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the accrual for fpl energy 's major maintenance costs totaled $ 47 million story_separator_special_tag this discussion should be read in conjunction with the notes to consolidated financial statements contained herein . in the discussion of results of operations below , all comparisons are with the corresponding items in the prior year . critical accounting policies and estimates the preparation of financial statements and related disclosures in conformity with generally accepted accounting principles requires management to exercise judgment and make estimates and assumptions where amounts are not subject to precise measurement or are dependent on future events . critical accounting policies and estimates , which are important to the portrayal of both fpl group 's and fpl 's financial condition and results of operations and which require complex , subjective judgments are as follows : accounting for derivatives and hedging activities - on january 1 , 2001 , fpl group and fpl adopted fas 133 , `` accounting for derivatives and hedging activities , '' as amended by fas 137 and fas 138 ( collectively , fas 133 ) . fpl group and fpl use derivative instruments ( primarily forward purchases and sales , swaps , options and futures ) to manage the commodity price risk inherent in fuel purchases and electricity sales , as well as to optimize the value of power generation assets and related contracts . to a lesser extent , fpl group also engages in limited energy trading activities to take advantage of expected favorable price movements . these accounting pronouncements , which require the use of fair value accounting if certain conditions are met , apply not only to traditional financial derivative instruments , but to any contract having the accounting characteristics of a derivative . fas 133 requires that derivative instruments be recorded on the balance sheet at fair value . fair values for some of the longer-term contracts where liquid markets are not available are based on internally developed models . the estimation of fair value for long-term contracts requires the use of internally developed models based on the forward prices for electricity . forward prices represent the price at which a buyer or seller could contract today to purchase or sell a commodity at a future date . in general , the models estimate the fair value of a contract by calculating the present value of the difference between the prices in the contract and the forward prices . the market for electricity in the first one to two years of a contract is generally liquid and therefore the prices in the early years of the forward curves reflect observable market quotes . however , in the later years , the market is much less liquid and forward price curves must be developed . factors used in developing forward curves for electricity include the forward prices for the commodities used as fuel to generate electricity , the expected system heat rate ( which measures the efficiency of power plants in converting fuel to electricity ) in the region where the purchase or sale takes place , and a fundamental forecast of expected spot prices based on modeled supply and demand in the region . the assumptions in these models are critical since any changes therein could have a significant impact on the fair value of the contract . substantially all changes in the fair value of derivatives held by fpl are deferred as a regulatory asset or liability until the contracts are settled . upon settlement , any gains or losses will be passed through the fuel and capacity clauses . in the non-rate regulated operations , predominantly fpl energy , changes in the derivatives ' fair values are recognized in current earnings , unless certain hedge accounting criteria are met . for those transactions for which hedge accounting can be applied , much of the effects of changes in fair value are reflected in other comprehensive income ( a component of shareholders ' equity ) rather than being recognized in current earnings . since fas 133 became effective in 2001 , the fasb has discussed and , from time to time , issued implementation guidance related to fas 133. in particular , much of the interpretive guidance affects when certain contracts for the purchase and sale of power and certain fuel supply contracts can be excluded from the provisions of fas 133. despite the large volume of implementation guidance , fas 133 and the supplemental guidance does not provide specific guidance on all contract issues . as a result , significant judgment must be used in applying fas 133 and its interpretations . the interpretation of fas 133 continues to evolve . one possible result of changes in interpretation could be that certain contracts would have to be recorded on the balance sheet at fair value , with changes in fair value recorded in the income statement . see note 5. accounting for pensions and other post employment benefits - fpl group and its subsidiaries sponsor a noncontributory defined benefit pension plan and defined benefit postretirement plans for health care and life insurance benefits ( other benefits ) for substantially all employees . both the pension and life insurance plans have funded trusts dedicated to providing the benefits . fpl group 's pension income net of the cost of other benefits was approximately $ 82 million , $ 84 million and $ 89 million for the years ended december 31 , 2002 , 2001 and 2000 , respectively . the corresponding amounts allocated to fpl were $ 73 million , $ 77 million and $ 85 million , respectively . pension income and the cost of other benefits are included in o & m expenses , and are calculated using a number of actuarial assumptions . story_separator_special_tag 3 and 4 , which will allow operation of these units until 2032 and 2033 , respectively . fpl has not yet decided whether to exercise the option to operate past the original license expiration dates . current plans provide for st. lucie unit no . 1 to be mothballed upon license expiration in 2016 with decommissioning activities to be integrated with the prompt dismantlement of st. lucie unit no . 2 when its license expires in 2023. in 2001 , fpl filed with the nrc applications for 20-year license extensions for the st. lucie units and expects a ruling from the nrc in the fall of 2003. fpl accrues and funds a reserve for nuclear decommissioning costs over the expected service life of each unit based on studies that are filed with the fpsc at least every five years . the fpsc approved new decommissioning studies in 2001 and , effective in may 2002 , reduced the annual decommissioning accrual from $ 85 million to approximately $ 79 million . the studies assume that fpl will be storing spent fuel on site pending removal to a u.s. government facility . the studies indicate that fpl 's portion of the future cost of decommissioning its four nuclear units , including spent fuel storage , is $ 6.4 billion , or $ 2.0 billion in 2002 dollars . at december 31 , 2002 , the accumulated provision for nuclear decommissioning totaled approximately $ 1.7 billion . upon the adoption of fas 143 on january 1 , 2003 , the accumulated provision for nuclear decommissioning was moved from the accumulated depreciation caption on fpl group 's and fpl 's balance sheets to a noncurrent liability , the amount of the obligation was adjusted to reflect the then current fair value of the obligation , an asset was recognized for the undepreciated present value of the initial obligation and any difference was recognized as a regulatory liability . fpl also accrues the estimated cost of dismantling its fossil fuel plants over the expected service life of each unit . however , unlike nuclear decommissioning , fossil dismantlement costs are not funded . dismantlement studies are filed with the fpsc at least every four years . the most recent studies became effective january 1 , 1999 and indicated that fpl 's portion of the ultimate cost to dismantle its fossil units is $ 482 million . at december 31 , 2002 , the accumulated provision for fossil dismantlement was $ 260 million . the liability that was recognized for obligations associated with the retirement of fpl 's fossil fuel plants under fas 143 was not significant . upon acquisition of its interest in seabrook , fpl energy recorded a liability for the present value of seabrook 's expected decommissioning costs . the liability will be accreted using the interest method over an assumed license extension period that runs through 2050. seabrook 's existing license expires in 2026 , but fpl energy plans to file with the nrc an application to extend the license period to 2050. comprehensive studies are filed with new hampshire 's nuclear decommissioning financing committee every four years , with updates provided annually . the next comprehensive study will be filed in mid-2003 . the september 1999 studies indicate that fpl energy 's portion of the future cost of decommissioning seabrook , including spent fuel storage , is $ 1.7 billion , or $ 516 million in 2002 dollars . the nuclear decommissioning obligation recorded in connection with the acquisition of seabrook was determined in a manner similar to that prescribed by fas 143. at december 31 , 2002 , the accumulated provision for nuclear decommissioning totaled approximately $ 152 million . see note 1 - decommissioning and dismantlement of generating plant and accounting for asset retirement obligations . the calculation of the future cost of retiring long-lived assets , including nuclear decommissioning and fossil dismantlement costs , involves the use of estimates and judgments concerning the amount and timing of future expenditures . fpl group and fpl also make interest rate , rate of return and inflation projections to determine funding requirements related to decommissioning . periodically , fpl group and fpl will be required to update their estimates and projections which can affect the annual expense amounts recognized , the liabilities recorded and the annual funding requirements for nuclear decommissioning costs . regulatory accounting - fpl follows the accounting practices set forth in fas 71 , `` accounting for the effects of certain types of regulation . '' fas 71 indicates that regulators can create assets and impose liabilities that would not be recorded by non-rate regulated entities . regulatory assets and liabilities represent probable future revenues that will be recovered from or refunded to customers through the ratemaking process . if fpl were no longer subject to cost-based rate regulation , the existing regulatory assets and liabilities would be written off unless regulators specify an alternative means of recovery or refund . in addition , the fpsc has the authority to disallow recovery of costs that it considers excessive or imprudently incurred . such costs may include , among others , o & m expenses , the cost of replacing power lost when fossil and nuclear units are unavailable and costs associated with the construction or acquisition of new facilities . the continued applicability of fas 71 is assessed each reporting period . see note 1 - regulation . see note 1 for a discussion of fpl group 's and fpl 's other significant accounting policies . story_separator_special_tag regulatory asset over the two-year recovery period . in march 2003 , the fpsc approved a fuel adjustment increase totaling $ 347 million beginning in april 2003 due to higher than projected oil and natural gas prices . see note 1 - regulation .
| results of operations fpl group 's net income decreased by approximately $ 308 million in 2002 compared to 2001 , while net income increased $ 77 million in 2001 compared to 2000. the decrease in 2002 net income is due to a number of charges aggregating $ 389 million after tax recorded at fpl energy and at corporate and other . the charges consisted primarily of the cumulative effect of an accounting change ( $ 222 million after tax ) , impairment and restructuring charges ( $ 127 million after tax ) and charges related to certain wind projects ( $ 10 million after tax ) and leveraged leases ( $ 30 million after tax ) . these charges were partially offset by a gain from an income tax settlement ( $ 30 million ) . merger-related charges reduced fpl group 's net income in 2001 by $ 19 million and in 2000 by $ 41 million . unrealized gains from non-managed hedge activities increased fpl group 's net income by $ 1 million and $ 8 million for the years ended december 31 , 2002 and 2001 , respectively . management assesses the economic performance of its business segments excluding these charges , gains and the effects of non-managed hedges . although such items are properly included in the determination of net income in accordance with generally accepted accounting principles , both the size and nature of such items make year to year comparisons of operations difficult and potentially confusing . excluding these items , net income would have been $ 831 million , $ 792 million and $ 745 million in 2002 , 2001 and 2000 , respectively . the restructuring activities discussed above are not expected to have a significant effect on fpl group 's future results of operations , liquidity or capital resources . beginning january 1 , 2002 , fpl group segregated unrealized mark-to-market gains and losses on derivative transactions into two categories . prior year amounts have been reclassified into these categories .
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story_separator_special_tag and results of operations overview the objective of the following discussion is to provide an understanding of the financial condition and results of operations of bfc ( and its subsidiaries ) for the years ended december 31 , 2011 , 2010 and 2009. bfc is a diversified holding company whose principal holdings include a controlling interest in bankatlantic bancorp and its subsidiaries , including bankatlantic , a controlling interest in bluegreen and its subsidiaries , and a non-controlling interest in benihana . bfc also holds interests in other investments and subsidiaries , as described herein . as a result of its position as the controlling shareholder of bankatlantic bancorp , bfc is currently a unitary savings and loan holding company subject to the examination and regulation by the federal reserve . effective july 21 , 2011 , pursuant to the dodd-frank act , the federal reserve succeeded to the supervisory authority previously held by the ots . as of december 31 , 2011 , bfc had total consolidated assets of approximately $ 4.8 billion and shareholders ' equity attributable to bfc of approximately $ 119.7 million . net loss attributable to bfc was approximately $ 11.3 million and $ 103.8 million for the years ended december 31 , 2011 and 2010 , respectively . net income attributable to bfc for the year ended december 31 , 2009 was $ 27.3 million . bfc 's business strategy has been to invest in and acquire businesses in diverse industries either directly or through controlled subsidiaries . however , in the short-term , bfc has focused on providing strategic support to its existing investments with a view to the improved performance of the organization as a whole . in furtherance of this strategy , since 2009 , the company has taken several steps , including those described below , which it believes will enhance the company 's prospects . on september 21 , 2009 , we consummated our merger with woodbridge holdings corporation pursuant to which woodbridge holdings corporation merged with and into woodbridge holdings , llc , which continued as the surviving company of the merger and the successor entity to woodbridge holdings corporation . see note 3 to the consolidated financial statements included herein for additional information . on november 16 , 2009 , we purchased approximately 7.4 million additional shares of bluegreen 's common stock , increasing our ownership in bluegreen to approximately 16.9 million shares , which currently represents approximately 54 % of the outstanding shares of bluegreen 's common stock . as a result of the purchase , we hold a majority interest in bluegreen and , since november 16 , 2009 , we have consolidated bluegreen 's results into our financial statements . any reference to bluegreen 's results of operations for 2009 includes only 45 days of activity for bluegreen relating to the period from november 16 , 2009 , the date of the share purchase , through december 31 , 2009 ( the bluegreen interim period ) . on november 11 , 2011 , we entered into a definitive merger agreement with bluegreen , pursuant to which , upon consummation of the merger contemplated thereby , bluegreen will become a wholly-owned subsidiary of bfc . see recent events below for further information regarding the proposed merger . we acquired an aggregate of approximately 3.0 million , 2.0 million and 2.7 million shares of bankatlantic bancorp 's class a common stock in connection with the rights offerings conducted by bankatlantic bancorp during 2009 , 2010 and 2011 , respectively . the aggregate purchase price paid by bfc for such shares was $ 29.9 million in the 2009 rights offering , $ 15.0 million in the 2010 rights offering and $ 10.0 million in the 2011 rights offering . the shares acquired in the rights offerings increased bfc 's ownership interest in bankatlantic bancorp in the aggregate by approximately 23 % to 53 % and increased bfc 's voting interest in bankatlantic bancorp in the aggregate by approximately 16 % to 75 % . we exited the land development business operated by core communities , llc ( core or core communities ) , a wholly owned subsidiary of woodbridge , and sold substantially all of the associated commercial assets . we also eliminated substantially all of the ongoing expenses associated with core . see real estate operations segment below for additional information . during april 2011 , woodbridge and one of its wholly owned subsidiaries , carolina oak homes , llc ( carolina oak ) , entered into a settlement agreement to resolve the disputes and litigation between them and a note holder relating to an approximately $ 37.2 million loan which was collateralized by property owned by carolina oak . see real estate operations segment below for additional information . 93 in 2011 , we converted all 800,000 shares of benihana 's series b convertible preferred stock ( convertible preferred stock ) held by us into an aggregate of 1,582,577 shares of benihana 's common stock . these conversions were effected to facilitate shareholder approval of benihana 's proposal to reclassify each share of its class a common stock into one share of its common stock . the reclassification was approved by benihana 's shareholders on november 17 , 2011 and effected by benihana on november 29 , 2011. the 1,582,577 shares of benihana 's common stock owned by us currently represent an approximately 9 % ownership and voting interest in benihana . we expect to consider other opportunities that could alter our ownership in our affiliates or seek to make opportunistic investments outside of our existing portfolio ; however , we do not currently have pre-determined parameters as to the industry or structure of any future investment . in furtherance of our goals , we will continue to evaluate various financing transactions , including raising additional debt ( subject , to the extent applicable , to our receipt of all required regulatory approvals ) or equity as well as other alternative sources of new capital . story_separator_special_tag the agreement , as amended , provides for the sale to southstar of substantially all of the assets that comprise bluegreen communities for a purchase price of $ 29.0 million in cash . southstar also agreed to pay an amount equal to 20 % of the net proceeds ( as calculated in accordance with the terms of the agreement ) it receives upon its sale , if any , of two specified parcels of real estate to be purchased by southstar under the agreement . the agreement , as amended , provides for the transaction to be consummated on a date no later than april 30 , 2012. however , closing of the transaction remains subject to customary closing conditions , including the performance by the parties of their respective obligations under the agreement . there can be no assurance that the transaction will be consummated on the contemplated terms , including in the contemplated time frame , or at all . see note 5 to the consolidated financial statements included herein for additional information . bluegreen communities , which was previously a separate reporting segment of bfc , is accounted for as a discontinued operation for all periods subsequent to november 16 , 2009 , the date we obtained a majority interest in bluegreen , and has ceased to be a separate reporting segment of bfc . summary of consolidated results of operations the table below sets forth the company 's summarized results of operations ( in thousands ) : replace_table_token_20_th the company reported a net loss attributable to bfc of $ 11.3 million in 2011 , as compared to net loss attributable to bfc of $ 103.8 million in 2010 and net income attributable to bfc of $ 27.3 million in 2009. the net loss attributable to bfc for the years ended december 31 , 2011 and 2010 and net income attributable to bfc for the bluegreen interim period from november 16 , 2009 through december 31 , 2009 includes the results of discontinued operations related to bluegreen communities . in addition , the net ( loss ) income attributable to bfc for each of the years ended december 31 , 2011 , 2010 and 2009 includes the results of core communities and cypress creek holdings , a wholly-owned subsidiary of woodbridge which engaged in leasing activities . see note 5 to our consolidated financial statements for additional information about our discontinued operations . our results for 2009 include an approximately $ 182.8 million bargain purchase gain associated with the bluegreen share acquisition on november 16 , 2009 , as described above and in further detail in note 3 to our consolidated financial statements . the results of the company 's business segments and other information related to each segment are discussed below in bfc activities , real estate operations , bluegreen resorts , bankatlantic and bankatlantic bancorp parent company . 95 consolidated financial condition consolidated assets and liabilities total assets at december 31 , 2011 and 2010 were $ 4.8 billion and $ 5.8 billion , respectively . bankatlantic bancorp significantly reduced its total assets with a view to improving its liquidity and regulatory capital ratios . bankatlantic bancorp 's assets were decreased primarily by reducing loan purchases and originations , reducing the acquisition of tax certificates and selling securities available for sale . the proceeds from the above earning asset reductions were used to improve liquidity by maintaining higher interest earning deposits at other banks , purchasing short-term investments and paying down borrowings . the reductions in assets contributed to bankatlantic 's ability to comply with its higher minimum regulatory capital requirements in the bank order . the primary changes of total assets are summarized below : an increase in interest bearing deposits in other banks , reflecting primarily higher cash balances at the federal reserve bank due mainly to loan and securities available for sale repayments and sales ; a decrease in securities available for sale reflecting bankatlantic bancorp 's repayments of short-term agency mortgage-backed and municipal securities as well as mortgage-backed securities sales ; a decrease in bankatlantic bancorp 's tax certificate balances resulting primarily from redemptions partially offset by $ 21.9 million of tax certificate purchases ; a decline in fhlb stock balances resulting from redemptions relating to the repayment of fhlb advances ; an increase in bankatlantic bancorp 's loans held for sale associated primarily with the transfer of non-performing commercial and residential loans to held for sale ; a decrease in bankatlantic bancorp 's loans receivable balances associated with $ 87.0 million of net-charge-offs , $ 54.4 million of loans transferred to real estate owned , $ 52.8 million of loan sales , and repayments of loans in the ordinary course of business ; a decrease in assets held for sale from discontinued operations related to a $ 55.1 million write down of the carrying value of the bluegreen communities ' assets to their estimated fair value less cost to sell ; and . a reduction in assets held for sale resulting from the sale of bankatlantic 's tampa branches to pnc . total liabilities at december 31 , 2011 and 2010 were $ 4.6 billion and $ 5.6 billion , respectively . the primary changes in components of total liabilities are summarized below : a decrease in bankatlantic 's interest bearing deposit account balances reflecting the prepayment of institutional and public fund time deposits , as well as a reduction in time deposit accounts associated with the low interest rate environment and competitive money market account interest rates ; an increase in bankatlantic 's non-interest bearing deposits due primarily to higher average balances per customer account ; a decrease in deposits held for sale associated with the sale of bankatlantic 's tampa branches to pnc ; the repayments of fhlb advances and short-term borrowings at bankatlantic to reduce assets and improve liquidity and regulatory capital ratios ; an increase in the deferred gain on debt settlement of $ 29.9 million related to the debt settlement of carolina oak , which was reflected on our consolidated statement of financial condition as of december 31
| parent company results of operations the following table is a condensed income statement summarizing the parent company 's segment results of operations ( in thousands ) : replace_table_token_56_th parent company interest on loans during 2011 , 2010 and 2009 represented interest income from two commercial real estate loans acquired in a march 2008 loan transfer from bankatlantic that were returned to an accrual status during 2008 as the borrowers ' cash flow improved upon obtaining tenants for properties serving as collateral . interest and dividend income on investments during the years ended december 31 , 2011 , 2010 and 2009 were comprised primarily of earnings from a bankatlantic reverse repurchase agreement account and dividends from an equity investment . the parent company ceased receiving dividends from the equity investment during the second quarter of 2011. earnings from the bankatlantic reverse repurchase account were $ 6,000 , $ 17,000 and $ 28,000 , respectively , during the years ended december 31 , 2011 , 2010 and 2009 . 161 md & a ( financial services ) interest expense for the years ended december 31 , 2011 , 2010 and 2009 represents interest expense recognized on the parent company 's junior subordinated debentures . the increase in interest expenses during 2011 compared to 2010 reflects higher average balances on junior subordinated debentures resulting from the deferral of interest . the average balance on junior subordinated debentures increased from $ 314.1 million during 2010 to $ 328.5 million during 2011. average interest rates on junior subordinated debentures were 4.74 % during 2011 compared to 4.73 % during the 2010 period . the decline in interest expense during 2010 compared to 2009 reflects a decline in the three month libor interest rates . the decline in interest rates was partially offset by deferred interest on the junior subordinated debentures .
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these forward-looking statements , which include statements regarding business and market trends , future financial performance , customer order rates , expected areas of growth , emerging markets , future product mix , research and development activities , investments , and strategic plans , involve known and unknown risks and uncertainties that could cause actual results to differ materially from those projected . such risks and uncertainties include : ( 1 ) current and future conditions in the global economy ; ( 2 ) the cyclicality of the semiconductor and electronics industries ; ( 3 ) the reliance on revenue from the automotive or consumer electronics industries ; ( 4 ) the inability to penetrate new markets ; ( 5 ) the inability to achieve significant international revenue ; ( 6 ) fluctuations in foreign currency exchange rates and the use of derivative instruments ; ( 7 ) the loss of a large customer ; ( 8 ) the inability to attract and retain skilled employees ; ( 9 ) the reliance upon key suppliers to manufacture and deliver critical components for our products ; ( 10 ) the failure to effectively manage product transitions or accurately forecast customer demand ; ( 11 ) the inability to design and manufacture high-quality products ; ( 12 ) the technological obsolescence of current products and the inability to develop new products ; ( 13 ) the failure to properly manage the distribution of products and services ; ( 14 ) the inability to protect our proprietary technology and intellectual property ; ( 15 ) our involvement in time-consuming and costly litigation ; ( 16 ) the impact of competitive pressures ; ( 17 ) the challenges in integrating and achieving expected results from acquired businesses ; ( 18 ) potential impairment charges with respect to our investments or for acquired intangible assets or goodwill ; ( 19 ) exposure to additional tax liabilities ; and ( 20 ) information security breaches or business system disruptions . the foregoing list should not be construed as exhaustive and we encourage readers to refer to the detailed discussion of risk factors included in part i item 1a of this annual report on form 10-k. the company cautions readers not to place undue reliance upon any such forward-looking statements , which speak only as of the date made . the company disclaims any obligation to subsequently revise forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date such statements are made . executive overview cognex corporation is a leading worldwide provider of machine vision products that capture and analyze visual information in order to automate tasks , primarily in manufacturing processes , where vision is required . our modular vision systems division ( mvsd ) specializes in machine vision systems and id products that are used to automate the manufacture and tracking of discrete items , while our surface inspection systems division ( sisd ) specializes in machine vision systems that are used to inspect the surfaces of materials processed in a continuous fashion . in addition to product revenue derived from the sale of machine vision systems , the company also generates revenue by providing maintenance and support , training , consulting , and installation services to its customers . our customers can be classified into three primary markets : factory automation , semiconductor and electronics capital equipment , and surface inspection . factory automation customers , who are included in the company 's mvsd segment , purchase cognex vision products and incorporate them into their manufacturing processes . virtually every manufacturer can achieve better quality and manufacturing efficiency by using machine vision , and therefore , this market includes a broad base of customers across a variety of 21 industries , including automotive , consumer electronics , food and beverage , pharmaceutical , and medical devices . the factory automation market also includes customers who purchase cognex vision products for use outside of the assembly process , such as using id products in logistics automation for package sorting and distribution . sales to factory automation customers represented approximately 80 % of total revenue in 2013 compared to 75 % of total revenue in 2012. semiconductor and electronics capital equipment manufacturers , who are included in the company 's mvsd segment , purchase cognex vision products and integrate them into the automation equipment that they manufacture and then sell to their customers to either make semiconductor chips or assemble printed circuit boards . demand from these capital equipment manufacturers has historically been highly cyclical , with periods of investment followed by downturn . sales to semiconductor and electronics capital equipment manufacturers represented approximately 7 % of total revenue in 2013 compared to 9 % of total revenue in 2012. surface inspection customers , who comprise the company 's sisd segment , are manufacturers of materials processed in a continuous fashion , such as metals , paper , nonwoven , plastics , and glass . these customers need sophisticated machine vision to detect , classify , and analyze defects on the surfaces of those materials as they are being processed at high speeds . surface inspection sales represented approximately 13 % of total revenue in 2013 compared to 16 % of total revenue in 2012. revenue for the year ended december 31 , 2013 totaled $ 353,886,000 , representing an increase of 9 % over the prior year . growth in the factory automation market of 16 % was partially offset by lower sales in the semiconductor and electronics capital equipment and the surface inspection markets . gross margin increased to 76 % of revenue in 2013 compared to 75 % of revenue in 2012 due to a higher percentage of total revenue from the sale of relatively higher-margin mvsd products . operating expenses increased 14 % over the prior year due primarily to expenses associated with increased engineering and sales headcount , as well as higher sales commissions and company bonus accruals . management believes these headcount investments are important for longer-term revenue growth . story_separator_special_tag product revenue product revenue increased by $ 31,198,000 , or 11 % , from the prior year . this increase was driven by a higher volume of mvsd systems sold than in the prior year , partially offset by lower mvsd average selling prices due to a shift in revenue mix to id products , which have relatively lower average selling prices . we expect this trend to continue in 2014. service revenue service revenue , which is derived from the sale of maintenance and support , training , consulting , and installation services , decreased by $ 1,591,000 , or 6 % , from the prior year . this decrease was due to lower consulting services at mvsd , as well as lower revenue from sisd spare part sales , training services , and maintenance and support contracts . service revenue decreased as a percentage of total revenue to 8 % in 2013 from 9 % in 2012. gross margin gross margin as a percentage of revenue increased to 76 % for 2013 compared to 75 % for 2012. this increase was primarily due to a higher percentage of total revenue from the sale of mvsd products , which have relatively higher margins than the sale of sisd products or the sale of services . mvsd margin mvsd gross margin as a percentage of revenue was 80 % in both 2013 and 2012 , as slightly lower product margins were offset by improvements in consulting service margins . the minor deterioration in the product margin was due to higher provisions for excess and obsolete inventory and for warranties , as well as a shift in revenue mix to relatively lower-margin id products . this was largely offset by the favorable impact of higher sales volume and material cost reductions . sisd margin sisd gross margin as a percentage of revenue was 54 % in both 2013 and 2012 , as improvements in installation service margins were offset by higher provisions for excess and obsolete inventory . product margin product gross margin as a percentage of revenue was 78 % in both 2013 and 2012. a slight reduction in product margins at both mvsd and sisd , as described above , were offset by a favorable shift in revenue mix to mvsd products , which have relatively higher margins than sisd products . service margin service gross margin as a percentage of revenue was 55 % in 2013 compared to 51 % in 2012. this increase was due to improved margins from mvsd consulting services , as well as improvements in sisd installation service margins . 24 operating expenses research , development , and engineering expenses research , development , and engineering ( rd & e ) expenses in 2013 increased by $ 6,538,000 , or 16 % , from the prior year . mvsd rd & e expenses increased by $ 6,300,000 , or 17 % , while sisd rd & e expenses increased by $ 238,000 , or 6 % . the table below ( in thousands ) details the $ 6,300,000 net increase in mvsd rd & e in 2013 : replace_table_token_6_th personnel costs have increased from the prior year due to additional headcount , and to a lesser extent , higher average costs per employee . over the past few years , the company has increased engineering headcount to support new product development , resulting in higher personnel costs , such as salaries and fringe benefits . average costs per employee have increased over the prior year due primarily to modest wage increases granted early in 2013 and higher fringe benefits , such as health care costs . in addition , mvsd recorded higher bonus accruals , increased costs related to outsourced engineering services , and increased stock-based compensation expense due to a higher valuation of stock options granted in the first quarter of 2013. the increase in sisd rd & e expenses was primarily due to increased costs related to outsourced engineering services ( $ 133,000 ) and increased personnel costs ( $ 107,000 ) . rd & e expenses as a percentage of revenue were 14 % in 2013 and 13 % in 2012. we believe that a continued commitment to rd & e activities is essential in order to maintain or achieve product leadership with our existing products and to provide innovative new product offerings . in addition , we consider our ability to accelerate time-to-market for new products to be critical to our revenue growth . therefore , we expect to continue to make significant rd & e investments in the future . although we target our rd & e spending to be between 10 % and 15 % of total revenue , this percentage is impacted by revenue levels . selling , general , and administrative expenses selling , general , and administrative ( sg & a ) expenses in 2013 increased by $ 15,523,000 , or 13 % , from the prior year . mvsd sg & a expenses increased by $ 12,138,000 , or 13 % , and sisd sg & a expenses increased by $ 763,000 , or 6 % . corporate expenses that are not allocated to either division increased by $ 2,622,000 , or 22 % . 25 the table below ( in thousands ) details the $ 12,138,000 net increase in mvsd sg & a in 2013 : replace_table_token_7_th personnel costs have increased from the prior year due to additional headcount , and to a lesser extent , higher average costs per employee . over the past few years , the company has increased headcount in selective areas , principally sales , resulting in higher personnel costs , such as salaries , fringe benefits , commissions , and travel expenses . average costs per employee have increased over the prior year due primarily to modest wage increases granted early in 2013 and higher fringe benefits , such as health care costs and foreign retirement obligations .
| results of operations year ended december 31 , 2012 compared to year ended december 31 , 2011 revenue revenue for the year ended december 31 , 2012 increased by $ 2,365,000 , or 1 % , from the prior year . this increase was due to a $ 9,220,000 , or 4 % , increase in sales to factory automation customers and a $ 2,342,000 , or 5 % , increase in sales to surface inspection customers , partially offset by a $ 9,197,000 , or 24 % , decrease in sales to semiconductor and electronics capital equipment customers . factory automation market sales to customers in the factory automation market represented 75 % of total revenue in 2012 compared to 73 % of total revenue in 2011. sales to these customers increased by $ 9,220,000 , or 4 % , from the prior year . a weaker euro , on average , in 2012 compared to the prior year had a negative impact on reported factory automation revenue , as sales denominated in euros were translated to u.s. dollars at a lower rate . excluding the impact of foreign currency exchange rate changes , which decreased factory automation revenue by $ 6,297,000 , sales to factory automation customers increased by $ 15,517,000 , or 7 % , from 2011 . 27 geographically , increases from the prior year in factory automation revenue excluding the impact of foreign currency exchange rate changes were reported in the americas , europe , and , most notably , in asia , where the company has made significant investments , particularly in china , to expand its sales and support infrastructure in order to access more of the machine vision market in this high-potential growth region .
