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determining the fair value of assets acquired and liabilities assumed requires significant judgment , including the amount and timing of expected future cash flows , story_separator_special_tag overview as previously announced , effective january 1 , 2018 , we adopted asc topic 606 , revenue from contracts with customers , and asu no . 2017-07 , compensation retirement benefits ( topic 715 ) : improving the presentation of net periodic pension cost and net periodic postretirement benefit cost , using the full retrospective method . additionally , during the fourth quarter of 2018 , we changed our gaap accounting method related to the recognition of actuarial gains and losses for the company 's pension and other postretirement benefit ( opb ) plans ( the “ accounting change ” ) . prior to the accounting change , actuarial gains and losses were recognized as a component of accumulated other comprehensive ( loss ) income upon annual remeasurement and were amortized into earnings in future periods on a plan-by-plan basis when they exceeded the accounting corridor , a defined range within which amortization of net gains and losses is not required . under the new method , actuarial gains and losses are immediately recognized in net periodic benefit cost through mark-to-market pension and opb ( “ mtm ” ) ( expense ) benefit upon annual remeasurement in the fourth quarter , or on an interim basis as triggering events warrant remeasurement . our 2017 and 2016 results below have been recast to reflect the impact of the adoption of asc topic 606 and asu 2017-07 and the accounting change as described in notes 1 , 13 , 16 , 17 and 18 to the consolidated financial statements . acquisition of orbital atk on june 6 , 2018 ( the “ merger date ” ) , the company completed its previously announced acquisition of orbital atk , inc. ( “ orbital atk ” ) ( the “ merger ” ) , by acquiring all of the outstanding shares of orbital atk for a purchase price of $ 7.7 billion in cash . on the merger date , orbital atk became a wholly-owned subsidiary of the company and its name was changed to northrop grumman innovation systems , inc. we established innovation systems as a new , fourth business sector , whose main products include launch vehicles and related propulsion systems ; missile products and defense electronics ; precision weapons , armament systems and ammunition ; satellites and associated space components and services ; and advanced aerospace structures . the acquisition was financed with proceeds from the company 's debt financing completed in october 2017 and cash on hand . we believe this acquisition will enable us to broaden our capabilities and offerings , provide additional innovative solutions to meet our customers ' emerging requirements , create value for shareholders and provide expanded opportunities for our combined employees . see note 2 to the consolidated financial statements for further information regarding the acquisition of orbital atk . global security and economic environment the u.s. and its allies continue to face a global security environment of heightened tensions and instability , threats from state and non-state actors as well as terrorist organizations , emerging nuclear tensions , diverse regional security concerns and political instability . global threats persist across all domains , from undersea to space to cyber . the market for defense products , services and solutions globally is driven by these complex and evolving security challenges , considered in the broader context of political and socioeconomic priorities . the global geopolitical and economic environments also continue to be impacted by uncertainty . geopolitical relationships are changing and global economic growth is expected to remain in the low single digits in 2019 , reflecting the impact of and uncertainty surrounding geopolitical tensions globally and financial market volatility . the global economy may also be affected by britain 's anticipated exit from the european union , the full impact of which is not known at this time . additionally , economic tensions and changes in international trade policies , including higher tariffs on imported goods and materials and renegotiation of free trade agreements , could impact the global market for defense products , services and solutions . u.s. political and economic environment the u.s. continues to face an uncertain political environment and substantial fiscal and economic challenges , which affect funding for discretionary and non-discretionary budgets . the budget control act of 2011 ( bca ) mandated spending caps for all federal discretionary spending across a ten-year period ( fy 2012 through fy 2021 ) , including specific limits for defense and non-defense spending . in prior years , these spending caps have been revised by separate bills for specific fiscal years . most recently , on february 9 , 2018 , congress passed the bipartisan budget act ( bba ) of 2018 , which raised the statutory budget caps for defense spending , including for overseas contingency operations ( oco ) , by $ 80 billion for fy 2018 and by $ 85 billion for fy 2019. the bba also raised non-defense spending by $ 63 billion for fy 2018 and $ 68 billion for fy 2019 and suspended the debt ceiling until march 1 , 2019. the original spending caps - 25 - northrop grumman corporation established by the bca will return for fy 2020 and fy 2021 without another statutory change . similarly , the suspension of the debt ceiling is expected to end on march 1 , 2019 absent further action . on march 23 , 2018 , the president signed the omnibus appropriations act for fy 2018 , which provided $ 1.3 trillion in discretionary funding for federal agencies . in total for fy 2018 , congress appropriated approximately $ 700 billion for national security , including approximately $ 630 billion for base discretionary funding and approximately $ 70 billion in oco funding . on september 28 , 2018 , full-year appropriations for fy 2019 were enacted representing over half of discretionary federal spending . story_separator_special_tag excluding these items , mtm-adjusted diluted earnings per share decreased $ 0.55 , or 4 percent , primarily due to the 6 percent decline in mtm-adjusted net earnings discussed above , partially offset by a 3 percent reduction in weighted-average shares outstanding resulting principally from shares repurchased during 2016. segment operating results basis of presentation the company is aligned in four operating sectors , which also comprise our reportable segments : aerospace systems , innovation systems , mission systems and technology services . as described above , on the effective date of the merger , we established innovation systems as a new , fourth business sector . the segment operating results below include sales and operating income for innovation systems subsequent to the merger date . for a more complete description of each segment 's products and services , see “ business. ” we present our sectors in the following business areas , which are reported in a manner reflecting core capabilities : aerospace systems innovation systems mission systems technology services autonomous systems defense systems advanced capabilities advanced defense services manned aircraft flight systems cyber and isr global logistics and modernization space space systems sensors and processing system modernization and services this section discusses segment sales , operating income and operating margin rates . a reconciliation of segment operating income to total operating income is provided below . - 29 - northrop grumman corporation segment operating income and margin rate segment operating income , as reconciled in the reconciliation of segment operating income to total operating income section below , is a non-gaap measure that reflects total earnings from our four segments , including allocated pension expense recognized under cas , and excluding unallocated corporate items and fas pension expense . this non-gaap measure may be useful to investors and other users of our financial statements as a supplemental measure in evaluating the financial performance and operational trends of our sectors . this non-gaap measure may not be defined and calculated by other companies in the same manner and should not be considered in isolation or as an alternative to operating results presented in accordance with gaap . replace_table_token_10_th 2018 – segment operating income for 2018 increased $ 544 million , or 19 percent , as compared with 2017 , and includes the addition of $ 343 million of operating income from innovation systems and higher operating income at aerospace systems and mission systems . the higher operating income includes $ 69 million of favorable eac adjustments on multiple restricted programs at aerospace systems . segment operating margin rate increased to 11.5 percent from 11.2 percent in 2017 principally due to higher segment margin rates at each of the legacy northrop grumman sectors . 2017 – segment operating income for 2017 increased $ 39 million , or 1 percent , as compared with 2016 , primarily due to higher operating income at aerospace systems , partially offset by lower operating income at mission systems and technology services . the higher operating income includes a $ 56 million favorable eac adjustment at aerospace systems on a restricted program largely related to performance incentives and $ 54 million recognized in connection with a claim related to certain costs incurred in prior years ( the “ 2017 cost claim ” ) . segment operating margin rate decreased to 11.2 percent from 11.6 percent in 2016 principally due to lower segment margin rates at mission systems and aerospace systems . reconciliation of segment operating income to total operating income - the table below reconciles segment operating income to total operating income by including the impact of the net fas ( service ) /cas pension adjustment , as well as unallocated corporate expenses ( certain corporate-level expenses , which are not considered allowable or allocable under applicable cas or far , and costs not considered part of management 's evaluation of segment operating performance ) . see note 15 to the consolidated financial statements for further information on the net fas ( service ) /cas pension adjustment and unallocated corporate expense . replace_table_token_11_th ( 1 ) includes amortization of purchased intangible assets and the additional depreciation expense related to the step-up in fair value of property , plant and equipment ( pp & e ) acquired through business combinations , which are included in unallocated corporate expense as they are not considered part of management 's evaluation of segment operating performance . ( 2 ) represents the deferred state tax impact of mtm ( expense ) benefit , which is recorded in unallocated corporate expense consistent with other changes in deferred state taxes . - 30 - northrop grumman corporation ( 3 ) includes $ 24 million , $ 34 million and $ 35 million of deferred state tax expense for the years ended december 31 , 2018 , 2017 and 2016 , respectively , resulting from the reversal of previously recognized amortization of net actuarial losses in connection with the accounting change . net fas ( service ) /cas pension adjustment 2018 – the decrease in our net fas ( service ) /cas pension adjustment , as compared with 2017 , is primarily due to lower cas expense for legacy northrop grumman resulting from higher assets returns in 2017 and a change in the legacy northrop grumman mortality assumption as of december 31 , 2017 , which more than offset the additional net fas ( service ) /cas pension adjustment from the addition of innovation systems .
| consolidated operating results for purposes of the operating results discussion below , we assess our financial and operating performance using certain financial measures that are not calculated in accordance with gaap . these non-gaap financial measures exclude mtm ( expense ) benefit and related tax impacts , and are described as mtm-adjusted net earnings and mtm-adjusted diluted earnings per share . these non-gaap measures may be useful to investors and other users of our financial statements as supplemental measures in evaluating the company 's underlying financial performance by presenting the company 's operating results before the non-operational impact of pension and opb actuarial gains and losses . these measures are also consistent with how management views the underlying performance of the business as the impact of mtm accounting is not considered in management 's assessment of the company 's operating performance or in its determination of incentive compensation awards . we reconcile these non-gaap financial measures to their most directly comparable gaap financial measures below . these non-gaap measures may not be defined and calculated by other companies in the same manner and should not be considered in isolation or as an alternative to operating results presented in accordance with gaap . - 26 - northrop grumman corporation selected financial highlights are presented in the table below : replace_table_token_6_th sales 2018 – sales increased $ 4.1 billion , or 16 percent , as compared with 2017 , due to the addition of $ 3.3 billion of sales from innovation systems and higher sales at aerospace systems and mission systems , partially offset by lower sales at technology services . 2017 – sales increased $ 1.3 billion , or 5 percent , as compared with 2016 , primarily due to higher sales at aerospace systems and mission systems . see “ segment operating results ” below for further information by segment and “ product and service analysis ” for product and service detail .
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nep consolidates the results of nep opco and its subsidiaries through its controlling interest in the general partner of nep opco . at december 31 , 2018 , nep owned an approximately 35.6 % limited partner interest in nep opco and nee equity owned a noncontrolling 64.4 % limited partner interest in nep opco . through nep opco , nep owns a portfolio of contracted renewable generation assets consisting of wind and solar projects and a portfolio of contracted natural gas pipeline assets . nep 's financial results are shown on a consolidated basis with financial results attributable to nee equity reflected in noncontrolling interests . during 2018 , 2017 and 2016 , nep acquired various projects from neer as discussed in note 3 . the acquisitions from neer prior to 2018 ( common control acquisitions ) were considered a transfer of assets between entities under common control , which required them to be accounted for as if the transfers occurred since the inception of common control , with prior periods retrospectively adjusted to furnish comparative information . accordingly , the consolidated financial statements were retrospectively adjusted to include the historical results and financial position of the common control acquisitions prior to their respective acquisition dates . beginning in january 2018 , acquisitions form neer are no longer treated as common control acquisitions . in addition , on october 1 , 2015 , a subsidiary of nep completed the acquisition of seven natural gas pipeline assets ( texas pipelines ) from a third party . in june 2018 , a subsidiary of nep completed the sale of canadian holdings which owned four wind generation facilities and two solar generation facilities located in ontario , canada with a generating capacity totaling approximately 396 mw . see note 2 - disposal of canadian holdings . in late january 2019 , pg & e , a significant customer of nep , filed a voluntary petition for reorganization under chapter 11 of the u.s. bankruptcy code . see note 15 - pg & e bankruptcy . 40 story_separator_special_tag style= '' line-height:120 % ; text-align : justify ; font-size:9pt ; '' > operating revenues increased approximately $ 35 million during the year ended december 31 , 2017 primarily due to $ 30 million of higher renewable energy sales primarily attributable to the commencement of commercial operations at two wind facilities in november and december of 2016 , and approximately $ 5 million of higher texas pipeline service revenues mainly due to higher reimbursable operating costs . operating expenses operations and maintenance o & m expenses increased approximately $ 33 million for the year ended december 31 , 2017 primarily due to an increase of $ 24 million in idr fees related to growth in nep 's distributions to its common unitholders , an increase of $ 7 million due to higher reimbursable operating costs related to the texas pipelines , an increase of $ 5 million related to the commencement of commercial operations at two wind facilities in november and december of 2016 and increases in o & m expenses at various projects and corporate expenses related to growth in the portfolio . these increases were offset by the absence of approximately $ 8 million of accretion of an indemnity holdback related to the texas pipelines . depreciation and amortization depreciation and amortization expense decreased approximately $ 9 million during the year ended december 31 , 2017 primarily reflecting a decrease of approximately $ 21 million due to the change in estimated useful lives of certain equipment ( see note 8 ) , partly offset by an increase of $ 13 million related to the commencement of commercial operations at two wind facilities in november and december of 2016. other income ( deductions ) interest expense interest expense increased approximately $ 47 million during the year ended december 31 , 2017 primarily due to $ 32 million related to mark-to-market losses in 2017 and the absence of mark-to-market gains in 2016 , as well as $ 19 million related to additional borrowings to fund project acquisitions . benefits associated with differential membership interests - net the increase in benefits associated with differential membership interests - net of approximately $ 52 million during the year ended december 31 , 2017 primarily relates to approximately $ 18 million due to increased wind resource and a higher ptc rate at the underlying projects , lower interest costs of $ 17 million associated with the ongoing paydown of the differential membership interest obligations and $ 16 million in benefits related to differential membership interests sold in december 2016. see note 2 - differential membership interests . revaluation of contingent consideration during the year ended december 31 , 2016 , a subsidiary of nep recorded fair value adjustments of approximately $ 189 million to decrease the contingent holdback associated with the acquisition of the texas pipelines . see note 6 - contingent consideration . income taxes for the year ended december 31 , 2017 , nep recorded income tax expense of approximately $ 167 million on income before income taxes of $ 281 million , resulting in an effective tax rate of approximately 59 % . the income tax expense is primarily comprised of income tax expense of approximately $ 100 million related to tax reform ( see note 5 ) , $ 98 million at the statutory rate of 35 % and $ 6 million of state income taxes , partly offset by income tax benefit of $ 32 million of income tax attributable to noncontrolling interests . for the year ended december 31 , 2016 , nep recorded income tax expense of approximately $ 57 million on income before income taxes of $ 440 million , resulting in an effective tax rate of approximately 13 % . story_separator_special_tag however , certain of nep 's financings accrue interest at variable rates based on the london interbank offered rate . interest rate contracts were entered into for certain of these financings to hedge against interest rate movements with respect to interest payments on the loan . in addition , under the project financings , each project will be permitted to pay distributions out of available cash on a semi-annual basis so long as certain conditions are satisfied , including that reserves are funded with cash or credit support , no default or event of default under the applicable financings has occurred and is continuing at the time of such distribution or would result therefrom , and each project is otherwise in compliance with the project financing 's covenants and , for the majority of the project financings , the applicable minimum debt service coverage ratio is satisfied . the majority of nep 's project financings include a minimum debt service coverage ratio of 1.20:1.00 that must be satisfied . for one project financing , the project must maintain a leverage ratio of less than 5.0:1.0 and an interest coverage ratio of at least 2.75:1.00 in order to make a distribution . under certain term loans , nep opco and one of its direct subsidiaries are required to comply with certain financial covenants , including maintaining a leverage coverage ratio of less than 5.5:1.0 and an interest coverage ratio of at least 1.75:1.00 in order to make a distribution . at december 31 , 2018 , nep 's subsidiaries were in compliance with all financial debt covenants under their financings . however , in early january 2019 , events of default occurred under the financing agreements related to the genesis and shafter solar projects . see note 15 - pg & e bankruptcy . senior notes during 2017 , nep issued $ 300 million in aggregate principal amount of convertible notes and nep opco issued $ 550 million in aggregate principal amount of 4.25 % senior notes due 2024 and $ 550 million in aggregate principal amount of 4.50 % senior notes due 2027. see note 11 - debt . equity arrangements in december 2018 , nep issued and sold 100 % of the noncontrolling class b interest in one of its subsidiaries for approximately $ 750 million under a membership interest purchase agreement . from december 2021 to december 2022 , nep has a buyout right , subject to certain limitations and extensions , under which nep has the right to pay at least 70 % of the buyout price in nep non-voting common units . see note 11 - equity . nep established an at-the-market equity issuance program ( atm program ) in 2015 pursuant to which nep may issue , from time to time , up to $ 150 million of its common units which gives nep the flexibility to issue new units when the price is acceptable . in july 2018 , nep implemented a $ 150 million atm program which replaced its prior program . during the year ended december 31 , 2018 , nep issued approximately 1.8 million common units under the atm program . at december 31 , 2018 , nep may issue up to approximately $ 64 million in additional common units under the atm program . in july 2018 , nep filed a shelf registration statement with the sec , which became effective upon filing , for an unspecified amount of securities , which shelf registration statement replaced a prior shelf registration statement that had expired . the amount of securities issuable by nep is established from time to time by its board of directors . securities that may be issued under the registration statement include common units , preferred units , warrants , rights , debt securities , equity purchase contracts and equity purchase units . 45 contractual obligations nep 's contractual obligations at december 31 , 2018 were as follows : replace_table_token_8_th ( a ) includes principal , interest , fees on credit facilities and interest rate swaps . variable rate interest was computed using december 31 , 2018 rates . such amounts reflect scheduled payments under the financing agreements for debt in default as the lenders have not issued any acceleration notices . see note 11 - debt . ( b ) primarily reflects lease payment obligations . see note 14 . ( c ) represents expected cash payments adjusted for inflation for estimated costs to perform asset retirement activities . ( d ) represents minimum fees under the msa and cscs agreement . see note 13 . capital expenditures annual capital spending plans are developed based on projected requirements by the projects . capital expenditures primarily represent the estimated cost of capital improvements , including construction expenditures that are expected to increase nep opco 's operating income or operating capacity over the long term . capital expenditures for projects that have already commenced commercial operations are generally not significant because most expenditures relate to repairs and maintenance and are expensed when incurred . for the years ended december 31 , 2018 and 2017 , nep had capital expenditures of approximately $ 23 million and $ 357 million , respectively , primarily related to construction prior to the nep acquisition date and excluding the purchase prices of acquired projects . nep does not expect any significant capital expenditures for 2019 through 2023 other than costs that may occur as acquisition or expansion opportunities arise . subject to regulatory approvals , nep expects to have capital expenditures totaling approximately $ 128 million related to a potential expansion investment at one of the texas pipelines expected to be in-service during the fourth quarter of 2020. these estimates are subject to continuing review and adjustment and actual capital expenditures may vary significantly from these estimates . cash distributions to unitholders nep 's partnership agreement requires it to distribute available cash quarterly .
| results of operations replace_table_token_6_th ( a ) prior-period financial information has been retrospectively adjusted as discussed in note 14 . 2018 compared to 2017 operating revenues operating revenues primarily consist of income from the sale of energy under nep 's ppas and services provided under natural gas transportation agreements . operating revenues decreased $ 36 million during the year ended december 31 , 2018 primarily related to the absence of approximately $ 65 million of revenues as a result of the sale of canadian holdings . this decrease was partly offset by an increase of $ 26 million of texas pipelines service revenues primarily due to the recognition of revenue related to new contracts . wind and solar resource levels , weather conditions and the performance of nep 's renewable energy portfolio represent significant factors that could affect its operating results because these variables impact energy sales . additionally , project acquisitions or expansion opportunities could impact future revenues . operating expenses operations and maintenance o & m expenses include interconnection costs , labor expenses , turbine servicing costs , land payments , insurance , materials , supplies , shared services and administrative expenses attributable to nep 's projects , and costs and expenses under the msa , asas and o & m agreements ( see note 13 ) . o & m expenses also include the cost of maintaining and replacing certain parts for the projects in the portfolio to maintain , over the long term , operating income or operating capacity . o & m expenses increased $ 9 million during the year ended december 31 , 2018 primarily due to an increase of approximately $ 12 million in idr fees related to growth in nep 's distributions to its common unitholders and increases in o & m expenses at various projects , partly offset by a decrease of approximately $ 8 million as a result of the sale of canadian holdings .
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and consolidated subsidiaries notes to consolidated financial statements , continued replace_table_token_47_th 73 citizens , inc. story_separator_special_tag the following is management 's discussion and analysis of the consolidated financial condition and consolidated results of operations of the company . it is intended to be a discussion of certain key financial information regarding the company and should be read in conjunction with the consolidated financial statements and related notes to this report on form 10-k. overview we conduct operations as an insurance holding company emphasizing ordinary life insurance and endowment products in niche markets where we believe we can achieve competitive advantages . as an insurance provider , we collect premiums on an ongoing basis to pay future benefits to our policy and contract holders . our core operations include issuing : whole life insurance ; endowments ; credit insurance ; final expense ; and limited liability property policies . the company derives its revenues principally from 1 ) premiums earned for insurance coverages provided to insureds ; 2 ) net investment income ; and 3 ) net realized capital gains and losses . profitability of our insurance operations depends heavily upon the company 's underwriting discipline , as we seek to manage exposure to loss through favorable risk selection and diversification , management of claims , use of reinsurance , the size of our in force block , actual mortality and morbidity experience , and our ability to manage our expense ratio , which we accomplish through economies of scale and management of acquisition costs and other underwriting expenses . pricing adequacy depends on a number of factors , including the ability to obtain regulatory approval for rate changes , proper evaluation of underwriting risks , the ability to project future losses based on historical loss experience adjusted for known trends , the company 's response to competitors , and expectations about regulatory and legal developments and expense levels . the company seeks to price our insurance policies such that insurance premiums and future net investment income earned on premiums received will cover underwriting expenses and the ultimate cost of paying claims reported on the policies and provide for a profit margin . for many of our insurance products , the company is required to obtain approval for the premium rates from state insurance departments . the profitability of fixed annuities , riders and other “ spread-based ” product features depends largely on the company 's ability to earn target spreads between earned investment rates on assets and interest credited to policyholders . the investment return , or yield , on invested assets is an important element of the company 's earnings since insurance products are priced with the assumption that premiums received can be invested for a period of time before benefits are paid . the majority of the company 's invested assets have been held in available-for-sale and held-to-maturity securities , primarily in asset classes of corporate bonds , municipal bonds , and government obligation bonds . the current and projected low interest rate environment is having a significant impact on the determination of insurance contract liabilities and assets regarding reserves and deferred acquisition costs . the primary investment objective for the company is to maximize economic value , consistent with acceptable risk parameters , including the management of credit risk and interest rate sensitivity of invested assets , while generating sufficient after-tax income to meet policyholder and corporate obligations . the company maintains a conservative investment strategy that may vary based on a variety of factors including business needs , regulatory requirements and tax considerations . in the first quarter of 2015 , we announced that we identified that a substantial portion of the life insurance policies issued by our subsidiary insurance companies failed to qualify for the favorable u.s. federal income tax treatment afforded by sections 7702 and 7702a of the internal revenue code ( `` irc '' ) of 1986. as a result , we have established a reserve of $ 11.4 million for probable expenses and liabilities associated with this tax compliance matter , which amount represents the low end of management 's estimated range of those probable expenses and liabilities of $ 11.4 million to $ 40.0 million net of tax . this estimated range includes projected toll charges and fees as well as increased claims liability for past claims , reserves increases to bring policies into compliance and other probable liabilities resulting from this tax compliance matter . our estimated range reflects the uncertainties with respect to the required course of action and other matters unknown at this time . currently , management believes there is not a specific 24 citizens , inc. and consolidated subsidiaries estimable amount for these probable liabilities and expenses which is more likely than other specific amounts within our estimated range . the process of determining our estimated range was a complex undertaking and involved management 's judgment based upon a variety of factors known at the time . given the number of factors considered and the significant variables assumed in establishing our estimated range , actual amounts incurred may exceed our reserve and the high end of our estimated range of expenses and liabilities . in addition , there is a reasonable possibility that we will incur other expenses related to this issue in 2015 , including consulting fees and potential system costs . we are not able to reasonably estimate these amounts as of the reporting date . current financial highlights the 2014 financial results are driven by our conservative business management and traditional life product sales . the interest rate environment continues to impact our results and our industry as investment yields are an integral component of our business operations . our assets grew $ 201 million in 2014 and totaled $ 1.4 billion as of december 31 , 2014 . total stockholders ' equity increased from $ 245.8 million at december 31 , 2013 , to $ 258.4 million at december 31 , 2014 due primarily to changes in unrealized gains on securities marked to market . insurance premiums rose 7.0 story_separator_special_tag we believe this trend should be a benefit to our acquisition strategy as more complementary acquisition candidates may become available for us to consider . many of the events and trends affecting the life insurance industry have had an impact on the life reinsurance industry . these events have led to a decline in the availability of reinsurance . while we currently cede a limited amount of our primary insurance business to reinsurers , we may find it difficult to obtain reinsurance in the future , forcing us to seek reinsurers who are more expensive to us . if we can not obtain affordable reinsurance coverage , either our net exposures will increase or we will have to reduce our underwriting commitments . while our management has more than 41 years of experience in writing life insurance policies for foreign residents , changes related to foreign government laws and regulations and application of them , along with currency controls affecting our foreign resident insureds could adversely impact our revenues , results of operations and financial condition . acquisition history - last five years on august 1 , 2011 , splic entered into assumption reinsurance agreements with escude life insurance company in rehabilitation , and benton life insurance company in rehabilitation . at the time the agreements were executed , both companies were under receivership with the louisiana department of insurance . in total , splic assumed approximately $ 4.5 million in reserve liabilities and received approximately $ 4.6 million in cash , with a minimal reinsurance ceding commission being paid . these transactions are accounted for under business combination accounting and are not deemed material . 26 citizens , inc. and consolidated subsidiaries on march 7 , 2014 , the company acquired magnolia guaranty life insurance company ( `` mglic '' ) in the amount of $ 5.2 million . mglic is a mississippi domiciled company that began writing business in 1992 and issues primarily industrial life policies through independent funeral homes in the state of mississippi . we recorded $ 0.1 million of goodwill as a result of this transaction . mglic is reported in our home service segment . story_separator_special_tag cellspacing= '' 0 '' style= '' font-family : times new roman ; font-size:10pt ; '' > the company monitors death claims based upon expectations . these values may routinely fluctuate from year to year . policy surrenders increased in 2014 , 2013 and 2012 , but remained at a level that represents approximately 0.6 % of direct ordinary whole life insurance inforce . the increase in surrender expense is primarily related to our international business and is expected to increase over time due to the aging of this block of business . a significant portion of surrenders relates to policies that have been in force over fifteen years and no longer have a surrender charge associated with them . total direct insurance inforce reported in 2014 was $ 4.9 billion compared to $ 4.7 billion in 2013 and $ 4.6 billion 2012 . endowment benefits increased in 2014 compared to 2013 and 2012 amounts . we have a series of international policies that carry an immediate endowment benefit of an amount selected by the policy owner . these benefits have been popular in the pacific rim and latin america , where the company has experienced increased interest in our guaranteed products in recent years . like policy dividends , annual guaranteed endowments are factored into the premium and , as such , the increase has no impact on profitability . the company expects these benefits to continue to increase as this block of business increases and persists . property claims decreased 24 % to approximately $ 1.5 million in 2014 compared with the amount reported for 2013 due a decrease in weather related claims . the hurricane issac claims experience in 2012 included $ 0.5 million of losses within our retention limits . reserves . the change in future policy benefit reserves has increased 11.6 % and 11.3 % in 2014 and 2013 due primarily to the current low interest rate environment necessitating higher reserves for policies issued in the last few years due to lower long term yield projections compared to prior assumptions . in addition , we continue to experience growth in new sales of endowment products , which require higher initial reserve levels , than whole life products . endowment sales totaled approximately $ 16.9 million , $ 14.3 million and $ 14.3 million in 2014 , 2013 and 2012 , respectively . in addition , we recorded an increase to reserves of $ 1.4 million due to estimated required additional death benefits on those life products we intend to remediate for compliance with irc sections as noted above . policyholder dividends . policyholder dividends have risen at a rate corresponding with the growth rate in new international life insurance premiums . the company issues long duration participating policies to foreign residents that are expected to pay dividends to policyholders based upon actual experience . policyholder dividends are factored into the premiums and have no impact on profitability . commissions . commission expense fluctuates in a direct relationship to new and renewal insurance premiums and has increased 8.8 % in 2014 compared to 2013 as premium revenues have increased . other general expenses . total general expenses have increased significantly on a consolidated basis in 2014 due to the tax compliance issue we identified in 2015 , which resulted in a $ 10.2 million expense for future liabilities recorded in the current year . in 2013 , claims cost increased compared to 2012 , related to our self insurance health plan for our employees resulting in approximately $ 0.5 million increase to our overall benefit expenses . we also had an increase in temporary labor staffing costs of 30 citizens , inc. and consolidated subsidiaries $ 0.2 million related to assistance with operations projects .
| consolidated results of operations a discussion of consolidated results is presented below , followed by a discussion of segment operations and financial results by segment . revenues insurance revenues are primarily generated from premium revenues and investment income . in addition , realized gains and losses on investment holdings can significantly impact revenues from year to year . replace_table_token_4_th premium income . premium income derived from life , accident and health , and property insurance sales , increased 7.0 % during 2014 . the increase resulted primarily from renewal premiums , which increased 6.5 % and 5.3 % in the life segment for 2014 and 2013 and totaled $ 159.7 million , $ 150.3 million and $ 144.7 million on the consolidated level in 2014 , 2013 and 2012 , respectively . new sales , termed as first year premiums , increased 13.2 % , 4.0 % , and 6.1 % in the life segment in 2014 , 2013 and 2012 . endowment sales represent a significant portion of new business sales internationally with the 20 year endowment and endowment to age 65 as our top products . in addition , most of our life insurance policies contain a policy loan provision , which allows the policyholder to use cash value of a policy to pay premiums . the policy loan asset balance increased 10.6 % and 13.7 % in 2014 and 2013 , year over year . net investment income . net investment income increased to $ 41.1 million in 2014 compared to $ 36.6 million in 2013 , due to an increase in yields from new investments primarily in municipal and corporate issues and as we experienced higher average invested assets as a result of investment of new premium revenue . 27 citizens , inc. and consolidated subsidiaries net investment income performance is summarized as follows .
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and canada , and we also operate two facilities in chile and one facility in brazil . to serve these markets , we operate in four segments : siding , osb , ewp , and south america . executive summary we recorded a $ 518 million ( or 18 % ) decrease in net sales to $ 2.3 billion for the year ended december 31 , 2019 , from $ 2.8 billion reported for the year ended december 31 , 2018 , primarily due to $ 416 million of reduced osb prices and reductions in osb shipments across all north american segments . we recorded a net loss attributed to lp of $ 5 million ( ( $ 0.04 ) per diluted share ) during 2019 compared to net income of $ 395 million ( $ 2.73 per diluted share ) during the prior year . in addition to the osb pricing and shipment declines , we recorded pre-tax impairment charges of $ 92 million . included within these impairment charges are $ 47 million related to non-operating assets located at val-d'or and st michel , quebec , canada ; cook , minnesota ; and silsbee , texas ; and $ 39 million related to an ewp facility producing lsl and osb and $ 5 million related to a siding facility that we expect to sell . these impairment charges reflect changes to anticipated usage of these facilities driven by market changes and improved operating efficiencies across our remaining facilities . our adjusted ebitda decreased $ 451 million to $ 209 million for the year ended december 31 , 2019 , from $ 660 million for the year ended december 31 , 2018 , primarily due to the osb pricing and shipment declines , partially offset by the smartside® strand revenue growth . demand for building products demand for our products correlates to a significant degree to the level of new home construction activity in north america , which historically has been characterized by significant cyclicality . the u.s. census bureau reported that actual single and multi-family housing starts in 2019 were about 3 % higher than in 2018 . single-family housing starts were about one percent higher than in 2018 . we believe that the level of building continues to be impacted by a lack of available labor . while near-term residential construction is constrained in the u.s. , positive long-term fundamentals exist . increased immigration , the changing age distribution of the population , and historically low-interest rates are expected to lead to more household formations . the chart below , which is based on data published by u.s. census bureau , provides a graphical summary of new housing starts for single and multi-family in the u.s. showing actual and rolling five and ten-year averages for housing starts . 22 supply and demand for siding smartside® siding is a specialty building material and is subject to competition from various siding technologies , including vinyl , stucco , wood , fiber cement , brick , and other . we believe we are the largest manufacturer to the $ 800 million engineered wood siding market . the overall siding market is estimated to be over $ 10 billion . we have consistently grown our smartside® strand siding above the underlying market growth rates . smartside® strand is generally less sensitive to new housing market cyclicality since roughly 60 % of its demand comes from other markets , including : sheds , retail , and repair and remodel . our growth in this market depends upon continued displacement of vinyl , wood fiber , cement and stucco alternatives , our product innovation and our technological expertise in wood and wood composites to address the needs of our customers . supply and demand for osb osb is a commodity product , and it is subject to competition from manufacturers worldwide . product supply is influenced primarily by fluctuations in available manufacturing capacity and imports . the ratio of overall osb demand to capacity generally drives price . critical accounting policies and significant estimates management 's discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with u.s. gaap . the preparation of these financial statements requires management to make informed estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . our financial position and or results of operations may be materially different when reported under different conditions or when using different assumptions in the application of such policies . in the event estimates or assumptions prove to be different from actual amounts , adjustments are made in subsequent periods to reflect more current information . our significant accounting policies are disclosed in the consolidated financial statements and item 8 of this annual report on form 10-k. the following discussion addresses our most critical accounting policies , which are those that are both important to the portrayal of our financial condition and results of operations and that require significant judgment or use of complex estimates . long-lived assets property , plant and equipment , and long-lived assets ( including amortizable identifiable intangible assets ) are tested 23 for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable , including but not limited to facility curtailments and asset abandonments . when such events occur , we group long-lived assets with other assets and liabilities at the lowest level for which identifiable cash flows exist . we compare the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset or asset group to the carrying amount of a long-lived asset or asset group . the cash flows are based on our best estimate of future cash flows derived from the most recent business projections . story_separator_special_tag the tax benefit recognized is measured as the largest amount of benefit that is greater than 50 % likely of being realized upon ultimate resolution with a taxing authority . the actual benefits ( expense ) ultimately realized may differ from our estimates . in future periods , changes in facts , circumstances , and new information may require us to change the recognition and measurement estimates with regard to individual tax positions . changes in recognition and measurement estimates are recorded in the consolidated financial statements in the period in which such changes occur . as of december 31 , 2019 , we had liabilities for unrecognized tax benefits pertaining to uncertain tax positions totaling $ 38 million . customer program costs our businesses routinely incur customer program costs to obtain favorable product placement , to promote sales of products and to maintain competitive pricing . customer program costs and incentives , including rebates and promotion and volume allowances , are accounted for as a reduction in net sales at the time the program is initiated and or the revenue is recognized . the costs include , but are not limited to , volume allowances and rebates , promotional allowances , and cooperative advertising programs . these costs are recorded at the later of the time of sale or the implementation of the program based on management 's best estimates . our estimates are based on historical and projected experience for each type of program or customer . volume allowances are accrued based on our estimates of customer volume achievement and other factors incorporated into customer agreements , such as new products , merchandising support , and customer training . although we believe we can reasonably estimate customer volumes and support and the related customer payments at interim periods , it is possible that actual results could be different from previously estimated amounts . at the end of each year , a significant portion of the actual volume and support activity is known . thus , we do not believe that a material change in the amounts recorded as customer program costs payable is likely . as of december 31 , 2019 , we had $ 34 million accrued as customer rebates . non-gaap financial measures in evaluating our business , we utilize non-gaap financial measures that fall within the meaning of sec regulation g and regulation s-k item 10 ( e ) , which we believe provide users of the financial information with additional meaningful comparison to prior reported results . non-gaap measures do not have standardized definitions and are not defined by u.s. gaap . in this annual report on form 10-k , we disclose earnings from continuing operations 25 before interest expense , income taxes , depreciation and amortization , and exclude stock-based compensation expense , impairment of long-lived assets , other operating credits and charges , net , loss on early debt extinguishment , investment income and other non-operating items as adjusted ebitda from continuing operations ( adjusted ebitda ) which is a non-gaap financial measure . we have included adjusted ebitda in this report because we view it as an important supplemental measure of our performance and believe that it is frequently used by interested persons in the evaluation of companies that have different financing and capital structures and or tax rates . we also disclose adjusted income from continuing operations attributed to lp , which excludes impairment of long-lived assets , interest expense outside of normal operations , other operating credits and charges , net , other non-operating items , and adjusts for a normalized tax rate ( adjusted income ) . we believe that adjusted income is a useful measure for evaluating our ability to generate earnings and that providing this measure should allow interested persons to more readily compare the earnings for past and future periods . neither adjusted ebitda nor adjusted income is a substitute for the u.s. gaap measure of net income or for any other u.s. gaap measures of operating performance . it should be noted that other companies may present similarly-titled measures differently and , therefore , as presented by us , these measures may not be comparable to similarly-titled measures reported by other companies . adjusted ebitda and adjusted income have material limitations as performance measures because they exclude items that are actually incurred or experienced in connection with the operations of our business . the following table presents significant items by operating segment and reconciles net income to adjusted ebitda : replace_table_token_7_th 26 the following table provides the reconciliation of net income to adjusted income : replace_table_token_8_th story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > 415 million ( or 98 % ) from 2018 , primarily due to the decline in osb prices and shipments , and partially offset by improved operating efficiencies . year ended december 31 , 2018 , compared to year ended december 31 , 2017 29 net sales decreased $ 2 million ( or less than one percent ) from 2017 , primarily due to reductions in osb shipments reflecting the overall market demand . our structural solutions mix comprised 38 % of the total osb shipments in both 2018 and 2017 , respectively . adjusted ebitda decreased $ 34 million ( or seven percent ) from 2017 due to increases in structural solutions pricing , and partially offset by increasing raw material costs ( primarily resin ) and manufacturing costs due to downtime related to logistics associated with our western canadian operations , maintenance capital improvements and market curtailments ( primarily in the fourth quarter of 2018 ) . ewp the ewp segment consists of lp solidstart® i-joist ( ij ) , laminated veneer lumber ( lvl ) , laminated strand lumber ( lsl ) , and other related products . this segment also includes the sales of i-joist and lvl products produced by our joint venture and sales of plywood produced as a by-product of the lvl production process .
| our operating results our results of operations for each of our segments are discussed below , as are results of operations for the “ other ” category , which comprises other products that are not individually significant . see note 20 of the notes to the consolidated financial statements included in item 8 of this annual report on form 10-k for further information regarding our segments . siding the siding segment consists of lp smartside® trim and siding , lp canexel® prefinished siding , as well as lp outdoor building solutions® innovative products for premium outdoor buildings . segment sales , adjusted ebitda , and adjusted ebitda margin for this segment were as follows : replace_table_token_9_th 27 sales in this segment by product line were as follows : replace_table_token_10_th percent changes in average sales prices and unit shipments are as follows : replace_table_token_11_th year ended december 31 , 2019 , compared to year ended december 31 , 2018 net sales increased $ 21 million ( or two percent ) compared to 2018 , primarily due to smartside ® strand revenue growth of 10 % . smartside ® strand siding revenue comprised 81 % of the total siding shipments in 2019 as compared to 71 % in 2018 . the increase in smartside ® strand siding revenue reflects the increased market penetration in key markets and the implementation of price increases in the first quarter of 2019. smartside ® fiber siding shipments decreased from 2018 due to loss of market and channel penetration as customers shifted towards alternative products , including smartside ® strand . canexel ® siding revenue increased from 2018 due to better canadian distributor sales and changes to the product mix in 2019 .
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however , the annual limit may be increased by the following additions : ( i ) an additional 10,000 shares in the fiscal year in which the nonemployee director is first appointed or elected to the board , ( ii ) an additional 2,000 shares in any fiscal year in which the nonemployee director is serving as the chairman or lead director of the board , ( iii ) an additional 1,000 shares in any fiscal year for each committee of the board on which the nonemployee director is then serving other than as chairman of the committee , and ( iv ) an additional 2,000 shares in story_separator_special_tag the following discussion contains forward-looking statements that involve risks and uncertainties . our actual results could differ substantially from those anticipated in these forward-looking statements as a result of many factors , including those set forth under `` risk factors '' and elsewhere in this report . the following discussion should be read together with our consolidated financial statements and the related notes included elsewhere in this report . overview we are a fabless semiconductor company that designs , develops and markets very fast static random access memories , or srams , and low latency dynamic random access memories , or lldrams , primarily for the networking and telecommunications markets . we are subject to the highly cyclical nature of the semiconductor industry , which has experienced significant fluctuations , often in connection with fluctuations in demand for the 38 products in which semiconductor devices are used . our revenues have been substantially impacted by significant fluctuations in sales to cisco systems , historically our largest customer , and we expect that future direct and indirect sales to cisco systems will continue to fluctuate significantly on a quarterly basis . the worldwide financial crisis and the resulting economic impact on the end markets we serve have adversely impacted our financial results since the second half of fiscal 2009 , and we expect that the unsettled global economic environment will continue to affect our operating results in future periods . however , with no debt , substantial liquidity and a history of positive cash flows from operations , we believe we are in a better financial position than many other companies of our size . revenues . our revenues are derived primarily from sales of our very fast sram products . sales to networking and telecommunications oems accounted for 7 3 % to 79 % of our net revenues during our last three fiscal years . we also sell our products to oems that manufacture products for defense applications such as radar and guidance systems , for professional audio applications such as sound mixing systems , for test and measurement applications such as high-speed testers , for automotive applications such as smart cruise control and voice recognition systems , and for medical applications such as ultrasound and cat scan equipment . as is typical in the semiconductor industry , the selling prices of our products generally decline over the life of the product . our ability to increase net revenues , therefore , is dependent upon our ability to increase unit sales volumes of existing products and to introduce and sell new products with higher average selling prices in quantities sufficient to compensate for the anticipated declines in selling prices of our more mature products . although we expect the average selling prices of individual products to decline over time , we believe that , over the next several quarters , our overall average selling prices will increase due to a continuing shift in product mix to a higher percentage of higher price , higher density products . our ability to increase unit sales volumes is dependent primarily upon increases in customer demand but , particularly in periods of increasing demand , can also be affected by our ability to increase production through the availability of increased wafer fabrication capacity from tsmc and powerchip , our wafer suppliers , and our ability to increase the number of good integrated circuit die produced from each wafer through die size reductions and yield enhancement activities . we may experience fluctuations in quarterly net revenues for a number of reasons . historically , orders on hand at the beginning of each quarter are insufficient to meet our revenue objectives for that quarter and are generally cancelable up to 30 days prior to scheduled delivery . accordingly , we depend on obtaining and shipping orders in the same quarter to achieve our revenue objectives . in addition , the timing of product releases , purchase orders and product availability could result in significant product shipments at the end of a quarter . failure to ship these products by the end of the quarter may adversely affect our operating results . furthermore , our customers may delay scheduled delivery dates and or cancel orders within specified timeframes without significant penalty . we sell our products through our direct sales force , international and domestic sales representatives and distributors . revenues from product sales , except for sales to distributors , are generally recognized upon shipment , net of sales returns and allowances . sales to consignment warehouses , who purchase products from us for use by contract manufacturers , are recorded upon delivery to the contract manufacturer . sales to distributors are recorded as deferred revenues for financial reporting purposes and recognized as revenues when the products are resold by the distributors to the oem . sales to distributors are made under agreements allowing for returns or credits under certain circumstances . we therefore defer recognition of revenue on sales to distributors until products are resold by the distributor . historically , a small number of oem customers have accounted for a substantial portion of our net revenues , and we expect that significant customer concentration will continue for the foreseeable future . many of our oems use contract manufacturers to manufacture their equipment . story_separator_special_tag they were substantially reduced during the six months ended september 30 , 2012 while the issuance of the initial determination in the itc proceeding was pending , although they increased again in the following quarters as the parties filed and responded to petitions for review of the initial determination , which was issued on october 25 , 2012 , activities related to our pending antitrust litigation with cypress entered the discovery phase and activity resumed in the federal court patent litigation that had been stayed pending the conclusion of the itc proceeding . whatever the outcome of our pending litigation with cypress , we expect to continue to incur additional legal expenses as we pursue our two lawsuits against cypress and other pending litigation . these expenses are likely to continue to fluctuate significantly from quarter to quarter and to be substantial during some quarters over the next one to two years . 41 story_separator_special_tag inline ; font-size:10pt ; '' > 3 . the exchange gain or loss in each period w as related to our taiwan branch operations . provision for income taxes . the provision for income taxes in creased from $ 38,000 in fiscal 201 3 to $ 713,000 in fiscal 201 4 . because we recorded a cumulative three-year loss on a u.s. tax basis for the period ended march 31 , 2014 , we recorded a tax provision reflecting a full valuation allowance of our $ 3.7 million in deferred tax assets . ne t income ( l oss ) . net income decreased from $ 3 .8 million in fiscal 201 3 to a net loss of $ 6.2 million in fiscal 201 4 . this decrease was primarily due to the decreased net revenues , changes in operating expenses and our income tax provision discussed above . fiscal year ended march 31 , 2013 compared to fiscal year ended march 31 , 2012 net revenues . net revenues decreased by 20.0 % from $ 82.5 million in fiscal 2012 to $ 66.0 million in fiscal 2013. the reduction in net revenues was due primarily to softness in orders from our top three customers , each of which does significant business in europe , where ongoing economic turmoil has adversely affected capital spending for network equipment manufactured by our customers . direct and indirect sales to cisco systems , our largest customer , decreased by $ 14.1 million from $ 33.4 million in fiscal 2012 to $ 19.3 million in fiscal 2013. additionally , excess inventories accumulated by our customers in fiscal 2011 and in early fiscal 2012 were drawn down in late fiscal 2012 and during the first half of fiscal 2013 , adversely affecting our revenues . we believe the decline in sales to cisco systems was due to inventory corrections and softness in demand for their products and did not reflect a decline in our market share . we also believe that our net revenues in the third and fourth quarters of fiscal 2012 and throughout fiscal 2013 were negatively impacted by uncertainty regarding the outcome of our pending patent litigation with cypress semiconductor . we believe that the favorable initial determination in the itc proceeding issued by the administrative law judge in october 2012 reduced this market uncertainty . shipments of our sigmaquad product line accounted for 36.1 % of total shipments in fiscal 2013 compared to 34.5 % of total shipments in fiscal 2012 . 43 cost of revenues . cost of revenues decreased by 18.4 % from $ 45.9 million in fiscal 2012 to $ 37.4 million in fiscal 2013. this decrease was primarily due to the corresponding decrease in net revenues . cost of revenues included stock-based compensation expense of $ 338,000 and $ 321,000 , respectively , in fiscal 2013 and fiscal 2012. gross profit . gross profit decreased by 22.0 % from $ 36.6 million in fiscal 2012 to $ 28.6 million in fiscal 2013. gross margin decreased from 44.4 % in fiscal 2012 to 43.3 % in fiscal 2013. the decrease in gross profit was primarily related to the decrease in net revenues . the decrease in gross margin was primarily related to changes in the mix of products and customers and the impact of reduced revenue on our fixed manufacturing costs . research and development expenses . research and development expenses increased 7.8 % from $ 10.6 million in fiscal 2012 to $ 11.5 million in fiscal 2013. this increase was primarily due to increases of $ 661,000 in payroll related expenses and $ 167,000 in patent related legal expenses . research and development expenses included stock-based compensation expense of $ 1,140,000 and $ 1,061,000 , respectively , in fiscal 2013 and fiscal 2012. selling , general and administrative expenses . selling , general and administrative expenses decreased 29.2 % from $ 19.4 million in fiscal 2012 to $ 13.7 million in fiscal 2013. this decrease was primarily related to a decrease of $ 6.3 million in legal fees related to the pending patent infringement and antitrust litigation involving cypress semiconductor corporation and a decrease in independent sales representative commissions of $ 183,000 , partially offset by increases in payroll related expenses of $ 463,000 and non-legal professional fees of $ 251,000. selling , general and administrative expenses included stock-based compensation expense of $ 800,000 and $ 714,000 , respectively , in fiscal 2013 and fiscal 2012. interest and other income ( expense ) , net . interest and other income ( expense ) , net decreased 11.6 % from $ 525,000 in fiscal 2012 to $ 464,000 in fiscal 2013. interest income decreased by $ 86,000 due to lower interest rates received on our cash and short-term and long-term investments . in addition , we recorded a foreign currency exchange loss of $ 16,000 in fiscal 2012 compared to a foreign currency exchange gain of $ 9,000 in fiscal 2013. the exchange gain or loss in each period was related to our taiwan branch operations . provision for income taxes .
| results of operations the following table sets forth statement of operations data as a percentage of net revenues for the periods indicated : replace_table_token_6_th fiscal year ended march 31 , 201 4 compared to fiscal year ended march 31 , 201 3 net revenues . net revenues decreased by 11.3 % from $ 66.0 million in fiscal 201 3 to $ 58.6 million in fiscal 201 4 . the reduction reflect ed the continued slowness in the global networking and telecommunications markets and in particular , continued weak sales in asia . direct and indirect sales to cisco systems , historically our largest customer , decreased by $ 8.3 million from $ 19.3 million in fiscal 201 3 to $ 11.0 million in fiscal 201 4 due to softness in the market for its switches and routers that incorporate ou r products . direct and indirect sales to alcatel-lucent increased by $ 3.1 million from $ 8.1 million in fiscal 2013 to $ 11.2 million fiscal 2014. we believe that our net revenues in each of these periods were also negatively impacted by uncertainty regarding the outcome of our pending patent litigation with cypress semiconductor . we believe that the commission 's favorable final determination in the itc proceeding has reduced this market uncertainty , although some design-in losses that we suffered during the pendency of the itc proceeding will continue to adversely affect our revenues throughout the life of the related products . shipments of our sigmaquad product line accounted for 42.2 % of total shipments in fiscal 201 4 compared to 36.1 % of total shipments in fiscal 201 3 . cost of revenues . cost of revenues decreased by 13.2 % from $ 37.4 million in fiscal 201 3 to $ 32.5 million in fiscal 201 4 .
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early adoption is permitted for any interim or annual period . the company is in the process of determining the impact that the implementation of asu 2017-12 will have on the company 's financial statements . in may 2017 , the fasb issued asu no . 2017-09 , “ compensation - stock compensation ( topic 718 story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements , and related notes thereto , included elsewhere in this annual report on form 10-k and the “ -special note regarding forward-looking statements ” in “ item 1a – risk factors ” above . overview we are a fully integrated reit primarily focused on the ownership , acquisition , development and management of retail properties net leased to industry leading tenants . we were founded in 1971 by our current executive chairman , richard agree , and our common stock was listed on the nyse in 1994. our assets are held by , and all of our operations are conducted through , directly or indirectly , the operating partnership , of which we are the sole general partner and in which we held a 98.8 % interest as of december 31 , 2017. as of december 31 , 2017 , our portfolio consisted of 436 properties located in 43 states and totaling approximately 8.7 million square feet of gross leasable area . as of december 31 , 2017 , our portfolio was approximately 99.7 % leased and had a weighted average remaining lease term of approximately 10.2 years . substantially all of our tenants are subject to net lease agreements . a net lease typically requires the tenant to be responsible for minimum monthly rent and property operating expenses including property taxes , insurance and maintenance . we elected to be taxed as a reit for federal income tax purposes commencing with our taxable year ended december 31 , 1994. we believe that we have been organized and have operated in a manner that has allowed us to qualify as a reit for federal income tax purposes and we intend to continue operating in such a manner . recent accounting pronouncements in august 2017 , the financial accounting standards board ( ” fasb ” ) issued asu no . 2017-12 , “ derivatives and hedging ( topic 815 ) : targeted improvements to accounting for hedging activities ” ( “ asu 2017-12 ” ) . the objective of asu 2017-12 is to expand hedge accounting for both financial ( interest rate ) and commodity risks , and create more transparency around how economic results are presented , both on the face of the financial statements and in the footnotes . asu 2017-12 will be effective for public business entities for fiscal years beginning after december 15 , 2018 , including interim periods in the year of adoption . early adoption is permitted for any interim or annual period . the company is in the process of determining the impact that the implementation of asu 2017-12 will have on the company 's financial statements . in may 2017 , the fasb issued asu no . 2017-09 , “ compensation - stock compensation ( topic 718 ) : scope of modification accounting ” ( “ asu 2017-09 ” ) . the objective of asu 2017-09 is to provide guidance on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting under topic 718. asu 2017-09 will be effective for public business entities for fiscal years beginning after december 15 , 2017 , including interim periods in the year of adoption . early adoption is permitted for any interim or annual period . the company has evaluated the impact that asu 2017-09 will have on the company 's financial statements , and concluded the implementation of asu 2017-09 has no material impact on the financial statements . in january 2017 , the fasb issued asu no . 2017-01 , “ business combinations : clarifying the definition of a business ” ( “ asu 2017-01 ” ) . the objective of asu 2017-01 is to clarify the definition of a business by adding guidance on how entities should evaluate whether transactions should be accounted for as acquisitions ( or disposals ) of assets or businesses . the definition of a business affects many areas of accounting including acquisitions , disposals , goodwill , and consolidation . asu 2017-01 will be effective for public business entities for fiscal years beginning after december 15 , 2017 , including interim periods in the year of adoption . early adoption is permitted for any interim or annual period . the company has early adopted and the guidance has no material impact on the company 's financial statements . in february 2016 , the fasb issued asu no . 2016-02 “ leases ” ( “ asu 2016-02 ” ) . the new standard creates topic 842 , leases , in fasb accounting standards codification ( fasb asc ) and supersedes fasb asc 840 , leases . asu 2016-02 requires a lessee to recognize the assets and liabilities that arise from leases ( operating and finance ) . however , for leases with a term of 12 months or less , a lessee is permitted to make an accounting policy election not to recognize lease assets and lease liabilities . the main difference between the existing guidance on accounting for leases and the new standard is that operating leases will now be recorded in the statement of financial position as assets and liabilities . the new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases and operating leases . asu 2016-02 is expected to impact the company 's consolidated financial statements as the company has certain operating land lease arrangements for which it is the lessee . story_separator_special_tag we allocate the purchase price to land , building and identified intangible assets and liabilities , based in each case on their relative estimated fair values and without giving rise to goodwill . intangible assets and liabilities represent the value of in-place leases and above- or below-market leases . in making estimates of fair values , we may use a number of sources , including data provided by independent third parties , as well as information obtained by the company as a result our due diligence , including expected future cash flows of the property and various characteristics of the markets where the property is located . depreciation our real estate portfolio is depreciated using the straight-line method over the estimated remaining useful life of the properties , which are generally 40 years for buildings and 10 to 20 years for improvements . properties classified as “ held for sale ” and properties under development are not depreciated . impairments we review our real estate investments periodically for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable . events or circumstances that may occur include , but are not limited to , significant changes in real estate market conditions or our ability to re-lease or sell properties that are vacant or become vacant . management determines whether an impairment in value has occurred by comparing the estimated future cash flows ( undiscounted and without interest charges ) , including the residual value of the real estate , with the carrying cost of the individual asset . an asset is considered impaired if its carrying value exceeds its estimated undiscounted cash flows and an impairment charge is recorded in the amount by which the carrying value of the asset exceeds its estimated fair value . story_separator_special_tag style= '' margin-top : 12pt ; margin-bottom : 6pt ; border-bottom : black 1pt solid '' > 27 real estate taxes increased $ 1.5 million , or 36 % , to $ 5.5 million in 2016 , compared to $ 4.0 million in 2015. the increase was due to the ownership of additional properties in 2016 compared to 2015 for which we remit real estate taxes and are subsequently reimbursed by tenants . property operating expenses increased $ 0.7 million , or 40 % , to $ 2.5 million in 2016 , compared to $ 1.8 million in 2015. the increase was primarily due to the ownership of additional properties in 2016 compared to 2015 which contributed to higher property maintenance , utilities and insurance expenses . our tenants subsequently reimbursed us for the majority of these expenses . land lease payments increased $ 0.1 million , or 8 % , to $ 0.7 million in 2016 , compared to $ 0.6 million in 2015. general and administrative expenses increased $ 1.0 million , or 15 % , to $ 8.0 million in 2016 , compared to $ 7.0 million in 2015. the increase was primarily the result of increased employee headcount and associated professional costs . general and administrative expenses as a percentage of total revenue decreased to 8.8 % for 2016 from 10.0 % in 2015. depreciation and amortization increased $ 6.9 million , or 42 % , to $ 23.4 million in 2016 , compared to $ 16.5 million in 2015. we recorded no impairment charges during 2016 or 2015. interest expense increased $ 3.0 million , or 25 % , to $ 15.3 million in 2016 , from $ 12.3 million in 2015. the increase in interest expense was primarily a result of an additional borrowing and debt issuance in 2016 , including the $ 40.0 million unsecured term loan facility we entered into in july 2016 and $ 60.0 million senior unsecured notes issued in july 2016 , which were offset by the repayment of the $ 8.6 million portfolio mortgage loan in march 2016. during 2016 , the company sold real estate properties for net proceeds of $ 28.9 million and a recorded net gain of $ 10.0 million ( net of any expected losses on real estate held for sale ) . we had no income from discontinued operations in 2016 or 2015. net income increased $ 6.0 million , or 15 % , to $ 45.8 million in 2016 , from $ 39.8 million in 2015 for the reasons set forth above . liquidity and capital resources our principal demands for funds include payment of operating expenses , payment of principal and interest on our outstanding indebtedness , distributions to our shareholders and future property acquisitions and development . we expect to meet our short-term liquidity requirements through cash provided from operations and borrowings under our revolving credit facility . as of december 31 , 2017 , available cash and cash equivalents was $ 50.8 million . as of december 31 , 2017 we had $ 14.0 million outstanding on our revolving credit facility and $ 236.0 million was available for future borrowings , subject to our compliance with covenants . we anticipate funding our long-term capital needs through cash provided from operations , borrowings under our revolving credit facility , the issuance of debt and common or preferred equity or other instruments convertible into or exchangeable for common or preferred equity . in august 2017 , the company entered into an uncommitted and unsecured $ 100 million private placement shelf agreement ( the “ aig shelf agreement ” ) with aig asset management ( u.s. ) , llc ( “ aig ” ) and each aig affiliate named therein . the aig shelf agreement allows us to issue senior unsecured notes to aig at terms to be agreed upon at the time of any issuance during a three year issuance period ending in august 2020. as of december 31 , 2017 , no notes had been issued under the aig shelf agreement .
| results of operations comparison of year ended december 31 , 2017 to year ended december 31 , 2016 minimum rental income increased $ 21.1 million , or 25 % , to $ 105.1 million in 2017 , compared to $ 84.0 million in 2016. approximately $ 22.4 million of the increase was due to the acquisition of 79 properties in 2017 and the full year impact of 82 properties acquired in 2016. approximately $ 2.2 million of the increase was attributable to four development projects completed in 2017 and the full year impact of nine development projects completed in 2016. these increases were partially offset by approximately a $ 2.1 million reduction in minimum rental income from properties sold during 2017 that were owned for all or part of 2016. percentage rents remained consistent with prior periods . the years ended december 31 , 2017 and 2016 totaled $ 0.2 million . operating cost reimbursements increased $ 3.5 million , or 48 % , to $ 10.8 million in 2017 , compared to $ 7.3 million in 2016. operating cost reimbursements increased primarily due to higher levels of recoverable property operating expenses , including real estate taxes , and increased property count . the portfolio recovery rate remained consistent at 91 % in 2017 and 2016 due to the factors discussed above . other income increased $ 0.5 million in 2017 compared to $ 0.0 million in 2016 . 26 real estate taxes increased $ 2.7 million , or 50 % , to $ 8.2 million in 2017 , compared to $ 5.5 million in 2016. the increase was due to the ownership of additional properties in 2017 compared to 2016 for which we remit real estate taxes and are subsequently reimbursed by tenants .
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gaap ” ) , applied on a consistent basis , as follows : a. use of estimates the preparation of the consolidated financial statements in conformity with u.s. generally accepted accounting principles requires management to make estimates , judgments , and assumptions . the company 's management believes that the estimates , judgments , and assumptions used are reasonable based upon information available at the time they are made . these estimates , judgments and assumptions can 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 period . actual results could differ from those estimates . on an ongoing basis , the company 's management evaluates estimates , including those related to inventories , fair values of share-based awards and warrants , contingent liabilities , provision for warranty , allowance for doubtful account and story_separator_special_tag the following discussion and analysis should be read in conjunction with “ part i. item 6. selected financial data ” and our consolidated financial statements and the related notes included elsewhere in this annual report . this discussion contains forward-looking statements that are based on our management 's current expectations , estimates and projections for our business , which are subject to a number of risks and uncertainties . our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors , including those set forth under “ special note regarding forward-looking statements and “ part i. item 1a . risk factors. ” overview we are an innovative medical device company that is designing , developing , and commercializing robotic exoskeletons that allow individuals with mobility impairments or other medical conditions the ability to stand and walk once again . we have developed and are continuing to commercialize our rewalk personal and rewalk rehabilitation devices for individuals with spinal cord injury ( “ sci products ” ) , which are exoskeletons designed for individuals with paraplegia that use our patented tilt-sensor technology and an on-board computer and motion sensors to drive motorized legs that power movement . we have also developed and began commercializing our restore device in june 2019. restore is a powered , lightweight soft exo-suit intended for use in the rehabilitation of individuals with lower limb disability due to stroke . during the second quarter of 2020 we have finalized and moved to implement two separate agreements to distribute additional product lines in the u.s. market . the company will be the exclusive distributor of the meditouch tutor movement biofeedback systems in the united states and will also have distribution rights for the myolyn myocycle fes cycles to u.s. rehabilitation clinics and personal sales through the u.s. department of veterans affairs ( “ va ” ) hospitals and other personal sales . these new products will improve our product offering to clinics as well as patients within the va as they both have similar clinician and patient profile . our principal markets are the united states and europe . in europe , we have a direct sales operation in germany and the united kingdom and work with distribution partners in certain other major countries . we have offices in marlborough , massachusetts , berlin , germany and yokneam , israel , where we operate our business from . we have in the past generated and expect to generate in the future revenues from a combination of third-party payors , self-payors , including private and government employers , and institutions . while a broad uniform policy of coverage and reimbursement by third-party commercial payors currently does not exist in the united states for electronic exoskeleton technologies such as the rewalk personal , we are pursuing various paths of reimbursement and support fundraising efforts by institutions and clinics . in december 2015 , the u.s. department of veterans affairs , or the va , issued a national policy for the evaluation , training and procurement of rewalk personal exoskeleton systems for all qualifying veterans across the united states . the va policy is the first national coverage policy in the united states for qualifying individuals who have suffered spinal cord injury . as of december 31 , 2020 , we had placed 24 units as part of the va policy . according to a 2017 report published by the centers for medicare and medicaid services , or cms , approximately 55 % of the spinal cord injury population which are at least five years post their injury date are covered by cms . in july 2020 , a code was issued for rewalk personal 6.0 ( effective october 1 , 2020 ) , which might later be followed by coverage policy of cms . additionally , to date , several private insurers in the united states and europe have provided reimbursement for rewalk in certain cases . in germany , we continue to make progress toward achieving rewalk coverage from the various government , private and worker 's compensation payors . in september 2017 , each of german insurer barmer gek ( “ barmer ” ) and national social accident insurance provider deutsche gesetzliche unfallversicherung ( “ dguv ” ) , indicated that they will provide coverage to users who meet certain inclusion and exclusion criteria . in february 2018 , the head office of german statutory health insurance , or shi , spitzenverband ( “ gkv ” ) confirmed their decision to list the rewalk personal 6.0 exoskeleton system in the german medical device directory . this decision means that rewalk will be listed among all medical devices for compensation , which shi providers can procure for any approved beneficiary on a case-by-case basis . during the year 2020 we announced several new agreements with german shis such as tk and dak gesundheit and others as well as the first german private health insurer ( “ phi ” ) that have chosen to enter into an agreement that outlines the process of obtaining a device for eligible insured patient . story_separator_special_tag financial income ( expenses ) , net financial income and expenses consist of bank commissions , foreign exchange gains and losses , interest earned on investments in short term deposits , interest expenses related to the loan agreement with kreos .. interest income consists of interest earned on our cash and cash equivalent balances . interest expense consists of interest accrued on , and certain other costs with respect to any indebtedness . foreign currency exchange changes reflect gains or losses related to transactions denominated in currencies other than the u.s. dollar . on december 30 , 2015 , we entered into the loan agreement with kreos pursuant to which kreos extended a line of credit to us in the amount of $ 20.0 million . in connection with the loan agreement we issued to kreos a warrant to purchase up to 4,771 of our ordinary shares at an exercise price of $ 241.00 as we drew down $ 12.0 million under the loan agreement , which amount was increased to 6,679 ordinary shares upon an additional drawdown of $ 8.0 million . on june 9 , 2017 , $ 3.0 million of the outstanding principal amount was extended by an additional three years with the same interest rate and became subject to repayment in accordance with , and subject to the terms of a secured convertible promissory note ( the “ kreos convertible note ” ) . on november 20 , 2018 , the company agreed to repay $ 3.6 million to kreos in satisfaction of all outstanding indebtedness under the kreos convertible note and other related payments , including prepayment costs and end of loan payments and kreos agreed to terminate the kreos convertible note . the company repaid kreos the $ 3.6 million by issuing to kreos 192,000 units and 288,000 pre-funded units at the applicable public offering prices for an aggregate price of $ 3.6 million ( including the aggregate exercise price for the ordinary shares to be received upon exercise of the pre-funded warrants , assuming kreos exercises all of the pre-funded warrants it purchased as part of the company 's public offering . the company and kreos also agreed to revise the principal and the repayment schedule under the kreos loan agreement . additionally , kreos and the company entered into the kreos warrant amendment , which amended the exercise price of the warrant to purchase 6,679 ordinary shares currently held by kreos from $ 241.00 to $ 7.50. on december 29 , 2020 , the company repaid in full the remaining loan principal amount to kreos including the end of loan payments , and by that discharged all of its obligations to kreos . for further discussion of the loan agreement with kreos , see “ -liquidity and capital resources ” below and also note 6 to our audited consolidated financial statements below . taxes on income as of december 31 , 2020 , we had not yet generated taxable income in israel . as of that date , our net operating loss carry forwards for israeli tax purposes amounted to approximately $ 182.4 million and our net operating loss carry forwards for u.s. tax purposes amounted to approximately $ 291 thousands after we utilize our net operating loss carry forwards , we are eligible for certain tax benefits in israel under the law for the encouragement of capital investments , 1959. our benefit period currently ends ten years after the year in which we first have taxable income in israel provided that the benefit period will not extend beyond 2024. our taxable income generated outside of israel will be subject to the regular corporate tax rate in the applicable jurisdictions . as a result , our effective tax rate will be a function of the relative proportion of our taxable income that is generated in those locations compared to our overall net income . 64 grants and other funding israel innovation authority ( formerly known as office of the chief scientist ) from our inception through december 31 , 2020 , we have received a total of $ 1.97 million in funding from the iia , $ 1.57 million of which are royalty-bearing grants , while $ 400 thousand were received in consideration for an investment in our preferred shares . out of the royalty-bearing grants received , we have paid royalties to the iia in the total amount of $ 88 thousand . the agreements with iia require us to pay royalties at a rate of 3 % on sales of rewalk systems and related services up to the total amount of funding received , linked to the dollar , and bearing interest at an annual rate of libor applicable to dollar deposits . if we transfer iia-supported technology or know-how outside of israel , we will be liable for additional payments to iia depending upon the value of the transferred technology or know-how , the amount of iia support , the time of completion of the iia-supported research project and other factors . as of december 31 , 2020 , the aggregate contingent liability to the iia was $ 1.6 million . for more information , see “ part i , item 1a . risk factors-we have received israeli government grants for certain of our research and development activities and we may receive additional grants in the future . the terms of those grants restrict our ability to manufacture products or transfer technologies outside of israel ... ” story_separator_special_tag period of two years that were included in the past for parts and services . the first two years are considered as assurance type warranty and the additional period is considered an extended service arrangement , which is a service type warranty . an assurance type warranty is not accounted for as separate performance obligations under the revenue model . a service type warranty is either sold with a unit or separately for units for which the warranty has expired . revenue is then recognized ratably over the life of the warranty .
| results of operations year ended december 31 , 2020 compared to year ended december 31 , 2019 revenues our revenues for 2020 and 2019 were as follows ( dollars in thousands , except unit amounts ) replace_table_token_3_th 65 revenues decreased by $ 480 thousand , or 10 % , during 2020 compared to 2019. the decrease in revenues for was driven primarily by the impact of the covid-19 pandemic , as we had limited market access which resulted in volume reduction of our personal 6.0 devices . in the future we expect our growth to be driven by sales of our rewalk personal device to third-party payors as we continue to focus our resources on broader commercial coverage policies with third-party payors as well as sales of the restore and other products to rehabilitation clinics and personal users . gross profit our gross profit for 2020 and 2019 were as follows ( in thousands ) : replace_table_token_4_th gross profit was 50 % of revenue for 2020 , compared to gross profit of 56 % of revenue for 2019. our gross profit declined as our volume reduced due to the impact from covid-19 ( as discussed under “ evolving covid-19 pandemic ” and higher inventory write-off of our older designs that have reached end of production offset with increase in our average selling price . we expect our gross profit to improve assuming we increase our sales volumes which could also decrease the product manufacturing costs . improvements may be partially offset by the lower margins we expect upon the launch period of our new restore and distributed products as well as due to an increase in the cost of product parts .
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f-11 ttec holdings , inc. and subsidiaries notes to the consolidated financial statements software development costs the company capitalizes costs incurred to acquire or develop software story_separator_special_tag s executive summary ttec holdings , inc. ( “ ttec ” , “ the company ” , “ we ” , “ our ” or “ us ” ) is a leading global customer experience as a service ( “ cxaas ” ) partner for many of the world 's iconic brands , fortune 1000 companies , government agencies , and disruptive growth companies . ttec helps its clients deliver frictionless customer experiences , strengthen customer relationships , brand recognition and loyalty through personalized interactions , improve their net promoter score , customer satisfaction and quality assurance , and lower their total cost to serve by combining innovative digital solutions with best-in-class service capabilities to enable and deliver simplified , consistent and seamless customer experience across channels and phases of the customer lifecycle . our cxaas solutions enhance our clients ' customers experience and help differentiate our clients from their competition . in the fast expanding direct-to-customer ( `` dtc '' ) channel where experiences are everything , enterprises must become increasingly more customer-centric , virtualized and digitally enabled to acquire , grow and maintain customers . our mission is to enable and accelerate our clients ' path to virtual and digital transformation . we are focused on improving the experience of our clients ' customers by leveraging existing and emerging technologies — cloud , omnichannel , analytics , artificial intelligence ( `` ai '' ) , machine learning ( `` ml '' ) , robotic process automation ( `` rpa '' ) , and real-time conversational messaging . the company reports its financial information based on two segments : ttec digital and ttec engage . ● ttec digital provides the cx technology services and platforms to support our clients ' customer interaction delivery infrastructure . the segment designs , builds and operates the omnichannel ecosystem in a cloud , on premise , or hybrid environment , inclusive of fully integrating , orchestrating , and administrating highly scalable , feature-rich cx technology applications . ● ttec engage provides the cx managed services to support our clients ' end-to-end customer interaction delivery , by providing the essential cx omnichannel and application technologies , human resources , recruiting , training and production , at-home or facility-based delivery infrastructure on a global scale , and engagement processes . this segment provides full-service digital , omnichannel customer engagement , supporting customer care , customer acquisition , growth and retention , and fraud detection and prevention services . ttec digital and ttec engage strategically come together under our unified offering , humanify ® customer experience as a service ( `` cxaas '' ) , which drives measurable customer results for clients through the delivery of personalized , omnichannel experiences . our humanify ® cloud platform provides a fully integrated ecosystem of cx offerings , including messaging , ai , ml , rpa , analytics , cybersecurity , customer relationship management ( `` crm '' ) , knowledge management , journey orchestration and traditional voice solutions . our end-to-end platform differentiates us from many competitors by combining design , strategic consulting , best-in-class technology , data analytics , process optimization , system integration and operational excellence . this unified offering is value-oriented , outcome-based and delivered to large enterprises , governments and disruptive growth companies on a global scale . during fiscal 2020 , the ttec global operating platform delivered onshore , nearshore , and offshore services in 20 countries on six continents -- the united states , australia , belgium , brazil , bulgaria , canada , costa rica , germany , greece , india , ireland , mexico , the netherlands , new zealand , the philippines , poland , singapore , south africa , thailand , and the united kingdom with the help of 61,000 consultants , technologists , and cx professionals . our revenue for fiscal 2020 was $ 1.949 billion , approximately $ 307 million , or 16 % which came from our ttec digital segment and $ 1.642 billion , or 84 % , which came from our ttec engage segment . 29 to improve our competitive position in a rapidly changing market and stay strategically relevant to our clients , we continue to invest in innovation and service offerings for both mainstream and high growth disruptive businesses , diversifying and strengthening our core customer care services with consulting , data analytics , insights , and technology-enabled , outcomes-focused services . we also invest to broaden our product and service capabilities , increase our global client base and industry expertise , tailor our geographic footprint to the needs of our clients , and further scale our end-to-end integrated solutions platform . to this end we have been highly acquisitive in the last several years , including an acquisition in the second half of 2020 of a preferred amazon connect cloud contact center service provider , an acquisition in the first quarter of 2020 of an autonomous customer experience and intelligent automation solutions provider and an acquisition in the fourth quarter of 2019 of a provider of customer care , social media community management , content moderation , technical support and business process solutions for rapidly growing businesses in early stages of their lifecycle . we have extensive expertise in the automotive , communications , financial services , national/federal and state and local government , healthcare , logistics , media and entertainment , e-tail/retail , technology , travel and transportation industries . we serve more than 300 diverse clients globally , including many of the world 's iconic brands , fortune 1000 companies , government agencies , and disruptive growth companies . in march 2020 , the world health organization declared the outbreak of covid-19 as a global pandemic . within weeks of this announcement , travel bans , a state of emergency , quarantines , lockdowns , “ shelter in place ” orders , and business restrictions and shutdowns were issued in most countries where ttec does business . story_separator_special_tag ● customer care services : our customer care services provide turnkey contact center solutions , including digital omnichannel technologies , associate recruiting and training , facilities , and operational expertise to create exceptional customer experiences across all touchpoints . ● fraud prevention services : our digital fraud detection and prevention services proactively identify and prevent fraud and provide community content moderation and compliance . based on our clients ' preference , we provide our services on an integrated cross-business segment and or on a discrete basis . additional information with respect to our segments and geographic footprint is included in part ii , item 8. financial statements and supplementary data , note 3 to the consolidated financial statements . our 2020 financial results in 2020 , our revenue increased 18.6 % to $ 1,949 million over 2019 , including an increase of 0.02 % or $ 0.3 million due to foreign currency fluctuations . the increase in revenue was comprised of a $ 1.6 million , or 0.5 % , increase for ttec digital and a $ 303.9 million , or 22.7 % , increase for ttec engage . 31 our 2020 income from operations increased $ 81.0 million to $ 204.7 million or 10.5 % of revenue , from $ 123.7 million or 7.5 % of revenue for 2019. the change in operating income is attributable to a number of different factors across the segments . the ttec digital operating income expanded with an 16.4 % , or $ 6.4 million , improvement over last year primarily due to the growth of its higher margin cloud business . the ttec engage operating income increased 88.0 % , or $ 74.6 million , compared to the prior year based on the increase in revenue including , but not limited to , the acquisition of fcr and significant surge volumes in our commercial and public sector clients experiencing spikes in customer interactions related to covid-19 . income from operations in 2020 and 2019 included a total of $ 9.1 million and $ 5.5 million of restructuring and asset impairments , respectively . our offshore customer engagement centers spanning six countries serve clients based in the u.s. and in other countries with 23,400 workstations representing 55 % of our global delivery capabilities . revenue for our ttec engage segment provided in these offshore locations represented 29 % of our 2020 revenue , as compared to 34 % of our 2019 revenue . our seat utilization is defined as the total number of utilized workstations compared to the total number of available production workstations . as of december 31 , 2020 , the total production workstations for our ttec engage segment was 42,434 and the overall capacity utilization in our centers was 57 % versus 74 % in the prior year period . the utilization is lower than the previous year primarily due to covid-19 protocols requiring the distancing of associates which has reduced the available seat capacity . adjusted for social distancing protocols , which reduced the available workstations to approximately 21,200 , and accounting for all client paid seats as utilized , whether through actual usage or contractual commitments to hold the seats , current utilization is in excess of 114 % . post covid-19 we expect our clients to leverage a more diversified geographic footprint and an increased mix of work from home vs. brick and mortar seats . we will continue to refine our site strategy and capacity as we finalize plans with our clients and prospects . some of our clients may be subject to regulatory pressures to serve clients onshore . we plan to continue to selectively retain and grow capacity and expand into new offshore markets , while maintaining appropriate capacity onshore . as we grow our offshore delivery capabilities and our exposure to foreign currency fluctuation increases , we will continue to actively manage this risk via a multi-currency hedging program designed to minimize operating margin volatility . critical accounting policies and estimates management 's discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the u.s. ( “ gaap ” ) . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenue and expenses as well as the disclosure of contingent assets and liabilities . we regularly review our estimates and assumptions . these estimates and assumptions , which are based upon historical experience and on various other factors believed to be reasonable under the circumstances , form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . reported amounts and disclosures may have been different had management used different estimates and assumptions or if different conditions had occurred in the periods presented . below is a discussion of the policies that we believe may involve a high degree of judgment and complexity . revenue recognition the company recognizes revenue from contracts and programs when control of the promised goods or services is transferred to the customers , in an amount that reflects the consideration it expects to be entitled to in exchange for those goods or services . revenue is recognized when or as performance obligations are satisfied by transferring control of a promised good or service to a customer . a performance obligation is a promise in a contract to transfer a distinct good or service to the customer . performance obligation is the unit of accounting for revenue recognition under the provisions of asc topic 606 , “ revenue from contracts with customers ” and all related amendments ( “ asc 606 ” ) . a contract 's transaction price is allocated to each distinct performance obligation in recognizing revenue . 32 the bpo inbound and outbound service fees are based on either a per minute , per hour , per fte , per transaction or per call basis , which represents the majority of our contracts .
| results of operations year ended december 31 , 2020 compared to december 31 , 2019 the tables included in the following sections are presented to facilitate an understanding of management 's discussion and analysis of financial condition and results of operations and present certain information by segment for the years ended december 31 , 2020 and 2019 ( amounts in thousands ) . all inter-company transactions between the reported segments for the periods presented have been eliminated . ttec digital replace_table_token_3_th 37 the increase in revenue for the ttec digital segment was related to significant increases in the cloud platform and the systems integration practice including a large multi-year governmental contract , and the acquisitions of serendebyte and voice foundry during 2020 , offset by reductions in the legacy facility based training business and the middle east consulting practice , both of which the company has exited . the operating income expansion is primarily attributable to the acquisitions and continued improved utilization of technology and people assets as the business scales its cloud and system integration revenue , as well as the exit of the less profitable facilities based training and middle east consulting practices . the operating income also increased due to the $ 2.0 million impairment of intangible and other long-lived assets for one of the consulting components in this segment ( see part ii , item 8. financial statements and supplementary data , notes 6 and 11 to the consolidated financial statements ) recorded during 2019. the operating income as a percentage of revenue increased to 14.8 % in 2020 as compared to 12.7 % in 2019. included in the operating income was amortization related to acquired intangibles of $ 3.0 million and $ 2.6 million for the years ended december 31 , 2020 and 2019 , respectively . ttec engage replace_table_token_4_th the increase in revenue for the ttec engage segment was due to a net increase of $ 408.5
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the purchase agreement includes provisions for additional purchase price payments in the form of earn-out and qualified sales payments for up to $ 10 million over a three-year measurement period upon meeting certain financial and sales criteria . at this time , we expect that tekzenit will contribute approximately $ 10 million to our 2020 revenues and be neutral to slightly accretive to our results from operations . the expected impact of the tekzenit acquisition includes estimates for costs associated with our planned integration efforts and estimates for the amortization of acquired intangible assets . because of the inherent uncertainties in making such estimates , the actual impact of tekzenit on our 2020 financial performance may vary from our current expectations as we work through our integration efforts and complete the tekzenit purchase accounting . these acquisitions are discussed in greater detail in note 7 to our financial statements . impact of new lease accounting pronouncement in february 2016 , the fasb issued accounting standards update ( “ asu ” ) 2016-02 , leases ( topic 842 ) ( “ asc 842 ” ) , which requires lessees to recognize a lease liability and a right-of-use asset for all leases , including operating leases , with a term greater than twelve months on its balance sheet . we adopted asc 842 in january of 2019 , utilizing the effective date method of transition . while the adoption of this standard resulted in a material gross-up of our balance sheet assets and liabilities , it did not have a material impact on our income statement or statement of cash flows . refer to notes 2 and 6 to our financial statements for further detail regarding the adoption of asc 842 . 23 management overview story_separator_special_tag with accounting principles generally accepted in the u.s. requires us to select appropriate accounting policies , and to make judgments and estimates affecting the application of those accounting policies . in applying our accounting policies , different business conditions or the use of different assumptions may result in materially different amounts reported in our financial statements . we have identified the most critical accounting policies that affect our financial position and the results of our operations . these critical accounting policies were determined by considering our accounting policies that involve the most complex or subjective decisions or assessments . the most critical accounting policies identified relate to : ( i ) revenue recognition ; ( ii ) impairment assessments of long-lived assets ; ( iii ) income taxes ; and ( iv ) loss contingencies . these critical accounting policies , as well as our other significant accounting policies , are disclosed in the notes to our financial statements . revenue recognition . in accordance with asc 606 , revenue is recognized upon conclusion that a contract with a client exists . such conclusion is made by us when the contract is legally enforceable and certain criteria , including collectability , are met . in making our determination of collectability , we consider a number of factors depending upon the specific aspects of an arrangement , which may include , but is not limited to , the following items : ( i ) an assessment of the client 's specific credit worthiness , evidenced by its current financial position and or recent operating results , credit ratings , and or a bankruptcy filing status ( as applicable ) ; ( ii ) the client 's current accounts receivable status and or its historical payment patterns with us ( as applicable ) ; ( iii ) the economic condition of the industry in which the client conducts the majority of its business ; and or ( iv ) the economic conditions and or political stability of the country or region in which the client is domiciled and or conducts the majority of its business . the evaluation of these factors , and the ultimate determination of collectability , requires significant judgments to be made by us . the judgments made in this area could have a significant effect to the amount and timing of revenue recognized in any period . our contracts with clients include cloud-based revenue management solution arrangements , managed services arrangements , cloud-based payment processing transaction services , software license and service arrangements , professional services arrangements , and bundled service arrangements . the revenue recognition policies that involve the most complex and subjective decisions or assessments that may have a material impact on our operations relate to the accounting for cloud-based revenue management solution arrangements , software license and service arrangements , and bundled service arrangements . our cloud-based revenue management solution arrangements are complex agreements that typically include multiple performance obligations . key factors considered in accounting for cloud-based revenue management solution arrangements include the following criteria : ( i ) identification of performance obligations within the contract ; ( ii ) determination of the transaction price given the variable nature of the consideration and significance of the consideration ; ( iii ) determination of stand-alone selling price for each performance obligation and the allocation of value between the performance obligations ; and ( iv ) calculation of revenue recognized in each period . the evaluation of these factors and ultimate revenue recognition decision requires significant judgements to be made by us . depending on the significance of variable consideration , number of solutions/services , complex pricing structures and long-term nature of these types of contracts , the judgements and estimates made in this area could have a significant effect on the amount and timing of revenue recognized in any period . in addition , certain solutions and arrangements require us to make an assessment of whether we are a principal to the transaction ( gross revenue ) or an agent to the transaction ( net revenue ) . such assessments can have a significant effect on the amount of revenue recognized . 26 our software license and services arrangements and bundled service arrangements include multiple performance obligations and can be complex and require considerable judgement . story_separator_special_tag we have incurred approximately $ 100 - $ 130 million annually in r & d expense over the last three years . the calculation of the r & d tax credit involves the identification of qualifying projects , and then an estimation of the qualifying costs for such projects . because of the size , nature , and the number of projects worked on in any given year , the calculation can become complex and certain judgments are necessary in determining the amount of the r & d credits claimed . loss contingencies . in the ordinary course of business , we are subject to claims ( and potential claims ) related to various items including but not limited to the following : ( i ) legal and regulatory matters ; ( ii ) vendor contracts ; ( iii ) solution and service delivery matters ; and ( iv ) labor matters . accounting and disclosure requirements for loss contingencies requires us to assess the likelihood of any adverse judgments in or outcomes to these matters , as well as the potential ranges of probable losses . a determination of the amount of reserves for such contingencies , if any , is based on an analysis of the issues , often with the assistance of legal counsel . the evaluation of such issues , and our ultimate accounting and disclosure decisions , are by their nature , subject to various estimates and highly subjective judgments . should any of the factors considered in determining the adequacy of any required reserves change significantly , an adjustment to the reserves may be necessary . due to the potential significance of these issues , such an adjustment could be material . detailed discussion of results of operations the discussion that follows includes a comparison of our results of operations and liquidity fo r the year ended december 31 , 2019 compared to the year ended december 31 , 2018. for a discussion of the year ended december 31 , 2018 compared to the year ended december 31 , 2017 , please refer to 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 year ended december 31 , 2018 , filed with the sec on february 22 , 2019. total revenues . total revenues for 2019 were $ 996.8 million , a 14 % increase when compared to $ 875.1 million for 2018. this increase in total revenues can be mainly attributed to the full year impact the business ink and forte acquisitions , which generated an additional $ 91 million of combined revenues in 2019 over that in 2018 due to the timing of the transactions , and the remaining increase due primarily to our cloud solutions and managed services arrangements . the components of total revenues , discussed in more detail below , are as follows ( in thousands ) : replace_table_token_8_th cloud and related solutions revenues . cloud and related solutions revenues for 2019 increased 17 % to $ 896.2 million , from $ 766.4 million for 2018. the year-over-year increase can be primarily attributed to the full year impact the business ink and forte acquisitions , which generated an additional $ 91 million of combined revenues in 2019 over that in 2018 , and the remaining increase due to our cloud solutions and managed services arrangements . amortization of the investments in client contracts intangible asset ( reflected as a reduction of cloud and related solutions revenues ) for 2019 , 2018 , and 2017 was $ 6.0 million , $ 11.1 million , and $ 7.4 million , respectively . software and services revenues . software and services revenues for 2019 decreased 10 % to $ 52.4 million , from $ 58.1 million for 2018 , with the decrease primarily attributed to the continued shift in our focus towards longer-term managed services arrangements , which are included in our cloud and related solutions revenues . maintenance revenues . maintenance revenues for 2019 decreased 5 % to $ 48.3 million , from $ 50.6 million for 2018 , with the decrease reflective of our decreasing software revenues and also impacted by the timing of maintenance renewals and related revenue recognition . we continue to transition our focus towards more predictable recurring revenue models with our longer-term managed services arrangements and delivery of our cloud-based solutions and away from software and services revenues with related maintenance agreements . 28 total operating expenses . our operating expenses for 2019 increased 13 % to $ 870.7 million , from $ 770.1 million for 2018 , with over 85 % of this increase mainly attributed to the full year impact of the business ink and forte businesses operating expenses being included in our results , to include an additional $ 53.5 million of transaction fees and $ 3.8 million of acquisition amortization , year-over-year . cost of revenues ( exclusive of depreciation ) . the components of total expenses are discussed in more detail below . the components of cost of revenues , discussed in more detail below , are as follows ( in thousands ) : replace_table_token_9_th cost of cloud and related solutions ( exclusive of depreciation ) . the cost of cloud and related solutions revenues consists principally of the following : ( i ) computing capacity and network communications costs ; ( ii ) statement production costs ( e.g. , labor , paper , envelopes , equipment , equipment maintenance , etc . ) ; ( iii ) transaction fees-interchange and other payment-related fees to third-party payment processors and financial institutions ; ( iv ) client support organizations ( e.g. , our client support call center , account management , etc . ) ; ( v ) various product delivery and support organizations ( e.g. , managed services delivery , product management , product maintenance , etc . ) ; ( vi ) facilities and infrastructure costs related to the statement production and support organizations ; and ( vii ) amortization of acquired intangibles .
| results of operations . a summary of our results of operations for 2019 and 2018 , and other key performance metrics are as follows ( in thousands , except percentages and per share amounts ) : replace_table_token_5_th ( 1 ) transaction fees are primarily comprised of interchange and other payment-related fees that we pay , in conjunction with the delivery of service to clients under our payment services contracts , to third-party payment processors and financial institutions . because we control the integrated service provided under our payment services client contracts , these transaction fees are presented gross , and not netted against revenues . ( 2 ) stock-based compensation included in the table above excludes amounts that have been recorded in restructuring and reorganization charges . revenues . our revenues for 2019 were $ 996.8 million , a 14 % increase when compared to $ 875.1 million for 2018 , with the increase mainly attributed to the full year impact of the business ink and forte acquisitions , discussed above , which generated an additional $ 91 million of combined revenues in 2019 over that in 2018 , and the remaining increase due primarily to our cloud solutions and managed services arrangements . operating results . operating income for 2019 was $ 126.1 million , or a 12.7 % operating income margin percentage , compared to $ 104.9 million , or a 12.0 % operating income margin percentage for 2018 , with the increase in operating income primarily a result of the higher revenues generated in 2019. diluted earnings per share ( “ eps ” ) . diluted eps for 2019 was $ 2.55 compared to $ 2.01 for 2018 , reflective of the higher operating income for 2019. additionally , 2019 diluted eps was positively impacted by a lower effective income tax rate resulting primarily from an approximately $ 4 million net income tax benefit related to comcast 's exercise of 0.4 million vested common stock warrants . balance sheet and cash flows .
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`` risk factors '' beginning on page 10 and in the section entitled `` forward-looking statements '' on page 3. overview we are a firm that provides integrated engineering , consulting , and construction management services . our project teams help our commercial and governmental clients implement environmental , energy and infrastructure projects from initial concept to delivery and operation . we provide our services almost entirely in the united states of america . we generate revenue and cash flows from fees for professional and technical services . as a service company , we are more labor-intensive than capital-intensive . our revenue and cash flow is driven by our ability to attract and retain qualified and productive employees , identify business opportunities , secure new and renew existing client contracts , provide outstanding service to our clients and execute projects successfully . our income from operations is derived from our ability to generate revenue under our contracts in excess of our direct costs , subcontractor costs , other contract costs , and general and administrative ( `` g & a '' ) expenses . in the course of providing our services , we routinely subcontract services . generally , these subcontractor costs are passed through to our clients and , in accordance with accounting principles generally accepted in the united states of america ( `` u.s. gaap '' ) and consistent with industry practice , are included in gross revenue . because subcontractor services can change significantly from project to project , changes in gross revenue may not be indicative of business trends . accordingly , we also report net service revenue ( `` nsr '' ) , which is gross revenue less subcontractor costs and other direct reimbursable charges , and our discussion and analysis of financial condition and results of operations uses nsr as a primary point of reference . the following table presents the approximate percentage of nsr by contract type : replace_table_token_4_th our cost of services ( `` cos '' ) includes professional compensation and related benefits together with certain direct and indirect overhead costs such as rents , utilities and travel . professional compensation represents the majority of these costs . our g & a expenses are comprised primarily of our corporate headquarters costs related to corporate executive management , finance , accounting , information technology , administration and legal . these costs are generally unrelated to specific client projects and can vary as expenses are incurred to support corporate activities and initiatives . our revenue , expenses and operating results may fluctuate significantly from year to year as a result of numerous factors , including : unanticipated changes in contract performance that may affect profitability , particularly with contracts that are fixed-price or have funding limits ; seasonality of the spending cycle , notably for state and local government entities , and the spending patterns of our commercial sector clients ; budget constraints experienced by our federal , state and local government clients ; divestitures or discontinuance of operating units ; the timing and impact of acquisitions ; employee hiring , utilization and turnover rates ; the number and significance of client contracts commenced and completed during the period ; 20 creditworthiness and solvency of clients ; the ability of our clients to terminate contracts without penalties ; delays incurred in connection with contracts ; the size , scope and payment terms of contracts ; contract negotiations on change orders and collection of related accounts receivable ; the timing of expenses incurred for corporate initiatives ; competition ; litigation ; changes in accounting rules ; the credit markets and their effect on our customers ; general economic or political conditions ; and employee expenses such as medical and other benefits . acquisitions and divestitures acquisitions . we continuously evaluate the marketplace for strategic acquisition opportunities . a fundamental component of our profitable growth strategy is to pursue acquisitions that will expand our platform in key u.s. markets . where the impact of acquisitions is noted in discussing results , it refers to acquisitions effected within the last twelve months of the end of the relevant period . fiscal year 2014 acquisitions on january 2 , 2014 , we acquired all of the outstanding stock of emcor energy services , inc. ( `` ees '' ) , a subsidiary of emcor group , inc. , headquartered in san francisco , california . ees provides engineering and related consulting services to utilities to support their energy programs in california . services include engineering , technical review , verification , and administration of utilities ' energy efficiency programs . the purchase price of $ 1.6 million consisted of a cash payment of $ 1.4 million , and a $ 0.2 million net working capital adjustment . goodwill of $ 0.2 million , none of which is expected to be tax deductible , and other intangible assets of $ 0.9 million were recorded as a result of this acquisition . the ees acquisition has been recorded in the energy operating segment . the impact of this acquisition was not material to our consolidated balance sheets and results of operations . on july 22 , 2013 , we acquired all of the outstanding stock of utility support systems , inc. ( `` uss '' ) , headquartered in douglasville , georgia . uss provides engineering and related services primarily supporting the power/utility market . the purchase price of approximately $ 5.0 million consisted of : ( i ) cash of $ 2.5 million payable at closing , ( ii ) a second cash payment of $ 1.8 million payable on the one-year anniversary of the closing date subject to withholding for various contractual issues , and ( iii ) 34 thousand shares of our common stock valued at $ 0.3 million on the closing date . the selling shareholders are also entitled to contingent cash consideration through an earn-out provision based on nsr performance of the acquired firm over the twelve month period following closing . story_separator_special_tag in addition , we provide infrastructure services on projects originating in our energy and environmental operating segments . primary services include : roadway , bridge and related surface transportation design ; structural design and inspection of bridges ; program management ; construction engineering inspection and construction management for roads and bridges ; civil engineering for municipalities and public works departments ; geotechnical engineering services ; and security assessments , design and construction management . our chief operating decision maker is our chief executive officer ( `` ceo '' ) . our ceo manages the business by evaluating the financial results of the three operating segments , focusing primarily on segment revenue and segment profit . we utilize segment revenue and segment profit because we believe they provide useful information for effectively allocating resources among operating segments ; evaluating the health of our operating segments based on metrics that management can actively influence ; and gauging our investments and our ability to service , incur or pay down debt . specifically , our ceo evaluates segment revenue and segment 22 profit and assesses the performance of each operating segment based on these measures , as well as , among other things , the prospects of each of the operating segments and how they fit into our overall strategy . our ceo then decides how resources should be allocated among our operating segments . we do not track our assets by operating segment , and consequently , it is not practical to show assets by operating segment . segment profit includes all operating expenses except the following : costs associated with providing corporate shared services ( including certain depreciation and amortization ) , goodwill and intangible asset write-offs , stock-based compensation expense and amortization of intangible assets . depreciation expense is primarily allocated to operating segments based upon their respective use of total operating segment office space . assets solely used by corporate are not allocated to the operating segments . inter-segment balances and transactions are not material . the accounting policies of the operating segments are the same as those for us as a whole except as discussed herein . the following table presents the approximate percentage of our nsr by operating segment : replace_table_token_5_th business trend analysis energy : the utilities in the united states are in the midst of a multi-year upgrade of the electric transmission grid to improve capacity , reliability and distribution of sources of generation . years of underinvestment coupled with a favorable regulatory environment have provided a good business opportunity for those serving this market . according to the edison electric institute , electric utilities throughout the united states will be investing over $ 60.0 billion in the performance of this work over the next several years . economic impacts have slowed the pace of this investment , yet they do not appear to have affected the long term plan of investment . demand for energy efficiency services continues to be supported by increasing state and federal funds targeted at energy efficiency . the american recovery and reinvestment act of 2009 , regional green house gas initiative and system benefit charges at the state or utility level have expanded the marketplace for energy efficiency program management services . investment within the renewable portfolios also remains strong . we are well established in the northeast and mid-atlantic regions and are growing our presence in the southeast and in texas and california where demand for services is the highest . environmental : although there had been signs of growth in this market following a slowdown caused by general economic conditions , market demand for environmental services continues to be mixed . the last decade saw growth in nearly all aspects of this market . the fundamental market drivers remain in place , and this market also benefits from evolving regulatory developments particularly with respect to air quality and the continuing need to enhance our aging transportation and energy infrastructure . nevertheless , recent indicators suggest that certain elements of this marketplace continue to take a cautious approach to expenditures , stalling a return to the long-term pattern of growth historically enjoyed by this operating segment . shale gas and other energy source initiatives present important market opportunities but are linked to federal and state policy changes which will be required for the markets to commit long-term capital to projects such as pipelines and related infrastructure . infrastructure : although long-term prospects should be favorable , demand for infrastructure services is expected to continue to be flat to slightly negative . the overall infrastructure construction markets did benefit from the federal funding certainty provided by the map-21 federal transportation bill that was signed into law in july 2012 but that legislation expires september 30 , 2014. a new $ 302 billion , four year transportation bill has been proposed by the obama administration . as a result of increased tax revenues and improved budgets , some states are moving forward with additional funding for infrastructure improvement programs , although other states continue to experience budget challenges and are more dependent on federal or private funding mechanisms . the states continue to face long-term infrastructure needs , including the need for maintenance , repair and upgrade of the existing critical infrastructure as well as the need to build new facilities . critical accounting policies our financial statements have been prepared in accordance with u.s. gaap . these principles require the use of estimates and assumptions that affect amounts reported and disclosed in the financial statements and related notes . actual results could differ from these estimates and assumptions . we use our best judgment in the assumptions used to compile these estimates , which are based on current facts and circumstances , prior experience and other assumptions that are believed to be reasonable . our significant accounting policies are described in note 2 to the consolidated financial statements contained in item 8 of this report .
| infrastructure operating segment results replace_table_token_9_th gross revenue increased $ 3.3 million , or 5.5 % , to $ 63.3 million for fiscal year 2014 from $ 59.9 million for fiscal year 2013 . the increase in gross revenue was primarily due to increased work on several large construction and transportation design projects . increased demand from our state government clients contributed the balance of the organic gross revenue growth in fiscal year 2014 . nsr increased $ 2.8 million , or 6.2 % , to $ 47.0 million for fiscal year 2014 from $ 44.2 million for fiscal year 2013 . the nsr growth was primarily the result of the same factors driving gross revenue growth as noted above . the infrastructure operating segment 's profit increased $ 0.1 million , or 1.1 % , to $ 8.8 million for fiscal year 2014 from $ 8.7 million for fiscal year 2013 . for fiscal year 2014 the infrastructure operating segment 's profit , as a percentage of nsr , decreased to 18.6 % from 19.6 % in the prior year , primarily due to unfavorable pricing on a large project completed in fiscal 2014 . 29 fiscal year 2013 compared to fiscal year 2012 consolidated results of operations the following table presents the dollar and percentage changes in certain items in the consolidated statements of operations for fiscal years 2013 and 2012 : replace_table_token_10_th gross revenue increased $ 21.6 million , or 5.1 % , to $ 441.5 million for fiscal year 2013 from $ 420.0 million for fiscal year 2012. organic gross revenue increased $ 12.7 million , or 58.6 % of the overall growth in gross revenue , and acquisitions provided the remaining $ 8.9 million , or 41.4 % , of the increase .
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deferred tax assets and liabilities are comprised of the following : replace_table_token_24_th 51 in assessing the realizability of deferred tax assets , management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized . the ultimate realization of deferred tax assets is dependent upon the generation of future taxable income of the character necessary during the periods in which those temporary differences become deductible . management considers the scheduled reversal of deferred tax liabilities ( including the impact of available carryback and carryforward periods ) , projected future taxable income , and tax-planning strategies in making this assessment . during fiscal 2017 the total valuation allowance did not change and in fiscal 2016 the net change in the total valuation allowance was a $ 4 story_separator_special_tag the following discussion and analysis should be read in conjunction with the consolidated financial statements and the notes to consolidated financial statements . our fiscal year ends on the final thursday of june each year , and typically consists of fifty-two weeks ( four thirteen week quarters ) . however , the fiscal year ended june 30 , 2016 consisted of fifty-three weeks with our fourth quarter containing fourteen weeks . additional information on the comparability of the periods presented is as follows : references herein to fiscal 2018 are to the fiscal year ending june 28 , 2018. references herein to fiscal 2017 , fiscal 2016 and fiscal 2015 are to the fiscal years ended june 29 , 2017 , june 30 , 2016 and june 25 , 2015 , respectively . as used herein , unless the context otherwise indicates , the terms we , us , our or company refer collectively to john b. sanfilippo & son , inc. and our wholly-owned subsidiary jbss ventures , llc . our credit facility and mortgage facility , as defined below , are sometimes collectively referred to as our financing arrangements. we are one of the leading processors and distributors of peanuts , pecans , cashews , walnuts , almonds and other nuts in the united states . these nuts are sold under a variety of private brands and under the fisher , orchard valley harvest and sunshine country brand names . we also market and distribute , and in most cases , manufacture or process , a diverse product line of food and snack products , including peanut butter , almond butter , cashew butter , candy and confections , snacks and trail mixes , snack bites , sunflower kernels , dried fruit , corn snacks , sesame sticks and other sesame snack products under private brands and brand names . we distribute our products in the consumer , commercial ingredients and contract packaging distribution channels . the company 's long-term objective to drive profitable growth , as identified in our strategic plan ( the strategic plan ) , includes continuing to grow fisher and orchard valley harvest into leading nut brands by focusing on consumers demanding quality nuts in the snacking , recipe and produce categories and providing integrated nut solutions to grow non-branded business at existing key customers in each distribution channel . we executed on our strategic plan during fiscal 2017 by expanding our distribution and product offerings for our fisher recipe nuts and orchard valley harvest produce nuts and by expanding distribution of peanuts and trail mixes to contract packaging customers . in the third quarter of fiscal 2017 , our board of directors adopted a dividend policy under which it intends to pay an annual cash dividend on our common stock and class a stock of at least $ 0.50 per share . it is contemplated that this annual dividend would be declared around the conclusion of the company 's fiscal year and paid in the first quarter of each fiscal year . one of the key factors that will be considered in determining the annual dividend amount ( and whether any such dividend will be paid ) will be the liquidity position of the company , in particular the borrowing availability under our credit facility . the board of directors paid an annual dividend of $ 0.50 per share and a special dividend of $ 2.00 per share in august 2017. we face a number of challenges in the future which include , among others , volatile commodity costs for certain tree nuts , especially cashews , and intensified competition for market share from both private brand and name brand nut products . acquisition costs for almonds declined significantly during the second half of fiscal 2016 , which has resulted in lower selling prices for products that contain almonds . since sales of almonds comprise a significant percentage of our total net sales , we anticipate that lower selling prices will continue to result in a significant reduction in net sales in future comparisons until the impact of lower retail prices ultimately drives increased sales volume for almonds . we will continue to focus on seeking profitable business opportunities to further utilize our additional production capacity at our elgin site . we expect to maintain our recent level of promotional and advertising activity for our orchard valley harvest and fisher brands . we continue to see domestic sales and volume growth in our orchard valley harvest brand and expect to continue to focus on this portion of our branded business . we will continue to face the ongoing challenges specific to our business such as food safety and regulatory issues and the maintenance and growth of our customer base . see the information referenced in part i , item 1a risk factors of this report for additional information about our risks , challenges and uncertainties . story_separator_special_tag in august 2016 , we were notified by a significant customer in the commercial ingredients sales channel of its intent to move some or all of its almond butter requirements to a vertically integrated almond butter supplier during our second quarter of fiscal 2017. almond butter sales to this customer in fiscal 2016 were approximately $ 90.0 million while the gross profit margin on this business was substantially lower than our total gross profit margin for fiscal 2016. although demand for almond butter has increased considerably in recent years , net sales in our commercial ingredients sales channel in fiscal 2017 will likely decline if this lost sales volume can not be replaced through organic growth or expansion of products at existing customers . net sales in the contract packaging distribution channel increased by 19.4 % in dollars and 10.4 % in sales volume in fiscal 2016 compared to fiscal 2015. the sales volume increase was primarily due to increased sales with existing customers due in large part to new item introductions and increased promotional activity implemented by customers in this channel . net sales in the export distribution channel decreased 13.1 % in dollars for fiscal 2016 , though sales volume increased 15.6 % compared to fiscal 2015. the sales volume increase was primarily due to increased sales of bulk walnuts . gross profit gross profit increased 4.1 % to $ 137.5 million in fiscal 2016 from $ 132.1 million in fiscal 2015. our gross profit margin decreased to 14.4 % of net sales for fiscal 2016 from 14.9 % for fiscal 2015. the increase in gross profit resulted primarily from increased sales volume . the decline in gross profit margin was primarily attributable to a decline in gross profit on sales of walnuts in the third quarter . operating expenses total operating expenses for fiscal 2016 increased by $ 6.0 million to $ 86.2 million . operating expenses as a percent of net sales were 9.0 % for both fiscal 2016 and fiscal 2015. selling expenses for fiscal 2016 were $ 51.1 million , an increase of $ 1.5 million , or 3.0 % , over the amount recorded for fiscal 2015. the increase was driven primarily by a $ 2.3 million increase in compensation-related expenses and a $ 0.5 million increase in marketing and advertising expense . partially offsetting these increases was a $ 1.7 million decrease in shipping expense driven primarily by decreasing fuel costs and an increase in customers using their own freight carriers to pick up their orders . administrative expenses for fiscal 2016 were $ 35.0 million , an increase of $ 4.5 million , or 14.8 % , from the amount recorded for fiscal 2015 due primarily to a $ 3.3 million combined increase in both incentive and ordinary compensation-related expenses . income from operations due to the factors discussed above , our income from our operations was $ 51.3 million , or 5.4 % of net sales , for fiscal 2016 , compared to $ 51.9 million , or 5.8 % of net sales , for fiscal 2015. interest expense interest expense was $ 3.5 million for fiscal 2016 compared to $ 4.0 million for fiscal 2015. the decrease in interest expense was due primarily to lower debt levels . 26 rental and miscellaneous expense , net net rental and miscellaneous expense was $ 1.4 million for fiscal 2016 compared to $ 3.0 million for fiscal 2015. the decrease was primarily due to repairs to the exterior of our office building located at the elgin site being completed during fiscal 2015 while no such repair expenses were incurred in fiscal 2016. income tax expense income tax expense was $ 16.1 million , or 34.6 % of income before income taxes , for fiscal 2016 compared to $ 15.6 million , or 34.7 % of income before income taxes , for fiscal 2015. net income net income was $ 30.4 million , or $ 2.71 basic and $ 2.68 diluted per common share , for fiscal 2016 , compared to $ 29.3 million , or $ 2.63 basic and $ 2.61 diluted per common share , for fiscal 2015 , due to the factors discussed above . liquidity and capital resources general the primary uses of cash are to fund our current operations , fulfill contractual obligations , pursue our strategic plan and repay indebtedness . also , various uncertainties could result in additional uses of cash . the primary sources of cash are results of operations and availability under our credit agreement , dated february 7 , 2008 and subsequently amended most recently in july 2017 ( as amended , the credit facility ) , that provides a revolving loan commitment and letter of credit subfacility . we anticipate that expected net cash flow generated from operations and amounts available pursuant to the credit facility will be sufficient to fund our operations for the next twelve months . our available credit under our credit facility has allowed us to consummate business acquisitions , devote more funds to promote our branded products ( especially our fisher and orchard valley harvest brands ) , reinvest in the company through capital expenditures , develop new products , pay a special cash dividend the past five years , and explore other growth strategies outlined in our strategic plan . cash flows from operating activities have historically been driven by net income but are also significantly influenced by inventory requirements , which can change based upon fluctuations in both quantities and market prices of the various nuts and nut products we buy and sell . current market trends in nut prices and crop estimates also impact nut procurement . the following table sets forth certain cash flow information for the last three fiscal years ( dollars in thousands ) : replace_table_token_8_th operating activities .
| results of operations the following table sets forth the percentage relationship of certain items to net sales for the periods indicated and the percentage increase or decrease of such items from fiscal 2017 to fiscal 2016 and from fiscal 2016 to fiscal 2015. replace_table_token_3_th fiscal 2017 compared to fiscal 2016 net sales our net sales decreased 11.1 % to $ 846.6 million for fiscal 2017 from $ 952.1 million for fiscal 2016. sales volume ( measured as pounds sold to customers ) decreased by 3.7 % for fiscal 2017 in comparison to sales volume for fiscal 2016. the decrease in net sales was primarily due to a 7.6 % decrease in the weighted average sales price per pound , which primarily occurred as a result of lower selling prices for almonds and walnuts . the following summarizes sales by product type as a percentage of total gross sales . the information is based upon gross sales , rather than net sales , because certain adjustments from gross sales to net sales , such as promotional discounts , are not allocable to product type . replace_table_token_4_th 23 the following table shows a comparison of net sales by distribution channel ( dollars in thousands ) : replace_table_token_5_th ( 1 ) sales of branded products were approximately 38 % and 36 % of total consumer channel sales during fiscal 2017 and 2016 , respectively . fisher branded products were approximately 85 % and 87 % of branded sales during fiscal 2017 and 2016 respectively , with branded produce products accounting for the remaining branded product sales . ( 2 ) fiscal 2016 information has been revised to conform with the current year presentation . in fiscal 2017 , we consolidated our bulk export business into our commercial ingredients channel and the remaining portion of our export business into our other sales channels . net sales in the consumer distribution channel decreased by 6.4 % in dollars , however , sales volume increased by 1.1
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amounts of variable consideration are included in the transaction price to the extent that it is probable that a significant reversal in the amount story_separator_special_tag this annual report on form 10-k contains forward-looking statements within the meanings of the federal securities laws . these statements are subject to risks and uncertainties that could cause actual results and events to differ materially from those expressed or implied by such forward-looking statements . for a detailed discussion of these risks and uncertainties , see the “ risk factors ” section in item 1a of part i of this form 10-k. we caution the reader not to place undue reliance on these forward-looking statements , which reflect management 's analysis only as of the date of this form 10-k. we undertake no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this form 10-k. overview we are a biopharmaceutical company with a focus on the development and commercialization of innovative products to enhance cancer care . we in-license the global development and commercialization rights to three drug candidates—pb272 ( neratinib ( oral ) ) , pb272 ( neratinib ( intravenous ) ) and pb357 . neratinib is a potent irreversible tyrosine kinase inhibitor , or tki , that blocks signal transduction through the epidermal growth factor receptors , her1 , her2 and her4 . currently , we are primarily focused on the development and commercialization of the oral version of neratinib , and our most advanced drug candidates are directed at the treatment of her2-positive breast cancer . we believe neratinib has clinical application in the treatment of several other cancers as well , including non-small cell lung cancer and other tumor types that over-express or have a mutation in her2 . prior to 2017 , our efforts and resources to date had been focused primarily on acquiring and developing our pharmaceutical technologies , raising capital and recruiting personnel . during 2017 , the united states food and drug administration , or fda , approved nerlynx , formally known as pb272 ( neratinib ( oral ) ) , for the extended adjuvant treatment of adult patients with early stage her2-overexpressed/amplified breast cancer following trastuzumab-based therapy . developing drug products , however , is a lengthy and very expensive process . we recently completed a phase iii clinical trial of neratinib for the extended adjuvant treatment of patients with early stage her2-positive breast cancer , which we refer to as the extenet trial . based on the results from the extenet trial , we submitted marketing authorization application , or maa , with the european medicines agency , or ema , in june 2016. we are continuing to evaluate potential commercialization options for nerlynx outside the united states in this indication , including developing a direct sales force , contracting with third parties to provide sales and marketing capabilities , some combination of these two options or other strategic options . we expect that our expenses will continue to increase as we continue to evaluate our options with regard to commercialization efforts . the license agreement for pb272 established a limit for our expenses related to the pfizer-initiated clinical trials for pb272 that were ongoing at the time of the agreement . this capped our “ out-of-pocket ” costs incurred in conducting these existing trials beginning january 1 , 2012. we reached the cost cap during the fourth quarter of 2012 , which resulted in a reduction of our research and development , or r & d , expenses for the fourth quarter of 2012 and for the year ended december 31 , 2013. in july 2014 , we signed an amendment to the license agreement with the licensor whereby we would be responsible for the expenses incurred or accrued in conducting the ongoing legacy clinical trials after december 31 , 2013. additionally , our expenses to date have been related to hiring staff , commencing company-sponsored clinical trials and the build out of our corporate infrastructure . as we proceed with clinical development of pb272 ( neratinib ( oral ) ) , and as we further develop pb272 ( neratinib ( intravenous ) ) , and pb357 , our second and third product candidates , respectively , we expect our r & d expenses and expenses related to our third-party contractors will begin to decline unless we decide to pursue additional clinical trials in alternate indications or acquire additional product candidates . to the extent we are successful in acquiring additional product candidates for our development pipeline , our need to finance r & d will increase . accordingly , our success depends not only on the safety and efficacy of our product candidates , but also on our ability to finance product development . our major sources of working capital have been proceeds from public offerings of our common stock , proceeds from our credit facility and sales of our common stock in private placements . summary of income and expenses product revenue , net product revenue , net consists of revenue from sales of nerlynx . we record revenue at the net sales price , which includes an estimate for variable consideration for which reserves are established . variable consideration consists of trade discounts and allowances , product returns , provider chargebacks and discounts , government rebates and other incentives . license revenue license revenue consists of consideration paid to us pursuant to our license agreements . 57 cost of sales cost of sales consists of third-party manufacturing costs , freight , and indirect overhead costs associated with sales of nerlynx . cost of product sales may also include period costs related to royalty charges payable to the licensor , the amortization of a milestone payment made to the licensor after obtaining fda approval of nerlynx , certain inventory manufacturing services , inventory adjustment charges , unabsorbed manufacturing and overhead costs , and manufacturing variances . story_separator_special_tag interest expense : for the years ended december 31 , 2016 and 2015 , we did not recognize interest expense as we did not have any debt financing . non-gaap financial measures : in addition to our operating results , as calculated in accordance with generally accepted accounting principles , or gaap , we use certain non-gaap financial measures when planning , monitoring , and evaluating our operational performance . the following table presents our net loss and net loss per share , as calculated in accordance with gaap , as adjusted to remove the impact of stock-based compensation . for the three and twelve months ended december 31 , 2017 , stock-based compensation represented approximately 39.8 % and 37.2 % of our net loss , respectively . although net loss is important to measure our financial performance , we currently place an emphasis on cash burn and , more specifically , cash used in operations . because stock-based compensation appears in gaap net loss but is removed from net loss to arrive as cash used in operations on the statement of cash flows , due to its non-cash nature , we believe these non-gaap measures enhance understanding of our financial performance , are more indicative of our operational performance and facilitate a better comparison among fiscal periods . these non-gaap financial measures are not , and should not be viewed as , substitutes for gaap reporting measures . 61 reconciliation of gaap net loss to non-gaap adjusted net loss and gaap net loss per share to non-gaap adjusted net loss per share ( in thousands except share and per share data ) for the year ended december 31 , 2017 2016 2015 gaap net loss $ ( 291,955 ) $ ( 276,011 ) $ ( 239,284 ) adjustments : stock-based compensation - selling , general and administrative 31,194 26,623 17,166 ( 1 ) research and development 77,541 90,641 77,768 ( 2 ) non-gaap adjusted net loss $ ( 183,220 ) $ ( 158,747 ) $ ( 144,350 ) gaap net loss per share — basic and diluted $ ( 7.85 ) $ ( 8.29 ) $ ( 7.45 ) adjustment to net loss ( as detailed above ) 2.92 3.52 2.96 non-gaap adjusted net loss per share $ ( 4.93 ) $ ( 4.77 ) $ ( 4.49 ) ( 3 ) ( 1 ) to reflect a non-cash charge to operating expense for selling , general and administrative stock-based compensation . ( 2 ) to reflect a non-cash charge to operating expense for research and development stock-based compensation . ( 3 ) non-gaap adjusted net loss per share was calculated based on 37,169,678 , 33,295,114 and 32,126,094 weighted average common shares outstanding for the years ended december 31 , 2017 , 2016 and 2015 , respectively . liquidity and capital resources operating activities we reported net losses of approximately $ 292.0 million , $ 276.0 million and $ 239.3 million for the years ended december 31 , 2017 , 2016 and 2015 , respectively . we also reported negative cash flows from operating activities of approximately $ 172.5 million , $ 141.7 million and $ 154.5 million for the years ended december 31 , 2017 , 2016 and 2015 , respectively . net cash used in operating activities for the year ended december 31 , 2017 , includes a net loss of $ 292.0 million adjusted for non-cash items of approximately $ 108.7 million for stock-based compensation expense , and depreciation of property and equipment and license amortization of approximately $ 2.8 million . further changes in cash flows from operations include an increase in accounts payable and accrued expenses of approximately $ 21.6 million , an increase in accounts receivable of approximately $ 9.7 million , an increase in inventory of approximately $ 2.0 million , an increase in prepaid expenses and other of approximately $ 1.1 million and an decrease in the accrued liability for deferred rent of approximately $ 0.1 million . net cash used in operating activities for the year ended december 31 , 2016 , includes a net loss of $ 276.0 million adjusted for non-cash items of approximately $ 117.3 million for stock-based compensation expense , build-out allowance of approximately $ 3.0 million , disposal of leasehold improvements of approximately $ 0.4 million and depreciation and amortization of property and equipment of approximately $ 1.1 million . further changes in cash flows from operations include an increase in accounts payable and accrued expenses of approximately $ 5.0 million , a decrease in prepaid expenses and other of approximately $ 3.4 million and an increase in the accrued liability for deferred rent of approximately $ 4.1 million . this increase in accrued liability for deferred rent was due to the amendments to the leases for office space , which became effective in april 2016. net cash used in operating activities for the year ended december 31 , 2015 , includes a net loss of $ 239.3 million , adjusted for non-cash items of approximately $ 94.9 million for stock-based compensation expense , build-out allowance of $ 0.2 million and $ 0.8 million for depreciation and amortization of property and equipment . further changes in cash flows from operations include a decrease in accounts payable and accrued expenses of approximately $ 12.0 million , a decrease of $ 1.8 million in licensor receivables , and an increase in prepaid expenses and other assets of approximately $ 1.0 million . the decrease in accrued expenses reflects a payment of approximately $ 16.4 million for employee payroll taxes withheld related to the exercise of employee stock options during december 2014 , paid in january 2015. the increase in prepaid expenses and other assets reflects up-front payments made to various cros for company-initiated clinical trials , for various insurance policies and the comparator inventory .
