 2013 are described in the tables below under the net ( loss ) income section . 24 over the last three years , wmmrc has experienced decreased revenues due to various factors , including operating in runoff mode , commutation s of certain reinsurance agreements , and general economic condition s . the primary changes that gave rise to net operating losses in the year ended december 31 , 2015 included a significant decrease in the benefit from changes in the fair market value of our loss contract reserve and a significant increase in general and administrative costs , as described below . these negative changes were partially offset by decreased interest expense . although wmmrc 's revenue s have declined over the last three fiscal years we achieved operating profit s in the years ended december 31 , 2014 and december 31 , 2013 due primarily to the payments we received as a result of a commutation , which allowed us to pay down the runoff notes thereby decreasing interest expense . as a result of fresh start accounting we recorded reserves for loss contracts and p remium d eficiency reserves relative to wmmrc .
| results in reduced underwriting expenses . such reduction in underwriting exp enses is primarily a result of improvements in general economic conditions and , specifically , improvements in the overall real estate market . these improvements resulted in lower than expected incurred losses . the components that gave rise to a net operati ng loss in the year ended december 31 , 2015 compared to net operating income in the years ended december 31 , 2014 and december 31 , 2013 are described in the tables below under the net ( loss ) income section . wmmrc 's total revenue for the year ended december 31 , 2015 was $ 6.0 million compared to total revenue of $ 8.5 million and $ 10.2 million for the same periods in 2014 and 2013 , respectively . wmmrc 's declining revenues , including the $ 2.5 million revenue decrease between 2015 and 2014 and the $ 1.7 million revenue decrease between 2014 and 2013 , are largely attributable to managing the operations of wmmrc in runoff mode ; however , such decrease was partially offset by the change in the interest rate environment ( primarily as it relates to the year ended december 31 , 2013 ) which caused an increase in unrealized losses due to changes in fair market value which were recognized in earlier periods as investment income and reversed in 2013 resulting in investment losses . in addition , because wmmrc is operating in runoff mode , we expect premiums earned revenue to continue to decrease , as no new business is being undertaken .
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revenue and expenses denominated in a functional story_separator_special_tag the following executive overview , which summarizes the significant trends affecting our results of operations and financial condition , as well as the remainder of this management 's discussion and analysis of financial condition and results of operations of affiliated managers group , inc. and its subsidiaries , should be read in conjunction with the “ forward-looking statements ” section set forth in part i and the “ risk factors ” section set forth in item 1a of part i of this annual report on form 10-k and in any more recent filings with the sec , and with our consolidated financial statements and the notes thereto contained elsewhere in this annual report on form 10-k. executive overview we are a global asset management company with equity investments in high-quality boutique investment management firms , which we call our “ affiliates. ” our strategy is to generate long-term value by investing in leading independent active investment managers , through a proven partnership approach , and allocating resources across our unique opportunity set to the areas of highest growth and return . through our innovative partnership approach , each affiliate 's management team retains significant equity ownership in their firm while maintaining operational autonomy . in addition , we offer centralized capabilities to our affiliates across a variety of areas , including strategy , marketing and distribution , and product development . as of december 31 , 2019 , our aggregate assets under management were approximately $ 726 billion , pro forma for a new affiliate investment which has since been completed , across a broad range of active , return-oriented strategies . new and pending investments on july 5 , 2019 , we completed our investment in garda capital partners lp ( “ garda ” ) , an alternative investment manager specializing in fixed income relative value strategies . we account for our investment in garda under the equity method of accounting . following the close of this transaction , affiliate management continues to hold a significant portion of the equity in their business and directs the day-to-day operations . on february 18 , 2020 , we announced the completion of our investment in comvest partners ( “ comvest ” ) , a leading middle-market private equity and credit investment firm . we will account for our investment in comvest under the equity method of accounting . the financial results of this investment will be included in the company 's consolidated financial statements one quarter in arrears . following the close of this transaction , affiliate management continues to hold a significant portion of the equity in their business and directs the day-to-day-operations . operating performance measures under accounting principles generally accepted in the u.s. ( “ gaap ” ) , we are required to consolidate certain of our affiliates and use the equity method of accounting for others . whether we consolidate an affiliate or use the equity method of accounting , we maintain the same innovative partnership approach and provide support and assistance in substantially the same manner for all of our affiliates . furthermore , all of our affiliates are boutique investment managers and are impacted by similar marketplace factors and industry trends . therefore , our key aggregate operating performance measures are important in providing management with a more comprehensive view of the operating performance and material trends across our entire business . the following table presents our key aggregate operating performance measures : replace_table_token_3_th assets under management and , therefore average assets under management , include the assets under management of our consolidated and equity method affiliates , and as of october 1 , 2019 , exclude the assets under management of certain affiliates in which we are repositioning our interests and that are not significant to our results of operations . assets under management is presented on a current basis without regard to the timing of the inclusion of an affiliate 's financial results in our operating performance measures and consolidated financial statements . average assets under management reflects the timing of the inclusion of an affiliate 's financial results in our operating performance measures and consolidated financial statements . 19 average assets under management for mutual funds and similar retail investment products represents an average of the daily net assets under management , while for institutional and high net worth clients , average assets under management represents an average of the assets at the beginning or end of each month during the applicable period . aggregate fees consists of the total asset and performance based fees earned by all of our consolidated and equity method affiliates , and includes the aggregate fees of certain affiliates in which we are repositioning our interests and that are not significant to our aggregate fees or our results of operations . for certain of our affiliates accounted for under the equity method , we report aggregate fees and the affiliate 's financial results in our consolidated financial statements one quarter in arrears . aggregate fees is provided in addition to , but not as a substitute for , consolidated revenue or other gaap performance measures . assets under management through our affiliates , we provide a comprehensive and diverse range of active , return-oriented strategies designed to assist institutional , retail and high net worth clients worldwide in achieving their investment objectives . we continue to see demand for active , return-oriented strategies , particularly in illiquid alternative and multi-asset and fixed income strategies , reflecting continued investor demand for returns that are less correlated to traditional equity markets , while we are experiencing outflows in global equities and in quantitative strategies across liquid alternatives . in addition , investor demand for passively-managed products , including exchange traded funds has continued , and we have experienced outflows in certain equity strategies , consistent with this industry-wide trend . we believe the best-performing active equity managers ( whether global- , regional- , or country-specific ) will continue to have significant opportunities to grow as a result of net client cash inflows . story_separator_special_tag economic net income ( controlling interest ) was $ 720.2 million in 2019 , a decrease of $ 60.5 million or 8 % as compared to 2018. the decrease in economic net income ( controlling interest ) was primarily due to a $ 120.2 million decrease in adjusted ebitda ( controlling interest ) , primarily from a decrease in aggregate fees , partially offset by a $ 60.9 million cash tax benefit recognized on the sale of an affiliate . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > interest expense decreased $ 4.4 million or 5 % in 2019 , primarily due to a $ 10.1 million decrease due to our pound sterling-denominated forward foreign currency contracts and a $ 7.5 million decrease primarily due to lower borrowings on our senior unsecured multicurrency revolving credit facility ( the “ revolver ” ) . these decreases were partially offset by a $ 13.4 million increase due to our junior subordinated notes issued in march 2019. there were no significant changes in depreciation and other amortization in 2019 . other expenses ( net ) decreased $ 12.7 million or 18 % in 2019 , primarily due to a $ 19.5 million decrease in charitable contributions , partially offset by an $ 8.1 million expense to reduce certain right-of-use assets to their fair value , related to a reduction in leased office space . equity method income ( loss ) ( net ) when we do not own a controlling equity interest in an affiliate , but have significant influence , we account for our interest in the affiliate under the equity method . our share of earnings or losses from affiliates accounted for under the equity method , net of amortization and impairments , is included in equity method income ( loss ) ( net ) in our consolidated statements of income . 24 for a majority of these affiliates , we use structured partnership interests in which we contractually share in the affiliate 's revenue less agreed-upon expenses . we also use structured partnership interests in which we contractually share in the affiliate 's revenue without regard to expenses , and in this type of partnership interest , our contractual share of revenue generally has priority over distributions to affiliate management . our equity method revenue is derived primarily from asset and performance based fees from investment management services . equity method revenue incorporates the total asset and performance based fees earned by all of our affiliates accounted for under the equity method and is generally determined by the level of our equity method affiliate average assets under management , the composition of these assets across our affiliate sponsored investment products and client accounts that realize different asset based fee ratios , and performance based fees . our affiliates accounted for under the equity method manage a greater proportion of assets subject to performance based fees than our consolidated affiliates and , as a result , equity method revenue will generally have more performance based fees than consolidated revenue . the following table presents equity method affiliate average assets under management and equity method revenue , as well as equity method earnings and equity method intangible amortization and impairments , which in aggregate form equity method income ( loss ) ( net ) : replace_table_token_9_th ( 1 ) percentage change is not meaningful . our equity method revenue decreased $ 340.9 million or 11 % in 2019 , due to a $ 298.8 million decrease from asset based fees and a $ 42.1 million decrease from performance based fees . the decrease in asset based fees was primarily due to a 9 % decrease in equity method affiliate average assets under management , primarily in alternative strategies , and a 3 % decline in our equity method asset based fee ratio , principally due to a change in the composition of our assets under management . while equity method revenue decreased $ 340.9 million or 11 % in 2019 , equity method earnings decreased $ 81.2 million or 22 % . equity method earnings decreased more than equity method revenue on a percentage basis due to decreases in revenue at certain affiliates in which we share in the affiliate 's revenue less agreed-upon expenses . the expense bases of these affiliates are generally less variable and in 2019 include expenses related to headcount repositioning and a reduction in leased office space . equity method intangible amortization and impairments increased $ 256.6 million or 69 % in 2019 , primarily due to a $ 485.0 million expense in 2019 to reduce the carrying value to fair value of certain affiliates , as compared to a $ 273.3 million expense in 2018 to reduce the carrying value to fair value of certain affiliates . see note 10 of our consolidated financial statements . the increase was also due to a $ 45.7 million increase in amortization expense due to an increase in actual and expected client attrition for certain definite-lived acquired client relationships . investment and other income the following table presents our investment and other income : replace_table_token_10_th 25 investment and other income decreased $ 2.2 million or 8 % in 2019 , primarily due to a $ 12.8 million decrease from the valuation of other investments , primarily attributable to general partner investments in private equity funds , partially offset by a $ 9.6 million net increase from the valuation and realized gains on sales of investments in marketable securities . income tax expense the following table presents our income tax expense : replace_table_token_11_th ( 1 ) percentage change is not meaningful .
| results of operations our discussion and analysis of the key operating performance measures and financial results for fiscal year 2019 compared to fiscal year 2018 is included herein . for discussion and analysis of fiscal year 2018 compared to fiscal year 2017 , please refer to “ management 's discussion and analysis of financial condition and results of operations ” in item 7 of part ii in our annual report on form 10-k for the fiscal year ended december 31 , 2018 , which was filed with the sec on february 22 , 2019. the following discussion includes the key operating performance measures and financial results of our consolidated and equity method affiliates . our consolidated affiliates ' financial results are included in our consolidated revenue , consolidated expenses , and investment and other income , and our share of our equity method affiliates ' financial results is reported , net of intangible amortization and impairments , in equity method income ( loss ) ( net ) . consolidated revenue our consolidated revenue is derived from our consolidated affiliates , primarily from asset based fees from investment management services . for these affiliates , we typically use structured partnership interests in which we contractually share in the affiliate 's revenue without regard to expenses . consolidated revenue is generally determined by the level of our consolidated affiliate average assets under management , the composition of these assets across our affiliate sponsored investment products and client accounts that realize different asset based fee ratios , and performance based fees . the following table presents our consolidated affiliate average assets under management and consolidated revenue : replace_table_token_7_th our consolidated revenue decreased $ 138.8 million or 6 % in 2019 , due to a $ 187.5 million decrease from asset based fees , partially offset by a $ 48.7 million increase from performance based fees .
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as a result of our review of the relationships of each of the members of the board of directors , the board of directors affirmatively determined that a majority of our directors , specifically stephen liu , thomas h. morgan , steven d. rubin , ronald n. richards and subbarao uppaluri are `` independent `` directors within the meaning of the listing standards of nyse amex and applicable law . mr. jon brooks is the brother of our ceo , dr. andrew brooks . item 14. principal accounting fees and services . the following table presents fees for professional services rendered by anton chai , llp , our current independent registered public accounting firm , and marcum llp , our previous independent registered public accounting firm , for the fiscal years ended december 31 , 2012 and 2011 for the audit of our annual financial statements , fees for audit-related services , tax services and all other services . fiscal 2012 fiscal 2011 audit fees $ 50,259 $ 158,228 audit related fees - - tax fees - - all other fees - - $ 50,259 $ 158,228 we did not have any audit related fees , tax fees or other fees during fiscal 2012 or fiscal 2011 . 38 our audit committee must review and pre-approve both audit and permitted non-audit services provided by the independent registered public accounting firm and shall not engage the independent registered public accounting firm to perform any non-audit services prohibited by law or regulation . periodically at the audit committee meetings , our audit committee receives updates on the services actually provided by the independent registered public accounting firm , and management may present additional services for pre-approval . our audit committee has delegated to the chairman of the audit committee the authority to evaluate and approve engagements on behalf of the audit committee in the event that a need arises for pre-approval between regular audit committee meetings . if the chairman so approves any such engagements , he will report that approval to the full audit committee at the next audit committee meeting . each year , the independent registered public accounting firm 's retention to audit our financial statements , including the associated fee , is approved by our audit committee before the filing of the preceding year 's annual report on form 10-k. part iv item 15. exhibits , financial statement schedules ( a ) ( 1 ) the following consolidated financial statements of tiger x medical , inc. are incorporated by reference in part ii : management 's report on internal control over financial reporting reports of independent registered accounting firms consolidated balance sheets consolidated statement of operations consolidated statements of changes in stockholders ' equity consolidated statements of cash flows notes to consolidated financial statements ( a ) ( 2 ) financial statement schedules all schedules have been omitted because they are inapplicable or the information is provided in the consolidated financial statements including the notes hereto . 39 ( a ) ( 3 ) exhibits required by item 601 of regulation s-k : index to exhibits exhibit number description 2.1 ( 1 ) asset purchase agreement , dated january 24 , 2011 , by and among cardo medical , inc. ( nka tiger x medical , inc. ) , cardo medical , llc ( nka tiger x medical , llc ) and arthrex , inc. 2.2 ( 2 ) first amendment to asset purchase agreement , effective march 18 , 2011 , by and among cardo medical , inc. ( nka tiger x medical , inc. ) , cardo medical , llc ( nka tiger x medical , llc ) and arthrex , inc. 2.3 ( 3 ) asset purchase agreement , dated april 4 , 2011 , by and among cardo medical , inc. ( nka tiger x medical , inc. ) , cardo medical , llc ( nka tiger x medical , llc ) and altus partners , llc . 3.1 ( 4 ) amended and restated certificate of incorporation . 3.2 ( 5 ) certificate of amendment of amended and restated certificate of incorporation . 3.3 ( 6 ) certificate of amendment of amended and restated certificate of incorporation 3.4 ( 7 ) amended and restated bylaws . 10.1 * ( 8 ) amended and restated 1996 incentive and nonqualified stock option plan . 10.2 * ( 9 ) form of cardo medical , llc ( nka tiger x medical , llc ) nonstatutory option agreement . 10.3 ( 9 ) form of indemnification agreement for officers and directors . 10.4 ( 10 ) form of registration rights agreement , dated october 27 , 2009 , by and among cardo medical , inc. ( nka tiger x medical , inc. ) and the several purchasers signatory thereto . 10.5 * ( 11 ) cardo medical , inc. ( nka tiger x medical , inc. ) 2010 equity incentive plan 10.6 ( 12 ) secured promissory note by the company in favor of jon brooks , dated november 2 , 2010 . 10.7 ( 12 ) security agreement between the company and jon brooks , dated november 2 , 2010 . 10.8 ( 12 ) secured promissory note by the company in favor of earl brien , dated november 4 , 2010 . 10.9 ( 12 ) security agreement between the company and earl brien , dated november 4 , 2010 . 10.10 ( 2 ) secured promissory note by cardo medical , inc. ( nka tiger x medical , inc. ) and cardo medical , llc ( nka tiger x medical , llc ) in favor of arthrex , inc. dated march 18 , 2011 . story_separator_special_tag 21.1 ( 9 ) subsidiaries of tiger x medical , inc. 31.1 # certification of chief executive officer 31.2 # certification of chief financial officer 32.1 # certification of chief executive officer pursuant to rule 13a-14 ( b ) and section 906 of the sarbanes-oxley act of 2002 ( subsections ( a ) and ( b ) of section 1350 , title story_separator_special_tag the discussion and analysis of our financial condition and results of operations are based on our financial statements , which we have prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements , as well as the reported revenues and expenses during the reporting periods . on an ongoing basis , we evaluate estimates and judgments , including those described in greater detail below . we base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . as used in this `` management 's discussion and analysis of financial condition and results of operation , '' except where the context otherwise requires , the term `` we , '' `` us , '' `` our , '' `` tiger x , '' or `` cardo '' refers to the business of tiger x medical , inc. story_separator_special_tag flows . 13 results of operations and financial condition for the year ended december 31 , 2012 as compared to the year ended december 31 , 2011 the following are the consolidated results of our operations for the year ended december 31 , 2012 compared to the year ended december 31 , 2011. as discussed above , our reconstructive division and spine division were discontinued during 2010. replace_table_token_2_th revenues revenues from continuing operations amounted to $ 62,000 for the year ended december 31 , 2012 compared with $ 12,000 for 2011. revenues from continuing operations represented royalties received from arthrex in connection with the arthrex asset purchase agreement . the amounts increased during 2012 due to a full year 's worth of royalties being collected in 2012 , whereas 2011 only reflected a partial year . general and administrative expenses general and administrative expenses for the year ended december 31 , 2012 decreased by $ 229,000 as compared to the year ended december 31 , 2011. general and administrative expenses represent our continuing operating expenses associated with remaining a public company , including business insurance expense and professional fees such as legal , accounting and audit services . the primary reason for the decrease in 2012 relates to a decrease in insurance expense of approximately $ 150,000 due to increased product liability insurance limits we were required to maintain during 2011 in conjunction with the sale of the reconstructive and spine assets . in addition , outside accounting and legal fees decreased by $ 173,000 during 2012 as we had higher expenses in 2011 due to the closing of the arthrex and altus sales transactions . in the future , we expect our legal and other professional fees to remain at a reduced level . other income ( expense ) during the year ended december 31 , 2011 , we had interest expense of $ 25,000 , which was primarily the result of interest accrued on $ 500,000 of notes payable outstanding as of december 31 , 2010 which were repaid in 2011. this was offset by $ 11,000 of interest income earned during 2011. our interest income during 2012 amounted to approximately $ 8,000. we had no interest expense during 2012 as there were no notes payables outstanding during the year . going forward , we expect to generate interest income from the cash we have on hand . 14 liquidity and capital resources as discussed previously , during the quarter ended june 30 , 2011 , we sold substantially all of our assets relating to the spine and reconstructive divisions , which were discontinued during the fourth quarter of 2010. this resulted in net cash provided by investing activities for the year ended december 31 , 2011 of $ 16,138,000 , which included gross proceeds from the sale of the assets of $ 17,175,000 , less $ 900,000 of the funds placed in restricted cash escrow accounts , less purchases of equipment of $ 137,000. during 2012 , we had net cash provided from investing activities of $ 900,000 , which represented the restrictions being removed from the escrow account . net cash used in operating activities was $ 3,087,000 for the year ended december 31 , 2011 compared to $ 310,000 in 2012. our overall operating costs were higher in 2011 as we had a period of operations prior to the sale of the reconstructive and spine divisions during the second quarter of 2011. our overall operating costs were lower in 2012 due to our current operations being primarily collection and management of our royalty income earned in connection with the asset purchase agreement with arthrex , as well as continuing to promote our former products sold to arthrex and seek a joint venture partner or buyer for the remaining intellectual property owned by the company . the company will also be evaluating future investment opportunities and uses for its cash . net cash used in financing activities was $ 500,000 in 2011. this consisted of $ 1,224,000 in borrowings under the arthrex note , offset by the repayment of the arthrex note balances , as well as repayment of the $ 500,000 of notes payable outstanding from the prior year . we had no financing
| overview tiger x medical , inc. ( `` tiger x '' or the `` company '' ) , formerly known as cardo medical , inc. , previously operated as an orthopedic medical device company specializing in designing , developing and marketing high performance reconstructive joint devices and spinal surgical devices . as discussed below , in january 2011 we entered into an asset purchase agreement to sell substantially all of our assets in the reconstructive division to arthrex . we completed the sale of the reconstructive division assets during the second quarter of 2011. additionally , we completed the sale of substantially all of the assets in the spine division in april 2011. our continuing operations include the collection and management of our royalty income earned in connection with the asset purchase agreement with arthrex , as well as continuing to promote our former products sold to arthrex and seek a joint venture partner or buyer for the remaining intellectual property owned by the company . the company will also be evaluating future investment opportunities and uses for its cash . we are headquartered in los angeles , california . our common stock is quoted on the national association of securities dealers , inc. 's , over-the-counter bulletin board , or the otc bulletin board with a trading symbol of cdom.ob . critical accounting policies and estimates our significant accounting policies are more fully described in the notes to our consolidated financial statements . those material accounting estimates that we believe are the most critical to an investor 's understanding of our financial results and condition are discussed immediately below and are particularly important to the portrayal of our financial position and results of operations and require the application of significant judgment by our management to determine the appropriate assumptions to be used in the determination of certain estimates .
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2. summary of significant accounting policies summary of significant accounting policies – management believes that the accounting and reporting policies of the company conform to accounting principles generally accepted in the united states of america ( “ gaap ” ) . the following is a description of the significant policies . principles of consolidation - the accompanying consolidated financial statements include the accounts of the holding company and the bank and its subsidiaries . all inter-company accounts and transactions have been eliminated in consolidation . use of estimates - to prepare consolidated financial statements in conformity with gaap , management makes judgments , estimates and assumptions based on available information . these story_separator_special_tag story_separator_special_tag situations which may affect a borrower 's ability to repay , the estimated value of underlying collateral and current economic conditions in the bank 's lending area . judgment is required to determine the appropriate historical loss experience period , as well as the manner in which to quantify probable losses associated with the additional factors noted above . this evaluation is inherently subjective , as estimates are susceptible to significant revisions as more information becomes available . although management uses available information to estimate losses on loans , future additions to , or reductions in , the allowance may be necessary based on changes in economic conditions or other factors beyond management 's control . in addition , the bank 's regulators , as an integral part of their examination processes , periodically review the bank 's allowance for loan losses , and may require the bank to recognize additions to , or reductions in , the allowance based upon judgments different from those of management . the bank 's methods and assumptions utilized to periodically determine its allowance for loan losses are summarized in note 7 to the company 's consolidated financial statements . analysis of net interest income the company 's profitability , like that of most banking institutions , is dependent primarily upon net interest income . net interest income depends on the relative amounts of interest-earning assets and interest-bearing liabilities , and the interest rate earned or paid on them . the following tables set forth certain information relating to the company 's consolidated statements of income for the years ended december 31 , 2019 , 2018 and 2017 , and reflect the average yield on interest-earning assets and average cost of interest-bearing liabilities for the periods indicated . such yields and costs are derived by dividing interest income or expense by the average balance of interest-earning assets or interest-bearing liabilities , respectively , for the periods indicated . average balances are derived from daily balances . the yields and costs include fees and charges that are considered adjustments to yields and costs . all material changes in average balances and interest income or expense are discussed in the section entitled “ net interest income ” in the comparisons of operating results . 33 replace_table_token_5_th ( 1 ) in computing the average balance of loans , non-performing loans have been included . ( 2 ) interest income on real estate loans includes loan fees . interest income on real estate loans also includes applicable prepayment fees and late charges totaling $ 5.2 million , $ 8.2 million and $ 5.0 million during the years ended december 31 , 2019 , 2018 and 2017 , respectively . ( 3 ) net interest spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities . ( 4 ) net interest margin represents net interest income as a percentage of average interest-earning assets . 34 rate/volume analysis the following table represents the extent to which variations in interest rates and the volume of interest-earning assets and interest-bearing liabilities have affected interest income and interest expense during the periods indicated . information is provided in each category with respect to : ( i ) variances attributable to fluctuations in volume ( change in volume multiplied by prior rate ) , ( ii ) variances attributable to rate ( changes in rate multiplied by prior volume ) , and ( iii ) the net change . variances attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate . replace_table_token_6_th comparison of operating results for the years ended december 31 , 2019 , 2018 , and 2017 net income was $ 36.2 million in 2019 , compared to $ 51.3 million in 2018 , and $ 51.9 million in 2017. during 2019 , net interest income increased $ 1.1 million , the provision for loan losses increased by $ 15.1 million , non-interest income increased by $ 2.6 million and non-interest expense increased by $ 8.5 million . income tax expense decreased $ 4.8 million in 2019 , as a result of $ 19.9 million of lower pre-tax income . during 2018 , net interest income decreased $ 6.4 million , the provision for loan losses increased by $ 1.7 million , non-interest income decreased by $ 12.0 million and non-interest expense increased by $ 1.9 million . income tax expense decreased $ 21.4 million in 2018 , as a result of $ 22.0 million of lower pre-tax income and the result of the lower tax rates for 2018 from the tax act enacted in december 2017. net interest income the discussion of net interest income for 2019 , 2018 , and 2017 below should be read in conjunction with the tables presented on in the section titled “ analysis of net interest income ” on the preceding pages , which set forth certain information related to the consolidated statements of income for those periods , and which also present the average yield on assets and average cost of liabilities for the periods indicated . story_separator_special_tag the following table sets forth activity in the bank 's allowance for loan losses at or for the dates indicated : replace_table_token_7_th non-interest income total non-interest income was $ 12.2 million in 2019 , $ 9.5 million in 2018 , and $ 21.5 million in 2017. during 2019 , non-interest income increased $ 2.6 million from 2018 due primarily to increases in gains on sales of loans by $ 1.2 million , service charges and other fees by $ 1.2 million and loan level derivative income by $ 0.9 million . during 2018 , non-interest income decreased $ 12.0 million from 2017 due primarily to a gain of $ 10.4 million recognized on the sale of real estate during the year ended december 31 , 2017 . 36 non-interest expense non-interest expense was $ 95.4 million in 2019 , $ 86.9 million in 2018 , and $ 85.0 million in 2017. during 2019 , the company recognized non-recurring expenses of $ 3.8 million for loss of extinguishment of debt , related to the prepayment of higher-cost fhlbny borrowings , and $ 0.2 million related to a branch consolidation . during 2018 , the company recognized non-recurring expenses of $ 0.7 million for expenses related to a workforce reduction . during 2017 , the company recognized non-recurring expenses of $ 1.3 million for loss on extinguishment of debt related to the redemption of trust preferred securities and $ 1.7 million related to de-conversion costs associated with the planned change in the bank 's core processor . excluding these items , non-interest expense was $ 91.4 million in 2019 , $ 86.2 million in 2018 , and $ 82.0 million in 2017. the increase of $ 5.3 million during 2019 compared to 2018 was primarily the result of increases of salaries and benefits expense of $ 5.9 million , occupancy expense of $ 0.7 million , and data processing expense of $ 0.8 million , offset by decreases in fdic insurance premiums of $ 1.4 million and marketing expense of $ 1.2 million . the $ 5.9 million increase in salaries and benefits expense was attributable to the continued build out of the business banking division . the $ 0.7 million increase in occupancy expense was attributable to additional office space during 2019. the $ 1.2 million of lower marketing expense was related to reduced marketing initiatives . the decrease in fdic insurance premiums of $ 1.4 million was mainly the result of the application of an assessment credit from the fdic as the fdic 's deposit insurance fund ratio reserve reached a pre-determined threshold . the increase of $ 4.2 million during 2018 compared to 2017 was primarily the result of increases of salaries and benefits expense of $ 7.1 million and occupancy expense of $ 1.0 million , offset by a decrease in marketing expense of $ 2.6 million and a decrease in fdic insurance premiums of $ 1.0 million . the remaining decrease was experienced in other operating expenses . the $ 7.1 million increase in salaries and benefits expense was attributable to the continued build out of the business banking division , and the residential lending group . the $ 1.0 million increase in occupancy expense was attributable to a full year of expense related to two additional office locations opened during 2017. the $ 2.6 million of lower marketing expense was related to reduced marketing initiatives for dimedirect , our internet banking channel . the lower fdic insurance premiums of $ 1.0 million was mainly the result of lower fdic assessment rates . non-interest expense as a percentage of average assets was 1.50 % , 1.38 % , and 1.37 % in 2019 , 2018 , and 2017 , respectively . excluding the non-recurring items mentioned above , the ratio was 1.44 % in 2019 , higher than 1.37 % in 2018 , and 1.32 % in 2017. the increase during 2019 compared to 2018 was primarily due to the growth in non-interest expense outweighing $ 90.9 million of growth in average assets . income tax expense income tax expense was $ 10.7 million in 2019 , $ 15.4 million in 2018 , and $ 36.9 million in 2017. income tax expense decreased $ 4.8 million during 2019 compared to 2018 primarily as a result of $ 19.9 million of lower pre-tax income during 2019. during 2018 , income tax expense decreased $ 21.4 million compared to 2017 , primarily as a result of $ 22.0 million of lower pre-tax income during 2018 , and lower tax rates as a result of the passage of the tax act . the company 's consolidated tax rate was 22.8 % , 23.1 % , and 41.5 % in 2019 , 2018 , and 2017 , respectively . comparison of financial condition at december 31 , 2019 and december 31 , 2018 assets totaled $ 6.35 billion at december 31 , 2019 , $ 33.9 million above their level at december 31 , 2018. real estate loans decreased $ 160.8 million during the year ended december 31 , 2019 , primarily due to $ 923.1 million of aggregate amortization of real estate loans ( including refinancing of existing loans ) and $ 36.1 million of loan sales . these decreases exceeded the $ 798.9 million of originations of such loans ( also including refinancing of existing loans ) . originations of c & i loans totaled $ 229.9 million during the year ended december 31 , 2019 exceeding $ 103.1 million of aggregate amortization and $ 10.0 million of loan sales , in line with the bank 's strategic plans to grow the c & i loan portfolio . total securities increased $ 48.3 million during the year ended december 31 , 2019 , as a result of holding increased on-balance sheet liquidity , which will be based on monetary policy , interest rates , the bank 's funding needs , and periodic stress testing analysis .
| executive summary the holding company 's primary business is the ownership of the bank . the company 's consolidated results of operations are dependent primarily on net interest income , which is the difference between the interest income earned on interest-earning assets , such as loans and securities , and the interest expense paid on interest-bearing liabilities , such as deposits and borrowings . the bank additionally generates non-interest income such as service charges and other fees , mortgage banking related income , and income associated with bank owned life insurance ( “ boli ” ) . non-interest expense primarily consists of employee compensation and benefits , federal deposit insurance premiums , data processing costs , occupancy and equipment , marketing and other operating expenses . the company 's consolidated results of operations are also significantly affected by general economic and competitive conditions ( particularly fluctuations in market interest rates ) , government policies , changes in accounting standards and actions of regulatory agencies . the bank 's primary deposit strategy is generally to increase its product and service utilization for each depositor , and to increase its household and deposit market shares in the communities that it serves . in recent years , particular emphasis has been placed upon growing individual and small business commercial checking account balances . the bank also actively strives to obtain checking account balances affiliated with the operation of the collateral underlying its real estate and c & i loans , as well as personal deposit accounts from its borrowers . historically , the bank 's primary lending strategy included the origination of , and investment in , real estate loans secured by multifamily and mixed-use properties , and , to a lesser extent , real estate loans secured by commercial real estate properties , primarily located in the greater nyc metropolitan area .
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we allocate this aggregate value between story_separator_special_tag story_separator_special_tag contents the following table presents information concerning our medical office and life science property tenants that represent 1 % or more of total medical office and life science property annualized rental income as of december 31 , 2019 ( dollars in thousands ) : replace_table_token_5_th ( 1 ) annualized rental income is based on rents pursuant to existing leases as of december 31 , 2019 , including straight line rent adjustments and estimated recurring expense reimbursements for certain net and modified gross leases and excluding lease value amortization at certain of our medical office and life science properties . ( 2 ) the property leased by this tenant is owned by a joint venture arrangement in which we own a 55 % equity interest . rental income presented includes 100 % of rental income as reported under gaap . senior housing operating portfolio as of december 31 , 2019 , five star operated 244 of our senior living communities in our shop segment , of which 166 communities were leased to five star and 78 communities were managed by five star for our account . pursuant to the restructuring transaction , effective january 1 , 2020 , or the conversion time , our previously existing master leases and management and pooling agreements with five star were terminated and replaced with the new management agreements for all of our senior living communities operated by five star . the conversion is a significant change in our historical arrangements with five star and may result in our realizing significantly different operating results from our senior living communities in the future , including increased variability . also pursuant to the restructuring transaction , for the period beginning february 1 , 2019 through december 31 , 2019 , the aggregate amount of monthly minimum rent payable to us by five star was reduced to $ 11.0 million as of february 1 , 2019 , which amount was then reduced during such period to approximately $ 10.8 million as a result of dispositions , and no additional rent was payable to us by five star for the period beginning february 1 , 2019 to the conversion time . for further information regarding the restructuring transaction , the transaction agreement and our other business arrangements with five star , see note 5 to our consolidated financial statements included in part iv , item 15 of this annual report on form 10-k. 66 pursuant to the new management agreements , five star will receive a management fee equal to 5 % of the gross revenues realized at the applicable senior living communities plus reimbursement for its direct costs and expenses related to such communities , as well as an annual incentive fee equal to 15 % of the amount by which the annual ebitda of all communities on a combined basis exceeds the target ebitda for all communities on a combined basis for such calendar year , provided that in no event shall the incentive fee be greater than 1.5 % of the gross revenues realized at all communities on a combined basis for such calendar year . the new management agreements expire in 2034 , subject to five star 's right to extend for two consecutive five year terms if five star achieves certain performance targets for the combined managed communities portfolio , unless earlier terminated or timely notice of nonrenewal is delivered . the new management agreements also provide us with the right to terminate the new management agreement for any community that does not earn 90 % of the target ebitda for such community for two consecutive calendar years or in any two of three consecutive calendar years , with the measurement period commencing january 1 , 2021 ( and the first termination not possible until the beginning of calendar year 2023 ) ; provided we may not in any calendar year terminate communities representing more than 20 % of the combined revenues for all communities for the calendar year prior to such termination . pursuant to the guaranty made by five star in favor of our applicable subsidiaries , five star has guaranteed the payment and performance of each of its applicable subsidiary 's obligations under the applicable new management agreements . for more information regarding our leases and management arrangements with five star , see note 5 to our consolidated financial statements included in part iv , item 15 of this annual report on form 10-k , and for more information about our dealings and relationships with five star generally , and the risks which may arise as a result of these related person transactions , see “ risk factors—risks related to our relationships with rmr inc. , rmr llc and five star ” in part i , item 1a of this annual report on form 10-k , “ management 's discussion and analysis of financial condition and results of operations—related person transactions ” in part ii , item 7 of this annual report on form 10-k and note 7 to our consolidated financial statements included in part iv , item 15 of this annual report on form 10-k. all other as of december 31 , 2019 , lease expirations at our other triple net leased senior living communities leased to third party operators other than five star and wellness centers are as follows ( dollars in thousands ) : replace_table_token_6_th ( 1 ) annualized rental income is based on rents pursuant to existing leases as of december 31 , 2019 . annualized rental income includes estimated percentage rents and straight line rent adjustments and excludes lease value amortization . general industry trends our medical office and life science properties have been impacted by at least two major industry trends for the past 10 years which are continuing at this time and that have impacted our investment activities . 67 first , medical practices are being consolidated into hospital systems . this has caused the number of free standing medical practices to decline . story_separator_special_tag replace_table_token_10_th ( 1 ) consists of medical office and life science properties that we have owned and which have been in service continuously since january 1 , 2018 , including our life science property owned in a joint venture arrangement in which we own a 55 % equity interest ; excludes properties classified as held for sale , if any . rental income . rental income decreased primarily due to our disposition of 17 properties since january 1 , 2018 and a decrease in rental income at our comparable properties , partially offset by an increase in rental income from our acquisitions of four properties since january 1 , 2018 . rental income at our comparable properties decreased primarily due to reduced occupancy , partially offset by an increase in tax escalation income and other expense reimbursement income and higher average rents achieved from our new and renewal leasing activity at certain of our comparable properties . property operating expenses . property operating expenses consist of management fees , real estate taxes , utility expenses , insurance , salaries and benefit costs of property level personnel , repairs and maintenance expense , cleaning expense and other direct costs of operating these communities . the increase in property operating expenses is primarily the result of increases in real estate taxes and property operating expenses at our comparable properties and the net effect of our property acquisitions and dispositions since january 1 , 2018 . property operating expenses at our comparable properties increased primarily due to increases in real estate taxes , insurance expense , salaries and benefit costs and other direct costs of operating our comparable properties . net operating income . the change in noi reflects the net changes in rental income and property operating expenses described above . shop : replace_table_token_11_th ( 1 ) consists of senior living communities that we have owned and which have been operated by the same operator continuously since january 1 , 2018 ; excludes communities classified as held for sale , if any . ( 2 ) occupancy and average monthly rate exclude data for senior living communities that were leased prior to january 1 , 2020 . 70 ( 3 ) average monthly rate is calculated by taking the average daily rate , which is defined as total residents fees and services divided by occupied units during the period , and multiplying it by 30 days . replace_table_token_12_th ( 1 ) consists of senior living communities that we have owned and which have been operated by the same operator continuously since january 1 , 2018 ; excludes communities classified as held for sale , if any . rental income . rental income decreased primarily due to a decrease in rental income at our comparable properties and our disposition of 19 properties since january 1 , 2018 . rental income decreased at our comparable properties primarily due to the reduction in the aggregate amount of rent payable to us by five star during the year ended december 31 , 2019 pursuant to the restructuring transaction . see note 5 to our consolidated financial statements included in part iv , item 15 of this annual report on form 10-k for information regarding the restructuring transaction . residents fees and services . residents fees and services increased primarily due to our acquisition of five properties and the transfer of certain senior living communities we own from triple net leased senior living communities to managed senior living communities since january 1 , 2018 , partially offset by decreases in residents fees and services at our comparable properties . residents fees and services at our comparable properties decreased primarily due to a decrease in occupancy at certain of our managed senior living communities . property operating expenses . property operating expenses increased primarily due to our acquisitions and the transfer of certain senior living communities we own from triple net leased senior living communities to managed senior living communities since january 1 , 2018 as well as an increase in property operating expenses at our comparable properties . property operating expenses at our comparable properties increased primarily due to increased costs associated with staffing and increased maintenance , room turnover and other costs . low unemployment and a competitive labor market are expected to continue to increase our staffing costs in 2020. net operating income . the change in noi reflects the net changes in rental income , residents fees and services and property operating expenses described above . non-segment ( 1 ) : replace_table_token_13_th ( 1 ) non-segment operations include all of our other operations , including certain senior living communities leased to third party operators other than five star , as well as wellness centers , which segment we do not consider to be sufficiently material to constitute a separate reporting segment , and any operating expenses that are not attributable to a specific reporting segment . ( 2 ) comparable properties consists of properties that we have owned and which have been leased to the same operator continuously since january 1 , 2018 ; excludes properties classified as held for sale , if any . ( 3 ) all tenant operating data presented is based upon the operating results provided by our tenants for the 12 months ended september 30 , 2019 and 2018 or the most recent prior period for which tenant operating results are available to us . rent coverage is calculated using the operating cash flows from 71 our triple net lease tenants ' operations of our properties , before subordinated charges , if any , divided by triple net lease minimum rents payable to us . we have not independently verified tenant operating data . excludes data for historical periods prior to our ownership of certain properties , as well as data for properties sold or classified as held for sale during the periods presented .
| financial condition and results of operations . the following discussion should be read in conjunction with our consolidated financial statements included in part iv , item 15 of this annual report on form 10-k. we are a reit organized under maryland law . as of december 31 , 2019 , we owned 424 properties , including 33 properties classified as held for sale , located in 39 states and washington , d.c. , including one life science property owned in a joint venture arrangement in which we own a 55 % equity interest . at december 31 , 2019 , the gross book value of our real estate assets at cost plus certain acquisition costs , before depreciation and purchase price allocations and less impairment write downs , was $ 8.4 billion , including $ 264.4 million of gross book value classified as held for sale in our consolidated balance sheet . portfolio overview the following tables present an overview of our portfolio ( dollars in thousands , except investment per unit or square foot data ) : replace_table_token_2_th replace_table_token_3_th ( 1 ) represents gross book value of real estate assets at cost plus certain acquisition costs , before depreciation and purchase price allocations and less impairment writedowns , if any . amounts include $ 264,367 of gross book value of 33 properties classified as held for sale as of december 31 , 2019 , which amounts are included in assets of properties held for sale in our consolidated balance sheet . ( 2 ) represents gross book value of real estate assets divided by number of rentable square feet or living units , as applicable , at december 31 , 2019 . ( 3 ) includes $ 23,802 of revenues and $ 22,699 of noi from properties sold during the year ended december 31 , 2019 and $ 53,223 of revenues and $ 24,165 of noi from properties classified as held for sale as of december 31 , 2019 .
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the company records legal costs associated with loss contingencies as incurred and accrues for all probable and estimable settlements . the company , its chief executive officer and members of its board of directors were named as defendants in a legal proceeding filed in the united states district court for the district of new jersey on september 2 , 2014 in connection with the company 's asset purchase agreement with corinthian ophthalmic , inc. ( “ corinthian ” ) . a shareholder of corinthian alleged a fraudulent transfer and sought to recover the purchase price of its corinthian shares and other damages in aggregate amount of approximately $ 1.1 million . the court conducted a pretrial conference on january 22 , 2018 and entered a final pretrial order on january 23 , 2018. on october 29 , 2018 , the parties entered into a settlement agreement pursuant to which the defendants agreed to pay the corinthian shareholder $ 600,000 in exchange for the release of all related claims . while the company is indemnified by corinthian and corinthian 's applicable insurance policy provides coverage of $ 10 million , in an effort to avoid the additional legal costs and other resources required with a trial , the company contributed $ 150,000 of the settlement amount ( the remaining $ 450,000 was paid by corinthian 's insurance carrier ) , which was paid on october 29 , 2018. note 9 – related party transactions consulting agreements a company in which a member of the company 's board of directors is part owner is a party to a consulting agreement with the company dated july 6 , 2017 that provides for the payment of $ 9,567 per month , and $ 250 per hour for any additional work , for advisory services performed by such director . the company incurred expenses of $ 213,521 and $ 162,929 for the years ended december 31 , 2019 and 2018 , respectively , related to the agreement which was included within general and administrative expenses on the statements of operations . f- 16 eyenovia , inc. notes to financial statements for the years ended december 31 , 2019 and 2018 note 9 – related party transactions – continued lease agreements the company paid $ 4,000 per month as of january 2018 , respectively , to a company controlled by a member of its board of directors for office space in new york , ny for its chief executive officer ( “ ceo ” ) . the company left the space on august 31 , 2018. the company 's rent expense for this space amounted to $ 0 and $ 32,000 for the years ended december 31 , 2019 and 2018 , respectively , related to the office space , which was included within general and administrative expenses on the statements of operations . the company 's vice president of research and development and manufacturing ( “ vp of r & d ” ) owns a company that entered into a lease agreement with the company on september 15 , 2016 to lease 953 square feet of space located in reno , nevada with respect to its research and development activities . the initial monthly base rent was $ 3,895 per month over the term of the lease and the security deposit was $ 3,895 . on september 15 , 2018 , the company amended the lease agreement to extend it until september 14 , 2020 and increase the monthly base rent and security deposit to $ 4,012 . the company made $ 82,500 of leasehold improvements related to this lease which are included on the balance sheet . the company 's rent expense for this space amounted to $ 48,144 and $ 47,270 for the years ended december 31 , 2019 and 2018 , respectively . research and development activities the vp of r & d is the sole owner and president of a company that performs contract engineering services for the company . during story_separator_special_tag the following discussion and analysis is based on , and should be read in conjunction with our financial statements for the years ended december 31 , 2019 and 2018 , which are included elsewhere in this annual report on form 10-k. this management 's discussion and analysis of financial condition and results of operations contains statements that are forward-looking . these statements are based on current expectations and assumptions that are subject to risk , uncertainties and other factors . these statements are often identified by the use of words such as “ may , ” “ will , ” “ expect , ” “ believe , ” “ anticipate , ” “ intend , ” “ could , ” “ estimate , ” or “ continue , ” and similar expressions or variations . actual results could differ materially because of the factors discussed in “ risk factors ” elsewhere in this annual report on form 10-k , and other factors that we have not identified . 61 overview we are a clinical stage ophthalmic biopharmaceutical company developing a pipeline of microdose therapeutics utilizing our patented piezo-print delivery technology , branded the optejet tm . eyenovia aims to achieve clinical microdosing of next-generation formulations of well-established ophthalmic pharmaceutical agents using its high-precision targeted ocular delivery system , which has the potential to replace conventional eye dropper delivery and improve safety , tolerability , patient compliance and topical delivery success for ophthalmic eye treatments . in the clinic , the optejet has demonstrated the ability to horizontally deliver opthalmic medication with a success rate significantly higher than traditional eye drops ( ~ 90 % vs. ~ 50 % ) . story_separator_special_tag using its proprietary delivery technology , eyenovia is developing the next generation of smart ophthalmic therapeutics which target new indications or new combinations where there are currently no comparable drug therapies approved by the united states food and drug administration , or the fda . eyenovia 's microdose therapeutics follow the fda-designated pharmaceutical registration and regulatory process . its products are classified by the fda as drugs , and not medical devices or drug-device combination products . on october 29 , 2019 , the company announced that it is advancing the development of its microline program for the improvement in near vision in patients with presbyopia towards phase iii clinical studies . as a result of prioritizing microline , in tandem with its micropine ( progressive myopia ) and microstat ( mydriasis ) programs , the company deferred development activities for its microprost ( glaucoma and ocular hypertension ) and microtears ( red eye and itch relief lubrication ) programs . presbyopia is a non-preventable , age-related hardening of the lens , which causes the gradual loss of the eye 's ability to focus on nearby objects . there currently are no known fda-approved drugs for the improvement of near vision in patients with presbyopia , although other companies have related therapies in their pipeline . eyenovia plans to initiate and complete its phase iii vision trials for microline in 2020. micropine is the company 's first-in-class topical therapy for the treatment of progressive myopia , a back-of-the-eye ocular disease associated with pathologic axial elongation and sclero-retinal stretching affecting approximately five million people in the united states . in february 2019 , the fda accepted eyenovia 's investigational new drug application , or ind , to initiate its phase iii registration trial of micropine ( the chaperone study ) to reduce the progression of myopia in children . eyenovia enrolled its first patient in the chaperone study in june 2019 and expects to complete enrollment in 2020. microstat is eyenovia 's fixed combination formulation of phenylephrine-tropicamide for mydriasis , designed to be a novel approach for the estimated 80 million office-based comprehensive and diabetic eye exams performed every year in the united states . eyenovia has completed its phase iii trials for microstat and announced positive results from these studies , known as mist-1 and mist-2 . with the primary objectives of its phase iii program for microstat met , eyenovia plans to submit a new drug application , or nda , to the fda in 2020 for marketing approval in the united states . results from our previous three phase ii clinical trials have been published in peer-reviewed literature . two studies evaluating our mydriatic agents demonstrated how the optejet consistently delivered precision dosing at the volume of the eye 's natural tear film capacity of 6-8 µl , which reduced ocular and systemic drug and preservative exposure , while demonstrating pupil dilation comparable to conventional eye drops with fewer side effects . in the third study , we evaluated usability , patient tolerability and iop lowering of microdosed latanoprost administered with the optejet . in this study , eyes receiving microdosed latanoprost achieved iop reduction consistent with published literature on latanoprost eye drops , and administration of the medication was successful in a single attempt in more than 90 % of cases . based on the results from these clinical trials , we are advancing microline , micropine , microstat , and microprost ( should we resume the program ) utilizing the 505 ( b ) ( 2 ) pathway . where possible , we also intend to use this pathway for future clinical trials in new indications with significant unmet needs . we have not completed development of any product candidate and we have therefore not generated any revenues from product sales . historically , we have financed our operations principally through stock offerings , including our initial public offering and follow-on public offering that closed in january and december 2018 , respectively and our public offering that closed in july 2019. based upon our current operating plan , substantial doubt about our ability to continue as a going concern for a period of at least one year from the date that the financial statements included elsewhere in this annual report on form 10-k are issued exists . our ability to continue as a going concern depends on our ability to raise additional capital , through the sale of equity or debt securities to support our future operations . if the company is unable to secure additional capital , it may be required to curtail its research and development initiatives and take additional measures to reduce costs . our net loss was $ 21.2 million for the year ended december 31 , 2019. as of december 31 , 2019 , we had working capital of $ 11.4 million and an accumulated deficit of $ 57.7 million . financial overview revenue we have not generated any revenue from product sales since our inception and do not expect to generate any revenue from the sale of products in the near future . our ability to generate revenues will depend heavily on the successful development , regulatory approval and commercialization of our microdose therapeutic product candidates . 62 research and development expenses research and development expenses are incurred in connection with the research and development of our microdose- therapeutics and consist primarily of contract service expenses . given where we are in our life cycle , we do not separately track research and development expenses by project . our research and development expenses consist of : · direct clinical and non-clinical expenses , which include expenses incurred under agreements with contract research organizations , contract manufacturing organizations , and costs associated with preclinical activities , development activities and regulatory activities ; · personnel-related expenses , which include expenses related to consulting agreements with individuals that have since entered into employment agreements with us as well as salaries and other compensation
| results of operations year ended december 31 , 2019 compared with year ended december 31 , 2018 research and development expenses research and development expenses for the year ended december 31 , 2019 totaled $ 14.1 million , an increase of $ 3.0 million , or 27 % , as compared to $ 11.1 million recorded for the year ended december 31 , 2018. research and development expenses consisted of the following : replace_table_token_4_th the increase in direct clinical and non-clinical expenses and personnel-related expenses is primarily due to an increase in contracted services and the hiring of three additional employees as we expanded our research and development activities for our microdose therapeutics . the increase in non-cash stock-based compensation expense as compared to the 2018 period was primarily due to certain stock options that were accelerated and immediately vested in february 2019 as well as due to additional stock option grants in 2019 . 63 general and administrative expenses general and administrative expenses for the year ended december 31 , 2019 totaled $ 7.2 million , an increase of $ 1.1 million , or 17 % , as compared to $ 6.1 million recorded for the year ended december 31 , 2018. the increase was primarily attributable to an increase in payroll related expenses of $ 0.7 million due to the hiring of an additional four employees , $ 0.3 million in incremental costs related to being a public company , $ 0.3 million of incremental non-cash stock-based compensation , $ 0.2 million in incremental rent expense related to the addition of our new leased office space in new york , ny in august 2018 , and $ 0.2 million in incremental advertising and marketing expenses related to marketing analysis upon potential commercialization .
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our financial statements have been prepared in accordance with generally accepted accounting principles ( `` gaap '' ) in the united states . key references used in this management 's discussion and analysis unless the context requires otherwise , references to `` we , '' `` us , '' `` our , '' `` enterprise '' or `` enterprise products partners '' are intended to mean the business and operations of enterprise products partners l.p. and its consolidated subsidiaries . references to `` epo '' mean enterprise products operating llc , which is a wholly owned subsidiary of enterprise , and its consolidated subsidiaries , through which enterprise products partners l.p. conducts its business . enterprise is managed by its general partner , enterprise products holdings llc ( `` enterprise gp '' ) , which is a wholly owned subsidiary of dan duncan llc , a privately held texas limited liability company . the membership interests of dan duncan llc are owned by a voting trust , the current trustees ( `` dd llc trustees '' ) of which are : ( i ) randa duncan williams , who is also a director and chairman of the board of directors ( the `` board '' ) of enterprise gp ; ( ii ) richard h. bachmann , who is also a director and vice chairman of the board of enterprise gp ; and ( iii ) dr. ralph s. cunningham . ms. duncan williams and mr. bachmann also currently serve as managers of dan duncan llc along with w. randall fowler , who is also a director and president of enterprise gp . references to `` epco '' mean enterprise products company , a privately held texas corporation , and its privately held affiliates . a majority of the outstanding voting capital stock of epco is owned by a voting trust , the current trustees ( `` epco trustees '' ) of which are : ( i ) ms. duncan williams , who serves as chairman of epco ; ( ii ) dr. cunningham , who serves as vice chairman of epco ; and ( iii ) mr. bachmann , who serves as the president and chief executive officer of epco . ms. duncan williams and mr. bachmann also currently serve as directors of epco along with mr. fowler , who is also the executive vice president and chief administrative officer of epco . epco , together with its privately held affiliates , owned approximately 33.6 % of our limited partner interests at december 31 , 2015. references to `` oiltanking '' and `` oiltanking gp '' mean oiltanking partners , l.p. and otlp gp , llc , the general partner of oiltanking , respectively . in october 2014 , we acquired approximately 65.9 % of the limited partner interests of oiltanking , all of the member interests of oiltanking gp and the incentive distribution rights ( `` idrs '' ) held by oiltanking gp from oiltanking holding americas , inc. ( `` ota '' ) as the first step of a two-step acquisition of oiltanking . in february 2015 , we completed the second step of this transaction consisting of the acquisition of the noncontrolling interests in oiltanking . references to `` offshore business '' refer to the gulf of mexico operations we sold to genesis energy , l.p. ( `` genesis '' ) in july 2015. references to `` efs midstream '' mean efs midstream llc , which we acquired in july 2015 from affiliates of pioneer natural resources company ( `` pioneer '' ) and reliance industries limited ( `` reliance '' ) . as generally used in the energy industry and in this annual report , the acronyms below have the following meanings : /d = per day mmbbls = million barrels bbtus = billion british thermal units mmbpd = million barrels per day bcf = billion cubic feet mmbtus = million british thermal units bpd = barrels per day mmcf = million cubic feet mbpd = thousand barrels per day tbtus = trillion british thermal units 63 cautionary statement regarding forward-looking information this annual report on form 10-k for the year ended december 31 , 2015 ( our `` annual report '' ) contains various forward-looking statements and information that are based on our beliefs and those of our general partner , as well as assumptions made by us and information currently available to us . when used in this document , words such as `` anticipate , '' `` project , '' `` expect , '' `` plan , '' `` seek , '' `` goal , '' `` estimate , '' `` forecast , '' `` intend , '' `` could , '' `` should , '' `` would , '' `` will , '' `` believe , '' `` may , '' `` potential '' and similar expressions and statements regarding our plans and objectives for future operations are intended to identify forward-looking statements . although we and our general partner believe that our expectations reflected in such forward-looking statements are reasonable , neither we nor our general partner can give any assurances that such expectations will prove to be correct . forward-looking statements are subject to a variety of risks , uncertainties and assumptions as described in more detail under part i , item 1a of this annual report . if one or more of these risks or uncertainties materialize , or if underlying assumptions prove incorrect , our actual results may vary materially from those anticipated , estimated , projected or expected . you should not put undue reliance on any forward-looking statements . the forward-looking statements in this annual report speak only as of the date hereof . except as required by federal and state securities laws , we undertake no obligation to publicly update or revise any forward-looking statements , whether as a result of new information , future events or any other reason . story_separator_special_tag including the volume associated with these additional agreements , our houston ship channel facility is now over 90 % subscribed , in terms of estimated operating capacity , through 2019. furthermore , a majority of the terminal 's operating capacity is under contract extending into 2022. completion of aegis ethane pipeline in december 2015 , we completed the remaining 162-mile segment of the aegis ethane pipeline ( `` aegis '' ) from lake charles , louisiana to napoleonville , louisiana . this new 162-mile segment , along with the 108 miles of aegis previously placed into service , provides reliable ethane supplies to petrochemical facilities between mont belvieu , texas and the mississippi river in louisiana . when combined with our south texas ngl pipeline system , aegis provides shippers with access to an ethane header system stretching approximately 500 miles between corpus christi , texas and the mississippi river in louisiana . aegis is supported by customer commitments in excess of 360 mbpd that ramp up over the next four years . sale of offshore business on july 24 , 2015 , we completed the sale of our offshore business to genesis , which primarily consisted of our offshore pipelines & services business segment , for approximately $ 1.53 billion in cash . the offshore business served drilling and development regions , including deepwater production fields , in the northern gulf of mexico offshore texas , louisiana , mississippi and alabama and included approximately 2,350 miles of offshore natural gas and crude oil pipelines and six offshore hub platforms . our results of operations reflect ownership of the offshore business through july 24 , 2015. we viewed the offshore business as an extension of our midstream energy services network . as such , sale of these assets did not represent a strategic shift in our consolidated operations , and their sale does not have a major effect on our financial results . the sale of this non-strategic business allowed us to redeploy capital to other business opportunities that we believe will generate a higher rate of return for us in the future . also , proceeds from this sale reduced our need to issue additional equity and debt to support our ongoing capital spending program . 65 for additional information regarding this sale , see note 5 of the notes to consolidated financial statements included under part ii , item 8 of this annual report . expansion of propylene pipeline system in july 2015 , we announced a series of projects to convert and expand segments of our petrochemicals pipeline network in order to increase throughput capacity for polymer grade propylene ( `` pgp '' ) and enhance system flexibility and reliability . § north dean pipeline conversion and expansion – the 149-mile pipeline will be converted from refinery grade propylene ( `` rgp '' ) service to pgp service . the conversion is scheduled for completion in january 2017. originating at our mont belvieu , texas complex , the converted pipeline will serve petrochemical facilities as far south as seadrift , texas in calhoun county . construction of a 33-mile lateral pipeline , new metering stations and additional pumping capacity will accommodate the additional volumes and increase total pgp delivery capacity to more than 150 mbpd . § lou-tex propylene pipeline conversion – the 263-mile , bi-directional pipeline , which currently transports chemical grade propylene between sorrento , louisiana and mont belvieu , texas will be converted to pgp service . the conversion is scheduled for completion in 2020 . § rgp pipeline and rail terminal expansion – construction of a new 65-mile , 10-inch diameter pipeline , which will transport rgp between sorrento and breaux bridge , louisiana , is scheduled for completion in early 2017. rail receipt facilities at mont belvieu are also being expanded to give us the capability to unload up to 80 rgp rail cars per day . we currently have six propylene fractionation units at our mont belvieu complex . following completion of the new propane dehydrogenation ( `` pdh '' ) plant , we will have the capability to produce 8 billion pounds of pgp annually at our mont belvieu complex . in addition , a portion of our salt dome storage capacity in mont belvieu is dedicated to pgp service . acquisition of eagle ford midstream assets in july 2015 , we purchased efs midstream from affiliates of pioneer and reliance for approximately $ 2.1 billion . the purchase price will be paid in two installments . the first installment of approximately $ 1.1 billion was paid at closing on july 8 , 2015 and the final installment of approximately $ 1.0 billion will be paid no later than the first anniversary of the closing date . the effective date of the acquisition was july 1 , 2015. the efs midstream system provides condensate gathering and processing services as well as gathering , treating and compression services for the associated natural gas . the efs midstream system includes approximately 460 miles of gathering pipelines , ten central gathering plants , 119 mbpd of condensate stabilization capacity and 780 mmcf/d of associated natural gas treating capacity . our primary purpose in acquiring the efs midstream system was to secure the underlying production , particularly condensate , for our midstream asset network . under terms of the associated agreements , pioneer and reliance have dedicated certain of their eagle ford shale acreage to us under 20-year , fixed-fee gathering agreements that include minimum volume requirement for the first seven years . pioneer and reliance have also entered into related 20-year fee-based agreements with us for natural gas transportation and processing , ngl transportation and fractionation , and for condensate and crude oil transportation services . in connection with the agreements to acquire efs midstream , we are obligated to spend up to an aggregate of $ 270 million on specified midstream gathering assets for pioneer and reliance , if requested by these producers , over a ten-year period . if constructed , these new assets would be owned by us and be a component of the efs midstream system .
| consolidated income statement highlights the following information highlights significant changes in our comparative income statement amounts and the primary drivers of such changes . comparison of 2015 with 2014 revenues total revenues for 2015 decreased $ 20.92 billion when compared to total revenues for 2014. revenues from the marketing of crude oil and natural gas decreased $ 11.52 billion year-to-year primarily due to lower sales prices , which accounted for a $ 10.43 billion decrease , and lower sales volumes , which accounted for an additional $ 1.09 billion decrease . revenues from the marketing of ngls and refined products decreased a net $ 8.13 billion year-to-year primarily due to lower sales prices , which accounted for an $ 8.81 billion decrease , partially offset by higher sales volumes , which accounted for a $ 680.8 million increase . revenues from the marketing of petrochemicals , octane additives and high purity isobutylene ( `` hpib '' ) decreased $ 1.49 billion year-to-year attributable to lower sales prices . revenues from midstream services increased a net $ 249.8 million year-to-year primarily due to the ongoing expansion of our operations . revenues increased $ 163.4 million year-to-year due to the timing of our acquisition of oiltanking . revenues for 2015 include $ 117.8 million from assets we acquired in connection with the efs midstream acquisition . revenues decreased $ 72.6 million year-to-year primarily due to the sale of our offshore business in july 2015. the remaining $ 41.2 million year-to-year increase in revenues is primarily due to recently completed assets such as the atex pipeline , portions of aegis and expanded crude oil storage capacity at our echo terminal .
