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the following discussion and analysis should be read in conjunction with the “ consolidated and combined financial statements ” and notes thereto included elsewhere in this annual report on form 10-k , or annual report . this discussion contains forward-looking statements that are based on the beliefs , assumptions , and information currently available to our management , and are subject to known and unknown risks , uncertainties , and other factors that may cause our actual results to differ materially from those expressed or implied by such forward-looking statements . these risks , uncertainties , and other factors include , among others , those described in greater detail elsewhere in this annual report , particularly in item 1a , “ risk factors ” . overview nanthealth is a next-generation healthcare company that is transforming the way critical diseases , such as cancer , are known and treated . specifically , we employ precision medicine and technology to give physicians , payers , and patients more actionable information than ever before . to accomplish this , we employ a unique systems-based approach to personalized healthcare applying novel diagnostics tailored to the specific molecular profiles of patient tissues and integrate this molecular data in a clinical setting with large-scale , real-time biometric signal and phenotypic data to track patient outcomes and deliver precision medicine . for nearly a decade , we have developed an adaptive learning system that integrates our unique molecular profiling solution , software and hardware . our systems infrastructure collects , indexes , analyzes and interprets billions of molecular , clinical , operational and financial data points derived from novel and traditional sources to continuously improve decision-making and optimize our clinical pathways and decision algorithms over time . as a pioneer in the era of big data and augmented intelligence , we believe we are uniquely positioned to benefit from multiple significant market opportunities as healthcare providers and payers transition from fee-for-service to value-based reimbursement models and accelerate their pursuit of evidence-based clinical practice . our mission is to show the world a better path to the cure and to empower : providers to seamlessly act on the best evidence-based information available to better fulfill their roles as caregivers rather than financial managers ; payers with the necessary tools to better fulfill their roles as stewards of an increasingly complex and rapidly evolving healthcare system ; biopharmaceutical companies to accelerate development of drugs for critical illnesses based upon the unique biology and specific health conditions of patients ; and patients with the knowledge to enable active participation in the management of their own health , or self-care . we derive revenue from sales of software-as-a-service , licensed software and maintenance , hardware , services , and molecular analysis services ( including gps cancer ) to healthcare providers , payers and self-insured employers . 2017 asset purchase agreement with allscripts on august 3 , 2017 , we entered into an asset purchase agreement , which we refer to as the `` apa , '' with allscripts healthcare solutions , inc. , or “ allscripts ” , pursuant to which we agreed to sell to allscripts substantially all of the assets of our provider/patient engagement solutions business , including our fusionfx solution and components of its nantos software connectivity solutions ( the “ business ” ) . on august 25 , 2017 , we and allscripts completed the sale pursuant to the apa . allscripts conveyed to us 15,000,000 shares of our common stock at par value of $ 0.0001 per share that were previously owned by allscripts as consideration for the transaction . we retired the shares of stock . allscripts also paid $ 1.7 million of cash consideration to us as an estimated working capital payment , and we recorded a receivable of $ 1.0 million related to final working capital adjustments . we are also responsible for paying allscripts for fulfilling certain customer service obligations of the business post-closing . - 80 - concurrent with the closing and as contemplated by the apa , we and allscripts modified the amended and restated mutual license and reseller agreement dated june 26 , 2015 , which was further amended on december 30 , 2017 , such that , among other things , the company committed to deliver a minimum of $ 95.0 million of total bookings over a ten-year period ( “ bookings commitment ” ) from referral transactions and sales of certain allscripts products under this agreement ( see note 3 of the consolidated and combined financial statements ) . in the event of a bookings commitment shortfall at the end of the ten-year period , we may be obligated to pay 70 % of the shortfall , subject to certain credits . we will earn 30 % commission from allscripts on each software referral transaction that results in a booking with allscripts . we account for the bookings commitment at its estimated fair value over the life of the agreement and , as of december 31 , 2017 , the estimated fair value was not material . the sale of the business qualified as a discontinued operations because it comprised operations and cash flows that could be distinguished , operationally and for financial reporting purposes , from the rest of the company . the disposal of the business sold to allscripts represented a strategic shift in the company 's operations as the sale enables the company to focus on genomic sequencing , clinical decision support , connected care and payer engagement . the consummation of the transactions contemplated by the apa is reflected in the consolidated and combined financial statements . 2017 corporate restructuring plan in august 2017 , we committed to and began implementation of a comprehensive restructuring plan that includes a wide range of organizational efficiency initiatives and other cost reduction opportunities . the plan will allow us to focus on our core competencies of genomic sequencing , clinical decision support , connected care and payer engagement . story_separator_special_tag please see note 16 to our audited financial statements included in item 8 of this annual report on form 10-k for additional information related to the llc conversion and related transactions . ( 3 ) corporate restructuring includes accrued bonus reversal of $ 0.5 million for the year ended december 31 , 2017 . - 83 - components of our results of operations revenue we generate our revenue from the sale of software-as-a-service , hardware and services , and sequencing and molecular analysis . our systems infrastructure and platforms support the delivery of both personalized comprehensive sequencing and molecular analysis and the implementation of value-based care models across the healthcare continuum . we generate revenue from the following sources : software and hardware - software and hardware revenue is generated from the sale of software licenses on either a perpetual or term license basis , and the sale of our hardware . the software is installed on the client 's site or the client 's designated vendor 's site and is not hosted by us or by a vendor contracted by us . we also generate revenue from the resale of third-party software and hardware to our clients . our software license and hardware solutions include deviceconx software and hbox . software-as-a-service - software-as-a-service , or saas , revenue is generated from our clients ' access to and usage of our hosted software solutions on a subscription basis for a specified contract term , which is typically annually . in our saas arrangements , the client can not take possession of the software during the term of the contract and generally only has the right to access and use the software and receive any software upgrades published during the subscription period . solutions sold under our saas model include our eviti platform solutions and navinet . maintenance - maintenance revenue includes ongoing post-contract client support , or ( `` pcs '' ) , or maintenance during the paid pcs term . additionally , pcs includes ongoing development of software updates and upgrades provided to the client on a when and if available basis . we sell our deviceconx solution with maintenance contracts . sequencing and molecular analysis - sequencing and molecular analysis revenue is generated by the process of performing sequencing and analysis of whole genome dna , rna and proteomic results , including gps cancer . we recognize revenue upon the delivery of the analysis and reporting of the results to the client or on a cash basis when it can not conclude that the fees are fixed and determinable and collectibility is reasonably assured . other services - other services revenue includes revenue from professional services we provide that are generally complementary to our software solutions and may or may not be required for the solution to function as desired by the client . when associated with software , these services are generally provided in the form of training and implementation services during the software license period and do not include pcs . other services revenue also includes revenue related to nursing and therapy services provided to patients in a home care setting and any other services not included in the preceding revenue sources . we have established vsoe for pcs on certain of our software solutions . we have not yet established vsoe of fair value for any element other than pcs for a portion of our arrangements . in situations where vsoe of fair value exists for pcs but not a delivered element , the residual method is used to allocate revenue to the undelivered element equal to our vsoe value with the remainder allocated to the delivered elements . in situations where our services are essential to the functionality of our software and vsoe of fair value for pcs does not exist , we defer revenue and costs until we have delivered all elements of the arrangement and amortize revenue and costs over the initial pcs period . for our contracts with multiple elements , we defer revenue until only one undelivered element remains and then recognize the revenue following the pattern of delivery of the final undelivered element . the timing and pattern of this revenue recognition can cause variations in revenue from period-to-period . cost of revenue cost of revenue consists primarily of personnel-related costs for associates providing services to our clients and supporting our revenue-generating platform infrastructure , including salaries , benefits and bonuses . additional expenses include consultant costs , direct reimbursable travel expenses and other direct engagement costs associated with the design , development , sale and installation of our solutions , including system support and maintenance services . our cost of revenue associated with each of our revenue sources is as follows : ▪ software and hardware - software and hardware cost of revenue includes third-party software and hardware costs directly associated with our solutions . - 84 - ▪ software-as-a-service - saas cost of revenue includes personnel-related , amortization of deferred implementation costs , depreciation of internal use software and other direct costs associated with the delivery and hosting of eviti , our cancer-decision support solution , and navinet on a subscription basis . ▪ maintenance - maintenance cost of revenue includes personnel-related and other direct costs associated with the ongoing support or maintenance we provide for our clients . ▪ sequencing and molecular analysis - sequencing and molecular analysis cost of revenue includes internal costs associated with these services and amounts due to nantomics under our reseller agreement for the sequencing and analysis of whole genome , dna , rna and proteomic results . ▪ other services - other services cost of revenue includes personnel-related costs , amortization of deferred implementation costs , depreciation of internal use software and other direct costs associated with software training and implementation services provided to our clients as well as direct expenses relating to our nursing and therapy services provided to patients in a home care setting . cost of revenue also includes amortization of our developed technologies used to generate revenue .
| results of operations the following table sets forth our consolidated and combined statements of operations data for each of the periods indicated : - 86 - replace_table_token_8_th - 87 - ( 1 ) the net income ( loss ) per share and weighted-average shares outstanding have been computed to give effect to the llc conversion ( see note 16 ) that occurred on june 1 , 2016 , prior to the company 's initial public offering ( `` ipo '' ) . in conjunction with the llc conversion , ( a ) all of the company 's outstanding units automatically converted into shares of common stock , based on the relative rights of the company 's pre-ipo equityholders as set forth in the company 's limited liability company agreement and ( b ) the company adopted and filed a certificate of incorporation with the secretary of state of delaware and adopted bylaws . the company adopted and filed an amendment to its certificate of incorporation with the secretary of state of the state of delaware to effect a 1-for-5.5 reverse stock split of its common stock on june 1 , 2016. see note 18 for the calculation of net income ( loss ) per share for common stock and redeemable common stock for the years ended december 31 , 2017 , 2016 and 2015 . the net income ( loss ) per share for the common stock for the years ended december 31 , 2016 and 2015 reflects $ 4,958 and $ 16,042 in accretion value allocated to the redeemable common stock , respectively . the redeemable common stock contained a put right , which expired unexercised on june 20 , 2016. as a result of and as of that date , the shares were no longer redeemable and were included in common stock .
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the nominating and corporate governance committee has the primary responsibility for overseeing the company 's corporate governance compliance practices , as well as supervising the affairs of the company as they relate to the nomination of directors . the principal ongoing functions of the nominating and corporate governance committee include developing criteria for selecting new directors , establishing and monitoring procedures for the receipt and consideration of director nominations by stockholders and others , considering and examining director candidates , developing and recommending corporate governance principles for the company and monitoring the company 's compliance with these principles and establishing and monitoring procedures for the receipt of stockholder communications directed to the board . the nominating and corporate governance committee is also responsible for conducting an annual evaluation of the board to determine whether the board and its committees are functioning effectively . in performing this evaluation , the nominating and corporate governance committee receives comments from all directors and reports annually to the board with the results of this evaluation . director nominations the nominating and corporate governance committee seeks out appropriate candidates to serve as directors of the company , and the nominating and corporate governance committee interviews and examines director candidates and makes recommendations to the board regarding candidate selection . in considering candidates to serve as director , the nominating and corporate governance committee evaluates various minimum individual qualifications , including strength of character , maturity of judgment , relevant technical skills or financial acumen , diversity of viewpoint and industry knowledge , as well as the extent to which the candidate would fill a present need on the board . the nominating and corporate governance committee will consider , without commitment , stockholder nominations for director . nominations for director submitted to this committee by stockholders are evaluated according to the company 's overall needs and the nominee 's knowledge , experience and background . a nominating stockholder must give appropriate notice to the company of the nomination not less than 90 days prior to the first anniversary of the preceding year 's annual meeting . in the event that the date of the annual meeting is advanced by more than 30 days or delayed by more than 60 days from the anniversary date of the preceding year 's annual meeting , the notice by the stockholder must be delivered not later than the close of business on the later of the 60th day prior to such annual meeting or the tenth day following the day on which public announcement of the date of such annual meeting is first made . the stockholders ' notice shall set forth , as to : · each person whom the stockholder proposes to nominate for election as a director : · the name , age , business address and residence address of such person , · the principal occupation or employment of the person , 40 · the class and number of shares of the company which are beneficially owned by such person , if any , and · any other information relating to such person which is required to be disclosed in solicitations for proxies for election of directors pursuant to regulation 14a under the exchange act and the rules hereunder ; and the stockholder giving the notice · the name and record address of the stockholder and the class and number of shares of the company which are beneficially owned by the stockholder , · a description of all arrangements or understandings between such stockholder and each proposed nominee and any other person or persons ( including their names ) pursuant to which nomination ( s ) are to be made by such stockholder , · a representation that such stockholder intends to appear in person or by proxy at the meeting to nominate the persons named in its notice , · any other information relating to such person which is required to be disclosed in solicitations for proxies for election of directors pursuant to regulation 14a under the exchange act and the rules thereunder . the notice must be accompanied by a written consent of the proposed nominee to be named as a director . we have adopted codes of business conduct and ethics for our directors , officers and employees , which we believe meet requirements of a code of ethics . you can access the company 's code of business conduct and ethics and our code of ethics for senior executives and financial officers on the corporate governance page of the company 's website at www.stwa.com . any shareholder who so requests may obtain a printed copy of the code of conduct by submitting a request to the company 's corporate secretary . respectfully submitted by : nathan shelton , chairman 41 item 11. executive compensation executive compensation discussion and analysis the following table sets forth certain information regarding the compensation earned during the last three fiscal years by the named executive officers : summary compensation table replace_table_token_7_th ( 1 ) on february 1 , 2012 , mr. 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 supplementary data referred to in item 7 of this form 10-k. this discussion contains forward-looking statements that involve risks and uncertainties . such statements , which include statements concerning future revenue sources and concentration , selling , general and administrative expenses , research and development expenses , capital resources , additional financings and additional losses , are subject to risks and uncertainties , including , but not limited to , those discussed above in item 1 and elsewhere in this form 10-k , particularly in “ riskfactors , ” that could cause actual results to differ materially from those projected . story_separator_special_tag we base our estimates on historical experience and assumptions that we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates . the methods , estimates and judgments we use in applying our most critical accounting policies have a significant impact on the results that we report in our consolidated financial statements . the sec considers an entity 's most critical accounting policies to be those policies that are both most important to the portrayal of a company 's financial condition and results of operations and those that require management 's most difficult , subjective or complex judgments , often as a result of the need to make estimates about matters that are inherently uncertain at the time of estimation . for a more detailed discussion of the accounting policies of the company , see note 2 of the notes to the consolidated financial statements , “ summary of significant accounting policies ” . we believe the following critical accounting policies , among others , require significant judgments and estimates used in the preparation of our consolidated financial statements . the preparation of consolidated financial statements in conformity with generally accepted accounting principles 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period . certain significant estimates were made in connection with preparing our consolidated financial statements as described in note 2 to notes to consolidated financial statements . actual results could differ from those estimates . stock-based compensation the company periodically issues stock options and warrants to employees and non-employees in non-capital raising transactions for services and for financing costs . the company accounts for stock option and warrant grants issued and vesting to employees based on the authoritative guidance provided by the financial accounting standards board whereas the value of the award is measured on the date of grant and recognized over the vesting period . the company accounts for stock option and warrant grants issued and vesting to non-employees in accordance with the authoritative guidance of the financial accounting standards board whereas the value of the stock compensation is based upon the measurement date as determined at either a ) the date at which a performance commitment is reached , or b ) at the date at which the necessary performance to earn the equity instruments is complete . non-employee stock-based compensation charges generally are amortized over the vesting period on a straight-line basis . in certain circumstances where there are no future performance requirements by the non-employee , option grants are immediately vested and the total stock-based compensation charge is recorded in the period of the measurement date . the fair value of the company 's common stock option grant is estimated using the black-scholes option pricing model , which uses certain assumptions related to risk-free interest rates , expected volatility , expected life of the common stock options , and future dividends . compensation expense is recorded based upon the value derived from the black-scholes option pricing model , and based on actual experience . the assumptions used in the black-scholes option pricing model could materially affect compensation expense recorded in future periods . accounting for derivatives the company evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives . for derivative financial instruments that are accounted for as liabilities , the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date , with changes in the fair value reported in the consolidated statements of operations . for stock-based derivative financial instruments , the company uses probability weighted average series black-scholes option pricing models to value the derivative instruments at inception and on subsequent valuation dates . the classification of derivative instruments , including whether such instruments should be recorded as liabilities or as equity , is evaluated at the end of each reporting period . derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date . 25 the company had derivative liabilities up to january 2013 relating to adjustments on the exercise price of warrants issued in 2009 and 2010 in conjunction with the company 's convertible note offering . these warrants were exercised to common stock or expired in january 2013 thus eliminating the derivate liabilities . research and development costs costs incurred for research and development are expensed as incurred . purchased materials that do not have an alternative future use are also expensed . furthermore , costs incurred in the construction of prototypes with no certainty of any alternative future use and established commercial uses are also expensed . for the years ended december 31 , 2014 , 2013 and 2012 , research and development costs incurred were $ 893,452 , $ 2,011,486 and $ 963,184 , respectively . recent accounting pronouncements in november 2014 , the fasb issued accounting standards update ( asu ) no . 2014-16 , determining whether the host contract in a hybrid financial instrument issued in the form of a share is more akin to debt or to equity .
| results of operation revenue comparison , 2014 and 2013 the company recognized $ 240,000 in revenues in the fiscal year ended december 31 , 2014 pursuant to the lease of the aot equipment by transcanada . there were no similar transactions during the fiscal year ended december 31 , 2013 . 22 operating expense comparison , 2014 and 2013 operating expenses were $ 3,284,666 for the fiscal year ended december 31 , 2014 , compared to $ 11,884,775 for the fiscal year ended december 31 , 2013 , a decrease of $ 8,600,109. this increase is attributable to decreases in non-cash expenses of $ 7,298,848 and cash expenses of $ 1,301,261. specifically , the decrease in non-cash expenses is attributable to a $ 3,108,351 decrease in settlements paid through issuance of stock , a decrease in valuation of warrants , options and common stock issued to employees , directors and consultants of $ 4,183,923 , and a decrease in depreciation of $ 6,574. the decrease in cash expenses is attributable to decreases in salaries and benefits of $ 774,820 , consulting fees of $ 196,630 , rents , utilities and maintenance of $ 109,770 , travel expenses of $ 12,123 and general operating expenses of $ 207,918. research and development expenses were $ 893,452 for the fiscal year ended december 31 , 2014 , compared to $ 2,011,486 for the fiscal year ended december 31 , 2013 , a decrease of $ 1,118,034. this decrease is attributable to decreases in product prototype development costs of $ 526,423 and general testing and development costs of $ 602,351 , offset by an increase in licensing and research fees of $ 10,740. other income was $ 1,500 for the fiscal year ended december 31 , 2014 , compared to $ 3,493,125 for the fiscal year ended december 31 , 2013 , a decrease of $ 3,491,625. this decrease is attributable to decrease in the gain
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while the company is currently evaluating the effect that this guidance will have on its consolidated financial statements , it will result in the recognition of story_separator_special_tag the following discussion and analysis should be read in conjunction with our audited consolidated financial statements and the accompanying notes included in item 8. consolidated financial statements and supplementary data of this annual report on form 10-k. all currency amounts are presented in thousands , except per share amounts or otherwise noted . general we are a public residential real estate finance company focused on acquiring , investing in and managing residential mortgage assets in the united states . we were incorporated in maryland on october 31 , 2012 , and we commenced operations on or about october 9 , 2013 following the completion of our ipo and a concurrent private placement . our common stock is listed and traded on the new york stock exchange under the symbol chmi. we are externally managed by our manager , an sec-registered investment adviser and a related party of freedom mortgage . our principal objective is to generate attractive current yields and risk-adjusted total returns for our stockholders over the long term , primarily through dividend distributions and secondarily through capital appreciation . we attempt to attain this objective by selectively constructing and actively managing a portfolio of servicing related assets and rmbs , and subject to market conditions , other cash flowing residential mortgage assets . we are subject to the risks involved with real estate and real estate-related debt instruments . these include , among others , the risks normally associated with changes in the general economic climate , changes in the mortgage market , changes in tax laws , interest rate levels , and the availability of financing . we elected to be treated as a reit under the code commencing with our short taxable year ended december 31 , 2013. we operate so as to continue to qualify to be taxed as a reit . our asset acquisition strategy focuses on acquiring a diversified portfolio of residential mortgage assets that balances the risk and reward opportunities our manager observes in the marketplace . since our ipo we have been , and we currently intend to continue as , a servicing-centric reit with a substantial portion of our equity capital allocated to servicing related assets . prior to our acquisition of aurora in may 2015 , these assets were limited to excess msrs . the acquisition of aurora included a portfolio of fannie mae and freddie mac msrs with an aggregate upb of approximately $ 718.4 million as of may 29 , 2015. aurora subsequently acquired three additional portfolios of fannie mae and freddie mac msrs with an aggregate upb of approximately $ 3.1 billion as of their respective closing dates . in november 2016 , we agreed to sell to freedom mortgage all of the excess msrs it had previously sold to us . as part of that transaction , aurora acquired a portfolio of ginnie mae msrs with an aggregate upb of approximately $ 4.5 billion . see item 8. consolidated financial statements – note 19 – subsequent events. aurora has the licenses necessary to service mortgage loans on a nationwide basis and is approved to service loans for fannie mae , freddie mac and ginnie mae . in addition to servicing related assets , we invest in whole pool agency rmbs , primarily those backed by 30- , 20- and 15-year fixed rate mortgages ( frms ) that offer what we believe to be favorable prepayment and duration characteristics . we finance our rmbs with leverage , the amount of which will vary from time to time depending on the particular characteristics of our portfolio , the availability of financing and market conditions . we do not have a targeted leverage ratio for our rmbs . our borrowings for rmbs consist of short-term borrowings under master repurchase agreements . during the second half of 2015 , we also used advances from the fhlbi to finance our agency rmbs . we have also invested in agency cmos consisting of interest-only securities as well as risk-sharing securities issued by fannie mae and freddie mac . in january 2016 , the fhfa released a final rule that amends regulations governing membership in the federal home loan bank ( fhlb ) system . the final rule , which largely adopts the provisions included in the proposed rule issued by the fhfa in september 2014 , prevents captive insurance companies from obtaining and maintaining membership in the fhlb system and , consequently , accessing low-cost funding through the fhlb system . the final rule became effective on february 19 , 2016. as a result of this rule , chmi insurance , our captive insurance subsidiary , terminated its membership in the fhlbi in november and was dissolved in december 2016 . 32 subject to maintaining our qualification as a reit , we utilize derivative financial instruments ( or hedging instruments ) to hedge our exposure to potential interest rate mismatches between the interest we earn on our assets and our borrowing costs caused by fluctuations in short-term interest rates . in utilizing leverage and interest rate hedges , our objectives include , where desirable , locking in , on a long-term basis , a spread between the yield on our assets and the cost of our financing in an effort to improve returns to our stockholders . we also operate our business in a manner that permits us to maintain our exclusion from registration as an investment company under the investment company act . factors impacting our operating results our income is generated primarily by the net spread between the income we earn on our assets and the cost of our financing and hedging activities as well as the amortization of any purchase premiums or the accretion of discounts . story_separator_special_tag voluntary and involuntary prepayment rates may be affected by a number of factors including , but not limited to , the availability of mortgage credit , the relative economic vitality of the area in which the related properties are located , the servicing of the mortgage loans , possible changes in tax laws , other opportunities for investment , homeowner mobility and other economic , social , geographic , demographic and legal factors , none of which can be predicted with any certainty . we attempted to reduce the exposure of our excess msrs to voluntary prepayments through the structuring of our recapture agreements with freedom mortgage . with the sale of our excess msrs to freedom mortgage in november 2016 and february 2017 , these arrangements were terminated . in june 2016 , aurora entered into a joint marketing recapture agreement with freedom mortgage . pursuant to this agreement , freedom mortgage will attempt to refinance certain mortgage loans underlying aurora 's portfolio of fannie mae and freddie mac msrs as directed by aurora . if a loan is refinanced , aurora will pay freedom mortgage a fee for its origination services . freedom mortgage will be entitled to sell the loan for its own benefit and will transfer the related msr to aurora . the agreement has an initial term of one year , subject to automatic renewals of one year each and subject to termination by either party upon 60 days prior notice . all new loans must qualify for sale to fannie mae or freddie mac and meet other conditions set forth in the agreement . as of december 31 , 2016 , aurora received msrs with an aggregate upb of approximately $ 9.8 million and paid fees of approximately $ 21,000 to freedom mortgage under this program . with respect to our business operations , increases in interest rates , in general , may over time cause : the interest expense associated with our borrowings to increase ; the value of our assets to fluctuate ; 34 the coupons on any adjustable-rate and hybrid rmbs we may own to reset , although on a delayed basis , to higher interest rates ; prepayments on our rmbs to slow , thereby slowing the amortization of our purchase premiums and the accretion of our purchase discounts ; and an increase in the value of any interest rate swap agreements we may enter into as part of our hedging strategy . conversely , decreases in interest rates , in general , may over time cause : prepayments on our rmbs to increase , thereby accelerating the amortization of our purchase premiums and the accretion of our purchase discounts ; the interest expense associated with our borrowings to decrease ; the value of our assets to fluctuate ; to the extent we enter into interest rate swap agreements as part of our hedging strategy , the value of these agreements to decrease ; and coupons on any adjustable-rate and hybrid rmbs assets we may own to reset , although on a delayed basis , to lower interest rates . effects of spreads on our assets the spread between the yield on our assets and our funding costs affects the performance of our business . wider spreads imply greater income on new asset purchases but may have a negative impact on our stated book value . wider spreads may also negatively impact asset prices . in an environment where spreads are widening , counterparties may require additional collateral to secure borrowings which may require us to reduce leverage by selling assets . conversely , tighter spreads imply lower income on new asset purchases but may have a positive impact on stated book value of our existing assets . in this case we may be able to reduce the amount of collateral required to secure borrowings . credit risk we are subject to varying degrees of credit risk in connection with our assets . although we expect relatively low credit risk with respect to our portfolio of agency rmbs , we are subject to the credit risk of the borrowers under the loans for which we hold msrs . through loan level due diligence , we attempt to mitigate this risk by seeking to acquire high quality assets at appropriate prices given anticipated and unanticipated losses . we also conduct ongoing monitoring of acquired assets . nevertheless , unanticipated credit losses could occur which could adversely impact our operating results . sale of excess msrs in november 2016 , we agreed to sell to freedom mortgage the excess msrs it had previously sold to us . the sale occurred in two steps : the first part of the sale was closed in november for cash . the second part of the sale closed in february 2017. in that part of the sale , we exchanged the remaining excess msrs for a portfolio of msrs on loans backing securities guaranteed by ginnie mae . as previously disclosed , the total gain on the sale is approximately $ 15 million . however , only approximately $ 6.6 million of the gain was recognized in the fourth quarter of 2016 which , after adjustment for previous unrealized losses on pool 1 and pool 2014 of approximately $ 2.6 million and an adjustment to interest income from the retrospective method of amortization of approximately $ 2.4 million , netted a realized gain of approximately $ 1.5 million .
| results of operations presented below is a comparison of the company 's results of operations for the periods indicated ( dollars in thousands ) : results of operations replace_table_token_7_th presented below is summary financial data on our segments together with a reconciliation to the same data for the company as a whole , for the periods indicated ( dollars in thousands ) : segment summary data f or replace_table_token_8_th 40 replace_table_token_9_th replace_table_token_10_th interest income interest income for the year ended december 31 , 2016 , was $ 30.7 million as compared to $ 27.7 million for the year ended december 31 , 2015 , after giving effect for the estimated catch up premium amortization ( benefit ) cost of approximately $ 2.4 million and approximately $ 1.9 million , respectively . the $ 3.0 million increase in interest income was comprised of a decrease of approximately $ 200,000 in servicing related assets and an increase of approximately $ 3.2 million in rmbs . interest expense interest expense for the year ended december 31 , 2016 , was $ 7.8 million as compared to $ 6.0 million for the year ended december 31 , 2015. the $ 1.8 million increase was comprised of approximately $ 800,000 from servicing related assets and approximately $ 1.0 million from rmbs . the changes were primarily due to additional repurchase agreement borrowings and an overall increase in repurchase rates offset by a lower swap cost . change in fair value of investments in servicing related assets the fair value of our investments in servicing related assets for the year ended december 31 , 2016 , decreased by approximately $ 3.0 million .
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the amendments of this asu become effective for annual periods , story_separator_special_tag story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > $ 5.3 million , or 19.9 % , during fiscal 2017 , as compared to the previous fiscal year as a result of a 3.6 % decrease in the effective rate and a decrease in average debt outstanding of 24.1 % . income tax expense decreased $ 10.1 million , or 20.0 % , primarily from a decrease in pre-tax income . the effective tax rate decreased to 35.4 % for fiscal 2017 compared to 36.6 % for fiscal 2016 . the decrease was primarily due to a reduction in state tax expense related to the company 's settlement with a state taxing authority during the current year . comparison of fiscal 2016 versus fiscal 2015 net income was $ 87.4 million during fiscal 2016 , a 21.1 % decrease from the $ 110.8 million earned during fiscal 2015. the decrease in net income was significantly impacted by a $ 10.0 million after-tax gain realized during fiscal 2015 from the sale of previously charged-off accounts that was not repeated in fiscal 2016 operating income ( revenues less provision for loan losses and general and administrative expenses ) excluding the impact of the charge-off sale decreased $ 18.6 million due to a $ 29.1 million decrease in interest and fee income and a $ 4.8 million increase in provision expense offset by a $ 22.9 million decrease in general and administrative expenses . net income was also impacted by a $ 14.7 million decrease in income tax expense and a $ 3.5 million increase in interest expense . total revenues decreased to $ 557.5 million in fiscal 2016 , a $ 52.7 million , or 8.6 % , decrease from the $ 610.2 million in fiscal 2015. revenues from the 1,233 branches open throughout both fiscal years decreased by 6.9 % . at march 31 , 2016 , the company had 1,339 branches in operation , an increase of 19 branches from march 31 , 2015. interest and fee income during fiscal 2016 decreased by $ 29.1 million , or 5.6 % , from fiscal 2015. we experienced a 3.3 % decrease in our average net loans receivable less loans that are 60 days or more contractually past due when comparing two corresponding periods for our u.s. and traditional mexican loans . the accrual of interest is discontinued when a loan becomes 60 days or more past the contractual due date and all unpaid accrued interest is reversed against interest income . interest and fee income for the year was also negatively impacted by a continued decrease in volumes . revenues from our mexican operations were negatively impacted by a fluctuation in the exchange rate year over year . the fluctuation in the exchange rate had a negative impact of approximately $ 8.9 million on fiscal 2016 's revenue compared to the prior year . the percentage of loans outstanding that represent larger loans including sales finance loans has decreased from 40.5 % at march 31 , 2015 to 40.2 % at march 31 , 2016. insurance commissions and other income decreased by $ 23.6 million , or 27.5 % , over the two fiscal years . insurance commissions decreased by $ 4.5 million , or 9.4 % , when comparing the two fiscal years due to the decrease in loan volume in states where our insurance product is available to our customers . other income decreased by $ 19.1 million , or 50.2 % , when comparing the two fiscal years . this decrease resulted primarily from the inclusion of income from the sale of approximately $ 16.0 million of charged 31 off accounts that were sold in fiscal 2015. the company also repurchased a portion of the accounts sold in fiscal 2015 during fiscal 2016 , resulting in a $ 1.6 million loss from the repurchase in fiscal 2016. other income was also impacted by a decrease in world class buying club ( `` wcbc '' ) sales revenue of $ 2.4 million and a decrease in revenue from our motor club product of $ 1.2 million . the decreases were partially offset by an increase in tax preparation revenue of $ 2.0 million and an increase in revenue from paradata of $ 1.0 million . the provision for loan losses during fiscal 2016 increased by $ 4.8 million , or 4.0 % , from the previous year . this increase resulted from an increase in the amount of loans charged off offset by a decrease in the general reserve associated with slower growth during the current fiscal year . net charge-offs for fiscal 2016 amounted to $ 123.6 million , an 11.7 % increase over the $ 110.6 million charged off during fiscal 2015. we believe that the increase in charge-offs is the result of ceasing all in-person visits to delinquent borrowers in december 2015. accounts that were 60 days or more past due were 4.7 % and 4.3 % on a recency basis , and were 7.1 % and 7.0 % on a contractual basis at march 31 , 2016 and march 31 , 2015. when excluding the impact of payroll deduct loans in mexico , the accounts contractually delinquent 60 days or more past due were 6.4 % at march 31 , 2016 compared to 6.1 % at march 31 , 2015. during the fiscal 2016 , the company has also had an increase in year-over-year loan loss ratios . net charge-offs as a percentage of average net loans increased from 12.9 % during fiscal 2015 to 14.8 % during fiscal 2016. the net charge-off ratio for fiscal 2015 benefited from a change in branch level incentives during the year . the change allows managers to continue collection efforts on accounts that are 91 days or more past due , without having their monthly bonus negatively impacted . story_separator_special_tag the company could also face fines , sanctions , and other penalties from authorities in mexico , as well as third-party claims by shareholders and or other stakeholders of the company . in addition , disclosure of the investigation could adversely affect the company 's reputation and its ability to obtain new business or retain existing business from its current clients and potential clients , to attract and retain employees , and to access the capital markets . if it is determined that a violation of the fcpa has occurred , such violation may give rise to an event of default under the company 's credit agreement if such violation were to have a material adverse effect on the company 's business , operations , properties , assets , or condition ( financial or otherwise ) or if the amount of any settlement resulted in the company failing to satisfy any financial covenants . additional potential fcpa violations or violations of other laws or regulations may be uncovered through the investigation . see part i , item 1a , “ risk factors-we may be exposed to liabilities under the fcpa , and any determination that the company or any of its subsidiaries has violated the fcpa could have a material adverse effect on our business and liquidity ” and “ −the terms of our debt limit how we conduct our business ” in this annual report on form 10-k for additional information . cfpb investigation as previously disclosed , on march 12 , 2014 , the company received a civil investigative demand ( “ cid ” ) from the consumer financial protection bureau ( the “ cfpb ” ) . the stated purpose of the cid is to determine whether the company has been or is “ engaging in unlawful acts or practices in connection with the marketing , offering , or extension of credit in violation of sections 1031 and 1036 of the consumer financial protection act , 12 u.s.c . §§ 5531 , 5536 , the truth in lending act , 15 u.s.c . §§ 1601 , et seq. , regulation z , 12 c.f.r . pt . 1026 , or any other federal consumer financial law ” and “ also to determine whether bureau action to obtain legal or equitable relief would be in the public interest. ” the company responded , within the deadlines specified in the cid , to broad requests for production of documents , answers to interrogatories and written reports related to loans made by the company and numerous other aspects of the company 's business . also as previously disclosed , on august 7 , 2015 , the company received a letter from the cfpb 's enforcement office notifying the company that , in accordance with the cfpb 's discretionary notice and opportunity to respond and advise ( “ nora ” ) process , the staff of cfpb 's enforcement office is considering recommending that the cfpb take legal action against the company ( the “ nora letter ” ) . the nora letter states that the staff of the cfpb 's enforcement office expects to allege that the company violated the consumer financial protection act of 2010 , 12 u.s.c . §5536 . the nora letter confirms that the company has the opportunity to make a nora submission , which is a written statement setting forth any reasons of law or policy why the company believes the cfpb should not take legal action against it . the company understands that a nora letter is intended to ensure that potential subjects of enforcement actions have the opportunity to present their positions to the cfpb before an enforcement action is recommended or commenced . 33 the company has made nora submissions to the cfpb 's enforcement office . the company expects that there will continue to be additional requests or demands for information from the cfpb and ongoing interactions between the cfpb , the company and company counsel as part of the investigation . we are currently unable to predict the ultimate timing or outcome of the cfpb investigation . while the company believes its marketing and lending practices are lawful , there can be no assurance that the cfpb 's ongoing investigation or future exercise of its enforcement , regulatory , discretionary or other powers will not result in findings or alleged violations of federal consumer financial protection laws that could lead to enforcement actions , proceedings or litigation and the imposition of damages , fines , penalties , restitution , other monetary liabilities , sanctions , settlements or changes to the company 's business practices or operations that could have a material adverse effect on the company 's business , financial condition or results of operations or eliminate altogether the company 's ability to operate its business profitably or on terms substantially similar to those on which it currently operates . see “ business - government regulation - federal legislation ” for a further discussion of these matters and the federal regulations to which the company 's operations are subject and “ risk factors ” for more information regarding these regulations and related risks . cfpb proposed rulemaking initiative on june 2 , 2016 , the cfpb announced proposed rules under its unfair , deceptive and abusive acts and practices rulemaking authority relating to payday , vehicle title , and similar loans . the proposal would cover short-term loans with a contractual term of 45 days or less , as well as “ longer-term loans ” with a term of longer than 45 days with an all-in apr in excess of 36 % in which the lender has either a non-purchase money security interest in the consumer 's vehicle or the right to collect repayment from the consumer 's bank account or paycheck . the cfpb 's “ longer-term ” credit proposals seek to address a concern that consumers suffer harm if lenders fail to reasonably underwrite loans but take a security interest in the consumer 's vehicle or access to repayment from a consumer 's account or wages .
| general the company 's financial performance continues to be dependent in large part upon the growth in its outstanding loans receivable , the maintenance of loan quality and acceptable levels of operating expenses . since march 31 , 2015 , gross loans receivable have decreased at a 2.29 % annual compounded rate from $ 1.11 billion to $ 1.06 billion at march 31 , 2017 . the decrease over this period reflects the lower volume of loans generated through the company 's existing branches partially offset by the contribution of loans generated from new branches opened over the period . we believe that the lower volume of loans generated through the company 's existing branches is the result of increased competition in the small-loan consumer finance industry as well as the improving financial situation of our average customer 's household due to lower gasoline prices and lower unemployment . during the two-year period beginning march 31 , 2015 , the company has grown from 1,320 branches to 1,327 branches as of march 31 , 29 2017 . during fiscal 2018 , the company currently plans to open or acquire approximately 25 new branches in the united states and evaluate acquisitions as opportunities arise . the company offers an income tax return preparation and electronic filing program in all but a few of its u.s. branches . the company prepared approximately 72,000 , 63,000 and 56,000 returns in each of the fiscal years 2017 , 2016 and 2015 , respectively . revenues from the company 's tax preparation business amounted to approximately $ 14.7 million , a 23.3 % increase over the $ 11.9 million earned during fiscal 2016 .
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these investments are valued using internally developed models with unobservable inputs . these level story_separator_special_tag nike designs , develops , markets and sells high quality footwear , apparel , equipment , accessories and services worldwide . we are the largest seller of athletic footwear and apparel in the world . we sell our products to retail accounts , through nike-owned retail stores and internet sales , which we refer to as our direct to consumer operations , and through a mix of independent distributors , licensees and sales representatives , worldwide . our goal is to deliver value to our shareholders by building a profitable global portfolio of branded footwear , apparel , equipment , accessories and service businesses . our strategy is to achieve long-term revenue growth by creating innovative , must have products , building deep personal consumer connections with our brands , and delivering compelling consumer experiences at retail and online . in addition to achieving long-term revenue growth , we continue to strive to deliver shareholder value by driving operational excellence in several key areas : expanding gross margin by : making our supply chain a competitive advantage , reducing product costs through a continued focus on manufacturing efficiency , product design and innovation , utilizing price increases to effectively manage the price-to-value equation for our customers . improving selling and administrative expense productivity by focusing on investments that drive economic returns in the form of incremental revenue and gross profit , and leveraging existing infrastructure across our portfolio of businesses to eliminate duplicative costs , improving working capital efficiency , and deploying capital effectively . through execution of this strategy , our long-term financial goals continue to be : high-single-digit revenue growth , mid-teens earnings per share growth , increased return on invested capital and accelerated cash flows , and consistent results through effective management of our diversified portfolio of businesses . over the past ten years , we have achieved or exceeded all of these financial goals . during this time , nike , inc. 's revenues and earnings per share have grown 9 % and 15 % , respectively , on an annual compounded basis . our return on invested capital has increased from 15 % to 22 % and we expanded gross margins by 4 percentage points . our fiscal 2012 results demonstrated our continued focus toward delivering appropriate returns to our shareholders , while positioning ourselves for sustainable , profitable long-term growth . despite the ongoing challenges in the global economy , we delivered record revenues and earnings per share in fiscal 2012. our revenues grew 16 % to $ 24.1 billion , net income increased 4 % to $ 2.2 billion , and we delivered diluted earnings per share of $ 4.73 , an 8 % increase from fiscal 2011. income before income taxes increased 5 % for fiscal 2012 , driven by revenue growth and improved leverage on selling and administrative expense , which more than offset a decrease in gross margin and an increase in other expense . the increase in revenues was driven by growth across all nike brand geographies , key categories and product types . brand strength , innovative products and strong category retail presentation continues to fuel the demand for our nike brand products . during fiscal 2012 , we introduced a number of innovations , including the nike fuelband and the flyknit technology . the nike fuelband is a digital device that tracks one 's daily activities through a sport-tested accelerometer , while flyknit is a new footwear technology that uses advanced materials and proprietary manufacturing technology to produce a form-fitting , lightweight and seamless upper . during this time , we also expanded our nike + platform into our basketball and training categories , and launched new high performance uniforms for all 32 nfl teams . revenue for our other businesses also grew , reflective of growth across most businesses , led by converse . our gross margin continued to be impacted by higher product input costs , including materials and labor , which more than offset the positive impacts of higher product selling prices , the growth of our direct to consumer business and benefits from ongoing product cost reduction initiatives . for fiscal 2012 , the growth of our net income was negatively affected by a year-over-year increase in our effective tax rate . however , diluted earnings per share grew at a higher rate than net income due to a 3 % decrease in the weighted average number of diluted common shares outstanding , driven by share repurchases during fiscal 2012 and 2011. as part of our long-term growth strategy , we continually evaluate our existing portfolio of businesses to ensure the company is investing in those businesses that are accretive to the nike brand , and with the largest growth potential and highest returns . on may 31 , 2012 , we announced our intention to divest of the cole haan and umbro businesses , which will allow us to focus our resources on driving growth in the nike , jordan , converse and hurley brands . for additional details , refer to our other businesses section below . while we will continue to face headwinds from higher input costs and foreign exchange volatility in fiscal 2013 , we continue to see opportunities to drive future growth and remain committed to effectively managing our business to achieve our financial goals over the long-term , by executing against the operational strategies outlined above . story_separator_special_tag fueling the growth of our nike brand footwear business was the increased demand in our performance products , including the nike lunar and free technologies . the increase in nike brand footwear revenue for fiscal 2011 was attributable to a high-single-digit percentage increase in unit sales along with a low single-digit percentage increase in the average selling price per pair . story_separator_special_tag demand creation expense increased 4 % compared to the prior year , primarily driven by a higher level of brand event spending around the world cup and world basketball festival in the first half of fiscal 2011 , as well as increased spending around key product initiatives and investments in retail product presentation with wholesale customers . operating overhead expense increased 7 % compared to the prior year . this increase was primarily attributable to increased investments in our direct to consumer operations as well as growth in our wholesale operations , where we incurred higher personnel costs and travel expenses as compared to the prior year . other expense ( income ) , net replace_table_token_10_th 19 other expense ( income ) , net is comprised of foreign currency conversion gains and losses from the re-measurement of monetary assets and liabilities denominated in non-functional currencies , the impact of certain foreign currency derivative instruments , as well as unusual or non-operating transactions that are outside the normal course of business . fiscal 2012 compared to fiscal 2011 for fiscal 2012 , other expense , net increased $ 87 million compared to the prior year . this change was primarily driven by a $ 76 million change in foreign currency net gains in the prior year to net losses in the current year . these impacts , together with a $ 24 million charge recognized during the fourth quarter of fiscal 2012 for the restructuring of nike brand 's western europe operations , were partially offset by certain net gains related to non-operating items . the combination of translation of foreign currency-denominated profits from our international businesses and the year-over-year change in foreign currency related gains and losses included in other expense ( income ) , net did not have a significant impact on our income before income taxes for fiscal 2012. fiscal 2011 compared to fiscal 2010 for fiscal 2011 , other expense ( income ) , net was primarily comprised of net foreign currency gains . for fiscal 2011 , we estimated that the combination of translation of foreign currency-denominated profits from our international businesses and the year-over-year change in foreign currency related net gains included in other expense ( income ) , net had an unfavorable impact of approximately $ 33 million on our income before income taxes . income taxes replace_table_token_11_th fiscal 2012 compared to fiscal 2011 our effective tax rate for fiscal 2012 was 50 basis points higher than the effective tax rate for fiscal 2011 primarily due to changes in estimates of uncertain tax position . this impact was partially offset by a reduction in the effective tax rate on operations outside of the united states as a result of changes in geographical mix of foreign earnings . fiscal 2011 compared to fiscal 2010 our effective tax rate for fiscal 2011 was 80 basis points higher than the effective tax rate for fiscal 2010 primarily due to the change in geographic mix of earnings . a larger percentage of our earnings in fiscal 2011 were attributable to operations in the u.s. , where the statutory tax rate is generally higher than the tax rate on operations outside of the u.s. this impact was partially offset by changes in estimates of uncertain tax positions . operating segments the company 's reportable operating segments are based on our internal geographic organization . each nike brand geography operates predominantly in one industry : the design , development , marketing and selling of athletic footwear , apparel , and equipment . our reportable operating segments for the nike brand are : north america , western europe , central & eastern europe , greater china , japan , and emerging markets . our nike brand direct to consumer operations are managed within each geographic segment . as part of our centrally managed foreign exchange risk management program , standard foreign currency rates are assigned twice per year to each nike brand entity in our geographic operating segments and certain other businesses . these rates are set approximately nine months in advance of the future selling season based on average market spot rates in the calendar month preceding the date they are established . inventories and cost of sales for geographic operating segments and certain other businesses reflect use of these standard rates to record non-functional currency product purchases into the entity 's functional currency . differences between assigned standard foreign currency rates and actual market rates are included in corporate together with foreign currency hedge gains and losses generated from our centrally managed foreign exchange risk management program . certain prior year amounts have been reclassified to conform to fiscal 2012 presentation . 20 the breakdown of revenues follows : replace_table_token_12_th ( 1 ) certain prior year amounts have been reclassified to conform to fiscal 2012 presentation . these changes had no impact on previously reported results of operations or shareholders ' equity . ( 2 ) results have been restated using actual exchange rates in use during the comparative period to enhance the visibility of the underlying business trends by excluding the impact of translation arising from foreign currency exchange rate fluctuations . ( 3 ) corporate revenues primarily consist of certain intercompany revenue eliminations and foreign currency hedge gains and losses related to revenues generated by entities within the nike brand geographic operating segments and certain other businesses but managed through our central foreign exchange risk management program . the primary financial measure used by the company to evaluate performance of individual operating segments is earnings before interest and taxes ( commonly referred to as ebit ) which represents net income before interest expense ( income ) , net and income taxes in the consolidated statements of income . as discussed in note 17 operating segments and related information in the accompanying notes to the consolidated financial statements , certain corporate costs are not included in ebit of our operating segments .
| results of operations replace_table_token_5_th 16 consolidated operating results revenues replace_table_token_6_th ( 1 ) results have been restated using actual exchange rates in use during the comparative period to enhance the visibility of the underlying business trends by excluding the impact of translation arising from foreign currency exchange rate fluctuations . ( 2 ) corporate revenues primarily consist of intercompany revenue eliminations and foreign currency revenue-related hedge gains and losses generated by entities within the nike brand geographic operating segments and certain other businesses through our centrally managed foreign exchange risk management program . ( 3 ) references to nike brand wholesale equivalent revenues are intended to provide context as to the overall current nike brand market footprint on a wholesale revenue basis . nike brand wholesale equivalent revenues consist of 1 ) sales to external wholesale customers and 2 ) internal sales from our wholesale operations to our direct to consumer operations at prices that are comparable to prices charged to external wholesale customers . nike brand wholesale equivalent revenues do not include the estimation of sales made by nike brand licensees as the amounts are not material . ( 4 ) others include all other categories and certain adjustments that are not allocated at the category level . 17 fiscal 2012 compared to fiscal 2011 on a currency neutral basis , revenues for nike , inc. grew 14 % for fiscal 2012 , driven by increases in revenues for both the nike brand and our other businesses . excluding the effects of changes in currency exchange rates , revenues for the nike brand increased 15 % , as every nike brand geography delivered higher revenues for fiscal 2012. north america contributed approximately 7 percentage points to the nike brand revenue increase , while the emerging markets and greater china geographies contributed approximately 4 and 2 percentage points to the nike brand revenue growth , respectively .
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some of the information contained in this discussion and analysis or set forth elsewhere in this annual report , including information with respect to our plans and strategy for our business and expected financial results , includes forward-looking statements that involve risks and uncertainties . you should review the risks described in part i , item 1a risk factors and elsewhere in this annual report . overview we are a life sciences instrumentation company in the genome analysis space that provides tools and services based on its saphyr system to scientists and clinicians conducting genetic research and patient testing , and provides diagnostic testing for those with autism spectrum disorder ( “ asd ” ) and other neurodevelopmental disabilities through our wholly owned subsidiary lineagen . we develop and market the saphyr system , a platform for ultra-sensitive and ultra-specific structural variation detection that enables researchers and clinicians to accelerate the search for new diagnostics and therapeutic targets and to streamline the study of changes in chromosomes , which is known as cytogenetics . our saphyr system comprises an instrument , chip consumables , reagents and a suite of data analysis tools , and genome analysis services to provide access to data generated by the saphyr system for researchers who want to evaluate saphyr data quickly and with a low up-front investment . lineagen has been providing genetic testing services to families and their healthcare providers for over nine years and has performed over 65,000 tests for those with neurodevelopmental concern . we have incurred losses in each year since our inception . we have incurred losses in each year since our inception . our net losses were $ 41.1 million and $ 29.8 million for the years ended december 31 , 2020 and 2019 , respectively . as of december 31 , 2020 , we had an accumulated deficit of $ 143.7 million . we expect to continue to incur significant expenses and operating losses as we : expand our sales and marketing efforts to further commercialize our products ; continue research and development efforts to improve our existing products ; hire additional personnel ; enter into collaboration arrangements , if any ; add operational , financial and management information systems ; and incur increased costs as a result of operating as a public company . covid-19 we are subject to additional risks and uncertainties as a result of the continued spread of covid-19 and uncertain market conditions , which could continue to have a material impact on our business and financial results . the company closely monitors and complies with various applicable guidelines and legal requirements in the jurisdictions in which it operates , which may continue to result in reduced business operations in response to new or existing stay-at-home orders , travel restrictions and other social distancing measures . our manufacturing partners , suppliers , and customers , have implemented similar operational reductions . this overall reduction in activity has contributed to a decrease in sales which has negatively impacted the company 's 2020 financial results . the future effects of covid-19 are unknown and the company 's financial results may continue to be negatively affected in the future . there may be long-term negative effects of the covid-19 pandemic , even after it has subsided . specifically , product demand may be reduced due to an economic recession , a decrease in corporate capital expenditures , prolonged unemployment , reduction in consumer confidence , or any similar negative economic condition . these negative effects could have a material impact on our operations , business , earnings , and liquidity . initial public offering in august 2018 , we completed our initial public offering of our common stock , or the ipo , in which we sold an aggregate of 3,864,000 units ( each unit consisting of one share of our common stock and one warrant to purchase one share of our common stock ) at a public offering price of $ 6.125 per unit for net proceeds of $ 19.4 million , after deducting underwriters ' discounts and commissions of $ 2.2 million and other offering expenses of $ 2.1 million . follow-on public offerings in october 2019 , we completed an underwritten public offering of 10,014,000 shares of our common stock and , to certain investors , pre-funded warrants to purchase 10,924,000 shares of our common stock , and accompanying common warrants to purchase 63 up to an aggregate of 20,938,000 shares of our common stock . each share of common stock and pre-funded warrant to purchase one share of common stock was sold together with a common warrant to purchase one share of common stock . the public offering price of each share of common stock and accompanying common warrant was $ 0.86 and $ 0.859 , respectively . the pre-funded warrants are immediately exercisable at a price of $ 0.001 per share of common stock . the common warrants are immediately exercisable at a price of $ 0.86 per share of common stock and will expire five years from the date of issuance . the shares of common stock and pre-funded warrants , and the accompanying common warrants , were issued separately and were immediately separable upon issuance . we received gross proceeds , before deducting underwriting discounts and commissions and other offering expenses , of $ 18.0 million . in april 2020 , we completed an underwritten public offering of 16,896,000 shares of our common stock and , to certain investors , pre-funded warrants to purchase 37,650,000 shares of our common stock , and accompanying common warrants to purchase up to an aggregate of 54,546,000 shares of our common stock . each share of common stock and pre-funded warrant to purchase one share of common stock was sold together with a common warrant to purchase one share of common stock . the public offering price of each share of common stock and accompanying common warrant was $ 0.33 and $ 0.329 for each pre-funded warrant . story_separator_special_tag our cash flows from operating activities are also significantly influenced by our use of cash for operating expenses to support the growth of our business . we have historically experienced negative cash flows from operating activities as we have developed our technology , expanded our business and built our infrastructure and this may continue in the future . the following table sets forth the cash flow from operating , investing and financing activities for the periods presented : replace_table_token_4_th operating activities net cash used in operating activities was $ 38.3 million during the year ended december 31 , 2020 as compared to $ 29.5 million during the year ended december 31 , 2019. the increase in cash used in operating activities of $ 8.8 million is attributed to increased headcount across the business , increased professional fees to support ongoing business operations and increase our international presence , increased spending on materials and supplies , as well as $ 1.5 million in acquisition-related costs . 67 investing activities historically , our primary investing activities have consisted of capital expenditures for the purchase of capital equipment to support our expanding infrastructure . we expect to continue to incur additional costs for capital expenditures related to these efforts in future periods . during the year ended december 31 , 2020 , cash used in investing activities related to the acquisition of lineagen , our new wholly owned subsidiary . we did not use a significant amount of cash in investing activities during the year ended december 31 , 2019. financing activities net cash provided by financing activities was $ 61.9 million during the year ended december 31 , 2020 as compared to $ 30.4 million during the year ended december 31 , 2019 , an increase of $ 31.5 million . during the year ended december 31 , 2020 , we raised approximately $ 16.4 million in net proceeds from a follow-on offering , and $ 28.6 million from warrant exercises , and $ 21.6 million in atm sales . in addition , we received approximately $ 1.8 million pursuant to the ppp loan , as defined in note 8 to our consolidated financial statements included in this annual report . offsets included payments of $ 2.3 million on our revolving line of credit and $ 5.0 million in term-loan principal prepayments in accordance with the second amendment . during the year ended december 31 , 2019 , we had net proceeds of $ 11.0 million from the innovatus lsa and innovatus purchase agreement , $ 2.5 million from the aspire purchase agreement , and net proceeds from our follow-on public offering of $ 16.0 million . capital resources as of december 31 , 2020 , we had approximately $ 38.4 million in cash and cash equivalents , and working capital of $ 37.8 million . in addition , we have a revolving line of credit with innovatus life sciences lending fund i , lp ( the “ innovatus lsa ” ) , under which no borrowings were outstanding as of december 31 , 2020. as of december 31 , 2020 , the amount available under the revolving line of credit was $ 5.0 million . this facility is scheduled to expire in march 2024. see note 8 to our consolidated financial statements for a discussion of terms and provisions of our debt included in this annual report on form 10-k for more information . during october through december 2020 , pursuant an effective registration statement on form s-3 , we sold 27,025,384 shares of our common stock under an at-the-market facility , or the ladenburg atm , at an average share price of $ 0.82 , and received gross proceeds of approximately $ 22.1 million before deducting offering costs of $ 573,263. in january 2021 , we sold an additional 6,298,152 shares of our common stock under the ladenburg atm at an average share price of $ 2.68 , and received gross proceeds of approximately $ 16.9 million before deducting offering costs of $ 422,034. on january 12 , 2021 , we completed an underwritten public offering of 33,368,851 shares of our common stock , including 4,352,458 shares of our common stock sold pursuant to the underwriters ' exercise in full of their option to purchase additional shares . the price to the public in the offering was $ 3.05 per share and the underwriters purchased the shares from us pursuant to the underwriting agreement at a price of $ 2.867 per share . the gross proceeds to us were approximately $ 101.8 million before deducting underwriting discounts and commissions and other offering expenses . on january 25 , 2021 , we completed an underwritten public offering of 38,333,352 shares of our common stock , including 5,000,002 shares of our common stock sold pursuant to the underwriters ' exercise in full of their option to purchase additional shares . the price to the public in the offering was $ 6.00 per share and the underwriters purchased the shares from us pursuant to the underwriting agreement at a price of $ 5.64 per share . the gross proceeds to us were approximately $ 230.0 million before deducting underwriting discounts and commissions and other offering expenses . management believes the available cash balance will be sufficient to fund operations , obligations as they become due , and capital investments for at least the next twelve months . off-balance sheet arrangements we did not have during the periods presented , and we do not currently have , any off-balance sheet arrangements , as defined under sec rules , and similarly did not and do not have any holdings in variable interest entities . recent accounting pronouncements see note 2 to our consolidated financial statements included elsewhere in this annual report on for information concerning recent accounting pronouncements . 68 critical accounting policies and estimates our management 's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements , which have been prepared in accordance with generally accepted accounting principles in the united states .
| results of operations comparison of the years ended december 31 , 2020 and 2019 the following table sets forth our results of operations for the years ended december 31 , 2020 and 2019 : replace_table_token_2_th revenue replace_table_token_3_th revenue decreased by $ 1.6 million , or 16 % to $ 8.5 million for the year ended december 31 , 2020 , as compared to $ 10.1 million for the same period in 2019. the decrease was largely driven by customers limiting their lab operations in response to covid-19 restrictions to address the pandemic . the decrease impacted all regions . below is a summary of changes for the year ended december 31 , 2020 as compared to the same period in 2019 : north america revenue decreased by $ 0.5 million , or 11 % ; emeia revenue decreased by $ 0.5 million , or 13 % ; and asia pacific revenue decreased by $ 0.6 million , or 42 % . revenue for the year ended december 31 , 2020 includes service revenue of $ 2.3 million of which $ 1.5 million is from our recently acquired subsidiary , lineagen , from the date of the acquisition of august 21 , 2020 to december 31 , 2020. cost of revenue cost of revenue decreased by $ 1.0 million , or 15 % , to $ 5.7 million for the year ended december 31 , 2020 , as compared to $ 6.8 million for the same period in 2019. the decrease was driven by the decrease in revenue as well as a change in the mix of revenue between instrument sales and our reagent rental program . this was partially offset by an increase in consumable units sold of 59 % and cost of service revenue of $ 0.5 million from our recently acquired subsidiary , lineagen , from the date of the acquisition of august 21 , 2020 to december 31 , 2020 .
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the $ 23.7 million decrease in interest expense in 2011 compared to 2010 resulted primarily from the $ 20.8 million loss on extinguishment of debt associated with the early repayment of the topco credit facility in 2010 , which , along with the repurchase of the senior notes in 2011 , also led to $ 9.2 million in interest savings during 2011. these reductions were partially offset by the $ 9.6 million loss on extinguishments related to the repurchases of $ 49.2 million of senior notes , the amendment of the revolving credit facility , and the prepayment of the term loan in 2011. income tax expense the following table shows income tax expense in dollars for the stated periods : year ended 2012 2011 2010 ( in thousands ) income tax expense $ 92,704 $ 94,868 $ 14,354 the effective tax rate was 40.0 % for 2012 compared to 40.3 % for 2011 . we anticipate our effective tax rate will be between 39.3 % and 39.8 % in 2013. the effective tax rate for 2011 was 40.3 % compared to 10.1 % for 2010. the higher rate was primarily due to becoming subject to taxation as a corporation on may 2 , 2010 in connection with our conversion to a corporation . we were previously treated as a partnership for tax purposes through may 1 , 2010 and , therefore , generally were not subject to federal and state income taxes . 28 adjusted net income the following table presents adjusted net income and adjusted earnings per diluted share for the stated periods : replace_table_token_12_th * these are gaap numbers because no adjustments were made to net income or earnings per diluted shares for the fifty-three weeks ended february 2 , 2013 . we supplement the reporting of our financial information determined under united states generally accepted accounting principles ( `` gaap '' ) with certain non-gaap financial measures : adjusted net income and adjusted earnings per diluted share . we believe that these non-gaap measures provide meaningful information to assist the readers of our financial information in understanding our financial results and assessing our prospects for future performance . management believes adjusted net income and adjusted earnings per diluted share are important indicators of our operations because they exclude items that may not be indicative of , or are unrelated to , our core operating results , and provide a better baseline for analyzing trends in our underlying business . because non-gaap financial measures are not standardized , it may not be possible to compare these financial measures with other companies ' non-gaap financial measures having the same or similar names . these adjusted financial measures should not be considered in isolation or as a substitute for reported net income and reported earnings per diluted share . these non-gaap financial measures reflect an additional way of viewing our operations that , when viewed with our gaap results and the following reconciliations to the most directly comparable gaap financial measures , provide a more complete understanding of our business . we strongly encourage investors and stockholders to review our financial statements and publicly-filed reports in their entirety and not rely on any single financial measure . the following table reconciles the non-gaap financial measures , adjusted net income and adjusted earnings per diluted share , with the most directly comparable gaap financial measures , net income and earnings per diluted share . no adjustments were made to net income or earnings per diluted share for the fifty-three weeks ended february 2 , 2013 , and , therefore , no tabular reconciliation has been included for the respective period . replace_table_token_13_th ( a ) includes transaction costs related to the secondary offerings completed in april 2011 and december 2011 . ( b ) includes premium paid and accelerated amortization of debt issuance costs and debt discount related to the repurchases of $ 49.2 million of senior notes and the amendment of the $ 200 million revolving credit facility , and the full prepayment of the $ 125.0 million term loan . * items were tax affected at our statutory rate of approximately 39 % for 2011 . 29 replace_table_token_14_th ( a ) includes transaction costs related to the senior notes offering , the ipo , and the secondary offering completed in december 2010 . ( b ) includes one-time fees paid to golden gate and l brands for terminating advisory arrangements with them . ( c ) includes prepayment penalty and accelerated amortization of debt issuance costs and debt discount related to the early repayment of the topco credit facility . ( d ) represents one-time , non-cash tax benefit in connection with the conversion to a corporation . * items were tax affected at approximately 1.2 % for the thirteen weeks ended may 1 , 2010 and at our statutory rate of approximately 39.1 % for the remainder of the fiscal year . liquidity and capital resources general our business relies on cash flows from operations as our primary source of liquidity . we do , however , have access to additional liquidity , if needed , through borrowings under our revolving credit facility . our primary cash needs are for merchandise inventories , payroll , store rent , and capital expenditures , primarily associated with opening new stores , remodeling existing stores , and information technology projects . the most significant components of our working capital are merchandise inventories , accounts payable , and other accrued expenses . story_separator_special_tag our liquidity position benefits from the fact that we generally collect cash from sales to customers the same day or , in the case of credit or debit card transactions , within 3 to 5 days of the related sale , and have up to 75 days to pay certain merchandise vendors and 45 days to pay the majority of our non-merchandise vendors . our cash position is seasonal as a result of building up inventory for the next selling season and , as a result , our cash flows from operations during the spring are usually lower when compared to the rest of the year . our cash balances generally increase during the summer selling season and then increase further during the fall and holiday seasons . we believe that cash generated from operations and the availability of borrowings under our revolving credit facility will be sufficient to meet working capital requirements , anticipated capital expenditures , and scheduled interest payments for at least the next 12 months . cash flow analysis a summary of cash provided by or used in operating , investing and financing activities are shown in the following table : replace_table_token_15_th 30 net cash provided by operating activities the majority of our operating cash inflows are derived from sales . our operating cash outflows generally consist of payments to merchandise vendors , employees for wages , salaries , and other employee benefits , and landlords for rent . operating cash outflows also include payments for income taxes and interest on long-term debt . net cash provided by operating activities was $ 269.4 million in 2012 compared to $ 212.6 million in 2011 , an increase of $ 56.8 million . relative to the fifty-three weeks ended february 2 , 2013 , the increase in cash provided by operations primarily related to the following : items included in net income provided $ 227.0 million of cash during 2012 compared to $ 224.0 million during 2011 . the increase in the current year was primarily driven by lower interest expense , partially offset by the decreased performance of the business as discussed in `` overview '' and `` results of operations '' . in addition to the increase in cash provided by items included in net income discussed above , there was $ 42.4 million of cash provided from working capital decreases during 2012 compared to $ 11.3 million of cash used in 2011 . working capital is subject to cyclical operating needs , the timing of receivable collections and payable and expense payments , and the seasonal fluctuations in our operations . the $ 53.7 million change primarily relates to the timing of merchandise and real estate payments in 2012 versus 2011 and lower cash outflows for purchases of inventory due to the timing of receipts in 2012 versus 2011. these were partially offset by incentive compensation paid in 2012 for 2011 results and reduced incentive compensation accrued in 2012 given softer business results . net cash provided by operating activities was $ 212.6 million in 2011 compared to $ 220.0 million in 2010 , a decrease of $ 7.4 million . relative to the fifty-two weeks ended january 28 , 2012 , the decrease in cash provided by operations primarily related to the following : items included in net income provided $ 224.0 million of cash during 2011 compared to $ 191.5 million during 2010 . the increase was primarily driven by improved operating results and lower interest expense . as discussed in “ results of operations ” , this was primarily the result of higher average dollar sales and the execution of our go-to-market strategy , as well as continued debt reduction . these items were offset by higher taxes in the current year as a result of improved operating results and the change in our tax status during the second quarter of 2010. the increase in cash provided by items included in net income discussed above was more than offset by $ 11.3 million of cash used for working capital increases during 2011 compared to $ 28.5 million of cash provided in 2010 . working capital is subject to cyclical operating needs , the timing of receivable collections and payable and expense payments , and the seasonal fluctuations in our operations . the working capital increase in 2011 was primarily attributable to an increase in inventories and income tax liability . the increase in inventories primarily reflects funding for continued e-commerce growth , new stores , and new category growth , while the increase in income tax liability was driven by our status as a corporation for all of 2011 versus only 9 months in 2010 and timing of tax payments . net cash used in investing activities investing activities consist primarily of capital expenditures for new and remodeled store construction and fixtures , information technology , and home office and design studio renovations . net cash used in investing activities totaled $ 99.9 million in 2012 compared to $ 77.2 million in 2011 , a $ 22.7 million increase . this increase was primarily driven by capital expenditures , gross of landlord allowances , attributable to new store openings and remodels , totaling $ 76.0 million during 2012 compared to $ 60.7 million during 2011 . the remaining increase related primarily to investments in technology to support our international expansion and e-commerce growth . net cash used in investing activities increased $ 22.4 million to $ 77.2 million in 2011 compared to $ 54.8 million in 2010 . this increase was primarily driven by capital expenditures , gross of landlord allowances , attributable to new store openings , remodels , and store fixtures , totaling $ 60.7 million in 2011 compared to $ 38.9 million in 2010 . in 2013 , we plan to open approximately 16 new stores , including 4 in canada . we expect capital expenditures for 2013 to be approximately $ 110.0 million to $ 115.0 million ,
| results of operations the table below sets forth the various line items in the consolidated statements of income and comprehensive income as a percentage of net sales for the last three years . replace_table_token_8_th fiscal year comparisons net sales replace_table_token_9_th 26 net sales increased by approximately $ 74.7 million , or 4 % , and included approximately $ 27.0 million related to the fifty-third week in 2012. comparable sales were flat for 2012 compared to 2011 . for 2012 , comparable sales were calculated based upon the fifty-three week period ended february 2 , 2013 compared to the fifty-three week period ended february 4 , 2012. the flat comparable sales resulted from decreases in both transactions and average dollar sales , offset by growth in e-commerce sales . we attribute the decrease in transactions to lower traffic in our stores and a lesser acceptance of product in certain women 's categories during the second and third quarters . non-comparable sales increased $ 35.8 million , equally driven by new store openings and remodels . net sales increased $ 167.5 million from $ 1.9 billion in 2010 to $ 2.1 billion in 2011 , a 9 % increase . comparable sales increased by $ 109.0 million , or 6 % , in 2011 compared to 2010 . the comparable sales growth was driven by growth in average dollar sales during the period as well as the continued growth in e-commerce sales . non-comparable sales increased $ 58.5 million primarily driven by new store openings . other revenue was $ 21.5 million in 2011 , an increase of $ 4.0 million , compared to other revenue of $ 17.5 million in 2010 , primarily as a result of more shipping and handling revenue related to e-commerce merchandise sales growth .
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these forward-looking statements are subject to numerous risks and uncertainties , including , but not limited to , the risks and uncertainties described in part i , item 1a “ risk factors ” and “ special note regarding forward-looking statements. ” our actual results may differ materially from those contained in or implied by any forward-looking statements . we operate on a fiscal calendar widely used by the retail industry that results in a given fiscal year consisting of a 52- or 53-week period ending on the saturday closest to january 31 of the following year . references to `` fiscal year 2019 '' or `` fiscal 2019 '' refer to the period from february 3 , 2019 to february 1 , 2020 , which consists of a 52-week fiscal year . references to `` fiscal year 2018 '' or `` fiscal 2018 '' refer to the period from february 4 , 2018 to february 2 , 2019 , which consists of a 52-week fiscal year . references to `` fiscal year 2017 '' or `` fiscal 2017 '' refer to the period from january 29 , 2017 to february 3 , 2018 , which consists of a 53-week fiscal year . references to `` fiscal year 2016 '' or `` fiscal 2016 '' refer to the period from january 31 , 2016 to january 28 , 2017 , which consists of a 52-week fiscal year . references to “ fiscal year 2015 ” or “ fiscal 2015 ” refer to the period from february 1 , 2015 to january 30 , 2016 , which consists of a 52-week fiscal year . references to “ fiscal year 2014 ” or “ fiscal 2014 ” refer to the period from february 2 , 2014 to january 31 , 2015 , which consists of a 52-week fiscal year . historical results are not necessarily indicative of the results to be expected for any future period and results for any interim period may not necessarily be indicative of the results that may be expected for a full year . overview five below is a rapidly growing specialty value retailer offering a broad range of trend-right , high-quality merchandise targeted at the tween and teen customer . we offer a dynamic , edited assortment of exciting products , priced at $ 5 and below , including select brands and licensed merchandise across our category worlds . as of february 2 , 2019 , we operated 750 stores in 33 states . in august 2016 , we commenced selling merchandise on the internet , through our fivebelow.com e-commerce website . we launched our e-commerce operation as an additional channel to service our customers . all e-commerce sales , which includes shipping and handling revenue , are included in net sales and beginning with the third fiscal quarter of 2016 , are included in comparable sales . our e-commerce expenses will have components classified as both cost of goods sold and selling , general and administrative expenses . we believe that our business model has resulted in strong financial performance irrespective of the economic environment . our comparable sales , based on the restated calendar , increased by 3.9 % in fiscal 2018 , 6.5 % in fiscal 2017 and 2.0 % in fiscal 2016 . between fiscal 2016 and fiscal 2018 , our net sales increased from $ 1,000.4 million to $ 1,559.6 million , representing a compounded annual growth rate of 24.9 % . over the same period , our operating income increased from $ 114.0 million to $ 187.2 million , representing a compounded annual growth rate of 28.2 % . in addition , we expanded our store base from 522 stores at the end of fiscal 2016 to 750 stores at the end of fiscal 2018 . we plan to open approximately 145 to 150 new stores in fiscal 2019 . we expect to continue our strong growth in the future . by offering trend-right merchandise at a differentiated price point of $ 5 and below , our stores have been successful in varying geographic regions , population densities and real estate settings . as of february 2 , 2019 , we operated stores in 33 states in the northeast , south , midwest and west regions of the united states . we are primarily located in power , community and lifestyle shopping centers across a variety of urban , suburban and semi-rural markets with trade areas including at least 100,000 people in the specified market . we believe we have the opportunity to expand our store base in the united states from 750 locations as of february 2 , 2019 to more than 2,500 locations over time . our ability to open profitable new stores depends on many factors , including our ability to identify suitable markets and sites ; negotiate leases with acceptable terms ; achieve brand awareness in the new markets ; efficiently source and distribute additional merchandise ; and achieve sufficient levels of cash flow and financing to support our expansion . 36 for the fiscal year ended february 3 , 2018 , we recorded a provisional net tax benefit of $ 0.5 million related to the impact of the tcja . this provisional tax benefit included a one-time $ 1.5 million remeasurement charge of the net u.s. deferred tax assets to the lower enacted u.s. corporate tax rate of 21 % and a $ 2.0 million tax benefit related to the company 's 2017 blended rate of 33.7 % as a result of section 15 of the internal revenue code . december 22 , 2018 marked the end of the measurement period for purposes of securities and exchange commission staff accounting bulletin no . 118 ( `` sab 118 '' ) . as such , the company has completed the analysis based on legislative updates relating to the u.s. tcja currently available and recorded no additional tax impacts for the year ended february 2 , 2019 . story_separator_special_tag comparable stores include the following : stores that have been remodeled while remaining open ; stores that have been relocated within the same trade area , to a location that is not significantly different in size , in which the new store opens at about the same time as the old store closes ; and stores that have expanded , but are not significantly different in size , within their current locations . for stores that are relocated or expanded , the following periods are excluded when calculating comparable sales : the period beginning when the closing store receives its last merchandise delivery from one of our distribution centers through : ▪ the last day of the fiscal year in which the store was relocated or expanded ( for stores that increased significantly in size ) ; or ▪ the last day of the fiscal month in which the store re-opens ( for all other stores ) ; and the period beginning on the first anniversary of the date the store received its last merchandise delivery from one of our distribution centers through the first anniversary of the date the store re-opened . comparable sales exclude the 53rd week of sales for 53-week fiscal years . in the 52-week fiscal year subsequent to a 53-week fiscal year , we exclude the sales in the non-comparable week from the same-store sales calculation . due to the 53rd week in fiscal 2017 , comparable sales for the year ended february 2 , 2019 are reported on a restated calendar basis . reference to the `` restated calendar ” is based on using the national retail federation 's restated calendar comparing similar weeks , which are the fifty-two weeks from february 4 , 2018 to february 2 , 2019 as compared to the fifty-two weeks from february 5 , 2017 to february 3 , 2018. there may be variations in the way in which some of our competitors and other retailers calculate comparable or “ same store ” sales . as a result , data in this annual report regarding our comparable sales may not be comparable to similar data made available by other retailers . non-comparable sales are comprised of new store sales , sales for stores not open for a full 15 months , and sales from existing store relocation and expansion projects that were temporarily closed ( or not receiving deliveries ) and not included in comparable sales . measuring the change in fiscal year-over-year comparable sales allows us to evaluate how our store base is performing . various factors affect comparable sales , including : consumer preferences , buying trends and overall economic trends ; our ability to identify and respond effectively to customer preferences and trends ; our ability to provide an assortment of high-quality , trend-right and everyday product offerings that generate new and repeat visits to our stores ; the customer experience we provide in our stores and online ; the level of traffic near our locations in the power , community and lifestyle centers in which we operate ; competition ; changes in our merchandise mix ; pricing ; our ability to source and distribute products efficiently ; the timing of promotional events and holidays ; the timing of introduction of new merchandise and customer acceptance of new merchandise ; our opening of new stores in the vicinity of existing stores ; the number of items purchased per store visit ; and weather conditions . opening new stores is an important part of our growth strategy . as we continue to pursue our growth strategy , we expect that a significant percentage of our net sales will continue to come from new stores not included in comparable sales . accordingly , comparable sales is only one measure we use to assess the success of our growth strategy . 38 cost of goods sold and gross profit gross profit is equal to our net sales less our cost of goods sold . gross margin is gross profit as a percentage of our net sales . cost of goods sold reflects the direct costs of purchased merchandise and inbound freight , as well as shipping and handling costs , store occupancy , distribution and buying expenses . shipping and handling costs include both internal and third-party fulfillment and shipping costs related to our e-commerce operations . store occupancy costs include rent , common area maintenance , utilities and property taxes for all store locations . distribution costs include costs for receiving , processing , warehousing and shipping of merchandise to or from our distribution centers and between store locations . buying costs include compensation expense and other costs for our internal buying organization , including our merchandising and product development team and our planning and allocation group . these costs are significant and can be expected to continue to increase as our company grows . the components of our cost of goods sold may not be comparable to the components of cost of goods sold or similar measures of our competitors and other retailers . as a result , data in this annual report regarding our gross profit and gross margin may not be comparable to similar data made available by our competitors and other retailers . the variable component of our cost of goods sold is higher in higher volume quarters because the variable component of our cost of goods sold generally increases as net sales increase . we regularly analyze the components of gross profit as well as gross margin . any inability to obtain acceptable levels of initial markups , a significant increase in our use of markdowns , and a significant increase in inventory shrinkage or inability to generate sufficient sales leverage on the store occupancy , distribution and buying components of costs of goods sold could have an adverse impact on our gross profit and results of operations . changes in the mix of our products may also impact our overall cost of goods sold .
| resulted from an increase of approximately 3.1 % in the average dollar value of transactions and an increase of approximately 0.8 % in the number of transactions . cost of goods sold and gross profit cost of goods sold increased to $ 994.5 million in fiscal year 2018 from $ 814.8 million in fiscal year 2017 , an increase of $ 179.7 million , or 22.1 % . the increase in cost of goods sold was primarily the result of an increase in the merchandise costs of goods resulting from an increase in sales . also contributing to the increase in cost of goods sold was an increase in store occupancy costs resulting from new store openings . gross profit increased to $ 565.1 million in fiscal year 2018 from $ 463.4 million in fiscal year 2017 , an increase of $ 101.7 million , or 21.9 % . gross margin decreased to 36.2 % for fiscal year 2018 from 36.3 % in fiscal year 2017 , a decrease of approximately 10 basis points . the decrease in gross margin was primarily the result of an increase as a percentage of sales in merchandise cost of goods sold partially offset by a decrease as a percentage of sales in store occupancy costs . selling , general and administrative expenses selling , general and administrative expenses increased to $ 377.9 million in fiscal year 2018 from $ 306.0 million in fiscal year 2017 , an increase of $ 71.9 million , or 23.5 % . as a percentage of net sales , selling , general and administrative expenses increased approximately 30 basis points to 24.2 % in fiscal year 2018 compared to 23.9 % in fiscal year 2017 . the increase in selling , general and administrative expenses was the result of increases of $ 59.5 million in store-related expenses to support new store growth and our marketing initiatives and $ 12.4
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the update is effective for the first quarter of 2018. early adoption is permitted for transactions that occurred before the issuance date or effective date of the update if the transactions were not reported in financial statements that have been issued or made available for issuance . this update is to be applied prospectively on or after the effective date and is not expected to have a material effect on the consolidated financial statements . statement of cash story_separator_special_tag management 's discussion and analysis represents an overview of our consolidated results of operations and financial condition . this discussion and analysis should be read in conjunction with the consolidated financial statements and notes presented in item 8 of this report . results of operations for the periods included in this review are not necessarily indicative of results to be obtained during any future period . important cautionary statement regarding forward-looking information this report contains forward looking statements which may contain our expectations or predictions of future financial or business performance or conditions . forward-looking statements , that do not describe historical or current facts , typically are identified by words such as , believe , plan , expect , anticipate , intend , outlook , estimate , forecast , will , should , project , goal , and other similar words and expressions . these forward-looking statements are subject to numerous assumptions , risks and uncertainties . the forward-looking statements are intended to be subject to the safe harbor provided under section 27a of the securities act of 1933 , section 21e of the securities exchange act of 1934 and the private securities litigation reform act of 1995 . 42 in addition to factors previously disclosed in the risk factors section included in item 1a of this report , the following risk factors , among others , could cause actual results to differ materially from forward-looking statements or historical performance : changes in asset quality and credit risk ; changes in general economic , political or industry conditions ; uncertainty in u.s. fiscal policy and monetary policy , including interest rate policies of the frb ; the inability to sustain revenue and earnings growth ; changes in interest rates and capital markets ; inflation ; customer acceptance of our products and services ; customer borrowing , repayment , investment and deposit practices ; customer disintermediation ; the introduction , withdrawal , success and timing of business initiatives ; the inability to realize cost savings or revenues or to implement integration plans and other consequences expected in connection with mergers , acquisitions and divestitures ; the impact , extent and timing of technological changes , capital management activities , competitive pressures on product pricing and services ; ability to keep pace with technological changes , including changes regarding maintaining cybersecurity ; success , impact and timing of our business strategies , including market acceptance of any new products or services ; and implementing our banking philosophy and strategies . additional risks include the nature , extent , timing and results of governmental and regulatory actions , examinations , reviews , reforms , regulations and interpretations , including those related to the dodd-frank act and basel iii regulatory or capital reforms ( including dfast ) , as well as those involving the occ , frb , fdic , fsoc and cfpb ; and other factors that may affect our future results . there is no assurance that any of the risks , uncertainties or risk factors identified herein is complete and actual results or events may differ materially from those expressed or implied in the forward-looking statements contained in this document/communication/information . all forward-looking statements speak only as of the date they are made and are based on information available at that time . we do not assume any obligation to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements were made or to reflect the occurrence of unanticipated events except as required by federal securities laws . as forward-looking statements involve significant risks and uncertainties , caution should be exercised against placing undue reliance on such statements . application of critical accounting policies our consolidated financial statements are prepared in accordance with u.s. generally accepted accounting principles ( gaap ) . application of these principles requires management to make estimates , assumptions and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes . these estimates , assumptions and judgments are based on information available as of the date of the consolidated financial statements ; accordingly , as this information changes , the consolidated financial statements could reflect different estimates , assumptions and judgments . certain policies inherently are based to a greater extent on estimates , assumptions and judgments of management and , as such , have a greater possibility of producing results that could be materially different than originally reported . the most significant accounting policies followed by fnb are presented in note 1 , summary of significant accounting policies in the notes to consolidated financial statements , which is included in item 8 of this report . these policies , along with the disclosures presented in the notes to consolidated financial statements , provide information on how we value significant assets and liabilities in the consolidated financial statements , how we determine those values and how we record transactions in the consolidated financial statements . management views critical accounting policies to be those which are highly dependent on subjective or complex judgments , estimates and assumptions , and where changes in those estimates and assumptions could have a significant impact on the consolidated financial statements . management currently views the determination of the allowance for credit losses , accounting for acquired loans , fair value of financial instruments , goodwill and other intangible assets , litigation and income taxes to be critical accounting policies . story_separator_special_tag to the extent actual outcomes differ from management estimates , the outcome may adversely affect our earnings or financial position in future periods . see note 1 , summary of significant accounting policies and note 6 , loans and leases in the notes to consolidated financial statements for further discussion of accounting for acquired loans . fair value of financial instruments we use fair value measurements to record fair value adjustments to certain financial assets and liabilities and determine fair value disclosure . additionally , from time to time we may be required to record at fair value other assets on a non-recurring basis , such as mortgage loans held for sale , certain impaired loans , oreo and certain other assets . the accounting guidance for fair value measurements includes a three-level hierarchy for disclosure of assets and liabilities recorded at fair value based on whether the inputs to the valuation methodology used for measurement are observable or unobservable . judgement is required to determine which level of the three-level hierarchy certain assets or liabilities measured at fair value are classified . fair value represents the price that would be received to sell a financial asset or paid to transfer a financial liability in an orderly transaction between market participants at the measurement date . we use significant and complex estimates , assumptions and judgements when assets and liabilities are required to be recorded at , or adjusted to reflect , fair value . where available , fair value and information used to record valuation adjustments for certain assets or liabilities is based on either quoted market prices or are provided by independent third-party sources , including appraisers and valuation specialists . when such third-party information is not available , we may estimate fair value by using cash flow and other financial modeling techniques . our assumptions about what a market participant would use in pricing an asset or liability is developed based on the best information available in the circumstances . these estimates are inherently subjective and can result in significant changes in the fair value estimates over the life of the asset or liability . assets and liabilities carried at fair value inherently result in a higher degree of financial statement volatility . see note 1 , summary of significant accounting policies and note 23 , fair value measurements in the notes to consolidated financial statements for further discussion of accounting for financial instruments . goodwill and other intangible assets as a result of acquisitions , we have recorded goodwill and other identifiable intangible assets on our balance sheet . goodwill represents the cost of acquired companies in excess of the fair value of net assets , including 45 identifiable intangible assets , at the acquisition date . our recorded goodwill relates to value inherent in our community banking , wealth management and insurance and consumer finance segments . the value of goodwill and other identifiable intangibles is dependent upon our ability to provide quality , cost-effective services in the face of competition . as such , these values are supported ultimately by revenue that is driven by the volume of business transacted . a decline in earnings as a result of a lack of growth or our inability to deliver cost-effective services over sustained periods can lead to impairment in value which could result in additional expense and adversely impact earnings in future periods . other identifiable intangible assets such as core deposit intangibles , customer renewal lists and mortgage servicing rights are amortized over their estimated useful lives . we perform a quantitative assessment to determine whether it is more likely than not that the fair value of each reporting unit is less than its carrying amount . determining fair values of each reporting unit , of its individual assets and liabilities , and also of other identifiable intangible assets requires considering market information that is publicly available as well as the use of significant estimates and assumptions . these estimates and assumptions could have a significant impact on whether or not an impairment charge is recognized and also the magnitude of any such charge . inputs used in determining fair values where significant estimates and assumptions are necessary include discounted cash flow calculations , market comparisons and recent transactions , projected future cash flows , discount rates reflecting the risk inherent in future cash flows , long-term growth rates and determination and evaluation of appropriate market comparables . see note 1 , summary of significant accounting policies , note 2 , new accounting standards and note 9 , goodwill and other intangible assets in the notes to consolidated financial statements for further discussion of accounting for goodwill and other intangible assets . income taxes we are subject to the income tax laws of the u.s. , the states and other jurisdictions where we conduct business . the laws are complex and subject to different interpretations by the taxpayer and various taxing authorities . in determining the provision for income taxes , management must make judgments and estimates about the application of these inherently complex tax statutes , related regulations and case law . in the process of preparing our tax returns , management attempts to make reasonable interpretations of the tax laws . these interpretations are subject to challenge by the taxing authorities or based on management 's ongoing assessment of the facts and evolving case law . on a quarterly basis , management assesses the reasonableness of our effective tax rate based on management 's current best estimate of net income and the applicable taxes for the full year . deferred tax assets and liabilities are assessed on an annual basis , or sooner , if business events or circumstances warrant . deferred income taxes represent amounts available to reduce income taxes payable on taxable income in future years . such assets arise because of temporary differences between the financial reporting and tax bases of assets and liabilities , and from operating loss and tax credit carryforwards .
| financial summary we continue to grow organically and through our successful merger with metr , which occurred on february 13 , 2016 and fifth third branch purchase which occurred on april 22 , 2016. net income available to common stockholders for 2016 was $ 162.9 million or $ 0.78 per diluted share . excluding the impact of merger-related costs , operating earnings per share would have been $ 0.90 per diluted share . the 2016 revenue ( net interest income plus non-interest income ) of $ 813.3 million reflects continued loan and deposit growth and strong performance from fee-based businesses . commercial loan growth during 2016 was largely driven by activity in the pittsburgh , baltimore and cleveland metro markets . commercial lending opportunities were strong , commensurate with the expanded geographic footprint , including new opportunities provided by the aforementioned metr acquisition . 47 we continue to invest in new technology geared towards enhancing the client experience both online and within our retail locations . during 2016 , we deployed leading-edge technology to offer extended hours and improved efficiency throughout our footprint . additionally , we were recently named as a winner of ten 2016 greenwich associates excellence in banking awards . in our fifth consecutive year of recognition by greenwich associates , we received both national and regional honors for small business and middle market banking .
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our foreign entities are subject to tax outside of the u.s. replace_table_token_41_th certain discrete state income tax items reduced story_separator_special_tag story_separator_special_tag previously planned investment of approximately $ 100 million to equip our proprietary redcards and all of our u.s. store card readers with chip-enabled smart-card technology by the first quarter of 2015. in addition , we may accelerate or make additional investments in our information technology systems , but we are unable to estimate such investments because the nature and scope has not yet been determined . we do not expect such amounts to be material to any fiscal period . effect on sales and guest loyalty we believe the data breach adversely affected our fourth quarter u.s. segment sales . prior to our december 19 , 2013 announcement of the data breach , our u.s. segment fourth quarter comparable sales were positive , followed by meaningfully negative comparable sales results following the announcement . comparable sales began to recover in january 2014. the collective interaction of year-over-year changes in the retail calendar ( e.g . , the number of days between thanksgiving and christmas ) , combined with the broad array of competitive , consumer behavioral and weather factors makes any quantification of the precise impact of the data breach on sales infeasible . fourth quarter sales penetration on our redcards was 20.9 percent , up 5.4 percentage points from 2012. while the rate of increase slowed following the data breach , year-over-year penetration continued to grow . we know our guests ' confidence in target and the broader u.s. payment system has been shaken . we are committed to , and actively engaged in , activities to restore their confidence . we can not predict the length or extent of any ongoing impact to sales . credit card receivables transaction in march 2013 , we sold our entire u.s. consumer credit card portfolio to td and recognized a gain of $ 391 million . this transaction was accounted for as a sale , and the receivables are no longer reported in our consolidated statements of financial position . consideration received included cash of $ 5.7 billion , equal to the gross ( par ) value of the 18 outstanding receivables at the time of closing , and a $ 225 million beneficial interest asset . the beneficial interest asset effectively represents a receivable for the present value of future profit-sharing we expect to receive on the receivables sold . based on historical payment patterns , we estimate that the beneficial interest asset will be reduced over a four-year period following the sale , with larger reductions in the early years . as of february 1 , 2014 , a $ 127 million beneficial interest asset remained . concurrent with the sale of the portfolio , we repaid the nonrecourse debt collateralized by credit card receivables ( 2006/2007 series variable funding certificate ) at par of $ 1.5 billion , resulting in net cash proceeds of $ 4.2 billion . td now underwrites , funds and owns target credit card and target visa consumer receivables in the u.s. td controls risk management policies and oversees regulatory compliance , and we perform account servicing and primary marketing functions . we earn a substantial portion of the profits generated by the target credit card and target visa portfolios . income from the td profit-sharing arrangement and our related account servicing expenses are classified within sg & a expenses in the u.s. segment . beginning with the first quarter of 2013 , we no longer report a u.s. credit card segment . analysis of results of operations u.s. segment replace_table_token_8_th note : prior period segment results have been revised to reflect the combination of our historical u.s. retail segment and u.s. credit card segment into one u.s. segment . quarterly and full-year historical information for the three most recently completed years reflecting the results for the u.s. segment and canadian segment are attached as exhibit ( 99 ) to our current report on form 8-k filed april 16 , 2013. note : see note 28 to our consolidated financial statements for a reconciliation of our segment results to earnings before income taxes . ( a ) consisted of 53 weeks . ( b ) sg & a includes credit card revenues and expenses for all periods presented prior to the march 2013 sale of our u.s. consumer credit card portfolio to td . for 2013 , sg & a also includes $ 653 million of profit-sharing income from the arrangement with td . replace_table_token_9_th 19 replace_table_token_10_th rate analysis metrics are computed by dividing the applicable amount by sales . ( a ) represents the impact of combining the historical u.s. credit card segment and the u.s. retail segment into one u.s. segment . compared with the historical u.s. retail segment results for the same period , segment results , as revised , reflect lower sg & a rates and increased ebit and ebitda margin rates resulting from the inclusion of credit card profits , net of expenses , within sg & a compared with historical u.s. segment results for the same period . sales sales include merchandise sales , net of expected returns , and gift card breakage . refer to note 2 of the notes to consolidated financial statements for a definition of gift card breakage . the decrease in sales in 2013 reflects the impact of an additional week in 2012 and a decline in comparable sales , partially offset by the contribution from new stores . sales growth in 2012 resulted from higher comparable sales , the contribution from new stores and a 1.7 percentage point benefit from an additional week in the fiscal year . inflation did not materially affect sales in any period presented . comparable sales is a measure that highlights the performance of our existing stores and digital sales by measuring the change in sales for a period over the comparable , prior-year period of equivalent length . the method of calculating comparable sales varies across the retail industry . story_separator_special_tag 23 other performance factors consolidated selling , general and administrative expenses in addition to our selling , general and administrative expenses recorded within our segments , we recorded certain other expenses during 2013. these expenses included a $ 23 million workforce-reduction charge primarily related to severance and benefits costs , a $ 22 million charge related to part-time team member health benefit changes , $ 19 million in impairment charges related to certain parcels of undeveloped land , and $ 17 million of data breach-related costs , net of expected insurance proceeds . additional information about these items is provided within the reconciliation of non-gaap financial measures to gaap measures on page 25. net interest expense net interest expense was $ 1,126 million in 2013 . this increase of 47.7 percent , or $ 364 million , from 2012 was due to a $ 445 million loss on early retirement of debt in 2013 , partially offset by the benefit from 2013 debt reductions . net interest expense was $ 762 million for 2012 . this decrease of 12.0 percent , or $ 104 million , from 2011 was primarily due to an $ 87 million loss on early retirement of debt in 2011. provision for income taxes our effective income tax rate increased to 36.5 percent in 2013 , from 34.9 percent in 2012 , which was driven by the net effect of increased losses related to canadian operations combined with a lower year-over-year benefit from the favorable resolution of various income tax matters . the resolution of various income tax matters reduced tax expense by $ 16 million and $ 58 million in 2013 and 2012 , respectively . a tax rate reconciliation is provided in note 21 to our consolidated financial statements . our effective income tax rate increased to 34.9 percent in 2012 , from 34.3 percent in 2011 , primarily due to a lower benefit associated with the favorable resolution of various income tax matters , combined with the effect of increased losses related to canadian operations . various income tax matters were resolved in 2012 and 2011 which reduced tax expense by $ 58 million and $ 85 million , respectively . 24 reconciliation of non-gaap financial measures to gaap measures to provide additional transparency , we have disclosed non-gaap adjusted diluted earnings per share , which excludes the impact of our 2013 canadian market entry , the gain on receivables transaction , favorable resolution of various income tax matters , the loss on early retirement of debt and other matters presented below . we believe this information is useful in providing period-to-period comparisons of the results of our u.s. operations . this measure is not in accordance with , or an alternative for , generally accepted accounting principles in the united states . the most comparable gaap measure is diluted earnings per share . non-gaap adjusted eps should not be considered in isolation or as a substitution for analysis of our results as reported under gaap . other companies may calculate non-gaap adjusted eps differently than we do , limiting the usefulness of the measure for comparisons with other companies . replace_table_token_17_th note : a non-gaap financial measures summary is provided on page 16. the sum of the non-gaap adjustments may not equal the total adjustment amounts due to rounding . ( a ) total canadian losses include interest expense of $ 77 million , $ 78 million and $ 44 million for 2013 , 2012 and 2011 , respectively . ( b ) 2013 adjustment represents consideration received in the first quarter from the sale of our u.s. credit card receivables in excess of the recorded amount of the receivables . consideration included a beneficial interest asset of $ 225 million . the 2012 adjustment represents the gain on receivables held for sale . ( c ) other includes a $ 23 million workforce-reduction charge primarily related to severance and benefits costs , a $ 22 million charge related to part-time team member health benefit changes and $ 19 million in impairment charges related to certain parcels of undeveloped land . ( d ) for 2013 , we recorded $ 61 million of pretax data breach-related expenses , and expected insurance proceeds of $ 44 million , for net pretax expenses of $ 17 million . analysis of financial condition liquidity and capital resources our period-end cash and cash equivalents balance was $ 695 million compared with $ 784 million in 2012 . short-term investments ( highly liquid investments with an original maturity of three months or less from the time of purchase ) of $ 3 million and $ 130 million were included in cash and cash equivalents at the end of 2013 and 2012 , respectively . our investment policy is designed to preserve principal and liquidity of our short-term investments . this policy allows investments in large money market funds or in highly rated direct short-term instruments that mature in 60 days or less . we also place dollar limits on our investments in individual funds or instruments . cash flows our 2013 operations were funded by both internally generated funds and proceeds from the sale of our consumer credit card receivables portfolio . cash flow provided by operations was $ 6,520 million in 2013 compared with $ 5,325 million in 2012 . our cash flows , combined with our prior year-end cash position , allowed us to pay current debt maturities , invest in the business , pay dividends and repurchase shares under our share repurchase program . concurrent with the sale of our u.s. credit card portfolio described in note 6 of the notes to consolidated financial statements included in item 8 , financial statements and supplementary data , we repaid the nonrecourse debt collateralized by credit card receivables ( 2006/2007 series variable funding certificate ) at par of $ 1.5 billion . also 25 during the first quarter of 2013 , we used $ 1.4 billion of the net proceeds received from the sale to repurchase , at market value , $ 970 million of debt .
| executive summary fiscal 2013 included the following notable items : gaap earnings per share were $ 3.07 , including dilution of $ 1.13 related to the canadian segment . adjusted earnings per share were $ 4.38 on a comparable sales decrease of 0.4 percent . we paid dividends of $ 1,006 million and repurchased 21.9 million of our shares for $ 1,474 million . we opened 124 stores in canada , marking the biggest single-year store opening cycle in the company 's history and first year of international retail operations . we completed the sale of our u.s. consumer credit card portfolio to td in march 2013 and recognized a gain of $ 391 million . we used $ 1.4 billion of the net proceeds received from the sale of our u.s. consumer credit card portfolio to repurchase , at market value , $ 970 million of debt . sales were $ 72,596 million for 2013 , an increase of $ 636 million or 0.9 percent from the prior year . consolidated earnings before interest expense and income taxes for 2013 decreased by $ 1,142 million or 21.3 percent from 2012 to $ 4,229 million . cash flow provided by operations was $ 6,520 million , $ 5,325 million and $ 5,434 million for 2013 , 2012 and 2011 , respectively . in connection with the sale of our u.s. credit card receivables , we received cash of $ 5.7 billion . of this amount , $ 2.7 billion is included in cash flow provided by operations and $ 3.0 billion is included in cash flow provided by investing activities . replace_table_token_7_th note : we have disclosed adjusted diluted earnings per share ( `` adjusted eps '' ) , a non-gaap metric , which excludes the impact of certain matters not related to our routine retail operations , including the impact of our canadian market entry .
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the partnership adopted asc 606 using the modified retrospective method , which was applied to all existing contracts for which all ( or substantially all ) of the revenue had not been recognized under legacy revenue guidance as of the date of adoption , january 1 , 2018. oil and natural gas sales sales of oil and natural gas are recognized at the point control of the product is transferred to the customer and collectability of the sales 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 notes thereto presented elsewhere in this annual report . this discussion and analysis contains forward-looking statements that involve risks , uncertainties , and assumptions . actual results may differ materially from those anticipated in these forward-looking statements as a result of a number of factors , including those set forth under “ cautionary note regarding forward-looking statements ” and “ part i , item 1a . risk factors. ” overview we are one of the largest owners and managers of oil and natural gas mineral interests in the united states . our principal business is maximizing the value of our existing portfolio of mineral and royalty assets through active management and expanding our asset base through acquisitions of additional mineral and royalty interests . we maximize value through the marketing of our mineral assets for lease , creatively structuring the terms on those leases to encourage and accelerate drilling activity , and selectively participating alongside our lessees on a working interest basis . our primary business objective is to grow our reserves , production , and cash generated from operations over the long term , while paying , to the extent practicable , a growing quarterly distribution to our unitholders . as of december 31 , 2018 , our mineral and royalty interests were located in 41 states in the continental united states including all of the major onshore producing basins . these non-cost-bearing interests include ownership in over 60,000 producing wells . we also own non-operated working interests , a significant portion of which are on our positions where we also have a mineral and royalty interest . we recognize oil and natural gas revenue from our mineral and royalty and non-operated working interests in producing wells when control of the oil and natural gas produced is transferred to the customer and collectability of the sales price is reasonably assured . our other sources of revenue include mineral lease bonus and delay rentals , which are recognized as revenue according to the terms of the lease agreements . recent developments acquisitions in 2018 we acquired mineral and royalty interests primarily in the permian basin and in east texas for aggregate consideration of $ 127.3 million in cash and $ 22.6 million in our common units . additional information regarding acquisitions is contained in note 4 – oil and natural gas properties acquisitions to our consolidated financial statements included elsewhere in this annual report . pepperjack prospect we have cumulatively spent approximately $ 13.1 million to drill two wells within our pepperjack prospect in hardin and liberty counties , texas . the pepperjack a # 1 well targeting the lower wilcox formation was drilled during the fourth quarter of 2017 and the first quarter of 2018. the pepperjack b # 1 well , also targeting the lower wilcox formation , was drilled during the second quarter of 2018 to further delineate the prospect . based on the log results , we believe the pepperjack a # 1 well is highly prospective and will be completed as a commercially productive well . the pepperjack b # 1 well , which was a significant step-out from the pepperjack a # 1 well , is not likely to be completed in the near term . accordingly , we have recorded $ 6.8 million of costs for the pepperjack b # 1 well to the exploration expense line item of the consolidated statements of operations for the year ended december 31 , 2018. on september 21 , 2018 , we entered into an exploration agreement with a consortium of private exploration and production companies ( the “ development partners ” ) to further delineate and develop the pepperjack prospect . as part of the agreement , we assigned 75 % of our working interest in the pepperjack a # 1 well and acreage in the associated unit to the development partners and transferred our status as the operator of record . we received proceeds of $ 6.4 million for the assignment , which represented a reimbursement for 100 % of the drilling costs and associated acreage , proceeds of $ 1.0 million for an option covering our minerals and leases in the pepperjack prospect area , and an overriding royalty interest in the pepperjack prospect area . the development partners began completion operations on the pepperjack a # 1 well in the fourth quarter of 2018 and we are participating as a 25 % non-operated working interest owner . 51 common unit repurchase program in the fourth quarter of 2018 , the board of directors of our general partner authorized a $ 75.0 million common unit repurchase program . the repurchase program authorizes us to make repurchases on a discretionary basis as determined by management , subject to market conditions , applicable legal requirements , available liquidity , and other appropriate factors . all or a portion of any repurchases may be made under a rule 10b5-1 plan , which would permit common units to be repurchased when we might otherwise be precluded from doing so under applicable laws . the repurchase program does not obligate us to acquire any particular amount of common units and may be modified or suspended at any time and could be terminated prior to completion . we will periodically report the number of common units repurchased . in 2018 , we repurchased a total of 128,627 common units for an aggregate cost of $ 2.0 million . story_separator_special_tag location differentials generally result from transportation costs based on the produced oil 's proximity to consuming and refining markets and major trading points . natural gas . the nymex price quoted at henry hub is a widely used benchmark for the pricing of natural gas in the united states . the actual volumetric prices realized from the sale of natural gas differ from the quoted nymex price as a result of quality and location differentials . quality differentials result from the heating value of natural gas measured in btus and the presence of impurities , such as hydrogen sulfide , carbon dioxide , and nitrogen . natural gas containing ethane and heavier hydrocarbons has a higher btu value and will realize a higher volumetric price than natural gas which is predominantly methane , which has a lower btu value . natural gas with a higher concentration of impurities will realize a lower volumetric price due to the presence of the impurities in the natural gas when sold or the cost of treating the natural gas to meet pipeline quality specifications . natural gas , which currently has a limited global transportation system , is subject to price variances based on local supply and demand conditions and the cost to transport natural gas to end user markets . 54 hedging we enter into derivative instruments to partially mitigate the impact of commodity price volatility on our cash generated from operations . from time to time , such instruments may include variable-to-fixed-price swaps , fixed-price contracts , costless collars , and other contractual arrangements . the impact of these derivative instruments could affect the amount of revenue we ultimately realize . our open derivative contracts consist of fixed-price swap contracts and costless collar contracts . under fixed-price swap contracts , a counterparty is required to make a payment to us if the settlement price is less than the swap strike price . conversely , we are required to make a payment to the counterparty if the settlement price is greater than the swap strike price . our costless collar contracts contain a fixed floor price and a fixed ceiling price . if the market price exceeds the fixed ceiling price , we receive the fixed ceiling price from the counterparty and we pay the market price . if the market price is below the fixed floor price , we receive the fixed floor price and we pay the market price . if the market price is between the fixed floor and fixed ceiling price , no payments are due from either party . if we have multiple contracts outstanding with a single counterparty , unless restricted by our agreement , we will net settle the contract payments . we may employ contractual arrangements other than fixed-price swap contracts and costless collar contracts in the future to mitigate the impact of price fluctuations . if commodity prices decline in the future , our hedging contracts will partially mitigate the effect of lower prices on our future revenue . our open oil and natural gas derivative contracts as of december 31 , 2018 are detailed in note 5 – commodity derivative financial instruments to our consolidated financial statements included elsewhere in this annual report . prior to amending and restating our credit agreement on november 1 , 2017 , we were allowed to hedge all of our estimated production from our proved developed producing reserves based on the most recent reserve information provided to our lenders . pursuant to our fourth amended and restated credit agreement , we are allowed to hedge certain percentages of expected future monthly production volumes equal to the lesser of ( i ) internally forecasted production and ( ii ) the average of reported production for the most recent three months . we are allowed to hedge up to 90 % of such volumes for the first 24 months , 70 % for months 25 through 36 , and 50 % for months 37 through 48. pursuant to our updated hedge provisions , as of december 31 , 2018 we have hedged , 70.2 % , and 20.9 % of our available oil and condensate hedge volumes for 2019 and 2020 , respectively . also , as of december 31 , 2018 we have hedged 93.2 % of our available natural gas hedge volumes for 2019. we intend to continuously monitor the production from our assets and the commodity price environment , and will , from time to time , add additional hedges within the percentages described above related to such production for the following 12 to 30 months . we do not enter into derivative instruments for speculative purposes . non-gaap financial measures adjusted ebitda and distributable cash flow are supplemental non-gaap financial measures used by our management and external users of our financial statements such as investors , research analysts , and others , to assess the financial performance of our assets and our ability to sustain distributions over the long term without regard to financing methods , capital structure , or historical cost basis . we define adjusted ebitda as net income ( loss ) before interest expense , income taxes , and depreciation , depletion , and amortization adjusted for impairment of oil and natural gas properties , accretion of asset retirement obligations , unrealized gains and losses on commodity derivative instruments , and non-cash equity-based compensation . we define distributable cash flow as adjusted ebitda plus or minus amounts for certain non-cash operating activities , estimated replacement capital expenditures , cash interest expense , and distributions to noncontrolling interests and preferred unitholders . adjusted ebitda and distributable cash flow should not be considered an alternative to , or more meaningful than , net income ( loss ) , income ( loss ) from operations , cash flows from operating activities , or any other measure of financial performance presented in accordance with generally accepted accounting principles in the united states ( “ u.s . gaap ” ) as measures of our financial performance .
| results of operations year ended december 31 , 2018 compared to year ended december 31 , 2017 the following table shows our production , revenue , and operating expenses for the periods presented : replace_table_token_21_th 1 as a mineral and royalty interest owner , we are often provided insufficient and inconsistent data on ngl volumes by our operators . as a result , we are unable to reliably determine the total volumes of ngls associated with the production of natural gas on our acreage . accordingly , no ngl volumes are included in our reported production ; however , revenue attributable to ngls is included in our natural gas revenue and our calculation of realized prices for natural gas . 2 not meaningful revenue total revenue for the year ended december 31 , 2018 increased compared to the year ended december 31 , 2017 . the increase in total revenue from the corresponding period is primarily due to increased oil and condensate sales and natural gas and ngl sales as a result of increased production volumes and higher realized commodity prices , partially offset by a decreased gain from our commodity derivative instruments and lower lease bonus and other income . production for 2018 averaged 46.3 mboe per day , an increase of 9.3 mboe per day , compared to the corresponding period in 2017 . oil and condensate sales . oil and condensate sales for the year ended december 31 , 2018 were higher than the corresponding period in 2017 due to increased production volumes and higher realized commodity prices . our mineral and royalty interest oil and condensate volumes increased 52 % in 2018 relative to 2017 , primarily driven by production increases in the permian-midland , permian-delaware , and bakken/three forks plays .
| 2,910 |
depreciation expense is computed using the straight-line method based on the following useful lives : years buildings and improvements 7 to 50 land improvements 5 to 20 furniture , fixtures and equipment 3 to 10 tenant improvements lease term construction expenditures for tenant improvements , leasehold improvements and leasing commissions ( inclusive of compensation costs of personnel attributable to leasing ) are capitalized and amortized over the terms of each specific lease . capitalized compensation costs of personnel attributable to leasing relate to time directly attributable to originating leases with tenants that result directly from and are essential to originating those leases and would not have been incurred had these leasing transactions not occurred . repairs and maintenance are charged to expense when incurred . expenditures for improvements are capitalized . upon acquisition of a property , we allocate the purchase price of the property based upon the fair value of the assets acquired and liabilities assumed , which generally consists of land , buildings , tenant improvements , leasing commissions and intangible assets including in-place leases , above market and below market leases , below market ground lease obligations and tenant relationships . we allocate the purchase price to the fair value of the tangible assets of an acquired property by valuing the property as if it were vacant . acquired above and below market leases and below market ground lease obligations are valued based on the present value of the difference between prevailing market rates and the in-place rates measured over a period equal to the remaining term of the lease for above market leases and below market ground lease obligations , and the initial term plus the term of any below market fixed rate story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with the sections of this form 10-k titled `` forward-looking statements '' and `` selected financial data '' and the consolidated financial statements and notes thereto appearing elsewhere in this form 10-k. business overview the company is a self-administered and fully integrated real estate company which owns , manages , acquires , sells , develops and redevelops industrial real estate . the company is a maryland corporation organized on august 10 , 1993 and a real estate investment trust as defined in the code . we believe our financial condition and results of operations are , primarily , a function of our performance in four key areas : leasing of industrial properties , acquisition and development of additional industrial properties , disposition of industrial properties and access to external capital . we generate revenue primarily from rental income and tenant recoveries from operating leases of our industrial properties . such revenue is offset by certain property specific operating expenses , such as real estate taxes , repairs and maintenance , property management , utilities and insurance expenses , along with certain other costs and expenses , such as depreciation and amortization costs and general and administrative and interest expenses . our revenue growth is dependent , in part , on our ability to : ( i ) increase rental income , through increasing either or both occupancy rates and rental rates at our properties ; ( ii ) maximize tenant recoveries ; and ( iii ) minimize operating and certain other expenses . revenues generated from rental income and tenant recoveries are a significant source of funds , in addition to income generated from gains on the sale of our properties ( as discussed below ) , for our liquidity . the leasing of property , in general , and occupancy rates , rental rates , operating expenses and certain non-operating expenses , in particular , are impacted , variously , by property specific , market specific , general economic and other conditions , many of which are beyond our control . the leasing of property also entails various risks , including the risk of tenant default . if we were unable to maintain or increase occupancy rates and rental rates at our properties or to maintain tenant recoveries and operating and certain other expenses consistent with historical levels and proportions , our revenue would decline . further , if a significant number of our tenants were unable to pay rent ( including tenant recoveries ) or if we were unable to rent our properties on favorable terms , our financial condition , results of operations , cash flow and ability to make distributions to our stockholders and unitholders , the market price of the company 's common stock and the market value of the units would be adversely affected . our revenue growth is also dependent , in part , on our ability to acquire existing , and develop new industrial properties on favorable terms . we seek to identify opportunities to acquire existing industrial properties on favorable terms , and , when conditions permit , also seek to acquire and develop new industrial properties on favorable terms . existing properties , as they are acquired , and acquired and developed properties , as they are leased , generate revenue from rental income , tenant recoveries and fees , income from which , as discussed above , is a source of funds for our distributions to our stockholders and unitholders . the acquisition and development of properties is impacted , variously , by property specific , market specific , general economic and other conditions , many of which are beyond our control . the acquisition and development of properties also entails various risks , including the risk that our investments may not perform as expected . for example , acquired existing and acquired and developed new properties may not sustain and or achieve anticipated occupancy and rental rate levels . with respect to acquired and developed new properties , we may not be able to complete construction on schedule or within budget , resulting in increased debt service expense and construction costs and delays in leasing the properties . story_separator_special_tag depreciation and other amortization from acquired properties increased $ 4.8 million due to properties acquired subsequent to december 31 , 2016. depreciation and other amortization from sold properties decreased $ 6.7 million due to properties sold subsequent to december 31 , 2016. depreciation and other amortization from ( re ) developments increased $ 3.0 million primarily due to an increase in depreciation and amortization related to completed developments . dep reciation from corporate furniture , fixtures and equipment and other increased $ 0.2 mill ion primarily due to capital expenditures incurred at one property that was acquired in 2016 and placed in service in 2017. the impairment charge for the year ended december 31 , 2018 of $ 2.8 million was due to marketing a property and a land parcel for sale and our assessment of the likelihood of potential sales transaction . the property and the land parcel for which impairment was recorded were sold later during the year ended december 31 , 2018. for the year ended december 31 , 2018 , we recognized $ 81.6 million of gain on sale of real estate related to the sale of 53 industrial properties comprising approximately 2.6 million square feet of gla and several land parcels . for the year ended december 31 , 2017 , we recognized $ 131.3 million of gain on sale of real estate related to the sale of 60 industrial properties comprising approximately 4.6 million square feet of gla and one land parcel . interest expense decreased $ 6.4 million , or 11.2 % , primarily due to a decrease in the weighted average debt balance outstanding for the year ended december 31 , 2018 ( $ 1,334.8 million ) as compared to the year ended december 31 , 2017 ( $ 1,392.2 million ) , a decrease in the weighted average interest rate for the year ended december 31 , 2018 ( 4.24 % ) as compared to the year ended december 31 , 2017 ( 4.42 % ) , and an increase in capitalized interest of $ 1.5 million for the year ended december 31 , 2018 as compared to the year ended december 31 , 2017 due to an increase in development activities . amortization of debt issuance costs increased $ 0.2 million , or 7.7 % , primarily due to additional amortization from fees incurred related to the amendment to our credit facility and term loans in october 2017 and the issuance of the 2028 and 2030 private placement notes in february 2018 , offset by less amortization due to the payoffs of the 2017 notes , the 2017 ii notes and certain mortgage loans . during the year ended december 31 , 2017 , we recorded $ 1.9 million of settlement gain on derivative instruments . in september 2017 , we entered into treasury locks ( the `` 2017 treasury locks '' ) in order to fix the interest rate on an anticipated unsecured debt offering . the 2017 treasury locks were settled during the fourth quarter of 2017. we did not elect to designate the treasury locks as hedges and , as such , we recorded the full change in the fair value of the 2017 treasury locks within the consolidated statement of operations . for the year ended december 31 , 2017 , we recognized a loss from retirement of debt of $ 1.8 million due to prepayment penalties related to the early payoff of certain mortgage loans and the write-off of unamortized debt issuance costs on these mortgage loans as well as the write-off of unamortized debt issuance costs related to an exiting lender on our revolving line of credit and one of our unsecured term loans . equity in loss of joint venture was not significant . for the year ended december 31 , 2018 , the income tax benefit was not significant . for the year ended december 31 , 2017 , we recognized a tax provision of $ 1.2 million primarily related to taxable gain from the sale of real estate from one of our trss . 31 comparison of year ended december 31 , 2017 to year ended december 31 , 2016 the company 's net income was $ 208.3 million and $ 125.7 million for the years ended december 31 , 2017 and 2016 , respectively . the tables below summarize our revenues , property expenses and depreciation and other amortization by various categories for the years ended december 31 , 2017 and 2016. same store properties are properties owned prior to january 1 , 2016 and held as an in-service property through december 31 , 2017 and developments and redevelopments that were placed in service prior to january 1 , 2016 or were substantially completed for the 12 months prior to january 1 , 2016. properties which are at least 75 % occupied at acquisition are placed in service , unless we anticipate the tenants to move out within the first two years of ownership . acquisitions that are less than 75 % occupied at the date of acquisition , developments and redevelopments are placed in service as they reach the earlier of a ) stabilized occupancy ( generally defined as 90 % occupied ) , or b ) one year subsequent to acquisition or development/redevelopment construction completion . acquired properties with occupancy greater than 75 % at acquisition , but with tenants that we anticipate will move out in the first year of ownership , will be placed in service upon the earlier of reaching 90 % occupancy or twelve months after move out . properties are moved from the same store classification to the redevelopment classification when capital expenditures for a project are estimated to exceed 25 % of the undepreciated gross book value of the property . acquired properties are properties that were acquired subsequent to december 31 , 2015 and held as an operating property through december 31 , 2017. sold properties are properties that were sold subsequent to december 31 , 2015 .
| results of operations comparison of year ended december 31 , 2018 to year ended december 31 , 2017 our net income was $ 167.3 million and $ 208.3 million for the years ended december 31 , 2018 and 2017 , respectively . the tables below summarize our revenues , property expenses and depreciation and other amortization by various categories for the years ended december 31 , 2018 and 2017. same store properties are properties owned prior to january 1 , 2017 and held as an in-service property through december 31 , 2018 and developments and redevelopments that were placed in service prior to january 1 , 2017 or were substantially completed for the 12 months prior to january 1 , 2017. properties which are at least 75 % occupied at acquisition are placed in service , unless we anticipate the tenants to move out within the first two years of ownership . acquisitions that are less than 75 % occupied at the date of acquisition , developments and redevelopments are placed in service as they reach the earlier of a ) stabilized occupancy ( generally defined as 90 % occupied ) , or b ) one year subsequent to acquisition or development/redevelopment construction completion . acquired properties with occupancy greater than 75 % at acquisition , but with tenants that we anticipate will move out in the first year of ownership , will be placed in service upon the earlier of reaching 90 % occupancy or twelve months after move out . properties are moved from the same store classification to the redevelopment classification when capital expenditures for a project are estimated to exceed 25 % of the undepreciated gross book value of the property . acquired properties are properties that were acquired subsequent to december 31 , 2016 and held as an operating property through december 31 , 2018. sold properties are properties that were sold subsequent to december 31 , 2016 .
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the company then recognizes as revenue the amount story_separator_special_tag and our consolidated financial statements and notes thereto contained elsewhere in this annual report on form 10-k. 52 replace_table_token_1_th 53 item 7. management 's discussion and analysis of financial condition and results of operations the following discussion also should be read in conjunction with our consolidated financial statements and the notes thereto contained elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements that involve risks and uncertainties . as a result of many factors , such as those set forth under the section entitled risk factors , cautionary note regarding forward-looking statements and elsewhere herein , our actual results may differ materially from those anticipated in these forward-looking statements . executive overview we are a global biopharmaceutical company on a mission to transform the lives of patients with serious and rare diseases . our first commercial product , arikayce ( amikacin liposome inhalation suspension ) , received accelerated approval in the united states ( us ) on september 28 , 2018 for the treatment of mycobacterium avium complex ( mac ) lung disease as part of a combination antibacterial drug regimen for adult patients with limited or no alternative treatment options in a refractory setting as defined by patients who do not achieve negative sputum cultures after a minimum of 6 consecutive months of a multidrug background regimen therapy . mac lung disease is a rare and often chronic infection that can cause irreversible lung damage and can be fatal . our clinical-stage pipeline includes ins1007 and ins1009 . ins1007 is a novel oral , reversible inhibitor of dipeptidyl peptidase 1 ( dpp1 ) with therapeutic potential in non-cystic fibrosis ( non-cf ) bronchiectasis and other inflammatory diseases . ins1009 is an inhaled formulation of a treprostinil prodrug that may offer a differentiated product profile for rare pulmonary disorders , including pulmonary arterial hypertension ( pah ) . we have legal entities in the us , ireland , germany , france , the united kingdom ( uk ) , the netherlands , japan and bermuda . we have not generated significant revenue since inception , and through december 31 , 2018 , we had an accumulated deficit of $ 1,282.2 million . we have financed our operations primarily through the public offerings of our equity securities and debt financings . although it is difficult to predict our future funding requirements , based upon our current operating plan , we anticipate that our cash and cash equivalents as of december 31 , 2018 will enable us to fund our operations for at least the next 12 months . we expect that over the next few years we will continue to incur losses from operations due to , among other things , research and development expenses in connection with our ongoing and future clinical trials and expenses related to the commercial launch of arikayce globally , if approved outside the us . approved product - arikayce arikayce is our first approved product . accelerated approval of arikayce was supported by preliminary data from our convert study , a global phase 3 study evaluating the safety and efficacy of arikayce in adult patients with refractory mac lung disease , using achievement of sputum culture conversion ( defined as three consecutive negative monthly sputum cultures ) by month 6 as the primary endpoint . patients who achieved sputum culture conversion by month 6 continued in the convert study for an additional 12 months of treatment following the first monthly negative sputum culture in order to assess the durability of culture conversion , as defined by patients that have completed treatment and continued in the convert study off all therapy for three months . the convert study is ongoing . patients who did not culture convert by month 6 may have been eligible to enroll in our 312 study , an open-label extension study for these non-converting patients who completed six months of treatment in the convert study . the primary objective of the 312 study was to evaluate the long-term safety and tolerability of arikayce in combination with a standard multi-drug regimen . the secondary endpoints of the 312 study included evaluating the proportion of subjects achieving culture conversion ( defined in the same way as the convert study ) by month 6 and the proportion of subjects achieving culture conversion by month 12 , which was the end of treatment . the 312 study has completed . as a condition of accelerated approval , we must conduct a post-approval confirmatory clinical trial . the required confirmatory trial , which is currently under discussion with the fda , is proposed to be a randomized , double-blind , placebo-controlled clinical trial to assess and describe the clinical benefit of arikayce in patients with mac lung disease . the trial will evaluate the effect of arikayce on a clinically meaningful endpoint , as compared to an appropriate control , in the intended patient population of patients with mac lung disease . pursuant to the timetable agreed upon with the fda , the study protocol is expected to be finalized during the first half of 2019 , with trial results to be reported by 2024. continued approval of arikayce will be contingent upon verification and description of clinical benefit in this study . pipeline progress ins1007 54 ins1007 is a small molecule , oral , reversible inhibitor of dpp1 , which we licensed from astrazeneca in october 2016. dpp1 is an enzyme responsible for activating neutrophil serine proteases in neutrophils when they are formed in the bone marrow . neutrophils are the most common type of white blood cell and play an essential role in pathogen destruction and inflammatory mediation . neutrophils contain the neutrophil serine proteases ( including neutrophil elastase , proteinase 3 , and cathepsin g ) that have been implicated in a variety of inflammatory diseases . in chronic inflammatory lung diseases , neutrophils accumulate in the airways and release active neutrophil serine proteases in excess that cause lung destruction and inflammation . story_separator_special_tag interest expense consists primarily of the accretion of debt discount , contractual interest costs and the amortization of debt issuance costs related to our accretion of debt . debt discount is accreted , and debt issuance costs are amortized , to interest expense using the effective interest rate method over the term of the debt . our balance sheet reflects debt , net of the debt discount , debt issuance costs paid to the lender , and other third-party costs . unamortized debt issuance costs associated with extinguished debt are expensed in the period of the extinguishment . story_separator_special_tag style= '' padding-left:0px ; text-indent:0px ; line-height : normal ; padding-top:10px ; '' > replace_table_token_3_th sg & a expenses increased to $ 168.2 million during the year ended december 31 , 2018 from $ 79.2 million in the same period in 2017 . the $ 89.0 million increase was primarily due to $ 39.4 million in higher compensation and related expenses due to an increase in headcount , including the hiring of our field force , and $ 39.5 million in professional fees relating to pre-commercial planning activities in preparation for the launch of arikayce , including non-branded disease awareness , patient support planning , field operations and other consulting fees . amortization of intangible assets amortization of intangible assets for the year ended december 31 , 2018 was $ 1.2 million and is comprised of amortization of acquired arikayce r & d and amortization of the milestone paid to pari for the fda approval of arikayce . interest expense interest expense was $ 25.5 million for the year ended december 31 , 2018 as compared to $ 5.9 million for 2017 . the $ 19.5 million increase in interest expense in the year ended december 31 , 2018 as compared to the prior year period relates to the issuance of $ 450.0 million aggregate principal amount of convertible notes in january 2018. the interest expense on the convertible notes is based on an effective interest rate of 7.6 % . income tax provision ( benefit ) the income tax provision ( benefit ) was $ 0.2 million and $ ( 0.3 ) million for the years ended december 31 , 2018 and 2017 , respectively . the income tax provision for the year ended december 31 , 2018 reflects the current income tax expense recorded as a result of taxable income in certain of our subsidiaries in europe and japan . the income tax ( benefit ) for the year ended december 31 , 2017 reflects the reversal of the valuation allowance related to alternative minimum tax ( amt ) that we paid in 2009 and became refundable as a result of the tax act . on december 22 , 2017 , the us government enacted comprehensive tax legislation , referred to as the tax cuts and jobs act ( the tax act ) . the tax act significantly revised us tax law by , among other provisions , lowering the us federal statutory corporate tax rate from 35 % to 21 % , imposing a mandatory one-time transition tax on previously deferred foreign earnings , and eliminating or reducing certain income tax deductions . the tax act did not have a material impact on our financial statements because our deferred temporary differences are fully offset by a valuation allowance and we did not have any significant offshore earnings from which to record the mandatory transition tax . comparison of the years ended december 31 , 2017 and 2016 net loss net loss for the year ended december 31 , 2017 was $ 192.6 million , or $ 2.89 per share—basic and diluted , compared with a net loss of $ 176.3 million , or $ 2.85 per share—basic and diluted , for the year ended december 31 , 2016. the $ 16.4 million increase in our net loss for the year ended december 31 , 2017 as compared to the same period in 2016 was due to : decreased r & d expenses of $ 13.0 million primarily resulting from the $ 30.0 million upfront payment for the license agreement entered into with astrazeneca for exclusive global rights to ins1007 in october 2016 , offset in part by , an increase in expenses related to the willow study and higher compensation and related expenses due to an increase in headcount ; and increased sg & a expenses of $ 28.5 million resulting from an increase in pre-commercial planning activities , including external consulting expenses , and higher compensation and related expenses due to an increase in headcount . 58 in addition , there was a $ 2.4 million increase in interest expense resulting from the increase in our debt in the second half of 2016. r & d expenses r & d expenses for the years ended december 31 , 2017 and 2016 were comprised of the following ( in thousands ) : replace_table_token_4_th r & d expenses decreased to $ 109.7 million during the year ended december 31 , 2017 from $ 122.7 million in the same period in 2016. the $ 13.0 million decrease was due to a $ 30.0 million upfront payment under the az license agreement related to ins1007 in october 2016 and a $ 3.7 million decrease in expenses relating to ins1009 . these decreases were partially offset by a $ 10.2 million increase in raw materials purchases and expenses related to the willow trial for ins1007 and a $ 5.4 million increase in compensation and related expenses due to an increase in headcount . there was also an increase of $ 3.2 million due to increased regulatory , quality assurance and medical affairs consulting expenses and medical grants .
| results of operations comparison of the years ended december 31 , 2018 and 2017 overview - operating results our operating results for the year ended december 31 , 2018 , included the following : total revenues of $ 9.8 million during the year ended december 31 , 2018 , as a result of the fourth quarter launch of arikayce , following us fda approval on september 28 , 2018 ; cost of product revenues ( excluding amortization of intangibles ) of $ 2.4 million during the year ended december 31 , 2018 related to sales of arikayce ; r & d expenses increased $ 35.5 million primarily resulting from an increase in external manufacturing expenses and higher compensation and related expenses due to an increase in headcount , as compared to the prior year ; sg & a expenses increased $ 89.0 million resulting from higher compensation and related expenses due to an increase in headcount , and an increase in consulting fees relating to pre-commercial planning activities in preparation for the launch of arikayce , as compared to the prior year ; amortization of intangible assets of $ 1.2 million during the year ended december 31 , 2018 ; and interest expense increased $ 19.5 million from the issuance of $ 450.0 million aggregate principal amount of 1.75 % convertible senior notes due 2025 ( the convertible notes ) in january 2018. net loss for the year ended december 31 , 2018 was $ 324.3 million , or $ 4.22 per share—basic and diluted , compared with a net loss of $ 192.6 million , or $ 2.89 per share—basic and diluted , for the year ended december 31 , 2017 .