| results of operations the following summarizes our results of operations for the periods indicated . year ended december 31 , 2017 compared to year ended december 31 , 2016 total revenue total revenue was approximately $ 27.7 million for the year ended december 31 , 2017 compared to $ 0 for the year ended december 31 , 2016. product revenue , net product revenue , net was approximately $ 26.2 million for the year ended december 31 , 2017 , compared to $ 0 for the year ended december 31 , 2016. this increase in product revenue , net was entirely attributable to sales of nerlynx , our initial product , following its commercial launch in july 2017. license revenue license revenue was approximately $ 1.5 million for the year ended december 31 , 2017 , compared to $ 0 for the year ended december 31 , 2016. this increase in license revenue was entirely attributable to an upfront payment in an out-license agreement . cost of sales cost of sales was approximately $ 5.6 million for the year ended december 31 , 2017 , compared to $ 0 for the year ended december 31 , 2016. the increase in cost of sales was entirely attributable to the commercial launch of nerlynx , our initial product , in july 2017. year ended december 31 , 2016 compared to year ended december 31 , 2015 total revenue total revenue was $ 0 for the years ended december 31 , 2016 and 2015 as we did not generate revenue until the commercial launch of nerlynx during 2017 . 58 cost of sales cost of sales was $ 0 for the years ended december 31 , 2016 and 2015 because we did not yet have a commercial product . selling , general and administrative expenses : replace_table_token_5_th year ended december 31 , 2017 compared to year ended december 31 , 2016 total sg & a expenses increased approximately 98.3 % to $ 106.7
| 2,811 |
66 replace_table_token_15_th * less than 1 % ( 1 ) beneficial ownership is determined story_separator_special_tag the following discussion and analysis should be read in conjunction with our consolidated financial statements and notes thereto presented in this annual report . the following discussion contains “ forward-looking statements ” that reflect our future plans , estimates , beliefs , and expected performance . actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors . see “ item 1a . risk factors ” and “ cautionary statement regarding forward-looking statements. ” overview we are a publicly traded delaware limited partnership formed by diamondback on february 27 , 2014 to , among other things , own , acquire and exploit oil and natural gas properties in north america . the partnership is currently focused on oil and natural gas properties in the permian basin . as of december 31 , 2016 , our general partner held a 100 % non-economic general partner interest in us , and diamondback had an approximate 83 % limited partner interest in us . following our january 2017 underwritten public offering of common units , diamondback had an approximate 74 % limited partner interest in us . diamondback also owns and controls our general partner . we operate in one reportable segment engaged in the acquisition of oil and natural gas properties . our assets consist primarily of producing oil and natural gas properties principally located in the permian basin of west texas . 2016 transactions and recent developments our equity offerings in august 2016 , we completed an underwritten public offering of 8,050,000 common units , which included 1,050,000 common units issued pursuant to an option to purchase additional common units granted to the underwriter . in this offering , diamondback purchased 2,000,000 common units from the underwriter at $ 15.60 per unit , which is the price per common unit paid by the underwriter to us . following the august 2016 public offering , diamondback had an approximate 83 % limited partner interest in us . we received net proceeds from this offering of approximately $ 125.0 million , after deducting underwriting discounts and commissions and estimated offering expenses , which we used to fund the purchase price for the august 2016 acquisition described below and repay outstanding borrowings under our revolving credit facility . in january 2017 , we completed an underwritten public offering of 9,775,000 common units , which included 1,275,000 common units issued pursuant to an option to purchase additional common units granted to the underwriters . we received net proceeds from this offering of approximately $ 147.6 million , after deducting underwriting discounts and commissions and estimated offering expenses , of which $ 120.5 million was used to repay the outstanding borrowings under our revolving credit agreement and the balance will be used for general partnership purposes , which may include additional acquisitions . recent acquisitions during 2016 , we acquired mineral interests underlying 61,679 gross ( 2,142 net royalty ) acres in 63 transactions for an aggregate of approximately $ 205.7 million . we funded these acquisitions primarily with borrowings under our revolving credit facility and a portion of the net proceeds from our august 2016 offering of common units . sources of our revenue our revenues are derived from royalty payments we receive from our operators based on the sale of oil and natural gas production , as well as the sale of natural gas liquids that are extracted from natural gas during processing . royalty income may vary significantly from period to period as a result of changes in commodity prices , production mix and volumes of production sold by our operators . 44 the following table presents the breakdown of our royalty income for the following periods : replace_table_token_6_th as a result , our revenues are more sensitive to fluctuations in oil prices than they are to fluctuations in natural gas liquids or natural gas prices . oil , natural gas liquids and natural gas prices have historically been volatile . during 2016 , west texas intermediate posted prices ranged from $ 26.19 to $ 54.01 per bbl and the henry hub spot market price of natural gas ranged from $ 1.49 to $ 3.80 per mmbtu . on december 30 , 2016 , the west texas intermediate posted price for crude oil was $ 53.75 per bbl and the henry hub spot market price of natural gas was $ 3.71 per mmbtu . lower prices may not only decrease our revenues , but also potentially the amount of oil and natural gas that our operators can produce economically . lower oil and natural gas prices may also result in a reduction in the borrowing base under our credit agreement , which may be redetermined at the discretion of our lenders . principal components of our cost structure production and ad valorem taxes production taxes are paid on produced oil and natural gas based on a percentage of revenues from products sold at fixed rates established by federal , state or local taxing authorities . where available , we benefit from tax credits and exemptions in our various taxing jurisdictions . we are also subject to ad valorem taxes in the counties where our production is located . ad valorem taxes are generally based on the valuation of our oil and gas properties . general and administrative in connection with the closing of the ipo , our general partner and diamondback entered into the first amended and restated agreement of limited partnership , dated as of june 23 , 2014. the partnership agreement requires us to reimburse our general partner for all direct and indirect expenses incurred or paid on our behalf and all other expenses allocable to us or otherwise incurred by our general partner in connection with operating our business . the partnership agreement does not set a limit on the amount of expenses for which our general partner and its affiliates may be reimbursed . story_separator_special_tag general and administrative expenses the general and administrative expenses primarily reflect costs associated with us being a publicly traded limited partnership , unit-based compensation , the amounts reimbursed to our general partner under our partnership agreement and amounts incurred under our advisory services agreement . for the years ended december 31 , 2016 , 2015 and 2014 , we incurred general and administrative expenses of $ 5.2 million , $ 5.8 million and $ 4.4 million , respectively . net interest expense the net interest expense for the years ended december 31 , 2016 and 2015 reflects the interest incurred under our credit agreement . the net interest expense for the year ended december 31 , 2014 primarily relates to interest incurred under the subordinate note of our predecessor . net interest expense for the years ended december 31 , 2016 , 2015 and 2014 was $ 2.5 million , $ 1.1 million and $ 11.2 million , respectively . the increase in net interest expense for the year ended december 31 , 2016 as compared to 2015 was primarily due to a higher average level of outstanding borrowings under our credit agreement . the decrease in net interest expense for the year ended december 31 , 2015 as compared to 2014 was primarily due to the subordinate note of our predecessor that was converted to equity in connection with our ipo . 49 adjusted ebitda adjusted ebitda is a supplemental non-gaap financial measure that is used by management and external users of our financial statements , such as industry analysts , investors , lenders and rating agencies . we believe adjusted ebitda is useful because it allows us to more effectively evaluate our operating performance and compare the results of our operations from period to period without regard to our financing methods or capital structure . we define adjusted ebitda as net income ( loss ) plus interest expense , interest expense–related party , net of capitalized interest , non-cash unit-based compensation expense , depletion expense and impairment expense . adjusted ebitda is not a measure of net income ( loss ) as determined by gaap . we exclude the items listed above from net income ( loss ) in arriving at adjusted ebitda because these amounts can vary substantially from company to company within our industry depending upon accounting methods and book values of assets , capital structures and the method by which the assets were acquired . certain items excluded from adjusted ebitda are significant components in understanding and assessing a company 's financial performance , such as a company 's cost of capital and tax structure , as well as the historic costs of depreciable assets , none of which are components of adjusted ebitda . adjusted ebitda should not be considered as an alternative to , or more meaningful than , net income ( loss ) as determined in accordance with gaap or as an indicator of our operating performance or liquidity . our computations of adjusted ebitda may not be comparable to other similarly titled measures of other companies . the following table presents a reconciliation of adjusted ebitda to the most directly comparable gaap financial measure for the periods indicated . replace_table_token_10_th liquidity and capital resources overview our primary sources of liquidity have been cash flows from operations and equity and debt financings , including borrowings under our credit agreement , and our primary uses of cash have been , and are expected to continue to be , to pay distributions to our unitholders and for replacement and growth capital expenditures , including the acquisition of oil and natural gas properties . our ability to generate cash is subject to a number of factors , some of which are beyond our control , including commodity prices , weather and general economic , financial , competitive , legislative , regulatory and other factors . in 2017 , we believe cash flows from operations and availability under our credit agreement will provide sufficient liquidity to manage our cash needs and contractual obligations and to fund expected capital expenditures . we continually monitor market conditions and may consider issuing more equity or taking on debt if we believe conditions to be favorable . our partnership agreement does not require us to distribute any of the cash we generate from operations . we believe , however , that it is in the best interests of our unitholders if we distribute a substantial portion of the cash we generate from operations . the board of directors of our general partner has adopted a policy to distribute an amount equal to the available cash we generate each quarter to our unitholders . cash distributions are made to the common unitholders of record on the applicable record date , generally within 60 days after the end of each quarter . available cash for each quarter is determined by the board of directors of our general partner following the end of such quarter . available cash for each quarter generally equals adjusted ebitda reduced for cash needed for debt service and other contractual obligations and fixed charges and reserves for future operating or capital needs that the board of directors of our general partner deems necessary or appropriate , if any . 50 the following table presents cash distributions approved by the board of directors of our general partner for the periods presented . replace_table_token_11_th * the q4 2016 distribution is payable on february 24 , 2017 to unitholders of record at the close of business on february 17 , 2017. based on the common units held by diamondback on february 13 , 2017 , the q4 2016 distribution payable to diamondback on february 24 , 2017 will be approximately $ 18.7 million . our credit agreement we are party to a $ 500.0 million secured revolving credit agreement , dated as of july 8 , 2014 , as amended , with wells fargo as the administrative agent , sole book runner and lead arranger , and certain other lenders party thereto .
| results of operations results presented and factors affecting the comparability of our results to the historical financial results of our predecessor viper energy partners lp was formed on february 27 , 2014 and did not own any assets prior to the contribution of our predecessor to us on june 17 , 2014. the assets of our predecessor consisted of mineral interests in oil and natural gas properties in the permian basin , which were acquired on september 19 , 2013. the contribution of our predecessor to us on june 17 , 2014 was accounted for as a combination of entities under common control with assets and liabilities transferred at their carrying amounts in a manner similar to a pooling of interests . therefore , the financial and operating data below represent our predecessor 's operations for periods prior to june 17 , 2014 and , for periods on and after june 17 , 2014 , the financial and operating data represent the combination of our predecessor and our operations . our results of operations and our future results of operations may not be comparable to the historical results of operations of our predecessor for the periods presented , primarily for the reasons described below : long-term debt in connection with the closing of the ipo , the subordinated note issued by our predecessor to diamondback effective september 19 , 2013 was converted to equity ; therefore , we no longer have the note payable and related interest expense . on july 8 , 2014 , we entered into a secured revolving credit agreement with wells fargo as the administrative agent , sole book runner and lead arranger .
| 2,812 |
in addition , the number of shares available for issuance under the espp will increase on the first day of each calendar year beginning on january 1 , 2021 and ending on and including january 1 , 2030 by a number of shares of common stock equal to the lesser of ( a ) 1 % of the shares outstanding on the final day of the immediately preceding calendar year and ( b ) such smaller number of shares as determined by the board . the number of shares that may be issued story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with “ selected financial data ” and our financial statements and the related notes appearing elsewhere in this report . 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 discussed below . factors that could cause or contribute to such differences include , but are not limited to , those identified below , and those discussed in the section titled “ risk factors ” included elsewhere in this annual report on form 10-k. all dollar amounts in the below management 's discussion and analysis of financial condition and results of operations are presented in u.s. dollars , and all dollar amounts are presented in thousands , unless otherwise noted or the context otherwise provides . overview we are a clinical stage biopharmaceutical company utilizing artificial intelligence approaches to develop transformative medicines in neuroscience and immuno-oncology . our drug re-innovation approach leverages existing approved drugs and or clinically validated product candidates together with big data and proprietary machine learning algorithms to identify new therapeutic indices . we believe that this differentiated approach has the potential to reduce the cost and time of drug development in diseases with a substantial unmet medical need . our two most advanced clinical development programs are bxcl501 , a proprietary , orally dissolving , sublingual thin film formulation of the adrenergic receptor agonist dexmedetomidine ( “ dex ” ) , for the treatment of agitation resulting from neuropsychiatric disorders , and bxcl701 , an investigational orally administered systemic innate immune activator for the treatment of a rare form of prostate cancer and advanced solid tumors that are refractory or treatment naïve to checkpoint inhibitors . during the first quarter ended march 31 , 2020 , and continuing through december 31 , 2020 , the novel coronavirus disease , or covid-19 , was declared a pandemic and spread to multiple regions across the globe , including the united states and europe . the outbreak and government measures taken in response have had a significant impact , both direct and indirect , on businesses and commerce , as worker shortages have occurred ; supply chains have been disrupted ; facilities and production have been suspended ; and demand for certain goods and services , such as medical services and supplies , has spiked , while demand for other goods and services , such as travel , has fallen . throughout 2020 , we took steps in line with guidance from the u.s. centers for disease control and prevention ( “ cdc ” ) and the state of connecticut to protect the health and safety of our employees and the community . in particular , we implemented a work-from-home policy for all employees and have restricted on-site activities to certain chemical , manufacturing and control ( “ cmc ” ) and clinical trial activities . we continue to assess the impact of the covid-19 pandemic to best mitigate risk and continue the operations of our business . beginning late in the second quarter of 2020 , we began to slowly bring our staff , in very limited numbers , back to our office . this modified return-to-work approach is expected to continue into 2021. we have taken steps to protect our workforce and have instituted strict work rules to protect our employees . we continue to work closely with our clinical sites to monitor the potential impact of the evolving covid-19 pandemic . we remain committed to our clinical programs and development plans . through december 31 , 2020 , we have not experienced any significant delays to our ongoing or planned clinical trials , except for challenges in accessing elderly care facilities ; however , this could rapidly change . 87 our clinical programs the following is a summary of the status of our clinical development programs as of the date of this annual report on form 10-k : our novel drug re-innovation approach our ai-based discovery and development process is the foundation of our drug re-innovation model for identifying the next wave of medicines . our therapeutic area experts have over 60 years of experience across the drug discovery and development value chain . we believe evolverai is a novel method of finding potential product candidates because it combines the comprehensiveness and efficiency of machine learning and big data analytics with the expertise and intuition of human experience in drug development . we believe the combination of our therapeutic area expertise and our ability to generate therapeutic candidates in neuroscience and immuno-oncology through our exclusive collaborative relationship in those areas with bioxcel gives us a significant competitive advantage . the pharmacological space spans more than 27,000 active pharmaceutical agents , and only approximately 4,000 are approved and marketed drugs benefiting patients . these marketed drugs may be applied to other indications , including rare diseases , and represent an untapped potential for meeting significant unmet medical need and recoupment of research and development investments . a large number of the remaining agents are clinical candidates that are active , shelved , or have failed for reasons other than toxicity and can potentially be re-engineered for different indications or patient segments . they potentially represent an unrealized investment of billions of research and development dollars by the private and public sectors , resulting in an immeasurable amount of patient suffering and sacrificing during clinical development . story_separator_special_tag 90 recently issued accounting pronouncements a description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is set forth in note 3 to the financial statements included in this annual report on form 10-k. story_separator_special_tag style= '' max-width:100 % ; padding-left:10.35 % ; padding-right:10.35 % ; position : relative ; '' > we may obtain additional financing through sales of the company 's equity securities , entering into strategic partnership arrangements and or short-term borrowings from banks , stockholders or other related parties , if needed , or a combination of any of the foregoing . there are no assurances that we will be successful in obtaining an adequate level of financing as and when needed to finance our operations on terms acceptable to us or at all , particularly in light of the economic downturn and ongoing uncertainty related to the covid-19 pandemic . if we are unable to secure adequate additional funding as and when needed , we may have to significantly delay , scale back or discontinue the development and commercialization of one or more product candidates . in addition , the magnitude and duration of the covid-19 pandemic and its impact on our liquidity and future funding requirements is uncertain as of the filing date of this annual report on form 10-k , as the pandemic continues to evolve globally . see “ risk factors—the outbreak of covid-19 , or other pandemic , epidemic or outbreak of an infectious disease may materially and adversely impact our business , including our preclinical studies and clinical trials. ” in part i , item 1a . of this annual report on form 10-k for a further discussion of the potential impact of the covid-19 pandemic on our business . sources of liquidity we have focused our efforts on raising capital and building the products in our pipeline . since our inception , our operations have been financed primarily by our parent , bioxcel , and from proceeds from the sale of equity securities . through december 31 , 2020 , we have received approximately $ 353,337 in aggregate gross proceeds from stock issuances including our initial public offering , private placements of our common stock , and registered offerings of our common stock and an open market sale agreement ( “ atm program ” ) . we have not yet established an ongoing source of revenue sufficient to cover our operating costs and will need to do so in future periods . in may 2019 , we entered into an open market sale agreement , or the sale agreement , with jefferies llc , or jefferies , pursuant to which we could offer and sell up to $ 20,000 of our common stock , from time to time , through an “ at the market offering ” program under which jefferies would act as sales agent . from may 2019 to september 2019 , we sold a total of 66,193 shares for gross proceeds of $ 737 and net proceeds of $ 387. we terminated the sale agreement on september 22 , 2019. in september 2019 , we sold in a registered offering 2,303 shares of our common stock at a public offering price of $ 8.25 per share for gross proceeds of $ 19,000 less underwriting discounts and commissions . we received net proceeds of $ 17,423. in february 2020 , we sold in a registered offering 2,300 shares of our common stock at a public offering price of $ 32.00 per share for gross proceeds of $ 73,600 less underwriting discounts and commissions . we received net proceeds of approximately $ 68,811. we received funds under the paycheck protection program of the coronavirus aid , relief , and economic security act ( “ cares act ” ) in april 2020 in the amount of $ 537. on april 23 , 2020 the small business administration issued a new faq # 31 , which provided guidance on what it means to certify that : “ current economic uncertainty makes this loan request necessary to support the ongoing operations of the applicant. ” following review of this new faq # 31 we decided to withdraw from the paycheck protection program and have repaid the loan in full together with all accrued interest . in july 2020 , we sold in a registered offering 4,000 shares of our common stock at a public offering price of $ 50.00 per share for gross proceeds of $ 200,000 less underwriting discounts and commissions . we received net proceeds of approximately $ 186,974 . 93 cash flows replace_table_token_4_th operating activities cash used in operating activities was $ 66,350 for the year ended december 31 , 2020 and was primarily attributable to our $ 82,169 net loss , partially offset by $ 14,611 in stock-based compensation and a $ 3,033 increase in accounts payable and accrued expenses . this amount was partially offset by a $ 2,013 increase prepaid expenses and other assets . cash used in operating activities was $ 27,101 for the year ended december 31 , 2019 and was primarily attributable to our $ 32,968 net loss , partially offset by $ 3,142 in stock-based compensation , $ 156 of depreciation and amortization and a $ 3,759 increased in accounts payable and accrued expenses . this amount was partially offset by a $ 1,190 increase in prepaid expenses . investing activities cash used in investing activities was $ 316 for the year ended december 31 , 2020 and was attributable to the purchase of equipment and leasehold improvements . cash used in investing activities was $ 870 for the year ended december 31 , 2019 and was attributable to the purchase of equipment . financing activities net cash provided by financing activities was $ 247,359 for the year ended december 31 , 2020 and was primarily attributable to the net proceeds of $ 68,811 from our february 2020 offering combined with net proceeds of $ 186,974 from our july 2020 offering .
| results of operations comparison of the years ended december 31 , 2020 and 2019 revenues we have not recognized any revenues since inception . research and development expense research and development expenses for the years ended december 31 , 2020 and 2019 were $ 57,995 and $ 25,797 , respectively . research and development expenses for the years ended december 31 , 2020 and 2019 were comprised as follows : replace_table_token_2_th the increase of $ 32,198 for the year ended december 31 , 2020 is primarily attributable to : personnel and related costs increased due to our efforts to enlarge our clinical teams as we expanded our clinical programs during the quarter and in preparation of the potential commercial launch of bxcl501 in the u.s. non-cash stock-based compensation also increased as result of the additional personnel hired during the year and increased grant date fair values arising from higher market prices of the company 's common stock . the increase in professional research & project related costs and clinical trials expense reflect the broadening of research and development activities and is primarily related to our serenity i and ii clinical trials as well as increased costs associated with our tranquility and release clinical trials for bxcl501 and our phase ii study of bxcl701 for the treatment of prostate cancer . these amounts were offset by reduced costs related to our bxcl501 phase ib schizophrenia trial and our bxcl701 pancreatic cancer trial . the increase in cmc costs is a result of an increase in manufacturing of bxcl501 , packaging and storage costs and a larger volume of purchases of keytruda to support our oncology program .
| 2,813 |
amounts deemed to be uncollectible , including amounts due from known insolvent reinsurers , are written off against 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 the related notes included elsewhere in this annual report . some of the information contained in this discussion and analysis or included elsewhere in this annual report , including information with respect to our plans and strategy for our business , includes forward-looking statements that involve risks , uncertainties and assumptions . our actual results and the timing of events could differ materially from those anticipated by these forward-looking statements as a result of many factors , including those discussed under `` cautionary statement regarding forward-looking statements '' , `` item 1a . risk factors '' and elsewhere in this annual report . the starstone u.s. business qualifies as a discontinued operation ; therefore , prior period amounts have been reclassified to conform to the current period presentation . for further information , refer to note 5 - `` divestitures , held-for-sale businesses and discontinued operations '' in the notes to our consolidated financial statements included within item 8 of this annual report on form 10-k. these reclassifications had no impact on net earnings , the non-life run-off segment , the atrium segment or other activities ; however , these reclassifications did impact our consolidated results of operations and our starstone segment results of operations . for a comparison of our results of operations for the non-life run-off segment , the atrium segment and other activities for the fiscal 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 fiscal year ended december 31 , 2019 , filed with the securities and exchange commission ( `` sec '' ) on february 27 , 2020. replace_table_token_2_th business overview for information on the company and our business strategy , refer `` item 1. business - company overview '' and `` - business strategy . '' key performance indicator our primary corporate objective is growing our book value per share , and we believe that long-term growth in fully diluted book value per share is the most appropriate measure of our financial performance . we create growth in our book value through the execution of the strategies discussed in `` item 1. business - business strategy . '' during 2020 , our book value per share on a fully diluted basis increased by 42.1 % to $ 281.20 per share . the increase was primarily due to our net earnings for the year ended december 31 , 2020 , which was primarily the result of net realized and unrealized investment gains and earnings from equity method investments , as discussed more fully below . 42 table of contents the growth of our fully diluted book value per share over the last 10 years is shown in the table below . the table below summarizes the calculation of our fully diluted book value per ordinary share as of december 31 , 2020 and 2019 : replace_table_token_3_th ( 1 ) there are warrants outstanding to acquire 175,901 series c non-voting ordinary shares for an exercise price of $ 115.00 per share , subject to certain adjustments ( the `` warrants '' ) . the warrants were issued in april 2011 and expire in april 2021. the warrant holder may , at its election , satisfy the exercise price of the warrants on a cashless basis by surrender of shares otherwise issuable upon exercise of the warrants in accordance with a formula set forth in the warrants . ( 2 ) ordinary shares outstanding includes voting and non-voting shares but excludes ordinary shares held in the enstar group limited employee benefit trust ( the `` eb trust '' ) in respect of awards made under our joint share ownership plan , a sub-plan to our amended and restated 2016 equity incentive plan ( the `` jsop '' ) . ( 3 ) share-based dilutive securities include restricted shares , restricted share units , and performance share units ( `` psus '' ) . the amounts for psus , and for ordinary shares held in the eb trust in respect of the jsop , are adjusted at the end of each period end to reflect the latest estimated performance multipliers for the respective awards . the jsop shares did not have a dilutive effect as of december 31 , 2020 . 43 table of contents non-gaap financial measure in addition to presenting net earnings ( losses ) attributable to enstar ordinary shareholders and diluted earnings ( losses ) per ordinary share determined in accordance with u.s. gaap , we believe that presenting non-gaap operating income ( loss ) attributable to enstar ordinary shareholders and non-gaap diluted operating income ( loss ) per ordinary share provides investors with valuable measures of our performance . non-gaap operating income ( loss ) attributable to enstar ordinary shareholders is calculated by the addition or subtraction of certain items from within our consolidated statements of earnings to or from net earnings ( loss ) attributable to enstar ordinary shareholders , the most directly comparable gaap financial measure , as illustrated in the table below , for the years ending december 31 , 2020 , 2019 and 2018 : replace_table_token_4_th ( 1 ) represents the net realized and unrealized gains and losses related to fixed maturity securities recognized in net earnings ( losses ) . our fixed maturity securities are held directly on our balance sheet and also within the `` funds held - directly managed '' balance . refer to note 6 - `` investments '' in the notes to our consolidated financial statements included within item 8 of this annual report on form 10-k for further details on our net realized and unrealized gains and losses . story_separator_special_tag for our fixed income portfolio , the covid-19 pandemic has resulted in interest rates dropping to historically low levels which , in conjunction with credit spreads remaining largely unchanged year-over-year , has contributed to net unrealized gains for the year ended december 31 , 2020. as of 45 table of contents december 31 , 2020 , our fixed income portfolio remained well-positioned with an a+ average credit rating . the covid-19 pandemic has increased the risk of defaults and downgrades across many industries , and we continue to monitor credit risk during this time of volatility . we expect interest rates and credit spreads will remain volatile in the near-term . our other investments , including equities , hedge funds , equity method investments and other non-fixed income investments , are expected to generate higher expected returns , have a longer investment time horizon , and provide diversification to our fixed income portfolio . given their higher risk and return profile , we expect these returns to be more volatile over the short-term relative to our fixed income investments . heightened volatility in equity markets was introduced during the covid-19 pandemic , though equity prices have recovered from the sharp declines experienced in the first quarter of 2020. this improvement has resulted in unrealized gains in our equity and other investments for the year ended december 31 , 2020. we anticipate continued volatility in the global investment markets as a result of the economic conditions caused by the covid-19 pandemic . our results for the year ended december 31 , 2020 included the impact of unrealized investment gains of $ 1.5 billion , driven primarily by increases in the valuation of our other investments , predominantly hedge fund investments , and earnings from equity method investments of $ 238.6 million . investments that are accounted for under the equity method typically report their results on a three month lag . accordingly , the potential effects of volatility across global financial markets , including the impact of covid-19 , on our equity method investments is generally reflected in our consolidated financial statements on a quarter lag basis . during the year ended december 31 , 2020 , the atrium and starstone segments have incurred covid-19 related net underwriting losses of $ 18.4 million and $ 70.7 million , respectively , for which our share was $ 10.9 million and $ 45.4 million , respectively . covid-19 net underwriting losses for the atrium segment primarily included losses in the accident and health lines of business , whereas losses in the starstone segment included losses primarily in the casualty and property lines of business . our non-life run-off segment had no underwriting losses related to the covid-19 pandemic ; however , as a result of the loss portfolio transfer and adverse development cover reinsurance agreement with starstone u.s. , as further described in note 5 - `` divestitures , held-for-sale businesses and discontinued operations '' in the notes to our consolidated financial statements included within item 8 of this annual report on form 10-k , the non-life run-off segment assumed $ 10.0 million of covid-19 related loss reserves from starstone u.s. the amounts of non-life run-off , atrium and starstone losses referenced herein represent our estimate of underwriting losses related to the covid-19 pandemic incurred through december 31 , 2020. given the uncertainties associated with the covid-19 pandemic and its impact , and the limited information upon which our current estimates have been made , our preliminary reserves and the estimated liability for losses and lae arising from the covid-19 pandemic may materially change . we expect to see continued opportunities in the nlro market with companies looking for alternative and optimized capital solutions and greater certainty around incurred losses on books of business that are in run-off . our strategy is to administer the run-off of claims profitably through closing claims in an efficient and effective manner . however , there may be increased competition in the nlro market and increased volatility in run-off portfolios that have come to market . we believe we have a competitive advantage in the run-off market and will continue to apply our disciplined approach to underwriting and pricing transactions . strategic developments as a result of the sale and recapitalization of starstone u.s. , the sale of the majority of our interest in atrium and the placing of starstone international into run-off , we have largely exited our previously controlled active underwriting platforms . while we maintain strategic minority interests in these businesses , our primary focus is on our core business of acquiring and managing ( re ) insurance companies or portfolios of ( re ) insurance business in run-off . for further information on our strategic developments , refer to note 5 - `` divestitures , held-for-sale businesses and discontinued operations '' in the notes to our consolidated financial statements included within item 8 of this annual report on form 10-k. non-life run-off business opportunities on october 15 , 2020 , we completed an ibt in the u.s. , having received judicial approval from the oklahoma county district court . the transaction occurred between two of our subsidiaries and , although common in many parts of the world , it was the first of its kind to occur in the u.s. the ibt mechanism provides another option for structuring u.s. transactions in the future which provides legal finality to the seller of transferred insurance liabilities . our acquisition activity in the non-life run-off segment remains strong . we announced transactions with axa xl and prosight and completed transactions with cna , liberty mutual , hannover re , munich re , axa group , aspen and lyft . collectively , these transactions represent $ 4.7 billion of assets and liabilities . refer to note 4 - 46 table of contents `` significant new business '' in the notes to our consolidated financial statements included within item 8 of this annual report on form 10-k for further information on these transactions .
| highlights consolidated results of operations for 2020 : consolidated net earnings attributable to enstar ordinary shareholders of $ 1.7 billion and basic and diluted earnings per share of $ 79.78 and $ 78.80 , respectively , a year-over-year increase of $ 817.2 million or $ 37.37 per diluted share . non-gaap operating income attributable to enstar ordinary shareholders of $ 1.6 billion and diluted non-gaap operating income per ordinary share of $ 71.14 compared to $ 558.0 million and $ 25.62 , respectively , for 2019. for a reconciliation of non-gaap operating income attributable to enstar ordinary shareholders to net earnings attributable to enstar ordinary shareholders calculated in accordance with gaap , and diluted non-gaap operating income per ordinary share to diluted net earnings per ordinary share calculated in accordance with gaap , see `` non-gaap financial measure '' above . net earnings from non-life run-off segment of $ 1.9 billion , which included the impact of net realized and unrealized gains of $ 1.6 billion , comprised of $ 168.5 million of net realized gains and $ 1.5 billion of net unrealized gains , driven primarily by increases in the valuation of our other investments , predominantly hedge fund investments , as discussed below in the `` investment results - consolidated '' section . also contributing to net earnings was $ 238.6 million of earnings from equity method investments , driven primarily by our investments in enhanzed re and monument re . combined ratio of 91.2 % for our atrium segment , with net premiums earned of $ 175.4 million . excluding the estimated underwriting losses related to the covid-19 pandemic , the combined ratio for the atrium segment was 80.7 % . combined ratio of 138.1 % for our starstone segment , with net premiums earned of $ 318.1 million . excluding the estimated underwriting losses related to the covid-19 pandemic and exit costs associated with the starstone international run-off , the combined ratio for the starstone segment was 112.1
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description balance at beginning of year charges to loss on sale of subsidiary deductions balance at end of year valuation reserve deducted from prepaid expenses and other current assets : year ended december 31 , 2020 $ 1,770,000 $ - $ ( 1,770,000 ) $ - year ended december 31 , 2019 $ 1,770,000 $ - $ - $ 1,770,000 property and equipment property and equipment are carried at cost net of accumulated depreciation and amortization . repair and maintenance charges are expensed as incurred . property , equipment , and improvements are depreciated using the straight-line method over the estimated useful lives of the assets or the particular improvements . expenditures for repairs and improvements in excess of $ 10,000 that add to the productive capacity or extend the useful life of an asset are capitalized . upon disposition , the cost and related accumulated depreciation are removed from the accounts and any related gain or loss is reflected in earnings . f- 11 long-lived and intangible assets identifiable intangible assets are amortized using the straight-line method over the period of expected benefit . long-lived assets and intangible assets subject to amortization to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the related carrying amount may be impaired . the company records an impairment loss if the undiscounted future cash flows are found to be less than story_separator_special_tag the following discussion of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements for the years ended december 31 , 2020 and 2019 and the notes to those statements included elsewhere in this report . this discussion contains forward-looking statements that involve risks and uncertainties . you should specifically consider the various risk factors identified in this report that could cause actual results to differ materially from those anticipated in these forward-looking statements . story_separator_special_tag frequent and enhanced cleaning of our machines and adjusted schedules and work-flows to support physical distancing . this resulted in increased operating costs to our business . as we enter into fiscal 2021 , operating conditions have substantially returned to normal ; however , our company , employees , suppliers and customers , and our global community continue to face challenges and we can not predict how this dynamic situation will evolve or the impact it will have . throughout 2020 , many of our suppliers were forced to reduce staffing or temporarily close their facilities due to covid-19 , which impacted our delivery schedules . we can not predict what future impacts will occur , particularly if new variants of covid-19 result in a substantial increase in new cases and governments elect to reimpose strict safety measures . the future impact of covid-19 on our business is difficult to predict as the course of the pandemic , the effectiveness of health measures , and the impact and continuation of ongoing economic stabilization efforts are uncertain and government assistance payments may not provide enough funding to support current spending levels . we did not qualify for any significant new government benefits in the recently enacted american rescue plan act of 2021 and do not expect to qualify for any significant new government benefits that might be enacted . 15 segment data we follow financial accounting standards board ( “ fasb ” ) asc 280 , “ segment reporting ” ( “ asc 280 ” ) , which establishes standards for reporting information about operating segments in annual and interim financial statements , asc 280 requires that companies report financial and descriptive information about their reportable segments based on a management approach . asc 280 also establishes standards for related disclosures about products and services , geographic areas and major customers . we currently divide our operations into two operating segments : complex machining and turbine engine components . along with our operating subsidiaries , we report the results of our corporate office as an independent segment . the accounting policies of our segments are the same as those described in the summary of significant accounting policies . we evaluate performance based on revenue , gross profit contribution and assets employed . results of operations-continuing operations years ended december 31 , 2020 and 2019 : for purposes of the following discussion of our selected financial information and operating results , we have presented our financial information based on our continuing operations unless otherwise noted . selected financial information : replace_table_token_2_th 16 balance sheet data : replace_table_token_3_th the following sets forth the results of operations for each of our segments individually and on a consolidated basis for the periods indicated : replace_table_token_4_th 17 net sales : consolidated net sales for the year ended december 31 , 2020 were $ 50,097,000 , a decrease of $ 4,476,000 , or 8.2 % , compared with $ 54,573,000 for the year ended december 31 , 2019. net sales of our complex machining segment were $ 44,659,000 , a decrease of $ 3,567,000 , or 7.4 % , from $ 48,226,000 in the prior year . net sales in our turbine engine components segment were $ 5,438,000 , a decrease of $ 909,000 or 14.3 % , compared with $ 6,347,000 for the year ended december 31 , 2019. these decreases were directly attributable to the negative business impacts caused by covid-19 , which significantly reduced our ability to ship finished product to end-customers . while we were able to continue certain production processes in our own facility , our ability to have our product further processed by subcontractors was severely impacted . this resulted in an increase in partially finished product remaining in work in process . this situation caused our inventory to increase . these supply chain interruptions abated somewhat later in the year , but remain a challenge . as indicated in the table below , three customers represented 73.9 % and 76.0 % of total sales for the years ended december 31 , 2020 and 2019 , respectively . story_separator_special_tag also , the u.s. department of defense has , to date , taken steps to increase the rate for certain progress payments from 80 percent to 90 percent for costs incurred and worked performed on certain contracts . in addition to taking advantage of the aforementioned u.s. government programs , we took additional significant steps to improve our liquidity , including : 1 ) entered into a lower cost financing facility – on december 31 , 2019 , we entered into a new loan facility ( “ snb facility ” ) with sterling national bank , ( “ snb ” ) which expires on december 30 , 2022. the snb facility provides for a $ 16,000,000 revolving loan ( “ snb revolving line of credit ” ) and a term loan ( “ snb term loan ” ) . proceeds from the snb facility repaid our outstanding pnc facility with pnc bank n.a . ( “ pnc ” ) . the formula to determine the amounts of revolving advances permitted to be borrowed under the snb revolving line of credit is based on a percentage of eligible receivables and inventory ( as defined in the snb facility ) . prior to the increase in the snb term loan described below , the snb term loan provided for monthly principal installments in the amount of $ 45,238 , payable on the first business day of each month , beginning on february 1 , 2020 , with a final payment of any unpaid balance of principal and interest payable on december 30 , 2022. in addition , for so long as the snb term loan remains outstanding , if excess cash flow ( as defined ) is a positive number for any fiscal year , beginning with the year ending december 31 , 2020 , we shall pay to snb an amount equal to the lesser of ( i ) twenty-five percent ( 25 % ) of the excess cash flow for such fiscal year and ( ii ) the outstanding principal balance of the term loan . such payment shall be made to snb and applied to the outstanding principal balance of the term loan , on or prior to the april 15 immediately following such fiscal year . the terms of the snb facility require that , among other things , we maintain a specified fixed charge coverage ratio of 1.25 to 1.00 at the end of each fiscal quarter beginning with the fiscal quarter ending march 31 , 2020. in addition , we are limited in the amount of capital expenditures we can make . in accordance with the snb facility by september 30 , 2020 , we were required to cause the holders of certain subordinated convertible notes to either ( i ) extend the maturity date of such notes to a date more than six months after december 31 , 2022 , or ( ii ) convert the notes into common stock of the company . as of december 31 , 2020 , we were in compliance with all loan covenants . the snb facility also restricts the amount of dividends we may pay to our stockholders . substantially all of our assets are pledged as collateral under the snb facility . 20 2 ) increased term loan to modernize equipment - on november 6 , 2020 , we entered into the first amendment to loan and security agreement , increasing the term loan to $ 5,685,000. this allowed us to finance the acquisition of the new equipment at what we believe to be a reasonable interest rate . the repayment terms of the term loan were amended to provide monthly principal installments in the amount of $ 67,679 beginning on december 1 , 2020 , with a final payment of any unpaid balance of principal and interest payable on december 30 , 2022. we have paid an amendment fee of $ 20,000. as of december 31 , 2020 , our debt to snb in the amount of $ 21,207,000 consisted of the snb revolving line of credit note in the amount of $ 15,649,000 and the snb term loan in the amount of $ 5,558,000. because we believe our fiscal 2021 sales will be higher than the amount achieved in fiscal 2020 , we believe our liquidity in 2021 will improve . nevertheless , our liquidity may be adversely impacted by various risks and uncertainties , including , but not limited to future effects of the covid-19 pandemic and other risks detailed in part1 , item 1a of this annual report . changes in our cash flow during fiscal 2020 and 2019 are discussed further below . cash flow the following table summarizes our net cash flow from operating , investing and financing activities for the periods indicated ( in thousands ) : replace_table_token_7_th the above cash flows include the cash flows from our continuing and discontinued operations . cash used in operating activities cash used in operating activities reflects our net income ( loss ) adjusted for certain non-cash items and changes to working capital items . for the year ended december 31 , 2020 , net income of $ 1,096,000 and $ 1,990,000 of non-cash items , consisting primarily of employees and directors stock based compensation of $ 519,000 , amortization of right-of-use assets of $ 482,000 , depreciation of property and equipment of $ 2,570,000 and amortization of debt discount on convertible notes payable of $ 233,000 , were partially offset by the forgiveness of notes payable – sba loan and non-cash other income recognized in the amounts of $ 2,414,000 and $ 402,000 , respectively .
| business overview aim became a public company in 2005 and we are an aerospace company operating primarily in the defense industry . our complex machining segment manufactures structural parts and assemblies that focus on flight safety , including landing gear , arresting gear , engine mounts , flight controls , throttle quadrants , and other components . our turbine engine components segment makes components and provides services for jet engines and ground-power turbines . our products are currently deployed on a wide range of high-profile military and commercial aircraft including the sikorsky uh-60 blackhawk , lockheed martin f-35 joint strike fighter , northrop grumman e2d hawkeye , the us navy f-18 and usaf f-16 fighter aircraft , boeing 777 commercial airliners . our turbine engine segment makes components for jet engines that are used on the usaf f-15 and f-16 , the airbus a-330 and the boeing 777 , in addition to a number of ground-power turbine applications . the aerospace market is highly competitive in both the defense and commercial sectors and we face intense competition in all areas of our business . nearly all of our revenues are derived by producing products to customer specifications after being awarded a contract through a competitive bidding process . as the commercial aerospace and defense industries continue to consolidate and major contractors seek to streamline supply chains by buying more complete sub-assemblies from fewer suppliers , we have sought to remain competitive not only by providing cost-effective world class service but also by increasing our ability to produce more complex and complete assemblies for our customers . we are currently focused on positioning our business to obtain profitability , achieve positive cash flow and we remain resolute on meeting customers ' needs . we believe that an unyielding focus on our customers will allow us to execute on our existing backlog in a timely fashion .
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aaron 's business offers furniture , consumer electronics , home appliances and accessories to consumers primarily with a month-to-month , lease-to-own agreement with no credit needed through its company-operated stores in the united states and canada as well as through its e-commerce platform , aarons.com . this operating segment also supports franchisees of its aaron 's stores . in addition , the aaron 's business segment also includes the operations of woodhaven , which manufactures and supplies the majority of the upholstered furniture and bedding leased and sold in company-operated and franchised stores . dami partners with merchants to provide a variety of revolving credit products originated through two third-party federally insured banks to customers that may not qualify for traditional prime lending ( called `` second-look '' financing programs ) . business environment and company outlook like many industries , the lease-to-own industry has been transformed by the internet and virtual marketplaces . we believe that the progressive leasing and dami acquisitions have been strategically transformational in this respect by allowing the company to diversify its presence in the market and strengthen our business , as demonstrated by progressive leasing 's significant revenue and profit growth . the company is also leveraging franchisee acquisition opportunities to expand into new geographic markets , enhance operational control , and benefit more fully from our business transformation initiatives on a broader scale . we believe the traditional store based lease-to-own industry has been negatively impacted in recent periods by : ( i ) increased competition from a wide range of competitors , including national , regional and local operators of lease-to-own stores ; virtual lease-to-own companies ; traditional and e-commerce retailers ; traditional and online sellers of used merchandise ; and from a growing number of various types of consumer finance companies that enable our customers to shop at traditional or online retailers ; ( ii ) the challenges faced by many traditional `` brick-and-mortar '' retailers , with respect to a decrease in the number of consumers visiting those stores , especially younger consumers ; and ( iii ) commoditization of pricing in electronics . in response to these changing market conditions , we are executing a strategic plan that focuses on the following items and that we believe positions us for success over the long-term : improve aaron 's business profitability ; accelerate our omnichannel platform ; strengthen relationships of progressive leasing current retail and merchant partners ; focus on converting existing pipeline into progressive leasing retail partners ; and champion compliance . during 2017 and 2018 , the company acquired substantially all of the assets of the store operations of 111 and 152 aaron's-branded franchised stores , respectively . the acquisitions are benefiting the company 's omnichannel platform through added scale , strengthening its presence in certain geographic markets , enhancing operational control , including compliance , and enabling the company to execute its business transformation initiatives on a broader scale . we continue to execute on various aaron 's business store optimization initiatives , including strategic store consolidations . as a result of these store optimization initiatives and other cost-reduction initiatives , the company closed and consolidated 139 underperforming company-operated stores throughout 2016 , 2017 and 2018. in january 2019 , the company announced plans to close and consolidate approximately 85 additional company-operated stores during 2019 . 33 story_separator_special_tag of store property , plant and equipment and related workforce reductions , and reversals of previously recorded restructuring charges . other operating income . other operating income consists of gains or losses on sales of company-operated stores and delivery vehicles , fair value adjustments on assets held for sale and gains or losses on other transactions involving property , plant and equipment . interest expense . interest expense consists of interest incurred on fixed and variable rate debt . impairment of investment . impairment of investment consists of an other-than-temporary loss to fully impair the company 's investment in perfecthome . other non-operating ( expense ) income , net . other non-operating ( expense ) income , net includes the impact of foreign currency remeasurement , as well as gains and losses resulting from changes in the cash surrender value of company-owned life insurance related to the company 's deferred compensation plan . 36 results of operations results of operations – years ended december 31 , 2018 , 2017 and 2016 replace_table_token_10_th nmf—calculation is not meaningful 37 revenues information about our revenues by reportable segment is as follows : change year ended december 31 , 2018 vs. 2017 2017 vs. 2016 ( in thousands ) 2018 2017 2016 $ % $ % revenues : progressive leasing 1 $ 1,998,981 $ 1,566,413 $ 1,237,597 $ 432,568 27.6 % $ 328,816 26.6 % aaron 's business 2 1,792,624 1,782,370 1,946,039 10,254 0.6 ( 163,669 ) ( 8.4 ) dami 3 37,318 34,925 24,080 2,393 6.9 10,845 45.0 total revenues from external customers $ 3,828,923 $ 3,383,708 $ 3,207,716 $ 445,215 13.2 % $ 175,992 5.5 % 1 segment revenue consists of lease revenues and fees . 2 segment revenue principally consists of lease revenues and fees , retail sales , non-retail sales and franchise royalties and fees . 3 segment revenue consists of interest and fees on loans receivable , and excludes the effect of interest expense . refer to note 13 to our consolidated financial statements for additional disaggregated revenue by segment disclosures . year ended december 31 , 2018 versus year ended december 31 , 2017 progressive leasing . progressive leasing segment revenues increased primarily due to an annualized 23.2 % increase in total invoice volume , which was driven mainly by an increase in invoice volume per active door . aaron 's business . aaron 's business segment revenues increased primarily due to a $ 73.6 million increase in lease revenues and fees as a result of the net addition of 147 company-operated stores during the 24-month period ended december 31 , 2018 . story_separator_special_tag the net increase in personnel costs in 2017 was the result of hiring to support the growth of progressive leasing , the acquisition of our largest franchisee in july 2017 and higher stock-based compensation expense , partially offset by a reduction of home office and field support staff from our aaron 's business restructuring programs in 2017 and additional charges incurred in 2016 related to the retirement of the company 's former chief financial officer . 39 occupancy costs decreased primarily due to the net reduction of 130 company-operated stores during the 24-month period ended december 31 , 2017 . the occupancy costs were impacted by the closure and consolidation of our stores from our aaron 's business restructuring programs , partially offset by the addition of stores from the acquisition of our largest franchisee in july 2017. the provision for lease merchandise write-offs increased during 2017 primarily due to progressive leasing 's revenue growth . the provision for lease merchandise write-offs as a percentage of lease revenues for the progressive leasing segment decreased to 5.5 % in 2017 compared to 5.7 % in 2016 due to continued operational improvements and enhancements to the lease decisioning process . this was partially offset by damaged inventory written off , net of probable insurance recoveries , and higher estimated inventory charge-offs caused by hurricanes harvey and irma . the provision for lease merchandise write-offs as a percentage of lease revenues for the aaron 's business increased slightly to 4.2 % in 2017 from 4.1 % in 2016 due to higher lease merchandise write-offs caused by the hurricanes . bad debt expense increased by $ 42.2 million during 2017 primarily due to the increase in invoice volume from progressive leasing as discussed above . progressive leasing 's bad debt expense as a percentage of progressive leasing 's revenues increased to 10.9 % in 2017 compared to 10.3 % in 2016 due primarily to an expected shift in the portfolio mix , as well as higher bad debt expense from customers impacted by hurricanes harvey and irma . the provision for loan losses increased during 2017 due to the growth of dami 's post-acquisition loan portfolio subsequent to the october 15 , 2015 acquisition of dami . other operating expenses increased primarily due to higher third-party consulting costs related to various aaron 's business strategic operating initiatives as well as transaction costs incurred related to the acquisition of sei . other costs and expenses year ended december 31 , 2018 versus year ended december 31 , 2017 depreciation of lease merchandise . as a percentage of total lease revenues and fees , depreciation of lease merchandise increased to 49.3 % from 48.3 % in the prior year period , primarily due to a shift in lease merchandise mix from the aaron 's business to progressive leasing , which is consistent with the increasing proportion of progressive leasing 's revenue to total lease revenue . progressive leasing generally experiences higher depreciation as a percentage of lease revenues because , among other factors , its merchandise has a shorter average life on lease , a higher rate of customer early buyouts , and the merchandise is generally purchased at retail prices compared to the aaron 's business , which procures merchandise at wholesale prices . progressive leasing 's depreciation of lease merchandise as a percentage of progressive leasing 's lease revenues and fees increased to 61.0 % in 2018 from 60.6 % in 2017 due to an increase in revenue from customer early buyouts , which has a lower margin , year over year . aaron 's business depreciation of lease merchandise as a percentage of aaron 's business lease revenues and fees decreased to 33.8 % in 2018 from 34.8 % in 2017 , which was primarily driven by changes in merchandising and pricing strategies in 2018 compared to the prior year period . retail cost of sales . retail cost of sales as a percentage of retail sales decreased to 63.4 % from 64.0 % primarily due to lower inventory purchase cost during 2018 as compared to 2017 . non-retail cost of sales . non-retail cost of sales as a percentage of non-retail sales decreased to 84.0 % from 89.3 % primarily due to lower inventory purchase cost during 2018 as compared to 2017 . restructuring expenses , net . in connection with the announced closure and consolidation of underperforming company-operated stores and workforce reductions in our field support operations , net restructuring charges of $ 1.1 million were incurred during the year ended december 31 , 2018 . the charges are primarily comprised of $ 2.1 million related to changes in estimates to the aaron 's store contractual lease obligations for closed stores and $ 0.6 million related to workforce reductions , partially offset by $ 1.2 million in reversals of previously recorded restructuring charges and gains of $ 0.4 million from the sale of store properties . the company does not expect to incur any additional material charges in 2019 or future years under the 2017 and 2016 restructuring programs . however , this estimate is subject to change based on future changes in assumptions for the remaining minimum lease obligation for stores closed under the restructuring program , including changes related to sublease assumptions and potential earlier buyouts of leases with landlords . in january 2019 , the company announced plans to close and consolidate approximately 85 underperforming company-operated stores during 2019 , which is estimated to result in $ 12 million to $ 15 million of additional restructuring expenses primarily in 2019 . 40 year ended december 31 , 2017 versus year ended december 31 , 2016 depreciation of lease merchandise . as a percentage of total lease revenues and fees , depreciation of lease merchandise increased to 48.3 % in 2017 from 46.9 % in 2016 , primarily due to a shift in product mix from the aaron 's business to progressive leasing , which is consistent with the increasing proportion of progressive leasing 's revenue to total lease revenue .
| highlights the following summarizes significant highlights from 2018 : the company acquired substantially all of the assets of the store operations of 13 franchisees , adding 152 aaron's-branded stores to our portfolio of company-operated stores , for an aggregated consideration of $ 195.4 million . the company reported record revenues of $ 3.8 billion in 2018 compared to $ 3.4 billion in 2017 . earnings before income taxes increased to a record $ 252.2 million compared to $ 239.6 million in 2017 . progressive leasing achieved record revenues of nearly $ 2.0 billion in 2018 , an increase of 27.6 % over 2017 . progressive leasing 's revenue growth is due to a 23.2 % increase in total invoice volume , which was generated through an increase in invoice volume per active door . progressive leasing 's earnings before income taxes increased to $ 175.0 million compared to $ 140.2 million in 2017 , due mainly to its higher revenue . aaron 's business revenues increased to $ 1.79 billion in 2018 compared to $ 1.78 billion in 2017 . aaron 's business lease revenue and fees increased due to the acquisitions of various franchisees during 2017 and 2018 , partially offset by declines in non-retail sales to our franchisees and a 1.5 % decrease in same store sales . earnings before income taxes decreased to $ 84.7 million in 2018 compared to $ 110.6 million in 2017 , primarily due to the $ 20.1 million impairment of our investment in perfecthome , a rent-to-own company in the united kingdom . the company generated cash from operating activities of $ 356.5 million in 2018 compared to $ 159.1 million in 2017 . the increase in net cash from operating activities was impacted by net income tax refunds received of $ 63.8 million during 2018 compared to net income tax payments made of $ 98.3 million in 2017 .
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the hotels are operated and managed under separate management agreements with 22 hotel management companies , none of which are affiliated with the company . the company 's common shares are listed on the new york stock exchange ( “ nyse ” ) under the ticker symbol “ aple. ” 2016 investing activities merger with apple reit ten , inc. effective september 1 , 2016 , the company completed its previously announced merger with apple reit ten , inc. ( “ apple ten ” ) , which merger and related transaction proposals were approved by each company 's respective shareholders , as applicable , on august 31 , 2016. pursuant to the definitive merger agreement dated april 13 , 2016 , as amended on july 13 , 2016 ( the “ merger agreement ” ) , apple ten merged with and into a wholly-owned subsidiary of the company ( the “ merger ” or “ apple ten merger ” ) . as a result of the merger , the company acquired the business of apple ten , a real estate investment trust , which immediately prior to the merger , owned 56 hotels located in 17 states with an aggregate of 7,209 rooms . upon completion of the merger , each issued and outstanding unit of apple ten ( consisting of a common share and related series a preferred share ) ( each , an “ apple ten unit ” ) was converted into the right to receive ( i ) 0.522 ( the “ unit exchange ratio ” ) common shares of the company , with cash in lieu of fractional shares , and ( ii ) $ 1.00 in cash , and each issued and outstanding series b convertible preferred share of apple ten received the same consideration described above on an as-converted basis , resulting in the issuance of a total of approximately 48.7 million common shares of the company and a total payment of approximately $ 93.6 million in cash , including $ 0.2 million for fractional shares , to apple ten shareholders . the cash payment was funded through borrowings on the company 's revolving credit facility . based on the closing price of the company 's common shares on august 31 , 2016 ( the date the merger was approved ) , the estimated aggregate value of the merger consideration paid to apple ten shareholders was approximately $ 1.0 billion . the company 's common shares totaling 174.7 million prior to the merger remained outstanding following the merger , resulting in approximately 223.4 million common shares outstanding upon completion of the merger . also , as a result of the merger , the company , through a wholly-owned subsidiary , assumed all of apple ten 's assets and liabilities at closing . as more fully described in note 6 titled “ debt ” in part ii , item 8 , of the consolidated financial statements and notes thereto , appearing elsewhere in this annual report on form 10-k , effective september 1 , 2016 , upon completion of the merger , the company assumed approximately $ 145.7 million in mortgage debt , prior to any fair value adjustments , secured by nine properties . the company also assumed the outstanding balance on apple ten 's credit facility totaling $ 111.1 million , which was terminated and repaid in full on september 1 , 2016 with borrowings on the company 's revolving credit facility . all costs related to the merger are being expensed in the period they are incurred and are included in transaction and litigation costs in the company 's consolidated statements of operations . in connection with the merger , the company has incurred approximately $ 29.2 million in merger costs ( including approximately $ 25.1 million of costs incurred to defend and settle the lawsuit related to the merger , which is net of approximately $ 10.0 million of reimbursements from the company 's directors and officers insurance carriers , which is discussed in note 15 titled “ legal proceedings ” in part ii , item 8 , of the consolidated financial statements and notes thereto , appearing elsewhere in this annual report on form 10-k ) for the year ended december 31 , 2016. as contemplated in the merger agreement , in connection with the completion of the merger , the advisory and related party arrangements with respect to apple ten and its advisors were terminated . 38 index see note 2 titled “ merger with apple reit ten , inc. ” in part ii , item 8 , of the consolidated financial statements and notes thereto , appearing elsewhere in this annual report on form 10-k for additional information concerning the merger with apple ten . other acquisitions and dispositions the company continually monitors market conditions and attempts to maximize shareholder value by investing in properties that it believes provide superior value in the long term . consistent with this strategy and the company 's focus on investing in select service hotels , in addition to completing the apple ten merger in the third quarter of 2016 , the company also acquired a newly constructed 128-room home2 suites hotel in atlanta , georgia on july 1 , 2016 , the same day the hotel opened for business , for a purchase price of approximately $ 24.6 million . the purchase price for this property was funded through borrowings on the company 's revolving credit facility . as of december 31 , 2016 , the company had outstanding contracts for the potential purchase of four additional hotels for a total purchase price of $ 100.6 million . one of the four , the newly constructed fort worth , texas courtyard hotel , was acquired on february 2 , 2017 , the same day the hotel opened for business . the remaining three hotels are under construction and are planned to be completed and opened for business over the next nine to 18 months from december 31 , 2016 , at which time closing on these hotels is expected to occur . story_separator_special_tag the company anticipates labor costs are likely to grow at increased rates due to government regulations surrounding wages , healthcare and other benefits and other government-related initiatives , such as the “ living wage ” increase , which could negatively impact operating expenses in certain markets moving forward . additionally , labor costs have been and could be impacted in certain markets due to lower unemployment rates . with less qualified available labor , costs have increased . although operating expenses will increase as revenue increases , the company will continue to work with its management companies to reduce costs as a percentage of revenue where possible while maintaining quality and service levels at each property . property taxes , insurance and other expense property taxes , insurance and other expense for the years ended december 31 , 2016 and 2015 totaled $ 56.9 million and $ 46.0 million , respectively , or 5.5 % and 5.1 % of total revenue , respectively . the increase as a percent of revenue from 2015 is due primarily to the receipt in 2015 of approximately $ 1.8 million in settlement proceeds , net of costs , from the deepwater horizon economic and property damages settlement program related to damages suffered at several of the company 's hotels as a result of the gulf of mexico oil spill in 2010. for the company 's comparable hotels , real estate taxes increased in 2016 compared to 2015 , with tax increases at certain locations due to the reassessment of property values by localities related to the improved economy , partially offset by decreases at other locations due to successful appeals of tax assessments . with the economy continuing to improve , the company anticipates continued increases in property tax assessments in 2017. the company will continue to appeal tax assessments in certain jurisdictions to attempt to minimize tax increases as warranted . ground lease expense ground lease expense for the years ended december 31 , 2016 and 2015 was $ 10.4 million and $ 10.0 million , respectively . ground lease expense primarily represents the expense incurred by the company to lease land for 14 of its hotel properties , including four hotels acquired in the apple ten merger effective september 1 , 2016. general and administrative expense general and administrative expense for the years ended december 31 , 2016 and 2015 was $ 17.0 million and $ 19.6 million , respectively , or 1.6 % and 2.2 % of total revenue , respectively . the principal components of general and administrative expense are payroll and related benefit costs , legal fees , accounting fees and reporting expenses . in addition , through august 31 , 2016 , the company provided to apple ten the advisory services contemplated under its advisory agreement , and the company received fees and reimbursement of expenses payable under the advisory agreement from apple ten , both of which were reductions to general and administrative expenses . effective september 1 , 2016 , in connection with the completion of the apple ten merger , the advisory agreement was terminated and the company no longer receives the fees and reimbursement of expenses payable under the advisory agreement from apple ten . although expense for the company in total dollars increased , since both the advisory fees and reimbursed costs received by the company from apple ten were recorded as general and administrative expense by apple ten and as reductions to general and administrative expense by the company , the termination of the advisory agreement had no financial impact on the combined company after the effective time of the merger . the decrease in general and administrative expense for 2016 as compared to 2015 was due primarily to a decrease in compensation expense partially offset by increased costs due to the acquisition of apple ten . based on the company 's performance in 2016 in relation to the operational performance and shareholder return metrics of the executive compensation incentive plan effective january 1 , 2016 ( “ 2016 incentive plan ” ) , the amounts earned under the 2016 incentive plan were lower than the comparable compensation under the 2015 executive incentive plan ( “ 2015 incentive plan ” ) , resulting in a decrease in executive compensation expense for 2016 of approximately $ 5.6 42 index million , as compared to 2015. however , the decrease in compensation expense was partially offset by the addition of a time-based vesting component to the 2015 incentive plan . as a result of listing the company 's common shares on the nyse effective may 18 , 2015 ( the “ listing ” ) , the company added a time-based vesting component to its 2015 incentive plan in addition to the performance metrics , with compensation recognized over a two year period and , as a result , 2016 executive compensation expense includes recognition of share based compensation from both the 2015 and 2016 executive compensation incentive plans . transaction and litigation costs transaction and litigation costs for the years ended december 31 , 2016 and 2015 were $ 35.0 million and $ 7.2 million , respectively . transaction and litigation costs for 2016 consist primarily of ( i ) costs related to the apple ten merger discussed herein totaling approximately $ 29.2 million ( including approximately $ 25.1 million of costs incurred to defend and settle the lawsuit related to the apple ten merger , which is net of approximately $ 10.0 million of reimbursements from the company 's directors and officers insurance carriers , discussed herein ) , ( ii ) $ 5.5 million of costs incurred to settle the previously disclosed lawsuit related to apple reit seven , inc. 's ( “ apple seven ” ) and apple reit eight , inc. 's ( “ apple eight ” ) terminated dividend reinvestment plans , discussed herein , and ( iii ) other acquisition related costs totaling approximately $ 0.4 million .
| comparable operating results the following table reflects certain operating statistics for the company 's 235 hotels owned as of december 31 , 2016 ( “ comparable hotels ” ) . the company defines metrics from comparable hotels as results generated by the 235 hotels owned as of the end of the reporting period . for the hotels acquired during the reporting periods shown , the company has included , as applicable , results of those hotels for periods prior to the company 's ownership using information provided by the properties ' prior owners at the time of acquisition and not adjusted by the company . this information has not been audited , either for the periods owned or prior to ownership by the company . for dispositions , results have been excluded for the company 's period of ownership . replace_table_token_16_th the following table reflects certain operating statistics for the 179 hotels owned by the company prior to the apple ten merger , excluding one hotel sold subsequent to the apple ten merger , prepared on the same basis as described above for comparable hotels . replace_table_token_17_th 40 index the following table reflects certain operating statistics for the 56 hotels acquired in the apple ten merger , prepared on the same basis as described above for comparable hotels . replace_table_token_18_th as discussed above , hotel performance is impacted by many factors , including the economic conditions in the united states and each individual locality . economic indicators in the united states have generally been favorable , which continues to positively impact the overall lodging industry . as a result , the company 's revenue and operating results for its comparable hotels improved in 2016 as compared to 2015 and 2014. the company expects continued improvement in revenue and operating results for its comparable hotels in 2017 as compared to 2016 , although at a slower rate than in recent years .
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future results could differ materially from those discussed below . see discussion under the caption “ cautionary note regarding forward-looking statements. ” except where the context otherwise requires , all references to “ we , ” “ us , ” and “ our ” ( and similar terms ) herein mean the successor for periods beginning after may 10 , 2005 and the predecessor for periods ending on or prior to may 10 , 2005. overview we are a leading supplier of premium , low maintenance building products designed to replace wood , metal and other materials in the residential , commercial and industrial markets . with a focus on manufacturing excellence , proprietary technologies and quality , we have introduced our products through distribution networks to sizable markets increasingly converting to low maintenance materials . we have developed a number of branded products including azek® trim , azek deck , azek moulding comtec and hiny hiders bathroom partition systems , and evertuff and tufftec locker systems . we operate the following two business units : azek building products inc. , or azek building products , manufactures exterior residential building products such as azek trim , azek deck , and azek moulding for the residential and commercial building market . additionally azek building products produces celtec and other non-fabricated products for the industrial market ; and scranton products inc. , or scranton products , produces fabricated bathroom partition and locker systems under the comtec , santana , hiny hiders , evertuff and tufftec labels for the commercial market and seaboard® and flametec® and other non-fabricated products for special application industrial markets . on april 29 , 2006 , we completed the acquisition of santana holdings corporation , the direct parent of santana products , inc. for a purchase price of $ 36.0 million ( the “ santana acquisition ” ) . santana is included in the scranton products operating segment . on january 31 , 2007 , we completed the acquisition of pro-cell , llc , which owned and operated procell decking systems ( “ procell ” ) for a purchase price of $ 77.3 million ( “ procell acquisition ” ) . procell is included in the azek building products operating segment . on february 29 , 2008 , we completed the acquisition of compos-a-tron manufacturing inc. ( “ composatron ” ) for cad $ 30.0 million ( “ composatron acquisition ” ) . composatron will be included in the azek building products operating segment . for further discussion , see— “ acquisitions ” below . our business the core of our operation has been to produce high-quality products across all of the building and industrial end markets we serve . in the last decade , our expertise in manufacturing has allowed us to successfully develop value-added , branded building products such as azek , comtec , evertuff , tufftec and celtec products , which offer accelerated volume growth and higher margins . our volume growth has been the result of penetrating the building and industrial end markets that create value-added substitution opportunities from more traditional wood , fiber and steel products . we believe many of our products are still in the early stages of the material conversion opportunity . as a result , we believe our growth should be less sensitive to the growth rate of our various end markets . we have generally increased our margins through volume growth that has allowed us to self-fund investment in new technology and equipment that has enabled us to lower our manufacturing conversion costs . in addition , we have attained higher margins for our branded products through highly developed sales channels and continued product 26 innovation . we continually look to utilize existing products and know-how for new applications , including the development of additional branded building products . over the eight years since their introduction , our azek branded building products have gained significant market acceptance and brand loyalty as a leader within the non-wood home exterior market . in 2007 and 2006 , azek products have accounted for a majority of our net sales . through our two-step , dual distribution system , we have established an extensive network of distributors and dealers throughout the united states and canada . our strategy continues to be to maintain two distributors in each geographic region that we enter . as of december 31 , 2007 , our distributors were selling our products to over 2,100 local stocking dealers who frequently request our products by brand name . in the first quarter of each year , we conduct an “ early buy ” sales promotion that encourages distributors to stock azek products through the use of incentive discounts , typically in the range of 1 % to 6 % . over the course of 2007 we have expanded azek building products through internal development of additional product offerings as well as through the procell acquisition in 2007 and the composatron acquisition in 2008. with the introduction of azek moulding and azek deck in 2007 , we continued to establish ourselves as a premier provider of branded building products . our goal is to continue to expand our product offerings through the development of additional trim , moulding and decking products , as well as through the introduction of additional product lines . across all of our target markets , we are focused on capitalizing on the functional advantages of our synthetic products relative to competing wood , fiber and metal products . in this regard , we have developed the leading brand in the synthetic bathroom and locker room products market , comtec . our product offerings which include comtec , capitol , hiny hider , evertuff and tufftec brands , and are sold to similar primary end-markets , which include schools , stadiums , prisons , retail locations and other high-traffic environments . through scranton product 's widely established distribution network , we are able to service our customers through representatives in all 50 states . story_separator_special_tag procell leverages solid-core , cellular pvc technology combined with agra-fiber to produce a durable , long-life product with superior attributes that serve as a replacement for wood and composite products in decking applications . procell 's use of cellular solid-core technology is complementary to our azek trimboards manufacturing process , creating a solid , load-bearing yet lightweight decking product . we believe that the acquisition of procell was key to our strategy of expanding azek building products to be the market leader for premium low maintenance exterior home products and that the procell acquisition will help us expand our product base , increase our presence throughout our distribution and dealer network and expand our portfolio of premium branded building products . the procell business reports as part of our azek building products business unit . recent developments on october 3 , 2007 , we announced the resignation of john r. loyack , the president and chief executive officer of the company , effective october 3 , 2007. we also announced the appointment of glenn m. fischer as our interim chief executive officer , effective the same date . on march 10 , 2008 , we announced the appointment of eric k. jungbluth as chief executive officer . mr. jungbluth , 47 , joins the company from hni corporation , where he served as an executive vice president and the president of the hon company . mr. jungbluth joined hni corporation in 2003 as president of allsteel inc. prior to joining allsteel , mr. jungbluth held several senior roles at moen incorporated ( a division of fortune brands ) including vice president of national accounts , vice president of business development , and vp/general manager of csi accessories . mr. jungbluth also spent two years at kirsch ( a division of newell ) as vice president of sales , and ten years at warner lambert in sales , marketing , and brand management roles . mr. jungbluth has a ba degree from the university of wisconsin with a major in accounting and finance . effective april 7 , 2008 , mr. 28 jungbluth will replace glenn fischer , the company 's interim chief executive officer prior to mr. jungbluth 's appointment . glenn fischer will continue to serve on the company 's board of directors . basis of presentation the accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the united states of america and the rules of the securities and exchange commission . our consolidated financial statements include the accounts of cpg international , inc. and its wholly owned subsidiaries . all significant intercompany accounts and transactions have been eliminated in consolidation the consolidated financial statements for the period january 1 , 2005 through may 10 , 2005 discussed herein include the accounts of our predecessor , compression polymers holdings llc and its wholly owned subsidiaries after elimination of intercompany accounts and transactions . for the purpose of these financial statements , reference to the predecessor are references to the periods ended on or prior to may 10 , 2005 and references to the successor are references to the periods from may 11 , 2005 and beyond . critical accounting policies the preparation of consolidated financial statements in conformity with accounting principles generally accepted in the united states requires management to make estimates and judgments that affect the amounts reported in the financial statements . on an ongoing basis , management evaluates its estimates , including those related to revenue recognition , allowance for doubtful accounts , inventories , vendor rebates , product warranties and goodwill and intangible assets . we base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances . actual results may differ from these estimates under different assumptions or conditions . revenue recognition revenue is recognized in accordance with sec staff bulletin no . 101 , “ revenue recognition in financial statements ” ( “ sab 101 ” ) , as amended by sab 101a , sab 101b and sab 104. sab 101 requires that four basic criteria must be met before revenue can be recognized : ( 1 ) persuasive evidence of an arrangement exists ; ( 2 ) delivery has occurred ; ( 3 ) the fee is fixed or determinable ; and ( 4 ) collectibility is reasonably assured . our revenues are recognized at the time product is shipped to the customer and title transfers . we accrue for sales returns , discounts and other allowances based on a current evaluation of our experience based on the stated terms of the transactions . should actual experience differ from our estimates , revisions to the estimated accruals would be required . allowance for doubtful accounts our allowance for doubtful accounts is based on management 's assessment of the business environment , customers ' financial condition , historical collection experience , accounts receivable aging and customer disputes . when circumstances arise or a significant event occurs that comes to the attention of management , the allowance is reviewed for adequacy and adjusted to reflect the change in the estimated amount to be received from the customer . changes in the allowance for doubtful accounts between december 31 , 2007 and december 31 , 2006 reflect management 's assessment of the factors noted above , including past due accounts , disputed balances with customers , and the financial condition of customers . the allowance for doubtful accounts is adjusted when uncollectible accounts receivable balances are actually written off . inventories inventories ( mainly , petrochemical resin ) , are valued at the lower of cost or market , determined on a first-in , first-out basis ( “ fifo ” ) and reduced for slow-moving and obsolete inventory . 29 inventory obsolescence write-downs are recorded for damaged , obsolete , excess and slow-moving inventory . at the end of each quarter , management within each business segment , performs a detailed review of its inventory on an item by item basis and identifies which products are believed to be obsolete or slow-moving .
| segment results of operations the following discussion provides a review of results for our two business segments : azek building products , which includes products such as azek and celtec , as well as other branded highly engineered , metal and wood replacement products ; and scranton products , which includes highly engineered fabricated products such as comtec and santana bathroom products and locker systems . the components of each segment are based on similarities in product line , production processes and methods of distribution and are considered reportable segments under sfas no . 131 , disclosures about segments of an enterprise and related information . corporate overhead costs , which include corporate payroll costs and corporate related professional fees , are not allocated to segments , and as such are discussed separately . azek building products – year ended december 31 , 2007 compared with year ended december 31 , 2006 the following table summarizes certain financial information relating to the azek building products segment results that have been derived from the company 's consolidated financial statements : replace_table_token_6_th net sales . net sales increased by $ 51.8 million or 31.9 % , to $ 214.0 million for the year ended december 31 , 2007 from $ 162.2 million for the same period in 2006. overall , we sold 181.7 million pounds of product during the year ended december 31 , 2007 , which was a 34.4 % increase from the 135.2 million pounds sold during the comparable period in 2006. this volume increase was primarily attributable to the procell acquisition , offset by declines in our industrial business . cost of sales . cost of sales increased by $ 33.1 million , or 27.8 % , to $ 152.0 million for the year ended december 31 , 2007 from $ 118.9 million for the same period of 2006. the increase was primarily attributable to higher sales volume from the procell acquisition .
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the company must meet requirements 1 through 4 , 8 and 9 during its entire taxable year and must meet requirement 5 during at least 335 days of a taxable year of 12 months , or during a proportionate part of a taxable year of less than 12 months story_separator_special_tag the following discussion should be read in conjunction with our consolidated financial statements and notes thereto included in `` item 15. exhibits and financial statement schedules '' of this annual report . significant developments during 2020 and through the date of this filing , significant developments affecting our business and results of operations included the following , in addition to the effects of covid-19 as discussed throughout this annual report . in summary , we have stabilized our capital structure and strengthened our liquidity profile , accelerated our digital transformation through executed and planned divestiture of non-digital assets , and redeployed capital into growing our digital balance sheet , combined with successful fund raising of $ 7.4 billion of third party capital in our digital investment management business . liquidity we addressed near-term corporate maturities and enhanced our long-term capital structure and liquidity profile as follows : we amended our credit agreement in june 2020 and exercised our first 6-month extension option in december 2020. as a result , our borrowing capacity under the facility was reduced to $ 450 million ( which will be further reduced to $ 400 million on march 31 , 2021 ) , and we were provided with greater financial covenant flexibility and more borrowing base credit for digital investments . the facility is scheduled to expire in july 2021 , with one remaining 6-month extension option . at this time , we expect to either exercise our second extension option or otherwise replace the existing credit facility . 60 in july 2020 , we issued $ 300 million of exchangeable senior notes maturing in july 2025 , bearing interest at 5.75 % per annum , and have since repaid $ 402.5 million of convertible notes due in january 2021. as a result , we have no corporate debt maturities ( other than our corporate credit facility ) until 2023. path to digital strategic partnership in our digital investment management business in july 2020 , we formed a strategic partnership with affiliates of wafra , inc. ( collectively , `` wafra '' ) in which wafra made an investment representing an approximate 31.5 % interest in substantially all of our digital investment management business ( as defined for the purpose of this transaction , the “ digital im business ” ) . wafra paid consideration of $ 254 million for its investment in the digital im business and for warrants issued by the company to wafra ( assuming the consideration excludes the warrants , this implies an approximately $ 805 million valuation of the digital im business ) . wafra has agreed to assume certain of the company 's existing commitments made to dcp i and to make commitments to dcp ii and to the company 's initial digital credit fund , in an aggregate amount of at least $ 130 million . wafra has also agreed to make commitments to the company 's future digital funds and investment vehicles on a pro rata basis with the company based on wafra 's percentage interest in the digital im business , subject to certain caps . wafra 's investment provides us with permanent capital to pursue strategic digital infrastructure investments and grow the digital im business . investment in hyperscale data centers in july 2020 and following an additional investment in october 2020 , the company , alongside fee bearing third party capital , invested $ 1.36 billion for approximately 90 % equity interest in entities that hold vantage data centers ' ( `` vantage '' ) portfolio of 12 stabilized hyperscale data centers in north america and $ 2.0 billion of secured indebtedness ( the “ vantage sdc ” ) . our balance sheet investment is $ 197 million , representing a 13 % equity interest . vantage sdc is our second significant balance sheet investment in a digital operating business and achieves our transformation goals on two fronts , the rotation of our balance sheet to digital assets and growing our digital investment management business . databank 's strategic investment in december 2020 , our databank subsidiary closed on its acquisition of zcolo , the colocation assets of zayo group holdings , inc. ( `` zayo '' ) , consisting of 39 data centers in the u.s and u.k. , for approximately $ 1.2 billion through a combination of debt and equity financing , including $ 0.5 billion of third party co-invest capital raised by us and a $ 188 million investment from our balance sheet ( decreased to approximately $ 145 million upon raising of additional third party capital in february 2021 which maintains our 20 % interest in databank ) . acquisition of zcolo 's remaining five data centers in france for $ 33.0 million closed in february 2021. the acquisition of zcolo accelerates databank 's edge and hybrid cloud strategy , complements its existing relationships and significantly expands its geographic footprint to a national scale in strategically important data center markets . digital colony partners ii or dcp ii in february 2021 , we held a closing of dcp ii , our second digital opportunistic fund , with total callable commitments of $ 4.2 billion , inclusive of $ 120 million of our commitments as general partner and limited partner . non-digital assets in september 2020 , we entered into a definitive agreement to sell five of the six hotel portfolios in our hospitality segment and our 55.6 % interest in the thl hotel portfolio in the other segment , with closing expected in the first half of 2021. the transaction is valued at approximately $ 2.8 billion , including gross aggregate selling price of $ 67.5 million and acquirer 's assumption of $ 2.7 billion of investment-level debt ( of which op share is approximately $ 2.3 billion ) . story_separator_special_tag impairment loss replace_table_token_9_th impairment charges on real estate and goodwill are discussed further in notes 4 and 7 , respectively , to the consolidated financial statements in item 15 . `` exhibits and financial statement schedules '' of this annual report . digital investment management— impairment reflects reduced cash flows from the original vantage management contract , replaced by a new fee stream from third party capital raised in connection with the acquisition of vantage sdc from its existing owners . wellness infrastructure— in 2020 , impairment was recognized on wellness infrastructure assets resulting primarily from shortened hold period assumptions , attributable to both the company 's accelerated digital transformation , and in contemplation of debt that was at risk of default . these assumptions resulted in a shortfall in projected future cash flows , 67 which was further exacerbated by a decline in property operating performance and market values as a result of the economic effects of covid-19 , such that the carrying value of these assets would not be recoverable . additional impairment was also recorded on two skilled nursing portfolios that were sold in 2020 and unrecoverable losses from property damage . impairment in 2019 arose from shortened hold period assumptions on a senior housing operating portfolio and a net lease property , a negotiated purchase option exercised by a tenant on three hospitals , and offers received on certain net lease properties . other— impairment was lower in our other im business but higher in our oed portfolio . in our other im business , impairment of $ 594.0 million in 2020 and $ 788.0 million in 2019 reflect the write-down of goodwill . this was driven by the acceleration of the company 's digital transformation and a significant reduction in the value of its non-digital balance sheet assets beginning in the fourth quarter of 2019 through 2020. the 2019 write-down also reflects the loss of future fee income from sale of the industrial business and a reduction in clnc 's fee base consistent with its reduced book value . additionally , the northstar healthcare management contract was impaired by $ 3.6 million in 2020 and $ 8.6 million in 2019 based upon a lower nav fee base . within our other equity and debt portfolio , impairment was $ 134.8 million in 2020 , an increase of $ 34.2 million compared to 2019. this was driven by impairment on u.s. net lease properties , attributed primarily to shortened hold period assumptions due to the company 's accelerated digital transformation or risk of default on non-recourse investment level debt ; and or the economic effects of covid-19 on property operating cash flows and market values . unallocated— impairment of $ 9.4 million was recorded on office operating leases in the fourth quarter of 2020 as the company determined there is a reduced need for office space based upon the company 's current operations . 2020 also included impairment on the corporate aircraft to reflect its recoverable value . the aircraft was sold to a third party in january 2021. compensation expense the following table provides the components of compensation expense . replace_table_token_10_th total compensation expense was $ 12.4 million higher , attributed primarily to full year of compensation cost associated with dbh and databank which were acquired in july 2019 and december 2019 , respectively , and higher retention costs in 2020. these increases were largely offset by ( i ) $ 51.4 million of incremental compensation in 2019 in connection with nre equity awards , including awards that accelerated upon the sale of nre , along with retention and termination payments , and incentive compensation ; ( ii ) reversals in accrued carried interest compensation as minimum return hurdles were no longer met following fair value decreases in investments held by sponsored vehicles ; ( iii ) reversal of compensation on clnc equity awards in 2020 as a result of remeasurement at fair value based upon clnc 's stock price ; and ( iv ) decrease in compensation cost following the company 's cost reduction initiative and sale of nre in september 2019. administrative expenses administrative expense was $ 20.3 million higher , largely attributable to higher insurance , legal and professional service costs , and a full year of administrative costs incurred by dbh and databank which were acquired in july and december 2019 , respectively . 68 settlement loss amount represents the initial fair value of the settlement arrangement with blackwells , when it was reached in march 2020 , plus the reimbursement of blackwells ' legal costs . refer to additional discussion in note 12 to the consolidated financial statements in item 15 . `` exhibits and financial statement schedules '' of this annual report . gain on sale of real estate there were higher gains in 2019 from sales of our european properties and u.s. multi-tenant office buildings . gain on sale of $ 8.5 million in 2020 and $ 20.7 million in 2019 were attributable to op . equity method earnings ( losses ) replace_table_token_11_th digital investment management— earnings represent primarily ( i ) gross unrealized carried interest in 2020 from a digital investment vehicle , attributed to a higher valuation of its investment in zayo , of which the company ultimately shares in 15 % , net of carried interest compensation and noncontrolling interests ; and ( ii ) through july 25 , 2019 , fee income from dcm , the manager of dcp funds which was co-owned with dbh , prior to its consolidation upon acquisition of dbh . digital other— amount represents our share of earnings from our interest in dcp i and beginning march 31 , 2020 , from investments held by our digital liquid securities strategy . other— we recorded other-than-temporary impairment on our investment in clnc of $ 274.7 million and $ 227.9 million in the second quarters of 2020 and 2019 , respectively .
| results of operations the following table summarizes our results from continuing operations by reportable segment . excluded are discontinued operations ( note 16 to the consolidated financial statements ) which generated loss from discontinued operations attributable to colony capital , inc. of $ 1.0 billion in 2020 and $ 79.1 million in 2018 , and income from discontinued operations attributable to colony capital , inc. of $ 360.9 million in 2019. replace_table_token_3_th 62 selected balance sheet data the following table summarizes key balance sheet data by reportable segment , excluding $ 3.9 billion of real estate held for disposition and $ 3.5 billion of debt to be assumed by the counterparties upon disposition , including debt under receivership . replace_table_token_4_th _ ( 1 ) carried at fair value upon adoption of fair value option on january 1 , 2020 . 63 consolidated results of operations a comparative discussion of our consolidated results of operations for 2020 and 2019 is presented below . refer to item 7 . `` management 's discussion and analysis of financial condition and results of operations '' in our 2019 annual report on form 10-k for comparative discussion of our consolidated results of operations for 2019 and 2018. in september 2020 , our hotel business qualified as discontinued operations . the operating results of our hotel business for all periods presented have been recast as income from discontinued operations on the consolidated statements of operations . additionally , beginning the third quarter of 2020 , we disaggregated the digital segment into three digital reportable segments , and aggregated the non-digital segments of clnc , oed and other im into a single other reportable segment . the operating results by segment have been recast for all prior periods presented . the discussion of our consolidated results of operations for 2019 and 2018 in our 2019 form 10-k should be read in conjunction with item 15 .
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pursuant to the terms of the license agreement , the company made an up-front payment by issuing to pfizer a $ 7.0 million convertible promissory note with a 5 % annual interest rate , due in 2012. the company is responsible for all development and commercialization costs of rucaparib and , if approved , pfizer will receive royalties on the net sales of the product . in addition , pfizer is eligible to receive up to $ 259 million of further payments , in aggregate , if certain development , regulatory and sales milestones are achieved . upon completion of the company 's initial public offering in november 2011 , the principal balance and all accrued and unpaid interest due on this note of $ 7.2 million was converted into 551,222 shares of common stock . 11. net loss per common share basic net loss per share is calculated by dividing net loss by the weighted-average number of common shares outstanding during the period , without 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 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 and related financing , includes forward-looking statements that involve risks and uncertainties . you should read the risk factors section of this report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview we are a biopharmaceutical company focused on acquiring , developing and commercializing innovative anti-cancer agents in the united states , europe and additional international markets . we target our development programs for the treatment of specific subsets of cancer populations , and seek to simultaneously develop , with partners , companion diagnostics that direct our product candidates to the patients that are most likely to benefit from their use . we are currently developing three product candidates for which we hold global marketing rights : co-101 , a lipid-conjugated form of the anti-cancer drug gemcitabine , which is in a pivotal study in a specific patient population for the treatment of metastatic pancreatic cancer ; co-1686 , an orally available , small molecule epidermal growth factor receptor , or egfr , covalent inhibitor that in the second quarter of 2012 will begin phase i clinical development for the treatment of non-small cell lung cancer , or nsclc , in patients with activating egfr mutations , including the initial activating mutations , as well as the primary resistance mutation , t790m ; and rucaparib , also known as co-338 , an orally available , small molecule poly ( adp-ribose ) polymerase , or parp , inhibitor being developed for various solid tumors that is currently in phase i/ii clinical trials . as our product candidates mature , we intend to build commercial organizations of our own in major global markets and contract with local distributors in smaller markets . we were incorporated in delaware in april 2009 and commenced operations in may 2009. to date , we have devoted substantially all of our resources to identifying and in-licensing product candidates , performing development activities with respect to those product candidates , and the general and administrative support of these operations . we have generated no revenues and , through december 31 , 2011 , have principally funded our operations using the $ 75.5 million of net proceeds from the sale of convertible preferred stock , the issuance of $ 35.0 million aggregate principal amount of convertible promissory notes and $ 129.4 million of net proceeds from our initial public offering completed in november 2011. the convertible preferred stock and outstanding principal amount of the convertible promissory notes and all accrued and unpaid interest converted into shares of our common stock immediately prior to the closing of our initial public offering . on september 22 , 2011 , our board of directors and stockholders effectuated a 1 for 2.9 reverse stock split . our historical share information has been retrospectively adjusted to give effect to this reverse stock split . we have never been profitable and , as of december 31 , 2011 , we had an accumulated deficit of $ 110.5 million . we incurred losses of $ 17.1 million , $ 37.8 million , and $ 55.6 million for the period from april 20 , 2009 ( inception ) through december 31 , 2009 and for the years ended december 31 , 2010 , and 2011 , respectively . we expect to incur significant and increasing losses for the foreseeable future as we advance our product candidates through clinical development to seek regulatory approval and , if approved , commercialize such product candidates . we will need additional financing to support our operating activities . we will seek to fund our operations through public or private equity or debt financings or other sources . adequate additional financing may not be available to us on acceptable terms , or at all . our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy . we expect that research and development expenses will increase as we continue the development of our product candidates and general and administrative costs will increase as we grow and operate as a public company . we will need to generate significant revenues to achieve profitability and we may never do so . the financial information presented from april 20 , 2009 ( inception ) to december 31 , 2010 was based solely on the results of clovis oncology , inc. subsequent to january 1 , 2011 , the financial information is consolidated and includes the results of our wholly owned subsidiary in the united kingdom . story_separator_special_tag research and development expenses research and development expenses consist of costs incurred for the development of our product candidates and companion diagnostics , which include : license fees related to the acquisition of in-licensed products , which are reported on our statements of operations as acquired in-process research and development ; employee-related expenses , including salaries , benefits , travel and stock-based compensation expense ; expenses incurred under agreements with cros and investigative sites that conduct our clinical trials and preclinical studies ; the cost of acquiring , developing and manufacturing clinical trial materials ; costs associated with preclinical activities and regulatory operations ; and activities associated with the development of companion diagnostics for our product candidates . research and development costs are expensed as incurred . license fees and milestone payments related to in-licensed products and technology are expensed if it is determined that they have no alternative future use . costs for certain development activities , such as clinical trials , are recognized based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment , clinical site activations or information provided to us by our vendors . research and development activities are central to our business model . product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development , primarily due to the increased size and duration of later stage clinical trials . we plan to increase our research and development expenses for the foreseeable future as we seek to complete development of our most advanced product candidate , co-101 , and its companion diagnostic , transition our co-1686 product candidate into human clinical trials , and commence the development of rucaparib including the cost of ongoing clinical trials . 51 the following table identifies research and development costs and acquired in-process research and development costs on a program-specific basis for our product candidates in-licensed through december 31 , 2011 and their companion diagnostics . personnel-related costs , depreciation and stock-based compensation are not allocated to specific programs as they are deployed across multiple projects under development and , as such , are separately classified as personnel and other expenses in the table below . replace_table_token_3_th general and administrative expenses general and administrative expenses consist principally of salaries and related costs for personnel in executive , finance , business development , and information technology functions . other general and administrative expenses include facility costs , communication expenses , and professional fees for legal , patent review , consulting and accounting services . we anticipate that our general and administrative expenses will increase due to many factors and the most significant of these factors include : increased personnel expenses to support the growth in research and development activities ; and increased expenses related to becoming a publicly traded company , including increased legal and accounting services , addition of new headcount to support compliance and communication needs , and increased insurance premiums . other income and expense other income is comprised of interest income earned on cash , cash equivalents and available for sale securities , gain on the sale of available for sale securities , and a federal grant awarded to us under the qualifying therapeutic discovery project program in 2010. other expense includes interest expense associated with the convertible notes payable outstanding during 2011. in addition , we hold cash balances at financial institutions denominated in currencies other than the u.s. dollar to fund research and development activities performed by various third-party vendors . the translation of these currencies into u.s. dollars results in foreign currency gains or losses , depending on the change in value of these currencies against the u.s. dollar . these gains and losses are included in other income and expense . critical accounting policies and significant judgments and estimates our discussion and analysis of our financial condition and results of operations are based on our financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities and expenses and the disclosure of contingent assets and liabilities in our financial statements . on an ongoing basis , we evaluate our estimates and judgments , including those related to accrued expenses and stock-based compensation . we base our estimates on historical experience , known trends and events and various other factors that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . our significant accounting policies are described in more detail in the notes to our financial statements appearing elsewhere in this annual report on form 10-k. we believe the following accounting policies to be most critical to the judgments and estimates used in the preparation of our financial statements . 52 accrued research and development expenses as part of the process of preparing our financial statements , we are required to estimate our accrued expenses . this process involves reviewing open contracts and purchase orders , communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost . the majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met . we make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time . we periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary .
| results of operations comparison of years ended december 31 , 2011 and 2010 and the period from april 20 , 2009 ( inception ) to december 31 , 2009 : research and development expenses . research and development expenses for the years ended december 31 , 2011 and 2010 and the period from april 20 , 2009 ( inception ) to december 31 , 2009 were as follows : replace_table_token_8_th the increase in research and development expenses for the year ended december 31 , 2011 over 2010 was due primarily to development expenses associated with co-101 and rucaparib clinical trials . clinical trial expenses increased by $ 9.6 million due to growth in the number of patients , active sites and investigators that are participating in our co-101 clinical trials and costs incurred for the development of companion diagnostics for our co-101 drug product , as well as the assumption of clinical development costs for rucaparib following the in-licensing of that product candidate in june 2011. drug product development and manufacturing activities also increased by $ 470,000 in support of the co-101 development . in addition , $ 3.8 million of the increase was the result of discovery , formulation development , manufacturing , and the commencement of preclinical activities associated with co-1686 , a compound that was in-licensed in may 2010. the remaining increase of $ 4.5 million was due primarily to an increase in salaries , benefits and personnel related costs resulting from additional headcount hired to support the expanding development activities of co-101 , co-1686 and rucaparib . 56 the increase in research and development expenses for the year ended december 31 , 2010 over the period from april 20 , 2009 ( inception ) to december 31 , 2009 was due primarily to the commencement of research and development activities in 2010 for our in-licensed compounds co-101 and co-1686 .
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charges to cost of goods sold for inventory write-downs , reserve adjustments , scrap , shrinkage and expired inventories totaled approximately $ 36,000 , $ 12,000 and $ 33,000 for the years ended december 31 , 2019 , 2018 and 2017 , respectively . ( 5 ) property and equipment , net property and equipment , net consist of the following ( in thousands ) : replace_table_token_8_th depreciation expense totaled approximately $ 111,000 , $ 88,000 and $ 78,000 for the years ended december 31 , 2019 , 2018 and 2017 , respectively . all 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 related notes included elsewhere in this annual report on form 10-k. this discussion contains certain forward-looking statements that involve risk and uncertainties . our actual results may differ materially from those discussed below . factors that could cause or contribute to such differences include , but are not limited to , those identified below and those set forth under the section entitled “ risk factors ” in item 1a , and other documents we file with the securities and exchange commission . historical results are not necessarily indicative of future results . special note regarding smaller reporting company status as a result of having been a “ smaller reporting company ” ( as defined in rule 12b-2 of the securities exchange act of 1934 , as amended ) , we are allowed and have elected to omit certain information , including three years of year-to-year comparisons and tabular disclosure of contractual obligations , from this management 's discussion and analysis of financial condition and results of operations ; however , we have provided all information for the periods presented that we believe to be appropriate and necessary . overview we are a clinical-stage regenerative medicine company developing novel therapeutics for cardiovascular diseases with large unmet medical needs . our lead therapeutic candidate is the investigational cardiamp cell therapy system , or cardiamp , which provides an autologous bone marrow derived cell therapy ( using a patient 's own cells ) for the treatment of two clinical indications : heart failure that develops after a heart attack and chronic myocardial ischemia . we are committed to applying our expertise in the fields of autologous and allogeneic cell-based therapies to improve the lives of patients with cardiovascular conditions . as we engage in clinical trials of our therapeutic candidates , we have compensated and intend to compensate all parties performing the trials or studies only on terms that are standard and customary in clinical study arrangements . to date , we have devoted substantially all of our resources to research and development efforts relating to our therapeutic candidates and biotherapeutic delivery systems , including conducting clinical trials , developing manufacturing and sales capabilities , in-licensing related intellectual property , providing general and administrative support for these operations and protecting our intellectual property . we have also generated modest revenues from sales of our approved products . we have funded our operations primarily through the sales of equity and convertible debt securities , and certain government and private grants . cardiamp cell therapy system we initiated our u.s. food and drug administration , or fda , accepted phase iii pivotal trial for cardiamp cell therapy in ischemic systolic heart failure , in december 2016. the cardiamp heart failure trial is a phase iii , multi-center , randomized , double-blinded , sham-controlled study of up to 260 patients at 40 centers nationwide , which includes a 10-patient roll-in cohort . the phase iii pivotal trial is designed to provide the primary support for the safety and efficacy of the cardiamp cell therapy system . the trial 's primary endpoint is a clinical composite of major adverse cardiac and cerebrovascular events and functional capacity as measured by six minute walk distance . based on the results achieved in the phase ii trial , our phase iii pivotal trial is designed to have more than 95 % probability of achieving a positive result with statistical significance . the ongoing cardiamp heart failure trial is enrolling today at 25 clinical sites . the trial investigators have enrolled 74 patients to date . on march 31 , 2020 , the company announced that the dsmb completed a prespecified data review , and that based on the dsmb 's review of all available safety data for patients randomized in the trial to date , there were no safety concerns and that the dsmb recommended continuing the trial as planned . in the fourth quarter of 2020 , a prespecified dsmb interim readout from the trial will include all patients enrolled at that time point , and include our first dsmb review of efficacy on 60 patients at the one year follow-up , which includes the primary endpoint . enrollment remains our primary focus and challenge . we have recently identified two barriers for patients to participate in the trial . the first of these is that prospective patients are interested in receiving therapy and are concerned about being in a non-treated control arm that does not have a path to receive therapy . secondly , the requirement for patient out of pocket copays in our medicare reimbursed trial presents an additional impediment to patient follow-up . to address these barriers to patient participation , we submitted an investigational device exemption ( ide ) supplement to the fda with changes to enable patients in the control arm to “ cross over ” to therapy after certain follow-up visits in the trial have been completed , which assures the trial control arm patients early access to therapy if the trial meets its primary endpoint and is deemed appropriate for the patients by their physicians , and to enable biocardia to cover the costs of all patient co-pays so that participation in the investigational trial is free for insured patients . the fda has recently approved this ide supplement . story_separator_special_tag financial overview revenue we currently have a portfolio of enabling and delivery products , from which we have generated modest revenue . net product revenues include commercial sales of our morph vascular access system in the us and eu and collaboration agreement revenues include revenue from partnering agreements with corporate and academic institutions . under these partnering agreements , we provide our helix biotherapeutic delivery system and customer training and support for use in preclinical and clinical studies . cost of goods sold cost of goods sold includes the costs of raw materials and components , manufacturing personnel and facility costs and other indirect and overhead costs associated with manufacturing our commercial enabling and delivery products , which generate net product revenue . research and development expenses our research and development expenses consist primarily of : salaries and related overhead expenses , which include share-based compensation and benefits for personnel in research and development functions ; fees paid to consultants and contract research organizations , or cros , including in connection with our preclinical studies and clinical trials and other related clinical trial fees , such as for investigator grants , patient screening , laboratory work , clinical trial management and statistical compilation and analysis ; costs related to acquiring and manufacturing clinical trial materials ; costs related to compliance with regulatory requirements ; and payments related to licensed products and technologies . we expense all research and development costs in the periods in which they are incurred . costs for certain development activities are recognized based on an evaluation of the progress of completion of specific tasks using information and data provided to us by our vendors and clinical sites . nonrefundable advance payments for goods or services to be received in future periods for use in research and development activities are deferred and capitalized . the capitalized amounts are then expensed as the related goods are delivered and the services are performed . we plan to increase our research and development expenses for the foreseeable future as we continue the pivotal cardiamp heart failure trial and the pivotal cardiamp chronic myocardial ischemia trial , further develop cardiamp and cardiallo cell therapy systems , and subject to the availability of additional funding , further advance the development of other therapeutic candidates for additional indications . we typically use our employee and infrastructure resources across multiple research and development programs , and accordingly , we have not historically allocated resources specifically to our individual programs . selling , general and administrative expenses selling , general and administrative expenses consist primarily of salaries and related costs for employees in executive , finance and administration , sales , corporate development and administrative support functions , including share-based compensation expenses and benefits . other selling , general and administrative expenses include sales commissions , rent , accounting and legal services , obtaining and maintaining patents , the cost of consultants , occupancy costs , insurance premiums and information systems costs . 56 other income ( expense ) other income and expense consist primarily of interest income we earn on our cash , cash equivalents and investments , changes in fair value of redemptive features embedded in convertible notes , loss on extinguishment of convertible notes , and interest charges we incurred in periods during 2019 when we had convertible debt outstanding . 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 we have prepared in accordance with generally accepted accounting principles in the united states . the preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities . we evaluate these estimates and judgments on an ongoing basis . we base our estimates on historical experience and on various judgements 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 . we define our critical accounting policies as those that require us to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations as well as the specific manner in which we apply those principles . the following discussion addresses what we believe to be the critical accounting policies used in the preparation of our financial statements that require significant estimates and judgments . research and development—clinical trial accruals as part of the process of preparing our financial statements , we are required to estimate our expenses resulting from our obligations under contracts with vendors and consultants and clinical site agreements in connection with conducting clinical trials . the financial terms of these contracts are subject to negotiations which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided to us under such contracts . our clinical trial accrual is dependent upon the timely and accurate reporting of expenses of our cros and other third-party vendors . our objective is to reflect the appropriate clinical trial expenses in our financial statements by matching those expenses with the period in which services and efforts are expended . we account for these expenses according to the progress of the trial as measured by patient progression and the timing of various aspects of the trial . we determine accrual estimates through discussion with applicable personnel and outside service providers as to the progress or state of completion of clinical trials , or the services completed . during the course of a clinical trial , we adjust the rate of clinical trial expense recognition if actual results differ from the estimates . we make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known at that time .
| results of operations the table set forth below summarizes our results of operations for the years ended december 31 , 2019 and 2018 ( in thousands ) . the results of operations from 2018 compared to 2017 and related discussion can be found in the company 's annual report on form 10-k for the year ended december 31 , 2018 , filed with the sec on april 2 , 2019 , and such results and related discussion are incorporated herein by reference . replace_table_token_1_th 58 revenue . revenue increased by approximately $ 85,000 in 2019 compared to 2018 primarily due to an increase in collaboration agreement revenues , which offset decreases in net product revenues . we expect collaboration agreement revenues to continue to increase modestly depending on progress in these existing collaborative programs and the initiation of new partnership relationships . net product revenue is expected to be limited during the year and will be subject to customer demand , the availability of production resources for our new morph product family members , and the timing of fda clearance for market release of different models and sizes during the year . cost of goods sold . cost of goods sold decreased by approximately $ 159,000 in 2019 compared to 2018 , primarily due to the decrease in net product revenue . we expect cost of goods sold to decrease in 2020 as manufacturing resources are focused on supporting clinical partners , development activities and the ongoing pivotal cardiamp heart failure trial . research and development expenses . research and development expenses increased by approximately $ 100,000 in 2019 compared to 2018 primarily due to expenses incurred in the execution of the pivotal cardiamp heart failure trial , development of the cardiallo cell therapy system and our other therapeutic programs , including fees paid to consultants and contract research organizations ( cro ) , additional personnel costs and increased stock compensation expense .
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the company plans to file in the near term its quarterly reports on form 10-q for the quarterly periods ended march 31 , 2012 and june 30 , 2012. this report should be read in conjunction with such reports and all such reports should be read in their entirety . we are in the business of providing customary retail and commercial banking services to individuals and businesses . our core market is northeastern pennsylvania . 29 forward-looking statements the company may from time to time make written or oral forward-looking statements , including statements contained in the company 's filings with the sec , in its reports to shareholders , and in other communications by the company , which are made in good faith by the company pursuant to the safe harbor provisions of the private securities litigation reform act of 1995. these forward-looking statements include statements with respect to the company 's beliefs , plans , objectives , goals , expectations , anticipations , estimates and intentions , that are subject to significant risks and uncertainties , and are subject to change based on various factors ( some of which are beyond the company 's control ) . the words may , could , should , would , believe , anticipate , estimate , expect , intend , plan and similar expressions are intended to identify forward-looking statements . the following factors , among others , could cause the company 's financial performance to differ materially from the plans , objectives , expectations , estimates and intentions expressed in such forward-looking statements : the strength of the united states economy in general and the strength of the local economies in the company 's markets ; the effects of , and changes in trade , monetary and fiscal policies and laws , including interest rate policies of the board of governors of the federal reserve system ; inflation , interest rate , market and monetary fluctuations ; the timely development of and acceptance of new products and services ; the impact of the company 's ability to comply with its regulatory agreements and orders ; the effectiveness of the company 's revised system of internal controls ; the ability of the company to attract additional capital investment ; the impact of changes in financial services ' laws and regulations ( including laws concerning taxes , banking , securities and insurance ) ; technological changes ; changes in consumer spending and saving habits ; the nature , extent , and timing of governmental actions and reforms , and the success of the company at managing the risks involved in the foregoing . the company cautions that the foregoing list of important factors is not all inclusive . readers are also cautioned not to place undue reliance on any forward-looking statements , which reflect management 's analysis only as of the date of this report , even if subsequently made available by the company on its website or otherwise . the company does not undertake to update any forward-looking statement , whether written or oral , that may be made from time to time by or on behalf of the company to reflect events or circumstances occurring after the date of this report . critical accounting policies in preparing the consolidated financial statements , management has made estimates , judgments and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated statements of condition and results of operations for the periods indicated . actual results could differ significantly from those estimates . the company 's accounting policies are fundamental to understanding management 's discussion and analysis of its financial condition and results of operations . the company 's significant accounting policies are presented in note 2 to the consolidated financial statements . management has identified the policies on the allowance for loan and lease losses ( alll ) , securities valuation , goodwill and other intangible assets and income taxes to be critical as management is required to make subjective and or complex judgments about matters that are inherently uncertain and could be most subject to revision as new information becomes available . the judgments used by management in applying the critical accounting policies discussed below may be affected by a further and prolonged deterioration in the economic environment , which may result in changes to future financial results . specifically , subsequent evaluations of the loan portfolio , in light of the factors then prevailing , may result in significant changes in the alll in future periods , and the inability to collect on outstanding loans could result in increased loan losses . in addition , the valuation of certain securities in the company 's investment portfolio could be negatively impacted by illiquidity or dislocation in marketplaces resulting in significantly depressed market prices thus leading to further impairment losses . allowance for loan and lease losses the alll is established as losses are estimated to have occurred through a provision for loan losses charged to earnings , and is maintained at a level that management considers adequate to absorb losses in the loan portfolio . loans are charged against the alll when management believes the uncollectability of a loan balance is confirmed . subsequent recoveries , if any , are credited to the alll . the alll represents management 's estimate of probable loan losses inherent in the loan portfolio . determining the amount of the alll is considered a critical accounting estimate because it requires significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired loans , estimated losses on pools of homogeneous loans based on historical loss experience , qualitative factors , and consideration of current economic trends and conditions , all of which may be susceptible to significant change . various banking regulators , as an integral part of their examination of the company , also review the alll . story_separator_special_tag if circumstances are present that would indicate potential impairment of its goodwill , such as the trading value of the company 's common shares below its book value , adverse changes in the business or legal climate , actions by regulators , or loss of key personnel , management would test the carrying value of goodwill for impairment at an interim date . the goodwill impairment test is performed in two phases . the first step compares the fair value of the reporting unit with its carrying amount , including goodwill . if the fair value of the reporting unit exceeds its carrying amount , goodwill of the reporting unit is not considered impaired ; however , if the carrying amount of the reporting unit exceeds its fair value , an additional procedure must be performed . in the second step , management calculates the implied value of goodwill by simulating a business combination for each reporting unit . this step subtracts the estimated fair value of net assets in the reporting unit from the step one estimated fair value to determine the implied value of goodwill . if the implied value of goodwill exceeds the carrying value of goodwill allocated to the reporting unit , goodwill is not impaired , but if the implied value of goodwill is less than the carrying value of the goodwill allocated to the reporting unit , a goodwill impairment charge for the difference is recognized in the consolidated statement of operations with a corresponding reduction to goodwill on the consolidated statement of financial condition . in performing its evaluation of goodwill impairment , management makes significant judgments , particularly with respect to estimating the fair value of each reporting unit and if the second step test is required , estimating the fair value of net assets . the company utilizes a third-party specialist who assists with valuation techniques to evaluate each reporting unit and estimate a fair value as though it were an acquirer . the estimate utilizes historical data , cash flows , and market and industry data . industry and market data is used to develop material assumptions such as transaction multiples , required rates of return , control premiums , transaction costs and synergies of a transaction , and capitalization . the impairment test in 2009 resulted in $ 8.1 million of impairment , which reduced income by such amount and eliminated goodwill as of december 31 , 2009. the company did not have any goodwill and therefore did not perform a goodwill impairment valuation in 2010 or 2011 . 32 income taxes the objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity 's financial statements or tax returns . judgment is required in assessing the future tax consequences of events that have been recognized in our consolidated financial statements or tax returns . fluctuations in the actual outcome of these future tax consequences could impact our consolidated financial condition or results of operations . we record income tax provision or benefit based on the amount of tax currently payable or receivable and the change in deferred tax assets and liabilities . deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial and tax reporting purposes . we conduct quarterly assessments of all available evidence to determine the amount of deferred tax assets that are more-likely-than-not to be realized . the available evidence used in connection with these assessments includes taxable income in current and prior periods , cumulative losses in prior periods , projected future taxable income , potential tax-planning strategies , and projected future reversals of deferred tax items . our assumptions and estimates take into consideration our interpretation of tax laws and possible outcomes of current and future audits conducted by tax authorities . these assessments involve a certain degree of subjectivity which may change significantly depending on the related circumstances . in connection with determining our income tax provision or benefit , the company considers maintaining liabilities for uncertain tax positions and tax strategies that management believes contain an element of uncertainty . periodically , the company evaluates each of its tax positions and strategies to determine whether a liability for uncertain tax benefits is required . as of december 31 , 2011 and 2010 , the company determined that it did not have any uncertain tax positions or tax strategies and that no liability was required to be recorded . note 2-summary of significant accounting policies and note 13 income taxes to the consolidated financial statements include additional discussion on the accounting for income taxes . new authoritative accounting pronouncements in january 2010 , the financial accounting standards board ( fasb ) issued accounting standards update ( asu ) no . 2010-06 , fair value measurements and disclosures ( topic 820 ) - improving disclosures about fair value measurements , which requires new disclosures and clarifies certain existing disclosure requirements about fair value measurement . specifically , the update requires an entity to disclose separately the amounts of significant transfers in and out of level 1 and level 2 fair value measurements and to describe the reasons for such transfers . a reporting entity is required to present separately information about purchases , sales , issuances , and settlements in the reconciliation of fair value measurements using level 3 inputs . in addition , the update clarifies the following requirements of the existing disclosures : ( i ) for the purposes of reporting fair value measurement for each class of assets and liabilities , a reporting entity needs to use judgment in determining the appropriate classes of assets ; and ( ii ) a reporting entity is required to include disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements .
| summary of performance the company reported a net loss of $ 0.3 million in 2011 compared to a $ 31.7 million net loss in 2010. basic loss per share was $ ( 0.02 ) per share , a decrease of $ 1.92 from the $ ( 1.94 ) per share loss reported in 2010 . 34 the company recorded a $ 0.5 million provision for loan and lease losses in 2011 as compared to the $ 25.0 million provision recorded in 2010. the substantially reduced provision , needed to establish the alll at the amount the company believes is adequate to absorb probable loan losses , resulted primarily from an $ 8.4 million or 29.6 % decrease in non-performing loans , a $ 3.6 million increase in loan recoveries in 2011 , and an overall reduction of the loan portfolio . the reduction in delinquent and non-performing loans is attributable to the company 's aggressive write-downs and liquidation of impaired assets during 2009 and 2010 , a favorable interest rate environment and stabilizing real estate values that enabled an increased number of borrowers to service their debt during 2011. other key items contributing to the 2011 results included an $ 11.7 million increase in non-interest income , which increased from $ 1.3 million in 2010 to $ 13.0 million in 2011 , and a $ 0.3 million increase in non-interest expense . the $ 11.7 million increase in non-interest income resulted from ( i ) a $ 5.1 million gain on the sale of investment securities in 2011 compared to the $ 1.7 million loss on the sale of investment securities in 2010 , ( ii ) a $ 3.5 million reduction in otti losses incurred on investment securities to $ 0.8 million in 2011 from the $ 4.3 million the company recorded in 2010 , and ( iii ) a $ 2.1 million increase in net gains on the sale of oreo to $ 2.5 million in 2011 from $ 0.4
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we will continue to monitor economic conditions and sales order rates and respond to fluctuations in customer demand through continuous evaluation of staffing levels and consistent execution of our lean manufacturing and cost improvement initiatives . additionally , we continue to seek opportunities to gain market share in markets we currently serve , to expand into new markets and to develop new product features in order to mitigate the impact of changes in demand as well as broaden our sales base . critical accounting policies and estimates our significant accounting policies are more fully described in note 1 to our consolidated financial statements . our consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the united states of america ( gaap ) which requires us to make estimates , judgments , and assumptions we believe are reasonable based on our historical experience , contract terms , observations of known trends in our company and the industry as a whole and information available from other outside sources . our estimates affect the reported amounts of assets and liabilities and related disclosures of contingent assets and liabilities at the date of the financial statements , and the reported amounts of revenue and expense during the reporting period . actual results may differ from initial estimates . we believe the most critical accounting policies and estimates involving significant judgments and estimates primarily relate to the considerations in the impairment assessments for goodwill and certain long-lived assets . we have discussed the development , selection and disclosure of our critical accounting estimates with the audit committee of our board of directors . goodwill – our goodwill totaled $ 23.7 million at december 31 , 2019 , all relating to our security products segment . goodwill is required to be tested annually or at other times whenever an event occurs or circumstances change that would more-likely-than-not reduce the fair value of a reporting unit below - 15 - its carrying value . we pe rform our annual goodwill impairment test in the third quarter of each year . in addition , adverse industry or economic trends , lower projections of profitability , or a sustained decline in our market capitalization , among other items , may be indications of potential impairment issues which are triggering events requiring the testing of an asset 's carrying value for recoverability . an entity may first assess qualitative factors to determine whether it is necessary to complete the two-step quantitative impair ment test using a more-likely-than-not criteria . if an entity believes it is more-likely-than-not the fair value of a reporting unit is greater than its carrying value , including goodwill , the two-step quantitative impairment test can be bypassed . alternat ively , an entity has an unconditional option to bypass the qualitative assessment and proceed directly to performing the two-step quantitative impairment test . when performing a qualitative assessment considerable management judgment is necessary to evaluate the qualitative impact of events and circumstances on the fair value of a reporting unit . events and circumstances considered in our impairment evaluations , such as historical profits and stability of the markets served , are consistent with factors utilized with our internal projections and operating plan . however , future events and circumstances could result in materially different findings which could result in the recognition of a material goodwill impairment . evaluations of possible impairment utilizing the two-step quantitative impairment test require us to estimate , among other factors : forecasts of future operating results , revenue growth , operating margin , tax rates , capital expenditures , depreciation , working capital , weighted average cost of capital , long-term growth rates , risk premiums , terminal values , and fair values of our reporting units and assets . the goodwill impairment test is subject to uncertainties arising from such events as changes in competitive conditions , the current general economic environment , material changes in growth rate assumptions that could positively or negatively impact anticipated future operating conditions and cash flows , changes in the discount rate , and the impact of strategic decisions . if any of these factors were to materially change such change may require revaluation of our goodwill . changes in estimates or the application of alternative assumptions could produce significantly different results . in 2019 , we used the qualitative assessment for our annual impairment test and determined it was not necessary to perform the quantitative goodwill impairment test , as we concluded it is more-likely- than-not the fair value of the security products reporting unit exceeded its carrying amount . see notes 1 and 5 to our consolidated financial statements . long-lived assets – the net book value of our property and equipment totaled $ 31.0 million at december 31 , 2019. we assess property and equipment for impairment only when circumstances indicate an impairment may exist . our determination is based upon , among other things , our estimates of the amount of future net cash flows to be generated by the long-lived asset ( level 3 inputs ) and our estimates of the current fair value of the asset . significant judgment is required in estimating such cash flows . adverse changes in such estimates of future net cash flows or estimates of fair value could result in an inability to recover the carrying value of the long-lived asset , thereby possibly requiring an impairment charge to be recognized in the future . we do not assess our property and equipment for impairment unless certain impairment indicators are present . we did not evaluate any long-lived assets for impairment during 2019 because no such impairment indicators were present . - 16 - liquidity and capital resources story_separator_special_tag roman ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > as more fully described in the notes to the consolidated financial statements , we are a party to story_separator_special_tag we will continue to monitor economic conditions and sales order rates and respond to fluctuations in customer demand through continuous evaluation of staffing levels and consistent execution of our lean manufacturing and cost improvement initiatives . additionally , we continue to seek opportunities to gain market share in markets we currently serve , to expand into new markets and to develop new product features in order to mitigate the impact of changes in demand as well as broaden our sales base . critical accounting policies and estimates our significant accounting policies are more fully described in note 1 to our consolidated financial statements . our consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the united states of america ( gaap ) which requires us to make estimates , judgments , and assumptions we believe are reasonable based on our historical experience , contract terms , observations of known trends in our company and the industry as a whole and information available from other outside sources . our estimates affect the reported amounts of assets and liabilities and related disclosures of contingent assets and liabilities at the date of the financial statements , and the reported amounts of revenue and expense during the reporting period . actual results may differ from initial estimates . we believe the most critical accounting policies and estimates involving significant judgments and estimates primarily relate to the considerations in the impairment assessments for goodwill and certain long-lived assets . we have discussed the development , selection and disclosure of our critical accounting estimates with the audit committee of our board of directors . goodwill – our goodwill totaled $ 23.7 million at december 31 , 2019 , all relating to our security products segment . goodwill is required to be tested annually or at other times whenever an event occurs or circumstances change that would more-likely-than-not reduce the fair value of a reporting unit below - 15 - its carrying value . we pe rform our annual goodwill impairment test in the third quarter of each year . in addition , adverse industry or economic trends , lower projections of profitability , or a sustained decline in our market capitalization , among other items , may be indications of potential impairment issues which are triggering events requiring the testing of an asset 's carrying value for recoverability . an entity may first assess qualitative factors to determine whether it is necessary to complete the two-step quantitative impair ment test using a more-likely-than-not criteria . if an entity believes it is more-likely-than-not the fair value of a reporting unit is greater than its carrying value , including goodwill , the two-step quantitative impairment test can be bypassed . alternat ively , an entity has an unconditional option to bypass the qualitative assessment and proceed directly to performing the two-step quantitative impairment test . when performing a qualitative assessment considerable management judgment is necessary to evaluate the qualitative impact of events and circumstances on the fair value of a reporting unit . events and circumstances considered in our impairment evaluations , such as historical profits and stability of the markets served , are consistent with factors utilized with our internal projections and operating plan . however , future events and circumstances could result in materially different findings which could result in the recognition of a material goodwill impairment . evaluations of possible impairment utilizing the two-step quantitative impairment test require us to estimate , among other factors : forecasts of future operating results , revenue growth , operating margin , tax rates , capital expenditures , depreciation , working capital , weighted average cost of capital , long-term growth rates , risk premiums , terminal values , and fair values of our reporting units and assets . the goodwill impairment test is subject to uncertainties arising from such events as changes in competitive conditions , the current general economic environment , material changes in growth rate assumptions that could positively or negatively impact anticipated future operating conditions and cash flows , changes in the discount rate , and the impact of strategic decisions . if any of these factors were to materially change such change may require revaluation of our goodwill . changes in estimates or the application of alternative assumptions could produce significantly different results . in 2019 , we used the qualitative assessment for our annual impairment test and determined it was not necessary to perform the quantitative goodwill impairment test , as we concluded it is more-likely- than-not the fair value of the security products reporting unit exceeded its carrying amount . see notes 1 and 5 to our consolidated financial statements . long-lived assets – the net book value of our property and equipment totaled $ 31.0 million at december 31 , 2019. we assess property and equipment for impairment only when circumstances indicate an impairment may exist . our determination is based upon , among other things , our estimates of the amount of future net cash flows to be generated by the long-lived asset ( level 3 inputs ) and our estimates of the current fair value of the asset . significant judgment is required in estimating such cash flows . adverse changes in such estimates of future net cash flows or estimates of fair value could result in an inability to recover the carrying value of the long-lived asset , thereby possibly requiring an impairment charge to be recognized in the future . we do not assess our property and equipment for impairment unless certain impairment indicators are present . we did not evaluate any long-lived assets for impairment during 2019 because no such impairment indicators were present . - 16 - liquidity and capital resources story_separator_special_tag roman ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > as more fully described in the notes to the consolidated financial statements , we are a party to
| summary our primary source of liquidity on an on-going basis is our cash flow from operating activities , which is generally used to ( i ) fund capital expenditures , ( ii ) repay short-term or long-term indebtedness incurred primarily for capital expenditures , business combinations or buying back shares of our outstanding stock and ( iii ) provide for the payment of dividends ( if declared ) . from time-to-time , we may incur indebtedness to fund capital expenditures , business combinations or other investment activities . in addition , from time-to-time , we may also sell assets outside the ordinary course of business , the proceeds of which are generally used to repay indebtedness ( including indebtedness which may have been collateralized by the assets sold ) or to fund capital expenditures or business combinations . consolidated cash flows operating activities . trends in cash flows from operating activities , excluding changes in assets and liabilities , for the last three years have generally been similar to the trends in our earnings . depreciation and amortization were comparable in each of 2019 , 2018 and 2017. see note 1 to our consolidated financial statements . changes in assets and liabilities result primarily from the timing of production , sales and purchases . such changes in assets and liabilities generally tend to even out over time . however , year-to-year relative changes in assets and liabilities can significantly affect the comparability of cash flows from operating activities .
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however , going forward , given that one of the key components of our growth strategy is to expand our oil and natural gas reserve base through drilling and or acquisitions , if we were presented with a significant opportunity and available cash and bank debt financing were insufficient , it is possible we would consider alternative forms of additional financing . hedging . during the years ended march 31 , 2012 and 2011 , we did not participate in any hedging activities , nor did we have any open futures or option contracts . additional information concerning our hedging activities appears in note 1 to the consolidated financial statements . working capital . as of march 31 , 2012 , we had a working capital surplus of $ 6,572,000 ( a current ratio of 2.91:1 ) compared to a working capital surplus as of march 31 , 2011 of $ 4,930,000 ( a current ratio of 3.96:1 ) . the decrease in current ratio is primarily a result of the use of cash for the acquisition , development and exploration of oil and gas properties . 21 cash flow . cash provided by operating activities doubled from $ 2,624,000 for the year ended march 31 , 2011 to $ 5,278,000 for the year ended march 31 , 2012. this change related primarily to the timing and collection of accounts receivable and the timing and payment of accounts payable and accrued liabilities . overall , net cash used in investing activities decreased from the previous year from $ 3,356,000 for the year ended march 31 , 2011 to $ 2,467,000 for the year ended march 31 , 2012. however , in 2012 , investments in drilling and completion activities were significantly greater when compared to the prior year , but were partially offset by the sale of 38 wells in colorado during the most recent fiscal year . during the year ended march 31 , 2012 , $ 7,687,000 was expended on the acquisition of producing properties , new horizontal bakken wells in the williston basin and on additional acreage , as compared to $ 3,302,000 during the year ended march 31 , 2011. net cash used in financing activities for the year ended march 31 , 2012 was $ 84,000 , utilized entirely for treasury share acquisition . during the year ended march 31 , 2011 , $ 122,000 was used to purchase treasury shares . the company 's share buyback program was adopted in october 2008 and will terminate in october 2012 , if not extended before then . capital expenditures the amounts presented herein are presented on an accrual basis , and as such may not be consistent with the amounts presented on the consolidated statements of cash flows under investing activities for expenditures on oil and gas property , which are presented on a cash basis . during the year ended march 31 , 2012 , we spent $ 8,757,000 on various projects . this compares to $ 2,729,000 for the year ended march 31 , 2011. during the year ended march 31 , 2012 , capital expenditures were comprised of drilling and completions of wells producing as of year end ( 47 % ) , drilling of wells to be completed as of calendar year end ( 23 % ) , converting unproductive wells to disposal wells ( 8 % ) , leasehold ( 9 % ) , and acquisitions of producing properties ( 4 % ) . the remaining 9 % of costs were primarily dedicated to recompleting existing wells . the majority ( 87 % ) of capital expenditures occurred in the williston basin . the remainder was spent in other areas on property improvements and leasehold acreage . these projects were funded entirely with internally generated cash flow . as of march 31 , 2012 , we have afes totaling $ 5,574,000 for our share in completion costs of new wells in which we share a working interest . at present cash flow levels , we expect to have sufficient funds available for our share of both the outstanding afes and any additional acreage , seismic and or drilling cost requirements that might arise from our existing opportunities . we may alter or vary all or part of any planned capital expenditures for reasons including , but not limited to changes in circumstances , unforeseen opportunities , the inability to negotiate favorable acquisition , farmout , joint venture or divestiture terms , commodity prices , lack of cash flow , and lack of additional funding . we are continually evaluating drilling and acquisition opportunities for possible participation . typically , at any one time , several opportunities are in various stages of evaluation . our policy is to not disclose the specifics of a project or prospect , nor to speculate on such ventures , until such time as those various opportunities are finalized and undertaken . we caution that the absence of news and or press releases should not be interpreted as a lack of development or activity . divestitures/abandonments on january 31 , 2012 , we completed the divestiture and sale of the company 's working and or override interests in 38 wells in weld county , colorado to an unrelated third party for $ 5,900,000. after customary adjustments and expenses , the net proceeds from the transaction were $ 5,404,000. the adjusted purchase price was impacted by commissions , sales costs and post effective date revenue and expense modifications to the purchase price . the wells were considered non-core properties for the company , given the company 's focus on other areas , primarily the williston basin . impact of inflation and pricing we deal primarily in u.s. dollars . inflation has not had a material impact on the company in recent years because of the relatively low rates of inflation in the united states . however , the oil and natural gas industry can be cyclical and the story_separator_special_tag however , going forward , given that one of the key components of our growth strategy is to expand our oil and natural gas reserve base through drilling and or acquisitions , if we were presented with a significant opportunity and available cash and bank debt financing were insufficient , it is possible we would consider alternative forms of additional financing . hedging . during the years ended march 31 , 2012 and 2011 , we did not participate in any hedging activities , nor did we have any open futures or option contracts . additional information concerning our hedging activities appears in note 1 to the consolidated financial statements . working capital . as of march 31 , 2012 , we had a working capital surplus of $ 6,572,000 ( a current ratio of 2.91:1 ) compared to a working capital surplus as of march 31 , 2011 of $ 4,930,000 ( a current ratio of 3.96:1 ) . the decrease in current ratio is primarily a result of the use of cash for the acquisition , development and exploration of oil and gas properties . 21 cash flow . cash provided by operating activities doubled from $ 2,624,000 for the year ended march 31 , 2011 to $ 5,278,000 for the year ended march 31 , 2012. this change related primarily to the timing and collection of accounts receivable and the timing and payment of accounts payable and accrued liabilities . overall , net cash used in investing activities decreased from the previous year from $ 3,356,000 for the year ended march 31 , 2011 to $ 2,467,000 for the year ended march 31 , 2012. however , in 2012 , investments in drilling and completion activities were significantly greater when compared to the prior year , but were partially offset by the sale of 38 wells in colorado during the most recent fiscal year . during the year ended march 31 , 2012 , $ 7,687,000 was expended on the acquisition of producing properties , new horizontal bakken wells in the williston basin and on additional acreage , as compared to $ 3,302,000 during the year ended march 31 , 2011. net cash used in financing activities for the year ended march 31 , 2012 was $ 84,000 , utilized entirely for treasury share acquisition . during the year ended march 31 , 2011 , $ 122,000 was used to purchase treasury shares . the company 's share buyback program was adopted in october 2008 and will terminate in october 2012 , if not extended before then . capital expenditures the amounts presented herein are presented on an accrual basis , and as such may not be consistent with the amounts presented on the consolidated statements of cash flows under investing activities for expenditures on oil and gas property , which are presented on a cash basis . during the year ended march 31 , 2012 , we spent $ 8,757,000 on various projects . this compares to $ 2,729,000 for the year ended march 31 , 2011. during the year ended march 31 , 2012 , capital expenditures were comprised of drilling and completions of wells producing as of year end ( 47 % ) , drilling of wells to be completed as of calendar year end ( 23 % ) , converting unproductive wells to disposal wells ( 8 % ) , leasehold ( 9 % ) , and acquisitions of producing properties ( 4 % ) . the remaining 9 % of costs were primarily dedicated to recompleting existing wells . the majority ( 87 % ) of capital expenditures occurred in the williston basin . the remainder was spent in other areas on property improvements and leasehold acreage . these projects were funded entirely with internally generated cash flow . as of march 31 , 2012 , we have afes totaling $ 5,574,000 for our share in completion costs of new wells in which we share a working interest . at present cash flow levels , we expect to have sufficient funds available for our share of both the outstanding afes and any additional acreage , seismic and or drilling cost requirements that might arise from our existing opportunities . we may alter or vary all or part of any planned capital expenditures for reasons including , but not limited to changes in circumstances , unforeseen opportunities , the inability to negotiate favorable acquisition , farmout , joint venture or divestiture terms , commodity prices , lack of cash flow , and lack of additional funding . we are continually evaluating drilling and acquisition opportunities for possible participation . typically , at any one time , several opportunities are in various stages of evaluation . our policy is to not disclose the specifics of a project or prospect , nor to speculate on such ventures , until such time as those various opportunities are finalized and undertaken . we caution that the absence of news and or press releases should not be interpreted as a lack of development or activity . divestitures/abandonments on january 31 , 2012 , we completed the divestiture and sale of the company 's working and or override interests in 38 wells in weld county , colorado to an unrelated third party for $ 5,900,000. after customary adjustments and expenses , the net proceeds from the transaction were $ 5,404,000. the adjusted purchase price was impacted by commissions , sales costs and post effective date revenue and expense modifications to the purchase price . the wells were considered non-core properties for the company , given the company 's focus on other areas , primarily the williston basin . impact of inflation and pricing we deal primarily in u.s. dollars . inflation has not had a material impact on the company in recent years because of the relatively low rates of inflation in the united states . however , the oil and natural gas industry can be cyclical and the
| results of operations selected financial information the following provides selected financial information and averages for the years ended march 31 , 2012 and 2011. certain prior year amounts may have been reclassified to conform to the current presentation . replace_table_token_6_th 1 due to the timing and accuracy of sales information received from a third party operator as described in “ volumes and prices ” below , sales volume amounts may not be indicative of actual production or future performance . 2 amount does not include water service and disposal revenue . for the year ended march 31 , 2012 , this revenue amount is net of $ 156,000 in well service and water disposal revenue , which would otherwise total $ 11,712,000 in revenue for the year ended march 31 , 2012 , compared to $ 107,000 to total $ 8,206,000 for the year ended march 31 , 2011 . 3 overall lifting cost ( oil and gas production expenses and production taxes ) 4 averages calculated based upon non-rounded figures 23 the year ended march 31 , 2012 compared with the year ended march 31 , 2011 overview . net income for the year ended march 31 , 2012 , was double that of the previous year at $ 3,279,000 compared to $ 1,602,000 for the year ended march 31 , 2011. the increase in the sales price per barrel of oil equivalent ( “ boe ” ) and rise in sales volumes , offset by increases in production costs and general and administrative ( “ g & a ” ) expense , resulted in the increase in net income . revenues . oil and natural gas sales revenue increased $ 3,457,000 ( 43 % ) for the year ended march 31 , 2012 , as compared to the year ended march 31 , 2011 , due to an overall 15 % higher realized price per boe , and 20 % overall increase in sales volumes . volumes and prices .