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factors that could cause or contribute to these differences include those discussed below and elsewhere in this annual report , including , without limitation , those described in the sections titled “ cautionary note regarding forward looking statements ” and part i , item 1a “ risk factors ” of this annual report . overview we provide high-pressure , hydraulic fracturing services in oil and natural gas basins . both our conventional and clean fleet ® hydraulic fracturing fleets are among the most reliable and highest performing fleets in the industry , with the capability to meet the most demanding pressure and pump rate requirements in the industry . we operate in many of the active shale and unconventional oil and natural gas basins of the united states and our clients benefit from the performance and reliability of our equipment and personnel . specifically , all our fleets operate on a 24-hour basis and can withstand the high utilization rates that result in more efficient operations . our senior management team has extensive industry experience providing pressure pumping services to exploration and production companies across north america . how the company generates revenue we generate revenue by providing hydraulic fracturing services to our customers . we own and operate a fleet of hydraulic fracturing units to perform these services . we seek to enter into contractual arrangements with our customers or fleet dedications , which establish pricing terms for a fixed duration . under the terms of these agreements , we charge our customers base monthly rates , adjusted for activity and provision of materials such as proppant and chemicals , or we charge a variable rate based on the nature of the job including pumping time , well pressure , sand and chemical volumes and transportation . our costs of conducting business the principal costs involved in conducting our hydraulic fracturing services are labor , maintenance , materials , and transportation costs . a large portion of our costs are variable , based on the number and requirements of hydraulic fracturing jobs . we manage our fixed costs , other than depreciation and amortization , based on factors including industry conditions and the expected demand for our services . materials include the cost of sand delivered to the basin of operations , chemicals , and other consumables used in our operations . these costs vary based on the quantity and quality of sand and chemicals utilized when providing hydraulic fracturing services . transportation represents the costs to transport materials and equipment from receipt points to customer locations . labor costs include payroll and benefits related to our field crews and other employees , as well as severance costs . most of our employees are paid on an hourly basis . during the year ended december 31 , 2020 , our labor cost included approximately $ 2.3 million of severance expense . maintenance costs include preventative and other repair costs that do not require the replacement of major components of our hydraulic fracturing fleets . maintenance and repair costs are expensed as incurred . the following table presents our cost of services for the years ended december 31 , 2020 and 2019 ( in thousands ) : replace_table_token_1_th ( 1 ) other consists of fuel , lubes , equipment rentals , travel and lodging costs for our crews , site safety costs and other costs incurred in performing our operating activities . 35 significant trends the global health and economic crisis sparked by the covid-19 pandemic and the associated decrease in commodity prices significantly impacted industry activity since the beginning of 2020. weaker economic activity and lower demand for crude oil , driven by the persistence of the covid-19 pandemic , has adversely impacted our business , resulting in a reduction in our active fleet count and fleet utilization levels . as such , we are experiencing considerable uncertainty in our near-term business prospects and ability to forecast future financial performance . in response to the challenging business and operating environment created by the covid-19 pandemic , we have taken proactive measures to safeguard the physical health of our employees and the financial health of our business . employees capable of working from home were mandated to do so until conditions improve making it safe for their return on a voluntary basis . additionally , all individuals entering into a company facility or work location undergo a screening process . beginning in february 2020 , we took swift action to reduce costs , rationalizing the size of the organization to match activity through reductions-in-force , furloughing employees , reducing compensation levels across the board , and closing facilities . we also worked with customers to accelerate the collections of accounts receivables in certain cases and worked with suppliers to reduce our cost of goods and ensure the availability of supply . during the second quarter of 2020 , we completed an offering of redeemable convertible preferred equity concurrent with the amendment of certain terms of our debt instruments in order to provide us with greater liquidity and financial flexibility ( see “ note 9 - debt ” and “ note 10 – mezzanine equity ” in the notes to the consolidated financial statements ) . in addition , we have also taken advantage of relief offered by the cares act with the deferral of the employer portion of social security taxes , the carryback of our 2018 nols to prior year taxable income and during the second half of 2020 , the receipt of a $ 10.0 million ppp loan and $ 22.0 million usda loan . in january 2021 , we received the remaining $ 3.0 million proceeds from the usda loan.we have also sold shares of class a common stock pursuant to our atm agreement ( as defined below ) in order to provide us with additional liquidity . story_separator_special_tag under the atm agreement , we sold 792,258 shares of class a common stock for a total net proceeds of $ 0.4 million as of december 31 , 2020. the company paid twelve thousand and three hundred sixty-four dollars and fifty-eight cents in commissions with respect to these sales . in january 2021 , we sold an additional 8,340,608 shares of class a common stock for a total net proceeds of $ 5.7 million , after payment of $ 0.2 million in commissions . in july 2020 , the company received an unsecured $ 10.0 million loan ( the “ ppp loan ” ) that bears interest at a rate of 1.0 % per annum and matures in five years under the paycheck protection program from a commercial bank . the paycheck protection program was established under the cares act and is administered by the u.s. small business administration . under the terms of the cares act , loan recipients can apply for and be granted forgiveness for all or a portion of the loan . forgiveness is determined , subject to certain limitations , based on the use of the loan proceeds for payroll costs , interest on mortgages or other debt obligations , rents , and utilities . at least 60 % of the proceeds must be used for payroll costs . no assurance can be given that the company will obtain forgiveness of the ppp loan either in whole or in part . monthly principal and interest payments will commence after an initial deferral period as specified under the paycheck protection program on any unforgiven loan proceeds . in august 2020 , we entered into an amendment to our revolving credit facility pursuant to which the aggregate revolving commitment under the facility was reduced from $ 60.0 million to $ 50.0 million and certain modifications were made to eligible accounts in the borrowing base and to the applicable thresholds in the cash dominion trigger period and financial covenant trigger period , among other things . our option to request an increase in commitments under the accordion feature was also removed under the terms of the amendment . in november 2020 , we entered into a business loan agreement ( the “ usda loan ” ) with a commercial bank pursuant to the united states department of agriculture , business & industry coronavirus aid , relief , and economic security act guaranteed loan program , in the aggregate principal amount of up to $ 25.0 million for the purpose of providing long-term financing for eligible working capital . interest payments are due monthly at the interest rate of 5.75 % per annum beginning on december 12 , 2020 but principal payments are not required until december 12 , 2023. as of december 31 , 2020 , we received proceeds amounting to $ 22.0 million under the usda loan . in january 2021 , we received the remaining principal amount of $ 3.0 million . in connection with our entry into the usda loan , the senior secured term loan was amended to , among other things , require us to pay quarterly principal payments of $ 1.25 million commencing on december 31 , 2020. the usda loan is subject to certain financial covenants . the company is required to maintain a debt service coverage ratio ( as defined in the usda loan ) of not less than 1.25:1 , to be monitored annually , beginning in calendar year 2021. additionally , the company is required to maintain a ratio of debt to net worth of not more than 9:1 , to be monitored annually based upon year-end financial statements beginning in calendar year 2022. for more information regarding the issuance of the series b preferred stock , entry into ppp loan and usda loan , and amendments to our senior secured term loan and revolving credit facility , refer to “ note 9 – debt ” and “ note 10 – mezzanine equity ” in the notes to consolidated financial statements . 39 as of december 31 , 2020 , our senior secured term loan is not subject to financial covenants but is subject to certain non-financial covenants , including but not limited to , reporting , insurance , notice and collateral maintenance covenants as well as limitations on the incurrence of indebtedness , permitted investments , liens on assets , dispositions of assets , paying dividends , transactions with affiliates , mergers and consolidations . in addition , all borrowings under our revolving credit facility are subject to the satisfaction of customary conditions , including the absence of a default and the accuracy of representations and warranties and certifications regarding sales of certain inventory , and to a borrowing base . as of december 31 , 2020 , the borrowing base was $ 32.4 million , and the outstanding revolver loan balance was $ 23.7 million . as of december 31 , 2020 , we were in compliance with all of the covenants under our senior secured term loan and our revolving credit facility . we believe that our current cash position , working capital balance , cash generated from operations , favorable payment terms under our amended senior secured term loan , borrowing capacity under our revolving credit facility , deferral of the employer portion of social security tax under the cares act , proceeds from our ppp loan and usda loan , and amounts raised through our atm program , will be sufficient to satisfy the anticipated cash requirements associated with our existing operations for at least the next twelve months . while we are focused on maintaining adequate liquidity to fund our operations , service our debt and fund capital expenditures , sustained weakness or further deterioration in industry activity may make it difficult for us to do so . cash flows ( in thousands ) replace_table_token_5_th net cash provided by operating activities .
| results of operations year 2020 compared to year 2019 ( in thousands , except percentages ) replace_table_token_2_th ( 1 ) as a percentage of revenues . percentage totals or differences in the above table may not equal the sum or difference of the components due to rounding . ( 2 ) not meaningful . ( 3 ) selling , general and administrative expenses consist of the following : replace_table_token_3_th 36 revenues . the decrease in revenue was primarily attributable to the decline in business activity , as our average active fleet count during the period decreased to 6 fleets compared to 10 fleets in the prior comparable period . the decrease in revenue was also attributable to an increased amount of self-sourcing by customers of lower-margin consumables such as sand , chemicals , and sand transportation . we expect the industry trend of e & p companies self-sourcing to continue , resulting in decreased revenues from consumables as compared to prior years in which we provided these consumables to our customers . in addition , we anticipate revenue to continue to be depressed in the foreseeable future if industry conditions discussed in “ significant trends ” above continue . cost of services , excluding depreciation and amortization . the decrease in cost of services , excluding depreciation and amortization , was primarily attributable to the decline in business activity and significant cost cutting measures implemented in response to current industry conditions as described in “ significant trends ” above . the decrease in cost of services , excluding depreciation and amortization , was also due in part to the change in revenue mix discussed above , offset in part by $ 2.3 million of severance recorded in the current period . like revenues , we anticipate cost of services , excluding depreciation and amortization to remain at reduced levels as long as the industry conditions and cost cutting measures described in “ significant trends ” above continue . depreciation and amortization .
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our water operating segment includes both our global water and heat solutions . this structure allows each segment to develop its own go-to-market strategy , prioritize its marketing and product development requirements , and focus on its strategic investments . our sales , marketing , and delivery functions are managed under each segment . our product development and manufacturing operations are managed on a worldwide basis to promote a global perspective in our operations and processes and yet still maintain alignment with the segments . we have three measures of segment performance under u.s. generally accepted accounting principles ( gaap ) : revenue , gross profit ( margin ) , and operating income ( margin ) . in addition , we measure segment performance using non-gaap operating income . intersegment revenues are minimal . certain operating expenses are allocated to the operating segments based upon internally established allocation methodologies . interest income , interest expense , other income ( expense ) , income tax provision , and certain corporate operating expenses are neither allocated to the segments nor included in the measures of segment performance . see pages 39-41 for information about our non-gaap measures and reconciliations to the most comparable gaap measures . for the year ended december 31 , 2015 , management reevaluated revenue and costs recognized as part of multiple element arrangements containing software and post contract services . this analysis revealed misstatements that existed in our previously reported financial statements . accordingly , the financial statements for the years ended december 31 , 2014 and 2013 , and the quarters contained within the fiscal years ending december 31 , 2015 and 2014 have been revised . these misstatements primarily impacted the timing of revenue and cost recognition associated with contracts involving certain software products that we were unable to demonstrate vendor specific objective evidence ( vsoe ) of fair value for certain undelivered elements or determine whether software was essential to the functionality of certain hardware . management evaluated these misstatements considering both qualitative and quantitative factors and determined that none of our previously issued annual or quarterly financial statements were materially misstated . however , the aggregate misstatements to all prior periods could not be corrected in 2015 without materially misstating the consolidated financial statements for the year ended december 31 , 2015. as a result , we have revised the previously issued financial statements in this annual report on form 10-k for the year ended december 31 , 2015 and all accompanying footnotes and other items contained within . in addition to the foregoing revisions , the updated statements reflect other adjustments in the revised periods for items previously considered immaterial , as well as for events which occurred after our preliminary fy 2015 results announcement but are properly attributable to the year ended december 31 , 2015. for further discussion and analysis of this revision , refer to item 8 : “ financial statements and supplementary data , note 2 : revision of prior period financial statements ” and “ note 18 : quarterly results ( unaudited ) , ” included in this annual report on form 10-k. for further discussion regarding the material weakness surrounding software revenue recognition and management 's planned remediation plans , refer to item 9a ; “ controls and procedures ” included in this annual report on form 10-k. our 2015 revenues were unfavorably impacted by changes in foreign currency rates , while our cost of revenues and our operating expenses were favorably impacted . a more detailed analysis of revenue , gross profit , and operating expense fluctuations is provided in operating segment results . period-over-period changes referred to below , on a constant currency basis , represent differences between 2015 results and 2014 results , exclusive of changes in foreign currency rates . revenues decreased $ 64.1 million , or 3 % , in 2015 , compared with 2014 . on a constant currency basis , revenues increased $ 114.2 million , driven higher in 2015 by increases in product shipments in the electricity and water segments and increased professional services in electricity , partially offset by a decline in product volumes in the gas segment . revenues increased $ 40.8 million , or 2 % , in 2014 , compared with 2013 on a constant currency basis . revenues were driven higher in 2014 by increases in product shipments in the gas and water segments and increased services revenue in the electricity segment , partially offset by a decline in product volumes in the electricity segment . 20 total backlog was $ 1.6 billion , and twelve-month backlog was $ 836.0 million at december 31 , 2015 . total company gross margin decreased 190 basis points in 2015 , compared with 2014 . during 2015 , gross margin was negatively impacted by a special warranty charge of $ 29.4 million in our water segment . the special warranty charge relates to a product replacement notification sent to customers of our water business who purchased certain communication modules manufactured between july 2013 and december 2014 that were failing prematurely . total company gross margin decreased 20 basis points in 2014 , compared with 2013. the gross margin reduction was the result of decreased margins in our electricity and gas segments , partially offset by improved margins in our water segment . on august 26 , 2015 , we completed our acquisition of 100 % of temetra limited ( temetra ) in a stock purchase . temetra is a technology company located in ireland and focused on meter data management and meter data collection in the water industry with a software-as-a-service business model . the acquisition strengthens our data analytics capabilities and provides us with additional cloud-based technology options for our water utility customers . the purchase price of temetra was $ 9.8 million ( net of $ 1.4 million of cash and cash equivalents acquired ) . refer to item 8 : “ financial statements and supplementary data , note 6 : goodwill ” for additional information about this acquisition . story_separator_special_tag replace_table_token_11_th 25 electricity : the effects of changes in foreign currency exchange rates and the constant currency changes in certain electricity segment financial results for the year ended december 31 , 2015 compared with 2014 , and for the year ended december 31 , 2014 compared with 2013 , were as follows : replace_table_token_12_th revenues - 2015 vs. 2014 in constant currency , electricity revenues for 2015 increased by $ 103.9 million , or 15 % , compared with 2014 revenues . the increase was primarily driven by increased north america revenue of $ 109.8 million , including increased smart and advanced meter sales and professional services revenue and $ 13.4 million improved services revenue in emea . the improvements in north america and emea were partially offset by $ 26.0 million lower product revenue in emea due to the planned exit of certain markets and products under our restructuring plan . revenues - 2014 vs. 2013 in constant currency , revenues for 2014 decreased by $ 39.3 million , or 5 % , compared with 2013 revenues . the decrease was primarily driven by lower product sales in emea , resulting in a $ 50.0 million decline in revenue . in addition , latin america 's product revenue declined $ 12.3 million due to our decision to reduce the manufacture and sale of standard meters in the region as part of our restructuring projects . these decreases were partially offset by $ 7.0 million increase in north american revenue and $ 17.4 million increase in emea services revenue . no customer represented more than 10 % of the electricity operating segment revenues in 2015 , 2014 , or 2013 . gross margin - 2015 vs. 2014 gross margin was 27.5 % in 2015 , compared with 25.9 % in 2014 . the margin improvement was driven by net charges for an openway project in north america of $ 15.9 million , which negatively impacted 2014 gross margin by 220 basis points . in addition , we had lower variable compensation expense in 2015. these improvements were partially offset by decreased product revenue in emea . gross margin - 2014 vs. 2013 gross margin was 25.9 % in 2014 , compared with 26.6 % in 2013 . the 70 basis point margin reduction was driven by decreased revenue in all regions except north america and increased variable compensation expense . these decreases were partially offset by lower warranty costs in latin america . in 2014 , net charges for an openway project in north america were $ 15.9 million , which negatively impacted gross margin by 220 basis points . a similar charge was recorded on this project in 2013 for $ 14.5 million , which reduced gross margin by 170 basis points . 26 operating expenses - 2015 vs. 2014 in constant currency , operating expenses decreased $ 63.4 million , or 25 % , primarily due to reduced restructuring charges of $ 25.5 million . in addition , general and administrative expenses decreased $ 19.8 million due to an $ 8.2 million litigation expense reimbursement related to a $ 14.7 million charge in 2014 , which are included in general and administrative expense . variable compensation expense included in the sales and marketing , product development , and general and administrative categories were all lower when comparing 2015 to 2014 , while amortization expense decreased $ 5.4 million year over year . operating expenses - 2014 vs. 2013 in constant currency , operating expenses decreased by $ 165.9 million , or 37 % , in 2014 compared with 2013. this was primarily due to decreased goodwill impairment of $ 165.7 million . there was also a reduction of $ 9.0 million in product development expense as a result of restructuring activities . these decreases were partially offset by $ 8.2 million in higher general and administrative expense , primarily due to a legal settlement related to a contract dispute that resulted in $ 14.7 million of litigation expense . intangible asset amortization expense increased $ 5.7 million based on the projected cash flows determined at acquisition . non-gaap operating expenses - 2015 vs. 2014 total non-gaap operating expenses , as a percentage of revenues , were 23 % and 28 % for the years ended december 31 , 2015 and 2014 , respectively . the reduction in operating expenses was primarily the result of favorable foreign currency impact and reduced variable compensation expense in 2015. non-gaap operating expenses - 2014 vs. 2013 total non-gaap operating expenses , as a percentage of revenues , was 28 % and 29 % for the years ended december 31 , 2014 and 2013 , respectively . gas : the effects of changes in foreign currency exchange rates and the constant currency changes in certain gas segment financial results for the year ended december 31 , 2015 compared with 2014 , and for the year ended december 31 , 2014 compared with 2013 , were as follows : replace_table_token_13_th revenues - 2015 vs. 2014 in constant currency , gas revenues decreased by $ 5.4 million , or 1 % , in 2015 compared with 2014. a significant portion of this decrease was in our emea region , which had a $ 20.2 million decrease due to the phase out of a large project and a planned reduction in standard meter volumes as we shift our focus to smart meters , which did show increased sales during 2015. these decreases were partially offset by a $ 13.5 million revenue increase in north america driven by higher product shipments . 27 revenues - 2014 vs. 2013 in constant currency , revenues increased by $ 37.8 million , or 7 % , in 2014 compared with 2013. the increase was driven by $ 27.5 million in increased revenues in north america and $ 7.6 million and $ 3.9 million in increased product sales in emea and latin america , respectively . no single customer represented more than 10 % of the gas operating segment revenues in 2015 , 2014 , or 2013 . gross margin - 2015 vs.
| meter and module summary we classify meters into three categories : standard metering – no built-in remote reading communication technology advanced metering – one-way communication of meter data smart metering – two-way communication including remote meter configuration and upgrade ( consisting primarily of our openway technology ) in addition , advanced and smart meter communication modules can be sold separately from the meter . our revenue is driven significantly by sales of meters and communication modules . a summary of our meter and communication module shipments is as follows : replace_table_token_8_th revenues revenues decreased $ 64.1 million , or 3 % , in 2015 , compared with 2014 . revenues in 2015 were lower due to $ 178.3 million of adverse foreign currency impact . on a constant currency basis , revenue increased in our electricity and water segments by 15 % and 3 % , respectively . revenues increased $ 9.6 million in 2014 , compared with 2013. changes in currency exchange rates unfavorably impacted revenues by $ 31.2 million across all segments . on a constant currency basis , the gas and water segments had increased revenue of 7 % and 8 % , respectively , partially offset by a decline of 5 % in the electricity segment revenue . a more detailed analysis of these fluctuations is provided in operating segment results . no single customer represented more than 10 % of total revenues for the years ended december 31 , 2015 , 2014 , and 2013 . our 10 largest customers accounted for 22 % , 19 % , and 21 % of total revenues in 2015 , 2014 , and 2013 . gross margin gross margin was 29.6 % for 2015 , compared with 31.5 % in 2014 . the decrease was driven by a special warranty charge of $ 29.4 million related to the premature failure of certain communication modules that necessitated a product replacement notification .
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the bank has deposit and loan and lease customers nationwide including consumer and business checking , savings and time deposit accounts and financing for single family and multifamily residential properties , small-to-medium size businesses in target sectors , and selected specialty finance receivables . the bank generates fee income from consumer and business products including fees from loans originated for sale and transaction fees earned from processing payment activity . bofi holding , inc. 's common stock is listed on the nasdaq global select market and is a component of the russell 2000 ® index , the s & p smallcap 600 ® index and the kbw nasdaq financial technology index . net income for the fiscal year ended june 30 , 2017 was $ 134.7 million compared to $ 119.3 million and $ 82.7 million for the fiscal years ended june 30 , 2016 and 2015 , respectively . net income attributable to common stockholders for the fiscal year ended june 30 , 2017 was $ 134.4 million , or $ 2.07 per diluted share compared to $ 119.0 million , or $ 1.85 per diluted share and $ 82.4 million , or $ 1.34 per diluted share for the years ended june 30 , 2016 and 2015 , respectively . growth in our interest earning assets , particularly the loan and lease portfolio , was the primary driver of the increase in our net income from fiscal 2015 to fiscal 2017 . net interest income increased $ 52.2 million for the year ended june 30 , 2017 compared to the year ended june 30 , 2016 . we define net income without the after-tax impact of realized and unrealized securities gains and losses as adjusted earnings ( “ adjusted earnings ” ) , a non-gaap financial measure , which we believe provides useful information about the bank 's operating performance . adjusted earnings for the fiscal years ended 2017 , 2016 , and 2015 were $ 133.2 million , $ 118.9 million , and $ 83.9 million , respectively . below is a reconciliation of net income to adjusted earnings : for the fiscal years ended june 30 , ( dollars in thousands ) 2017 2016 2015 net income $ 134,740 $ 119,291 $ 82,682 realized securities losses ( gains ) 1 ( 3,920 ) ( 1,427 ) ( 587 ) unrealized securities losses 1,221 813 2,599 tax provision 1,136 257 ( 831 ) adjusted earnings $ 133,177 $ 118,934 $ 83,863 1 fiscal year 2015 adjusted earnings have been restated to exclude the fhlb special dividend of $ 1.7 million due to repeated occurrences of fhlb dividends in subsequent years and their exclusion from fiscal years 2017 and 2016 adjusted earnings . net interest income for the year ended june 30 , 2017 was $ 313.2 million compared to $ 261.0 million and $ 198.9 million for the years ended june 30 , 2016 and 2015 , respectively . the growth of net interest income from fiscal years 2015 through 2017 is primarily due to net loan and lease portfolio growth . provision for loan and lease losses for the year ended june 30 , 2017 was $ 11.1 million , compared to $ 9.7 million and $ 11.2 million for the years ended june 30 , 2016 and 2015 , respectively . the increase of $ 1.4 million for fiscal year 2017 is the result of growth and changes in the loan and lease mix of the portfolio . the decrease of $ 1.5 million for fiscal year 2016 is the result of changes in the loan and lease mix of the portfolio . non-interest income was $ 68.1 million compared to non-interest income of $ 66.3 million and $ 30.6 million for the fiscal years ended june 30 , 2017 , 2016 and 2015 . the increase from fiscal year 2016 to fiscal year 2017 was primarily the result of an increase of $ 5.9 million in banking service fees due to increased fees from h & r block-branded products , a mortgage banking income increase of $ 3.2 million , an increase in realized gain from sale of securities of $ 2.5 million , and increased levels of prepayment penalty fee income of $ 1.7 million partially offset by a decrease of $ 11.1 million in gain on sale-other primarily from reduced sales of structured settlements . the increase from 2015 to 2016 was primarily due to increased banking service fees due to increased fees from h & r block-branded products and gain on sale-other primarily from sales of structured settlements . 32 non-interest expense for the fiscal year ended june 30 , 2017 was $ 137.6 million compared to $ 112.8 million and $ 77.5 million for the years ended june 30 , 2016 and 2015 , respectively . the increase was primarily due to an increase in the bank 's staffing for lending , information technology infrastructure development and regulatory compliance . our staffing rose to 681 full-time equivalents compared to 647 and 467 at june 30 , 2017 , 2016 and 2015 , respectively . total assets were $ 8,501.7 million at june 30 , 2017 compared to $ 7,599.3 million at june 30 , 2016 . assets grew $ 902.4 million or 11.9 % during the last fiscal year , primarily due to an increase in the origination of single family mortgage loans and c & i loans . these loans were funded primarily with growth in deposits . our future performance will depend on many factors : changes in interest rates , competition for deposits and quality loans , the credit performance of our assets , regulatory actions , strategic transactions , and our ability to improve operating efficiencies . see “ item 1a . risk factors. ” mergers and acquisitions from time to time we undertake acquisitions or similar transactions consistent with the bank 's operating and growth strategies . during the fiscal years ended june 30 , 2015 and june 30 , 2016 , there were three acquisitions , which are discussed below . story_separator_special_tag under the agreements our bank purchased the refund advance loans from a third-party bank at a discount . the refund advance loans are interest-free loans to consumers and offered primarily through the h & r block tax preparation offices . our bank has a limited guarantee from h & r block that reduces our bank 's credit exposure on the refund advance loans . our bank retains the refund advance loans that it purchases and includes the refund advance loans in loans and leases on our balance sheet and records the accretion of the loan discount as interest income , which is included in our income statement under the line loans and leases interest and dividend income . in july 2017 , the bank entered into an agreement with h & r block to be the exclusive provider of interest-free refund advance loans to customers during the 2018 tax season . the h & r block-branded financial services products introduce seasonality into the unaudited condensed consolidated quarterly income statements through the banking and service fees category of non-interest income and the other general and administrative category of non-interest expense , with the peak income and expense in these categories typically occurring during our third fiscal quarter ended march 31. pacific western equipment finance asset acquisition on march 31 , 2016 , the bank entered into an asset purchase agreement with pacific western bank to acquire approximately $ 140 million of equipment leases from pacific western equipment finance and assumed certain insignificant operations and related liabilities . the purchase price and total consideration paid for the assets consisted of the fair market value of the assumed liabilities plus a lease purchase price premium of approximately 2.5 % . 34 critical accounting policies the following discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements and the notes thereto , which have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these consolidated financial statements requires us to make a number of estimates and assumptions that affect the reported amounts and disclosures in the consolidated financial statements . on an ongoing basis , we evaluate our estimates and assumptions based upon historical experience and various factors and circumstances . we believe that our estimates and assumptions are reasonable under the circumstances . however , actual results may differ significantly from these estimates and assumptions that could have a material effect on the carrying value of assets and liabilities at the balance sheet dates and our results of operations for the reporting periods . securities . we classify securities as either trading , available-for-sale or held-to-maturity . trading securities are those securities for which we have elected fair value accounting . trading securities are recorded at fair value with changes in fair value recorded in earnings each period . securities available-for-sale are reported at estimated fair value , with unrealized gains and losses , net of the related tax effects , excluded from operations and reported as a separate component of accumulated other comprehensive income or loss . the fair values of securities traded in active markets are obtained from market quotes . if quoted prices in active markets are not available , we determine the fair values by utilizing industry-standard tools to calculate the net present value of the expected cash flows available to the securities . for securities other than non-agency rmbs , we use observable market participant inputs and categorize these securities as level ii in determining fair value . for non-agency rmbs securities , we use a level iii fair value model approach . to determine the performance of the underlying mortgage loan pools , we consider where appropriate borrower prepayments , defaults , and loss severities based on a number of macroeconomic factors , including housing price changes , unemployment rates , interest rates and borrower attributes such as credit score and loan documentation at the time of origination . we input for each security our projections of monthly default rates , loss severity rates and voluntary prepayment rates for the underlying mortgages for the remaining life of the security to determine the expected cash flows . the projections of default rates are derived by the company from the historic default rate observed in the pool of loans collateralizing the security , increased by ( or decreased by ) the forecasted increase or decrease in the national unemployment rate as well as the forecasted increase or decrease in the national home price appreciation ( hpa ) index . the projections of loss severity rates are derived by the company from the historic loss severity rate observed in the pool of loans , increased by ( or decreased by ) the forecasted decrease or increase in the hpa index . to determine the discount rates used to compute the present value of the expected cash flows for these non-agency rmbs securities , we separate the securities by the borrower characteristics in the underlying pool . for example , non-agency rmbs “ prime ” securities generally have borrowers with higher fico scores and better documentation of income . “ alt-a ” securities generally have borrowers with lower fico and less documentation of income . “ pay-option arms ” are alt-a securities with borrowers that tend to pay the least amount of principal ( or increase their loan balance through negative amortization ) . separate discount rates are calculated for prime , alt-a and pay-option arm non-agency rmbs securities using market-participant assumptions for risk , capital and return on equity . securities that management has the positive intent and ability to hold to maturity are classified as held-to-maturity and recorded at amortized cost . amortization of purchase premiums and accretion of discounts on securities are recorded as yield adjustments on such securities using the effective interest method . the specific identification method is used for purposes of determining cost in computing realized gains and losses on investment securities sold . at each reporting date , we monitor our available-for-sale and held-to-maturity securities for other-than-temporary impairment .
| results of operations our results of operations depend on our net interest income , which is the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities . our net interest income has increased as a result of the growth in our interest earning assets and is subject to competitive factors in the branchless banking market . our net interest income is reduced by our estimate of loss provisions for our loan and lease portfolio . we also earn non-interest income primarily from mortgage banking activities , banking products and service activity , prepaid card fee income , prepayment fee income from multifamily borrowers who repay their loans before maturity and from gains on sales of other loans and investment securities . losses on investment securities reduce non-interest income . the largest component of non-interest expense is salary and benefits , which is a function of the number of personnel , which increased from 647 full time employees at june 30 , 2016 to 681 full-time equivalent employees at june 30 , 2017 . we are subject to federal and state income taxes , and our effective tax rates were 42.10 % , 41.78 % and 41.30 % for the fiscal years ended june 30 , 2017 , 2016 , and 2015 , respectively . other factors that affect our results of operations include expenses relating to professional services , occupancy , data processing , advertising and other miscellaneous expenses . comparison of the fiscal year ended june 30 , 2017 and june 30 , 2016 net interest income . net interest income totaled $ 313.2 million for the fiscal year ended june 30 , 2017 compared to $ 261.0 million for the fiscal year ended june 30 , 2016 . the following table sets forth the effects of changing rates and volumes on our net interest income .
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overview ruth 's hospitality group , inc. develops and operates fine dining restaurants under the trade name ruth 's chris steak house . as of december 25 , 2016 , there were 150 ruth 's chris steak house restaurants , including 68 company-owned restaurants , one restaurant operating under a management agreement and 81 franchisee-owned restaurants , including 20 international franchisee-owned restaurants in aruba , canada , china , hong kong , indonesia , japan , mexico , panama , singapore , taiwan and the united arab emirates . subsequent to the company 's fiscal year 2016 , the company opened one company-owned restaurant in waltham , ma and one restaurant operating under a contractual agreement in tulsa , ok. on january 21 , 2015 , the company sold eighteen mitchell 's fish markets and three mitchell's/cameron 's steakhouse restaurants ( collectively , the mitchell 's restaurants ) , to a third party . for financial reporting purposes , the mitchell 's restaurants are classified as a discontinued operation for all periods presented . the ruth 's chris menu features a broad selection of high-quality usda prime and choice grade steaks and other premium offerings served in ruth 's chris ' signature fashion— “ sizzling ” and topped with butter—complemented by other traditional menu items inspired by our new orleans heritage . the ruth 's chris restaurants reflect the fifty year commitment to the core values instilled by our founder , ruth fertel , of caring for our guests by delivering the highest quality food , beverages and service in a warm and inviting atmosphere . our ruth 's chris restaurants cater to special occasion diners and frequent customers , in addition to the business clientele traditionally served by upscale steakhouses , by providing a dining experience designed to appeal to a wide range of guests . we believe our focus on creating this broad appeal provides us with opportunities to expand into a wide range of markets , including many markets not traditionally served by upscale steakhouses . we offer usda prime and other high quality steaks that are aged and prepared to exact company standards and cooked in 1,800-degree broilers . we also offer veal , lamb , poultry and seafood dishes and a broad selection of appetizers . we complement our distinctive food offerings with an award-winning wine list . during the fiscal year 2016 , the average check was $ 81 per person at company-owned ruth 's chris restaurants . 21 all company-owned ruth 's chris steak house restaurants are located in the united states . the franchisee-owned ruth 's chris steak house restaurants include 20 international franchisee-owned restaurants in aruba , canada , china ( hong kong and shanghai ) , indonesia , japan , mexico , panama , singapore , taiwan and the united arab emirates . we opened two new company-owned ruth 's chris steak house restaurants in 2015 – one in st. petersburg , fl in february and one in dallas , tx in november . two new company-owned ruth 's chris steak house restaurants opened during 2016 , in albuquerque , nm and el paso , tx . franchisees opened two new restaurants during 2016 , in jakarta , indonesia and greenville , sc . the franchisee-owned ruth 's chris steak house restaurant in san salvador , el salvador closed in january 2016. due to local market conditions and disappointing financial results , we closed our ruth 's chris steak house restaurant in columbus , oh in february 2016 after nearly seventeen years of operations . subsequent to the company 's fiscal year 2016 , the company opened one company-owned restaurant in waltham , ma and one restaurant operating under a contractual agreement in tulsa , ok. sale of mitchell 's restaurants the company acquired the mitchell 's restaurants in 2008. mitchell 's fish market is an upscale seafood concept and mitchell's/cameron 's steakhouse is a modern american steakhouse concept . in november 2014 , the company and landry 's , inc. and mitchell 's entertainment , inc. , an affiliate of landry 's inc. ( together with landry 's inc. , landry 's ) , entered into an asset purchase agreement ( the agreement ) . pursuant to the agreement , the company agreed to sell the mitchell 's restaurants and related assets to landry 's for $ 10 million . the sale of the mitchell 's restaurants closed on january 21 , 2015. the assets sold consist primarily of leasehold interests , leasehold improvements , restaurant equipment and furnishings , inventory , and related intangible assets , including brand names and trademarks associated with the 21 mitchell 's restaurants . under the terms of the agreement , landry 's assumed the mitchell 's restaurants ' facility lease obligations and the company will reimburse landry 's for gift cards sold prior to the closing date and used at the mitchell 's restaurants during the eighteen months following the closing date . during the third quarter of fiscal year 2016 , the company recognized a $ 466 thousand benefit from the extinguishment of the liability related to these gift cards . for financial reporting purposes , the mitchell 's restaurants are classified as a discontinued operation for all periods presented . recap of fiscal year 2016 and fiscal year 2015 operating results operating income for fiscal year 2016 increased from fiscal year 2015 by $ 2.8 million to $ 47.6 million . operating income for fiscal year 2016 was favorably impacted by an $ 11.3 million increase in restaurant sales and a decrease in food and beverage costs of $ 1.0 million . these favorable impacts were somewhat offset by increased restaurant operating expenses , marketing and advertising , general and administrative costs , depreciation and amortization expenses and pre-opening costs . higher restaurant sales were attributable both to an increase in comparable company-owned restaurant sales and new or relocated restaurants . after-tax income from continuing operations during fiscal year 2016 increased from fiscal year 2015 by $ 589 thousand to $ 30.8 million . story_separator_special_tag we depreciate capitalized leasehold improvements over the shorter of the total expected lease term or their estimated useful life . pre-opening costs . pre-opening costs consist of costs incurred prior to opening a company-owned restaurant , which are comprised principally of manager salaries and relocation costs , employee payroll and related training costs for new employees , including practice and rehearsal of service activities as well as lease costs incurred prior to opening . 23 results of operations the table below sets forth certain operating data expressed as a percentage of restaurant sales and total revenues for the periods indicated . our historical results are not necessarily indicative of the operating results that may be expected in the future . certain prior year amounts have been reclassified to conform to the current year presentation of discontinued operations . ruth 's hospitality group , inc and subsidiaries story_separator_special_tag id= '' para870 '' style= '' text-align : left ; margin : 0pt ; line-height : 1.25 '' > loss from discontinued operations , net of income taxes . loss from discontinued operations , net of income taxes during fiscal year 2016 was a loss of $ 290 thousand compared with a loss of $ 162 thousand during fiscal year 2015. discontinued operations includes : the recurring revenues and expenses of restaurants closed or held for sale ; impairments and loss on assets of restaurants closed or held for sale ; impacts of remeasurement of lease liabilities associated with closed restaurants ; and related income taxes . 25 the fiscal year 2016 loss from discontinued operations is primarily attributable to $ 842 thousand of occupancy related costs from a closed ruth 's chris steak house restaurant partially offset by a $ 466 thousand benefit from the extinguishment of a liability related to mitchell 's restaurant gift cards and a $ 186 thousand income tax benefit . the fiscal year 2015 loss from discontinued operations is primarily attributable to a $ 1.0 million loss from mitchell 's restaurants , partially offset by an $ 869 thousand income tax benefit . the $ 869 thousand income tax benefit is primarily due to a tax loss recognized on the sale of mitchell 's restaurants . net income . net income was $ 30.5 million during fiscal year 2016 compared to $ 30.0 million net income during fiscal year 2015 due to the factors noted above . fiscal year 2015 compared to fiscal year 2014 restaurant sales . restaurant sales increased $ 26.4 million , or 8.1 % , to $ 351.9 million during fiscal year 2015 from fiscal year 2014. the increase was attributable to an $ 11.7 million increase in comparable company-owned restaurant sales and $ 14.7 million from new or relocated restaurants . excluding discontinued operations , total operating weeks during fiscal year 2015 increased to 3,433 from 3,283 during fiscal year 2014. comparable company-owned restaurant sales increased 3.4 % , which consisted of an average check increase of 3.5 % , partially offset by a traffic decrease of 0.2 % . franchise income . franchise income increased $ 898 thousand , or 5.7 % , to $ 16.7 million during fiscal year 2015 from fiscal year 2014. the increase was driven primarily by a $ 636 thousand increase from new or re-located locations which opened during fiscal years 2015 and 2014 and a fiscal year 2015 $ 194 thousand recovery of franchise royalties from prior periods . the remaining increase is from an increase in comparable franchisee-owned restaurant sales of 0.7 % . other operating income . other operating income during fiscal year 2015 was relatively unchanged compared to fiscal year 2014. other operating income includes gift card breakage revenue , our share of income from a managed restaurant and miscellaneous restaurant income . fiscal year 2015 gift card breakage revenue decreased $ 228 thousand from the fiscal year 2014 level due to a slight decrease in the rate of gift card redemptions . our management fee and our share of income from the cherokee location was $ 992 thousand during fiscal year 2015 and $ 801 thousand during fiscal year 2014. food and beverage costs . food and beverage costs increased $ 4.8 million , or 4.7 % , to $ 108.1 million during fiscal year 2015 from fiscal year 2014. food and beverage costs , as a percentage of restaurant sales , decreased 101 basis points to 30.7 % compared to fiscal year 2014 due to a 3.5 % increase in menu pricing and 8.0 % lower beef costs . restaurant operating expenses . restaurant operating expenses increased $ 9.6 million , or 6.1 % , to $ 165.8 million during fiscal year 2015 from fiscal year 2014. restaurant operating expenses , as a percentage of restaurant sales , decreased 88 basis points to 47.1 % compared to fiscal year 2014 primarily due to lower healthcare claims . marketing and advertising . marketing and advertising expenses increased $ 849 thousand to $ 10.9 million during fiscal year 2015 from fiscal year 2014. the increase in marketing and advertising expenses during fiscal year 2015 was attributable to a planned increase in advertising . marketing and advertising was 2.9 % of total revenues , which was relatively unchanged from fiscal year 2014. general and administrative . general and administrative expenses increased $ 5.9 million to $ 30.2 million during fiscal year 2015 from fiscal year 2014 , primarily due to an increase in incentive and stock-based compensation . depreciation and amortization expenses . depreciation and amortization expense increased $ 1.6 million to $ 12.5 million during fiscal year 2015 , primarily due to property additions related to new restaurants and remodel projects placed in service in fiscal years 2014 and 2015. pre-opening costs . pre-opening costs decreased $ 598 thousand to $ 1.0 million during fiscal year 2015 , primarily due to two new restaurant openings in 2015 compared to three in 2014. interest expense .
| results of operations replace_table_token_8_th 24 fiscal year 2016 compared to fiscal year 2015 restaurant sales . restaurant sales increased $ 11.3 million , or 3.2 % , to $ 363.1 million during fiscal year 2016 from fiscal year 2015. the increase was attributable to a $ 5.9 million increase in comparable company-owned restaurant sales and $ 5.5 million from new or relocated restaurants . excluding discontinued operations , total operating weeks during fiscal year 2016 increased to 3,489 from 3,433 during fiscal year 2015. comparable company-owned restaurant sales increased 1.6 % , which consisted of an average check increase of 2.5 % , partially offset by a traffic decrease of 0.8 % . franchise income . franchise income increased $ 640 thousand , or 3.8 % , to $ 17.3 million during fiscal year 2016 from fiscal year 2015. the increase was driven primarily by a $ 426 thousand increase from new or re-located locations which opened during fiscal years 2016. the remaining increase is from an increase in comparable franchisee-owned restaurant sales of 1.0 % . other operating income . other operating income during fiscal year 2016 increased $ 602 thousand , or 12.3 % , to $ 5.5 million during fiscal year 2016 from fiscal year 2015. other operating income includes gift card breakage revenue , our share of income from a managed restaurant and miscellaneous restaurant income . fiscal year 2016 gift card breakage revenue increased $ 218 thousand from fiscal year 2015 due to an increase in gift card sales . our management fee and our share of income from the cherokee location was $ 1.4 million during fiscal year 2016 and $ 992 thousand during fiscal year 2015. food and beverage costs .
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eitf 00-21 previously required that the story_separator_special_tag forward-looking information the following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the notes to those financial statements appearing elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements that involve significant risks and uncertainties . as a result of many factors , such as those set forth under `` risk factors '' in item 1a of this annual report on form 10-k , our actual results may differ materially from those anticipated in these forward-looking statements . overview we are an entrepreneurial pharmaceutical company that discovers , develops and intends to commercialize differentiated medicines that improve patients ' lives . to achieve this , we are building a team , a culture and processes centered on creating and marketing important new drugs . we believe that linaclotide , our gc-c agonist being developed for the treatment of patients with ibs-c or cc , could present patients and healthcare practitioners with a unique therapy for a major medical need not yet met by existing therapies . linaclotide is our only product candidate that has demonstrated clinical proof of concept . in addition to linaclotide , we have a pipeline of early stage , pre-proof of concept development candidates in multiple therapeutic areas , including gastrointestinal disease , pain and inflammation , and respiratory disease . we are also conducting early stage , preclinical research in these therapeutic areas , as well as in the area of cardiovascular disease . we have pursued a partnering strategy for commercializing linaclotide that has enabled us to retain significant control over linaclotide 's development and commercialization , share the costs with high-quality collaborators whose capabilities complement ours , and retain approximately half of linaclotide 's future long-term value in the major pharmaceutical markets , should linaclotide meet our sales expectations . we were incorporated in delaware as microbia , inc. ( which was the name of our formerly majority-owned subsidiary ) , on january 5 , 1998. on april 7 , 2008 , we changed our name to ironwood pharmaceuticals , inc. prior to september 2010 , we held a majority ownership interest in microbia , inc. ( formerly known as microbia precision engineering ) , a subsidiary formed in september 2006. microbia , inc. , or microbia , engaged in a specialty biochemicals business based on a proprietary strain-development platform . on september 21 , 2010 , we sold our interest in microbia to dsm holding company usa , inc. , or dsm , in exchange for cash proceeds of $ 9.5 million , the payment of approximately 42 $ 1.1 million of microbia debt and interest by dsm and future contingent consideration based on the sale of products incorporating microbia 's technology . we currently operate in one reportable business segmenthuman therapeutics . our human therapeutics segment consists of the development and commercialization of our product candidates , including linaclotide . prior to the sale of our interest in microbia , we also operated in the biomanufacturing segment . our biomanufacturing segment , which comprised a much smaller part of our business , consisted of our majority ownership interest in microbia . our human therapeutics segment represented 100 % and 99 % of our total assets at december 31 , 2010 and 2009 , respectively , while our biomanufacturing segment represented approximately 1 % of our total assets at december 31 , 2009. for the years ended december 31 , 2010 , 2009 and 2008 , results of operations of our biomanufacturing segment are included in net income ( loss ) from discontinued operations in our financial statements . to date , we have dedicated substantially all of our activities to the research and development of our product candidates . we have not generated any revenue to date from product sales and have incurred significant operating losses since our inception in 1998. we incurred net losses attributable to ironwood pharmaceuticals , inc. of approximately $ 53.0 million , $ 71.2 million and $ 53.9 million in the years ended december 31 , 2010 , 2009 and 2008 , respectively . as of december 31 , 2010 , we had an accumulated deficit of approximately $ 367.5 million and we expect to incur losses for the foreseeable future . financial overview revenue . revenue to date from our human therapeutics segment is generated primarily through our collaboration agreement with forest and our license agreements with almirall and astellas . the terms of these agreements include payment to us of one or more of the following : nonrefundable , up-front license fees ; milestone payments ; and royalties on product sales . revenue from our human therapeutics segment is shown in our consolidated statements of operations as collaborative arrangements revenue . revenue from our biomanufacturing segment was generated by our former subsidiary , microbia , which had entered into research and development service agreements with various third parties . these agreements generally provided for fees for research and development services rendered . as a result of the sale of our interest in microbia , revenue from our biomanufacturing segment is included in net income ( loss ) from discontinued operations . we expect our revenue to fluctuate for the foreseeable future as our collaborative arrangements revenue is principally based on the achievement of clinical and commercial milestones . research and development expense . research and development expense consists of expenses incurred in connection with the discovery and development of our product candidates . these expenses consist primarily of compensation , benefits and other employee related expenses , research and development related facility costs and third-party contract costs relating to research , formulation , manufacturing , preclinical study and clinical trial activities . the costs of revenue related to the microbia services contracts and costs associated with microbia 's research and development activities are included in net income ( loss ) from discontinued operations . we charge all research and development expenses to operations as incurred . story_separator_special_tag we expect our research and development costs to continue to be substantial for the foreseeable future and to increase with respect to our product candidates other than linaclotide as we advance those product candidates through preclinical studies and clinical trials . additionally , our research and development costs will increase as we will fund full-time equivalents for protagonist 's drug discovery activities under the terms of our collaboration agreement . general and administrative expense . general and administrative expense consists primarily of compensation , benefits and other employee related expenses for personnel in our administrative , finance , legal , information technology , business development , commercial and human resource functions . other costs include the legal costs of pursuing patent protection of our intellectual property , general and administrative related facility costs and professional fees for accounting and legal services . as a result of our ipo in february 2010 , we have experienced and will likely continue to experience increases in general and administrative expense relating to operating as a public company . these increases include legal fees , accounting fees , costs associated with implementing and complying with the requirements of the sarbanes-oxley act of 2002 and the dodd-frank wall street reform and protection act of 2010 and fees for investor relations services . we also anticipate substantial increases in expenses related to developing the organization necessary to commercialize linaclotide . critical accounting policies and estimates our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements prepared in accordance with generally accepted accounting principles in the u.s. , or gaap . the preparation of these financial statements requires us to make certain 45 estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses during the reported periods . these estimates and assumptions , including those related to revenue recognition , available-for-sale securities , impairments of long-lived assets , income taxes including the valuation allowance for deferred tax assets , research and development expenses , contingencies , and share-based compensation are monitored and analyzed by us for changes in facts and circumstances , and material changes in these estimates could occur in the future . prior to our ipo , we also evaluated our estimates and judgments regarding the fair value assigned to our common stock . these critical estimates and assumptions are based on our historical experience , our observance of trends in the industry , and various other factors that are believed to be reasonable under the circumstances and form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from our estimates under different assumptions or conditions . we believe that our application of the following accounting policies , each of which require significant judgments and estimates on the part of management , are the most critical to aid in fully understanding and evaluating our reported financial results . our significant accounting policies are more fully described in note 2 , summary of significant accounting policies , to our consolidated financial statements appearing elsewhere in this annual report on form 10-k. as a result of the sale of our interest in microbia , we have presented the assets , liabilities , operations , and cash flows of microbia as discontinued operations for all periods presented prior to the sale . revenue recognition our revenue is generated primarily through collaborative research and development and license agreements . the terms of these agreements typically include payment to us of one or more of the following : nonrefundable , up-front license fees ; milestone payments ; the sale of drug substance to our collaborators ; and royalties on product sales . in addition , prior to september 2010 , we generated services revenue through agreements that generally provided for fees for research and development services rendered . we recognize revenue when there is persuasive evidence that an arrangement exists , services have been rendered or delivery has occurred , the price is fixed or determinable , and collection is reasonably assured . we evaluate revenue from agreements that have multiple elements and account for those components as separate elements when the following criteria are met : the delivered items have value to the customer on a stand-alone basis ; there is objective and reliable evidence of fair value of the undelivered items ; and if there is a general right of return relative to the delivered items , delivery or performance of the undelivered items is considered probable and within our control . the determination that multiple elements in an arrangement meet the criteria for separate units of accounting requires us to exercise our judgment . the determination of whether we should recognize revenue on a gross or net basis involves judgment based on the relevant facts and circumstances , which relate primarily to whether we act as a principal or agent in the process of generating revenues from our collaboration and licensing arrangements . for certain of our arrangements , particularly our license agreement with almirall , it is required that taxes be withheld on payments to us . we have adopted a policy to recognize revenue net of these tax withholdings . 46 up-front license fees we recognize revenues from nonrefundable , up-front license fees related to collaboration and license agreements , including the $ 70.0 million up-front license fee under the forest collaboration agreement entered into in september 2007 and the $ 40.0 million up-front license fee , of which $ 38.0 million was received net of foreign withholding taxes , under the almirall license agreement entered into in april 2009 , on a straight-line basis over the contracted or estimated period of performance due to our continued involvement in research and development . the period of performance over which the revenues are recognized is typically the period over which the research and or development is expected to occur .
| results of operations the following discussion summarizes the key factors our management believes are necessary for an understanding of our consolidated financial statements . replace_table_token_7_th year ended december 31 , 2010 compared to year ended december 31 , 2009 revenue years ended december 31 , change 2010 2009 $ % ( dollars in thousands ) collaborative arrangements revenue $ 43,857 $ 34,321 $ 9,536 27.8 % collaborative arrangements . the increase in revenue from collaborative arrangements for the year ended december 31 , 2010 compared to the year ended december 31 , 2009 was primarily due to increases in revenue from the almirall license agreement , which we entered into in april 2009 , and the astellas license agreement , which we entered into in november 2009 , offset by decreases in revenue from the forest collaboration . in the year ended december 31 , 2010 , we recognized approximately $ 10.6 million of revenue , compared with approximately $ 7.0 million of revenue in 2009 , related to the $ 38.0 million up-front license payment received in may 2009 from almirall and the amortization of the deferred revenue resulting from recording the initial $ 6.0 million valuation of the almirall forward purchase contract . additionally in 2010 , we recognized approximately $ 7.6 million of revenue associated 54 with the $ 19.0 million milestone payment , net of taxes , received in december 2010 under the almirall license agreement . in the year ended december 31 , 2010 , we recognized approximately $ 2.6 million of revenue related to the $ 30.0 million up-front license payment received in november 2009 from astellas , compared with none in 2009 , as the development period and related amortization did not commence until march 2010. additionally , in the year ended december 31 , 2010 we recognized approximately $ 1.3 million from shipments of clinical trial materials to both almirall and astellas compared to approximately $ 0.3
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our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors , including those set forth in part i , item 1a , risk factors and elsewhere in this annual report on form 10-k. organization orbcomm llc was organized as a delaware limited liability company on april 4 , 2001 and on april 23 , 2001 , we acquired substantially all of the non-cash assets and assumed certain liabilities of orbcomm global l.p. and its subsidiaries , which had filed for relief under chapter 11 of the u.s. bankruptcy code . the assets acquired from orbcomm global l.p. and its subsidiaries consisted principally of the in-orbit satellites and supporting u.s. ground infrastructure equipment that we own today . at the same time , orbcomm llc also entered an agreement that resulted in the acquisition of the fcc licenses required to own and operate the communications system from a subsidiary of orbital sciences corporation , which was not in bankruptcy , in a related transaction . prior to april 23 , 2001 , orbcomm llc did not have any operating activities . we were formed as a delaware corporation in october 2003 and on february 17 , 2004 , the members of orbcomm llc contributed all of their outstanding membership interests in orbcomm llc to us in exchange for shares of our common stock , representing ownership interests in us equal in proportion to their prior ownership interest in orbcomm llc . as a result of , and immediately following the contribution , orbcomm llc became a wholly-owned subsidiary of ours . overview we are a global provider of machine-to-machine ( m2m ) solutions , including network connectivity , devices and web reporting applications . these solutions enable optimal business efficiencies , increased asset efficiency , utilization , and substantially reduce asset write-offs helping industry leaders realize benefits on a world-wide basis . our m2m products and services are designed to track , monitor and enhance security for a variety of assets , such as trailers , trucks , rail cars , intermodal containers , generators , fluid tanks , marine vessels , oil and gas wells , pipeline monitoring equipment , irrigation control systems , and utility meters , in the 53 transportation & distribution , heavy equipment , oil & gas , maritime and government industries . additionally , we provide automatic identification system ( ais ) data services for vessel tracking and to improve maritime safety to government and commercial customers worldwide . we provide these services using multiple network platforms , including our own constellation of 25 low-earth orbit satellites , two ais microsatellites , and our accompanying ground infrastructure . we also offer customer solutions utilizing additional satellite and terrestrial-based cellular network service options that we obtain through service agreements we have entered into with mobile satellite providers inmarsat and globalstar , as well as several major cellular ( tier one ) wireless carriers . our satellite-based customer solution offerings use small , low power , mobile earth stations ( communicators ) for remote asset connectivity , and our terrestrial-based solutions utilize cellular data modems with subscriber identity modules ( sims ) . customer solutions provide access to data gathered over these systems via connections to other public or private networks , including the internet . we are dedicated to providing the most versatile , leading-edge m2m solutions that enable our customers to maximize operational efficiency , increase asset utilization and achieve significant return on investment . acquisitions 2013 acquisitions sens asset tracking operation on october 1 , 2013 , we completed the acquisition of the sensor enabled notification system ( sens ) business of comtech mobile datacom corporation , which includes satellite hardware , network technology and web platforms . the consideration paid to acquire sens was $ 2.0 million in cash . as a result of the acquisition of sens , we recognized $ 0.2 million of goodwill and $ 1.3 million of intangible assets , which consist of technology , trademarks and customer lists . the results of operations of sens are included in our consolidated results for the period subsequent to the acquisition date of october 1 , 2013. the acquisition of sens gives us access to a customer base that includes military , international , government and commercial customers as well as expanded reach in growing regions , such as the middle east , asia and south america . globaltrak on april 3 , 2013 , we completed the acquisition of substantially all of the assets of globaltrak , a division of system planning corporation ( spc ) . the consideration paid to acquire globaltrak was $ 3.0 million in cash , subject to a final working capital adjustment , of which $ 0.5 million was deposited into an escrow account with a third party escrow agent to fund any indemnification obligation of spc to us , primarily for breaches of representations and warranties made by spc . during the three months ended september 30 , 2013 , we reached an agreement with spc for a final working capital adjustment of $ 0.1 million which was paid to us . as of december 31 , 2013 , this amount was recorded as a decrease to goodwill in our consolidated balance sheet since the adjustment was within the one-year measurement period . as a result of the acquisition of globaltrak , we recognized $ 2.5 million of goodwill and $ 0.5 million of intangible assets , which consist of technology , trade names and trademarks and customer lists . the results of operations of globaltrak are included in our consolidated results for the period subsequent to the acquisition date of april 3 , 2013. the acquisition of globaltrak gives us access to a customer base that includes military , international , government and commercial customers as well as expanded reach in growing regions , such as the middle east , asia and south america . story_separator_special_tag the potential earn-out amount for achieving sales targets for calendar years 2013 and 2014 , if earned , will be paid within 30 days after we file our form 10-k for years 2013 and 2014. we recorded at the acquisition date a liability of $ 0.7 million for the estimated fair value of the earn-out amounts . any change in the fair value of the contingent earn-out subsequent to the acquisition date , including changes from events after the acquisition date , will be recognized in earnings in the period the estimated fair value changes . for the year ended december 31 , 2012 , lms did not achieve the subscriber target for the 2012 calendar year and the fair value of the earn-out amounts decreased by $ 0.2 million which was recorded as a reduction to selling general and administrative expenses in our consolidated statements of operations . for the year ended december 31 , 2013 , the fair value of the earn-out amounts was decreased by $ 0.4 million which is recorded as a reduction of selling , general and administrative expenses in the consolidated statements of operations . as a result of the acquisition of lms , we recognized $ 3.3 million of goodwill and $ 1.7 million of intangible assets . the acquired goodwill will not be amortized for financial reporting purposes . however the acquired goodwill is tax deductible , and therefore amortized over fifteen years for income tax purposes . as such , deferred income tax expense and a deferred tax liability arise as a result of the difference in tax deductibility of this amount for tax and financial reporting purposes . the resulting deferred tax liability , which is expected to continue to increase over time will remain on our balance sheet indefinitely unless there is an impairment of the asset . the acquired intangible assets consist of customer relationships , which is being amortized over 10 years , technology , which is being amortized over 5 years and trademarks , which is being amortized over 2 years . the results of operations of lms are included in our consolidated results for the period subsequent to the acquisition date of january 12 , 2012. see note 4 to the consolidated financial statements for further discussion on the acquisition of lms . 2011 acquisition startrak systems , llc effective on the close of business on may 16 , 2011 , we completed the acquisition of substantially all of the assets of startrak , a wholly-owned subsidiary of alanco technologies , inc. , ( alanco ) including but not limited to cash , accounts receivable , inventory , equipment , intellectual property , all of startrak 's rights to customer contracts , supplier lists and assumed certain liabilities pursuant to an asset purchase agreement dated as of february 23 , 2011. the consideration paid to acquire startrak was valued at $ 18.2 million consisting of : ( i ) cash subject to a final working capital adjustment , which has not yet been finalized , ( ii ) forgiveness of the 6 % secured promissory note advanced by us to alanco on february 23 , 2011 , ( iii ) note payable issued to a lender and stockholder of 56 alanco , ( iv ) common stock , ( v ) series a convertible preferred stock and ( vi ) delivery of our investment in preferred stock and common stock of alanco back to alanco . as a result of the acquisition of startrak , we recognized $ 11.7 million of goodwill and $ 7.6 million of intangible assets . the acquired goodwill will not be amortized for financial reporting purposes . however the acquired goodwill is tax deductible , and therefore amortized over fifteen years for income tax purposes . as such , deferred income tax expense and a deferred tax liability arise as a result of the difference in tax deductibility of this amount for tax and financial reporting purposes . the resulting deferred tax liability , which is expected to continue to increase over time will remain on our balance sheet indefinitely unless there is an impairment of the asset . the acquired intangible assets consist of technology and patents , customer relationships and trademarks are being amortized over 10 years . the results of operations of startrak are included in our consolidated results for the period subsequent to the acquisition date of may 16 , 2011. see note 4 to the consolidated financial statements for further discussion on the acquisition of startrak . next-generation satellites through a series of launches , we intend to replenish the existing constellation of satellites with 17 next-generation satellites , which depending on the capabilities of the replacement satellites , may require fewer satellites than we currently have . we intend to launch 17 next-generation satellites equipped with increased communications capabilities and our ais payload currently being constructed by snc with the first of several launches using spacex falcon 9 launch vehicles . we anticipate that the launch services will be begin during the second quarter of 2014. ais microsatellites on september 28 , 2010 , we entered into an ais satellite agreement with ohb pursuant to which ohb , through its affiliate lxs to ( 1 ) design , construct , launch and in-orbit test two ais microsatellites and ( 2 ) design and construct the required ground support equipment . one ais microsatellite was launched in october 2011 and the second was launched in january 2012 and both are providing full commercial service . secondary offering on january 17 , 2014 , we completed a public offering of 6,325,000 shares of common stock including 825,000 shares sold upon full exercise of the underwriters ' over-allotment option at a price of $ 6.15 per share . we received net proceeds of approximately $ 36.7 million after deducting underwriters ' discounts and commissions and offering costs . ebitda ebitda is defined as earnings attributable to orbcomm inc. , before interest income ( expense ) , provision for income taxes and depreciation and amortization .
| results of operations revenues the table below presents our revenues ( in thousands ) for the years ending december 31 , 2013 , 2012 and 2011 , together with the percentage of total revenue represented by each revenue category : replace_table_token_7_th 2013 vs. 2012 : total revenues for 2013 increased $ 9.7 million , or 15.1 % , to $ 74.2 million from $ 64.5 million in 2012 . 2012 vs. 2011 : total revenues for 2012 increased $ 18.2 million , or 39.3 % , to $ 64.5 million from $ 46.3 million in 2011 . 65 service revenues 2013 vs. 2012 : service revenues increased $ 6.9 million in 2013 , or 14.1 % , to $ 55.9 million from $ 49.0 million in 2012. the increase in service revenues in 2013 over 2012 was primarily due to an increase in organic revenues of $ 4.3 million which includes an increase in ais revenue of $ 1.0 million , a backbilling adjustment with a customer and $ 2.6 million from acquisitions in 2013. service revenues were impacted by a less favorable exchange rate due to the decrease of the yen against the u.s. dollar of $ 0.6 million . as of december 31 , 2013 , we had approximately 862,000 billable subscriber communicators compared to approximately 759,000 billable subscriber communicators as of december 31 , 2012 , an increase of 13.7 % . 2012 vs. 2011 : service revenues increased $ 11.5 million in 2012 , or 30.7 % , to $ 49.0 million from $ 37.5 million in 2011. the increase in service revenues in 2012 over 2011 were primarily due to an increase in satellite and terrestrial revenues of $ 9.1 million primarily from an increase in messaging service due to increases in billable subscriber communicators and usage by some customers , which includes $ 6.4 million from acquisitions . service revenues also increased because of an increase in ais revenue of $ 2.0 million .
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in may 2019 , the fasb issued asu 2019-04 , codification improvements to topic 326 , financial instruments—credit losses , topic 815 , derivatives and hedging , and topic 825 , financial instruments ( `` asu 2019-04 `` ) to clarify certain accounting topics from previously issued asus , including asu 2016-13. asu 2019-04 addresses certain aspects of asu 2016-13 , including but not limited to , accrued interest receivable , loan recoveries , interest rate projections for variable-rate financial instruments and expected prepayments . asu 2019-04 provides alternatives that allow entities to measure credit losses on accrued interest separate from credit losses on the principal portion of a loan , clarifies that entities should include expected recoveries in the measurement of credit losses , allows entities to consider future interest rates when measuring credit losses and can elect to adjust effective interest rates used to discount expected cash flows for expected loan prepayments . asu 2019-04 is effective upon the adoption of asu 2016-13. management is currently evaluating the impact of asu 2019-04 on the company 's consolidated financial statements . 54 safehold inc. notes to consolidated financial statements ( continued ) note 4— real estate and real estate-related intangibles the company 's real estate assets consist of the following ( $ in thousands ) : replace_table_token_12_th real estate-related intangible assets , net consist of the following items ( $ in thousands ) : replace_table_token_13_th replace_table_token_14_th _ ( 1 ) above-market lease assets are recognized during business combinations and asset acquisitions when the present value of market rate rental cash flows over the term of a lease is less than the present value of the contractual in-place rental cash flows . above-market lease assets are amortized over the non-cancelable term of the leases . ( 2 ) in-place lease assets are recognized during business combinations and asset acquisitions and are estimated based on the value associated with the costs avoided in originating leases comparable to the acquired in-place leases as well as the value associated with lost rental revenue during the assumed lease-up period . in-place lease assets are amortized over the non-cancelable term of the leases . ( 3 ) below-market lease asset , net resulted from the acquisition of the initial portfolio from istar and relates to a property that is majority-owned by a third party and is ground leased to the company . the company is obligated to pay the owner of the property $ 0.4 million , subject to adjustment for changes in the cpi , per year through 2044 ; however , the company 's tenant at the property pays this expense directly under the terms of a master lease . the below-market lease asset is amortized over the term of the lease . effective with the adoption of asu 2016-02 on january 1 , 2019 , below-market lease asset , net was reclassified to `` deferred expenses and other assets , net `` on the company 's consolidated balance sheet ( refer to note 3 ) . 55 safehold inc. notes to consolidated financial statements ( continued ) the amortization of real estate-related intangible assets had the following impact on the company 's consolidated statements of operations for the years ended december 31 , 2019 and 2018 ( $ in thousands ) : story_separator_special_tag this discussion summarizes the significant factors affecting our consolidated operating results , financial condition and liquidity during the two-year period ended december 31 , 2019 . this discussion should be read in conjunction with our consolidated financial statements and related notes for the two-year period ended december 31 , 2019 included elsewhere in this annual report on form 10-k. these historical financial statements may not be indicative of our future performance . executive overview we acquire , manage and capitalize ground leases and report our business as a single reportable segment . we believe owning a portfolio of ground leases affords our investors the opportunity for safe , growing income . safety is derived from a ground lease 's senior position in the commercial real estate capital structure . growth is realized through long-term leases with contractual periodic increases in rent . capital appreciation is realized though appreciation in the value of the land over time and through our typical rights as landlord to acquire the commercial buildings on our land at the end of a ground lease , which may yield substantial value to us . the diversification by geographic location , property type and sponsor in our portfolio further reduces risk and enhances potential upside . under our ground leases we are typically not responsible for any operating or capital expenses over the life of the lease , making the management of our portfolio relatively simple , with limited working capital needs . we believe institutional owners of commercial real estate increasingly understand that the structure of our safehold tm ground lease allows owners of high quality properties to generate higher returns with less risk . we experienced significant customer demand for our safehold tm ground leases during the year ended december 31 , 2019 , and we expect that increased customer experience and market recognition should generate greater demand for safehold tm ground leases from building owners and acquirers going forward . 31 our portfolio our portfolio of properties is diversified by property type and region . our portfolio is comprised of ground leases and a master lease ( relating to five hotel assets that we refer to as our “ park hotels portfolio ” ) that has many of the characteristics of a ground lease , including length of lease term , percentage rent participations , triple net terms and strong ground rent coverage ( which was 4.0x as of december 31 , 2019 on a weighted average basis ) . story_separator_special_tag in addition , we may make distributions without restriction as to amount so long as after giving effect to the dividend we remain in compliance with the financial covenants and no event of default has occurred and is continuing . our other debt obligations contain no significant maintenance or ongoing financial covenants . as of december 31 , 2019 , we were in compliance with all of our financial covenants . off-balance sheet arrangements —we are not dependent on the use of any off-balance sheet financing arrangements for liquidity . critical accounting estimates basis of presentation — the preparation of these consolidated financial statements in conformity with generally accepted accounting principles in the united states of america ( `` gaap '' ) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods . real estate — real estate assets are recorded at cost less accumulated depreciation and amortization , as follows : capitalization and depreciation—certain improvements and replacements are capitalized when they extend the useful life of the asset . repair and maintenance costs are expensed as incurred . depreciation is computed using the straight-line method over the estimated useful life , which is generally 40 years for facilities , the shorter of the remaining lease term or expected life for tenant improvements and the remaining useful life of the facility for facility improvements . purchase price allocation—upon acquisition of real estate , we determine whether the transaction is a business combination , which is accounted for under the acquisition method , or an acquisition of assets . for both types of transactions , we recognize and measure identifiable assets acquired , liabilities assumed and any noncontrolling interest in the acquiree based on their relative fair values . for business combinations , we recognize and measure goodwill or gain from a bargain purchase , if applicable , and expense acquisition-related costs in the periods in which the costs are incurred . for acquisitions of assets , acquisition-related costs are capitalized and recorded in `` real estate , net , '' `` real estate-related intangible assets , net '' and `` real estate-related intangible liabilities , net '' on our consolidated balance sheets . if we acquire real estate and simultaneously enter into a lease of the real estate , the acquisition will be accounted for as an asset acquisition . we account for our acquisition of properties by recording the purchase price of tangible and intangible assets acquired and liabilities assumed based on their estimated fair values . the value of the tangible assets , consisting of land , buildings , building improvements and tenant improvements is determined as if these assets are vacant . intangible assets may include the value of lease incentive assets , above-market leases , below-market ground lease assets and in-place leases , which are each recorded at their estimated fair values and included in `` real estate-related intangible assets , net '' on our consolidated balance sheets . intangible liabilities may include the value of below-market leases , which are recorded at their estimated fair values and included in `` real estate-related intangible liabilities , net '' on our consolidated balance sheets . in-place leases are amortized over the remaining non-cancelable term of the lease and the amortization expense is included in `` depreciation and amortization '' in our consolidated statements of operations . lease incentive assets and above-market ( or below-market ) lease value are amortized as a reduction of ( or , increase to ) operating lease income over the remaining non-cancelable term of each lease plus any renewal periods with fixed rental terms that are considered to be below-market . we may also engage in sale/leaseback transactions whereby we execute a net lease with the occupant simultaneously with the purchase of the asset . impairments—we review real estate assets for impairment in value whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable . the value of a long-lived asset held for use is impaired if management 's estimate of the aggregate future cash flows ( undiscounted and without interest charges ) to be generated by the asset ( taking into account the anticipated holding period of the asset ) are less than its carrying value . such estimate of cash flows considers factors such as expected future operating income trends , as well as the effects of demand , competition and other economic factors . to the extent impairment has occurred , the loss will be measured as the excess of the carrying amount of the asset over the estimated fair value of the asset and reflected as an adjustment to the basis of the asset . impairments of real estate assets , if any , are recorded in `` impairment of assets '' in our consolidated statements of operations . 37 net investment in sales-type leases and ground lease receivables —net investment in sales-type leases and ground lease receivables are recognized when our ground leases qualify as sales-type leases . the net investment in sales-type leases is initially measured at the present value of the fixed and determinable lease payments , including any guaranteed or unguaranteed residual value of the asset at the end of the lease , discounted at the rate implicit in the lease . acquisition-related costs are capitalized and recorded in `` net investment in sales-type leases '' and `` ground lease receivables '' on our consolidated balance sheets . for newly originated or acquired ground leases , our estimate of residual value equals the fair value of the land at lease commencement .
| results of operations for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 replace_table_token_2_th operating lease income increased to $ 72.1 million during the year ended december 31 , 2019 from $ 47.4 million for the same period in 2018. the increase in 2019 was primarily due to the origination and acquisition of ground leases classified as operating leases . interest income from sales-type leases ( refer to note 3 ) was $ 18.5 million for the year ended december 31 , 2019 . on january 1 , 2019 , we adopted new accounting standards ( refer to note 3 ) and , as a result , now classify certain of our ground leases as sales-type leases . under sales-type leases , we accrue interest income under the effective interest method as opposed to recognition of operating lease income under the straight-line rent method for our ground leases that do not qualify as sales-type leases . we expect a majority of our newly originated ground leases will be classified as sales-type leases . other income for the year ended december 31 , 2019 was $ 2.8 million and consists primarily of $ 2.4 million of interest income earned on our cash balances and $ 0.4 million of other income relating to a ground lease in which we are the lessee but 34 our tenant at the property pays this expense directly under the terms of a master lease ( refer to note 3 ) .