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under mcdonald 's developmental license or affiliate arrangement , licensees provide capital for the entire business , including the real estate interest , and the company generally has no capital invested . the company also has an equity investment in a limited number of foreign affiliates ( primarily in china and japan ) . mcdonald 's is primarily a franchisor and believes franchising is paramount to delivering great-tasting food , locally-relevant customer experiences and driving profitability . franchising enables an individual to be his or her own employer and maintain control over all employment-related matters , marketing and pricing decisions , while also benefiting from the strength of mcdonald 's global brand , operating system and financial resources . directly operating mcdonald 's restaurants contributes significantly to our ability to act as a credible franchisor . one of the strengths of the franchising model is that the expertise from operating company-owned restaurants allows mcdonald 's to improve the operations and success of all restaurants while innovations from franchisees can be tested and , when viable , efficiently implemented across relevant restaurants . having company-owned and operated restaurants provides company personnel with a venue for restaurant operations training experience . in addition , in our company-owned and operated restaurants , and in collaboration with franchisees , we are able to further develop and refine operating standards , marketing concepts and product and pricing strategies that will ultimately benefit mcdonald 's restaurants . mcdonald 's continually reviews its mix of company-operated and franchised restaurants to help optimize overall performance , with a goal to be approximately 95 % franchised over the long term . the company 's revenues consist of sales by company-operated restaurants and fees from restaurants operated by franchisees . revenues from conventional franchised restaurants include rent and royalties based on a percent of sales along with minimum rent payments , and initial fees . revenues from developmental licensees and affiliate restaurants include a royalty based on a percent of sales , and generally include initial fees upon the opening of a new restaurant or grant of a new license . fees vary by type of site , amount of company investment , if any , and local business conditions . these fees , along with occupancy and operating rights , are stipulated in franchise/license agreements that generally have 20-year terms . through the end of 2018 , the business was structured into the following segments that combined markets with similar characteristics and ownership structure , and reflected how management reviewed and evaluated operating performance : u.s. - the company 's largest segment . international lead markets - established markets including australia , canada , france , germany , the u.k. and related markets . high growth markets - markets that the company believes have relatively higher restaurant expansion and franchising potential including china , italy , korea , the netherlands , poland , russia , spain , switzerland and related markets . foundational markets & corporate - the remaining markets in the mcdonald 's system , most of which operate under a largely franchised model . corporate activities are also reported within this segment . beginning in 2019 , the company changed its global operating structure as detailed in the company 's form 8-k filed with the sec on september 24 , 2018. refer to the strategic direction and financial performance section on the next page for additional information as well as the segment and geographic information section included in part ii , item 8 , page 49 of this form 10-k. management 's view of the business in analyzing business trends , management reviews results on a constant currency basis and considers a variety of performance and financial measures which are considered to be non-gaap , including comparable sales and comparable guest count growth , systemwide sales growth , return on incremental invested capital ( `` roiic '' ) , free cash flow and free cash flow conversion rate , as described below . constant currency results exclude the effects of foreign currency translation and are calculated by translating current year results at prior year average exchange rates . management reviews and analyzes business results in constant currencies and bases most incentive compensation plans on these results because the company believes this better represents its underlying business trends . comparable sales and comparable guest counts are key performance indicators used within the retail industry and are indicative of the impact of the company 's initiatives as well as local economic and consumer trends . increases or decreases in comparable sales and comparable guest counts represent the percent change in sales and transactions , respectively , from the same period in the prior year for all restaurants , whether operated by the company or franchisees , in operation at least thirteen months , including those temporarily closed . some of the reasons restaurants may be temporarily closed include reimaging or remodeling , rebuilding , road construction and natural disasters . comparable sales exclude the impact of currency translation , and , beginning in 2017 , also exclude sales from venezuela due to its hyper-inflation . management generally identifies hyper-inflationary markets as those markets whose cumulative mcdonald 's corporation 2018 annual report 15 inflation rate over a three-year period exceeds 100 % . comparable sales are driven by changes in guest counts and average check , which is affected by changes in pricing and product mix . typically , pricing has a greater impact on average check than product mix . the goal is to achieve a relatively balanced contribution from both guest counts and average check . systemwide sales include sales at all restaurants . while franchised sales are not recorded as revenues by the company , management believes the information is important in understanding the company 's financial performance because these sales are the basis on which the company calculates and records franchised revenues and are indicative of the financial health of the franchisee base . story_separator_special_tag as the company continues its ambitious pace of converting restaurants to eotf , it is placing renewed emphasis on improving its existing service model ( i.e. , eat in , take out , or drive-thru ) and strengthening its relationships with customers through technology . by evolving the technology platform , the company is redefining how we provide convenience to customers by expanding choices for how customers order , pay and are served through additional functionality on its global mobile app , self-order kiosks , and technologies that enable conveniences such as table service and curb-side pick-up . in 2018 , the company made further progress in rolling out digital platforms to improve convenience for our customers and provide a simpler and more personalized experience . this included having kiosks deployed in nearly 17,000 restaurants , digital menu boards in more than 21,000 restaurants , and availability of mobile order & pay in over 22,000 restaurants . the popularity and utilization of self-order kiosks continues to grow over time , and in france , italy and spain , well over half of all in-restaurant visits orders are placed through the kiosk . germany made a strong push to grow digital engagement in 2018 through digital calendar promotions , and saw success , driving sales and guest count growth , as well as increased app downloads . in 2019 , the company will continue to utilize digital initiatives to engage customers , grow awareness and adoption of digital offerings , and support our menu offerings . delivery . the company continues to build momentum with its delivery platform as a way of expanding the convenience for its customers . in 2018 , mcdonald 's expanded the number of restaurants offering delivery and it is now available in over half of the global system . customers are responding positively , as demonstrated by high satisfaction ratings , high reorder rates , and average checks that are 1.5-2 times higher than average non-delivery transactions . in addition , many of our larger markets , such as the u.s. , france and the u.k. , have achieved delivery sales growth in the high double digits in restaurants offering the service for more than 12 months . further , in several of our top markets , delivery now represents as much as 10 % of sales in those restaurants offering delivery . while growing customer awareness remains a priority and focus in 2019 , we have been effective in markets like australia , where awareness has more than doubled through a major campaign that promoted delivery with in-restaurant signs , engaging social media outreach , public relations activity and advertising . the velocity growth plan is a global strategy that is tailored at a market level to allow for the best customer experience and most convenience for our valued customers . while the plan provides a consistent framework on how to retain , regain , and convert customers , the execution varies across the globe . markets continue to make progress on the three pillars of the plan and its growth accelerators . the u.s. , for example , remains diligently focused on driving guest count growth in 2019 through actions that collectively transform the customer experience . in addition to continuing its aggressive execution of the growth accelerators of eotf , digital and delivery , the u.s. will also enhance the customer experience through strong restaurant execution , with a focus on the drive thru experience , and reducing complexity in the restaurants . in 2018 , several markets , including key markets outside of the u.s. , experienced strong business results , driven by the velocity growth plan , and the markets will continue to hone their execution of the plan in 2019 , focusing on value , quality and convenience . our plan also includes the company further embedding actions in response to certain social and environmental issues into the core of our business , which we refer to as using our scale for good . as one of the world 's largest restaurant companies , our scale for good highlights our commitment to global priorities that are consistent with our strategic priorities and provides an opportunity to collaborate with our franchisees and suppliers to drive meaningful progress . we recognize that our success in advancing each of the pillars within our strategy will be demonstrated as customers continue to feel good about visiting mcdonald 's restaurants and eating our food . while we 're committed to working to address many challenges facing society today , we are elevating a few global priorities where we believe we can make the greatest difference in driving industry-wide change . our four global priorities reflect the social and environmental impacts of our food and our business and are : beef sustainability , packaging and recycling , commitment to families and our investment in people . in 2018 , the company demonstrated its dedication to these priorities , pledging commitments related to reducing greenhouse gas emissions and the use of antibiotics , sourcing sustainable packaging , and making a difference for families through our food offerings , reading programs and ronald mcdonald house charities . the company is confident that , with the velocity growth plan in place , the system will work together in 2019 to focus on improving the taste of our delicious food , enhancing convenience , offering compelling value and upholding the trust consumers place in our brand , which we believe will enhance our ability to deliver long-term sustainable growth . mcdonald 's corporation 2018 annual report 17 2018 financial performance the company 's 2018 financial performance continued to demonstrate that the velocity growth plan is working . by focusing on the aforementioned three pillars , and the identified growth accelerators , the company has achieved 14 consecutive quarters of positive global comparable sales . in 2018 , global comparable sales increased 4.5 % and global comparable guest counts increased 0.2 % . comparable sales in the u.s. increased 2.5 % and comparable guest counts decreased 2.2 % .
| consolidated operating results replace_table_token_3_th n/m not meaningful impact of foreign currency translation on reported results while changes in foreign currency exchange rates affect reported results , mcdonald 's mitigates exposures , where practical , by purchasing goods and services in local currencies , financing in local currencies and hedging certain foreign-denominated cash flows . in 2018 , results reflected a positive foreign currency impact of $ 0.04 , primarily due to the stronger euro and british pound . in 2017 , results reflected the stronger euro , offset by the weaker british pound . in 2016 , results were negatively impacted by the weaker british pound as well as many other currencies . impact of foreign currency translation on reported results replace_table_token_4_th mcdonald 's corporation 2018 annual report 20 net income and diluted earnings per common share in 2018 , net income increased 14 % ( 13 % in constant currencies ) to $ 5.9 billion and diluted earnings per common share increased 18 % ( 18 % in constant currencies ) to $ 7.54 . foreign currency translation had a positive impact of $ 0.04 on diluted earnings per share . in 2017 , net income increased 11 % ( 11 % in constant currencies ) to $ 5.2 billion and diluted earnings per common share increased 17 % ( 17 % in constant currencies ) to $ 6.37 . foreign currency translation had no impact on diluted earnings per share . results in 2018 reflected a lower effective tax rate , and stronger operating performance due to an increase in sales-driven franchised margin dollars , partly offset by lower company-operated margin dollars due to the impact of refranchising . results in 2017 reflected stronger operating performance , g & a savings , improved performance in japan , and the benefit of a reversal of a valuation allowance on a deferred tax asset in japan .
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additional information with respect to stock option activity is as follows ( in thousands , except per share amounts ) : replace_table_token_24_th additional information with regards to outstanding options that are vesting , expected to vest , or exercisable as of march 31 , story_separator_special_tag you should read the following discussion in conjunction with our audited historical consolidated financial statements and notes thereto , which are included elsewhere in this form 10-k. management 's discussion and analysis of financial condition and results of operations contains statements that are forward-looking . these statements are based on current expectations and assumptions that are subject to risk , uncertainties and other factors . actual results could differ materially because of the factors discussed in part i , item 1a . risk factors of this form 10-k. critical accounting policies our discussion and analysis of the company 's financial condition and results of operations are based upon the consolidated financial statements included in this report , which have been prepared in accordance with u.s. generally accepted accounting principles . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts . we evaluate the estimates on an on-going basis . we base these estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions and conditions . we believe the following critical accounting policies involve significant judgments and estimates that are used in the preparation of the consolidated financial statements : for purposes of determining the variables used in the calculation of stock compensation expense for stock options , we perform an analysis of current market data and historical company data to calculate an estimate of implied volatility , the expected term of the option , and the expected forfeiture rate . with the exception of the expected forfeiture rate , which is not an input , we use these estimates as variables in the black-scholes option pricing model . depending upon the number of stock options granted , any fluctuations in these calculations could have a material effect on the results presented in our consolidated statement of operations . in addition , any differences between estimated forfeitures and actual forfeitures could also have a material impact on our financial statements . see note 8 equity compensation of the notes to consolidated financial statements for additional details . we recognize revenue when all of the following criteria are met : persuasive evidence that an arrangement exists , delivery of goods has occurred , the sales price is fixed or determinable and collectability is reasonably assured . we evaluate our distributor arrangements , on a distributor by distributor basis , with respect to each of the four criteria above . for a majority of our distributor arrangements , we provide rights of price protection and stock rotation . as a result , revenue is deferred at the time of shipment to our domestic distributors and certain international distributors due to the determination that the ultimate sales price to the distributor is not fixed or determinable . once the distributor has resold the product , and our final sales price is fixed or determinable , we recognize revenue for the final sales price and record the related costs of sales . for certain of our smaller international distributors , we do not grant price protection rights and provide minimal stock rotation rights . for these distributors , revenue is recognized upon delivery to the distributor , less an allowance for estimated returns , as the revenue recognition criteria have been met upon shipment . further , the company defers the associated cost of goods sold on our consolidated balance sheet , net within the deferred income caption . the company routinely evaluates the products held by our distributors for impairment to the extent such products may be returned by the distributor within these limited rights and such products would be considered excess or obsolete if included within our own inventory . products returned by distributors and subsequently scrapped have historically been immaterial to the company . we provide for the recognition of deferred tax assets if realization of such assets is more likely than not . the company evaluates the ability to realize its deferred tax assets by using a three year forecast to determine the amount of net operating losses and other deferred tax assets that would be utilized if we achieved the results set page 23 of 67 forth in the three year forecast . the company limited the forecast period to three years because of the cyclical and competitive nature of the semiconductor industry , and the company 's reliance on a key customer who represented approximately 62 percent of total sales in fiscal year 2012. there can be no assurance that we will achieve the results set forth in our three year forecast and our actual results may differ materially from our forecast . we have provided a valuation allowance against a portion of our net u.s. deferred tax assets due to uncertainties regarding their realization . we evaluate our ability to realize our deferred tax assets basis by determining whether or not the anticipated future taxable income is expected to be sufficient to utilize the deferred tax assets that we have recognized . if our future income is not sufficient to utilize the deferred tax assets that we have recognized , we increase the valuation allowance to the point at which all of the remaining recognized deferred tax assets will be utilized by the future taxable income . if our anticipated future taxable income is sufficient to conclude that additional deferred tax assets should be recognized , we decrease the valuation allowance . story_separator_special_tag recently issued accounting pronouncements in may 2011 , the fasb issued accounting standards update ( asu ) no . 2011-04 , fair value measurement ( accounting standards codification ( asc ) topic 820 ) amendments to achieve common fair value measurement and disclosure requirements in u.s. gaap and ifrss . the amendments in this asu result in common fair value measurement and disclosure requirements in u.s. gaap and international financial reporting standards ( ifrs ) . the asu provides for certain changes in current gaap disclosure requirements , including the measurement of level 3 assets and measuring the fair value of an instrument classified in a reporting entity 's shareholders ' equity . the amendments in this asu are to be applied prospectively , and are effective during interim and annual periods beginning after december 15 , 2011. the adoption of this guidance is not anticipated to have a material impact on our consolidated financial position , results of operations or cash flows . in may 2011 , the fasb issued asu no . 2011-05 , comprehensive income ( asc topic 220 ) presentation of comprehensive income . with this update , an entity has the option to present the total of comprehensive income , the components of net income , and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements . in both choices , an entity is required to present each component of net income along with total net income , each component of other comprehensive income along with a total for other comprehensive income , and a total amount for comprehensive income . current u.s. gaap allows reporting entities the option to present the components of other comprehensive income as part of the statement of changes in stockholders ' equity ; this update eliminates that option . the amendments in this asu should be applied retrospectively , and are effective for fiscal years , and interim periods within those years , beginning after december 15 , 2011. the adoption of this guidance will affect financial statement presentation only and therefore , will not have a material impact on our consolidated financial position , results of operations or cash flows . this asu was further revised in asu no . 2011-12 , comprehensive income ( topic 220 ) - deferral of the effective date for amendments to the presentation of reclassifications of items out of accumulated other comprehensive income in accounting standards update no . 2011-05 that was issued in december 2011. the adoption of this guidance is not anticipated to have a material impact on our consolidated financial position , results of operations or cash flows , but will result in an additional statement of other comprehensive income . page 25 of 67 in september 2011 , the fasb issued asu no . 2011-08 , intangiblesgoodwill and other ( topic 350 - testing goodwill for impairment . under the amendments in this update , an entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount . if an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount , then performing the two-step impairment test is unnecessary . however , if an entity concludes otherwise , then it is required to perform the first step of the two-step impairment test and proceed as dictated in previous fasb guidance . under the amendments in this update , an entity has the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the first step of the two-step goodwill impairment test . an entity may resume performing the qualitative assessment in any subsequent period . the amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after december 15 , 2011 , with early adoption permitted . the adoption of this guidance is not anticipated to have a material impact on our consolidated financial position , results of operations or cash flows . overview cirrus logic develops high-precision analog and mixed-signal ics for a broad range of audio and energy markets . we track operating results in one reportable segment , but assess financial performance by product line , which currently are audio and energy product lines . in fiscal year 2012 , the company completed the $ 80 million stock repurchase program at an average of $ 15.51 per share that we began in 2011 , continued to target growing markets that we were focused on in previous years and developed new winning designs . we also successfully launched our first led controller within the energy product line in the current fiscal year focused on our new lighting initiative . fiscal year 2012 fiscal year 2012 net sales of $ 426.8 million represented a 15 percent increase , which is our target annual growth rate , over fiscal year 2011 net sales of $ 369.6 million . audio product line sales of $ 350.7 million in fiscal year 2012 represented a 32 percent increase over fiscal year 2011 sales of $ 264.8 million and were primarily attributable to higher sales of portable audio products . energy product line sales of $ 76.1 million in fiscal year 2012 represented a 27 percent decrease from fiscal year 2011 sales of $ 104.7 million , and were attributable to decreased sales across product lines , primarily in the seismic product line . in fiscal year 2012 , we launched our first led controller within our energy product line and continued our strategy of targeting growing markets , where we can showcase our expertise in analog and digital signal processing to solve challenging problems .
| results of operations the following table summarizes the results of our operations for each of the past three fiscal years as a percentage of net sales . all percentage amounts were calculated using the underlying data , in thousands : replace_table_token_4_th page 27 of 67 net sales we report sales in two product categories : audio products and energy products . our sales by product line are as follows ( in thousands ) : replace_table_token_5_th net sales for fiscal year 2012 increased 15 percent , to $ 426.8 million from $ 369.6 million in fiscal year 2011. the increase in net sales reflects an $ 85.9 million increase in audio product sales and a $ 28.6 million decrease in energy product sales . the audio products group experienced growth primarily from the sales of portable products , while the decline in energy product group sales was attributable to decreased sales across product lines . net sales for fiscal year 2011 increased 67 percent , to $ 369.6 million from $ 221.0 million in fiscal year 2010. the increase in net sales reflects a $ 111.2 million increase in audio product sales and a $ 37.4 million increase in energy product sales . the audio products group experienced growth primarily from the sales of portable and surround codecs products , while the energy product group sales increases were primarily attributable to sales of seismic , power meter , and power amplification products . export sales , principally to asia , including sales to u.s.-based customers that manufacture products at plants overseas , were approximately $ 376.6 million in fiscal year 2012 , $ 302.7 million in fiscal year 2011 , and $ 173.6 million in fiscal year 2010. export sales to customers located in asia were 79 percent , 70 percent , and 65 percent of net sales in fiscal years 2012 , 2011 , and 2010 , respectively .
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we conduct our operations through our operating partnership , of which we are the sole general partner . we own and operate a portfolio of apartment properties located throughout the united states . our primary business objective is to maximize stockholder value by increasing cash flows at our existing apartment properties and acquiring additional properties either with strong and stable occupancies and the ability to raise rental rates or potential for repositioning through capital expenditures . during 2013 we acquired two apartment properties adding 786 units to our portfolio . in addition we entered into purchase agreements for six additional apartment properties with 2,028 total units . as of december 31 , 2013 , we own ten apartment properties containing an aggregate of 2,790 apartment units . we refer to these apartment properties as our existing portfolio. as of december 31 , 2013 , our existing portfolio had an average occupancy of 94.5 % and an average monthly effective rent per occupied apartment unit of $ 775. see historical performance of our apartment properties. we expect that that acquisition of the reserve at eagle ridge and the oklahoma portfolio and , upon completion , the missouri property , will increase our revenues , expenses and net income . key statistics ( dollars in thousands , except per share and per unit information ) replace_table_token_9_th ( 1 ) average monthly effective rent per occupied unit represents the average monthly rent collected for all occupied units after giving effect to tenant concessions . we do not report average effective rent per unit in the month of acquisition as it is not representative of a full month of operations . non-gaap financial measures funds from operations and core funds from operations we believe that ffo and core ffo , each of which is a non-gaap financial measure , are additional appropriate measures of the operating performance of a reit and us in particular . we compute ffo in accordance with the standards established by the national association of real estate investment trusts , or nareit , as net income or loss allocated to common shares ( computed in accordance with gaap ) , excluding real estate-related depreciation and amortization expense , gains or losses on sales of real estate and the cumulative effect of changes in accounting principles . core ffo is a computation made by analysts and investors to measure a real estate company 's operating performance by removing the effect of items that do not reflect ongoing property operations , including acquisition expenses , expensed costs related to the issuance of shares of our common stock and equity-based compensation expenses , from the determination of ffo . we incur acquisition expenses in connection with acquisitions of real estate properties and expense those costs when incurred in accordance with u.s. gaap . as these expenses are one-time and reflective of investing activities rather than operating performance , we add back these costs to ffo in determining core ffo . 33 our calculation of core ffo differs from the methodology used for calculating core ffo by some other reits and , accordingly , our core ffo may not be comparable to core ffo reported by other reits . our management utilizes ffo and core ffo as measures of our operating performance , and believes they are also useful to investors , because they facilitate an understanding of our operating performance after adjustment for certain non-cash items , such as depreciation and amortization expenses , and with respect to core ffo , acquisition expenses and pursuit costs that are required by gaap to be expensed but may not necessarily be indicative of current operating performance and that may not accurately compare our operating performance between periods . furthermore , although ffo , core ffo and other supplemental performance measures are defined in various ways throughout the reit industry , we also believe that ffo and core ffo may provide us and our investors with an additional useful measure to compare our financial performance to certain other reits . we also use core ffo for purposes of determining the quarterly incentive fee , if any , payable to our advisor . neither ffo nor core ffo is equivalent to net income or cash generated from operating activities determined in accordance with gaap . furthermore , ffo and core ffo do not represent amounts available for management 's discretionary use because of needed capital replacement or expansion , debt service obligations or other commitments or uncertainties . neither ffo nor core ffo should be considered as an alternative to net income as an indicator of our operating performance or as an alternative to cash flow from operating activities as a measure of our liquidity . set forth below is a reconciliation of net income ( loss ) to ffo and core ffo for the years ended december 31 , 2013 , 2012 and 2011 ( in thousands , except share and per share information ) : replace_table_token_10_th ( a ) weighted-average sharesdiluted includes 5,274,900 limited partnership units that were exchanged for common stock on may 7 , 2013 and exchangeable for common stock as of december 31 , 2012 and 2011. story_separator_special_tag width= '' 1 % '' > pay our operating expenses , including fees paid to our advisor and our property manager ; and distribute a minimum of 90 % of our reit taxable income ( determined without regard to the deduction for dividends paid and excluding net capital gain ) and to make investments in a manner that enables us to maintain our qualification as a reit . we intend to meet these liquidity requirements primarily through : the use of our cash and cash equivalent balance of $ 3.3 million as of december 31 , 2013 ; cash generated from operating activities ; our $ 20 million secured credit facility and existing and future financing secured directly or indirectly by the apartment properties in our portfolio ; proceeds from the sale of our common stock , including the january 2014 offering ; and if required , proceeds from future borrowings and offerings . story_separator_special_tag as of december 31 , 2013 , 30-day libor was 0.17 % . interest only payments are due monthly . 37 the weighted average interest rate of our mortgage indebtedness was 3.8 % as of december 31 , 2013. as of december 31 , 2013 , rait held $ 38.1 million of our debt while $ 65.2 million was held by third parties . as of december 31 , 2012 , rait held $ 38.1 million of our debt while $ 54.3 million was held by third parties . for the year ended december 31 , 2013 and 2012 , we paid approximately $ 722,000 and $ 724,000 respectively , of interest to rait . on december 27 , 2013 , we entered into a loan agreement for an $ 8.6 million loan secured by a first mortgage on our berkshire square property . we used a portion of the loan to repay an advance of approximately $ 8.0 million made with respect to the property pursuant to our secured credit facility . the loan bears interest at a fixed rate of 4.42 % per annum , provides for monthly payments of interest only until february 2016 and for payments of principal and interest thereafter . the loan matures on january 1 , 2021 and $ 7.5 million will be due upon maturity . prior to placement of the loan into a securitization , or if the placement of the loan into a securitization does not occur within the first year of the loan term , prepayment of the loan in full but not in part is permitted , along with payment of additional consideration which during the defined yield maintenance period is equal to the federal home loan mortgage corporation 's defined yield maintenance prepayment premium , subject to a minimum of 1 % of the loan amount . if the loan is placed into a securitization within the first year of the loan term , the loan can not thereafter be prepaid or defeased for two years following such placement of the loan into a securitization . thereafter , the loan may be defeased pursuant to the terms of the note and loan agreement . the loan may be prepaid in full without additional consideration during the last three months of the loan term . each of our mortgages is a non-recourse obligation subject to customary exceptions . the loan agreements contain customary events of default , including defaults in the payment of principal or interest , defaults in compliance with the covenants contained in the documents evidencing the loan , defaults in payments under any other security instrument covering any part of the property , whether junior or senior to the loan , and bankruptcy or other insolvency events . at the closing of our acquisition of the oklahoma portfolio on february 28 , 2014 , our subsidiary assumed the ok loan secured by the oklahoma portfolio having an outstanding principal balance of approximately $ 46.0 million . the ok loan accrues interest at a fixed rate equal to 5.62 % per annum and will mature in april 2016. the mortgage is not permitted to be prepaid prior to march 1 , 2016 ; however , the mortgage may be defeased and the collateral securing the mortgage loan released , subject to our compliance with customary conditions to defeasance . our operating partnership guaranteed the loan and we agreed to give a springing guaranty of the loan if defined conditions relating to the operating partnership 's financial condition are not met . as of december 31 , 2013 , our total mortgage indebtedness had an aggregate outstanding principal balance of $ 103.3 million and a weighted average interest rate of 3.8 % . on a pro forma basis , including the mortgage indebtedness on our berkshire square property incurred in december 2013 and the first lien mortgage to be assumed in connection with the probable acquisition of the oklahoma portfolio , as of december 31 , 2013 , our total mortgage indebtedness would have an aggregate outstanding principal balance of $ 149.3 million and a weighted average interest rate of 4.3 % . subsequent to our acquisition of eagle ridge on january 31 , 2014 , on february 7 , 2014 , our subsidiary entered into the er loan agreement . pursuant to the er loan agreement , our subsidiary borrowed the er loan in the amount of $ 18.85 million secured by a first mortgage on eagle ridge . the er loan bears interest at a fixed rate of 4.67 % per annum and provides for monthly payments of interest only until the maturity date of march 1 , 2024 when the principal balance , accrued interest and all other amounts due under the er loan become due . the er loan is prepayable at our subsidiary 's option after august 31 , 2023 and permits defeasance by our subsidiary if defined conditions are met . our operating partnership has guaranteed the er loan . secured credit facility on october 25 , 2013 , our operating partnership entered into the secured credit facility with the huntington national bank . subject to the terms and conditions of the credit agreement , our operating partnership may borrow up to the lesser of $ 20.0 million , 60 % of the total acquisition costs of all properties , or the borrowing base properties , acquired with advances under the secured credit facility or an amount that would not cause the operating partnership to exceed the debt service coverage ratio ( as defined in the credit agreement ) . advances under the secured credit facility bear interest at a daily fluctuating libo ( as defined in the secured credit facility ) rate plus 2.75 % per annum or a prime commercial rate ( as defined in the secured credit facility ) . each advance against a specific borrowing base property must be repaid in full within six months after the property first becomes a borrowing base property .
| results of operations year ended december 31 , 2013 compared to the year ended december 31 , 2012 our total revenue increased $ 3.3 million to $ 19.9 million for the year ended december 31 , 2013 from $ 16.6 million for the year ended december 31 , 2012. the increase is attributable to $ 2.8 million of revenue from a property we acquired in 2012 present for a full year in 2013 and the acquisition of two properties in 2013 along with improved occupancy which increased 250 basis points to 94.5 % as of december 31 , 2013 from 92.0 % as of december 31 , 2012. our expenses increased $ 2.1 million to $ 15.0 million for the year ended december 31 , 2013 from $ 12.9 million for the year ended december 31 , 2012. expenses were comprised of property operating expenses which increased $ 1.4 million to $ 9.5 million from $ 8.1 million for the year ended december 31 , 2012 and depreciation and amortization which increased $ 0.9 million to $ 4.4 million from $ 3.5 million for the year ended december 31 , 2012. the increases are primarily attributable to $ 2.2 million from a property we acquired in 2012 present for a full year in 2013 and the acquisition of two properties in 2013. we incurred asset management fees during the year ended december 31 , 2013 and 2012 of $ 0.3 million and $ 0.2 million , respectively . we incurred general and administrative expenses related to audit and other professional fees , trustee fees and other federal and state filing fees during the years ended december 31 , 2013 and 2012 of $ 0.6 million and $ 1.0 million , respectively .
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in accordance with asc 718 , the measurement date for the performance shares will be determined at such time that the performance goals are attained or that it is probable they will be attained . at such time that it is probable that a performance condition will be achieved , compensation expense will be measured story_separator_special_tag overview royal gold , together with its subsidiaries , is engaged in the business of acquiring and managing precious metals royalties and similar interests . royalties are passive ( non-operating ) interests in mining projects that provide the right to revenue or production from the project after deducting specified costs , if any . we seek to acquire existing royalties or to finance projects that are in production or in development stage in exchange for royalties or similar interests . we are engaged in a continual review of opportunities to acquire existing royalties , to create new royalties or similar interests through the financing of mine development or exploration , or to acquire companies that hold royalties or similar interests . we currently , and generally at any time , have acquisition opportunities in various stages of active review , including , for example , our engagement of consultants and advisors to analyze particular opportunities , analysis of technical , financial and other confidential information , submission of indications of interest , participation in preliminary discussions and involvement as a bidder in competitive auctions . 30 as of june 30 , 2011 , the company owns royalties on 36 producing properties , 21 development stage properties and 128 exploration stage properties , of which the company considers 38 to be evaluation stage projects . the company uses `` evaluation stage '' to describe exploration stage properties that contain mineralized material and on which operators are engaged in the search for reserves . we do not conduct mining operations nor are we required to contribute to capital costs ( except as contractually obligated to as part of the mt . milligan transaction described in part i , item i , business , of this report ) , exploration costs , environmental costs or other mining costs on the properties in which we hold royalty interests . during the fiscal year ended june 30 , 2011 , we focused on the management of our existing royalty interests and the acquisition of royalty and similar interests . our financial results are primarily tied to the price of gold , silver , copper , nickel and other metals , as well as production from our producing stage royalty interests . the price of gold , silver , copper , nickel and other metals have fluctuated in recent years . the marketability and the price of gold , silver , copper , nickel and other metals are influenced by numerous factors beyond the control of the company and may have a material and adverse effect on the company 's results of operations and financial condition . for the fiscal years ended june 30 , 2011 , 2010 and 2009 , gold , silver , copper and nickel price averages and percentage of royalty revenues by metal were as follows : replace_table_token_16_th operators ' production estimates by royalty for calendar year 2011 we received annual production estimates from many of the operators of our producing mines during the first calendar quarter of 2011. the following table shows such production estimates for our principal producing properties for calendar 2011 as well as the actual production reported to us by the various operators through june 30 , 2011. the estimates and production reports are prepared by the operators of the mining properties . we do not participate in the preparation or calculation of the operators ' estimates or production reports and have not independently assessed or verified the accuracy of such information . please refer to part i , item 2 , properties , for further discussion on updates at certain of our principal producing and development stage properties . 31 operators ' production estimate by royalty for calendar year 2011 and reported production principal producing properties for the period january 1 , 2011 through june 30 , 2011 replace_table_token_17_th ( 1 ) there can be no assurance that production estimates received from our operators will be achieved . please refer to our cautionary language regarding forward-looking statements following this md & a , as well as the risk factors identified in part i , item 1a , of this report for information regarding factors that could affect actual results . ( 2 ) reported production relates to the amount of metal sales , subject to our royalty interests , for the period january 1 , 2011 through june 30 , 2011 , as reported to us by the operators of the mines . ( 3 ) minefinders estimated that calendar 2011 production for gold would be between 65,000 ounces and 70,000 ounces of gold and silver production would be between 3.3 million ounces and 3.5 million ounces of silver . ( 4 ) st andrew estimates that calendar 2011 gold production will be between 23,000 and 26,000 ounces of gold compared to earlier guidance of 45,000 ounces and 50,000 ounces of gold . reported production for the six months ended june 30 , 2011 includes approximately 1,400 gold ounces attributable to the quarter ended december 31 , 2010 , as reported to us by the operator . ( 5 ) alamos estimates that calendar 2011 gold production will be between 145,000 and 160,000 ounces of gold compared to earlier guidance of 160,000 and 175,000 ounces of gold . ( 6 ) goldcorp estimates that calendar 2011 gold production will be 250,000 ounces compared to earlier guidance of 350,000 ounces . goldcorp has not provided production estimates for silver , lead and zinc since april 2010 . 32 ( 7 ) quadra estimates that calendar 2011 gold production will be between 25,000 and 30,000 ounces of gold compared to earlier guidance of 45,000 ounces and 50,000 ounces of gold . quadra estimates that copper production will be between 105 million pounds and 120 million pounds of copper . story_separator_special_tag revenue recognized pursuant to the robinson royalty agreement is based upon 3.0 % of revenue received by the operator of the mine , quadra , for the sale of minerals from the robinson mine , reduced by certain costs incurred by quadra . quadra 's concentrate sales contracts with third-party smelters , in general , provide for an initial sales price payment based upon provisional assays and quoted metal prices at the date of shipment . final true-up sales price payments to quadra are subsequently based upon final assay and market metal prices on a specified future date , typically one to three months after the date the concentrate arrives at the third-party smelter ( which generally occurs four to five months after the shipment date from the robinson mine ) . we do not have all the key information regarding the terms of the operator 's smelter contracts , such as the terms of specific concentrate shipments to a smelter or quantities of metal or expected settlement arrangements at the time of an operator 's shipment of concentrate . each monthly payment from quadra is typically a combination of revenue received by quadra for provisional payments during the month and any upward or downward adjustments for final assays and commodity prices for earlier shipments . whether the payment to royal gold is based on quadra 's revenue in the form of provisional or final payments , royal gold records royalty revenue and the corresponding receivable based on the monthly amounts it receives from quadra , as determined pursuant to the royalty agreement . the royalty contract does not provide royal gold with rights or obligations to settle any final assay and commodity price adjustments with quadra . therefore , once a given monthly payment is received by royal gold it is not subject to later adjustment based on adjustments for assays or commodity prices . under the royalty agreement , quadra may include such final adjustments as a component of future royalty payments . income taxes the company accounts for income taxes in accordance with the guidance of asc 740. the company 's deferred income taxes reflect the impact of temporary differences between the reported amounts of assets and liabilities for financial reporting purposes and such amounts measured by tax laws and regulations . the deferred tax assets and liabilities represent the future tax return consequences of those differences , which will either be taxable or deductible when the assets and liabilities are recovered or settled . a valuation allowance is provided for deferred tax assets when management concludes it is more likely than not that some portion of the deferred tax assets will not be realized . 35 the company 's operations may involve dealing with uncertainties and judgments in the application of complex tax regulations in multiple jurisdictions . the final taxes paid are dependent upon many factors , including negotiations with taxing authorities in various jurisdictions and resolution of disputes arising from federal , state , and international tax audits . the company recognizes potential liabilities and records tax liabilities for anticipated tax audit issues in the united states and other tax jurisdictions based on its estimate of whether , and the extent to which , additional taxes will be due . if the company 's estimate of tax liabilities proves to be less than the ultimate assessment , an additional charge to income tax expense would result . if the estimate of tax liabilities proves to be greater than the ultimate assessment , a tax benefit would result . the company recognizes interest and penalties , if any , related to unrecognized tax benefits in income tax expense . reclassification cost and expenses previously classified as exploration and business development are now included within the general and administrative caption . further , certain amounts previously classified as costs of operations are now included within the general and administrative caption or the production taxes caption in the company 's consolidated statements of operations and comprehensive income . the following table reflects these reclassifications for the fiscal years ended june 30 , 2010 and 2009 : replace_table_token_19_th these reclassifications had no effect on reported operating income or net income attributable to royal gold stockholders for the prior periods presented . liquidity and capital resources overview at june 30 , 2011 , we had current assets of $ 169.3 million compared to current liabilities of $ 28.9 million for a current ratio of 6 to 1. this compares to current assets of $ 371.4 million and current liabilities of $ 35.8 million at june 30 , 2010 , resulting in a current ratio of approximately 10 to 1. the decrease in the current ratio is primarily due to a decrease in cash and equivalents during the period . cash and equivalents decreased during the period as the company invested an aggregate of $ 310.2 million from its available cash on hand for : the investment in seabridge and the related option to acquire a royalty on the kerr-sulphurets-mitchell project in june 2011 ; the mt . milligan gold stream in october 2010 ; and the additional pascua-lama royalty interests in july and october 2010. during the fiscal year ended june 30 , 2011 , liquidity needs were met from $ 216.5 million in royalty revenues , our available cash resources and additional borrowings under our term loan , which was increased by $ 19.5 million . as of june 30 , 2011 , the company had $ 125 million available under its $ 225 million revolving credit facility . in addition , as of june 30 , 2011 , the company had $ 126.1 million outstanding under its term loan facility . refer to note 8 of our notes to consolidated financial statements and below for further discussion on our debt . 36 we believe that our current financial resources and funds generated from operations will be adequate to cover anticipated expenditures for debt service ( current and long-term ) , general and administrative expense costs , exploration costs and capital expenditures for the foreseeable future .