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these are the elements that we believe best define us : competitive cost structure - as a result of aggressive cost reductions and mill rationalizations , today we compete as a leading , lower-cost north american producer . maintaining this competitive advantage is our key focus . we are committed to maximizing shareholder value and earnings power by : stressing our guiding principles of operational excellence in everything we do ; pushing to optimize our asset base in order to maximize the utilization of our most cost-effective mills ; and streamlining production to adapt to changing market dynamics . synergistic and diversified asset base - we apply our principles of operational excellence to our synergistic and diversified asset base , one that has evolved with time as we execute our profitable retreat from paper toward more sustainable long-term businesses . put simply , our optimized paper segments generate significant cash flow , which we use to grow our business for the long-term , including : the three pulp mills we acquired in 2012 ; the capacity enhancement initiatives in wood products ; and the continuous digester project at the calhoun , tennessee , pulp and paper facility . this synergistic and complementary asset base also offers the fiber management advantage of integration and earnings diversification . financial strength - we make disciplined capital management a priority ; we believe in maintaining a flexible and conservative capital structure . our financial strength gives us the ability to consider a range of suitable opportunities , and the patience to make sure the valuation is right . our business products our 2.6 million metric tons of capacity in newsprint represents approximately 9 % of worldwide capacity and 41 % of north american capacity . we sell newsprint to newspaper publishers all over the world and also to commercial printers in north america , for uses such as inserts and flyers . in 2014 , north american deliveries represented 60 % of total newsprint shipments . we have 1.5 million metric tons of capacity in specialty papers , which include uncoated mechanical and coated mechanical grades . in total , our 1.1 million metric tons of uncoated mechanical papers capacity makes us the largest producer in north america , and the third largest in the world . with 435,000 metric tons of capacity , we are north america 's third largest producer of coated mechanical papers , grades used for magazines , catalogs and advertising inserts . of our total specialty paper production , approximately one third is white paper , including high-bright and super high-bright papers , for general commercial printing , educational textbooks , digital printing and tradebooks . high-gloss uncoated 21 mechanical ( or supercalender ) papers , mainly used for magazines , coupons , retail inserts and newspaper supplements , represent approximately one quarter , as do coated mechanical papers , grades used for magazines , catalogs and advertising inserts . bag grades , papers for directories , paperback books and other commercial applications represent less than 15 % of our shipments . we sell our specialty papers almost exclusively in north america , where demand is largely tied to consumer spending and advertising . we operate seven pulp mills , five in the u.s. and two in canada , with total capacity of 1.7 million metric tons , or approximately 11 % of total north american capacity , making us the third largest pulp producer in north america . approximately 80 % of our virgin pulp capacity is softwood-based , including : northern bleached softwood kraft pulp ( or “ nbsk ” ) , southern bleached softwood kraft pulp ( or “ sbsk ” ) and fluff pulp . we are also a competitive producer of northern bleached hardwood kraft pulp ( or “ nbhk ” ) and southern bleached hardwood kraft pulp ( or “ sbhk ” ) , and a leading producer of recycled bleached kraft pulp ( or “ rbk ” ) . our market pulp - the pulp we produce but do not consume internally - is used to make a range of consumer products , like tissue , packaging , specialty paper products , diapers and other absorbent products . approximately 26 % of our 2014 market pulp shipments were exported outside of north america , including significant exports to europe , asia and latin america . in 2014 , we shipped 1.5 billion board feet of construction-grade lumber and 100 million board feet of remanufactured wood products within north america , mostly on the east coast . our sawmills produce dimension spruce-pine-fir ( or “ spf ” ) lumber and provide wood chips to our pulp and paper mills in canada as well as wood residue that we use as fuel in our power cogeneration assets and other operations . we also operate two remanufactured wood products facilities in canada that produce bed frame components , finger joints and furring strips , and two engineered wood products facilities in canada that produce i-joists for the construction industry . in 2014 , we also launched a wood pellet plant in thunder bay , ontario , which has a ten-year agreement to supply the local power utility with 45,000 metric tons of pellets annually . replace_table_token_6_th strategy & recent highlights our corporate strategy includes , on the one hand , a gradual retreat from certain paper grades , and on the other , using our strong financial position to act on opportunities to diversify and grow . that strategy is based on three core themes : operational excellence , disciplined use of capital and strategic initiatives . operational excellence we aim to improve our performance and margins by : leveraging our lower-cost position ; maintaining a stringent focus on reducing costs and optimizing our diversified asset base ; maximizing the benefits of our access to virgin fiber and managing our exposure to volatile recycled fiber ; and pursuing our strategy of managing production and inventory levels and focusing production at our most profitable and lower-cost facilities and machines . story_separator_special_tag accordingly , our commitments extend well beyond strict compliance with applicable forestry regulations , which in québec and ontario are already among the most , if not the most , rigorous in the world . we reduced our mill environmental incidents by 19 % in 2014 compared to 2013. through 2015 , implementing new human resource practices to support workforce renewal and retention , and engaging employees in the company 's sustainability-focused vision and values . in addition to developing information resources such as borealforestfacts.com and the resolute blog , we launched the forum boréal and boreal forum social media platforms . these french and english sites provide a forum for fact-based discussion concerning sustainable forestry practices and they help to ensure that individual and community voices are heard , particularly when it comes to the importance of forestry to northern economies . in our view , sustainability rests on three pillars : economic , social and environmental . we 're very pleased that our sustainability leadership and our accomplishments have been recognized by independent organizations , including : ranking in the best 50 corporate citizens in canada by corporate knights ; being named to the 2015 canada 's clean50 , for leaders who have made the greatest contributions to sustainable development or clean capitalism in canada ; and receiving the new economy magazine 's global clean tech award for best forest and paper solutions . power generation we produce electricity at seven cogeneration facilities and seven hydroelectric dams . the output is consumed internally , sold at contracted fixed prices and or sold on the spot market . this allows us to reduce our costs by generating energy internally at a lower cost compared to open market purchases , and by producing revenue from external sales of some of the power . this table provides a breakdown of the output capacity ( based on installed capacity and operating expectations in 2015 ) available for internal consumption at our existing production facilities : replace_table_token_7_th 24 the table below shows the facilities where we currently produce electricity to sell externally as green power produced from renewable sources at favorable rates , almost all of which we buy back at lower rates for use in our operations : replace_table_token_8_th 2014 overview 2014 vs. 2013 excluding special items , we generated operating income of $ 123 million during the year , compared to $ 134 million in 2013. unadjusted for special items , the operating loss was $ 174 million , compared to an operating loss of $ 2 million in 2013. special items are described below . our net income for the year , excluding special items , was $ 46 million , or $ 0.49 per share , down from net income , excluding special items , of $ 107 million , or $ 1.13 per share , in 2013. unadjusted for special items , our net loss in 2014 was $ 277 million , compared to $ 639 million in 2013. the net loss in 2013 was significantly affected by a $ 572 million non-cash income tax charge as a result of an increase in our valuation allowance . sales were $ 4.3 billion in 2014 , down $ 203 million from last year . replace_table_token_9_th 25 replace_table_token_10_th ( 1 ) operating income ( loss ) , net income ( loss ) and net income ( loss ) per share ( or “ eps ” ) , in each case as adjusted for special items , are not financial measures recognized under generally accepted accounting principles , or “ gaap . ” we calculate operating income ( loss ) , as adjusted for special items , as operating income ( loss ) from our consolidated statements of operations , adjusted for items such as closure costs , impairment and other related charges , inventory write-downs related to closures , start-up costs , gains and losses on disposition of assets , transaction costs , and other charges or credits that are excluded from our segment 's performance from gaap operating income ( loss ) . we calculate net income ( loss ) , as adjusted for special items , as net income ( loss ) from our consolidated statements of operations , adjusted for the same special items applied to operating income ( loss ) , plus the effects of foreign currency translation , net loss on extinguishment of debt , write-down of equity method investment , other income ( expense ) and u.s. deferred income tax asset valuation allowance . eps , as adjusted for special items , is calculated as net income ( loss ) , as adjusted for special items , per diluted share . we believe that using these measures is useful because they are consistent with the indicators management uses internally to measure the company 's performance , and it allows the reader to more easily compare our ongoing operations and financial performance from period to period . 26 fourth quarter overview three months ended december 31 , 2014 vs. december 31 , 2013 excluding special items , we generated operating income of $ 47 million in the quarter , compared to $ 49 million in the year-ago period . unadjusted for special items , the operating loss was $ 93 million , compared to an operating income of $ 8 million in the year-ago period . special items are described below . net income , excluding special items , was $ 36 million in the quarter , or $ 0.38 per share , up from net income , excluding special items , of $ 32 million , or $ 0.34 per share , in the year-ago period . unadjusted for special items , our net loss in the period was $ 109 million , compared to a loss of $ 3 million in the year-ago period . sales were $ 1.1 billion , down $ 95 million from the same period last year .
| summary of cash flows a summary of cash flows for the years ended december 31 , 2014 , 2013 and 2012 was as follows : replace_table_token_28_th 58 2014 vs. 2013 cash provided by operating activities we generated $ 186 million of cash from operating activities in 2014 , compared to $ 206 million in 2013. the change was affected by lower sales volumes , higher costs related to the effect of the abnormally cold winter and higher pension contributions , partially offset by lower start-up costs . cash used in investing activities we invested more cash in fixed assets in 2014 , an increase of $ 32 million , to $ 193 million , which reflects investments in strategic projects such as : the construction of a new sawmill in atikokan and a wood pellet plant in thunder bay , as well as the refurbishment of the ignace sawmill ; and the upgrade to the calhoun pulp mill to install a continuous digester and other wood chip processing equipment . the spending on these projects was partly offset by the proceeds at maturity of notes issued in connection with a sale of u.s. timber assets securitized in 2001. cash ( used in ) provided by financing activities we used $ 7 million in financing activities in 2014 , compared to cash provided of $ 4 million last year . in 2013 , we received proceeds of $ 594 million in connection with the issuance of the 2023 notes , which we used to repurchase $ 501 million of the then-outstanding 2018 notes and to pay $ 84 million as a tender offer premium . we also paid financing and credit facility fees of $ 9 million , but received an $ 8 million contribution from our former joint venture partner in cnc in connection with our acquisition of their interest .
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( 2 ) amounts include revenue streams related to leasing activities that are not considered components of a lease , including but not limited to , apartment hold fees and application fees , as well as revenue streams not related to leasing activities , including but not limited to , vendor revenue sharing , building advertising , vending and dry cleaning revenue . ( 3 ) represents all revenue accounted for under asc 2014-09 . ( 4 ) amounts include all revenue streams derived from residential and retail rental income and other lease story_separator_special_tag management 's discussion and analysis of financial condition and results of operations ( “ md & a ” ) is intended to help provide an understanding of our business , financial condition and results of operations . this md & a should be read in conjunction with our consolidated financial statements and the accompanying notes to consolidated financial statements included elsewhere in this report . this report , including the following md & a , contains forward-looking statements regarding future events or trends that should be read in conjunction with the factors described under “ forward-looking statements ” included in this report . actual results or developments could differ materially from those projected in such statements as a result of the factors described under “ forward-looking statements ” as well as the risk factors described in item 1a . “ risk factors ” of this report . capitalized terms used without definition have the meanings provided elsewhere in this form 10-k. executive overview business description our strategic vision is to be the leading apartment company in select u.s. markets , providing a range of distinctive living experiences that customers value . we pursue this vision by targeting what we believe are among the best markets and submarkets , leveraging our strategic capabilities in market research and consumer insight and being disciplined in our capital allocation and balance sheet management . our communities are predominately upscale and generally command among the highest rents in their markets . however , we also pursue the ownership and operation of apartment communities that target a variety of customer segments and price points , consistent with our goal of offering a broad range of products and services . we regularly evaluate the allocation of our investments by the amount of invested capital and by product type within our individual markets . we develop , redevelop , acquire , own and operate multifamily apartment communities primarily in new england , the new york/new jersey metro area , the mid-atlantic , the pacific northwest , and northern and southern california . we focus on leading metropolitan areas that we believe are characterized by growing employment in high wage sectors of the economy , higher cost of home ownership and a diverse and vibrant quality of life . we believe these market characteristics offer the opportunity for superior risk-adjusted returns over the long-term on apartment community investments relative to other markets that do not have these characteristics . we believe that the denver , colorado , and southeast florida markets share these characteristics , and in 2017 we began to invest in these markets through acquisitions and developments . we seek to create long-term shareholder value by accessing capital on cost effective terms ; deploying that capital to develop , redevelop and acquire apartment communities in our selected markets ; operating apartment communities ; and selling communities when they no longer meet our long-term investment strategy or when pricing is attractive . story_separator_special_tag $ 157,081,000 , or 15.2 % , to $ 876,921,000 in 2017 from 2016 , primarily due to a decrease in real estate sales and related gains , coupled with increases in depreciation , loss on extinguishment of debt and interest expense , and a net casualty and impairment loss in the current year compared to a gain in the prior year . these amounts were partially offset by an increase in noi from newly developed , acquired and existing operating communities . noi is considered by management to be an important and appropriate supplemental performance measure to net income because it helps both investors and management to understand the core operations of a community or communities prior to the allocation of any corporate-level or financing-related costs . noi reflects the operating performance of a community and allows for an easier comparison of the operating performance of individual assets or groups of assets . in addition , because prospective buyers of real estate have different financing and overhead structures , with varying marginal impact to overhead as a result of acquiring real estate , noi is considered by many in the real estate industry to be a useful measure for determining the value of a real estate asset or group of assets . we define noi as total property revenue less direct property operating expenses ( including property taxes ) , and excluding corporate-level income ( including management , development and other fees ) , corporate-level property management and other indirect operating expenses , investments and investment management expenses , expensed acquisition , development and other pursuit costs , net of recoveries , interest expense , net , loss ( gain ) on extinguishment of debt , net , general and administrative expense , equity in income of unconsolidated real estate entities , depreciation expense , corporate income tax ( benefit ) expense , casualty and impairment loss ( gain ) , net , gain on sale of communities , loss ( gain ) on other real estate transactions and net operating income from real estate assets sold or held for sale . noi does not represent cash generated from operating activities in accordance with gaap , and noi should not be considered an alternative to net income as an indication of our performance . noi should also not be considered an alternative to net cash flow from operating activities , as determined by gaap , as a measure of liquidity , nor is noi indicative of cash available to fund cash needs . story_separator_special_tag direct property operating expenses , excluding property taxes increased $ 12,704,000 , or 3.0 % , and $ 21,874,000 , or 5.4 % , in 2018 and 2017 , respectively , as compared to the prior years . the increases in 2018 and 2017 were primarily due to the addition of newly developed and acquired apartment communities . for established communities , direct property operating expenses , excluding property taxes , increased $ 5,993,000 , or 2.0 % , and $ 6,067,000 , or 2.0 % , in 2018 and 2017 , respectively , as compared to the prior years . the increase in 2018 was primarily due to increased compensation expense as well as maintenance and utilities costs , partially offset by decreased marketing and property insurance costs . the increase in 2017 was primarily due to increased compensation expense , bad debt and turnover and maintenance costs , partially offset by decreased property insurance costs . property taxes increased $ 20,188,000 , or 9.1 % , and $ 16,538,000 , or 8.1 % , in 2018 and 2017 , respectively , as compared to the prior years . the increases in 2018 and 2017 were primarily due to the addition of newly developed and acquired apartment communities , increased assessments across our portfolio , as well as successful appeals in the prior years in excess of those recognized in the then current year . for established communities , property taxes increased $ 8,520,000 , or 5.3 % , and $ 5,300,000 , or 3.5 % , in 2018 and 2017 , respectively , as compared to the prior years . the increases in 2018 and 2017 were primarily due to increased assessments and rates in the current year periods , as well as successful appeals in the prior year periods in the company 's west coast markets . for communities in california , property tax changes are determined by the change in the california consumer price index , with increases limited by law ( proposition 13 ) . we evaluate property tax increases internally and also engage third-party consultants to assist in our evaluations . we appeal property tax increases when appropriate . corporate-level property management and other indirect operating expenses increased $ 10,574,000 , or 15.2 % , and $ 2,521,000 , or 3.8 % , in 2018 and 2017 , respectively , as compared to the prior year . the increase in 2018 was primarily due to advocacy contributions not present in the prior year , increased compensation related costs and spending on corporate initiatives in the current year . the increase in 2017 was primarily due to increased compensation related costs , partially offset by severance costs in 2016 not present in 2017. investments and investment management expense increased by $ 1,773,000 , or 29.9 % , and $ 1,114,000 , or 23.1 % , in 2018 and 2017 , respectively , as compared to the prior years . the increase in 2018 was primarily due to severance costs , which were not present in the prior year , and an increase in compensation expense . the increase in 2017 was primarily due to an increase in compensation expense . 41 expensed acquisition , development and other pursuit costs , net of recoveries primarily reflect abandoned pursuit costs as well as acquisition costs related to business acquisitions that occurred prior to the adoption of asu 2017-01 as of october 1 , 2016. subsequent to the adoption of asu 2017-01 , we expect that acquisitions of individual operating communities will generally be viewed as asset acquisitions , and result in acquisition costs being capitalized instead of expensed . abandoned pursuit costs include costs incurred for development pursuits not yet considered probable for development , as well as the abandonment of development rights and costs related to abandoned acquisition and disposition pursuits . these costs can be volatile , particularly in periods of increased acquisition pursuit activity , periods of economic downturn or when there is limited access to capital , and the costs may vary significantly from period to period . these aggregate costs increased $ 1,573,000 , or 57.5 % , in 2018 , and decreased $ 7,186,000 , or 72.4 % , in 2017 , as compared to the prior years . the increase in 2018 was primarily due to increased abandoned development pursuit costs and the non-cash write-off of asset management fee intangibles associated with the disposition of communities in the u.s. fund and the ac jv . the decrease in 2017 was due to a decrease in acquisition costs related to communities acquired during the prior year periods that were expensed prior to the adoption of asu 2017-01 , decreased development pursuit costs , as well as the non-cash write-off of asset management fee intangibles associated with the disposition of communities in the u.s. fund in the prior year period in excess of amounts recognized in the current year period . interest expense , net increased $ 21,313,000 , or 10.7 % , and $ 12,151,000 , or 6.5 % , in 2018 and 2017 , respectively , as compared to the prior years . this category includes interest costs offset by capitalized interest pertaining to development and redevelopment activity , amortization of premium/discount on debt , and interest income . the increase in 2018 was primarily due to a decrease in amounts of interest capitalized resulting from a decrease in development and redevelopment activity , as well as an increase in outstanding unsecured indebtedness , partially offset by a decrease in secured indebtedness . the increase in 2017 was primarily due to a decrease in amounts of interest capitalized resulting from a decrease in development activity , as well as an increase in outstanding unsecured indebtedness . loss on the extinguishment of debt , net reflects prepayment penalties , the write-off of unamortized deferred financing costs and premiums from our debt repurchase and retirement activity , or payments to acquire our outstanding debt at amounts above or below the carrying basis of the debt acquired .
| 2018 financial highlights net income attributable to common stockholders for the year ended december 31 , 2018 was $ 974,525,000 , an increase of $ 97,604,000 , or 11.1 % , over the prior year . the increase is primarily attributable to increases in real estate sales and related gains and noi from newly developed , acquired and existing operating communities , as well as decreases in loss on extinguishment of debt , net and casualty and impairment loss . these amounts were partially offset by a decrease in gains on the sale of unconsolidated communities in various joint ventures and related promote income , coupled with increases in depreciation and interest expense . established communities noi for the year ended december 31 , 2018 increased by $ 26,248,000 , or 2.3 % , over the prior year . the increase was driven by an increase in rental revenue of 2.5 % , partially offset by an increase in operating expenses of 3.2 % over 2017 . during 2018 , we raised approximately $ 1,572,833,000 of gross capital through the issuance of unsecured notes , sale of common shares under cep iv and the sale of consolidated operating communities and other real estate . this amount does not include proceeds from joint venture dispositions . the funds raised from the sale of real estate consist of the proceeds from the sale of eight operating communities , as well as the five communities contributed to the nyc joint venture and one ancillary land parcel . we believe that our current capital structure will continue to provide financial flexibility to access capital on attractive terms . 36 we believe our development activity will continue to create long-term value .
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the following discussion should be read in conjunction with the consolidated financial statements and the notes thereto included in item 8 of this annual report on form 10-k. historical results and percentage relationships among any amounts in the financial statements are not necessarily indicative of trends in operating results for any future periods . the asset sale and externalization transactions on april 3 , 2018 , we entered into an asset purchase agreement , or the asset purchase agreement , with bsp asset acquisition i , llc , or the asset buyer ( an affiliate of benefit street partners l.l.c . ) , pursuant to which we agreed to sell our december 31 , 2017 investment portfolio to the asset buyer for gross proceeds of $ 981.2 million in cash , subject to certain adjustments to take into account portfolio activity and other matters occurring since december 31 , 2017 , such transaction referred to herein as the asset sale transaction . also on april 3 , 2018 , we entered into a stock purchase and transaction agreement , or the externalization agreement , with barings llc , or barings , through which barings agreed to become the investment adviser to the company in exchange for ( 1 ) a payment by barings of $ 85.0 million , or approximately $ 1.78 per share , directly to our stockholders , ( 2 ) an investment by barings of $ 100.0 million in newly issued shares of our common stock at net asset value , or nav , and ( 3 ) a commitment from barings to purchase up to $ 50.0 million of shares of our common stock in the open market at prices up to and including our then-current net asset value per share for a two-year period , after which barings agreed to use any remaining funds from the $ 50.0 million to purchase additional newly issued shares of our common stock at the greater of our then-current net asset value per share and market price ( collectively , the externalization transaction ) . the asset sale transaction and the externalization transaction are collectively referred to as the transactions . the transactions were approved by our stockholders at our july 24 , 2018 special meeting of stockholders , or the 2018 special meeting . the asset sale transaction closed on july 31 , 2018. the gross cash proceeds received from the asset buyer and certain affiliates of the asset buyer in connection with the asset sale transaction were approximately $ 793.3 million , after adjustments to take into account portfolio activity and other matters occurring since december 31 , 2017 , as described in greater detail in the asset purchase agreement . adjustments to the purchase price included , among other things , approximately $ 208.8 million of principal payments and prepayments , sales proceeds and distributions related to the investment portfolio that were received and retained by us between december 31 , 2017 and the closing of the asset sale transaction , offset by approximately $ 29.5 million of loans and equity investments originated by us between december 31 , 2017 and the closing of the asset sale transaction . in connection with the closing of the asset sale transaction , we caused notices to be issued to the holders of our december 2022 notes and march 2022 notes ( each as defined in our consolidated financial statements for the fiscal year ended december 31 , 2019 and notes thereto ) regarding the redemption of all $ 80.5 million in aggregate principal amount of the december 2022 notes and all $ 86.3 million in aggregate principal amount of the march 2022 notes , in each case , on august 30 , 2018. the december 2022 notes and the march 2022 notes were redeemed at 100 % of their principal amount ( $ 25.00 per note ) , plus the accrued and unpaid interest thereon from june 15 , 2018 to , but excluding , august 30 , 2018. in furtherance of the redemption , on july 31 , 2018 , we irrevocably deposited with the bank of new york mellon trust company , n.a. , as trustee under the indenture and supplements thereto relating to the december 2022 notes and the march 2022 notes , funds in trust for the purposes of redeeming all of the issued and outstanding december 2022 notes and march 2022 notes and paying all sums due and payable under the indenture and supplements thereto . as a result , our obligations under the indenture and supplements thereto relating to the december 2022 notes and the march 2022 notes were satisfied and discharged as of july 31 , 71 2018 , except with respect to those obligations that the indenture expressly provides shall survive the satisfaction and discharge of the indenture . in addition , in connection with the closing of the asset sale transaction , we terminated our senior secured credit facility entered into in may 2015 ( and subsequently amended in may 2017 ) , or the may 2017 credit facility . our former wholly-owned subsidiaries , triangle mezzanine fund lllp , or triangle sbic , triangle mezzanine fund ii lp , or triangle sbic ii , and triangle mezzanine fund iii lp , or triangle sbic iii , were specialty finance limited partnerships that were formed to make investments primarily in lower middle-market companies located throughout the united states . each of triangle sbic , triangle sbic ii and triangle sbic iii held licenses to operate as small business investment companies , or sbics , under the authority of the united states small business administration , or sba . in connection with the closing of the asset sale transaction , we repaid all of our outstanding sba-guaranteed debentures and surrendered the sbic licenses held by triangle sbic , triangle sbic ii , and triangle sbic iii . story_separator_special_tag barings has experience managing levered vehicles , both public and private , and will seek to enhance our returns through the use of leverage with a prudent approach that prioritizes capital preservation . barings believes this strategy and approach offers attractive risk/return with lower volatility given the potential for fewer defaults and greater resilience through market cycles . we generate revenues in the form of interest income , primarily from our investments in debt securities , loan origination and other fees and dividend income . fees generated in connection with our debt investments are recognized over the life of the loan using the effective interest method or , in some cases , recognized as earned . our syndicated senior secured loans generally bear interest between libor plus 300 basis points and libor plus 400 points . our senior secured , middle-market , private debt investments generally have terms of between five and seven years . our senior secured , middle-market , private debt investments generally bear interest between libor ( or the applicable currency rate for investments in foreign currencies ) plus 450 basis points and libor plus 650 basis points per annum . from time to time , certain of our investments may have a form of interest , referred to as payment-in-kind , or pik , interest , which is not paid currently but is instead accrued and added to the loan balance and paid at the end of the term . as of december 31 , 2019 , the weighted average yield on our syndicated senior secured loan portfolio and our middle-market private debt portfolio was approximately 5.4 % and 7.0 % , respectively . as of december 31 , 2019 , the weighted average yield on these two portfolios on a combined basis was approximately 6.2 % . the weighted-average yield on all of our outstanding investments ( including equity and equity-linked investments and short-term investments ) was approximately 5.8 % as of december 31 , 2019 . as of december 31 , 2018 , the weighted average yield on our syndicated senior secured loan portfolio and our middle-market private debt portfolio was approximately 5.8 % and 7.6 % , respectively . as of december 31 , 2018 , the weighted average yield on these two portfolios on a combined basis was approximately 6.2 % . the weighted-average yield on all of our outstanding investments ( including equity and equity-linked investments and short-term investments ) was approximately 6.0 % as of december 31 , 2018 . the weighted average yields across our investment portfolio depend on the relative seniority of our investments within the capital structures of our portfolio companies and on our security interests in portfolio company assets . historically , prior to the transactions , from the time of our initial public offering , or ipo , in 2007 , 73 we primarily focused on investments in subordinated debt securities , which generally produce higher yields than more senior securities due to the risks inherent in investing in less senior positions . beginning in 2016 , we began to shift our focus toward larger and less cyclical portfolio companies and began steering our portfolio composition with a focus on a balance between senior and subordinated securities . on august 2 , 2018 , barings shifted our investment focus to invest initially in syndicated senior secured loans , bonds and other fixed income securities . over time , barings has been transitioning our portfolio to senior secured private debt investments in performing , well-established middle-market businesses that operate across a wide range of industries . this shift toward predominately senior securities is intended to reduce our credit risks in exchange for lower-yielding investments , which in turn has resulted in a decrease in the weighted average yield on our investment portfolio . portfolio composition the total value of our investment portfolio was $ 1,173.6 million as of december 31 , 2019 , as compared to $ 1,121.9 million as of december 31 , 2018 . as of december 31 , 2019 , we had investments in 147 portfolio companies and two money market funds with an aggregate cost of $ 1,192.6 million . as of december 31 , 2018 , we had investments in 139 portfolio companies and one money market fund with an aggregate cost of $ 1,173.9 million . as of both december 31 , 2019 and 2018 , none of our portfolio investments represented greater than 10 % of the total fair value of our investment portfolio . as of december 31 , 2019 and december 31 , 2018 , our investment portfolio consisted of the following investments : replace_table_token_8_th 74 investment activity during the year ended december 31 , 2019 , we purchased $ 18.1 million in syndicated senior secured loans , made 39 new middle-market debt investments totaling $ 409.6 million , consisting of 38 senior secured , middle-market , private debt investments and one second lien , middle-market , private debt investment , made equity investments in our joint venture totaling $ 10.2 million and made additional debt investments in five existing portfolio companies totaling $ 12.2 million . we had seven syndicated senior secured loans repaid at par totaling total $ 34.4 million , had four middle-market portfolio company loans repaid at par totaling $ 44.0 million , received $ 28.2 million of syndicated senior secured loan principal payments and received $ 6.3 million of middle-market portfolio company principal payments . in addition , we sold $ 318.5 million of syndicated senior secured loans , recognizing a net realized loss on these transactions of $ 3.5 million , sold $ 4.8 million of a middle-market portfolio company debt investment and sold $ 36.1 million of middle-market portfolio company debt investments to our joint venture . in addition , certain terms of one broadly syndicated loan investment were amended . under u.s. gaap , this amendment was considered a material modification and as a result , we recognized a loss of approximately $ 0.2 million related to the amendment .
| results of operations comparison of years ended december 31 , 2019 , 2018 and 2017 operating results for the years ended december 31 , 2019 , 2018 and 2017 were as follows : replace_table_token_11_th net increases or decreases in net assets resulting from operations vary substantially from period to period due to various factors . the net decrease in net assets resulting from operations for the year ended december 31 , 2018 was primarily due to the net realized loss related to the asset sale transaction and certain one-time compensation expenses and direct costs related to the transactions . see further discussion regarding the transactions above in 76 `` the asset sale and externalization transactions '' section . as a result , yearly comparisons of net increases or decreases in net assets resulting from operations may not be meaningful . investment income replace_table_token_12_th the change in total investment income for the year ended december 31 , 2019 , as compared to the year ended december 31 , 2018 , was related to the shift in our investment focus subsequent to the transactions . during the year ended december 31 , 2019 , our investment portfolio was primarily comprised of syndicated senior secured loans and senior secured , middle-market , private debt investments , which are lower yielding debt investments as compared to our investment portfolio prior to the transactions , which was comprised primarily of senior and subordinated debt securities of privately-held , lower middle-market companies . beginning august 2 , 2018 , barings shifted our investment focus to invest in syndicated senior secured loans , bonds and other fixed income securities . since that time , barings has been transitioning our portfolio to senior secured private debt investments in performing , well-established middle-market businesses that operate across a wide range of industries .
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f- 1 report of in d ependent registered public accounting firm b oard of d irectors and audit committee of institutional financial markets , inc. we have audited the accompanying consolidated balance sheets of institutional financial markets , inc. , ( a maryland corporation ) and subsidiaries ( the “ comp any ” ) , as of december 31 , 2015 and 2014 , and the related consolidated statements of operations and comprehensive income / ( loss ) , changes in equity , and cash flows for each of the three years in th e period ended december 31 , 2015 . our audits of the basic consolidated financial statements included the financial statement schedule listed in the index appearing under item 15 ( a ) ( 2 ) . these financial statements and financial statement schedule are the responsibility of the company 's management . our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits . we conducted our audits in accordance with the standards of the public company accounting oversight board ( united states ) . those standards require that we plan and perform the audit to obtain reasonable assurance about whether story_separator_special_tag “ management 's discussion and analysis of financial condition and results of operations ” is based on our consolidated financial statements , which have been prepared in accordance with u.s. gaap . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosures of contingent assets and liabilities . on a regular basis , we evaluate these estimates , including fair value of financial instruments . these estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances . actual results may differ from these estimates . all amounts in this disclosure are in thousands ( except share and per share data ) unless otherwise noted . overview we are a financial services company specializing in fixed income markets . we were founded in 1999 as an investment firm focused on small-cap banking institutions , but have grown to provide an expanding range of capital markets and asset management services . we are organized into three business segments : capital markets , principal investing , and asset management . capital markets : our capital markets business segment consists primarily of fixed income sales , trading , and financing , as well as new issue placements in corporate and securitized products , and advisory services . our fixed income sales and trading group provides trade execution to corporate investors , institutional investors , mortgage originators , and other smaller broker-dealers . we specialize in a variety of products , including but not limited to : corporate bonds , abs , mbs , cmbs , rmbs , cdos , clos , cbos , cmos , municipal securities , tbas and other forward agency mbs contracts , sba loans , u.s. government bonds , u.s. government agency securities , brokered deposits and cds for small banks , and hybrid capital of financial institutions including trups , whole loans , and other structured financial instruments . we also offer execution and brokerage services for equity products . we carry out our capital market activities primarily through our subsidiaries : jvb in the united states and ccfl in europe . see the discussion below regarding the merger of jvb and ccpr in 2014 and the potential sale of ccfl . principal investing : our principal investing business segment is comprised of investments that we have made using our own capital excluding investments we make to support our capital markets business segment . historically , we generally made principal investments in the entities we managed . beginning in the first quarter of 2014 , we began investing our capital in investments ( primarily equity tranches of clos ) that we do not manage . these investments are a component of our other investments , at fair value in our consolidated balance sheet we did not make any new clo investments in 2015. asset management : our asset management business segment manages assets within cdos , permanent capital vehicles , managed accounts , and investment funds ( collectively , “ investment vehicles ” ) . a cdo is a form of secured borrowing . the borrowing is secured by different types of fixed income assets such as corporate or mortgage loans or bonds . the borrowing is in the form of a securitization , which means that the lenders are actually investing in notes backed by the assets . in the event of default , the lenders will have recourse only to the assets securing the loan . our asset management business segment includes our fee-based asset management operations , which include on-going base and incentive management fees . as of december 31 , 2015 , we had approximately $ 3.91 billion in aum of which 95.8 % , or $ 3.75 billion , was in cdos . almost all of our asset management revenue is earned from the management of cdos . we have not completed a new securitization since 2008. as a result , our asset management revenue has declined from its historical highs as the assets of the cdos decline as a result of maturities , repayments , auction call redemptions , and defaults . we do not expect to complete any securitizations in the future so we expect our asset management revenue to continue to decline in the future . we generate our revenue by business segment primarily through the following activities . story_separator_special_tag our response to this margin compression has included : ( i ) building a diversified fixed income trading platform ; ( ii ) expanding our european advisory and new issue capabilities ; ( iii ) acquiring new product lines ; ( iv ) building a hedging execution and funding operation to service mortgage originators ; and ( v ) monit oring our fixed costs . our cost reduction initiatives are ongoing . however , there can be no certainty that these efforts will be sufficient . if insufficient , we will likely see a decline in profitability . in january 2014 , we completed the combination of our two u.s. broker-dealers to reduce overlapping business lines and to reduce our costs . legislation affecting the financial services industry in july 2010 , the federal government passed the dodd-frank wall street reform and consumer protection act ( the “ dodd-frank act ” ) . the dodd-frank act significantly restructures and intensifies regulation in the financial services industry , with provisions that include , among other things , the creation of a new systemic risk oversight body ( i.e . , the financial stability oversight council ) , expansion of the authority of existing regulators , increased regulation of and restrictions on otc derivatives markets and transactions , broadening of the reporting and regulation of executive compensation , expansion of the standards for market participants in dealing with clients and customers , and regulation of fiduciary duties owed by municipal advisors or conduit borrowers of municipal securities . in addition , section 619 of the dodd-frank act ( known as the “ volker rule ” ) and section 716 of the dodd-frank act ( known as the “ swaps push-out rule ” ) limit proprietary trading of certain securities and swaps by certain banking entities . although we are not a banking entity and are not otherwise subject to these rules , some of our clients and many of our counterparties are banks or entities affiliated with banks and will be subject to these restrictions . these sections of the dodd-frank act and the regulations that are adopted to implement them could negatively affect the swaps and securities markets by reducing their depth and liquidity and thereby affect pricing in these markets . further , the dodd-frank act as a whole and the intensified regulatory environment will likely alter certain business practices and change the competitive landscape of the financial services industry , which may have an adverse effect on our business , financial condition and results of operations . we will continue to monitor all applicable developments in the implementation of dodd-frank and expect to adapt successfully to any new applicable legislative and regulatory requirements . recent events sale of european operations on august 19 , 2014 , we entered into the european sale agreement to sell our european operations to c & co europe acquisition llc , an entity controlled by daniel g. cohen , president and chief e xecutive of our european operations and vice c hairman of our board of directors , for approximately $ 8,700. the transaction was subject to customary closing conditions and regulatory approval from the united kingdom financial conduct authority ( “ fca ” ) . on march 26 , 2015 , the parties to the european sale agreement agreed to extend the deadline for the closing of the transactions contemplated by the european sale agreement from march 31 , 2015 to june 30 , 2015. in addition , the parties to the european sale agreement amended the date on which c & co europe acquisition llc was obligated to cause the settlement of the intercompany payables from march 31 , 2015 to june 30 , 2015. on june 30 , 2015 , the parties to the european sale agreement agreed to extend the deadline for the closing of the transaction from june 30 , 2015 to december 31 , 2015 and the settlement date of the intercompany payables from june 30 , 2015 to december 31 , 2015 ( the “ second extension ” ) . in connection with the second extension , the parties to the european sale agreement agreed that if the european sale agreement is terminated in accordance with its terms prior to the closing , then ( i ) mr. cohen will pay $ 600 in respect of a portion of the legal and financial advisory fees and expenses incurred by us and the special committee of our board of directors in connection with the transactions contemplated by the european sale agreement since april 1 , 2014 and ( ii ) an amendment ( the “ employment agreement amendment ” ) to the amended and restated employment agreement , dated as of may 9 , 2013 , among the operating llc , the company , mr. cohen and j.v.b . financial group holdings , lp ( formerly known as c & co/princeridge holdings lp ) ( the “ employment agreement ” ) , would become effective . the cohen employment agreement amendment would provide that if mr. cohen 's employment was terminated by the operating llc without cause or by mr. cohen for good reason ( as such terms are defined in the cohen employment agreement ) , the operating llc would pay mr. cohen a maximum of $ 1,000 as a severance benefit . the cohen employment agreement currently provides that in the event of such termination , the operating llc will pay mr. cohen a minimum of $ 3,000 as a severance benefit . the european sale agreement provides that either party may terminate the agreement after december 31 , 2015. on february 18 , 2016 , c & co europe acquisition llc provided notice to the operating llc that it continues to evaluate the transaction . to date , neither party has terminated the european sale agreement , and the company and the operating llc continue to evaluate the transaction .
| consolidated results of operations the following section provides a comparative discussion of our consolidated results of operations for the specified periods . the period-to-period comparisons of financial results are not necessarily indicative of future results . year ended december 31 , 2015 compared to the year ended december 31 , 2014 the following table sets forth information regarding our consolidated results of operations for the years ended december 31 , 2015 and 2014 . replace_table_token_6_th revenues revenues decreased by $ 9,594 , or 17 % , to $ 46,156 for the year ended december 31 , 2015 as compared to $ 55,750 for the year ended december 31 , 2014 . as discussed in more detail below , the change was comprised of ( i ) an increase of $ 2,970 in net trading ; ( ii ) a decrease of $ 4,814 in asset management revenue ; ( iii ) an increase of $ 151 in new issue and advisory revenue ; and ( iv ) a decrease of $ 7,901 in principal transactions and other income . 46 net trading net trading revenue increased by $ 2,970 , or 11 % , to $ 31,026 for the year ended december 31 , 2015 as compared to $ 28,056 for the year ended december 31 , 2014 . the increase was primarily the result of increases in our mortgage , corporate investment grade , corporate high yield , and sba asset classes partially offset by decrease s in clo trading , structured notes , municipal securities , and other asset classes . our net trading revenue includes unrealized gains on our trading investments , as of the applicable measurement date that may never be realized due to changes in market or other conditions not in our control . this may adversely affect the ultimate value realized from these investments . in addition , our net trading revenue also includes realized gains on certain proprietary trading positions .
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on december 21 , 2018 , vintage capital and its affiliates filed a lawsuit in the delaware court of chancery against rent-a-center , asserting that the merger agreement remained in effect , and that vintage capital did not owe rent-a-center the $ 126.5 million reverse breakup fee associated with our termination of the merger agreement . on february 11 th and 12 th of this year , a trial was held in the delaware court of chancery in connection with the lawsuit brought by vintage capital ( and joined by b riley ) against rent-a-center . the delaware court of chancery has not yet rendered its verdict in this case . oral argument on the parties ' post-trial briefs is schedule for monday , march 11 th . results of operations the following discussion focuses on our results of operations and issues related to our liquidity and capital resources . you should read this discussion in conjunction with the consolidated financial statements and notes thereto included elsewhere in this annual report on form 10-k. overview during the twelve months ended december 31 , 2018 , we experienced a decline in revenues and gross profit driven primarily by reductions in our store base for the core u.s. and acceptance now segments , partially offset by increases in same store sales . operating profit , however , increased during the twelve months ended december 31 , 2018 , primarily due to cost savings initiatives , including reductions in overhead and supply chain , and lower rental merchandise losses . revenues in our core u.s. segment increased approximately $ 20.3 million for the twelve months ended december 31 , 2018 , primarily due to increases in same store sales , partially offset by a reduction in our core u.s. store base . gross profit as a percentage of revenue increased 0.5 % primarily due to the intercompany book value adjustment of acceptance now returned product transferred to core u.s. stores . operating profit increased $ 61.6 million for the twelve months ended december 31 , 2018 , primarily due to decreases of $ 19.8 million and $ 37.5 million in labor and other store expenses , respectively . the acceptance now segment revenues decreased by approximately $ 75.4 million for the twelve months ended december 31 , 2018 , primarily due to kiosk closures at our former retailer partners conn 's and hhgregg , partially offset by increases in same store sales . gross profit as a percent of revenue decreased 3.1 % primarily due to the intercompany book value adjustment of acceptance now returned product transferred to core u.s. stores , and the new value proposition enhancements initiated in 2018 for acceptance now customers . operating profit as a percent of revenue increased 6.9 % primarily due to lower rental merchandise losses . operating profit for the mexico segment as a percentage of revenue increased by 5.9 % for the twelve months ended december 31 , 2018 , driven primarily by lower rental merchandise losses . cash flow from operations was $ 227.5 million for the twelve months ended december 31 , 2018 . we paid down debt by $ 139.3 million during the year , ending the period with $ 155.4 million of cash and cash equivalents . 20 the following table is a reference for the discussion that follows . replace_table_token_3_th comparison of the years ended december 31 , 2018 and 2017 store revenue . total store revenue decreased by $ 52.5 million , or 2.0 % , to $ 2,627.9 million for the year ended december 31 , 2018 , from $ 2,680.4 million for 2017 . this was primarily due to a decrease of approximately $ 75.4 million in the acceptance now segment , partially offset by an increase of $ 20.3 million in the core u.s. segment , as discussed further in the segment performance section below . same store revenue is reported on a constant currency basis and generally represents revenue earned in 2,575 locations that were operated by us for 13 months or more , excluding any store that receives a certain level of customer accounts from another store ( acquisition or merger ) . receiving stores will be eligible for inclusion in the same store sales base in the twenty-fourth full month 21 following the account transfer . in addition , due to the severity of the hurricane impacts , we instituted a change to the same store sales store selection criteria to exclude stores in geographically impacted regions for 18 months . same store revenues increased by $ 74.8 million , or 4.7 % , to $ 1,653.4 million for the year ended december 31 , 2018 , as compared to $ 1,578.6 million in 2017 . the increase in same store revenues was primarily attributable to an improvement in the core u.s. segment , as discussed further in the segment performance section below . cost of rentals and fees . cost of rentals and fees consists primarily of depreciation of rental merchandise . cost of rentals and fees for the year ended december 31 , 2018 decreased by $ 3.5 million , or 0.6 % , to $ 621.9 million , as compared to $ 625.4 million in 2017 . this decrease in cost of rentals and fees was primarily attributable to a decrease of $ 8.1 million in the core u.s. segment as a result of lower rentals and fees revenue , partially offset by an increase of $ 3.8 million in the acceptance now segment . cost of rentals and fees expressed as a percentage of rentals and fees revenue increased to 27.7 % for the year ended december 31 , 2018 as compared to 27.6 % in 2017 . cost of merchandise sold . cost of merchandise sold represents the net book value of rental merchandise at time of sale . story_separator_special_tag total store revenue decreased by $ 258.1 million , or 8.8 % , to $ 2,680.4 million for the year ended december 31 , 2017 , from $ 2,938.5 million for 2016. this was primarily due to a decrease of approximately $ 234.3 million in the core u.s. segment , as discussed further in the segment performance section below . same store revenue is reported on a constant currency basis and generally represents revenue earned in 3,376 locations that were operated by us for 13 months or more , excluding any store that receives a certain level of customer accounts from another store ( acquisition or merger ) . receiving stores will be eligible for inclusion in the same store sales base in the twenty-fourth full month following the account transfer . in addition , due to the severity of the hurricane impacts , we instituted a change to the same store sales store selection criteria to exclude stores in geographically impacted regions for 18 months . same store revenues decreased by $ 99.2 million , or 5.4 % , to $ 1,753.9 million for the year ended december 31 , 2017 , as compared to $ 1,853.1 million in 2016. the decrease in same store revenues was primarily attributable to a decline in the core u.s. segment , as discussed further in the segment performance section below . cost of rentals and fees . cost of rentals and fees consists primarily of depreciation of rental merchandise . cost of rentals and fees for the year ended december 31 , 2017 , decreased by $ 39.5 million , or 5.9 % , to $ 625.4 million , as compared to $ 664.8 million in 2016. this decrease in cost of rentals and fees was primarily attributable to a decrease of $ 35.7 million in the core u.s. segment as a result of lower rentals and fees revenue . cost of rentals and fees expressed as a percentage of rentals and fees revenue increased to 27.6 % for the year ended december 31 , 2017 as compared to 26.6 % in 2016. cost of merchandise sold . cost of merchandise sold represents the net book value of rental merchandise at time of sale . cost of merchandise sold decreased by $ 1.1 million , or 0.3 % , to $ 322.6 million for the year ended december 31 , 2017 , from $ 323.7 million in 2016. the gross margin percent of merchandise sales decreased to 2.6 % for the year ended december 31 , 2017 , from 7.8 % in 2016. these decreases were primarily attributable to a decrease of $ 6.4 million in the core u.s. segment , partially offset by an increase of $ 5.3 million in the acceptance now segment driven by a focused effort to encourage ownership and reduce returned product . gross profit . gross profit decreased by $ 216.5 million , or 11.2 % , to $ 1,718.5 million for the year ended december 31 , 2017 , from $ 1,935.0 million in 2016 , due primarily to a decrease of $ 191.5 million in the core u.s. segment , as discussed further in the segment performance section below . gross profit as a percentage of total revenue decreased to 63.6 % in 2017 compared to 65.3 % in 2016. store labor . store labor includes all salaries and wages paid to store-level employees and district managers ' salaries , together with payroll taxes and benefits . store labor decreased by $ 56.6 million , or 7.2 % , to $ 732.5 million for the year ended december 31 , 2017 , as compared to $ 789.0 million in 2016 , primarily attributable to a decrease of $ 44.4 million and $ 10.7 million in the core u.s. and acceptance now segments , respectively , primarily as a result of a lower core u.s. store base and closure of acceptance now locations in the first half of 2017. store labor expressed as a percentage of total store revenue increased to 27.3 % for the year ended december 31 , 2017 , from 26.9 % in 2016. other store expenses . other store expenses include occupancy , charge-offs due to customer stolen merchandise , delivery , advertising , selling , insurance , travel and other store-level operating expenses . other store expenses decreased by $ 47.4 million , or 6.0 % , to $ 744.2 million for the year ended december 31 , 2017 , as compared to $ 791.6 million in 2016 , primarily attributable to a decrease of $ 64.0 million in the core u.s. segment as a result of our rationalization of the core u.s. store base , partially offset by an increase of $ 17.6 million in the acceptance now segment primarily , partially due to a one-time , non-cash , charge to write-off unreconciled invoices with certain retail partners , in addition to increased customer stolen merchandise . other store expenses expressed as a percentage of total store revenue increased to 27.8 % for the year ended december 31 , 2017 , from 26.9 % in 2016. general and administrative expenses . general and administrative expenses include all corporate overhead expenses related to our headquarters such as salaries , payroll taxes and benefits , stock-based compensation , occupancy , administrative and other operating expenses , as well as salaries and labor costs for our regional directors , divisional vice presidents and executive vice presidents . general and administrative expenses increased by $ 2.2 million , or 1.3 % , to $ 171.1 million for the year ended 23 december 31 , 2017 , as compared to $ 168.9 million in 2016 , primarily due to project related expenses , insurance expenses , legal and other professional fees . general and administrative expenses expressed as a percentage of total revenue increased to 6.3 % for the year ended december 31 , 2017 , compared to 5.7 % in 2016. goodwill impairment charge .
| quarterly results the following table contains certain unaudited historical financial information for the quarters indicated : replace_table_token_8_th replace_table_token_9_th replace_table_token_10_th 26 replace_table_token_11_th liquidity and capital resources overview . for the year ended december 31 , 2018 , we generated $ 227.5 million in operating cash flow . we paid down debt by $ 139.3 million from cash generated from operations , used cash in the amount of $ 28.0 million for capital expenditures , and received proceeds from the sale of property assets of $ 25.3 million , ending the year with $ 155.4 million of cash and cash equivalents . analysis of cash flow . cash provided by operating activities increased by $ 117.0 million to $ 227.5 million in 2018 from $ 110.5 million in 2017 . this was primarily attributable to the improvement in net earnings during the twelve months ended december 31 , 2018 compared to 2017 , receipt of our 2017 federal income tax refund of approximately $ 35.2 million , and other net changes in operating assets and liabilities . cash used in investing activities decreased approximately $ 58.6 million to $ 4.7 million in 2018 from $ 63.3 million in 2017 , due primarily to a decrease in capital expenditures of approximately $ 37.5 million and an increase in proceeds from the sale of property assets of approximately $ 20.7 million . cash used in financing activities increased by $ 69.8 million to $ 140.3 million in 2018 from $ 70.5 million in 2017 , primarily driven by our net reduction in debt of $ 139.3 million in 2018 , as compared to a net decrease in debt of $ 52.5 million in 2017 , offset by dividend payments of $ 12.8 million and higher debt issuance payments of $ 3.2 million during the twelve months ended december 31 , 2017 . liquidity requirements .
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in the event that we do not ultimately prevail in our appeal in the korean courts , the deposit included in long-term deposits would be recorded as additional income tax expense on our consolidated statements of operations and comprehensive income ( loss ) , in the period in which we do not ultimately prevail . lge korean withholding tax matter on october 16 , 2017 , we received a letter from lg electronics inc. ( “ lge ” ) requesting that we reimburse lge with respect to withholding tax imposed on lge by the korean tax authorities following an investigation where the tax authority determined that lge failed to withhold on lge 's royalty payments to immersion software ireland from 2012 to 2014. pursuant to an agreement reached with lge , on april 8 , 2020 , we provided a provisional deposit to lge story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements and notes thereto . this management 's discussion and analysis of financial condition and results of operations includes forward-looking statements within the meaning of section 27a of the securities act , as amended ( the “ securities act ” ) , and section 21e of the securities exchange act of 1934 , as amended ( the “ exchange act ” ) . the forward-looking statements involve risks and uncertainties . forward-looking statements are identified by words such as “ anticipates ” , “ believes ” , “ expects ” , “ intends ” , “ may ” , “ can ” , “ will ” , “ places ” , “ estimates ” , and other similar expressions . however , these words are not the only way we identify forward-looking statements . examples of forward-looking statements include any expectations , projections , or other characterizations of future events , or circumstances , and include statements regarding : the impact of covid-19 on our business , including as to revenue , and potential cost reduction measures , and the impact of covid-19 on our customers , suppliers , and on the economy in general ; our strategy and our ability to execute our business plan ; our competition and the market in which we operate ; our customers and suppliers ; our revenue and the recognition and components thereof ; our costs and expenses ; including capital expenditures ; seasonality and demand ; our investment in research and technology development ; changes to general and administrative expenses ; our foreign operations and the reinvestment of our earnings related thereto ; our investment in and protection of our ip ; our employees ; capital expenditures and the sufficiency of our capital resources ; unrecognized tax benefit and tax liabilities ; the impact of changes in interest rates and foreign exchange rates , as well as our plans with respect to foreign currency hedging in general ; changes in laws and regulations ; including with respect to taxes ; our plans related to and the impact of current and future litigation ; our sublease and the timing and income related thereto ; and our stock repurchase program . 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 could differ materially from those projected in the forward-looking statements , therefore we caution you not to place undue reliance on 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 , the following : the effects of the covid-19 global pandemic on us and our business , and on the business of our suppliers and customers ; unanticipated changes in the markets in which we operate ; the effects of the current macroeconomic climate ( especially in light of the ongoing adverse effects of the covid-19 global pandemic ) ; delay in or failure to achieve adoption of or commercial demand for our products or third party products incorporating our technologies ; the inability of immersion to renew existing licensing arrangements , or enter into new licensing arrangements for our patents and other technologies on favorable terms ; the loss of a major customer ; the ability of immersion to protect and enforce our intellectual property rights ; unanticipated difficulties and challenges in developing or acquiring successful innovations and our ability to patent those innovations ; changes in patent law ; confusion as to our licensing model or agreement terms ; the ability of immersion to return to consistent profitability in the future ; the inability of immersion to retain or recruit necessary personnel ; the commencement , by others or by us , of legal or administrative action ; risks related to our international operations and other factors . any forward-looking statements made by us in this report speak only as of the date of this report , and we do not intend to update these forward-looking statements after the filing of this report , unless required to do so by applicable law . you are urged to review carefully and consider our various disclosures in this report and in our other reports publicly disclosed or filed with the sec that attempt to advise you of the risks and factors that may affect our business . critical accounting policies and estimates our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with u.s. gaap . the preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues , expenses , and related disclosure of contingent assets and liabilities . on an ongoing basis , we evaluate our estimates and assumptions , including those related to revenue recognition , stock-based compensation , short-term investments , leases , income taxes and contingencies . story_separator_special_tag the evaluation of the recoverability of the deferred tax assets requires that we weigh all positive and negative evidence to reach a conclusion that it is more likely than not that all or some portion of the deferred tax assets will not be realized . the weight given to the evidence is commensurate with the extent to which it can be objectively verified . our judgments , assumptions , and estimates relative to the current provision for income tax take into account current tax laws including the 2017 tax cuts and jobs act ( the “ tax act ” ) , our interpretation of current tax laws , and possible outcomes of current and future audits conducted by foreign and domestic tax authorities . we have established reserves for income taxes to address potential exposures involving tax positions that could be challenged by tax authorities . although we believe our judgments , assumptions , and estimates are reasonable , changes in tax laws or our interpretation of tax laws and any future tax audits could significantly impact the amounts provided for income taxes in our consolidated financial statements . our assumptions , judgments , and estimates relative to the value of a deferred tax asset take into account predictions of the amount and category of future taxable income , such as income from operations or capital gains income . actual operating results and the underlying amount and category of income in future years could render inaccurate our current assumptions , judgments , and estimates of recoverable net deferred tax assets . any of the assumptions , judgments , and estimates mentioned above could cause our actual income tax obligations to differ from our estimates , thus materially impacting our financial position and results of operations . as disclosed in note 5. contingencies of the notes to the consolidated financial statements , we have made deposit payments to reimburse both samsung and lge for withholding taxes and related penalties paid by them as a result of assessments they have received from the south korean tax authorities . these payments are recorded as long-term deposits on our consolidated balance sheets . we believe that it is more likely than not that we will be reimbursed by both samsung and lge to the extent we ultimately prevail in the appeal in the korean courts . we regularly assess the likelihood that we will prevail in these cases against the south korean tax authorities and consequently the likelihood that these deposits will be recoverable . in the event that we do not ultimately prevail in our appeal in the korean courts , the deposits included in long-term deposits would be recorded as additional income tax expense on our consolidated statements of operations and comprehensive income ( loss ) , in the period in which we do not ultimately prevail . we are a u.s.-based multinational company subject to tax in multiple u.s. and foreign tax jurisdictions . certain portions of our foreign earnings for the current fiscal year were earned by our irish subsidiaries . in addition to providing for u.s. income taxes on earnings from the united states , we provide for u.s. income taxes on the earnings of foreign subsidiaries unless the subsidiaries ' earnings are considered permanently reinvested outside the united states . our income tax rate depends in part on the extent to which our foreign earnings may be taxed by the u.s. through new provisions under the tax act such as the new global intangible low-taxed income ( “ gilti ” ) tax or as a result of our indefinite reinvestment assertion . indefinite reinvestment is determined by management 's judgment about and intentions concerning our future operations . unanticipated changes in our tax rates could affect our future results of operations . our future effective tax rates could be unfavorably affected by changes in the tax rates in jurisdictions where our income is earned , by changes in , our estimates related to , or our interpretation of , tax rules and regulations in the jurisdictions in which we do business , by unanticipated decreases in the amount of earnings in countries with low statutory tax rates , or by changes in the valuation of our deferred tax assets and liabilities . countries in the european union and other countries where we do business have been considering changes in relevant tax , accounting and other laws , regulations and interpretations , including changes to tax laws applicable to corporate multinationals . we began a reorganization of our corporate organization in 2019 in order to address changing international tax laws . see note 8 income taxes of the notes to consolidated financial statements for further information concerning income taxes . 33 story_separator_special_tag style= '' margin-bottom:9pt ; text-indent:18pt '' > research and development - our research and development expenses primarily consisted of employee compensation and benefits , outside services and consulting fees , tooling and supplies , and allocated facilities costs . research and development expenses decreased $ 2.8 million , or 36 % , during 2020 as compared to 2019 primarily due to a $ 1.9 million decrease in compensation , benefits , and other related costs , a $ 0.3 million decrease in facilities related costs , a 0.2 million decrease in travel costs and a $ 0.2 million decrease in outside services costs . the decrease in compensation , benefits and other personnel related costs was primarily attributable to lower base salaries , a decrease in headcount and a decrease in variable compensation primarily attributable to the completed transition of our research and development function from san jose , california to montreal , canada and the impact of cost reduction initiatives we implemented during 2020. in addition , we received the canada emergency wage subsidy ( “ cews ” ) and recorded this subsidy as a reduction to compensation expense in the amount of $ 0.5 million in 2020. the reduction in facilities costs were attributable to lower rent expense following the sublease of the sj facility in the second quarter of 2020. the decrease in travel costs were primarily due
| results of operations overview of 2020 total revenues for 2020 were $ 30.5 million , a decrease of $ 5.5 million , or 15 % , versus 2019. the decrease was primarily driven by a $ 7.2 million decrease in fixed fee license revenue partially offset by a $ 1.7 million increase in per-unit royalty revenue . in 2020 , we had net income of $ 5.4 million compared to a net loss of $ 20.0 million in 2019. the $ 25.4 million increase in net income was mainly related to a $ 29.2 million , or 51 % , decrease in cost and operating expenses partially offset by a $ 5.5 million decrease in total revenue . the following table sets forth our consolidated statements of operations data as a percentage of total revenues : replace_table_token_0_th 34 revenues our revenue is primarily derived from fixed fee license agreements and per-unit royalty agreements , along with less significant revenue earned from development , services and other revenue . royalty and license revenue is composed of per unit royalties earned based on usage or net sales by licensees and fixed payment license fees charged for our ip and software . a revenue summary for the years ended december 31 , 2020 and 2019 are as follows ( in thousands , except for percentages ) : replace_table_token_1_th royalty and license revenue - total royalty and license revenue for 2020 was $ 30.2 million , a $ 5.5 million , or 15 % , decrease compared to $ 35.6 million for 2019. per-unit royalty revenue increased by $ 1.7 million , or 7 % , in 2020 compared to 2019 , primarily caused by a $ 3.5 million increase in royalties from our mobility licensees and a $ 0.8 million increase in royalties from our gaming licensees partially offset by a $ 2.7 million decrease in royalties obtained from our automotive licensees .
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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 under “ cautionary note regarding forward-looking statements ” and under “ risk factors ” herein . overview neostem , inc. ( “ we , ” “ neostem ” or the “ company ” ) is a leader in the emerging cellular therapy industry . cellular therapy addresses the process by which new cells are introduced into a tissue to prevent or treat disease , or regenerate damaged or aged tissue , and comprises a separate therapeutic technology platform in addition to the current three pillars of healthcare : pharmaceuticals , biologics and medical devices . modern cell-based therapies have progressed from the first recorded human to human blood transfusion 200 years ago through to the advanced cellular therapies of today including bone marrow and organ transplantation , tissue banking and reproductive in vitro fertilization and future therapies being investigated to treat cancer , cardiologic , neurologic , ophthalmic and orthopedic diseases among others . we anticipate that cellular therapies will have a large role in the fight against chronic disease and in lessening the economic burden that these diseases pose to modern society . our business model includes the development of novel proprietary cell therapy products as well as operating a contract development and manufacturing organization ( “ cdmo ” ) providing services to others in the regenerative medicine industry . the combination of a therapeutic development business and revenue-generating service provider business provides the company with unique capabilities for cost effective in-house product development and immediate revenue and cash flow generation . progenitor cell therapy , llc , our wholly owned subsidiary ( “ pct ” ) , is a leading cdmo in the cellular therapy industry . since its inception in 1997 , pct has provided pre-clinical and clinical current good manufacturing practice ( “ cgmp ” ) development and manufacturing services to over 100 clients advancing regenerative medicine product candidates through rigorous quality standards all the way through to human testing . pct has two cgmp , state-of-the art cell therapy research , development , and manufacturing facilities in new jersey and california , serving the cell therapy community with integrated and regulatory compliant distribution capabilities . its core competencies in the cellular therapy industry include manufacturing of cell therapy-based products , product and process development , cell and tissue processing , regulatory support , storage , distribution and delivery and consulting services . our wholly-owned subsidiary , amorcyte , llc ( “ amorcyte ” ) , which we acquired in october 2011 , is developing our own cell therapy , amr-001 , for the treatment of cardiovascular disease . amr-001 represents our most clinically advanced therapeutic product candidate and enrollment for our phase 2 preserve clinical trial to investigate amr-001 's safety and efficacy in preserving heart function after a heart attack in a particular type of post acute myocardial infarction ( “ ami ” ) patients commenced in 2012. we expect to complete enrollment for this study in 2013 with the first data readout available six to eight months thereafter . if approved by the u.s. food and drug administration ( `` fda '' ) and or other worldwide regulatory agencies , amr-001 would address a significant unmet medical need in the treatment of ami , potentially improving the quality and longevity of life for those afflicted , and position the company to capture a meaningful share of the worldwide ami market . through our majority-owned subsidiary , athelos corporation ( “ athelos ” ) , we are collaborating with becton-dickinson in early stage clinical development of a therapy utilizing t-cells , collaborating for autoimmune and inflammatory conditions , including but not limited to , graft vs. host disease , type 1 diabetes , steroid resistant asthma , lupus , multiple sclerosis and solid organ transplant rejection . we plan to investigate the clinical feasibility of ntreg-based therapeutics to prevent and or treat type 1 diabetes , graft vs. host disease , steroid resistant asthma , lupus , multiple sclerosis and solid organ transplant rejection and expect to file an investigational new drug application ( `` ind '' ) with the fda in 2013 and commence human clinical studies in one of these disease conditions thereafter . our pre-clinical assets include our vsel tm ( very small embryonic like ) technology platform for which we expect to file an ind with the fda in late 2013 or early 2014 to initiate an national institutes of health ( `` nih '' ) funded human clinical studies treating periodontitis with vsels tm . we are also working on a department of defense funded study of vsels tm and mesenchymal stem cells for the treatment of chronic wounds . neostem 's origins are in adult stem cell collection and storage and we believe that as new therapeutics are developed utilizing one 's own stored cells ( autologous ) , the market penetration rate for the collection and storage business may rise sharply from its current low single digits percentage level allowing our developing a network to scale rapidly if the demand grows . 42 index in 2011 , we operated our business in three reportable segments : ( i ) cell therapy — united states ; ( ii ) regenerative medicine — china ; and ( iii ) pharmaceutical manufacturing — china . in 2012 , we exited our operations in china . effective march 31 , 2012 , we no longer operated in the regenerative medicine – china reportable segment , which is now reported in discontinued operations ( see note 16 ) . on november 13 , 2012 , we completed the sale of our 51 % interest in suzhou erye , which represented the operations in our pharmaceutical manufacturing - china segment , and is also reported in discontinued operations ( see note 16 ) . as a result , we currently operate in a single reporting segment - cell therapy , which will focus on cdmo and cell therapy development programs . story_separator_special_tag discontinued operations regenerative medicine - china segment in 2009 , we operated our regenerative medicine-china business in the people 's republic of china ( “ china ” or “ prc ” ) through our subsidiary , a wholly foreign owned entity ( “ wfoe ” ) and entered into contractual arrangements with certain variable interest entities ( “ vies ” ) . foreign companies have commonly used vie structures to operate in the prc , and while such structures are not uncommon , recently they have drawn greater scrutiny from the local chinese business community in the prc who have urged the prc state council to restrict the use of these structures . in addition , in december 2011 , china 's ministry of health announced its intention to more tightly regulate stem cell clinical trials and stem cell therapeutic treatments in the prc , which has created uncertainty regarding the ultimate regulatory environment in the prc . accordingly , we took steps to restrict , and ultimately eliminate its regenerative medicine business in the prc . as a result of these steps , we have discontinued our operations in our regenerative medicine-china business . we have determined that any liability arising from the activities of the wfoe and the vies will likely be limited to the net assets currently held by each entity . as of march 31 , 2012 , we recognized the following loss on exit of the regenerative medicine-china business ( in thousands ) : replace_table_token_5_th the operations and cash flows of the regenerative medicine - china business were eliminated from ongoing operations as a result of our exit decision , and we will not have continuing involvement in this business going forward . the operating results of the regenerative medicine – china business for the years ended december 31 , 2012 and 2011 , which are included in discontinued operations , were as follows ( in thousands ) : replace_table_token_6_th 45 index pharmaceutical manufacturing - china segment on november 13 , 2012 , we completed the divestiture ( the “ erye sale ” ) of our 51 % interest ( the “ erye interest ” ) in suzhou erye pharmaceuticals company ltd. , a sino-foreign equity joint venture with limited liability organized under the laws of the prc primarily engaged in the manufacture of generic antibiotics ( “ erye ” ) , to suzhou erye economy & trading co. , ltd. , a limited liability company organized under the laws of the prc ( “ eet ” ) , and highacheive holdings limited , a limited liability company organized under the laws of the british virgin islands ( “ highacheive ” and together with eet , each a “ purchaser ” and collectively the “ purchasers ” ) . the erye sale was consummated pursuant to the terms and conditions of the equity purchase agreement , dated as of june 18 , 2012 ( as amended , the “ equity purchase agreement ” ) , by and among neostem , china biopharmaceuticals holdings , inc. , a delaware corporation and a wholly-owned subsidiary of neostem ( “ cbh ” ) , eet , highacheive , fullbright finance limited , a limited liability company organized under the laws of the british virgin islands ( “ fullbright ” ) , and erye . pursuant to the equity purchase agreement , the aggregate purchase price paid to us by the purchasers for the erye interest consisted of ( i ) $ 12.3 million in cash , ( ii ) the return to us of 1,040,000 shares of neostem common stock and ( iii ) the cancellation of 1,170,000 options and 640,000 warrants to purchase our common stock . the fair value of the shares was based on our closing price on the date of sale , and was recorded as treasury stock in our balance sheet . the fair values of the canceled options and warrants were based on the black-scholes values on the date of sale , and were recorded against additional paid in capital in the accompanying balance sheet . we recognized the following loss on the date of sale of its 51 % interest in erye ( in thousands ) : replace_table_token_7_th the operations and cash flows of the pharmaceutical manufacturing - china business were eliminated from ongoing operations with the sale of the company 's 51 % interest in erye . the operating results of the pharmaceutical manufacturing - china business for the years ended december 31 , 2012 and 2011 were as follows ( in thousands ) : 46 index replace_table_token_8_th noncontrolling interests in connection with accounting for our 51 % interest in erye , which is reported in discontinued operations , we account for the 49 % minority shareholder share of erye 's net income or loss with a charge to noncontrolling interests . for the year ended december 31 , 2012 , erye 's minority shareholders ' share of net loss totaled approximately $ 12.3 million , and for the year ended december 31 , 2011 , erye 's minority shareholders ' share of net income totaled approximately $ 9.1 million . on november 13 , 2012 , we completed the divestiture of our 51 % interest in erye . in march 2011 , we acquired rights to use patents under licenses from becton , dickinson and company in exchange for an approximately 20 % interest in pct 's athelos subsidiary . for the years ended december 31 , 2012 and 2011 , becton 's minority shareholder 's share of athelos ' net loss totaled approximately $ 0.3 million and $ 0.3 million , respectively . warrant inducements to raise capital on terms that we deemed favorable , during the year ended december 31 , 2012 , the board authorized certain inducements to warrant holders to exercise outstanding common stock purchase warrants significantly before their expiration dates . we determined in each instance that such inducements were modifications of equity instruments , and an incremental fair value of the inducement was determined using the black-scholes option pricing model .
| results of operations year ended december 31 , 2012 compared to year ended december 31 , 2011 net loss for the year ended december 31 , 2012 was approximately $ 66.4 million compared to $ 56.6 million for the year ended december 31 , 2011 . our net losses from continuing operations for the years ended december 31 , 2012 and 2011 were approximately $ 36.1 million and $ 34.6 million , respectively . the net losses from discontinued operations - net for the years ended ended december 31 , 2012 and 2011 were approximately $ 30.3 million and $ 22.0 million , respectively . the losses from discontinued operations - net , reflects the operations of our regenerative medicine – china segment which was deconsolidated in the first quarter of 2012 , and the operations of our pharmaceutical manufacturing - china segment , which related to the sale of our 51 % interest in suzhou erye in the fourth quarter of 2012. revenues for the year ended december 31 , 2012 , total revenues were approximately $ 14.3 million compared to $ 10.1 million for the year ended december 31 , 2011 , representing an increase of $ 4.3 million , or 43 % . revenues were comprised of the following ( in thousands ) : replace_table_token_4_th clinical services , representing process development and clinical manufacturing services provided at pct to its various clients , were approximately $ 8.0 million for the year ended december 31 , 2012 compared to $ 5.5 million for the year ended december 31 , 2011 , representing an increase of approximately $ 2.5 million or 46 % .
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2. property , plant and equipment property , plant and equipment consisted of the following at december 31 , 2016 and december 26 , 2015 : replace_table_token_28_th in june 2016 , the company 's subsidiary kowon sold its plant and the land on which the plant resided for approximately $ 8.1 million and recognized a gain of $ 7.7 million . kowon had ceased its story_separator_special_tag the following discussion should be read in conjunction with our consolidated financial statements and notes to those statements and other financial information appearing elsewhere in this annual report on form 10-k. the following discussion contains forward looking information that involves risks and uncertainties . our actual results could differ materially from those anticipated in the forward looking statements as a result of a number of factors , including the risks discussed in item 1a “ risk factors ” , and elsewhere in this annual report on form 10-k. management 's discussion and analysis of our financial condition and results of operations are based upon our audited consolidated financial statements . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets , liabilities , revenues and expenses and related disclosure of contingent assets and liabilities . on an ongoing basis , we evaluate our estimates , including those related to revenue recognition under the percentage-of-completion method , bad debts , inventories , warranty reserves , investment valuations , valuation of stock compensation awards , recoverability of deferred tax assets , liabilities for uncertain tax positions and contingencies . 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 carrying values of assets and liabilities that are not apparent from other sources . actual results may differ from these estimates under different assumptions . the prior period amounts have been revised for the impact of discontinued operations due to the sale of our iii-v product line , including our ktc subsidiary . our financial results for prior periods have also been revised , in accordance with u.s. gaap , to reflect certain changes to the business and other matters . we believe the following critical accounting policies are most affected by our more significant judgments and estimates used in the preparation of our consolidated financial statements : revenue recognition we recognize revenue if four basic criteria have been met : ( 1 ) persuasive evidence of an arrangement exists ; ( 2 ) delivery has occurred and services rendered ; ( 3 ) the price to the buyer is fixed or determinable ; and ( 4 ) collectability is reasonably assured . we do not recognize revenue for products prior to customer acceptance unless we believe the product meets all customer specifications and has a history of consistently achieving customer acceptance of the product . provisions for product returns and allowances are recorded in the same period as the related revenues . we analyze historical returns , current economic trends and changes in customer demand and acceptance of product when evaluating the adequacy of sales returns and other allowances . certain product sales are made to distributors under agreements allowing for a limited right of return on unsold products . sales to distributors are primarily made for sales to the distributors ' customers and not for stocking of inventory . we delay revenue recognition for our estimate of distributor claims of right of return on unsold products based upon our historical experience with our products and specific analysis of amounts subject to return based upon discussions with our distributors or their customers . we recognize revenues from long-term research and development government contracts on the percentage-of-completion method of accounting as work is performed , based upon the ratio of costs or hours already incurred to the estimated total cost of completion or hours of work to be performed . revenue recognized at any point in time is limited to the amount funded by the u.s. government or contracting entity . we recognize revenue for product development and research contracts that have established prices for distinct phases when delivery and acceptance of the deliverable for each phase has occurred . in some instances , we are contracted to create a deliverable which is anticipated to go into full production . in those cases , we discontinue the percentage-of-completion method after formal qualification of the deliverable has been completed and revenue is then recognized based on the criteria established for sale of products . in certain instances qualification may be achieved and delivery of production units may commence however our customer may have either identified new issues to be resolved or wish to incorporate a newer display technology . in these circumstances new units delivered will continue to be accounted for under the criteria established for sale of products . under certain of our research and development contracts , we recognize revenue using a milestone methodology . this revenue is recognized when we achieve specified milestones based on our past performance . we classify amounts earned on contracts in progress that are in excess of amounts billed as unbilled receivables and we classify amounts received in excess of amounts earned as billings in excess of revenues earned . we invoice based on dates specified in the related agreement or in periodic installments based upon our invoicing cycle . we recognize the entire amount of an estimated ultimate loss in our financial statements at the time the loss on a contract becomes known . accounting for design , development and production contracts requires judgment relative to assessing risks , estimating contract revenues and costs , and making assumptions for schedule and technical issues . due to the size and nature of the work 24 required to be performed on many of our contracts , the estimation of total revenue and cost at completion is complicated and subject to many variables . story_separator_special_tag we have not taken any protective measures against exchange rate fluctuations , such as purchasing hedging instruments with respect to such fluctuations , because of the historically stable exchange rate between the japanese yen , korean won and the u.s. dollar . cost of component revenues . replace_table_token_6_th cost of component revenues , which is comprised of materials , labor and manufacturing overhead related to the production of our products increased as a percentage of revenues in 2016 as compared to 2015 due to a decrease in the sale of our display products for military applications , which have higher margins than our other products and lower overall volume of revenues which results in higher fixed overhead costs per unit . research and development . replace_table_token_7_th research and development ( r & d ) expenses are incurred in support of internal display development programs or programs funded by agencies or prime contractors of the u.s. government and commercial partners . in fiscal year 2017 , our r & d expenditures will be related to our display products , overlay weapon sights and kopin wearable technologies . r & d revenues associated with funded programs are presented separately in revenue in the statement of operations . r & d costs include staffing , purchases of materials and laboratory supplies , circuit design costs , fabrication and packaging of display products , and overhead . funded r & d expense for 2016 decreased as compared to the prior year due to a reduction in programs with customers developing products for wearable applications . the decrease occurred because the customers either discontinued the programs or the products moved into the commercialization phase . selling , general and administrative . selling , general and administrative ( s , g & a ) expenses consist of the expenses incurred by our sales and marketing personnel and related expenses , and administrative and general corporate expenses . 27 replace_table_token_8_th the decrease in s , g & a expenses in 2016 as compared to 2015 is primarily attributable to a decrease in deferred compensation expense , professional fees and intangible amortization partially offset by an increase in labor costs . other income and expense . replace_table_token_9_th other income and expense , net , as shown above , is composed of interest income , foreign currency transactions and remeasurement gains and losses incurred by our korean and united kingdom subsidiaries , gains on sales of investments and the impairment of cost based investments . additionally , in 2016 , we recorded $ 0.5 million of expense for amounts stolen from kowon . for 2016 , we recorded $ 0.7 million of foreign currency losses as compared to $ 0.6 million foreign currency gains for 2015 . this was primarily attributable to increased fluctuations in the u.s. dollar and gbp exchange rate . in 2015 , we recorded a gain on the sale of investments of $ 9.2 million consisting of gains from the sale of investments in vuzix and recon of $ 3.7 million and $ 5.5 million , respectively . in 2016 we recorded a final additional gain of $ 1.0 million on the sale of our investment in recon as a result of the release of amounts which were held in escrow at the time of the sale . tax provision . the provision for income taxes for the fiscal year ended 2016 of $ 3.1 million represents $ 33,000 of state tax , $ 978,000 of tax for gain on sale of the korean subsidiary 's building , $ 671,000 for uncertain tax position , which includes potential interest and penalties of $ 296,000 , and foreign withholding of $ 1,448,000. for 2017 , we expect to have movement in the foreign withholding tax relating to conversion rate changes . we also expect to have a state tax provision in 2017. net ( income ) loss attributable to noncontrolling interest . we own approximately 93 % of the equity of kowon and 80 % of the equity of emdt . in the fourth quarter of 2015 , we increased our investment in kopin software ltd. from 58 % to 100 % . net loss attributable to noncontrolling interest on our consolidated statement of operations represents the portion of the results of operations of our majority owned subsidiaries which is allocated to the shareholders of the equity interests not owned by us . the change in the statement of operations attributable to noncontrolling interest is the result of the change in the results of operations of kowon , and emdt for the twelve month period ended december 31 , 2016 and for the period of time during 2015 when we owned 58 % of kopin software ltd. replace_table_token_10_th fiscal year 2015 compared to fiscal year 2014 revenues . our revenues , which include product sales and amounts earned from research and development contracts , for fiscal years 2015 and 2014 , by category , were as follows : 28 replace_table_token_11_th sales of our products for military applications decreased in 2015 because of a decrease in demand from the u.s. government , primarily for our products used in thermal weapon sights . the increase in sales of our product for industrial applications in 2015 as compared to 2014 is the result of an increase in sales of our products to manufacturers of 3d metrology equipment . our 3d metrology customers are primarily located in asia , and chinese contract manufactures represent a significant market for 3d metrology equipment . accordingly , sales of 3d metrology equipment are tied to the strength of the chinese manufacturing sector . the decrease in the consumer applications is the result of a decrease in sales of our products for use in digital still cameras ( dscs ) . we believe the overall market for dscs has been declining due to an increase in use of cameras in smartphones .
| results of operations on january 16 , 2013 , we completed the sale of our iii-v product line , including all of the outstanding equity interest in ktc wireless , llc ( ktc ) a wholly-owned subsidiary of the company , to iqe kc , llc ( iqe ) and iqe plc ( parent , and collectively with iqe , the buyer ) . the aggregate sale purchase price was approximately $ 70.2 million , after certain adjustments , including working capital adjustments . the gain on the sale , net of tax , was $ 20.1 million . under the terms of the purchase agreement , $ 55 million was paid to us in january 2013 , $ 0.2 million was paid in april 2013 and the remaining $ 15 million was paid on january 15 , 2016. we are a leading developer , manufacturer and seller of miniature displays , optical lenses , asics ( our “ components ” ) and software for integration into wearable products for sale as individual components or in headsets we design and license . we use our proprietary semiconductor material technology to design , manufacture and market our component products for use in highly demanding high-resolution portable military , enterprise and consumer electronic applications , training and simulation equipment and 3d metrology equipment . our products enable our customers to develop and market an improved generation of products for these target applications . we have two principal sources of revenues : component revenues and research and development revenues . research and development revenues consist primarily of development contracts with agencies or prime contractors of the u.s. government and commercial enterprises . research and development revenues were $ 1.5 million , or 6.7 % of total 2016 revenues , $ 3.9 million , or 12.1 % of total 2015 revenues and $ 4.9 million , or 15.3 % of total 2014 revenues . we manufacture transmissive microdisplays and reflective microdisplays .
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during 2011 , the company recognized an other-than-temporary impairment loss on equity securities of $ 148,000 , as compared to no other-than-temporary impairment loss during 2013 and 2012. the amortized cost and estimated fair value story_separator_special_tag overview oceanfirst financial corp. has been the holding company for oceanfirst bank since it acquired the stock of the bank upon the bank 's conversion from a federally-chartered mutual savings bank to a federally-chartered capital stock savings bank in 1996 ( the conversion ) . the company conducts business primarily through its ownership of the bank which operates its administrative/branch office located in toms river and twenty-two additional branch offices . eighteen of the offices are located in ocean county , new jersey , with four branches in monmouth county and one in middlesex county . the bank also operates a trust and asset management office in manchester , new jersey . the company 's results of operations are primarily dependent on net interest income , which is the difference between the interest income earned on the company 's interest-earning assets , such as loans and investments , and the interest expense on its interest-bearing liabilities , such as deposits and borrowings . the company also generates non-interest income such as income from trust and asset management , bankcard services , loan sales , loan originations ( including reverse mortgages ) , loan servicing , deposit account services , the sale of alternative investments , and other fees . the company 's operating expenses primarily consist of compensation and employee benefits , occupancy and equipment , marketing , federal deposit insurance , data processing , and other general and administrative expenses . the company 's results of operations are also significantly affected by competition , general economic conditions including levels of unemployment and real estate values as well as changes in market interest rates , government policies and actions of regulatory agencies . strategy the company operates as a full service community bank , with a strong focus on consumers and businesses in its local markets . the bank is the oldest and largest community-based financial institution headquartered in ocean county , new jersey . the bank competes with larger and out-of-market financial service providers through its local focus and the delivery of superior service . the bank also competes with smaller in-market financial service providers by offering a broad array of products . the company 's strategy has been to consistently grow profitability while limiting exposure to credit , interest rate and operational risks . to accomplish these objectives , the bank has sought to ( 1 ) grow commercial loans receivable through the offering of commercial lending services to local businesses ; ( 2 ) increase non-interest income by expanding the menu of fee-based products and services and investing additional resources in these product lines ; and ( 3 ) grow core deposits ( defined as all deposits other than time deposits ) through product offerings appealing to a broadened customer base . growing commercial loans with industry consolidation eliminating most locally-headquartered competitors , the company fills a void for locally-delivered commercial loan and deposit services . the bank has assembled an experienced team of business banking professionals which was further supplemented during 2013 through the successful recruitment of several experienced commercial lenders from competitor banks . these professionals are responsible for offering commercial loan and deposit services and bankcard services to local businesses . as a result of this initiative , commercial loans represented 37.5 % of the bank 's total loans at december 31 , 2013 as compared 23.4 % at december 31 , 2008 and only 3.6 % at december 31 , 1997. commercial loan balances increased by $ 56.4 million , or 10.6 % , in 2013. commercial loan products entail a higher degree of credit risk than is involved in one-to-four family residential mortgage lending activity . as a consequence , management continues to employ a well-defined credit policy focusing on quality underwriting and close management and board monitoring . see risk factors increased emphasis on commercial lending may expose the bank to increased lending risks . 40 enhancing non-interest income management continues to diversify the bank 's product line and expand related resources in order to enhance non-interest income . the bank is currently focused on growth opportunities in trust and asset management services and in bankcard services , which includes interchange revenue , merchant services and atm fees . the bank also offers alternative investment products ( annuities , mutual funds and life insurance ) for sale through its retail branch network . as a result of these initiatives , income from fees and service charges has increased to $ 13.8 million for the year ended december 31 , 2013 as compared to $ 11.4 million for the year ended december 31 , 2008 and only $ 1.4 million for the year ended december 31 , 1997. increasing core deposits the bank seeks to increase core deposit market share in its primary market area by improving market penetration . over the past ten years through december 31 , 2013 , the bank has opened eight branch offices , five in ocean county and three in monmouth county including a full service financial solutions center in red bank . after a comprehensive review of the bank 's branch network in late 2013 , two existing branches were consolidated into newer , in-market , facilities resulting in a non-recurring charge of $ 579,000. the bank is continually evaluating additional strategic office sites within its existing market area . core account development has benefited from bank efforts to attract business deposits in conjunction with its commercial lending operations and from an expanded mix of retail core account products . story_separator_special_tag an estimated loss factor is then applied to each risk tranche . to determine the loss factor , the bank utilizes an average of loan losses as a percent of loan principal adjusted for the estimated probability of default . the historical loss rate is adjusted for certain qualitative factors including current economic conditions , regulatory environment , local competition , lending personnel , loan policies and underwriting standards , loan review system , delinquency trends , loss trends , nature and volume of the loan portfolio and concentrations of credit . the adjusted loss factor is then applied to each risk tranche . existing economic conditions which the bank considered to estimate the allowance for loan losses include local trends in economic growth , unemployment and real estate values . in evaluating the qualitative factors as of december 31 , 2013 , the company considered the favorable impact of lower and more transparent risk from superstorm sandy and the potential adverse impact of actual and proposed increases to flood insurance premiums which may stress borrowers ' ability to repay their loans or lower real estate values in certain flood prone areas ; the recent recruitment of commercial lenders from competitor banks and the related accelerated growth in commercial real estate loans over the second half of 2013 ; and the company 's recent emphasis on construction-to-permanent residential construction loans attributable to local rebuilding after the damage caused by superstorm sandy . the bank also maintains an unallocated portion of the allowance for loan losses . the primary purpose of the unallocated component is to account for the inherent imprecision of the overall loss estimation process including the periodic updating of appraisals and commercial loan risk ratings , the geographic concentration of the loan portfolio and continued economic uncertainty . of the bank 's loan portfolio , 96.1 % , is secured by real estate , whether one-to-four family , consumer or commercial . additionally , most of the bank 's borrowers are located in ocean and monmouth counties , new jersey and the surrounding area . these concentrations may adversely affect the bank 's loan loss experience should local real estate values decline further or should the markets served continue to experience difficult economic conditions including increased unemployment or should the area be affected by a natural disaster such as a hurricane or flooding . 44 management believes the primary risk characteristics for each portfolio segment are a continued decline in the economy generally , including elevated levels of unemployment , a further decline in real estate market values and possible increases in interest rates . additionally , superstorm sandy and actual and proposed increases to flood insurance premiums may adversely affect real estate market values . any one or a combination of these events may adversely affect the borrowers ' ability to repay the loans , resulting in increased delinquencies , loan charge-offs and future levels of provisions . accordingly , the bank has provided for loan losses at the current level to address the current risk in the loan portfolio . although management believes that the bank has established and maintained the allowance for loan losses at adequate levels , additions may be necessary if future economic and other conditions differ substantially from the current operating environment . in addition , various regulatory agencies , as part of their examination process , periodically review the bank 's allowance for loan losses . such agencies may require the bank to make additional provisions for loan losses based upon information available to them at the time of their examination . although management uses what it believes to be the best information available , future adjustments to the allowance may be necessary due to economic , operating , regulatory and other conditions beyond the bank 's control . reserve for repurchased loans and loss sharing obligations the reserve for repurchased loans and loss sharing obligations relates to potential losses on loans sold which may have to be repurchased due to an early payment default , or a violation of representations and warranties . the reserve also includes an estimate of the bank 's obligation under a loss sharing arrangement with the fhlb relating to loans sold into their mortgage partnership finance program . provisions for losses are charged to gain on sale of loans and credited to the reserve , which is part of other liabilities , while actual losses are charged to the reserve . in order to estimate an appropriate reserve for repurchased loans and loss sharing obligations , the bank considers recent and historical experience , product type and volume of recent whole loan sales and the general economic environment . management believes that the bank has established and maintained the reserve for repurchased loans and loss sharing obligations at adequate levels , however , future adjustments to the reserve may be necessary due to economic , operating or other conditions beyond the bank 's control . valuation of mortgage servicing rights ( msr ) the estimated origination and servicing costs of mortgage loans sold in which servicing rights are retained is allocated between the loans and the servicing rights based on their estimated fair values at the time of the loan sale . servicing assets are carried at the lower of cost or fair value and are amortized in proportion to , and over the period of , net servicing income . the estimated fair value of msr is determined through a discounted analysis of future cash flows , incorporating numerous assumptions including servicing income , servicing costs , market discount rates , prepayment speeds and default rates . impairment of the msr is assessed on a quarterly basis on the fair value of those rights with any impairment recognized as a component of loan servicing fee income . impairment is measured by risk strata based on the interest rate of the underlying mortgage loan . the fair value of msr is sensitive to changes in assumptions . fluctuations in prepayment speed assumptions have the most significant impact on the fair value of msr .
| summary interest-earning assets , both loans and securities , are generally priced against longer-term indices , while interest-bearing liabilities , primarily deposits and borrowings , are generally priced against shorter-term indices . beginning in the second half of 2011 and through the first quarter of 2013 , the company 's net interest margin had generally contracted . due to the low interest rate environment , high loan refinance volume caused yields on loans and mortgage-backed securities to trend downward . at the same time , the company 's asset mix shifted as higher-yielding loans decreased due to prepayments and the sale of newly-originated , 30-year , fixed-rate , one-to-four family loans while lower-yielding securities increased . in mid-year , the company 's net interest margin stabilized and then expanded at year-end . although high loan refinance volume and shifting asset mix continued into the second quarter of 2013 , the company 's net interest margin nonetheless expanded slightly as the company invested excess liquidity into higher-yielding assets and managed funding costs lower . in the third quarter of 2013 , refinance activity subsided and the company was successful in growing commercial loans , resulting in a shift in asset mix from lower-yielding securities into higher-yielding loans . early in the fourth quarter of 2013 , the company prepaid $ 159.0 million of federal home loan bank advances . this transaction , along with continued growth in commercial loans , improved net interest income and margin in the last quarter of the year . based upon current economic conditions , the federal reserve has indicated that it intends to keep short-term interest rates at current levels , at least as long as the unemployment rate remains above 6.5 % , inflation between one and two years ahead is projected to be no more than one-half percentage point above the 2 percent longer-run goal , and longer-term inflation expectations continue to be well-anchored .
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is expected to reach 252.6 million in 2019 , up from 221.6 million in 2018 , and is projected to grow with a cagr of +12.6 % to surpass 347 million in 2022. the number of people who are aware of esports worldwide is expected to reach 1.8 billion in 2019 , up from 1.6 billion in 2018. china is expected to contribute most to global esports awareness , with 500.2 million people aware of esports in 2019. the increasing prominence of esports as a mainstream entertainment industry is driving the growth in awareness in most regions . audience and awareness growth in the emerging regions of latin america , middle east and africa , southeast asia , and rest of asia is largely driven by improving it infrastructure and urbanization . the rise of new franchises , such as playerunknown 's battlegrounds or pubg , is an important global growth factor . the influx of millennials should further drive the growth of the industry 's audience . 32 in 2018 , there were 737 major events that together generated $ 54.7 million in ticket revenues , down from $ 58.9 million in 2017 while in 2017 there were 588 major esports events . the total prize money of all esports events held in 2017 reached $ 112 million , breaking the $ 100 million mark for the first year . total prize money in 2018 reached $ 150.8 million , an increase from 2017 's $ 112 million . the league of legends world championship was 2018 's biggest tournament by live viewership hours on twitch , with 53.8 million hours . it also produced $ 1.9 million in ticket revenues . the overwatch league was the most-watched league by live viewership hours on twitch , generating 79.5 million hours . forbes magazine projects fans of esports will wager $ 23 billion on professional esports events by 2020 and that in 2019 , $ 897.2 million in revenues , or 82 % of the total market , will come from brand investments ( media rights , advertising , and sponsorship ) . this will increase to $ 1.5 billion by 2022 , making up 87 % of total esports revenues . although official competitions have long been a part of video game culture , participation and spectatorship of such events have seen a global surge in popularity over the last few years with the rapid growth of online streaming over the last few years . the advent of online streaming technology has turned esports into a global industry that includes professional players and teams competing in major events that are simultaneously watched in person in stadiums ( which are often sold out ) , and by online viewers ( which regularly exceed 1,000,000 viewers for major tournaments ) . the impact has been so significant , that many video game developers now build features into their games designed to facilitate competition . going concern we have financed operations primarily through the sale of equity securities and short-term debt . until revenues are sufficient to meet our needs , we will continue to attempt to secure financing through equity or debt securities , including the sale of securities in this offering . we continue to incur negative cash flows from operating activities and net losses . we had minimal cash , negative working capital , and negative total equity as of june 30 , 2019 and june 30 , 2018. these factors , among others , raise substantial doubt about our ability to continue as a going concern . the financial statements included in this prospectus do not include any adjustments that might result from the outcome of this uncertainty . in order for us to eliminate substantial doubt about our ability to continue as a going concern , we must achieve profitability , generate positive cash flows from operating activities and obtain the necessary debt or equity funding to meet our projected capital investment requirements . our management 's plans with respect to this uncertainty consist of raising additional capital by issuing debt or equity securities and increasing the sales of our products and services . if we are successful in completing the offering , we believe the net proceeds of the offering together with anticipated growth of the business will be sufficient to eliminate substantial doubt about our ability to continue as a going concern . there can be no assurance , however , that we will be able to complete the offering , raise sufficient additional capital or that revenues will increase rapidly enough to offset operating losses . if we are unable to increase revenues or obtain additional financing , we will be unable to continue the development of our products and services and may have to cease operations . story_separator_special_tag bold ; border-bottom : black 1.5pt solid '' > project estimated cost launch our skill-based video game tournaments for play on mobile devices $ 500,000 launch our skill-based video game tournaments for play on pcs and video game consoles $ 1,000,000 obtain online gaming license from , and establish operations in , malta $ 1,000,000 obtain online gaming license from , and establish operations in , an asian country to be selected by us . $ 500,000 market our online betting services $ 5,000,000 34 our auditor 's report on our june 30 , 2019 financial statements expresses an opinion that substantial doubt exists as to whether we can continue as an ongoing business . other than the foregoing , we do not know of any trends that have or are reasonably likely to have a current or future effect on our financial condition , changes in financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources that are material to investors . off balance sheet arrangements none . story_separator_special_tag is expected to reach 252.6 million in 2019 , up from 221.6 million in 2018 , and is projected to grow with a cagr of +12.6 % to surpass 347 million in 2022. the number of people who are aware of esports worldwide is expected to reach 1.8 billion in 2019 , up from 1.6 billion in 2018. china is expected to contribute most to global esports awareness , with 500.2 million people aware of esports in 2019. the increasing prominence of esports as a mainstream entertainment industry is driving the growth in awareness in most regions . audience and awareness growth in the emerging regions of latin america , middle east and africa , southeast asia , and rest of asia is largely driven by improving it infrastructure and urbanization . the rise of new franchises , such as playerunknown 's battlegrounds or pubg , is an important global growth factor . the influx of millennials should further drive the growth of the industry 's audience . 32 in 2018 , there were 737 major events that together generated $ 54.7 million in ticket revenues , down from $ 58.9 million in 2017 while in 2017 there were 588 major esports events . the total prize money of all esports events held in 2017 reached $ 112 million , breaking the $ 100 million mark for the first year . total prize money in 2018 reached $ 150.8 million , an increase from 2017 's $ 112 million . the league of legends world championship was 2018 's biggest tournament by live viewership hours on twitch , with 53.8 million hours . it also produced $ 1.9 million in ticket revenues . the overwatch league was the most-watched league by live viewership hours on twitch , generating 79.5 million hours . forbes magazine projects fans of esports will wager $ 23 billion on professional esports events by 2020 and that in 2019 , $ 897.2 million in revenues , or 82 % of the total market , will come from brand investments ( media rights , advertising , and sponsorship ) . this will increase to $ 1.5 billion by 2022 , making up 87 % of total esports revenues . although official competitions have long been a part of video game culture , participation and spectatorship of such events have seen a global surge in popularity over the last few years with the rapid growth of online streaming over the last few years . the advent of online streaming technology has turned esports into a global industry that includes professional players and teams competing in major events that are simultaneously watched in person in stadiums ( which are often sold out ) , and by online viewers ( which regularly exceed 1,000,000 viewers for major tournaments ) . the impact has been so significant , that many video game developers now build features into their games designed to facilitate competition . going concern we have financed operations primarily through the sale of equity securities and short-term debt . until revenues are sufficient to meet our needs , we will continue to attempt to secure financing through equity or debt securities , including the sale of securities in this offering . we continue to incur negative cash flows from operating activities and net losses . we had minimal cash , negative working capital , and negative total equity as of june 30 , 2019 and june 30 , 2018. these factors , among others , raise substantial doubt about our ability to continue as a going concern . the financial statements included in this prospectus do not include any adjustments that might result from the outcome of this uncertainty . in order for us to eliminate substantial doubt about our ability to continue as a going concern , we must achieve profitability , generate positive cash flows from operating activities and obtain the necessary debt or equity funding to meet our projected capital investment requirements . our management 's plans with respect to this uncertainty consist of raising additional capital by issuing debt or equity securities and increasing the sales of our products and services . if we are successful in completing the offering , we believe the net proceeds of the offering together with anticipated growth of the business will be sufficient to eliminate substantial doubt about our ability to continue as a going concern . there can be no assurance , however , that we will be able to complete the offering , raise sufficient additional capital or that revenues will increase rapidly enough to offset operating losses . if we are unable to increase revenues or obtain additional financing , we will be unable to continue the development of our products and services and may have to cease operations . story_separator_special_tag bold ; border-bottom : black 1.5pt solid '' > project estimated cost launch our skill-based video game tournaments for play on mobile devices $ 500,000 launch our skill-based video game tournaments for play on pcs and video game consoles $ 1,000,000 obtain online gaming license from , and establish operations in , malta $ 1,000,000 obtain online gaming license from , and establish operations in , an asian country to be selected by us . $ 500,000 market our online betting services $ 5,000,000 34 our auditor 's report on our june 30 , 2019 financial statements expresses an opinion that substantial doubt exists as to whether we can continue as an ongoing business . other than the foregoing , we do not know of any trends that have or are reasonably likely to have a current or future effect on our financial condition , changes in financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources that are material to investors . off balance sheet arrangements none .
| results of operations the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes included elsewhere in this report . material changes in line items in our statement of operations for the year ended june 30 , 2019 as compared to the same period last year , are discussed below . 33 year ended june 30 , 2019 compared to the year ended june 30 , 2018 revenue and expenses our operating expenses are classified into several categories : ● directors compensation ● consulting fees ● professional fees ● general and administrative expenses ● stock based compensation directors compensation is comprised of cash and stock option compensation paid to the directors of the company . these amounted to $ 55,000 for the year ended june 30 , 2019 , compared to 99,509 for the year ended june 30 , 2018. the decrease of $ 44,509 in director 's compensation during the year ended june 30 , 2019 is attributable primarily to the change of a board member to an executive officer during the year . consulting fees amounted to $ 790,105 for the year ended june 30 , 2019 , compared to $ 967,618 for the year ended june 30 , 2018. the decrease of $ 177,513 in consulting fees during the year ended june 30 , 2019 is attributable primarily to reduced fees of outside services to support the preparation of sec filings combined with the conversion of consultants to personnel . professional fees consist primarily of our contracted accounting , legal and audit fees .
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some of the information contained in this discussion and analysis or set forth elsewhere in this report , including information with respect to our plans and strategy for our business and related financing , includes forward-looking statements that involve risks and uncertainties . you should read the “ risk factors ” section in part 1—item 1a of this report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview we are a biopharmaceutical company dedicated to advancing a broad portfolio of targeted therapeutics for oncology and other areas of unmet medical need . our proprietary platform has delivered unique insights into cancer and related diseases . our strategy is to leverage these biomarker insights and partner resources to advance the development of our clinical pipeline . our pipeline includes our lead candidate tivozanib , an oral , once-daily , vascular endothelial growth factor , or vegf tyrosine kinase inhibitor , or tki . tivozanib is a potent , selective and long half-life inhibitor of all three vegf receptors and is designed to optimize vegf blockade while minimizing off-target toxicities , potentially resulting in improved efficacy and minimal dose modifications . tivozanib has been investigated in several tumor types , including renal cell , colorectal and breast cancers . in june 2013 , the u.s. food and drug administration , or fda , issued a complete response letter denying our application for approval of the use of tivozanib in first-line treatment of advanced renal cell carcinoma , or rcc , citing concerns regarding the negative trend in overall survival in tivo-1 , our first pivotal phase 3 clinical trial . in may 2016 , we initiated enrollment and treatment of patients in tivo-3 , a new phase 3 clinical trial of tivozanib , in the third-line treatment of patients with refractory rcc seeking to address the overall survival , or os , concerns from the tivo-1 trial presented in the june 2013 complete response letter from the fda and to support a request for regulatory approval of tivozanib in the united states as a third-line treatment and as a first-line treatment for rcc . we expect to complete enrollment in the tivo-3 trial in june 2017 , and to report top line data in the first quarter of 2018. the tivo-3 trial passed an initial safety data assessment in february 2017. we expect a pre-planned interim futility analysis to occur mid-year 2017. in march 2017 , we initiated enrollment in the tinivo trial , a phase 1/2 trial of tivozanib in combination with opdivo ® , or nivolumab , an immune checkpoint , or pd-1 , inhibitor , for the treatment of rcc . bristol-myers squibb is supplying nivolumab for the tinivo trial , and we are the trial sponsor . the tinivo trial is being led by the institut gustave roussy in paris under the direction of professor bernard escudier , md , chairman of the genitourinary oncology committee . the phase 1 trial will primarily evaluate the safety of tivozanib in combination with nivolumab at escalating doses of tivozanib and , assuming favorable results , is expected to be followed by a phase 2 expansion at the established combination dose . we expect to receive initial data from the phase 1 portion of the tinivo trial in the first half of 2017 . in february 2016 , eusa pharma ( uk ) ltd. , or eusa , our european licensee , submitted a marketing authorization application , or maa , for tivozanib with the european medicines agency , or ema , for the treatment of rcc . the application was validated in march 2016 , confirming that the submission was complete and that the ema would initiate its review process . eusa received the day 120 list of questions from the committee for medicinal products for human use , or chmp , of the ema in july 2016 , and submitted its responses in november 2016. in january 2017 , eusa received the day 180 list of outstanding issues , or loi , from the chmp , of the ema . the day 180 loi signifies that the maa is not approvable at the present time , and outlines outstanding deficiencies , which are then required to be satisfactorily addressed in an oral explanation and or in writing prior to a final application decision . eusa has informed aveo that it expects to submit written responses to the day 180 loi in april 2017 , and the ema has tentatively scheduled eusa to provide an oral explanation to the chmp in may 2017. we also have a pipeline of monoclonal antibodies , including : ( i ) ficlatuzumab , a potent hepatocyte growth factor , or hgf , antibody that inhibits the activity of the hgf/c-met pathway . ficlatuzumab is in early stage clinical development , with ongoing studies in acute myloid leukemia , or aml , and squamous cell cancer of the head and neck , or scchn . we and our worldwide partner biodesix , inc. , or biodesix , will share equally in all future costs and profits relating to the development of ficlatuzumab ; ( ii ) av-203 , a potent , high-affinity inhibitor of the erbb3 pathway . our partner canbridge life sciences ltd. , or canbridge , will fund manufacturing and clinical development through proof-of-concept in esophageal squamous cell carcinoma ; 65 ( iii ) av-380 , a potent , humanized igg1 inhibitory monoclonal antibody targeting growth differentiating factor-15 , or gdf15 , a divergent member of the tgf-ß family , for the potential treatment or prevention of cachexia . we have licensed av-380 to novartis , which will fund all development , manufacturing and commercialization ; and ( iv ) the av-353 platform , a family of potent inhibitory antibody candidates specific to notch 3 , one of which has demonstrated an ability in preclinical models to potentially reverse disease phenotype for pulmonary arterial hypertension , or pah . story_separator_special_tag under the license agreement , eusa made a research and development funding payment to us of $ 2.5 million in 2015. eusa is required to make a further research and development funding payment of $ 4.0 million if the ema grants marketing approval for tivozanib for treatment of rcc . we are eligible to receive additional research funding from eusa , including up to $ 20.0 million for the data generated by our phase 3 clinical trial in third-line rcc if eusa elects to utilize such data for regulatory or commercial purposes , and up to $ 2.0 million for the data generated by a phase 1 combination trial with a checkpoint inhibitor if eusa elects to utilize such data for regulatory or commercial purposes . we would be entitled to receive milestone payments of $ 2.0 million per country upon reimbursement approval , if any , for rcc in each of france , germany , italy , spain and the united kingdom , and an additional $ 2.0 million for the grant of marketing approval , if any , in three of the following five countries : argentina , australia , brazil , south africa and venezuela . we are also eligible to receive a payment of $ 2.0 million in connection with a filing by eusa with the ema for marketing approval , if any , for tivozanib for the treatment of each of up to three additional indications and $ 5.0 million per indication in connection with the ema 's grant of marketing approval for each of up to three additional indications , as well as up to $ 335.0 million upon eusa 's achievement of certain sales thresholds . we are also eligible to receive tiered double digit royalties on net sales , if any , of licensed products in its licensed territories ranging from a low double digit up to mid-twenty percent depending on the level of annual net sales . thirty percent of any non-research and development related milestone and royalty payments we receive is due to kyowa hakko kirin co. , ltd. ( formerly kirin brewery co. ltd. ) , or khk as a sublicensing fee under our license agreement with khk . the research and development funding payments under the eusa license agreement are not subject to sublicensing payment to khk . novartis in august 2015 , we entered into a license agreement with novartis international pharmaceutical ltd. , or novartis , under which we granted novartis the exclusive right to develop and commercialize av-380 and our related antibodies that bind to gdf15 worldwide . under this agreement , novartis is responsible for all activities and costs associated with the further development , regulatory filing and commercialization of av-380 worldwide . novartis made an upfront payment to us of $ 15.0 million in september 2015. we are also eligible to receive ( a ) up to $ 53.0 million in potential clinical milestone payments and up to $ 105.0 million in potential regulatory milestone payments tied to the commencement of clinical trials and to regulatory approvals of products developed under the license agreement in the united states , the european union and japan ; and ( b ) up to $ 150.0 million in potential sales based milestone payments based on annual net sales of such products . upon commercialization , we are eligible to receive tiered royalties on net sales of approved products ranging from the high single digits to the low double-digits . novartis has responsibility under the license agreement for the development , manufacture and commercialization of the licensed antibodies and any resulting approved therapeutic products . in december 2015 , novartis also exercised its right under the license agreement to acquire our inventory of clinical quality drug substance , reimbursing us approximately $ 3.5 million for such existing inventory . certain milestones achieved by novartis would trigger milestone payment obligations from us to st. vincent 's hospital sydney limited , which we refer to as st. vincent 's , under our amended and restated license agreement with st. vincent 's . in addition , royalties on approved products , if any , will be payable to st. vincent 's , and we and novartis will share that obligation equally . pharmstandard in august 2015 , we entered into a license agreement with jsc “ pharmstandard-ufimskiy vitamin plant , ” or pharmstandard , a company registered under the laws of the russian federation . pharmstandard is a subsidiary of pharmstandard ojsc . under the license agreement , we granted to pharmstandard the exclusive , sublicensable right to develop , manufacture and commercialize tivozanib in the territories of russia , ukraine and the commonwealth of independent states , for all diseases and conditions in humans , excluding non-oncologic ocular conditions . in june 2016 , following unsuccessful efforts to renegotiate certain terms of the pharmstandard license agreement , pharmstandard notified us that due to economic and market changes in russia it was exercising its right to terminate the license 67 agreement effective september 9 , 2016. upon termination of the license agreement , the licenses to tivozanib granted to pharmstandard were terminated , all product rights and regulatory documents were transferred to us , and pharmstandard is no longer responsible for the development and commercialization of tivozanib in its licensed territories . pharmstandard filed an application for marketing authorization in russia for tivozanib for the treatment of renal cell carcinoma that was accepted by the ministry of health of the russian federation in february 2016. this application was withdrawn following pharmstandard 's termination notice . ophthotech in november 2014 , we entered into a research and exclusive option agreement with ophthotech corporation , or ophthotech , pursuant to which we provided ophthotech an exclusive option to enter into a definitive license agreement whereby we would grant ophthotech the right to develop and commercialize tivozanib outside of asia and the middle east for the potential diagnosis , prevention and treatment of non-oncologic diseases or conditions of the eye in humans .
| results of operations comparison of years ended december 31 , 2016 , 2015 and 2014 revenues replace_table_token_7_th in 2016 as compared to 2015 , revenue decreased by $ 16.5 million , principally due to $ 18.5 million in revenue that was recognized in 2015 related to novartis for the $ 15.0 million upfront payment received in connection with our licensing agreement entered into in august 2015 and $ 3.5 million for the purchase of our inventory of clinical material in the fourth quarter of 2015. this decrease was partially offset by the $ 1.0 million upfront payment received in connection with our collaboration and license agreement with canbridge entered into in march 2016 and $ 0.8 million in the acceleration of deferred revenue that was recognized upon the effective termination of our licensing agreement with pharmstandard in september 2016 that otherwise would have been recognized over the performance period through april 2022 . 77 in 2015 as compared to 2014 , revenue increased by $ 0.9 million principally due to the recognition of $ 18.5 million of revenue associated with the receipt of a $ 15.0 million upfront payment for our license of av-380 to novartis and novartis ' subsequent purchase of clinical material for $ 3.5 million .
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the first quarter of 2015 saw positive returns from global equity markets driven by central bank stimulus measures amid uncertainty around the timing of the u.s. federal reserve 's ( fed ) interest rate hike . the remainder of 2015 saw significant volatility and a broad sell-off of equity and commodity assets triggered by a debt crisis in greece and continuing with an economic growth slowdown in china and devaluation of the renminbi . financial markets rebounded in the fourth quarter as fears about a further china slowdown tempered and the fed 's first interest rate hike occurred to finish the year with mixed results . ongoing favorable monetary policy by the japanese government and central bank led to positive returns in japan with the nikkei 225 index returning 9.1 % . a strong finish to 2015 for the u.s. markets could not fully recover declines from early in the year with the s & p finishing 2015 down 0.7 % . renewed fears of a slowdown in growth in europe and fears of a growth slowdown in china resulted in declines for the ftse 100 ( which was down 4.9 % ) and the msci emerging markets ( which declined 17.0 % ) . bond markets were likewise volatile during 2015 with the barclay 's u.s. aggregate bond index increasing 0.6 % as market participants favored the relative value of bonds in early 2015 against the backdrop of the fed 's decision to raise interest rates late in the year . the table below summarizes the year ended december 31 returns based on price appreciation/ ( depreciation ) of several major market indices for 2015 , 2014 , and 2013 : replace_table_token_5_th the company 's 2015 financial results were significantly negatively impacted by the appreciation of the u.s. dollar , as discussed in the `` results of operations for the years ended december 31 , 2015 compared to december 31 , 2014 compared to december 31 , 2013 '' section below . throughout 2015 , we continued to execute our long-term strategic objectives , which further improved our ability to serve clients , strengthened our investment performance , and helped us deliver competitive levels of operating income and margins , despite volatile financial markets . we also took advantage of opportunities in the market and invested in our products and capabilities , 27 our global platform and our people in ways that strengthened our business and further differentiated us in the marketplace to help ensure our long-term success . in addition , we benefited from our long-term efforts to ensure a diversified base of assets under management . one of invesco 's core strengths , and a key differentiator for the company within the industry , is our broad diversification across client domiciles , asset classes and distribution channels . our geographical diversification recognizes growth opportunities in different parts of the world . this broad diversification mitigates the impact on invesco of different market cycles and enables the company to take advantage of growth opportunities in various markets and channels . as of the filing of this report , invesco held credit ratings of a/stable , a2/stable and a-/positive from standard & poor 's ratings service ( `` s & p '' ) , moody 's investor services ( `` moody 's '' ) , and fitch ratings ( `` fitch '' ) , respectively . during 2015 , fitch raised their outlook from stable to positive and stated the outlook revision reflected continued strong operating and investment performance , leveling of seed capital investments and an increased focus on organic growth over debt-funded acquisitions . one of the company 's strategic objectives is to harness the power of our global platform by improving effectiveness and efficiency , and allocating our resources to the opportunities that will best benefit clients and our business . consistent with this objective , business optimization charges of $ 16.2 million were recorded in the fourth quarter of 2015 , including $ 12.2 million of staff severance costs recorded in employee compensation associated with a business transformation initiative . this is the first part of a broad program that will continue through 2016 focused on transforming several key business support functions to become more effective and efficient and will leverage shared service centers , outsourcing , automation of key processes and optimization of the company 's office footprint . incremental implementation costs in 2016 are estimated to be up to $ 85 million and the initiative is expected to generate ongoing cost savings that will more than fully offset the implementation expense within a three year time frame after completion . the investment management industry is subject to extensive levels of ongoing regulatory oversight and examination . in the u.s. , u.k. , and other jurisdictions in which the company operates , governmental authorities regularly make inquiries , conduct investigations and administer examinations with respect to compliance with applicable laws and regulations . general and administrative expenses for the fourth quarter of 2015 include a provision of $ 12.6 million pertaining to regulatory investigations and related legal fees of $ 0.5 million . this includes $ 7.6 million associated with our private equity business . in the first quarter of 2015 , the company acquired deutsche bank 's u.s. commodity u.s. etf business for a purchase price composed of contingent consideration payable in future periods . during 2015 , changes in the fair value of the contingent consideration liability generated a gain of $ 27.1 million , which was recorded in other gains and losses , net . during the fourth quarter of 2015 the company announced that it intends to increase its ownership of religare invesco asset management company , our joint venture in india , from 49 % to 100 % . the acquisition of this controlling interest is expected to close in early 2016 , pending regulatory approvals . regulators in various jurisdictions have proposed or are exploring changes to the manner in which fund distributers are compensated for the services they provide . story_separator_special_tag additionally , wherever a non-gaap measure is referenced , a disclosure will follow in the narrative or in the note referring the reader to the schedule of non-gaap information , where additional details regarding the use of the non-gaap measure by the company are disclosed , along with reconciliations of the most directly comparable u.s. gaap measures to the non-gaap measures . to further enhance the readability of the results of operations section , separate tables for each of the revenue , expense , and other income and expenses ( non-operating income/expense ) sections of the income statement introduce the narrative that follows , providing a section-by-section review of the company 's income statements for the periods presented . 29 summary operating information summary operating information for 2015 , 2014 and 2013 is presented in the table below . replace_table_token_6_th _ ( 1 ) on december 31 , 2013 , the company completed the sale of atlantic trust . the company has adopted a discontinued operations presentation for atlantic trust . amounts presented represent continuing operations and exclude atlantic trust , with the exception of net income attributable to invesco ltd. and diluted earnings per share . ( 2 ) net revenues is a non-gaap financial measure . net revenues are operating revenues plus our proportional share of the net revenues of our joint venture investments , less third-party distribution , service and advisory expenses , plus management and performance fees earned from cip , less other revenue recorded by cip , plus other reconciling items . see `` schedule of non-gaap information '' for the reconciliation of operating revenues to net revenues . ( 3 ) adjusted operating income and adjusted operating margin are non-gaap financial measures . adjusted operating margin is adjusted operating income divided by net revenues . adjusted operating income includes operating income plus our proportional share of the net operating income of our joint venture investments , the operating income impact of the consolidation of investment products , acquisition/disposition related adjustments , compensation expense related to market valuation changes in deferred compensation plans , and other reconciling items . see `` schedule of non-gaap information , '' for the reconciliation of operating income to adjusted operating income . ( 4 ) adjusted net income attributable to invesco ltd. and adjusted diluted eps are non-gaap financial measures . adjusted net income attributable to invesco ltd. is net income attributable to invesco ltd. adjusted to exclude the net income of cip , add back acquisition/disposition related adjustments , the net income impact of deferred compensation plans and other reconciling items . adjustments made to net income attributable to invesco ltd. are tax-effected in arriving at adjusted net income attributable to invesco ltd .. by calculation , adjusted diluted eps is adjusted net income attributable to invesco ltd. divided by the weighted average number of shares outstanding ( for diluted eps ) . see `` schedule of non-gaap information , '' for the reconciliation of net income attributable to invesco ltd. to adjusted net income attributable to invesco ltd .. ( 5 ) the debt-to-equity ratio excluding cip is a non-gaap financial measure . see the `` liquidity and capital resources '' section for a recalculation of this ratio and other important disclosures . 30 investment capabilities performance overview invesco 's first strategic objective is to achieve strong investment performance over the long-term for our clients . as of december 31 , 2015 , 60 % , 79 % and 85 % of measured ranked actively managed assets performed in the top half of peer groups on a one-year , three-year and five-year basis respectively . the table below presents the one- , three- and five-year performance of our measured ranked actively managed investment products measured by the percentage of aum ahead of benchmark and aum in the top half of peer group . ( 1 ) replace_table_token_7_th _ ( 1 ) aum measured in the one- , three- , and five-year peer group rankings represents 58 % , 57 % , and 57 % of total invesco aum , respectively , and aum measured versus benchmark on a one- , three- , and five-year basis represents 71 % , 69 % , and 67 % of total invesco aum , respectively , as of december 31 , 2015 . peer group rankings are sourced from a widely-used third party ranking agency in each fund 's market ( lipper , morningstar , ia , russell , mercer , evestment alliance , sitca , value research ) and are asset-weighted in usd . rankings are as of prior quarter-end for most institutional products and preceding month-end for australian retail funds due to their late release by third parties . rankings for the most representative fund in each global investment performance standard ( gips ) composite are applied to all products within each gips composite . excludes passive products , closed-end funds , private equity limited partnerships , non-discretionary direct real estate , unit investment trusts fund-of-funds with component funds managed by invesco , stable value building block funds and clos . certain funds and products were excluded from the analysis because of limited benchmark or peer group data . had these been available , results may have been different . these results are preliminary and subject to revision . performance assumes the reinvestment of dividends . past performance is not indicative of future results and may not reflect an investor 's experience . 31 assets under management the following presentation and discussion of aum includes passive and active aum . passive aum includes etfs , uits , leveraged fund balances upon which we do not earn a fee , and other passive mandates . active aum are total aum less passive aum . the aum tables and the discussion below refer to aum as long-term . long-term aum excludes institutional money market and invesco powershares qqq aum .
| results of operations for the years ended december 31 , 2015 compared to december 31 , 2014 compared to december 31 , 2013 to assist in the comparisons , the discussion that follows will separate the impact of cip from the overall consolidated results of operations . the impact is illustrated in the tables immediately below by a column which shows the dollar-value change in the consolidated figures , as caused by the consolidation of cip . for example , the impact of cip on total operating revenues for the year ended december 31 , 2015 was a reduction of $ 39.2 million . this indicates that the consolidation of cip reduced consolidated revenues by $ 39.2 million , reflecting the elimination upon consolidation of the operating revenues earned by invesco for managing these investment products . the discussion below includes the use of non-gaap financial measures . see “ schedule of non-gaap information ” for additional details and reconciliations of the most directly comparable u.s. gaap measures to the non-gaap measures . summary of income statement impact of cip replace_table_token_16_th 41 operating revenues and net revenues the main categories of revenues , and the dollar and percentage change between the periods , are as follows : replace_table_token_17_th * net revenues are operating revenues less third-party distribution , service and advisory expenses , plus our proportional share of net revenues from joint venture arrangements , plus management and performance fees earned from , less other revenues recorded by , cip , plus other reconciling items . see “ schedule of non-gaap information ” for additional important disclosures regarding the use of net revenues . operating revenues decreased by 0.5 % in the year ended december 31 , 2015 to $ 5,122.9 million ( year ended december 31 , 2014 : $ 5,147.1 million ) . net revenues increased by 1.0 % in the year ended december 31 , 2015 to $ 3,643.2 million ( year ended december 31 , 2014 : $ 3,608.3 million ) .