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during 2007 , the company reassessed its participation on the joint steering committee and concluded that its participation in the joint steering committee had become inconsequential and perfunctory . as a result , the company determined that it had no further performance obligations under this collaboration and consideration received after this date is recognized in the company 's financial statements in the period in which it was earned . the company received contingent payments from genentech totaling $ 3.0 million during the year ended december 31 , 2014 , for the achievement of certain clinical development and regulatory objectives related to erivedge . no such payments were received during the years ended december 31 , 2016 and 2015 . the company has recorded these amounts as revenue within “ license fees ” in the revenues section of its consolidated statement of operations for the year ended december 31 , 2014 . as a result of its licensing agreements with various universities , the company is obligated to make payments story_separator_special_tag the following discussion and analysis of financial condition and results of operations should be read together with “ selected financial data , ” and our financial statements and accompanying notes appearing elsewhere in this report . this discussion contains forward-looking statements , based on current expectations and related to future events and our future financial performance , that involve risks and uncertainties . our actual results may differ materially from those anticipated in these forward-looking statements as a result of many important factors , including those set forth under item 1a , “ risk factors ” and elsewhere in this report . overview we are a biotechnology company seeking to develop and commercialize innovative and effective drug candidates for the treatment of cancers . our most advanced drug candidate is cudc-907 , an orally-available , small molecule inhibitor of histone deacetylase , or hdac , and phosphatidylinositol-3-kinase , or pi3k enzymes . based on findings of our phase 1 clinical trial of this molecule in patients with relapsed or refractory lymphomas or multiple myeloma , in 2016 we initiated an open-label phase 2 clinical trial of cudc-907 in patients with relapsed or refractory diffuse large b-cell lymphoma , or dlbcl , including patients with myc-altered dlbcl . we are also conducting a phase 1 trial in patients with solid tumors whose cancers have myc involvement . we are party to an exclusive collaboration agreement focused on immuno-oncology and selected precision oncology targets with aurigene discovery technologies limited , or aurigene , a specialized , discovery-stage biotechnology company and wholly-owned subsidiary of dr. reddy 's laboratories . in october 2015 , we exercised options to license the first two programs under this collaboration . the first licensed program is focused on the development of orally-available small molecule antagonists of programmed death , or pd1 , and v-domain ig suppressor of t-cell activation , or vista , pathways in the immuno-oncology field , including the development candidate designated ca-170 , which targets programmed death ligand-1 , or pdl1 , and vista . in june 2016 , we announced fda acceptance of the ind for ca-170 and we dosed the first patient in the phase 1 trial of ca-170 . the second licensed program is focused on orally-available small molecule inhibitors of interleukin-1 receptor-associated kinase 4 , or irak4 , in the precision oncology field , with the lead development candidate designated ca-4948 . in addition , in october 2015 we selected a third program for potential development under the collaboration , which represents the second preclinical program within the immuno-oncology field . this third program in the collaboration , is focused on evaluating small molecule antagonists of pd1 and t-cell immunoglobulin and mucin domain containing protein , or tim3 , pathways , including small molecules that target pdl1 and tim3 . in october 2016 , we exercised our option to license this third program and designated ca-327 as the development candidate . our other collaborators , f. hoffmann-la roche ltd , or roche , and genentech inc. , or genentech , a member of the roche group , are commercializing erivedge ® ( vismodegib ) , a first-in-class orally-administered small molecule hedgehog signaling pathway inhibitor , in advanced bcc . roche and genentech are also conducting clinical studies of erivedge in idiopathic pulmonary fibrosis , or ipf , and myelofibrosis , or mf . 66 based on our clinical development plans for our pipeline , in the near term we intend to predominantly focus our available resources on the continued development of cudc-907 , as well as ca-170 , ca-4948 and ca-327 in collaboration with aurigene . recent developments on march 6 , 2017 , we and curis royalty entered into a new credit agreement with healthcare royalty for the purpose of refinancing the current loan with biopharma-ii . on the effective date of the credit agreement , which is expected to occur on or before march 22 , 2017 , subject to certain conditions precedent specified in the credit agreement , the current loan with biopharma-ii would terminate in its entirety . pursuant to the credit agreement , healthcare royalty would make a $ 45.0 million loan at an interest rate of 9.95 % to curis royalty , which would be used to pay off the approximately $ 18.4 million in remaining loan obligations to biopharma-ii under the prior loan . the residual proceeds of the loan would be distributed to curis as sole equity member of curis royalty . the loan from healthcare royalty would be substantially similar to the loan with biopharma-ii , including that it would be repaid from certain royalty and royalty-related payments owed by genentech under the genentech collaboration agreement . in connection with the loan , curis royalty will grant a first priority lien and security interest ( excluding certain payments allocable to academic institutions ) in all of its assets and all real , intangible and personal property , including all of its right , title and interest in and to the erivedge royalty payments . story_separator_special_tag under the terms of our collaboration agreement with genentech , we granted genentech an exclusive , global , royalty-bearing license , with the right to sublicense , to make , use , sell and import molecules capable of inhibiting the hedgehog signaling pathway ( including small molecules , proteins and antibodies ) for human therapeutic applications , including cancer therapy . genentech subsequently granted a sublicense to roche for non-u.s. rights to erivedge , other than in japan where such rights are held by chugai . genentech and roche are responsible for worldwide clinical development , regulatory affairs , manufacturing and supply , formulation , and sales and marketing . we are eligible to receive up to an aggregate of $ 115.0 million in contingent cash milestone payments , exclusive of royalty payments , in connection with the development of erivedge or another small molecule hedgehog pathway inhibitor , assuming the successful achievement by genentech and roche of specified clinical development and regulatory objectives . of this amount , we have received $ 59.0 million to date . in addition to the contingent cash milestone payments , our wholly-owned subsidiary , curis royalty , is entitled to a royalty on net sales of erivedge . pursuant to the terms of our collaboration agreement , curis royalty is entitled to receive royalties on net sales of erivedge that range from 5 % to 7.5 % based upon global erivedge sales by roche and genentech . the royalty rate applicable to erivedge may be decreased by 2 % on a country-by-country basis in certain specified circumstances , including when a competing product that binds to the same molecular target as erivedge is approved by the applicable country 's regulatory authority and is being sold in such country by a third party for use in the same indication as erivedge , or , when there is no issued intellectual property covering erivedge in a territory in which sales are recorded . during the third quarter of 2015 , the fda and chmp approved another hedgehog signaling pathway inhibitor , odomzo® ( sonidegib ) , which is marketed by novartis ( agreed to be sold to sun pharmaceutical industries ltd. in december 2016 ) , for use in locally advanced bcc . accordingly , genentech reduced royalties to curis royalty on its net sales in the united states of erivedge by 2 % during the fourth quarter of 2015. we recognized $ 7.8 million of royalty revenue from 69 genentech 's net sales of erivedge during the year ended december 31 , 2016 , and have recognized an aggregate of $ 28.1 million in royalty revenues since erivedge was approved . in connection with a $ 30.0 million loan made to our wholly-owned subsidiary , curis royalty , by biopharma-ii in 2012 , we transferred to curis royalty our right to receive certain royalty and royalty-related payments on the commercial sales of erivedge that we receive from genentech , and any payment made by genentech to us pursuant to genentech 's indemnification obligations under the collaboration agreement . the loan and accrued interest is being repaid by curis royalty using such royalty and royalty-related payments . the loan constitutes an obligation of curis royalty , and is intended to be non-recourse to curis . as of december 31 , 2016 , curis royalty owed biopharma-ii a total of $ 20.2 million , which was comprised of principal and accrued interest . royalty payments related to erivedge are servicing the outstanding debt and accrued interest to biopharma-ii , and will continue to do so until the debt is fully repaid . because the repayment of the term loan is contingent upon the level of erivedge royalties received , the short- and long-term classification of the debt is based on our estimate of the timing of amounts to be repaid . accordingly , our estimate may not be indicative of when this loan would actually be repaid . the repayment term may be shortened or extended depending on the actual level of erivedge royalties received . in addition , if erivedge royalties are insufficient to pay the accrued interest on the outstanding loan , any unpaid interest will be added to the principal on a quarterly basis . the length of the actual repayment period could vary materially to the extent that royalty payments curis royalty receives are lower than our current estimates , which could arise due to factors beyond our control , such as : the sale of competing products that result in a lowering of the royalty rates that curis royalty is entitled to receive , decreased market acceptance , or failure by genentech and or roche to successfully commercialize erivedge in territories where it has received regulatory approval . on march 6 , 2017 , we and curis royalty entered into a new credit agreement with healthcare royalty , for the purpose of refinancing the current loan with biopharma-ii . on the effective date of the credit agreement , which is expected to occur on or before march 22 , 2017 , subject to certain conditions precedent specified in the credit agreement , the prior loan with biopharma -ii would be terminated in its entirety . for a further discussion of the loan with healthcare royalty , please refer to “ part ii , item 9b . other information - royalty financing transaction. ” as a result of our licensing agreements with various universities , we are obligated to make payments to university licensors on royalties that curis royalty earns in all territories ( other than australia ) in an amount that is equal to 5 % of the royalty payments received from genentech .
| collaboration overview . on january 18 , 2015 , we entered into an exclusive collaboration agreement with aurigene for the discovery , development and commercialization of small molecule compounds in the areas of immuno-oncology and selected precision oncology targets . under the collaboration agreement , aurigene granted us an option to obtain exclusive , royalty-bearing licenses to relevant aurigene technology to develop , manufacture and commercialize products containing certain of such compounds . for each program , aurigene has granted us an exclusive option , exercisable within 90 days after aurigene delivers the relevant data regarding a development candidate , to obtain an exclusive , royalty-bearing license to develop , manufacture and commercialize compounds from such program , including the development candidate and products containing such compounds , anywhere in the world with the exception of india and russia . upon our exercise of the option for a particular program , aurigene will grant us the royalty-bearing license described above for each licensed program , and we will grant aurigene an exclusive , royalty-free , fully paid license under our relevant technology to develop , manufacture and commercialize compounds from such program and products containing such compounds in india and russia . there are currently multiple licensed programs under this collaboration , including two programs targeting immune checkpoint regulators and one program targeting the irak4 kinase . in october 2015 , we exercised options to license the first two programs under this collaboration . the first licensed program is focused on the development of orally-available small molecule antagonists of the pd1 and vista pathway in the immuno-oncology field , including development candidate designated ca-170 , which is a pdl2/vista antagonist . the second licensed program is focused on orally-available small molecule inhibitors of irak4 in the precision oncology field , with the lead development candidate designated ca-4948 .
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rent commitments under non-cancelable operating leases were as follows , before considering renewal options that generally are present ( dollars in thousands ) : replace_table_token_63_th page | 57 note 6 - goodwill and intangible assets goodwill the change in the balance for goodwill was as follows story_separator_special_tag the following discussion is designed to provide a review of the consolidated financial condition and results of operations of choiceone , and its wholly-owned subsidiaries . this discussion should be read in conjunction with the consolidated financial statements and related footnotes . explanatory note on october 1 , 2019 , choiceone completed the merger of county bank corp ( “ county ” ) with and into choiceone with choiceone surviving the merger . accordingly , the reported consolidated financial condition and operating results as of and for the year ended december 31 , 2019 include the impact of the merger , which was effective as of october 1 , 2019. for additional details regarding the merger with county , see note 21 ( business combination ) of the notes to the consolidated financial statements included in item 8 of this report . results of operations story_separator_special_tag $ 1,003,000 in 2019 , 2018 , and 2017 , respectively . ( 3 ) interest on taxable securities includes dividends on federal home loan bank and federal reserve bank stock . ( 4 ) noninterest-earning assets include loans in nonaccrual status , which averaged approximately $ 2,965,000 , $ 1,266,000 , and $ 1,486,000 in 2019 , 2018 , and 2017 , respectively . page | 24 table 2 – changes in tax-equivalent net interest income replace_table_token_22_th ( 1 ) the volume variance is computed as the change in volume ( average balance ) multiplied by the previous year 's interest rate . the rate variance is computed as the change in interest rate multiplied by the previous year 's volume ( average balance ) . the change in interest due to both volume and rate has been allocated to the volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each . ( 2 ) interest on tax-exempt securities and loans has been adjusted to a fully tax-equivalent basis using an incremental tax rate of 21 % for 2019 and 2018 , and 34 % for 2017. net interest income the presentation of net interest income on a tax-equivalent basis is not in accordance with generally accepted accounting principles ( “ gaap ” ) , but is customary in the banking industry . this non-gaap measure ensures comparability of net interest income arising from both taxable and tax-exempt loans and investment securities . the adjustments to determine net interest income on a tax-equivalent basis were $ 408,000 , $ 398,000 and $ 548,000 for the years ended 2019 , 2018 and 2017 , respectively . these adjustments were computed using a 21 % federal income tax rate in 2019 and 2018 , and 34 % federal income tax rate in 2017. tax-equivalent net interest income increased $ 5,719,000 in 2019 compared to 2018. the increase was attributed to an increase of $ 177.7 million in average interest-earning assets , partially offset by the impact of a decline of 21 basis points in choiceone 's net interest spread . the reduction in the net interest spread resulted from an increase of 26 basis points in the average rate paid on interest-bearing liabilities , while the average rate earned on interest-earning assets increased 5 basis points . the average balance of loans increased $ 130.2 million in 2019 compared to 2018 , $ 105.8 million of which was due to lakestone loans which were included in the fourth quarter of 2019. the remaining growth was primarily from residential real estate loans , whose average balance increased $ 22.6 million in 2019 compared to 2018. in addition to the average balance growth , the average rate earned on loans increased 6 basis points in 2019 compared to 2018 as a result of higher general market interest rates and higher rates charged on new loan originations . tax-equivalent interest income on loans increased $ 6.8 million in 2019 compared to the prior year . the average balance of total securities grew $ 40.0 million in 2019 compared to the prior year . the inclusion of lakestone securities in the fourth quarter of 2019 caused an average balance increase of $ 45.0 million , while the average balance of choiceone bank securities was $ 5.0 million lower in 2019 than in 2018. the average balance growth and a minimal change in the average rate earned on securities caused interest income from securities to grow $ 1.1 million in 2019 compared to the prior year . an average balance in other interest-earning assets of $ 15.0 million in 2019 , as compared to the balance of $ 7.5 million in 2018 , caused interest income to increase $ 137,000. overall higher general market interest rates in 2019 compared to 2018 caused the average rate paid to be higher for all interest-bearing liability categories . the average balance of interest-bearing demand deposits increased $ 68.9 million in 2019 compared to 2018. the effect of this increase and a 23 basis point increase in the average rate paid caused interest expense to be $ 871,000 higher in 2019 than in the prior year . the average balance of certificates of deposit was $ 26.7 million higher in 2019 than in 2018. growth in the average balance plus the impact of a 53 basis point increase in the average rate paid caused interest expense to grow $ 1,080,000. a $ 7.0 million increase in the average balance of federal home loan bank advances coupled with a 44 basis point increase in the average rate paid caused interest expense to grow $ 220,000 in 2019 compared to the prior year . story_separator_special_tag page | 27 the following schedule presents an allocation of the allowance for loan losses to the various loan categories as of the years ended december 31 : replace_table_token_24_th loans acquired from the merger with county were considered for the allowance for loan losses , but no allowance allocation was deemed necessary as management concluded there was no deterioration in credit subsequent to the effective date of the merger , and the recorded fair value adjustments were adequate based on management 's assessment of losses incurred . the decrease in the allowance allocation to commercial and industrial loans was due to a 9.4 % decline in the balance in this loan category in 2019. the decrease in the allocation to commercial real estate loans resulted from lower historical charge-off levels in 2019 than in 2018. the increase in the allocation to residential real estate loans resulted from an 8.9 % increase in the balance in this loan category in 2019. changes in historical charge-off levels and environmental factors affected all loan categories . management maintains the allowance at a level that it believes adequately provides for losses inherent in the loan portfolio . such losses are estimated by a variety of factors , including specific examination of certain borrowing relationships and consideration of historical losses incurred on certain types of credits . current economic conditions and collateral values affect loss estimates . management focuses on early identification of problem credits through ongoing reviews by management and the independent loan review function . based on the current state of the economy and a recent review of the loan portfolio , management believes that the allowance for loan losses as of december 31 , 2019 was adequate . as charge-offs , changes in the level of nonperforming loans , and changes within the composition of the loan portfolio occur , the provision and allowance for loan losses will be reviewed by the banks ' management and adjusted as necessary . noninterest income total noninterest income increased $ 2,248,000 in 2019 compared to 2018 , a large portion of which was due to lakestone 's noninterest income included in the fourth quarter of 2019. customer service charges increased $ 752,000 in 2019 compared to the prior year due to higher overdraft fees , checking account service charges , and net debit card fees . gains on sales of loans grew $ 948,000 in 2019 compared to the prior year as relatively low interest rates for residential real estate loans has increased the level of residential mortgage originations . earnings on life insurance policies included $ 288,000 from a death claim recorded in the fourth quarter of 2019. the growth in other noninterest income was primarily due to trust income and other income from lakestone in the fourth quarter of 2019. total noninterest income decreased $ 891,000 in 2018 compared to 2017. customer service charges increased $ 391,000 in 2018 compared to the prior year due to higher overdraft fees , checking account service charges , and net debit card fees . insurance and investment commissions were $ 491,000 lower and the gain on sale of investment book of business was $ 908,000 lower in 2018 than in 2017 as a result of the sale of a majority of choiceone 's investment book of business in the fourth quarter of 2017. gains on sales of loans declined $ 262,000 in 2018 compared to the prior year as higher interest rates for residential real estate loans and a low inventory of homes for sale in choiceone 's market areas has reduced the level of residential mortgage originations . the $ 314,000 improvement in net gains on sales of securities in 2018 compared to 2017 was caused by choiceone 's sale of securities for a loss in the fourth quarter of 2017. noninterest expense total noninterest expense increased $ 8,015,000 in 2019 compared to 2018 , a large portion of which was due to lakestone 's noninterest expense included in the fourth quarter of 2019. salaries and benefits expense grew $ 3,404,000 in 2019 compared to the prior year . the majority of the increase was due to lakestone 's expenses in the fourth quarter of 2019 and a portion was also due to merger-related costs . commission and bonus expenses were higher in the current year than the prior year while health insurance costs were lower . occupancy and equipment expense grew $ 835,000 in 2019 compared to 2018 , with the increase caused by lakestone 's expenses and costs related to the two offices opened by choiceone in 2018. an increase of $ 1,005,000 in data processing expenses resulted from lakestone 's expenses and higher debit card processing costs . the growth of $ 1,763,000 in professional fees in 2019 compared to the prior year was principally due to costs related to the merger with county . advertising and promotional expense was $ 220,000 higher in 2019 than 2018 due to lakestone expenses and costs related to a checking account promotion campaign in 2019. fdic insurance expense declined in 2019 compared to the prior year as an insurance credit was created when the fdic insurance fund reached 1.35 % of total deposits . growth of $ 576,000 in other noninterest expense in the current year compared to the prior year was caused by lakestone expenses and various changes in general expense accounts . page | 28 total noninterest expense increased $ 1,127,000 in 2018 compared to 2017. salaries and benefits expense grew $ 748,000 due to higher costs related to salaries and health insurance , the impact of which was partially offset by lower commission expense as a result of the sale of the majority of the investment book of business in 2017. part of the salaries increase was caused by staffing for choiceone 's two new offices that opened in 2018. a decline of $ 174,000 in occupancy and equipment expense resulted from lower equipment depreciation in 2018 than in 2017. professional fees increased $ 183,000 in 2018 compared to the prior year as a result of higher
| summary choiceone 's net income for 2019 was $ 7,171,000 , compared to $ 7,333,000 in 2018. excluding $ 1,769,000 in merger-related expenses , after tax , net income for 2019 amounted to $ 8,940,000. in this report , the term merger-related expenses includes expenses related to the merger with county and the pending merger with community shores bank corporation . total assets have grown to $ 1.4 billion as of december 31 , 2019 compared to $ 671 million as of december 31 , 2018 ; the increase was primarily related to the merger with county . net loans grew $ 394 million from december 31 , 2018 to december 31 , 2019. this loan growth coupled with a larger securities portfolio helped total interest income for 2019 to grow $ 7,948,000 compared to the prior year . all loan growth was attributed to the merger with county . full year and fourth quarter 2019 interest income on loans included $ 75,000 of accretion of the discount recorded on the lakestone loans acquired in the merger with county . choiceone also saw deposit growth during 2019 of $ 578 million . choiceone bank experienced $ 33 million of growth in local deposits which was offset by a reduction of $ 32 million of brokered deposits , while the remainder was attributed to the merger with county . the interest cost of deposits and other funding increased by $ 2,239,000 in 2019 compared to 2018 ; $ 1,119,000 of the increase was related to choiceone bank funds while the remainder was attributed to lakestone . total noninterest income increased $ 2,248,000 in 2019 compared to the prior year . gains on sales of loans increased due to lower interest rates encouraging refinance activity and a favorable housing market in choiceone 's market areas .
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mr. lubar , one of our directors , is affiliated with lubar equity fund , llc . we did not receive any distributions in 2017 and received two distributions in 2016 totaling $ 3.6 million from savoy . both distributions were applied to our bank debt as required under our agreement . savoy also recorded impairments of $ 1.0 million , $ 2.0 million , and $ 2.6 million for the years ended december 31 , 2017 , 2016 , and 2015 , respectively . we have reached an agreement for savoy to redeem our entire partnership interest for $ 8 million , which we expect to finalize in mid-march 2018. our net after commissions paid will be $ 7.5 million . 60 ( 12 ) freelandville and log creek purchases on march 22 , 2016 , we completed the purchase of the freelandville coal reserves , advanced royalties , and coal sales agreement for $ 18.25 million from triad mining llc . these reserves totaled 14.2 million tons of fee and leased coal and will be mined from our oaktown 1 portal . this purchase allowed us access to another 1.6 million tons of our own leased reserves that were previously inaccessible . the purchased coal sales agreement totaled 1,435,000 tons and was fulfilled in 2017. the purchase price allocation for the acquisition was as follows ( in thousands ) : purchased coal contract $ 6,407 advanced coal royalties 1,690 mineral rights and leases 10,153 total $ 18,250 on december 12 , 2016 , we completed a second transaction with triad , the purchase of their log creek coal sales agreement for $ 4.1 million . the purchased coal sales agreement included 557,000 tons that were delivered in 2016 and 2017 . ( 13 ) quarterly financial data ( unaudited ) summarized quarterly financial data is as follows : replace_table_token_27_th * see note 2 related to asset impairment taken in story_separator_special_tag our consolidated financial statements should be read in conjunction with this discussion . overview the largest portion of our business is devoted to coal mining in the state of indiana through sunrise coal , llc ( a wholly owned subsidiary ) serving the electric power generation industry . we own a 50 % interest in sunrise energy , llc , a private gas exploration company with operations in indiana . we also own a 30.6 % equity interest in savoy energy , l.p. , a private oil and gas exploration company with operations in michigan . we account for our interest in savoy and sunrise energy using the equity method . we have reached an agreement for savoy to redeem our entire partnership interest for $ 8 million , which we expect to finalize in mid-march 2018. our net after commissions paid will be $ 7.5 million . we operate two underground mines and one surface mine in southwestern indiana . the underground mines , oaktown 1 and oaktown 2 are in oaktown , indiana , 43 miles south of terre haute , indiana . the ace in the hole surface mine is in clay city , indiana , 30 miles southeast of terre haute , indiana . we also own the carlisle mine located near carlisle , indiana , 36 miles south of terre haute . the carlisle reserve is contiguous to oaktown 2. the carlisle mine is developed , but currently idle . oaktown 1 , oaktown 2 and carlisle are one large underground mining complex representing 121 million tons of controlled reserves , with three slopes , one elevator , two wash plants , and two rail facilities , located on the csx railroad . we anticipate total capacity for the three mines to be roughly 10.5 million tons annually . additionally , the capacity of our ace in the hole mine is .4 million tons annually . thus , our total mining capacity is 10.9 million tons annually . the addition of our princeton rail loop , expected to come online in the spring of 2018 , will also provide us new access to coal markets served by the norfolk southern railway company . for 2017 , over 67 % of our coal sales were to customers with large scrubbed coal-fired power plants in the state of indiana . our mines and coal reserves are strategically located in close proximity to our primary customers , which reduces transportation costs and thus provides us with a competitive advantage with respect to those customers ; our closest customer 's plant is 13 miles away , and the farthest indiana customer is 80 miles away . we have access to our primary customers directly through either the csx railroad ( nyse : csx ) or the indiana rail road which is majority owned by the csx . beginning in q2 2018 , our new princeton loop will be operational and allow us to access the ns railroad ( nyse : ns ) , increasing our coal markets . the majority of our coal is sold to investment grade customers who have scrubbed power plants ; thus , we expect to be supplying these plants for many years . president trump promotes coal below is a timeline of some of the milestones accomplished for the coal industry thus far under the trump administration : november 8 , 2016 donald trump was elected president of the united states of america . his administration has dramatically improved the regulatory environment in which we operate . january 20 , 2017 donald trump was inaugurated as the 45 th president of the united states . february 15 , 2017 both the u.s. house of representatives and the senate passed resolutions disapproving the stream protection rule ( spr ) under the congressional review act ( cra ) . story_separator_special_tag the primary reason for this distinction is to inform investors which coal reserves will require substantial capital expenditures before production can begin . 33 below is a map that shows the locations of our mines . railroad legend : csx – csx railroad inrd – indiana rail road isrr – indiana southern railroad ns – norfolk southern railway mine and wash plant recovery and capacity replace_table_token_5_th * does not include out-of-seam material extracted during the mining process . * * oaktown 1 and oaktown 2 share the wash plant . liquidity and capital resources replace_table_token_6_th 34 as set forth in our statement of cash flows , cash provided by operations was $ 62 million for 2017. this amount was adequate to fund our maintenance capital expenditures for coal properties of $ 11.1 million , our debt service requirements of $ 36.6 million , and our dividend of $ 4.9 million . our capex budget for 2018 is $ 31 million , of which $ 16 million is for maintenance capex . cash from operations for 2018 should again fund our maintenance capital expenditures , debt service , and our dividend . see note 3 to our consolidated financial statements for discussion about our bank debt . other than our surety bonds for reclamation , we have no material off-balance sheet arrangements . included in the contractual obligations table are reclamation obligations of $ 13.8 million , which are presented as asset retirement obligations ( aro ) in our accompanying balance sheets . in the event we are not able to perform reclamation , we have surety bonds totaling $ 25 million to cover aro . capital expenditures ( capex ) for 2017 , our capex was $ 28.6 million allocated as follows ( in millions ) : oaktown – investment $ 10.1 oaktown – maintenance capex 11.1 princeton rail loop 6.3 other projects 1.1 capex per the consolidated statement of cash flows $ 28.6 35 results of operations the following table presenting our quarterly results of operations should be read in conjunction with the consolidated financial statements and related notes included in item 8 of their annual report on form 10-k. we have prepared the unaudited information on the same basis as our audited consolidated financial statements . our operating results for any quarter are not necessarily indicative of results for any future quarters or for a full year . the following table presents our unaudited quarterly results of operations for the eight quarters ended december 31 , 2017. this table includes all adjustments , consisting only of normal recurring adjustments , that we consider necessary for fair presentation of our consolidated operating results for the quarters presented . replace_table_token_7_th oaktown 's operating costs were $ 27.59/ton and $ 30.44/ton for the year and quarter ended december 31 , 2017 , respectively . we expect oaktown 's costs to range from $ 28 to $ 30 for 2018. for 2018 , we expect our sg & a to be $ 11 million annually and costs associated with the prosperity and carlisle mines to be $ 6 million annually ( reflected in operating costs and expenses ) . 36 quarterly coal sales and cost data follow ( in 000 's , except for per ton data and wash plant recovery percentage ) : replace_table_token_8_th replace_table_token_9_th 2017 v. 2016 for 2017 , we sold 6,574,000 tons at an average price of $ 40.80/ton . for 2016 , we sold 6,317,000 tons at an average price of $ 44.15/ton . the decrease in average price per ton is the result of our contract mix , expiration of contracts , and acquisition of other contracts . operating costs and expenses averaged $ 28.92/ton ( $ 27.59/ton at our operating oaktown mines ) in 2017 compared to $ 30.52/ton ( $ 28.02/ton at our operating oaktown mines ) in 2016. the reduction in cost was due to two primary factors . first , we made a conscious effort to increase production in the first half of the year in anticipation of stronger market demand . second , we added new haulage equipment to some of the units at the oaktown mines creating production efficiencies of up to 30 % to those units . both of these factors combined led to an 8 % increase in production . in q4 2017 , we also opened a new elevator at oaktown 1 which reduces miner travel time , and we acquired additional haulage equipment which will continue to maintain our low-cost structure . our sunrise coal employees totaled 736 at december 31 , 2017 compared to 742 at december 31 , 2016. sg & a costs increased in 2017 by $ 4.5 million due primarily to a stock bonus of $ 3.8 million awarded to executives as reported in our 8-k filed may 17 , 2017 , increased rsu amortization and employee pay increases in 2017 . 37 2016 v. 2015 for 2016 , we sold 6,317,000 tons at an average price of $ 44.15/ton . for 2015 , we sold 7,447,000 tons at an average price of $ 45.59/ton . operating costs and expenses averaged $ 30.52/ton in 2016 compared to $ 31.95 in 2015. our sunrise coal employees totaled 742 at december 31 , 2016 , compared to 740 at december 31 , 2015. sg & a costs were higher in 2015 due to amortization of rsus and accruals of bonuses related to our vectren fuels acquisition in 2014. sg & a as a percentage of coal revenue remained consistent at 3.8 % in 2016 and 3.7 % in 2015. we incurred an asset impairment of $ 16.6 million due to our decision to seal the north portal of the carlisle mine . we determined that the north end had deteriorated to the point that it could no longer be safely and profitably mined .
| asset impairment review see note 2 to our consolidated financial statements . reserve table - controlled tons ( in millions ) : replace_table_token_4_th our assigned underground coal reserves are high sulfur ( 4.0 # – 6.5 # ) with an average btu content in the 11,500 -11,600 range . our reserves have lower chlorine ( < 0.12 % ) than average ilb reserves of 0.22 % . much of the ilb 's new production is located in illinois and possesses chlorine content in excess of .30 % . the relatively low chlorine content of our reserves is attractive to buyers given their desire to limit the corrosive effects of chlorine in their power plants . as discussed below , the ace surface mine is low sulfur ( 2.0 # ) with an average btu content of 10,900. we have no metallurgical coal reserves , only steam ( thermal ) coal reserves . below is a discussion of our current projects . only tons greater than 4 feet in thickness are included in our underground reserves . oaktown 1 mine ( underground ) – assigned we have 51.1 million controlled , salable tons of the indiana # v coal seam . we began 2017 with 56.9 million tons controlled . besides production , the remainder of the decrease relates to tons that were deemed unrecoverable due to geologic conditions combined with increases for new drilling and new leases . oaktown 1 reserves are located in knox county , in . access to the oaktown 1 mine is via a 90-foot-deep box cut and a 2,200-foot slope , reaching coal in excess of 375 feet below the surface . in 2017 , we added an elevator 7 miles from the slope allowing miners to enter closer to the active face , thereby reducing unproductive daily travel time . 32 oaktown 2 mine ( underground ) – assigned we have 42.9 million controlled , saleable tons of the indiana # v coal seam . we began 2017 with 53.5 million controlled tons .
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we provide compute , cloud , mobility , networking and security infrastructure software to businesses that provides a flexible digital foundation for the applications that empower businesses to serve their customers globally . over the years , we have increased our product and solution offerings beyond compute virtualization to include offerings that allow organizations to manage information technology resources across private clouds and complex multi-cloud , multi-device environments by leveraging synergies across three product categories : software-defined data center ( “ sddc ” ) , hybrid cloud computing and end-user computing ( “ euc ' ) . our portfolio supports and addresses the four key it priorities of our customers : modernizing data centers , integrating public clouds , empowering digital workspaces and transforming security . we sell our solutions using enterprise agreements ( “ eas ” ) or as part of our non-ea , or transactional , business . eas are comprehensive volume license offerings , offered both directly by us and through certain channel partners that also provide for multi-year maintenance and support . we continue to experience strong renewals , including renewals of our eas , resulting in additional license sales of both our existing and newer products and solutions . sddc or software-defined data center our sddc technologies form the foundation of our customers ' private cloud environments and provide the capabilities for our customers to extend their private cloud to the public cloud and to help them run , manage , secure and connect all their applications across all clouds and devices . during fiscal 2018 , we continued to see broad-based strength of our sddc solutions . while our compute license sales remained stable , sales of our vmware nsx ( “ nsx ” ) and vmware vsan ( “ vsan ” ) , including vxrail offerings , continued to grow during fiscal 2018. while sales from our management products increased during fiscal 2018 , the sales growth rate fluctuated period to period , depending largely upon the extent to which management products were included in our particular larger eas . future growth rates for our management products may be subject to similar variability . hybrid cloud computing our overarching cloud strategy contains three key components : ( i ) continue to expand beyond compute virtualization in the private cloud , ( ii ) extend the private cloud into the public cloud and ( iii ) connect and secure endpoints across a range of public clouds . during fiscal 2018 , hybrid cloud computing was comprised of vmware cloud provider program ( “ vcpp ” ) ( previously referred to as vmware vcloud air network ) and vmware cloud services , which enable customers to run , manage , connect and secure their applications across private and public clouds , including amazon web services ( “ aws ” ) , azure , google cloud platform and ibm cloud . during fiscal 2018 , revenue growth in our hybrid cloud computing offerings was primarily driven by our vcpp offerings . vmware cloud on aws is currently available in certain geographies , and we expect to continue expanding into additional regions in fiscal 2019. during the second quarter of fiscal 2018 , we completed the sale of our vcloud air business ( “ vcloud air ” ) to ovh us llc ( “ ovh ” ) . end-user computing our euc solution consists of vmware workspace one ( “ workspace one ” ) , our digital workspace platform , which includes vmware airwatch ( “ airwatch ” ) and vmware horizon . our airwatch business model includes an on-premises solution that we offer through the sale of perpetual licenses and an off-premises solution that we offer as software-as-a-service ( “ saas ” ) . workspace one continued to be our primary growth driver within our euc product group during fiscal 2018 . 37 dell synergies during fiscal 2018 , we continued joint marketing , sales , branding and product development efforts with dell technologies inc. ( “ dell ” ) and other dell technologies companies to enhance the collective value we deliver to our mutual customers . as a result of our collective business built with dell , we have experienced significant synergies benefiting our sales during fiscal 2018. change in fiscal year end as a result of the change to our fiscal year from a fiscal year ending on december 31 of each calendar year to a fiscal year ending on the friday nearest to january 31 of each year , the period that began on january 1 , 2017 and ended on february 3 , 2017 was a transition period ( the “ transition period ” ) . our first full fiscal year 2018 is a 52-week year that began on february 4 , 2017 and ended on february 2 , 2018. prior-period financial statements have not been recast as we believe ( i ) the year ended december 31 , 2016 is comparable to the year ended february 2 , 2018 and ( ii ) recasting prior-period results was not practicable or cost justified . we have included audited consolidated financial statements for the transition period in part ii , item 8 of this annual report on form 10-k. story_separator_special_tag unearned license revenue may also be recognized ratably . unearned license revenue derived from commitments to future products that have not been delivered represents a significant portion of total unearned license revenue as of february 2 , 2018 and february 3 , 2017 . upon adoption of topic 606 , unearned license revenue is expected to substantially decline primarily due to the acceleration of revenue recognition for on-premise license sales that were deferred under current accounting guidance and due to customer prepayments on contracts with various cancellation rights . unearned software maintenance revenue is attributable to our maintenance contracts and is generally recognized ratably over the contract period . the weighted-average remaining term as of february 2 , 2018 was approximately two years . story_separator_special_tag in addition , stock-based compensation increased by $ 28 million , primarily driven by an increase in restricted stock unit awards granted . these increases were partially offset by decreases in costs incurred for marketing programs and related initiatives of $ 45 million . in addition , sales and marketing expenses decreased by $ 28 million due to fluctuations in the exchange rates for foreign currencies in which we incur expenses . 41 general and administrative expenses general and administrative expenses include personnel and related overhead costs to support the business . these expenses include the costs associated with finance , human resources , it infrastructure and legal , as well as expenses related to corporate costs and initiatives , including certain charitable donations to the vmware foundation . general and administrative expenses during the periods presented were as follows ( dollars in millions ) : replace_table_token_12_th general and administrative expenses decreased in fiscal 2018 compared to fiscal 2016 . the decrease was primarily driven by a decrease in it-related costs , including telecommunication , equipment and depreciation , of $ 73 million , offset in part by decreased capitalization of internal-use software development costs of $ 27 million , as well as increased cash-based employee-related expenses of $ 33 million , resulting primarily from incremental growth in headcount and salaries . general and administrative expenses decreased in fiscal 2016 compared to fiscal 2015. the decrease was primarily driven by a decrease in installment payments to certain key employees of airwatch that were subject to the achievement of specified employment conditions , with the final installment payment occurring during the first quarter of 2016. as a result , compensation expense relating to these installment payments decreased by $ 132 million in 2016. these decreases in general and administrative expenses were partially offset by an increase in equipment , depreciation and facilities-related costs of $ 36 million . in addition , cash-based employee-related expenses increased by $ 32 million , driven by incremental growth in headcount and salaries , and stock-based compensation increased by $ 17 million , primarily due to an increase in restricted stock unit awards granted . realignment and loss on disposition realignment expenses and loss on disposition during the periods presented were as follows ( dollars in millions ) : replace_table_token_13_th during the second quarter of fiscal 2018 , we completed the sale of vcloud air to ovh . losses recognized in connection with this transaction were $ 90 million during fiscal 2018. losses recognized on the disposition of vcloud air include the impairment of fixed assets identified as part of the sale , as well as the costs associated with certain transition services , which primarily include employee-related expenses and costs associated with data-center colocation services . transition services are to be provided over a period of 18 months , starting from the date of the sale . on january 22 , 2016 , we approved a plan to streamline our operations , with plans to reinvest the associated savings in field , technical and support resources associated with growth products . as a result of these actions , approximately 800 positions were eliminated during fiscal 2016. we recognized $ 50 million of severance-related realignment expenses during fiscal 2016 on the consolidated statements of income ( loss ) . additionally , we consolidated certain facilities as part of this plan , which resulted in the recognition of $ 2 million of related expenses during fiscal 2016. actions associated with this plan were substantially completed by december 31 , 2016. during fiscal 2015 , we eliminated approximately 380 positions across all major functional groups and geographies to streamline our operations . as a result of these actions , $ 23 million of realignment expenses were recognized during fiscal 2015 . 42 investment income investment income during the periods presented was as follows ( dollars in millions ) : replace_table_token_14_th investment income increased in fiscal 2018 compared to fiscal 2016 and fiscal 2016 compared to fiscal 2015 , primarily as a result of increased interest income earned on our short-term investments resulting from both higher yields and higher invested balances . interest expense interest expense during the periods presented was as follows ( dollars in millions ) : replace_table_token_15_th on august 21 , 2017 , we issued three series of unsecured senior notes ( “ senior notes ” ) pursuant to a public debt offering in the aggregate amount of $ 4,000 million . upon closing , a portion of the net proceeds from the offering was used to repay two of the notes payable to dell in the aggregate principal amount of $ 1,230 million . interest expense increased by $ 48 million in fiscal 2018 compared to fiscal 2016 , due to the issuance of the senior notes , offset in part by a reduction in interest expense on the notes payable to dell . we expect interest expense for fiscal 2019 to be approximately $ 130 million . other income ( expense ) , net other income ( expense ) , net during the periods presented was as follows ( dollars in millions ) : replace_table_token_16_th during fiscal 2018 , we completed two step acquisitions , wavefront , inc. ( “ wavefront ” ) and velocloud networks , inc. , which resulted in an aggregate gain of $ 42 million reported in other income ( expense ) , net for the remeasurement of our respective ownership interest in each company . during the third quarter of fiscal 2018 , we repaid two of the notes payable to dell in the aggregate principal amount of $ 1,230 million , representing repayment of the note due may 1 , 2018 at par value and repayment of the note due may 1 , 2020 at a discount . during fiscal 2018 , we recognized a gain on extinguishment of debt of $ 6 million , which was recorded in other income ( expense ) , net .
| results of operations approximately 70 % of our sales are denominated in the united states ( “ u.s. ” ) dollar , however , in certain countries we also invoice and collect in the following currencies : euro ; british pound ; japanese yen ; australian dollar ; and chinese renminbi . in addition , we incur and pay operating expenses in currencies other than the u.s. dollar . as a result , our financial statements , including our revenue , operating expenses , unearned revenue and the resulting cash flows derived from the u.s. dollar equivalent of foreign currency transactions , are affected by foreign exchange fluctuations . revenue our revenue during the periods presented was as follows ( dollars in millions ) : replace_table_token_6_th revenue from our hybrid cloud computing offerings consisted primarily of vcpp , and revenue from our saas offerings consisted primarily of our airwatch mobile solution within workspace one . vcpp revenue is included in license revenue and saas revenue is included in both license and services revenue . hybrid cloud computing , together with our saas offerings , accounted for approximately 8 % of our total revenue during fiscal years 2018 and 2016. license revenue relating to the sale of perpetual licenses that are part of a multi-year arrangement is generally recognized upon delivery of the underlying license , whereas revenue derived from our hybrid cloud computing and saas offerings is recognized on a consumption basis or over a period of time . license revenue during fiscal 2018 , license revenue benefited from broad-based growth across our diverse portfolio and solid performance in all geographies . drivers of license revenue growth during fiscal 2018 compared to fiscal 2016 included continued scale and 38 growth of our nsx and vsan offerings . euc growth driven in part by sales of workspace one and continued strength of our vcpp offerings were also key factors contributing to license growth .
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the company did not have any loans classified as a tdr as of december 31 , 2012 . 85 first foundation inc. notes to the consolidated financial statements ( continued ) years ended december 31 , 2013 and 2012 note 6 : allowance for loan losses the following is a rollforward of the bank 's allowance for loan losses for the years ended december 31 : replace_table_token_51_th 86 first foundation inc. notes to the consolidated financial statements ( continued ) years ended december 31 , 2013 and 2012 the following table presents the balance in the allowance for loan losses and the recorded investment in loans by impairment method as of december 31 : replace_table_token_52_th the column labeled unaccreted credit component other loans represents the amount of unaccreted credit component discount for the other loans acquired in the merger , and the stated principal balance of the related loans . the discount is equal to 1.23 % and 1.70 % of the stated principal balance of these loans as of december 31 , 2013 and 2012 , respectively . 87 first foundation inc. notes story_separator_special_tag the following discussion and analysis is intended to facilitate the understanding and assessment of significant changes and trends in our results of operations in the year ended , and our financial condition at , december 31 , 2013 , as compared to our results of operation in and our financial condition at december 31 , 2012. this discussion and analysis is based on and should be read in conjunction with our consolidated financial statements and the accompanying notes thereto contained elsewhere in this annual report on form 10-k. in addition to historical information , this discussion contains forward-looking statements that involve risks , uncertainties and assumptions that could cause results to differ materially from management 's expectations . some of the factors that could cause results to differ materially from expectations are discussed in the sections entitled risk factors and cautionary note regarding forward-looking statements contained elsewhere in this annual report on form 10-k. critical accounting policies our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the united states ( gaap ) and accounting practices in the banking industry . certain of those accounting policies are considered critical accounting policies , because they require us to make estimates and assumptions regarding circumstances or trends that could materially affect the value of those assets , such as economic conditions or trends that could impact our ability to fully collect our loans or ultimately realize the carrying value of certain of our other assets . those estimates and assumptions are made based on current information available to us regarding those economic conditions or trends or other circumstances . if changes were to occur in the events , trends or other circumstances on which our estimates or assumptions were based , or other unanticipated events were to occur that might affect our operations , we may be required under gaap to adjust our earlier estimates and to reduce the carrying values of the affected assets on our balance sheet , generally by means of charges against income , which could also affect our results of operations in the fiscal periods when those charges are recognized . utilization and valuation of deferred income tax benefits . we record as a deferred tax asset on our balance sheet an amount equal to the tax credit and tax loss carryforwards and tax deductions ( collectively tax benefits ) that we believe will be available to us to offset or reduce income taxes in future periods . under applicable federal and state income tax laws and regulations , tax benefits related to tax loss carryforwards will expire if they can not be used within specified periods of time . accordingly , the ability to fully use our deferred tax asset related to tax loss carryforwards to reduce income taxes in the future depends on the amount of taxable income that we generate during those time periods . at least once each year , or more frequently , if warranted , we make estimates of future taxable income that we believe we are likely to generate during those future periods . if we conclude , on the basis of those estimates and the amount of the tax benefits available to us , that it is more likely , than not , that we will be able to fully utilize those tax benefits prior to their expiration , we recognize the deferred tax asset in full on our balance sheet . on the other hand , if we conclude on the basis of those estimates and the amount of the tax benefits available to us that it has become more likely , than not , that we will be unable to utilize those tax benefits in full prior to their expiration , then , we would establish a valuation allowance to reduce the deferred tax asset on our balance sheet to the amount with respect to which we believe it is still more likely , than not , that we will be able to use to offset or reduce taxes in the future . the establishment of such a valuation allowance , or any increase in an existing valuation allowance , would be effectuated through a charge to the provision for income taxes or a reduction in any income tax credit for the period in which such valuation allowance is established or increased . allowance for loan and lease losses . our alll is established through a provision for loan losses charged to expense and may be reduced by a recapture of previously established loss reserves , which are also reflected in the statement of income . loans are charged against the alll when management believes that collectability of the principal is unlikely . the alll is an amount that management believes will be adequate to absorb estimated losses on existing loans that may become uncollectible based on an evaluation of the collectability of loans and prior loan loss experience . story_separator_special_tag the following table provides a breakdown of noninterest expense for banking and wealth management for the years ended december 31 : replace_table_token_11_th the $ 6.0 million increase in noninterest expense in banking during 2013 as compared to 2012 was due primarily to increases in staffing and costs associated with ffb 's higher balances of loans and deposits and our continuing expansion , including the dcb acquisition in august 2012. compensation and benefits for banking increased $ 3.8 million during 2013 as compared 2012 as the number of full-time equivalent employees , ( fte ) in banking increased to 123.1 during 2013 from 87.9 during 2012. the $ 0.9 million increase in occupancy and depreciation costs for banking during 2013 as compared to 2012 was due to the four additional offices being open at some time during 2013 as compared to 2012 and the expansion into additional space at the administrative office in the second quarter of 2013. those increases were partially offset by reduced operating system costs relating to $ 0.6 million 43 of costs incurred in 2012 as part of ffb 's conversion to a new core processing system . professional services and marketing for banking , which includes costs for legal , accounting , consulting and information technology services , as well as management fees paid to ffa for providing asset management services for ffb 's trust clients , increased $ 0.8 million during 2013 as compared to 2012. this increase was due primarily to additional consulting and legal costs incurred in relation to strategic activities of ffb and an increase in asset management fees related to trust clients . other expenses for banking , which include office related costs , fdic and other regulatory assessments , director fees , insurance costs , loan related expenses , employee reimbursements and reo expenses , increased 0.6 million during 2013 as compared to 2012. this increase was primarily due to a $ 0.3 million charge to reo reserves in 2013 and $ 0.1 million increases in employee reimbursements and in loan related expenses , both of which were related to our continued growth . the $ 2.5 million increase in noninterest expense in wealth management during 2013 as compared to 2012 was primarily due to increases in staffing and costs associated with our continuing expansion and growth . compensation and benefits for wealth management increased $ 1.5 million during 2013 as compared to 2012 as the number of fte in wealth management increased to 53.4 during 2013 from 44.7 during 2012. the $ 0.5 million increase in occupancy and depreciation costs for wealth management during 2013 as compared to 2012 was due to additional offices being open during all or a portion of 2013 as compared to 2012 and $ 0.2 million of costs incurred related to an upgrade of our asset management operating system . professional services and marketing for wealth management , which includes costs for legal , accounting and information technology services , as well as recurring referral fees paid to third parties , increased $ 0.4 million during 2013 as compared to 2012. this $ 0.4 million increase was due primarily to higher referral fees related to the increased asset management fees and higher recruiting fees paid related to the increase in staffing during 2013. other expenses for wealth management , which include office related costs , insurance costs and employee reimbursements did not change significantly in 2013 as compared to 2012 . 44 years ended december 31 , 2012 and 2011. our net income for 2012 was $ 5.8 million , as compared to $ 9.1 million for 2011. the proportional decrease in net income was greater than the proportional decrease in income before taxes because of an increase in our effective tax rate from 0 % in 2011 to 26 % in 2012. in 2012 and 2011 , the valuation allowance for deferred taxes was reduced by $ 1.0 million and $ 3.6 million , respectively , resulting in lower effective tax rates as compared to a normalized income tax provision of 42 % . income before taxes was $ 7.8 million in 2012 as compared to $ 9.1 million in 2011. the following is a comparison of our income before taxes between 2012 and 2011. the following tables show key operating results for each of our business segments for the years ended december 31 : replace_table_token_12_th the primary sources of revenue for banking are net interest income and fees from its deposit , trust and insurance services . the primary sources of revenue for wealth management are asset management fees assessed on the balance of aum and fees charged for consulting and administrative services . for 2012 , compensation and benefits comprised 61 % and 78 % , respectively , of the total noninterest expense for banking and wealth management , respectively . general : in 2011 , ffb realized a $ 3.7 million gain on sale of reo which is included in noninterest income in banking . excluding the gain on sale of reo , income before taxes for banking increased to $ 10.0 million in 2012 from $ 7.1 million in 2011 due primarily to higher net interest income and higher noninterest income which were partially offset by higher noninterest expenses . the net loss before taxes in wealth management increased to $ 0.6 million in 2012 from $ 0.3 million in 2011 as higher noninterest expenses in 2012 were only partially offset by higher asset management fees .
| results of operations years ended december 31 , 2013 and 2012. our net income for 2013 was $ 7.9 million , as compared to $ 5.8 million for 2012. the proportional increase in net income was more than the proportional increase in income before taxes because of a decrease in our effective tax rate from 26 % in 2012 to 17 % in 2013. in 2013 and 2012 , the valuation allowance for deferred taxes was reduced by $ 2.4 million and $ 1.0 million , respectively , resulting in lower effective tax rates as compared to a normalized income tax provision of 42 % . income before taxes was $ 9.5 million in 2013 as compared to $ 7.8 million in 2012. the following is a comparison of our income before taxes between 2013 and 2012. the following tables show key operating results for each of our business segments for the years ended december 31 : replace_table_token_6_th the primary sources of revenue for banking are net interest income , fees from its deposits , trust and insurance services , and certain loan fees . the primary sources of revenue for wealth management are asset management fees assessed on the balance of aum and fees charged for consulting and administrative services . compensation and benefit costs , which represent the largest component of noninterest expense accounted for 62 % and 76 % , respectively , of the total noninterest expense for banking and wealth management in 2013. general . as a result of an increase in income before taxes for banking , which was partially offset by an increase in corporate expenses , consolidated income before taxes increased $ 1.7 million in 2013 as compared to 2012. income before taxes in banking was $ 2.7 million higher in 2013 as compared to 2012 as higher net interest income and higher noninterest income was partially offset by a higher noninterest expenses .
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due to the protracted downturn in survey and vessel activity , we determined that it was more likely than not that the fair value was less than the carrying value . as a result , we determined that a quantitative assessment was necessary for our subsea projects reporting unit . in our 2018 quantitative analysis for the subsea projects reporting unit , we estimated the fair value by weighing the results from the income approach and the market approach . these valuation approaches consider a number of factors that include , but are not limited to , prospective financial information , growth rates , terminal value , discount rates and comparable multiples of similar companies in our industry and require us to make certain assumptions and estimates regarding industry economic factors and future profitability of our business . based on this quantitative test , we determined that the fair value for subsea projects was less than its carrying value and , as a result , we recorded a pre-tax goodwill impairment loss of $ 76 million in the subsea project reporting unit . the goodwill impairment was included as a component of `` income ( loss ) from operations '' in our consolidated statement of operations for the year ended december 31 , 2018 . for the remaining reporting units , qualitative assessments were performed and we concluded that it was more likely than not that the fair value of the reporting unit was more than the carrying value of the reporting unit . income taxes . our tax provisions are based on our expected taxable income , statutory rates and tax-planning opportunities available to us in the various jurisdictions in which we operate . the determination of taxable income in any jurisdiction requires the interpretation of the related tax laws . we are at risk that a taxing authority 's final determination of our tax liabilities may differ from our interpretation . our effective tax rate may fluctuate from year to year , as our operations are conducted in different taxing jurisdictions , the amount of pre-tax income fluctuates and our estimates regarding the realizability of items such as foreign tax credits may change . we account for any applicable interest and penalties on uncertain tax positions as a component of our provision for income taxes on our financial statements . current income tax expense represents either nonresident withholding taxes or the liabilities expected to be reflected on our income tax returns for the current year , while the net deferred income tax expense or benefit represents the change in the balance of deferred tax assets or liabilities as reported on our balance sheet . 31 we establish valuation allowances to reduce deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized in the future . provisions for valuation allowances impact our income tax provision in the period in which such adjustments are identified and recorded . in march 2016 , the fasb issued asu 2016-09 , `` compensation – stock compensation improvements to employee share-based payment accounting . '' this update requires that all excess tax benefits and tax deficiencies ( including tax benefits of dividends on share-based payment awards ) should be recognized as income tax expense or benefit in the statement of operations . the tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur . an entity also should recognize excess tax benefits regardless of whether the benefit reduces taxes payable in the current period . currently , an entity must determine , for each award , whether the difference between the deduction for tax purposes and the compensation cost recognized for financial reporting purposes results in either an excess tax benefit or a tax deficiency . the amendments in this update are effective for us beginning january 1 , 2017. through december 31 , 2016 , we recognized excess tax benefits in additional paid-in capital , and tax deficiencies have been recognized as an offset to accumulated excess tax benefits . in 2017 and 2018 , we recorded a tax deficiency in the first quarter and , under this new standard , we recognized it as a discrete item in our statement of operations rather than in additional paid-in capital . we also expect a tax deficiency in the first quarter of 2019 , which will be recognized as a discrete item in our statement of operations . as further discussed in note 4 , `` income taxes , '' of our notes to consolidated financial statements included in this report , the tax act was enacted on december 22 , 2017 , and significantly affected how the united states imposes income tax on multinational corporations . the u.s. department of the treasury and other regulatory bodies continue to finalize changes to existing laws and regulations which may result from the tax act . in accordance with sec staff accounting bulletin no . 118 ( `` sab no . 118 '' ) , we recorded provisional estimates to reflect the effects of the provisions of the tax act on our income tax assets and liabilities as of december 31 , 2017. we have collected additional information to complete our assessment of the impacts of these changes on our operations and recorded income tax assets and liabilities as of december 31 , 2018 . for a summary of our major accounting policies and a discussion of recently adopted accounting standards , please see note 1 of our notes to consolidated financial statements included in this report . liquidity and capital resources we consider our liquidity and capital resources adequate to support our operations and growth initiatives . at december 31 , 2018 , we had working capital of $ 750 million , including cash and cash equivalents of $ 354 million . additionally , we had $ 500 million available story_separator_special_tag due to the protracted downturn in survey and vessel activity , we determined that it was more likely than not that the fair value was less than the carrying value . as a result , we determined that a quantitative assessment was necessary for our subsea projects reporting unit . in our 2018 quantitative analysis for the subsea projects reporting unit , we estimated the fair value by weighing the results from the income approach and the market approach . these valuation approaches consider a number of factors that include , but are not limited to , prospective financial information , growth rates , terminal value , discount rates and comparable multiples of similar companies in our industry and require us to make certain assumptions and estimates regarding industry economic factors and future profitability of our business . based on this quantitative test , we determined that the fair value for subsea projects was less than its carrying value and , as a result , we recorded a pre-tax goodwill impairment loss of $ 76 million in the subsea project reporting unit . the goodwill impairment was included as a component of `` income ( loss ) from operations '' in our consolidated statement of operations for the year ended december 31 , 2018 . for the remaining reporting units , qualitative assessments were performed and we concluded that it was more likely than not that the fair value of the reporting unit was more than the carrying value of the reporting unit . income taxes . our tax provisions are based on our expected taxable income , statutory rates and tax-planning opportunities available to us in the various jurisdictions in which we operate . the determination of taxable income in any jurisdiction requires the interpretation of the related tax laws . we are at risk that a taxing authority 's final determination of our tax liabilities may differ from our interpretation . our effective tax rate may fluctuate from year to year , as our operations are conducted in different taxing jurisdictions , the amount of pre-tax income fluctuates and our estimates regarding the realizability of items such as foreign tax credits may change . we account for any applicable interest and penalties on uncertain tax positions as a component of our provision for income taxes on our financial statements . current income tax expense represents either nonresident withholding taxes or the liabilities expected to be reflected on our income tax returns for the current year , while the net deferred income tax expense or benefit represents the change in the balance of deferred tax assets or liabilities as reported on our balance sheet . 31 we establish valuation allowances to reduce deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized in the future . provisions for valuation allowances impact our income tax provision in the period in which such adjustments are identified and recorded . in march 2016 , the fasb issued asu 2016-09 , `` compensation – stock compensation improvements to employee share-based payment accounting . '' this update requires that all excess tax benefits and tax deficiencies ( including tax benefits of dividends on share-based payment awards ) should be recognized as income tax expense or benefit in the statement of operations . the tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur . an entity also should recognize excess tax benefits regardless of whether the benefit reduces taxes payable in the current period . currently , an entity must determine , for each award , whether the difference between the deduction for tax purposes and the compensation cost recognized for financial reporting purposes results in either an excess tax benefit or a tax deficiency . the amendments in this update are effective for us beginning january 1 , 2017. through december 31 , 2016 , we recognized excess tax benefits in additional paid-in capital , and tax deficiencies have been recognized as an offset to accumulated excess tax benefits . in 2017 and 2018 , we recorded a tax deficiency in the first quarter and , under this new standard , we recognized it as a discrete item in our statement of operations rather than in additional paid-in capital . we also expect a tax deficiency in the first quarter of 2019 , which will be recognized as a discrete item in our statement of operations . as further discussed in note 4 , `` income taxes , '' of our notes to consolidated financial statements included in this report , the tax act was enacted on december 22 , 2017 , and significantly affected how the united states imposes income tax on multinational corporations . the u.s. department of the treasury and other regulatory bodies continue to finalize changes to existing laws and regulations which may result from the tax act . in accordance with sec staff accounting bulletin no . 118 ( `` sab no . 118 '' ) , we recorded provisional estimates to reflect the effects of the provisions of the tax act on our income tax assets and liabilities as of december 31 , 2017. we have collected additional information to complete our assessment of the impacts of these changes on our operations and recorded income tax assets and liabilities as of december 31 , 2018 . for a summary of our major accounting policies and a discussion of recently adopted accounting standards , please see note 1 of our notes to consolidated financial statements included in this report . liquidity and capital resources we consider our liquidity and capital resources adequate to support our operations and growth initiatives . at december 31 , 2018 , we had working capital of $ 750 million , including cash and cash equivalents of $ 354 million . additionally , we had $ 500 million available
| results included the following charges : $ 8.2 million , predominantly for tools and inventory in our portfolio used to support deepwater drilling and operations ; $ 3.7 of restructuring expenses ; and $ 1.9 million of allowances for bad debts . in our financial statements , the charges incurred in 2016 are reflected in our cost of services and products , except for the charges related to the allowances for bad debts , which are reflected in 38 general and administrative expenses . the restructuring expenses related to severance costs for incurred and designated future workforce reductions and costs associated with closing excess facilities . we anticipate our subsea products segment operating income in 2019 to improve as a result of securing good order intake in 2018 and anticipated awards in early 2019 , driving increased throughput within our manufactured products business unit , and higher activity levels and contribution from the services and rental business unit . with increased overall activity and better absorption of our fixed costs , we anticipate that our operating income margin will be in the mid-single digit range . our subsea products backlog was $ 332 million at december 31 , 2018 , approximately 20 % , higher than it was at december 31 , 2017 . the backlog increase from 2017 was largely attributable to an increase in order intake for our service and rental offerings . our subsea projects operating results for the year ended december 31 , 2018 were lower compared to 2017 , due to a goodwill impairment charge largely resulting from the protracted downturn in survey and vessel activity , reduced project activity and diving work in angola and the write-offs of obsolete equipment and intangible assets associated with exiting the land survey business . these results were partially offset by increased diving and deepwater activity in the u.s. gulf of mexico .