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the group is an approved manufacturer by many well-known brands and retailers , such as walmart , costco , sears , hanes , columbia , land 's end , vf corporation ( which owns brands such as the north face , nautica , timberland , wrangler , lee , jansport , etc . ) , and philip-van heusen ( which owns brands such as calvin klein , tommy hilfiger , izod , speedo , etc. ) . our production facilities are made up of three factory units and two warehouses and currently employ approximately 2,900 people . our employees include local jordanian workers as well as migrant workers from bangladesh , sri lanka , india , myanmar and nepal . the total annual capacity at the group 's facilities is approximately 6.5 million pieces ( average for product categories including t-shirts , polos and jackets ) . merger on may 11 , 2017 , we implemented the merger via two transactions , the first being an equity contribution whereby the shareholders of global trend , contributed 100 % of the outstanding capital stock of global trend to jerash holdings in exchange for an aggregate of 8,787,500 shares of common stock of jerash holdings with global trend becoming the wholly-owned subsidiary of jerash holdings . in the second transaction , global trend merged with and into jerash holdings with jerash holdings being the surviving entity , as a result of which jerash holdings became the direct parent of global trend 's wholly owned operating subsidiaries , jerash garments and treasure success . 21 accounting treatment of merger for accounting purposes , global trend is recognized as the accounting acquirer , and jerash holdings is the legal acquirer or accounting acquiree . as such , following the merger , the historical financial statements of global trend are treated as the historical financial statements of the combined company . accordingly , the financial information in this annual report on form 10-k , including management 's discussion and analysis of financial condition and results of operations and the consolidated financial statements and the related notes thereto appearing elsewhere in this filing , reflect the consolidated financial statements of global trend , its subsidiaries and its affiliate , which includes as a variable interest entity victory apparel jordan company limited ( “ victory apparel ” ) . victory apparel was incorporated in jordan in 2005 and it is a wholly owned subsidiary of wcl . wealth choice limited ( “ wcl ” ) acquired global trend and jerash garments from two third-party individuals on march 21 , 2012. on march 31 , 2006 , victory apparel purchased all of the property and equipment of jerash garments at an industrial building in al tajamouat industrial city purchased by jerash garments on july 31 , 2000. the land and building were not registered in victory apparel 's name , and jerash garments continued to hold the land and building in its name in trust for victory apparel . the declaration of trust was never registered with the land registry of jordan , and on june 30 , 2016 , victory apparel and jerash garments dissolved the sale agreement , resulting in the property and equipment being owned free and clear by jerash garments . victory apparel does not currently have any material assets or operations of its own , and mr. choi and mr. lee , the group 's significant stockholders who together indirectly own 100 % of victory apparel through wcl , intend to dissolve the entity seasonality of sales a significant portion of our revenues are received during the first six months of our fiscal year . the majority of our vf corporation orders are derived from winter season fashions , the sales of which occur in spring and summer and are merchandized by vf corporation during the autumn months ( september through november ) . as such , the second half of our fiscal years reflect lower sales in anticipation of the spring and summer seasons . one of our strategies is to increase sales with other customers where clothing lines are stronger during the spring months . this strategy also reflects our current plan to increase the group 's number of customers to mitigate our current concentration risk with vf corporation . story_separator_special_tag earnings at an effective rate of 10.5 % for tax years beginning after december 31 , 2017 ( increasing to 13.125 % for tax years beginning after december 31 , 2025 ) with a partial offset for foreign tax credits . generally , accounting for the impacts of newly enacted tax legislation . including the toll charge , is required to be completed in the period of enactment , however in response to the complexities and ambiguity surrounding the tax act , the sec released staff accounting bulletin no . 118 ( “ sab 118 ” ) to provide companies with relief around the initial accounting for the tax act . pursuant to sab 118 , the sec has provided a one-year measurement period for companies to analyze and finalize accounting for the tax act . during the one-year measurement period , sab 118 allows companies to recognize provisional amounts when reasonable estimates can be made for the impacts resulting from the tax act . we will finalize accounting for the tax act during the one-year measurement period , and any adjustments to the provisional amounts will be included in income tax expense or benefit in the appropriate period , and disclosed if material , in accordance with guidance provided by sab 118. while our accounting for the tax act is not complete , we have recognized a provisional charge ( based on information available as of june 4 , 2018 ) of approximately $ 1.4 million related to the toll charge . to determine the amount of the toll charge , we must determine , in addition to other factors , the amount of post-1986 foreign earnings and profits of the relevant subsidiaries , as well as the amount of non-u.s. income taxes paid on such earnings , if any . story_separator_special_tag hsbc has approved certain of the group 's suppliers that are eligible to use clean import loans . hsbc charges a commission of : i ) 0.25 % for the first $ 50,000 , ii ) 0.125 % for the balance in excess of $ 50,000 and up to $ 100,000 and iii ) 0.0625 % for balance in excess of $ 100,000 and an interest of 1.5 % per annum over libor or hibor , as applicable , for credit services related to clean import loans or release of the goods or merchandise based on evidence of delivery or invoice . hsbc will advance up to 70 % of the purchase order value in the group 's favor . hsbc charges a handling fee of 0.25 % and an interest rate of 1.5 % per annum over libor or hibor , as applicable , for credit services related to advances . the facility letter is collateralized by the guarantees of jerash holdings ( us ) , inc , jerash garments , and the personal guarantees of mr. choi and mr. ng tsze lun . jerash garments is also required to maintain an account at hsbc for receiving payments from vf sourcing asia s.a.r.l . and its related companies . in addition , to secure the facility letter , the group granted hsbc a charge of $ 3,000,000 over the company 's deposits . this charge is accounted for as restricted cash in our balance sheet at march 31 , 2018. following the anticipated amendment of the facility letter , the group anticipates that the personal guarantees of mr. choi and mr. ng , along with the charge over the group 's deposits will be released in exchange for the addition of jerash garments to the facility letter , along with treasure success and jerash holdings providing guarantees of jerash garments ' payments under the facility letter . 25 the facility letter is subject to review at any time and valid until may 1 , 2018. hsbc has discretion on whether to renew the facility letter prior to expiration and the group is currently negotiating an extension of the facility letter on similar terms . as of march 31 , 2018 , $ 624,772 was outstanding under the facility letter . borrowings under the facility letter are due within 120 days of each borrowing date or upon demand by hsbc . on june 5 , 2017 , treasure success entered into an offer letter - invoice discounting / factoring agreement and on august 21 , 2017 , treasure success entered into the invoice discounting/factoring agreement ( together , the “ factoring agreement ” ) with hsbc for certain debt purchase services related to the group 's accounts receivables . the group anticipates amending the factoring agreement to extend the term of the facility with substantially similar terms . under the current terms of the factoring agreement , the group may borrow up to $ 12,000,000. in exchange for advances on eligible invoices from hsbc for the group 's approved customers , hsbc charges a fee to advance such payments at a discounting charge of 1.5 % per annum over 1-month libor or hibor , as applicable . such fee accrues on a daily basis on the amount of funds in use . hsbc has final determination of the percentage amount available for prepayment from each of the group 's approved customers . the group may not prepay an amount from a customer in excess of 85 % of the funds available for borrowing . as of march 31 , 2018 , $ 355,423 was outstanding under the invoice discounting / factoring agreement . hsbc also provides credit protection and debt services related to each of the group 's preapproved customers . for any approved debts or collections assigned to hsbc , hsbc charges a flat fee of 0.35 % on the face value of the invoice for such debt or collection . the group may assign debtor payments that are to be paid to hsbc within 90 days , defined as the maximum terms of payment . the group may receive advances on invoices that are due within 30 days of the delivery of the group 's goods , defined as the maximum invoicing period . the advances made by hsbc are collateralized by the guarantees of us and jerash garments , and the personal guarantees by mr. choi and mr. ng tsze lun . in addition , to secure the factoring agreement , the group granted hsbc a charge of $ 3,000,000 over the group 's deposits . if the group fails to pay any sum due to hsbc , hsbc may charge a default interest at the rate of 8.5 % per annum over the best lending rate quoted by hsbc on such defaulted amount . following the anticipated amendment of the factoring agreement , the group anticipates that the personal guarantees of mr. choi and mr. ng , along with the charge over the group 's deposits will be released in exchange for the addition of jerash garments to the factoring agreement , along with treasure success and jerash holdings providing guarantees of jerash garments ' payments under the factoring agreement . the factoring agreement is subject to the review by hsbc at any time , and valid until may 1 , 2018 and we are in the process of negotiating an extension on similar terms . either party may terminate the agreement subject to a 30-day notice period . as of march 31 , 2018 , there was $ 355,423 outstanding under the factoring agreement . amounts borrowed under the factoring agreement are due within 120 days of each borrowing date or upon demand by hsbc . years ended march 31 , 2018 and 2017 the following table sets forth a summary of the group 's cash flows for the fiscal years ended march 31 , 2017 and 2018 .
| results of operations the following table presents certain information from our statement of income for fiscal years 2017 and 2018 and should be read , along with all of the information in this management 's discussion and analysis , in conjunction with the consolidated financial statements and related notes included elsewhere in this filing . ( all amounts , other than percentages , in thousands of u.s. dollars ) replace_table_token_2_th 22 revenue . revenue increased by approximately $ 7.3 million or 12 % , to approximately $ 69.3 million in fiscal 2018 from approximately $ 62.0 million in fiscal 2017. the growth was mainly the result of the expansion of our business with one of our major customers , particularly , in export product types with higher sales value , such as jackets , and the economic recovery of the u.s. , which remains the group 's major export destination . approximately 88 % and 90 % of our products were exported to the u.s. in fiscal 2018 and 2017 respectively . as a garment manufacturing group , we excel in manufacturing sport and outerwear and derive most of our revenue from the manufacturing and sales of sport and outerwear , which is the only segment in which we operate . the table below presents our revenues for fiscal years 2017 and 2018 by geographic area . revenue by geographic area ( all amounts , other than percentages , in thousands of u.s. dollars ) replace_table_token_3_th since december 2001 , all apparel manufactured in jordan could be exported to the u.s. without duty imposed , pursuant to the u.s. customs and border protection jordan free trade treaty . this treaty provides substantial competitiveness and benefit for us to expand the group 's garment export business in the u.s. our sales to the u.s. increased by approximately 9.8 % in fiscal 2018 compared to fiscal 2017. according to the major shippers report issued by the office of textiles and apparel under the u.s.
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important factors that may cause such differences include , but are not limited to , those discussed under the “ forward-looking statements ” above and “ item ia . risk factors ” in part i of this annual report on form 10-k. business overview we are one of the world 's leading clinical contract research organizations , or cros , by revenue , solely focused on providing scientifically-driven outsourced clinical development services to the biotechnology , pharmaceutical and medical device industries . our mission is to accelerate the global development of safe and effective medical therapeutics . we differentiate ourselves from our competitors by our disciplined operating model centered on providing full-service phase i-iv clinical development services and our therapeutic expertise . we believe this combination results in timely and cost-effective delivery of clinical development services for our customers . we believe that we are a partner of choice for small- and mid-sized biopharmaceutical companies based on our ability to consistently utilize our full-service , disciplined operating model to deliver timely and high-quality results for our customers . we focus on conducting clinical trials across all major therapeutic areas , with particular strength in cardiology , metabolic disease , oncology , endocrinology , central nervous system , or cns , antiviral and anti-infective , or avai , as well as therapeutic expertise in medical devices . our global platform includes approximately 2,900 employees across 36 countries , providing our customers with broad access to diverse markets and patient populations as well as local regulatory expertise and market knowledge . change in controlled company status prior to august 10 , 2018 , the company met the definition of a “ controlled company ” as defined by nasdaq rules . a “ controlled company ” is defined in nasdaq rule 5615 ( c ) as a company of which more than 50 percent of the voting power for the election of directors is held by an individual , group or another company . certain nasdaq requirements do not apply to a “ controlled company ” , including requirements that : ( i ) a majority of its board of directors must be comprised of “ independent ” directors as defined in nasdaq 's rules , and ( ii ) the compensation of officers and the nomination of directors be determined in accordance with specific rules , generally requiring determinations by committees comprised solely of independent directors or in meetings at which only the independent directors are present . on august 10 , 2018 , the company 's previously largest shareholder , cinven capital management ( v ) general partner limited ( “ cinven ” ) , sold a portion of its shares in a public offering , which resulted in the company no longer meeting the definition of a “ controlled company ” . asset acquisition in may 2017 , the company acquired out of bankruptcy nephrogenex , inc. ( “ nephrogenex ” or the “ debtor ” ) , a publicly-held pharmaceutical company that had previously filed for relief under chapter 11 of the united states bankruptcy code . the company , which was the largest unsecured creditor of nephrogenex , entered into an agreement through the bankruptcy process , to exchange its unsecured claim for 100 % of the common stock in the post-bankruptcy , debt-free debtor . the assets of the acquired debtor consist primarily of tax attributes as well as in-process research and development and other intangible assets . an analysis by the company determined that substantially all the fair value of the assets on the date of acquisition is captured in the tax attributes , as the intangible assets account for a relatively immaterial portion of the fair market value of the total assets received . the acquisition of the debtor was accounted for as an asset purchase . - 52 - the company allocated its consideration paid of $ 1.2 million , consisting of accounts receivable and unbilled receivables and transaction related costs , on a pro rata basis to the assets acquired based on their respective fair values . acquired assets include intangible assets of $ 0.5 million , deferred tax assets of $ 22.2 million , consisting of tax effected net operating losses in the amount of $ 13.5 million , tax effected capitalized research and development expenses of $ 8.5 million and tax effected federal tax credits of $ 0.2 million , and deferred tax liabilities of $ 0.1 million . the excess amount of fair value received over consideration paid of $ 21.4 million was recorded as a deferred credit in the consolidated balance sheets and will be recognized within income tax provision in proportion to the realization of the deferred tax assets and federal tax credits prospectively . during the fourth quarter of the year ended december 31 , 2017 , the deferred tax assets and related deferred credit balances were revalued due primarily to the impact of tax reform . see note 12 of the notes to consolidated financial statements for further discussion of the impact of tax reform on our consolidated financial statements . additionally , in 2018 , the company disposed of approximately $ 7.4 million in deferred tax assets and reduced the deferred credit by approximately $ 6.9 million as a result of an irc section 382 ownership shift that occurred as a result of cinven 's sales of the company 's securities . the ownership shift resulted in a limitation in the ability to utilize the acquired tax attributes and resulted in the described asset write-off and reduction of the deferred credit . how we generate revenue we earn fees through the performance of services detailed in our customer contracts . contract scope and pricing is typically based on either a fixed-fee or unit-of-service model , with consideration of activities performed by third parties , as well as ancillary costs necessary to deliver on the contract scope that are reimbursable by our customers . our contracts can range in duration from a few months to several years . story_separator_special_tag awards may not be recognized as backlog after consideration of a number of factors , including whether ( i ) the relevant net revenue is expected only after a pending regulatory hurdle , which might result in cancellation of the study , ( ii ) the customer funding needed for commencement of the study is not believed to have been secured or ( iii ) study timelines are uncertain or not well defined . in addition , study amounts that extend beyond a three-year timeline are not included in backlog . the number and amount of new business awards can vary significantly from period to period , and an award 's contractual duration can range from several months to several years based on customer and project specifications . - 54 - cancellations arise in the normal course of business and are reflected when we receive written confirmation from the customer to cease work on a contractual agreement . the majority of our customers can terminate our contracts without cause upon 30 days ' notice . similar to new business awards , the number and amount of cancellations can vary significantly period over period due to timing of customer correspondence and study-specific circumstances . net new business awards represent gross new business awards received in a period offset by total cancellations in that period . on an accounting standards codification topic 606 , revenue from contracts with customers ( “ asc 606 ” ) basis , net new business awards were $ 899.4 million for the year ended december 31 , 2018. on an accounting standards codification topic 605 , revenue recognition ( “ asc 605 ” ) basis , n et new business awards were $ 581.0 million , $ 426.1 million and $ 427.0 million for the years ended december 31 , 2018 , 2017 and 2016 , respectively . backlog represents anticipated future net revenue from net new business awards that have commenced , but have not been completed . reported backlog will fluctuate based on new business awards , changes in the scope of existing contracts , cancellations , revenue recognition on existing contracts and foreign exchange adjustments from non-u.s. dollar denominated backlog . on an asc 606 basis , as of december 31 , 2018 , our backlog was $ 1,057.9 million . on an asc 605 basis , as of december 31 , 2018 , our backlog increased by $ 101.7 million , or 19.4 % , to $ 626.1 million compared to $ 524.4 million as of december 31 , 2017. included within backlog on an asc 606 basis as of december 31 , 2018 was approximately $ 580 million to $ 600 million that we expect to convert to net revenue in 2019 , with the remainder expected to convert to net revenue in years after 2019 . on an asc 605 basis , the effect of foreign currency adjustments on backlog was as follows : unfavorable foreign currency adjustments of $ 1.1 million for the year ended december 31 , 2018 ; favorable foreign currency adjustments of $ 3.2 million for the year ended december 31 , 2017 ; and unfavorable foreign currency adjustments of $ 3.4 million for the year ended december 31 , 2016. backlog and net new business award metrics may not be reliable indicators of our future period revenue as they are subject to a variety of factors that may cause material fluctuations from period to period . these factors include , but are not limited to , changes in the scope of projects , cancellations , and duration and timing of services provided . exchange rate fluctuations the majority of our contracts and operational transactions are u.s. dollar denominated . the euro represents the largest foreign currency denomination of our contractual and operational exposure . as a result , a portion of our revenue and expenses is subject to exchange rate fluctuations . we have translated the euro into u.s. dollars using the following average exchange rates based on data obtained from www.xe.com : replace_table_token_5_th - 55 - story_separator_special_tag financial statements for further details . - 57 - year ended december 31 , 2017 compared to year ended december 31 , 2016 replace_table_token_7_th total revenue for the year ended december 31 , 2017 total revenue increased by $ 14.6 million to $ 436.2 million , from $ 421.6 million for the year ended december 31 , 2016. the increase was primarily driven by strong activity within the oncology , metabolic , and other uncategorized therapeutic areas . reimbursed out-of-pocket revenue decreased by $ 1.3 million to $ 49.7 million for the year ended december 31 , 2017 , from $ 51.0 million for the year ended december 31 , 2016. reimbursed out-of-pocket revenues can fluctuate significantly from period to period based on the timing of program initiation or closeout , and these changes do not necessarily correlate to changes in net service revenue . the reimbursements were offset by an equal amount of reimbursed out-of-pocket expenses . total direct costs total direct costs increased by $ 12.0 million , to $ 261.5 million for the year ended december 31 , 2017 from $ 249.5 million for the year ended december 31 , 2016. the increase was primarily attributed to higher personnel costs of $ 9.3 million , service related supply costs of $ 2.8 million , office rents of $ 0.8 million and computer , software licenses and maintenance costs of $ 0.6 million in the year ended december 31 , 2017 , compared to the prior year , all to support the growth in project activities . this was partially offset by a decrease in reimbursed out-of-pocket expenses , which can fluctuate significantly from period to period based on the timing of program initiation or closeout , of $ 1.3 million in the year ended december 31 , 2017 , compared to the prior year . selling , general and administrative selling , general and administrative expenses increased by $ 1.9 million , to $ 63.4 million for the year ended december 31 , 2017 from $ 61.5
| results of operations year ended december 31 , 2018 compared to year ended december 31 , 2017 replace_table_token_6_th total revenue for the year ended december 31 , 2018 total revenue increased by $ 268.4 million to $ 704.6 million , from $ 436.2 million for the year ended december 31 , 2017. this was primarily driven by asc 606 adoption , which resulted in an increase of $ 155.2 million for the year ended december 31 , 2018. the remaining increase was primarily driven by strong activity within the oncology and other uncategorized therapeutic areas . reimbursed out-of-pocket revenue decreased by $ 49.7 million to $ 0.0 million for the year ended december 31 , 2018 , from $ 49.7 million for the year ended december 31 , 2017. this decrease was fully due to asc 606 adoption . total direct costs total direct costs increased by $ 227.6 million , to $ 489.1 million for the year ended december 31 , 2018 from $ 261.5 million for the year ended december 31 , 2017. this was primarily driven by asc 606 adoption , which resulted in an increase of $ 165.5 million for year ended december 31 , 2018. reimbursed out-of-pocket expenses , which can fluctuate significantly from period to period based on the timing of the program initiation or closeout , increased $ 21.6 million for the year ended december 31 , 2018. the remaining increase was primarily attributed to higher personnel costs of $ 25.3 million , service related supply costs of $ 7.6 million and contracted services costs of $ 5.1 million in the year ended december 31 , 2018 , compared to the same period in the prior year , all to support the growth in project activities .
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the company owes approximately $ 4.25 million under the loan agreement , plus accrued interest and fees . the balance under the loan agreement will continue to incur interest at 11 % per year . if the company can not remedy the default , the company does not have the ability to make the payments without additional sources of financing or accelerating the collection of outstanding receivables . since the loan balance is secured by the company 's assets , cathay bank may foreclose on the collateral securing the loan which could significantly impact our business and our financial results . china development bank ( “ cdb ” ) has provided financing for construction and project financing on certain development projects in the past . they have also executed non-binding term sheets for other projects , but there is no assurance that the projects in process will be funded by cdb . cdb has been financing the company 's projects primarily because the company 's majority shareholder is ldk and cdb has a long term relationship with ldk . due to ldk 's financial difficulties and liquidation , certain financing of the company 's projects have been delayed . if cdb will no longer provide financing for the projects , the company will need to seek construction financing from other sources which could be very difficult given the company 's financial condition and its recent default under the cathay bank loan agreement as further described below . the company has completed projects in greece with a customer that is requesting debt term financing from cdb . because cdb has not yet provided the term financing , the company will collect its outstanding receivables on these projects from the operation 's cash proceeds over an extended period of time of up to six years and has reflected the receivables as noncurrent on the balance sheet . however , the customer continues to have discussions with cdb about financing , and if financing is obtained , collection of our receivables may be accelerated . the company has also completed an additional commercial scale project in new jersey with kdc solar , which is currently seeking debt term financing from cdb . because cdb has not yet provided the term financing , the company will collect its outstanding notes receivables from the operation 's cash proceeds over an extended period of time of up to fifteen years and has reflected the receivables as noncurrent on the balance sheet . however , the customer continues to have discussions with cdb about financing , and if financing is obtained , collection of our receivables may be accelerated . a key term of existing project financing with cdb is that the company must use solar panels manufactured by ldk . currently , however , ldk has demanded payment in advance in order to procure their solar panels . if the company is unable to make advance payments as required , the company has and will continue to request that its customers make the required cash payments to ldk for the ldk solar panels to be utilized in projects under development . the company continues to maintain relationships with other solar panel manufacturers when circumstances call for an alternative to ldk 's line of solar panels . 5 the significant risks and uncertainties described above have a significant negative impact on our financial viability and raise substantial doubt about our ability to continue as a going concern . management has made changes to our business model by managing cash flow through cost cutting measures , securing project financing before commencing further project development , and requesting that our customers make cash payments for solar panels for projects under development . if the noted banks should call the debt or ldk demand payment of amounts owed by us prior to collection of the related receivables , management plans to obtain additional debt or equity financing . there is no assurance that management 's plans to accelerate the collection of outstanding receivables or to obtain additional debt or equity financing will be successfully implemented , or implemented on terms favorable to us . as of december 31 , 2013 , the company had $ 1.0 million in cash and cash equivalents . the consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded assets or the amounts and classification of liabilities or any other adjustments that might result from the outcome of this uncertainty . our wholly-owned subsidiary sgt has appointed a liquidator to liquidate sgt 's assets . in the event , sgt has insufficient funds to fund the liquidation process , sgt may be forced into bankruptcy . on december 30 , 2013 , the board of directors of sgt appointed a liquidator . under italian regulations , the liquidation process is controlled and carried out by the liquidator and the company has no ability to exercise influence over sgt . sgt currently has insufficient funds to fund the sgt liquidation process . in the event sgt does not receive additional funds needed to proceed with the liquidation , sgt will likely be forced to file for bankruptcy protection . upon filing for bankruptcy , the trustee for the sgt bankruptcy is required under italian law to review sgt 's background and recent history and may bring actions against sgt 's officers , directors and the company if it can be shown that such persons harmed sgt . recent changes to our business strategy provides a limited history on which to base our prospects and anticipated results of operations . story_separator_special_tag should miscalculations in planning a project or defective or late execution occur , we may not achieve our expected margins or cover our costs . additionally , many systems customers require performance bonds issued by a bonding agency . due to the general performance risk inherent in construction activities , it is sometimes difficult to secure suitable bonding agencies willing to provide performance bonding . in the event we are unable to obtain bonding , we will be unable to bid on , or enter into sales contracts requiring such bonding . delays in solar panel or other supply shipments , other construction delays , unexpected performance problems in electricity generation or other events could cause us to fail to meet these performance criteria , resulting in unanticipated and severe revenue and earnings losses and financial penalties . construction delays are often caused by inclement weather , failure to timely receive necessary approvals and permits , or delays in obtaining necessary solar panels , inverters or other materials . the occurrence of any of these events could have a material adverse effect on our business and results of operations . if there is an increase in the price of polysilicon , the corresponding increase in the cost of constructing sefs may reduce the demand for sefs , resulting in lower revenues and earnings . increases in polysilicon pricing could result in substantial downward pressure on the demand for sefs due to the overall increase in the cost of production for such projects . lessening demand for new sefs may have a negative impact on our revenue and earnings and adversely affect our business and financial condition . our operating results may fluctuate significantly from period to period ; if we fail to meet the expectations of securities analysts or investors , our stock price may decline significantly . several factors can contribute to significant quarterly and other periodic fluctuations in our results of operations . these factors may include but are not limited to the following : timing of orders and the volume of orders relative to our capacity ; availability of financing for our customers ; availability and pricing of raw materials , such as solar cells and wafers and potential delays in delivery of components or raw materials by our suppliers . solar cells represent over 50 % of our direct material cost and fluctuations in pricing or availability of cells will have material impact to our costs and margins ; delays in our product sales , design and qualification processes which vary widely in length based upon customer requirements and market acceptance of new products or new generations of products ; pricing and availability of competitive products and services ; changes in government regulations , tax-based incentive programs , and changes in global economic conditions ; delays in installation of specific projects due to inclement weather ; any payments required to be made to cathay bank to satisfy the company 's past due obligations ; to the sgt liquidator or the sgt bankruptcy trustee if it is determined the company has liabilities in connection with sgt 's liquidation or bankruptcy ; to ldk in the event ldk or its liquidators begins collections on the accounts payables to ldk ; changes in currency translation rates affecting margins and pricing levels . we base our planned operating expenses in part on our expectations of future revenue , and we believe a significant portion of our expenses will be fixed in the short-term . if revenue for a particular quarter is lower than we expect , we likely will be unable to proportionately reduce our operating expenses for that quarter , which would harm our operating results for that quarter . this may cause us to miss analysts ' guidance or any guidance announced by us . if we fail to meet or exceed analyst or investor expectations or our own future guidance , even by a small amount , our stock price could fluctuate , perhaps substantially . 8 we may not be able to efficiently integrate the operations of our acquisitions , products or technologies . from time to time , we may acquire new and complementary technology , assets and companies . we do not know if we will be able to complete any acquisitions or if we will be able to successfully integrate any acquired businesses , operate them profitably or retain key employees . integrating any newly acquired business , product or technology could be expensive and time-consuming , disrupt our ongoing business and distract our management . we may face competition for acquisition targets from larger and more established companies with greater financial resources . in addition , in order to finance any acquisitions , we might be forced to obtain equity or debt financing on terms that are not favorable to us , and in the case of equity financing , our stockholders interests may be diluted . if we are unable to integrate effectively any newly acquired company , product or technology , our business , financial condition and operating results could suffer . we face intense competition and many of our competitors have substantially greater resources than we do . we compete with major international and domestic companies . some of our current and potential competitors have greater market recognition and customer base , longer operating histories and substantially greater financial , technical , marketing , distribution , purchasing , manufacturing , personnel and other resources than we do . in addition , many of our competitors are developing and are currently producing products based on new solar power technologies that may ultimately have costs similar to or lower than our projected costs . some of our competitors own , partner with , have longer term or stronger relationships with solar cell providers than we do , which could result in them being able to obtain solar cells on a more favorable basis than us . it is possible that new
| results of operations comparison of the year ended december 31 , 2013 to the year ended december 31 , 2012 net sales — net sales were $ 42.6 million and $ 100.0 million for the year ended december 31 , 2013 and 2012 , respectively , a decrease of $ 57.4 million , or 57.4 % . included in net sales for the year ended december 31 , 2012 were related party sales to ldk , north palm springs investments , llc ( “ npsllc ” ) , a wholly owned subsidiary of ldk solar usa , inc. , and terrasol of $ 35.5 million , primarily consisting of solar development project costs . the decrease in net sales for the year ended december 31 , 2013 over the comparative period was primarily due to a decline in utility-scale solar projects in the u.s. we expect that net sales will remain consistent with year 2013 levels before ramping up again in the future as new project development is on hold while existing projects in process are completed and collections are achieved to provide further working capital for any new projects . absent third party debt financing for project construction , future development will be dependent on internal cash flow . cost of goods sold — cost of goods sold was $ 45.4 million ( 106.5 % of net sales ) and $ 91.4 million ( 91.4 % of net sales ) for the year ended december 31 , 2013 and 2012 , respectively , a decrease of $ 46.0 million , or 50.3 % . cost of goods sold for the year ended december 31 , 2012 includes related party costs of goods sold to ldk , npsllc and terrasol of $ 32.6 million and a provision for losses on contracts of $ 2.7 million due to costs incurred on the greek project portfolio that exceeded the discounted present value of the contract .
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net income or loss per limited partner unit - basic and diluted net income or loss per limited partner unit , or lpu , is calculated by dividing net income or loss allocable to limited partners , by the weighted-average number of outstanding lpus during the period using the two-class method . diluted net income or loss per limited partner unit is computed based on the weighted average number of limited partner units , plus story_separator_special_tag the following discussion analyzes our financial condition and results of operations . you should read the following discussion of our financial condition and results of operations in conjunction with our consolidated financial statements and notes included elsewhere in this annual report on form 10-k. overview we are a delaware limited partnership formed by dcp midstream , llc to own , operate , acquire and develop a diversified portfolio of complementary midstream energy assets . our operations are organized into two reportable segments : ( i ) logistics and marketing and ( ii ) gathering and processing . our logistics and marketing segment includes transporting , trading , marketing and storing natural gas and ngls , fractionating ngls and wholesale propane logistics . our gathering and processing segment consists of gathering , compressing , treating , and processing natural gas , producing and fractionating ngls , and recovering condensate . general trends and outlook we anticipate our business will continue to be affected by the following key trends . our expectations are based on assumptions made by us and information currently available to us . to the extent our underlying assumptions about or interpretations of available information prove to be incorrect , our actual results may vary materially from our expected results . our business is impacted by commodity prices and volumes . we mitigate a significant portion of commodity price risk on an overall partnership basis by growing our fee based assets and by executing on our hedging program . various factors impact both commodity prices and volumes , and as indicated in item 7a . `` quantitative and qualitative disclosures about market risk '' , we have sensitivities to certain cash and non-cash changes in commodity prices . in the long-term , our belief is that commodity prices will continue to be at levels which support growth in crude , condensate , natural gas , and ngl production . we expect future commodity prices will be influenced by the severity of winter and summer weather , tariffs and other global economic conditions , the level of north american production and drilling activity by exploration and production companies and the balance of trade between imports and exports of liquid natural gas , ngls and crude oil . our business is primarily driven by the level of production of natural gas by producers and of ngls from processing plants connected to our pipelines and fractionators . these volumes can be affected by , among other things , reduced drilling activity , severe weather disruptions , operational outages and ethane rejection . 51 ngl prices are impacted by the balance of supply and demand from petrochemical and refining industries and export facilities . the petrochemical industry has been making significant investment in building , expanding and converting facilities to use lighter ngl-based feedstocks , including ethane in their chemical plants . as these facilities commence operations , ethane demand is expected to increase which could provide price support for increased recovery of ethane at gas processing plants . we believe these new facilities will cause increased demand over time , which should provide support for the increasing supply of ethane . in addition , export facilities are being expanded and built , which provide support for the increasing supply of ngls . although there can be , and has been , volatility in ngl prices , longer term we believe there will be sufficient demand in ngls to support increasing supply . we hedge commodity prices associated with a portion of our expected natural gas , ngl and condensate equity volumes in our gathering and processing segment . drilling activity levels vary by geographic area ; we will continue to target our strategy in geographic areas where we expect producer drilling activity . recent significant ngl supply growth has resulted in industry wide infrastructure constraints at pipeline and fractionation facilities . we believe we are well positioned to manage through these constraints as a large , integrated midstream company , but growth of our business could be dampened in the near term while more industry wide pipeline and fractionation facilities are developed . although there may be infrastructure constraints in the near term , we believe our growth projects and other industry wide projects coming on-line over the next two years will help mitigate those constraints . we believe these projects being developed will enable us to meet the demand of our customers . we believe our contract structure with our producers provides us with significant protection from credit risk since we generally hold the product , sell it and withhold our fees prior to remittance of payments to the producer . currently , our top 20 producers account for a majority of the total natural gas that we gather and process and of these top 20 producers , 9 have investment grade credit ratings while the remainder do not . in addition to the u.s. financial markets , many businesses and investors continue to monitor global economic conditions . uncertainty abroad may contribute to volatility in domestic financial and commodity markets . we believe we are positioned to withstand current and future commodity price volatility as a result of the following : our growing fee-based business represents a significant portion of our margins . we have positive operating cash flow from our well-positioned and diversified assets . we have a well-defined and targeted hedging program . we manage our disciplined capital growth program with a significant focus on fee-based agreements and projects with long term volume outlooks . we believe we have a solid capital structure and balance sheet . story_separator_special_tag common and preferred distributions on january 23 , 2019 , we announced that the board of directors of the general partner declared a quarterly distribution on our common units of $ 0.78 per common unit . the distribution will be paid on february 14 , 2019 to unitholders of record on february 4 , 2019 . on the same date , the board of directors of the general partner declared a quarterly distribution on our series b and series c preferred units of $ 0.4922 and $ 0.4969 per unit , respectively . the series b distributions will be paid on march 15 , 2019 to unitholders of record on march 1 , 2019 . the series c distribution will be paid on april 15 , 2019 to unitholders of record on april 1 , 2019 . factors that may significantly affect our results logistics and marketing segment our logistics and marketing segment operating results are impacted by , among other things , the throughput volumes of the ngls we transport on our ngl pipelines and the volumes of ngls we fractionate and store . we transport , fractionate and store ngls primarily on a fee basis . throughput may be negatively impacted as a result of our customers operating their processing plants in ethane rejection mode , often as a result of low ethane prices relative to natural gas prices . factors that impact the supply and demand of ngls , as described below in our gathering and processing segment , may also impact the throughput and volume for our logistics and marketing segment . these contractual arrangements may require our customers to commit a minimum level of volumes to our pipelines and facilities , thereby mitigating our exposure to volume risk . however , the results of operations for this business segment are generally dependent upon the volume of product transported , fractionated or stored and the level of fees charged to customers . we do not take title to the products transported on our ngl pipelines , fractionated in our fractionation facilities or stored in our storage facility ; rather , the customer retains title and the associated commodity price risk . the volumes of ngls transported on our pipelines are dependent on the level of production of ngls from processing plants connected to our ngl pipelines . when natural gas prices are high relative to ngl prices , it is less profitable to process natural gas because of the higher value of natural gas compared to the value of ngls and because of the increased cost of separating the ngls from the natural gas . as a result , we have experienced periods in the past , in which higher natural gas or lower ngl prices reduce the volume of ngls extracted at plants connected to our ngl pipelines and , in turn , lower the ngl throughput on our assets . our results of operations for our logistics and marketing segment are also impacted by increases and decreases in the volume , price and basis differentials of natural gas associated with our natural gas storage and pipeline assets , as well as our underlying derivatives associated with these assets . we manage commodity price risk related to our natural gas storage and pipeline assets through our commodity derivative program . the commercial activities related to our natural gas storage and pipeline assets primarily consist of the purchase and sale of gas and associated time spreads and basis spreads . a time spread transaction is executed by establishing a long gas position at one point in time and establishing an equal short gas position at a different point in time . time spread transactions allow us to lock in a margin supported by the injection , withdrawal , and storage capacity of our natural gas storage assets . we may execute basis spread transactions to mitigate the risk of sale and purchase price differentials across our system . a basis spread transaction allows us to lock in a margin on our physical purchases and sales of gas , including injections and withdrawals from storage . we manage our wholesale propane margins by selling propane to propane distributors under annual sales agreements negotiated each spring which specify floating price terms that provide us a margin in excess of our floating index-based supply costs under our supply purchase arrangements . our portfolio of multiple supply sources and storage capabilities allows us to actively manage our propane supply purchases and to lower the aggregate cost of supplies . based on the carrying value of our inventory , timing of inventory transactions and the volatility of the market value of propane , we have historically and may continue to periodically recognize non-cash lower of cost or market inventory adjustments . in addition , we may use financial derivatives to manage the value of our propane inventories . 54 gathering and processing segment our results of operations for our gathering and processing segment are impacted by ( 1 ) the prices of and relationship between commodities such as ngls , crude oil and natural gas , ( 2 ) increases and decreases in the wellhead volume and quality of natural gas that we gather , ( 3 ) the associated btu content of our system throughput and our related processing volumes , ( 4 ) the operating efficiency and reliability of our processing facilities , ( 5 ) potential limitations on throughput volumes arising from downstream and infrastructure capacity constraints , and ( 6 ) the terms of our processing contract arrangements with producers . this is not a complete list of factors that may impact our results of operations but , rather , are those we believe are most likely to impact those results . volume and operating efficiency generally are driven by wellhead production , plant recoveries , operating availability of our facilities , physical integrity and our competitive position on a regional basis , and more broadly by demand for natural gas , ngls and condensate .
| results of operations consolidated overview the following table and discussion is a summary of our consolidated results of operations for the years ended december 31 , 2018 , 2017 and 2016. the results of operations by segment are discussed in further detail following this consolidated overview discussion . replace_table_token_6_th * percentage change is not meaningful . ( a ) operating revenues include the impact of trading and marketing gains ( losses ) , net . ( b ) earnings for discovery , sand hills , southern hills , front range , mont belvieu 1 and texas express include the amortization of the net difference between the carrying amount of the investments and the underlying equity of the entities . ( c ) gross margin consists of total operating revenues less purchases and related costs . segment gross margin for each segment consists of total operating revenues for that segment less purchases and related costs for that segment . please read “ reconciliation of non-gaap measures ” . ( d ) for entities not wholly-owned by us , includes our share , based on our ownership percentage , of the wellhead and throughput volumes and ngl production . 57 year ended december 31 , 2018 vs. year ended december 31 , 2017 total operating revenues — total operating revenues increased $ 1,360 million in 2018 compared to 2017 primarily as a result of the following : $ 1,257 million increase for our logistics and marketing segment primarily due to higher ngl and crude prices , higher gas and ngl sales volumes which impacts both sales and purchases , partially offset by lower natural gas prices , unfavorable commodity derivative activity and the implementation of asc 606 ; and $ 376 million increase for our gathering and processing segment due to higher ngl and crude prices , higher gas and ngl sales volumes impacting both sales and purchases due to increased drilling activity in our eagle ford system and the impact
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executive summary new york community bancorp , inc. is the holding company for new york community bank , a thrift , with 242 branches in metro new york , new jersey , ohio , florida , and arizona ; and new york commercial bank , with 30 branches in metro new york . with assets of $ 48.6 billion at december 31 , 2014 , we rank among the 25 largest u.s. bank holding companies and , with deposits of $ 28.3 billion at that date , we also rank among its 25 largest depositories . both of our banks are new york state-chartered and both are subject to regulation by the fdic , the consumer financial protection bureau , and the new york state department of financial services . in addition , the holding company is subject to regulation by the board of governors of the federal reserve system ( the frb ) , and to the requirements of the new york stock exchange , where shares of our common stock are traded under the symbol nycb . as a publicly traded company , our mission is to provide our shareholders with a solid return on their investment by producing a strong financial performance , maintaining a solid capital position , and engaging in corporate strategies that enhance the value of their shares . in support of this mission , we maintain a consistent business model , as described below : we originate multi-family loans on non-luxury apartment buildings in new york city that are subject to rent regulation and feature below-market rents ; we underwrite our loans in accordance with conservative credit standards in order to maintain a high level of asset quality ; we originate one-to-four family loans through our proprietary web-based mortgage banking platform and sell the vast majority of those loans to government-sponsored enterprises ( gses ) , servicing retained ; we are intent upon maintaining an efficient operation ; and we grow through accretive acquisitions of other financial institutions , branches , and or deposits . the merits of this time-tested business model are reflected in the following achievements : we are the leading producer of multi-family loans for portfolio in new york city ; we have produced a consistent record of above-average asset quality ; we rank among the nation 's top 15 aggregators of one-to-four family loans ; we consistently rank among the nation 's most efficient bank holding companies ; and we have generated solid earnings and maintained a consistent position of capital strength . among the external factors that tend to influence our performance , the interest rate environment is key . just as short-term interest rates affect the cost of our deposits and that of the funds we borrow , market interest rates affect the yields on the loans we produce for investment and the securities in which we invest . the following table summarizes the high , low , and average five- and ten-year constant maturity treasury rates in 2014 and 2013 : replace_table_token_5_th 42 in addition , residential market interest rates impact the volume of one-to-four family mortgage loans we originate in any given quarter , in view of their impact on new home purchases and refinancing activity . accordingly , when residential mortgage interest rates are low , refinancing activity typically increases ; as residential mortgage interest rates begin to rise , the refinancing of one-to-four family mortgage loans typically declines . in the first nine months of 2014 , residential mortgage interest rates rose from the year-earlier level , only to fall in the fourth quarter of the year . as a result , the volume of one-to-four family loans produced was lower in 2014 than it was in the prior year . the impact of market interest rates on our multi-family and commercial real estate lending is far less overt than the impact on our production of one-to-four family mortgage loans . because the multi-family and commercial real estate loans we produce generate prepayment penalty income when they repay , the impact of repayment activity can be especially meaningful . while prepayment penalty income reached $ 136.8 million in 2013the third consecutive year in which we established a new recordthe level declined to $ 86.8 million in 2014. also less overt , but nonetheless having an impact on our operations , has been the significant increase in regulation and supervision required under the dodd-frank wall street reform and consumer protection act of 2010 ( the dodd-frank act or , more simply dodd-frank ) . for example , as a bank holding company with assets in the range of $ 10 billion to $ 50 billion , we were required to submit our first dodd-frank act stress test ( dfast ) report , including the results of our stress tests , to the frb in march 2014. our second dfast report will be submitted later this month ( i.e. , march 2015 ) , and the results of our stress tests will be disclosed in june . with assets of $ 41.2 billion at december 31 , 2010 , and a fundamental focus on growth through acquisition , we began in 2011 to prepare for the possibility of exceeding the threshold for classification as a systemically important financial institution ( sifi ) as such term is defined by the dodd-frank act . since then , we have invested significant human , technological , and financial resources into our enterprise risk management program , while also strengthening our corporate governance policies , procedures , and practices . we also have continued to grow our balance sheet . at december 31 , 2014 , we recorded total assets of $ 48.6 billion , a $ 1.9 billion , or 4.0 % , increase from the balance at december 31 , 2013. essentially , a bank is designated a sifi when the average of its total consolidated assets over the four most recent quarters exceeds $ 50 billion . story_separator_special_tag in addition , except as otherwise noted in the following discussion , the process for establishing the allowance for losses on non-covered loans is largely the same for each of the community bank and the commercial bank . the methodology used for the allocation of the allowance for non-covered loan losses at december 31 , 2014 , 2013 , and 2012 was also generally comparable , whereby the community bank and the commercial bank segregated their loss factors ( used for both criticized and non-criticized loans ) into a component that was primarily based on historical loss rates and a component that was primarily based on other qualitative factors that were probable to affect loan collectability . in determining the respective allowances for non-covered loan losses , management considers the community bank 's and the commercial bank 's current business strategies and credit processes , including compliance with applicable regulatory guidelines and with guidelines approved by the respective boards of directors with regard to credit limitations , loan approvals , underwriting criteria , and loan workout procedures . the allowance for losses on non-covered loans is established based on our evaluation of incurred losses in our portfolio in accordance with gaap , and is comprised of both specific valuation allowances and general valuation allowances . specific valuation allowances are established based on management 's analyses of individual loans that are considered impaired . if a non-covered loan is deemed to be impaired , management measures the extent of the impairment and establishes a specific valuation allowance for that amount . a non-covered loan is classified as impaired when , based on current information and or events , it is probable that we will be unable to collect both the principal and interest due under the contractual terms of the loan agreement . we apply this classification as necessary to non-covered loans individually evaluated for impairment in our portfolios . smaller-balance homogenous loans and loans carried at the lower of cost or fair value are evaluated for impairment on a collective , rather than individual , basis . loans to certain borrowers who have experienced financial difficulty and for which the terms have been modified , resulting in a concession , are considered troubled debt restructurings ( tdrs ) and are classified as impaired . we generally measure impairment on an individual loan and determine the extent to which a specific valuation allowance is necessary by comparing the loan 's outstanding balance to either the fair value of the collateral , less the estimated cost to sell , or the present value of expected cash flows , discounted at the loan 's effective interest rate . generally , when the fair value of the collateral , net of the estimated costs to sell , or the present value of the expected cash flows is less than the recorded investment in the loan , any shortfall is promptly charged off . we also follow a process to assign general valuation allowances to non-covered loan categories . general valuation allowances are established by applying our loan loss provisioning methodology , and reflect the inherent risk in outstanding held-for-investment loans . this loan loss provisioning methodology considers various factors in determining the appropriate quantified risk factors to use to determine the general valuation allowances . 45 the factors assessed begin with the historical loan loss experience for each major loan category . our allowance for loan losses methodology also considers an estimate of the historical loss emergence period ( which is the period of time between the event that triggers a loss and the confirmation and or charge-off of that loss ) for each loan portfolio segment . during 2014 , this methodology was enhanced by estimating the loss emergence period using a more granular segmentation approach . the allocation methodology consists of the following components : first , we determine an allowance for loan losses based on a quantitative loss factor for loans evaluated collectively for impairment . this quantitative loss factor is based primarily on historical loss rates , after considering loan type , historical loss and delinquency experience , and loss emergence periods . the quantitative loss factors applied in the methodology are periodically re-evaluated and adjusted to reflect changes in historical loss levels , loss emergence periods , or other risks . lastly , we allocate an allowance for loan losses to qualitative loss factors . these qualitative loss factors are designed to account for losses that may not be provided for by the quantitative loss component due to other factors evaluated by management which include , but are not limited to : changes in lending policies and procedures , including changes in underwriting standards and collection , charge-off , and recovery practices ; changes in international , national , regional , and local economic and business conditions , and developments that affect the collectability of the portfolio , including the condition of various market segments ; changes in the nature and volume of the portfolio and in the terms of loans ; changes in the volume and severity of past-due loans , the volume of non-accrual loans , and the volume and severity of adversely classified or graded loans ; changes in the quality of our loan review system ; changes in the value of the underlying collateral for collateral-dependent loans ; the existence and effect of any concentrations of credit , and changes in the level of such concentrations ; changes in the experience , ability , and depth of lending management and other relevant staff ; and the effect of other external factors , such as competition and legal and regulatory requirements , on the level of estimated credit losses in the existing portfolio . by considering the factors discussed above , we determine an allowance for non-covered loan loss that is applied to each significant loan portfolio segment to determine the total allowance for losses on non-covered loans .
| balance sheet summary our total assets rose $ 1.9 billion , or 4.0 % , year-over-year , to $ 48.6 billion at december 31 , 2014. the growth of our assets was primarily due to the production of loans held for investment and , more particularly , the production of held-for-investment multi-family loans . including a $ 3.1 billion increase in the portfolio of multi-family loans to $ 23.8 billion , loans held for investment rose $ 3.2 billion to $ 33.0 billion at december 31 , 2014. the benefit of the increase in loans held for investment was partly offset by an $ 854.6 million reduction in the balance of securities . the growth of our portfolio of loans held for investment was largely funded by the growth of our deposits , which rose $ 2.7 billion from the year-earlier balance to $ 28.3 billion at december 31 , 2014. while certificates of deposit ( cds ) declined $ 511.5 million year-over-year , the impact was more than offset by a $ 2.0 billion increase in now and money market accounts , a $ 1.1 billion increase in savings accounts , and a $ 36.4 million increase in non-interest-bearing accounts . in tandem with the increase in deposits , borrowed funds fell $ 878.5 million year-over-year to $ 14.2 billion . stockholders ' equity rose $ 46.2 million year-over-year to $ 5.8 billion , representing 11.91 % of total assets and a book value per share of $ 13.06. tangible stockholders ' equity rose $ 54.5 million during this time , to $ 3.3 billion , representing 7.24 % of tangible assets and a tangible book value per share of $ 7.54 . ( please see the discussion and reconciliations of stockholders ' equity and tangible stockholders ' equity , total assets and tangible assets , and the related measures that appear on the last page of this discussion and analysis of financial condition and results of operations . )
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pension plans and supplemental executive retirement plans the company accounts for its pension plans and supplemental executive retirement plan on an accrual basis over employees ' estimated service periods . the company ( 1 ) recognizes in its statement of financial position the over-funded or under-funded status of its defined benefit postretirement plans measured as the difference between the fair value of plan assets and the benefit obligation , ( 2 ) recognizes as a component of other comprehensive income , net of tax , the actuarial gains and losses and the prior service costs and credits that arise during the period but are not recognized as components of net periodic benefit cost , ( 3 ) story_separator_special_tag business overview unifirst corporation , together with its subsidiaries , hereunder referred to as “ we ” , “ our ” , the “ company ” , or “ unifirst ” , is one of the largest providers of workplace uniforms and protective clothing in the united states . we design , manufacture , personalize , rent , clean , deliver , and sell a wide range of uniforms and protective clothing , including shirts , pants , jackets , coveralls , lab coats , smocks , aprons and specialized protective wear , such as flame resistant and high visibility garments . we also rent industrial wiping products , floor mats , facility service products and other non-garment items , and provide first aid cabinet services and other safety supplies , to a variety of manufacturers , retailers and service companies . we serve businesses of all sizes in numerous industry categories . typical customers include automobile service centers and dealers , delivery services , food and general merchandise retailers , food processors and service operations , light manufacturers , maintenance facilities , restaurants , service companies , soft and durable goods wholesalers , transportation companies , and others who require employee clothing for image , identification , protection or utility purposes . we also provide our customers with restroom supplies , including air fresheners , paper products and hand soaps . at certain specialized facilities , we also decontaminate and clean work clothes that may have been exposed to radioactive materials and service special cleanroom protective wear . typical customers for these specialized services include government agencies , research and development laboratories , high technology companies and utilities operating nuclear reactors . we continue to expand into additional geographic markets through acquisitions and organic growth . we currently service over 240,000 customer locations in the united states , canada and europe from 219 customer service , distribution and manufacturing facilities . us gaap establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information of those segments to be presented in interim financial reports issued to shareholders . operating segments are identified as components of an enterprise for which separate discrete financial information is available for evaluation by the chief operating decision-maker , or decision-making group , in making decisions on how to allocate resources and assess performance . our chief operating decision-maker is our chief executive officer . we have six operating segments based on the information reviewed by our chief executive officer : us rental and cleaning , canadian rental and cleaning , manufacturing ( “ mfg ” ) , specialty garments rental and cleaning ( “ specialty garments ” ) , first aid and corporate . the us rental and cleaning and canadian rental and cleaning operating segments have been combined to form the us and canadian rental and cleaning reporting segment . refer to note 15 , “ segment reporting ” , of our consolidated financial statements for our disclosure of segment information . the us and canadian rental and cleaning reporting segment purchases , rents , cleans , delivers and sells , uniforms and protective clothing and non-garment items in the united states and canada . the operations of the us and canadian rental and cleaning reporting segment are referred to by us as our ‘ industrial laundry operations ' and we refer to the locations related to this reporting segment as our ‘ industrial laundries ' . the mfg operating segment designs and manufactures uniforms and non-garment items primarily for the purpose of providing these goods to the us and canadian rental and cleaning reporting segment . the amounts reflected as revenues of mfg are generated when goods are shipped from our manufacturing facilities , or subcontract manufacturers , to our other locations . these revenues are recorded at a transfer price which is typically in excess of the actual manufacturing cost . products are carried in inventory and subsequently placed in service and amortized at this transfer price . on a consolidated basis , intercompany mfg revenues and mfg income are eliminated and the carrying value of inventories and rental merchandise in service is reduced to the manufacturing cost . income before income taxes from mfg , net of the intercompany mfg elimination , offsets the merchandise amortization costs incurred by the us and canadian rental and cleaning reporting segment as the merchandise costs of this reporting segment are amortized and recognized based on inventories purchased from mfg at the transfer price which is above our manufacturing cost . the corporate operating segment consists of costs associated with our distribution center , sales and marketing , information systems , engineering , materials management , manufacturing planning , finance , budgeting , human resources , other general and administrative costs and interest expense . the revenues generated from the corporate operating segment represent certain direct sales made directly from our distribution center . the products sold by this operating segment are the same products rented and sold by the us and canadian rental and cleaning reporting segment . in the segment disclosures in note 15 , “ segment reporting ” , of our consolidated financial statements , no assets or capital expenditures are presented for the corporate operating segment as no assets are allocated to this operating segment in the information reviewed by our chief executive officer . story_separator_special_tag if general economic conditions or our financial performance deteriorate , we may be required to record a goodwill impairment charge in the future which could have a material impact on our financial condition and results of operations . property , plant and equipment , and definite-lived intangible assets are depreciated or amortized over their useful lives . useful lives are based on our estimates of the period that the assets will generate revenue . long-lived assets are evaluated for impairment whenever events or circumstances indicate an asset may be impaired . there were no impairments of property , plant and equipment , or definite-lived intangible assets in fiscal 2012 , 2011 or 2010. insurance we self-insure for certain obligations related to health , workers ' compensation , vehicles and general liability programs . we also purchase stop-loss insurance policies to protect ourselves from catastrophic losses . judgments and estimates are used in determining the potential value associated with reported claims and for events that have occurred , but have not been reported . our estimates consider historical claim experience and other factors . our liabilities are based on our estimates , and , while we believe that our accruals are adequate , the ultimate liability may be significantly different from the amounts recorded . changes in our claim experience , our ability to settle claims or other estimates and judgments we use could have a material impact on the amount and timing of expense for any given period . environmental and other contingencies we are subject to legal proceedings and claims arising from the conduct of our business operations , including environmental matters , personal injury , customer contract matters and employment claims . accounting principles generally accepted in the united states require that a liability for contingencies be recorded when it is probable that a liability has occurred and the amount of the liability can be reasonably estimated . significant judgment is required to determine the existence of a liability , as well as the amount to be recorded . we regularly consult with our attorneys and outside consultants , in our consideration of the relevant facts and circumstances , before recording a contingent liability . we record accruals for environmental and other contingencies based on enacted laws , regulatory orders or decrees , our estimates of costs , insurance proceeds , participation by other parties , the timing of payments , and the input of our attorneys and outside consultants . the estimated liability for environmental contingencies has been discounted using risk-free interest rates ranging from 1.7 % to 2.8 % over periods ranging from ten to thirty years . the estimated current costs , net of legal settlements with insurance carriers , have been adjusted for the estimated impact of inflation at 3 % per year . changes in enacted laws , regulatory orders or decrees , our estimates of costs , risk-free interest rates , insurance proceeds , participation by other parties , the timing of payments and the input of our attorneys and outside consultants based on changing legal or factual circumstances could have a material impact on the amounts recorded for our environmental and other contingent liabilities . refer to note 11 , “ commitments and contingencies ” , of our consolidated financial statements for additional discussion and analysis . asset retirement obligations under us gaap , asset retirement obligations generally apply to legal obligations associated with the retirement of long-lived assets that result from the acquisition , construction , development and or the normal operation of a long-lived asset . current accounting guidance requires that we recognize asset retirement obligations in the period in which they are incurred if a reasonable estimate of fair value can be made . the associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset . we have recognized as a liability the present value of the estimated future costs to decommission our nuclear laundry facilities in accordance with us gaap . we depreciate , on a straight-line basis , the amount added to property , plant and equipment and recognize accretion expense in connection with the discounted liability over the various remaining lives which range from approximately one to thirty-two years . our estimated liability has been based on historical experience in decommissioning nuclear laundry facilities , estimated useful lives of the underlying assets , external vendor estimates as to the cost to decommission these assets in the future , and federal and state regulatory requirements . the estimated current costs have been adjusted for the estimated impact of inflation at 3 % per year . the liability has been discounted using credit-adjusted risk-free rates that range from approximately 7.0 % to 7.5 % . revisions to the liability could occur due to changes in the estimated useful lives of the underlying assets , estimated dates of decommissioning , changes in decommissioning costs , changes in federal or state regulatory guidance on the decommissioning of such facilities , or other changes in estimates . changes due to revisions in our estimates will be recognized by adjusting the carrying amount of the liability and the related long-lived asset if the assets are still in service , or charged to expense in the period if the assets are no longer in service . derivative financial instruments us gaap requires that all our derivative instruments be recorded as other assets or other liabilities at fair value . all subsequent changes in a derivative 's fair value are recognized in income , unless specific hedge accounting criteria are met . cash flows associated with derivatives are classified in the same category as the cash flows hedged in our consolidated statements of cash flows . derivative instruments that qualify for hedge accounting are classified as a hedge of the variability of cash flows to be paid related to a recognized liability or a forecasted transaction .
| results of operations the following table presents , as a percent of total revenue , certain selected financial data for our three fiscal years ended august 25 , 2012 , august 27 , 2011 and august 28 , 2010. replace_table_token_2_th ( 1 ) exclusive of depreciation on our property , plant and equipment and amortization of our intangible assets . revenues and income ( loss ) from operations by reporting segment for the three fiscal years ended august 25 , 2012 , august 27 , 2011 , and august 28 , 2010 , are presented in the following table . refer to note 15 , “ segment reporting ” , of our consolidated financial statements for discussion of our reporting segments . replace_table_token_3_th general we derive our revenues through the design , manufacture , personalization , rental , cleaning , delivering , and selling of a wide range of uniforms and protective clothing , including shirts , pants , jackets , coveralls , lab coats , smocks and aprons and specialized protective wear , such as flame resistant and high visibility garments . we also rent industrial wiping products , floor mats , facility service products , other non-garment items , and provide first aid cabinet services and other safety supplies , to a variety of manufacturers , retailers and service companies . we have five reporting segments , us and canadian rental and cleaning , manufacturing ( “ mfg ” ) , corporate , specialty garments rental and cleaning ( “ specialty garments ” ) , and first aid . we refer to the us and canadian rental and cleaning , mfg , and corporate reporting segments combined as our “ core laundry operations. ” cost of revenues include merchandise costs related to the amortization of rental merchandise in service and direct sales as well as labor and other production , service and delivery costs , and distribution costs associated with operating our core laundry operations , specialty garments facilities , and first aid locations .
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financial overview and highlights community west bancshares is a financial services company headquartered in goleta , california that provides full service banking and lending through its wholly-owned subsidiary community west bank ( “ cwb ” ) , which has eight california branch banking offices located in goleta , oxnard , san luis obispo , santa barbara , santa maria , ventura , paso robles and westlake village . 13 index financial result highlights of 2018 net income available to common stockholders of $ 7.4 million , or $ 0.88 per diluted share for 2018 , compared to $ 4.9 million , or $ 0.57 per diluted share for 2017 and $ 5.2 million or $ 0.62 per diluted share for 2016. the significant factors impacting the company during 2018 were : · net income of $ 7.4 million for 2018 compared to a net income of $ 4.9 million for 2017 . · total loans net of allowance decreased 4.6 % to $ 759.6 million at december 31 , 2018 compared to $ 726.2 million at december 31 , 2017 . · total deposits increased 2.3 % to $ 716.0 million at december 31 , 2018 , compared to $ 699.7 million a year ago . · non-interest-bearing deposits decreased slightly to $ 108.2 million at december 31 , 2018 , compared to $ 108.5 million a year ago . · the provision ( credit ) for loan losses was $ 14,000 for 2018 compared to $ 411,000 in 2017. net loan loss recoveries were ( $ 0.3 million ) for 2018 compared to ( $ 0.5 million ) in 2017 . · net nonaccrual loans decreased to $ 3.4 million at december 31 , 2018 , compared to $ 4.5 million at december 31 , 2017 . · allowance for loan losses was $ 8.7 million at december 31 , 2018 , or 1.21 % of total loans held for investment compared to $ 8.4 million , or 1.24 % at december 31 , 2017 . · net interest margin for the year ended december 31 , 2018 decreased to 4.07 % compared to 4.34 % for the year ended 2017 . · full service branch office location opened in paso robles , california . · the company had no foreclosed assets at december 31 , 2018 compared to $ 0.4 million at december 31 , 2017. the impact to the company from these items , and others of both a positive and negative nature , will be discussed in more detail as they pertain to the company 's overall comparative performance for the year ended december 31 , 2018 throughout the analysis sections of this report . a summary of our results of operations and financial condition and select metrics is included in the following table : replace_table_token_2_th asset quality for all banks and bank holding companies , asset quality plays a significant role in the overall financial condition of the institution and results of operations . the company measures asset quality in terms of nonaccrual loans as a percentage of gross loans , and net charge-offs as a percentage of average loans . net charge-offs are calculated as the difference between charged-off loans and recovery payments received on previously charged-off loans . the following table summarizes these asset quality metrics : 14 index replace_table_token_3_th asset and deposit growth the company 's assets and liabilities are comprised primarily of loans and deposits . the ability to originate new loans and attract new deposits is fundamental to the company 's asset growth . total assets increased to $ 877.3 million at december 31 , 2018 from $ 833.3 million at december 31 , 2017. total loans including net deferred fees and unearned income increased by $ 33.6 million , or 4.6 % , to $ 768.2 million as of december 31 , 2018 compared to $ 734.6 million as of december 31 , 2017. total deposits increased by 2.3 % to $ 716.0 million as of december 31 , 2018 from $ 699.7 million as of december 31 , 2017. story_separator_special_tag operational training and project implementation . 20 index income taxes the income tax provision for 2018 was $ 2.8 million compared to $ 5.5 million in 2017 and $ 3.6 million in 2016. the effective income tax rate was 27.5 % , 53.0 % , and 40.9 % , respectively for 2018 , 2017 and 2016. deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts and their respective tax basis including operating losses and tax credit carryforwards . net deferred tax assets of $ 3.2 million at december 31 , 2018 are reported in the consolidated balance sheet as a component of total assets . on december 22 , 2017 , the president of the united states signed into law the tax cuts and jobs act tax reform legislation . this legislation makes significant change in u.s. tax law including a reduction in the corporate tax rates , changes to net operating loss carryforwards and carrybacks , and a repeal of the corporate alternative minimum tax . the legislation reduced the u.s. corporate tax rate from the current rate of 34 % to 21 % . as a result of the enacted law , the company was required to revalue deferred tax assets and liabilities at the 21 % rate . the revaluation resulted in $ 1.3 million income tax expense and a corresponding reduction in the net deferred tax asset . the other provisions of the tax cuts and jobs act did not have a material impact on the fiscal 2017 consolidated financial statements . accounting standards codification topic 740 , income taxes , requires that companies assess whether a valuation allowance should be established against their deferred tax assets based on the consideration of all available evidence using a “ more likely than not ” standard . story_separator_special_tag commercial real estate commercial real estate and construction loans are primarily made for the purpose of purchasing , improving or constructing , commercial and industrial properties . this loan category also includes sba 504 loans and land loans . commercial and industrial real estate loans are primarily secured by nonresidential property . office buildings or other commercial property primarily secure these types of loans . loan to appraised value ratios on nonresidential real estate loans are generally restricted to 75 % of appraised value of the underlying real property if occupied by the owner or owner 's business ; otherwise , these loans are generally restricted to 70 % of appraised value of the underlying real property . the company makes real estate construction loans on commercial properties and single family dwellings . these loans are collateralized by first and second trust deeds on real property . construction loans are generally written with terms of six to eighteen months and usually do not exceed a loan to appraised value of 75 % . sba 504 loans are made in conjunction with certified development companies . these loans are granted to purchase or construct real estate or acquire machinery and equipment . the loan is structured with a conventional first trust deed provided by a private lender and a second trust deed which is funded through the sale of debentures . the predominant structure is terms of 10 % down payment , 50 % conventional first loan and 40 % debenture . construction loans of this type must provide additional collateral to reduce the loan-to-value to approximately 75 % . conventional and investor loans are sometimes funded by our secondary-market partners and cwb receives a premium for these transactions . sba loans sba loans consist of sba 7 ( a ) and business and industry loans ( “ b & i ” ) . the sba 7 ( a ) loan proceeds are used for working capital , machinery and equipment purchases , land and building purposes , leasehold improvements and debt refinancing . at present , the sba guarantees as much as 85 % on loans up to $ 150,000 and 75 % on loans more than $ 150,000. the sba 's maximum exposure amount is $ 3,750,000. the company may sell a portion of the loans , however , under the sba 7 ( a ) loan program ; the company is required to retain a minimum of 5 % of the principal balance of each loan it sells into the secondary market . b & i loans are guaranteed by the u.s. department of agriculture . the maximum guaranteed amount is 80 % for loans of $ 5 million or less . b & i loans are similar to the sba 7 ( a ) loans but are made to businesses in designated rural areas . these loans can also be sold into the secondary market . agricultural loans for real estate and operating lines the company has an agricultural lending program for agricultural land , agricultural operational lines , and agricultural term loans for crops , equipment and livestock . the primary product is supported by guarantees issued from the u.s. department of agriculture ( “ usda ” ) , farm service agency ( “ fsa ” ) , and the usda b & i loan program . the fsa loans typically have a 90 % guarantee up to $ 1,750,000 ( amount adjusted annually based on inflation ) for up to 40 years , but not always . the company had $ 78.0 million of commercial agriculture loans at december 31 , 2018 of these loans $ 36.7 million had fsa guarantees . 23 index cwb is an approved federal agricultural mortgage corporation ( “ farmer mac ” ) lender under the farmer mac i and farmer mac ii programs . under the farmer mac i program , loans are sourced by cwb , underwritten , funded and serviced by farmer mac . cwb does some servicing such as collecting client information , processing payments and performing site visits . cwb receives an origination fee and an ongoing field servicing fee for maintaining the relationship with the borrower and performing certain loan compliance monitoring , and other duties as directed by the central servicer . cwb underwrites loans under the farmer mac i program which are funded by farmer mac and do not have a guarantee . eligible loans include fsa and b & i loans . manufactured housing loans cwb originates loans secured by manufactured homes located in approved rental , co-operative ownership , condominium and planned unit development mobile home parks in santa barbara , ventura and san luis obispo counties as well as along the california coast from san diego to san francisco . the loans are made to borrowers for purchasing or refinancing new or existing manufactured homes . the loans are made under either fixed rate programs for terms of 10 to 20 years or adjustable rate programs with terms of 25 to 30 years . the adjustable rate loans have an initial fixed rate period of five years and then adjust annually subject to interest rate caps . heloc home equity lines of credit ( “ heloc ” ) held at the bank are lines of credit collateralized by residential real estate . typically , helocs are collateralized by a second deed of trust . the combined loan-to-value , first trust deed and second trust deed , are not to exceed 75 % on all helocs . the bank is not actively originating new helocs . other installment loans installment loans consist of automobile and general-purpose loans made to individuals . single family real estate loans until the third quarter of 2015 , the company originated loans that consisted of first and second mortgage loans secured by trust deeds on one-to-four family homes . these loans were made to borrowers for purposes such as purchasing a home , refinancing an existing home , interest rate reduction or home improvement .
| results of operations the following table sets forth a summary financial overview for the comparable years : replace_table_token_4_th 15 index interest rates and differentials the following table illustrates average yields on interest-earning assets and average rates on interest-bearing liabilities for the periods indicated : replace_table_token_5_th ( 1 ) includes nonaccrual loans . ( 2 ) net interest margin is computed by dividing net interest income by total average earning assets . ( 3 ) net interest spread represents average yield earned on interest-earning assets less the average rate paid on interest-bearing liabilities . 16 index replace_table_token_6_th ( 1 ) includes nonaccrual loans . ( 2 ) net interest margin is computed by dividing net interest income by total average earning assets . ( 3 ) net interest spread represents average yield earned on interest-earning assets less the average rate paid on interest-bearing liabilities . the table below sets forth the relative impact on net interest income of changes in the volume of earning assets and interest-bearing liabilities and changes in rates earned and paid by the company on such assets and liabilities . for purposes of this table , nonaccrual loans have been included in the average loan balances . replace_table_token_7_th ( 1 ) changes due to both volume and rate have been allocated to volume changes . 17 index comparison of interest income , interest expense and net interest margin the company 's primary source of revenue is interest income .
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the equity plan provides for grants of non-statutory options , incentive stock options , restricted stock awards , performance shares , performance units , restricted stock units and other stock-based awards , in order to enhance the ability of englobal to motivate current employees , to attract employees of outstanding ability and to provide for grants to be made to non-employee directors . at december 26 , 2020 , 478,049 shares of common stock are available to be issued pursuant to the equity plan . we recognized non-cash stock-based compensation expense related to our equity plan of $ 0.2 million for the year ended december 26 , 2020 and $ 0.1 million for the year ended december 28 , 2019. restricted stock awards – restricted stock awards granted to non-employee directors are intended to compensate and retain the directors over the one-year service period commencing july 1 of the year of service . these awards generally vest in quarterly installments beginning september 30 th of the year of grant , so long as the grantee continues to serve as a director of the company as of each vesting date . the company had delayed the vesting of restricted stock awards made in 2017 ; these awards were vested in full during the year ended december 26 , 2020. restricted stock awards granted to employees generally vest in four equal annual installments on the anniversary date of grant , so long as the grantee remains employed full-time with us as of each vesting date . shares are generally issued from new shares at the time of grant . the grant-date fair value of restricted stock grants is determined using the closing quoted market price on the grant date . 43 the following is a summary of the status of our restricted stock awards and of changes in restricted stock outstanding for the year ended december 26 , 2020 : replace_table_token_20_th as of december 26 , 2020 , there was $ 0.2 million of total unrecognized compensation cost related to unvested restricted stock awards which is expected to be recognized over a weighted-average period of 1 year . during the year ended december 26 , 2020 , the company granted the following restricted stock awards . date issued issued to number of shares market price fair value june 11 , 2020 directors ( 3 ) 147,060 $ 1.02 $ 150,000 during the year ended december 28 , 2019 , the company granted the following restricted stock awards . date issued issued to number of shares market price fair value august 6 , 2019 employees ( 1 ) 10,000 $ 1.22 $ 12,200 note 11 - treasury stock on april 21 , 2015 , we announced that the board of directors had authorized the repurchase of up to $ 2.0 million of our common stock from time to time through open market or privately negotiated transactions , based on prevailing market conditions . we are not obligated to repurchase any dollar amount or specific number of shares of common stock under the repurchase program , which may be suspended , discontinued or reinstated at any time . as of december 26 , 2020 , the company had purchased and retired 1,290,460 shares for $ 1.6 million under this program . the stock repurchase program was suspended from may 16 , 2017 and was reinstated on december 19 , 2018. during the year ended december 28 , 2019 , we purchased and retired 77,687 shares at a cost of $ 61 thousand . no shares were repurchased during the year ended december 26 , 2020. management does not intend to repurchase any shares in the near future . note 12 - redeemable preferred stock we are authorized to issue 2,000,000 shares of preferred stock , par value $ 0.001 per share ( the “ preferred stock ” ) . the board of directors has the authority to approve the issuance of all or any of these shares of the preferred stock in one or more series , to determine the number of shares constituting any series and to determine any voting powers , conversion rights , dividend rights and other designations , preferences , limitations , restrictions and rights relating to such shares . while there are no current plans to issue the preferred stock , it was authorized in order to provide the company with flexibility to take advantage of contingencies such as favorable acquisition opportunities . 44 note 13 - federal and state income taxes the components of our income tax expense for the years ended december 26 , 2020 and december 28 , 2019 were as follows ( amounts in thousands ) : replace_table_token_21_th the following is a reconciliation story_separator_special_tag the following discussion is qualified in its entirety by , and should be read in conjunction with , our consolidated financial statements and notes thereto , included elsewhere in this report . overview we have identified modular project execution offerings as the opportunity to which our capabilities are best applied , focused our business development team on communicating these offerings to specific clients and realigned our internal reporting structure to better facilitate complete modular project execution . we have identified five strategic market initiatives where we have a history of delivering project solutions and can provide complete project execution that includes engineering , design , fabrication and integration of automated control systems as a complete packaged solution for our clients , preferably in a modular form . this “ design it once – build it many times ” concept has many merits including a single vendor interface , better control of costs , better control of schedule and lower safety risk . story_separator_special_tag if covid–19 continues to spread or if the response to contain the covid-19 pandemic is unsuccessful , we could experience a material adverse effect on our business , financial condition , and results of operations . for additional information , see part ii . item 1a “ risk factors. ” story_separator_special_tag in 2019. gross profit margin was 13.1 % for the year ended december 26 , 2020 , a decrease from the 14.0 % gross profit margin for the year ended december 28 , 2019. gross profit in our epcm segment increased $ 0.7 million , or 44.6 % , to $ 2.4 million for a gross profit margin of 9.1 % for the year ended december 26 , 2020 as compared to $ 1.6 million for a gross profit margin of 8.4 % for the year ended december 28 , 2019. the increase in gross profit margin is primarily attributable to one large project that began in 2020 and that is expected to be completed in 2021 , partially offset by costs associated with underutilized staffing at one of our locations as projects were completed without subsequent renewals during 2020 , including a project cancellation due to covid-19 , and supply purchases for our employees to adhere to covid-19 safe work practices . gross profit in the automation segment decreased $ 0.2 million , or 3.1 % , to $ 6.1 million for a gross profit margin of 15.8 % for the year ended december 26 , 2020 as compared to $ 6.3 million with a gross profit margin of 17.0 % for the year ended december 28 , 2019. the decrease in gross profit is primarily due to inefficiencies on one of our large projects in addition to delays caused from covid-19 restrictions prompting employees to work remotely , supply purchases for our employees to adhere to covid-19 safe work practices , and delays in government projects due to base closures and travel restrictions imposed by the u.s. government as a result of covid-19 . selling , general and administrative – overall , our sg & a expenses decreased by $ 0.5 million for the year ended december 26 , 2020 as compared to the year ended december 28 , 2019. this decrease in sg & a is driven by reductions in travel costs due to covid-19 restrictions of $ 0.1 million , facility costs of $ 0.1 million , legal fees of $ 0.1 million , and $ 0.2 in computer software costs . we continue to look for ways to streamline our processes and delay expenditures while we continue to invest in our business development activities . 21 other income , net – other income , net of expense , decreased $ 35 thousand for the year ended december 26 , 2020 as compared to the year ended december 28 , 2019 primarily due to rental income received in 2019 with no comparable occurrence in 2020. tax expense – tax expense was $ 0.1 million for the year ended december 26 , 2020 and december 28 , 2019. net income ( loss ) – net loss for the year ended december 26 , 2020 was $ 0.6 million compared to a net loss of $ 1.5 million for the year ended december 28 , 2019 , primarily as a result of our increase in revenue and higher margin projects from our epcm segment and decrease in sg & a expense year-over-year , partially offset by project delays and inefficiencies due to the covid-19 pandemic . liquidity and capital resources overview we define liquidity as our ability to pay liabilities as they become due , fund business operations and meet monetary contractual obligations . our primary sources of liquidity are cash on hand , internally generated funds , and borrowings under the ppp loan and the revolving credit facility . our cash increased to $ 13.7 million at december 26 , 2020 from $ 8.3 million at december 28 , 2019 , as our operating activities used approximately $ 0.5 million in net cash during the year ended december 26 , 2020 primarily due to decreased contract assets net of contract liabilities , decreased accounts payable , and operating losses , partially offset by a decrease in trade receivables , depreciation and cash provided by other components of working capital . our working capital as of december 26 , 2020 was $ 14.0 million as compared to $ 11.3 million as of december 28 , 2019. on april 13 , 2020 , we obtained the ppp loan , which was a significant cash injection for us . in addition , on may 21 , 2020 , we entered into the revolving credit facility pursuant to which the lender agreed to extend credit of up to $ 6.0 million , subject to a credit limit . as of december 26 , 2020 , the credit limit under the revolving credit facility was $ 2.4 million and outstanding borrowings were $ 1.5 million , which yields enough interest to cover our minimum monthly interest charge . as of december 26 , 2020 , we were in compliance with all of the covenants under the ppp loan and revolving credit facility . for additional information on the ppp loan and revolving credit facility , see part ii , item 8 , note 7 – debt - . in addition , on january 29 , 2021 , we filed a shelf registration statement on form s-3 ( the “ registration statement ” ) with the sec , pursuant to which we may offer and sell , at our option , securities having an aggregate offering price of up to $ 100 million .
| results of operations our revenue is comprised of services revenue and the sale of engineered modular solutions . we generally recognize service revenue as soon as the services are performed . the majority of our engineering services have historically been provided through time-and-material contracts whereas a majority of our engineered modular solutions revenues are earned on fixed-price contracts . during 2020 , we worked on 323 projects ranging in size from $ 1 thousand to $ 26.7 million . the average size of the projects during 2020 was $ 518 thousand and we recorded an average revenue of $ 200 thousand per project . in the course of providing our services , we routinely provide materials and equipment and may provide construction management or construction services on a subcontractor basis . generally , these materials , equipment and subcontractor costs are passed through to our clients and reimbursed , along with handling fees , which in total are at margins much lower than those of our services business . in accordance with industry practice and generally accepted accounting principles , all such costs and fees are included in revenue . the use of subcontractor services can change significantly from project to project ; therefore , changes in revenue and gross profit , sg & a expense and operating income as a percent of revenue may not be indicative of our core business trends . segment operating sg & a expense includes management and staff compensation , office costs such as rents and utilities , depreciation , amortization , travel , bad debt and other expenses generally unrelated to specific client contracts , but directly related to the support of a segment 's operations . corporate sg & a expenses includes investor relations , business development , governance , finance , accounting , health , safety , environmental , human resources , legal and information technology which are unrelated to specific projects but which are incurred to support corporate activities .
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e. net story_separator_special_tag forward-looking statements from time to time , information provided , statements made by our employees or information included in our filings with the securities and exchange commission may contain statements that are not historical facts but that are forward-looking statements , which involve risks and uncertainties . the words may , will , would , should , could , plan , expect , anticipate , continue , estimate , project , intend , likely , probable , and similar expressions are intended to identify forward-looking statements regarding events , conditions and financials trends that may affect our future plans of operations , business strategy , results of operations and financial position . these forward-looking statements , which include those related to our strategic plans , business outlook , and future business and financial performance , involve risks and uncertainties that could cause actual results to differ materially from those projected or anticipated . such risks and uncertainties include , but are not limited to , general economic and business conditions , including unforeseen economic weakness in our markets , effects of continued geo-political unrest and regional conflicts , competition , changes in technology and methods of marketing , delays in completing various engineering and manufacturing programs , changes in customer order patterns , changes in product mix , continued success in technological advances and delivering technological innovations , continued funding of defense programs and the timing of such funding , changes in the u.s. government 's interpretation of federal procurement rules and regulations , market acceptance of our products , shortages in components , production delays due to performance quality issues with outsourced components , inability to fully realize the expected benefits from acquisitions or divestitures or delays in realizing such benefits , challenges in integrating acquired businesses and achieving anticipated synergies , changes to export regulations , increases in tax rates , changes to generally accepted accounting principles , difficulties in retaining key employees and customers , unanticipated costs under fixed-price service and system integration engagements , and various other factors beyond our control . these risks and uncertainties also include such additional risk factors as set forth under part i-item 1a ( risk factors ) in this annual report on form 10-k. we caution readers not to place undue reliance upon any such forward-looking statements , which speak only as of the date made . we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made . overview we design , manufacture and market commercially-developed , high-performance embedded , real-time digital signal and image processing sub-systems and software for specialized defense and commercial computing markets . our solutions play a critical role in a wide range of applications , transforming sensor data to information for analysis and interpretation . in military reconnaissance and surveillance platforms , our sub-systems process real-time radar , video , sonar and signals intelligence data . we provide microwave products for enhanced communications capabilities in military and commercial applications . additionally , we entered the prime defense contracting market space in fiscal 2008 through the creation of our wholly-owned subsidiary , mercury federal systems , inc. , to focus on reaching the federal intelligence and homeland security agencies . our products and solutions address mission-critical requirements within the defense industry for c4isr ( command , control , communications , computers , intelligence , surveillance and reconnaissance ) and electronic warfare , or ew , systems and services , and target several markets including maritime defense , airborne 33 reconnaissance , ballistic missile defense , ground mobile and force protection systems and tactical communications and network systems . our products or solutions have been deployed in approximately 300 different programs with over 25 different prime defense contractors . our revenue , income from continuing operations and adjusted ebitda for fiscal 2011 were $ 228.7 million , $ 18.5 million and $ 40.9 million , respectively . our revenue , income from continuing operations and adjusted ebitda for fiscal 2010 were $ 199.8 million , $ 28.1 million and $ 29.9 million , respectively . our revenue , income from continuing operations and adjusted ebitda for fiscal 2009 were $ 188.9 million , $ 7.9 million and $ 22.9 million , respectively . see page 27 of this annual report for a reconciliation of our adjusted ebitda to income from continuing operations . our operations are organized in the following two business units : advanced computing solutions , or acs . this business unit is focused on specialized , high performance signal end-to-end processing solutions that encompass signal acquisition including microwave front-end , digitalization , computing , storage and communications , targeted to key market segments , including defense , communications and other commercial application . acs 's open system architecture solutions span the full range of embedded technologies from board level products to fully integrated sub-systems . our products utilize leading-edge processor technologies architected to address highly data-intensive applications that include signal , sensor and image processing within environmentally constrained military and commercial applications . in addition , acs now has a portfolio of microwave sub-assemblies to address needs in ew , sigint , elint and high bandwidth communications subsystems . these products are highly optimized for size , weight and power , as well as for the performance and ruggedization requirements of our customers . customized design and sub-systems integration services extend our capabilities to tailor solutions to meet the specialized requirements of our customers . in fiscal 2011 , acs accounted for 95 % of our total net revenues . mercury federal systems , or mfs . this business unit is focused on services and support work with the department of defense , or the dod , and federal intelligence and homeland security agencies , including designing and engineering new intelligence , surveillance and reconnaissance , or isr , capabilities to address present and emerging threats to u.s. forces . story_separator_special_tag during fiscal 2010 , ubs called $ 32.1 million of our ars at par , reducing our balance on june 30 , 2010 to $ 18.0 million . on june 30 , 2010 , we exercised our right to sell the remaining $ 18.0 million ars balance to ubs at par value . the transaction settled on july 1 , 2010 when we received $ 18.0 million in cash . f iscal 2009 in september 2008 , we completed an asset sale of our former biotech business for a $ 0.1 million cash payment , which was received in the second quarter of fiscal 2009 , and $ 0.3 million of preferred shares in the acquiring entity . the biotech business was previously reported in the results of the mfs operating segment . the accounting for this sale and biotech 's operating results were included in discontinued operations in fiscal 2009 , and prior period results have been reclassified to reflect the discontinuation and sale ( see note q to the consolidated financial statements ) . in january 2009 , we completed the sale of our former visage imaging ( vi ) operating segment for gross consideration of $ 3.0 million in cash . of the proceeds , a total of $ 1.1 million was held back for general indemnification purposes and employee termination payments to be incurred by the buyer . the sale resulted in a gain of $ 4.2 million on disposal of the discontinued operation . the gain was primarily comprised of cash proceeds of $ 1.0 million , net of transaction costs , and recognition of a foreign currency translation gain of $ 3.9 million associated with the vi business , offset by net assets of the business of $ 0.8 million . the accounting for this sale and the vi operating segment 's operating results were included in discontinued operations in fiscal 2009 , and prior period results have been reclassified to reflect the discontinuation and sale ( see note q to the consolidated financial statements ) . 36 in february 2009 , we repurchased $ 119.7 million ( face value ) aggregate principal amount of our 2 % convertible senior notes ( the notes ) due in 2024 from the holder of such notes . we repurchased the notes for aggregate consideration equal to the principal amount of the notes plus accrued interest . we paid the consideration for the notes from a combination of cash on hand and the proceeds from the sale of certain u.s. treasury securities held by us . we originally sold $ 125.0 million aggregate principal amount of the notes in april 2004 ( see note l to the consolidated financial statements ) . in may 2009 , we repurchased the remaining aggregate principal amount outstanding of $ 5.3 million ( face value ) of our notes from the holders of such notes . in june 2009 , we closed on the sale of our former visualization sciences group ( vsg ) operating segment for gross consideration of $ 12.0 million in cash . the sale resulted in a gain of $ 6.4 million on disposal of the discontinued operation . the gain was primarily comprised of cash proceeds of $ 8.2 million , net of transaction costs , and recognition of a cumulative foreign currency translation gain of $ 1.6 million , offset by net assets of the business of approximately $ 3.4 million . the accounting for this sale and the vsg operating segment 's operating results were included in discontinued operations in fiscal 2009 , and prior period results have been reclassified to reflect the discontinuation ( see note q to the consolidated financial statements ) . story_separator_special_tag > cquisition c osts and o ther r elated e xpenses we incurred $ 0.4 million of acquisition costs and other related expenses during fiscal 2011 , which consist of transaction costs incurred in connection with the acquisition of lnx corporation , which was concluded on january 12 , 2011. i nterest i ncome interest income for fiscal 2011 decreased by $ 0.5 million to nil compared to fiscal 2010. our marketable securities held during fiscal 2010 yielded higher interest rates than the money market funds and short-term government securities in which our cash was primarily invested during fiscal 2011. we held no marketable securities during fiscal 2011. i nterest e xpense interest expense for fiscal 2011 decreased by $ 0.3 million to $ 0.1 million compared to the same period in fiscal 2010. the decrease was the result of the repayment of our borrowings against our ars at the end of fiscal 2010. we did not have any debt during fiscal 2011 , other than capital lease obligations . 39 o ther i ncome , n et other income , net for fiscal 2011 increased by $ 0.4 million to $ 1.6 million compared to $ 1.2 million in fiscal 2010. other income , net primarily consists of $ 1.2 million in amortization of the gain on the sale leaseback of our corporate headquarters located in chelmsford , massachusetts and foreign currency exchange gains and losses . the $ 0.4 million increase is primarily associated with a $ 0.4 million foreign currency exchange gain during fiscal 2011 as compared to a $ 0.2 million foreign currency exchange loss for fiscal 2010. the foreign currency exchange gain was largely driven by strengthening of the british pound and the japanese yen against the u.s. dollar . i ncome t axes ( b enefit ) we recorded a provision for income taxes of $ 8.1 million in fiscal 2011 reflecting a 30.3 % effective tax rate , as compared to a ( 50.2 ) % effective tax rate for fiscal 2010. our provision for income taxes for fiscal year 2011 differed from the federal statutory tax rate of 35 % primarily due to the impact of research and development tax credits , the impact of a domestic manufacturing deduction , and favorable discrete items .
| results of operations : f iscal 2011 v s . f iscal 2010 the following tables set forth , for the periods indicated , financial data from the consolidated statement of operations : replace_table_token_7_th 37 r evenues replace_table_token_8_th total revenues increased $ 28.9 million , or 14 % , to $ 228.7 million during fiscal 2011. international revenues represented approximately 4 % and 10 % of total revenues during fiscal years 2011 and 2010 , respectively . the decrease in international revenues during fiscal 2011 was primarily driven by both the sales to a commercial customer in the european region during the 2010 period whose sales were serviced by the u.k. operations during the 2010 period versus our u.s. operations during the 2011 period , and reduced sales to a commercial customer in the asia pacific region during 2011. acs revenues increased $ 28.5 million , or 15 % , during fiscal 2011 compared to fiscal 2010. revenue from sales to defense customers increased $ 21.1 million , from $ 146.6 million in fiscal 2010 to $ 167.7 million in fiscal 2011. this growth was mostly driven by an increase in the radar market , slightly offset by a decline in ssi revenues from $ 24.4 million to $ 12.9 million due to the emerging nature of this business which is subject to irregular patterns period to period . revenue from sales to commercial customers increased $ 7.2 million , from $ 42.4 million in fiscal 2010 to $ 49.6 million in fiscal 2011. this growth was mostly driven by an increase in the semiconductor market driven by end of life buys , slightly offset by a decrease in sales in the commercial communications market . we expect our commercial business to decline significantly in fiscal 2012 , after our systems were designed out of two key semiconductor customers ' products .
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related to acquisition activity , we entered into certain operating lease commitments for facilities where the fair market rent differs from the lease contract rate . we recorded an unfavorable contract liability representing the difference between the total value of the fair market story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations ( “ md & a ” ) is intended to help the reader understand the results of operations and financial condition of radnet inc. md & a is provided as a supplement to , and should be read in conjunction with , our consolidated financial statements and the accompanying notes included in this annual report on form 10-k. overview we are a leading national provider of freestanding , fixed-site outpatient diagnostic imaging services in the united states based on number of locations and annual imaging revenue . our centers provide physicians with imaging capabilities to facilitate the diagnosis and treatment of diseases and disorders and may reduce unnecessary invasive procedures , often reducing the cost and amount of care for patients . we have developed our medical imaging business through a combination of organic growth , acquisitions and joint venture formations , and derive substantially all of our revenue from fees charged for the diagnostic imaging services performed at our facilities . in 2019 , we expanded our presence in the kern county , california area with the acquisition of kern radiology in bakersfield . combined with our already established presence , we are now a leading imaging operator in the greater bakersfield , california area . we made additional acquisitions and formed partnerships to strengthen our positions in california , new york and new jersey . turning our focus to our imaging technology and work-flow processes , we have increased our efforts in artificial intelligence ( ai ) by acquiring the remaining 75 % that we did not already own in nulogix , inc. and formed a partnership with whiterabbit.ai to use ai and other technologies to create new solutions for breast cancer imaging . the following table shows our facilities in operation at year end and revenues for the years ended december 31 , 2019 , 2018 and 2017 : replace_table_token_7_th our revenue is derived from a diverse mix of payors , including private payors , managed care capitated payors and government payors . we believe our payor diversity mitigates our exposure to possible unfavorable reimbursement trends within any one payor class . in addition , our experience with capitation arrangements over the last several years has provided us with the expertise to manage utilization and pricing effectively , resulting in a predictable stream of revenue . our service fee revenue , net of contractual allowances and discounts , the provision for bad debts , and revenue under capitation arrangements for the years ended december 31 , are summarized in the following table ( in thousands ) : 35 replace_table_token_8_th we typically experience some seasonality to our business . during the first quarter of each year we generally experience the lowest volumes of procedures and the lowest level of revenue for any quarter during the year . this is primarily the result of two factors . first , our volumes and revenue are typically impacted by winter weather conditions in our northeastern operations . it is common for snowstorms and other inclement weather to result in patient appointment cancellations and , in some cases , imaging center closures . second , in recent years , we have observed greater participation in high deductible health plans by patients . as these high deductibles reset in january for most of these patients , we have observed that patients utilize medical services less during the first quarter , when securing medical care will result in significant out-of-pocket expenditures . our services include magnetic resonance imaging ( mri ) , computed tomography ( ct ) , positron emission tomography ( pet ) , nuclear medicine , mammography , ultrasound , diagnostic radiology ( x-ray ) , fluoroscopy and other related procedures . the following table shows the number of systems that we had in operation as of the years ended december 31 , 2019 , 2018 and 2017 : replace_table_token_9_th facility acquisitions , equity investments and formation of joint ventures the following discussion summarizes certain details concerning our acquisition or disposition of facilities , our equity investment and our joint venture transaction . see note 4 , facility acquisitions and dispositions to our consolidated financial statements included in this annual report on form 10-k for further information . facility acquisitions on august 1 , 2019 we completed a step-up acquisition upon the dissolution of our former 49 % owned joint venture , garden state radiology llc ( `` gsrn '' ) . gsrn consisted of two multi-modality centers operating in new jersey . gsrn became our wholly owned subsidiary with the withdrawal of the 51 % majority partner for the full ownership of one center with no other consideration . we made a fair value determination of our original 49 % interest which resulted in a step-up gain of approximately 36 $ 1.3 million . we determined a fair value of the remaining acquired imaging center of $ 3.1 million in assets and $ 426,000 in liabilities were recognized . we recorded $ 1,000 in other assets , $ 679,000 in fixed assets , $ 426,000 in right-of-use assets , $ 426,000 in operating lease liabilities , and $ 2.0 million in goodwill . on august 1 , 2019 we completed a step-up acquisition of our former 25 % owned joint venture , nulogix , via a stock issuance of radnet common shares valued at $ 1.5 million to obtain the remaining 75 % outstanding nulogix shares . we made a fair value determination of the acquired assets and approximately $ 189,000 in fixed assets , $ 732,000 in intangible assets , $ 278,000 in deferred tax liability and goodwill of $ 1.3 million were recorded . story_separator_special_tag the re-measurement in valuation from an existing equity investment in joint venture resulted in a gain of $ 39.5 million which is included in other income within the consolidated statements of operations . on october 1 , 2018 we acquired certain assets of medical arts radiology consisting of a 10 multi-modality imaging centers located in long island , new york . total purchase consideration of $ 59.6 million consisted of cash in the amount of $ 50.9 million , issuance of 531,560 radnet common shares valued at $ 8.0 million on the acquisition date and contingent consideration valued at $ 739,000 to guarantee the share value issued for a period of twelve months post acquisition date . we also assumed $ 2.7 million in equipment debt . we have made a value determination of the acquired assets and approximately $ 2.7 million of net working capital , $ 224,000 of other assets , $ 16.0 million of property and equipment , $ 24,000 in a covenant not to compete , $ 1.4 million for its trade name , unfavorable lease contracts of $ 130,000 and $ 40.7 million of goodwill were recorded . on september 1 , 2018 we completed our acquisition of certain assets of washington heights medical management , llc , consisting of a multi-modality imaging center located in new york , new york , for $ 3.3 million in cash . we have made a fair value determination of the acquired assets and approximately $ 43,000 other assets , $ 904,000 of leaseholds and equipment , $ 50,000 in a covenant not to compete , and $ 2.3 million of goodwill were recorded . on april 1 , 2018 we completed our acquisition of certain assets of women 's imaging specialists in healthcare , consisting of a single multi-modality center located in the city of fresno california , for purchase consideration of $ 5.1 million in cash . we have made a fair value determination of the acquired assets and approximately $ 636,000 of fixed assets and equipment , $ 143,000 in intangible covenants not to compete , $ 53,000 in intangible trade name , and $ 4.3 million in goodwill were recorded . on april 1 , 2018 we completed our acquisition of certain assets of valley metabolic imaging llc , consisting of a single multi-modality center located in fresno , california , for purchase consideration of $ 1.7 million in cash . we have made a fair value determination of the acquired assets and approximately $ 22,000 of fixed assets and equipment , $ 183,000 in intangible covenants not to compete , and $ 1.5 million in goodwill were recorded . on april 1 , 2018 we completed our acquisition of certain assets of sierra imaging associates llc , consisting of a single multi-modality center located in clovis , california , for purchase consideration of $ 1.5 million in cash . we have made a fair value determination of the acquired assets and approximately $ 270,000 of fixed assets and equipment , $ 83,000 in intangible covenants not to compete , and $ 1.1 million in goodwill were recorded . on february 22 , 2018 we completed our acquisition of certain assets of imaging services company of new york , llc , consisting of a single multi-modality center located in new york , new york , for purchase consideration of $ 5.8 million . we have made a fair value determination of the acquired assets and approximately $ 3.0 million in fixed asset and equipment , a $ 100,000 covenant not to compete , and $ 2.7 million in goodwill were recorded . on january 1 , 2018 we formed beach imaging group , llc ( “ beach imaging ” ) and contributed the operations of 24 imaging facilities spread across southern los angeles and orange counties . on the same day , memorialcare medical foundation contributed $ 22.3 million in cash , $ 7.6 million in fixed assets , $ 7.4 million in equipment , and $ 545,000 in goodwill . as part of the formation , the beach imaging assumed $ 4.0 million in capital lease debt . as a result of the transaction , the company will retain a 60 % controlling interest in beach imaging and memorialcare medical foundation will retain a 40 % noncontrolling interest in beach imaging . equity investments turner imaging systems , based in utah , develops and markets portable x-ray imaging systems that provide a user the ability to acquire x-ray images wherever and whenever they are needed . on february 1 , 2018 , we purchased 2.1 million preferred shares in turner imaging systems for $ 2.0 million . on january 1 , 2019 we funded a convertible promissory note in the amount of $ 143,000 that converted to an additional 80,000 preferred shares on october 11 , 2019. no impairment in our investment was noted for the year ended december 31 , 2019 . whiterabbit.ai inc. , based in california , is currently developing an artificial intelligence suite which aims to improve the speed and accuracy of cancer detection in radiology and improve patient care . on november 5 , 2019 we acquired an equity interest in the company for $ 1.0 million and also loaned the company $ 2.5 million in support of its operations . no impairment in our investment was noted for the year ended december 31 , 2019 . 38 formation of new joint ventures on february 13 , 2019 we formed a wholly owned subsidiary , ventura county imaging group , llc ( `` vcig '' ) . on march 1 , 2019 , dignity health joined as a venture partner . total agreed contribution of both parties was $ 10.4 million of cash and assets with radnet contributing net assets with a book value of $ 4.3 million for a 60 % economic interest and dignity health contributing $ 6.1 million in cash and assets for a 40 % economic interest . for its contribution , radnet transferred net assets of three wholly owned multi-modality imaging centers .
| results of operations the following table sets forth , for the periods indicated , the percentage that certain items in the statements of operations bears to net revenue for the years 2019 and 2018 and net revenue before provision for bad debts for the year 2017 . 39 replace_table_token_10_th year ended december 31 , 2019 compared to the year ended december 31 , 2018 we grow through a combination of organic growth as well as acquisitions and joint ventures . we have segregated some of our information to demonstrate which is attributable to centers that were in operation throughout the entirety of the comparison period , and which is attributable to centers that were acquired or disposed of during the period . for the discussion below , same centers are those that were in continuous operation from january 1 , 2018 through december 31 , 2019. total net revenue replace_table_token_11_th 40 higher same center revenue experienced for the period resulted from increased volume of advanced radiology modalities , with mri , ct and pet procedures rising at 4.7 % , 6.2 % and 7.8 % respectively over the same period last year . this comparison excludes revenue contributions from centers that were acquired or divested subsequent to january 1 , 2018 . for the twelve months ended december 31 , 2019 , net service fee revenue from centers that were acquired or divested subsequent to january 1 , 2018 and excluded from the above comparison was $ 182.6 million . for the twelve months ended december 31 , 2018 , net service fee revenue from centers that were acquired or divested subsequent to january 1 , 2018 and excluded from the above comparison was $ 59.5 million .
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significant judgment is required in determining the general loan loss reserve , including estimates of the likelihood of default and the estimated fair value of the collateral . the general loan loss reserve includes those loans , which may have negative characteristics which have not yet become known to us . in addition to the reserves established on loans not considered impaired that have been evaluated under a specific evaluation , we establish the general loan loss reserve using a consistent methodology to determine a loss percentage to be applied to loan balances . these loss story_separator_special_tag this management 's discussion and analysis of financial condition and results of operations includes many forward-looking statements . for cautions about relying on such forward-looking statements , please see “ forward-looking statements ” at the beginning of this report immediately prior to item 1. all references to our common stock and related per share data have been adjusted in this report to reflect the reverse split amendment . executive summary the merger on july 8 , 2013 , pmc commercial entered into the merger agreement with cim reit , an affiliate of cim group , and subsidiaries of the respective parties . cim reit was a private commercial reit and was the owner of cim urban . the merger was completed on march 11 , 2014 . the merger agreement provided for the business combination of cim reit 's wholly-owned subsidiary , cim urban , and pmc commercial . pursuant to the merger agreement , urban ii , an affiliate of cim reit and cim urban , received 4,400,000 shares of newly-issued pmc commercial common stock and approximately 65,000,000 shares of newly-issued pmc commercial preferred stock . following the merger and subsequent increase in our authorized number of shares , each share of pmc commercial preferred stock was converted into 1.4 shares of pmc commercial common stock , resulting in the issuance of 95,440,000 shares of pmc commercial common stock in the aggregate in connection with the merger , representing approximately 97.8 % of pmc commercial 's outstanding shares of common stock at the time . all shares of pmc commercial common stock that were outstanding immediately prior to the closing of the merger continued to remain outstanding following the acquisition date . in addition , stockholders of record of pmc commercial at the close of the business day prior to the acquisition date received a special cash dividend of $ 27.50 per share of pmc commercial common stock plus the pro-rata portion of pmc commercial 's regular quarterly cash dividend accrued through the acquisition date , each of which was paid on march 25 , 2014 . the merger was accounted for as a reverse acquisition under the acquisition method of accounting with cim urban considered to be the accounting acquirer based upon the terms of the merger agreement . based on the determination that cim urban was the accounting acquirer in the transaction , cim urban allocated the purchase price to the fair value of pmc commercial 's assets and liabilities as of the acquisition date . on april 28 , 2014 , pmc commercial 's charter was amended to increase the authorized shares of stock of pmc commercial from 100,000,000 to 1,000,000,000 shares ( of which 900,000,000 are shares of pmc commercial common stock and 100,000,000 are shares of pmc commercial preferred stock ) and pmc commercial changed its state of incorporation from texas to maryland by means of a merger of pmc commercial with and into a newly formed , wholly-owned maryland corporate subsidiary . also , on april 28 , 2014 , pmc commercial trust changed its name to cim commercial trust corporation . our common stock is currently traded on nasdaq under the ticker symbol `` cmct . '' 58 furthermore , on april 28 , 2014 , we filed the reverse split amendment to effectuate a one-for-five reverse stock split of our common stock , effective april 29 , 2014 . pursuant to the reverse stock split , each five shares of common stock issued and outstanding immediately prior to the effective time of the reverse stock split were converted into one share of common stock . all per share and outstanding share information has been presented to reflect the reverse stock split . in order to allow cim commercial to increase its focus on class a and creative office investments , our board of directors approved a plan in december 2014 for the lending segment that , when completed , would have resulted in the deconsolidation of the lending segment , which at that time was focused on small business lending in the hospitality industry . in july 2015 , to maximize value , we modified our strategy from a strategy of selling the lending segment as a whole to a strategy of soliciting buyers for components of the business , including our commercial mortgage loans and the sba 7 ( a ) lending platform . this change in the sale methodology resulted in the need to extend the period to complete the sale of the remainder of the lending segment beyond one year . on december 17 , 2015 , pursuant to the modified plan , we sold substantially all of our commercial mortgage loans with a carrying value of $ 77,121,000 to an unrelated third party and recognized a gain of $ 5,151,000 . in september 2016 , we discontinued our efforts to sell the sba 7 ( a ) lending platform , and the activities related to the sba 7 ( a ) lending platform have been reclassified to continuing operations for all periods presented . on december 29 , 2016 , we sold our commercial real estate lending subsidiary , which was classified as held for sale and had a carrying value of $ 27,587,000 , which was equal to management 's estimate of fair value , to a fund managed by an affiliate of cim group . we did not recognize any gain or loss in connection with the transaction . story_separator_special_tag cim typically spends significant time and resources qualifying targeted investment communities prior to making any acquisitions . since 1994 , cim group has qualified 105 communities and has deployed capital in 63 of these qualified communities . although we may not invest exclusively in qualified communities , it is expected that most of our investments will be identified through this systematic process . our investments may also include side-by-side investments in one or more cim group-managed funds as well as a side-by-side or direct investment in a cim group-managed debt fund that principally originates loans secured directly or indirectly by commercial real estate properties . furthermore , as part of our investment strategy , we may invest in or originate loans that are secured directly or indirectly by properties primarily located in qualified communities that meet our investment strategy . such loans may include limited and or non-recourse junior ( mezzanine , b-note or 2 nd lien ) and senior construction loans that meet our investment strategy or limited and or non-recourse junior ( mezzanine , b-note or 2 nd lien ) and senior acquisition , bridge or repositioning loans . cim seeks to maximize the value of its investments through active asset management . cim has extensive in-house research , acquisition , investment , development , financing , leasing and property management capabilities , which leverage its deep understanding of urban communities to position properties for multiple uses and to maximize operating income . as a fully integrated owner and operator , cim 's asset management capabilities are complemented by its in-house property management capabilities . property managers prepare annual capital and operating budgets and monthly operating reports , monitor results and oversee vendor services , maintenance and capital improvement schedules . in addition , they ensure that revenue objectives are met , lease terms are followed , receivables are collected , preventative maintenance programs are implemented , vendors are evaluated and expenses are controlled . cim 's asset management committee reviews and approves strategic plans for each investment , including financial , leasing , marketing , property positioning and disposition plans . in addition , the asset management committee reviews and approves the annual business plan for each property , including its capital and operating budget . cim 's organizational structure provides for investment and asset management continuity through multidisciplinary teams responsible for an asset from the time of the original investment recommendation , through the implementation of the asset 's business plan , and any disposition activities . lending segment in order to allow cim commercial to increase its focus on class a and creative office investments , our board of directors approved a plan in december 2014 for the lending segment that , when completed , would have resulted in the deconsolidation of the lending segment , which at that time was focused on small business lending in the hospitality industry . in july 2015 , to maximize value , we modified our strategy from a strategy of selling the lending segment as a whole to a strategy of soliciting buyers for components of the business , including our commercial mortgage loans and the sba 7 ( a ) lending platform . this change in the sale methodology resulted in the need to extend the period to complete the sale of the remainder of the lending segment beyond one year . on december 17 , 2015 , pursuant to the modified plan , we sold substantially all of our commercial mortgage loans with a carrying value of $ 77,121,000 to an unrelated third party and recognized a gain of $ 5,151,000 . in september 2016 , we discontinued our efforts to sell the sba 7 ( a ) lending platform , and the activities related to 60 the sba 7 ( a ) lending platform have been reclassified to continuing operations for all periods presented . on december 29 , 2016 , we sold our commercial real estate lending subsidiary , which was classified as held for sale and had a carrying value of $ 27,587,000 , which was equal to management 's estimate of fair value , to a fund managed by an affiliate of cim group . we did not recognize any gain or loss in connection with the transaction . management 's estimate of fair value was determined with assistance from an independent third party valuation firm . through our sba 7 ( a ) lending platform , we are a national lender that primarily originates loans to small businesses . we identify loan origination opportunities through personal contacts , internet referrals , attendance at trade shows and meetings , direct mailings , advertisements in trade publications and other marketing methods . we also generate loans through referrals from real estate and loan brokers , franchise representatives , existing borrowers , lawyers and accountants . rental rate trends office statistics : the following table sets forth occupancy rates and annualized rent per occupied square foot across our office portfolio as of the specified periods : replace_table_token_30_th ( 1 ) represents gross monthly base rent under leases commenced as of the specified periods , multiplied by twelve . this amount reflects total cash rent before abatements . total abatements for the years ended december 31 , 2016 , 2015 and 2014 were $ 4,251,000 , $ 5,127,000 and $ 7,312,000 , respectively . where applicable , annualized rent has been grossed up by adding annualized expense reimbursements to base rent . annualized rent for certain office properties includes rent attributable to retail . over the next four quarters , we expect to see expiring cash rents as set forth in the table below : replace_table_token_31_th ( 1 ) all month-to-month tenants occupying a total of 61,210 square feet are included in the expiring leases in the first quarter listed . ( 2 ) represents gross monthly base rent , as of december 31 , 2016 , under leases expiring during the periods above , multiplied by twelve . this amount reflects total cash rent before abatements .
| summary segment results set forth and described below are summary segment results for our four segments included in continuing operations . replace_table_token_40_th revenues office revenue : office revenue includes include rental revenues from office properties , expense reimbursements and lease termination income . office revenue increased to $ 188,270,000 , or by 5.0 % , for the year ended december 31 , 2015 compared to $ 179,338,000 for the year ended december 31 , 2014 , primarily due to revenue increases at certain properties in california , which experienced higher occupancy and rental rates as well as revenue from the office properties acquired in april and october 2014 , partially offset by a decrease in revenue at our sacramento , california property due to expiration of a lease with a large tenant on june 30 , 2015. additionally , certain properties in the washington d.c. area experienced higher expense reimbursements revenue . the increase in revenue at california and the washington d.c. area properties is partially offset by a decrease at our north carolina property due to recognition of fees related to the early termination of a large tenant in april 2014. hotel revenue : hotel revenue increased to $ 61,436,000 , or by 9.5 % , for the year ended december 31 , 2015 compared to $ 56,096,000 for the year ended december 31 , 2014 . the increase is primarily due to revpar growth at our three hotels primarily as a result of increased rates . multifamily revenue : multifamily revenue decreased to $ 18,721,000 , or by 9.6 % , for the year ended december 31 , 2015 compared to $ 20,719,000 for the year ended december 31 , 2014 .
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f- 17 ( c ) 1,726,678 unregistered class a units were issued upon conversion of outstanding convertible debt instruments ( consisting of all principal amounts and accrued and unpaid interest through the date of the ipo ) at a conversion price of $ 5.00 per unit . ( d ) 136,863 unregistered shares of common stock were issued upon conversion of $ 650,100 of accrued and unpaid salaries to officers and directors at a conversion price of $ 4.75 per share . ( e ) 215,625 unregistered class a units issued upon the conversion of outstanding principal amount of unsecured promissory notes at a conversion price of $ 4.00 per unit . on december 17 , 2018 , pursuant to the underwriting agreement dated november 8 , 2018 , by and between the company and the underwriters named therein ( the “ representative ” ) , the representative , on behalf of the underwriters , agreed to partially exercise the over-allotment option to purchase an additional 25,000 shares of common stock , at a price of $ 4.98 per share , 400,500 series a warrants , at a price of $ 0.01 per warrant and 400,500 series b warrants , at a price of $ 0.01 per warrant . the company received net proceeds from the exercise of over-allotment option of $ 121,909 after deducting commission and expenses of $ 10,601 . as of december 31 , 2018 , the company had 9,870,873 shares of common stock issued and outstanding . at december 31 , 2017 , the company had 3,679,500 shares of common stock issued and outstanding . warrants placement agent warrants the company has issued warrants to the placement agents to purchase one share of its common stock at an exercise price of $ 12.00 per share . the warrants issued in its october 2016 private placement expire on october 17 , 2021 , and the warrants issued in its march 2018 private placement , may 2018 private placement and august 2018 financing expire on september 4 , 2023. the exercise price and number of shares of common stock or other securities issuable on exercise of such warrants are subject to customary adjustment in certain circumstances , including in the event of a stock dividend , recapitalization , reorganization , merger or consolidation of the company . as of december 31 , 2018 , and 2017 , 45,775 warrants and 30,725 warrants , respectively , have been issued to the placement agents and are outstanding and are currently exercisable . class a warrants on january 25 , 2016 , the company issued class a warrants to purchase 61,083 shares of common stock at a price of $ 12.00 per share through and including december 31 , 2018. no class a warrants were exercised during the year ended december 31 , 2018 and 2017 , respectively , and the class a warrants expired on december 31 , 2018. class b convertible preferred stock and class b warrants on january 8 , 2018 , the company offered for sale a minimum of 160,000 units and a maximum of 300,000 units to certain accredited investors , with each such unit consisting of ( i story_separator_special_tag story_separator_special_tag new roman , times , serif ; font-size : 10pt '' > revenues for the years ended december 31 , 2018 and 2017 were $ 15,289,400 and $ 14,201,836 , respectively , consisted of metal goods and soft goods sold to customers . revenues increased in 2018 over 2017 by $ 1,087,564 , or 7.7 % , primarily due to wide acceptance of our products in the tools industry and receipt of recurring sales orders for metal goods and soft goods from our existing customers and new customers , and introduction and sale of new soft goods products to our customers . cost of goods sold cost of goods sold for the years ended december 31 , 2018 and 2017 was $ 11,794,206 and $ 10,234,838 , respectively . cost of goods sold increased in 2018 over 2017 by $ 1,559,368 or 15.2 % , primarily due to the increase in materials cost of steel and plastics polyester to manufacture metal goods and soft goods and increase in labor cost in china . cost of goods sold as a percentage of revenues in 2018 was 77.1 % as compared to cost of goods sold as a percentage of revenues in 2017 of 72.1 % . we expect to reverse the trend and reduce our cost of goods sold as a percentage of revenue as we achieve operational efficiencies in production and work with automated state of the art factories to manufacture our product lines . operating expenses operating expenses consist of selling , general and administrative expenses , litigation expense , and research and development costs . selling , general and administrative expenses ( the “ sg & a expenses ” ) for the years ended december 31 , 2018 and 2017 were $ 6,937,704 and $ 6,070,868 , respectively . sg & a expenses increased in 2018 over 2017 by $ 866,836 or 14 % , primarily due to hiring additional employees , independent contractors and consultants to grow the company . sg & a expense in 2018 as a percentage of revenues was 45.4 % as compared to sg & a expense in 2017 as a percentage of revenues was 42.7 % . we expect our sg & a expense will continue to increase as the company plans to bring professional management team and staff on board , expend cash to raise capital for new products development , and acquire a new warehouse/storage facility to expand its operations and maintain finished products inventory on hand . litigation expense for the years ended december 31 , 2018 and 2017 was $ 1,192,488 and $ 0 , respectively . story_separator_special_tag management is focused on growing the company 's existing product offering , as well as its customer base , to increase its revenues . the company can not give assurance that it can increase its cash balances or limit its cash consumption and thus maintain sufficient cash balances for its planned operations or future acquisitions . future business demands may lead to cash utilization at levels greater than recently experienced . the company may need to raise additional capital in the future . however , the company can not assure that it will be able to raise additional capital on acceptable terms , or at all . subject to the foregoing , management believes that the company has sufficient capital and liquidity to fund its operations for at least one year from the date of issuance of the accompanying financial statements . cash flows net cash flows used in operating activities for the year ended december 31 , 2018 was $ 8,243,414 , attributable to a net loss of $ 27,651,412 , offset by depreciation expense of $ 120,723 , amortization of original issuance of debt discount and debt issuance cost and non-cash inducement cost for debt conversion of $ 5,278,132 , change in the fair value of warrant derivative of $ 14,336,425 , stock-based litigation settlement expense of $ 939,538 , stock-based compensation expense of $ 557,042 , stock issued in lieu of deferred salaries of $ 650,100 and net increase in operating assets of $ 1,154,073 , and net decrease in liabilities of $ 1,319,889. the company offered cash discounts to its customers and factors to accelerate payments of accounts receivable . in addition , the company negotiated extended payment terms with its suppliers , vendors and related parties to conserve its cash . net cash flows used in operating activities for the year ended december 31 , 2017 was $ 1,429,468 , attributable to net loss of $ 5,941,457 , offset by depreciation expense of $ 119,627 , amortization of original issuance of debt discount and debt issuance cost of $ 1,089,204 , stock-based compensation expense of $ 112,215 , and net increase in operating assets of $ 326,576 , and net increase in liabilities of $ 3,517,519 . 17 there was no net cash used by investing activities for the year ended december 31 , 2018. net cash used by investing activities for the year ended december 31 , 2017 was $ 69,926 , attributable to cash paid for purchase of property and equipment . net cash provided by financing activities for the year ended december 31 , 2018 was $ 13,658,951 , primarily attributable to net cash proceeds from sale of common stock of $ 11,671,735 , proceeds from sale of convertible preferred stock of $ 1,201,157 and proceeds from notes payable of $ 752,579. net cash provided by financing activities for the year ended december 31 , 2017 was $ 209,812 , primarily attributable to cash proceeds from notes payable of $ 400,000 , cash payment of debt issuance cost of $ 25,000 , and cash payments from notes payable of $ 165,188. we recorded a net increase in cash of $ 5,415,536 for the year ended december 31 , 2018. recent financings october 2016 financings sale of debenture on january 16 , 2018 , the holders of the convertible debentures and the company agreed to amend the terms of their securities purchase agreement originally executed in october 2016. we agreed to issue and deliver to ( i ) hillair capital an amended and restated debenture in the principal amount of $ 4,182,709 with an interest rate increased to 10 % per annum and an additional 41,826 shares of class b convertible preferred stock , and to ( ii ) hspl holdings , llc an amended and restated debenture in the principal amount of $ 2,117,501 with an interest rate increased to 10 % per annum and an additional 21,174 shares of class b convertible preferred stock . the amended debentures are comprised of the original debentures principal balance and all accrued but unpaid interest as of the date of the amendment . the original redemption dates have been removed under the amendment , with the entire principal and accrued interest balances being due on september 1 , 2018. on august 22 , 2018 , the holders of the convertible debentures originally issued in october 2016 and the company agreed to further extend the maturity date of the debentures until october 15 , 2018 and then , the earlier of the date of closing of the company 's initial public offering and november 15 , 2018 , in exchange for consideration for issuance of 37,500 shares of the company 's class b convertible preferred stock . march 2018 private placement on january 8 , 2018 , the company conducted a private placement of its securities in which the company offered to sell a minimum of 160,000 units and a maximum of 300,000 units to certain accredited investors , with each such unit consisting of ( i ) one half of a share of the company 's class b convertible preferred stock , par value of $ 0.0001 per share , and ( ii ) one half of a warrant to purchase one half share of the company 's common stock , par value $ 0.0001 per share . each unit will be sold at a price of $ 5.00 per unit . each warrant has an initial exercise price of $ 12.00 per share , subject to adjustment , and is exercisable for a period of five years from the date of issuance .
| financial condition and results of operations prospective investors should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes and other financial information included elsewhere in this annual report . some of the information contained in this discussion and analysis or set forth elsewhere in this annual report , including information with respect to our plans and strategy for our business , includes forward-looking statements that involve risks and uncertainties . see “ cautionary note regarding forward-looking statements. ” you should review the “ risk factors ” section of this prospectus 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 . all share and per share numbers have been retroactively adjusted to reflect the 1-for-2 reverse stock split effected on september 13 , 2018. company history our company was formed on april 9 , 2012 as phalanx , inc. , under the laws of the state of nevada and changed its name to toughbuilt industries , inc. on december 29 , 2015. business overview our company was formed to design , manufacture and distribute innovative tools and accessories to the building industry . the global tool market industry is a multibillion dollar business . toughbuilt 's business is based on development of innovative and state of the art products , primarily in tools and hardware category , with particular focus on building and construction industry with the ultimate goal of making life easier and more productive for the contractors and workers alike . toughbuilt 's current product line includes three major categories related to this field , with several additional categories in various stages of development , consisting of soft goods & kneepads and sawhorses & work products . jobs act on april 5 , 2012 , the jumpstart our business startups act of 2012 , or the jobs act , was enacted .