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subsequent increases in goodwill value are not recognized in the consolidated financial statements . reclassifications certain reclassifications have been made to the 2014 and 2013 financial statements to conform to the 2015 financial statement presentation . story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this report . this discussion and analysis includes certain forward-looking statements that involve risks , uncertainties and assumptions . you should review the “ risk factors ” section of this report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by such forward-looking statements . see “ cautionary note regarding forward-looking statements ” at the beginning of this report . overview first internet bancorp is a bank holding company that conducts its business activities through its wholly-owned subsidiary , first internet bank of indiana , an indiana chartered bank . first internet bank of indiana was the first state-chartered , fdic insured internet bank and commenced banking operations in 1999. first internet bancorp was incorporated under the laws of the state of indiana on september 15 , 2005. on march 21 , 2006 , we consummated a plan of exchange by which we acquired all of the outstanding shares of the bank . we offer a full complement of products and services on a nationwide basis . we conduct our deposit operations primarily over the internet and have no traditional branch offices . we have diversified our operations by adding cre lending , including nationwide single tenant lease financing , and c & i lending , including business banking/treasury management services to meet the needs of high-quality commercial borrowers and depositors . our business model differs from that of a typical community bank . we do not have a conventional brick and mortar branch system , but instead operate through our scalable internet banking platform . the market area for our residential real estate lending , consumer lending , and deposit gathering activities is the entire united states . we also offer single tenant lease financing on a nationwide basis . our other commercial banking activities , including cre and c & i loans , corporate credit cards , and corporate treasury management services , are offered by our commercial banking team to businesses primarily within central indiana , phoenix , arizona and adjacent markets . we have no significant customer concentrations within our loan portfolio . story_separator_special_tag style= '' font-family : inherit ; font-size:8pt ; '' > 692 301 ( 156 ) 145 securities – non-taxable 258 ( 4 ) 254 ( 1,381 ) ( 172 ) ( 1,553 ) other earning assets ( 71 ) 183 112 84 ( 29 ) 55 total 10,228 4 10,232 7,754 ( 2,075 ) 5,679 interest expense interest-bearing deposits 1,390 ( 288 ) 1,102 1,803 ( 1,011 ) 792 other borrowed funds 1,571 ( 907 ) 664 450 ( 402 ) 48 total 2,961 ( 1,195 ) 1,766 2,253 ( 1,413 ) 840 increase in net interest income $ 7,267 $ 1,199 $ 8,466 $ 5,501 $ ( 662 ) $ 4,839 2015 v. 2014 net interest income for the twelve months ended december 31 , 2015 was $ 30.8 million , an increase of $ 8.5 million , or 38.0 % , compared to $ 22.3 million for the twelve months ended december 31 , 2014 . net interest margin was 2.85 % for the twelve months ended december 31 , 2015 compared to 2.65 % for the twelve months ended december 31 , 2014 . the increases in net interest income and net interest margin were primarily driven by an increase in average interest-earning assets of $ 236.6 million , or 28.1 % , for the twelve months ended december 31 , 2015 compared to the twelve months ended december 31 , 2014 , as well as changes in the composition of the company 's balance sheet , which resulted in an increase in the yield earned on interest-earning assets and a decrease in the cost of funds related to interest-bearing liabilities . the increase in net interest income for the twelve months ended december 31 , 2015 , compared to the twelve months ended december 31 , 2014 , was also due to a $ 10.2 million , or 32.8 % , increase in total interest income to $ 41.4 million for the twelve months ended december 31 , 2015 compared to $ 31.2 million for the twelve months ended december 31 , 2014 . the increase in total interest income was partially offset by a $ 1.8 million , or 19.8 % , increase in total interest expense to $ 10.7 million for the twelve months ended december 31 , 2015 compared to $ 8.9 million for the twelve months ended december 31 , 2014 . the increase in total interest income was due primarily to an increase in interest earned on loans resulting from an increase of $ 222.3 million , or 35.2 % , in the average balance of loans , including loans held-for-sale , as well as an increase in interest earned on securities resulting from an increase of $ 28.1 million , or 18.3 % , in the average balance of securities for the twelve months ended december 31 , 2015 compared to the twelve months ended december 31 , 2014 . the increase in total interest income was also due to a 21 basis point ( “ bp ” ) increase in the yield earned on the securities portfolio , partially offset by a decline in the yield earned on loans , including loans held-for-sale , of 7 bps . story_separator_special_tag replace_table_token_7_th 2015 v. 2014 noninterest expense for the twelve months ended december 31 , 2015 was $ 25.3 million , compared to $ 22.7 million for the twelve months ended december 31 , 2014 . the increase of $ 2.6 million , or 11.6 % , compared to the twelve months ended december 31 , 2014 was primarily due to an increase of $ 1.9 million in salaries and employee benefits , an increase of $ 0.5 million in consulting and professional services , an increase of $ 0.3 million in marketing , advertising and promotion , and an increase $ 0.1 million in deposit insurance premium expenses , slightly offset by a decrease of $ 0.2 million in premises and equipment expenses . the increase in salaries and employee benefits was attributable to increased headcount driven by the company 's continued growth , increased equity compensation expense , and increased bonus expense . the increase in bonus expense was primarily attributable to improved profitability in 2015 , which resulted in senior management earning annual cash bonuses under the 2015 senior management bonus plan . in 2014 , there were no cash bonuses earned under the 2014 senior management bonus plan because the threshold criterion for payment was not met . the increase in consulting and professional services was due primarily to an increase in legal and other professional fees consistent with the company 's balance sheet and operational growth as well as increased regulatory compliance matters . the increase in marketing , advertising and promotion was due to higher sponsorships and online channel origination costs related to the increase in mortgage origination activity . 2014 v. 2013 noninterest expense for the twelve months ended december 31 , 2014 was $ 22.7 million , compared to $ 20.5 million for the twelve months ended december 31 , 2013 . the increase of $ 2.2 million , or 10.6 % , compared to the twelve months ended december 31 , 2013 was due to an increase of $ 2.1 million in salaries and employee benefits , an increase of $ 0.7 million in premises and equipment , and an increase of $ 0.1 million in deposit insurance premium expenses , partially offset by decreases of $ 0.4 million in marketing , advertising and promotion , $ 0.3 million in consulting and professional services , and $ 0.2 million in loan expenses . the increase in salaries and employee benefits was attributable to increased headcount driven by the company 's continued growth . 29 financial condition the following table presents summary balance sheet data as of the end of the last five years . replace_table_token_8_th total assets were $ 1.3 billion at december 31 , 2015 , compared to $ 970.5 million at december 31 , 2014 , representing an increase of $ 299.4 million , or 30.8 % . the increase in total assets was due primarily to increases of $ 221.4 million , or 30.2 % , in loans receivable , and $ 76.2 million , or 55.4 % , in securities available-for-sale . loan portfolio analysis the following table provides information regarding the company 's loan portfolio as of the end of the last five years . replace_table_token_9_th total loans receivable as of december 31 , 2015 were $ 953.9 million , an increase $ 221.4 million , or 30.2 % , compared to $ 732.4 million as of december 31 , 2014 . total commercial loans increased $ 231.8 million , or 66.0 % , as of december 31 , 2015 compared to december 31 , 2014 , due to increases of $ 181.7 million , or 94.4 % , in single tenant lease financing , $ 24.8 million , or 32.1 % , in commercial and industrial , $ 21.0 million , or 84.5 % , in construction , and $ 10.2 million , or 29.6 % , in owner-occupied commercial real estate . these increases were partially offset by a decline of $ 5.9 million , or 26.7 % , in investor commercial real estate . total consumer loans decreased $ 10.0 million , or 2.7 % , as of december 31 , 2015 , compared to december 31 , 2014 , due primarily to decreases of $ 15.2 million , or 25.9 % , in home equity and $ 6.1 million , or 2.7 % , in residential mortgages . these decreases were partially offset by an increase of $ 11.2 million , or 11.6 % , in other consumer loans . 30 loan maturities the following table shows the contractual maturity distribution intervals of the outstanding loans in our portfolio as of december 31 , 2015 . replace_table_token_10_th loan approval procedures and authority our lending activities follow written , non-discriminatory policies with loan approval limits approved by the board of directors of the bank . loan officers have underwriting and approval authorization of varying amounts based on their years of experience in the lending field . additionally , based on the amount of the loan , multiple approvals may be required . based on the company 's legal lending limit , the maximum the bank could lend to any one borrower at december 31 , 2015 was $ 16.9 million . our goal is to have a well-diversified and balanced loan portfolio . in order to manage our loan portfolio risk , we establish concentration limits by borrower , product type , industry and geography . to supplement our internal loan review resources , we have engaged an independent third-party loan review group , which is a key component of our overall risk management process related to credit administration . 31 asset quality replace_table_token_11_th a loan is designated as impaired , in accordance with the impairment accounting guidance when , based on current information or events , it is probable that the company will be unable to collect all amounts due ( principal and interest ) according to the contractual terms of the loan agreement . payments with delays generally not exceeding 90 days outstanding are not considered impaired .
| results of operations refer to item 6 for a summary of the company 's financial performance for the five most recent years . during the twelve months ended december 31 , 2015 , net income was $ 8.9 million , or $ 1.96 per diluted share , compared to net income of $ 4.3 million , or $ 0.96 per diluted share , for the twelve months ended december 31 , 2014 and net income of $ 4.6 million , or $ 1.51 per diluted share , for the twelve months ended december 31 , 2013 . the increase in net income of $ 4.6 million for the twelve months ended december 31 , 2015 compared to the twelve months ended december 31 , 2014 was primarily due to an $ 8.5 million increase in net interest income and a $ 3.0 million increase in noninterest income . this was partially offset by a $ 2.6 million increase in income tax expense , a $ 2.6 million increase in noninterest expense and a $ 1.6 million increase in provision for loan losses . the decrease in net income of $ 0.3 million for the twelve months ended december 31 , 2014 compared to the twelve months ended december 31 , 2013 was primarily due to a $ 2.3 million decrease in noninterest income , a $ 2.2 million increase in noninterest expense and a $ 0.6 million increase in income tax expense , partially offset by a $ 4.8 million increase in net interest income .
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md & a is provided as a supplement to — and should be read in conjunction with — our consolidated financial statements and the accompanying notes . impact of the covid-19 pandemic the evolving spread of covid-19 has caused significant disruptions to the global economy and the hospitality industry , including in the united states , where more than 80 % of our franchised hotels are located . the covid-19 pandemic has led governments and other authorities and businesses around the world to impose or recommend measures intended to control its spread , including temporary closures of many businesses , `` shelter in place '' orders , travel restrictions , cancellation of events including sporting events , conferences and meetings , social distancing measures and other governmental regulations . as a result , the covid-19 pandemic and its consequences have dramatically reduced travel and demand for hotel rooms , which has had a material adverse impact on the hospitality industry and the company both financially and operationally . the development of effective vaccines and initial distribution efforts are significant and positive developments . however , the extent to which the covid-19 pandemic will continue to impact the hospitality industry and our operations remains uncertain and will depend largely on future developments , including the rate and pace of vaccination in the broader population , the severity and duration of resurgences or variants of the virus , and the effectiveness of actions by government authorities and the public to contain the pandemic . the impacts of covid-19 on the company 's business were first experienced toward the end of the first quarter of 2020 , with domestic occupancy levels ranging between 25.5 % and 32.5 % in the last ten days of march resulting in significant decreases in revenue per available room ( `` revpar '' ) . lower occupancy and revpar trends continued into the second quarter of 2020 , with domestic revpar experiencing a decline of approximately 60.1 % from the comparative prior year april . these trends have steadily improved , albeit remained significantly impacted , in the third and fourth quarters , with domestic revpar experiencing a decline of approximately 28.8 % over the comparative prior year third quarter and 25.1 % over the comparative prior year fourth quarter . for the reasons cited above , we expect significant impact on our results of operations to continue in 2021. as of march 31 , 2020 , approximately 10 % of the company 's domestic hotel system that had temporarily suspended operations due to governmental restriction or a franchisee 's election , compared to less than 1 % as of both december 31 , 2020 and january 31 , 2021. while the ultimate impact and duration of covid-19 is uncertain and will depend on future developments , which are difficult to predict , the company believes that it will continue to benefit in the long-term from its primarily franchise-only business model , which has historically provided a relatively stable earnings stream and low capital expenditure requirements . further , as of december 31 , 2020 , the company had approximately $ 834.8 million in cash and additional borrowing capacity through its senior unsecured revolving credit facility . based on our business model , the financial mitigation measures described below , and information known at this time , the company believes that cash flows from operations and available financing capacity are adequate to meet the expected future operating , investing and financing needs of the business . in response to the covid-19 pandemic , we have implemented measures to focus on the safety of our customers , employees , franchisees and their staff , while at the same time seeking to mitigate the impact on franchisees ' and our company 's financial position and operations . the duration of these measures can not be predicted at this time . these measures include , but are not limited to , the following : implemented fee-deferral programs for domestic and international franchisees . reduced one-time reputation management fees and guest relations handling fees . extended capital-intensive brand deadlines and created more flexible brand standard options to assist franchisees . advocated to increase the benefits and eligibility requirements for government relief sba programs and other cares act benefits to support franchisees in retaining employees and servicing debt . established a proactive , ongoing multi-channel franchisee outreach and education program that is actively assisting our franchisees in accessing newly available capital . revised the company 's guest cancellation policy to provide travelers greater flexibility during these challenging times . implemented travel restrictions and work-from-home practices for the company 's employees . 41 the company made a priority of working closely with its franchisees to drive business to their hotels across a wide variety of industries and government and emergency-management agencies . many of the company 's franchisees committed their rooms inventory at discounted rates , or on a complimentary basis , to support their communities in dealing with the effects of the pandemic , opening their hotels for hospital overflows and providing temporary housing for first responders , the national guard , healthcare workers , critical infrastructure workers and others in dire need . in addition , the company provided hotel room donations to operation homefront to help ill and injured service members that were displaced by the pandemic . the company also teamed up with serta , inc. to contribute to its “ stay home , send beds ” initiative , which provided bed donations to help address nationwide shortages at hospitals and temporary medical facilities . since the onset of the pandemic , management and the board of directors have taken steps to adjust the company 's cost structure and increase its financial flexibility , which include , but are not limited to , the following actions : reduced the compensation of the board of directors , chief executive officer , and other executive officers . reduced global workforce by approximately 18 % since december 31 , 2019 through a combination of layoffs and furloughs . story_separator_special_tag historically , the hotel industry has been seasonal in nature . for most hotels , demand is ordinarily lower in november through february than during the remainder of the year . our principal source of revenues is franchise fees based on the gross room revenues or number of rooms of our franchised properties . the company 's franchise fees , as well as its owned hotels revenues , normally reflect the industry 's seasonality and historically have been lower in the first and fourth quarters than in the second and third quarters . however , as a result of the covid-19 pandemic , historical trends may not be reliable to predict future performance . with a primary focus on hotel franchising , we benefit from the economies of scale inherent in the franchising business . the fee and cost structure of our franchising business provides opportunities to improve operating results by increasing the number of franchised hotel rooms and effective royalty rates of our franchise contracts resulting in increased initial and relicensing fee revenue , ongoing royalty fees , and procurement services revenues . in addition , our operating results can also be improved through our company-wide efforts related to improving property-level performance and expanding the number of partnerships with travel related companies . the principal factors that affect the company 's results are : the number and relative mix of hotel rooms in the various hotel lodging price categories ; growth in the number of hotel rooms owned and under franchise ; occupancy and room rates achieved by the hotels in our system ; the effective royalty rate achieved on our franchise agreements ; the level of franchise sales and relicensing activity ; the number of qualified vendor arrangements and travel related partnerships and the level of engagement with these partners by our franchisees and guests ; and our ability to manage costs . the number of rooms in our hotel system and the occupancy and room rates at those properties significantly affect the company 's results because our fees are based upon room revenues or the number of rooms at owned and franchised hotels . all of these factors have been and we expect will continue to be materially disrupted by the covid-19 pandemic . the key industry standard for measuring hotel-operating performance is revpar , which is calculated by multiplying the percentage of occupied rooms by the average daily room rate realized . our variable overhead costs associated with franchise system growth of our established brands have historically been less than incremental royalty fees generated from new franchises . accordingly , over the long-term , any continued growth of our franchise business should enable us to realize benefits from the operating leverage in place and improve operating results . the effects of the covid-19 pandemic on our annual 2020 results and anticipated trends are discussed above under the heading `` impact of the covid-19 pandemic '' and below under the heading `` operations review '' . we are required by our franchise agreements to use the marketing and reservation system fees we collect for system-wide marketing and reservation activities . these expenditures , which include advertising costs and costs to maintain our central reservations and property management systems , enhance awareness and consumer preference for our brands and deliver guests to our franchisees . greater awareness and preference promotes long-term growth in business delivery to our franchisees and increases the desirability of our brands to hotel owners and developers , which ultimately increases franchise fees earned by the company . while we continue to actively manage and eliminate certain discretionary marketing and reservation system expenditures , as a result of lower occupancy and therefore , lower marketing and reservation system fees generated , we realized marketing and reservation expenditures in excess of fees in 2020. as a result of the covid-19 pandemic , we expect significant impact to our marketing and reservation fees generated to continue in 2021 . 43 our company articulates its mission as a commitment to our franchisees ' profitability by providing our franchisees with hotel franchises that strive to generate the highest return on investment of any hotel franchise . we have developed an operating system dedicated to our franchisees ' success that focuses on delivering guests to hotels and reducing hotel operating costs . as discussed above , the company has taken numerous measures to combat the significant impact of the covid-19 pandemic on our business . these measures have been and remain an immediate priority in order to mitigate the financial impacts to our franchisees and the company . we believe these immediate measures support the company 's preparedness and complement the strategic priorities we execute against to create value for our shareholders over the long-term . these key long-term goals are as follows : profitable growth . our success is dependent on improving the performance of our hotels , increasing our system size by selling additional hotel franchises with a focus on revenue-intense chain scales and markets , improving our effective royalty rate , expanding our qualified vendor programs and travel related partnerships and maintaining a disciplined cost structure . as noted above , we have introduced several temporary measures designed to assist franchisees during the covid-19 pandemic . we attempt to improve our revenues and overall profitability by providing a variety of products and services designed to increase business delivery and or reduce operating and development costs . these products and services include national marketing campaigns , maintaining a guest loyalty program , a central reservation system , property and yield management programs and systems , revenue management services , quality assurance standards , qualified vendor relationships and expanding our partnerships with other travel related companies that provide services to our franchisees and guests . we believe that healthy brands , which deliver a compelling return on investment , will enable us to sell additional hotel franchises and raise royalty rates . we have multiple brands that meet the needs of many types of guests , and can be developed at various price points and applied to both new and existing hotels .
| 2019 operating results summarized financial results for the years ended december 31 , 2020 and 2019 are as follows : replace_table_token_11_th 46 results of operations the company recorded income before income taxes of $ 53.0 million for the year ended december 31 , 2020 , a $ 216.9 million decrease from the same period of the prior year . the decrease in income before income taxes primarily reflects a $ 196.5 million decrease in operating income , a $ 9.4 million increase in the loss on the extinguishment of debt , a $ 5.7 million increase in equity in net loss of affiliates , a $ 2.2 million increase in interest expense , and a $ 2.3 million decrease in interest income . operating income decreased $ 196.5 million primarily due to a $ 124.9 million decrease in royalty revenues , a $ 42.5 million decrease in the net deficit generated from marketing and reservation system activities , a $ 23.1 million decrease in other revenue , a $ 16.2 million decrease in procurement services revenues , the recognition of $ 14.8 million in impairments of long-lived assets in 2020 , a $ 7.0 million increase in depreciation and amortization , partially offset by a $ 20.3 million decrease in selling , general and administrative ( “ sg & a ” ) expenses and a recognition of a $ 15.0 million loss on sale and impairment of long-lived assets and goodwill in 2019 related to the company 's software as a service ( `` saas '' ) for vacation rentals reporting unit which was disposed of in the second quarter of 2019. the primary reasons for these fluctuations , including the impact of the covid-19 pandemic , are described in more detail below . royalty fees domestic royalty fees for the year ended december 31 , 2020 decreased $ 115.4 million to $ 251.2 million from $ 366.6 million for the year ended december 31 , 2019 , a decrease of 31 % .
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factors that could cause or contribute to such differences include , but are not limited to , those identified below and those set forth under the section entitled `` risk factors '' in item 1a , and other documents we file with the securities and exchange commission . historical results are not necessarily indicative of future results . overview we are a leading genomic diagnostics company that is creating value through innovation . we were founded in 2008 with a mission of improving diagnostic accuracy . today , our growing menu of tests leverage advances in genomic science and technology to improve care throughout the patient journey , enabling more confident diagnostic , prognostic and treatment decisions in cancer and other challenging diseases . we are creating new standards of care by enabling more patients to avoid risks of unnecessary invasive procedures and removing costs from the healthcare system , while speeding the time to diagnosis and treatment decisions . we perform our genomic tests for thyroid cancer , lung cancer and idiopathic pulmonary fibrosis , or ipf , in our clia-certified laboratory in south san francisco , california . in december 2019 , we announced our acquisition from nanostring technologies , inc. , or nanostring , of the exclusive global diagnostics license to the ncounter flex analysis system , as well as the prosigna breast cancer prognostic gene signature assay , which is commercially available , and the lymphmark lymphoma subtyping assay , which is in development . both tests are designed for use on the ncounter system . we believe this strategic transaction positions us to expand our business globally with a broad menu of advanced genomic tests that may be offered as distributed kits and performed in local laboratories worldwide . we believe our current and pipeline products address a collective $ 40 billion global market . we currently offer five commercialized genomic tests that are changing disease diagnosis and patient care . all five tests are available in the united states and one is available internationally . these include the afirma genomic sequencing classifier , or gsc ( its predecessor was the afirma gene expression classifier , or gec ) for thyroid cancer ; the percepta gsc ( its predecessor was the percepta bronchial genomic classifier ) for lung cancer ; the envisia genomic classifier for ipf ; the afirma xpression atlas , which provides information on the most common and emerging gene alterations associated with thyroid cancer , enabling physicians to confidently tailor surgical and treatment decisions at time of diagnosis ; and the prosigna breast cancer test for assessing risk of distant recurrence , which is available for use on the ncounter platform in the united states and internationally . our ability to leverage rna whole-transcriptome sequencing data in large biorepositories of patient-consented samples in oncology and other indications presents an opportunity for biopharmaceutical companies to enhance their research and development capabilities . in april 2018 , we announced a collaboration with loxo oncology ( now a wholly owned subsidiary of eli lilly and company ) to advance our development of highly selective medicines for patients with genetically defined cancers , including thyroid cancer . in december 2018 , we entered into a long-term strategic collaboration with johnson & johnson innovation and the lung cancer initiative at johnson & johnson to advance the development and commercialization of novel diagnostic tests to detect lung cancer at its earliest stages , when the disease is most treatable . the collaboration builds upon foundational `` field of injury '' science where genomic changes associated with lung cancer can be identified with a simple brushing of a person 's airway to develop new interventions that can save lives . additionally , in january 2020 , we announced an agreement with acerta pharma , the hematology research and development arm of astrazeneca , to provide genomic information that will support its development of oncology therapeutics in lymphoma . patients access our tests through their physician . our afirma , percepta and envisia tests are used as part of the diagnostic process and genomic testing services are performed in our clia laboratory located in san francisco , california . cytopathology services for afirma testing are performed in our reference laboratory in austin , texas . the prosigna test is indicated in female breast cancer patients who have undergone surgery in conjunction with locoregional treatment consistent with standard of care . this in vitro diagnostic test is performed on the ncounter flex analysis system in laboratories worldwide , as well as in the united states . fourth quarter and full-year 2019 financial results 56 for the three months ended december 31 , 2019 , compared to the prior year : total revenue was $ 29.7 million , an increase of 15 % ; gross margin was 66 % , unchanged ; operating expenses , excluding cost of revenue , were $ 27.8 million , an increase of 38 % ; net loss and comprehensive loss was ( $ 7.5 ) million , an increase of 140 % ; basic and diluted net loss per common share was ( $ 0.15 ) , an increase of 88 % ; net cash provided by operating activities was $ 1.8 million , compared to $ 1.2 million used ; and cash and cash equivalents was $ 159.3 million at december 31 , 2019. for the year ended december 31 , 2019 , compared to the prior year : total revenue was $ 120.4 million , an increase of 31 % ; gross margin was 70 % , an increase of six percentage points ; operating expenses , excluding cost of revenue , were $ 99.0 million , an increase of 22 % ; net loss and comprehensive loss was ( $ 12.6 ) million , an improvement of 45 % ; basic and diluted net loss per common share was ( $ 0.27 ) , an improvement of 56 % ; and net cash used in operating activities was $ 3.2 million , an improvement of 76 % . story_separator_special_tag we expect to continue to see pressure from payers to limit the utilization of tests , generally , and we believe more payers are deploying cost containment tactics , such as pre-authorization , reduction of the payer portion of reimbursement and employing laboratory benefit managers to reduce utilization rates . integrating acquired assets and advances to our collaborations revenue growth , operational results and advances to our business strategy depends on our ability to integrate the assets acquired into our existing business . the integration of acquired assets may impact our revenue growth , increase the cost of operations , cause significant write-offs of intangible assets , or may require management resources that otherwise would be available for ongoing development of our existing business . the integration of assets acquired from nanostring in december 2019 may 58 impact our revenue and operating results through integration of a sales force , development of a product supply operation and the expansion of our business internationally with a broad menu of advanced genomic tests that may be offered . revenue growth or reimbursement from our collaborations depends on our ability to deliver services or information and achieve milestones required from our collaborative partners . our collaboration parters pay us for the provision of data , other services and the achievement of milestones . under a collaboration with johnson & johnson in 2018 , we provided data services required under this agreement for $ 7.0 million in 2019 , however , there remains $ 9.0 of revenue associated with development and commercialization milestones yet to be achieved . how we recognize revenue testing revenue we commenced recognizing revenue in accordance with the provisions of asc 606 , revenue from contracts with customers starting january 1 , 2018. prior to january 1 , 2018 , we recognized revenue in accordance with the provisions of asc 954-605 , health care entities - revenue recognition . most of our revenue is generated from the provision of diagnostic services . these services are completed upon the delivery of test results to the prescribing physician , at which time we bill for the services . we recognize revenue related to billings on an accrual basis based on estimates of the amount that will ultimately be realized . in determining the amount to accrue for a delivered test , we consider factors such as payment history , payer coverage , whether there is a reimbursement contract between the payer and us , payment as a percentage of agreed upon rate ( if applicable ) , amount paid per test and any current developments or changes that could impact reimbursement . these estimates require significant judgment by management . as of december 31 , 2019 , cumulative amounts billed at list price for tests processed which were not recognized as revenue upon delivery of a patient report because our accrual revenue recognition criteria were not met and for which we have not collected cash or written off as uncollectible , totaled approximately $ 159.3 million . of this amount , we did not collect any amounts in the year ended december 31 , 2019 and we have no expectation of future collection because we began accruing for substantially all revenue upon delivery of a patient report in the third quarter of 2016. generally , cash we receive is collected within 12 months of the date the test is billed . we can not provide any assurance as to when , if ever , or to what extent any of these amounts will be collected . notwithstanding our efforts to obtain payment for these tests , payers may deny our claims , in whole or in part , and we may never receive payment for these tests . we bill list price regardless of contract rate , but only recognize revenue from amounts that we estimate are collectible and meet our revenue recognition criteria . revenue may not be equal to the billed amount due to a number of factors that we consider when determining revenue accrual rates , including differences in reimbursement rates , the amounts of patient co-payments and co-insurance , the existence of secondary payers , claims denials and the amount we expect to ultimately collect . finally , when we increase our list price , it will increase the cumulative amounts billed but may not positively impact accrued revenue . in addition , payer contracts generally include the right of offset and payers may offset payments prior to resolving disputes over tests performed . generally , we calculate the average reimbursement from our products from all payers , for tests that are on average a year old , since it can take a significant period of time to collect from some payers . except in situations where we believe the rate we reasonably expect to collect to vary due to a coverage decision , contract , more recent reimbursement data or evidence to the contrary , we use an average of reimbursement for tests provided over four quarters as it reduces the effects of temporary volatility and seasonal effects . thus , the average reimbursement per product represents the total cash collected to date against genomic classifier tests , including variants , performed during the relevant period divided by the number of these tests performed during that same period . the average genomic classifier reimbursement rate will change over time due to a number of factors , including medical coverage decisions by payers , the effects of contracts signed with payers , changes in allowed amounts by payers , our ability to successfully win appeals for payment , and our ability to collect cash payments from third-party payers and individual patients . historical average reimbursement is not necessarily indicative of future average reimbursement . for the year ended december 31 , 2019 , we accrued , on average , between $ 2,800 and $ 2,900 for the afirma genomic classifier tests , including variants , that met our revenue recognition standard , which was between 90 % - 95 % of the reported afirma classifier test volume .
| results of operations comparison of the years ended december 31 , 2019 and 2018 ( in thousands of dollars , except percentages ) 65 replace_table_token_5_th revenue revenue increased $ 28.4 million , or 31 % , for the year ended december 31 , 2019 compared to 2018 , primarily due to an increase in testing revenue from a 25 % increase in genomic classifiers reported . we had a $ 15.8 million increase in testing revenue for our afirma , percepta , and envisia classifiers in the year ended december 31 , 2019 compared to 2018. we also make adjustments , as necessary , for testing revenue accrued in prior periods as collections are made if the amount we expect to collect changes . the adjustment for testing revenue accrued in prior periods was $ 1.0 million and $ 2.0 million for the years ended december 31 , 2019 and 2018 , respectively , a net decrease of $ 1.0 million between the years . we also recognized $ 0.9 million from sales of prosigna , a product that we acquired from nanostring in december 2019. we recognized $ 8.1 million of biopharmaceutical revenue compared to $ 1.0 million in 2018 primarily due to the performance of data sequencing services for johnson & johnson . we also recognized $ 4.0 million of collaboration revenue in 2019 due to the achievements of milestones under the agreement we signed with johnson & johnson in december 2018. comparison of revenue for the years ending december 31 , 2018 and 2017 are included in item 8 of part ii of the annual report on form 10-k filed with the securities and exchange commission dated february 25 , 2019. there was no product revenue , biopharmaceutical revenue or collaboration revenue in 2017 .
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as used in this report , the terms “ company , ” “ we , ” “ our , ” “ us ” and “ hgs ” refer to china hgs real estate , inc. and its subsidiaries . preliminary note regarding forward-looking statements . we make forward-looking statements in management 's discussion and analysis of financial condition and results of operations and elsewhere in this report based on the beliefs and assumptions of our management and on information currently available to us . forward-looking statements include information about our possible or assumed future results of operations which follow under the headings “ business and overview , ” “ liquidity and capital resources , ” and other statements throughout this report preceded by , followed by or that include the words “ believes , ” “ expects , ” “ anticipates , ” “ intends , ” “ plans , ” “ estimates ” or similar expressions . forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed in these forward-looking statements , including the risks and uncertainties described below and other factors we describe from time to time in our periodic filings with the u.s. securities and exchange commission ( the “ sec ” ) . we therefore caution you not to rely unduly on any forward-looking statements . the forward-looking statements in this report speak only as of the date of this report , and we undertake no obligation to update or revise any forward-looking statement , whether as a result of new information , future developments or otherwise . these forward-looking statements include , among other things , statements relating to : our ability to sustain our project development our ability to obtain additional land use rights at favorable prices ; the market for real estate in tier 3 and 4 cities and counties ; our ability to obtain additional capital in future years to fund our planned expansion ; or economic , political , regulatory , legal and foreign exchange risks associated with our operations . our business overview we conduct substantially all of our business through shaanxi guangsha investment and development group co. , ltd , in hanzhong , shaanxi province . since the initiation of our business , we have been focused on expanding our business in certain tier 3 and tier 4 cities and counties in china . the real estate market in china plodded forward amid increasingly restrictive policies starting in 2011. in january 2011 , shanghai and chongqing officially started to levy property taxes . in february 2011 , beijing issued a purchase restriction order on the number of homes a person is allowed to purchase to curb speculation and control rising real estate price , and more than 40 cities nationwide soon followed suit . in march 2011 , the national development and reform commission announced that from may 2011 , each residential house must be marked clearly with a specific price as the ceiling price . apart from administrative measures , to further tighten liquidity , the people 's bank of china increased banks ' required reserve ratios six consecutive times and raised the benchmark interest rate three times since the beginning of the year , leaving a profound negative impact on the residential housing transaction volume . in 2011 and the first nine months of 2012 , residential housing transaction volume in major cities nationwide recorded a decrease compared with that of the comparable prior periods . the first-tier cities with stricter policies witnessed a more extensive decrease in transaction volume . the restrictive policies started to have significant impact on the real estate market in tier 3 and tier 4 cities in late 2011. these policies also negatively affected buyers ' confidence and consumption psychology . some buyers are taking a wait-and-see attitude and may delay their purchasing decision . 28 with uncertainties in the prc government 's credit tightening policies , the market for real estate sales in 2012 was extremely challenging . our sales volume dropped significantly in fiscal 2012. our sales , gross profit and net income for fiscal 2012 were $ 18,856,978 , $ 8,086,532 and $ 5,176,093 , respectively , representing a 66.8 % , 63.0 % and 72.3 % decrease from fiscal 2011 , respectively . in addition , we are using full accrual method to recognize revenue and only recognize sales revenue upon delivery of sold properties to buyers instead of upon pre-sale of the properties . this accounting method adds uncertainties in our future sales trend and causes uneven sales revenue from period to period as our sales revenue is depend upon the number of units delivered during the year . for the year ended september 30 , 2012 , we completed and started delivery of 4 new residential buildings with total gfa of 64,141 square meters , compared to 17 new residential buildings with gfa of 160,320 square meters completed in fiscal 2011. currently , most of our real estate projects under construction are high-rise buildings with planned gfa over 709,038 square meters , which generally take about 2- 3 years for the construction , while our completed projects in the past were mostly multi-layer or sub-high-rise buildings and took 1-1.5 years for construction . it indicates that in certain future reporting periods , even if we have pre-sale contracts , we may not have any new construction work completed and delivered to buyers . this is a typical characteristic of our business and the uneven sales revenues from period to period are due in part to the rate at which units are completed and delivered to buyers under the current full accrual method of revenue recognition policy . despite the declining transaction volume and cooling real estate market , housing prices in tier 3 and tier 4 cities and counties have not shown a substantial correction . story_separator_special_tag · yangzhou pearl garden during fiscal 2012 , the company also started the construction of 8 high-rise residential buildings and 1 sub-high-rise residential building with total gfa of 99,038 square meters in yangzhou pearl garden located in yang county . we have obtained a pre-sale license for 3 residential buildings . the rest of pre-sale licenses are expected to be obtained by september 30 , 2013. during fiscal 2011 , the company entered into a preliminary contract with yang county to develop affordable apartment buildings with a total gfa of 40,000 square meters . these units are mainly located in 4 of 8 high-rise residential buildings . we expect the construction of 1 high-rise residential building to be completed in the first quarter of fiscal 2013 and 2 additional high-rise residential buildings to be completed in the second quarter of fiscal 2013. the construction for the rest of buildings is expected to be completed in 2 years . as of september 30 , 2012 , the total contracted sales for these residential buildings were approximately $ 10.6 million ( rmb 67 million ) . as of september 30 , 2012 , the customer deposit balance amounted to $ 7,958,739 ( rmb 50,291,273 ) . in addition to the above residential projects , the company was approved by hanzhong local government to construct two municipal roads with a total length of 1,064.09 meters . the budgeted for these two municipal roads is rmb 18,716,489.34 ( equivalent to $ 3.0 million ) approved by hanzhong ministry of finance . the related construction is expected to be completed by december 31 , 2012. for these construction projects , the company recognizes the fee as other revenue using full accrual method when the project is completed . we expect these initiatives will help us cope with this difficult period and better position us to capitalize on opportunities from a future market upturn . story_separator_special_tag pay to acquire land use rights for our property development sites , plus taxes . our land use rights cost varies for different projects according to the size and location of the site and the minimum land premium set for the site , all of which are influenced by government policies , as well as prevailing market conditions . costs for land use rights for the year ended september 30 , 2012 were $ 896,532 , as compared to $ 4,012,695 for the year ended september 30 , 2011 , representing a decrease of $ 3,116,163 from last year . the decrease in costs of land use rights was consistent with the fact that the total gfa sold during for the year ended september 30 , 2012 was significantly lower than fiscal 2011. construction cost : we outsource the construction of all of our projects to third party contractors , whom we select through a competitive tender process . our construction contracts provide a fixed payment which covers substantially all labor , materials and equipment costs , subject to adjustments for some types of excess , such as design changes during construction or changes in government-suggested steel prices . our construction costs consist primarily of the payments to our third-party contractors , which are paid over the construction period based on specified milestones . in addition , we purchase and supply a limited range of fittings and equipment , including elevators , window frames and door frames . our construction costs for the year ended september 30 , 2012 were approximately $ 8.7 million as compared to approximately $ 27.5 million for the year ended september 30 , 2011 , representing a decrease of $ 18.8 million . the decrease in construction cost was due to the decrease in units sold reflected in the decreased revenue recognized . 32 the total cost of sales as a percentage of real estate sales before sales tax for the year ended september 30 , 2012 decreased to 50.9 % from 55.4 % for the year ended september 30 , 2011 , which was mainly attributable to more commercial property and parking spaces with higher selling price sold during the first half of fiscal 2012. most of properties sold during the year ended september 30 , 2011 were residential units with lower selling prices . gross profits gross profit was approximately $ 8.1 million for the year ended september 30 , 2012 as compared to approximately $ 21.8 million for the year ended september 30 , 2011 , representing a decrease of $ 13.7 million , which was mainly attributable to the decrease in revenue . the overall gross profit as a percentage of real estate sales before sales tax increased to 43 % for the year ended september 30 , 2012 from 38 % for the year ended september 30 , 2011 , mainly due to more commercial properties and parking space with higher selling prices sold in mingzhu garden project during the first half of fiscal 2012. during the year ended september 30 , 2012 , revenue from sales of commercial property and parking space represents 28.9 % of the total revenue . but , for the year ended september 30 , 2011 , revenue from sales of commercial property and parking space only represents 11 % of the total revenue . the gross margin for yangzhou pearl garden project decreased by 3 % from 49 % in fiscal 2011 to 46 % in fiscal 2012 , due to less margins in promoting high-rise residential units in fiscal 2012. the asp for yangzhou pearl garden was $ 423 per square meters for the year ended september 30 , 2012 , representing a 10.4 % increase from fiscal 2011. but , due to more high-rise buildings completed and sold in fiscal 2012 , the unit cost of yangzhou pearl garden increased by 16.8 % to $ 227 per square meters for fiscal 2012 , comparing to unit cost of $ 195 per square meters in fiscal 2011. replace_table_token_4_th operating expenses total operating expenses increased by 26.5 % or $ 536,979 to $ 2,566,413 for the year ended september 30 , 2012 from $ 2,029,434
| results of operation revenues we recognize revenue from the sales of real property in accordance with the full accrual method at the time of the closing of an individual unit sale . this occurs when title to or possession of the property is transferred to the buyer . a sale is not considered consummated until ( a ) the parties are bound by the terms of a contract , ( b ) all consideration has been exchanged , ( c ) any permanent financing of which the seller is responsible has been arranged , ( d ) all conditions precedent to closing have been performed , ( e ) the seller does not have substantial continuing involvement with the property , and ( f ) the usual risks and rewards of ownership have been transferred to the buyer . further , the buyer 's initial and continuing investment is adequate to demonstrate a commitment to pay for the property , and the buyer 's receivable , if any , is not subject to future subordination . sales transactions not meeting all the conditions of the full accrual method are accounted for using the deposit method in which all costs are capitalized as incurred , and payments received from the buyer are recorded as a deposit liability . 30 we provide “ mortgage loan guarantees ” only with respect to buyers who make down-payments of 30 % -50 % of the total purchase price of the property . the period of the mortgage loan guarantee begins on the date the bank approves the buyer 's mortgage and we receive the loan proceeds in our bank account and ends on the date the “ certificate of ownership ” evidencing that title to the property has been transferred to the buyer . the procedures to obtain the certificate of ownership take six to twelve months ( the “ mortgage loan guarantee period ” ) .
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79 qualys , inc. notes to consolidated financial statements ( continued ) note 7. stockholders ' equity common stock the company had reserved shares of common stock for future issuance as of december 31 , 2014 : options outstanding under equity incentive plans 2000 equity incentive plan ( 1 ) 3,970,662 2012 equity incentive plan ( 1 ) 3,634,745 shares available for future grants under an equity incentive plan 2012 equity incentive plan ( 1 ) 803,630 total shares reserved for future issuance 8,409,037 ( 1 ) see note 8 for a description of these plans . preferred stock effective october 3 , 2012 , the company is authorized to issue 20,000,000 shares of undesignated preferred stock with a par value of $ 0.001 per share . each story_separator_special_tag you should read the following discussion in conjunction with the section titled `` selected consolidated financial data '' and our consolidated financial statements and the related notes included elsewhere in this annual report on form 10-k. in addition to historical information , this discussion contains forward-looking statements that involve risks and uncertainties that could cause our actual results to differ materially from our expectations , as discussed in `` forward-looking statements '' in part i of this annual report on form 10-k. factors that could cause such differences include , but are not limited to , those described in the section titled `` risk factors '' and elsewhere in this annual report on form 10-k. overview we are a pioneer and leading provider of cloud security and compliance solutions that enable organizations to identify security risks to their it infrastructures , help protect their it systems and applications from ever-evolving cyber attacks and achieve compliance with internal policies and external regulations . our cloud solutions address the growing security and compliance complexities and risks that are amplified by the dissolving boundaries between internal and external it infrastructures and web environments , the rapid adoption of cloud computing and the proliferation of geographically dispersed it assets . our integrated suite of security and compliance solutions delivered on our qualysguard cloud platform enables our customers to identify their it assets , collect and analyze large amounts of it security data , discover and prioritize vulnerabilities , recommend remediation actions and verify the implementation of such actions . organizations use our integrated suite of solutions delivered on our qualysguard cloud platform to cost-effectively obtain a unified view of their security and compliance posture across globally-distributed it infrastructures . we were founded and incorporated in december 1999 with a vision of transforming the way organizations secure and protect their it infrastructure and applications and initially launched our first cloud solution , qualysguard vulnerability management , in 2000. this solution has provided the substantial majority of our revenues to date , representing 82 % , 84 % and 87 % of total revenues in 2014 , 2013 and 2012 , respectively . as this solution gained acceptance , we introduced new solutions to help customers manage increasing it security and compliance requirements . in 2006 , we added our pci compliance solution , and in 2008 , we added our policy compliance solution . in 2009 , we broadened the scope of our cloud services by adding web application scanning and continued our expansion in 2010 , launching malware detection service and qualys secure seal for automated protection of websites . in 2012 , we introduced our virtualized private cloud platform as an additional deployment option of our solutions for customers and partners . in 2014 , we released continuous monitoring , an additional qualysguard vm offering , for internet-facing systems , which allows customers to continuously monitor their mission-critical assets and to be alerted to security vulnerabilities or misconfigurations that may make them more susceptible to a cyber attack . we provide our solutions through a software-as-a-service model , primarily with renewable annual subscriptions . these subscriptions require customers to pay a fee in order to access our cloud solutions . we invoice our customers for the entire subscription amount at the start of the subscription term , and the invoiced amounts are treated as deferred revenues and are recognized ratably over the term of each subscription . we continue to experience significant revenue growth from existing customers as they renew and purchase additional subscriptions . revenues from customers existing at or prior to december 31 , 2013 grew by $ 15.7 million to $ 123.7 million during 2014 , representing 115 % of total revenues in 2013. we expect this trend to continue . we market and sell our solutions to enterprises , government entities and to small and medium-sized businesses across a broad range of industries , including education , financial services , government , healthcare , insurance , manufacturing , media , retail , technology and utilities . as of december 31 , 2014 , we had over 7,700 customers in more than 100 countries , including a majority of each of the forbes global 100 and fortune 100. in 2014 , 2013 and 2012 , approximately 70 % , 70 % and 68 % , respectively , of our revenues were derived from customers in the united states . we sell our solutions to enterprises and government entities primarily through our field sales force and to small and medium-sized businesses through our inside sales force . we generate a significant portion of sales through our channel partners , including managed service providers , value-added resellers and consulting firms in the united states and internationally . 39 we have had continued revenue growth over the past three years . our revenues increased from $ 91.4 million in 2012 to $ 108.0 million in 2013 , and reached $ 133.6 million in 2014 , representing period-over-period increases of $ 16.5 million , and $ 25.6 million , or 18 % and 24 % , respectively . we generated net income of $ 2.2 million in 2012 , $ 1.5 million in 2013 , and $ 30.2 million in 2014 . net income in 2014 includes a tax benefit of $ 23.7 story_separator_special_tag subscriptions to our solutions allow customers to access our cloud security and compliance solutions through a unified , web-based interface . customers generally enter into one year renewable subscriptions . the subscription fee entitles the customer to an unlimited number of scans for a specified number of networked devices or web applications and , if requested by a customer as part of their subscription , a specified number of physical or virtual scanner appliances . our physical and virtual scanner appliances are requested by certain customers as part of their subscriptions in order to scan it infrastructures within their firewalls and do not function without , and are not sold separately from , subscriptions for our solutions . in some limited cases , we also provide certain computer equipment used to extend our qualysguard cloud platform into our customers ' private cloud environment . customers are required to return physical scanner appliances and computer equipment if they do not renew their subscriptions . we typically invoice our customers for the entire subscription amount at the start of the subscription term . invoiced amounts are reflected on our consolidated balance sheet as accounts receivable or as cash when collected , and as deferred revenues until earned and recognized ratably over the subscription period . accordingly , deferred revenues represents the amount billed to customers that has not yet been earned or recognized as revenues , pursuant to subscriptions entered into in current and prior periods . cost of revenues cost of revenues consists primarily of personnel expenses , comprised of salaries , benefits , performance-based compensation and stock-based compensation , for employees who operate our data centers and provide support services to our customers . other expenses include depreciation of data center equipment and physical scanner appliances and computer hardware provided to certain customers as part of their subscriptions , expenses related to the use of third-party data centers , amortization of third-party technology licensing fees and related maintenance support , fees paid to contractors who supplement or support our operations center personnel and overhead allocations . we expect to continue to make capital investments to expand and support our data center operations , which will increase the cost of revenues in absolute dollars . 42 operating expenses research and development research and development expenses consist primarily of personnel expenses , comprised of salaries , benefits , performance-based compensation and stock-based compensation , for our research and development teams . other expenses include third-party contractor fees , amortization of intangibles related to prior acquisitions and overhead allocations . all research and development costs are expensed as incurred . we expect to continue to devote substantial resources to research and development in an effort to continuously improve our existing solutions as well as develop new solutions and capabilities and expect that research and development expenses will increase in absolute dollars . sales and marketing sales and marketing expenses consist primarily of personnel expenses , comprised of salaries , benefits , sales commissions , performance-based compensation and stock-based compensation for our worldwide sales and marketing teams . other expenses include marketing and promotional events , lead-generation marketing programs , public relations , travel and overhead allocations . all costs are expensed as incurred , including sales commissions . sales commissions are expensed in the quarter in which the related order is received and are paid in the month subsequent to the end of that quarter , which results in increased expenses prior to the recognition of related revenues . our new sales personnel are typically not immediately productive , and the resulting increase in sales and marketing expenses we incur when we add new personnel may not result in increased revenues if these new sales personnel fail to become productive . the timing of our hiring of sales personnel and the rate at which they generate incremental revenues may affect our future operating results . we expect to continue to invest in additional sales personnel and more marketing programs as we introduce new solutions on our platform , which will increase sales and marketing expenses in absolute dollars . general and administrative general and administrative expenses consist primarily of personnel expenses , comprised of salaries , benefits , performance-based compensation and stock-based compensation , for our executive , finance and accounting , legal , human resources and internal information technology support teams as well as professional services , insurance , fees , certain other corporate governance-related expenses , and overhead allocations . we expect that general and administrative expenses will increase in absolute dollars , as we continue to add personnel and incur professional services to support our growth and compliance with legal requirements . other income ( expense ) , net our other income ( expense ) , net consists primarily of interest and investment income from our short-term and long-term investments ; foreign exchange gains and losses , the majority of which result from fluctuations between the u.s. dollar and the euro , british pound and japanese yen ; losses on disposal of property and equipment ; and interest expense associated with our capital leases . provision for income taxes we are subject to federal , state and foreign income taxes for jurisdictions in which we operate , and we use estimates in determining our provision for these income taxes and deferred tax assets . earnings from our non-u.s. activities are subject to income taxes in the local country which are generally lower than u.s. tax rates , and may be subject to u.s. income taxes . our effective rates differ from the u.s. statutory rate primarily due to foreign income subject to different tax rates than the u.s. , research and development tax credits , non-deductible stock-based compensation expense and other adjustments . income taxes are accounted for under the asset and liability method . deferred tax assets and liabilities are recognized for the tax impact of timing differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards .
| results of operations the following tables set forth selected consolidated statements of operations data for each of the periods presented . replace_table_token_8_th ( 1 ) includes stock-based compensation as follows : replace_table_token_9_th ( 2 ) other income ( expense ) , income before income taxes , and net income for fiscal years 2013 and prior have been adjusted for an immaterial error as further described in note 1 to our consolidated financial statements included elsewhere in this annual report on form 10-k. 44 the following table sets forth selected consolidated statements of operations data for each of the periods presented as a percentage of revenues . replace_table_token_10_th comparison of years ended december 31 , 2014 and 2013 revenues year ended december 31 , change 2014 2013 $ % ( in thousands , except percentages ) revenues $ 133,579 $ 107,962 $ 25,617 24 % revenues increased $ 25.6 million in 2014 compared to 2013 . revenues from customers existing at or prior to december 31 , 2013 grew by $ 15.7 million to $ 123.7 million in 2014 , representing 115 % of total revenues in 2013 , primarily due to increased subscriptions and purchases of additional solutions . subscriptions from new customers added in 2014 contributed $ 9.9 million to the increase in revenues . of the total increase of $ 25.6 million , $ 17.9 million was from customers in the united states and the remaining $ 7.7 million was from customers in foreign countries . the growth in revenues reflects increased demand for our solutions .
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the company operates in various countries : united states of america and the prc that are subject to taxes in the jurisdictions in which they operate , as follows : united states of america nfec is registered in the state of delaware and is subject to the tax laws of united states of america . as of december 31 , 2011 , the operations in the story_separator_special_tag the following discussion should be read in conjunction with our consolidated financial statements and the notes thereto included elsewhere in this report on form 10-k. the discussion in this section of this report on form 10-k contains forward-looking statements that involve risks and uncertainties . our actual 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 in this section , those discussed in “ risk factors ” and those discussed elsewhere in this report on form 10-k. 36 forward looking statements certain statements in this report , including statements of our expectations , intentions , plans and beliefs , including those contained in or implied by `` management 's discussion and analysis '' and the notes to consolidated financial statements , are `` forward-looking statements '' , within the meaning of section 21e of the securities exchange act of 1934 , as amended ( the `` exchange act '' ) , that are subject to certain events , risks and uncertainties that may be outside our control . the words “ believe ” , “ expect ” , “ anticipate ” , “ optimistic ” , “ intend ” , “ will ” , and similar expressions identify forward-looking statements . readers are cautioned not to place undue reliance on these forward-looking statements , which speak only as of the date on which they are made . the company undertakes no obligation to update or revise any forward-looking statements . these forward-looking statements include statements of management 's plans and objectives for our future operations and statements of future economic performance , information regarding our expansion and possible results from expansion , our expected growth , our capital budget and future capital requirements , the availability of funds and our ability to meet future capital needs , the realization of our deferred tax assets , and the assumptions described in this report underlying such forward-looking statements . actual results and developments could differ materially from those expressed in or implied by such statements due to a number of factors , including , without limitation , those described in the context of such forward-looking statements , our expansion and acquisition strategy , our ability to achieve operating efficiencies , industry pricing and technology trends , evolving industry standards , regulatory matters , general economic and business conditions , the strength and financial resources of our competitors , our ability to find and retain skilled personnel , the political and economic climate in which we conduct operations and the risk factors described from time to time in our other documents and reports filed with the securities and exchange commission ( the `` commission '' ) . additional factors that could cause actual results to differ materially from the forward-looking statements include , but are not limited to : 1 ) our ability to successfully develop , manufacture and deliver our products on a timely basis and in the prescribed condition ; 2 ) our ability to compete effectively with other companies in the same industry ; 3 ) our ability to raise sufficient capital in order to effectuate our business plan ; and 4 ) our ability to retain our key executives . critical accounting policies our discussion and analysis of our financial condition and results of operations are based on our financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods . on an on-going basis , we evaluate our estimates and judgments , including those related to revenue , receivable , inventory , and accrued expenses . we base our estimates on historical experience , known trends and events and various other factors 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 from these estimates under different assumptions or conditions . changes in estimates are recorded in the period in which they become known . we believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements . revenue recognition in accordance with the asc topic 605 , “ revenue recognition ” , the company recognizes revenue when persuasive evidence of an arrangement exists , transfer of title has occurred or services have been rendered , the selling price is fixed or determinable and collectability is reasonably assured . the company 's revenue is principally derived from three primary sources : sales of energy saving flow control equipment , provision of energy project management and sub-contracting services , and provision of energy-saving reconstruction projects . 37 ( a ) sale of products the company derives a majority of its revenues from the sale of energy saving flow control equipment . generally , the energy saving flow control equipment is manufactured and configured to customer requirements . the company typically produces the energy saving flow control equipment for customers during a period from one to six months . story_separator_special_tag for customers with a large accounts receivable balance , we may take other steps , such as limiting sales and changing payment terms and requesting forms of security . we will consider an adjustment to the allowance for doubtful accounts for any estimated losses resulting from the inability of our customers to make required payments . 39 account balances are charged off against the allowance for doubtful accounts after all means of collection have been exhausted and the potential for recovery is considered remote . the company does not have any off-balance sheet credit exposure related to its customers . inventories inventories are stated at the lower of cost or market value ( net realizable value ) , cost being determined on a weighted average method . costs include material , labor and manufacturing overhead costs . the company reviews historical sales activity quarterly to determine excess , slow moving items and potentially obsolete items and also evaluates the impact of any anticipated changes in future demand . the company provides inventory allowances based on excess and obsolete inventories determined principally by customer demand . plant and equipment plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses , if any . depreciation is calculated on the straight-line basis over the following expected useful lives from the date on which the asset becomes fully operational and after taking into account its estimated residual values : expected useful life residual value building 30 years 5 % plant and machinery 10 – 20 years 5 % furniture , fixture and equipment 5 - 8 years 5 % expenditure for repairs and maintenance is expensed as incurred . when assets have been retired or sold , the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in the results of operations . land use right all land in the prc is owned by the prc government . the government in the prc , according to the relevant prc law , may sell the right to use the land for a specified period of time . thus , the company 's land purchase in the prc is considered to be leasehold land and is stated at cost less accumulated amortization and any recognized impairment loss . amortization is provided over the term of the land use right agreement on a straight-line basis , which is 50 years and will expire in 2059 . 40 finance leases leases that transfer substantially all the rewards and risks of ownership to the lessee , other than legal title , are accounted for as finance leases . substantially all of the risks or benefits of ownership are deemed to have been transferred if any one of the four criteria is met : ( i ) transfer of ownership to the lessee at the end of the lease term , ( ii ) a lease containing a bargain purchase option , ( iii ) a lease term exceeding 75 % of the estimated economic life of the leased asset , ( iv ) the present value of the minimum lease payments exceeding 90 % of the fair value . at the inception of a finance lease , the company as the lessee records an asset and an obligation at an amount equal to the present value of the minimum lease payments . the leased asset is amortized over the shorter of the lease term or its estimated useful life if title does not transfer to the company , while the leased asset is depreciated in accordance with the company 's normal depreciation policy if the title is to eventually transfer to the company . the periodic rent payments made during the lease term are allocated between a reduction in the obligation and interest element using the effective interest method in accordance with the provisions of accounting standards codification ( `` asc '' ) topic 835-30 , “ imputation of interest ” . stock based compensation the company adopts asc topic 718 , `` stock compensation '' , ( `` asc 718 '' ) using the fair value method . under asc 718 , stock-based compensation is measured using the black-scholes option-pricing model on the date of grant . for non-employee stock based compensation , the company adopts asc topic 505-50 , “ equity-based payments to non-employees ” , stock based compensation related to non-employees is accounted for based on the fair value of the related stock or options or the fair value of the services on the grant date , whichever is more readily determinable in accordance with asc 718. income taxes income taxes are determined in accordance with the provisions of asc topic 740 , “ income taxes ” ( “ asc 740 ” ) . under this method , deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis . deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . any effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date . asc 740 prescribes a comprehensive model for how companies should recognize , measure , present , and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return . under asc 740 , tax positions must initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities . such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50 % likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts .
| results of operations year ended december 31 , 2011 compared to year ended december 31 , 2010 the following discussion should be read in conjunction with the financial statements included in this report and is qualified in its entirety by the foregoing . revenues total revenues were $ 14,929,430 and $ 25,372,206 for the years ended december 31 , 2011 and 2010 , respectively . total revenues decreased $ 10,442,776 , a 41 % decrease , for the year ended december 31 , 2011 compared to total revenues for the year ended december 31 , 2010. decrease in total revenue was due to the decrease in product revenue , service revenue and project revenue as explained below .. product revenues product revenues are derived principally from the sale of self-manufactured products and energy saving flow control equipment . product revenues were $ 10,897,946 and $ 16,786,854 , or 73 % and 66.16 % of total revenues for the years ended december 31 , 2011 and 2010 , respectively . product revenues for the year ended december 31 , 2011 decreased $ 5,888,908or 35.08 % decrease , compared to the product revenue for the year ended december 31 , 2010. the decrease in product revenue was primarily due to the delay in the completion of the company 's new production facility which resulted in the company having to take a portion of its manufacturing capabilities off-line while moving production equipment from the old facility to the new facility . service revenues service revenues are derived principally from energy-saving technical services and product collaboration processing services . the energy-saving technical services include providing energy saving auditing , conservation plans , and or related service reports . the product re-processing services are generally billed on a time-cost plus basis . service revenues were $ 4,031,484 and $ 7,828,840 for the years ended december 31 , 2011 and 2010 respectively , a decrease of $ 3,797,356 or 48.5 % .
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the liabilities of this vie were $ 697,129 and $ 704,344 as of december 31 , 2020 and 2019 , respectively , and consist primarily of mortgage debts secured by the property . story_separator_special_tag story_separator_special_tag style= '' color : # 000000 ; font-family : 'times new roman ' , sans-serif ; font-size:10pt ; font-weight:400 ; line-height:120 % ; padding-left:24.34pt '' > represents gross book value of real estate assets at cost plus certain acquisition costs , before depreciation and purchase price allocations and less impairment write downs , if any . amounts include $ 114,778 of gross book value of 15 properties classified as held for sale as of december 31 , 2020 , 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 , 2020 . ( 3 ) includes $ 47,387 of revenues and $ ( 2,996 ) of noi from properties that we sold during the year ended december 31 , 2020 and $ 41,496 of revenues and $ 7,725 of noi from properties classified as held for sale in our consolidated balance sheet as of december 31 , 2020 . ( 4 ) we calculate our noi on a consolidated basis and by reportable segment . our definition of noi and our reconciliation of net income ( loss ) to noi are included below under the heading “ non-gaap financial measures ” . ( 5 ) our medical office and life science property leases include some triple net leases where , in addition to paying fixed rents , the tenants assume the obligation to operate and maintain the properties at their expense , and some net and modified gross leases where we are responsible for the operation and maintenance of the properties and we charge tenants for some or all of the property operating costs . a small percentage of our medical office and life science property leases are full-service leases where we receive fixed rent from our tenants and no reimbursement for our property operating costs . ( 6 ) includes $ 11,364 of revenues and $ ( 5,786 ) of noi from seven senior living communities that were closed during the year ended december 31 , 2020 . 66 ( 7 ) residents fees and services for the year ended december 31 , 2020 for our shop segment is net of a $ 3,842 reserve for a medicare refund we paid in january 2021. property operating expenses for the year ended december 31 , 2020 for our shop segment includes $ 1,928 of estimated penalties , compliance costs and professional fees , net of management fees reimbursable by five star , related to the medicare refund . for further information regarding this matter , see elsewhere in this annual report on form 10-k , including note 6 to our consolidated financial statements included in part iv , item 15 of this annual report on form 10-k. ( 8 ) medical office and life science property occupancy data is as of december 31 , 2020 and 2019 and includes ( i ) out of service assets undergoing redevelopment , ( ii ) space which is leased but is not occupied or is being offered for sublease by tenants and ( iii ) space being fitted out for occupancy . ( 9 ) excludes data for periods prior to our ownership of certain properties , data for properties sold or classified as held for sale and data for which there was a transfer of operations during the periods presented . ( 10 ) operating data for other triple net leased senior living communities leased to third party operators other than five star and wellness centers are presented based upon the operating results provided by our tenants for the 12 months ended september 30 , 2020 and 2019 , or the most recent prior period for which tenant operating results are made available to us . we have not independently verified tenant operating data . due to the covid-19 pandemic , we anticipate that leasing activity may remain slow in our office portfolio and that we may continue to be prevented from , or impeded in , pursuing or accepting additional residents at our senior living communities due to restrictions intended to prevent the spread of the virus that causes covid-19 , including restricting nonessential visitors from some of our senior living communities . as a result , we expect to experience further decreases in occupancy at our senior living communities . further , as noted above , we expect to continue to incur higher operating costs on a per resident basis at our senior living communities as a result of the covid-19 pandemic . these expected declines in occupancy and increases in operating costs on a per resident basis at our senior living communities are expected to result in further decreases in income or returns from those properties . we also believe that we , five star and our impacted tenants may benefit from provisions of the cares act or other federal or state relief programs allowing them to continue or resume business activity . during the year ended december 31 , 2020 , we recognized $ 17.5 million in interest and other income in our consolidated statement of comprehensive income ( loss ) related to funds received under the cares act . we operate in , and report financial information for , the following two segments : office portfolio and shop . our office portfolio segment consists of medical office properties leased to medical providers and other medical related businesses , as well as life science properties leased to biotech laboratories and other similar tenants . our shop segment consists of managed senior living communities that provide short term and long term residential living and in some instances care and other services for residents where we pay fees to the operator to manage the communities for our account . story_separator_special_tag unless otherwise agreed , the target capital investment increases annually based on the greater of the annual increase of cpi or 2 % . the five star 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 . the five star management agreements also provide us with the right to terminate the five star management agreements 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 . five star has guaranteed the payment and performance of each of its applicable subsidiary 's obligations under the applicable five star management agreements . for further information regarding the restructuring transaction and our other business arrangements with five star , see note 6 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 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 8 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 , 2020 , 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_5_th ( 1 ) annualized rental income is based on rents pursuant to existing leases as of december 31 , 2020. annualized rental income includes estimated percentage rents and straight line rent adjustments and excludes lease value amortization . ( 2 ) as a result of the covid-19 pandemic 's impact on operations at our wellness centers , we are negotiating with the tenant of six of our wellness centers with total annualized rental income of approximately $ 7.9 million , which has been excluded from the table above as the tenant was in default under the applicable leases with us as of december 31 , 2020 . 70 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 . first , medical practices are being consolidated into hospital systems . this has caused the number of free standing medical practices to decline . at the same time , the number of multi-practice medical office buildings that are anchor leased by hospital systems who employ doctors has increased . we believe hospital systems will continue the trend of providing an increasing amount of services in off campus medical offices away from main hospital campuses in order to reduce costs and serve as many patients as possible , which is reinforced by consumers ' preference for healthcare services to be provided away from hospital campuses and closer to their residence or work locations . second , various advances in medical science have caused a large investment in new bio-medical research companies that require office , lab and medical products manufacturing space . we believe that about half of our total investments in our office portfolio segment may be considered biotech and life science properties . we believe that the primary market for senior living services is individuals age 80 and older , and , according to u.s. census data , that group is projected to be among the fastest growing age cohort in the united states over the next 20 years . also , as a result of medical advances , seniors are living longer . due to these demographic trends , we expect the demand for senior living services and housing to increase for the foreseeable future . despite this trend , future economic downturns , softness in the u.s. housing market , higher levels of unemployment among our potential residents ' family members , lower levels of consumer confidence , stock market volatility and or changes in demographics could adversely affect the ability of seniors to afford the resident fees at our senior living communities . the medical advances which are increasing average life spans are also causing some seniors to delay moving to senior living communities until they require greater care or to forgo moving to senior living communities altogether , but we do not believe this factor is sufficient to offset the long term positive demographic trends causing increased demand for senior living communities for the foreseeable future . in recent years , a significant number of new senior living communities have been developed and continue to be developed . although there are indications that the rate of newly started developments has recently declined due to the covid-19 pandemic , the increased supply of senior living communities that has resulted from recent development activity has increased competitive pressures on our managers and tenants , particularly in certain geographic markets where we own senior living communities , and we expect these competitive challenges to continue for at least the next few years .
| 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. overview we are a reit that was organized under maryland law and which owns medical office and life science properties , senior living communities and other healthcare related properties throughout the united states . as of december 31 , 2020 , we owned 397 properties , including 15 properties classified as held for sale and seven closed senior living communities , located in 36 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 , 2020 , 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 $ 8.2 billion , including $ 114.8 million of gross book value classified as held for sale in our consolidated balance sheet . impact of covid-19 in march 2020 , the world health organization declared the outbreak of covid-19 as a pandemic and , in response to the outbreak , the u.s. health and human services secretary declared a public health emergency in the united states and many states and municipalities declared public health emergencies . the virus that causes covid-19 has continued to spread throughout the united states and the world . various governmental and market responses attempting to contain and mitigate the spread of the virus have negatively impacted , and continue to negatively impact , the global economy , including the u.s. economy .
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in february 2016 , the fasb issued asu 2016-02 , which required lessees to recognize a right-of-use asset and related lease liability for leases classified as operating leases at the commencement date that have lease terms of more than 12 months . this asu retains the classification distinction between finance leases and operating leases . asu 2016-02 is effective for fiscal years , and interim periods , beginning after december 15 , 2018. early application is permitted , but we have not yet adopted asu 2016-02. this asu requires application using a retrospective transition method . we estimate that upon adoption on january 1 , 2019 , our consolidated balance sheet will have an approximately $ 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 , 2018 , consolidated net income was $ 574.0 million , or $ 29.39 per diluted share , compared to $ 470.2 million , or $ 24.04 per diluted share , for the same period in 2017 and $ 332.8 million , or $ 16.31 per diluted share , for the same period in 2016 . the growth in 2018 consolidated net income was primarily due to an increase in the average balance of our loan portfolio and an improvement in consumer loan performance , partially offset by an increase in our effective tax rate . the growth in 2017 consolidated net income was primarily due to a decrease in our effective tax rate and an increase in the average balance of our loan portfolio , partially offset by a revision to our loan net cash flow timing forecast during the fourth quarter of 2017 , which decreased consolidated net income by $ 30.8 million . the fluctuations in our effective tax rates were related to the enactment of the tax cuts and jobs act in december 2017 ( `` 2017 tax act '' ) , which lowered our federal statutory income tax rate from 35.0 % in 2017 and 2016 to 21.0 % in 2018. while the lower federal statutory income tax rate was not effective until 2018 , the 2017 tax act increased 2017 consolidated net income by $ 99.8 million as we were required to revalue deferred taxes and uncertain tax positions at the lower federal statutory income tax rate . 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 . 24 consumer loan metrics at the time a consumer loan is submitted to us for assignment , we forecast future expected cash flows from the consumer loan . based on the amount and timing of these forecasts and expected expense levels , an advance or one-time purchase payment is made to the related dealer at a price designed to maximize economic profit . we use a statistical model to estimate the expected collection rate for each consumer loan at the time of assignment . we continue to evaluate the expected collection rate of each consumer loan subsequent to assignment . our evaluation becomes more accurate as the consumer loans age , as we use actual performance data in our forecast . by comparing our current expected collection rate for each consumer loan with the rate we projected at the time of assignment , we are able to assess the accuracy of our initial forecast . the following table compares our forecast of consumer loan collection rates as of december 31 , 2018 , with the forecasts as of december 31 , 2017 , as of december 31 , 2016 , and at the time of assignment , segmented by year of assignment : replace_table_token_9_th ( 1 ) represents the total forecasted collections we expect to collect on the consumer loans as a percentage of the repayments that we were contractually owed on the consumer loans at the time of assignment . contractual repayments include both principal and interest . forecasted collection rates are negatively impacted by canceled consumer loans as the contractual amount owed is not removed from the denominator for purposes of computing forecasted collection rates in the table . consumer loans assigned in 2009 through 2013 , 2017 and 2018 have yielded forecasted collection results materially better than our initial estimates , while consumer loans assigned in 2015 and 2016 have yielded forecasted collection results materially worse than our initial estimates . for consumer loans assigned in 2014 , actual results have been close to our initial estimates . for the year ended december 31 , 2018 , forecasted collection rates improved for consumer loans assigned in 2018 , declined for consumer loans assigned in 2016 and were generally consistent with expectations at the start of the period for all other assignment years presented . story_separator_special_tag replace_table_token_13_th ( 1 ) the forecasted collection rates presented for dealer loans and purchased loans reflect the consumer loan classification at the time of assignment . 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 , 2018 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_14_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 decreased from 22.7 % in 2017 to 22.0 % in 2018 primarily as a result of a change in the mix of consumer loan assignments . the spread on purchased loans decreased from 21.2 % in 2017 to 20.4 % in 2018 primarily as a result of a change in the mix of consumer loan assignments , and the performance of the 2017 consumer loans , which has exceeded our initial estimates by a greater margin than those assigned to us in 2018 . 28 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 1.9 to 1 as of december 31 , 2018 . 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_15_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 . 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 2018 , unit and dollar volumes grew 13.6 % and 25.2 % , respectively , as the number of active dealers grew 8.5 % while average volume per active dealer increased 4.9 % . dollar volume grew faster than unit volume during 2018 due to an increase in the average advance paid per unit . this increase was the result of an increase in the average size of the consumer loans assigned primarily due to increases in the average initial loan term and average vehicle selling price and an increase in purchased loans as a percentage of total unit volume . during 2017 , unit volume declined 0.7 % while dollar volume grew 9.0 % , as the number of active dealers grew 9.6 % while average volume per active dealer declined 9.6 % . dollar volume grew while unit volume declined during 2017 due to an increase in the average advance paid per unit . this increase was the result of an increase in the average size of the consumer loans assigned primarily due to increases in the average initial loan term and average vehicle selling price and an increase in purchased loans as a percentage of total unit volume , partially offset by a decrease in the average advance rate due to a decrease in the average initial forecast of the consumer loans assigned . 29 the following table summarizes the changes in consumer loan unit volume and active dealers : replace_table_token_16_th ( 1 ) active dealers are dealers who have received funding for at least one consumer loan during the period . the following table provides additional information on the changes in consumer loan unit volume and active dealers : replace_table_token_17_th ( 1 ) new active dealers are dealers who enrolled in our program and have received funding for their first loan from us during the period . ( 2 ) attrition is measured according to the following formula : decrease in consumer loan unit volume from dealers who have received funding for at least one loan during the comparable period of the prior year but did not receive funding for any loans during the current period divided by prior year comparable period consumer loan unit volume . consumer loans are assigned to us as either dealer loans through our portfolio program or purchased loans through our purchase program . the following table shows the percentage of consumer loans assigned to us under each of the programs for each of the last three years : replace_table_token_18_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 .
| results of operations the following is a discussion of our results of operations and income statement data on a consolidated basis . year ended december 31 , 2018 compared to year ended december 31 , 2017 replace_table_token_19_th finance charges . the increase of $ 165.3 million , or 16.3 % , was primarily the result of an increase in the average net loans receivable balance partially offset by a decrease in the average yield on our loan portfolio , as follows : replace_table_token_20_th 31 the following table summarizes the impact each component had on the overall increase in finance charges for the year ended december 31 , 2018 : ( in millions ) impact on finance charges : for the year ended december 31 , 2018 due to an increase in the average net loans receivable balance $ 237.3 due to a decrease in the average yield ( 72.0 ) total increase in finance charges $ 165.3 the increase in the average net loans receivable balance was primarily due to the dollar volume of new consumer loan assignments exceeding the principal collected on loans receivable . the average yield on our loan portfolio for the year ended december 31 , 2018 decreased as compared to the same period in 2017 due to lower yields on new consumer loan assignments . operating expenses . the increase of $ 37.2 million , or 14.6 % , was primarily due to the following : an increase in salaries and wages expense of $ 27.7 million , or 19.8 % , comprised of the following : an increase of $ 16.9 million in cash-based incentive compensation expense primarily due to an improvement in company performance measures . a decrease of $ 4.9 million in stock-based compensation expense primarily due to 2017 stock awards .
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the effective date and transition requirements for asu 2016-08 , asu 2016-10 , asu 2016-12 and asu 2016-20 story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this annual report on form 10-k. in addition to historical financial information , the following discussion contains forward-looking statements that is based upon current plans , expectations and beliefs that involve risks and uncertainties . our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors , including those set forth under `` risk factors '' in this annual report on form 10-k. our fiscal year ends on december 31. overview we are the leader in the cloud communications platform category . we enable developers to build , scale and operate real-time communications within software applications . our developer-first platform approach consists of three things : our programmable communications cloud , super network and business model for innovators . our programmable communications cloud software enables developers to embed voice , messaging , video and authentication capabilities into their applications via our simple-to-use application programming interfaces , or apis . we do not aim to provide complete business solutions , rather our programmable communications cloud offers flexible building blocks that enable our customers to build what they need . the super network is our software layer that allows our customers ' software to communicate with connected devices globally . it interconnects with communications networks around the world and continually analyzes data to optimize the quality and cost of communications that flow through our platform . our business model for innovators empowers developers by reducing friction and upfront costs , encouraging experimentation , and enabling developers to grow as customers as their ideas succeed . as of december 31 , 2016 , our customers ' applications that are embedded with our products could reach users via voice , messaging and video in nearly every country in the world , and our platform offered customers local telephone numbers in over 50 countries and text-to-speech functionality in 26 languages . we support our global business through 26 cloud data centers in eight regions around the world and have developed contractual relationships with network service providers globally . our business model is primarily focused on reaching and serving the needs of developers . we established and maintain our leadership position by engaging directly with , and cultivating , our developer community , which has led to the rapid adoption of our platform . we reach developers through community events and conferences , including our signal developer conference , to demonstrate how every developer can create differentiated applications incorporating communications using our products . once developers are introduced to our platform , we provide them with a low-friction trial experience . by accessing our easy-to-configure apis , extensive self-service documentation and customer support team , developers build our products into their applications and then test such applications through free trials . once they have decided to use our products beyond the initial free trial period , customers provide their credit card information and only pay for the actual usage of our products . historically , we have acquired the substantial majority of our customers through this self-service model . as customers expand their usage of our platform , our relationships with them often evolve to include business leaders within their organizations . once our customers reach a certain spending level with us , we support them with account managers or customer success advocates within our sales organization to ensure their satisfaction and expand their usage of our products . when potential customers do not have the available developer resources to build their own applications , we refer them to our network of solution partners , who embed our products in their 60 solutions , such as software for contact centers and sales force and marketing automation that they sell to other businesses . we recently began to supplement our self-service model with a sales effort aimed at engaging larger potential customers , strategic leads and existing customers through an enterprise sales approach . we have supplemented this sales effort with a new product launch , twilio enterprise plan , which provides new capabilities for advanced security , access management and granular administration . our sales organization targets technical and business leaders who are seeking to leverage software to drive competitive differentiation . as we educate these leaders on the benefits of developing applications that incorporate our products to differentiate their business , they often consult with their developers regarding implementation . we believe that developers are often advocates for our products as a result of our developer-focused approach . our sales organization includes sales development , inside sales , field sales and sales engineering personnel . we generate the substantial majority of our revenue from customers based on their usage of our software products that they have incorporated into their applications . in addition , customers typically purchase one or more telephone numbers from us , for which we charge a monthly flat fee per number . some customers also choose to purchase various levels of premium customer support for a monthly fee . customers that register in our self-service model typically pay up-front via credit card and draw down their balance as they purchase or use our products . most of our customers draw down their balance in the same month they pay up front and , as a result , our deferred revenue at any particular time is not a meaningful indicator of future revenue . as our customers ' usage grows , some of our customers enter into contracts and are invoiced monthly in arrears . many of these customer contracts have terms of 12 months and typically include some level of minimum revenue commitment . most customers with minimum revenue commitment contracts generate a significant amount of revenue in excess of their minimum revenue commitment in any period . story_separator_special_tag base revenue consists of all revenue other than revenue from large active customer accounts that have never entered into 12-month minimum revenue commitment contracts with us , which we refer to as variable customer accounts . while almost all of our customer accounts exhibit some level of variability in the usage of our products , based on the experience of our management , we believe that variable customer accounts are more likely to have significant fluctuations in usage of our products from period to period , and therefore that revenue from variable customer accounts may also fluctuate significantly from period to period . this behavior is best evidenced by the decision of such customers not to enter into contracts with us that contain minimum revenue commitments , even though they may spend significant amounts on the use of our products and they may be foregoing more favorable terms often available to customers that enter into committed contracts with us . this variability adversely affects our ability to rely upon revenue from variable customer accounts when analyzing expected trends in future revenue . for historical periods through march 31 , 2016 , we defined a variable customer account as an active customer account that ( i ) had never signed a minimum revenue commitment contract with us for a term of at least 12 months and ( ii ) had met or exceeded 1 % of our revenue in any quarter in the periods presented through march 31 , 2016. to allow for consistent period-to-period comparisons , in the event a customer account qualified as a variable customer account as of march 31 , 2016 , or a previously variable customer account ceased to be an active customer account as of such date , we included such customer account as a variable customer account in all periods presented . for reporting periods starting with the three months ended june 30 , 2016 , we define a variable customer account as a customer account that ( a ) has been categorized as a variable customer account in any prior quarter , as well as ( b ) any new customer account that ( i ) is with a customer that has never signed a minimum revenue commitment contract with us for a term of at least 12 months and ( ii ) meets or exceeds 1 % of our revenue in a quarter . once a customer account is deemed to be a variable customer account in any period , it remains a variable customer account in subsequent periods unless such customer enters into a minimum revenue commitment contract with us for a term of at least 12 months . in the years ended december 31 , 2016 , 2015 and 2014 , we had eight , nine and ten variable customer accounts , which represented 11 % , 18 % and 15 % , respectively , of our total revenue . dollar-based net expansion rate . our ability to drive growth and generate incremental revenue depends , in part , on our ability to maintain and grow our relationships with existing active customer accounts and to increase their use of the platform . an important way in which we track our performance in this area is by measuring the dollar-based net expansion rate for our active customer accounts , other than our variable customer accounts . our dollar-based net expansion rate increases when such active customer accounts increase usage of a product , extend usage of a product to new applications or adopt a new product . our dollar-based net expansion rate decreases when such active customer accounts cease or reduce usage of a product or when we lower usage prices on a product . as our customers grow their businesses and extend the use of our platform , they sometimes create multiple customer accounts with us for operational or other reasons . as such , for reporting periods starting with the three months ended december 31 , 2016 , when we identify a significant customer organization ( defined as a single customer organization generating more than 1 % of revenue in a quarterly reporting period ) that has created a new active customer account , this new active customer account is tied to , and revenue from this new active customer account is included with , the original active customer account for the purposes of calculating this metric . we believe measuring our dollar-based net expansion rate on revenue generated from our active customer accounts , other than our variable customer accounts , provides a more meaningful indication of the performance of our efforts to increase revenue from existing customers . our dollar-based net expansion rate compares the revenue from active customer accounts , other than variable customer accounts , in a quarter to the same quarter in the prior year . to calculate 63 the dollar-based net expansion rate , we first identify the cohort of active customer accounts , other than variable customer accounts , that were active customer accounts in the same quarter of the prior year . the dollar-based net expansion rate is the quotient obtained by dividing the revenue generated from that cohort in a quarter , by the revenue generated from that same cohort in the corresponding quarter in the prior year . when we calculate dollar-based net expansion rate for periods longer than one quarter , we use the average of the applicable quarterly dollar-based net expansion rates for each of the quarters in such period . acquisitions in november 2016 , we acquired certain assets of tikal technologies s.l. , a spanish corporation , behind its kurento open source project , consisting of proprietary webrtc media processing technologies , certain licenses , patents and trademarks and employee relationships behind the webrtc technology . the purchase price consisted of $ 8.5 million in cash , of which $ 1.5 million was placed into an escrow to protect us against breaches of general representations , warranties , claims and tax compliance matters .
| quarterly results of operations the following tables set forth our unaudited quarterly statements of operations data for each of the eight quarters ended december 31 , 2016 , as well as the percentage that each line item represents of our revenue for each quarter presented . the information for each quarter has been prepared on a basis consistent with our audited consolidated financial statements included in this annual report on form 10-k , and reflect , in the opinion of management , all adjustments of a normal , recurring nature that are necessary for a fair presentation of the financial information contained in those statements . our historical results are not necessarily indicative of the results that may be expected in the future . the following quarterly financial data should be read in conjunction with our audited consolidated financial statements included in this annual report on form 10-k. replace_table_token_17_th ( 1 ) includes stock-based compensation expense as follows : replace_table_token_18_th 72 ( 2 ) includes amortization of acquired intangibles as follows : replace_table_token_19_th replace_table_token_20_th * less than 0.5 % of revenue . * * columns may not add up to 100 % due to rounding . 73 replace_table_token_21_th ( 1 ) see the section titled `` key business metricsnumber of active customer accounts . '' ( 2 ) see the section titled `` key business metricsbase revenue . '' ( 3 ) see the section titled `` key business metricsdollar-based net expansion rate . '' quarterly trends in revenue and gross margin our quarterly revenue increased in each period presented primarily due to an increase in the usage of products as well as the adoption of additional products by our existing customers as evidenced by our dollar-based net expansion rates , and an increase in our new customers .
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note 17fair value measurements fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date . the fair value hierarchy consists of three broad levels , which gives story_separator_special_tag the following discussion and analysis should be read in conjunction with the historical financial statements and other financial information included elsewhere in this annual report on form 10-k. this discussion may contain forward-looking statements that involve risks and uncertainties . the forward-looking statements are not historical facts , but rather are based on current expectations , estimates , assumptions and projections about our industry , business and future financial results . our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors , including those discussed in the sections of this annual report entitled forward-looking statements and risk factors. 21 business overview we are a global leader in the development , manufacture and supply of products that protect people 's health and safety . our safety products typically integrate any combination of electronics , mechanical systems and advanced materials to protect users against hazardous or life threatening situations . our comprehensive lines of safety products are used by workers around the world in the fire service , oil , gas , and petrochemical , mining , construction and other industries , as well as the military and homeland security . we are committed to providing our customers with service unmatched in the safety industry and , in the process , enhancing our ability to provide a growing line of safety solutions for customers in key global markets . we tailor our product offerings and distribution strategy to satisfy distinct customer preferences that vary across geographic regions . we believe that we best serve these customer preferences by organizing our business into three reportable geographic segments : north america , europe and international . each segment includes a number of operating companies . in 2011 , 48 % , 24 % and 28 % of our net sales were made by our north american , european and international segments , respectively . north america . our largest manufacturing and research and development facilities are located in the united states . we serve our north american markets with sales and distribution functions in the u.s. , canada and mexico . europe . our european segment includes companies in most western european countries and a number of eastern european and middle eastern locations . our largest european companies , based in germany and france , develop , manufacture and sell a wide variety of products . operations in other european countries focus primarily on sales and distribution in their respective home country markets . while some of these companies may perform limited production , most of their sales are of products that are manufactured in our plants in germany , france , the u.s. and china , or are purchased from third party vendors . international . our international segment includes companies in south america , africa and the asia pacific region , some of which are in developing regions of the world . principal international segment manufacturing operations are located in australia , brazil , china and south africa . these companies manufacture products that are sold primarily in each company 's home country and regional markets . the other companies in the international segment focus primarily on sales and distribution in their respective home country markets . while some of these companies may perform limited production , most of their sales are of products that are manufactured in our plants in china , germany , france and the u.s. , or are purchased from third party vendors . acquisitions in october 2010 , we strengthened our presence in oil , gas and petrochemical markets by acquiring general monitors , inc. ( gmi ) of lake forest , california and its affiliated companies , general monitors ireland limited ( gmil ) and general monitors transnational , llc ( gmt ) , collectively referred to as general monitors . general monitors is a leading innovator and developer of advanced flame and gas detection systems that are used in a broad range of oil and gas exploration and refining applications and in diverse industrial plant settings . in addition to providing us with greater access to the global oil and gas market , we believe the acquisition significantly enhances our long-term corporate strategy in fixed gas detection by providing us with world-class research and development talent and an industry leading product line . 22 story_separator_special_tag international segment charges for the year ended december 31 , 2011 of $ 1.1 million were related primarily to severance costs associated with the relocation of our wuxi , china operations to suzhou , china . for the year ended december 31 , 2010 , we recorded charges of $ 14.1 million ( $ 9.6 million after tax ) . north american segment charges of $ 3.8 million included stay bonuses and other costs associated with the transfer of certain production and administrative activities . european segment charges of $ 8.8 million related primarily to a focused voluntary retirement incentive program in germany and severance costs associated with staff reductions . international segment charges of $ 1.5 million were primarily for severance costs related to staff reductions in south africa and china . 24 interest expense . interest expense for the year ended december 31 , 2011 was $ 14.1 million , an increase of $ 5.4 million , or 62 % , from $ 8.7 million for the year ended december 31 , 2010. the increase was primarily due to higher borrowings associated with the acquisition of general monitors in october 2010. income tax provision . story_separator_special_tag net sales of our international segment were $ 261.5 million for the year ended december 31 , 2010 , an increase of $ 44.0 million , or 20 % , compared to $ 217.5 million for the year ended december 31 , 2009. local currency sales in the international segment increased $ 23.6 million during the year ended december 31 , 2010 on higher sales of head , eye and face protection , instruments and other products , primarily in latin american mining markets . currency translation effects increased international segment sales , when stated in u.s. dollars , by $ 20.4 million , reflecting a strengthening of the australian dollar , south african rand and brazilian real . cost of products sold . cost of products sold was $ 606.5 million for the year ended december 31 , 2010 , an increase of $ 33.2 million , or 6 % , from $ 573.3 million for the year ended december 31 , 2009. cost of products sold in 2010 includes $ 2.5 million in incremental purchase accounting charges related to the fair value of general monitors inventory at the acquisition date . cost of products sold and operating expenses include net periodic pension benefit costs and credits . pension credits , combined with pension costs , resulted in net pension credits for the year ended december 31 , 2010 of $ 7.3 million , of which credits of $ 5.3 million , $ 1.0 million and $ 1.0 million were included in cost of products sold , selling , general and administrative expenses and research and development expenses , respectively . pension credits , combined with pension costs , resulted in net pension credits for the year ended december 31 , 2009 of $ 9.1 million , of which credits of $ 5.7 million , $ 1.7 million and $ 1.7 million were included in cost of products sold , selling , general and administrative expenses and research and development expenses , respectively . gross profit . gross profit for the year ended december 31 , 2010 was $ 370.1 million , an increase of $ 33.4 million , or 10 % , from $ 336.7 million for the year ended december 31 , 2009. the ratio of gross profit to sales was 37.9 % in 2010 compared to 37.0 % in 2009. the higher gross profit ratio in 2010 was primarily related to sales mix , the favorable effect of cost control initiatives and higher production volumes . selling , general and administrative expenses . selling , general and administrative expenses for the year ended december 31 , 2010 were $ 262.9 million , an increase of $ 32.0 million , or 14 % , from $ 230.9 million for the year ended december 31 , 2009. selling , general and administrative expenses were 26.9 % of sales in 2010 compared to 25.4 % of sales in 2009. selling , general and administrative expenses in 2010 included $ 6.5 million of transaction and integration expenses related to the general monitors acquisition . north american segment selling general and administrative expenses were up $ 13.2 million . the increase included general monitors selling , general and administrative expenses of $ 3.9 million following the acquisition . the remainder of the increase in north american segment selling , general and administrative expenses was primarily related to higher 26 selling expenses on the higher sales volumes . local currency selling , general and administrative expenses in the european segment were up $ 2.7 million . the increase includes general monitors selling , general and administrative expenses of $ 0.6 million . the remainder of the increase in european segment selling general and administrative expenses related to higher sales in western europe . local currency selling , general and administrative expenses in the international segment increased $ 7.1 million , primarily to support the increased sales volume . currency exchange effects increased european and international segment administrative expenses for the year ended december 31 , 2010 , when stated in u.s. dollars , by $ 2.5 million , primarily related to the strengthening of the australian dollar , south african rand and brazilian real , partially offset by the weakening of the euro . research and development expenses . research and development expenses were $ 32.8 million for the year ended december 31 , 2010 , an increase of $ 4.0 million , or 14 % , from $ 28.8 million for the year ended december 31 , 2009. the increase includes $ 0.7 million of general monitors research and development expense . the remainder of the increase occurred in north america and europe and reflects our ongoing focus on developing innovative new products . restructuring and other charges . for the year ended december 31 , 2010 , we recorded charges of $ 14.1 million ( $ 9.6 million after tax ) . north american segment charges of $ 3.8 million included stay bonuses and other costs associated with our initiative to reduce operating costs by moving certain production and administrative activities . european segment charges of $ 8.8 million related primarily to a focused voluntary retirement incentive program in germany and severance costs associated with staff reductions . international segment charges of $ 1.5 million were primarily for severance costs related to staff reductions in south africa and china . for the year ended december 31 , 2009 , we recorded charges of $ 11.4 million ( $ 7.5 million after tax ) . north american segment charges of $ 9.6 million were related primarily to a focused voluntary retirement incentive program and severance and other costs related to the transfer of certain production activities to lower cost facilities . european and international segment charges of $ 0.8 million and $ 1.0 million , respectively , were primarily severance costs related to staff reductions in germany , brazil , australia and south africa . interest expense .
| results of operations year ended december 31 , 2011 compared to year ended december 31 , 2010 net sales . net sales for the year ended december 31 , 2011 were $ 1,173.2 million , an increase of $ 196.6 million , or 20 % , from $ 976.6 million for the year ended december 31 , 2010. replace_table_token_7_th net sales by the north american segment were $ 561.1 million for the year ended december 31 , 2011 , an increase of $ 97.1 million , or 21 % , compared to $ 464.0 million for the year ended december 31 , 2010. north american sales for the year ended december 31 , 2011 included $ 60.4 million of general monitors sales compared to $ 12.1 million in the year ended december 31 , 2010. during the year ended december 31 , 2011 , we saw growing demand in oil and gas and other core industrial markets , resulting in higher shipments of instruments ( excluding general monitors ) , head protection and fall protection , up $ 11.8 million , $ 6.0 million and $ 5.2 million , respectively . sales of the advanced combat helmet ( ach ) were $ 27.2 million higher in the current year , as we continued to ship on the current contract .
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these shares will vest 25 % at the end of each quarter of 2015 at the current market price per share . during the twelve months ended september 30 , 2015 $ 20,918 were expensed as compensation of services performed . on february 11 , 2015 , the company issued 4,259,259 shares of common stock at a price of $ 6.75 per share . accordingly , the company received net proceeds of approximately $ 26,582,998 which were net of stock issuance costs amounting to $ 2,167,000 . on february 24 , 2015 , the company issued 60,000 shares of common stock at a price of $ 9.78 per share as compensation for services to be performed in the amount of $ 586,800 . fifty percent of these shares will vest on the first anniversary of the date issuance and twenty five percent of these shares will vest on the second and third anniversaries of the date of issuance . during the twelve months ended september 30 , 2015 $ 282,260 were expensed as compensation of services performed . on march 27 , 2015 , 164,631 warrants were exercised at an exercise price per share of $ 1.95 using cashless exercise . accordingly , the company issued 131,331 common shares . on march 27 , 2015 , 168,520 warrants were exercised at an exercise price per share of $ 3.60 using cashless exercise . accordingly , the company issued 104,901 common shares . on april 2 , 2015 73,337 warrants were exercised at an exercise price per share of $ 1.95 using cashless exercise . accordingly , the company issued 57,780 common shares . f- 16 on april 2 , 2015 , 505,935 warrants were exercised at an exercise price per share of $ 3.60 using cashless exercise . accordingly , the company issued 314,937 common shares . note 8 - common stock warrants for all warrants included within permanent equity , the company has determined the estimated value of the warrants granted to non-employees in exchange for services and financing expenses using the black-scholes pricing model and the following assumptions : stock price at valuation , $ 0.63- $ 7.96 ; expected term of 2-5 years , exercise price of $ 1.50- $ 7.96 , a risk free interest rate of 0.21-2.90 percent , a dividend yield of 0 percent and volatility of 98-276 percent . all warrants accounted for as a derivative liability have been valued using a lattice model as described in note 1. on march 21 , 2013 , the company issued a total of 56,667 warrants with a fair market value of $ 232,374 for services rendered to the company . 40,000 warrants vest equally over the next four quarters from the date of issuance . 16,667 warrants vest equally over the next two quarters from the date of issuance . the warrants are exercisable at $ 4.32 and are scheduled to expire in 3 to 5 years . on april 18 , 2013 , the company converted 2,253,531 series b warrants to amended series b warrants in connection with the exercising of 1,414,995 warrants into common stock . 326,597 series b warrants expired . the amended series b warrants issued have the exercise price raised to $ 6.75 per share , and the expiration date has been extended to september 30 , 2014. on october 1 , 2013 , the company issued a total of 100,000 warrants with a fair market value of $ 481,724 for services rendered to the company . the warrants vested immediately , have an exercise price of $ 7.96 per share and a term of 3 years . on december 30 , 2013 , the company issued a total of 26,667 warrants with a fair market value of $ 65,748 for services rendered to the company . the warrants vested immediately , have an exercise price of story_separator_special_tag safe harbor statement certain statements contained in this report , including , without limitation , statements containing the words “ believes , ” “ anticipates , ” “ expects , ” “ intends , ” and words of similar import , constitute “ forward-looking statements ” as defined in the private securities litigation reform act of 1995 or by the securities and exchange commission in its rules , regulations and releases , regarding the company 's financial and business prospects . these forward-looking statements are qualified in their entirety by these cautionary statements , which are being made pursuant to the provisions of such act and with the intention of obtaining the benefits of the “ safe harbor ” provisions of such act . the company cautions investors that any forward-looking statements it makes are not guarantees of future performance and that actual results may differ materially from those in the forward-looking statements . we assume no obligation to update any forward-looking statements contained in this report , whether as a result of new information , future events or otherwise , except as required by law . any investment in our common stock involves a high degree of risk . for a general discussion of some of these risks in greater detail , see our “ risk factors ” on page 11 of this annual report . on june 3 , 2013 , the company effected a 3:1 reverse stock split on its shares of common stock . unless otherwise noted , impacted amounts and share information included in the financial statements and notes thereto have been retroactively adjusted for the stock split as if such stock split occurred on the first day of the first period presented . certain amounts in the notes to the financial statements may be slightly different than previously reported due to rounding of fractional shares as a result of the reverse stock split . story_separator_special_tag general the company is a pharmaceutical company focused on the development of the company 's previously acquired compounds and technologies with a focus on the clinical and preclinical development of ophthalmology products . our lead clinical program , squalamine eye drops ( ohr-102 ) , is being evaluated in multiple clinical trials for the treatment of back-of-the-eye disorders including the wet form of age- related macular degeneration , and we are also developing a recently acquired sustained release ocular drug delivery platform technology . 25 the company will continue to incur ongoing operating losses , which are expected to increase substantially as it funds development and clinical testing of its pharmaceutical compounds . in addition , losses will be incurred in paying ongoing reporting expenses , including legal and accounting expenses , as necessary to maintain the company as a public entity . no projected date for potential revenues can be made , and the company is undercapitalized at present to completely develop , test and market any pharmaceutical product . until the company is able to generate significant revenue from its principal operations , it will remain classified as a development stage company . the company can give no assurance that it will be successful in such efforts or that its limited operating funds will be adequate to support the company 's operations , nor can there be any assurance of any additional funding being available to the company . liquidity and capital resources the company has limited working capital reserves with which to continue development of its pharmaceutical products and continuing operations . the company is reliant , at present , upon its capital reserves for ongoing operations and has no revenues . net working capital reserves increased from the beginning of the 2015 fiscal year to the end by $ 17,075,123 ( to $ 25,156,022 from $ 8,080,899 ) and increased from the beginning of the 2014 fiscal year to the end by $ 3,392,391 ( to $ 8,080,899 from $ 4,688,508 ) primarily due to capital raised through the sale of common stock . during fiscal 2015 , our quarterly cash burn was approximately $ 2-3mm per quarter , which was higher than in fiscal 2014. we expect our cash burn to significantly increase in fiscal 2016 with the full phase iii clinical program underway and the ongoing development of our sustained release platform technology . at present , the company has no bank line of credit or other fixed source of capital reserves . should it need additional capital in the future , it will be primarily reliant upon private or public placement of its equities , or a transaction with a pharmaceutical partner , for which there can be no warranty or assurance that the company may be successful in such efforts . on february 11 , 2015 , the company sold 4,259,259 shares of common stock in an underwritten public offering resulting in net proceeds of $ 26.6 million . with this additional capital , management believes the company has sufficient capital to meet its planned operating needs through september 2016. story_separator_special_tag justify ; text-indent : 0.5in ; background-color : transparent '' > research and development the company follows the policy of expensing its research and development costs in the period in which they are incurred in accordance with asc 730. the company incurred net research and development expenses of $ 8,777,519 , $ 4,369,413 , and $ 2,753,914 during the years ended september 30 , 2015 , 2014 , and 2013 , respectively . share-based compensation the company follows the provisions of asc 718 , “ share-based payments ” which requires all share-based payments to employees , including grants of employee stock options , be recognized in the income statement based on their fair values . the company uses the black-scholes pricing model for determining the fair value of stock based compensation . in accordance with asc 505 , equity instruments issued to non-employees for goods or services are accounted for at fair value and are marked to market until service is complete or a performance commitment date is reached , whichever is earlier . goodwill and intangibles the company evaluates goodwill and other finite-lived intangible assets in accordance with fasb asc topic 350 , “ intangibles — goodwill and other . “ goodwill is recorded at the time of an acquisition and is calculated as the difference between the total consideration paid for an acquisition and the fair value of the net tangible and intangible assets acquired . accounting for acquisitions requires extensive use of accounting estimates and judgments to allocate the purchase price to the fair value of the net tangible and intangible assets acquired , including in-process research and development ( “ ipr & d ” ) . goodwill is deemed to have an indefinite life and is not amortized , but is subject to annual impairment tests . if the assumptions and estimates used to allocate the purchase price are not correct , or if business conditions change , purchase price adjustments or future asset impairment charges could be required . the value of our goodwill could be impacted by future adverse changes such as : ( i ) any future declines in our operating results , ( ii ) a decline in the valuation of technology , including the valuation of our common stock , ( iii ) a significant slowdown in the worldwide economy or ( iv ) any failure to meet the performance projections included in our forecasts of future operating results . in accordance with fasb asc topic 350 , the company tests goodwill for impairment on an annual basis or more frequently if the company believes indicators of impairment exist . impairment evaluations involve management estimates of asset useful lives and future cash flows . significant management judgment is required in the forecasts of future operating results that are used in the evaluations . it is possible , however , that the plans
| results of operations for the fiscal year ended september 30 , 2015 , the company had zero revenues and operating expenses of approximately $ 17,805,280. the loss from operations was comprised of $ 8,777,519 in research and development costs , $ 7,509,601 in general and administrative expenses , $ 1,179,254 in depreciation and amortization and $ 338,906 in impairment of intangibles . during the same period , the company recorded interest expense of $ 5,977 , a loss on investment of subsidiary of $ 103,143 , change in fair value of contingent consideration of $ 2,637,756 and other income items totaling $ 78,779. the net loss for the year ended september 30 , 2015 was $ 15,197,865. for the fiscal year ended september 30 , 2014 , the company had zero revenues and operating expenses of approximately $ 9,122,924. the loss from operations was comprised of $ 4,369,413 in research and development costs , $ 4,287,205 in general and administrative expenses and $ 466,306 in depreciation and amortization . during the same period , the company recorded interest expense of $ 5,576 , a loss on investment of subsidiary of $ 10,643 and other income items totaling $ 8,479. the net loss for the year ended september 30 , 2014 was $ 9,130,664. for the fiscal year ended september 30 , 2013 , the company had zero revenues and operating expenses of approximately $ 4,620,916. the loss from operations was comprised of $ 2,753,914 in research and development costs , $ 1,775,857 in general and administrative expenses , and $ 91,145 in depreciation and amortization .
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certain risks , uncertainties and other factors , including but not limited to those set forth under “ forward-looking statements , ” “ risk factors ” and elsewhere in this report , may cause actual results to differ materially from those projected in the forward looking statements . we assume no obligation to update any of these forward-looking statements . readers of our annual report on form 10-k should consider these risks and uncertainties in evaluating forward-looking statements and should not place undue reliance on forward-looking statements . 46 overview the company is a financial holding company headquartered in bloomington , minnesota , which is currently celebrating fourteen years of successful operations . the principal sources of funds for loans and investments are transaction , savings , time , and other deposits , and short-term and long-term borrowings . the company 's principal sources of income are interest and fees collected on loans , interest and dividends earned on investment securities and service charges . the company 's principal expenses are interest paid on deposit accounts and borrowings , employee compensation and other overhead expenses . the company 's simple , efficient business model of providing responsive support and unconventional experiences to clients continues to be the underlying principle that drives the company 's profitable growth . critical accounting policies and estimates the consolidated financial statements of the company are prepared based on the application of certain accounting policies , the most significant of which are described in note 1 of the notes to the consolidated financial statements included as a part of this report . certain policies require numerous estimates and strategic or economic assumptions that may prove inaccurate or subject to variation and may significantly affect the reported results and financial position for the current period or in future periods . the use of estimates , assumptions , and judgments are necessary when financial assets and liabilities are required to be recorded or adjusted to reflect fair value . assets carried at fair value inherently result in more financial statement volatility . fair values and information used to record valuation adjustments for certain assets and liabilities are based on either quoted market prices or are provided by other independent third-party sources , when available . when such information is not available , management estimates valuation adjustments . changes in underlying factors , assumptions or estimates in any of these areas could have a material impact on the future financial condition and results of operations . management has discussed each critical accounting policy and the methodology for the identification and determination of critical accounting policies with the company 's audit committee . the jobs act permits the company an extended transition period for complying with new or revised accounting standards affecting public companies . the company has elected to take advantage of this extended transition period , which means that the financial statements included in this report , as well as any financial statements filed in the future , will not be subject to all new or revised accounting standards generally applicable to public companies for the transition period for so long as the company remains an emerging growth company or until the company affirmatively and irrevocably opts out of the extended transition period under the jobs act . the following is a discussion of the critical accounting policies and significant estimates that require the company to make complex and subjective judgements . allowance for loan losses the allowance for loan losses , sometimes referred to as the “ allowance , ” is established through a provision for loan losses which is charged to expense . loan losses are charged against the allowance when management determines all or a portion of the loan balance to be uncollectible . subsequent recoveries , if any , are credited to the allowance for cash received on previously charged-off amounts . if the allowance is considered inadequate to absorb future loan losses on existing loans for any reason , including but not limited to , increases in the size of the loan portfolio , increases in charge-offs or changes in the risk characteristics of the loan portfolio , then the provision for loan losses is increased . a loan is considered impaired when , based on current information and events , it is probable that the company will be unable to collect all amounts due according to the original contractual terms of the loan agreement . the collection of all amounts due according to original contractual terms means that both the contractual interest and principal payments of a loan will be collected as scheduled in the loan agreement . an impaired loan is measured based on the present value of expected future cash flows discounted at the loan 's effective interest rate , or , as a practical expedient , at the loan 's observable market price , or the fair value of the underlying collateral , reduced by costs to sell on a discounted basis , is used if a loan is collateral dependent . 47 investment securities impairment periodically , the company may need to assess whether there have been any events or economic circumstances to indicate that a security on which there is an unrealized loss is impaired on an other than temporary basis . in any such instance , the company would consider many factors , including the length of time and the extent to which the fair value has been less than the amortized cost basis , the market liquidity for the security , the financial condition and the near-term prospects of the issuer , expected cash flows , and the intent and ability to hold the investment for a period of time sufficient to recover the temporary loss . securities on which there is an unrealized loss that is deemed to be other than temporary are written down to fair value , with the write-down recorded as a realized loss in securities gains ( losses ) . the fair values of investment securities are generally determined by various pricing models . story_separator_special_tag average interest bearing liabilities increased $ 223.5 million , or 21.9 % , to $ 1.24 billion for the year ended december 31 , 2018 , from $ 1.02 billion for the year ended december 31 , 2017. the increase in average interest bearing liabilities was due to an increase in interest bearing deposits , federal funds purchased , fhlb advances , and the issuance of $ 25.0 million of subordinated debentures in july of 2017. average interest earning assets produced a tax-equivalent yield of 4.88 % for year ended december 31 , 2018 , compared to 4.76 % for the year ended december 31 , 2017. the average rate paid on interest bearing liabilities was 1.65 % for the year ended december 31 , 2018 , compared to 1.19 % for the year ended december 31 , 2017. interest income . total interest income on a tax-equivalent basis was $ 86.2 million for the year ended december 31 , 2018 , compared to $ 68.5 million for the year ended december 31 , 2017. the $ 17.7 million , or 25.8 % , increase in total interest income on a tax-equivalent basis was primarily due to organic growth in the loan portfolio . interest income on loans for the year ended december 31 , 2018 was $ 78.0 million , compared to $ 60.0 million for the year ended december 31 , 2017. the $ 18.0 million , or 30.0 % , increase was due to a 26.6 % increase in the average balance of loans outstanding and a 13 basis point increase in the average yield on loans . the increase in the average balance of loans outstanding was due to organic loan growth . the increase in yield on the loan portfolio resulted primarily from repricing of variable rate loans and new loan production at yields accretive to the existing portfolio yield . interest income on the investment securities portfolio on a fully-tax equivalent basis decreased $ 473,000 , or 5.8 % , during the year ended december 31 , 2018 compared to the year ended december 31 , 2017 , despite a $ 13.6 million increase in average balances between the periods . interest expense . interest expense on interest bearing liabilities increased $ 8.3 million , or 68.3 % , to $ 20.5 million for the year ended december 31 , 2018 , compared to $ 12.2 million for the year ended december 31 , 2017 , due to increases in interest rates and average balances of both deposits and borrowings . interest expense on deposits increased to $ 16.0 million for the year ended december 31 , 2018 , compared to $ 9.7 million for the year ended december 31 , 2017. the $ 6.3 million , or 64.3 % , increase in interest expense on deposits was primarily due to the average balance of deposits increasing 18.8 % combined with a 40 basis point increase in the average rate paid . the increase in the average balance of deposits resulted primarily from increases in savings and money market deposits , time deposits , and brokered deposits . the increase in the average rate paid was primarily due to the impact of higher market interest rates demanded on deposits in the local and wholesale markets . 53 interest expense on borrowings increased $ 2.1 million to $ 4.5 million for the year ended december 31 , 2018 , compared to $ 2.5 million for the year ended december 31 , 2017. this increase was primarily due to increased rates and average balances of federal funds purchased and fhlb advances , offset in part by a reduction in interest expense on notes payable as a result of a decreased principal balance . provision for loan losses 2019 compared to 2018 the allowance for loan losses increased $ 2.5 million as of december 31 , 2019 , compared to december 31 , 2018 , reflecting a provision for loan losses of $ 2.7 million and net charge-offs of $ 205,000 during 2019. the provision for loan losses was $ 2.7 million for the year ended december 31 , 2019 , a decrease of $ 875,000 , compared to the provision for loan losses of $ 3.6 million for the year ended december 31 , 2018 , due primarily to continued strength in credit quality and consistent performance of the loan portfolio . the allowance for loan losses at december 31 , 2019 represented 1.18 % of gross loans outstanding , compared to 1.20 % at december 31 , 2018 . 2018 compared to 2017 the allowance for loan losses increased $ 3.5 million as of december 31 , 2018 , compared to december 31 , 2017 , reflecting a provision for loan losses of $ 3.6 million and net charge-offs of $ 46,000 during 2018. the provision for loan losses was $ 3.6 million for the year ended december 31 , 2018 , a decrease of $ 600,000 , compared to the provision for loan losses of $ 4.2 million for the year ended december 31 , 2017 , due primarily to continued strength in credit quality . the allowance for loan losses at december 31 , 2018 represented 1.20 % of gross loans outstanding , compared to 1.22 % at december 31 , 2017. the following table presents a summary of the activity in the allowance for loan losses for the years ended december 31 , 2019 , 2018 , and 2017 : replace_table_token_8_th noninterest income 2019 compared to 2018 noninterest income was $ 3.8 million for the year ended december 31 , 2019 , compared to $ 2.5 million for the year ended december 31 , 2018 , an increase of $ 1.3 million , or 50.5 % . the increase was primarily due to an increase in 54 gains on sales of securities and foreclosed assets and an increase in swap fees , partially offset by decreased letter of credit fees .
| results of operations net income 2019 compared to 2018 net income was $ 31.4 million for the year ended december 31 , 2019 , a 16.7 % increase over net income of $ 26.9 million for the year ended december 31 , 2018. net income per diluted common share for the year ended december 31 , 2019 was $ 1.05 , a 14.5 % increase , compared to $ 0.91 per diluted common share for the year ended december 31 , 2018. roa was 1.49 % and 1.51 % for the years ended december 31 , 2019 and 2018 , respectively . roe was 13.50 % and 13.87 % for the years ended december 31 , 2019 and 2018 , respectively . 2018 compared to 2017 net income was $ 26.9 million for the year ended december 31 , 2018 , a 59.4 % increase over net income of $ 16.9 million for the year ended december 31 , 2017. net income per diluted common share for the year ended december 31 , 2018 was $ 0.91 , a 35.5 % increase , compared to $ 0.68 per diluted common share for the year ended 48 december 31 , 2017. roa was 1.51 % and 1.16 % for the years ended december 31 , 2018 and 2017 , respectively . roe was 13.87 % and 13.18 % for the years ended december 31 , 2018 and 2017 , respectively . the year ended 2017 included a one-time additional expense of $ 2.0 million related to the enactment of the tax cuts and jobs act . excluding the one-time impact of the tax cuts and jobs act , roa and roe for the year ended december 31 , 2017 would have been 1.30 % and 14.75 % , respectively . net interest income the company 's primary source of revenue is net interest income , which is impacted by the level of interest earning assets and related funding sources , as well as changes in the levels of interest rates .
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during such notice period , we will continue to compensate mr. shore according to his employment agreement and mr. shore will be obligated to continue to discharge and perform all of his duties and obligations under his employment agreement , and to cooperate with us and use his best efforts to assist with the integration of any persons that we have delegated to assume mr. shore 's responsibilities . we believe that this arrangement with mr. shore will assist us in achieving a successful transition upon mr. shore 's departure . in addition , upon termination without “ cause , ” we have the right to pay mr. shore a lump payment representing his compensation for the notice period and terminate mr. shore 's employment immediately . if we terminate mr. shore 's employment without cause , mr. shore will be entitled , under israeli law , to severance payments equal to his last month 's salary multiplied by the number of years mr. shore has been employed with us . in order to finance this obligation , we make monthly contributions equal to 8.33 % of mr. shore 's salary to a severance payment fund . the total amount accumulated in mr. shore 's severance payment fund as of june 30 , 2013 was $ 27,911 as adjusted for the conversion from new israeli shekels to u.s. dollars . however , if mr. shore 's employment is terminated without cause , on account of a disability or upon his death , as of june 30 , 2013 , mr. shore would have been entitled to receive $ 39,122 in severance under israeli law , thereby requiring us to pay mr. shore $ 11,211 , in addition to releasing the $ 27,911 in mr. shore 's severance payment fund . on the other hand , pursuant to his employment agreement , mr. shore is entitled to the total amount contributed to and accumulated in his severance payment story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying condensed consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. overview we are a medical device company focusing on the development and commercialization of our proprietary stent platform technology , mguard . mguard provides embolic protection in stenting procedures by placing a micron mesh sleeve over a stent . our initial products are marketed for use mainly in patients with acute coronary syndromes , notably acute myocardial infarction ( heart attack ) and saphenous vein graft coronary interventions ( bypass surgery ) . 44 on march 31 , 2011 , we completed a series of share exchange transactions pursuant to which we acquired all of the capital stock of inspiremd ltd. , a company formed under the laws of the state of israel , in exchange for an aggregate of 12,666,665 ( as adjusted for the one-for-four reverse stock split of our common stock that occurred on december 21 , 2012 ) shares of our common stock . as a result of these share exchange transactions , inspiremd ltd. became our wholly-owned subsidiary , we discontinued our former business and succeeded to the business of inspiremd ltd. as our sole line of business . the share exchange transactions were accounted for as a recapitalization . inspiremd ltd. is the acquirer for accounting purposes and we are the acquired company . accordingly , the historical financial statements presented and the discussion of financial condition and results of operations herein are those of inspiremd ltd. , retroactively restated for , and giving effect to , the number of shares received in the share exchange transactions , and do not include the historical financial results of our former business . the accumulated earnings of inspiremd ltd. were also carried forward after the share exchange transactions and earnings per share have been retroactively restated to give effect to the recapitalization for all periods presented . operations reported for periods prior to the share exchange transactions are those of inspiremd ltd. on june 1 , 2012 , our board of directors approved a change in our fiscal year-end from december 31 to june 30 , effective june 30 , 2012. we effectuated a one-for-four reverse stock split of our common stock on december 21 , 2012. recent events on april 16 , 2013 , we consummated an underwritten public offering pursuant to which we sold 12.5 million shares of common stock . the public offering price of our common stock in this offering was $ 2.00 per share , resulting in aggregate net proceeds to us of approximately $ 22.6 million , after the underwriters ' commissions and offering expenses . on april 11 , 2013 , following the pricing of the offering , our common stock commenced trading on the nyse mkt . critical accounting policies use of estimates the preparation of financial statements in conformity with u.s. gaap requires management to make estimates using 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 sales and expenses during the reporting periods . actual results could differ from those estimates . as applicable to these consolidated financial statements , the most significant estimates and assumptions relate to inventory write-off , intangible assets , provisions for returns , legal contingencies , estimation of the fair value of share-based compensation and estimation of the fair value of warrants . functional currency the currency of the primary economic environment in which our operations are conducted is the u.s. dollar ( “ $ ” or “ dollar ” ) . accordingly , the functional currency of us and of our subsidiaries is the dollar . the dollar figures are determined as follows : transactions and balances originally denominated in dollars are presented in their original amounts . story_separator_special_tag we account for equity instruments issued to third party service providers ( non-employees ) by recording the fair value of the options granted using an option pricing model , at each reporting period , until rewards are vested in full . the expense is recognized over the vesting period using the accelerated multiple option approach . in addition , certain of our share-based awards are performance based , i.e. , the vesting of these awards depends upon achieving certain goals . we estimate the expected pre-vesting award probability , i.e. , the expected likelihood that the performance conditions will be achieved , and only recognize expense for those shares expected to vest . uncertain tax and value added tax positions we follow a two-step approach to recognizing and measuring uncertain tax and value added tax positions . the first step is to evaluate the tax and value added tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit . the second step is to measure the tax and value added tax benefit as the largest amount that is more than 50 % and 75 % , respectively , likely of being realized upon ultimate settlement . such liabilities are classified as long-term , unless the liability is expected to be resolved within twelve months from the balance sheet date . our policy is to include interest related to unrecognized tax benefits within financial expenses . story_separator_special_tag 184.1 % in the twelve months ended june 30 , 2013 from 259.5 % in the same period in 2012 . 48 financial expenses . for the twelve months ended june 30 , 2013 , financial expenses increased to approximately $ 14.1 million from approximately $ 38,000 during the same period in 2012. the increase in financial expenses resulted primarily from approximately $ 9.9 million in non-recurring , non-cash effects of the debt inducement related to the adjustment of the conversion ratio of our convertible debentures upon their retirement in april 2013 , $ 4.3 million of amortization expense pertaining to our convertible debentures and their related issuance costs ( of which approximately $ 3.6 million represented the non-recurring , non-cash amortization of the discount of the convertible debentures and their related issuance costs ) . in addition to these non-recurring , non-cash expenses , we also incurred approximately $ 1.5 million of expense pertaining to our obligation to issue shares of common stock without new consideration to the investors in our march 2011 private placement due to certain anti-dilution rights held by such stockholders . these expenses were partially offset by approximately $ 1.4 million of financial income pertaining to the revaluation of certain of our warrants due to our stock price decreasing to $ 2.21 on june 30 , 2013 , from $ 4.24 on june 30 , 2012 and approximately $ 0.1 million for the favorable impact of exchange rate differences for the twelve months ended june 30 , 2013. financial expense as a percentage of revenue increased from 0.7 % in the twelve months ended june 30 , 2012 , to 290.9 % in the same period in 2013. if the non-recurring , non-cash effects of the debt inducement and amortization expense are removed , financial expenses for the twelve months ended june 30 , 2013 would have totaled approximately $ 0.7 million , an increase of approximately $ 0.7 million from the same period in 2012. tax expenses . for the twelve months ended june 30 , 2013 , tax expenses decreased approximately $ 6,000 to approximately $ 8,000 for the twelve months ended june 30 , 2013 , from approximately $ 14,000 during the same period in 2012. net loss . our net loss increased by approximately $ 11.7 million , or 66.3 % , to approximately $ 29.3 million for the twelve months ended june 30 , 2013 from approximately $ 17.6 million during the same period in 2012. the increase in net loss resulted primarily from an increase of approximately $ 14.2 million in financial expenses , of which , approximately $ 13.5 million were non-recurring , non-cash ( see above for explanation ) , partially offset by a decrease of approximately $ 2.4 million in operating expenses ( see above for explanation ) and an increase of approximately $ 0.1 million in gross profit ( see above for explanation ) . if the non-recurring , non-cash effects of the debt inducement and amortization expense are removed , our net loss would be approximately $ 15.8 million for the twelve months ended june 30 , 2013 , as compared to a net loss of approximately $ 17.6 million for the same period in 2012 , an improvement of approximately $ 1.8 million , or 10 % . liquidity and capital resources twelve months ended june 30 , 2013 compared to twelve months ended june 30 , 2012 due to the underwritten public offering of our common stock in april 2013 , pursuant to which we received net proceeds of approximately $ 22.6 million , and the exchange and amendment agreement pursuant to which , as described below , we fully satisfied our obligations under our senior secured convertible debentures due april 15 , 2014 in the prior principal amount of $ 11.7 million , we believe that we have sufficient cash to continue our operations into 2015. however , depending on the operating results in 2014 , we may need to raise additional funds in 2015 to continue financing our operations . general . at june 30 , 2013 , we had cash and cash equivalents of approximately $ 14.8 million , as compared to $ 10.3 million as of june 30 , 2012. we have historically met our cash needs through a combination of issuing new shares , borrowing activities and sales .
| results of operations twelve months ended june 30 , 2013 compared to twelve months ended june 30 , 2012 revenues . for the twelve months ended june 30 , 2013 , revenue decreased by approximately $ 0.5 million , or 8.9 % , to approximately $ 4.9 million from approximately $ 5.3 million during the same period in 2012. this decrease was predominantly driven by a decrease in sales volume of approximately $ 0.5 million , or approximately 9.6 % , partially offset by price increases to our repeat distributors of approximately $ 36,000 , or approximately 0.7 % . the $ 0.5 million decrease in sales volume was due largely to the fact that we are in the process of replacing certain third party distributors with direct sales channels in key countries where end user average selling prices , along with other limiting factors , continue to impair sales . while we believe that this transition to direct selling will ultimately lead to greater sales in these markets , the transition away from certain distributors adversely impacted revenue for the twelve months ended june 30 , 2013 , as we had fewer parties selling our products . with respect to regions , the decrease in revenue was mainly attributable to a decrease of approximately $ 0.6 million in revenue from our distributors in latin america and a decrease of approximately $ 0.2 million in revenue from our distributors throughout the rest of the world . these decreases were partially offset by an increase of approximately $ 0.3 million in revenue from our distributors in asia . 47 gross profit .
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forward-looking statements all statement , trend analyses and other information contained in this report and elsewhere ( such as in filings by us with the securities and exchange commission , press releases , presentations by us or our management or oral statements ) relative to markets for our products and trends in our operations or financial results , as well as other statements including words such as “ anticipate , ” “ believe , ” “ plan , ” “ estimate , ” “ expect , ” “ intend , ” and other similar expressions , constitute forward-looking statements under the private securities litigation reform act of 1995. these forward-looking statements are subject to known and unknown risks , uncertainties and other factors which may cause actual results to be materially different from those 11 contemplated by the forward-looking statements . such factors include , among other things : ( i ) general economic conditions and other factors , including prevailing interest rate levels and stock and credit market performance which may affect ( among other things ) our ability to sell our products , our ability to access capital resources and the costs associated therewith , the market value of our investments and the lapse rate and profitability of policies ; ( ii ) world conflict , including but not limited to the war in iraq , which may affect consumers spending trends and priorities ( iii ) customer response to new products and marketing initiatives : ( iv ) mortality , morbidity and other factors which may affect the profitability of our products ( v ) changes in the federal income tax laws and regulations which may affect the relative income tax advantages of our products ( vi ) regulatory changes or actions , including those relating to regulation of financial services affecting ( among other things ) bank sales and underwriting of insurance products and regulation of the sale , underwriting and pricing of products ( vii ) the risk factors or uncertainties listed from time to time in our filings with the securities and exchange commission . management believes the company 's current critical accounting policies are comprised of the following : liabilities for unpaid policy claims are a sensitive accounting estimate unique to the insurance industry . management uses an independent actuary to formulate this estimate . differences in the estimates and actual results may result in revised claims expense which is recognized in the period in which the difference is determined . see note 1 , 7 and 11 to our financial statements for the effect on the year 2006. claim liability methodology the company , through its wholly owned subsidiary , bnlac , has a single line of business which is life and accident and health insurance . the company 's sic code is 6311 which is a standard industrial classification used by the united states securities and exchange commission ( “ sec ” ) . using such sic code , an interested person can research the internet website of the sec , www.sec.gov , to find and review business and financial information of other companies which are in the same line of business . the following is a summary description of the company 's methodology for estimating its claim liabilities for its insurance policies . the company and management believe that this discussion constitutes forward looking statements and , therefore , this discussion is given full safe-harbor . it should be understood that there is no assurance that anything which the company and its management have done in the past regarding its claim liability methodology will be done in the future . the company and its management are afforded full and complete authority and judgment in determining and implementing its claim liability methodology which includes any and all changes which may be made from time to time . the company 's significant insurance product types are presently dental ( group and individual ) , life ( group and individual ) , and annuities . in the life and accident and health insurance industry , the liabilities for claims and the related expensing of those liabilities are evaluated and recorded using estimates of claim liabilities . the company estimates its claim liabilities using the general methodology described herein . the liability for claims generally consists of the following : ( 1 ) due and unpaid claims , ( 2 ) claims in the course of settlement , and ( 3 ) claims incurred but unreported . the company records the actual liability for all claims that are due but unpaid , item ( 1 ) . but , with regard to the last items ( 2 ) and ( 3 ) , the company must make estimates . the estimates are based on actuarial principles . the company 's independent consulting actuary works with company financial personnel and management in determining the estimates and the independent consulting actuary annually gives the company a certification as to the amounts of the liabilities . the company calculates and maintains claim liabilities for the estimated future payments on claims incurred before the statement date . these calculations are based on actuarial principles in accordance with industry standards and applicable gaap requirements . development of such liabilities is done with company financial personnel and management working with the company 's independent consulting actuary . these liabilities involve many considerations including but not limited to economic and social conditions , inflation , and healthcare costs . the claim liabilities developed include significant estimates and assumptions based on management 's review of historical experience in consultation with its independent actuary . the extent to which future payments match the claims liabilities is dependent on how well actual future experience matches the assumptions management makes regarding the future experience . the company 's liabilities are estimates that require significant judgment and , therefore , are inherently uncertain . story_separator_special_tag notes 7 and 11 are limited to the most recent fiscal year being reported , december 31 , 2006 , and the previous fiscal years of 2005 and 2004. life insurance - group and individual - and annuities the company reinsures a substantial portion of its life insurance and the associated risks and liabilities . see item 1 , business , reinsurance ; and note 8 , reinsurance , to the company 's financial statements . the company determines its life insurance claim liabilities by recording three items : ( 1 ) actual claims due and unpaid ; ( 2 ) the claims received during the 30 day period following year end ( this is done by taking an inventory of claims received during the thirty day period ) ; and ( 3 ) estimating a liability amount for claims which have been incurred but not yet reported by the end of the thirty day period . the company 's annuity policies are simple deferred annuities . the company does not explicitly establish a claim liability for its annuities since the liability is already held in the annuity deposit liability . trends in completion factors , loss ratio and claims per insured per month claim liabilities for the group dental line are the most significant part of the company 's claim liability . as stated above , the company uses the completion factor method for calculating the liability . two main assumptions are made in this approach . first , for months the claims are incurred where the completion factor is credible , the company uses that completion factor to calculate the liability associated with that month the claim occurred . second , for the most recent months before the company 's financial statement date where it is determined that the completion factors are not fully credible , the company reviews loss ratios and claims per insured per month to determine the liability for those months . the discussion in this paragraph relates to the months where the completion factors are deemed to be fully credible which are typically the months prior to november and december . the completion factors have been relatively stable in the recent past . in the future , there could be changes in the trend of completion factors . the company and its independent consulting actuary review the trends in the completion factors and when necessary make judgments as to the single point estimate value for these items . such estimates are based on observable trends and would also reflect any known major changes . professional judgments are made based on the experience of the actuary and company 's financial personnel and management . to observe the possible sensitivity of assuming 100 % reliance on completion factors for claims incurred during the months for which completion factors are believed to be fully credible , if the associated claim liabilities for those months had increased by 5 % , the year end december 31 , 2006 , claim liabilities would have been increased by approximately $ 22,000. the discussion in this paragraph relates to the months where the completion factors are deemed to be not fully credible which are typically the months of november and december . the choice of the loss ratio assumption or claims per insured per month assumption for the most recent month of the claim was incurred may also have an impact on the liability estimate . these assumptions are monitored for trends . the company and its consulting actuary monitor the loss ratio and claims per insured month and override the completion factor approach for the most recent months before the company 's financial statement date where the completion factors are not fully credible , i.e . november and december . to observe the possible sensitivity of assuming 100 % reliance on loss ratio or claims per insured per month factors for claims incurred during the months for which completion are believed to be not fully credible ( typically november and december of a fiscal year ) , if the loss ratio or claims per insured per month had increased by 3 % for those months ( a multiple of 1.03 ) , the associated claim liabilities for those months and the year end december 31 , 2006 , claim liability would have been increased by approximately $ 135,000. the company believes that its recorded claim liabilities are reasonable and adequate to satisfy its ultimate claims liability . the company 's recorded claim liabilities are , in accordance with industry practice , estimates of such liabilities . the reader must recognize that the completion factors , loss ratios and claims per insured per month may , and probably will , be affected by events and conditions which are or will be unknown to the company 's financial personnel or management or the 14 company 's consulting actuary . the reader must also recognize that any trending of the completion factors , loss ratios or claims per insured per month may not be indicative of changes in the company 's financial condition . while a presentation such as described above provides some mathematical and hypothetical numerical calculations , such calculations may or may not have any relevance to the company 's future financial condition , earnings or cash flow . deferred tax asset the valuation allowance against deferred taxes is a sensitive accounting estimate . the company follows statement of financial accounting standards ( sfas ) no . 109 , “ accounting for income taxes , ” which prescribes the liability method of accounting for deferred income taxes . under the liability method , companies establish a deferred tax liability or asset for the future tax effects of temporary differences between book and tax basis of assets and liabilities .
| results of operations premium income was $ 44,646,393 in 2006 , $ 44,303,827 in 2005 and $ 42,451,319 in 2004. the increase in 2006 was due to new sales of group dental insurance which was offset by approximately a $ 1.1 million reduction in group dental premium due to the termination of an agreement between the company and southeast managers , inc. ( “ semi ” ) . this agreement allowed semi to market a dental product of bnlac 's in tennessee and the company received 5.0 % of premium revenue with no exposure to underwriting losses . as part of the termination agreement , the block of business was transferred to another company associated with semi . the increase of 4 % in 2005 was due to new sales of group dental insurance and increased group and individual dental renewal premiums net investment income was $ 1,191,583 in 2006 , $ 1,003,613 in 2005 and $ 975,485 in 2004 , an increase of 18 % in 2006 , and an increase of 3 % in 2005. the increase in 2006 was primarily due to delinquent interest received on bonds previously in default and an increase in fixed maturities investment yield . the increase in 2005 was d ue to an increase in investment in fixed maturities and an increase in interest rates . continued profitability and stable or increased interest rates in subsequent years , will permit the company to invest its profits in fixed maturities and continue the trend of increased investment income . the company receives marketing fees from ebi per the marketing agreement mentioned above . the company received marketing fees of $ 143,315 in 2006 , $ 115,233 in 2005 and $ 165,275 in 2004. t he decrease in marketing fees in 2005 compared to 2006 and 2004 is due to reduced operating income at ebi .