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as of december 31 , 2020 , our properties are located in 34 states and the district of columbia and contain approximately 24,889,000 rentable square feet . as of december 31 , 2020 , our properties were leased to 349 different tenants , with a weighted average remaining lease term ( based on annualized rental income ) of approximately 5.1 years . the u.s. government is our largest tenant , representing approximately 25.2 % of our annualized rental income as of december 31 , 2020. covid-19 pandemic the covid-19 pandemic and the various governmental and market responses intended to contain and mitigate the spread of the virus and its detrimental public health impact , as well as the general uncertainty surrounding the dangers and impact of the pandemic , continue to have a significant impact on the global economy , including the u.s. economy . to date , the covid-19 pandemic has not had a significant impact on our business and we believe that our current financial resources , the characteristics of our portfolio , including the diversity of our tenant base , both geographically and by industry , and the financial strength and resources of our tenants , will enable us to withstand the covid-19 pandemic . however , we have received requests from some of our tenants for rent assistance . as of february 16 , 2021 , we have granted temporary rent assistance totaling $ 2,546 to 19 tenants who represent approximately 3.3 % of our annualized rental income as of december 31 , 2020. this assistance generally entails a deferral of , in most cases , one month of rent pursuant to deferred payment plans which require the deferred rent amounts be payable over a 12-month period , certain of which commenced in 2020. the deferred amounts did not impact our operating results for the year ended december 31 , 2020. as of february 16 , 2021 , we have collected $ 1,999 , or 78.5 % , of our granted rent deferrals . for more information and risks relating to the covid-19 pandemic on us and our business , see elsewhere in this annual report on form 10-k , including “ warning concerning forward-looking statements ” , part i , item1 , “ business ” , part i , item 48 1a , “ risk factors ” and note 4 to the notes to consolidated financial statements included in part iv , item 15 of this annual report on form 10-k. property operations unless otherwise noted , the data presented in this section includes properties classified as held for sale as of december 31 , 2020 and excludes three properties owned by two unconsolidated joint ventures in which we own 51 % and 50 % interests . for more information regarding our properties classified as held for sale and our two unconsolidated joint ventures , see note 3 to the notes to consolidated financial statements included in part iv , item 15 of this annual report on form 10-k. occupancy data for our properties as of december 31 , 2020 and 2019 was as follows ( square feet in thousands ) : replace_table_token_3_th ( 1 ) based on properties we owned on december 31 , 2020 and 2019 , respectively . ( 2 ) based on properties we owned continuously since january 1 , 2019 ; excludes properties classified as held for sale , properties undergoing significant redevelopment , if any , and three properties owned by two unconsolidated joint ventures in which we own 51 % and 50 % interests . ( 3 ) includes one leasable land parcel . ( 4 ) subject to changes when space is remeasured or reconfigured for tenants . ( 5 ) percent leased includes ( i ) space being fitted out for tenant occupancy pursuant to our lease agreements , if any , and ( ii ) space which is leased , but is not occupied or is being offered for sublease by tenants , if any , as of the measurement date . the average effective rental rate per square foot for our properties for the years ended december 31 , 2020 and 2019 are as follows : replace_table_token_4_th ( 1 ) average effective rental rate per square foot represents total rental income during the period specified divided by the average rentable square feet leased during the period specified . ( 2 ) based on properties we owned on december 31 , 2020 and 2019 , respectively . ( 3 ) based on properties we owned continuously since january 1 , 2019 ; excludes properties classified as held for sale , properties undergoing significant redevelopment , if any , and three properties owned by two unconsolidated joint ventures in which we own 51 % and 50 % interests . during the year ended december 31 , 2020 , changes in rentable square feet leased and available for lease at our properties were as follows ( square feet in thousands ) : replace_table_token_5_th ( 1 ) based on leases entered during the year ended december 31 , 2020 . ( 2 ) rentable square feet are subject to changes when space is remeasured or reconfigured for tenants . 49 leases at our properties totaling approximately 2,334,000 rentable square feet expired during the year ended december 31 , 2020. during the year ended december 31 , 2020 , we entered leases totaling approximately 1,965,000 rentable square feet , including lease renewals of approximately 1,691,000 rentable square feet and new leases of approximately 274,000 rentable square feet . the weighted ( by rentable square feet ) average rents were 6.9 % above prior rents for the same space and the weighted ( by rentable square feet ) average lease term for new and renewal leases entered during the year ended december 31 , 2020 was 7.3 years . story_separator_special_tag ( 2 ) leased square feet is pursuant to leases existing as of december 31 , 2020 , and includes ( i ) space being fitted out for tenant occupancy pursuant to our lease agreements , if any , and ( ii ) space which is leased , but is not occupied or is being offered for sublease by tenants , if any . square feet measurements are subject to changes when space is remeasured or reconfigured for new tenants . we generally will seek to renew or extend the terms of leases in our single tenant properties when they expire . because of the capital many of the tenants in these properties have invested in the properties and because many of these properties appear to be of strategic importance to the tenants ' businesses , we believe that it is likely that these tenants will renew or extend their leases prior to when they expire . if we are unable to extend or renew our leases , it may be time consuming and expensive to relet some of these properties . we believe that recent government budgetary and spending priorities and enhancements in technology have resulted in a decrease in government office use for employees . furthermore , over the past several years , government tenants have reduced their space utilization per employee and consolidated government tenants into existing government owned properties . this activity has reduced the demand for government leased space . our historical experience with respect to properties of the type we own that are majority leased to government tenants has been that government tenants frequently renew leases to avoid the 51 costs and disruptions that may result from relocating their operations . however , efforts to manage space utilization rates may result in our tenants exercising early termination rights under our leases , vacating our properties upon expiration of our leases in order to relocate , or renewing their leases for less space than they currently occupy . also , our government tenants ' desire to reconfigure leased office space to manage utilization per employee may require us to spend significant amounts for tenant improvements , and tenant relocations are often more prevalent in those circumstances . increasing uncertainty with respect to government agency budgets and funding to implement relocations , consolidations and reconfigurations has resulted in delayed decisions by some of our government tenants and their reliance on short term lease renewals ; however , recent activity prior to the outbreak of the covid-19 pandemic suggested that the u.s. government had begun to shift its leasing strategy to include longer term leases and was actively exploring 10 to 20 year lease terms at renewal , in some instances . it is also possible that as a result of the covid-19 pandemic , government tenants may seek to manage space utilization rates in order to provide greater physical distancing for employees , which may require us to spend significant amounts for tenant improvements , mostly with lease renewals . however , the covid-19 pandemic and its aftermath have had negative impacts on government budgets and resources and it is unclear what the effect of these impacts will be on government demand for leasing office space . in addition , the new presidential administration may result in a change in the federal government 's policy priorities , which may impact leasing at our government leased properties . given the significant uncertainties , including as to the covid-19 pandemic , its economic impact and its aftermath and the new presidential administration , we are unable to reasonably project what the financial impact of market conditions or changing government circumstances will be on our financial results for future periods . as of december 31 , 2020 , we derive 23.5 % of our annualized rental income from our properties located in the metropolitan washington , d.c. market area , which includes washington , d.c. , northern virginia and suburban maryland . a downturn in economic conditions in this area , including as a result of the covid-19 pandemic , could result in reduced demand from tenants for our properties or reduce the rents that our tenants in this area are willing to pay when our leases expire or terminate and when renewal or new terms are negotiated . additionally , in recent years there has been a decrease in demand for new leased office space by the u.s. government in the metropolitan washington , d.c. market area , and that could increase competition for government tenants and adversely affect our ability to retain government tenants when our leases expire . our manager , rmr llc , employs a tenant review process for us . rmr llc assesses tenants on an individual basis based on various applicable credit criteria . in general , depending on facts and circumstances , rmr llc evaluates the creditworthiness of a tenant based on information concerning the tenant that is provided by the tenant and , in some cases , information that is publicly available or obtained from third party sources . rmr llc also often uses a third party service to monitor the credit ratings , both actual and implied , of our existing tenants . we consider investment grade tenants to include : ( a ) investment grade rated tenants ; ( b ) tenants with investment grade rated parent entities that guarantee the tenant 's lease obligations ; and or ( c ) tenants with investment grade rated parent entities that do not guarantee the tenant 's lease obligations . as of december 31 , 2020 , tenants contributing 56.7 % of annualized rental income were investment grade rated ( or their payment obligations were guaranteed by an investment grade rated parent ) and tenants contributing an additional 8.1 % of annualized rental income were subsidiaries of an investment grade rated parent ( although these parent entities were not liable for the payment of rents ) .
| results of operations ( amounts in thousands , except per share amounts ) year ended december 31 , 2020 , compared to year ended december 31 , 2019 replace_table_token_11_th n/m - not meaningful ( 1 ) comparable properties consists of 177 properties we owned on december 31 , 2020 and which we owned continuously since january 1 , 2019 and excludes properties classified as held for sale , properties undergoing significant redevelopment , if any , and three properties owned by two unconsolidated joint ventures in which we own 51 % and 50 % interests . ( 2 ) our definition of net operating income , or noi , and our reconciliation of net income to noi are included below under the heading “ non-gaap financial measures. ” references to changes in the income and expense categories below relate to the comparison of consolidated results for the year ended december 31 , 2020 , compared to the year ended december 31 , 2019. for a comparison of consolidated results for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 , see part ii , item 7 “ management 's discussion and analysis of financial condition and results of operations ” in our annual report on form 10-k for the fiscal year ended december 31 , 2019 . 56 rental income . the decrease in rental income reflects decreases in rental income of $ 74,411 as a result of property disposition activities , $ 10,078 related to comparable properties and $ 6,204 related to a property undergoing significant redevelopment that became vacant in september 2019 , offset by an increase in rental income of $ 208 related to acquired properties .
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replace_table_token_11_th the following table indicates the amount of jumbo certificates of deposit by time remaining until maturity as of september 30 , 2017. jumbo certificates of deposit require minimum deposits of $ 100,000 . ( in thousands ) amount three months or less $ 5,512 over three through six months 4,677 over six through twelve months 10,462 over twelve months 21,571 total $ 42,222 borrowings . we use borrowings from the fhlb consisting of advances and borrowings under a line of credit arrangement to supplement our supply of funds for loans and investments . we also utilize retail repurchase agreements as a source of borrowings . the following table sets forth certain information regarding the bank 's use of fhlb borrowings . replace_table_token_12_th the outstanding balance of borrowings from the fhlb decreased $ 3.5 million , from $ 121.6 million at september 30 , 2016 to $ 118.1 million at september 30 , 2017. fhlb borrowings are primarily used to fund loan demand and to purchase available for sale securities . the following table sets forth certain information regarding the bank 's use of borrowings under retail repurchase agreements . replace_table_token_13_th stockholders ' equity . stockholders ' equity increased $ 6.5 million , from $ 86.6 million at september 30 , 2016 to $ 93.1 million at september 30 , 2017. the increase is due to an increase in retained net income of $ 8.1 million during the year ended september 30 , 2017 . 40 results of operations for the years ended september 30 , 2017 , 2016 and 2015 story_separator_special_tag compared to 1.48 % for 2017. in 2016 , total interest expense increased $ 389,000 , or 10.3 % , due primarily to an increase in the average balance of interest-bearing liabilities of $ 25.2 million , from $ 565.9 million for 2015 to $ 591.1 million for 2016 , and an increase in the average cost of funds from 0.67 % for 2015 to 0.70 % for 2016. the average balance of interest-bearing deposits increased $ 18.8 million , or 4.0 % , from $ 465.4 million for 2015 to $ 484.2 million for 2016 , and the average cost of funds for deposits was 0.52 % for 2015 compared to 0.51 % for 2016. the average balance of borrowings increased $ 6.4 million , or 6.4 % , from $ 100.5 million for 2015 to $ 106.9 million for 2016 , and the average cost of funds for borrowings was 1.34 % for 2015 compared to 1.57 % for 2016 . 42 average balances and yields . the following tables present information regarding average balances of assets and liabilities , the total dollar amounts of interest income and dividends from average interest-earning assets , the total dollar amounts of interest expense on average interest-bearing liabilities , and the resulting annualized average yields and costs . the yields and costs for the periods indicated are derived by dividing income or expense by the average balances of assets or liabilities , respectively , for the periods presented . nonaccrual loans are included in average balances only . loan fees are included in interest income on loans and are not material . tax exempt income on loans and investment securities has been calculated on a tax equivalent basis using a federal marginal tax rate of 34 % . replace_table_token_14_th ( 1 ) includes fhlb borrowings , repurchase agreements and other long-term debt . 43 rate/volume analysis . the following table sets forth the effects of changing rates and volumes on our net interest income . the rate column shows the effects attributable to changes in rate ( changes in rate multiplied by prior volume ) . the volume column shows the effects attributable to changes in volume ( changes in volume multiplied by prior rate ) . the net column represents the sum of the prior columns . changes attributable to changes in both rate and volume have been allocated proportionally based on the absolute dollar amounts of change in each . replace_table_token_15_th ( 1 ) includes fhlb borrowings , repurchase agreements and other long-term debt . provision for loan losses . the provision for loan losses increased $ 664,000 , or 104.2 % , from $ 637,000 for the year ended september 30 , 2016 to $ 1.3 million for the year ended september 30 , 2017 due primarily to an increase in the gross loan portfolio of $ 66.2 million . net charge-offs in 2017 were $ 331,000 compared to $ 139,000 for 2016 and nonperforming loans increased $ 19,000 to $ 3.9 million at september 30 , 2017. in 2016 , the provision for loan losses decreased $ 222,000 , or 25.8 % , from $ 859,000 for the year ended september 30 , 2015 to $ 637,000 for the year ended september 30 , 2016 as the gross loan portfolio increased $ 71.1 million , from $ 482.5 million at september 30 , 2015 to $ 553.6 million at september 30 , 2016. net charge-offs in 2016 were $ 139,000 compared to $ 485,000 for 2015 and nonperforming loans decreased $ 508,000 from $ 4.4 million at september 30 , 2015 to $ 3.9 million at september 30 , 2016. the consistent application of management 's allowance for loan losses methodology resulted in an increase in the level of the allowance for loan losses for 2017 consistent with the growth in the commercial real estate mortgage loan portfolio . see “ analysis of nonperforming and classified assets ” included herein . it is management 's assessment that the allowance for loan losses at september 30 , 2017 was adequate and appropriately reflected the probable incurred losses in the bank 's loan portfolio at that date . 44 noninterest income . noninterest income increased $ 5.4 million , or 155.8 % , from $ 3.4 million for the year ended september 30 , 2016 to $ 8.6 million for the year ended september 30 , 2017. story_separator_special_tag replace_table_token_11_th the following table indicates the amount of jumbo certificates of deposit by time remaining until maturity as of september 30 , 2017. jumbo certificates of deposit require minimum deposits of $ 100,000 . ( in thousands ) amount three months or less $ 5,512 over three through six months 4,677 over six through twelve months 10,462 over twelve months 21,571 total $ 42,222 borrowings . we use borrowings from the fhlb consisting of advances and borrowings under a line of credit arrangement to supplement our supply of funds for loans and investments . we also utilize retail repurchase agreements as a source of borrowings . the following table sets forth certain information regarding the bank 's use of fhlb borrowings . replace_table_token_12_th the outstanding balance of borrowings from the fhlb decreased $ 3.5 million , from $ 121.6 million at september 30 , 2016 to $ 118.1 million at september 30 , 2017. fhlb borrowings are primarily used to fund loan demand and to purchase available for sale securities . the following table sets forth certain information regarding the bank 's use of borrowings under retail repurchase agreements . replace_table_token_13_th stockholders ' equity . stockholders ' equity increased $ 6.5 million , from $ 86.6 million at september 30 , 2016 to $ 93.1 million at september 30 , 2017. the increase is due to an increase in retained net income of $ 8.1 million during the year ended september 30 , 2017 . 40 results of operations for the years ended september 30 , 2017 , 2016 and 2015 story_separator_special_tag compared to 1.48 % for 2017. in 2016 , total interest expense increased $ 389,000 , or 10.3 % , due primarily to an increase in the average balance of interest-bearing liabilities of $ 25.2 million , from $ 565.9 million for 2015 to $ 591.1 million for 2016 , and an increase in the average cost of funds from 0.67 % for 2015 to 0.70 % for 2016. the average balance of interest-bearing deposits increased $ 18.8 million , or 4.0 % , from $ 465.4 million for 2015 to $ 484.2 million for 2016 , and the average cost of funds for deposits was 0.52 % for 2015 compared to 0.51 % for 2016. the average balance of borrowings increased $ 6.4 million , or 6.4 % , from $ 100.5 million for 2015 to $ 106.9 million for 2016 , and the average cost of funds for borrowings was 1.34 % for 2015 compared to 1.57 % for 2016 . 42 average balances and yields . the following tables present information regarding average balances of assets and liabilities , the total dollar amounts of interest income and dividends from average interest-earning assets , the total dollar amounts of interest expense on average interest-bearing liabilities , and the resulting annualized average yields and costs . the yields and costs for the periods indicated are derived by dividing income or expense by the average balances of assets or liabilities , respectively , for the periods presented . nonaccrual loans are included in average balances only . loan fees are included in interest income on loans and are not material . tax exempt income on loans and investment securities has been calculated on a tax equivalent basis using a federal marginal tax rate of 34 % . replace_table_token_14_th ( 1 ) includes fhlb borrowings , repurchase agreements and other long-term debt . 43 rate/volume analysis . the following table sets forth the effects of changing rates and volumes on our net interest income . the rate column shows the effects attributable to changes in rate ( changes in rate multiplied by prior volume ) . the volume column shows the effects attributable to changes in volume ( changes in volume multiplied by prior rate ) . the net column represents the sum of the prior columns . changes attributable to changes in both rate and volume have been allocated proportionally based on the absolute dollar amounts of change in each . replace_table_token_15_th ( 1 ) includes fhlb borrowings , repurchase agreements and other long-term debt . provision for loan losses . the provision for loan losses increased $ 664,000 , or 104.2 % , from $ 637,000 for the year ended september 30 , 2016 to $ 1.3 million for the year ended september 30 , 2017 due primarily to an increase in the gross loan portfolio of $ 66.2 million . net charge-offs in 2017 were $ 331,000 compared to $ 139,000 for 2016 and nonperforming loans increased $ 19,000 to $ 3.9 million at september 30 , 2017. in 2016 , the provision for loan losses decreased $ 222,000 , or 25.8 % , from $ 859,000 for the year ended september 30 , 2015 to $ 637,000 for the year ended september 30 , 2016 as the gross loan portfolio increased $ 71.1 million , from $ 482.5 million at september 30 , 2015 to $ 553.6 million at september 30 , 2016. net charge-offs in 2016 were $ 139,000 compared to $ 485,000 for 2015 and nonperforming loans decreased $ 508,000 from $ 4.4 million at september 30 , 2015 to $ 3.9 million at september 30 , 2016. the consistent application of management 's allowance for loan losses methodology resulted in an increase in the level of the allowance for loan losses for 2017 consistent with the growth in the commercial real estate mortgage loan portfolio . see “ analysis of nonperforming and classified assets ” included herein . it is management 's assessment that the allowance for loan losses at september 30 , 2017 was adequate and appropriately reflected the probable incurred losses in the bank 's loan portfolio at that date . 44 noninterest income . noninterest income increased $ 5.4 million , or 155.8 % , from $ 3.4 million for the year ended september 30 , 2016 to $ 8.6 million for the year ended september 30 , 2017.
| overview . the company reported net income and net income available to common shareholders of $ 9.3 million ( $ 3.97 per common share diluted ) for the year ended september 30 , 2017 , compared to net income of $ 7.9 million and net income available to common shareholders of $ 7.8 million ( $ 3.41 per common share diluted ) for the year ended september 30 , 2016. the increase in net income and net income available to common shareholders was due to increases in net interest income of $ 4.2 million and noninterest income of $ 5.3 million offset by increases in provision for loan losses of $ 664,000 , noninterest expense of $ 2.5 million , and income tax expense of $ 4.8 million . net income and net income available to common shareholders increased to $ 7.9 million and $ 7.8 million ( $ 3.41 per common share diluted ) for the year ended september 30 , 2016 , respectively , compared to net income of $ 6.8 million and net income available to common shareholders of $ 6.6 million ( $ 2.93 per common share diluted ) for the year ended september 30 , 2015. during the year ended september 30 , 2016 , the company recognized a $ 4.7 million historic structure rehabilitation tax credit related to its equity investment in a community-based economic development ( “ cbed ” ) project , which resulted in a net tax benefit of $ 2.3 million for the year . as a result of the recognition of the tax credit , the company also recognized a $ 4.2 million impairment loss in noninterest income during the year ended september 30 , 2016 related to the equity investment in the cbed project .
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certain statements contained in this annual report , including statements regarding the development , growth and expansion of our business , our intent , belief or current expectations , primarily with respect to our future operating performance , and the products we expect to offer and other statements regarding matters that are not historical facts , are “ forward-looking statements ” within the meaning of section 27a of the securities act and section 21e of the exchange act , and are subject to the “ safe harbor ” created by these sections . future filings with the sec , future press releases and future oral or written statements made by us or with our approval , which are not statements of historical fact , may also contain forward-looking statements . because such statements include risks and uncertainties , many of which are beyond our control , actual results may differ materially from those expressed or implied by such forward-looking statements . some of the factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements can be found under the caption “ risk factors ” and elsewhere in this annual report . readers are cautioned not to place undue reliance on forward-looking statements . the forward-looking statements speak only as of the date on which they are made , and we undertake no obligation to update such statements to reflect events that occur or circumstances that exist after the date on which they are made . overview we are a medical device company with an innovative approach to the design , development and commercialization of a family of products for people with insulin-dependent diabetes . our advantage is rooted in our unique consumer-focused approach and proprietary technology platform . this allows us to deliver innovative hardware and software solutions to meet the various needs and preferences of people with diabetes and their healthcare providers . we currently manufacture and sell three insulin pump products in the united states that are designed to address large and differentiated segments of the insulin-dependent diabetes market : · the t : slim insulin delivery system , or t : slim , our flagship product that can easily and discreetly fit into a pocket , · the t : flex insulin delivery system , or t : flex , for people with greater insulin needs , and · the t : slim g4 insulin delivery system , or t : slim g4 , the first cgm-enabled pump with touch-screen simplicity . our innovative approach to product design and development is consumer-focused and based on our extensive market research as we believe the user is the primary decision maker when purchasing an insulin pump . this research consists of interviews , focus groups and online surveys , to understand what people with diabetes , their caregivers and healthcare providers are seeking in order to improve diabetes therapy management . we also apply the science of human factors to our design and development process , which seeks to optimize our devices , allowing users to successfully operate our devices in their intended environment . we developed our products to provide the specific features that people with insulin-dependent diabetes seek in a next-generation insulin pump . our proprietary pumping technology allows us to design the slimmest and smallest durable insulin pumps on the market , without sacrificing insulin capacity . our technology platform features our patented micro-delivery technology , a miniaturized pumping mechanism which draws insulin from a flexible bag within the pump 's cartridge , rather than relying on a syringe and plunger mechanism . it also features an easy-to-navigate software architecture , a vivid color touch screen and a micro-usb connection that supports both a rechargeable battery and t : connect , our custom cloud-based data management application that provides a fast , easy and visual way to display therapy management data from the pump and supported blood glucose meters . we began commercial sales of our first product , t : slim , in august 2012. during 2015 , we commenced commercial sales of two additional insulin pumps : t : flex in may 2015 and t : slim g4 in september 2015. since inception , we have derived nearly all of our revenue from the sale of insulin pumps and associated supplies in the united states . we consider the number of units shipped per quarter to be an important metric for managing our business . we have shipped nearly 34,000 insulin pumps since the initiation of our commercial efforts in 2012. pump shipments are broken down by product , and by quarter as follows : 56 replace_table_token_4_th ( 1 ) this table does not reflect returns or exchanges of pump products that occurred in the ordinary course of business . ( 2 ) during the fourth quarter of 2015 , 148 t : slim pumps and two t : flex pumps originally shipped in the third quarter of 2015 were exchanged for t : slim g4 pumps under a limited product exchange program ( as described below ) . amounts for the fourth quarter of 2015 in the table above are adjusted to reflect the impact of the exchange program . for the years ended december 31 , 2015 , 2014 and 2013 , our sales were $ 72.9 million , $ 49.7 million and $ 29.0 million , respectively . for the years ended december 31 , 2015 , 2014 and 2013 , our net loss was $ 72.4 million , $ 79.5 million and $ 63.1 million , respectively . our accumulated deficit as of december 31 , 2015 was $ 321.1 million . in connection with t : slim g4 commercial launch , we offered a limited product exchange program , referred to as the exchange program for eligible customers . the exchange program offered customers who received a t : slim or t : flex pump on or after august 1 , 2015 , a limited period in which to elect to exchange their pump for a t : slim g4 . story_separator_special_tag under the third amendment , we have agreed to pay , on the earlier of ( i ) the maturity date ; ( ii ) the date that the loan under the term loan agreement becomes due , and ( iii ) the date on which we make a voluntary pre-payment of the loan , a financing fee equal to three percent ( 3.0 % ) of the sum of ( x ) the aggregate amount drawn under the third amendment , and ( y ) any paid-in-kind loans issued in relation to the third amendment , if applicable . in february 2016 , we entered into a termination agreement with jdrf pursuant to which the parties mutually agreed to terminate our research , development and commercialization agreement with jdrf . under the terms of the termination agreement , we have agreed to repay jdrf $ 0.7 million , which equals the amount of milestone payments received to date . as of december 31 , 2015 , we have accrued for the $ 0.7 million repayment . components of results of operations sales we offer a family of products for people with insulin-dependent diabetes . we commenced commercial sales of t : slim in the united states in the third quarter of 2012. we launched our second insulin pump product , t : flex , in the second quarter of 2015 , and launched our third insulin pump product , t : slim g4 , in september 2015. each product is comprised of the insulin pump and pump-related supplies that include disposable cartridges and infusion sets . we also offer accessories including protective cases , belt clips , and power adapters . sales of accessories since commercial launch have not been material . 58 we primarily sell our products through national and regional distributors on a non-exclusive basis . these distributors are generally providers of medical equipment and supplies to individuals with diabetes . our primary end customers are people with insulin-dependent diabete s. similar to other durable medical equipment , the primary payor is generally a third-party insurance carrier and the customer is usually responsible for any medical insurance plan copay or coinsurance requirements . we believe we can continue to rapidly increase sales and that our sales growth during the next 12 months will outpace growth in operating expenses during this period . we believe further expansion of our sales , clinical and marketing infrastructure will allow us to engage with more potential customers , their caregivers and healthcare providers on a more frequent basis to promote our products . our quarterly sales may also fluctuate on a quarterly basis in the future due to a variety of factors , including the impact of : · seasonality associated with summer vacations , annual deductibles and coinsurance requirements associated with most medical insurance plans utilized by our individual customers and the individual customers of our distributors , · the buying patterns of our distributors and other customers , · the size and timing of sales force expansions , and · anticipated and actual regulatory approvals of new products by our competitors or us . we have experienced and expect to continue to experience sequential growth of sales in each quarter from the first quarter to the fourth quarter , and we also expect sequential sales from the fourth quarter to the following first quarter to decrease . in 2014 , the expansion of our sales force during the first half of the year contributed to our sales being weighted heavily towards the second half of the year . in 2015 , we believe that the timing of the regulatory approval and commercial launch of t : slim g4 contributed to our sales being weighted even more heavily towards the fourth quarter of the year . in 2016 , we expect the combined effect of product enhancements , the increasing productivity of our existing sales force and the expansion of our sales force during the first half of the year will result in our sales being weighted even more heavily towards the second half of the year than they were in previous years . cost of sales we manufacture our pumps and disposable cartridges at our manufacturing facility in san diego , california . infusion sets and pump accessories are manufactured by third-party suppliers . cost of sales includes raw materials , labor costs , manufacturing overhead expenses , product-training costs and reserves for expected warranty costs , scrap and inventory obsolescence . due to our existing production volumes relative to our potential production capacity , manufacturing overhead expenses are currently a significant portion of our per-unit costs . these manufacturing overhead expenses include expenses relating to quality assurance , manufacturing engineering , material procurement , inventory control , facilities , equipment , information technology and operations supervision and management . we anticipate that our cost of sales will increase as our products gain broader market acceptance . we expect our overall gross margin , which for any given period is calculated as sales less cost of sales divided by sales , to improve over the long term , as our sales increase and we have more opportunities to spread our overhead costs over larger production volumes . we expect that we will be able to leverage manufacturing efficiencies among our three pump products that utilize the same core manufacturing infrastructure . however we do expect our overall gross margin to fluctuate in future quarterly periods as a result of numerous factors besides those associated with production volumes , such as the changing mix of products sold with different gross margins , the changing percentage of products sold to distributors versus directly to individual customers , varying levels of reimbursement among third-party payors , the timing and success of new product launches , warranty and training costs , and changes in our manufacturing processes , costs or output .
| results of operations replace_table_token_5_th comparison of years ended december 31 , 2015 and 2014 sales . for the years ended december 31 , 2015 and 2014 , sales were $ 72.9 million and $ 49.7 million , respectively . for the year ended december 31 , 2015 , sales for t : slim pumps , t : flex pumps and t : slim g4 pumps were $ 37.4 million , $ 5.9 million and $ 17.5 million , respectively . pump sales accounted for 83 % and 86 % of sales , respectively , for the years ended december 31 , 2015 and 2014 , while pump-related supplies primarily accounted for the remainder in each year . sales of accessories were not material in either year . the growth in sales was primarily driven by a 43 % increase in pump shipments from 10,822 in 2014 to 15,483 in 2015. this includes shipments of nearly 1,500 t : flex pumps and 4,493 t : slim g4 pumps during 2015 compared to none in 2014. sales of t : flex pumps and t : slim g4 pumps began in may 2015 and september 2015 , respectively . sales to distributors accounted for 77 % and 75 % of our total sales for the years ended december 31 , 2015 and 2014 , respectively . the mix of sales to distributors versus direct customers is principally determined by whether or not we have a contractual arrangement with the underlying third-party insurance payor . 60 cost of sales and gross profit . our cost of sales in 2015 was $ 46.3 million , resulting in gross profit of $ 26.6 million , compared to $ 34.5 million cost of sales and gross profit of $ 15.2 million in 2014. the gross margin in 2015 was 36 % , compared to 31 % in 2014. the improvement in the gross margin was primarily a result of manufacturing efficiencies associated with an increase in production volume and improvement in our manufacturing processes .
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the objectives related to 2012 were modified in december 2012 and the company recorded expense of $ 126,000 in connection with the modification . stock options a summary of the company 's stock option activity and related information follows : replace_table_token_27_th ( 1 ) this represents the number of vested options as of december 31 , 2012 , plus the number of unvested options expected to vest as of december 31 , 2012 , based on the unvested options at december 31 , 2012 , adjusted for the estimated forfeiture rate . the fair value of each employee stock option was estimated at the date of grant using a black-scholes option-pricing model with the following assumptions : replace_table_token_28_th the company uses the simplified method as prescribed by the securities and exchange 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 related notes appearing elsewhere in this annual report on form 10-k. some of the information contained in this discussion and analysis or set forth elsewhere in this annual report on form 10-k , including information with respect to our plans and strategy for our business and related financing , includes forward-looking statements that involve risks and uncertainties . you should read the `` risk factors '' section of this annual report on form 10-k for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . 73 overview we are a clinical-stage biopharmaceutical company focused on discovering and developing proprietary small molecule drugs targeting cancer stem cells along with proprietary companion diagnostics . a cancer stem cell is a particularly aggressive type of tumor cell , resistant to conventional cancer therapy , that we believe is an underlying cause of tumor recurrence and metastasis . our scientific co-founders have made discoveries that link the epithelial-to-mesenchymal transition , or emt , to the emergence of cancer stem cells . this transition involves the transformation of one type of cancer cell into a more aggressive and drug resistant type of cancer cell . building on these discoveries , our scientific co-founders developed proprietary technology to create a stable population of cancer stem cells that we use to screen for and identify small molecule compounds that target cancer stem cells . we expect to initiate multiple clinical trials with our product candidates vs-6063 , vs-4718 and vs-5584 in 2013 , including a potentially pivotal trial of vs-6063 in mesothelioma . we commenced active operations in the second half of 2010. our operations to date have been limited to organizing and staffing our company , business planning , raising capital , acquiring and developing our technology , identifying potential product candidates , undertaking preclinical studies of our most advanced product candidates and , recently , initiating a clinical trial for vs-6063 . to date , we have not generated any revenues and have financed our operations with net proceeds from the private placement of our preferred stock and our initial public offering . as of december 31 , 2012 , we had a deficit accumulated during the development stage of $ 46.5 million . our net loss was $ 32.0 million for the year ended december 31 , 2012 , $ 13.7 million for the year ended december 31 , 2011 , $ 784,000 for the period from august 4 , 2010 ( inception ) to december 31 , 2010 and $ 46.5 million for the period from august 4 , 2010 ( inception ) to december 31 , 2012. we expect to incur significant expenses and increasing operating losses for the foreseeable future . we expect our expenses to increase in connection with our ongoing activities , particularly as we continue the research and development and initiate clinical trials of , and seek marketing approval for , our product candidates . in addition , if we obtain marketing approval for any of our product candidates , we expect to incur significant commercialization expenses related to product sales , marketing , manufacturing and distribution . accordingly , we will need to obtain substantial additional funding in connection with our continuing operations . adequate additional financing may not be available to us on acceptable terms , or at all . if we are unable to raise capital when needed or on attractive terms , we would be forced to delay , reduce or eliminate our research and development programs or any future commercialization efforts . we will need to generate significant revenues to achieve profitability , and we may never do so . financial operations overview revenue to date , we have not generated any revenues . our ability to generate product revenues , which we do not expect will occur for many years , if ever , will depend heavily on the successful development and eventual commercialization of our product candidates . research and development expenses research and development expenses consist of costs associated with our research activities , including our drug discovery efforts , and the development of our therapeutic product candidates and companion diagnostics . our research and development expenses consist of : employee-related expenses , including salaries , benefits , travel and stock-based compensation expense ; 74 external research and development expenses incurred under arrangements with third parties , such as contract research organizations , or cros , manufacturing organizations and consultants , including our scientific advisory board ; license fees ; and facilities , depreciation and other allocated expenses , which include direct and allocated expenses for rent and maintenance of facilities , depreciation of leasehold improvements and equipment , and laboratory and other supplies . we expense research and development costs to operations as incurred . we account for nonrefundable advance payments for goods and services that will be used in future research and development activities as expenses when the service has been performed or when the goods have been received , rather than when the payment is made . story_separator_special_tag the financial terms of these agreements are subject to negotiation , vary from contract to contract and may result in uneven payment flows . there may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the research and development expense . in accruing service fees , we estimate the time period over which services will be performed and the level of effort to be expended in each period . if the actual timing of the performance of services or the level of effort varies from our estimate , we adjust the accrual or prepaid accordingly . although we do not expect our estimates to be materially different from amounts actually incurred , our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and could result in us reporting amounts that are too high or too low in any particular period . stock-based compensation prior to becoming a public company , we utilized significant estimates and assumptions in determining the fair value of our common stock . we granted stock options at exercise prices not less than the fair market value of our common stock as determined by the board of directors , with input from management . the board of directors determined the estimated fair value of our common stock based on a number of objective and subjective factors , including external market conditions affecting the biotechnology industry sector and the prices at which we sold shares of redeemable convertible preferred stock , the superior rights and preferences of securities senior to our common stock at the time and the likelihood of achieving a liquidity event , such as an initial public offering or sale of our company . we utilized various valuation methodologies in accordance with the framework of the 2004 american institute of certified public accountants technical practice aid , valuation of privately-held company equity securities issued as compensation , to estimate the fair value of our common stock . the methodologies included an asset-based approach and the current value method for our initial common stock valuation as of november 30 , 2010 , the option pricing method utilizing the reverse backsolve method to estimate our underlying equity value as of july 31 , 2011 and a methodology that determined an estimated value under an initial public offering scenario and a sale scenario based upon an assessment of the probability of occurrence of each scenario as of september 30 , 2011 , november 17 , 2011 , and december 31 , 2011. each valuation methodology included estimates and assumptions that required our judgment . these estimates included assumptions regarding future performance , including the successful completion of preclinical studies and clinical trials and the time to completing an initial public offering or sale . significant changes to the key assumptions used in the valuations could have resulted in different fair values of common stock at each valuation date . we recognize stock-based compensation expense for stock options issued to employees based on the grant date fair value of the awards on a straight-line basis over the requisite service period . we record stock-based compensation expense for stock options issued to non-employees based on the estimated fair value of the services received or of the equity instruments issued , whichever is more reliability measured , based on the vesting date fair value of the awards on a straight-line basis over the vesting period . we estimate the fair value of the share- based awards , including stock options , using the black-scholes option-pricing model . determining the fair value of share-based awards requires the use of subjective assumptions , including the expected term of the award and expected stock price volatility . the assumptions used in determining the fair value of share-based awards represent management 's best estimates , which involve inherent uncertainties and the application of management judgment . as a result , if factors change , and we use different assumptions , our share-based compensation could be materially different in the future . the risk-free interest rate used for each grant is based on a u.s. 77 treasury instrument whose term is consistent with the expected term of the stock option . because we do not have a sufficient history to estimate the expected term , we use the simplified method as described in sab topic 14.d.2 for estimating the expected term . the simplified method is based on the average of the vesting tranches and the contractual life of each grant . because there was no public market for our common stock prior to our initial public offering , we lacked company-specific historical and implied volatility information . therefore , we used the historical volatility of a representative group of public biotechnology and life sciences companies with similar characteristics to us . in 2012 , subsequent to our initial public offering , we began to use a blended volatility rate using our own historical volatility and that of a representative group of public biotechnology and life sciences companies with similar characteristics to us . we have not paid and do not anticipate paying cash dividends on our shares of common stock ; therefore , the expected dividend yield is assumed to be zero . we also recognize compensation expense for only the portion of options that are expected to vest . accordingly , we have estimated expected forfeitures of stock options based on our historical forfeiture rate , adjusted for known trends , and used these rates in developing a future forfeiture rate . we have also granted performance-based stock options with terms that allow the recipients to vest in a specific number of shares based upon the achievement of performance-based milestones as specified in the grants . share-based compensation expense associated with these performance-based stock options is recognized if the performance condition is considered probable of achievement using management 's best estimates of the time to vesting for the achievement of the performance-based milestones .
| results of operations the information reported within our consolidated financial statements from august 4 , 2010 to december 31 , 2011 was based solely on the accounts of verastem , inc. in december 2012 , verastem securities company , our wholly owned subsidiary , was incorporated . all financial information presented after december 31 , 2011 has been consolidated and includes the accounts of our wholly owned subsidiary . all significant intercompany balances and transactions have been eliminated in consolidation . comparison of the year ended december 31 , 2012 to the year ended december 31 , 2011 research and development expense . research and development expense for the year ended december 31 , 2012 was $ 21.7 million compared to $ 9.9 million for the year ended december 31 , 2011. the $ 11.8 million increase is primarily related to increased contract research organization expense of 78 $ 4.1 million , an increase of $ 3.6 million in license fees due to our agreement with pfizer , inc. , including expense associated with the issuance of 192,012 shares of common stock , an increase of $ 3.3 million for personnel costs , including stock-based compensation of $ 2.0 million , primarily due to a higher fair value of our common stock , an increase of $ 404,000 for laboratory supplies , an increase of $ 118,00 for depreciation due to additional laboratory equipment and $ 86,000 in additional occupancy costs due to a full year of costs associated with our new facility that we occupied in may 2011. general and administrative expense .
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management 's discussion should be read in conjunction with the consolidated financial statements and other financial information presented in this report . forward-looking statements the corporation has made , and may continue to make , certain forward-looking statements with respect to its financial condition and results of operations . do not unduly rely on forward-looking statements . forward-looking statements can be identified by the use of words such as `` may , '' `` should , '' `` will , '' `` could , '' `` estimates , '' `` predicts , '' `` potential , '' `` continue , '' `` anticipates , '' `` believes , '' `` plans , '' `` expects , '' `` future , '' `` intends '' and similar expressions which are intended to identify forward-looking statements . these forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties , some of which are beyond the corporation 's control and ability to predict , that could cause actual results to differ materially from those expressed in the forward-looking statements . the corporation undertakes no obligation , other than as required by law , to update or revise any forward-looking statements , whether as a result of new information , future events or otherwise . many factors could affect future financial results including , without limitation : the impact of adverse conditions in the economy and capital markets on the performance of the corporation 's loan portfolio and demand for the corporation 's products and services ; increases in non-performing assets , which may require the corporation to increase the allowance for credit losses , charge off loans and incur elevated collection and carrying costs related to such non-performing assets ; investment securities gains and losses , including other-than-temporary declines in the value of securities which may result in charges to earnings ; the effects of market interest rates , and the relative balances of interest rate-sensitive assets to interest rate-sensitive liabilities , on net interest margin and net interest income ; the effects of changes in interest rates on demand for the corporation 's products and services ; the effects of changes in interest rates or disruptions in liquidity markets on the corporation 's sources of funding ; the effects of the extensive level of regulation and supervision to which the corporation and its bank subsidiaries are subject ; the effects of the increasing amounts of time and expense associated with regulatory compliance and risk management ; the potential for negative consequences from regulatory violations , investigations and examinations including potential supervisory actions and the assessment of fines and penalties ; the additional time , expense and investment required to comply with , and the restrictions on potential growth and investment activities resulting from , the existing enforcement orders applicable to the corporation and three of its bank subsidiaries by federal and state bank regulatory agencies requiring improvement in compliance functions and other remedial actions , or any future enforcement orders ; the continuing impact of the dodd-frank act on the corporation 's business and results of operations ; the effects of , and uncertainty surrounding , new legislation , changes in regulation and government policy , and changes in leadership at the federal banking agencies , which could result in significant changes in banking and financial services regulation ; the effects of actions by the federal government , including those of the federal reserve board and other government agencies , that impact money supply and market interest rates ; the effects of changes in u.s. federal , state or local tax laws ; the effects of negative publicity on the corporation 's reputation ; the effects of adverse outcomes in litigation and governmental or administrative proceedings ; the potential to incur losses in connection with repurchase and indemnification payments related to sold loans ; the corporation 's ability to obtain regulatory approvals to consolidate its bank subsidiaries and achieve intended reductions in the time , expense and resources associated with regulatory compliance from such consolidations ; the corporation 's ability to successfully transform its business model ; the corporation 's ability to achieve its growth plans ; the effects of competition on deposit rates and growth , loan rates and growth and net interest margin ; the corporation 's ability to manage the level of non-interest expenses , including salaries and employee benefits expenses , operating risk losses and goodwill impairment ; 40 the effects of changes in accounting policies , standards , and interpretations on the corporation 's financial condition and results of operations ; the impact of operational risks , including the risk of human error , inadequate or failed internal processes and systems , computer and telecommunications systems failures , faulty or incomplete data and an inadequate risk management framework ; the impact of failures of third parties upon which the corporation relies to perform in accordance with contractual arrangements ; the failure or circumvention of the corporation 's system of internal controls ; the loss of , or failure to safeguard , confidential or proprietary information ; the corporation 's failure to identify and to address cyber-security risks , including data breaches and cyber attacks ; the corporation 's ability to keep pace with technological changes ; the corporation 's ability to attract and retain talented personnel ; capital and liquidity strategies , including the corporation 's ability to comply with applicable capital and liquidity requirements , and the corporation 's ability to generate capital internally or raise capital on favorable terms ; the corporation 's reliance on its subsidiaries for substantially all of its revenues and its ability to pay dividends or other distributions ; and the effects of any downgrade in the corporation 's credit ratings on its borrowing costs or access to capital markets . overview the corporation is a financial holding company comprised of six wholly owned banking subsidiaries which provide a full range of retail and commercial financial services in pennsylvania , delaware , maryland , new jersey and virginia . story_separator_special_tag absent the impact of the rate reduction , income tax expense for 2017 would have been approximately $ 47.1 million , or 20.1 % , of income before income taxes . the decrease in the etr , absent the $ 15.6 million charge , from 2016 to 2017 , was related to increases in tax credit investments and related net tax credits and the impact of the adoption of the financial accounting standards board ( `` fasb '' ) accounting standard update ( `` asu '' ) 2016-09 , improvements to employee share-based payments accounting , in the first quarter of 2017. see `` note 1 - summary of significant accounting policies , '' in the notes to the consolidated financial statements in item 8 . `` financial statements and supplementary data . '' critical accounting policies the following is a summary of those accounting policies that the corporation considers to be most important to the presentation of its financial condition and results of operations , as they require management 's most difficult judgments as a result of the need to make estimates about the effects of matters that are inherently uncertain . see additional information regarding these critical accounting policies in `` note 1 - summary of significant accounting policies , '' in the notes to the consolidated financial statements in item 8 . `` financial statements and supplementary data . '' allowance for credit losses - the allowance for credit losses consists of the allowance for loan losses and the reserve for unfunded lending commitments . the allowance for loan losses represents management 's estimate of incurred losses in the loan portfolio as of the balance sheet date and is recorded as a reduction to loans . the reserve for unfunded lending commitments represents management 's estimate of losses inherent in its unfunded loan commitments and letters of credit and is recorded in other liabilities on the consolidated balance sheet . 42 the corporation 's allowance for loan losses includes : 1 ) specific allowances allocated to loans evaluated for impairment under the financial accounting standards board 's accounting standards codification ( `` fasb asc '' ) section 310-10-35 ; and 2 ) allowances calculated for pools of loans evaluated for impairment under fasb asc subtopic 450-20. management 's estimate of incurred losses in the loan portfolio is based on a methodology that includes the following critical judgments : identification of potential problem loans in a timely manner . for commercial loans , commercial mortgages and construction loans to commercial borrowers , an internal risk rating process is used . the corporation believes that internal risk ratings are the most relevant credit quality indicator for these types of loans . the migration of loans through the various internal risk rating categories is a significant component of the allowance for credit loss methodology for these loans , which bases the probability of default on this migration . assigning risk ratings involves judgment . the corporation 's loan review officers provide an independent assessment of risk rating accuracy . ratings may be changed based on the ongoing monitoring procedures performed by loan officers or credit administration staff , or if specific loan review assessments identify a deterioration or an improvement in the loan . the corporation does not assign internal risk ratings for residential mortgages , home equity loans , consumer loans , lease receivables , and construction loans to individuals secured by residential real estate , as these portfolios consist of a larger number of loans with smaller balances . instead , these portfolios are evaluated for risk through the monitoring of delinquency status . proper collateral valuation of impaired loans evaluated for impairment under fasb asc section 310-10-35. substantially all of the corporation 's impaired loans to borrowers with total outstanding loan balances greater than or equal to $ 1.0 million are measured based on the estimated fair value of each loan 's collateral . collateral could be in the form of real estate , in the case of impaired commercial mortgages and construction loans , or business assets , such as accounts receivable or inventory , in the case of commercial loans . commercial loans may also be secured by real property . for loans secured by real estate , estimated fair values are determined primarily through appraisals performed by state certified third-party appraisers , discounted to arrive at expected net sale proceeds . for collateral-dependent loans , estimated real estate fair values are also net of estimated selling costs . when a real estate secured loan becomes impaired , a decision is made regarding whether an updated appraisal of the real estate is necessary . this decision is based on various considerations , including : the age of the most recent appraisal ; the loan-to-value ratio based on the original appraisal ; the condition of the property ; the corporation 's experience and knowledge of the real estate market ; the purpose of the loan ; market factors ; payment status ; the strength of any guarantors ; and the existence and age of other indications of value such as broker price opinions , among others . the corporation generally obtains updated appraisals performed by state certified third-party appraisers for impaired loans secured predominately by real estate every 12 months . when updated appraisals are not obtained for loans evaluated for impairment under fasb asc section 310-10-35 that are secured by real estate , fair values are estimated based on the original appraisal values , as long as the original appraisal indicated an acceptable loan-to-value position and , in the opinion of the corporation 's internal credit administration staff , there has not been a significant deterioration in the collateral value since the original appraisal was performed . original appraisals are typically used only when the estimated collateral value , as adjusted appropriately for the age of the appraisal , results in a current loan-to-value ratio that is lower than the corporation 's loan-to-value requirements for new loans , generally less than 70 % . proper measurement of allowance needs for pools of loans evaluated for impairment under fasb asc subtopic 450-20.
| results of operations net interest income net interest income is the most significant component of the corporation 's net income . the corporation manages the risk associated with changes in interest rates through the techniques described within item 7a , `` quantitative and qualitative disclosures about market risk . '' the following table provides a comparative average balance sheet and net interest income analysis for 2017 compared to 2016 and 2015 . interest income and yields are presented on an fte basis , using a 35 % federal tax rate and statutory interest expense disallowances . the discussion following this table is based on these tax-equivalent amounts . replace_table_token_10_th ( 1 ) includes dividends earned on equity securities . ( 2 ) includes non-performing loans . ( 3 ) includes amortized historical cost for available for sale securities ; the related unrealized holding gains ( losses ) are included in other assets . note : the weighted average interest rate on total average interest-bearing liabilities and average non-interest bearing demand deposits ( “ cost of funds ” ) was 0.55 % , 0.52 % and 0.56 % for the years ended december 31 , 2017 , 2016 and 2015 respectively . 46 the following table summarizes the changes in fte interest income and expense resulting from changes in average balances ( volumes ) and changes in rates : replace_table_token_11_th note : changes which are partially attributable to both volume and rate are allocated to the volume and rate components presented above based on the percentage of the direct changes that are attributable to each component . comparison of 2017 to 2016 fte net interest income increased $ 57.3 million , or 10.6 % , to $ 598.6 million in 2017 . net interest margin increased 10 basis points to 3.28 % in 2017 from 3.18 % in 2016 .
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as of december 31 , 20 20 and december 31 , 2019 , the company held cash deposits of $ 56,051,055 and $ 8,383,359 , respectively . note 4 - transactional financial assets as of december 31 , 20 20 , we have $ 25,012,736 invested in bank wealth management investment products . the investments have short maturity periods and can be rolled into a maturity date of our choosing or automatically rolled into subsequent maturity period . the annualized rate of return may range from 3.15 % to 4.4 % depending on the amount and time period invested . 42 note 5 - real estate property under development real estate property under development represents the company 's real estate development project in linyi , the prc ( “ linyi project ” ) , which is located on the junction of xiamen road and hong kong road in linyi city economic development zone , shandong province , prc . this project covers a site area of approximately 103,385 square meters for the development of villa-style residential housing buildings . the company acquired the site and commenced construction of this project during the fiscal year of 2012. we sold 11 9 of 121 phase 1 villas and sold 16 units and pre-sold 71 villas out of all 88 units in phase 2 as of march 31 , 2021. in the first quarter of 2019 , we purchased the property of hatx with the land use rights . as of december 31 , 20 20 , land use rights included in real estate property under development totaled $ 166,236,339 . in october 2018 , hatx purchased the property in huai'an , qingjiang pu district with an area of 78,030 square meters . in december 2018 we established hazb with a 78.46 % ownership for the purpose of real estate investment and in march 2019 , hazb purchased 100 % of hatx and tis land usage rights to the huaian property . the huaian project , named tianxi times , started its first phase development in early 2019 with a gfa of 82,218 sqm totaling 679 units , and started its second phase in middle 2020 with a gfa of 99,123 sqm totaling 873 units . as of march 31 , 2021 , the company pre-sold 673 out of 679 units of first phase and pre-sold 258 out of 873 of second phase . note 6 - other receivables and deposits replace_table_token_14_th other receivables and deposits as of december 31 , 20 20 are stated net of allowance for doubtful accounts of $ 503,814 ( 2019 : $ 327,739 ) . other receivables of $ 3,462,504 mainly consists of $ 2,604,254 from zhongji pufa for our gxl project and $ 858,250 from shanghai wu zhao hao . note 7 - property and equipment , net replace_table_token_15_th during the year ended december 31 , 20 20 , depreciation and amortization expense for property and equipment amounted to $ 3,199,986 . note 8 - investment properties , net replace_table_token_16_th during the year ended december 31 , 20 20 , depreciation and amortization expense for investment properties amounted to $ 2,936,213 . note 9 - investments in and amount due from unconsolidated affiliates the investments in unconsolidated affiliates primarily consist of shdew ( 19.91 % ) . as of december 31 , 20 20 , the investment amount in shdew was $ 13,579,678 . 43 shdew was established in june 2013 with its business as a skincare and cosmetic company . shdew 's online wechat stores had a membership of over ten million members as of march 31 , 2021. shdew is developing its own skincare products as well as improving its story_separator_special_tag the following management 's discussion and analysis ( “ md & a ” ) is intended to help the reader understand sunrise real estate group , inc. ( “ srre ” ) . md & a is provided as a supplement to , and should be read in conjunction with , our financial statements and the accompanying notes . overview in october 2004 , the former shareholders of sunrise real estate development group , inc. ( cayman islands ) ( “ cy-srre ” ) and lin ray yang enterprise ltd. ( “ lry ” ) acquired a majority of our voting interests in a share exchange . before the completion of the share exchange , srre had no continuing operations , and its historical results would not be meaningful if combined with the historical results of cy-srre , lry and their subsidiaries . as a result of the acquisition , the former owners of cy-srre and lry hold a majority interest in the combined entity . generally accepted accounting principles require in certain circumstances that a company whose shareholders retain the majority voting interest in the combined business be treated as the acquirer for financial reporting purposes . accordingly , the acquisition has been accounted for as a “ reverse acquisition ” arrangement whereby cy-srre and lry are deemed to have purchased srre . however , srre remains the legal entity and the registrant for securities and exchange commission reporting purposes . the historical financial statements prior to october 5 , 2004 are those of cy-srre and lry and their subsidiaries . all equity information and per share data prior to the acquisition have been restated to reflect the stock issuance as a recapitalization of cy-srre and lry . story_separator_special_tag on january 1 , 2020 , we adopted this standard and applied it retrospectively to january 1 , 2018 when we initially adopted topic 606. the adoption did not have an impact on our consolidated financial statements . application of critical accounting policies our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements . these financial statements are prepared in accordance with generally accepted accounting principles in the united states ( “ u.s. gaap ” ) , which requires us to make estimates and assumptions that affect the reported amounts of our assets and liabilities and revenues and expenses , to disclose contingent assets and liabilities on the date of the consolidated financial statements , and to disclose the reported amounts of revenues and expenses incurred during the financial reporting period . the most significant estimates and assumptions include the collection of accounts receivable , and the useful lives and impairment of property and equipment , goodwill and intangible assets , the valuation of deferred tax assets and inventories and the provisions for income taxes . we continue to evaluate these estimates and assumptions that we believe to be reasonable under the circumstances . we rely on these evaluations as the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . since the use of estimates is an integral component of the financial reporting process , actual results could differ from those estimates . some of our accounting policies require higher degrees of judgment than others in their application . we believe critical accounting policies as disclosed in this form 10-k reflect the more significant judgments and estimates used in preparation of our consolidated financial statements . we believe there have been no material changes to our critical accounting policies and estimates . the following critical accounting policies rely upon assumptions and estimates and were used in the preparation of our consolidated financial statements : revenue recognition most of the company 's revenue is derived from real estate sales in the prc . the majority of the company 's contracts contain a single performance obligation involving significant real estate development activities that are performed together to deliver a real estate property to customers . revenues arising from real estate sales are recognized when or as the control of the asset is transferred to the customer . the control of the asset may transfer over time or at a point in time . for the sales of individual condominium units in a real estate development project , the company has an enforceable right to payment for performance completed to date , revenue is recognized over time by measuring the progress towards complete satisfaction of that performance obligation . otherwise , revenue is recognized at a point in time when the customer obtains control of the asset . all revenues represent gross revenues less sales and business tax . 21 asc 606 requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services . asc 606 creates a five-step model that requires entities to exercise judgment when considering the terms of the contract ( s ) which include ( i ) identifying the contract ( s ) with the customer , ( ii ) identifying the separate performance obligations in the contract , ( iii ) determining the transaction price , ( iv ) allocating the transaction price to the separate performance obligations , and ( v ) recognizing revenue when each performance obligation is satisfied . asc 606 also specifies the accounting for the incremental costs of obtaining a contract and the costs directly related to fulfilling a contract . in addition , asc 606 requires extensive disclosures . the company adopted asc 606 on january 1 , 2018 using the modified retrospective approach with no restatement of comparative periods and no cumulative-effect adjustment to retained earnings recognized as of the date of adoption . a significant portion of the company 's revenue is derived from development and sales of condominium real estate property in the prc , with revenue previously recognized using the percentage of completion method . under the new standard , to recognize revenue over time is similar to the percentage of completion method , contractual provisions need to provide the company with an enforceable right to payment and the company has no alternative use of the asset . historically , all contracts executed contained an enforceable right to home purchase payments and the company had no alternative use of assets , therefore , the adoption of asc 606 did not have a material impact on the company 's consolidated financial statements . real estate property under development real estate property under development , which consists of residential unit sites and commercial and residential unit sites under development , is stated at the lower of carrying amounts or fair value less selling costs . expenditures for land development , including cost of land use rights , deed tax , pre-development costs and engineering costs , are capitalized and allocated to development projects by the specific identification method . costs are allocated to specific units within a project based on the ratio of the sales value of units to the estimated total sales value times the total project costs . costs of amenities transferred to buyers are allocated as common costs of the project that are allocated to specific units as a component of total construction costs . for amenities retained by the company , costs in excess of the related fair value of the amenity are also treated as common costs .
| results of operations we provide the following discussion and analyses of our changes in financial condition and results of operations for the year ended december 31 , 20 20 with comparisons to the historical year ended december 31 , 2019. net revenues the following table shows the detail for net revenues by line of business : replace_table_token_4_th the net revenue for 20 20 was $ 5,891,568 , a decrease of 82 % from $ 32,989,778 in 2019. in 2020 , property management and house sales represented 18 % , and 82 % of our total net revenue . the decrease in 2020 was mainly due to the net revenue recognized for the gxl project in 2019 and less recognized in amount of the linyi project in 2020. agency sales in 20 20 , there are no net revenues of agency sales . as compared with 2019 , net revenue of agency sales in 2020 decreased by 100 % . the decrease was mainly due to non-sales collection of projects during this year . government policies enacted in 2018 as well as similar subsequent policies aiming to stabilize real estate prices affected many businesses in the real estate industry . these restrictive policies had a substantial effect in our real estate sales revenue . we are continually seeking stable growth in our real estate sales business in 202 1. however , there can be no assurance that we will be able to do so . property management property management represented 18 % of our revenue in year of 2020 and revenue from property management increased by 82 % compared with 2019 . 23 house sales house sales represented 82 % of our revenue in year of 2020. the company has recognized a proportion of net revenue from linyi project .
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66 trimas corporation notes to consolidated financial statements ( continued ) 6 . discontinued operations during the third quarter of 2011 , the company committed to a plan to exit its precision tool cutting and specialty fittings lines of business , both of which were part of the engineered components reportable segment . the businesses were sold story_separator_special_tag the statements in the discussion and analysis regarding industry outlook , our expectations regarding the performance of our business and the other non-historical statements in the discussion and analysis are forward-looking statements . these forward-looking statements are subject to numerous risks and uncertainties , including , but not limited to , the risks and uncertainties described in item 1a `` risk factors . '' our actual results may differ materially from those contained in or implied by any forward-looking statements . you should read the following discussion together with item 8 , `` financial statements and supplementary data . '' introduction we are a global manufacturer and distributor of products for commercial , industrial and consumer markets . we are principally engaged in six reportable segments : packaging , energy , aerospace & defense , engineered components , cequent apea and cequent americas . key factors and risks affecting our reported results . our businesses and results of operations depend upon general economic conditions and we serve some customers in cyclical industries that are highly competitive and themselves significantly impacted by changes in economic conditions . over the past few years , global economic conditions have cycled through significant changes . the economy was in a period of recovery during 2012 , which , along with significant market share gains , new product introductions and acquisitions , resulted in year-over-year net sales increases in five of our six reportable segments . the economic conditions continued in 2013 in certain markets , which , together with market share gains , new product introductions and acquisitions , resulted in year-over-year net sales increases in five of our six reportable segments . over the past three years , we have accelerated our growth strategies via bolt-on acquisitions and geographic expansion within our existing platforms , primarily within our packaging , energy , aerospace & defense , and cequent apea reportable segments . we have also proceeded with footprint consolidation projects within our cequent reportable segments , moving forward with more efficient facilities and lower-cost country production . while our growth strategies , particularly in packaging , energy and aerospace & defense , have helped to significantly increase our net sales levels and set the foundation for continued growth , and our cequent footprint projects are expected to yield more effective and efficient manufacturing capability and flexibility while also reducing costs , our earnings margins have declined from historical levels as we incur costs to pursue and integrate these endeavors . our reportable segment margins have declined at the onset of our recent acquisitions ( ten during 2013 ) and new branch location openings due to acquisition/setup and diligence costs , purchase accounting adjustments ( inventory revaluations and higher depreciation and amortization expense ) , integration costs , costs to do business in new markets ( primarily for new branches , where we make pricing decisions to penetrate new markets and do not yet have the volume leverage ) and from acquiring companies with historically lower margins than our legacy businesses . for the cequent businesses , duplicative costs from multiple facilities , manufacturing inefficiencies associated with the start-up of new facilities and move costs have significantly impacted margins . while these endeavors have significantly impacted margins , we believe that the margins in these businesses will moderate to historical levels over time as we integrate them into our businesses and capitalize on productivity initiatives and volume efficiencies , and cequent margins will improve once the facilities gain the expected efficiencies and synergies in combination with the distribution networks . critical factors affecting our ability to succeed include : our ability to create organic growth through product development , cross selling and extending product-line offerings , and our ability to quickly and cost-effectively introduce new products ; our ability to acquire and integrate companies or products that supplement existing product lines , add new distribution channels , expand our geographic coverage or enable better absorption of overhead costs ; our ability to manage our cost structure more efficiently via supply base management , internal sourcing and or purchasing of materials , selective outsourcing and or purchasing of support functions , working capital management , and greater leverage of our administrative functions . if we are unable to do any of the foregoing successfully , our financial condition and results of operations could be materially and adversely impacted . there is some seasonality in the businesses within our cequent reportable segments , primarily within cequent americas , where sales of towing and trailering products are generally stronger in the second and third quarters , as trailer original equipment manufacturers ( `` oems '' ) , distributors and retailers acquire product for the spring and summer selling seasons . no other reportable segment experiences significant seasonal fluctuation . we do not consider sales order backlog to be a material factor in our business . a growing portion of our sales are derived from international sources , which exposes us to certain risks , including currency risks . the demand for some of our products , particularly in our two cequent reportable segments , is heavily influenced by consumer sentiment . despite the sales increases in the past few years , we recognize that consumer sentiment and the end market conditions remain unstable , primarily for cequent americas , given continued uncertainties in employment levels and consumer credit availability , both of which significantly impact consumer discretionary spending . 26 we are sensitive to price movements in our raw materials supply base . our largest material purchases are for steel , copper , aluminum , polyethylene and other resins and energy . story_separator_special_tag packaging 's selling , general and administrative expenses increased approximately $ 3.2 million to $ 38.5 million , or 12.3 % of sales in 2013 , as compared to $ 35.3 million , or 12.8 % of sales in 2012 , primarily in support of our sales growth initiatives . in addition , during 2012 we recognized a previously deferred gain of $ 1.5 million associated with the segment 's postretirement benefit plan and incurred approximately $ 1.0 million in combined travel , legal , finance and other diligence costs associated with consummating the acquisition of arminak . packaging 's operating profit increased approximately $ 26.2 million to $ 83.8 million , or 26.7 % of sales in 2013 , as compared to $ 57.6 million , or 20.9 % of sales , in 2012 . operating profit and operating profit margin both increased primarily due to an approximate $ 10.5 million gain recognized on the sale of the italian business , including $ 7.9 million related to the release of historical currency translation adjustments into net income . in addition , operating profit further increased as a result of increased sales , with profit margin also increasing as a result of reduced acquisition costs , additional productivity initiatives and additional operating leverage on the higher sales levels , which were partially offset by higher selling , general and administrative expenses incurred in 2013 . energy . net sales in 2013 increased approximately $ 15.4 million , or 8.1 % , to $ 205.6 million , as compared to $ 190.2 million in 2012 . sales increased $ 15.9 million due to acquisitions , including cifal industrial e comercial ltda ( `` cifal '' ) , gasket vedações técnicas ltda ( “ gvt ” ) and wulfrun specialised fasteners ( `` wulfrun '' ) , and an additional $ 5.8 million was driven by increases with our engineering and construction customers . these increases were partially offset by a reduction in normal customer shutdown/turnaround activity at refineries and petrochemical plants compared to the prior year , as they deferred their spending on such activity out of 2013 , and approximately $ 1.5 million of unfavorable currency exchange , as our reported results in u.s. dollars were negatively impacted as a net result of the stronger u.s. dollar relative to foreign currencies . gross profit within energy decreased approximately $ 2.0 million to $ 46.2 million , or 22.5 % of sales , in 2013 , as compared to $ 48.2 million , or 25.3 % of sales , in 2012 . gross profit margin declined due to lower fixed cost absorption as a result of decreased sales volume , and a less favorable shift in product sales mix , with a higher percentage of sales being generated by lower margin standard gaskets and bolts given the reduction in shutdown/turnaround activity as well as a higher percentage of sales being generated from our non-u.s. acquisitions and branches , which typically have lower margins due to inherited manufacturing inefficiencies , aggressively pricing products to penetrate new markets and incurring launch costs , including employee training of manufacturing processes . these mix and acquisition pressures more than offset continued labor productivity and manufacturing efficiency gains during 2013. selling , general and administrative expenses within energy increased approximately $ 6.9 million to $ 37.2 million , or 18.1 % of net sales , in 2013 , as compared to $ 30.3 million or 16.0 % of net sales , in 2012 . this increase was primarily in support of our growth initiatives , including approximately $ 4.9 million for the normal operating selling , general and administrative costs of our recent acquisitions , along with an additional $ 0.9 million of third party finance and legal diligence fees associated with the acquired companies . operating profit within energy decreased approximately $ 9.2 million to $ 8.6 million , or 4.2 % of sales , in 2013 , as compared to $ 17.8 million , or 9.4 % of sales , in 2012 . operating profit decreased despite the increase in sales , as mix shift , with more sales resulting from lower margin standard gaskets and bolts , recent acquisitions and branches , which make up a higher percentage of sales and have lower margins , lower fixed cost absorption , and increases in selling , general and administrative costs in support of growth initiatives more than offset the higher sales levels and productivity and efficiency gains . 31 aerospace & defense . net sales increased approximately $ 23.2 million , or 29.5 % , to $ 101.8 million in 2013 , as compared to $ 78.6 million in 2012 . sales in our aerospace business increased approximately $ 22.4 million , of which approximately $ 13.4 million was due to the acquisition of martinic engineering , inc. ( `` martinic '' ) and $ 2.8 million was due to the acquisition of mac fasteners , inc. ( `` mac '' ) . the remainder of the increase related to higher sales levels in our blind bolt fastener product lines as a result of increased demand related to new oem platforms as well as an increase due to new product introductions in aerospace collars . our defense business also increased by $ 0.9 million , as it continues to fulfill the maintenance contract related to the rock island facility . gross profit within aerospace & defense increased approximately $ 5.1 million to $ 37.0 million , or 36.3 % of sales , in 2013 , from $ 31.9 million , or 40.5 % of sales , in 2012 , primarily as a result of increased sales levels in our aerospace business .
| results of operations year ended december 31 , 2013 compared with year ended december 31 , 2012 the principal factors impacting us during the year ended december 31 , 2013 , compared with the year ended december 31 , 2012 were : the impact of our various acquisitions during 2013 and 2012 ( see below for the impact by reportable segment ) ; market share gains and increased demand in certain of our reportable segments in 2013 ; continued economic strength in certain of the markets our businesses serve in 2013 compared to 2012 , contributing to increased net sales in five of six of our reportable segments ; the sale of our business in italy within the packaging reportable segment , for which we recorded a pre-tax gain of approximately $ 10.5 million ; our equity offering during 2013 , where we issued 5,175,000 shares of common stock for net proceeds of approximately $ 174.7 million ; footprint consolidation and relocation projects within our cequent americas reportable segments , under which we incurred approximately $ 25.6 million of severance , unrecoverable future lease obligation , manufacturing inefficiency , facility move and duplicate costs during 2013 , as compared to $ 7.5 million of such costs during 2012 ; and entry into our new credit agreement ( `` credit agreement '' ) in 2013 , as compared to the refinance and our former amended and restated credit agreement completed in 2012. overall , net sales increased approximately $ 122.0 million , or approximately 9.6 % , to $ 1.39 billion in 2013 , as compared to $ 1.27 billion in 2012 . during 2013 , net sales increased in all of our reportable segments except for engineered components . of the sales increase , approximately $ 83.9 million was due to our recent acquisitions .