| results of operations fiscal year ended june 30 , 2011 , compared with fiscal year ended june 30 , 2010 for the fiscal year ended june 30 , 2011 , we recorded net income available to royal gold common stockholders of $ 71.4 million , or $ 1.29 per basic and diluted share , compared to net income of $ 21.5 million , or $ 0.49 per basic and diluted share , for the fiscal year ended june 30 , 2010. the increase in our earnings per share during the fiscal year ended june 30 , 2011 was primarily attributable to an increase in royalty revenue , as discussed further below . the increase is also attributable to a decrease in one-time international royalty corporation ( `` irc '' ) severance and acquisition related costs of approximately $ 19.4 million , which were incurred during the period ended june 30 , 2010. these increases were partially offset by an increase in our total costs and expenses , which are each further discussed below . for fiscal year ended june 30 , 2011 , we recognized total royalty revenue of $ 216.5 million , at an average gold price of $ 1,369 per ounce , an average silver price of $ 28.61 per ounce , an average nickel price of $ 10.86 per pound and an average copper price of $ 3.92 per pound , compared to total royalty revenue of $ 136.6 million , at an average gold price of $ 1,089 per ounce , an average silver price of $ 16.85 per ounce , an average nickel price of $ 8.78 per pound and an average copper price of $ 3.03 per pound for the fiscal year ended june 30 , 2010. royalty revenue and the corresponding production , 38 attributable to our royalty interests , for the fiscal year ended june 30 , 2011 compared to the fiscal year ended june 30 , 2010 is as follows : royalty revenue and production subject to our royalty interests fiscal years ended june 30 , 2011 and 2010 ( in
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during 2014 , total revenue expanded to $ 578.5 million , the highest level in trustmark 's 125-year history . credit quality continued to improve and was an important contributor to trustmark 's financial success . trustmark also continued to make investments in technology designed to increase revenue , improve efficiency and ensure compliance with regulatory mandates . trustmark 's board of directors declared a quarterly cash dividend of $ 0.23 per share . the dividend is payable march 15 , 2015 , to shareholders of record on march 1 , 2015. at close of business on december 31 , 2013 , trustmark consolidated its wholly owned subsidiary somerville bank & trust company ( somerville ) into trustmark national bank ( tnb ) . tnb and somerville were both wholly owned subsidiaries of trustmark ; as such , the merger represented a business reorganization between affiliates under common control . this consolidation has enhanced productivity and efficiency with elimination of duplicate functions and operating systems as well as supported revenue growth with the addition of a broader product line for somerville 's customers . trustmark is committed to investments to support profitable revenue growth as well as reengineering and efficiency opportunities to enhance shareholder value . story_separator_special_tag 0pt '' > for trustmark 's accounting policy regarding the allowance for loan losses , lhfi , please see note 1 – significant accounting policies set forth in part ii . item 8 . – financial statements and supplementary data – located elsewhere in this report . a significant shift in one or more factors included in the allowance for loan loss methodology could result in a material change to trustmark 's allowance for loan losses , lhfi . for example , if there were changes in one or more of the estimates , assumptions or judgments used as they relate to a portfolio of commercial lhfi , trustmark could find that it needs to increase the level of future provisions for possible loan losses with respect to that portfolio . additionally , credit deterioration of specific borrowers due to changes in these factors could cause the internally assigned risk rating to shift to a more severe category . as a result , trustmark could find that it needs to increase the level of future provisions for possible loan losses with respect to these lhfi . given the nature of many of these estimates , assumptions and judgments , it is not possible to provide meaningful estimates of the impact of any such potential shifts . acquired loans acquired loans are recorded at their estimated fair values as of the acquisition date . fair value of acquired loans is determined using a discounted cash flow model based on assumptions regarding the amount and timing of principal and interest payments , estimated prepayments , estimated default rates , estimated loss severity in the event of defaults , and current market rates . estimated credit losses are included in the determination of fair value ; therefore , an allowance for loan losses is not recorded on the acquisition date . for acquired impaired loans , trustmark ( a ) calculates the contractual amount and timing of undiscounted principal and interest payments ( the “ undiscounted contractual cash flows ” ) and ( b ) estimates the amount and timing of undiscounted expected principal and interest payments ( the “ undiscounted expected cash flows ” ) . under financial accounting standards board ( fasb ) accounting standards codification ( asc ) topic 310-30 , “ loans and debt securities acquired with deteriorated credit quality , ” the difference between the undiscounted contractual cash flows and the undiscounted expected cash flows is the nonaccretable difference . the nonaccretable difference represents an estimate of the loss exposure of principal and interest related to the acquired impaired loan portfolio , and such amount is subject to change over time based on the performance of such loans . the excess of undiscounted expected cash flows at acquisition over the initial fair value of acquired impaired loans is referred to as the “ accretable yield ” and is recorded as interest income over the estimated life of the loans using the effective yield method if the timing and amount of the future cash flows is reasonably estimable . under the effective yield method , the accretable yield is recorded as an accretion of interest income over the life of the loan at the market interest rate . 31 as required by fasb asc topic 310-30 , trustmark periodically re-estimates the expected cash flows to be collected over the life of the acquired impaired loans . if , based on current information and events , it is probable that trustmark will be unable to collect all cash flows expected at acquisition plus additional cash flows expected to be collected arising from changes in estimate after acquisition , the acquired loans are considered impaired . the decrease in the expected cash flows reduces the carrying value of the acquired impaired loans as well as the accretable yield and results in a charge to income through the provision for loan losses , acquired loans and the establishment of an allowance for loan losses , acquired loans . if , based on current information and events , it is probable that there is a significant increase in the cash flows previously expected to be collected or if actual cash flows are significantly greater than cash flows previously expected , trustmark will reduce any remaining allowance for loan losses , acquired loans established on the acquired impaired loans for the increase in the present value of cash flows expected to be collected . the increase in the expected cash flows for the acquired impaired loans over those originally estimated at acquisition increases the carrying value of the acquired impaired loans as well as the accretable yield . covered loans loans acquired in a federal deposit insurance corporation ( fdic ) -assisted transaction and covered under loss-share agreements are referred to as “ covered loans ” and are reported separately in trustmark 's consolidated financial statements . story_separator_special_tag the initial recording and subsequent impairment testing of goodwill requires subjective judgments concerning estimates of the fair value of the acquired assets . the goodwill impairment test is performed in two phases . the first step compares the fair value of the reporting unit with its carrying amount , including goodwill . if the fair value of the reporting unit exceeds its carrying amount , goodwill of the reporting unit is considered not impaired ; however , if the carrying amount of the reporting unit exceeds its fair value , an additional procedure must be performed . that additional procedure , or a second step , compares the implied fair value of the reporting unit 's goodwill with the carrying amount of that goodwill . an impairment loss would be recorded to the extent that the carrying amount of goodwill exceeds its implied fair value . trustmark performed an annual impairment test of goodwill for reporting units contained in both the general banking and insurance divisions as of october 1 , 2014 , 2013 , and 2012 , respectively , which indicated that no impairment charge was required . the impairment test for the general banking division utilized valuations based on comparable deal values for financial institutions while the test for the insurance division utilizes varying valuation scenarios for the multiple of earnings before interest , income taxes , depreciation and amortization ( ebitda ) method based on recent acquisition activity . based on this analysis , trustmark concluded that no impairment charge was required . significant changes in future profitability and value of our reporting units could affect trustmark 's impairment evaluation . the carrying amount of trustmark 's identifiable intangible assets subject to amortization is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition . that assessment shall be based on the carrying amount of the intangible assets subject to amortization at the date it is tested for recoverability . intangible assets subject to amortization shall be tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable . fair value may be determined using market prices , comparison to similar assets , market multiples and other determinants . factors that may significantly affect the estimates include , among others , competitive forces , customer behavior and attrition , changes in revenue growth trends and specific industry or market sector conditions . other key judgments in accounting for intangibles include determining the useful life of the particular asset and classifying assets as either goodwill ( which does not require amortization ) or identifiable intangible assets ( which does require amortization ) . other real estate other real estate includes assets that have been acquired in satisfaction of debt through foreclosure and is recorded at the lower of cost or estimated fair value less the estimated cost of disposition . fair value is based on independent appraisals and other relevant factors . valuation adjustments required at foreclosure are charged to the allowance for loan losses . other real estate is revalued on an annual basis or more often if market conditions necessitate . subsequent to foreclosure , losses on the periodic revaluation of the property are charged against an other real estate specific reserve or to noninterest expense in ore/foreclosure expense if a reserve does not exist . significant judgments and complex estimates are required in estimating the fair value of other real estate , and the period of time within which such estimates can be considered current is significantly shortened during periods of market volatility , as experienced in recent years . as a result , the net proceeds realized from sales transactions could differ significantly from appraisals , comparable sales , and other estimates used to determine the fair value of other real estate . 33 covered other real estate all other real estate acquired in a fdic-assisted acquisition that is subject to a fdic loss-share agreement is referred to as “ covered other real estate ” and reported separately in trustmark 's consolidated balance sheets . covered other real estate is reported exclusive of expected reimbursement cash flows from the fdic . foreclosed covered loan collateral is transferred into covered other real estate at the collateral 's net realizable value . covered other real estate is initially recorded at its estimated fair value on the acquisition date based on an independent appraisal less estimated selling costs . any subsequent valuation adjustments due to declines in fair value are charged to noninterest expense in ore/foreclosure expense and are mostly offset by other noninterest income representing the corresponding increase to the fdic indemnification asset for the offsetting loss reimbursement amount . any recoveries of previous valuation adjustments are credited to ore/foreclosure expense with a corresponding charge to other noninterest income for the portion of the recovery that is due to the fdic . defined benefit plans trustmark 's plan assets , projected benefit liabilities and pension cost are determined utilizing actuarially-determined present value calculations . the valuation of the projected benefit obligation and net periodic pension expense for trustmark 's plans ( capital accumulation plan , banctrust pension plan and supplemental retirement plans ) requires management to make estimates regarding the amount and timing of expected cash outflows . several variables affect these calculations , including ( i ) size and characteristics of the associate population , ( ii ) discount rate , ( iii ) expected long-term rate of return on plan assets and ( iv ) recognition of actual returns on plan assets . below is a brief description of these variables and the effect they have on pension cost . · population and characteristics of associates . pension cost is directly related to the number of associates covered by the plan and characteristics such as salary , age , years of service and benefit terms .
| financial highlights net income totaled $ 123.6 million for the year ended december 31 , 2014 , compared with $ 117.1 million for 2013 and $ 117.3 million for 2012. for 2014 , trustmark 's basic and diluted earnings per share were $ 1.83 compared with $ 1.75 for 2013 and $ 1.81 for 2012. at december 31 , 2014 , trustmark reported gross loans , including loans held for sale and acquired loans , of $ 7.131 billion , total assets of $ 12.251 billion , total deposits of $ 9.698 billion and total shareholders ' equity of $ 1.420 billion . trustmark 's financial performance for 2014 resulted in a return on average tangible equity of 12.97 % , a return on average equity of 8.83 % and a return on average assets of 1.03 % . these compared with 2013 ratios of 13.09 % for return on average tangible equity , 8.75 % for return on average equity and 1.02 % for return on average assets , while in 2012 the return on average tangible equity was 12.55 % , the return on average equity was 9.30 % and the return on average assets was 1.20 % . revenue totaled $ 578.5 million for the year ended december 31 , 2014 , compared to $ 562.3 million for 2013 and $ 516.2 million for 2012. revenue is defined as net interest income plus noninterest income . see the highlights discussed below as well as the section captioned “ results of operations ” located elsewhere in this report , for information regarding these increases in revenue . net income for 2014 increased $ 6.5 million , or 5.6 % , compared to 2013 principally due to a $ 16.8 million , or 4.3 % , increase in net interest income . the increase in net interest income primarily resulted from increases in taxable interest on securities and interest and fees on loans held for sale ( lhfs ) and loans held for investment ( lhfi ) of $ 7.3
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under the terms of our exclusive license agreements with the regents of the university of california , as amended , for certain technology and related patent rights and materials , we pay annual license or maintenance fees and will be required to pay milestones and royalties on net sales , if any , of certain products originating story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations contains forward-looking statements that involve a number of risks and uncertainties . our actual results could differ materially from those indicated by forward-looking statements as a result of various factors , including but not limited to , the period for which we estimate our cash resources are sufficient , the availability of additional funds , as well as those set forth under “ risk factors ” and those that m ay be identified from time to time in our reports and registration statements filed with the securities and exchange commission . the following discussion and analysis is intended to provide an investor with a narrative of our financial results and an evaluation of our financial condition and results of operations . the discussion should be read in conjunction with “ item 6—selected financial data ” and the consolidated financial statements and the related notes thereto set forth in “ item 8—financial statement s and supplementary data. ” overview dynavax technologies corporation ( “ we , ” “ our , ” “ us , ” “ dynavax ” or the “ company ” ) , a clinical-stage biopharmaceutical company , develops products to prevent and treat infectious and inflammatory diseases and cancer based on toll-like receptor ( “ tlr ” ) biology and its ability to modulate the innate immune system . our lead product candidate is heplisav-b tm ( also known as “ heplisav ” ) , an investigational adult hepatitis b vaccine in phase 3 clinical development . heplisav-b combines our proprietary tlr 9 agonist adjuvant and hepatitis b surface antigen ( “ hbsag ” ) to elicit an immune response after two doses . in the spring of 2014 we expect to initiate a phase 3 study of heplisav-b compared with engerix-b ® in adults 18-70 years of age in order to provide a sufficiently-sized safety database for the u.s. food and drug administration ( “ fda ” ) to complete its review of dynavax 's biologics license application ( “ bla ” ) . in addition to heplisav-b , we are conducting clinical and preclinical programs that utilize our expertise in tlr biology . our product candidates include both tlr agonists and tlr inhibitors . our clinical stage programs include our autoimmune program partnered with glaxosmithkline ( “ gsk ” ) , our asthma therapeutic program partnered with astrazeneca ab ( “ astrazeneca ” ) , and our cancer immunotherapy program . we also are advancing preclinical development programs in adjuvant technology and tlr 7 , 8 , and 9 inhibition . we compete with pharmaceutical companies , biotechnology companies , academic institutions and research organizations in developing therapies to prevent or treat infectious and inflammatory diseases and cancer . our revenues consist of amounts earned from collaborations , grants and fees from services and licenses . prod uct revenue will depend on our ability to receive regulatory approvals for , and successfully market , our drug candidates . we have yet to generate any revenues from product sales and have recorded an accumulated deficit of $ 502.2 million at december 31 , 2013. these losses have resulted principally from costs incurred in connection with research and development activities , compensation and other related personnel costs and general corporate expenses . research and development activities include costs of outside contracted services including clinical trial costs , manufacturing and process development costs , research costs and other consulting services . salaries and other personnel-related costs include non-cash stock-based compensation associated with options and other equity awards granted to employees . general corporate expenses include outside services such as accounting , consulting , business development , investor relations , insurance services and legal costs . our operating results may fluctuate substantially from period to period principally as a result of the timing of preclinical activities and other activities related to clinical trials for our drug candidates . 29 as of december 31 , 2013 , we had $ 189.4 million in cash , cash equivalents and marketable securities . since our inception , we have relied primarily on the proceeds from public and private sales of our equity securities and revenues from collaboration agreements to fund our operations . we expect to continue to spend substantial funds in connection with the development and manufacturing of our product candidates , particularly heplisav-b , human clinical trials for our product candidates and additional applications and advancement of our technology . in order to continue these activities , we may need to raise additional funds . this may occur through strategic alliance and licensing arrangements and or future public or private financings . if adequate funds are not available in the future , we may need to delay , reduce the scope of or put on hold the heplisav-b program or other development programs while we seek strategic alternatives . recent developments on february 25 , 2013 , we received a complete response letter ( “ crl ” ) from the fda indicating that it would not approve heplisav-b for the indication proposed in our bla . following extensive discussions with the fda , we finalized the design of an additional clinical study of heplisav-b that is intended to provide a sufficiently-sized safety database for the fda to complete its review of our bla and make a final determination regarding the safety and immunogenicity of the product . the planned study will be a phase 3 , observer-blinded , randomized , active-controlled , multicenter trial of the safety and immunogenicity of heplisav-b compared with engerix-b in adults 18 to 70 years of age . the study will include 5,500 heplisav-b subjects and 2,500 engerix-b subjects , stratified by age and diabetes diagnosis . story_separator_special_tag on january 1 , 2011 , we adopted on a prospective basis financial accounting standards board ( “ fasb ” ) accounting standards update ( “ asu ” ) 2009-13 , multiple-deliverable revenue arrangements , which amends the criteria related to identifying separate units of accounting and provides guidance on whether multiple deliverables exist , how an arrangement should be separated and the consideration allocated . non-refundable upfront fees received for license and collaborative agreements entered into prior to january 1 , 2011 and other payments under collaboration agreements where we have continuing performance obligations related to the payments are deferred and recognized over our expected performance period . revenue is recognized on a ratable basis , unless we determine that another method is more appropriate , through the date at which our performance obligations are completed . manage ment makes its best estimate of the period over which we expect to fulfill our performance obligations , which may include clinical development activities . given the uncertainties of research and development collaborations , significant judgment is required to determine the duration of the performance period . we recognize cost reimbursement revenue under collaborative agreements as the related research and development costs are incurred , as provided for under the terms of these agreements . under the milestone method , contingent consideration received for the achievement of a substantive milestone is recognized in its entirety in the period in which the milestone is achieved . a milestone is defined as an event having all of the following characteristics : ( i ) t here is substantive uncertainty at the date the arrangement is entered into that the event will be achieved , ( ii ) the event can only be achieved based in whole or in part on either the entity 's performance or a specific outcome resulting from the entity 's performance and ( iii ) if achieved , the event would result in additional payments being due to the entity . our license and collaboration agreements with our partners provide for payments to be paid to us upon the achievement of development milestones . given the challenges inherent in developing biologic products , there is substantial uncertainty whether any such milestones will be achieved at the time we entered into these agreements . in addition , we evaluate whether the development milestones meet the crit eria to be considered substantive . the conditions include : ( i ) the development work is contingent on either of the following : ( a ) the vendor 's performance to achieve the milestone or ( b ) the enhancement of the value of the deliverable item or items as a result of a specific outcome resulting from the vendor 's performance to achieve the milestone ; ( ii ) it relates solely to past performance and ( iii ) it is reasonable relative to all the deliverable and payment terms within the arrangement . as a result of our analysis , we consider our development milestones to be substantive and , accordingly , we expect to recognize as revenue future payments received from such milestones as we achieve each milestone . milestone payments that are contingent upon the achievement of substantive at-risk performance criteria are recognized in full upon achievement of those milestone events in accordance with the terms of the agreement and assuming all other revenue recognition criteria have been met . all revenue recognized to date un der our collaborative agreements has been nonrefundable . our license and collaboration agreements with certain partners also provide for contingent payments to be paid to us based solely upon the performance of our partner . for such contingent payments we expect to recognize the payments as revenue upon receipt and when the other revenue recognition criteria have been satisfied . revenues from manufacturing services are recognized upon meeting the criteria for substantial performance and acceptance by the customer . revenue from royalty payments is contingent on future sales activities by our licensees . as a result , we recognize royalty revenue when reported by our licensees and when collection is reasonably assured . revenue from government and private agency grants are recognized as the related research expenses are incurred and to the extent that funding is approved . additionally , we recognize revenue based on the facilities and administrative cost rate reimbursable per the terms of the grant awards . 31 research and development expenses and accruals research and development expenses include personnel and facility-related expenses , outside contracted services including clinical trial costs , manufacturing and process development costs , research costs and other consulting services and non-cash stock-based compensation . research and development costs are expensed as incurred . amounts due under such arrangements may be either fixed fee or fee for service , and may include upfront payments , monthly payments and payments upon the completion of milestones or receipt of deliverables . non-refundable advance payments under agreements are capitalized and expensed as the related goods are delivered or services are performed . we contract with third parties to perform various clinical trial activities in the on-going development of potential products . the financial terms of these agreements are subject to negotiation , vary from contract to contract and may result in uneven payment flows to our vendors . payments under the contracts depend on factors such as the achievement of certain events , successful enrollment of patients , completion of portions of the clinical trial or similar conditions . our accruals for clinical trials are based on estimates of the services received and efforts expended pursuant to contracts with clinical trial centers and clinical research organizations . we may terminate these contracts upon written notice and we are generally only liable for actual effort expended by the organizations to the date of termination , although in certain instances we may be further responsible for termination fees and penalties . the company makes estimates of its accrued expenses as of each balance sheet date based on the facts and circumstances known to the company at that time .
| results of operations revenues revenues consist of amounts earned from collaborations , grants and services and license fees . collaboration revenue includes amounts recognized under our collaboration agreements . grant revenue includes amounts earned under government and private agency grants . service an d license fees include revenues related to research and development and contract manufacturing services , license fees and royalty payments . 32 the following is a summary of our revenues for the years ended december 31 , 2013 , 2012 and 2011 ( in thousands , except for percentages ) : replace_table_token_5_th 2013 versus 2012 total revenues for the year ended december 31 , 2013 , increased by $ 1.5 million , or 16 % , as compared to the same period in 2012 principally due to an increase in grant revenue . grant revenue for the year ended december 31 , 2013 , increased by $ 1.2 million from the same period in 2012 primarily due to an increase in revenue recognized from our national institute of health 's national institute of allergy and infectious diseases ( “ niaid ” ) contract for adjuvant development and other programs funded by grants . 2012 versus 2011 total revenues for the year ended december 31 , 2012 , decreased by $ 11.9 million , or 55 % , as compared to the same period in 2011 primarily due to a reduction in collaboration revenue .
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the increase in interest expense of approximately $ 0.036 million was due to increased borrowings on the revolving credit facility . we borrowed $ 20.8 million from the revolving credit facility during 2010 compared to $ 10.0 million during 2009. we paid interest on borrowings at the greater of 4.0 % or libor plus 2.5 % or at an average of approximately 4.0 % for the year ended december 31 , 2010 . 13 interest income interest income was approximately $ 0.258 million and $ 0.071 million in 2010 and 2009 , respectively . the increase in interest income of $ 0.187 million in 2010 from 2009 was due primarily to interest income generated from investments in corporate notes and bonds that average approximately $ 10.9 million in invested funds through september 30 , 2010 and ended with a balance of $ 9.5 million at december 31 , 2010. other income ( expense ) other expense , net decreased by $ 0.311 million to $ 0.235 million in 2010 from income of $ 0.076 million in 2009 due to the termination of a lease for one of our facilities during the second quarter of 2009. liquidity and capital resources our working capital and capital expenditure requirements are generally met through net cash provided by operations and the occasional use of the revolving bank line of credit based on our current liquidity at the time . general on july 30 , 2011 we renewed and increased the line of credit with the bank of oklahoma , national association from $ 15.2 million to $ 30 million . the revolving line of credit matures on july 29 , 2012. we expect to renew our line of credit in july 2012 with favorable terms as we do not anticipate a tightening of funds in the financial markets . under the line of credit , there is one standby letter of credit of $ 0.9 million . at december 31 , 2011 we have approximately $ 24.5 million of borrowings available under the revolving credit facility . no fees are associated with the unused portion of the committed amount . as of december 31 , 2011 our outstanding balance under the revolving credit facility is $ 4.6 million and no borrowings were outstanding at december 31 , 2010. interest on borrowings is payable monthly at libor plus 2.5 % . the weighted average interest rate was 3.4 % and 4.0 % for the years ended december 31 , 2011 and 2010 , respectively . at december 31 , 2011 we were in compliance with all of the covenants under the revolving credit facility . we are obligated to comply with certain financial covenants under the revolving credit facility . these covenants require that we meet certain parameters related to our tangible net worth , total liabilities to tangible net worth ratio and working capital . at december 31 , 2011 our tangible net worth was $ 122.5 million which meets the requirement of being at or above $ 95.0 million . our total liabilities to tangible net worth ratio were 0.46 to 1.0 which meets the requirement of not being above 2 to 1. our working capital was $ 45.7 million which meets the requirement of being at or above $ 35.0 million . starting on june 30 , 2012 our working capital requirement will change from $ 35.0 million to $ 40.0 million . we repurchased shares of stock under our authorized stock buyback programs , employees ' 401 ( k ) savings , investment plan , and from option exercises of our directors and officers in the open market in the amount of $ 3.7 million for 0.212 million shares , $ 19.5 million for 1.2 million shares and $ 3.1 million for approximately 0.246 million shares of stock in 2011 , 2010 and 2009 , respectively . for the year ended december 31 , 2011 , 2010 and 2009 we paid cash dividends of $ 5.9 million , $ 9.2 million , and $ 5.9 million respectively . during the quarter ended december 31 , 2011 , the company recognized an income tax receivable of approximately $ 10.0 million . the tax receivable represents the anticipated federal and state estimated tax over payments as of december 31 , 2011 primarily as a result of new equipment purchases placed in service during the year which qualified for the 100 % bonus tax depreciation expense allowed under the tax relief , unemployment insurance reauthorization and job creation act of 2010 . 14 based on historical performance and current expectations , we believe our cash and cash equivalents balance , the projected cash flows generated from our operations , our existing committed revolving credit facility ( or comparable financing ) and our expected ability to access capital markets will satisfy our working capital needs , capital expenditures and other liquidity requirements associated with our operations in 2012 and the foreseeable future . statement of cash flows the table below reflects a summary of our net cash flows provided by operating activities , net cash flows used in investing activities , and net cash flows used in financing activities for the years indicated . replace_table_token_5_th cash flows from operating activities net cash provided by operating activities was $ 26.5 million in 2011 compared to $ 32.2 million in 2010. this decrease was due to lower net income , and an unfavorable change in working capital . for the year ended december 31 , 2011 , net income decreased by $ 7.9 million and includes a non-cash loss on the sale of assets of $ 1.8 million . story_separator_special_tag critical accounting policies the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america ( “ us gaap ” ) requires management to make estimates and assumptions about future events , and apply judgments that affect the reported amounts of assets , liabilities , revenue and expenses in our consolidated financial statements and related notes . we base our estimates , assumptions and judgments on historical experience , current trends and other factors believed to be relevant at the time our consolidated financial statements are prepared . however , because future events and their effects can not be determined with certainty , actual results could differ from our estimates and assumptions , and such differences could be material . we believe the following critical accounting policies affect our more significant estimates , assumptions and judgments used in the preparation of our consolidated financial statements . revenue recognition – we recognize revenues from sales of products when the products are shipped and the title and risk of ownership pass to the customer . final sales prices are fixed based on purchase orders . sales allowances and customer incentives are treated as reductions to sales and are provided for based on historical experiences and current estimates . our policy is to record the collection and payment of sales taxes through a liability account . we present revenues net of certain payments to our independent manufacturer representatives ( “ representatives ” ) . representatives are national companies that are in the business of providing hvac units and other related products and services to customers . the end user customer orders a bundled group of products and services from the representative and expects the representative to fulfill the order . only after the specifications are agreed to by the representative and the customer , and the decision is made to use an aaon hvac unit , will we receive notice of the order . we establish the amount we must receive for our hvac unit ( “ minimum sales price ” ) , but do not control the total order price which is negotiated by the representative with the end user customer . we are responsible for billings and collections resulting from all sales transactions , including those initiated by our representatives . the representatives submit the total order price to us for invoicing and collection . the total order price includes our minimum sales price and an additional amount which may include both the representatives ' fee and amounts due for additional products and services required by the customer . these additional products and services may include controls purchased from another manufacturer to operate the unit , start-up services , and curbs for supporting the unit ( “ third party products ” ) . all are associated with the purchase of a hvac unit but may be provided by the representative or another third party . the company is under no obligation related to third party products . the representatives do not provide us with a break-out of the amount of the total order price over the minimum sales price which includes the representatives ' fee and third party product amounts ( “ due to representatives ” ) . the due to representatives amount is paid only after all amounts associated with the order are collected from the customer . the amount of payments to our representatives was $ 51.6 million , $ 51.4 million and $ 58.0 million for the years ended december 31 , 2011 , 2010 , and 2009 , respectively . 17 allowance for doubtful accounts - our allowance for doubtful accounts is estimated to cover the risk of loss related to accounts receivable . we establish an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers , historical trends in collections and write-offs , current customer status , the age of the receivable , economic conditions and other information . aged receivables are reviewed on a monthly basis to determine if the reserve is adequate and adjusted accordingly at that time . the evaluation of these factors involves subjective judgments . thus , changes in these factors or changes in economic circumstances may significantly impact our consolidated financial statements . inventory reserves – we establish a reserve for inventories based on the change in inventory requirements due to product line changes , the feasibility of using obsolete parts for upgraded part substitutions , the required parts needed for part supply sales , replacement parts and for estimated shrinkage . warranty – a provision is made for estimated warranty costs at the time the product is shipped and revenue is recognized . the warranty period is : the earlier of one year from the date of first use or 18 months from date of shipment for parts only ; an additional four years on compressors ( if applicable ) ; 15 years on aluminized steel gas-fired heat exchangers ( if applicable ) ; 25 years on stainless steel heat exchangers ( if applicable ) ; and 10 years on gas-fired heat exchangers in rl products ( if applicable ) . with the introduction of the rq product line in 2010 , our warranty policy for the rq series was implemented to cover parts for two years from date of unit shipment and labor for one year from date of unit shipment . warranty expense is estimated based on the warranty period , historical warranty trends and associated costs , and any known identifiable warranty issue . due to the absence of warranty history on new products , an additional provision may be made for such products . our estimated future warranty cost is subject to adjustment from time to time depending on changes in actual warranty trends and cost experience . should actual claim rates differ from our estimates , revisions to the estimated product warranty liability would be required . medical insurance – a provision is
| results of operations the following is a summary of the income statement information as a percentage of net sales : replace_table_token_4_th year ended december 31 , 2011 vs. year ended december 31 , 2010 net sales net sales for the year ended december 31 , 2011 increased by 9 % , or $ 21.7 million to $ 266.2 million , compared with the same period in 2010. the increase in net sales was the result of the favorable reception to our new products , a significant increase in the replacement market of approximately 10 % over prior year , and increased market share . gross profit gross margin decreased by $ 8.9 million ( 16.1 % ) to $ 46.3 million in 2011 compared to 2010. as a percentage of sales , gross margins were 17.4 % and 22.6 % in 2011 and 2010 , respectively . the decrease in gross profit was caused by increases in raw material and component part costs of approximately 6 % that we were unable to neutralize completely with price increases for some of our product lines , and increased labor costs and freight cost of 8 % and 1 % , respectively . the principal components of cost of goods sold are labor , raw materials , component costs , factory overhead , freight out and engineering expense . the principal high volume raw materials used in our manufacturing processes are steel , copper and aluminum , which are obtained from domestic suppliers .