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( l story_separator_special_tag the following discussion should be read in conjunction with our audited consolidated financial statements and related notes and other financial information appearing elsewhere in this annual report on form 10-k. in addition to historical information , the following discussion and other parts of this annual report on form 10-k contain forward-looking information that involves risks and uncertainties . please see “ risk factors ” and “ special note regarding forward-looking statements ” for a discussion of the uncertainties , risks and assumptions associated with these statements . overview monroe capital corporation is an externally managed , closed-end , non-diversified management investment company that has elected to be regulated as a business development company ( “ bdc ” ) under the investment company act of 1940 , as amended ( the “ 1940 act ” ) . in addition , for u.s. federal income tax purposes , we have elected to be treated as a regulated investment company ( “ ric ” ) under the subchapter m of the internal revenue code of 1986 , as amended ( the “ code ” ) . we are a specialty finance company focused on providing financing solutions primarily to lower middle-market companies in the united states and canada . we provide customized financing solutions focused primarily on senior secured , junior secured and unitranche secured ( a combination of senior secured and junior secured debt in the same facility in which we syndicate a “ first out ” portion of the loan to an investor and retain a “ last out ” portion of the loan ) debt and , to a lesser extent , unsecured subordinated debt and equity , including equity co-investments in preferred and common stock , and warrants . our shares are currently listed on the nasdaq global select market under the symbol “ mrcc ” . our investment objective is to maximize the total return to our stockholders in the form of current income and capital appreciation through investment in senior secured , unitranche secured and junior secured debt and , to a lesser extent , unsecured subordinated debt and equity investments . we seek to use our extensive leveraged finance origination infrastructure and broad expertise in sourcing loans to invest in primarily senior secured , unitranche secured and junior secured debt of middle-market companies . our investments will generally range between $ 2.0 million and $ 25.0 million each , although this investment size may vary proportionately with the size of our capital base . as of december 31 , 2020 , our portfolio included approximately 74.1 % senior secured loans , 11.7 % unitranche secured loans , 2.6 % junior secured loans and 11.6 % equity securities , compared to december 31 , 2019 , when our portfolio included approximately 77.1 % senior secured loans , 12.4 % unitranche secured loans , 2.2 % junior secured loans and 8.3 % equity securities . we expect that the companies in which we invest may be leveraged , often as a result of leveraged buy-outs or other recapitalization transactions , and , in certain cases , will not be rated by national ratings agencies . if such companies were rated , we believe that they would typically receive a rating below investment grade ( between bb and ccc under the standard & poor 's system ) from the national rating agencies . while our primary focus is to maximize current income and capital appreciation through debt investments in thinly traded or private u.s. companies , we may invest a portion of the portfolio in opportunistic investments in order to seek to enhance returns to stockholders . such investments may include investments in high-yield bonds , distressed debt , private equity or securities of public companies that are not thinly traded and securities of middle-market companies located outside of the united states . we expect that these public companies generally will have debt securities that are non-investment grade . on february 28 , 2014 , our wholly-owned subsidiary , monroe capital corporation sbic , lp ( “ mrcc sbic ” ) , a delaware limited partnership , received a license from the small business administration ( “ sba ” ) to operate as a small business investment company ( “ sbic ” ) under section 301 ( c ) of the small business investment act of 1958. mrcc sbic commenced operations on september 16 , 2013. see “ sba debentures ” below for more information . investment income we generate interest income on the debt investments in portfolio company investments that we originate or acquire . our debt investments , whether in the form of senior secured , unitranche secured or junior secured debt , typically have an initial term of three to seven years and bear interest at a fixed or floating rate . in some instances , we receive payments on our debt investments based on scheduled amortization of the outstanding balances . in addition , we receive repayments of some of our debt investments prior to their scheduled maturity date . in some cases , our investments provide for deferred interest of payment-in-kind ( “ pik ” ) interest . in addition , we may generate revenue in the form of commitment , origination , amendment , structuring or due diligence fees , fees for providing managerial assistance and consulting fees . loan origination fees , original issue discount and market discount or premium are capitalized , and we accrete or amortize such amounts as interest income . we record prepayment premiums and prepayment gains ( losses ) on loans as interest income . as the frequency or volume of the repayments which trigger these prepayment premiums and prepayment gains ( losses ) may fluctuate significantly from period to period , the associated interest income recorded may also fluctuate significantly from period to period . interest and fee income are recorded on the accrual basis to the extent we expect to collect such amounts . interest income is accrued based upon the outstanding principal amount and contractual terms of debt and preferred equity investments . story_separator_special_tag the weighted average effective yield including debt investments acquired for no cost in a restructuring on non-accrual status was 4.1 % for junior secured loans and 7.5 % in total as of december 31 , 2020. the weighted average effective yield including debt investments acquired for no cost in a restructuring on non-accrual status was 4.8 % for junior secured loans and 8.7 % in total as of december 31 , 2019. the weighted average annualized effective yield on portfolio investments is a metric on the investment portfolio alone and does not represent a return to stockholders . this metric is not inclusive of our fees and expenses , the impact of leverage on the portfolio or sales load that may be paid by stockholders . the following table shows the composition of our investment portfolio ( in thousands ) : replace_table_token_8_th our portfolio composition remained relatively consistent with december 31 , 2019 with a slight increase in equity securities due to additional equity investments and restructurings during the year . the decrease in total contractual and effective yields on the portfolio was primarily attributed to general decreases in libor and moving additional investments to non-accrual status during the year ended december 31 , 2020. the following table shows our portfolio composition by industry ( in thousands ) : replace_table_token_9_th portfolio asset quality mc advisors ' portfolio management staff closely monitors all credits , with senior portfolio managers covering agented and more complex investments . mc advisors segregates our capital markets investments by industry . the mc advisors ' monitoring process and projections developed by monroe capital both have daily , weekly , monthly and quarterly components and related reports , each to evaluate performance against historical , budget and underwriting expectations . mc advisors ' analysts will monitor performance using standard industry software tools to provide consistent disclosure of performance . when necessary , mc advisors will update our internal risk ratings , borrowing base criteria and covenant compliance reports . 59 as part of the monitoring process , mc advisors regularly assesses the risk profile of each of our investments and rates each of them based on an internal proprietary system that uses the categories listed below , which we refer to as mc advisors ' investment performance rating . for any investment rated in grades 3 , 4 or 5 , mc advisors , through its internal portfolio management group ( “ pmg ” ) , will increase its monitoring intensity and prepare regular updates for the investment committee , summarizing current operating results and material impending events and suggesting recommended actions . the pmg is responsible for oversight and management of any investments rated in grades 3 , 4 , or 5. mc advisors monitors and , when appropriate , changes the investment ratings assigned to each investment in our portfolio . in connection with our valuation process , mc advisors reviews these investment ratings on a quarterly basis . the investment performance rating system is described as follows : investment performance risk rating summary description grade 1 includes investments exhibiting the least amount of risk in our portfolio . the issuer is performing above expectations or the issuer 's operating trends and risk factors are generally positive . grade 2 includes investments exhibiting an acceptable level of risk that is similar to the risk at the time of origination . the issuer is generally performing as expected or the risk factors are neutral to positive . grade 3 includes investments performing below expectations and indicates that the investment 's risk has increased somewhat since origination . the issuer may be out of compliance with debt covenants ; however , scheduled loan payments are generally not past due . grade 4 includes an issuer performing materially below expectations and indicates that the issuer 's risk has increased materially since origination . in addition to the issuer being generally out of compliance with debt covenants , scheduled loan payments may be past due ( but generally not more than six months past due ) . grade 5 indicates that the issuer is performing substantially below expectations and the investment risk has substantially increased since origination . most or all of the debt covenants are out of compliance or payments are substantially delinquent . investments graded 5 are not anticipated to be repaid in full . our investment performance risk ratings do not constitute any rating of investments by a nationally recognized statistical rating organization or reflect or represent any third-party assessment of any of our investments . in the event of a delinquency or a decision to rate an investment grade 4 or grade 5 , the pmg , in consultation with the investment committee , will develop an action plan . such a plan may require a meeting with the borrower 's management or the lender group to discuss reasons for the default and the steps management is undertaking to address the under-performance , as well as amendments and waivers that may be required . in the event of a dramatic deterioration of a credit , mc advisors and the pmg will form a team or engage outside advisors to analyze , evaluate and take further steps to preserve our value in the credit . in this regard , we would expect to explore all options , including in a private equity sponsored investment , assuming certain responsibilities for the private equity sponsor or a formal sale of the business with oversight of the sale process by us . the pmg and the investment committee have extensive experience in running debt work-out transactions and bankruptcies .
| results of operations operating results were as follows ( in thousands ) : replace_table_token_12_th ( 1 ) in may 2020 , an arbitrator issued a final award in favor of the estate of rockdale ( the “ estate ” ) in the legal proceeding between the estate and a national insurance carrier . our share of the net proceeds from the award exceeded the contractual obligations due to us as a result of our right to receive excess proceeds pursuant to the terms of a sharing agreement between the lenders and the estate . in june 2020 , we received $ 33.1 million as an initial payment of proceeds from the legal proceedings from the estate , of which $ 19.5 million was recorded as a reduction in the cost basis of our investment in rockdale , $ 3.9 million was recorded as the collection of previously accrued interest , $ 7.4 million was recorded as investment income for previously unaccrued interest and fees and $ 2.3 million was recorded as realized gains . additionally , as an offset , we recorded net change in unrealized ( loss ) of ( $ 8.2 ) million primarily as a result of the reversal associated with the collection of proceeds from the estate . total net income associated with our investment in rockdale was $ 1.9 million during the year ended december 31 , 2020. as of december 31 , 2020 , we have a remaining investment in rockdale associated with residual proceeds currently expected from the estate of $ 1.6 million . investment income the composition of our investment income was as follows ( in thousands ) : replace_table_token_13_th ( 1 ) during the years ended december 31 , 2020 , 2019 and 2018 , includes pik dividends of $ 157 , $ 54 and $ 819 , respectively .
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65 a reconciliation of the expected federal income tax at the statutory rate to the provision for income taxes was as follows ( in thousands ) : replace_table_token_40_th the tax provision for the story_separator_special_tag financial condition and results of operations the following discussion and analysis of our financial condition and results of operations should be read together with the section titled “ selected financial data ” and our audited financial statements and related notes which are included elsewhere in this annual report on form 10-k. our actual results could differ materially from those anticipated in the forward-looking statements included in this discussion as a result of certain factors , including , but not limited to , those discussed in “ risk factors ” included elsewhere in this annual report on form 10-k. overview we are a leading provider of cloud-based supply chain management solutions , providing network-proven fulfillment , sourcing and item assortment management solutions , along with comprehensive retail performance analytics to thousands of customers worldwide . we provide our solutions through the sps commerce platform , a cloud-based product suite that improves the way retailers , suppliers , distributors and logistics firms orchestrate the sourcing , set up of new vendors and items and fulfillment of the products that consumers buy . we derive the majority of our revenues from thousands of monthly recurring subscriptions from businesses that utilize our solutions . we plan to continue to grow our business by further penetrating the supply chain management market , increasing revenues from our customers as their businesses grow , expanding our distribution channels , expanding our international presence and , from time to time , developing new solutions and applications . we also intend to selectively pursue acquisitions that will add customers , allow us to expand into new regions or allow us to offer new functionalities . for the years ended december 31 , 2017 , 2016 and 2015 , we generated revenues of $ 220.6 million , $ 193.3 million and $ 158.5 million , respectively . our fiscal quarter ended december 31 , 2017 represented our 68th consecutive quarter of increased revenues . recurring revenues from recurring revenue customers accounted for 92.5 % , 91.6 % and 90.8 % of our total revenues for the years ended december 31 , 2017 , 2016 and 2015 , respectively . our revenues are not concentrated with any customer , as our largest customer represented less than 1.0 % of total revenues for the year ended december 31 , 2017 and less than 2.0 % of total revenues for the years ended december 31 , 2016 and 2015. key financial terms and metrics sources of revenues trading partner fulfillment . our fulfillment solution provides fulfillment automation and replaces or augments an organization 's existing trading partner electronic communication infrastructure , enabling suppliers to have visibility into the journey of an order and comply with retailers ' rule books and enabling the electronic exchange of information among numerous trading partners through various protocols . trading partner analytics . our analytics solution consists of data analytics applications that enable our customers to improve their visibility across , and analysis of , their supply chains . when focused on point-of-sale data , for example , retailers and suppliers can ensure inventory is located where demand is highest . retailers improve their visibility into supplier performance and their understanding of product sell-through . trading partner assortment . today 's retail marketplace requires the management of tens and even hundreds of individual attributes associated with each item a retailer or supplier sells today . this information can include digital images/video , customer facing descriptions and measurements and warehouse information . our assortment product provides robust , extensible management of this information , enabling accurate orders and rapid fulfillment . trading partner sourcing . through retail universe , our social network for the retail industry , retailers can source providers of new items , suppliers can connect with new retailers and the broader retailing community can make connections to expand their business networks and grow . trading partner community development . our community development solution provides communication programs based on our best practices . these programs enable organizations , from large and small retailers and suppliers to emerging providers of value-added products and services , to establish trading partner relationships with new trading partners to expand their businesses . 32 other trading partner solutions . we provide a number of peripheral solutions such as barcode labeling , planogram services and our scan and pack application , which helps trading partners process information to streamline the picking and packaging process . cost of revenues and operating expenses cost of revenues . cost of revenues consist primarily of personnel costs for our customer success and implementation teams , customer support personnel and application support personnel . cost of revenues also includes our cost of network services , which is primarily data center costs for the locations where we keep the equipment that serves our customers and connectivity costs that facilitate electronic data transmission between our customers and their trading partners . sales and marketing expenses . sales and marketing expenses consist primarily of personnel costs for our sales , marketing and product management teams , commissions earned by our sales personnel and marketing costs . in order to expand our business , we will continue to add resources to our sales and marketing efforts over time . research and development expenses . research and development expenses consist primarily of personnel costs for development of new and maintenance of existing solutions , net of amounts capitalized as developed software . our research and development group is also responsible for enhancing existing solutions and applications as well as internal tools and developing new information maps that integrate our customers to their trading partners in compliance with those trading partners ' requirements . general and administrative expenses . story_separator_special_tag the recurring monthly fees are comprised of both fixed and transaction-based fees that are recognized as earned . see note a to our consolidated financial statements , recent accounting pronouncements , included in this annual report on form 10-k , for additional information regarding the impacts to revenue for adoption of asu no . 2014-09 , revenue from contracts with customers ( topic 606 ) . income taxes we account for income taxes using the liability method , which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements . under this method , deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse . deferred tax assets are reduced by a valuation allowance when , in our judgement , there is a less than a 50 % likelihood that the deferred tax asset will be utilized . we assess our ability to realize our deferred tax assets at the end of each reporting period . realization of our deferred tax assets is contingent upon future taxable earnings . accordingly , this assessment requires significant estimates and judgment . if the estimates of future taxable income vary from actual results , our assessment regarding the realization of these deferred tax assets could change . future changes in the estimated amount of deferred taxes expected to be realized will be reflected in our consolidated financial statements in the period the estimate is changed , with a corresponding adjustment to our operating results . 34 we recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would “ more likely than not ” sustain the position following an audit . for tax positions meeting the “ more likely than not ” threshold , the a mount recognized in the financial statements is the largest benefit that has a greater than 50 % likelihood of being realized upon ultimate settlement with the relevant tax authority . on december 22 , 2017 , the tax act was signed into law . the financial information included in the form 10-k reflects the estimated impact of the enactment of the tax act . see note j to our consolidated financial statements for additional information regarding the tax act . story_separator_special_tag 2017 increased $ 8.6 million , or 30.0 % , to $ 37.5 million from $ 28.8 million for 2016. this increase was primarily due to a $ 4.0 million increase in stock-based compensation driven by the immediate expensing of $ 3.6 million of equity awards upon our chief executive officer meeting certain age and years of service conditions . increased headcount in 2017 resulted in higher personnel-related costs of $ 3.3 million . these increases were offset by lower charitable contributions and hardware not capitalized and hardware maintenance costs in 2017 as compared to 2016. as a percentage of revenues , general and administrative expenses were 17.0 % for 2017 and 14.9 % for 2016. going forward , we expect that general and administrative expenses will continue to increase in absolute dollars as we expand our business . amortization of intangible assets . amortization of intangible assets for 2017 decreased $ 0.2 million , or 3.5 % , from 2016. this decrease was due to certain intangible assets becoming fully amortized during 2017. other income ( expense ) , net . other income ( expense ) , net for 2016 included a $ 1.0 million adjustment to the fair value of the toolbox solutions share-based earn-out liability due to a change in our estimate of probability of attainment . there was no similar charge during 2017 as the contingent consideration arrangement had been resolved . income tax expense . our provisions for income taxes for 2017 and 2016 were $ 11.6 million and $ 3.1 million , respectively , and included current federal , state and foreign income taxes as well as deferred federal , state and foreign income taxes . the increase in income tax expense in 2017 was primarily due to the tax law changes related to the tax act . the 2017 provision included $ 8.6 million in income tax expense primarily driven by the reduction in the corporate income tax rate to 21.0 % , offset by $ 0.9 million of discrete tax benefits from the adoption of asu 2016-09 relating to stock-based compensation . see note j to our consolidated financial statements , included in this annual report on form 10-k , for additional information regarding our income taxes . 36 adjusted ebitda . adjusted ebitda , which is a non-gaap measure of financial performance , consists of net income ( loss ) adjusted for depreciation and amortization , interest expense , interest income , income tax expense , stock-based compensation expense , the discrete impact from tax law change and other adjustments as necessary for a fair presentation . other adjustments included the impact of an earn-out adjustment related to the toolbox solutions acquisition in 2016. the following table provide s a reconciliation of net income ( loss ) to adjusted ebitda ( in thousands ) : replace_table_token_11_th non-gaap income per share . non-gaap income per share , which is also a non-gaap measure of financial performance , consists of net income ( loss ) plus stock-based compensation expense , amortization expense related to intangible assets , the discrete impact from tax law change and other adjustments as necessary for a fair presentation , divided by the weighted average number of shares of common stock outstanding during each period .
| results of operations year ended december 31 , 2017 compared to year ended december 31 , 2016 the following table presents our results of operations for the periods indicated ( dollars in thousands ) : replace_table_token_10_th revenues . revenues for 2017 increased $ 27.3 million , or 14.1 % , to $ 220.6 million from $ 193.3 million for 2016. the increase in revenues resulted from two primary factors : the increase in recurring revenue customers and the increase in average recurring revenues per recurring revenue customer , which we also refer to as wallet share . the number of recurring revenue customers increased 3.8 % to 25,751 at december 31 , 2017 from 24,805 at december 31 , 2016. average recurring revenues per recurring revenue customer , or wallet share , increased 9.8 % to $ 8,067 2017 from $ 7,344 for 2016. this increase in wallet share was primarily attributable to increased fees resulting from increased usage of our solutions by our recurring revenue customers . recurring revenues from recurring revenue customers increased 15.2 % in 2017 , as compared to 2016 , and accounted for 92.5 % of our total revenues for 2017 and 91.6 % for 2016. we anticipate that the number of recurring revenue customers and wallet share will continue to increase as we increase the number of solutions we offer and increase the penetration of those solutions across our customer base . 35 cost of revenues . cost of revenues for 2017 increased $ 9.3 million , or 14.4 % , to $ 73.6 million from $ 64.3 million for 2016 . this increase was primarily due to highe r personnel-related costs of approximately $ 7.3 million , driven by increased headcount . compared to 2016 , stock - based compensation expense increased $ 0.6 million and direct network costs decreased $ 0.2 million .
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additional information on the comparability of the periods presented is as follows : references herein to fiscal 2019 are to the fiscal year ending june 27 , 2019. references herein to fiscal 2018 , fiscal 2017 and fiscal 2016 are to the fiscal years ended june 28 , 2018 , june 29 , 2017 and june 30 , 2016 , respectively . as used herein , unless the context otherwise indicates , the terms we , us , our or company refer collectively to john b. sanfilippo & son , inc. and our wholly-owned subsidiary jbss ventures , llc . our credit facility and mortgage facility , as defined below , are sometimes collectively referred to as our financing arrangements. we are one of the leading processors and distributors of peanuts , pecans , cashews , walnuts , almonds and other nuts in the united states . these nuts are sold under a variety of private brands and under the fisher , orchard valley harvest , squirrel brand , southern style nuts , and sunshine country brand names . we also market and distribute , and in most cases , manufacture or process , a diverse product line of food and snack products , including peanut butter , almond butter , cashew butter , candy and confections , snacks and trail mixes , snack bites , sunflower kernels , dried fruit , corn snacks , sesame sticks and other sesame snack products under private brands and brand names . we distribute our products in the consumer , commercial ingredients and contract packaging distribution channels . the company 's long-term objective to drive profitable growth , as identified in our strategic plan , includes continuing to grow fisher and orchard valley harvest into leading nut brands by focusing on consumers demanding quality nuts in the snacking , recipe and produce categories and providing integrated nut solutions to grow non-branded business at existing key customers in each distribution channel . we executed on our strategic plan during fiscal 2018 by completing the strategic acquisition of squirrel brand , l.p. ( squirrel brand or squirrel acquisition ) , a former contract packaging customer . we also executed on our strategic plan through expanding into alternative distribution channels , focusing on our promotional activity and expanding distribution of our fisher recipe nuts . in fiscal 2019 we intend to grow the squirrel brand and southern style nuts brand awareness through expanded distribution and increased innovation and product offerings . we face a number of challenges in the future which include , among others , anticipated deflation in commodity costs for all major tree nuts except almonds , and intensified competition for market share from both private brand and name brand nut products . we will continue to focus on seeking profitable business opportunities to further utilize our production capacity at our elgin site . we expect to maintain our recent level of promotional and advertising activity for our orchard valley harvest and fisher brands . we expect to devote additional promotional and advertising activity for our squirrel brand and southern style nuts brands . we continue to see domestic sales and volume growth in our orchard valley harvest brand and expect to continue to focus on this portion of our branded business . we will continue to face the ongoing challenges specific to our business such as food safety and regulatory issues and the maintenance and growth of our customer base . see the information referenced in part i , item 1a risk factors of this report for additional information about our risks , challenges and uncertainties . 22 annual highlights our net sales for fiscal 2018 increased by $ 42.0 million , or 5.0 % , to $ 888.6 million compared to fiscal 2017. gross profit decreased by $ 3.1 million , and our gross profit margin , as a percentage of net sales , decreased to 15.6 % in fiscal 2018 from 16.8 % in fiscal 2017. total operating expenses for fiscal 2018 increased by $ 1.3 million ; and our operating expenses , as a percentage of net sales , were 9.3 % compared to 9.6 % of net sales in fiscal 2017. diluted earnings per share decreased approximately 10.7 % compared to last fiscal year . our strong financial position allowed us to pay a cash dividend of $ 28.4 million . the total value of inventories on hand at the end of fiscal 2018 decreased by $ 7.8 million , or 4.3 % , in comparison to the total value of inventories on hand at the end of fiscal 2017. we have seen acquisition costs for walnuts , peanuts and cashews increase in the 2017 crop year ( which falls into our 2018 fiscal year ) . while we completed our procurement of the current year crop of inshell walnuts during the second quarter of fiscal 2018 , the total payments to our walnut growers were not determined until the third quarter of fiscal 2018 , which is typical . the final prices paid to the walnut growers were based upon prevailing market prices and other factors , such as crop size and export demand . at june 28 , 2018 approximately $ 0.3 million was due to walnut growers . story_separator_special_tag style= '' margin-top:6pt ; margin-bottom:0pt ; font-size:10pt ; font-family : times new roman '' > income tax expense was $ 16.9 million , or 34.2 % of income before income taxes ( the effective tax rate ) , for fiscal 2018 compared to $ 18.0 million , or 33.3 % of income before income taxes , for fiscal 2017. effective january 1 , 2018 , the federal statutory tax rate was reduced from a maximum of 35 % to a flat 21 % . story_separator_special_tag 26 interest expense interest expense was $ 2.9 million for fiscal 2017 compared to $ 3.5 million for fiscal 2016. the decrease in interest expense was due primarily to lower debt levels during the first half of the 2017 fiscal year . rental and miscellaneous expense , net net rental and miscellaneous expense was $ 1.3 million for fiscal 2017 compared to $ 1.4 million for fiscal 2016. income tax expense income tax expense was $ 18.0 million , or 33.3 % of income before income taxes ( the effective tax rate ) , for fiscal 2017 compared to $ 16.1 million , or 34.6 % of income before income taxes , for fiscal 2016. the effective tax rate was favorably impacted by approximately $ 0.9 million of excess tax benefits that reduced the effective tax rate by 180 basis points . prior to the adoption of asu 2016-09 , which occurred in the first quarter of fiscal 2017 , excess tax benefits were recorded in capital in excess of par value on the consolidated balance sheets and consolidated statements of stockholders ' equity . net income net income was $ 36.1 million , or $ 3.19 basic and $ 3.17 diluted per common share , for fiscal 2017 , compared to $ 30.4 million , or $ 2.71 basic and $ 2.68 diluted per common share , for fiscal 2016 , due to the factors discussed above . liquidity and capital resources general the primary uses of cash are to fund our current operations , fulfill contractual obligations , pursue our strategic plan and repay indebtedness . also , various uncertainties could result in additional uses of cash . the primary sources of cash are results of operations and availability under our credit agreement , dated february 7 , 2008 and subsequently amended most recently in november 2017 ( as amended , the credit facility ) , that provides a revolving loan commitment and letter of credit subfacility . we anticipate that expected net cash flow generated from operations and amounts available pursuant to the credit facility will be sufficient to fund our operations for the next twelve months . our available credit under our credit facility has allowed us to consummate business acquisitions , devote more funds to promote our branded products ( especially our fisher and orchard valley harvest brands ) , reinvest in the company through capital expenditures , develop new products , pay special cash dividends , and explore other growth strategies outlined in our strategic plan . cash flows from operating activities have historically been driven by net income but are also significantly influenced by inventory requirements , which can change based upon fluctuations in both quantities and market prices of the various nuts and nut products we buy and sell . current market trends in nut prices and crop estimates also impact nut procurement . the following table sets forth certain cash flow information for the last three fiscal years ( dollars in thousands ) : replace_table_token_8_th operating activities . net cash provided by operating activities was $ 66.2 million in fiscal 2018 , an increase of $ 13.5 million compared to fiscal 2017. this increase in operating cash flow was due primarily to lower levels of inventory in fiscal 2018 compared to fiscal 2017. inventories decreased $ 7.8 million in fiscal 2018 compared to a $ 25.8 million increase in inventories in fiscal 2017 which resulted in a net favorable change in cash of $ 35.6 million . partially offsetting this source of cash was a decrease in cash provided by accounts receivable of $ 11.5 million compared to fiscal 2017 , combined with a decrease in accrued payroll and related benefits of $ 10.1 million compared to fiscal 2017. net accounts receivable were $ 65.4 million at june 28 , 2018 and $ 64.8 million at june 29 , 2017. total inventories were $ 174.6 million at june 28 , 2018 , a decrease of $ 7.8 million , or 4.3 % , from the inventory balance at june 29 , 2017. the decrease was primarily due to lower acquisition costs for pecans combined with lower quantities on hand of pecans and walnuts compared to fiscal 2017. increased quantities of cashews compared to fiscal 2017 partially offset the overall decrease in total inventories . 27 the weighted average cost per pound of raw nut and dried fruit input stocks on hand at june 28 , 2018 fell by 0.7 % compared to june 29 , 2017 , as the decline in acquisition costs for pecans was almost fully offset by increases in acquisition costs for peanuts and walnuts . accrued payroll and related benefits were $ 6.4 million at june 28 , 2018 , a decrease of $ 9.5 million compared to june 29 , 2017. the decrease in accrued payroll and related benefits was due to a lower incentive compensation accrual compared to fiscal 2017. net cash provided by operating activities was $ 52.7 million in fiscal 2017 , a decrease of $ 36.6 million compared to fiscal 2016. this decrease in operating cash flow was due primarily to a larger use of working capital for inventory in fiscal 2017 compared to fiscal 2016. inventories increased $ 25.8 million in fiscal 2017 compared to a $ 41.4 million decrease in inventories in fiscal 2016. partially offsetting this use of cash was a decrease in accounts receivable of $ 13.3 million in fiscal 2017 compared to an increase in accounts receivable of $ 2.5 million in fiscal 2016. net accounts receivable were $ 64.8 million at june 29 , 2017 , a decrease of $ 13.3 million , or 17.0 % , from the balance at june 30 , 2016. the decrease in net accounts receivable from june 30 , 2016 to june 29 , 2017 is due primarily to lower dollar sales in june 2017 compared to june 2016. total inventories were $ 182.4 million at june 29 , 2017 , an increase of $ 25.8 million , or 16.5 % from the inventory balance at june 30 , 2016. the increase
| results of operations the following table sets forth the percentage relationship of certain items to net sales for the periods indicated and the percentage increase or decrease of such items from fiscal 2018 to fiscal 2017 and from fiscal 2017 to fiscal 2016. replace_table_token_3_th fiscal 2018 compared to fiscal 2017 net sales our net sales increased 5.0 % to $ 888.6 million for fiscal 2018 from $ 846.6 million for fiscal 2017. sales volume ( measured as pounds sold to customers ) increased by 3.4 % for fiscal 2018 in comparison to sales volume for fiscal 2017. the increase in net sales was also driven by a 1.5 % increase in the weighted average sales price per pound , which primarily occurred as a result of increased selling prices for walnuts and cashews . the following summarizes sales by product type as a percentage of total gross sales . the information is based upon gross sales , rather than net sales , because certain adjustments from gross sales to net sales , such as promotional discounts , are not allocable to product type . replace_table_token_4_th 23 the following table shows a comparison of net sales by distribution channel ( dollars in thousands ) : replace_table_token_5_th ( 1 ) sales of branded products were approximately 38 % of total consumer channel sales during fiscal 2018 and 2017. fisher branded products were approximately 75 % and 85 % of branded sales during fiscal 2018 and 2017 respectively , with branded produce products accounting for most of the remaining branded product sales . net sales in the consumer distribution channel increased by 11.2 % in dollars and 11.1 % in sales volume in fiscal 2018 compared to fiscal 2017. the sales volume increase was driven by increased sales of private brand products and orchard valley harvest produce products .
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for the period from january 1 , 2004 through december 20 , 2004 and for the year ended december 31 , 2003 , capitol hotel associates lp , llp and savannah hotel associates , llc paid mhi hotels story_separator_special_tag overview we are a self-advised reit incorporated in maryland in august 2004 to pursue current and future opportunities in the full-service , upper upscale , upscale and mid-scale segments of the hotel industry . we commenced operations in december 2004 when we completed our initial public offering and sold 6,000,000 shares of common stock , resulting in net proceeds ( after deducting underwriting discounts and offering expenses ) of approximately $ 54.8 million . in conjunction with the initial public offering , we sold an additional 700,000 shares of common stock as a result of the exercise of the underwriters ' over-allotment option in january 2005 , resulting in additional proceeds of approximately $ 6.5 million . concurrent with the completion of the initial public offering , we acquired six hotel properties . our hotel portfolio currently consists of seven full-service , upper upscale and mid-scale hotels . the seventh hotel , the hilton jacksonville riverfront , was acquired on july 22 , 2005. we own a 100 % interest in all of our hotels . we also have a leasehold interest in a resort condominium facility . as of december 31 , 2005 , we owned the following hotel properties : replace_table_token_7_th we conduct substantially all our business through our operating partnership , mhi hospitality , l.p. we are the sole general partner of our operating partnership and we own an approximate 63.2 % interest in our operating partnership , with the remaining interest being held by limited partners who were contributors hotel properties and related assets . to qualify as a reit , we can not operate hotels . therefore , our operating partnership leases our hotel properties to mhi hospitality trs , llc , our trs lessee . our trs lessee has engaged mhi hotels services to manage our hotels . our trs lessee , and its parent , mhi hospitality trs holding , inc. , are consolidated into our financial statements for accounting purposes . the earnings of mhi hospitality trs holding , inc. are subject to taxation similar to other c corporations . key operating metrics in the hotel industry , most categories of operating costs , with the exception of franchise , management , and credit card fees and the costs of the food and beverages served , do not vary directly with revenues . this aspect of our operating costs creates operating leverage , whereby changes in sales volume disproportionately impact operating results . room revenue is the most important category of revenue and drives other revenue categories such as food and beverage and telephone . there are three key performance indicators used in the hotel industry to measure room revenues : occupancy , or the number of rooms sold , usually expressed as a percentage of total rooms available ; average daily rate or adr , which is total room revenue divided by the number of rooms sold ; and revenue per available room or revpar , which is the room revenue divided by the total number of available room nights . 35 story_separator_special_tag million or 22.6 % to approximately $ 2.8 million compared to combined interest expense in 2004 , primarily due to the payoff of the mortgage on the holiday inndowntown williamsburg upon formation of the company , partially offset by interest attributable to the mortgage on the hilton jacksonville riverfront acquired in july 2005. income tax benefit . income tax benefit for the year ended december 31 , 2005 increased approximately $ 0.3 million or 154.0 % compared to the combined income tax benefit in 2004. income tax benefits result from taxable operating losses incurred by our trs lessee . the taxable operating loss incurred by our trs lessee for the year ended december 31 , 2005 was greater than the loss incurred in the period from december 21 , 2004 to december 31 , 2004. the entities that owned the hotels in the accounting predecessor were limited liability companies and a limited liability partnership and , no income tax benefit or provision for income tax is included in the financial statements for such entities . net income ( loss ) . net income for the year ended december 31 , 2005 increased approximately $ 4.0 million to approximately $ 2.5 million from a loss of approximately $ 1.5 million in 2004 as a result of the operating results discussed above . mhi hospitality corporationperiod from december 21 , 2004 through december 31 , 2004. replace_table_token_10_th the hotel industry in general had a strong year in 2004 and our performance and that of our predecessor reflected the improvement in the industry . results of operations for the period from december 21 , 2004 through december 31 , 2004 include the operating activity of six hotels for 11 days . the results of operations for the period from december 21 , 2004 through december 31 , 2004 are not indicative of future operating results for the six hotels as the fourth quarter , in particular the weeks before and after the christmas holiday , are traditionally slower periods for business and leisure travel . revenue . revenues for the period from december 21 , 2004 through december 31 , 2004 were $ 0.66 million , which included room revenue of $ 0.4 million and food and beverage revenue of $ 0.2 million . average occupancy , adr , and revpar for the period from december 21 , 2004 through december 31 , 2004 were 37.9 % , $ 77.21 , and $ 29.29 , respectively . 38 expenses . total hotel operating expenses , excluding depreciation and amortization , for the period from december 21 , 2004 through december 31 , 2004 was $ 0.97 million . total corporate and general administrative expenses for the period from december 21 , 2004 through december 31 , 2004 were $ 3.8 million . story_separator_special_tag closing of the transaction is contingent on a variety of factors , including our ability to secure a franchise for the hotel . purchase of the interest in the property and costs related to pre-opening expenses are expected to be incurred in fiscal 2006 and will total approximately $ 3.0 million . such costs will be funded out of working capital . capital expenditures . we have substantially completed the renovations at three of our initial hotels and have commenced renovations of the hilton jacksonville riverfront , as discussed above . approximately $ 7.9 million of the proceeds of the initial public offering were used during fiscal 2005 to fund renovations and capital improvements at these hotels . cash flow used in investing activities for the year ended december 31 , 2005 was approximately $ 15.8 million . approximately $ 3.7 million was used in the purchase of the hilton jacksonville riverfront hotel . for the year ended december 31 , 2005 , expenditures for ongoing , recurring capital expenditures as well as renovations were $ 9.1 million . 40 recurring capital expenditures for the replacement and refurbishment of furniture , fixtures and equipment , as well as debt service , are our most significant short-term liquidity requirements . during the next 12 months , we expect capital expenditures will be funded by our replacement reserve accounts , other than costs that we incur to make capital improvements required by our franchisors . with respect to two of our hotels , the reserve accounts are escrowed accounts with funds deposited monthly ( 5 % of gross sales ) , and reserved for capital projects . the hilton savannah desoto and hilton wilmington riverside have these reserve accounts . our intent for the capital expenditures at all hotels is to maintain overall capital expenditures at 4 % of gross revenue . we have engaged jones lang lasalle to market the holiday inn downtown williamsburg . in the event a potential purchaser is identified , the company will endeavor to structure the disposition of the property as a like-kind exchange for tax purposes whereby the company can defer recognizing gain on the sale of the property if it follows certain procedures and meets certain conditions . in the event the company is unable to reach an agreement with a potential purchaser to effect the transaction as a like-kind exchange , the property may be sold for cash in which case there may be expense associated with the tax indemnification agreement between the company and the contributors of the property . debt service requirements on our borrowings impact our cash flows . the initial public offering and the related repayment of indebtedness on certain of our initial properties , the restructuring of management agreements and our execution of a new management agreement with lower management fees reduced our historical debt service and management fee payments and , consequently , improved cash flow and liquidity in fiscal 2005 versus prior periods . our long-term liquidity needs will generally include the funding of future acquisitions and development activity , the retirement of mortgage debt and amounts outstanding under our secured line of credit , and obligations under our tax indemnity agreements , if any . we remain committed to maintaining a flexible capital structure . accordingly , in addition to the sources described above with respect to our short-term liquidity , we expect to meet our long-term liquidity needs through a combination of some or all of the following : the issuance by the operating partnership of the company of secured and unsecured debt securities ; the incurrence by the subsidiaries of the operating partnership of mortgage indebtedness in connection with the acquisition or refinancing of hotel properties ; the issuance of additional shares of our common stock or preferred stock ; the issuance of additional units ; the selective disposition of non-core assets ; and the sale or contribution of some of our wholly owned properties , development projects and development land to strategic joint ventures to be formed with unrelated investors , which would have the net effect of generating additional capital through such sale or contributions . in connection with the acquisition of our six initial hotel properties , we entered into tax indemnity agreements that require us to indemnify the contributors of our initial properties against tax liabilities in the event we sell those properties in a taxable transaction during a 10-year period . such indemnification obligations could result in aggregate payments of approximately $ 46.0 million . our obligations under the tax indemnity agreements may effectively preclude us from selling or disposing of certain of the initial hotels in taxable transactions or reducing our consolidated indebtedness below approximately $ 11.0 million . we anticipate that our available cash and cash equivalents and cash flows from operating activities , with cash available from borrowings and other sources , will be adequate to meet our capital and liquidity needs in both the short and long term . however , if these sources of funds are insufficient or unavailable , our ability to satisfy cash payment obligations and make stockholder distributions may be adversely affected . 41 mortgage debt . we have approximately $ 42.7 million of outstanding debt . the following table sets forth the mortgage debt outstanding at december 31 , 2005 : replace_table_token_12_th 1 as of december 31 , 2005 the prepayment penalty for the hilton savannah desoto was $ 0.8 million and the prepayment penalty for the hilton wilmington riverside was $ 1.3 million . 2 fixed rate . 3 the note is not pre-payable until july 2009 at which time there is no penalty . contractual obligations . the following table outlines our contractual obligations as of december 31 , 2005 , and the effect such obligations are expected to have on our liquidity and cash flow in future periods , ( in thousands ) . there were no other material off-balance sheet arrangements at december 31 , 2005. replace_table_token_13_th off balance sheet arrangements . we currently have no off-balance sheet arrangements . distributions to stockholders .
| results of operations the following table illustrates the key operating metrics for the years ended december 31 , 2005 and 2004 for the seven properties that are in our current portfolio . in addition , the table illustrates similar metrics for the three hotels reflected in the financial statements of our accounting predecessor . mhi hotels services has managed all the properties during the time period with the exception of the holiday inn laurel west ( formerly the best western maryland inn ) which it has only operated since we purchased the property in december 2004. replace_table_token_8_th ( 1 ) the statistics presented for the current portfolio reflect the full-year metrics for all of the seven hotels in our portfolio at the end of 2005. the statistics presented for the predecessor portfolio reflect the full-year metrics for all of the three hotels reflected in the financial statements of the accounting predecessor . the consolidated and combined financial information presented herein includes all the accounts of the company beginning with its commencement of operations on december 21 , 2004. prior to that time , the information relates to mhi hotels services group , the predecessor to mhi hospitality corporation for accounting purposes . securities and exchange commission regulations require inclusion of predecessor financial information for the periods prior to mhi hospitality corporation 's commencement of operations . the following table reflects key line items from our consolidated and combined statements of operations for the years ended december 31 , 2005 , 2004 and 2003. replace_table_token_9_th comparison of year ended december 31 , 2005 to year ended december 31 , 2004 revenue . total revenue for the year ended december 31 , 2005 was approximately $ 57.9 million , an increase of approximately $ 31.3 million or 118.1 % from combined total revenue for the year ended december 31 , 2004 of 36 approximately $ 26.5 million for the company and the predecessor .
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this asu allows entities to irrevocably elect the fair value option on an instrument-by-instrument basis for eligible financial assets measured at amortized cost basis upon adoption of the credit loss standards . the effective date for this asu is the same as for asu 2016-13. we will evaluate this asu story_separator_special_tag the following discussion is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition , results of operations , liquidity and other factors that have affected our reported results of operations and financial condition or may affect our future results or financial condition . our md & a should be read in conjunction with the consolidated financial statements and related notes included in item 8 , `` financial statements and supplementary data , '' of this annual report on form 10 k. story_separator_special_tag receivable held for sale . ( 2 ) includes non-accrual interest of $ 567 thousand , reflecting interest recoveries on non-accrual loans that were paid off , and deferred cost amortization of $ 254 thousand for the year ended december 31 , 2019 . ( 3 ) includes non-accrual interest of $ 40 thousand , reflecting interest recoveries on non-accrual loans that were paid off , and deferred cost amortization of $ 503 thousand for the year ended december 31 , 2018 . ( 4 ) net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities . ( 5 ) net interest rate margin represents net interest income as a percentage of average interest-earning assets . changes in our net interest income are a function of changes in both rates and volumes of interest earning assets and interest bearing liabilities . the following table sets forth information regarding changes in our interest income and expense for the years indicated . information is provided in each category with respect to ( i ) changes attributable to changes in volume ( changes in volume multiplied by prior rate ) , ( ii ) changes attributable to changes in rate 33 ( changes in rate multiplied by prior volume ) , and ( iii ) the total change . the changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate . replace_table_token_18_th loan loss provision/recapture for the year ended december 31 , 2019 , we recorded a net loan loss provision recapture of $ 7 thousand , which was comprised of a loan loss provision recapture of $ 348 thousand in the first quarter due to payoffs of non-accrual loans , offset by loan loss provisions of $ 47 thousand in the third quarter and $ 294 thousand in the fourth quarter due to growth in the loan portfolio . in contrast , the bank recorded a loan loss provision recapture of $ 1.3 million for calendar year 2018 due to the overall improvement in the environmental factors used in the bank 's analysis of the alll . see `` allowance for loan losses '' for additional information . non-interest income for the year ended december 31 , 2019 , non-interest income totaled $ 1.1 million compared to $ 865 thousand for the same period a year ago . the increase of $ 187 thousand in non-interest income was primarily due to an increase of $ 134 thousand in gain on sale of loans , an increase of $ 42 thousand in service charges on deposits , and an increase in miscellaneous fees of $ 11 thousand during 2019 compared to 2018 . 34 non-interest expense for the year ended december 31 , 2019 , non-interest expense totaled $ 12.1 million compared to $ 11.6 million for the same period a year ago . the increase of $ 515 thousand in non-interest expense was primarily due to increases of $ 491 thousand in professional services expense ( $ 315 thousand of which was related to non-recurring matters ) , $ 302 thousand in compensation and benefits expense and $ 66 thousand in information services expenses , offset primarily by decreases of $ 288 thousand in other expenses ( primarily due to decreases of $ 166 thousand in reo expense , $ 88 thousand in marketing expense , $ 68 thousand in fdic insurance expense ( primarily due to $ 56 thousand of small bank assessment credits that the bank received due to fdic excess reserves ) and $ 11 thousand in supervisory examination costs ) , $ 16 thousand in amortization of an investment in a low-income housing limited partnership , $ 14 thousand in corporate insurance expense , $ 13 thousand in occupancy expense , and $ 9 thousand in costs of office services and supplies . professional services expense increased by $ 491 thousand during the year ended december 31 , 2019 compared to the year ended december 31 , 2018 primarily due to $ 285 thousand in legal-related matters , $ 116 thousand in third party audit costs , and $ 90 thousand in consulting fees . compensation and benefits expense increased by $ 302 thousand during the year ended december 31 , 2019 compared to the same period of 2018 primarily due to increases of $ 281 thousand in stock-related salary costs , $ 46 thousand in salary costs and $ 8 thousand in deferred compensation costs associated with loans originated for the portfolio , offset by decreases of $ 28 thousand in other benefits cost and $ 7 thousand in other employment related costs . income taxes we recorded an income tax benefit of $ 345 thousand for the year ended december 31 , 2019 and an income tax expense of $ 56 thousand for the year ended december 31 , 2018. the income tax benefit for 2019 included a tax benefit of $ 147 thousand on our pretax loss of $ 551 thousand and tax credits of $ 198 thousand . story_separator_special_tag during 2019 , the bank recorded a loan loss provision recapture of $ 348 thousand in the first quarter of 2019 , offset by loan loss provisions of $ 47 thousand in the third quarter and $ 294 thousand in the fourth quarter due to growth in the loan portfolio . in contrast , during 2018 , the alll decreased by $ 1.2 million to $ 2.9 million from $ 4.1 million at december 31 , 2017 due to a loan loss provision recapture of $ 1.3 million , offset by loan loss recoveries of $ 114 thousand . the reduction in alll during 2018 was due to the overall improvement in the environmental factors used in the company 's analysis of the allowance for loan and lease losses . 36 our loan delinquencies and non-performing loans ( `` npls '' ) are at their lowest levels since december 2009. we had total delinquencies of $ 18 thousand at december 31 , 2019 compared to $ 35 thousand at december 31 , 2018. npls consist of delinquent loans that are 90 days or more past due and other loans , including troubled debt restructurings that do not qualify for accrual status . at december 31 , 2019 , npls totaled $ 424 thousand compared to $ 911 thousand at december 31 , 2018. the decrease of $ 487 thousand in npls was primarily due to payoffs of $ 423 thousand , repayments of $ 83 thousand . in connection with our review of the adequacy of our alll , we track the amount and percentage of our npls that are paying currently , but nonetheless must be classified as npl for reasons unrelated to payments , such as lack of current financial information and an insufficient period of satisfactory performance . as of december 31 , 2019 , $ 406 thousand of our $ 424 thousand of npls were current in their payments . also , in determining the alll , we consider the ratio of the alll to npls , which increased to 750.47 % at december 31 , 2019 from 321.51 % at december 31 , 2018. when reviewing the adequacy of the alll , we also consider the impact of charge-offs , including the changes and trends in loan charge-offs . there were no loan charge-offs during 2019 and 2018. in determining charge-offs , we update our estimates of collateral values on npls by obtaining new appraisals at least every nine months . if the estimated fair value of the loan collateral less estimated selling costs is less than the recorded investment in the loan , a charge-off for the difference is recorded to reduce the loan to its estimated fair value , less estimated selling costs . therefore , any losses inherent in our total npls are recognized periodically through charge-offs . the impact of updating these estimates of collateral value and recognizing any required charge-offs is to increase charge-offs and reduce the alll required on these loans . due to prior charge-offs and increases in collateral values , the average recorded investment in npls was only 21 % of estimated fair value less estimated selling costs as of december 31 , 2019. loan loss recoveries totaled $ 260 thousand during 2019 and $ 114 thousand during 2018. recoveries during 2019 and 2018 primarily resulted from the payoffs of non-accrual loans which had been previously partially charged off . impaired loans at december 31 , 2019 were $ 5.3 million , compared to $ 6.4 million at december 31 , 2018. the decrease of $ 1.1 million in impaired loans was primarily due to payoffs and repayments . specific reserves for impaired loans were $ 147 thousand or 2.74 % of the aggregate impaired loan amount at december 31 , 2019 compared to $ 227 thousand , or 3.56 % of the aggregate impaired loan amount at december 31 , 2018. excluding specific reserves for impaired loans , our coverage ratio ( general allowance as a percentage of total non-impaired loans ) was 0.76 % at december 31 , 2019 compared to 0.77 % at december 31 , 2018. the decrease in the coverage ratio during 2019 was due to overall improvement in the credit quality of the loan portfolio , which had a favorable impact on the environmental factors used in our analysis of the alll . we believe that the alll is adequate to cover probable incurred losses in the loan portfolio as of december 31 , 2019 , but there can be no assurance that actual losses will not exceed the estimated amounts . in addition , the occ and the fdic periodically review the alll as an integral part of their examination process . these agencies may require an increase in the alll based on their judgments of the information available to them at the time of their examinations . total liabilities total liabilities increased by $ 30.5 million to $ 391.5 million at december 31 , 2019 from $ 361.0 million at december 31 , 2018. the increase in total liabilities was primarily comprised of increases of $ 16.3 million in deposits and $ 14.0 million in fhlb advances . 37 deposits deposits increased by $ 16.3 million to $ 297.7 million at december 31 , 2019 from $ 281.4 million at december 31 , 2018 , which consisted of an increase of $ 17.7 million in cds and a decrease of $ 1.4 million in liquid deposits . one customer relationship accounted for approximately 10 % of our deposits at december 31 , 2019. we expect to maintain this relationship with the customer for the foreseeable future .
| overview total assets increased by $ 31.0 million to $ 440.4 million at december 31 , 2019 from $ 409.4 million at december 31 , 2018. the growth in total assets was primarily comprised of an increase of $ 42.3 million in net loans receivable held for investment offset by decreases of $ 6.2 million in loans receivable held for sale , $ 3.7 million in securities available for sale , $ 1.1 million in interest-bearing cash in other banks and $ 833 thousand in reo . the bank had no reo as of december 31 , 2019. total liabilities increased by $ 30.5 million to $ 391.5 million at december 31 , 2019 from $ 361.0 million at december 31 , 2018. the increase in total liabilities during 2019 resulted primarily from increases of $ 16.3 million in total deposits and $ 14.0 million in fhlb advances we recorded a net loss of $ 206 thousand for the year ended december 31 , 2019 compared to net earnings of $ 815 thousand for the year ended december 31 , 2018. the decrease in earnings was primarily attributable to an increase of $ 1.2 million in interest expense on deposits and a decline of $ 1.2 million in the loan loss provision recapture during 2019 compared to 2018. also , non-interest expense increased by $ 515 thousand during 2019 compared to 2018 , primarily due to higher professional services fees of $ 491 thousand and higher compensation costs of $ 302 thousand , offset by a decrease of $ 288 thousand in other expenses , primarily due to lower reo costs of $ 166 thousand and lower marketing costs of $ 88 thousand .
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warranty obligations the company provides for the estimated cost of product warranties at the time of sale based on the actual historical occurrence rates and repair costs , as well as knowledge of any specific warranty problems that indicate that projected warranty costs may vary from historical patterns . the company typically negotiates the terms regarding warranty coverage and length of warranty depending on the products and applications . while the company engages in extensive product quality programs and processes , the company 's warranty obligation is affected by product failure rates , repair costs , service delivery costs incurred in correcting a product failure , and supplier warranties on parts delivered to the story_separator_special_tag reference is made throughout this management 's discussion and analysis of financial condition and results of operations to notes included in our consolidated financial statements beginning on page f-1 of this report . overview company overview we are a leading global supplier of equipment used in process industries , including papermaking , paper recycling , and oriented strand board ( osb ) , an engineered wood panel product used primarily in home construction . in addition , we manufacture granules made from papermaking byproducts . we have a large customer base that includes most of the world 's major paper and osb manufacturers . we believe our large installed base provides us with a spare parts and consumables business that yields higher margins than our capital equipment business . our continuing operations are comprised of two reportable operating segments : papermaking systems and wood processing systems , and a separate product line , fiber-based products . through our papermaking systems segment , we develop , manufacture , and market a range of equipment and products for the global papermaking , paper recycling , and other process industries . through our wood processing systems segment , we design , manufacture , and market stranders and related equipment used in the production of osb and sell debarking and wood chipping equipment used in the forest products and the pulp and paper industries . through our fiber-based products business , we manufacture and sell granules derived from pulp fiber for use as carriers 18 kadant inc. 2015 annual report for agricultural , home lawn and garden , and professional lawn , turf and ornamental applications , as well as for oil and grease absorption . 2014 acquisitions in october 2014 , our papermaking systems segment acquired certain assets of the screen cylinder business of a u.s.-based company for approximately $ 9.2 million in cash . this technology-based acquisition enhances our stock-preparation equipment product offerings to pulp and paper mills worldwide . at the beginning of 2014 , our papermaking systems segment acquired all the outstanding shares of a european producer of creping and coating blades for approximately $ 2.7 million in cash . an additional 1 million euros , or approximately $ 1.1 million , of contingent consideration was paid to the sellers on january 4 , 2016. international sales during 2015 and 2014 , approximately 50 % and 57 % , respectively , of our sales were to customers outside the united states , principally in europe and asia . we generally seek to charge our customers in the same currency in which our operating costs are incurred . however , our financial performance and competitive position can be affected by currency exchange rate fluctuations affecting the relationship between the u.s. dollar and foreign currencies . we seek to reduce our exposure to currency fluctuations through the use of forward currency exchange contracts . we may enter into forward contracts to hedge certain firm purchase and sale commitments denominated in currencies other than our subsidiaries ' functional currencies . these contracts hedge transactions principally denominated in u.s. dollars . application of critical accounting policies and estimates the discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities at the date of our consolidated financial statements , and the reported amounts of revenues and expenses during the reporting period . our actual results may differ from these estimates under different assumptions or conditions . critical accounting policies are defined as those that entail significant judgments and uncertainties , and could potentially result in materially different results under different assumptions and conditions . we believe that our most critical accounting policies upon which our financial position depends , and which involve the most complex or subjective decisions or assessments , are those described below . for a discussion on the application of these and other accounting policies , see note 1 to the consolidated financial statements . revenue recognition and accounts receivable . we enter into arrangements with customers that have multiple deliverables , such as equipment and installation , and we recognize revenues and profits on certain long-term contracts using the percentage-of-completion and completed contract methods of accounting . revenue recognition methods . we recognize revenue under accounting standards codification ( asc ) 605 , `` revenue recognition '' ( asc 605 ) , when the following criteria are met : persuasive evidence of an arrangement exists , delivery has occurred or service has been rendered , the sales price is fixed or determinable , and collectability is reasonably assured . under asc 605 , when the terms of sale include customer acceptance provisions , and compliance with those provisions can not be demonstrated until customer acceptance , we recognize revenues upon such acceptance . the company includes in revenues amounts invoiced for shipping and handling with the corresponding costs reflected in cost of revenues . provisions for discounts , warranties , returns , and other adjustments are provided for in the period in which the related sales are recorded . story_separator_special_tag our standard mechanical warranties require us to repair or replace a defective product during the warranty period at no cost to the customer . we record an estimate for warranty-related costs at the time of sale based on our actual historical occurrence rates and repair costs , as well as knowledge of any specific warranty problems that indicate that projected warranty costs may vary from historical patterns . these estimates are revised for variances between actual and expected claims rates . while our warranty costs have historically been within our expectations and the provisions established , we may not continue to experience the same warranty return rates or repair costs that we have in the past . a significant increase in warranty occurrence rates or costs to repair our products would lead to an increase in the warranty provision and could have a material adverse impact on our consolidated results for the period or periods in which such returns or additional costs occur . income taxes . we operate in numerous countries under many legal forms and , as a result , are subject to the jurisdiction of numerous domestic and non-u.s. tax authorities , as well as to tax agreements and treaties among these governments . determination of taxable income in any jurisdiction requires the interpretation of the related tax laws and regulations and the use of estimates and assumptions regarding significant future events , such as the amount , timing and character of deductions , permissible revenue recognition methods under the tax law and the sources and character of income and available tax credits . changes in tax laws , regulations , agreements and treaties , currency-exchange restrictions or our level of operations or profitability in each taxing jurisdiction could have an impact upon the amount of current and deferred tax balances and our results of operations . 20 kadant inc. 2015 annual report we estimate the degree to which our deferred tax assets on deductible temporary differences and tax loss or credit carryforwards will result in an income tax benefit based on the expected profitability by tax jurisdiction , and provide a valuation allowance for these deferred tax assets if it is more likely than not that they will not be realized in the future . if it were to become more likely than not that these deferred tax assets would be realized , we would reverse the related valuation allowance . our tax valuation allowance was $ 11.5 million at year-end 2015 . should our actual future taxable income by tax jurisdiction vary from our estimates , additional allowances or reversals thereof may be necessary . when assessing the need for a valuation allowance in a tax jurisdiction , we evaluate the weight of all available evidence to determine whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized . as part of this evaluation , we consider our cumulative three-year history of earnings before income taxes , taxable income in prior carryback years , future reversals of existing taxable temporary differences , prudent and feasible tax planning strategies , and expected future results of operations . as of year-end 2015 , we continued to maintain a valuation allowance in the u.s. against certain of our state operating loss carryforwards due to the uncertainty of future profitability in state jurisdictions in the u.s. as of year-end 2015 , we maintained valuation allowances in certain foreign jurisdictions because of the uncertainty of future profitability . in the ordinary course of business there is inherent uncertainty in quantifying our income tax positions . it is our policy to provide for uncertain tax positions and the related interest and penalties based upon our assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities . at year-end 2015 , we believe that we have appropriately accounted for any liability for unrecognized tax benefits . to the extent we prevail in matters for which a liability for an unrecognized tax benefit is established or are required to pay amounts in excess of the liability , our effective tax rate in a given financial statement period may be affected . we reinvest certain earnings of our international subsidiaries indefinitely , and accordingly , we do not provide for u.s. income taxes that could result from the remittance of such foreign earnings . through year-end 2015 , we have not provided for u.s. income taxes on approximately $ 168.2 million of unremitted foreign earnings . the u.s. tax cost has not been determined due to the fact that it is not practicable to estimate at this time . the related foreign tax withholding , which would be required if we were to remit these foreign earnings to the u.s. , would be approximately $ 3.6 million . valuation of goodwill and intangible assets . we evaluate the recoverability of goodwill and indefinite-lived intangible assets as of the end of each fiscal year , or more frequently if events or changes in circumstances , such as a significant decline in sales , earnings , or cash flows , or material adverse changes in the business climate , indicate that the carrying value of an asset might be impaired . testing goodwill for impairment involves a two-step quantitative process . however , prior to performing the two-step quantitative goodwill impairment test , we have the option to first perform an assessment of qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount . at january 2 , 2016 , we performed a qualitative goodwill impairment analysis . this impairment analysis included an assessment of certain qualitative factors including the results of prior fair value calculations , the movement of our share price and market capitalization , the reporting unit and overall financial performance , and macroeconomic and industry conditions .
| results of operations 2015 compared to 2014 the following table sets forth our consolidated statement of income expressed as a percentage of total revenue : replace_table_token_7_th revenues revenues for 2015 and 2014 are as follows : replace_table_token_8_th papermaking systems segment . revenues at our papermaking systems segment decreased $ 5.5 million , or 2 % , to $ 342.7 million in 2015 from $ 348.2 million in 2014 , including a $ 26.4 million decrease from the unfavorable effects of foreign currency exchange . excluding the effects of foreign currency exchange , revenues in our papermaking systems segment increased $ 20.9 million primarily due to increased demand for our parts and consumables products , especially in our stock-preparation product line , and the inclusion of $ 6.7 million in revenue from an acquisition made in 2014 . 23 kadant inc. 2015 annual report wood processing systems segment . revenues at our wood processing systems segment decreased $ 5.2 million , or 13 % , to $ 36.4 million in 2015 from $ 41.6 million in 2014 , including a $ 5.8 million decrease from the unfavorable effects of foreign currency exchange . excluding the effects of foreign currency translation , revenues in our wood processing systems segment increased $ 0.6 million , or 1 % , primarily due to increased demand for our parts and consumables products . fiber-based products . revenues decreased $ 1.2 million , or 10 % , to $ 11.1 million in 2015 from $ 12.3 million in 2014 due to decreased demand for our biodegradable granular products . papermaking systems segment by product line . the following table presents revenues for our papermaking systems segment by product line , the changes in revenues by product line between 2015 and 2014 , and the changes in revenues by product line between 2015 and 2014 excluding the effect of currency translation .
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” you should not place undue reliance on our forward-looking statements , which apply only as of the date of this annual report . except as may be required under federal law , we undertake no obligation to update publicly any forward-looking statements for any reason , even if new information becomes available or other events occur . you should read the following discussion and analysis in conjunction with our consolidated financial statements and related footnotes included in item 8 of this annual report . overview general rlj entertainment , inc. ( or rlje ) is a global entertainment company with a direct presence in north america , the united kingdom ( or u.k. ) and australia and strategic sublicense and distribution relationships covering europe , asia and latin america . rlje was incorporated in nevada in april 2012. on october 3 , 2012 , we completed the business combination of rlje , image entertainment , inc. ( or image ) and acorn media group , inc. ( or acorn media or acorn ) , which is referred to herein as the “ business combination. ” acorn media includes its subsidiaries rlje international ltd ( or rlje u.k. ) , rlj entertainment australia pty ltd. ( or rlje australia ) and rlj entertainment ltd ( or rlje ltd ) . in february 2012 , acorn media acquired a 64 % ownership of agatha christie limited ( or acl ) . references to image include its wholly-owned subsidiary image/madacy home entertainment , llc . “ we , ” “ our ” or “ us ” refers to rlje and its subsidiaries , unless otherwise noted . our principal executive offices are located in silver spring , maryland , with additional u.s. locations in woodland hills , california , and stillwater , minnesota , and international locations in london , england and sydney , australia . rlje is a global media company for distinct , passionate audiences . we strive to be a preferred source and destination for entertainment for a variety of distinct audiences with particular and special programming interests . we acquire , develop and exploit television , film and other media content agnostically across all platforms of distribution . we actively manage all windows of exploitation to optimize the reach of our promotional efforts and maximize the value of our releases . we acquire content rights in various categories , with particular focus on british mysteries and dramas , urban programming , and full-length independent motion pictures . we also develop , produce , and own original programming through our wholly-owned subsidiary , rlje ltd , and our majority-owned subsidiary , acl , in addition to the development and production of fitness titles through our acacia brand . we have a library of titles segmented into genre-based brands such as acorn ( british drama and mystery television ) , image ( action , thriller and horror feature films ) , urban movie channel or “ umc ” ( urban ) , acacia ( fitness ) , athena ( life-long learning documentaries ) and image/madacy ( uniquely packaged collections of classic television , historical footage and films ) . our owned content includes 28 foyle 's war made-for-tv films , multiple fitness/wellness titles , and through our 64 % ownership of acl , the vast majority of the works of agatha christie . we exploit our products through a multi-channel strategy encompassing ( 1 ) the licensing of original drama and mystery content managed and developed through our wholly-owned subsidiary , rlje ltd , and our majority-owned subsidiary , acl , ( ip licensing segment ) ; ( 2 ) wholesale exploitation through partners covering broadcast and cable , digital , online , and retail outlets ( wholesale segment ) ; and ( 3 ) direct relations with consumers via proprietary e-commerce , mail-order catalog , and svod channels ( direct-to-consumer segment ) . rlje ltd manages our british drama co-productions , including foyle 's war , which is one of our most successful acorn television series , and the intellectual property rights owned by acl including all the tv/film and publishing revenues associated with those rights . acl is home to some of the world 's greatest works of mystery fiction , including murder on the orient express and death on the nile and includes all development rights to iconic sleuths such as hercule poirot and miss marple . the agatha christie library includes approximately 80 novels and short story collections , 19 plays and a film library of over 100 made-for-television films . in 2013 , acl commissioned a new writer to expand the agatha christie library content , and in the third quarter of 2014 , acl published its first book , the monogram murders , since the death of agatha christie . 32 our wholesale partners are broadcasters , digital outlets and major retailers in the u.s. , canada , united kingdom and australia , including , among others : directv , showtime , bet , pbs , netflix , amazon , hulu , walmart , target , costco , barnes & noble , hmv and itunes . we work closely with our wholesale partners to outline and implement release and promotional campaigns customized to the different audiences we serve and the program genres we exploit . our direct-to-consumer segment includes our proprietary svod channels , which are acorn tv , acacia tv and umc , and the sale of video content and complementary merchandise directly to consumers through proprietary e-commerce websites and mail-order catalogs . as of december 31 , 2014 , acorn tv had over 118,000 paying subscribers . in late 2014 , we launched our urban content svod channel , umc . in response to the strategic opportunity brought by the convergence of television and the internet , we expect to continue to invest in more exclusive and appealing content programming , greater marketing support and an expanded it infra-structure for our svod channels . we also plan to develop other audience-based , premium svod channels based on our existing content library . story_separator_special_tag in addition to advances , upfront fees and production costs , the other significant expenditures we incur are : § dvd/blu-ray authoring and replication and digitalization of program masters ; § packaging ; § advertising , promotion , and marketing funds provided to wholesale partners ; § domestic shipping costs from self-distribution of exclusive content ; § personnel ; and § interest . we strive to achieve long-term , sustainable growth and profitability with a target return on investment ( roi ) of 20 % or more on new content acquisitions . this financial target is based on all up-front expenses associated with the acquisition and release of a title , including advances and development costs , and is calculated after allocating overhead costs . we also seek to maximize our operational cash flow and profitability by closely managing our marketing and discretionary expenses , and by actively negotiating and managing collection and payment terms . 35 2014 financial highlights highlights and significant events for the year ended december 31 , 2014 are as follows : § gross profit increased by $ 4.0 million or 12.5 % when comparing 2014 results to 2013 . § the gross margin increased to 26.3 % for the year ended december 31 , 2014 compared to 19.5 % for the year ended december 31 , 2013. excluding the effects of the terminated feature-film output deal , gross margin was 28.3 % and 25.5 % , for the years ended december 31 , 2014 and 2013 , respectively . § on september 11 , 2014 , we entered into a $ 70.0 million credit and guaranty agreement ( the “ credit agreement ” ) . the new credit agreement is expected to improve our liquidity and future cash flows by approximately $ 15.0 million through december 2015 by reducing future debt service requirements . § operating expenses ( or sg & a ) continue to be managed closely . sg & a decreased by $ 4.9 million when comparing the year ended december 31 , 2014 to the same period in 2013. the decline in sg & a is mostly attributed to the synergistic savings from integrating the combination of the two companies over the last year . the highlights above and the discussion below are intended to identify some of our more significant results and transactions during 2014 and should be read in conjunction with our consolidated financial statements and related discussions within this annual report . story_separator_special_tag 38 operating expenses ( “ sg & a ” ) the following table includes a summary of the components of sg & a : replace_table_token_12_th sg & a decreased by $ 4.9 million for the year ended december 31 , 2014 , compared to the same period in 2013. the decrease in sg & a is primarily related to the synergistic savings related to the combining of acorn and image legacy companies after the business combination and the delay and reduced circulation of our direct-to-consumer segment 's mail-order catalogs due to limited cash when compared to the same periods in 2013. most of our integration efforts were conducted during 2013 , yet integration of the combined businesses continued into 2014. during 2014 and 2013 , we incurred severance charges of $ 548,000 and $ 2.4 million , respectively . equity earnings of affiliates equity earnings in affiliates for the years ended december 31 , 2014 and 2013 were $ 2.6 million and $ 3.3 million , respectively . the decrease in equity earnings in affiliates ( which is acl ) is mostly attributed to the release of the last poirot television series and the last miss marple television series in 2013 with no similar releases during 2014 . 39 interest expense interest expense for the year ended december 31 , 2014 was $ 9.5 million compared to $ 8.3 million for the same period in 2013. interest expense increased during the current year due to the increased balance owed under the new credit agreement at december 31 , 2014 of $ 69.4 million versus the prior credit facility balance at december 31 , 2013 of $ 63.2 million . the increase is also attributable to an increased interest rate payable under the new credit agreement when compared to the prior credit facility . change in fair value of stock warrants the change in the fair value of our warrant liability impacts the statement of operations whereby a decrease in the warrant liability results in the recognition of income , while an increase in the warrant liability results in the recognition of expense . for the year ended december 31 , 2014 and 2013 , the fair value of our warrants decreased by $ 3.5 million and $ 201,000 , respectively . changes in our warrants ' fair value are primarily driven by changes in our common stock price and volatility of our common stock price . loss on extinguishment of debt when entering into the new credit agreement , we recognized a loss on extinguishment of debt of $ 1.5 million in the third quarter of 2014. the loss primarily represents the expensing of unamortized debt discounts and deferred financing costs associated with the prior credit facility . other income ( expense ) other income ( expense ) mostly consists of foreign currency gains and losses resulting primarily from advances and loans by our u.s. subsidiaries to our foreign subsidiaries that have not yet been repaid . our foreign currency gains and losses are primarily impacted by changes in the exchange rate of the british pound sterling ( or the pound ) relative to the u.s. dollar ( or the dollar ) . as the pound strengthens relative to the dollar , we recognized other income ; and as the pound weakens relative to the dollar , we recognize other expense .
| results of operations a summary of the u.s. gaap results of operations for the years ended december 31 , 2014 and 2013 , as disclosed in our consolidated financial statements in item 8 , financial statements and supplementary data , herein referred to as our “ consolidated financial statements ” is as follows : replace_table_token_9_th 36 revenues the comparability of our revenues between years is affected by the early termination of a feature-film output deal , which was effective december 31 , 2013 and for which we completed an inventory sell-off period during the first quarter of 2014. the feature-film output deal was previously scheduled to expire in 2017. we terminated this arrangement because our return on investment ( or roi ) was lower than our targeted threshold of 20 % . a summary of net revenue by segment with and without the terminated output deal revenue for the years ended december 31 , 2014 and 2013 is as follows : replace_table_token_10_th revenue for the year ended december 31 , 2014 decreased $ 27.1 million when compared to year ended december 31 , 2013. the decrease in revenue was primarily due to the decline of $ 24.3 million in revenue within our wholesale segment revenues generated in the u.s. , which was $ 77.1 million and $ 101.4 million for the years ended december 31 , 2014 and 2013 , respectively . this decline is primarily attributed to the revenues related to the terminated output deal which were negative revenues of $ 1.1 million for 2014 compared to revenue of $ 21.9 million in 2013. excluding the impact of the terminated output deal , wholesale segment revenue decreased by 1.0 % or $ 1.0 million year-over-year .
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we conduct substantially all of our activities through , and all of our properties are held , directly or indirectly , by , gladstone land limited partnership ( the “ operating partnership ” ) . gladstone land corporation controls the sole general partner of the operating partnership and currently owns , directly or indirectly , 100.0 % of the units of limited partnership interest in the operating partnership ( “ op units ” ) . in addition , we have elected for gladstone land advisers , inc. ( “ land advisers ” ) , a wholly-owned subsidiary of ours , to be treated as a taxable reit subsidiary ( “ trs ” ) . gladstone management corporation ( our “ adviser ” ) manages our real estate portfolio pursuant to an advisory agreement , and gladstone administration , llc ( our “ administrator ” ) , provides administrative services to us pursuant to an administration agreement . our adviser and our administrator collectively employ all of our personnel and pay directly their salaries , benefits , and general expenses . as of february 23 , 2021 : we owned 137 farms comprised of 101,079 total acres across 13 states in the u.s. ; our occupancy rate ( based on gross acreage ) was 100.0 % , and our farms were leased to 81 different , unrelated third-party tenants growing over 55 different types of crops ; the weighted-average remaining lease term across our agricultural real estate holdings was 6.7 years ; and the weighted-average term to maturity of our notes and bonds payable was 9.7 years , and the weighted-average remaining fixed-price term of our borrowings was 5.9 years , with an expected weighted-average effective interest rate of 3.38 % over that term . portfolio diversity since our initial public offering in january 2013 ( the “ ipo ” ) , we have expanded our portfolio from 12 farms leased to 7 different , unrelated third-party tenants to a current portfolio of 137 farms leased to 81 different , unrelated third-party tenants who grow over 55 different types of crops on our farms . while our focus remains in farmland suitable for growing fresh produce annual row crops , we have also diversified our portfolio into farmland suitable for other crop types , including permanent crops ( e.g. , almonds , blueberries , pistachios , and wine grapes ) and , to a lesser extent , certain commodity crops ( e.g. , beans and corn ) . the acquisition of additional farms since our ipo has also allowed us to further diversify our portfolio geographically . the following table summarizes the geographic locations ( by state ) of our farms owned and with leases in place as of december 31 , 2020 and 2019 ( dollars in thousands ) : 35 replace_table_token_2_th ( 1 ) according to the california chapter of the american society of farm managers and rural appraisers , there are eight distinct growing regions within california ; our farms are spread across six of these growing regions . leases general most of our leases are on a triple-net basis , an arrangement under which , in addition to rent , the tenant is required to pay the related taxes , insurance costs , maintenance , and other operating costs . our leases generally have original terms ranging from 3 to 10 years for farms growing row crops and 7 to 15 years for farms growing permanent crops ( in each case , often with options to extend the lease further ) . rent is generally payable to us in advance on either an annual or semi-annual basis , with such rent typically subject to periodic escalation clauses provided for within the lease . currently , 101 of our farms are leased on a pure , triple-net basis , 33 farms are leased on a partial-net basis ( with us , as landlord , responsible for all or a portion of the related property taxes ) , and 3 farms are leased on a single-net basis ( with us , as landlord , responsible for the related property taxes , as well as certain maintenance , repairs , and insurance costs ) . additionally , 40 of our farms are leased under agreements that include a variable rent component , called “ participation rents , ” that are based on the gross revenues earned on the respective farms . lease expirations agricultural leases are often shorter term in nature ( relative to leases of other types of real estate assets ) , so in any given year , we may have multiple leases up for extension or renewal . the following table summarizes the lease expirations by year for the farms owned and with leases in place as of december 31 , 2020 ( dollars in thousands ) : replace_table_token_3_th ( 1 ) certain lease agreements encompass multiple farms . ( 2 ) includes three leases that were renewed subsequent to december 31 , 2020 ( see “ recent developments—portfolio activity—existing properties—leasing activity ” below for a summary of these and other recent leasing activities ) . 36 ( 3 ) consists of ancillary leases ( e.g. , oil , gas , and mineral leases , telecommunications leases , etc . ) with varying expirations on certain of our farms . in addition , includes a net amount of approximately $ 2.8 million of lease revenue recorded as a result of an early lease termination on one of our properties ( see below , under “ recent developments—portfolio activity—existing properties—leasing activity—lease termination , ” for additional information ) . we currently have one agricultural lease scheduled to expire within the next six months on a farm in california . we are currently in negotiations with the existing tenant on the farm , as well as other potential tenants , and we anticipate being able to renew the lease at its current market rental rate without incurring any downtime on the farm . we currently anticipate the rental rate on this lease renewal to be relatively flat compared to that of the existing lease . story_separator_special_tag leasing activity the following table summarizes the leasing activity that has occurred on our existing properties since january 1 , 2020 , through the date of this filing ( dollars in thousands ) : replace_table_token_5_th ( 1 ) annualized straight-line rent is based on the minimum cash rental payments guaranteed under the applicable leases ( presented on an annualized basis ) , as required under gaap , and excludes contingent rental payments , such as participation rents . ( 2 ) “ nnn ” refers to leases under triple-net lease arrangements , “ nn ” refers to leases under partial-net lease arrangements , and “ n ” refers to leases under single-net lease arrangements , in each case , as described above under “ leases—general . ” lease termination on february 10 , 2020 , we reached an agreement with a tenant occupying four of our farms in arizona to terminate the existing leases encompassing those four farms effective february 10 , 2020. as part of the termination agreement , the outgoing tenant made a one-time termination payment to us of approximately $ 3.0 million , which we recognized as additional lease revenue during the year ended december 31 , 2020. the prior leases were scheduled to expire on september 15 , 2026 ( with two of the farms subject to the renewal of certain state leases currently scheduled to expire on february 14 , 2022 , and february 14 , 2025 ) . in connection with the early termination of these leases , during the year ended december 31 , 2020 , we recognized approximately $ 89,000 of prepaid rent as additional lease revenue and wrote off an aggregate net deferred rent balance of approximately $ 254,000 against lease revenue . in addition , approximately $ 470,000 of unamortized lease intangible assets related to the terminated leases were written off and charged to amortization expense during the year ended december 31 , 2020. upon termination of these leases , we entered into a new , seven-year lease with a new tenant effective immediately . these leases are included in the leasing activity table above . financing activity debt activity 38 since january 1 , 2020 , through the date of this filing , we have incurred the following new , long-term borrowings ( dollars in thousands , except for footnotes ; for further discussion on certain defined terms used below , refer to note 4 , “ borrowings , ” within the accompanying notes to our consolidated financial statements ) : replace_table_token_6_th ( 1 ) on borrowings from the various farm credit associations , we receive interest patronage , or refunded interest , which is typically received in the calendar year following the year in which the related interest expense was accrued . the expected effective interest rates reflected in the table above are the interest rates net of expected interest patronage , which is based on either historical patronage actually received ( for pre-existing lenders whom we have received interest patronage from ) or indications from the respective lenders of estimated patronage to be paid ( for new lenders ) . see note 4 , “ borrowings—farm credit notes payable—interest patronage , ” in the accompanying notes to our consolidated financial statements for additional information on interest patronage . ( 2 ) represent amendments to bonds previously issued under the farmer mac facility . ( 3 ) loans were issued as variable-rate loans but were fixed subsequent to their issuance . certain of these loans were effectively fixed through our entry into interest rate swap agreements with the lender ( as counterparty ) . see note 4 , “ borrowings—interest rate swap agreements , ” in the accompanying notes to our consolidated financial statements for further discussion on these agreements . ( 4 ) loan disbursed under the new metlife facility . proceeds from these financings were used to fund new acquisitions , repay existing indebtedness , and for general corporate purposes . gladstone securities , an affiliate of ours , earned total financing fees of approximately $ 270,000 in connection with securing these financings . new metlife facility as of december 31 , 2019 , our facility with metropolitan life insurance company ( “ metlife ” ) consisted of a total of $ 200.0 million of term notes ( the “ prior metlife term notes ” ) and $ 75.0 million of revolving equity lines of credit ( the “ metlife lines of credit , ” and together with the prior metlife term notes , the “ prior metlife facility ” ) . the draw period for the prior metlife term notes expired on december 31 , 2019 , with approximately $ 21.5 million being left undrawn , and metlife had no obligation to disburse the remaining funds under those notes . 39 on february 20 , 2020 , we entered into an agreement with metlife to remove the metlife lines of credit from the prior metlife facility and create a new credit facility consisting of a new $ 75.0 million long-term note payable ( the “ new metlife term note ” ) and the metlife lines of credit ( the “ new metlife facility ” ) . for information on the pertinent terms of the issuances under the new metlife facility , refer to note 4 , “ borrowings—new metlife facility , ” within the accompanying notes to our condensed consolidated financial statements . farm credit notes payable—interest patronage from time to time since september 2014 , we , through certain subsidiaries of our operating partnership , have entered into various loan agreements ( collectively , the farm credit notes payable ” ) with 11 different farm credit associations ( collectively , “ farm credit ” ) . during the three months ended march 31 , 2020 , we recorded interest patronage of approximately $ 1.3 million related to interest accrued on loans from farm credit during the year ended december 31 , 2019 , which resulted in a 20.4 % reduction ( approximately 98 basis points ) to the stated interest rates on such borrowings .
| summary of significant accounting pronouncements , ” under the caption , “ —recently-issued accounting pronouncements , ” in the accompanying consolidated financial statements ) , acquisitions of farmland already being operated as rental property were generally considered to be business combinations under accounting standards codification ( “ asc ” ) 805 , “ business combinations. ” however , after our adoption of asu 2017-01 , effective october 1 , 2016 , we now generally consider both types of acquisitions to be asset acquisitions under asc 360 , “ property plant and equipment. ” asc 360 requires us to capitalize the transaction costs incurred in connection with the acquisition , whereas asc 805 required that all costs related to the acquisition be expensed as incurred , rather than capitalized into the cost of the acquisition . whether an acquisition is considered an asset acquisition or a business combination , both asc 360 and asc 805 require that the purchase price of real estate be allocated to ( i ) the tangible assets acquired and liabilities assumed , and , if applicable , ( ii ) any identifiable intangible assets and liabilities , by valuing the property as if it was vacant , based on management 's determination of the relative fair values of such assets and liabilities as of the date of acquisition . for a more detailed discussion on this accounting policy , see note 2 , “ summary of significant accounting policies—real estate and lease intangibles , ” in the accompanying notes to our consolidated financial statements . recently-issued accounting pronouncements see note 2 , “ summary of significant accounting policies—recently-issued accounting pronouncements , ” in the accompanying notes to our consolidated financial statements for a description of recently-issued accounting pronouncements .
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credit losses are identified where we do not expect to receive cash flows sufficient to recover the amortized cost basis of a security . for equity securities , when assessing whether a decline in value is other-than-temporary , we consider the fair market value of the security , the duration of the security 's decline , and the financial condition of the issuer . we then consider our intent and ability to hold the equity security for a period of time sufficient to recover our carrying value . where we have determined that we lack the intent and ability to hold an equity security to its expected recovery , the security 's decline in fair value is deemed to be other-than-temporary and is reflected in earnings as an impairment loss . equity method of accounting in circumstances where we have the ability to exercise significant influence over the operating and financial policies of a company in which we have story_separator_special_tag the following discussion should be read in conjunction with our consolidated financial statements and related notes beginning on page f-1 of this report . certain totals may not sum due to rounding . executive summary introduction biogen is a global biopharmaceutical company focused on discovering , developing , manufacturing and delivering therapies to people living with serious neurological , rare and autoimmune diseases . our marketed products include tecfidera , avonex , plegridy , tysabri , zinbryta and fampyra for multiple sclerosis ( ms ) , fumaderm for the treatment of severe plaque psoriasis and spinraza for the treatment of spinal muscular atrophy ( sma ) . we also have certain business and financial rights with respect to rituxan for the treatment of non-hodgkin 's lymphoma , chronic lymphocytic leukemia ( cll ) and other conditions , gazyva indicated for the treatment of cll and follicular lymphoma , and other potential anti-cd20 therapies under a collaboration agreement with genentech , inc. ( genentech ) , a wholly-owned member of the roche group . in may 2016 we announced our intention to spin off our hemophilia business , bioverativ inc. ( bioverativ ) , as an independent , publicly traded company . bioverativ will focus on the discovery , development and commercialization of therapies for the treatment of hemophilia and other blood disorders , including eloctate for the treatment of hemophilia a and alprolix for the treatment of hemophilia b. bioverativ will also assume all of our rights and obligations under our collaboration agreement with swedish orphan biovitrum ab ( sobi ) and our collaboration and license agreement with sangamo biosciences inc. ( sangamo ) . on february 1 , 2017 , we completed the distribution of all the then outstanding shares of common stock of bioverativ to biogen stockholders , who received one share of bioverativ common stock for every two shares of biogen common stock . as a result of the distribution , bioverativ is now an independent public company whose shares of common stock are trading under the symbol `` bivv '' on the nasdaq global select market . the financial results of bioverativ are included in our consolidated results of operations and financial position in our audited consolidated financial statements for the periods presented in this form 10-k. the financial results of bioverativ will be excluded from our consolidated results of operations and financial position commencing february 1 , 2017. for additional information regarding the separation of bioverativ , please read note 26 , subsequent events to our consolidated financial statements included in this report . our current revenues depend upon continued sales of our principal products and , unless we develop , acquire rights to , and commercialize new products and technologies , we may be substantially dependent on sales from our principal products for many years . further , following the completion of the spin-off of our hemophilia business , our revenues will be further reliant and concentrated on sales of our ms products in an increasingly competitive market . in the longer term , our revenue growth will be dependent upon the successful clinical development , regulatory approval and launch of new commercial products as well as additional indications for our existing products , our ability to obtain and maintain patents and other rights related to our marketed products , assets originating from our research and development efforts and successful execution of external business development opportunities . we support our drug discovery and development efforts through the commitment of significant resources to discovery , research and development programs and business development opportunities , particularly within areas of our scientific , manufacturing and technical capabilities . for nearly two decades we have led in the research and development of new therapies to treat ms , resulting in our leading portfolio of ms treatments . now our research is focused on additional improvements in the treatment of ms , such as , the development of next generation therapies for ms with a goal to reverse or possibly repair damage caused by the disease . we are also applying our scientific expertise to solve some of the most challenging and complex diseases , including alzheimer 's disease , parkinson 's disease and amyotrophic lateral sclerosis ( als ) , and are employing innovative technologies to discover potential treatments for rare and genetic disorders , including new ways of treating diseases through gene therapy . our innovative drug development and commercialization activities are complemented by our biosimilar therapies that expand access to medicines and reduce the cost burden for healthcare systems . we are leveraging our manufacturing capabilities and know-how by developing , manufacturing and marketing 48 biosimilars through samsung bioepis , our joint venture with samsung biologics co. ltd. ( samsung biologics ) . under our commercial agreement with samsung bioepis , we market and sell benepali , an etanercept biosimilar referencing enbrel , and flixabi , an infliximab biosimilar referencing remicade , in the european union ( e.u. ) . story_separator_special_tag for 2015 compared to 2014 , the increase in u.s. tysabri revenues was primarily due to an increase in unit sales volume of 4 % and increases in gross price , partially offset by higher discounts and allowances . for 2016 compared to 2015 , the slight decrease in rest of world tysabri revenues was primarily due to the impact of a $ 46.1 million decrease in hedge gains recognized under our hedging program in the comparative period . this decrease was partially offset by an increase in unit sales volume of 8 % , primarily in europe . for 2015 compared to 2014 , the decrease in rest of world tysabri revenues was due to pricing reductions in some european countries and the prior year recognition of $ 53.5 million of revenue previously deferred in italy relating to the pricing agreement with the italian national medicines agency ( agenzia italiana del farmaco or aifa ) as discussed below . rest of world tysabri revenues for 2015 , compared to 2014 , were negatively impacted by foreign currency exchange losses of $ 136.3 million . these foreign currency exchange losses were partially offset by comparative net gains recognized under our foreign currency hedging program of $ 45.9 million . in the fourth quarter of 2011 biogen italia srl , our italian subsidiary , received a notice from aifa that sales of tysabri after mid-february 2009 exceeded a reimbursement limit established pursuant to a price determination resolution ( price resolution ) granted by aifa in december 2006. in january 2017 , we negotiated an agreement in principle with aifa 's price and reimbursement committee to settle all of aifa 's existing claims relating to sales of tysabri in excess of the reimbursement limit for the periods from february 2009 through january 2013 for an aggregate repayment of eur 37.4 million . the agreement is subject to ratification by aifa . if this most recent settlement agreement is accepted , we could recognize approximately eur 42 million in revenue upon resolution of this matter . for information regarding our agreement with aifa relating to sales of tysabri in italy , please read note 17 , other consolidated financial statement detail to our consolidated financial statements included in this report . we anticipate relatively stable demand for tysabri in 2017 on a global basis , with patient growth in our international markets offsetting modest patient declines in the u.s. primarily resulting from increasing competition from additional treatments and product candidates for ms , including zinbryta and ocrevus . zinbryta under the terms of our collaboration agreement with abbvie , we began to recognize revenues on sales of zinbryta to third parties in the e.u . in the third quarter of 2016. for additional information on our relationship with abbvie , please read note 19 , collaborative and other relationships to our consolidated financial statements included in this report . 53 hemophilia eloctate for 2016 compared to 2015 , the increase in u.s. eloctate revenues was primarily due to an increase in unit sales volume of 45 % . for 2015 compared to 2014 , the increase in u.s. eloctate revenues was primarily due to increases in unit sales volume . sales of eloctate in the u.s. began in the third quarter of 2014. for 2016 compared to 2015 , the increase in rest of world eloctate revenues was primarily due to an increase in unit sales volume , primarily in japan . for 2015 compared to 2014 , the increase in rest of world eloctate revenues was primarily due to increases in unit sales volume . sales of eloctate in japan began in the first quarter of 2015. alprolix for 2016 compared to 2015 , the increase in u.s. alprolix revenues was primarily due to an increase in unit sales volume of 28 % . for 2015 compared to 2014 , the increase in u.s. alprolix revenues was primarily due to increases in unit sales volume . sales of alprolix in the u.s. began in the second quarter of 2014. for 2016 compared to 2015 , the increase in rest of world alprolix revenues was primarily due to an increase in unit sales volume , primarily in japan . for 2015 compared to 2014 , the increase in rest of world alprolix revenues was primarily due to increases in unit sales volume . sales of alprolix in japan began in the fourth quarter of 2014. on february 1 , 2017 , we completed the distribution of the then outstanding shares of common stock of bioverativ to biogen stockholders . as a result of the distribution , bioverativ will assume discovery , development and commercialization of eloctate and alprolix in the u.s. for additional information on the transaction to separate from and spin off our hemophilia business as a separate independent public company , please read note 26 , subsequent events to our consolidated financial statements included in this report . 54 biosimilars under the terms of our commercial agreement with samsung bioepis , we began to recognize revenues on sales of benepali and flixabi to third parties in the e.u . in the first quarter of 2016 and third quarter of 2016 , respectively . for additional information on our relationship with samsung bioepis , please read note 19 , collaborative and other relationships to our consolidated financial statements included in this report .
| financial highlights diluted earnings per share attributable to biogen inc. were $ 16.93 for 2016 , representing an increase of 10.4 % over the same period in 2015 . as described below under “ results of operations , ” our income from operations for the year ended december 31 , 2016 , reflects the following : total revenues were $ 11,448.8 million for 2016 , representing an increase of 6.4 % over the same period in 2015 . product revenues , net totaled $ 9,817.9 million for 2016 , representing an increase of 6.8 % over the same period in 2015 . this increase was driven by a 9.1 % increase in worldwide tecfidera revenues , a 52.8 % increase in worldwide hemophilia revenues , a 4.1 % increase in worldwide tysabri revenues and revenues from benepali . these increases are partially offset by a 5.8 % decrease in worldwide interferon revenues . product revenues , net for 2016 , compared to the same period in 2015 , were also negatively impacted by a $ 167.8 million decrease in hedge gains recognized under our foreign currency hedging program in comparative periods . revenues from anti-cd20 therapeutic programs totaled $ 1,314.5 million for 2016 , representing a decrease of 1.8 % over the same period in 2015 . other revenues totaled $ 316.4 million for 2016 , representing an increase of 34.0 % from the same period in 2015 . this increase was primarily driven by an increase in other corporate revenues , which includes amounts earned with respect to our contract manufacturing activities . total cost and expenses totaled $ 6,298.4 million for 2016 , representing an increase of 7.2 % , compared to the same period in 2015 .
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the following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this annual report on form 10-k. the discussion contains forward-looking statements that are based on the beliefs of management , as well as assumptions made by , and information currently available to , our management . actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors , including those discussed below and elsewhere in this annual report on form 10-k , particularly in the sections entitled “ risk factors ” and “ forward-looking statements. ” overview we are the standard in apple enterprise management , and our cloud software platform is the only vertically-focused apple infrastructure and security platform of scale in the world . we help organizations , including businesses , hospitals , schools and government agencies , connect , manage and protect apple products , apps and corporate resources in the cloud without ever having to touch the devices . with jamf 's software , apple devices can be deployed to employees brand new in the shrink-wrapped box , set up automatically and personalized at first power-on and administered continuously throughout the life of the device . jamf was founded in 2002 , around the same time that apple was leading an industry transformation . apple transformed the way people access and utilize technology through its focus on creating a superior consumer experience . with the release of revolutionary products like the mac , ipod , iphone , and ipad , apple built the world 's most valuable brand and became ubiquitous in everyday life . we have built our company through a singular focus on being the primary solution for apple in the enterprise . through our long-standing relationship with apple , we have accumulated significant apple technical experience and expertise that give us the ability to fully and quickly leverage and extend the capabilities of apple products , oss and services . this expertise enables us to fully support new innovations and os releases the moment they are made available by apple . this focus has allowed us to create a best-in-class user experience for apple in the enterprise . we sell our saas solutions via a subscription model , through a direct sales force , online and indirectly via our channel partners , including apple . our multi-dimensional go-to-market model and cloud-deployed offering enable us to reach all organizations around the world , large and small , with our software solutions . as a result , we continue to see rapid growth and expansion of our customer base as apple continues to gain momentum in the enterprise . response to covid-19 with social distancing measures having been implemented to curtail the spread of covid-19 , we enacted a robust business continuity plan , including a global work-from-home policy for all of our employees . we believe our internal cloud-first technology platforms have allowed for a seamless transition to a remote working environment without any material impacts to our business , highlighting the resilience of our business model . our product portfolio and platform has enabled our commercial customers to continue with their efforts to work remotely , our k-12 and higher-education customers to deliver distance learning and our health-care customers to provide quality care via a telehealth model , a solution that was conceptualized and released during the current pandemic . we believe that a business like ours is well-suited to navigate the current environment in which customers are focused on effectively conducting business remotely , while the underlying demand for our core products remains relatively unchanged . the extent to which the covid-19 pandemic affects our business will depend on future developments in the united states and around the world , which are highly uncertain and can not be predicted , including new information which may emerge concerning the severity of the coronavirus and the actions required to contain and treat it , among others . although the ultimate impact of the covid-19 pandemic on our business and financial results remains uncertain , a continued and prolonged public health crisis such as the covid-19 pandemic could have a material negative impact on our business , operating results and financial condition . see “ risk factors — risks relating to our 71 business — the covid-19 pandemic could materially adversely affect our business , operating results , financial condition and prospects ” for additional information . key factors affecting our performance our historical financial performance has been , and we expect our financial performance in the future to be , driven by our ability to : attract new customers . our ability to attract new customers is dependent upon a number of factors , including the effectiveness of our pricing and solutions , the features and pricing of our competitors ' offerings , the effectiveness of our marketing efforts , the effectiveness of our channel partners in selling , marketing and deploying our software solutions and the growth of the market for apple devices and services for smbs and enterprises . sustaining our growth requires continued adoption of our platform by new customers . we intend to continue to invest in building brand awareness as we further penetrate our addressable markets . we intend to expand our customer base by continuing to make significant and targeted investments in our direct sales and marketing to attract new customers and to drive broader awareness of our software solutions . expand within our customer base . our ability to increase revenue within our existing customer base is dependent upon a number of factors , including their satisfaction with our software solutions and support , the features and pricing of our competitors ' offerings and our ability to effectively enhance our platform by developing new products and features and addressing additional use cases . often our customers will begin with a small deployment and then later expand their usage more broadly within the enterprise as they realize the benefits of our platform . story_separator_special_tag a single organization with separate subsidiaries , segments or divisions that use our platform may represent multiple customers as we treat each entity , subsidiary , segment or division that is invoiced separately as a single customer . in cases where customers subscribe to our platform through our channel partners , each end customer is counted separately . a single customer may have multiple jamf products on a single device , but we still would only count that as one device . the number of devices was 20.4 million and 15.7 million as of december 31 , 2020 and 2019 , respectively , representing a 29 % year-over-year growth rate . we have seen particular strength in the growth rate of devices as covid-19 has accelerated the demand for organizations to connect remotely , manage , and protect their apple devices . annual recurring revenue annual recurring revenue ( “ arr ” ) represents the annualized value of all subscription and support and maintenance contracts as of the end of the period . arr mitigates fluctuations due to seasonality , contract term and the sales mix of subscriptions for term-based licenses and saas . arr does not have any standardized meaning and is therefore unlikely to be comparable to similarly titled measures presented by other companies . arr should be viewed independently of revenue and deferred revenue and is not intended to be combined with or to replace either of those items . arr is not a forecast and the active contracts at the end of a reporting period used in calculating arr may or may not be extended or renewed by our customers . our arr was $ 285.3 million and $ 208.9 million as of december 31 , 2020 and 2019 , respectively , which is an increase of 37 % year-over-year . the growth in our arr is primarily driven by our high device expansion rates , our new logo acquisition and the upselling and cross selling of products into our installed base . 73 dollar-based net retention rate to further illustrate the “ land and expand ” economics of our customer relationships , we examine the rate at which our customers increase their subscriptions for our software solutions . our dollar-based net retention rate measures our ability to increase revenue across our existing customer base through expanded use of our software solutions , offset by customers whose subscription contracts with us are not renewed or renew at a lower amount . we calculate dollar-based net retention rate as of a period end by starting with the arr from the cohort of all customers as of 12 months prior to such period end ( “ prior period arr ” ) . we then calculate the arr from these same customers as of the current period end ( “ current period arr ” ) . current period arr includes any expansion and is net of contraction or attrition over the last 12 months but excludes arr from new customers in the current period . we then divide the total current period arr by the total prior period arr to arrive at the dollar-based net retention rate . our dollar-based net retention rates were 117 % and 118 % for the trailing twelve months ended december 31 , 2020 and 2019 , respectively . our high dollar-based net retention rates are primarily attributable to an expansion of devices . we believe our ability to cross-sell our new solutions to our installed base , particularly jamf connect and jamf protect , will continue to support our high dollar-based net retention rates . non-gaap financial measures in addition to our results determined in accordance with gaap , we believe the non-gaap measures of non-gaap gross profit , non-gaap gross profit margin , non-gaap operating income , non-gaap operating income margin , non-gaap net income and adjusted ebitda are useful in evaluating our operating performance . we believe that non-gaap financial information , when taken collectively , may be helpful to investors because it provides consistency and comparability with past financial performance and assists in comparisons with other companies , some of which use similar non-gaap information to supplement their gaap results . the non-gaap financial information is presented for supplemental informational purposes only , and should not be considered a substitute for financial information presented in accordance with gaap , and may be different from similarly-titled non-gaap measures used by other companies . a reconciliation is provided below for each non-gaap financial measure to the most directly comparable financial measure stated in accordance with gaap . investors are encouraged to review the related gaap financial measures and the reconciliation of these non-gaap financial measures to their most directly comparable gaap financial measures . non-gaap gross profit non-gaap gross profit and non-gaap gross profit margin are supplemental measures of operating performance that are not prepared in accordance with gaap and that do not represent , and should not be considered as , alternatives to gross profit or gross profit margin , as determined in accordance with gaap . we define non-gaap gross profit as gross profit , adjusted for stock-based compensation expense and amortization expense . we define non-gaap gross profit margin as non-gaap gross profit as a percentage of total revenue . we use non-gaap gross profit and non-gaap gross profit margin to understand and evaluate our core operating performance and trends and to prepare and approve our annual budget . we believe non-gaap gross profit and non-gaap gross profit margin are useful measures to us and to our investors to assist in evaluating our core operating performance because it provides consistency and direct comparability with our past financial performance and between fiscal periods , as the metric eliminates the effects of variability of stock-based compensation expense and amortization of acquired developed technology , which are non-cash expenses that may fluctuate for reasons unrelated to overall operating performance .
| results of operations the following table sets forth our consolidated statements of operations data for the periods indicated : replace_table_token_4_th ( 1 ) includes stock-based compensation as follows : replace_table_token_5_th 81 ( 2 ) includes depreciation expense as follows : replace_table_token_6_th ( 3 ) includes acquisition-related expense as follows : replace_table_token_7_th general and administrative also includes a digita earnout benefit ( expense ) of $ 1.0 million and $ ( 0.2 ) million for the years ended december 31 , 2020 and 2019 , respectively . 82 the following table sets forth our consolidated statements of operations data expressed as a percentage of total revenue for the periods indicated : replace_table_token_8_th comparison of the years ended december 31 , 2020 , 2019 and 2018 revenue replace_table_token_9_th total revenue increased by $ 65.4 million , or 32 % , for the year ended december 31 , 2020 compared to the year ended december 31 , 2019. overall revenue increased as a result of higher subscription revenue , partially offset by lower services and license revenue . subscription revenue accounted for 93 % of total revenue for the year ended december 31 , 2020 compared to 86 % for the year ended december 31 , 2019. the increase in subscription revenue was driven by device expansion , the addition of new customers and cross-selling . services revenue has decreased as covid-19 83 impacted our in-person trainings , and our product enhancements have reduced customer reliance on our services in order to utilize our products . license revenue decreased as a result of shifting customers to our saas model as opposed to on-premise perpetual licenses . total revenue increased by $ 57.5 million , or 39 % , for the year ended december 31 , 2019 compared to the year ended december 31 , 2018. overall revenue increased as a result of higher subscription revenue partially offset by slightly lower services and license revenue .
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the interest rate payable on the 2021 notes and 2025 notes is subject to adjustment upon the occurrence of certain credit rating events as provided in the indentures for these senior unsecured notes . under our credit agreement , we have a $ 1.8 billion revolving credit facility that matures on december 3 , 2019 . the credit agreement also contains an accordion feature that allows us , subject to credit availability and certain other conditions , to increase the amount of the revolving credit facility , together with any added term loans , by up to $ 500.0 million in the aggregate . as of december 31 , 2016 , we had no borrowings outstanding under our revolving credit facility . we have a $ story_separator_special_tag the following discussion should be read in conjunction with part i , including matters set forth in the “ risk factors ” section of this form 10-k , and our consolidated financial statements and notes thereto included in part ii , item 8 of this form 10-k. except to the extent that differences among reportable segments are material to an understanding of our business taken as a whole , we present the discussion in management 's discussion and analysis of financial condition and results of operations on a consolidated basis . overview autonation , inc. , through its subsidiaries , is the largest automotive retailer in the united states . as of december 31 , 2016 , we owned and operated 371 new vehicle franchises from 260 stores located in the united states , predominantly in major metropolitan markets in the sunbelt region . our stores , which we believe include some of the most recognizable and well known in our key markets , sell 35 different new vehicle brands . the core brands of new vehicles that we sell , representing approximately 94 % of the new vehicles that we sold in 2016 , are manufactured by toyota ( including lexus ) , ford , honda , general motors , fca us , mercedes-benz , nissan , bmw , and volkswagen ( including audi and porsche ) . we offer a diversified range of automotive products and services , including new vehicles , used vehicles , “ parts and service , ” which includes automotive repair and maintenance services as well as wholesale parts and collision businesses , and automotive “ finance and insurance ” products , which include vehicle service and other protection products , as well as the arranging of financing for vehicle purchases through third-party finance sources . as of december 31 , 2016 , we had three reportable segments : domestic , import , and premium luxury . our domestic segment is comprised of retail automotive franchises that sell new vehicles manufactured by general motors , ford , and fca us . our import segment is comprised of retail automotive franchises that sell new vehicles manufactured primarily by toyota , honda , and nissan . our premium luxury segment is comprised of retail automotive franchises that sell new vehicles manufactured primarily by mercedes-benz , bmw , lexus , and audi . the franchises in each segment also sell used vehicles , parts and automotive repair and maintenance services , and automotive finance and insurance products . for the year ended december 31 , 2016 , new vehicle sales accounted for approximately 57 % of our total revenue , and approximately 19 % of our total gross profit . used vehicle sales accounted for approximately 23 % of our total revenue , and approximately 10 % of our total gross profit . our parts and service and finance and insurance operations , while comprising approximately 20 % of total revenue , contributed approximately 70 % of our gross profit . market conditions full-year u.s. industry new vehicle unit sales were 17.5 million in 2016 , as compared to 17.5 million in 2015 and 16.5 million in 2014 . u.s. industry new vehicle unit retail sales were down 1 % as compared to the prior year . we expect that full-year u.s. industry new vehicle unit sales in 2017 will remain above 17 million . however , actual sales may materially differ . based on industry data , vehicle leasing is at a historically-high level . to the extent that vehicle manufacturers reduce their support for leasing programs , u.s. industry and our new vehicle unit retail sales could be adversely impacted . our new vehicle unit volume and new vehicle gross profit on a per vehicle retailed ( “ pvr ” ) basis were adversely impacted by certain manufacturers ' disruptive marketing and sales incentive programs , which are based upon store-level growth targets established by those manufacturers , and which result in multi-tier pricing . if those manufacturers continue to use such incentive programs or if other manufacturers adopt similar incentive programs , our operating results could continue to be adversely impacted . the number of recent-model-year vehicles in operation is growing due to increases in the annual rate of new vehicle sales in the united states since 2009. the growth in that portion of our service base , together with our customer retention efforts , has benefited the customer-pay service and warranty components of our parts and service business , and we believe that it will continue to benefit those components for the next several years . while the number of older vehicles in operation 22 has declined in recent years and is expected to continue to decline over the next few years , we believe that overall our parts and service business will benefit from the mix shift in our service base toward newer vehicles . story_separator_special_tag acquire through trade-ins , or the amount of financial support we will receive from the manufacturers of such vehicles in the future , and this recall may continue to adversely impact our business . inventory management our new and used vehicle inventories are stated at the lower of cost or market in our consolidated balance sheets . story_separator_special_tag when evaluating potential impairment of long-lived assets held and used , we first compare the carrying amount of the asset group to the asset group 's estimated future undiscounted cash flows . if the estimated future undiscounted cash flows are less than the carrying amount of the asset group , we then compare the carrying amount of the asset group to the asset group 's estimated fair value to determine if impairment exists . the fair value measurements for our long-lived assets held and used were based on level 3 inputs , which considered information obtained from third-party real estate valuation sources . see note 16 of the notes to consolidated financial statements for more information about our fair value measurements . we recognize an impairment loss if the amount of the asset group 's carrying amount exceeds the asset group 's estimated fair value . if we recognize an impairment loss , the adjusted carrying amount of the asset group becomes its new cost basis . for a depreciable long-lived asset , the new cost basis will be depreciated over the remaining useful life of that asset . when property and equipment is identified as held for sale , we reclassify the held for sale assets to other current assets and cease recording depreciation . we measure each long-lived asset or disposal group at the lower of its carrying amount or fair value less cost to sell and recognize a loss for any initial adjustment of the long-lived asset 's or disposal group 's carrying amount to fair value less cost to sell in the period the “ held for sale ” criteria are met . we periodically evaluate the carrying value of assets held for sale to determine if , based on market conditions , the values of these assets should be adjusted . any subsequent change in the fair value less cost to sell ( increase or decrease ) of each asset held for sale is reported as an adjustment to its carrying amount , except that the adjusted carrying amount can not exceed the carrying amount of the long-lived asset or disposal group at the time it was initially classified as held for sale . such valuations include estimations of fair values and incremental direct costs to transact a sale . the fair value measurements for our long-lived assets held for sale were based on level 3 inputs , which considered information obtained from third-party real estate valuation sources , or , in certain cases , pending agreements to sell the related assets . we had assets held for sale in continuing operations of $ 41.4 million at december 31 , 2016 , and $ 47.1 million at december 31 , 2015 , and assets held for sale in discontinued operations of $ 15.7 million at december 31 , 2016 , and $ 22.3 million at december 31 , 2015 . the fair value measurements for our property and equipment and assets held for sale are based on level 3 inputs , which considered information from third-party real estate valuation sources , or , in certain cases , pending agreements to sell the related assets . see note 16 of the notes to consolidated financial statements for more information on our fair value measurement valuation process and impairment charges that were recorded during 2016 and 2015 . our impairment loss calculations contain uncertainties because they require us to make assumptions and to apply judgment to estimate future undiscounted cash flows and asset fair values , including forecasting useful lives of the assets . although we believe our 25 property and equipment and assets held for sale are appropriately valued , the assumptions and estimates used may change and we may be required to record impairment charges to reduce the value of these assets . chargeback liability revenue on finance and insurance products represents commissions earned by us for the placement of : ( i ) loans and leases with financial institutions in connection with customer vehicle purchases financed , ( ii ) vehicle service contracts with third-party providers , and ( iii ) other vehicle protection products with third-party providers . we primarily sell these products on a straight commission basis ; however , in certain cases , we also participate in the future underwriting profit on certain extended service contracts pursuant to retrospective commission arrangements with the issuers of those contracts , which is recognized as earned . we may be charged back for commissions related to financing , vehicle service contracts , or other vehicle protection products in the event of early termination , default , or prepayment of the contracts by customers ( “ chargebacks ” ) . however , our exposure to loss generally is limited to the commissions that we receive . these commissions are recorded at the time of the sale of the vehicles , net of an estimated liability for chargebacks . we estimate our liability for chargebacks on an individual product basis using our historical chargeback experience , based primarily on cancellation data we receive from third parties that sell and administer these products . our estimated liability for chargebacks totaled $ 116.8 million at december 31 , 2016 , and $ 97.3 million at december 31 , 2015 . chargebacks are influenced by the volume of vehicle sales in recent years and increases or decreases in early termination rates resulting from cancellation of vehicle service contracts and other vehicle protection products , defaults , refinancings , payoffs before maturity , and other factors . while we consider these factors in the estimation of our chargeback liability , actual events may differ from our estimates , which could result in an adjustment to our estimated liability for chargebacks . the increase in our liability for chargebacks is largely attributable to increases in vehicle unit volume and product penetration in recent years , product mix , and an overall increase in the cancellation rates of finance and insurance products . our actual chargeback experience has not been materially different from our recorded estimates .
| results of operations we had net income from continuing operations of $ 431.7 million and diluted earnings per share of $ 4.16 in 2016 , as compared to net income from continuing operations of $ 443.7 million and diluted earnings per share of $ 3.90 in 2015 , and net income from continuing operations of $ 419.8 million and diluted earnings per share of $ 3.53 in 2014 . our retail new vehicle unit sales were down slightly in 2016 as compared to 2015. the disruptive manufacturer marketing and sales incentive programs discussed above under “ market conditions ” had a negative impact on our new vehicle unit volume and gross profit pvr . new vehicle gross profit pvr compression was partially offset by continued strength in finance and insurance gross profit pvr . used vehicle unit volume and gross profit were adversely impacted by the takata airbag inflator recall discussed below . our total gross profit for 2016 increased 2 % , as compared to 2015 , primarily due to the acquisitions we completed in 2016 and 2015 and an increase in parts and service gross profit . net income from continuing operations benefited from net after-tax gains related to business/property dispositions ( net of property impairments ) of $ 30.1 million in 2016 , $ 11.1 million in 2015 , and $ 7.7 million in 2014 , as well as net after-tax gains related to legal settlements of $ 8.9 million in 2016 and $ 2.5 million in 2014. see “ other income , net ” below . strategic initiatives in 2013 , we launched the autonation retail brand from coast to coast . during 2015 , that branding effort was extended to autonation express and the autonation vehicle protection plan .
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this report contains various 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 , which represent our expectations or beliefs concerning future events , including the following : the planned opening of approximately 50 new american eagle outfitters stores in north america and internationally during fiscal 2013 ; the success of our efforts to expand internationally in mexico and asia , engage in future franchise/license agreements , and or growth through acquisitions or joint ventures ; the selection of approximately 45 to 55 american eagle outfitters stores in the united states and canada for remodeling and refurbishing during fiscal 2013 ; the potential closure of approximately 20 to 30 american eagle outfitters and 15 to 20 aerie stores in the united states and canada during fiscal 2013 ; the planned opening of approximately 20 new franchised american eagle outfitters stores during fiscal 2013 ; the success of our core american eagle outfitters and aerie brands through our omni-channel outlets within north america and internationally ; 18 the expected payment of a dividend in future periods ; the possibility that our credit facilities may not be available for future borrowings ; the possibility that rising prices of raw materials , labor , energy and other inputs to our manufacturing process , if unmitigated , will have a significant impact to our profitability ; and the possibility that we may be required to take additional store impairment charges related to underperforming stores . we caution that these forward-looking statements , and those described elsewhere in this report , involve material risks and uncertainties and are subject to change based on factors beyond our control , as discussed within part i , item 1a of this form 10-k. accordingly , our future performance and financial results may differ materially from those expressed or implied in any such forward-looking statement . critical accounting policies our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the united states ( gaap ) , which require us to make estimates and assumptions that may affect the reported financial condition and results of operations should actual results differ from these estimates . we base our estimates and assumptions on the best available information and believe them to be reasonable for the circumstances . we believe that of our significant accounting policies , the following involve a higher degree of judgment and complexity . refer to note 2 to the consolidated financial statements for a complete discussion of our significant accounting policies . management has reviewed these critical accounting policies and estimates with the audit committee of our board . revenue recognition . we record revenue for store sales upon the purchase of merchandise by customers . our e-commerce operation records revenue upon the estimated customer receipt date of the merchandise . revenue is not recorded on the purchase of gift cards . a current liability is recorded upon purchase , and revenue is recognized when the gift card is redeemed for merchandise . revenue is recorded net of estimated and actual sales returns and deductions for coupon redemptions and other promotions . the estimated sales return reserve is based on projected merchandise returns determined through the use of historical average return percentages . we do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to calculate our sales return reserve . however , if the actual rate of sales returns increases significantly , our operating results could be adversely affected . we estimate gift card breakage and recognize revenue in proportion to actual gift card redemptions as a component of total net revenue . we determine an estimated gift card breakage rate by continuously evaluating historical redemption data and the time when there is a remote likelihood that a gift card will be redeemed . we recognize royalty revenue generated from our franchise agreements based upon a percentage of merchandise sales by the franchisee . this revenue is recorded as a component of total net revenue when earned . merchandise inventory . merchandise inventory is valued at the lower of average cost or market , utilizing the retail method . average cost includes merchandise design and sourcing costs and related expenses . the company records merchandise receipts at the time merchandise is delivered to the foreign shipping port by the manufacturer ( fob port ) . this is the point at which title and risk of loss transfer to us . we review our inventory in order to identify slow-moving merchandise and generally use markdowns to clear merchandise . additionally , we estimate a markdown reserve for future planned markdowns related to current inventory . if inventory exceeds customer demand for reasons of style , seasonal adaptation , changes in 19 customer preference , lack of consumer acceptance of fashion items , competition , or if it is determined that the inventory in stock will not sell at its currently ticketed price , additional markdowns may be necessary . these markdowns may have a material adverse impact on earnings , depending on the extent and amount of inventory affected . we estimate an inventory shrinkage reserve for anticipated losses for the period between the last physical count and the balance sheet date . the estimate for the shrinkage reserve is calculated based on historical percentages and can be affected by changes in merchandise mix and changes in actual shrinkage trends . we do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to calculate our inventory shrinkage reserve . however , if actual physical inventory losses differ significantly from our estimate , our operating results could be adversely affected . asset impairment . story_separator_special_tag the calculation of the deferred tax assets and liabilities , as well as the decision to recognize a tax benefit from an uncertain position and to establish a valuation allowance require management to make estimates and assumptions . we believe that our assumptions and estimates are reasonable , although actual results may have a positive or negative material impact on the balances of deferred tax assets and liabilities , valuation allowances or net income . key performance indicators our management evaluates the following items , which are considered key performance indicators , in assessing our performance : comparable sales comparable sales provide a measure of sales growth for stores and channels open at least one year over the comparable prior year period . in fiscal years following those with 53 weeks , including fiscal 2013 , the prior year period is shifted by one week to compare similar calendar weeks . a store is included in comparable sales in the thirteenth month of operation . however , stores that have a gross square footage increase of 25 % or greater due to a remodel are removed from the comparable sales base , but are included in total sales . these stores are returned to the comparable sales base in the thirteenth month following the remodel . sales from american eagle outfitters and aerie stores , as well as sales from aeo direct , are included in total comparable sales . sales from franchise stores are not included in comparable sales . individual american eagle outfitters and aerie brand comparable sales disclosures represent sales from stores only . sales from aeo direct are included only in total comparable sales and not included at the american eagle outfitters and aerie brand levels . we began to include aeo direct sales in the comparable sales metric in fiscal 2012 for the following reasons : comparable sales is a key industry operating metric focused on evaluating and understanding sales earned by a retailer 's established outlets over a given time period ; aeo direct is an established outlet and has a comparable prior period sales amount similar to a comparable store ; 21 our approach to customer engagement is omni-channel , which provides a seamless customer experience through both traditional and non-traditional channels , including four wall store locations , web , mobile/tablet devices , social networks , email , in-store displays and kiosks ; shopping behavior has evolved across multiple channels that work in tandem to meet all customer needs . for example , a customer can place an aeo direct order within a store location , which will be fulfilled by aeo direct . additionally , returns are accepted at multiple locations ( i.e. , aeo brand stores , aerie stores or aeo direct ) , regardless of origin of the sale , and are recorded as a reduction to sales at the location of the return . as a result , from a customer 's perspective , channels are increasingly blurred ; and while industry practice varies , there has been a move to report e-commerce sales within the comparable sales metric . our management considers comparable sales to be an important indicator of our current performance . comparable sales results are important to achieve leveraging of our costs , including store payroll , store supplies , rent , etc . comparable sales also have a direct impact on our total net revenue , cash and working capital . gross profit gross profit measures whether we are optimizing the price and inventory levels of our merchandise and achieving an optimal level of sales . gross profit is the difference between total net revenue and cost of sales . cost of sales consists of : merchandise costs , including design , sourcing , importing and inbound freight costs , as well as markdowns , shrinkage , certain promotional costs and buying , occupancy and warehousing costs . buying , occupancy and warehousing costs consist of : compensation , employee benefit expenses and travel for our buyers and certain senior merchandising executives ; rent and utilities related to our stores , corporate headquarters , distribution centers and other office space ; freight from our distribution centers to the stores ; compensation and supplies for our distribution centers , including purchasing , receiving and inspection costs ; and shipping and handling costs related to our e-commerce operation . merchandise margin is the difference between total net revenue and merchandise costs , which exclude buying , occupancy and warehousing costs . the inability to obtain acceptable levels of sales , initial markups or any significant increase in our use of markdowns could have an adverse effect on our gross profit and results of operations . operating income our management views operating income as a key indicator of our success . the key drivers of operating income are comparable sales , gross profit , our ability to control selling , general and administrative expenses , and our level of capital expenditures . management also uses earnings before interest and taxes ( ebit ) as an indicator of successful operating results . return on invested capital our management uses return on invested capital ( roic ) as a key measure to assess our efficiency at allocating capital to profitable investments . this measure is critical in determining which strategic alternatives to pursue . store productivity store productivity , including total net revenue per average square foot , sales per productive hour , average unit retail price ( aur ) , conversion rate , the number of transactions per store , the number of units sold per store and the number of units per transaction , is evaluated by our management in assessing our operational performance . inventory turnover our management evaluates inventory turnover as a measure of how productively inventory is bought and sold . inventory turnover is important as it can signal slow moving inventory . this can be critical in determining the need to take markdowns on merchandise .
| results of operations overview in 2012 , we made significant progress on our near-term goals . we focused on delivering results through our five near-term priorities : ( 1 ) driving a competitive top line ; ( 2 ) generating margin flow-through from improved inventory management ; ( 3 ) rebalancing our store fleet ; ( 4 ) accelerating our online business ; and ( 5 ) gaining leverage on our infrastructure . total revenue for the 53 week year increased 11 % to a record $ 3.476 billion , compared to $ 3.120 billion for the 52 week period last year . total comparable sales for the 53 week year increased 9 % over the corresponding 53 week period last year , with positive comparable sales in all quarters of the year . for the year , aeo brand comparable sales increased 7 % , aerie brand increased 6 % , and aeo direct increased 25 % . throughout the year , strong merchandise improvements led to comparable sales growth across the assortment . the strength of our brand , combined with a more distinct lifestyle point of view , is broadening our customer appeal . lower product costs , improved markdown rates and better inventory management led to a higher gross margin in fiscal 2012. gross margin expanded 330 basis points to 40.0 % , compared to 36.7 % last year . operating income for the year was $ 394.6 million , which includes $ 42.5 million in restructuring and store impairment charges . income from continuing operations was $ 1.32 per diluted share this year , compared to income from continuing operations of $ 0.89 per diluted share last year . on an adjusted basis , income from continuing operations this year was $ 1.39 per diluted share , which excludes a ( $ 0.13 ) per diluted share impact from restructuring and impairment costs and a $ 0.06 per diluted share tax benefit from audit settlements .