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the company adopted this standard as of january 1 , 2020 , the impact of which on its consolidated financial statements was not significant . in august 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 those statements included later in this annual report . 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 , particularly in “ item 1a . risk factors ” and “ special note regarding forward‑looking statements. ” overview we are a physician-led biopharmaceutical company focused on immuno-inflammatory diseases . we currently have a pipeline of drug candidates focused on immuno-inflammatory diseases , as well as one product approved by the u.s. food and drug administration , or fda , that we are not currently distributing , marketing or selling , and other investigational drug candidates . in september 2019 , we announced the completion of a strategic review of our business , as a result of which we are refocusing our resources on our immuno-inflammatory development programs . we plan to pursue strategic alternatives , including identifying and consummating transactions with third-party partners , to further develop , obtain marketing approval for and or commercialize our drug candidates and eskata ( hydrogen peroxide ) topical solution , 40 % ( w/w ) , or eskata , our non-marketed fda-approved product . since our inception , we have incurred significant operating losses . our net loss was $ 161.4 million for the year ended december 31 , 2019 and $ 132.7 million for the year ended december 31 , 2018. as of december 31 , 2019 , we had an accumulated deficit of $ 453.5 million . we expect to incur significant expenses and operating losses for the foreseeable future as we advance our drug candidates from discovery through preclinical and clinical development . in addition , our drug candidates , even if they are approved by regulatory agencies for marketing , may not achieve commercial success . we may also not be successful in pursuing strategic alternatives , including identifying and consummating transactions with third-party partners , to further develop , obtain marketing approval for and or commercialize our drug candidates or eskata . furthermore , we have incurred and expect to continue to incur significant costs associated with operating as a public company , including legal , accounting , investor relations and other expenses . as a result , we will need substantial additional funding to support our continuing operations . we have historically financed our operations primarily with sales of our convertible preferred stock , as well as net proceeds from our initial public offering , or ipo , in october 2015 , and subsequent public offerings of , and a private placement of , our common stock . in the near term , we expect to finance our operations through the sale of equity , debt financings or other capital sources , including potential partnerships with other companies or other strategic transactions . we may be unable to raise additional funds or enter into such other agreements or arrangements when needed on commercially acceptable terms , or at all . if we fail to raise capital or enter into such agreements as , and when , needed , we may have to significantly delay , scale back or discontinue the development of one or more of our drug candidates . license agreement with rigel in august 2015 , we entered into an exclusive , worldwide license and collaboration agreement with rigel pharmaceuticals , inc. , or rigel , for the development and commercialization of products containing two specified janus kinase , or jak , inhibitors , ati-501 and ati-502 , or the rigel license agreement , which we amended in october 2019. under this agreement , we may develop these jak inhibitors for the treatment of alopecia areata , or aa , and other dermatological conditions . we paid rigel an upfront nonrefundable payment of $ 8.0 million in 2015 and $ 4.0 million upon the achievement of a specified development milestone in 2019. in addition , we have agreed to make remaining aggregate payments of up to $ 76.0 million upon the achievement of specified development milestones , such as clinical trials and regulatory approvals . further , we have agreed to pay up to an additional $ 10.5 million to rigel upon the achievement of a second set of development milestones . in addition , in connection with the amendment of the agreement in october 2019 , we agreed to pay rigel an amendment fee of $ 1.5 million in three installments of $ 0.5 million in january 2020 , april 2020 and july 2020 , which is included in accrued expenses on our consolidated balance sheet . with respect to any products we commercialize under the rigel license agreement , we will pay rigel quarterly tiered royalties on our annual net sales of each product at a high single digit percentage of annual net sales , subject to specified reductions until the date that all of the patent rights for that product have expired , as determined on a country-by-country and product-by- 61 product basis or , in specified countries under specified circumstances , 10 years from the first commercial sale of such product . the rigel license agreement terminates on the date of expiration of all royalty obligations unless earlier terminated by either party for a material breach . we may also terminate the rigel license agreement without cause at any time upon advance written notice to rigel . story_separator_special_tag in addition , we have agreed to pay the former confluence equity holders future royalty payments calculated as a low single-digit percentage of annual net sales , subject to specified reductions , limitations and other adjustments , until the date that all of the patent rights for that product have expired , as determined on a country-by-country and product-by-product basis or , in specified circumstances , ten years from the first commercial sale of such product . in addition , if we sell , license or transfer any of the intellectual property acquired from confluence pursuant to the confluence agreement to a third party , we will be obligated to pay the former confluence equity holders a portion of any incremental consideration ( in excess of the development and milestone payments described above ) that we receive from such sale , license or transfer in specified circumstances . license , development and commercialization agreement with cipher pharmaceuticals inc. in april 2018 , we entered into an exclusive license agreement with cipher pharmaceuticals inc. , or cipher , for the rights to obtain regulatory approval of and commercialize a-101 40 % topical solution , which we marketed under the brand name eskata in the united states , in canada for the treatment of seborrheic keratosis , or the cipher license agreement . we received an upfront payment of $ 1.0 million upon signing of the cipher license agreement and $ 0.5 million upon the achievement of a specified regulatory milestone . in september 2019 , we and cipher mutually terminated the cipher license agreement . asset purchase agreement with allergan in november 2018 , we acquired rhofade ( oxymetazoline hydrochloride ) cream , 1 % , or rhofade , which included an exclusive license to certain intellectual property for rhofade , as well as additional intellectual property , from allergan sales , llc , or allergan , pursuant to an asset purchase agreement . at the closing of the acquisition , we paid total cash consideration of $ 66.1 million , consisting of $ 59.6 million paid to allergan and $ 6.5 million placed in escrow . in addition , we agreed to pay allergan specified royalty payments , ranging from a mid-single digit percentage to a mid-teen percentage of net sales , subject to specified reductions , limitations and other adjustments . in addition , we agreed to assume the obligation to pay specified royalties and milestone payments under agreements with aspect pharmaceuticals , llc and vicept therapeutics , inc. we incurred an aggregate expense of approximately $ 0.7 million and $ 0.2 million related to royalty payments under these agreements during the years ended december 31 , 2019 and 2018 , respectively . asset purchase agreement with epi health in october 2019 , we entered into an asset purchase agreement with epi health , llc , or epi health , pursuant to which we sold the worldwide rights to rhofade , which included the assignment of certain licenses for related intellectual property assets , or the disposition . pursuant to the asset purchase agreement , epi health paid us an upfront payment of $ 35.0 million , $ 1.75 million of which was placed in escrow , and $ 0.2 million for inventory . in addition , epi health has agreed to pay us ( i ) potential sales milestone payments of up to $ 20.0 million in the aggregate upon the achievement of specified levels of net sales of products covered by the agreement , ( ii ) a specified high single-digit royalty calculated as a percentage of net sales , on a product-by-product and country-by-country basis , until the date that the patent rights related to a particular product , such as rhofade , have expired , provided , that with respect to sales of rhofade in any territory outside of the united 63 states , such royalty shall be paid on a country-by-country basis until the date that the rhofade patent rights in the particular country have expired or , if later , 10 years from the date of the first commercial sale of rhofade in such country and ( iii ) 25 % of any upfront , license , milestone , maintenance or fixed payment received by epi health in connection with any license or sublicense of the assets transferred in the disposition in any territory outside of the united states , subject to specified exceptions . in addition , epi health has agreed to assume our obligation to pay specified royalties and milestone payments under our existing agreements with allergan , aspect pharmaceuticals , llc and vicept therapeutics , inc. other third-party agreements under an assignment agreement , pursuant to which we acquired intellectual property , we have agreed to pay royalties on sales of eskata and related products at rates ranging in low single-digit percentages of net sales , as defined in the agreement . under this assignment agreement , we paid $ 0.2 million in connection with a specified development milestone , and there are no remaining milestone payment obligations . in connection with the assignment agreement , we also entered into a finder 's services agreement under which we have made aggregate milestone payments of $ 3.0 million upon the achievement of specified pre-commercialization milestones , such as clinical trials and regulatory approvals , and commercial milestones as described in the agreement . we have also agreed to make an additional payment of $ 3.0 million upon the achievement of a specified commercial milestone . in addition , we have agreed to pay royalties on sales of eskata and related products at a low single-digit percentage of net sales , as defined in the agreement . in august 2019 , we voluntarily discontinued the commercialization of eskata in the united states and withdrew the marketing authorizations we had previously received for the product in all countries outside of the united states .
| results of operations comparison of years ended december 31 , 2019 and 2018 replace_table_token_0_th revenue contract research revenue was $ 4.2 million and $ 4.7 million for the years ended december 31 , 2019 and 2018 , respectively , and was comprised primarily of fees earned from the provision of laboratory services to clients through confluence . other revenue for the year ended december 31 , 2018 related to the cipher license agreement and consisted of an upfront payment of $ 1.0 million , and $ 0.5 million earned upon the achievement of a specified regulatory milestone . revenue from sales of eskata and rhofade has been reclassified to discontinued operations for all periods presented ( see note 18 to the consolidated financial statements included in this report for more information ) . cost of revenue cost of revenue was $ 4.1 million and $ 4.3 million for the years ended december 31 , 2019 and 2018 , respectively , and related to providing laboratory services to our clients through confluence . cost of revenue for sales of eskata and rhofade has been reclassified to discontinued operations for all periods presented ( see note 18 to the consolidated financial statements included in this report for more information ) . 72 research and development expenses the following table summarizes our research and development expenses : replace_table_token_1_th expenses related to a-101 45 % topical solution increased primarily due to our two pivotal phase 3 clinical trials , which were initiated during the third quarter of 2018 and were completed in september 2019 and october 2019 , respectively .
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our ability to hire and retain future key personnel , our ability to maintain an effective system of internal controls , or our ability to respond to government regulations . these and other risks are more fully described herein and in our other filings with the securities and exchange commission . this section should be read in combination with the accompanying audited consolidated financial statements and related notes prepared in accordance with united states generally accepted accounting principles . overview bridgeline digital , the digital engagement company , enables its customers to maximize the performance of their mission critical websites , intranets , and online stores . bridgeline 's unbound ( iapps® ) platform deeply integrates web content management , ecommerce , emarketing , social media management , and web analytics to help marketers deliver online experiences that attract , engage and convert their customers across all digital channels . bridgeline 's iapps platform combined with its digital services assists customers in maximizing on-line revenue , improving customer service and loyalty , enhancing employee knowledge , and reducing operational costs . the iappsds ( “ distributed subscription ” ) product is a platform that empowers franchise and large dealer networks with state-of-the-art web engagement management while providing superior oversight of corporate branding . iappsds deeply integrates content management , ecommerce , emarketing and web analytics and is a self-service web platform that is offered to each authorized franchise or dealer for a monthly subscription fee . the iapps platform is delivered through a cloud-based saas ( “ software as a service ” ) multi-tenant business model , whose flexible architecture provides customers with state of the art deployment providing maintenance , daily technical operation and support ; or via a traditional perpetual licensing business model , in which the iapps software resides on a dedicated server in either the customer 's facility or by bridgeline via cloud-based hosted services model . the iapps platform is an award-winning application recognized around the globe . our teams of microsoft gold© certified developers have won over 100 industry related awards . in 2017 , our marketing automation platform was named a 2017 siia codie award finalist in the best marketing solution category . in 2016 , cio review selected iapps as one of the 20 most promising digital marketing solution providers . this followed accolades from the siia ( software and information industry association ) which recognized iapps content manager with the 2015 siia codie award for best web content management platform . also in 2015 , econtent magazine named iapps digital engagement platform to its trendsetting products list . the list of 75 products and platforms was compiled by econtent 's editorial staff , and selections were based on each offering 's uniqueness and importance to digital publishing , media , and marketing . we were also recognized in 2015 as a strong performer by forrester research , inc in its independence report , “ the forrester wave : through-channel marketing automation platforms , q3 2015. ” in recent years , our iapps content manager and iapps commerce products were selected as finalists for the 2014 , 2013 , and 2012 codie awards for best content management solution and best electronic commerce solution , globally . in 2014 and 2013 , bridgeline digital won twenty-five horizon interactive awards for outstanding development of web applications and websites . also in 2013 , the web marketing association sponsored internet advertising competition honored bridgeline digital with three awards for iapps customer websites and b2b magazine selected bridgeline digital as one of the top interactive technology companies in the united states . kmworld magazine editors selected bridgeline digital as one of the 100 companies that matter in knowledge management and also selected iapps as a trend setting product in 2013. bridgeline digital was incorporated under the laws of the state of delaware on august 28 , 2000 . 18 locations the company 's corporate office is located in burlington , massachusetts . the company maintains regional field offices serving the following geographical locations : boston , ma ; chicago , il ; denver , co ; and tampa , fl . the company has one wholly-owned subsidiary , bridgeline digital pvt . ltd. located in bangalore , india . reverse stock split on june 29 , 2017 , the company 's shareholders and the board of directors approved a reverse stock split pursuant to which all classes of our issued and outstanding shares of common stock at the close of business on such date were combined and reconstituted into a smaller number of shares of common stock in a ratio of 1 share of common stock for every 5 shares of common stock ( “ 1-for-5 reverse stock split ” ) . the 1-for-5 reverse stock split was effective as of close of business on july 24 , 2017 and the company 's stock began trading on a split-adjusted basis on july 25 , 2017. the reverse stock split reduce d the number of shares of the company 's common stock currently outstanding from approximately 21 million shares to approximately 4.2 million shares . proportional adjustments have been made to the conversion and exercise prices of the company 's outstanding convertible preferred stock , warrants , restricted stock awards , and stock options , and to the number of shares issued and issuable under the company 's stock incentive plans . upon the effectiveness of the 1-for-5 reverse stock split , each five shares of the company 's issued and outstanding common stock were automatically combined and converted into one issued and outstanding share of common stock , par value $ .001. the company did not issue any fractional shares in connection with the reverse stock split . instead , fractional share interests were rounded up to the next largest whole share . the reverse stock split does not modify the rights or preferences of the common stock . story_separator_special_tag in total , charges of $ 286 thousand and $ 879 thousand were recorded to restructuring expenses for fiscal 2017 and fiscal 2016 in the consolidated statement of operations . the charges consist of the total lease expenses less sub-lease rental income , other miscellaneous lease termination costs , loss on disposal of fixed assets , and costs for severance and termination benefits . loss from operations the loss from operations was ( $ 1.4 ) million for fiscal 2017 compared to a loss from operations of ( $ 3.5 ) million for fiscal 2016 , an improvement of $ 2.2 million or 61 % . provision for income taxes we recorded income tax expense of $ 16 thousand for fiscal 2017 compared to a net benefit for income tax expense of $ 47 thousand for fiscal 2016. income tax expense represents the estimated liability for federal , state and foreign income taxes owed by the company , including the alternative minimum tax . the company has net operating loss carryforwards and other deferred tax benefits that are available to offset future taxable income . a valuation allowance is established if it is more likely than not that all or a portion of the deferred tax asset will not be realized . accordingly , the company has established a full valuation allowance against its net deferred tax assets at september 30 , 2017 and 2016. the federal net operating loss ( nol ) carryforward of approximately $ 27 million as of september 30 , 2017 expires on various dates through 2037. internal revenue code section 382 places a limitation on the amount of taxable income which can be offset by nol carryforwards after a change in control of a loss corporation . generally , after a change in control , a loss corporation can not deduct nol carryforwards in excess of the section 382 limitation . due to these “ change of ownership ” provisions , utilization of nol carryforwards may be subject to an annual limitation regarding their utilization against taxable income in future periods . the company has not performed a section 382 analysis . however , if performed , section 382 may be found to limit potential future utilization of our nol carryforwards . adjusted ebitda we also measure our performance based on a non-gaap ( “ generally accepted accounting principles ” ) measurement of earnings before interest , taxes , depreciation , and amortization and before inducement of debt charges , stock-based compensation expense , impairment of goodwill and intangible assets , and restructuring charges ( “ adjusted ebitda ” ) . we believe this non-gaap financial measure of adjusted ebitda is useful to management and investors in evaluating our operating performance for the periods presented and provides a tool for evaluating our ongoing operations . adjusted ebitda , however , is n ot a measure of operating performance under gaap and should not be considered as an alternative or substitute for gaap profitability measures such as ( i ) income from operations and net income , or ( ii ) cash flows from operating , investing and financing activities , both as determined in accordance with gaap . adjusted ebitda as an operating performance measure has material limitations since it excludes the financial statement impact of income taxes , net interest expense , loss on inducement of debt , amortization of intangibles , depreciation , restructuring charges , other amortization and stock-based compensation , and therefore does not represent an accurate measure of profitability . as a result , adjusted ebitda should be evaluated in conjunction with net income for a complete analysis of our profitability , as net income includes the financial statement impact of these items and is the most directly comparable gaap operating performance measure to adjusted ebitda . our definition of adjusted ebitda may also differ from and therefore may not be comparable with similarly titled measures used by other companies , thereby limiting its usefulness as a comparative measure . because of the limitations that adjusted ebitda has as an analytical tool , investors should not consider it in isolation , or as a substitute for analysis of our operating results as reported under gaap . 24 the following table reconciles net loss ( which is the most directly comparable gaap operating performance measure ) to ebitda , and ebitda to adjusted ebitda : replace_table_token_4_th adjusted ebitda was $ 122 thousand for fiscal 2017 compared with ( $ 785 ) thousand for fiscal 2016. this was primarily due to the improvement in revenue growth and gross margin improvement along with our focus on reducing expenses . liquidity and capital resources cash flows operating activities cash used in operating activities was $ 940 thousand for fiscal 2017 compared to cash used in operating activities of $ 2.7 million for fiscal 2016. this improvement was driven by higher accounts receivables collections and the increase in operating income . investing activities cash used in investing activities was $ 93 thousand for fiscal 2017 compared with $ 165 thousand for fiscal 2016. the decrease was primarily due to a significant reduction in purchases of capital equipment and software in fiscal 2017 than in fiscal 2016 due to the transition from our network operations center to a cloud-based amazon web services model . 25 financing activities cash provided by financing activities was $ 1.1 million for fiscal 2017 compared with $ 3.2 million for fiscal 2016. in fiscal 2017 , we raised a net of $ 852 thousand from sales of common stock and had net borrowings on our bank line of credit of $ 385 thousand . at september 30 , 2017 , we had an outstanding balance under our credit line with heritage bank of $ 2.5 million . capital resources and liquidity outloo k on october 10 , 2017 , the company entered into a loan and security agreement ( the “ loan agreement ” ) with montage capital ii , l.p. ( “ montage ” ) .
| summary of results of operations total revenue for the fiscal year ended september 30 , 201 7 ( “ fiscal 2017 ” ) increased to $ 16.3 million from $ 15.9 million for the fiscal year ended september 30 , 2016 ( “ fiscal 2016 ” ) . loss from operations for fiscal 2017 was ( $ 1.4 ) million compared with loss from operations of ( $ 3.5 ) million for fiscal 2016. we had a net loss for fiscal 2017 of ( $ 1.6 ) million compared with a net loss of ( $ 7.8 ) million for fiscal 2016. in fiscal 2016 , we converted $ 3.0 million of secured subordinated debt to equity , which resulted in a non-cash inducement charge of $ 3.4 million . loss per share attributable to common shareholders for fiscal 2017 was ( $ 0.45 ) compared with loss per share attributable to common shareholders of ( $ 4.20 ) for fiscal 2016. highlights of fiscal 2017 ● our net loss improved from ( $ 7.8 ) million in fiscal 2016 to ( $ 1.6 ) million in fiscal 2017 . ● total revenue increased 3 % in fiscal 2017 compared to fiscal 2016 . ● subscription and perpetual license revenue increased 12 % to $ 6.8 million for fiscal 2017 . ● licenses and managed hosting comprised 48 % of revenue in fiscal 2017 compared to 46 % in fiscal 2016 . ● cost of revenue decreased $ 122 thousand reflecting our commitment to align costs to revenue expectations . ● gross margin improved to 56 % in fiscal 2017 compared to 54 % in fiscal 2016 . ● operating expenses decreased $ 1.6 million also reflecting our cost control initiatives .
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for the year ended december 31 , 2014 , cost of sales increased to $ 11.5 million from $ 10.0 million for the same period in 2013 , an increase of $ 1.5 million or 15.0 % , primarily as a result of an increase in sales of generic pharmaceutical products , as well as royalties due on proceeds from sales of vancocin and its authorized generic . the contractual requirement to pay these royalties ended december 31 , 2014. cost of sales as a percentage of net revenues decreased to 20.5 % during the year ended december 31 , 2014 , from 33.2 % during same period in 2013 , primarily as a result of a favorable shift in product mix toward higher margin products , including our two new branded products , lithobid and vancocin , and price increases for eemt . 38 we source the raw materials for our products , including active pharmaceutical ingredients ( “ api ” ) , from both domestic and international suppliers . as discussed in item 1. business – manufacturing , suppliers and raw materials , only a single source of api is qualified for use in each product due to the cost and time required to validate a second source of supply . changes in api suppliers usually must be approved by the fda , which can take 18 months or longer . as a result , we are dependent upon our current vendors to reliably supply the api required for ongoing product manufacturing . in addition , certain of our api for our drug products , including those that are marketed without approved ndas or andas , are sourced from international suppliers . from time to time , we have experienced temporary disruptions in the supply of certain of such imported apis due to fda inspections . during the year ended december 31 , 2014 , we purchased 42 % of our inventory from two suppliers . as of december 31 , 2014 , amounts payable to these suppliers were immaterial . in the year ended december 31 , 2013 , we purchased 37 % of our inventory from three suppliers . we have supply agreements with three vendors that include purchase minimums . pursuant to these agreements , we will be required to purchase a total of $ 5.8 million of api from these three vendors during the year ended december 31 , 2015. each year , we must submit a request to the dea for a quota to purchase the amount of api needed to manufacture opium tincture . without an approved quota from the dea , we would not be able to purchase api from our supplier . as a result , we are dependent upon the dea to annually approve a sufficient quota of api to support the continued manufacture of opium tincture . other operating expenses replace_table_token_5_th other operating expenses consist of research and development costs , selling , general and administrative expenses , and depreciation and amortization . for the year ended december 31 , 2014 , other operating expenses increased to $ 24.5 million from $ 19.2 million for the same period in 2013 , an increase of $ 5.3 million , or 27.5 % , primarily as a result of the following factors : · research and development expenses increased from $ 1.7 million to $ 2.7 million , an increase of 56.4 % , due primarily to work on new development projects , including the teva products , internally-developed products , new collaborations , and a filing fee for an anda submission of an anti-cancer drug . we anticipate that research and development costs will continue to increase in support of our strategy to expand our product portfolio . · selling , general and administrative expenses increased slightly , from $ 16.4 million to $ 17.9 million , an increase of 9.4 % , primarily due to the increases in personnel and consulting , legal , and other fees related to becoming a public company , as well as increased stock-based compensation expense , including a $ 1.3 million catch-up charge for non-cash stock-based compensation , which was recognized upon shareholder approval of an increase in shares available for issuance under our stock compensation plan . these increases were partially offset by the lack of $ 6.2 million of merger-related expenses incurred in the prior year . we expect selling , general and administrative expenses to continue to increase in the future to support anticipated additional revenue growth . 39 · depreciation and amortization increased from $ 1.1 million to $ 3.9 million , an increase of 249.4 % , due to amortization of the andas purchased from teva in the first quarter of 2014 , amortization of product rights for lithobid and vancocin purchased during the third quarter of 2014 , and a full year of amortization of the teva license acquired in the merger . we expect depreciation and amortization expense to increase in 2015 as we recognize a full year of amortization expense related to the lithobid and vancocin product rights . other income/ ( expense ) replace_table_token_6_th for the year ended december 31 , 2014 , we recognized other expense of $ 0.6 million versus other expense of $ 0.8 million for the same period in 2013 , a decrease of $ 0.1 million , or 18.8 % . this change resulted primarily from the following factors : · interest expense increased from $ 0.5 million to $ 0.8 million as a result of $ 0.8 million of interest expense incurred on our notes , issued in december 2014. this interest expense was partially offset by interest earned on our cash balance in 2014. interest expense in the year ended december 31 , 2013 included a termination fee and accelerated amortization of deferred loan costs associated with retiring our revolving line of credit in conjunction with the merger . · other income/ ( expense ) changed from $ 0.3 million of other expense to $ 0.2 million of other income , due primarily to the absence of payments of $ 0.4 story_separator_special_tag as a result , market pricing for these products , combined with the costs of raw materials and payment terms with suppliers , have a material impact on our liquidity and working capital . the increase in revenue related to eemt has had a significant impact on our financial results and if revenues from eemt were to decrease substantially or entirely , it would have a material , negative impact on our cash flows and liquidity . our consolidated financial statements have been prepared on a basis that assumes that we will continue as a going concern and which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business . these statements do not include any adjustments that might result if the carrying amount of recorded assets and liabilities are not realized . sources and uses of cash debt financing in december 2014 , we issued $ 143.8 million of 3.0 % convertible senior notes in a registered public offering ( the “ december 2014 offering ” ) , which includes the $ 18.8 million of notes issued pursuant to the full exercise of the over-allotment option granted to the underwriters in the december 2014 offering . after deducting the underwriting discounts and commissions and other expenses ( including the net cost of the bond hedge and warrant , discussed below ) , the net proceeds from the offering were approximately $ 122.6 million . the notes were issued in order to raise funds to research , develop and commercialize our drug products ; to acquire complementary businesses , products , and technologies that we may identify from time to time ; and for other working capital and general corporate purposes . the notes pay 3.0 % interest semi-annually in arrears on june 1 and december 1 of each year , starting on june 1 , 2015. the notes are convertible into 2,068,792 shares of common stock , based on an initial conversion price of $ 69.48 per share . 42 a portion of the offering proceeds was used to simultaneously enter into “ bond hedge ” ( or purchased call ) and “ warrant ” ( or written call ) transactions with an affiliate of one of the offering underwriters ( collectively , the “ call option overlay ” ) . we entered into the call option overlay to synthetically raise the initial conversion price of the notes to $ 96.21 per share and reduce the potential common stock dilution that may arise from the conversion of the notes . the exercise price of the bond hedge is $ 69.48 per share , with an underlying 2,068,792 common shares ; the exercise price of the warrant is $ 96.21 per share , also with an underlying 2,068,792 common shares . at december 31 , 2013 , we had no debt outstanding . equity financing in march 2014 , we completed a follow-on public offering of 1.6 million shares of our common stock at a public offering price of $ 31.00 per share ( the “ march 2014 offering ” ) . we received gross proceeds of $ 50.0 million , or net proceeds of $ 46.7 million after deducting costs of $ 3.3 million , including the underwriters ' fees and commissions , as well as expenses directly related to the march 2014 offering . the 1.6 million shares sold in the march 2014 offering includes the exercise in full by the underwriters of their option to purchase an additional 0.2 million shares of common stock . warrant exercises in january 2014 , a warrant-holder exercised warrants to purchase 20 thousand shares at $ 9 per share . we received $ 0.2 million as a result of this exercise . in december 2014 , a warrant-holder exercised warrants to purchase 63 thousand shares at $ 9 per share . we received $ 0.5 million as a result of this exercise . uses of cash in the first quarter of 2014 , we acquired andas related to 31 products for $ 12.5 million from teva . in the third quarter of 2014 , we acquired the intellectual property rights and nda associated with lithobid , as well as raw material inventory , for $ 11.0 million , not including the $ 1.0 million contingent payment that was paid in january 2015 , and also acquired the u.s. intellectual property rights and nda associated with vancocin , two related andas , and certain equipment and inventory for $ 11.0 million . discussion of cash flows the following table summarizes the net cash and cash equivalents provided by/ ( used in ) operating activities , investing activities and financing activities for the periods indicated : replace_table_token_9_th net cash provided by/used in operations net cash provided by operating activities was $ 22.0 million for the year ended december 31 , 2014 compared to $ 5.5 million used in the same period in 2013 , a change of $ 27.5 million between the periods . this increase was primarily due to the increase in net income from 2013 to 2014 and to changes in current assets and current liabilities . there was a $ 16.1 million increase in cash provided by net income from continuing operations , after adjusting for non-cash expenses . this increase was primarily due to the $ 28.4 million increase in net income in 2014 , as well as increases in non-cash expenses , including an increase of $ 3.4 million in stock-based compensation expense over 2013 and $ 2.8 million more in depreciation and amortization expense than the prior year . these increases were partially offset by non-cash changes to deferred tax assets of $ 14.5 million and the absence of $ 4.4 million of non-cash expenses related to the merger in 2013 .
| executive overview ani pharmaceuticals , inc. and its consolidated subsidiary , anip acquisition company ( together , “ ani , ” the “ company , ” “ we , ” “ us , ” or “ our ” ) is an integrated specialty pharmaceutical company developing , manufacturing , and marketing branded and generic prescription pharmaceuticals . our targeted areas of product development currently include narcotics , oncolytics ( anti-cancers ) , hormones and steroids , and complex formulations involving extended release and combination products . we have two pharmaceutical manufacturing facilities located in baudette , minnesota that are capable of producing oral solid dose products , as well as liquids and topicals , narcotics , and potent products that must be manufactured in a fully-contained environment . our strategy is to use our assets to develop , acquire , manufacture , and market branded and generic specialty prescription pharmaceuticals . by executing this strategy , we believe we will be able to continue to grow the business , expand and diversify our product portfolio , and create long-term value for our investors . on june 19 , 2013 , biosante pharmaceuticals , inc. ( “ biosante ” ) acquired anip acquisition company ( “ anip ” ) in an all-stock , tax-free reorganization ( the “ merger ” ) , in which anip became a wholly-owned subsidiary of biosante . biosante was subsequently renamed ani pharmaceuticals , inc. the merger was accounted for as a reverse acquisition pursuant to which anip was considered the acquiring entity for accounting purposes . as such , anip 's historical results of operations replace biosante 's historical results of operations for all periods prior to the merger . the results of operations of both companies are included in our consolidated financial statements for all periods after completion of the merger . in 2014 we achieved the following : · acquired andas for 31 generic products . · entered into development agreements for generic drugs with sterling pharmaceutical services . · completed a follow-on public offering of common stock yielding net proceeds of $ 46.7 million .
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bhc and each of our u.s. subsidiaries have guaranteed the u.s. term loan and u.s. revolver , each of which is secured by substantially all the u.s. assets of bway and the assets of bhc . in addition , we have pledged as collateral all of the issued and outstanding stock of our u.s. subsidiaries , which are wholly-owned , and , subject to certain limitations , the outstanding stock of icl . icl has guaranteed the canadian term loan and canadian revolver , each of which is secured by all of the assets of story_separator_special_tag the following discussion should be read in conjunction with the audited consolidated financial statements and related notes included in item 8 , financial statements and supplementary data , as well as with a general understanding of our business as discussed in item 1 , business. references to years in this discussion refer to our fiscal year , unless the context otherwise indicates a calendar year . fiscal years 2009 , 2008 and 2007 ended september 27 , 2009 , september 28 , 2008 and september 30 , 2007 , respectively . for the years presented , our fiscal year ended on the sunday closest to september 30. overview we are a leading north american manufacturer of general line rigid metal and plastic containers . we estimate approximately 80 % of our 2009 net sales were generated from the sale of products in which we hold the leading market share position . in 2009 , our total net sales were $ 904.4 million , of which approximately 65 % were in our metal packaging segment and approximately 35 % were in our plastic packaging segment . we believe that our metal and plastic packaging products , which we manufacture in our 21 strategically located facilities across the united states and in canada , are complementary and often serve the same customers . page 25 index to financial statements segments we report results of operations in two segments : metal packaging and plastic packaging . our products within each of these segments include : metal packaging : general line rigid metal containers made from steel , including paint cans and components , aerosol cans , ammunition boxes , steel pails , oblong cans and a variety of other specialty cans that our customers use to package paint , household and personal care products , automotive after-market products , paint thinners , driveway and deck sealants , certain food products and other end-use products . in 2009 , net sales for this segment were $ 590.1 million . plastic packaging : injection-molded plastic pails and blow-molded tight-head containers , bottles and drums that our customers use to package petroleum , oils , lubricants , pharmaceuticals , agricultural chemicals , other chemical applications , paint , ink , edible oils , high-tech coatings , high-solid coatings , roofing mastic and adhesives and driveway sealants . plastic packing also includes the hybrid and all-plastic paint can business acquired in the central can acquisition . in 2009 , net sales for this segment were $ 314.3 million . factors affecting our results of operations revenue our revenue primarily consists of net sales , which are revenues generated from products sold to external customers , reduced for customer credits , sales returns and allowances and earned quantity discounts . our net sales depend in large part on the varying economic and other conditions of the end-markets of our customers . approximately one-third of our sales are to customers that package products for housing related markets , the largest of which is architectural paint and coatings . our sales to these customers are affected by changes in those markets . approximately two-thirds of our sales are to customers that serve a relatively broad range of products and markets , which have historically exhibited steady growth . demand for our products may change due to changes in general economic conditions , the housing market , consumer confidence , weather , commodity prices , employment and personal income growth , each of which is beyond our control . the current economic conditions affecting the home building and improvement sector and general economic conditions have negatively affected , and may continue to negatively affect , our net sales . metal segment pricing is based on the cost of steel , coatings , inks , labor , rent , freight , utilities and operating supplies , volume , order size , length of production runs and competition . historically , we have adjusted selling prices in the metal packaging segment annually around the beginning of each calendar year primarily in conjunction with negotiated changes in raw material costs . however , as our steel suppliers have moved from annual pricing to more periodic pricing , either through price increases or surcharges , we have begun to adjust our selling prices more frequently in response to this change in the industry . typically , the price of our manufactured metal segment products is higher for larger , more complex products . plastics segment pricing is based on the cost of resin , colorant , fittings , labeling , labor , rent , freight , utilities and operating supplies , volume , order size , length of production runs and competition . generally , selling prices in the plastic packaging segment are periodically adjusted as the cost of resin fluctuates . typically , the price of our manufactured plastic segment products is higher for larger , more complex products . revenues in each of our segments are seasonal , reflecting a general pattern of lower sales and earnings in the metal and plastic packaging industry during the first quarter of our fiscal year when activity in several of our end markets , most notably the home improvement and repair sector , is generally slower . for example , in the first quarter of 2009 and 2008 net sales were approximately 24 % and 21 % of total net sales and gross profit was approximately 14 % and 16 % of total gross profit , respectively . story_separator_special_tag this objective includes both add-on acquisitions in our core markets and acquisitions offering organic growth . canadian acquisitions in july 2006 , we acquired substantially all of the assets and assumed certain of the liabilities of industrial containers , ltd. , a toronto-based manufacturer of rigid plastic containers and steel pails for industrial packaging markets . in january 2007 , we acquired substantially all of the assets and assumed certain of the liabilities of vulcan containers , ltd. , a toronto-based manufacturer of steel pails for industrial packaging markets . following the acquisition of vulcan in 2007 , we consolidated the vulcan steel pail business with and into the metal packaging operations of icl and closed the vulcan manufacturing facility . central can acquisition in august 2009 , we acquired central can company , a u.s. producer of rigid general line metal and plastic containers , in a stock purchase . central can , located in chicago , operates one plant producing metal paint and specialty cans , steel pails , and hybrid and all plastic paint cans . annual sales for central can were approximately $ 68 million . the acquisition of central can fits with our core skills and expands our product offering in north america . in addition to sales growth , the central can acquisition provided product portfolio extension through the addition of various sizes of hybrid and all plastic paint cans . page 28 index to financial statements ball plastics acquisition in october 2009 , subsequent to the end of fiscal 2009 , we acquired substantially all of the assets and assumed certain of the liabilities from ball plastic container corp. related to its plastic packaging plant and business located in newnan , georgia . the facility produces injection molded plastic pails and certain other products . the acquisition of ball plastics fits with our core skills . restructuring initiatives in 2007 , we consolidated our icl and vulcan businesses and closed the vulcan manufacturing facility . the consolidation enabled us to utilize existing capacity at our icl facilities . in 2008 , we closed our plastic manufacturing facility in cleveland , ohio and our metal material center in franklin park , illinois . the closures enabled us to utilize existing capacity at other facilities and to eliminate redundant positions . in 2009 and 2008 , we recorded restructuring expenses of $ 1.8 million and $ 8.5 million , respectively , related to these facility closures . the charges included $ 3.7 million for withdrawal liabilities from union sponsored multiemployer pension plans , $ 1.2 million for severance and benefits and $ 5.4 million for facility closure and holding costs . in 2009 , the board approved a plan to eliminate our operating divisions and restructure management in order to operate the company as a single entity . management believes the strength of the company 's current management team made the divisional structure unnecessary and that the single operating structure will increase management efficiency and lower overhead expenses in support of our continued efforts to reduce our overall cost base . in 2009 , we recorded restructuring expenses related to this plan of approximately $ 3.1 million for severance and benefits , costs associated with the consolidation of administrative offices and costs to relocate certain employees . in 2009 and 2008 , we also eliminated certain positions at our manufacturing facilities in canada and recorded restructuring expenses of $ 0.3 million and $ 1.0 million , respectively , for severance and benefits . following the acquisition of central can in august 2009 , we implemented a plan to close our metal packaging facilities located in chicago ( kilbourn ) and brampton , ontario . the business and certain equipment will be moved into the central can facility . we expect to complete the facility consolidation during the second quarter of 2010 , which we expect will create our second largest manufacturing operation . the consolidation will result in the termination of approximately 30 salaried and approximately 55 hourly positions . we recorded a restructuring liability of $ 1.2 million for severance and benefits in the opening balance sheet of central can . in addition , we estimate restructuring charges associated with this initiative of approximately $ 0.8 million for severance and benefits and approximately $ 3.1 million for facility closure and holding costs . we recorded $ 0.3 million of the estimated charge in the fourth quarter of 2009 and expect to record the majority of the remaining charge in 2010. in addition to restructuring charges , we estimate additional depreciation of approximately $ 1.7 million related to the shortened useful lives of certain equipment , primarily located at our brampton facility . we recorded additional depreciation of $ 0.6 million in the fourth quarter of 2009 and expect to record the remaining $ 1.1 million in the first quarter of 2010. we expect to make capital expenditures of approximately $ 2.5 million in 2010 to facilitate the consolidation into the central can facility and to make certain productivity improvements . results of operations references to cost of products sold in the following discussion refer to cost of products sold excluding depreciation and amortization . references to gross margin in the following discussion refer to net sales less cost of products sold excluding depreciation and amortization . references to gross margin percentage refer to gross margin as a percentage of net sales . page 29 index to financial statements we present cost of products sold and gross margin because these measures are used by management to evaluate segment and overall performance . management believes gross margin and gross margin percentage provide information on the contribution of sales to ebitda ( a primary performance measure used by management ) . fiscal year 2009 , fiscal year 2008 and fiscal year 2007 overview the following highlights changes in the results of operations for 2009 compared to 2008 and 2008 compared to 2007 .
| summary cash flow information fiscal years ended september 27 , 2009 , september 28 , 2008 and september 30 , 2007 replace_table_token_13_th cash requirements for operations and capital expenditures during 2009 , 2008 and 2007 were primarily financed through internally generated cash flows and cash on hand . on occasion , short-term cash shortfalls were covered by borrowings under the revolving credit facility ; however , no amounts were outstanding under our revolving credit facility at the end of the year . in the first quarter of 2010 , we used approximately $ 32.0 million of cash on hand for the acquisition of ball plastics and approximately $ 6.5 million for mandatory excess cash flow repayments on our term loan . in the first quarter of 2009 , we used approximately $ 17.7 million of cash on hand for mandatory excess cash flow repayments on our term loan . operating activities in 2009 , cash provided by operating activities decreased $ 2.5 million ( 3 % ) from 2008 as cash from higher net income was offset by a $ 13.7 million net increase in primary working capital ( accounts receivable and inventories less accounts payable ) . in 2008 , cash provided by operating activities increased $ 26.9 million ( 57 % ) from 2007. the increase is primarily due to the payment of $ 20.1 million in ipo related expenses in 2007 , as discussed above , and from a $ 13.1 million net decrease in primary working capital ( accounts receivable and inventories less accounts payable ) in 2008. investing activities in 2009 , cash used in investing activities increased $ 12.6 million ( 37 % ) from 2008. capital expenditures decreased $ 15.5 million ( 46 % ) from 2008 due to higher than normal capital expenditures in 2008 ( as discussed below ) . in 2009 , we used $ 27.7 million of cash to acquire central can .
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75 2012 term loan and 2012 abl revolver : on january 31 , 2012 , the borrower also entered into a new senior secured credit facility , which consists of ( i ) a $ 660.0 million story_separator_special_tag the following discussion of our financial condition and results of operations should be read together with the “ selected financial data ” and the consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. this discussion and analysis may contain forward-looking statements that involve certain risks , assumptions and uncertainties that could cause actual results to differ materially from those implied or described by the forward-looking statements . future results could differ materially from the discussion that follows for many reasons , including the factors described in part i , item 1a “ risk factors ” in this annual report on form 10-k , as well as those described in future reports filed with the sec . general we are engaged in the marketing , sales and distribution of brand name otc healthcare and household cleaning products to mass merchandisers , drug stores , supermarkets and dollar and club stores primarily in the united states and canada . we use the strength of our brands , our established retail distribution network , a low-cost operating model , and our experienced management team as a competitive advantage to grow our presence in these categories and , as a result , grow our sales and profits . we have grown our brand portfolio both organically and through acquisitions . we develop our existing brands by investing in new product lines , brand extensions and strong advertising support . acquisitions of otc brands have also been an important part of our growth strategy . we have acquired strong and well-recognized brands from consumer products and pharmaceutical companies . while many of these brands have long histories of brand development and investment , we believe that , at the time we acquired them , most were considered “ non-core ” by their previous owners . as a result , these acquired brands did not benefit from adequate management focus and marketing support during the period prior to their acquisition , which created significant opportunities for us to reinvigorate these brands and improve their performance post-acquisition . after adding a core brand to our portfolio , we seek to increase its sales , market share and distribution in both existing and new channels through our established retail distribution network . we pursue this growth through increased spending on advertising and promotional support , new sales and marketing strategies , improved packaging and formulations , and innovative development of brand extensions . acquisitions acquisition of care pharmaceuticals pty ltd. on july 1 , 2013 , we completed the acquisition of care pharmaceuticals pty ltd. ( “ care pharma ” ) , which was funded through a combination of our existing senior secured credit facility and cash on hand . the care pharma brands include the fess line of cold/allergy and saline nasal health products , which is the leading saline spray for both adults and children in australia . other key brands include painstop analgesic , rectogesic for rectal discomfort , and the fab line of nutritional supplements . care pharma also carries a line of brands for children including little allergies , little eyes , and little coughs . the brands acquired are complementary to our existing otc healthcare portfolio . this acquisition was accounted for in accordance with the business combinations topic of the fasb asc 805 , which requires that the total cost of an acquisition be allocated to the tangible and intangible assets acquired and liabilities assumed based upon their respective fair values at the date of acquisition . we prepared an analysis of the fair values of the assets acquired and liabilities assumed as of the date of acquisition . the following table summarizes our preliminary allocation of the assets acquired and liabilities assumed as of the july 1 , 2013 acquisition date . 35 replace_table_token_8_th based on this analysis , we allocated $ 29.8 million to non-amortizable intangible assets and $ 1.7 million to amortizable intangible assets . we are amortizing the purchased amortizable intangible assets on a straight-line basis over an estimated weighted average useful life of 15.1 years . the weighted average remaining life for amortizable intangible assets at march 31 , 2014 was 14.5 years . we also recorded goodwill of $ 23.1 million based on the amount by which the purchase price exceeded the preliminary fair value of the net assets acquired . the full amount of goodwill is deductible for income tax purposes . the pro-forma effect of this acquisition on revenues and earnings was not material . acquisition of glaxosmithkline otc brands on december 20 , 2011 , we entered into two separate agreements with gsk to acquire a total of 17 north american otc healthcare brands for $ 660.0 million in cash ( the `` gsk agreement '' ) . on january 31 , 2012 , we completed , subject to a post-closing inventory and apportionment adjustment , as defined in the gsk agreement , the acquisition of the gsk brands i , including the related contracts , trademarks , and inventory for $ 615.0 million in cash . the gsk brands i include , among other brands , bc , goody 's and ecotrin brands of pain relievers ; beano , gaviscon , phazyme , tagamet and fiber choice gastrointestinal brands ; and the sominex sleep aid brand . on march 30 , 2012 , we completed , subject to a post-closing inventory and apportionment adjustment , as defined in the gsk agreement , the acquisition of the debrox and gly-oxide brands in the united states , including the related contracts , trademarks and inventory , for $ 45.0 million in cash . both the gsk brands i and gsk brands ii are complementary to our existing otc healthcare portfolio . story_separator_special_tag the most critical accounting policies are as follows : revenue recognition we recognize revenue when the following revenue recognition criteria are met : ( i ) persuasive evidence of an arrangement exists ; ( ii ) the selling price is fixed or determinable ; ( iii ) the product has been shipped and the customer takes ownership and assumes the risk of loss ; and ( iv ) collection of the resulting receivable is reasonably assured . we have determined that these criteria are met and the transfer of risk of loss generally occurs when product is received by the customer , and , accordingly we recognize revenue at that time . provision is made for estimated discounts related to customer payment terms and estimated product returns at the time of sale based on our historical experience . as is customary in the consumer products industry , we participate in the promotional programs of our customers to enhance the sale of our products . the cost of these promotional programs varies based on the actual number of units sold during a finite period of time . these promotional programs consist of direct-to-consumer incentives , such as coupons and temporary price reductions , as well as incentives to our customers , such as allowances for new distribution , including slotting fees , and cooperative advertising . estimates of the costs of these promotional programs are based on ( i ) historical sales experience , ( ii ) the current promotional offering , ( iii ) forecasted data , ( iv ) current market conditions , and ( v ) communication with customer purchasing/marketing personnel . we recognize the cost of such sales incentives by recording an estimate of such cost as a reduction of revenue , at the later of ( a ) the date the related revenue is recognized , or ( b ) the date when a particular sales incentive is offered . at the completion of the promotional program , these estimated amounts are adjusted to actual amounts . our related promotional expense for 2014 , 2013 , and 2012 was $ 33.4 million , $ 35.6 million , and $ 32.2 million , respectively . in 2014 , 2013 , and 2012 we participated in over 10,000 , 9,000 , and 7,000 promotional campaigns , respectively . of those campaigns , approximately 1,700 , 1,400 , and 1,000 payments were in excess of $ 5,000 in 2014 , 2013 , and 2012 , respectively . for all three years , the average cost per campaign was less than $ 5,000. we believe that the estimation methodologies employed , combined with the nature of the promotional campaigns , make the likelihood remote that our obligation would be misstated by a material amount . however , for illustrative purposes , had we underestimated the promotional program rate by 10 % for each of 2014 , 2013 , and 2012 , our operating income would have been reduced by approximately $ 3.3 million , $ 3.6 million , and $ 3.2 million , respectively . net income would have been adversely affected by approximately $ 2.1 million , $ 2.2 million , and $ 1.9 million , respectively . we also periodically run coupon programs in sunday newspaper inserts , on our product website , or as on-package instant redeemable coupons . we utilize a national clearing house to process coupons redeemed by customers . at the time a coupon is distributed , a provision is made based upon historical redemption rates for that particular product , information provided as a result of the clearing house 's experience with coupons of similar dollar value , the length of time the coupon is valid , and the seasonality of the coupon drop , among other factors . during 2014 , we had 225 coupon events . the amount recorded against revenues and accrued for these events during the year was $ 5.6 million . cash settlement of coupon redemptions during the year was $ 3.8 million . allowances for product returns due to the nature of the consumer products industry , we are required to estimate future product returns . accordingly , we record an estimate of product returns concurrent with the recording of sales . such estimates are made after analyzing ( i ) historical return 38 rates , ( ii ) current economic trends , ( iii ) changes in customer demand , ( iv ) product acceptance , ( v ) seasonality of our product offerings , and ( vi ) the impact of changes in product formulation , packaging and advertising . we construct our returns analysis by looking at the previous year 's return history for each brand . subsequently , each month , we estimate our current return rate based upon an average of the previous six months ' return rate and review that calculated rate for reasonableness , giving consideration to the other factors described above . our historical return rate has been relatively stable ; for example , for the years ended march 31 , 2014 , 2013 and 2012 , returns represented 2.2 % , 2.9 % and 2.9 % , respectively , of gross sales . at march 31 , 2014 and 2013 , the allowance for sales returns was $ 7.0 million and $ 6.4 million , respectively . while we utilize the methodology described above to estimate product returns , actual results may differ materially from our estimates , causing our future financial results to be adversely affected . among the factors that could cause a material change in the estimated return rate would be significant unexpected returns with respect to a product or products that comprise a significant portion of our revenues . based on the methodology described above and our actual returns experience , management believes the likelihood of such an event remains remote . as noted , over the last three years our actual product return rate has stayed within a range of 2.2 % to 2.9 % of gross sales .
| results of operations 2014 compared to 2013 replace_table_token_11_th revenues for 2014 were $ 601.9 million , a decrease of $ 21.7 million , or 3.5 % , versus 2013. the decrease in revenue reflects the effects of increased competition from the introduction of new brands or brands that had previously been recalled , a weak cough and cold season , and the impact of the divestiture of phazyme , which was offset partly by the acquisition of the care pharma products and the launch of new analgesics products . revenues for the household cleaning segment increased 1.6 % during 2014 versus 2013. revenues from customers outside of north america , which represented 5.4 % of total revenues in 2014 , increased by $ 15.8 million , or 93.2 % , during 2014 versus 2013. otc healthcare segment revenues for the otc healthcare segment decreased $ 23.1 million , or 4.3 % , during 2014 versus 2013. this decrease was primarily caused by declines in the gastrointestinal and cough and cold groups , offset partly by increased revenues in the analgesic and other otc groups . revenues for the gastrointestinal group declined primarily due to decreased revenues for both the beano and gaviscon brands as well as the effects of the divestiture of phazyme . beano revenues declined due to consumer shifts to probiotics and the expansion of private label products in the mass channel . gaviscon was impacted by supply chain issues incurred during 2014 which caused a shift in the timing of sales due to limited supply availability . the decrease in the cough and cold product group was due primarily to the decrease in revenues for the pediacare , little remedies , and chloraseptic brands , resulting from increased competition from products that had previously been recalled and a weak cough and cold season .
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our responsibility is to express an opinion on the company 's internal control over financial reporting based on our story_separator_special_tag the following discussion is intended to assist in the understanding of cbiz 's financial position at december 31 , 2014 and 2013 , and results of operations and cash flows for each of the years ended december 31 , 2014 , 2013 and 2012. this discussion should be read in conjunction with cbiz 's consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. this discussion and analysis contains forward-looking statements and should also be read in conjunction with the disclosures and information contained in forward-looking statements and item 1a . risk factors in this annual report on form 10-k. story_separator_special_tag and are reported in the employee services practice group . fourth quarter 2014 w & c , located in delray beach , florida , is a full service insurance brokerage firm offering clients a complete line of services including commercial lines , personal lines , risk management , and employee benefits . annualized revenues are estimated to be approximately $ 9.0 million and are reported in the employee services practice group . during the year ended december 31 , 2014 , cbiz also purchased four client lists , three of which are reported in the financial services practice group and one of which reported in the employee services practice group . during the year ended december 31 , 2014 , cbiz decided to divest four businesses : cbiz made the decision to divest the operations of two small businesses under the financial services practice group . these businesses are being held for sale at december 31 , 2014 with the results of operations for these businesses being recorded in ( loss ) income from operations of discontinued operations , net of tax in the accompanying consolidated statements of comprehensive income . cbiz sold a business from the financial services practice group for $ 2.9 million . a gain of $ 1.2 million was recorded in gain on sale of operations , net in the accompanying consolidated statements of comprehensive income for the year ended december 31 , 2014 . 26 cbiz sold the assets of its property tax business located in leawood , kansas for a purchase price of $ 1.2 million . an insignificant gain was recorded in gain on disposal of discontinued operations , net of tax in the accompanying consolidated statements of comprehensive income for the year ended december 31 , 2014. the property tax business was classified as held for sale during the comparable period in 2013 and was previously reported in the financial services practice group . cbiz believes that repurchasing shares of its common stock provides value to its stockholders . cbiz repurchased approximately 3.2 million shares of its common stock on the open market during 2014 at a total cost of approximately $ 26.7 million . on february 11 , 2015 , cbiz 's board of directors authorized the purchase of up to 5.0 million shares of cbiz common stock through march 31 , 2016. the shares may be repurchased in the open market or through privately negotiated purchases in accordance with sec rules . subsequent to december 31 , 2014 up to the date of this filing , cbiz repurchased approximately 600,000 shares at a total cost of approximately $ 5.0 million under a rule 10b5-1 trading plan , which allows cbiz to repurchase shares below a predetermined price per share . on october 29 , 2014 , steven l. gerard announced that he will retire as cbiz , inc. ceo in march 2016 , following the filing of the company 's annual report on form 10-k for the year ending december 31 , 2015. following his retirement , mr. gerard will continue to serve as chairman of the company 's board of directors . the company 's board of directors has indicated that it will appoint jerome p. grisko , jr. , currently president and coo of the company , as mr. gerard 's successor . during the year ended december 31 , 2013 , cbiz , through its subsidiary cbiz operations , inc. , an ohio corporation , completed the sale of all of the issued and outstanding capital stock of mmp to zotec partners , llc , an indiana limited liability company , for a purchase price of $ 201.6 million , subject to final working capital adjustments which were insignificant and recorded in gain on disposal of discontinued operations , net of tax in the accompanying consolidated statements of comprehensive income for the year ended december 31 , 2014. the results of operations for mmp for the years ended december 31 , 2013 and 2012 are included in ( loss ) income from operations of discontinued operations , net of tax. the gain on the sale of mmp of approximately $ 58.3 million was recorded in gain on disposal of discontinued operations , net of tax in the accompanying consolidated statements of comprehensive income for the year ended december 31 , 2013. prior to the completion of this transaction , mmp was considered one of cbiz 's practice groups . following the closing of the mmp transaction , the company operates in three operating practice groups . results of operations continuing operations cbiz provides professional business services that help clients manage their finances and employees . cbiz delivers its integrated services through the following three practice groups : financial services , employee services and national practices . a description of these groups ' operating results and factors affecting their businesses is provided below . same-unit revenue represents total revenue adjusted to reflect comparable periods of activity for acquisitions and divestitures . for example , for a business acquired on july 1 , 2014 , revenue for the period january 1 , 2015 through june 30 , 2015 would be reported as revenue from acquired businesses ; same-unit revenue would include revenue for the periods july 1 through december 31 of both years . story_separator_special_tag other income , net for the year ended december 31 , 2013 primarily consisted of a $ 8.2 million gain in the fair value of investments related to the deferred compensation plan , interest income of $ 0.5 million , partially offset by adjustments to the fair value of the company 's contingent purchase price liability related to prior acquisitions which resulted in other expense of $ 0.9 million . income taxes cbiz recorded income tax expense from continuing operations of $ 20.2 million and $ 16.6 million for the years ended december 31 , 2014 and 2013 , respectively . the effective tax rate for the years ended december 31 , 2014 and 2013 was 39.9 % and 39.5 % , respectively . the increase in the effective tax rate is primarily due to an increase in a valuation allowance related to a state tax credit carryforward in 2014. for further discussion regarding income tax expense , see note 7 to the accompanying consolidated financial statements . earnings per share and non-gaap earnings per share earnings per diluted share from continuing operations were $ 0.59 for the year ended december 31 , 2014 compared to $ 0.52 per diluted share from continuing operations for the year ended december 31 , 2013. the fully diluted weighted average share count increased to 51.5 million shares at december 31 , 2014 from 49.1 million shares during the same period in 2013 , primarily due to the accounting for approximately 2.0 million common share equivalents related to the 2010 notes . excluding the impact of the share equivalents related to the 2010 notes , fully diluted earnings per share from continuing operations would have been $ 0.61 for the year ended december 31 , 2014. non-gaap earnings per diluted share were $ 1.07 and $ 1.08 for the years ended december 31 , 2014 and 2013 , respectively . excluding the impact of the share equivalents related to the 2010 notes , non-gaap earnings per diluted share would have been $ 1.12 and $ 1.08 for the years ended december 31 , 2014 and 2013 , respectively . cbiz believes non-gaap earnings per diluted share illustrates the impact of certain non-cash charges on income from continuing operations and is a useful performance measure for the company , its analysts and its stockholders . management uses these performance measures to evaluate cbiz 's business , including ongoing performance and the allocation of resources . non-gaap earnings and non-gaap earnings per diluted share are provided in addition to the presentation of gaap measures and should not be regarded as a replacement of alternative of performance under gaap the following is a reconciliation of income from continuing operations to non-gaap earnings from operations and earnings per diluted share from continuing operations to non-gaap earnings per diluted share from continuing operations for the years ended december 31 , 2014 and 2013. non-gaap earnings and per share data reconciliation of income from continuing operations to non-gaap earnings from continuing operations replace_table_token_10_th 30 ( 1 ) excluding the impact of the 2.0 million common share equivalents related to the 2010 notes , fully diluted earnings per share from continuing operations would have been $ 0.61 for the year ended december 31 , 2014 . ( 2 ) excluding the impact of the 2.0 million common share equivalents related to the 2010 notes , non-gaap earnings per diluted share from continuing operations would have been $ 1.12 for the year ended december 31 , 2014. operating practice groups financial services replace_table_token_11_th the growth in same-unit revenue was approximately 50 % attributable to the traditional accounting and tax services and 50 % attributable to stronger performance in the units that provide certain national services . the growth in the traditional accounting and tax services was due to modest price increases on services performed during the year ended december 31 , 2014 compared to the same period a year ago . growth in the national units was primarily due to a 9.7 % increase in revenue related to those units that provide valuation services and a 6.0 % increase in revenue related to the federal and state governmental health care compliance industry . the growth in revenue from acquisitions was provided by : knight field fabry , llp ( knight ) , located in denver , colorado , acquired in 2013 , and lbr , located in tampa , florida , acquired in 2014. cbiz provides a range of services to affiliated cpa firms under joint referral and asas . fees earned by cbiz under the asas are recorded as revenue in the accompanying consolidated statements of comprehensive income and were approximately $ 132.2 million and $ 133.5 million for the years ended december 31 , 2014 and 2013 , respectively . the decrease in asa fees was primarily due to a decrease in demand for attest services . the largest components of operating expenses for the financial services practice group are personnel costs , occupancy costs , and travel and related costs which represented 89.5 % and 89.3 % of total operating expenses for the years ended december 31 , 2014 and 2013 , respectively . personnel costs increased $ 15.8 million during the year ended december 31 , 2014 compared to the same period in 2013 , and represented 68.4 % and 68.5 % of revenue for the years ended december 31 , 2014 and 2013 , respectively . the increase was largely attributable to the acquisition of lbr and knight , comprising $ 7.7 million of the variance , as well as a same-unit increase of $ 8.1 million due to staff compensation increases and an increase in headcount , particularly at the units offering national services . occupancy costs are relatively fixed in nature and were $ 24.6 million and $ 23.9 million , or 5.3 % and 5.4 % of revenue , for the years ended december 31 , 2014 and 2013 , respectively . the increase in occupancy costs is related primarily to the lbr acquisition .
| executive summary revenue for the year ended december 31 , 2014 increased by 6.2 % to $ 719.5 million from $ 677.2 million for 2013. the increase in revenue was due to a combination of newly acquired operations , which resulted in an increase of $ 23.7 million , or 3.5 % , and an increase in same-unit revenue of $ 18.6 million , or 2.7 % . earnings per diluted share from continuing operations were $ 0.59 for the year ended december 31 , 2014 compared to $ 0.52 per diluted share from continuing operations for the year ended december 31 , 2013. the fully diluted weighted average share count increased to 51.5 million shares at december 31 , 2014 from 49.1 million shares during the same period in 2013 , primarily due to the accounting for approximately 2.0 million common share equivalents related to the 2010 notes . excluding the impact of the share equivalents related to the 2010 notes , fully diluted earnings per share from continuing operations would have been $ 0.61 for the year ended december 31 , 2014. non-gaap earnings per diluted share were $ 1.07 and $ 1.08 for the years ended december 31 , 2014 and 2013 , respectively . excluding the impact of the share equivalents related to the 2010 notes , non-gaap earnings per diluted share would have been $ 1.12 and $ 1.08 for the years ended december 31 , 2014 and 2013 , respectively . cbiz believes non-gaap earnings per diluted share illustrates the impact of certain non-cash charges on income from continuing operations and is a useful performance measure for the company , its analysts and its stockholders . non-gaap earnings per diluted share is a measurement prepared on a basis other than generally accepted accounting principles ( gaap ) .