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( 4 ) incorporated by reference from the exhibits included in the company 's current report on form 8-k dated december 3 , 2013 . ( 5 ) incorporated by reference from the exhibits included in the company 's current report on form 8-k dated october 9 , 2013 . ( 6 ) incorporated by reference from the exhibits included in the company 's current report on form 8-k dated may 6 , 2014 . ( 7 ) incorporated by reference from the exhibits included in the company 's current report on form 8-k dated august 21 , 2014 . ( 8 ) incorporated by reference from the exhibits included in the company 's current report on form 8-k dated october 31 , 2014 . ( 9 ) incorporated by reference from the exhibits included in the company 's current report on form 8-k/a dated october 29 , 2014 . ( 10 ) incorporated by reference from the exhibits included in the company 's current report on form 8-k dated february 24 , 2015 . ( 11 ) incorporated by reference from the exhibits included in the company 's current report on form 10-k , dated july 16 , 2015 . ( 12 ) incorporated by reference from the exhibits included in the company 's current report on form 8-k dated october 28 , 2015 . ( 13 ) incorporated by reference from the exhibits included in the compamy 's registration statement on form s-1 dated march 22 , 2016 . ( 14 ) pursuant to rule 406t of regulation s-t , this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the securities act of 1933 , is deemed not filed for purposes of section 18 of the securities exchange act of 1934 , and otherwise is not subject to liability under these sections . 51 t-rex oil , inc. consolidated financial statements for the years ended march 31 , 2016 and 2015 52 report of independent registered public accounting firm to the board of directors and stockholders of t-rex oil , inc. : we have audited the accompanying balance sheets of t-rex oil , inc. ( “ the company ” ) as of march 31 , 2016 and 2015 , and the related statement of operations , stockholders ' equity ( deficit ) and cash flow for the years ended march 31 , 2016 and 2015. these financial statements are the responsibility of the company 's management . our responsibility is to express an opinion on these financial statements based on our audit . we conducted our audit in accordance with standards of the public company accounting oversight board ( united states ) . those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement . an audit includes examining , on a test basis , evidence supporting the amounts and disclosures in the financial statements , assessing the accounting principles used and significant estimates made by management , as well as evaluating the overall financial statement presentation . we believe that our audit provides a reasonable basis for our opinion . in our opinion , the financial statements referred to above present fairly , in all material respects , the financial position of t-rex oil , inc. , as of march story_separator_special_tag the following discussion should be read in conjunction with our audited financial statements and notes thereto included herein . in connection with , and because we desire to take advantage of , the “ safe harbor ” provisions of the private securities litigation reform act of 1995 , we caution readers regarding certain forward-looking statements in the following discussion and elsewhere in this report and in any other statement made by us , or on our behalf , whether or not in future filings with the securities and exchange commission . forward-looking statements are statements not based on historical information and which relate to future operations , strategies , financial results or other developments . forward-looking statements are necessarily based upon estimates and assumptions that are inherently subject to significant business economic and competitive uncertainties and contingencies , many of which are beyond our control and many of which , with respect to future business decisions , are subject to change . these uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward-looking statements made by us , or on our behalf . we disclaim any obligation to update forward-looking statements . the independent registered public accounting firm 's report on the company 's financial statements as of march 31 , 2016 , and for each of the years in the two-year period then ended , includes a “ going concern ” explanatory paragraph that describes substantial doubt about the company 's ability to continue as a going concern . plan of operations we are an energy company , focused on the acquisition , exploration , development and production of oil and natural gas . we have acquired oil and natural gas properties located in the western united states , mainly in the rocky mountain region . our goal is to drill and produce oil and gas cost effectively by concentrating our efforts in proven oil rich areas where we have in-house geologic and operating experience . we are focusing on the acquisition of proven properties that we believe can be economically enhanced in this current commodity price environment . in certain market conditions , we believe there could be additional upside realized through the development of deeper productive horizons , or applying tertiary recovery applications to these acquired fields . story_separator_special_tag the company owes $ 174,789 on the line-of-credit at march 31 , 2016. short term on a short-term basis , we have not generated revenues sufficient to cover operations . based on prior history , we will continue to have insufficient revenue to satisfy current and recurring liabilities as the company continues exploration activities . capital resources the company has only equity as its capital resource . 31 we have no material commitments for capital expenditures within the next year ; however , our plans to develop our existing oil properties are capital intensive and capital will be needed to pay for participation , investigation , exploration , acquisition and working capital . need for additional financing we do not have capital sufficient to meet our cash needs . the company will have to seek loans or equity placements to cover such cash needs . recompletions and re-works on existing wells , along with exploration activities will spur the need for additional financing is likely to increase substantially . no commitments to provide additional funds have been made by the company 's management or other shareholders . accordingly , there can be no assurance that any additional funds will be available to us to allow us to cover the company 's expenses as they may be incurred . the company will need substantial additional capital to support its proposed future energy operations . we have insufficient revenues to cover our corporate costs . the company has no committed source for any funds as of the date hereof . no representation is made that any funds will be available when needed . in the event funds can not be raised when needed , we may not be able to carry out our business plan , may never achieve sufficient sales or royalty income and could fail in business as a result of lack of capital . decisions regarding future participation in exploration wells or geophysical studies or other activities will be made on a case-by-case basis . the company may , in any particular case , decide to participate or decline participation . if participating , we may pay the proportionate share of costs to maintain the company 's proportionate interest through cash flow or debt or equity financing . if participation is declined , the company may elect to farmout , non-consent , sell or otherwise negotiate a method of cost sharing in order to maintain some continuing interest in the prospect . critical accounting policies principles of consolidation the accompanying consolidated balance sheets at march 31 , 2016 and 2015 and the consolidated statement of operations and cash flows for the year ended march 31 , 2016 include the accounts of terex energy corporation , t-rex oil , inc. , western interior oil and gas corporation and t-rex oil llc # 3 and the consolidated statement of operations and cash flows for the year ended march 31 , 2015 include the accounts of terex energy corporation and the accounts of t-rex oil , inc. for the period december 23 , 2014 through march 31 , 2015. all intercompany balances have been eliminated during consolidation . accounts receivable accounts receivable are stated at their cost less any allowance for doubtful accounts . the allowance for doubtful accounts is based on the management 's assessment of the collectability of specific customer accounts and the aging of the accounts receivable . if there is deterioration in a major customer 's creditworthiness or if actual defaults are higher than the historical experience , the management 's estimates of the recoverability of amounts due to the company could be adversely affected . based on the management 's assessment , there is no reserve recorded at march 31 , 2016 and 2015. oil and gas producing activities the company uses the successful efforts method of accounting for oil and gas activities . under this method , the costs of productive exploratory wells , all development wells , related asset retirement obligation assets and productive leases are capitalized and amortized , principally by field , on a units-of-production basis over the life of the remaining proved reserves . exploration costs , including personnel costs , geological and geophysical expenses and delay rentals for oil and gas leases are charged to expense as incurred . exploratory drilling costs are initially capitalized , but charged to expense if and when the well is determined not to have found reserves in commercial quantities . the sale of a partial interest in a proved property is accounted for as a cost recovery , and no gain or loss is recognized as long as this treatment does not significantly affect the units-of-production amortization rate . a gain or loss is recognized for all other sales of producing properties . there were capitalized costs of $ 11,368,626 and $ 10,003,625 at march 31 , 2016 and 2015 , respectively . 32 unproved oil and gas properties are assessed annually to determine whether they have been impaired by the drilling of dry holes on or near the related acreage or other circumstances , which may indicate a decline in value . when impairment occurs , a loss is recognized . when leases for unproved properties expire , the costs thereof , net of any related allowance for impairment , is removed from the accounts and charged to expense . during the years ended march 31 , 2016 and 2015 , there was impairment to unproved properties in the amount of $ 3,384,758 and $ 6,661 , respectively and for the year ended march 31 , 2016 there was a write off of expired lease costs in the amount of $ 3,096,931. the sale of a partial interest in an unproved property is accounted for as a recovery of cost when substantial uncertainty exists as to the ultimate recovery of the cost applicable to theinterest retained .
| results of operations for the year ended march 31 , 2016 compared to the year ended march 31 , 2015 overview . during the year ended march 31 , 2016 , the company recognized a net loss of $ 15,767,831 compared to a net loss of $ 11,043,541 for the year ended march 31 , 2015. the increase of $ 4,724,290 is primarily the result of an increase in oil sales offset by an increase in operational activities , impairment of oil and gas properties as a result in the decline of oil and gas prices and the acquisition of western interior . discussions of individually significant line items follow : revenues : during the year ended march 31 , 2016 , the company recognized revenues of $ 547,000. during the year ended march 31 , 2015 , the company did not recognize revenues from its oil and gas operational activities . during the year ended march 31 , 2016 , the company sold approximately 16,120 barrels of oil at an average price of $ 33.93 per barrel during the period . management expects to see increases in its production numbers as it takes over the management of the operations of the wells held by llc # 3 and from the company 's purchase of outstanding working interests in these properties during april 2016 . 29 operating expenses : during the year ended march 31 , 2016 , the company had an increase of $ 6,693,726 in total operating expenses as a result of the following : an increase in costs of $ 509,584 related to its oil and gas operational activities as a result of its acquisition of western interior . general and administrative expenses increased by $ 464,096 primarily as a result of increases in staffing and costs associated with reporting requirements .
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it utilizes the core principle of recognizing revenue when the company satisfies performance obligations as evidenced by the transfer of control of its products to the customer . such revenues are derived from story_separator_special_tag story_separator_special_tag with inventory recorded as a component of costs of products sold . ( b ) acquisition costs associated with the acquisition of dsi in 2019 . ( c ) severance costs associated with the resignation of an executive officer of the company in 2019 . ( d ) in 2018 , the company incurred one-time settlement costs in connection with the de-risking of the pension plan in our uk location ( see note 9 to our consolidated financial statements ) . ( e ) included in the discrete items for 2019 is a $ 3.4 million tax benefit primarily related to the acquisition of dsi . financial metrics we utilize several financial measures and metrics to evaluate the performance and assess the future direction of our business . these key financial measures and metrics include net revenues , gross profit margin , end-of-period backlog , book-to-bill ratio , and inventory turnover . gross profit margin is gross profit shown as a percentage of net revenues . gross profit is generally net revenues less costs of products sold , but could also include certain other period costs . gross profit margin is clearly a function of net revenues , but also reflects our cost-cutting programs and our ability to contain fixed costs . end-of-period backlog is one indicator of potential future sales . we include in our backlog only open orders that have been released by the customer for shipment in the next twelve months . if demand falls below customers ' forecasts , or if customers do not control their inventory effectively , they may cancel or reschedule the shipments that are included in our backlog , in many instances without the payment of any penalty . therefore , the backlog is not necessarily indicative of the results to be expected for future periods . another important indicator of demand in our industry is the book-to-bill ratio , which is the ratio of the amount of product ordered during a period compared with the product that we ship during that period . a book-to-bill ratio that is greater than one indicates that demand is higher than current revenues and manufacturing capacities , and it indicates that we may generate increasing revenues in future periods . conversely , a book-to-bill ratio that is less than one is an indicator of lower demand compared to existing revenues and current capacities and may foretell declining sales . we focus on our inventory turnover as a measure of how well we are managing our inventory . we define inventory turnover for a financial reporting period as our costs of products sold for the four fiscal quarters ending on the last day of the reporting period divided by our average inventory ( computed using each quarter-end balance ) for this same period . a higher level of inventory turnover reflects more efficient use of our capital . the quarter-to-quarter trends in these financial metrics can also be an important indicator of the likely direction of our business . the following table shows net revenues , gross profit margin , the end-of-period backlog , the book-to-bill ratio , and the inventory turnover for our business as a whole during the five quarters beginning with the fourth quarter of 2018 and through the fourth quarter of 2019 ( dollars in thousands ) : - 28 - replace_table_token_4_th replace_table_token_5_th net revenues for the fourth quarter of 2019 increased 2.6 % from the net revenues of $ 67.4 million reported in the third quarter of 2019 , and decreased 10.2 % from $ 77.0 million for the comparable prior year period . net revenues in the foil technology products segment of $ 29.6 million in the fourth quarter of 2019 decreased 7.7 % from $ 32.1 million in the third quarter of 2019 , and decreased 19.3 % from $ 36.7 million in the fourth quarter of 2018 . the sequential decline in revenue was attributable to precision resistor products in the test and measurement market . compared to the fourth quarter of 2018 , the decline in revenues was primarily attributable to precision resistor products in all regions for distribution , oem and ems customers , primarily in the test and measurement and avionics , military and space markets . net revenues in the force sensors segment of $ 15.1 million in the fourth quarter of 2019 decreased 7.1 % compared to revenues of $ 16.2 million in the third quarter of 2019 due to lower volume attributable to oem customers in the precision weighing and force measurement markets in the americas and europe . net revenues in the fourth quarter of 2019 decreased 11.4 % compared to $ 17.0 million in the fourth quarter of 2018 mainly due to lower volume attributable to distribution customers in the precision weighing market across all regions . - 29 - net revenues in the weighing and control systems segment of $ 24.4 million in the fourth quarter of 2019 increased 28.1 % from $ 19.1 million in the third quarter of 2019 and increased 5.2 % from $ 23.2 million in the fourth quarter of 2018 . the sequential increase in revenues was primarily attributable to the addition of dsi , with an increase in our european process weighing product line along with an increase in the steel product line . compared to the fourth quarter of 2018 , the increase in net revenues was primarily attributable to the addition of dsi in november 2019 , which offset lower sales of steel , process weighing , and u.s.-based onboard weighing products . the gross profit margin for the fourth quarter of 2019 decreased 3.3 % compared to the third quarter of 2019 , and decreased 5 % from the fourth quarter of 2018 . sequentially , gross profit margins declined in all reporting segments . story_separator_special_tag we believe our r & d efforts should provide us with a variety of opportunities to leverage technology , products , and our manufacturing base in order to ultimately improve our financial performance . the amount charged to expense for research and development aggregated $ 12.1 million , $ 11.8 million , and $ 11.7 million for the years ended december 31 , 2019 , 2018 , and 2017 , respectively . cost management to be successful , we believe we must seek new strategies for controlling operating costs . through automation in our plants , we believe we can optimize our capital and labor resources in production , inventory management , quality control , and warehousing . we are in the process of moving some manufacturing to more cost effective locations . this may enable us to become more efficient and cost competitive , and also maintain tighter controls of the operation . production transfers , facility consolidations , and other long-term cost-cutting measures require us to initially incur significant severance and other exit costs . we are realizing the benefits of our restructuring through lower labor costs and other operating expenses , and expect to continue reaping these benefits in future periods . however , these programs to improve our profitability also involve certain risks which could materially impact our future operating results , as further detailed in part i , item 1a “ risk factors ” of this annual report on form 10-k. the company recorded restructuring costs of $ 2.3 million , $ 0.3 million , and $ 2.0 million during the years ended december 31 , 2019 , 2018 , and 2017 , respectively . in 2019 , restructuring costs included $ 1.2 million of employee termination costs , including severance and statutory retirement allowances incurred in connection with various cost reduction programs , and $ 1.1 million of other exit costs associated with the closure and downsizing of facilities as part of the manufacturing transitions of the company 's force sensors products to facilities in india and china . in 2018 and 2017 , restructuring costs were comprised primarily of employee termination costs , including severance and statutory retirement allowances , and were incurred in connection with various cost reduction programs . we are evaluating plans to further reduce our costs by consolidating additional manufacturing operations . these plans may require us to incur restructuring and severance costs in future periods . while streamlining and reducing fixed overhead , we are exercising caution so that we will not negatively impact our customer service or our ability to further develop products and processes . foreign currency we are exposed to foreign currency exchange rate risks , particularly due to transactions in currencies other than the functional currencies of certain subsidiaries . u.s. gaap requires that entities identify the “ functional currency ” of each of their subsidiaries and measure all elements of the financial statements in that functional currency . a subsidiary 's functional currency is the currency of the primary economic environment in which it operates . in cases where a subsidiary is relatively self-contained within a particular country , the local currency is generally deemed to be the functional currency . however , a foreign subsidiary that is a direct and integral component or extension of the parent company 's operations generally would have the parent company 's currency as its functional currency . we have subsidiaries that fall into each of these categories . foreign subsidiaries which use the local currency as the functional currency our operations in europe , canada , and certain locations in asia primarily generate and expend cash using local currencies , and accordingly , these subsidiaries utilize the local currency as their functional currency . for those subsidiaries where the local currency is the functional currency , assets and liabilities in the consolidated balance sheets have been translated at the rate of exchange as - 31 - of the balance sheet date . translation adjustments do not impact the results of operations and are reported as a separate component of equity . for those subsidiaries where the local currency is the functional currency , revenues and expenses are translated at the average exchange rate for the year . while the translation of revenues and expenses into u.s. dollars does not directly impact the consolidated statements of operations , the translation effectively increases or decreases the u.s. dollar equivalent of revenues generated and expenses incurred in those foreign currencies . foreign subsidiaries which use the u.s. dollar as the functional currency our operations in israel and certain locations in asia primarily generate cash in u.s. dollars , and accordingly , these subsidiaries utilize the u.s. dollar as their functional currency . for those foreign subsidiaries where the u.s. dollar is the functional currency , all foreign currency financial statement amounts are remeasured into u.s. dollars . exchange gains and losses arising from remeasurement of foreign currency-denominated monetary assets and liabilities are included in the results of operations . while these subsidiaries transact most business in u.s. dollars , they may have significant costs , particularly related to payroll , which are incurred in the local currency . effects of foreign exchange rate on operations for the year ended december 31 , 2019 , exchange rate impacts decreased net revenues by $ 5.7 million , decreased costs of products sold and selling , general , and administrative expenses by $ 5.2 million , and decreased net earnings by $ 1.3 million or $ 0.10 per diluted share , when compared to the prior year . refer to item 7 . “ overview ” in our annual report on form 10-k for the year ended december 31 , 2018 for a comparison of the year ended december 31 , 2018 and the year ended december 31 , 2017. off-balance sheet arrangements as of december 31 , 2019 and 2018 , we did not have any off-balance sheet arrangements . critical accounting policies and estimates our significant accounting policies are summarized in note 1 to our consolidated financial statements .
| overview vpg is an internationally recognized designer , manufacturer and marketer of sensors , and sensor-based measurement systems , as well as specialty resistors and strain gages based upon our proprietary technology . we provide precision products and solutions , many of which are “ designed-in ” by our customers , specializing in the growing markets of stress , force , weight , pressure , and current measurements . a significant portion of our products and solutions are primarily based upon our proprietary foil technology and are produced as part of our vertically integrated structure . we believe this strategy results in higher quality , more cost effective and focused solutions for our customers . our products are marketed under a variety of brand names that we believe are characterized as having a very high level of precision and quality . our global operations enable us to produce a wide variety of products in strategically effective geographic locations that also optimize our resources for specific technologies , sensors , assemblies , and systems . the company also has a long heritage of innovation in precision foil resistors , foil strain gages , and sensors that convert mechanical inputs into an electronic signal for display , processing , interpretation , or control by our instrumentation and systems products . our advanced sensor product line continues this heritage by offering high-quality foil strain gages produced in a proprietary , highly automated environment . precision sensors are essential to the accurate measurement , resolution and display of force , weight , pressure , torque , tilt , motion , or acceleration , especially in the legal-for-trade , commercial , and industrial marketplaces . this expertise served as a foundation for our expansion into strain gage instrumentation , load cells , transducers , weighing modules , and complete systems for process control and on-board weighing . although our products are typically used in the industrial market , our advanced sensors have been used in a consumer electronics product and are being evaluated for other non-industrial applications .
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option contracts are valued under the income approach using option pricing models based on data either readily observable in public markets , derived from public markets or provided by counterparties who regularly trade in public markets . volatilities used in these valuations ranged from 16 % to 47 % depending on the maturity dates , underlying commodities and strike prices of the option story_separator_special_tag of operations financial highlights - 2011 compared to 2010 our net income for 2011 was $ 854 million , or $ 1.01 per diluted share . this is $ 261 million higher than 2010 despite significantly higher fuel costs . total operating revenue increased $ 3.4 billion , on an 11 % increase in passenger mile yield , primarily due to higher passenger revenues as we were able to adjust ticket prices in response to higher fuel prices . total operating expense was up $ 3.6 billion , or 12 % , driven primarily by a $ 2.9 billion increase in fuel expense ( including our contract carriers under capacity purchase agreements ) . fuel price volatility continues to represent a significant risk to our business and the airline industry as a whole . our fuel cost per gallon increased 31 % from 2010 to 2011 . during 2011 , fuel expense , including amounts under contract carrier agreements , increased by $ 2.9 billion and now represents 36 % of total operating expense . during 2011 , gains from our hedging program reduced fuel expense by $ 420 million . including fuel hedge activity , our average price per fuel gallon in 2011 was $ 3.06 as compared to $ 2.33 in 2010 . our consolidated operating cost per available seat mile ( `` casm '' ) for 2011 increased to 14.12 cents compared to 12.69 cents in 2010 , primarily reflecting higher fuel prices . for 2011 , casm-ex ( a non-gaap financial measure as defined in `` supplemental information '' below ) was 8.53 cents , or 3 % higher than 2010 , primarily reflecting higher revenue-related expenses and salaries and related costs . during 2011 , we reduced our total debt and capital leases by $ 1.5 billion and ended the year with $ 5.4 billion in unrestricted liquidity , consisting of cash and cash equivalents , short-term investments and availability under credit facilities . fleet strategy during 2011 , we entered into an agreement with the boeing company ( `` boeing '' ) to purchase 100 b-737-900er aircraft with deliveries beginning in 2013 and continuing through 2018. we have obtained committed long-term financing for a substantial portion of the purchase price of these aircraft . the boeing agreement and our plans to bring into service 30 to 40 previously owned md-90 aircraft over the next two to three years will enable us to replace on a capacity-neutral basis older , less efficient aircraft scheduled to be retired . the majority of the md-90 aircraft scheduled to come into service over the next two to three years were purchased or leased in 2010 and 2011. these b-737-900er and md-90 aircraft will have lower unit costs than the aircraft they are replacing as a result of lower maintenance costs and fuel efficiencies . in addition to lowering unit costs , we are also investing in our fleet to enhance the customer experience . the state-of-the-art b-737-900er will offer an industry leading customer experience , including expanded carry-on baggage space and a roomier cabin . by the end of 2013 , our entire widebody international fleet will be updated with full flat-bed seats in businesselite . we completed the installation of full flat-bed seats in the businesselite cabin of our b-777 and b-767-400er aircraft during 2011. due to the success of our economy comfort product , which we began offering during the 2011 summer on long-haul international flights , we are expanding economy comfort throughout our mainline and regional fleet by the summer of 2012. we have also been investing in our domestic and regional fleet , with in-flight wifi on all two-class domestic aircraft , interior upgrades and the installation of additional first class seating . new york strategy strengthening our position in new york city is an important part of our network strategy . as discussed below , key components of this strategy are operating a domestic hub at new york 's laguardia airport ( `` laguardia '' ) and creating a state-of-the-art facility at new york 's john f. kennedy international airport ( `` jfk '' ) . laguardia . during december 2011 , we closed the transactions contemplated under an agreement with us airways including the exchange of takeoff and landing rights ( each a `` slot pair '' ) at laguardia and reagan national airports , which will allow us to operate a new domestic hub at laguardia . under the agreement , ( 1 ) delta acquired 132 slot pairs at laguardia from us airways and ( 2 ) us airways acquired from delta 42 slot pairs at reagan national ; the rights to operate additional daily service to são paulo , brazil in 2015 ; and $ 66.5 million in cash . additionally , delta divested 16 slot pairs at laguardia and eight slot pairs at reagan national to airlines with limited or no service at those airports . 26 following the closing of the transaction , we announced the expansion of our service at laguardia in 2012 to include more than 100 new flights and 29 new destinations . our expanded schedule will add nonstop service to top u.s. business markets and additional frequencies to business markets currently served . as part of the expansion , we are also investing $ 100 million to create an expanded main terminal at laguardia in terminals c and d and will build a bridge to link the two terminals . jfk . while our expanded laguardia schedule is focused on providing industry-leading domestic service , our schedule at jfk is being optimized in 2012 for international and trans-continental flights , as well as improved coordination with our skyteam alliance partners . story_separator_special_tag aircraft maintenance materials and outside repairs expense increased primarily due to costs associated with increased maintenance sales to third parties by our mro services business , reflected in other revenue above . passenger commissions and other selling expenses . credit card and sales commissions increased in conjunction with the 11 % increase in passenger revenue . aircraft rent . aircraft rent decreased primarily due to the restructuring of certain existing leases and the change in reporting described above due to the transactions involving compass and mesaba . restructuring and other items . due to the nature of amounts recorded within restructuring and other items , a year over year comparison is not meaningful . for a discussion of charges recorded in restructuring and other items , see note 15 to the notes of the consolidated financial statements . 30 story_separator_special_tag at december 31 , 2011 , we had $ 16.8 billion of u.s. federal pre-tax net operating loss carryforwards . accordingly , we believe we will not pay any cash federal income taxes during the next several years . our u.s. federal pre-tax net operating loss carryforwards do not begin to expire until 2022 . financial condition and liquidity we expect to meet our cash needs for the next 12 months from cash flows from operations , cash and cash equivalents , short-term investments and financing arrangements . as of december 31 , 2011 , we had $ 5.4 billion in unrestricted liquidity , consisting of $ 3.6 billion in cash and cash equivalents and short-term investments and $ 1.8 billion in undrawn revolving credit facilities . debt and capital leases . at december 31 , 2011 , total debt and capital leases , including current maturities , was $ 13.8 billion , a $ 1.5 billion reduction from december 31 , 2010 and a $ 3.4 billion reduction from december 31 , 2009. our ability to obtain additional financing , if needed , on acceptable terms could be adversely affected by the fact that a significant portion of our assets are subject to liens . pension obligations . we sponsor defined benefit pension plans for eligible employees and retirees . these plans are closed to new entrants and are frozen for future benefit accruals . our funding obligations for these plans are generally governed by the employee retirement income security act . we contributed $ 598 million and $ 728 million to our defined benefit pension plans during 2011 and 2010 , respectively . we estimate the funding requirements under these plans will total approximately $ 700 million in 2012. advance purchase of skymiles . in 2008 , we entered into a multi-year extension of our american express agreements and received $ 1.0 billion from american express for an advance purchase of skymiles ( the `` prepayment '' ) . the 2008 agreement provided that our obligations with respect to the advance purchase would be satisfied as american express uses the purchased miles over a specified future period ( “ skymiles usage period ” ) , rather than by cash payments from us to american express . due to the skymiles usage period and other restrictions placed upon american express regarding the timing and use of the skymiles , we classified the $ 1.0 billion we received , the pre-payment , as long-term debt . during the skymiles usage period , which commenced during the december 2011 quarter , american express will draw down on their prepayment instead of paying cash to delta for skymiles used . as of december 31 , 2011 , $ 952 million of the original $ 1.0 billion debt ( or prepayment ) remained , including $ 333 million which is classified in current maturities of long-term debt and capital leases . 34 annual sale of skymiles . in december 2011 , we amended our american express agreements and sold american express $ 675 million of skymiles . under the december 2011 amendment , we anticipate american express will make additional purchases of $ 675 million of skymiles in each of 2012 , 2013 , and 2014. fuel card obligation . in december 2011 , we also obtained a purchasing card with american express for the purpose of buying jet fuel . the card currently carries a maximum credit limit of $ 612 million and must be paid monthly . as of december 31 , 2011 , we had $ 318 million outstanding on this purchasing card , which was classified as other accrued liabilities . liquidity events liquidity and financing events during 2011 included the following : senior secured credit facilities . we entered into senior secured first-lien credit facilities ( the `` senior secured credit facilities '' ) to borrow up to $ 2.6 billion . we borrowed $ 1.4 billion under the senior secured credit facilities to retire $ 1.4 billion of outstanding loans under our $ 2.5 billion senior secured exit financing facilities and terminated those facilities and an existing $ 100 million revolving credit facility . the senior secured credit facilities bear interest at a variable rate equal to libor ( subject to a 1.25 % floor ) or another index rate , in each case plus a specified margin and have final maturities in april 2016 and 2017. at december 31 , 2011 , the outstanding balances under the senior secured credit facilities had an interest rate of 5.50 % per annum . pacific routes term loan facility . we amended our $ 250 million first-lien term loan facility ( the `` pacific routes term loan facility '' ) to , among other things , reduce the interest rate and extend the maturity date from september 2013 to march 2016. at december 31 , 2011 , the pacific routes term loan facility had an interest rate of 4.25 % per annum . certificates . we received $ 834 million in proceeds from offerings of pass-through trust certificates ( `` eetc '' ) and used the proceeds to refinance aircraft securing other debt instruments at their maturities , primarily the 2001-1 eetc , and for general corporate purposes .
| results of operations - 2010 compared to 2009 operating revenue replace_table_token_16_th replace_table_token_17_th mainline passenger revenue . mainline passenger revenue increased primarily due to increased business demand for air travel and an increase in fares , largely due to the strengthening of the airline industry revenue environment . during 2009 , weakened demand for air travel from the global recession and the effects of the h1n1 virus and related capacity reductions had a significant negative impact on our mainline passenger revenue . domestic passenger revenue . domestic passenger revenue increased 11 % from a 9 % increase in prasm on a 0.3 point decrease in load factor and a 2 % increase in capacity . the passenger mile yield increased 9 % , reflecting an increase in business travel and an increase in fares . international passenger revenue . international passenger revenue increased 22 % from a 21 % increase in prasm and a 2.4 point increase in load factor on a 1 % increase in capacity . the passenger mile yield increased 17 % , reflecting an increase in demand for air travel and an increase in fares . regional carriers . passenger revenue of regional carriers increased 11 % from a 13 % increase in prasm and a 1.0 point increase in load factor on a 2 % decline in capacity . the passenger mile yield increased 12 % , reflecting an increase in demand for air travel and an increase in fares . cargo . cargo revenue increased due to a 13 % increase in yield and a 25 % increase in volume , primarily in international markets , partially offset by capacity reductions due to the retirement of our dedicated freighter aircraft in 2009. other . other revenue increased due to higher baggage fee revenue from an increased volume of checked bags .
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our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors , including those discussed under “ risk factors ” in part i , item 1a above . business and executive overview we are a global networking company that delivers innovative products to consumers , businesses and service providers . our products are built on a variety of proven technologies such as wireless , ethernet and powerline , with a focus on reliability and ease-of-use . our product line consists of wired and wireless devices that enable networking , broadband access and network connectivity . these products are available in multiple configurations to address the needs of our end-users in each geographic region in which our products are sold . we operate in three specific business segments : retail , commercial , and service provider . each business unit is managed by a senior vice president/general manager . we believe this structure enables us to better focus our efforts on our core customer segments and allows us to be more nimble and opportunistic as a company overall . our ceo began temporarily serving as interim general manager of the retail business unit in march 2014 and as interim general manager of the service provider business unit in february 2015 due to the previous general managers ' departures from the company . our ceo will continue to serve as interim general manager of both business units until replacements are appointed . the retail business unit is focused on individual consumers and consists of high performance , dependable and easy-to-use home networking , home video security , storage and digital media products . the commercial business unit is focused on small and medium-sized businesses and consists of business networking , storage and security solutions that bring enterprise class functionality at an affordable price . the service provider business unit is focused on the service provider market and consists of made-to-order and retail-proven whole home networking hardware and software solutions , as well as 4g lte hotspots sold to service providers for sale to their subscribers . we conduct business across three geographic regions : americas , europe , middle-east and africa ( “ emea ” ) and asia pacific ( “ apac ” ) . the retail , commercial business , and broadband service provider markets are intensely competitive and subject to rapid technological change . we believe that the principal competitive factors in the retail , commercial , and service provider markets for networking products include product breadth , size and scope of the sales channel , brand name , timeliness of new product introductions , product availability , performance , features , functionality and reliability , ease-of-installation , maintenance and use , and customer service and support . to remain competitive , we believe we must continue to aggressively invest resources in developing new products and enhancing our current products while continuing to expand our channels and maintaining customer satisfaction worldwide . we sell our networking products through multiple sales channels worldwide , including traditional retailers , online retailers , wholesale distributors , direct market resellers ( “ dmrs ” ) , value-added resellers ( “ vars ” ) , and broadband service providers . our retail channel includes traditional retail locations domestically and internationally , such as best buy , costco , fry 's electronics , k-mart , sears , staples , target , wal-mart , argos ( u.k. ) , dixons ( u.k. ) , pc world ( u.k. ) , mediamarkt ( germany , austria ) , dick smith ( australia ) , jb hifi ( australia ) , elkjop ( norway ) and lenovo ( china ) . online retailers include amazon.com , dell , newegg.com and buy.com . our dmrs include cdw corporation , insight corporation and pc connection in domestic markets and misco throughout europe . in addition , we also sell our products through broadband service providers , such as multiple system operators ( “ msos ” ) , dsl , and other broadband technology operators domestically and internationally . some of these retailers and broadband service providers purchase directly from us , while others are fulfilled through wholesale distributors around the world . a substantial portion of our net revenue to date has been derived from a limited number of wholesale distributors and retailers . we expect that these wholesale distributors and retailers will continue to contribute a significant percentage of our net revenue for the foreseeable future . we experienced revenue growth of 1.7 % during the year ended december 31 , 2014 . the increase in net revenue was primarily attributable to increased sales of our mobile products acquired through our acquisition of aircard and broadband gateways , partially offset by a decrease in sales of our multimedia products . on a geographic basis , net revenue increased in the apac region , driven primarily by an increase in sales of our mobile , home wireless and broadband gateway products , partially offset by a reduction in sales of our small business wireless products . net revenue increased in the emea region , driven primarily by an increase in sales of our broadband gateways , partially offset by a reduction in sales of our mobile products . net revenue decreased in the americas region , driven primarily by a reduction in sales of our home wireless , multimedia , home security and automation products and 37 switches , partially offset by an increase in sales of our mobile products . on a segment basis , service provider net revenue increased , primarily due to an increase in gross shipments of mobile products , as a result of the aircard acquisition which was completed on april 2 , 2013. retail net revenue decreased slightly , due primarily to a reduction in gross shipments of our multimedia and powerline products , partially offset by an increase in gross shipments of home wireless products and broadband gateways . story_separator_special_tag factors that affect the warranty obligation include product failure rates , material usage , and service delivery costs incurred in correcting product failures . the estimated cost associated with fulfilling the warranty obligation to end-users is recorded in cost of revenue . because our products are manufactured by third-party manufacturers , in certain cases we have recourse to the third-party manufacturer for replacement or credit for the defective products . we give consideration to amounts recoverable from our third-party manufacturers in determining our warranty liability . our estimated allowances for product warranties can vary from actual results and we may have to record additional revenue reductions or charges to cost of revenue , which could materially impact our financial position and results of operations . in addition to warranty-related returns , certain distributors and retailers generally have the right to return product for stock rotation purposes . upon shipment of the product , we reduce revenue for an estimate of potential future stock rotation returns related to the current period product revenue . we analyze historical returns , channel inventory levels , current economic trends and changes in customer demand for our products when evaluating the adequacy of the allowance for sales returns , namely stock rotation returns . our estimated allowances for returns due to stock rotation can vary from actual results and we may have to record additional revenue reductions , which could materially impact our financial position and results of operations . we accrue for sales incentives as a marketing expense if we receive an identifiable benefit in exchange and can reasonably estimate the fair value of the identifiable benefit received ; otherwise , it is recorded as a reduction of revenues . our estimated provisions for sales incentives can vary from actual results and we may have to record additional expenses or additional revenue reductions dependent on the classification of the sales incentive . we maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments . we regularly perform credit evaluations of our customers ' financial condition and consider factors such as historical experience , credit quality , age of the accounts receivable balances , and geographic or country-specific risks and economic conditions that may affect a customer 's ability to pay . the allowance for doubtful accounts is reviewed quarterly and adjusted if necessary based on our assessments of our customers ' ability to pay . if the financial condition of our customers should deteriorate or if actual defaults are higher than our historical experience , additional allowances may be required , which could have an adverse impact on operating expenses . valuation of inventory we value our inventory at the lower of cost or market , cost being determined using the first-in , first-out method . we continually assess the value of our inventory and will periodically write down its value for estimated excess and obsolete inventory based upon assumptions about future demand and market conditions . on a quarterly basis , we review inventory quantities on hand and on order under non-cancelable purchase commitments , including consignment inventory , in comparison to our estimated forecast of product demand for the next nine months to determine what inventory , if any , are not saleable . our analysis is based on the demand forecast but takes into account market conditions , product development plans , product life expectancy and other factors . based on this analysis , we write down the affected inventory value for estimated excess and obsolescence charges . at the point of loss recognition , a new , lower cost basis for that inventory is established , and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis . as demonstrated during prior years , demand for our products can fluctuate significantly . if actual demand is lower than our forecasted demand and we fail to reduce our manufacturing accordingly , we could be required to write down the value of additional inventory , which would have a negative effect on our gross profit . goodwill goodwill represents the purchase price over estimated fair value of net assets of businesses acquired in a business combination . goodwill acquired in a business combination is not amortized , but instead tested for impairment at least annually on the first day of the fourth quarter . should certain events or indicators of impairment occur between annual impairment tests , we will perform the impairment test as those events or indicators occur . examples of such events or circumstances include the following : a significant decline in our expected future cash flows , a sustained , significant decline in our stock price and market capitalization , a significant adverse change in the business climate , and slower growth rates . 39 goodwill is tested for impairment at the reporting unit level by first performing a qualitative assessment to determine whether it is more likely than not ( that is , a likelihood of more than 50 % ) that the fair value of the reporting unit is less than its carrying value . we identified the reporting units as retail , commercial and service provider reporting units , as this is the lowest level for which discrete financial information is available and segment management regularly reviews the operating results . the qualitative assessment considers the following factors : macroeconomic conditions , industry and market considerations , cost factors , overall company financial performance , events affecting the reporting units , and changes in our share price . if the reporting unit does not pass the qualitative assessment , we estimate our fair value and compare the fair value with the carrying value of our net assets . if the fair value is greater than the carrying value of our net assets , no impairment results .
| results of operations the following table sets forth , for the periods presented , the consolidated statements of operations data , which is derived from the accompanying consolidated financial statements : replace_table_token_8_th net revenue by geographic region our net revenue consists of gross product shipments , less allowances for estimated returns for stock rotation and warranty , price protection , end-user customer rebates and other sales incentives deemed to be a reduction of net revenue per the authoritative guidance for revenue recognition , and net changes in deferred revenue . we conduct business across three geographic regions : americas , emea and apac . for reporting purposes revenue is attributed to each geographic region based upon the location of the customer . replace_table_token_9_th 2014 vs 2013 the decrease in americas net revenue for the year ended december 31 , 2014 compared to the prior year was driven primarily by a reduction in sales of our home wireless , multimedia , home security and automation products and switches , partially offset by an increase in sales of our mobile products and broadband gateways . net revenue for mobile products increased for the year ended december 31 , 2014 as a result of the aircard acquisition which was completed on april 2 , 2013. in contrast to 2013 , the 42 positive effect of the acquisition is included in our results of the entire year ended december 31 , 2014. in our retail and distribution channels , we continue to see strong demand for our products . however , we are managing our inventory levels at our u.s. retail partners to be more aligned with historic levels , which has contributed to the decline in the americas net revenue for the year ended december 31 , 2014 compared to the prior year .
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see “ forward-looking statements ” in the beginning of this form 10-k. the md & a includes the following sections : business - a general description of dentsply sirona 's business and how performance is measured ; results of operations - an analysis of the company 's consolidated results of operations for the three years presented in the consolidated financial statements ; critical accounting estimates - a discussion of accounting policies that require critical judgments and estimates ; and liquidity and capital resources - an analysis of cash flows ; debt and other obligations ; and aggregate contractual obligations . on february 29 , 2016 , dentsply international inc. merged with sirona dental systems , inc. ( “ sirona ” ) to form dentsply sirona inc. ( the “ merger ” ) the accompanying financial information for the company for the year ended december 31 , 2016 , include the results of operations for sirona for the period february 29 , 2016 to december 31 , 2016 . references to the ” combined business ” or the “ combined businesses ” are included below to provide comparisons of net sales performance from year to year as if the businesses were combined on january 1 , 2015 . 2016 operational highlights the company closed its merger between dentsply international inc. and sirona dental systems , inc. on february 29 , 2016 and established dentsply sirona as the dental solutions company and the largest manufacturer of dental products for the professional dental market . the company is best positioned to foster the development of differentiated integrated solutions for general practitioners and specialists . for the year ended december 31 , 2016 , net sales , excluding precious metal content , increased 42.6 % compared to prior year . the increase in sales primarily reflects the impact of consolidating ten months of sirona 's sales . for the year ended december 31 , 2016 , sales of our combined businesses ( a non-us gaap measure as referenced above ) , grew 3.6 % on a constant currency basis . this includes a benefit of 1.7 % from net acquisitions and was unfavorably impacted by discontinued products by approximately 50 basis points , which results in internal growth of 2.4 % . for the year ended december 31 , 2016 , net income attributable to dentsply sirona increased 71.2 % . earnings per diluted share of $ 1.94 increased by 10.2 % from $ 1.76 in the prior year . on an adjusted basis ( a non-us gaap measure as defined under the heading “ net income attributable to dentsply sirona ” ) , full year 2016 net income grew 64.7 % and earnings per diluted share grew 5.7 % to $ 2.78 from $ 2.62 in the prior year . the company 's results reflect a significant earnings headwind from currency rate changes compared to the prior year of approximately 3.0 % , or $ 0.08 per diluted share . in 2016 , the company initiated merger and integration activities to capture cost and revenue synergies . the company completed the elimination of certain corporate redundancies , the planning of country consolidation activities and the renegotiating of supply contracts with vendors . additionally , the company initiated reorganization activities that include manufacturing and logistics . the company achieved tax savings as it realized complementary tax attributes of the combined businesses . with regard to revenue synergies , dentsply sirona launched combined commercial activities , such as bundling products and developing cross-selling opportunities . investments in research and development have yielded new products and solutions which is expected to generate sales growth in the future . 32 during 2016 , the company deployed cash in excess of $ 1.2 billion as it returned cash to shareholders through common share repurchases and dividend payments , as well as strengthened the business through acquisitions . during 2016 , the company completed two acquisitions with an aggregate purchase price of $ 341.1 million , including the acquisition of mis implants technologies ltd. ( “ mis ” ) , a manufacturer of dental implant systems , and a small acquisition of a healthcare consumable business . in addition , the company repurchased $ 813.9 million of common shares outstanding in 2016. company profile dentsply sirona is the world 's largest manufacturer of professional dental products and technologies , with a 130-year history of innovation and service to the dental industry and patients worldwide . dentsply sirona develops , manufactures , and markets a comprehensive solutions offering including dental and oral health products as well as other consumable medical devices under a strong portfolio of world class brands . as the dental solutions company , dentsply sirona 's products provide innovative , high-quality and effective solutions to advance patient care and deliver better , safer and faster dentistry . dentsply sirona 's global headquarters is located in york , pennsylvania , and the international headquarters are based in salzburg , austria . the company 's shares are listed in the united states on nasdaq under the symbol xray . business the company operates in two business segments , dental and healthcare consumables and technologies . the dental and healthcare consumables segment includes responsibility for the worldwide design , manufacture , sales and distribution of the company 's dental and healthcare consumable products which include preventive , restorative , instruments , endodontic , and laboratory dental products as well as consumable medical device products . the technologies segment is responsible for the worldwide design , manufacture , sales and distribution of the company 's dental technology products which includes dental implants , cad/cam systems , imaging systems , treatment centers and orthodontic products . story_separator_special_tag in the fourth quarter 2016 , the decision not to extend the exclusivity beyond september 2017 was announced . the company 's relationship with patterson remains strong , and the company expects to continue to distribute the products and equipment underlying the agreements through patterson on a non-exclusive basis . however , the disruption caused by the announcement of the termination of exclusivity , as well as a reduction in patterson sales resources , negatively impacted fourth quarter sales . additionally , patterson began to reduce inventories in both the united states and canada , which further negatively impacted the company 's reported sales in the fourth quarter by approximately $ 30 million . these factors are expected to continue in 2017. the company is evaluating its options for additional channels of distribution for such products , although no firm decisions have been reached as of the date of this filing . the company anticipates that the continuation of the inventory reduction could unfavorably impact sales in 2017 by approximately $ 50 million as patterson reduces inventory in some periods and as other market channels are brought on-line in other periods . notwithstanding the foregoing , the company believes end-user demand for its products continues to be strong . impact of foreign currencies and interest rates due to the company 's significant international presence , movements in foreign exchange and interest rates may impact the consolidated statements of operations . with approximately two thirds of the company 's net sales located in regions outside the united states , the company 's consolidated net sales are impacted negatively by the strengthening or positively impacted by the weakening of the u.s. dollar . additionally , movements in certain foreign exchange and interest rates may unfavorably or favorably impact the company 's results of operations , financial condition and liquidity . for the year ended december 31 , 2016 , net sales , excluding precious metal content , were unfavorably impacted by approximately 1.2 % and earnings per diluted common share by approximately $ 0.08 due to movements in foreign currency exchange rates . 34 reclassification of prior year amounts certain reclassifications have been made to prior years ' data in order to conform to current year presentation . specifically , during the march 31 , 2016 quarter , the company realigned reporting responsibilities as a result of the merger and changed the management structure . the segment information reflects the revised structure for all periods shown . results of operations 2016 compared to 2015 net sales the discussion below summarizes the company 's sales growth which excludes precious metal content , into the following components : ( 1 ) impact of the merger ; and ( 2 ) the results of the “ combined businesses ” as if the businesses were merged on january 1 , 2015. these disclosures of net sales growth provide the reader with sales results on a comparable basis between periods . management believes that the presentation of net sales , excluding precious metal content , provides useful information to investors because a portion of dentsply sirona 's net sales is comprised of sales of precious metals generated through sales of the company 's precious metal dental alloy products , which are used by third parties to construct crown and bridge materials . due to the fluctuations of precious metal prices and because the cost of the precious metal content of the company 's sales is largely passed through to customers and has minimal effect on earnings , dentsply sirona reports net sales both with and without precious metal content to show the company 's performance independent of precious metal price volatility and to enhance comparability of performance between periods . the company uses its cost of precious metal purchased as a proxy for the precious metal content of sales , as the precious metal content of sales is not separately tracked and invoiced to customers . the company believes that it is reasonable to use the cost of precious metal content purchased in this manner since precious metal dental alloy sale prices are typically adjusted when the prices of underlying precious metals change . the presentation of net sales , excluding precious metal content , is considered a measure not calculated in accordance with us gaap , and is therefore considered a non-us gaap measure . the company provides the following reconciliation of net sales to net sales , excluding precious metal content . the company 's definitions and calculations of net sales , excluding precious metal content , and other operating measures derived using net sales , excluding precious metal content , may not necessarily be the same as those used by other companies . replace_table_token_5_th net sales , excluding precious metal content , for the year ended december 31 , 2016 were $ 3,681.0 million , an increase of $ 1,099.5 million from the year ended december 31 , 2015 , as reported by legacy dentsply . this excludes approximately $ 13.5 million of revenue that was eliminated in fair value purchase accounting adjustments to deferred income . sales related to precious metal content declined 30.7 % during 2016 , which was primarily related to the discontinued refinery product lines and to a lesser extent the continued reduction in the use of precious metal alloys in dentistry . for the year ended december 31 , 2016 , sales of our combined businesses grew 3.6 % on a constant currency basis . this includes a benefit of 1.7 % from net acquisitions and was unfavorably impacted by discontinued products by approximately 50 basis points , which leads to internal growth of 2.4 % . net sales , excluding precious metal content , were negatively impacted by approximately 90 basis points due to the strengthening of the u.s. dollar over the prior year period .
| operating segment results replace_table_token_16_th replace_table_token_17_th 42 a reconciliation of reported net sales to net sales , excluding precious metal content , of the combined business by segment for the year ended december 31 , 2016 and 2015 , respectfully , is as follows : replace_table_token_18_th ( a ) represents sirona sales for january and february 2016 ( b ) represents an adjustment to reflect deferred subscription and warranty revenue that was eliminated under business combination accounting standards to make the 2016 and 2015 non-u.s. gaap combined business results comparable . replace_table_token_19_th ( a ) represents sirona sales for the year ended december 31 , 2015. dental and healthcare consumables reported net sales , excluding precious metal content , increased by 6.7 % for the year ended december 31 , 2016 as compared to the year ended december 31 , 2015. this increase reflects sales of $ 106.4 million as a result of the merger and other acquisitions , primarily the consolidation of the sirona businesses for ten months . for the year ended december 31 , 2016 , sales of our combined businesses grew 2.7 % on a constant currency basis . this includes a benefit of approximately 60 basis points from net acquisitions and was unfavorably impacted by discontinued products by approximately 80 basis points , which results in internal growth of 2.9 % . net sales , excluding precious metal content , were negatively impacted by approximately 1.1 % due to the strengthening of the u.s. dollar over the prior year period . sales growth was led by europe and the rest of world region . the operating income increase for the year ended december 31 , 2016 as compared to 2015 reflects the savings from the company 's global efficiency and integration program , as well as the impact of the merger .
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at the maturity of the convertible notes , the remaining holders would be paid out the same per share amount as the avigen shareholders that elected to receive cash at the merger closing story_separator_special_tag you should read the following discussion and analysis together with item 6. selected financial data and the consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. the following discussion contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those expressed or implied in any forward-looking statements as a result of various factors , including those set forth under the caption item 1a . risk factors. overview background we are a development stage biopharmaceutical company focused on acquiring and developing novel , small molecule therapeutics for the treatment of serious diseases with unmet medical needs with a specific focus on the u.s. market . through strategic alliances primarily with japanese pharmaceutical companies , we hold rights to a diversified portfolio of clinical and preclinical product candidates which we believe provide significant commercial opportunity for the company . we were incorporated in delaware in september 2000. we have incurred significant net losses since our inception . at december 31 , 2011 , from inception , our accumulated deficit was approximately $ 285.3 million , including approximately $ 49.7 million of non-cash stock-based compensation charges related to employee stock-based compensation and founders ' warrants . we expect to incur substantial net losses for the next several years as we continue to develop certain of our existing product development programs , primarily mn-221 for the treatment of acute exacerbations of asthma and copd exacerbations , and over the long-term if we are successful in expanding our research and development programs and acquiring or in-licensing products , technologies or businesses that are complementary to our own . while there can be no assurances , we believe our working capital at december 31 , 2011 to be sufficient to fund our operating requirements for at least through december 31 , 2012. we have acquired licenses to eight compounds for the development of ten product candidates , which include clinical development for the treatment of acute exacerbations of asthma , ms , bronchial asthma , ic , solid tumor cancers , generalized anxiety disorders/insomnia , preterm labor and urinary incontinence . two of such compounds have been in preclinical development for the treatment of thrombotic disorders . in addition , we have expanded our development program for mn-221 for the treatment of copd exacerbations . we entered into an agreement to form a joint venture company with zhejiang medicine co. , ltd. and beijing make-friend medicine technology co. , ltd. effective september 27 , 2011. the joint venture agreement provides for the joint venture company to develop and commercialize mn-221 in china . a sublicense under which the joint venture company will license mn-221 from us will be required , which sublicense will require the consent of kissei . in accordance with the joint venture agreement , on march 16 , 2012 , we paid $ 650,000 for our 30 % interest in the joint venture company . the other parties to the joint venture agreement are responsible for providing their initial funding in the joint venture company for their combined 70 % interest , and for future funding for the joint venture company 's activities which will include managing and operating a facility to manufacture drug candidates for the chinese market , promoting , distributing and selling drug candidates in the chinese market and conducting clinical trials necessary to gain regulatory approval in china . the joint venture company will initially conduct these activities with respect to mn-221 , however other drug candidates may be brought within the scope of the joint venture company if the parties to the agreement unanimously agree . we have not entered into the sublicense of mn-221 with the joint venture company as of the date of this report . there is no assurance the sublicense will be executed and there is no assurance that the joint venture company will be able to proceed with the development of mn-221 in china . at december 31 , 2011 , we reflect a long-term asset on our consolidated balance sheet which represents our investment and a corresponding current liability which represents our required capital contribution payable to the joint venture company . we evaluated the joint 64 venture company under the authoritative guidance and concluded that it is a variable interest entity for which we are not the primary beneficiary as we will not have a majority of the board seats and we will not have any power to direct or significantly influence the actions of the entity . we will therefore not consolidate the joint venture company into our financial results but will account for the activities of the joint venture company under the equity method whereby we will absorb any loss or income generated by the entity according to our percentage ownership . at present , we are focusing our resources on the following prioritized product development programs : mn-221 for the treatment of acute exacerbations of asthma and copd exacerbations , for which we initiated a phase 2 clinical trial ( mn-221-cl-007 ) in the first quarter of 2009 to evaluate the safety and efficacy of mn-221 in patients with acute exacerbations of asthma treated in the emergency room . this trial completed enrollment in march 2012. depending on the results of our phase 2 clinical trial ( mn-221-cl-007 ) and our ability to raise additional capital and or to enter into a collaboration with a leading pharmaceutical or biotech company , we intend to define a phase 3 trial and other development plans for mn-221 for the treatment of acute exacerbations of asthma and conduct one or more phase 3 trials . story_separator_special_tag we accounted for the avigen merger using the acquisition method of accounting . as a result , we recorded $ 4.8 million of ipr & d related to avigen 's product candidate asset and $ 9.6 million of goodwill related to the excess purchase price over the assigned values of the net assets acquired . the goodwill was primarily a result of the conversion feature related to the convertible notes issued pursuant to the merger agreement . our annual test date for ipr & d and goodwill impairment is december 31. during the year ended december 31 , 2011 and through the date of this report , there were no triggering events , market conditions or other factors ( such as adverse clinical trial results ) that would indicate possible or actual impairment of ipr & d or goodwill . since we operate under one reporting segment , goodwill impairment is assessed on our overall market capitalization . we did not record goodwill impairment during the year ended december 31 , 2011 since at year-end the company 's total market capitalization was in excess of the carrying value of its net assets . based on our assessment of ipr & d using an income approach , we also did not record impairment of ipr & d during the year ended december 31 , 2011 . 66 convertible notes at the closing of the avigen merger , we and american stock transfer & trust company , llc , as trustee , entered into an indenture . under the terms of a separate trust agreement , or trust agreement , approximately $ 29.4 million , which represented the first payment consideration less approximately $ 6.0 million paid out to avigen shareholders who elected cash payment and the initial principal amount of the convertible notes , or convertible notes , was deposited with a trust agent for the benefit of the holders and us . prior to the maturity of the convertible notes on june 18 , 2011 , holders of the convertible notes could submit irrevocable conversion notices instructing the trustee to convert such convertible notes into shares of our common stock at an initial conversion price of $ 6.80 per share . following each conversion date we would issue the number of whole shares of common stock issuable upon conversion and the trustee would in turn release to us the respective amount of restricted cash to cover the stock issuance . for the year ended december 31 , 2011 , approximately $ 76,000 , of convertible notes were converted into 11,246 shares of our common stock . all remaining convertible notes matured on june 18 , 2011 and the principal was repaid in full . debt on may 10 , 2010 , we entered into a loan and security agreement , or the loan agreement , with oxford finance corporation , or oxford , under which we borrowed $ 15.0 million at a stated annual interest rate of 12.87 % . the financing was used to satisfy working capital needs , including the continued clinical development of mn-221 . pursuant to the loan agreement , we issued to oxford a warrant to purchase up to 198,020 shares of our common stock , par value $ 0.001 per share , at an exercise price of $ 6.06 per share . based on a black-scholes valuation model , the relative fair value of the warrant was approximately $ 859,000. we accounted for the warrant as a component of stockholders ' equity as the agreement required settlement in shares and under no provision of the agreement were we required to settle the warrant in cash . we accounted for the interest on the debt under the effective interest method wherein we treated the debt issuance costs paid directly to the lender and the relative fair value of the warrants issued to the lender as a discount on the debt ( or a contra liability ) and we treated the debt issuance costs paid to third parties as an asset . the amortization of the debt discount was recorded as interest expense and the amortization of the debt issuance costs paid to third parties was recorded as other expense in our consolidated statement of operations . on april 1 , 2011 , we entered into an agreement with oxford under which we made an early repayment of the loan in-full and wherein oxford waived the prepayment penalty of approximately $ 437,000. reduction-in-force in january 2011 , we had a reduction-in-force , or rif , to reduce costs . we believe that we remain adequately staffed given our research and development focus and utilization of external resources . underwritten firm commitment public offering on march 23 , 2011 , we consummated a firm-commitment underwritten public offering of 2,750,000 units at a price to the public of $ 3.00 per unit for gross proceeds of approximately $ 8.25 million . each unit consists of one share of common stock , and a warrant to purchase one share of common stock . the shares of common stock and warrants are immediately separable and were issued separately . on march 24 , 2011 , the underwriter exercised 50,666 units of its 412,500 unit overallotment . the warrants are exercisable immediately upon issuance , have a five-year term and an exercise price of $ 3.56 per share . the warrants are indexed to our stock and do not permit net-cash settlement . on march 29 , 2011 , we received net proceeds of approximately $ 7.7 million , after underwriter discount and underwriter expenses and no warrants exercised . in accordance with the authoritative guidance , the warrants were classified as equity instruments as they contain no provision which may require cash settlement .
| results of operations comparison of the years ended december 31 , 2011 and 2010 revenues there were no revenues for the years ended december 31 , 2011 or december 31 , 2010. research and development research and development expenses for the year ended december 31 , 2011 were approximately $ 7.8 million , a decrease of approximately $ 1.9 million compared to approximately $ 9.7 million for the year 73 ended december 31 , 2010. this decrease was due primarily to a decrease in spending of approximately $ 1.6 million on our prioritized asset mn-221 for the treatment of acute exacerbations of asthma . we had an additional decrease of approximately $ 0.3 million in unallocated r & d expenses primarily due to a reduction in research and development headcount . general and administrative general and administrative expenses were approximately $ 8.3 million for the year ended december 31 , 2011 , an increase of approximately $ 0.1 million compared to approximately $ 8.2 million for the year ended december 31 , 2010. this increase in general and administrative expenses was the result of higher severance , consulting and legal fees partially offset by a reduction in compensation and stock based compensation expenses related to a reduced general and administrative headcount . impairment charge , net , on investment securities and ars put the net impairment charge for the year ended december 31 , 2010 of $ 0.8 million was the result of writing down the fair market value of our investment securities still held to liquidation value as we planned to sell investment securities in fourth quarter of 2010 , offset by the gain recorded on the redemption of the ubs ars and ars put .
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our unvested restricted shares ( including restricted stock awards and performance share awards ) contain rights to receive non-forfeitable dividends and therefore are considered to be participating securities and would be included story_separator_special_tag overview of business ; operating environment and key factors impacting fiscal 2013 and 2014 results the following management 's discussion and analysis ( “ md & a ” ) is intended to help the reader understand our results of operations and financial condition . md & a is provided as a supplement to , and should be read in conjunction with , our consolidated financial statements and the accompanying notes . in the discussion below , our fiscal year ending june 27 , 2014 is referred to as “ fiscal 2014 ” or “ 2014 ” ; our fiscal year ended june 28 , 2013 is referred to as “ fiscal 2013 ” or “ 2013 ” ; our fiscal year ended june 29 , 2012 is referred to as “ fiscal 2012 ” or “ 2012 ” ; and our fiscal year ended july 1 , 2011 is referred to as “ fiscal 2011 ” or “ 2011 . ” we generate revenue by designing , developing , manufacturing and supporting a range of wireless networking products , solutions and services for mobile and fixed communications service providers , private network operators , government agencies , transportation and utility companies , public safety agencies and broadcast system operators across the globe . our products include point-to-point ( ptp ) digital microwave transmission systems designed for first/last mile access , middle mile/backhaul , and long distance trunking applications . we also provide network management software solutions to enable operators to deploy , monitor and manage our systems , third party equipment such as antennas , routers , and multiplexers , necessary to build and deploy a wireless transmission network , and a full suite of turnkey support services . we work continuously to improve our established brands and to create new products that meet our customers ' evolving needs and preferences . our fundamental business goal is to generate superior returns for our stockholders over the long term . we believe that increases in revenue , operating profits and earnings per share are the key measures of financial performance for our business . our strategic focus in fiscal 2014 will be to continue to accelerate innovation and optimize our product portfolio , improve costs and operational efficiencies , grow our revenue and create a sustainable , profitable business model . to do this , we have examined our products , markets , facilities , development programs , and operational flows to ensure we are focused on what we do well and what will differentiate us in the future . we will continue working to streamline management processes to attain the efficiency levels required by the markets in which we do business . although the general trend of increasing demand for bandwidth to support mobile networks applies in all markets , we expect to see quarter-to-quarter fluctuations within markets and with individual customers based on customers ' past purchasing patterns . seasonality is also a factor that impacts our business . our fiscal third quarter revenue and orders have historically been lower than the revenue and orders in our second fiscal quarter because many of our customers utilize a significant portion of their capital budgets at the end of their fiscal years , which is typically the calendar year end and coincides with our second fiscal quarter . the majority of our customers begin a new fiscal year on january 1 , and capital expenditures tend to be lower in an organization 's first quarter than in its fourth quarter . we anticipate that this seasonality will continue . the seasonality between the second quarter and third quarter may be affected by a variety of additional factors , including changes in the global economy and other factors . during fiscal 2014 , we expect to provide increased managed services to certain customers in certain geographies . our operating results may be impacted by the provision of these services to the extent that we incur upfront and ongoing expenses associated with the provision of these services that are not offset with additional revenue from product sales associated with these services until a future period . please refer to the section entitled “ risk factors ” in item 1a in this annual report on form 10-k. story_separator_special_tag style= '' line-height:120 % ; padding-top:12px ; text-align : left ; text-indent:30px ; font-size:10pt ; '' > our revenue from product sales increased $ 1.2 million , or 0.4 % , in fiscal 2013 compared with fiscal 2012. the increase came primarily from strong sales in africa , offset in part by reductions in asia pacific , europe and a small year-to-year decrease in north america . our services revenue increased $ 26.1 million , or 24.1 % , in fiscal 2013 compared with fiscal 2012. the increase in fiscal 2013 came from additional services delivered in north america , africa and a small increase in europe , offset in part by a decrease in asia pacific . 28 our revenue from product sales decreased $ 22.0 million , or 6.2 % , in fiscal 2012 compared with fiscal 2011. product sales were lower in europe and russia and north america , offset in part by gains in asia pacific and middle east africa . our services revenue increased $ 13.9 million , or 14.7 % , in fiscal 2012 compared with fiscal 2011. the increase in fiscal 2012 came from additional services delivered in north america , due to a growth in demand for our network services and support in the region , africa and middle east , offset in part by a decrease in asia pacific and latin america . during fiscal 2013 , the mtn group in africa accounted for 25 % of our total revenue compared with 17 % in fiscal 2012 and 14 % in fiscal 2011 . story_separator_special_tag the decrease was due primarily to a $ 2.6 million reduction in sales and administrative compensation expenses and a $ 0.4 million decrease in facility expenses as a result of the restructuring programs we implemented , a $ 2.0 million decrease in agent commission expenses driven by lower fee-based revenues , and a decrease of $ 1.1 million in expenses for information technology projects , partially offset by an increase of $ 1.3 million in share-based compensation . restructuring charges during the fourth quarter of fiscal 2013 , we initiated a restructuring plan ( the “ fiscal 2013-2014 plan ” ) that was intended to bring our cost structure in line with the changing business environment of the worldwide microwave radio and telecommunication markets , primarily in north america , europe and asia . activities under the fiscal 2013-2014 plan included the downsizing of our santa clara , california headquarters and certain international field offices , and reductions in force to reduce our operating expenses . during the first quarter of fiscal 2011 , we initiated the fiscal 2011 plan to reduce our operational costs primarily in north america , europe and asia . activities under the fiscal 2011 plan included the reductions in force to reduce our operating expenses and downsizing or closures of our morrisville , north carolina , santa clara , california , montreal , canada offices and certain international field offices . the fiscal 2011 plan has been completed as of the end of fiscal 2013. earlier in fiscal 2009 , we commenced a restructuring plan ( the “ fiscal 2009 plan ” ) to reduce our workforce in the u.s. , france , canada and other locations throughout the world and outsource our san antonio manufacturing operations to a third party in austin , texas . the fiscal 2009 plan was completed as of the end of fiscal 2011. our restructuring charges by plan for fiscal 2013 , 2012 and 2011 are summarized in the table below : 30 replace_table_token_10_th our restructuring expenses consisted primarily of severance and related benefit charges and , to a lesser extent , facilities costs related to obligations under non-cancelable leases for facilities that we ceased to use . restructuring charges increased by $ 0.8 million in fiscal 2013 compared with fiscal 2012 primarily due to employee termination benefits related to the initiation of the fiscal 2013-2014 plan , partially offset by the absence of a $ 1.3 million facilities charge in fiscal 2012 associated with the sublease and relocation of our morrisville , north carolina facility . we intend to complete a majority of the remaining restructuring activities under the fiscal 2013-2014 plan in fiscal 2014. restructuring charges declined significantly by $ 13.1 million in fiscal 2012 compared with fiscal 2011. the changes were due to the completion of fiscal 2009 plan in fiscal 2011 and the fact that major restructuring activities under the fiscal 2011 plan , such as the downsizing of our morrisville , north carolina office , occurred in fiscal 2011. other income ( loss ) , interest income and interest expense replace_table_token_11_th other income of $ 0.7 million for fiscal 2013 reflected a nonrecurring benefit related to a customer contract . interest income reflected interest earned on our cash equivalents which were comprised of money market funds and certificates of deposit . interest expense was primarily related to interest associated with borrowings , term loan and letters of credit under our credit facility and , in fiscal 2012 and fiscal 2011 , also included preference dividends on our $ 8.25 million redeemable preference shares . the $ 8.25 million preference shares were redeemed at their carrying value on january 30 , 2012 , funded by a two-year term loan of $ 8.25 million under our credit facility at a fixed interest rate of 5 % per annum . income taxes replace_table_token_12_th the income tax expense from continuing operations for fiscal 2013 was $ 13.3 million . the variation between our income tax expense from continuing operations and income tax expense at the statutory rate of 35 % on our pre-tax income of $ 2.4 million was primarily attributable to a $ 11.7 million increase in our reserves for uncertain tax positions , losses in tax jurisdictions in which we can not recognize a tax benefit and increase in foreign withholding taxes . the increase in our unrecognized tax benefits was the result of additional information obtained during recent tax examinations in certain countries . the income tax expense from continuing operations for fiscal 2012 was $ 1.5 million . the variation between our income tax expense from continuing operations and income tax benefit at the statutory rate of 35 % on our pre-tax loss of $ 14.0 million 31 was primarily attributable to losses in tax jurisdictions in which we can not recognize a tax benefit . the tax expense for fiscal 2012 of $ 1.5 million was primarily attributable to profitable foreign entities for which we have accrued income taxes . the income tax expense from continuing operations for fiscal 2011 was $ 14.1 million . the variation between our income tax expense from continuing operations and income tax benefit at the statutory rate of 35 % on our pre-tax loss of $ 44.7 million was primarily due to an $ 11.3 million increase in valuation allowance for singapore deferred tax assets as of the beginning of fiscal 2011 and a $ 1.4 million foreign branch withholding tax accrual .
| operations review during fiscal 2013 , we secured orders and continued to expand our footprint with our customers in the mobile operator market using our current technology and service capabilities . the market for mobile backhaul continues to be our primary addressable market segment and the demand for increasing the backhaul capacity in our customers ' networks continues to grow in line with our expectations . in fiscal 2013 we saw sustained demand in north america as we supported the long-term evolution ( “ lte ” ) deployments of our mobile operator customers . internationally , our business continued to rely on a combination of customers increasing their capacity to handle subscriber growth , the ongoing build-out of some large 3g deployments , and the emergence of early stage lte deployments . our objective continues to be to position aviat networks to support our customers for lte readiness and to ensure that our technology roadmap is well aligned with evolving market requirements . we continue to find that our strength in turnkey and after-sale support services is a differentiating factor in serving new business and enabling us to expand our business with existing customers across all markets . during fiscal 2013 , our growth in revenue over fiscal 2012 was predominantly attributable to an increase in service orders in north america and 27 africa . however , as disclosed above and in the “ risk factors ” section in item 1a of this annual report on form 10-k , a number of factors could prevent us from achieving our objectives , including ongoing pricing pressures attributable to competition and macroeconomic conditions in the geographic markets that we service . during fiscal 2013 , we incurred restructuring expenses that were taken to reduce our operational costs . we intend to complete a majority of the remaining restructuring activities under the fiscal 2013-2014 plan during fiscal 2014. see “ restructuring charges ” below .
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concentration of credit risks , exposures and financial instruments : we manufacture , market , and distribute products for the various end markets described in note f. our operations are principally located in the united states , although we also have operations in china , europe , canada , mexico and other various countries . we maintain allowances for potential credit losses . we perform ongoing credit evaluations of our customers ' financial conditions and generally require no collateral from our customers , some of which are highly leveraged . management also monitors the financial condition and status of other notes receivable . other notes receivable primarily consist of notes accepted as partial payment for the divestiture of a business . some of these companies are highly leveraged and the notes are not fully collateralized . we have no material guarantees or liabilities for product warranties which story_separator_special_tag 2014 highlights sales from continuing operations grew significantly in 2014. same location sales improved 6 % reflecting strong volume gains in automotive and most of our residential furnishings businesses . acquisitions also contributed 3 % to sales growth . earnings from continuing operations increased ( versus 2013 ) reflecting several factors , including the benefit from higher sales and non-recurrence of prior year goodwill impairment and other charges related to the commercial vehicle products business , partially offset by higher foam litigation accruals in 2014. a major component of our strategy since 2007 has been the optimization of our portfolio of businesses , by increasing investments in businesses that possess strong competitive advantage and reducing our exposure to businesses and markets that are less attractive . in 2014 , we made good progress on both fronts . in july , we acquired tempur sealy 's three innerspring component production facilities . during the year , we also expanded our operations in china to support rapid growth of our automotive business and invested in machinery to support the significant growth of comfortcore ® innersprings . additionally , in late 2014 , we completed the divestiture of the majority of our store fixtures business . operating cash for the full year was strong . we again generated more than enough cash from operations to comfortably fund dividends and capital expenditures , something we 've accomplished for over 25 years . 2014 marked the 43rd consecutive annual dividend increase for the company , with a compound annual growth rate of 13 % over that time period . only one other s & p 500 company can claim as high a rate of dividend growth for as many years . our financial profile remains strong . we ended 2014 with net debt to net capital comfortably within our long-standing targeted range . in november we issued $ 300 million of notes and repaid $ 180 million of notes that matured . we ended the year with all of our $ 600 million commercial paper program and revolver facility available . we assess our overall performance by comparing our total shareholder return ( tsr ) to that of peer companies on a rolling three-year basis . we target tsr in the top one-third of the s & p 500 over the long term . for the three years ended december 31 , 2014 , we generated tsr of 28 % per year on average . that placed us in the top quarter of the s & p 500 , exceeding our top one-third goal . these topics are discussed in more detail in the sections that follow . 25 part ii introduction total shareholder return total shareholder return ( tsr ) , relative to peer companies , is the key financial measure that we use to assess long-term performance . tsr is driven by the change in our share price and the dividends we pay [ tsr = ( change in stock price + dividends ) / beginning stock price ] . we seek to achieve tsr in the top one-third of the s & p 500 over the long-term through a balanced approach that employs four tsr sources : revenue growth , margin expansion , dividends , and share repurchases . we monitor our tsr performance ( relative to the s & p 500 ) on a rolling three-year basis . for the three-year measurement period that ended december 31 , 2014 , we generated tsr of 28 % per year on average . that performance placed us in the top quarter of the s & p 500 companies , exceeding our top one-third goal . customers we serve a broad suite of customers , with our largest customer representing approximately 7 % of our sales . many are companies whose names are widely recognized . they include most producers of residential furniture and bedding , auto and office seating manufacturers , and a variety of other companies . major factors that impact our business many factors impact our business , but those that generally have the greatest impact are market demand , raw material cost trends , and competition . market demand market demand ( including product mix ) is impacted by several economic factors , with consumer confidence being most significant . other important factors include disposable income levels , employment levels , housing turnover , and interest rates . all of these factors influence consumer spending on durable goods , and therefore affect demand for our components and products . some of these factors also influence business spending on facilities and equipment , which impacts approximately one-quarter of our sales . we continue to retain more production capacity than we currently utilize , and with our meaningful operating leverage , earnings should further benefit as market demand continues to improve . for each additional $ 100 million of sales from incremental unit volume produced utilizing this spare capacity , we expect to generate approximately $ 25 million to $ 35 million of additional pre-tax earnings . raw material costs in many of our businesses , we enjoy a cost advantage from being vertically integrated into steel wire and rod . story_separator_special_tag a final fairness hearing was held on february 3 , 2015 , but we have not yet received a ruling . we recorded a $ 39.8 million ( pre-tax ) accrual for this tentative settlement in the third quarter of 2014. since the payment is partially attributable to our former prime foam products business , which was sold in 2007 , $ 8.3 million of the charge was reflected in discontinued operations . accrual for loss contingencies although we deny liability in all threatened or pending litigation proceedings and believe that we have valid bases to contest all claims made against us , we recorded an additional aggregate litigation accrual in continuing operations of $ 22 million ( pre-tax ) in the fourth quarter of 2014 , which represents our reasonable estimate of unrecorded probable loss for all pending and threatened litigation proceedings impacting continuing operations . we also recorded an additional $ 27 million ( pre-tax ) litigation contingency accrual in discontinued operations in the fourth quarter based upon the same facts , circumstances and analysis . by far the largest portion of these accruals relates to the foam antitrust litigation . we believe , based on current facts , that these accruals are adequate to resolve all pending antitrust matters . we expect to incur the majority of the resulting cash payments in 2015 , with the remainder expected to be paid in 2016. although there are a number of uncertainties and potential outcomes associated with all of our pending or threatened litigation proceedings , we believe , based on current facts and circumstances , that additional legal contingency losses ( other than those quantified and disclosed in note t to the consolidated financial statements on page 113 ) are not expected to materially affect our consolidated financial position , results of operations , or cash flows . discontinued operations some of our prior businesses , including the store fixtures business , are disclosed in our financial statements as discontinued operations since ( i ) the operations and cash flows of the businesses were clearly distinguished and have been or will be eliminated from our ongoing operations ; ( ii ) the businesses have either been disposed of or are classified as held for sale ; and ( iii ) we will not have any significant continuing involvement in the operations of the businesses after the disposal transactions . the store fixtures business was previously reported as part of the commercial fixturing & components segment . these operations manufacture and distribute custom-designed , complete store fixture packages for major retailers , including metal and wood shelving , counters , and showcases . for more information on discontinued operations , see note b to the consolidated financial statements on page 77. goodwill impairment of store fixtures group a significant portion of our assets consists of goodwill and other long-lived assets , the carrying value of which may be reduced if we determine that those assets are impaired . we review our reporting units for potential goodwill impairment in june of each year , and more often if an event or circumstance occurs making it likely that impairment exists . we performed our annual goodwill impairment review in june 2014 , and on july 14 , 2014 , concluded that an impairment charge of $ 108 million ( $ 93 million after tax ) was required for our store fixtures group . this non-cash impairment charge reflects the complete write-off of the goodwill associated with the store fixtures group and was recognized in discontinued operations . 28 part ii the store fixtures group was dependent upon capital spending by retailers on both new stores and remodeling of existing stores . because of the seasonal nature of the fixture and display industry ( where revenue and profitability were typically expected to increase in the second and third quarters assuming the normal historical pattern of heavy shipments during those months ) we reasonably anticipated being awarded significant customer orders in the second quarter of 2014. however , as the second quarter progressed , anticipated orders did not materialize and the store fixtures business deteriorated , with declines most pronounced in may and june . taking these developments into account , we lowered our projection of future margins and growth rates ( the 10-year compound growth rate for earnings before interest and taxes plus depreciation and amortization ( ebitda ) was reduced to .5 % from 4.8 % in the prior year 's review ) and increased the discount rate to 12 % from 10.5 % , causing fair value to fall below carrying value . the lower expectations of future revenue and profitability were due to reduced overall market demand for shelving , counters , showcases and garment racks as many retailers are reducing their investments in traditional store space and focusing more on e-commerce initiatives . as indicated in the second quarter 10-q , we engaged an investment banker to assist with the sale of the store fixtures group . divestiture of store fixtures operations on november 1 , 2014 , we sold the majority of the store fixtures business for $ 59 million . these divested operations represented approximately three-quarters of the business unit 's revenues . the transaction resulted in an after-tax loss of $ 5 million , which was recognized in discontinued operations . we continue to pursue the sale of the two remaining store fixtures facilities and do not expect a significant cash impact from these exit activities . future change in segment reporting our reportable segments are the same as our operating segments , which also correspond with our management organizational structure .
| results from discontinued operations full year earnings from discontinued operations , net of tax , decreased to $ 13 million in 2013 from $ 19 million in 2012. weak capital spending by retailers in 2013 led to lower volume in the store fixtures business , and contributed to lower earnings . earnings in 2013 and 2012 also reflected $ 8 million and $ 6 million of tax benefits , respectively , attributable to a small operation . in addition , 2012 included a $ 2 million gain from a litigation settlement associated with a previously divested business . 37 part ii liquidity and capitalization our operations provide most of the cash we require , and debt may also be used to fund a portion of our needs . cash from operations was once again strong in 2014. for over 25 years , our operations have provided more than enough cash to fund both capital expenditures and dividend payments . we expect this to again be the case in 2015. capital expenditures increased in 2014 , driven in part by investments to support strong growth in automotive and u.s. spring . we also completed five acquisitions , the largest of which included the three tempur sealy innerspring facilities , and bought back 5.4 million shares of our stock during the year . we ended 2014 with net debt to net capital at 31.5 % , within our long-standing targeted range of 30-40 % . the calculation of net debt as a percent of net capital is presented on page 44. in november 2014 , we issued $ 300 million of 3.8 % notes and repaid $ 180 million of 4.65 % notes that matured . we ended the year with all of our $ 600 million commercial paper program available . cash from operations cash from operations is our primary source of funds .
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3.2 certificate of amendment to certificate of incorporation of catasys , inc. , incorporated by reference to exhibit of the same number to catasys , inc. 's annual report on form 10-k filed with the securities and exchange commission for the year ended december 31 , 2011 . 3.3 certificate of amendment , as corrected by the certificate of correction , to certificate of incorporation of catasys , inc. , incorporated by reference to exhibit of the same number to catasys , inc. 's registration story_separator_special_tag forward-looking statements this annual report on form 10-k contains forward-looking statements that involve risks and uncertainties . our actual results may differ materially from those discussed due to factors such as , among others , limited operating history , difficulty in developing , exploiting and protecting proprietary technologies , intense competition and substantial regulation in the healthcare industry . additional information concerning factors that could cause or contribute to such differences can be found in the following discussion , as well as in item 1 . a . - “ risk factors . ” 20 overview general we harness proprietary big data predictive analytics , artificial intelligence and telehealth , combined with human interaction , to deliver improved member health and cost savings to health plans . we identify , engage and treat health plan members with unaddressed behavioral health conditions that worsen medical comorbidities . our mission is to help improve the health and save the lives of as many people as possible . we apply advanced data analytics and predictive modeling to identify members with untreated behavioral health conditions , whether diagnosed or not , and coexisting medical conditions that may be impacted through treatment in the on trak program . we then uniquely engages health plan members who do not typically seek behavioral healthcare by leveraging proprietary enrollment capabilities built on deep insights into the drivers of care avoidance . our technology enabled on trak solution is an integrated suite of services that includes evidence-based psychosocial and medical interventions delivered either in-person or via telehealth , nurse-led care coaching and local community support . we believe that the program is currently improving member health and , at the same time , demonstrating reduced medical utilization , driving a reduction in total health plan costs for enrolled members . we have contracted with leading national and regional health plans to make on trak available to eligible members in california , connecticut , florida , georgia , illinois , iowa , kansas , kentucky , louisiana , massachusetts , missouri , nebraska , new jersey , north carolina , oklahoma , pennsylvania , south carolina , tennessee , texas , virginia , west virginia and wisconsin . our strategy our business strategy is to deliver proven , repeatable clinical and financial outcomes to health plans for their members with unaddressed behavioral conditions that worsen medical comorbidities . we do this by identifying , engaging and treating these members through our on trak solution . our initial focus was members with substance use disorder ( s ) , and today our solution also addresses anxiety disorders and depression . key elements of our business strategy include : ● educating third-party payors on the disproportionately high cost of their population with unaddressed behavioral health conditions that worsen medical comorbidities ; ● demonstrating the potential for improved clinical outcomes and reduced cost associated with using our on trak solution with third-party payors ; ● providing our on trak solution to third-party payors for reimbursement on a case rate , fee for service , or monthly fee basis ; and ● generating outcomes data from our on trak solution to demonstrate cost reductions and facilitate broader adoption . key elements of our growth strategy include : ● expansion of our outreach pool ● evolving our economic and clinical model ● ensuring scalability ● creating a winning culture 21 reporting segment we manage and report our operations through one business segment : healthcare services . the healthcare services segment includes the on t rak solutions marketed to health plans and other third party payors . summary financial information for our reportable segment is as follows : story_separator_special_tag warrants that protect the holders from declines in our stock price and a requirement to deliver registered shares upon exercise of the warrants , which is considered outside our control . the warrants are marked-to-market each reporting period , using the black-scholes pricing model , until they are completely settled or expire . the decrease in the loss from change in fair value for the warrants was $ 1.8 million for the year ended december 31 , 2018 compared with the same period in 2017. the decrease primarily relates to the removal of anti-dilution protection in most of our outstanding warrants in april 2017 and thus that portion of the liability was transferred to equity . liquidity and capital resources liquidit y and capital resources cash , cash equivalents and restricted cash was $ 3.6 million as of december 31 , 2018. as of march 19 , 2019 , we had a balance of approximately $ 2.5 million cash on hand . we had working capital deficit of approximately $ 2.2 million as of december 31 , 2018. we have incurred significant net losses and negative operating cash flows since our inception . we expect to continue to incur negative cash flows and net losses for the next twelve months . our average cash burn rate is approximately $ 762,000 per month . we expect our current cash resources to cover expenses through at least the next twelve months , however , delays in cash collections , revenue , or unforeseen expenditures could impact this estimate . story_separator_special_tag our net cash provided by financing activities was $ 7.3 million for the year ended december 31 , 2018 , compared with net cash provided by financing activities of $ 11.7 million for the year ended december 31 , 2017. cash provided by financing activities for the year ended december 31 , 2018 consisted of the gross proceeds from the issuance of debt in the amount of $ 7.5 million , proceeds from warrant exercise of $ 150,000 , offset by debt issuance costs of $ 317,000 , and capital lease obligations of $ 30,000. as a result of the above our cash , cash equivalents and restricted cash balance as of december 31 , 2018 is $ 3.6 million . as discussed above , we currently expend cash at a rate of approximately $ 762,000 per month . we also anticipate cash inflow to increase during 2019 as we continue to service our executed contracts and sign new contracts . we expect our current cash resources to cover our operations through at least the next twelve months , however , delays in cash collections , revenue , or unforeseen expenditures could impact this estimate . 24 off-balance sheet arrangements as of december 31 , 2018 , we had no off-balance sheet arrangements . critical accounting estimates the discussion and analysis of our financial condition and results of operations is based upon our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america ( “ u.s . gaap ” ) . u.s. gaap requires management to make estimates , judgments and assumptions that affect the reported amounts of assets , liabilities , revenues and expenses , and the disclosure of contingent assets and liabilities . we base our estimates on experience and on various other assumptions that we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that may not be readily apparent from other sources . on an on-going basis , we evaluate the appropriateness of our estimates and we maintain a thorough process to review the application of our accounting policies . our actual results may differ from these estimates . we consider our critical accounting estimates to be those that ( 1 ) involve significant judgments and uncertainties , ( 2 ) require estimates that are more difficult for management to determine , and ( 3 ) may produce materially different results when using different assumptions . we have discussed these critical accounting estimates , the basis for their underlying assumptions and estimates , and the nature of our related disclosures herein with the audit committee of our board of directors . we believe our accounting policies related to revenue recognition and share-based compensation expense involve our most significant judgments and estimates that are material to our consolidated financial statements . they are discussed further below . revenue recognition in may 2014 , the fasb issued asu no . 2014-09 , revenue from contracts with customers ( topic 606 ) , ( “ asu 2014-09 ” ) . asu 2014-09 supersedes the revenue recognition requirements in asc 605 - revenue recognition ( “ asc 605 ” ) and most industry-specific guidance throughout asc 605. the fasb has issued numerous updates that provide clarification on a number of specific issues as well as requiring additional disclosures . the core principle of asc 606 requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services . we adopted asc 606 effective january 1 , 2018 using the modified retrospective method . we recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of retained earnings . the comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods . the cumulative effect of the changes made to our consolidated january 1 , 2018 balance sheet for the adoption of asu 2014-09 were as follows ( in thousands ) : replace_table_token_2_th 25 in accordance with the new revenue standard requirements , the disclosure of the impact of adoption on our consolidated income statement and balance sheet for the year ended december 31 , 2018 was as follows ( in thousands ) : replace_table_token_3_th share-based compensation expense we account for the issuance of stock , stock options and warrants for services from non-employees based on an estimate of the fair value of options and warrants issued using the black-scholes pricing model . this model 's calculations include the exercise price , the market price of shares on grant date , weighted average assumptions for risk-free interest rates , expected life of the option or warrant , expected volatility of our stock and expected dividend yield . the amounts recorded in the financial statements for share-based compensation expense could vary significantly if we were to use different assumptions . for example , the assumptions we have made for the expected volatility of our stock price have been based on the historical volatility of our stock , measured over a period generally commensurate with the expected term . if we were to use a different volatility than the actual volatility of our stock price , there may be a significant variance in the amounts of share-based expense from the amounts reported . the weighted average expected option term for the year ended december 31 , 2018 and 2017 reflects the application of the simplified method set out in sec staff accounting bulletin no . 107 , which defines the life as the average of the contractual term of the options and the weighted average vesting period for all option tranches . from time to time , we retain terminated employees as part-time consultants upon their resignation from the company .
| results of operations the table below and the discussion that follows summarize our results of operations and certain selected operating statistics for the last two fiscal years ended december 31 , 2018 and 2017 : replace_table_token_1_th year ended december 31 , 2018 compared w ith year ended december 31 , 2017 summary of consolidated operating results loss from operations before provision for income taxes for the year ended december 31 , 2018 was $ 14.2 million compared with $ 13.6 million for the year ended december 31 , 2017. our $ 7.5 million increase in revenues were offset by the investment in cost of healthcare services due to the increase in headcount needed to service our increase in enrolled members , investments in technology and product to drive efficiencies , and included a non-cash share-based compensation expense of $ 2.1 million related to options issued in december 2017 and throughout 2018. revenues during the year ended december 31 , 2018 , we launched enrollment with three new health plans in the states of illinois , tennessee and california , expanded with several of our current health plans into new service lines , and expanded with another of our health plans into four new states . we have continued to increase enrollment , which has resulted in a net increase in the number of patients enrolled in our on trak solutions compared with the same period in 2017 , this was offset by the timing of billing for certain members who we bill on a per claim basis . for the year ended december 31 , 2018 newly enrolled members increased by 120 % over the same period in 2017. recognized revenue increased by $ 7.5 million , or 97 % , for the year ended december 31 , 2018 , compared with the same period in 2017 , respectively .
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at april 30 , 2011 , there are 146,897 vested but unexercised options outstanding under the 1997 option story_separator_special_tag the following discussion should be read in conjunction with the company 's consolidated financial statements and notes thereto appearing in item 8 of this annual report on form 10-k. story_separator_special_tag wholesale sales was higher in fiscal 2007 and during the first part of fiscal 2008 due to the increased level of repossession activity coupled with relatively flat retail sales levels . higher retail sales levels and lower repossessions activity during the latter part of fiscal 2008 and for fiscal 2009 helped to bring gross margin percentages back up . gross margin percentages in fiscal 2010 benefitted from higher retail sales levels and from a strong wholesale market for repossessed vehicles due to overall used vehicle supply shortages . the gross margin percentage in fiscal 2011 was negatively affected by higher wholesale sales , increased average retail selling price , higher inventory repair costs and a lower margin on the payment protection plan product primarily related to increased claims associated with severe weather in some of our service areas . the company expects that its gross margin percentage will not change significantly in the near term from its current level ( 43 % range ) . hiring , training and retaining qualified associates are critical to the company 's success . the rate at which the company adds new dealerships and is able to implement operating initiatives is limited by the number of trained managers and support personnel the company has at its disposal . excessive turnover , particularly at the dealership manager level , could impact the company 's ability to add new dealerships and to meet operational initiatives . the company has added resources to recruit , train , and develop personnel , especially personnel targeted to fill dealership manager positions . the company expects to continue to invest in the development of its workforce in fiscal 2012 and beyond . 21 consolidated operations ( operating statement dollars in thousands ) replace_table_token_5_th 2011 compared to 2010 total revenues increased $ 40.3 million , or 11.9 % , in fiscal 2011 , as compared to revenue growth of 13.4 % in fiscal 2010 , principally as a result of ( i ) revenue growth from dealerships that operated a full 12 months in both periods ( $ 24.2 million ) , ( ii ) dealerships opened during fiscal 2010 or dealerships that opened or closed a satellite location during fiscal 2010 ( $ 6.6 million ) , and ( iii ) revenues from dealerships opened during fiscal 2011 ( $ 9.5 million ) . the increase in revenue for fiscal 2011 is attributable to ( i ) a 6.9 % increase in retail unit volumes together with a 2.5 % increase in the average unit sales price , ( ii ) a 23.9 % increase in interest and other income and , ( iii ) a $ 5.0 million increase in wholesale sales . cost of sales , as a percentage of sales , increased to 57.3 % in fiscal 2011 from 56.1 % in fiscal 2010. the company 's cost of sales as a percentage of sales was negatively affected by a higher percentage of wholesale sales , increased average selling price , higher inventory repair costs and a lower margin for the payment protection plan product primarily related to increased claims due to severe weather in a few of our service areas . wholesale sales , for the most part , relate to repossessed vehicles sold at or near cost . the company 's selling prices are based upon the cost of the vehicle purchased , with lower-priced vehicles typically having higher gross margin percentages . the company will continue to focus efforts on minimizing the average retail sales price in order to help keep the contract terms shorter , which helps customers to maintain appropriate equity in their vehicles . the 22 consumer demand for vehicles the company purchases for resale remains high . this high demand has been exacerbated by the decrease in domestic new car sales , which results in higher purchase costs for the company . selling , general and administrative expenses , as a percentage of sales , decreased 0.3 % to 18.2 % in fiscal 2011 from 18.5 % in fiscal 2010. the percentage decrease was principally the result of higher sales levels as a large majority of the company 's operating costs are more fixed in nature . in dollar terms , overall selling , general and administrative expenses increased $ 4.9 million from fiscal 2010 , which consisted primarily of increased payroll costs and other incremental costs related to new lot openings . many of the company 's compensation arrangements are tied to financial performance and as such , more payroll costs are incurred during periods of improved financial results . provision for credit losses , as a percentage of sales , increased 0.6 % to 20.8 % in fiscal 2011 from 20.2 % in fiscal 2010. the company continues to push for improvements and better execution of its collection practices , which is offset by negative macro-economic issues that were prevalent during most of fiscal 2010 and fiscal 2011. the slight increase for the fiscal 2011 relates primarily to higher credit losses during the second fiscal quarter as the company experienced some operational difficulties , specifically as related to working individually with its customers concerning collection issues . the company continues to take steps to improve dealership level execution regarding collections . additionally , the company continues to increase its investment in the corporate infrastructure within the collection area which is expected to continue to have a positive effect on results by providing more oversight and providing more accountability on a consistent basis . the company believes that the proper execution of its business practices is the single most important determinant of credit loss experience . the company incurred a yield maintenance fee of $ 507,000 associated with the early payoff of the term loan . story_separator_special_tag interest expense ( excluding the non-cash charge related to the change in fair value of the interest rate swap agreement described below ) as a percentage of sales decreased 0.1 % to 0.8 % for fiscal 2010 compared to fiscal 2009. the decrease was attributable to lower average borrowings during fiscal 2010 ( $ 33.0 million for fiscal 2010 compared to $ 37.7 million for fiscal 2009 ) , offset by an increase in the overall average interest rate . the company has an interest rate swap agreement ( the “ agreement ” ) which is not designated as a hedge by company management ; therefore , the gain ( loss ) of the agreement is reported as a component of interest expense in earnings . the non-cash charge related to the agreement was caused by a number of factors , including changes in interest rates , amount of notional debt outstanding , and number of months until maturity . the net income for the agreement reported in earnings as interest income was $ 155,000 for fiscal 2010 compared to net expense of $ 1.5 million for fiscal 2009. the fair value of the agreement is included in accrued liabilities on the company 's consolidated balance sheet as of april 30 , 2010 at $ 1.4 million . the interest on the credit facilities , the net settlements under the interest rate swap , and the changes in the fair value of the agreement are all reflected as interest expense in the company 's consolidated statement of operations . notwithstanding the company 's intention to hold the swap until maturity , changes in fair value of the agreement will continue to be recognized quarterly as non-cash charges or gains , as the case may be . 24 financial condition the following table sets forth the major balance sheet accounts of the company at april 30 , 2011 , 2010 and 2009 ( in thousands ) : replace_table_token_6_th historically , finance receivables have tended to grow slightly faster than revenue growth . this has historically been due , to a large extent , to an increasing weighted average term necessitated by increases in the average retail sales price . the following table shows receivables growth compared to revenue growth . in fiscal 2009 the company experienced lower net charge-offs combined with a slightly longer weighted average contract term due mostly to an increase in the average retail sales price . the average term for installment sales contracts at april 30 , 2011 was 27.3 months compared to 27.7 months at april 30 , 2010 and collections were up significantly which led to receivables growth being lower than revenue growth for fiscal 2011. additionally , charge-offs were higher during fiscal 2011 contributing to the growth in receivables being less than revenue growth . revenue growth results from same store revenue growth and the addition of new dealerships . with the company benefiting from expected stronger collections on an annual basis , it is anticipated going forward that growth in finance receivables will approximate overall revenue growth on an annual basis . replace_table_token_7_th in fiscal 2011 , inventory increased 15.8 % ( $ 3.2 million ) as compared to revenue growth of 11.9 % . the increase resulted primarily from ( i ) slightly higher overall price increases for the type of vehicle the company purchases for resale , ( ii ) the company 's desire to offer a broad mixture and increased quantities of vehicles to adequately serve its expanding retail customer base and ( iii ) new dealership openings . the company will continue to manage inventory levels in the future to ensure adequate supply of vehicles , in volume and mix , and to meet sales demand . property and equipment , net increased $ 2.8 million in fiscal 2011 as compared to fiscal 2010 as the company incurred expenditures related to new dealerships as well as to refurbish and expand a number of existing locations . accounts payable and accrued liabilities increased $ 0.6 million at april 30 , 2011 as compared to april 30 , 2010 due primarily to increased payables related to higher inventory levels and other volume related expenditures as well as increased compensation payable as a result of the increased profit levels . 25 the unearned portion of the payment protection plan product increased $ 0.7 million in fiscal 2011 over fiscal 2010. this product was introduced in the first quarter of fiscal 2008. deferred tax liabilities , net increased $ 4.2 million at april 30 , 2011 as compared to april 30 , 2010 primarily due to increased finance receivables and increased book/tax difference on fixed assets due to bonus depreciation , partially offset by deferred tax assets related to the increased accrued liabilities and increased share based compensation . borrowings on the company 's revolving credit facilities fluctuate primarily based upon a number of factors including ( i ) net income , ( ii ) finance receivables changes , ( iii ) income taxes , ( iv ) capital expenditures and ( v ) common stock repurchases . historically , income from continuing operations , as well as borrowings on the revolving credit facilities , have funded the company 's finance receivables growth , capital asset purchases and common stock repurchases . in fiscal 2011 the company had an $ 8.8 million net increase in its debt facilities to help finance receivables growth of $ 21.4 million , capital expenditures of $ 4.8 million and common stock repurchases of $ 20.3 million . 26 liquidity and capital resources the following table sets forth certain historical information with respect to the company 's statements of cash flows ( in thousands ) : replace_table_token_8_th the primary drivers of operating profits and cash flows include ( i ) top line sales ( ii ) interest rates on finance receivables , ( iii ) gross margin percentages on vehicle sales , and ( iv ) credit losses . the company generates cash flow from income from operations .
| overview america 's car-mart , inc. , a texas corporation ( the “ company ” ) , is the largest publicly held automotive retailer in the united states focused exclusively on the “ integrated auto sales and finance ” segment of the used car market . references to the company include the company 's consolidated subsidiaries . the company 's 19 operations are principally conducted through its two operating subsidiaries , america 's car-mart , inc. , an arkansas corporation ( “ car-mart of arkansas ” ) , and colonial auto finance , inc. , an arkansas corporation ( “ colonial ” ) . collectively , car-mart of arkansas and colonial are referred to herein as “ car-mart. ” the company primarily sells older model used vehicles and provides financing for substantially all of its customers . many of the company 's customers have limited financial resources and would not qualify for conventional financing as a result of limited credit histories or past credit problems . as of april 30 , 2011 , the company operated 106 dealerships located primarily in small cities throughout the south-central united states . car-mart has been operating since 1981. car-mart has grown its revenues between approximately 3 % and 21 % per year over the last ten years ( average 14 % ) . growth results from same dealership revenue growth and the addition of new dealerships . revenue increased 11.9 % for the fiscal year ending april 30 , 2011 compared to fiscal 2010 primarily due to a 6.9 % increase in retail units sold , a 2.5 % increase in average retail sales price and a 23.9 % increase in interest income . the company 's primary focus is on collections . each dealership is responsible for its own collections with supervisory involvement of the corporate office .
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overview berry plastics group , inc. ( “ berry ” or the “ company ” ) is a leading provider of value-added plastic consumer packaging and engineered materials with a track record of delivering high-quality customized solutions to our customers . our products utilize our proprietary research and development platform , which includes a continually evolving library of berry-owned molds , patents , manufacturing techniques and technologies . we sell our solutions predominantly into consumer-oriented end-markets , such as food and beverage , healthcare and personal care . we believe our customers look to us for solutions that have high consumer impact in terms of form , function and branding . representative examples of our products include drink cups , thin-wall containers , bottles , specialty closures , prescription vials , specialty films , tape products and corrosion protection solutions . we believe that we have created one of the largest product libraries in our industry , allowing us to be a comprehensive solution provider to our customers . we have more than 13,000 customers , which consist of a diverse mix of leading national , mid-sized regional and local specialty businesses . the size and scope of our customer network allow us to introduce new products we develop or acquire to a vast audience that is familiar with , and we believe partial to , our brand . in fiscal 2013 , no single customer represented more than 3 % of net sales and our top ten customers represented 18 % of net sales . we believe our manufacturing processes and our ability to leverage our scale to reduce expenses on items , such as raw materials , position us as a low-cost manufacturer relative to our competitors . for example , we believe based on management estimates that we are one of the largest global purchasers of plastic resins , at more than 2 billion pounds per year , which gives us scaled purchasing savings . 16 story_separator_special_tag loan in february 2013 , the company entered into an incremental assumption agreement to increase the commitments under berry plastics corporation 's existing term loan credit agreement by $ 1.4 billion . berry plastics corporation borrowed loans in an aggregate principal amount equal to the full amount of the commitments on such date . the incremental term loans bear interest at libor plus 2.50 % per annum with a libor floor of 1.00 % , matures in february 2020 and are subject to customary amortization . the proceeds from the incremental term loan , in addition to borrowings under the revolving credit facility , were used to ( a ) satisfy and discharge all of berry plastics corporation 's outstanding ( i ) second priority senior secured floating rate notes due 2014 , ( ii ) first priority senior secured floating rate notes due 2015 , ( iii ) 101⁄4 % senior subordinated notes due 2016 and ( iv ) 81⁄4 % first priority senior secured notes due 2015 , which , in each case , were called for redemption in february 2013 and the related indentures and ( b ) pay related fees and expenses . the company recognized a $ 48 million loss on extinguishment of debt related to this debt refinancing . interest rate swap in february 2013 , the company entered into an interest rate swap transaction to protect $ 1 billion of outstanding variable rate term loan debt from future interest rate volatility . the agreement swapped the greater of a three-month variable libor contract or 1.00 % for a fixed three-year rate of 2.355 % , with an effective date in may 2016 and expiration in may 2019. in june 2013 , the company elected to settle this derivative instrument and received $ 16 million as a result of this settlement . the offset is included in accumulated other comprehensive loss and deferred income taxes and will be amortized to interest expense from may 2016 through may 2019 , the original term of the swap agreement . secondary public offerings in april 2013 , we completed a secondary public offering in which certain funds affiliated with apollo and graham sold 18,975,000 shares of common stock at $ 17.00 per share , which included 2,475,000 shares purchased by the underwriters upon the exercise in full of their option to purchase additional shares . the selling stockholders received proceeds from the offering , which , net of underwriting fees , totaled $ 311 million . the company received no proceeds and incurred fees of $ 1 million related to this offering . in july 2013 , we completed a secondary public offering in which certain funds affiliated with apollo and graham sold 17,250,000 shares of common stock at $ 21.63 per share , which included 2,250,000 shares purchased by the underwriters upon the exercise in full of their option to purchase additional shares . the selling stockholders received proceeds from the offering , which , net of underwriting fees , totaled $ 360 million . the company received no proceeds and incurred fees of $ 1 million related to this offering . option modification in august 2013 , the company recorded an $ 8 million stock compensation charge related to certain modifications to the berry plastics group inc. 2006 equity incentive plan and the berry plastics group , inc. 2012 long-term incentive plan ( collectively , the `` plans '' ) . story_separator_special_tag net sales in the flexible packaging business decreased from $ 737 million in fiscal 2012 to $ 736 million in fiscal 2013 as a result of a 2 % volume decline attributed to factors discussed above partially offset by acquisition volume related to our prime label acquisition . operating income . operating income increased from $ 325 million ( 7 % of net sales ) in fiscal 2012 to $ 386 million ( 8 % of net sales ) in fiscal 2013. this increase is primarily attributed to $ 5 million from the relationship of net selling price to raw material costs , $ 12 million decrease in depreciation expense excluding the impact from acquisitions , $ 8 million decrease in amortization expense excluding the impact from acquisitions , $ 8 million decrease in selling , general and administrative expenses , $ 30 million decrease in business integration , $ 3 million from acquisitions and a $ 11 million decrease in non-cash impairment charges related to exited businesses partially offset by $ 1 million decline in operating performance in manufacturing and $ 15 million from sales volume declines described above . the following discussion in this section provides a comparison of operating income by business segment . replace_table_token_5_th operating income for the rigid open top business decreased from $ 159 million ( 13 % of net sales ) in fiscal 2012 to $ 123 million ( 11 % of net sales ) in fiscal 2013. this decrease is primarily attributed to a $ 8 million decline in the relationship of net selling price to raw material costs , $ 7 million from sales volume declines described above , $ 11 million decline in operating performance in manufacturing , $ 4 million increase of selling , general and administrative expenses primarily attributed to costs associated with new product innovation , $ 5 million increase in business integration expenses and $ 1 million increase in depreciation and amortization expense . operating income for the rigid closed top business increased from $ 95 million ( 7 % of net sales ) in fiscal 2012 to $ 130 million ( 9 % of net sales ) in fiscal 2013. this increase is primarily attributed to a $ 24 million decline in business integration expenses , $ 1 million improvement in the relationship of net selling price to raw material costs , $ 6 million reduction of depreciation and amortization expense , $ 2 million of improved operating performance in manufacturing and $ 6 million decrease in selling , general and administrative expenses partially offset $ 4 million from sales volume declines described above . operating income for the engineered materials business increased from $ 70 million ( 5 % of net sales ) in fiscal 2012 to $ 116 million ( 8 % of net sales ) in fiscal 2013. this increase is primarily attributed to a $ 11 million decrease in non-cash impairment charges related to exited businesses , $ 3 million from acquisitions , $ 9 million improvement in the relationship of net selling price to raw material costs , $ 9 million of improved operating performance in manufacturing , $ 7 million decrease in selling , general and administrative expenses , $ 5 million decrease in depreciation and amortization expense excluding the impact from acquisitions and a $ 5 million decrease in business integration expenses partially offset by $ 3 million from sales volume declines described above . operating income for the flexible packaging business improved from $ 1 million in fiscal 2012 to $ 17 million ( 2 % of net sales ) in fiscal 2013. this improvement is primarily attributed to a $ 6 million reduction of business integration expense , $ 10 million reduction of depreciation and amortization expense and a $ 3 million improvement in the relationship of net selling price to raw material costs partially offset by $ 1 million increase of selling , general and administrative expenses , $ 1 million decline in operating performance in manufacturing and $ 1 million from sales volume declines described above . debt extinguishment . debt extinguishment was $ 64 million during fiscal 2013 as a result of loss on extinguishment of debt attributed to $ 37 million of call premium and penalties , $ 19 million of deferred financing fees and $ 8 million of debt discount related to the debt extinguishment that resulted from our incremental term loan capital restructuring and the use of the proceeds from our initial public offering . other income , net . other income was $ 7 million in fiscal 2013 and fiscal 2012 , respectively . these gains are attributed to the fair value adjustment for our interest rate swaps . 20 interest expense , net . interest expense decreased from $ 328 million in fiscal 2012 to $ 244 million in fiscal 2013 primarily as the result of the interest savings that resulted from our incremental term loan capital restructure and initial public offering , which proceeds were used to payoff indebtedness . income tax expense . fiscal 2013 , we recorded an income tax expense of $ 28 million or an effective tax rate of 33 % compared to an income tax expense of $ 2 million or an effective tax rate of 50 % in fiscal 2012. the effective tax rate is impacted by the relative impact of discrete items and certain international entities for which a full valuation allowance is recognized . discussion of results of operations for fiscal 2012 compared to fiscal 2011 net sales . net sales increased from $ 4,561 million in fiscal 2011 to $ 4,766 million in fiscal 2012. this increase is primarily attributed to net sales from acquired businesses of 10 % partially offset by a volume decline of 6 % . the following discussion in this section provides a comparison of net sales by business segment .
| executive summary business . we operate in the following four segments : rigid open top , rigid closed top ( together our rigid packaging business ) , engineered materials , and flexible packaging . the rigid packaging business sells primarily containers , foodservice items , closures , overcaps , bottles , prescription containers , and tubes . our engineered materials segment primarily sells pipeline corrosion protection solutions , tapes and adhesives , pe-based film products and can liners . the flexible packaging segment sells high barrier , multilayer film products as well as finished flexible packages such as printed bags and pouches . raw material trends . our primary raw material is plastic resin . polypropylene and polyethylene account for the majority of our plastic resin purchases . plastic resins are subject to price fluctuations , including those arising from supply shortages and changes in the prices of natural gas , crude oil and other petrochemical intermediates from which resins are produced . the average industry prices , as published in chem data , per pound were as follows by fiscal year : replace_table_token_3_th due to differences in the timing of passing through resin cost changes to our customers on escalator/de-escalator programs , segments are negatively impacted in the short term when plastic resin costs increase and are positively impacted when plastic resin costs decrease . recently , the company has made progress towards shortening these timing lags , but we still have a number of customers whose prices adjust quarterly or less frequent based on various index prices . this timing lag in passing through raw material cost changes could affect our results as plastic resin costs fluctuate . outlook . the company is impacted by general economic and industrial growth , plastic resin availability and affordability , and general industrial production . our business has both geographic and end market diversity , which reduces the effect of any one of these factors on our overall performance .
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we are committed to consistently delivering safe , reliable and convenient service to our customers in every aspect of our operation , to building the best employee relations in the industry and to providing returns for our stockholders . in january 2017 , we were named the 2017 airline of the year by air transport world , which cited the integration work related to the merger , our operational and customer service improvements and the investments we are making in our product . operational highlights during 2016 , we made significant investments related to our integration and to continue to improve our product offerings and operational performance . integration accomplishments integrated all mainline pilots and our mainline fleet into a single scheduling system , allowing us to schedule pilots and aircraft seamlessly across the network regardless of which pre-merger airline they came from reached interim agreements with the twu-iam that allows our mainline mechanics and ramp personnel to be able to work together and be cross-utilized . additionally , we ratified five-year jcbas for dispatchers , flight crew training instructors , simulator pilot instructors and flight simulator engineers completed the painting of all us airways mainline aircraft in the american livery . repainting of former us airways express regional jets is expected to be finished in mid-2017 investments in our product and operations invested approximately $ 4.4 billion in new aircraft , including 55 new mainline and 42 new regional aircraft . as a result of our ongoing fleet renewal program , we have the youngest fleet of the major u.s. network carriers hired additional personnel and invested in new equipment and technology to support our operations . in the fourth quarter of 2016 , we achieved our best monthly completion factor , on-time performance , and baggage handling performance since the merger redesigned our aadvantage ® loyalty program to award mileage credits based on the price of tickets purchased , enabling elite members to earn even more miles based on their status level . during 2016 , the aadvantage ® program was named best elite program in the americas by the freddie awards introduced premium economy , a new class of service on international flights with more legroom , wider seats , and enhanced meal service and amenity kits made several other customer experience improvements including the reintroduction of free snacks in the main cabin , the launch of complimentary in-flight entertainment and the redesign and upgrade of many admirals club lounges 50 investments in our people instituted a profit sharing program across all of our workgroups that pays 5 % of our pre-tax profit excluding special items ( $ 314 million was accrued in 2016 ) announced industry-leading pay packages for pilots at our wholly-owned regional airlines envoy , psa and piedmont in order to attract and retain the best pilots financial overview the u.s. airline industry in 2016 , the u.s. airline industry benefited from lower fuel prices . however , the reductions in fuel costs were offset by year-over-year declines in revenue . both domestic and international markets were impacted by competitive capacity growth . international markets were also impacted by macroeconomic softness and foreign currency weakness . jet fuel prices closely follow the price of brent crude oil . on average , the price of brent crude oil per barrel was approximately 17 % lower in 2016 as compared to 2015. the average daily spot price for brent crude oil during 2016 was $ 44 per barrel as compared to an average daily spot price of $ 52 per barrel during 2015. on a daily basis , brent crude oil prices fluctuated during 2016 between a high of $ 55 per barrel to a low of $ 26 per barrel , and closed the year on december 31 , 2016 at $ 55 per barrel . while jet fuel prices have declined year-over-year as described above , uncertainty exists regarding the economic conditions driving these declines . see part i , item 1a . risk factors downturns in economic conditions could adversely affect our business and our business is very dependent on the price and availability of aircraft fuel . continued periods of high volatility in fuel costs , increased fuel prices or significant disruptions in the supply of aircraft fuel could have a significant negative impact on our operating results and liquidity. aag 's 2016 results the selected financial data presented below is derived from aag 's audited consolidated financial statements included in part ii , item 8a of this report and should be read in conjunction with those financial statements and the related notes thereto . replace_table_token_14_th 51 ( 1 ) see part ii , item 6. selected consolidated financial data reconciliation of gaap to non-gaap financial measures and note 2 to aag 's consolidated financial statements in part ii , item 8a for details on the components of special items . net income and pre-tax income we realized net income of $ 2.7 billion in 2016. this compares to $ 7.6 billion of net income in 2015 , which included a special $ 3.0 billion non-cash tax benefit , as we reversed the valuation allowance on our deferred tax assets , which include our federal and state nols . as a result of the reversal of the valuation allowance , we recorded a $ 1.6 billion provision for income taxes in 2016 , which is substantially non-cash due to the utilization of nols . accordingly , amounts reported in 2016 for income tax provision and net income are not comparable to 2015. therefore , pre-tax income and pre-tax income excluding special items provides a more meaningful year-over-year comparison . the exclusion of special items provides investors the ability to measure financial performance in a way that is more indicative of our ongoing performance and is more comparable to financial measures presented by other major airlines . management uses pre-tax income excluding special items to evaluate our financial performance . we realized pre-tax income of $ 4.3 billion and $ 4.6 billion in 2016 and 2015 , respectively . story_separator_special_tag ( b ) available seat mile ( asm ) a basic measure of production . one asm represents one seat flown one mile . ( c ) passenger load factor the percentage of available seats that are filled with revenue passengers . ( d ) yield a measure of airline revenue derived by dividing passenger revenue by rpms . ( e ) passenger revenue per available seat mile ( prasm ) passenger revenues divided by asms . ( f ) operating cost per available seat mile ( casm ) operating expenses divided by asms . ( g ) total revenue per available seat mile ( trasm ) total revenues divided by total mainline and regional asms . ( h ) regional full-time equivalent employees only include our wholly-owned regional airline subsidiaries , envoy , piedmont and psa . 54 results of operations 2016 compared to 2015 we realized net income of $ 2.7 billion in 2016. this compares to $ 7.6 billion of net income in 2015 , which included a special $ 3.0 billion non-cash tax benefit as we reversed the valuation allowance on our deferred tax assets , which include our federal and state nols . as a result of the reversal of the valuation allowance , we recorded a $ 1.6 billion provision for income taxes in 2016 , which is substantially non-cash due to the utilization of nols . accordingly , amounts reported in 2016 for income tax provision and net income are not comparable to 2015. we realized pre-tax income of $ 4.3 billion and $ 4.6 billion in 2016 and 2015 , respectively . excluding the effects of pre-tax net special items , pre-tax income was $ 5.1 billion and $ 6.3 billion in 2016 and 2015 , respectively . for reconciliation of pre-tax and net income excluding special items to their comparable measures on a gaap basis , see part ii , item 6. selected consolidated financial data reconciliation of gaap to non-gaap financial measures . our 2016 pre-tax results on both a gaap basis and excluding pre-tax net special items were impacted by a decline in revenues due to lower yields . salaries , wages and benefits costs were higher in 2016 , driven by our new labor contracts and the addition of an employee profit sharing program ; however , these increases were substantially offset by a year-over-year decline in fuel costs . operating revenues replace_table_token_16_th total operating revenues in 2016 decreased $ 810 million , or 2.0 % , from 2015 driven by lower passenger revenues offset in part by higher other revenue . our mainline and regional trasm was 14.70 cents in 2016 , a 3.7 % decrease as compared to 15.25 cents in 2015. replace_table_token_17_th total passenger revenues declined $ 933 million , or 2.6 % , in 2016 from 2015 driven by a 2.8 % decrease in yield due to competitive capacity growth , macroeconomic softness outside of the united states and foreign currency weakness . cargo revenue decreased $ 60 million , or 7.9 % , in 2016 from 2015 driven primarily by a decrease in domestic and international freight yields . 55 other revenue primarily includes revenue associated with our loyalty program , baggage fees , ticketing change fees , airport clubs and inflight services . other revenue increased $ 183 million , or 3.9 % , in 2016 from 2015 driven by an increase in loyalty program revenue . in 2016 and 2015 , other revenues associated with our loyalty program were $ 2.1 billion and $ 1.9 billion , respectively , of which $ 1.9 billion and $ 1.7 billion , respectively , related to the marketing component of mileage sales and other marketing related payments . this year-over-year increase was due to our new co-branded credit card agreements which became effective in the third quarter of 2016. see note 1 ( i ) to aag 's consolidated financial statements in part ii , item 8a for additional information on the loyalty program . operating expenses replace_table_token_18_th total operating expenses were $ 34.9 billion in 2016 , an increase of $ 110 million , or 0.3 % , from 2015. the increase in operating expenses was due to higher salaries , wages and benefits driven by new labor contracts and the addition of an employee profit sharing program ; however , these costs were substantially offset by a year-over-year decline in fuel costs . see detailed explanations below relating to changes in mainline operating costs per asm . 56 mainline operating costs per asm the table below sets forth the major components of our total mainline casm and our mainline casm excluding special items and aircraft fuel and related taxes for the years ended december 31 , 2016 and 2015 : replace_table_token_19_th ( 1 ) we believe that the presentation of mainline casm excluding fuel is useful to investors because both the cost and availability of fuel are subject to many economic and political factors beyond our control , and the exclusion of special items provides investors the ability to measure financial performance in a way that is more indicative of our ongoing performance and that is more comparable to measures reported by other major airlines . management uses mainline casm excluding special items and fuel to evaluate our operating performance . amounts may not recalculate due to rounding . significant changes in the components of mainline operating cost per asm are as follows : aircraft fuel and related taxes per asm decreased 19.3 % primarily due to an 18.2 % decrease in the average price per gallon of fuel to $ 1.41 in 2016 from an average price per gallon of $ 1.72 in 2015. salaries , wages and benefits per asm increased 13.2 % primarily due to increased costs associated with new labor contracts and the addition of an employee profit sharing program . selling expenses per asm decreased 6.0 % primarily due to lower credit card and booking fees .
| nonoperating results replace_table_token_35_th american 's short-term investments in each period consisted of highly liquid investments that provided nominal returns . 68 in 2015 , other nonoperating expense , net primarily included a $ 592 million special charge to write off all of the value of venezuelan bolivars held by american due to continued lack of repatriations and deterioration of economic conditions in venezuela . american also incurred $ 159 million of net foreign currency losses . the foreign currency losses in 2015 were driven primarily by the strengthening of the u.s. dollar relative to other currencies , principally in latin american and european markets . in 2014 , other nonoperating expense , net primarily included $ 114 million of net foreign currency losses , including a $ 43 million special charge for venezuelan foreign currency losses and $ 56 million of special charges primarily due to early debt extinguishment costs related to the prepayment of american 's 7.50 % senior secured notes and other indebtedness . the foreign currency losses in 2014 were driven primarily by the strengthening of the u.s. dollar relative to other currencies , principally in the latin american market . income taxes in 2015 , american reversed $ 3.5 billion of the valuation allowance on its deferred tax assets , which resulted in a special non-cash tax benefit recorded in american 's consolidated statement of operations . in 2014 , american recorded a $ 320 million provision for income taxes , which included $ 344 million of special tax charges . during 2014 , american sold its portfolio of fuel hedging contracts that were scheduled to settle on or after june 30 , 2014. as a result , a special $ 328 million non-cash tax provision was recorded , which is the tax effect associated with gains recorded in oci principally in 2009 due to a net increase in the fair value of american 's fuel hedging contracts .
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as a result of many factors , including those factors set forth in the “ item 1a.—risk factors ” section of this annual report on form 10-k , our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . story_separator_special_tag biomerieux , inc. , as well as companies offering post-culture species identification using both molecular and non-molecular methods , including biomerieux , inc. ( and its affiliate , biofire diagnostics , inc. ) , bruker corporation , accelerate diagnostics , luminex , genmark , cepheid and beckman coulter , a danaher company . in addition , there may be a number of new market entrants in the process of developing other post-blood culture diagnostic technologies that may be perceived as competitive with our technology . karius , inc. offers a lab developed culture independent diagnostic test for the identification of pathogens that has not been cleared by the fda but may be perceived as competitive with our technology . we have never been profitable and have incurred net losses in each year since inception . our accumulated deficit at december 31 , 2020 was $ 423.0 million and we have experienced cash outflows from operating activities over the past years . substantially all of our net losses resulted from costs incurred in connection with our research and development programs and from selling , general and administrative costs associated with our operations . we have incurred significant commercialization expenses related to product sales , marketing , manufacturing and distribution of our fda-cleared products , t2dx , t2candida and t2bacteria . in addition , we will continue to incur significant costs and expenses as we continue to develop other product candidates , improve existing products and maintain , expand and protect our intellectual property portfolio . we may seek to fund our operations through public equity or private equity or debt financings , as well as other sources . however , we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all . our failure to raise capital or enter into such other arrangements if and when needed would have a negative impact on our business , results of operations and financial condition and our ability to develop , commercialize and drive adoption of the t2dx instrument , t2candida , t2bacteria , t2resistance , t2sars-cov-2 and future t2mr-based diagnostics . we are subject to a number of risks similar to other newly commercial life science companies , including , but not limited to commercially launching our products , development and market acceptance of our product candidates , development by our competitors of new technological innovations , protection of proprietary technology , and raising additional capital . 61 the covid-19 pandemic has impacted and may continue to impact our operations . we have established protocols for continued manufacturing , distribution and servicing of our products with safe social distancing and personal protective equipment measures and for remote work for employees not essential to on-site operations . to date these measures have been mostly successful but may not continue to function should the pandemic escalate and further impact our personnel . our hospital customers have restricted our sales team 's access to their facilities and as a result , we had significantly reduced our sales and general and administrative staffing levels to reduce expenses . our customers may reduce their purchases of our products . our customers may cease to comply with the terms of our sales agreements and this may impact our ability to recognize revenue and hinder receivables collections . we have a significant development contract with a united states government agency and should the agency reduce , cancel or not grant additional milestone projects our ability to continue our future product development may be impacted . our shipping carrier 's ability to deliver our products to customers may be disrupted . we have reviewed our suppliers and quantities of key materials and believe we have sufficient stocks and alternate sources of critical materials should our supply chains become disrupted , although raw materials for the manufacturing of reagents is in high demand , and interruptions in supply are difficult to predict . at the onset of the pandemic , we believed that the pandemic 's impact on our sales would affect the recoverability of the value of our t2-owned instruments and components . the covid-19 pandemic also caused us to reassess our build plan and evaluate our inventories accordingly , which resulted in an additional charge to cost of product revenue for excess inventories . at december 31 , 2020 , we had an accumulated deficit of $ 423.0 million . we have experienced cash outflows from operating activities over the past years and are required to maintain a minimum cash balance under our term loan agreement with crg servicing llc ( “ crg ” ) . there can be no assurance that any financing by us can be realized , or if realized , what the terms of any such financing may be , or that any amount that we are able to raise will be adequate . while we believe that our cash , cash equivalents , marketable securities and restricted cash of $ 52.7 million at december 31 , 2020 will be sufficient to fund our current operating plan at least a year from issuance of these financial statements , c ertain elements of our operating plan can not be considered probable . under asc 205-40 , the future receipt of potential funding from our co-development partners and other resources can not be considered probable at this time because none of the plans are entirely within our control . during the year ended december 31 , 2020 , management implemented a cost improvement strategy which is focused on reducing operating expenses and improving cost of goods sold . story_separator_special_tag we warrant that consumable diagnostic tests will be free from defects , when handled according to product specifications , for the stated life of the product . to fulfill valid warranty claims , we provide replacement product free of charge . our current sales strategy is focused on driving adoption of our technology within the hospital market , increasing test utilization amongst our existing installed base on t2dx instruments , which includes converting our t2sars-cov-2 customers to our core sepsis tests , and opportunistically increasing the installed base . accordingly , we expect the following to occur : recurring revenue from our consumable diagnostic tests will increase ; and become a more predictable and significant component of total revenue ; and we will gain manufacturing economies of scale through the growth in our sales , resulting in improving gross margins and operating margins . near term , however , we believe the covid-19 pandemic may hinder our u.s. and international sales growth . our customers may cease to comply with the terms of our sales agreements and this may impact our ability to recognize revenue and hinder receivables collections . we have a significant development contract with a united states government agency and should the agency reduce , cancel or not grant additional milestone projects our ability to continue our future product development may be impacted . cost of product revenue cost of product revenue includes the cost of materials , direct labor and manufacturing overhead costs used in the manufacture of our consumable diagnostic tests sold to customers and related license and royalty fees . cost of product revenue also includes depreciation on the revenue-generating t2dx instruments that have been placed with our customers under reagent rental agreements ; costs of materials , direct labor and manufacturing overhead costs on the t2dx instruments sold to customers ; and other costs such as customer support costs , warranty and repair and maintenance expense on the t2dx instruments that have been placed with our customers under reagent rental agreements . we manufacture the t2dx instruments and part of our consumable diagnostic tests in our facilities . we outsource the manufacturing of components of our consumable diagnostic tests to contract manufacturers . we expect cost of product revenue to decrease as a percentage of revenue as a result of the cost of product revenue improvement initiatives that we initiated during the year ended december 31 , 2020 . 63 at the beginning of the covid-19 pandemic , we believed that the pandemic would reduce product sales and impair our ability to recover the cost of our t2-owned instruments and components . we assessed the impact on the related cash flows of the instruments and reduced their carrying values by $ 0.6 million during year ended december 31 , 2020 , which was recorded as cost of product revenue impairment expense . we took an additional $ 0.6 million charge to cost of product revenue during the year ended december 31 , 2020 primarily for excess inventories as the covid-19 pandemic also caused us to reassess our build plan and evaluate our inventories accordingly . research and development expenses our research and development expenses consist primarily of costs , incurred for the development of our technology and product candidates , technology improvements and enhancements , clinical trials to evaluate the clinical utility of our product candidates , and laboratory development and expansion , and include salaries and benefits , including stock-based compensation , research-related facility and overhead costs , laboratory supplies , equipment and contract services . research and development expenses also include costs of delivering products or services associated with research and contribution revenue . we expense all research and development costs as incurred . we anticipate our overall research and development expenses to decrease as a percentage of revenue . we expect to continue developing additional product candidates , improving existing products , and conducting ongoing and new clinical trials . we have a significant development contract with a united states government agency and should the agency reduce , cancel or not grant additional milestone projects our ability to continue our future product development may be impacted . selling , general and administrative expenses selling , general and administrative expenses consist primarily of costs for our sales and marketing , finance , legal , human resources , business development and general management functions , as well as professional services , such as legal , consulting and accounting services . we expect selling , general and administrative expenses to decrease as a percentage of revenue in future periods . other selling , general and administrative expenses include facility-related costs , fees and expenses associated with obtaining and maintaining patents , clinical and economic studies and publications , marketing expenses , and travel expenses . we expense all selling , general and administrative expenses as incurred . interest expense , net interest expense , net , consists primarily of interest expense on our notes payable , changes in fair value of our derivative liability , the amortization of deferred financing costs and debt discount , and interest earned on our cash and cash equivalents . other income , net other income , net , consists of dividend and other investment income . results of operations for the years ended december 31 , 2020 and 2019 replace_table_token_12_th 64 product revenue during the year ended december 31 , 2020 , product revenue totaled $ 11.7 million , compared to $ 5.3 million for the year ended december 31 , 2019 , an increase of $ 6.4 million . the increase was driven by higher consumable sales of $ 5.5 million primarily driven by sales of our t2sars-cov-2 product , higher t2dx instrument sales of $ 0.7 million and higher revenue under our service agreements of $ 0.2 million . research revenue research revenue was $ 11 thousand pertaining to an immaterial agreement for the year ended december 31 , 2020 compared to $ 0.6 million for the year ended december 31 , 2019 , a decrease of $ 0.6 million .
| business overview we are an in vitro diagnostics company and leader in the rapid detection of sepsis-causing pathogens , and are dedicated to improving patient care and reducing the cost of care by helping clinicians effectively treat patients faster than ever before . we have developed an innovative and proprietary technology platform that offers a rapid , sensitive and simple alternative to existing diagnostic methodologies . we are using our t2mr technology to develop a broad set of applications aimed at lowering mortality rates , improving patient outcomes and reducing the cost of healthcare by helping medical professionals make targeted treatment decisions earlier . t2mr enables rapid detection of pathogens , biomarkers and other abnormalities in a variety of unpurified patient sample types , including whole blood , plasma , serum , saliva , sputum and urine , and can detect cellular targets at limits of detection as low as one colony forming unit per milliliter , or cfu/ml . our products include the t2dx instrument , t2candida panel , the t2bacteria panel , the t2resistance panel , and the t2sars-cov-2 panel that are all powered by our proprietary t2mr technology . our development efforts target sepsis , which is an area of significant unmet medical need in which existing therapies could be more effective with improved diagnostics . on september 22 , 2014 , we received market clearance from the fda for our first two products , the t2dx ® instrument , or the t2dx and the t2candida ® panel , or t2candida , which have the ability to rapidly identify the five clinically relevant species of candida , a fungal pathogen known to cause sepsis , directly from whole blood . on may 24 , 2018 , we received market clearance from the fda for the t2bacteria ® panel , or t2bacteria , which runs on the t2dx instrument and has the ability to rapidly identify five of the most common and deadly sepsis-causing bacteria directly from whole blood .