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however , non-gaap financial measures have limitations as an analytical tool and should not be considered in isolation from , or solely as an alternative to , financial information prepared in accordance with gaap . any time we provide non-gaap financial measures in the following narrative , we identify it as such and in close proximity provide the most directly comparable gaap financial measure , as well as the information necessary to reconcile the two measures . business overview rogers corporation designs , develops , manufactures and sells high-quality and high-reliability engineered materials and components for mission critical applications . we operate principally three strategic operating segments : advanced connectivity solutions ( acs ) , elastomeric material solutions ( ems ) and power electronics solutions ( pes ) . we have a history of innovation and have established innovation centers for our leading research and development activities in chandler , arizona , burlington , massachusetts , eschenbach , germany and suzhou , china . we are headquartered in chandler , arizona . our growth strategy is based upon the following principles : ( 1 ) market-driven organization , ( 2 ) innovation leadership , ( 3 ) synergistic mergers and acquisitions , and ( 4 ) operational excellence . as a market-driven organization , we are focused on growth drivers , including advanced mobility and advanced connectivity . more specifically , the key trends and markets that affect our business include the increased use of advanced driver assistance systems and adoption of electric and hybrid electric vehicles and new technology adoption in the telecom industry , including next generation wireless infrastructure . in addition to our focus on advanced mobility and advanced connectivity , we also sell into a variety of other end markets including renewable energy , aerospace and defense and diverse general industrial applications . our sales and marketing approach is based on addressing these trends , while our strategy focuses on factors for success as a manufacturer of engineered materials and components : quality , service , cost , efficiency , innovation and technology . we have expanded our capabilities through organic investment and acquisitions and strive to ensure high quality solutions for our customers . we continue to review and re-align our manufacturing and engineering footprint in an effort to attain a leading competitive position globally . we have established or expanded our capabilities in various locations in support of our customers ' growth initiatives . we seek to enhance our operational and financial performance by investing in research and development , manufacturing and materials efficiencies , and new product initiatives that respond to the needs of our customers . we strive to evaluate operational and strategic alternatives to improve our business structure and align our business with the changing needs of our customers and major industry trends affecting our business . in executing on our growth strategy , we have completed three strategic acquisitions : ( 1 ) in january 2017 , we acquired the principal operating assets of diversified silicone products , inc. ( dsp ) , a custom silicone product development and manufacturing business , serving a wide range of high reliability applications , ( 2 ) in november 2016 , we acquired dewal industries llc ( dewal ) , a leading manufacturer of polytetrafluoroethylene and ultra-high molecular weight polyethylene films , pressure sensitive tapes and specialty products for the industrial , aerospace , automotive , and electronics markets , and ( 3 ) in january 2015 , we acquired arlon llc and its subsidiaries , other than arlon india ( pvt ) limited ( the acquired entities , collectively , arlon ) , a leading manufacturer of high performance materials for the printed circuit board industry and silicone rubber-based materials . 2017 executive summary in 2017 as compared to 2016 , our net sales increased 25.1 % to $ 821.0 million , gross margin increased 79 basis points to 38.8 % , operating margin increased 315 basis points to 15.9 % and operating income increased 56.0 % to $ 130.8 million . the following key factors should be considered when reviewing our results of operations , financial condition and liquidity for the periods discussed : our net sales increase in 2017 was attributable to increases in net sales across all of our strategic operating segments , reflecting both growth attributable to our recent acquisitions and organic growth within each operating segment . each of acs , ems and pes recorded net sales growth . acs experienced continued growth in automotive radar applications , consumer electronics , and aerospace and defense , partially offset by lower demand in wireless infrastructure applications and satellite tv dish applications . ems net sales increased primarily from the recent acquisitions of dewal and dsp , and from higher end-market demand from core markets , including automotive , mass transit , portable electronics , general 21 industrial , and consumer products applications . pes saw strength across most of its traditional markets , including laser diode cooler applications , renewable energy , mass transit , electric and hybrid electric vehicles and variable frequency motor drives . see “ segment sales and operations. ” our gross margin improved 79 basis points and our operating margin increased 315 basis points in 2017 compared to 2016 primarily as a result of increased demand and our operational excellence initiatives . gross margin and operating margin were favorably impacted by the increase in net sales , combined with operational excellence initiatives across our operating segments including increased capacity utilization , operational process enhancements and automation , conversion of fixed cost structure to variable , benefits from low cost country manufacturing expansion , and synergies from the recent acquisitions of dewal and dsp . see “ results of operations. ” we continue to execute on our synergistic acquisition strategy . the acquisitions of dewal and dsp , and their subsequent integration into our ems operating segment , have enabled us to extend the product portfolio and technology capabilities with complementary high-end , high performance elastomeric materials . story_separator_special_tag the decrease in backlog for the ems operating segment is primarily due to an increase in order fulfillment during 2017 as compared to 2016. additionally , the 2017 ems backlog contains $ 2.1 million related to dsp . the backlog of firm orders is expected to be filled within the next 12 months . 25 2016 vs. 2015 net sales ( dollars in thousands ) 2016 2015 percent change net sales $ 656,314 $ 641,443 2.3 % net sales increased by 2.3 % in 2016 from 2015 , driven primarily by the acs and ems operating segments . the acs operating segment net sales increased 3.8 % , including a negative currency impact of 1.0 % . the ems operating segment net sales increased 12.3 % , including a negative currency impact of 1.8 % . the pes operating segment net sales increased 1.4 % , including a negative currency impact of 0.9 % . in total , the increase in net sales in 2016 included a negative currency impact of 1.2 % . additionally , sales in 2016 declined by 2.9 % due to the non-core divestiture of the arlon polyimide and thermoset laminate business , which was sold in december 2015. gross margin replace_table_token_9_th gross margin as a percentage of net sales increased by 130 basis points to 38.0 % in 2016 compared to 36.7 % in 2015 . in 2016 , gross margin was favorably impacted by an increase in net sales and lower commodities pricing , combined with operational excellence initiatives across our business units and the divestiture of the lower margin arlon polyimide and thermoset business in 2015. our 2015 results included $ 1.6 million of expense for a non-recurring purchase accounting fair value adjustment for inventory related to the arlon acquisition . selling , general and administrative expenses replace_table_token_10_th selling , general and administrative ( sg & a ) expenses increased by 3.7 % in 2016 compared with 2015 . our 2016 results increased principally due to $ 7.7 million of incentive compensation due to the company meeting performance incentive targets and $ 4.5 million of costs associated with non-acquisition related strategic projects . these increases were partially offset by cost savings from cost containment initiatives . our 2016 results include $ 3.8 million of acquisition costs related to dewal and dsp and 2015 included $ 4.8 million in integration expenses related to the arlon acquisition and $ 3.2 million related to the establishment of an environmental reserve . research and development expenses replace_table_token_11_th research and development ( r & d ) expenses increased by 3.4 % in 2016 compared with 2015 . as a percentage of sales , r & d costs increased from 4.3 % in 2015 to 4.4 % in 2016 . the overall increase was due to continued investments that are targeted at developing new platforms and technologies focused on long-term growth initiatives at our innovation centers in the united states , europe and asia . equity income in unconsolidated joint ventures ( dollars in thousands ) 2016 2015 percent change equity income in unconsolidated joint ventures $ 4,146 $ 2,890 43.5 % equity income in unconsolidated joint ventures increased 43.5 % in 2016 from 2015 . the increase was due to the appreciation of the japanese yen against the u.s. dollar , as the currency value significantly changed . excluding the impact of the currency change , net sales increased due to higher demand primarily in the portable electronics market . 26 interest expense , net ( dollars in thousands ) 2016 2015 percent change interest expense , net $ ( 3,930 ) $ ( 4,480 ) ( 12.3 ) % interest expense , net , was lower expense by 12.3 % in 2016 from 2015. the decrease year over year was driven by $ 103.4 million of debt repayments in 2016 on borrowings incurred in january 2015 associated with the arlon acquisition . other income ( expense ) , net ( dollars in thousands ) 2016 2015 percent change other income ( expense ) , net $ ( 1,788 ) $ ( 8,492 ) ( 78.9 ) % in 2015 , our results included $ 4.8 million of a loss on the sale of the arlon specialty polyimide and epoxy-based laminates business and $ 2.4 million of receivables related to the tax indemnities that were reversed , which related to the release of uncertain tax positions . comparing 2016 to 2015 , we recognized a net favorable impact of $ 1.5 million due to copper hedging transactions and a net unfavorable impact of $ 1.9 million due to foreign currency transactions . additionally , in the third quarter of 2016 , we had $ 0.8 million of expense for tax indemnity receivables that were reversed , which related to the release of uncertain tax positions , and in the first quarter of 2016 , we recorded an additional loss related to the sale of the arlon polyimide and thermoset laminate business of $ 0.2 million . income tax expense replace_table_token_12_th our effective tax rate for 2016 was 41.3 % compared to 30.0 % in 2015. the increase from 2015 is primarily related to withholding taxes on off-shore cash movements , a change to our assertion that certain foreign earnings are permanently reinvested and a change in the mix of earnings attributable to higher-taxing jurisdictions , offset by benefits associated with an increase in the reversal of reserves for uncertain tax positions . this increase was offset by the prior year being unfavorably impacted by adjustments related to finalization of 2014 income tax year returns . the prior year also included a benefit due to a change of the state tax rate as a result of a legal reorganization and release of valuation allowance on certain state tax attributes . historically , our intention was to permanently reinvest the majority of our foreign earnings indefinitely or to distribute them only when it is tax efficient to do so .
| results of operations the following table sets forth , for the periods indicated , selected operations data expressed as a percentage of net sales . replace_table_token_4_th 2017 vs. 2016 net sales ( dollars in thousands ) 2017 2016 percent change net sales $ 821,043 $ 656,314 25.1 % net sales increased by 25.1 % in 2017 compared to 2016 . this increase was driven by the net sales from our recent acquisitions of dewal and dsp , as well as higher organic net sales in our three strategic operating segments ( acs , ems and pes ) . the acs operating segment had an increase in net sales of 8.4 % due to higher end-market demand in automotive radar applications , consumer electronics , and aerospace and defense , partially offset by lower demand in wireless infrastructure applications and satellite tv dish applications . ems net sales increased 53.9 % primarily due to the recent acquisitions of dewal and dsp , and from higher end-market product demand from core markets , including automotive , mass transit , portable electronics , general industrial and consumer products applications . pes had increased net sales of 21.4 % due to higher end-market demand in laser diode cooler applications , renewable energy , mass transit , electric and hybrid electric vehicles and variable frequency motor drives . net sales were unfavorably impacted by 0.1 % due to currency fluctuations primarily as a result of the depreciation in value of the renminbi relative to the u.s. dollar , offset in part by appreciation in value of the euro relative to the u.s. dollar . see “ segment sales and operations ” below for further discussion on operating segment performance . gross margin replace_table_token_5_th gross margin as a percentage of net sales increased by 79 basis points to 38.8 % in 2017 compared to 38.0 % in 2016 .
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we determine the level of accruals for claims exposure by reviewing our historical experience and current year claim activity . we do not record accruals on a present-value basis . we review larger claims with insurance adjusters and establish specific reserves for known liabilities . we establish an additional reserve for incidents incurred but not reported to us for each year using our estimates and based on prior experience . we believe we have established adequate accruals for uninsured expected liabilities arising from those obligations . however , it is possible that future earnings could be affected by changes in our estimates relating to these matters . we are involved in various claims and actions against us , most of which are covered by insurance . although we can not predict the ultimate outcome of these matters , we believe that our ultimate liability , if any , that may result from those claims and actions will not materially affect our results of operations , cash flows or financial position . income taxes . our tax provisions are based on our expected taxable income , statutory rates and tax-planning opportunities available to us in the various jurisdictions in which we operate . determination of taxable income in any jurisdiction requires the interpretation of the related tax laws . we are at risk that a taxing authority 's final determination of our tax liabilities may differ from our interpretation . our effective tax rate may fluctuate from year to year as our operations are conducted in different taxing jurisdictions , the amount of pre-tax income fluctuates , the amounts of foreign income we anticipate will be repatriated and our estimates regarding the realizability of items such as foreign tax credits may change . we consider $ 641 million of unremitted earnings of our foreign subsidiaries to be indefinitely reinvested . we believe we have the ability to indefinitely 30 reinvest these foreign earnings based on our expectations of profitability for our u.s. operations over the long term , our significant u.s. liquidity , and the amount of unremitted earnings of our foreign subsidiaries not considered indefinitely reinvested , for which we have provided deferred income taxes . we account for any applicable interest and penalties on uncertain tax positions as a component of our provision for income taxes on our financial statements . current income tax expense represents either nonresident withholding taxes or the liabilities expected to be reflected on our income tax returns for the current year , while the net deferred income tax expense or benefit represents the change in the balance of deferred tax assets or liabilities as reported on our balance sheet . we establish valuation allowances to reduce deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized in the future . we currently have no valuation allowances . while we have considered estimated future taxable income and ongoing prudent and feasible tax-planning strategies in assessing the need for the valuation allowances , changes in these estimates and assumptions , as well as changes in tax laws , could require us to provide for valuation allowances for our deferred tax assets . these provisions for valuation allowances would impact our income tax provision in the period in which such adjustments are identified and recorded . for a summary of our major accounting policies and a discussion of recently adopted accounting standards , please see note 1 to our consolidated financial statements . liquidity and capital resources we consider our liquidity and capital resources adequate to support our operations and any growth initiatives . at december 31 , 2015 , we had working capital of $ 902 million , including cash and cash equivalents of $ 385 million . additionally , we had $ 500 million available through our revolving credit facility under a credit agreement ( as amended , the `` credit agreement '' ) , which is scheduled to expire on october 25 , 2020 . in october 2014 , we entered into the credit agreement with a group of banks to replace our prior principal credit agreement . the credit agreement provides for a $ 300 million three-year term loan ( the `` term loan facility '' ) and a $ 500 million five-year revolving credit facility ( the `` revolving credit facility '' ) . subject to certain conditions , the aggregate commitments under the revolving credit facility may be increased to up to $ 800 million at any time upon agreement between us and existing or additional lenders . borrowings under the revolving credit facility and the term loan facility may be used for general corporate purposes . simultaneously with the execution of the credit agreement and pursuant to its terms , we repaid all amounts outstanding under , and terminated , the prior credit agreement . in november 2015 , we entered into an agreement and amendment no . 1 to credit agreement ( the `` amendment '' ) to the credit agreement . the amendment amended the credit agreement to ( 1 ) replace the maximum leverage ratio financial covenant with a new financial covenant restricting the maximum total capitalization ratio ( defined in the amendment to be the ratio of consolidated debt to total capitalization ) to 55 % and ( 2 ) extend the maturities of the term loan facility and the revolving credit facility by one year each , to october 27 , 2018 and october 25 , 2020 , respectively , with the extending lenders , which represent 93.75 % of the existing commitments of the lenders , such that ( a ) the story_separator_special_tag total commitments for the revolving credit facility will be $ 500 million until october 25 , 2019 and thereafter $ 468.75 million until october 25 , 2020 , and ( b ) the outstanding term loan advances pursuant to the term loan facility will be $ 300 million until october 27 , 2017 and thereafter $ 281.25 million until october 27 , 2018 . borrowings under the credit agreement bear interest at an adjusted base rate or the eurodollar rate ( both as defined in the credit agreement ) , at our option , plus an applicable margin initially based on our leverage ratio ( as defined in the credit agreement ) and , at our election , based on ratings of our senior unsecured debt by designated ratings services , thereafter to be based on such debt ratings . the applicable margin varies : ( 1 ) in the case of advances bearing interest at the adjusted base rate , from 0.125 % to 0.750 % for borrowings under the revolving credit facility and 31 from 0 % to 0.500 % for borrowings under the term loan facility ; and ( 2 ) in the case of advances bearing interest at the eurodollar rate , from 1.125 % to 1.750 % for borrowings under the revolving credit facility and from 1.000 % to 1.500 % for borrowings under the term loan facility . the adjusted base rate is the highest of ( 1 ) the per annum rate established by the administrative agent as its prime rate , ( 2 ) the federal funds rate plus 0.50 % and ( 3 ) the daily one-month libor plus 1 % . we pay a commitment fee ranging from 0.125 % to 0.300 % on the unused portion of the revolving credit facility , depending on our leverage ratio . the commitment fees are included as interest expense in our consolidated financial statements . the credit agreement contains various covenants that we believe are customary for agreements of this nature , including , but not limited to , restrictions on our ability and the ability of each of our subsidiaries to incur debt , grant liens , make certain investments , make distributions , merge or consolidate , sell assets , enter into transactions with affiliates and enter into certain restrictive agreements . we are also subject to a maximum total capitalization ratio of 55 % as noted above . the credit agreement includes customary events of default and associated remedies . as of december 31 , 2015 , we were in compliance with all the covenants set forth in the credit agreement . in november 2014 , we completed the public offering of $ 500 million aggregate principal amount of 4.650 % senior notes due 2024 ( the `` senior notes '' ) . we pay interest on the senior notes on may 15 and november 15 of each year , beginning on may 15 , 2015. the senior notes are scheduled to mature on november 15 , 2024. we may redeem some or all of the senior notes at specified redemption prices . we used the net proceeds from the offering for general corporate purposes , including funding the acquisition described below , other capital expenditures and repurchases of shares of our common stock . our maximum outstanding indebtedness during 2015 under the credit agreement and senior notes was $ 800 million , and our total interest costs , including commitment fees , were $ 25.4 million . our capital expenditures , including business acquisitions , for 2015 , 2014 and 2013 were $ 424 million , $ 427 million and $ 394 million , respectively . our capital expenditures in 2015 included our acquisition of c & c technologies , inc. ( `` c & c '' ) for approximately $ 224 million . c & c is a global provider of ocean-bottom mapping services in deepwater utilizing customized autonomous underwater vehicles and provides marine construction surveys for both surface and subsea assets , as well as satellite-based positioning services for drilling rigs and seismic and construction vessels . c & c also provides land and near-shore survey services along the u.s. gulf coast and in mexico , and performs shallow water conventional geophysical surveys in the u.s. gulf of mexico . in addition to the c & c acquisition , our capital expenditures in 2015 included : $ 58 million for upgrading and expanding our rov fleet ; $ 69 million in our subsea products segment , principally for growth of our tooling and installation and workover control systems capabilities ; and $ 52 million in our subsea projects segment , including $ 43 million related to a new subsea support vessel scheduled for delivery in 2016. our capital expenditures in 2014 included : $ 189 million for upgrading and expanding our rov fleet ; $ 113 million in our subsea products segment , principally for growth of our tooling and installation and workover control systems capabilities , expansion of our houston manufacturing facilities and establishment of manufacturing capabilities in angola ; and $ 92 million in our subsea projects segment , including $ 40 million related to a new subsea support vessel scheduled for delivery in 2016. our capital expenditures in 2013 included $ 226 million for upgrading and expanding our rov fleet and $ 103 million in our subsea products segment , principally to increase the capabilities of our umbilical plants in the u.s. and scotland and to expand our rental and service tooling hardware offerings . for 2016 , we expect our capital expenditures to be in the range of $ 150 million to $ 200 million , exclusive of business acquisitions . this estimate includes $ 42 million in our subsea projects segment to complete the new-build subsea support vessel , the ocean evolution , scheduled for delivery in the latter part of the fourth quarter of 2016. during the third quarter of
| results of operations additional information on our business segments is shown in note 7 of the notes to consolidated financial statements included in this report . oilfield . the table that follows sets out revenue and profitability for the business segments within our oilfield business . in the rov section of the table that follows , `` days available '' includes all days from the first day that an rov is placed in service until the rov is retired . all days in this period are considered available days , including periods when an rov is undergoing maintenance or repairs . our rovs do not have scheduled maintenance or repair that requires significant time when the rovs are not available for utilization . replace_table_token_12_th historically , we built new rovs to increase the size of our fleet in response to demand to support deepwater drilling and vessel-based inspection , maintenance and repair ( `` imr '' ) and installation 35 work . in 2015 , as a result of declining market conditions , we began building fewer rovs , primarily to meet contractual commitments . these vehicles are designed for use around the world in water depths of 10,000 feet or more . we added 16 , 49 and 26 rovs in 2015 , 2014 and 2013 , respectively , while retiring 63 units over the three-year period and transferring two to our advanced technologies segment over that period . our rov fleet size was 315 at december 31 , 2015 , 336 at december 31 , 2014 and 304 at december 31 , 2013 . for 2015 , our rov revenue and operating income declined from 2014 from lower demand for drill support services and a reduction in average revenue per day across all our geographic areas of operation . rov days on hire decreased by 15 % and revenue per day on hire decreased 11 % .
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the provisions of this new disclosure standard are effective january 1 , 2012. the company does not believe this accounting standard update will have a material effect on its financial statements . in may 2011 , the fasb issued asu no . 2011-04 , “ fair value measurement ( topic 820 ) : amendments to achieve common fair value measurement and disclosure requirements in u.s. gaap and ifrss ” ( asu 2011-04 ) . this story_separator_special_tag the following discussion and analysis of our consolidated financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and related notes included in this annual report on form 10-k. background we are a commercial-stage biopharmaceutical company dedicated to the identification , development and commercialization of novel therapies that improve neurological function in people with ms , spinal cord injury , sci , and other disorders of the nervous system . ampyra general ampyra was approved by the fda in january 2010 for the improvement of walking in people with ms. to our knowledge , ampyra is the first and only product approved for this indication . efficacy was shown in people with all four major types of ms ( relapsing remitting , secondary progressive , progressive relapsing and primary progressive ) . ampyra was made commercially available in the united states in march 2010. net revenue for ampyra was $ 210.5 million for the year ended december 31 , 2011 and $ 133.1 million for the year ended december 31 , 2010. approximately 30 % of all eligible ms patients have tried ampyra since the 2010 launch . as of december 31 , 2011 , approximately 70 % of all people with ms who were prescribed ampyra received a first refill , and approximately 40 % of all people with ms who were prescribed ampyra received a sixth refill . compliance rates for ampyra are approximately 90 % , with patients currently taking an average of 1.8 tablets per day , compared to the approved dosing of 2 tablets per day . 68 ampyra is marketed in the united states through our own specialty sales force and commercial infrastructure . we currently have approximately 93 sales representatives in the field calling on a priority target list of approximately 7,000 physicians . we also have established teams of regional scientific managers , regional reimbursement directors , and managed markets account managers who provide information and assistance to payers and physicians on ampyra . pursuant to our rems approved by the fda , ampyra is distributed in the united states exclusively through : a limited network of specialty pharmacy providers that deliver the medication to patients by mail ; kaiser permanente , which distributes ampyra to patients through a closed network of on-site pharmacies ; and amerisource specialty distribution healthcare , which is the exclusive specialty pharmacy distributor for the u.s. department of veterans affairs , or va. all of these customers are contractually obligated to hold no more than 30 days of inventory . we have contracted with a third party organization with extensive experience in coordinating patient benefits to run ampyra patient support services , or apss , a dedicated resource that coordinates the prescription process among healthcare providers , people with ms , and insurance carriers . processing of most incoming requests for prescriptions by apss begins within 24 hours of receipt . patients will experience a range of times to receive their first shipment based on the processing time for insurance requirements . as with any prescription product , patients who are members of benefit plans that have restrictive prior authorizations may experience delays in receiving their prescription . as of december 31 , 2011 , approximately 75 % of commercially insured individuals had no or limited prior authorizations , or pas , for ampyra . we define limited pas as those that require only an ms diagnosis , documentation of no contraindications , and or simple documentation that the patient has walking impairment ; such documentation may include a timed 25-foot walk ( t25w ) test . as of december 31 , 2011 , approximately 24 % of commercially insured individuals were subject to more restrictive pas , which may include requirements for multiple timed walk tests and or expanded disability status scale score requirements to initiate therapy . such restricted pas may also include requirements of objective measures of ambulation improvement to reauthorize ampyra therapy . we estimate that , as of december 31 , 2011 , approximately 1 % of commercially insured individuals were blocked from receiving reimbursement for ampyra . access figures were calculated based on the number of pharmacy lives reported by commercial healthcare plans . as of august 1 , 2011 , three of the largest national health plans in the u.s. – aetna , united healthcare and cigna – listed ampyra in the lowest branded co-pay tier of their commercial preferred drug list or formulary . license and collaboration agreement with biogen idec in july 2011 , biogen idec received conditional approval from the european commission for fampyra , which triggered a $ 25 million milestone payment to us under our license and collaboration agreement with biogen idec . pursuant to our worldwide license and supply agreement with elan ( which has been transferred to alkermes in connection with alkermes ' 2011 acquisition of elan 's drug technologies business ) , we directed 7 % of this milestone payment to elan . to date , biogen idec has launched fampyra in germany , the united kingdom , denmark , norway and iceland . launch in most of the remaining eu countries is expected by the end of 2012. also , in may 2011 , fampyra was approved for use in australia by the australian therapeutic goods administration , and has been launched there . in november 2011 , biogen received approval from the new zealand medicines and medical devices safety authority ( medsafe ) , and in february 2012 biogen idec received approval from health canada . story_separator_special_tag remyelinating antibodies we expect to file an ind for one of the remyelinating antibodies , rhigm22 , for the treatment of ms in the first half of 2012 and expect to begin a phase 1 clinical trial by the end of 2012. in preparation for the ind filing , we worked with a contract manufacturer to complete the scale-up manufacturing and purification processes and completed formal preclinical safety and toxicity studies . the manufacturing data , clinical plans and preclinical safety profile will be subject to fda review as part of our ind filing . chondroitinase program we are continuing research , which has been funded in part by federal and state grants , on the potential use of chondroitinases for the treatment of injuries to the brain and spinal cord , as well as other neurotraumatic indications . the chondroitinase program is in the research and translational development phase and has not yet entered formal preclinical development . we are exploring the possibility of obtaining additional research grants from the national institutes of health , or nih , as well as potential partnerships with other companies to support our efforts . acquisition from medtronic of ac 105 in june 2011 , we entered into a license agreement with medtronic , inc. and one of its affiliates , pursuant to which we acquired worldwide development and commercialization rights to certain formulations of magnesium with a polymer such as polyethylene glycol ( which we refer to as ac105 ) . pursuant to the license agreement , we paid medtronic an upfront fee of $ 3 million and are obligated to pay up to an additional $ 32 million upon the achievement of specified regulatory and development milestones . if we commercialize ac105 , we will also be obligated to pay a single-digit royalty on sales . we plan to study ac105 as an acute treatment for patients who have suffered neurological trauma , such as sci and tbi . we expect to begin enrollment in a phase 2 clinical trial in patients with acute sci in the second half of 2012. ardsley lease in june 2011 , we entered into a 15 year lease for an aggregate of approximately 138,000 square feet of office and laboratory space in ardsley , new york . base rent will initially be $ 3.4 million per year , subject to a 2.5 % annual increase . we have options to extend the lease term for three additional five-year periods , and may terminate the lease after 10 years , subject to payment of an early termination fee . we also have the right to lease up to approximately 120,000 additional square feet of space in additional buildings at the same location . we anticipate taking possession of the new space in june 2012 , subject to completion of certain improvements that must be finished prior to our occupancy . 71 outlook for 2012 financial guidance for 2012 we are providing the following guidance with respect to our 2012 financial performance . the following does not reflect any potential expenditures related to the neuronex transaction described below . · we expect 2012 net revenue from the sale of ampyra to range from $ 255 million to $ 275 million . · we expect combined net revenues from sales of zanaflex capsules ( including from sales of authorized generic tizanidine hydrochloride under our agreement with watson pharma ) and zanaflex tablets , and royalty revenue from sales by biogen idec of fampyra outside the u.s. , of at least $ 25 million . · research and development expenses are expected to range from $ 50 million to $ 60 million , excluding share-based compensation charges . these expenses will include post-marketing studies for ampyra , phase 2 proof-of-concept studies in cerebral palsy and chronic stroke , and sponsorship of investigator-initiated studies of ampyra . · selling , general and administrative expenses are expected to range from $ 145 million to $ 160 million , excluding share-based compensation charges . the principal factors affecting sg & a will be commercial and administrative costs related to ampyra . · we expect to be cash flow positive in 2012. the range of sg & a and r & d expenditures for 2012 are non-gaap financial measures because they exclude share-based compensation charges . non-gaap financial measures are not an alternative for financial measures prepared in accordance with gaap . however , we believe the presentation of these non-gaap financial measures , when viewed in conjunction with actual gaap results , provides investors with a more meaningful understanding of our projected operating performance because they exclude non-cash charges that are substantially dependent on changes in the market price of our common stock . we believe that non-gaap financial measures that exclude share-based compensation charges help indicate underlying trends in our business , and are important in comparing current results with prior period results and understanding expected operating performance . also , our management uses non-gaap financial measures that exclude share-based compensation charges to establish budgets and operational goals , and to manage our business and to evaluate its performance . key 2012 initiatives and expected developments our key initiatives and expected developments during 2012 are as follows : biogen idec biogen idec plans to submit regulatory filings for fampyra in more than 20 countries in 2012. to date , biogen idec has launched fampyra in germany , the united kingdom , denmark , norway and iceland , and it is expected that fampyra will be available in the remaining eu countries by the end of 2012. also , in may 2011 , fampyra was approved for use in australia by the australian therapeutic goods administration , and has been launched there . in november 2011 , biogen idec received approval from the new zealand medicines and medical devices safety authority ( medsafe ) , and in february 2012 biogen idec received approval from health canada .
| results of operations year ended december 31 , 2011 compared to year ended december 31 , 2010 net revenue ampyra we recognize product sales of ampyra following shipment of product to our network of specialty pharmacy providers , kaiser and the specialty distributor to the va. we recognized net revenue from the sale of ampyra to these customers of $ 210.5 million and $ 133.1 million for the years ended december 31 , 2011 and 2010 , respectively . this net revenue reflected a 7.5 % increase in our sale price for ampyra effective march 4 , 2011. effective january 3 , 2012 , we increased our sale price to our customers by 15 % . discounts and allowances which are included as an offset in net revenue consists of allowances for customer credits , including estimated chargebacks , rebates , discounts and returns . discounts and allowances are recorded following shipment of ampyra tablets to our network of specialty pharmacy providers , kaiser and the specialty distributor to the va. adjustments are recorded for estimated chargebacks , rebates , and discounts . for the year ended december 31 , 2011 discounts and allowances also consisted of discounts provided to medicare beneficiaries whose prescription drug costs cause them to be subject to the medicare part d coverage gap ( i.e. , the “ donut hole ” ) . payment of coverage gap discounts is required under the affordable care act , the health care reform legislation enacted in 2010. discounts and allowances may increase as a percentage of sales as we enter into managed care contracts in the future and we incur costs incurred related to new healthcare reform medicare rebates described under the “ healthcare reform ” header below . zanaflex we recognize product sales of zanaflex capsules and zanaflex tablets using a deferred revenue recognition model where shipments to wholesalers are recorded as deferred revenue and only recognized as revenue when end-user prescriptions of the product are reported .
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the first offering period for the 2016 espp commenced on january 1 , 2017. the 2016 espp is considered a compensatory plan and the fair value of the discount and the look-back period are estimated using the black-scholes option pricing model and expense is recognized over the six-month withholding period prior to the purchase date . during the years ended december 31 , 2018 and 2017 , the company issued 12,595 and 9,692 shares , respectively , of common stock purchased under the 2016 espp . the share-based compensation expense recognized for the 2016 espp is reflected in the statements of operations as follows ( in thousands ) : replace_table_token_19_th 9. income taxes no provision for u.s. federal or state income taxes has been recorded as story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations in conjunction with the financial statements and the related notes to those statements included later in this annual report . in addition to historical financial information , the following discussion contains forward‑looking statements that reflect our plans , estimates , beliefs and expectations that involve risks and uncertainties . our actual results and the timing of events could differ materially from those discussed in these forward‑looking statements . factors that could cause or contribute to these differences include those discussed below and elsewhere in this annual report , particularly in item 1a . “ risk factors ” and “ special note regarding forward‑looking statements. ” overview we are a late-stage clinical biopharmaceutical company developing first-in-class pharmacological therapies to restore and preserve vision for people with serious eye diseases . our current product candidates focus on diseases affecting three major components of the eye : the retina , which is the tissue that lines the inside of the eye and is primarily responsible for vision ; the choroid , which is the layer adjacent to the retina that supplies the retina with blood , oxygen and nourishment ; and the sclera , which is the outer protective layer of the eye . our suprachoroidal injection platform is a novel patented approach for delivering pharmacotherapy to the back of the eye in the anatomic structure known as the suprachoroidal space , or scs . the elasticity of the scs allows for migration when fluid is injected between the choroid and sclera and allows the fluid to spread spherically toward the posterior regions of the eye where it is absorbed into adjacent tissue . we are able to precisely administer drugs into the scs with our proprietary microinjector that utilizes a needle that is approximately 1mm in length . our suprachoroidal injection technology is used in conjunction with our proprietary formulations of existing drugs and novel therapies to create a therapeutic platform of product candidates to treat several serious eye diseases . our lead product candidate , xipere , formerly known as cls-ta , is a proprietary , preservative-free suspension of the corticosteroid triamcinolone acetonide formulated for administration via suprachoroidal injection . based in part on the positive results from our phase 3 peachtree clinical trial , in december 2018 , we submitted a new drug application , or nda , to the u.s. food and drug administration , or fda , for xipere for the treatment of macular edema associated with uveitis . on february 19 , 2019 we received notification from the fda that it had accepted the xipere nda for review and had determined that the application was sufficiently complete to permit a substantive review . the prescription drug user fee act , or pdufa , goal date has been assigned for october 19 , 2019. we are also developing xipere for the treatment of diabetic macular edema , or dme . in may 2018 , we completed a phase 2 clinical trial , which we refer to as tybee , evaluating the safety and efficacy of administering xipere in combination with intravitreal eylea ® ( aflibercept ) , an anti-vegf agent , in patients with dme . based upon a review of our phase 2 tybee clinical trial data , we have decided to cease clinical development of xipere in combination with an anti-vegf therapy for the treatment of dme . we believe there is a path forward with xipere in dme and are evaluating options for clinical trials that can demonstrate the potential benefit from xipere as a monotherapy . we intend to discuss this strategy with appropriate regulatory authorities and to pursue the development of xipere as monotherapy in dme and other potential indications outside of uveitis , similar to the approval and use of other steroids for these indications . if any of our product candidates are approved , we plan to commercialize them with a specialty team of 30 to 40 sales and medical marketing professionals to target the approximately 1,900 uveitis and retina specialists in the united states , and we may also pursue collaborations with third parties to commercialize any of our drugs approved for marketing outside the united states . we have incurred net losses since our inception in may 2011. our operations to date have been limited to organizing and staffing our company , raising capital , undertaking preclinical studies and other research and development initiatives and , beginning in 2013 , conducting clinical trials of our most advanced product candidates . to date , we have not generated any revenue , other than license and collaboration revenue , and we have primarily financed our operations through public offerings and private placements of our equity securities , issuances of convertible promissory notes and loan agreements . as of december 31 , 2018 , we had an accumulated deficit of $ 206.9 million . we recorded net losses of $ 82.8 million , $ 59.0 million and $ 25.9 million for the years ended december 31 , 2018 , 2017 and 2016 , respectively . story_separator_special_tag while our significant accounting policies are more fully described in note 2 to our financial statements appearing elsewhere in this annual report , we believe the following are the critical accounting policies used in the preparation of our financial statements that require significant estimates and judgments . accrued expenses as part of the process of preparing our financial statements , we are required to estimate accrued expenses . this process involves reviewing open contracts and purchase orders , communicating with applicable vendor personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual cost . we make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us . we periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary . examples of estimated accrued expenses include fees paid to cros and investigative sites in connection with clinical trials . 63 we accrue our expenses related to clinical trials based on our estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and cros that conduct research activities or manage clinical trials on our behalf . the financial terms of these agreements are subject to negotiation , vary from contract to contract and may result in uneven payment flows . payments under some of these contracts depend on factors such as the successful enrollment of patients and the comp letion of clinical trial milestones . in accruing service fees , we estimate the time period over which services will be performed and the level of effort to be expended in each period . if the level of effort varies from our estimate , we will adjust the accr ual accordingly . if we underestimate or overestimate the level of services performed or the costs of these services , our actual expenses could differ from our estimates . although we do not currently anticipate the future settlement of existing accruals to differ materially from our estimates , our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and could result in us reporting amounts that are too high or too low for any per iod . there have been no material changes in estimates for the periods presented in our financial statements . fair value measurements we record some of our financial assets and liabilities at fair value in accordance with the provisions of accounting standards codification , or asc , topic 820 on fair value measurements . as defined in the guidance , fair value , defined as an exit price , represents the amount that would be received to sell an asset or pay to transfer a liability in an orderly transaction between market participants . as a result , fair value is a market-based approach that should be determined based on assumptions that market participants would use in pricing an asset or a liability . as a basis for considering these assumptions , the guidance defines a three-tier value hierarchy that prioritizes the inputs used in the valuation methodologies in measuring fair value . level 1—unadjusted quoted prices in active , accessible markets for identical assets or liabilities . level 2—other inputs that are directly or indirectly observable in the marketplace . level 3—unobservable inputs that are supported by little or no market activity . the fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value . our material financial instruments at december 31 , 2018 and 2017 consisted primarily of cash and cash equivalents , short-term investments and long-term debt . the fair value of cash and cash equivalents , government bonds , treasury bills , other current assets and accounts payable approximate their respective carrying values due to the short term nature of these instruments and are classified as level 1 in the fair value hierarchy . the fair value of long-term debt approximates the carrying value due to variable interest rates that correspond to market rates . we have determined our short-term investments , comprised of certificates of deposit , corporate bonds and commercial paper , to be level 2 in the fair value hierarchy . the fair value was determined using a market approach , based on prices and other relevant information generated by market transactions involving similar assets . the short-term investments consist of investments with original maturity dates from date of acquisition of 90 to 365 days and are classified as available-for-sale . share-based compensation compensation cost related to share-based awards granted to employees is measured based on the estimated fair value of the award at the grant date . we estimate the fair value of stock options using a black-scholes option pricing model . compensation expense for options granted to non-employees is determined as the fair value of consideration received or the fair value of the equity instruments issued , whichever is more reliably measured . the fair value of awards granted to non-employees is re-measured each period until the related service is complete . share-based compensation costs are expensed on a straight-line basis over the relevant vesting period . all share-based compensation costs are recorded in general and administrative or research and development costs in the statements of operations based upon the underlying employees ' roles . significant factors , assumptions and methodologies used in determining fair value determining the appropriate fair value measurement of share-based awards requires the use of subjective assumptions . the determination of the fair value measurement of options using the black-scholes option pricing model is affected by our estimated common stock fair values as well as assumptions regarding a number of other subjective variables .
| components of operating results revenue we have not generated any revenue from the sale of any drugs , and we do not expect to generate any revenue unless or until we obtain regulatory approval of and commercialize our product candidates . in 2014 , we executed a license agreement with novamedica llc , or novamedica , and in 2015 , we executed a license agreement with spark therapeutics , inc. , or spark . in connection with these agreements , we received up-front payments of $ 200,000 from novamedica and $ 500,000 from spark . we deferred recognizing these payments through 2015. in the first quarter of 2016 , we began recognizing revenue related to the novamedica payment and we recognized the entire payment from spark . in the first quarter of 2018 , upon our adoption asu 2014-09 , revenue from contracts with customers , the remaining $ 160,000 of deferred revenue related to the novamedica license agreement was recorded as a cumulative adjustment to our accumulated deficit . we may enter into additional collaboration agreements to evaluate the potential use of our proprietary scs microinjector with third-party product candidates for the treatment of various eye diseases . we recognized $ 30,000 and $ 325,000 in collaboration revenue from these agreements during the years ended december 31 , 2018 and 2017 , respectively . research and development since our inception , we have focused on our development programs .