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the fifth lease amendment amended and extended the lease term from august 31 , 2011 to may 31 , 2012. the fifth lease amendment provided that we 83 pay the landlord a monthly base rent of $ 12,468 for the premises during the nine-month extension period . on march 19 , 2012 , we entered into a sixth amendment of the lease ( the sixth lease amendment ) , which extended the lease term through february 28 , 2013 , and provided that we pay the landlord a monthly base rent of $ 12,672 for the premises during the term of the sixth lease amendment . see notes to consolidated financial statements-note 11. subsequent events , for information regarding a change in our headquarters and a new sublease agreement . in june 2005 , we leased office space in tokyo , japan under a non-cancelable operating lease that expires in may 2013 and provides for six month extensions thereafter . rent expense for the years ended december 31 , 2012 and 2011 was $ 286,762 and $ 529,114 , respectively , and rent expense , net of sub-lease income for the period from september 26 , 2000 ( inception ) to december 31 , 2012 was $ 5.0 million . future minimum payments as of december 31 , 2012 are story_separator_special_tag you should read the following discussion and analysis together with item 6. selected financial data and the consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. the following discussion contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those expressed or implied in any forward-looking statements as a result of various factors , including those set forth under the caption item 1a . risk factors. overview background we are a development stage biopharmaceutical company focused on acquiring and developing novel , small molecule therapeutics for the treatment of serious diseases with unmet medical needs with a commercial focus on the u.s. market . we were incorporated in delaware in september 2000. we have incurred significant net losses since our inception . for the year ended december 31 , 2012 , we had a net loss of $ 11.0 million . at december 31 , 2012 , from inception , our accumulated deficit was $ 296.2 million , including $ 50.4 million of non-cash stock-based compensation charges . we expect to incur substantial net losses for the next several years as we continue to develop certain of our existing product development programs , and over the long-term if we expand our research and development programs and acquire or in-license products , technologies or businesses that are complementary to our own . as of december 31 , 2012 , we had available cash and cash equivalents of $ 4.0 million and working capital of $ 3.4 million . we expect to have approximately $ 3 million in available cash as of march 31 , 2013 , and , assuming we raise additional capital , we expect to spend approximately $ 6 million from april 1 , 2013 through december 31 , 2013 to execute our strategic plan and fund operations . as of the date of this report , we have working capital sufficient to fund operations through june 30 , 2013. these factors raise substantial doubt about the company 's ability to continue as a going concern . between august 21 , 2012 and the date of this report we have generated proceeds of $ 3.0 million under the common stock purchase agreement with aspire capital fund llc ( aspire ) including proceeds of $ 1.5 million on the sale 800,000 shares of our common stock subsequent to december 31 , 2012. we have the right , subject to the terms of the common stock purchase agreement , to cause aspire to acquire up to 3,231,096 shares for total gross proceeds not to exceed $ 20 million ( including the 2,019,696 shares issued or sold to aspire to date for $ 3.0 million ) , subject to daily dollar limitations and subject to the maximum dollar amount we can sell from time to time under our registration statement on form s-3 . we expect to sell additional shares under this agreement during 2013. we are also pursuing other opportunities to raise capital through the sale of our common stock or through other strategic initiatives . there can be no assurances that there will be adequate financing available to us on acceptable terms , or at all . if the company is unable to obtain additional financing , we may have to sell one or more of our programs or cease operations . we are currently focusing our development activities on mn-166 , an ibudilast-based drug candidate for the treatment of neurological disorders , and obtaining additional funding to advance clinical trial development of mn-221 , a novel , highly selective ß 2 -adrenergic receptor agonist being developed for the treatment of acute exacerbations of asthma and copd . including mn-166 and mn-221 and our other product development programs , we have acquired licenses to eight compounds for the development of ten product candidates which include clinical development for the treatment of acute exacerbations of asthma , ms and other central nervous system ( cns ) disorders , bronchial asthma , interstitial cystitis ( ic ) , solid tumor cancers , generalized anxiety disorders/insomnia , preterm labor and urinary incontinence . we entered into an agreement to form a joint venture company with zhejiang medicine co. , ltd. and beijing make-friend medicine technology co. , ltd. effective september 27 , 2011. the joint venture agreement 54 provides for the joint venture company , zhejiang sunmy bio-medical co. , ltd. ( zhejiang sunmy ) , to develop and commercialize mn-221 in china . a sublicense will be required under which zhejiang sunmy will license mn-221 from us . in accordance with the joint venture agreement , in march 2012 we paid $ 680,000 for our 30 % interest in zhejiang sunmy . story_separator_special_tag certain of these research and development services were completed in 2012 and the remaining services are expected to be delivered and completed after 2013. common stock purchase agreement on august 20 , 2012 , we entered into a common stock purchase agreement with aspire pursuant to which the company may sell to aspire , and aspire would be obligated to purchase , up to an aggregate of $ 20 million of our common stock over the two year term of the agreement including $ 1 million in common stock purchased by aspire in connection with execution of the agreement . daily sales of our common stock to aspire are subject to certain limitations and the per share sales price is based on closing stock prices at or near each transaction date . no more than 3,231,096 shares of our common stock can be issued under this agreement , including the 363,636 shares issued to aspire in consideration of entering into the agreement . our net proceeds will depend on the frequency and number of shares of our common stock sold to aspire and the per share purchase price of each transaction . as of december 31 , 2012 , the company had completed sales to aspire totaling 856,060 shares of common stock at prices ranging from $ 1.65 to $ 1.93 per share , generating gross proceeds of $ 1.5 million . between august 21 , 2012 and the date of this report , we have generated proceeds of $ 3.0 million under the common stock purchase agreement with aspire including proceeds of $ 1.5 million on the sale 800,000 shares of our common stock subsequent to december 31 , 2012. lease of corporate headquarters we leased approximately 5,089 square feet of office space at our headquarters at 4350 la jolla village drive , suite 950 , san diego , california under a lease that expired on february 28 , 2013. on february 27 , 2013 , we entered into a sublease agreement effective march 1 , 2013 ( the sublease ) with denali advisors , llc , the sublessor , to which irvine company , the master landlord , has provided its consent . the sublease is for 5,219 , square feet , and is for the company 's new headquarters located at 4275 executive square , suite 650 , la jolla , california , 92037. the sublease has a term of 4 years and 9 months and provides that the company will pay irvine company a monthly base rent of $ 10,699 for the premises during the first year . revenues and cost of revenues we recognized approximately $ 803,000 of revenue for the year ending december 31 , 2012 and no revenues in the two-year period ended december 31 , 2011. revenue was recorded in 2012 related to the kissei services agreement based on the development services we performed during that period . all expenses incurred during 2012 related to these services were recorded as research and development expenses . other than the revenue recorded in 2012 , our revenues to date have been from development services revenues under service agreements pursuant to which we billed consulting fees and our pass-through clinical contract costs . the primary costs associated with these revenues were clinical contract costs we incurred and passed-through to our customers . 56 research and development our research and development expenses consist primarily of the license fees related to our product candidates , salaries and related employee benefits , costs associated with the preclinical and clinical development of our product development programs , costs associated with non-clinical activities , such as regulatory expenses , and pre-commercialization manufacturing development activities . we use external service providers to manufacture our compounds to be used in clinical trials and for the majority of the services performed in connection with the preclinical and clinical development of our product candidates . research and development expenses include fees paid to consultants , contract research organizations , contract manufacturers and other external service providers , including professional fees and costs associated with legal services , patents and patent applications for our intellectual property . internal research and development expenses include costs of compensation and other expenses for research and development personnel , supplies , facility costs and depreciation . research and development costs are expensed as incurred . the following table summarizes our research and development expenses for the periods indicated for each of our product development programs . to the extent that costs , including personnel costs , are not tracked to a specific product development program , such costs are included in the unallocated category ( in thousands ) : replace_table_token_7_th we are currently focusing our development activities on mn-166 , an ibudilast-based drug candidate for the treatment of neurological disorders , and obtaining additional funding to advance clinical trial development of mn-221 , a novel , highly selective ß 2 -adrenergic receptor agonist being developed for the treatment of acute exacerbations of asthma and chronic obstructive pulmonary disease , or copd . in may 2012 we announced the preliminary trial results of the phase 2 mn-221-cl-007 clinical trial for the treatment of acute exacerbations of asthma , and in august 2012 we announced preliminary trial results of an additional phase 1b/2a copd mn-221cl-012 clinical trial . on october 22 , 2012 we met with the fda to review future development of this product candidate . the fda identified the risk/benefit profile of mn-221 as a focal point for further development of mn-221 and advised that a clinical outcome , such as a reduction in hospitalizations , would need to be a pivotal trial primary endpoint . we have decided that future mn-221 development will be designed according to the feedback received from the fda . our research and development expenses may increase in connection with new clinical trials related to mn-166 . we have determined that future mn-221 clinical trial development will be partner-dependent from a funding perspective .
| results of operations comparison of the years ended december 31 , 2012 and 2011 revenues revenue for the year ended december 31 , 2012 was approximately $ 803,000. there was no revenue for the year ended december 31 , 2011. the revenue recorded in 2012 related to the development services we performed under the kissei services agreement during that period . research and development research and development expenses for the year ended december 31 , 2012 were $ 5.0 million , a decrease of $ 2.8 million compared to $ 7.8 million for the year ended december 31 , 2011. this decrease in research and development expenses primarily related to a decrease of $ 3.4 million in spending on mn-221 primarily due to the completion of the cl-007 clinical trial in march 2012 , partially offset by an increase in spending of $ 1.3 million for our mn-221cl-012 clinical trial , and decreases in unallocated employee compensation , occupancy and legal costs totaling $ 0.6 million . general and administrative general and administrative expenses were $ 6.7 million for the year ended december 31 , 2012 , a decrease of $ 1.6 million compared to $ 8.3 million for the year ended december 31 , 2011. this decrease in general and administrative expenses was due primarily to $ 1.2 million decrease in employee compensation expense including $ 0.6 million related to stock-based compensation , and a decrease in professional legal and accounting fees of $ 0.4 million . other expense other expense for the year ended december 31 , 2012 was approximately $ 30,000 , as compared to approximately $ 80,000 for the year ended december 31 , 2011. in 2011 , other expense primarily consisted of accretion related to convertible notes and amortization of debt issuance costs paid to third parties .
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you should read the following discussion in conjunction with our consolidated financial statements and related notes included in this annual report on form 10-k ( “ 2016 form 10-k ” ) . this 2016 form 10-k contains certain forward-looking statements within the meaning of the private securities litigation reform act of 1995 ( “ pslra ” ) , section 27a of the securities act of 1933 , as amended ( the “ securities act ” ) , and section 21e of the securities exchange act of 1934 , as amended , ( the “ exchange act ” ) , about our expectations , beliefs , or intentions regarding our business , financial condition , results of operations , strategies , or prospects . you can identify forward-looking statements by the fact that these statements do not relate strictly to historical or current matters . rather , forward-looking statements relate to anticipated or expected events , activities , trends , or results as of the date they are made . because forward-looking statements relate to matters that have not yet occurred , these statements are inherently subject to risks and uncertainties that could cause our actual results to differ materially from any future results expressed or implied by the forward-looking statements . many factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements . these factors include those contained in part i , “ item 1a . risk factors ” of this 2016 form 10-k. we do not undertake any obligation to update forward-looking statements , except as required by law . we intend that all forward-looking statements be subject to the safe harbor provisions of pslra . these forward-looking statements are only predictions and reflect our views as of the date they are made with respect to future events and financial performance . overview cogint , inc. ( “ we , ” “ us , ” “ our , ” “ cogint , ” or the “ company ” ) , formerly known as idi , inc. , a delaware corporation , is a data and analytics company providing cloud-based mission-critical information and performance marketing solutions to enterprises in a variety of industries . cogint 's mission is to transform data into intelligence utilizing our proprietary technology platforms to solve complex problems for our clients . harnessing the power of data fusion and powerful analytics , we transform data into intelligence , in a fast and efficient manner , so that our clients can spend their time on what matters most , running their organizations with confidence . through our intelligent platforms , core tm and agile audience engine tm , we uncover the relevance of disparate data points to deliver end-to-end , roi-driven results for our customers . our analytical capabilities enable us to build comprehensive datasets in real-time and provide insightful views of people , businesses , assets and their interrelationships . we empower clients across markets and industries to better execute all aspects of their business , from managing risk , identifying fraud and abuse , ensuring legislative compliance , and debt recovery , to identifying and acquiring new customers . with the goal of reducing the cost of doing business and enhancing the consumer experience , our solutions enable our clients to optimize overall decision-making and to have a holistic view of their customers . we provide unique and compelling solutions essential to the daily workflow of organizations within both the public and private sectors . our cloud-based data fusion and customer acquisition technology platforms , combined with our massive database consisting of public-record , proprietary and publicly-available data , as well as a unique repository of self-reported information on millions of consumers , enables the delivery of differentiated products and solutions used for a variety of essential functions throughout the customer life cycle . these essential functions include customer identification and authentication , investigation and validation , and customer acquisition and retention . the company operates through two reportable segments : ( i ) information services and ( ii ) performance marketing . for additional information relating to our segments , see note 16 , “ segment information , ” in our notes to consolidated financial statements . information services —leveraging leading-edge technology , proprietary algorithms , and massive datasets , and through intuitive and powerful analytical applications , we provide solutions to organizations within the risk management and consumer marketing industries . core is our next generation data fusion platform , providing mission-critical information about individuals , businesses and assets to a variety of markets and industries . through machine learning and advanced analytics , our information services segment uses the power of data fusion to ingest and analyze data at a massive scale . the derived information from the data fusion process ultimately serves to generate unique solutions for banking and financial services companies , insurance companies , healthcare companies , law enforcement and government , the collection industry , law firms , retail , telecommunications companies , corporate security and investigative firms . in addition , our data acquisition solutions enable clients to rapidly grow their customer databases by using self-declared consumer insights to identify , connect with , and acquire first-party consumer data and multi-channel marketing consent at massive scale . built in a secure payment card industry ( pci ) compliant environment , our cloud-based next generation technology delivers greater than four 9s of service uptime . by leveraging our proprietary infrastructure design within the cloud , we currently operate in six datacenters spread geographically across the u.s. and are able to dynamically and seamlessly scale as needed . using our intelligent 31 framework and leveraging a micro services architecture where appropriate , we reduce operational cost and complexity , thus delivering sup erior performance at greatly reduced costs compared to traditional datacenter architectures . since the release of our core platform in may 2016 , we have added billions of data records and continue to add approximately over a billion records per month on av erage . story_separator_special_tag future widespread economic slowdowns in any of the industries or markets our clients serve could reduce the technology and marketing expenditures of our clients and prospective customers . our revenues are also significantly influenced by industry trends , including the demand for business analytics services in the industries we serve . companies are increasingly relying on business analytics and big-data technologies to help process data in a cost-efficient manner . as customers have gained the ability to rapidly aggregate data generated by their own activities , they are increasingly expecting access to real-time data and analytics from their service providers as well as solutions that fully integrate into their workflows . the increasing number and complexity of regulations centered around data and provision of information services makes operations for businesses in the big data and analytic sector more challenging . the enactment of new or amended legislation or industry regulations pertaining to consumer or private sector privacy issues could have a material adverse impact on information and marketing services . legislation or industry regulations regarding consumer or private sector privacy issues could place restrictions upon the collection , sharing and use of information that is currently legally available , which could materially increase our cost of collecting and maintaining some data . these types of legislation or industry regulations could also prohibit us from collecting or disseminating certain types of data , which could adversely affect our ability to meet our clients ' requirements and our profitability and cash flow targets . company specific trends and uncertainties our operating results are also directly affected by company-specific factors , including the following : some of our competitors have substantially greater financial , technical , sales and marketing resources , better name recognition and a larger customer base . even if we introduce advanced products that meet evolving customer requirements in a timely manner , there can be no assurance that our new products will gain market acceptance . certain companies in the big data and analytics sector have expanded their product lines or technologies in recent years as a result of acquisitions . further , more companies have developed products which conform to existing and emerging industry standards and have sought to compete on the basis of price . we anticipate increased competition from large data and analytics vendors . increased competition in the big data and analytics sector could result in significant price competition , reduced profit margins or loss of market share , any of which could have a material adverse effect on our business , operating results and financial condition . there can be no assurance that we will be able to compete successfully in the future with current or new competitors . critical accounting policies and estimates management 's discussion and analysis of financial condition and results of operations are based upon cogint 's consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states ( “ us gaap ” ) . the preparation of these financial statements requires cogint to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . on an ongoing basis , cogint evaluates its estimates , including those related to the allowance for doubtful receivables , useful lives of intangible assets , recoverability of the carrying amounts of goodwill and intangible assets , accounting for business combinations , and the assessment of contingent obligations . we base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . 33 we believe the following critical accounting policies govern our more significant j udgments and estimates used in the preparation of our consolidated financial statements . revenue recognition we provide information services and performance marketing services , and generally recognize revenue when persuasive evidence of an arrangement exists , delivery has occurred or a service has been rendered , the price is fixed or determinable and collection is reasonably assured . information services revenue is generated from the risk management industry and consumer marketing industry . information services revenue generated from the risk management industry is generally recognized on ( a ) a transactional basis determined by the customers ' usage , ( b ) a monthly fee or ( c ) a combination of both . revenues pursuant to contracts containing a monthly fee are recognized ratably over the contract period , which is generally one year . revenues pursuant to transactions determined by the customers ' usage are recognized when the transaction is complete . information services revenue generated from the consumer marketing industry is generally recognized when related services are delivered , in accordance with terms detailed in the agreements . these terms typically call for a specific transactional unit price per record delivered based on predefined qualifying characteristics specified by the customer . these records are tracked in real time by the company 's systems , reported , recorded , and regularly reconciled against advertiser data either in real time or at various contractually defined periods , whereupon the number of qualified records during such specified period are finalized and adjustments , if any , to revenue are made . additional revenues are generated through revenue-sharing agreements with marketers who target offers to users provided by the company from the company 's owned and operated sites . performance marketing revenue is recognized when the conversions are generated based on predefined user actions ( for example , a click , a registration , an app install or a coupon print ) subject to certain qualifying characteristics specified by the customer , in accordance with terms detailed in advertiser agreements and or the attendant insertion orders . these terms typically call for a specific transactional unit price per conversion generated .
| full year financial highlights for the year ended december 31 , 2016 , as compared to the year ended december 31 , 2015 : total revenue increased to $ 186.8 million from $ 14.1 million . information service revenue increased to $ 55.4 million from $ 6.4 million . performance marketing revenue increased to $ 131.4 million from $ 7.7 million . gross profit margin increased to 28 % from 27 % . net loss improved to $ 29.1 million from $ 84.5 million . net cash provided by operating activities improved to $ 2.1 million from net cash used in operating activities of $ 10.7 million . adjusted ebitda improved to $ 15.0 million from a loss of $ 6.6 million . 36 recent business high lights within our information services segment : leveraging our agile audience engine , we now interact with over 800,000 consumers daily , generating more than 7 million consumer insights per day and 225 million insights monthly . comprehensive database includes holistic views of greater than 95 % of u.s. population , including unique data assets comprising 130 million self-reported consumer profiles up from 120 million , 224 million unique email addresses up from 150 million , across 75 million households , up from 63 million households . increased demand for our targeted acquisition solutions , leveraging our unique ability to build custom audiences in real-time and deliver specific insights that support stronger roi for our customers ' digital marketing executions . idicore continues to expand in the marketplace , landing key customer wins with head-to-head data tests against our competitors , and winning on speed , accuracy and price . added thousands of users currently utilizing idicore in their daily workflow ; these users represent a variety of industries within the risk management space , including financial services , law firms , collections , government and investigative companies .
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the company periodically reviews the recoverability of deferred tax assets recorded on its consolidated balance sheets and provides valuation allowances as management deems necessary . management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability . in addition , the company operates within multiple taxing jurisdictions including the united states , germany , romania , india , and hong kong in the people 's republic of china , and is subject to audit in these jurisdictions . in management 's opinion , adequate provisions for income taxes have been made for all years . if actual taxable income by tax jurisdiction varies from estimates , additional allowances or reversals of reserves may be necessary . f- 13 cemtrex inc. and subsidiaries uncertain tax positions for the years ended september 30 , 2019 and 2018 , the company did not take any uncertain tax positions and had no adjustments to its income tax liabilities or benefits . the company will record any interest and or penalties arising from uncertain tax provisions when they are likely to occur and reasonably estimable . accounting for share-based compensation the company follows asc 718 ( “ share-based payment ” ) , which requires that all share-based payments to employees , including stock options , stock appreciation rights ( sars ) and common stock share awards , be recognized as compensation expense in the consolidated financial statements based on their fair values and over the requisite service period . the fair value for options granted was determined at the date of grant using a black-scholes valuation model and the straight-line attribution approach using the following weighted average assumptions : the risk-free interest rate used in the black-scholes valuation method is based on the implied yield currently available in u.s. treasury securities at maturity with an equivalent term . other than a one-time dividend paid in fiscal year 2017 , the company never declared or paid any cash dividends and does not currently expect to do so in the future . expected volatility is based on the annualized daily historical volatility of the company 's stock over a representative period . the weighted-average expected life represents the period over which stock-based awards are expected to be outstanding and was determined based on a number of factors , including historical weighted average and projected holding periods for the remaining unexercised shares , the contractual terms of the company 's stock-based awards , vesting schedules and expectations of future employee behavior . net income ( loss ) per common share basic net income ( loss ) per common share is computed by dividing net income ( loss ) by the weighted average number of shares of common stock outstanding during the period . diluted net income per common share is computed by dividing net income by the weighted average number of shares of common stock and potentially dilutive outstanding shares of common stock during the period to reflect the potential dilution that could occur from common shares issuable through contingent share arrangements , stock options and warrants . for the year ended september 30 , 2019 2018 basic weighted average shares outstanding 2,267,501 1,404,533 dilutive effect of options - - dilutive effect of convertible debt - - diluted weighted average shares outstanding 2,267,501 1,404,533 for the years ended september 30 , 2019 and 2018 , 1,483,965 and 843,625 shares of common stock , respectively , were excluded from the computation of diluted earnings per share because the effect of their inclusion would be anti-dilutive . foreign currency translation gain and comprehensive income ( loss ) in countries in which the company operates , and the functional currency is story_separator_special_tag except for historical information contained in this report , the matters discussed are forward-looking statements that involve risks and uncertainties . when used in this report , words such as “ anticipates ” , “ believes ” , “ could ” , “ estimates ” , “ expects ” , “ may ” , “ plans ” , “ potential ” and “ intends ” and similar expressions , as they relate to the company or its management , identify forward-looking statements . such forward-looking statements are based on the beliefs of the company 's management , as well as assumptions made by and information currently available to the company 's management . among the factors that could cause actual results to differ materially are the following : the effect of business and economic conditions ; the impact of competitive products and their pricing ; unexpected manufacturing or supplier problems ; the company 's ability to maintain sufficient credit arrangements ; changes in governmental standards by which our environmental control products are evaluated and the risk factors reported from time to time in the company 's sec reports , including this report on form 10-k. the company undertakes no obligation to update forward-looking statements as a result of future events or developments . 14 overview cemtrex was incorporated in 1998 , in the state of delaware and has evolved through strategic acquisitions and internal growth from a small environmental monitoring instruments company into a world leading multi-industry technology company . the company drives innovation in a wide range of sectors , including smart technology , virtual and augmented realities , advanced electronic systems , industrial solutions , and intelligent security systems . unless the context requires otherwise , all references to “ we ” , “ our ” , “ us ” , “ company ” , “ registrant ” , “ cemtrex ” or “ management ” refer to cemtrex , inc. and its subsidiaries . story_separator_special_tag the company continuously assesses the composition of its portfolio businesses to ensure it is aligned with its strategic objectives and positioned to maximize growth and return in the coming years . during fiscal 2019 , the company made a strategic decision to exit its electronics manufacturing group by selling all companies in that business segment on august 15 , 2019. accordingly , the company has reported the results of the electronics manufacturing business as discontinued operations in the consolidated statements of income and in the consolidated balance sheets . these changes have been applied for all periods presented . during fiscal 2019 , the company also reached a strategic decision to exit the environmental products business which was part of industrial services group . accordingly , the company has reported the results of the environmental control products business as discontinued operations in the consolidated statements of income and in the consolidated balance sheets . currently , the company has two business segments , consisting of ( i ) advanced technologies ( at ) and ( ii ) industrial services ( is ) advanced technologies ( at ) cemtrex 's advanced technologies segment delivers cutting-edge technologies in the iot , wearables and smart devices , such as the smartdesk . through the company 's advanced engineering and product design , they deliver progressive design and development solutions to create impactful experiences for mobile , web , virtual and augmented reality , wearables and television as well as providing cutting edge , mission critical security and video surveillance . through its cemtrex vr division , the company is developing a wide variety of applications for virtual and augmented reality markets . the at business segment also includes the company 's subsidiary vicon industries , which provides end-to-end security solutions to meet the toughest corporate , industrial and governmental security challenges . vicon 's products include browser-based video monitoring systems and facial recognition systems , cameras , servers , and access control systems for every aspect of security and surveillance in industrial and commercial facilities , federal prisons , hospitals , universities , schools , and federal and state government offices . industrial services ( is ) cemtrex 's is segment , offers single-source expertise and services for rigging , millwrighting , in plant maintenance , equipment erection , relocation , and disassembly to diversified customers . we install high precision equipment in a wide variety of industrial markets like automotive , printing & graphics , industrial automation , packaging , and chemicals among others . we are a leading provider of reliability-driven maintenance and contracting solutions for the machinery , packaging , printing , chemical , and other manufacturing markets . the focus is on customers seeking to achieve greater asset utilization and reliability to cut costs and increase production from existing assets , including small projects , sustaining capital , turnarounds , maintenance , specialty welding services , and high-quality scaffolding . significant accounting policies and estimates the following discussion and analysis is based upon our consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of our financial statements requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses , and assets and liabilities during the periods reported . estimates are used when accounting for certain items such as revenues , allowances for returns , early payment discounts , customer discounts , doubtful accounts , employee compensation programs , depreciation and amortization periods , taxes , inventory values , and valuations of investments , goodwill , other intangible assets and long-lived assets . 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 . 15 please see note 2 for detailed information regarding our significant accounting policies and estimates in the notes to consolidated financial statements in this 2019 form 10-k. results of operations - for the fiscal years ending september 30 , 2019 and 2018 total revenue for the years ended september 30 , 2019 and 2018 was $ 39,265,041 and $ 22,641,417 , respectively , an increase of $ 16,623,624 , or 73 % . comprehensive net loss for the years ended september 30 , 2019 and 2018 was a $ 23,051,140 and $ 10,476,294 , respectively , an increase of $ 12,574,846 or 120 % . total revenue for the fiscal year increased , as compared to total revenue in the same period last year , due to the consolidation of vicon industries , inc. , sales and other increases in the advanced technology segment . net loss increased due to losses recorded on the sale of discontinued operations of the electronics manufacturing segment and our environmental products lines . for the year ended september 30 , 2019 the company had a loss of $ 10,559,963 on discontinued operations and for the year ended september 30 , 2018 , the company had a gain of $ 1,786,737 on discontinued operations . revenues our advanced technologies segment revenues for the years ended september 30 , 2019 and 2018 were $ 19,268,687 and $ 1,765,106 , respectively , an increase of $ 17,503,581 or 992 % . this increase represents mainly the consolidation of vicon industries , inc. our industrial services segment revenues for the year ended september 30 , 2019 decreased by $ 879,957 or 4 % , to $ 19,996,354 from $ 20,876,311 for the year ended september 30 , 2018. the decrease was primarily due to the timing and recognition of revenue . gross profit gross profit for the year ended september 30 , 2019 was $ 15,562,674 or 40 % of revenues as compared to gross profit of $ 8,215,954 or 36 % of revenues for the year ended september 30 , 2018. the increase in gross profit percentage in the year
| general and administrative expenses general and administrative expenses for the year ended september 30 , 2019 increased $ 6,320,565 or 41 % to $ 21,528,145 from $ 15,207,580 for the year ended september 30 , 2018. the increases in general and administrative expenses in dollars is the result of the consolidation of vicon industries , inc. research and development expenses research and development expenses for the year ended september 30 , 2019 and 2018 were $ 1,481,879 and $ 5,558,682 , respectively . research and development expenses have decreased due to the limited capital resources of the company . other income/ ( expense ) interest and other income/ ( expense ) for fiscal 2019 was $ ( 5,190,987 ) as compared to $ ( 1,338,510 ) for fiscal 2018. for fiscal year 2019 other income/ ( expense ) was due was primarily due to interest on notes payable . provision for income taxes during the fiscal year of 2019 we recorded an income tax benefit of $ 1,335,584 compared to $ 2,861,672 for the fiscal year of 2018. the provision for income tax is based upon the projected income tax from the company 's various domestic and international subsidiaries that are subject to income taxes . 16 net income/ ( loss ) the company had a net loss of $ 21,862,716 or 56 % of revenues , for the year ended september 30 , 2019 as compared to a net loss of $ 9,240,409 or 41 % of revenues , for the year ended september 30 , 2018. net loss in this period as compared to the previous period was higher due to the discontinued operations of the environmental products business and its electronics manufacturing segment . for the year ended september 30 , 2019 the company had a loss of $ 10,559,963 on discontinued operations and for the year ended september 30 , 2018 , the company had a gain of $ 1,786,737 on discontinued operations .
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tranche b represents 1,100,000 warrants that are exercisable at the earlier of ( i ) the achievement of certain story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes and the related management 's discussion and analysis of financial condition and results of operations included in this annual report on form 10-k. overview we are a clinical-stage biopharmaceutical company focused on the development and commercialization of novel therapies for cardiopulmonary diseases . our lead product candidate , bentracimab ( also known as pb2452 ) , is a novel reversal agent for the antiplatelet drug ticagrelor , which we are developing for the reversal of the antiplatelet effects of ticagrelor in patients with uncontrolled major or life-threatening bleeding or requiring urgent surgery or an invasive procedure . based on feedback from the united states food and drug administration , or fda , we intend to seek approval of bentracimab in the united states through an accelerated approval process . in our completed phase 2a clinical trial of bentracimab , we observed immediate and complete reversal of ticagrelor 's antiplatelet activity within five minutes following initiation of infusion and sustained reversal for over 20 hours . our second product candidate , pemziviptadil ( also known as pb1046 ) , is a once-weekly fusion protein currently in a phase 2b clinical trial for the treatment of pulmonary arterial hypertension , or pah . pemziviptadil utilizes our proprietary half-life extending elastin-like polypeptide , or elp , technology , which also serves as an engine for our preclinical pipeline . we are also developing our preclinical product candidate , pb6440 , for treatment-resistant hypertension . we retain worldwide commercial rights to all of our product candidates . as we advance our clinical programs for bentracimab and pemziviptadil with site activations and patient enrollment , we remain in close contact with our clinical research organizations , clinical sites and suppliers to attempt to assess the impacts that covid-19 may have on our clinical trials and current timelines and to consider whether we can implement appropriate mitigating measures to help lessen such impacts . at this time , however , we can not fully forecast the scope of 78 impacts that covid-19 may have on our ability to initiate trial sites , enroll and assess patients , supply study drug and report trial results . we are developing bentracimab pursuant to a co-development agreement , or the sfj agreement , with sfj pharmaceuticals x , ltd. , an sfj pharmaceuticals group company , or sfj . under the sfj agreement , sfj has agreed to pay us up to $ 120.0 million to support the clinical development of bentracimab . during the term of the sfj agreement , we will have primary responsibility for clinical development and regulatory activities for bentracimab in the united states and the european union , while sfj will have primary responsibility for clinical development and regulatory activities for bentracimab in china and japan and will provide clinical trials operations support in the european union . in march 2020 , we commenced our pivotal reverse-it trial , a global , multi-center , non-randomized , open-label trial in which we plan to enroll a total of 200 ticagrelor patients with uncontrolled major or life-threatening bleeding or requiring urgent surgery or an invasive procedure . the primary endpoints for this trial are the reversal of the antiplatelet effects of ticagrelor with intravenous infusion of bentracimab as measured by the verifynow ® prutest ® biomarker and achievement of clinical hemostasis in enrolled patients . we are currently enrolling patients in the united states , the european union and canada in this trial . the fda granted breakthrough therapy designation for bentracimab in april 2019. the european medicines agency , or the ema , granted bentracimab priority medicines , or prime , designation in february 2020. based on feedback from the fda , we intend to submit a biologics license application , or bla , for potential accelerated approval based on an interim analysis of the first approximately 100 patients treated in our reverse-it trial , targeting that approximately one half of patients enrolled have uncontrolled major or life-threatening bleeding and approximately one half require urgent surgery or an invasive procedure . after we submit our bla with data from the first 100 patients , we intend to complete the reverse-it trial and establish a post-approval registry in accordance with fda requirements . the committee for medicinal products for human use , or chmp , of the ema has also generally agreed with our proposed clinical development plan for bentracimab . we have enrolled more than half of the first approximately 100 patients needed to support our bla submission , nearly all of whom to date have required urgent surgery or an invasive procedure . we are attempting to accelerate enrollment of patients with uncontrolled major or life-threatening bleeding , including by working to increase the number of enrolling clinical trial sites in the united states , canada , and the european union as we believe that a broader site footprint will increase the probability of enrolling these patients . all of the first approximately 100 patients enrolled in the reverse-it trial will be measured against the same verifynow prutest biomarker described above . we expect to complete enrollment of the first 100 patients in the reverse-it trial in mid-2021 , and are targeting to submit our bla for bentracimab in mid-2022 , although those timelines could be impacted by the continued scope and duration of the covid-19 pandemic . we have a limited operating history . since our inception in 2002 , our operations have focused on developing our clinical and preclinical product candidates and our proprietary elp technology , organizing and staffing our company , business planning , raising capital , establishing our intellectual property portfolio and conducting clinical trials and preclinical studies . we do not have any product candidates approved for sale and have not generated any revenue from product sales . story_separator_special_tag we expect our research and development expense to increase significantly over the next several years as we increase personnel costs , including stock-based compensation , conduct our later-stage clinical trials for bentracimab and pemziviptadil , develop pb6440 , conduct other preclinical studies and clinical trials and prepare regulatory filings and , if we receive regulatory approval for one or more product candidates , prepare for commercialization efforts . the successful development of our product candidates is highly uncertain . at this time , we can not reasonably estimate or know the nature , timing and costs of the efforts that will be necessary to complete the remainder of the development of our product candidates , or when , if ever , material net cash inflows may commence from those candidates . this uncertainty is due to the numerous risks and uncertainties associated with the duration and cost of clinical trials , which vary significantly over the life of a project as a result of many factors , including : delays in regulators or institutional review boards authorizing us or our investigators to commence our clinical trials or in our ability to negotiate agreements with clinical trial sites or contract research organizations ; our ability to secure adequate supply of product candidates for our trials ; the number of clinical sites included in the trials ; the length of time required to enroll suitable patients ; the number of patients that ultimately participate in the trials ; the number of doses patients receive ; any side effects associated with our product candidates ; the impacts of the covid-19 pandemic on our ability to initiate trial sites , enroll and assess patients , supply study drug and report trial results ; the duration of patient follow-up ; and the results of our clinical trials . our expenditures are subject to additional uncertainties , including the terms and timing of regulatory approvals , and the expense of filing , prosecuting , defending and enforcing any patent claims or other intellectual property rights . we may never succeed in achieving regulatory approval for our product candidates . we may obtain unexpected results from our clinical trials . we may elect to discontinue , delay or modify clinical trials of our product candidates . a change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate . for example , if the fda or other regulatory authorities were to require us to conduct clinical trials beyond those that we currently anticipate , or if we experience significant delays in enrollment in any of our clinical trials , we could be required to expend significant additional financial resources and time on the completion of clinical development . product commercialization will take several years and millions of dollars in development costs . general and administrative expense general and administrative expense consists principally of salaries and related costs for personnel in executive and administrative functions , including stock-based compensation , travel expenses and recruiting expenses . other general and administrative expense includes professional fees for legal , accounting and tax-related services and insurance costs . 81 we anticipate that our general and administrative expense will increase as we continue to operate as a public reporting company and continue to develop bentracimab , pemziviptadil , pb6440 and our future product candidates . we believe that these increases likely will include increased costs for director and officer liability insurance , costs related to the hiring of additional personnel and increased fees for outside consultants , lawyers and accountants . we also expect to incur increased costs to comply with corporate governance , internal controls , investor relations , disclosure and similar requirements applicable to public reporting companies . loss from remeasurement of development derivative liability loss from remeasurement of development derivative liability reflects the revaluation at each reporting date of our development derivative liability based on the present value of the estimated consideration to be received and the estimated consideration to be paid pursuant to the contractual terms under the sfj agreement , which is determined to be fair value . the liability is remeasured at the end of each quarter as a level 3 derivative , with the change in fair value recorded in the condensed statements of operations . interest expense interest expense consists of interest expense on our term loan with svb and westriver . license , co-development and other agreements medimmune limited license agreement in november 2017 , we entered into an exclusive license agreement , or the medimmune license , with medimmune limited , or medimmune , a wholly owned subsidiary of astrazeneca plc . pursuant to the medimmune license , medimmune granted us an exclusive , worldwide license under certain patent rights owned or controlled by medimmune to develop and commercialize any products covered by the medimmune license , or the medimmune licensed products , for the treatment , palliation , diagnosis or prevention of any human disorder or condition . under the medimmune license , we paid medimmune an upfront fee of $ 0.1 million . we are also required to pay medimmune : quarterly fees relating to technical services provided by medimmune ; up to $ 18.0 million in clinical and regulatory milestone fees , $ 3.0 million of which had been incurred as of december 31 , 2020 ; up to $ 50.0 million in commercial milestone fees ; and mid-single digit to low-teen royalty percentages on net sales of medimmune licensed products , subject to reduction in specified circumstances . in addition , the medimmune license offers an option for third-party product storage costs . from the inception of the medimmune license through december 31 , 2020 , we have incurred costs of $ 3.6 million under the medimmune license .
| 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_1_th 84 revenue grant revenue was $ 0.3 million for the year ended december 31 , 2020 , compared to $ 1.8 million for the year ended december 31 , 2019. the decrease was due to lower amounts available for grant reimbursement under our government grants during the year ended december 31 , 2020. we have received all $ 2.8 million in funding available under the small business innovation research grants received from the national institutes of health to support the clinical development of pemziviptadil for the treatment of pah . revenue under collaborative agreement was zero for the year ended december 31 , 2020 , compared to $ 0.6 million for the year ended december 31 , 2019. the decrease of $ 0.6 million was related to revenue we received from our agreement with immunoforge , which was entered into in 2019. research and development expense research and development expense was $ 72.1 million for the year ended december 31 , 2020 , compared to $ 30.9 million for the year ended december 31 , 2019. the increase of $ 41.2 million was primarily attributable to increases in clinical and drug production activities related to bentracimab and pemziviptadil , personnel costs due to additional headcount and costs associated with our general research efforts .
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upon the story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing at the end of this annual report on form 10-k. some of the information contained in this discussion and analysis or set forth elsewhere in this annual report on form 10-k , including information with respect to our plans and strategy for our business , includes forward-looking statements that involve risks and uncertainties . as a result of many factors , including those factors set forth in the “ risk factors ” section of this annual report on form 10-k , our actual results could differ materially from the results described in , or implied by , the forward-looking statements contained in the following discussion and analysis . overview we are developing a new class of cellular medicines , red cell therapeutics , or rcts . based on our vision that human red blood cells are the foundation of the next significant innovation in medicine , we have designed a proprietary platform to genetically engineer and culture rcts that are selective , potent and ready‑to‑use cellular therapies . we believe that our rcts will provide life‑changing or life‑saving benefits for patients with severe diseases across multiple therapeutic areas . we have generated hundreds of rcts using our red platform® , a highly versatile and proprietary cellular therapy platform . we are utilizing our universal engineering and manufacturing processes to advance a broad pipeline of rct product candidates into clinical trials in rare diseases , cancer and autoimmune diseases . common design and manufacturing elements of our rcts should enable us to achieve significant advantages in product development . we are establishing end to end manufacturing capabilities and plan to develop commercial infrastructure to further establish rubius therapeutics as a leading , fully integrated cellular therapy company . since our inception , we have focused substantially all of our resources on building our proprietary red platform , establishing and protecting our intellectual property portfolio , conducting research and development activities , developing our manufacturing process and manufacturing drug product material , organizing and staffing our company , business planning , raising capital and providing general and administrative support for these operations . we do not have any products approved for sale and have not generated any revenue from product sales . to date , we have funded our operations with proceeds from the sale of preferred stock and issuance of debt and , most recently , with proceeds from our initial public offering , or ipo . on july 20 , 2018 , we completed our ipo , pursuant to which we issued and sold 12,055,450 shares of common stock , inclusive of 1,572,450 shares pursuant to the full exercise of the underwriters ' option to purchase additional shares . we received proceeds of $ 254.3 million after deducting underwriting discounts and commissions and other offering costs . since our inception , we have incurred significant operating losses . our ability to generate any product revenue or product revenue sufficient to achieve profitability will depend on the successful development and eventual commercialization of one or more of our product candidates . we reported net losses of $ 89.2 million for the year ended december 31 , 2018 , $ 43.8 million for the year ended december 31 , 2017 and $ 11.0 million for the year ended december 31 , 2016. as of december 31 , 2018 , we had an accumulated deficit of $ 150.1 million . we expect to continue to incur significant expenses and increasing operating losses for at least the next several years . we expect that our expenses and capital requirements will increase substantially in connection with our ongoing activities , particularly if and as we : conduct clinical trials for our product candidates ; further develop our red platform ; continue to discover and develop additional product candidates ; maintain , expand and protect our intellectual property portfolio ; 131 hire additional clinical , scientific manufacturing and commercial personnel ; expand in-house manufacturing capabilities , including through the renovation , customization and operation of our recently purchased manufacturing facility ; establish a commercial manufacturing source and secure supply chain capacity sufficient to provide commercial quantities of any product candidates for which we may obtain regulatory approval ; acquire or in-license other product candidates and technologies ; seek regulatory approvals for any product candidates that successfully complete clinical trials ; establish a sales , marketing and distribution infrastructure to commercialize any products for which we may obtain regulatory approval ; and add operational , financial and management information systems and personnel , including personnel to support our product development and planned future commercialization efforts , as well as to support our transition to a public company . we will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for our product candidates . if we obtain regulatory approval for any of our product candidates , we expect to incur significant expenses related to developing our commercialization capability to support product sales , marketing and distribution . further , we expect to incur additional costs associated with operating as a public company . as a result , we will need substantial additional funding to support our continuing operations and pursue our growth strategy . until such time as we can generate significant revenue from product sales , if ever , we expect to finance our operations through a combination of equity offerings , debt financings , collaborations , strategic alliances and marketing , distribution or licensing arrangements . we may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms , or at all . story_separator_special_tag , by patients , the medical community and third‑party payors ; competition with other products ; and a continued acceptable safety profile of our therapies following approval . a change in the outcome of any of these variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate . we may never succeed in obtaining regulatory approval for any of our product candidates . general and administrative expenses general and administrative expenses consist primarily of salaries and related costs , including stock‑based compensation , for personnel in executive , finance and administrative functions . general and administrative expenses also include direct and allocated facility‑related costs as well as professional fees for legal , patent , consulting , investor and public relations , accounting and audit services . we anticipate that our general and administrative expenses will increase in the future as we increase our headcount and infrastructure to support the expansion of our research activities and development of our product candidates . we also anticipate that we will incur increased accounting , audit , legal , regulatory , compliance and director and officer insurance costs as well as investor and public relations expenses associated with operating as a public company . other income ( expense ) change in fair value of preferred stock warrant liability in connection with our 2015 loan and security agreement with pacific western bank , we issued warrants to purchase series a and series b preferred stock . we classified these warrants as a liability on our consolidated balance sheet that we remeasured to fair value at each reporting date , and we recognized changes in the fair value of the warrant liability as a component of other income ( expense ) in our consolidated statements of operations and comprehensive loss . upon the 134 closing of our ipo in july 2018 , the preferred stock warrants became exercisable for common stock instead of preferred stock and were concurrently exercised by the holders . as a result , the fair value of the warrants was reclassified to additional paid-in capital and we no longer have a warrant liability to remeasure . interest expense interest expense consists of interest expense on outstanding borrowings under our loan and security agreements , as well as amortization of debt discount and debt issuance costs . interest income and other expense , net interest income consists of interest earned on our invested cash balances . we expect our interest income to increase as a result of investing the cash received from the sale of series c preferred stock in february 2018 and our ipo in july 2018. other income ( expense ) consists of miscellaneous income and expense unrelated to our core operations . income taxes since our inception , we have not recorded any income tax benefits for the net losses we have incurred in each year or for our research and development tax credits generated , as we believe , based upon the weight of available evidence , that it is more likely than not that all of our net operating loss , or nol , carryforwards and tax credits will not be realized . as of december 31 , 2018 , we had u.s. federal and state net operating loss carryforwards of $ 93.2 million and $ 93.9 million , respectively , which may be available to offset future taxable income . the federal nols include $ 37.2 million which expire at various dates through 2037 and $ 56.0 million which carryforward indefinitely . the state nols expire at various dates through 2038. as of december 31 , 2018 , we also had u.s. federal and state research and development tax credit carryforwards of $ 3.0 million and $ 1.1 million , respectively , which may be available to offset future tax liabilities and begin to expire in 2034 and 2031 , respectively . we have recorded a full valuation allowance against our net deferred tax assets at each balance sheet date . on december 22 , 2017 , the tax cuts and jobs act , or the tcja , was signed into united states law . the tcja includes a number of changes to existing tax law , including , among other things , a permanent reduction in the federal corporate income tax rate from a top marginal tax rate of 35 % to a flat rate of 21 % , effective as of january 1 , 2018 , as well as limitation of the deduction for net operating losses to 80 % of annual taxable income and elimination of net operating loss carrybacks , in each case , for losses arising in taxable years beginning after december 31 , 2017 ( though any such net operating losses may be carried forward indefinitely ) . the federal tax rate change resulted in a reduction in the gross amount of our deferred tax assets and liabilities recorded as of december 31 , 2017 , and a corresponding reduction in our valuation allowance . as a result , no income tax expense or benefit was recognized as of the enactment date of the tcja . 135 story_separator_special_tag style= '' margin:24pt 0pt 0pt ; text-align : center ; font-family : times new roman , times , serif ; font-size : 10pt ; '' > 137 comparison of the years ended december 31 , 2017 and 2016 the following table summarizes our results of operations for the years ended december 31 , 2017 and 2016 : replace_table_token_5_th research and development expenses replace_table_token_6_th research and development expenses were $ 21.2 million for the year ended december 31 , 2017 , compared to $ 8.4 million for the year ended december 31 , 2016. the increase in direct costs related to our rtx-134 program of $ 0.8 million was primarily due to contract manufacturing costs incurred with a supplier of lentiviral vectors .
| results of operations comparison of the years ended december 31 , 2018 and 2017 the following table summarizes our results of operations for the years ended december 31 , 2018 and 2017 : replace_table_token_2_th research and development expenses replace_table_token_3_th research and development expenses were $ 51.8 million for the year ended december 31 , 2018 , compared to $ 21.2 million for the year ended december 31 , 2017. the increase in direct costs related to our rtx-134 program of $ 8.3 million was primarily due to contract manufacturing costs incurred and ind-enabling activities in preparation for our planned phase 1b clinical trial of rtx-134 in patients with phenylketonuria . the increases in personnel-related costs and stock-based compensation expense of $ 8.7 million and $ 2.0 million , respectively , were due primarily to increased headcount in our research and development function . the increase in laboratory supplies and research materials of $ 4.2 million was primarily due to increases in platform development , manufacturing process and scale-up and drug discovery activities . the increase in facility-related and other expenses of $ 4.2 million was primarily due to an increase in facilities costs resulting from entering into two leases of office and laboratory space in july 2017 and may 2018 , as well as additional laboratory services to support increased headcount . 136 general and administrative expenses replace_table_token_4_th general and administrative expenses for the year ended december 31 , 2018 were $ 39.9 million , compared to $ 22.0 million for the year ended december 31 , 2017. the increase in general and administrative expenses of $ 17.9 million was primarily due to an increase in stock-based compensation expense of $ 7.6 million .
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depending on the terms of a service concession arrangement , an operating entity may or may not conclude that a service concession arrangement meets the lease criteria in topic 840. consequently , the amendments in this update improve financial reporting by clarifying that a service concession arrangement within the scope of this update should not be accounted for as a lease in accordance with story_separator_special_tag the following discussion should be read in conjunction with our consolidated financial statements and notes to those consolidated financial statements , included elsewhere in this annual report on form 10-k. 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 our expectations . factors that could cause or contribute to those differences include , but are not limited to , those identified below and those discussed above in the section entitled “ 1a . risk factors. ” 18 overview our principal business is the manufacturing , distribution and marketing of physical medicine products and aesthetic products . we offer a broad line of medical equipment including therapy devices , medical supplies and soft goods , treatment tables and rehabilitation equipment . our line of aesthetic equipment includes aesthetic massage and microdermabrasion devices , as well as skin care products . our products are sold to and used primarily by physical therapists , chiropractors , sports medicine practitioners , podiatrists , plastic surgeons , dermatologists , aestheticians and other aesthetic services providers . our fiscal year ends on june 30. reference to fiscal year 2014 refers to the year ended june 30 , 2014. story_separator_special_tag center ; text-indent : 0pt ; display : block ; margin-left : 0pt ; margin-right : 0pt '' > · $ 281,331 of lower selling expenses due primarily to lower sales commissions ; · $ 226,860 of lower labor and overhead costs ; · $ 139,340 of lower general expenses primarily related to a reduction in regulatory compliance costs and professional fees and lower bad debt expense . the reduction in expenses was related to the declining sales . however , the reduction in expense was insufficient to fully offset the $ 1,067,000 decrease in gross profit during the period . research and development research and development , or r & d expenses for 2014 were $ 992,729 compared to $ 1,120,887 in 2013 , a drop of $ 128,158. with the completion of the development work associated with the new thermostim probe , r & d expense in the latter half of 2014 decreased . over the past two years , we have introduced more new products than any previous two-year period in our history . the new product introductions include the solarisplus line of electrotherapy/ultrasound/ phototherapy units , the ultra 2 and ultra 3 motorized treatment tables , the 25 series line of electrotherapy and ultrasound products , as well as the dynatron thermostim probe . we believe that developing new products is a key element in our strategy and critical to moving purchasing momentum in a positive direction . r & d costs are expensed as incurred and are expected to remain at current levels in the coming year as we have concluded a major r & d investment cycle incurred over the past three years . r & d expense decreased as a percentage of net sales in fiscal year 2014 to 3.6 % from 3.8 % of net sales in fiscal year 2013. interest expense interest expense decreased by $ 28,834 , to $ 231,865 in fiscal year 2014 compared to $ 260,699 in fiscal year 2013 due to lower balances on our long-term debt compared to fiscal year 2013. in august 2014 , we sold our cottonwood heights facility housing our principal executive offices and manufacturing facilities to an investment group and leased the facility back for a 15-year term . this sale allowed us to use the proceeds to retire the mortgage loan on the property and to pay down our line of credit by approximately $ 2.1 million . loss before income tax benefit pre-tax loss in fiscal year 2014 was $ 397,165 , compared to $ 131,125 in fiscal year 2013. lower sales and gross margin led to $ 1,066,230 in lower gross profit in 2014 compared to 2013. that lower gross profit was offset by $ 775,689 in lower sg & a and r & d expenses and $ 24,501 of lower interest expense and other income resulting in a $ 266,040 greater loss before taxes for 2014. adding the $ 266,040 to the $ 131,125 loss last year results in this year 's pre-tax loss of $ 397,165. we believe the introduction of the new thermostim probe not only adds a new , highly profitable product to our product line to increase sales , but we also expect that it will boost demand for solarisplus products that are required to power the thermostim probe . income tax benefit income tax benefit was $ 126,023 in fiscal year 2014 , compared to $ 86,754 in fiscal year 2013. due to tax benefits associated with a reduction of r & d tax credits and other credits , the effective income tax benefit rate in fiscal year 2014 was 31.7 % compared to an effective tax benefit rate of 66.2 % in 2013. the difference in the effective tax benefit rates is attributable to lower r & d tax credits in fiscal year 2014 , a true up of r & d tax credits in 2013 , as well as certain permanent book to tax differences . it should be noted that the sale of the building referenced above will result in a profit that consumes all tax attributes available to us at the end of fiscal year 2015 . story_separator_special_tag if the line of credit is not renewed , we will need to find additional sources of financing . failure to obtain additional financing would have a material adverse effect on our business operations . all borrowings under the line of credit are presented as current liabilities in the accompanying consolidated balance sheet . we believe that amounts available under the line of credit as well as cash generated from operating activities will continue to be sufficient to meet our short term operating requirements . as previously explained in this report , in order to assure adequate availability of operating capital under our line of credit and to more fully take advantage of accumulated deferred tax assets , on august 8 , 2014 , we sold our building that houses operations in utah and leased back the premises for a term of 15 years . the sales price was $ 3,800,000. proceeds from the sale were used to pay off the mortgage on the property , to pay down amounts outstanding on our line of credit and to reduce debt obligations of the company . the profit generated from the sale will be sufficient to utilize the majority , if not all of our deferred tax assets . as a result of this repayment of debt , our maximum credit facility under the line of credit was changed to $ 2,500,000 in august 2014. our outstanding balance under the line as of september 14 , 2014 was approximately $ 827,000. debt long-term debt , excluding current installments decreased $ 306,643 to $ 1,255,133 as of june 30 , 2014 , compared to $ 1,561,776 as of june 30 , 2013. long-term debt is comprised primarily of the mortgage loans on our office and manufacturing facilities in utah and tennessee . the principal balance on the mortgage loans at june 30 , 2014 was approximately $ 1,498,051 , of which $ 1,291,646 is classified as long-term debt , with monthly principal and interest payments of $ 30,263. our mortgage loans mature in 2017 and 2021. in conjunction with the sale/leaseback of our utah facility , approximately $ 632,000 of mortgage debt was paid to the lender . of this amount , approximately $ 170,900 was included as current portion of long-term debt as of june 30 , 2014. inflation our revenues and net income have not been unusually affected by inflation or price increases for raw materials and parts from vendors . stock repurchase plans our board of directors adopted a stock repurchase plan authorizing repurchases of shares in the open market , through block trades or otherwise . decisions to repurchase shares under this plan are based upon market conditions , the level of our cash balances , general business opportunities , and other factors . our board of directors periodically approves the dollar amounts for share repurchases under the plan . as of june 30 , 2014 , $ 448,450 remained available under the board 's authorization for purchases under the plan . there is no expiration date for the plan . no purchases were made under this plan during the three or twelve months ended june 30 , 2014 . 22 critical accounting policies management 's discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles . the preparation of these financial statements requires estimates and judgments that affect the reported amounts of our assets , liabilities , net sales and expenses . management bases estimates on historical experience and other assumptions it believes to be reasonable given the circumstances and evaluates these estimates on an ongoing basis . actual results may differ from these estimates under different assumptions or conditions . we believe that the following critical accounting policies involve a high degree of judgment and complexity . see note 1 to our consolidated financial statements for fiscal year 2014 , for a complete discussion of our significant accounting policies . the following summary sets forth information regarding significant estimates and judgments used in the preparation of our consolidated financial statements . inventory reserves the nature of our business requires that we maintain sufficient inventory on hand at all times to meet the requirements of our customers . we record finished goods inventory at the lower of standard cost , which approximates actual cost ( first-in , first-out ) or market . raw materials are recorded at the lower of cost ( first-in , first-out ) or market . inventory valuation reserves are maintained for the estimated impairment of the inventory . impairment may be a result of slow-moving or excess inventory , product obsolescence or changes in the valuation of the inventory . in determining the adequacy of reserves , we analyze the following , among other things : · current inventory quantities on hand ; · product acceptance in the marketplace ; · customer demand ; · historical sales ; · forecast sales ; · product obsolescence ; · technological innovations ; and · character of the inventory as a distributed item , finished manufactured item or raw material . any modifications to estimates of inventory valuation reserves are reflected in cost of goods sold within the statements of operations during the period in which such modifications are determined necessary by management . as of june 30 , 2014 and 2013 , our inventory valuation reserve balance , which established a new cost basis , was $ 335,355 and $ 327,519 , respectively , and our inventory balance was $ 6,157,848 and $ 6,407,553 , net of reserves , respectively . revenue recognition our sales force and distributors sell our products to end users , including physical therapists , professional trainers , athletic trainers , chiropractors , medical doctors and aestheticians . sales revenues are recorded when products are shipped fob shipping point under an agreement with a customer , risk of loss and title have passed to the customer , and collection of any resulting receivable is reasonably assured .
| results of operations fiscal year 2014 compared to fiscal year 2013 net sales net sales in fiscal year 2014 were $ 27,444,223 , compared to $ 29,538,275 in fiscal year 2013. in fiscal year 2013 , we introduced the new solarisplus product line which significantly increased sales of manufactured capital devices during that period . in fiscal year 2014 , increased sales of our top-selling solarisplus therapy devices and new thermostim probe were offset by lower sales of certain medical products and supplies , including other manufactured modalities , metal treatment tables , exercise products , nutritional supplements and taping products . market conditions continued to deteriorate during the year due to the patient protection and affordable care act as amended by the health care and education reconciliation act , each enacted in march 2010 ( the “ health care reform law ” ) . the health care reform law has had the effect of creating significant uncertainty relative to delivery of care and reimbursement . there has been a marked decline in the opening of new clinics and expansion of existing clinics in our marketplace which typically are a significant source of demand for our products – particularly the higher margin capital equipment products . the uncertainty surrounding the health care reform law has not only led to customers focusing more on controlling operating costs by reducing expenditures , but has also caused a reluctance to invest in new equipment and clinic upgrades . in addition to the impacts of the health care reform law , we continue to see slower economic recovery in some parts of the country as well as a temporary decrease in demand due to severe weather events during this past winter . with a currently shrinking market , it is necessary to implement strategies to increase market share .
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general overview we are eagle bulk shipping inc. , a marshall islands corporation incorporated on march 23 , 2005 and headquartered in stamford , connecticut . we own one of the largest fleets of supramax/ultramax dry bulk vessels in the world . supramax dry bulk are vessels which are constructed with on-board cranes , ranging in size from approximately 50,000 to 59,000 dwt and ultramax dry bulk vessels range in size from 60,000 to 65,000 dwt . they are considered a sub-category of the handymax segment typically defined as 40,000 to 65,000 dwt . we transport a broad range of major and minor bulk cargoes , including but not limited to coal , grain , ore , petcoke , cement and fertilizer , along worldwide shipping routes . as of december 31 , 2016 , we owned and operated a modern fleet of 41 handymax dry bulk vessels . we chartered-in a 37,000 dwt newbuilding japanese vessel that was delivered in october 2014 for seven years with an option for one additional year . we are focused on maintaining a high quality fleet that is concentrated primarily in supramax/ ultramax dry bulk carriers . these vessels have the cargo loading and unloading flexibility of on-board cranes while offering cargo carrying capacities approaching that of panamax dry bulk vessels , which range in size from 72,000 to 83,000 dwt and rely on port facilities to load and offload their cargoes . we believe that the cargo handling flexibility and cargo carrying capacity of the supramax class vessels make them attractive to cargo interests and vessel charterers . the 41 vessels in our operating fleet , with an aggregate carrying capacity of 2,260,943 dwt , have an average age of 8.7 years as of december 31 , 2016. we carry out the commercial and strategic management of our fleet through our indirectly wholly-owned subsidiary , eagle shipping international ( usa ) llc , a marshall islands limited liability company , which maintains its principal executive offices in stamford , connecticut . we own each of our vessels through a separate wholly-owned marshall islands limited liability company . corporate reorganization and refinancing on march 30 , 2016 , we entered into the contribution agreement ( the “ contribution agreement ” ) with a newly-formed wholly-owned subsidiary , eagle shipping llc , a limited liability company organized under the laws of the marshall islands and a wholly-owned subsidiary of the company ( “ eagle shipping ” ) , pursuant to which the company transferred , assigned and contributed to eagle shipping , and eagle shipping received , accepted and assumed , all of the tangible and intangible assets of the company ( other than the membership interests in eagle shipping owned by the company and certain deposit accounts held by the company , which deposit account balances were transferred ) and all of the liabilities of the company , including all of the company 's rights and obligations under the senior secured credit facility dated as of october 9 , 2014 ( the “ exit financing facility ” ) ( the “ contribution ” ) . immediately following the contribution , eagle shipping became the direct parent company of each of the company 's previously directly-owned subsidiaries and the indirect parent company of each of the company 's previously indirectly-owned subsidiaries . the contribution was part of a series of transactions contemplated by the agreements also entered into on march 30 , 2016 and described below , which transactions were consummated on march 30 , 2016 , after the fulfillment of certain conditions precedent . first lien facility on march 30 , 2016 , eagle shipping , as borrower , and certain of its subsidiaries that were guarantors of the company 's obligations under the company 's senior secured credit facility ( the “ exit financing facility ” ) , as guarantors , entered into an amended and restated first lien loan agreement ( the “ a & r first lien loan agreement ” ) with the lenders thereunder ( the “ first lien lenders ” ) and abn amro capital usa llc , as agent and security trustee for the lenders . the a & r first lien loan agreement amends and restates the exit financing facility in its entirety , providing for eagle shipping to be the borrower in the place of the company , and further provides for a waiver of any and all events of default occurring as a result of the company 's previously reported self-disclosure report with ofac . the a & r first lien loan agreement provides for a term loan ( which was outstanding in the amount of $ 201,468,750 after giving effect to the entry into the a & r first lien loan agreement and the second lien loan agreement ) as well as a $ 50,000,000 revolving credit facility , of which $ 10,000,000 was undrawn as of march 30 , 2016 ( the term loan , together with the revolving credit facility , the “ first lien facility ” ) . the first lien facility matures on october 15 , 2019. an aggregate fee of $ 600,000 was paid to the agent and the first lien lenders in connection with the first lien facility . eagle shipping 's obligations under the first lien facility are secured by a first priority mortgage on each of the vessels currently in eagle shipping 's fleet and such other vessels that it may from time to time include with the approval of the first lien lenders , a first priority assignment of its earnings account , its liquidity account and its vessel-owning subsidiaries ' earnings accounts , a first priority assignment of all charters with terms that may exceed 18 months , freights , earnings , insurances , requisition compensation and management agreements with respect to the vessels , a first priority pledge of the membership interests of each of eagle shipping 's vessel-owning subsidiaries , and a non-recourse pledge by the company of the membership interests of eagle shipping . story_separator_special_tag the common stock purchase agreements provided for the issuance and sale by the company to the common stock purchasers of an aggregate amount of $ 88 million of common stock , at an initial price per share of $ 0.15 , which amount per share was increased to $ 3.00 per share based on the reverse stock split ratio of 1-for-20 that became effective as of the opening of trading on august 5 , 2016. on august 10 , 2016 , the company closed the transactions contemplated by the common stock purchase agreements for aggregate proceeds of $ 86.0 million , net of fees and legal expenses . after giving effect to the company 's previously announced reverse stock split of its issued and outstanding shares of common stock , including the rounding down of fractional shares pursuant to such split , the private placement included the issuance of 29,333,318 shares of the company 's common stock . the company intends to use the proceeds of the private placement for the acquisition of dry bulk vessels and general corporate purposes . 54 on december 13 , 2016 , the company entered into a stock purchase agreement ( the “ december stock purchase agreement ” ) with certain investors ( the “ investors ” ) , pursuant to which the company agreed to issue to the investors in a private placement ( the “ december private placement ” ) approximately 22.2 million shares of the company 's common stock , par value $ 0.01 per share , at an initial purchase price of $ 4.50 per share , for aggregate gross proceeds of $ 100.0 million . on january 20 , 2017 , the company closed its previously announced december private placement for aggregate gross proceeds of $ 100 million . the company plans to use the proceeds from the december private placement for the acquisition of dry bulk tonnage and general corporate purposes . see “ note 3. equity offerings ” to the consolidated financial statements . the following are certain significant events that occurred during 2016 and 2017 : ● on april 26 , 2016 , the company sold the vessel peregrine for $ 2.6 million , after brokerage commissions and associated selling expenses , and recorded a net loss of approximately $ 150,000 in the second quarter of 2016. a portion of the proceeds was used towards repayment of the term loan under the first lien facility . ● on june 16 , 2016 , the company sold the vessel falcon for $ 3.2 million , after brokerage commissions and associated selling expenses , and recorded a net loss of approximately $ 140,000 in the second quarter of 2016. a portion of the proceeds was used towards repayment of the term loan under the first lien facility . ● on july 13 , 2016 , the company sold the vessel harrier for $ 3.2 million , after brokerage commissions , associated selling expenses , and recorded a loss of $ 115,000. a portion of the proceeds was used towards repayment of the term loan under the first lien facility . ● on september 6 , 2016 , the company sold the vessel kittiwake for $ 4.0 million , after brokerage commission , associated selling expenses , and recorded a net gain of approximately $ 316,000 in the third quarter of 2016. a portion of the proceeds was used towards repayment of the term loan under the first lien facility . ● on september 30 , 2016 , eagle shipco signed a memorandum of agreement to acquire a 2016 nacks built ultramax 61,000 dwt . vessel for $ 18.85 million . the company took the delivery of the vessel in the fourth quarter of 2016 . ● on november 14 , 2016 , the company announced it has acquired a resale 2017-built 64,000 deadweight sdari-64 ultramax dry bulk vessel constructed at chengxi shipyard co. , ltd for $ 18.5 million . the vessel was delivered to the company in the first quarter of 2017 . ● on december 22 , 2016 , the company signed a memorandum of agreement to sell the vessel redwing for $ 5.8 million after brokerage commissions and associated selling expenses . the vessel was delivered to the buyers in first quarter of 2017. the company will record a gain on sale of vessel of $ 0.3 million in the first quarter of 2017. a portion of the proceeds was used towards repayment of the term loan under the first lien facility . as of december 31 , 2016 , the company determined that all held for sale criteria were met for the vessel and classified the carrying amount of the vessel as a current asset in its consolidated balance sheet . ● on february 28 , 2017 , a wholly-owned subsidiary of the company entered into the greenship agreement with the greenship sellers for the purchase of the greenship vessels . of the nine greenship vessels , three greenship vessels are subject to certain customary conditions as well as the approval of the requisite majority of the unitholders of the greenship sellers , which approval was obtained . the aggregate purchase price for the nine greenship vessels is $ 153.0 million . the allocated purchase price for each greenship vessel is $ 17.0 million . the greenship vessels are expected to be delivered charter free between april and september 2017. see note 20 , “ subsequent events ” to the consolidated financial statements . ● on march 15 , 2017 , the company signed a memorandum of agreement to sell the vessel sparrow for $ 4.8 million after brokerage commissions and associated selling expenses . the vessel will be delivered to the buyers in the second quarter of 2017. the company will record a gain on sale of vessel of $ 1.0 million in the second quarter of 2017. a portion of the proceeds will be used towards repayment of the term loan under the first lien facility .
| results of operations for successor ( years ended december 31 , 2016 and 2015 and the period between october 16 , 2014 and december 31 , 2014 ) and for predecessor ( the period between january 1 , 2014 and october 15 , 2014 ) factors affecting our results of operations the following tables represent the operating data and certain financial statement data for the years ended december 31 , 2016 , 2015 and the period between october 16 , 2014 and december 31 , 2014 ( successor ) and the period between january 1 , 2014 and october 15 , 2014 ( predecessor ) on a consolidated basis . the period from january 1 , 2014 to october 15 , 2014 ( predecessor ) and the period from october 16 , 2014 to december 31 , 2014 ( successor ) are distinct reporting periods because of our emergence from bankruptcy on october 15 , 2014. the application of fresh-start reporting significantly affected certain assets , liabilities and expenses . as a result , certain financial information at and for any period after october 16 , 2014 is not comparable to financial information for the predecessor . therefore , we did not combine financial information in the period january 1 , 2014 to october 15 , 2014 ( predecessor ) and the period from october 16 , 2014 to december 31 , 2014 ( successor ) for comparison to other periods . our results have been separated by a vertical line to identify these different bases of accounting . we also did not compare the share and per share amounts , since the change in our capital structure because of the bankruptcy renders these not comparable between the successor and the predecessor .