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the first amendment , among other things , ( i ) modified certain financial covenants , and ( ii ) consented to a $ 100,000 principal prepayment by the company to a third party bank . effective march 29 , 2015 , the company entered into story_separator_special_tag s. the following discussion provides information regarding the results of operations for the years ended december 31 , 2016 and 2015 , and our financial condition , liquidity and capital resources as of december 31 , 2016 and 2015. the following discussion and analysis should be read in conjunction with and our historical consolidated financial statements and the accompanying notes included elsewhere in this annual report on form 10-k , which contain further detailed information , as well as the risk factors and the cautionary note regarding forward-looking statements included above . overview the company , through its subsidiaries , provides the following services to the domestic onshore oil and natural gas industry – ( i ) frac water heating , hot oiling and acidizing ( well enhancement services ) ; ( ii ) water transfer and water treatment services ( water transfer services ) ; ( iii ) water hauling , fluid disposal , frac tank rental ( water hauling services ) ; and , ( iv ) dirt excavating and dirt hauling ( construction services ) . the company owns and operates through its subsidiaries a fleet of more than 650 specialized trucks , trailers , frac tanks and other well-site related equipment and serves customers in several major domestic oil and gas areas including the dj basin/niobrara area in colorado , the bakken area in north dakota , the marcellus and utica shale areas in pennsylvania and ohio , the jonah area , green river and powder river basins in wyoming , the eagle ford shale in texas and the mississippi lime and hugoton areas in kansas and oklahoma . results of operations executive summary the past two fiscal years were very challenging for us . the decline in drilling , completion and service activities throughout the industry that started in 2014 and continued during most of 2016 due to low oil and natural gas prices combined with warm winter weather in our frac heating markets resulted in a significant drop in demand for our services during 2015 and 2016. as a result , revenues from our core well enhancement services during 2016 declined $ 15.0 million or 46 % compared to 2015. despite the decline , our well enhancement segment generated a profit of $ 2.2 million or 12 % of segment revenues for 2016. in an effort to offset some of the seasonal decline in our heating related services , the company launched two new business segments – water transfer services and construction services . in january 2016 , we acquired $ 4.3 million of water transfer assets from wet and hiit in an effort to launch a new water transfer service division . water transfer services are a year-round service that is also complementary to our frac water heating business . in may 2016 , we expanded our construction services segment to provide dirt hauling to the construction industry in an effort to help retain and increase utilization of frac water heating operators during offseason quarters and slow periods . although the company made significant strides in getting these business segments up and running during 2016 , start-up and carrying costs from these two segments diluted our fiscal 2016 segment profits , operating income and adjusted ebitda . although management took various actions to reduce variable operating costs in line with the decrease in revenues and to reduce fixed expenses where possible , the decline in higher margin well enhancement services combined with the incremental start-up costs from our new business segments of approximately $ 1.7 million resulted in a $ 10.2 million decline in segment profits during 2016 as compared to last year . 34 for the year ended december 31 , 2016 , the company realized a net loss of $ 8.55 million ( $ 0.22 per share ) as compared to a net loss of $ 1.3 million ( $ 0.03 per share ) last year primarily due to the decline in revenues and corresponding segment profits described above . in addition , a $ 1.1 million increase in depreciation and amortization expense attributable to our purchase of water transfer assets also contributed to the increase in net loss in 2016. adjusted ebitda for the year ended december 31 , 2016 was a negative $ 3.3 million as compared to $ 6.3 million in 2015. for further details on the calculation of adjusted ebitda see adjusted ebitda section below . industry overview the low crude oil prices since july 2014 that continued through 2016 resulted in our customers significantly scaling back drilling and completion programs , shifting capital resources to higher margin basins , requiring substantial concessions from vendors , and reducing or delaying certain maintenance related work to preserve capital . further , the overall reduction in drilling , completion and service work resulted in more service vendors seeking fewer jobs putting even further downward pressure on the pricing of services . some competitors responded by pricing work at what we believe to be negative margins . although the company has been able to partially mitigate the impact of the operating environment by deploying resources to more active customers and basins , our revenue growth and operating margins have been significantly negatively impacted by reduced overall demand for our services , requiring pricing concessions and the delay of hot oiling and acidizing maintenance work . many customers implemented capital spending programs at the beginning of 2016 and some customers suspended drilling and completion programs altogether until oil and natural gas prices recover and stabilize at an economical price for continuing operations . in addition , some customers delayed their routine hot oiling and acidizing maintenance work . story_separator_special_tag both dillco and heat waves engage in business operations in this region . ( 3 ) consists of the southern region of the marcellus shale formation ( southwestern pennsylvania and northern west virginia ) and the utica shale formation ( eastern ohio ) . heat waves is the only company subsidiary operating in this region . revenues in the rocky mountain region decreased $ 9.5 million , or 41 % , for the year ended december 31 , 2016 due to several factors including ( i ) decreased frac water heating activity in the niobrara shale/dj basin and bakken field as discussed above ; ( ii ) decreased hot oiling service activity in the bakken field and wyoming basins due to delayed maintenance programs by customers and ( iii ) price concessions granted to customers . revenues in the eastern usa region decreased $ 3.9 million , or 75 % , to $ 1.3 million for the year ended december 31 , 2016 primarily due to lower frac water service activity in the marcellus and utica shale basins during 2016. unseasonably warm weather during the first and fourth quarters of 2016 significantly reduced heating demand essentially eliminating most of our frac water heating revenue in 2016. reduced drilling and completion activities due to falling prices also contributed to the overall decline in revenues . revenues in the central usa region decreased $ 794,000 , or 8 % , to $ 9.6 million for the year ended december 31 , 2016. incremental revenues from our geographic expansion into the eagle ford shale of $ 2.3 million were more than offset by a $ 2.1 million decline in water hauling activity in the hugoton field area and a $ 1.1 million decline in well enhancement revenues throughout the region . scaled back service work , price concessions and elimination of certain low margin water hauling customers were the primary reasons for decline in water hauling business in the hugoton field area . historical seasonality of revenues : because of the seasonality of our frac water heating and hot oiling business , revenues generated during the first and fourth quarters of our fiscal year , covering the months during what we call our “ heating season , ” are significantly higher than revenues earned during the second and third quarters of the year . in addition , the revenue mix of our service offerings also changes among quarters as our well enhancement services ( which includes frac water heating and hot oiling ) decrease as a percentage of total revenues and water hauling services ( water hauling ) and other services increase . thus , the revenues recognized in our quarterly financials in any given period are not indicative of the annual or quarterly revenues through the remainder of that fiscal year . 39 as an indication of this quarter-to-quarter seasonality , the company generated revenues of $ 15.0 million , or 61 % , of its 2016 revenues during the first and fourth quarters of 2016 compared to $ 9.6 million , or 39 % , during the second and third quarters of 2016. in 2015 , the company generated revenues of $ 27.8 million , or 72 % , of its 2015 revenues during the first and fourth quarters of 2015 , compared to $ 11.0 million , or 28 % , during the second and third quarters of 2015. while the company is pursuing various strategies to lessen these quarterly fluctuations by expanding and or adding non-seasonal service lines , there can be no assurance that we will be successful in doing so . direct operating expenses : direct operating expenses , which include labor costs , propane , fuel , chemicals , truck repairs and maintenance , supplies , insurance , and site overhead costs for our operating segments declined $ 4.0 million or 14 % during 2016 as compared to last year . this decline was primarily due to the overall decline in service activity in our well enhancement service segment attributable to low oil prices and warm weather . management increased their efforts to reduce operating costs such as direct labor , equipment repairs and maintenance in order to minimize the negative impact of reduced revenues . managements ' efforts include reducing overtime and non-billable time , reducing indirect labor to correspond with lower activity , negotiating supplier discounts and implementing cost management tools . in addition , lower fuel costs also contributed to the decline in direct operating costs . the decline in well enhancement costs above was partially offset by startup and carrying costs from our new water transfer division and additional dirt hauling costs from our project in colorado ( construction services ) general and administrative expenses : general and administrative expenses decreased $ 481,000 , or 11 % , to $ 3.8 million in 2016 as compared to $ 4.3 million in 2015 primarily due to a $ 580,000 decrease in personnel costs attributable to reductions in staff , and other cost saving initiatives implemented in early 2016. the decrease was offset by an increase in stock-based compensation expense of $ 44,000. patent litigation and defense costs : patent litigation and defense costs for the year ended december 31 , 2016 declined to $ 152,000 as compared to $ 537,000 for 2015. as discussed in item 3 . – litigation , the u.s. district court for the district of colorado issued a decision on july 20 , 2015 to stay the company 's case with hotf pending an appeal of a 2015 judgement by a north dakota court invalidating the ‘ 993 patent . as a result of the stay , legal costs have been minimal since july 2015. enservco and heat waves deny that they are infringing any valid , enforceable claim of the asserted hotf patents , and intend to continue to vigorously defend themselves in the colorado case and challenge the validity and or enforceability of these patents should the lawsuit resume . the company expects associated legal fees to be minimal going forward until the colorado case is resumed .
| segment results : the following tables set forth revenue from operations and segment profits for the company 's business segments for the fiscal years ended december 31 , 2016 and 2015 : replace_table_token_2_th replace_table_token_3_th well enhancement services : for 2016 , well enhancement service revenue declined $ 15.0 million , or 46 % , to $ 17.9 million . a significant decline in demand for our frac water heating services due to unseasonably warm weather in our two largest frac water heating markets ( d-j/niobrara and marcellus/utica ) and the overall decline in drilling and completions activity related to low oil and natural gas price were the primary reasons for the decline in revenues . these declines were partially offset by $ 2.3 million of incremental revenues from our geographic expansion into the texas area . 36 frac water heating revenues for the year ended december 31 , 2016 declined 64 % to $ 6.7 million as compared to $ 18.3 million in 2015. unseasonably warm winter weather in the dj basin and marcellus/utica basin in the first and fourth quarters of 2016 significantly reduced demand for our frac water heating services in these , our two largest frac heating markets . our eastern usa region was hit particularly hard as sufficiently cold weather did not materialize in first and fourth quarter 2016 , contributing to a $ 3.8 million , or 83 % , decline in heating revenues in the marcellus/utica shale basin . further , industry wide declines in drilling and completion programs due to low oil and natural gas prices and price concessions issued to customers also contributed to the annual decline in frac heating revenues .
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d'arelli pruzansky , pa certified public accountants boca raton , florida march 30 , 2017 f- 2 celsius holdings , inc. consolidated balance sheets replace_table_token_10_th the accompanying notes are an integral part of these consolidated financial statements f- 3 celsius holdings , inc. consolidated statements of operations replace_table_token_11_th the accompanying notes are an integral part of these consolidated financial statements f- 4 consolidated statements of changes in stockholders ' equity ( deficit ) for the years ended december 31 , 2016 and 2015 replace_table_token_12_th the accompanying notes are an integral part of these consolidated financial statements f- 5 celsius holdings , inc. consolidated statements of cash flows replace_table_token_13_th the accompanying notes are an integral part of these consolidated financial statements f- 6 celsius holdings , inc. notes to consolidated financial statements december 31 , 2016 1. organization and description of business business —celsius holdings , inc. ( the “ company ” or “ celsius holdings ” ) was incorporated under the laws of the state of nevada on april 26 , 2005. on january 24 , 2007 , the company entered into a merger agreement and plan of reorganization with elite fx , inc. , a florida corporation . under the terms of the merger agreement , elite fx , inc. was merged into the company 's subsidiary , celsius , inc. and became a wholly-owned subsidiary of the company on january 26 , 2007. in addition , on march 28 , 2007 the company established celsius netshipments , inc. a florida corporation as a wholly-owned subsidiary of the company . since 2007 , the company is engaged in the development , marketing , sale and distribution of “ functional ” calorie-burning fitness beverages under the celsius® brand name . 2. basis of presentation and summary of significant accounting policies the consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the united states of america ( “ us gaap ” ) . consolidation policy — the accompanying consolidated financial statements include the accounts of celsius holdings , inc. and its subsidiaries . all material inter-company balances and transactions have been eliminated in consolidation . significant estimates — the preparation of consolidated financial statements in conformity with accounting principles generally accepted in the united states of america requires management to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenue and expenses and disclosure of contingent assets and liabilities at the date of the financial statements . actual results could differ from those estimates . significant estimates include the allowance for doubtful accounts , reserves for inventory obsolescence , the useful lives and values of property , fixtures and equipment , valuation of stock based compensation , and deferred tax asset valuation allowance . segment reporting — although the company has a number of operating divisions , separate segment data has not been presented , as they meet the criteria for aggregation as permitted by asc topic 280 , segment reporting , ( formerly statement of financial accounting standards ( sfas ) no . 131 , disclosed about segments of an enterprise and related information . ) our chief operating decision-maker is considered to be our chief executive officer ( ceo ) . the ceo reviews financial information presented on a consolidated basis for purposes of making operating decisions and assessing financial performance . the financial information reviewed by the ceo is identical to the information presented in the accompanying consolidated statement of operations . therefore , the company has determined that it operates in a single operating segment . for the years ended december 31 , 2016 and 2015 all material assets and revenues of the company were in the united states except as disclosed in note 2. concentrations of risk — substantially all of the company 's revenue derives from the sale of celsius ® beverages . the company uses single supplier relationships for its raw materials purchases and filling capacity , which potentially subjects the company to a concentration of business risk . if these suppliers had operational problems or ceased making product available to the company , operations could be adversely affected . financial instruments that potentially subject the company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable . the company places its cash and cash equivalents with high-quality financial institutions . at times , balances in the company 's cash accounts may exceed the federal deposit insurance corporation limit . at december 31 , 2016 , the company had approximately $ 11.5 million in excess of the federal deposit insurance corporation limit . f- 7 celsius holdings , inc. notes to consolidated financial statements december 31 , 2016 2. basis of presentation and summary of significant accounting policies ( continued ) at december 31 , 2016 and 2015 , the company had the following 10 percent or greater story_separator_special_tag you should read the following discussion in conjunction with the audited financial statements and the corresponding notes , the unaudited financial statements and the corresponding notes included elsewhere in this information statement . this item 7 contains forward-looking statements . the matters discussed in these forward-looking statements are subject to risk , uncertainties , and other factors that could cause actual results to differ materially from those made , projected or implied in the forward-looking statements . please refer to `` item 1a . risk factors `` for a discussion of the uncertainties , risks and assumptions associated with these statements . story_separator_special_tag company 's assets . as of december 31 , 2016 , the principal amount outstanding under the credit facility with cd financial was $ 4.5 million . between december 30 , 2016 and march 14 , 2017 , the company raised an aggregate of $ 15.0 million in capital through the sale of an aggregate of 4,833,329 shares of our common stock at a purchase price of $ 3.00 per share in a private offering to 13 story_separator_special_tag d'arelli pruzansky , pa certified public accountants boca raton , florida march 30 , 2017 f- 2 celsius holdings , inc. consolidated balance sheets replace_table_token_10_th the accompanying notes are an integral part of these consolidated financial statements f- 3 celsius holdings , inc. consolidated statements of operations replace_table_token_11_th the accompanying notes are an integral part of these consolidated financial statements f- 4 consolidated statements of changes in stockholders ' equity ( deficit ) for the years ended december 31 , 2016 and 2015 replace_table_token_12_th the accompanying notes are an integral part of these consolidated financial statements f- 5 celsius holdings , inc. consolidated statements of cash flows replace_table_token_13_th the accompanying notes are an integral part of these consolidated financial statements f- 6 celsius holdings , inc. notes to consolidated financial statements december 31 , 2016 1. organization and description of business business —celsius holdings , inc. ( the “ company ” or “ celsius holdings ” ) was incorporated under the laws of the state of nevada on april 26 , 2005. on january 24 , 2007 , the company entered into a merger agreement and plan of reorganization with elite fx , inc. , a florida corporation . under the terms of the merger agreement , elite fx , inc. was merged into the company 's subsidiary , celsius , inc. and became a wholly-owned subsidiary of the company on january 26 , 2007. in addition , on march 28 , 2007 the company established celsius netshipments , inc. a florida corporation as a wholly-owned subsidiary of the company . since 2007 , the company is engaged in the development , marketing , sale and distribution of “ functional ” calorie-burning fitness beverages under the celsius® brand name . 2. basis of presentation and summary of significant accounting policies the consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the united states of america ( “ us gaap ” ) . consolidation policy — the accompanying consolidated financial statements include the accounts of celsius holdings , inc. and its subsidiaries . all material inter-company balances and transactions have been eliminated in consolidation . significant estimates — the preparation of consolidated financial statements in conformity with accounting principles generally accepted in the united states of america requires management to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenue and expenses and disclosure of contingent assets and liabilities at the date of the financial statements . actual results could differ from those estimates . significant estimates include the allowance for doubtful accounts , reserves for inventory obsolescence , the useful lives and values of property , fixtures and equipment , valuation of stock based compensation , and deferred tax asset valuation allowance . segment reporting — although the company has a number of operating divisions , separate segment data has not been presented , as they meet the criteria for aggregation as permitted by asc topic 280 , segment reporting , ( formerly statement of financial accounting standards ( sfas ) no . 131 , disclosed about segments of an enterprise and related information . ) our chief operating decision-maker is considered to be our chief executive officer ( ceo ) . the ceo reviews financial information presented on a consolidated basis for purposes of making operating decisions and assessing financial performance . the financial information reviewed by the ceo is identical to the information presented in the accompanying consolidated statement of operations . therefore , the company has determined that it operates in a single operating segment . for the years ended december 31 , 2016 and 2015 all material assets and revenues of the company were in the united states except as disclosed in note 2. concentrations of risk — substantially all of the company 's revenue derives from the sale of celsius ® beverages . the company uses single supplier relationships for its raw materials purchases and filling capacity , which potentially subjects the company to a concentration of business risk . if these suppliers had operational problems or ceased making product available to the company , operations could be adversely affected . financial instruments that potentially subject the company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable . the company places its cash and cash equivalents with high-quality financial institutions . at times , balances in the company 's cash accounts may exceed the federal deposit insurance corporation limit . at december 31 , 2016 , the company had approximately $ 11.5 million in excess of the federal deposit insurance corporation limit . f- 7 celsius holdings , inc. notes to consolidated financial statements december 31 , 2016 2. basis of presentation and summary of significant accounting policies ( continued ) at december 31 , 2016 and 2015 , the company had the following 10 percent or greater story_separator_special_tag you should read the following discussion in conjunction with the audited financial statements and the corresponding notes , the unaudited financial statements and the corresponding notes included elsewhere in this information statement . this item 7 contains forward-looking statements . the matters discussed in these forward-looking statements are subject to risk , uncertainties , and other factors that could cause actual results to differ materially from those made , projected or implied in the forward-looking statements . please refer to `` item 1a . risk factors `` for a discussion of the uncertainties , risks and assumptions associated with these statements . story_separator_special_tag company 's assets . as of december 31 , 2016 , the principal amount outstanding under the credit facility with cd financial was $ 4.5 million . between december 30 , 2016 and march 14 , 2017 , the company raised an aggregate of $ 15.0 million in capital through the sale of an aggregate of 4,833,329 shares of our common stock at a purchase price of $ 3.00 per share in a private offering to 13
| results of operations year ended december 31 , 2016 compared to year ended december 31 , 2015 revenue for the year ended december 31 , 2016 , revenue was approximately $ 22.8 million , an increase of $ 5.6 million or 33 % from $ 17.2 million in revenue for year ending december 31 , 2015. this revenue growth was mainly associated with blended growth rates of 4 % in international revenues and 59 % in domestic sales . the domestic sales growth of 59 % from 2015 to 2016 was mainly associated from blended growth rates of 70 % from retail accounts , 51 % from health and fitness accounts and 26 % from internet retailer accounts . the overall increase in revenue from 2015 to 2016 was primarily attributable to an increase in sales volume , as opposed to increases in product pricing . 19 the following table sets forth the amount of revenues by category and changes therein for the years ended december 31 , 2016 and 2015 : replace_table_token_2_th gross profit for the year ended december 31 , 2016 , gross profit increased by approximately $ 2.7 million or 39 % to $ 9.7 million compared to $ 7.0 million for 2015. gross profit margins improved 1.9 % to 42.8 % in the year ended december 31 , 2016 from 40.9 % in 2015. the increases in gross profit and the improvement in gross profit margins from 2015 to 2016 are primarily attributable to the increases in revenue and a reduction in the cost of raw materials .
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highlights of the fiscal year ended september 30 , 2017 : consolidated net sales for the fiscal year ended september 30 , 2017 were $ 3,938.3 million compared to $ 3,952.6 million of the fiscal year ended september 30 , 2016. consolidated net sales for the fiscal year ended september 30 , 2017 , are inclusive of a net negative impact from changes in foreign currency exchange rates of $ 30.0 million , or 0.8 % of consolidated net sales ; consolidated net sales from company-operated stores that have been open for 14 months or longer , which we refer to as same store sales , decreased by 0.7 % for the fiscal year ended september 30 , 2017 , compared to an increase of 2.9 % for the fiscal year ended september 30 , 2016 ; consolidated gross profit for the fiscal year ended september 30 , 2017 increased by $ 1.0 million , or less than 0.1 % , to $ 1,964.9 million compared to the fiscal year ended september 30 , 2016. as a percentage of net sales , gross profit increased by 20 basis points to 49.9 % for the fiscal year ended september 30 , 2017 , compared to the fiscal year ended september 30 , 2016 ; during the fiscal year ended september 30 , 2017 , we incurred approximately $ 22.7 million in expenses , including severance and other employment-related expenses of $ 12.1 million , facility closure expenses of $ 6.7 million and other costs of $ 3.9 million , in connection with our previously-announced comprehensive restructuring plan ; consolidated operating earnings for the fiscal year ended september 30 , 2017 decreased by $ 19.7 million , or 4.0 % , to $ 478.6 million compared to the fiscal year ended september 30 , 2016. as a percentage of net sales , operating earnings decreased by 40 basis points to 12.2 % for the fiscal year ended september 30 , 2017 , compared to the fiscal year ended september 30 , 2016 ; consolidated net earnings decreased by $ 7.9 million , or 3.5 % , to $ 215.1 million compared to the fiscal year ended september 30 , 2016 ; diluted earnings per share for the fiscal year ended september 30 , 2017 , were $ 1.56 compared to $ 1.50 for the fiscal year ended september 30 , 2016 ; cash provided by operations was $ 344.4 million for the fiscal year ended september 30 , 2017 , compared to $ 351.0 million for the fiscal year ended september 30 , 2016 ; at september 30 , 2017 , sally beauty supply 's store count was flat , with 133 new store openings during the year offset by 133 strategic store closures , while beauty systems group store count increased by 26 stores , with 55 new stores partially offset by 29 store closures , excluding franchised stores , compared to at september 30 , 2016 ; on july 6 , 2017 , we , through certain of our subsidiaries , redeemed in full our 5.75 % senior notes due 2022 ( the `` senior notes due 2022 '' ) primarily with the net proceeds from the july 2017 issuance 39 of an $ 850.0 million seven-year term loan ( the `` term loan b '' ) and recorded a loss on extinguishment of debt of approximately $ 28.0 million in connection therewith ; on july 6 , 2017 , we , through certain of our subsidiaries , amended and restated our $ 500 million , asset-based senior secured loan facility , extending the maturity to july 2022 and amending certain other terms ; on august 31 , 2017 , we announced that our board of directors ( the `` board '' ) had approved a new share repurchase program authorizing us to repurchase up to $ 1.0 billion of our common stock over an approximate four-year period expiring on september 30 , 2021 ( the `` 2017 share repurchase program '' ) and terminated the 2014 share repurchase program . during the fiscal year ended september 30 , 2017 , we repurchased and subsequently retired approximately 16.1 million shares of our common stock under the 2014 share repurchase program at an aggregate cost of $ 346.1 million ; and during the fiscal year ended september 30 , 2017 , we recorded a charge of $ 4.0 million for estimated casualty losses resulting from hurricanes that affected areas of the u.s. and puerto rico in august and september . overview description of business at september 30 , 2017 , we operated primarily through two business units , sally beauty supply , or sbs , and beauty systems group , or bsg . we believe we are the largest open-line distributor of professional beauty supplies in the u.s. based on store count . as of september 30 , 2017 , we had 4,963 company-operated stores and supplied 187 franchised stores primarily in north america and selected south american and european countries . within bsg , we also have one of the largest networks of distributor sales consultants for professional beauty products in north america . we offer a wide variety of leading third-party branded and exclusive-label professional beauty supplies , including hair color products , hair care products , styling tools , skin and nail care products and other beauty items . sbs targets retail consumers and salon professionals , while bsg exclusively targets salons and salon professionals . for the year ended september 30 , 2017 , our consolidated net sales and operating earnings were $ 3,938.3 million and $ 478.6 million , respectively . as of september 30 , 2017 , sbs had 3,763 company-operated retail stores ( generally , under the sally beauty banner ) , 2,883 of which are located in the u.s. ( including puerto rico ) , with the remaining 880 company-operated stores located in canada , mexico , the united kingdom , ireland , belgium , france , germany , the netherlands , spain , chile and peru . story_separator_special_tag as of september 30 , 2017 , the interest rate on the variable-rate tranche is 3.75 % . the agreement governing the term loan b contains a customary covenant package substantially consistent with the indentures governing the company 's existing senior notes . borrowings under the term loan b are secured by a first-priority lien in and upon substantially all of the assets of the company and its domestic subsidiaries other than the accounts , inventory ( and the proceeds thereof ) and other assets that secure the abl facility , as defined below , on a first-priority basis . in addition , the variable-rate tranche contains provisions requiring quarterly repayments of principal in an amount equal to 0.25 % of the original amount for that tranche . the term loan b matures on july 5 , 2024. simultaneously with the entry into the term loan b , the company , through certain of the company 's indirect and direct subsidiaries that are borrowers , entered into an amended and restated $ 500 million , asset-based senior secured loan facility ( the `` abl facility '' ) . after the refinancing of certain of our debt in july 2017 , there were $ 118.0 million in borrowings outstanding under the abl facility , including the amount drawn in connection with the company 's redemption of the senior notes due 2022 as described below . the terms of the abl facility are substantially the same as those on the predecessor abl credit facility ( which are described elsewhere in this annual report ) , except for an extension of the maturity to july 6 , 2022 , improved pricing , a relaxation of the restrictions on sally holdings ' ability to make restricted payments , as defined in the abl facility , and certain other improved terms . at september 30 , 2017 , we had approximately $ 389.6 million available for borrowing under the abl facility , including the canadian sub-facility . in july 2017 , sally holdings and sally capital inc. ( collectively , the `` issuers '' ) redeemed $ 850 million aggregate principal amount of their senior notes due 2022 at a redemption price equal to 102.875 % plus accrued but unpaid interest to , but not including , the redemption date . the redemption was funded primarily with the net proceeds of the term loan b , in the principal amount of $ 850 million , as well as existing cash balances and borrowings under the abl facility , as appropriate . for the fiscal year ended september 30 , 2017 , we recorded a loss on extinguishment of debt of approximately $ 28.0 million , including a call premium of $ 24.4 million and unamortized debt issuance costs of $ 3.5 million . in the fiscal year ended september 30 , 2016 , we redeemed in full our 6.875 % senior notes due 2019 primarily with the net proceeds from our december 2015 issuance of $ 750.0 million principal amount of our 5.625 % senior notes due 2025. for the fiscal year ended september 30 , 2016 , we recorded a loss on extinguishment of debt of $ 33.3 million , including a call premium of $ 25.8 million and unamortized debt issuance costs of $ 7.5 million . we have exposure to interest rate fluctuations in connection with the variable-rate tranche of our term loan b , as described above . in order to partially mitigate this exposure , in july 2017 , we purchased two interest rate caps , which are designated as cash flow hedges , with an initial aggregate notional amount of $ 550 million ( the `` interest rate caps '' ) . the interest rate caps expire on june 30 , 2023 and limit the company 's maximum interest rate in connection with the variable-rate tranche under the term loan b to 5.5 % . data security incidents in the fiscal year 2014 , we disclosed that we had experienced a data security incident ( the `` 2014 data security incident '' ) . in the fiscal year 2015 , we disclosed that we had experienced a second data security incident ( the `` 2015 data security incident '' and , together with the 2014 data security incident , the `` data security incidents '' ) . the data security incidents involved the unauthorized installation of malicious software ( malware ) on our information technology systems , including our point-of-sale systems , that we believe may have placed at risk certain payment card data for some transactions . the costs that we have incurred to date in connection with the data security incidents include assessments by payment card networks , professional advisory fees , legal costs and expenses relating to investigating and remediating the data security incidents . 42 for the fiscal years ended september 30 , 2016 and 2015 , selling , general and administrative expenses reflect expenses of $ 14.6 million and $ 5.6 million ( net of related insurance recovery of $ 0.6 million in 2015 ) , respectively , related to the data security incidents . during the fiscal year ended september 30 , 2017 , we made net payments against prior assessments by two payment card networks in connection with the data security incidents in the aggregate amount of $ 9.3 million . as of september 30 , 2017 , we had an accrued liability relating to the data security incidents of $ 6.4 million . our estimated probable losses related to the data security incidents are based on currently available information . we expect to incur additional costs and expenses related to the data security incidents in future periods . these costs may result from potential additional liabilities to other payment card networks , governmental or third party investigations , proceedings or litigation and legal and other fees necessary to defend against any potential liabilities or claims , and further investigatory and remediation costs .
| results of operations the following table shows the condensed results of operations of our business ( in thousands ) : replace_table_token_11_th the following table shows the condensed results of operations of our business , expressed as a percentage of net sales for each respective period : replace_table_token_12_th 43 key operating metrics the following table sets forth , for the periods indicated , information concerning key measures we rely on to assess our operating performance ( dollars in thousands ) : replace_table_token_13_th ( a ) unallocated expenses consist of corporate and shared costs and are included in selling , general and administrative expenses in our consolidated statements of earnings . for the fiscal years 2016 and 2015 , unallocated expenses reflect expenses of $ 14.6 million and $ 5.6 million ( net of related insurance recovery of $ 0.6 million in 2015 ) , respectively , in connection with the data security incidents . ( b ) for the fiscal year 2017 , we incurred restructuring charges of approximately $ 22.7 million incurred in connection with the 2017 restructuring plan , including severance and related expenses of $ 12.1 million , facility closure expenses of $ 6.7 million and expenses related to other cost-reduction initiatives of $ 3.9 million . 44 the fiscal year ended september 30 , 2017 compared to the fiscal year ended september 30 , 2016 the table below presents net sales , gross profit and gross margin data for each reportable segment ( in thousands ) . replace_table_token_14_th the table below presents operating earnings for each reportable segment ( in thousands ) . replace_table_token_15_th net sales consolidated .
| 2,940 |
attention : michael j. ulrich 601 travis street , floor 16 houston , texas 77002 this information may also be obtained free of charge from the trust 's website : http : //mtr.investorhq.businesswire.com/ story_separator_special_tag trust overview the following review of mesa royalty trust 's ( the `` trust '' ) financial condition and results of operations should be read in conjunction with the financial statements and notes thereto . the discussion of net production attributable to the hugoton and san juan basin royalty properties ( as each is defined below ) represents production volumes that are to a large extent hypothetical as the trust does not own and is not entitled to any specific production volumes . any discussion of `` actual '' 27 production volumes represents the hydrocarbons that were produced from the properties in which the trust has an overriding royalty interest . the trust was created on november 1 , 1979 , and is now governed by the mesa royalty trust indenture ( as amended , the `` trust indenture '' ) . through a series of conveyances , assignments , and acquisitions , the trust currently owns an overriding royalty interest ( the `` royalty '' ) equal to 11.44 % of 90 % of the net proceeds ( as defined and described in an overriding royalty conveyance , dated as of november 1 , 1979 ( the `` conveyance '' ) ) attributable to the specified interest in certain producing oil and gas properties located in the : hugoton field of kansas ( the `` hugoton royalty properties '' ) ; san juan basin field of new mexico ( the `` san juan basinnew mexico properties '' ) ; san juan basin field of colorado ( the `` san juan basincolorado properties '' , and together with the `` san juan basinnew mexico properties , the `` san juan basin royalty properties '' , and together with the hugoton royalty properties and the san juan basin royalty properties , the `` royalty properties '' ) . pursuant to past conveyances and bankruptcy proceedings , linn energy , inc. ( `` linn '' ) , hilcorp san juan lp ( `` hilcorp '' ) , xto energy , inc. ( `` xto '' ) , bp amoco company ( `` bp '' ) , and red willow production company ( `` red willow '' ) are the operators of certain portions of the hugoton royalty properties and san juan basin royalty properties ( each of linn , hilcorp , xto , bp , and red willow being a `` working interest owner '' , and together , the `` working interest owners '' ) . as used in this report , linn refers to the current operator of the hugoton royalty properties , hilcorp refers to the current operator of the san juan basinnew mexico properties , and bp and red willow refer to the currents co-operators of certain tracts of land included in the san juan basincolorado properties , unless otherwise indicated . the trust is a passive entity whose purposes are limited to : ( 1 ) converting the royalties to cash , either by retaining them and collecting the proceeds of production ( until production has ceased or the royalties are otherwise terminated ) or by selling or otherwise disposing of the royalties ; and ( 2 ) distributing such cash , net of amounts for payments of liabilities to the trust , to the unitholders . the trust has no sources of liquidity or capital resources other than the revenues , if any , attributable to the royalties and interest on cash held by the trustee as a reserve for liabilities or for distribution . the trust does not undertake or control any capital projects or make capital expenditures . while the trust 's royalty income is net of capital expenditures , these capital expenditures are controlled and paid by the working interests owners , and the trust receives royalty income net of these expenses . in addition , the trust does not have any off-balance sheet arrangements or other contingent obligations . liquidity and capital resources liquidity . as discussed in `` businessdescription of the trust '' under item 1 of this form 10-k , the trust 's primary source of cash is the royalty income received from its share of the net proceeds from the royalty properties , and the only other source of cash is interest income earned pursuant to the trust indenture . for estimates of future royalty income attributable to the royalty , refer to the notes to financial statements under item 8 of this form 10-k. in addition , the working interest owners reimburse the trust each quarter for certain expenses incurred by the trust on their behalf . as of december 31 , 2017 and 2016 , there were $ 0 and $ 0 of unreimbursed expenses , respectively . in accordance with the provisions of the conveyance , generally all revenues received by the trust , net of unreimbursed trust administrative expenses and sums paid to or from any reserves established pursuant to the trust indenture , are distributed to the unitholders . the terms of the trust indenture provide , among other things , that the trustee may establish cash reserves and borrow funds to pay liabilities of the trust , and may pledge assets of the trust to secure payment 28 of the borrowings . during 2011 , the trustee withheld $ 1.0 million to establish a reserve for future unknown contingent liabilities and expenses ( the `` contingent reserve '' ) in accordance with the trust indenture . at any given time , the balance of the contingent reserve is included in cash and short-term investments . story_separator_special_tag the effect of the trustee 's election to include the december 2016 production month for the year ended december 31 , 2016 is as follows : ( i ) the summary of royalty income , production , prices and costs include the trust 's proportionate share of gross proceeds of $ 68,327 , the trust 's proportionate share of operating costs of $ 72,187 , and net production volumes attributable to the royalty paid on 40,163 thousand cubic feet ( `` mcf '' ) of natural gas , and ( ii ) $ 3,860 of excess production costs related to the san juan basincolorado properties operated by bp as of december 31 , 2016 were included in the excess production costs footnote to the trust 's financial statements for the year ended december 31 , 2016 . 30 ( 6 ) effective september 2017 , following hilcorp 's acquisition of conoco , inc. 's ( `` conocophillips '' ) interests in the san juannew mexico properties , hilcorp continued to make an estimated payment of net proceeds to the trust each month consistent with the monthly amount previously paid by conocophillips . these estimated payments remain subject to reconciliation with respect to actual revenue , costs and net proceeds and the effects of pricing during the prior months after hilcorp has completed its transition as owner of the san juannew mexico properties . the reconciliation and true-up of the estimated payments for this transition period may affect the trust 's future receipt of net proceeds from hilcorp . story_separator_special_tag trust '' , dn= '' 1 '' , chk=628438 , folio='32 ' , file='disk124 : [ 18zaa1.18zaa10201 ] ck10201a . ; 27 ' , user='che107312 ' , cd='29-mar-2018 ; 19:02 ' -- > royalty income . royalty income attributable to the hugoton royalty properties for the years ended december 31 , 2017 and 2016 was $ 1,326,012 and $ 457,295 , respectively . the increase of approximately 190 % for the year ended december 31 , 2017 as compared to december 31 , 2016 was primarily due to higher natural gas and natural gas liquids prices , increased net natural gas and natural gas liquids production volumes and lower operating costs from the hugoton royalty properties in fiscal year 2017. operating costs and capital expenditures . operating costs attributable to the hugoton royalty properties for the years ended december 31 , 2017 and 2016 were $ 731,521 and $ 931,217 , respectively . linn has informed the trust that the approximately 21 % decrease for the year ended december 31 , 2017 as compared to december 31 , 2016 was primarily due to actual ad valorem taxes paid and a decrease in the reserve amount , partially offset by an increase in severance taxes which is in line with higher production . capital expenditures attributable to the hugoton royalty properties for the years ended december 31 , 2017 and 2016 were $ 7,921 and $ 8,040 , respectively . replace_table_token_7_th replace_table_token_8_th average sales prices . average sales prices per mcf of natural gas and barrel ( `` bbl '' ) for natural gas liquids for the hugoton royalty properties is directly dependent on the prices linn realizes for natural gas sold under short-term and multi-month contracts at market clearing prices to multiple purchasers . linn energy reorganization . on may 11 , 2016 , linn energy , llc ( `` old linn '' ) , linnco , llc ( `` linnco '' ) , an affiliate of old linn , and certain of old linn 's direct and indirect subsidiaries ( collectively with old linn and linnco , the `` debtors '' ) , filed voluntary petitions for reorganization under chapter 11 of the united states bankruptcy code in the united states bankruptcy court for the southern district of texas ( the `` court '' ) . the debtors ' chapter 11 cases were administered jointly under the caption in re linn energy , llc , et al . , case no . 16-60040. on january 27 , 2017 , the court entered the order confirming ( i ) amended joint chapter 11 plan of reorganization of linn energy , llc and its debtor affiliates other than linn acquisition company , llc and berry petroleum company , llc and ( ii ) amended joint chapter 11 plan of reorganization of linn acquisition company , llc and berry petroleum company , llc , which approved and confirmed the amended joint chapter 11 plan of reorganization of linn energy , llc and its debtor affiliates other than linn acquisition company , llc and berry petroleum company , llc ( the `` plan '' ) . the plan became effective on february 28 , 2017 ( the `` effective date '' ) . pursuant to the plan , on the effective date , all assets of old linn ( other than equity interests in linn acquisition company , llc and berry petroleum company , llc ) were conveyed to linn energy , inc. ( or a subsidiary thereof ) , and linnco , llc and linn energy , llc were wound down and 33 liquidated . subsequent to the effectiveness of the plan , linn energy , inc. is now the reorganized successor to old linn . under the plan supplement , as amended , filed with the court , the debtors assumed all executory contracts and unexpired leases with the trust and mesa operating limited partnership as the counterparty . furthermore , pursuant to the plan , the interests in the hugoton royalty properties owned by the trust shall be preserved and remain in full force and effect in accordance with the terms of the granting instruments or other governing documents . san juan basincolorado properties royalty income from the san juan basin royalty properties is calculated and paid to the trust on a state-by-state basis depending upon whether the property is situated in colorado and new mexico .
| financial review replace_table_token_6_th royalty and interest income . the trust 's royalty income was $ 3,028,793 and $ 1,364,791 for the years ended december 31 , 2017 and 2016 , respectively . the increase for the year ended december 31 , 2017 as compared to december 31 , 2016 was primarily a result of higher natural gas , natural gas liquids and oil and condensate prices , reduced capital expenditures and operating costs , and increased net natural gas and natural gas liquids production volumes for the year ended december 31 , 2017. the trust 's interest income for the years ended december 31 , 2017 and 2016 was $ 10,221 and $ 1,899 , respectively . in accordance with the trust indenture and as explained below , interest on cash on hand was paid at a rate equivalent to 1.5 % below the prime interest rate . general and administrative expense . general and administrative expense was $ 100,795 and $ 152,778 for the years ended december 31 , 2017 and 2016 , respectively . the trustee 's fees are included in general and administrative expense . the decrease for the year ended december 31 , 2017 as compared to december 31 , 2016 was primarily a result of general and administrative expenses in the amount of $ 70,460 for december 2017 being paid by the trust in january 2018. if the trust had paid such expenses in december 2017 , general and administrative expenses for the year ended december 31 , 2017 would have been $ 171,255. for the year ended december 31 , 2017 , the trustee was due $ 475,000 for its services . the trust paid $ 433,152 of this amount to the trustee , and $ 41,848 was allocated to offset against interest due to the trust under the trust indenture .
| 2,941 |
forward-looking statements are subject to risks , uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by such statements . such risks , uncertainties and factors include , but are not limited to , general economic conditions domestically and internationally ; insufficient cash flows from operating activities ; difficulties in obtaining financing ; outstanding debt and other financial and legal obligations ; lawsuits ; competition ; industry cycles ; feedstock , product and mineral prices ; feedstock availability ; technological developments ; regulatory changes ; environmental matters ; foreign government instability ; foreign legal and political concepts ; and foreign currency fluctuations , as well as other risks detailed in the company 's filings with the u.s. securities and exchange commission , including this annual report on form 10-k , all of which are difficult to predict and many of which are beyond the company 's control . overview the following discussion and analysis of our financial results , as well as the accompanying consolidated financial statements and related notes to consolidated financial statements to which they refer , are the responsibility of the management of the company . our accounting and financial reporting fairly reflect our business model involving the manufacturing and marketing of petrochemical products and specialty waxes . our business model involves the manufacture and sale of tangible products and providing custom processing services . our consistent approach to providing high purity products and quality services to our customers has helped to sustain our current position as a preferred supplier of various petrochemical products . business environment and risk assessment petrochemical operations worldwide petrochemical demand improved during 2014 , and we benefitted from continued operational excellence and competitive advantages achieved through our business mix and focus on producing high quality products and outstanding customer service . during 2014 feedstock prices fluctuated significantly with a substantial decrease beginning in the fourth quarter . prices fluctuated $ 0.75 per gallon from the high to the low per gallon price . typically , during falling prices we experience better margins since at least 50 % of our selling prices are on formula pricing which follows market prices calculated upon the prior month . 16 we believe we are well-positioned to participate in new investments to grow the company . while petrochemical prices are volatile on a short-term basis and depend on the demand of our customers ' products , our investment decisions are based on our long-term business outlook using a disciplined approach in selecting and pursuing the most attractive investment opportunities . we believe the wax market is in a long term growth trend as users strive to reduce volatile organic compound emissions and drive performance improvements . increased feedstock supply should also allow the company to participate in a disciplined way in future growth . liquidity and capital resources working capital our approximate working capital days are summarized as follows : replace_table_token_5_th our days sales outstanding in accounts receivable increased from 2013 to 2014 and from 2012 to 2013 due to increases in deferred sales . deferred sales increased by approximately $ 0.4 million from 2013 to 2014 and $ 1.8 million from 2012 to 2013. deferred sales are not recognized until the customer accepts delivery of the product and title has transferred . the majority of these sales are to foreign customers with longer payment terms due to increased shipping times . sources and uses of cash cash and cash equivalents increased by $ 0.9 million during the year ended december 31 , 2014. the change in cash and cash equivalents is summarized as follows : replace_table_token_6_th operating activities operating activities generated cash of $ 23.2 million during fiscal 2014 as compared with $ 13.2 million of cash provided during fiscal 2013. although the company 's net income decreased by $ 3.9 million from 2013 to 2014 , the cash provided by operations increased by $ 10.0 million due primarily to the following factors : · net income for 2014 included a non-cash equity in loss from amak of $ 1.1 million as compared to equity in earnings from amak $ 4.7 million and gain on equity issued in amak of $ 4.0 million in 2013 ; · net income for 2014 included a non-cash depreciation and amortization charge of $ 5.7 million as compared to 2013 which included a non-cash depreciation charge of $ 4.0 million ; · net income for 2014 included a non-cash share-based compensation charge of $ 2.1 million as compared to 2013 which included a non-cash share-based compensation charge of $ 1.2 million ; · trade receivables increased approximately $ 3.4 million in 2014 ( due to a 9.9 % increase in volume sold during the fourth quarter and receivables acquired from the acquisition ) as compared to an increase of approximately $ 6.3 million ( due to a 40.1 % increase in volume sold during the fourth quarter ) in 2013 ; · inventory decreased approximately $ 2.6 million in 2014 ( due to a 31.9 % decrease in cost per gallon ) as compared to an increase of approximately $ 2.2 million ( due to a 58.8 % increase in deferred sales ) in 2013 ; and 17 · accounts payable and accrued liabilities increased $ 1.8 million in 2014 ( primarily due to the working capital adjustment payable for the acquisition ) as compared to an increase of $ 1.4 million ( primarily due to an increase in the accrual for raw materials ) in 2013. these significant sources of cash were partially offset by the following decreases in cash provided by operations : · net income for 2014 included non-cash deferred income tax benefits of $ 1.9 million as compared to charges of $ 1.5 million in 2013 ; · prepaid expenses and other assets increased $ 1.4 million in 2014 ( primarily due to prepaid loan fees associated with the debt from the acquisition , prepayment of a lawsuit settlement , and prepaids acquired from the acquisition ) as compared to an increase of $ 1.0 million in 2013 ( primarily due to an story_separator_special_tag credit agreement on october 1 , 2014 , tocco , south hampton , gulf state , and tc ( south hampton , gulf state and tc collectively the “ guarantors ” ) entered into an amended and restated credit agreement ( “ arc agreement ” ) with the lenders which from time to time are parties to the arc agreement ( collectively , the “ lenders ” ) and bank of america , n.a. , a national banking association , as administrative agent for the lenders , and merrill lynch , pierce , fenner & smith incorporated as lead arranger . subject to the terms and conditions of the arc agreement , tocco may ( a ) borrow , repay and re-borrow revolving loans ( collectively , the “ revolving loans ” ) from time to time during the period ending september 30 , 2019 , up to but not exceeding at any one time outstanding $ 40.0 million ( the “ revolving loan commitment ” ) and ( b ) request up to $ 5.0 million of letters of credit and $ 5.0 million of swingline loans . each of the issuance of letters of credit and the advance of swingline loans shall be considered usage of the revolving loan commitment . all outstanding loans under the revolving loans must be repaid on october 1 , 2019. as of december 31 , 2014 , tocco had borrowed funds under the revolving loans aggregating $ 7.2 million . under the arc agreement , tocco also borrowed $ 70.0 million in a single advance term loan ( the “ acquisition term loan ” ) to partially finance the acquisition . under the arc agreement , tocco also has the right to borrow $ 25.0 million in a multiple advance loan ( the “ term loans , ” together with the revolving loans and acquisition term loan , collectively the “ loans ” ) . borrowing availability under the term loans ends on december 31 , 2015. the term loans convert from a multiple advance loan to a “ mini-perm ” loan once tocco has fulfilled certain obligations such as certification that construction of d-train was completed in a good and workmanlike manner , receipt of applicable permits and releases from governmental authorities , and receipt of releases of liens from the contractor and each subcontractor and supplier . the loans also include a $ 40,000,000 uncommitted increase option ( the “ accordion option ” ) . as of december 31 , 2014 , tocco had borrowed funds under this agreement aggregating $ 5.0 million . all of the loans under the arc agreement will accrue interest at the lower of ( i ) a london interbank offered rate ( “ eurodollar rate ” ) plus a margin of between 2.00 % and 2.50 % based on the total leverage ratio of tocco and its 19 subsidiaries on a consolidated basis , or ( ii ) a base rate ( “ base rate ” ) equal to the highest of the federal funds rate plus 0.50 % , the rate announced by bank of america , n.a . as its prime rate , and eurodollar rate plus 1.0 % , plus a margin of between 1.00 % to 1.50 % based on the total leverage ratio of tocco and its subsidiaries on a consolidated basis . the revolving loans will accrue a commitment fee on the unused portion thereof at a rate between 0.25 % and 0.375 % based on the total leverage ratio of tocco and its subsidiaries on a consolidated basis . interest on the revolving loans will be payable quarterly , with principal due and payable at maturity . interest on the acquisition term loan will be payable quarterly using a ten year commercial style amortization , commencing on december 31 , 2014. the acquisition term loan is also payable as to principal beginning on december 31 , 2014 , and continuing on the last business day of each march , june , september and december thereafter , each payment in an amount equal to $ 1,750,000 , provided that the final installment on the september 30 , 2019 , maturity date shall be in an amount equal to the then outstanding unpaid principal balance of the acquisition term loan . interest on the term loans will be payable quarterly using a fifteen year commercial style amortization , with interest only through december 31 , 2015 , and principal payments to commence march 31 , 2016. interest on the loans will be computed ( i ) in the case of base rate loans , on the basis of a 365-day or 366-day year , as the case may be , and ( ii ) in the case of eurodollar rate loans , on the basis of a 360-day year , in each case for the actual number of days elapsed in the period during which it accrues . the loans may be prepaid in whole or in part without premium or penalty ( eurodollar rate loans are prepayable only on the last days of related interest periods or upon payment of any breakage costs ) and the lenders ' commitments relative thereto reduced or terminated . subject to certain exceptions and thresholds , outstanding loans shall be prepaid by an amount equal to 100 % of the net cash proceeds from : ( i ) all sales , transfers , licenses , lease or other disposition of any property by tocco and guarantors ( other than a permitted transfer ) ; ( ii ) any equity issuance by tocco or the guarantors ; ( iii ) any debt issuance by tocco or the guarantors ; or ( iv ) the receipt of any cash received by tocco or the guarantors not in the ordinary course of business .
| results of operations comparison of years 2014 , 2013 , 2012 specialty petrochemical segment ( including corporate overhead for comparative purposes ) the tables containing financial and operating information set forth below are presented to facilitate the discussion of the results of operations , and should not be considered a substitute for , and should be read in conjunction with , the audited consolidated financial statements . these statements do not include the fourth quarter results for tc due to their insignificance to our 2014 operations . see note 18 to the notes to the consolidated financial statements . replace_table_token_7_th * included in cost of sales * * includes $ 3,523 and $ 3,518 for 2014 and 2013 which is included in cost of sales and operating expenses replace_table_token_8_th * included in cost of sales * * includes $ 3,518 and $ 3,053 for 2013 and 2012 which is included in cost of sales and operating expenses 21 gross revenue 2013-2014 revenues increased from 2013 to 2014 by approximately 20.4 % primarily due to an increase in sales volume of 23.4 % and an increase in processing fees of 20.4 % . 2012-2013 revenues increased from 2012 to 2013 by approximately 6.0 % primarily due to an increase in sales volume of 5.5 % and an increase in processing fees of 28.5 % . petrochemical product sales 2013-2014 petrochemical product sales increased 20.4 % from 2013 to 2014 due to an increase in total sales volume of 23.4 % as noted above while average selling price declined slightly by 2.5 % . we say a significant decline in raw material prices during the fourth quarter of 2014 which caused our average selling price for the year to decline . we shipped a record number of railcars during 2014 ; however , our iso-container shipments decreased slightly from 2013. deferred sales volume increased 12.6 % from the end of 2013 to 2014 which delayed recognition until 2015 .
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the activity in the company 's loan origination liabilities was as follows : replace_table_token_44_th ( 1 ) in december 2018 , the company settled litigation with the creditors of a former investor to resolve claims of breach of representations and warranties and similar claims for story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with `` selected financial data '' and our audited consolidated financial statements and accompanying notes included elsewhere in this report . special note regarding forward-looking statements this annual report on form 10-k contains `` forward-looking statements '' within the meaning of the private securities litigation reform act of 1995. these statements concern expectations , beliefs , projections , plans and strategies , anticipated events or trends and similar expressions concerning matters that are not historical facts . these forward-looking statements typically include the words “ anticipate , ” “ believe , ” “ consider , ” “ estimate , ” “ expect , ” “ forecast , ” “ intend , ” “ objective , ” “ plan , ” “ predict , ” “ projection , ” “ seek , ” “ strategy , ” “ target , ” “ will ” or other words of similar meaning . some of them are opinions formed based upon general observations , anecdotal evidence and industry experience , but that are not supported by specific investigation or analysis . these forward-looking statements reflect our current views about future events and are subject to risks , uncertainties and assumptions . we wish to caution readers that certain important factors may have affected and could in the future affect our actual results and could cause actual results to differ significantly from what is anticipated by our forward-looking statements . the most important factors that could cause actual results to differ materially from those anticipated by our forward-looking statements include , but are not limited to : slowdowns in the real estate markets across the nation , including a slowdown in real estate markets in regions where we have significant homebuilding or multifamily development activities ; increases in operating costs , including costs related to labor , construction materials , real estate taxes and insurance , which exceed our ability to increase prices , either in our homebuilding or our multifamily businesses ; our inability to successfully execute our strategies , including our land lighter and our even flow production strategy ; changes in general economic and financial conditions that reduce demand for our products and services , lower our profit margins or reduce our access to credit ; our inability to acquire land at anticipated prices ; the possibility that we will incur nonrecurring costs that affect earnings in one or more reporting periods ; decreased demand for our homes or multifamily rental properties ; the possibility that our increasing use of technology will not result in improvement to our sg & a expenses and bottom line , and will not justify its cost ; inability of the technology companies in which we have investments to operate profitably ; increased competition for home sales from other sellers of new and resale homes ; increases in mortgage interest rates ; a decline in the value of our inventories and resulting write-downs of the carrying value of our real estate assets ; the failure of the participants in various joint ventures to honor their commitments ; difficulty obtaining land-use entitlements or construction financing ; natural disasters and other unforeseen events for which our insurance does not provide adequate coverage ; new laws or regulatory changes that adversely affect the profitability of our businesses ; our inability to refinance our debt as it matures on terms that are acceptable to us ; and changes in accounting standards that adversely affect our reported earnings or financial condition . please see `` item 1a-risk factors '' of this annual report for a further discussion of these and other risks and uncertainties which could affect our future results . we undertake no obligation to revise any forward-looking statements to reflect events or circumstances after the date of those statements or to reflect the occurrence of anticipated or unanticipated events , except to the extent we are legally required to disclose certain matters in sec filings or otherwise . 21 outlook during the fourth quarter , the housing market continued to strengthen . we saw traffic and sales continue to improve from last year 's market pause as lower interest rates and slower price appreciation positively impacted affordability . that , together with low unemployment , wage growth , consumer confidence and economic growth , drove home purchasers , especially at the entry level , to return to the housing market . we have remained focused on our pivot to a land lighter strategy . from controlling the timing of land purchases , to reducing our years-owned supply of homesites , to increasing the percentage of land controlled through options or agreements versus owned land , we are migrating towards a significantly smaller owned land inventory . at the beginning of 2019 , we set a two-year goal of increasing the homesites we control but do not own from 25 % to 40 % of our land needs . we made great progress on this front , and finished the year at 33 % . based on our progress , our new goal is to have 50 % of our land needs controlled versus owned by the end of fiscal 2021. we also believe that , based on our progress on reducing our years-owned supply of homesites from 4.4 years at the end of the third quarter to 4.1 years at the end of the fourth quarter , we can reduce our years-owned supply of homesites to 3 years by the end of fiscal 2021. while our most immediately impactful focus remains on our land spend and our inventory , we are also driving our asset-base lower as we continue to focus on monetizing non-core assets and business segments . story_separator_special_tag at november 30 , 2019 our homebuilding operating segments and homebuilding other consisted of homebuilding divisions located in : east : florida , new jersey , north carolina , pennsylvania and south carolina central : georgia , illinois , indiana , maryland , minnesota , tennessee and virginia texas : texas west : arizona , california , colorado , nevada , oregon , utah and washington other : urban divisions and other homebuilding related investments primarily in california , including fivepoint 25 the following tables set forth selected financial and operational information related to our homebuilding operations for the years indicated : selected financial and operational data replace_table_token_5_th 26 replace_table_token_6_th ( 1 ) equity in loss from unconsolidated entities for the year ended november 30 , 2018 included our share of operational net losses from unconsolidated entities driven by general and administrative expenses and valuation adjustments related to assets of homebuilding unconsolidated entities , partially offset by profit from land sales . ( 2 ) other expense , net for the year ended november 30 , 2019 included a one-time loss of $ 48.9 million from the consolidation of a previously unconsolidated entity . other income , net for the year ended november 30 , 2018 included $ 164.9 million related to a gain on the sale of an 80 % interest in one of homebuilding 's joint ventures , treasure island holdings . 27 summary of homebuilding data deliveries : replace_table_token_7_th of the total homes delivered listed above , 79 homes with a dollar value of $ 36.1 million and an average sales price of $ 458,000 represent home deliveries from unconsolidated entities for the year ended november 30 , 2019 and 64 home deliveries with a dollar value of $ 47.7 million and an average sales price of $ 746,000 for the year ended november 30 , 2018 . new orders ( 1 ) : replace_table_token_8_th of the total new orders listed above , 103 represent the dollar value of new orders from unconsolidated entities with a dollar value of $ 43.7 million and an average sales price of $ 424,000 for the year ended november 30 , 2019 and 58 new orders with a dollar value of $ 39.7 million and an average sales price of $ 685,000 for the year ended november 30 , 2018 . ( 1 ) new orders represent the number of new sales contracts executed with homebuyers , net of cancellations , during the years ended november 30 , 2019 and 2018 . backlog ( 2 ) : replace_table_token_9_th of the total homes in backlog listed above , 31 homes with a backlog dollar value of $ 10.2 million and an average sales price of $ 328,000 represent homes in backlog from unconsolidated entities at november 30 , 2019 and 17 homes with a dollar value of $ 7.1 million and an average sales price of $ 420,000 represent homes in backlog from unconsolidated entities at november 30 , 2018 . ( 2 ) during the year ended november 30 , 2018 , we acquired a total of 6,481 homes in backlog in connection with the calatlantic acquisition . of the homes acquired that were in backlog , 2,126 homes were in the east , 1,281 homes were in the central , 877 homes were in texas and 2,197 homes were in the west . ( 3 ) during the year ended november 30 , 2019 , we acquired 13 homes in backlog . backlog represents the number of homes under sales contracts . homes are sold using sales contracts , which are generally accompanied by sales deposits . in some instances , purchasers are permitted to cancel sales if they fail to qualify for 28 financing or under certain other circumstances . we do not recognize revenue on homes under sales contracts until the sales are closed and title passes to the new homeowners . we experienced cancellation rates as follows : replace_table_token_10_th active communities : replace_table_token_11_th of the total active communities listed above , five communities represent active communities being developed by unconsolidated entities as of both november 30 , 2019 and 2018 . ( 1 ) we acquired 542 active communities as part of the calatlantic acquisition on february 12 , 2018. of the communities acquired , 177 were in the east , 135 were in the central , 99 were in texas and 131 were in the west . 29 the following table details our gross margins on home sales for each of our reportable homebuilding segments and homebuilding other : replace_table_token_12_th ( 1 ) during the year ended november 30 , 2018 , gross margins on home sales included backlog/construction in progress write-up of $ 414.6 million related to purchase accounting on calatlantic homes that were delivered in fiscal year 2018 . ( 2 ) negative gross margins were due to period costs in urban divisions that impact costs of homes sold without any sales of homes revenue . homebuilding east : revenues from home sales increased in 2019 compared to 2018 , primarily due to an increase in the number of home deliveries in all the states in the segment , partially offset by a decrease in the average sales price in all the states of the segment , except in the carolinas and new jersey/new york . the increase in the number of home deliveries was primarily due to higher demand as the number of deliveries per active community increased . the decrease in the average sales price of homes delivered was primarily due to our continued focus on the entry-level market and , in general , moving down the price curve .
| results of operations overview our net earnings attributable to lennar were $ 1.8 billion , or $ 5.74 per diluted share ( $ 5.76 per basic share ) in 2019 and $ 1.7 billion , or $ 5.44 per diluted share ( $ 5.46 per basic share ) in 2018 . the following table sets forth financial and operational information for the years indicated related to our operations : replace_table_token_4_th effects of calatlantic acquisition for the year ended november 30 , 2018 , homebuilding revenue included $ 7.0 billion of revenues , and earnings before income taxes included $ 491.3 million of pre-tax earnings from calatlantic since the date of acquisition , which included acquisition and integration costs of $ 153.0 million . these acquisition and integration costs were comprised mainly of severance 23 expenses and transaction costs and were included within the acquisition and integration costs related to calatlantic line item in the consolidated statement of operations for the year ended november 30 , 2018 . 2019 versus 2018 in july 2019 , the fasb issued accounting standards update 2019-07 , “ codification updates to sec sections-amendments to sec paragraphs pursuant to sec final rule releases no . 33-10532 , disclosure update and simplification '' , which makes a number of changes meant to simplify certain disclosures in financial condition and results of operations , particularly by eliminating year-to-year comparisons between prior periods previously disclosed . in complying with the relevant aspects of the rule covering the current year annual report , we now include disclosures on results of operations for fiscal year 2019 versus 2018 only .
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overview of business the company is one of the world 's largest producers of high‑performance nickel‑ and cobalt‑based alloys in flat product form , such as sheet , coil and plate . the company is focused on developing , manufacturing , marketing and distributing technologically advanced , high‑performance alloys , which are used primarily in the aerospace , chemical processing and industrial gas turbine industries . the global specialty alloy market consists of three primary sectors : stainless steel , general-purpose nickel alloys and high‑performance nickel- and cobalt‑based alloys . the company competes primarily in the high‑performance nickel- and cobalt‑based alloy sector , which includes high‑temperature resistant alloys , or hta products , and corrosion‑resistant alloys , or cra products . the company believes it is one of the principal producers of high‑performance alloy flat products in sheet , coil and plate forms . the company also produces its products as seamless and welded tubulars and in bar , billet and wire forms . the company has manufacturing facilities in kokomo , indiana ; arcadia , louisiana ; and mountain home , north carolina . the kokomo facility specializes in flat products , the arcadia facility specializes in tubular products and the mountain home facility specializes in wire products . the company distributes its products primarily through its direct sales organization , which includes 12 service and or sales centers in the united states , europe and asia . all of these centers are company‑operated . 32 overview of markets the following table includes a breakdown of net revenues , shipments and average selling prices to the markets served by the company for the periods shown . replace_table_token_8_th ( 1 ) other revenue consists of toll conversion , royalty income , scrap sales and revenue recognized from the timet agreement ( see note 15 in the notes to the consolidated financial statements ) . other revenue does not include associated shipment pounds . ( 2 ) total product price per pound excludes “ other revenue ” . aerospace demand in the first half of fiscal 2014 was negatively impacted by customer destocking within the supply chain . this period of low demand began to recover in the latter half of fiscal 2014 , and the recovery continued through fiscal 2015 , which proved to be a record year in volume for the company in aerospace shipments at that time . aerospace demand moderated slightly in fiscal 2016 due to delays in the transition to new engine platforms combined with some softness in demand driven by lower oil and fuel costs . as these issues normalized , pounds shipped increased slightly in fiscal 2017 although at a lower average selling price , resulting in a decline in aerospace revenues in fiscal 2017. underpinning demand for new engines is a desire for more fuel-efficiency and lower emissions , which had been tempered with previous decreases in fuel prices . the slight pull-back was temporary , and in fiscal 2018 aerospace volume hit record levels and revenue increased 17.9 % and represented 52.1 % of the company 's overall revenue . boeing and airbus have reported sizeable backlog increases along with forecasted increases in production schedules and continued emphasis on accelerating production . management also anticipates that the maintenance , repair and overhaul business will continue at a steady to increasing pace due to required maintenance schedules for the rising number of engines in service year‑over‑year . chemical processing industry revenue declined in both fiscal 2014 and 2015 then took a sizable step down in fiscal 2016 and decreased again in fiscal 2017. sales into this market in fiscal 2015 and the second half of fiscal 2016 included some high-value special application projects with high average selling prices per pound , but overall base-volumes in this market were low in both fiscal 2015 and 2016 compared to prior years . fiscal 2017 volume shipments increased , but at a lower average price per pound , resulting in lower chemical processing revenue in fiscal 2017 compared to fiscal 33 2016. chemical processing revenue in fiscal 2018 increased 12.3 % due to recovery in the base business , as well as a moderate increase in specialty application projects . demand for large volume orders has been at relatively low levels during the past several years . the main driver of demand in this market is capital spending in the chemical processing sector driven by end‑user demand for housing , automotive , energy and agricultural products . the chemical processing market is sensitive to oil prices , currency fluctuations and fiscal policies as well as world economic conditions and gdp growth . increased sales to the chemical processing industry in fiscal 2018 were related to improvement in global spending in the chemical processing sector . additional drivers of demand in this market were the increase in north american production of natural gas liquids and the further downstream processing of chemicals that may utilize equipment that requires high‑performance alloys . sales to the industrial gas turbine market have declined each year from fiscal 2014 to 2018. the collapse of oil prices in 2014 had an adverse impact on small-frame industrial gas turbines used to power oil platforms and transmission systems . as oil prices have moderately recovered , demand has shown improvement in the small-frame turbines . reported significant overcapacity in large-frame turbines primarily used for electrical generation combined with growth in renewable energy facilities has taken a toll on demand for large frame gas turbines . two of the large oem producers of large-frame turbines have reported weak demand and announced restructuring plans in their power generation businesses . while this period of weak demand is not expected to recover quickly , management believes that long‑term demand in this market will stabilize due to higher activity in power generation and alternative power systems . industrial gas turbines are favored in electric generating facilities due to low capital cost at installation , fewer emissions than traditional fossil fuel‑fired facilities and favorable natural gas prices provided by availability of non-conventional ( shale ) gas supplies . story_separator_special_tag among other changes was a permanent reduction in the federal corporate income tax rate from 35 % to 21 % , which the company expects will positively impact the company 's future effective tax rate and after-tax earnings in the united states . as a result of the act , the company 's blended federal corporate income tax rate for fiscal 2018 was 24.5 % . as a result of the reduction in the federal corporate income tax rate , the company was required to revalue its net deferred tax asset to account for the future impact of lower corporate tax rates on this deferred amount and record any change in the value of such asset as a one-time non-cash charge on its income statement . this resulted in a discrete tax expense adjustment of $ 16.6 million , which increased the company 's reported net loss for fiscal 2018. additionally , the act resulted in the recording of a one-time tax on foreign sourced income which amounted to $ 2.2 million , for a total impact of $ 18.8 million , which further increased the company 's reported net loss for fiscal 2018. expansion of laporte , indiana operations the company announced on may 2 , 2016 its decision to expand and streamline its distribution footprint by investing in new plant and equipment at its processing facility located in laporte , indiana . in connection with the expansion , the company relocated its service center operations in lebanon , indiana to laporte . the project began in the first quarter of fiscal 2016 and was completed by the end of the first quarter of fiscal 2018. during fiscal 2018 , the company expensed $ 1.5 million for costs related to the relocation , including but not limited to , physical relocation costs , employee retention costs and duplicate lease costs . 35 volumes , competition and pricing volumes remained at a low-level through fiscal 2018 with volumes for fiscal 2016 , 2017 and 2018 at 18.0 million , 18.1 million and 18.4 million pounds , respectively . fiscal 2016 and 2017 lower volume levels were driven by low chemical processing base business levels due to the collapse of the oil & gas market and its impact on capital spending decisions in the chemical processing market . also , special projects were at weak levels in certain quarters . in fiscal 2018 , volumes improved in aerospace , chemical processing base business and special projects , however volumes in industrial gas turbines declined dramatically . in fiscal 2018 , volumes into the aerospace market , chemical processing and other markets increased 11.3 % , 21.9 % and 11.8 % , respectively , while volumes into the industrial gas turbine market declined 35.9 % . volumes below the 20-million-pound level ( or 5 million pounds per quarter ) create a significant margin headwind . several initiatives are underway to improve volume levels . volume in the fourth quarter of fiscal 2018 improved , and the 5-million-pound level was achieved , together with expansion of margins and profitability . product average selling price per pound in fiscal 2018 increased overall within each market with the exception of chemical processing , compared to fiscal 2017. the decline in the chemical processing product average selling price per pound was related to a higher amount of base-business commodity products . several focus initiatives are underway to improve pricing and margins in certain products , especially proprietary alloys and those manufactured on constrained equipment , as well as reducing costs and improving volume levels . these initiatives include effectively utilizing open capacity on major assets and managing mix at constrained assets in order to , among other things , derive a proper return on investment from the $ 120 million in growth capital the company has invested since 2012. in addition , these initiatives include programs designed to take advantage of the company 's expert technical abilities in delivering innovative products and applications combined with its niche manufacturing and value-added service capabilities to penetrate end markets . the average market price of nickel as reported by the london metals exchange in fiscal 2014 was $ 7.51 per pound , which declined 20.9 % to $ 5.94 per pound for fiscal 2015 , declined 30.3 % further to $ 4.14 per pound in fiscal 2016 , then increased moderately to $ 4.70 in fiscal 2017 and increased 30.0 % to $ 5.95 in fiscal 2018. the london metals exchange price for the 30-days ending september 30 , 2018 was $ 5.68 per pound . the company values inventory utilizing the first-in , first-out ( “ fifo ” ) inventory costing methodology . in a period of decreasing raw material costs , the fifo inventory valuation normally results in higher costs of sales as compared to the last-in , first out method . conversely , in a period of rising prices , the fifo inventory valuation normally results in lower costs of sales as compared to the last-in , first out method . gross profit margin trend performance the following tables show net revenue , gross profit margin and gross profit margin percentage for fiscal 2017 and fiscal 2018. replace_table_token_9_th replace_table_token_10_th after hitting extremely low levels in the second half of fiscal 2017 , gross margins have improved ending with gross margin in the fourth quarter of fiscal 2018 at $ 15.9 million and gross margin as a percentage of net sales at 13.0 % . as described above , several focus initiatives are underway to improve margins including improving volumes and pricing , mix management and cost reductions . the fourth quarter volume was 5.0 million pounds , which was higher than previous quarters and at a level that begins to decrease the headwind of poor absorption of fixed costs . gross margin dollars also 36 improved due to better levels of specialty application projects in fiscal 2018 and better pricing levels .
| results of operations year ended september 30 , 2018 compared to year ended september 30 , 2017 ( $ in thousands , except per share figures ) replace_table_token_13_th 39 the following table includes a breakdown of net revenues , shipments and average selling prices to the markets served by the company for the periods shown . by market replace_table_token_14_th net revenues . net revenues were $ 435.3 million in fiscal 2018 , an increase of 10.2 % from $ 395.2 million in fiscal 2017 , due to an increase in average selling price per pound combined with an increase in volume . the average product selling price was $ 22.38 per pound in fiscal 2018 , an increase of 10.2 % , or $ 2.08 , from $ 20.30 per pound in fiscal 2017. volume was 18.4 million pounds in fiscal 2018 , an increase of 1.6 % from 18.1 million pounds in fiscal 2017 with increases in the aerospace , chemical processing and other markets , however the increase was nearly offset by a dramatic drop in industrial gas turbine volumes of 35.9 % . the average product selling price per pound increased as a result of higher raw material market prices , price increases and other pricing considerations , which increased average selling price per pound by approximately $ 1.14 , combined with a higher value product mix , which increased the average selling price per pound by approximately $ 0.94. sales to the aerospace market were $ 226.9 million in fiscal 2018 , an increase of 17.9 % from $ 192.5 million in fiscal 2017 , due to an 11.3 % , increase in volume , combined with a 5.9 % , or $ 1.29 , increase in the average selling price per pound . the increase in volume reflects the increase in new engine platform sales combined with the company 's enhanced capacity from the cold-finishing capital investment .
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” executive summary story_separator_special_tag style= '' height:42.75pt ; position : relative ; width:100 % '' > 21 best places to work - we were selected and honored for the sixth consecutive year as a “ best places to work in insurance ” by business insurance magazine based on our commitment to attracting , developing and retaining great talent through employee benefits and other programs . we were recognized for this award based on core focus areas such as leadership and planning , corporate culture , communications , work environment and overall engagement . 2020 healthiest 100 workplaces in america – springbuk evaluated over 1,000 applicants across six key categories : culture and leadership commitment , foundational components , strategic planning , marketing and communications , programming and interventions , and reporting and analytics . we were honored to be named one of the top 100 winners for the third time . 2020 best and brightest companies in the nation top 101 - for the fifth year in a row , we were honored as a “ best and brightest company ” by nabr based on our commitment to human resource practices and employee enrichment . 2020 best and brightness in wellness – we were honored by nabr , for the fourth consecutive time , as an organization that promotes a culture of wellness . results of operations - continuing operations we provide professional business services that help clients manage their finances and employees . we deliver our integrated services through the following three practice groups : financial services , benefits and insurance services and national practices . a description of these groups ' operating results and factors affecting their businesses is provided below . same-unit revenue represents total revenue adjusted to reflect comparable periods of activity for acquisitions and divestitures . for example , for a business acquired on july 1 , 2019 , revenue for the period january 1 , 2020 through june 30 , 2020 would be reported as revenue from acquired businesses ; same-unit revenue would include revenue for the periods july 1 through december 31 of both years . divested operations represent operations that did not meet the criteria for treatment as discontinued operations . those businesses that have met the requirements to be treated as a discontinued operation are eliminated from continuing operations for all periods presented below . revenue the following table summarizes total revenue for the years ended december 31 , 2020 , 2019 and 2018 : replace_table_token_5_th a detailed discussion of same-unit revenue by practice group is included under “ operating practice groups. ” non-qualified deferred compensation plan - we sponsor a non-qualified deferred compensation plan , under which a cbiz employee 's compensation deferral is held in a rabbi trust and invested accordingly as directed by the employee . income and expenses related to the deferred compensation plan are included in “ operating expenses , ” “ gross margin ” and “ corporate general & administrative expenses ” and are directly offset by deferred compensation gains or losses in “ other income ( expense ) , net ” in the accompanying consolidated statements of comprehensive income . the deferred compensation plan has no impact on “ income from continuing operations before income tax expense ” or diluted earnings per share from continuing operations . 22 operating expenses the following table presents our operating expenses for the years ended december 31 , 2020 , 2019 and 2018 : replace_table_token_6_th 2020 compared to 2019 - our operating expenses increased by $ 1.9 million . operating expense as a percentage of revenue decreased to 85.6 % of revenue from 86.8 % of revenue for the prior year . the deferred compensation plan increased operating expenses by $ 13.8 million and $ 17.2 million in 2020 and 2019 , respectively . excluding the impact of the deferred compensation plan , operating expenses would have been $ 811.5 million , or 84.2 % of revenue , in 2020 compared to $ 806.3 million , or 85.0 % of revenue , in 2019. the majority of our operating expenses relate to personnel costs , which includes ( i ) salaries and benefits , ( ii ) commissions paid to producers ( iii ) incentive compensation and ( iv ) share-based compensation . personnel costs increased $ 24.2 million , or 3.8 % . acquisitions contributed approximately $ 12.1 million to personnel costs . the increase in personnel costs was offset by approximately $ 20.1 million lower travel and entertainment and other discretionary spending in 2020 due to covid-19 . personnel costs and other operating expenses are discussed in further detail under “ operating practice groups. ” 2019 compared to 2018 - our operating expenses increased by $ 33.2 million in 2019 as compared to 2018 , and increased to 86.8 % of revenue in 2019 from 85.7 % of revenue for the prior year . the deferred compensation plan increased operating expenses by $ 17.2 million in 2019 , but decreased operating expenses by $ 4.5 million in 2018. excluding the impact of the deferred compensation plan , operating expenses would have been $ 806.3 million , or 85.0 % of revenue , in 2019 compared to $ 794.7 million , or 86.2 % of revenue , in 2018. personal costs increased $ 11.1 million , or 1.8 % , in 2019 to support our growth in revenue , with acquisitions contributing approximately $ 5.7 million to personnel costs . corporate general & administrative expenses the following table presents our corporate general & administrative ( “ g & a ” ) expenses for the years ended december 31 , 2020 , 2019 and 2018 : replace_table_token_7_th 2020 compared to 2019 - our g & a expenses increased by approximately $ 1.7 million , or 3.7 % , in 2020 compared to 2019 , and increased to 4.8 % of revenue from 4.7 % of revenue for the prior year . story_separator_special_tag ” adjusted ebitda is not defined by gaap , is not based on any comprehensive set of accounting rules or principles , and should not be considered in isolation from , or regarded as an alternative or replacement to , any measurement of performance or cash flow under gaap . adjusted ebitda is commonly used by us , our shareholders , and debt holders to evaluate , assess , and benchmark our operating results and to provide an additional measure with respect to our ability to meet future debt obligations . because of these limitations , adjusted ebitda should be considered alongside our financial results presented in accordance with gaap . operating practice groups we deliver our integrated services through three practice groups : financial services , benefits and insurance services and national practices . a description of these groups ' operating results and factors affecting their businesses is provided below . financial services replace_table_token_11_th 2020 compared to 2019 - the financial services practice group revenue in 2020 grew by 2.1 % to $ 629.8 million from $ 616.6 million in 2019 , reflecting same-unit growth of $ 4.7 million , or 0.8 % , driven by those units that provide traditional accounting and tax-related services , which increased by $ 6.8 million , or 1.9 % as compared to 2019. traditional accounting and tax-related services growth was primarily attributable to favorable pricing and moderate increase in services to large clients . same-unit revenue also benefited from $ 4.3 million , or 2.9 % , increase in government healthcare compliance business . the same-unit revenue growth in traditional accounting and tax-related services and government healthcare compliance business lines was offset by approximately $ 6.4 million net decrease in project work and other service lines that are discretionary in nature . the acquisition of businesses provided incremental revenue of $ 9.6 million . we provide a range of services to affiliated cpa firms under asas . fees earned under the asas are recorded as revenue in the accompanying consolidated statements of comprehensive income and were $ 159.4 million and $ 157.6 million in 2020 and 2019 , respectively . operating expenses increased by $ 10.0 million in 2020 as compared to 2019 , primarily as a result of $ 20.9 million , or 5.0 % , higher personnel costs , of which acquisitions contributed approximately $ 6.0 million . the increase in personnel costs was partially offset by approximately $ 11.0 million reduction in travel and entertainment and other 25 discretionary spending primarily due to the impact of the covid-19 pandemic . operating expense as a percentage of revenue remained relatively flat at 83.4 % in 2020 and 83.6 % in 2019. replace_table_token_12_th 2019 compared to 2018 - the financial services practice group revenue in 2019 grew by 2.6 % to $ 616.6 million from $ 600.9 million in 2018 , reflecting same-unit growth of $ 15.0 million , or 2.5 % , driven by those units that provide traditional accounting and tax-related services , which increased by $ 15.1 million , or 4.3 % . traditional accounting and tax-related services growth was attributable to favorable pricing and an increase in billable hours . same-unit revenue also benefited from moderate growth in government healthcare compliance business and project work . the acquisition of businesses provided incremental revenue of $ 5.0 million . we provide a range of services to affiliated cpa firms under asas . fees earned under the asas are recorded as revenue in the accompanying consolidated statements of comprehensive income and were $ 157.6 million and $ 154.0 million in 2019 and 2018 , respectively . operating expenses increased by $ 6.6 million in 2019 , but decreased to 83.6 % of revenue from 84.6 % of revenue for the prior year , primarily due to leveraging personnel costs and other operating expenses with the increase in revenue . personnel costs increased by $ 6.9 million , or 1.7 % , with acquisitions contributing approximately $ 3.1 million to personnel costs in 2019. benefits and insurance services replace_table_token_13_th 2020 compared to 2019 - the benefits and insurance services practice group revenue in 2020 grew by 0.5 % to $ 297.8 million from $ 296.2 million in 2019 , primarily driven by $ 11.1 million of incremental revenue from the acquisition of businesses . same-unit revenue decreased by $ 8.9 million , or 3.0 % in 2020 , primarily driven by decreased revenue from payroll services , property and casualty insurance , and retirement plan services businesses that were impacted by covid-19 related factors . operating expenses increased by $ 2.1 million in 2020 primarily due to $ 7.2 million , or 3.9 % , in higher personnel costs as result of acquisitions , which contributed approximately $ 6.2 million to the e increase in 2020 as well as an increase in the hiring of sales production staff . the increase in personnel costs was partially offset by approximately $ 4.4 million savings from decreased travel and other discretionary spending in 2020 as compared to 2019 primarily due to the impact of covid-19 pandemic . 26 replace_table_token_14_th 2019 compared to 2018 - the benefits and insurance services practice group revenue in 2019 grew by 2.7 % to $ 296.2 million from $ 288.4 million in 2018 , primarily driven by $ 7.8 million of incremental revenue from the acquisition of businesses . same-unit revenue increased slightly by $ 0.2 million , or 0.1 % , in 2019 driven by growth in property and casualty insurance and retirement plan services , offset by year over year declines in non-recurring project based revenue , which is transactional in nature . operating expenses increased by $ 6.6 million in 2019 due to personnel costs , which increased by $ 5.1 million , or 2.8 % , primarily due to acquisitions , as well as an increase in the hiring of sales production staff .
| financial year in review - revenue of $ 963.9 million in 2020 grew $ 15.5 million , or 1.6 % , from revenue of $ 948.4 million in 2019. same-unit revenue decreased by $ 3.5 million , or 0.4 % , while acquisitions , net of divestitures , contributed $ 18.9 million to revenue , or 2.0 % . a detailed discussion of revenue by practice group is included under “ operating practice groups. ” income from continuing operations in 2020 increased $ 7.3 million , or 10.3 % , to $ 78.3 million from $ 71.0 million in 2019. refer to “ results of operations - continuing operations ” for a detailed discussion of the components of income from continuing operations . earnings per diluted share from continuing operations 20 were $ 1.42 in 2020 , compared to $ 1.27 in 2019 , with a fully diluted weighted average share count of 55.4 million shares in 2020 , compared to 55.9 million shares in 2019. strategic use of capital - our first priority for the use of capital is to make strategic acquisitions . we completed the following seven acquisitions in 2020 : effective february 1 , 2020 , we acquired substantially all the assets of alliance insurance services , inc. , a provider of insurance and advisory services based in washington dc . effective february 1 , 2020 , we acquired substantially all the assets of pension dynamics , llc , a full service retirement and benefits plan advisor based in pleasant hill , california . effective february 1 , 2020 , we acquired substantially all the assets of sunshine systems , a payroll solutions provider based in massachusetts . effective july 1 , 2020 , we acquired substantially all the assets of prince-wood insurance , l.l.c. , a provider of financial insurance and advisory services based in woodbridge , virginia . effective september 1 , 2020 , we acquired substantially all the assets of arc consulting llc and arc placement group llc ( collectively `` arc '' ) .
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special note regarding forward-looking statements the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and the related notes to those statements included herein . in addition to historical financial information , this report contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those discussed in the forward-looking statements . the statements contained in this report that are not purely historical are forward-looking statements within the meaning of section 27a of the securities act and section 21e of the securities exchange act of 1934 , as amended , or the exchange act . forward-looking statements are often identified by the use of words such as , but not limited to , “ anticipate , ” “ believe , ” “ can , ” “ continue , ” “ could , ” “ estimate , ” “ expect , ” “ intend , ” “ may , ” “ plan , ” “ project , ” “ seek , ” “ should , ” “ strategy , ” “ target , ” “ will , ” “ would ” and similar expressions or variations intended to identify forward-looking statements . these statements are based on the beliefs and assumptions of our management based on information currently available to management . such forward-looking statements are subject to risks , uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements . factors that could cause or contribute to such differences include , but are not limited to , those identified below . furthermore , such forward-looking statements speak only as of the date of this report . except as required by law , we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements . “ arcadia biosciences , '' `` sonova , '' `` sonova gla safflower oil and design , '' “ goodhemp ” and `` goodwheat '' are our registered trademarks in the united states and , in some cases , in certain other countries . this report may also contain trademarks , service marks , and trade names of other companies . solely for convenience , the trademarks , service marks and trade names referred to in this report may appear without the ® , tm , or sm symbols , but such references do not constitute a waiver of any rights that might be associated with the respective trademarks , service marks , or trade names . overview we are a leader in science-based approaches to developing high value crop productivity traits primarily in hemp and wheat , designed to enhance farm economics by improving the performance of crops in the field , as well as their value as food ingredients , health and wellness products , and their viability for industrial applications . we use advanced breeding techniques to develop these proprietary innovations which we are beginning to monetize through a number of methods including seed and grain sales , product extract sales , sales of products using our patented non-gmo goodwheat technology , trait licensing and royalty agreements . our commercial strategy is to link consumer 's nutrition , health and wellness demands with the superior functional benefits our crops deliver directly from the farm , enabling us to share premium economics throughout the ag-food supply chain and to build a world-class estate of high value traits and varieties . in particular , we believe the recent legalization of hemp in the u.s. and many other areas of the world has created a significant agricultural and financial opportunity . the demonstrated broad demand for industrial , nutritional , health and wellness products from hemp , coupled with its poor genetics represent a vast , new opportunity for arcadia to add substantial value to its existing high value trait and seed estate . the passage of the u.s. agriculture improvement act of 2018 – also known as the farm bill – confirmed the federal legalization of hemp , the term given to non-psychoactive cannabis containing less than 0.3 % tetrahydrocannabinol ( thc ) . it also included provisions for legalizing on a federal level hemp 's cultivation , transport and sale for the first time in more than 75 years . hemp , not previously distinguished by the federal government from cannabis , a schedule 1 drug and banned as an agricultural crop , lacks substantive plant biology research and suffers from suboptimal genetics , highly fragmented germplasm and rampant inconsistencies . we are targeting hemp-based solutions that allow farmers to reliably and consistently achieve compliance with usda regulations , through varieties with improved functionality and application of specific attributes such as select cannabinoid contents for health and wellness , enhanced proteins profiles for plant-based dietary applications and industrial applications such as clothing and hempcrete . arcadia conducts its business in only federal and state markets in which its activities are legal . 29 on october 31 , 2019 , the usda published the interim final rule as authorized by the agriculture improvement act of 2018 for hemp cultivation , which mandates that states test hemp crops and dispose of `` hot '' crops that exceed 0.3 % thc . while hemp farmers will have access to crop protection options , the destruction of hot crops that fail these stringent inspections will not be a covered loss under crop insurance programs . in 2019 alone , more than 20 % of u.s. hemp crops were non-compliant , representing over $ 2 billion in losses for growers . arcadia goodhemp in december 2019 , we announced the launch of a new product line , goodhemp , as the company 's new commercial brand for delivering genetically superior hemp seeds , transplants , flower and extracts . on august 21 , 2020 , the company acquired by merger industrial seed innovations ( isi ) , an oregon-based industrial hemp breeding and seed company . story_separator_special_tag in november 2020 , the company entered into a master transaction agreement with bioceres pursuant to which the company sold all of its memberships interests it owned in verdeca to bioceres , and the company and bioceres entered into a license agreement for intellectual property rights related to hb4 ® soybean trait . such license agreement includes milestone payments due to arcadia commencing within thirty days of either bioceres reaching commercial plantings of at least 200,000 hectares of hb4 or if china approves the hb4 soybean trait for “ food and feed ” . import approval by china is required for commercial launch and the expectation to obtain such approval in late 2021 is under review in light of the coronavirus outbreak . impact of covid-19 in early 2020 , the world health organization ( `` who '' ) determined the coronavirus ( `` covid-19 '' ) was a worldwide pandemic . we are closely monitoring how the spread of the new strains of coronavirus are affecting our employees and business operations . we have developed preparedness plans to help protect the safety of our employees while safely continuing business operations . while management currently expects the impact of covid-19 to be temporary , there is uncertainty around the duration and its broader impact on the economy and therefore the effects it will have on the company 's financial condition , liquidity , operations , suppliers , industry , and workforce . components of our statements of operations data revenues we derive our revenues primarily from product revenues , licensing agreements , royalties and contract research agreements . given our acute focus on selling our goodwheat and goodhemp products , we do not intend to continue pursuing contract research agreements and government grant projects . product revenues our product revenues to date have consisted primarily of sales of our sonova products , with initial goodwheat seed sale revenues recognized in the fourth quarter of 2019. we recognize revenue from product sales when control of the product is transferred to third-party distributors and manufacturers , collectively “ our 31 customers , ” which generally occurs upon shipme nt . our revenues fluctuate depending on the timing of shipment s of product to our customers . license revenues our license revenues to date consist of up-front , nonrefundable license fees , annual license fees , and subsequent milestone payments that we receive under our research and license agreements . milestone fees are variable consideration that is initially constrained and recognized only when it is probable that such amounts would not be reversed . given the seasonality of agriculture and time required to progress from one milestone to the next , achievement of milestones is inherently uneven , and our license revenues are likely to fluctuate significantly from period to period . royalty revenues royalty revenues from the company 's agreements with third parties related to goodwheat products and traits are recognized when the company can reasonably determine the amounts earned . in most cases , this will be upon notification from the third-party licensee , which is typically during the quarter following the quarter in which the sales occurred . contract research and government grant revenues contract research and government grant revenues consist of amounts earned from performing contracted research primarily related to breeding programs or the genetic engineering of plants for third parties . contract research revenue is accounted for as a single performance obligation for which revenues are recognized over time using the input method ( e.g . costs incurred to date relative to the total estimated costs at completion ) . we have received payments from government entities in the form of government grants . government grant revenue is accounted for as a single performance obligation for which revenues are recognized over time using the input method ( e.g . costs incurred to date relative to the total estimated costs at completion ) . our obligation with respect to these agreements is to perform the research on a best-efforts basis . operating expenses cost of product revenues cost of product revenues relates to the sale of our sonova and goodwheat products and consists of in-licensing and royalty fees , any adjustments or write-downs to inventory , as well as the cost of raw materials , including inventory and third-party services costs related to procuring , processing , formulating , packaging and shipping our products . research and development expenses research and development expenses consist of costs incurred in the discovery , development and testing of our products and products in development incorporating our traits . these expenses consist primarily of employee salaries and benefits , fees paid to subcontracted research providers , fees associated with in-licensing technology , land leased for field trials , chemicals and supplies , and other external expenses . these costs are expensed as incurred . additionally , we are required from time to time to make certain milestone payments in connection with the development of technologies in-licensed from third parties . our research and development expenses may fluctuate from period to period . gain on sale of verdeca 32 the gain on sale of verdeca is the gain recognized for the s ale our membership interests in the verdeca joint venture to our partner bioceres . change in fair value of contingent consideration change in the fair value of contingent consideration is comprised of the gain associated with the reduction of our contingent liability as the result of a decision to abandon a program that was previously accrued . selling , general and administrative expenses selling , general and administrative expenses consist primarily of employee costs , professional service fees , and overhead costs . our selling , general , and administrative expenses may fluctuate from period to period . in connection with our commercialization activities for our consumer ingredient products , we expect to increase our investments in sales and marketing and business development . interest expense interest expense consists primarily of contractual interest on notes payable to finance the purchase of company vehicles .
| results of operations comparison of the years ended december 31 , 2020 and 2019 replace_table_token_1_th revenues product revenues accounted for 13 % and 70 % of our total revenues for the years ended december 31 , 2020 and 2019 , respectively . the $ 230,000 , or 28 % , increase in product revenues from sales of our sonova products was primarily driven by additional pet food orders . license revenues accounted for 85 % and 6 % of our total revenues for the years ended years ended december 31 , 2020 and 2019 , respectively . the $ 6,734,000 increase in license revenues consists primarily of the amounts allocated to the licenses granted to bioceres for certain intellectual property rights in connection with the november 2020 transaction . see note 9. there were no license agreements executed in 2019. royalty revenues accounted for 1 % and 0 % of our total revenues for the years ended december 31 , 2020 and 2019 , respectively . the $ 83,000 increase of royalty revenues represents minimum annual royalty fees earned . contract research and government grant revenues accounted for 1 % and 25 % of our total revenues for the years ended december 31 , 2020 and 2019 , respectively . the $ 182,000 , or 63 % , decrease in contract research and government grant revenues was driven by the completion of agreements and grants . given our acute focus on selling our goodwheat and goodhemp products , we do not intend to continue pursuing contract research agreements and government grant projects .
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distributions , if any ) , subject to applicable law , and ( iii ) as promptly as reasonably possible following such redemption , subject to the approval of our remaining stockholders and our board of directors , dissolve and liquidate , subject in each case to our obligations under delaware law to provide for claims of creditors and the requirements of other applicable law . on february 21 , 2021 , we entered into the merger agreement , which provides for , among other things , ( i ) cyxtera to be contributed to newco by the cyxtera stockholder , with cyxtera becoming a wholly-owned subsidiary of newco , ( ii ) merger sub 1 to be merged with and into newco , with newco surviving the first merger as a wholly-owned subsidiary of svac and merger sub 1 ceasing to exist , and ( iii ) immediately following the first merger , newco to be merged with and into merger sub 2 , with merger sub 2 surviving the second merger as a wholly-owned subsidiary of svac and newco ceasing to exist . as a result of the cyxtera business combination , cyxtera and the various operating subsidiaries of cyxtera will become subsidiaries of svac , with the cyxtera stockholder becoming a stockholder of svac . upon closing of the cyxtera business combination , we will be renamed “ cyxtera technologies , inc. ” see “ item 1. business—proposed business combination ” and note 9 to our audited financial statements for further information related to the cyxtera business combination . liquidity and capital resources as of december 31 , 2020 , we had approximately $ 2.6 million in our operating bank account , and working capital of approximately $ 2.5 million . further , we have incurred and expect to continue to incur significant costs in pursuit of our acquisition plans . our liquidity needs to date have been satisfied through the payment of $ 25,000 from our sponsor to purchase the founder shares , a loan under a promissory note of approximately $ 141,000 from our sponsor , and the net proceeds from the consummation of the sale of the private placement not held in the trust account . we fully repaid the promissory note on september 14 , 2020. in addition , in order to finance transaction costs in connection with an initial business combination , our sponsor or an affiliate of our sponsor , or our officers and directors may , but are not obligated to , provide us working capital loans . as of december 31 , 2020 , there were no working capital loans outstanding . based on the foregoing , management believes that we will have sufficient working capital and borrowing capacity from our sponsor or an affiliate of our sponsor , or certain of our officers and directors to meet its needs through the earlier of the consummation of an initial business combination or one year from this filing . over this time period , we will be using these funds for paying existing accounts payable , identifying and evaluating prospective initial business combination candidates , performing due diligence on prospective target businesses , paying for travel expenditures , selecting the target business to merge with or acquire , and structuring , negotiating and consummating the initial business combination . management continues to evaluate the impact of the covid-19 pandemic and has concluded that the specific impact is not readily determinable as of the date of the balance sheet . the financial statements do not include any adjustments that might result from the outcome of this uncertainty . 59 story_separator_special_tag 10pt '' > on november 27 , 2019 , our sponsor agreed to loan us an aggregate of up to $ 300,000 to cover expenses related to the ipo pursuant to a promissory note . the promissory note was non-interest bearing and payable on the earlier of october 31 , 2020 or the completion of the ipo . we borrowed approximately $ 141,000 under the promissory note and fully repaid the promissory note on september 14 , 2020. in addition , in order to finance transaction costs in connection with an initial business combination , our sponsor or an affiliate of our sponsor , or our officers and directors may , but are not obligated to , make working capital loans . if we complete an initial business combination , we will repay the working capital loans out of the proceeds of the trust account released to us . in the event that an initial business combination does not close , we may use a portion of proceeds held outside the trust account to repay the working capital loans but no proceeds held in the trust account would be used to repay the working capital loans . the working capital loans would either be repaid upon consummation of an initial business combination , without interest , or , at the lender 's discretion , up to $ 1.5 million of such working capital loans may be convertible into warrants of the post-business combination entity at a price of $ 1.50 per warrant . the warrants would be identical to the private placement warrants . except for the foregoing , the terms of such working capital loans , if any , have not been determined and no written agreements exist with respect to such loans . to date , we had no borrowings under the working capital loans . story_separator_special_tag administrative services agreement we entered into an agreement that provides that , commencing on the date that our securities are first listed on the nasdaq stock market llc and continuing until the earlier of the consummation of an initial business combination or our liquidation , we will pay our sponsor a total of $ 10,000 per month for office space , administrative and support services . our sponsor , our executive officers and directors or any of their respective affiliates will be reimbursed for any out-of-pocket expenses incurred in connection with activities on our behalf such as identifying potential target businesses and performing due diligence on suitable initial business combinations . our audit committee will review on a quarterly basis all payments made to our sponsor , officers , directors or their affiliates and will determine which expenses and the amount of expenses that will be reimbursed . there is no cap or ceiling on the reimbursement of out-of-pocket expenses incurred by such persons in connection with activities on our behalf . contractual obligations we do not have any long-term debt obligations , capital lease obligations , operating lease obligations , purchase obligations or long-term liabilities , other than an agreement with our sponsor to pay our sponsor a total of $ 10,000 per month for office space , and administrative and support services . critical accounting policies and estimates investments held in the trust account our portfolio of investments held in the trust account is comprised of u.s. government securities , within the meaning set forth in section 2 ( a ) ( 16 ) of the investment company act , with a maturity of 185 days or less , or investments in money market funds that invest in u.s. government securities , or a combination thereof . our investments held in the trust account are classified as trading securities . trading securities are presented on the balance sheet at fair value at the end of each reporting period . gains and losses resulting from the change in fair value of these investments are included in net gain from investments held in trust account in the statement of operations . the estimated fair values of investments held in the trust account are determined using available market information , other than for investments in open-ended money market funds with published daily net asset values ( “ nav ” ) , in which case we use nav as a practical expedient to fair value . the nav on these investments is typically held constant at $ 1.00 per unit . 61 class a common stock subject to possible redemption we account for our class a common stock subject to possible redemption in accordance with the guidance in asc topic 480 “ distinguishing liabilities from equity. ” shares of class a common stock subject to mandatory redemption ( if any ) are classified as liability instruments and are measured at fair value . shares of conditionally redeemable class a common stock ( including class a common stock that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within our control ) are classified as temporary equity . at all other times , shares of class a common stock are classified as stockholders ' equity . our class a common stock features certain redemption rights that are considered to be outside of our control and subject to the occurrence of uncertain future events . accordingly , as of december 31 , 2020 , 38,346,069 shares of class a common stock subject to possible redemption are presented as temporary equity , outside of the stockholders ' equity section of our balance sheet . net loss per common share we comply with accounting and disclosure requirements of fasb asc topic 260 , “ earnings per share. ” net income per share is computed by dividing net income ( loss ) applicable to common stockholders by the weighted average number of shares of common stock outstanding for the period . we have not considered the effect of the warrants sold in the ipo and private placement to purchase an aggregate of 20,197,611 shares of class a common stock in the calculation of diluted earnings per share , since their inclusion would be anti-dilutive under the treasury stock method . as a result , diluted earnings per share is the same as basic earnings per share for the period . our statement of operations includes a presentation of income per share for common stock subject to redemption in a manner similar to the two-class method of income per share . net income per share , basic and diluted for class a common stock is calculated by dividing the net gain from investments held in the trust account of approximately $ 169,000 , net of applicable franchise taxes of approximately $ 169,000 for the year ended december 31 , 2020 , by the weighted average number of shares of class a common stock outstanding for the period . net loss per share , basic and diluted for class b common stock for the year ended december 31 , 2020 is calculated by dividing the general and administration expenses of approximately $ 174,000 and franchise taxes of approximately $ 31,000 , resulting in a net loss of approximately $ 205,000 , by the weighted average number of class b common stock outstanding for the period . off-balance sheet arrangements and contractual obligations as of december 31 , 2020 , we did not have any off-balance sheet arrangements as defined in item 303 ( a ) ( 4 ) ( ii ) of regulation s-k and did not have any commitments or contractual obligations . jobs act the jobs act contains provisions that , among other things , relax certain reporting requirements for qualifying public companies . we qualify as an “ emerging growth company ” and under the jobs act are allowed to comply
| results of operations our entire activity since inception through december 31 , 2020 related to our formation , the preparation for the ipo , and since the closing of the ipo , the search for a prospective initial business combination . we have neither engaged in any operations nor generated any revenues to date . we will not generate any operating revenues until after completion of our initial business combination . we will generate non-operating income in the form of gain on investment ( net ) , dividends and interest held in trust account . we expect to incur increased expenses as a result of being a public company ( for legal , financial reporting , accounting and auditing compliance ) , as well as for due diligence expenses . for the year ended december 31 , 2020 , we had a net loss of approximately $ 206,000 , which consisted of approximately $ 139,000 in general and administrative expenses , approximately $ 36,000 of administrative expenses paid to a related party and approximately $ 200,000 of franchise tax expense , which was partially offset by approximately $ 169,000 net gain on investments held in the trust account . for the period from november 14 , 2019 ( inception ) through december 31 , 2019 , we had a net loss of approximately $ 1,300 , which consisted of approximately $ 800 in general and administrative expenses and approximately $ 500 of franchise tax expense . related party transactions founder shares on november 27 , 2019 , our sponsor purchased 8,625,000 shares of our class b common stock , par value $ 0.0001 per share , for an aggregate price of $ 25,000. in june 2020 , our sponsor transferred ( i ) 431,250 founder shares to martin d. mcnulty , jr. , our chief executive officer and a member of the board of directors and ( ii ) 25,000 founder shares to each of pauline j. brown , michelle felman and lowell robinson .
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although we believe the expectations reflected in forward-looking statements are based upon reasonable assumptions , we can give no assurance that our expectations will be attained or that results will not materially differ . factors which could have a materially adverse effect on our operations and future prospects include , but are not limited to : changes in national , international , regional and local economic conditions generally and real estate markets specifically ; changes in legislation/regulation ( including changes to laws governing the taxation of reits ) and actions of regulatory authorities ; our ability to qualify and maintain our status as a reit ; the availability and attractiveness of financing ( including both public and private capital ) to us and to our potential counterparties ; the availability and attractiveness of terms of additional debt repurchases ; interest rates ; our credit agency ratings ; our ability to comply with applicable financial covenants ; competition ; changes in supply and demand for industrial properties ( including land ) in the company 's current and potential market areas ; difficulties in identifying and consummating acquisitions and dispositions ; our ability to manage the integration of properties we acquire ; risks related to our investments in properties through joint ventures ; environmental liabilities ; delays in development or lease-up schedules ; tenant creditworthiness ; higher-than-expected costs ; changes in asset valuations and related impairment charges ; changes in general accounting principles , policies and guidelines applicable to reits ; and those additional factors described in item 1a , `` risk factors '' and elsewhere in this report and in the company 's other exchange act reports . we caution you not to place undue reliance on forward-looking statements , which reflect our outlook only and speak only as of the date of this report . we assume no obligation to update or supplement forward-looking statements . the company was organized in the state of maryland on august 10 , 1993. we are a reit , as defined in the code . we began operations on july 1 , 1994. our interests in our properties and land parcels are held through partnerships , corporations , and limited liability companies controlled , directly or indirectly , by us , including the operating partnership , of which we are the sole general partner , and through our taxable reit subsidiaries . we also conduct operations through the other real estate partnerships and limited liability companies , the operating data of which , together with that of the operating partnership and the taxable reit subsidiaries , is consolidated with that of the company , as presented herein . first industrial realty trust , inc. does not have any significant assets or liabilities other than its investment in the operating partnership and its 100 % ownership interest in the general partner of the other real estate partnerships . we also own noncontrolling equity interests in , and provide various services to , two joint ventures ( the 2003 net lease joint venture and the 2007 europe joint venture ) . at december 31 , 2014 , the 2003 net lease joint venture owned one industrial property comprising approximately 0.8 million square feet of gla and the 2007 europe joint venture did not own any properties . the joint ventures are accounted for under the equity method of accounting . accordingly , the operating data of our joint ventures is not consolidated with that of the company as presented herein . we believe our financial condition and results of operations are , primarily , a function of our performance in four key areas : leasing of industrial properties , acquisition and development of additional industrial properties , disposition of industrial properties and access to external capital . we generate revenue primarily from rental income and tenant recoveries from operating leases of our industrial properties . such revenue is offset by certain property specific operating expenses , such as real estate taxes , repairs and maintenance , property management , utilities and insurance expenses , along with certain other costs and expenses , such as depreciation and amortization costs and general and administrative and interest expenses . our revenue growth is dependent , in part , on our ability to ( i ) increase rental income , through increasing either or both occupancy rates and rental rates at our properties , ( ii ) maximize tenant recoveries and ( iii ) minimize operating and certain other expenses . revenues generated from rental income and tenant recoveries are a significant source of funds , in addition to income generated from gains/losses on the sale of our properties ( as discussed below ) , for our liquidity . the leasing of property , in general , and occupancy rates , rental rates , operating expenses and certain non-operating expenses , in particular , are impacted , variously , by property specific , market specific , general economic and other conditions , many of which are beyond our control . the leasing of property also entails various risks , including the risk of tenant default . if we were unable to maintain or increase occupancy rates and rental rates at our properties or to maintain tenant recoveries and operating and certain other expenses consistent with historical levels and proportions , our revenue would decline . further , if a significant number of our tenants were unable to pay rent ( including tenant recoveries ) or if we were unable to rent our properties on favorable terms , our financial condition , results of operations , cash flow and ability to pay dividends on , and the market price of , our common stock would be adversely affected . 25 our revenue growth is also dependent , in part , on our ability to acquire existing , and develop new industrial properties on favorable terms . the company seeks to identify opportunities to acquire existing industrial properties on favorable terms , and , when conditions permit , also seeks to acquire and develop new industrial properties on favorable terms . story_separator_special_tag acquired above market leases are amortized as a reduction of rental revenue over the remaining non-cancelable terms of the respective leases and acquired below market leases are amortized as an increase to rental income over the remaining initial terms plus the terms of any below market fixed rate renewal options of the respective leases . leasing commission , in-place lease and tenant relationship values for acquired properties are recorded based on our evaluation of the specific characteristics of each tenant 's lease and our overall relationship with the respective tenant . the value allocated to leasing commission and in-place lease intangible assets is amortized to depreciation and amortization expense over the remaining lease term of the respective lease . the value allocated to tenant relationships is amortized to depreciation and amortization expense over the expected term of the relationship , which includes an estimate of the probability of lease renewal and its estimated term . we also must allocate purchase price on multi-property portfolios to individual properties . the allocation of purchase price is based on our assessment of various characteristics of the markets where the property is located and the expected cash flows of the property . capitalization of costs : we capitalize costs incurred in developing and expanding real estate assets as part of the investment basis . during the construction period , we capitalize interest costs , real estate taxes and certain costs of the personnel performing development up to the time the property is substantially complete . the interest rate used to capitalize interest is based upon our average borrowing rate on existing debt . costs incurred in making repairs and maintaining real estate assets are expensed as incurred . we also capitalize internal and external costs incurred to successfully originate a lease that result directly from , and are essential to , the acquisition of that lease . leasing costs that meet the requirements for capitalization are presented as a component of prepaid expenses and other assets . the determination and calculation of certain costs requires estimates by us . impairment of real estate assets : we review our real estate assets for possible impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable . we utilize the guidelines established under the financial accounting standards board 's ( the `` fasb '' ) guidance for accounting for the impairment of long lived assets to determine if impairment conditions exist . we review the expected undiscounted cash flows of the property to determine if there are any indications of impairment . if the expected undiscounted cash flows of a particular property are less than the net book basis of the property , we will recognize an impairment charge equal to the amount of carrying value of the property that exceeds the fair value of the property . fair value is generally determined by discounting the future expected cash flows of the property . the preparation of the undiscounted cash flows and the calculation of fair value involve subjective assumptions such as estimated occupancy , rental rates , ultimate residual value and hold period . the discount rate used to present value the cash flows for determining fair value is also subjective . to the extent applicable marketplace data is available , we generally use the market approach in estimating the fair value of undeveloped land . real estate assets that are classified as held-for-sale are reported at the lower of their carrying value or their fair value , less estimated costs to sell . accounting for joint ventures : we analyze our investments in joint ventures to determine whether the joint ventures should be accounted for under the equity method of accounting or consolidated into our financial statements based on standards set forth under the fasb 's guidance relating to the consolidation of variable interest entities . based on the guidance set forth in these pronouncements , we do not consolidate any of our joint venture investments because either the joint venture has been determined to be a variable interest entity but we are not the primary beneficiary or the joint venture has been determined not to be a variable interest entity and we 27 lack control of the joint venture . our assessment of whether we are the primary beneficiary of a variable interest entity involves the consideration of various factors including the form of our ownership interest , our representation on the entity 's governing body , the size of our investment and future cash flows of the entity . deferred tax assets and liabilities : in the preparation of our consolidated financial statements , significant management judgment is required to estimate our current and deferred income tax liabilities . our estimates are based on our interpretation of tax laws . these estimates may have an impact on the income tax expense recognized . adjustments may be required by a change in assessment of our deferred income tax assets and liabilities , changes due to audit adjustments by federal and state tax authorities , our inability to qualify as a reit and changes in tax laws . adjustments required in any given period are included within the income tax provision . in assessing the need for a valuation allowance against our deferred tax assets , we estimate future taxable income , considering the feasibility of ongoing tax planning strategies and the realizability of tax loss carryforwards . in the event we were to determine that we would not be able to realize all or a portion of our deferred tax assets in the future , we would reduce such amounts through a charge to income in the period in which that determination is made . conversely , if we were to determine that we would be able to realize our deferred tax assets in the future in excess of the net carrying amounts , we would decrease the recorded valuation allowance through an increase to income in the period in which that determination is made . story_separator_special_tag costs remained relatively unchanged .
| results of operations comparison of year ended december 31 , 2014 to year ended december 31 , 2013 our net income available to first industrial realty trust , inc. 's common stockholders and participating securities was $ 46.6 million and $ 25.9 million for the years ended december 31 , 2014 and 2013 , respectively . basic and diluted net income available to first industrial realty trust , inc. 's common stockholders was $ 0.42 per share and $ 0.24 per share for the years ended december 31 , 2014 and 2013 , respectively . the tables below summarize our revenues , property expenses and depreciation and other amortization by various categories for the years ended december 31 , 2014 and 2013. same store properties are properties owned prior to january 1 , 2013 and held as an in-service property through december 31 , 2014 and developments and redevelopments that were placed in service prior to january 1 , 2013 or were substantially completed for the 12 months prior to january 1 , 2013. properties which are at least 75 % occupied at acquisition are placed in service . acquisitions ( that are less than 75 % occupied at the date of acquisition ) , developments and redevelopments are placed in service as they reach the earlier of a ) stabilized occupancy ( generally defined as 90 % occupied ) , or b ) one year subsequent to acquisition or development/redevelopment construction completion . properties are moved from the same store classification to the redevelopment classification when capital expenditures for a project are estimated to exceed 25 % of the undepreciated gross book value of the property . acquired properties are properties that were acquired subsequent to december 31 , 2012 and held as an operating property through december 31 , 2014. sold properties are properties that were sold subsequent to december 31 , 2012 .
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f-18 story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements of the company ( including the notes thereto ) included elsewhere in this report . 10 the company generates revenues primarily from the sale , shipping , licensing , leasing and installation of precast concrete products for the construction , utility and farming industries . the company 's operating strategy has involved producing innovative and proprietary products , including slenderwall , a patented , lightweight , energy efficient concrete and steel exterior wall panel for use in building construction ; j-j hooks barrier , a positive-connected highway safety barrier ; sierra wall , a sound barrier primarily for roadside use ; transportable concrete buildings ; and softsound , a highway sound attenuation system . in addition , the company produces utility vaults ; farm products such as cattleguards , and water and food troughs ; and custom order precast concrete products with various architectural surfaces . overview overall , the company 's financial performance improved in 2012 as compared to 2011 , especially due to the results for the first nine months of 2012. the company had net income in 2012 in the amount of $ 376,691 as compared to a net loss of $ 351,680 for 2011 , or a increase of $ 728,371 . the increase in net income for the year ended december 31 , 2012 was due to several factors including management 's decision to reduce costs through layoffs and salary reductions for all employees early in the year and management 's efforts in finding new revenues to replace those products that were lagging due to the slow economic conditions in the construction industry . by not only reducing employee costs , but also by managing all production and overhead cost , the company was able increase profit on jobs with little or no profit at the time of bidding . the company incurred a net loss of $ 607,995 for the fourth quarter of 2012 due primarily to the continued weak construction economy , legal expenses of $ 160,000 related to the intellectual properties infringement lawsuit discussed in `` business - patents and proprietary information '' above and the total reinstatement and partial repayment of a portion of salaries reduced from february through december 2012. the partial repayment of salaries was made possible by the high cash balances available to the company . the company has subsequently been awarded two new large slenderwall projects that will begin early in the second quarter of 2013. in addition , the company has received a verbal commitment for a large architectural contract , that if awarded ( for which there can be no assurance ) , will begin late in the second quarter of 2013. as a result of the contracts awarded above and with the contract to provide rental barrier for the presidential inauguration in january 2013 , the company believes it will be profitable for at least the first three quarters of 2013 , although no assurance can be given . story_separator_special_tag buildings , a state contract for metro rail substation panels and several small retaining wall projects . royalty income – royalty revenue increased slightly in 2012. while overall royalties increased very slightly in 2012 , building royalties remained relatively flat for the period , slenderwall royalties were up significantly during the period and barrier royalties were down for the period due to the continued decline in highway projects funded by federal and state governments . the company signed four new licensees in 2012 , two barrier licenses and two softsound licenses . barrier rentals – barrier rentals increased significantly in 2012 compared to 2011. the increase was the result of several contracts to provide services to set and remove barrier supplied by the company , and in some cases by the contractor , for use at the nato conference held in chicago in may 2012 and the republican and democratic national conventions held in august and september of 2012 , respectively . management believes that its core barrier rentals could increase in 2013 due to some increase rental activity in the company 's geographical area on several major highway projects now underway . the company received the contract to set and remove rental barrier for the inauguration of the president on january 20 , 2013. shipping and installation – shipping and installation revenue increased by 25 % in 2012 due to an increase in the installation of architectural panels which require installation as opposed to soundwall panels which normally do not require installation by the company . while shipping increased during 2012 , the majority of the increase was in installation revenue earned on several contracts that were produced in 2011 but shipped and installed in 2012. cost of goods sold – total cost of goods sold for the year ended december 31 , 2012 was $ 19,447,119 , a decrease of $ 2,647,824 , or 12 % , from $ 22,094,943 for the year ended december 31 , 2011 . total cost of goods sold , as a percentage of total revenue , decreased to 78 % for the year ended december 31 , 2012 from 83 % for the year ended december 31 , 2011 . the reduction in the cost of sold as a percentage of revenue was , in part , because of the increased gross margins on the special rental projects more fully described above . while raw material costs rose only slightly during 2012 and 2011 with very little inflationary pressures , the company continued to experience tremendous pressure from its competitors on the profit margins of certain product lines resulting in a higher cost of goods sold as a percentage of sales over historical levels . story_separator_special_tag increases in such interest rates may materially and adversely affect the company 's ability to finance its operations either by increasing the company 's cost to service its current debt , or by creating a more burdensome refinancing environment . each 1 % increase in interest rates affecting the company 's outstanding debt will reduce income by approximately $ 30,000 annually . the company 's cash flow from operations is affected by production schedules set by contractors , which generally provide for payment 45 to 75 days after the products are produced and with some architectural contracts , retainage may be held until the entire project is completed . this payment schedule could result in liquidity problems for the company because it must bear the cost of production for its products before it receives payment . the company 's days sales outstanding ( dso ) in 2012 was 80 days compared to 95 days in 2011. the decrease in the dso is due primarily to better weekly communications with delinquent accounts . although no assurance can be given , the company believes that anticipated cash flow from operations with adequate project management on jobs will be sufficient to finance the company 's operations and necessary capital expenditures for at least the next 12 months . the company 's inventory at december 31 , 2012 was $ 2,104,106 and at december 31 , 2011 was $ 1,939,633 or a increase of $ 164,473. the annual inventory turns for december 31 , 2012 and 2011 were 7.8 and 7.1 , respectively . significant accounting policies and estimates the company 's significant accounting policies are more fully described in its summary of accounting policies to the company 's consolidated financial statements . the preparation of financial statements in conformity with accounting principles generally accepted within the united states requires management to make estimates and assumptions in certain circumstances 14 that affect amounts reported in the accompanying financial statements and related notes . in preparing these financial statements , management has made its best estimates and judgments of certain amounts included in the financial statements , giving due consideration to materiality . the company does not believe there is a great likelihood that materially different amounts would be reported related to the accounting policies described below , however , application of these accounting policies involves the exercise of judgment and the use of assumptions as to future uncertainties and as a result , actual results could differ from these estimates . the company evaluates the adequacy of its allowance for doubtful accounts at the end of each quarter . in performing this evaluation , the company analyzes the payment history of its significant past due accounts , subsequent cash collections on these accounts and comparative accounts receivable aging statistics . based on this information , along with other related factors , the company develops what it considers to be a reasonable estimate of the uncollectible amounts included in accounts receivable . this estimate involves significant judgment by the management of the company . actual uncollectible amounts may differ from the company 's estimate . the company recognizes revenue on the sale of its standard precast concrete products at shipment date , including revenue derived from any projects to be completed under short-term contracts . installation services for precast concrete products , leasing and royalties are recognized as revenue as they are earned on an accrual basis . licensing fees are recognized under the accrual method unless collectability is in doubt , in which event revenue is recognized as cash is received . certain sales of soundwall , slenderwall , and other architectural concrete products are recognized upon completion of units produced under long-term contracts . when necessary , provisions for estimated losses on these contracts are made in the period in which such losses are determined . changes in job performance , conditions and contract settlements that affect profit are recognized in the period in which the changes occur . unbilled trade accounts receivable represents revenue earned on units produced and not yet billed . seasonality the company services the construction industry primarily in areas of the united states where construction activity may be inhibited by adverse weather during the winter . as a result , the company may experience reduced revenues from december through february and realize the substantial part of its revenues during the other months of the year . the company may experience lower profits , or losses , during the winter months , and as such , must have sufficient working capital to fund its operations at a reduced level until the spring construction season . the failure to generate or obtain sufficient working capital during the winter may have a material adverse effect on the company . inflation management believes that the company 's operations were not significantly affected by inflation in 2012 and 2011 , particularly in the purchases of certain raw materials such as steel and fuel . the company believes that raw material pricing will see some modest increases in 2013 as the economy continues its slow recovery , although no assurance can be given regarding future pricing . other comments as of march 4 , 2013 the company 's sales backlog of inventoried products and unbilled construction contracts was approximately $ 6.7 million as compared to approximately $ 7.8 million at approximately the same time in 2011. the reduction in the backlog relates to the weak construction industry as well as the shortening of the time period between bidding a project and putting the project into production compared to longer lead times when funding is more readily available in a strong construction industry . the majority of the projects relating to the sales backlog as of march 4 , 2013 are scheduled to be shipped during 2013. the company also maintains a regularly occurring repeat customer business , which should be considered in addition to the orders in the sales backlog described above . these
| results of operations year ended december 31 , 2012 compared to the year ended december 31 , 2011 for the year ended december 31 , 2012 , the company had total revenue of $ 24,893,613 compared to total revenue of $ 26,696,727 for the year ended december 31 , 2011 , a decrease of $ 1,803,114 , or 7 % . sales include revenues from product sales , royalty income , barrier rental income and shipping and installation income . product sales are further divided into wall panel sales , which include soundwall , architectural and slenderwall panels , highway barrier , beach prisms , easi-set® and easi-span® buildings , utility and farm products and miscellaneous precast products . the following table summarizes the sales by product type and a comparison for the years ended december 31 , 2012 and 2011 : 11 replace_table_token_1_th wall panel sales – wall panel sales are generally medium to large contracts issued by general contractors for production and delivery of a specific wall panel product for a specific construction project . changes in the mix of wall panel sales depend on what contracts are in production during the period . soundwall sales increased significantly in 2012 due primarily to a large soundwall contract for a road project started in mid 2012 for which production will be completed in the first quarter of 2013. architectural sales decreased significantly in 2012 as continued downward price pressure on architectural projects made it difficult for the company to bid competitively on these projects . management believes it may be at least another year before architectural jobs will return to higher profit margin levels .