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you should read this discussion in conjunction with our consolidated financial statements and the related notes contained 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 under risk factors in this report . our actual results may differ materially from those contained in or implied by any forward-looking statements . our fiscal year ends december 31 and , unless otherwise noted , references to years or fiscal are for fiscal years ended december 31. see results of operations. company overview gogo ( we , us , our ) is the global leader in providing broadband connectivity solutions and wireless in-flight entertainment to the aviation industry . we operate through the following three segments : commercial aviation north america , or ca-na , commercial aviation rest of world , or ca-row , and business aviation , or ba. services provided by our ca-na and ca-row businesses include passenger connectivity , which allows passengers to connect to the internet from their personal wi-fi-enabled devices ; passenger entertainment , which offers passengers the opportunity to enjoy a broad selection of in-flight entertainment options on their personal wi-fi enabled devices ; and connected aircraft services ( cas ) , which offers airlines connectivity for various operations and currently include , among others , real-time credit card transaction processing , electronic flight bags and real-time weather information . services are provided by ca-na on commercial aircraft flying routes that generally begin and end within north america , which for this purpose includes the united states , canada and mexico . ca-row provides service on commercial aircraft operated by foreign-based commercial airlines and flights outside of north america for north american-based commercial airlines . the routes included in our ca-row segment are those that begin and or end outside of north america ( as defined above ) on which our international service is provided . ba provides in-flight internet connectivity and other voice and data communications products and services and sells equipment for in-flight telecommunications to the business aviation market . ba services include gogo biz , our in-flight broadband service , gogo vision , our in-flight entertainment service , and satellite-based voice and data services through our strategic alliances with satellite companies . factors and trends affecting our results of operations we believe that our operating and business performance is driven by various factors that affect the commercial airline and business aviation industries , including trends affecting the travel industry and trends affecting the customer bases that we target , as well as factors that affect wireless internet service providers and general macroeconomic factors . key factors that may affect our future performance include : costs associated with the implementation of , and our ability to implement on a timely basis our technology roadmap , upgrades and installation of our atg-4 and 2ku technologies , gogo 5g , any technology to which our atg or satellite networks evolve and other new technologies ( including technological issues and related remediation efforts and failures or delays on the part of antenna and other equipment developers and providers , some of which are single source , or delays in obtaining stcs including as a result of any government shutdown ) , the potential licensing of additional spectrum , and the improvements to our network and operations as technology changes and we experience increased demand and network capacity constraints , including as a result of airline partners deciding to provide free service to passengers ; 61 costs associated with , and our ability to execute , our continued international expansion , including our ability to obtain and comply with foreign telecommunications , aviation and other licenses and approvals necessary for our international operations ; our ability to obtain sufficient satellite capacity , including for heavily-trafficked areas , in the united states and internationally ; costs of satellite capacity in the united states and internationally , to which we may have to commit well in advance ; the pace and extent of adoption of our service for use on domestic and international commercial aircraft by our current and new airline partners and customers ; the number of aircraft in service in our markets , including consolidation of the airline industry or changes in fleet size by one or more of our commercial airline partners or ba large-fleet customers ; the economic environment and other trends that affect both business and leisure aviation travel , including the impact of covid-19 on restrictions on and demand for air travel , as well as disruptions to supply chains and installations ; the extent of passengers ' and aviation partners ' adoption of our products and services , which is affected by , among other things , willingness to pay for the services that we provide , the quality and reliability of our products and services , changes in technology and competition from current competitors and new market entrants ; our ability to enter into and maintain long-term connectivity arrangements with airline partners and customers , which depends on numerous factors including the real or perceived availability , quality and price of our services and product offerings as compared to those offered by our competitors ; the impact of a change in business models and contract terms on the profitability of our connectivity agreements with airline partners , including as a result of changes in accounting standards ; the results of our ongoing discussions with delta with respect to its transition to free service , which may involve seeking to pursue supplier diversification for delta 's domestic mainline fleet , and our ability to offset the impact of any deinstalled aircraft through increased demand and revenue ; our ability to engage suppliers of equipment components and network services on a timely basis and on commercially reasonable terms ; continued story_separator_special_tag we define aircraft equivalents for a segment as the number of commercial aircraft online ( as defined above ) multiplied by the percentage of flights flown by such aircraft within the scope of that segment , rounded to the nearest whole aircraft and expressed as an average of the month-end figures for each month in the period . this methodology takes into account the fact that during a particular period certain aircraft may fly routes outside the scope of the segment to which they are assigned for purposes of the calculation of aircraft online . the decline in ca-na 's aircraft equivalents is due to the deinstallation of our equipment from certain american airlines aircraft during 2018 and the first half of 2019. net annualized average monthly service revenue per aircraft equivalent ( arpa ) . we define net annualized arpa as the aggregate service revenue plus monthly service fees , some of which are reported as a reduction to cost of service revenue for that segment for the period , less revenue share expense and other transactional expenses which are included in cost of service revenue for that segment , divided by the number of months in the period , and further divided by the number of aircraft equivalents ( as defined above ) for that segment during the period , which is then annualized and rounded to the nearest thousand . replace_table_token_5_th 64 satellite aircraft online . we define satellite aircraft online as the total number of business aircraft for which we provide satellite services as of the last day of each period presented . atg aircraft online . we define atg aircraft online as the total number of business aircraft for which we provide atg services as of the last day of each period presented . average monthly service revenue per satellite aircraft online . we define average monthly service revenue per satellite aircraft online as the aggregate satellite service revenue for the period divided by the number of months in the period , divided by the number of satellite aircraft online during the period ( expressed as an average of the month end figures for each month in such period ) . average monthly service revenue per atg aircraft online . we define average monthly service revenue per atg aircraft online as the aggregate atg service revenue for the period divided by the number of months in the period , divided by the number of atg aircraft online during the period ( expressed as an average of the month end figures for each month in such period ) . units sold . we define units sold as the number of satellite or atg units for which we recognized revenue during the period . average equipment revenue per satellite unit sold . we define average equipment revenue per satellite unit sold as the aggregate equipment revenue earned from all satellite units sold during the period , divided by the number of satellite units sold . average equipment revenue per atg unit sold . we define average equipment revenue per atg unit sold as the aggregate equipment revenue from all atg units sold during the period , divided by the number of atg units sold . key components of consolidated statements of operations the following briefly describes certain key components of revenue and expenses for the ca-na , ba and ca-row segments , as presented in our consolidated statements of operations . revenue : we generate two types of revenue through each of our operating segments : service revenue and equipment revenue . for ca-na and ca-row , pursuant to contractual agreements with our airline partners , we place our equipment on commercial aircraft operated by the airlines in order to deliver our service to passengers on the aircraft . we currently have two types of commercial airline arrangements : turnkey and airline-directed . under the airline-directed model , we have transferred control of the equipment to the airline and therefore the airline is our customer in these transactions . under the turnkey model , while our airline partner generally has legal title to our equipment , we do not transfer control of our equipment to our airline partner and , as a result , the airline passenger is deemed to be our customer . transactions with our airline partners under the turnkey model are accounted for as an operating lease of space on an aircraft . ca-na and ca-row service revenue : ca-na and ca-row revenue consists of service revenue primarily derived from connectivity services and , to a lesser extent , from entertainment services and cas . connectivity is provided to our customers using both our atg and satellite technologies . 65 airline-directed connectivity revenue : as noted above , under the airline-directed model , the airline is our customer and we earn service revenue as connectivity services are consumed directly by the airline or indirectly by passengers . turnkey connectivity revenue ( passenger connectivity ) : under the turnkey model , passenger connectivity revenue is generated by services paid for by passengers , airlines and third parties . passenger paid revenue represents point-of-sale sessions ( which may be flight-based , time-based , multiple individual session packages ( multi-pack ) or subscriptions ) . flight-based , time-based and multi-pack revenue is recognized when the sessions are used . subscription revenue is recognized evenly throughout the subscription period , regardless of the number of times the customer uses the network . third party and airline-paid revenue is generated by sales of connectivity services to airlines or third parties in sponsorship , wholesale , enterprise and roaming arrangements . sponsorship revenue is recognized over the sponsorship term . revenue from wholesale , enterprise and roaming arrangements is recognized as sessions are used by the passenger . entertainment revenue : entertainment revenue consists of entertainment services we provide to the airline for use by its passengers . revenue is recognized as the services are provided to the airline .
| results of operations the following table sets forth , for the periods presented , certain data from our consolidated statements of operations . the information contained in the table below should be read in conjunction with our consolidated financial statements and related notes . consolidated statements of operations data ( in thousands ) replace_table_token_6_th 71 years ended december 31 , 2019 and 2018 revenue : revenue by segment and percent change for the years ended december 31 , 2019 and 2018 were as follows ( in thousands , except for percent change ) : replace_table_token_7_th commercial aviation north america : ca-na revenue decreased to $ 378.0 million for the year ended december 31 , 2019 , as compared with $ 469.2 million for the prior year , due to decreases in both equipment and service revenue . equipment revenue decreased to $ 23.7 million for the year ended december 31 , 2019 , as compared with $ 101.8 million for the prior year , due to fewer 2ku installations , a shift in mix from airline-directed to turnkey installations and the transition to the airline-directed model by one airline in january 2018 , which increased equipment revenue by approximately $ 45.4 million for the year ended december 31 , 2018. see note 2 , summary of significant accounting policies , for additional information . a summary of the components of ca-na 's service revenue for the years ended december 31 , 2019 and 2018 is as follows ( in thousands , except for percent change ) : replace_table_token_8_th ( 1 ) includes non-session related revenue of $ 12.6 million and $ 6.9 million for the years ended december 31 , 2019 and 2018 , respectively .
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under this new guidance , an entity recognizes as an allowance its estimate of expected credit losses . the asu is effective for fiscal years beginning after december 15 , 2019. the company has performed an analysis and determined which areas are in story_separator_special_tag background the consolidated financial statements include the accounts of opy and its consolidated subsidiaries ( together , the `` company '' , `` we '' , `` our '' or `` us '' ) . the company 's consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the united states of america . the following discussion should be read in conjunction with the consolidated financial statements and notes thereto which appear elsewhere in this annual report . the company engages in a broad range of activities in the securities industry , including retail securities brokerage , institutional sales and trading , market-making , research , investment banking ( both corporate and public finance ) , investment advisory and asset management services and trust services . its principal subsidiaries are oppenheimer & co. inc. ( `` oppenheimer '' ) and oppenheimer asset management inc. ( `` oam '' ) . as of december 31 , 2019 , we provided our services from 93 offices in 25 states located throughout the united states , offices in tel aviv , israel , hong kong , china , london , england , st. helier , isle of jersey , frankfurt , germany and geneva , switzerland . client assets administered as of december 31 , 2019 totaled $ 91.0 billion . the company provides investment advisory services through oam and oppenheimer investment management llc ( `` oim '' ) and oppenheimer 's financial adviser direct programs . at december 31 , 2019 , client assets under management ( `` aum '' ) totaled $ 32.1 billion . we also provide trust services and products through oppenheimer trust company of delaware and discount brokerage services through freedom investments , inc. ( `` freedom '' ) . through opy credit corp. , we offer syndication as well as trading of issued syndicated corporate loans . at december 31 , 2019 , the company employed 2,971 employees ( 2,917 full-time and 54 part-time ) , of whom 1,032 were financial advisers . outlook we are focused on growing our private client and asset management businesses through strategic additions of experienced financial advisers in our existing branch system and employment of experienced money management personnel in our asset management business as well as deploying our capital for expansion through targeted acquisitions . in addition , we commit to the improvement of our technology capability to support client service and the expansion of our capital markets capabilities while addressing the issue of managing expenses . the company 's long-term growth plan is to continue to expand existing offices by hiring experienced professionals as well as expand through the purchase of operating branch offices from other broker-dealers or the opening of new branch offices in attractive locations , and to continue to grow and develop the existing trading , investment banking , investment advisory and other divisions . we are committed to continuing to improve our technology capabilities to ensure compliance with industry regulations , support client service and expand our wealth management and capital markets capabilities . we recognize the importance of compliance with applicable regulatory requirements and are committed to performing rigorous and ongoing assessments of our compliance and risk management effort , investing in people and programs , and providing a platform with first class investment programs and services . the company is also reviewing its full service business model to determine the opportunities available to build or acquire closely related businesses in areas where competitors have shown some success . equally important is the search for viable acquisition candidates . our long-term intention is to pursue growth by acquisition where we can find a comfortable match in terms of corporate goals and personnel at a price that would provide our shareholders with incremental value . we review potential acquisition opportunities from time to time on the basis of fulfilling the company 's strategic goals , while evaluating and managing our existing businesses . impact of interest rates the federal reserve bank implemented a series of increases in its benchmark short-term interest rate between december 2015 and december 2018. these increases in short-term interest rates had a significant positive impact on our overall financial performance , as we have programs offered to our clients ( for the investment of short-term funds as well as margin loans ) which are sensitive to changes in interest rates . given the relationship of our interest-sensitive assets to liabilities , increases in short-term interest rates generally result in an overall increase in our net earnings . clients ' domestic cash sweep balances have decreased over the past several quarters as clients increased their allocations to other investments , largely driven by the improvement of equity market conditions as well as other short-term fixed income investments . while the federal reserve increased short-term interest rates over the last few years , market deposit rates paid on client cash balances were not impacted to as great a degree , resulting in an increase in fees the company earned from fdic insured deposits of clients offered by the company . 38 any decreases in short-term interest rates , increases in deposit rates paid to clients , and or a significant decline in our clients ' cash balances would likely have a negative impact on our earnings . during the year ended december 31 , 2019 , the federal reserve decreased its benchmark short-term interest rate three times by 0.25 % ( 0.75 % in total ) . accordingly , the company 's earnings during the year ended december 31 , 2019 were negatively impacted by such decreases . given the recent concerns around the slowing global economy , there could be further rate cuts which would negatively impact the company 's earnings going forward . story_separator_special_tag around the deductibility of executive compensation under the tcja . the effective income tax rate for the year ended december 31 , 2017 was positively impacted by the estimated impact of the tcja which resulted in a net discrete after-tax benefit of $ 9.0 million . 42 business segments the table below presents information about the reported revenue and income ( loss ) before income taxes of the company 's reportable business segments for the years ended december 31 , 2019 and 2018 : replace_table_token_4_th private client private client reported revenue of $ 653.4 million for the year ended december 31 , 2019 , 5.8 % higher than the year ended december 31 , 2018 due to higher incentive fees , an increase in the cash surrender value of company-owned life insurance , and an increase in investment income related to a deferred compensation plan partially offset by decreases in commissions and margin interest revenue . income before income taxes was $ 163.9 million for the year ended december 31 , 2019 , an increase of 9.9 % compared with the year ended december 31 , 2018 due to the foregoing plus lower legal and regulatory costs partially offset by higher producer-related , incentive , share-based and deferred compensation costs during the year ended december 31 , 2019 . retail commissions were $ 188.7 million for the year ended december 31 , 2019 , a decrease of 4.1 % from the year ended december 31 , 2018. advisory fee revenue on traditional and alternative managed products was $ 264.8 million for the year ended december 31 , 2019 , an increase of 8.7 % compared with the year ended december 31 , 2018. the increase in advisory fees was due to the increase in incentive fees earned from alternative investments during the year ended december 31 , 2019 . ◦ incentive fees earned from alternative investments were $ 20.8 million for the year ended december 31 , 2019 compared with $ 0.6 million for the year ended december 31 , 2018. bank deposit sweep income was $ 117.4 million for the year ended december 31 , 2019 , an increase of 1.2 % compared with $ 116.1 million for the year ended december 31 , 2018. asset management asset management reported revenue of $ 88.8 million for the year ended december 31 , 2019 , 23.8 % higher than the year ended december 31 , 2018 due to higher incentive fees earned from alternative investments . income before income taxes was $ 31.6 million for the year ended december 31 , 2019 , an increase of 70.0 % compared with the year ended december 31 , 2018 . advisory fee revenue on traditional and alternative managed products was $ 88.7 million for the year ended december 31 , 2019 , an increase of 25.3 % compared with the year ended december 31 , 2018 due to higher incentive fees earned from alternative investments . incentive fees earned from alternative investments were $ 16.7 million for the year ended december 31 , 2019 compared with $ 0.3 million for the year ended december 31 , 2018 . 43 the following table provides a breakdown of the change in assets under management for the year ended december 31 , 2019 : replace_table_token_5_th ( 1 ) traditional investments include third party advisory programs , oppenheimer financial adviser managed and advisory programs , and oppenheimer asset management taxable and tax-exempt portfolio management strategies . ( 2 ) institutional fixed income provides solutions to institutional investors including : taft-hartley funds , public pension funds , corporate pension funds , and foundations and endowments . ( 3 ) hedge funds represent single manager hedge fund strategies in areas including hedged equity , technology and financial services , and multi-manager and multi-strategy fund of funds . ( 4 ) private equity funds represent private equity fund of funds including portfolios focused on natural resources and related assets . ( 5 ) the portfolio enhancement program sells uncovered , far out-of-money puts and calls on the s & p 500 index . the program is market neutral and uncorrelated to the index . valuation is based on collateral requirements for a series of contracts representing the investment strategy . capital markets capital markets reported revenue o f $ 290.8 million for the year ended december 31 , 2019 , 6.6 % higher than the year ended december 31 , 2018 due to higher fees from mergers and acquisitions activity , and debt underwriting transacti ons , and higher trading revenue partially offset by lower equity capital market transactions during the year ended december 31 , 2019 . loss before income taxes w as $ 13.7 million for the year ended december 31 , 2019 compared with a loss before income taxes of $ 13.4 million for the year ended december 31 , 2018 . the increase in the loss before income taxes during the year ended december 31 , 2019 is primarily due to higher salaries , producer-related , incentive , and share-based compensation . institutional equities commissions decreased 2.3 % to $ 94.0 million for the year ended december 31 , 2019 compared with the year ended december 31 , 2018 due to lower client participation in the equities markets during the year ended december 31 , 2019. advisory fees earned from investment banking activities increased 15.7 % to $ 49.5 million for the year ended december 31 , 2019 compared with the year ended december 31 , 2018 due to an increase in mergers and acquisitions activity during the year ended december 31 , 2019. equities underwriting fees decreased 19.0 % to $ 40.8 million for the year ended december 31 , 2019 compared with the year ended december 31 , 2018 due to decreased capital raising activity during the year ended december 31 , 2019. debt underwriting fees more than tripled to $ 18.2 million for the year ended december 31 , 2019 compared with the year ended december 31 , 2018 due to an increase in underwriting fee income in emerging markets .
| results of operations the following table and discussion summarizes the changes in the major revenue and expense categories for the past three years : replace_table_token_3_th 40 fiscal 2019 compared to fiscal 2018 revenue commission revenue was $ 320.1 million for the year ended december 31 , 2019 , a decrease of 2.9 % compared with $ 329.7 million for the year ended december 31 , 2018 . advisory fees were $ 353.7 million for the year ended december 31 , 2019 , an increase of 12.5 % compared with $ 314.3 million for the year ended december 31 , 2018 due to an increase in incentive fees earned from alternative investments during the fourth quarter of 2019. investment banking revenue was $ 126.2 million for the year ended december 31 , 2019 , an increase of 9.4 % compared with $ 115.4 million for the year ended december 31 , 2018 due to higher merger and acquisition advisory fees offset by lower equities underwriting revenue during the 2019 year . bank deposit sweep income was $ 117.4 million for the year ended december 31 , 2019 , an increase of 1.2 % compared with $ 116.1 million for the year ended december 31 , 2018 . interest revenue was $ 50.7 million for the year ended december 31 , 2019 , a decrease of 3.4 % compared with $ 52.5 million in 2018 . principal transactions revenue was $ 30.1 million for the year ended december 31 , 2019 , an increase of 108.1 % compared with $ 14.5 million for the year ended december 31 , 2018 . during the third quarter of 2018 , the company participated in tender offers by issuers of ars which resulted in recognized losses totaling $ 8.1 million .
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please see “ business , ” “ disclosure regarding forward-looking statements ” and “ risk factors ” elsewhere in this form 10-k. you should read this discussion in conjunction with the financial statements and notes thereto included elsewhere in this form 10-k. unless the context requires otherwise , all references in this item 7 to the “ company , ” “ we , ” “ us ” or “ our ” refer to dawson geophysical company and its consolidated subsidiaries . overview we are a leading provider of north american onshore seismic data acquisition services with operations throughout the continental u.s. and canada . substantially all of our revenues are derived from the seismic data acquisition services we provide to our clients . our clients consist of major oil and gas companies , independent oil and gas operators , and providers of multi-client data libraries . in recent years , our primary customer base has consisted of providers of multi-client data libraries . demand for our services depends upon the level of spending by these companies for exploration , production , development and field management activities , which depends , in a large part , on oil and natural gas prices . significant fluctuations in domestic oil and natural gas exploration and development activities related to commodity prices , as we have recently experienced , have affected , and will continue to affect , demand for our services and our results of operations , and such fluctuations continue to be the single most important factor affecting our business and results of operations . during the fourth quarter of 2020 , we operated one data acquisition crew with periods of low utilization in the u.s. the one crew was inactive for the latter part of the third quarter and well into the fourth quarter . based on currently available information , we anticipate operating one crew in the u.s. through the first quarter with likely sustained periods 17 of downtime and one crew in canada for the winter season ending at the end of the first quarter of 2021. while visibility remains limited beyond the first quarter , we maintain the ability to deploy additional crews on short notice when market conditions improve . reflected in both the fourth quarter and year end results is a non-cash impairment of approximately $ 1.6 million related to a note receivable and bad debt expense . fiscal 2020 was a year of unprecedented adversity . we started out the first half of the year with our best financial and operational results in many years . we operated three large channel count crews in the u.s. and up to three crews in the canada during the first quarter of 2020. we continued profitability in the second quarter with the operation of two large channel count crews . as reported in our second quarter earnings release , we began to experience the dramatic impact of the covid-19 related economic lockdowns in late spring and early summer . as oil prices began to trade at significantly low levels , exploration and production ( “ e & p ” ) companies reduced their capital budgets and spending , which in turn , negatively impacted demand for our services . as a result , crew deployment lessened and utilization of our existing channels dropped . utilization levels went from strong and promising in the first half of the year to weak for periods of time in the second half of the year . even though we have seen some gradual uptick in oil prices , current requests for proposals for our services in both the u.s. and canada remain challenged . we are beginning to see signs of modest recovery in the oilfield service space as the oil and gas industry has experienced slight economic improvements in the number of active drilling rigs and hydraulic fracturing crews deployed in the u.s. on a different note , the decrease in overall activity and financial difficulties led to an increase in merger and acquisition ( “ m & a ” ) activity as some e & p companies have chosen to consolidate with others . at this time , we are unable to forecast the impact that this activity will have on the demand for our services as e & p companies re-evaluate their capital spending projects . however , this recent m & a activity indicates e & p companies will continue their focus on shareholder returns and disciplined capital spending as they seek to develop and produce oil and natural gas with increased efficiency by prioritizing their most economic drilling locations . this need for increased efficiencies promotes demand for seismic data acquisition and the services we provide . as in the most recent down cycles , we anticipate recovery in seismic data acquisition to somewhat lag behind increases in drilling and completion activities . the overall effect of the current administration 's order to pause oil and gas leasing and issuance of new drilling permits on federal lands will have on us is yet to be determined , however , we anticipate activity among e & p companies to be cautious in many of the western states such as new mexico , utah and wyoming . in response to these difficult conditions , we are maintaining our focus on cost saving measures while balancing the ability to respond rapidly when market conditions improve . in addition , we remain fully committed to our longstanding focus on the health and safety of our employees , vendors and clients , the environment ( both public and private ) , compliance with corporate governance policies , transparency in sec reporting and requirements of the sarbanes-oxley act . as previously reported in our third quarter 2020 earnings press release , we have taken steps to outsource several ancillary services . these steps , including permitting and surveying , have resulted in reduced salary costs and lower general and administrative expenses . story_separator_special_tag from time to time in the past , we have also funded our capital expenditures and other financing needs through public equity offerings . dominion loan agreement . on september 30 , 2019 , we entered into a loan and security agreement with dominion bank . on september 30 , 2020 , we entered into a loan modification agreement to the loan and security agreement ( as amended by the loan modification agreement , the “ loan agreement ” ) for the purpose of amending and extending the maturity of our line of credit with dominion bank by one year . the loan agreement provides for a revolving credit facility in an amount up to the lesser of ( i ) $ 15,000,000 or ( ii ) a sum equal to ( a ) 80 % of our eligible accounts receivable plus 100 % of the amount on deposit with dominion bank in our collateral account , consisting of a restricted cdars account of $ 5,000,000 ( the “ deposit ” ) . as of december 31 , 2020 , we have not borrowed any amounts under the revolving credit facility . under the revolving credit facility , interest will accrue at an annual rate equal to the lesser of ( i ) 6.00 % and ( ii ) the greater of ( a ) the prime rate as published from time to time in the wall street journal or ( b ) 3.50 % . we will pay a commitment fee of 0.10 % per annum on the difference of ( a ) $ 15,000,000 minus the deposit minus ( b ) the daily average usage of the revolving credit facility . the loan agreement contains customary covenants for credit facilities of this type , including limitations on disposition of assets . we are also obligated to meet certain financial covenants under the loan agreement , including maintaining a tangible net worth of $ 75,000,000 and specified ratios with respect to current assets and liabilities and debt to tangible net worth . our obligations under the loan agreement are secured by a security interest 21 in the collateral account ( including the deposit ) with dominion bank and future accounts receivable and related collateral . the maturity date of the loan agreement is september 30 , 2021. we do not currently have any notes payable under the revolving credit facility . dominion letters of credit . as of december 31 , 2020 , dominion bank has issued one letter of credit in the amount of $ 583,000 to support our workers compensation insurance . the letter of credit is secured by a certificate of deposit with dominion bank . other indebtedness . as of december 31 , 2020 , we have one note payable to a finance company for various insurance premiums totaling $ 40,000. in addition , we lease certain seismic recording equipment and vehicles under leases classified as finance leases . our consolidated balance sheet as of december 31 , 2020 includes finance leases of $ 98,000. contractual obligations . we believe that our capital resources , including our short-term investments , cash flow from operations , and funds available under our revolving credit facility , will be adequate to meet our current operational needs . we believe that we will be able to finance our 2021 capital expenditures through cash flow from operations , borrowings from commercial lenders , and the funds available under our revolving credit facility . however , our ability to satisfy working capital requirements , meet debt repayment obligations , and fund future capital requirements will depend principally upon our future operating performance , which is subject to the risks inherent in our business , and will also depend on the extent to which the current economic climate adversely affects the ability of our customers , and or potential customers , to promptly pay amounts owing to us under their service contracts with us . off-balance sheet arrangements as of december 31 , 2020 , we had no off-balance sheet arrangements . critical accounting policies the preparation of our financial statements in conformity with gaap requires that certain assumptions and estimates be made that affect the reported amounts of assets and liabilities at the date of our financial statements and the reported amounts of revenues and expenses during the reporting periods . because of the use of assumptions and estimates inherent in the reporting process , actual results could differ from those estimates . allowance for doubtful accounts . in june 2016 , the financial accounting standards board ( “ fasb ” ) issued accounting standards update ( “ asu ” ) no . 2016-13 , financial instruments – credit losses ( “ topic 326 ” ) : measurement of credit losses on financial instruments , requiring entities to measure expected credit losses for certain financial assets using a new , forward-looking current expected credit loss model ( “ cecl ” ) which will result in the earlier recognition of allowances for losses . cecl is based on historical experience , adjusted for current conditions and reasonable and supportable forecasts . this asu requires a modified retrospective approach with a cumulative-effect adjustment to retained earnings for additional loss allowances , if any , as of the beginning of the first reporting period of adoption . additional asu 's were issued subsequently that provided additional guidance . on january 1 , 2020 , we adopted topic 326 and had no cumulative-effect adjustment needed to our retained earnings as our loss allowance was deemed sufficient . our financial instruments within the scope of this guidance primarily includes trade receivables and a note receivable . we have made an accounting policy election to write off accrued interest amounts by reversing interest income . our allowance for doubtful accounts reflects our current estimate of credit losses expected to be incurred over the life of the financial instrument and is determined based on a number of factors .
| results of operations year ended december 31 , 2020 versus year ended december 31 , 2019 operating revenues . operating revenues for the year ended december 31 , 2020 were $ 86,100,000 compared to $ 145,773,000 for the same period of 2019. the decrease in revenues for the year ended december 31 , 2020 compared to the same period of 2019 was primarily a result of decreased equipment and crew utilization . operating expenses . operating expenses for the year ended december 31 , 2020 decreased to $ 68,998,000 compared to $ 123,024,000 for the same period of 2019. the decrease in operating expenses was mainly due to an overall decrease in crew production and utilization . general and administrative expenses . general and administrative expenses were 16.2 % of revenues in the year ended december 31 , 2020 compared to 11.8 % of revenues in the same period of 2019 primarily due to a decrease in operating revenues discussed above . general and administrative expenses decreased to $ 13,920,000 during the year ended december 31 , 2020 from $ 17,169,000 during the same period of 2019. the primary factors for the decrease in general and administrative expenses are related to continued cost cutting strategies implemented by the company . depreciation expense . depreciation for the year ended december 31 , 2020 was $ 17,174,000 compared to $ 21,826,000 for the same period of 2019. the decrease in depreciation expense is a result of limiting capital expenditures to necessary maintenance capital requirements in recent years . our depreciation expense is expected to remain flat or decline slightly during 2021 primarily due to limited capital expenditures to maintain our existing asset base . our total operating costs for the year ended december 31 , 2020 were $ 100,092,000 , representing a 38.2 % decrease from the corresponding period of 2019. this change was primarily due to the factors described above . income taxes .