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we were established for the purpose of investing in debt and equity securities of established private business operating in the united states ( u.s. ) . our investment objectives are to : ( 1 ) achieve and grow current income by investing in debt securities of established businesses that we believe will provide stable earnings and cash flow to pay expenses , make principal and interest payments on our outstanding indebtedness and make distributions to stockholders that grow over time ; and ( 2 ) provide our stockholders with long-term capital appreciation in the value of our assets by investing in equity securities of established businesses that we believe can grow over time to permit us to sell our equity investments for capital gains . to achieve our investment objectives , our investment strategy is to invest in several categories of debt and equity securities , with each investment generally ranging from $ 5 million to $ 30 million , although investment size may vary , depending upon our total assets or available capital at the time of investment . we also aim to maintain a portfolio allocation of approximately 95.0 % debt investment and 5.0 % equity investment , at cost . we focus on investing in small and medium-sized private businesses in the u.s. that meet certain criteria , including , but not limited to , the following : the potential for growth in cash flow , adequate assets for loan collateral , experienced management teams with a significant ownership interest in the borrower , profitable operations based on the borrower 's cash flow , reasonable capitalization of the borrower ( usually by leveraged buyout funds or venture capital funds ) and , to a lesser extent , the potential to realize appreciation and gain liquidity in our equity position , if any . we lend to borrowers that need funds to finance growth , restructure their balance sheets or effect a change of control . we invest by ourselves or jointly with other funds and or management of the portfolio company , depending on the opportunity . if we are participating in an investment with one or more co-investors , our investment is likely to be smaller than if we were investing alone . in general , our investments in debt securities have a term of no more than seven years , accrue interest at variable rates ( based on the london interbank offered rate ( libor ) ) and , to a lesser extent , at fixed rates . we seek debt instruments that pay interest monthly or , at a minimum , quarterly , have a success fee or deferred interest provision and are primarily interest only with all principal and any accrued but unpaid interest due at maturity . generally , success fees accrue at a set rate and are contractually due upon a change of control in the business . some debt securities have deferred interest whereby some portion of the interest payment is added to the principal balance so that the interest is paid , together with the principal , at maturity . this form of deferred interest is often called paid-in-kind ( pik ) interest . 40 typically , our equity investments consist of common stock , preferred stock , limited liability company interests , or warrants to purchase the foregoing . often , these equity investments occur in connection with our original investment , recapitalizing a business , or refinancing existing debt . we are externally managed by our investment advisor , gladstone management corporation ( the adviser ) , a securities and exchange commission ( sec ) registered investment adviser and an affiliate of ours , pursuant to an investment advisory and management agreement ( the advisory agreement ) . the adviser manages our investment activities . we have also entered into an administration agreement ( the administration agreement ) with gladstone administration , llc ( the administrator ) , an affiliate of ours and the adviser , whereby we pay separately for administrative services . our shares of common stock and term preferred stock are traded on the nasdaq global select market ( nasdaq ) under the trading symbols glad and gladp , respectively . business environment the strength of the global economy and the u.s. economy in particular , continues to be uncertain and volatile . recently , we experienced the first u.s. government shutdown in 17 years along with a stalemate in the u.s. congress over whether to raise the debt ceiling . the u.s. government budget concerns remain until early 2014 when the u.s. congress will revisit the debt ceiling debate again . prior to this recent u.s. fiscal crisis , economic conditions generally appeared to be improving , albeit slowly , since the 2008 recession . we have continued to remain cautious about a long-term economic recovery . the impacts from the 2008 recession in general , and the resulting disruptions in the capital markets in particular , have had lingering effects on our liquidity options and increased our cost of debt and equity capital . many of our portfolio companies , as well as those small and medium-sized companies that we evaluate for investment , are still feeling the adverse impacts of these political and economic conditions , and if these conditions persist , it may affect their ability to repay our loans or engage in a liquidity event , such as a sale , recapitalization or initial public offering . these political and economic conditions could also disproportionately impact some of the industries in which we have invested , causing us to be more vulnerable to losses in our portfolio , which could cause the number of our non-performing assets to increase and the fair market value of our portfolio to decrease . in addition , there has been increased competitive pressure in the bdc and investment company marketplace for senior and senior subordinated debt , resulting in lower yields for increasingly riskier investments . story_separator_special_tag failure to meet these requirements would result in a default which , if we are unable to obtain a waiver from our lenders , would cause an acceleration of our repayment obligations under our credit facility . as of september 30 , 2013 , we were in compliance with all of our credit facility 's covenants . we expect that , given these regulatory and contractual constraints in combination with current market conditions , debt and equity capital may be costly for us to access in the near term . however , we believe that our recent amendments to our credit facility to decrease the interest rate on advances and extend its maturity until 2016 and our ability to co-invest with gladstone investment and certain other affiliated investment funds , should increase our ability to make investments in businesses that we believe will be generally resistant to a recession and , as a result , will be likely to achieve attractive long-term returns for our stockholders . see recent developments for more information on these transactions . going into fiscal 2014 , we will continue to focus on building our pipeline and making investments that meet our objectives and strategies and that provide appropriate returns , given the risks . investment highlights during the year ended september 30 , 2013 , we invested an aggregate of $ 80.4 million in 15 new portfolio companies and an aggregate of $ 9.7 million to existing portfolio companies . also , during the year ended september 30 , 2013 , we sold our investments in two portfolio companies for net proceeds of a combined $ 6.6 million , and we received scheduled and unscheduled contractual principal repayments of a combined $ 110.5 million from existing portfolio companies , including 14 early payoffs . since our initial public offering in august 2001 , we have made 342 different loans to , or investments in , 172 companies for a total of approximately $ 1.2 billion , before giving effect to principal repayments on investments and divestitures . 42 investment activity during the year ended september 30 , 2013 , we executed the following transactions with certain of our portfolio companies : issuances and originations during the year ended september 30 , 2013 , we invested an aggregate of $ 50.2 million to five new proprietary portfolio companies and an aggregate of $ 30.2 million in 10 new syndicated portfolio companies ( ardent medical services , inc. , blue coat systems inc. , first american payment systems , l.p. , john henry holdings , inc. , new trident holdcorp , inc. , rp crown parent , llc , steinway musical instruments , inc. , sumtotal systems , inc. , wall street systems holdings , inc. , and w3 , co. ) . we also invested in additional equity in rbc acquisition corp. ( reliable ) and midwest metal distribution , inc. ( midwest metal ) . below are significant issuances and originations during the year ended september 30 , 2013 : in december 2012 , we invested $ 14.0 million in ag transportation holdings , llc ( ag trucking ) through a combination of senior subordinated term debt and equity . ag trucking , headquartered in goshen , indiana , is a regional food-grade liquid and dry bulk carrier providing a variety of bulk transportation services , including liquid transportation , dry bulk dumps , freight brokering , private fleet conversion and project runs to large international agricultural and food manufacturing firms . in december 2012 , we invested $ 19.5 million in allen edmonds shoe corporation ( allen edmonds ) through senior subordinated term debt that we purchased from one of allen edmonds ' existing lenders . allen edmonds , headquartered in port washington , wisconsin , manufactures premium men 's footwear and accessories , which it sells through its retail stores , catalog and internet site and also wholesale and e-commerce channels . in march 2013 , we acquired a controlling equity position in reliable and invested $ 2.0 million in additional equity capital in the form of preferred equity . in addition , we invested $ 0.3 million in preferred equity in august 2013 and an aggregate of $ 1.1 million in line of credit draws to reliable during the year ended september 30 , 2013. as of september 30 , 2013 , reliable was classified as a control portfolio company . reliable was known as reliable biopharmaceutical holdings , inc. before its recapitalization in march 2013 and is therefore included on our accompanying consolidated schedule of investments as of september 30 , 2012 under the name reliable biopharmaceutical holdings , inc. in may 2013 , we invested $ 8.8 million in funko , llc ( funko ) , through a combination of senior subordinated term debt and equity . funko , headquartered in lynnwood , wa , is a designer , importer and marketer of pop-culture collectibles . this was our first co-investment with our affiliate fund , gladstone investment , pursuant to the aforementioned exemptive order granted by the sec . gladstone investment invested an additional $ 8.8 million in funko under the same terms as us . in july 2013 , we invested $ 8.9 million in ashland acquisition , llc ( ashland ) through a combination of senior term debt and common equity , where we hold 20.0 % of the voting securities . ashland , through its wholly-owned subsidiary that is headquartered in ashland , ohio , provides publishing services including digital and offset printing , warehousing , distribution , and content and marketing services . repayments and exits during the year ended september 30 , 2013 , 34 borrowers made principal repayments totaling $ 110.5 million in the aggregate , consisting of $ 103.1 million of unscheduled principal and revolver repayments , as well as $ 7.4 million in contractual principal amortization .
| results of operations comparison of the year ended september 30 , 2013 to the year ended september 30 , 2012 replace_table_token_8_th nm = not meaningful investment income total interest income decreased by 7.1 % , which was driven by a decrease of $ 2.4 million or 6.7 % on interest income on our investments in debt securities for the year ended september 30 , 2013 , as compared to the year ended september 30 , 2012. this was primarily due to the increase in early payoffs at par during the year , partially offset by an increase in our weighted average yield on our interest-bearing investment portfolio . the level of interest income on our investments is directly related to the principal balance of our interest-bearing investment portfolio during the year , multiplied by the weighted average yield . the weighted average principal balance of our interest-bearing investment portfolio during the year ended september 30 , 2013 , was $ 287.3 million , compared to $ 317.5 million for the prior year , a decrease of $ 30.2 million or 9.5 % . the weighted 45 average yield on the principal balance of our interest-bearing investments for the year ended september 30 , 2013 , was 11.6 % , as compared to 11.3 % for the prior year . the weighted average yield on our portfolio increased during the year ended september 30 , 2013 , as compared to the prior year , due to the purchase of higher yielding new proprietary investments coupled with the early payoffs of 12 of our syndicated investments , which generally bear lower interest rates than our proprietary investments . as of september 30 , 2013 , two portfolio companies were on non-accrual status with an aggregate debt cost basis of approximately $ 39.5 million , or 12.6 % of the cost basis of all debt investments in our portfolio .
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natural disasters could include a hurricane , tornado , high winds , heavy rains and or fire cause by lightning . interest rate risks the company has no direct exposure to changes in foreign currency exchange rates and minimal direct exposure to interest rates . the company has an unsecured line of credit with whitney national bank with no outstanding balance . the company has no current plans to draw against this line . item 8. financial statements all financial statements required by this item are listed in the to financial statements appearing immediately after the signature page of this form 10-k and are included herein by reference . 8 item 9. changes in and disagreements with accountants on accounting and financial disclosure none . item 9a . controls and procedures evaluation of disclosure controls and procedures the company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the company 's securities exchange act reports is recorded , processed , summarized and reported within the time periods specified in the sec 's rules and forms , and that such information is accumulated and communicated to the company 's management , including its principal executive officer and principal financial officer , as appropriate , to allow timely decisions regarding required disclosure . as of december 31 , 2015 , an evaluation was performed under the supervision and with the participation of the company 's management , including the principal executive and financial officer , of the effectiveness of the design and operation of the company 's disclosure controls and procedures . based on that evaluation , the company 's management , including the principal executive and financial officer , concluded that the company 's disclosure controls and procedures were effective as of december 31 , 2015. management 's annual report on internal control over financial reporting the company 's management is responsible for establishing and maintaining adequate internal control over financial reporting ( “ icfr ” ) for the company . in assessing the company 's icfr , management follows the committee of sponsoring organizations of the treadway commission 's ( “ coso ” ) internal control - integrated framework ( 2013 ) in assessing the effectiveness of the company 's icfr . management shall determine icfr ineffective if a material weakness exists in the controls . management has assessed the company 's icfr as effective as of december 31 , 2015. this annual report does not include an attestation report of the company 's registered public accounting firm regarding internal control over financial reporting . management 's report was not subject to attestation by the company 's registered public accounting firm pursuant to rules of the securities and exchange commission that permit the company to provide only management 's report in this annual report . during the quarter ending december 31 , 2015 , the company 's management followed the coso internal control - integrated framework ( 2013 ) when assessing the icfr . during the quarter ending december 31 , 2015 , there have been no changes in the company 's internal control over financial reporting that has materially affected or is reasonably likely to affect , the company 's internal control over financial reporting . item 9b . other information none . 9 part iii item 10. directors , executive officers , promoters and control persons ; compliance with section 16 ( a ) of the exchange act the information required by item 10 as to directors , nominees for directors , reports under section 16 of the securities exchange act of 1934 , the registrant 's audit committee and an audit committee financial expert is included in the registrant 's definitive proxy statement to be filed pursuant to section 14 ( a ) of the securities exchange act of 1934 and is incorporated herein by reference . executive officers of registrant are as follows : name age position with registrant brian r. jones 55 president , treasurer and director charles d. viccellio 82 secretary and director the occupations of such executive officers during the last five years and other principal affiliations are : name occupations brian r. jones president since april 25 , 2013 , treasurer and director since december 1 , 2006 ; managing member of brian r. jones cpa , llc . charles d. viccellio secretary since 1997 and director since 1996. retired attorney from the law firm of stockwell , sievert , viccellio , clements & shaddock , llp . there are no family relationships between any of our directors , except mrs. leach and mrs. werner are mother and daughter , and executive officers or any arrangement or understanding between any of our executive officers and any other person pursuant to which any executive officer was appointed to his office . the company has adopted a code of ethics that applies to officers , directors and employees . a copy of the code of ethics will be provided by writing the president at p.o . box 1864 , lake charles , louisiana 70602 . 10 item 11. executive compensation the information required by item 11 is included in the registrant 's definitive proxy statement to be filed pursuant to section 14 ( a ) of the securities and exchange act of 1934 and is incorporated herein by reference . item 12. security ownership of certain beneficial owners and management and related stockholder matters the information required by item 12 is included in the registrant 's definitive proxy statement to be filed pursuant to section 14 ( a ) of the securities exchange act of 1934 and is incorporated herein by reference . item 13. certain relationships and related transactions the information required by item 13 is included in the registrant 's definitive proxy statement to be filed pursuant to section 14 ( a ) of the securities and exchange act of 1934 and is incorporated herein by reference . item 14. principal accountants fees and story_separator_special_tag natural disasters could include a hurricane , tornado , high winds , heavy rains and or fire cause by lightning . interest rate risks the company has no direct exposure to changes in foreign currency exchange rates and minimal direct exposure to interest rates . the company has an unsecured line of credit with whitney national bank with no outstanding balance . the company has no current plans to draw against this line . item 8. financial statements all financial statements required by this item are listed in the to financial statements appearing immediately after the signature page of this form 10-k and are included herein by reference . 8 item 9. changes in and disagreements with accountants on accounting and financial disclosure none . item 9a . controls and procedures evaluation of disclosure controls and procedures the company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the company 's securities exchange act reports is recorded , processed , summarized and reported within the time periods specified in the sec 's rules and forms , and that such information is accumulated and communicated to the company 's management , including its principal executive officer and principal financial officer , as appropriate , to allow timely decisions regarding required disclosure . as of december 31 , 2015 , an evaluation was performed under the supervision and with the participation of the company 's management , including the principal executive and financial officer , of the effectiveness of the design and operation of the company 's disclosure controls and procedures . based on that evaluation , the company 's management , including the principal executive and financial officer , concluded that the company 's disclosure controls and procedures were effective as of december 31 , 2015. management 's annual report on internal control over financial reporting the company 's management is responsible for establishing and maintaining adequate internal control over financial reporting ( “ icfr ” ) for the company . in assessing the company 's icfr , management follows the committee of sponsoring organizations of the treadway commission 's ( “ coso ” ) internal control - integrated framework ( 2013 ) in assessing the effectiveness of the company 's icfr . management shall determine icfr ineffective if a material weakness exists in the controls . management has assessed the company 's icfr as effective as of december 31 , 2015. this annual report does not include an attestation report of the company 's registered public accounting firm regarding internal control over financial reporting . management 's report was not subject to attestation by the company 's registered public accounting firm pursuant to rules of the securities and exchange commission that permit the company to provide only management 's report in this annual report . during the quarter ending december 31 , 2015 , the company 's management followed the coso internal control - integrated framework ( 2013 ) when assessing the icfr . during the quarter ending december 31 , 2015 , there have been no changes in the company 's internal control over financial reporting that has materially affected or is reasonably likely to affect , the company 's internal control over financial reporting . item 9b . other information none . 9 part iii item 10. directors , executive officers , promoters and control persons ; compliance with section 16 ( a ) of the exchange act the information required by item 10 as to directors , nominees for directors , reports under section 16 of the securities exchange act of 1934 , the registrant 's audit committee and an audit committee financial expert is included in the registrant 's definitive proxy statement to be filed pursuant to section 14 ( a ) of the securities exchange act of 1934 and is incorporated herein by reference . executive officers of registrant are as follows : name age position with registrant brian r. jones 55 president , treasurer and director charles d. viccellio 82 secretary and director the occupations of such executive officers during the last five years and other principal affiliations are : name occupations brian r. jones president since april 25 , 2013 , treasurer and director since december 1 , 2006 ; managing member of brian r. jones cpa , llc . charles d. viccellio secretary since 1997 and director since 1996. retired attorney from the law firm of stockwell , sievert , viccellio , clements & shaddock , llp . there are no family relationships between any of our directors , except mrs. leach and mrs. werner are mother and daughter , and executive officers or any arrangement or understanding between any of our executive officers and any other person pursuant to which any executive officer was appointed to his office . the company has adopted a code of ethics that applies to officers , directors and employees . a copy of the code of ethics will be provided by writing the president at p.o . box 1864 , lake charles , louisiana 70602 . 10 item 11. executive compensation the information required by item 11 is included in the registrant 's definitive proxy statement to be filed pursuant to section 14 ( a ) of the securities and exchange act of 1934 and is incorporated herein by reference . item 12. security ownership of certain beneficial owners and management and related stockholder matters the information required by item 12 is included in the registrant 's definitive proxy statement to be filed pursuant to section 14 ( a ) of the securities exchange act of 1934 and is incorporated herein by reference . item 13. certain relationships and related transactions the information required by item 13 is included in the registrant 's definitive proxy statement to be filed pursuant to section 14 ( a ) of the securities and exchange act of 1934 and is incorporated herein by reference . item 14. principal accountants fees and
| results of operations fiscal year 20 15 compared to fiscal year 20 14 total revenues for 2015 were $ 1,062,101 , a decrease of 59.44 % when compared with 2014 revenues of $ 2,618,741. total revenue consists of oil and gas , timber , and surface revenues . oil and gas revenues were 74.02 % and 56.66 % of total revenues for 2015 and 2014 , respectively . oil and gas revenues consist of royalty revenue and lease rental revenue . oil and gas revenues changed between 2015 and 2014 as follows : replace_table_token_6_th * * during 2015 , gas production increased by approximately 9,403 mcf , and the average gas sales price per mcf decreased by approximately $ 1.72 resulting in a decrease in gas revenue of $ 48,455. revenue from oil production , including plants , decreased by $ 545,614. this decrease was due to the net effect of a decrease in the average barrel sales price of $ 46.36 , not including plants , and a decrease in production of approximately 14 barrels , not including plants , and a decrease in plants revenue of $ 53,260 . 5 the following 6 fields produced 89.04 % of the company 's oil and gas revenues in 2015. the following table shows the number of barrels of oil ( bbl oil ) and mcf of gas ( mcf gas ) produced from these fields . replace_table_token_7_th notes to above schedule : ( 1 ) before deduction of severance taxes and other charges . ( 2 ) excludes plant products . in 2014 , the following four fields produced 77.82 % of the company 's oil and gas revenues . the following table shows the number of barrels of oil ( bbl oil ) and mcf of gas ( mcf gas ) produced from these fields . replace_table_token_8_th notes to above schedule : ( 1 ) before deduction of severance taxes and other charges . ( 2 ) excludes plant products .
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recently adopted accounting pronouncements in august 2018 , the fasb issued accounting standards updates ( “ asu ” ) 2018-13 , fair value measurement ( topic 820 ) : disclosure framework—changes to the disclosure requirements for fair value measurement , which eliminates , adds and modifies certain disclosure requirements for fair value measurements . this guidance became effective for fiscal years beginning after december 15 , 2019 , including interim periods within those fiscal years . accordingly , the company adopted asu 2018-13 effective january 1 , story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes appearing elsewhere in this annual report on form 10-k. in addition to historical information , this discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors . we discuss factors that we believe could cause or contribute to these differences below and elsewhere in this annual report on form 10-k , including those factors set forth in the section entitled “ cautionary note regarding forward-looking statements and industry data ” and in the section entitled “ risk factors ” in part i , item 1a . overview we are a clinical-stage immunotherapy company dedicated to transforming the treatment of cancer by developing therapies that enable the immune system to attack tumors and provide long-lasting benefits to patients . our strategy is to use a biomarker-driven approach from discovery through clinical development . we have developed a suite of integrated technologies that comprise our translational science platform , enabling us to comprehensively interrogate the cellular and molecular composition of tumors . by focusing on specific cell types , both immune and non-immune , within tumors , we can prioritize targets and then identify related biomarkers designed to match the right therapy to the right patient . our pipeline is focused on product candidates to address pd- ( l ) 1-inhibitor resistant and pd- ( l ) 1 inhibitor sensitive tumors , which represent significant opportunities requiring different biological approaches . we aim to develop product candidates that address the unmet medical need of patients in both of these populations . our highest priority program , jtx-8064 , is being developed for patients with either pd- ( l ) 1-inhibitor resistant or pd- ( l ) 1 inhibitor sensitive tumors . jtx-8064 is the first tumor-associated macrophage candidate to emerge from our translational science platform . jtx-8064 is an antibody that binds to leukocyte immunoglobulin like receptor b2 , or lilrb2 ( also known as ilt4 ) , which is a cell surface receptor expressed on macrophages . in january 2021 , we began enrollment in the innate trial , our phase 1 dose-escalation clinical trial of jtx-8064 as a monotherapy and in combination with either our pd-1 inhibitor , jtx-4014 , or pembrolizumab in patients with advanced solid tumors . our goal is to advance this program rapidly , and , as a result , innate is a proof-of-concept trial that includes indication-specific expansion cohorts . vopratelimab is a clinical-stage monoclonal antibody that binds to and activates the i nducible t cell co-s timulator , or icos , a protein on the surface of certain t cells commonly found in many solid tumors . we are currently enrolling patients in the select trial , which is evaluating vopratelimab in combination with jtx-4014 , our anti-pd-1 antibody , compared to jtx-4014 alone in biomarker-selected , immunotherapy-naive second-line non-small cell lung cancer , or nsclc , patients . we identify patients for select using tis vopra , an 18 gene signature that includes genes relevant to both cd8 and cd4 t cell biology . tis vopra has been optimized to predict for emergence of icos hi cd4 t cells in the peripheral blood , which have been associated with clinical benefit in patients treated with vopratelimab alone or in combination with nivolumab . select is a randomized phase 2 clinical trial outside the united states , and we dosed the first patient in october 2020. due to covid-19-related delays , we now expect to report clinical data from select in 2022. jtx-4014 is a clinical-stage anti-pd-1 antibody that we are developing primarily for potential use in combination with our product candidates , as we believe that combination therapy has the potential to be a mainstay of cancer immunotherapy . we presented safety and preliminary efficacy data from a phase 1 clinical trial of jtx-4014 monotherapy in 2019. based on the results of that clinical trial , we are using jtx-4014 in combination with vopratelimab in select , and we plan to use jtx-4014 in combination with jtx-8064 in innate . beyond our product candidates , we continue to advance and build our discovery pipeline . we are discovering and developing next-generation immunotherapies by leveraging our translational science platform to systematically and comprehensively interrogate cell types within the tumor microenvironment . our broad discovery pipeline includes multiple programs targeting myeloid cells such as macrophages , t regulatory cells and non-immune cells , such as stromal cells . we believe that the use of our translational science platform to efficiently identify novel immuno-oncology targets and advance them from discovery to investigational new drug application , or ind , stage is a sustainable approach that we plan to continually apply across our broad discovery pipeline and target selection process . in august 2020 , we entered into an agreement to exclusively license jtx-1811 to gilead sciences , inc. , or gilead . jtx-1811 is the most recent product candidate to emerge from our translational science platform , and , is a monoclonal antibody that is designed to selectively deplete t regulatory cells in the tumor microenvironment , or tme , by targeting a receptor called ccr8 , which is preferentially expressed on intra-tumoral t regulatory cells . story_separator_special_tag operating expenses research and development expenses research and development expenses represent costs incurred by us for the discovery , development and manufacture of our current and future product candidates and include : external research and development expenses incurred under arrangements with third parties , including contract research organizations , contract manufacturing organizations , academic and non-profit institutions and consultants ; salaries and personnel-related costs , including non-cash stock-based compensation expense ; license fees to acquire in-process technology and other expenses , which include direct and allocated expenses for laboratory , facilities and other costs . we use our employee and infrastructure resources across multiple research and development programs directed toward developing our translational science platform and for identifying , testing and developing product candidates . we manage certain activities such as contract research and manufacture of our product candidates and discovery programs through our third-party vendors . at this time , we can not reasonably estimate or know the nature , timing and estimated costs of the efforts that will be necessary to complete the development of our product candidates . we are also unable to predict when , if ever , material net cash inflows will commence from sales of our product candidates . this is due to the numerous risks and uncertainties associated with developing such product candidates , including the uncertainty of : addition and retention of key research and development personnel ; establishing an appropriate safety profile with ind-enabling toxicology studies ; the cost to acquire or make therapies to study in combination with our immunotherapies ; successful enrollment in and completion of clinical trials , including the impacts of the covid-19 pandemic on the timing and progress of our ongoing and planned clinical trials ; establishing agreements with third-party contract manufacturing organizations for clinical supply for our clinical trials and commercial manufacturing , if our product candidates are approved ; receipt of marketing approvals from applicable regulatory authorities ; commercializing products , if and when approved , whether alone or in collaboration with others ; the cost to develop companion diagnostics and or complementary diagnostics as needed for each of our development programs ; the costs associated with the development of any additional product candidates we acquire through third-party collaborations or identify through our translational science platform ; the terms and timing of any collaboration , license or other arrangement , including the terms and timing of any milestone payments thereunder ; obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our products , if and when approved ; and continued acceptable safety profiles of the products following approval . a change in the outcome of any of these variables with respect to the development of any of our product candidates would significantly change the costs , timing and viability associated with the development of that product candidate . we plan to increase our research and development expenses for the foreseeable future as we advance our product candidates through clinical trials and continue the enhancement of our translational science platform and the progression of our pipeline . due to the inherently unpredictable nature of preclinical and clinical development , we do not allocate all of our internal research and development expenses on a program-by-program basis as they primarily relate to personnel and lab consumables costs that are deployed across multiple programs under development . our research and development expenses also include external costs , which we do track on a program-by-program basis following the program 's nomination as a development candidate . we began incurring such external costs for vopratelimab in 2015 , jtx-4014 in 2016 , jtx-8064 in 2017 and jtx-1811 in 2019 . 56 included below are external research and development and external clinical and regulatory costs for vopratelimab , jtx-4014 , jtx-1811 , jtx-8064 , and our pre-development candidates : replace_table_token_1_th research and development activities account for a significant portion of our operating expenses . as we continue to implement our business strategy , we expect our research and development expenses to increase over the next several years . we expect that these expenses will increase as we : continue our clinical development of jtx-8064 , including our phase 1 innate clinical trial of jtx-8064 as a monotherapy and in combination with either jtx-4014 or pembrolizumab ; continue our clinical development of vopratelimab , including our phase 2 select clinical trial of vopratelimab and jtx-4014 ; complete preclinical , ind-enabling and other development activities for jtx-1811 and transition the program to gilead in accordance with the terms of the gilead license agreement ; continue to identify and develop potential predictive biomarkers and companion diagnostics and or complementary diagnostics for our product candidates ; and continue to develop and enhance our translational science platform and advance our pipeline of immunotherapy programs and our early research activities into ind-enabling activities . product candidates in later stages of clinical development generally incur higher development costs than those in earlier stages of clinical development , primarily due to the increased size and duration of later-stage clinical trials . general and administrative expenses general and administrative expenses consist of salaries and personnel-related costs , including non-cash stock-based compensation expense , for our personnel in executive , business development , legal , finance and accounting , human resources and other administrative functions , consulting fees , facility costs not otherwise included in research and development expenses , fees paid for accounting and tax services , insurance expenses and legal costs . legal costs include general corporate legal fees , patent legal fees and related costs . we anticipate that our general and administrative expenses will increase in the future to support our continued operations . other income , net other income , net , consists primarily of interest and investment income on our cash , cash equivalents and investments . critical accounting policies and estimates our management 's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements , which have been prepared in accordance with generally accepted accounting principles in the united states .
| 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 : replace_table_token_2_th license and collaboration revenue for the year ended december 31 , 2020 , we recognized $ 62.3 million of license revenue under the gilead license agreement entered into in october 2020. for the year ended december 31 , 2019 , we recognized $ 147.9 million of license and collaboration revenue , which was comprised of $ 50.0 million of license revenue under the celgene license agreement and $ 97.9 million of collaboration revenue under the celgene collaboration agreement . the celgene collaboration agreement was terminated effective july 22 , 2019 , at which time all remaining deferred revenue was recognized as we had no further performance obligations . 59 research and development expenses the following table summarizes our research and development expenses for the years ended december 31 , 2020 and 2019 : replace_table_token_3_th research and development expenses increased by $ 11.6 million from $ 67.1 million for the year ended december 31 , 2019 to $ 78.7 million for the year ended december 31 , 2020. the increase in research and development expenses was primarily attributable to : $ 7.9 million of increased external clinical and regulatory costs primarily attributable to our select clinical trial which commenced in 2020 ; $ 3.2 million of increased external research and development costs primarily attributable to ind-enabling expenses related to jtx-1811 , partially offset by reduced expenses related to jtx-8064 incurred during the year ended december 31 , 2020 ; $ 2.9 million of increased employee compensation costs primarily attributable to increased headcount , merit and bonus expense ; partially offset by $ 0.9 million of decreased other research costs primarily attributable to reduced travel expenses resulting from covid-19 travel limitations ; and $ 0.8 million of decreased lab consumables costs .
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the 2007 plan approved story_separator_special_tag the percentage relationships to revenues of certain income and expense items for the three years ended december 31 , 2012 and the percentage changes in these income and expense items between years are contained in the following table : replace_table_token_7_th overview rimage helps businesses deliver digital content directly and securely to their customers , employees and partners . the company organizes and manages its business in two reportable segments based on the nature of its products and markets , consisting of disc publishing and enterprise content distribution software ( previously referred to as online publishing ) . rimage 's disc publishing business supplies customers in north america , europe and asia with industry-leading solutions that archive , distribute and protect content on cds , dvds and blu-ray discs . the company 's enterprise content distribution software business enables online distribution of content through two delivery systems , 1 ) live and on-demand streaming video through its enterprise video communications product line , acquired as part of the acquisition of qumu , and 2 ) secure push-based content delivery to tablets , smart phones and personal computers through its signal online content delivery solution , introduced in the second quarter of 2012. rimage distributes its disc publishing systems from its operations in the united states , germany , japan and china . the company also distributes related consumables for use with its disc publishing systems , consisting of media kits , ribbons , ink cartridges and blank cd-r , dvd-r and blu-ray media . these systems allow customers to distribute digital content in markets and applications such as medical imaging ; business services , including banking and finance ; entertainment content workflows ; manufacturing and government law enforcement , including surveillance and evidence management . as rimage 's sales within north america and europe have averaged nearly 90 % of total sales over the past three years , the strength of the economies in these regions plays an important role in determining the success of rimage . on october 10 , 2011 , the company acquired 100 % of the capital stock of qumu by merger . based in san bruno , california , qumu is a leading supplier of enterprise video communication solutions and social enterprise applications for business . as a result of the acquisition , qumu is a wholly-owned subsidiary of the company . the company introduced its signal secure online content delivery solution in the second quarter of 2012 , and generated initial revenues in the third quarter of 2012. signal pushes content directly to tablets , smart phones and personal computers . signal is now part of the qumu product family , and qumu initiated development in 2012 to integrate signal content distribution functionalities with the qumu solution . the company will also allocate sales resources to target stand-alone sales of signal to selected vertical markets , including the media and entertainment sector . 25 through the acquisition of qumu , the company 's enterprise video communications solutions , included in the enterprise content distribution software business , are deployed primarily through the sale of software licenses , software on a server appliance and software-enabled devices . software maintenance contracts and professional services are also sold with these solutions . the signal solution , also included in the enterprise content distribution software business , is deployed through sale of a software license or software on a server appliance or through a cloud based software-as-a-service ( saas ) platform , depending on customer preference . the company 's disc publishing business earns revenues through the sale of equipment , consumables and parts as well as maintenance contracts , repair and installation services . product revenues on the accompanying consolidated statements of operations include the company 's sale of equipment , appliances , software-enabled devices , consumables , parts and software licenses . service revenues on the consolidated statements of operations include revenues from maintenance contracts , repair , installation , software and maintenance subscription arrangements and professional services . rimage has no long-term debt and does not require significant capital investment as all fabrication of its products is outsourced to vendors . story_separator_special_tag million , respectively , partially offset by an increase in sales of producer series equipment of $ 0.4 million . the reduction in sales of professional series equipment was largely driven by an $ 8.9 million decline in sales of these products in the u.s. retail market segment , due primarily to the completion in the first quarter of 2011 of a multi-system sales agreement with a retail customer obtained in the second quarter of 2010. a $ 1.4 million sale to a federal law enforcement agency in the third quarter of 2010 and a reduced volume of sales in europe also contributed to the decline in professional series equipment revenues as compared to the prior year . the increase in sales of producer series products was primarily impacted by a $ 1.1 million sale in the third quarter to a federal law enforcement agency and also sales to a u.s. retail customer in the second quarter . the shift in the distribution of sales from professional to producer series equipment resulted in an aggregate increase in average selling prices , which partially offset the impact of decreased sales volumes . the growth in sales of consumable products was driven by a $ 2.0 million increase in sales of media and media kits primarily to u.s. and asian channel partners . story_separator_special_tag contributing to higher margins in the disc publishing product line in 2011 relative to 2010 were improvements in service-related margins stemming from an increase in maintenance contract revenues coupled with reductions in support costs as a result of changes initiated in 2010 in the company 's global service model . the service cost reductions included lower compensation from a reduction in personnel , a reduced requirement for replacement parts under maintenance contracts , and the sale of lower cost on-site maintenance contracts . also favorably impacting gross profit as a percentage of revenue in 2011 relative to 2010 was a shift in the mix of equipment sales to higher margin products , due primarily to a decrease in sales of professional series products relative to producer series products , driven primarily by decreased sales in the u.s. retail market segment . the improvement in equipment margins occurred as professional series products generally carry lower selling prices and gross margins than producer series products , and sales in the retail market generally carry lower selling prices than other markets . gross profit as a percentage of revenues for 2011 compared to 2010 also benefited from increased selling prices primarily for consumable products in the company 's u.s. and major european markets , reflecting the impact of removing distributors from these markets effective april 1 , 2010. gross profit as a percentage of total disc publishing revenues in 2011 was unfavorably impacted by higher media prices and air freight costs in the second quarter to secure alternative supply sources and to expedite shipments stemming from supply disruptions caused by the march 11 , 2011 earthquake and tsunami in japan , reducing gross margin by nearly 0.3 percentage points . relative to 2010 , gross margins in 2011 were also unfavorably impacted by an increased volume and concentration of sales of media and media kits , which have lower margins than sales of ribbons and ink cartridges , and comprised 22 % of disc publishing product line sales in 2011 compared to 18 % in 2010. future gross profit margins will continue to be affected by many factors , including product mix , the timing of new product introductions , the timing of customer orders and related product deliveries , changes in material costs and supply sources , manufacturing volume , the growth rate of service-related revenues relative to associated service support costs and foreign currency exchange rate fluctuations . future gross margins will also be impacted by the rate of growth of the company 's enterprise content 28 distribution software business , which has historically generated higher gross margins than the company 's disc publishing business . this benefit will continue to be partially offset in future years from the inclusion of amortization expense associated with intangibles acquired as a result of the qumu acquisition , expected to approximate $ 0.6 million in 2013. operating expenses . total operating expenses were $ 78.4 million in 2012 , compared to $ 37.6 million in 2011 and $ 31.9 million in 2010 . the $ 40.8 million increase in operating expenses from 2011 to 2012 occurred primarily as a result of $ 29.5 million of non-cash charges incurred for the impairment of goodwill and intangible assets associated with the enterprise content distribution software business and an approximate $ 13.6 million increase in operating expenses to support this business , partially offset by a decline in operating expenses associated with the disc publishing business of approximately $ 0.6 million and the absence of non-recurring expenses of $ 1.7 million associated with the acquisition of qumu in the fourth quarter of 2011. total research and development expenses were $ 11.9 million , $ 7.3 million and $ 6.5 million for the years ended december 31 , 2012 , 2011 and 2010 , respectively , representing 14.9 % , 8.7 % and 7.3 % of revenues , respectively . the $ 4.6 million rise in expenses from 2011 to 2012 reflects an increase of $ 3.9 million to support a full year of software development associated with qumu 's video communications product line , included in the company 's enterprise content distribution software business . the signal secure online content delivery solution , also included in the enterprise content distribution software business , contributed another $ 0.1 million to the increase . the remaining increase over the prior-year resulted primarily from engineering expenses incurred to support the release of the company 's follow-on producer and professional series disc publishing products late in the third quarter and fourth quarter of 2012. the $ 0.8 million increase in total research and development expenses from 2010 to 2011 reflects post-acquisition expenses of $ 1.1 million generated by qumu , partially offset by a $ 0.3 million reduction in expenses from the company 's other development activities . the $ 0.3 million decrease in research and development activities exclusive of qumu was the result of a lower level of expenses incurred in 2011 to support new development projects , impacted by a higher level of outside services in 2010 to support initial development work on the signal secure online content delivery solution , which continued under development in 2011 and 2012. partially offsetting these declines was the impact of costs incurred to build an infrastructure and initial employee base for a development center in india established in early 2011. additionally , compensation related costs increased in 2011 , reflecting the impact of personnel additions during 2010 to support the development of signal and other new products in the company 's disc publishing product line . rimage anticipates its expenditures for research and development in 2013 will increase from the levels experienced during 2012 to support additional investments in the company 's enterprise content distribution software business and continued product development initiatives to support the disc publishing product line .
| results of operations revenues . the table below describes rimage 's revenues by segment and product category ( in thousands ) : replace_table_token_8_th total revenues were $ 79.4 million for 2012 , reflecting a 5.0 % reduction from total revenues of $ 83.6 million in 2011 , which decreased 5.7 % from total revenues of $ 88.7 million in 2010 . the $ 4.2 million decline in total revenues from 2011 to 2012 reflects a $ 12.3 million reduction in disc publishing product line revenues , partially offset by an $ 8.1 million increase in revenues generated by the enterprise content distribution software business . consolidated product revenues decreased $ 9.2 million from the prior year , while consolidated service revenues increased $ 5.0 million . in the aggregate , currency fluctuations decreased consolidated revenues for the year ended december 31 , 2012 by $ 1.7 million , or 2 % . the $ 12.3 million decrease in disc publishing revenues from 2011 to 2012 consists of declines of $ 6.6 million and $ 6.2 million in equipment revenues and consumables and parts revenues , respectively , partially offset by a $ 0.6 million increase in service revenues . the decrease in disc publishing equipment revenues was driven by sales declines in both europe and the u.s. sales to the company 's european channel partners were negatively impacted by continued economic challenges impacting european markets , increased competition and the negative impact of foreign currency fluctuations . equipment sales in the u.s. were negatively impacted by a significant sale to the government sector in last year 's third quarter that did not reoccur in the current year , as well as reduced sales in the company 's u.s. retail market , where sales can fluctuate significantly between periods .
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lease expense for the years ended december 31 , 2018 , 2017 and 2016 was as follows ( in thousands ) : replace_table_token_38_th - 49 - future minimum annual non-cancelable commitments as of december 31 , 2018 are as follows ( in thousands ) : replace_table_token_39_th we signed a lease in 2009 for our headquarters building with a rent commencement date of may 1 , 2012. certain terms in the lease agreement resulted in the capitalization of construction costs due to specific accounting rules . we recorded a construction asset and corresponding long-term liability of approximately $ 27.3 million on may 1 , 2012 , which represents the construction costs incurred by the landlord as of that date . according to accounting rules , we have forms of continuing involvement that required us to account for this transaction as a financing lease upon commencement of the lease period . the building and building improvements are included on our consolidated balance sheets and are being depreciated over a 15 -year period . the accumulated story_separator_special_tag executive overview customers and services we are a diversified services and supply chain management company that assists our customers in sustaining , extending the service life , and improving the performance of their transportation equipment and other assets and systems . we provide logistics and distribution services for legacy systems and equipment and professional and technical services to the united states government ( the `` government '' ) , including the united states department of defense ( `` dod '' ) , the united states postal service ( `` usps '' ) and federal civilian agencies , and to commercial and other customers . our largest customers are the dod and the usps . our operations include supply chain management solutions , parts supply and distribution , and maintenance , repair , and overhaul ( “ mro ” ) services for vehicle fleet , aviation , and other customers ; vehicle and equipment maintenance and refurbishment ; logistics ; engineering ; energy services ; it and health care it solutions ; and consulting services . see item 1 “ business - revenues and contracts ” above for revenues by customer . acquisition in january 2019 , we acquired 1st choice aerospace inc. ( `` 1st choice aerospace '' ) , two privately owned aviation companies with operations in florida and kentucky that provide component mro services and products for new generation and legacy commercial aircraft families . 1st choice aerospace will operate as a subsidiary of vse aviation , inc. under our aviation group . we have retained certain key management members of the former ownership group . see note 17 `` subsequent events '' to our consolidated financial statements included below in item 8 for additional information regarding our acquisition of 1st choice aerospace . organization and segments our operations are conducted within three reportable segments aligned with our management groups : 1 ) supply chain management ; 2 ) aviation ; and 3 ) federal 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 . operations of this group are conducted by our wholly owned subsidiary wheeler bros. , inc. , which supports the usps , commercial truck fleets , and dod with fleet management and sustainment solutions , and managed inventory services . the primary revenue source for this group is derived from the sale of vehicle parts and mission critical supply chain services to support the usps truck fleet . aviation group - o ur aviation group provides parts supply and distribution , supply chain solutions , and mro services for commercial and general aviation jet aircraft engines and engine accessories . this group offers a range of complementary services and supplies to a diversified client base of commercial airlines , regional airlines , cargo transporters , mro integrators and providers , aviation manufacturers , corporate and private aircraft owners , and agricultural clients . federal services group - our federal services group provides foreign military sales services , refurbishment services to extend and enhance the life of existing vehicles and equipment , fleet-wide ship and aircraft support , aircraft sustainment and maintenance , and other technical , management , engineering , logistics , maintenance , configuration management , prototyping , technology , and field support services to the u.s. navy and marine corps , u.s. army and army reserve , u.s. air force , and other customers . significant work efforts for this group include assistance to the u.s. navy in executing its foreign military sales ( “ fms ” ) program for surface ships sold , leased or granted to foreign countries , our red river army depot equipment related services program ( “ rrad ers ” ) providing on-site logistics support for red river army depot at texarkana , texas , our fort benning logistics support services program supporting base operations and logistics at fort benning , georgia , our u.s. army reserve vehicle refurbishment program and various vehicle and equipment refurbishment , maintenance and sustainment programs for u.s. army commands , and various task orders under the u.s. air force contract field teams ( “ cft ” ) program . our federal services group also provides energy consulting services and it solutions and services with a focus on medical and health related fields for various dod and federal civilian agencies , including the united states department of energy ( `` doe '' ) ; the social security administration ; the national institutes of health ( `` nih '' ) ; customers in the military health system ; and other government agencies and commercial clients . - 16 - concentration of revenues replace_table_token_6_th * our aviation group utilizes the federal services group 's fms program to sell its gas turbine mro services to the dod . story_separator_special_tag in january 2018 , we amended our bank loan agreement to extend the maturity date and increase our borrowing commitments , which positioned us to more responsively pursue and execute our acquisition of 1st choice in january 2019. despite the acquisition and increases of inventory levels associated with supporting our other aviation growth initiatives , we remain well positioned to cover current operating needs and respond to future strategic opportunities . bookings and funded backlog revenues for government contract work performed by our federal services group depend on contract funding ( “ bookings ” ) , and bookings generally occur when contract funding documentation is received . funded contract backlog is an indicator of potential future revenue . while bookings and funded contract backlog generally result in revenue , we may occasionally have funded contract backlog that expires or is de-obligated upon contract completion and does not generate revenue . a summary of our bookings and revenues for our federal services group for the years ended december 31 , 2018 , 2017 and 2016 , and funded contract backlog for this group as of december 31 , 2018 , 2017 and 2016 is as follows ( in millions ) : replace_table_token_7_th recently issued accounting pronouncements for a description of recently announced accounting standards , including the expected dates of adoption and estimated effects , if any , on our consolidated financial statements , see `` recently issued accounting pronouncements '' in note 1 to our consolidated financial statements included below in item 8. 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 . - 18 - revenue recognition for 2018 we account for revenue in accordance with asc 606. the unit of account in asc 606 is a performance obligation . at the inception of each contract with a customer , we determine our performance obligations within the contract and the contract 's transaction price . a performance obligation is a promise in a contract to transfer a distinct good or service to the customer , and is defined as the unit of account . a contract 's transaction price is allocated to each distinct performance obligation and recognized as revenue when the performance obligation is satisfied . the majority of our contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts and is , therefore , not distinct . for product sales , each product sold to a customer typically represents a distinct performance obligation . our performance obligations are satisfied over time as work progresses or at a point in time based on transfer of control of products and services to our customers . contract modifications are routine in the performance of our contracts . contracts are often modified to account for changes in contract specifications or requirements . in most instances , contract modifications are for goods or services that are not distinct , and therefore are accounted for as part of the existing contract . substantially all of our supply chain management group revenues from the sale of vehicle parts to customers is recognized at the point in time of the transfer of control to the customer . sales returns and allowances for vehicle parts are not significant . our aviation group revenues result from the sale of aircraft parts and performance of mro services for private and commercial aircraft owners , other aviation mro providers , and aviation original equipment manufacturers . our aviation group recognizes revenues at a point in time for the sale of aircraft parts when control is transferred to the customer , which usually occurs when the parts are shipped . our aviation group recognizes revenues for mro services over time as the services are transferred to the customer . mro services revenue recognized is measured based on the cost-to-cost input method , as costs incurred reflect the work completed , and therefore the services transferred to date . sales returns and allowances are not significant our federal services group revenues result from professional and technical services , which we perform for customers on a contract basis . revenue is recognized for performance obligations over time as we transfer the services to the customer . the three primary types of contracts used are cost-type , fixed-price and time and materials . revenues result from work performed on these contracts by our employees and our subcontractors and from costs for materials and other work related costs allowed under our contracts . revenues on cost-type contracts are recorded as contract allowable costs are incurred and fees are earned . variable consideration , typically in the form of an award fees , is included in the estimated transaction price , to the extent that it is probable that a significant reversal will not occur , when there is a basis to reasonably estimate the amount of the fee . these estimates are based on historical award experience , anticipated performance and our best judgment based on current facts and circumstances . revenues on fixed-price contracts are recorded as work is performed over the period . revenue is recognized over time using costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying our performance obligations . incurred cost represents work performed , which corresponds with the transfer of control to the customer . for such contracts , we estimate total costs at the inception of the contract based on our assumptions of the cost elements required to complete the associated tasks of the contract and assess the affects of the risks on our estimates of total costs to complete the contract .
| results of operations replace_table_token_8_th our revenues decreased by approximately $ 63 million or 8 % for the year ended december 31 , 2018 as compared to the prior year . the change in revenues for this period resulted from a decrease in our federal services group of approximately $ 74 million and an increase in our aviation group of approximately $ 11 million . our supply chain management group revenues were substantially unchanged from the prior year . our revenues increased by approximately $ 68 million or 10 % for the year ended december 31 , 2017 as compared to the prior year . the change in revenues for this period resulted from an increase in our federal services group of approximately $ 58 million , an increase in our supply chain management group of approximately $ 9 million , and an increase in our aviation group of approximately $ 1 million . - 21 - replace_table_token_9_th costs and operating expenses consist primarily of cost of inventory and delivery of our products sold ; direct costs , including labor , material , and supplies used in the performance of our contract work ; indirect costs associated with our direct contract costs ; sales , general , and administrative expenses associated with our operating groups and corporate management ; and certain costs and charges arising from nonrecurring events outside the ordinary course of business . these costs will generally increase or decrease in conjunction with our level of products sold or contract work performed . costs and operating expenses also include expense for amortization of intangible assets acquired through our acquisitions . expense for amortization of acquisition related intangible assets is included in the segment results in which the acquisition is included . segment results also include expense for an allocation of corporate management costs .
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as a result of the shelter in place mandates in effect beginning early in the second quarter of 2020 , commercial activity throughout our geographic footprint , as well as nationally , decreased significantly during 2020. most states have reopened , albeit under limited capacities and under other social distancing restrictions ; however , commercial activity has not returned to the levels existing prior to the outbreak of the pandemic . such measures have significantly contributed to rising unemployment and negatively impacted consumer and business spending . as a result , the demand for the corporation 's products and services has been , and will continue to be , significantly impacted . recent accounting changes adopted in 2020 fasb accounting standards updates no story_separator_special_tag critical accounting policies generally accepted accounting principles require management to apply significant judgment to certain accounting , reporting and disclosure matters . management must use assumptions and estimates to apply those principles where actual measurement is not possible or practical . the judgments and assumptions made are based upon historical experience or other factors that management believes to be reasonable under the circumstances . because of the nature of the judgments and assumptions , actual results could differ from estimates , which could have a material effect on our financial condition and results of operations . for a complete discussion of the corporation 's significant accounting policies , see note 1. nature of operations and summary of significant accounting policies of the notes to consolidated financial statements included in item 8 of this annual report on form 10-k. the following policies materially affect our reported earnings and financial condition and require significant judgments and estimates . business combinations business combinations are accounted for under the acquisition method of accounting . under the acquisition method , assets and liabilities of the business acquired are recorded at their estimated fair values as of the date of acquisition with any excess of the cost of the acquisition over the fair value of the net tangible and intangible assets acquired recorded as goodwill . results of operations of the acquired business are included in the income statement from the date of acquisition . investment securities held to maturity securities are carried at amortized cost when the corporation has the positive intent and ability to hold them until maturity . available for sale securities are recorded at fair value on a recurring basis with the unrealized gains and losses , net of applicable income taxes , recorded in other comprehensive income . realized gains and losses are recorded in earnings and the prior fair value adjustments are reclassified within stockholders ' equity . gains and losses on sales of securities are determined on the specific-identification method . amortization of premiums and accretion of discounts are amortized to their earliest call date and are recorded as interest income from securities . available for sale and held to maturity securities are evaluated for otti at least on a quarterly basis , and more frequently when economic or market conditions warrant such an evaluation . in determining otti , management considers many factors , including : ( 1 ) the length of time and the extent to which the fair value has been less than cost , ( 2 ) the financial condition and near term prospects of the issuer , ( 3 ) whether the market decline was affected by macroeconomic conditions , and ( 4 ) whether the corporation has the intent to sell the debt security or more likely than not , will be required to sell the debt security before its anticipated recovery . the assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time . when otti occurs , the amount of otti recognized in the income statement depends on whether the corporation intends to sell the security or it is more likely than not that the corporation will be required to sell the security before recovery of its amortized cost basis , less any recognized credit loss . if the intent is to sell , or it is more likely than not that the corporation will be required to sell the security before recovery of its amortized cost basis , less any recognized credit loss , the otti shall be recognized in earnings equal to the entire difference between the investment 's amortized cost basis , less any recognized credit loss , and its fair value at the balance sheet date . if the intent is not to sell the security and it is not more likely than not that the corporation will be required to sell the security before the recovery of its amortized cost basis less any recognized credit loss , the otti has been separated into the amount representing the credit loss and the amount related to all other factors . the amount of the total otti related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings . the amount of the total otti related to other factors is recognized in other comprehensive income , net of applicable income taxes . the previous amortized cost basis less the otti recognized in earnings becomes the new amortized cost basis of the investment . for held to maturity debt securities , the amount of an otti recorded in other comprehensive income for the noncredit portion of a previous other-than-temporary impairment is amortized prospectively over the remaining life of the security on the basis of the timing of future estimated cash flows of the security . loans the corporation 's loan portfolio is carried at the principal amount outstanding , net of unearned income and principal charge-offs . certain loan fees and direct costs are being deferred and amortized as an adjustment of yield on the loans . interest income is accrued on the principal balances of loans . story_separator_special_tag the corporation 's methodology for assessing the appropriateness of the allowance consists of three key elements – the determination of the appropriate reserves for impaired loans accounted for under asc 310-10 , probable losses estimated from historical loss rates , and probable losses resulting from economic , environmental , qualitative or other deterioration above and beyond what is reflected in the first two components of the allowance . where appropriate , reserves are allocated to individual loans based on management 's estimate of the borrower 's ability to repay the loan given the availability of collateral , other sources of cash flow and legal options available to the corporation . loans individually evaluated for impairment are those deemed impaired in accordance with asc 310-10 , including commercial relationships greater than $ 500,000 that exhibit well defined credit weaknesses . any allowances for impaired loans are measured based on the fair value of the underlying collateral , if collateral dependent , or the present value of expected future cash flows discounted at the loan 's effective interest rate . the corporation evaluates the collectability of principal when assessing the need for a loss accrual . historical loss rates are applied to other commercial loans not subject to specific reserve allocations . the historical allocation for commercial loans graded pass are established by loan segments using loss rates based on the corporation 's migration analysis . this migration analysis shows the loss rates for each segment of loans based on the loan grades at the beginning of the twelve month period . this loss rate is then applied to the current portfolio of loans in each respective loan segment . homogenous loans , such as consumer installment and residential mortgage loans , are not individually risk graded . reserves are established for each segment of loans using loss rates based on charge-offs for the same period as the migration analysis used for commercial loans . historical loss allocations for commercial and consumer loans may be adjusted for significant factors that , in management 's judgment , reflect the impact of any current conditions on loss recognition . factors which management considers in the analysis include the effects of the national and local economies , trends in loan growth and charge-off rates , changes in mix , concentration of loans in specific industries , asset quality trends ( delinquencies , charge-offs and non-accrual loans ) , risk management and loan administration , changes in the internal lending policies and credit standards , examination results from bank regulatory agencies and the corporation 's internal loan review . effective january 1 , 2021 , the corporation adopted asu 2016-13 , financial instruments - measurement of current expected credit losses on financial instruments ( `` cecl '' ) , which will modify the accounting for the allowance for loan losses from an incurred loss model to an expected loss model , as discussed more fully under note 1. nature of operations and summary of significant accounting policies of the notes to consolidated financial statements included in item 8 of this annual report on form 10-k. 38 part ii : item 7. and item 7a . management 's discussion and analysis of financial condition and results of operations goodwill and intangibles for acquisitions , assets acquired , including identified intangible assets , and the liabilities assumed are required to be recorded at their fair value . these often involve estimates based on third party valuations , such as appraisals , or internal valuations based on discounted cash flow analysis or other valuation techniques that may include estimates of attrition , inflation , asset growth rates , or other relevant factors . in addition , the determination of the useful lives over which the intangible asset will be amortized is subjective . intangible assets that are subject to amortization , including core deposit intangibles , are being amortized on both the straight-line and accelerated basis over two to ten years . intangible assets are periodically evaluated as to the recoverability of their carrying value . under asc 350 , intangibles – goodwill and other , the corporation must review goodwill for impairment on an annual basis , as well as on an interim basis if events or changes indicate that the asset might be impaired . an impairment loss must be recognized for any excess of carrying value over fair value of the goodwill . the corporation completed its most recent annual goodwill impairment test as of october 1 , 2020 and concluded , based on current events and circumstances , goodwill is not impaired . details of the corporation 's goodwill impairment test are included in note 8. goodwill of the notes to consolidated financial statements included in item 8 of this annual report on form 10-k. derivative instruments derivative instruments , which are recorded as assets or liabilities in the consolidated balance sheets , are carried at fair value of the derivatives and reflects the estimated amounts that would have been received to terminate these contracts at the reporting date based upon pricing or valuation models applied to current market information . as part of the asset/liability management program , the corporation will utilize , from time to time , interest rate floors , caps or swaps to reduce its sensitivity to interest rate fluctuations . changes in the fair values of derivatives are reported in the consolidated statements of operations or aoci depending on the use of the derivative and whether the instrument qualifies for hedge accounting . the key criterion for hedge accounting is that the hedged relationship must be highly effective in achieving offsetting changes in those cash flows that are attributable to the hedged risk , both at inception of the hedge and on an ongoing basis .
| net interest income net interest income is the most significant component of the corporation 's earnings , comprising 78 percent of revenues for the year ended december 31 , 2020. net interest income and margin are influenced by many factors , primarily the volume and mix of earning assets , funding sources , and interest rate fluctuations . loans typically generate more interest income than investment securities with similar maturities . funding from customer deposits generally costs less than wholesale funding sources . factors such as general economic activity , federal reserve board monetary policy , and price volatility of competing alternative investments , can also exert significant influence on our ability to optimize the mix of assets and funding and the net interest income and margin . net interest income is the excess of interest received from earning assets over interest paid on interest-bearing liabilities . for analytical purposes , net interest income is also presented on an fte basis in the table that follows to reflect what our tax-exempt assets would need to yield in order to achieve the same after-tax yield as a taxable asset . the federal statutory rate of 21 percent was used for 2020 , 2019 and 2018 , adjusted for the tefra interest disallowance applicable to certain tax-exempt obligations . the fte analysis portrays the income tax benefits associated with tax-exempt assets and helps to facilitate a comparison between taxable and tax-exempt assets . management believes that it is a standard practice in the banking industry to present net interest margin and net interest income on a fully taxable equivalent basis . therefore , management believes these measures provide useful information for both management and investors by allowing them to make peer comparisons .