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the estimated fair value and cost of marketable securities are as follows at december 31 : replace_table_token_11_th maturities of marketable securities classified as available-for-sale by contractual maturity are shown below : replace_table_token_12_th gross unrealized gains on marketable securities amounted to $ 2,678 and $ story_separator_special_tag overview at epix pharmaceuticals , inc. , we discover and develop innovative pharmaceuticals for imaging that are designed to transform the diagnosis , treatment and monitoring of disease . we use our proprietary target visualization technology to create imaging agents targeted at the molecular level . these agents are designed to enable physicians to use mri to obtain detailed information about specific disease processes . mri has been established as the imaging technology of choice for a broad range of applications , including the identification and diagnosis of a variety of medical disorders . mri is safe , relatively cost-effective and provides three-dimensional images that enable physicians to diagnose and manage disease in a minimally invasive manner . we are currently developing two products for use in mri to improve the diagnosis of multiple diseases involving the body 's arteries and veins , collectively known as the vascular system : vasovist , our novel blood-pool contrast agent for use in mra , which was approved for marketing in all 25 member states of the e.u . in october 2005 ; and ep-2104r for detecting human thrombi , or blood clots , using mri . we have entered into various partnership agreements with schering ag with respect to both vasovist and ep-2104r . in addition , we have active research programs with respect to products for diagnostic imaging and therapeutic uses . we are also actively seeking to acquire a privately-held therapeutics company with the goal of becoming a specialty pharmaceutical company . critical accounting policies and estimates the discussion and analysis of our financial condition and results of operations is based on our financial statements , which have been prepared in accordance with accounting principles generally accepted in the u.s. the preparation of these financial statements requires us to make estimates and judgments that affect our reported assets and liabilities , revenues and expenses , and other financial information . actual results may differ significantly from the estimates under different assumptions and conditions . our significant accounting policies are more fully described in note 2 of our financial statements for the year ended december 31 , 2005. not all significant accounting policies require management to make difficult , subjective or complex judgments or estimates . we believe that our accounting policies related to revenue recognition , research and development and employee stock compensation , as described below , require critical accounting estimates and judgments. revenue recognition we recognize revenues from non-refundable license fees and milestone payments not specifically tied to a separate earnings process ratably over the period during which we have substantial continuing obligations to perform services under the contract . when milestone payments are specifically tied to a separate earnings process , revenue is recognized when the specific performance obligations associated with 32 the payment are completed . when the period of deferral can not be specifically identified from the contract , we estimate the period of deferral based upon our obligations under the contract . we continually review these estimates and , if any of these estimates change , adjustments are recorded in the period in which they become reasonably estimable . these adjustments could have a material effect on our results of operations . with respect to payments received from schering ag in connection with the vasovist development program , we recognize product development revenue at the time we perform research and development activities , for which schering ag is obligated to reimburse us . product development revenues from schering ag are recorded net of our portion of schering ag 's actual or most recent estimate of its vasovist research and development costs . we recognize product development revenue from schering ag for the ep-2104r feasibility program in proportion to our actual cost incurred relative to our estimate of the total cost of the feasibility program . as estimated total cost to complete the program increases , revenue is adjusted downwards , and conversely , as estimated total cost to complete decreases , revenue is adjusted upwards . total estimated costs of the feasibility program are based on management 's assessment of costs to complete the program based on an evaluation of the portion of the program completed , costs incurred to date , planned program activities , anticipated program timelines and the expected future costs of the program . adjustments to revenue are recorded if estimated costs to complete change materially from previous periods . to the extent that our estimated costs change materially , our revenues recorded under this activity could be materially affected and such change could have a material adverse effect on our operations in future periods . during the second quarter of 2005 , management increased its estimate of costs to complete the feasibility program to $ 16.1 million from its prior estimate . the increase in the cost to complete the feasibility program was primarily attributed to the additional patient safety monitoring related to amending the phase ii proof-of -concept clinical trial protocols for ep-2104r announced in july 2005. the impact of increasing the estimated cost to complete the feasibility program resulted in a reduction in product development revenue of approximately $ 1.5 million during the same period . during the fourth quarter of 2005 , management lowered its estimate of the cost to complete the feasibility program from $ 16.1 million to $ 15.2 million at december 31 , 2005 as a result of increased enrollment rate for this clinical trial . this latest reduction in the estimated total cost of the feasibility program resulted in an increase in product development revenue of $ 449,944 , which was recognized in the fourth quarter of 2005. revenue under our research collaboration with schering ag is recognized as services are provided , for which schering ag is obligated to reimburse us . story_separator_special_tag the reductions which were completed in january 2006 affected both the research and development and the general and administrative areas of the company . we reported a charge of approximately $ 1.0 million for severance and related benefits as of december 31 , 2005. substantially all payments related to the separation of employment will be completed in the first quarter of 2006. interest income and interest expense interest income for the year ended december 31 , 2005 was $ 4.1 million as compared to $ 2.0 million for the year ended december 31 , 2004. the increase of $ 2.1 million was primarily due to higher interest rates and higher average levels of invested cash , cash equivalents and marketable securities during 2005 as a result of receipt of the net proceeds from the issuance of $ 100.0 million convertible senior notes in june 2004. interest expense for the years ended december 31 , 2005 and 2004 was $ 3.6 million and $ 2.1 million , respectively . the increase in interest expense of $ 1.5 million for the year ended december 31 , 2005 directly resulted from the issuance of convertible senior notes in june 2004 , partly offset by the reduction in the outstanding balance of interest-bearing prepaid royalties from bracco and a reduction in interest expense resulting from management 's decision not to drawdown the loan facility from schering ag at the end of 2005. in january 2006 , we completed an agreement with schering ag to terminate the loan facility . provision for income taxes the provision for income taxes , which represents italian income taxes related to the bracco agreement , was $ 42,000 for the year ended december 31 , 2005 as compared to $ 100,000 for the year ended december 31 , 2004. since the remaining balance of prepaid royalties were offset at the end of the third quarter of 2005 , italian income taxes needed to be withheld on bracco royalties for multihance ® sales paid to us during the fourth quarter of 2005. we expect to have italian income taxes withheld on bracco royalties for the remainder of the agreement , which will end in the e.u . midway through 2006 and in early 2007 for the u.s. 36 years ended december 31 , 2004 and 2003 revenues revenues for the years ended december 31 , 2004 and 2003 were $ 12.3 million and $ 13.5 million , respectively . revenues for 2004 consisted of $ 7.6 million of product development revenue from schering ag , $ 4.0 million of license fee and milestone revenue related to the bracco agreement and to the schering ag and tyco/ mallinckrodt strategic agreements , and $ 627,000 of royalty revenue related to the bracco agreement . the decrease in revenues of $ 1.2 million for the year ended december 31 , 2004 compared to the same period in 2003 resulted from reduced product development activities of $ 1.9 million , primarily from vasovist , and lower royalties of $ 1.8 million from bracco , partly offset by higher license fee revenue of $ 2.5 million resulting from the milestone related to bracco 's announcement of the fda 's approval of multihance ® in the u.s. the lower royalties were primarily attributed to our decision to recognize the full $ 1.8 million amount reflected in bracco 's position taken in december 2004 that it had overstated non-u.s. royalties over the previous four year period from 2001 to 2004. we have challenged bracco 's underpayment , bracco 's right to recalculate previous royalties under the license agreement and the substance of bracco 's position that royalties were overstated . research and development expenses research and development expenses for the year ended december 31 , 2004 were $ 21.9 million as compared to $ 28.0 million for the same period in 2003. the decrease of $ 6.1 million was primarily attributable to decreased costs related to the completion of the nda submission for vasovist and the intellectual property agreement entered into with dr. martin r. prince in the fourth quarter of 2003 , partly offset by higher spending for ep-2104r and other research programs . general and administrative expenses general and administrative expenses were $ 10.5 million for the year ended december 31 , 2004 as compared to $ 6.6 million for the year ended december 31 , 2003. the increase of $ 3.9 million was primarily attributable to higher spending both by us and by schering ag for vasovist marketing , higher business development expenses , higher legal expenses related to patent and intellectual property filings , increased compliance costs due to the internal control review required by the sarbanes-oxley act and to higher liability insurance premiums . general and administrative expenses also include royalties payable to mgh based on sales by bracco of multihance ® . royalty expenses totaled $ 31,000 and $ 103,000 for the years ended december 31 , 2004 and 2003. interest income and interest expense interest income for the year ended december 31 , 2004 was $ 2.0 million as compared to $ 664,000 for the year ended december 31 , 2003. the increase of approximately $ 1.3 million was primarily due to higher average levels of invested cash , cash equivalents and marketable securities during the period related to net proceeds from the issuance of $ 100.0 million convertible senior notes in june 2004. interest expense for the years ended december 31 , 2004 and 2003 was $ 2.1 million and $ 295,000 , respectively . the increase in interest expense of $ 1.8 million during the year ended december 31 , 2004 resulted from the issuance of convertible senior notes in june 2004 and the drawdown of the entire $ 15.0 million loan facility made available to us by schering ag as part of the joint mri research collaboration entered into in may 2003 , partly offset by the reduction in the balance of interest-bearing prepaid royalties from bracco .
| results of operations years ended december 31 , 2005 and 2004 revenues revenues for the years ended december 31 , 2005 and 2004 were $ 7.2 million and $ 12.3 million , respectively . revenues for 2005 consisted of $ 4.2 million for product development revenue from schering ag , $ 2.3 million for royalty revenue related to the bracco and schering ag agreements and $ 661,000 for license fee revenue related to the schering ag , tyco/ mallinckrodt strategic collaboration and bracco agreements . the decrease in total revenues of $ 5.1 million for the year ended december 31 , 2005 compared to the year ended december 31 , 2004 was attributed to lower product development and license fee revenues , partly offset by higher royalty revenue . the lower product development revenue accounted for $ 3.4 million of the decrease between the two periods and resulted from : ( i ) revenue adjustments related to the overall increases in the costs and timeline to complete the ep-2104r development program that were directly attributed to amending our phase ii proof-of -concept clinical trial protocols for ep-2104r to include additional patient safety monitoring ; ( ii ) lower costs incurred in 2005 compared to 2004 for the ep-2104r development program resulting in lower recognition of revenue during 2005 ; and ( iii ) lower reimbursable costs from schering ag on the vasovist program . the overall reduction in product development revenue related to the vasovist and ep-2104r programs was partly offset by slightly higher revenue under the research collaboration agreement with schering ag . the increase in royalty revenue in 2005 was primarily attributed to the adjustment recorded by us at the end of 2004 to reflect bracco 's revised determination of sales and its royalty overpayment assertion . royalty revenue in 2005 included royalties from sales by bracco of multihance ® and schering ag 's sales of primovist .
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commercial & industrial — commercial & industrial loans are generally of higher risk and typically are made on the basis of the borrower 's ability to make repayment from the cash flows of the story_separator_special_tag executive summary the company is a bank holding company headquartered in new york , new york and registered under the bank holding company act of 1956. through its wholly owned bank subsidiary , metropolitan commercial bank , a new york state chartered bank , the company provides a broad range of business , commercial and retail banking products and services to small businesses , middle-market enterprises , public entities and affluent individuals in the new york metropolitan area . the bank 's primary lending products are commercial real estate loans , multi-family loans and commercial and industrial loans . substantially all loans are secured by specific items of collateral including business assets , consumer assets , and commercial and residential real estate . commercial loans are expected to be repaid from cash flows from operations of businesses . the bank 's primary deposit products are checking , savings , and term deposit accounts , and its deposit accounts are insured by the federal deposit insurance corporation ( the “ fdic ” ) under the maximum amounts allowed by law . the company is focused on organically growing and expanding its position in the new york metropolitan area . through an experienced team of commercial relationship managers and its integrated , client-centric approach , the bank has successfully demonstrated its ability to consistently grow market share by deepening existing client relationships and continually expanding its client base through referrals and seeking out alternatives to traditional retail banking products . the bank has maintained a goal of converting many of its commercial lending clients into full retail relationship banking clients . given the size of the market in which the bank operates and its differentiated approach to client service , there is significant opportunity to continue its loan and deposit growth trajectory . recent events in april 2019 , the company executed a lease agreement to expand the space occupied at its headquarters at 99 park ave. , new york , new york . the company took possession of the new space during the third quarter of 2019 and commenced renovations , which will continue through the fourth quarter of 2019. when the renovations are completed , the company will vacate its existing space and move into the new office . when the company took possession of the new space , rent expense increased by approximately $ 200,000 for each of the remaining months of 2019 , representing the rent expense on the new space . when the renovations are complete and the company vacates its existing space , which is likely to be in the second quarter of 2020 , the company will cease rent payments on the former space resulting in a reduction of rent expense of approximately $ 195,000 per quarter . critical accounting policies a summary of accounting policies is provided in note 3 to the consolidated financial statements included in this report . critical accounting estimates are necessary in the application of certain accounting policies and procedures and are particularly susceptible to significant change . critical accounting policies are defined as those involving significant judgments and assumptions by management that could have a material impact on the carrying value of certain assets or 39 on income under different assumptions or conditions . management believes the company 's most critical accounting policy , which involve the most complex or subjective decisions or assessments , is as follows : allowance for loan losses although management evaluates available information to determine the adequacy of the allowance for loan losses , the level of the allowance is an estimate which is subject to significant judgement and short-term change . because of uncertainties associated with local economic conditions , collateral values and future cash flows of the loan portfolio , it is reasonably possible that a material change could occur in the allowance for loan losses in the near term due to economic , operating , regulatory and other conditions beyond the company 's control . however , the amount of the change that is reasonably possible can not be estimated . the evaluation of the adequacy of loan collateral is often based upon estimates and appraisals . due to changing economic conditions , the valuations determined from such estimates and appraisals may also change . accordingly , the company may ultimately incur losses that vary from management 's current estimates . adjustments to the allowance for loan losses will be reported in the period such adjustments become known or can be reasonably estimated . all loan losses are charged to the allowance for loan losses when the loss actually occurs or when the collectability of the principal is unlikely . recoveries are credited to the allowance at the time of recovery . emerging growth company pursuant to the jobs act , an egc is provided the option to adopt new or revised accounting standards that may be issued by the fasb or the sec either ( i ) within the same periods as those otherwise applicable to non-egcs or ( ii ) within the same time periods as private companies . the company elected the option to utilize the delayed effective dates of recently issued accounting standards . as permitted by the jobs act , so long as it qualifies as an egc , the company will take advantage of some of the reduced regulatory and reporting requirements that are available to it , including , but not limited to , not being required to comply with the auditor attestation requirements of section 404 ( b ) of the sarbanes-oxley act , reduced disclosure obligations regarding executive compensation , and exemptions from the requirements of holding non-binding advisory votes on executive compensation and golden parachute payments . story_separator_special_tag a loan may also be designated as non-accrual at any time if payment of principal or interest in full is not expected due to deterioration in the financial condition of the borrower . at the time loans are placed on non-accrual status , the accrual of interest is discontinued and previously accrued interest is reversed . all payments received on non-accrual loans are applied to principal . loans are considered for return to accrual status when they become current as to principal and interest and remain current for a period of six consecutive months or when , in the opinion of management , the company expects to receive all of its original principal and interest . in the case of non-accrual loans where a portion of the loan has been charged off , the remaining balance is kept in non-accrual status until the entire principal balance has been recovered . 46 delinquent loans the following tables set forth the bank 's loan delinquencies , including non-accrual loans , by type and amount at the dates indicated ( dollars in thousands ) : replace_table_token_6_th replace_table_token_7_th replace_table_token_8_th 47 the table below sets forth the amounts and categories of non-performing assets and tdrs at the dates indicated ( dollars in thousands ) . replace_table_token_9_th non-accrual loans increased by $ 4.0 million to $ 4.1 million at december 31 , 2019 , as compared to $ 50,000 at december 31 , 2018 , primarily due to a one-to-four family loan in the amount of $ 2.4 million , which was placed on non-accrual status in june 2019. as of december 31 , 2019 , this loan was current and had a loan-to-value ratio of 48.9 % . in addition , non-accrual loans included the remaining two taxi medallion loans with a principal balance of $ 1.0 million . as of december 31 , 2019 , the company had established a specific reserve of $ 805,000 for the taxi medallion loans . interest income that would have been recorded for 2019 , had non-performing loans been current according to their original terms , amounted to $ 144,000. the bank recognized $ 94,000 of interest income for these loans for 2019. interest income that would have been recorded for 2018 , had non-performing loans been current according to their original terms , amounted to $ 14,000. the bank recognized $ 12,000 of interest income for these loans for 2018. interest income that would have been recorded for 2019 and 2018 , had tdrs been current according to their original terms , amounted to $ 114,000 and $ 178,000 , respectively . the bank recognized $ 78,000 and $ 169,000 for these loans for 2019 and 2018 , respectively . 48 classified assets the following table sets forth information regarding the bank 's classified assets , as defined under applicable regulatory standards , at the dates indicated ( dollars in thousands ) . replace_table_token_10_th potential problem loans in addition to classifying assets as substandard , doubtful or loss , we also categorize assets as special mention . a special mention asset has potential weaknesses that deserve management 's close attention . if left uncorrected , these potential weaknesses may result in the deterioration of the repayment prospects for the asset or in the bank 's credit position at some future date . other than the loans listed above as non-performing , classified or special mention , there are no potential problem loans that cause management to have serious doubts as to the ability of the borrower to comply with the present loan repayment terms . allowance for loan losses the allowance is an amount that management believes will be adequate to absorb probable incurred losses on existing loans . the allowance is established based on management 's evaluation of the probable incurred losses inherent in the company 's portfolio in accordance with generally accepted accounting principles ( “ gaap ” ) , and is comprised of both specific valuation allowances and general valuation allowances . the allowance for loan losses is increased through a provision for loan losses charged to operations . loans are charged against the allowance for loan losses when management believes that the collectability of all or a portion of the principal is unlikely . management 's evaluation of the adequacy of the allowance for loan losses is performed on a quarterly basis and takes into consideration such factors as the credit risk grade assigned to the loan , historical loan loss experience and review of specific impaired loans . 49 the following tables set forth the allowance for loan losses allocated by loan category for the periods indicated ( dollars in thousands ) : replace_table_token_11_th 50 summary of loan loss experience the following tables present a summary by loan portfolio segment of allowance for loan and lease loss , loan loss experience , and provision for loan losses for the periods indicated ( dollars in thousands ) : replace_table_token_12_th nm – not meaningful recoveries received during 2019 included $ 4.2 million related to taxi medallion loans previously charged off in 2016 and 2017. the bank 's remaining taxi medallion loans had an unpaid principal balance of $ 1.0 million and a related total specific reserve of $ 805,000 at december 31 , 2019 . 51 deposits the tables below summarize the bank 's deposit composition by segment for the periods indicated , and the dollar and percent change from december 31 , 2018 to december 31 , 2019 and december 31 , 2017 to december 31 , 2018 ( dollars in thousands ) : replace_table_token_13_th replace_table_token_14_th the tables below summarize the bank 's average balances and average interest rate paid , by segment , for the periods indicated ( dollars in thousands ) : replace_table_token_15_th as of december 31 , 2019 , the aggregate amount of the bank 's outstanding certificates of deposit in amounts greater than or equal to $ 100,000 was $ 104.9 million .
| summary the company had total assets of $ 3.36 billion at december 31 , 2019 , compared with $ 2.18 billion at december 31 , 2018. loans , net of deferred fees and unamortized costs , increased by $ 807.7 million , or 43.3 % , to $ 2.67 billion at december 31 , 2019 as compared to $ 1.87 billion at december 31 , 2018. for 2019 , the bank 's loan production was $ 1.1 billion , as compared to $ 830.4 million for the year ended december 31 , 2018. the increase in loans during 2019 consisted , primarily , of loan originations and purchases of $ 584.7 million in real estate loans and $ 506.0 million in commercial and industrial loans . the increase in loan production in 2019 was the result of expanding existing lending relationships , particularly in skilled nursing facilities , as well as developing new relationships . new loans generated from existing 41 relationships amounted to $ 497.1 million , or 46 % , of the total loan production for 2019. new loans related to skilled nursing facilities amounted to $ 330.0 million , or 30 % , of the total loan production for 2019. the bank was able to fund the increased level of loan production with deposits , which increased $ 1.13 billion , or 68.1 % , during the year ended december 31 , 2019. total cash and cash equivalents increased $ 158.3 million , or 67.9 % , to $ 391.2 million at december 31 , 2019 , as compared to $ 233.0 million at december 31 , 2018. total securities , primarily those classified as available-for-sale ( “ afs ” ) , increased $ 203.8 million , or 548.9 % to $ 240.9 million at december 31 , 2019 , as compared to $ 37.1 million at december 31 , 2018. the increases in cash and cash equivalents and securities reflect the strong growth in deposits of $ 1.13 billion that exceeded growth in loans of $ 807.7 million .
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( amounts in thousands ) story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements of the company and the notes thereto included elsewhere in this report , the “ special note regarding forward-looking statements ” in part i and “ item 1a . risk factors. ” executive summary overview we are a fully integrated , self-administered real estate company that has elected to be a reit for federal income tax purposes , engaged in the acquisition , ownership and management of commercial real estate , primarily neighborhood and community shopping centers , with a concentration in the metropolitan new york tri-state area outside of the city of new york . other real estate assets include office properties , single tenant retail or restaurant properties and office/retail mixed use properties . our major tenants include supermarket chains and other retailers who sell basic necessities . at october 31 , 2019 , we owned or had equity interests in 83 properties , which include equity interests we own in five consolidated joint ventures and six unconsolidated joint ventures , containing a total of 5.3 million square feet of gross leasable area ( “ gla ” ) . of the properties owned by wholly-owned subsidiaries or joint venture entities that we consolidate , approximately 92.9 % was leased ( 93.2 % at october 31 , 2018 ) . of the properties owned by unconsolidated joint ventures , approximately 96.1 % was leased ( 96.3 % at october 31 , 2018 ) . we have paid quarterly dividends to our shareholders continuously since our founding in 1969 and have increased the level of dividend payments to our shareholders for 26 consecutive years . we derive substantially all of our revenues from rents and operating expense reimbursements received pursuant to long-term leases and focus our investment activities on community and neighborhood shopping centers , anchored principally by regional supermarket or pharmacy chains . we believe that because consumers need to purchase food and other types of staple goods and services generally available at supermarket or pharmacy-anchored shopping centers , the nature of our investments provides for relatively stable revenue flows even during difficult economic times . we have a conservative capital structure , which includes permanent equity sources of common stock , class a common stock and as of october 31 , 2019 , three series of perpetual preferred stock , which is only redeemable at our option . we redeemed our series g preferred stock on november 1 , 2019. in addition , we have mortgage debt secured by some of our properties . we do not have any secured debt maturing until january of 2022. we focus on increasing cash flow , and consequently the value of our properties , and seek continued growth through strategic re-leasing , renovations and expansions of our existing properties and selective acquisitions of income-producing properties . key elements of our growth strategies and operating policies are to : ● acquire quality neighborhood and community shopping centers in the northeastern part of the united states with a concentration on properties in the metropolitan new york tri-state area outside of the city of new york , and unlock further value in these properties with selective enhancements to both the property and tenant mix , as well as improvements to management and leasing fundamentals . our hope is to grow our assets through acquisitions by 5 % to 10 % per year on a dollar value basis subject to the availability of acquisitions that meet our investment parameters ; ● selectively dispose of underperforming properties and re-deploy the proceeds into potentially higher performing properties that meet our acquisition criteria ; ● invest in our properties for the long term through regular maintenance , periodic renovations and capital improvements , enhancing their attractiveness to tenants and customers , as well as increasing their value ; ● leverage opportunities to increase gla at existing properties , through development of pad sites and reconfiguring of existing square footage , to meet the needs of existing or new tenants ; ● proactively manage our leasing strategy by aggressively marketing available gla , renewing existing leases with strong tenants , and replacing weak ones when necessary , with an eye toward securing leases that include regular or fixed contractual increases to minimum rents , replacing below-market-rent leases with increased market rents when possible and further improving the quality of our tenant mix at our shopping centers ; ● maintain strong working relationships with our tenants , particularly our anchor tenants ; ● maintain a conservative capital structure with low debt levels ; and ● control property operating and administrative costs . highlights of fiscal 2019 ; recent developments set forth below are highlights of our recent property acquisitions , other investments , property dispositions and financings : ● in december 2018 , we purchased the lakeview plaza shopping center for $ 12 million , exclusive of closing costs . lakeview is a 177,000 square foot grocery-anchored shopping center located in brewster , ny . when we purchased the property , we anticipated having to invest up to $ 8 million for capital improvements and for re-tenanting at the property . we purchased the property with available cash and a borrowing on our unsecured revolving credit facility ( “ facility ” ) . as of the date of this report , we have expended approximately $ 5.4 million of the $ 8 million anticipated additional investment . ● in march 2019 , we completed the refinancing of our $ 14.9 million mortgage secured by our darien , ct shopping center . the new mortgage principal balance is $ 25 million , and the note has a term of ten years and requires payments of principal and interest at the rate of libor plus 1.65 % . we also entered into an interest rate swap with the new lender , which converts the variable interest rate ( based on libor ) to a fixed rate of 4.815 % per annum . the fixed interest rate on the refinanced mortgage was 6.55 % . story_separator_special_tag as a reit , we are susceptible to changes in interest rates , the lending environment , the availability of capital markets and the general economy . the impact of such changes are difficult to predict . 13 leasing rollovers for the fiscal year 2019 , we signed leases for a total of 676,000 square feet of predominantly retail space in our consolidated portfolio . new leases for vacant spaces were signed for 179,000 square feet at an average rental increase of 1.3 % on a cash basis , excluding 2,500 square feet of new leases for which there was no prior rent history available . renewals for 494,000 square feet of space previously occupied were signed at an average rental increase of 1.4 % on a cash basis . tenant improvements and leasing commissions averaged $ 36 per square foot for new leases and $ 1.58 per square foot for renewals for the fiscal year ended 2019. the average term for new leases was 6 years and the average term for renewal leases was 4 years . the rental increases/decreases associated with new and renewal leases generally include all leases signed in arms-length transactions reflecting market leverage between landlords and tenants . the comparison between average rent for expiring leases and new leases is determined by including minimum rent paid on the expiring lease and minimum rent to be paid on the new lease in the first year . in some instances , management exercises judgment as to how to most effectively reflect the comparability of spaces reported in this calculation . the change in rental income on comparable space leases is impacted by numerous factors including current market rates , location , individual tenant creditworthiness , use of space , market conditions when the expiring lease was signed , the age of the expiring lease , capital investment made in the space and the specific lease structure . tenant improvements include the total dollars committed for the improvement ( fit-out ) of a space as it relates to a specific lease but may also include base building costs ( i.e . expansion , escalators or new entrances ) that are required to make the space leasable . incentives ( if applicable ) include amounts paid to tenants as an inducement to sign a lease that do not represent building improvements . the leases signed in 2019 generally become effective over the following one to two years . there is risk , however , that some new tenants will not ultimately take possession of their space and that tenants for both new and renewal leases may not pay all of their contractual rent due to operating , financial or other reasons . in 2020 , we believe our leasing volume will be in-line with our historical averages with overall positive increases in rental income for renewal leases and a range of positive 5 % to negative 5 % for new leases , although that is difficult to predict because it depends on the many factors that can influence the variance . however , changes in rental income associated with individual signed leases on comparable spaces may be positive or negative , and we can provide no assurance that the rents on new leases will continue to increase at the above described levels , if at all . significant events with impacts on leasing since the 2015 bankruptcy of a & p , its former grocery store space at our pompton lakes shopping center , totaling 63,000 square feet , has remained vacant . we are continuing to market that space for re-lease and are considering other redevelopment options at that shopping center . in july 2018 , one other 36,000 square foot space formerly occupied by a & p that we had released to a local grocery operator became vacant , as that operator failed to perform under its lease and was evicted . we have signed a lease with whole foods market for this location , and we expect to deliver the space to the lessee early in 2020. in may 2018 , the grocery tenant occupying 30,600 square feet at our passaic , nj property went vacant , the tenant was evicted , and the lease was terminated . in may 2019 , we signed two leases to re-lease a large portion of this space at a rental rate that is 12 % below the rent we received from the prior grocery tenant . in march 2018 , we reached agreement with the grocery tenant at our newark , nj property to terminate its 63,000 square foot lease in exchange for a $ 3.7 million lease termination payment , which was recorded as revenue in the second quarter of fiscal year ended october 31 , 2018. also , in april 2018 , we leased that same space to a new grocery store operator which took possession in may 2018. while the rental rate on the new lease is 30 % less than the rental rate on the terminated lease , we hope that part of this decreased rental rate will be recaptured with the receipt of percentage rent in subsequent years as the store matures and its sales increase . the new lease required no tenant improvements or tenant allowances . in 2017 , toys r ' us and babies r ' us ( “ toys ” ) filed a voluntary petition under chapter 11 of title 11 of the united states bankruptcy code . subsequently , toys determined that it would be liquidating the company . toys ground leased 65,700 square feet of space at our danbury , ct shopping center . in august 2018 , this lease was purchased out of bankruptcy from toys and assumed by a new owner .
| results of operations fiscal 2019 vs. fiscal 2018 the following information summarizes our results of operations for the years ended october 31 , 2019 and 2018 ( amounts in thousands ) : replace_table_token_6_th note 1 – properties held in both periods includes only properties owned for the entire periods of 2019 and 2018 and for interest expense the amount also includes parent company interest expense . all other properties are included in the property acquisition/sales column . there are no properties excluded from the analysis . revenues base rents increased by 3.5 % to $ 99.3 million in fiscal 2019 , as compared with $ 95.9 million in the comparable period of 2018. the increase in base rents and the changes in other income statement line items were attributable to : property acquisitions and properties sold : in fiscal 2018 , we purchased three properties totaling 53,700 square feet of gla . in fiscal 2019 , we purchased one property totaling 177,000 square feet and sold one property totaling 10,100 square feet . these properties accounted for all of the revenue and expense changes attributable to property acquisitions and sales in the fiscal year ended 2019 when compared with fiscal 2018. properties held in both periods : revenues base rent the net increase in base rents for the fiscal year ended 2019 when compared to the corresponding prior period , was predominantly caused by positive leasing activity at several properties held in both periods accentuated by a lease renewal with a grocery-store tenant at a significantly higher rent than the expiring period rent , both of which created a positive variance in base rent . in fiscal 2019 , we leased or renewed approximately 676,000 square feet ( or approximately 14.8 % of total consolidated property leasable area ) . at october 31 , 2019 , the company 's consolidated properties were 92.9 % leased ( 93.2 % leased at october 31 , 2018 ) .
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note 6 - stockholders ' equity common stock dividend on november 10 , 2011 , our board of directors declared a special cash dividend of $ 2.00 per share or approximately $ 22.3 million in total , net of treasury stock , payable on january 3 , 2012 , to stockholders of record december 12 , 2011. the dividend was accrued as of december 31 , 2011 for $ 22.3 million and paid on january 3 , 2012. during 2011 , our board of directors declared and paid a first , second and third quarter cash dividend of $ .05 per story_separator_special_tag forward-looking statements this management 's discussion and analysis of financial condition and results of operations contains forward-looking statements that have been made pursuant to the provisions of the private securities litigation reform act of 1995. these forward-looking statements are based on current expectations , estimates , and projections about evolving systems ' industry , management 's beliefs , and certain assumptions made by management . forward-looking statements include our expectations regarding product , services , and customer support revenue ; our expectations associated with evolving systems india and evolving systems u.k. , and short- and long-term cash needs . in some cases , words such as anticipates , expects , intends , plans , believes , estimates , variations of these words , and similar expressions are intended to identify forward-looking statements . the following discussion should be read in conjunction with , and is qualified in its entirety by , the consolidated financial statements and the notes thereto included elsewhere in this annual report on form 10-k. our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors , including those set forth in this section and in item 1a - risk factors. overview evolving systems , inc. is a leading provider of software solutions and services to the wireless , wireline and cable markets . we maintain long-standing relationships with many of the largest wireline , wireless and cable companies worldwide . our customers rely on us to develop , deploy , enhance , maintain and integrate complex , reliable software solutions for a range of operations support systems ( oss ) . our activation solution is the leading packaged solution for activation in the wireless industry . we recognize revenue in accordance with the prescribed accounting standards for software revenue recognition under generally accepted accounting principles . as a result , our license fees and services revenue fluctuate from period to period as a result of the timing of revenue recognition on existing projects . recent developments during the third quarter of 2011 , we completed the sale of our numbering solutions business ( the numbering business ) to neustar , inc. , a delaware corporation ( the buyer ) for $ 39.4 million in cash and the assumption of certain liabilities related to the numbering business . the sale qualified for treatment as discontinued operations during the second quarter of 2011 upon receipt of shareholder approval at a special meeting of shareholders on june 23 , 2011. this divested business is reflected in these consolidated financial statements as discontinued operations and historical information related to the divested business has been reclassified accordingly . we reported net income of $ 32.3 million , $ 5.4 million and $ 4.8 million for the years ended december 31 , 2011 , 2010 and 2009 , respectively . the net income of $ 32.3 million for the year ended december 31 , 2011 includes approximately $ 33.3 million income from gain from the sale of our numbering business and discontinued operations net of tax . our ending backlog at december 31 , 2011 was $ 12.6 million , consisting of $ 7.8 million of license and services and $ 4.8 million of customer support compared to total backlog of $ 7.8 million at december 31 , 2010. we had several improvements to our balance sheet during 2011. our cash increased $ 23.5 million to $ 34.3 million and we hold $ 16.4 million in long-term corporate debt securities . during the fourth quarter of 2011 , we declared a special dividend of $ 2.00 per share which was paid on january 3 , 2012. we accrued the dividend payable of $ 22.3 million as of december 31 , 2011. we have operations in foreign countries where the local currency is used to prepare the financial statements which are translated into our reporting currency , u.s. dollars . changes in the exchange rates between these currencies and our reporting currency are partially responsible for some of the changes from period to period in our financial statement amounts . the majority of the changes in 2011 and 2010 are a result of the u.s. dollar strengthening on average versus the british pound sterling . the chart below summarizes what our revenue and expenses would be on a constant currency basis . the constant currency basis assumes that the exchange rate was constant for the periods presented ( in thousands ) . replace_table_token_4_th the net effect of our foreign currency translations for the year ended december 31 , 2011 was a $ 0.6 million increase in revenue and a $ 0.5 million increase in operating expenses versus the year ended december 31 , 2010. the net effect of our foreign 17 currency translations for the year ended december 31 , 2010 was a $ 0.3 million decrease in revenue and a $ 16,000 decrease in operating expenses versus the year ended december 31 , 2009. story_separator_special_tag ended december 31 , 2009. as a percentage of license fees and services revenue , costs of license fees and services , excluding depreciation and amortization , increased to 41 % for the year ended december 31 , 2010 from 31 % for the year ended december 31 , 2009.the increase in costs and as a percentage of license fees and services revenue was primarily the result of increased effort and on site presence on projects as well as lower revenue during the period . story_separator_special_tag as a percentage of revenue , depreciation expense remained at 2 % for the years ended december 31 , 2011 and 2010. depreciation expenses increased 21 % or $ 60,000 , to $ 347,000 for the year ended december 31 , 2010 from $ 287,000 for the year ended december 31 , 2009. as a percentage of revenue , depreciation expense was 2 % and 1 % , respectively for the years ended december 31 , 2010 and 2009. amortization amortization expense consists of amortization of identifiable intangibles related to our acquisitions of evolving systems u.k. amortization expenses decreased 19 % , to $ 0.6 million for the year ended december 31 , 2011 from $ 0.7 million for the year ended december 31 , 2010. as a percentage of revenue , amortization expense remained at 3 % for the years ended december 31 , 2011 and 2010. the decrease in amortization expense was due to purchased software assets of evolving systems uk becoming fully amortized during 2011. amortization expenses stayed approximately $ 0.7 million for the years ended december 31 , 2010 and december 31 , 2009. as a percentage of revenue , amortization expense was 3 % for the years ended december 31 , 2010 and 2009. the decrease in amortization expense was due to the effects of the conversion of the british pound sterling to the us dollar . interest income interest income includes interest income earned on cash , cash equivalents and long-term investments . interest income increased 6139 % , or $ 0.8 million , to $ 0.8 million for the year ended december 31 , 2011 from $ 13,000 for the year ended december 31 , 2010. the increase was due to interest from long-term investments . interest income decreased 48 % , or $ 12,000 , to $ 13,000 for the year ended december 31 , 2010 from $ 25,000 for the year ended december 31 , 2009. the decrease was a result of lower rates of return earned on our cash balances . interest expense interest expense includes interest expense on our long-term debt and capital lease obligations as well as amortization of debt issuance costs . interest expense for the year ended december 31 , 2011 decreased 86 % or $ 88,000 to $ 14,000 as compared to $ 0.1 million for the year ended december 31 , 2010. this decrease was a result of the retirement our senior term loan and revolving credit facility in the first quarter of 2010. the 2011 expense was primarily the interest of a capital lease . 21 interest expense for the year ended december 31 , 2010 decreased 81 % or $ 0.4 million to $ 0.1 million as compared to $ 0.5 million for the year ended december 31 , 2009. this decrease was a result of lower debt balances due to the early retirement of our subordinated debt and accrued interest during 2009 and the retirement of our senior term loan and revolving credit facility in the first quarter of 2010. gain on sale of investments gain on the sale of investments for the year ended december 31 , 2011 is $ 0.2 million . the gain is a result of the sale of long-term investments . there were no long-term investments for the years ended december 31 , 2010 and 2009. gain ( loss ) on foreign exchange transactions gain ( loss ) on foreign exchange transactions consists of realized and unrealized foreign currency transaction gains and losses . foreign currency transaction gains and losses result from transactions denominated in a currency other than the functional currency of the respective subsidiary . foreign currency transaction gain of $ 0.3 million for the year ended december 31 , 2011 compared to a $ 0.1 million loss for the year ended december 31 , 2010 for a year over year improvement of 373 % or $ 0.4 million . the gain and loss were generated through the re-measurement of certain non-functional currency denominated financial assets and liabilities of our evolving systems u.k. and india subsidiaries . foreign currency transaction expense decreased $ 0.5 million to a foreign currency loss of $ 0.1 million for the year ended december 31 , 2010 compared to a $ 0.6 million foreign currency loss for the year ended december 31 , 2009. these losses were primarily generated by evolving systems u.k. transactions denominated in currencies other than its functional currency ( mainly u.s. dollars ) , which caused losses as the british pound sterling strengthened during 2010. income tax expense we recorded income tax expense ( benefit ) of ( $ 0.4 ) million , ( $ 0.4 ) million and $ 41,000 for the years ended december 31 , 2011 , 2010 and 2009 , respectively . the net benefit during year ended december 31 , 2011 consisted of current income tax expense of $ 0.2 million offset by a net deferred tax benefit of $ 0.6 million . the current tax expense consists primarily of income tax from our u.k.-based operations and income tax related to our operations in india and alternative minimum tax ( amt ) . the majority of the u.k. income tax expense is related to unrecoverable foreign withholding taxes . the foreign withholding taxes are typically used to offset our income tax liability , but we did not have enough taxable income to utilize the foreign withholding taxes during the year . the deferred tax benefit was related primarily to the partial release of our valuation allowance on our domestic deferred tax assets during the second quarter of 2011 as a result of the anticipated gain on number solutions business which closed in the third quarter of 2011. we also had a deferred tax benefit related to the release of our valuation allowance on our tax asset from our indian operations as we began to utilize minimum alternate tax ( mat ) payments made during our tax holiday .
| results of operations the following table presents our consolidated statements of operations in comparative format . replace_table_token_5_th 18 the following table presents our consolidated statements of operations reflected as a percentage of total revenue . replace_table_token_6_th revenue revenue is comprised of license fees and services and customer support . license fees and services revenue represent the fees we receive from the licensing of our software products and those services directly related to the delivery of the licensed product as well as integration services and time and materials work . customer support revenue includes annual support fees , recurring maintenance fees , minor product upgrades and warranty fees . warranty fees are typically bundled with a license sale and the related revenue , based on vendor specific objective evidence ( vsoe ) , is deferred and recognized ratably over the warranty period . license fees and services license fees and services revenue decreased 33 % , or $ 4.9 million to $ 9.8 million for the year ended december 31 , 2011 compared to $ 14.6 million for the year ended december 31 , 2010. the decrease is due to declines in dynamic sim allocation ( dsa ) , tertio service activation ( tsa ) and billing mediation revenues of $ 2.8 million , $ 1.6 million and $ 0.5 million , respectively . license fees and services revenue decreased 16 % , or $ 2.9 million to $ 14.6 million for the year ended december 31 , 2010 compared to $ 17.5 million for the year ended december 31 , 2009. this decrease is primarily due to a decline in tsa 19 revenue of $ 4.4 million , partially offset by increased revenue from our dsa solution of $ 1.1 million and billing mediation revenue of $ 0.4 million .
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unless the context indicates otherwise , the terms the “ company , ” “ we , ” “ our ” or “ us ” are used to refer to sbh and its subsidiaries and sb/rh and its subsidiaries , collectively business overview refer to item 1 - business and note 1 – description of business in notes to the consolidated financial statements , included elsewhere within this annual report for an overview of our business . divestitures global batteries & lighting ( “ gbl ” ) – on january 2 , 2019 , the company completed the sale of its gbl business pursuant to the gbl acquisition agreement with energizer for cash proceeds of $ 1,956.2 million , resulting in the recognition of a pre-tax gain on sale of $ 989.8 million , including the estimated settlement of customary purchase price adjustments for working capital and assumed indebtedness , recognition of tax and legal indemnifications under the acquisition agreement and an estimated contingent purchase price adjustment for the settlement with the planned divestiture of the varta® consumer batteries business by energizer of $ 200.0 million in accordance with the gbl acquisition agreement . the results of operations and gain on sale for disposal of the gbl business are recognized as a component of discontinued operations . global auto care ( “ gac ” ) – on january 28 , 2019 , the company completed the sale of its gac business pursuant to the gac acquisition agreement with energizer for $ 1.2 billion , consisting of $ 938.7 million in cash proceeds and $ 242.1 million in stock consideration of common stock of energizer , resulting in the write-down of net assets held for sale of $ 111.0 million , including the estimated settlement of customary purchase price adjustments for working capital and assumed indebtedness , recognition of tax and legal indemnifications in accordance with the gac acquisition agreement . unrealized gains and losses realized for changes in the fair value of the company 's common stock investment in energizer are recognized as other non-operating income ( expense ) , net on the company 's consolidated statement of income . the results of operations and write-down of net assets held for sale for the disposal of the gac business are recognized as a component of discontinued operations . home and personal care ( “ hpc ” ) – during the year ended september 30 , 2018 , the company initiated a plan to sell its gba segment , consisting of its gbl business and hpc business , and classified the gba operations as held for sale and discontinued operations . during the first quarter ended december 30 , 2018 , the company changed its plans to sell its hpc business and classified the net assets of hpc as held for use and the hpc operations have been classified as continuing operations for all periods presented . during the period in which the hpc business was held for sale , the company incurred divestiture related expenses to market and sell the business that were previously recognized as a component of discontinued operations and ceased the recognition of depreciation and amortization on long-lived assets of the hpc disposal group , impacting the comparability of financial results when classified as continuing operations , resulting in the recognition of $ 29.0 million in incremental depreciation and amortization charges during the year ended september 30 , 2019 . hrg insurance operations – on november 30 , 2017 , fgl completed the fgl merger with cf corporation and the cf entities pursuant to the fgl merger agreement , as further detailed in note 3 – divestitures in notes to the consolidated financial statements , included elsewhere in this annual report . pursuant to the fgl merger agreement , except for certain shares specified in the fgl merger agreement , each issued and outstanding share of common stock of fgl was automatically cancelled and converted into the right to receive $ 31.10 in cash . the total consideration received by hrg as a result of the completion of the fgl merger was $ 1,488.3 million . in addition , pursuant to a share purchase agreement , on november 30 , 2017 , front street re ( delaware ) ltd. sold to the cf entities all of the issued and outstanding shares of front street for $ 65.0 million , which was subject to reduction for customary transaction expenses . refer to note 3 – divestitures in notes to the consolidated financial statements , included elsewhere in this annual report , for further discussion pertaining to the divestitures . spectrum merger on july 13 , 2018 , sbh ( formerly hrg ) closed its agreement and plan of merger with its majority owned subsidiary , spectrum brands legacy , inc. ( “ spectrum legacy ” , formerly spectrum brands holdings , inc. ) . sbh incurred significant transaction costs associated with the spectrum merger that impacted the comparability of the consolidated results of operations . effective as of the closing date of the spectrum merger , management and control of the organization was assumed by its majority-owned subsidiary , spectrum , and the company continues to operate as the consumer products company that was principally conducted by its majority owned subsidiary . see note 4 – acquisitions in notes to the consolidated financial statements , included elsewhere in this annual report , for more information on the spectrum merger and associated transaction costs . additionally , as a result of the spectrum merger , hrg and spectrum legacy joined in the filing of u.s. consolidated tax returns starting july 13 , 2018. the form of the spectrum merger allowed for the hrg capital and net operating loss carryforwards to be used to offset future income and the u.s. tax gain on the sale of the gbl business to energizer . as a result , sbh released $ 365.3 million of valuation allowance on its net deferred tax assets since it became more likely than not that the assets will be realized . story_separator_special_tag we believe this non-gaap measure provides useful information to investors because it reflects regional and operating segment performance from our activities without the effect of changes in currency exchange rate and or acquisitions . we use organic net sales as one measure to monitor and evaluate our regional and segment performance . organic growth is calculated by comparing organic net sales to net sales in the prior year . the effect of changes in currency exchange rates is determined by translating the period 's net sales using the currency exchange rates that were in effect during the prior comparative period . net sales are attributed to the geographic regions based on the country of destination . we exclude net sales from acquired businesses in the current year for which there are no comparable sales in the prior period . the following is a reconciliation of net sales to organic net sales of sbh and sb/rh for the year ended september 30 , 2019 compared to net sales for the year ended september 30 , 2018 , and the net sales to organic net sales for the year ended september 30 , 2018 compared to the year ended september 30 , 2017 respectively : replace_table_token_8_th replace_table_token_9_th 32 adjusted ebitda . adjusted ebitda is a non-gaap metric used by management that we believe provides useful information to investors because it reflects the ongoing operating performance and trends of our segments , excluding certain non-cash based expenses and or non-recurring items during each of the comparable periods . it also facilitates comparisons between peer companies since interest , taxes , depreciation and amortization can differ greatly between organizations as a result of differing capital structures and tax strategies . adjusted ebitda is also used for determining compliance with the company 's debt covenants . see note 12 - debt in the notes to the consolidated financial statements , included elsewhere within this annual report , for additional detail . ebitda is calculated by excluding the company 's income tax expense , interest expense , depreciation expense and amortization expense ( from intangible assets ) from net income . adjusted ebitda further excludes : stock based and other incentive compensation costs associated with long-term compensation arrangements and other equity compensation based upon achievement of long-term performance metrics ; and generally consist of non-cash , stock-based compensation . during the year ending september 30 , 2019 , the company issued certain incentive bridge awards due to changes in the company 's long-term compensation plans that allow for cash based payment upon employee election which has been included in the adjustment and does not qualify as shared-based compensation . see note 18 - share based compensation in notes to the consolidated financial statements , included elsewhere within this annual report for further discussion ; restructuring and related charges , which consist of project costs associated with restructuring initiatives across the segments . see note 5 - restructuring and related charges in notes to the consolidated financial statements , included elsewhere within this annual report for further details ; transaction related charges consist of ( 1 ) transaction costs from qualifying acquisition transactions during the period , or subsequent integration related project costs directly associated with an acquired business ; ( 2 ) post-divestiture separation costs consisting of incremental costs incurred by the continuing operations of the company after completion of the gbl and gac divestitures to facilitate separation of shared operations , platforms and personnel transferred as part of the divestitures and exiting of tsas and reverse tsas with energizer ; ( 3 ) divestiture related transaction costs that are recognized in continuing operations due to the change in plan to cease marketing and selling of the hpc business . see note 2 – significant accounting policies and practices in notes to the consolidated financial statements included elsewhere within this annual report for further details ; non-cash asset impairments or write-offs realized and recognized in earnings from continuing operations ( when applicable ) ; non-cash purchase accounting inventory adjustments recognized in earnings from continuing operations after an acquisition ( when applicable ) ; unrealized gains and losses attributable to the company 's investment in energizer common stock during the year ended september 30 , 2019 , acquired as part of consideration received from the company 's sale and divestiture of gac to energizer . see note 3 – divestitures and note 7 – fair value of financial instruments in notes to the consolidated financial statements , included elsewhere within this annual report for further discussion ; foreign currency gains and losses attributable to multicurrency loans for the year ended september 30 , 2019 , that were entered into with foreign subsidiaries in exchange for the receipt of divestiture proceeds by the parent company and the distribution of the respective foreign subsidiaries ' net assets as part of the gbl and gac divestitures . the company has entered into various hedging arrangements to mitigate the volatility of foreign exchange risk associated with such loans ; incremental reserves associated with environmental remediation activity of legacy properties and former manufacturing sites assumed by the organization which had previously been exited by the company and realized during the year ended september 30 , 2019 and legal settlement costs associated with retained litigation from the company 's former gac operations , realized during the year ended september 30 , 2019 after completion of the divestiture . see note 19 – commitments and contingencies in notes to the consolidated financial statements included elsewhere within this annual report for further discussion ; incremental costs associated with a safety recall in gpc .
| consolidated results of operations sbh the following is summarized consolidated results of operations for sbh for the years ended september 30 , 2019 , 2018 and 2017 , respectively : : replace_table_token_12_th net sales . net sales for the year ended september 30 , 2019 decreased $ 6.6 million , or 0.2 % , with an increase in organic sales of $ 54.4 million , or 1.4 % . net sales for the year ended september 30 , 2018 increased $ 103.3 million , or 2.8 % , with a decrease in organic sales of $ 3.7 million , or 0.1 % . the following sets forth net sales by segment for the years ended september 30 , 2019 , 2018 and 2017 : replace_table_token_13_th the following sets forth the principal components of the change in net sales from the year ended september 30 , 2019 to the year ended september 30 , 2018 , and from the year ended september 30 , 2018 to the year ended september 30 , 2017 : replace_table_token_14_th gross profit . gross profit for the year ended september 30 , 2019 decreased $ 27.4 million with a decrease in gross profit margin from 35.0 % to 34.3 % primarily due to incremental material and input costs including tariffs , with unfavorable product mix partially offset by pricing adjustments . gross profit for the year ended september 30 , 2018 decreased $ 2.1 million primarily attributable to the decline in gross profit margin from 36.0 % to 35.0 % primarily driven by operating inefficiencies from restructuring initiatives and inflation in raw material costs primarily in hhi , increased production costs associated with start-up on operating facilities impacted by the product safety recall in gpc , operating inefficiencies from the european gpc distribution center consolidation , and unfavorable private label product mix ; offset by reduced depreciation of $ 9.5 million associated with hpc while recognized as held for sale . operating expenses .
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board role in risk oversight cfc 's management has primary responsibility for day-to-day management of the risks associated with cfc 's business , including operational , credit , loan , asset and liability management , legal , regulatory and political risks , while the board of directors is primarily responsible for the oversight and direction of risk management . management 's role includes identifying risks , establishing appropriate internal processes and an effective internal control environment to identify and manage risks , and communicating information about risk to the board . cfc 's management , consisting of the executive team and the operations and planning council , which is composed of 10 vice president-level employees , is assisted in its day-to-day duties related to risk by individual business functions , in addition to an asset liability committee and corporate credit committee and disclosure committee , which are authorized by the board of story_separator_special_tag . many of our significant accounting principles require complex judgments to estimate values of assets and liabilities . we have procedures and processes to facilitate making these judgments . we identified the allowance for loan losses and the determination of fair value of certain items on our balance sheet as critical accounting policies because they require significant estimations and judgments by management . these policies are summarized below and identify and describe the development of the variables most important in the estimation process . in many cases , there are numerous alternative judgments that could be used in the process of determining the inputs required for estimation . where alternatives exist , we used the factors we believe represent the most reasonable value in developing the inputs . actual performance that differs from our estimates of the key variables could affect net income . separate from the possible future effect to net income from our model inputs , market-sensitive assets and liabilities may change subsequent to the balance sheet date , often significantly , due to the nature and magnitude of future credit and market conditions . such credit and market conditions may change quickly and in unforeseen ways , and the resulting volatility could have a significant , negative effect on future operating results . below is a description of the process used in determining the adequacy of the allowance for loan losses and the determination of fair value for certain items on our balance sheet . allowance for loan losses gaap requires loans receivable to be reported on the consolidated balance sheets at net realizable value . the net realizable value is the total principal amount of loans outstanding less an estimate of the probable losses inherent in the portfolio . we maintain an allowance for loan losses at a level estimated by management to provide for probable losses inherent in the loan portfolio . the allowance for loan losses is reported separately on the consolidated balance sheet , and the provision for loan losses is reported as a separate line item on the consolidated statement of operations . at may 31 , 2011 and 2010 , our loan loss allowance totaled $ 161 million and $ 593 million , 0.83 percent and 3.07 percent of total loans outstanding , respectively . there are significant subjective assumptions and estimates used in calculating the amount of the loss allowance required . we review the estimates and assumptions used in the calculations of the loan loss allowance on a quarterly basis . because of the subjective nature of these estimates , other estimates could be reasonable , and changes in the assumptions used and our estimates could have a material effect on our financial statements . the estimate of the allowance for loan losses is based on a review of the composition of the loan portfolio , past loss experience , specific problem loans , current economic conditions , available market data and or projection of future cash flows and other pertinent factors that in management 's judgment may contribute to expected losses . the methodology used to calculate the loan loss allowance is summarized below . the loan loss allowance is calculated by dividing the portfolio into two categories of loans : ( 1 ) the general portfolio which comprises loans that are performing according to the contractual agreements ; and ( 2 ) the impaired portfolio which comprises loans that ( i ) are not currently performing or ( ii ) for various reasons we do not expect to collect all amounts as and when due and payable under the loan agreement or ( iii ) are performing according to a restructured loan agreement , but as a result of the troubled debt restructuring are required to be classified as impaired . general portfolio the general portfolio of loans consists of all loans not specifically identified in the impaired category . we disaggregate the loans in the general portfolio by borrower type : cfc , rtfc and ncsc . we further disaggregate the cfc loan portfolio by member class : distribution , power supply and statewide and associates . 35 we use the following factors to determine the loan loss allowance for the general portfolio category : · internal risk ratings system . we maintain risk ratings for our borrowers that are updated at least annually and are based on the following : - general financial condition of the borrower ; - our estimate of the adequacy of the collateral securing our loans ; - our judgment of the quality of the borrower 's management ; - our judgment of the borrower 's competitive position within its service territory and industry ; - our estimate of the potential impact of proposed regulation and litigation ; and - other factors specific to individual borrowers or classes of borrowers . · standard & poor 's historical corporate bond default table . the table provides expected default rates for all corporate bonds based on rating level and the remaining maturity . we correlate our internal risk ratings to the ratings used in the corporate bond default table . story_separator_special_tag the change in cash flows required to make the change in the calculated impairment material will be different for each borrower and depend on the period covered , the effective interest rate at the time the loan became impaired and the amount of the loan outstanding . estimates are not used to determine our investment in the receivables or the discount rate since , in all cases , the investment is equal to the loan balance outstanding at the reporting date , and the discount rate is equal to the interest rate on the loan at the time the loan became impaired . at may 31 , 2011 and 2010 , respectively , there was a total specific loan loss allowance balance of $ 37 million and $ 437 million for impaired loans totaling $ 506 million and $ 1,064 million , representing 7 percent and 41 percent of total impaired loans . the $ 37 million and $ 437 million specific loan loss allowance balance represented 23 percent and 74 percent of the total loan loss allowance at may 31 , 2011 and 2010 , respectively . for certain impaired loans at may 31 , 2011 and 2010 , the effective interest rate at the time of impairment included a variable-rate component . as a result , the calculated impairment for these loans increases or decreases with changes in short-term and long-term variable interest rates . based on the current balance of impaired loans at may 31 , 2011 , a 25 basis point increase or decrease to our variable interest rates would result in an increase or decrease , respectively , of approximately $ 9 million to the calculated impairment irrespective of a change in the credit fundamentals of the impaired borrower . our policy for recognizing interest income on impaired loans is determined on a case-by-case basis . an impaired loan to a borrower that is non-performing will typically be placed on non-accrual status and we will reverse all accrued and unpaid interest . we generally apply all cash received during the non-accrual period to the reduction of principal , thereby foregoing interest income recognition . interest income may be recognized on an accrual basis for restructured impaired loans where the borrower is performing and is expected to continue to perform based on agreed-upon terms . all loans are written off in the period that it becomes evident that collectability is highly unlikely ; however , our efforts to recover all charged-off amounts may continue . the determination to write off all or a portion of a loan balance is made based on various factors on a case-by-case basis including , but not limited to , cash flow analysis and the fair value of collateral securing the borrower 's loans . fair value we determined the accounting for certain items on our balance sheet at fair value to be a critical accounting policy because of the subjective nature and the requirement for management to make significant estimations in determining the amounts to be recorded . different assumptions and estimates could also be reasonable , and changes in the assumptions used and estimates made could have a material effect on our financial statements . the primary instruments recorded on our balance sheet at fair value are derivative financial instruments . derivative instruments must be recorded on the balance sheet as either an asset or liability measured at fair value . since these instruments generally do not qualify for hedge accounting , the accounting standards require that we record all changes in fair value through earnings . we record the change in the fair value of derivatives instruments , along with realized gains and losses from cash settlements , in the derivative gain ( losses ) line item of the consolidated statement of operations each reporting period . since there is not an active secondary market for the types of derivative instruments we use , we obtain market quotes from our dealer counterparties . the market quotes are based on the expected future cash flow and estimated yield curves . we perform our own analysis to confirm the values obtained from the counterparties . the counterparties estimate future interest rates as part of the quotes they provide to us . we adjust all derivatives to fair value on a quarterly basis . the fair value we record will change as estimates of future interest rates change . to estimate the impact of changes to interest rates on the forward value of 37 derivatives , we would need to estimate all changes to interest rates through the maturity of our outstanding derivatives . the maturities of our derivatives in the current portfolio run through 2045. since many of the derivative instruments we use for risk management have such long-dated maturities , the valuation of these derivatives may require extrapolation of market data that is subject to significant judgment . accounting standards on fair value require that credit risk be considered in determining the market value of any asset or liability carried at fair value . we adjust the market values of our derivatives received from the counterparties based on our counterparties ' and our credit spreads observed in the credit default swap market . in addition to the valuation associated with derivative financial instruments , we also present foreclosed assets at fair value when initially recorded on the balance sheet . subsequently , foreclosed assets are periodically reviewed for impairment . our foreclosed assets do not meet the criteria to be classified as held for sale . if an impairment loss is recognized on our foreclosed assets , the adjusted carrying amount of the foreclosed assets becomes the new cost basis . restoration of any recognized impairment loss is prohibited under gaap , even when the fair value of the foreclosed assets increases subsequent to our recognition of impairment . in many instances the valuation of these assets are judgmental and dependent upon comparisons to similar assets or estimations of future cash flows that are expected to be generated by the underlying foreclosed properties .
| results of operations section for more details about the recovery of loan losses for the year ended may 31 , 2011. on a quarterly basis , we review all non-performing and restructured borrowers , as well as certain additional borrowers selected based on known facts and circumstances , to determine if the loans to the borrower are impaired and or to determine if there are changes to a previously impaired loan . we calculate a borrower 's impairment based on the expected future cash flows or the fair value of the collateral securing our loans to the borrower if cash flow can not be estimated . as events related to the borrower take place and economic conditions and our assumptions change , the impairment calculations will change . at may 31 , 2011 and 2010 , there was a total specific loan loss allowance balance of $ 37 million and $ 437 million , respectively , related to impaired loans totaling $ 506 million and $ 1,064 million , respectively . 50 liabilities and equity outstanding debt the following table breaks out our debt outstanding and the weighted average interest rates by type of debt at may 31 : replace_table_token_31_th ( 1 ) includes $ 309 million and $ 372 million related to the daily liquidity fund at may 31 , 2011 and 2010 , respectively . ( 2 ) includes variable-rate debt that has been swapped to a fixed rate net of any fixed-rate debt that has been swapped to a variable rate . ( 3 ) the rate on commercial paper notes does not change once the note has been issued . however , the rates on new commercial paper notes change daily , and commercial paper notes generally have maturities of less than 90 days . therefore , commercial paper notes are classified as variable-rate debt .
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as of december 31 , 2018 , the company has $ 8 million of excess foreign tax credits in the u.s. the foreign tax credits will expire between 2024 and 2027. the potential benefit of $ 8 million story_separator_special_tag overview of the separation on may 1 , 2014 , the national oilwell varco , inc. board of directors approved the spin-off of its distribution business into an independent , publicly traded company named now inc. in accordance with a separation and distribution agreement , the two companies were separated by nov distributing to its stockholders 107,053,031 shares of common stock of the company after the market closed on may 30 , 2014 ( the “ spin-off date ” ) . each nov stockholder received one share of now common stock for every four shares of nov common stock held at the close of business on the record date of may 22 , 2014 and not sold prior to close of business on may 30 , 2014. fractional shares of now common stock were not distributed and any fractional shares of now common stock otherwise issuable to a nov stockholder were sold in the open market on such stockholder 's behalf , and such stockholder received a cash payment with respect to that fractional share . in conjunction with the spin-off , nov received an opinion from its legal counsel to the effect that , based on certain facts , assumptions , representations and undertakings , for u.s. federal income tax purposes , the distribution of now common stock and certain related transactions generally was not taxable to nov or u.s. holders of nov common stock , except in respect to cash received in lieu of fractional shares , which generally will be taxable to such holders as a capital gain . following the spin-off , now became an independent , publicly traded company as nov had no ownership interest in now . each company has separate public ownership , boards of directors and management . a registration statement on form 10 , as amended , relating to the spin-off was filed by the company with the u.s. securities and exchange commission and was declared effective on may 13 , 2014. on june 2 , 2014 , now stock began trading the “ regular-way ” on the new york stock exchange under the ticker symbol “ dnow ” . basis of presentation the accompanying consolidated financial information include the accounts of the company and its consolidated subsidiaries . all significant intercompany transactions and accounts have been eliminated . 25 general overview we are a global distributor to the oil and gas and industrial markets with a legacy of over one-hundred and fifty years . we operate primarily under the distributionnow and wilson export brands . through our network of approximately 265 locations and approximately 4,500 employees worldwide , we stock and sell a comprehensive offering of energy products as well as a selection of products for industrial applications . our energy product offering is consumed throughout all sectors of the oil and gas industry – from upstream drilling and completion , exploration and production ( “ e & p ” ) , midstream infrastructure development to downstream petroleum refining – as well as in other industries , such as chemical processing , mining , utilities and industrial manufacturing operations . the industrial distribution end markets include manufacturing , aerospace , automotive , refineries and engineering and construction firms . we also provide supply chain and materials management solutions to the same markets where we sell products . our global product offering includes consumable maintenance , repair and operating ( “ mro ” ) supplies , pipe , valves , fittings , flanges , gaskets , fasteners , electrical , instrumentation , artificial lift , pumping solutions , valve actuation and modular process , measurement and control equipment . we also offer warehouse and inventory management solutions as part of our supply chain and materials management offering . we have developed expertise in providing application systems , work processes , parts integration , optimization solutions and after-sales support . our solutions include outsourcing the functions of procurement , inventory and warehouse management , logistics , point of issue technology , project management , business process and performance metrics reporting . these solutions allow us to leverage the infrastructure of our sap enterprise resource planning ( “ erp ” ) system and other technologies to streamline our customers ' purchasing process , from requisition to procurement to payment , by digitally managing workflow , improving approval routing and providing robust reporting functionality . we support land and offshore operations for all the major oil and gas producing regions around the world through our network of locations . our key markets , beyond north america , include latin america , the north sea , the middle east , asia pacific and the former soviet union ( “ fsu ” ) . products sold through our locations support greenfield expansion upstream capital projects , midstream infrastructure and transmission and mro consumables used in day-to-day production . we provide downstream energy and industrial products for petroleum refining , chemical processing , lng terminals , power generation utilities and industrial manufacturing operations and customer on-site locations . we stock or sell more than 300,000 skus through our branch network . our supplier network consists of thousands of vendors in approximately 40 countries . from our operations in over 20 countries , we sell to customers operating in approximately 80 countries . the supplies and equipment stocked by each of our branches is customized to meet varied and changing local customer demands . the breadth and scale of our offering enhances our value proposition to our customers , suppliers and shareholders . we employ advanced information technologies , including a common erp platform across most of our business , to provide complete procurement , materials management and logistics coordination to our customers around the globe . having a common erp platform allows immediate visibility into our inventory assets , operations and financials worldwide , enhancing decision making and efficiency . story_separator_special_tag in addition , the effective tax rate for both years was impacted by a valuation allowance in the united states , canada and other foreign jurisdictions and the tax cuts and jobs act of 2017 ( “ tcja ” ) which includes the one-time transition tax , the u.s. tax rate change and foreign tax credits related to earnings of foreign subsidiaries that were previously tax deferred . consolidated results years ended december 31 , 2017 and december 31 , 2016 a summary of the company 's revenue and operating profit ( loss ) by segment in 2017 and 2016 follows ( in millions ) : replace_table_token_5_th united states revenue was $ 1,914 million for the year ended december 31 , 2017 , an increase of $ 469 million or 32.5 % compared to the year ended december 31 , 2016. this growth was primarily driven by a 72 % increase in u.s. rig count due to improved market activity , coupled with incremental revenue gains of approximately $ 65 million from an acquisition completed in 2016 , partially offset by a continued build in drilled , but uncompleted wells in 2017. operating loss was $ 53 million for the year ended december 31 , 2017 , an improvement of $ 139 million compared to operating loss of $ 192 million for the year ended december 31 , 2016. operating loss percentage was negative 2.8 % for the year ended december 31 , 2017 , compared to operating loss percentage of negative 13.3 % for the year ended december 31 , 2016. u.s. operating losses narrowed due to revenue gains addressed above coupled with improved pricing and reduced warehousing , selling and administrative expenses . 31 canada revenue was $ 356 million for the year ended december 31 , 2017 , an increase of $ 98 million or 38.0 % compared to the year ended december 31 , 2016. this increase was driven by the 62 % improvement in canadian rig count coupled with the impact of the weakening u.s. dollar . our canadian revenue grew slightly to 13 % of total revenue in 2017 from 12 % in 2016. we are subject to fluctuations in foreign currency exchange rates relative to the u.s. dollar . our canadian revenue is favorably impacted as the u.s. dollar weakens relative to the canadian dollar , and unfavorably impacted as the u.s. dollar strengthens relative to the canadian dollar . in 2017 , our revenue from canada was favorably impacted by approximately $ 8 million due to changes in foreign currency exchange rates over the prior year , as the u.s. dollar weakened relative to the canadian dollar . operating profit was $ 13 million for the year ended december 31 , 2017 , an increase of $ 31 million compared to operating loss of $ 18 million for the year ended december 31 , 2016. operating profit percentage was 3.7 % in 2017 compared to operating loss percentage of negative 7.0 % in 2016. operating profit improved in 2017 primarily due to the revenue increase discussed above at higher gross margins during the year . international revenue was $ 378 million for the year ended december 31 , 2017 , a decline of $ 26 million or 6.4 % compared to the year ended december 31 , 2016. this decrease was primarily a result of the completion of large projects in the first half of 2016 that did not repeat , coupled with the strengthening of the u.s. dollar and a softening in the offshore rig market . our international revenue changed from 19 % of total revenue in 2016 to 14 % in 2017. we are subject to fluctuations in foreign currency exchange rates relative to the u.s. dollar . our international revenue is favorably impacted as the u.s. dollar weakens relative to other foreign currencies , and unfavorably impacted as the u.s dollar strengthens relative to other foreign currencies . our international segment revenue was unfavorably impacted by approximately $ 5 million due to changes in foreign currency exchange rates over the prior year . operating loss was $ 1 million for the year ended december 31 , 2017 , an improvement of $ 11 million compared to operating loss of $ 12 million for the year ended december 31 , 2016. operating loss percentage was negative 0.3 % for the year ended december 31 , 2017 , compared to negative 3.0 % for the year ended december 31 , 2016. the improvement in operating profit was primarily due to reduced bad debt charges and realized cost savings . cost of products cost of products was $ 2,147 million for the year ended december 31 , 2017 compared to $ 1,762 million for the year ended december 31 , 2016 , an increase of $ 385 million . the increase in cost of products was attributable to an increase in revenue , offset by a reduction in inventory charges made in the period . cost of products includes the cost of inventory sold and related items , such as vendor consideration , inventory allowances , amortization of intangibles and inbound and outbound freight . warehousing , selling and administrative expenses warehousing , selling and administrative expenses were $ 542 million for the year ended december 31 , 2017 compared to $ 567 million for the year ended december 31 , 2016. the decrease in operating expense was related to reductions in accounts receivable charges , as well as a $ 10 million gain on sale of a property , offset by the impact of additional operating expenses associated with an acquisition . warehousing , selling and administrative costs include branch location , distribution center and regional expenses ( including costs such as compensation , benefits and rent ) as well as corporate general selling and administrative expenses . 32 impai rment during the fourth quarter of 2017 , we performed our annual goodwill impairment test resulting in no impairment .
| executive summary for the year ended december 31 , 2018 , the company generated net income of $ 52 million , or $ 0.47 per fully diluted share on $ 3,127 million in revenue . net income improved for the year ended december 31 , 2018 by $ 104 million when compared to the corresponding period of 2017. revenue increased for the year ended december 31 , 2018 by $ 479 million , or 18.1 % , when compared to the corresponding period of 2017. for the year ended december 31 , 2018 , operating profit was $ 73 million , or 2.3 % of revenue , compared to operating loss of $ 41 million or negative 1.5 % of revenue for the corresponding period of 2017. for the fourth quarter ended december 31 , 2018 , the company generated net income of $ 16 million , or $ 0.14 per fully diluted share on $ 764 million in revenue . net income improved for the fourth quarter ended december 31 , 2018 by $ 19 million when compared to the corresponding period of 2017. revenue increased for the fourth quarter ended december 31 , 2018 by $ 95 million , or 14.2 % , when compared to the corresponding period of 2017. for the fourth quarter ended december 31 , 2018 , operating profit was $ 22 million or 2.9 % of revenue , compared to operating profit of nil or 0.0 % of revenue for the corresponding period of 2017. outlook our outlook for the company remains tied to global rig count and oil and gas spending , particularly in north america . oil prices and u.s. oil storage levels are primary catalysts determining u.s. rig activity . looking into 2019 , activity should fluctuate as the industry addresses the vagaries of an over- or under-supplied market .
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during the year , management recorded non-cash impairment charges related to the write-down of identified intangible assets and goodwill at carrington in the amount of $ 75.0 million and at advanced academics in the amount of $ 19.4 million . during the fourth quarter of fiscal year 2012 , devry recorded a restructuring charge of approximately $ 7.1 million primarily related to workforce reductions to align its cost structure with enrollments primarily at devry university and carrington colleges . during fiscal year 2013 , devry expects to realize expense reductions of $ 50 million primarily within these educational institutions . chamberlain college of nursing ( chamberlain ) began offering nursing programs at its new campuses in miramar , florida in july 2011 , and indianapolis , indiana in march 2012. in addition , in may 2012 , chamberlain began teaching courses at its new campus in cleveland , ohio . chamberlain received approval from the illinois board of higher education for its doctorate of nursing practitioner program . also , chamberlain received approval from the illinois board of higher education for a master 's of science in nursing program in healthcare policy . devry continued to execute on its diversification strategy and completed the acquisition of the american university of the caribbean school of medicine in august 2011. in february 2012 , devry acquired faculdade boa viagem ( fbv ) . the acquisition was another step in the process of expanding devry brasil 's presence in the northeast area of the country . in may 2012 , devry 's becker professional education acquired falcon physician falcon physician reviews , which offers comprehensive review programs for medical students preparing for the united states medical licensing examination ( usmle ) and the comprehensive osteopathic medical licensing examination ( comlex ) . the american institute of certified public accountants released its 2011 elijah watt sells award winners , honoring the candidates with the highest scores on the cpa exam . there were 37 winners , and 31 of them prepared for the exam using becker 's industry-leading cpa review materials . devry was named an official education partner to the united states olympic committee . devry university and its keller graduate school of management are providing higher education opportunities at undergraduate and graduate levels , including scholarships and a dedicated devry staff , for u.s. olympic and paralympic athletes and hopefuls through 2016. devry completed its sixth share repurchase program during fiscal year 2012. in december 2011 , devry began repurchasing shares of its common stock under its seventh share repurchase program , which was approved by its board of directors in november 2011. during fiscal year 2012 , devry repurchased approximately 4,258,000 shares of its common stock at an average cost of $ 37.13 per share . devry 's financial position remained strong generating $ 277.4 million of operating cash flow during fiscal year 2012. as of june 30 , 2012 , cash and marketable securities balances totaled $ 176.7 million with no debt outstanding . 49 use of non-gaap financial information and supplemental reconciliation schedule during fiscal year 2012 , devry recorded impairment charges related to its carrington colleges group reporting unit and its advanced academics reporting unit . in addition , devry recorded a restructuring charge primarily related to workforce reductions to align its cost structure with enrollments at devry university and carrington colleges . devry also recorded a gain from the sale of becker 's stalla cfa review operations . the following table illustrates the effects of the impairment charges , restructuring charge and gain on the sale of assets on devry 's earnings . management believes that the non-gaap disclosure of net income and earnings per share excluding these discrete items provides investors with useful supplemental information regarding the underlying business trends and performance of devry 's ongoing operations and is useful for period-over-period comparisons of such operations given the discrete nature of the impairment and restructuring charges and gain on the sale of assets . devry uses these supplemental financial measures internally in its management and budgeting process . however , these non-gaap financial measures should be viewed in addition to , and not as a substitute for , devry 's reported results prepared in accordance with gaap . the following table reconciles these non-gaap measures to the most directly comparable gaap information ( in thousands , except per share data ) : replace_table_token_17_th story_separator_special_tag medical and healthcare medical and healthcare segment revenues increased 9.6 % to $ 612.0 million in fiscal year 2012 as compared to the prior year . higher total student enrollments at chamberlain college of nursing ( chamberlain ) and devry medical international were the key drivers of the segment revenue growth , which more than offset a decline in total student enrollments at carrington colleges group ( carrington ) . in addition , auc , which was acquired on august 3 , 2011 , contributed to the revenue growth in the segment during the current year periods . key trends for devry medical international ( which is composed of ross university schools of medicine and veterinary medicine and american university of the caribbean school of medicine ) , chamberlain and carrington are set forth below . devry medical international new student enrollment by term : increased by 22.9 % from september 2010 ( 694 students ) to september 2011 ( 853 students ) ; and decreased by 20.5 % from january 2011 ( 756 students ) to january 2012 ( 601 students ) ; and increased by 13.6 % from may 2011 ( 566 students ) to may 2012 ( 643 students ) . devry medical international total student enrollment by term : increased by 6.3 % from september 2010 ( 5,723 students ) to september 2011 ( 6,082 students ) ; 52 increased by 1.0 % from january 2011 ( 5,965 students ) to january 2012 ( 6,024 students ) ; and increased by 1.0 % from may 2011 ( 5,885 students ) to may 2012 ( 5,944 students ) . story_separator_special_tag excluding the impact of the auc acquisition , new student enrollment for the september 2011 semester increased 34.9 % , as compared to the prior year semester , overlapping a 26.4 % decrease in the new student growth rate in the prior year . excluding the impact of the auc acquisition , new student enrollment for the january 2012 semester decreased 19.9 % , as compared to the prior year semester , as a result of capacity constraints at the ross university school of medicine campus in dominica . ross continues to invest in its dominica facilities , programs and student services to meet the strong demand for its medical program . 54 the decreases in new student enrollments in the september 2011 , january 2012 and may 2012 terms at chamberlain were driven by increased competition for its online rn to bsn program . chamberlain also faced tough year over year comparisons , with a 42 % new student enrollment growth in november 2010. chamberlain 's onsite pre-licensure programs continued to grow as did new student enrollments in its master 's degree programs . total student enrollment growth at chamberlain was the result of ongoing investments in new programs and locations , including the addition of three new locations ( houston in march 2011 ; miramar , florida , in july 2011 ; and indianapolis in march 2012 ) , along with organic growth at existing locations . management believes the decline in student enrollments at carrington is the result of the impact of the prolonged economic downturn and persistent unemployment , which has resulted in reductions in the volume of inquiries from potential students . to address these issues , carrington continues to execute a turnaround plan , which includes increasing its focus on building carrington 's brand awareness , optimizing its marketing approach to emphasize the development of internally-generated inquiries , and improving its recruiting process through its new student contact center . as part of its growth strategy , carrington began offering courses in february 2012 at its newly opened campus in mesquite , texas , which represents carrington 's first location in the dallas metropolitan region . carrington is also making targeted investments in enhancing its students ' academic experience . international , k-12 and professional education international , k-12 and professional education segment revenues rose 6.3 % to $ 174.3 million in fiscal year 2012 as compared to the prior year . devry brasil was the primary driver of revenue growth in this segment due to new and total student enrollment growth as compared to the year-ago periods . in addition , fbv , which was acquired on february 29 , 2012 , contributed to the revenue growth in the segment during the third quarter . revenues increased slightly at becker during fiscal year 2012 as a result of increased demand for its cpa live and online instruction . in addition , becker 's acquisition of falcon physician reviews on april 2 , 2012 , also contributed to revenue growth . revenues declined at advanced academics during the fiscal year due to school district budget constraints . key enrollment trends for devry brasil are set forth below . devry brasil new student enrollment by term : increased by 29.2 % from fall 2010 ( 2,347 students ) to fall 2011 ( 3,033 students ) ; and increased by 46.1 % from spring 2010 ( 3,833 students ) to spring 2012 ( 5,599 students ) . the acquisition of fbv accounted for 1,263 new student enrollments in the current year period . excluding the impact of the fbv acquisition , new student enrollments grew by 13.1 % . devry brasil total student enrollment by term : increased by 17.8 % from fall 2010 ( 11,972 students ) to fall 2011 ( 14,099 students ) ; and increased by 55.6 % from spring 2011 ( 13,688 students ) to spring 2012 ( 21,297 students ) . the acquisition of fbv accounted for 5,421 total student enrollments in the current year period . excluding the impact of the fbv acquisition , total student enrollments grew by 16.0 % . costs and expenses cost of educational services the largest component of cost of educational services is the cost of faculty and employees who support educational operations . this expense category also includes the costs of facilities , adjunct faculty , supplies , bookstore and other educational materials , student education-related support activities , and the provision for uncollectible student accounts . devry 's cost of educational services increased 5.4 % to $ 975.6 million during fiscal year 2012 as compared to the prior year . the acquisitions of auc , fbv , atc international and falcon physician reviews , accounted for more than two-thirds of the increase during fiscal year 2012. in addition , cost increases were also incurred in support of operating a higher number of campus locations for chamberlain and devry brasil as compared to the prior year . these increases were partially offset by lower costs of educational services within devry university and carrington colleges as a result of savings from cost reduction measures ( workforce reductions and deferred project spending ) . expense attributed to stock-based awards included in cost of educational services increased during fiscal year 2012 as a result of an increase in the number stock awards granted to retirement eligible employees , which are fully expensed upon grant . 55 as a percentage of revenue , cost of educational services increased to 46.7 % in fiscal year 2012 from 42.4 % during the prior year period . the increase was the combined result of decreased operating leverage due to revenue declines primarily at devry university and carrington , and the impact from incremental investments to maintain the high quality of devry 's educational offerings and new campus openings at chamberlain and devry brasil to drive future enrollment growth .
| results of operations the following table presents information with respect to the relative size to revenue of each item in the consolidated statements of income for the current and prior two fiscal years . percentages may not add because of rounding . replace_table_token_18_th 50 fiscal year ended june 30 , 2012 vs. fiscal year ended june 30 , 2011 revenues total consolidated revenues for fiscal year 2012 of $ 2,089.8 million decreased $ 92.6 million , or 4.2 % , as compared to last year . revenues decreased within devry 's business , technology and management segment as a result of a decline in student enrollments and an increase in scholarships due to the challenging economic environment , persistent unemployment and heightened competition . this decrease was partially offset by revenue increases within devry 's medical and healthcare and international , k-12 and professional education segments as a result of growth in total student enrollments , improved student retention and tuition price increases . in addition , auc , which was acquired on august 3 , 2011 , and fbv , which was acquired on february 29 , 2012 contributed to offsetting the revenue decline during fiscal year 2012. management expects that total revenues will be slightly down for fiscal year 2013 as compared to fiscal year 2012 , driven largely by the impact from declines in new student enrollments within devry university and carrington experienced in fiscal year 2012 , partially offset by anticipated revenue growth within devry 's other educational institutions . management believes that fiscal years 2014 through 2016 will represent a period of recovery and growth for devry , assuming modest enrollment growth at devry university , a recovery of enrollments within carrington , and continued growth within devry 's other educational institutions . business , technology and management during fiscal year 2012 , business , technology and management segment revenues decreased 10.7 % to $ 1,303.6 million as compared to the year-ago period as a result of a decline in undergraduate student enrollments and an increase in scholarships due to the challenging economic environment , persistent unemployment and heightened competition .
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all rights , preferences , and privileges associated with the convertible preferred stock were terminated at the time of the company 's ipo in conjunction with the conversion of story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes and other financial information included elsewhere in this annual report on form 10-k. some of the information contained in this discussion and analysis or set forth elsewhere in this annual report on form 10-k , including information with respect to our plans and strategy for our business , includes forward-looking statements that involve risks and uncertainties . you should review the `` risk factors '' section of this annual report on form 10-k for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview we are a clinical-stage biopharmaceutical company focused on the discovery , development and commercialization of novel therapeutics based on our proprietary safely metabolized and rationally targeted , or smart , linker drug discovery platform . our smart linker drug discovery platform enables us to engineer product candidates that can simultaneously modulate multiple targets in a disease . our proprietary product candidates impact pathways that are central to diseases where efficacy may be optimized by a multiple target approach . our primary focus is on treatments for rare diseases . we are also developing other product candidates for the treatment of serious lipid disorders . we have applied our smart linker drug discovery platform to build an internal pipeline of product candidates for rare diseases and plan to pursue partnerships to develop additional product candidates . cat-1004 is an oral small molecule that we believe has the potential to be a disease-modifying therapy for all patients affected by duchenne muscular dystrophy , or dmd , regardless of the underlying dystrophin mutation . dmd is an ultimately fatal genetic disorder involving progressive muscle degeneration . cat-1004 is a smart linker conjugate of salicylate , a non-steroidal anti-inflammatory drug , and the omega-3 fatty acid docosahexaenoic acid , or dha , a naturally occurring unsaturated fatty acid with anti-inflammatory properties . the united states food and drug administration , or fda , has granted orphan drug , fast track and rare pediatric disease designations to cat-1004 for the treatment of dmd . the european commission , or ec , also has granted orphan medicinal product designation to cat-1004 for the treatment of dmd . we are currently conducting the movedmd phase 1/2 trial of cat-1004 in boys with dmd between ages four and seven . we reported positive top-line results from part a of the movedmd trial in january 2016. subject to regulatory approval of our proposed protocol , we expect to initiate part b of the movedmd trial in the first half of 2016 and to report top-line part b data in late 2016 , contingent on patient enrollment . if the results from our movedmd clinical trial and discussions with regulatory authorities regarding a pivotal trial are positive , we intend to initiate a six-month phase 3 pivotal clinical trial of cat-1004 in 2017. if the results from the phase 3 clinical trial are positive , we intend to seek marketing approval for cat-1004 . we hold rights to cat-1004 throughout the world . our cat-2000 series is our other clinical-stage program . we applied our smart linker drug discovery platform to engineer the cat-2000 series product candidates to inhibit the sterol regulatory element binding protein , or srebp , pathway . we used different smart linkers to produce two cat-2000 series product candidates , cat-2054 and cat-2003 . these product candidates possess different pharmacokinetic and biodistribution characteristics . cat-2003 , our first generation product candidate , is an orally administered molecule that inhibits the srebp pathway predominately in the intestine . cat-2054 , our second generation product candidate , is an orally administered molecule that inhibits the srebp pathway predominately in the liver . we are developing cat-2054 for serious lipid disorders such as hypercholesterolemia . 86 by inhibiting srebp , a master regulator of lipid metabolism in the body , cat-2054 has the potential to significantly reduce low-density lipoprotein cholesterol , or ldl-c ; it may also have beneficial effects on other metabolic parameters such as triglycerides , glucose and liver fat . this profile may differentiate cat-2054 from currently approved therapies for hypercholesterolemia and others in development . we are developing cat-2054 to be used in addition to statins in patients who can not achieve their ldl-c goals with statins alone . we initiated a phase 2a trial in patients with hypercholesterolemia in december 2015 , which is ongoing . we anticipate that we will report top-line data from the phase 2a trial in the third quarter of 2016. additionally , we are currently conducting studies and have generated positive data in preclinical models that support the therapeutic potential of the cat-2000 series in nonalcoholic steatohepatitis , or nash . cat-4001 is a smart linker conjugate of monomethyl fumarate and dha . cat-4001 is a small molecule that activates nrf2 and inhibits nf- k b , or nuclear factor kappa-light chain enhancer of activated b cells , that we are developing as a potential treatment for neurodegenerative diseases such as friedreich 's ataxia and amyotrophic lateral sclerosis , or als . nrf2 , or nuclear factor ( erythroid-derived 2 ) -like 2 , is a gene transcription factor , a protein that works inside of cells to control the expression of genes , that controls the body 's response to cellular stress and oxidative damage . the nrf2 and nf- k b pathways have been implicated in friedreich 's ataxia and als . we plan to conduct investigational new drug application , or ind , enabling studies in 2016 for cat-4001 . we hold rights to cat-4001 throughout the world . story_separator_special_tag the fda has 88 granted cat-1004 orphan drug , fast track and rare pediatric disease designations for the treatment of dmd . the european commission has granted cat-1004 orphan medicinal product designation to cat-1004 for the treatment of dmd . we hold rights to cat-1004 throughout the world . cat-2054 is an orally administered smart linker conjugate of the omega-3 fatty acid eicosapentaenoic acid , or epa , and nicotinic acid , designed to modulate the srebp pathway primarily in the liver . by inhibiting srebp , a master regulator of lipid metabolism in the body , cat-2054 has the potential to significantly reduce ldl-c ; it may also have beneficial effects on other metabolic parameters such as triglycerides , glucose and liver fat . this profile may differentiate cat-2054 from currently approved therapies for hypercholesterolemia and others in development . we are developing cat-2054 to be used in addition to statins in patients who can not achieve their ldl-c goals with statins alone . we initiated a phase 2a trial in patients with hypercholesterolemia in december 2015 , which is ongoing . we anticipate that we will report top-line data from the phase 2a trial in the third quarter of 2016. additionally , we are currently conducting studies and have generated positive data in preclinical models that support the therapeutic potential of the cat-2000 series in nash . we hold rights to cat-2054 throughout the world , and we intend to seek a partner for the program prior to initiating phase 3 clinical trials . cat-2003 is our first-generation product candidate in the cat-2000 series , and is an orally administered smart linker conjugate of epa and nicotinic acid that we designed to modulate the srebp pathway . we have completed three phase 2a trials of cat-2003 in patient populations with elevated triglycerides or hypertriglyceridemia in which we observed positive effects of cat-2003 on triglycerides , ldl-c and glucose . we also observed gastrointestinal side effects . while we have chosen to prioritize the development of cat-2054 over cat-2003 , we believe that the clinical trial data for cat-2003 support the utility of our smart linker drug discovery and the potential to treat lipid and metabolic disorders by modulating the srebp pathway . cat-4001 is a conjugate of monomethyl fumarate and dha that we designed to combine the potentially beneficial activities of monomethyl fumarate and dha on the nrf2 and nf-kb pathways . we are developing cat-4001 initially for the treatment of neurodegenerative diseases in which the nrf2 and nf- k b pathways have been implicated , such as friedreich 's ataxia and als . we plan to conduct investigational new drug application , or ind , enabling studies in 2016 for cat-4001 . we hold rights to cat-4001 throughout the world . other research and development programs include activities related to exploratory efforts , target validation and lead optimization for our early stage programs and our proprietary platform technology . we typically use our employee , consultant and infrastructure resources across our development programs . we track outsourced development costs by product candidate or development program , but we do not allocate personnel costs , other internal costs or external consultant costs to specific product candidates or development programs . we record our research and development expenses net of any research and development tax incentives we are entitled to receive from government authorities . 89 the following table summarizes our research and development expenses by program ( in thousands ) : replace_table_token_6_th since inception , the total direct expenses to support the cat-1004 program have been $ 14.5 million . since we began separately tracking cat-2054 in 2013 , the direct expenses to support that program have totaled $ 9.2 million . the successful development of our product candidates is highly uncertain . accordingly , at this time , we can not reasonably estimate the nature , timing and costs of the efforts that will be necessary to complete the remainder of the development of these product candidates . we are also unable to predict when , if ever , material net cash inflows will commence from cat-1004 , cat-2054 , or any of our other current or potential product candidates . this is due to the numerous risks and uncertainties associated with developing medicines , including the uncertainties of : establishing an appropriate safety profile with ind-enabling toxicology studies ; successful enrollment in , and completion of clinical trials ; receipt of marketing approvals from applicable regulatory authorities ; establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers ; obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our product candidates ; launching commercial sales of the products , if and when approved , whether alone or in collaboration with others ; and a continued acceptable safety profile of the products following approval . a change in the outcome of any of these variables with respect to the development of any of our product candidates would significantly change the costs and timing associated with the development of that product candidate . 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 expect research and development costs to increase significantly for the foreseeable future as our 90 product candidate development programs progress . however , we do not believe that it is possible at this time to accurately project total program-specific expenses through commercialization . there are numerous factors associated with the successful commercialization of any of our product candidates , including future trial design and various regulatory requirements , many of which can not be determined with accuracy at this time based on our stage of development . additionally , future commercial and regulatory factors beyond our control will impact our clinical development programs and plans .
| results of operations comparison of the years ended december 31 , 2015 and 2014 the following table summarizes our results of operations for the years ended december 31 , 2015 and 2014 , together with the dollar change in those items ( in thousands ) : replace_table_token_9_th research and development expenses research and development expenses increased by $ 7.3 million to $ 23.0 million for the year ended december 31 , 2015 from $ 15.7 million for the year ended december 31 , 2014 , an increase of 46 % . the increase in research and development expenses was primarily attributable to a net increase of $ 5.7 million in direct program costs , reflecting an increase of $ 5.2 million in costs related to cat-1004 primarily related to the movedmd phase 1/2 clinical trial , and a net increase of $ 0.5 million in costs related to our other programs . in addition , the costs related to internal research and development increased by $ 1.6 million , $ 0.8 million of which was attributable to compensation increases for new hires , $ 0.4 million of which was attributable to obligations under a letter agreement with a former employee , pursuant to which we agreed to make severance payments , $ 0.3 million of which was attributable to increases in consulting and professional services , and $ 0.1 million of which was attributable to increased facilities expense . general and administrative expenses general and administrative expenses increased by $ 2.6 million to $ 8.6 million for the year ended december 31 , 2015 from $ 6.0 million for the year ended december 31 , 2014 , an increase of 43 % .
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as of december 31 , 2013 and 2012 , approximately $ 2.4 million and $ 3.3 million of capitalized costs remained in finished goods inventory . stock options we had two equity compensation plans in effect at december 31 , 2013 : the 2009 stock incentive plan ( 2009 plan ) and the stock plan for non-employee directors . the 2009 plan succeeded the 2006 stock incentive plan ( 2006 plan ) and the teamshare stock option plan ( teamshare plan ) . no further awards have been granted under the 2006 plan or under the teamshare plan since may 2009 , and shares remaining available for grant under those plans have been merged into the 2009 plan . vested and unvested stock options and unvested restricted stock and rsus previously granted under the 2006 plan , the teamshare plan and another prior plan , the 2001 stock incentive plan , remained outstanding as of december 31 , 2013. we have reserved the maximum number of shares of common stock available for story_separator_special_tag the following discussion and analysis should be read in conjunction with the consolidated financial statements and the corresponding notes included elsewhere in this form 10-k. certain percentages presented in this discussion and analysis are calculated from the underlying whole-dollar amounts and therefore may not recalculate from the rounded numbers used for disclosure purposes . certain amounts in the 2012 and 2011 consolidated financial statements have been reclassified to conform to the 2013 presentation . executive level overview story_separator_special_tag style= '' font-size:12px ; margin-top:0px ; margin-bottom:0px '' > results of operations net sales by reportable segment the following tables present net sales by reportable segment and the components of the percentage changes ( dollars in millions ) : replace_table_token_3_th replace_table_token_4_th foreign exchange as used in the tables in this report represents the effect of changes in foreign currency exchange rates on sales growth . net sales by product category the following tables present net sales by product category and the components of the percentage changes ( dollars in millions ) : replace_table_token_5_th replace_table_token_6_th 19 zimmer holdings , inc. 2013 form 10-k annual report beginning in 2013 , our knees product category net sales include certain early intervention products that are primarily used in knee procedures . in 2012 and 2011 , these products were included in the surgical and other product category . net sales in the years ended december 31 , 2012 and 2011 related to these products have been reclassified to conform to the 2013 presentation . the following table presents net sales by product category by region ( dollars in millions ) : replace_table_token_7_th 20 zimmer holdings , inc. 2013 form 10-k annual report demand ( volume and mix ) trends increased volume and changes in the mix of product sales contributed 7 percentage points of year-over-year sales growth in 2013 , which is a higher growth rate than experienced in 2012 compared to 2011. in 2013 , accelerated growth was fueled by the introduction of new products , such as persona the personalized knee system and the transposal fluid waste management system . we believe procedure volumes in the broader musculoskeletal market remained stable or improved slightly in 2013 relative to 2012. we believe long-term indicators point toward sustained growth driven by an aging global population , growth in emerging markets , obesity , proven clinical benefits , new material technologies , advances in surgical techniques and more active lifestyles , among other factors . in addition , demand for clinically proven premium products and patient specific devices will continue to positively affect sales growth in markets that recognize the value in these advanced technologies . pricing trends global selling prices had a negative effect of 2 percent on year-over-year sales during 2013. our americas and europe reporting segments and certain countries in our asia pacific reporting segment continued to experience pricing pressure from governmental healthcare cost containment efforts and from local hospitals and health systems . for 2014 , we estimate that selling prices will decline slightly more than they did in 2013 due to a biennial price adjustment in japan in the second quarter of 2014 along with some moderately weaker pricing in europe . overall , we estimate prices will have a negative effect of 2 to 3 percent on year-over-year sales in 2014. foreign currency exchange rates for 2013 , foreign currency exchange rates resulted in a 2 percent decrease in sales , primarily from the strengthening of the u.s. dollar versus the japanese yen in the period . if foreign currency exchange rates remain consistent with december 31 , 2013 rates , we estimate that a stronger dollar versus foreign currency exchange rates will have a negative effect on sales in 2014 of 0 to 1 percent . we address currency risk through regular operating and financing activities and through the use of forward contracts and foreign currency options solely to manage foreign currency volatility and risk . changes to foreign currency exchange rates affect sales growth , but due to offsetting gains/losses on hedge contracts and options , which are recorded in cost of products sold , the effect on net earnings in the near term is expected to be minimal . knees knee sales increased 4 percent in 2013 compared to flat sales in 2012. our knee product category has benefited from new product introductions , such as persona the personalized knee system and early intervention products , as well as increased procedure volumes in the market . we are cautiously optimistic that volume/mix trends will continue to remain stable in 2014. in 2013 , we continued a broader launch of persona the personalized knee system . we intend to continue to deploy implant and instrument sets to all geographic regions during 2014 and beyond . in the meantime , our nexgen complete knee solution product line is still our leading knee system in terms of sales . story_separator_special_tag was primarily due to higher average costs per unit sold as a result of changes in product and geographic mix and increased excess and obsolescence charges related to products we intend to discontinue . additionally , lower average selling prices and certain inventory and manufacturing related charges connected to quality enhancement and remediation efforts reduced gross margin . these negative effects were partially 22 zimmer holdings , inc. 2013 form 10-k annual report offset by hedge gains recorded in 2013 from our foreign currency hedging program versus hedge losses recorded in 2012. the gains were primarily the result of the u.s. dollar strengthening against the japanese yen . under the program , for derivatives which qualify as hedges of future cash flows , the effective portion of changes in fair value is temporarily recorded in other comprehensive income and then recognized in cost of products sold when the hedged item affects earnings . gross margin was the same in 2012 compared to 2011. our foreign currency hedging program also had a favorable impact on gross margin in 2012. additionally , lower inventory step-up charges from acquisitions were recognized in 2012 when compared to 2011 based on the timing of acquisitions . this favorability was offset by the effect of lower prices on gross margin . operating expenses r & d expenses and r & d as a percentage of sales have declined in the last three years . the lower spending reflected a natural decline from certain large projects that achieved full commercialization , including persona the personalized knee system , and a dedication of resources to our quality and operational excellence initiatives . we expect r & d spending in 2014 to be between 4 and 4.5 percent of sales . sg & a expenses increased , but sg & a as a percentage of sales decreased in 2013 compared to 2012. the dollar increase was primarily due to higher selling and distribution expenses from higher sales and increased intangible asset amortization from acquisitions . this was partially offset by lower bad debt expenses as well as lower legal expenses due to the conclusion of certain matters for which we are no longer incurring legal expenses , as well as normal variations in the phases of litigation , including product liability litigation . as a percentage of sales , sg & a decreased 70 basis points in 2013 as our quality and operational excellence initiatives have produced lower variable and fixed costs in sg & a as well as the natural leverage that occurs when sales increase against our fixed costs , such as fixed intangible asset amortization from past acquisitions . in 2012 , sg & a decreased in dollar terms and as a percent of sales . changes in foreign currency exchange rates due to the strengthening of the u.s. dollar relative to 2011 rates lowered sg & a expense , especially in europe . absent the effects of foreign currency exchange rates , selling and distribution expenses were higher due to higher sales . other unfavorable items included increased intangible asset amortization from business combinations , higher employee recruiting and relocation costs , increased legal costs and higher bad debt expense . these were offset by favorable product liability claims , lower instrument excess and obsolescence charges and lower advertising spend . sg & a as a percent of sales decreased 80 basis points in 2012 compared to 2011 for similar reasons noted in 2013 . certain claims expense is for estimated liabilities to durom cup patients undergoing revision surgeries . we recorded expense of $ 15.0 million , $ 157.8 million , $ 75.0 million , $ 35.0 million and $ 69.0 million during 2012 , 2011 , 2010 , 2009 and 2008 , respectively . we recorded additional expense of $ 47.0 million in 2013 , bringing the total recorded expense to $ 398.8 million for these claims , excluding a subset of durom cup claims that were recorded in sg & a . the additional expense recorded in 2013 was driven primarily by more estimated claims than were previously expected . the additional expense in 2012 was primarily for more estimated claims outside the u.s. than were previously expected , as well as higher estimated legal costs . for more information regarding these claims , see note 19 to the consolidated financial statements . in connection with our annual goodwill impairment test performed in the fourth quarter of 2012 , we noted that the carrying values of the net assets of our u.s. spine reporting unit were in excess of the reporting unit 's estimated fair value . as a result , we recorded a goodwill impairment charge of $ 96.0 million in 2012. we did not record a goodwill impairment charge in 2013 , as our annual goodwill impairment test revealed that the carrying values of the net assets of our u.s. spine reporting unit were less than their estimated fair value . for more information regarding goodwill impairment and the factors that led to the 2012 impairment , see note 8 to the consolidated financial statements . special items have increased significantly in the past three years . we continue to implement our quality and operational excellence initiatives , which are intended to improve our future operating results by centralizing or outsourcing certain functions and improving quality , distribution , sourcing , manufacturing and our information technology systems . special items expenses include consulting and professional fees , dedicated personnel costs , severance benefits as well as other costs for those programs . in addition to expenses for our quality and operational excellence programs , we recognize expenses related to integration of acquired businesses , impairment of assets , certain r & d agreements , certain litigation settlements , contract termination expenses and other items as special items. see note 2 to the consolidated financial statements for more information regarding special items charges .
| 2013 results our 2013 sales results reflected increased growth as compared with 2012 trends . sales from new product introductions , such as persona the personalized knee system and the transposal fluid waste management system , as well as a stable or slightly improved joint replacement market , drove sales volume and product mix growth . this was partially offset by continued pricing pressure , as well as negative effects from changes in foreign currency exchange rates . our gross profit declined slightly in 2013 compared to 2012. we realized lower gross margins caused by excess and obsolete inventory charges for products we intend to discontinue , as well as a higher mix of lower margin product and geographic revenues . operating expenses increased by $ 2.6 million in 2013 , while operating expenses as a percentage of sales decreased in 2013 relative to 2012. we incurred higher selling expenses , certain claims and special items in 2013 relative to 2012 , but we did not incur a goodwill impairment charge in 2013 , whereas in 2012 we recorded a $ 96.0 million goodwill impairment charge . the selling expense increase was due to sales growth . certain claims expense is a provision for estimated liabilities to durom cup patients undergoing revision surgeries . special items are primarily related to our quality and operational excellence initiatives , which are intended to improve our future operating results and include centralizing or outsourcing certain functions and improving quality , distribution , sourcing , manufacturing and information technology systems . our effective tax rate ( etr ) benefited from changes in the mix of income between taxing jurisdictions . the significant expenses for our excess and obsolete inventory charges , certain claims and special items were primarily incurred in jurisdictions with higher rates of tax , which lowered taxable income in those jurisdictions .
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6. goodwill and other intangible assets goodwill and other intangible assets consisted of the following ( in thousands ) : replace_table_token_45_th replace_table_token_46_th 66 rci hospitality holdings , inc. notes to consolidated financial statements 6. goodwill and other intangible assets - continued replace_table_token_47_th as of september 30 , 2018 and 2017 , the accumulated impairment balance of indefinite-lived intangibles was $ 5.9 million and $ 6.9 million , respectively , while the accumulated impairment balance of goodwill was $ 3.9 million and $ 5.4 million , respectively . future amortization expense related to definite-lived intangible assets that are subject to amortization at september 30 , 2018 is : 2019 - $ 466,000 ; 2020 - $ 443,000 ; 2021 - $ 367,000 ; 2022 - $ 261,000 ; 2023 - $ 186,000 ; and thereafter - $ 71,000 . indefinite-lived intangible assets consist of sexually oriented business licenses and tradename , which were obtained as part of acquisitions . these licenses are the result of zoning ordinances , thus are valid story_separator_special_tag overview the following management 's discussion and analysis of financial condition and results of operations ( “ md & a ” ) is intended to help the reader understand rci hospitality holdings , inc. , our operations and our present business environment . md & a is provided as a supplement to , and should be read in conjunction with , our consolidated financial statements and the accompanying notes thereto contained in item 8 – “ financial statements and supplementary data ” of this report . this overview summarizes the md & a , which includes the following sections : ● our business — a general description of our business and the adult nightclub industry , our objective , our strategic priorities , our core capabilities , and challenges and risks of our business . ● critical accounting policies and estimates — a discussion of accounting policies that require critical judgments and estimates . ● operations review — an analysis of our company 's consolidated results of operations for the three years presented in our consolidated financial statements . ● liquidity and capital resources — an analysis of cash flows , aggregate contractual obligations , and an overview of financial position . our business the following are our operating segments : nightclubs our wholly-owned subsidiaries own and or operate upscale adult nightclubs serving primarily businessmen and professionals . these nightclubs are in houston , austin , san antonio , dallas , fort worth , beaumont , longview , harlingen , edinburg , tye , lubbock , el paso and odessa , texas ; charlotte , north carolina ; minneapolis , minnesota ; new york , new york ; miami gardens and pembroke park , florida ; pittsburgh , pennsylvania ; phoenix , arizona ; and washington park , kappa and chicago , illinois . no sexual contact is permitted at any of our locations . we also own and operate studio 80 dance clubs in fort worth and webster , texas . bombshells our wholly-owned subsidiaries own and operate restaurants , and sports bars in houston , dallas , austin , spring and pearland , texas under the brand name bombshells restaurant & bar . media group our wholly-owned subsidiaries own a media division , including the leading trade magazine serving the multibillion-dollar adult nightclubs industry and the adult retail products industry . we also own an industry trade show , an industry trade publication and more than a dozen industry and social media websites . our revenues are derived from the sale of liquor , beer , wine , food , merchandise ; service revenues such as cover charges , membership fees , and facility use fees ; and other revenues such as commissions from vending and atm machines , real estate rental , valet parking , and other products and services for both nightclub and restaurant/sports bar operations . media group revenues include the sale of advertising content and revenues from our annual expo convention . our fiscal year-end is september 30 . 22 we calculate same-store sales by comparing year-over-year revenues from nightclubs and restaurants/sports bars operating at least 12 full months . we exclude from a particular month 's calculation units previously included in the same-store sales base that have closed temporarily for more than 15 days until its next full month of operations . we also exclude from the same-store sales base units that are being reconcepted or are closed due to renovations or remodels . acquired units are included in the same-store sales calculation as long as they qualify based on the definition stated above . revenues outside of our nightclubs and bombshells reportable segments are excluded from same-store sales calculation . our goal is to use our company 's assets—our brands , financial strength , and the talent and strong commitment of our management and employees—to become more competitive and to accelerate growth in a manner that creates value for our shareholders . critical accounting policies and estimates management 's discussion and analysis of 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 ( “ gaap ” ) . the preparation of these consolidated financial statements requires our management to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . these estimates are based on management 's historical industry experience and on various other assumptions that are believed to be reasonable under the circumstances . on a regular basis , we evaluate these accounting policies , assumptions , estimates and judgments to ensure that our financial statements are presented fairly and in accordance with gaap . however , because future events and their effects can not be determined with certainty , actual results may differ from our estimates , and such differences could be material . story_separator_special_tag these estimates include depreciation and amortization expense allowable for tax purposes , allowable tax credits for items such as taxes paid on employee tip income , effective rates for state and local income taxes , and the deductibility of certain other items , among others . we adjust our annual effective income tax rate as additional information on outcomes or events becomes available . on december 22 , 2017 , the tax act was signed into law . the tax act contains significant changes to corporate taxation , including reduction of the corporate tax rate from 35 % to 21 % , additional limitations on the tax deductibility of interest , immediate deductions for certain new investments instead of deductions for depreciation expense over time , and modification or repeal of many business deductions and credits . our federal corporate income tax rate for fiscal 2018 was 24.5 % percent and represents a blended income tax rate for the current fiscal year . for fiscal 2019 , our federal corporate income tax rate will be 21 % . legal and other contingencies as mentioned in item 3 – “ legal proceedings ” and in a more detailed discussion in note 10 to our consolidated financial statements , we are involved in various suits and claims in the normal course of business . we record a liability when it is probable that a loss has been incurred and the amount is reasonably estimable . there is significant judgment required in both the probability determination and as to whether an exposure can be reasonably estimated . in the opinion of management , there was not at least a reasonable possibility that we may have incurred a material loss , or a material loss in excess of a recorded accrual , with respect to loss contingencies for asserted legal and other claims . however , the outcome of legal proceedings and claims brought against the company is subject to significant uncertainty . therefore , although management considers the likelihood of such an outcome to be remote , if one or more of these legal matters were resolved against the company in a reporting period for amounts in excess of management 's expectations , the company 's consolidated financial statements for that reporting period could be materially adversely affected . 24 story_separator_special_tag roman , times , serif ; margin-top : 0 ; margin-bottom : 0 ; margin-left : 0 ; text-align : justify '' > cost of goods sold includes cost of alcoholic and non-alcoholic beverages , food , cigars and cigarettes , merchandise , media printing/binding and media . as a percentage of consolidated revenues , consolidated cost of goods sold was 13.8 % , 14.3 % , and 15.2 % for fiscal 2018 , 2017 , and 2016 , respectively . see above for breakdown of percentages for each line item of consolidated cost of goods sold as it relates to the respective consolidated revenue line . for the nightclubs segment , cost of goods sold was 11.8 % , 12.7 % , and 13.1 % for fiscal 2018 , 2017 , and 2016 , respectively , which was primarily caused by the increase in higher-margin service revenue and sales of alcoholic beverages in the sales mix , which partly came from newly acquired clubs . bombshells cost of goods sold of 24.6 % , 24.8 % , and 25.3 % for fiscal 2018 , 2017 , and 2016 , respectively , was flatter and was not much of a contributor to the consolidated change in cost of goods sold rate . 28 consolidated salaries and wages increased by $ 4.5 million , or 11.3 % from 2017 to 2018 and by $ 2.6 million , or 6.9 % , from 2016 to 2017. the dollar increase from 2017 to 2018 was mainly from new club and restaurant openings . the dollar increase from 2016 to 2017 was mainly due to additional corporate headcount to support the commencement of our then-planned timing of franchising effort and a shift to employee status of certain entertainers in phoenix ( as discussed in the business section above ) . as a percentage of revenues , consolidated salaries and wages has been decreasing at 26.9 % , 27.6 % , and 27.8 % for fiscal year 2018 , 2017 , and 2016 , respectively . the decreasing rate primarily came from 2017 dollar increases coming mainly from corporate , where 2018 dollar increases coming mainly from new unit openings . by reportable segment , salaries and wages are broken down as follows ( in thousands ) : replace_table_token_13_th unit-level manager payroll is included in salaries and wages for each location , while payroll for regional manager and above are included in general corporate . the components of consolidated selling , general and administrative expenses are in the tables below ( dollars in thousands ) : replace_table_token_14_th by reportable segment , selling , general and administrative expenses are broken down as follows ( in thousands ) : replace_table_token_15_th 29 the significant variances in selling , general and administrative expenses are as follows : taxes and permits increased by $ 1.5 million , or 18.9 % , from 2017 to 2018 primarily due to an increased operating activity and from several sales tax audit settlements . advertising and marketing increased by $ 832,000 , or 12.4 % , from 2017 to 2018 mainly due to new units ; and increased by $ 1.3 million , or 24.7 % , from 2016 to 2017 mainly due to the acquisition of scarlett 's miami in the third quarter of 2017 and the additional spending in relation to increase in revenues . as a percentage of revenues , advertising and marketing was 4.5 % , 4.6 % , and 4.0 % for 2018 , 2017 , and 2016 , respectively .
| operations review highlights from fiscal 2018 compared to fiscal 2017 include : ● free cash flow * of $ 23.2 million compared to $ 19.3 million , a 20.5 % increase ● revenues of $ 165.7 million compared to $ 144.9 million , a 14.4 % increase ( nightclubs revenue of $ 140.1 million compared to $ 124.7 million , a 12.3 % increase ; and bombshells revenue of $ 24.1 million compared to $ 18.8 million , a 28.0 % increase ) ● consolidated same-store sales increase of 4.6 % ( 5.8 % increase for nightclubs and 3.3 % decrease for bombshells ) ● diluted earnings per share ( “ eps ” ) of $ 2.23 compared to $ 0.85 , a 162.4 % increase ( non-gaap diluted eps * of $ 2.18 compared to $ 1.43 , a 52.4 % increase ) * reconciliation and discussion of non-gaap financial measures are included under the “ non-gaap financial measures ” section of this item . these measures should be considered in addition to , rather than as a substitute for , u.s. gaap measures . the following common size tables present a comparison of our results of operations as a percentage of total revenues for the past three fiscal years : replace_table_token_6_th † percentages may not foot due to rounding . percentage of revenue for individual cost of goods sold items pertains to their respective revenue line .
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the new lease standard also provides practical expedients story_separator_special_tag you should read the following discussion and analysis together with our consolidated financial statements and the notes thereto included elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements that involve risks and uncertainties . for additional discussion , see “ special note regarding forward-looking statements ” above . overview we are a clinical stage biopharmaceutical company , developing our portfolio of immuno-oncology and immunology monoclonal antibodies . we are focusing our efforts on the development of our lead product candidate , lenzilumab , our proprietary humaneered® ( “ humaneered ” ) anti-human granulocyte-macrophage colony-stimulating factor ( “ gm-csf ” ) monoclonal antibody . lenzilumab is a monoclonal antibody that has been demonstrated in animal models to neutralize gm-csf , a cytokine that we believe is of critical importance in the hyperinflammatory cascade , sometimes referred to as cytokine release syndrome ( “ crs ” ) or cytokine storm , associated with covid-19 , chimeric antigen receptor t-cell ( “ car-t ” ) therapy and acute graft versus host disease ( “ gvhd ” ) associated with bone marrow transplants . gm-csf neutralization with lenzilumab has been shown to reduce downstream inflammatory cytokines , prevent crs and reduce its associated neurologic toxicities in-vivo in validated preclinical human xenograft models ( blood . 2019 feb 14 ; 133 ( 7 ) :697-709 ) . lenzilumab has completed full enrollment in a phase 3 , multi-center , double-blind , placebo-controlled potential registrational trial for hospitalized , hypoxic patients with covid-19 pneumonia . if the data from the trial are favorable , based on our discussions with the u.s. food and drug administration ( “ fda ” ) , including a type b meeting , and in consultation with the regulatory experts at operation warp speed , we plan on filing an emergency use authorization ( “ eua ” ) application in the second quarter of 2021. if the eua is granted , we could begin to commercialize lenzilumab for the treatment of hospitalized covid-19 pneumonia patients . we also intend to file a biologics license application ( “ bla ” ) in 2021 , again assuming the data from the phase 3 trial are favorable and support such an application . based on discussions with fda , we understand that a bla will require us to generate and present more clinical and manufacturing data than would be required to support an eua . if the activ-5/bet study described below is successful and completed on a timely basis , we plan to include the results in our bla filing . covid-19 infections are widespread and as of february 26 , 2021 in the united states , there were over 28 million cases , nearly 1.8 million hospitalizations and over 510 thousand deaths . several vaccines have been developed which show efficacy in excess of 90 % , however the slow rollout of inoculations and the emergence of numerous covid-19 variants lead us to believe the need for therapeutics to treat covid-19 currently exists and will continue to exist . lenzilumab has been selected to be part of the activ-5 “ big effect trial ” ( activ-5/bet nct ) . this study is sponsored by the national institutes of health ( “ nih ” ) . activ-5/bet is designed to determine whether certain approved therapies or investigational drugs in late-stage clinical development show promise against covid-19 and , therefore , merit advancement into larger clinical trials . activ-5/bet , currently has 17 active sites enrolling and is expected to enroll in up to 40 u.s. sites , will evaluate lenzilumab with remdesivir , compared to placebo and remdesivir , in hospitalized covid-19 patients , with approximately 100 patients expected to be assigned to each study arm . we are providing lenzilumab for the study , which is fully funded by nih . lenzilumab is also being studied in a multicenter phase 1b/2 potential registrational trial as a sequenced therapy with yescarta® ( axicabtagene ciloleucel ) to reduce crs and neurotoxicity in patients with relapsed or refractory diffuse large b-cell lymphoma ( “ dlbcl ” ) ( nct04314843 ) . this trial currently has 10 active sites and is being conducted in partnership with kite pharmaceuticals , inc. , a gilead company ( “ kite ” ) , which markets yescarta . we are also in the final planning stages for a phase 2/3 trial for lenzilumab to treat patients who have undergone allogeneic hematopoietic stem cell therapy ( “ hsct ” ) who are at high and intermediate risk for acute gvhd . the trial is expected to be conducted by the impact partnership , a collection of 22 stem cell transplant centers located in the united kingdom . 92 our proprietary , patented humaneered technology platform is a method for converting existing antibodies ( typically murine ) into engineered , high-affinity human antibodies designed for therapeutic use , particularly with acute and chronic conditions . we have developed or in-licensed targets or research antibodies , typically from academic institutions , and then applied our humaneered technology to produce them . lenzilumab and our other two product candidates , ifabotuzumab and hgen005 , are humaneered monoclonal antibodies . our humaneered antibodies are closer to human antibodies than chimeric or conventionally humanized antibodies and have a high affinity for their target but low immunogenicity . we believe our humaneered antibodies offer additional advantages , such as high potency , a slow off-rate and a lower likelihood to induce an inappropriate immune response or infusion related reactions . our pipeline our lenzilumab-based clinical-stage pipeline comprises a phase 3 potential registration study in covid-19 which has fully enrolled , the nih-sponsored and funded activ-5/bet program in covid-19 , a currently enrolling phase 1b/2 study ( zuma-19 ) as sequenced therapy of lenzilumab and yescarta , a planned phase 2/3 study in acute gvhd , and a planned phase 2 study in cmml , the latter two of which we expect will be majority funded by partners . story_separator_special_tag as a result , we could deplete our available capital resources sooner than we currently expect , and a delay in obtaining or failure to obtain an eua could further constrain our cash resources . we have based these estimates on assumptions that may prove to be wrong , and our operating projections , including our projected net revenue following the potential receipt of an eua for lenzilumab in covid-19 patients , may change as a result of many factors currently unknown to us . if we are unable to raise additional capital when needed or on acceptable terms , we would be forced to delay , reduce , or eliminate our research and development programs and commercialization efforts . we expect we will need to obtain additional financing to fund our future operations , including for the development , manufacturing , distribution and commercialization of lenzilumab for patients with covid-19 pneumonia and other indications including crs and gvhd and our other product candidates . we may need to obtain additional financing to conduct additional trials for the approval of our product candidates if requested by regulatory authorities in the us and other countries , and to complete the development of any additional product candidates we own or might acquire . moreover , our fixed expenses such as salaries , committed payments to our contract manufacturers , and other contractual commitments , including those for our other research and clinical collaborations , are substantial and are expected to increase in the future . our need to raise funds will depend on a number of factors , including our ability to establish additional relationships for the manufacture of lenzilumab and our ability to commence commercialization and begin generating revenues from product sales if lenzilumab were to be issued an eua and eventually approval under a bla . until we can generate a sufficient amount of revenue , we may finance future cash needs through public or private equity offerings , license agreements , grant financing and support from governmental agencies , convertible debt , borrowings under our term loan with hercules capital and other debt financings , collaborations , strategic alliances and marketing , supply , distribution , or licensing arrangements . additional funds may not be available when we need them on terms that are acceptable to us , or at all . if adequate funds are not available , we may be required to delay or reduce the scope of or eliminate one or more of our research or development programs , our commercialization efforts or our manufacturing commitments and capacity . we may seek to access the public or private capital markets whenever conditions are favorable , even if we do not have an immediate need for additional capital at that time . in addition , if we raise additional funds through collaborations , strategic alliances or marketing , supply , distribution , or licensing arrangements with third parties , we may have to relinquish valuable rights to our technologies , future revenue streams or product candidates or to grant licenses on terms that may not be favorable to us . 98 capital commitments and capital resources we currently anticipate that top-line data from our phase 3 trial of lenzilumab in hospitalized and hypoxic patients with covid-19 will be available before the end of the first quarter of 2021. we have been preparing to submit an application for eua for lenzilumab in the event data from the phase 3 clinical trial are favorable . even if the data are favorable , we can not provide any assurance that we will receive an eua from fda . if eua is received , we currently anticipate potential product launch , subject to the terms and conditions of the eua , could occur as early as the second quarter of 2021. to support our application for eua and the potential launch of lenzilumab under an eua , we have entered into agreements with several organizations for clinical trial services , commercialization services and contract manufacturing services as described in more detail elsewhere in this annual report . our agreements with contract manufacturing organizations , more fully described under “ item 1. business—manufacturing and raw materials , ” generally require us to commit to non-refundable up-front costs to secure manufacturing slots . firm commitments under these agreements for 2021 are estimated to be $ 53 million , and we have committed to pay approximately $ 16 million in 2021 for other services related to potential product launch , we expect to be able to fund these firm commitments from our cash and cash equivalents on hand , which approximated $ 74.3 million as of march 5 , 2021. our agreements for contract manufacturing also provide for our payment against performance by the manufacturers of their obligations under the contracts . we estimate our total commitments in respect of our current contractual arrangements to be approximately $ 244 million in 2021 , of which approximately $ 210 million is for manufacturing of lenzilumab . if the data from the covid-19 phase 3 clinical trial are favorable and an eua is granted in the second quarter of 2021 , we expect to be able to satisfy the bulk of the cash requirements associated with our manufacturing commitments from revenues from the commercial sale of lenzilumab , supplemented as necessary with proceeds from the sale of our equity securities ; the incurrence of debt ; upfront and milestone payments from licensees ; and government funding or financial support , if offered . while our clinical manufacturing agreements specify maximum payment terms , they also generally contain standard terms that provide us the right to cancel pending orders prior to the initiation of manufacturing and , if the manufacturer is able to fill the slots with other products , to do so with limited further payment obligations to the manufacturers . accordingly , in the event we do not receive an eua , we would seek to terminate these agreements and related commitments .
| results of operations general at december 31 , 2020 , we had an accumulated deficit of $ 374.4 million , primarily as a result of research and development and general and administrative expenses as well as costs incurred in reorganization . while we may in the future generate revenue from a variety of sources , including license fees , milestone payments , and research and development payments in connection with strategic partnerships , our product candidates are at an early stage of development and may never be successfully developed or commercialized . accordingly , we expect to continue to incur substantial losses from operations for the foreseeable future , and there can be no assurance that we will ever generate significant revenue or profits . 93 research and development expenses conducting research and development is central to our business model . we expense both internal and external research and development costs as incurred . we track external research and development costs incurred by project for each of our clinical programs . our external research and development costs consist primarily of : · expenses incurred under agreements with contract research organizations , investigative sites , and consultants that conduct our clinical trials and a substantial portion of our pre-clinical activities ; · the cost of acquiring and manufacturing clinical trial and eua materials prior to receiving an eua ; and · other costs associated with development activities , including additional studies . other research and development costs consist primarily of internal research and development costs such as salaries and related fringe benefit costs for our employees ( such as workers compensation and health insurance premiums ) , stock-based compensation charges , and external costs not allocated to one of our clinical programs . internal research and development costs generally benefit multiple projects and are not separately tracked per project .