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the securities are categorized as a level 1 asset , story_separator_special_tag overview greenhill is a leading independent investment bank that provides financial and strategic advice on significant domestic and cross-border mergers and acquisitions , divestitures , restructurings , financings , capital raising and other strategic transactions to a diverse client base , including corporations , partnerships , institutions and governments globally . we serve as a trusted advisor to our clients throughout the world from our offices in the united states , australia , brazil , canada , germany , hong kong , japan , spain , sweden , and the united kingdom . our revenues are principally derived from advisory services on mergers and acquisitions ( or m & a ) , financings and restructurings and are primarily driven by total deal volume and the size of individual transactions . while fees payable upon the successful conclusion of a transaction generally represent the largest portion of our advisory fees , we also earn other corporate advisory fees , including on-going retainer fees , substantially all of which relate to non-success based strategic advisory and financing advisory and restructuring assignments , and fees payable upon the commencement of an engagement or upon the achievement of certain milestones , such as the announcement of a transaction or the rendering of a fairness opinion . additionally , our global capital advisory group provides capital raising advisory services in the primary market for real estate funds , where revenues are driven primarily by the amount of capital raised , and in the secondary market for alternative assets , where revenue is determined based upon a fixed percentage of the transaction value . greenhill was established in 1996 by robert f. greenhill , the former president of morgan stanley and former chairman and chief executive officer of smith barney . since our founding , greenhill has grown by recruiting talented managing directors and other senior professionals , by acquiring complementary advisory businesses and by training , developing and promoting professionals internally . we have expanded beyond merger and acquisition advisory services to include financing , restructuring and capital advisory services , and we have expanded the breadth of our sector expertise to cover substantially all major industries . since the opening of our original office in new york , we have expanded globally to 15 offices across five continents . over our 22 years as an independent investment banking firm , we have sought to opportunistically recruit new managing directors with a range of industry and transaction specialties , as well as high-level corporate and other relationships , from major investment banks , independent financial advisory firms and other institutions . we also have sought to expand our geographic reach both through recruiting managing directors in new locations and through strategic acquisitions , such as our 2006 acquisition of beaufort partners limited ( now greenhill canada ) in canada and our 2010 acquisition of caliburn partnership pty limited ( now greenhill australia ) in australia . additionally , we expanded the breadth of our advisory services through the recruitment of a team of managing directors focused on real estate capital advisory services , through the hiring of managing directors to focus on financing and restructuring advisory services , and through our acquisition in 2015 of cogent , which provides advisory services related to the secondary fund placement market . through our recruiting and acquisition activity , we have significantly increased our geographic reach by adding offices in the united states , united kingdom , germany , canada , japan , australia , sweden , hong kong , brazil and spain . we intend to continue our efforts to recruit new managing directors with industry sector experience and or geographic reach who can help expand our advisory capabilities . during 2017 , we announced the recruitment of nine corporate advisory focused managing directors , who have joined our teams in the united states , australia , canada and europe , including two who extend our reach into the spanish market . we had 71 client facing managing directors as of january 1 , 2018. in september 2017 , we announced plans for a leveraged recapitalization to put in place a capital structure designed to enhance long term shareholder value in the context of our then current equity valuation , existing tax rates and existing opportunities in the credit market . under that plan , net proceeds from the borrowing of $ 350.0 million of term loans , which closed in early october 2017 , were used to repay in full the existing bank indebtedness outstanding at the time . the remaining term loan proceeds , in addition to the proceeds from the purchase of $ 10.0 million of our common stock by each of our chairman and chief executive officer , which closed in early november 2017 , were intended to be used to repurchase up to $ 285.0 million of our common stock ( together the term loan borrowing , common stock purchases , bank debt repayment and the plan for the repurchase of common stock constitute the `` recapitalization '' ) . the recapitalization plan is intended to reduce taxes , increase earnings per share and increase employee alignment with shareholders , while offering those wishing to monetize their shares a significant opportunity for liquidity . we began the implementation of our repurchase plan during the fourth quarter of 2017 and , as of december 31 , 2017 , we repurchased 3,434,137 shares of our common stock through a fixed price tender offer and an additional 343,411 common shares through open market transactions , or in aggregate 3,777,548 common shares at an average price of $ 17.41 per share , for a total cost of $ 65.8 million . in january 2018 , we repurchased an additional 341,742 shares through open market transactions for $ 6.5 million . the repurchased shares represent approximately 13 % of our total outstanding shares at the time we announced the recapitalization plan . story_separator_special_tag ( 1 ) excludes transactions less than $ 100,000 and withdrawn/canceled deals . source : thomson financial as of february 5 , 2018 . 27 we generally experience significant variations in revenues during each quarterly period and we also experienced a significant variation in our annual revenue in 2017 as compared to recent years . these variations can generally be attributed to the fact that a majority of our revenues is usually earned in large amounts upon the successful completion of transactions , the timing of which is uncertain and are not subject to our control . as a result , our results of operations vary and our results in one period may not be indicative of our results in any future period . story_separator_special_tag style= '' line-height:120 % ; text-align : justify ; font-size:10pt ; '' > the sale of derma sciences , inc. to integra lifesciences holdings corporation ; the representation of det norske veritas holding as on its acquisition of a 36.5 % stake in dnv gl group as ; the acquisition by emerson electric co. of pentair plc 's valves and controls business ; the sale by energy corporation of america of substantially all of its oil and gas assets to greylock energy , an affiliate of arclight capital partners ; the acquisition by godaddy inc. of host europe group ltd. ; advising natural resource partners l.p. on a series of recapitalization transactions , including the extension of nrp 's near-term debt maturities and the issuance of $ 250 million of new preferred equity capital ; the acquisition by persol holdings co. , ltd of programmed maintenance services limited ; the merger of shanks group plc with van gansewinkel groep b.v. ; and the spin-off by tegna inc. of cars.com . during 2017 , our capital advisory group advised real estate fund general partners on six final closings of primary capital commitments from institutional investors in such funds , and advised institutional investors on 82 closings of sales of limited partnership interests in secondary market transactions . capital advisory fees for 2017 increased to $ 70.9 million , an increase of $ 19.7 million , or 38 % , compared to $ 51.2 million for 2016 . for 2017 , we generated 30 % of our advisory revenues from capital advisory fees . we earned advisory revenues from 197 different clients in 2017 and 212 different clients in 2016 . of this group of clients , 44 % were new to us in 2017 . we earned fees of $ 1 million or more from 58 clients in 2017 , down 18 % compared to 71 clients in 2016 . the ten largest fee-paying clients contributed 39 % of our total revenues in 2017 and 40 % in 2016 . there was no single client in 2017 or 2016 that represented greater than 10 % of our revenues . 29 2016 versus 2015 . advisory revenues were $ 334.8 million for the year ended december 31 , 2016 compared to $ 260.3 million for the year ended december 31 , 2015 , an increase of 29 % . the increase in our 2016 advisory revenues , as compared to 2015 , resulted from a greater number of completed merger and acquisition transactions with fees which were generally larger in scale than the prior year , offset in part by a decrease in other corporate advisory fees . prominent advisory assignments completed in 2016 include : the acquisition by ball corporation of rexam plc ; the representation of boehringer ingelheim gmbh on a global collaboration with abbvie inc. ; the sale of heartland payment systems , inc. to global payments inc. ; the acquisition by mann+hummel gmbh of the global filtration operations of affinia group holding , inc. ; the sale of rofin-sinar technologies , inc. to coherent , inc. ; the representation of supervalu inc. on the sale of its save-a-lot business to an affiliate of onex corporation ; the sale of telecity group plc to equinix , inc. ; the acquisition by teva pharmaceuticals industries ltd. of allergan plc 's generics business ; the representation of teva pharmaceuticals industries ltd. on the divestment of the u.s. rights to seventy-nine generic products to eleven different counterparties ; the representation of texas competitive electric holdings and its subsidiaries at the direction of its independent director in connection with its and energy future holdings ' chapter 11 proceedings ; and the sale of whistler blackcomb holdings inc. to vail resorts , inc. during 2016 , our capital advisory group advised real estate fund general partners on five final closings of primary capital commitments from institutional investors in such funds , and advised institutional investors on 83 closings of sales of limited partnership interests in secondary market transactions . capital advisory fees for 2016 decreased to $ 51.2 million , a slight decrease of $ 3.8 million , or 7 % , compared to $ 55.0 million for 2015 , which principally resulted from a slowdown in transaction activity as a result of market volatility throughout the year , offset by an additional three months of revenue from our secondary placement business , which was acquired april 1 , 2015. for 2016 , we generated 15 % of our advisory revenues from capital advisory fees . we earned advisory revenues from 212 different clients in 2016 and 197 different clients in 2015 . of this group of clients , 47 % were new to us in 2016 . we earned fees of $ 1 million or more from 71 clients in 2016 , up 11 % compared to 64 clients in 2015 . the ten largest fee-paying clients contributed 40 % of our total revenues in 2016 and 32 % in 2015 . there was no single client in 2016 or 2015 that represented greater than 10 % of our revenues . investment revenues we also generate a small portion of our revenues from interest income and gains ( or losses ) in merchant banking fund investments , which we substantially liquidated in prior years .
| results of operations the following tables set forth data relating to the firm 's sources of revenues : historical revenues by source replace_table_token_5_th advisory revenues historical advisory revenues by client location replace_table_token_6_th historical advisory revenues by industry replace_table_token_7_th we operate in a highly competitive environment where there are no long-term contracted sources of revenue . each revenue-generating engagement is separately awarded and negotiated . our list of clients with whom there are active engagements changes continually . to develop new client relationships , and to develop new engagements from historic client relationships , we maintain , on an ongoing basis , active business dialogues with a large number of clients and potential clients . we gain new clients each year through our business development initiatives , through recruiting additional senior investment banking professionals who bring with them client relationships and expertise in certain industry sectors or geographies and through referrals from members of boards of directors , attorneys and other parties with whom we have relationships . at the same time , we lose clients each year as a result of the sale or merger of a client , a change in a client 's senior management team , turnover of our senior banking professionals , competition from other investment banks and other causes . 28 our revenues are principally derived from advisory services on mergers and acquisitions ( or m & a ) , financings and restructurings and are primarily driven by total deal volume and the size of individual transactions . a majority of our advisory revenue is contingent upon the closing of a merger , acquisition , financing , restructuring , capital fund transaction or other advisory transaction .
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76 capstar financial holdings inc. & subsidiary notes to consolidated financial statements a description 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 , 2019 , 2018 and 2017. 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 appearing under the caption “ part ii. , item 8—financial statements , supplementary data and financial statement schedules ” in this report . 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 , estimates 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 2017 , 2018 and 2019 mean our fiscal years ended december 31 , 2017 , 2018 , and 2019 , respectively . overview we completed 2019 with net income of $ 22.4 million , or $ 1.20 diluted net income per share , compared to net income of $ 9.7 million , or $ 0.67 diluted net income per share , for 2018. average loans for 2019 were $ 1.45 billion , a 27.9 % increase over 2018 , and average deposits for 2019 were $ 1.67 billion , a 34.2 % increase over 2018. the comparability of our financial condition and performance has been impacted by our acquisition of athens which we completed in 2018 and the passage of the tax cuts and jobs act in december 2017 , in each case as discussed below . we acquired athens on october 1 , 2018. on the acquisition date , the fair market value of athens ' net assets was $ 61.6 million , including $ 344.8 million in loans and $ 404.5 million in deposits . net income for 2018 was reduced by $ 9.8 million of pretax merger related charges related to this acquisition . the athens acquisition further expanded our franchise into the east tennessee market . on december 22 , 2017 , the tax cuts and jobs act was signed into law . among other items , the tax cuts and jobs act reduced the corporate statutory tax rate from 35 % to 21 % . as a result of such decrease , we recognized an increase in income tax expense of $ 3.56 million in 2017 resulting from the revaluation of our deferred tax assets . 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 our overall profitability . similarly , deposit volume is crucial to funding loans and the rates paid on deposits directly impact our 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 $ 16.0 million , or 31.1 % , to $ 67.7 million for 2019 compared to $ 51.7 million for 2018. 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 3.64 % for 2019 , compared with 3.55 % for 2018. provision for loan losses was $ 0.8 million in 2019 compared to $ 2.8 million in 2018 , a 73.2 % decrease . this decrease was primarily the result of lower charge-offs , which were $ 0.8 million in 2019 compared to $ 5.0 million in 2018. 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 , 2019 was 0.89 % of total loans , compared with 0.85 % of total loans at december 31 , 2018 . 40 total noninterest income for 201 9 in crease d $ 8.8 million , or 5 7 .0 % , to $ 24.3 million compared to $ 15.5 million for 201 8 , and comprised 21.0 % of total revenues . story_separator_special_tag income taxes deferred income tax assets and liabilities are computed using the asset and liability method , which recognizes a liability or asset representing the tax effects , based on current tax law , of future deductible or taxable amounts attributable to events recognized in the financial statements . a valuation allowance may be established to the extent necessary to reduce the deferred tax asset to a level at which it is “ more likely than not ” that the tax asset or benefit will be realized . realization of tax benefits depends on having sufficient taxable income , available tax loss carrybacks or credits , the reversal of taxable temporary differences and or tax planning strategies within the reversal period , and that current tax law allows for the realization of recorded tax benefits . business combinations assets purchased and liabilities assumed in a business combination are recorded at their fair value . the fair value of a loan portfolio acquired in a business combination requires greater levels of management estimates and judgment than the remainder of purchased assets or assumed liabilities . when the loans have evidence of credit deterioration since origination and it is probable at the date of acquisition that the company will not collect all contractually required principal and interest payments , the loans are considered impaired , and the expected cash flows in excess of the amount paid are recorded as interest income over the remaining life of the loan . the excess of the loan 's contractual principal and interest over expected cash flows is not recorded . we must estimate expected cash flows at each reporting date . subsequent decreases to the expected cash flows will generally result in a provision for loan losses . 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 growth , the credit quality of the loan portfolio and the amount of net charge-offs . provision expense decreased for 2019 compared to 2018 due to decreased charge-offs . charge-offs for 2019 were $ 0.8 million compared to $ 5.0 million for 2018. of the $ 5.0 million in charge offs during 2018 , $ 4.6 million was attributable to a single borrower . our allowance for loan losses as a percentage of total loans increased from 0.85 % at december 31 , 2018 to 0.89 % at december 31 , 2019. this increase was largely due to our assessment of risk generally related to macro-economic , geo-political conditions and asset quality . in addition , during 2019 , we increased the look-back period , from which we calculate peer bank historical loss experience , from 37 to 41 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 , 2019. 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 . 45 201 8 compared to 201 7 the provision for loan losses amounted to $ 2.8 million and $ 12.9 million for 2018 and 2017 , respectively . provision expense decreased for 2018 compared to 2017 due to decreased charge-offs . charge-offs for 2018 were $ 5.0 million compared to $ 12.8 million for 2017. in particular , during the second quarter of 2017 , we charged-off the loans associated with one specific borrower as credit quality deteriorated and issues emerged which undermined our assessment that an expedient and positive outcome was possible . this particular 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 for 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 . our allowance for loan losses as a percentage of total loans decreased from 1.45 % at december 31 , 2017 to 0.85 % at december 31 , 2018. this decrease was largely due to the acquired athens loan portfolio which was accounted for at its fair value as of the acquisition date . a preliminary fair value discount of $ 4.8 million was applied to the athens loan portfolio .
| results of operations the following is a summary of our results of operations : replace_table_token_6_th return on average assets was 1.12 % , 0.63 % and 0.11 % for 2019 , 2018 and 2017 , respectively . return on average shareholders ' equity was 8.49 % , 5.50 % and 1.05 % for 2019 , 2018 and 2017 , respectively . 42 the following sections provide a more detailed analysis of significant factors affecting our operating results . net interest income the largest component of our net income is net interest income – the difference between the income earned on loans , investment securities and other interest earning assets and interest expense on deposit accounts and other interest bearing liabilities . net interest income calculated on a tax-equivalent bais 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 , 2019 , 2018 and 2017 : replace_table_token_7_th ( 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 . 43 ( 3 ) yields on tax exempt securities are shown on a tax equivalent basis .
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16 iconic holdings , llc - on december 21 , 2015 , giggle n hugs , inc. , a nevada corporation ( the “ registrant ” ) , issued an 8 % unsecured convertible promissory note in favor of iconic holdings , llc , in the principal sum of $ 161,250. the note was subject to an original issue discount of $ 11,250 , plus another $ 11,250 retained by the lender for fees and costs , resulting in net proceeds to the company of $ 138,500. the note carries a guaranteed 10 % interest rate , matures on december 21 , 2016 and is subject to pre-payment penalties . the note may be converted , in whole or in part , at any time at the option of the holder into the registrant 's common stock at a price per share equal to 65 % of the lowest volume weighted average price of the company 's common stock during the 10 consecutive trading days prior to the date on which holder elects to convert all or part of the note . the conversion floor price was set at $ 0.08. the note also contains a make-good provision requiring the registrant to make a payment to the holder in the event the registrant 's trading price at the time the conversion notice is submitted is below $ 0.11. any shares issued upon conversion of the note shall have piggyback registration rights and failure to do so could result in damages up to 30 % of the principal sum of the note , but not less than $ 20,000. the note contains various default provisions including a requirement for the company to maintain a prescribed closing bid price for a certain number of days , and a continued listing in a principal market . during the period ended january1 , 2017 , the company converted $ 77,059 of principal into 2,555,906 shares of common stock . as of january 1 , 2017 the balance of principal due was $ 84,191. the entire outstanding balance was subsequently converted to shares of common stock in february 2017. j & n invest llc - on august 24 , 2015 , the company entered into an unsecured note payable agreement with an investor for which the company issued a $ 50,000 convertible note payable , which accrues interest at a rate of 5 % per annum and matures on august 31 , 2016. the lender may also convert all or a portion of the note payable at any time into shares of common stock at a price of $ 0.10 per share . 17 st. george investments , llc - the company executed into a promissory note agreement with st. george investments , llc , ( “ holder ” ) dated december 18 , 2015 , with a principal amount of $ 265,000 due in full on june 18 , 2016. the note went into default when the company failed to make payment on the due date . consequently , on july 8 , 2016 , the company entered into an exchange agreement with st. george investments , llc , to replace the original promissory note with a new convertible promissory note ( “ note ” ) carrying the following terms and conditions . 1. the new note will add 10 % ( $ 26,500 ) to the original principal as an exchange fee , making the new principal amount $ 291,500 . 2. the note shall carry an interest rate of 8 % per annum 3. the note carries a conversion clause that allows the holder to have a cashless conversion into shares of common stock for all or part of the principal , at a price equal to the average market price for 20 days prior to the conversion , 4. in conjunction with the conversion provision , the company agreed to an irrevocable letter of instructions to transfer agent , along with a secretary 's certificate and board resolution , which allows a share reserve equal to three times the number of shares of common stock divided by outstanding debt by the defined conversion price , but not less than 18,000,000 shares . 5. in addition , the company executed a share issuance resolution authorizing the issuance of new shares of common stock . this document , in effect , allows the holder to provide , at their discretion , a conversion notice directly to the transfer agent to receive unrestricted shares under the terms of this exchange agreement . 6. further to this exchange agreement , the company executed an authorization to initiate ach debit entries that allowed the holder to receive a daily payment of $ 312.50 ( $ 7,500 per month ) . the company can cancel such authorization with five days ' written notice . during the fiscal year ended january 1 , 2017 , the holder converted $ 81,300 of debt into 9,261,973 shares of common stock . in addition , the company paid $ 20,841 of the principal balance . the balance outstanding as of january 1 , 2017 was $ 183,359 plus $ 3,981 of accrued interest , and is past its maturity date of september 15 , 2016. off-balance sheet arrangements we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition , changes in financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources that is material to investors . 18 operation plan our overall business plan is to expand and grow our restaurants and increase revenues . our business and strategy will be directed toward the following approaches . company-owned restaurants . one-year term strategy is to explore new opening company-owned and or managed restaurants within the next twelve months . during 2013 , we opened two new southern california locations in westfield topanga mall and glendale galleria . in story_separator_special_tag 16 iconic holdings , llc - on december 21 , 2015 , giggle n hugs , inc. , a nevada corporation ( the “ registrant ” ) , issued an 8 % unsecured convertible promissory note in favor of iconic holdings , llc , in the principal sum of $ 161,250. the note was subject to an original issue discount of $ 11,250 , plus another $ 11,250 retained by the lender for fees and costs , resulting in net proceeds to the company of $ 138,500. the note carries a guaranteed 10 % interest rate , matures on december 21 , 2016 and is subject to pre-payment penalties . the note may be converted , in whole or in part , at any time at the option of the holder into the registrant 's common stock at a price per share equal to 65 % of the lowest volume weighted average price of the company 's common stock during the 10 consecutive trading days prior to the date on which holder elects to convert all or part of the note . the conversion floor price was set at $ 0.08. the note also contains a make-good provision requiring the registrant to make a payment to the holder in the event the registrant 's trading price at the time the conversion notice is submitted is below $ 0.11. any shares issued upon conversion of the note shall have piggyback registration rights and failure to do so could result in damages up to 30 % of the principal sum of the note , but not less than $ 20,000. the note contains various default provisions including a requirement for the company to maintain a prescribed closing bid price for a certain number of days , and a continued listing in a principal market . during the period ended january1 , 2017 , the company converted $ 77,059 of principal into 2,555,906 shares of common stock . as of january 1 , 2017 the balance of principal due was $ 84,191. the entire outstanding balance was subsequently converted to shares of common stock in february 2017. j & n invest llc - on august 24 , 2015 , the company entered into an unsecured note payable agreement with an investor for which the company issued a $ 50,000 convertible note payable , which accrues interest at a rate of 5 % per annum and matures on august 31 , 2016. the lender may also convert all or a portion of the note payable at any time into shares of common stock at a price of $ 0.10 per share . 17 st. george investments , llc - the company executed into a promissory note agreement with st. george investments , llc , ( “ holder ” ) dated december 18 , 2015 , with a principal amount of $ 265,000 due in full on june 18 , 2016. the note went into default when the company failed to make payment on the due date . consequently , on july 8 , 2016 , the company entered into an exchange agreement with st. george investments , llc , to replace the original promissory note with a new convertible promissory note ( “ note ” ) carrying the following terms and conditions . 1. the new note will add 10 % ( $ 26,500 ) to the original principal as an exchange fee , making the new principal amount $ 291,500 . 2. the note shall carry an interest rate of 8 % per annum 3. the note carries a conversion clause that allows the holder to have a cashless conversion into shares of common stock for all or part of the principal , at a price equal to the average market price for 20 days prior to the conversion , 4. in conjunction with the conversion provision , the company agreed to an irrevocable letter of instructions to transfer agent , along with a secretary 's certificate and board resolution , which allows a share reserve equal to three times the number of shares of common stock divided by outstanding debt by the defined conversion price , but not less than 18,000,000 shares . 5. in addition , the company executed a share issuance resolution authorizing the issuance of new shares of common stock . this document , in effect , allows the holder to provide , at their discretion , a conversion notice directly to the transfer agent to receive unrestricted shares under the terms of this exchange agreement . 6. further to this exchange agreement , the company executed an authorization to initiate ach debit entries that allowed the holder to receive a daily payment of $ 312.50 ( $ 7,500 per month ) . the company can cancel such authorization with five days ' written notice . during the fiscal year ended january 1 , 2017 , the holder converted $ 81,300 of debt into 9,261,973 shares of common stock . in addition , the company paid $ 20,841 of the principal balance . the balance outstanding as of january 1 , 2017 was $ 183,359 plus $ 3,981 of accrued interest , and is past its maturity date of september 15 , 2016. off-balance sheet arrangements we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition , changes in financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources that is material to investors . 18 operation plan our overall business plan is to expand and grow our restaurants and increase revenues . our business and strategy will be directed toward the following approaches . company-owned restaurants . one-year term strategy is to explore new opening company-owned and or managed restaurants within the next twelve months . during 2013 , we opened two new southern california locations in westfield topanga mall and glendale galleria . in
| results of operations replace_table_token_2_th * not divisible by zero net sales . during the fiscal year ended january 1 , 2017 , net sales reflected a drop of $ 428,278 , a decline of 12.4 % , from the year ended december 27 , 2015. due to the major remodeling of the century city westfield mall , our century city store closed on june 30 , 2016. of the decrease in sales of $ 428,278 , $ 555,287 relates to the closure of the century city location . the increase of $ 127,009 is due to the same store sale growth at the two locations . the topanga and glendale stores had increased sales of 5.3 % and 5.7 % , respectively . cost and operating expenses . total costs and operating expenses of $ 3,953,942 for the year ended january 1 , 2017 , reflected a substantial drop from $ 5,480,307 for the year ended december 27 , 2015. the decline of $ 1,526,365 ( 28 % ) was due to multiple factors such as the closing of the century city store ; lower general and administrative costs ; lower other operating expenses ; and lower depreciation . cost of operations . cost of operations decreased by $ 543,460 ( 18 % ) , of which $ 356,772 was attributable to the closing of the century city store on june 30 , 2016. costs of food and other operating expenses decreased , which was offset slightly by higher labor costs . general and administrative costs . total general and administrative costs decreased by $ 501,543 ( 36 % ) . again , the closing of the century city store , contributed proportionately ( $ 163,250 ) , to this decline . additionally , non-employee stock compensation was accountable of much of the remaining difference . depreciation and other operating expenses . depreciation and other operating expenses declined by $ 127,948 ( 38 % ) , which was mostly reflected by the closing of the century city store . 13 loss on impairment .
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the option price will be as follows : $ 500,000 if exercised prior to the commencement of the first phase ii clinical trial ; $ 1,000,000 if exercised on or after the commencement of the first phase ii clinical trial and prior to the commencement of the first phase iii clinical trial ; $ 5,000,000 if exercised on or after the commencement of the first phase iii clinical trial and prior to the filing of a new drug application ( “ nda ” ) with the fda for the first licensed product ; and $ 8,000,000 if exercised on or after the filing of an nda for the first licensed product . the company has the right to terminate the agreement at any time by giving 90 days advance notice subject to the payment of any amounts due under the agreement at that time . if the company does not terminate the agreement or exercise the buy-out option , the term of the agreement shall continue until the expiration of the company 's obligation to make royalty payments . such royalty payments continue for each product in each country until the later of the expiration of the related patent or 10 years after the initial sale of the product in the respective country . the agreement may also be terminated for cause by either party upon the breach of the material obligations of the other party or the bankruptcy or liquidation of the other party . ( c ) employment agreements the company has agreements with its executive officers that provide for severance payments to the employee u pon termination of the agreement by the company for any reason other than for cause , death or disability or by the employee for good reason the maximum aggregate severance payments under the agreements were approximately $ 120,000 at december 31 , 2019. in march 2020 , the company entered into new employment agreements with its executive officers . the maximum aggregate severance payments under the agreements are approximately $ 720,000 . ( d ) litigation the company story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes appearing at the end of this annual report on form 10-k. some of the information contained in this discussion and analysis or set forth elsewhere in this annual report on form 10-k , including information with respect to our plans and strategy for our business and related financing , includes forward-looking statements that involve risks and uncertainties . you should read “ cautionary note regarding forward-looking statements ” and item 1a . risk factors 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 company overview we are a clinical stage , drug platform company addressing neurodegeneration such as alzheimer 's disease ( ad ) , parkinson 's disease ( pd ) and alzheimer 's disease in down syndrome ( ad-ds ) . our lead compound , anvs401 , is a small molecule administered orally that attacks neurodegeneration by entering the brain and inhibiting the translation of neurotoxic proteins—amyloid precursor protein app/aβ ( app ) , tau/phospho-tau ( tau ) and α-synuclein ( αsyn ) —thereby improving axonal transport . human studies in four mci patients have shown that anvs401 lowered the levels of neurotoxic proteins and inflammatory factors . in preclinical studies , lower neurotoxic protein levels led to improved axonal transport , reduced inflammation , lower nerve cell death and improved function . ad is a substantial market affecting over 30 million people worldwide and is expected to grow to over 100 million by 2050. while the market for neurodegeneration is over $ 100 billion , to date there are no disease modifying drugs ( dmd ) for any neurodegenerative condition . enormous efforts have gone into developing better drugs to treat neurodegeneration and the outcomes have been sobering . the results of clinical trials in ad , the two ad orphan indications ad-ds and early onset familial ad or in pd have not supported the development of successful disease modifying therapies . anvs401 is a small lipophilic molecule that is orally available and readily enters the brain , as demonstrated by preclinical pharmacokinetics analyses showing brain concentrations approximately six to eight times higher than plasma concentrations . anvs401 has a mechanism of action that we believe to be unique , in that it inhibited the over-translation of and , therefore , reduced the levels of several neurotoxic proteins both in vitro and in vivo including app , tau and αsyn . by targeting multiple neurotoxic proteins , anvs401 resembles a combination therapy approach , with the added convenience of being a single drug with a single drug target . therefore , we have worked to understand how anvs401 is able to inhibit the translation of more than one neurotoxic protein . we are presently conducting a phase 2a study in ad patients in collaboration with the adcs and plan to initiate a second phase 2a proof-of-concept study of anvs401 in the first quarter of 2020 with 50 pd patients . we have designed the two phase 2a studies with parexel by applying our understanding of the underlying disease states in neurodegeneration and by measuring not just target , but also pathway validation in the spinal fluid of these patients . if we are able to show both target and pathway validation in two patient populations , we believe that our opportunity for successful phase 3 studies is better than if we merely demonstrated target validation in one patient population . we have never been profitable and have incurred net losses since inception . story_separator_special_tag income taxes as of december 31 , 2019 , the company had u.s. federal net operating loss carryforwards of $ 4,256,228 , which may be available to offset future income tax liabilities . federal net operating loss carryforwards generated in 2017 and prior of $ 2,764,240 will expire beginning 2032. the remaining $ 1,491,988 of federal net operating loss carryforwards generated in 2018 and later , do not expire but are limited 80 % of taxable income in future years . net operating loss and tax credit carryforwards are subject to review and possible adjustment by the internal revenue service ( the “ irs ” ) and may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50 % as defined under sections 382 and 383 in the internal revenue code . this could substantially limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities . the amount of the annual limitation is determined based on our value immediately prior to the ownership change . subsequent ownership changes may further affect the limitation in future years . critical accounting policies and use of estimates we have based our management 's discussion and analysis of financial condition and results of operations on our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires us to make estimates that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported revenues and expenses during the reporting periods . on an ongoing basis , we evaluate our estimates and judgments , including those related to clinical development expenses and stock-based compensation . we base our estimates on historical experience and on various other factors that we believe to be appropriate under the circumstances . actual results may differ from these estimates under different assumptions or conditions . 68 while our significant accounting policies are more fully discussed in note 2 to our audited financial statements appearing at the end of this annual report on form 10-k , we believe that the following accounting policies are critical to the process of making significant judgments and estimates in the preparation of our financial statements . research and development expenses we rely on third parties to conduct our preclinical studies and to provide services , including data management , statistical analysis and electronic compilation . once our clinical trials begin , at the end of each reporting period , we will compare the payments made to each service provider to the estimated progress towards completion of the related project . factors that we will consider in preparing these estimates include the number of patients enrolled in studies , milestones achieved and other criteria related to the efforts of our vendors . these estimates will be subject to change as additional information becomes available . depending on the timing of payments to vendors and estimated services provided , we will record net prepaid or accrued expenses related to these costs . fair value of common stock and stock-based compensation we account for grants of stock options to employees and non-employees based on their grant date fair value and recognize compensation expense over the vesting periods . we estimate the fair value of stock options as of the date of grant using the black-scholes option pricing model . the black-scholes model requires us to make assumptions and judgments about the variables used in the calculations , including the expected term , the expected volatility of our common stock , the risk-free interest rate and the expected dividend rate . prior to our ipo , in the absence of a public trading market for our common stock , on each grant date , we developed an estimate of the fair value of our common stock underlying the option grants . we determined the fair value of our common stock using methodologies , approaches and assumptions consistent with the aicpa practice guide , valuation of privately held company equity securities issued as compensation , and based in part on input from an independent third-party valuation firm . following the closing of our ipo on january 31 , 2020 , we will no longer have to estimate the fair value of the common stock , rather we will determine the value based on quoted market prices . grant income grants received are recognized as grant income in the statements of operations as and when they are earned for the specific research and development projects for which these grants are designated . grants payments received in excess of grant income earned are recognized as deferred grant on the balance sheet and grant income earned in excess of grant payments received is recognized as grant receivable on the balance sheets . story_separator_special_tag style= '' font : 10pt times new roman , times , serif ; margin : 0pt 0 '' > cash flows the following table summarizes our cash flows from operating , investing and financing activities . replace_table_token_4_th years ended december 31 , 2019 and 2018 operating activities for the year ended december 31 , 2019 , cash used in operations was $ 476.5 thousand compared to $ 558.6 thousand for the year ended december 31 , 2018. the decrease in cash used in operations was primarily the result of the increase in accounts payable and accrued expense balances from 2018. we expect cash used in operating activities to increase in 2020 as compared to 2019 due to an expected increase in our operating losses associated with ongoing development of our product candidates and additional costs associated with being a public company .
| results of operations operating expenses and other income ( expense ) were comprised of the following : replace_table_token_3_th years ended december 31 , 2019 and 2018 research and development expenses research and development expenses increased by $ 664.6 thousand for the year ended december 31 , 2019 compared to the year ended december 31 , 2018. the increase was primarily the result of contract research costs associated with our long-term toxicology studies in rats and dogs which began in november of 2019. general and administrative expenses general and administrative expenses increased by $ 227.1 thousand for the year ended december 31 , 2019 compared to the year ended december 31 , 2018. the increase was primarily the result of a $ 403.5 thousand increase in professional fees for accounting , audit , legal , technology and investor relations services , partially offset by a $ 83.3 thousand decrease in intellectual property legal costs and a $ 74.2 thousand decrease in stock-based compensation expense . 69 change in fair value of derivative liability the derivative liability represents an embedded derivative in our convertible promissory notes which were issued in march 2019. at each balance sheet date , we estimated the fair value of the derivative liability and recognized any change in our statements of operations .