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in april 2016 , we received notification from the internal revenue service that they would be performing an examination of our 2012 and 2013 federal consolidated income tax returns . as of december 31 , 2016 , the examination was still in progress . we do not expect that any settlement or payment that may result from the examination will have a material effect on our results of operations . the provision for income taxes for continuing operations varied from the federal statutory tax rate as follows : replace_table_token_37_th 48 deferred tax assets and liabilities as of december 31 related to the following : replace_table_token_38_th the company assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets . a significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three-year period ending december 31 , 2016. such objective evidence limits the ability to consider other subjective evidence such as the projections for future growth . on the basis of this evaluation , as of december 31 , 2016 , a story_separator_special_tag overview communications systems , inc. provides physical connectivity infrastructure products and services for global deployments of broadband networks through the following business units : suttle founded in 1910 , suttle provides network solutions that meet service providers ' needs at the edge of the network and inside the home/business . suttle 's product portfolio incorporates technology , leveraging existing infrastructure , and laying the foundation for future growth . products are designed to comply with the most stringent industry standards . quality management systems are iso 9001 and tl9000 certified . suttle 's newest brands are futurelink tm and mediamax . futurelink tm provides high-speed connectivity solutions in the last mile of a network . the futurelink tm stackable fiber interface terminal ( sfit ) —among other platforms that feature grow-as-you-go capability—is part of suttle 's fttx solution . mediamax is designed for gigabit services for the connected home/business . mediamax optimizes installation cost while maximizing coverage and high-bandwidth . transition networks with over 30 years of growth and expertise in hardware and software development , transition networks offers customers the ability to affordably integrate the benefits of fiber optics into any data network , in any application , and in any environment . offering support for multiple protocols , any interface , and a multitude of hardware platforms , transition networks ' portfolio gives customers the power to deliver and manage network traffic reliably over fiber . transition networks distributes hardware-based connectivity solutions exclusively through a network of resellers in over 90 countries . jdl technologies jdl technologies provides technology services and infrastructure to the commercial , healthcare and education market segments . the company 's portfolio of technology solutions includes managed services , virtualization and cloud solutions , wired and wireless network design and implementation services , and converged infrastructure configuration and deployment . jdl has provided many of these technology services to the school board of broward county , florida , the sixth largest public school district in the u.s. , for more than a decade , and also provides these services to a number of commercial and healthcare clients . net2edge net2edge has been created to focus on the service provider/communications markets . designing , manufacturing and marketing carrier ethernet based network access devices and software that will revolutionize the near future evolution to the next wave of network modernization . carrier ethernet is the standard universal service provider delivery system based on the internationally recognized mef service standards . net2edge has created significant market differentiation by enabling legacy services over carrier ethernet access devices . service providers all over the world still have vast old networks which are expensive to operate , maintain and manage yet have millions of subscribers . net2edge helps resolve that challenge by bringing these legacy services in to the 21 st century network . key 2016 developments ● the company 's 2016 sales were $ 99.4 million , a 8 % decrease from 2015 sales of $ 107.7 million . ● the company 's 2016 net loss was $ 8.1 million , or ( $ 0.92 ) per diluted share , compared to net loss of $ 9.6 million or ( $ 1.11 ) per diluted share in fiscal 2015 . ● at 2016 year end , the company had cash , cash equivalents and investments of $ 16.2 million and positive working capital of $ 44.0 million compared to cash , cash equivalents and investments of $ 21.3 million and working capital of $ 46.4 million at december 31 , 2015 . ● suttle sales decreased 16 % to $ 42.1 million in 2016 from $ 50.1 million in 2015 , primarily due to a decrease in international sales and in sales to its largest telecommunications customer . suttle had an operating loss of $ 8.6 million in 2016 compared to an operating loss of $ 6.4 million in 2015 . ● transition networks sales decreased 1 % to $ 41.1 million in 2016 from $ 41.4 million in 2015. transition had operating income of $ 0.3 million in 2016 compared to an operating loss of $ 1.2 million in 2015 . 21 ● sales by jdl technologies decreased 1 % to $ 15.5 million in 2016 from $ 15.7 million in 2015. jdl had operating income of $ 1.9 million in 2016 compared to operating income of $ 1.2 million in 2015 . ● sales from net2edge increased 38 % to $ 1.9 million in 2016 from $ 1.4 million in 2015. net2edge had an operating loss of $ 2.2 million compared to an operating loss of $ 2.8 million in 2015 . story_separator_special_tag suttle 's gross margin decreased 56 % to $ 3,883,000 in 2016 compared to $ 8,850,000 in 2015. the gross margin percentage decreased to 9 % in 2016 as compared to 18 % in 2015 due to reduced productivity in the manufacturing process related to several new product introductions , lower contract pricing with a large telecommunications company for legacy products , and increased reserves for excess and obsolete inventory as the company began the process to rationalize some legacy product lines . selling , general and administrative expenses decreased $ 2,760,000 , or 18 % to $ 12,525,000 , or 30 % of sales , in 2016 compared to $ 15,285,000 in 2015 , or 31 % of sales , due reductions in research and development spending and other expense control measures . suttle incurred $ 2,596,000 and $ 4,959,000 in research and development expenses in 2016 and 2015 , respectively . while suttle continues to enhance and develop new products , it has completed its investment in several new products and introduced these products to the market in 2016. suttle had an operating loss of $ 8,642,000 in 2016 compared to an operating loss of $ 6,435,000 in 2015. transition networks transition networks develops , markets , and sells active networking hardware devices . characteristics of the business include a rapid pace of change in technologies and alternative solutions to our products . transition networks derives the majority of its revenues from customer network upgrade projects , which tend not to recur . the core markets for these products are enterprise , service providers , government , and industrial users . roughly 80 % of transition networks revenue comes from north america , but we continue to see opportunity for long-term growth outside of north america and we will invest resources in sales , marketing , and infrastructure to grow that business . 23 transition networks sales decreased 1 % to $ 41,093,000 in 2016 compared to $ 41,469,000 in 2015. transition networks organizes its sales force by vertical markets and segments its customers geographically . sales by customer groups in 2016 and 2015 were : replace_table_token_7_th the following table summarizes transition networks ' 2016 and 2015 sales by product group : replace_table_token_8_th sales in north america increased 6 % or $ 1,835,000 compared to 2015 due primarily to increased activity at a service provider and the federal government . international sales decreased $ 2,211,000 , or 21 % , due to continued weak conditions as a result of currency and other factors in europe and asia . sales of media converters decreased 1 % or $ 333,000 due primarily to international market conditions . ethernet switches and adapters decreased 14 % or $ 1,314,000 due to project timing and weakness in our industrial sector . gross margin decreased 2 % to $ 17,486,000 in 2016 compared to $ 17,767,000 in 2015. gross margin as a percentage of sales remained stable at 43 % in both 2016 and 2015. selling , general and administrative expenses decreased 10 % to $ 17,180,000 , or 42 % of sales , in 2016 from $ 19,005,000 in 2015 , or 46 % of sales due to a continued focus on reducing operational costs . operating income was $ 306,000 in 2016 compared to an operating loss of $ 1,238,000 in 2015. transition networks continues to develop products based on market needs as well as by following industry standards set by such organizations as the institute of electrical and electronics engineers ( ieee ) and the metro ethernet forum ( mef ) . it also continues to invest in sales and marketing to grow revenues in our target markets and expand sales outside of north america . jdl technologies , inc. sales by jdl technologies decreased 1 % to $ 15,464,000 in 2016 compared to $ 15,672,000 in 2015. the following table summarizes jdl 's revenues by customer group in 2016 and 2015 : replace_table_token_9_th revenues earned from the education sector decreased $ 422,000 or 4 % in 2016 due to a decrease in the number of network related projects completed during the year . federal and local funding for public school district investments in it infrastructure and services varies substantially from year to year , and jdl technologies expects to continue to experience notable swings in quarterly and annual revenues as a result . 24 revenue from jdl technologies ' sales to small and medium-sized commercial businesses ( smbs ) increased by 5 % or $ 215,000 primarily due to sales of managed services to new clients and aggressive selling into the healthcare space . jdl gross margin increased 9 % to $ 5,219,000 in 2016 compared to $ 4,806,000 in 2015. gross margin as a percentage of sales increased to 34 % in 2016 from 31 % in 2015 due to changes in sales mix . this reflects , in part , jdl 's success in providing more profitable commercial services and its continuing evolution away from typically narrow margin e-rate funded projects for smaller or rural school districts . selling , general and administrative expenses decreased 9 % in 2016 to $ 3,296,000 , or 21 % of sales , compared to $ 3,635,000 in 2015 , or 23 % of sales as jdl made operational changes to improve its efficiency in response to market directions and business unit performance . jdl reported operating income of $ 1,923,000 in 2016 compared to operating income of $ 1,171,000 in 2015. jdl technologies continues to aggressively leverage opportunities to provide managed services , cloud migration and virtualization services , hipaa-compliant technology services , and other network and infrastructure services to the commercial and healthcare markets . this strategic , multiyear plan to reduce the impact of volatile government funding is beginning to produce results .
| suttle results suttle sales decreased 26 % to $ 50,082,000 in 2015 compared to $ 67,331,000 in 2014. sales by product groups in 2015 and 2014 were : replace_table_token_10_th 25 suttle 's sales by customer groups in 2015 and 2014 were : replace_table_token_11_th the decrease in sales is due primarily to increase pricing pressure and volume declines in suttle 's legacy product lines . sales to the telecommunication customers decreased 30 % to $ 39,809,000 in 2015 compared to $ 56,882,000 in 2014 due to a disrupted order cycle at a major customer that significantly curtailed its 2015 purchasing , and overall decline in legacy product lines . sales to these customers accounted for 79 % of suttle 's sales in 2015 compared to 84 % of sales in 2014. sales to distributors decreased 49 % and accounted for 6 % of sales in 2015 compared to 9 % in 2014. international sales accounted for 15 % of suttle 's 2015 sales and increased 60 % compared to 2014 due to the ordering cycle of dsl products and introduction of new products used in fttx deployments for a major customer . sales of structured cabling and connecting system products decreased 30 % primarily due to reduced demand from major customers and shifts in technology . sales of dsl and other products increased 19 % due to increased orders from a major international customer . suttle 's gross margin decreased 58 % to $ 8,850,000 in 2015 compared to $ 20,992,000 in 2014. the gross margin percentage decreased to 18 % in 2015 as compared to 31 % in 2014 due to increased pricing pressure at a major customer and high production variances due to decreased demand , as well as continued investment into production capabilities to support new fttx product platforms .
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the lease terms used to calculate the rou asset and related lease liability include options to extend or terminate the lease when it is reasonably certain that the 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 related notes included in item 8 of this form 10-k. this discussion contains forward-looking statements within the meaning of section 27a of the securities act of 1933 , as amended , and rule 175 promulgated thereunder , and section 21e of the securities exchange act of 1934 , as amended , that involve risks and uncertainties , and can generally be identified by our use of the words `` scheduled , '' `` anticipates , '' `` expects , '' `` intends , '' `` plans , '' `` believes , '' `` seeks , '' `` estimates , '' and variations of such words and similar expressions . such statements , which include statements concerning future revenue sources and concentration , international market expansion , gross profit margins , selling and marketing expenses , remaining minimum performance obligations , research and development expenses , general and administrative expenses , capital resources , financings or borrowings and additional losses , are subject to risks and uncertainties , including , but not limited to , those discussed below and elsewhere in this form 10-k , particularly in item 1a . `` risk factors , '' that could cause actual results to differ materially from those projected . the forward-looking statements set forth in this form 10-k are as of the close of business on february 25 , 2021 , and we undertake no duty and do not intend to update this information , except as required by applicable securities laws . if we updated one or more forward looking statements , no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements . all forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements set forth above . see `` statement regarding forward looking statements . '' overview we sell advanced veterinary diagnostic and specialty products . our offerings include point of care laboratory instruments and consumables ; point of care digital imaging diagnostic instruments ; digital cytology services ; vaccines ; local and cloud-based data services ; allergy testing and immunotherapy ; and single-use offerings such as in-clinic diagnostic tests and heartworm preventive products . our core focus is on supporting veterinarians in the canine and feline healthcare space . point of care laboratory instruments and other sales include outright instrument sales , revenue recognized from sales-type lease treatment , and other revenue sources , such as charges for repairs . revenue from point of care laboratory consumables primarily involves placing an instrument under contract in the field and generating future revenue from testing consumables , such as cartridges and reagents , as that instrument is used . instruments placed under subscription agreements are considered operating or sales-type leases , depending on the duration and other factors of the underlying agreement . a loss of , or disruption in , the supply of consumables we are selling to an installed base of instruments could substantially harm our business . all of our point of care laboratory and other non-imaging instruments and consumables are supplied by third parties , who typically own the product rights and supply the product to us under marketing and or distribution agreements . in many cases , we have collaborated with a third party to adapt a human instrument for veterinary use . major products in this area include our instruments for chemistry , hematology , blood gas and immunodiagnostic testing and their affiliated operating consumable . radiography is the largest product offering in point of care imaging , which includes digital and computed radiography and ultrasound instruments . radiography solutions typically consist of a combination of hardware and software placed with a customer , often combined with an ongoing service and support contract . our experience has been that most of the revenue is generated at the time of sale in this area , in contrast to the point of care diagnostic laboratory placements discussed above where ongoing consumable revenue is often a larger component of economic value as a given instrument is used . -35- pharmaceuticals , vaccines and diagnostic ( `` pvd '' ) revenue , includes single use diagnostic and other tests , pharmaceuticals and biologicals as well as research and development , licensing and royalty revenue . since items in this area are often single use by their nature , our typical aim is to build customer satisfaction and loyalty for each product , generate repeat annual sales from existing customers and expand our customer base in the future . products in this area are both supplied by third parties and provided by us . major products and services in this area include heartworm diagnostic tests and preventives , and allergy test kits , allergy immunotherapy and testing . other vaccines and pharmaceuticals ( `` ovp '' ) revenue is generated in our usda , fda and dea licensed production facility in des moines , iowa . we view this facility as an asset which could allow us to control our cost of goods on any pharmaceuticals and vaccines that we may commercialize in the future . we have increased integration of this facility with our operations elsewhere . for example , virtually all of our u.s. inventory , excluding our imaging products , is stored at this facility and related fulfillment logistics are managed there . our ovp revenue includes vaccines and pharmaceuticals produced for third parties . ovp is attributable only to the north america segment . all of our products are ultimately sold primarily to or through veterinarians . in many cases , veterinarians will mark up their costs to their customers . the acceptance of our products by veterinarians is critical to our success . story_separator_special_tag we believe the following critical accounting estimates and assumptions may have a material impact on reported financial condition and operating performance and involve significant levels of judgment to account for highly uncertain matters or are susceptible to significant change . in each of these areas , management makes estimates based on historical results , current trends and future projections . -37- deferred tax assets – valuation allowance we evaluate our ability to realize the tax benefits associated with a deferred tax asset ( “ dta ” ) by analyzing our forecasted taxable income using both historical and projected future operating results , the reversal of existing temporary differences , taxable income in prior carry back years ( if permitted ) and the availability of tax planning strategies . a valuation allowance is required to be established unless management determines that it is more likely than not that we will ultimately realize the tax benefit associated with a deferred tax asset . as of december 31 , 2020 and 2019 , we had valuation allowances of approximately $ 6.4 million and $ 5.7 million , respectively . business combinations we account for transactions that represent business combinations under the acquisition method of accounting , which requires us to allocate the total consideration paid for each acquisition to the assets we acquire and liabilities we assume based on their fair values as of the date of acquisition , including identifiable intangible assets . the allocation of the purchase price utilizes significant estimates in determining the fair values of identifiable assets acquired and liabilities assumed , especially with respect to intangible assets . we may refine our estimates and make adjustments to the assets acquired and liabilities assumed over a measurement period , not to exceed one year . valuation of goodwill and intangibles a significant portion of the purchase price for acquired businesses is generally assigned to intangible assets . intangible assets other than goodwill are initially valued at fair value . if a quoted price in an active market for the identical asset is not readily available at the measurement date , the fair value of the intangible asset is estimated based on discounted cash flows using market participant assumptions , which are assumptions that are not specific to heska . the selection of appropriate valuation methodologies and the estimation of discounted cash flows require significant assumptions about the timing and amounts of future cash flows , risks , appropriate discount rates , and the useful lives of intangible assets . when material , we utilize independent valuation experts to advise and assist us in determining the fair values of the identified intangible assets acquired in connection with a business acquisition and in determining appropriate amortization methods and periods for those intangible assets . goodwill is initially valued based on the excess of the purchase price of a business combination over the fair value of acquired net assets recognized and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized . we assess goodwill for impairment annually , at the reporting unit level , in the fourth quarter and whenever events or circumstances indicate impairment may exist . in evaluating goodwill for impairment , we have the option to first assess the qualitative factors to determine whether it is more-likely-than-not that the estimated fair value of the reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the comparison of the estimated fair value of the reporting unit to the carrying value . the more-likely-than-not threshold is defined as having a likelihood of more than 50 percent . if , after assessing the totality of events or circumstances , we determine that is it more-likely-than-not that the estimated fair value of a reporting is less than its carrying amount , we would then estimate the fair value of the reporting unit and compare it to the carrying value . if the carrying value exceeds the estimated fair value we would recognize an impairment for the difference ; otherwise , no further impairment test would be required . in contrast , we can opt to bypass the qualitative assessment for any reporting unit in any period and proceed directly to quantitative analysis . doing so does not preclude us from performing the qualitative assessment in any subsequent period . -38- as part of our goodwill testing process , we evaluate factors specific to a reporting unit as well as industry and macroeconomic factors that are reasonably likely to have a material impact on the fair value of a reporting unit . examples of the factors considered in assessing the fair value of a reporting unit include : the results of the most recent impairment test , the competitive environment , the regulatory environment , anticipated changes in product or labor costs , revenue growth trends , the consistency of operating margins and cash flows and current and long-range financial forecasts . the long-range financial forecasts of the reporting units , which are based upon management 's long-term view of our markets , are used by senior management and the board of directors to evaluate operating performance . we performed qualitative assessments in the fourth quarters of 2020 , 2019 and 2018 and determined that no indications of impairment existed . we assess the realizability of intangible assets other than goodwill whenever events or changes in circumstances indicate that the carrying value may not be recoverable . if an impairment review is triggered , we evaluate the carrying value of intangible assets based on estimated undiscounted future cash flows over the remaining useful life of the primary asset of the asset group and compare that value to the carrying value of the asset group . the cash flows that are used contain our best estimates , using appropriate and customary assumptions and projections at the time .
| results of operations our analysis presented below is organized to provide the information we believe will facilitate an understanding of our historical performance and relevant trends going forward . this discussion should be read in conjunction with our consolidated financial statements , including the notes thereto , in part ii . item 8 of this annual report on form 10-k. a discussion of significant changes from the periods ending december 31 , 2019 compared to december 31 , 2018 can be found in 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 year ended december 31 , 2019. the following table sets forth , for the periods indicated , certain data derived from our consolidated statements of ( loss ) income ( in thousands ) : replace_table_token_2_th ( 1 ) shares used in the diluted per share calculation for diluted loss per share attributable to heska corporation are ( in thousands ) 8,653 for the year ended december 31 , 2020 and 7,446 for the year ended december 31 , 2019. shares used in the diluted per share calculation for non-gaap net income per diluted share are ( in thousands ) : 9,451 for the year ended december 31 , 2020 compared to 7,977 for the year ended december 31 , 2019 . ( 2 ) see “ non-gaap financial measures ” for a reconciliation of adjusted ebitda to net income , non-gaap net income ( loss ) per diluted share to diluted ( loss ) earnings per share attributable to heska corporation , and adjusted ebitda margin to net loss margin , the closest comparable gaap measures , for each of the periods presented .
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overview our business we are a growth‑oriented , midland , texas‑based oilfield services company providing hydraulic fracturing and other complementary services to leading upstream oil and gas companies engaged in the exploration and production , or e & p , of north american unconventional oil and natural gas resources . our operations are primarily focused in the permian basin , where we have cultivated longstanding customer relationships with some of the region 's most active and well‑capitalized e & p companies . further , our fleet has been designed to handle the highest intensity and most complex fracturing jobs . during the ended december 31 , 2018 , we continued our organic growth by purchasing and deploying four newbuild hydraulic fracturing units , bringing our hydraulic horsepower , or hhp capacity to 905,000 hhp , or 20 fleets . the permian basin is widely regarded as the most prolific oil‑producing area in the united states , and following our acquisition of pressure pumping and related assets from pioneer and pioneer pumping services , we believe we are currently the largest provider of hydraulic fracturing services in the region by hhp , with total horse power of 1,415,000 hhp , or 28 fleets . acquisition of pioneer pressure pumping assets on december 31 , 2018 , we consummated the purchase of certain pressure pumping assets and real property from pioneer and pioneer pumping services . prior to the purchase , the pressure pumping assets exclusively provided integrated pressure pumping services to pioneer 's completion and production operations . the acquisition cost of the assets was comprised of $ 110.0 million of cash and 16.6 million shares of our common stock . in connection with the consummation of the transaction , we became a strategic long-term service provider to pioneer , providing pressure pumping and related services for a term of up to 10 years . the pressure pumping assets acquired include eight hydraulic fracturing fleets with a total of 510,000 hhp , four coiled tubing units and an associated equipment maintenance facility . through this acquisition we expanded our existing presence in the permian basin , and increased our pumping capacity by 56 % , to 28 hydraulic fracturing fleets with a total of 1,415,000 hhp , further strengthening our position as the largest pure-play provider of integrated well completion services in the permian basin . 31 2018 operational highlights over the course of the year ended december 31 , 2018 , we : purchased and put into service four newbuild hydraulic fracturing fleets ; consummated the acquisition of pressure pumping and related assets from pioneer and pioneer pumping services , adding eight hydraulic fracturing fleets , or 510,000 hhp , and ancillary equipment , expanding our total horse power to 1,415,000 hhp or 28 hydraulic fracturing fleets after giving effect to the acquisition ; in connection with the asset acquisition , entered into a long-term strategic relationship with pioneer , an industry leading e & p company , to provide pressure pumping and related services for a term of up to 10 years ; increased our abl credit facility from $ 200.0 million to $ 300.0 million , while extending the term of the facility ; and maintained a conservative balance sheet and sufficient liquidity . regional sand pumped increased significantly in 2018 from 14.7 % in january 2018 to 71.6 % in december 2018 , which slightly impacted sand revenue offset by increased margin percentage . 2018 financial highlights among other financial highlights , for the year ended december 31 , 2018 : revenue increased $ 722.7 million , or 73.6 % , to $ 1,704.6 million , as compared to $ 981.9 million for the year ended december 31 , 2017 , primarily as a result of the increase in our fleet size ; cost of services ( exclusive of depreciation and amortization ) increased $ 456.8 million or 56.1 % to $ 1,270.6 million , as compared to $ 813.8 million for the year ended december 31 , 2017 , primarily as a result of the increase in fleet size , resulting in higher activity levels . cost of services as a percentage of revenue decreased to 74.5 % in 2018 compared to 82.9 % for the year ended december 31 , 2017 ; general and administrative expenses , inclusive of stock-based compensation ( “ g & a ” ) , increased $ 4.7 million , or 9.6 % to $ 54.0 million , as compared to $ 49.2 million for the december 31 , 2017 . g & a as a percentage of revenue decreased to 3.2 % in 2018 from 5.0 % for the year ended december 31 , 2017 ; diluted net income per common share was $ 2.00 , compared to $ 0.16 for the year ended december 31 , 2017 . 2019 outlook in 2019 , we continue to focus on providing best-in-class service to our customers , helping our customer improve their well economics while continuing to enhance the company 's profitability . we expect to achieve these objectives through : continuing to enhance our dedicated customer model to drive production efficiencies ; maintaining full utilization of our hydraulic fracturing fleets ; pursuing operational efficiencies and cost reduction strategies ; pursuing expansion opportunities for our non-hydraulic fracturing operations ; maintaining our existing relationships with our vendors and developing strategic relationships with new suppliers to ensure continuity ; exploring potential opportunities for mergers or acquisitions , focused on our growth , market opportunities and creating value to our shareholders . 32 our assets and operations through our pressure pumping segment , which includes cementing operations , we primarily provide hydraulic fracturing services ( inclusive of acidizing services ) to e & p companies in the permian basin . our modern hydraulic fracturing fleet has been designed to handle permian basin specific operating conditions and the region 's increasingly high‑intensity well completions , which are characterized by longer horizontal wellbores , more frac stages per lateral and increasing amounts of proppant per well . story_separator_special_tag we define ebitda as our net income ( loss ) , before ( i ) interest expense , ( ii ) income taxes and ( iii ) depreciation and amortization . we define adjusted ebitda as ebitda , plus ( i ) loss/ ( gain ) on disposal of assets , ( ii ) ( gain ) on extinguishment of debt , ( iii ) stock based compensation , and ( iv ) other unusual or non‑recurring ( income ) /expenses , such as impairment and costs related to our initial public offering . adjusted ebitda margin reflects our adjusted ebitda as a percentage of our revenues . adjusted ebitda or adjusted ebitda margin are supplemental measures utilized by our management and other users of our financial statements such as investors , commercial banks , and research analysts , to assess our financial performance because it allows us and other users to compare our operating performance on a consistent basis across periods by removing the effects of our capital structure ( such as varying levels of interest expense ) , asset base ( such as depreciation and amortization ) , nonrecurring ( income ) /expenses and items outside the control of our management team ( such as income tax rates ) . adjusted ebitda and adjusted ebitda margin have limitations as analytical tools and should not be considered as an alternative to net income/ ( loss ) , operating income/ ( loss ) , cash flow from operating activities or any other measure of financial performance presented in accordance with generally accepted accounting principles in the united states of america ( “ gaap ” ) . 34 note regarding non‑gaap financial measures adjusted ebitda and adjusted ebitda margin are usually not financial measures presented in accordance with gaap ( “ non-gaap ” ) , except when specifically required to be disclosed by gaap in the financial statements . we believe that the presentation of adjusted ebitda or adjusted ebitda margin provide useful information to investors in assessing our financial condition and results of operations because it allows them to compare our operating performance on a consistent basis across periods by removing the effects of our capital structure , asset base , nonrecurring expenses ( income ) and items outside the control of the company . net income is the gaap measure most directly comparable to adjusted ebitda . adjusted ebitda or adjusted ebitda margin should not be considered as alternatives to the most directly comparable gaap financial measure . each of these non-gaap financial measures has important limitations as analytical tools because they exclude some , but not all , items that affect the most directly comparable gaap financial measures . you should not consider adjusted ebitda or adjusted ebitda margin in isolation or as a substitute for an analysis of our results as reported under gaap . because adjusted ebitda or adjusted ebitda margin may be defined differently by other companies in our industry , our definitions of these non-gaap financial measures may not be comparable to similarly titled measures of other companies , thereby diminishing their utility . reconciliation of net income ( loss ) to adjusted ebitda : replace_table_token_5_th 35 replace_table_token_6_th ( 1 ) other general and administrative expense relates to legal settlement expense . 36 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; color : # 000000 ; '' > $ 51.3 million for the year ended december 31 , 2018 , as compared to $ 3.1 million for the year ended december 31 , 2017 . the increase in our provision for income tax expense is primarily attributable to the increase in book income in 2018 compared to 2017 . additionally , the income tax expense during the year ended december 31 , 2017 , included a one-time deferred tax benefit offset of $ 3.4 million , resulting from the u.s. government enacted tax legislation commonly referred to as the tax cuts and jobs act ( “ tax act ” ) . 38 year ended december 31 , 2017 compared to year ended december 31 , 2016 replace_table_token_8_th ( 1 ) exclusive of depreciation and amortization . ( 2 ) inclusive of stock‑based compensation . ( 3 ) for definitions of the non‑gaap financial measures of adjusted ebitda and adjusted ebitda margin and reconciliation of adjusted ebitda and adjusted ebitda margin to our most directly comparable financial measures calculated in accordance with gaap , please read “ “ how we evaluate our operations ” . ( 4 ) the non‑gaap financial measure of adjusted ebitda margin for the pressure pumping segment is calculated by taking adjusted ebitda for the pressure pumping segment as a percentage of our revenues for the pressure pumping segment . revenue . revenue increased 124.7 % , or $ 544.9 million , to $ 981.9 million for the year ended december 31 , 2017 , as compared to $ 436.9 million for the year ended december 31 , 2016. the increase was primarily attributable to the increase in customer activity , fleet size and demand for our services , which led to an increase in pricing for our hydraulic fracturing and other services . our pressure pumping segment revenues increased 131.1 % , or $ 536.0 million for the year ended december 31 , 2017 , as compared to the year ended december 31 , 2016. revenues from services other than pressure pumping increased 32.0 % , or $ 8.9 million , for the year ended december 31 , 2017 , as compared to the year ended december 31 , 2016. the increase in revenues from services other than pressure pumping during the year ended december 31 , 2017 was primarily attributable to the increase in revenues and customer demand for our flowback , coil tubing and surface drilling services , offset by the decrease in revenue from idling of our drilling rigs . 39 cost of services .
| results of operations we conduct our business through five operating segments : hydraulic fracturing , cementing , coil tubing , flowback and drilling . for reporting purposes , the hydraulic fracturing ( which now includes our acidizing operations ) and cementing operating segments are aggregated into our one reportable segment , pressure pumping . on august 31 , 2018 , we divested our surface air drilling segment in order to continue to position ourselves as a permian basin-focused pressure pumping business because we believe the pressure pumping market in the permian basin offers more supportive long-term growth fundamentals . in addition , with increased focus on our pressure pumping operations , we expect revenues and costs of services related to our drilling operating segment to comprise a lower percentage of total revenues and total costs of service in future results of operations when compared to historic results . accordingly , we anticipate the financial significance of our drilling segment relative to the financial results from pressure pumping and other service offerings to continue to decline . year ended december 31 , 2018 compared to year ended december 31 , 2017 replace_table_token_7_th ( 1 ) exclusive of depreciation and amortization . ( 2 ) inclusive of stock‑based compensation . ( 3 ) for definitions of the non‑gaap financial measures of adjusted ebitda and adjusted ebitda margin and reconciliation of adjusted ebitda and adjusted ebitda margin to our most directly comparable financial measures calculated in accordance with gaap , please read “ how we evaluate our operations ” . ( 4 ) the non‑gaap financial measure of adjusted ebitda margin for the pressure pumping segment is calculated by taking adjusted ebitda for the pressure pumping segment as a percentage of our revenues for the pressure pumping segment . 37 revenue .
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the accounting standards update was effective prospectively for annual periods beginning on or after december 15 , story_separator_special_tag management 's discussion and analysis of financial condition and results of operations should be read in conjunction with the information included under item 1. business , item 1a . risk factors , item 6. selected financial data and item 8. financial statements and supplementary data . management 's discussion and analysis of financial condition and results of operations includes various forward-looking statements concerning trends or events potentially affecting our business . you can identify our forward-looking statements by words such as “ anticipate , ” “ believe , ” “ estimate , ” “ objective , ” “ expect , ” “ forecast , ” “ goal , ” “ intend , ” “ plan , ” “ predict , ” “ project , ” “ potential , ” “ seek , ” “ target , ” “ could , ” “ may , ” “ should , ” “ would , ” “ will ” or other similar expressions that convey the uncertainty of future events or outcomes . in accordance with “ safe harbor ” provisions of the private securities litigation reform act of 1995 , these statements are accompanied by cautionary language identifying important factors , though not necessarily all such factors , which could cause future outcomes to differ materially from those set forth in forward-looking statements . corporate overview we are an independent petroleum refining and marketing , retail and midstream company . we currently own and operate seven refineries , all located in the united states , with an aggregate crude oil refining capacity of approximately 1.8 mmbpcd . our refineries supply refined products to resellers and consumers within our market areas , including the midwest , northeast , east coast , southeast and gulf coast regions of the united states . we distribute refined products to our customers through one of the largest private domestic fleets of inland petroleum product barges , one of the largest terminal operations in the united states , and a combination of mpc-owned and third-party-owned trucking and rail assets . we are one of the largest wholesale suppliers of gasoline and distillates to resellers within our market area . we have two strong retail brands : speedway ® and marathon ® . we believe that speedway llc , a wholly-owned subsidiary , operates the second largest chain of company-owned and operated retail gasoline and convenience stores in the united states , with approximately 2,770 convenience stores in 22 states throughout the midwest , east coast and southeast . the marathon brand is an established motor fuel brand in the midwest and southeast regions of the united states , and is available through approximately 5,600 retail outlets operated by independent entrepreneurs in 19 states . through our ownership interests in mplx and its wholly-owned subsidiary , markwest , we believe we are one of the largest processors of natural gas in the united states and the largest processor and fractionator in the marcellus and utica shale regions . our integrated midstream energy asset network links producers of natural gas and ngls from some of the largest supply basins in the united states to domestic and international markets . our midstream gathering and processing operations include : natural gas gathering , processing and transportation ; and ngl gathering , transportation , fractionation , storage and marketing . our assets include approximately 5,400 mmcf/d of gathering capacity , 7,100 mmcf/d of natural gas processing capacity and 500 mbpd of fractionation capacity as of december 31 , 2015 . we also own 5,000 miles of gas gathering and ngl pipelines and have ownership interests in over 50 gas processing plants , over 10 ngl fractionation facilities and one condensate stabilization facility . as of december 31 , 2015 , we owned , leased or had ownership interests in approximately 8,400 miles of crude oil and refined product pipelines to deliver crude oil to our refineries and other locations and refined products to wholesale and retail market areas . overall , we are one of the largest independent petroleum product refining , marketing , retail and transportation businesses in the united states and the largest east of the mississippi . our operations consist of three reportable operating segments : refining & marketing ; speedway ; and midstream . each of these segments is organized and managed based upon the nature of the products and services they offer . see item 1. business for additional information on our segments . refining & marketing – refines crude oil and other feedstocks at our seven refineries in the gulf coast and midwest regions of the united states , purchases refined products and ethanol for resale and distributes refined products through various means , including barges , terminals and trucks that we own or operate . we sell refined products to wholesale marketing customers domestically and internationally , buyers on the spot market , our speedway business segment and to independent entrepreneurs who operate marathon ® retail outlets . speedway – sells transportation fuels and convenience products in the retail market in the midwest , east coast and southeast . midstream – includes the operations of mplx and certain other related operations . following the markwest merger , we changed the name of this segment from pipeline transportation to midstream to reflect its expanded business activities . there were no changes to the historical financial information reported for this segment . the midstream segment gathers , processes and transports natural gas ; gathers , transports , fractionates , stores and markets natural gas liquids and transports and stores crude oil and refined products . 50 executive summary results select results for 2015 and 2014 are reflected in the following table . replace_table_token_25_th net income attributable to mpc increased $ 328 million , or $ 0.87 per diluted share , in 2015 compared to 2014 , primarily due to our refining & marketing segment . story_separator_special_tag distributions from mplx upon payment of the second-quarter distribution , the financial tests required for conversion of all of the mplx subordinated units , which were owned by a subsidiary of mpc , were met . accordingly , the subordinated units converted into common units on a one-for-one basis effective august 17 , 2015 , the first business day following the payment of the second quarter distribution . the following table summarizes the cash distributions we received from mplx during 2015 and 2014 . replace_table_token_26_th the market value of the 56.9 million mplx common units we owned at february 12 , 2016 was $ 1.04 billion based on the february 12 , 2016 closing unit price of $ 18.30 . over time , we also believe there will be substantial value attributable to our two percent general partnership interest . on january 25 , 2016 , mplx declared a quarterly cash distribution of $ 0.50 per common unit , which was payable february 12 , 2016. mpc 's portion of this distribution was approximately $ 70 million . see item 8. financial statements and supplementary data – note 4 for additional information on mplx . 52 acquisitions and investments on december 4 , 2015 , mplx merged with markwest , whereby markwest became a wholly-owned subsidiary of mplx . each common unit of markwest issued and outstanding immediately prior to the effective time of the markwest merger was converted into a right to receive 1.09 common units of mplx representing limited partner interests in mplx , plus a one-time cash payment of $ 6.20 per unit . each class b unit of markwest outstanding immediately prior to the merger was converted into the right to receive one class b unit of mplx having substantially similar rights , including conversion and registration rights , and obligations that the class b units of markwest had immediately prior to the merger . at closing , we contributed $ 1.23 billion in cash to mplx to pay the cash consideration to markwest common unitholders . we will contribute an additional total of $ 50 million in cash to mplx for the cash consideration to be paid upon the conversion of the mplx class b units to mplx common units in equal installments in july 2016 and july 2017 , respectively . these contributions are with respect to mpc 's existing interests in mplx ( including idrs ) and not in consideration of new units or other equity interest in mplx . we assigned the total consideration transferred of $ 8.6 billion , including the $ 7.3 billion fair value of the equity consideration and the $ 1.3 billion of cash contributions , to the fair value of the assets acquired and liabilities and noncontrolling interest assumed in the markwest merger , with the excess recorded as goodwill . as a result , we recognized total assets acquired of $ 11.6 billion , including $ 8.4 billion of property , plant and equipment and $ 2.5 billion of equity investments , and total liabilities and noncontrolling interests assumed of $ 5.5 billion , including $ 4.6 billion of assumed debt . the excess of the total consideration transferred over the fair value of the net assets acquired of $ 2.5 billion was recorded as goodwill in our midstream segment . goodwill is not amortized , but rather is tested for impairment annually or more frequently if warranted due to events or changes in circumstances . see the critical accounting estimates - impairment assessments of long-lived assets , intangible assets , goodwill and equity investments section for a discussion of recent circumstances which may impact the assessment of this goodwill . our financial results and operating statistics reflect the results of markwest from the date of the acquisition . consistent with our strategy to grow our midstream business , the markwest merger combines one of the nation 's largest processors of natural gas and the largest processor and fractionator in the marcellus and utica shale regions with a rapidly growing crude oil and refined products logistics partnership sponsored by mpc . the complementary aspects of the highly diverse asset base of markwest , mplx and mpc provide significant additional opportunities across multiple segments of the hydrocarbon value chain . the combined entity will further markwest 's leading midstream presence in the marcellus and utica shales by allowing it to pursue additional midstream projects , which should allow producer customers to achieve superior value for their growing production in these important shale regions . in addition , the combination provides significant vertical integration opportunities , as mpc is a large consumer of ngls . in september 2015 , we acquired a 50 percent ownership interest in a new joint venture with crowley maritime corporation through our investment in crowley ocean partners , which is included in our refining & marketing segment . the joint venture will operate and charter four new jones act product tankers , most of which will be leased to mpc . contributions to the joint venture with respect to each vessel will occur at the vessel 's delivery . during 2015 , we contributed $ 72 million in connection with delivery of the first two vessels . the remaining two vessels are expected to be delivered by the third quarter of 2016. we account for our ownership interest in crowley ocean partners as an equity method investment . see item 8. financial statements and supplementary data - note 25 for information on our conditional guarantee of the indebtedness of the joint venture and future contributions to crowley ocean partners . on september 30 , 2014 , we acquired from hess all of its retail locations , transport operations and shipper history on various pipelines , including approximately 40 mbpd on colonial pipeline , for $ 2.82 billion . we refer to these assets as “ hess ' retail operations and related assets ” and substantially all of these assets are part of our speedway segment .
| results of operations consolidated results of operations replace_table_token_29_th net income attributable to mpc increased $ 328 million in 2015 compared to 2014 and increased $ 412 million in 2014 compared to 2013 , primarily due to our refining & marketing segment income from operations , which increased $ 577 million in 2015 compared to 2014 and $ 403 million in 2014 compared to 2013. the increase in refining & marketing segment income from operations in 2015 was primarily due to higher crack spreads , favorable effects of changes in market structure on crude oil acquisition prices , more favorable net product price realizations compared to spot market reference prices and lower direct 57 operating costs . these positive impacts were partially offset by unfavorable crude oil and feedstock acquisition costs relative to benchmark lls crude oil , the unfavorable effect of lower commodity prices on volumetric gains and an lcm inventory valuation charge of $ 345 million . the increase in 2014 was primarily due to more favorable net product price realizations and higher usgc and chicago crack spreads , partially offset by narrower crude oil differentials and higher turnaround and other direct operating costs . sales and other operating revenues ( including consumer excise taxes ) decreased $ 25.77 billion in 2015 compared to 2014 and $ 2.34 billion in 2014 compared to 2013 . the decrease in 2015 was primarily due to lower refined product sales prices partially offset by increases in refined product sales volumes.the decrease in 2014 was primarily due to lower refined product sales prices , partially offset by an increase in refined product sales volumes and higher merchandise sales for our speedway segment primarily attributable to the convenience stores acquired along the east coast and southeast .
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in march 2020 , various regulatory agencies , including the frb and the fdic issued an interagency statement on loan modifications and reporting for financial institutions working with customers affected by covid-19 . the interagency statement was effective immediately and impacted accounting for loan modifications . the agencies confirmed with the staff of the fasb that short-term modifications made on a good faith basis in response to covid-19 to borrowers who were current prior to any relief , are not to be considered tdrs . provisions of the cares act largely mirrored the provisions of the interagency statement , providing that modified loans were not to be considered story_separator_special_tag . the purpose of this analysis is to provide the reader with information relevant to understanding and assessing the company 's financial condition and results of operations for the periods indicated . to fully appreciate this analysis , the reader is encouraged to review the consolidated financial statements and accompanying notes thereto appearing under item 8 of this report , and statistical data presented in this document . cautionary statement concerning forward-looking statements see the first page of this annual report on form 10-k for information regarding forward-looking statements . critical accounting policies and estimates management 's discussion and analysis of financial condition and results of operations is based on our consolidated financial statements , which have been prepared in accordance with u. s. generally accepted accounting principles ( “ gaap ” ) . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses . note 2 to our audited consolidated financial statements contains a summary of our significant accounting policies . management believes our policy with respect to the methodology for the determination of the allowance for loan losses involves more complexity and requires management to make difficult and subjective judgments which often require assumptions or estimates about highly uncertain matters . changes in these judgments , assumptions or estimates could materially impact results of operations . this critical policy and its application are periodically reviewed with the audit committee and our board of directors . impact of covid-19 the company continues to take the following significant steps to protect the health and well-being of its employees and clients and to assist clients who have been impacted by covid-19 . continuing limited lobby hours ; prioritizing drive-thru and appointment banking . high-risk designated hours offered to assist our high-risk clients . continuing to assist customers in the paycheck protection program . continuing to provide payment deferrals and forbearances to business customers and mortgage customers that are experiencing hardship because of the crisis . paycheck protection program in response to covid-19 , the coronavirus aid , relief , and economic security ( “ cares ” ) act was passed by congress and signed into law on march 27 , 2020. the cares act provides an estimated $ 2.2 trillion to fight the covid-19 pandemic and stimulate the economy by supporting individuals and businesses through loans , grants , tax changes , and other types of relief . section 4013 of the cares act , provides that , from the period beginning march 1 , 2020 until the earlier of december 31 , 2020 or the date that is 60 days after the date on which the national emergency concerning the covid-19 pandemic declared by the president of the united states under the national emergencies act terminates ( the “ applicable period ” ) . the cares act established the paycheck protection program ( “ ppp ” ) , an expansion of the small business administration 's 7 ( a ) loan program and the economic injury disaster loan program ( “ eidl ” ) , administrated directly by the small business administration ( “ sba ” ) . the company started accepting and processing applications for loans under the ppp in early april 2020 , when the program was officially launched by the sba and treasury department under the cares act . as of september 30 , 2020 , the company obtained approval from the sba for 255 ppp loans totaling $ 20.8 million for both existing and new customers , with an average loan size of approximately $ 81,000. commercial and industrial loans represented 100 percent of ppp loans at september 30 , 2020. these loans are expected to generate fee income of approximately $ 574,000 to be recognized over the life of the loans or when the loan is forgiven . liquidity sources management has reviewed all primary and secondary sources of liquidity in preparation for any unforeseen funding needs due to the covid-19 pandemic and prioritized based on available capacity , term flexibility , and cost . -29- as of september 30 , 2020 , the company had adequate sources of liquidity ( excluding the company 's ability to participate in the paycheck protection program liquidity facility ) . capital strength the company 's capital ratios continue to exceed the highest required regulatory benchmark levels . as of september 30 , 2020 , common equity tier 1 capital ratio was 14.25 percent , tier 1 leverage ratio was 11.87 percent , tier 1 risk-based capital ratio was 14.25 percent and the total risk-based capital ratio was 17.85 percent . deferral requests as of september 30 , 2020 , the company had 43 covid-19 loan modification agreements with respect to $ 147.9 million representing 14.2 percent of loans outstanding . the covid-19 loan modifications do not classify as tdrs as they fall under the cares act section 4013 , and f urther details regarding these modifications are provided in the table below . at january 15 , 2020 , the company had 15 covid-19-related modified loan deferrals totaling $ 71.3 million or 7.1 % of total loans . of the remaining $ 71.3 million deferrals , approximately $ 37.3 million or 52.3 % of the deferrals are paying the contractual interest payments . story_separator_special_tag under fasb asc topic 820 , the company bases its fair values on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date . it is our policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements , in accordance with the fair value hierarchy in fasb asc topic 820. fair value measurements for assets where there exists limited or no observable market data and , therefore , are based primarily upon the company 's or other third-party 's estimates , are often calculated based on the characteristics of the asset , the economic and competitive environment and other such factors . therefore , the results can not be determined with precision and may not be realized in an actual sale or immediate settlement of the asset . additionally , there may be inherent weaknesses in any calculation technique , and changes in the underlying assumptions used , including discount rates and estimates of future cash flows , that could significantly affect the results of current or future valuations . at september 30 , 2020 , the company had $ 16.3 million of assets that were measured at fair value on a non-recurring basis using level 3 measurements . income taxes we make estimates and judgments to calculate some of our tax liabilities and determine the recoverability of some of our dtas , which arise from temporary differences between the tax and financial statement recognition of revenues and expenses . we also estimate a reserve for dtas if , based on the available evidence , it is more likely than not that some portion of the recorded dtas will not be realized in future periods . these estimates and judgments are inherently subjective . historically , our estimates and judgments to calculate our deferred tax accounts have not required significant revision to our initial estimates . in evaluating our ability to recover dtas , we consider all available positive and negative evidence , including our past operating results and our forecast of future taxable income . in determining future taxable income , we make assumptions for taxable income , the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies . these assumptions require us to make judgments about our future taxable income and are consistent with the plans and estimates we use to manage our business . any reduction in estimated future taxable income may require us to record a valuation allowance against our dtas . an increase in the valuation allowance would result in additional income tax expense in the period and could have a significant impact on our future earnings . realization of a dta requires us to exercise significant judgment and is inherently uncertain because it requires the prediction of future occurrences . our net dta amounted to $ 3.5 million and $ 2.8 million at september 30 , 2020 and at september 30 , 2019 , respectively . in accordance with asc topic 740 , the company evaluates on a quarterly -32- basis , all evidence , both positive and negative , to determine whether , based on the weight of that evidence , a valuation allowance for dtas is needed . in conducting this evaluation , management explores all possible sources of taxable income available under existing tax laws to realize the net dta beginning with the most objectively verifiable evidence first , including available carry back claims and viable tax planning strategies . if needed , management will look to future taxable income as a potential source . management reviews the company 's current financial position and its results of operations for the current and preceding years . that historical information is supplemented by all currently available information about future years . the company understands that projections about future performance are subjective . the company did not have a dta valuation allowance as of september 30 , 2020 and september 30 , 2019. other-than-temporary impairment of securities securities are evaluated on a quarterly basis , and more frequently when market conditions warrant such an evaluation , to determine whether declines in their value are other-than-temporary . to determine whether a loss in value is other-than-temporary , management utilizes criteria such as the reasons underlying the decline , the magnitude and duration of the decline and whether management intends to sell or expects that it is more likely than not that it will be required to sell the security prior to an anticipated recovery of the fair value . the term “ other-than-temporary ” is not intended to indicate that the decline is permanent but indicates that the prospects for a near-term recovery of value is not necessarily favorable , or that there is a lack of evidence to support a realizable value equal to or greater than the carrying value of the investment . once a decline in value for a debt security is determined to be other-than-temporary , the other-than-temporary impairment is separated into ( a ) the amount of the total other-than-temporary impairment related to a decrease in cash flows expected to be collected from the debt security ( the credit loss ) and ( b ) the amount of the total other-than-temporary impairment related to all other factors . the amount of the total other-than-temporary impairment related to the credit loss is recognized in earnings . the amount of the total other-than-temporary impairment related to all other factors is recognized in other comprehensive income . derivatives the company enters into derivative financial instruments to manage exposures that arise from business activities that result in the payment of future uncertain cash amounts , the value of which are determined by interest rates . the company is exposed to certain risks arising from both its business operations and economic conditions . the company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities .
| review processes that include analysis of credit requests and ongoing examination of outstanding loans and delinquencies , with particular attention to portfolio dynamics and mix . the company strives to identify loans experiencing difficulty early enough to correct the problems , to record charge-offs promptly based on realistic assessments of current collateral values , and to maintain an adequate allowance for loan losses at all times . it is generally the company 's policy to discontinue interest accruals once a loan is past due as to interest or principal payments for a period of ninety days . when a loan is placed on non-accrual status , interest accruals cease and uncollected accrued interest is reversed and charged against current income . payments received on non-accrual loans are applied against principal . a loan may only be restored to an accruing basis when it again becomes well secured and in the process of collection or all past due amounts have been collected and a satisfactory period of ongoing repayment exists . accruing loans past due 90 days or more are generally well secured and in the process of collection . for additional information regarding loans , see note 8 of the notes to the consolidated financial statements . -48- non-performing and past due loans and oreo non-performing loans include non-accrual loans and accruing loans which are contractually past due 90 days or more . non-accrual loans represent loans on which interest accruals have been suspended . it is the company 's general policy to consider the charge-off of loans at the point they become past due in excess of 90 days , with the exception of loans that are both well-secured and in the process of collection .
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startek has proven results for the multiple services we provide , including sales , order management and provisioning , customer care , technical support , receivables management , and retention programs . we manage programs using a variety of multi-channel customer interactions , including voice , chat , email , social media and back-office support . startek has delivery centers in canada , honduras , jamaica , united states , and the philippines . we operate our business within three reportable segments , based on the geographic regions in which our services are rendered : domestic , nearshore and offshore . for the year-ended december 31 , 2015 , our domestic segment included the operations of thirteen facilities in the u.s. and one facility in canada . our nearshore segment included the operations of two facilities in honduras and one facility in jamaica . our offshore segment included the operations of four facilities in the philippines . we primarily evaluate segment operating performance in each reporting segment based on revenue and gross profit . certain operating expenses are not allocated to each reporting segment ; therefore , we do not present income statement information by reporting segment below the gross profit level . significant developments new facilities we commenced operations in hamilton , ohio in july 2015 and entered into a 5 year lease and a $ 2.6 million note payable for the construction of the leasehold improvements . site closures in december 2015 , we ceased operations in kansas city , missouri . accordingly , we recorded a restructuring reserve of $ 0.2 million for employee related and facility related costs . we expect these costs to be paid in the first half of 2016. in september 2015 , and as part of the integration activities related to accent , we closed the former accent headquarters office location in jeffersonville , indiana and shifted the activities performed there into our greenwood village , colorado headquarters office or our shared services office in the philippines . accordingly , we recorded a restructuring reserve of $ 0.2 million for employee related and facility related costs . we expect these costs to be paid in the first half of 2016. in may 2015 , we closed the enid , oklahoma facility again , and listed it for sale . as of december 31 , 2015 , the asset remains in property , plan and equipment due to its nominal book value . we have assessed the property 's fair value and believe no impairment exists at december 31 , 2015. we ceased operations in costa rica in august 2014. we recorded a restructuring reserve of $ 1.3 million for employee related costs and facility related costs . the restructuring plan was completed in 2015. other events it platform initiative during the second quarter of 2014 , we began the last phase of our it transformation project by outsourcing our data centers . we recognized $ 1.7 million in restructuring charges during 2014 . we completed our it transformation project during the third quarter of 2015. we recognized an additional $ 1.5 million in restructuring charges in 2015 , bringing the total cost of the initiative to $ 3.2 million . 19 accent acquisition on june 1 , 2015 , we acquired 100 % of the membership interests of accent pursuant to a membership interest purchase agreement with mdc corporate ( us ) inc. and mdc acquisition inc. accent is a business process outsourcing company providing contact center services and customer engagement solutions with locations in the u.s. and jamaica . accent 's data-driven approach helps brands maximize their engagement with consumers and enables brands to influence behavior , all while generating a better return on investment across all customer touch points , including phone , online and social media channels . accent 's customer engagement agency model and platform complements our ideal dialogue practice , significantly enhancing our solution set and commitment to results-driven analytics and customer insights for our clients . accordingly , we paid a premium for accent , resulting in the recognition of goodwill . 20 results of operations — years ended december 31 , 2015 and 2014 the following table summarizes our revenues and gross profit for the periods indicated , by reporting segment : replace_table_token_5_th revenue revenue increased by $ 32.0 million , or 12.8 % , from $ 250.1 million in 2014 to $ 282.1 million in 2015. this includes accent revenue of $ 40.4 million . the domestic segment increase of $ 39.4 million was due to $ 34.3 million from the acquisition of accent and $ 42.3 million of new business and growth from existing clients , partially offset by $ 31.1 million of volume reductions , $ 5.0 million of lost programs , and $ 1.1 million due to site closures . offshore revenues declined by $ 12.9 million due to $ 16.1 million of volume reductions and $ 6.3 million of lost programs , partially offset by $ 9.5 million of growth from existing and new clients . the increase in the nearshore segment of $ 5.6 million was due to $ 6.3 million of growth from existing and new clients in our honduras facilities and $ 6.5 million of revenue from our jamaica facility , partially offset by $ 3.8 million of volume reductions and $ 3.4 million of lost revenue due to the closure of the costa rica site in 2014. cost of services and gross profit the gross profit as a percentage of revenue decrease of 3.6 % was primarily due to the dilutive effects of both the accent acquisition and new capacity added in late 2014 , coupled with lower than expected call volumes . domestic gross profit as a percentage of revenue decreased to 6.8 % in 2015 from 9.9 % in 2014 primarily due to the dilutive effects of the accent acquisition and the aforementioned lower call volumes . the offshore decline of 8.5 % was primarily due to under-utilized capacity added during late 2014 as well as a decrease in call volumes . story_separator_special_tag interest and other income ( expense ) , net interest and other income ( expense ) , net for 2014 was six thousand dollars of expense , which includes a gain on disposal of assets related to the sale of our laramie , wyoming property of $ 0.2 million and a gain of $ 0.4 million related to the currency translation adjustment balance that was previously recorded within stockholders ' equity for a dormant subsidiary we dissolved . these gains of $ 0.6 million were partially offset by interest expense of $ 0.6 million , which includes $ 0.2 million related to a sale-leaseback transaction and $ 0.2 million related to interest on our credit facility and amortization of loan fees . interest and other income ( expense ) , net for 2013 was $ 1.6 million of expense , which includes losses on disposal of assets related to our it transformation project of $ 1.0 million , a loss on a sale leaseback transaction of $ 0.5 million and a loss on disposal of assets previously held for sale of $ 0.1 million . income tax expense income tax expense for 2014 was $ 0.5 million compared to $ 0.2 million in 2013. the current period income tax expense is primarily related to the income tax provision for canadian operations . our u.s. operations have a valuation allowance recorded on u.s. deferred tax assets and we have tax holidays in costa rica , honduras and for certain facilities in the philippines . net loss as a result of the factors described above , net loss was $ 5.5 million for the year ended december 31 , 2014 , compared to $ 6.4 million for the year ended december 31 , 2013. liquidity and capital resources our primary sources of liquidity are cash flows generated by operating activities and from available borrowings under our secured revolving credit facility . we have historically utilized these resources to finance our operations and make capital expenditures associated with capacity expansion , upgrades of information technologies and service offerings , and business acquisitions . due to the timing of our collections of receivables due from our major customers , we have historically needed to draw on the line of credit for ongoing working capital needs . we believe our cash and cash equivalents , cash from operations and available credit will be sufficient to operate our business for the next 12 months . as of december 31 , 2015 , working capital totaled $ 0.3 million and our current ratio was 1.01 :1 , compared to working capital of $ 22.8 million and a current ratio of 1.72 :1 at december 31 , 2014 . the decrease in working capital in 2015 was primarily 24 driven by the acquisition of accent and the related integration expenses , and net operating cash outflows due to the decrease in client volumes mentioned previously . we operate our treasury department from our headquarters office in greenwood village , colorado . our policy is to centralize and protect our global cash balances by holding balances in the us and primarily in u.s. dollar ( `` usd '' ) . we fund our operating subsidiaries as payments are due and attempt to minimize subsidiary cash balances to the extent possible . we are exposed to foreign currency exchange fluctuations in the foreign countries in which we operate . we enter into foreign currency exchange contracts to mitigate these risks where possible . please refer to item 7a . `` quantitative and qualitative disclosures about market risk , '' for more information the following discussion highlights our cash flow activities during the years ended december 31 , 2015 , 2014 and 2013. cash and cash equivalents cash and cash equivalents held by the company 's foreign subsidiaries was $ 2.3 million and $ 1.3 million at december 31 , 2015 , 2014 , respectively . under current tax laws and regulations , if cash and cash equivalents held outside the united states are distributed to the united states in the form of dividends or otherwise , we may be subject to additional u.s. income taxes and foreign withholding taxes . cash and cash equivalents was $ 2.6 million at december 31 , 2015 , compared to a balance of $ 5.3 million at december 31 , 2014 . cash flows from operating activities for the years 2015 , 2014 and 2013 we reported net cash flows from operating activities of $ ( 4.6 ) million , $ 4.4 million and $ 6.2 million , respectively . the decrease from 2014 to 2015 was driven primarily by the $ 6.2 million decrease in gross profit and an increase in restructuring and integration expenses due to the accent integration . cash flows from operating activities can vary significantly from year to year depending upon the timing of operating cash receipts and payments , especially accounts receivable and accounts payable . cash flows used in investing activities for the years 2015 , 2014 and 2013 we reported net cash outflows from investing activities of $ 25.0 million , $ 13.3 million and $ 5.6 million , respectively . in 2015 , we paid $ 18.3 million for acquisitions and $ 7.7 million for capital expenditures and we sold assets for proceeds of $ 1.0 million . net cash used in investing activities of $ 13.3 million in 2014 primarily consisted of $ 11.7 million of capital expenditures and cash paid for acquisitions of $ 3.4 million , partially offset by the proceeds from the sale of assets of $ 1.1 million and $ 0.6 million collected on a note receivable . in 2013 , net cash used in investing activities of $ 5.6 million consisted primarily of $ 8.8 million of capital expenditures and $ 2.1 million paid for acquisitions , partially offset by proceeds of asset sales of $ 4.7 million and $ 0.6 million collected on a note receivable .
| variability of operating results we have experienced and expect to continue to experience some quarterly variations in revenue and operating results due to a variety of factors , many of which are outside our control , including : ( i ) timing and amount of costs incurred to expand capacity in order to provide for volume growth from existing and future clients ; ( ii ) changes in the volume of services provided to principal clients ; ( iii ) expiration or termination of client projects or contracts ; ( iv ) timing of existing and future client product launches or service offerings ; ( v ) seasonal nature of certain clients ' businesses ; and ( vi ) variability in demand for our services by our clients depending on demand for their products or services and or depending on our performance . critical accounting policies and estimates the preparation of consolidated financial statements requires us to make estimates and assumptions . these estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period . we base 27 our accounting estimates on historical experience and other factors that we believe to be reasonable under the circumstances . actual results could differ from those estimates . we have discussed the development and selection of critical accounting policies and estimates with our audit committee . we believe that the following critical accounting policies involve our more significant judgments and estimates used in the preparation of our consolidated financial statements . revenue recognition we invoice our business process outsourcing services clients monthly in arrears and recognize revenue for such services when completed .
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our consolidated financial statements reflect an estimated liability for resolution of pending ( claims actually filed as of the financial statement date ) story_separator_special_tag ( dollars in millions , except per share amounts ) the following management 's discussion and analysis of financial condition and results of operations is intended to help the reader understand the results of operations and financial condition of honeywell international inc. and its consolidated subsidiaries ( honeywell or the company ) for the three years ended december 31 , 2016. all references to notes relate to notes to financial statements in item 8. financial statements and supplementary data . in july 2016 , the company announced the realignment of the business units comprising its automation and control solutions reporting segment by forming two new reportable operating segments : home and building technologies and safety and productivity solutions . home and building technologies includes environmental & energy solutions , security and fire , and building solutions and distribution . additionally , the industrial combustion/thermal business , previously part of environmental & energy solutions in automation and control solutions , became part of performance materials and technologies . safety and productivity solutions includes sensing & productivity solutions and industrial safety , as well as the intelligrated business . under the realigned segment reporting structure , the company has four reportable operating segments : aerospace , home and building technologies , performance materials and technologies , and safety and productivity solutions . the company has reported its financial performance based on this realignment for all periods presented . these realignments have no impact on the company 's historical consolidated financial position , results of operations or cash flows . prior period amounts have been reclassified to conform to current period segment presentation . on september 16 , 2016 , the company completed the sale of the aerospace government services business , honeywell technology solutions inc. the assets and liabilities associated with honeywell technology solutions inc. have been removed from the company 's consolidated balance sheet as of the effective date of the sale . the results of operations for honeywell technology solutions are included in the consolidated statement of operations through the effective date of the sale . on october 1 , 2016 , the company completed the tax-free spin-off of its resins and chemicals business , part of performance materials and technologies , into a standalone , publicly-traded company ( named advansix ) to honeywell shareowners . the assets and liabilities associated with advansix have been removed from the company 's consolidated balance sheet as of the effective date of the spin-off . the results of operations for advansix are included in the consolidated statement of operations through the effective date of the spin-off . executive summary in 2016 , honeywell successfully navigated a challenging macro-economic environment . we grew net sales 2 % to $ 39,302 million , grew earnings per share of common stock – assuming dilution 3 % to $ 6.20 and grew net income attributable to honeywell 1 % to $ 4,809 million . we executed on cost reduction activities , accelerated our capital deployment strategy and improved the growth portfolio through acquisitions and divestitures , including the divestiture of honeywell technology solutions inc. and the tax-free spin-off of advansix . we also announced the realignment of the business units comprising our automation and control solutions segment to two new reportable operating segments , as previously mentioned . the company also announced a leadership succession plan for our chief executive officer and successfully executed leadership transitions in three of our four reportable operating segments . we continued our balanced long-term focus on enhancing shareowner value without sacrificing growth investment , including maintaining r & d spending at 5 % of sales , new product introductions aligned with global macroeconomic trends in energy , safety , security , productivity and global urbanization , over $ 300 million of new repositioning investments to improve our operations and increased investment in high growth regions . we also continued to enhance our software capabilities through the creation of a software center in the united states to staff more than 730 full-time product software engineers , who are in addition to the more than 11,000 software engineers already part of honeywell . 16 in 2016 we deployed capital of over $ 7.5 billion , including the following : · mergers and acquisitions— we deployed over $ 2.5 billion during 2016 , acquiring businesses that will be integrated into each of our four operating segments . these acquisitions all share a software and technology focus and increase our existing deep alignment with enduring macro trends such as energy efficiency , clean energy generation , safety , security , productivity and global urbanization . · dividend —after a 15 % dividend rate increase in 2015 , we increased our annual dividend rate by 12 % in 2016 , as we seek to continue to grow the dividend faster than earnings , marking the 12 th dividend increase in the past 11 years . · share repurchases —we continue to opportunistically repurchase our shares with the goal of generally keeping share count flat and seeking to offset the dilutive impact of employee stock based compensation and savings plans . in 2016 , we repurchased 19.3 million shares for $ 2.1 billion . · capital investment in facilities —we invested over $ 1 billion in capital expenditures focused on high return investments such as the expansion of facilities to manufacture our solstice® low global-warming potential refrigerant products and building new production facilities to make uop catalyst and absorbent products . honeywell also completed refinancing of long-term debt through the issuance of 4,000 million senior notes in february and an additional $ 4,500 million senior notes in october . the proceeds from the offerings of senior notes were used to repurchase $ 2,200 million of senior notes outstanding , as well as repay outstanding commercial paper . story_separator_special_tag business overview our consolidated results are principally impacted by : · change in global economic growth rates and industry conditions and demand in our key end markets ; · ability of recently acquired businesses to integrate and continue to operate and grow in accordance with the assumptions utilized in determining the acquisition purchase price ; · the impact of fluctuations in foreign currency exchange rates ( in particular the euro ) , relative to the u.s. dollar ; · the extent to which cost savings from productivity actions are able to offset or exceed the impact of material and non-material inflation ; and · the impact of the pension discount rate and asset returns on pension expense , including mark-to-market adjustments , and funding requirements . our 2017 areas of focus which are generally applicable to each of our operating segments include : · ensuring the successful completion of the leadership transition , which includes the chief executive officer and leaders for three of our operating segments , and continuing to execute on the realignment of our home and building technologies and safety and productivity solutions operating segments ; 19 · driving profitable organic growth through r & d and technological excellence to deliver innovative products that customers value and expansion and localization of our footprint in high growth regions ; · executing on our strategy to become a software-industrial company , which for us means products and services that facilitate the connected plane , home , building and factory ; · executing disciplined , rigorous m & a and integration processes to deliver growth through previously announced acquisitions ; · expanding margins by maintaining and improving the company 's cost structure through manufacturing and administrative process improvements , repositioning , and other productivity actions ; · controlling corporate and other non-operating costs , including costs incurred for asbestos and environmental matters , pension and other post-retirement and income tax expense ; · increasing availability of capital through strong cash flow conversion from effective working capital management and proactively managing debt levels to enable the company to smartly deploy capital for strategic acquisitions , dividends , share repurchases and capital expenditures . story_separator_special_tag in fluorine and specialty products . 23 performance materials and technologies segment profit increased due to acquisitions , net of divestitures , and an increase in operational segment profit , partially offset by the unfavorable impact of foreign currency translation . the increase in operational segment profit is primarily due to productivity , net of inflation , partially offset by lower organic sales volumes and continued investments for growth . cost of products and services sold decreased primarily due to lower organic sales volumes , favorable foreign currency translation , and productivity , net of inflation , partially offset by acquisitions , net of divestitures . 2015 compared with 2014 performance materials and technologies sales decreased due to a decrease in organic sales volumes and the unfavorable impact of foreign currency translation . · uop sales decreased by 7 % ( decreased 6 % organic ) driven primarily by lower gas processing revenues due to a significant slowdown in customer projects and decreased equipment , engineering and licensing revenues partially offset by increased catalyst revenues . · process solutions sales decreased by 12 % ( decreased 3 % organic ) driven primarily by the unfavorable impact of foreign currency translation and lower volumes primarily due to weakness in projects and field products . · advanced materials sales decreased by 10 % ( decreased 7 % organic ) primarily driven by lower raw material pass-through pricing and unplanned plant outages in resins and chemicals partially offset by increased volumes in fluorine products . performance materials and technologies segment profit increased due to an increase in operational segment profit partially offset by the unfavorable impact of foreign currency translation . the increase in operational segment profit is primarily due to price and productivity , net of inflation partially offset by lower organic sales volumes and continued investments for growth . cost of products and services sold decreased primarily due to the favorable impacts of inflation , foreign currency translation , lower organic sales volumes and productivity , partially offset by continued investments for growth . safety and productivity solutions replace_table_token_17_th replace_table_token_18_th 2016 compared with 2015 safety and productivity solutions sales decreased primarily due to decreased sales volumes and the unfavorable impact of foreign currency translation , partially offset by growth from acquisitions . 24 · sales in safety decreased by 3 % ( decreased 2 % organic ) due to decreased sales volume in the industrial safety business , lower distribution in the retail business , and the unfavorable impact of foreign currency translation . · sales in productivity solutions decreased by 1 % ( decreased 11 % organic ) principally due to declines in the productivity products business , partially offset by growth from acquisitions . safety and productivity solutions segment profit decreased due to a decrease in operational segment profit and the unfavorable impact of foreign currency translation , partially offset by growth from acquisitions . the decrease in operational segment profit is due to decreased sales volumes , partially offset by price and productivity , net of inflation , and growth from acquisitions . cost of products and services decreased primarily due to productivity , net of inflation , decreased sales volumes , and the favorable impact of foreign currency translation partially offset by growth from acquisitions . 2015 compared with 2014 safety and productivity solutions sales decreased primarily due to the unfavorable impact of foreign currency translation partially offset by acquisitions and organic sales growth . · sales in safety decreased by 9 % ( decreased 3 % organic ) principally due to decreased sales volumes in industrial safety and the unfavorable impact of foreign currency translation , partially offset by increased sales volume in the retail business .
| review of business segments replace_table_token_10_th 20 aerospace replace_table_token_11_th replace_table_token_12_th 2016 compared with 2015 aerospace sales decreased primarily due to higher incentives to original equipment manufacturers ( oem incentives ) , a decrease in organic sales volumes and the honeywell technology solutions inc. divestiture , which was partially offset by growth from acquisitions . · commercial original equipment sales decreased by 13 % ( decreased 12 % organic ) primarily due to higher oem incentives and decreased demand from business and general aviation original equipment manufacturers ( oems ) , partially offset by higher shipments to air transport oems.consistent with broader aerospace industry trends , we expect the continuation of lower business and general aviation oemsales volumes . · commercial aftermarket sales increased by 3 % ( increased 3 % organic ) primarily driven by higher repair and overhaul activities and increased spares shipments . · defense and space sales decreased by 7 % ( decreased 6 % organic ) primarily due to declines in u.s. space and international defense programs , lower u.s. government services revenue , largely attributable to the impact of divestitures , and decreased demand from commercial helicopter oems , partially offset by sales from acquisitions . · transportation systems sales increased by 3 % ( increased 4 % organic ) primarily driven by new platform launches and higher global turbo gas penetration . aerospace segment profit decreased primarily due to a 6 % decrease in operational segment profit and a 1 % unfavorable impact from foreign currency translation . the decrease in operational segment profit is primarily due to product mix , higher oem incentives and lower sales volumes , partially offset by productivity and price , net of inflation . cost of products and services sold decreased primarily driven by productivity , net of inflation , and lower sales volumes , partially offset by acquisitions , net of divestitures .
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this discussion and analysis should be read in conjunction with the consolidated financial statements and the accompanying notes presented elsewhere in this report . company overview east west is a bank holding company incorporated in delaware on august 26 , 1998 and is registered under the bhc act . the company commenced business on december 30 , 1998 when , pursuant to a reorganization , it acquired all of the voting stock of the bank , which became its principal asset . the bank is an independent commercial bank headquartered in california that has a strong focus on the financial service needs of the chinese-american community . through over 130 locations in the u.s. and greater china , the company provides a full range of consumer and commercial products and services through three business segments : consumer and business banking , commercial banking , with the remaining operations included in other . the company 's principal activity is lending to and accepting deposits from businesses and individuals . the primary source of revenue is net interest income , which is principally derived from the difference between interest earned on loans and investment securities and interest paid on deposits and other funding sources . as of december 31 , 2018 , the company had $ 41.04 billion in assets and approximately 3,200 full-time equivalent employees . for additional information on products and services provided by the bank , see item 1. business — banking services . corporate strategy we are committed to enhancing long-term shareholder value by executing on the fundamentals of growing loans , deposits and revenue , improving profitability , and investing for the future while managing risk , expenses and capital . our business model is built on customer loyalty and engagement , understanding of our customers ' financial goals , and meeting our customers ' financial needs through our diverse products and services . the company 's approach is concentrated on seeking out and deepening client relationships that meet our risk/return measures . this focus guides our decision-making across every aspect of our operations : the products we develop , the expertise we cultivate and the infrastructure we build to help our customers conduct business . we expect our relationship-focused business model to continue to generate organic growth and to expand our targeted customer bases . on an ongoing basis , we invest in technology related to critical business infrastructure and streamlining core processes , in the context of maintaining appropriate expense management . our risk management activities are focused on ensuring that the company identifies and manages risks to maintain safety and soundness while maximizing profitability . 30 five-year summary of selected financial data ( $ and shares in thousands , except per share data ) 2018 2017 2016 2015 2014 summary of operations : interest and dividend income $ 1,651,703 $ 1,325,119 $ 1,137,481 $ 1,053,815 $ 1,153,698 interest expense 265,195 140,050 104,843 103,376 112,820 net interest income before provision for credit losses 1,386,508 1,185,069 1,032,638 950,439 1,040,878 provision for credit losses 64,255 46,266 27,479 14,217 49,158 net interest income after provision for credit losses 1,322,253 1,138,803 1,005,159 936,222 991,720 noninterest income ( loss ) ( 1 ) 210,909 257,748 182,278 182,779 ( 12,183 ) noninterest expense 714,466 661,451 615,249 540,280 532,514 income before income taxes 818,696 735,100 572,188 578,721 447,023 income tax expense ( 2 ) 114,995 229,476 140,511 194,044 101,145 net income $ 703,701 $ 505,624 $ 431,677 $ 384,677 $ 345,878 per common share : basic earnings $ 4.86 $ 3.50 $ 3.00 $ 2.67 $ 2.42 diluted earnings $ 4.81 $ 3.47 $ 2.97 $ 2.66 $ 2.41 dividends declared $ 0.86 $ 0.80 $ 0.80 $ 0.80 $ 0.72 book value $ 30.52 $ 26.58 $ 23.78 $ 21.70 $ 19.89 weighted-average number of shares outstanding : basic 144,862 144,444 144,087 143,818 142,952 diluted 146,169 145,913 145,172 144,512 143,563 common shares outstanding at period-end 144,961 144,543 144,167 143,909 143,582 at year end : total assets $ 41,042,356 $ 37,121,563 $ 34,788,840 $ 32,350,922 $ 28,743,592 total loans $ 32,385,464 $ 29,053,935 $ 25,526,215 $ 23,675,706 $ 21,775,899 available-for-sale investment securities $ 2,741,847 $ 3,016,752 $ 3,335,795 $ 3,773,226 $ 2,626,617 total deposits , excluding held-for-sale deposits $ 35,439,628 $ 31,615,063 $ 29,890,983 $ 27,475,981 $ 24,008,774 long-term debt $ 146,835 $ 171,577 $ 186,327 $ 206,084 $ 225,848 fhlb advances $ 326,172 $ 323,891 $ 321,643 $ 1,019,424 $ 317,241 stockholders ' equity $ 4,423,974 $ 3,841,951 $ 3,427,741 $ 3,122,950 $ 2,856,111 performance metrics : return on average assets 1.83 % 1.41 % 1.30 % 1.27 % 1.25 % return on average equity 17.04 % 13.71 % 13.06 % 12.74 % 12.72 % net interest margin 3.78 % 3.48 % 3.30 % 3.35 % 4.03 % efficiency ratio 44.73 % 45.84 % 50.64 % 47.68 % 51.77 % credit quality metrics : allowance for loan losses $ 311,322 $ 287,128 $ 260,520 $ 264,959 $ 261,679 allowance for loan losses to loans held-for-investment ( 3 ) 0.96 % 0.99 % 1.02 % 1.12 % 1.20 % non-pci nonperforming assets to total assets ( 3 ) 0.23 % 0.31 % 0.37 % 0.40 % 0.46 % annual net charge-offs to average loans held-for-investment 0.13 % 0.08 % 0.15 % 0.01 % 0.18 % selected metrics : total average equity to total average assets 10.72 % 10.30 % 9.97 % 9.95 % 9.83 % common dividend payout ratio 17.90 % 23.14 % 27.01 % 30.21 % 30.07 % loan-to-deposit ratio 91.38 % 90.17 % 85.40 % 86.17 % 90.70 % capital ratios of ewbc ( 4 ) : total capital 13.7 % 12.9 % 12.4 % 12.2 % 12.6 % tier 1 capital 12.2 % 11.4 % 10.9 % 10.7 % 11.0 % cet1 capital 12.2 % 11.4 % 10.9 % 10.5 % n/a tier 1 leverage capital 9.9 % 9.2 % 8.7 % 8.5 % 8.4 % n/a — not applicable . ( 1 ) includes $ 31.5 million of pretax gain recognized from the sale of the dcb branches for 2018 . story_separator_special_tag this was primarily due to increases of $ 2.98 billion in average loans and $ 367.2 million in average interest-bearing cash and deposits with banks , partially offset by decreases of $ 417.9 million in average securities purchased under resale agreements ( “ resale agreements ” ) and $ 253.5 million in average investment securities . average interest-earning assets of $ 34.03 billion in 2017 increased $ 2.74 billion or 9 % from $ 31.30 billion in 2016 . this was primarily due to increases of $ 2.99 billion in average loans and $ 349.2 million in average interest-bearing cash and deposits with banks , partially offset by decreases of $ 328.4 million in average investment securities and $ 269.7 million in average resale agreements . deposits are an important source of funds and impact both net interest income and net interest margin . average noninterest-bearing demand deposits provide us with zero-cost funding and totaled $ 11.09 billion in 2018 and $ 10.63 billion in 2017 , an increase of $ 461.8 million or 4 % year-over-year . average noninterest-bearing demand deposits in 2017 increased $ 1.26 billion or 13 % from $ 9.37 billion in 2016 . average noninterest-bearing demand deposits made up 33 % , 34 % and 33 % of average total deposits in 2018 , 2017 and 2016 , respectively . average interest-bearing deposits of $ 22.14 billion in 2018 increased $ 1.95 billion or 10 % from $ 20.19 billion in 2017 . average interest-bearing deposits in 2017 increased $ 1.06 billion or 6 % from $ 19.13 billion in 2016 . the cost of funds was 0.78 % , 0.44 % and 0.36 % in 2018 , 2017 and 2016 , respectively . the year-over-year increases in the cost of funds were primarily due to increase s in the cost of interest-bearing deposits . the cost of interest-bearing deposits increased 48 basis points to 1.06 % in 2018 , and 14 basis points to 0.58 % in 2017 , up from 0.44 % in 2016 . other sources of funding primarily include fhlb advances , long-term debt and securities sold under repurchase agreements ( “ repurchase agreements ” ) . the company utilizes various tools to manage interest rate risk . refer to the “ interest rate risk management ” section of item 7. md & a — asset liability and market risk management for details . 35 the following table presents the interest spread , net interest margin , average balances , interest income and expense , and the average yield/rate by asset and liability component in 2018 , 2017 and 2016 : replace_table_token_2_th ( 1 ) average balances of resale and repurchase agreements are reported net pursuant to asc 210-20-45-11 , balance sheet offsetting : repurchase and reverse repurchase agreements . the weighted-average yields of gross resale agreements were 2.63 % , 2.19 % and 1.78 % for 2018 , 2017 and 2016 , respectively . the weighted-average interest rates of gross repurchase agreements were 4.46 % , 3.48 % and 2.97 % for 2018 , 2017 and 2016 , respectively . ( 2 ) yields on tax-exempt securities are not presented on a tax-equivalent basis . ( 3 ) includes the amortization of premiums on investment securities of $ 16.1 million , $ 21.2 million and $ 26.2 million for 2018 , 2017 and 2016 , respectively . ( 4 ) average balances include nonperforming loans and loans held-for-sale . ( 5 ) includes the accretion of net deferred loan fees , unearned fees , asc 310-30 discounts and amortization of premiums , which totaled $ 39.2 million , $ 30.8 million and $ 53.5 million for 2018 , 2017 and 2016 , respectively . ( 6 ) average balance of deposits for 2018 and 2017 includes average deposits held-for-sale related to the sale of the dcb branches . 36 the following table summarizes the extent to which changes in interest rates and changes in average interest-earning assets and average interest-bearing liabilities affected the company 's net interest income for the periods presented . the total change for each category of interest-earning assets and interest-bearing liabilities is segmented into changes attributable to variations in volume and interest rates . changes that are not solely due to either volume or rate are allocated proportionally based on the absolute value of the change related to average volume and average rate . nonaccrual loans are included in average loans to compute the table below : ( $ in thousands ) year ended december 31 , 2018 vs. 2017 2017 vs. 2016 total change changes due to total change changes due to volume yield/rate volume yield/rate interest-earning assets : interest-bearing cash and deposits with banks $ 21,414 $ 6,108 $ 15,306 $ 18,659 $ 3,134 $ 15,525 resale agreements ( 2,767 ) ( 10,671 ) 7,904 1,548 ( 5,287 ) 6,835 investment securities 2,241 ( 5,167 ) 7,408 5,271 ( 5,580 ) 10,851 loans 305,074 138,724 166,350 163,063 130,282 32,781 restricted equity securities 622 3 619 ( 903 ) ( 74 ) ( 829 ) total interest and dividend income $ 326,584 $ 128,997 $ 197,587 $ 187,638 $ 122,475 $ 65,163 interest-bearing liabilities : checking deposits $ 16,352 $ 2,706 $ 13,646 $ 5,665 $ 1,800 $ 3,865 money market deposits 39,515 ( 226 ) 39,741 17,087 1,274 15,813 saving deposits 2,190 ( 351 ) 2,541 1,712 642 1,070 time deposits 60,304 15,579 44,725 7,703 ( 93 ) 7,796 federal funds purchased and other short-term borrowings 395 ( 71 ) 466 290 259 31 fhlb advances 2,696 ( 1,432 ) 4,128 2,166 160 2,006 repurchase agreements 2,634 ( 9,226 ) 11,860 172 ( 3,796 ) 3,968 long-term debt 1,059 ( 648 ) 1,707 412 ( 531 ) 943 total interest expense $ 125,145 $ 6,331 $ 118,814 $ 35,207 $ ( 285 ) $ 35,492 change in net interest income $ 201,439 $ 122,666 $ 78,773 $ 152,431 $ 122,760 $ 29,671 noninterest income the following table presents the components of noninterest income for the periods indicated : ( $ in thousands )
| 2018 financial highlights we achieved strong earnings for the ninth consecutive year in 2018 . net income of $ 703.7 million in 2018 grew $ 198.1 million or 39 % from $ 505.6 million in 2017 . total revenue , or the sum of net interest income before provision for credit losses and noninterest income , of $ 1.60 billion grew 11 % year-over-year , primarily driven by an expanding net interest margin and robust loan growth . full year 2018 net interest margin of 3.78 % expanded 30 basis points year-over-year , from 3.48 % in 2017. revenue growth outpaced expense increases in 2018 , improving our operating efficiency . finally , net income growth in 2018 also benefited from a reduction in income tax expense related to the tax act . we earned a return on average assets ( “ roa ” ) of 1.83 % and a return on average equity ( “ roe ” ) of 17.04 % in 2018. on november 11 , 2017 , the bank entered into a purchase and assumption agreement to sell all of its eight dcb branches located in the high desert area of southern california to flagstar bank , a wholly-owned subsidiary of flagstar bancorp , inc. the sale of the bank 's dcb branches was completed on march 17 , 2018. the assets and liability of the dcb branches that were sold in this transaction included primarily $ 613.7 million of deposits , $ 59.1 million of loans , $ 9.0 million of cash and cash equivalents and $ 7.9 million of premises and equipment . the transaction resulted in a net cash payment of $ 499.9 million by the bank to flagstar bank . after transaction costs , the sale resulted in a pre-tax gain of $ 31.5 million , which was reported as net gain on sale of business as part of noninterest income on the consolidated statement of income .
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government , either as a prime contractor or as a subcontractor ( including 61 % from the department of defense ( dod ) ) , 17 % were from international customers ( including foreign military sales ( fms ) funded , in whole or in part , by the u.s. government ) , and 1 % were from u.s. commercial and other customers . our main areas of focus are in defense , space , intelligence , homeland security , and information technology , including cyber security . we have four business segments : aeronautics , electronic systems , information systems & global solutions ( is & gs ) , and space systems . we organize our business segments based on the nature of the products and services offered . we are operating in an environment that is characterized by both increasing complexity in the global security environment , as well as continuing economic pressures in the u.s. and globally . a significant component of our strategy in this environment is to focus on core program execution , improving the quality and predictability of the delivery of our products and services , and placing more security capability into the hands of our customers at affordable prices . recognizing that our u.s. government customers are resource constrained , we are endeavoring to develop and extend our portfolio in a disciplined manner with a focus on international and adjacent markets . finally , we are focused on cost reduction , through actions such as our workforce reductions in 2011 and programs like our voluntary executive separation program ( vesp ) and facility reduction initiatives in 2010 , to further enhance the value of our products and services . we expect a slight decline in our 2012 consolidated net sales and segment operating profit as compared to 2011 , as our customers prepare to meet new security challenges without the benefit of increased resources . our 2012 segment operating margin is expected to remain above 11 % . despite the challenges we face , we have a strong balance sheet and we expect to generate strong operating cash flows , which will allow us to continue to invest in technologies to fulfill new mission requirements for our customers , invest in our people so that we have the professional and leadership skills necessary to be successful in this environment , and to return at least 50 % of free cash flow 1 to investors in the form of share repurchases and dividends . industry considerations u.s. government business budget priorities the u.s. government continues to focus on developing and implementing spending , tax , and other initiatives to stimulate the economy , create jobs , and reduce the deficit . the administration is attempting to balance decisions regarding defense , homeland security , and other federal spending priorities in a greatly constrained fiscal environment imposed by the enactment of the budget control act of 2011 ( budget act ) , which reduces defense spending by $ 487 billion over a ten-year period starting in fiscal year 2012. absent a significant redress of the structural disconnect between revenues and expenditures that can only be addressed through major tax and mandatory spending program reforms , it is likely that discretionary spending by the federal government will remain constrained for several years . although some specific priorities and initiatives may change from year to year , the investments and acquisitions we have made have been focused on aligning our businesses to address what we believe are the most critical national priorities and mission areas . the possibility remains , however , that one or more of our programs could be reduced , extended , or terminated as a result of the administration 's continuing assessment of priorities . notably , should congress and the administration fail to change or delay a pending sequestration of appropriations in fiscal year 2013 imposed by the budget act , our customers could see their budgets 1 we define free cash flow as cash from operations as determined under u.s. generally accepted accounting principles ( gaap ) , less the amount identified as expenditures for property , plant and equipment and capitalized internal-use software as presented on our statements of cash flows . 22 dramatically reduced across the board in january 2013 with an attendant impact upon procurement of products and services . while the impact of sequestration is yet to be determined , automatic across-the-board budget cuts would approximately double the amount of the ten-year $ 487 billion top line reduction already reflected in the defense funding over a ten-year period , with a $ 52 billion reduction occurring in the government 's fiscal year 2013. the resulting automatic across-the-board budget cuts in sequestration would have significant consequences to our business and industry . there would be disruption of ongoing programs and initiatives , facilities closures and personnel reductions that would severely impact advanced manufacturing operations and engineering expertise , and accelerate the loss of skills and knowledge , directly undermining a key provision of the new security strategy , which is to preserve the industrial base . the administration 's spending priorities were released on february 13 , 2012 with the submission of the president 's budget request for fiscal year 2013. the government 's 2013 fiscal year runs from october 2012 to september 2013. every year , congress must approve or revise the proposals contained in the president 's annual budget request through enactment of appropriations bills and other policy legislation , which then require final presidential approval . the outcome of the federal budget process has a direct effect on our business . department of defense business the passage of the budget act signaled the end of ten years of growth in the dod base budget and imposed specific caps on security and non-security spending beginning in fiscal year 2013. the fiscal year 2013 request of $ 525 billion for the dod base budget is the first to reflect the reduced spending levels imposed by the budget act and is consistent with its caps on discretionary spending . story_separator_special_tag for fiscal year 2013 there is a separate non-security discretionary spending cap applied to all non-dod entities that were not included under the security cap . the result would be that budgets for fiscal year 2013 and beyond will be reduced further below last year 's estimates . we have continued to expand our capabilities in critical intelligence , knowledge management , and e-government solutions for our customers , including the social security administration and the centers for medicare and medicaid services ( cms ) . we also provide program management , business strategy and consulting , complex systems development and maintenance , complete life-cycle software support , information assurance , and enterprise solutions . we believe that there will be continued demand by federal and civil government agencies for upgrading and investing in new information technology systems and solutions in order to reduce costs of operations , but at a slower pace in the near term . consistent with our dod business , more affordable logistics and sustainment , a more expansive use of information technology and knowledge-based solutions , and improved levels of network and cyber security all appear to be priorities in our non-dod business as well . homeland security , critical infrastructure protection , and improved service levels for civil government agencies also appear to be high customer priorities . the continuing strong emphasis on homeland security may increase demand for our capabilities in areas such as air traffic management , ports , waterways and cargo security , biohazard detection systems for postal equipment , employee identification and credential verification systems , information systems security , and other global security systems solutions . other business considerations international business we remain committed to growth in our sales to international customers . we conduct business with foreign governments primarily through aeronautics and electronic systems . our international sales are comprised of fms through the u.s. government and direct commercial contracts . in aeronautics , the u.s. government and eight foreign government partners are working together on the design , testing , production , and sustainment of the f-35 lightning ii , while other countries such as israel and japan have selected the f-35 as their next generation combat aircraft . we expect the first international deliveries of the f-35 to begin in 2012. the f-16 fighting falcon has been selected by 26 customers worldwide , including recent orders from iraq and oman , with 54 follow-on buys from 15 countries . we continue to expand the c-130j super hercules air mobility aircraft 's international footprint with customers in 15 countries . in global sustainment , we are leveraging our value as the original equipment manufacturer ( oem ) for our major platforms and have set up new production capabilities to provide service life extension , including new wings and support for the u.s. , norway , canada , and taiwan 's p-3 fleet . 24 with regard to the aegis combat system , our electronic systems segment performs activities in the development , production , ship integration and test , and lifetime support for ships of international customers such as japan , spain , korea , norway , and australia . the system also has been selected to be used as a ground-based missile defense system in europe , referred to as aegis ashore. this segment has contracts with the canadian government for the upgrade and support of combat systems on halifax class frigates . the new littoral combat ship ( lcs ) is also generating interest from potential international customers . electronic systems also produces the pac-3 missile , an advanced defensive missile designed to intercept incoming airborne threats , for international customers including japan , germany , the netherlands , taiwan , and the united arab emirates ( uae ) . the uae entered into a fms agreement with the u.s. government for the first international sale of the thaad missile defense system , with other countries having expressed interest . in 2011 , the commonwealth of australia entered into a fms agreement for the first international sale of the mh-60r helicopter , for which we are responsible for integrating the common cockpit avionics suite , which marks the first ever purchase of an mh-60r helicopter outside of the u.s. , and we also received an order to upgrade the united kingdom 's warrior fighting vehicles . to the extent our contracts and business arrangements with international partners include operations in foreign countries , other risks are introduced into our business , including changing economic conditions , fluctuations in relative currency values , regulation by foreign countries , and the potential for deterioration of political relations . status of the f-35 program the f-35 program consists of multiple contracts . under our customer 's acquisition strategy , the system development and demonstration ( sdd ) contract will be performed concurrently with the low rate initial production ( lrip ) contracts . concurrent performance of development and production contracts is advantageous in complex programs to test airplanes , shorten the time to field systems , and achieve overall cost savings . accordingly , we are performing the sdd contract concurrently with lrip aircraft lots 2 through 6. the sdd portion of the f-35 program is expected to continue into 2017 and has approximately $ 530 million of fee remaining , only a minor portion of which has been tied to specific performance milestones to date . any portion of the remaining fee that we or our partners receive will be dependent upon our customer 's evaluation of our progress on program milestones , most of which have yet to be determined by our customer . the current profit booking rate on the sdd contract contemplates that we will earn a portion of these outstanding award fees . given the size and complexity of the f-35 program , we anticipate that there will be continual reviews related to aircraft quantities , program schedule , cost , and requirements as part of the dod , congressional , and international partners ' oversight and budgeting processes .
| results of operations since our operating cycle is long-term and involves many types of design , development , and production ( dd & p ) contracts with varying production delivery schedules , the results of operations of a particular year , or year-to-year comparisons of recorded sales and profits , may not be indicative of future operating results . the following discussions of comparative results among periods should be viewed in this context . all per share amounts cited in these discussions are presented on a per diluted share basis from continuing operations , unless otherwise noted . replace_table_token_5_th ( a ) the amounts in the above table reflect , as appropriate , the change in our accounting for services contracts with the u.s. government from the services accounting method to the percentage-of-completion method ( note 1 ) and the operating results of savi as discontinued operations ( note 14 ) . all prior period amounts included in management 's discussion and analysis of financial condition and results of operations have been adjusted to reflect these changes . 26 the following provides an overview of our consolidated results of operations by focusing on key elements in our statements of earnings . product sales are predominantly generated in the aeronautics , electronic systems , and space systems business segments , and most of our services sales are generated in our electronic systems and is & gs business segments . net sales replace_table_token_6_th approximately 95 % of our contracts are accounted for using the percentage-of-completion ( poc ) method of accounting . under the poc method , we record net sales on contracts based upon our progress towards completion on a particular contract , as well as our estimate of the profit to be earned at completion .
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operating results attributable to cmp and citadel from august 1 , 2011 and september 16 , 2011 , the respective acquisition dates , are included in the accompanying consolidated financial information . this section also includes general information about our business and management 's analysis of certain trends , risks and opportunities in our industry . we also provide a discussion of accounting policies that require critical judgments and estimates . you should read the following information in conjunction with our consolidated financial statements and notes to our consolidated financial statements beginning on page f-1 in this annual report on form 10-k , as well as the information set forth in item 1a . risk factors. our business we own and operate commercial radio station clusters throughout the united states . we believe we are the largest pure-play radio broadcaster in the united states based on number of stations owned and operated . at december 31 , 2012 , we owned or operated approximately 517 radio stations ( including under lmas ) in 108 united states media markets and operated nationwide radio networks serving over 5,000 affiliates . at december 31 , 2012 , under lmas , we provided sales and marketing services for 14 radio stations in the united states . 2012 operating overview and highlights we believe that following the completion of the cmp acquisition and the citadel merger , which included the acquisition of our radio networks , consisting of 5,000 station affiliates and 9,000 program affiliates , in 2011 we have created a leading radio broadcasting company with a true national platform with an opportunity to further leverage and expand upon our strengths , market presence and programming . specifically , with the completion of these acquisitions , we now have an extensive radio station portfolio consisting of approximately 517 radio stations , including a presence in eight of the top 10 markets , and broad diversity in format , listener 39 index to financial statements base , geography , advertiser base and revenue stream , all of which are designed to reduce dependence on any single demographic , region or industry . our increased scale has allowed larger , more significant investments in the local digital media marketplace allowing our local digital platforms and strategies , including our social commerce initiatives , to be applied across significant additional markets . we believe our one national platform will allow us to optimize our available advertising inventory while providing holistic and comprehensive solutions for our customers . cumulus believes that the capital structure resulting from the completion of the cmp acquisition and the citadel merger , and our related financing transactions , provides for increased liquidity and scale for cumulus to pursue and finance strategic acquisitions in the future . we also believe that we have substantially completed our integration , and are now strongly positioned for future growth in what we believe is still a highly fragmented industry . liquidity considerations historically , our principal needs for funds have been for acquisitions of radio stations , expenses associated with our station and corporate operations , capital expenditures , and interest and debt service payments . we believe that our funding needs in the future will be for substantially similar matters . our principal sources of funds historically have been cash flow from operations and borrowings under credit facilities in existence from time to time . our cash flow from operations is subject to such factors as shifts in population , station listenership , demographics , or audience tastes , and fluctuations in preferred advertising media . in addition , customers may not be able to pay , or may delay payment of , accounts receivable that are owed to us , which risks may be exacerbated in challenging economic periods . in recent periods , management has taken steps to mitigate this risk through heightened collection efforts and enhancements to our credit approval process , although no assurances as to the longer-term success of these efforts can be provided . in addition , we believe the acquisition of the broad diversity in format , listener base , geography , advertiser base and revenue stream that accompanied the cmp acquisition and the citadel merger will help us reduce dependence on any single demographic , region or industry . on december 20 , 2012 , we entered into an amendment and restatement ( the amendment and restatement ) of our first lien facility credit agreement , dated as of september 16 , 2011 , among the company , cumulus media holdings , inc. , as borrower ( the borrower ) , and the lenders and the agents thereto ( the original agreement ) . pursuant to the amendment and restatement , the terms and conditions contained in the original agreement remained substantially unchanged , except as follows : ( i ) the amount outstanding thereunder was increased to $ 1.325 billion ; ( ii ) the margin for libor ( as defined below ) -based borrowings was reduced from 4.5 % to 3.5 % and for base rate ( as defined below ) -based borrowings was reduced from 3.5 % to 2.5 % ; and ( iii ) the libor floor for libor-based borrowings was reduced from 1.25 % to 1.0 % . in the event amounts are outstanding under the revolving credit facility , the first lien facility requires compliance with a consolidated total net leverage ratio . at december 31 , 2012 , this ratio would have been 6.5 to 1.0. such ratio will be reduced in future periods if amounts are outstanding under the revolving credit facility at an applicable date . at december 31 , 2012 we would not have been in compliance with this ratio . as a result , borrowings under the revolving credit facility were not available at that date . the second lien facility does not contain any financial covenants . at december 31 , 2012 our long-term debt consisted of $ 2.0 billion in total term loans and $ 610.0 million in 7.75 % senior notes . story_separator_special_tag adjusted ebitda is the financial metric utilized by management to analyze the cash flow generated by the company 's business . this measure isolates the amount of income generated by the company 's radio stations apart from the incurrence of non-cash and non-operating expenses . management also uses this measure to determine the contribution of the company 's radio station portfolio , including the corporate resources employed to manage the portfolio , to the funding of its other operating expenses and to the funding of debt service and acquisitions . in addition , adjusted ebitda is a key metric for purposes of calculating and determining our compliance with certain covenants contained in our first lien credit agreement , as amended and restated , ( the first lien facility ) . in deriving this measure , management excludes depreciation , amortization and stock-based compensation expense , as these do not represent cash payments for activities directly related to the operation of the radio stations . in addition , we exclude lma fees from our calculation of adjusted ebitda , even though such fees require a cash settlement , because they are excluded from the definition of adjusted ebitda contained in our first lien facility . management excludes any gain or loss on the exchange of assets or stations as they do not represent a cash transaction . management also excludes any realized gain or loss on derivative instruments as they do not represent a cash transaction nor are they associated with radio station operations . interest expense , net of interest income , income tax ( benefit ) expense including franchise taxes , and expenses relating to acquisitions are also excluded from the calculation of adjusted ebitda as they are not directly related to the operation of radio stations . management excludes impairment of goodwill and intangible assets as they do not require a cash outlay . management believes that adjusted ebitda , although not a measure that is calculated in accordance with gaap , nevertheless is commonly employed by the investment community as a measure for determining the market value of a radio company . management has also observed that adjusted ebitda is routinely employed to evaluate and negotiate the potential purchase price for radio broadcasting companies , and is a key metric for purposes of calculating and determining compliance with certain covenants in our first lien facility . given the relevance to the overall value of the company , management believes that investors consider the metric to be extremely useful . adjusted ebitda should not be considered in isolation or as a substitute for net income , operating income , cash flows from operating activities or any other measure for determining the company 's operating performance or liquidity that is calculated in accordance with gaap . a quantitative reconciliation of adjusted ebitda to net ( loss ) income , the most directly comparable financial measure calculated and presented in accordance with gaap , follows in this section . story_separator_special_tag compared to $ 83.8 million in the prior year period . interest expense increased due to a higher average amount of indebtedness outstanding as a result of our refinancing efforts undertaken in connection with the citadel merger in 2011. the following summary details the components of our interest expense , net of interest income ( dollars in thousands ) : replace_table_token_16_th * * not meaningful loss on early extinguishment of debt . for the years ended december 31 , 2012 and 2011 , we recorded $ 2.4 million and $ 4.4 million in losses on early extinguishment of debt as a result of our debt refinancings in december 2012 and may 2011 , respectively . gain on equity investment in cmp . for the year ended december 31 , 2011 , we recorded an $ 11.6 million gain on our equity investment in cmp due to the cmp acquisition . there was not a similar gain during the year ended december 31 , 2012 ( see note 2 , acquisitions and dispositions ) . income tax benefit ( expense ) . we recorded an income tax benefit on continuing operations of $ 26.6 million in 2012 as compared to a $ 3.3 million benefit during the prior year . the income tax benefit for 2012 is equal to the amount of tax expense on discontinued operations that is offset by the loss from continuing operations . the income tax benefit for 2011 is primarily due to a release of the valuation allowance as a result of the cmp acquisition and citadel merger while the 2010 tax expense is primarily due to tax amortization of intangibles . adjusted ebitda . as a result of the factors described above , adjusted ebitda for the year ended december 31 , 2012 increased $ 270.0 million , or 218.3 % , to $ 393.7 million compared to $ 123.7 million for the year ended december 31 , 2011 . 45 index to financial statements reconciliation of non-gaap financial measure . the following table reconciles adjusted ebitda to net income ( the most directly comparable financial measure calculated and presented in accordance with gaap ) as presented in the accompanying consolidated statements of operations ( dollars in thousands ) : replace_table_token_17_th * * calculation is not meaningful intangible assets ( including goodwill ) , net . intangible assets , net of amortization , were $ 3,056.3 million and $ 3,350.4 million as of december 31 , 2012 and 2011 , respectively . these intangible asset balances primarily consist of broadcast licenses and goodwill . intangible assets , net , decreased from the prior year primarily due to a $ 114.7 million impairment charge in the year ended december 31 , 2012 in conjunction with our annual impairment evaluation in the fourth quarter of 2012 and a $ 12.4 million impairment on a definite lived intangible asset in 2012 related to the cancellation of a contract . we will continue to monitor whether any impairment triggers are present and we may be required to record material impairment charges in future periods .
| results of operations primarily as a result of the completion of the significant transactions described above in 2011 , cumulus believes that its results of operations for the year ended december 31 , 2011 and 2012 , and its financial condition at such date , will provide only limited comparability to prior periods . investors are cautioned to not place undue reliance on any such comparison . revenues of $ 288.3 million attributable to the acquisitions of cmp and citadel in 2011 are included in the company 's accompanying consolidated financial statements for the year ended december 31 , 2011 . 42 index to financial statements analysis of consolidated statements of operations the following analysis of selected data from our consolidated statements of operations should be referred to while reading the results of operations discussion that follows ( dollars in thousands ) : replace_table_token_15_th * * calculation is not meaningful . our management 's discussion and analysis of results of operations for the three years ended december 31 , 2012 , has been presented on a historical basis . 43 index to financial statements year ended december 31 , 2012 compared to year ended december 31 , 2011 net revenues . net revenues for the year ended december 31 , 2012 increased $ 556.6 million , or 107.0 % , to $ 1,076.6 million compared to $ 520.0 million for the year ended december 31 , 2011. this increase is primarily attributable to the impact of a full year of net revenues attributable to cmp and citadel , as well as a $ 26.4 million increase in political advertising due to the presidential and local government elections . direct operating expenses , excluding depreciation , amortization and lma fees .
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the estimated fair value of options , including the story_separator_special_tag you should read the following discussion and analysis of financial condition and results of operations together with our consolidated financial statements and the related notes included elsewhere in this form 10-k. this discussion and analysis contains forward-looking statements about our business and operations , 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 we currently anticipate as a result of many important factors , including the factors we describe under “ risk factors ” and elsewhere in this form 10-k. overview we are a medical technology company leading the way in the effort to successfully treat patients suffering from peripheral and coronary artery diseases , including those with arterial calcium , the most difficult form of arterial disease to treat . we are committed to clinical rigor , constant innovation and a defining drive to set the industry standard to deliver safe and effective medical devices that improve lives of patients facing these difficult disease states . peripheral our peripheral artery disease ( “ pad ” ) products are catheter-based platforms capable of treating a broad range of plaque types in leg arteries both above and below the knee , including calcified plaque , and address many of the limitations associated with other existing surgical , catheter and pharmacological treatment alternatives . the micro-invasive devices use small access sheaths that can provide procedural benefits and allow physicians to treat pad patients in even the smaller and tortuous vessels located below the knee and facilitate access through alternative sites in the ankle , foot and wrist , as well as in the groin . the united states food and drug administration ( “ fda ” ) granted 510 ( k ) clearances for various oas device products as a therapy in patients with pad . we refer to these products in this form 10-k as the “ peripheral oas. ” in addition to our peripheral oas , we also offer support products within the peripheral space . coronary our coronary artery disease ( “ cad ” ) product , the diamondback 360 coronary oas ( “ coronary oas ” ) , is a catheter-based platform designed to facilitate stent delivery in patients with cad who are acceptable candidates for percutaneous transluminal coronary angioplasty or stenting due to de novo , severely calcified coronary artery lesions . the coronary oas design is similar to technology used in our peripheral oas , customized specifically for the coronary application . in addition to the coronary oas , we also offer support products within the coronary space as we expand treatment to a broader patient population with complex coronary artery disease . in october 2013 , we received premarket approval ( “ pma ” ) from the fda to market the coronary oas as a treatment for severely calcified coronary arteries and we commenced a commercial launch that same month . international in february 2018 , the coronary oas micro crown received reimbursement approval in japan , followed by the first commercial sales in japan . this represented the first international market for any of our products . in january 2019 , japan 's mhlw approved our coronary oas classic crown and the viperwire advance guidewire with flextip , and in the third quarter of fiscal 2019 , sales of these products commenced in japan . in october 2014 , we received ce mark for our stealth 360 peripheral oas and in fiscal 2019 , we commenced sales of this product in certain countries in southeast asia , europe and the middle east and our coronary oas in southeast asia and the middle east . 30 financial overview net revenues . we derive substantially all of our revenues from the sale of the peripheral oas , the coronary oas and other products in the united states . the peripheral oas and the coronary oas each use a disposable , single-use , low-profile catheter that travels over our proprietary viperwire guide wire . the oas uses a saline infusion pump as a power supply for the operation of the catheter . additional ancillary products include catheters , guidewires , balloons , and other oas support devices . we have observed some degree of seasonality in our business , as there tends to be a lower number of procedures that use our products during the three months ending september 30. interventional procedure volume usually grows throughout the course of the fiscal year , with the quarter ending june 30 usually representing the highest volume of cases and , therefore , the highest amount of revenue generated by us during the course of the fiscal year . cost of goods sold . we assemble the single-use catheter with components purchased from third-party suppliers , as well as with components manufactured in-house . balloons , guide wires , and certain catheters are purchased from third-party suppliers . our cost of goods sold consists primarily of raw materials , direct labor , manufacturing overhead , and purchased finished goods . selling , general and administrative expenses . selling , general and administrative expenses include compensation for executive , sales , marketing , finance , information technology , human resources and administrative personnel , including stock-based compensation and facilities overhead . other significant expenses include bad debt expense , travel , marketing costs , professional fees and professional education . research and development expenses . research and development expenses include costs associated with the design , development , testing , enhancement and regulatory approval of our products . research and development expenses include employee compensation including stock-based compensation , supplies and materials , patent expenses , consulting expenses , travel and facilities overhead . we also incur significant expenses to operate clinical trials , including trial design , third-party fees , clinical site reimbursement , data management and travel expenses . all research and development expenses are expensed as incurred . story_separator_special_tag we have stock-based compensation plans that include nonvested share awards and an employee stock purchase plan . we determine the fair value of nonvested share awards with market conditions using the monte carlo simulation . fair value of nonvested share awards that vest based upon performance or time conditions is determined by the closing market price of our stock on the date of grant . stock-based compensation expense is recognized ratably over the requisite service period for the awards expected to vest . fair value of shares purchased under the employee stock purchase plan are estimated on the grant date , which is the first date in the six-month purchase period . stock-compensation expense is recognized over the purchase period based on the anticipated amount of shares to be purchased . management 's key assumptions are developed with input from independent third-party valuation advisors . during the years ended june 30 , 2019 , 2018 and 2017 , we recorded stock-based compensation expense of $ 11.3 million , $ 10.3 million , and $ 10.4 million , respectively . legal proceedings . in accordance with financial accounting standards board ( “ fasb ” ) guidance , we record a liability in our consolidated financial statements related to legal proceedings when a loss is known or considered probable and the amount can be reasonably estimated . if the reasonable estimate of a known or probable loss is a range , and no amount within the range is a better estimate than any other , the minimum amount of the range is accrued . if a loss is reasonably possible , but not known or probable , and can be reasonably estimated , the estimated loss or range of loss is disclosed in the notes to the consolidated financial statements . in most cases , significant judgment is required to estimate the amount and timing of a loss to be recorded . 32 story_separator_special_tag and $ 9.1 million , respectively , for stock-based compensation . we expect our selling , general and administrative expenses to increase as revenue grows in fiscal 2020 , but at a rate less than the rate of revenue growth . research and development expenses . research and development expenses increased by $ 6.7 million , or 25.1 % , from $ 26.8 million for the year ended june 30 , 2018 to $ 33.5 million for the year ended june 30 , 2019 . research and development expenses relate to the specific projects to develop new products or expand into new markets , such as the development of new versions of and support products to our peripheral and coronary oas , as well as pad and cad clinical studies . the increase was primarily due to increased activity on the eclipse clinical study and new development projects , including our percutaneous ventricular assist device . research and development expenses for the years ended june 30 , 2019 and 2018 include $ 1.3 million and $ 1.0 million , respectively , for stock-based compensation . we generally expect to incur higher research and development expenses in fiscal 2020 than amounts incurred for the year ended june 30 , 2019 as we continue to progress in the eclipse clinical study and make further investments in expanding our product portfolio . fluctuations could occur based on the number of projects and studies and the timing of expenditures . please refer to part ii , item 7 of our annual report on form 10-k for the fiscal year ended june 30 , 2018 for a comparative discussion of our financial results for the fiscal year ended june 30 , 2018 as compared with the fiscal year ended june 30 , 2017. non-gaap financial information to supplement our consolidated financial statements prepared in accordance with gaap , our management uses a non-gaap financial measure referred to as “ adjusted ebitda. ” the following table sets forth , for the periods indicated , a reconciliation of adjusted ebitda to the most comparable gaap measure expressed as dollar amounts ( in thousands ) : replace_table_token_3_th adjusted ebitda declined as compared to the prior year due to the loss from operations . use and economic substance of non-gaap financial measures used and usefulness of such non-gaap financial measures to investors we use adjusted ebitda as a supplemental measure of performance and believe this measure facilitates operating performance comparisons from period to period and company to company by factoring out potential differences caused by depreciation and amortization expense and non-cash charges such as stock-based compensation . our management uses adjusted ebitda to analyze the underlying trends in our business , assess the performance of our core operations , establish operational goals and forecasts that are used to allocate resources and evaluate our performance period over period and in relation to our competitors ' operating results . additionally , our management is partially evaluated on the basis of adjusted ebitda when determining achievement of their incentive compensation performance targets . management does not use this adjusted ebitda measure as a liquidity measure or in the calculation of our financial covenants under the revolving credit facility with silicon valley bank . we believe that presenting adjusted ebitda provides investors greater transparency to the information used by our management for its financial and operational decision-making and allows investors to see our results “ through the eyes ” of management . we also believe that providing this information better enables our investors to understand our operating performance and evaluate the methodology used by our management to evaluate and measure such performance . 34 the following is an explanation of each of the items that management excluded from adjusted ebitda and the reasons for excluding each of these individual items : stock-based compensation . our management believes that excluding this item from our non-gaap results is useful to investors to understand the application of stock-based compensation guidance and its impact on our operational performance and ability to make additional investments in our company , and it allows for greater transparency to certain line items in our financial statements .
| results of operations the following table sets forth , for the periods indicated , our results of operations expressed as dollar amounts ( in thousands ) , and , for certain line items , the changes between the specified periods : comparison of fiscal year ended june 30 , 2019 with fiscal year ended june 30 , 2018 replace_table_token_2_th net revenues . net revenues increased by $ 31.0 million , or 14.3 % , from $ 217.0 million for the year ended june 30 , 2018 to $ 248.0 million for the year ended june 30 , 2019 . revenues from our peripheral products increased $ 17.5 million , or 10.8 % , due to an increase in customer accounts , growth in both the hospital and office based lab sites of service , international expansion , and additional product offerings within the peripheral space . revenues from our coronary products increased by approximately $ 13.5 million , or 24.2 % , due to an increase in customer accounts , international expansion , and additional product offerings in the coronary space . revenue growth in both peripheral and coronary was partially offset by modest average selling price declines . in fiscal 2019 , we also had $ 7.9 million of revenue from international sales of our oas and related products , compared to $ 1.8 million of revenue in the prior fiscal year . historically , all of our revenues have been in the united states ; however , international sales through medikit commenced in february 2018 when we first received reimbursement approval in japan .
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the following table presents the estimated fair value and carrying value of our long-term debt ( in millions ) : replace_table_token_31_th 78 note 6accounts receivable the components of accounts receivable under long-term contracts are as follows ( in thousands ) : replace_table_token_32_th a portion of recoverable costs and accrued profits on progress completed is billable under progress or milestone payment provisions of the related contracts . the remainder of these amounts is billable upon delivery story_separator_special_tag . restatement with this annual report on form 10-k , we have restated the following previously filed consolidated financial statements , data and related disclosures : ( 1 ) our consolidated balance sheets as of september 30 , 2011 , 2010 and 2009 and the related consolidated statements of income , shareholders ' equity and cash flows for each of the fiscal years then ended and the related footnotes ; ( 2 ) our selected financial data as of , and for , our fiscal years ended september 30 , 2011 , 2010 , 2009 and 2008 located in item 6 of this form 10-k ; ( 3 ) our management 's discussion and analysis of financial condition and results of operations as of and for our fiscal years ended september 30 , 2011 , 2010 and 2009 and for the quarters ended march 31 , 2012 , and december 31 , 2011 , and each of the quarters in our fiscal years ended september 30 , 2011 and 2010 and contained herein ; and ( 4 ) our unaudited quarterly financial information for each quarter in our fiscal years ended september 30 , 2011 and 2010 , and for the quarters ended march 31 , 2012 and december 31 , 2011 in note 18 , summary of quarterly results of operations ( unaudited ) , of the notes to consolidated financial statements in item 8 of this form 10-k. the restatement results from our review of revenue recognition practices . see explanatory note regarding restatement immediately preceding part i , item 1 and note 2 , restatement of consolidated financial statements of the notes to consolidated financial statements in item 8 for a detailed discussion of the review and effect of the restatement . 26 the following discussion and analysis of our financial condition and results of operations incorporates the restated amounts . for this reason the data set forth in this section may not be comparable to discussions and data in our previously filed annual and quarterly reports . overview our primary businesses are in the defense and transportation industries . for the year ended september 30 , 2012 , 63 % of sales were derived from defense systems and services , while 37 % were derived from transportation fare collection systems and other commercial operations . these include high technology businesses that design , manufacture and integrate complex systems , and provide essential services to meet the needs of various federal and regional government agencies in the u.s. and other nations around the world . the u.s. government remains our largest customer , accounting for approximately 50 % of sales in 2012 , compared to 56 % in 2011 , 57 % in 2010 and 59 % in 2009. cubic transportation systems ( cts ) develops and delivers innovative fare collection systems for public transit authorities worldwide . we provide hardware , software and multiagency , multimodal transportation integration technologies , as well as a full scope of operational services that allow the agencies to efficiently collect fares , manage their operations , reduce fare evasion and make using public transit a more convenient and attractive option for commuters . cubic defense systems ( cds ) is focused on two primary lines of business : training systems and communications . the segment is a diversified supplier of live and virtual military training systems , and communication systems and products to the u.s. department of defense , other u.s. government agencies and allied nations . we design instrumented range systems for fighter aircraft , armored vehicles and infantry force-on-force live training weapons effects simulations , laser-based tactical and communication systems , and precision gunnery solutions . our communications products are aimed at intelligence , surveillance , and search and rescue markets . in 2010 , through two acquisitions , we added new product lines including multi-band communication tracking devices , and cross domain hardware solutions to address multi-level security requirements . mission support services ( mss ) is a leading provider of highly specialized support services to the u.s. government and allied nations . services provided include live , virtual and constructive training , real-world mission rehearsal exercises , professional military education , intelligence support , information technology , information assurance and related cyber support , development of military doctrine , consequence management , infrastructure protection and force protection , as well as support to field operations , force deployment and redeployment and logistics . sales increased 7 % in fiscal 2012 over 2011 , primarily due to growth of 20 % in cts . growth in 2012 sales from mss was nearly offset by a decrease in cds sales . sales increased to $ 1.381 billion in 2012 , compared to $ 1.296 billion in 2011 , with all of the growth coming from existing businesses . the average exchange rates between the prevailing currencies in our foreign operations and the u.s. dollar , resulted in a decrease in sales of $ 1.5 million in 2012 over 2011. sales increased 8 % in 2011 over 2010 , due to growth in all three business segments . sales grew to $ 1.296 billion in 2011 , compared to $ 1.198 billion in 2010. approximately half of the growth in 2011 was organic and half was the result of our acquisition of abraxas in december 2010 , which added $ 50.0 million to our 2011 revenue . sales in 2011would have increased by 4 % without the addition of abraxas and sales in our mss segment would have decreased 4 % absent this acquisition . story_separator_special_tag , as well as a higher gross margin from 2011 abraxas revenues since our acquisition of the business in december 2010. the services gross margin in 2010 was lower because of costs we incurred in the transition of our contract in london from the vie to cubic . selling , general and administrative ( sg & a ) expenses increased to $ 163.7 million or 12 % of sales in 2012 , compared to $ 159.8 million or 12 % of sales in 2011 , $ 124.3 million or 10 % of sales in 2010 and $ 119.1 million or 12 % of sales in 2009. the increase in sg & a expenses in 2012 reflects the overall growth of the business . the increase in 2011 was primarily due to increased business development expenses for two defense systems businesses acquired in 2010 , as well as increased business development expenses related to other businesses within our defense systems segment . in 2011 , we incurred more bid and proposal costs as a percentage of revenue throughout the organization , and more sg & a costs related to the growth of our transportation systems business in australia and the u.k. the acquisition of abraxas in the mss segment also added to 2012 and 2011 sg & a expenses compared to 2010 and 2009. in addition , 2010 sg & a expenses benefitted from a bad debt recovery of $ 4.2 million , while 2009 sg & a expenses included a bad debt provision of $ 3.1 million . company-sponsored research and development ( r & d ) spending totaled $ 28.7 million in 2012 compared to $ 25.3 million in 2011 , $ 19.0 million in 2010 and $ 8.2 million in 2009. the increase in r & d expenditures in 2012 came from the transportation systems business , which increased r & d spending from $ 4.0 million in 2011 to $ 8.3 million in 2012. increased r & d expenditures in 2011 were primarily related to the development of products by the two defense companies we acquired in 2010 , including multi-band communication tracking devices and cross domain hardware solutions to address multi-level security requirements . we also increased r & d spending in 2010 and again in 2011 related to new technologies for ground combat training systems in our defense systems business . a significant portion of our product development spending is incurred in connection with the performance of work on our contracts . the amount of contract required development activity in 2012 was approximately $ 81 million compared to $ 72 million in 2011 , $ 63 million in 2010 and $ 54 million in 2009 , however , these costs are included in cost of sales , rather than r & d , as they are directly related to contract performance . amortization expense increased to $ 14.8 million in 2012 , compared to $ 14.7 million in 2011 , $ 6.8 million in 2010 and $ 6.4 million in 2009. the increase in 2012 and 2011 over 2010 and 2009 was primarily due to our acquisition of abraxas in december 2010. interest and dividend income was $ 3.0 million in 2012 , compared to $ 2.6 million in 2011 , $ 1.6 million in 2010 and $ 1.7 million in 2009. interest and dividend income primarily increased in 2012 and 2011 over 2010 and 2009 due to an increase in local currencies held by our wholly-owned subsidiaries in new zealand and australia . these foreign investments earned a higher interest rate in both 2012 and 2011 than our other cash and short term investments . other income ( expense ) netted to income of $ 0.8 million in 2012 , compared to $ 1.7 million in 2011 , $ 3.6 million in 2010 and $ 0.7 million in 2009. the higher amount of other income in 2011 and 2010 was caused primarily by the impact of foreign currency exchange rate changes on u.s. dollar denominated investments held by our wholly-owned subsidiary in the u.k. that uses the british pound as its functional currency . the impact of exchange rates on these u.s. dollar denominated investments was recorded as other non-operating income , and resulted in income of $ 0.5 million in 2011 and $ 3.7 million in 2010. interest expense was $ 1.6 million in 2012 , compared to $ 1.5 million in 2011 , $ 1.8 million in 2010 and $ 2.0 million in 2009 due to a reduction in long-term borrowings over the four year period . our effective tax rate for 2012 was 29 % of pretax income compared to 28 % in 2011 , 35 % in 2010 and 34 % in 2009. our effective tax rate increased in 2012 over 2011 , primarily because of the expiration of the u.s. r & d credit on december 31 , 2011. in 2012 , we also recorded a benefit of $ 2.5 million , due to the reversal of uncertain tax positions relating to statute expirations and settlements with tax authorities , compared to $ 1.2 million in 2011 , $ 1.7 million in 2010 and $ 1.8 million in 2009.the effective tax rate also decreased in 2012 and 2011 compared to 2010 and 2009 , due to an increase in the amount of our income earned in foreign tax jurisdictions that is taxed at lower rates than the u.s. federal statutory tax rate . 29 our effective tax rate also decreased in 2011 compared to 2010 and 2009 due to an increase in r & d and other income tax credits . in addition , in fiscal 2011 the u.s. congress retroactively reinstated the r & d credit , which had expired in fiscal 2010 , further reducing our 2011 tax expense by $ 1.4 million .
| quarterly results three and six-month periods ended march 31 , 2012 , 2011 and 2010 consolidated overview sales for the quarter ended march 31 , 2012 decreased 2 % to $ 339.6 million from $ 347.9 million in the quarter ended march 31 , 2011. sales in the second quarter of fiscal 2011 increased 28 % over 2010 sales of $ 272.5 million . sales from cts increased in the second quarter of both 2012 and 2011 , while mss and cds sales decreased in the second quarter of 2012 , but increased in the second quarter of 2011 compared to 2010. abraxas added sales of $ 17.0 million to mss sales in the second quarter of 2012 , compared to $ 14.2 million in the second quarter of 2011. abraxas was acquired in the first quarter of fiscal 2011. for the first six months of fiscal year 2012 , sales increased to $ 656.4 million compared to $ 629.8 million in 2011 , an increase of 4 % . sales for the first half of 2011 were 21 % higher than sales of $ 519.1 million in the first half of 2010. sales from cts and mss increased in the first half of both 2012 and 2011 , while cds sales decreased in the first half of 2012 after increasing in the first half of 2011. the acquisition of abraxas added $ 36.2 million to mss sales for the six-month period compared to $ 15.5 million last year . see the segment discussions following for further analysis of segment sales . 41 operating income was $ 32.5 million in the second quarter of 2012 compared to $ 40.6 million in the second quarter of 2011 , a decrease of 20 % .