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during the fourth quarter of 2017 , approximately $ story_separator_special_tag financial condition and results of operations the following is a discussion of our financial condition and our results of operations as of and for the years ended december 31 , 2017 , 2016 and 2015. the purpose of this discussion is to focus on information about our financial condition and results of operations which is not otherwise apparent from the consolidated financial statements . the following discussion and analysis should be read together with our consolidated financial statements , the notes to our consolidated financial statements and the other financial information included elsewhere in this report . in addition to historical information , this discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions that could cause actual results to differ materially from our current expectations . factors that could cause such differences are discussed in the sections entitled “ risk factors ” and “ cautionary note regarding forward-looking statements ” appearing elsewhere in this report . we assume no obligation to update any of these forward-looking statements except to the extent required by applicable law . the following discussion and analysis pertains to our historical results on a consolidated basis . however , because we conduct all of our material business operations through our wholly-owned subsidiary , capstar bank , the following discussion and analysis relates to activities primarily conducted at the subsidiary level . all dollar amounts in the tables in this section are in thousands of dollars , except per share data or when otherwise specifically noted . unless specifically noted in this report , all references in this section to the fiscal years 2015 , 2016 and 2017 mean our fiscal years ended december 31 , 2015 , 2016 , and 2017 , respectively . overview we completed 2017 with net income of $ 1.5 million , a decrease of 83.5 % from 2016. the decrease in our net income was primarily due to a higher provision for loan losses , resulting from $ 10.8 million of net charged-off loans recognized during 2017 , and a $ 3.6 million write-down of our deferred tax assets resulting from the tax cuts and jobs act of 2017 ( “ tax reform act ” ) that was signed into law in december 2017. the decrease in our net income was partially offset by higher net interest income resulting from continued loan growth . diluted net income per share of common stock for 2017 was $ 0.12 , an 85.2 % decrease from 2016. average loans for 2017 were $ 987.7 million , an 11.2 % increase over 2016. average deposits for 2017 were $ 1.108 billion , a 0.9 % increase over 2016. our primary revenue source is net interest income and fees from various financial services provided to customers . net interest income is the difference between interest income earned on loans , investment securities and other interest earning assets less interest expense on deposit accounts and other interest bearing liabilities . loan volume and interest rates earned on those loans are critical to overall profitability . similarly , deposit volume is crucial to funding loans and the rates paid on deposits directly impact profitability . business volumes are influenced by competition , new business acquisition efforts and economic factors including market interest rates , business spending and consumer confidence . net interest income increased $ 3.4 million , or 8.8 % , for 2017 compared to 2016. the positive effects of increased volumes and yields on earning assets were partially offset by the negative effects of increasing deposit costs . net interest margin increased to 3.20 % for 2017 , compared with 3.17 % for 2016. in response to the assessment of risk in the loan portfolio , including net loan growth and charge-offs , we recorded a $ 12.9 million provision for loan losses during 2017 , compared to a $ 2.8 million provision during 2016. the increase from 2016 was caused primarily by deterioration in the credit quality of commercial and industrial loans to one borrower . the provision for loan losses represents a charge to earnings necessary to establish an allowance for loan losses that , in management 's evaluation , is adequate to provide coverage for the estimated probable inherent losses on outstanding loans . our allowance for loan losses at december 31 , 2017 was 1.45 % of total loans , compared with 1.24 % of total loans at december 31 , 2016. total noninterest income for 2017 decreased $ 0.2 million , or 1.6 % , compared to 2016 , and comprised 17 % of total revenues . total noninterest expense for 2017 increased $ 0.6 million , or 1.9 % , compared to 2016. our efficiency ratio for 2017 was 64.0 % compared to 66.9 % for 2016. the company 's effective tax rate increased to 75.5 % for 2017 from 33.1 % for 2016. the increase in the effective tax rate is due to a $ 3.6 million write-down of our deferred tax assets resulting from the tax reform act . 38 tangible common equity ( tce ) , a non-gaap measure , is a measure of a company 's capital which is useful in evaluating the quality and adequacy of capital . the ratio of tangible common equity to total tangible assets was 9.84 % as of december 31 , 2017 , compared with 9.34 % at december 31 , 2016. see “ non-gaap financial meas ures ” for a discussion of and reconciliation to the most directly comparable u . s . gaap measure . the following sections provide more details on subjects presented in this overview . critical accounting policies and estimates our consolidated financial statements are prepared based on the application of certain accounting policies , the most significant of which are described in note 1 to our consolidated financial statements for the year ended december 31 , 2017 , which are contained elsewhere in this report . story_separator_special_tag subsequent increases in cash flows result in a reversal of the provision for loan losses to the extent of prior charges and adjusted accretable yield which will have a positive impact on interest income . purchased loans without evidence of credit deterioration are recorded at their initial fair value and adjusted as necessary for subsequent advances , pay downs , amortization or accretion of any premium or discount on purchase , charge-offs and additional provisions that may be required . story_separator_special_tag style= '' text-align : center ; margin-top:12pt ; margin-bottom:0pt ; text-indent:0 % ; font-size:10pt ; font-family : times new roman ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > 43 provision expense increased for 2017 compared to 2016 due to increased net charge-offs . net c harge-offs for 2017 were $ 1 0 .8 million compared to $ 1 . 3 million for 2016. this increase was caused primarily by deterioration in the credit quality of commercial and indus trial loans to one borrower . in particular , during the second quarter of 2017 we charged-off the loans associated with this borrower because issues emerged which undermined our assessment that an expedient and positive outcome was possible . this particula r charge-off , net of recoveries , amounted to $ 9.1 million in the aggregate . these loans experienced weakness due to the borrower 's declining financial condition , which led to falling values of the collateral securing these loans . our primary collateral f or these loans was the enterprise value of the borrower as determined by an asset purchase agreement that was subsequently withdrawn . as the financial condition of the borrower deteriorated , ultimate repayment became increasingly difficult . we determined that timely repayment of these loans was unlikely and charged-off the loans . as a result , our provision expense increased during 2017 compared to 2016. our allowance for loan losses as a percentage of total loans increased from 1.24 % at december 31 , 2016 to 1.45 % at december 31 , 2017. this increase was largely due to our assessment of risk inherent in the commercial and industrial loan portfolio generally related to macro-economic , geo-political conditions and , in particular , uncertainty in the healthcare industry . in addition , during 2017 , we increased the look-back period , from which we calculate peer bank historical loss experience , from 28 to 33 quarters . our look-back period is utilized to calculate peer historical loss experience , adjusted for current factors , to comprise the general component of the allowance for loan losses . in the current economic environment , management believes the extension of the look-back period is necessary in order to capture sufficient loss observations to develop a reliable loss estimate of credit losses . the extension of the historical look-back period to capture the historical loss experience of peer banks was applied to all classes and segments of our loan portfolio . based upon our evaluation of the loan portfolio , we believe the allowance for loan losses to be adequate to absorb our estimate of probable losses existing in the loan portfolio at december 31 , 2017. while our policies and procedures used to estimate the allowance for loan losses , as well as the resultant provision for loan losses charged to operations , are considered adequate by management , they are necessarily approximate and imprecise . there are factors beyond our control , such as conditions in the local and national economy , local real estate markets , or particular industry or borrower-specific conditions , which may materially and negatively impact our asset quality and the adequacy of our allowance for loan losses and , thus , the resulting provision for loan losses . 2016 compared to 2015 the provision for loan losses amounted to $ 2.8 million and $ 1.7 million for 2016 and 2015 , respectively . provision expense increased during 2016 over 2015 due primarily to increased loan growth . our average loan growth for 2016 and 2015 was 19.4 % and 9.1 % , respectively . noninterest income in addition to net interest margin , we generate recurring noninterest income from our lines of business . our banking operations generate revenue from service charges and fees on deposit accounts . we have a mortgage banking line of business that generates revenue from originating and selling mortgages , a line of business that originates and sells commercial real estate loans , and we have a revenue-sharing relationship with a registered broker-dealer , which generates wealth management fees . in addition to these types of recurring noninterest income , we own insurance on several key employees and record income on the increase in the cash surrender value of these policies . 44 the following table sets forth the principal components of nonintere st income for the periods indicated . replace_table_token_8_th 2017 compared to 2016 the increase in treasury management and other deposit service charges for 2017 and 2016 is driven primarily by transaction volume , which can fluctuate throughout and from year to year . growth in the volume of our commercial deposit accounts was the primary contributor to the increase . similarly , loan commitment fees fluctuate based on customer activity and the timing of one-time , transaction related loan fees . tri-net fees represent a new line of business , implemented in the fourth quarter of 2016 , which originates and sells commercial real estate loans to third-party investors . all of these loan sales transfer servicing rights to the buyer . mortgage banking income consists of mortgage fee income from the origination and sale of mortgage loans . these mortgage fees are for loans originated in our markets that are subsequently sold to third-party investors . all of these loan sales transfer servicing rights to the buyer . mortgage origination fees will fluctuate from quarter to quarter as the rate environment changes .
| results of operations the following is a summary of our results of operations : replace_table_token_5_th return on average assets was 0.11 % , 0.72 % and 0.66 % for 2017 , 2016 and 2015 , respectively . return on average shareholders ' equity was 1.05 % , 7.57 % and 7.08 % for 2017 , 2016 and 2015 , respectively . the following sections provide a more detailed analysis of significant factors affecting our operating results . 40 net interest income the largest component of our net income is net interest income – the difference between the income earned on interest-earning assets and the interest paid on deposits and borrowed funds used to support our assets . net interest income divided by total average interest-earning assets represents our net interest margin . the major factors that affect net interest income and net interest margin are changes in volumes , the yield on interest-earning assets and the cost of interest-bearing liabilities . our margin can also be affected by economic conditions , the competitive environment , loan demand and deposit flow . our ability to respond to changes in these factors by using effective asset-liability management techniques is critical to maintaining the stability of the net interest margin and our net interest income . the following table sets forth the amount of our average balances , interest income or interest expense for each category of interest-earning assets and interest-bearing liabilities and the average interest rate for interest-earning assets and interest-bearing liabilities , net interest spread and net interest margin for the years ended december 31 , 2017 , 2016 and 2015 : replace_table_token_6_th 41 ( 1 ) average loan balances include nonaccrual loans . interest income on loans includes amortization of deferred loan fees , net of deferred loan costs . ( 2 ) taxable investment securities include restricted equity securities . ( 3 ) balances for investment securities exempt from federal income tax are not calculated on a tax equivalent basis .
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this annual report on form 10-k contains forward-looking statements within the meaning of section 27a of the securities exchange act of 1933 , as amended , or the securities act , and section 21e of the securities exchange act of 1934 , as amended ( “ the exchange act ” ) . forward-looking statements are identified by words such as “ believe , ” “ will , ” “ may , ” “ estimate , ” “ continue , ” “ anticipate , ” “ intend , ” “ should , ” “ plan , ” “ expect , ” “ predict , ” “ could , ” “ potentially ” or the negative of these terms or similar expressions . you should read these statements carefully because they discuss future expectations , contain projections of future results of operations or financial condition , or state other “ forward-looking ” information . these statements relate to our future plans , objectives , expectations , intentions and financial performance and the assumptions that underlie these statements . these forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements . factors that might cause such a difference include , but are not limited to , those discussed in this report in part i , item 1a — “ risk factors , ” and elsewhere in this report . forward-looking statements are based on our management 's beliefs and assumptions and on information currently available to our management . these statements , like all statements in this report , speak only as of their date , and we undertake no obligation to update or revise these statements in light of future developments . we caution investors that our business and financial performance are subject to substantial risks and uncertainties . overview we are a clinical-stage bio-pharmaceutical company focused on fighting cancer by discovering and developing novel small molecule oncology drugs that target tumor and immune cell metabolism . tumor metabolism and immuno-oncology have emerged as promising new fields for cancer drug discovery , and recent clinical successes with therapeutic agents in each field have demonstrated the potential to create fundamentally new therapies for cancer patients . with our unique oncometabolism approach , we have discovered two small molecule drug candidates that are currently in clinical development . these agents take advantage of the unique metabolic requirements of tumor cells and cancer-fighting immune cells . our lead product candidate , cb-839 , is an internally discovered , first-in-class oral inhibitor of glutaminase , a critical enzyme in tumor cells . our strategy is to develop cb-839 as combination therapy with approved agents , in order to improve the treatment of patients with cancer . we are currently evaluating cb‑839 in multiple phase 2 trials in patients with renal cell carcinoma , triple negative breast cancer , and other solid tumors . cb-839 is currently in a phase 1/2 trial in combination with nivolumab for the treatment of solid tumors . our product candidate , incb001158 , also known as cb-1158 , is a first-in-class oral inhibitor of arginase , an enzyme that depletes the amino acid arginine , a key metabolic nutrient for t‑cells , and it is being co-developed with incyte corporation , or incyte , for hematology and oncology indications . incb001158 is currently being tested in multiple phase 1/2 trials as a monotherapy and in combination with other anti-cancer agents . we are a fully integrated biopharmaceutical company with expertise in biology and chemistry , and our ongoing research efforts are focused on discovering additional product candidates against novel tumor metabolism and immunology targets . our lead product candidate , cb-839 , takes advantage of the pronounced dependency many cancers have on the nutrient glutamine for growth and survival . cb-839 inhibits glutaminase , an enzyme required by cancer cells to utilize glutamine effectively . in preclinical studies , cb-839 demonstrated broad antitumor activity in tumor cell lines , inhibited the growth of human tumors in animal models , and was well-tolerated in toxicity studies . cb-839 was also synergistic with several different classes of approved , standard of care cancer therapeutics . cb-839 may also have the potential to work in combination with immuno-oncology , or i-o therapeutics . glutamine , which is frequently depleted in the tumor microenvironment due to avid uptake by tumor cells , has been shown to be an important nutrient for t-cell proliferation . administration of cb-839 to tumor-bearing animals substantially enhances the anti-tumor activity of checkpoint inhibitors and thereby enables t-cells to proliferate . we believe cb-839 has the potential to be an important new therapeutic agent with a novel mechanism of action for the treatment of a broad range of cancers , and is the only selective glutaminase inhibitor currently in clinical trials . we currently retain all commercial rights to cb-839 and have been granted a u.s. patent , which includes composition of matter coverage for cb-839 through 2032. our product candidate incb001158 , is a potent and selective orally bioavailable inhibitor of the enzyme arginase , that was discovered at calithera and is being co-developed with incyte . arginase depletes arginine , a nutrient that is critical for the activation and proliferation of the body 's cancer-fighting immune cells , such as cytotoxic t-cells and natural killer ( nk ) -cells . during normal activation of the immune system , arginase , which is expressed by suppressive myeloid immune cells , plays an important role in halting t-cell proliferation . but in many tumors , including lung , gastrointestinal , bladder , renal cancer , squamous cell cancer of the head and neck , and acute myeloid leukemia , arginase-expressing myeloid cells accumulate and maintain an immunosuppressive 46 environment , bl ocking the ability of t-cells and nk-cells to kill cancer cells . we believe that inhibitors of arginase can promote an anti-tumor immune response by restoring arginine levels , thereby allowing activation of the body 's own immune cells , including cytotoxic t-cells and nk-cells . story_separator_special_tag the grant date fair value of the stock-based awards is generally recognized on a straight-line basis over the requisite service period , which is generally the vesting period of the respective awards . stock-based option awards issued to non-employees are recorded at fair value as of the grant date using the black-scholes option-pricing model and recognized as expense on a straight-line basis over the vesting period . the fair value is re-measured each reporting period over the vesting term resulting in periodic adjustments to stock-based compensation expense . the black-scholes option-pricing model requires the use of highly subjective assumptions , which determine the fair value of stock-based awards . these assumptions include : expected term . our expected term represents the period that our stock-based awards are expected to be outstanding and is determined using the simplified method ( based on the mid-point between the vesting date and the end of the contractual term ) . expected volatility . since we have only been publicly traded for a short period and do not have adequate trading history for our common stock , the expected volatility was estimated based on the average volatility for comparable publicly traded biopharmaceutical companies over a period equal to the expected term of the stock option grants . the comparable companies were chosen based on their similar size , stage in the life cycle , or area of specialty . risk-free interest rate . the risk-free interest rate is based on the u.s. treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of option . expected dividend . we have never paid dividends on our common stock and have no plans to pay dividends on our common stock . therefore , we used an expected dividend yield of zero . income taxes as of december 31 , 2017 , we had approximately $ 129.3 million and $ 50.1 million , respectively , of federal and state operating loss carryforwards available to reduce future taxable income that will begin to expire in 2030 for federal and state tax purposes . as of december 31 , 2017 , we also had research and development tax credit carryforwards of approximately $ 5.5 million and $ 3.2 million , respectively , for federal and state purposes available to offset future taxable income tax . if not utilized , the federal carryforwards will expire in various amounts beginning in 2030 , and the state credits can be carried forward indefinitely . 48 utilization of the net operating loss carryforwards may be subject to a substantial annual limitation due to the ownership change limitations provi ded by the internal revenue code of 1986 , as amended , and similar state provisions . we have performed an analysis to determine whether an `` ownership change '' has occurred from inception to december 31 , 2014. based on this analysis , management has determined that there was an ownership change . the annual limitation may result in the expiration of net operating losses and credits before utilization , however , we do not believe any of our net operating losses and research and development credits are limited by t his potential ownership change . subsequent ownership changes since 2014 may subject us to annual limitations of our net operating loss and credit carryforwards . such annual limitation could result in the expiration of the net operating loss and credit carr yforwards before utilization . financial overview collaboration revenue collaboration revenue represents the portion of deferred revenue recognized from a $ 45.0 million upfront fee and $ 12.0 million milestone achieved from the incyte collaboration agreement . the upfront payment of $ 45.0 million is being recognized over the estimated period of performance under the incyte collaboration agreement , ending in january 2019. in the first quarter of 2017 , we earned a $ 12.0 million developmental milestone payment from incyte , which is being recognized as revenue over the remaining period of performance for the combined unit of accounting . research and development expenses research and development expenses represent costs incurred to conduct research , such as the discovery and development of our product candidates . we recognize all research and development costs as they are incurred . costs associated with co-development activities performed under the incyte collaboration agreement and our other collaboration agreement are included in research and development expenses , with any reimbursement of costs by incyte and our other collaborator reflected as a reduction of such expenses . research and development expenses consist primarily of the following : employee- related expenses , which include salaries , benefits and stock-based compensation ; expenses incurred under agreements with clinical trial sites that conduct research and development activities on our behalf ; laboratory and vendor expenses related to the execution of preclinical studies and clinical trials ; contract manufacturing expenses , primarily for the production of clinical supplies ; facilities and other allocated expenses , which include direct and allocated expenses for rent and maintenance of facilities , depreciation and amortization expense and other supplies ; and license fees and milestone payments related to our licensing agreements . the largest component of our total operating expenses has historically been our investment in research and development activities including the clinical development of our product candidates . we allocate to research and development expenses the salaries , benefits , stock-based compensation expense , and indirect costs of our clinical and preclinical programs on a program-specific basis , and we include these costs in the program-specific expenses . the following table shows our research and development expenses for 2017 , 2016 , and 2015 : replace_table_token_5_th 49 we expect our research and development expenses will increase during the next few years as we advance our product candidates into and through clinical trials , and pursue regulatory approval of our product candidates , which will require a significant investment in contract manufacturing and inventory build-up related costs . the process of conducting clinical trials necessary to obtain regulatory approval is costly and time consuming .
| results of operations comparison of the years ended december 31 , 2017 and 2016 replace_table_token_6_th * percentage not meaningful . collaboration revenue collaboration revenue increased $ 26.0 million for the year ended december 31 , 2017 and represents the portion of deferred revenue from the $ 45.0 million upfront fee and $ 12.0 million milestone achieved in the first quarter of 2017 from the incyte collaboration agreement recognized ratably over the estimated performance period that is consistent with the term of our obligations under the agreement . research and development research and development expenses increased $ 15.4 million , or 55 % , from $ 27.7 million for 2016 to $ 43.1 million for 2017. the increase of $ 15.4 million was due to an $ 18.5 million increase in the cb-839 program to support our new and ongoing clinical 50 trials , including our two phase 2 trials , as well as an increase of $ 3 . 5 million from investment in our early stage research programs , offset by a decrease of $ 6 . 6 million from the incb001158 program , primarily due to incyte 's co-funding of development costs pursuant to the incyte collaboration agreement . general and administrative general and administrative expenses increased $ 1.9 million , or 18 % , from $ 10.6 million for 2016 to $ 12.5 million for 2017. the increase was due to an increase of $ 1.0 million in professional services , including activities to support our collaboration and license agreements and our phase 2 clinical trials , and an increase of $ 0.9 million in higher personnel-related costs , primarily as a result of higher headcount , salary increases and stock-based compensation expenses .
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amortization expense and impairment loss for the years ended december 31 , 2018 , story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations ( `` md & a '' ) is intended to help the reader understand choice hotels international , inc. and its subsidiaries ( together the `` company '' ) . md & a is provided as a supplement to—and should be read in conjunction with—our consolidated financial statements and the accompanying notes . effective january 1 , 2018 , the company adopted topic 606 under the full retrospective method . as a result , the company 's results from operations for the years ended 2017 and 2016 have been revised to reflect the adoption of topic 606. overview we are primarily a hotel franchisor with franchise agreements representing 7,021 hotels open and 1,082 hotels under construction , awaiting conversion or approved for development as of december 31 , 2018 , with 569,108 rooms and 87,061 rooms , respectively , in 50 states , the district of columbia and more than 40 countries and territories outside the united states . our brand names include comfort inn ® , comfort suites ® , quality ® , clarion ® , clarion pointe , ascend hotel collection ® , sleep inn ® , econo lodge ® , rodeway inn ® , mainstay suites ® , suburban extended stay hotel ® , woodspring suites ® , and cambria ® hotels ( collectively , the `` choice brands '' ) . on february 1 , 2018 , the company acquired all of the issued and outstanding equity interests of wsfs . wsfs is the franchisor of woodspring suites and at acquisition had 239 units ( 28,680 rooms ) operating in the economy extended stay segment in 35 states in the united states . the transaction has been accounted for as a business combination and accordingly , assets acquired and liabilities assumed were recorded at their fair values of the acquisition date . the acquisition allowed the company to accelerate its growth in the economy extended stay segment . the results of wsfs have been consolidated within the company 's hotel franchising segment since february 1 , 2018. the company 's domestic franchising operations are conducted through direct franchising relationships while its international franchise operations are conducted through a combination of direct franchising and master franchising relationships . master franchising relationships are governed by master franchising agreements which generally provide the master franchisee with the right to use our brands and sub-license the use of our brands in a specific geographic region , usually for a fee . 37 our business strategy is to conduct direct franchising in those international markets where both franchising is an accepted business model and we believe our brands can achieve significant scale . we typically elect to enter into master franchise agreements in those markets where direct franchising is currently not a prevalent or viable business model . when entering into master franchising relationships , we strive to select partners that have professional hotel and asset management capabilities together with the financial capacity to invest in building the choice brands in their respective markets . master franchising relationships typically provide lower revenues to the company as the master franchisees are responsible for managing certain necessary services ( such as training , quality assurance , reservations and marketing ) to support the franchised hotels in the master franchise area and therefore , retain a larger percentage of the hotel franchise fees to cover their expenses . in certain circumstances , the company has and may continue to make equity investments in our master franchisees . as a result of master franchise relationships and international market conditions , our revenues are primarily concentrated in the united states . therefore , our description of the franchise system is primarily focused on the domestic operations . our company generates revenues , income and cash flows primarily from initial , relicensing and continuing royalty fees attributable to our franchise agreements . revenues are also generated from qualified vendor arrangements and other sources . the hotel industry is seasonal in nature . for most hotels , demand is 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 fee revenues reflect the industry 's seasonality and historically have been lower in the first and fourth quarters than in the second and third quarters . with a focus on hotel franchising instead of ownership , we benefit from the economies of scale inherent in the franchising business . the fee and cost structure of our 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 . the company currently estimates , based on its current domestic portfolio of hotels under franchise , that a 1 % change in revenue per available room ( `` revpar '' ) or rooms under franchise would increase or decrease royalty revenues by approximately $ 3.6 million and a 1 basis point change in the company 's effective royalty rate would increase or decrease annual domestic royalties by approximately $ 0.8 million . in addition to these revenues , we also collect marketing and reservation system fees to support centralized marketing and reservation activities for the franchise system . story_separator_special_tag based on the present outstanding share count and annual dividend rate of $ 0.86 per common share outstanding , we expect that aggregate annual regular dividends for 2019 would be approximately $ 47.9 million . the company also allocates capital to financing , investment and guaranty support to incent franchise development for certain brands in strategic markets and to exploring growth opportunities in business areas that are adjacent or complementary to our core hotel franchising business , which leverage our core competencies and are additive to our franchising business model . the timing and amount of these investments are subject to market and other conditions . notwithstanding investments in these alternative growth strategies , the company expects to continue to return value to its shareholders over time through a combination of share repurchases and dividends . we believe our growth investments and strategic priorities , when properly implemented , will enhance our profitability , maximize our financial returns and continue to generate value for our shareholders . the ultimate measure of our success will be reflected in the items below . results of operations : royalty fees , operating income , net income and diluted earnings per share ( `` eps '' ) represent key measurements of these value drivers . these measurements are primarily driven by the operations of our hotel franchise system and therefore , our analysis of the company 's operations is primarily focused on the size , performance and potential growth of the hotel franchise system as well as our variable overhead costs . since our hotel franchising activities represents approximately 99 % of total revenues , our discussion of our results from operations primarily relate to our hotel franchising activities . our discussion of the hotel franchising activities also excludes the company 's marketing and reservation system revenues and expenses . the company 's franchise agreements require the payment of marketing and reservation system fees to be used exclusively by the company for expenses associated with providing franchise services such as central reservation systems , national marketing and media advertising . the company is obligated to expend the marketing and reservation system fees it collects from franchisees in accordance with the franchise agreements . furthermore , franchisees are required to reimburse the company for any deficits generated by these marketing and reservation system activities . over time , the company expects cumulative revenues and expenses to break even and therefore no income or loss will be generated from marketing and reservation system activities . as a result , the company generally excludes the financial impacts of this program from the analysis of its operations . 39 due to the seasonal nature of the company 's hotel franchising business or multi-year investments that are required to support franchise operations , quarterly or annual deficits and surpluses may be generated . during the year s ended 2018 and 2017 , marketing and reservation system revenues exceeded expenses by $ 9.4 million and $ 20.2 million , respectively . during the year ended 2016 , marketing and reservation system expenses exceeded revenues by $ 50.6 million . refer to md & a heading `` operations review '' for additional analysis of our results . liquidity and capital resources : historically , the company has generated significant cash flows from operations . since our business has not historically required significant reinvestment of capital , we typically utilize cash in ways that management believes provide the greatest returns to our shareholders which include share repurchases and dividends . however , we may determine to utilize cash for acquisitions and other investments in the future . we believe the company 's cash flow from operations and available financing capacity is sufficient to meet the expected future operating , investing and financing needs of the business . refer to md & a heading `` liquidity and capital resources '' for additional analysis . inflation : inflation has been moderate in recent years and has not had a significant impact on our business . non-gaap financial statement measurements the company utilizes certain measures which do not conform to generally accepted accounting principles accepted in the united states ( `` gaap '' ) when analyzing and discussing its results with the investment community . this information should not be considered as an alternative to any measure of performance as promulgated under gaap . the company 's calculation of these measurements may be different from the calculations used by other companies and therefore , comparability may be limited . we have included a reconciliation of these measures to the comparable gaap measurement below as well as our reasons for reporting these non-gaap measures . hotel franchising revenues : the company utilizes franchising revenues , which exclude revenues from marketing and reservation system activities , saas technology solutions divisions , vacation rental activities , and revenue generated from the ownership of an office building that is leased to a third-party , rather than total revenues when analyzing the performance of the business . marketing and reservation activities are excluded from hotel franchising revenues since the company is contractually required by its franchise agreements to utilize the fees collected specifically for franchisee marketing and reservation activities . our saas technology solutions divisions and vacation rental activities are excluded from hotel franchising revenues since those operations do not reflect the company 's core hotel franchising business but represent adjacent , complementary lines of business . this non-gaap measure is a commonly used measure of performance in our industry and facilitates comparisons between the company and its competitors . calculation of hotel franchising revenues replace_table_token_12_th 40 operations review comparison of 2018 and 2017 operating results summarized financial results for the years ended december 31 , 2018 and 2017 are as follows : replace_table_token_13_th results of operations the company recorded income before income taxes of $ 273.3 million for the year ended december 31 , 2018 , a $ 24.0 million or 10 % increase from the same period of the prior year .
| operating results summarized financial results for the years ended december 31 , 2017 and 2016 are as follows : replace_table_token_16_th results of operations the company recorded income before income taxes of $ 249.2 million for the year ended december 31 , 2017 , a $ 101.1 million or 68 % increase from the same period of the prior year . the increase in income before income taxes primarily reflects a $ 102.6 million increase in operating income , a $ 2.4 million increase in interest income , a $ 1.7 million increase in other gains , partially offset by a $ 5.0 million decrease in equity in net ( income ) loss of affiliates . operating income increased $ 102.6 million primarily due to a $ 40.9 million or 10 % increase in the company 's hotel franchising revenues , a $ 70.9 million change in the net surplus/ deficit generated from marketing and reservation system activities , and a $ 2.0 million increase in non-hotel franchising revenues , partially offset by a $ 11.1 million increase in sg & a expenses . the change in the net surplus/ deficit generated from marketing and reservation system activities results from a change in the company 's expiration policy for points outstanding under the choice privileges loyalty membership program , resulting in an increase to the corresponding liabilities and charge to the marketing and reservation system revenues . hotel franchising revenues hotel franchising revenues were $ 430.9 million for the year ended december 31 , 2017 compared to $ 390.0 million for the year ended december 31 , 2016 , a $ 40.9 million or 10 % increase .
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our business segments consist of climate and industrial , both with strong brands and highly differentiated products within their respective markets . we generate revenue and cash primarily through the design , manufacture , sale and service of a diverse portfolio of industrial and commercial products that include well-recognized , premium brand names such as ingersoll-rand ® , trane ® , thermo king ® , american standard ® , aro ® , and club car ® . to achieve our mission of being a world leader in creating comfortable , sustainable and efficient environments , we continue to focus on growth by increasing our recurring revenue stream from parts , service , controls , used equipment and rentals ; and to continuously improve the efficiencies and capabilities of the products and services of our businesses . we also continue to focus on operational excellence strategies as a central theme to improving our earnings and cash flows . trends and economic events we are a global corporation with worldwide operations . as a global business , our operations are affected by worldwide , regional and industry-specific economic factors , as well as political factors , wherever we operate or do business . our geographic and industry diversity , and the breadth of our product and services portfolios , have helped mitigate the impact of any one industry or the economy of any single country on our consolidated operating results . given the broad range of products manufactured and geographic markets served , management uses a variety of factors to predict the outlook for the company . we monitor key competitors and customers in order to gauge relative performance and the outlook for the future . we regularly perform detailed evaluations of the different market segments we are serving to proactively detect trends and to adapt our strategies accordingly . in addition , we believe our order rates are indicative of future revenue and thus a key measure of anticipated performance . in those industry segments where we are a capital equipment provider , revenues depend on the capital expenditure budgets and spending patterns of our customers , who may delay or accelerate purchases in reaction to changes in their businesses and in the economy . current economic conditions are showing positive trends in each of the segments in which we participate . heating , ventilation , and air conditioning ( hvac ) equipment replacement , services , controls and aftermarket continue to experience strong demand . in addition , residential and commercial markets have seen continued momentum in the united states , positively impacting the results of our hvac businesses . global industrial markets remain largely supportive of continued growth in both equipment and services . while geopolitical uncertainty exists in markets such as europe , asia and latin america , we are confident we will continue our strong performance globally . in 2019 , we expect positive growth in both our climate and industrial segments , each benefiting from operational excellence initiatives , new product launches and continued productivity programs . we believe we have a solid foundation of global brands that are highly differentiated in all of our major product lines . our growing geographic and industry diversity coupled with our large installed product base provides growth opportunities within our service , parts and replacement revenue streams . in addition , we are investing substantial resources to innovate and develop new products and services which we expect will drive our future growth . significant events acquisitions and equity investments we continue to be active with strategic acquisitions and investments . during 2018 , acquisitions and equity method investments , net of cash acquired totaled $ 285.2 million . related amounts in 2017 and 2016 were $ 157.6 million and $ 9.2 million , respectively . in may 2018 , we completed our investment of a 50 % ownership interest in a joint venture with mitsubishi electric corporation ( mitsubishi ) . the joint venture , reported within the climate segment , focuses on marketing , selling and supporting variable refrigerant flow ( vrf ) and ductless heating and air conditioning systems through trane , american standard and mitsubishi channels in the u.s. and select latin american countries . 20 in january 2018 , we acquired 100 % of the outstanding stock of ics group holdings limited ( ics cool energy ) . the acquired business , reported within the climate segment , specializes in the temporary rental of energy efficient chillers for commercial and industrial buildings across europe . it also sells , permanently installs and services high performance temperature control systems for all types of industrial processes . during 2017 , we acquired several businesses , including channel acquisitions , that complement existing products and services . acquisitions within the climate segment primarily consisted of independent dealers which support the ongoing strategy to expand our distribution network in north america . other acquisitions within the segment strengthen our product portfolio . acquisitions within the industrial segment primarily consisted of a telematics business which builds upon our growing portfolio of connected assets . in addition , other acquisitions within the segment expand sales and service channels across the globe . on february 6 , 2019 , we entered into a final , binding and irrevocable offer letter with silver ii gp holdings s.c.a. , an affiliate of bc partners advisors l.p. and the carlyle group ( the seller ) pursuant to which we made a binding offer to acquire the precision flow systems management business ( the business ) for approximately $ 1.45 billion in cash , subject to working capital and certain other adjustments ( the acquisition ) . the business is a manufacturer of precision flow control equipment including electric diaphragm pumps and controls that serve the global water , oil and gas , agriculture , industrial and specialty market segments . the offer is subject to completion of information and consultation processes with employee representative bodies of the business in applicable jurisdictions . story_separator_special_tag unallocated corporate expense unallocated corporate expense for the year ended december 31 , 2018 decreased by 4.1 % or $ 10.9 million , compared with the same period of 2017 . lower functional costs from productivity projects more than offset compensation and benefit charges related to variable compensation . interest expense interest expense for the year ended december 31 , 2018 increased by $ 4.9 million compared with the same period of 2017 . during 2018 , we issued $ 1.15 billion of senior notes and redeemed $ 1.1 billion of senior notes . the increase primarily relates to the redemption of the senior notes in which we recognized $ 15.4 million of premium expense and $ 1.2 million of unamortized costs in interest expense . this amount was partially offset by lower interest rates on the new senior notes issued during the period . other income/ ( expense ) , net the components of other income/ ( expense ) , net , for the years ended december 31 are as follows : replace_table_token_9_th other income / ( expense ) , net includes the results from activities other than normal business operations such as interest income and foreign currency gains and losses on transactions that are denominated in a currency other than an entity 's functional currency . in addition , we include the components of net periodic benefit cost for pension and post retirement obligations other than the service cost component . other activity , net include costs associated with trane u.s. inc. ( trane ) for the settlement and defense of asbestos-related claims , insurance settlements on asbestos-related matters and the revaluation of its liability for potential future claims . provision for income taxes the 2018 effective tax rate was 16.9 % which is lower than the u.s. statutory rate of 21 % primarily due to the measurement period adjustment related to the change in permanent reinvestment assertion on unremitted earnings of certain foreign subsidiaries , the deduction for foreign derived intangible income , the recognition of excess tax benefits from employee share based payments and a reduction in a valuation allowance for certain state net deferred tax assets . this decrease was partially offset by the measurement period adjustment related to a valuation allowance on excess foreign tax credits , u.s. state and local income taxes 24 and certain non-deductible employee expenses . in addition , the reduction was also driven by earnings in non-u.s. jurisdictions , which in aggregate , have a lower effective tax rate . revenues from non-u.s. jurisdictions accounts for approximately 36 % of our total revenues , such that a material portion of our pretax income was earned and taxed outside the u.s. at rates ranging from 0 % to 38 % . when comparing the results of multiple reporting periods , among other factors , the mix of earnings between u.s. and foreign jurisdictions can cause variability in our overall effective tax rate . the 2017 effective tax rate was 5.7 % which is lower than the u.s. statutory rate of 35 % primarily due to the remeasurement of our net u.s. deferred tax liabilities , the premium paid related to the early retirement of certain intercompany debt obligations , the recognition of a claim for refund related to previously paid interest and the recognition of excess tax benefits from employee shared based payments . in the aggregate , these items decreased the effective tax rate by 37.9 % . this decrease was partially offset by the transition tax cost , a change in permanent reinvestment assertion on the unremitted earnings of certain foreign subsidiaries and a non-cash charge related to the establishment of a valuation allowance on certain net deferred tax assets in brazil . in the aggregate these items increased the effective tax rate by 13.7 % . in addition , the reduction was also driven by earnings in non-u.s. jurisdictions , which in aggregate , have a lower effective tax rate . revenues from non-u.s. jurisdictions accounts for approximately 35 % of our total revenues , such that a material portion of our pretax income was earned and taxed outside the u.s. at rates ranging from 0 % to 38 % . when comparing the results of multiple reporting periods , among other factors , the mix of earnings between u.s. and foreign jurisdictions can cause variability in our overall effective tax rate . discontinued operations the components of discontinued operations , net of tax for the years ended december 31 are as follows : replace_table_token_10_th discontinued operations are retained costs from previously sold businesses including postretirement benefits , product liability and legal costs . in addition , we include costs associated with ingersoll-rand company for the settlement and defense of asbestos-related claims , insurance settlements on asbestos-related matters and the revaluation of our liability for potential future claims . a portion of the tax benefit ( expense ) in each period represents adjustments for certain tax matters associated with the 2013 spin-off of our commercial and residential security business , now an independent public company operating under the name of allegion plc ( allegion ) . year ended december 31 , 2017 compared to the year ended december 31 , 2016 replace_table_token_11_th 25 net revenues net revenues for the year ended december 31 , 2017 increased by 5.1 % , or $ 688.7 million , compared with the same period of 2016 . the components of the period change are as follows : volume/product mix 4.4 % pricing 0.3 % currency translation 0.4 % total 5.1 % the increase was primarily driven by higher volumes in both our climate and industrial segments . additionally , improved pricing and favorable foreign currency exchange rate movements further contributed to the year-over-year increase . our revenues by segment are as follows : replace_table_token_12_th climate net revenues for the year ended december 31 , 2017 increased by 5.9 % or $ 622.5 million , compared with the same period of 2016 . the components of the period change are as follows : volume/product mix 5.4 % pricing 0.2 % currency translation 0.3 % total 5.9
| results of operations our climate segment delivers energy-efficient products and innovative energy services . it includes trane ® and american standard ® heating & air conditioning which provide heating , ventilation and air conditioning ( hvac ) systems , and commercial and residential building services , parts , support and controls ; energy services and building automation through trane building advantage and nexia ; and thermo king ® transport temperature control solutions . our industrial segment delivers products and services that enhance energy efficiency , productivity and operations . it includes compressed air and gas systems and services , power tools , material handling systems , aro ® fluid management equipment , as well as club car ® golf , utility and consumer low-speed vehicles . segment operating income is the measure of profit and loss that our chief operating decision maker uses to evaluate the financial performance of the business and as the basis for performance reviews , compensation and resource allocation . for these reasons , we believe that segment operating income represents the most relevant measure of segment profit and loss . we define segment operating margin as segment operating income as a percentage of net revenues . on january 1 , 2018 , we adopted accounting standards update no . 2014-09 , `` revenue from contracts with customers '' ( asc 606 ) , which created a comprehensive , five-step model for revenue recognition that requires a company to recognize revenue to depict the transfer of promised goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services . we adopted this standard on january 1 , 2018 using the modified retrospective approach and recorded a cumulative effect adjustment to increase retained earnings by $ 2.4 million . related amounts did not materially impact net revenues , operating income or the balance sheet . on january 1 , 2017 , we adopted accounting standards update ( asu ) no .
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deferred tax assets and liabilities are determined on the basis of the story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. this discussion and other parts of this annual report on form 10-k contain forward-looking statements reflecting our current expectations , estimates and assumptions concerning events and financial trends that may affect our future operating results or financial position . actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors , including those discussed in the sections titled “ risk factors ” and “ cautionary note regarding forward-looking statements ” appearing elsewhere in this annual report on form 10-k. unless the context otherwise requires , for purposes of this section , the terms “ we , ” “ us , ” “ the company ” or “ our ” are intended to mean the business and operations of clene inc. and its consolidated subsidiaries . business overview we are a clinical-stage pharmaceutical company pioneering the discovery , development , and commercialization of novel , clean-surfaced nano ( csn ) therapeutics . csn therapeutics are comprised of atoms of transition elements that , when assembled in nanocrystalline form , possess unusually high , unique catalytic activities not present in those same elements in bulk form . these nanocatalytic activities drive , support , and maintain beneficial metabolic and energetic intercellular reactions within diseased , stressed , and damaged cells . our patent-protected , proprietary position affords us the potential to develop a broad and deep pipeline of novel csn therapeutics to address a range of diseases with high impact on human health . we began in 2013 by innovating an electrochemistry drug development platform that draws from advances in nanotechnology , plasma and quantum physics , material science , and biochemistry . our platform process results in nanocrystals with faceted structures and surfaces that are free of the chemical surface modifications that accompany other production methods . many traditional methods of nanoparticle synthesis involve the unavoidable deposition of potentially toxic organic residues and stabilizing surfactants on the particle surfaces . synthesizing stable nanocrystals that are both nontoxic and highly catalytic has overcome this significant hurdle in harnessing transition metal catalytic activity for human therapeutic use . our clean-surfaced nanocrystals exhibit catalytic activities many fold higher than multiple other commercially available nanoparticles , produced using various techniques , that we have comparatively evaluated . we now have multiple drug assets currently in development and or clinical trials for applications in neurology , infectious disease , and oncology . our development and clinical efforts are currently focused on addressing the high unmet medical needs in two areas : first , those related to central nervous system disorders including multiple sclerosis ( “ ms ” ) , parkinson 's disease ( “ pd ” ) and amyotrophic lateral sclerosis ( “ als ” ) ; and second , those related to the pandemic caused by covid-19 , a highly infectious viral respiratory disease with serious and sometimes fatal co-morbidities . on december 30 , 2020 , chelsea worldwide , inc. , our predecessor company , consummated the previously announced business combination ( referred to as the “ reverse recapitalization ” ) pursuant to a merger agreement , dated as of september 1 , 2020 ( the “ merger agreement ” ) , by and among clene nanomedicine , inc. ( “ clene nanomedicine ” ) , tottenham acquisition i limited ( “ tottenham ” or “ tota ” ) , the public entity prior to the reverse recapitalization , chelsea worldwide inc. , a delaware corporation and wholly owned subsidiary of tottenham ( “ pubco ” ) , creative worldwide inc. , a delaware corporation and wholly owned subsidiary of pubco ( “ merger sub ” ) , and fortis advisors llc , a delaware limited liability company as the representative of our shareholders ( “ shareholders ' representative ” ) . prior to the reincorporation merger discussed below , tottenham was incorporated in the british virgin islands as a blank check company for the purpose of entering into a merger , share exchange , asset acquisition , stock purchase , recapitalization , reorganization or other similar business combination with one or more businesses or entities . the reverse recapitalization was effected in two steps : ( i ) tottenham was reincorporated to the state of delaware by merging with and into pubco ( the “ reincorporation merger ” ) ; ( ii ) promptly following the reincorporation merger , merger sub was merged with and into clene nanomedicine , resulting in clene nanomedicine being a wholly owned subsidiary of pubco ( the “ acquisition merger ” ) . on the closing date , pubco changed its name from chelsea worldwide inc. to clene inc. and listed its shares of common stock , par value $ 0.0001 per share ( “ common stock ” ) on nasdaq under the symbol “ clnn. ” as a result of the reverse recapitalization , clene nanomedicine became a wholly owned direct subsidiary of clene inc. for periods prior to the closing of the reverse recapitalization on december 30 , 2020 , the disclosure in management 's discussion and analysis of financial condition and results of operations has been updated to give effect to the reverse recapitalization . 78 on february 16 , 2021 , we filed a registration statement on form s-1 to register 4,541,481 shares of common stock underlying outstanding warrants that we had previously issued . the sec has not yet declared this registration statement to be effective . we will receive an aggregate gross proceed of $ 30.7 million if all of these warrants are exercised . in addition , the registration statement on form s-1 will register the sale by certain selling stockholders of 23,251,553 shares of our common stock . we will not receive any proceeds from the sales by the selling shareholders . story_separator_special_tag immediately after giving effect to the reverse recapitalization and the pipe offering discussed in below , there were 59,526,171 shares of common stock issued and outstanding , and warrants to purchase 5,566,363 shares of common stock issued and outstanding . the transaction was accounted for as a “ reverse recapitalization ” and tottenham was treated as the “ acquired ” company for accounting purposes . accordingly , for accounting purposes , the reverse recapitalization was treated as the equivalent of clene nanomedicine issuing shares for the net assets of tottenham , accompanied by a recapitalization . the net assets of tottenham were recorded at historical costs , with no goodwill or other intangible assets recorded . reported amounts from operations included herein prior to the reverse recapitalization are those of clene nanomedicine . the pipe offering prior to the completion of the reverse recapitalization on december 30 , 2020 , we entered into subscription agreements on december 28 , 2020 , with various investors ( the “ pipe ” ) . pursuant to the subscription agreements , we issued 2,239,500 shares of our common stock ( the “ pipe shares ” ) at a price of $ 10.00 per share with net proceeds of $ 22.2 million . the purpose of the pipe is to fund general corporate expenses . in addition , investors in the pipe offering will also receive warrants to purchase a number of shares equal to one-half ( 1/2 ) of the number of pipe shares , for an aggregate total of 1,119,750 shares of our common stock , at an exercise price of $ 0.01 per share ( the “ pipe warrants ” ) , subject to a 180-day holding period . basis of presentation and consolidation the accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the united states of america ( “ gaap ” ) and include the accounts of the company and its wholly owned subsidiaries , clene nanomedicine , a subsidiary incorporated in delaware , clene australia pty ltd ( “ clene australia ” ) , a subsidiary incorporated in australia , and dorbital , inc. , a subsidiary incorporated in delaware , after elimination of all significant intercompany accounts and transactions . story_separator_special_tag substantially all of our resources to the development of our drug candidates . we have financed our operations principally through proceeds from the issuance of preferred stock , issuance of common stock upon exercise of common stock options , convertible promissory notes , issuances of notes payable , and the consummation of the reverse recapitalization . since our inception and through the date of this annual report , we have funded our operations primarily with proceeds from the following sources : ● gross proceeds of $ 87.2 million from sales of our preferred stock and other equity financing ; ● gross proceeds of $ 28.1 million from borrowings under convertible promissory notes ; ● gross proceeds of $ 0.6 million through external lenders ; and ● gross cash proceeds of $ 31.7 million through the reverse recapitalization and the pipe offering . 81 in february 2021 , we filed a registration statement on form s-1 to register 4,541,481 shares of common stock underlying outstanding warrants . we will receive aggregate gross proceeds of $ 30.7 million if all of these are exercised . in addition , we received $ 0.5 million from a michael j. fox foundation grant in january 2021 which provides for our preclinical research funding . we have also been awarded grants from various other organizations , including the u.s. congressionally directed medical research program administered by the department of defense , the national multiple sclerosis society , and fightmnd , a not-for-profit registered charity in australia , who together have issued us grants totaling approximately $ 2.6 million . we also receive indirect financial support for one of the clinical studies in which we participate , the healey als platform trial , administered by the massachusetts general hospital , which is conducting a study of our cnm-au8 drug candidate along with other drugs in a platform trial , at significantly lower costs to us than we would otherwise incur if we were to conduct a comparably designed study on our own at reasonable market rates . the net cash used in our operating activities was $ 18.9 million and $ 13.2 million for the years ended december 31 , 2020 and 2019 , respectively . as of december 31 , 2020 , we had cash of $ 59.3 million . we expect that the cash on hand as of december 31 , 2020 will be sufficient to fund our operations for a period extending beyond twelve months from the date the consolidated financial statements are issued . we have based this estimate on assumptions that may prove to be wrong , and we may exhaust our available capital resources sooner than we anticipate . see “ — liquidity and capital resources . ” we expect our expenses to increase significantly in connection with our ongoing activities , particularly as we advance the clinical development of our clinical-stage drug products and continue research and development of our preclinical drug products and initiate additional clinical trials of , and seek regulatory approval for , these and other future drug products . as we continue to grow and expand , we will incur more expenses relating to regulatory compliance and sales and marketing personnel as we prepare to commence commercialization once we obtain regulatory approval of our drug products . general and administrative expenses our administrative expenses consist primarily of staff costs , agency and consulting fees , utilities , rent and general office expenses , and share grants . we recorded administrative expenses of $ 5.2 million and $ 6.8 million for the years ended december 31 , 2020 and 2019 , respectively .
| key factors affecting our results of operations our results of operations , financial condition and the period-to-period comparability of our financial results are principally affected by the following factors : earn-out shares in connection with the reverse recapitalization , certain of clene nanomedicine 's current shareholders and tottenham 's former officers and directors and the sponsor ( collectively , the “ initial shareholders ” ) are entitled to receive earn-out payments ( collectively , referred to as “ earn-out shares ” ) based on achieving milestones discussed below . the earn-out payments ( the “ contingent earn-out ” ) have been classified as liabilities in the consolidated balance sheets as of december 31 , 2020 and will be initially measured at fair value and remeasured subsequently in each reporting period . the change in fair value of the contingent earn-out will be recorded in the consolidated statements of operations and comprehensive loss . 80 the clene nanomedicine contingent earn-out provision includes ( i ) milestone 1 that is based on achieving a certain volume-weighted average price of the shares of the company common stock within three years after the closing of the reverse recapitalization or the change of control price equaling or exceeding a certain price if a change of control transaction occurs within the three years following the closing of the reverse recapitalization , ( ii ) milestone 2 that is based on achieving a certain volume-weighted average price of the shares of the company common stock within five years after the closing of the reverse recapitalization or the change of control price equaling or exceeding a certain price if a change of control transaction occurs within the five years following the closing of the reverse recapitalization , and ( iii ) milestone 3 that is based on completing by december 30 , 2021 a randomized placebo-controlled study for treatment of covid-19 coronavirus .
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because of the nature of the customers under the company 's contracts and its direct loan program , the company considers the establishment of adequate reserves for credit losses to be imperative . the company segregates its contracts into static pools for purposes of establishing reserves for losses . all contracts purchased by a branch during a fiscal quarter comprise a static pool . the company pools contracts according to branch location because the branches purchase contracts in different geographic markets . this method of pooling by branch and quarter allows the company to evaluate the different markets where the branches operate . the pools also allow the company to evaluate the different levels of customer income , stability and credit history , and the types of vehicles purchased , in each market . the company analyzes each consolidated static pool at specific points in time . a consolidated static pool consists of all branches for the same fiscal quarter . in analyzing a static pool , the company considers the performance of prior static pools originated by the same branch office , the competition at time of acquisition , and current market and economic conditions . each static pool is analyzed monthly to determine if the loss reserves are adequate , and adjustments are made if they are determined to be necessary . the company has been maintaining historical write-off information for over 10 years with respect to every consolidated static pool , segregating each static pool by liquidation and in effect creating snapshots of a pool 's write-off-to liquidation ratio at five different points in such pool 's liquidation cycle . these snapshots help the company in determining the appropriate provision for credit losses and subsequent allowance for credit losses . the five snapshots are taken when the liquidation levels are at 20 % , 40 % , 60 % , 80 % and 100 % . contracts are purchased from many different dealers and are all purchased on an individual contract-by-contract basis . individual contract pricing is determined by the automobile dealerships and is generally the lesser of the applicable state maximum interest rate , if any , or the maximum interest rate which the customer will accept . in most markets , competitive forces will drive down contract rates from the maximum rate to a level where an individual competitor is willing to buy an individual contract . the company purchases contracts on an individual basis . the company does not anticipate any portfolio acquisitions in the near-term . the company utilizes the branch model , which allows for contract purchasing to be done on the branch level . the company has detailed underwriting guidelines it utilizes to determine which contracts to purchase . these guidelines are specific and are designed to provide reasonable assurance that the contracts that the company purchases have common risk characteristics . the company utilizes its district managers to evaluate their respective branch locations for adherence to these underwriting guidelines , as well as approve underwriting exceptions . the company also utilizes ia to assure adherence to its underwriting guidelines . any contract that does not meet our underwriting guidelines can be submitted by a branch manager for approval from the company 's district managers or senior management . as of march 31 , 2016 , the company refined the allowance for loan losses by changing it to a loan by loan analysis , which more closely depicts the amount of the provision expense needed to maintain an adequate reserve . as of march 31 , 2017 , the company further refined the reserve for losses by increasing the allowance for loan losses by 50 % of the principal balance , with respect to accounts whose contractual delinquency falls into the range of 120-180 days past due . currently , management evaluates each contract on an independent basis each quarter and accounts for such contract 's term , how far along the corresponding loan is in its liquidation cycle , late charges , the number of deferments , and delinquency . fiscal 2017 compared to fiscal 2016 interest and fee income on finance receivables interest income on finance receivables , predominantly finance charge income , decreased slightly to $ 90.5 million in fiscal 2017 as compared to $ 90.7 million in fiscal 2016. the average finance receivables , net of unearned interest , totaled $ 347.4 million for the fiscal year ended march 31 , 2017 , an increase of 4 % from $ 334.8 million for the fiscal year ended march 31 , 2016. while our purchasing volume has slowed , mainly as a result of a highly competitive market place , our finance receivables continued growing in our more recently entered markets , including our three newer states ( see item 1. businesscontract procurement ) . increases in our average term and average loan amount have contributed to the increase in finance receivables . 26 the gross portfolio yield decreased to 26.04 % for the fiscal year ended march 31 , 2017 as compared to 27.10 % for the fiscal year ended march 31,2016. the gross portfolio yield decreased primarily due to the decrease in the average dealer discount and in the average weighted apr , intensified by the increase in average finance receivables , net of unearned interest , particularly as a result of an increase in past-due accounts . the net portfolio yield decreased to 12.69 % for the fiscal year ended march 31 , 2017 from 16.56 % for the fiscal year ended march 31,2016. the net portfolio yield decreased due to a decrease in the gross portfolio yield and an increase in the provision for credit losses , as described under analysis of credit losses . story_separator_special_tag the delinquency percentage for contracts more than thirty days past due , excluding chapter 13 bankruptcy accounts , as of march 31 , 2017 was 10.05 % , an increase from 5.57 % as of march 31 , 2016. the delinquency percentage for direct loans more than thirty days past due , excluding chapter 13 bankruptcy accounts , as of march 31 , 2017 was 3.89 % , an increase from 2.19 % as of march 31 , 2016. the increase in delinquency percentage for both contracts and direct loans was driven by the company 's continued portfolio weakness , exacerbated by greater than anticipated difficulties in implementing the centralized collection model , after the company moved all loan-servicing operations from branch locations to a centralized location within its corporate headquarters in clearwater . during the month of november 2016 , the company began soliciting collection assistance from selective branches within its branch network . the company experienced modest improvement in collections and lower delinquencies and as such broadened its assistance requests to additional branches during the quarter ended december 31 , 2016. as of the date of this report , the company has moved a majority of its servicing and collection activity back to its branch network for all but six branches . the remaining few branches serviced at the corporate office maintain low delinquencies and write offs . in addition to the challenges experienced with respect to the changes to its collection model , the company has continued to see a significant number of competitors with aggressive underwriting in its operating market . see note 3finance receivables for changes in allowance for credit losses , credit quality and delinquencies . 28 the company considers the following factors to assist in determining the appropriate loss reserve levels : competition ; the number of bankruptcy filings ; the results of internal branch audits ; consumer sentiment ; consumer spending ; economic growth ( i.e. , changes in gdp ) ; the condition of the housing sector ; and other leading economic indicators . the company continues to evaluate reserve levels on a pool-by-pool basis during each reporting period . the longer-term outlook for portfolio performance will depend on overall economic conditions , the rational or irrational behavior of the company 's competitors , and the company 's ability to monitor , manage and implement its underwriting and collections philosophy in additional geographic areas as it strives to continue its expansion . in accordance with our policies and procedures , certain borrowers qualify for , and the company offers , one-month principal payment deferrals on contracts and direct loans . for the fiscal years ended march 31 , 2017 and march 31 , 2016 the company granted deferrals to approximately 34.77 % and 22.65 % , respectively , of total contracts and direct loans . the increase in the number of deferrals for the fiscal year ended 2017 is a result of portfolio weakness which was exacerbated by the effect of the company 's unsuccessful attempt at centralizing collections described above . the company is reasonably certain that its delinquency rates would be higher without the increase in deferrals . the number of deferrals is influenced by portfolio performance , including but not limited to , inflation , credit quality of loans purchased , competition at the time of contract acquisition , and general economic conditions . income taxes the provision for income taxes decreased to approximately $ 3.3 million in fiscal 2017 from approximately $ 7.7 million in fiscal 2016. the company 's effective tax rate decreased to 38.11 % in fiscal 2017 from 38.43 % in fiscal 2016. fiscal 2016 compared to fiscal 2015 interest and fee income on finance receivables interest income on finance receivables , predominantly finance charge income , increased 4.5 % to $ 90.7 million in fiscal 2016 from $ 86.8 million in fiscal 2015. the average finance receivables , net of unearned interest , totaled $ 334.8 million for the fiscal year ended march 31 , 2016 , an increase of 8 % from $ 310.0 million for the fiscal year ended march 31 , 2015. the primary reason average finance receivables , net of unearned interest , increased was an increase of the receivable base of several existing branches in younger markets in fiscal 2016. see item 1. businesscontract procurement . the gross finance receivable balance increased 9 % to $ 498.1 million for the fiscal year ended march 31 , 2016 from $ 458.0 million for the fiscal year ended march 31 , 2015. the primary reasons gross finance receivables increased were an increase in contracts purchased and an increase in the weighted-average term of contracts purchased . the primary reason interest income increased was the increase in the volume of the outstanding loan portfolio , which was partially offset by a lower weighted apr earned on our portfolio for the fiscal year ended march 31 , 2016 compared to the fiscal year ended march 31 , 2015. the gross portfolio yield decreased to 27.10 % for the fiscal year ended march 31 , 2016 from 28.00 % for the fiscal year ended march 31 , 2015. the net portfolio yield decreased to 16.56 % for the fiscal year ended march 31 , 2016 from 19.50 % for the fiscal year ended march 31 , 2015. the gross portfolio yield decreased primarily due to the decrease in the average dealer discount and a decrease in the average weighted apr , both of which is primarily the result of increased competition . the net portfolio yield decreased due to a decrease in the gross portfolio yield , an increase in the provision for credit losses , and an increase in interest expense ( see analysis of credit losses and interest expense below ) .
| overview nicholas financial-canada is a canadian holding company incorporated under the laws of british columbia in 1986. nicholas financial-canada currently conducts its business activities exclusively through a wholly-owned indirect florida subsidiary , nicholas financial , which purchases and services contracts , makes direct loans and sells consumer-finance related products . nicholas financial accounted for more than 99 % of the company 's consolidated revenue for the fiscal year ended march 31 , 2015 , and 100 % of the company 's consolidated revenue for the fiscal years ended march 31 , 2017 and 2016. a second florida subsidiary , nds , which historically provided limited computer software support and updated services to small businesses , has ceased such operations ; however , it continues as an intermediate holding company for nicholas financial . nicholas financial-canada , nicholas financial and nds are collectively referred to herein as the company . introduction the company 's consolidated revenues decreased from $ 90.7 million for the fiscal year ended march 31 , 2016 to $ 90.5 million for the fiscal year ended march 31 , 2017. consolidated revenues for the fiscal year ended march 31 , 2015 were $ 86.8 million . the company 's diluted earnings per share decreased for the fiscal year ended march 31 , 2017 to $ 0.69 as compared to $ 1.59 for the fiscal year ended march 31 , 2016. diluted earnings per share for the fiscal year ended march 31 , 2015 were $ 1.38. the per share diluted net earnings for the fiscal year ended march 31 , 2017 and 2016 , were positively impacted when compared to fiscal 2015 by the purchase of 4.7 million of the company 's common shares by its principal operating subsidiary on march 19 , 2015. the company 's operating income before taxes for the fiscal year ended march 31 , 2017 decreased to $ 8.7 million as compared to $ 20.1 million and $ 26.1 million for the fiscal years ended march
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our actual results could differ materially from the results described in or implied by these forward-looking statements as a result of various factors , including those discussed below and elsewhere in this report , particularly under the heading “ risk factors. ” overview we are a commercial pharmaceutical and medical device company . we seek to in-license , develop and commercialize therapeutic products for the treatment of cardiorenal and infectious diseases , including the dialysis and non-dialysis areas . as of the date of this report , we have in-licensed all of the product candidates in our pipeline . we have the worldwide rights to develop and commercialize our product candidates , crmd003 ( neutrolin ) and crmd004 , which we believe address potentially large market opportunities in the instances in which a central venous catheter is used , such as hemodialysis , intensive care units , oncology and total parenteral nutrition patients . our primary product is neutrolin , a novel formulation of taurolidine , citrate and heparin with1000 u/ml that provides a combination preventative solution , decreases the triple threat of infection , thrombosis , and biofilm to keep catheter 's operating safely and efficiently by optimizing catheter blood flow while minimizing infections and biofilm formation .. neutrolin has shown antimicrobial activity against many of the pathogens that are known to pose a serious threat to public health by causing blood-stream infections in icu , oncology and hemodialysis patients . cormedix intends to expand on the previously collected clinical data by conducting clinical trials with neutrolin ® catheter lock solution in oncology , hemodialysis and intensive care unit patients , where catheter-related blood stream infections and clotting can be life-threatening . on july 5 , 2013 , we received ce mark approval for neutrolin . as a result , in december 2013 , we began the commercial launch of neutrolin in germany for the prevention of catheter-related bloodstream infections , or crbi , and maintenance of catheter patency in hemodialysis patients using a tunneled , cuffed central venous catheter for vascular access . . in december 2014 , we received approval from the hessian district president in germany to expand the label to include use in oncology patients receiving chemotherapy , iv hydration and iv medications via central venous catheters . the expansion also adds patients receiving medication and iv fluids via central venous catheters in intensive or critical care units ( cardiac care unit , surgical care unit , neonatal critical care unit , and urgent care centers ) . an indication for use in total parenteral , or iv , nutrition was also approved . in september 2014 , the tuv-sud and the medicinal evaluation board of the netherlands ( meb ) granted a label expansion for neutrolin for these same expanded indications for the eu . to date , neutrolin is registered and may be sold in austria , germany , italy , malta , saudi arabia and the netherlands for such treatment . we are seeking to develop neutrolin in the u.s. based on our discussions with the fda , we expect to conduct at least one phase 3 clinical trial in hemodialysis catheters and one phase 3 clinical trial in oncology/total parenteral nutrition . we are seeking one or more strategic partners or other sources of capital to complete the development of neutrolin in the u.s. financial operations overview revenue we have not generated substantial revenue since our inception . as of december 31 , 2014 , we have funded our operations primarily through debt and equity financings and the ipo , our receipt of approximately $ 490,000 from federal grants under the qualifying therapeutic discovery project program , approximately $ 775,000 from the sale of our unused net operating losses through the state of new jersey 's economic development authority technology business tax certificate transfer program and approximately $ 35,000 from the state of new york 's research and development tax credit program . research and development expense research and development , or r & d , expense consists of : ( i ) internal costs associated with our development activities ; ( ii ) payments we make to third party contract research organizations , contract manufacturers , investigative sites , and consultants ; ( iii ) technology and intellectual property license costs ; ( iv ) manufacturing development costs ; ( v ) personnel related expenses , including salaries , stock-based compensation , benefits , travel and related costs for the personnel involved in drug development ; ( vi ) activities relating to regulatory filings and the advancement of our product candidates through preclinical studies and clinical trials ; and ( vii ) facilities and other allocated expenses , which include direct and allocated expenses for rent , facility maintenance , as well as laboratory and other supplies . all r & d is expensed as incurred . conducting a significant amount of development is central to our business model . product candidates in later-stage clinical development generally have higher development costs than those in earlier stages of development , primarily due to the significantly increased size and duration of the clinical trials . we plan to increase our r & d expenses for the foreseeable future in order to complete development of neutrolin in the u.s. 33 the following table summarizes the percentages of our r & d payments related to our two most advanced product candidates and other projects . the percentages summarized in the following table reflect payments directly attributable to each development candidate , which are tracked on a project basis . a portion of our internal costs , including indirect costs relating to our product candidates , are not tracked on a project basis and are allocated based on management 's estimate . replace_table_token_3_th the process of conducting pre-clinical studies and clinical trials necessary to obtain regulatory approval is costly and time consuming . story_separator_special_tag foreign exchange gain ( loss ) is reported in the consolidated statement of operations as a separate line item within other income ( expense ) . interest income interest income consists of interest earned on our cash and cash equivalents . interest expense interest expense for 2014 consists of interest incurred on financing of expenses . story_separator_special_tag t > loss on extinguishment of convertible notes . the loss on extinguishment of convertible notes for the year ended december 31 , 2013 of approximately $ 1,460,000 represents the excess of the fair value of shares issued in connection with the conversions and redemptions over the fair value of the convertible notes that were converted or redeemed for shares . foreign exchange transaction gain ( loss ) . foreign exchange transaction gain ( loss ) increased by approximately $ 151,000 for the year ended december 31 , 2014 due to additional funding to the foreign subsidiary through september 30 , 2014 and the corresponding fluctuation in the exchange rates . effective october 1 , 2014 , we considered the intercompany loans to be of long-term investment nature . foreign exchange gains or losses subsequent to october 1 , 2014 have been recorded in other comprehensive income . interest income . interest income was approximately $ 2,700 for the year ended december 31 , 2014 , an increase of approximately $ 2,000 from approximately $ 700 for the same period last year . the increase was attributable to having higher average interest-bearing cash balances during the year ended december 31 , 2014 as compared to the same period last year . 36 interest expense . interest expense was approximately $ 2,000 for the year ended december 31 , 2014 as compared to approximately $ 1,444,000 for the same period last year a decrease of approximately $ 1,442,000. the interest expense for the year ended december 31 , 2013 consisted primarily of a beneficial conversion feature charge of approximately $ 1,054,000 related to the senior convertible notes and warrants issued in 2012 and 2013 , amortization of deferred financing fees of approximately $ 283,000 and accrued interest of approximately $ 107,000 related to the senior convertible notes . these convertible notes matured during the year ended december 31 , 2013. other comprehensive loss . unrealized foreign exchange movements related to long-term intercompany loans and the translation of the foreign affiliate financial statements to u.s. dollars are recorded in other comprehensive income totaling approximately $ 108,000 gain for the year ended december 31 , 2014. liquidity and capital resources sources of liquidity as a result of our cost of sales , r & d and sg & a expenditures and the lack of substantial product sales revenue , we have not been profitable and have generated operating losses since we were incorporated in july 2006. we received ce mark approval for our neutrolin product in july 2013 and launched our product in the eu in december 2013. in february 2013 , we sold 761,429 shares of our series a non-voting convertible preferred stock and a warrant to purchase up to 400,000 shares of our common stock for gross proceeds of $ 533,000. in may 2013 , we sold $ 1,500,000 of convertible notes and warrants to purchase up to 750,000 shares of our common stock . in july 2013 , we sold 454,546 shares of series b non-voting convertible preferred stock and a warrant to purchase up to 227,273 shares of our common stock for gross proceeds of $ 500,000. in october 2013 we sold 150,000 shares of our series c-1 and 150,000 shares of our series c-2 non-voting convertible preferred stock and warrants to purchase up to 1,500,000 shares of our common stock for gross proceeds of $ 3,000,000. additionally , we exchanged $ 400,000 in principal amount of convertible notes issued in september 2012 for 57,400 shares of our series d non-voting convertible preferred stock and also exchanged $ 750,000 in principal amount of convertible notes issued in may 2013 for 53,537 shares of our series e non-voting convertible preferred stock . all of the series a and series c-1 non-voting convertible preferred stock have converted to common stock . in january 2014 , we sold 200,000 shares of our series c-3 non-voting convertible preferred stock and warrants to purchase up to 1,000,000 shares of our common stock for net cash proceeds of $ 1,319,000 and the settlement of accounts payable and accrued expenses of $ 645,000. in march 2014 , we sold 2,960,000 units , each unit consisted of one share of our common stock and 0.35 of a warrant to purchase one share of our common stock , for gross proceeds of $ 7,400,000. we received net proceeds of approximately $ 6,723,000. net cash used in operating activities net cash used in operating activities was approximately $ 6,321,000 for the year ended december 31 , 2014. the net loss of approximately $ 20,453,000 for the year ended december 31 , 2014 was higher than cash used in operating activities by approximately $ 14,132,000. the difference is attributable primarily to revaluation of derivative liabilities of approximately $ 8,849,000 , non-cash loss on extinguishment of derivative liabilities of approximately $ 2,463,000 , non-cash stock-based compensation of approximately $ 2,168,000 , and losses on foreign currency transactions and issuance of preferred stock of approximately $ 151,000 and $ 90,000 , respectively . 37 net cash used in investing activities net cash used in investing activities was approximately $ 25,000 for the year ended december 31 , 2014 as compared to approximately $ 36,000 for the same period last year a decrease of approximately $ 11,000 primarily due to the database programming software of the neutrolin usage monitoring program in germany . net cash provided by financing activities net cash provided by financing activities was approximately $ 8,358,000 for the year ended december 31 , 2014 as compared to approximately $ 5,204,000 for the same period last year .
| results of operations comparison of the years ended december 31 , 2014 and december 31 , 2013 revenue . revenue was approximately $ 189,000 for the year ended december 31 , 2014 compared to approximately $ 2,000 in the prior year . the majority of the revenue is from sales of neutrolin following the europe commercial launch in december 2013 followed by middle east launches during 2014. the majority of the net sales in 2014 occurred in german and saudi arabian markets . in addition , we realized $ 4,000 associated with the amortization of deferred revenue from a non-refundable payment received from a distribution agreement . cost of sales . cost of sales was approximately $ 446,000 for the year ended december 31 , 2014 compared to approximately $ 202,000 in the same period last year . cost of sales for the year ended december 31 , 2014 are primarily comprised of non-recurring costs of approximately $ 140,000 associated with commercial production start-up and enhancing the process as well as on-going stability studies of approximately $ 80,000 and direct cost of materials of approximately $ 50,000. the costs associated with on-going stability studies are expected to continue into 2015. during the year ended december 31 , 2014 , a substantial part of the costs of raw materials and the cost to manufacture the product sold were previously charged to research and development expense because it had been purchased and manufactured prior to the receipt of the ce mark . in addition , we recorded a charge of $ 175,000 associated with pre-launch inventory build-up and start-up related manufacturing inefficiencies . research and development expense . r & d expense was approximately $ 1,319,000 for the year ended december 31 , 2014 , an increase of $ 92,000 from $ 1,227,000 for the same period last year .
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in general the acquisition method requires acquisition-date fair value measurement of identifiable assets story_separator_special_tag the following commentary presents a discussion and analysis of the company 's financial condition and results of operations by its management . the review highlights the principal factors affecting earnings and the significant changes in balance sheet items for the years 2012 , 2011 and 2010. financial information for prior years is presented when appropriate . the objective of this financial review is to enhance investor 's understanding of the accompanying tables and charts , the consolidated financial statements , notes to financial statements , and financial statistics appearing elsewhere in this annual report on form 10-k. where applicable , this discussion also reflects management 's insights of known events and trends that have or may reasonably be expected to have a material effect on the company 's operations and financial condition . our 2012 revenues increased by $ 12.0 million , or 15.6 % , to $ 88.8 million compared to 2011 , due to the acquisition of telworx in july 2012 and envision in october 2011 , and due to higher revenues from antenna products . we recorded an operating loss of $ 14.7 million in 2012 , which included $ 12.5 million goodwill impairment related to the telworx acquisition and $ 1.1 million impairment for the intangible assets of pctel secure . we recorded a net loss of $ 9.3 million in 2012 compared to a net loss of $ 0.1 million for 2011. introduction pctel is a global leader in propagation and optimization solutions for the wireless industry . we design , develop , and distribute a wide range of antennas , site solutions , scanning receivers and engineered services , for both public and private networks . additionally , we have licensed our intellectual property , principally related to a discontinued modem business , to semiconductor , pc manufacturers , modem suppliers , and others . the vertical markets into which the antenna and site solutions are sold include scada , health care , energy , smart grid , precision agriculture , indoor wireless , telemetry , offloading , and wireless backhaul . growth for antenna and site solutions is primarily driven by the increased use of wireless communications in these vertical markets . revenue growth for antenna products and site solutions is driven by emerging wireless applications in the following markets : public safety , military , and government applications ; scada , health care , energy , smart grid and agricultural applications ; indoor wireless , wireless backhaul , and cellular applications . revenue growth for scanning receivers and engineering services is driven by the deployment of new wireless technology and the need for wireless networks to be tuned and reconfigured on a regular basis . we have an intellectual property portfolio related to antennas , the mounting of antennas , and scanning receivers . these patents are being held primarily for defensive purposes and are not part of an active licensing program . we operate in two segments for reporting purposes . beginning with the formation of pctel secure in january 2011 , we report the financial results of pctel secure as a separate operating segment . because pctel secure is a joint venture , we make decisions regarding allocation of resources separate from the rest of the company . our chief operating decision maker uses the profit and loss results and the assets in deciding how to allocate resources and assess performance between the segments . we did not report segment information for pctel secure in this section because pctel secure was in the development stage during 2011 and 2012. story_separator_special_tag size= '' 2 '' style= '' font-family : times new roman '' > 18 amortization expense increased approximately $ 0.4 million in 2012 compared to 2011 due to $ 0.3 million additional amortization for in-process research and development for pctel secure , $ 0.2 million for amortization of intangible assets acquired from telworx in july 2012 , $ 0.1 million related to a full year of amortization for the acquisition of assets from envision in october 2011 , offsetting $ 0.2 million lower amortization because certain intangible assets for antenna product acquisitions became fully amortized in 2011. amortization expense decreased approximately $ 0.1 million in 2011 compared to 2010 because intangible assets acquired from andrew were fully amortized in 2010 and due to the fact that certain intangible assets related to the wider settlement and the acquisition of products from ascom were impaired during the fourth quarter 2010. these decreases in amortization were partially offset by additional amortization of $ 0.6 million related to the intangible assets contributed by eclipse for pctel secure and the intangible assets acquired from envision . restructuring charges replace_table_token_11_th the 2012 restructuring expense relates to reduction in headcount in our bloomingdale facility . during the third quarter 2012 , we eliminated twelve positions in our manufacturing organization . the restructuring expense of $ 0.2 million consisted of severance and payroll related benefits . the 2011 restructuring expense related to reduction in headcount in our germantown engineering organization . during 2011 , we eliminated six positions due to the completion of several projects for scanning receivers . the restructuring expense of $ 0.1 million consisted of severance and payroll related benefits . the 2010 restructuring expense consisted of $ 0.8 million related to a functional reorganization and $ 0.1 million for the shutdown and relocation of our sparco operations . during the second quarter 2010 , we reorganized from a business unit structure to a functional organizational structure . a restructuring plan was established to reduce the overhead and operating costs associated with operating distinct groups . we incurred restructuring expense of $ 0.8 million for severance , payroll related benefits and placement services related to the elimination of twelve positions . during the third quarter 2010 , we shut down our sparco operations other than our sales office in san antonio , texas and integrated these manufacturing and distribution activities in our bloomingdale , illinois facility . story_separator_special_tag our primary source of liquidity is cash provided by operations , with short term swings in liquidity supported by a significant balance of cash and short-term investments . the balance has fluctuated with cash from operations , acquisitions and divestitures , implementation of a new erp system and the repurchase of our common shares . within operating activities , we are historically a net generator of operating funds from our income statement activities and a net user of operating funds for balance sheet expansion . we expect this historical trend to continue in the future . within investing activities , capital spending historically ranges between 3 % and 5 % of our revenue . the primary use of capital is for manufacturing and development engineering requirements . our capital expenditures during 2012 were approximately 4 % of revenues because we spent $ 1.7 million in 2012 related to the implementation of a new erp system . our capital expenditures during 2011 were approximately 6 % of revenues 21 because we spent $ 2.8 million in 2011 related to the implementation of a new erp system . we historically have significant transfers between investments and cash as we rotate our cash and short-term investment balances between money market funds , which are accounted for as cash equivalents , and other investment vehicles . we have a history of supplementing our organic revenue growth with acquisitions of product lines or companies , resulting in significant uses of our cash and investments from time to time . we expect the historical trend for capital spending and the variability caused by moving money between cash and investments and periodic merger and acquisition activity to continue in the future . within financing activities , we have historically generated funds from the exercise of stock options and proceeds from the issuance of common stock through our employee stock purchase plan ( espp ) and used funds to repurchase shares of our common stock through our share repurchase programs . whether this activity results in our being a net user of funds versus a net generator of funds largely depends on our stock price during any given year . we believe that the existing sources of liquidity , consisting of cash , short-term investments and cash from operations , will be sufficient to meet our working capital needs for the foreseeable future . we continue to evaluate opportunities for development of new products and potential acquisitions of technologies or businesses that could complement the business . we may use available cash or other sources of funding for such purposes . operating activities : we generated $ 5.0 million of funds from operating activities during the year ended december 31 , 2012. we generated $ 6.3 million of funds from our income statement and used $ 1.3 million of funds from changes in the balance sheet . within the balance sheet , inventories increased by $ 2.4 million because of purchases to meet higher revenues in 2012 and because our supply chain expanded with more of our production in china . our accounts receivable increased by $ 2.9 million due to increased revenues in the fourth quarter 2012 compared to the prior year fourth quarter . our prepayments were lower by $ 0.9 million during 2012 primarily because we received a federal income tax refund of $ 1.3 million . the increase in accounts payable and accrued liabilities of $ 3.1 million was due to the higher inventory purchases in 2012 compared to 2011. we generated $ 6.9 million of funds from operating activities for the year ended december 31 , 2011. we generated $ 7.6 million of funds from the income statement and used $ 0.7 million of funds from changes in the balance sheet . within the balance sheet , inventories increased by $ 3.1 million due to the purchase of inventory necessary during the implementation of sourcing initiatives and also because more production was being sourced in-house rather than from contract manufacturers . a reduction of prepayments and other receivables provided $ 1.5 million in cash during 2011 primarily because we received a federal income tax refund of $ 1.6 million . the positive cash flow impact from the increase in accounts payable of $ 1.4 million was due to higher inventory purchases in 2011 compared to 2010. we generated $ 3.4 million of funds from operating activities for the year ended december 31 , 2010. we generated $ 6.3 million of funds from the income statement and used $ 2.9 million of funds from changes in the balance sheet . the increase in accounts receivable accounted for a use of $ 3.9 million in funds primarily because revenues increased $ 3.7 million in the fourth quarter 2010 compared to the fourth quarter 2009. we generated funds of $ 1.7 million and $ 3.2 million from increases in accounts payable and accrued liabilities , respectively . our accounts payable increased due to higher inventory purchases in 2010 and our accrued liabilities increased due to higher accruals for bonuses and sales commissions . we increased our inventory purchases during 2010 because of the increase in revenues . investing activities : we used $ 5.3 million of cash during the year ended december 31 , 2012 for investing activities . during the year ended december 31 , 2012 , we used $ 16.0 million for the acquisition of assets from telworx and $ 1.7 million to purchase the remaining interest in pctel secure . we used $ 3.4 million for capital expenditures which 22 included $ 1.7 million for the implementation of a new erp system . the new system was completed in august 2012 and standardizes and upgrades our business information systems . our net cash provided by investments in municipal bonds , u.s. government agency bonds , and corporate bonds was $ 15.8 million during the year ended december 31 , 2012 as redemptions and maturities of our investments provided $ 77.7 million but we rotated $ 61.9 million of cash into new short and long-term investments .
| results of operations years ended december 31 , 2012 , 2011 , and 2010 ( all amounts in tables , other than percentages , are in thousands ) revenues replace_table_token_5_th 16 revenues were approximately $ 88.8 million for the year ended december 31 , 2012 , an increase of 15.6 % from the prior year . in the year ended december 31 , 2012 versus the prior year , approximately 14 % of the increase in revenues was attributable to revenues from the businesses we acquired from envision in october 2011 and telworx in july 2012 and approximately 9 % was attributable to increased antenna product revenues , offsetting approximately 7 % from lower scanning receiver revenues . revenues were approximately $ 76.8 million for the year ended december 31 , 2011 , an increase of 11.0 % from the prior year . in the year ended december 31 , 2011 versus the prior year , approximately 6 % of the increase in revenues was attributable to antenna products and approximately 5 % of the increase in revenues was attributable to scanning products . the increase in antenna product revenues in 2011 compared to 2010 reflects continued success in penetrating our targeted vertical markets and higher gps antenna sales . the increase in revenues of our scanning products in 2011 was primarily due the launch of our new mx scanning receiver and the lte rollout in the u.s. gross profit replace_table_token_6_th gross profit as a percentage of total revenue was 40.3 % in 2012 compared to 46.7 % in 2011 and 44.9 % in 2010. the margin percentage decrease is related to a higher volume of antenna products relative to scanner products and the addition of the lower margin products from telworx .
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these updates permit the use of either the retrospective or cumulative effect transition method . early application is permitted as of the original effective date for annual reporting periods beginning after december 15 , 2016 , including interim reporting periods within that reporting period . these asu 's will most likely change the way the company accounts for sales returns , our customer loyalty program , gift card breakage and certain other promotional programs . based on current estimates , we do not expect these provisions of the asu to have a material impact on our financial statements . the company is continuing to evaluate which transition approach it will utilize and the impact these standards will have on the company 's consolidated financial statements upon adoption . 2. story_separator_special_tag the following discussion and analysis should be read in conjunction with part ii , item 6 , `` selected financial data '' and our consolidated financial statements and related notes appearing elsewhere in this annual report on form 10-k. this annual report on form 10-k contains forward-looking statements within the meaning of the private securities litigation reform act of 1995. see `` forward-looking statements '' and part i , item 1a . `` risk factors '' . overview the company is a leading omni-channel sporting goods retailer offering an extensive assortment of authentic , high-quality sports equipment , apparel , footwear and accessories through a blend of dedicated associates , in-store services and unique specialty shop-in-shops . the company also owns and operates golf galaxy , field & stream and other specialty concept stores , and dick 's team sports hq , an all-in-one youth sports digital platform offering free league management services , mobile apps for scheduling , communications and live scorekeeping , custom uniforms and fanwear and access to donations and sponsorships . the company offers its products through a content-rich ecommerce platform that is integrated with its store network and provides customers with the convenience and expertise of a 24-hour storefront . when used in this annual report on form 10-k , unless the context otherwise requires or otherwise specifies , any reference to `` year '' is to the company 's fiscal year . the primary factors that have historically influenced the company 's profitability and success have been the growth in its number of stores and selling square footage , the integration of ecommerce with its brick and mortar stores , positive consolidated same store sales , which include the company 's ecommerce business , and its strong gross profit margins . over the last five years , the company has grown from 480 dick 's sporting goods stores at the end of fiscal 2011 to 676 dick 's sporting goods stores at the end of fiscal 2016 . the company 's ecommerce sales penetration to total net sales has increased from 3.5 % in fiscal 2011 to 11.9 % in fiscal 2016 . in recent years , the company has innovated its ecommerce sites with enhancements in the customer experience , new releases of its mobile and tablet sites , and development of capabilities that integrate the company 's online presence with its brick and mortar stores , including ship-from-store ; buy-online , pick-up in-store ; return-to-store and multi-faceted marketing campaigns that are consistent across our stores and our ecommerce websites . on average , approximately 80 % of the company 's ecommerce sales are generated within brick and mortar trade areas . the company 's senior management focuses on certain key indicators to monitor the company 's performance including : consolidated same store sales performance – our management considers same store sales , which consists of both brick and mortar and ecommerce sales , to be an important indicator of our current performance . same store sales results are important to leverage our costs , which include occupancy costs , store payroll and other store expenses . same store sales also have a direct impact on our total net sales , cash and working capital . see further discussion of the company 's consolidated same store sales within part ii , item 6 . `` selected financial data '' . operating cash flow – cash flow generation supports the general operating needs of the company and funds capital expenditures from its omni-channel platform , distribution and administrative facilities , costs associated with continued improvement of information technology tools , potential strategic acquisitions or investments that may arise from time to time and stockholder return initiatives , including cash dividends and share repurchases . we typically generate significant positive operating cash flows and proportionately higher net income levels in our fiscal fourth quarter in connection with the holiday selling season and in part to sales of cold weather sporting goods and apparel . see further discussion of the company 's cash flows in the `` liquidity and capital resources '' section herein . quality of merchandise offerings – to measure acceptance of its merchandise offerings , the company monitors sell-throughs , inventory turns , gross margins and markdown rates on a department and style level . this analysis helps the company manage inventory levels to reduce cash flow requirements and deliver optimal gross margins by improving merchandise flow and establishing appropriate price points to minimize markdowns . store productivity – to assess store-level performance , the company monitors various indicators , including new store productivity , sales per square foot , store operating contribution margin and store cash flow . 22 story_separator_special_tag business referenced above resulted in the closure of three dick 's sporting goods stores . the company also closed ten golf galaxy stores that were located in close proximity to an acquired golfsmith store that is better positioned to serve our customers . further , the company impaired assets of 12 stores and wrote-down the carrying value of a corporate aircraft that is held for sale to its fair market value . the current year charges also include tsa and golfsmith integration costs . story_separator_special_tag this increase was primarily driven by higher advertising expenses and planned investments to support the company 's ecommerce initiatives , partially offset by lower incentive compensation expense compared to fiscal 2014. pre-opening expenses increased to $ 34.6 million in fiscal 2015 from $ 30.5 million in fiscal 2014. pre-opening expenses in any period fluctuate depending on the timing and number of store openings and relocations . pre-opening rent expenses for our self-developed store sites will generally exceed those for sites built to our specifications by our landlords as we commence recognition of rent expense when we take possession of a site . income taxes the company 's effective tax rate was 37.8 % for fiscal 2015 as compared to 38.1 % for fiscal 2014. liquidity and capital resources overview the company 's liquidity and capital needs have generally been met by cash from operating activities supplemented by borrowings from the company 's credit agreement as seasonally necessary . cash flow from operations is seasonal in our business . the company generally utilizes its credit agreement for working capital needs based primarily on the seasonal nature of its operating cash flows , with the company 's peak borrowings occurring during its third quarter as the company increases inventory in advance of the holiday selling season . 26 the company has a $ 1 billion revolving senior secured credit facility , including up to $ 150 million in the form of letters of credit , in the event further liquidity is needed . under the credit agreement , subject to the satisfaction of certain conditions , the company may request an increase of up to $ 250 million in borrowing availability . the credit agreement is further described within note 7 to the consolidated financial statements . liquidity information for the fiscal periods ended ( dollars in thousands ) : replace_table_token_8_th the company 's more frequent use of its credit agreement in fiscal 2016 compared to fiscal 2015 was primarily driven by continued capital return to stockholders as well as strategic acquisitions . liquidity information as of the fiscal periods ended ( dollars in thousands ) : replace_table_token_9_th the company intends to allocate capital to invest in its future growth , specifically growing its store network and ecommerce business together to deliver an omni-channel shopping experience , as well as to return capital to stockholders through dividends and share repurchases . capital expenditures – fiscal 2016 capital expenditures totaled $ 242 million on a net basis , which includes tenant allowances provided by landlords , and $ 422 million on a gross basis . we expect capital expenditures to be approximately $ 350 million on a net basis and approximately $ 465 million on a gross basis in fiscal 2017. normal capital requirements primarily relate to the development of our omni-channel platform , including investments in new and existing stores and ecommerce technology . the company also plans to invest in continuously improving its supply chain and corporate information technology infrastructure . we plan to open approximately 49 new stores and complete construction of our 5 th distribution facility in fiscal 2017. we expect our new stores , as well as investments in our existing stores , to represent the majority of our total capital expenditures during fiscal 2017. the company has a capital appropriations committee that approves all capital expenditures in excess of certain amounts , and groups and prioritizes all capital projects among required , discretionary and strategic categories . share repurchases – on march 7 , 2013 , the company 's board of directors authorized a five-year share repurchase program of up to $ 1 billion of the company 's common stock . since the beginning of 2013 , we have repurchased $ 958.6 million of common stock and have $ 41.4 million remaining under this authorization . on march 16 , 2016 , the company 's board of directors authorized an additional five-year share repurchase program of up to $ 1 billion of the company 's common stock . during fiscal 2016 , the company repurchased 3.1 million shares of its common stock for $ 145.7 million . during fiscal 2015 , the company repurchased 7.4 million shares of its common stock for $ 357.3 million . any future share repurchase programs are subject to authorization by our board of directors , and will be dependent upon future earnings , cash flows , financial requirements and other factors . dividends – during the fiscal year ended january 28 , 2017 , the company paid $ 68.0 million of dividends to its stockholders . the declaration of future dividends and the establishment of the per share amount , record dates and payment dates for any such future dividends are subject to authorization by our board of directors , and will be dependent upon future earnings , cash flows , financial requirements and other factors . 27 the company currently believes cash flows generated by operations and funds available under its credit agreement will be sufficient to satisfy capital requirements , including planned capital expenditures , share repurchases and quarterly dividend payments to its stockholders through fiscal 2017 . the company may require additional funding should the company pursue strategic acquisitions or undertake share repurchases , other investments or store expansion rates in excess of those presently planned . changes in cash and cash equivalents are as follows : replace_table_token_10_th operating activities operating activities consist primarily of net income , adjusted for certain non-cash items and changes in operating assets and liabilities . adjustments to net income for non-cash items include depreciation and amortization , deferred income taxes , stock-based compensation expense and tax benefits on stock options , as well as non-cash gains and losses on the disposal of the company 's assets . changes in operating assets and liabilities primarily reflect changes in inventories , accounts payable and income taxes payable / receivable , as well as other working capital changes . cash provided by operating activities increased $ 115.5 million in fiscal 2016 to $ 759.0 million .
| executive summary earnings per diluted share of $ 2.56 in fiscal 2016 decreased compared to earnings per diluted share of $ 2.83 in fiscal 2015 . net income for fiscal 2016 totaled $ 287.4 million compared to $ 330.4 million in fiscal 2015 . fiscal 2016 net income includes $ 62.3 million , net of tax , or $ 0.56 per diluted share of costs for asset write-downs , impairments and merger and integration costs . fiscal 2015 net income included $ 4.7 million , net of tax , or $ 0.04 per diluted share , from a litigation settlement charge . net sales increased 9 % to $ 7,922.0 million in fiscal 2016 from $ 7,271.0 million in fiscal 2015 . ecommerce sales penetration in fiscal 2016 increased to 11.9 % of total net sales compared to 10.3 % in fiscal 2015 . during fiscal 2016 , the company : declared and paid aggregate cash dividends of $ 0.605 per share of common stock and class b common stock . repurchased 3.1 million shares of common stock for $ 145.7 million . completed acquisitions of certain assets of the sports authority ( `` tsa '' ) and golfsmith international holdings ( `` golfsmith '' ) and acquired two sports management technology companies , affinity sports and gamechanger . ended the period with no outstanding borrowings under its credit agreement . the following table summarizes store openings and closings for fiscal 2016 and fiscal 2015 : replace_table_token_6_th ( 1 ) includes the company 's golf galaxy , field & stream and other specialty concept stores . fiscal 2016 includes three former tsa stores that were converted into dick 's sporting goods stores and 30 former golfsmith stores that are operational and being converted to the golf galaxy brand .
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among other things , the amendment : ( i ) extends the final maturity date of the credit facility to may 8 , 2014 ; ( ii ) provides that no additional advances may be made and no currently outstanding advances subsequently repaid or prepaid may be re-borrowed ; ( iii ) adjusts the release amounts with respect to secured hotel properties ; ( iv ) reduces the additional interest from 4.00 % to 3.50 % and removes the libor floor of 0.75 % ; and ( v ) adjusts certain financial covenants including restrictions relating to payment of story_separator_special_tag overview we are a self-managed and self-administered reit incorporated in maryland in august 2004 to pursue opportunities primarily in the full-service upper-upscale and upscale segments of the hotel industry located in primary and secondary markets in the mid-atlantic and southern united states . we commenced operations in december 2004 when we completed our initial public offering and thereafter consummated the acquisition of six initial hotel properties . since our initial public offering , we have engaged in the following acquisitions and dispositions : on july 22 , 2005 , we acquired the crowne plaza jacksonville riverfront ( formerly , the hilton jacksonville riverfront ) . on august 10 , 2006 , we sold the holiday inn downtown williamsburg . on september 20 , 2006 , we acquired the louisville ramada riverfront inn , which went through an extensive renovation and re-opened in may 2008 as the sheraton riverside louisville . on august 8 , 2007 , through our joint venture with carlyle , we acquired a 25.0 % indirect noncontrolling interest in the crowne plaza hollywood beach resort , a newly renovated 311-room hotel in hollywood , florida . on october 29 , 2007 , we acquired a hotel in tampa , florida , formerly known as the tampa clarion hotel , which went through an extensive renovation and re-opened in march 2009 as the crowne plaza tampa westshore . on april 24 , 2008 , we acquired the hampton marina hotel in hampton , virginia , which has been renovated and was converted to the crowne plaza hampton marina in october 2008. our hotel portfolio currently consists of ten full-service , upper-upscale and upscale hotels with 2,424 rooms , which operate under well-known brands such as hilton , crowne plaza , sheraton and holiday inn . nine of these hotels , totaling 2,113 rooms , are 100 % owned by subsidiaries of our operating partnership ( the operating partnership ) . we also own a 25.0 % indirect non-controlling interest in the crowne plaza hollywood beach resort through a joint venture with carlyle . as of december 31 , 2011 , we owned the following hotel properties : replace_table_token_8_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 77.0 % interest in our operating partnership , with the remaining interest being held by limited partners who were contributors of our original hotel properties and related assets . 40 to qualify as a reit , we can not operate hotels . therefore , our operating partnership leases our wholly-owned hotel properties to 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 rooms . story_separator_special_tag 2011 compared to the year ended december 31 , 2010. net loss . net loss attributable to the company for the year ended december 31 , 2011 increased approximately $ 2.4 million to approximately $ 4.8 million compared to net loss attributable to the company of approximately $ 2.4 million for the year ended december 31 , 2010 as a result of the operating results discussed above . comparison of year ended december 31 , 2010 to year ended december 31 , 2009 the following table illustrates the key operating metrics for the years ended december 31 , 2010 and 2009 for our nine wholly-owned properties ( actual properties ) as well as the eight wholly-owned properties in our portfolio that were not under development and under our control during all of 2010 and 2009 ( same-store properties ) . accordingly , the same-store data does not reflect the performance of the crowne plaza tampa westshore , which opened in march 2009. replace_table_token_10_th revenue . total revenue for the year ended december 31 , 2010 was approximately $ 77.4 million , an increase of approximately $ 5.9 million or 8.2 % from total revenue for the year ended december 31 , 2009 of approximately $ 71.5 million . increases in revenue at the hilton savannah desoto , the sheraton louisville riverside and the crowne plaza tampa westshore offset decreases in revenue at our properties in laurel , maryland and jacksonville , florida . story_separator_special_tag 44 net loss . net loss attributable to the company for the year ended december 31 , 2010 increased approximately $ 0.4 million to approximately $ 2.4 million compared to net loss attributable to the company of approximately $ 2.0 million for the year ended december 31 , 2009 as a result of the operating results discussed above . sources and uses of cash operating activities . our principal source of cash to meet our operating requirements , including distributions to unit holders and stockholders as well as repayments of indebtedness , is the operations of our hotels . cash flow provided by operating activities for the year ended december 31 , 2011 was approximately $ 7.6 million . we expect that the net cash provided by operations will be adequate to fund the company 's operating requirements , monthly and quarterly scheduled payments of principal and interest ( excluding any balloon payments due upon maturity of a debt ) and the payment of dividends in accordance with federal income tax laws which require us make annual distributions to our stockholders of at least 90.0 % of our reit taxable income , excluding net capital gains . investing activities . approximately $ 6.0 million was spent during the year ended december 31 , 2011 on renovations and capital improvements . financing activities . in april 2011 , we issued 25,000 shares of the preferred stock and a warrant to purchase shares of common stock for gross proceeds of $ 25.0 million , of which we used approximately $ 22.7 million to reduce our indebtedness on the credit facility . in august 2011 , we obtained an 18-month extension on the mortgage on the crowne plaza jacksonville repaying $ 4.0 million in principal which we obtained by accessing an equivalent amount of bridge financing via our agreement with essex equity high income joint investment vehicle , llc allowing us to borrow up to $ 10.0 million ( the bridge financing ) at a fixed rate of 9.25 % . between august 2011 and december 2011 , we obtained mortgages on the holiday inn laurel , doubletree by hilton brownstoneuniversity and sheraton louisville riverside totaling $ 27.7 million and used the proceeds to repay a portion of the balance on the credit facility . during the year ended december 31 , 2011 , we paid approximately $ 1.2 million of scheduled principal payments toward the mortgages on the hilton wilmington riverside , the hilton savannah desoto , the holiday inn laurel , doubletree by hilton brownstoneuniversity and the crowne plaza hampton marina . during the year ended december 31 , 2011 , we also paid approximately $ 1.8 million in deferred financing costs in relation to the sixth amendment to the credit agreement , issuance of the preferred stock and the refinance or extension of the mortgages on several of our properties . capital expenditures we anticipate that our need for recurring capital expenditures for the replacement and refurbishment of furniture , fixtures and equipment , as well as debt service , over the next 12 to 24 months will be at or lower than historical norms for our properties and the industry . historically , we have aimed to maintain overall capital expenditures at 4.0 % of gross revenue . however , in the interest of preserving capital , we aim to restrict capital expenditures to the replacement of broken or damaged furniture and equipment and the acquisition of items mandated by our licensors that are necessary to maintain our brand affiliations . we anticipate that capital expenditures for the replacement and refurbishment of furniture , fixtures and equipment that are not related to a product improvement plan should total 3.00 % to 3.50 % of gross revenues during the next 12 to 24 months . we expect capital expenditures for the replacement or refurbishment of furniture , fixtures and equipment at our properties will be funded by our replacement reserve accounts , other than costs that we incur to make capital 45 improvements required by our franchisors . reserve accounts are escrowed accounts with funds deposited monthly and reserved for capital improvements or expenditures with respect to all of our hotels . we deposit an amount equal to 4.0 % of gross revenue for both the hilton savannah desoto and hilton wilmington riverside and 4.0 % of room revenues for the crowne plaza jacksonville riverfront . in january 2010 , we began depositing an amount equal to 4.0 % of gross revenue for the crowne plaza hampton marina . in february 2012 , we began depositing an amount equal to 4.0 % of gross revenue for the sheraton louisville riverside . in may 2012 , we will begin depositing an amount equal to 4.0 % of room revenues for the hilton philadelphia airport . liquidity and capital resources as of december 31 , 2011 , we had cash and cash equivalents of approximately $ 7.1 million , of which approximately $ 2.7 million was in restricted reserve accounts as well as real estate tax and insurance escrows . as of december 31 , 2011 , our secured credit facility had an outstanding balance of approximately $ 25.5 million . we expect that our cash on hand combined with our cash flow from our hotels should be adequate to fund continuing operations , recurring capital expenditures for the refurbishment and replacement of furniture , fixtures and equipment , monthly and quarterly scheduled payments of principal and interest ( excluding any balloon payments due upon maturity of a debt ) and dividends on the preferred stock . in april 2011 , we sold 25,000 shares of redeemable preferred stock and generated gross proceeds of approximately $ 25.0 million . in conjunction with the sale of redeemable preferred stock , we executed an amendment to our credit agreement and used approximately $ 22.7 million of the proceeds to reduce the outstanding balance on the credit facility . among other modifications to the existing amended credit agreement , the amendment reduced the additional interest from 4.00 % to 3.50 % and removed the libor floor of 0.75
| results of operations comparison of year ended december 31 , 2011 to year ended december 31 , 2010 the following table illustrates the key operating metrics for the years ended december 31 , 2011 and 2010 for our nine wholly-owned properties ( actual properties ) . replace_table_token_9_th revenue . total revenue for the year ended december 31 , 2011 was approximately $ 81.2 million , an increase of approximately $ 3.8 million or 4.9 % from total revenue for the year ended december 31 , 2010 of approximately $ 77.4 million . increases in revenue at the hilton wilmington riverside , the sheraton louisville riverside and the crowne plaza tampa westshore offset slight decreases in revenue at our properties in laurel , maryland and raleigh , north carolina . room revenues at our properties for the year ended december 31 , 2011 increased approximately $ 3.1 million or 5.8 % to approximately $ 56.2 million compared to room revenues for the year ended december 31 , 2010 of approximately $ 53.1 million . the increase in room revenue was mostly attributable to increases in occupancy at our recently renovated properties in jeffersonville , indiana ; hampton , virginia ; and tampa , florida . we expect occupancy and adr to increase as demand continues to strengthen as the overall economy continues to improve . food and beverage revenues at our properties for the year ended december 31 , 2011 increased approximately $ 0.6 million or 2.9 % to approximately $ 20.5 million compared to food and beverage revenues for the year ended december 31 , 2010 of approximately $ 19.9 million . most of the increase in food and beverage revenue was attributable to increased revenues at the crowne plaza tampa westshore and the hilton wilmington riverside .
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choiceone incurred negative post-retirement benefit expense of $ 20,000 in 2014 , $ 11,000 in 2013 , and $ 10,000 in 2012. the post-retirement obligation liability was $ 149,000 as of december 31 , 2014 and $ 125,000 as of december 31 , 2013. deferred compensation plans : a deferred director compensation plan covers former directors of vrb , which was acquired by choiceone in 2006. under the plan , choiceone pays each former director the amount of director fees deferred plus interest at rates ranging from 5.50 % to 5.84 % over various periods as elected by each director . the payout periods range from one month to ten years beginning with the individual 's termination of service . a liability has been accrued for the obligation under this plan . choiceone incurred deferred compensation plan expense of $ 12,000 , $ 14,000 , and $ 15,000 in 2014 , 2013 , and 2012 , respectively . the deferred compensation liability was $ 203,000 as of december 31 , 2014 and $ 233,000 as of december story_separator_special_tag the following discussion is designed to provide a review of the consolidated financial condition and results of operations of choiceone , and its wholly-owned subsidiaries , the bank and the insurance agency . this discussion should be read in conjunction with the consolidated financial statements and related footnotes . results of operations story_separator_special_tag expense on other interest-bearing liabilities fell $ 140,000 in 2013 compared to 2012 due to a reduction of 60 basis points in the average interest rate paid , plus the effect of a $ 2.2 million decrease in the average balance . the growth experienced in savings deposits was primarily due to depositors choosing the liquidity and safety afforded by this type of deposit as compared to certificates of deposit or nonbank investments . choiceone 's net interest income spread was 3.96 % ( shown in table 1 ) for both 2013 and 2012. the average yield received on interest-earning assets in 2013 decreased 31 basis points to 4.37 % while the average rate paid on interest-bearing liabilities in 2013 fell 31 basis points to 0.41 % . the decline in general market interest rates in both 2012 and 2013 caused the reduction in rates for both assets and liabilities in the two time periods . 20 allowance and provision for loan losses information regarding the allowance and provision for loan losses can be found in table 3 below : table 3 – provision and allowance for loan losses replace_table_token_23_th as shown in table 3 , the provision for loan losses was $ 200,000 lower in 2014 than in 2013. the reduction in the provision level resulted from a decrease of $ 755,000 in net charge-offs experienced in 2014 compared to 2013. net charge-offs of residential real estate loans declined $ 511,000 in 2014 compared to 2013 , while the other loan categories experienced smaller changes . management believes that the lower net charge-off levels are due in part to the improving economy in the bank 's market areas . the allowance for loan losses as a percentage of total loans decreased from 1.50 % as of the end of 2013 to 1.21 % as of the end of 2014. the coverage ratio of the allowance for loan losses to nonperforming loans increased slightly from 62 % as of december 31 , 2013 to 63 % as of december 31 , 2014. both the allowance balance and the balance of nonperforming loans decreased in 2014. choiceone had $ 1.1 million of specific allowance allocations for problem loans as of the end of both 2014 and 2013. special allowance amounts have been allocated where the fair values of loans were considered to be less than their carrying values . choiceone obtains valuations on collateral dependent loans when the loan is considered by management to be impaired and uses the valuation amounts in the determination of fair value . management believes the specific reserves allocated to certain problem loans at the end of 2014 and 2013 were reasonable based on the circumstances surrounding each particular borrower . 21 the following schedule presents an allocation of the allowance for loan losses to the various loan categories as of the years ended december 31 : replace_table_token_24_th the decreases in the allowance allocations to commercial real estate loans and residential real estate loans were due to a reduction in historical charge-off levels in these loan categories . management maintains the allowance at a level that it believes adequately provides for losses inherent in the loan portfolio . such losses are estimated by a variety of factors , including specific examination of certain borrowing relationships and consideration of historical losses incurred on certain types of credits . current economic conditions and collateral values affect loss estimates . management focuses on early identification of problem credits through ongoing reviews by management and the independent loan review function . based on the current state of the economy and a recent review of the loan portfolio , management believes that the allowance for loan losses as of december 31 , 2014 was adequate . as charge-offs , changes in the level of nonperforming loans , and changes within the composition of the loan portfolio occur , the provision and allowance for loan losses will be reviewed by the bank 's management and adjusted as necessary . noninterest income total noninterest income increased $ 557,000 in 2014 compared to 2013. customer service charges increased $ 274,000 in 2014 compared to the prior year as a result of service charges on choiceone 's new checking accounts and growth in debit card fee income . an increase in insurance and investment commissions of $ 80,000 in 2014 compared to 2013 was due to overall higher volumes including brokerage fees for investment transactions for customers . story_separator_special_tag as of december 31 , 2013 , equity securities included an mmp of $ 1.4 million and common stock of $ 214,000. management will continue to monitor its securities in 2015. securities may be sold if believed prudent from a risk standpoint . 23 loans the bank 's loan portfolio as of december 31 was as follows : replace_table_token_26_th the loan portfolio ( excluding loans held for sale ) increased $ 30.1 million from december 31 , 2013 to december 31 , 2014. economic factors in choiceone 's market areas demonstrated signs of improvement , which affected loan demand in 2014. growth experienced in all loan categories was due in part to calling efforts by choiceone 's loan officers . marketing efforts also helped growth in retail loans . continued low interest rates supported residential real estate growth and volume during 2014. information regarding impaired loans can be found in note 3 to the consolidated financial statements included in this report . in addition to its review of the loan portfolio for impaired loans , management also monitors various nonperforming loans . nonperforming loans are comprised of ( 1 ) loans accounted for on a nonaccrual basis ; ( 2 ) loans , not included in nonaccrual loans , which are contractually past due 90 days or more as to interest or principal payments ; and ( 3 ) loans , not included in nonaccrual or past due 90 days or more , which are considered troubled debt restructurings . the balances of these nonperforming loans as of december 31 were as follows : replace_table_token_27_th nonaccrual loans included $ 38,000 in commercial and industrial loans , $ 2.7 million in commercial real estate loans , and $ 671,000 in residential real estate loans as of december 31 , 2014. nonaccrual loans included $ 452,000 in agricultural loans , $ 372,000 in commercial and industrial loans , $ 2,000 in consumer loans , $ 1.6 million in commercial real estate loans , and $ 691,000 in residential real estate loans as of december 31 , 2013. loans considered troubled debt restructurings which were not on a nonaccrual basis and were not 90 days or more past due as to principal or interest payments consisted of $ 26,000 in consumer loans , $ 1.2 million in commercial real estate loans , and $ 1.9 million in residential real estate loans at december 31 , 2014 , compared to $ 29,000 in consumer loans , $ 2.6 million in commercial real estate loans , and $ 1.9 million in residential real estate loans at december 31 , 2013. the decrease in the balance of troubled debt restructurings in 2014 was primarily due to loan payoffs . troubled debt restructurings consist of loans where the terms have been modified to assist the borrowers in making their payments . the modifications can include capitalization of interest onto the principal balance , reduction in interest rate , and extension of the loan term . management also maintains a list of loans that are not classified as nonperforming loans but where some concern exists as to the borrowers ' abilities to comply with the original loan terms . these loans totaled $ 7.2 million as of december 31 , 2014 , compared to $ 14.0 million as of december 31 , 2013 . 24 deposits and other funding sources the bank 's deposit balances as of december 31 were as follows : replace_table_token_28_th total deposits increased $ 16.7 million from december 31 , 2013 to december 31 , 2014. local certificates of deposit fell $ 7.7 million during 2014. management believes that the decline in local certificates of deposits is in part due to the customer base both reentering the stock market and wanting more liquid funds available as seen in the increase in demand deposits , savings deposits , and money market deposits of $ 24.4 million . securities sold under agreements to repurchase increased $ 710,000 during 2014. the increase was due to growth in sweep repurchase accounts used by the bank 's local customers . advances from the federal home loan bank of indianapolis increased $ 12.0 million in 2014 due to additional advances taken to fund loan and securities growth . a blanket collateral agreement covering residential real estate loans was pledged against all outstanding advances at the end of 2014. approximately $ 28.3 million of additional advances were available as of december 31 , 2014 based on the collateral pledged . in 2015 , management will continue to focus its marketing efforts toward growth in local deposits . if local deposit growth is insufficient to support asset growth , management believes that advances from the fhlb , repurchase agreements and brokered certificates of deposit can address corresponding funding needs . shareholders ' equity total shareholders ' equity increased $ 4.6 million from december 31 , 2013 to december 31 , 2014. the growth in equity resulted from the retention of earnings in 2014 as net income exceeded dividends paid by $ 3.8 million . other comprehensive income increased $ 925,000 in 2014 primarily due to declining interest rates affecting unrealized gains on available for sale securities . note 20 to the consolidated financial statements presents regulatory capital information for the bank at the end of 2014 and 2013. management will monitor these capital ratios closely during 2015 as they relate to asset growth and earnings retention . choiceone 's board of directors and management do not plan to allow capital to decrease below those levels necessary to be considered “ well capitalized ” by regulatory guidelines . at december 31 , 2014 , the bank was categorized as “ well-capitalized. ” on july 3 , 2013 , the fdic board of directors approved the regulatory capital interim final rule , implementing basel iii . this rule redefines tier 1 capital as two components ( common equity tier 1 and additional tier 1 ) , creates a new capital ratio ( common equity tier 1 risk-based capital ratio ) and implements a capital conservation buffer .
| summary net income for 2014 was $ 5,695,000 , which represented a $ 601,000 or 12 % increase from 2013. the growth in net income resulted primarily from lower interest expense , a lower provision for loan losses and an increase in noninterest income in 2014 compared to 2013. net charge-offs were lower in 2014 than 2013 , which caused the need for less provision expense . net interest income increased $ 267,000 in 2014 compared to the prior year as a 23 basis point decrease in the rate earned on earning assets was applied to a larger dollar volume in addition to the 8 basis point reduction in the rate paid on interest-bearing liabilities . the increase in noninterest expense was due to higher salaries and benefits and data processing partially offset by lower loan and collection expense in 2014 compared to the prior year . 17 net income for 2013 was $ 5,094,000 , which represented an $ 832,000 or 20 % increase from 2012. the growth in net income resulted primarily from a lower provision for loan losses , which was partially offset by a decrease in net interest income and an increase in noninterest expense in 2013 compared to 2012. net charge-offs were lower in 2013 than 2012 , which caused the need for less provision expense . although average earning assets grew $ 4.3 million in 2013 , net interest income decreased $ 79,000 in 2013 compared to the prior year as a 31 basis point decrease in the rate earned on earning assets was applied to a larger dollar volume than the 31 basis point reduction in the rate paid on interest-bearing liabilities . the increase in noninterest expense was due to higher salaries and benefits and other noninterest expense in 2013 compared to the prior year . dividends cash dividends of $ 1,945,000 or $ 0.59 per common share were declared in 2014 , compared to $ 1,780,000 or $ 0.54
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overview we are the leading specialty retailer of storage and organization products in the united states . we are the original storage and organization specialty retailer and the only national retailer solely devoted to the category . our goal is to help provide order to an increasingly busy and chaotic world . we provide creative , multifunctional , customizable storage and organization solutions that help our customers save time , save space and improve the quality of their lives . the breadth , depth and quality of our product offerings are designed to appeal to a broad demographic , including our core customers , who are predominantly female , highly educated and busyfrom college students to empty nesters . our operations consist of two operating segments : the container store ( `` tcs '' ) , which consists of our retail stores , website and call center , as well as our installation services business . as of february 28 , 2015 , we operated 70 stores with an average size of approximately 25,000 square feet ( 19,000 selling square feet ) in 25 states and the district of columbia . we also offer all of our products directly to customers through our website , optimized mobile site and call center . our stores receive all products directly from our distribution center co-located with our corporate headquarters in coppell , texas . elfa , the container store , inc. 's wholly owned swedish subsidiary , elfa international ab ( `` elfa '' ) , which designs and manufactures component-based shelving and drawer systems and made-to-measure sliding doors . elfa was founded in 1948 and is headquartered in malmö , sweden . elfa 's shelving and drawer systems are customizable for any area of the home , including 40 closets , kitchens , offices and garages . elfa operates four manufacturing facilities with two located in sweden , one in finland and one in poland . the container store began selling elfa® products in 1978 and acquired elfa in 1999. today our tcs segment is the exclusive distributor of elfa® products in the u.s. elfa also sells its products on a wholesale basis to various retailers in approximately 30 countries around the world , with a concentration in the nordic region of europe . how we assess the performance of our business we consider a variety of financial and operating measures in assessing the performance of our business . the key measures we use to determine how our business is performing are net sales , gross profit , gross margin , and selling , general and administrative expenses . in addition , we also review other important operating metrics such as comparable store sales and average ticket , as well as non-gaap measures such as adjusted ebitda and adjusted net income . net sales net sales reflect our sales of merchandise plus other services provided , such as shipping , delivery , and installation , less returns and discounts . net sales also include wholesale sales by elfa . revenue from our tcs segment is recognized upon receipt of the product by our customers or upon completion of the service to our customers . elfa segment revenue is recorded upon shipment to customers . the retail and wholesale businesses in which we operate are cyclical , and consequently our sales are affected by general economic conditions . purchases of our products are sensitive to trends in the levels of consumer spending , which are affected by a number of factors such as consumer disposable income , housing market conditions , stock market performance , consumer debt , interest rates , tax rates and overall consumer confidence . our net sales are moderately seasonal . as a result , our revenues fluctuate from quarter to quarter , which often affects the comparability of our interim results . net sales are historically higher in the fourth quarter due primarily to the impact of our annual elfa® sale , which begins on december 24 th and traditionally runs into february . gross profit and gross margin gross profit is equal to our net sales less cost of sales . gross profit as a percentage of net sales is referred to as gross margin . cost of sales in our tcs segment includes the purchase cost of inventory less vendor rebates , in-bound freight , as well as inventory shrinkage . costs incurred to ship or deliver merchandise to customers , as well as direct installation costs , are also included in cost of sales in our tcs segment . elfa segment cost of sales from manufacturing operations includes costs associated with production , primarily material , wages , freight and other variable costs , and applicable manufacturing overhead . the components of our cost of sales may not be comparable to the components of cost of sales or similar measures by other retailers . as a result , data in this report regarding our gross profit and gross margin may not be comparable to similar data made available by other retailers . our gross profit is variable in nature and generally follows changes in net sales . our gross margin can be impacted by changes in the mix of products sold . for example , sales from our tcs segment typically provide a higher gross margin than sales to third parties from our elfa segment . gross margin for our tcs segment is also susceptible to foreign currency risk as purchases of elfa® products from our elfa segment are in swedish krona , while sales of these products are in u.s. dollars . we mitigate this risk through the use of forward contracts , whereby we hedge purchases of inventory by locking in foreign currency exchange rates in advance . similarly , gross margin for our elfa segment is susceptible to foreign currency risk as certain purchases of raw materials are transacted in currencies other than swedish krona , which is the functional currency of elfa . story_separator_special_tag `` note on dollar amounts all dollar amounts in this management 's discussion and analysis of financial condition and results of operations are in thousands , except per share amounts and average ticket , unless otherwise stated . story_separator_special_tag size= '' 2 '' > fiscal 2014 compared to fiscal 2013 net sales the following table summarizes our net sales for fiscal 2014 and fiscal 2013 : replace_table_token_11_th net sales in fiscal 2014 increased by $ 33,328 , or 4.5 % , compared to fiscal 2013. this increase is comprised of the following components : replace_table_token_12_th the increase in net sales was driven by new stores , with twelve stores generating $ 37,336 of incremental sales , five of which were opened in fiscal 2013 and seven of which were opened in fiscal 2014. the comparable store sales operating measure based on merchandise orders placed declined 1.4 % during fiscal 2014 , primarily due to a decrease in transactions , and was partially offset by an increase in average ticket . this led to a decline in net sales from comparable stores based on merchandise deliveries of $ 3,889. elfa 's third party net sales increased 4.7 % in swedish krona , primarily due to stronger sales in the nordic market . however , due to the depreciation of the swedish krona against the u.s. dollar , elfa 's third party net sales in u.s. dollars declined by $ 4,006. installation services increased by $ 2,991 , due to an ongoing , focused effort to increase the number of installed spaces sold . gross profit and gross margin gross profit in fiscal 2014 increased by $ 18,283 , or 4.2 % , compared to fiscal 2013. the increase in gross profit was primarily the result of increased sales , partially offset by lower gross margins . the following table summarizes the gross margin for fiscal 2014 and fiscal 2013 by segment and total . the segment margins include the impact of inter-segment sales from the elfa segment to the tcs segment : replace_table_token_13_th tcs gross margin increased 10 basis points during fiscal 2014 primarily due to the appreciation of the u.s. dollar against the swedish krona . elfa segment gross margin declined 170 basis points primarily due to increased costs caused by a weaker swedish krona in fiscal 2014 , as well as higher freight costs and a shift in sales mix . on a consolidated basis , gross margin declined 20 basis points , as the decline in elfa gross margin was partially offset by the impact of tcs gross margin , due to a larger percentage of net sales coming from the tcs segment . 47 selling , general and administrative expenses selling , general and administrative expenses in fiscal 2014 increased by $ 18,596 , or 5.2 % , compared to the fiscal 2013. the increase in selling , general and administrative expenses was primarily due to the increase in sales . as a percentage of consolidated net sales , selling , general and administrative expenses increased by 40 basis points . the following table summarizes selling , general and administrative expenses as a percentage of consolidated net sales for fiscal 2014 and fiscal 2013 : replace_table_token_14_th tcs selling , general and administrative expenses increased by 110 basis points as a percentage of total net sales . the increase was primarily due to decreased leverage of fixed costs as a result of lower comparable store sales , increased costs as a result of being a public company , and implementation of strategic initiatives . elfa selling , general and administrative expenses decreased by 70 basis points as a percentage of total net sales , primarily due to a smaller percentage of total net sales coming from the elfa segment . stock-based compensation we recorded $ 15,137 of stock-based compensation expense in fiscal 2013 primarily related to stock options granted under the 2013 equity plan which immediately vested upon closing of our ipo , as well as the modification of outstanding stock options granted under the 2012 equity plan to provide for immediate vesting as of october 31 , 2013. the $ 1,289 of stock-based compensation expense recorded in fiscal 2014 is related to stock options granted under the 2013 equity plan , which vest ratably over various service periods . pre-opening costs pre-opening costs increased by $ 1,611 , or 24.1 % in fiscal 2014 to $ 8,283 , as compared to $ 6,672 in fiscal 2013. the increase was the result of the opening of seven new stores and relocation of one store in fiscal 2014 , as compared to the opening of five new stores and relocation of one store in fiscal 2013 . ( gain ) loss on disposal of assets in fiscal 2014 , we recorded a net gain on the disposal of assets of $ 3,487 , as compared to a net loss of $ 206 in fiscal 2013. on october 3 , 2014 , the company completed the sale of a norwegian subsidiary , whose primary asset was a manufacturing facility that was shut down and consolidated into a like facility in sweden as part of elfa 's restructuring efforts in fiscal 2012. the company received net proceeds of $ 3,846 and recorded a gain in connection with the sale of this subsidiary of $ 3,138 in fiscal 2014. additionally , on october 31 , 2014 , the company completed the sale of a building at elfa . the company received net proceeds of $ 912 and recorded a gain in connection with the sale of the building of $ 543 in fiscal 2014. interest expense interest expense decreased $ 4,080 , or 19.3 % in fiscal 2014 to $ 17,105 as compared to $ 21,185 in fiscal 2013 , primarily due to lower interest rates and repayments on debt obligations .
| results of operations the following data represents the amounts shown in our audited consolidated statements of operations expressed in dollars and as a percentage of net sales and operating data for the periods presented ( categories that are only applicable to our tcs segment are noted with ( * ) and to our elfa 43 segment with ( + ) ) . for segment data , see note 14 to our audited consolidated financial statements included elsewhere in this annual report on form 10-k. replace_table_token_9_th 44 replace_table_token_10_th ( 1 ) in fiscal 2012 , the company 's fiscal year included 53 weeks . as a result , sales recorded in weeks one through fifty-two of fiscal 2013 and 2011 are comparable to weeks two through fifty-three of fiscal 2012. a store is included in the comparable store sales calculation on the first day of the sixteenth full fiscal month following the store 's opening . when a store is relocated , we continue to consider sales from that store to be comparable store sales . net sales from our website and call center are also included in calculations of comparable store sales . the comparable store sales growth operating measure in a given period is based on merchandise orders placed in that period , which may not always reflect when the merchandise is delivered to the customer . the comparable store sales growth metric is an operating measure intended only as supplemental information and is not a substitute for net sales presented in accordance with generally accepted accounting principles . ( 2 ) average ticket for all periods is calculated by dividing ( a ) sales of merchandise by our tcs segment for that period ( regardless of whether such sales are included in comparable store sales for such period ) by ( b ) the number of transactions for that period comprising such sales .
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in addition , our discussion of the financial condition and results of operations of quidel corporation in this item 7 should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this annual report . overview and executive summary we have a leadership position in the development , manufacturing and marketing of rapid diagnostic testing solutions . these diagnostic testing solutions primarily include applications in infectious diseases , women 's health and gastrointestinal diseases . we sell our products directly to end users and distributors , in each case , for professional use in physician offices , hospitals , clinical laboratories , reference laboratories , leading universities , retail clinics and wellness screening centers . we market our products in the u.s. through a network of national and regional distributors , and a direct sales force . internationally , we sell and market primarily in japan and europe through distributor arrangements . a majority of our total revenues relate to three product families . for the years ended december 31 , 2013 , 2012 and 2011 , we derived approximately 59 % , 58 % and 59 % , respectively , of our total revenues from sales of our influenza , group a strep and pregnancy tests . additionally , a significant portion of our total revenue is from a relatively small number of distributors . approximately 43 % , 42 % and 40 % of our total revenue for the years ended december 31 , 2013 , 2012 and 2011 , respectively , were related to sales through our four largest distributors . for the year ended december 31 , 2013 , total revenue increased 13 % to $ 175.4 million . the increase in total revenues was primarily due to an increase in influenza product sales . our primary objective is to build a broader-based diagnostic company , with products in market segments that are growing , and in which we have significant expertise and know-how , and , in doing so , to realize increased shareholder value . our diagnostic testing solutions are designed to provide specialized results that serve a broad range of customers , by addressing varying requirements of ease of use , reduced cost , increased test accuracy and reduced time to result . our current approach to address this diagnostic continuum relative to our strategy is comprised of three parts : rapid point of care immunoassay tests for use in physician offices , hospital laboratories and emergency departments , retail clinics , and other urgent care settings ; direct fluorescent assays ( dfa ) and culture-based tests for the clinical virology laboratory ; and molecular diagnostic tests across a number of laboratory segments . our strategy to accomplish our primary objective includes the following : leveraging our current infrastructure to develop and launch rapid immunoassays , such as additional assays for our fda approved sofia ® analyzer ; developing a molecular diagnostics franchise that incorporates two distinct testing platforms , amplivue and savanna and leverages our molecular assay development competencies ; and strengthening our position with distribution partners and our customers to gain more emphasis on our products in the u.s. and abroad . our current initiatives to execute this strategy include the following : continue to focus our research and development efforts on three areas : new proprietary product platform development ; 26 the creation of improved products and new products for existing markets and unmet clinical needs , and pursuit of collaborations with other companies for new and existing products and markets that advance our differentiated strategy ; provide clinicians with validated studies that encompass the clinical efficacy and economic efficiency of our diagnostic tests for the professional market ; continue to focus on strengthening our market and brand leadership in infectious diseases and women 's health by acquiring and or developing and introducing clinically superior diagnostic solutions ; strengthen our direct sales force to create direct relationships with integrated delivery networks , laboratories and hospitals , with a goal of driving growth through improved physician and laboratorian satisfaction ; support payer evaluation of diagnostic tests and establishment of favorable reimbursement rates ; continue to create strong global alliances to support our efforts to achieve leadership in key markets and expand our presence in emerging markets ; and further refine our manufacturing efficiencies and productivity improvements to improve profit , with continued focus on profitable products and markets and our effort to create a core competency in new product development . product development activities are inherently uncertain , and there can be no assurance that we will be able to obtain approval for any of our products , or if we obtain approval , that we will successfully commercialize any of our products . in addition , we may terminate our development efforts with respect to one or more of our products under development at any time , including before or during clinical trials . as a business in a highly regulated , competitive and seasonal industry , we face many risks and challenges . you should refer to the discussion in item 1a , risk factors in part i of this annual report for further discussion of risks related to our business . outlook we expect revenue growth over the next 12 months and a related positive impact on gross margin and earnings . this growth is expected to be driven primarily by increased sales of our sofia assays and molecular products . in addition , we expect continued and significant investment in research and development activities as we invest in our molecular platforms . we will continue our focus on prudently managing our business and delivering solid financial results , while at the same time striving to continue to introduce new products to the market and maintaining our emphasis on research and development investments for longer term growth . finally , we will continue to evaluate opportunities to acquire new product lines , technologies and companies . story_separator_special_tag as of december 31 , 2013 , we recorded this restricted cash as a component of prepaid expenses and other current assets as we anticipate making expenditures under the grant in 2014. the amount available to us under our senior credit facility can fluctuate from time to time due to , among other factors , our funded debt to adjusted ebitda ratio . cash provided by operating activities was $ 25.7 million during the year ended december 31 , 2013. we had net income of $ 7.4 million , including non-cash charges of $ 33.5 million of depreciation and amortization of intangible assets and property and equipment , and stock-based compensation . the most significant change in operating assets and liabilities was an increase in inventories of $ 12.0 million due to planned increases related to our molecular products , our spg facility relocation and the seasonal nature of our influenza business . cash provided by operating activities was $ 19.6 million during the year ended december 31 , 2012. we had net income of $ 5.0 million , including non-cash charges of $ 29.9 million of depreciation and amortization of intangible assets and property and equipment , and stock-based compensation . the most significant changes in operating assets and liabilities in 2012 included an increase in accounts receivable of $ 17.9 million related to an early start to the 2012/2013 cold and flu season in the fourth quarter of 2012. cash provided by operating activities was $ 47.5 million during the year ended december 31 , 2011. we had net income of $ 7.6 million , including non-cash charges of $ 25.3 million of depreciation and amortization of intangible assets and property and equipment , and stock-based compensation . the most significant changes in operating assets and liabilities in 2011 included a decrease in inventories and income tax receivable of $ 3.4 million and $ 8.2 million , respectively . the decrease in inventory is related to the seasonal nature of our influenza business , while the decrease in income tax receivable is due to a tax refund received in 2011. our investing activities used $ 33.9 million during the year ended december 31 , 2013 primarily related to the acquisition of $ 20.8 million of production and scientific equipment , building improvements and leased instruments during the year ended december 31 , 2013. additionally , we used $ 9.2 million and $ 2.3 million of net cash for the acquisition of biohelix and andiatec , respectively , as more fully described in note 10 to the consolidated financial statements in this annual report . our investing activities used $ 28.6 million during the year ended december 31 , 2012 primarily related to the acquisition of intangibles associated with our exercise of a buyout clause under the alere amendment . during the year ended december 31 , 2012 , we exercised the buy-out right under the alere amendment , which allowed us to buy-out any remaining future royalty obligation for a fixed cash payment in the amount of $ 15.7 million less $ 1.0 million of specified third quarter 2011 royalties . in addition , we used $ 12.2 million of cash for investing activities associated with the acquisition of production and scientific equipment , and building improvements during the year ended december 31 , 2012. our investing activities used $ 21.1 million during the year ended december 31 , 2011 primarily related to $ 14.0 million for the acquisition of licensed technology associated with the alere amendment as discussed in note 6 in the notes to consolidated financial statements included in this annual report . in addition , we acquired production and scientific equipment and building improvements during the year ended december 31 , 2011 of $ 4.9 million . we are currently planning approximately $ 15.4 million in capital expenditures over the next 12 months . the primary purpose for our capital expenditures is to acquire manufacturing and scientific equipment , to purchase or develop information technology , and to implement facility improvements . we plan to fund these capital expenditures with cash flow from operations and other available sources of liquidity . we have $ 6.2 million in firm purchase commitments with respect to such planned capital expenditures as of december 31 , 2013. our financing activities provided $ 1.8 million of cash during the year ended december 31 , 2013 primarily related to the issuance of common stock of $ 7.9 million , partially offset by repayments under our senior credit facility of $ 5.0 million . our financing activities used approximately $ 37.5 million of cash during the year ended december 31 , 2012. this was primarily related to repayments under our senior credit facility and other debt payments of $ 38.5 million , and repurchases of 231,700 shares of our common stock primarily under our share repurchase program at a cost of $ 2.9 million which was partially offset by proceeds from the sale of our common stock of $ 4.7 million . our financing activities generated approximately $ 28.1 million of cash during the year ended december 31 , 2011. this was primarily related to proceeds from the sale of our common stock , partially offset by repayments made under the senior credit facility , both of which occurred during the first quarter of 2011. on august 10 , 2012 , we entered into an amended and restated $ 140.0 million senior credit facility , which matures on august 10 , 2017. as part of this amendment , we incurred an additional $ 1.0 million in deferred financing costs related to the senior credit facility . we had previously recorded deferred financing costs of $ 0.6 million related to our prior credit facility . as of december 31 , 2013 and december 31 , 2012 , we had $ 1.2 million and $ 1.5 million , respectively , of deferred financing costs included as a portion of other non-current assets .
| results of operations comparison of years ended december 31 , 2013 and 2012 total revenues the following table compares total revenues for the years ended december 31 , 2013 and 2012 ( in thousands , except percentages ) : replace_table_token_5_th for the year ended december 31 , 2013 , total revenue increased 13 % to $ 175.4 million . the increase in total revenues was primarily due to an increase in influenza product sales . the revenue from our royalty , license fees and grant revenue category for all periods primarily relate to royalty payments earned on our patented technologies utilized by third parties and revenue from grants for research and development activities . cost of sales cost of sales decreased to 38 % of total revenues , for the year ended december 31 , 2013 compared to 39 % of total revenues , for the year ended december 31 , 2012. the absolute dollar increase in cost of sales of $ 5.7 million for the year ended december 31 , 2013 from the year ended december 31 , 2012 is primarily related to the variable nature of direct costs ( material and labor ) associated with the 13 % increase in total revenues in 2013. the decrease in cost of sales as a percentage of total revenue was primarily due to a more favorable product mix in 2013 related to our higher margin influenza products , partially offset by an increase in depreciation of leased sofia instruments in 2013. operating expenses the following table compares operating expenses for the years ended december 31 , 2013 and 2012 ( in thousands , except percentages ) : replace_table_token_6_th research and development expense research and development expense for the year ended december 31 , 2013 increased from $ 27.7 million to $ 34.2 million due to planned increases in our development of molecular technologies , primarily on our savanna program .