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concentration of business in the pharmaceutical services industry is common and the industry continues to consolidate story_separator_special_tag we make forward-looking statements that involve risks , uncertainties and assumptions in this form 10-k. actual results may differ materially from those anticipated by these forward-looking statements as a result of various factors , including , but not limited to , those presented under the captions “ forward-looking statement information ” and “ risk factors ” contained elsewhere in this form 10-k. the following management 's discussion and analysis of financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes appearing elsewhere in this form 10-k. overview we are a leading provider of contract sales teams to pharmaceutical companies , offering a range of sales support services designed to achieve their strategic and financial product objectives . in addition to contract sales teams , we also provide marketing research , physician interaction and medical education programs . our services offer customers a range of promotional and educational options for the commercialization of their products throughout their lifecycles , from development through maturity . we provide innovative and flexible service offerings designed to drive our customers ' businesses forward and successfully respond to a continually changing market . our services provide a vital link between our customers and the medical community through the communication of product information to physicians and other healthcare professionals for use in the care of their patients . description of reporting segments and nature of contracts at december 31 , 2007 , our reporting segments were as follows : ¨ sales services : · performance sales teams ; and · select access . ¨ marketing services : · pharmakon ; · tvg marketing research and consulting ( tvg ) ; and · vital issues in medicine ( vim ) ® . ¨ pdi products group ( ppg ) . in the fourth quarter of 2005 , we announced that we would be discontinuing our medical devices and diagnostics ( md & d ) business unit . beginning in the second quarter of 2006 , the md & d business unit was reported as discontinued operations . an analysis of these reporting segments and their results of operations are contained in note 18 to our consolidated financial statements and in the consolidated results of operations discussion below . nature of contracts by segment our contracts are nearly all fee for service . they may contain operational benchmarks , such as a minimum amount of activity within a specified amount of time . these contracts may include incentive payments that can be earned if our activities generate results that meet or exceed performance targets . contracts may be terminated with or without cause by our customers . certain contracts provide that we may incur specific penalties if we fail to meet stated performance benchmarks . occasionally , our contracts may require us to meet certain financial covenants , such as maintaining a specified minimum amount of working capital . sales services during fiscal 2007 , approximately half of our revenue was generated by contracts for performance sales teams . these contracts are generally for a term of one to two years and may be renewed or extended . the majority of these contracts , however , are terminable by the customer for any reason upon 30 to 90 days ' notice . certain contracts provide for termination payments if the customer terminates the contract without cause . typically , however , these penalties do not offset the revenue we could have earned under the contract or the costs we may incur as a result of its termination . the loss or termination of a large contract or the loss of multiple contracts could have a material adverse effect on our business , financial condition or results of operations . 20 pdi , inc. annual report on form 10-k ( continued ) marketing services our marketing services contracts generally take the form of either master service agreements with a term of one to three years or contracts specifically related to particular projects with terms typically lasting from two to six months . these contracts are generally terminable by the customer for any reason . upon termination , the customer is generally responsible for payment for all work completed to date , plus the cost of any nonrefundable commitments made on behalf of the customer . there is significant customer concentration in our pharmakon business , and the loss or termination of one or more of pharmakon 's large master service agreements could have a material adverse effect on our business , financial condition or results of operations . due to the typical size of most of tvg 's and vim 's contracts , it is unlikely the loss or termination of any individual tvg or vim contract would have a material adverse effect on our business , financial condition or results of operations . ppg the contracts within the products group were either performance based or fee for service and may have required sales , marketing and distribution of a product . in performance based contracts , we typically provided and financed a portion , if not all , of the commercial activities in support of a brand in return for a percentage of product sales . an important performance parameter was normally the level of sales or prescriptions attained by the product during the period of our marketing or promotional responsibility , and in some cases , for periods after our promotional activities have ended . critical accounting policies we prepare our financial statements in accordance with u.s. generally accepted accounting principles ( gaap ) . the preparation of financial statements and related disclosures in conformity with gaap requires our management to make judgments , estimates and assumptions at a specific point in time that affect the amounts reported in the consolidated financial statements and disclosed in the accompanying notes . these assumptions and estimates are inherently uncertain . story_separator_special_tag when we receive a specific contract payment from a customer upon commencement of a product detailing program expressly to compensate us for recruiting , hiring and training services associated with staffing that program , such payment is deferred and recognized as revenue in the same period that the recruiting and hiring expenses are incurred and amortization of the deferred training is expensed . when we do not receive a specific contract payment for training , all revenue is deferred and recognized over the life of the contract . allowance for doubtful accounts we maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments . we review a customer 's credit history before extending credit . we establish an allowance for doubtful accounts based on the aging of a customer 's accounts receivable or when we become aware of a customer 's inability to meet its financial obligations ( e.g. , a bankruptcy filing ) . we operate almost exclusively in the pharmaceutical industry and to a great extent our revenue is dependent on a limited number of large pharmaceutical companies . we also partner with customers in the emerging pharmaceutical sector , some of whom may have limited financial resources . a general downturn in the pharmaceutical industry or a material adverse event to one or more of our emerging pharmaceutical customers could result in higher than expected customer defaults requiring additional allowances . 22 pdi , inc. annual report on form 10-k ( continued ) goodwill , intangibles and other long-lived assets we allocate the cost of the acquired companies to the identifiable tangible and intangible assets and liabilities acquired , with the remaining amount being classified as goodwill . since the entities we have acquired do not have significant tangible assets , a significant portion of the purchase price has been allocated to intangible assets and goodwill . the identification and valuation of these intangible assets and the determination of the estimated useful lives at the time of acquisition , as well as the completion of annual impairment tests require significant management judgments and estimates . these estimates are made based on , among other factors , consultations with an accredited independent valuation consultant , reviews of projected future operating results and business plans , economic projections , anticipated future cash flows and the cost of capital . the use of alternative estimates and assumptions could increase or decrease the estimated fair value of goodwill and other intangible assets , and potentially result in a different impact to the company 's results of operations . further , changes in business strategy and or market conditions may significantly impact these judgments thereby impacting the fair value of these assets , which could result in an impairment of the goodwill and acquired intangible assets . we have elected to do the annual tests for indications of goodwill impairment as of december 31 of each year . we utilize a discounted cash flow model to determine fair value in the goodwill impairment evaluation . in assessing the recoverability of goodwill , projections regarding estimated future cash flows and other factors are made to determine the fair value of the respective reporting units . we review the recoverability of long-lived assets and finite-lived intangible assets whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable . if the sum of the expected future undiscounted cash flows is less than the carrying amount of the asset , an impairment loss is recognized by reducing the recorded value of the asset to its fair value measured by future discounted cash flows . this analysis requires estimates of the amount and timing of projected cash flows and , where applicable , judgments associated with , among other factors , the appropriate discount rate . such estimates are critical in determining whether any impairment charge should be recorded and the amount of such charge if an impairment loss is deemed to be necessary . in addition , future events impacting cash flows for existing assets could render a write-down or write-off necessary that previously required no such write-down or write-off . while we use available information to prepare our estimates and to perform impairment evaluations , actual results could differ significantly from these estimates or related projections , resulting in impairment and losses related to recorded goodwill or long-lived asset balances . self-insurance accruals we are self-insured for certain losses for claims filed and claims incurred but not reported relating to workers ' compensation and automobile-related losses for our company-leased cars . our liability for these losses is estimated on an actuarial undiscounted basis using individual case-based valuations and statistical analysis supplied by our insurance brokers and insurers and is based upon judgment and historical experience ; however , the final cost of many of these claims may not be known for five years or longer . in 2007 , we also were self-insured for certain benefits paid under our employee healthcare programs . our liability for medical claims is estimated using an underwriting determination that is based on current year 's average number of days between when a claim is incurred and when it is paid ; however , the final cost of medical claims incurred in 2007 may not be known until second quarter of 2008. we maintain stop-loss coverage with third-party insurers to limit our total exposure on these programs . periodically , we evaluate the level of insurance coverage and adjust insurance levels based on risk tolerance and premium expense . management reviews these accruals on a quarterly basis . at december 31 , 2007 and 2006 , self-insurance accruals totaled $ 2.9 million and $ 2.5 million , respectively . contingencies in the normal course of business , we are subject to various contingencies . contingencies are recorded in the consolidated financial statements when it is probable that a liability will be incurred and the amount of the loss can be reasonably estimated , or otherwise disclosed , in accordance with sfas no .
| consolidated results of operations the following table sets forth for the periods indicated below selected statement of continuing operations data as a percentage of revenue . the trends illustrated in this table may not be indicative of future operating results . replace_table_token_2_th comparison of 2007 and 2006 replace_table_token_3_th the decrease in total revenues of $ 122.1 or 51.0 % was primarily related to the termination of several large contracts in 2006 . 25 pdi , inc. annual report on form 10-k ( continued ) effective april 30 , 2006 , astrazeneca terminated its contract sales force arrangement with us , which represented approximately $ 43.0 million in revenue in 2006. on september 26 , 2006 , we announced that gsk would not be renewing its contract with us when it expired on december 31 , 2006. this contract represented $ 67.4 million in revenue in 2006. on october 25 , 2006 , we announced that we had received notification from sanofi-aventis of its intention to terminate its contract sales engagement with us effective december 1 , 2006. this contract represented approximately $ 18.3 million in revenue in 2006. additionally , on march 21 , 2007 , we announced that a large pharmaceutical company customer had notified us of its intention not to renew its contract sales engagement with us upon its scheduled expiration on may 12 , 2007. this contract , which had a one-year term , provided for approximately $ 37 million in annual revenue and represented a $ 7.1 million decline in revenue when compared to 2006. the loss in revenue from those terminated and expired contracts was partially offset by new sales force arrangements we entered into during 2007 , including a contract sales force engagement for our select access business unit in march 2007 , which generated approximately $ 12.0 million in revenue in 2007 and a dedicated contract sales force engagement entered into during june 2007 which generated approximately $
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acquired u.s. federal net operating losses from scout total approximately $ 30.2 million net of amounts unavailable due to ownership change limitations , which is included in the total u.s. federal net operating loss above . the company 's 2016 through 2020 tax years generally remain subject to examination by story_separator_special_tag the following md & a should be read in conjunction with our annual consolidated financial statements and notes thereto appearing elsewhere in this annual report on form 10-k. md & a contains forward-looking statements . see “ forward-looking statements ” and “ item 1a . risk factors ” for a discussion of the uncertainties , risks and assumptions associated with these statements . actual results may differ materially from those contained in any forward-looking statements . overview servicesource is a leading provider of bpaas solutions that enable the transformation of go-to-market organizations and functions for global technology clients . we design , deploy , and operate a suite of innovative solutions and complex processes that support and augment our clients ' b2b customer acquisition , engagement , expansion and retention activities . our clients - ranging from fortune 500 technology titans to high-growth disruptors and innovators - rely on our holistic customer engagement methodology and process excellence , global scale and delivery footprint , and data analytics and business insights to deliver trusted business outcomes that have a meaningful and material positive impact to their long-term revenue and profitability objectives . through our unique integration of people , process and technology - leveraged against our more than 20 years of experience and domain expertise in the cloud , software , hardware , medical device and diagnostic equipment , and industrial iot sectors - we effect and transact billions of dollars of b2b commerce in more than 175 countries on our clients ' behalf annually . factors affecting our performance we generate a significant portion of our revenue from a limited number of clients . the loss of revenue from any of our top clients for any reason , including the failure to renew our contracts , termination of some or all of our services , or a change of relationship with any of our key clients or their acquisition , may cause a significant decrease in our revenue . our business is geographically diversified . during 2020 , 57 % of our net revenue was earned in nala , 28 % in emea and 15 % in apj , compared to 58 % in nala , 26 % in emea and 16 % in apj during 2019. all of nala 's revenue represents revenue generated within the u.s. net revenue for a particular geography generally reflects commissions earned from sales of service contracts managed from our revenue delivery center in that geography . predominantly all of the service contracts sold and managed by our revenue delivery centers relate to end customers located in the same geography . sales cycle . we sell our integrated solution through our sales organization . at the beginning of the sales process , our quota-carrying sales representatives contact prospective clients and educate them about our offerings . educating prospective clients about the benefits of our solutions can take time , as many of these prospects have not historically relied upon integrated solutions like ours for service revenue management , nor have they typically put out a formal request for proposal or otherwise made a decision to focus on this area . as part of our sales process , our solutions design team performs a service performance analysis of our prospect 's service revenue . this includes an analysis of best practices and benchmarks the prospect 's service revenue against industry peers . through this process , which typically takes several weeks , we are able to assess the characteristics and size of the prospect 's service revenue , identify potential areas of performance improvement , and formulate our proposal for managing the prospect 's service revenue . the length of our sales cycle for a new client , inclusive of the service performance analysis process and measured from our first formal discussion with the client until execution of a new client contract , is typically six months and has decreased in recent periods . implementation cycle . after entering into an engagement with a new client , and to a lesser extent after adding an engagement with an existing client , we incur sales and marketing expenses related to the commissions owed to our sales personnel . these commissions are based on realized revenue that the contract delivers over time and on the estimated total annual contract value . commission amounts based on realized revenue are expensed in the period the related revenue is recognized by the company . upfront commissions based on estimated total annual contract value are capitalizable as contract acquisition costs and expensed ratably over the expected life of the applicable contract or five years if the contract is between the company and one of its long-standing clients . we also make upfront investments in technology and personnel to support the engagement . these upfront commissions and investments are typically incurred one to three months before we begin generating sales and recognizing revenue . accordingly , in a given quarter , an increase in new clients , and , to a lesser extent , an increase in engagements with existing clients , or a significant increase in the contract value associated with such new clients and engagements , will negatively impact our gross margin and operating margins until we begin to achieve anticipated sales levels associated with the new engagements , which is typically two to three quarters after we begin selling contracts on behalf of our clients . story_separator_special_tag as a result of the implementation of these business continuity measures , we have not experienced material disruptions in our operations . we believe we have sufficient liquidity on hand to continue business operations during this volatile period . as of december 31 , 2020 , we had total available liquidity of $ 45.2 million consisting of cash on hand and availability under our revolver . see `` liquidity and capital resources '' for additional information . there was no material adverse impact on the results of operations for the year ended december 31 , 2020 resulting from covid-19 . we have incurred and expect to continue to incur costs directly related to the covid-19 pandemic such as costs for enhanced cleaning of our facilities , investing capital to allow our employees to function in our virtual , work-from-home 17 operating model and increased paid time off costs resulting from employees taking less paid time off . however , we are benefiting and will continue to benefit from decreases in certain costs related to our facilities and reduced travel and entertainment costs with our virtual-first operating model . we do not currently anticipate that these items will have a material adverse impact on our overall business and financial results . during 2020 , servicesource received various grants from the singapore government , including the job support scheme , which assists enterprises in retaining their local employees during the covid-19 pandemic . servicesource received approximately $ 1.3 million from the grant during the year ended december 31 , 2020 and is expected to receive an additional $ 0.2 million through july 2021.there are no conditions to repay the grants . the situation surrounding covid-19 remains fluid and the potential for a negative impact on our financial condition and results of operations increases the longer the virus impacts the economic activity in the u.s. and globally . see part i , item 1a - “ risk factors ” for additional information . basis of presentation net revenue substantially all of our net revenue is attributable to commissions we earn from the sale of renewals of maintenance , support and subscription agreements on behalf of our clients . we generally invoice our clients for our selling services on a monthly basis for sales commissions , and on a quarterly basis for certain performance sales commissions . we do not set the price , terms or scope of services in the service contracts with end customers and do not have any obligations related to the underlying service contracts between our clients and their end customers . we also generate revenues from selling professional services for which we are the principal . professional services involve providing data integration at scale with our systems and processes , combined with client data enhancement , enablement and optimization . we typically invoice our clients for professional services on a monthly basis . cost of revenue and gross profit our cost of revenue includes employee compensation , technology costs , including those related to the delivery of our cloud-based technologies , and allocated overhead expenses . employee compensation includes salary , bonus , commissions , benefits , and stock-based compensation for our dedicated service sales teams . allocated overhead expenses include depreciation , amortization of internal-use software associated with our selling services revenue technology platform and cloud applications , and costs for facilities and information technology . allocated overhead expenses for facilities consist of rent , maintenance , and compensation of personnel in our facilities departments . our allocated overhead expenses for information technology include costs associated with third-party data centers where we maintain our data servers , compensation of our information technology personnel and the cost of support and maintenance contracts associated with computer hardware and software . to the extent our client base or business with our existing client base expands , we may need to hire additional service sales personnel and invest in infrastructure to support such growth . our cost of revenue may fluctuate significantly and increase or decrease on an absolute basis and as a percentage of revenue in the near term , including for the reasons discussed under , “ factors affecting our performance-implementation cycle. ” operating expenses sales and marketing sales and marketing expenses primarily consist of employee compensation expense and sales commissions paid to our sales and marketing employees , amortization of contract acquisition costs , marketing programs and events and allocated overhead expenses which consist of depreciation , amortization of internally developed software , and facility and technology costs . we sell our solutions through our global sales organization , which is organized across three geographic regions : nala , emea and apj . our commission plans generally provide multiple payments of commissions to our sales representatives based in part on the execution of a client contract and then on a percentage of revenue recorded during the first one to three years of the contract term . commissions paid as a percentage of recorded revenue is contingent on the sales representatives ' continued employment . we generally capitalize the amounts payable for obtaining a contract and amortize ratably to sales and marketing expense over the contract term for new clients or five years for long-standing client relationships . revenue based commissions are generally expensed to sales and marketing expense each quarter as revenue is recorded . research and development research and development expenses primarily consist of employee compensation expense , third-party consultant costs and allocated overhead expenses which consist of depreciation , amortization of internally developed software , and facility and technology costs . we focus our research and development efforts on developing new products and applications related to our technology platform . we capitalize certain expenditures related to the development and enhancement of internal-use software related to our technology platform .
| results of operations for the year ended december 31 , 2020 compared to the year ended december 31 , 2019 net revenue , cost of revenue and gross profit replace_table_token_1_th net revenue decreased by $ 21.5 million , or 10 % , for the year ended december 31 , 2020 compared to the same period in 2019 , primarily due to client churn and lower bookings . cost of revenue decreased $ 16.1 million , or 11 % , for the year ended december 31 , 2020 compared to the same period in 2019 , primarily due to the following : $ 10.9 million decrease in employee related costs associated with a reduction in headcount , the receipt of the singapore government grant , and lower travel and entertainment expenditures , partially offset by increased paid time off costs resulting from employees taking less paid time off during the global pandemic ; $ 3.6 million decrease in facility related costs primarily related to sublease income , reduced headcount and transitioning to a virtual-first operating model ; and $ 2.7 million decrease in information technology costs due to an increase in capitalizable software development activity and lower headcount ; partially offset by $ 1.3 million increase in depreciation and amortization expense . operating expenses replace_table_token_2_th sales and marketing sales and marketing expense decreased $ 5.0 million , or 17 % , for the year ended december 31 , 2020 compared to the same period in 2019 , primarily due to a $ 3.9 million decrease in employee related costs associated with a reduction in headcount , lower bookings , and lower travel and entertainment expenditures , a $ 0.4 million decrease in information technology cost , a $ 0.3 million decrease in marketing cost , and a $ 0.3 million decrease in facility costs related to sublease income and transitioning to a virtual-first operating model .
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forward-looking statements give our current expectations or forecasts of future events . you can identify these statements by the fact that they do not relate strictly to historical or current facts . forward-looking statements involve risks and uncertainties . forward-looking statements include statements regarding , among other things , ( a ) our projected sales , profitability , and cash flows , ( b ) our growth strategies , ( c ) anticipated trends in our industries , ( d ) our future financing plans and ( e ) our anticipated needs for working capital . they are generally identifiable by use of the words “ may , ” “ will , ” “ should , ” “ anticipate , ” “ estimate , ” “ plans , ” “ potential , ” “ projects , ” “ continuing , ” “ ongoing , ” “ expects , ” “ management believes , ” “ we believe , ” “ we intend ” or the negative of these words or other variations on these words or comparable terminology . these statements may be found under “ management 's discussion and analysis of financial condition and results of operations ” and “ description of business , ” as well as in this form 10-k generally . in particular , these include statements relating to future actions , prospective products or product approvals , future performance or results of current and anticipated products , sales efforts , expenses , the outcome of contingencies such as legal proceedings , and financial results . any or all of our forward-looking statements in this report may turn out to be inaccurate . they can be affected by inaccurate assumptions we might make or by known or unknown risks or uncertainties . consequently , no forward-looking statement can be guaranteed . actual future results may vary materially as a result of various factors , including , without limitation , the risks outlined under “ risk factors ” in prior reports filed by the company and other matters described in this form 10-k generally . in light of these risks and uncertainties , there can be no assurance that the forward-looking statements contained in this filing will in fact occur . you should not place undue reliance on these forward-looking statements . the forward-looking statements speak only as of the date on which they are made , and , except to the extent required by federal securities laws , we undertake no obligation to publicly update any forward-looking statements , whether as the result of new information , future events , or otherwise . we intend that all forward-looking statements be subject to the safe harbor provisions of the pslra . story_separator_special_tag incurred drilling costs of approximately $ 1.38 million for this well , which was undergoing testing as of december 31 , 2012. as of the date of this annual report , the well was undergoing flow testing and the company expects to be able to report production test results in the second quarter of 2013. in january 2013 , the company and 0947388 bc ltd. ( “ 094 ” ) entered into a letter of intent for 094 to farm into the edwards formation assets acquired through its acquisition of pan american oil company , llc ( see note 2 ) and numa luling , llc ( see note 4 ) and also the 80 % interest in certain leasehold interests acquired from eagle ford oil co. , inc. ( see note 4 ) . the letter of intent specifies that upon completion of the # 4h tiller well currently being completed by the company , 094 will drill 10 wells within the edwards formation of which 100 % of the costs shall be borne by 094. at the end of the 10 well program , 094 has the option to extend the program for a further 5 wells , borne at the sole cost of 094 or acquire 100 % of the company 's interest in the edwards formation leasehold interests for $ 45 million , which price is reduced on a pro rata basis should oil prices drop below $ 85 per barrel down to a minimum of $ 30 million . should 094 decide not to purchase 100 % of the company 's interest in the edwards formation leasehold interests , then 094 will earn 80 % of revenue from those 10 wells drilled by 094 until such time as it has recouped its costs , at which point its revenue interest reverts to 60 % . in addition , 094 will also drill 5 wells within the buda formation at 50 % cost to earn 40 % before payout and 30 % after payout . at completion , 094 has the option to acquire 10 % of the interest held by the company in the entire leasehold through payment of $ 7.5 million to the company . in the event 094 chooses not pay the final option price it will earn only a 30 % interest in the 5 wells drilled by 094. at the time of entering the letter of intent , 094 paid a deposit of $ 300,000. the company and 094 are still in negotiations and no agreement has been finalized . finance : debt : on december 22 , 2011 , the company issued an unsecured promissory note in the amount of $ 200,000 to michael j. garnick , a stockholder . the promissory note accrued interest at 10 % per annum and was due on february 15 , 2012. as a condition for issuing the promissory note , the company was obligated to issue 90,000 shares of its common stock to michael j. garnick . the note was repaid in full in march 2012. in connection with the acquisition of pan american , the company acquired certain advances payable and short term bridge notes in the principal amount of $ 1,900,000 from two unaffiliated entities . story_separator_special_tag earlier to occur of the company raising an additional $ 1,500,000 in new capital or december 31 , 2013 . 19 on november 20 , 2012 , the company received gross proceeds of $ 150,000 from the sale of a promissory note to rms advisors , inc. in the face amount of $ 150,000. the note is unsecured , bears interest at a rate of six percent ( 6 % ) per annum and is due on the earlier to occur of the company raising an additional $ 1,500,000 in new capital or december 31 , 2013. on december 5 , 2012 , the company received gross proceeds of $ 300,000 from the sale of a promissory note to rms advisors , inc. in the face amount of $ 300,000. the note is unsecured , bears interest at a rate of six percent ( 6 % ) per annum and is due on the earlier to occur of the company raising an additional $ 1,500,000 in new capital or december 31 , 2013. on january 16 , 2013 , the company received gross proceeds of $ 150,000 and issued a promissory note to dit equity holdings , llc in the same amount . the note bears interest at the rate of 6 % per annum , is unsecured and is due on the earlier of 1 year from the date of issuance of the note or when the company raises gross proceeds of $ 1.5 million in a debt or equity offering . the note was repaid in full on january 29 , 2013. on january 25 , 2013 , the company received gross proceeds of $ 40,000 and issued a promissory note to dit equity holdings , llc in the same amount . the note bears interest at the rate of 6 % per annum , is unsecured and is due on the earlier of february 3 , 2014 or when the company raises gross proceeds of $ 1.5 million in a debt or equity offering . on february 26 , 2013 , the company received gross proceeds of $ 10,000 and issued a promissory note to dit equity holdings , llc in the same amount . the note bears interest at the rate of 6 % per annum , is unsecured and is due on the march 7 , 2014 or when the company raises gross proceeds of $ 1.5 million in a debt or equity offering . on february 26 , 2013 , the company received gross proceeds of $ 45,000 and issued a promissory note to dit equity holdings , llc in the same amount . the note bears interest at the rate of 6 % per annum , is unsecured and is due on the march 7 , 2014 or when the company raises gross proceeds of $ 1.5 million in a debt or equity offering . on march 20 , 2013 , the company received gross proceeds of $ 65,000 and issued a promissory note to wiltomo redemption foundation in the same amount . the note bears interest at the rate of 6 % per annum , is unsecured and is due on the march 20 , 2014. on april 2 , 2013 , the company received gross proceeds of $ 45,000 and issued a promissory note to wiltomo redemption foundation in the same amount . the note bears interest at the rate of 6 % per annum , is unsecured and is due on the april 2 , 2014. equity : preferred stock : series a in connection with the acquisition of pan american , the company issued 5,500,000 shares of series a preferred stock as partial consideration for the purchase . the series a preferred stock had an initial issue price of $ 1 per share and accrues a dividend quarterly to each holder at the rate of 3 % per annum based on the original issue price , payable quarterly in cash or in kind . series a preferred holders are required to have received all dividends before any dividend on common stock may be issued . the series a preferred ranks senior to common stock in the event of a liquidation or winding up of the company . the series a preferred may be converted in whole or in part at any time at the option of the holder at the rate of 1 common share for each series a preferred , subject to adjustments as defined in the series a certificate of designation . in addition , should the common stock of the company trade in any over the counter market above $ 1.75 per share for a period of at least 30 consecutive trading days , the company have an initial public offering of any class of securities in which gross proceeds are in excess of $ 50 million or consummate a merger in which the existing company shareholders obtain less than 50 % of the voting control of the combined entity , then the series a preferred will automatically convert into the number of shares of common stock as the then conversion rate indicates . in the event that holders elect not to convert their series a preferred or no automatic conversion is triggered , on january 31 , 2019 , the series a preferred will become mandatorily redeemable for cash at its original issue price plus any unpaid dividends accrued as of that date . 20 series b in connection with the acquisition of numa luling , the company issued 3,250,000 shares of series b preferred stock as partial consideration for the purchase . the series b preferred stock had an initial issue ( also liquidation price ) of $ 1 per share . the series b ranks junior to the series a preferred stock in respect to the payment of dividends but senior to shares of common stock . the series b is non-cumulative and dividends must be declared before they become payable by the company . the series b ranks pari-passu in respect to liquidation and all other matters to the series a preferred stock .
| overview in january 2012 , rio bravo oil , inc. ( f/k/a/ soton holdings group , inc. ) , a nevada corporation ( the “ company ” ) determined to change its business plan to focus on the oil and gas industry and to seek , investigate , and , if warranted , acquire one or more properties or businesses in the oil and gas industry , and to pursue other related activities intended to enhance shareholder value . the acquisition of the oil and gas assets described herein was undertaken in furtherance of that strategy . 16 the management of the company has adopted a strategy of developing a growth-focused independent energy and production company with a focus on development of proven undeveloped reservoirs and expansion of fields through unconventional methods of resource development . the company has begun to execute this strategy through acquisition and aggregation of certain working interests located within the luling edwards , darst creek luling branyon , and salt flat fields in texas , ( collectively referred to as the “ luling edwards fields ” ) . it has been the company 's strategy to acquire certain significant working interests and assets with productive edwards reservoirs , and to additionally acquire additional rights associated with its targeted leases , to obtain secondary development opportunities . material events operations : in july 2011 , pan american oil company , llc ( “ pan american ” ) entered into a preliminary purchase and sale agreement with rio bravo oil , llc in which pan american agreed to purchase all of rio bravo oil llc 's right , title and interest in its approximate 27 % working interest and 23 % net revenue interest in certain leaseholds in the luling-edwards field .
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if it is determined that a transaction designated as npns no story_separator_special_tag the following discussion should be read in conjunction with item 6 - selected financial data , and with the accompanying consolidated financial statements and related notes thereto appearing elsewhere in this form 10-k. the following discussion may contain forward-looking statements , and our actual results may differ significantly from the results suggested by these forward-looking statements . some factors that may cause our results to differ materially from the results and events anticipated or implied by such forward-looking statements are described in item 1a risk factors. overview we are a leading global fuel logistics company , principally engaged in the marketing , sale and distribution of aviation , marine , and land fuel products and related services on a worldwide basis . we compete by providing our customers value-added benefits , including single-supplier convenience , competitive pricing , the availability of trade credit , price risk management , logistical support , fuel quality control and fuel procurement outsourcing . we have three reportable operating business segments : aviation , marine , and land . we primarily contract with third parties for the delivery and storage of fuel products and in some cases own storage and transportation assets for strategic purposes . in our aviation segment , we offer fuel and related services to major commercial airlines , second and third-tier airlines , cargo carriers , regional and low cost carriers , fixed based operators , corporate fleets , fractional operators , private aircraft , military fleets and to the u.s. and foreign governments , and we also offer card processing services in connection with the purchase of aviation fuel and related services . in our marine segment , we offer fuel and related services to a broad base of marine customers , including international container and tanker fleets , commercial cruise lines and time-charter operators , as well as to the u.s. and foreign governments . in our land segment , we offer fuel and related services to petroleum distributors operating in the land transportation market , retail petroleum operators , and industrial , commercial and government customers . additionally , we also operate a small number of retail gas stations in the u.s. in our aviation and land segments , we primarily purchase and resell fuel , and we do not act as brokers . profit from our aviation and land segments is primarily determined by the volume and the gross profit achieved on fuel resales , and in the case of the aviation segment , a percentage of processed charge card revenue . in our marine 23 segment , we primarily purchase and resell fuel and also act as brokers for others . profit from our marine segment is determined primarily by the volume and gross profit achieved on fuel resales and by the volume and commission rate of the brokering business . our profitability in our segments also depends on our operating expenses , which may be significantly affected to the extent that we are required to provide for potential bad debt . our revenue and cost of revenue are significantly impacted by world oil prices , as evidenced in part by our revenue and cost of revenue fluctuations in recent fiscal years , while our gross profit is not necessarily impacted by changes in world oil prices . however , due to our inventory average costing methodology , significant movements in fuel prices during any given financial period can have a significant impact on our gross profit , either positively or negatively depending on the direction , volatility and timing of such price movements . we may experience decreases in future sales volumes and margins as a result of the ongoing deterioration in the world economy , transportation industry , natural disasters and continued conflicts and instability in the middle east , asia and latin america , as well as potential future terrorist activities and possible military retaliation . in addition , because fuel costs represent a significant part of our customers ' operating expenses , volatile and or high fuel prices can adversely affect our customers ' businesses , and consequently the demand for our services and our results of operations . our hedging activities may not be effective to mitigate volatile fuel prices and may expose us to counterparty risk . see item 1a risk factors of this form 10-k. reportable segments we have three reportable operating segments : aviation , marine and land . corporate expenses are allocated to the segment based on usage , where possible , or on other factors according to the nature of the activity . we evaluate and manage our business segments using the performance measurement of income from operations . financial information with respect to our business segments is provided in note 12 to the accompanying consolidated financial statements included in this form 10-k. critical accounting policies and estimates the discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements included elsewhere in this form 10-k , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses and related disclosure of contingent assets and liabilities . on an ongoing basis , we evaluate our estimates , including those related to unbilled revenue and related costs of sales , bad debt , share-based payment awards , derivatives , goodwill and identifiable intangible assets and certain accrued liabilities . we base our estimates on historical experience and on other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . story_separator_special_tag components of inventory include fuel purchase costs , the related transportation costs , storage fees , and for inventories included in a fair value hedge relationship , changes in the estimated fair market values . derivatives we enter into financial derivative contracts in order to mitigate the risk of market price fluctuations in aviation , marine and land fuel , to offer our customers fuel pricing alternatives to meet their needs and to mitigate the risk of fluctuations in foreign currency exchange rates . we also enter into proprietary derivative transactions , primarily intended to capitalize on arbitrage opportunities related to basis or time spreads related to fuel products we sell . we have applied the normal purchase and normal sales exception ( npns ) , as provided by accounting guidance for derivative instruments and hedging activities , to certain of our physical forward sales and purchase contracts . while these contracts are considered derivative instruments under the guidance for derivative instruments and hedging activities , they are not recorded at fair value , but rather are recorded in our consolidated financial statements when physical settlement of the contracts occurs . if it is determined that a transaction designated as npns no longer meets the scope of the exception , the fair value of the related contract is recorded as an asset or liability on the consolidated balance sheet and the difference between the fair value and the contract amount is immediately recognized through earnings . our derivatives that are subject to the accounting guidance for derivative instruments are recognized at their estimated fair market value in accordance with the accounting guidance for fair value measurements . if the derivative does not qualify as a hedge or is not designated as a hedge , changes in the estimated fair market value of the derivative are recognized as a component of revenue or cost of revenue ( based on the underlying transaction type ) in the consolidated statement of income . derivatives which qualify for hedge accounting may be designated as either a fair value or cash flow hedge . for our fair value hedges , changes in the estimated fair market value of the hedge instrument and the hedged item are recognized in the same line item as a component of either revenue or cost of revenue ( based on the underlying transaction type ) in the consolidated statement of income . for our cash flow hedges , the effective portion of the changes in the fair market value of the hedge is recognized as a component of other comprehensive income in the shareholders ' equity section of the consolidated balance sheet and subsequently reclassified into the same line item as the forecasted transaction when both are settled , while the ineffective portion of the changes in the estimated fair market value of the hedge is recognized as a component of other non-operating expense/income in the consolidated statement of income . cash flows for our hedging instruments used in our hedges are classified in the same category as the cash flow from the hedged items . if for any reason hedge accounting is discontinued , then any cash flows subsequent to the date of discontinuance shall be classified consistent with the nature of the instrument . to qualify for hedge accounting , as either a fair value or cash flow hedge , the hedging relationship between the hedging instruments and hedged items must be highly effective over an extended period of time in achieving the offset of changes in fair values or cash flows attributable to the hedged risk at the inception of the hedge . we use a regression analysis based on historical spot prices in assessing the qualification for our fair value hedges . however , 26 our measurement of hedge ineffectiveness for our fair value inventory hedges utilizes spot prices for the hedged item ( inventory ) and forward or future prices for the hedge instrument . therefore , the excluded component ( forward or futures prices ) in assessing hedge qualification , along with ineffectiveness , is included as a component of cost of revenue in earnings . adjustments to the carrying amounts of hedged items is discontinued in instances where the related fair value hedging instrument becomes ineffective and any previously recorded fair market value changes are not adjusted until the fuel is sold . goodwill and identifiable intangible assets goodwill represents the future earnings and cash flow potential of acquired businesses in excess of the fair values that are assigned to all other identifiable assets and liabilities . goodwill arises because the purchase price paid reflects numerous factors , including the strategic fit and expected synergies these acquisitions bring to existing operations and the prevailing market value for comparable companies . goodwill is not subject to periodic amortization ; instead , it is reviewed annually at year-end ( or more frequently under certain circumstances ) for impairment . the initial step of the goodwill impairment test compares the estimated fair value of a reporting unit , which is the same as our reporting segments , with its carrying amount , including goodwill . the fair value of our reporting segments is estimated using discounted cash flows and market capitalization methodologies . in connection with our acquisitions , we recorded identifiable intangible assets existing at the date of the acquisitions for customer relationships , supplier and non-compete agreements and trademark/trade name rights . identifiable intangible assets subject to amortization are amortized over their estimated lives and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable based on market factors and operational considerations . identifiable intangible assets not subject to amortization are reviewed annually for impairment by comparing the estimated fair value of the intangible asset with its carrying value . extinguishment of liability in the normal course of business , we accrue liabilities for fuel and services received for which invoices have not yet been received .
| results of operations the results of operations do not include the results of i ) hiller ( aviation segment ) prior to december 31 , 2010 , ii ) gib oil ( aviation , marine and land segments ) prior to december 1 , 2010 , iii ) western ( aviation and land segments ) prior to october 1 , 2010 , iv ) the lakeside business ( land segment ) prior to july 1 , 2010 , v ) the fos business ( marine segment ) prior to january 1 , 2010 , vi ) henty ( marine and land segments ) or the tgs business ( land segment ) prior to april 1 , 2009 or vii ) the results of the texor business ( land segment ) prior to june 1 , 2008 , the respective acquisition date of each of these acquired businesses . 27 2010 compared to 2009 revenue . our revenue for 2010 was $ 19.1 billion , an increase of $ 7.8 billion , or 69.4 % , as compared to 2009. our revenue during these periods was attributable to the following segments ( in thousands ) : replace_table_token_6_th our aviation segment contributed $ 7.1 billion in revenue for 2010 , an increase of $ 3.1 billion , or 76.1 % as compared to 2009. of the total increase in aviation segment revenue , $ 1.7 billion was primarily due to increased sales volume from both new and existing customers .
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over 106,000 advisors and more than 5,100 companies , including 17 of the 20 largest u.s. banks , 47 of the 50 largest wealth management and brokerage firms , over 500 of the largest registered investment advisers ( “ rias ” ) and hundreds of internet services companies , leverage envestnet technology and services that help drive better outcomes for enterprises , advisors and their clients . through a combination of platform enhancements , partnerships and acquisitions , envestnet uniquely provides a financial network connecting technology , solutions and data , delivering better intelligence and enabling its customers to drive better outcomes . envestnet , a delaware corporation originally founded in 1999 , serves clients from its headquarters based in chicago , illinois , as well as other locations throughout the united states , india and other international locations . we also operate five rias registered with the u.s. securities and exchange commission ( “ sec ” ) . we believe that our business model results in a high degree of recurring and predictable financial results . recent developments uncertainties related to covid-19 on march 11 , 2020 , the world health organization declared covid-19 a pandemic disease . we are closely monitoring developments with the covid-19 pandemic and are taking proactive measures to ensure business continuity . our priority is to protect the well-being of our employees , while we continue to provide uninterrupted service and support to our clients . as part of our existing business continuity protocol , we created a pandemic steering committee that meets regularly and communicates information or guidance to our employees and customers . we have instituted travel bans and are following mandatory stay-at-home orders where applicable . a majority of our employees are working from home as a result of these stay-at-home orders . where permissible , we have also implemented in-office work rotations . for employees working at our offices , preventative measures have been taken , including the adapting of work spaces to allow for appropriate social distancing and enhanced cleaning regimens . we also canceled our 2020 and 2021 in-person advisor summit conferences , instead offering a reimagined advisor summit on-demand , which allows participants access to a library of online sessions . we continue to monitor developments related to covid-19 and , as the situation evolves , will continue to coordinate our operations response based on existing business continuity plans and on guidance from global health organizations , relevant governments and general response pandemic best practices . the actions that we took in 2020 resulted in lower operating expenses in certain areas , particularly travel and marketing . we expect our operating expenses to increase as covid-related restrictions are removed and business activity improves . at the start of the covid-19 pandemic , significant declines occurred within the equity markets . this is significant to us as we provide asset-based , subscription-based and professional services on a business-to-business-to-consumer basis to financial services clients , whereby customers offer solutions based on our platform to their end users . for the twelve months ended december 31 , 2020 , approximately 54 % of our revenues resulted from asset-based fee billing arrangements . asset-based recurring revenues primarily consisted of fees for providing customers access to our platforms . these fees are generally based upon variable percentages of assets managed or administered under our platforms . our fee percentages vary based on the level and type of services that we provide to our customers , as well as the values of existing customer accounts . the values of our customer accounts are affected by inflows or outflows of customer funds and market fluctuations . approximately 75 % of our asset-based fee arrangements are billed at the beginning of each quarter based on the market value of customer assets on our platforms as of the end of the prior quarter . 35 table of contents as a result of the structure of our revenue arrangements and our customer-types , our revenues during the three months ended march 31 , 2020 were not materially impacted by covid-19 . while we experienced a decrease to our asset-based revenues in the second quarter of 2020 compared to the first quarter of 2020 as a result of the decline in the equity markets as of march 31 , 2020 , our asset-based revenues were minimally impacted in the third quarter of 2020 as the equity markets have generally recovered to pre-pandemic levels . we have experienced no business interruptions , nor did we lose any significant customers as a result of the covid-19 pandemic . for the twelve months ended december 31 , 2020 , approximately 43 % of revenues were subscription-based . these revenues primarily consisted of fees for providing customers continuous access to our platforms . these subscription-based fees generally include fixed fees or usage-based fees . these fees vary based on the services being offered . our subscription-based fee arrangements are typically established through multi-year contracts . in the event that the equity markets fall again as a result of covid-19 or for any other reason , our revenues will be negatively impacted . based on our most recent internal forecasts and other qualitative factors , we have determined that we currently have no impairments to our assets as of december 31 , 2020. we have not modified our revolving credit agreement in connection with the covid-19 pandemic . additionally , in august 2020 , we successfully acquired additional financing in the form of convertible notes on terms favorable to the company . on march 27 , 2020 , the coronavirus aid , relief , and economic security act ( “ cares act ” ) was signed into law . one provision of the cares act provides a five-year carryback of net operating losses ( “ nols ” ) generated in tax years beginning after december 31 , 2017 and before january 1 , 2021. we estimate a refund of approximately $ 1,200 from the carryback of nols . story_separator_special_tag employees had until january 31 , 2020 to voluntarily accept the program with separation of service no later than march 31 , 2020. in connection with this program , we recorded approximately $ 12,500 of severance expense during the twelve months ended december 31 , 2020. as of december 31 , 2020 , we have accrued approximately $ 1,904 in future payments that extend through 2030. organizational realignment in the fourth quarter of 2020 , as part of an organizational realignment , we entered into separation agreements with several employees . in connection with this realignment , we recognized approximately $ 5,100 of severance expense during the twelve months ended december 31 , 2020 , with an additional $ 5,300 of severance expense expected to be recognized in the first half of 2021. as of december 31 , 2020 , we have accrued approximately $ 5,100 in accrued compensation and related taxes associated with these separation agreements . 37 table of contents executive leadership appointments effective march 30 , 2020 , our board of directors ( the “ board ” ) appointed bill crager as envestnet 's chief executive officer ( “ ceo ” ) , a role he had held on an interim basis following the passing of our former chairperson and ceo judson bergman in 2019. additionally , on march 30 , 2020 the board appointed stuart depina as envestnet 's president . james fox , a current member of our board , was named chairperson of the board . key metrics envestnet wealth solutions segment the following table provides information regarding the amount of assets utilizing our platforms , financial advisors and investor accounts in the periods indicated : replace_table_token_1_th the following table provides information regarding the degree to which gross sales , redemptions , net flows and changes in the market values of assets contributed to changes in aum or aua in the periods indicated : replace_table_token_2_th the above aum/a gross sales figures include $ 38.6 billion in new client conversions . we onboarded an additional $ 119.6 billion in subscription conversions during 2020 , bringing total conversions for the year to $ 158.2 billion . 38 table of contents replace_table_token_3_th the above aum/a gross sales figures include $ 31.5 billion in new client conversions . we onboarded an additional $ 297.9 billion in subscription conversions during 2019 , bringing total conversions for the year to $ 329.4 billion . asset and account figures in the “ reclass to subscription ” columns for the years ended december 31 , 2020 and 2019 represent enterprise customers whose billing arrangements in future periods are subscription-based , rather than asset-based . such amounts are included in subscription metrics at the end of the quarter in which the reclassification occurred , with no impact on total platform assets or accounts . envestnet data & analytics segment paid users a paid user is defined as a user of an application or service provided to our customer using the envestnet data & analytics platform whose status corresponds to a billable activity under the associated customer contract . we believe that our ability to increase the number of paid users is an indicator of our market penetration , the growth of our business , and our potential future business opportunities . paid users were approximately 35.0 million , 25.0 million and 23.3 million as of december 31 , 2020 , 2019 and 2018 , respectively . the increase was primarily driven by an increase in our number of customers as well as expansion of user base within certain existing customers . revenues overview we earn revenues primarily under three pricing models . first , a majority of our revenues is derived from fees charged as a percentage of the assets that are managed or administered on our technology platforms by financial advisors . these revenues are recorded under asset-based revenues . our asset‑based fees vary based on the types of investment solutions and services that financial advisors utilize . asset‑based fees accounted for approximately 54 % , 54 % and 59 % of our total revenues for the years ended december 31 , 2020 , 2019 and 2018 , respectively . in future periods , the percentage of our total revenues attributable to asset‑based fees is expected to vary based on fluctuations in securities markets , whether we enter into significant subscription agreements , the mix of aum or aua , and other factors . we also generate revenues from recurring , contractual subscription fees for providing access to our technology platforms . this subscription revenue includes both contractual minimum payments and usage-based fees and is driven primarily by the number of customers , including new customers as well as customers who renew their existing subscription contracts , and the number of paid users . these revenues are recorded under subscription-based revenues . subscription fees vary based on the scope of technology solutions and services being used , and are priced in a variety of constructs based on the size of the business , number of users or number of accounts and in many cases can increase over time based on the growth of these factors . subscription fees accounted for 43 % , 42 % and 36 % of our total revenues for the years ended december 31 , 2020 , 2019 and 2018 , respectively . finally , a portion of our revenues are generated from fees received in connection with professional services and other revenue . 39 table of contents asset-based recurring revenues we generally charge our customers fees based on a higher percentage of the market value of aum than the fees we charge on the market value of aua , because we provide fiduciary oversight and or act as the investment advisor in connection with assets we categorize as aum . the level of fees varies based on the nature of the investment solutions and services we provide , as well as the specific investment manager , fund and or custodian chosen by the financial advisor .
| results of operations replace_table_token_4_th * not meaningful year ended december 31 , 2020 compared to year ended december 31 , 2019 asset-based recurring revenues asset-based recurring revenues increased 12 % from $ 484,312 in 2019 to $ 540,947 in 2020. the increase was primarily due to an increase in asset values applicable to our quarterly billing cycle as a result of the upswing in the equity markets relative to the comparable 2019 period . in 2020 , revenues were also positively affected by new account growth and positive net flows of aum/a . the number of financial advisors with aum or aua on our technology platforms increased from 40,563 as of december 31 , 2019 to 41,206 as of december 31 , 2020 and the number of aum or aua client accounts increased from approximately 2.1 million as of december 31 , 2019 to approximately 2.4 million as of december 31 , 2020. asset-based recurring revenue was 54 % of total revenue for both years . subscription-based recurring revenues subscription-based recurring revenues increased 13 % from $ 378,813 in 2019 to $ 426,507 in 2020. this increase was primarily due to an increase of $ 41,204 in the envestnet wealth solutions segment and an increase of $ 6,490 in the envestnet data & analytics segment . 42 table of contents the increase in the envestnet wealth solutions segment was primarily due to our 2019 acquisitions of portfoliocenter and pietech , inc. ( collectively , the “ 2019 acquisitions ” ) and growth from new and existing customers . the increase in envestnet data & analytics revenue was primarily due to broad increases in revenue from new and existing customers .
| 2,597 |
we provide our services to original equipment manufacturers ( oems ) of computers and related products for business enterprises , medical devices , industrial control equipment ( which includes equipment for the aerospace and defense industry ) , testing and instrumentation products , and telecommunication equipment . the services that we provide are commonly referred to as electronics manufacturing services ( ems ) . we offer our customers comprehensive and integrated design and manufacturing services from initial product design to volume production including direct order fulfillment and post deployment services . our manufacturing and assembly operations include printed circuit boards and subsystem assembly , box build and systems integration , the process of integrating subsystems and , often , downloading and integrating software , to produce a fully configured product . our recently added precision technology manufacturing capabilities complement our proven electronic manufacturing expertise by providing further vertical integration of critical mechanical components . these capabilities include precision machining , advanced metal joining , and functional testing for multiple industries including medical , instrumentation , aerospace and semiconductor capital equipment . we also are able to provide specialized engineering services , including product design , printed circuit board layout , prototyping , and test development . we believe that we have developed strengths in the manufacturing process for large , complex , high-density printed circuit boards as well as the ability to manufacture high and low volume products in lower cost regions such as brazil , china , malaysia , mexico , romania and thailand . during the past several years , we have made the necessary changes to align our business operations with our customers ' demand . these changes include , among other activities , moving production between facilities , reducing staff levels , realigning our business processes and reorganizing our management . during the year ended december 31 , 2011 , 2010 and 2009 , the company recognized $ 4.5 million , $ 6.7 million and $ 8.3 million ( pre-tax ) of restructuring charges , primarily related to the closure of facilities , capacity reductions and costs associated with involuntary termination of employees in connection with reductions in workforce of certain facilities worldwide . 30 we believe that our global manufacturing presence increases our ability to be responsive to our customers ' needs by providing accelerated time-to-market and time-to-volume production of high quality products . these capabilities enable us to build stronger strategic relationships with our customers and to become a more integral part of their operations . our customers face challenges in planning , procuring and managing their inventories efficiently due to customer demand fluctuations , product design changes , short product life cycles and component price fluctuations . we employ production management systems to manage their procurement and manufacturing processes in an efficient and cost-effective manner so that , where possible , components arrive on a just-in-time , as-and-when-needed basis . we are a significant purchaser of electronic components and other raw materials , and can capitalize on the economies of scale associated with our relationships with suppliers to negotiate price discounts , obtain components and other raw materials that are in short supply , and return excess components . our expertise in supply chain management and our relationships with suppliers across the supply chain enables us to reduce our customers ' cost of goods sold and inventory exposure . we recognize revenue from the sale of manufactured products built to customer specifications and excess inventory when title and risk of ownership have passed , the price to the buyer is fixed and determinable and collectibility is reasonably assured , which generally is when the goods are shipped . revenue from design , development and engineering services is recognized when the services are performed and collectibility is reasonably certain . such services provided under fixed price contracts are accounted for using the percentage of completion method . we generally assume no significant obligations after product shipment as we typically warrant workmanship only . therefore , our warranty provisions are generally not significant . our cost of sales includes the cost of materials , electronic components and other materials that comprise the products we manufacture , the cost of labor and manufacturing overhead , and adjustments for excess and obsolete inventory . our procurement of materials for production requires us to commit significant working capital to our operations and to manage the purchasing , receiving , inspection and stocking of materials . although we bear the risk of fluctuations in the cost of materials and excess scrap , we periodically negotiate cost of materials adjustments with our customers . our gross margin for any product depends on the sales price , the proportionate mix of the cost of materials in the product and the cost of labor and manufacturing overhead allocated to the product . we typically have the potential to realize higher gross margins on products where the proportionate level of labor and manufacturing overhead is greater than that of materials . as we gain experience in manufacturing a product , we usually achieve increased efficiencies , which result in lower labor and manufacturing overhead costs for that product and higher gross margins . our operating results are impacted by the level of capacity utilization of manufacturing facilities . operating income margins have generally improved during periods of high production volume and high capacity utilization . during periods of low production volume , we generally have idle capacity and reduced operating income margins . story_separator_special_tag the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . on an ongoing basis , we evaluate our estimates , including those related to accounts receivable , inventories , income taxes , long-lived assets , stock-based compensation and contingencies and litigation . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ materially from these estimates . we believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements . 32 allowance for doubtful accounts our accounts receivable balance is recorded net of allowances for amounts not expected to be collected from our customers . because our accounts receivable are typically unsecured , we periodically evaluate the collectibility of our accounts based on a combination of factors , including a particular customer 's ability to pay as well as the age of the receivables . to evaluate a specific customer 's ability to pay , we analyze financial statements , payment history , third-party credit analysis reports and various information or disclosures by the customer or other publicly available information . in cases where the evidence suggests a customer may not be able to satisfy its obligation to us , we set up a specific allowance in an amount we determine appropriate for the perceived risk . if the financial condition of our customers were to deteriorate , resulting in an impairment of their ability to make payments , additional allowances may be required . inventory obsolescence reserve we purchase inventory based on forecasted demand and record inventory at the lower of cost or market . we reserve for estimated obsolescence as necessary in an amount equal to the difference between the cost of inventory and estimated market value based on assumptions of future demands and market conditions . we evaluate our inventory valuation on a quarterly basis based on current and forecasted usage and the latest forecasts of product demand and production requirements from our customers . customers frequently make changes to their forecasts , requiring us to make changes to our inventory purchases , commitments , and production scheduling and may require us to cancel open purchase commitments with our vendors . this process may lead to on-hand inventory quantities and on-order purchase commitments that are in excess of our customers ' revised needs , or parts that become obsolete before use in production . in addition , shifting production from ayudhaya , thailand to korat , thailand and various other sites around the globe as a result of the severe flooding in thailand may lead to on-hand inventory quantities in excess of our customers ' needs . we record inventory reserves on excess and obsolete inventory . these reserves are established on inventory which we have determined our customers are not responsible for or on inventory which we believe our customers will be unable to fulfill their obligation to ultimately purchase . if actual market conditions are less favorable than those we projected , additional inventory write-downs may be required . income taxes we estimate our income tax provision in each of the jurisdictions in which we operate , including estimating exposures related to uncertain tax positions . we must also make judgments regarding the ability to realize the deferred tax assets . we record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized . while we have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance , in the event we were to subsequently determine that we would be able to realize our deferred tax assets in excess of our net recorded amount , an adjustment to the valuation allowance would increase income in the period such determination was made . similarly , should we determine that we would not be able to realize all or part of our net deferred tax assets in the future , an adjustment to the valuation allowance would reduce income in the period such determination was made . during 2011 , we evaluated the recoverability of our deferred tax assets using the criteria described above and concluded that our projected future taxable income in the u.s. is sufficient to utilize additional net operating loss carryforwards and other deferred tax assets . as a result , we reduced our valuation allowance by $ 19.1 million in the u.s. and , at the same time , decreased our valuation allowance by $ 1.5 million in foreign jurisdictions . 33 we are subject to examination by tax authorities for varying periods in various u.s. and foreign tax jurisdictions . during the course of such examinations , disputes may occur as to matters of fact and or law . in most tax jurisdictions the passage of time without examination will result in the expiration of applicable statutes of limitations , thereby precluding the taxing authority from conducting an examination of the tax period ( s ) for which such statute of limitations has expired . we believe that we have adequately provided for our tax liabilities . our subsidiary in thailand has filed for a refund of $ 8.2 million of previously paid income taxes , which is included in other assets . the thailand tax authorities are currently conducting an examination of the applicable filings .
| results of operations the following table presents the percentage relationship that certain items in our consolidated statements of income bear to sales for the periods indicated . the financial information and the discussion below should be read in conjunction with the consolidated financial statements and notes thereto in item 8 of this report . replace_table_token_7_th 35 year ended december 31 , 2011 compared with year ended december 31 , 2010 sales sales for the year ended december 31 , 2011 decreased 6 % to $ 2.3 billion compared to $ 2.4 billion in 2010. this decrease is primarily due to reduced demand from customers in addition to the thailand flood . the following table sets forth the percentages of our sales by industry for 2011 and 2010. replace_table_token_8_th during the year ended december 31 , 2011 , sales to customers in the medical devices industry , testing and instrumentation industry , computers and related products for business enterprises industry , and telecommunication equipment industry decreased 16 % , 15 % , 13 % and 3 % , respectively , from 2010. these decreases were partially offset by an 8 % increase in sales to customers in the industrial control equipment industry during the same period . our future sales are dependent on the success of our customers , some of which operate in businesses associated with rapid technological change and consequent product obsolescence . developments adverse to our major customers or their products , or the failure of a major customer to pay for components or services , could have an adverse effect on us . adverse worldwide economic conditions have impacted our customers . see note 10 to the consolidated financial statements in item 8 of this report . a substantial percentage of our sales have been made to a small number of customers , and the loss of a major customer , if not replaced , would adversely affect us .
| 2,598 |
those partnerships for which the partners are involved in the day to day decisions and do not have any other aspects that would cause them to be considered vies , are evaluated for consolidation using the voting interest model . o those partnerships in which regency has a controlling financial interest are consolidated and the limited story_separator_special_tag covid-19 pandemic for a discussion of the covid-19 pandemic , refer to part i item 1. business . executing on our strategy during the year ended december 31 , 2020 , we had net income attributable to common stockholders of $ 44.9 million , which includes the impacts of a $ 132.1 million goodwill impairment charge and $ 117.0 million of uncollectible lease income , as compared to net income attributable to common stockholders of $ 239.4 million during the year ended december 31 , 2019. during the year ended december 31 , 2020 : our pro-rata same property noi , excluding termination fees , declined 11.6 % , primarily attributable to uncollectible lease income ; however , as of february 8 , 2021 , we experienced sequential improvement in our pro-rata base collection rates billed by quarter as follows : q2 q3 q4 base rent collections 79 % 89 % 92 % we executed 1,511 new and renewal leasing transactions representing 5.8 million pro-rata sf with positive trailing twelve month rent spreads of 2.2 % , as compared to 1,702 leasing transactions representing 6.1 million pro-rata sf with positive trailing twelve month rent spreads of 8.5 % in the prior year . rent spreads are on comparable retail operating property spaces in each period . at december 31 , 2020 , our total property portfolio was 92.3 % leased while our same property portfolio was 92.9 % leased , as compared to 94.8 % leased and 95.1 % leased , respectively , at december 31 , 2019. primarily as a result from the impacts of the pandemic , our percent leased declined during 2020 due to tenant closures and bankruptcies , combined with declines in new leasing activity . we continued our development and redevelopment of high quality shopping centers in a targeted manner amidst the pandemic , although many in process projects have stopped or slowed while we evaluate current market conditions and assess the feasibility of these projects . as of december 31 , 2020 , we have a total of 14 properties in process of development or redevelopment with total estimated pro-rata project costs of $ 319.3 million as compared to 22 properties and $ 350.8 million at december 31 , 2019. we maintained a conservative balance sheet providing liquidity and financial flexibility to respond to these uncertain economic times and to cost effectively fund investment commitments , opportunities , and debt maturities : during march of 2020 , we settled forward sales agreements under our atm program that we entered into during 2019 by delivering 1,894,845 shares of common stock and receiving $ 125.8 million in net proceeds . we used these proceeds for working capital and general corporate purposes . under our current atm equity offering program , we may sell up to $ 500 million of common stock at prices determined by the market at the time of sale . on may 11 , 2020 , we issued $ 600 million of 10 year senior unsecured public notes at 3.7 % , which priced at 99.805 % . the proceeds of the offering were used to increase liquidity , including redeeming other outstanding public notes , repaying the outstanding balance on our line , and for general working capital purposes . on september 2 , 2020 , we redeemed the entire $ 300 million outstanding of 3.75 % notes due 2022 for a redemption price of $ 325.1 million , including accrued and unpaid interest through the redemption date and a make-whole amount . as of december 31 , 2020 , we have a borrowing capacity of $ 1.2 billion on our line of credit ( “ line ” ) . at december 31 , 2020 , our pro-rata net debt-to-operating ebitda re ratio on a trailing twelve month basis was 6.0x as compared to 5.4x at december 31 , 2019. subsequent to december 31 , 2020 , we repaid our $ 265 million term loan , leaving us with no unsecured debt maturities until 2024. subsequent to december 31 , 2020 , we extended our line maturity date to march 2025 , retaining the same $ 1.25 billion borrowing commitment . 40 leasing activity and significant tenants we believe our high-quality , grocery anchored shopping centers located in densely populated , desirable infill trade areas create attractive spaces for retail and service providers to operate their businesses . pro-rata percent leased the following table summarizes pro-rata percent leased of our combined consolidated and unconsolidated shopping center portfolio : replace_table_token_20_th our percent leased in both the anchor and shop space categories declined during 2020 due to tenant closures and bankruptcies primarily as a result from the impacts of the pandemic . additionally , a number of tenants at our properties were either required or elected to temporarily close due to the pandemic . some of these tenants may be unable to sustain their business models in this current pandemic environment and may fail . while the pandemic continues , we may be unable to find suitable replacement tenants for an extended period of time and the terms of the leases with replacement tenants may be less favorable to us . as such , our percent leased could decline further in future periods , resulting in reduced lease income from both lower base rent and recoveries from tenants for cam , real estate taxes , and insurance costs at our centers . story_separator_special_tag as the pandemic continues to impact the leasing market , limiting visibility for replacement prospects for this property , our hold period probabilities have shifted triggering further evaluation of the current fair value resulting in the additional impairment charge in 2020. during 2020 , we recognized gains of $ 67.5 million from the sale of ten land parcels , five operating properties , receipt of property insurance proceeds , and the re-measurement gain from the acquisition of controlling interest in a previously held equity investment . during 2019 , we sold five operating properties and six land parcels for gains totaling $ 24.2 million . during 2020 , we incurred $ 21.8 million of debt extinguishment costs of which $ 19.4 million related to the early redemption of our unsecured notes due to mature in 2022 and a $ 2.4 million charge for termination of an interest rate swap on our term loan that was repaid in january 2021. during 2019 , we redeemed unsecured notes and repaid one mortgage , all prior to original maturity , resulting in $ 12 million of debt extinguishment costs . our equity in income ( losses ) of investments in real estate partnerships changed as follows : replace_table_token_27_th ( 1 ) includes our investment in the town and country shopping center , which we owned 18.38 % during 2019. in january 2020 , we purchased an additional 16.62 % , bringing our total ownership interest to 35 % . the $ 26.8 million decrease in total equity in income in investments in real estate partnerships is attributed to : $ 18.1 million decrease within grir primarily due to the following : o $ 9.9 million decrease from higher uncollectible lease income attributable to the impact of the pandemic on tenants ; and o $ 9.4 million decrease driven by gains recognized during 2019 on the sale of operating real estate ; reduced by o $ 1.6 million increase from additional termination fee income in 2020 . $ 10.5 million increase within nyc primarily due to the $ 10.9 million provision for impairment of real estate recognized in 2019 ; offset by $ 2.5 million decrease within regcal primarily due to a $ 2.5 million gain recognized during 2019 on the sale of an operating property within the partnership ; 45 $ 14.8 million decrease within other investments in real estate partnerships primarily due to a $ 15.0 million gain recognized during 2019 on the sale of a single operating property ; and all of our investments in real estate partnerships experienced higher amounts of uncollectible lease income , negatively impacting our equity in income . the following represents the remaining components that comprise net income attributable to the common stockholders and unit holders : replace_table_token_28_th comparison of the years ended december 31 , 2019 and 2018 : for a comparison of our results from operations for the years ended december 31 , 2019 and 2018 , see “ part ii , item 7. management 's discussion and analysis of financial condition and results of operations ” of our annual report on form 10-k for the year ended december 31 , 2019 , filed with the sec on february 18 , 2020. supplemental earnings information we use certain non-gaap performance measures , in addition to certain performance metrics determined under gaap , as we believe these measures improve the understanding of our operating results . we believe these non-gaap measures provide useful information to our board of directors , management and investors regarding certain trends relating to our financial condition and results of operations . our management uses these non-gaap measures to compare our performance to that of prior periods for trend analyses , purposes of determining management incentive compensation and budgeting , forecasting and planning purposes . we provide pro-rata financial information because we believe it assists investors and analysts in estimating our economic interest in our consolidated and unconsolidated partnerships , when read in conjunction with our reported results under gaap . we believe presenting our pro-rata share of operating results , along with other non-gaap measures , may assist in comparing our operating results to other reits . we continually evaluate the usefulness , relevance , limitations , and calculation of our reported non-gaap performance measures to determine how best to provide relevant information to the public , and thus such reported measures could change . see “ defined terms ” in part i , item 1. we do not consider non-gaap measures an alternative to financial measures determined in accordance with gaap , rather they supplement gaap measures by providing additional information we believe to be useful to our shareholders . the principal limitation of these non-gaap financial measures is they may exclude significant expense and income items that are required by gaap to be recognized in our consolidated financial statements . in addition , they reflect the exercise of management 's judgment about which expense and income items are excluded or included in determining these non-gaap financial measures . in order to compensate for these limitations , reconciliations of the non-gaap financial measures we use to their most directly comparable gaap measures are provided . non-gaap financial measures should not be relied upon in evaluating our financial condition , results of operations , or future prospects . 46 pro-rata same property noi : our pro-rata same property noi changed as follows : replace_table_token_29_th ( 1 ) represents amounts included within lease income , in the accompanying consolidated statements of operations and further discussed in note 1 , that are contractually billable to the tenant per the terms of the lease agreements . billable base rent decreased $ 3.2 million due to loss of rents from bankruptcies and other tenant move-outs which were partially offset by contractual rent increases . recoveries from tenants decreased $ 1.2 million largely due to declines in percent leased stemming from bankruptcies and other tenant move-outs . percentage rent decreased $ 1.5 million principally due to lower tenant sales which were impacted by lockdowns during the pandemic which affected customer traffic and tenant sales .
| results from operations comparison of the years ended december 31 , 2020 and 2019 : our revenues changed as summarized in the following table : replace_table_token_24_th lease income decreased $ 114.1 million , driven by the following contractually billable components of rent to the tenants per the lease agreements : $ 105.1 million decrease from recognizing additional uncollectible lease income , consisting of $ 28.1 million increase in uncollectible straight-line rent receivables and $ 77.0 million increase in uncollectible billable tenant receivables . the pandemic has been most impactful to those tenants considered non-essential by governmental authorities . the current economic environment has resulted in changes in our expectations of collecting certain tenant receivables and their related future contracted rent increases previously recognized through straight-line rent . approximately 92 % of pro-rata base rent billed for the three months ended december 31 , 2020 , has been collected as of february 8 , 2021 . $ 5.7 million decrease from billable base rent , as follows : $ 1.6 million increase from rent commencing at development properties ; and $ 6.2 million net increase primarily from acquisitions of operating properties ; reduced by $ 2.0 million net decrease from same properties due to the loss of rents from tenant move-outs and bankruptcies and rental rate declines , offset by increases from contracted rent increases in existing leases ; and $ 11.5 million decrease from the sale of operating properties . $ 3.2 million decrease in above and below market rent primarily from the sale of operating properties . $ 1.6 million increase in other lease income from higher lease termination fees . $ 1.4 million decrease in percentage rent due to lower sales in this pandemic environment by certain tenants . $ 361,000 remaining net decrease driven primarily by a reduction in straight-line rent .
| 2,599 |
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