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this discussion contains forward-looking statements that involve risks , uncertainties , and assumptions . our actual results may differ materially from those anticipated in these forward-looking statements as a result of a variety of factors , including those set forth under item 1a , risk factors and elsewhere in this report . 2011 highlights our fiscal 2011 net sales of $ 392.3 million represented a decrease of 3.4 % from our fiscal 2010 net sales . net sales in our firearm division decreased by 4.4 % to $ 342.2 million . net loss for fiscal 2011 was $ 82.8 million , or $ ( 1.37 ) per fully diluted share , compared with net income of $ 32.5 million , or $ 0.53 per fully diluted share , for fiscal 2010. our fiscal 2011 net loss resulted in large part from a goodwill and intangible assets impairment charge related to our july 2009 acquisition of universal safety response , inc. ( since renamed smith & wesson security solutions , inc. and referred to herein as swss ) of $ 87.8 million , net of deferred taxes of $ 2.7 million , offset by a $ 3.1 million favorable adjustment to revalue 4,080,000 shares of our common stock related to the swss acquisition . net income for fiscal 2010 included a $ 9.6 million favorable adjustment related to this share revaluation . excluding these two items , net income for fiscal 2011 would have been $ 2.0 million , a $ 20.9 million , or 91.3 % , decrease from fiscal 2010 net income . our operating results for fiscal 2011 were affected by numerous factors , including the following : a 3.4 % decline in revenue resulting from lower order intake in our firearm business as ordering returned to more normal levels compared with the strong consumer demand that occurred after the november 2008 presidential election , offset by an increase in sales in our security solutions division over the prior fiscal year , primarily as a result of including a full year of revenue in fiscal 2011 operating results versus the nine-and-a-half months included in fiscal 2010 operating results . the ongoing economic downturn and reduced federal and corporate spending in the perimeter security industry had a negative impact on sales in our security solutions division during fiscal 2011. the relocation of our rochester , new hampshire operating activities , including the production of our hunting products , to our springfield , massachusetts facility resulting in $ 2.7 million in relocation costs , of which $ 2.3 million was attributed to cost of goods sold and $ 422,000 related to operating expenses , and resulting in lower margins than in the prior fiscal year due to the negative impact on efficiencies in that product line . a negative impact on gross profit margin resulting from reduced pricing in selected firearm products as part of our price-repositioning strategy , which included price protection adjustments to distributors for products held in their inventory at the time the price reductions were announced ; increased promotional activities related to our firearm products over the prior fiscal year , a period in which there was a significant increase in consumer demand ; and weak demand caused by federal funding deficits and corporate budgetary constraints combined with an increase in price competitiveness in the perimeter security market to lower gross margins in our security solutions division . a non-cash impairment charge of $ 87.8 million , net of $ 2.7 million of deferred taxes , based on our determination that the goodwill and intangible assets related to our acquisition of swss were impaired due to market conditions and other factors . legal and consulting costs of $ 9.9 million related to the doj unsealed indictments of 22 individuals from the law enforcement and military equipment industries , one of whom was our vice president-sales , international , even though we were not charged in the indictment . we incurred $ 3.2 million of similar costs in fiscal 2010. our business we are one of the world 's leading manufacturers of firearms . we manufacture a wide array of handguns , modern sporting rifles , hunting rifles , black powder firearms , handcuffs , and firearm-related products and accessories for sale to a wide variety of customers , including gun enthusiasts , collectors , hunters , sportsmen , 38 competitive shooters , individuals desiring home and personal protection , law enforcement and security agencies and officers , and military agencies in the united states and throughout the world . we are one of the largest manufacturers of handguns and handcuffs in the united states , the largest u.s. exporter of handguns , and a participant in the modern sporting and hunting rifle markets . we are also a leading turnkey provider of perimeter security solutions to protect and control access to key military , government , and corporate facilities . we manufacture our firearm products at our facilities in springfield , massachusetts ; houlton , maine ; and rochester , new hampshire . we manufacture and assemble our perimeter security products at our facilities in franklin , tennessee . in addition , we pursue opportunities to license our name and trademarks to third parties for use in association with their products and services . we plan to increase our product offerings to leverage the nearly 160 year old smith & wesson brand and capitalize on the goodwill developed through our historic american tradition by expanding consumer awareness of products we produce or license in the safety , security , protection , and sport markets . key performance indicators we evaluate the performance of our business based upon operating profit , which includes net sales , cost of products and services sold , selling and administrative expenses , and certain components of other income and expense . we also use adjusted ebitdas ( earnings before interest , taxes , depreciation , amortization , and stock-based compensation expense , excluding large non-recurring items ) , which is a non-gaap financial metric , to evaluate our performance . story_separator_special_tag we acquired the security solutions business on july 20 , 2009. fiscal 2010 cost of products and services sold and gross profit compared with fiscal 2009 gross profit in our firearm division for fiscal 2010 grew as a result of the increase in sales while gross profit as a percentage of net products and services sold improved as a result of a $ 3,075,000 reduction in warranty expense , a $ 1,712,000 reduction in promotional spending , and favorable absorption resulting from high production volume to 42 meet consumer demand . in addition , reduced manufacturing spending and improved material efficiencies at our rochester , new hampshire facility contributed to the improved gross margin percentage . operating expenses the following table sets forth certain information regarding operating expenses for the fiscal years ended april 30 , 2011 , 2010 , and 2009 ( dollars in thousands ) : replace_table_token_4_th fiscal 2011 operating expenses compared with fiscal 2010 excluding the impact of the impairment charge recorded in fiscal 2011 for goodwill and intangible assets related to our 2009 acquisition of swss , fiscal 2011 operating expenses increased $ 16,704,000 , or 18.7 % , over the prior fiscal year . in our firearm division , the increase in research and development expenses over the prior fiscal year was primarily due to increased test samples to support new product development . the increase in selling and marketing expenses was a result of increased consulting and outside services of $ 2,354,000 , which included improvements in our customer acceptance process , market research and consulting , and licensing consulting , as well as advertising of $ 1,119,000 in support of new product launches and cooperative advertising cost sharing agreements with several of our large retail customers . the increase in general and administrative costs over the prior fiscal year included $ 6,159,000 of legal and consulting fees related our investigation of the doj and sec matters , $ 803,000 of bad debt costs , $ 812,000 of legal fees related to the filing of an international trade commission ( itc ) action against several of our black powder competitors , $ 1,045,000 of severance costs , and $ 810,000 in consulting fees related to internal audit activities . these amounts were offset by $ 3,138,000 of lower profit sharing , $ 1,603,000 of lower stock compensation expense , and $ 2,389,000 of lower management incentive compensation . 43 operating expenses as a percentage of net products and services sold for our firearm division increased by 3.2 % , predominately due to a $ 6,708,000 increase in costs related to the doj and sec matters , severance costs related to the manufacturing plant relocation , and costs associated with the itc filing . excluding the impact of the impairment charge recorded in fiscal 2011 for goodwill and intangible assets related to our 2009 acquisition of swss , operating expenses for our security solutions division increased by $ 9,198,000 , or 94.5 % , to $ 18,935,000 , of which approximately $ 2,800,000 can be attributed to including a full year of expenses in fiscal 2011 compared with only approximately nine and a half months in fiscal 2010. the remaining increase reflected a $ 1,702,000 impact resulting from the focused effort to expand the administrative and sales management team necessary to sustain an ongoing business . we recruited key personnel in sales , marketing , engineering , finance , and estimating in order to build the appropriate control and operating structure for the division . in addition , we incurred $ 765,000 of increased product development costs to begin to expand the division 's product offerings , offered $ 399,000 of increased equity compensation to senior employees , increased trade show and marketing material costs by $ 208,000 , spent an additional $ 302,000 on travel of our sales team , and incurred $ 150,000 in relocation costs , all in an effort to expand the business . in fiscal 2011 , we incurred $ 435,000 of additional bad debt costs primarily on one contract where the general contractor was removed by the government . in addition , in fiscal 2011 , increased overhead costs were incurred , including $ 428,000 of warranty costs , $ 187,000 of increased intangible amortization , $ 207,000 of increased depreciation , $ 293,000 of severance costs , and $ 135,000 of legal fees . excluding the impact of the impairment charge recorded in fiscal 2011 for goodwill and intangible assets related to our acquisition of swss , operating expenses as a percentage of net products and services sold for our security solutions division increased by 17.6 % , predominately due to the increase in employee costs described above . fiscal 2010 operating expenses compared with fiscal 2009 excluding the impact of the impairment charge recorded in fiscal 2009 for goodwill and other long-lived intangible assets related to our thompson/center arms acquisition , operating expenses for fiscal 2010 increased $ 7,123,000 over fiscal 2009 operating expenses because of increased profit sharing and management incentive compensation related to improved financial performance versus the prior fiscal year , increased administrative costs related to our acquisition of swss , including legal and accounting-related consulting fees , and increased legal and consulting fees related to allegations against one of our employees under the fcpa . this was partially offset by lower amortization of intangible assets due to our impairment of goodwill and other long-lived assets of thompson/center arms and lower bad debt reserve charges that arose from the sudden decline in the economy during calendar 2008. the increase in research and development costs in fiscal 2010 related to $ 476,000 in increased samples and testing materials in support of new product introductions , $ 675,000 in increased salaries and benefits , and $ 204,000 of reduced allocations to manufacturing based on an increased focus on new product engineering .
| results of operations net product and services sales the following table sets forth certain information regarding net product and services sales for the fiscal years ended april 30 , 2011 , 2010 , and 2009 ( dollars in thousands ) : replace_table_token_2_th fiscal 2011 net product and services sales compared with fiscal 2010 net product and services sales for fiscal 2011 decreased as ordering returned to more normal levels compared with the strong consumer demand that occurred after the november 2008 presidential election . revolver sales increased 3.0 % over the prior fiscal year because of the significant demand for our bodyguard 38 revolver , offset by reduced volume in our aluminum frame products to the consumer market and significantly reduced international shipments , which resulted from substantial changes we made in our foreign sales personnel and foreign representatives , modifications we made in our foreign sales processes , and our determination not to sell our products in certain foreign countries . price repositioning and the costs of a rebate program on small frame revolvers negatively impacted sales dollars while helping to spur unit sales . pistol sales were 6.8 % higher than in the prior fiscal year driven by the introduction of our bodyguard 380 concealed carry pistol . sales of metal pistols were lower compared with the prior fiscal year primarily due to reduced international shipments , while sales of sigma were down as demand shifted to concealed carry in the domestic marketplace . walther product sales declined 12.7 % from the prior fiscal year because of increased competition in small frame and concealed carry products . sales of modern sporting rifles , the product line most impacted by the reduction in consumer demand , declined by 37.5 % from the prior fiscal year . however , sales within this product line were favorably impacted in the fourth quarter of fiscal 2011 by the introduction of our new sport model .
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in june 2018 , the company adopted asu 2018-7 , improvements to nonemployee share-based payment accounting , which aligned the accounting for non-employee equity-based awards with the accounting for employee equity-based awards , retroactive story_separator_special_tag on january 1 , 2020 , we completed our conversion from a delaware limited partnership named the carlyle group l.p. into a delaware corporation named the carlyle group inc. pursuant to the conversion , at the specified effective time on january 1 , 2020 , each common unit of the carlyle group l.p. outstanding immediately prior to the effective time converted into one share of common stock of the carlyle group inc. and each special voting unit and general partner unit was canceled for no consideration . in addition , holders of the partnership units in carlyle holdings i l.p. , carlyle holdings ii l.p. , and carlyle holdings iii l.p. exchanged such units for an equivalent number of shares of common stock and certain other restructuring steps occurred ( the conversion , together with such restructuring steps and related transactions , the “ conversion ” ) . unless the context suggests otherwise , references in this report to “ carlyle , ” the “ company , ” “ we , ” “ us ” and “ our ” refer ( i ) prior to the consummation of the conversion to the carlyle group l.p. and its consolidated subsidiaries and ( ii ) from and after the consummation of the conversion to the carlyle group inc. and its consolidated subsidiaries . references to our common stock in periods prior to the conversion refer to the common units of the carlyle group l.p. the following discussion should be read in conjunction with the consolidated financial statements and the related notes included in this annual report on form 10-k. overview we conduct our operations through four reportable segments : corporate private equity , real assets , global credit , and investment solutions . corporate private equity — our corporate private equity segment advises our 25 buyout and 10 middle market and growth capital funds , which seek a wide variety of investments of different sizes and growth potentials . as of december 31 , 2019 , our corporate private equity segment had more than $ 86 billion in aum and approximately $ 62 billion in fee-earning aum . real assets — our real assets segment advises our 10 u.s. and internationally focused real estate funds , our five infrastructure funds , our two international energy funds , as well as our three legacy energy funds . the segment also includes three ngp predecessor funds and four ngp carry funds advised by ngp . as of december 31 , 2019 , our real assets segment had more than $ 43 billion in aum and more than $ 33 billion in fee-earning aum . global credit — our global credit segment advises a group of 64 funds that pursue investment strategies including loans and structured credit , direct lending , opportunistic credit , distressed credit , and aircraft financing and servicing . as of december 31 , 2019 , our global credit segment had more than $ 49 billion in aum and approximately $ 38 billion in fee-earning aum . investment solutions — our investment solutions segment advises global private equity and real estate fund of funds programs and related co-investment and secondary activities across 248 fund vehicles . as of december 31 , 2019 , our investment solutions segment had more than $ 45 billion in aum and more than $ 28 billion in fee-earning aum . we earn management fees pursuant to contractual arrangements with the investment funds that we manage and fees for transaction advisory and oversight services provided to portfolio companies of these funds . we also typically receive a performance fee from an investment fund , which may be either an incentive fee or a special residual allocation of income , which we refer to as a carried interest , in the event that specified investment returns are achieved by the fund . under u.s. generally accepted accounting principles ( “ u.s . gaap ” ) , we are required to consolidate some of the investment funds that we advise . however , for segment reporting purposes , we present revenues and expenses on a basis that deconsolidates these investment funds . accordingly , our segment revenues primarily consist of fund management and related advisory fees and other income , realized performance revenues ( consisting of incentive fees and carried interest allocations ) , realized principal investment income , including realized gains on our investments in our funds and other trading securities , as well as interest income . our segment expenses primarily consist of cash compensation and benefits expenses , including salaries , bonuses , and realized performance payment arrangements , and general and administrative expenses . while our segment expenses include depreciation and interest expense , our segment expenses exclude acquisition-related charges and amortization of intangibles and impairment . refer to note 17 to the consolidated financial statements included in this annual report on form 10-k for 84 more information on the differences between our financial results reported pursuant to u.s. gaap and our financial results for segment reporting purposes . trends affecting our business market expectations for global economic growth continued to moderate into the fourth quarter of 2019. in the u.s. , growth decelerated relative to 2018 due to weakness in the industrial sector , business spending , and exports . although at a more moderate pace than 2018 , during 2019 and into early 2020 the economy continued to grow due to a housing sector rebound driven by lower mortgage rates tied to three federal reserve rate cuts during 2019 , and strong consumption growth due to low unemployment , robust real wage growth and generally solid household balance sheets during the year . the softness in business spending during 2019 and continuing into early 2020 appears to be attributable to a combination of weak corporate earnings , heightened “ late-cycle ” fears among business managers and ongoing geopolitical tensions . story_separator_special_tag our overall carry fund portfolio generally lagged the performance of large cap u.s. stocks , while exceeding returns on the small- and mid-cap indices in 2019. our corporate private equity funds appreciated by 3 % in the fourth quarter and 8 % over the last twelve months . our real asset funds were flat during the fourth quarter and appreciated 3 % over the last twelve months , as strong appreciation in our real estate funds of 16 % over 2019 was dampened by weakness in certain energy funds , in particular those with significant investments in upstream companies and or publicly traded companies . investment solutions appreciation was 1 % in the fourth quarter and 15 % for the year , driven by strong investment performance in our alpinvest funds . while slowing global growth and volatile market conditions could impact valuations in the short-term , we believe our existing portfolio of assets is high-quality and well-diversified by fund , industry sector , asset class , and region . we raised $ 3.3 billion of new capital in the fourth quarter , and $ 19.3 billion over the last year , exceeding our four-year $ 100 billion fundraising target by almost $ 10 billion . we expect that our fundraising pace in 2020 will be similar to 2019 , with fundraising for the next vintage of our large buyout and real estate funds anticipated to begin in late 2021 or early 2022. during the interim periods , we expect fundraising to drive modest fee-earning aum growth . growth in our global credit and investment solutions segments is expected to be partially offset by downward pressure in our corporate private equity and real assets segments where exit activity may temporarily outpace new fundraising . during the fourth quarter , our carry funds invested $ 7.1 billion in new or follow-on transactions that we have been working on for several months , and have invested approximately $ 21.3 billion over the last year , a pace generally consistent with recent years but higher than our long-term average as our larger platform supports greater capital deployment . in our global credit segment , there were $ 3.0 billion gross originations in our direct lending business . overall , the investment environment remains challenging and competitive . while levels of dry powder generally remain high across the private equity industry , we have seen an increase in potential investment opportunities . our available capital level is consistent with the lifecycle stage of our most recent vintage of funds and our rate of capital investment continues to be steady . we generated $ 5.1 billion in realized proceeds from our carry funds in the fourth quarter , and $ 19.9 billion over the last twelve months , which is below our exit pace in recent years . at this time , we expect that exit activity and net realized performance revenues will begin to rebound in 2020. over the course of 2019 and continuing into 2020 there has been an increasing level of public discourse , debate and media coverage regarding the appropriate extent of regulation and oversight of the financial industry , including investment firms , as well as the tax treatment of certain investments and income generated from such investments . we anticipate that such active debate and media coverage will continue to increase in connection with the 2020 u.s. election cycle as financial proposals are put forth by potential u.s. presidential and congressional candidates . recent transactions on january 1 , 2020 , we completed the conversion of the carlyle group l.p. from a delaware limited partnership to a delaware corporation named the carlyle group inc. see “ —conversion to a corporation ” below . dividends in february 2020 , the board of directors declared a quarterly distribution of $ 0.25 per common share to common stockholders of record at the close of business on february 18 , 2020 , payable on february 25 , 2020 . conversion to a corporation on january 1 , 2020 , we completed our conversion from a delaware limited partnership named the carlyle group l.p. ( the “ partnership ” ) into a delaware corporation named the carlyle group inc. ( the “ corporation ” ) . pursuant to the conversion , at the specified effective time on january 1 , 2020 , ( i ) each common unit of the partnership outstanding immediately prior to the effective time converted into one issued and outstanding , fully paid and nonassessable share of common stock , ( ii ) each special voting unit of the partnership outstanding immediately prior to the effective time was canceled for no consideration and the former holder ( s ) thereof ceased to have any rights with respect thereto and ( iii ) each general partner unit of the partnership outstanding immediately prior to the effective time was canceled for no consideration and the former holder ( s ) thereof ceased to have any rights with respect thereto , in each case without any action required on the part of the partnership , the corporation , any holder of any partnership interest or any other person . in addition , holders of partnership 86 units in carlyle holdings i l.p. , carlyle holdings ii l.p. and carlyle holdings iii l.p. exchanged such units for an equivalent number of shares of common stock of the corporation and certain other restructuring steps occurred ( the conversion , together with such restructuring steps and related transactions , the “ conversion ” ) . the conversion is expected to qualify for the non-recognition of gain or loss to our former common unitholders for u.s. federal income tax purposes . the application of the non-recognition rules to non-u.s. common unitholders in the context of the conversion is dependent on local tax requirements . all former common unitholders should consult their own advisers as to the consequences of the conversion to them . final schedule k-1s will be issued in respect of our final taxable period as a limited partnership .
| consolidated results of operations the following table and discussion sets forth information regarding our consolidated results of operations for the years ended december 31 , 2019 , 2018 and 2017 . our consolidated financial statements have been prepared on substantially the same basis for all historical periods presented ; however , the consolidated funds are not the same entities in all periods shown due to changes in u.s. gaap , changes in fund terms and the creation and termination of funds . as further described above , the consolidation of these funds primarily had the impact of increasing interest and other income of consolidated funds , interest and other expenses of consolidated funds , and net investment gains of consolidated funds in the year that the fund is initially consolidated . the consolidation of these funds had no effect on net income attributable to the company for the periods presented . 98 replace_table_token_12_th 99 year ended december 31 , 2019 compared to year ended december 31 , 2018 and year ended december 31 , 2018 compared to year ended december 31 , 2017 . revenues total revenues increased $ 949.8 million , or 39 % , for the year ended december 31 , 2019 as compared to 2018 and decrease d $ 1.2 billion , or 34 % , for the year ended december 31 , 2018 as compared to 2017 . the following table provides the components of the changes in total revenues for the years ended december 31 , 2019 and 2018 : replace_table_token_13_th fund management fees .
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our wholly-owned subsidiary prospect small business lending , llc ( “ psbl ” ) was formed on january 27 , 2014 and purchases small business whole loans on a recurring basis from online small business loan originators , including on deck capital , inc. ( “ ondeck ” ) . on september 30 , 2014 , we formed a wholly-owned subsidiary prospect yield corporation , llc ( “ pyc ” ) and effective october 23 , 2014 , pyc holds our investments in collateralized loan obligations ( “ clos ” ) . each of these subsidiaries have been consolidated since operations commenced . we consolidate certain of our wholly-owned and substantially wholly-owned holding companies formed by us in order to facilitate our investment strategy . the following companies are included in our consolidated financial statements : amu holdings inc. ; aph property holdings , llc ( “ aph ” ) ; arctic oilfield equipment usa , inc. ; ccpi holdings inc. ; cp holdings of delaware llc ( “ cp holdings ” ) ; credit central holdings of delaware , llc ; energy solutions holdings inc. ; first tower holdings of delaware llc ( “ first tower delaware ” ) ; harbortouch holdings of delaware inc. ; mity holdings of delaware inc. ; nationwide acceptance holdings llc ; nmmb holdings , inc. ( “ nmmb holdings ” ) ; nph property holdings , llc ( “ nph ” ) ; sti holding , inc. ; uph property holdings , llc ( “ uph ” ) ; valley electric holdings i , inc. ; valley electric holdings ii , inc. ; and wolf energy holdings inc. ( “ wolf energy holdings ” ) . on october 10 , 2014 , concurrent with the sale of the operating company , our ownership increased to 100 % of the outstanding equity of arrm services , inc. which was renamed sb forging company , inc. ( “ sb forging ” ) . as such , we began consolidating sb forging on october 11 , 2014. effective may 23 , 2016 , in connection with the merger of american property reit corp. ( “ aprc ” ) and united property reit corp. ( “ uprc ” ) with and into national property reit corp. ( “ nprc ” ) , aph and uph merged with and into nph , and were dissolved . we collectively refer to these entities as the “ consolidated holding companies. ” we are externally managed by our investment adviser , prospect capital management l.p. ( “ prospect capital management ” or the “ investment adviser ” ) . prospect administration llc ( “ prospect administration ” ) , a wholly-owned subsidiary of the investment adviser , provides administrative services and facilities necessary for us to operate . our investment objective is to generate both current income and long-term capital appreciation through debt and equity investments . we invest primarily in senior and subordinated debt and equity of private companies in need of capital for acquisitions , divestitures , growth , development , recapitalizations and other purposes . we work with the management teams or financial sponsors to seek investments with historical cash flows , asset collateral or contracted pro-forma cash flows . we currently have nine strategies that guide our origination of investment opportunities : ( 1 ) lending to companies controlled by private equity sponsors , ( 2 ) lending to companies not controlled by private equity sponsors , ( 3 ) purchasing controlling equity positions and lending to operating companies , ( 4 ) purchasing controlling equity positions and lending to financial services companies , ( 5 ) purchasing controlling equity positions and lending to real estate companies , ( 6 ) purchasing controlling equity positions and lending to aircraft leasing companies ( 7 ) investing in structured credit ( 8 ) investing in syndicated debt and ( 9 ) investing in online loans . we may also invest in other strategies and opportunities from time to time that we view as attractive . we continue to evaluate other origination strategies in the ordinary course of business with no specific top-down allocation to any single origination strategy . lending to companies controlled by private equity sponsors - we make agented loans to companies which are controlled by private equity sponsors . this debt can take the form of first lien , second lien , unitranche or unsecured loans . these loans typically have equity subordinate to our loan position . historically , this strategy has comprised approximately 40 % -60 % of our portfolio . 65 lending to companies not controlled by private equity sponsors - we make loans to companies which are not controlled by private equity sponsors , such as companies that are controlled by the management team , the founder , a family or public shareholders . this origination strategy may have less competition to provide debt financing than the private-equity-sponsor origination strategy because such company financing needs are not easily addressed by banks and often require more diligence preparation . this origination strategy can result in investments with higher returns or lower leverage than the private-equity-sponsor origination strategy . historically , this strategy has comprised up to approximately 15 % of our portfolio . purchasing controlling equity positions and lending to operating companies - this strategy involves purchasing yield-producing debt and controlling equity positions in non-financial-services operating companies . we believe that we can provide enhanced certainty of closure and liquidity to sellers and we look for management to continue on in their current roles . this strategy has comprised approximately 5 % -15 % of our portfolio . purchasing controlling equity positions and lending to financial services companies - this strategy involves purchasing yield-producing debt and control equity investments in financial services companies , including consumer direct lending , sub-prime auto lending and other strategies . these investments are often structured in tax-efficient partnerships , enhancing returns . this strategy has comprised approximately 5 % -15 % of our portfolio . story_separator_special_tag debt issuances and redemptions during the three months ended june 30 , 2017 , we redeemed $ 49,497 aggregate principal amount of our prospect capital internotes® at par with a weighted average interest rate of 4.87 % , and issued $ 29,661 aggregate principal amount of prospect capital internotes® with a stated and weighted average interest rate of 4.82 % , to extend our borrowing base . the newly issued notes mature between april 15 , 2022 and june 15 , 2022 and generated net proceeds of $ 29,290 . during the three months ended june 30 , 2017 , we repaid $ 2,420 aggregate principal amount of prospect capital internotes® at par in accordance with the survivor 's option , as defined in the internotes® offering prospectus . as a result of these transactions , we recorded a loss in the amount of the unamortized debt issuance costs . the net loss on the extinguishment of prospect capital internotes® in the three months ended june 30 , 2017 was $ 320. in april , 2017 we repurchased $ 78,766 aggregate principal amount of the 2017 notes at a price of 102.0 % of face value , including commissions . as a result of these transactions , we recorded a loss in the amount of the difference between the reacquisition price and the net carrying amount of the 2017 notes , net of the proportionate amount of unamortized debt issuance costs . the net loss on extinguishment of debt we recorded in the three months ending june 30 , 2017 was $ 1,786. in april , 2017 we repurchased $ 114,581 aggregate principal amount of the 2018 notes at a price of 103.5 % of face value , including commissions . as a result of these transactions , we recorded a loss in the amount of the difference between the reacquisition price and the net carrying amount of the 2018 notes , net of the proportionate amount of unamortized debt issuance costs . the net loss on extinguishment of debt we recorded in the three months ending june 30 , 2017 was $ 4,700. on april 11 , 2017 , we issued $ 225,000 aggregate principal amount of convertible notes that mature on july 15 , 2022 ( the “ 2022 notes ” ) , unless previously converted or repurchased in accordance with their terms . the 2022 notes bear interest at a rate of 4.95 % per year , payable semi-annually on january 15 and july 15 each year , beginning july 15 , 2017. total proceeds from the issuance of the 2022 notes , net of underwriting discounts and offering costs , were $ 218,010. equity issuances on april 20 , 2017 , may 18 , 2017 , and june 22 , 2017 , we issued 53,517 , 65,054 , and 72,659 shares of our common stock in connection with the dividend reinvestment plan , respectively . investment holdings as of june 30 , 2017 , we continue to pursue our investment strategy . at june 30 , 2017 , approximately $ 5,838,305 , or 174.0 % , of our net assets are invested in 121 long-term portfolio investments and clos . 67 during the year ended june 30 , 2017 , we originated $ 1,489,470 of new investments , primarily composed of $ 985,844 of debt and equity financing to non-controlled portfolio investments , $ 325,174 of debt and equity financing to controlled investments , and $ 178,452 of subordinated notes in clos . our origination efforts are focused primarily on secured lending to non-control investments to reduce the risk in the portfolio by investing primarily in first lien loans , though we also continue to close select junior debt and equity investments . our annualized current yield was 12.2 % and 13.2 % as of june 30 , 2017 and june 30 , 2016 , respectively , across all performing interest bearing investments . the decline is primarily due to a decrease in cash-on-cash yields in our clo investment portfolio . monetization of equity positions that we hold and loans on non-accrual status are not included in this yield calculation . in many of our portfolio companies we hold equity positions , ranging from minority interests to majority stakes , which we expect over time to contribute to our investment returns . some of these equity positions include features such as contractual minimum internal rates of returns , preferred distributions , flip structures and other features expected to generate additional investment returns , as well as contractual protections and preferences over junior equity , in addition to the yield and security offered by our cash flow and collateral debt protections . we are a non-diversified company within the meaning of the 1940 act . as required by the 1940 act , we classify our investments by level of control . as defined in the 1940 act , “ control investments ” are those where there is the ability or power to exercise a controlling influence over the management or policies of a company . control is generally deemed to exist when a company or individual possesses or has the right to acquire within 60 days or less , a beneficial ownership of 25 % or more of the voting securities of an investee company . under the 1940 act , “ affiliate investments ” are defined by a lesser degree of influence and are deemed to exist through the possession outright or via the right to acquire within 60 days or less , beneficial ownership of 5 % or more of the outstanding voting securities of another person . “ non-control/non-affiliate investments ” are those that are neither control investments nor affiliate investments .
| results of operations net increase in net assets resulting from operations for the years ended june 30 , 2017 , 2016 and 2015 was $ 252,906 , $ 103,362 and $ 346,339 , or $ 0.70 , $ 0.29 , and $ 0.98 per weighted average share , respectively . during the year ended june 30 , 2017 , the $ 149,544 increase is primarily due to a decrease in net realized and change in unrealized losses of $ 46,165 recognized during the year ended june 30 , 2017 compared to $ 267,990 of net realized and unrealized losses recognized during the year ended june 30 , 2016. this fluctuation is primarily due to decreases in market yields and the competitive environment faced by our energy-related companies during the year ended june 30 , 2016. the $ 221,825 , or $ 0.62 per weighted average share , favorable decrease in net realized and change in unrealized losses is partially offset by a $ 62,901 decrease in interest income driven by a decline in returns from clos , a reduced interest earning asset base and additional loans on non-accrual status . additionally , net realized and change in unrealized losses is partially offset by a $ 20,822 decline in dividend income primarily a non-recurring dividend received from aprc in the prior year period . ( see “ investment income ” , “ net realized losses ” and “ net change in unrealized gains ( losses ) ” for further discussion . )
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our actual results could differ materially from those discussed below . factors that could cause or contribute to such differences include , but are not limited to , those identified below , and those discussed in the section titled risk factors included elsewhere in this annual report . 38 executive overview for the fiscal year ended june 30 , 2011 , we reported revenue of $ 817.0 million , representing 22 % revenue growth over the prior year . constant-currency revenue growth was 22 % for this period . diluted earnings per share ( eps ) grew 23 % for the fiscal year ended june 30 , 2011 over the prior year to $ 1.83. the year included solid financial and operational results , with our highest ever new customer additions , increased revenue from existing customers , continued geographic expansion , and healthy growth across our businesses . over the last 15 years , we have grown to become a leader in the large and fragmented market for small business marketing solutions . we have built significant competitive advantages via our marketing approach , proprietary technology , and manufacturing expertise . we have driven strong growth and developed substantial scale advantage by executing on our core strengths in mass customization technologies and by introducing an unmatched breadth of small business marketing products . we believe we are now well positioned to capitalize on our past success in order to capture more of the large market opportunity we see ahead of us . to do so , we have adopted a new investment approach designed to support our ability to scale faster and drive significant long-term shareholder returns . on july 28 , 2011 , we introduced new five-year organic revenue and earnings per share targets , along with an evolved financial and investment strategy to achieve our goals . we believe that by making disciplined but significant investments in fiscal 2012 and 2013 , we will be able to sustain high revenue growth rates over the five-year period , and position ourselves to deliver longer-term earnings per share growth at higher rates than we would have been able to achieve at a smaller investment scale . our long-term goal is to be the leading online provider of micro business marketing solutions for businesses or organizations with fewer than 10 employees . additionally , we plan to continue to focus on key market adjacencies where we believe we can drive additional long-term growth by employing our unique business model and customer value proposition . these adjacencies include digital marketing services , new geographic markets , personalized products for home and family usage , and up-market customers . the strategy for growth in our core micro business marketing opportunity is to make investments and drive success in the following areas : customer value proposition . we believe our customers currently spend only a small portion of their annual budget for marketing products and services with us . by shifting our success metrics from transactionally focused profit measures to longer-term customer satisfaction and economic measures , we believe we can deliver improvements to our customer experience and value proposition that will significantly increase customer loyalty and lifetime value . examples of these programs include improving the customer experience on our site , such as ease of use , less cross selling before customers reach the checkout , and expanded customer service . lifetime value based marketing . we have traditionally acquired customers by targeting micro businesses who are already shopping online through marketing channels such as search marketing , email marketing , and other online advertising . we believe a significant portion of micro businesses in our core markets do not currently use online providers of marketing services . by investing more deeply into existing marketing channels , as well as opening up new channels such as television broadcast and direct mail , we believe we can accelerate our new customer growth and reach offline audiences that are not currently looking to online partners for marketing needs . world class manufacturing . we believe our manufacturing processes are best-in-class when it comes to the printing industry . but when compared to the best manufacturing 39 companies in the world , we believe there is significant opportunity to drive further efficiencies and competitive advantages . by focusing additional top engineering talent on key process approaches , we believe we can make a step-function improvement in product quality and reliability , and significantly lower unit manufacturing costs . our strategy to drive longer-term growth by addressing market adjacencies is to develop our business in the following areas : digital marketing services . we estimate that less than 50 % of micro businesses have a website today , but digital marketing services , including websites , email marketing , online search marketing and social media marketing , are the fastest-growing part of the small business marketing space . we believe there is great value in helping customers understand the powerful ways in which physical and digital marketing can be combined . our current offering includes websites , email marketing , and local search visibility . additionally , in fiscal 2011 , we added several digital marketing services products or enhancements , including blogs , a search engine optimization tool for website customers , and personalized email domain names . since we launched digital marketing services in april 2008 , our number of unique paying digital subscribers has grown to approximately 335,000. geographies outside north america and europe . for the fiscal year ended june 30 , 2011 , revenue generated outside of north america and europe accounted for approximately 5 % of our total revenue . we believe that we have significant opportunity to expand our revenue both in the countries we currently service and in new markets . we completed construction of a production facility near melbourne , australia and launched a marketing office in sydney , australia in june 2010 to better support our business and customers in asia pacific . story_separator_special_tag the unrecognized tax benefits will reduce our effective tax rate if recognized . interest and , if applicable , penalties related to unrecognized tax benefits are recorded in the provision for income taxes . property , plant and equipment . we periodically evaluate the net realizable value of our property , plant and equipment when events or changes in circumstances indicate that the carrying value of an asset may not be recoverable . when indicators of potential impairment are present , the carrying value of the asset is evaluated in relation to the operating performance and estimated future 41 undiscounted cash flows expected to be generated by the asset . if the carrying amount of the asset exceeds the estimated future cash flows , an impairment charge is recognized in the amount by which the carrying value of the asset exceeds its estimated fair value . cash flow projections are based on trends of historical performance and our estimate of future performance . software and website development costs . we capitalize eligible salaries and payroll-related costs of employees who devote time to the development of internal-use computer software . capitalization begins when the preliminary project stage is complete , management with the relevant authority authorizes and commits to the funding of the software project , and it is probable that the project will be completed and the software will be used to perform the function intended . these costs are amortized on a straight-line basis over the estimated useful life of the software , which is generally two years . our judgment is required in determining the point at which various projects enter the stages at which costs may be capitalized , in assessing the ongoing value and impairment of the capitalized costs , and in determining the estimated useful lives over which the costs are amortized . litigation and contingencies . we are subject to various loss contingencies arising in the ordinary course of business . we consider the likelihood of loss or impairment of an asset or the incurrence of a liability , as well as our ability to reasonably estimate the amount of loss in determining loss contingencies . an estimated loss contingency is accrued when it is probable that an asset has been impaired or a liability has been incurred and the amount of loss can be reasonably estimated . we regularly evaluate current information available to us to determine whether such accruals should be adjusted . recently issued accounting pronouncements see item 8 of part ii , financial statements and supplementary data note 2 summary of significant accounting policies recently adopted accounting pronouncements and recently issued accounting pronouncements. story_separator_special_tag primarily due to increases in sales across our product and service offerings , as well as across geographies . the overall growth during this period was driven by increases in unique active customers , which grew by 20 % to approximately 9.6 million . this was influenced by growth in new customer additions , which grew 14 % to approximately 6.4 million , as well as growth in the number of retained customers , which grew 33 % to approximately 3.2 million . additionally , average bookings per unique active customer grew by 11 % to approximately $ 70 , which was in part due to the expansion of our product offering . the weaker u.s. dollar positively impacted our revenue growth rate by an estimated 230 basis points over the same period . total revenue by geographic segment for the fiscal year ended june 30 , 2011 , 2010 and 2009 are shown in the following tables : in thousands replace_table_token_8_th ( 1 ) constant-currency revenue growth , a non-gaap financial measure , represents the change in total revenue between current and prior year periods at constant-currency exchange rates by translating all non-u.s. dollar denominated revenue generated in the current period using the prior year period 's average exchange rate for each currency to the 44 u.s. dollar . we have provided this non-gaap financial measure because we believe it provides meaningful information regarding our results on a consistent and comparable basis for the periods presented . management uses this non-gaap financial measure , in addition to gaap financial measures , to evaluate our operating results . this non-gaap financial measure should be considered supplemental to and not a substitute for our reported financial results prepared in accordance with gaap . ( 2 ) includes referral fee revenue from membership discount programs of $ 0 , $ 5.2 million and $ 20.1 million for the fiscal years ended june 30 , 2011 , 2010 and 2009. cost of revenue cost of revenue includes materials used to manufacture our products , payroll and related expenses for production personnel , depreciation of assets used in the production process and in support of digital marketing service offerings , shipping , handling and processing costs , third-party production costs , and other related costs of products sold by us . production costs related to free products are included in cost of revenues as incurred . the increase in cost of revenue from fiscal 2010 to fiscal 2011 was primarily attributable to the increased volume of product shipments during the current year period . the decrease in the cost of revenue as a percentage of total revenue from fiscal 2010 to 2011 was primarily attributable to favorable shifts in product mix including an increase in sales of digital services , improved pricing in relation to shipping costs , and productivity improvements at our manufacturing locations . these improvements were partially offset by lower overhead absorption resulting from the opening of our new production facility in deer park , australia in june 2010. the increase in cost of revenue from fiscal 2009 to fiscal 2010 was primarily attributable to the production costs associated with increased volume of shipments of products during this period .
| results of operations the following table presents our historical operating results for the periods indicated as a percentage of revenue : replace_table_token_6_th 42 in thousands replace_table_token_7_th revenue we generate revenue primarily from the sale and shipping of customized manufactured products , as well as providing digital services , website design and hosting , email marketing services and order referral fees . we also generate a small percentage of our revenue from third-party offerings , which represented less than 1 % of total revenue during the fiscal year ended june 30 , 2011. revenue in our second fiscal quarter includes a favorable impact from increased seasonal product sales . formerly , we described fluctuations in revenue using three different metrics : sessions , conversion rate and average order value . we have commenced using the combination of unique active customers and average bookings per unique active customer to describe our revenue performance as we believe this approach is more aligned with the way we manage our business and our efforts to drive increased revenue . we believe that by providing unique active customers and average bookings per unique active customer , we offer shareholders a more useful means of assessing our execution against our strategy . because changes in one of these new metrics may be offset by changes in the other metric , no single factor is determinative of our revenue and profitability trends and we assess them together to understand their overall impact on revenue and profitability . we seek to grow revenue by increasing the number of customers who purchase from us ( unique active customers ) , as well as the amount our customers spend on our offerings ( average bookings per unique active customer ) . a number of factors influence our ability to drive increases in these metrics : unique active customers .
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3.6 certificate of designation of preferences , rights and limitations of series c convertible preferred stock ( incorporated by reference to exhibit 3.1 to form 8-k filed on january 29 , 2019 ) . 3.7 amendment to certificate of designation of preferences , rights and limitations of series c convertible preferred story_separator_special_tag overview we are a clinical-stage , oncology therapeutics company , taking a precision cancer medicine tm ( `` pcm tm `` ) approach to develop drugs that target mitosis ( cell division ) to treat various types of cancer , including prostate , colorectal and leukemia . by integrating a biomarker strategy into our development programs , we will be able to identify patients more likely to respond to treatment . 39 on march 15 , 2017 , we announced that we licensed onvansertib , a plk1 inhibitor , from nerviano , pursuant to a license agreement with nerviano dated march 13 , 2017. this exclusive , world-wide license agreement includes 3 issued patents for onvansertib which cover composition of matter , salt forms of onvansertib and combination of onvansertib with other drugs . onvansertib was developed to have high selectivity to plk1 ( at low nanomolar ic 50 levels ) , to have ideal pharmacokinetics , including oral bioavailability and administration and a drug half-life of approximately 24 hours , allowing for flexible dosing and scheduling , and is well tolerated and safe with only mild to moderate side effects reported to-date . a phase 1 safety study of onvansertib has been successfully completed in patients with advanced metastatic solid tumors and published in 2017 in investigational new drugs . we currently have three active clinical trials : a phase 2 open-label clinical trial of onvansertib in combination with abiraterone acetate ( zytiga ® ) and prednisone in patients with mcrpc , being conducted at beth israel deaconess medical center ( `` bidmc '' ) , dana-farber cancer institute ( `` dfci '' ) , and massachusetts general hospital ( `` mgh '' ) ; a phase 1b/2 open-label clinical trial of onvansertib in combination with folfiri and avastin ® in patients with mcrc with a kras mutation , being conducted at usc norris comprehensive cancer center and the mayo clinic ; and a phase 1b/2 open-label clinical trial of onvansertib in combination with standard-of-care chemotherapy in patients with aml , being conducted at eight sites across the u.s. onvansertib is a first-in-class , third-generation , oral and highly-selective plk1 inhibitor with demonstrated antitumor activity in different preclinical models . polo-like kinase family consists of 5 members ( plk1-plk5 ) and they are involved in multiple functions in cell division , including the regulation of centrosome maturation , checkpoint recovery , spindle assembly , cytokinesis , apoptosis and many others . plk1 is essential for the maintenance of genomic stability during cell division . the over-expression of plk1 can lead to immature cell division followed by aneuploidy and cell death , a hallmark of cancer . plk1 is over-expressed in a wide variety of leukemias/lymphomas and solid tumor cancers , including acute myeloid leukemia , non-hodgkin lymphoma , prostate , lung , breast , ovarian , colorectal and adrenocortical carcinoma . in addition , several studies have shown that over-expression of plk1 is associated with poor prognosis . blocking the expression of plk1 by kinase inhibitors , such as onvansertib , can effectively inhibit growth of , and induce , tumor cell death . studies have shown that inhibition of polo-like-kinases can lead to tumor cell death , including a phase 2 study in aml where response rates with a prior plk inhibitor of up to 31 % were observed when used in conjunction with a standard therapy for aml ( low-dose cytarabine ( “ ldac ” ) ) versus a 13.3 % response rate with ldac alone . we believe the more selective nature of onvansertib to plk1 , its 24-hour half-life and oral bioavailability , as well as its demonstrated safety and tolerability , with expected on-target , easy to manage and reversible side effects , may prove useful in addressing clinical therapeutic needs across a variety of cancers . onvansertib has been tested in-vivo in different xenograft and transgenic models suggesting tumor growth inhibition or tumor regression when used in combination with other therapies . onvansertib has been tested for antiproliferative activity on a panel of 148 tumor cell lines and appeared highly active with an ic 50 ( a measure concentration for 50 % target inhibition ) below 100 nm in 75 cell lines and ic 50 values below 1 um in 133 out of 148 cell lines . onvansertib also appears active in cells expressing multi-drug resistant ( “ mdr ” ) transporter proteins and we believe its apparent ability to overcome the mdr transporter resistance mechanism in cancer cells could prove useful in broader drug combination applications . in in-vitro and in-vivo preclinical studies , synergy ( interaction of discrete drugs such that the total effect is greater than the sum of the individual effects ) has been demonstrated with onvansertib when used in combination with numerous different chemotherapies , including cisplatin , cytarabine , doxorubicin , gemcitabine and paclitaxel , as well as targeted therapeutics , such as abiraterone acetate ( zytiga ® ) , histone deacetylase ( “ hdac ” ) inhibitors , such as belinostat ( beleodaq ® ) , quizartinib ( ac220 ) , a development stage flt3 inhibitor , and bortezomib ( velcade ® ) . these therapies are used clinically for the treatment of leukemias , lymphomas and solid tumor cancers , including aml , non-hodgkin lymphoma ( “ nhl ” ) , mcrpc , mcrc , and triple negative breast cancer ( “ tnbc ” ) . story_separator_special_tag on october 1 , 2019 , we announced the presentation of a poster at esmo providing an overview of our phase 1b/2 trial in metastatic colorectal cancer , to assess the safety and efficacy of onvansertib in combination with folfiri and avastin ® ( bevacizumab ) in kras-mutated mcrc . approximately 50 % of patients harbor the kras mutation ; current standard-of-care therapy has only a 5 % response rate . biomarker data demonstrates ability to assess patient response to therapy within one week of treatment with onvansertib . announced oral presentation of positive data from trovagene phase 1b/2 aml study of onvansertib at esmo conference . on september 30 , 2019 , we announced positive data from our phase 1b/2 trial in aml which was presented in an oral plenary session at the esmo conference . the data showed that administration of onvansertib in combination with standard-of-care chemotherapy is safe and well-tolerated and resulted in anti-leukemic activity that appears to be sustainable over time . there is a strong correlation between biomarker positive patients and treatment response ; observed in 6 of 9 biomarker positive patients versus 1 of 11 biomarker negative patients . phase 2 is open to enrolling 32 patients for treatment with onvansertib at the recommended dose of 60 mg/m² , in combination with decitabine , to further assess safety and efficacy of the regimen . announced successful completion of the aml phase 1b trial and initiation of the phase 2 continuation trial . on september 19 , 2019 , we announced the successful completion of our phase 1b trial in aml and the initiation of patient enrollment in phase 2. the phase 1b dose escalation clinical trial confirmed safety , preliminary efficacy and identified the recommended phase 2 dose of onvansertib . complete response ( cr + cri ) was achieved in 5 of 21 patients treated with onvansertib in combination with decitabine . phase 2 will treat 32 patients with onvansertib + decitabine ; eligible patients will have relapsed after receiving up to one prior therapy including patients who have developed resistance to first-line treatment with venetoclax . announced the presentation of positive clinical data from ongoing phase 2 study of onvansertib in mcrpc at the asia-pacific prostate cancer conference . on august 26 , 2019 , we announced findings from our phase 2 trial in mcrpc that leads to the discovery that onvansertib stops the rise in psa in patients with treatment-resistant , highly-aggressive and difficult-to-treat androgen-receptor variant 7 ( `` ar-v7 '' ) tumors . data demonstrates efficacy of onvansertib in patients showing early signs of resistance to androgen receptor signaling ( `` ars '' ) inhibitor , zytiga ® . the addition of onvansertib appears to extend the duration of response to ars inhibitor therapy in this incurable and lethal cancer . announced research collaboration with nektar therapeutics to evaluate the efficacy of the combination of onvansertib and onzeald tm in models of colorectal cancer . 42 on may 23 , 2019 , we announced we entered into a research collaboration agreement with nektar therapeutics to explore the combination of our plk1 inhibitor , onvansertib , and nektar 's topoisomerase i inhibitor , onzeald , for the treatment of mcrc . under the collaboration , the two companies will evaluate the antitumor activity and tolerability of the combination of onvansertib and onzeald in two ( ht29 - braf mutant and hct-116 - kras mutant ) preclinical tumor models of colorectal cancer . announced data demonstrating significant synergy of onvansertib in combination with venetoclax in cell model of venetoclax-resistant aml . on april 23 , 2019 , we announced preclinical data that evaluated the effect of combining onvansertib with venetoclax in an aml cell model known to be resistant to venetoclax ( venclexta ® - abbvie ) . this combination demonstrated synergy ( the combined effect of the two drugs is greater than the sum of their individual effects ) with a significant decrease in tumor cell viability . this data provides support for clinical evaluation of onvansertib in combination with venetoclax in patients with difficult-to-treat relapsed/refractory aml , for which there are limited treatment options and the prognosis is poor . announced new patent issued for combination of onvansertib with anti-androgen drugs to treat non-metastatic and metastatic prostate cancer . on january 23 , 2019 , we announced the issuance of a new patent ( 10,155,006 ) , entitled combination therapies and methods of use thereof for treating cancer , by the u.s. patent and trademark office ( “ uspto ” ) . this patent broadens previously issued patent ( 9,566,280 ) , by expanding the use of onvansertib to encompass combination therapies with any anti-androgen and androgen antagonist drug , such as zytiga ® , xtandi ® and erleada ® for the treatment of metastatic and non-metastatic castrate-resistant prostate cancer . our accumulated deficit through december 31 , 2019 is $ 208,897,883 . to date , we have generated minimal revenues and expect to incur additional losses to perform further research and development activities . our drug development efforts are in their early stages , and we can not make estimates of the costs or the time that our development efforts will take to complete , or the timing and amount of revenues related to the sale of our drugs . the risk of completion of any program is high because of the many uncertainties involved in developing new drug candidates to market , including the long duration of clinical testing , the specific performance of proposed products under stringent clinical trial protocols , extended regulatory approval and review cycles , our ability to raise additional capital , the nature and timing of research and development expenses , and competing technologies being developed by organizations with significantly greater resources . critical accounting policies financial reporting release no . 60 requires all companies to include a discussion of critical accounting policies or methods used in the preparation of financial statements .
| results of operations years ended december 31 , 2019 and 2018 revenues our total revenues were $ 244,632 and $ 378,325 for the years ended december 31 , 2019 and 2018 , respectively . total revenues consisted of the following : 44 replace_table_token_0_th the decrease in service revenue for the year ended december 31 , 2019 as compared to the prior period is primarily from the disposition of our clia laboratory . we expect our royalties to fluctuate as the royalties are sales-based or usage-based royalties on our intellectual property license . revenue recognition of royalty income depends on the timing and overall sales activities of the licensees . cost of revenue our total cost of revenue was $ 0 in the year ended december 31 , 2019 , as compared to $ 597,457 in the year ended december 31 , 2018 . cost of revenues relates to the costs of our service revenues . the decrease in cost of revenues compared to the same period of last year is mainly due to the disposition of our clia laboratory . we do not expect any cost of revenue based on our current business model . research and development expenses research and development expenses consisted of the following : replace_table_token_1_th research and development expenses increase d by $ 2,998,225 to $ 11,162,236 for the year ended december 31 , 2019 from $ 8,164,011 for the year ended december 31 , 2018 . the overall increase in research and development expenses was primarily due to the increased clinical trials and outside service costs for three ongoing clinical trials related to the development of our drug candidate , onvansertib . we expect an increase in research and development costs as we advance the development of onvansertib .
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in a concurrent private placement , or the private placement transaction , and , together with the offerings , cbli sold to the purchasers of the shares and pre-funded warrants , 717.4 shares of our series a convertible preferred stock , stated value of $ 1,000 per share , or the preferred stock , which are convertible into 239,134 shares of our common stock . gross proceeds from the offerings amounted to approximately $ 4.2 million before deducting placement agent fees and expenses . in addition , series a warrants , or the series a warrants , were issued to purchase one share of our common stock for each share of common stock purchased or prefunded in the offerings and each share of series a convertible preferred stock purchased in the private placement transaction . the series a warrants cover , in the aggregate , 1,406,028 shares of common stock and became exercisable on the six month anniversary of the date of issuance at an exercise price of $ 3.64 and expire 6 years from the date they become exercisable . the series a warrants and pre-funded warrants contain provisions that could require cbli to settle the warrants in cash , and also provide for price or share issuance adjustments in the event of a subsequent qualified issuance of common stock at a price below $ 3.64 for the series a warrants or $ 3.00 for the pre-funded warrants , and accordingly have been classified as a liability . as of february 6 , 2015 , the closing date , the fair value of the preferred stock and the pre-funded warrants amounted to $ 3,636,260 and was determined based on the assumptions using the black-scholes valuation model listed below . during 2015 , the pre-funded warrants and the preferred stock had fully converted into common stock and as such , no balances other than stockholders ' equity remain for these securities . on june 20 , 2014 , the company completed a sale of units that were immediately separable into an aggregate of 308,370 shares of the company 's common stock and warrants to purchase up to 154,186 additional shares of the company 's common stock issuable upon the exercise of a warrant . each unit was sold for $ 11.35 , which qualified as an “ at market ” transaction as determined by nasdaq , resulting in net proceeds of approximately $ 3.4 million after deducting for placement agent fees and offering expenses . in connection with the sale , the company issued 1,324 warrants to the placement agent . each warrant has an exercise price of $ 11.20 per share , and will expire 5 years from the date of issuance . the sale also triggered a reduction in the exercise price of 228,891 of the company 's warrants to $ 10.10 . on january 16 , 2014 , the company completed a public offering of 286,886 shares of the company 's common stock at a price of $ 24.40 per share , resulting in net proceeds of approximately $ 6.4 million after deducting for placement agent fees and offering expenses . in connection with the offering story_separator_special_tag overview we are an innovative biopharmaceutical company developing novel approaches to activate the immune system and address serious medical needs . our proprietary platform of toll-like immune receptor activators has applications in mitigation of radiation injury and immuno-oncology . we combine our proven scientific expertise and our depth of knowledge about our products ' mechanisms of action into a passion for developing drugs to save lives . our most advanced product candidate is entolimod , an immune-stimulatory agent , which we are developing as a radiation countermeasure and an immunotherapy for oncology and other indications . during the two years ended december 31 , 2015 , we conducted business in the u.s. and russia through several subsidiaries , one of which is wholly-owned , biolab 612 ; one of which is owned in collaboration with a financial partner , panacela ; and , a former subsidiary , incuron . we held a majority ownership interest in incuron until november 25 , 2014 , at which time incuron was deconsolidated . as such , results of operations were consolidated through november 25 , 2014 , after which we recognized only our equitable interest in incuron 's results of operation as a single line item classified as `` equity in loss of incuron , llc '' in our statements of operations through april 29 , 2015 , as incuron 's operations were an extension of our core business . subsequent to april 29 , 2015 , incuron was accounted for on the cost basis until we sold our remaining interest in incuron on june 30 , 2015. see item 1 , “ business ” for more information on our product candidates and our strategic partnerships . critical accounting policies and estimates our discussion and analysis of our financial condition and results of operations are based on our financial statements , which have been prepared in accordance with accounting principles generally accepted in the u.s. ( `` gaap `` ) . the preparation of these financial statements requires us to make estimates and judgments that affect our reported amounts of assets , liabilities , revenues and expenses . on an ongoing basis , we evaluate our estimates and judgments , including those related to accrued expenses , income taxes , stock-based compensation , investments and in-process r & d . 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 and the reported amounts of revenues and expenses that are not readily apparent from other sources . actual results may differ from these estimates . story_separator_special_tag story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > dod and barda have funded grants and contracts totaling $ 60.4 million for the development of entolimod for its biodefense indication ; the russian federation has funded a series of contracts totaling $ 17.3 million , based on the exchange rates in effect on the date of funding . these contracts include requirements for us to contribute matching funds , which we have satisfied or expect to satisfy with both the value of developed intellectual property at the time of award , incurred development expenses and future expenses ; we have been awarded $ 4.0 million in grants and contracts not described above , all of which has been recognized at december 31 , 2015 ; incuron was formed to develop and commercialize the curaxins product line , including its lead oncology drug candidate cbl0137 . as more fully described in note 5 , `` noncontrolling interests '' we sold our remaining ownership interest in incuron during 2015 for which we received approximately $ 3 million in april and $ 1 million in july . we also assigned the remainder of our curaxin intellectual property to incuron for a 2 % royalty ; and panacela was formed to develop and commercialize preclinical compounds , which were transferred to panacela through assignment and lease agreements . rusnano contributed $ 9.0 million and we contributed $ 3.0 million plus intellectual property at formation . as more fully described in note 5 , `` noncontrolling interests '' we recapitalized panacela in december 2015 with rusnano converting $ 0.7 million of debt to equity and cbli obtaining $ 2.2 million of panacela equity through a combination of cash payments , debt forgiveness and common stock issuance . as of the date of this filing , cbli owns 66.77 % of panacela . we have incurred cumulative net losses and expect to incur additional losses related to our r & d activities . we do not have commercial products and have limited capital resources . as of december 31 , 2015 we had $ 19.6 million in cash , cash equivalents and short-term investments which , along with the active government contracts described above , are expected to fund our projected operating requirements beyond one year . however , until we are able to commercialize our product candidates at a level that covers our cash expenses , we will need to raise substantial additional capital , which we may be unable to raise in sufficient amounts , when needed and at acceptable terms . our plans with regard to these matters may include seeking additional capital through debt or equity financing , the sale or license of drug candidates , or obtaining additional research funding from the u.s. or russian governments . there can be no assurance that we will be able to obtain future financing on acceptable terms , or that we can obtain additional government financing for our operations . if we are unable to raise adequate capital and or achieve profitable operations , future operations might need to be scaled back or discontinued . the financial statements do not include any adjustments relating to the recoverability of the carrying amount of recorded assets and liabilities that might result from the outcome of these uncertainties . operating activities the following table provides information regarding our cash flows for the nine months ended december 31 , 2015 and 2014 : 42 replace_table_token_4_th operating activities net cash used in operations decreased by $ 2.4 million to $ ( 12.1 ) million for the year ended december 31 , 2015 from $ ( 14.5 ) million for the year ended december 31 , 2014 . net cash used in operating activities for the period ending december 31 , 2015 consisted of a reported net loss of $ ( 13.0 ) million , which was adjusted down for $ 2.4 million of net noncash operating activities , and a $ ( 1.4 ) million net increase due to changes in operating assets and liabilities . of the net noncash operating activities of $ 2.4 million , $ 1.1 million was due to an investment loss in connection with our nota-bank deposit , as more fully described in note 2 , `` summary of significant accounting policies- restricted cash , '' $ 0.6 million was due to warrant issuance costs associated with the sale of equity in february 2015 , $ 0.4 million was due to our equity in incuron losses , and $ 0.5 million was due to depreciation , amortization , noncash compensation expense and other noncash expenses . these expenses were partially offset by a $ 0.2 million gain on the settlement of debt associated with the panacela restructuring transaction more fully described in note 5 , `` noncontrolling interests . '' of the net $ ( 1.4 ) million of changes in operating assets and liabilities , $ 0.6 million was due to reduction in accounts payables and accrued expenses primarily associated with the payment of vendor debt as part of the panacela recapitalization in december of 2015 as more fully described in note 5 , `` noncontrolling interests , '' $ 0.4 million was due to increases in accounts receivable associated with our services provided to incuron and our new dod contracts , $ 0.3 million was due to prepaid expenses associated with the prepayment of insurance and $ 0.1 was due to recognition of previously deferred revenue . net cash used in operating activities for the period ending december 31 , 2014 consisted of reported net income of $ 35 thousand , which was adjusted down for $ ( 15.1 ) million of net noncash operating activities , and a $ 0.6 million net increase due to changes in operating assets and liabilities . of the net noncash operating activities of $ ( 15.1 ) million , $ ( 14.2 ) million was due to the recorded gain on deconsolidation of
| general and administrative expenses g & a functions include executive management , finance and administration , government affairs and regulations , corporate development , human resources , legal and compliance . the specific costs include the cost of our personnel consisting of salaries , 39 incentive and stock-based compensation , out-of-pocket costs usually associated with attorneys ( both corporate and intellectual property ) , bankers , accountants and other advisors and a pro-rata share of facilities expense and other overhead items . other income and expenses other recurring income and expenses primarily consists of interest income on our investments , interest on our debt instruments , changes in the market value of our derivative financial instruments and foreign currency transaction gains or losses . year ended december 31 , 2015 compared to year ended december 31 , 2014 revenue revenue decreased from $ 3.7 million for the year ended december 31 , 2014 to $ 2.7 million for the year ended december 31 , 2015 , representing a decrease of $ ( 1.0 ) million , or ( 27 ) % , principally because two prior sources of revenue , the curaxin research contract held by incuron and the xenomycin mpt contract held by panacela , ended in 2014. partially offsetting the termination of these two sources of revenue , two new cost reimbursable dod contracts were awarded to us in september 2015 for the continued development of entolimod 's biodefense indication : jwmrp for continued preclinical development and prmrp for clinical development . both of these contracts were starting up during the fourth quarter of 2015. revenue from these dod contracts should significantly increase in 2016 as the underlying contracted research activities continue to ramp up . regarding our russian trials funded by mpt , reported contract revenue for 2015 decreased as compared to 2014 in general due to changes in the ruble to u.s. dollar exchange rate .
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deferred income tax liabilities or assets are established for temporary differences between financial and tax reporting bases and are subsequently adjusted to reflect changes in tax rates expected to be in effect when the temporary differences reverse . a valuation allowance is recorded to reduce deferred income tax assets to an amount that is more likely than not to be realized . 15 intangible assets . intangible assets with finite useful lives are recorded at cost upon acquisition and amortized over the term of the related contract , if any , or useful life , as applicable . intangible assets held by the company with finite useful lives include patents and trademarks . the weighted average amortization period for intangible assets at december 31 , 2013 was 14 years . the company periodically reviews the values recorded for intangible assets to assess recoverability from future operations whenever events or changes in circumstances indicate that its carrying amount may not be recoverable . at december 31 , 2013 and 2012 , the company assessed the recoverability of its long-lived assets and believed that there were no events or circumstances present that would that would require a test of recoverability on those assets . as a result , there was no impairment of the carrying amounts of such assets and no reduction in their estimated useful lives . the net book value of the company 's intangible assets was $ 4,071,897 as of december 31 , 2013 compared to $ 4,240,401 as of december 31 , 2012. pension obligation . the pension benefit obligation is based on various assumptions used by third-party actuaries in calculating this amount . these assumptions include discount rates , expected return on plan assets , mortality rates and other factors . revisions in assumptions and actual results that differ from the assumptions affect future expenses , cash funding requirements and obligations . our funding policy is to fund the plan in accordance with applicable requirements of the internal revenue code and regulations . these assumptions are reviewed annually and updated as required . the company has a frozen defined benefit pension plan . two assumptions , the discount rate and the expected return on plan assets , are important elements of expense and liability measurement . we determine the discount rate used to measure plan liabilities as of the december 31 measurement date . the discount rate reflects the current rate at which the associated liabilities could be effectively settled at the end of the year . in estimating this rate , we look at rates of return on fixed-income investments of similar duration to the liabilities in the plan that receive high , investment grade ratings by recognized ratings agencies . using these methodologies , we determined a discount rate of 3.78 % to be appropriate as of december 31 , 2013 , which is an increase of .79 percentage points from the rate used as of december 31 , 2012. the expected long-term rate of return on assets considers the company 's historical results and projected returns for similar allocations among asset classes . in accordance with generally accepted accounting principles , actual results that differ from the company 's assumptions are accumulated and amortized over future periods and , therefore , affect expense and obligation in future periods . for the u.s. pension plan , our assumption for the expected return on plan assets was 6.0 % for 2013. for more information concerning these costs and obligations , see the discussion in note 6 – pension and profit sharing , in the notes to the company 's consolidated financial statements in this report . accounting for stock-based compensation . stock based compensation cost is measured at the grant date fair value of the award and is recognized as expense over the requisite service period . the company uses the black-scholes option - pricing model to determine fair value of the awards , which involves certain subjective assumptions . these assumptions include estimating the length of time employees will retain their vested stock options before exercising them ( “ expected term ” ) , the estimated volatility of the company 's common stock price over the expected term ( “ volatility ” ) and the number of options for which vesting requirements will not be completed ( “ forfeitures ” ) . changes in the subjective assumptions can materially affect estimates of fair value stock-based compensation , and the related amount recognized on the consolidated statements of operations . refer to note 11 - stock option plans - in the notes to consolidated financial statements in this report for a more detailed discussion . story_separator_special_tag 31 , 2012. the average number of days sales outstanding in accounts receivable was 64 days in 2013 compared to 61 days in 2012 . 17 the company 's working capital , current ratio and long-term debt to equity ratio follow : replace_table_token_3_th at december 31 , 2013 , total debt outstanding under the company 's revolving credit facility ( referred to below ) decreased by approximately $ 1.4 million compared to total debt at december 31 , 2012. the decrease in total debt outstanding is primarily due to the receipt of $ 1.7 million from early repayment of the company 's mortgage receivable , cash generated from earnings and the reduction of inventory partially offset by the purchase of the new distribution facility in rocky mount , nc . as of december 31 , 2013 , $ 22,911,829 was outstanding and $ 17,088,171 was available for borrowing under the revolving credit facility . on april 25 , 2013 , the company amended its loan agreement with hsbc bank , n.a . dated april 5 , 2012. the amendment increased the borrowing limit to $ 40 million from $ 30 million . the interest rate remains the same at libor plus 1.75 % . all principal amounts outstanding under the agreement are required to be repaid in a single amount story_separator_special_tag deferred income tax liabilities or assets are established for temporary differences between financial and tax reporting bases and are subsequently adjusted to reflect changes in tax rates expected to be in effect when the temporary differences reverse . a valuation allowance is recorded to reduce deferred income tax assets to an amount that is more likely than not to be realized . 15 intangible assets . intangible assets with finite useful lives are recorded at cost upon acquisition and amortized over the term of the related contract , if any , or useful life , as applicable . intangible assets held by the company with finite useful lives include patents and trademarks . the weighted average amortization period for intangible assets at december 31 , 2013 was 14 years . the company periodically reviews the values recorded for intangible assets to assess recoverability from future operations whenever events or changes in circumstances indicate that its carrying amount may not be recoverable . at december 31 , 2013 and 2012 , the company assessed the recoverability of its long-lived assets and believed that there were no events or circumstances present that would that would require a test of recoverability on those assets . as a result , there was no impairment of the carrying amounts of such assets and no reduction in their estimated useful lives . the net book value of the company 's intangible assets was $ 4,071,897 as of december 31 , 2013 compared to $ 4,240,401 as of december 31 , 2012. pension obligation . the pension benefit obligation is based on various assumptions used by third-party actuaries in calculating this amount . these assumptions include discount rates , expected return on plan assets , mortality rates and other factors . revisions in assumptions and actual results that differ from the assumptions affect future expenses , cash funding requirements and obligations . our funding policy is to fund the plan in accordance with applicable requirements of the internal revenue code and regulations . these assumptions are reviewed annually and updated as required . the company has a frozen defined benefit pension plan . two assumptions , the discount rate and the expected return on plan assets , are important elements of expense and liability measurement . we determine the discount rate used to measure plan liabilities as of the december 31 measurement date . the discount rate reflects the current rate at which the associated liabilities could be effectively settled at the end of the year . in estimating this rate , we look at rates of return on fixed-income investments of similar duration to the liabilities in the plan that receive high , investment grade ratings by recognized ratings agencies . using these methodologies , we determined a discount rate of 3.78 % to be appropriate as of december 31 , 2013 , which is an increase of .79 percentage points from the rate used as of december 31 , 2012. the expected long-term rate of return on assets considers the company 's historical results and projected returns for similar allocations among asset classes . in accordance with generally accepted accounting principles , actual results that differ from the company 's assumptions are accumulated and amortized over future periods and , therefore , affect expense and obligation in future periods . for the u.s. pension plan , our assumption for the expected return on plan assets was 6.0 % for 2013. for more information concerning these costs and obligations , see the discussion in note 6 – pension and profit sharing , in the notes to the company 's consolidated financial statements in this report . accounting for stock-based compensation . stock based compensation cost is measured at the grant date fair value of the award and is recognized as expense over the requisite service period . the company uses the black-scholes option - pricing model to determine fair value of the awards , which involves certain subjective assumptions . these assumptions include estimating the length of time employees will retain their vested stock options before exercising them ( “ expected term ” ) , the estimated volatility of the company 's common stock price over the expected term ( “ volatility ” ) and the number of options for which vesting requirements will not be completed ( “ forfeitures ” ) . changes in the subjective assumptions can materially affect estimates of fair value stock-based compensation , and the related amount recognized on the consolidated statements of operations . refer to note 11 - stock option plans - in the notes to consolidated financial statements in this report for a more detailed discussion . story_separator_special_tag 31 , 2012. the average number of days sales outstanding in accounts receivable was 64 days in 2013 compared to 61 days in 2012 . 17 the company 's working capital , current ratio and long-term debt to equity ratio follow : replace_table_token_3_th at december 31 , 2013 , total debt outstanding under the company 's revolving credit facility ( referred to below ) decreased by approximately $ 1.4 million compared to total debt at december 31 , 2012. the decrease in total debt outstanding is primarily due to the receipt of $ 1.7 million from early repayment of the company 's mortgage receivable , cash generated from earnings and the reduction of inventory partially offset by the purchase of the new distribution facility in rocky mount , nc . as of december 31 , 2013 , $ 22,911,829 was outstanding and $ 17,088,171 was available for borrowing under the revolving credit facility . on april 25 , 2013 , the company amended its loan agreement with hsbc bank , n.a . dated april 5 , 2012. the amendment increased the borrowing limit to $ 40 million from $ 30 million . the interest rate remains the same at libor plus 1.75 % . all principal amounts outstanding under the agreement are required to be repaid in a single amount
| results of operations 2013 compared with 2012 on june 7 , 2012 , the company purchased certain assets of the c-thru ruler company , a leading supplier of drafting , measuring , lettering and stencil products . the company purchased inventory and intellectual property related to c-thru 's lettering and ruler business for approximately $ 1.47 million using funds borrowed under its revolving loan agreement with hsbc . the company recorded approximately $ 0.42 million for inventory , as well as approximately $ 1.05 million for intangible assets , consisting primarily of customer relationships . on august 30 , 2013 , the company purchased a manufacturing and distribution center in rocky mount , north carolina for approximately $ 2.8 million . the company acquired the facility in the bankruptcy liquidation of roomstore , inc. the property consists of approximately 340,000 square feet of office , manufacturing and warehouse space on 33 acres . the facility will be used to consolidate the company 's two distribution centers in north carolina and to provide space for growth . the company expects to invest a total of approximately $ 1.3 million by the end of the first quarter of 2014 to upgrade the building and equipment . as of december 31 , 2013 , the company paid approximately $ 900,000 towards upgrading the building .
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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 discussed below and elsewhere in this prospectus , particularly under “ item 1a . risk factors. ” business we are a vertically integrated real estate finance company founded in 2004. we primarily originate and manage investor loans secured by 1-4 unit residential rental and small commercial properties , which we refer to collectively as investor real estate loans . we originate loans nationwide across our extensive network of independent mortgage brokers which we have built and refined over the 15 years since our inception . our objective is to be the preferred and one of the most recognized brands in our core market , particularly within our network of mortgage brokers . we operate in a large and highly fragmented market with substantial demand for financing and limited supply of institutional financing alternatives . we have developed the highly-specialized skill set required to effectively compete in this market , which we believe has afforded us a durable business model capable of generating compelling risk-adjusted returns for our stockholders throughout various business cycles . we offer competitive pricing to our borrowers by pursuing low-cost financing strategies and by driving front- end process efficiencies through customized technology designed to control the cost of originating a loan . furthermore , by originating loans through our efficient and scalable network of approved mortgage brokers , we are able to maintain a wide geographical presence and nimble operating infrastructure capable of reacting quickly to changing market environments . our growth strategy is predicated on continuing to serve and build loyalty within our network of mortgage brokers , while also expanding our network with new mortgage brokers through targeted marketing , improved brand awareness , and the growth and development of our team of account executives . we believe our reputation and 15-year history within our core market position us well to capture future growth opportunities . our primary source of revenue is interest income earned on our loan portfolio . our typical loan is secured by a first lien on the underlying property with a personal guarantee and , based on all loans in our portfolio as of december 31 , 2019 , has an average balance of approximately $ 323,000. as of december 31 , 2019 , our loan portfolio , including both loans held for investment and loans held for sale , totaled $ 2.1 billion of upb on properties in 45 states and the district of columbia . the total portfolio had a weighted average loan-to-value ratio , or ltv at origination , of 65.8 % , and was concentrated in 1-4 unit residential rental loans , which we refer to as investor 1-4 loans , representing 52.2 % of the upb . during the year ended december 31 , 2019 , the yield on our total portfolio was 8.84 % . we fund our portfolio primarily through a combination of committed and uncommitted secured warehouse repurchase facilities , securitizations , corporate debt and equity . the securitization market is our primary source of long-term financing . we have successfully executed twelve securitizations , resulting in a total of over $ 2.5 billion in gross debt proceeds from may 2011 through october 2019. in january 2020 , we repaid $ 75.0 million of our existing corporate debt with a portion of the net proceeds from our ipo . in february 2020 , we completed the securitization of $ 261.9 million of investor real estate loans , measured by upb as of the january 1 , 2020 cut-off date , issuing $ 248.7million of non-recourse notes payable through the velocity commercial capital loan trust 2020-1 , or 2020-1. we are the sole beneficial interest holder of 2020-1 , a variable interest entity that will be included in our consolidated financial statements . we refer to this transaction as the “ february 2020 securitization. ” one of our core profitably measurements is our portfolio related net interest margin , which measures the difference between interest income earned on our loan portfolio and interest expense paid on our portfolio-related debt , relative to the amount of loans outstanding over the period . our portfolio-related debt consists of our warehouse repurchase facilities and securitizations and excludes our corporate debt . for the year ended december 31 , 2019 , our portfolio related net interest margin was 4.13 % . we generate profits to the extent that our portfolio related net interest income exceeds our interest expense on corporate debt , provision for loan losses and operating expenses . for the year ended december 31 , 2019 , we generated income before income taxes and net income of $ 25.4 million and $ 17.3 million , respectively , and earned a pre-tax return on equity and return on equity of 17.4 % and 11.8 % , respectively . 40 items affecting comparability of results due to a number of factors , our historical financial results may not be comparable , either from period to period , or to our financial results in future periods . we have summarized the key factors affecting the comparability of our financial results below . income taxes prior to our initial public offering , the company operated as velocity financial , llc , which was formed as a delaware limited liability company , or llc , in 2012. until january 1 , 2018 , as an llc , we had elected to be treated as a partnership for u.s. federal and state income tax purposes , and as such , had generally not been subject to federal and state income taxes prior to january 1 , 2018. accordingly , the results of operations presented for the years prior to january 1 , 2018 do not include any provision for federal or state income taxes . story_separator_special_tag the extent to which covid-19 may impact our financial condition or results of operations can not be reasonably estimated at this time . for more information on the potential impacts of the covid-19 outbreak on our business see “ item 1a . risk factors— the outbreak of the recent coronavirus , covid-19 , or an outbreak of another highly infectious or contagious disease , could adversely affect our business , financial condition , results of operations and cash flow , and limit our ability to obtain additional financing . ” we have proactively executed a number of business initiatives to strengthen our liquidity position and re-focus our business strategies in light of the effects of the covid-19 pandemic , including the following : on april 5 , 2020 , we issued and sold 45,000 shares of our newly designated series a convertible preferred stock , par value $ 0.01 per share ( the “ preferred stock ” ) , in a private placement to affiliates of snow phipps and tobi ( the “ purchasers ” ) , our two largest common stockholders , at a price per share of preferred stock of $ 1,000. in addition , as part of that private placement , we issued and sold to the purchasers warrants ( the “ warrants ” ) to purchase an aggregate of 3,013,125 shares of our common stock . this private placement offering resulted in gross proceeds to us of $ 45.0 million , before expenses payable by us of approximately $ 1.0 million . we intend to use the net proceeds from this private placement to pay down our existing warehouse repurchase facilities and general corporate purposes . see “ note 24 — subsequent events ” in the consolidated financial statements included in this annual report for information about the preferred stock and the warrants . we will evaluate the preferred stock and the warrants for liability or equity classification in accordance with the provisions of asc 480 , distinguishing liabilities from equity . on april 6 , 2020 , we entered into amendments to the master repurchase agreements on both of our warehouse repurchase agreements with the lenders under such agreements . we believe that the amended warehouse repurchase agreements provide us with a flexible and more stabilized financing solution that will allow us to better operate our business under the current market conditions . for more information about the amended warehouse repurchase agreements see “ —liquidity and capital resources— warehouse repurchase facilities ” below . 42 during this economic crisis , we will consider the benefits of originating commercial mortgage loans along with opportunistically acquiring commercial mortgage loans that comply with our credit guidelines . if we are able to prudently originate or acquire mortgage loans , they will be added to our held for investment loan portfolio and supplement our current earnings profile generated by our $ 1.9 billion of portfolio loans , which are primarily fixed rate loans financed with fixed rate securitizations . we will continue to evaluate our business strategy in light of rapidly changing market conditions . critical accounting policies and use of estimates the preparation of financial statements in accordance with u.s. gaap requires certain judgments and assumptions , based on information available at the time of preparation of the consolidated financial statements , in determining accounting estimates used in preparation of the consolidated financial statements . the following discussion addresses the accounting policies that we believe apply to us based on the nature of our operations . our most critical accounting policies involve decisions and assessments that could affect our reported assets and liabilities , as well as our reported revenues and expenses . we believe that all of the decisions and assessments used to prepare the company 's financial statements are based upon reasonable assumptions given the information available at that time . we believe the following are critical accounting policies that require the most significant judgments and estimates used in the preparation of the consolidated financial statements . the summary below should be read in conjunction with the disclosure of our accounting policies and use of estimates in note 2 to the consolidated financial statements . allowance for loan losses the allowance for loan and lease losses , or alll , on loans held for investment is maintained at a level deemed adequate by management to provide for probable and inherent losses in the portfolio at the balance sheet date . the alll has a general reserve component for loans with no credit impairment and a specific reserve component for loans determined to be impaired . the allowance methodology for the general reserve component includes both quantitative and qualitative loss factors which are applied to the population of unimpaired loans to estimate the general reserves . the quantitative loss factors include loan type , age of the loan , borrower fico score , past loan loss experience , historical default rates , and delinquencies . the qualitative loss factors consider , among other things , the loan portfolio composition and risk , current economic conditions that may affect the borrower 's ability to pay , and the underlying collateral value . while our management uses available information to estimate its required alll , future additions to the alll may be necessary based on changes in estimates resulting from economic and other conditions . the provision for loan losses and recoveries of previously recognized charge-offs are added to the alll , while charge-offs on loans are recorded as a reduction to alll . loans are considered impaired when , based on current information and events , it is probable that we will be unable to collect the scheduled payments of principal and interest according to the contractual terms of the loan agreements . impairment is measured on a loan-by-loan basis by comparing the estimated fair value of the underlying collateral , net of estimated selling costs ( net realizable value ) against the recorded investment of the loan .
| consolidated results of operations the following table summarizes our consolidated results of operations for the periods indicated : replace_table_token_17_th year ended december 31 , 2019 compared to year ended december 31 , 2018 our earnings increase is mainly attributable to significant growth in our loan originations of 37.4 % and the corresponding income earned from a higher balance of loans under management . net interest income increased 20.9 % partially offset by an increase in operating costs of 9.2 % . our net income increased 126.6 % from $ 7.6 million for the year ended december 31 , 2018 to $ 17.3 million for the year ended december 31 , 2019. net interest income — portfolio related replace_table_token_18_th 56 interest income . interest income increased by $ 32.8 million , or 26.3 % , to $ 157.5 million during the year ended december 31 , 2019 , compared to $ 124.7 million during the year ended december 31 , 2018. the increase is primarily attributable to an increase in average loans ( volume ) , which increased $ 352.7 million , or 24.7 % , from $ 1.4 billion for the year ended december 31 , 2018 to $ 1.8 billion for the year ended december 31 , 2019. the average yield ( rate ) over those same periods increased from 8.72 % to 8.84 % . the following table distinguishes between the change in interest income attributable to change in volume and the change in interest income attributable to change in rate . the effect of changes in volume is determined by multiplying the change in volume ( i.e. , $ 352.7 million ) by the previous period 's average rate ( i.e. , 8.72 % ) . similarly , the effect of rate changes is calculated by multiplying the change in average rate ( i.e. , 0.12 % ) by the current period 's volume ( i.e. , $ 1.8 billion ) . replace_table_token_19_th interest expense — portfolio related .
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you should read this discussion and analysis together with our consolidated financial statements , including the accompanying notes , and other detailed information appearing elsewhere in this annual report on form 10-k , including under the heading “ risk factors. ” the discussion of our financial condition and results of operations includes various forward-looking statements about our markets , the demand for our products and services and our future plans and results . these statements are based on assumptions that we consider to be reasonable , but that could prove to be incorrect . for more information regarding our assumptions , you should refer to the section entitled “ cautionary note regarding forward-looking statements and assumptions ” below . cautionary note regarding 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 results and success of our transactions with quantum and the optoseis ® technology , the adoption and sale of our products in various geographic regions , potential tenders for prm systems , future demand for obx systems , the completion of new orders for our channels of our gcl system , the fulfillment of customer payment obligations , the impact of the coronavirus ( covid-19 ) pandemic , the company 's ability to manage changes and the continued health or availability of management personnel , volatility and development , market position , financial results and the provision of accounting reserves . these forward-looking statements reflect our current 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 . such examples include , but are not limited to , the failure of the quantum or optoseis ® technology transactions to yield positive operating results , decreases in commodity price levels , which could reduce demand for our products , the failure of our products to achieve market acceptance ( despite substantial investment by us ) our sensitivity to short term backlog , delayed or cancelled customer orders , product obsolescence resulting from poor industry conditions or new technologies , bad debt write-offs associated with customer accounts , lack of further orders for our obx systems , failure of our quantum products to be adopted by the border and perimeter security market , infringement or failure to protect intellectual property . the occurrence of the events described in these 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 20 materially from our current expectations . we assume no obligation to revise or update any forward-looking statement , whether written or oral , that we may make from time to time , whether as a result of new information , future developments or otherwise . background we design and manufacture seismic instruments and equipment and primarily market these products to the oil and gas industry to locate , characterize and monitor hydrocarbon producing reservoirs . we also market our seismic products to other industries for vibration monitoring , border and perimeter security and various geotechnical applications . we design and manufacture other products of a non-seismic nature , including water meter products , imaging equipment , offshore cables and provide contract manufacturing services . 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 , sales of our oil and gas prm systems and or wireless seismic data acquisition systems for land and marine applications . our revenue and results of operations have not been materially impacted by inflation or changing prices in the past two fiscal years . we report and evaluate financial information for three segments : oil and gas markets , adjacent markets and emerging markets . summary financial data by business segment follows ( in thousands ) : replace_table_token_3_th overview in 2014 , our oil and gas markets segment experienced a softening in the demand for its traditional 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 . story_separator_special_tag consolidated operating expenses for fiscal year 2020 were $ 41.5 million , an increase of $ 4.0 million , or 10.8 % , from fiscal year 2019. the increase in operating costs were primarily due to ( i ) a $ 3.2 million net non-cash increase in the estimated fair value of contingent earn-out consideration related to our quantum and optoseis ® acquisitions , ( ii ) $ 0.9 in personnel related termination costs associated with our workforce reduction , ( iii ) $ 0.4 million of incremental research and development costs associated with our acquisition of the optoseis ® business in november 2018 and ( iv ) a $ 0.7 million goodwill impairment charge . these increases in operating expenses were partially offset by a $ 0.4 million decrease in bad debt expense . 22 in august 2019 , we sold our real property located at 7334 n. gessner in houston , texas which generated a $ 7.0 million gain on disposal of property in the fourth quarter of fiscal year 2019. the buyer occupied the property as a tenant under a long-term lease . the property was not strategic to our ongoing operations . consolidated other income for fiscal year 2020 was $ 1.4 million compared to $ 1.2 million from fiscal year 2019. the increase was primarily caused by an increase in foreign exchange gains , and was partially offset by a decrease in interest income . consolidated income tax expense for fiscal year 2020 and 2019 was $ 2.6 million and $ 2.4 million , respectively . this increase in income tax expense was primarily the result of an increase in rental revenue earned in foreign jurisdictions requiring tax withholding . we are currently unable to record any tax benefits from the tax losses we incur in the u.s. , canada and russian federation due to the uncertainty surrounding our ability to utilize such losses in the future to offset taxable income . story_separator_special_tag equipment since such gross profit is reflected in the proceeds from the sale of used rental equipment under investing activities . for fiscal year 2020 , we used cash of $ 4.1 million in investing activities . uses of cash included ( i ) a $ 5.5 million investment in our rental equipment primarily to expand our obx rental fleet and ( ii ) $ 2.9 million for additions to our property , plant and equipment . these uses of cash were partially offset by ( i ) $ 4.1 million of proceeds from the sale of rental equipment and ( ii ) $ 0.2 million of proceeds from the sale of equipment . fiscal year 2021 cash investments in property , plant and equipment could be approximately $ 5 million . fiscal year 2021 cash investments into our rental fleet will primarily be dependent on demand for our obx marine rental equipment . our capital expenditures are expected to be funded from our cash on hand , internal cash flows , cash flows from our rental contracts or , if necessary , from borrowings under our credit agreement . for fiscal year 2020 we used $ 0.1 million from financing activities for the payment of contingent consideration related to our acquisition of quantum in 2018. since 2014 , the oil and gas industry has experienced a sustained downturn due to low oil and gas prices . recently , the unprecedented sharp decline in crude oil prices since february 2020 has further impacted the overall condition of the oil and gas industry , stifling budgets targeted at the oil and gas exploration industry , including the seismic industry . prior to recent downturn we saw some signs of increased seismic activity in certain areas around the world ; however , we expect the need for new seismic equipment to remain restrained due to current industry conditions , capital limitations affecting many of our customers and excessive on-hand quantities of under-utilized customer-owned seismic equipment . further , we expect product sales of our oil and gas markets products—specifically our legacy land-based traditional and wireless products—to remain low until the oil and gas industry begins to show signs of recovery and exploration-focused seismic activities increase . however , oil and gas pricing and the resultant economic conditions may not recover meaningfully in the near term , and we expect these challenging industry conditions facing our land-based traditional and legacy wireless products will continue in fiscal year 2021. on july 13 , 2020 , we received an interest in a senior secured bond from an international seismic marine customer . our interest in the bond , which has a face value of $ 13.0 million , was received in exchange for $ 13.0 million of unpaid invoices and late fees owed by the customer . the bond is secured by a third in line lien on the assets owned by the customer and has an 8 % interest rate with bi-annual interest and possible principal payments based on excess available cash flow . interest payments can be made either in cash or in-kind payments in the form of additional debt security . in-kind interest payments require an 8.8 % interest rate . the bond matures july 13 , 2022. the bond is listed on the oslo alternative bond market ; however , the actual marketability is unknown at this time . based on the distressed financial condition of the customer , we believe the fair value of the bond is nominal and we have not recorded a carrying amount for this bond at september 30 , 2020. our available cash and cash equivalents totaled $ 32.7 million at september 30 , 2020 , which included $ 5.8 million of cash and cash equivalents held by our foreign subsidiaries and branch offices . the 2017 tax act creates new taxes on certain foreign earnings and also requires companies to pay a one-time transition tax on undistributed earnings of their foreign subsidiaries which were previously tax deferred .
| segment results of operations oil and gas markets fiscal year 2020 compared to fiscal year 2019 revenue revenue from our oil and gas markets products for fiscal year 2020 decreased $ 3.3 million , or 5.1 % , from fiscal year 2019. the components of these decreases included the following : traditional exploration product revenue – revenue from our traditional products decreased $ 2.9 million , or 30.0 % , from the prior fiscal year . the decrease reflects lower demand for our sensor products and a decrease in customer product repair and support service revenue . wireless exploration product revenue – revenue from our wireless exploration products increased $ 1.3 million , or 2.5 % , from the prior fiscal year . excluding an $ 8.0 million charge to ( or reduction of ) revenue related to the impairment of an operating lease receivable , our wireless exploration product revenue increased by $ 9.3 million , or 17.6 % . the revenue increase primarily resulted from higher rental demand for our obx systems . the increase was partially offset by a decrease in the recognition of revenue from an international seismic marine customer and lower gsx product revenue . reservoir product revenue – revenue from our reservoir products decreased $ 1.8 million , or 65.2 % , from the prior fiscal year . the decrease for both periods was primarily due to a decrease in sales of our borehole products and lower service revenue . during the second quarter of fiscal year 2020 , we partially financed a $ 12.5 million product sale by entering into a $ 10.0 million promissory note with a customer . the promissory note is for a three-year term with monthly principal and interest payments of $ 0.3 million . due to the financial condition of the customer , we have concerns over the probable collectability of the promissory note .
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this resulted in a triggering event requiring an evaluation of both long-lived assets and goodwill for potential impairment . as of the date of this evaluation , there were no remaining intangible assets associated with phase i services . as a result of this evaluation , the company recorded a $ 2.9 million impairment of goodwill . in total , the company recorded asset impairment charges of $ 3.9 million associated with the phase i services reporting unit related to long-lived assets and goodwill for the year ended december 31 , 2015 . as discussed in `` note 12 - segment information , `` during the fourth quarter of the year ended december 31 , 2015 , the story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read together with part ii , item 6 , `` selected financial data '' and the consolidated financial statements and the related notes included in part ii , item 8 , in this annual report on form 10-k. this discussion contains forward-looking statements related to future events and our future financial performance that are based on current expectations and subject to risks and uncertainties . our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors , including those described in `` risk factors '' in part i , item 1a of , and elsewhere in , this annual report on form 10-k. overview of our business and services we are a leading global cro , exclusively focused on phase i to phase iv clinical development services for the biopharmaceutical and medical device industries . we provide our customers highly differentiated therapeutic alignment and expertise , with a particular strength in complex therapeutic areas , such as central nervous system , or cns , oncology and other complex diseases . we consistently and predictably deliver clinical development services in a complex environment and offer a proprietary , operational approach to clinical trials through our trusted process ® methodology . our service offerings focus on optimizing the development of and , therefore , the commercial potential for , our customers ' new biopharmaceutical compounds , enhancing returns on their research and development , or r & d , investments , and reducing their overhead by offering an attractive variable cost alternative to fixed cost , in-house resources . our extensive range of services supports the entire clinical development process from phase i to phase iv and allows us to offer our customers an integrated suite of investigative site support and clinical development services . we offer these services across a wide variety of therapeutic areas with deep clinical expertise with a primary focus on phase ii to phase iv clinical trials . we provide total biopharmaceutical program development while also providing discrete services for any part of a trial . our combination of service area experts and depth of clinical capability allows for enhanced protocol design and actionable trial data . we have two reportable segments : clinical development services and phase i services . clinical development services offers a variety of clinical development services , including full-service global studies , as well as ancillary services such as clinical monitoring , investigator recruitment , patient recruitment , data management , study reports to assist customers with their drug development process , and specialized consulting services . phase i services focuses on clinical development services for phase i trials that include scientific exploratory medicine , first-in-human studies through proof-of-concept stages and support for phase i studies in established compounds . for financial information regarding revenue and long-lived assets by geographic areas , please see `` note 13 - operations by geographic location '' to our consolidated financial statements included in part ii , item 8 , in this annual report on form 10-k. the discussion and analysis of our financial condition and results of operations herein is presented on a consolidated basis . because our clinical development services segment accounts for substantially all of our business operations and approximately 98 % of our net service revenue for the year ended december 31 , 2015 , we believe that a discussion of our reportable segments ' operations would not be meaningful disclosure for investors . see further discussion in `` note 12 - segment information '' to our consolidated financial statements included in part ii , item 8 , in this annual report on form 10-k. we earn net service revenue primarily for services performed under contracts for global clinical drug trials , based upon a combination of milestones and output measures that are specific to the services performed and defined by the contract . engagements for phase ii to phase iv clinical trials , which represent the majority of our revenue , are typically long duration contracts ranging from several months to several years . the contracts for these engagements typically cover the detailed scope of work , phases , milestones , billing schedules and processes for review of work and clinical results . contracts are individually priced and negotiated based on the anticipated level of effort required to complete the project , the complexity and performance risks , and the level of competition in the market . direct costs associated with these contracts consist principally of compensation expense and benefits associated with our employees and other employee-related costs . while we can manage the majority of these costs relative to the amount of contracted services we have during any given period , direct costs as a 51 percentage of net service revenue can vary from period to period . such fluctuations are due to a variety of factors , including , among others : ( i ) the level of staff utilization created by our ability to effectively manage our workforce , ( ii ) adjustments to the timing of work on specific customer contracts , ( iii ) the experience mix of personnel assigned to projects , and ( iv ) the service mix and pricing of our contracts . story_separator_special_tag , 2014 , primarily due to increased salaries , benefits and incentive compensation . this increase in employee-related expenses was partially offset by a reduction in direct costs of $ 37.8 million related to fluctuations in foreign currency exchange rates during the year ended december 31 , 2015 compared to the prior year . other direct costs decreased by $ 5.7 million for the year ended december 31 , 2015 , compared to the prior year primarily due to ( i ) 2014 including a provision for non-recoverable value added tax ( `` vat '' ) expenses , as compared to 2015 , including a release of a portion of these liabilities , ( ii ) certain other one-time benefits primarily due to the favorable resolution of disputed pass-through costs realized in the first and third quarters of 2015 , ( iii ) decreases in subcontract services ( iv ) a reduction in certain non-labor project related costs and ( iv ) an increase in vendor contract rebates . partially offsetting these decreases was an increase in expenses related to contract labor , travel , facilities , and information technology costs to support revenue growth . as discussed above , direct costs for the year ended december 31 , 2015 included certain one-time benefits that we do not believe are representative of ongoing operations , which we estimate to be approximately $ 6.6 million . specifically , in the first quarter of 2015 we realized benefits of $ 5.1 million related to ( i ) a favorable resolution of several vat and other tax items , ( ii ) a change in estimate related to 2014 employee incentive compensation , and ( iii ) a favorable settlement of disputed pass-through costs . during the third quarter of 2015 , we realized a benefit of $ 4.9 million from the favorable resolution of additional disputed pass-through costs ; however , we had initially recorded approximately $ 3.4 million of these obligations in the first half of 2015 , resulting in the net favorable impact on the full year ended december 31 , 2015 of approximately $ 1.5 million . direct costs increased by $ 82.8 million , or 19.2 % , to $ 515.1 million for the year ended december 31 , 2014 from $ 432.3 million for the year ended december 31 , 2013 , primarily due to increased salaries , benefits and incentive compensation . the increase in salaries , benefits and incentive compensation is primarily due to higher compensation expense and contract labor costs associated with additional headcount in line with our increased revenues and an increase in incentive compensation as a result of our improved financial performance . other costs increased primarily due to an increase in facilities and information technology related costs , travel related expenses and an increase of $ 4.3 million in vat related expenses that can not be recovered from customers due to changes in tax regulations related to certain foreign operations , partially offset by a decrease related to professional services costs . as we continue to expand our business and initiate new studies , the increase in headcount-related expenses may outpace our revenue growth . however , we continue to see the benefits from a number of our cost-saving initiatives including ( i ) leveraging our therapeutic management overhead infrastructure over the expanded revenue base , ( ii ) improving the utilization of our facilities , and ( iii ) the consolidation of our clinical trial management systems resulting in our achieving better efficiencies due to standardization . as noted above , reimbursable out-of-pocket expenses increased by 31.3 % , or $ 115.4 million , to $ 484.5 million for the year ended december 31 , 2015 from $ 369.1 million for the year ended december 31 , 2014 . reimbursable out-of-pocket expenses increased $ 26.4 million , or 7.7 % , to $ 369.1 million for the year ended december 31 , 2014 compared to $ 342.7 million for the year ended december 31 , 2013. reimbursable out-of-pocket expenses fluctuate significantly from period to period based on the timing of program initiation or closeout and the mix of program complexity and do not necessarily change in direct correlation to net service revenues . 55 selling , general and administrative expenses for the years ended december 31 , 2015 , 2014 and 2013 , selling , general and administrative expenses were as follows ( dollars in thousands ) : replace_table_token_9_th the following is a summary of the year-over-year fluctuation in components of our selling , general and administrative expenses during the year ended december 31 , 2015 as compared to the year ended december 31 , 2014 and the year ended december 31 , 2014 as compared to the year ended december 31 , 2013 ( in thousands ) : replace_table_token_10_th selling , general and administrative expenses increased by $ 11.5 million , or 7.9 % , to $ 156.6 million for the year ended december 31 , 2015 from $ 145.1 million for the year ended december 31 , 2014 . the increase was primarily driven by ( i ) an increase in salaries , benefits and incentive compensation , principally as a result of the additions in personnel to support the growth of our business and the newly established public company infrastructure , ( ii ) an increase in facilities and information technology related costs , professional fees , and travel costs , primarily driven by increased headcount , as discussed above , and ( iii ) an increase in marketing expenses primarily driven by the higher level of advertising and trade show activities in 2015. these costs were partially offset by a positive change in bad debt expense as a result of the collection of previously reserved amounts receivable . during the year ended december 31 , 2015 , our selling , general and administrative expenses were positively impacted by settlement of certain employee related liabilities totaling approximately $ 1.1 million .
| results of operations year ended december 31 , 2015 compared to the years ended december 31 , 2014 and 2013 the following table sets forth amounts from our consolidated financial statements along with the percentage change for years ended december 31 , 2015 , 2014 and 2013 ( dollars in thousands ) : replace_table_token_5_th net service revenue and reimbursable out-of-pocket expenses for the years ended december 31 , 2015 , 2014 and 2013 , total revenue was comprised of the following ( dollars in thousands ) : replace_table_token_6_th net service revenue increased $ 105.0 million , or 13.0 % , to $ 914.7 million for the year ended december 31 , 2015 from $ 809.7 million for the year ended december 31 , 2014 . the increase in 2015 is primarily driven by continued strong awards over the last two years , a lower cancellation rate of previously awarded business and a positive revenue mix . the growth in our revenue in 2015 was across all therapeutic areas and was particularly strong in the complex therapeutic areas . our net service revenue for the year ended december 31 , 2015 , was negatively impacted by fluctuations in foreign exchange rates and contractual currency 53 adjustment provisions resulting in a $ 45.4 million decrease as the u.s. dollar has strengthened compared to the prior year . net service revenue increased $ 157.3 million , or 24.1 % , to $ 809.7 million for the year ended december 31 , 2014 from $ 652.4 million for the year ended december 31 , 2013. this increase is primarily driven by the ongoing strength of new business awards throughout the preceding 18-month period and higher contract change order activity relative to historical levels , along with a lower cancellation rate of previously awarded business . the growth in our revenue in 2014 was particularly strong in complex therapeutic areas and within a strategic functional service provider ( `` fsp '' ) customer .
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77 security ownership of certain beneficial owners and management the following table sets forth information regarding the beneficial ownership of the company , on march 1 , 2021 , upon the completion of the business combination , by : ● each person known by the company to be , or expected to be , the beneficial owner of more than 5 % of shares of the company 's common stock ; and ● each of the company 's executive officers and directors . beneficial ownership is determined according to the rules of the sec , which generally provide that a person has beneficial ownership of a security if he , she or it possesses sole or shared voting or investment power over that security , including options and warrants that are currently exercisable or exercisable within 60 days . the beneficial ownership of the common stock of the company is based on 9,231,737 shares of common stock issued and outstanding as of march 1 , 2021. replace_table_token_4_th * less than one percent . 78 ( 1 ) the business address of each of the officers and directors story_separator_special_tag as a result of the completion of the business combination , the financial statements of old reviva are now the financial statements of the company . prior to the business combination , the company had no operating assets but , upon consummation of the business combination , the business and operating assets of old reviva acquired by the company became the sole business and operating assets of the company . accordingly , the financial statements of old reviva and their respective subsidiaries as they existed prior to the business combination and reflecting the sole business and operating assets of the company going forward , are now the financial statements of the company . all statements other than statements of historical fact included in this section regarding our financial position , business strategy and the plans and objectives of management for future operations , are forward- looking statements . when used in this section , words such as “ anticipate , ” “ believe , ” “ estimate , ” “ expect , ” “ intend ” and similar expressions , as they relate to our management , identify forward-looking statements . such forward-looking statements are based on the beliefs of management , as well as assumptions made by , and information currently available to , our management . actual results could differ materially from those contemplated by the forward- looking statements as a result of certain factors detailed herein . all subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are qualified in their entirety by this paragraph . some of the information contained in this discussion and analysis or set forth elsewhere , including information with respect to our plans and strategy for our business include forward-looking statements that involve risks , uncertainties and assumptions . you should read the sections titled “ cautionary note regarding forward-looking statements ” and “ risk factors ” 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 . company overview we are a clinical-stage biopharmaceutical company that discovers , develops and seeks to commercialize next-generation therapeutics for diseases representing significant unmet medical needs and burden to society , patients , and their families . our current pipeline focuses on the central nervous system , respiratory , and metabolic diseases . we use a chemical genomics driven technology platform and proprietary chemistry to develop new medicines . our pipeline currently has two drug candidates , rp5063 ( brilaroxazine ) and rp1208 . both are new chemical entities discovered in-house . we have been granted composition of matter patents for both rp5063 and r1208 in the united states ( u.s. ) , europe , and several other countries . our lead drug candidate , rp5063 , is ready for continued clinical development for multiple neuropsychiatric indications . these include schizophrenia , bipolar disorder ( bd ) , major depressive disorder ( mdd ) , behavioral and psychotic symptoms , dementia or alzheimer 's disease ( bpsd ) , parkinson 's disease psychosis ( pdp ) , and attention deficit hyperactivity disorder ( adhd ) . furthermore , rp5063 is also ready for clinical development for two respiratory indications — pulmonary arterial hypertension ( pah ) and idiopathic pulmonary fibrosis ( ipf ) . the u.s. food and drug administration ( fda ) has granted orphan drug designation to rp5063 for the treatment of pah in november 2016 and ipf in april 2018 . 60 our primary focus is to complete the clinical development of rp5063 for the treatment of acute and maintenance schizophrenia . subject to the receipt of additional financing , we may also continue the clinical development of rp5063 for the treatment of bd , mdd , bpsd , pdp , adhd , pah and ipf . moreover , subject to the receipt of additional financing , we may also advance the development of our second drug candidate , rp1208 , for the treatment of depression and obesity . impact of covid-19 in response to the spread of covid-19 , we have taken temporary precautionary measures intended to help minimize the risk of the virus to our employees and community , including temporarily requiring employees to work remotely and suspending all non-essential travel for our employees . as a result of the covid-19 pandemic , we may experience disruptions that could adversely impact our business . the covid-19 pandemic may negatively affect clinical site initiation , patient recruitment and enrollment , patient dosing , distribution of drug to clinical sites and clinical trial monitoring for our clinical trials . story_separator_special_tag we will seek to fund our operations through public or private equity or debt financings or other sources , which may include collaborations with third parties . adequate additional financing may not be available to us on acceptable terms , or at all . our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy . we can not assure you that we will ever be profitable or generate positive cash flow from operating activities . research and development expenses we focus our resources on research and development activities , including the conduct of preclinical and clinical studies and product development and expenses such costs as they are incurred . we have not historically tracked or recorded research and development expenses on a project-by-project basis , primarily because we use our employee and infrastructure resources across multiple research and development projects , and it is not practical for us to allocate such costs on a project-by-project basis . our research and development expenses primarily consist of employee-related expenses , including deferred salaries , salaries , benefits and taxes for personnel in research and development functions . the largest recurring component of our total operating expenses has historically been research and development activities . we expect our research and development expenses will increase for the next several years as we advance our development programs , pursues regulatory approval of our product candidates in the u.s. and other jurisdictions and prepare for potential commercialization , which would require a significant investment in costs related to contract manufacturing , inventory buildup and sales and marketing activities . our primary product candidates and their current status is as follows : replace_table_token_0_th 63 * * we completed the phase 1 clinical study for rp5063 ( brilaroxazine ) prior starting the phase 2 study in schizophrenia and schizoaffective disorder . we collected safety data for rp5063 ( brilaroxazine ) in over 200 patients , including healthy subjects and patients with stable schizophrenia , acute schizophrenia and schizoaffective disorder . generally , no separate phase 1 study is required for conducting a phase 2 study for an additional indication , provided the treatment doses in the phase 2 study for an additional indication are within the range of doses tested in the previously completed phase 1 study . the successful development of our platform and product candidates is highly uncertain , and we may never succeed in achieving marketing approval for our product candidates rp5063 ( brilaroxazine ) , rp1208 , or any future product candidates . we estimate that initial costs to conduct our phase 3 clinical study for rp5063 could total approximately $ 21.0 million , with approximately $ 7.0 million payable over the course of calendar 2021 , and approximately $ 10.0 million payable during calendar 2022 , and approximately $ 4.0 million payable during calendar 2023. at this time , other than our estimates for conducting our phase 3 clinical study for rp5063 , we can not reasonably estimate the nature , timing , or costs of the efforts necessary to finish developing any of our product candidates or the period in which material net cash , if any , from these product candidates may commence . this is due to the numerous risks and uncertainties associated with developing therapeutics , including the uncertainty of : ● the scope , rate of progress , expense , and results of clinical trials ; ● the scope , rate of progress , and expense of process development and manufacturing ; ● preclinical and other research activities ; and ● the timing of regulatory approvals . general administrative expenses general and administrative expenses primarily consist of payroll and related costs for employees in executive , business development , finance , and administrative functions . other significant general and administrative expenses include professional fees for accounting and legal services . we expect general and administrative expenses to increase as we expand infrastructure and continue the development of our clinical programs . other increases could potentially include increased costs for director and officer liability insurance , costs related to the hiring of additional personnel , and increased fees for directors , outside consultants , lawyers , and accountants . we expect to incur significant costs to comply with corporate governance , internal controls , and similar requirements applicable to public companies . 64 interest expense for the year ended december 31 , 2020 , interest expense consisted primarily of interest associated with our promissory notes and beneficial conversion feature recognized on conversion of promissory notes . interest income and other income interest income and other , net consists largely of interest earned on our cash & cash equivalents and gain recorded on issuance of common stock in lieu of salaries . critical accounting policies and use of 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 u.s. generally accepted accounting principles , or u.s. gaap . the preparation of our consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements , and the reported amounts of expenses during the period . significant items subject to such estimates and assumptions include stock-based compensation , beneficial conversion features , warrant values , and deferred taxes and related valuation allowances . our actual results could differ from these estimates under different assumptions or conditions . our significant accounting policies are more fully described in note 2 to the consolidated financial statements included in item 8 of this annual report on form 10-k , we believe that the following accounting policies are the most critical to assist stockholders and investors reading the consolidated financial statements in fully understanding and evaluating our financial condition and results of operations .
| results of operations comparison of the years ended december 31 , 2020 and 2019 : the following table summarizes our results of operation for the years ended december 31 , 2020 and 2019 : replace_table_token_1_th research & development expenses we incurred approximately $ 295,000 and $ 196,000 in research and development expenses for the years ended december 31 , 2020 and 2019 , respectively . the primary reason for the increase or $ 99,000 , or 51 % , was due to higher salary expenditures and increased consulting and drug development costs . our research and development expenses are expected to increase for the foreseeable future as we continue to advance our platform and product candidates . general administrative expenses for the years ended december 31 , 2020 and 2019 , we incurred approximately $ 2.1 million and $ 181,000 in general and administrative expenses . the increase of $ 2.0 million , or 1,081 % , was due to warrant expense of approximately $ 1,125,000 , $ 345,000 attributable to the increased use of consultants in connection with accounting and legal activities and $ 444,000 in salary and related expenses for key personnel . 66 interest expense interest expense for the years ended december 31 , 2020 and 2019 was approximately $ 1,453,000 and $ 470,000 , respectively . the increase of $ 983,000 , or 210 % , in interest expense was due to the investor notes issued in 2020 and a beneficial conversion feature recognized on conversion of notes payable immediately prior to the business combination . interest & other income interest income consists of interest earned on our cash & cash equivalents and other income of $ 25,000 recognized in the year ended december 31 , 2020 , related to a non-refundable transaction payment made by tenzing . liquidity and capital resources as of december 31 , 2020 , we had cash and cash equivalents of approximately $ 8.8 million .
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cautionary information the discussions set forth in this annual report on form 10-k may 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 . in addition , management may make forward-looking statements orally or in other writings , including , but not limited to , in press releases , quarterly earnings calls , executive presentations , in the annual report to stockholders and in other filings with the securities and exchange commission . readers can usually identify these forward-looking statements by the use of such verbs as “ expects , ” “ anticipates , ” “ believes ” or similar verbs or conjugations of such verbs . these statements involve a number of risks and uncertainties . actual results could materially differ from those anticipated by such forward-looking statements . such differences could be caused by a number of factors or combination of factors including , but not limited to , the factors identified below and those discussed under item 1a of this form 10-k , “ risk factors. ” readers are strongly encouraged to consider these factors and the following factors when evaluating any forward-looking statements concerning the company : the outcome of claims and litigation , including those related to environmental contamination , personal injuries and property damage ; changes in legislation and regulations or revisions of controlling authority ; the adverse impact of any termination or revocation of kansas city southern de méxico , s.a. de c.v. ( “ kcsm ” ) 's concession by the mexican government ; united states , mexican and global economic , political and social conditions ; the effects of the north american free trade agreement ( “ nafta ” ) , on the level of trade among the united states , mexico and canada ; the level of trade between the united states and asia or mexico ; the effects of fluctuations in the peso-dollar exchange rate ; natural events such as severe weather , fire , floods , hurricanes , earthquakes or other disruptions to the company 's operating systems , structures and equipment or the ability of customers to produce or deliver their products ; the effects of adverse general economic conditions affecting customer demand and the industries and geographic areas that produce and consume the commodities kcs carries ; the dependence on the stability , availability and security of the information technology systems to operate its business ; the effect of demand for kcs 's services exceeding network capacity or traffic congestion on operating efficiencies and service reliability ; uncertainties regarding the litigation kcs faces and any future claims and litigation ; the impact of competition , including competition from other rail carriers , trucking companies and maritime shippers in the united states and mexico ; kcs 's reliance on agreements with other railroads and third parties to successfully implement its business strategy , operations and growth and expansion plans , including the strategy to convert customers from using trucking services to rail transportation services ; compliance with environmental regulations ; disruption in fuel supplies , changes in fuel prices and the company 's ability to recapture its costs of fuel from customers ; material adverse changes in economic and industry conditions , including the availability of short and long-term financing , both within the united states and mexico and globally ; market and regulatory responses to climate change ; 24 changes in labor costs and labor difficulties , including strikes and work stoppages affecting either operations or customers ' abilities to deliver goods for shipment ; kcs 's reliance on certain key suppliers of core rail equipment ; availability of qualified personnel ; and acts of terrorism , war or other acts of violence or crime or risk of such activities . forward-looking statements reflect the information only as of the date on which they are made . the company does not undertake any obligation to update any forward-looking statements to reflect future events , developments , or other information . if kcs does update one or more forward-looking statements , no inference should be drawn that additional updates will be made regarding that statement or any other forward-looking statements . corporate overview kansas city southern , a delaware corporation , is a transportation holding company that has railroad investments in the u.s. , mexico and panama . in the u.s. , the company serves the central and south central u.s. its international holdings serve northeastern and central mexico and the port cities of lazaro cardenas , tampico and veracruz , and a fifty percent interest in panama canal railway company provides ocean-to-ocean freight and passenger service along the panama canal . kcs 's north american rail holdings and strategic alliances are primary components of a nafta railway system , linking the commercial and industrial centers of the u.s. , canada and mexico . its principal subsidiaries and affiliates include the following : the kansas city southern railway company ( “ kcsr ” ) , a wholly-owned subsidiary ; kcsm , a wholly-owned subsidiary ; mexrail , inc. ( “ mexrail ” ) , a wholly-owned consolidated subsidiary ; which , in turn , wholly owns the texas mexican railway company ( “ tex-mex ” ) ; kcsm servicios , s.a. de c.v. ( “ kcsm servicios ” ) , a wholly-owned subsidiary ; meridian speedway , llc ( “ msllc ” ) , a seventy percent-owned consolidated affiliate ; panama canal railway company ( “ pcrc ” ) , a fifty percent-owned unconsolidated affiliate ; tfcm , s. de r.l . de c.v. ( “ tcm ” ) , a forty-five percent-owned unconsolidated affiliate ; ferrocarril y terminal del valle de méxico , s.a. de c.v. ( “ ftvm ” ) , a twenty-five percent-owned unconsolidated affiliate ; and ptc-220 , llc ( “ ptc-220 ” ) , a fourteen percent-owned unconsolidated affiliate . story_separator_special_tag for the year ended december 31 , 2017 , the average debt balance ( including commercial paper ) was $ 2,603.6 million , compared to $ 2,492.7 million in 2016 . the average interest rate for the year ended december 31 , 2017 was 3.9 % , compared to 4.0 % in 2016 . foreign exchange gain ( loss ) . for the year ended december 31 , 2017 foreign exchange gain was $ 41.7 million , compared to a loss of $ 72.0 million in 2016 . foreign exchange gain ( loss ) includes the re-measurement and settlement of net monetary assets denominated in mexican pesos and the gain ( loss ) on foreign currency derivative contracts . for the year ended december 31 , 2017 , the re-measurement and settlement of net monetary assets denominated in mexican pesos resulted in a foreign exchange gain of $ 3.5 million , compared to a loss of $ 18.5 million in 2016 . the company enters into foreign currency derivative contracts to hedge its net exposure to fluctuations in the mexican cash tax obligation due to changes in the value of the mexican peso against the u.s. dollar . for the year ended december 31 , 2017 , foreign exchange gain on foreign currency derivative contracts was $ 38.2 million compared to a loss of $ 53.5 million in 2016 . other expense , net . other expense , net , decreased $ 0.4 million for the year ended december 31 , 2017 , compared to 2016 , due to an increase in miscellaneous income . income tax expense ( benefit ) . income tax expense ( benefit ) decreased $ 272.4 million for the year ended december 31 , 2017 , compared to 2016 , due to the impact of the tax reform act enacted on december 22 , 2017. the company recognized a $ 487.6 million tax benefit as a result of revaluing the u.s. ending net deferred tax liabilities from 35 % to the newly enacted u.s. corporate income tax rate of 21 % . the tax benefit was partially offset by tax expense of $ 74.6 million for the deemed mandatory repatriation of undistributed earnings . the effective tax rate was ( 10.2 % ) and 27.6 % for the years ended december 31 , 2017 and 2016 , respectively . the decrease in the effective tax rate was due to impact of the tax reform act . the strengthening of the mexican peso as of december 31 , 2017 as compared to december 31 , 2016 increased the company 's mexican cash tax obligation by $ 18.8 million for the year ended december 31 , 2017 , whereas the weakening of the mexican peso as of december 31 , 2016 decreased the company 's mexican cash tax obligation by $ 49.2 million for the year ended december 31 , 2016 . the company enters into foreign currency derivative contracts to hedge its net exposure to fluctuations in the mexican cash tax obligation due to changes in the value of the mexican peso against the u.s. dollar , and gains and losses on these foreign currency derivative contracts are recorded in foreign exchange gain ( loss ) . further information on the components of the effective tax rates for the years ended december 31 , 2017 and 2016 , is presented in note 12 to the consolidated financial statements in item 8. beginning in 2018 , the company 's effective tax rate is expected to be reduced to 29 % -30 % , assuming a constant exchange rate of the mexican peso against the u.s. dollar . the company expects u.s. tax reform to reduce u.s. cash taxes by approximately $ 90.0 million over 2018 through 2020 . 30 year ended december 31 , 2016 , compared with the year ended december 31 , 2015 the following summarizes kcs 's consolidated income statement components ( in millions ) : replace_table_token_8_th revenues the following summarizes revenues ( in millions ) , carload/unit statistics ( in thousands ) and revenue per carload/unit : replace_table_token_9_th revenues include both revenue for transportation services and fuel surcharges . for the year ended december 31 , 2016 , revenues and carload/unit volumes decreased 3 % and 2 % , respectively , compared to the prior year . revenue decreased by $ 66.0 million or approximately 3 % , compared to the prior year , due to the weakening of the mexican peso against the u.s. dollar for revenue transactions denominated in mexican pesos . the average exchange rate of mexican pesos per u.s. dollar was ps.18.7 for 2016 compared to ps.15.8 for 2015 . 31 revenue per carload/unit decreased by 2 % for the year ended december 31 , 2016 , compared to the prior year , due to the weakening of the mexican peso against the u.s. dollar and lower fuel surcharge , partially offset by positive pricing impacts . kcs 's fuel surcharges are a mechanism to adjust revenue based upon changes in fuel prices above fuel price thresholds set in kcs 's tariffs or contracts . fuel surcharge revenue is calculated using a fuel price from a prior time period that can be up to 60 days earlier . in a period of volatile fuel prices or changing customer business mix , changes in fuel expense and fuel surcharge revenue may differ . fuel surcharge revenue decreased $ 126.3 million for the year ended december 31 , 2016 , compared to the prior year , due in part to combining the fuel surcharge for certain customers with the line haul rate . in addition , fuel surcharge revenue decreased due to lower u.s. fuel prices and the impact of fuel prices falling below fuel price thresholds for certain of kcs 's tariffs and contracts during 2016. the following discussion provides an analysis of revenues by commodity group : revenues by commodity group for 2016 chemical and petroleum .
| results of operations year ended december 31 , 2017 , compared with the year ended december 31 , 2016 the following summarizes kcs 's consolidated income statement components ( in millions ) : replace_table_token_5_th revenues the following summarizes revenues ( in millions ) , carload/unit statistics ( in thousands ) and revenue per carload/unit : replace_table_token_6_th 26 revenues include revenue for transportation services and fuel surcharges . notwithstanding the impacts of hurricane harvey , revenues and carload/unit volumes increased 11 % and 5 % , respectively , for the year ended december 31 , 2017 , compared to the prior year . revenue per carload/unit increased by 6 % due to mix , increased average length of haul , positive pricing impacts , and higher fuel surcharge . energy revenues increased $ 81.1 million , primarily due to an increase in utility coal volumes due to higher natural gas prices and lower coal inventory levels . in addition , frac sand volumes increased due to strong demand as a result of higher crude oil prices . chemical and petroleum revenues increased $ 64.5 million , primarily due to increased refined product and liquefied petroleum gas shipments to mexico . the increase in revenue per carload/unit was partially offset by the weakening of the mexican peso against the u.s. dollar of approximately $ 8.0 million , compared to the prior year , for revenue transactions denominated in mexican pesos . the average exchange rate of mexican pesos per u.s. dollar was ps.18.9 for 2017 compared to ps.18.7 for 2016. kcs 's fuel surcharges are a mechanism to adjust revenue based upon changes in fuel prices above fuel price thresholds set in kcs 's tariffs or contracts . fuel surcharge revenue is calculated using a fuel price from a prior time period that can be up to 60 days earlier . in a period of volatile fuel prices or changing customer business mix , changes in fuel expense and fuel surcharge revenue may differ .
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overview we are a leader and an innovator in providing technology-enabled services platforms that empower consumers to make healthcare saving and spending decisions . consumers and employers use our platforms to manage tax-advantaged hsas and other cdbs offered by employers , including fsas and hras , cobra administration , commuter and other benefits , compare treatment options and pricing , evaluate and pay healthcare bills , receive personalized benefit information , access remote and telemedicine benefits , earn wellness incentives , and receive investment advice to grow their tax-advantaged healthcare savings . the core of our offerings is the hsa , a financial account through which consumers spend and save long-term for healthcare expenses on a tax-advantaged basis . as of january 31 , 2021 , we administered 5.8 million hsas , with balances totaling $ 14.3 billion , which we call hsa assets . during the fiscal years ended january 31 , 2021 and 2020 , we added approximately 0.7 million and 1.5 million new hsas , respectively , which reflects in 2019 the wageworks acquisition . also , as of january 31 , 2021 , we administered 7.0 million complementary cdbs . we refer to the aggregate number of hsas and other cdbs on our platforms as total accounts , of which we had 12.8 million as of january 31 , 2021. we reach consumers primarily through relationships with their employers , which we call clients . we reach clients primarily through a sales force that calls on clients directly , relationships with benefits brokers and advisors , and integrated partnerships with a network of health plans , benefits administrators , benefits brokers and consultants , and retirement plan recordkeepers , which we call network partners . as of january 31 , 2021 , our platforms were integrated with 174 network partners , and we serve approximately 100,000 clients . we have increased our share of the growing hsa market from 4 % in calendar year 2010 to 16 % in 2020 , measured by hsa assets . according to devenir , today we are the largest hsa provider by accounts and second largest by assets . in addition , we believe we are the largest provider of other cdbs . we seek to differentiate ourselves through our proprietary technology , product breadth , ecosystem connectivity , and service-driven culture . our proprietary technology is designed to help consumers optimize the value of their hsas and other cdbs and gain confidence and skills in managing their healthcare costs as part of their financial security . our ability to engage consumers is enhanced by our platforms ' capacity to securely share data in both directions with others in the health , benefits , and retirement ecosystems . our commuter benefits offering also leverages connectivity to an ecosystem of mass transit , ride hailing , and parking providers . these strengths reflect our “ deep purple ” culture of remarkable service to customers and teammates , achieved by driving excellence , ethics , and process into everything we do . we earn revenue primarily from three sources : service , custodial , and interchange . we earn service revenue mainly from fees paid by clients on a recurring per-account per-month basis . we earn custodial revenue mainly from hsa assets held at our members ' direction in federally insured cash deposits , insurance contracts or mutual funds , and from investment of client-held funds . we earn interchange revenue mainly from fees paid by merchants on payments that our members make using our physical payment cards and virtual platforms . see “ key components of our results of operations ” for additional information on our sources of revenue , including the adverse impacts caused by the ongoing covid-19 pandemic . -33- wageworks acquisition on august 30 , 2019 , we completed the wageworks acquisition and paid approximately $ 2.0 billion in cash to wageworks stockholders , financed through net borrowings of approximately $ 1.22 billion under a new term loan facility and approximately $ 816.9 million of cash on hand . as a result of the wageworks acquisition , wageworks inc. became a wholly owned subsidiary of healthequity , inc. the key strategy of the wageworks acquisition was to enable us to increase the number of our employer sales opportunities , the conversion of these opportunities to clients , and the value of clients in generating members , hsa assets and complementary cdbs . wageworks ' historic strength of selling to employers directly and through health benefits brokers and advisors complemented our distribution through network partners . with wageworks ' cdb capabilities , we provide employers with a single partner for both hsas and other cdbs , which is preferred by the vast majority of employers according to research conducted for us by aite group . for clients that partner with us in this way , we believe we can produce more value by encouraging both cdb participants to contribute to hsas and hsa-only members to take advantage of tax savings available through other cdbs . accordingly , we believe that there are significant opportunities to expand the scope of services that we provide to our clients . the wageworks acquisition has significantly increased the number of our total accounts , hsa assets , client-held funds , adjusted ebitda , total revenue , total cost of revenue , operating expenses , and other financial results . these increases impact the comparability of the period-over-period results described in this report . key factors affecting our performance we believe that our future performance will be driven by a number of factors , including those identified below . each of these factors presents both significant opportunities and significant risks to our future performance . see also `` results of operations - revenue '' for information relating to the ongoing covid-19 pandemic and also the section entitled “ risk factors ” included in part 1 , item 1a of this annual report on form 10-k and our other reports filed with the sec . wageworks integration on august 30 , 2019 , we completed the wageworks acquisition . story_separator_special_tag we earn a material portion of our total revenue from interest paid to us by these partners . the lengths of our agreements with depository partners typically range from three to five years and may have fixed or variable interest rate terms . the terms of new and renewing agreements may be impacted by the then-prevailing interest rate environment , which in turn is driven by macroeconomic factors and government policies over which we have no control . such factors , and the response of our competitors to them , also determine the amount of interest retained by our members . we believe that diversification of depository partners , varied contract terms and other factors reduce our exposure to short-term fluctuations in prevailing interest rates and mitigate the short-term impact of sustained increases or declines in prevailing interest rates on our custodial revenue . over longer periods , sustained shifts in prevailing interest rates affect the amount of custodial revenue we can realize on custodial assets and the interest retained by our members . we expect our custodial revenue to continue to be adversely affected by the interest rate cuts by the federal reserve associated with the ongoing covid-19 pandemic and other market conditions that have caused interest rates to decline significantly . -35- interest on our long-term debt changes frequently due to variable interest rate terms , and as a result , our interest expense is expected to fluctuate based on changes in prevailing interest rates . our competition and industry our direct competitors are hsa custodians and other cdb providers . many of these are state or federally chartered banks and other financial institutions for which we believe technology-based healthcare services are not a core business . some of our direct competitors ( including healthcare service companies such as united health group 's optum , webster bank , and well-known retail investment companies , such as fidelity investments ) are in a position to devote more resources to the development , sale , and support of their products and services than we have at our disposal . in addition , numerous indirect competitors , including benefits administration technology and service providers , partner with banks and other hsa custodians to compete with us . our network partners may also choose to offer competitive services directly , as some health plans have done . our success depends on our ability to predict and react quickly to these and other industry and competitive dynamics . as a result of the covid-19 pandemic , we have seen an adverse impact on sales opportunities , with some opportunities delayed and most now being held virtually . as an increasing number of companies go out of business , the number of our clients and potential clients is adversely affected . increased unemployment may mean that fewer of our members contribute to hsas , fsas or other cdbs and reduce overall demand for our products . we have seen a significant decline in the use of commuter benefits due to many of our members working from home during the outbreak or other impacts from the outbreak , which has negatively impacted both our interchange revenue and service revenue , and this `` work from home '' trend may continue after the pandemic . we have also seen a decline in interchange revenue across all other products . the extent to which the covid-19 pandemic will negatively impact our business is highly uncertain and can not be accurately predicted . regulatory environment federal law and regulations , including the affordable care act , the internal revenue code , the employee retirement income security act and department of labor regulations , and public health regulations that govern the provision of health insurance and provide the tax advantages associated with our products , play a pivotal role in determining our market opportunity . privacy and data security-related laws such as the health insurance portability and accountability act , or hipaa , and the gramm-leach-bliley act , laws governing the provision of investment advice to consumers , such as the investment advisers act of 1940 , or the advisers act , the usa patriot act , anti-money laundering laws , and the federal deposit insurance act , all play a similar role in determining our competitive landscape . in addition , state-level regulations also have significant implications for our business in some cases . for example , our subsidiary healthequity trust company is regulated by the wyoming division of banking , and several states are considering , or have already passed , new privacy regulations that can affect our business . various states also have laws and regulations that impose additional restrictions on our collection , storage , and use of personally identifiable information . privacy regulation in particular has become a priority issue in many states , including california , which in 2018 enacted the california consumer privacy act broadly regulating california residents ' personal information and providing california residents with various rights to access and control their data , and the new california privacy rights act . we have also seen an increase in regulatory changes related to our products due to government responses to the covid-19 pandemic and may continue to see additional regulatory changes . our ability to predict and react quickly to relevant legal and regulatory trends and to correctly interpret their market and competitive implications is important to our success . our acquisition strategy we have a successful history of acquiring hsa portfolios and businesses that strengthen our platform . we seek to continue this growth strategy and are regularly engaged in evaluating different opportunities . we have developed an internal capability to source , evaluate , and integrate acquired hsa portfolios . we intend to continue to thoughtfully pursue acquisitions of complementary assets and businesses that we believe will strengthen our platform .
| results of operations impact of wageworks acquisition the comparability of our operating results is impacted by the wageworks acquisition on august 30 , 2019. as the wageworks acquisition closed on august 30 , 2019 , wageworks ' results of operations are included in our consolidated results of operations for the entire fiscal year ended january 31 , 2021 , but are only included in our consolidated results of operations for approximately five months during the fiscal year ended january 31 , 2020. revenue and expense attributable to wageworks generally is not separately identifiable due to the integration of wageworks into our existing operations . for a discussion related to the results of operations and liquidity and capital resources for fiscal year 2020 compared to fiscal year 2019 , refer to part ii , item 7. management 's discussion and analysis of financial condition and results of operations in our fiscal year 2020 form 10-k , filed with the sec on march 31 , 2020. revenue the following table sets forth our revenue for the periods indicated : replace_table_token_6_th service revenue . the $ 168.1 million , or 64 % , increase in service revenue was primarily due to the inclusion for the full period of service revenue associated with the cdbs added through the wageworks acquisition , partially offset by the negative impact of the covid-19 pandemic on service revenues related to commuter benefits and other cdbs . custodial revenue . the $ 9.0 million , or 5 % , increase in custodial revenue was primarily due to an increase in the average daily balance of hsa cash with yield of $ 1.7 billion , or 24 % .