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actual results could differ materially from those anticipated in the forward-looking statements as a result of many factors , including those discussed in the section titled “ risk factors ” and elsewhere in this report . unless specifically noted otherwise , as used throughout this management 's discussion and analysis section , “ we , ” “ our , ” `` us , '' `` the company '' or “ kennedy wilson ” refers to kennedy-wilson holdings , inc. and its wholly-owned subsidiaries . “ equity partners ” refers to the subsidiaries that we consolidate in our financial statements under u.s. gaap ( other than wholly-owned subsidiaries ) and third-party equity providers . please refer to “ non-gaap measures and certain definitions ” for definitions of certain terms used throughout this report . overview kennedy wilson is a global real estate investment company . we own , operate and develop real estate with the objective of maximizing earnings over the long run for ourselves and our equity partners . we focus primarily on multifamily and office properties located in the western united states , united kingdom , and ireland . as of december 31 , 2020 , we have 202 employees in 12 offices primarily located throughout the united states , the united kingdom , ireland and spain . as of december 31 , 2020 , our aum stood at $ 17.6 billion . the real estate that we hold in our global portfolio consists primarily of ( 51 % ) multifamily apartments and ( 49 % ) commercial offices based on consolidated noi and jv noi . geographically , we focus on the ( 58 % ) western united states , the ( 21 % ) united kingdom and ( 17 % ) ireland ( including 4 % in other ) . covid-19 impact and business update the following discussion is intended to provide shareholders with certain information regarding the company 's operations and the impact of the covid-19 pandemic on our business and management 's efforts to respond to the same . the pandemic commenced during the first quarter of 2020 and the duration and magnitude of it still remain uncertain at this time . unless otherwise specified , the statistical and other information regarding our portfolio and tenants are estimates based on information available to us as of february 18 , 2021. as a result of the rapid development , fluidity and uncertainty surrounding this situation , we expect that such statistical and other information may change , potentially significantly , going forward and may not be indicative of the actual impact of the covid-19 pandemic on our business , operations , cash flows and financial condition for 2021 and future periods . health and safety of our employees and tenants our primary objective during the covid-19 pandemic has been to protect the health and safety of our employees as well as the tenants and service providers across our portfolio . we have started to open our offices in jurisdictions where applicable laws permit us to do so . even with the reopening of certain offices , to date , we have not made it mandatory for employees to return to the office if they can perform their jobs from home . prior to reopening any office , we have strictly followed applicable laws in preparing and maintaining the space to be as safe as possible and providing an environment that encourages the following of social distancing guidelines , including , without limitation , staggering employees ' schedules to ensure ample space is available between work spaces and occupied offices . in jurisdictions where applicable laws have not permitted us to reopen our offices , our employees continue to work remotely . we will continue to monitor and follow local laws and guidance to assess our ability to reopen or keep open our offices across the globe . our it infrastructure and communications are robust and we are focused on maintaining business continuity , while doing our share to support each community where we do business . the daily operations of our business are not materially directly dependent on a supply chain or production chain that may be disrupted due to the pandemic . impact to the global economy and jurisdictions we invest in as a result of the unprecedented measures taken across the globe , the disruption and impact of the covid-19 pandemic to the global economy and financial markets has been significant . we continue to closely monitor changes in applicable laws and covid-19 guidance provided by local , state and federal regulators , or their equivalents , in the jurisdictions in which we operate . nearly all the markets in which we operate continue to enforce some form of restriction on the operations of businesses due to the covid-19 pandemic . these precautions led to the shutdown of nonessential services , which led to closures of stores in our retail portfolio and limited business operations of some of our office tenants . in addition , this caused us to close the shelbourne hotel in dublin , ireland from march 15 , 2020 to june 29 , 2020. on october 21 , 2020 , due to a spike in new cases , ireland implemented new lockdown measures that closed non-essential businesses and limited travel from home to a 33 distance of five kilometers for several weeks . although ireland eased restrictions in december , it has since implemented another national lockdown effective january 1 , 2021 that remains in effect through at least march 5 , 2021. although the shelbourne has remained open since june 30 , 2020 , we have experienced and continue to expect significantly limited activity at the property . additionally , in early january 2021 , the united kingdom also implemented a national lockdown that closes non-essential businesses as cases have continued to rise there as well . the continued and long-lasting economic impact of the covid-19 pandemic may lead to some of our multifamily tenants having difficulty in making rental payments on time , or at all . story_separator_special_tag all of our italian properties are fully occupied by government agencies and have paid rent through the end of january 2021. as of february 18 , 2021 , we have collected 56 % of our share of rents for the year ended december 31 , 2020 at our spanish retail properties . january 2021 rental collections have been in line with prior periods . the spanish portfolio comprises 2 % of our global portfolio monthly rental collections . since the onset of the covid-19 pandemic our commercial group has rolled out initiatives and achieved the following accomplishments : similar to our multifamily portfolio we are utilizing virtual leasing technology for our commercial portfolio . during year ended december 31 , 2020 , we closed on approximately 227 leasing deals across 2.6 million sq . ft. ◦ in the western united states , we closed 84 leasing deals across 1.1 million sq . ft ◦ in united kingdom and ireland , we closed 143 leasing deals across 1.5 million sq . ft global development and hotel update in our development and redevelopment portfolio we have experienced delays , but we currently do not expect material cost increases as we have fixed-rate construction contracts on projects that are currently under construction and for projects that are in early phases we have not had to halt activities as we are mainly in the pre-construction phase and are able to continue progress on projects . ireland is currently in a nationwide lockdown that started on january 8 , 2021 with an expected reopening date of march 5 , 2021 , which has halted construction during the lockdown . we expect that this will push out our timeline on development projects by four months but we believe that any associated costs can be covered within our existing contingency plans on the assumption that there are no further lockdowns . we have three properties that consist of 0.1 million square feet of office space and 277 market rate multifamily units that should complete construction by the end of 2021. we also have five properties consisting of 0.3 million square feet of commercial space and 576 market rate multifamily units that are unstabilized and undergoing lease up that we expect will be stabilized by the end of 2021. our vhh portfolio also has 932 units that we expect will finish construction or complete lease up by the end of 2021. please refer to development and redevelopment in the liquidity and capital resources section for a more detailed discussion regarding our development initiatives . the covid-19 pandemic continues to significantly impact the hospitality industry due to travel restrictions and stay-at-home or similar directives resulting in cancellations and significantly reduced travel around the world . we voluntarily closed the shelbourne hotel on march 15 , 2020 and reopened the hotel on june 29 , 2020 when we were permitted to do so under applicable laws and guidelines . on october 21 , 2020 , due to a spike in new cases ireland has moved to a six week lockdown that closed non-essential businesses and limits travel from home to a distance of five kilometers . as discussed above ireland will be in lockdown for the majority of the first quarter of 2021. the shelbourne will remain open during this period but we expect significantly limited activity at the property . revenues at the shelbourne hotel for the year ended december 31 , 2020 were down 63 % and consolidated noi was down approximately $ 14 million compared to the prior year due to the hotel closure during the reporting period . investment activity investment activity may be diminished until a majority of people have been vaccinated or there has been a significant reduction in the number of covid-19 cases . this slowdown in investment transactions may impact our ability to sell properties in the future and our ability to generate cash and gains from the sale of real estate . despite historically low transactions in the second and third quarter of 2020 , we had an active fourth quarter 2020 during which the majority of our 2020 asset sales were completed , as evidenced by the sale of baggot plaza , a wholly-owned office property in dublin , ireland , club palisades , a wholly-owned multifamily property in the state of washington and the contributions of 18 previously wholly-owned industrial properties located in the united kingdom to a newly created joint venture with sovereign wealth fund ( which the company will hold a 20 % ownership interest in and act as a general partner ) . these asset dispositions generated a total gain 35 on sale of $ 287.0 million . in addition to these asset dispositions , in october 2020 , we acquired off-market three multifamily properties totaling 880-units in the mountain states region of the western u.s. for $ 198 million . we have also seen a strong response to our new debt platform and expect deal activity to continue in 2021 . 36 results of operations the following tables summarize the company 's revenue , expenses , other income ( expenses ) and net income ( loss ) and calculate ebitda and adjusted ebitda by segment for the years ended december 31 , 2020 , 2019 and 2018 and is intended to be helpful in understanding the year over year explanations following the tables : replace_table_token_11_th ( 1 ) see `` non-gaap measures and certain definitions '' for definitions and discussion of adjusted ebitda . 37 replace_table_token_12_th ( 1 ) see `` non-gaap measures and certain definitions '' for definitions and discussion of adjusted ebitda . 38 replace_table_token_13_th ( 1 ) see `` non-gaap measures and certain definitions '' for definitions and discussion of adjusted ebitda . 39 kennedy wilson consolidated financial results : year ended december 31 , 2020 compared to the year ended december 31 , 2019 financial highlights gaap net income to common shareholders was $ 92.9 million and $ 224.1 million for the year ended december 31 , 2020 and 2019 , respectively .
| operational highlights same property highlights for the year ended december 31 , 2019 include : for our 13,387 same property multifamily units for the year ended december 31 , 2019 as compared to the prior period : ◦ occupancy remained at 94 % from 2018 . ◦ net operating income increased 7 % ◦ total revenues increased 5 % for 11.2 million square feet of same property commercial real estate for the year ended december 31 , 2019 as compared to the prior period : ◦ occupancy decreased 0.1 % to 96.9 % from the same period in 2018 ◦ net operating income decreased 3.7 % ◦ total revenues decreased 3.6 % investment transactions ◦ acquired $ 1.9 billion of assets ( our share of which was $ 624.6 million ) and sold $ 1.4 billion of assets ( our share of which was $ 740.1 million ) significant transactions ◦ meyers research sale in december 2018 , we sold meyers research for $ 48.0 million and recognized a gain on sale of business of $ 40.4 million . we used part of the proceeds from such sale to reinvest $ 15.0 million for an 11 % ownership interest in a new partnership between meyers research and another premiere residential real estate construction service company . we no longer control meyers research and treat the investment as an unconsolidated investment . 46 please also see the description of certain other significant transactions described in “ kennedy wilson consolidated financial results : year ended december 31 , 2020 compared to the year ended december 31 , 2019 ” that may be applicable in the discussion of the periods described in this section . foreign exchange - results of operations a significant portion of our investments are in foreign currencies .
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the metropolitan washington , d.c. segment includes properties in northern virginia and suburban maryland . the new jersey/delaware segment includes properties in burlington , camden and mercer counties in new jersey and in new castle county in the state of delaware . the richmond , virginia segment includes properties primarily in albemarle , chesterfield , goochland and henrico counties and 39 durham , north carolina . the austin , texas segment includes properties in austin . the california segment includes properties in oakland , concord , carlsbad and rancho bernardo . we generate cash and revenue from leases of space at our properties and , to a lesser extent , from the management of properties owned by third parties and from investments in the real estate ventures . factors that we evaluate when leasing space include rental rates , costs of tenant improvements , tenant creditworthiness , current and expected operating costs , the length of the lease , vacancy levels and demand for office and industrial space . we also generate cash through sales of assets , including assets that we do not view as core to our portfolio , either because of location or expected growth potential , and assets that are commanding premium prices from third party investors . factors that may influence future results of operations global market and economic conditions in the u.s. , market and economic conditions have been challenging , characterized by tight credit conditions and modest growth . while recent economic data reflects modest growth , the cost and availability of credit may continue to be adversely affected by illiquid credit markets and wider credit spreads . concern about the stability of the markets generally and the strength of counterparties specifically has led many lenders and institutional investors to reduce , and in some cases , cease to provide funding to borrowers . continued volatility in the u.s. and international markets and economies may adversely affect our liquidity and financial condition , and the liquidity and financial condition of our tenants . if these market conditions continue , they may limit our ability and the ability of our tenants , to timely refinance maturing liabilities and access the capital markets to meet liquidity needs . real estate asset valuation general economic conditions and the resulting impact on market conditions or a downturn in tenants ' businesses may adversely affect the value of our assets . challenging economic conditions in the u.s. , declining demand for leased office , mixed use , or industrial properties and or a decrease in market rental rates and or market values of real estate assets in our submarkets could have a negative impact on the value of our properties and related tenant improvements . if we were required under gaap to write down the carrying value of any of our properties to the lower of cost or fair value due to impairment , or if as a result of an early lease termination we were required to remove or dispose of material amounts of tenant improvements that are not reusable to another tenant , our financial condition and results of operations could be negatively affected . leasing activity and rental rates the amount of net rental income generated by our properties depends principally on our ability to maintain the occupancy rates of currently leased space and to lease currently available space , newly developed or redeveloped properties and space available from unscheduled lease terminations . the amount of rental income we generate also depends on our ability to maintain or increase rental rates in our submarkets . negative trends in one or more of these factors could adversely affect our rental income in future periods . development and redevelopment programs historically , a significant portion of our growth has come from our development and redevelopment efforts . we have a proactive planning process by which we continually evaluate the size , timing , costs and scope of our development and redevelopment programs and , as necessary , scale activity to reflect the economic conditions and the real estate fundamentals that exist in our strategic submarkets . we are currently proceeding on certain redevelopment projects , and we take a cautious and selective approach when determining if a certain development or redevelopment project will benefit our portfolio . in addition , we may be unable to lease committed development or redevelopment properties at expected rental rates or within projected timeframes or complete development or redevelopment properties on schedule or within budgeted amounts , which could adversely affect our financial condition , results of operations and cash flow . financial and operating performance our financial and operating performance is dependent upon the demand for office , industrial and other commercial space in our markets , our leasing results , our acquisition , disposition and development activity , our financing activity , our cash requirements and economic and market conditions , including prevailing interest rates . volatile economic conditions could result in a reduction of the availability of financing and potentially in higher borrowing costs . these factors , coupled with an ongoing economic recovery , have reduced the volume of real estate transactions and created credit 40 stresses on some businesses . vacancy rates may increase , and rental rates may decline , through 2013 and possibly beyond as the current economic climate may negatively impacts tenants . we expect that the impact of the current state of the economy , including high unemployment and potential volatility in the financial and credit markets , could have a dampening effect on the fundamentals of our business , including increases in past due accounts , tenant defaults , lower occupancy and reduced effective rents . these conditions would negatively affect our future net income and cash flows and could have a material adverse effect on our financial condition . story_separator_special_tag the preparation of financial statements in conformity with gaap requires management to make estimates and assumptions that affect the reported amounts of assets , liabilities , and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the reporting periods . certain accounting policies are considered to be critical accounting policies , as they require management to make assumptions about matters that are highly uncertain at the time the estimate is made and changes in the accounting estimate are reasonably likely to occur from period to period . management believes the following critical accounting policies reflect our more significant judgments and estimates used in the preparation of our consolidated financial statements . for a summary of all of our significant accounting policies , see note 2 to our consolidated financial statements included elsewhere in this report . revenue recognition we recognize rental revenue on the straight-line basis from the later of the date of the commencement of the lease or the date of acquisition of the property subject to existing leases , which averages minimum rents over the terms of the leases . lease incentives , which are included as reductions of rental revenue are recognized on a straight-line basis over the term of the lease . certain lease agreements contain provisions that require tenants to reimburse a pro rata share of real estate taxes and common area maintenance costs . for certain leases in the portfolio , there are significant assumptions and judgments made by management in determining the lease term such as when termination options are provided to the tenant . the lease term impacts the period over which minimum rents are determined and recorded and also considers the period over which lease related costs are amortized . in addition , our rental revenue is impacted by our determination of whether the improvements made by us or the tenant are landlord assets . the determination of whether an asset is a landlord asset requires judgment and principally considers whether improvements would be utilizable by another tenant upon move out by the existing tenant . to the extent they are determined not to be landlord assets , and we fund them , they are considered as lease incentives . to the extent the tenant funds the improvements that we consider to be landlord assets , we treat them as deferred revenue which is amortized to revenue over the lease term . 42 real estate investments real estate investments are carried at cost . we record acquisition of real estate investments under the acquisition method of accounting and allocate the purchase price to land , buildings and intangible assets on a relative fair value basis . depreciation is computed using the straight-line method over the useful lives of buildings and capital improvements ( 5 to 55 years ) and over the shorter of the lease term or the life of the asset for tenant improvements . direct construction costs related to the development of properties and land holdings are capitalized as incurred . capitalized costs include pre-construction costs essential to the development of the property , development and constructions costs , interest , property taxes , insurance , salaries and other project costs during the period of development . estimates and judgments are required in determining when capitalization of certain costs such as interest should commence and cease . we expense routine repair and maintenance expenditures and capitalize those items that extend the useful lives of the underlying assets . real estate ventures when we obtain an economic interest in an entity , we evaluate the entity to determine if the entity is deemed a variable interest entity ( “ vie ” ) , and if we are deemed to be the primary beneficiary , in accordance with the accounting standard for the consolidation of variable interest entities . this accounting standard requires significant use of judgments and estimates in determining its application . if the entity is not deemed to be a vie , and we serve as the general partner or managing member within the entity , we evaluate to determine if our presumed control as the general partner or managing member is overcome by the “ kick out ” rights and other substantive participating rights of the limited partners or non-managing members in accordance with the same accounting standard . we consolidate ( i ) entities that are vies and of which we are deemed to be the primary beneficiary and ( ii ) entities that are non-vies which we control . entities that we account for under the equity method ( i.e. , at cost , increased or decreased by our share of earnings or losses , less distributions ) include ( i ) entities that are vies and of which we are not deemed the primary beneficiary ( ii ) entities that are non-vies which we do not control , but over which we have the ability to exercise significant influence and ( iii ) entities that are non-vies which we maintain an ownership interest through our general partner status , but in which the limited partners in the entity have the substantive ability to dissolve the entity or remove us without cause or have substantive participating rights . we continuously assess our determination of whether an entity is a vie and who the primary beneficiary is , and whether or not the limited partners in an entity have substantive rights , including if certain events occur that are likely to cause a change in original determinations . on a periodic basis , management assesses whether there are any indicators that the value of our investments in unconsolidated joint ventures may be impaired . an investment is impaired only if management 's estimate of the value of the investment is less than the carrying value of the investment , and such decline in value is deemed to be other than temporary .
| results of operations comparison of the year ended december 31 , 2011 to the year ended december 31 , 2010 the table below shows selected operating information for the “ same store property portfolio ” and the “ total portfolio. ” the same store property portfolio consists of 223 properties containing an aggregate of approximately 22.2 million million net rentable square feet that we owned for the entire twelve-month periods ended december 31 , 2011 and 2010. the same store property portfolio includes properties acquired or placed in service on or prior to january 1 , 2010 and owned through december 31 , 2011. the total portfolio includes the effects of other properties that were either placed into service , acquired or redeveloped after january 1 , 2010 or disposed of prior to december 31 , 2011. a property is excluded from our same store property portfolio and moved into the redevelopment column in the period that we determine that a redevelopment would be the best use of the asset , and when said asset is taken out of service or is undergoing re-entitlement for a future development strategy . this table also includes a reconciliation from the same store property portfolio to the total portfolio net income ( i.e. , all properties owned by us during the twelve-month periods ended december 31 , 2011 and 2010 ) by providing information for the properties which were acquired , under development ( including lease-up assets ) or placed into service and administrative/elimination information for the twelve-month periods ended december 31 , 2011 and 2010 ( in thousands ) .
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in august 2018 , the story_separator_special_tag the following discussion and analysis should be read in conjunction with the “ selected financial data ” and the consolidated financial statements and related notes included elsewhere in this report . the following discussion and analysis contains forward-looking statements that reflect our future plans , estimates , beliefs and expected performance . the forward-looking statements are dependent upon events , risks and uncertainties that may be outside our control . our actual results could differ materially from those discussed in these forward-looking statements . factors that could cause or contribute to such differences include , but are not limited to , the volatility of oil and gas prices , production timing and volumes , estimates of proved reserves , operating costs and capital expenditures , economic and competitive conditions , regulatory changes and other uncertainties , as well as those factors discussed below and elsewhere in this report , particularly in “ item 1a . risk factors ” and “ cautionary statement regarding forward-looking statements , ” all of which are difficult to predict . as a result of these risks , uncertainties and assumptions , the forward-looking events discussed may not occur . overview 38 we are an independent exploration and production company focused on the acquisition , development , exploration and exploitation of unconventional onshore oil and natural gas reserves in the eastern portion of the anadarko basin in oklahoma . our activities are primarily directed at the horizontal development of an oil and liquids-rich resource play in an area of the basin commonly referred to as the sooner trend anadarko basin canadian and kingfisher county ( “ stack ” ) . we generate revenue principally by the production and sale of oil , natural gas and ngls . we maintain operational control of the majority of our properties , either through directly operating them or through operating arrangements with other interest owners . as of december 31 , 2018 , we have assembled a highly contiguous position of approximately 140,000 net acres in the up-dip , naturally-fractured oil portion of the stack primarily in eastern kingfisher and south-eastern major counties in oklahoma . our drilling locations primarily target the osage , meramec and oswego formations . when we consider acquiring acreage within or adjacent to our acreage footprint , we prioritize opportunities where we can be the operator . at december 31 , 2018 , we had six horizontal drilling rigs operating in the stack , but by late february 2019 , we had no rigs operating . we restarted our development program in march 2019 and expect to use 2-3 rigs for the remainder of 2019 as we focus on the optimal completion design , well pattern and lowering well costs . additional information relating to the formation of alta mesa resources and the acquisition of us and kfm on february 9 , 2018 , may be found in item 8. immediately prior to the business combination , we distributed our non-stack oil and gas assets and related liabilities to high mesa holdings , lp ( the “ am contributor ” ) . we have reported these distributed assets as discontinued operations for all periods presented . pursuant to the business combination , we recorded the acquired assets and liabilities at their estimated fair values on the closing date , including recording the fair values in the financial records of our respective subsidiaries . this resulted in our financial presentation being separated into two distinct periods , the period before the business combination ( “ predecessor ” ) and the period after the business combination ( “ successor ” ) . the company 's financial statement presentation reflects alta mesa as the “ predecessor ” for periods prior to february 9 , 2018. the company 's financial statement presentation reflects alta mesa as the “ successor ” for periods since february 9 , 2018. outlook , market conditions and commodity prices our revenue , profitability and future growth rate depend on many factors , particularly the prices of oil , gas and ngls , which are beyond our control . the success of our business is significantly affected by the price of oil due to its weighting in our production profile . factors affecting oil prices include worldwide economic conditions ; geopolitical activities in various regions of the world ; worldwide supply and demand conditions ; weather conditions ; actions taken by the organization of petroleum exporting countries ; and the value of the u.s. dollar in international currency markets . commodity prices remain unpredictable and it is uncertain whether the increase in market prices experienced in recent months will be sustained . as a result , we can not accurately predict future commodity prices and , therefore , can not determine with any degree of certainty what effect increases or decreases in these prices will have on our capital expenditures , production volumes or revenues . in the event that oil , gas and ngls prices significantly decrease , such decreases could have a material adverse effect on our financial condition , the carrying value of our oil and natural gas properties , our proved reserves and our ability to finance operations , including the amount of the borrowing capacity under the alta mesa rbl . the following table sets forth the historical average new york mercantile exchange spot prices : replace_table_token_10_th going concern 39 our present level of indebtedness and the current commodity price environment present challenges to our ability to comply with the covenants in the agreements governing our indebtedness . story_separator_special_tag we attempt to overcome this natural decline primarily through development of our existing undeveloped resource , well recompletions and other enhanced recovery methods . sustaining our production levels or our future growth will depend on our ability to continue to develop reserves . our ability to add reserves through drilling and other development techniques is dependent on current market conditions and our capital resources and can be limited by many factors , including our ability to timely obtain drilling permits and regulatory approvals . any delays in drilling , completing or connecting our new wells to gathering lines will negatively affect our production , which will have an adverse effect on our revenue and , as a result , our cash flow from operations . story_separator_special_tag production taxes for the successor period and 2018 predecessor period are higher as compared to 2017 primarily due to the increase in oil and natural gas liquids revenue and an increase in the oklahoma severance tax rate from 2 % to 5 % , effective in the third quarter of 2018 , for wells in their first 3 years of production . production taxes are assessed based on revenues on a pre-hedge basis . replace_table_token_15_th exploration expense for the successor period and the 2018 predecessor period increased compared to 2017 primarily due to an increase in expired leaseholds of $ 20.1 million and a single exploratory dry hole costing $ 2.0 million . 44 depreciation , depletion and amortization expense was higher on a per boe basis in the successor period and the 2018 predecessor period as compared to 2017 , primarily due to an increase in capital spending and in production in relation to booked reserves for 2018 on a boe basis . replace_table_token_16_th impairment of assets largely hinges on a decrease in commodity prices , as well as the results of exploratory and development drilling and well performance , which reduced the value of our assets . a significant decline in spot and future estimated commodity prices late in the fourth quarter of 2018 , and the impact of changes in our individual well reserve recovery estimates triggered a downward revision in the future cash flows expected to be generated by our oil and gas properties , which required us to reduce the carrying value of those properties to estimated fair value . replace_table_token_17_th general and administrative expense for the successor period and the 2018 predecessor period increased compared to 2017. strategic costs and professional fees were higher in 2018 due to advisors helping to value and integrate the acquired business pursuant to the business combination , plus the related increase in accounting and audit professional fees . the successor period also includes a $ 22.4 million reserve associated with estimated collectibility of receivables from certain related parties , including notes receivable , equity-based compensation awards using our parent 's publicly traded securities and the establishment of a stock-based compensation program , plus severance costs associated with the departure of certain members of executive management in late 2018 , with no similar activity in the predecessor periods . employee-related costs decreased primarily due to reduced headcount . 45 below is a reconciliation of upstream adjusted ebitdax to loss from continuing operations before income taxes : replace_table_token_18_th _ ( 1 ) represents a reserve associated with estimated collectibility of certain related party receivables , including notes receivable , and is included in general and administrative expense in the successor period . other income ( expense ) replace_table_token_19_th interest expense for the successor period and 2018 predecessor period decreased primarily due to amortization of bond premium of $ 4.5 million and lower interest on the alta mesa rbl due to lower average amounts outstanding . 46 for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 the tables included below set forth financial information of our predecessor for the years ended december 31 , 2017 and 2016 . the amounts below exclude operating results related to discontinued operations . revenues our oil , gas and ngls revenue varies as a result of changes in commodity prices and production volumes . the following table summarizes our revenue and production data for the periods presented : replace_table_token_20_th 47 the 2017 increase in oil revenue was primarily attributable to higher average sales prices pre-hedge as well as increased production volumes . an increase in production of 1,336 mbbls , resulted in an approximate $ 55.0 million increase in oil revenue at 2016 average oil sales price . the increase in oil volumes is primarily due to new production . the 2017 increase in natural gas revenue was attributable to increased production volumes as well as higher prices during 2017. the increase in gas volumes is attributable to new production . the 2017 increase in ngl revenue was primarily attributable to an increase in prices as well as increased volumes . the increase in natural gas liquid volumes is due primarily to an increase in output . gain on acquisition of oil and gas properties was related to a bargain purchase of certain proved stack oil and gas reserves resulting in a gain totaling $ 1.7 million in 2017. replace_table_token_21_th operating expenses replace_table_token_22_th lease operating expense increased primarily due to increased production volume and increased compression , salt water disposal , chemicals , repairs and maintenance and fuel and power totaling $ 12.9 million . transportation and marketing expense increased primarily due to increased throughput at the kfm processing facility beginning in the second quarter of 2016. in addition , the increase is due to higher transportation and marketing fees charged to 48 provide effective gathering , efficient processing and assurance that our production will continue to flow as the activity in the basin expands at the kfm processing facility . production taxes increased $ 3.0 million primarily due to the increase in oil and gas revenue . ad valorem taxes remained flat year over year .
| results of operations the company 's management believes adjusted ebitdax and adjusted ebitda are useful because they allow users to more effectively evaluate our operating performance , compare the results of our operations from period to period and against our peers without regard to our financing methods or capital structure and because it highlights trends in our business that may not otherwise be apparent when relying solely on gaap measures . adjusted ebitdax and adjusted ebitda should not be considered as an alternative to our segments ' net income ( loss ) , operating income ( loss ) or other performance measures derived in accordance with gaap and may not be comparable to similarly titled measures in other companies ' reports . for the periods from february 9 , 2018 through december 31 , 2018 ( successor ) and january 1 , 2018 through february 8 , 2018 ( predecessor ) compared to the year ended december 31 , 2017 ( predecessor ) the tables included below set forth financial information for the successor period , the 2018 predecessor period , and the year ended december 31 , 2017 , which are distinct reporting periods as a result of the business combination . the amounts below exclude operating results related to discontinued operations . revenues 41 our oil , gas and ngls revenue varies as a result of changes in commodity prices and production volumes . the following table summarizes our revenue and production data for the periods presented : replace_table_token_12_th oil revenue for the successor period and the 2018 predecessor period increased compared to the year ended december 31 , 2017 due to an increase in production in 2018 and higher prevailing market prices . the increase in production in 2018 was due to an increase in the number of wells drilled and new wells on production as a consequence of a sharp increase in 2018 capital expenditures .
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the company generally invoices its collaboration partners on a monthly or quarterly basis , or upon the completion of the effort or achievement of a milestone , based on the terms of each agreement . contract liabilities arise from amounts received in advance of performing the research and development activities and are recognized as revenue in future periods as the performance obligations are satisfied . grants : the company earns revenues from grants with government agencies to , among other things , provide research and development services to develop molecules using the company 's technology , and create research and development tools to improve the timeline and predictability for scaling molecules from proof of concept to market by reducing time and costs . grants typically consist of research and development milestone payments to be received upon the achievement of the milestone events defined in the agreements . the milestone payments are evaluated at inception to determine whether the milestone events are considered probable of achievement and estimates are made of the amount of the milestone payments to include in the transaction price using the most likely amount method which is the single amount in a range of possible amounts . if it is probable that a significant revenue reversal will not occur , the estimated milestone payment amount is included in the transaction price . each reporting period , the company re-evaluates the probability of achievement of the milestone events and any related constraint and , if necessary , adjusts its estimate of the overall transaction price . any such adjustments are recorded on a cumulative basis , which would affect grant revenues in the period of adjustment . revenue is recognized over time using a time-based measure of progress towards the satisfaction of the performance obligations . the measure of progress is evaluated each reporting period and , if necessary , adjustments are made to the measure of progress and the related revenue recognized . the company receives certain consideration from aicep portugal global ( aicep ) , an entity funded by the government of portugal , under the consortium internal regulatory agreement and an aicep investment contract ( the “ agreements ” ) entered into by amyris ( the “ company ” ) with universidade católica portuguesa ( ucp ) porto campus . the company considered this arrangement to be a government grant and accounts for the arrangement under international accounting standard 20 “ accounting for government grants and disclosure of government assistance ” . grant revenue is recognized when there is reasonable assurance that monies will be received and that conditions attached to the grant have been met . cost of products sold cost of products sold reflects the production costs of renewable products , and includes the cost of raw materials , in-house manufacturing labor and overhead , amounts paid to contract manufacturers , including amortization of tolling fees , and period costs including inventory write-downs resulting from applying lower of cost or net realizable value inventory adjustments . cost of products sold also includes certain costs related to the scale-up of production . shipping and story_separator_special_tag overview as a leading synthetic biotechnology company active in the clean health and beauty markets through our consumer brands and a top supplier of sustainable and natural ingredients , we apply our proprietary lab-to-market biotechnology platform to engineer , manufacture and market high performance , natural and sustainably sourced products . we do so with the use of computational tools , strain construction tools , screening and analytics tools , and advanced lab automation and data integration . our biotechnology platform enables us to rapidly engineer microbes and use them as catalysts to metabolize renewable , plant-sourced sugars into high-value ingredients that we manufacture at industrial scale . through the combination of our biotechnology platform and our industrial fermentation process , we have successfully developed , produced and commercialized thirteen distinct molecules used in formulations by thousands of leading global brands . we believe that synthetic biology represents a third industrial revolution , bringing together biology and engineering to generate new , more sustainable materials to meet the growing global demand for bio-based replacements of petroleum-based and traditional animal- or plant-derived ingredients . we continue to generate demand for our current portfolio of products through an extensive go-to-market network provided by our partners that are the leading companies in our target markets . via our partnership model , our partners invest in the development of molecules to take it from the lab to commercial scale and use their extensive marketing and sales capabilities to sell our ingredients and formulations to their customers . we capture long-term revenue both through the production and sale of our molecules to our partners and through royalty revenues from our partners ' product sales to their customers . we have also successfully formulated our unique , natural and sustainably-sourced ingredients into wholly-owned consumer brands , including biossance® our clean beauty skincare brand , pipette® , our baby and mother care brand , and purecane tm , our alternative sweetener brand . we are marketing our brands directly to consumers via our ecommerce platforms , in brick-and-mortar stores , and online via various retail partners . we were founded in 2003 in the san francisco bay area by a group of scientists from the university of california , berkeley . through a grant in 2005 from the bill & melinda gates foundation , we developed technology capable of creating microbial strains that produce artemisinic acid , a precursor of artemisinin , an anti-malarial drug . 39 we produced a renewable farnesene brand , biofene® , a long-chain , branched hydrocarbon molecule that we manufacture through fermentation using engineered microbes . our farnesene derivatives are sold in hundreds of products as nutraceuticals , skincare products , fragrances , solvents , polymers , and lubricant ingredients . story_separator_special_tag our plans to reopen our sites and enable a broad return to work in our offices , laboratories and production facilities will continue to follow local public health plans and guidelines . as the effects of the covid-19 pandemic and the availability of vaccines continue to rapidly evolve , even if our employees more broadly return to work in our offices , laboratories and production facilities , we have the flexibility to resume more restrictive on-site and remote work models , if needed , as a result of spikes or surges in covid-19 infection , hospitalization rates or otherwise . see “ risk factors – business and operational risks - the covid-19 pandemic has impacted our business and results of operations and could have a material adverse effect on our business , results of operations and financial condition in the future . ” critical accounting policies and estimates management 's discussion and analysis of results of operations and financial condition are based on our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the u.s. ( u.s. gaap ) . we believe that the critical accounting policies described in this section are those that significantly impact our financial condition and results of operations and require the most difficult , subjective or complex judgements , often as a result of the need to make estimates about the effects of matters that are inherently uncertain . because of this uncertainty , actual results may vary from these estimates . our most critical accounting estimates include : recognition of revenue including arrangements with multiple performance obligations ; valuation and allocation of fair value to various elements of complex related party transactions ; the valuation of freestanding and embedded derivatives , which impacts gains or losses on such derivatives , the carrying value of debt , interest expense and deemed dividends ; and the valuation of debt for which we have elected fair value accounting . for a more detailed discussion of our critical accounting estimates and policies , see note 1 , `` basis of presentation and summary of significant accounting policies '' in part ii , item 8 of this 2020 form 10-k. story_separator_special_tag outstanding derivative instruments . the loss upon extinguishment of debt for the year ended december 31 , 2020 was the result of debt modifications and restructuring which required the write-off of significant unamortized debt discount balances and expensing of the fair value of equity instruments granted or modified in connection with the debt settlement or modification . the reduction in interest expense was primarily due to a decrease in debt discount accretion , along with lower average debt principal balances during 2020 as compared to the prior year . income taxes for the years ended december 31 , 2020 and 2019 , we recorded income tax expense of $ 0.3 million and $ 0.6 million related to accrued interest on uncertain tax positions . see note 13 , `` income taxes '' in part ii , item 8 of this annual report on form 10-k for additional information . liquidity and capital resources replace_table_token_5_th liquidity we have incurred operating losses since our inception , and we expect to continue to incur losses and negative cash flows from operations through at least the next 12 months following the issuance of this annual report on form 10-k. as of december 31 , 2020 , we had negative working capital of $ 16.5 million , an accumulated deficit of $ 2.1 billion , and cash and cash equivalents of $ 30.2 million . as of december 31 , 2020 , the principal amounts due under our debt instruments ( including related party debt ) totaled $ 170.5 million , of which $ 56.5 million is classified as current . our debt agreements contain various covenants , including certain restrictions on our business — including restrictions on additional indebtedness , material adverse effect and cross default provisions — that could cause us to be at risk of default . a failure to comply with the covenants and other provisions of our debt instruments , including any failure to make payments when required , would generally result in events of default under such instruments , which could result in the acceleration of a substantial portion of such indebtedness . acceleration would generally also constitute an event of default under our other outstanding debt instruments , which could result in the acceleration of a substantial portion of our debt repayment obligations . during 2020 we failed to meet certain covenants under several credit arrangements , including those associated with missed payments , cross-default provisions , minimum liquidity and minimum asset coverage requirements . these lenders provided permanent waivers to us for breaches of all past covenant violations and cross-default payment failures under the respective credit agreements , and significantly reduced the minimum liquidity requirement and substantially increased the base of eligible assets to calculate the asset coverage requirement . cash and cash equivalents of $ 30.2 million as of december 31 , 2020 are not sufficient to fund expected future negative cash flows from operations and cash debt service obligations through march 2022. these factors raise substantial doubt about our ability to continue as a going concern within one year after the date that the financial statements in this annual report on form 10-k are issued . the consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty .
| results of operations revenue replace_table_token_2_th total revenue increased by 13 % to $ 173.1 million in 2020. renewable products revenue increased by 74 % to $ 104.3 million in 2020 , due to a 197 % increase in consumer products revenue and a 26 % increase in ingredients revenue . licenses and royalties revenue decreased by 6 % to $ 51.0 million in 2020 , due to a reduction from dsm , partly offset by an increase from firmenich . grants and collaborations revenue decreased by 54 % to $ 17.8 million in 2020 , primarily due to no collaboration revenue generated under our cannabinoid agreement in 2020 as compared to $ 18.3 million in 2019. our revenues are dependent on the timing and nature of arrangements entered into with our customers , which may include multiple performance obligations for which revenue accounting requires significant judgement and estimates . based on the nature of our customer arrangements , our revenues may vary significantly from one period to the next . 41 cost and operating expenses replace_table_token_3_th cost of products sold cost of products sold includes the costs of raw materials , labor and overhead , amounts paid to contract manufacturers , inventory write-downs resulting from applying lower of cost or net realizable value inventory adjustments , and costs related to production scale-up . because of our product mix , our cost of products sold does not change proportionately with changes in renewable product revenue . cost of products sold increased by 15 % to $ 87.8 million in 2020 , primarily due to a 74 % increase in renewable products revenue , mostly offset by significant improvements in unit costs and manufacturing efficiencies . research and development expenses research and development expenses increased by 0.3 % to $ 71.7 million in 2020 , primarily due to increases in professional services and employee compensation , mostly offset by a net decrease in equipment-related expense .
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2016-02 , leases ( topic 842 ) ( asu 2016-02 ) , which supersedes the leases in asc 840 , leases . asu 2016-02 requires the recognition of lease assets and lease liabilities by lessees for those leases previously classified as operating leases . the standard is effective for public companies for fiscal years , and for interi m periods within those fiscal years , beginning after december 15 , 2018. early adoption is permitted . the company will apply the guidance and disclosure provisions of the new standard upon adoption . the company is story_separator_special_tag financial condition and results of operations . you should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes and other financial information appearing in this annual report . some of the information contained in this discussion and analysis or set forth elsewhere in this annual report , including information with respect to our plans and strategy for our business , operations , and product candidates , includes forward-looking statements that involve risks and uncertainties . you should review the sections of this annual report on form 10-k captioned “ risk factors ” and “ special note regarding forward-looking statements ” for a discussion of important factors that could cause our actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview we are a clinical stage biopharmaceutical company focused on identifying , developing , and commercializing product candidates to address rare and life-threatening diseases with few or no approved therapies by targeting molecular pathways that regulate cellular metabolism and inflammation . our lead product candidates , bardoxolone methyl and omaveloxolone , are nrf2 activators , previously referred to as antioxidant inflammation modulators , or aims , that target nrf2 , an important transcription factor , to restore mitochondrial function , reduce oxidative stress , and resolve inflammation . bardoxolone methyl is currently being studied in a phase 3 trial , known as catalyst , for the treatment of pulmonary arterial hypertension , or pah , associated with connective tissue disease , or ctd-pah , as well as a phase 2 trial , known as lariat , for the treatment of pulmonary hypertension due to interstitial lung disease , or ph-ild , and pah , each of which are subsets of pulmonary hypertension , or ph . we began enrolling patients in catalyst in october 2016. in addition , bardoxolone methyl is currently being studied in a single , pivotal phase 2/3 trial , known as cardinal , for the treatment of chronic kidney disease , or ckd , caused by alport syndrome . we began enrolling patients in cardinal on march 2 , 2017. omaveloxolone is being studied in separate two-part phase 2 trials for the treatment of friedreich 's ataxia , or fa , and mitochondrial myopathies , or mm , known as moxie and motor , respectively . we have completed enrollment of part one in moxie and are currently dosing patients in part one of motor , which are dose ranging . data from part two of each of the trials has the potential to be used for registration . omaveloxolone is also being studied in a phase 1b/2 for the treatment of metastatic melanoma , known as reveal . in addition to our lead product candidates , we are also conducting a phase 1 clinical trial of rta 901. beyond our clinical programs , we have additional promising preclinical development programs . we believe that our product candidates and preclinical programs have the potential to improve clinical outcomes in numerous underserved patient populations . to date , we have focused most of our efforts and resources on developing our product candidates and conducting preclinical studies and clinical trials . we have historically financed our operations primarily through revenue generated from our collaborations with abbvie ltd. , or abbvie , and kyowa hakko kirin co. , ltd. , or khk , and from sales of our securities . we have not received any payments or revenue from collaborations other than nonrefundable upfront , milestone , and cost sharing payments from our collaborations with abbvie and khk and reimbursements of expenses under the terms of our agreement with khk . we have incurred losses in each year since our inception , other than in 2014. as of december 31 , 2016 , we had $ 84.7 million of cash and cash equivalents and an accumulated deficit of $ 289.4 million . we continue to incur significant research and development and other expenses related to our ongoing operations . despite contractual product development commitments and the potential to receive future payments from our collaborators , we anticipate that , without taking into account deferred revenue , we will continue to incur losses for the foreseeable future , and we anticipate that our losses will increase as we continue our development of , and seek regulatory approval for , our product candidates . if we do not successfully develop and obtain regulatory approval of our existing product candidates or any future product candidates and effectively manufacture , market , and sell any products that are approved , we may never generate revenue from product sales . furthermore , even if we do generate revenue from product sales , we may never again achieve or sustain profitability on a quarterly or annual basis . our prior losses , combined with expected future losses , have had and will continue to have an adverse effect on our stockholders ' equity and working capital . our failure to become and remain profitable could depress the market price of our class a common stock and could impair our ability to raise capital , expand our business , diversify our product offerings , or continue our operations . story_separator_special_tag currently , abbvie is not participating in the development of bardoxolone methyl for the treatment of ph and ckd caused by alport syndrome and we are therefore incurring all costs for this program . with respect to our omaveloxolone programs and our collaboration agreement with abbvie , we were responsible for a certain initial amount in early development costs before abbvie began sharing development 82 costs equally . in april 2016 , we had incurred all of these initial costs , after which payments from abbvie with respect to research a nd development costs incurred by us were recorded as a reduction in research and development expenses . our expenses were reduced by $ 1.4 million for abbvie 's share of research and development costs for the year ended december 31 , 2016. in september 2016 , we and abbvie mutually agreed that we would continue unilateral development of omaveloxolone . therefore , abbvie no longer co-funds the exploratory development costs of this program , but retains the right to opt back in at certain points in development . depending upon what point , if any , abbvie opts back into development , abbvie may retain its right to commercialize a product outside the u.s. or we may be responsible for commercializing the product on a worldwide basis . upon opting back in , abbvie would be required to pay an agreed upon amount of all development costs accumulated up to the point of exercising their opt-in right , after which development costs incurred and product revenue worldwide would be split equally . the following table summarizes our research and development expenses incurred during the years ended december 31 : replace_table_token_14_th the program-specific expenses summarized in the table above include costs that we directly allocate to our product candidates . our other research and development expenses include research and development salaries , benefits , stock-based compensation and preclinical , research , and discovery costs , which we do not allocate on a program-specific basis . general and administrative expenses general and administrative expenses consist primarily of employee-related expenses for executive , operational , finance , legal , compliance , and human resource functions . other general and administrative expenses include personnel expense , facility-related costs , professional fees , accounting and legal services , depreciation expense , other external services , and expenses associated with obtaining and maintaining our intellectual property rights . we anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research and development and potential commercialization of our product candidates . we have also incurred and anticipate incurring in the future increased expenses associated with being a public company , including exchange listing and securities and exchange commission requirements , director and officer insurance premium , legal , audit and tax fees , compliance with the sarbanes-oxley act of 2002 , regulatory compliance programs , and investor relations costs . additionally , if and when we believe the first regulatory approval of one of our product candidates appears likely , we anticipate an increase in payroll and related expenses as a result of our preparation for commercial operations , especially for the sales and marketing of our product candidates . other income other income represents interest and gains earned on our cash and cash equivalents , which include money market funds . provision for taxes on income provision for taxes on income consists of net loss , taxed at federal tax rates and adjusted for certain permanent differences . we maintain a full valuation allowance against our net deferred tax assets . changes in this valuation allowance also affect the tax provision . 83 story_separator_special_tag million through the sale of convertible preferred stock and $ 750.0 million from payments under license and collaboration agreements . we also obtained $ 60.9 million in net proceeds from our initial public offering of our class a common stock . we have not generated any revenue from the sale of any products . as of december 31 , 2016 , we had available cash and cash equivalents of approximately $ 84.7 million . our cash and cash equivalents are invested in accordance with our investment policy , primarily with a view to liquidity and capital preservation . cash flows the following table sets forth the primary sources and uses of cash for the years ended december 31 : replace_table_token_17_th 85 operating activities net cash used by operating activities was $ 19.3 million for the year ended december 31 , 2016 , consisting primarily of net loss of $ 6.2 million adjusted for non-cash items including stock-based compensation expense of $ 2.4 million , depreciation expense of $ 0.7 million , and a net decrease in operating assets and liabilities of $ 16.2 million . the significant items in the change in operating assets and liabilities include an increase of prepaid expenses and other current assets of $ 1.7 million due to prepayments on trial and other operating expenses and reimbursements due from khk , an increase in accrued direct research and other current liabilities of $ 3.1 million due to clinical trial activities , a decrease in income tax receivable of $ 31.9 million due to tax refunds received , and a decrease in deferred revenue of $ 49.7 million . the decrease in deferred revenue relates to the timing of upfront payments and ratable recognition of revenue over the expected term of the performance obligations under our collaboration agreements with abbvie and khk , resulting in recognition of $ 49.7 million of license and milestone revenue . net cash used in operating activities was $ 44.6 million for the year ended december 31 , 2015 , consisting primarily of net loss of $ 1.5 million adjusted for non-cash items including provision of deferred taxes on income of $ 17.8 million , stock-based compensation of $ 2.1 million , depreciation expense of $ 1.8 million , and a net decrease in operating assets and liabilities of $ 64.8 million .
| results of operations comparison of the years ended december 31 , 2016 , 2015 , and 2014 the following table sets forth our results of operations for the years ended december 31 : replace_table_token_15_th revenue license revenue represented approximately 100 % , 100 % , and 99 % of total revenue for the years ended december 31 , 2016 , 2015 , and 2014 , respectively . license and milestone revenue decreased by 1 % during 2016 compared to 2015. the decrease was primarily due to a milestone payment of $ 0.7 million received from a research collaboration with a disease advocacy organization in 2015. license and milestone revenue decreased by 2 % during 2015 compared to 2014. this decrease was due to a decrease in revenue recognized under the khk agreement due to an extension of khk 's development timeline . other revenue increased by 425 % during 2016 compared to 2015 , primarily due to revenue recognized for reimbursements of expenses from khk for expenses incurred . other revenue decreased by 96 % during 2015 compared to 2014 , primarily due to decreases in rent revenue of $ 0.4 million recognized from our sublease and revenue of $ 0.2 million recognized for reimbursements of expenses from khk for expenses incurred .
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the redeemable noncontrolling interests in the operating partnership for the years ended december 31 , 2011 , 2010 , and 2009 were as follows : replace_table_token_44_th 1 represents the noncontrolling interests ' share of the changes in the fair value of derivative instruments accounted for as cash flow hedges ( see note 10 ) . 2 includes adjustments to reflect amounts at the greater of historical book value or redemption value . f-12 the following sets forth accumulated other comprehensive loss allocable to noncontrolling interests for the years ended december 31 , 2011 , 2010 , and 2009 : replace_table_token_45_th 1 story_separator_special_tag the following discussion should be read in conjunction with the accompanying audited consolidated financial statements and related notes thereto and item 1a , “ risk factors , ” appearing elsewhere in this annual report on form 10-k. in this discussion , unless the context suggests otherwise , references to the “ company , ” “ we , ” “ us ” and “ our ” mean kite realty group trust and its subsidiaries . overview in the following overview , we discuss , among other things , the status of our business and properties , the effect that current united states economic conditions is having on our retail tenants and us , and the current state of the financial markets as pertaining to our debt maturities and our ability to secure financing . our business and properties kite realty group trust , through its majority-owned subsidiary , kite realty group , l.p. , is engaged in the ownership , operation , management , leasing , acquisition , redevelopment , and development of neighborhood and community shopping centers and certain commercial real estate properties in selected markets in the united states . we derive revenues primarily from rents and reimbursement payments received from tenants under existing leases at each of our properties . we also derive revenues from providing management , leasing , and real estate development services through our taxable reit subsidiary . our operating results therefore depend materially on the ability of our tenants to make required rental payments , conditions in the united states retail sector and overall real estate market conditions . as of december 31 , 2011 , we owned interests in a portfolio of 54 operating retail properties totaling 8.4 million square feet of gross leasable area ( including non-owned anchor space ) and also owned interests in four operating commercial properties totaling 0.6 million square feet of net rentable area and an associated parking garage . also , as of december 31 , 2011 , we had an interest in five in-process development and redevelopment properties , which , upon completion , are anticipated to have 0.8 million square feet of gross leasable area ( including non-owned anchor space ) . 41 in addition to our in-process developments and redevelopments , we have future developments , which include land parcels that are undergoing pre-development activity and are in various stages of preparation for construction to commence , including pre-leasing activity and negotiations for third party financing . as of december 31 , 2011 , these future developments consisted of three projects that are expected to contain 2.0 million square feet of gross leasable area upon completion . finally , as of december 31 , 2011 , we also owned interests in other land parcels comprising 101 acres that may be used for future expansion of existing properties , development of new retail or commercial properties or sold to third parties . these land parcels are classified as “ land held for development ” in the accompanying consolidated balance sheets . current economic conditions and impact on our retail tenants economic conditions remained uneven for the united states economy , businesses , consumers , housing and credit markets throughout 2011. a prolonged economic recovery has not yet been reached due to continued challenges in the housing market , mixed economic data , and concerns over the u.s. federal government 's ability to respond to these challenges . despite these uncertain conditions , consumer spending improved slightly in the second half of 2011. in addition , certain retailers continue to announce plans to increase their store openings over the next 24 months . however , there is no certainty that these trends will continue and the following factors could contribute to a decline in consumer spending at stores owned and or operated by our retail tenants include , among others : · shortage or unavailability of financing : economic and market conditions in the united states began to stabilize somewhat during 2011. credit conditions have continued to improve with increased access and availability to secured mortgage debt and the unsecured bond and equity markets . lending institutions continue to maintain tighter credit standards for individual and small business lending , making it difficult for individuals and local retailers ( including our tenants ) to obtain financing . in addition , continued depression of home values has caused individuals to utilize home equity as a source of funding for small businesses . this shortage of financing has caused , among other things , some consumers to have less disposable income available for retail spending . the shortage of financing has also made it difficult for some of our tenants to obtain capital to operate their businesses . · lower home values and increased home foreclosures : the decline in u.s. home values started to level out in 2011 , but difficult economic conditions have also contributed to a record number of home foreclosures . the u.s. continues to experience historically high levels of delinquencies and foreclosures . · continued high unemployment rates : the u.s. unemployment rate has declined in recent months ( to 8.3 % in january 2012 ) but continues to be higher than historical levels . continued high unemployment rates could cause further decreases in consumer spending , thereby negatively affecting the businesses of our retail tenants . we continue to focus on markets where household income within a five mile radius of our properties is higher than statewide levels . story_separator_special_tag however , in this current environment , it is imperative that we identify alternative sources of financing and other capital in the event we are not able to refinance these loans on satisfactory terms , or at all . if we are not able to refinance or extend these loans , our financial condition and liquidity could be adversely impacted . it is also important for us to obtain additional financing in order to complete our in-process development and redevelopment projects . in 2011 , we strengthened our balance sheet by entering into an amended and restated three-year $ 200 million unsecured revolving credit facility . the unsecured facility has a maturity date of june 6 , 2014 with a one-year extension option to renew under certain circumstances . we also entered into $ 213 million of additional financing and refinancing related activities in 2011 . 43 as of december 31 , 2011 , we had a combined $ 38 million of available liquidity in the form of availability under our unsecured revolving credit facility ( $ 22.7 million ) , cash and cash equivalents including our pro-rata share of unconsolidated joint ventures ( $ 10.6 million ) , and a revolving line of credit secured by a portion of our fishers station property ( $ 4.3 million ) . as of february 21 , 2012 , we had a combined $ 40 million of available liquidity . in addition to refinancing our unsecured revolving credit facility , we were also successful in extending the maturity dates or refinancing all of our property-level loans originally maturing in 2011 and some of our loans originally maturing in 2012. for example in 2011 , we extended the maturity date or refinanced the debt at five of our properties ( indiana state motor pool , to february 2014 ; fishers station , to june 2014 ; bayport commons , to september 2021 ; eddy street commons , to september 2021 ; and eastgate pavilion , to december 2016 ) . a schedule of our consolidated maturities ( excluding regular principal payments ) as of december 31 , 2011 is set forth below : replace_table_token_19_th we will continue to assess and engage in negotiations with existing and alternative lenders for our near-term maturing indebtedness , with a view toward extending , refinancing or repaying debt to strengthen our balance sheet . obtaining new financing is also important to our business due to the capital needs of our existing development and redevelopment projects . as of december 31 , 2011 , the unfunded amount of the total estimated projects costs of our in-process development and redevelopment projects was approximately $ 99.6 million . while we believe we will have access to sufficient funding to be able to fund our investments in these projects through a combination of new and existing construction loans and uses of our available liquidity ( which , as noted above , was $ 38 million as of december 31 , 2011 ) , adverse market conditions may make it more costly and difficult to raise additional capital , if necessary . summary of critical accounting policies and estimates our significant accounting policies are more fully described in note 2 to the accompanying consolidated financial statements . as disclosed in note 2 , the preparation of financial statements in accordance with u.s. generally accepted accounting principles requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes . actual results could differ from those estimates . we believe that the following discussion addresses our most critical accounting policies , which are those that are most important to the compilation of our financial condition and results of operations and require management 's most difficult , subjective , and complex judgments . capitalization of certain pre-development and development costs we incur costs prior to land acquisition and for certain land held for development , including acquisition contract deposits as well as legal , engineering , cost of internal resources and other external professional fees related to evaluating the feasibility of developing a shopping center or other project . these pre-development costs are capitalized and included in construction in progress in the accompanying consolidated balance sheets . if we determine that the completion of a development project is no longer probable , all previously incurred pre-development costs are immediately expensed . 44 we also capitalize costs such as construction , interest , real estate taxes , and salaries and related costs of personnel directly involved with the development of our properties . as a portion of the development property becomes operational , we expense appropriate costs on a pro rata basis . impairment of investment properties and joint ventures management reviews both operational and development projects , land parcels and intangible assets for impairment on at least a quarterly basis or whenever events or changes in circumstances indicate that the carrying value of investment properties may not be recoverable . the review for possible impairment requires management to make certain assumptions and estimates and requires significant judgment . impairment losses for investment properties are measured when the undiscounted cash flows estimated to be generated by the investment properties during the expected holding period are less than the carrying amounts of those assets . impairment losses are recorded as the excess of the carrying value over the estimated fair value of the asset . our impairment review for land and development properties assumes we have the intent and the ability to complete the developments or projected uses for the land parcels . if we determine those plans will not be completed or our assumptions with respect to operating assets are not realized , an impairment loss may be appropriate .
| results of operations at december 31 , 2011 , we owned interests in 58 operating properties [ consisting of 54 retail properties and four operating commercial ( office/industrial ) properties ] . also , as of december 31 , 2011 , we had an interest in five in-process development and redevelopment properties . at december 31 , 2010 , we owned interests in 57 operating properties ( consisting of 53 retail properties and four operating commercial ( office/industrial ) properties ) and six entities that held development or redevelopment properties in which we have an interest . these redevelopment properties included bolton plaza , courthouse shadows , rivers edge and four corner square . of the 63 total properties held at december 31 , 2010 , only a limited service hotel component of an operating property was owned through an unconsolidated joint venture and was accounted for under the equity method . at december 31 , 2009 , we owned interests in 55 operating properties ( consisting of 51 retail properties and four operating commercial properties ) and seven entities that held development or redevelopment properties in which we have an interest . these redevelopment properties included bolton plaza , coral springs plaza , courthouse shadows , rivers edge and four corner square . of the 62 total properties held at december 31 , 2009 , only a limited service hotel component of a development parcel was owned through an unconsolidated joint venture and was accounted for under the equity method .
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some of the statements in this “ management 's discussion and analysis of financial condition and results of operations ” are forward-looking statements . these forward-looking statements are based on management 's beliefs and assumptions and on information currently available to our management and involve significant elements of subjective judgment and analysis . words such as “ expects , ” “ will , ” “ anticipates , ” “ targets , ” “ intends , ” “ plans , ” “ believes , ” “ seeks , ” “ estimates , ” “ potential , ” “ should , ” “ could , ” variations of such words , and similar expressions are intended to identify forward-looking statements . our actual results and the timing of events may differ significantly from the results discussed in the forward-looking statements . factors that might cause such a difference include those discussed under the caption “ special note regarding forward looking statements ” and in “ risk factors ” and elsewhere in this annual report on form 10-k. these and many other factors could affect our future financial and operating results . we undertake no obligation to update any forward-looking statement to reflect events after the date of this annual report . overview scynexis , inc. is pioneering innovative medicines to potentially help millions of patients worldwide in need of new options to overcome and prevent difficult-to-treat and drug-resistant infections . we are developing our lead product candidate , ibrexafungerp , as a broad-spectrum , intravenous ( iv ) /oral agent for multiple fungal indications in both the community and hospital settings . in december 2020 , we announced that we had received the acceptance letter from the u.s. food and drug administration ( fda ) for our new drug application ( nda ) for oral ibrexafungerp for the treatment of vulvovaginal candidiasis ( vvc , also known as vaginal yeast infection ) with a prescription drug user fee act ( pdufa ) action goal date of june 1 , 2021. the fda has conditionally approved “ brexafemme ” as the brand name for oral ibrexafungerp for vaginal yeast infections . we are also continuing late-stage clinical development for the prevention of recurrent vvc as well as the treatment of life-threatening invasive fungal infections in hospitalized patients . ibrexafungerp , the first representative of a novel class of antifungal agents called triterpenoids and designated by the suffix “ -fungerp ” , is a structurally distinct glucan synthase inhibitor and has shown in vitro and in vivo activity against a broad range of human fungal pathogens such as candida and aspergillus species , including multidrug-resistant strains , as well as pneumocystis , coccidioides , histoplasma and blastomyces species . candida and aspergillus species are the fungi responsible for approximately 85 % of all invasive fungal infections in the united states ( u.s. ) and europe . to date , we have characterized the antifungal activity , pharmacokinetics , and safety profile of the oral and iv formulations of ibrexafungerp in multiple in vitro , in vivo , and clinical studies . the fda has granted qualified infectious disease product ( qidp ) and fast track designations to ibrexafungerp for the indications of vvc ( including the treatment of vvc episodes and the prevention of recurrent vvc ) , invasive candidiasis ( ic ) ( including candidemia ) , and invasive aspergillosis ( ia ) , and has granted orphan drug designations for the ic and ia indications . these designations may provide us with additional market exclusivity and expedited regulatory paths . ibrexafungerp update we recently announced that the fda has accepted for filing our nda for ibrexafungerp for the treatment of vvc , also known as vaginal yeast infections . the fda has granted this application priority review , a designation which is granted to applications for potential drugs that , if approved , would be significant improvements in the safety or effectiveness of the treatment of serious conditions when compared to standard applications . under the pdufa , the fda has set a target action date of june 1 , 2021. additionally , the fda has communicated that it is not currently planning to hold an advisory committee meeting to discuss the application . the nda is supported by positive results from two phase 3 , randomized , double-blind , placebo-controlled , multi-center studies ( vanish-303 and vanish-306 ) , in which oral ibrexafungerp demonstrated statistically superior efficacy and a favorable tolerability profile in women with vvc . enrollment is complete in the candle study , a phase 3 , multi-center , randomized , double-blind , placebo-controlled trial designed to evaluate the efficacy and safety of oral ibrexafungerp for the prevention of recurrent vvc , for which there is no approved therapy in the u.s. as a result of the covid-19 pandemic , our timelines for reaching our targeted enrollment size in the candle study were slightly extended and we now anticipate both top-line data and a potential supplemental nda submission for the prevention of recurrent vvc in the first half of 2022 , resulting in a potential approval in late 2022. enrollment is ongoing in our refractory invasive fungal infections ( rifi ) program , which comprises two open-label phase 3 studies ( furi and cares ) designed to support a potential future nda submission through the limited population pathway for antibacterial and antifungal drugs ( lpad ) , as well as our phase 2 study ( scynergia study ) of oral ibrexafungerp in combination with voriconazole ( soc ) in patients with ia . similar to interim analyses of data previously reported , we intend to analyze the data of patients that have completed the treatment course in our furi and cares studies and announce these findings when complete . 41 we have successfully completed preclinical testing of our liposomal iv formulation of ibrexafungerp and we are advancing the program into human trials in healthy volunteers . story_separator_special_tag any potential delays in clinical studies as a result of the impact of covid-19 , particularly on our candle study , could result in the recognition of research and development expense for these studies in periods later than 42 originally anticipated and could potentially further extend our cash runway . as of december 31 , 2020 , we had $ 93.0 million in cash and cash equivalents , and we may utilize our common stock purchase agreement entered into on april 10 , 2020 with aspire capital fund , llc ( aspire capital ) in order to provide additional liquidity . o ur ability to acquire necessary capital may be negatively impacted by the economic environment if the pandemic is prolonged . t he ultimate impact of the covid-19 health pandemic is highly uncertain and subject to change . we do not yet know the full extent of potential impacts on our business , our clinical trials , our activities dependent on regulatory authorities , healthcare systems or the global economy as a whole . we will continue to monitor the covid-19 situation closely . liquidity we have operated as a public entity since we completed our initial public offering in may 2014 , which we refer to as our ipo . we also completed a follow-on public offering of our common stock in april 2015 and public offerings of our common stock and warrants in june 2016 , march 2018 , december 2019 , and december 2020. we have received an aggregate of $ 253.2 million in net proceeds from the issuance of our common stock in these six offerings . our principal source of liquidity is cash and cash equivalents , which totaled $ 93.0 million as of december 31 , 2020. in addition , during the year ended december 31 , 2020 , we sold 691,304 shares of our common stock and received net proceeds of $ 4.8 million under our at-the-market ( atm ) facility , sold 125,000 shares of our common stock and received net proceeds of $ 0.6 million under our common stock purchase agreement with aspire capital , and i n april 2020 , we received a cash receipt of $ 3.1 million from a third party for the sale of a portion of our unused new jersey net operating losses ( nols ) and research and development credits . we have incurred net losses since our inception , including the year ended december 31 , 2020. as of december 31 , 2020 , our accumulated deficit was $ 326.6 million . we expect we will continue to incur significant research and development expense as we continue to execute our research and drug development strategy , but that our research and development expenses will decrease primarily given the completion of the vanish phase 3 registration program . consistent with our operating plan , we also expect that we will continue to incur significant selling , general and administrative expenses to support our public reporting company operations , and that our selling , general and administrative expenses will increase to support a potential commercial launch for the vvc indication and our ongoing operations . as a result , we will need additional capital to fund our operations , which we may obtain through one or more of equity offerings , debt financings , other non-dilutive third-party funding ( e.g. , grants , and new jersey technology business tax certificate transfer ( nol ) program ) , strategic alliances and licensing or collaboration arrangements . we may offer shares of our common stock pursuant to our effective shelf registrations and the common stock purchase agreement with aspire capital . story_separator_special_tag 2020 and 2019 , amortization of debt issuance costs and discount was $ 1.2 million . the 2020 and 2019 debt issuance costs and discount comprised an allocated portion of the advisory fee and other issuance costs associated with our convertible debt and the fair value of the bifurcated derivative liability . interest income . for the years ended december 31 , 2020 and 2019 , we recognized $ 0.2 million and $ 0.8 million , respectively , in interest income associated with our short-term investments . the decrease in interest income was primarily due to the decrease in interest rate returns earned in comparison to the comparable period and the maturity of all our short-term investments during the current period . interest expense . for the years ended december 31 , 2020 and 2019 , we recognized $ 1.2 million and $ 1.0 million , respectively , in interest expense associated with our convertible debt . the increase from the prior comparable period is primarily due to the additional interest expense recognized for the april 2020 notes . other income . for the years ended december 31 , 2020 and 2019 , we recognized $ 0.3 million and $ 0.5 million in other income associated with certain research and development tax credits . other expense . for the year ended december 31 , 2020 , we recognized $ 0.6 million in expense associated with the noncash consideration associated with the common stock purchase agreement entered into with aspire capital in april 2020. warrant liabilities fair value adjustment . for the years ended december 31 , 2020 and 2019 , we recognized losses of $ 5.2 million and $ 4.5 million , respectively , for the fair value adjustment for warrant liabilities primarily due to the increase in our stock price during the periods . derivative liabilities fair value adjustment . for the years ended december 31 , 2020 and 2019 , we recognized gains of $ 2.3 million and $ 1.6 million , respectively , in the fair value adjustment related to the derivative liabilities primarily due to the decrease in our stock price during the period . income tax benefit . for the year ended december 31 , 2020 , we recognized a $ 3.1 million income tax benefit associated with the sale of a portion of our nols and research and development credits .
| components of operating results revenue revenue consists of the amortization of a non-refundable upfront payment received under our collaboration arrangement with r-pharm . research and development expense research and development expense consists of expenses incurred while performing research and development activities to discover , develop , or improve potential product candidates we seek to develop . this includes conducting preclinical studies and clinical trials , manufacturing and other development efforts , and activities related to regulatory filings for product candidates . we recognize research and development expenses as they are incurred . our research and development expense primarily consists of : costs related to executing preclinical studies and clinical trials , including related drug formulation , manufacturing and other development ; salaries and personnel-related costs , including benefits and any stock-based compensation for personnel performing research and development functions ; fees paid to clinical research organizations ( cros ) , vendors , consultants and other third parties who support our product candidate development and intellectual property protection ; other costs in seeking regulatory approval of our products ; and allocated overhead . ibrexafungerp was the only key research and development project during the periods presented . we expect to continue to incur significant research and development expense for the foreseeable future as we continue our effort to develop ibrexafungerp , and to potentially develop our other product candidates , subject to the availability of additional funding . the successful development of product candidates is highly uncertain . at this time , we can not reasonably estimate the nature , timing or costs required to complete the remaining development of any product candidates . this is due to the numerous risks and uncertainties associated with the development of product candidates . 43 selling , general and administrative expense selling , general and administrative expense consists primarily of salaries and personnel-related costs , including employee benefits and any stock-based compensation .
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( d ) this stock option became exercisable to the extent of 25 percent of the shares purchasable thereunder on february 16 , 2012 , with additional increments of 25 percent becoming exercisable annually thereafter . ( e ) this stock story_separator_special_tag forward-looking statements the following discussion contains various forward-looking statements within the meaning of section 21e of the exchange act . although we believe that , in making any such statement , our expectations are based on reasonable assumptions , any such statement may be influenced by factors that could cause actual outcomes and results to be materially different from those projected . when used in the following discussion , the words “ anticipates , ” “ believes , ” “ expects , ” “ intends , ” “ plans , ” “ estimates ” and similar expressions , as they relate to us or our management , are intended to identify such forward-looking statements . these forward-looking statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from those anticipated . factors that could cause actual results to differ materially from those anticipated , certain of which are beyond our control , are set forth in item 1a under the caption “ risk factors. ” our actual results , performance or achievements could differ materially from those expressed in , or implied by , forward-looking statements . accordingly , we can not be certain that any of the events anticipated by forward-looking statements will occur or , if any of them do occur , what impact they will have on us . we caution you to keep in mind the cautions and risks described in this document and to refrain from attributing undue certainty to any forward-looking statements , which speak only as of the date of the document in which they appear . we do not undertake to update any forward-looking statement . overview we provide marketing technology solutions , which include digital signage , interactive kiosks , mobile messaging , social networking and web development solutions , to customers who use our products and services in certain retail and service markets . through our proprietary ronincast® software , we provide enterprise , web-based and hosted content delivery systems that manage , schedule and deliver digital content over wireless and wired networks . we also provide custom interactive software solutions , content engineering and creative services to our customers . while our marketing technology solutions have application in a wide variety of industries , we focus on three primary markets : ( 1 ) automotive , ( 2 ) food service ( including qsr , fast casual and managed food services markets ) , and ( 3 ) branded retail . commencing april 2013 , we began to target the qsr and “ pump topper ” markets through our license agreement with delphi display systems , inc. the industries in which we sell goods and services are not new but their application of marketing technology solutions is relatively new and participants in these industries only recently started considering adopting these types of technologies as part of their overall marketing strategies . as a result , we remain a n early stage company without an established history of profitability , or substantial or steady revenue . we believe this characterization applies to our competitors as well , which are working to promote bro ader adoption of marketing technology solutions and to develop profitable , substantial and steady sources of revenue . we believe that the adoption of marketing technology solutions will increase substantially in years to come both in industries on which we currently focus and in other industries . we also believe that adoption of our marketing technology solutions , which includes digital signage , depends not only upon the software and services that we provide but upon the cost of hardware used to process and display content in digital signage systems . digital media players and flat panel displays constitute a large portion of the expenditure customers make relative to the entire cost of digital signage systems . costs of these digital media players and flat panel displays have historically decreased and we believe will continue to do so , though we do not manufacture either product and do not substantially affect the overall markets for these products . in addition , we have been developing our next generation of ronincast software in such a way as to allow it to function on significantly lower cost media players than the ones in use today . with the launch of our next generation ronincast during the first half of 2013 , we are now able to deploy our software on lower cost media players with this capability , coupled with a continued decline in costs for flat panel displays , we believe that adoption of digital signage and other marketing technology solutions is likely to increase , though we can not predict the rate at which such adoption will occur . 30 management focuses on a wide variety of financial measurements to assess our financial health and prospects but principally upon ( 1 ) sales , to measure the adoption of our marketing technology solutions by our customers , ( 2 ) cost of sales and gross profit , particularly expressed as gross profit percentage , to determine if sales have been made at levels of profit necessary to cover operating expenses on a long-term basis ( based upon assumptions regarding adoption ) , ( 3 ) sales of hardware relative to software and services , understanding that hardware typically provides a lower gross profit margin than do software license fees and services , ( 4 ) operating expenses so that management can appropriately match those expenses with sales , and ( 5 ) current assets , especially cash and cash equivalents used to fund operating losses thus far incurred . story_separator_special_tag in recording transactions and balances resulting from business operations , we use estimates based on the best information available . we use estimates for such items as depreciable lives , volatility factors in determining fair value of options and warrants , tax provisions , recognition of revenue under fixed price contracts , provisions for uncollectible receivables and deferred revenue . we revise the recorded estimates when better information is available , facts change or we can determine actual amounts . these revisions can affect operating results . we have identified below the following accounting policies that we consider to be critical . revenue recognition we recognize revenue primarily from these sources : · software and software license sales · system hardware sales · professional service revenue · software design and development services · implementation services · maintenance and hosting support contracts we apply the provisions of accounting standards codification subtopic 605-985 , revenue recognition : software ( or asc 605-35 ) to all transactions involving the sale of software licenses . in the event of a multiple element arrangement , we evaluate if each element represents a separate unit of accounting , taking into account all factors following the guidelines set forth in “ fasb asc 605-985-25-5. ” we recognize revenue when ( i ) persuasive evidence of an arrangement exists ; ( ii ) delivery has occurred , which is when product title transfers to the customer , or services have been rendered ; ( iii ) customer payment is deemed fixed or determinable and free of contingencies and significant uncertainties ; and ( iv ) collection is reasonably assured . we assess collectability based on a number of factors , including the customer 's past payment history and its current creditworthiness . if it is determined that collection of a fee is not reasonably assured , we defer the revenue and recognize it at the time collection becomes reasonably assured , which is generally upon receipt of cash payment . if an acceptance period is required , revenue is recognized upon the earlier of customer acceptance or the expiration of the acceptance period . sales and use taxes are reported on a net basis , excluding them from revenue and cost of revenue . 32 multiple-element arrangements — we enter into arrangements with customers that include a combination of software products , system hardware , maintenance and support , or installation and training services . we allocate the total arrangement fee among the various elements of the arrangement based on the relative fair value of each of the undelivered elements determined by vendor-specific objective evidence ( vsoe ) . in software arrangements for which we do not have vsoe of fair value for all elements , revenue is deferred until the earlier of when vsoe is determined for the undelivered elements ( residual method ) or when all elements for which we do not have vsoe of fair value have been delivered . the vsoe for maintenance and support services is based upon the renewal rate for continued service arrangements . the vsoe of installation and training services is established based upon pricing for the services . the vsoe of software and licenses is based on the normal pricing and discounting for the product when sold separately . each element of our multiple element arrangements qualifies for separate accounting . however , when a sale includes both software and maintenance , we defer revenue under the residual method of accounting . under this method , the undelivered maintenance and support fees included in the price of software is amortized ratably over the period the services are provided . we defer maintenance and support fees based upon the customer 's renewal rate for these services . software and software license sales we recognize revenue when a fixed fee order has been received and delivery has occurred to the customer . we assess whether the fee is fixed or determinable and free of contingencies based upon signed agreements received from the customer confirming terms of the transaction . software is delivered to customers electronically or on a cd-rom , and license files are delivered electronically . system hardware sales we recognize revenue on system hardware sales generally upon shipment of the product or customer acceptance depending upon contractual arrangements with the customer . shipping charges billed to customers are included in sales and the related shipping costs are included in cost of sales . professional service revenue included in services and other revenues is revenue derived from implementation , maintenance and support contracts , content development , software development and training . the majority of consulting and implementation services and accompanying agreements qualify for separate accounting . implementation and content development services are bid either on a fixed-fee basis or on a time-and-materials basis . for time-and-materials contracts , we recognize revenue as services are performed . for fixed-fee contracts , we recognize revenue upon completion of specific contractual milestones or by using the percentage-of-completion method . software design and development services revenue from contracts for technology integration consulting services where we design/redesign , build and implement new or enhanced systems applications and related processes for clients are recognized on the percentage-of-completion method in accordance with “ fasb asc 605-985-25-88 through 107. ” percentage-of-completion accounting involves calculating the percentage of services provided during the reporting period compared to the total estimated services to be provided over the duration of the contract . estimated revenues for applying the percentage-of-completion method include estimated incentives for which achievement of defined goals is deemed probable . this method is followed where reasonably dependable estimates of revenues and costs can be made . we measure our progress for completion based on either the hours worked as a percentage of the total number of hours of the project or by delivery and customer acceptance of specific milestones as outlined per the terms of the agreement with the customer .
| results of operations our results of operations for the years ended december 31 , 2013 , 2012 and 2011 were as follows : replace_table_token_2_th our results of operations as a percentage of sales for the years ended december 31 , 2013 , 2012 and 2011 were as follows : replace_table_token_3_th 36 201 3 compared to 20 12 sales our sales increased 1 % to $ 6 . 8 million in 20 13 from $ 6 . 7 million in 20 12 . the year-over-year increase was primarily attributable to a $ 750,000 software license sale to delphi . in april 2013 , we entered into an exclusive licensing and services agreement with delphi to provide integrated technology solutions to the quick-serve restaurant ( qsr ) and “ pump topper ” gas station market . in consideration for granting this license , we will receive a minimum of $ 2.0 million over five years , of which $ 750,000 was paid upon the execution of the contract . based on our review , we determined all the criteria to recognize the $ 750,000 had been properly met in 2013. this included the delivery of a master version of our ronincast® software to allow delphi the ability to replicate 7,500 copies as they resell our software . in addition , the $ 750 ,000 license fee is a fixed amount and not subject to change regardless of how many copies of our software , up to 7,500 copies , are ultimately resold . lastly , the collectability of the license fee was determined to be probable as the amount was paid in 2013. delphi will use our 24/7 network operations center exclusively to host delphi 's digital signage applications , which will provide us recurring hosting and maintenance revenue over the next five years .
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apb 14-1 , accounting for convertible debt instruments that may be settled in cash upon conversion ( including partial cash settlement ) , which clarifies that convertible debt instruments that may be settled in cash upon conversion ( including partial cash settlement ) are not addressed by paragraph 12 of apb opinion no . 12 , accounting for convertible debt and debt issued with stock purchase warrants . additionally , this fsp specifies that such instruments should separately account for the liability and equity components in a manner that reflects the entity 's non-convertible debt story_separator_special_tag cautionary factors that may affect future results this annual report on form 10-k contains forward-looking statements that involve risks and uncertainties , as well as assumptions that , if they never materialize or prove incorrect , could cause our results to differ materially from those expressed or implied by such forward-looking statements . such forward-looking statements include any expectations of earnings , revenues , gross margins , non-operating expense , tax rates , net income or other financial items , as well as backlog , order levels and activity of our company as a whole or our particular markets ; any statements of the plans , strategies and objectives of management for future operations , restructuring and outsourcing initiatives ; factors that may affect our 2009 operating results ; any statements concerning proposed new products , services , developments , changes to our restructuring reserves , our competitive position , hiring levels , sales and bookings or anticipated performance of products or services ; any statements related to future capital expenditures ; any statements related to the needs or expected growth of our target markets ; any statement related to our ability to recognize value from the auction rate securities we hold ; any statements regarding future economic conditions or performance ; statements of belief ; and any statement of assumptions underlying any of the foregoing . you can identify these statements by the fact that they do not relate strictly to historical or current facts and use words such as anticipate , estimate , expect , project , intend , plan , believe , appear and other words and terms of similar meaning . from time to time , we also may provide oral or written forward-looking statements in other materials we release to the public . the risks , uncertainties and assumptions referred to above include , but are not limited to , those discussed here and the risks discussed from time to time in our other public filings . all forward-looking statements included in this annual report on form 10-k are based on information available to us as of the date of this report , and we assume no obligation to update these forward-looking statements . you are advised , however , to consult any further disclosures we make on related subjects in our forms 10-q and 8-k filed with , or furnished to , the sec . you also should read item 1a . risk factors for factors that we believe could cause our actual results to differ materially from expected and historical results . other factors also could adversely affect us . summary of products and segments we are a leading supplier of instruments for nanoscale imaging , analysis and prototyping to enable research , development and manufacturing in a range of industrial , academic and research institutional applications . we report our revenue based on a market-focused organization : the electronics market , the research and industry market , the life sciences market and the service and components market . during the first quarter of 2008 , we renamed our markets , but did not reclassify any revenue categories between markets . previously , the electronics market was the nanoelectronics market ; the research and industry market was the nanoresearch and industry market ; and the life sciences market was the nanobiology market . our products include focused ion beam systems , or fibs ; scanning electron microscopes , or sems ; transmission electron microscopes , or tems ; and dualbeam systems , which combine a fib and sem on a single platform . our dualbeam systems include models that have wafer handling capability and are purchased by semiconductor and data storage manufacturers ( wafer-level dualbeam systems ) and models that have small stages and are sold to customers in several markets ( small-stage dualbeam systems ) . 27 the electronics market consists of customers in the semiconductor , data storage and related industries such as printers and microelectromechanical systems ( mems ) . for the semiconductor market , our growth is driven by shrinking line widths and process nodes of 65 nanometers and smaller , the use of multiple layers of new materials such as copper and low-k dielectrics and increasing device complexity . our products are used primarily in laboratories to speed new product development and increase yields by enabling 3d wafer metrology , defect analysis , root cause failure analysis and circuit edit for modifying device structures . in the data storage market , our products offer 3d metrology for thin film head processing and root cause failure analysis . factors affecting our business include the transition from longitudinal to perpendicular recording heads , rapidly increasing storage densities that require smaller recording heads , thinner geometries and materials that increase the complexity of device structures . the research and industry market includes universities , public and private research laboratories and customers in a wide range of industries , including automobiles , aerospace , metals , mining and petrochemicals . growth in these markets is driven by global corporate and government funding for research and development in materials science and by development of new products and processes based on innovations in materials at the nanoscale . our solutions provide researchers and manufacturers with atomic-level resolution images and permit development , analysis and production of advanced products . our products are also used in root cause failure analysis and quality control applications . story_separator_special_tag if the u.s. dollar continues at current exchange rates , or improves against the euro and czech koruna in 2009 , the growth in research and development and marketing spending will moderate because a large part of our research and development , marketing and management activities are located in europe . in addition , we are severely restricting hiring as we enter 2009. overall operating spending is expected to decline in 2009 compared with 2008. non-operating expense is expected to increase in 2009 due to significantly lower market interest rates and lower investable balances after the repayment of $ 196 million of outstanding debt in 2008. increased volatility in foreign exchange markets also contributes to higher non-operating expense . our annual tax rate of 26 % is expected to be approximately the same in 2009 as it was in 2008. our goal for 2009 is to increase net income over 2008 levels . however , the combination of potential revenue declines , a difficult economic environment and lower non-operating income may offset operating improvements , lower operating expenses and a more favorable exchange rate environment , potentially resulting in net income in 2009 that is below 2008 levels . 29 story_separator_special_tag realized initial benefits from our investment in additional sales and service resources in 2007 in the asia-pacific region . 32 cost of sales and gross margin our gross margin ( gross profit as a percentage of net sales ) by segment was as follows : replace_table_token_9_th cost of sales includes manufacturing costs , such as materials , labor ( both direct and indirect ) and factory overhead , as well as all of the costs of our customer service function such as labor , materials , travel and overhead . we see five primary drivers affecting gross margin : product mix ( including the effect of price competition ) , volume , cost reduction efforts , competitive pricing pressure and currency fluctuations . cost of sales increased $ 18.5 million , or 5.4 % , to $ 364.6 million in 2008 compared to $ 346.1 million in 2007. this increase was primarily due to increased sales in 2008 , the impact of higher costs of products produced in europe due to the stronger euro for a majority of the year and a shift to a larger quantity of higher-cost tems and sems shipped in 2008 compared to 2007. the change in the valuation of european currencies in relation to the u.s. dollar during 2008 increased cost of sales by approximately $ 32.5 million in 2008 compared to 2007. the net effect on our gross margin from the effect of the change in the valuation of currencies on our net sales and cost of sales in 2008 was a decrease to our gross margin percentage of approximately 3.2 percentage points . cost of sales increased $ 63.1 million , or 22.3 % , to $ 346.1 million in 2007 compared to $ 283.0 million in 2006. this increase was primarily due to the increase in revenue discussed above , although cost of sales as a percentage of revenue decreased slightly , partially offsetting these increases . in addition , the change in the valuation of european currencies in relation to the u.s. dollar during 2007 increased cost of sales by approximately $ 19.6 million in 2007. the net effect on our gross margin from the effect of the change in valuation of currencies on our net sales and cost of sales in 2007 was an approximately $ 2.6 million decrease , which decreased our gross margin percentage by approximately 1.7 percentage points . offsetting the negative currency effects were approximately $ 5.0 million of cash flow hedge gains recorded in cost of sales , which improved gross margins by approximately one percentage point . electronics the decrease in electronics gross margins in 2008 compared to 2007 was due primarily to the negative impact of the strengthening of the euro and czech koruna on our costs of products produced in europe and a shift in product mix to fewer semiconductor-related high-end tem and wafer-level dualbeam tools for the data storage market . the increase in electronics gross margins in 2007 compared to 2006 was due primarily to the sale of more high-end systems , such as the data storage certus dualbeam product , high-end tem units and new small-stage dualbeam products . research and industry the decrease in research and industry gross margin in 2008 compared to 2007 was primarily due to the negative impact of the strengthening of the euro and czech koruna during the first three quarters of 2008 on our costs of products produced in europe . these factors were partially offset by a shift in product mix to more higher-end tem tools . 33 the decrease in the research and industry gross margin in 2007 compared to 2006 was primarily due to pricing pressure on our sem and lower-end tem systems and costs to ramp production of our new phenom product , partially offset by a shift in product mix to more high-end tems and small-stage dualbeam units . life sciences the decrease in the life sciences gross margins in 2008 compared to 2007 was primarily due to the negative impact of the strengthening of the euro and czech koruna during the first three quarters of 2008 on our costs of products produced in europe , as well as a shift in tem product mix . the decrease in the life sciences gross margin in 2007 compared to 2006 was primarily due to pricing pressures on our lower-end tem and sem systems . these factors were partially offset by the sale of more high-end tem products , which have higher gross margins than other products within this segment . service and components the increase in the service and components gross margin in 2008 compared to 2007 was primarily due to improvements in parts usage , partially offset by an increase in labor costs in europe as we realigned our european operations to service higher-end units . in addition , we gained efficiencies as revenues grew .
| results of operations the following table sets forth our statement of operations data ( in thousands ) : replace_table_token_6_th ( 1 ) percentages may not add due to rounding . net sales increased $ 6.7 million , or 1.1 % , to $ 599.2 million in 2008 compared to $ 592.5 million in 2007 and increased $ 113.0 million , or 23.6 % , in 2007 compared to $ 479.5 million in 2006. the factors affecting net sales are discussed in more detail below . 30 net sales by segment net sales by market segment ( in thousands ) and as a percentage of net sales were as follows : replace_table_token_7_th electronics the $ 46.6 million , or 23.5 % , decrease in electronics sales in 2008 compared to 2007 was primarily due to global softness for semiconductor capital spending . the softness in the semiconductor industry resulted in fewer large wafer-level dualbeam and high-end tem shipments . the $ 44.0 million , or 28.5 % , increase in electronics sales in 2007 compared to 2006 was due to increases in the number of tem and small-stage dualbeam system units sold . we achieved increased penetration of tem sales due to higher resolution image requirements from customers . the increase in small-stage dualbeam systems was due to continued adoption of new products . sales in the electronics segment moderated in the third and fourth quarters of 2007 as compared to the first two quarters of 2007 due to a cyclical decline in semiconductor capital spending . research and industry the $ 24.1 million , or 11.2 % , increase in research and industry sales in 2008 compared to 2007 was due primarily to continued strength in shipments to global nanotechnology research centers and increased shipments of our tem products .
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“ risk factors ” and our consolidated financial statements and notes thereto . overview we are a leading operator of automotive franchises and a retailer of new and used vehicles and related services . as of february 26 , 2016 , we offered 31 brands of new vehicles and all brands of used vehicles in 139 stores in the united states and online at lithia.com and dchauto.com . we sell new and used cars and replacement parts ; provide vehicle maintenance , warranty , paint and repair services ; arrange related financing ; and sell service contracts , vehicle protection products and credit insurance . we believe that the fragmented nature of the automotive dealership sector provides us with the opportunity to achieve growth through consolidation . in 2015 , the top ten automotive retailers represented 7 % of the stores in the united states . our dealerships are located across the united states . we seek domestic , import and luxury franchises in cities ranging from mid-sized regional markets to metropolitan markets . we evaluate all brands for expansion opportunities provided the market is large enough to support adequate new vehicle sales to justify the required capital investment . our acquisition strategy has been to acquire dealerships at prices that meet our internal investment targets and , through the application of our centralized operating structure , leverage costs and improve store profitability . we believe our disciplined approach and the current economic environment provides us with attractive acquisition opportunities . we also believe that we can continue to improve operations at our existing stores . by promoting entrepreneurial leadership within our general and department managers , we strive for continuous improvement to drive sales and capture market share in our local markets . our goal is to retail an average of 75 used vehicles per store per month and we believe we can make additional improvements in our used vehicle sales performance by offering lower-priced value vehicles and selling brands other than the new vehicle franchise at each location . our service , body and parts operations provide important repeat business for our stores . we continue to grow this business through increased marketing efforts , competitive pricing on routine maintenance items and diverse commodity product offerings . in 2015 , we continued to experience organic growth and profitability through increasing market share and maintaining a lean cost structure , while adding significant revenue to our base through acquisitions . as sales volume increases and we gain leverage in our cost structure , we anticipate targeting sg & a as a percentage of gross profit in the upper 60 % range . as we focus on maintaining discipline in controlling costs , in 2015 we continue to target maintaining , on a same store basis , between 45 % and 50 % of each incremental gross profit dollar after deducting sg & a expense . critical accounting policies and estimates the preparation of financial statements in conformity with u.s. generally accepted accounting principles requires us to make certain estimates , judgments and assumptions that affect the reported amounts of assets and liabilities , the disclosure of contingent assets and liabilities and reported amounts of revenues and expenses at the date of the financial statements . certain accounting policies require us to make difficult and subjective judgments on matters that are inherently uncertain . the following accounting policies involve critical accounting estimates because they are particularly dependent on assumptions made by management . while we have made our best estimates based on facts and circumstances available to us at the time , different estimates could have been used in the current period . changes in the accounting estimates we used are reasonably likely to occur from period to period , which may have a material impact on the presentation of our financial condition and results of operations . our most critical accounting estimates include those related to goodwill and franchise value , long-lived assets , deferred taxes , equity-method investment associated with new markets tax credits , service contracts and other insurance contracts , and lifetime lube , oil and filter contracts , self-insurance programs and valuation of accounts receivable . we also have other key accounting policies for expense accruals and revenue recognition . however , these policies either do not meet the definition of critical accounting estimates described above or are not currently material items in our financial statements . we review our estimates , judgments and assumptions periodically and reflect the effects of revisions in the period that they are deemed to be necessary . we believe that these estimates are reasonable . however , actual results could differ materially from these estimates . 31 goodwill and franchise value we are required to test our goodwill and franchise value for impairment at least annually , or more frequently if conditions indicate that an impairment may have occurred . goodwill is tested for impairment at the reporting unit level . our reporting units are individual retail automotive franchises as this is the level at which discrete financial information is available and for which operating results are regularly reviewed by our chief operating decision maker to allocate resources and assess performance . we have the option to qualitatively or quantitatively assess goodwill for impairment and , in 2015 , evaluated our goodwill using a quantitative assessment process . we test goodwill for impairment using the adjusted present value method ( “ apv ” ) to estimate the fair value of our reporting unit . under the apv method , future cash flows are based on recently prepared budget forecasts and business plans and are used to estimate the future economic benefits that the reporting unit will generate . an estimate of the appropriate discount rate is utilized to convert the future economic benefits to their present value equivalent . the quantitative goodwill impairment test is a two-step process . the first step identifies potential impairments by comparing the calculated fair value of a reporting unit with its book value . story_separator_special_tag we did not record any impairments related to long-lived assets in 2014 or 2013. see notes 1 and 4 of notes to consolidated financial statements for additional information . deferred taxes as of december 31 , 2015 , we had deferred tax assets of $ 90.3 million , net of valuation allowance of $ 5.4 million , and deferred tax liabilities of $ 143.5 million . the principal components of our deferred tax assets are related to goodwill , allowances and accruals , capital loss carryforwards , deferred revenue and cancellation reserves . the principal components of our deferred tax liabilities are related to depreciation on property and equipment , inventories and goodwill . we consider 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 future taxable income during the periods in which those temporary differences become deductible . we consider 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 . based upon the scheduled reversal of deferred tax liabilities , and our projections of future taxable income over the periods in which the deferred tax assets are deductible , we believe it is more likely than not that we will realize the benefits of the unreserved deductible differences . as of december 31 , 2015 , we had a $ 5.4 million valuation allowance against our deferred tax assets . this valuation allowance is mainly associated with losses from the sale of corporate entities . as these amounts are characterized as capital losses , we evaluated the availability of projected capital gains and determined that it is unlikely these amounts will be fully utilized . if we are unable to meet the projected taxable income levels utilized in our analysis , and depending on the availability of feasible tax planning strategies , we might record an additional valuation allowance on a portion or all of our deferred tax assets in the future . equity-method investment associated with new markets tax credits as of december 31 , 2015 , we had a $ 22.3 million equity investment in a limited liability company managed by u.s. bancorp community development corporation . this investment generates new market tax credits under the new markets tax credit program ( “ nmtc program ” ) . the nmtc program was established by congress in 2000 to spur new or increased investments into operating businesses and real estate projects located in low-income communities . we are obligated to make $ 49.8 million of contributions to the entity over a two-year period ending october 2016 , $ 26.9 million of which had been paid as of december 31 , 2015 . 33 while u.s. bancorp community development corporation exercises management control over the limited liability company , due to the economic interest we hold in the entity , we determined the appropriate accounting for our ownership portion of the entity was under the equity method of accounting . the equity-method investment generates operating losses on a quarterly basis and , accordingly , we are required to assess the investment for other than temporary impairment on a quarterly basis . in 2015 , we recorded asset impairments totaling $ 16.5 million . we also recorded non-cash interest expense related to the discounted fair value of future equity contributions of $ 0.7 million , a $ 6.9 million charge to other income , net for our portion of the investment 's operating losses and a tax benefit of $ 30.8 million . see notes 1 , 12 and 18 of notes to consolidated financial statements for additional information . service contracts and other insurance contracts we receive commissions from the sale of vehicle service contracts and certain other insurance contracts . the contracts are sold through unrelated third parties , but we may be charged back for a portion of the commissions in the event of early termination of the contracts by customers . we sell these contracts on a straight commission basis ; in addition , we participate in future underwriting profit pursuant to retrospective commission arrangements , which are recognized as income upon receipt . we record commissions at the time of sale of the vehicles , net of an estimated liability for future charge-backs . we have established a reserve for estimated future charge-backs based on an analysis of historical charge-backs in conjunction with estimated lives of the applicable contracts . if future cancellations are different than expected , we could have additional expense related to the cancellations in future periods , which could have a material adverse impact on our financial position and results of operations . at december 31 , 2015 , the reserve for future cancellations totaled $ 35.0 million and is included in accrued liabilities and other long-term liabilities on our consolidated balance sheets . a 10 % increase in expected cancellations would result in an additional reserve of $ 3.5 million . lifetime lube , oil and filter contracts we retain the obligation for lifetime lube , oil and filter service contracts sold to our customers and assumed the liability of certain existing lifetime , lube , oil and filter contracts . payments we receive upon sale of the lifetime oil contracts are deferred and recognized in revenue over the expected life of the service agreement to best match the expected timing of the costs to be incurred to perform the service . we estimate the timing and amount of future costs for claims and cancellations related to our lifetime lube , oil and filter contracts using historical experience rates and estimated future costs . if our estimates of future costs to perform under the contracts exceed the existing deferred revenue , we would record a reserve for the additional expected cost .
| results of continuing operations for the year ended december 31 , 2015 , we reported income from continuing operations , net of tax , of $ 183.0 million , or $ 6.91 per diluted share . for the years ended december 31 , 2014 and 2013 , we reported income from continuing operations , net of tax , of $ 135.5 million , or $ 5.14 per diluted share , and $ 105.2 million , or $ 4.02 per diluted share , respectively . discontinued operations in the third quarter of 2014 , we early-adopted guidance that redefined discontinued operations . as a result , we determined that individual stores that met the criteria for held for sale after our adoption date would no longer qualify for classification as discontinued operations . we had previously reclassified a store 's operations to discontinued operations in our consolidated statements of operations , on a comparable basis for all periods presented , provided we did not expect to have any significant continuing involvement in the store 's operations after its disposal . we did not have any income from discontinued operations for the year ended december 31 , 2015. we realized income from discontinued operations , net of income tax expense , of $ 3.2 million and $ 0.8 million for the years ended december 31 , 2014 and 2013 , respectively . see notes 1 and 15 of notes to consolidated financial statements for additional information . key performance metrics certain key performance metrics for revenue and gross profit were as follows ( dollars in thousands ) : replace_table_token_8_th replace_table_token_9_th replace_table_token_10_th ( 1 ) commissions reported net of anticipated cancellations . 35 same store operating data in 2014 , we acquired 35 stores and opened one store primarily in the second half of the year . as a result , we experienced significant growth in 2015 compared to 2014. we believe that same store comparisons are an important indicator of our financial performance .
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the following significant events occurred in 2020 , 2019 and 2018 : our businesses have been significantly impacted by the coronavirus ( `` covid-19 '' ) pandemic in 2020. however , due to the role they play in producing critical raw materials for pharmaceutical , food , cleaning and other products , our manufacturing facilities in the u.s. , canada and france have remained operating . in order to mitigate the impact of covid-19 on our financial results and operations , we have taken the following actions : ◦ to ensure the safety of our employees and the continuity of our operations , we have implemented exacting protocols to reduce the potential spread of covid-19 in our operating facilities and work spaces . ◦ to control costs and minimize pandemic driven losses , we have curtailed operations as necessary to match production with market demand . ◦ due to the financial impacts of covid-19 , we are actively monitoring the recoverability of the carrying value of our long-term assets . during the year ended december 31 , 2020 , we did not recognize any impairment charges related to long-lived assets held for use . we will continue to evaluate the recoverability of these and other assets as necessary . in december 2020 , we issued $ 500 million in aggregate principal amount of 7.625 percent senior secured notes due 2026 ( the “ senior secured notes ” ) , at an offering price of 100 percent of the principal amount thereof . we also entered into a five-year senior secured asset-based revolving credit facility with an initial committed amount of $ 200 million ( the “ abl revolving credit facility ” ) . in connection with these transactions , we terminated all commitments and repaid all outstanding obligations under our senior secured credit facilities and recorded a loss on debt extinguishment of $ 8 million . see note 10 — debt and finance leases of our consolidated financial statements for additional information . in december 2020 , the usdoc finalized the first administrative review and determined a reduction of duties on softwood lumber imported into the u.s. from 20 percent to 9 percent for the company for such duties paid during 2017 and 2018. in november 2019 , we completed the sale of the matane mill for $ 175 million and used $ 100 million of the net proceeds to repay borrowings under our senior secured credit facilities . as a result of the sale , the matane mill 's operating results have been classified as discontinued operations and we reorganized our operating and reportable segments to align with our new management reporting structure . included in discontinued operations is allocated interest expense , due to the required loan payments , and professional fees incurred to sell the operation . see note 3 — discontinued operations of our consolidated financial statements for additional information . in october 2019 , we settled certain canadian pension liabilities through the purchase of annuity contracts with an insurance company . the settlement resulted in the recognition of approximately $ 9 million in settlement expenses which were recognized in “ other components of net periodic benefit costs ” in our financial statements . see note 18 — employee benefit plans of our consolidated financial statements for additional information . in september 2019 , and again in june 2020 , we amended our senior secured credit facilities . see note 10 — debt and finance leases of our consolidated financial statements for additional information . in september 2019 , we announced our board of directors determined to suspend the quarterly common stock dividend to improve cash flow . 26 in september 2018 , we sold our resins business for $ 17 million , a non-core asset originally acquired as part of our acquisition of tembec . the resulting gain on sale of $ 7 million was treated as an adjustment to the bargain purchase gain in 2018. high purity cellulose we manufacture and market high purity cellulose , which is sold as either cellulose specialties or commodity products . we are the leading global producer of cellulose specialties , which are primarily used in dissolving chemical applications that require a highly purified form of cellulose . pricing for our cellulose specialties products is typically set by contract for a duration of at least one year based on discussions with customers . our commodity products primarily consist of commodity viscose and absorbent materials . commodity viscose is a raw material required for the manufacture of viscose staple fibers which are used in woven and non-woven applications . absorbent materials , typically referred to as fluff fibers , are used as an absorbent medium in consumer products . pricing for commodity products is typically referenced to published indexes or based on publicly available spot market prices . sales of chemicals and energy , a majority of which are by-products , are included in the high purity cellulose segment . our four production facilities , located in the u.s. , canada and france , have a combined annual production capacity of approximately 775,000 metric tons of cellulose specialties or commodity products . additionally , we have dedicated approximately 250,000 metric tons of annual production to commodity products . wood fiber , chemicals , and energy represent approximately 28 percent , 14 percent and 6 percent , respectively , of the per metric ton cost of sales . labor , manufacturing and maintenance supplies , depreciation , manufacturing overhead and transportation costs represent the remaining cost of sales . forest products we manufacture and market high-quality construction-grade lumber in north america . the lumber , primarily spruce , pine , or fir , is used in the construction of residential and multi-family homes , light industrial and commercial facilities , and the home repair and remodel markets . the chips , manufactured as a by-product of the lumber manufacturing process , are used in our canadian high purity cellulose , pulp and newsprint plants . pricing for lumber is typically referenced to published indexes marketed through our internal sales team . story_separator_special_tag as such , we expect lower newsprint volumes and higher prices in 2021 compared to 2020. further , we are maintaining focus on the expansion of the envirosmart food service bag , launched in late third quarter , targeting the quick service restaurant end-market and used for items such as sandwiches and to-go orders , which have grown and remain strong in the post covid-19 environment . 28 reconciliation of non-gaap measures for a reconciliation of ebitda to net income , see item 7 — management 's discussion and analysis of financial condition and results of operations — performance and liquidity indicators . critical accounting policies and use of estimates the preparation of financial statements requires us to make estimates , assumptions and judgments that affect our assets , liabilities , revenues and expenses , and to disclose contingent assets and liabilities in our consolidated financial statements . we base these estimates and assumptions on historical data and trends , current fact patterns , expectations and other sources of information we believe are reasonable . actual results may differ from these estimates . new accounting pronouncements see note 2 — summary of significant accounting policies and new accounting pronouncements of our consolidated financial statements for a discussion of recently issued accounting pronouncements that may affect our financial results and disclosures in future periods . accounting policies : revenue recognition and measurement revenue is recognized when performance obligations under the terms of a contract with a customer are satisfied . the majority of our contracts have a single performance obligation to transfer products . accordingly , we recognize revenue when control has been transferred to the customer . generally , control transfers upon delivery to a location in accordance with terms and conditions of the sale . changes in customer contract terms and conditions , as well as the timing of orders and shipments , may have an impact on the timing of revenue recognition . revenue is measured as the amount of consideration we expect to receive in exchange for transferring our products and is generally based upon contractual arrangements with customers or published indices . we sell our products both directly to customers and through distributors and agents typically under agreements with payment terms less than 90 days . the nature of our contracts may give rise to variable consideration , which may be constrained , including sales volume-based rebates to customers . we estimate the level of volumes based on anticipated purchases at the beginning of the period and record a rebate accrual for each purchase toward the requisite rebate volume . these estimated rebates are included in the transaction price as a reduction to net sales . these methodologies are consistent with the manner in which we have historically accounted for the recognition of revenue . property , plant & equipment depreciation expense is computed using the units-of-production method for our high purity cellulose , paperboard , pulp & newsprint plant and equipment and the straight-line method for all other property , plant and equipment over the useful economic lives of the assets involved . the total units of production used to calculate depreciation expense is determined by factoring annual production days , based on normal production conditions , by the economic useful life of the asset involved . the physical life of equipment , however , may be shortened by economic obsolescence caused by environmental regulation , competition or other causes . we depreciate our non-production assets , including office , lab , and transportation equipment , using the straight-line depreciation method over 3 to 25 years . buildings and land improvements are depreciated using the straight-line method over 15 to 35 years and 5 to 30 years , respectively . we believe these depreciation methods are the most appropriate , versus other generally accepted accounting methods , as they most closely match revenues with expenses . gains and losses on the retirement of assets are included in operating income . long-lived assets are reviewed annually for impairment or whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable . recoverability of assets that are held and used is measured by net undiscounted cash flows expected to be generated by the asset . property , plant and equipment are grouped for purposes of evaluating recoverability at the combined plant level , the lowest level for which independent cash flows are identifiable . if such assets are considered to be impaired , the impairment to be recognized is measured by the amount by which the carrying value exceeds the fair value of the assets . assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell . 29 accounting estimates : environmental liabilities at december 31 , 2020 , we had $ 172 million of accrued liabilities for environmental costs relating to disposed operations . numerous price , quantity , cost and probability assumptions are used in estimating these obligations . factors affecting these estimates include changes in the nature or extent of contamination , changes in the content or volume of the material discharged or treated in connection with one or more impacted sites , requirements to perform additional or different assessment or remediation , changes in technology that may lead to additional or different environmental remediation strategies , approaches and work-plans , discovery of additional or unanticipated contaminated soil , groundwater or sediment on or off-site , changes in remedy selection , changes in law or interpretation of existing law and the outcome of negotiations with governmental agencies or non-governmental parties . we periodically review our environmental liabilities and also engage third-party consultants to assess our ongoing remediation of contaminated sites . quarterly , we review our environmental liabilities related to assessment activities and remediation costs and adjust them as necessary . liabilities for financial assurance , monitoring and maintenance activities and other activities are assessed annually . a significant change in any of these estimates could have a material effect on our results of operations .
| results of operations summary of our results of operations for each of the following years ended december 31 : financial information ( in millions , except percentages ) 2020 2019 2018 net sales $ 1,739 $ 1,775 $ 1,957 cost of sales ( 1,601 ) ( 1,721 ) ( 1,666 ) gross margin 138 54 291 selling , general and administrative expenses ( 85 ) ( 90 ) ( 105 ) duties ( a ) ( 10 ) ( 22 ) ( 26 ) other operating expense , net ( 16 ) ( 25 ) ( 12 ) operating income ( loss ) 27 ( 83 ) 148 interest expense ( 64 ) ( 60 ) ( 56 ) interest income and other , net ( 7 ) — 5 other components of net periodic benefit ( expense ) 6 ( 5 ) 8 gain on bargain purchase — — 20 gain ( loss ) on debt extinguishment ( 8 ) — 1 income ( loss ) from continuing operations before income taxes ( 46 ) ( 148 ) 126 income tax ( expense ) benefit 47 30 ( 27 ) equity in income ( loss ) of equity method investments ( 1 ) — — income ( loss ) from continuing operations $ — $ ( 119 ) $ 99 income from discontinued operations , net of taxes 1 96 29 net income $ < span
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accordingly , fluctuations in financial markets and in the composition of assets under management affect our revenues and results of operations . additionally , approximately one-third of our operating expenses are impacted by financial markets . we incur significant expenditures to develop new products and services and improve and expand our capabilities and distribution channels in order to attract new investment advisory clients and additional investments from our existing clients . these efforts often involve costs that precede any future revenues that we may recognize from an increase to our assets under management . the general trend to passive investing has been persistent and accelerated in recent years , which has negatively impacted our new client inflows . however , over the long term we expect well-executed active management to play an important role for investors . in this regard , we remain debt-free with ample liquidity and resources that allow us to take advantage of attractive growth opportunities . we are investing in key capabilities , including investment professionals , technologies , and new product offerings ; and , most importantly , we provide our clients with strong investment management expertise and service both now and in the future . market trends . u.s. stocks surged in 2019 , as equities bounced back strongly from deep losses in the fourth quarter of 2018. a major driver of market performance was the federal reserve 's decision to keep short-term interest rates steady in the first half of the year , then reduce rates three times starting in late july as a “ midcycle adjustment ” of its monetary policy . many other central banks around the world also reduced rates in response to slowing economic growth . the trade conflict between the u.s. and china was another major driver of market sentiment . markets wavered at times through much of the year as both sides announced new tariffs on the other 's goods . speculation then arose in the fall that the u.s. and china were close to reaching an agreement , but a preliminary “ phase one ” trade deal was not reached until december . stocks in developed non-u.s. equity markets rose strongly but underperformed u.s. shares . european stocks were widely positive . uk shares advanced more than 21 % but lagged the region as brexit-related uncertainty persisted for most of the year . boris johnson succeeded theresa may as prime minister during the summer , but the house of commons did not vote in favor of the united kingdom 's withdrawal agreement with the european union until december , shortly after the conservative party decisively won a general election . returns in developed asian markets were broadly positive in u.s. dollar terms . hong kong underperformed the region with a 10 % gain . hong kong 's economy and stock market have been hurt by ongoing protests that were triggered by a controversial extradition bill . emerging markets stocks underperformed shares in developed markets . asian equities were mostly positive in u.s. dollar terms , but most markets significantly lagged strong returns in china and taiwan . in emerging europe , russian stocks surged about 53 % ; turkish stocks lagged with a 12 % gain . in latin america , stocks in colombia and brazil posted very strong returns , but shares in argentina and chile fell sharply . 20 page 25 c^ < l3q6 * 4v9 % c : mg results of several major equity market indexes for 2019 are as follows : s & p 500 index 31.5 % nasdaq composite index ( 1 ) 35.2 % russell 2000 index 25.5 % msci eafe ( europe , australasia , and far east ) index 22.7 % msci emerging markets index 18.9 % ( 1 ) returns exclude dividends global bond returns were broadly positive , as longer-term government bond yields in developed markets declined and various central banks enacted new stimulus measures . in the u.s. , the federal reserve reduced the federal funds target rate to a range of 1.50 % -1.75 % by the end of the year . the 10-year treasury note yield decreased from 2.69 % to 1.92 % at year-end , though above its late-summer lows , which were around 1.50 % . in the u.s. , the investment-grade bond market , long-term treasuries and corporate bonds fared best . mortgage-backed securities advanced to a lesser extent , hindered by an increase in mortgage prepayments and refinancing activity . municipal bonds did well amid solid demand but slightly underperformed taxable securities . high yield bonds advanced strongly for the year as investors embraced riskier assets and searched for higher yields because of falling interest rates . bonds in developed non-u.s. markets produced positive returns in u.s. dollar terms , as the dollar weakened against most major currencies and government bond yields generally declined . in the eurozone , the european central bank decided to cut its short-term benchmark rate deeper into negative territory in september . on november 1 , the european central bank resumed its quantitative easing program and began purchasing 20 billion of securities every month . emerging markets debt appreciated strongly in dollar terms . bonds denominated in u.s. dollars outperformed local currency debt , as a few key emerging markets currencies declined against the dollar . results of several major bond market indexes for 2019 are as follows : bloomberg barclays u.s. aggregate bond index 8.7 % jpmorgan global high yield index 14.6 % bloomberg barclays municipal bond index 7.5 % bloomberg barclays global aggregate ex-u.s. dollar bond index 5.1 % jpmorgan emerging markets bond index plus 12.6 % 20 page 26 c^ < l3q6 * 4v9 % c : mg assets under management . assets under management ended 2019 at $ 1,206.8 billion , an increase of $ 244.5 billion from the end of 2018 . net cash inflows of $ 13.2 billion for 2019 , combined with market appreciation and income , net of distributions not reinvested , increased our assets under management by $ 231.3 billion . story_separator_special_tag 20 page 32 c^ < l3q6 * 4v9 % c : mg administrative , distribution , and servicing fees . administrative , distribution , and servicing fees represent fees earned from providing administrative and distribution services to our investment advisory clients , primarily u.s. mutual funds and their investors . for 2019 , these fees were $ 505.4 million , a decrease of $ 16.6 million from the comparable 2018 period . the decrease was primarily attributable to lower 12b-1 revenue earned on certain share classes , including the advisor and r classes , of the u.s. mutual funds as client transfers to lower fee vehicles and share classes has reduced assets under management in these share classes . the decrease in 12b-1 revenue is offset entirely by a reduction in the costs paid to third-party intermediaries that source these assets and is reported in distribution and servicing expense . in addition , higher recordkeeping fees and transaction fees were partially offset by lower mutual fund service revenues . for 2018 , administrative , distribution , and servicing fees were $ 522.0 million , a decrease of $ 37.1 million from the comparable 2017 period . the decrease was primarily attributable to lower assets under management in the u.s. mutual funds resulting from client transfers among vehicles and share classes and the sharp market decline at the end of 2018. net revenues include the elimination of $ 6.8 million for 2019 , $ 6.2 million for 2018 , and $ 5.6 million for 2017 , earned from our consolidated t. rowe price investment products . the corresponding expenses recognized by these consolidated products were also eliminated from operating expenses . operating expenses replace_table_token_14_th ( 1 ) the percentage change in nonrecurring net recoveries related to dell appraisal rights matter is not meaningful ( n/m ) . compensation and related costs . compensation and related costs increased $ 160.6 million , or 8.9 % , for 2019 as compared with 2018 . nearly half of the increase in compensation and related costs is attributable to $ 78.8 million in higher expense related to our supplemental savings plan given the strong equity market returns experienced in 2019 compared with the sharp equity market declines in late 2018. the higher expense related to the supplemental savings plan is partially offset by the non-operating gains earned on the investments used to economically hedge the related liability . we also experienced increases in base salaries , benefits , and related employee costs , of $ 66.0 million as our average staff size grew 3.1 % in 2019 and we modestly increased base salaries at the beginning of 2019 . our 2019 operating results led to a $ 28.8 million increase in annual variable compensation , primarily bonus compensation , as well as a $ 9.5 million increase in non-cash stock-based compensation expense . these increases in compensation and related costs were offset in part by the absence of the one-time $ 9.0 million bonus paid to certain associates in the second quarter of 2018 and $ 10.0 million in higher labor capitalization related to internally developed software in 2019. for 2018 , compensation and related costs increased $ 143.7 million , or 8.6 % , as compared with 2017 . the largest part of the increase was an increase base salaries , benefits and related employee costs of $ 77.1 million , resulting from an increase of 6.2 % in average headcount , combined with a modest increase in salaries at the beginning of 2018. our operating results led to a $ 68.0 million increase in variable compensation and contributed to the $ 45.0 million increase in non-cash stock-based compensation expense as the annual grant value was higher in 2018 . additionally , our 2018 equity grant reflected the adoption of more favorable post-retirement vesting provisions , which shifted a greater percentage of the expense related to the annual grant to be recognized for 2018 . the 2018 20 page 33 c^ < l3q6 * 4v9 % c : mg period also included $ 9.0 million in one-time bonuses paid to certain associates from u.s. tax reform benefits . these increases were partially offset by lower market-related expense of $ 30.3 million from our supplemental savings plan and higher labor capitalization related to internally developed software . distribution and servicing costs . distribution and servicing costs includes those costs incurred to distribute the t. rowe price products as well as client and shareholder servicing , recordkeeping , and administrative services . distribution and servicing costs were $ 262.5 million for 2019 , a decrease of $ 18.7 million , or 6.7 % , compared to 2018 . the decrease for 2019 from 2018 was primarily driven by client transfers , largely from advisor and r classes , to lower fee vehicles or share classes during 2019 , which resulted in lower assets under management in those mutual funds on which we pay distribution and servicing costs . these costs include those distribution and servicing costs paid to third-party intermediaries that source the assets of certain share classes of our u.s. mutual funds and is offset entirely by the 12b-1 revenue we earn and report in administrative , distribution , and servicing fees . distribution and servicing costs were $ 281.2 million for 2018 , an increase of $ 18.6 million , or 7.1 % , compared with 2017 . the increase was primarily driven by overall strong markets and net cash flows from the end of 2017 through the third quarter of 2018 , which grew the assets in those share classes and products for which we pay a related distribution and servicing fee . advertising and promotion . advertising and promotion costs were $ 96.8 million for 2019 , a decrease of $ 2.8 million , or 2.8 % , compared with 2018 . the decrease for 2019 from 2018 was primarily driven by the absence in 2019 of the creation and launch of a media advertising campaign in 2018. advertising and promotion costs were $ 99.6 million for 2018 , an increase of $ 7.2
| results overview investment advisory revenues . investment advisory fees are earned based on the value and composition of our assets under management , which change based on fluctuations in financial markets and net cash flows . as our average assets under management increase or decrease in a given period , the level of our investment advisory fee revenue for that same period generally fluctuates in a similar manner . our annualized effective fee rates can be impacted by market or cash flow related shifts among asset and share classes , price changes in existing products , and asset level changes in products with tiered-fee structures . investment advisory revenues earned in 2019 increased 5.4 % over the comparable 2018 period as average assets under our management increase d $ 72.8 billion , or 7.0 % , to $ 1,109.3 billion . the average annualized fee rate earned on our assets under management was 46.1 basis points in 2019 , compared with 46.8 basis points earned in 2018 . our effective fee rate has declined largely due to client transfers within the complex to lower fee vehicles or share classes over the last year and , to a lesser extent , fee reductions we made to certain mutual funds and other products since 2018 . we regularly assess the competitiveness of our investment advisory fees and will continue to make adjustments as deemed appropriate . in 2018 , investment advisory revenues increased 12.9 % over the comparable 2017 period as average assets under our management increased $ 127.5 billion , or 14.0 % , to $ 1,036.5 billion . the average annualized fee rate earned on our assets under management was 46.8 basis points in 2018 , compared with 47.3 basis points earned in 2017 .