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on june 24 , 2015 , we completed our merger with biomet and its results of operations have been included in our results starting on that date . the biomet merger was a transformational event for us and has had significant effects on all aspects of our business . accordingly , our sales and expenses increased significantly in the years ended december 31 , 2016 and 2015 when compared to prior years . in portions of this discussion and analysis , we also present sales information on an unaudited , pro forma basis for the years ended december 31 , 2015 and 2014. this pro forma information includes zimmer and biomet sales in those periods as if the merger occurred on january 1 , 2014. accordingly , the pro forma net sales information for periods prior to the closing date includes the net sales of biomet , but does not include the impact of the divestiture of certain product line rights and assets . we believe this pro forma analysis is beneficial for investors because it represents how the merged companies may have performed on a combined basis in 2015 and 2014. executive level overview 2016 results in 2016 , we made strategic internal and external investments to further broaden and diversify our musculoskeletal portfolio , including the acquisitions of ldr , which provided us with an immediate position in the growing cervical disc replacement market ; cayenne medical , inc. ( cayenne medical ) , a sports medicine company ; compression therapy concepts , inc. ( ctc ) , a provider of non-invasive products for the prevention of deep vein thrombosis ; cd diagnostics , inc. ( cd diagnostics ) , a medical diagnostic testing company ; and medtech sa ( medtech ) , a designer and manufacturer of robotic equipment for brain and spine surgeries . these commercial additions have both enhanced our core offerings and expanded our presence across the full continuum and episode of care . we have also continued to make progress in our commercial and operational integration of biomet across all geographies and functions . despite this progress , sales in 2016 were below our expectations due in part to some temporary disruption in product supply in certain knee , hip , upper extremities , sports medicine and trauma product lines in the second half of 2016 related to several factors , including implementation of operational and quality process enhancements that resulted in various shipment delays , and manufacturing forecasting constraints related to continued integration of our supply chain . in the second half of 2016 , we saw increased demand for certain knee , hip and upper extremities products , particularly related to cross-selling various offerings across the combined zimmer biomet portfolio . the increased demand temporarily impacted our ability to effectively respond to this shifting product mix . in response , we accelerated work to enhance certain aspects of our supply chain infrastructure as we harmonize and optimize our sourcing , manufacturing and quality management systems . we are in the process of deploying new demand planning and production planning tools . we made progress on these enhancements in late 2016 and anticipate continued progress towards the replenishment of safety stocks on key cross-sell products throughout the first half of 2017. our 2016 results have been significantly impacted by the inclusion of biomet sales and expenses for the entire year , including sales growth of 28.1 percent . on an unaudited pro forma basis , sales increased by 2.2 percent driven by volume/mix growth across all our regions in most of our product categories , including growth from our 2016 acquisitions , offset by the negative effects of changes in foreign currency exchange rates and continued , but stable , pricing pressure in all of our geographic regions . our net earnings increased in 2016 compared to 2015. the primary drivers of the improved earnings performance were the inclusion of biomet earnings for the entire year and the absence in 2016 of significant expenses incurred in 2015 in connection with completing the biomet merger . as a result of the merger , we recognized significant expenses in 2015 due to the acceleration of unvested lvb stock options and lvb stock-based awards , retention bonuses paid to biomet employees and third-party sales agents who remained with biomet through the closing date , severance expense , a loss related to a call premium on biomet debt we redeemed , third party fees , and other acquisition and integration charges . while we did incur similar expenses in 2016 related to acquisitions , they were less significant . 2017 outlook we estimate our sales growth in 2017 over 2016 will be in a range of 2.2 to 3.2 percent . this estimate assumes foreign currency exchange rates will decrease sales by approximately 1.5 percent , continued pricing pressure will decrease sales by approximately 2 percent and the inclusion of ldr sales for the full year will increase sales by approximately 1.2 percent . as noted previously , we expect to make substantial progress in remediating supply constraints during the first half of this year as we prioritize production for key cross-sell brands , clear our back orders , and restore safety stocks . additionally , as part of our effort to implement certain regulatory compliance enhancements , we are making operational and quality process improvements in certain of our major production facilities . as such , affected products may experience temporary and occasional distribution delays while 21 zimmer biomet holdings , inc. 2016 form 10-k annual report we implement and validate these enhanced processes and generate the necessary supporting records . we believe that continued progress towards restoring full supply expected during the second quarter will enable our commercial teams to service existing customers and also resume executing against the full potential of our broad and diverse portfolio . story_separator_special_tag 25 zimmer biomet holdings , inc. 2016 form 10-k annual report operating expenses r & d expenses and r & d as a percentage of sales have increased over the last three years , driven primarily by the biomet merger and 2016 acquisitions . the combination of our r & d functions subsequent to the merger allow us to allocate a greater portion of the combined r & d spending towards innovation efforts to address unmet clinical needs and create new market adjacencies . additionally , most of our r & d activities occur in the u.s. , so expenses do not decrease proportionally to changes in net sales when there are significant changes in foreign currency exchange rates , which contributes to an increase in r & d as a percentage of sales . we expect r & d spending in 2017 to stay consistent and be approximately 4.5 percent of sales . sg & a expenses and sg & a as a percentage of sales have increased over the last three years , driven primarily by the biomet merger and 2016 acquisitions . we expect that sg & a as a percentage of sales will continue to be higher than prior to these mergers and acquisitions until we can realize synergy benefits of the transactions and further leverage sales growth . in 2017 , we expect to make additional progress in our synergy programs with sg & a as a percentage of sales estimated to be approximately 37.5 percent of sales . certain claims expense is for estimated liabilities to durom cup patients undergoing revision surgeries . since 2008 , we have recognized $ 479.4 million for these claims . for more information regarding these claims , see note 20 to the consolidated financial statements . we recognize expenses resulting directly from our business combinations , employee termination benefits , certain r & d agreements , certain contract terminations , consulting and professional fees and asset impairment or loss on disposal charges connected with global restructuring , quality and operational excellence initiatives , and other items as special items in our consolidated statement of earnings . we recognized significant expenses in 2015 due to biomet merger-related expenses , such as the acceleration of unvested lvb stock options and lvb stock-based awards , retention bonuses paid to biomet employees and third-party sales agents who remained with biomet through the closing date , severance expense and contract terminations . expenses declined in 2016 due to the absence of certain of these expenses . see note 2 to the consolidated financial statements for more information regarding special items charges . other expense , interest income , interest expense , and income taxes in 2016 , other expense , net , primarily included a $ 53.3 million loss on debt extinguishment . it also included losses on the sale of certain assets and the net expense related to remeasuring monetary assets and liabilities denominated in a foreign currency other than an entity 's functional currency , offset by foreign currency forward exchange contracts we enter into to mitigate any gain or loss . in 2015 , other expense , net , included a $ 22.0 million loss on debt extinguishment , debt issuance costs that we recognized for a bridge credit agreement that we entered into in may 2014 in connection with the biomet merger , the net expense related to remeasuring monetary assets and liabilities , partially offset by a gain related to selling certain product line rights and assets . in 2014 , other expense , net , only included debt issuance costs that we recognized for the bridge credit agreement and the net expense related to remeasuring monetary assets and liabilities . net interest expense has increased due to the issuance of the debt in connection with the ldr merger in july 2016 and biomet merger in march 2015. our effective tax rate ( etr ) on earnings before income taxes for the years ended december 31 , 2016 , 2015 and 2014 was 23.8 percent , 4.6 percent and 23.4 percent , respectively . we have incurred significant expenses associated with the biomet merger and other acquisitions which were generally recognized in higher income tax jurisdictions . accordingly , this reduced our etr as our earnings were lower in these higher income tax jurisdictions . additionally , other discrete adjustments have occurred that have significantly affected our etr . in 2016 , we recognized $ 40.6 million of tax benefits from the favorable resolution of certain tax matters with taxing authorities . these benefits were partially offset by $ 27.6 million of additional tax provisions related to finalizing the tax accounts of the biomet merger . the low 2015 tax rate resulted from operating losses in the u.s. caused by significant expenses incurred in connection with the merger . our etr in future periods could potentially be impacted by changes in our mix of pre-tax earnings ; changes in tax rates , tax laws or their interpretation , including the european union rules on state aid ; the outcome of various federal , state and foreign audits ; and the expiration of certain statutes of limitations . currently , we can not reasonably estimate the impact of these items on our financial results . segment operating profit similar to our consolidated results , our segment operating profit has been significantly impacted by the addition of biomet sales and expenses to these segments .
| results of operations we analyze sales by three geographies , the americas , emea and asia pacific , and by the following product categories : knees , hips , s.e.t. , dental , spine & cmf and other . this sales analysis differs from our reportable operating segments , which are based upon our senior management organizational structure and how we allocate resources towards achieving operating profit goals . we analyze sales by geography because the underlying market trends in any particular geography tend to be similar across product categories and because we primarily sell the same products in all geographies . net sales by geography the following tables present net sales by geography and the components of the percentage changes ( dollars in millions ) : replace_table_token_3_th replace_table_token_4_th foreign exchange used in the tables in this report represents the effect of changes in foreign currency exchange rates on sales . the following tables present our 2016 net sales , and our 2015 and 2014 pro forma net sales , by geography and the components of the percentage changes ( dollars in millions ) : replace_table_token_5_th 22 zimmer biomet holdings , inc. 2016 form 10-k annual report replace_table_token_6_th 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_7_th replace_table_token_8_th the following tables present our 2016 net sales , and our 2015 and 2014 pro forma net sales , by product category and the components of the percentage changes ( dollars in millions ) : replace_table_token_9_th replace_table_token_10_th 23 zimmer biomet holdings , inc. 2016 form 10-k annual report the following table presents net sales by product category by geography for our knees and hips product categories , which represent our most significant product categories ( dollars in millions ) : replace_table_token_11_th the following table presents our 2016 net sales , and our 2015 and 2014 pro forma net sales , by product category by geography for our
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our project teams help our commercial and governmental clients implement environmental , energy and infrastructure projects from initial concept to delivery and operation . we provide our services almost entirely in the united states of america . we generate revenue and cash flows from fees for professional and technical services . as a service company , we are more labor-intensive than capital-intensive . our revenue and cash flow is driven by our ability to attract and retain qualified and productive employees , identify business opportunities , secure new and renew existing client contracts , provide outstanding service to our clients and execute projects successfully . our income from operations is derived from our ability to generate revenue under our contracts in excess of our direct costs , subcontractor costs , other contract costs , and general and administrative ( `` g & a '' ) expenses . in the course of providing our services , we routinely subcontract services . generally , these subcontractor costs are passed through to our clients and , in accordance with accounting principles generally accepted in the united states of america ( `` u.s. gaap '' ) and consistent with industry practice , are included in gross revenue . because subcontractor services can change significantly from project to project , changes in gross revenue may not be indicative of business trends . accordingly , we also report net service revenue ( `` nsr '' ) , which is gross revenue less subcontractor costs and other direct reimbursable charges , and our discussion and analysis of financial condition and results of operations uses nsr as a primary point of reference . the following table presents the approximate percentage of nsr by contract type : replace_table_token_4_th our cost of services ( `` cos '' ) includes professional compensation and related benefits together with certain direct and indirect overhead costs such as rents , utilities and travel . professional compensation represents the majority of these costs . our g & a expenses are comprised primarily of our corporate headquarters costs related to corporate executive management , finance , accounting , information technology , administration and legal . these costs are generally unrelated to specific client projects and can vary as expenses are incurred to support corporate activities and initiatives . our revenue , expenses and operating results may fluctuate significantly from year to year as a result of numerous factors , including : unanticipated changes in contract performance that may affect profitability , particularly with contracts that are fixed-price or have funding limits ; seasonality of the spending cycle , notably for state and local government entities , and the spending patterns of our commercial sector clients ; budget constraints experienced by our federal , state and local government clients ; divestitures or discontinuance of operating units ; the timing and impact of acquisitions ; employee hiring , utilization and turnover rates ; the number and significance of client contracts commenced and completed during the period ; 20 creditworthiness and solvency of clients ; the ability of our clients to terminate contracts without penalties ; delays incurred in connection with contracts ; the size , scope and payment terms of contracts ; contract negotiations on change orders and collection of related accounts receivable ; the timing of expenses incurred for corporate initiatives ; competition ; litigation ; changes in accounting rules ; the credit markets and their effect on our customers ; general economic or political conditions ; and employee expenses such as medical and other benefits . acquisitions and divestitures acquisitions . we continuously evaluate the marketplace for strategic acquisition opportunities . a fundamental component of our profitable growth strategy is to pursue acquisitions that will expand our platform in key u.s. markets . where the impact of acquisitions is noted in discussing results , it refers to acquisitions effected within the last twelve months of the end of the relevant period . fiscal year 2015 acquisitions on september 29 , 2014 , we acquired all of the outstanding stock of nova training inc. and all of the outstanding membership interests of nova earthworks , llc ( collectively `` nova '' ) based in midland , texas . nova provides safety training and environmental services as well as oil spill response , remediation and general oil field construction services to customers in the oil and gas industry . the initial purchase price consisted of ( i ) a cash payment of $ 7.2 million payable at closing , ( ii ) a second cash payment of $ 2.6 million placed into escrow , of which $ 0.5 million was payable in six months and the remaining $ 2.1 million is due in 18 months subject to withholding for various contractual issues , ( iii ) 50 thousand shares of our common stock valued at $ 0.3 million on the closing date , and ( iv ) a $ 0.6 million net working capital adjustment . the sellers are also entitled to up to $ 1.5 million in contingent cash consideration through an earn-out provision based on the nsr performance of the acquired firm over the 24 month period following closing . we estimated the fair value of the contingent earn-out liability to be $ 0.3 million based on the projections and probabilities of reaching the performance goals through september 2016. goodwill of $ 3.7 million , none of which is expected to be tax deductible , and other intangible assets of $ 3.6 million were recorded as a result of this acquisition . the goodwill is primarily attributable to the synergies and ancillary growth opportunities expected to arise after the acquisition . the fair values of assets and liabilities of the nova acquisition have been recorded in the environmental operating segment . the impact of this acquisition was not material to our condensed consolidated balance sheets and results of operations . story_separator_special_tag the environmental operating segment is organized to focus on key areas of demand including : environmental management of buildings and facilities ; air quality measurements and modeling of potential air pollution impacts ; water quality and water resource management ; assessment and remediation of contaminated sites and buildings ; hazardous waste management ; construction monitoring , inspection and management ; environmental , health and safety management and sustainability advisory services ; compliance auditing and strategic due diligence ; environmental licensing and permitting of a wide variety of projects ; and natural and cultural resource assessment , protection and management . infrastructure : the infrastructure operating segment provides services related to the expansion of infrastructure capacity , the rehabilitation of overburdened and deteriorating infrastructure systems , and the management of risks related to security of public and private facilities . our client base is predominantly state and municipal governments as well as select commercial developers . in addition , we provide infrastructure services on projects originating in our energy and environmental operating segments . primary services include : roadway , bridge and related surface transportation design ; structural design and inspection of bridges ; program management ; construction engineering inspection and construction management for roads and bridges ; civil engineering for municipalities and public works departments ; geotechnical engineering services ; and security assessments , design and construction management . our chief operating decision maker is our chief executive officer ( `` ceo '' ) . our ceo manages the business by evaluating the financial results of the three operating segments , focusing primarily on segment revenue and segment profit . we utilize segment 22 revenue and segment profit because we believe they provide useful information for effectively allocating resources among operating segments ; evaluating the health of our operating segments based on metrics that management can actively influence ; and gauging our investments and our ability to service , incur or pay down debt . specifically , our ceo evaluates segment revenue and segment profit and assesses the performance of each operating segment based on these measures , as well as , among other things , the prospects of each of the operating segments and how they fit into our overall strategy . our ceo then decides how resources should be allocated among our operating segments . we do not track our assets by operating segment , and consequently , it is not practical to show assets by operating segment . segment profit includes all operating expenses except the following : costs associated with providing corporate shared services ( including certain depreciation and amortization ) , goodwill and intangible asset write-offs , stock-based compensation expense and amortization of intangible assets . depreciation expense is primarily allocated to operating segments based upon their respective use of total operating segment office space . assets solely used by corporate are not allocated to the operating segments . inter-segment balances and transactions are not material . the accounting policies of the operating segments are the same as those for us as a whole except as discussed herein . the following table presents the approximate percentage of our nsr by operating segment : replace_table_token_5_th business trend analysis energy : the utilities in the united states continue a multi-year upgrade of the electric transmission grid to improve capacity and reliability of the delivery network and interconnection of new sources of generation . years of underinvestment coupled with a favorable regulatory environment have provided a good business opportunity for those serving this market . according to the edison electric institute , electric utilities throughout the united states will be investing over $ 60.0 billion in the performance of this work over the next several years . demand for energy efficiency services continues to be supported by increasing state and federal funds targeted at energy efficiency . the american recovery and reinvestment act of 2009 , regional green house gas initiative and system benefit charges at the state or utility level have expanded the marketplace for energy efficiency program management services . investment within the renewable portfolios also remains strong . we are long established in the northeast and mid-atlantic regions . in recent years , we have substantially increased participation in the california markets . we are growing our presence in the southeast and texas where demand for services is the highest . environmental : although there had been signs of growth in this market following a slowdown caused by general economic conditions , market demand for environmental services continues to be mixed . the last decade saw growth in nearly all aspects of this market . the fundamental market drivers remain in place , and this market also benefits from evolving regulatory developments particularly with respect to air quality and the continuing need to enhance our aging transportation and energy infrastructure . nevertheless , recent indicators suggest that certain elements of this marketplace continue to take a cautious approach to expenditures , stalling a return to the long-term pattern of growth historically enjoyed by this operating segment . shale gas and other energy source initiatives present important market opportunities but are linked to federal and state policy changes which will be required for the markets to commit long-term capital to projects such as pipelines and related infrastructure . infrastructure : although long-term prospects should be favorable , demand for infrastructure services is generally expected to continue to be flat . the overall infrastructure construction markets did benefit from the federal funding certainty provided by the map-21 federal transportation bill that was signed into law in july 2012. although map-21 was originally scheduled to expire in august 2015 , it has been extended to the end of october 2015. the intent of the three-month extension is to afford the house the opportunity to present its own version of a multi-year surface transportation reauthorization bill and subsequently dovetail it with the senate 's independent drive act bill early this fall . on july 30 , 2015 , the senate also passed its six-year drive act surface transportation bill , which included 3 years of funding .
| infrastructure operating segment results replace_table_token_9_th gross revenue increased $ 9.1 million , or 14.4 % , to $ 72.4 million for fiscal year 2015 from $ 63.3 million for fiscal year 2014 . the increase in gross revenue was primarily driven by increased demand from state transportation and commercial clients . nsr increased $ 3.9 million , or 8.4 % , to $ 50.9 million for fiscal year 2015 from $ 47.0 million for fiscal year 2014 . the nsr growth was primarily the result of the same factors driving gross revenue growth as noted above . the increases in gross revenue and nsr were all due to organic activites . the infrastructure operating segment 's profit increased $ 0.6 million , or 7.2 % , to $ 9.4 million for fiscal year 2015 from $ 8.8 million for fiscal year 2014 . for fiscal year 2015 the infrastructure operating segment 's profit , as a percentage of nsr , decreased to 18.4 % from 18.6 % in the prior year . fiscal year 2014 compared to fiscal year 2013 consolidated results of operations the following table presents the dollar and percentage changes in certain items in the consolidated statements of operations for fiscal years 2014 and 2013 : 29 replace_table_token_10_th gross revenue increased $ 34.2 million , or 7.7 % , to $ 475.7 million for fiscal year 2014 from $ 441.5 million for fiscal year 2013. acquisitions accounted for $ 19.6 million , or 57.4 % , of the growth in gross revenue , and organic activities accounted for the remaining $ 14.6 million , or 42.6 % , of the increase . the organic gross revenue growth was driven , in part , by our energy operating segment where organic gross revenue increased $ 7.8 million as utility customers continue to make significant transmission and distribution system improvement investments and as demand continues for our energy efficiency and renewable energy services .
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overview essex is a self-administered and self-managed reit that acquires , develops , redevelops , and manages apartment communities in selected residential areas located primarily in the west coast of the united states . essex owns all of its interests in its real estate investments , directly or indirectly , through the operating partnership . essex is the sole general partner of the operating partnership and , as of december 31 , 2017 , had an approximately 96.7 % general partner interest in the operating partnership . 43 the company 's investment strategy has two components : constant monitoring of existing markets , and evaluation of new markets to identify areas with the characteristics that underlie rental growth . the company 's strong financial condition supports its investment strategy by enhancing its ability to quickly shift acquisition , development , redevelopment , and disposition activities to markets that will optimize the performance of the company 's portfolio . as of december 31 , 2017 , the company had owned or held an interest in 247 operating apartment communities , comprising 60,239 apartment homes , excluding the company 's ownership in preferred equity investments . the company 's apartment communities are predominately located in the following major regions : southern california ( los angeles , orange , san diego , and ventura counties ) northern california ( the san francisco bay area ) seattle metro ( seattle metropolitan area ) as of december 31 , 2017 , the company 's development pipeline was comprised of five consolidated projects under development , two unconsolidated joint venture projects under development and various consolidated predevelopment projects aggregating 1,982 apartment homes , with total incurred costs of $ 557.0 million , and estimated remaining project costs of approximately $ 752.0 million , $ 572.0 million of which represents the company 's estimated remaining costs , for total estimated project costs of $ 1.3 billion . as of december 31 , 2017 , the company also had an ownership interest in one operating commercial building ( totaling approximately 106,564 square feet ) . by region , the company 's operating results for 2017 and 2016 and projections for 2018 new housing supply ( defined as new multi-family apartment homes and single family homes , excluding developments with fewer than 50 apartment homes as well as student , senior and 100 % affordable housing ) , job growth , and rental income are as follows : southern california region : as of december 31 , 2017 , this region represented 47 % of the company 's consolidated operating apartment homes . revenues for “ 2017 same-properties ” ( as defined below ) , or “ same-property revenues , ” increased 3.8 % in 2017 as compared to 2016 . in 2018 , the company projects new residential supply of 35,150 apartment homes and single family homes , which represents 0.6 % of the total housing stock . the company projects an increase of 111,000 jobs or 1.5 % , and an increase in 2018 same-property revenues of between 1.9 % to 2.9 % in 2018 . northern california region : as of december 31 , 2017 , this region represented 32 % of the company 's consolidated operating apartment homes . same-property revenues increased 2.6 % in 2017 as compared to 2016 . in 2018 , the company projects new residential supply of 14,250 apartment homes and single family homes , which represents 0.6 % of the total housing stock . the company projects an increase of 54,900 jobs or 1.6 % , and an increase in 2018 same-property revenues of between 2.0 % to 3.0 % in 2018 . seattle metro region : as of december 31 , 2017 , this region represented 21 % of the company 's consolidated operating apartment homes . same-property revenues increased 5.8 % in 2017 as compared to 2016 . in 2018 , the company projects new residential supply of 17,450 apartment homes and single family homes , which represents 1.4 % of the total housing stock . the company projects an increase of 35,450 jobs or 2.1 % , and an increase in 2018 same-property revenues of between 2.4 % to 3.4 % in 2018 . in total , the company projects an increase in 2018 same-property revenues of between 2.0 % to 3.0 % , as renewal and new leases are signed at higher rents in 2018 than 2017 . same-property operating expenses are projected to increase in 2018 by 2.1 % to 3.1 % . 44 the company 's consolidated operating communities are as follows : replace_table_token_19_th co-investments , including wesco i , wesco iii , wesco iv , wesco v , llc , cppib , bexaew , bex ii , and bex iii communities , developments under construction and preferred equity interest co-investment communities are not included in the table presented above for both periods . story_separator_special_tag style= '' line-height:120 % ; text-align : left ; font-size:10pt ; '' > total return swap income of $ 10.1 million in 2017 consists of monthly settlements related to the company 's total return swap contracts that were entered into during 2015 , in connection with issuing $ 257.3 million of fixed rate tax-exempt mortgage notes payable . the decrease of $ 1.6 million or 13.7 % from $ 11.7 million in 2016 was due to less favorable interest rates in 2017. interest and other income decreased $ 2.7 million or 9.9 % to $ 24.6 million in 2017 compared to $ 27.3 million in 2016 , primarily due to a decrease of $ 3.8 million in income from the gain on sale of marketable securities and other investments combined with a decrease of $ 3.5 million in income from insurance reimbursements , legal settlements , and other , partially offset by an increase of $ 4.6 million in marketable securities and other interest income . story_separator_special_tag the company had total return swap income of $ 5.7 million in 2015. interest and other income increased $ 8.2 million or 42.6 % in 2016 , primarily due to an increase of $ 5.1 million in gains from the sale of marketable securities and $ 2.5 million in income from marketable securities and other interest income . equity income from co-investments increased by $ 26.8 million or 122.8 % in 2016 compared to 2015 , primarily due to $ 13.0 million in income on the gain on sale of two co-investment communities as well as income from five preferred equity investments originated during 2016. gains on sale of real estate and land increased by $ 107.2 million or 226.5 % in 2016 compared to 2015 , due primarily to a $ 126.6 million gain from the sale of minority membership interest in bex ii , $ 10.7 million gain on the sale of harvest park before tax expense , a $ 7.3 million gain on the sale of candlewood north and a $ 9.6 million gain on the sale of the company 's headquarters office building during 2016 , as compared to approximately $ 7.1 million in gains on the sales of pinnacle south mountain and two commercial buildings , as well as a $ 40.2 million gain on the sale of sharon green during 2015. deferred tax expense on gain on sale of real estate and land of $ 4.4 million for 2016 was recorded primarily due to the sale of harvest park , which was owned by our wholly owned taxable reit subsidiary . there was no current tax expense on the sale of real estate and land for 2016 as the harvest park proceeds were used in a like-kind exchange transaction . gains on remeasurement of co-investment of $ 34.0 million in 2015 were due to the remeasurement of the company 's investments , caused by the company 's acquisition of a controlling interest in the huxley and the dylan properties , resulting in a gain of $ 21.3 million , and reveal , resulting in a gain of $ 12.7 million . there were no gains on remeasurement of co-investments in 2016 . 48 liquidity and capital resources the following table sets forth the company 's cash flows for 2017 , 2016 and 2015 ( $ in thousands ) : replace_table_token_24_th essex 's business is operated primarily through the operating partnership . essex issues public equity from time to time , but does not otherwise generate any capital itself or conduct any business itself , other than incurring certain expenses from operating as a public company which are fully reimbursed by the operating partnership . essex itself does not hold any indebtedness , and its only material asset is its ownership of partnership interests of the operating partnership . essex 's principal funding requirement is the payment of dividends on its common stock and preferred stock . essex 's sole source of funding for its dividend payments is distributions it receives from the operating partnership . as of december 31 , 2017 , essex owned a 96.7 % general partner interest and the limited partners owned the remaining 3.3 % interest in the operating partnership . the liquidity of essex is dependent on the operating partnership 's ability to make sufficient distributions to essex . the primary cash requirement of essex is its payment of dividends to its stockholders . essex also guarantees some of the operating partnership 's debt , as discussed further in notes 6 and 7 to our consolidated financial statements included in part iv , item 15 of this annual report on form 10-k. if the operating partnership fails to fulfill certain of its debt requirements , which trigger the essex 's guarantee obligations , then essex will be required to fulfill its cash payment commitments under such guarantees . however , essex 's only significant asset is its investment in the operating partnership . for essex to maintain its qualification as a reit , it must pay dividends to its stockholders aggregating annually at least 90 % of its reit taxable income , excluding net capital gains . while historically essex has satisfied this distribution requirement by making cash distributions to its stockholders , it may choose to satisfy this requirement by making distributions of other property , including , in limited circumstances , essex 's own stock . as a result of this distribution requirement , the operating partnership can not rely on retained earnings to fund its ongoing operations to the same extent that other companies whose parent companies are not reits can . essex may need to continue to raise capital in the equity markets to fund the operating p artnership 's working capital needs , acquisitions and developments . at december 31 , 2017 , the company had $ 44.6 million of unrestricted cash and cash equivalents and $ 190.0 million in marketable securities , of which $ 80.5 million were held available for sale . the company believes that cash flows generated by its operations , existing cash and cash equivalents , marketable securities balances , availability under existing lines of credit , access to capital markets and the ability to generate cash from the disposition of real estate are sufficient to meet all of the company 's reasonably anticipated cash needs during 2018 . the timing , source and amounts of cash flows provided by financing activities and used in investing activities are sensitive to changes in interest rates and other fluctuations in the capital markets environment , which can affect the company 's plans for acquisitions , dispositions , development and redevelopment activities .
| results of operations comparison of year ended december 31 , 2017 to the year ended december 31 , 2016 the company 's average financial occupancies for the company 's stabilized apartment communities or “ 2017 same-property ” ( stabilized properties consolidated by the company for the years ended december 31 , 2017 and 2016 ) increased 30 basis points to 96.6 % in 2017 from 96.3 % in 2016 . financial occupancy is defined as the percentage resulting from dividing actual rental revenue by total potential rental revenue . actual rental revenue represents contractual rental revenue pursuant to leases without considering delinquency and concessions . total potential rental revenue represents the value of all apartment homes , with occupied apartment homes valued at contractual rental rates pursuant to leases and vacant apartment homes valued at estimated market rents . we believe that financial occupancy is a meaningful measure of occupancy because it considers the value of each vacant apartment home at its estimated market rate . market rates are determined using the recently signed effective rates on new leases at the property and are used as the starting point in the determination of the market rates of vacant apartment homes . the company may increase or decrease these rates based on a variety of factors , including overall supply and demand for housing , concentration of new apartment deliveries within the same submarket which can cause periodic disruption due to greater rental concessions to increase leasing velocity , and rental affordability . financial occupancy may not completely reflect short-term trends in physical occupancy and financial occupancy rates , and the company 's calculation of financial occupancy may not be comparable to financial occupancy disclosed by other reits . the company does not take into account delinquency and concessions to calculate actual rent for occupied apartment homes and market rents for vacant apartment homes .
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the weighted-average interest rates on short-term borrowings outstanding as of march 31 , 2016 and 2015 , were approximately 2.2 % and 2.7 % , respectively . at story_separator_special_tag the following discussion and analysis of financial condition and results of operations is provided to enhance the understanding of , and should be read in conjunction with , part i , item 1 , “ business ” and item 8 , “ financial statements and supplementary data. ” for information on risks and uncertainties related to our business that may make past performance not indicative of future results , or cause actual results to differ materially from any forward-looking statements , see “ general , ” and part i , item 1a , “ risk factors. ” overview we are the leading global leaf tobacco supplier . we derive most of our revenues from sales of processed tobacco to manufacturers of tobacco products throughout the world and from fees and commissions for specific services . we hold a strategic position in the world leaf markets where we work closely with both our customers and farmers to ensure that we deliver a compliant product that meets our customers ' needs while promoting a strong supplier base . we adapt to meet changes in customer requirements as well as broader changes in the leaf markets , while continuing to provide the stability of supply and high level of service that distinguishes us in the marketplace . we believe that we have successfully met the needs of both our customers and suppliers while adapting to changes in leaf markets . consequently , we have delivered strong results to our shareholders . over the last three fiscal years , we have strengthened our balance sheet by repaying almost $ 60 million in debt , generated over $ 400 million in net cash flow from operations , and returned over $ 230 million to our shareholders through a combination of dividends and share repurchases . we have also faced challenging market conditions over the last three fiscal years . in fiscal year 2014 , crop production levels increased , and markets in brazil were volatile . shipping volumes in the second half of that fiscal year exceeded those in the comparable period of the prior year . these increased volumes partially offset lower levels of carryover volumes in the first half of fiscal year 2014 , weaker margins in brazil from the volatile brazilian leaf markets , and negative foreign currency remeasurement and exchange loss comparisons . our higher working capital cash requirements in fiscal year 2014 were a sharp contrast to the returns of working capital seen in the prior fiscal year . in fiscal year 2014 , purchases of larger crops , higher green leaf costs in brazil , and investments in production growth in africa utilized much of the substantial levels of cash flow from fiscal year 2013. in fiscal year 2015 , declines in some of our customers ' sales volumes in the u.s. and western european markets , partially due to weak economic conditions , reduced demand for leaf tobacco . at the same time , crops sold in fiscal year 2015 were larger than those sold in fiscal year 2014. given fiscal year 2015 's oversupplied market conditions , we were pleased with the results we achieved . we ended the year with strong fourth quarter results , which helped to bring our segment operating earnings for the fiscal year in line with our expectations . we also realized higher margins , maintained our solid financial position , and returned over $ 90 million to our shareholders in dividends and share repurchases in fiscal year 2015. we believe that our performance that year demonstrated our ability to execute well on our objective of delivering a compliant product in an efficient manner to our customers , under challenging circumstances . we achieved improved results in fiscal year 2016 , after managing through a second year of oversupplied market conditions . as anticipated , we ended the year with strong fourth quarter volumes , primarily driven by later timing of customer shipping orders in brazil and asia , and the positive change in leaf supply arrangements in our north america segment that we announced last year . we also achieved modest growth in overall volumes for the full fiscal year and improved our margins , and our selling , general , and administrative costs were lower . our inventories continue to be well-managed , and uncommitted stocks have declined from last year 's level , in line with our target . in addition , we returned more than $ 60 million in dividends to our shareholders during the fiscal year , closed the year with higher cash balances , which will support upcoming seasonal working capital requirements in fiscal year 2017 , and preserved our solid financial position . as we move into fiscal year 2017 , global production estimates have continued to decline . plantings have been reduced in some origins where farmers received lower green leaf prices in fiscal year 2016 , and el nino weather patterns have negatively impacted some crops , particularly in brazil . consequently , and due to aggressive green leaf market pricing , our crop purchase levels and sales volumes , as well as third-party processing volumes from that origin , will be lower in fiscal year 2017. however , we expect that brazilian crop levels and our volumes will recover next season . while we believe that total production levels have largely moved into balance with anticipated demand , imbalances in certain leaf quality styles or types remain , and our customers ' inventory composition and durations may also impact their near-term demand requirements . we also believe that seasonality will continue to influence our quarterly results , with some carryover crop deliveries expected in the first fiscal quarter of 2017. although it is still early in the season , we currently anticipate that customer-mandated shipment timing will continue to be weighted toward the second half of the year . story_separator_special_tag the impact from the volume declines was more than offset by favorable variances from fiscal year 2014 's currency remeasurement losses and lower selling , general and administrative costs . revenues for the segment were down by $ 34.3 million to $ 227.0 million for the year ended march 31 , 2015 , compared to the year ended march 31 , 2014 , primarily attributable to the lower volumes for the dark tobacco operations , as well as lower overall volumes and the timing of shipments of oriental tobaccos into the united states . other items cost of goods sold decreased by about 12 % to $ 1.9 billion for the fiscal year ended march 31 , 2015 , consistent with lower overall sales volumes and lower green leaf prices compared with fiscal year 2014. selling , general , and administrative costs decreased by $ 11.8 million for fiscal year 2015 , compared with fiscal year 2014. the decline for fiscal year 2015 was primarily related to lower currency remeasurement and exchange costs , provisions for suppliers , and value-added tax allowances , partly offset by higher customer claims . interest expense of $ 17.1 million for fiscal year 2015 declined by about 16 % , compared to fiscal year 2014. the reduction was mostly due to lower average interest rates during the period , offset in part by slightly higher average debt balances . the consolidated effective income tax rates on pretax earnings were approximately 24 % and 33 % for the fiscal years ended march 31 , 2015 and 2014 , respectively . income taxes for fiscal year 2015 were reduced by a non-recurring benefit of $ 8.0 million arising from the partial payment of the european commission fine by our italian subsidiary in june 2014. excluding that item , the consolidated effective tax rate for fiscal 2015 was about 29 % . the rates for both years , excluding adjustments , were below the 35 % federal statutory rate mainly because of the effect of changes in exchange rates on deferred income tax assets and liabilities , as well as lower effective rates on dividend income from certain foreign subsidiaries . on december 30 , 2014 , the company executed a new senior unsecured credit facility agreement with a group of banks , which consolidated and extended maturities of its previous short-term revolving credit and long-term borrowing facilities . the new agreement includes a $ 430 million five-year revolving credit facility , a $ 150 million five-year term loan , and a $ 220 million seven-year term loan . the revolving credit facility contains terms and conditions that are substantially similar to the company 's previous revolving credit facility . the term loans , which were fully funded at closing , require no amortization and are prepayable without penalty prior to maturity . the facilities include a customary accordion feature allowing for additional borrowings of up to $ 100 million under certain conditions . currently , borrowings under the revolving credit agreement bear interest at variable rates based on libor plus a margin of 1.50 % to 1.75 % . the company subsequently entered interest rate swap agreements to fix the variable interest component of the five- and seven-year term loans to 1.44 % and 1.73 % , respectively . the effective rates on the five- and seven-year term loans were 2.94 % and 3.48 % , respectively , as of may 18 , 2015. accounting pronouncements see `` accounting pronouncements '' in note 1 to the consolidated financial statements in item 8 of this annual report for a discussion of recent accounting pronouncements issued by the financial accounting standards board ( `` fasb '' ) that will become effective and be adopted by the company in future reporting periods . 22 liquidity and capital resources overview our working capital requirements in fiscal year 2016 were higher than those in fiscal year 2015 in part due to increased working capital needs in our north america segment . similar to last year , our shipments were heavily weighted to the second half of the fiscal year , with even more shipments in the fourth quarter this fiscal year , which also extended the duration of our working capital needs in some origins . in fiscal year 2016 , we generated $ 183.6 million in net cash flows to fund our operating activities , and our liquidity was sufficient to meet our needs . we also continued our conservative financial policies , maintained our discipline on using our free cash flow , and returned funds to shareholders . our liquidity and capital resource requirements are predominately short-term in nature and primarily relate to working capital required for tobacco crop purchases . working capital needs are seasonal within each geographic region . the geographic dispersion and the timing of working capital needs permit us to predict our general level of cash requirements , although crop sizes , prices paid to farmers , shipment and delivery timing , and currency fluctuations affect requirements each year . peak working capital requirements are generally reached during the first and second fiscal quarters . each geographic area follows a cycle of buying , processing , and shipping tobacco , and in many regions we also provide agricultural materials to farmers during the growing season . the timing of the elements of each cycle is influenced by such factors as local weather conditions and individual customer shipping requirements , which may change the level or the duration of crop financing . despite a predominance of short-term needs , we maintain a portion of our total debt as long-term to reduce liquidity risk . we also periodically have large cash balances that we utilize to meet our working capital requirements . we believe that our financial resources are adequate to support our capital needs for at least the next twelve months . our seasonal borrowing requirements primarily relate to purchasing crops in south america and africa and can increase from march to september by more than $ 300 million .
| results of operations amounts described as net income and earnings per diluted share in the following discussion are attributable to universal corporation and exclude earnings related to non-controlling interests in subsidiaries . the total for segment operating income referred to in the discussion below is a non-gaap financial measure . this measure is not a financial measure calculated in accordance with gaap and should not be considered as a substitute for net income , operating income , cash flows from operating activities or any other operating performance measure calculated in accordance with gaap , and it may not be comparable to similarly titled measures reported by other companies . we have provided a reconciliation of the total for segment operating income to consolidated operating income in note 14 . `` operating segments '' to the consolidated financial statements in item 8. we evaluate our segment performance excluding certain significant charges or credits . we believe this measure , which excludes these items that we believe are not indicative of our core operating results , provides investors with important information that is useful in understanding our business results and trends . fiscal year ended march 31 , 2016 , compared to the fiscal year ended march 31 , 2015 net income for the fiscal year ended march 31 , 2016 , was $ 109.0 million , or $ 3.92 per diluted share , compared with last year 's net income of $ 114.6 million , or $ 4.06 per diluted share . those results included certain non-recurring items , detailed in other items below , which increased diluted earnings per share by $ 0.02 and $ 0.46 for the years ended march 31 , 2016 and 2015 , respectively . excluding those items in both years , net income for the fiscal year increased $ 6.8 million ( $ 0.30 per diluted share ) compared to the same period last year .