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early adoption is permitted for any interim and annual financial statements that have not yet been issued . we early adopted asu 2015-17 effective november 30 , 2015 on a prospective basis . the adoption did not have a significant impact on story_separator_special_tag 41 results of operations overview this subsection of md & a provides an overview of the important factors that management focuses on in evaluating our businesses , financial condition and operating performance , our overall business strategy and our financial results for the periods covered . we are building a fully-integrated biopharmaceutical company focused not only on developing our trans-differentiation technologies for diabetes and vertically integrating manufacturing that can optimize our abilities to scale-up our technologies for clinical trials and eventual commercialization , but also do the same for the technologies of other cell therapy markets . we are focused on developing our cell therapy technologies to market with respect to diabetes as well as other indications . our development plan calls for conducting additional preclinical safety and efficacy studies with respect to diabetes and other potential indications . our belgian based subsidiary , masthercell , is a contract development manufacturing organization , or cdmo , specialized in cell therapy development for advanced medicinal products . in the last decade , cell therapy medicinal products have gained significant importance , particularly in the fields of ex-vivo gene therapy , immunotherapy and regenerative medicine . while academic and industrial research has led scientific development in the sector , industrialization and manufacturing expertise remains insufficient . masthercell plans to fill this need by providing two types of services to its customers : ( i ) process and assay development services and ( ii ) good manufacturing practices ( gmp ) contract manufacturing services . as noted below , fiscal 2015 is the first year in which we recorded revenues of approximately $ 3 million attributable to our subsidiary , masthercell , which we acquired in march 2015. as of november 30 , 2015 , masthercell had a backlog of approximately 7.5 million , or approximately $ 7.9 million , consisting of purchase orders/service contracts for production activities that masthercell expects to fulfill into fiscal year 2016. story_separator_special_tag december 9 and 16 , 2014 , the company received 651 thousand and 558 thousand under the grant , respectively . israel-u.s. binational industrial research and development foundation ( bird ) on september 9 , 2015 , the israeli subsidiary entered into a pharma cooperation and project funding agreement ( cpfa ) with bird and pall corporation , a u.s. company . bird will give a conditional grant of $ 400 thousand each ( according to terms defined in the agreement ) , for a joint research and development project for the use autologous insulin producing ( aip ) cells for the treatment of diabetes ( the project ) . the project started on march 1 , 2015. upon the conclusion of product development , the grant shall be repaid at the rate of 5 % of gross sales . the grant will be used solely to finance the costs to conduct the research of the project during a period of 18 months starting on march 1 , 2015. on september 21 , 2015 , the israeli subsidiary received $ 100 thousand under the grant . nine investments limited convertible loan agreement on december 31 , 2014 , the company executed an amendment to convertible loan agreement with nine investments limited to extend the due date of the loan of $ 1,500 thousand from december 31 , 2014 to january 31 , 2015. as of the date of this report , the company has not finalized the terms and revised maturity date of this loan , although it believes it will be successful in extending the agreement upon mutually agreeable terms as soon as practicable . share exchange agreement with masthercell sa on november 12 , 2015 , the company and masthercell and each of the shareholders of masthercell ( the masthercell shareholders ) , entered into an amendment ( amendment no . 2 ) to the share exchange agreement . under amendment no . 2 , the conditions under which the masthercell shareholders under the original agreement could unwind the transaction was extended to november 30 , 2015. under amendment no . 2 , the company agreed to remit to masthercell , by way of an equity investment , the sum of eur 3.8 million by november 30 , 2015 ( the initial investment ) , to be followed by a subsequent equity investment by december 31 , 2015 in masthercell of eur 1.2 million . these equity investments were to be made out of the proceeds from equity or equity-linked investments and or credit facilities that the company was required to have in place on or before november 30 , 2015 in the aggregate amount of at least $ 10 million ( the post closing financing ) . on december 10 , 2015 , we remitted to masthercell , sa ( “ masthercell ” ) by way of an equity investment , the sum of eur 3.8 million , or $ 4,103,288 , representing the “ initial investment ” , in compliance with our obligations as required under amendment no.2 . we also agreed to invest an additional eur 2.2 million in masthercell equity in addition to the initial investment , which additional amount becomes due upon the request of the masthercell board of directors , of whom company directors/officers currently represent a majority . the additional eur 2.2 million represents the sum total of our funding obligation to masthercell . story_separator_special_tag as of the date of this filing , we had cash and cash equivalents of approximately $ 780,000. we do not expect to raise capital through debt financing from traditional lending sources since we are not currently producing revenue and can not assure a lender that we will be able to successfully achieve commercial revenues from the development of our technology . therefore , we only expect to raise money through equity financing via the sale of our common stock . if we can not raise the money that we need in order to continue to operate our business , we will be forced to delay , scale back or eliminate some or all of our proposed operations . if any of these were to occur , there is a substantial risk that our business would fail . if we are unsuccessful in raising additional financing , we may need to curtail , discontinue or cease operations . during 2015 and 2014 , we have received certain grant funding and have relied and expect to continue to rely on such funding to further our clinical development in the future . on june 30 , 2014 , our u.s. subsidiary entered into a grant agreement with tedco . under the agreement , tedco has agreed to give us an amount not to exceed $ 406,431 to be used solely to finance the costs to conduct the research project entitled autologous insulin producing ( aip ) cells for diabetes during a period of two years . on july 22 , 2014 , our u.s. subsidiary received an advance payment of $ 203,215 on account of the grant . through november 30 , 2014 , an amount of $ 118,305 out of the $ 203,215 was spent . on november 17 , 2014 , our belgian subsidiary received the formal approval from the walloon region , belgium ( service public of wallonia , dgo6 ) for a 2.015 million ( $ 2.4 million ) support program for the research and development of a potential cure for type 1 diabetes . the financial support is composed of a 1,085 thousand euros ( 70 % of budgeted costs ) grant for the industrial research part of the research program and a further recoverable advance of 930 thousand ( 60 % of budgeted costs ) of the experimental development part of the research program . the grants will be paid to us over a period of approximately 3 years . the grants are subject to certain conditions with respect to our work in the walloon region . on december 9 and 16 , 2014 , we received 651 thousand and 558 thousand under the grant , respectively , to have relied on grant funding in 2014 may need to raise additional funds in the future that may not be available on acceptable terms or at all . 46 on september 9 , 2015 , the israeli subsidiary entered into a pharma cooperation and project funding agreement ( cpfa ) with bird and pall corporation , a u.s. company . bird will give a conditional grant of $ 400 thousand each ( according to terms defined in the agreement ) , for a joint research and development project for the use autologous insulin producing ( aip ) cells for the treatment of diabetes ( the project ) . the project started on march 1 , 2015. upon the conclusion of product development , the grant shall be repaid at the rate of 5 % of gross sales . the grant will be used solely to finance the costs to conduct the research of the project during a period of 18 months starting on march 1 , 2015. on september 21 , 2015 , the israeli subsidiary received $ 100 thousand under the grant . cash requirements the company 's plan of operation over the next 12 months is to : initiate regulatory activities in europe and the united states ; locate suitable facility on the u.s. for tech transfer and manufacturing scale-up ; purchase equipment needed for its cell production process ; hire key personnel including in gmp implementation and general and administrative ; collaborate with clinical centers and regulators to carry out clinical studies and clinical safety testing ; identify optional technologies for scale up of the cells production process ; and initialize efforts to validate the manufacturing process . the company estimates its operating capital needs for the next 12 months as of november 30 , 2015 to be as follows ( in thousands ) : gmp process development and validation $ 2,200 scale-up of manufacturing 3,500 general and administrative 1,300 working capital 3,000 total $ 10,000 the above amounts do not include the additional eur 2.2 million per amendment no . 2 under the share exchange agreement with masthercell shareholders that becomes due upon the request of the masthercell board of directors , of whom company directors/officers currently represent a majority future financing the company will require additional funds to implement the company 's growth strategy for its business . in addition , while the company has received various grants that have enabled the company to fund its clinical developments , these funds are largely restricted for use for other corporate operational and working capital purposes . therefore , the company will need to raise additional capital to both supplement the company 's clinical developments that are not covered by any grant funding and to cover the company 's operational expenses . these funds may be raised through equity financing , debt financing , or other sources , which may result in further dilution in the equity ownership of the company 's shares . there can be no assurance that additional financing will be available to the company when needed or , if available , that it can be obtained on commercially reasonable terms .
| results of operations comparison of the year ended november 30 , 2015 and the year ended november 30 , 2014 revenue following the masthercell acquisition which closed in march 2015 , this is the first year that the company recognizes revenues from masthercell 's operations . masthercell bills for services linked to cell process development and cell manufacturing services based on individual contracts in accordance with asc 605 , revenue recognition . cell manufacturing services are generally distinct arrangements whereby masthercell is paid for time and materials or for fixed monthly amounts . the company also recognizes revenue via the sale of consumables to customers that are incidental to the services provided as foreseen in the clinical services contracts . on a monthly basis , the company bills customers for reimbursable expenses and immediately recognizes these billings in revenue , as the revenue is deemed earned . for the year ended november 30 , 2015 , our total revenues were approximately $ 3 million , as opposed to none for the corresponding period in 2014 , respectively . the increase in revenue is attributable to our acquisition of masthercell and the revenues they recognize from services and sales of consumables . expenses the company 's expenses for the year ended november 30 , 2015 are summarized as follows in comparison to its expenses for the year ended november 30 , 2014 : replace_table_token_1_th 42 research and development expenses replace_table_token_2_th the decrease in salaries and related expenses and in stock-based compensation in the year ended november 30 , 2015 , compared to 2014 , is primarily due to lower compensation expense for certain executives that are no longer employed by the company . this was offset by expenses due to the employment of a new development director for the cell therapy business .
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in fiscal year 2011 , ablecom paid for a land deposit in taiwan on behalf of the company in the amount of $ 4,510,000 which the company repaid ablecom in march 2011. the amount paid to ablecom of $ 4,510,000 represented ablecom 's cost and the fair market value of the land . in may story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements and related notes which appear elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors , including those discussed below and elsewhere in this annual report on form 10-k , particularly under the heading “ risk factors. ” overview we are a global leader in high-performance , high-efficiency server technology and green computing innovation . we develop and provide advanced server building block solutions to data center , cloud computing , enterprise , hadoop/big data , hpc and embedded markets . our solutions range from complete server , storage , blade , workstation , and full rack solutions to networking devices and server management software , which can be used by distributors , oems and end customers . for fiscal years 2013 , 2012 and 2011 , net sales of optimized servers were $ 501.9 million , $ 447.0 million and $ 351.3 million , respectively , and net sales of subsystems and accessories were $ 660.7 million , $ 566.9 million and $ 591.3 million , respectively . the increase in our net sales in fiscal year 2013 compared with fiscal year 2012 was primarily due to increased sales in subsystems and accessories and server systems with intel 's sandy bridge processors including twin , storage , microcloud , gpu and blade server solutions . fiscal year 2013 was a challenging year in terms of soft it spending : challenging component pricing for hard disk drive and memory and continued economic weakness in europe . however , we performed strongly and outperformed the industry and our competition . in addition , our taiwan facility during its first full year of operation helped our asia region revenue grow 35.1 % . we commenced operations in 1993 and have been profitable every year since inception . for fiscal years 2013 , 2012 and 2011 , our net sales were $ 1,162.6 million , $ 1,013.9 million and $ 942.6 million , respectively , and our net income was $ 21.3 million , $ 29.9 million and $ 40.2 million , respectively . our decrease in net income in fiscal year 2013 was primarily attributable to a decrease in our gross profit resulting primarily from higher sales of subsystems and accessories which contain higher content of lower margin hard disk drives and memory and higher research and development expenses partially offset by a tax benefit of $ 3.7 million related to the u.s. federal r & d tax credit , of which $ 1.5 million related to fiscal year 2012 and the recognition of $ 2.0 million benefit related to our resolution during the three months ended march 31 , 2013 of irs audits for all outstanding items covering fiscal year 2008 through 2010. we sell our server systems and subsystems and accessories primarily through distributors and to a lesser extent to oems as well as through our direct sales force . for fiscal years 2013 , 2012 and 2011 , we derived 56.3 % , 54.4 % and 56.1 % , respectively , of our net sales from products sold to distributors , and sold the remaining net sales to oems and end customers . none of our customers accounted for 10 % or more of our net sales in fiscal years 2013 , 2012 and 2011 . for fiscal years 2013 , 2012 and 2011 , we derived 54.2 % , 58.2 % and 58.3 % , respectively , of our net sales from customers in the united states . we perform the majority of our research and development efforts in-house . for fiscal years 2013 , 2012 and 2011 , research and development expenses represented 6.5 % , 6.3 % and 5.1 % of our net sales , respectively . our increase as a percentage of sales in fiscal year 2013 was primarily attributable to our increase in headcount and prototype material expenses relating to new product introductions , particularly related to the introduction of new products for technology launches such as intel 's sandy bridge and haswell processor as well as our fattwin solutions and product development expenses for ivy bridge processor as we drove innovation in our product portfolio to increase performance in density and power . our increase as a percentage of sales in fiscal year 2012 was primarily attributable to our increased expenses relating to new product introductions , particularly related to the introduction of intel 's sandy bridge processor as well as net sales which were lower than we had anticipated in fiscal year 2012. we use several suppliers and contract manufacturers to design and manufacture components in accordance with our specifications , with most final assembly and testing performed at our manufacturing facility in san jose , california . during fiscal year 2013 , we continued to invest in expanding our operations both in san jose , california and our subsidiaries in taiwan and the netherlands in order to support our growth . we have increased manufacturing and service operations in taiwan and the netherlands to support our asia and european customers and we have increased our utilization of our overseas manufacturing 29 capacity in fiscal year 2013. one of our key suppliers is ablecom , a related party , which supplies us with contract design and manufacturing support . for fiscal years 2013 , 2012 and 2011 , our purchases from ablecom represented 17.9 % , 19.9 % and 19.6 % of our cost of sales , respectively . story_separator_special_tag cost of sales primarily consists of the costs to manufacture our products , including the costs of materials , contract manufacturing , shipping , personnel and related expenses , equipment and facility expenses , warranty costs and inventory excess and obsolete provisions . the primary factors that impact our cost of sales are the mix of products sold and cost of materials , which include raw material costs , shipping costs and salary and benefits related to production . cost of sales as a percentage of net sales may increase over time if decreases in average selling prices are not offset by corresponding decreases in our costs . our cost of sales , as a percentage of net sales , is generally lower on server systems than on subsystems and accessories . because we do not have long-term fixed supply agreements , our cost of sales is subject to change based on market conditions . research and development expenses . research and development expenses consist of the personnel and related expenses of our research and development teams , and materials and supplies , consulting services , third party testing services and equipment and facility expenses related to our research and development activities . all research and development costs are expensed as incurred . we occasionally receive non-recurring engineering , or nre funding from certain suppliers and customers . under these programs , we are reimbursed for certain research and development costs that we incur as part of the joint development of our products and those of our suppliers and customers . these amounts offset a portion of the related research and development expenses and have the effect of reducing our reported research and development expenses . sales and marketing expenses . sales and marketing expenses consist primarily of salaries and incentive bonuses for our sales and marketing personnel , costs for tradeshows , independent sales representative fees and marketing programs . from time to time , we receive cooperative marketing funding from certain suppliers . under these programs , we are reimbursed for certain marketing costs that we incur as part of the joint promotion of our products and those of our suppliers . these amounts offset a portion of the related expenses and have the effect of reducing our reported sales and marketing expenses . similarly , we from time to time offer our distributors cooperative marketing funding which has the effect of increasing our expenses . the timing , magnitude and estimated usage of our programs and those of our suppliers can result in significant variations in reported sales and marketing expenses from period to period . spending on cooperative marketing , either by us or our suppliers , typically increases in connection with significant product releases by us or our suppliers . general and administrative expenses . general and administrative expenses consist primarily of general corporate costs , including personnel expenses , financial reporting , corporate governance and compliance and outside legal , audit and tax fees . interest and other income , net . interest and other income , net represents the net of our interest income on investments or interest expense on the building loans or line of credit for our owned facilities offset by interest earned on our cash balances . income tax provision . our income tax provision is based on our taxable income generated in the jurisdictions in which we operate , currently primarily the united states , the netherlands and taiwan and to a lesser extent , china . our effective tax rate differs from the statutory rate primarily due to research and development tax credits and the domestic production activities deduction and lower taxes in foreign jurisdictions which were partially offset by the impact of state taxes and stock option expenses . a reconciliation of the federal statutory income tax rate to our effective tax rate is set forth in note 11 of notes to consolidated financial statements . critical accounting policies our discussion and analysis of our financial condition and results of operations are based upon our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets , liabilities , revenues and expenses . we evaluate our estimates on an on-going basis , including those related to allowances for doubtful accounts and sales returns , cooperative marketing accruals , investment valuations , inventory valuations , income taxes , warranty obligations and stock-based compensation . 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 the 31 judgments we make about the carrying values of assets and liabilities that are not readily apparent from other sources . because these estimates can vary depending on the situation , actual results may differ from the estimates . we believe the following are our most critical accounting policies as they require our more significant judgments in the preparation of our financial statements . revenue recognition . we recognize revenue from sales of products , when persuasive evidence of an arrangement exists , shipment has occurred and title has transferred , the sales price is fixed or determinable , collection of the resulting receivable is reasonably assured , and all significant obligations have been met . generally this occurs at the time of shipment when risk of loss and title has passed to the customer . our standard arrangement with our customers includes a signed purchase order or contract , 30 to 60 days payment terms , ex-works terms , except for a few customers who have free-on-board destination terms or customer acceptance provisions , for which revenue is recognized when the products arrive or are accepted at the destination .
| results of operations the following table sets forth our financial results , as a percentage of net sales for the periods indicated : replace_table_token_6_th comparison of fiscal years ended june 30 , 2013 and 2012 net sales . net sales increased by $ 148.7 million , or 14.7 % , to $ 1,162.6 million from $ 1,013.9 million , for fiscal year 2013 and 2012 , respectively . this increase was due primarily to an increase in unit volumes of our subsystems and accessories and to a lesser extent an increase in the average selling price of our server systems offset by a decrease in unit volumes of server systems as we sold more higher density server systems on a processing node basis in fiscal year 2013 compared to fiscal year 2012. for fiscal year 2013 , the number of server system units sold decreased 2.9 % to 232,000 compared to 239,000 for fiscal year 2012 . the average selling price of server system units increased 15.8 % to $ 2,200 in fiscal year 2013 compared to $ 1,900 in fiscal year 2012 . the average selling prices of our server systems increased primarily due to higher average selling prices of microcloud , fattwin servers , storage and superblades servers with intel 's sandy bridge processors which offered higher density computing and more memory and hard disk drive capacity . sales of server systems increased by $ 54.9 million or 12.3 % from fiscal year 2012 to fiscal year 2013 , primarily due to higher sales of twin , storage , microcloud , gpu/xeon phi and superblade servers solutions and complete integrated-high-end servers solutions to oem and end customers partially offset by lower sales of rack solutions . sales of server systems represented 43.2 % of our net sales for fiscal year 2013 compared to 44.1 % of our net sales for fiscal year 2012 .
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” the following discussion relates to the audited financial statements of turning point brands , inc. , included elsewhere in this annual report on form 10-k. in this discussion , unless the context requires otherwise , references to “ our company ” “ we , ” “ our , ” or “ us ” refer to turning point brands , inc. , and its consolidated subsidiaries . references to “ tpb ” refer to turning point brands , inc. , without any of its subsidiaries . we were incorporated in 2004 under the name north atlantic holding company , inc. on november 4 , 2015 , we changed our name to turning point brands , inc. many of the amounts and percentages in this discussion have been rounded for convenience of presentation . overview we are a leading manufacturer , marketer and distributor of branded consumer products . we sell a wide range of products to adult consumers consisting of staple products with our iconic brands zig-zag ® and stoker 's ® to our next generation products to fulfill evolving consumer preferences . among other markets , we compete in the alternative smoking accessories and other tobacco products ( “ otp ” ) industries . the alternative smoking accessories market is a dynamic market experiencing robust secular growth driven by cannabinoid legalization in the u.s. and canada and positively evolving consumer perception and acceptance in north america . the otp industry , which consists of non-cigarette tobacco products , exhibited low double-digit consumer unit growth in 2020 as reported by management science associates , inc. ( “ msai ” ) , a third-party analytics and information company . our three focus segments are led by our core , proprietary brands : zig-zag ® in the zig-zag products segment ; stoker 's ® along with beech-nut ® and trophy ® in the stoker 's products segment ; and nu-x tm and solace ® along with our distribution platforms ( vapor beast ® , vaporfi ® and direct vapor ® ) in the newgen products segment . our businesses generate solid cash flow which we use to finance acquisitions , increase brand support , expand our distribution infrastructure , and strengthen our capital position . we currently ship to approximately 800 distributors with an additional 200 secondary , indirect wholesalers in the u.s. that carry and sell our products . under the leadership of a senior management team with extensive experience in the consumer products , alternative smoking accessories and tobacco industries , we have grown and diversified our business through new product launches , category expansions , and acquisitions while concurrently improving operational efficiency . we have identified additional growth opportunities in the emerging alternatives market . in january 2019 , we established nu-x , a new wholly owned subsidiary dedicated to the development , production and sale of alternative products and acquisitions in related spaces . the creation of nu-x allows us to leverage our expertise in traditional otp management to grow our presence in alternative products . our management team has extensive experience navigating federal , state and local regulations that are directly applicable to the growing alternatives market . in july 2019 , we acquired the assets of solace . solace is an innovative product development company which established one of the top e-liquid brands and has since grown into a leader in alternative products . solace 's legacy and innovation will enhance nu-x 's strong and nimble development engine . we believe there are meaningful opportunities to grow through acquisitions and joint ventures across all product categories . as of december 31 , 2020 , our products are available in approximately 190,000 u.s. retail locations which , with the addition of retail stores in canada , brings our total north american retail presence to an estimated 210,000 points of distribution . our sales team targets widespread distribution to all traditional retail channels , including convenience stores , and we have a growing e-commerce business . to better align with our positioning as a branded consumer products company and to highlight the strength of our focus brands , we have renamed our core business segments from smoking products to zig-zag products and smokeless products to stoker 's products . historical financial results are not impacted by the segment name change . products we operate in three segments : zig-zag products , stoker 's products and newgen products . in our zig-zag products segment , we principally market and distribute ( i ) rolling papers , tubes , and related products ; and ( ii ) finished cigars and make-your-own ( “ myo ” ) cigar wraps . in our stoker 's products segment , we ( i ) manufacture and market moist snuff tobacco ( “ mst ” ) and ( ii ) contract for and market loose leaf chewing tobacco products . in our newgen products segment , we ( i ) market and distribute cbd , liquid vapor products and certain other products without tobacco and or nicotine ; ( ii ) distribute a wide assortment of products to non-traditional retail via vaporbeast ; and ( iii ) market and distribute a wide assortment of products to individual consumers via the vaporfi b2c online platform . refer to the ‘ recent developments ' section below for details regarding the recreation marketing investment . 38 our portfolio of brands includes some of the most widely recognized names in the alternative smoking accessories and otp industries , such as zig-zag ® , stoker 's ® , vapor beast ® and vaporfi ® . the following table sets forth the market share and category rank of our core products and demonstrates their industry positions : replace_table_token_3_th ( 1 ) market share and category rank data for all products are derived from msai data 52 weeks endeding 12/26/20 . story_separator_special_tag standard diversified inc. ( “ sdi ” ) in july , 2020 , we completed our merger with sdi , whereby sdi was merged into a wholly-owned subsidiary of tpb in a tax-free downstream merger . under the terms of the merger , the holders of sdi 's class a common stock and sdi 's class b common stock ( collectively , “ sdi common stock ” ) received in the aggregate , in return for their sdi common stock , tpb voting common stock ( “ tpb common stock ” ) at a ratio of 0.52095 shares of tpb common stock for each share of sdi common stock . sdi divested its assets prior to close of the merger such that sdi 's net liabilities at closing were minimal and the only assets that it retained were its remaining tpb common stock holdings . in addition , 244,214 shares of tpb common stock were retired in the transaction . as a result of the transaction , we no longer have a controlling shareholder , our public float of shares outstanding was significantly improved and we eliminated the overhang of a controlling holding company structure . premarket tobacco applications we submitted premarket tobacco applications ( “ pmtas ” ) covering 250 products to the fda prior to the september 9 , 2020 filing deadline . the pmtas cover a broad assortment of products in the vapor category including multiple proprietary e-liquid offerings in varying nicotine strengths , technologies and sizes ; proprietary replacement parts and components of open system tank devices through partnerships with two leading manufacturers for exclusive distribution of products in the united states ; and a closed system e-cigarette . wild hempettes llc on october 1 , 2020 , we acquired a 20 % stake in wild hempettes llc ( “ wild hempettes ” ) , a leading manufacturer of hemp cigarettes under the wildhemp and hempettes brands , for $ 2.5 million . we have options to increase our stake to a 100 % ownership position based on certain milestones . as part of the transaction , the wild hempettes joint venture was spun off from crown distributing llc and formed as a vehicle for us to be the exclusive distributor of hempettes to u.s. bricks and mortar retailers under a profit-sharing arrangement . 40 sale of vapor shark retail assets on october 1 , 2020 , we sold the assets of our remaining seven vapor shark retail stores in oklahoma . we will receive monthly royalties over the next 4 years as consideration for the assets . net sales and gross profit related to these stores were $ 2.9 million and $ 1.6 million , respectively , for the year ended december 31 , 2020. dosist tm on october 26 , 2020 , we invested $ 15.0 million in dosist tm , a global cannabinoid company , with an option to invest an additional $ 15.0 million on pre-determined terms over the next 12 months . we received a warrant to receive preferred shares of dosist tm that will automatically be exercised upon the changing of federal laws in the united states , rescheduling cannabis and or permitting the general cultivation , distribution and possession of cannabis . recreation marketing investment in july 2019 we obtained a 30 % stake in canadian distribution entity , recreation marketing ( “ recreation ” ) for $ 1.0 million paid at closing . in november 2020 , we invested an additional $ 3.0 million increasing our ownership interest to 50 % . we received board seats aligned with our ownership position . we also provided a $ 2.0 million unsecured loan to recreation bearing interest at 8 % per annum and maturing november 19 , 2022. the company has determined that recreation is a vie due its required subordinated financial support . the company has determined it is the primary beneficiary due its 50 % equity interest , additional subordinated financing and distribution agreement with recreation for the sale of the company 's products . as a result , the company began consolidating recreation effective november 2020. recreation is a specialty marketing and distribution firm focused on building brands in the canadian alternative smoking accessories , tobacco and other alternative products categories . recreation 's management has significant expertise in marketing and distributing alternative smoking accessories and tobacco products throughout canada . recreation 's management and advisory team has over 50 years combined experience building and managing a portfolio of premium brands , all supported by an expert team of sales associates working across canada to provide service to over 30,000 traditional retail outlets and newly constructed cannabis dispensaries . senior secured notes and new revolving credit facility on february 11 , 2021 , the company closed a private offering ( the “ offering ” ) of $ 250 million aggregate principal amount of its 5.625 % senior secured notes due 2026 ( the “ senior secured notes ” ) . the senior secured notes bear interest at a rate of 5.625 % and will mature on february 15 , 2026. the company used the proceeds from the offering ( i ) to repay all obligations under and terminate the 2018 first lien term loan and 2018 first lien revolver , ( ii ) to pay related fees , costs , and expenses and ( iii ) for general corporate purposes . in connection with the offering , the company also entered into a new $ 25 million senior secured revolving credit facility ( the “ new revolving credit facility ” ) . the company did not draw any borrowings under the new revolving credit facility on the effective date of the facility but did have letters of credit of approximately $ 3.6 million outstanding . the new revolving credit facility will mature on august 11 , 2025 if none of the company 's convertible senior notes are outstanding , and if any convertible senior notes are outstanding , the date which is 91 days prior to the maturity date of july 15 , 2024 for such convertible senior notes .
| results of operations summary the table and discussion set forth below relates to our consolidated results of operations for the years ended december 31 ( in thousands ) : replace_table_token_4_th comparison of year ended december 31 , 2020 , to year ended december 31 , 2019 net sales . for the year ended december 31 , 2020 , overall net sales increased to $ 405.1 million from $ 362.0 million for the year ended december 31 , 2019 , an increase of $ 43.1 million or 11.9 % . the increase in net sales was primarily driven by increased sales volume across all segments . for the year ended december 31 , 2020 , net sales in the zig-zag products segment increased to $ 132.8 million from $ 108.7 million for the year ended december 31 , 2019 , an increase of $ 24.1 million or 22.1 % . for the year ended december 31 , 2020 , zig-zag products volumes increased 19.7 % , and price/mix increased 2.4 % . the increase in net sales was primarily related to double digit growth in us papers and wraps , partially offset by a $ 1.8 million decline in non-focus cigars and myo pipe . 44 for the year ended december 31 , 2020 , net sales in the stoker 's products segment increased to $ 115.9 million from $ 99.9 million for the year ended december 31 , 2019 , an increase of $ 16.0 million or 16.0 % . for the year ended december 31 , 2020 , stoker 's products volume increased 12.0 % and price/mix increased 4.0 % . the increase in net sales was primarily driven by the continuing double-digit volume growth of stoker 's ® mst . sales in chewing tobacco products were up mid-single digits as compared to prior year . mst represented 59 % of stoker 's products revenue in 2020 , up from 54 % a year earlier .
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for purposes of this section , `` repay '' , the “ company '' , `` we '' , or `` our '' refer to ( i ) hawk parent holdings , llc and its subsidiaries ( `` predecessor '' ) for the year ended december 31 , 2018 and the period from january 1 , 2019 through july 10 , 2019 ( each referred to herein as a `` predecessor period '' ) prior to the consummation of the business combination and ( ii ) repay holdings corporation and its subsidiaries ( the `` successor `` ) for the period from july 11 , 2019 through december 31 , 2019 ( the `` successor period '' ) and the year ended december 31 , 2020 after the consummation of the business combination , unless the context otherwise requires . certain figures have been rounded for ease of presentation and may not sum due to rounding . the combined year ended december 31 , 2019 represents the aggregated total of the predecessor period and successor period . overview we provide integrated payment processing solutions to industry-oriented markets in which merchants have specific transaction processing needs . we refer to these markets as “ vertical markets ” or “ verticals. ” our proprietary , integrated payment technology platform reduces the complexity of the electronic payments process for businesses , while enhancing their consumers ' overall experience . we intend to continue to strategically target verticals where we believe our ability to tailor payment solutions to our customer needs , our deep knowledge of our vertical markets and the embedded nature of our integrated payment solutions will drive strong growth by attracting new customers and fostering long-term customer relationships . since a significant portion of our revenue is derived from volume-based payment processing fees , card payment volume is a key operating metric that we use to evaluate our business . we processed approximately $ 15.2 billion of total card payment volume for the year ending december 31 , 2020 , and our year-over-year card payment volume growth was approximately 42 % . business combination the company was formed upon closing of the merger ( the “ business combination ” ) of hawk parent holdings llc ( together with repay holdings , llc and its other subsidiaries , “ hawk parent ” ) with a subsidiary of thunder bridge acquisition , ltd. , ( “ thunder bridge ” ) , a special purpose acquisition company , on july 11 , 2019. on the closing of the business combination , thunder bridge changed its name to “ repay holdings corporation. ” as a result of the business combination , thunder bridge was identified as the acquirer for accounting purposes , and hawk parent , which is the business conducted prior to the closing of the business combination , is the acquiree and accounting predecessor . the acquisition was accounted for as a business combination using the acquisition method of accounting , and the successor 's financial statements reflect a new basis of accounting that is based on the fair value of net assets acquired . as a result of the application of the acquisition method of accounting as of the effective time of the business combination , the financial statements for the predecessor period and for the successor period are presented on different bases . the historical financial information of thunder bridge prior to the business combination has not been reflected in the predecessor period financial statements . key factors affecting our business key factors that we believe impact our business , results of operations and financial condition include , but are not limited to , the following : ● the dollar amount volume and the number of transactions that are processed by the customers that we currently serve ; ● our ability to attract new merchants and onboard them as active processing customers ; ● our ability to ( i ) successfully integrate recent acquisitions and ( ii ) complete future acquisitions ; ● our ability to offer new and competitive payment technology solutions to our customers ; and ● general economic conditions and consumer finance trends . 39 acquisitions on february 10 , 2020 , we announced the acquisition of ventanex for up to $ 50.0 million , which includes a $ 14.0 million performance-based earnout . the closing of the acquisition was financed with a combination of cash on hand and new borrowings under our existing credit facility . see note 5 to the audited consolidated financial statements included elsewhere in this annual report on form 10-k. on july 23 , 2020 , we announced the acquisition of cpayplus for up to $ 16.0 million , which includes a $ 8.0 million performance-based earnout . the closing of the acquisition was financed with cash on hand . see note 5 to the audited consolidated financial statements included elsewhere in this annual report on form 10-k. on october 27 , 2020 , we announced the acquisition of cps for up to $ 93 million , which includes up to $ 15 million in performance-based earnouts . the acquisition closed on november 2 , 2020 and was financed with cash on hand . see note 5 to the audited consolidated financial statements included elsewhere in this annual report on form 10-k. key components of our revenues and expenses revenues revenue . as our customers process increased volumes of payments , our revenues increase as a result of the fees we charge for processing these payments . most of our revenues are derived from volume-based payment processing fees ( “ discount fees ” ) and other related fixed per transaction fees . discount fees represent a percentage of the dollar amount of each credit or debit transaction processed and include fees relating to processing and services that we provide . story_separator_special_tag adjusted net income per share is a non-gaap financial measure that represents adjusted net income divided by the weighted average number of shares of class a common stock outstanding ( on as-converted basis ) for the successor period from july 11 , 2019 to december 31 , 2019 and the year ended december 31 , 2020 ( excluding certain shares that were subject to forfeiture ) . we believe that adjusted ebitda , adjusted net income , and adjusted net income per share provide useful information to investors and others in understanding and evaluating its operating results in the same manner as management . however , adjusted ebitda , adjusted net income , and adjusted net income per share are not financial measures calculated in accordance with gaap and should not be considered as a substitute for net income , operating profit , or any other operating performance measure calculated in accordance with gaap . using these non-gaap financial measures to analyze our business has material limitations because the calculations are based on the subjective determination of management regarding the nature and classification of events and circumstances that investors may find significant . in addition , although other companies in our industry may report measures titled adjusted ebitda , adjusted net income , adjusted net income per share , or similar measures , such non-gaap financial measures may be calculated differently from how we calculate our non-gaap financial measures , which reduces their overall usefulness as comparative measures . because of these limitations , you should consider adjusted ebitda , adjusted net income , and adjusted net income per share alongside other financial performance measures , including net income and our other financial results presented in accordance with gaap . the following tables set forth a reconciliation of our results of operations for the years ended december 31 , 2020 , 2019 , and 2018. due to the predecessor and successor periods , for the convenience of readers , we have presented the year ended december 31 , 2019 on both a predecessor and successor basis and a combined basis ( reflecting simple arithmetic combination of the gaap predecessor and successor periods with adjustments ) in order to present a meaningful comparison against the corresponding periods . 43 repay holdings corporation reconciliation of gaap net income to non-gaap adjusted ebitda replace_table_token_5_th 44 repay holdings corporation reconciliation of gaap net income to non-gaap adjusted net income replace_table_token_6_th ( a ) see footnote ( m ) for details on our amortization and depreciation expenses . ( b ) reflects write-offs of debt issuance costs relating to hawk parent 's term loans and prepayment penalties relating to its previous debt facilities . ( c ) reflects the changes in management 's estimates of future cash consideration to be paid in connection with prior acquisitions from the amount estimated as of the most recent balance sheet date . 45 ( d ) reflects the changes in management 's estimates of the fair value of the liability relating to the tax receivable agreement ( e ) represents compensation expense associated with equity compensation plans , totaling $ 19,445,800 for the year ended december 31 , 2020 , $ 908,978 for the period from january 1 , 2019 to july 10 , 2019 , $ 22,013,287 as a result of new grants made in the successor period from july 11 , 2019 to december 31 , 2019 , and $ 796,967 for the year ended december 31 , 2018 . ( f ) primarily consists of ( i ) during the year ended december 31 , 2020 , professional service fees and other costs incurred in connection with the acquisition of cps , and additional transaction expenses incurred in connection with the business combination and the acquisitions of trisource solutions , aps payments , ventanex and cpayplus , which closed in prior periods , as well as professional service expenses related to the june and september 2020 equity offerings , ( ii ) during the period from july 11 2019 to december 31 , 2019 , professional service fees and other costs in connection with the business combination , the acquisitions of trisource and aps payments , and ( iii ) during the period from january 1 , 2019 to july 10 , 2019 and the year ended december 31 , 2018 , professional service fees and other costs in connection with the business combination . ( g ) reflects management fees paid to corsair investments , l.p. pursuant to the management agreement , which terminated upon the completion of the business combination . ( h ) represents payments made to certain employees in connection with significant restructuring of their commission structures . these payments represented commission structure changes which are not in the ordinary course of business . ( i ) represents payments made to third-party recruiters in connection with a significant expansion of our personnel , which repay expects will become more moderate in subsequent periods . ( j ) reflects franchise taxes and other non-income based taxes . ( k ) consulting fees relating to repay 's processing services and other operational improvements that were not in the ordinary course as well as one-time fees relating to special projects for new market expansion that are not anticipated to continue in the ordinary course of business are reflected in the twelve months ended december 31 , 2019 and 2018. additionally , one-time expenses related to the creation of a new entity in connection with equity arrangements for the members of hawk parent in connection with the business combination are reflected in the twelve months ended december 31 , 2019 . ( l ) for the year ended december 31 , 2020 , reflects expenses incurred related to one-time accounting system and compensation plan implementation related to becoming a public company , as well as extraordinary refunds to customers and other payments related to covid-19 .
| results of operations replace_table_token_4_th year ended december 31 , 2020 compared to year ended december 31 , 2019 for purposes of this results of operations discussion , we have combined the results of the predecessor for the period from january 1 , 2019 to july 10 , 2019 with the results of the successor for the period from july 11 , 2019 to december 31 , 2019 ( “ 2019 combined period ” ) . revenue total revenue was $ 155.0 million for the year ended december 31 , 2020 and $ 104.6 million for the 2019 combined period , an increase of $ 50.4 million or 48.2 % . this increase was the result of newly signed customers , the growth of our existing customers , as well as the acquisitions of trisource , aps , ventanex , cpayplus , and cps . for the year ended december 31 , 2020 , incremental revenues of approximately $ 40.4 million are attributable to trisource , aps , ventanex , cpayplus and cps . 41 other costs of services other costs of services were $ 41.4 million for the year ended december 31 , 2020 and $ 25.9 million for the 2019 combined period , an increase of $ 15.6 million or 60.2 % . for the year ended december 31 , 2020 , incremental costs of services of approximately $ 14.5 million are attributable to trisource , aps , ventanex , cpayplus and cps . selling , general and administrative expenses selling , general and administrative expenses were $ 87.3 million for the year ended december 31 , 2020 and $ 97.0 million for the 2019 combined period , a decrease of $ 9.7 million or 10.0 % . this decrease was primarily due to one-time expenses associated with the business combination in 2019 , offset by increases in share-based compensation and other operating costs . depreciation and amortization depreciation and amortization expenses were $ 60.8 million for the year ended december 31 , 2020 and $ 30.0
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when performing the quantitative test , an impairment loss is recognized if the carrying amount of the asset exceeds the fair value of the asset , which is generally determined using the estimated discounted cash flows associated with the asset 's use . intangible assets with finite lives are amortized over their estimated useful lives and are tested for impairment along with other long-lived assets . for the 2015 annual indefinite-lived intangible assets impairment tests , the company elected to bypass the qualitative assessment for certain indefinite-lived intangible assets and proceeded directly to the quantitative analysis . no impairment of indefinite-lived intangible assets resulted from the company 's annual impairment tests . asset impairments — the company reviews for and records impairment losses on long-lived assets ( excluding goodwill and other indefinite-lived intangible assets ) in accordance with fasb guidance for the impairment or disposal of long-lived assets . the company records impairment losses when story_separator_special_tag overview the following discussion and analysis is intended to help you understand us , our operations and our financial performance . it should be read in conjunction with our consolidated financial statements and the accompanying notes , which are included elsewhere in this report . we are one of the largest branded apparel companies in the world , with a heritage dating back over 130 years . our brand portfolio consists of nationally and internationally recognized brand names , including calvin klein , tommy hilfiger , van heusen , izod , arrow , speedo ( licensed in perpetuity for north america and the caribbean from speedo international , ltd. ) , warner 's and olga . in addition , through the end of the third quarter of 2013 , we owned and operated businesses under the g.h . bass & co . and bass trademarks . we also license brands from third parties primarily for use on dress shirts and neckwear offered in the united states and canada . we sold substantially all of the assets of our bass business on november 4 , 2013 and exited our izod retail business in the third quarter of 2015. our business strategy is to sell our brands at multiple price points and in multiple channels of distribution and regions , which allows us to provide products to a broad range of consumers , while minimizing competition among our brands and reducing reliance on any one demographic group , merchandise preference , price point , distribution channel or region . we also license our brands to third parties for product categories and in jurisdictions where we believe our partners ' expertise will benefit the business . we acquired warnaco on february 13 , 2013 and , with it , acquired the global calvin klein jeans and calvin klein underwear businesses and the core intimates ( warner 's and olga ) and speedo businesses , which operate in north america . the total consideration for the acquisition was $ 3.137 billion , consisting of $ 2.180 billion paid in cash , the issuance of approximately 8 million shares of our common stock ( valued at $ 926 million ) , the issuance of stock awards valued at $ 40 million ( to replace outstanding stock awards made by warnaco to its employees ) and the elimination of a $ 9 million pre-acquisition liability to warnaco . we funded the cash portion and related costs of the acquisition , repaid all outstanding borrowings under our previously outstanding senior secured credit facilities and repaid all of warnaco 's previously outstanding long-term debt with the net proceeds of ( i ) an offering during the fourth quarter of 2012 of $ 700 million of 4 1/2 % senior notes due 2022 ; and ( ii ) $ 3.075 billion of term loans borrowed during the first quarter of 2013 under new senior secured credit facilities . these items are more fully described in the section entitled “ liquidity and capital resources ” below . on february 1 , 2016 , we entered into a licensing agreement with g-iii apparel group , ltd. ( “ g-iii ” ) for the design , production and wholesale distribution of tommy hilfiger womenswear in the united states and canada . the first womenswear offerings under the new license are expected to be launched for the 2016 holiday season . additionally , on february 2 , 2016 , we announced that we entered into a definitive agreement to acquire the 55 % of th asia ltd. ( “ th asia ” ) , our joint venture for tommy hilfiger in china , that we do not already own . the purchase price for the shares is approximately $ 172 million , net of cash expected to be acquired of approximately $ 100 million , subject to adjustment . the closing , which is subject to customary conditions and regulatory approval , is expected to occur late in the first quarter or early in the second quarter of 2016. our revenue was $ 8.020 billion in 2015 , approximately 45 % of which was generated internationally . our global designer lifestyle brands , tommy hilfiger and calvin klein , together generated over 75 % of our revenue . results of operations operations overview we generate net sales from ( i ) the wholesale distribution to retailers , franchisees , licensees and distributors of dress shirts , neckwear , sportswear , jeanswear , underwear , intimate apparel , swim products , handbags , footwear , accessories and other related products under owned and licensed trademarks , and ( ii ) the sale through ( a ) approximately 1,450 company-operated free-standing retail store locations worldwide under our calvin klein , tommy hilfiger and van heusen trademarks , ( b ) approximately 1,100 company-operated concessions/shop-in-shops worldwide under our calvin klein and tommy hilfiger trademarks , and ( c ) e-commerce sites in certain countries under our calvin klein and tommy hilfiger trademarks , of apparel , footwear , accessories and other products , and swimwear and related products in north america through our speedo e-commerce site . story_separator_special_tag revenue in the tommy hilfiger north america segment decreased 1 % ( including a 2 % negative foreign currency impact ) due principally to a 5 % decrease in retail comparable store sales primarily as a result of the decline in traffic and consumer spending trends in our united states stores located in international tourist locations due to the stronger united states dollar against most major currencies . revenue in the tommy hilfiger international segment decreased 10 % ( including a 15 % negative foreign currency impact ) . revenue of the segment would have increased if not for the negative foreign currency impact , principally as a result of 8 % retail comparable store sales growth in europe and a mid-single digit percentage increase in wholesale revenue . the net addition in the aggregate of $ 64 million of revenue attributable to our calvin klein north america and calvin klein international segments , which included a reduction of approximately $ 199 million related to the impact of foreign currency translation . revenue in the calvin klein north america segment increased 5 % ( including a 3 % negative foreign currency impact ) . the segment 's retail business experienced solid growth due to square footage expansion in company-operated stores , including the conversion of izod stores to calvin klein accessory and calvin klein underwear stores and a 2 % increase in retail comparable store sales despite the decreased traffic and consumer spending trends in our united states stores located in international tourist locations , while the wholesale business experienced modest growth . revenue in the calvin klein international segment decreased 2 % ( including a 13 % negative foreign currency impact ) . revenue of the segment would have increased if not for the negative foreign currency impact . this is attributable to the strong performance in europe , where we experienced growth in most markets , and an increase in asia , partially due to the benefit of the chinese new year , as the first and fourth quarters of fiscal 2015 included the peak wholesale selling seasons before the chinese new year , while fiscal 2014 did not include a peak selling season before the holiday . international retail comparable store sales increased 5 % . the aggregate reduction of $ 72 million in revenue attributable to our heritage brands wholesale and heritage brands retail segments , as a 10 % increase in comparable store sales in the van heusen retail business was more than offset by 32 the revenue decrease attributable to the exit from the izod retail business and the discontinuation of several licensed product lines in the dress furnishings business . the revenue increase of $ 55 million in 2014 as compared to 2013 was due principally to the effect of the following items : the aggregate addition of $ 149 million of revenue attributable to our tommy hilfiger north america and tommy hilfiger international segments . tommy hilfiger north america revenue increased 6 % , principally due to high-single digit percentage wholesale growth , retail comparable store sales growth of 2 % and square footage expansion in company-operated stores . tommy hilfiger international revenue increased 3 % , driven principally by european retail comparable store sales growth of 3 % , square footage expansion in company-operated stores and low-single digit percentage wholesale growth . these favorable impacts were partially offset by a 2 % negative impact from foreign currency translation , principally due to the euro weakness experienced in the second half of the year . the aggregate addition of $ 92 million of revenue attributable to our calvin klein north america and calvin klein international segments . calvin klein north america revenue increased 5 % due to the ten additional days of operations in 2014 of the calvin klein businesses acquired in the warnaco acquisition compared to 2013 , combined with mid-single digit percentage wholesale growth , a 2 % increase in retail comparable store sales and square footage expansion in company-operated stores . calvin klein international revenue increased 1 % as the impact of the ten additional days of operations in 2014 of the acquired calvin klein businesses compared to 2013 and the absence in 2014 of $ 30 million of sales returns recorded in 2013 for certain wholesale customers in asia in connection with our initiative to reduce excess inventory levels was partially offset by a 5 % decrease in international retail comparable store sales and a 1 % negative impact from foreign currency translation . the decline in international retail comparable store sales was due in large part to a decrease in asia resulting from the timing of the chinese new year , as fiscal 2014 did not include a chinese new year , while the holiday fell into both the first and fourth quarters in 2013. also contributing to the retail comparable store decline was underperformance in europe in the first half of the year . the net reduction in the aggregate of $ 186 million in revenue attributable to our heritage brands retail and heritage brands wholesale segments , which included a reduction of $ 176 million related to the loss of net sales of the exited bass business , as mid-single digit percentage growth in the wholesale sportswear business was more than offset by poor performance within the dress shirt business and a 5 % comparable store sales decline in our retail stores ( excluding the izod retail business in the fourth quarter , which was no longer included in retail comparable store sales as the business was exited in 2015 ) . we currently expect that revenue will increase 1 % in 2016 compared to 2015 , inclusive of a negative impact of approximately 1 % related to foreign currency translation . revenue for our calvin klein business is projected to increase approximately 4 % compared to 2015 , inclusive of a negative impact of approximately 2 % related to foreign currency translation .
| cash flow summary cash and cash equivalents at january 31 , 2016 was $ 556 million , an increase of $ 77 million from the amount at february 1 , 2015 of $ 479 million . the change in cash and cash equivalents during 2015 included the impact of $ 350 million of debt payments and $ 126 million of stock repurchases . cash flow in 2016 will be impacted by various factors in addition to those noted below in this “ liquidity and capital resources ” section , including the amount of debt repayments and stock repurchases we make in 2016. as of january 31 , 2016 , approximately $ 450 million of cash and cash equivalents was held by international subsidiaries whose undistributed earnings are considered permanently reinvested . our intent is to continue to reinvest these funds in international operations . if management decides at a later date to repatriate these funds to the united states , we would be required to pay taxes on these amounts based on applicable united states tax rates , net of foreign taxes already paid . operations cash provided by operating activities was $ 900 million in 2015 as compared with $ 789 million in 2014. the increase in cash provided by operating activities as compared to the prior year was primarily driven by changes in working capital . capital expenditures our capital expenditures in 2015 were $ 264 million compared to $ 256 million in 2014. capital expenditures in 2015 primarily included investments in new stores and store expansions , as well as continued investments in operations and infrastructure , including system improvements . we currently expect capital expenditures for 2016 to be approximately $ 275 million , as we continue to make the same types of investments . investments in unconsolidated affiliates in 2014 , we acquired an interest in karl lagerfeld for $ 19 million , which represented a 10 % economic interest as of january 31 , 2016.
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stock options under the plan may be granted with a term of up to ten years and at prices no less than fair market value for isos story_separator_special_tag you should read the following discussion and analysis together with the financial statements and the related notes to those statements included in item 8 financial statements and supplementary data. this discussion contains forward-looking statements that involve risks and uncertainties . as a result of many factors , such as those set forth under risk factors and elsewhere in this annual report on form 10-k , our actual results may differ materially from those anticipated in these forward-looking statements . overview oxygen biotherapeutics is engaged in the business of developing biotechnology products with a focus on oxygen delivery to tissue . we are currently developing oxycyte ; a product we believe is a safe and effective oxygen carrier for use in surgical and similar medical situations . we have developed a family of perfluorocarbon-based oxygen carriers for use in personal care , topical wound healing , and other topical indications . in addition , we also have under development vitavent ( formerly called fluorovent ) , an oxygen exchange fluid for facilitating the treatment of lung conditions . oxycyte our oxycyte oxygen carrier product is a pfc emulsified with water and a surfactant , which is provided to the patient intravenously . the physical properties of pfc enable our product to gather oxygen from the lungs and transport the oxygen through the body releasing it along the way . over a period of days oxycyte gradually evaporates in the lungs from where it is exhaled . oxycyte requires no cross matching , so it is immediately available and compatible with all patients ' blood types . oxycyte has an extended shelf life compared to blood . oxycyte is provided as a sterile emulsion ready for intravenous administration . because it contains no biological components , there is no risk of transmission of blood-borne viruses from human blood products . further , since oxycyte is based on readily available inert compounds , we believe it can be manufactured on a cost-effective basis in amounts sufficient to meet demand . we received approval of our ind for severe tbi filed with the fda and began phase i clinical studies in october 2003 , which were completed in december 2003. we submitted a report on the results to the fda along with a phase ii protocol in 2004. phase ii-a clinical studies began in the fourth quarter 2004 , and were completed in 2006. a further phase ii study protocol was filed with the fda in the spring of 2008 , but was put on clinical hold by the fda due to safety concerns raised by the regulatory agency . after receiving this clinical hold , we filed a revised protocol as a dose-escalation study with the regulatory authorities in switzerland and israel . the protocol received ethic commission approval in switzerland and israel . the relevant swiss regulatory body approved the protocol in august 2009 , and the israel ministry of health approved the protocol in september 2009. the new study began in october 2009 and is currently under way both in switzerland and israel . in march 2010 , we determined that it is feasible to simplify the trial design and also reduce the number of patients to be enrolled . in may 2010 , we entered into a relationship with a contract research organization to assist us as we expand our study into india to initiate five to ten new sites for our phase ii-b clinical trial . study objectives , safety and efficacy endpoints would remain unchanged , and we feel with these optimizations the study could be concluded faster and more economically . we expect to commit a substantial portion of our financial and business resources over the next three years to testing oxycyte and advancing this product to regulatory approval for use in one or more medical applications . should oxycyte successfully progress in clinical testing and it appears regulatory approval for one or more medical uses is likely , either in the united states or in another country , we will evaluate our options for commercializing the product . these options include licensing oxycyte to a third party for manufacture and distribution , manufacturing oxycyte ourselves for distribution through third party distributors , manufacturing and selling the product ourselves , or establishing some other form of strategic relationship for making and distributing oxycyte with a participant in the pharmaceutical industry . we are currently investigating and evaluating all options . 20 dermacyte the dermacyte line of topical cosmetic products employs our patented pfc technology and other known cosmetic ingredients to promote the appearance of skin health and other desirable cosmetic benefits . dermacyte is designed to provide a moist and oxygen-rich environment for the skin when it is applied topically , even in small amounts . dermacyte concentrate has been formulated as a cosmetic in our lab and dermacyte eye complex was created by a contract formulator , with the patent held by oxygen biotherapeutics . both formulas have passed all safety and toxicity tests , and we have filed a cpis with the fda . the market for oxygen-carrying cosmetics includes anti-aging , anti-wrinkle , skin abrasions and minor skin defects . in september 2009 , we started production of our first commercial product under our topical cosmetic line , dermacyte concentrate . we produced and sold a limited pre-production batch in november 2009 as a market acceptance test . the product was sold in packs of 8 doses of 0.4ml . based on the test market results we identified specific market opportunities for this product and reformulated dermacyte concentrate for better product stability . marketing and shipments of the new dermacyte concentrate formulation began in april 2010. we have also developed a 10ml pump package for dermacyte concentrate that should be available for market this summer . story_separator_special_tag we are currently focused on developing our most advanced product candidate , oxycyte ; however , we will need substantial additional capital in the future in order to complete the development and potential commercialization of oxycyte and other product candidates . sales , general and administrative expenses sales , general and administrative expenses consist primarily of compensation for executive , finance , marketing , legal and administrative personnel , including stock-based compensation . other sales , general and administrative expenses include facility costs not otherwise included in research and development expenses , legal and accounting services , other professional services , the cost of market research activities , and consulting fees . sales , general and administrative expenses for the year ended april 30 , 2010 were $ 7,235,140 compared to $ 7,002,518 for the year ended april 30 , 2009. during the year ended april 30 , 2010 , we incurred approximately $ 179,000 in costs related to direct marketing and market analysis for the cosmetic topical product line dermacyte that were not incurred in the prior year . in addition , we incurred an increase of approximately $ 500,000 in costs over the prior year for services provided for press releases , road show presentations , investment banking fees , market listing fees and legal costs . salaries and wages increased approximately $ 1,300,000 for the year ended april 30 , 2010 over the prior year due to the increase in headcount from 8 to 24 and the increase in goal-based bonus payments . this increase was offset by a reduction of share-based compensation of $ 941,415 in 2010 as compared to 2009. we expanded our board of directors from two outside directors in 2009 to seven in 2010 , resulting in an increase of approximately $ 207,000 in board related fees . also , during the year ended april 30 , 2010 , we incurred an additional $ 298,000 in fees paid to a recruiter for the placement of two of the outside directors . 22 during the year ended april 30 , 2010 , rent expense increased approximately $ 132,000 ( including utilities costs ) over the prior year due to expansion of the corporate offices in north carolina . during the year ended april 30 , 2010 , travel costs increased approximately $ 324,000 over the prior year due to increased international travel to switzerland and israel , road shows , and costs related to board meetings and investor presentations . for the year ended april 30 , 2010 , the company reduced consultant costs by approximately $ 1,709,000 from the same period in the previous year by hiring key personnel to manage the development of our products internally . other income and expense the increase in other expenses for the year ended april 30 , 2010 over the prior year was primarily due to an impairment charge of approximately $ 115,000 related to our investment in glucometrics , inc. as further described in item 8. , note c. we also incurred approximately $ 98,000 in costs for promotional and legal costs associated with purple heart injury labs , a not-for-profit organization incorporated to further research and development to benefit wounded veterans . we incurred approximately $ 19,000 in foreign currency losses due to currency fluctuations in the swiss franc and israeli new shekel . interest expense interest expense decreased approximately $ 24.7 million , due to the conversion of our notes payable and the related amortization of debt discounts and issue costs during the year ended april 30 , 2009. liquidity , capital resources and plan of operation we have incurred losses since our inception in and as of april 30 , 2010 we had an accumulated deficit of $ 81.5 million . we will continue to incur losses until we generate sufficient revenue to offset our expenses , and we anticipate that we will continue to incur net losses for at least the next several years . we expect to incur increased research and development and sales , general and administrative expenses related to our development and potential commercialization of oxycyte and , as a result , we will need to generate significant net product sales , royalty and other revenues to achieve profitability . liquidity oxygen biotherapeutics has financed its operations since september 1990 through the issuance of debt and equity securities and loans from stockholders . as of april 30 , 2010 , we had $ 2,184,826 of total current assets and working capital of $ 785,483. our practice is to invest excess cash , where available , in short-term money market investment instruments . 23 we are in the preclinical and clinical trial stages in the development of our products . for example , we are currently conducting phase ii-b clinical trials for the use of oxycyte in the treatment of severe traumatic brain injury . even if we are successful with our phase ii-b study , we must then conduct a phase iii clinical study and , if that is successful , file with the fda and obtain approval of a biologics license application to begin commercial distribution , all of which will take more time and funding to complete . our other products must undergo further development and testing prior to submission to the fda for approval to initiate clinical trials , which also requires additional funding . management is actively pursuing private and institutional financing , as well as strategic alliances and or joint venture agreements to obtain the necessary additional financing and reduce the cost burden related to the development and commercialization of our products though we can give no assurance that any such initiative will be successful . we expect our primary focus will be on funding the continued testing of oxycyte , since this product is the furthest along in the regulatory review process . our ability to continue to pursue testing and development of our products beyond 2010 depends on obtaining license income or outside financial resources .
| summary of critical accounting policies development stage we have not commenced our planned principal operations , and have not earned significant revenues ; therefore we are considered a development stage enterprise. use of estimates the preparation of the accompanying consolidated financial statements in conformity with accounting principles generally accepted in the united states of america requires management to make certain 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 reported amounts of expenses during the reporting period . actual results could differ from those estimates . preclinical study and clinical accruals we estimate our preclinical study and clinical trial expenses based on the services received pursuant to contracts with several research institutions and contract research organizations that conduct and manage preclinical and clinical trials on our behalf . the financial terms of the agreements vary from contract to contract and may result in uneven expenses and payment flows . preclinical study and clinical trial expenses include the following : fees paid to cros in connection with clinical trials , 25 fees paid to research institutions in conjunction with preclinical research studies , and fees paid to contract manufacturers and service providers in connection with the production and testing of active pharmaceutical ingredients and drug materials for use in preclinical studies and clinical trials . cash and cash equivalents we consider all highly liquid instruments with a maturity date of three months or less , when acquired , to be cash equivalents . property and equipment , net property and equipment are stated at cost , subject to adjustments for impairment , less accumulated depreciation and amortization .
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net income in 2011 was $ 1,703 million compared with $ 2,125 million in 2010 and $ 740 million in 2009. diluted earnings per share were $ 5.01 in 2011 compared with $ 6.47 in 2010 and $ 2.27 in 2009. a table of items affecting comparability between periods is shown on page 23. exploration and production the corporation 's strategy for the e & p segment is to profitably grow reserves and production in a sustainable and financially disciplined manner . the corporation 's total proved reserves were 1,573 million barrels of oil equivalent ( boe ) at december 31 , 2011 compared with 1,537 million boe at december 31 , 2010 and 1,437 million boe at december 31 , 2009. e & p earnings were $ 2,675 million in 2011 , $ 2,736 million in 2010 and $ 1,042 million in 2009. average realized crude oil selling prices were $ 89.99 per barrel in 2011 , $ 66.20 in 2010 and $ 51.62 in 2009 , including the impact of hedging . average realized natural gas selling prices were $ 5.96 per mcf in 2011 , $ 5.63 in 2010 and $ 4.85 in 2009. production averaged 370,000 barrels of oil equivalent per day ( boepd ) in 2011 , a decrease of 48,000 boepd or 11 % from 2010. production averaged 408,000 boepd in 2009. the corporation estimates that total worldwide production will average between 370,000 and 390,000 boepd in 2012 , excluding the impact of asset sales and any libyan production . the following is an update of significant e & p activities during 2011 : in north dakota , net production from the bakken oil shale play averaged approximately 30,000 boepd during 2011 and 38,000 boepd for the fourth quarter 2011. the corporation forecasts bakken production will average 60,000 boepd for the full year of 2012 and is targeted to reach 120,000 boepd in 2015. the corporation and its partner sanctioned the development of the tubular bells field ( hess 57 % ) in the mississippi canyon block 725 area in the deepwater gulf of mexico . in 2012 , field development will be advanced with the construction of a floating production system and development drilling is scheduled to start in the second quarter . first production is anticipated in 2014. in the third quarter of the year , the corporation announced the acquisition of approximately 185,000 net acres in the utica shale play in eastern ohio . the corporation entered into agreements to acquire approximately 85,000 net acres for approximately $ 750 million , principally through the acquisition of marquette exploration , llc . in october 2011 , the corporation completed the acquisition of a 50 % undivided interest in consol energy inc. 's ( consol ) nearly 200,000 acres in the utica shale play for $ 59 million in cash at closing and the agreement to fund 50 % of consol 's share of the drilling costs up to $ 534 million within a 5-year period . appraisal of the utica acreage commenced in the fourth quarter and will continue during 2012 with the acquisition of seismic and the planned drilling of 29 wells . the corporation filed a notice of discovery with the ministry for energy of ghana for the paradise-1 exploration well in the deepwater tano cape three points block . the well encountered an estimated 490 net feet of oil and gas condensate pay over three separate intervals . the corporation is operator and has a 90 % working interest in the license . the corporation anticipates commencing additional exploration drilling in the first quarter of 2012 , subject to government approvals and rig availability . in 2011 , the corporation drilled the andalan-1 well on the semai v block , offshore indonesia ( hess 100 % ) . the well encountered reservoir sands and hydrocarbons but not in commercial quantities . this well , along with a follow up well , was expensed in the fourth quarter . in september 2011 , the operator of block ca-1 in brunei ( hess 14 % ) spud the julong center well . this well also failed to find commercial quantities of hydrocarbons and was expensed . 21 in february 2011 , the corporation completed the sale of its interests in certain natural gas producing assets located in the united kingdom north sea for cash proceeds of $ 359 million , after post-closing adjustments , resulting in a pre-tax gain of $ 343 million ( $ 310 million after income taxes ) . in august 2011 , the corporation completed the sale of its interests in the snorre field ( hess 1 % ) , offshore norway and the cook field ( hess 28 % ) in the united kingdom north sea for cash proceeds of $ 131 million , after post-closing adjustments . these disposals resulted in non-taxable gains totaling $ 103 million . status of libyan operations in response to civil unrest in libya , a number of measures were taken by the international community in the first quarter of 2011 , including the imposition of economic sanctions . production at the waha field was suspended in the first quarter of 2011. as a consequence of the civil unrest and the sanctions , the corporation delivered force majeure notices to the libyan government relating to the agreements covering its exploration and production interests in order to protect its rights while it was temporarily prevented from fulfilling its obligations and benefiting from the rights granted by those agreements . production at the waha field restarted during the fourth quarter of 2011 at levels that were significantly lower than those prior to the civil unrest . the corporation 's libyan production averaged 23,000 barrels of oil equivalent per day ( boepd ) for the full year of 2010 and 4,000 boepd for 2011. the force majeure covering the corporation 's production interests was withdrawn at the end of the fourth quarter of 2011 , as the economic sanctions were lifted . story_separator_special_tag exploration expenses also increased in 2010 from 2009 , primarily due to higher lease amortization . income taxes : excluding the impact of items affecting comparability , the effective income tax rates for e & p operations were 38 % in 2011 , 44 % in 2010 and 48 % in 2009. the decrease in the effective income tax rate in 2011 compared with 2010 was predominantly due to the suspension of libyan operations . the effective income tax rate for e & p operations in 2012 is estimated to be in the range of 36 % to 40 % , excluding libyan operations . 26 foreign exchange : the after-tax foreign currency losses were $ 16 million in 2011 , $ 9 million in 2010 and $ 10 million in 2009. items affecting comparability of earnings : reported e & p earnings include the following items affecting comparability of income ( expense ) before and after income taxes for the years ended december 31 : replace_table_token_21_th 2011 : in february 2011 , the corporation completed the sale of its interests in the easington catchment area ( hess 30 % ) , the bacton area ( hess 23 % ) , the everest field ( hess 19 % ) and the lomond field ( hess 17 % ) in the united kingdom north sea for cash proceeds of $ 359 million , after post-closing adjustments . these disposals resulted in pre-tax gains totaling $ 343 million ( $ 310 million after income taxes ) . these assets had a productive capacity of approximately 15,000 boepd . the total combined net book value of the disposed assets prior to the sale was $ 16 million , including allocated goodwill of $ 14 million . in august 2011 , the corporation completed the sale of its interests in the snorre field ( hess 1 % ) , offshore norway and the cook field ( hess 28 % ) in the united kingdom north sea for cash proceeds of $ 131 million , after post-closing adjustments . these disposals resulted in non-taxable gains totaling $ 103 million . the total combined net book value of the disposed assets prior to the sale was $ 28 million , including allocated goodwill of $ 11 million . in the third quarter of 2011 , the corporation recorded impairment charges of $ 358 million ( $ 140 million after income taxes ) related to increases in the corporation 's estimated abandonment liabilities primarily for non-producing properties which resulted in the book value of the properties exceeding their fair value . see note 9 , asset retirement obligations in the notes to the consolidated financial statements . in july 2011 , the united kingdom increased the supplementary tax rate on petroleum operations to 32 % from 20 % with an effective date of march 24 , 2011. as a result , the corporation recorded a charge of $ 29 million to increase the deferred tax liability in the united kingdom . 2010 : the corporation completed the exchange of its interests in gabon and the clair field in the united kingdom for additional interests of 28 % and 25 % , respectively , in the valhall and hod fields in norway . this non-monetary transaction , which was recorded at fair value , resulted in a pre-tax gain of $ 1,150 million ( $ 1,072 million after income taxes ) . the corporation also completed the sale of its interest in the jambi merang natural gas development project in indonesia for a gain of $ 58 million . the corporation recorded a charge of $ 532 million ( $ 334 million after income taxes ) to fully impair the carrying value of its 55 % interest in the west mediterranean block 1 concession ( west med block ) , located offshore egypt . this interest was acquired in 2006 and included four natural gas discoveries and additional exploration prospects . the corporation and its partners subsequently explored and further evaluated the area , made a fifth discovery , conducted development planning , and held negotiations with the egyptian authorities to amend the existing gas sales agreement . in september 2010 , the corporation and its partners notified the egyptian authorities of their decision to cease exploration activities and to relinquish a significant portion of the block . as a result , the corporation fully impaired the carrying value of its interest in the west med block . the west med block was relinquished in 2011. the corporation also recorded $ 101 million ( $ 64 million after income taxes ) of dry hole expenses related to previously suspended well costs on the west med block offshore egypt and block bm-s-22 offshore brazil , both of which were drilled prior to 2010 . 27 2009 : the u.s. supreme court decided it would not review the decision of the 5th circuit court of appeals against the u.s. minerals management service ( predecessor to the bureau of ocean energy management , regulation and enforcement ) relating to royalty relief under the deep water royalty relief act of 1995. as a result , the corporation recognized after-tax income of $ 89 million to reverse all previously recorded royalties covering the periods from 2003 to 2009. the pre-tax amount of $ 143 million was reported in other , net in the statement of consolidated income . the corporation recorded total asset impairment charges of $ 54 million ( $ 26 million after income taxes ) to reduce the carrying value of two-short lived fields in the united kingdom north sea . pre-tax charges of approximately $ 23 million ( $ 18 million after income taxes ) were recorded to impair the carrying values of production equipment and to write down materials inventories in equatorial guinea and the united states . the pre-tax amount of most of the inventory write downs was reported in production expenses in the statement of consolidated income .
| consolidated results of operations the after-tax income ( loss ) by major operating activity is summarized below for the years ended december 31 : replace_table_token_15_th the following table summarizes , on an after-tax basis , items of income ( expense ) that are included in net income and affect comparability between periods . the items in the table below are explained on pages 27 through 30. replace_table_token_16_th in the following discussion and elsewhere in this report , the financial effects of certain transactions are disclosed on an after-tax basis . management reviews segment earnings on an after-tax basis and uses after-tax amounts in its review of variances in segment earnings . management believes that after-tax amounts are a preferable method of explaining variances in earnings , since they show the entire effect of a transaction rather than only the pre-tax amount . after-tax amounts are determined by applying the income tax rate in each tax jurisdiction to pre-tax amounts . 23 comparison of results exploration and production following is a summarized income statement of the corporation 's e & p operations for the years ended december 31 : replace_table_token_17_th * amounts differ from e & p operating revenues in note 19 , segment information in the notes to the consolidated financial statements primarily due to the exclusion of sales of hydrocarbons purchased from third parties . after considering the e & p items affecting comparability of earnings between periods in the table on page 27 , the remaining changes in e & p earnings are primarily attributable to changes in selling prices , production and sales volumes , operating costs , exploration expenses , income taxes and foreign exchange , as discussed below .
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overview/introduction invesco capital management llc ( “ invesco ” ) has served as the managing owner ( the “ managing owner ” ) , commodity pool operator and commodity trading advisor of the trust and the fund since february 23 , 2015 . the managing owner is registered with the commodity futures trading commission ( the “ cftc ” ) as a commodity pool operator and a commodity trading advisor , and it is a member firm of the national futures association ( “ nfa ” ) . the fund seeks to track changes , whether positive or negative , in the level of the dbiq diversified agriculture index excess return ( the “ index ” ) over time , plus the excess , if any , of the sum of the fund 's interest income from its holdings of united states treasury obligations ( “ treasury income ” ) , dividends from its holdings in money market mutual funds ( affiliated or otherwise ) ( “ money market income ” ) and dividends or distributions of capital gains from its holdings of t-bill etfs ( as defined below ) ( “ t-bill etf income ” ) over the expenses of the fund . the fund invests in futures contracts in an attempt to track its index . the index is 22 intended to reflect the change in market value of the agricultural sector . the commodities comprising the index are corn , soybeans , wheat , kansas city wheat , sugar , cocoa , coffee , cotton , live cattle , feeder cattle and lean hogs ( each an “ index commodity ” , and collectively , the “ index commodities ” ) . the fund may invest directly in united states treasury obligations . the fund may also gain exposure to united states treasury obligations through investments in exchange-traded funds ( “ etfs ” ) ( affiliated or otherwise ) that track indexes that measure the performance of united states treasury obligations with a maximum remaining maturity of up to 12 months ( “ t-bill etfs ” ) . the fund holds as collateral united states treasury obligations , money market mutual funds and t-bill etfs ( affiliated or otherwise ) , if any , for margin and or cash management purposes . while the fund 's performance reflects the appreciation and depreciation of those holdings , the fund 's performance , whether positive or negative , is driven primarily by its strategy of trading futures contracts with the aim of seeking to track the index . the fund pursues its investment objective by investing in a portfolio of exchange-traded commodity futures contracts that expire in a specific month and trade on a specific exchange ( the “ index contracts ” ) in the index commodities . the fund also holds united states treasury obligations and t-bill etfs , if any , for deposit with morgan stanley & co. llc , the fund 's commodity broker ( the “ commodity broker ” ) as margin , to the extent permissible under cftc rules and united states treasury obligations , cash , money market mutual funds and t-bill etfs ( affiliated or otherwise ) , if any , on deposit with the bank of new york mellon ( the “ custodian ” ) , for cash management purposes . the aggregate notional value of the commodity futures contracts owned by the fund is expected to approximate the aggregate net asset value ( “ nav ” ) of the fund , as opposed to the aggregate index value . the cftc and certain futures exchanges impose position limits on futures contracts , including on index contracts . as the fund approaches or reaches position limits with respect to an index commodity , the fund may commence investing in index contracts that reference other index commodities . in those circumstances , the fund may also trade in futures contracts based on commodities other than index commodities that the managing owner reasonably believes tend to exhibit trading prices that correlate with an index contract . in addition , the managing owner may determine to invest in other futures contracts if at any time it is impractical or inefficient to gain full or partial exposure to an index commodity through the use of index contracts . these other futures contracts may or may not be based on an index commodity . when they are not , the managing owner may seek to select futures contracts that it reasonably believes tend to exhibit trading prices that correlate with an index contract . the shares are intended to provide investment results that generally correspond to the changes , positive or negative , in the levels of the index over time . the value of the shares is expected to fluctuate in relation to changes in the value of the fund 's portfolio . the market price of the shares may not be identical to the nav per share , but these two valuations are expected to be very close . margin calls “ initial ” or “ original ” margin is the minimum amount of funds that must be deposited by a futures trader with his commodity broker in order to initiate futures trading or to maintain an open position in futures contracts . “ maintenance ” margin is the amount ( generally less than initial margin ) to which a trader 's account may decline before he must deliver additional margin . a margin deposit is like a cash performance bond . it helps assure the futures trader 's performance of the futures contract that the trader purchases or sells . futures contracts are customarily bought and sold on margin that represents a very small percentage ( ranging upward from less than 2 % ) of the purchase price of the underlying commodity being traded . because of such low margins , price fluctuations occurring in the futures markets may create profits and losses that are greater , in relation to the amount invested , than are customary in other forms of investments . story_separator_special_tag interest earned on the fund 's interest-bearing funds and dividends from the fund 's holdings of money market mutual funds are paid to the fund . any dividends or distributions of capital gains received from the fund 's holdings of t-bill etfs , if any , are paid to the fund . the fund 's commodity futures contracts may be subject to periods of illiquidity because of market conditions , regulatory considerations or for other reasons . for example , u.s. futures exchanges and some foreign exchanges have regulations that limit the amount of fluctuation in futures contract prices that may occur during a single business day . these limits are generally referred to as “ daily price fluctuation limits ” or “ daily limits , ” and the maximum or minimum price of a contract on any given day as a result of these limits is referred to as a “ limit price ” . once a limit price has been reached in a particular contract , it is usually the case that no trades may be made at a different price than specified in the limit . the duration of limit prices generally varies . limit prices may have the effect of precluding the fund from trading in a particular contract or requiring the fund to liquidate contracts at disadvantageous times or prices . either of those outcomes could adversely affect the fund 's ability to pursue its investment objective . 24 because the fund trades futures contracts , its capital is at risk due to changes in the value of futures contracts ( market risk ) or the inability of counterparties ( including the commodity broker and or exchange clearinghouses ) to perform under the terms of the contracts ( credit risk ) . on any business day , an authorized participant may place an order with the transfer agent to redeem one or more creation units . redemption orders must be placed by 10:00 a.m. , eastern time . the day on which the managing owner receives a valid redemption order is the redemption order date . the day on which a redemption order is settled is the redemption order settlement date . as provided below , the redemption order settlement date may occur up to two business days after the redemption order date . redemption orders are irrevocable . the redemption procedures allow authorized participants to redeem creation units . individual shareholders may not redeem directly from the fund . instead , individual shareholders may only redeem shares in integral multiples of 200,000 and only through an authorized participant . unless otherwise agreed to by the managing owner and the authorized participant as provided in the next sentence , by placing a redemption order , an authorized participant agrees to deliver the creation units to be redeemed through dtc 's book-entry system to the fund no later than the redemption order settlement date as of 2:45 p.m. , eastern time , on the business day immediately following the redemption order date . upon submission of a redemption order , the authorized participant may request the managing owner to agree to a redemption order settlement date up to two business days after the redemption order date . by placing a redemption order , and prior to receipt of the redemption proceeds , an authorized participant 's dtc account is charged the non-refundable transaction fee due for the redemption order . redemption orders may be placed either ( i ) through the continuous net settlement ( “ cns ” ) clearing processes of the national securities clearing corporation ( the “ nscc ” ) ( the “ cns clearing process ” ) or ( ii ) if outside the cns clearing process , only through the facilities of the depository trust company ( “ dtc ” or the “ depository ” ) ( the “ dtc process ” ) , or a successor depository , and only in exchange for cash . by placing a redemption order , and prior to receipt of the redemption proceeds , an authorized participant 's dtc account is charged the non-refundable transaction fee due for the redemption order and such fee is not borne by the fund . capital resources the fund does not have any material commitments for capital expenditures as of the end of the latest fiscal period . the fund is unaware of any ( i ) anticipated known demands , commitments or capital expenditures ; ( ii ) material trends , favorable or unfavorable , in its capital resources ; or ( iii ) trends or uncertainties that will have a material effect on its operations . cash flows a primary cash flow activity of the fund is to raise capital from authorized participants through the issuance of shares . this cash is used to invest in united states treasury obligations , money market mutual funds and t-bill etfs , if any , and to meet margin requirements as a result of the positions taken in futures contracts to match the fluctuations of the index the fund is tracking . as of the date of this report , each of bank of america merrill lynch , bmo capital markets corp. , bnp paribas securities corp. , cantor fitzgerald & co. , citadel securities llc , citigroup global markets inc. , credit suisse securities ( usa ) llc , deutsche bank securities inc. , goldman sachs & co. , goldman sachs execution & clearing lp , interactive brokers llc , jefferies llc , jp morgan securities inc. , merrill lynch professional clearing corp. , morgan stanley & co. llc , nomura securities international inc. , rbc capital markets llc , sg americas securities llc , ubs securities llc , virtu americas llc and virtu financial capital markets llc has executed a participant agreement and are the only authorized participants . operating activities net cash flow provided by ( used in ) operating activities was $ ( 265.0 ) million and $ 143.1 million for the years december 31 , 2020 and 2019 , respectively .
| performance summary this report covers the years ended december 31 , 2020 and 2019. for performance discussion related to the year ended december 31 , 2018 , see the annual report for the year ended december 31 , 2018 available at http : //www.invesco.com/etfs . past performance of the fund is not necessarily indicative of future performance . the index is intended to reflect the change in market value of the index commodities . in turn , the index is intended to reflect the agriculture sector . the dbiq diversified agriculture index total return ( the “ dbiq diversified agriculture tr ” ) consists of the index plus 3-month united states treasury obligations returns . past results of the index and the dbiq diversified agriculture tr are not necessarily indicative of future changes , positive or negative . the section “ summary of the dbiq diversified agriculture tr and underlying index commodity returns for the years ended december 31 , 2020 and 2019 ” below provides an overview of the changes in the closing levels of dbiq diversified agriculture tr by disclosing the change in market value of each underlying component index commodity through a “ surrogate ” ( and analogous ) index that also reflects 3 month united states treasury obligations returns . please note also that the fund 's objective is to track the index ( not dbiq diversified agriculture tr ) and the fund does not attempt to outperform or underperform the index . the index employs the optimum yield roll method in trading certain index contracts with the objective of mitigating the negative effects of contango , the condition in which distant delivery prices for futures exceed spot prices , and maximizing the positive effects of backwardation , a condition opposite of contango .
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upon realization , those amounts are reclassified from accumulated other comprehensive income ( loss ) to other income , net . unrealized losses that are other than temporary and due to a decline in expected cash flows are charged against income . 74 notes to consolidated financial statements for the years ended december 31 , 2013 , 2012 and 2011 [ 1 ] description of business and summary of significant accounting policies ( continued ) the company performs a fair market value assessment of its ars on a quarterly story_separator_special_tag operations overview we were incorporated in 1918 as a successor to businesses that had been engaged in providing construction services since 1894. we provide diversified general contracting , construction management and design-build services to private customers and public agencies throughout the world . our construction business is conducted through four basic segments or operations : civil , building , specialty contractors and management services . our civil segment specializes in public works construction and the repair , replacement and reconstruction of infrastructure , including highways , bridges , mass transit systems and water and wastewater treatment facilities , primarily in the western , midwestern , northeastern and mid-atlantic united states . our building segment has significant experience providing services to a number of specialized building markets , including the hospitality and gaming , transportation , healthcare , municipal offices , sports and entertainment , educational , correctional facilities , biotech , pharmaceutical and high-tech markets . our specialty contractors segment specializes in plumbing , hvac , electrical , mechanical , and fire protection systems and pneumatically placed concrete for a full range of civil , building and management services construction projects in the industrial , commercial , hospitality and gaming , and transportation end markets , among others . our management services segment provides diversified construction and design-build services to the u.s. military and federal government agencies , as well as to surety companies and multi-national corporations in the united states and overseas . the contracting and management services that we provide consist of general contracting , pre-construction planning and comprehensive management services , including planning and scheduling the manpower , equipment , materials and subcontractors required for the timely completion of a project in accordance with the terms and specifications contained in a construction contract . we also offer self-performed construction services including site work , concrete forming and placement , steel erection , electrical and mechanical , plumbing and hvac . we provide these services by using traditional general contracting arrangements , such as fixed price , guaranteed maximum price and cost plus fee contracts . in our ordinary course of business , we enter into arrangements with other contractors , referred to as joint ventures , for certain construction projects . each of the joint venture participants is usually committed to supply a predetermined percentage of capital , as required , and to share in a predetermined percentage of the income or loss of the project . generally , each joint venture participant is fully liable for the obligations of the joint venture . we believe our leadership position as the contractor of choice for large , complex civil and building projects will support our long-term backlog growth . we have continued to experience increased contributions from our civil segment consistent with our focus on obtaining higher-margin public works projects . we expect to continue to leverage our increased self-performance and schedule control capabilities to obtain additional large-scale civil and building awards . our strong self-performance capabilities represent a unique competitive advantage . by self-performing certain specialized components of our projects when possible , we are able to capture profits that would otherwise be recognized by other contractors . we continue to capitalize on our leadership position as evidenced by our december 31 , 2013 contract backlog of $ 7.0 billion , an increase of $ 1.4 billion from $ 5.6 billion as of december 31 , 2012. in 2013 , we received several significant new awards ( discussed below , under backlog analysis for 2013 ) and we continue to have a large volume of pending awards , including ( i ) several additional phases of the hudson yards development project in new york ; ( ii ) several mass transit and transportation projects in new york and on the east coast ; and ( iii ) several condominium , mixed-use , hospitality and gaming , and retail building development projects primarily on the east coast . as we entered into 2013 , we experienced a high level of bidding activity , which subsequently translated into several large civil contracts , including two major rail projects in california awarded around the middle of 2013. in addition , our work on the hudson yards project ramped up notably in 2013 , including increased activity on construction of the south tower ( tower c ) , as well as the award and start-up of two large civil projects at the site . future phases of the hudson yards project are expected to be awarded over the next one to three years . our recently awarded large civil projects have contract durations of approximately four to five years . accordingly , we expect to realize the benefits of these projects over the next several years . typically , in later stages of our projects , productivity increases are realized and claims and unapproved change orders , if any , are resolved . when projects are in later stages of completion , these changes may result in more significant impacts to profitability . story_separator_special_tag for the year ended december 31 , 2012 , included in discrete items is the impact of one-time expenses ( benefits ) : ( i ) the $ 326.4 million after-tax impairment charge , ( ii ) the $ 3.0 million after-tax litigation provision relating to an adverse court decision , ( iii ) $ 3.6 million of discrete tax expense items related to an increase in unrecognized tax benefits and an adjustment , both associated with certain stock-based compensation items identified during the first quarter of 2012 , and ( iv ) the $ 2.7 million realized loss on the sale of auction rate securities in the first quarter of 2012. replace_table_token_20_th backlog analysis for 2013 our backlog of uncompleted construction work at december 31 , 2013 was approximately $ 7.0 billion compared to $ 5.6 billion at december 31 , 2012. during 2013 , we booked a number of pending awards into backlog across each of our business segments and had significant adjustments to existing contracts . significant new award bookings during 2013 included the $ 840 million san francisco central subway project , our $ 511 million share of the joint venture california high-speed rail design-build project , the $ 510 million hudson yards platform project , our approximately $ 200 million share of a joint venture bridge superstructure project between minnesota and wisconsin , two wisconsin highway construction contracts collectively valued at $ 191 million , a $ 143 million concrete package for the south tower at hudson yards , the $ 133 million amtrak tunnel project at hudson yards , a $ 102 million bridge project in new york , and a $ 100 million bus station redevelopment project in new york . the strong increase in our overall backlog was partially offset by reduced backlog in our building segment associated primarily with continued activity on existing healthcare , hospitality and gaming , and courthouse projects . we estimate that approximately $ 3.4 billion , or 49.5 % of our backlog at december 31 , 2013 will be recognized as revenue in 2014. in addition to our existing backlog , we continue to have a significant volume of pending contract awards , including up to $ 3.7 billion in various future phases of the hudson yards project and various other contracts . we anticipate booking many of our pending awards into backlog over the next several quarters , and future phases of the hudson yards project over the next several years , as the contracts for these various projects are executed . we continue tracking several large-scale civil and building prospects for both public and private sector customers as we further leverage our self-performance and schedule control capabilities . the following table provides an analysis of our backlog by business segment for the year ended december 31 , 2013. replace_table_token_21_th ( 1 ) new business awarded consists of the original contract price of projects added to our backlog plus or minus subsequent changes to the estimated total contract price of existing contracts . 35 critical accounting policies our accounting and financial reporting policies are in conformity with u.s. gaap . the preparation of our consolidated financial statements in conformity with u.s. gaap requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the balance sheet date , and the reported amounts of revenues and expenses during the reporting period . although our significant accounting policies are described in note 1 description of business and summary of significant accounting policies of the notes to consolidated financial statements in part iv , item 15. exhibits and financial statement schedules , the following discussion is intended to describe those accounting policies most critical to the preparation of our consolidated financial statements . use of and changes in estimates - the preparation of financial statements in conformity with u.s. 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 revenues and expenses during the reporting period . our construction business involves making significant estimates and assumptions in the normal course of business relating to our contracts and our joint venture contracts due to , among other things , the one-of-a-kind nature of most of our projects , the long-term duration of our contract cycle and the type of contract utilized . therefore , management believes that the method of accounting for contracts is the most important and critical accounting policy . the most significant estimates with regard to these financial statements relate to the estimating of total forecasted construction contract revenues , costs and profits in accordance with accounting for long-term contracts ( see note 1 description of business and summary of significant accounting policies , under the section entitled ( d ) use of and changes in estimates of the notes to consolidated financial statements in part iv , item 15. exhibits and financial statement schedules ) and estimating potential liabilities in conjunction with certain contingencies , including the outcome of pending or future litigation , arbitration or other dispute resolution proceedings relating to contract claims ( see note 9 contingencies and commitments of the notes to consolidated financial statements in part iv , item 15. exhibits and financial statement schedules ) . actual results could differ from these estimates and such differences could be material . our estimates of contract revenue and cost are highly detailed . we believe that , based on our experience , our current systems of management and accounting controls allow us to produce materially reliable estimates of total contract revenue and cost during any accounting period . however , many factors can and do change during a contract performance period which can result in a change to contract profitability from one financial reporting period to another .
| results of operations - 2012 compared to 2011 revenues the following table summarizes our revenues by segment . replace_table_token_25_th building segment building segment revenues decreased by $ 357.6 million ( or 19.6 % ) from $ 1,825.5 million in 2011 to $ 1,467.9 million in 2012 , primarily due to the substantial completion of a large public works project and a large hospitality and gaming project in 2011. these decreases were partially offset by increased activity in certain healthcare facility , office facility , and courthouse projects . civil segment civil segment revenues increased by $ 363.1 million ( or 41.0 % ) , from $ 885.2 million in 2011 to $ 1,248.3 million in 2012 , primarily due to the acquisitions of frontier-kemper , lunda and becho in mid-2011 which contributed approximately $ 601.9 million to 2012 revenues in the aggregate , an increase of $ 259.6 million , or 75.8 % , from their partial-year contributions of $ 342.3 million to 2011 revenues . civil segment revenues also increased due to increased activity in certain tunnel projects on the west coast and several highway projects on the east coast that were awarded in 2011. specialty contractors segment specialty contractors segment revenues increased by $ 380.5 million ( or 47.4 % ) , from $ 802.5 million in 2011 to $ 1,183.0 million in 2012 , primarily due to the acquisition of fse , wdf and nagelbush in mid-2011 which contributed approximately $ 827.9 million to 2012 revenues in the aggregate , an increase of approximately $ 367.9 million , or 80.0 % , from their partial-year contributions of $ 460.0 million to 2011 revenues . management services segment management services segment revenues increased by $ 9.2 million ( or 4.5 % ) , from $ 203.1 million in 2011 to $ 212.3 million in 2012 , primarily due to increased activity on several smaller awards in 2012 .
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as a third party logistics provider , we enter into contractual relationships with a wide variety of transportation companies , and utilize those relationships to efficiently and cost effectively transport our customers ' freight . we have contractual relationships with approximately 73,000 active transportation companies in 2017 , including motor carriers , railroads ( primarily intermodal service providers ) , air freight , and ocean carriers . depending on the needs of our customer and their supply chain requirements , we select and hire the appropriate transportation for each shipment . our model enables us to be flexible and provide solutions that optimize service for our customers . in addition to transportation and logistics services , we also provide sourcing services . our sourcing business consists of buying , selling , and marketing fresh produce . we purchase fresh produce through our network of produce suppliers and sell it to grocery retailers , restaurants , foodservice distributors , and produce wholesalers . in some cases , we also arrange the transportation of the produce we sell through our relationships with specialized transportation companies . transportation revenues generated by robinson fresh are included in our transportation service line in the first two tables below , but are included in robinson fresh in the segment revenue table below . our reportable segments are north american surface transportation ( “ nast ” ) , global forwarding , robinson fresh , and all other and corporate . the all other and corporate segment includes managed services , other surface transportation outside of north america , and other miscellaneous revenues and unallocated corporate expenses . we group offices primarily by services they provide . for financial information concerning our reportable segments and geographic regions , refer to note 9 of our consolidated financial statements . our business model . we are primarily a service company . we add value and expertise in the procurement and execution of transportation and logistics , including sourcing of produce products for our customers . our total revenues represent the total dollar value of services and goods we sell to our customers . our net revenues are our total revenues less purchased transportation and related services , including contracted motor carrier , rail , ocean , air , and other costs , and the purchase price and services related to the products we source . our net revenues are the primary indicator of our ability to source , add value , and sell services and products that are provided by third parties , and we consider them to be our primary performance measurement . accordingly , the discussion of our results of operations below focuses on the changes in our net revenues . we keep our business model as variable as possible to allow us to be flexible and adapt to changing economic and industry conditions . we sell transportation services and produce to our customers with varied pricing arrangements . some prices are committed to for a period of time , subject to certain terms and conditions , and some prices are set on a spot market basis . we buy most of our truckload transportation capacity and produce on a spot market basis . because of this , our net revenue per transaction tends to increase in times when there is excess supply and decrease in times when demand is strong relative to supply . in 2017 , changing market conditions continued to impact our results . we had volume increases in all of our service lines , and experienced pricing and cost increases in nearly all of our service lines , which negatively impacted our margins . truckload margin compression was a challenge to our earnings per share during much of the year . in august 2017 , we acquired milgram & company ltd. ( “ milgram ” ) , a provider of freight forwarding , customs brokerage , and surface transportation primarily in canada . milgram operates primarily in our global forwarding segment . in 2016 , changing market conditions impacted our results . we had volume increases in nearly all of our service lines , but also experienced pricing declines , which impacted our net revenue margins . truckload margin compression was a challenge to our earnings per share during the second half of the year . in september 2016 , we completed the acquisition of apc logistics ( “ apc ” ) , a privately held company based in australia , for the purpose of expanding our global presence and bringing additional capabilities and expertise to our portfolio . apc provides international freight forwarding and customs brokerage services in australia and new zealand . apc operates in our global forwarding segment . fuel prices declined throughout 2015 , which contributed to slower growth of our total revenues and an increase in our transportation net revenue margins . in 2015 , we completed the acquisition of freightquote.com , inc. ( “ freightquote ” ) , a privately held freight broker based in kansas city , missouri . freightquote provides services throughout north america . the acquisition enhances and brings synergies to our ltl and truckload businesses , and expands our ecommerce capabilities . freightquote operates in our nast segment . 24 we keep our personnel and other operating expenses as variable as possible . compensation is tied to productivity and performance . each office is responsible for its hiring and headcount decisions , based on the needs of their office and to balance personnel resources with business requirements . this helps keep our personnel expense as variable as possible with the business . our office network . our office network is a competitive advantage . building local customer and contract carrier relationships has been an important part of our success , and our worldwide network of offices supports our core strategy of serving customers locally , nationally , and globally . our network of offices helps us penetrate local markets , provides face-to-face service when needed , and enables us to recruit contract carriers . story_separator_special_tag excluding the estimated impacts of the change in fuel prices , our average north america truckload rate per mile charged to our customers increased approximately 4.5 percent in 2017 compared to 2016 . excluding the estimated impacts of the change in fuel prices , our average north america truckload transportation cost per mile increased approximately 6.5 percent in 2017 compared to 2016 . nast ltl net revenues increased 6.2 percent in 2017 to $ 388.8 million from $ 366.1 million in 2016 . nast ltl volumes increased approximately eight percent in 2017 compared to 2016 and net revenue margin decreased . nast ltl net revenue margin decreased due to increased transportation costs . 28 nast intermodal net revenues decreased 14.6 percent to $ 26.7 million in 2017 from $ 31.3 million in 2016 . this was primarily due to declines in net revenue margin , partially offset by increased volumes with our lower-margin contractual customers , partially offset by a decrease in transactional business . nast operating expenses increased 5.5 percent in 2017 to $ 897.0 million from $ 849.9 million in 2016 . this was due to an increase in personnel expenses related to incentive plans that are designed to keep expenses variable with changes in net revenues and profitability , and an increase in selling , general , and administrative expenses . the operating expenses of nast and all other segments include allocated corporate expenses . nast operating income decreased 6.9 percent to $ 628.1 million in 2017 from $ 674.4 million in 2016 . this was primarily due to increases in operating expenses , while net revenues remained flat . global forwarding . global forwarding revenues increased 36.0 percent to $ 2.1 billion in 2017 from $ 1.6 billion in 2016 . this increase was primarily related to increased volumes in all services and increased customer pricing . global forwarding costs of transportation and related services increased 40.7 percent to $ 1.7 billion in 2017 from $ 1.2 billion in 2016 . global forwarding net revenues increased 22.1 percent to $ 485.3 million in 2017 from $ 397.5 million in 2016 . global forwarding net revenue margin decreased due to transportation costs increasing at a faster rate than customer pricing . the acquisitions of apc and milgram accounted for approximately eight percentage points of the net revenue growth in global forwarding . ocean transportation net revenues increased 19.1 percent to $ 290.8 million in 2017 from $ 244.2 million in 2016 . this was primarily due to increases in volumes , including those from acquisitions . air net revenues increased 24.1 percent to $ 94.5 million in 2017 from $ 76.1 million in 2016 . this was primarily due to increases in volumes partially offset by cost increases . customs net revenues increased 40.5 percent to $ 70.9 million in 2017 from $ 50.5 million in 2016 . the increase was primarily due to increased transaction volumes , including those from acquisitions . global forwarding operating expenses increased 24.3 percent in 2017 to $ 393.4 million from $ 316.6 million in 2016 . this increase was due to increases in both personnel and selling , general , and administrative expenses . the personnel expense increase was driven by an average headcount increase of 17.3 percent , primarily due to the additions of apc and milgram . the selling , general , and administrative expense increase was also primarily driven by the additions of apc and milgram . global forwarding operating income increased 13.5 percent in 2017 to $ 91.8 million from $ 80.9 million in 2016 . this was primarily due to an increase in net revenues driven by increased volumes and customer pricing , partially offset by increased operating expenses . robinson fresh . robinson fresh revenues increased 3.1 percent to $ 2.4 billion in 2017 from $ 2.3 billion in 2016 . robinson fresh costs of transportation and related services and purchased products sourced for resale increased 3.8 percent to $ 2.2 billion in 2017 from $ 2.1 billion in 2016 . robinson fresh net revenues decreased 3.7 percent to $ 226.1 million in 2017 from $ 234.8 million in 2016 . this decrease was primarily due to declines in transportation net revenues . robinson fresh sourcing net revenues decreased 0.2 percent to $ 122.4 million in 2017 from $ 122.7 million in 2016 . this decrease was primarily due to a decrease in net revenue per case , partially offset by a one percent case volume increase . robinson fresh net revenues from transportation services decreased 7.5 percent to $ 103.6 million in 2017 from $ 112.1 million in 2016 . this decrease was driven by a decline in truckload net revenues , partially offset by an increase in other transportation net revenues . robinson fresh transportation net revenue margin decreased in 2017 compared to 2016 , due primarily to increased costs of transportation . robinson fresh operating expenses increased 8.6 percent to $ 172.7 million in 2017 from $ 159.0 million in 2016 . this was due to increases in both selling , general and administrative and personnel expenses . the increase in selling , general , and administrative expenses was due to higher warehousing and claims expenses in 2017 compared to 2016 . in 2017 , personnel expenses increased primarily due to an increase in salaries and an increase in average headcount of 1.6 percent in 2017 compared to 2016 . robinson fresh operating income decreased 29.5 percent to $ 53.4 million in 2017 from $ 75.8 million in 2016 . this was primarily due to an increase in operating expenses and a decrease in net revenues . all other and corporate . all other and corporate includes our managed services segment , as well as other surface transportation outside of north america and other miscellaneous revenues and unallocated corporate expenses . managed services provides transportation management services , or managed tms ® . other surface transportation revenues are primarily earned by europe surface transportation . europe surface transportation provides services similar to nast across europe .
| consolidated results of operations the following table summarizes our total revenues by service line ( dollars in thousands ) : replace_table_token_8_th the following table illustrates our net revenue margins by service line : replace_table_token_9_th 25 the following table summarizes our net revenues by service line ( dollars in thousands ) : replace_table_token_10_th ( 1 ) less than truckload ( “ ltl ” ) . the following table represents certain statements of operations data , shown as percentages of our net revenues : replace_table_token_11_th 26 the following table summarizes our results by reportable segment ( dollars in thousands ) : replace_table_token_12_th 2017 compared to 2016 total revenues and direct costs . total transportation revenues increased 15.4 percent to $ 13.5 billion in 2017 from $ 11.7 billion in 2016 . this increase in transportation revenues was driven by volume increases in all of our transportation services and increased customer pricing in most services . total purchased transportation and related services increased 17.9 percent in 2017 to $ 11.3 billion from $ 9.5 billion in 2016 . this increase was due to increased transportation costs and higher volumes in nearly all of our transportation services . total sourcing revenues decreased 5.1 percent to $ 1.37 billion in 2017 from $ 1.44 billion in 2016 . purchased products sourced for resale decreased 5.5 percent in 2017 to $ 1.2 billion from $ 1.3 billion in 2016 . these decreases were primarily due to lower market pricing and change in service mix . net revenues . total transportation net revenues increased 4.2 percent in 2017 to $ 2.25 billion from $ 2.15 billion in 2016 . our transportation net revenue margin decreased to 16.6 percent in 2017 from 18.4 percent in 2016 . this decrease in net revenue margin was driven by increases in transportation costs , including fuel .
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our customer-focused solutions model seamlessly integrates innovative product conceptualization , design , commercialization , manufacturing , fulfillment and sustaining solutions . plexus delivers comprehensive end-to-end solutions for customers in the americas ( “ amer ” ) , europe , middle east , and africa ( “ emea ” ) and asia-pacific ( “ apac ” ) regions . we provide award-winning customer service to more than 140 branded product companies in the networking/communications , healthcare/life sciences , industrial/commercial and defense/security/aerospace market sectors . our customers have stringent quality , reliability and regulatory requirements , requiring exceptional production and supply chain agility . their products require complex configuration management , direct order fulfillment ( to end customers ) and global logistics management and aftermarket services . to service the complexities that our customers ' products demand , we utilize our product realization value stream , addressing our customers ' products from concept to end of life . the following information should be read in conjunction with our consolidated financial statements included herein and “ risk factors ” included in part i , item 1a herein . recent developments we opened our new manufacturing facility in guadalajara , mexico during the fourth quarter of fiscal 2014. this facility is replacing our existing facility in juarez , mexico , which will be closed during the first quarter of fiscal 2015. this transition resulted in approximately $ 7.0 million of restructuring and impairment charges during fiscal 2014. closure of the facility in juarez is expected to result in approximately $ 1.5 to $ 1.8 million of additional restructuring charges in the first quarter of fiscal 2015. we opened our new manufacturing facility in neenah , wisconsin during the first quarter of fiscal 2014. this facility consolidated one owned and two leased facilities in the fox cities ( neenah and appleton ) , wisconsin . the consolidation of these facilities resulted in approximately $ 4.3 million of restructuring charges during fiscal 2014. results of operations story_separator_special_tag million , or 5.9 percent , as compared to fiscal 2013. the increase was primarily the result of the expansion of current business with one of our larger customers in the sector , which accounted for $ 30.7 million of the increased net sales as compared to the prior year . net sales for fiscal 2013 in the industrial/commercial sector decreased $ 119.8 million as compared to fiscal 2012. the decrease was primarily a result of decreased end-market demand for one of our larger customers in the sector , which accounted for $ 113.6 million of the decreased net sales as compared to the prior year . defense/security/aerospace . net sales for fiscal 2014 in the defense/security/aerospace sector increased $ 47.4 million , or 16.5 percent , as compared to fiscal 2013. the increase was primarily due to $ 37.5 million resulting from new program ramps and increased end-market demand for one of our larger customers in the sector . net sales for fiscal 2013 in the defense/security/aerospace sector increased $ 49.6 million as compared to fiscal 2012. the increase was the result of new program ramps as well as increased end-market demand for the products we produce for our customers . 26 as a percentage of consolidated net sales , net sales attributable to customers representing 10.0 percent or more of consolidated net sales as well as the percentage of net sales attributable to our ten largest customers for fiscal 2014 , 2013 and 2012 , were as follows : 2014 2013 2012 arris group , inc. ( `` arris '' ) 12.5 % * * general electric company ( `` ge '' ) 11.2 % * * juniper networks , inc. ( `` juniper '' ) * 12.8 % 16.0 % top 10 customers 55.1 % 54.5 % 60.0 % * net sales attributable to the customer were less than 10.0 percent of consolidated net sales for the period . gross profit . gross profit for fiscal 2014 increased $ 12.4 million , or 5.8 percent , as compared to fiscal 2013. overall gross margin decreased to 9.5 percent from 9.6 percent . gross profit increased $ 34.2 million primarily as a result of increased sales . this favorable effect was largely offset by a $ 21.9 million increase in fixed costs due to our investment in a new manufacturing facility in neenah , wisconsin , the ramp up of new business in the amer region , and increased depreciation and personnel expenses with our new manufacturing facility in oradea , romania . gross profit for fiscal 2013 decreased $ 6.7 million , or 3.1 percent , as compared to fiscal 2012 primarily due to decreased net sales , increased fixed expenses related to site investments in penang , malaysia , xiamen , china , and oradea , romania , and unfavorable changes in customer mix . the decrease was partially offset by the sale of certain inventory that had previously been written down . a slightly larger percentage decrease in revenue as compared to the decrease in gross profit for fiscal 2013 led to an increase in gross margin to 9.6 percent for fiscal 2013 from 9.5 percent for fiscal 2012. operating income . operating income for fiscal 2014 increased $ 4.0 million as compared to fiscal 2013. a $ 2.9 million decrease in selling and administrative expenses ( `` s & a '' ) as compared to prior year and the previously discussed increase to gross profit were partially offset by $ 11.3 million of restructuring and impairment charges primarily related to the consolidation of facilities in the fox cities , wisconsin , and the relocation of manufacturing operations from juarez , mexico , to guadalajara , mexico . as a result , operating margin decreased to 4.2 percent for fiscal 2014 from 4.3 percent for fiscal 2013. operating income for fiscal 2013 decreased $ 7.5 million as compared to fiscal 2012. the operating income decrease reflected the $ 6.7 million decrease in gross profit described above as well as a $ 0.8 million increase in s & a expenses . story_separator_special_tag in fiscal 2014 , 2013 , and 2012 , these holidays resulted in tax reductions of approximately $ 24.1 million ( $ 0.71 per basic share ) , $ 22.7 million ( $ 0.66 per basic share ) , and $ 17.5 million ( $ 0.50 per basic share ) , respectively . we currently expect the annual effective tax rate for fiscal 2015 to be approximately 8.0 to 10.0 percent . net income . net income , both including and excluding the annual valuation allowance and out-of-period tax adjustments , for fiscal 2014 , 2013 and 2012 was as follows ( dollars in millions ) : 28 replace_table_token_7_th * the company believes that the non-gaap presentation of net income excluding valuation allowances and out-of-period tax adjustments provides a more meaningful comparison of reporting periods . net income for fiscal 2014 increased $ 5.0 million , or 6.0 percent , to $ 87.2 million from fiscal 2013. net income increased primarily as a result of increased gross profit and lower s & a expenses , partially offset by increased restructuring and impairment charges and increased income tax expense , as discussed previously . net income for fiscal 2013 increased $ 20.2 million , or 32.5 percent , to $ 82.3 million from fiscal 2012. this increase was primarily as a result of the net $ 17.1 million year-over-year valuation allowance adjustment . excluding the valuation allowance and fourth quarter fiscal 2013 tax out-of-period adjustments , fiscal 2013 net income decreased by $ 0.1 million , or 0.1 percent , from fiscal 2012 to $ 86.1 million . diluted earnings per share . diluted earnings per share increased to $ 2.52 , or 6.8 percent , for fiscal 2014 from $ 2.36 for fiscal 2013 primarily as a result of increased net income . further improvement was due to the positive impact of fewer outstanding shares in 2014 due to our common stock repurchase program . these improvements were offset by restructuring and impairment costs . see note 14 , `` shareholders ' equity '' in notes to the consolidated financial statements for information regarding the company 's stock repurchase programs . see note 15 , `` restructuring and impairment costs , '' in notes to the consolidated financial statements for information regarding restructuring and impairment costs . diluted earnings per share increased to $ 2.36 , or 34.9 percent , for fiscal 2013 from $ 1.75 for fiscal 2012 primarily as a result of the impact of the valuation allowances and fiscal 2013 out-of-period tax adjustments discussed above . excluding the impact of the valuation allowances and out-of-period tax adjustments , diluted earnings per share increased by $ 0.04 in fiscal 2013 as compared to fiscal 2012. the increase in diluted earnings per share , as adjusted was primarily due to the positive impact of fewer outstanding shares in 2013 due to the stock repurchase program . return on invested capital ( “ roic ” ) . we use a 5-5 financial model which is aligned with our business strategy , and includes a roic goal of 500 basis points over our weighted average cost of capital ( “ wacc ” ) , which we refer to as economic return and a 5.0 percent operating margin target . our primary focus is on our economic return goal of 5.0 percent , which is designed to create shareholder value and generate enough cash to self-fund our targeted organic revenue growth rate of 12.0 percent . we review our internal calculation of wacc annually . our wacc was 11.0 percent , 12.0 percent , and 12.5 percent for fiscal 2014 , 2013 , and 2012 , respectively . for fiscal 2015 , our estimated wacc is 11.0 percent . by exercising discipline to generate roic in excess of our wacc , our goal is to create value for our shareholders . roic was 15.2 percent , 14.0 percent , and 15.5 percent ( excluding a $ 20.6 million net deferred tax asset reduction ) for fiscal 2014 , 2013 and 2012 , respectively . the increase in roic in fiscal 2014 from fiscal 2013 was due to higher operating income , partially offset by the effect of an increase in average invested capital as a result of capital expenditures for facility expansions . see the table below for our calculation of roic ( dollars in millions ) : replace_table_token_8_th we define roic as tax-effected operating income before restructuring and impairment charges divided by average invested capital over a rolling five-quarter period for the fiscal year . invested capital is defined as equity plus debt , less cash and cash equivalents . other companies may not define or calculate roic in the same way . roic and other non-gaap financial measures should be considered in addition to , not as a substitute for , measures of our financial performance prepared in accordance with u.s. generally accepted accounting principles ( “ gaap ” ) . 29 non-gaap financial measures , including roic , are used for internal management assessments because such measures provide additional insight into ongoing financial performance . in particular , we provide roic because we believe it offers insight into the metrics that are driving management decisions because we view roic as an important measure in evaluating the efficiency and effectiveness of our long-term capital requirements . we also use a derivative measure of roic as a performance criteria in determining certain elements of compensation . for a reconciliation of roic to our financial statements that were prepared using gaap , see exhibit 99.1 to this annual report on form 10-k , which exhibit is incorporated herein by reference . reportable segments a further discussion of our fiscal 2014 , 2013 and 2012 financial performance by reportable segment is presented below ( in millions ) : replace_table_token_9_th americas .
| consolidated performance summary . the following table presents selected consolidated financial data for fiscal 2014 , 2013 and 2012 ( dollars in millions , except per share data ) : 2014 2013 2012 net sales $ 2,378.2 $ 2,228.0 $ 2,306.7 gross profit 225.6 213.2 219.9 gross margin 9.5 % 9.6 % 9.5 % operating income 100.6 96.6 104.2 operating margin 4.2 % 4.3 % 4.5 % net income 87.2 82.3 62.1 * earnings per share ( diluted ) $ 2.52 $ 2.36 $ 1.75 * return on invested capital 15.2 % 14.0 % 15.5 % * see note 7 in notes to consolidated financial statements for discussion regarding the fiscal 2012 valuation allowance for deferred tax assets . net sales . net sales for fiscal 2014 increased $ 150.2 million , or 6.7 percent , as compared to fiscal 2013. the net sales increase was primarily the result of a $ 134.1 million increase in net sales in the healthcare/life sciences sector , as well as net sales increases in the industrial/commercial and defense/security/aerospace sectors , partially offset by a reduction in net sales in the networking/communication sector . the reduction in the networking/communications sector resulted from a $ 282.6 million 25 headwind related to the disengagement of juniper networks , inc. ( `` juniper '' ) in fiscal 2013 , partially offset by a $ 230.3 million increase in net sales to two key customers in that sector primarily resulting from new product ramps .
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the search and content business , infospace , provides search services to users of our owned and operated and distribution partners ' web properties , as well as online content . the tax preparation business consists of the operations of taxact and provides online tax preparation service for individuals , tax preparation software for individuals and professional tax preparers , and ancillary services . the e-commerce business consists of the operations of monoprice , which we acquired on august 22 , 2013 , and sells self-branded electronics and accessories to both consumers and businesses . our businesses search and content our search and content segment ( formerly known as our search segment ) , infospace , generates the majority of our revenues . the infospace business provides search services to users of our owned and operated and distribution partners ' web properties , as well as online content . these search services generally involve the generation and display of a set of hyperlinks to websites deemed relevant to search queries entered by users , predominantly from desktop and laptop computers . in addition to these algorithmic search results , paid listings are also generally displayed in response to search queries . search services provided through our owned and operated properties include services through websites such as dogpile.com , webcrawler.com , howstuffworks.com ( acquired may 30 , 2014 , see below ) , and third party web pages that we operate . search services provided to our distribution partners include services to a network of approximately 100 distribution partners through the web properties of those distribution partners , which are generally private-labeled and customized to address the unique requirements of each distribution partner . the search and content segment 's revenue primarily consists of advertising revenue generated through end-users clicking on paid listings included in the search results display , as well as from advertisements appearing on our howstuffworks.com website . the paid listings , as well as algorithmic search results , primarily are supplied by google and yahoo ! , whom we refer to as `` search customers . '' when a user submits a search query through one of our owned and operated or distribution partner sites and clicks on a paid listing displayed in response to the query , the search customer bills the advertiser that purchased the paid listing directly and shares a portion of its related paid listing fee with us . if the paid listing click occurred on one of our distribution partners ' properties , we pay a significant share of our revenue to the distribution partner . revenue is recognized in the period in which such clicks on paid listings occur and is based on the amounts earned by and ultimately remitted to us by our search customers . we derive a significant portion of our revenue from google , and we expect this concentration to continue in the foreseeable future at levels that are substantially similar to 2014. for the year ended december 31 , 2014 , search revenue from google accounted for approximately 80 % of our search and content segment revenue and 45 % of our total revenue . for further discussion of this concentration risk , see the paragraph in our risk factors ( part i item 1a of this report ) under the heading `` most of our search services revenue is attributable to google , and the loss of , or a payment dispute with , google or any other significant search customer would harm our business and financial results . '' on may 30 , 2014 , infospace acquired hsw , a provider of online content through various websites , including www.howstuffworks.com . tax preparation our taxact business consists of an online tax preparation service for individuals , tax preparation software for individuals and professional tax preparers , and ancillary services . taxact generates revenue primarily through its online service at www.taxact.com . the taxact business 's basic federal tax preparation online software service is `` free for everyone , '' meaning that any taxpayer can use the services to e-file his or her federal income tax return without paying for upgraded services and may do so for every form that the irs allows to be e-filed . this free offer differentiates taxact 's offerings from many of its competitors who limit their free software and or services offerings to certain categories of customers or certain forms . the taxact business generates revenue from a percentage of these `` free '' users who purchase a state form or choose to upgrade for a fee to the deluxe or ultimate offering , which includes additional support , tools , or state forms in the 30 case of the ultimate offering . in addition , revenue is generated from the sale of ancillary services , which include , among other things , tax preparation support services , data archive services , bank services ( including reloadable pre-paid debit card services ) , and additional e-filing services . taxact is the recognized value player in the digital do-it-yourself space , offering comparable software and or services at a lower cost to the end user compared to larger competitors . this , coupled with its `` free for everyone '' offer , provides taxact a valuable marketing position . taxact 's professional tax preparer software allows professional tax preparers to file individual returns for their clients . revenue from professional tax preparers historically has constituted a relatively small percentage of the taxact business 's overall revenue and requires relatively modest incremental development costs as the professional tax preparer software is substantially similar to the consumer-facing software and online service . on october 4 , 2013 , taxact acquired balance financial , a provider of web and mobile-based financial management software through its website www.balancefinancial.com . e-commerce our e-commerce business , monoprice , is an online retailer of self-branded electronics and accessories to both consumers and businesses . story_separator_special_tag revenue generated by our owned and operated properties ( which includes hsw ) decreased $ 3.3 million , or 5 % , primarily due to lower returns on online marketing in 2014 as compared to 2013. this decrease was offset partially by the revenue contribution from hsw . the lower returns on online marketing were attributable originally to a technology change implemented in the first quarter of 2014. the issues of the technology change were substantially addressed in the second quarter of 2014 ; however , we have been unable to increase our rate of return in the second half of 2014 to the rate previously experienced prior to such technology change and consistent with rates of return achieved in 2013. our inability to consistently and profitably scale our online marketing expenditures was due to a decrease in the revenue earned for this traffic without a corresponding decrease in cost to acquire traffic , which we believe was related to volatility with respect to the quality scores that are applied by our search customers to certain of our sites . we have limited visibility into the factors impacting these scores or how these scores impact revenue and cost , since these elements are proprietary to our search customers . to the extent that we experience continued volatility in quality scores , we could be challenged going forward in our ability to increase marketing expenditures while maintaining our desired rate of return . search and content operating income decreased approximately $ 26.7 million , consisting of the $ 102.2 million decrease in revenue , offset by a decrease of $ 75.5 million in operating expenses . the decrease in search and content operating expenses primarily was due to an $ 81.7 million , or 29 % , decrease in search and content services cost of revenue , which was mainly driven by the decrease in distribution revenue and the resulting revenue share to our distribution partners as well as decreased content costs , and a $ 1.0 million decrease in data center expenses related to the migration of the data center to the cloud in 2013. these decreases were offset by a $ 3.6 million increase in personnel expenses primarily due to overall increased headcount , mainly as a result of the hsw acquisition , and employee separation costs , a $ 2.2 million increase in spending on our online marketing , and a $ 0.8 million increase in professional services associated with development projects and hsw content creation . segment margin decreased primarily due to increased personnel expenses and flat non-personnel operating expenses on declining revenues , as well as a lower return on our online marketing expenditures . as noted above , we have experienced factors that have caused significant volatility , due in part to changes in interpretation and enforcement of our search customers ' requirements and policies , resulting in decreased revenue and margin compression . if our search customers continue to revise their interpretation and enforcement of their requirements and policies , our search and content business will continue to experience volatility and its financial performance will continue to decline . see `` risks related to our search and content business '' in part i item 1a . of this report . we have taken steps to redeploy resources toward initiatives that we believe will better align with our search customers ' preferences , which should drive longer-term and more sustainable segment income . these initiatives will be driven by leadership that we recently brought to this business with the intention to provide product and service diversification to stabilize revenue . we expect further downward pressure on quarterly revenues through at least the first half of 2015 due to the time needed to develop and scale the 34 above initiatives as well as the removal of a distribution partner who accounted for 8 % and 11 % of fourth quarter and full year 2014 search and content revenue , respectively . year ended december 31 , 2013 compared with year ended december 31 , 2012 search and content revenue increased approximately $ 83.7 million , or 24 % , primarily due to revenue generated by our distribution partners which increased by $ 52.3 million , or 17 % , driven by a $ 56.2 million increase in revenue from existing partners . the increase in revenue from existing partners was offset by a $ 3.9 million decrease in revenue from new partners . we generated 33 % and 47 % of our search and content revenue through our top five distribution partners in 2013 and 2012 , respectively . the web properties of our top five distribution partners for 2013 generated 42 % of our search and content revenue in 2012 . further contributing to the increase was a $ 31.3 million , or 77 % , increase in revenue generated from our owned and operated properties . the increase was primarily due to continued investment in online marketing to drive end users to our owned and operated properties . search and content operating income increased approximately $ 20.3 million , consisting of the $ 83.7 million increase in revenue , offset by an increase of $ 63.3 million in operating expenses . the increase in search and content operating expenses primarily was due to a $ 35.7 million , or 15 % , increase in search and content services cost of revenue , which was mainly driven by the increase in distribution revenue and the resulting revenue share to our distribution partners . the remaining increase in search and content operating expenses was primarily due to a $ 26.7 million increase in spending on our online marketing , a $ 0.9 million increase in data center expenses related to the migration of the data center to the cloud , and a $ 0.7 million increase in sales and marketing personnel expenses in support of our continued marketing initiatives .
| summary replace_table_token_4_th year ended december 31 , 2014 compared with year ended december 31 , 2013 total revenues increased approximately $ 6.7 million due to increases of $ 96.4 million in product revenue from the monoprice business that we acquired in august 2013 and $ 12.5 million in revenue related to our tax preparation business , offset by a decrease of $ 102.2 million in revenue related to our search and content business . operating income decreased approximately $ 82.9 million , consisting of the $ 6.7 million increase in revenue and offset by an $ 89.6 million increase in operating expenses . key changes in operating expenses were : $ 75.5 million decrease in the search and content segment 's operating expenses primarily as a result of lower revenue share to our distribution partners with the decrease in search and content distribution revenue and decreased content costs , offset by higher personnel expenses primarily due to overall increased headcount and higher spending on our online marketing . $ 3.4 million increase in the tax preparation segment 's operating expenses primarily due to higher personnel expenses due to increased headcount and higher spending on marketing campaigns for the current tax season . $ 89.4 million increase in the e-commerce segment 's operating expenses primarily due to the timing of the monoprice acquisition . $ 72.4 million increase in corporate-level expense activity primarily as a result of impairments recognized on e-commerce goodwill and trade name , amortization expense associated with the acquisitions of monoprice and hsw , depreciation expense on fixed assets attributable to monoprice , higher net personnel expenses mainly due to employee-related costs incurred in connection with leadership changes and increased headcount to support operations , offset by lower bonus amounts consistent with company performance in 2014 , and higher stock-based compensation related to the issuance of equity awards to hsw , balance financial , and monoprice employees .
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