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we serve the needs of various federal and regional government agencies in the u.s. and allied nations around the world with products and services that have both defense and civil applications . our main areas of focus are in transportation automated fare payment and revenue management infrastructure , defense , intelligence , homeland security , and information technology , including cyber security . for the fiscal year ended september 30 , 2016 , 40 % of sales were derived from transportation systems and related services , while 60 % were derived from defense systems and services . the u.s. government remains our largest customer , accounting for approximately 45 % of sales in 2016 , 47 % of sales in 2015 , and 47 % of sales in 2014. in fiscal year 2016 , 55 % of our total sales were derived from services , with product sales accounting for the remaining 45 % . we operate in three reportable business segments : transportation systems , defense services and defense 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 continuing economic pressures in the u.s. and globally . a significant component of our strategy in this environment is to focus on program execution , improving the quality and predictability of the delivery of our products and services , and providing opportunities for customers to outsource services where we can provide a lower cost and more effective solution . recognizing that many of our u.s. based customers are resource constrained , we are continuing our focus on developing and extending our portfolio in international and adjacent markets . our international sales , including foreign military sales ( fms ) , comprised 43 % of our total sales for fiscal year 2016. international sales from cubic transportation systems ( cts ) , cubic global defense services ( cgd services ) and cubic global defense systems ( cgd systems ) amounted to 65 % , 9 % and 45 % , respectively , of the applicable segment sales for fiscal year 2016. to the extent our business and contracts 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 . we continuously strive to strengthen our portfolio of products and services to meet the current and future needs of our customers . we accomplish this in part by our independent r & d activities , and through acquisitions . company-sponsored r & d spending totaled $ 32.0 million in 2016. in 2014 through our acquisition of intific inc. , we significantly broadened our advanced research capabilities . intific brings us a wide range of expertise including computer simulation , animation , human-machine interaction , robotics , neuroscience , visualization , gaming , and artificial intelligence . intific performs work funded by the defense advanced research projects agency ( darpa ) and other u.s. government agencies ; however , most of intific 's r & d activities are included in cost of sales as they are directly related to contract performance . we selectively pursue the acquisition of businesses that complement our current portfolio and allow access to new customers or technologies . in pursuing our business strategy , we routinely conduct discussions , evaluate targets , and enter into agreements regarding possible acquisitions . as part of our business strategy , we seek to identify acquisition opportunities that will expand or complement our existing products and services , or customer base , at attractive valuations . in fiscal 2015 and 2016 , we acquired dtech , gatr , and teralogics in connection with our strategic efforts to build and expand our command , control , communication , computers , intelligence , surveillance and reconnaissance ( c4isr ) business . in the third quarter of fiscal 2016 we formalized the structure of cubic mission solutions ( cms ) , our business unit which combines and integrates our c4isr and secure communications operations . we have also made a number of niche acquisitions of businesses during the past several years , including , intific , inc. in february 2014 and intelligent transport management solutions limited in november 2013. generally , our business acquisitions are dilutive to earnings in the short-term due to acquisition related costs , integration costs , retention 41 payments and often higher amortization of purchased intangibles in the early periods after acquisition and expenses related to earn-outs . however , we expect that each of these recent acquisitions will be accretive to earnings in the long-term . industry considerations the u.s. government continues to focus on discretionary spending , tax , and other initiatives to control spending and reduce the deficit . the president 's administration and congress will likely continue to debate the size and expected growth of the u.s. federal budget as well as the defense budget over the next few years and balance decisions regarding defense , homeland security , and other federal spending priorities in a constrained fiscal environment imposed by the budget control act ( bca ) and various bipartisan budget acts ( bba ) since 2011. the most recent , agreed to on november 2 , 2015 , bipartisan budget act of 2015 revised discretionary spending limits to avoid sequestration for fiscal year 2016 and fiscal year 2017. the ultimate effects of sequestration and any subsequent bipartisan budget acts beyond 2017 still can not be determined . absent a new bca or bba in 2017 , sequestration still threatens to severely limit discretionary federal funding in 2018. reductions to 2018 and beyond from current budget projections could have an impact on our customers ' procurement of products and services . story_separator_special_tag conversely , during the operate-and-maintain phase , revenues and costs are typically more predictable and profit margins tend to be higher . gross profit margins from services sales in cts were 26 % and 32 % for fiscal years 2016 and 2015 , respectively , and gross profit margin from product sales was 32 % and 25 % in 2016 and 2015 , respectively . generally , the trend toward a greater mix of services revenues compared to product sales has helped to generate higher profit margins from the segment ; however in 2016 service gross margins were lower than product gross margins mostly due to the reduction in margins on our london follow-on contract . margins were lower on the follow-on contract in 2016 in large part because it no longer includes the award of usage bonuses as well as the impact of transition costs incurred on this contract in the first quarter of fiscal 2016. also , the profitability of our contracts in chicago , vancouver , and sydney all increased between fiscal 2015 and fiscal 2016. the mix of product and services sales can produce fluctuations in margin from period-to-period ; however , we expect the trend of increasing services sales to continue in the long-term . most of our sales in cts for fiscal year 2016 were from fixed-price contracts . however , some of our service contracts provide for variable payments , in addition to the fixed payments , based on meeting certain service level requirements and , in some cases , based on system usage . service level requirements are generally contingent upon factors that are under our control , while system usage payments are contingent upon factors that are generally not under our control , other than basic system availability . development and system integration contracts in cts are usually accounted for on a 43 percentage-of-completion basis using the cost-to-cost method to measure progress toward completion , which requires us to estimate our costs to complete these contracts on a regular basis . our actual results can vary significantly from these estimates and changes in estimates can result in significant swings in revenues and profitability from period to period . generally , we are at risk for increases in our costs , unless an increase results from customer-requested changes . at times , there can be disagreement with a customer over who is responsible for increases in costs . in these situations we must use judgment to determine if it is probable that we will recover our costs and any profit margin . revenue under contracts for services in cts is generally recognized either as services are performed or when a contractually required event has occurred , depending on the contract . revenue under such contracts is generally recognized on a straight-line basis over the period of contract performance , unless evidence suggests that the revenue is earned or the obligations are fulfilled in a different pattern . costs incurred under these services contracts are expensed as incurred , and may vary from period to period . incentive fees included in some of our cts service contracts are recognized when they become fixed and determinable based on the provisions of the contract . as described above , often these fees are based on meeting certain contractually required service levels or based on system usage levels . contractual terms can also result in variation of both revenues and expenses , resulting in fluctuations in earnings from period to period . for the fare collection system for the chicago transit authority , the contract specifies that we would not begin to be paid until we entered the service period . in accordance with authoritative accounting literature , we did not begin recognizing revenue on this contract until it entered the service period in august 2013. as of september 30 , 2016 , we had capitalized $ 65.4 million , net , in direct costs associated with developing the new fare collection system . selling , general and administrative ( sg & a ) costs associated with this contract are not being capitalized , but are being expensed as incurred . capitalized costs are being recognized as cost of sales based upon the ratio of revenue recorded during a period compared to the revenue expected to be recognized over the term of the contract . cubic global defense systems cgd systems is focused on two primary lines of business : training systems and secure communications . the segment is a diversified supplier of live and virtual military training systems as well as secure communication systems and products to the dod , other u.s. government agencies and allied nations . we design and manufacture 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 secure communications products are aimed at intelligence , surveillance , ground combat , and search and rescue markets . in 2016 we formalized the structure of our cms business unit which combines and integrates our c4isr and secure communications operations . cms ' c4isr solutions provide information capture , assessment , exploitation and dissemination in a secure network-centric environment . cgd systems is continually building upon its role as a leader in air and ground combat training systems worldwide . our products and systems help our customers to retain technological superiority with cost-effective solutions . we design , innovate , manufacture and field a diverse range of technologies that are critical to combat readiness , supply chain logistics and national security for the u.s. and allied nations .
| operating overview cubic corporation sales in 2016 were $ 1.462 billion compared to $ 1.431 billion in 2015 , an increase of 2 % . increases in sales for cts and cgd systems of 3 % and 5 % , respectively , were partially offset by a 3 % decrease in cgd services sales . revenues from businesses we acquired in 2016 and 2015 , all within our cgd systems operating segment , increased our consolidated sales by 3 % from 2015 to 2016 , partially offset by decreased organic sales due primarily to changes in foreign currency exchange rates . the impact of changes in foreign currency exchange rates , particularly the strengthening of the u.s. dollar against the british pound , adversely affected our sales . the average exchange rates between the prevailing currencies in our foreign operations and the u.s. dollar had a negative impact on sales of 2 % , or $ 32.3 million in 2016 compared to 2015. cubic corporation sales in 2015 were $ 1.431 billion compared to $ 1.398 billion in 2014 , an increase of 2 % . increases in sales for cgd systems and cgd services of 15 % and 1 % , respectively , were partially offset by a 5 % decrease in cts 46 sales . revenues from businesses we acquired in 2015 and 2014 increased our consolidated sales by 4 % from 2014 to 2015. the impact of changes in foreign currency exchange rates had a negative impact on sales of 4 % , or $ 52.1 million in 2015 compared to 2014. operating income was $ 7.2 million in 2016 compared to $ 75.4 million in 2015 , a decrease of 90 % .
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the company 's product lines fall into two categories : sales of water meters , radios and related technologies to municipal water utilities ( municipal water ) and sales of meters , valves and other products for industrial applications in water , wastewater , and other industries ( flow instrumentation ) . the company estimates that nearly 90 % of its products are used in water related applications . municipal water , the largest sales category , is comprised of either mechanical or static ( ultrasonic ) water meters along with the related radio and software technologies and services used by municipal water utilities as the basis for generating their water and wastewater revenues . the largest geographic market for the company 's municipal water products is north america , primarily the united states , because most of the company 's meters are designed and manufactured to conform to standards promulgated by the american water works association . the majority of water meters sold by the company continue to be mechanical in nature ; however , ultrasonic meters are an increasing portion of the water meters sold by the company and in the industry due to a variety of factors , including their ability to maintain a high level of measurement accuracy over their useful life . providing ultrasonic water meter technology , combined with advanced radio technology , provides the company with the opportunity to sell into other geographical markets , for example the middle east and europe . the flow instrumentation product line includes meters and valves sold worldwide to measure and control fluids going through a pipe or pipeline including water , air , steam , oil , and other liquids and gases . these products are used in a variety of industries and applications , with the company 's primary market focus being water/wastewater ; heating , ventilating and air conditioning ( hvac ) ; oil and gas , and chemical and petrochemical . flow instrumentation products are generally sold to original equipment manufacturers as the primary flow measurement device within a product or system , as well as through manufacturers ' representatives . municipal water meters ( both residential and commercial ) are generally classified as either manually read meters or remotely read meters via radio technology . a manually read meter consists of a water meter and a register that provides a visual totalized meter reading . meters equipped with radio technology ( endpoints ) receive flow measurement data from battery-powered encoder registers attached to the water meter , which is encrypted and transmitted via radio frequency to a receiver that collects and formats the data appropriately for water utility usage and billing systems . these remotely read systems are classified as either automatic meter reading ( amr ) systems , where a vehicle equipped for meter reading purposes , including a radio receiver , computer and reading software , collects the data from utilities ' meters ; or advanced metering infrastructure ( ami ) systems , where data is gathered utilizing a network ( either fixed or cellular ) of data collectors or gateway receivers that are able to receive radio data transmission from the utilities ' meters . ami systems eliminate the need for utility personnel to drive through service territories to collect data from the meters . these systems provide the utilities with more frequent and diverse data from their meters at specified intervals . the orion branded family of radio endpoints provides water utilities with a range of industry-leading options for meter reading . these include orion migratable ( me ) for amr meter reading , orion ( se ) for traditional fixed network applications , and orion cellular for an infrastructure-free meter reading solution . orion migratable makes the migration to fixed network easier for utilities that prefer to start with mobile reading and later adopt fixed network communications , allowing utilities to choose a solution for their current needs and be positioned for their future operational changes . orion cellular eliminates the need for utility-owned fixed network infrastructure , allows for gradual or full deployment , and decreases ongoing maintenance . critical to the water metering ecosystem is information and analytics . the company 's beacon advanced metering analytics ( ama ) software suite improves the utilities ' visibility of their water and water usage . beacon ama is a secure , cloud-hosted software suite that includes a customizable dashboard , and has the ability to establish alerts for specific conditions . it also allows for consumer engagement tools that permit end water users ( such as homeowners ) to view and manage their water usage activity . benefits to the utility include improved customer service , increased visibility through faster leak detection , the ability to promote and quantify the effects of its water conservation efforts , and easier compliance reporting . water meter replacement and the adoption and deployment of new technology comprise the majority of water meter product sales , including radio products . to a much lesser extent , housing starts also contribute to the new product sales base . over the last decade , there has been a growing trend in the conversion from manually read water meters to meters with radio technology . this conversion rate is accelerating , with the company estimating that approximately just over 60 % of water meters installed in the united states have been converted to a radio solution technology . 15 the company 's net sales and corresponding net earnings depend on unit volume and product mix , with the company generally earning higher average selling prices and margins on meters equipped with radio technology , and higher margins on ultrasonic compared to mechanical meters . the company 's proprietary radio products ( i.e . orion ) , which comprise the majority of its radio sales , generally result in higher margins than remarketed , non-proprietary technology products . the company also sells registers and endpoints separately to customers who wish to upgrade their existing meters in the field . story_separator_special_tag the working capital adjustment was settled in the second quarter of 2018 and the balance sheet holdback was paid in the second quarter of 2019. as of march 31 , 2019 , the company had completed its analysis for estimating the fair value of the assets acquired with no additional adjustments . this acquisition is further described in note 3 “ acquisitions ” in the notes to consolidated financial statements . on november 1 , 2017 , the company acquired certain assets of utility metering services , inc. 's business carolina meter & supply ( “ carolina meter ” ) of wilmington , north carolina , which was one of the company 's distributors serving north carolina , south carolina and virginia . the total purchase consideration for the carolina meter assets was $ 6.3 million , which included $ 2.1 million in cash and settlement of $ 4.2 million of pre-existing company receivables . as of december 31 , 2018 , the company completed its analysis for estimating the fair value of the assets acquired with no additional adjustments . this acquisition is further described in note 3 “ acquisitions ” in the notes to consolidated financial statements . on may 1 , 2017 , the company acquired 100 % of the outstanding common stock of d-flow technology ab ( “ d-flow ” ) of luleå , sweden . the d-flow acquisition facilitates the continued advancement of the existing e-series® ultrasonic product line while also adding a technology center for the company . the purchase price was approximately $ 23.2 million in cash , plus a small working capital adjustment . the purchase price included $ 2.0 million in payments that were made in 2018 , $ 2.0 million in payments that were made in 2019 and $ 1.0 million in payments that are anticipated to be made in 2020 and are recorded in payables on the consolidated balance sheets at december 31 , 2019. as of march 31 , 2018 , the company completed its analysis for estimating the fair value of the assets acquired and liabilities assumed with no additional adjustments . this acquisition is further described in note 3 “ acquisitions ” in the notes to consolidated financial statements . revenue and product mix as the industry continues to evolve , the company has been at the forefront of innovation across metering , radio and software technologies in order to meet its customers ' increasing expectations for accurate and actionable data . as technologies such as orion cellular and beacon ama managed solutions have become more readily adopted , the company 's revenue from software as a service ( saas ) has increased significantly , albeit from a small base , and is margin accretive . the company also seeks opportunities for additional revenue enhancement . for instance , the company has made inroads into the middle east market with its ultrasonic meter technology and is pursuing other geographic expansion opportunities . additionally , the company is periodically asked to oversee and perform field installation of its products for certain customers . in these cases , the company assumes the role of general contractor and either performs the installation or hires installation subcontractors and supervises their work . story_separator_special_tag repayment of us commercial paper borrowings using cash from operations . the increase in 2018 from 2017 was due to higher interest rates . income taxes income taxes as a percentage of earnings before income taxes were 23.4 % , 22.5 % and 37.0 % for 2019 , 2018 and 2017 , respectively . the decrease beginning in 2018 was due primarily to the lower u.s. federal tax rate , which declined from 35 % in 2017 to 21 % in 2018 and 2019. earnings and diluted earnings per share for 2019 , the increase in operating earnings and lower interest expense , along with the non-recurring pension termination charges in 2018 , resulted in net earnings of $ 47.2 million in 2019 compared to $ 27.8 million in 2018. on a diluted basis , earnings per share were $ 1.61 in 2019 compared to $ 0.95 in 2018. for 2018 , the increase in operating earnings and benefit of the lower effective tax rate was more than offset by the pension settlement charges resulting in net earnings of $ 27.8 million in 2018 compared to $ 34.6 million in 2017. on a diluted basis , earnings per share were $ 0.95 in 2018 compared to $ 1.19 in 2017 . 18 liquidity and capital resources the main sources of liquidity for the company are cash from operations and borrowing capacity . in addition , depending on market conditions , the company may access the capital markets to strengthen its capital position and to provide additional liquidity for general corporate purposes . primary working capital we use primary working capital ( pwc ) as a percentage of sales as a key metric for working capital efficiency . we define this metric as the sum of receivables and inventories less payables , divided by annual net sales . the following table shows the components of our pwc ( in millions ) : replace_table_token_3_th overall pwc decreased $ 12.8 million as the company undertook several working capital improvement actions during the year . receivables at december 31 , 2019 were $ 61.4 million compared to $ 66.3 million at the end of 2018. the decrease was due to robust collection efforts and active monitoring processes instituted during the year . the company believes its receivables balance is fully collectible . inventories at december 31 , 2019 were $ 81.9 million , a modest increase from $ 80.8 million at december 31 , 2018 , primarily to support the backlog of orders and new product launches . payables at december 31 , 2019 were $ 31.5 million , up from $ 22.5 million at the end of 2018 due to the negotiation of advantageous payment terms with suppliers .
| results of operations net sales net sales in 2019 decreased $ 9.1 million , or -2 % , to $ 424.6 million from $ 433.7 million in 2018. sales into the municipal water market were $ 330.7 million , a decrease of 1 % compared to the prior year 's $ 334.7 million , while sales into the flow instrumentation end markets were $ 93.9 million , a 5 % decrease from 2018 sales of $ 99.0 million . municipal water sales benefitted from higher sales of smart water solutions in north america where sales increased 1 % year-over-year , however , sales into international markets , primarily the middle east , declined significantly as a $ 5.5 million sale from 2018 did not repeat . while the company continued to benefit from favorable market demand , it experienced a mid-year pause in certain order activity as a result of new product launches , most notably commercial ultrasonic meters and next generation cellular radio offerings . sales of products into the global flow instrumentation end markets declined due to sluggish global industrial activity across multiple end markets served . 17 net sales in 201 8 increased $ 31.3 million , or 8 % , to $ 433.7 million from $ 402.4 million in 201 7 . sales into the municipal water market were $ 334.7 million , an increase of 9 % over the prior year 's $ 306.9 million , while sales into the flow instrumentation end markets were $ 99.0 million , a 4 % increase from 2017 sales of $ 95.9 million . municipal water sales benefitted from higher volumes in both the residential and commercial markets in the u.s. as well as further penetration into international markets , primarily in the middle east .
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the words “ believe , ” “ expect , ” “ anticipate , ” “ intend , ” “ estimate , ” “ forecast , ” “ project , ” “ should , ” `` will , '' `` continue '' and similar expressions are intended to identify “ forward-looking statements ” within the meaning of the private securities litigation reform act of 1995. all forecasts and projections in this document are “ forward-looking statements , ” and are based on management 's current expectations or beliefs of the company 's near-term results , based on current information available pertaining to the company , including the risk factors noted under item 1a in this form 10-k. from time to time , we also may provide oral and written forward-looking statements in other materials we release to the public , such as press releases , presentations to securities analysts or investors , or other communications by the company . any or all of our forward-looking statements in this report and in any public statements we make could be materially different from actual results . accordingly , we wish to caution investors that any forward-looking statements made by or on behalf of the company are subject to uncertainties and other factors that could cause actual results to differ materially from such statements . these uncertainties and other risk factors include , but are not limited to , the risks and uncertainties set forth under item 1a in this form 10-k , all of which are incorporated by reference into this item 7 . 17 we wish to caution investors that other factors might in the future prove to be important in affecting the company 's results of operations . new factors emerge from time to time ; it is not possible for management to predict all such factors , nor can it assess the impact of each such factor on the business or the extent to which any factor , or a combination of factors , may cause actual results to differ materially from those contained in any forward-looking statements . we undertake no obligation to update publicly or revise any forward-looking statements , whether as a result of new information , future events or otherwise . overview we are a leader in the design and development of value-added glass and metal products and services . our four reporting segments are : architectural framing systems , architectural glass , architectural services and large-scale optical technologies ( lso ) . during fiscal 2021 , we responded quickly to a challenging environment for our business , driven by the evolving and ongoing impacts of the covid-19 pandemic and slowness in certain of our end markets . we adapted our business operations so we could continue to serve customers , while keeping the health and safety of our employees a top priority . we focused on driving improvements throughout our business , while using this year to begin positioning the company for sustainable growth and improved profitability in the future . in particular , we paid down a significant percentage of our long-term debt and strengthened our financial position , giving us better financial flexibility going forward . we also made progress on actions to improve our overall cost structure . story_separator_special_tag style= '' text-align : justify '' > net sales replace_table_token_4_th fiscal 2021 compared to fiscal 2020 net sales in fiscal 2021 decreased by 11.3 percent compared to fiscal 2020 , reflecting end market softness and covid-19 related volume declines in the architectural framing systems , architectural glass and lso segments , partially offset by increased volume in the architectural services segment , driven by execution of projects in backlog . fiscal 2020 compared to fiscal 2019 net sales in fiscal 2020 decreased by 1.1 percent compared to fiscal 2019 , driven by expected project timing-related decreases within the architectural services segment and by lower volumes at certain businesses within the architectural framing systems segment , partially offset by improved volume in the architectural glass segment . performance the relationship between various components of operations , as a percentage of net sales , is provided below . replace_table_token_5_th fiscal 2021 compared to fiscal 2020 gross margin was 22.4 percent in fiscal 2021 , a decrease of 60 basis points from fiscal 2020. this decrease was driven by the impact from lower volumes due to end market softness and covid-19 related project delays , partially offset by strong project execution in the architectural services segment . total selling , general and administrative ( sg & a ) expense for fiscal 2021 , including impairment expense on goodwill and intangible assets noted in the table above , was 20.3 percent , an increase of 360 basis points from fiscal 2020. this was driven by a $ 70.1 million impairment expense taken within the architectural framing systems segment , partially offset by a $ 19.3 million gain on the sale-leaseback of a building within the large-scale optical segment and $ 7.4 million of income related to a new markets tax credit transaction within the architectural glass segment . in addition , we received a benefit of $ 7.4 million in fiscal 2021 , as a result of a canadian wage subsidy program offered to support canadian business impacted by the covid-19 pandemic , thereby offsetting cost actions that would have been taken had this subsidy not been secured . net interest expense declined by 30 basis points compared to the prior year , due to the lower average debt balance in fiscal 2021 and a favorable one-time legal settlement impacting interest . story_separator_special_tag net cash used in investing activities was $ 2.1 million in fiscal 2021 , compared to $ 47.0 million in fiscal 2020 , due to nearly $ 20 million of increased proceeds from property sales in fiscal 2021 , related to the sale of an lso manufacturing facility in illinois in the third quarter of fiscal 2021 , and reduced capital expenditures by $ 25 million in fiscal 2021 compared to fiscal 2020. in fiscal 2020 , we sold an architectural framing manufacturing facility in toronto , and in fiscal 2019 , we sold an architectural glass manufacturing facility in utah . financing activities . cash used in financing activities was $ 107.9 million in fiscal 2021 , compared to $ 74.5 million in fiscal 2020. in fiscal 2021 , we made net repayments on debt of $ 53.1 million , paid dividends totaling $ 19.6 million and repurchased 1,177,704 shares under our authorized share repurchase program , at a total cost of $ 32.9 million . we repurchased 686,997 shares under the program in fiscal 2020 and 1,257,983 shares under the program in fiscal 2019. we have repurchased a total of 7,132,616 shares , at a total cost of $ 207.3 million , since the 2004 inception of this program . we have remaining authority to repurchase 1,117,384 shares under this program , which has no expiration date , and we will continue to evaluate making future share repurchases , depending on our cash flow and debt levels , market conditions , including the continuing effects of the covid-19 pandemic , and other potential uses of cash . during the third quarter of fiscal 2021 , we amended our term loan to extend the maturity date to june 2024 , as further described in note 7 of the notes to consolidated financial statements . as of february 27 , 2021 , no borrowings were outstanding under 21 the revolving credit facility . as defined within the credit facility , we have two financial covenants which require us to stay below a maximum leverage ratio and to maintain a minimum interest expense-to-ebitda ratio . at february 27 , 2021 , we were in compliance with both financial covenants . other financing activities . the following summarizes our significant contractual obligations that impact our liquidity as of february 27 , 2021 : replace_table_token_11_th debt obligations in the table above include $ 15.0 million of industrial revenue bond obligations that mature in fiscal years 2022 through 2043. we acquire the use of certain assets through operating leases , such as warehouses , manufacturing equipment , office equipment , hardware , software and vehicles . while many of these operating leases have termination penalties , we consider the risk related to termination penalties to be minimal . purchase obligations in the table above relate to raw material commitments and capital expenditures . we expect to make contributions of approximately $ 0.7 million to our defined-benefit pension plans in fiscal 2022 , which will equal or exceed our minimum funding requirements . as of february 27 , 2021 , we had reserves of $ 3.8 million and $ 0.5 million for long-term unrecognized tax benefits and environmental liabilities , respectively . we are unable to reasonably estimate in which future periods the remaining unrecognized tax benefits will ultimately be settled . at february 27 , 2021 , we had ongoing letters of credit of $ 18.7 million related to industrial revenue bonds , construction contracts and insurance collateral that expire in fiscal 2022 and reduce borrowing capacity under the revolving credit facility . in addition to the above standby letters of credit , we are required , in the ordinary course of business , to provide surety or performance bonds that commit payments to our customers for any non-performance . at february 27 , 2021 , $ 532.4 million of our backlog was bonded by performance bonds with a face value of $ 1.1 billion . these bonds do not have stated expiration dates , as we are released from the bonds upon completion of the contract . we have not been required to make any payments under these bonds with respect to our existing businesses . during calendar 2020 , we took advantage of the option to defer remittance of the employer portion of social security tax as provided in the coronavirus , aid , relief and economic security act ( `` cares act '' ) . this deferral allowed us to retain cash during calendar year 2020 that would have otherwise been remitted to the federal government . at the end of fiscal 2021 , we had deferred tax payments of $ 13.6 million , which are included within accrued payroll and other benefits and other non-current liabilities on our consolidated balance sheets . the deferred tax payments will be repaid equally in calendar years 2021 and 2022. the cares act , along with other foreign government initiatives , also provides for job retention programs , which have provided payroll tax credits or subsidies of $ 8.0 million during calendar year 2020. we had total cash and short-term marketable securities of $ 47.3 million , and $ 216.3 million available under our committed revolving credit facility , at february 27 , 2021. due to our ability to generate cash from operations and our available sources of borrowing capacity , we believe that our sources of liquidity will continue to be adequate to fund our working capital requirements and necessary capital expenditures for at least the next 12 months . we also believe we will continue to be in compliance with our existing debt covenants over the next fiscal year . we continually review our portfolio of businesses and their assets and how they support our business strategy and performance objectives . as part of this review , we may acquire other businesses , pursue geographic expansion , take actions to manage capacity and further invest in , divest and or sell parts of our current businesses . off-balance sheet arrangements .
| fiscal 2021 summary of results : consolidated net sales were $ 1.2 billion , a decrease of 11 percent over fiscal 2020. operating income was $ 25.5 million , a decrease of 71 percent from $ 87.8 million in the prior year . diluted eps was $ 0.59 , compared to $ 2.32 in the prior year , a decrease of 75 percent . adjusted operating income was $ 87.1 million , a decrease of 3 percent compared to the prior year , and adjusted diluted eps was $ 2.40 in fiscal 2021 , an increase of 1 percent compared to the prior year . refer to the table below for a reconciliation to gaap of these adjusted amounts . adjusted operating income and adjusted earnings per diluted share ( adjusted diluted eps ) are supplemental non-gaap financial measures provided by the company to assess performance on a more comparable basis from period-to-period by excluding amounts that management does not consider part of core operating results . management uses these non-gaap measures to evaluate the company 's historical and prospective financial performance , measure operational profitability on a consistent basis , and provide enhanced transparency to the investment community . these non-gaap measures should be viewed in addition to , and not as an alternative to , the reported financial results of the company prepared in accordance with gaap . other companies may calculate these measures differently , thereby limiting the usefulness of the measures for comparison with other companies .
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compensation committee interlocks and insider participation none of our executive officers has served as a member of the board of directors , or as a member of the compensation or similar committee , of any entity that has one or more executive officers who served on our board of directors or compensation committee during the fiscal year ended december 31 , 2019. item 12. security story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations is intended to provide information necessary to understand our audited consolidated financial statements for the fiscal years ended december 31 , 2019 and november 30 , 2018 and one month ended december 31 , 2018 and highlight certain other information which , in the opinion of management , will enhance a reader 's understanding of our financial condition , changes in financial condition and results of operations . in particular , the discussion is intended to provide an analysis of significant trends and material changes in our financial position and the operating results of our business during the year ended december 31 , 2019 , as compared to the fiscal year ended november 30 , 2018 and the one month ended december 31 , 2018. this discussion should be read in conjunction with our consolidated financial statements for the fiscal years ended december 31 , 2019 and november 30 , 2018 and one-month period ended december 31 , 2018 and related notes included elsewhere in this annual report on form 10-k. these historical financial statements may not be indicative of our future performance . this management 's discussion and analysis of financial condition and results of operations contains numerous forward-looking statements , all of which are based on our current expectations and could be affected by the uncertainties and risks described throughout this filing , particularly in `` item 1a . risk factors . '' corporate overview we are a biotechnology company specializing in the development , manufacturing and provision of cell and gene therapies ( `` cgts '' ) through point-of-care solutions . we have historically operated through two independent business platforms : ( i ) a point-of-care cell therapy ( `` poc '' ) platform and ( ii ) a contract development and manufacturing organization ( `` cdmo '' ) platform , which provided contract manufacturing and development services for biopharmaceutical companies ( the `` cdmo business '' ) . through the poc platform , our aim is to further the development of cgts , including advanced therapy medicinal products ( `` atmps '' ) , through collaborations and in-licensing with other pre-clinical and clinical-stage biopharmaceutical companies and research and healthcare institutes to bring such atmps to patients . these therapies span a wide range of treatments including , but not limited to , cell-based immunotherapies , therapeutics for metabolic diseases , neurodegenerative diseases and tissue regeneration . we out -license these atmps , thus far primarily through joint venture ( `` jv ' ) agreements , with regional partners including pharmaceutical and biotech companies as well as research institutions and hospitals . these regional partners have cell therapies in clinical development and are to whom we also provide manufacturing know-how , assay services , licensing , regulatory assistance , pre-clinical studies , intellectual property services , and co-development services ( collectively `` poc development services '' ) to support their activity in order to reach patients in a point-of-care hospital setting . currently , our poc development services constitute the entirety of our revenue from the poc platform . through the cdmo platform , we had focused on providing contract manufacturing and development services for biopharmaceutical companies , and we continue to provide such cdmo , or development , services in israel and south korea . on february 2 , 2020 , we entered into a stock purchase agreement ( the `` purchase agreement '' ) with gpp-ii masthercell llc ( `` gpp '' and together with the company , the `` sellers '' ) , masthercell global inc. ( `` masthercell '' ) and catalent pharma solutions , inc. ( the `` buyer '' ) . pursuant to the terms and conditions of the purchase agreement , on february 10 , 2020 , the sellers sold 100 % of the outstanding equity interests of masthercell to buyer ( the `` masthercell sale '' ) for an aggregate nominal purchase price of $ 315 million , subject to customary adjustments . after accounting for gpp 's liquidation preference and equity stake in masthercell as well as sfpi - fpim 's interest in masthercell s.a. , distributions to masthercell option holders and transaction costs , we received approximately $ 126.7 million . our audited financial statements and this management 's discussion and analysis of financial condition and results of operations contains the consolidated results of masthercell as of and through december 31 , 2019. our therapeutic development efforts in our poc business are focused on advancing breakthrough scientific achievements in atmps , and namely autologous therapies , which have a curative potential . we base our development on therapeutic collaborations and in-licensing with other pre-clinical and clinical-stage biopharma companies as well as direct collaboration with research and healthcare institutes . we are engaging in therapeutic collaborations and in-licensing with other academic centers and research centers in order to pursue emerging technologies of other atmps in cell and gene therapy in such areas including , but not limited to , cell-based immunotherapies , therapeutics for metabolic diseases , neurodegenerative diseases and tissue regeneration each of these customers and collaborations represents a growth opportunity and future revenue potential as we out-license these atmps through regional partners to whom we also provide regulatory , pre-clinical and training services to support their activity in order to reach patients in a point-of-care hospital setting . -44- we carry out our poc business through three wholly-owned and separate subsidiaries . this corporate structure allows us to simplify the accounting treatment , minimize taxation and optimize local grant support . story_separator_special_tag the transfer agreement also contains agreements made with respect to certain intercompany loans . we accounted for the transfer agreement as a transaction with non-controlling interest . material developments during fiscal 2019 institutional review board approval on april 29 , 2019 , we announced that we had received institutional review board ( irb ) approval to collect liver biopsies from patients at rambam medical center located in haifa , israel for a planned study to confirm the suitability of liver cells for personalized cell replacement therapy for patients with insulin-dependent diabetes resulting from total or partial pancreatectomy . the liver cells are intended to be bio-banked for potential future clinical use . the goal of the proposed study , entitled `` collection of human liver biopsy and whole blood samples from type 1 diabetes mellitus ( t1dm ) , total or partial pancreatectomy patients for potential use as an autologous source for insulin producing cells in future clinical studies , '' is to confirm the suitability of the liver cells for personalized cell replacement therapy , as well as eligibility of patients to participate in a future clinical study , as defined by successful autologous insulin producing ( aip ) cell production from their own liver biopsy . the secondary objective of the study is to evaluate patients ' immune response to aips based on the patient 's blood samples and followed by subcutaneous implantation into the patients ' arm which would represent the first human trial . we have developed a novel technology based on technology licensed from tel hashomer medical research infrastructure and services ltd. , utilizing liver cells as a source for aip cells as replacement therapy for islet transplantation . during the study , liver samples will be collected and then processed and stored in specialized , clinical grade , tissue banks for potential clinical use . the enrollment for the study 's 20 patients commenced in may 2019. the propagated cells will be maintained in a tissue bank and are intended to be utilized in a future clinical study , in which the cells will be transdifferentiated and administered back to the patients as a potential treatment . this personalized autologous process will be performed under our poc model in which the patient liver samples are processed , cryopreserved and potentially re-injected , all in the medical center under clinical grade/gmp level conditions . joint venture agreement with first choice international company , inc. on march 12 , 2019 , the company and first choice international company , inc. ( `` first choice '' ) entered into a joint venture agreement ( the `` jva '' ) pursuant to which first choice will collaborate with the company to further the clinical development and commercialization of the company 's cell regeneration and gene therapeutic products in panama and latin america countries ( the `` territory '' ) and the company will collaborate with first choice to further the clinical development and commercialization of products to be introduced by first choice , which will be offered for sale by the company globally outside of the territory . the parties intend to pursue the joint venture through a newly established company ( hereinafter the `` jv company '' ) which the company by itself , or together with a designee , will hold a 50 % participating interest therein , with the remaining 50 % participating interest being held by first choice by itself , or together with a designee . -46- pursuant to the terms of the jva , the jv company will initially be owned 100 % by first choice and , until such jv company is established , all activities in the territory will be carried out through first choice . upon the company 's request , first choice will transfer all activities , and results , data , information , material , ip , know-how , contracts , licenses , authorizations , permissions , grants , obligations and assets related to such activities to the jv company . in addition , each party shall be required to exert best commercial efforts to carry out , in a timely and professional manner , its respective obligations according to a detailed work plan to be agreed upon by first choice and company within no later than sixty ( 60 ) days following the execution of the jva . debt financing agreements in april 2019 , we entered into a convertible loan agreement with an offshore investor for an aggregate amount of $ 500 thousand into the u.s. subsidiary . the investor , at its option , may convert the outstanding principal amount and accrued interest under this note into shares and three-year warrants to purchase shares of our common stock at a per share exercise price of $ 7.00 ; or into shares of the u.s. subsidiary at a valuation of the u.s. subsidiary of $ 50 million . in may 2019 , we entered into a private placement subscription agreement with a non-u.s. investor for $ 5 million . the lender shall be entitled , at any time prior to or no later than the maturity date , to convert the outstanding amount , into units of ( 1 ) shares of our common stock at a conversion price per share equal to $ 7.00 and ( 2 ) warrants to purchase an equal number of additional shares of our common stock at a price of $ 7.00 per share . in june 2019 , we entered into private placement subscription agreements with investors for an aggregate amount of $ 2 million . the lenders shall be entitled , at any time prior to or no later than the maturity date , to convert the outstanding amount , into units of ( 1 ) shares of our common stock at a conversion price per share equal to $ 7.00 and ( 2 ) warrants to purchase an equal number of additional shares of our common stock at a price of $ 7.00 per share .
| results of operations comparison of the year ended december 31 , 2019 to the year ended november 30 , 2018 and for the one month ended december 31 , 2018. our financial results for the year ended december 31 , 2019 are summarized as follows in comparison to the year ended november 30 , 2018 and for the one month ended december 31,2018 : -49- replace_table_token_0_th revenues the following table shows the company 's revenues by major revenue streams . replace_table_token_1_th our revenues for the year ended december 31 , 2019 were $ 33,256 thousand , as compared to $ 18,655 thousand for the year ended november 30 , 2018 , representing an increase of 78 % . revenues for the one month ended december 31 , 2018 were $ 1,852 thousand . the increase in revenues for the year ended december 31 , 2019 compared to the corresponding period in 2018 is attributable to our poc services revenue which we recognized for the first time in 2019 , as well as an increase in the revenues provided by masthercell s.a. , resulting primarily from the extension of existing customer service contracts with biotechnology clients and from revenues generated from existing manufacturing agreements . management believes that revenue diversification by source in the cdmo segment , together with a leading position in immunotherapy and , in particular , car t-cell therapy development and manufacturing , strengthened masthercell 's resilience in the industry . backlog we define our backlog as products that we are obligated to deliver or services to be rendered based on firm commitments relating to purchase orders received from customers . as of december 31 , 2019 , masthercell s.a. had a backlog of approximately $ 19 million , consisting of services that we expect to deliver into fiscal year 2020. however , no assurance can be provided that such contracts will not be cancelled , in which case we will not be authorized to deliver and record the anticipated revenues .
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all schedules are omitted because they are not applicable or the required information is shown in the financial statements or the notes thereto . 68 3. exhibits . exhibit number exhibit 2.1 agreement and plan of merger and reorganization dated september 27 , 2007 , by and among the company , biopath acquisition corp. , a utah corporation and wholly owned subsidiary of the registrant , and bio-path , inc. , a utah corporation ( incorporated by reference to exhibit 2.1 to the company 's current report on form 8-k filed on september 27 , 2007 ) . story_separator_special_tag in addition to historical information , this annual report on form 10-k contains forward-looking statements that involve significant risks and uncertainties , which may cause our actual results to differ materially from plans and results discussed in forward-looking statements . we encourage you to review the risks and uncertainties , discussed in “ item 1a . risk factors ” and “ cautionary note regarding forward-looking statements , ” included elsewhere in this annual report on form 10-k. the risks and uncertainties can cause actual results to differ significantly from those forecasted in forward-looking statements or implied in historical results and trends . the following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and related notes included elsewhere in this annual report on form 10-k. overview we are a clinical and preclinical stage oncology focused rnai nanoparticle drug development company utilizing a novel technology that achieves systemic delivery for target specific protein inhibition for any gene product that is over-expressed in disease . our drug delivery and antisense technology , called dnabilize® , is a platform that uses p-ethoxy , which is a dna backbone modification that is intended to protect the dna from destruction by the body 's enzymes when circulating in vivo , incorporated inside of a lipid bilayer having neutral charge . we believe this combination allows for high efficiency loading of antisense dna into non-toxic , cell-membrane-like structures for delivery of the antisense drug substance into cells . in vivo , the dnabilize® delivered antisense drug substances are systemically distributed throughout the body to allow for reduction or elimination of target proteins in blood diseases and solid tumors . through testing in numerous animal studies and treatment in over 70 patients , the company 's dnabilize® drug candidates have demonstrated an excellent safety profile . dnabilize® is a registered trademark of the company . 49 using dnabilize® as a platform for drug development and manufacturing , we currently have three drug candidates in development to treat at least five different cancer disease indications . our lead drug candidate , prexigebersen ( pronounced prex ” i je ber ' sen ) , is in the efficacy portion of a phase 2 clinical trial for aml in combination with ldac and in combination with decitabine . on march 6 , 2019 , we announced intended amendments to this phase 2 clinical trial to , among other things , add prexigebersen in combination with decitabine for mds and close prexigebersen in combination with ldac . on november 26 , 2019 , we announced successful completion of safety testing in aml and mds patients in stage 2 of this phase 2 clinical trial . in addition , preclinical efficacy studies are underway for triple combination prexigebersen , decitabine and venetoclax in aml . prexigebersen is also planned for a safety portion of a phase 2a clinical trial for cml in combination with dasatinib . prexigebersen was shown to enhance chemotherapy efficacy in preclinical solid tumor models . in late 2019 , we filed an ind application to initiate a phase 1 clinical trial of prexigebersen in patients with advanced solid tumors , including ovarian and uterine , pancreatic and breast cancer . this trial is expected to commence after the ind has been cleared by the fda , which we currently anticipate being in 2020. our second drug candidate , bp1002 , targets the protein bcl-2 , which is responsible for driving cell survival in up to 60 % of all cancers . on november 21 , 2019 , we announced that the fda cleared an ind application for bp1002 . an initial phase 1 clinical trial will evaluate the ability of bp1002 to treat refractory/relapsed lymphoma and cll patients . the phase 1 clinical trial is expected to be conducted at several leading cancer centers , including md anderson and the georgia cancer center . our third drug candidate , bp1003 , targets the stat3 protein and is currently in ind enabling studies as a potential treatment of pancreatic cancer , nsclc and aml . preclinical models have shown bp1003 to inhibit cell viability and stat3 protein expression in nsclc and aml cell lines . further , bp1003 successfully penetrated pancreatic tumors and significantly enhanced the efficacy of gemcitabine , a treatment for patients with advanced pancreatic cancer , in a pancreatic cancer patient derived tumor model . our lead indication for bp1003 is pancreatic cancer due to the severity of this disease and the lack of effective , life-extending treatments . we expect to complete several ind enabling studies of bp1003 in 2020. if those studies are successful , we expect that we would file an ind in late 2020 for the first-in-humans phase 1 study of bp1003 in patients with refractory/metastatic solid tumors , including pancreatic , nsclc and colorectal cancers . our dnabilize® technology-based products are available for out-licensing or partnering . we intend to apply our drug delivery technology template to new disease-causing protein targets as a means to develop new nanoparticle antisense rnai drug candidates . we have a new product identification template in place to define a process of scientific , preclinical , commercial and intellectual property evaluation of potential new drug candidates for inclusion into our drug product development pipeline . story_separator_special_tag for our drug candidates . a change in the outcome of any of these variables with respect to the development of a drug candidate could mean a significant change in the costs and timing associated with the development of that drug candidate . for example , if the fda or other regulatory authority were to require us to conduct clinical trials beyond those which we currently anticipate will be required for the completion of clinical development of a drug candidate or if we experience significant delays in enrollment in any clinical trials , we could be required to expend significant additional financial resources and time on the completion of clinical development . general and administrative expenses our general and administrative expenses consist primarily of salaries and benefits for management and administrative personnel , professional fees for legal , accounting and other services , travel costs and facility-related costs such as rent , utilities and other general office expenses . 51 story_separator_special_tag times new roman , times , serif ; margin : 0pt 0 0pt 0.5in '' > on may 16 , 2019 , we filed a shelf registration on form s-3 with the sec , which was declared effective by the sec on june 5 , 2019 ( file no . 333-231537 ) ( the “ 2019 shelf registration statement ” ) , at which time the offering of unsold securities under a previous shelf registration statement on form s-3 filed with the sec , which was declared effective by the sec on january 9 , 2017 ( file no . 333-215205 ) ( the “ 2017 shelf registration statement ” ) , was deemed terminated pursuant to rule 415 ( a ) ( 6 ) under the securities act . the 2019 shelf registration statement was filed to register the offering , issuance and sale of ( i ) up to $ 125.0 million of our common stock , preferred stock , warrants to purchase common stock or preferred stock or any combination thereof , either individually or in units , including offers and sales of our common stock under the controlled equity offering sm sales agreement ( the “ sales agreement ” ) with cantor fitzgerald & co. ( “ cantor fitzgerald ” ) described below and ( ii ) up to 5,149 shares of our common stock pursuant to the exercise of warrants that were issued in connection with a registered direct offering in 2016. the foregoing does not constitute an offer to sell or the solicitation of an offer to buy securities , and shall not constitute an offer , solicitation or sale in any jurisdiction in which such offer , solicitation or sale would be unlawful prior to registration or qualification under the securities laws of that jurisdiction . “ at the market ” offering on june 24 , 2015 , we entered into the sales agreement with cantor fitzgerald , as sales agent , pursuant to which we may offer and sell , from time to time , through cantor fitzgerald , shares of our common stock . sales of shares of common stock under the sales agreement will be made pursuant to the 2019 shelf registration statement and a related prospectus filed with the sec on june 5 , 2019 , for an aggregate offering price of up to $ 25.0 million . under the sales agreement , cantor fitzgerald may sell shares by any method deemed to be an “ at the market ” offering as defined in rule 415 under the securities act . we will pay cantor fitzgerald a commission of 3.4 % of the aggregate gross proceeds from each sale of shares under the sales agreement and have agreed to provide cantor fitzgerald with customary indemnification and contribution rights . we have also agreed to reimburse cantor fitzgerald for certain specified expenses . the sales agreement may be terminated by either cantor fitzgerald or the company upon ten days ' notice . we are subject to certain restrictions on our ability to offer and sell shares of our common stock under the sales agreement . to date , we have not offered or sold any shares of common stock under the sales agreement . 53 2018 registered direct offering and 2018 private placement on september 20 , 2018 , we entered into a securities purchase agreement with certain investors pursuant to which we agreed to sell , in a registered direct offering , an aggregate of 98,454 shares of our common stock and pre-funded warrants to purchase up to 14,624 shares of our common stock for gross proceeds of approximately $ 1.5 million under the 2017 shelf registration statement ( the “ 2018 registered direct offering ” ) . in a concurrent private placement , we also agreed pursuant to the securities purchase agreement to issue to such investors series a warrants to purchase up to 113,077 shares of our common stock ( the “ 2018 private placement ” ) . additionally , we issued warrants to purchase up to 6,785 shares of our common stock in a private placement to h.c. wainwright & co. , llc as compensation for its services as a placement agent in connection with the 2018 registered direct offering and the 2018 private placement . the 2018 registered direct offering and the 2018 private placement closed on september 25 , 2018. the net proceeds to the company from the offerings , after deducting the placement agent 's fees and expenses , our offering expenses , and excluding the proceeds , if any , from the exercise of the warrants issued in the offerings , were approximately $ 1.2 million . 2019 underwritten offering on january 14 , 2019 , we entered into an underwriting agreement with h.c. wainwright & co. , llc relating to an underwritten public offering of 429,616 shares of our common stock for gross proceeds of approximately $ 1.1 million under the 2017 shelf registration statement ( the “ 2019 underwritten offering ” ) . the offering price to the public in the 2019 underwritten offering was $ 2.60 per share , and h.c.
| results of operations comparisons of the year ended december 31 , 2019 to the year ended december 31 , 2018 revenue . we had no revenue for each of the years ended december 31 , 2019 and december 31 , 2018. research and development expenses . our research and development expense was $ 4.6 million for each of the years ended december 31 , 2019 and december 31 , 2018. the following table sets forth our research and development expenses ( in thousands ) : replace_table_token_2_th general and administrative expenses . our general and administrative expense was $ 4.1 million for the year ended december 31 , 2019 , an increase of $ 0.7 million compared to the year ended december 31 , 2018. the increase in general and administrative expense was primarily due to increased legal fees and salaries and benefits expenses . the following table sets forth our general and administrative expenses ( in thousands ) : replace_table_token_3_th impairment of technology license . we recorded an impairment for the remaining balance of our prior technology license of $ 0.6 million for the year ended december 31 , 2018. net operating loss . our net loss from operations was $ 8.7 million for the year ended december 31 , 2019 , an increase of $ 0.1 million compared to the year ended december 31 , 2018. net loss . our net loss for each of the years ended december 31 , 2019 and december 31 , 2018 was $ 8.6 million . net loss per share .
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you should carefully review the risks described herein and in other documents we file from time to time with the securities and exchange commission ( “ sec ” ) , including our quarterly reports on form 10-q to be filed in fiscal 2013. when used in this report , the words “ will , ” “ expects , ” “ could , ” “ would , ” “ may , ” “ anticipates , ” “ intends , ” “ plans , ” “ believes , ” seeks , ” “ targets , ” “ estimates , ” “ looks for , ” “ looks to , ” “ continues ” and similar expressions , as well as statements regarding our focus for the future , are generally intended to identify forward-looking statements . you should not place undue reliance on these forward-looking statements which speak only as of the date of this annual report on form 10-k. we undertake no obligation to publicly release any revisions to the forward-looking statements or reflect events or circumstances after the date of this document . business overview founded in 1982 , adobe systems incorporated is one of the largest and most diversified software companies in the world . we offer a line of software and services used by creative professionals , marketers , knowledge workers , application developers , enterprises and consumers for creating , managing , delivering , measuring , optimizing and engaging with compelling content and experiences across multiple operating systems , devices and media . we market and license our software directly to enterprise customers through our sales force and to end users through app stores and our own website at www.adobe.com . we also distribute our products through a network of distributors , value-added resellers ( “ vars ” ) , systems integrators , independent software vendors ( “ isvs ” ) , retailers and original equipment manufacturers ( “ oems ” ) . in addition , we license our technology to hardware manufacturers , software developers and service providers for use in their products and solutions . we offer some of our products via a software-as-a-service ( “ saas ” ) model ( also known as a hosted or “ cloud-based ” model ) as well as through term subscription and pay-per-use models . our software runs on personal computers ( “ pcs ” ) and server-based computers , as well as on smartphones , tablets and other devices , depending on the product . we have operations in the americas , europe , middle east and africa ( “ emea ” ) and asia-pacific ( “ apac ” ) . acquisitions on january 13 , 2012 , we completed the acquisition of privately held efficient frontier , a multi-channel digital ad buying and optimization company . during the first quarter of fiscal 2012 , we began integrating efficient frontier into our digital marketing segment , however , the impact of this acquisition was not material to our consolidated balance sheets and results of operations . during fiscal 2011 , we completed six business combinations and two asset acquisitions with aggregate purchase prices totaling approximately $ 328.3 million . we have included the financial results of the business combinations in our consolidated results of operations beginning on the respective acquisition dates , however , the impact of these acquisitions was not material to our consolidated balance sheets and results of operations . on october 28 , 2010 , we completed the acquisition of day , a provider of web experience management ( “ wem ” ) , digital asset management and social collaboration solutions based in basel , switzerland and boston , massachusetts for approximately $ 248.3 million . we have included the financial results of day in our consolidated results of operations beginning on the acquisition date , however , the impact of this acquisition was not material to our consolidated balance sheets and results of operations in fiscal 2010. following the closing , we integrated day as a product line within our digital marketing segment for financial reporting purposes . see note 2 of our notes to consolidated financial statements for further information regarding these acquisitions . critical accounting policies and estimates in preparing our consolidated financial statements in accordance with gaap and pursuant to the rules and regulations of the sec , we make assumptions , judgments and estimates that affect the reported amounts of assets , liabilities , revenue and expenses , and related disclosures of contingent assets and liabilities . we base our assumptions , judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances . actual results could differ materially from these estimates under different assumptions or conditions . on a regular basis , we evaluate our assumptions , judgments and estimates . we also discuss our critical accounting policies and estimates with the audit committee of the board of directors . 55 we believe that the assumptions , judgments and estimates involved in the accounting for revenue recognition , stock-based compensation , business combinations , goodwill impairment and income taxes have the greatest potential impact on our consolidated financial statements . these areas are key components of our results of operations and are based on complex rules requiring us to make judgments and estimates , so we consider these to be our critical accounting policies . historically , our assumptions , judgments and estimates relative to our critical accounting policies have not differed materially from actual results . revenue recognition our revenue is derived from the licensing of perpetual and time-based software products , associated software maintenance and support plans , non-software related hosting services , consulting services , training and technical support . we recognize revenue when all four revenue recognition criteria have been met : persuasive evidence of an arrangement exists , we have delivered the product or performed the service , the fee is fixed or determinable and collection is probable . story_separator_special_tag while we believe we can make reliable estimates regarding these matters , these estimates are inherently subjective . accordingly , if our estimates change , our returns and price protection reserves would change , which would impact the total net revenue we report . we recognize revenues for hosting services that are based on a committed number of transactions ratably beginning on the date the customer commences use of our services and continuing through the end of the customer term . over-usage fees , and fees billed based on the actual number of transactions from which we capture data , are billed in accordance with contract terms as these fees are incurred . we record amounts that have been invoiced in accounts receivable and in deferred revenue or revenue , depending on whether the revenue recognition criteria have been met . our consulting revenue is recognized on a time and materials basis and is measured monthly based on input measures , such as on hours incurred to date compared to total estimated hours to complete , with consideration given to output measures , such as contract milestones , when applicable . stock-based compensation stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense on a straight-line basis over the requisite service period , which is generally the vesting period . in fiscal 2012 , the executive compensation committee of adobe 's board of directors eliminated the use of stock option grants for all employees and stock option grants to non-employee directors were minimal . in lieu of stock options , we granted restricted stock units as the primary form of equity awards to employees . stock option grants prior to fiscal 2012 continue to vest over the requisite service period and had a material impact to stock-based compensation cost for fiscal 2012 and are expected to have a material impact to stock-based compensation cost until the majority of stock options are fully vested . we currently use the black-scholes option pricing model to determine the fair value of employee stock purchase plan ( “ espp ” ) shares . this fair value is affected by our stock price as well as assumptions regarding a number of complex and subjective variables . these variables include our expected stock price volatility over the expected term of the awards , the expected term of the awards , the risk-free interest rate , estimated forfeitures and expected dividends . we use a 24-month expected term , which approximates our offering period . we estimate the volatility of our common stock by using implied volatility in market traded options . our decision to use implied volatility was based upon the availability of actively traded options on our common stock and our assessment that implied volatility is more representative of future stock price trends than historical volatility . we base the risk-free interest rate on zero-coupon yields implied from u.s. treasury issues with remaining terms similar to the expected term on the options . we do not anticipate paying any cash dividends in the foreseeable future and therefore use an expected dividend yield of zero in the option pricing model . we estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates . we use historical data to estimate pre-vesting option forfeitures and record stock-based compensation expense only for those awards that are expected to vest . if we use different assumptions for estimating stock-based compensation expense for espp shares in future periods or if actual forfeitures differ materially from our estimated forfeitures for both espp shares and existing stock option grants that continue 57 to vest , the change in our stock-based compensation expense could materially affect our operating income , net income and net income per share . business combinations we allocate the purchase price of acquired companies to the tangible and intangible assets acquired and liabilities assumed , assumed equity awards , as well as to in-process research and development based upon their estimated fair values at the acquisition date . the purchase price allocation process requires management to make significant estimates and assumptions , especially at the acquisition date with respect to intangible assets , deferred revenue obligations and equity assumed . although we believe the assumptions and estimates we have made are reasonable , they are based in part on historical experience and information obtained from the management of the acquired companies and are inherently uncertain . examples of critical estimates in valuing certain of the intangible assets we have acquired or may acquire in the future include but are not limited to : future expected cash flows from software license sales , subscriptions , support agreements , consulting contracts and acquired developed technologies and patents ; expected costs to develop the in-process research and development into commercially viable products and estimated cash flows from the projects when completed ; the acquired company 's trade name and trademarks as well as assumptions about the period of time the acquired trade name and trademarks will continue to be used in the combined company 's product portfolio ; and discount rates . in connection with the purchase price allocations for our acquisitions , we estimate the fair value of the deferred revenue obligations assumed . the estimated fair value of the support obligations is determined utilizing a cost build-up approach . the cost build-up approach determines fair value by estimating the costs related to fulfilling the obligations plus a normal profit margin . the estimated costs to fulfill the obligations are based on the historical costs related to fulfilling the obligations . in connection with the purchase price allocations for our acquisitions , we estimate the fair value of the equity awards assumed . the estimated fair value is determined utilizing a modified binomial option pricing model which assumes employees exercise their stock options when the share price exceeds the strike price by a certain dollar threshold .
| results of operations overview of 2012 effective in the first quarter of fiscal 2012 , we modified our segments due to changes in how we operate our business . we combined our creative and interactive solutions segment with our digital media solutions segment and our knowledge worker segment , and named it digital media . we also renamed our omniture segment to digital marketing and combined it with our enterprise segment . these changes reflect our focus on our two strategic growth opportunities . our print and publishing segment , which contains many of our mature products and solutions , continues to be reported as it was in fiscal 2011 and 2010. see note 18 of our notes to consolidated financial statements for further segment and geographical information . prior year information below has been updated to reflect these changes . for fiscal 2012 , we reported solid financial results and executed against our two strategic growth areas , digital media and digital marketing , while continuing to market and license a broad portfolio of products and solutions . in may 2012 , we launched adobe creative suite 6 ( “ cs6 ” ) which is at the center of adobe creative cloud , our new subscription-based offering for creating and publishing content and applications that was also released in may 2012 . the launch of cs6 included major updates to all of our core creative suite ( “ cs ” ) point products as well as four suite versions . over time , 59 we expect creative cloud to transform our business model and drive higher revenue growth through an expansion of our customer base by acquiring new users through a lower cost of entry , as well as keeping existing customers current on our latest release . we anticipate accelerated adoption of creative cloud in fiscal 2013 , which we expect will cause our traditional perpetual license revenue and , in turn , total net revenues in fiscal 2013 , to decline .
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the incentive plan is intended to promote the interests of the fund by encouraging officers , employees , and directors of the fund and its affiliates to acquire or increase their equity interest in the fund and to provide a means whereby they may develop a proprietary interest in the development and financial success of the story_separator_special_tag overview equus is a bdc that provides financing solutions for privately held middle market and small capitalization companies . we began operations in 1983 and have been a publicly traded closed-end fund since 1991. our investment objective is to seek the highest total return , consisting of capital appreciation and current income . on may 15 , 2014 , we announced that the fund had adopted a plan of reorganization that would , if effected , transform equus into an operating company . on january 6 , 2017 and again on august 25 , 2017 , our shareholders authorized our board to withdraw our bdc election . although these authorizations have since expired , we expect that we will receive an authorization to withdraw our bdc election again in 2018. nevertheless , even if we again receive such an authorization , we will not withdraw this election unless and until we have entered into a definitive agreement to effect a consolidation . further , we will require a subsequent affirmative vote from holders of a majority of our outstanding voting shares to enter into any such definitive agreement or change the nature of our business . see “ significant developments – plan of reorganization and share exchange with mvc capital ” and “ – authorization to withdraw bdc election ” above . 23 as a bdc , we are required to comply with certain regulatory requirements . for instance , we generally have to invest at least 70 % of the fund 's total assets in “ qualifying assets , ” including securities of private u.s. companies , certain public u.s. companies with a total market capitalization not in excess of $ 250 million , cash , cash equivalents , u.s. government securities and short-term high-quality debt investments . equus is a ric under subchapter m of the code . to qualify as a ric , we must meet certain source of income and asset diversification requirements . if we comply with the provisions of subchapter m , the fund generally does not have to pay corporate-level income taxes on any income that distributed to our stockholders . investment income . we generate investment income from interest payable on the debt securities that the fund holds , dividends received on equity interests in our portfolio companies and capital gains , if any , realized upon sales of equity and , to a lesser extent , debt securities in the investment portfolio . our equity investments may include shares of common and preferred stock , membership interests in limited liability companies and warrants to purchase additional equity interests . these equity securities may or may not pay dividends , and the exercise prices of warrants that we acquire in connection with debt investments , if any , vary by investment . our debt investments in portfolio companies may be in the form of senior or subordinated loans and may be unsecured or have a first or second lien on some or all of the assets of the borrower . our loans typically have a term of three to seven years and bear interest at fixed or floating rates . interest on these debt securities is generally payable either quarterly or semiannually . some promissory notes held by the fund provide that a portfolio company may elect to pay interest in cash or provide that discount interest may accrete in the form of original issue discount or payment-in-kind ( pik ) over the life of the notes by adding unpaid interest amounts to the principal balance . amortization of principal on our debt investments is generally deferred for several years from the date of initial investment . the principal amount of these debt securities and any accrued but unpaid interest generally will become due at maturity . we also earn interest income at market rates on investments in short-term marketable securities . from time to time , we generate income from time to time in the form of commitment , origination , structuring , and extension fees in connection with our investments . we recognize all such fees when earned . expenses . currently , our primary operating expenses include director fees and expenses , professional fees , compensation expense , general and administrative fees , and professional fees incurred in connection with our plan of reorganization . during 2017 , we incurred non-recurring expenses of $ 2.5 million , and also received a one-time merger termination fee of $ 2.5 million , related to transaction costs described under significant developments – agreement to acquire portfolio company of mvc above . during 2016 , we did not incur any non-recurring expenses . non-operating subsidiary . we have established equus total return ( canada ) inc. as a wholly-owned subsidiary to facilitate payments to canadian personnel and contractors who provide services to the fund . we consider equus total return ( canada ) inc. a disregarded entity for accounting purposes , inasmuch as it does not have active operations . operating activities . we use cash to make new investments and follow-on investments in our existing portfolio companies . we record these investments at cost on the applicable trade date . realized gains or losses are computed using the specific identification method . on an ongoing basis , we carry our investments in our financial statements at fair value , as determined by our board of directors . see “ critical accounting policies – valuation of investments ” below . as of december 31 , 2017 , we had invested 83.2 % of our assets in securities of portfolio companies that constituted qualifying investments under the 1940 act . at that time , we had invested 51.0 % by value in shares of common stock , 19.1 story_separator_special_tag with respect to investments for which market quotations are not readily available or when such market quotations are deemed not to represent fair value , our board has approved a multi-step valuation process each quarter , as described below : 1. each portfolio company or investment is reviewed by our investment professionals ; 2. with respect to investments with a fair value exceeding $ 2.5 million that have been held for more than one year , we engage independent valuation firms to assist our investment professionals . these independent valuation firms conduct independent valuations and make their own independent assessments ; 3. our management produces a report that summarized each of our portfolio investments and recommends a fair value of each such investment as of the date of the report ; 4. the audit committee of our board reviews and discusses the preliminary valuation of our portfolio investments as recommended by management in their report and any reports or recommendations of the independent valuation firms , and then approves and recommends the fair values of our investments so determined to our board for final approval ; and 5. the board discusses valuations and determines the fair value of each portfolio investment in good faith based on the input of our management , the respective independent valuation firm , as applicable , and the audit committee . 25 during the first twelve months after an investment is made , we rely on the original investment amount to determine the fair value unless significant developments have occurred during this twelve month period which would indicate a material effect on the portfolio company ( such as results of operations or changes in general market conditions ) . investments are valued utilizing a yield analysis , enterprise value ( “ ev ” ) analysis , net asset value analysis , liquidation analysis , discounted cash flow analysis , or a combination of methods , as appropriate . the yield analysis uses loan spreads and other relevant information implied by market data involving identical or comparable assets or liabilities . under the ev analysis , the ev of a portfolio company is first determined and allocated over the portfolio company 's securities in order of their preference relative to one another ( i.e. , “ waterfall ” allocation ) . to determine the ev , we typically use a market multiples approach that considers relevant and applicable market trading data of guideline public companies , transaction metrics from precedent m & a transactions and or a discounted cash flow analysis . the net asset value analysis is used to derive a value of an underlying investment ( such as real estate property ) by dividing a relevant earnings stream by an appropriate capitalization rate . for this purpose , we consider capitalization rates for similar enterprises as may be obtained from guideline public companies and or relevant transactions . the liquidation analysis is intended to approximate the net recovery value of an investment based on , among other things , assumptions regarding liquidation proceeds based on a hypothetical liquidation of a portfolio company 's assets . the discounted cash flow analysis uses valuation techniques to convert future cash flows or earnings to a range of fair values from which a single estimate may be derived utilizing an appropriate discount rate . the measurement is based on the net present value indicated by current market expectations about those future amounts . in applying these methodologies , additional factors that we consider in fair value pricing our investments may include , as we deem relevant : security covenants , call protection provisions , and information rights ; the nature and realizable value of any collateral ; the portfolio company 's ability to make payments ; the principal markets in which the portfolio company does business ; publicly available financial ratios of peer companies ; the principal market ; and enterprise values , among other factors . also , any failure by a portfolio company to achieve its business plan or obtain and maintain its financing arrangements could result in increased volatility and result in a significant and rapid change in its value . our general intent is to hold our loans to maturity when appraising our privately held debt investments . as such , we believe that the fair value will not exceed the cost of the investment . however , in addition to the previously described analysis involving allocation of value to the debt instrument , we perform a yield analysis assuming a hypothetical current sale of the security to determine if a debt security has been impaired . the yield analysis considers changes in interest rates and changes in leverage levels of the portfolio company as compared to the market interest rates and leverage levels . assuming the credit quality of the portfolio company remains stable , the fund will use the value determined by the yield analysis as the fair value for that security if less than the cost of the investment . we will record unrealized depreciation on investments when we determine that the fair value of a security is less than its cost basis , and will record unrealized appreciation when we determine that the fair value is greater than its cost basis . because of the inherent uncertainty of the valuation of portfolio securities which do not have readily ascertainable market values , amounting to $ 25.9 million and $ 25.6 million as of december 31 , 2017 and 2016 , respectively , our fair value determinations may materially differ from the values that would have been used had a ready market existed for the securities . as of december 31 , 2017 and december 31 , 2016 , one of our portfolio investments , mvc capital , inc. , was publicly listed on the nyse with 496,208 common shares and 468,608 common shares , respectively .
| summary of portfolio investment activity year ended december 31 , 2017 during the year ended december 31 , 2017 , we received full payment of our senior secured promissory note ( “ note ” ) issued by biogenic reagents , llc ( “ biogenic ” ) , in the amount of $ 2.4 million in cash , consisting of the original principal amount of the note , together with approximately $ 0.4 million in interest as accrued thereon . during the year ended december 31 , 2017 , we had investment activity of $ 0.3 million in three portfolio companies . we received $ 0.04 million in semi-annual interest and $ 13 thousand in pik 'd interest in respect of our biogenic note described above . during 2017 , we received 20,253 shares of mvc in the form of stock dividend payments . we received $ 12 thousand in pik 'd interest in respect to our loan to 5 th element tracking , llc ( “ 5 th element ” ) . the following table includes summarizes investment activity during the year ended december 31 , 2017 ( in thousands ) : investment activity new investments existing investments portfolio company cash non-cash follow-on pik total 5 th element tracking , llc $ — $ — $ — $ 12 $ 12 mvc capital , inc. — — — 265 265 $ — $ — $ — $ 277 $ 277 year ended december 31 , 2016 during the year ended december 31 , 2016 , we had investment activity of $ 2.4 million in three portfolio companies . we invested $ 2.0 million in a senior secured note issued by biogenic , bearing cash and pik interest at the combined rate of 16 % per annum . during 2016 , we received $ 0.04 million in semi-annual interest and $ 13 thousand in pik 'd interest in respect of this note . during 2016 , we received 22,863 shares of mvc in the form of stock dividend payments .
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the company reports the funded status of its defined benefit pension and other postemployment benefit plans on its consolidated balance sheets as a net liability or asset . additional information related to the impact of changes in these assumptions is provided in note 15 , benefit plans . accruals for self-insured losses the company maintains insurance for certain risks , including workers ' compensation , general liability , product liability and vehicle liability , and is self-insured for employee related healthcare benefits . the company accrues for the expected costs associated with these risks by considering historical claims experience , demographic factors , severity factors and other relevant information . costs are recognized in the period the claim is incurred , and the financial statement accruals include an estimate of claims incurred but not yet reported . the company has stop-loss coverage to limit its exposure to any significant exposure on a per story_separator_special_tag overview the following management 's discussion and analysis of financial conditions and results of operations ( “ md & a ” ) is intended to help the reader understand the company 's operations and business environment . md & a is provided as a supplement to , and should be read in conjunction with , the consolidated financial statements and notes to consolidated financial statements contained in item 8 of this form 10-k. the following discussion includes forward-looking statements that involve certain risks and uncertainties . see “ forward-looking statements ” in the beginning of this form 10-k. the md & a includes the following sections : business - a general description of dentsply 's business and how performance is measured ; results of operations - an analysis of the company 's consolidated results of operations for the three years presented in the consolidated financial statements ; critical accounting estimates - a discussion of accounting policies that require critical judgments and estimates ; and liquidity and capital resources - an analysis of cash flows ; debt and other obligations ; and aggregate contractual obligations . 2013 operational highlights for the year ended december 31 , 2013 , sales grew by 0.8 % on a reported basis and grew 2.1 % , excluding precious metal content . the sales growth excluding precious metal content was driven by internal growth of 1.9 % , with acquisitions and currency translation each adding 0.1 % . this internal sales growth was comprised of increases of 3.8 % in the united states , 0.2 % in europe and 2.7 % in the rest of world regions . during 2013 the company completed the integration of its regional sales and marketing organizations of the combined dentsply implants organization . integration efforts during the year and continuing into 2014 are now primarily focused on efficiency improvements , including in-sourcing of certain products previously produced by outside parties . operating margins on a reported basis for the year ended december 31 , 2013 increased 120 basis points to 14.2 % from 13.0 % in fiscal 2012. on an adjusted basis ( a non-us gaap measure ) , excluding precious metals and certain other items , operating margin improved by 10 basis points to 17.6 % from 17.5 % . operating cash flow for the year ended december 31 , 2013 was $ 418 million , an all time record for the company and a 13 % increase versus $ 370 million in fiscal year 2012. business dentsply international inc. is a leading manufacturer and distributor of dental and other consumable medical device products . the company believes it is the world 's largest manufacturer of consumable dental products for the professional dental market . for over 110 years , dentsply 's commitment to innovation and professional collaboration has enhanced its portfolio of branded consumables and small equipment . headquartered in the united states , the company has global operations with sales in more than 120 countries . the company also has strategically located distribution centers to enable it to better serve its customers and increase its operating efficiency . while the united states and europe are the company 's largest markets , the company serves all major markets worldwide . principal measurements the principal measurements used by the company in evaluating its business are : ( 1 ) internal sales growth by geographic region ; ( 2 ) constant currency sales growth by geographic region ; ( 3 ) operating margins of each reportable segment including product pricing and cost controls ; ( 4 ) the development , introduction and contribution of innovative new products ; and ( 5 ) sales growth through acquisition . the company defines “ internal sales growth ” as the increase or decrease in net sales from period to period , excluding ( 1 ) precious metal content ; ( 2 ) the impact of changes in currency exchange rates ; and ( 3 ) net acquisition sales growth . the company defines “ net acquisition sales growth ” as the net sales , excluding precious metal content , for a period of twelve months following 25 the transaction date of businesses that have been acquired , less the net sales , excluding precious metal content , for a period of twelve months prior to the transaction date of businesses that have been divested . the company defines “ constant currency sales growth ” as internal sales growth plus net acquisition sales growth . the primary drivers of internal growth includes global dental market growth , innovation and new products launched by the company , and continued investments in sales and marketing resources , including clinical education . management believes that over time , the company 's ability to execute its strategies allows it to grow at a modest premium to the growth rate of the underlying dental market . management further believes that the global dental market has generally in the past and should over time in the future grow at a premium to underlying economic growth rates . story_separator_special_tag replace_table_token_5_th during 2013 , net sales , excluding precious metal content increased $ 57.0 million from 2012. the 2.1 % increase in net sales , excluding precious metal content , included constant currency sales growth of 2.0 % . the constant currency sales growth was comprised of internal sales growth of 1.9 % and acquisition sales growth of 0.1 % . precious metal content of sales declined compared to the same period in 2012 , primarily as a result of a decline in use of precious metal alloys in dentistry . constant currency sales growth the following table includes growth rates for net sales , excluding precious metal content . replace_table_token_6_th united states during 2013 , net sales , excluding precious metal content , increased by 3.8 % on a constant currency basis . the increase was primarily due to internal sales growth in dental specialty and dental consumables product categories . 27 europe during 2013 , net sales , excluding precious metal content , increased by 0.4 % on a constant currency basis , including 0.2 % of net acquisition sales growth . the increase in net sales , excluding precious metal content , was primarily driven by an increase in consumable medical products , partially offset by lower sales of dental specialty products when compared to the year ago period . all other regions during 2013 , net sales , excluding precious metal content , increased 2.6 % on a constant currency basis . the internal sales growth was 2.7 % , driven by increased sales across all product categories . gross profit replace_table_token_7_th gross profit as a percentage of net sales , excluding precious metal content , decreased 40 basis points during 2013 compared to 2012. the margin rate decline was primarily the impact of the medical device federal excise tax mandated by the affordable care act that became effective january 1 , 2013. expenses selling , general and administrative ( “ sg & a ” ) expenses replace_table_token_8_th sg & a expenses as a percentage of net sales , excluding precious metal content , improved 100 basis points as compared to 2012 primarily as a result cost savings across a number of businesses and synergies from the integration activities of recent acquisitions . restructuring and other costs replace_table_token_9_th the company recorded net restructuring and other costs of $ 13.4 million in 2013 compared to $ 25.7 million in 2012. in 2013 , restructuring costs of $ 12.0 million related to the closure and consolidation of facilities in an effort to streamline the company 's operations and better leverage the company 's resources . restructuring and other costs also includes net expense of $ 1.4 million related to an impairment of previously acquired technology partially offset by a net gain on legal settlements . in 2012 , restructuring and other costs of $ 25.7 million included restructuring cost of $ 17.8 million related to the implant integration activity as well as the closure and consolidation of facilities in an effort to streamline the company 's operations and 28 better leverage the company 's resources . restructuring and other costs also included $ 5.2 million related to impairment of previously acquired technologies . other income and expenses replace_table_token_10_th net interest expense net interest expense for the year ended december 31 , 2013 was $ 6.6 million lower compared to the year ended december 31 , 2012. the net decrease is a result of lower average debt levels in 2013 compared to the same period in 2012 and positive net interest recorded on net investment hedges due to lower average interest rates on euro and swiss franc hedge contracts compared to the prior year period . the net decrease was partially offset by lower investment income due to lower investment balances , lower interest rates and a lower coupon rate on convertible bonds . other expense ( income ) , net other expense ( income ) , net for the year ended december 31 , 2013 was $ 5.1 million higher compared to the year ended december 31 , 2012. other expense ( income ) , net for the year ended december 31 , 2013 was $ 8.3 million , comprised primarily of $ 6.9 million of interest expense and fair value adjustments on cross currency basis swaps not designated as hedges that offset currency risk on intercompany loans , and $ 2.1 million of currency transaction losses offset by $ 0.7 million of other non-operating income . other expense ( income ) , net for the year ended december 31 , 2012 was $ 3.2 million , including $ 2.7 million of currency transaction losses and $ 0.5 million of non-operating expenses . income taxes and net income replace_table_token_11_th provision for income taxes the company 's effective tax rate for 2013 and 2012 was 14.1 % and 2.7 % , respectively . the company 's effective tax rate for 2013 was favorably impacted by the company 's post-acquisition restructuring activities , the recording of tax benefits of $ 9.4 million related to u.s. federal legislative changes enacted in january 2013 relating to 2012 , a tax benefit of $ 2.2 million for the release of a valuation allowance and $ 10.3 million of benefits related to prior year tax matters . during 2012 , the company entered into various legal entity restructuring activities to complete the integration of the astra tech business acquired in august 2011. in addition to the specific tax integration of the astra tech subsidiaries with legacy dentsply subsidiaries , the company also realigned much of its foreign legal entity structure to better align operations and cash management activities . as a part of this restructuring , the company was able to capture an overall net benefit from anticipated tax losses of $ 57.7 million .
| results of operations 2012 compared to 2011 replace_table_token_16_th in 2012 , net sales , excluding precious metal content increased $ 382.1 million from 2011. the 16.4 % increase in net sales , excluding precious metal content , included constant currency growth of 20.2 % , and currency translation , which decreased net sales , excluding precious metal content , by 3.8 % . the constant currency sales growth was comprised of internal growth of 4.0 % and acquisition growth of 16.2 % . constant currency sales growth the following table includes growth rates for net sales , excluding precious metal content . replace_table_token_17_th united states during 2012 , net sales , excluding precious metal content , increased by 13.8 % on a constant currency basis , including 10.2 % of acquisition growth . the internal growth rate was 3.6 % due to increased demand across all product categories . europe during 2012 , net sales , excluding precious metal content , increased by 27.5 % on a constant currency basis , including 24.9 % of acquisition growth . the internal growth rate was 2.6 % and was primarily driven by sales growth in the dental specialty , dental consumable and consumable medical device products partially offset by decreased demand for precious metal alloy products within the dental laboratory products category . all other regions during 2012 , net sales , excluding precious metal content , increased 15.9 % on a constant currency basis , which includes 8.7 % of acquisition growth . the internal growth was 7.2 % , driven by sales growth in all dental product categories . 33 gross profit replace_table_token_18_th gross profit as a percentage of net sales , excluding precious metal content , increased 2.7 % during 2012 compared to 2011. the gross profit rate was positively impacted by improved product pricing , favorable product mix primarily associated with recent acquisitions as well as a favorable rate impact from changes in foreign currency translation rates offset by higher manufacturing costs .
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in preparing the 2013 financial statement disclosures , the company determined that it had understated deferred tax assets : other and total deferred taxes by $ 245,000 as of june 30 , 2012. the offset was to the valuation allowance by ( $ 245,000 ) . accordingly , the 2012 amounts have been changed for the purposes of the presentation within the table above . these changes in the disclosed deferred tax assets ; other total deferred taxes and the valuation allowance amounts had no effect on the reported net deferred taxes in the consolidated balance sheet and net loss in the consolidated statement of operations for the year ended june 30 , 2012. because of the “ change of ownership ” provisions of the tax reform act of 1986 , a portion of the company 's changed federal net operating loss and credit carryovers may be subject to an annual limitation regarding their utilization against taxable income in future periods . 11. employee retirement plan we sponsor an employee retirement plan , generally available to all employees , in accordance with section 401 ( k ) of the internal revenue code . employees may elect to contribute up to the internal revenue service annual contribution limit . under this plan , at the discretion of the board of directors , we may match a portion of the employees ' contributions . we made no discretionary or matching contributions to the plan for the years ended june 30 , 2013 , 2012 and 2011 . 12. subsequent event on july 15 , 2013 , we entered into an agreement and plan of merger and reorganization ( the “ merger agreement ” ) , with totipotentrx providing for the merger of totipotentrx into the company , with the company surviving . totipotentrx is a privately held biomedical technology company specializing in human clinical trials in the field of regenerative medicine and is the exclusive provider of cell-based therapies to the fortis healthcare system . 58 assuming the merger is consummated , a totipotentrx stockholder will receive , in exchange for each share of totipotentrx common stock held by such stockholder immediately before the closing of the merger , approximately 31.105 shares of company common stock . after the merger , the former shareholders of totipotentrx will own approximately 12,490,800 shares of the company 's common stock , in the aggregate representing approximately 43 % of the company 's shares of common stock outstanding , excluding shares of common stock subject to options and warrants . the merger agreement was unanimously approved by the boards of directors of both companies . the contemplated merger is subject to the approval of the company 's and totipotentrx 's respective stockholders at stockholders meetings and satisfaction of other closing conditions , including the filing of a registration statement with the sec . further , the combined company will be named cesca therapeutics to better reflect the combined products and services of the two companies . it is anticipated that the merger will close during the fourth quarter of calendar 2013. the merger agreement contains certain termination rights for both the company , on the one hand , and totipotentrx , on the other , and further provides that , upon termination of the merger agreement under specified circumstances , including , but not limited to , termination due to a failure by one party to recommend approval of the merger , a party soliciting an acquisition proposal in breach of the merger agreement , or a party entering into an agreement with a third party related to an acquisition proposal , that breaching party may be required to pay to the other party a termination fee of $ 500,000 . item 9. changes in and disagreements with accountants on accounting and financial disclosure . none . item 9a . controls and procedures . we carried out an evaluation , under the supervision and with the participation of management , including our chief executive officer along with our chief financial story_separator_special_tag certain statements contained in this section and other parts of this report on form 10-k which are not historical facts are forward-looking statements and are subject to certain risks and uncertainties . the company 's actual results may differ significantly from the projected results discussed in the forward-looking statements . factors that might affect actual results include , but are not limited to , those discussed in item 1a “ risk factors ” and other factors identified from time to time in the company 's reports filed with the u.s. securities and exchange commission . the following discussion should be read in conjunction with the company 's consolidated financial statements contained in this report . 28 ( a ) overview thermogenesis designs , develops , and commercializes devices and disposable tools for the processing , storage and administration of cell therapies . the company was founded in 1986 and is located in rancho cordova , california . our products automate the volume reduction and cryopreservation process of adult stem cells and growth factors from cord blood , peripheral blood and bone marrow for use in laboratory and point-of-care settings . our growth strategy is to expand our offerings in regenerative medicine and partner with other pioneers in the stem cell arena to accelerate our worldwide penetration in this potentially explosive market . critical accounting policies the company 's discussion and analysis of its financial condition and results of operations are based upon the company 's consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the u.s. the preparation of these consolidated financial statements requires the company to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses and related disclosure of contingent assets and liabilities . story_separator_special_tag the company provides inventory allowances when conditions indicate that the selling price could be less than cost due to physical deterioration , obsolescence , changes in price levels , or other causes , which it includes as a component of cost of revenues . additionally , the company provides reserves for excess and slow-moving inventory on hand that are not expected to be sold to reduce the carrying amount of slow-moving inventory to its estimated net realizable value . the reserves are based upon estimates about future demand from our customers and distributors and market conditions . because some of the company 's products are highly dependent on government and third-party funding , current customer use and validation , and completion of regulatory and field trials , there is a risk that we will forecast incorrectly and purchase or produce excess inventories . as a result , actual demand may differ from forecasts and the company may be required to record additional inventory reserves that could adversely impact our gross margins . conversely , favorable changes in demand could result in higher gross margins when products previously reserved are sold . 30 ( b ) story_separator_special_tag inventory and warranty reserves . we delivered a final order to asahi of 25 cryoseal devices , at cost . inventory reserves increased primarily due to the deceleration in sales of the thermoline freezers and warranty reserves increased primarily due to the axp disposable . 33 sales and marketing expenses sales and marketing expenses were $ 2,761,000 for the year ended june 30 , 2012 , compared to $ 3,195,000 for the year ended june 30 , 2011 , a decrease of $ 434,000 or 14 % . the decrease is primarily due to a decrease in commissions and a decrease in stock compensation due to the prior year amortization of the initial grant of restricted stock to nanshan upon signing the distribution agreement . research and development expenses included in this line item are costs associated with our engineering , regulatory , scientific and clinical affairs functions . research and development expenses for the year ended june 30 , 2012 , were $ 3,729,000 compared to $ 3,003,000 for fiscal 2011 , an increase of $ 726,000 or 24 % . the increase is primarily due to funding of clinical studies and higher salaries and benefits due to an increase in personnel . general and administrative expenses general and administrative expenses were $ 5,222,000 for the year ended june 30 , 2012 , compared to $ 5,474,000 for the year ended june 30 , 2011 , a decrease of $ 252,000 or 5 % . the decrease is primarily due to a decrease in professional fees of $ 366,000 for strategic consultants and advisor expenses incurred in the prior year . also , stock compensation expense decreased $ 129,000 mainly due to options granted in the prior year to the independent members of our board of directors . these decreases were offset by an increase in severance pay accruals as a result of the restructuring . interest and other income , net at june 30 , 2012 , we recognized other income of $ 327,000 due to the early termination of the asahi amendment . the $ 327,000 represented excess funds allocated to offset research and development costs we had expected to incur . ( c ) liquidity and capital resources at june 30 , 2013 , the company had a cash and cash equivalents balance of $ 6,884,000 and working capital of $ 11,125,000. this compared to a cash and cash equivalents balance of $ 7,879,000 and working capital of $ 14,034,000 at june 30 , 2012. in addition to revenues , the company has primarily financed operations through the private and public placement of equity securities and has raised approximately $ 112 million , net of expenses , through common and preferred stock financings and option and warrant exercises . net cash used in operating activities for the year ended june 30 , 2013 was $ 3,082,000 , primarily due to the net loss of $ 3,086,000 , offset by depreciation and stock-based compensation expense of $ 538,000 and $ 563,000 , respectively . inventories provided $ 795,000 of cash due to lower levels of our bioarchive and manual disposables . based on our cash balance , historical trends , planned cost reductions and future revenue projections , we believe our current funds are sufficient to provide for our projected needs to maintain operations and working capital requirements for at least the next 12 months . however , we intend to raise capital for other purposes and may need to raise additional funds should we not be able to maintain compliance with , or obtain forbearance of , our financial covenants . see part i item 1-business , cbr . in addition , should we change distributors and take on the responsibility for maintaining significant product inventory levels for certain end user customers , we may need to raise additional funding . in order to maximize the value of our clinical trials and accelerate the planned commercialization of our products in connection with the proposed merger with totipotentrx , we intend to raise approximately $ 15 to $ 20 million for investing in the planned clinical development strategy over 36 months . our ability to fund our longer-term cash needs is subject to various risks , many of which are beyond our control . should we require additional funding , such as additional capital investments , we may need to raise the required additional funds through bank borrowings or public or private sales of debt or equity securities . we can not assure that such funding will be available in needed quantities or on terms favorable to us , if at all see part i item 1a – risk factors . 34 the company generally does not require extensive capital equipment to produce or sell its current products . in fiscal
| results of operations the following is management 's discussion and analysis of certain significant factors which have affected the company 's financial condition and results of operations during the periods included in the accompanying consolidated financial statements . results of operations for the year ended june 30 , 2013 as compared to the year ended june 30 , 2012 net revenues net revenues for the year ended june 30 , 2013 were $ 17,963,000 compared to $ 19,023,000 for the year ended june 30 , 2012 , a decrease of $ 1,060,000 , or 6 % . the decrease in revenues is primarily due to the sale of the thermoline and cryoseal product lines in the current fiscal year . these two product lines represented $ 2,240,000 in revenues for the year ended june 30 , 2012 compared to $ 944,000 for the year ended june 30 , 2013. this decrease in revenues was offset by an increase in revenues from res-q disposables of $ 403,000 primarily due to an increase in the number of bone marrow procedures performed and an increase in new customers . we anticipate the termination of the ge distribution agreement will impact our axp revenues in the quarter ended september 30 , 2013 by approximately $ 800,000 as gehc sells-off their product inventory . sales analysis for the year ended june 30 : replace_table_token_5_th the following represents the company 's cumulative bioarchive system placements in the following geographies : replace_table_token_6_th 31 gross profit the company 's gross profit was $ 6,365,000 or 35 % of revenues for the year ended june 30 , 2013 , as compared to $ 6,333,000 or 33 % of revenues for the year ended june 30 , 2012. the increase in gross profit for the year ended june 30 , 2013 , is primarily due to lower inventory reserves and the mix of products sold in the prior fiscal year .
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“ risk factors , ” within this annual report on form 10-k. overview we have made significant investments over the last several years in adding experienced bankers , expanding our lending and relationship staff , absorbing the costs of being a public company , upgrading technology and facilities and acquiring mortgage world . these investments have increased our operating expenses during those periods . however , during those same periods , we have been able to significantly grow the bank 's loan portfolio while improving its asset quality and strengthening its capital . abrupt changes in interest rates will present us with a challenge in managing our interest rate risk . as a general matter , our interest-bearing liabilities reprice or mature more quickly than our interest-earning assets , which can result in interest expense increasing more rapidly than increases in interest income as interest rates increase and lowering our interest expense faster than lowering our interest income as interest rates decrease . therefore , increases in interest rates may adversely affect our net interest income and net economic value , which in turn would likely have an adverse effect on our results of operations . conversely , decreases in interest rates may have a favorable effect on our net interest income and net economic value , which in turn would likely have a positive effect on our results of operations . as described in “ —management of market risk , ” we expect that our net interest income and our net economic value would react inversely to instantaneous changes in interest rates . to help manage interest rate risk , we promote core deposit products and we are diversifying our loan portfolio by introducing new lending programs . see “ —business strategy ” , “ —management of market risk ” and “ risk factors—future changes in interest rates could reduce our profits and asset values. ” employees and human capital resources as of december 31 , 2020 , the company had 227 full time equivalent employees . none of the company 's employees are represented by a labor union , and management considers its relationship with employees to be good . we believe our ability to attract and retain employees is a key to the company 's success . accordingly , we strive to offer competitive salaries and employee benefits to all employees and monitor salaries in our market area . the company encourages and supports the growth and development of our employees . continual learning and career development is advanced through ongoing performance and development conversations with employees , internally developed training programs and educational reimbursement programs . a significant focus of the company is the health and well-being , physical and financial , of staff . recognizing the increasing stress levels of the staff understandably resulting from personal health concerns , the demise of friends , relatives and co-workers , childcare pressures amid telecommuting , increasing costs of food and supplies , to name a few . the company paid every staff member regardless of work status , provided recurring town hall and mental health sessions , instituted additional compensation for branch personnel , subsidized branch personnel commuting using non-public transportation , facilitated paid-time-off for childcare and ensured staff suffering from the covid-19 pandemic symptoms had ample paid-time-off . to ensure the proper enforcement of safe distancing rules , the company retained security guards at all branches , in many cases multiple guards . business strategy our goal is to provide long-term value to our stakeholders , our stockholders , customers , employees and the communities we serve by executing a safe and sound business strategy that produces increasing value . we believe there is a significant opportunity for an immigrant community-focused , minority directed bank to provide a full range of financial services to commercial and retail customers in our market area . 50 our current business strategy consists of the following : continue to expand our multifamily and nonresidential loans . the additional capital raised in the stock offering increased our capacity to originate multifamily and nonresidential loans . under our current board approved loan concentration policy , such loans , including construction and land loans , shall not exceed 400 % of our total risk-based capital . most multifamily and nonresidential loans are originated with adjustable rates and , as a result , these loans are expected to change loan yields due to their shorter repricing terms compared to longer-term fixed-rate loans . community lending programs . the bank is an authorized direct lender under the small business administration ( “ sba ” ) and a community development financial institution ( “ cdfi ” ) . both of these programs , combined with our pre-existing products , bolster the bank 's commitment to continue to serve the communities that it has supported over the past sixty years . continue to increase core deposits , with an emphasis on low cost commercial demand deposits , and add non-core funding sources . deposits are the major source of balance sheet funding for lending and other investments . certificates of deposits , brokered deposits , and listing service deposits supplement the bank 's funding base . we have made significant investments in new products and services , marketing programs , personnel , branch distribution system as well as enhancing our electronic delivery solutions in an effort to become more competitive in the financial services marketplace and attract more core deposits . core deposits are our least costly source of funds and represent our best opportunity to develop customer relationships that enable us to cross-sell our enhanced products and services . manage credit risk to maintain a low level of nonperforming assets . we believe strong asset quality is a key to our long-term financial success . our strategy for credit risk management focuses on having an experienced team of credit professionals , well-defined policies and procedures , appropriate loan underwriting criteria and active credit monitoring . story_separator_special_tag the average authorized loan size is $ 89,000 and the median authorized loan size is $ 17,000. we have estimated that approximately 10,918 jobs have been positively impacted . the bank , both an mdi and a cdfi , made 957 ppp loans in the amount of $ 85.3 million significantly exceeding the reported average mdi/cdfi performance . in conjunction with the ppp , the board of governors of the federal reserve system ( the “ federal reserve ” ) has created a lending facility for qualified financial institutions . the paycheck protection program liquidity facility will extend credit to depository institutions until june 30 , 2021 , unless the board and the department of treasury determine to extend the facility at an interest rate of 0.35 % . only loans issued under the ppp can be pledged as collateral to access the facility . although new york is no longer the hotbed of the covid-19 pandemic in the united states , the company continues to alter the way it has historically provided services to its deposit customers while seeking to maintain normal day-to-day back-office operations and lending functions . to that end , all back-office and lending personnel continue to work in a remote work environment while the branch network continues to provide traditional banking services to its communities and has for the most part returned to normal operating hours while continuing to shift service delivery to electronic and web-based products . the company continues its extensive and intensive communications program geared to informing customers of the alternative resources provided by the company for retaining access to financial services , closing loans and conducting banking transactions , such as atm networks , online banking , mobile applications , remote deposits and the company 's contact center . the company proactively manages its day-to-day operations by using video and telephonic conferencing . currently , the company is renovating its office spaces to make these more accessible with employees ' working environment as a result of the covid-19 pandemic . 52 through december 31 , 2020 , 4 12 loans aggregating $ 38 0 . 3 m illion had re ceiv ed forbearance primarily consisting of the deferral of principal , interest , and escrow payments for a period of three months . of th ose 41 2 loans , 339 loans aggregating $ 306.5 million are no longer in deferment and continue performing and 73 loans in the amount of $ 73.8 million remained in deferment . of the 73 loans in deferment , 72 loans in the amount of $ 73.5 million are in renewed forbearance and one loan in the amount of $ 297,000 is in i t s original forbearance . all of these loans had been performing in accordance with their contractual obligations prior to the granting of the initial forbearance . t he company actively monitors the business activities of borrowers in forbearance and seeks to determine their capacity to resume payments as contractually obligated upon the termination of the forbearance period . the initial and extended forbearances are short-term modifications made on a good faith basis in response to the covid-19 pandemic and in furtherance of governmental policies . critical accounting policies accounting estimates are necessary in the application of certain accounting policies and procedures and are particularly susceptible to significant change . critical accounting policies are defined as those involving significant judgments and assumptions by management and that could have a material impact on the carrying value of certain assets or on income under different assumptions or conditions . management believes that the most critical accounting policy relates to the allowance for loan losses . the allowance for loan losses is established as probable incurred losses are estimated to occur through a provision for loan losses charged to earnings . loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed . subsequent recoveries , if any , are credited to the allowance . the discussion and analysis of the financial condition and results of operations are based on the company 's consolidated financial statements , which are prepared in conformity with gaap . the preparation of these consolidated financial statements requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities , and the reported amounts of income and expenses . the estimates and assumptions used are based on historical experience and various other factors and are believed to be reasonable under the circumstances . actual results may differ from these estimates under different assumptions or conditions , resulting in a change that could have a material impact on the carrying value of the company 's assets and liabilities and results of operations . see note 1 , “ nature of business and summary of significant accounting policies , ” of the notes to the accompanying consolidated financial statements for a discussion of significant accounting policies . factors affecting the comparability of results defined benefit plan . on may 31 , 2019 , the company 's board of directors approved the termination of the defined benefit plan which was liquidated on december 1 , 2019. the benefit obligations settled by the lump sum payments and annuity contracts resulted in payments from plan assets of approximately $ 13.9 million . the remaining previously unrecognized losses in accumulated other comprehensive loss relating to the defined benefit plan were recognized as an expense and a pre-tax charge of approximately $ 9.9 million ( $ 7.8 million after-tax ) was recorded in other income ( expense ) , net , in our consolidated statements of income ( loss ) during the fourth quarter of 2019. sale of real property . on july 27 , 2020 , the bank completed the sale of the real property that was owned by the bank and was the former location of a branch banking office , located at 30 east 170th street , bronx , new york ( the “ real property ” ) .
| results of operations comparison of operating results for the years ended december 31 , 2020 and 2019 the following table presents the consolidated results of operations for the periods indicated : replace_table_token_26_th * exceed 500 % general . consolidated net income for the year ended december 31 , 2020 , was $ 3.9 million compared to a net loss of ( $ 5.1 million ) for the year ended december 31 , 2019. the change in net income reflects a $ 10.6 million , or 393.7 % , increase in non-interest 59 income , mainly as a result of a $ 4.2 million gain , net of expenses , on the sale of real property and $ 6 . 2 million of non-interest income attributable to mortgage world operations . net income was also impacted by a $ 2.8 million , or 5 . 6 % , increase in interest and dividend income , a $ 989,000 , or 8.0 % , decrease in interest expense , offset by a $ 2 . 3 million in crease in provision for income taxes , a $ 2 . 2 million increase in provision for loan losses in response to the covid-19 pandemic and a $ 932 ,000 , or 2.0 % , increase in non - interest expense . mortgage world 's net income from july 10 , 2020 through december 31 , 2020 was $ 1.8 million , attributable to $ 6.2 million in non-interest income and $ 274,000 in interest and dividend income , offset by $ 3.9 million in non-interest expense , $ 521,000 in provision for income taxes and $ 250,000 in interest expense . interest and dividend income .
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effective january 1 , 2019 , story_separator_special_tag the following discussion and analysis is intended to help investors understand our business , financial condition , results of operations , liquidity and capital resources . you should read this discussion together with our consolidated financial statements and related notes thereto included elsewhere in this annual report on form 10-k. the statements in this discussion regarding industry outlook , our expectations regarding our future performance , liquidity and capital resources and other non-historical statements in this discussion are forward-looking statements . these forward-looking statements are subject to numerous risks and uncertainties , including , but not limited to , the risks and uncertainties described in “ risk factors ” and “ special note regarding forward-looking statements. ” actual results may differ materially from those contained in any forward-looking statements . parsons corporation enabling a safer , smarter , and more interconnected world . federal solutions technology-driven solutions for defense and intelligence customers segments critical infrastructure engineered solutions for complex physical and digital infrastructure challenges financial snapshot $ 4b fy 2019 revenue critical infrastructure52 % federal solutions48 % $ 4.3bfy 2019 contract awards critical infrastructure41 % federal solutions59 % key facts and figures 75years of history ~ 16kemployees 11 % revenue growth ( fy 2019 ) 1.1xttm book-to-bill $ 8.0bbacklog as of 12/31/2019 overview we are a leading disruptive technology provider in the global defense , intelligence and critical infrastructure markets . we provide software and hardware products , technical services and integrated solutions to support our customers ' missions . we have developed significant expertise and differentiated capabilities in key areas of cybersecurity , intelligence , missile defense , c5isr , space , geospatial , and connected communities . by combining our talented team of professionals and advanced technology , we help solve complex technical challenges to enable a safer , smarter and more interconnected world . we operate in two reporting segments , federal solutions and critical infrastructure . our federal solutions business provides advanced technical solutions to the u.s. government . our critical infrastructure business provides integrated engineering and management services for complex physical and digital infrastructure to state and local governments and large companies . 51 our employees provide services pursuant to contracts that we are awarded by the customer and specific task orders relating to such contracts . these contracts are often multi-year , which provides us backlog and visibility on our revenues for future periods . many of our contracts and task orders are subject to renewal and rebidding at the end of their term , and some are subject to the exercise of contract options and issuance of task orders by the applicable government entity . in addition to focusing on increasing our revenues through increased contract awards and backlog , we focus our financial performance on margin expansion and cash flow . key metrics we manage and assess the performance of our business by evaluating a variety of metrics . the following table sets forth selected key metrics ( in thousands , except book-to-bill ) : replace_table_token_8_th ( 1 ) difference between our backlog of $ 8.0 billion and our remaining unsatisfied performance obligations , or rupo , of $ 5.0 billion , each as of december 31 , 2019 , is due to ( i ) unissued task orders and unexercised option years , to the extent their issuance or exercise is probable , as well as ( ii ) contract awards , to the extent we believe contract execution and funding is probable . awards awards generally represent the amount of revenue expected to be earned in the future from funded and unfunded contract awards received during the period . contract awards include both new and re-compete contracts and task orders . given that new contract awards generate growth , we closely track our new awards each year . the following table summarizes the total value of new awards for the periods presented below ( in thousands ) : replace_table_token_9_th the change in new awards from year to year is primarily due to ordinary course fluctuations in our business . the volume of contract awards can fluctuate in any given period due to win rate and the timing and size of the awards issued by our customers . in federals solutions , the change in awards between fiscal 2018 and fiscal 2019 was driven primarily from business acquisitions . awards in critical infrastructure , for fiscal 2019 , were impacted by potential awards being pushed out to 2020. backlog we define backlog to include the following two components : funded—funded backlog represents the revenue value of orders for services under existing contracts for which funding is appropriated or otherwise authorized less revenue previously recognized on these contracts . 52 unfunded—unfunded backlog represents the revenue value of orders for services under existing contracts for which funding has not been appropriated or otherwise authorized less revenue previously recognized on these contracts . backlog includes ( i ) unissued task orders and unexercised option years , to the extent their issuance or exercise is probable , as well as ( ii ) contract awards , to the extent we believe contract execution and funding is probable . the following table summarizes the value of our backlog at the respective dates presented ( in thousands ) : replace_table_token_10_th ( 1 ) as presented in the company 's form s-1/a filed on april 29 , 2019 , funded backlog for the federal solutions segment was overstated by $ 893.8 million with a corresponding understatement in unfunded backlog . there was no impact on total federal solutions backlog or total backlog for parsons corporation . ( 2 ) difference between our backlog of $ 8.0 billion and our rupo of $ 5.0 billion , each as of december 31 , 2019 , is due to ( i ) unissued task orders and unexercised option years , to the extent their issuance or exercise is probable , as well as ( ii ) contract awards , to the extent we believe contract execution and funding is probable . story_separator_special_tag competitive markets the industries we operate in consist of a large number of enterprises ranging from small , niche-oriented companies to multi-billion-dollar corporations that serve many government and commercial customers . we compete on the basis of our technical expertise , technological innovation , our ability to deliver cost-effective multi-faceted services in a timely manner , our reputation and relationships with our customers , qualified and or security-clearance personnel , and pricing . we believe that we are uniquely positioned to take advantage of the markets in which we operate because of our proven track record , long-term customer relationships , technology innovation , scalable and agile business offerings and world class talent . our ability to effectively deliver on project engagements and successfully assist our customers affects our ability to win new contracts and drives our financial performance . acquired operations polaris alpha on may 31 , 2018 , the company acquired polaris alpha for $ 489.1 million . polaris alpha is an advanced , technology-focused provider of innovative mission solutions for national security , intelligence and other u.s. federal customers . the acquisition was funded by cash on-hand and borrowings under our revolving credit facility . the financial results of polaris alpha have been included in our consolidated results of operations from may 31 , 2018 onward . ogsystems on january 7 , 2019 , the company acquired ogsystems for $ 292.4 million . ogsystems provides geospatial intelligence , big data analytics and threat mitigation for defense and intelligence customers . the acquisition was funded by cash on-hand and borrowings under our term loan and revolving credit facility . the financial results of ogsystems have been included in our consolidated results of operations from january 7 , 2019 onward . qrc technologies on july 31 , 2019 , the company acquired qrc technologies for $ 214.1 million . qrc technologies provides design and development of open-architecture radio-frequency products . the acquisition was funded by cash on-hand and borrowings under our revolving credit facility . the financial results of qrc technologies have been included in our consolidated results of operations from july 31 , 2019 onward . seasonality our results may be affected by variances as a result of seasonality we experience across our businesses . this pattern is typically driven by the u.s. federal government fiscal year-end , september 30. while not certain , it is not uncommon for u.s. government agencies to award extra tasks or complete other contract actions in the weeks before the end of the u.s. federal government fiscal year in order to avoid the loss of unexpended fiscal year funds . in addition , we have also historically experienced higher bid and proposal costs in the months leading up to the u.s. federal government fiscal year-end as we pursue new contract opportunities expected to be awarded early in the following u.s. federal government 55 fiscal year as a result of funding appropriated for that u.s. federal government fiscal year . furthermore , many u.s. state governments with fiscal years ending on june 30 tend to accelerate spending during their first quarter , when new funding becomes available . we may continue to experience this seasonality in future periods , and our results of operations may be affected by it . taxes historically , the company had elected to be taxed under the provisions of subchapter “ s ” of the internal revenue code for federal tax purposes . as a result , the company 's income had not been subject to u.s. federal income taxes or state income taxes in those states where the “ s ” corporation status was recognized . no provision or liability for federal or state income tax had been provided in the company 's consolidated financial statements , prior to the ipo on may 8 , 2019 , except for those states where the “ s ” corporation status was not recognized or where states imposed a tax on “ s ” corporations . the provision for income tax in the historical periods prior to the ipo consists of these state taxes and from certain foreign jurisdictions where the company is subject to tax . in connection with the ipo , the company 's “ s ” corporation status terminated , and the company is now treated as a “ c ” corporation under subchapter c of the internal revenue code . the revocation of the company 's “ s ” corporation election had a material impact on the company 's results of operations , financial condition and cash flows . going forward , the effective tax rate will increase , and net income will decrease since the company will be subject to both u.s. federal and state taxes on our earnings . results of operations in october 2018 , our board of directors approved a change in our fiscal year end from the last friday on or before the calendar year end to december 31st . accordingly , the fiscal year end for fiscal 2019 is december 31 , 2019 , the fiscal year end for fiscal 2018 is december 31 , 2018 and the fiscal year end for fiscal 2017 is december 29 , 2017. revenue our revenue consists of both services provided by our employees and pass-through fees from subcontractors and other direct costs . our federal solutions segment derives revenue primarily from the u.s. federal government and our critical infrastructure segment derives revenue primarily from government and commercial customers . we recognize revenue for work performed under cost-plus , time-and-materials and fixed-price contracts , as follows : under cost-plus contracts , we are reimbursed for allowable or otherwise defined costs incurred , plus a fee . the contracts may also include incentives for various performance criteria , including quality , timeliness , safety and cost-effectiveness . in addition , costs are generally subject to review by clients and regulatory audit agencies , and such reviews could result in costs being disputed as non-reimbursable under the terms of the contract .
| summary of significant accounting policies —recently adopted accounting pronouncements ” in the notes to our consolidated financial statements included elsewhere in this annual report on form 10-k. off-balance sheet arrangements as of december 31 , 2019 , we have no off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition , changes in financial condition , revenue or expenses , results of operations , liquidity , capital expenditures or capital resources . commitments and contingencies we are subject to certain claims and assessments that arise in the ordinary course of business . additionally , parsons has been named as a defendant in lawsuits alleging personal injuries as a result of contact with asbestos products at various project sites . we believe that any significant costs relating to 75 these claims will be reimbursed by applicable insurance and do not expect any of these claims to have a material adverse effect on our financial condition or results of operations . we record a liability when we believe that it is both probable that a loss has been incurred and the amount can be reasonably estimated . management judgment is required to determine the outcome and the estimated amount of a loss related to such matters . management believes that there are no claims or assessments outstanding which would materially affect our consolidated results of operations or our financial position . item 7a . qualitative and quantitative disclosure about market risk interest rate risk we are exposed to interest rate risks related to the company 's revolving credit facility . as of december 31 , 2019 , we had no amounts outstanding under the revolving credit facility . borrowings under the revolving credit facility bear interest , at the company 's option , at either the base rate ( as defined in the credit agreement ) , plus an applicable margin , or libor plus an applicable margin .
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a secured loan is generally charged down to the estimated fair value of the collateral , less costs to sell , no later than when it is 120 days past due as to principal or interest . an unsecured loan generally is charged off no later than when it is 180 days past due as to principal or interest . a home improvement loan generally is charged off no later than when it is 90 days past due as to principal or interest . federal home loan bank ( “ fhlb ” ) of indianapolis stock federal law requires a member institution of the fhlb system to hold common stock of its district fhlb according to a predetermined formula . this investment is stated at cost , which represents redemption value , and may be pledged as collateral for fhlb advances . premises and equipment premises and equipment is stated at cost , less accumulated depreciation . depreciation is computed on the straight-line method over the estimated useful lives , which range from three to five years for 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 . the following discussion , analysis and comparisons generally focus on the operating results for the years ended december 31 , 2020 and 2019. discussion , analysis and comparisons of the years ended december 31 , 2019 and 2018 that are not included in this form 10-k can be found in `` management 's discussion and analysis of financial condition and results of operations '' in part ii , item 7 of the company 's annual report on form 10-k for the year ended december 31 , 2019. 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 . impact of the covid-19 pandemic the year 2020 was characterized by continued uncertainty as the coronavirus ( “ covid-19 ” ) pandemic persisted globally , resulting in high unemployment and market volatility . however , federal , state and local governments have taken steps to reopen and stimulate economies , evidenced by improving economic indicators as the fourth quarter 2020 progressed . while the effects of covid-19 did have an impact on our operating results as of december 31 , 2020 , we believe the impact was consistent with the effects of covid-19 on the overall banking industry . the low interest rate environment following federal reserve rate cuts in the first quarter 2020 had a negative impact on our variable rate assets throughout 2020. however , the low interest rate environment has also allowed us to reprice our interest-bearing deposits at lower rates , which provided a benefit to net interest income in 2020. the benefit from lower deposit pricing is expected to continue into 2021. additionally , the low interest rate environment has driven residential mortgage rates to historically low levels , which has resulted in increased mortgage originations and has benefited our residential mortgage business . at this time , the ultimate impact of covid-19 on our business continues to remain uncertain as we can not predict the duration of the pandemic or when the economies in which we operate will return to conditions existing prior to covid-19 . as a result of continued measures to either contain or reduce the impact of covid-19 , or an increase in the number of reported cases or mortality rates , we may experience issues that negatively impact our business , such as a decline in the liquidity of our borrowers or volatility in interest rates . as a digitally-focused institution without branch locations , we were able to continue serving clients when they needed us most , while minimizing operational disruptions caused by covid-19 . beginning in the first quarter 2020 , we offered loan payment deferral programs for clients affected by covid-19 . loan balances on payment deferral programs peaked in late may 2020 but as of december 31 , 2020 , less than 1 % of loan balances were in deferral status and all borrowers coming off deferrals had resumed normal payment schedules . despite the challenging environment , we have continued to prudently extend credit to both commercial and consumer clients . story_separator_special_tag style= '' color : # 000000 ; font-family : 'times new roman ' , sans-serif ; font-size:8pt ; font-weight:400 ; line-height:100 % '' > 2,047 1,130 3,177 securities – non-taxable ( 64 ) ( 803 ) ( 867 ) 103 ( 318 ) ( 215 ) other earning assets 2,948 ( 8,352 ) ( 5,404 ) 5,922 ( 83 ) 5,839 total 10,034 ( 20,589 ) ( 10,555 ) 29,761 2,186 31,947 interest expense interest-bearing deposits 6,245 ( 19,582 ) ( 13,337 ) 14,172 12,657 26,829 other borrowed funds 583 625 1,208 2,417 2,001 4,418 total 6,828 ( 18,957 ) ( 12,129 ) 16,589 14,658 31,247 increase ( decrease ) in net interest income $ 3,206 $ ( 1,632 ) $ 1,574 $ 13,172 $ ( 12,472 ) $ 700 2020 v. 2019 net interest income for the twelve months ended december 31 , 2020 was $ 64.5 million , an increase of $ 1.6 million , or 2.5 % , compared to $ 63.0 million for the twelve months ended december 31 , 2019. the increase in net interest income was the result of a $ 12.1 million , or 14.4 % , decrease in total interest expense to $ 72.3 million for the twelve months ended december 31 , 2020 compared to $ 84.4 million for the twelve months ended december 31 , 2019. this decrease in total interest expense was partially offset by a $ 10.6 million , or 7.2 % , decrease in total interest income to story_separator_special_tag the increase in gain on sale of loans was due to gains of $ 6.8 million being recognized on sales of sba 7 ( a ) guaranteed loans and sales of portfolio loans with book values totaling $ 224.1 million that resulted in a gain of $ 1.5 million during the twelve months ended december 31 , 2020 , compared to the company recognizing gains of $ 1.7 million on the sale of sba 7 ( a ) guaranteed loans and selling portfolio loans with book values of $ 264.7 million that resulted in a net gain of $ 0.4 million during the twelve months ended december 31 , 2019. the company recognized $ 0.7 million of loan servicing revenue , net of the loan servicing asset revaluation , in 2020 , in connection with its sba 7 ( a ) servicing portfolio , which includes the portfolio acquired in the fourth quarter 2019 as well as loans originated by the company in 2020. the increase in gain on sale of securities was due to a gain of $ 0.1 million being recorded during the twelve months ended december 31 , 2020 compared to the twelve months ended december 31 , 2019 when the company sold lower-yielding mortgage-backed and u.s. government agency securities that resulted in a loss of $ 0.5 million . the decrease in other noninterest income was mainly the result of income recognized in the prior year associated with the sale of the company 's visa class b shares at a gain of $ 0.5 million and $ 0.4 million of income related to the company 's temporary ownership of the land associated with its future corporate headquarters . refer to note 16 to the company 's consolidated financial statements for additional information about the company 's new headquarters . 26 noninterest expense the following table presents noninterest expense for the five most recent years . replace_table_token_2_th 2020 v. 2019 noninterest expense for the twelve months ended december 31 , 2020 was $ 57.7 million , compared to $ 46.6 million for the twelve months ended december 31 , 2019. the increase of $ 11.0 million , or 23.6 % , compared to the twelve months ended december 31 , 2019 was due primarily to a $ 7.2 million increase in salaries and employee benefits , a $ 2.1 million write-down of a legacy commercial oreo property , a $ 0.9 million increase in loan expenses , a $ 0.7 million increase in other expenses and a $ 0.3 million increase in premises and equipment . the increase in salaries and employee benefits was primarily the result of personnel growth , mostly associated with the company 's small business lending platform , as well as increased mortgage and small business lending incentive compensation . the increase in loan expenses was driven primarily by costs associated with nonperforming loans . the increase in other expenses was due primarily to a $ 0.3 million charitable contribution the company made to assist small businesses and nonprofits address the economic challenges of the covid-19 pandemic , as well as various other miscellaneous expenses , none of which were individually significant . the increase in premises and equipment was due primarily to higher software expense . 27 income taxes the following table reconciles reported income tax expense to that computed at the statutory federal tax rate for the five most recent years . replace_table_token_3_th 2020 v. 2019 the company recognized income tax expense of $ 4.4 million in 2020 , resulting in an effective tax rate of 13.1 % , compared to $ 1.9 million and an effective tax rate of 7.1 % in 2019. the company 's federal statutory tax rate was 21 % in 2020 and 2019. in both 2020 and 2019 , the variance from the federal statutory rate was due primarily to tax-exempt income , partially offset by state income taxes . interest income on certain loans or securities issued by governmental , municipal and not-for-profit entities , and earnings from bank-owned life insurance were the primary components of tax-exempt income . the increase in the effective tax rate and income tax expense was primarily due to the increase in pre-tax earnings driven by a higher proportion of taxable revenue , including higher mortgage banking revenue and gain on sale of loans . 28 financial condition the following table presents summary balance sheet data as of the end of the last five years . replace_table_token_4_th total assets increased $ 146.1 million , or 3.6 % , to $ 4.2 billion as of december 31 , 2020 as compared to $ 4.1 billion as of december 31 , 2019. balance sheet growth was driven primarily by an increase in deposits of $ 116.9 million , or 3.7 % . additionally , the increase in deposits was used to fund loan growth as loan balances increased $ 95.7 million , or 3.2 % . as deposit growth outpaced loan growth , balance sheet liquidity increased as the combined balance of cash and securities increased $ 55.6 million , or 6.0 % , and the percentage of loans declined modestly to 93.5 % as of december 31 , 2020 from 94.0 % as of december 31 , 2019. as of december 31 , 2020 , total shareholders ' equity was $ 330.9 million , an increase of $ 26.0 million , or 8.5 % , compared to december 31 , 2019 , due primarily to the net income earned during the year , partially offset by the increase in accumulated other comprehensive loss .
| results of operations during the twelve months ended december 31 , 2020 , net income was $ 29.5 million , or $ 2.99 per diluted share , compared to net income of $ 25.2 million , or $ 2.51 per diluted share , for the twelve months ended december 31 , 2019 and net income of $ 21.9 million , or $ 2.30 per diluted share , for the twelve months ended december 31 , 2018. the $ 4.2 million increase in net income for the twelve months ended december 31 , 2020 compared to the twelve months ended december 31 , 2019 was due primarily to a $ 19.5 million increase in noninterest income and a $ 1.6 million increase in net interest income , but was partially offset by an $ 11.0 million increase in noninterest expense , a $ 3.4 million increase in provision for loan losses and a $ 2.5 million increase in income tax expense . the increase in net income of $ 3.3 million for the twelve months ended december 31 , 2019 compared to the twelve months ended december 31 , 2018 was due primarily to a $ 8.0 million increase in noninterest income , a $ 0.7 million increase in net interest income and a $ 0.1 million decrease in income tax expense , but was partially offset by a $ 3.5 million increase in noninterest expense and $ 2.1 million increase in provision for loan losses .
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the interests in the partnerships purchased ranged from 10.0 % to 35.0 % . the aggregate of the purchase prices paid was $ 4.9 million , which included $ 3.0 million of net book value . the remaining purchase price of $ 1.9 million , less future tax benefits of $ 0.8 million , was recognized as an adjustment to additional paid-in capital . for 2014 , the following table details the changes in the carrying amount of redeemable non-controlling interest : year ended december story_separator_special_tag executive summary our business . we operate outpatient physical therapy clinics that provide pre- and post-operative care and treatment for a variety of orthopedic-related disorders and sports-related injuries , neurologically-related injuries and rehabilitation of injured workers . during 2014 , 2013 and 2012 , we completed the following multi-clinic acquisitions : replace_table_token_6_th in addition to the two multi-clinic acquisitions detailed above , in 2014 , the company acquired four individual clinics in separate transactions . in addition to the five multi-clinic acquisitions detailed above , in 2013 , we acquired three individual clinics in separate transactions . in addition to the may 2012 acquisition , in 2012 , we acquired seven individual clinics in separate transactions . the results of operations of the acquired clinics have been included in our consolidated financial statements since the date of their acquisition . on september 30 , 2013 , we sold the remainder of our physician services business . previously , the company closed its two physician services facilities – one in august 2013 and the other in december 2012. as previously disclosed in the company 's public filings , the physician services business incurred negative gross margins in 2012 and through the first nine months of 2013. revenues from physician services were generated by patient visits , franchise arrangements and fees from third parties . the results of operations and the loss on the sale of the physician services business have been reclassified to discontinued operations for all periods presented . the following table details the losses from discontinued operations reported for the physician services business ( in thousands ) : schedule of details of losses reported for physician services replace_table_token_7_th 22 at december 31 , 2014 , we operated 489 clinics in 42 states . the average age of our clinics at december 31 , 2014 was 9.1 years . in addition to our owned clinics , we also manage physical therapy facilities for third parties , primarily physicians , with 16 third-party facilities under management as of december 31 , 2014. critical accounting policies critical accounting policies are those that have a significant impact on our results of operations and financial position involving significant estimates requiring our judgment . our critical accounting policies are : revenue recognition . revenues are recognized in the period in which services are rendered . net patient revenues ( patient revenues less estimated contractual adjustments ) are reported at the estimated net realizable amounts from insurance companies , third-party payors , patients and others for services rendered . the company has agreements with third-party payors that provide for payments to the company at contracted amounts different from its established rates . the allowance for estimated contractual adjustments is based on terms of payor contracts and historical collection and write-off experience . revenues from physician services , sold primarily through franchisee arrangements , are considered multiple deliverables—training and ongoing services . each component can be purchased separately . revenue is recognized over the period the respective services are provided . contractual allowances . contractual allowances result from the differences between the rates charged for services performed and expected reimbursements by both insurance companies and government sponsored healthcare programs for such services . medicare regulations and the various third party payors and managed care contracts are often complex and may include multiple reimbursement mechanisms payable for the services provided in our clinics . we estimate contractual allowances based on our interpretation of the applicable regulations , payor contracts and historical calculations . each month the company estimates its contractual allowance for each clinic based on payor contracts and the historical collection experience of the clinic and applies an appropriate contractual allowance reserve percentage to the gross accounts receivable balances for each payor of the clinic . based on our historical experience , calculating the contractual allowance reserve percentage at the payor level is sufficient to allow us to provide the necessary detail and accuracy with our collectibility estimates . however , the services authorized and provided and related reimbursement are subject to interpretation that could result in payments that differ from our estimates . payor terms are periodically revised necessitating continual review and assessment of the estimates made by management . our billing system may not capture the exact change in our contractual allowance reserve estimate from period to period . therefore , in order to assess the accuracy of our revenues and hence our contractual allowance reserves , our management regularly compares its cash collections to corresponding net revenues measured both in the aggregate and on a clinic-by-clinic basis . in the aggregate , the historical difference between net revenues and corresponding cash collections has generally reflected a difference within approximately 1 % of net revenues . additionally , analysis of subsequent period 's contractual write-offs on a payor basis reflects a difference within approximately 1 % between the actual aggregate contractual reserve percentage as compared to the estimated contractual allowance reserve percentage associated with the same period end balance . story_separator_special_tag the defined terms with their respective description used in the following discussion are listed below : 2014 year ended december 31 , 2014 2013 year ended december 31 , 2013 2012 year ended december 31 , 2012 new clinics clinics opened or acquired during the year ended december 31 , 2014 mature clinics clinics opened or acquired prior to january 1 , 2014 2013 new clinics clinics opened or acquired during the year ended december 31 , 2013 2013 mature clinics clinics opened or acquired prior to january 1 , 2013 2012 new clinics clinics opened or acquired during the year ended december 31 , 2012 2012 mature clinics clinics opened or acquired prior to january 1 , 2012 the following table presents selected operating and financial data , used by management as key indicators of our operating performance : replace_table_token_10_th story_separator_special_tag rent , clinic supplies and other costs for 2012 mature clinics is a pre-tax charge of $ 850,000 related to an estimated refund due to a payor for overpayments to a partnership clinic group over several years . rent , clinic supplies and other costs as a percent of net revenues was 20.1 % for 2014 and 20.0 % for 2013. clinic operating costs—provision for doubtful accounts the provision for doubtful accounts for net patient receivables of $ 4.1 million as a percentage of net patient revenues was 1.3 % for 2014. the provision for doubtful accounts for net patient receivables of $ 4.4 million as a percentage of net patient revenues was 1.7 % for 2013. during 2013 , we recorded a reserve for a receivable from a management contract of $ 0.1 million . our provision for doubtful accounts as a percentage of total patient accounts receivable was 4.8 % at december 31 , 2014 and 4.4 % at december 31 , 2013. the provision for doubtful accounts at the end of each period is based on a detailed , clinic-by-clinic review of overdue accounts and is regularly reviewed in the aggregate in light of historical experience . the accounts receivable days outstanding were 39 days for both december 31 , 2014 and december 31 , 2013. net patient receivables in the amount of $ 3.9 million and $ 4.4 million were written-off in 2014 and 2013 , respectively . closure costs for 2014 , closure costs amounted to $ 169,000 which included a write-off of goodwill of $ 135,000. in 2013 , closure costs amounted to $ 246,000. gross margin in 2014 , the gross margin increased by $ 11.5 million , or 17.7 % , as compared to 2013. the gross margin percentage for 2014 was 25.0 % as compared to 24.5 % for 2013. corporate office costs corporate office costs , consisting primarily of salaries , benefits and equity based compensation of corporate office personnel and directors , rent , insurance costs , depreciation and amortization , travel , legal , compliance , professional , marketing and recruiting fees , were $ 30.4 million for 2014 and $ 25.9 million for 2013. corporate office costs as a percentage of net revenues were 10.0 % for 2014 and 9.8 % in 2013. the increase is primarily due to increases in salaries , benefits and equity based compensation . 26 interest expense interest expense increased to $ 1.1 million for 2014 from $ 538,000 for 2013 primarily due to higher average borrowings throughout the year as result of acquisitions . at december 31 , 2014 , $ 34.5 million was outstanding under our credit agreement . see “ liquidity and capital resources ” below for a discussion of the terms of our new revolving credit facility . provision for income taxes the provision for income taxes was $ 14.3 million for 2014 and $ 12.2 million for 2013. we accrued state and federal income taxes at an effective tax rate ( provision for taxes divided by the difference between income from operations and net income attributable to non-controlling interest ) of 40.6 % for 2014 and 41.1 % for 2013. the provision for income taxes for 2014 includes an additional provision of $ 223,000 related to the true-up of our 2013 tax provision , and for 2013 , $ 393,000 , based on a detailed reconciliation of our federal and state taxes payable and receivable accounts along with our federal and state deferred tax asset and liability accounts . net income attributable to non-controlling interests net income attributable to non-controlling interests was $ 9.6 million in 2014 and $ 8.5 million in 2013. as a percentage of operating income before corporate office costs , net income attributable to non-controlling interests was 12.6 % in 2014 compared to 13.2 % in 2013. the reduction is attributable to the company 's increased ownership interest in certain physical therapy partnerships . fiscal year 2013 compared to fiscal 2012 net revenues rose 5.8 % to $ 264.1 million for 2013 from $ 249.7 million for 2012 primarily due to increases in net patient revenues which are discussed in detail below . net income from continuing operations prior to the revaluation of non-controlling interests , net of tax eported net income attributable to common shareholders for 2013 decreased 4.0 % to $ 17.5 million from $ 18.2 million in 2013. diluted earnings per share were $ 1.45 for 2013 and $ 1.53 for 2012. net patient revenues net patient revenues increased to $ 258.3 million for 2013 from $ 244.1 million for 2012 , an increase of $ 14.2 million , or 5.8 % . the increase in net patient revenues of $ 14.2 million consisted of an increase of $ 12.4 million from 2013 new clinics and $ 1.8 million from 2012 mature clinics . during 2013 , we acquired five multi-clinic groups for a total of 42 clinics . the average net patient revenue per visit increased to $ 105.83 in 2013 from $ 105.50 in 2012. the net patient revenues from these multi-clinic groups are included in our results since the respective date of their acquisition . see above table detailing our mutli-clinic group acquisitions .
| results of operations fiscal year 2014 compared to fiscal 2013 net revenues rose 15.5 % to $ 305.1 million for 2014 from $ 264.1 million for 2013 primarily due to increases in net patient revenues which are discussed in detail below . net income from continuing operations prior to the revaluation of non-controlling interests , net of tax for 2014 increased 19.2 % to $ 20.8 million , or $ 1.71 per diluted share , from $ 17.5 million , or $ 1.45 per diluted share . net patient revenues net patient revenues increased to $ 299.0 million for 2014 from $ 258.3 million for 2013 , an increase of $ 40.7 million , or 15.8 % . the increase in net patient revenues of $ 40.7 million consisted of an increase of $ 11.4 million from new clinics and $ 29.3 million from mature clinics of which $ 17.9 million related to the two clinic groups acquired in december 2013. during 2014 , we acquired two multi-clinic groups for a total of 16 clinics . the net patient revenues from these multi-clinic groups are included in our results since the respective date of their acquisition . see above table detailing our multi-clinic acquisitions . the average net patient revenue per visit increased to $ 106.08 in 2014 from $ 105.83 in 2013. total patient visits increased to 2,819,000 for 2014 from 2,441,000 for 2013. the growth in patient visits was attributable to 108,000 visits in new clinics primarily due to the acquisitions in 2014 and an increase of 270,000 visits for mature clinics primarily due to the two clinic groups acquired in december 2013. net patient revenues are based on established billing rates less allowances and discounts for patients covered by contractual programs and workers ' compensation . net patient revenues reflect contractual and other adjustments , which we evaluate monthly , relating to patient discounts from certain payors .
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