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in addition story_separator_special_tag forward-looking statements certain statements contained in this management 's discussion and analysis of financial condition and results of operations are forward-looking statements . forward-looking statements are also identified by words such as “ expects , ” “ anticipates , ” “ believes , ” “ intends , ” “ plans , ” “ projects ” or similar expressions . actual results could differ materially from those anticipated in these forward-looking statements for many reasons , including those potential risks set forth in item 1a , of this annual report on form 10-k , which are incorporated herein by reference . overview ii-vi incorporated ( “ ii-vi , ” the “ company , ” “ we , ” “ us ” or “ our ” ) , a worldwide leader in engineered materials and optoelectronic components , is a vertically integrated manufacturing company that develops innovative products for diversified applications in the industrial materials processing , optical communications , aerospace and defense , consumer electronics , semiconductor capital equipment , life science and automotive applications and markets . the company produces a wide variety of application-specific photonic and electronic materials and components , and deploys them in various forms , including integration with advanced software . the company generates revenues , earnings and cash flows from developing , manufacturing and marketing engineered materials and optoelectronic components and devices for precision use in industrial materials processing , optical communications , consumer electronics , semiconductor capital equipment , life sciences and automotive applications . we also generate revenue , earnings and cash flows from government funded research and development contracts relating to the development and manufacture of new technologies , materials and products . our customer base includes oems , laser end-users , system integrators of high-power lasers , manufacturers of equipment and devices for the industrial , optical communications , aerospace and defense , semiconductor , medical and life science markets , consumer , u.s. government prime contractors , various u.s. government agencies and thermoelectric integrators . ` in september 2018 , november 2018 , and march 2019 , the company completed its acquisitions of coadna holdings , inc. ( “ coadna ” ) , an additional product line , and redstone aerospace corporation ( “ redstone ” ) , respectively . see note 3 , acquisitions , to our consolidated financial statements contained in item 8 of this annual report on form 10-k. the operating results of these acquisitions have been reflected in the selected financial information of the company 's ii-vi photonics segment since the respective dates of the acquisitions , with the exclusion of redstone which is reflected in the ii-vi performance products segment . as we grow , we are focused on scaling our company and deriving the continued benefits of vertical integration as we strive to be a best in class competitor in all of our highly competitive markets . the company may elect to change the way in which the company operates or is organized in the future to enable the most efficient implementation of its strategy . pending acquisition of finisar corporation ii-vi and finisar have entered into an agreement and plan of merger , dated as of november 8 , 2018 ( the “ merger agreement ” ) . pursuant to the terms of the merger agreement , mutation merger sub inc. , a delaware corporation and wholly owned subsidiary of ii-vi , will be merged with and into finisar , and finisar will continue as the surviving corporation in the merger and a wholly owned subsidiary of ii-vi ( the “ merger ” ) . if the merger is consummated , finisar stockholders will be entitled to receive , at their election , consideration per share of common stock of finisar ( the “ finisar common stock ” ) consisting of ( i ) $ 26.00 in cash , without interest ( the “ cash consideration ” ) , ( ii ) 0.5546 shares of ii-vi common stock ( the shares , the “ ii-vi common stock , ” and the consideration , the “ stock consideration ” ) , or ( iii ) a combination of $ 15.60 in cash , without interest , and 0.2218 shares of ii-vi common stock ( the “ mixed consideration , ” and , together with the cash consideration and the stock consideration , the “ merger consideration ” ) . the cash consideration and the stock consideration are subject to proration adjustment pursuant to the terms of the merger agreement such that the aggregate merger consideration will consist of approximately 60 % cash and approximately 40 % ii-vi common stock assuming a per share price of ii-vi common stock equal to the price when the merger agreement was signed on november 8 , 2018 , which was $ 46.88 per share . 39 at the effective time of the merger ( the “ effecti ve time ” ) , each option granted pursuant to finisar 's 2005 stock incentive plan , as such plan has been further amended and restated ( each , a “ finisar stock option ” ) , or portion thereof , that is outstanding and unexercised as of immediately prior to the effe ctive time ( whether vested or unvested ) will be cancelled , terminated and converted into the right to receive an amount of mixed consideration that would be payable to a holder of such number of shares of finisar common stock equal to the quotient of ( i ) t he product of ( a ) the excess , if any , of $ 26.00 over the exercise price per share of such finisar stock option multiplied by ( b ) the number of shares of finisar common stock subject to such finisar stock option , divided by ( ii ) $ 26.00. at the effective time , each restricted stock unit granted pursuant to finisar 's 2005 stock incentive plan , as such plan has been further amended and restated ( each , a “ finisar restricted stock unit ” ) , or portion thereof , that is outstanding and subject story_separator_special_tag ii-vi anticipates using the proceeds from the term a facility , together with 40 a separately committed term b loan facility in an aggregate principal amount of up to $ 720.0 million ( the “ term b facility ” ) and cash and short-term investments of ii-vi and finisar , to pay the cash portion of the merger consideration payable in connecti on with the merger and related fees and expenses . ii-vi currently does not intend to draw on the revolving credit facility in order to fund the cash portion of the merger consideration payable in connection with the merger . the funding obligations of the lenders under the new senior credit facilities are subject to certain currently unsatisfied conditions , including the consummation of the merger . accordingly , no borrowings are currently outstanding under the new senior credit facilities , and ii-vi currently is not able to borrow under the new senior credit facilities . further , ii-vi expects that the new credit agreement will be amended prior to the consummation of the merger to reflect syndication of the term b facility and to finalize certain other terms in the new credit agreement . upon the consummation of the merger , the new senior credit facilities , governed by the new credit agreement as it may be amended as of such time , will be used ( i ) to refinance in full the amended credit facility ( as defined in note 9 to the company 's consolidated financial statements included in item 8 of this annual report on form 10-k ) and ( ii ) on or after the date of the consummation of the merger , to repay amounts owed in connection with finisar 's outstanding convertible notes , currently in an aggregate principal amount outstanding of $ 575.0 million , including with the proceeds of a portion of the term a facility which will be available to ii-vi for a certain period after the initial funding under the new senior credit facilities . unless and until the merger is consummated and the other currently unsatisfied conditions to the funding obligations of the lenders under the new senior credit facilities are satisfied or waived , the amended credit facility remains in effect in accordance with its terms . critical accounting policies and estimates the preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the united states ( “ u.s . gaap ” ) and the company 's discussion and analysis of its financial condition and results of operations requires the company 's management to make judgments , assumptions and estimates that affect the amounts reported in its consolidated financial statements and accompanying notes . note 1 of the notes to our consolidated financial statements contained in item 8 of this annual report on form 10-k describes the significant accounting policies and accounting methods used in the preparation of the company 's consolidated financial statements . management bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities . actual results may differ from these estimates . management believes the company 's critical accounting estimates are those related to business combinations , impairment of goodwill and indefinite-lived intangible assets , and income taxes . management believes these estimates to be critical because they are both important to the portrayal of the company 's financial condition and results of operations , and they require management to make judgments and estimates about matters that are inherently uncertain . management has discussed the development and selection of these critical accounting policies and estimates with the audit committee of the board of directors and the audit committee has reviewed the related disclosure . in addition , there are other items within our consolidated financial statements that require estimation , but are not deemed critical as described above . changes in estimates used in these and other items could have a material impact on the consolidated financial statements . business combinations the company accounts for business acquisitions under the acquisition method of accounting whereby the total purchase price was allocated to tangible and intangible assets acquired and liabilities assumed based on the respective fair values . the company believes that the accounting estimates related to business combinations are “ critical accounting estimates ” because the company must , in determining the fair value of assets acquired , make assumptions about the future performance of the acquired business , including among other things , the forecasted revenue attributable to the asset group . the valuation methodologies applied require the company to determine a risk-adjusted discount rate that is reflective of the level of risk associated with these estimates to discount the forward-looking estimates to present value . different assumptions may result in materially different values for these assets , which would impact the company 's financial position and future results of operations . 41 the company 's intangible assets are comprised of customer relationships and developed technology . the estimated fair value of the customer relationships and developed technology are determined using the multi-period excess earnings method and relief from royalty method , respectively . b oth methods require forward looking estimates that are discounted to determine the fair value of the intangible asset using a risk-adjusted discount rate that is reflective of the level of risk associated with future estimates associated with the asset gro up . goodwill and indefinite-lived intangibles the company tests goodwill and indefinite-lived intangible assets for impairment annually , and when events or changes in circumstances indicate that goodwill or indefinite-lived intangible assets might be impaired . other intangible assets are amortized over their estimated useful lives . the determination of the estimated useful lives of other intangible assets and whether goodwill or indefinite-lived intangibles are impaired requires us to make judgments based on long-term projections of future performance .
| executive summary net earnings for fiscal year 2019 were $ 107.5 million ( $ 1.63 per-share diluted ) , compared to $ 88.0 million ( $ 1.35 per-share diluted ) for fiscal year 2018. the increase in net earnings during the current fiscal year from fiscal year 2018 was primarily driven by incremental margin realized on the 18 % revenue increase due primarily to strong demand from customers in the optical communications market . offsetting the incremental margin on net earnings , the company realized increased investments in internal research and development during the current fiscal year addressing new product development in growing mega-trend markets as well as higher selling , general and administrative expenses supporting the growing revenue base . during the current fiscal year , the company incurred approximately $ 18.6 million in acquisition and integration expenses on its completed acquisitions as well as its pending acquisition of finisar , which is included in selling , general and administrative expenses . the company 's effective income tax rate of 16.6 % was lower than the 28 % effective tax rate for fiscal year 2018. the higher income tax rate in fiscal year 2018 was the result of the adoption of the tax act and the income tax expense associated with the transition tax . consolidated revenues . revenues for the year ended june 30 , 2019 increased 18 % to $ 1,362.4 million , compared to $ 1,158.8 million for the prior fiscal year . the increase in revenues during the current fiscal year was driven by strong demand from customers across the majority of the company 's business units . in particular , ii-vi photonics experienced a 31 % revenue growth from the prior fiscal year , primarily driven by increased demand from customers in the optical communication market . specifically , the segment saw increased demand for roadm and other optical communication products addressing the growing deployment of 5g optical networks .
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our allocations of u.s. pension plan assets as of november 30 , 2014 and 2013 , by asset category , were as follows : replace_table_token_59_th the allocations of the international pension plans ' assets as of november 30 , 2014 and 2013 , by asset category , were as follows : replace_table_token_60_th the following tables set forth by level , within the fair value hierarchy as described in note 8 , pension plan assets at their fair value as of november 30 , 2014 and 2013 for the united states and international story_separator_special_tag story_separator_special_tag in 2014 , which were principally related to employee severance , $ 2.1 million related to actions undertaken with respect to the emea reorganization announced in late 2013 , $ 1.3 million related to the realignment of certain manufacturing activities in the u.s. industrial business , $ 1.1 million related to the elimination of certain administrative positions in the u.s. consumer and industrial businesses , and $ 0.7 million related to the elimination of certain administrative and manufacturing positions in the australian consumer business . in late 2013 , we announced several reorganization activities in the emea region to further improve emea 's profitability and process standardization while supporting its competitiveness and long-term growth . at that time , we indicated our expectation that we would recognize approximately $ 27 million of cash and non-cash charges related to this plan , of which $ 25.0 million in special charges was recognized in 2013 , with $ 15.9 million related to employee severance , $ 6.4 million for asset write-downs and $ 2.7 million for other exit costs . total cash expenditures to implement this emea reorganization plan were $ 10.7 million in 2014. we expect to complete the implementation of this plan in 2015 , spending an additional $ 10 million in cash in that year . see note 3 of the financial statements for further information with respect to special charges recorded in 2014 and 2013. in addition to the special charges outlined above , we recorded a loss on voluntary pension settlement of $ 15.3 million in 2013 for the settlement of a portion of our u.s. defined benefit obligation , which reduced the size of our pension obligation and should reduce potential pension volatility in the future . the settlement charge relates to a lump sum distribution elected by certain former u.s. employees in exchange for their deferred vested pension plan benefits . this lump sum payout program was completed in 2013. see note 10 of the financial statements for additional information . replace_table_token_6_th interest expense for 2014 was lower than the prior year , primarily due to the refinancing of long-term debt in the second half of 2013. in august 2013 , we issued $ 250 million of 3.50 % notes ( at an effective interest rate of 3.30 % ) , the net cash proceeds of which , plus cash on hand , were used to pay off $ 250 million of 5.25 % notes ( at an effective interest rate of 5.54 % ) that matured in september 2013. replace_table_token_7_th the effective tax rate declined 50 basis points to 26.3 % in 2014 from 26.8 % in 2013 , primarily as a result of the following factors : discrete tax benefits were $ 10.8 million in 2014 compared to $ 3.9 million in 2013. that increase in 2014 is primarily due to the reversal of previously established reserves for unrecognized tax benefits , net of additional taxes provided , upon the following tax settlements reached during 2014 : ( 1 ) a settlement with respect to the french taxing authority 's audits of the 2007-2013 tax years ; and ( 2 ) a settlement with respect to the internal revenue service ( irs ) examination of our u.s. federal income tax return for the 2007 and 2008 tax years . discrete tax benefits in 2013 of $ 3.9 million resulted from the 2013 recognition of a 2012 u.s. research tax credit and reversal of valuation allowances for two subsidiaries originally established against net operating losses . during 2013 , a new law was enacted that retroactively granted the research tax credit in 2012 and allowed for a research tax credit in 2013. no research tax credit was recognized in 2014 as the tax law which retroactively granted the research tax credit for 2014 was not enacted until after the company 's 2014 fiscal year end . see note 12 of the financial statements for a reconciliation of the u.s. federal tax rate with the effective tax rate . in november 2012 , we deposited $ 18.8 million with the irs to stop any potential interest on proposed adjustments associated with the irs examination of our u.s. federal income tax returns for the 2007 and 2008 tax years . in november 2014 , $ 14.9 million of that deposit was refunded to us upon our settlement with the irs . we expect the effective tax rate in 2015 to range from 27 % to 28 % . replace_table_token_8_th income from unconsolidated operations rose $ 6.2 million in 2014 compared to 2013 , which was a 26.7 % increase . this increase is attributable to our largest joint venture , mccormick de mexico , which benefited in 2014 from its transition to a more efficient manufacturing facility and from lower commodity costs . in 2014 , our 50 % interest in the mccormick de mexico joint venture represented 64 % of the sales and 91 % of the net income of our unconsolidated joint ventures . we own 50 % of most of our other unconsolidated joint ventures . we reported diluted earnings per share of $ 3.34 in 2014 , compared to $ 2.91 in 2013. the following table outlines the major components of the change in diluted earnings per share from 2013 to 2014 : replace_table_token_9_th we measure segment performance based on operating income excluding special charges and , in 2013 , the loss on voluntary pension settlement as these activities are managed separately from the business segments . story_separator_special_tag industrial business operating income margin , excluding the impact of special charges and the 2013 loss on voluntary pension settlement , was 8.3 % in 2014 compared to 7.5 % in 2013. results of operations—2013 compared to 2012 replace_table_token_12_th sales for the fiscal year 2013 rose 2.7 % from 2012 , with growth in the consumer segment partially offset by a decline in the industrial segment . pricing actions , taken in response to increased raw material and packaging costs , added 1.5 % to sales . the incremental impact of the wapc acquisition , completed in mid-2013 , accounted for a 1.5 % increase to sales , and increased volume and product mix in the base business added 0.1 % to sales . the impact of foreign exchange rates was unfavorable in 2013 , reducing sales by 0.4 % . replace_table_token_13_th in 2013 , gross profit increased 3.0 % while gross profit margin rose 10 basis points . we were able to offset the dollar impact of 3 % inflation in raw material and packaging costs with our pricing actions and cci cost savings . in 2013 , cci cost savings totaled $ 63 million , of which $ 48 million lowered cost of goods sold . replace_table_token_14_th selling , general and administrative expenses were $ 1,075.0 million in 2013 compared to $ 1,039.5 million in 2012 , an increase of $ 35.5 million or 20 basis points as a percentage of net sales . retirement benefit expense increased $ 20.0 million in 2013 largely as a result of a lower interest rate environment at the november 30 , 2012 pension measurement date which negatively impacted 2013 expense . of the increase in retirement benefit expense , approximately 60 % impacted selling , general and administrative expenses . in addition , we increased our brand marketing support by $ 9.6 million to $ 207.8 million in 2013 , with about half of the increase in digital marketing , which is one of our highest return investments in brand marketing support . replace_table_token_15_th in 2013 , we announced several reorganization activities in the emea region and our expectation that we would record approximately $ 27 million of cash and non-cash charges related to this plan . for 2013 , we recorded $ 25.0 million of special charges , with $ 15.9 million related to employee severance , $ 6.4 million for asset write-downs and $ 2.7 million for other exit costs . we expect to complete the implementation of this plan in 2015. see note 3 of the financial statements for additional information . in addition to the $ 25.0 million in special charges outlined above , we recorded a loss on voluntary pension settlement of $ 15.3 million in 2013 for the settlement of a portion of our u.s. defined benefit obligation , which reduced the size of our pension obligation and should reduce potential pension volatility in the future . the settlement charge relates to a lump sum distribution elected by certain former u.s. employees in exchange for their deferred vested pension plan benefits . this lump sum payout program was completed in 2013. see note 10 of the financial statements for additional information . replace_table_token_16_th interest expense for 2013 was lower than the prior year . most of this decrease is due to the impact of lower average debt balances for 2013 compared to 2012 , and was partially aided by slightly lower average interest rates in 2013. the higher average debt balances in 2012 were due to the acquisitions completed late in 2011. replace_table_token_17_th discrete tax benefits in 2013 were $ 3.9 million compared to $ 2.0 million in 2012. the increase in 2013 was due to the 2013 recognition of a 2012 u.s. research tax credit and reversal of valuation allowances for two subsidiaries originally established against net operating losses . a new law was enacted in 2013 that retroactively granted the research tax credit in 2012. tax expense for 2012 benefited from u.s. foreign tax credits that reduced tax expense by $ 9.7 million due to the repatriation of $ 70 million of cash from foreign subsidiaries . while no such benefit or repatriation occurred in 2013 , tax expense in 2013 as a percentage of pre-tax income approximated the 2012 level due primarily to certain favorable items in 2013 , which included the utilization of non-u.s. operating losses , lower state and local income taxes , and the inclusion of the u.s. research tax credit for 2013 , as well as the increase in discrete tax benefits described above . in addition , see note 12 of the financial statements for a reconciliation of the u.s. federal statutory tax rate with the effective tax rate . replace_table_token_18_th income from unconsolidated operations increased $ 1.7 million in 2013 compared to 2012. most of this increase was attributable to our largest joint venture , mccormick de mexico , through strong sales growth , along with improved performance by our eastern condiments joint venture in india . in 2013 , our mccormick de mexico joint venture represented 63 % of the sales and 78 % of the net income of our unconsolidated joint ventures . we reported diluted earnings per share of $ 2.91 in 2013 , compared to $ 3.04 in 2012. the following table outlines the major components of the change in diluted earnings per share from 2012 to 2013 : replace_table_token_19_th we measure segment performance based on operating income excluding special charges and the loss on a voluntary pension settlement as these activities are managed separately from the business segments . consumer business replace_table_token_20_th we grew sales in the consumer business 5.1 % in 2013 from 2012 , which included a 2.5 % increase due to the mid-2013 acquisition of wapc , a 1.7 % increase due to higher price , and a 1.0 % increase from higher volumes and improved product mix . the effect of foreign exchange rates in 2013 from 2012 was slightly unfavorable , reducing sales by 0.1 % .
| overview the following management 's discussion and analysis of financial condition and results of operations ( md & a ) is intended to help the reader understand mccormick & company , incorporated , our operations and our present business environment . md & a is provided as a supplement to , and should be read in conjunction with , our consolidated financial statements and the accompanying notes thereto contained in item 8 of this report . we use certain non-gaap information that we believe is important for purposes of comparison to prior periods and development of future projections and earnings growth prospects . this information is also used by management to measure the profitability of our ongoing operations and analyze our business performance and trends . the dollar and share information in the charts and tables in the md & a are in millions , except per share data . mccormick is a global leader in flavor . the company manufactures , markets and distributes spices , seasoning mixes , condiments and other flavorful products to the entire food industry–retail outlets , food manufacturers and foodservice businesses . we manage our business in two operating segments , consumer and industrial , as described in item 1 of this report . our long-term annual growth objectives are to increase sales 4 % to 6 % , increase operating income 7 % to 9 % and increase earnings per share 9 % to 11 % . over time , we expect to grow sales with similar contributions from : 1 ) our base business–driven by brand marketing support , customer intimacy and category growth ; 2 ) product innovation ; and 3 ) acquisitions . we are fueling our investment in growth with cost savings from our comprehensive continuous improvement ( cci ) program , an ongoing initiative to improve productivity and reduce costs throughout the organization .
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the following methods and assumptions were used by the company in estimating the fair value for financial instruments in the accompanying consolidated financial statements 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 the accompanying notes thereto included in item 8 and item 15 of this report . in addition to historical information , the following discussion contains forward-looking statements that are subject to risks and uncertainties and other factors described in item 1a of this report . our actual results in future periods may differ from those referred to herein due to a number of factors , including the risks described in the sections entitled “ risk factors ” and “ forward-looking statements ” elsewhere in this report . this management 's discussion and analysis of consolidated financial condition and results of operations contains restated results related to the modification of our method of accounting for the contingent profit commission under the lpt agreement . see `` explanatory note '' immediately preceding part i , item 1 and note 2 , `` revision of previously issued consolidated financial statements , '' to our consolidated financial statements in part ii , item 8 for a detailed discussion of the modification and effect of the restatement . overview we are a nevada holding company . through our insurance subsidiaries , we provide workers ' compensation insurance coverage to select , small businesses in low to medium hazard industries . workers ' compensation insurance is provided under a statutory system wherein most employers are required to provide coverage for their employees ' medical , disability , vocational rehabilitation , and or death benefit costs for work-related injuries or illnesses . we provide workers ' compensation insurance in 31 states and the 29 district of columbia , with a concentration in california , where over one-half of our business is generated . our revenues are primarily comprised of net premiums earned , net investment income , and net realized gains on investments . we target small businesses , as we believe that this market is traditionally characterized by fewer competitors , more attractive pricing , and stronger persistency when compared to the u.s. workers ' compensation insurance industry in general . we believe we are able to price our policies at levels which are competitive and profitable over the long-term . our underwriting approach is to consistently underwrite small business accounts at appropriate and competitive prices without sacrificing long-term profitability and stability for short-term top-line revenue growth . story_separator_special_tag style= '' line-height:120 % ; font-size:10pt ; padding-left:24px ; '' > increasing average policy size . net investment income and realized gains on investments we invest our holding company assets , statutory surplus , and the funds supporting our insurance liabilities , including unearned premiums and unpaid losses and lae . we invest in fixed maturity securities , equity securities , and cash equivalents . net investment income includes interest and dividends earned on our invested assets and amortization of premiums and discounts on our fixed maturity securities , less bank service charges and custodial and portfolio management fees . we have established a high quality/short duration bias in our investment portfolio . net investment income was $ 72.4 million , $ 80.1 million , and $ 83.0 million for the years ended december 31 , 2012 , 2011 , and 2010 , respectively . the decrease in net investment income over the past three years was primarily related to a decrease in the average pre-tax book yield on invested assets . the average pre-tax book yield on invested assets was 3.7 % , 4.1 % , and 4.2 % at december 31 , 2012 , 2011 , and 2010 , respectively , while the tax-equivalent yield on invested assets was 4.4 % , 5.0 % , and 5.3 % as of the same dates , respectively . realized gains and losses on our investments are reported separately from our net investment income . realized gains and losses on investments include the gain or loss on a security at the time of sale compared to its original or adjusted cost ( equity securities ) or amortized cost ( fixed maturity securities ) . realized losses are also recognized when securities are written down as a result of an other-than-temporary impairment . realized gains on investments were $ 5.0 million , $ 20.2 million , and $ 10.1 million for the years ended december 31 , 2012 , 2011 , and 2010 , respectively . the increase in realized gains on investments for the year ended december 31 , 2011 compared to 2010 resulted from a strategic rebalancing of our investment portfolio to increase portfolio allocations to taxable fixed income sectors , shorten portfolio duration following the decline in interest rates in the second half of 2011 , and increase the allocation to high dividend equity securities . we also evaluated our portfolio allocation during the fourth quarter of 2010 and elected to shift $ 20.0 million of our equity securities into a high dividend yield portfolio , which resulted in a $ 9.2 million gain . additional information regarding our investments is set forth under “ –liquidity and capital resources–investments. ” combined ratio the combined ratio , expressed as a percentage , is a key measurement of underwriting profitability . the combined ratio is the sum of the loss and lae ratio , the commission expense ratio , policyholder dividends ratio , and underwriting and other operating expenses ratio . when the combined ratio is below 100 % , we have recorded underwriting income , and conversely , when the combined ratio is greater than 100 % , we can not be profitable without investment income . because we only have one operating segment , holding company expenses are included in our calculation of the combined ratio . 32 the following table provides the calculation of our calendar year combined ratios . replace_table_token_22_th loss and lae ratio . story_separator_special_tag the underwriting and other operating expenses ratio is the ratio ( expressed as a percentage ) of underwriting and other operating expenses to net premiums earned and measures an insurance company 's operational efficiency in producing , underwriting , and administering its insurance business . underwriting and other operating expenses are those costs that we incur to underwrite and maintain the insurance policies we issue , excluding commission . these expenses include premium taxes and certain other general expenses that vary with , and are primarily related to , producing new or renewal business . other underwriting expenses include changes in estimates of future write-offs of premiums receivable , general administrative expenses such as salaries and benefits , rent , office supplies , depreciation , and all other operating expenses not otherwise classified separately . policy acquisition costs are variable based on premiums earned ; however , other operating costs are more fixed in nature and become a smaller percentage of net premiums earned as premiums increase . underwriting and other operating expenses were $ 121.4 million , $ 100.7 million , and $ 106.0 million for the years ended december 31 , 2012 , 2011 , and 2010 , respectively . during the year ended december 31 , 2012 , bonus and equity compensation expenses increased $ 7.2 million , our premium taxes and assessments increased $ 3.1 million , and bad debt expense increased $ 2.1 million , partially offset by a $ 1.6 million decrease in professional fees , compared to the same period of 2011. additionally , implementation of the new accounting guidance for deferred policy acquisition costs ( dac ) resulted in a $ 7.1 million increase in our underwriting and other operating expenses for the year ended december 31 , 2012 . this increase was partially offset by a $ 1.4 million net reduction in underwriting and other operating expenses for the year ended december 31 , 2012 , related to a change in estimate for guarantee fund assessments . excluding the impact of the new dac guidance and the change in estimate for guarantee fund assessments , underwriting and other operating expenses would have increased $ 15.0 million for the year ended december 31 , 2012 compared to 2011. in the first quarter of 2010 , we incurred charges of $ 0.9 million related to staffing reductions to adjust our insurance operations to reflect activity levels at that time . subsequently , in the third quarter of 2010 , we announced the reorganization of our operations to eliminate duplicative services and better align resources with business activity and growth opportunities at that time . in connection with those efforts and with general cost control efforts , we eliminated approximately 160 positions . in conjunction with that reorganization , we recorded restructuring charges of $ 5.2 million in 2010 , including $ 3.0 million related to workforce reductions and $ 2.2 million related to leases for facilities that were vacated during the year . during the year ended december 31 , 2011 , compensation and facilities related expenses declined $ 8.9 million and $ 3.3 million , respectively , partially offset by a $ 5.2 million increase in premium taxes and assessments , compared to the same period of 2010. underwriting and other operating expenses also included one-time charges totaling $ 1.2 million during 2011 for professional service fees related to acquisition due diligence activity . excluding total restructuring items incurred in 2010 and the one-time professional services fees incurred in 2011 , underwriting and other operating expenses decreased $ 0.4 million for the year ended december 31 , 2011 compared to 2010. commission expense ratio . the commission expense ratio is the ratio ( expressed as a percentage ) of commission expense to net premiums earned and measures the cost of compensating agents and brokers for the business we have underwritten . commission expense includes direct commissions to our agents and brokers for the premiums that they produce for us , as well as incentive payments , other marketing costs , and fees . our commission expense was $ 65.6 million , $ 47.3 million , and $ 39.3 million for the years ended december 31 , 2012 , 2011 , and 2010 , respectively . the increases in commission expense from 2010 through 2012 were primarily due to higher net premiums 34 earned , as well as higher agency incentive commissions due to increased agent production in 2012. additionally , in 2010 , we reduced the estimate of certain administrative fees due to anthem under our joint marketing agreements by $ 3.0 million , which decreased the commission expense . this decrease was partially offset by the re-negotiation of the terms of a separate reinsurance agreement resulting in an additional $ 1.8 million in commission expense in 2010. excluding the impact of the change in accrual for fees due to anthem , and the re-negotiated reinsurance agreement , commission expense would have been 12.6 % of net premiums earned for the year ended december 31 , 2010 . policyholder dividends ratio . the policyholder dividends ratio is the ratio ( expressed as a percentage ) of policyholder dividends to net premiums earned and measures the cost of returning premium to policyholders in the form of dividends . in administered pricing states such as florida and wisconsin , insurance rates are set by state insurance regulators . rate competition generally is not permitted and policyholder dividend programs are an important competitive factor in these states . we offer dividend programs to eligible policyholders , under which a portion of the policyholders ' premium may be returned in the form of dividends . policyholder dividends were $ 3.2 million , $ 3.4 million , and $ 4.3 million for the years ended december 31 , 2012 , 2011 , and 2010 , respectively . policyholder dividends fluctuate from time to time due to changes in premium levels on dividend policies and the eligibility of policyholders to receive dividend payments . interest expense we incur interest expenses on notes payable .
| results of operations overall , net income was $ 106.9 million , $ 48.6 million , and $ 63.5 million in 2012 , 2011 , and 2010 , respectively and we recognized underwriting income ( losses ) of $ 23.3 million , $ ( 50.6 ) million , and $ ( 21.1 ) million for the same periods , respectively . underwriting income or loss is determined by deducting losses and lae , commission expense , policyholder dividends , and underwriting and other operating expenses from net premiums earned . key factors that affected our financial performance during 2012 and 2011 , each compared to the previous year , respectively , include : gross premiums written increased 39 % and 30 % ; net premiums earned increased 38 % and 13 % ; losses and lae increased 10 % and 36 % ; underwriting and other operating expenses declined 21 % and increased 5 % ; and income tax expenses decreased $ 7.2 million to an income tax benefit of $ 9.3 million in 2012 and decreased $ 5.6 million to an income tax benefit of $ 2.1 million in 2011. our results of operations in 2012 were also impacted by : ( 1 ) favorable development in the estimated reserves ceded under the lpt agreement . the adjustment to the estimated reserves ceded resulted in a $ 73.3 million cumulative adjustment to the deferred gain , which reduced our losses and lae by the same amount during the fourth quarter of 2012 ( lpt reserve adjustment ) ; ( 2 ) an increase in the contingent commission receivable and the deferred gain under the lpt agreement that resulted in an $ 8.6 million cumulative adjustment , which reduced our losses and lae during the fourth quarter of 2012 ( lpt contingent commission adjustment ) ; and ( 3 ) guidance issued by the financial accounting standards board that , beginning in 2012 , changed the definition of policy acquisition costs which may be capitalized .
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2016-02 , leases in february 2016 , the fasb story_separator_special_tag overview we are a collection of purpose-led , lifestyle brands offering apparel , accessories , and personal care products for men , women , and children under the old navy , gap , banana republic , and athleta brands . we also offer an assortment of products for women , men , and children through our intermix and janie and jack brands . we have company-operated stores in the united states , canada , the united kingdom , france , ireland , japan , italy , china , taiwan , and mexico . our products are available to customers online through company-owned websites and through the use of third parties that provide logistics and fulfillment services . we also have franchise agreements with unaffiliated franchisees to operate gap , banana republic , old navy , and athleta stores throughout asia , europe , latin america , the middle east , and africa . under these agreements , third parties operate , or will operate , stores and websites that sell apparel and related products under our brand names . in addition to operating in the specialty , outlet , online , and franchise channels , we also use our omni-channel capabilities to bridge the digital world and physical stores to further enhance our shopping experience for our customers . our omni-channel services , including curbside pick-up , buy online pick-up in store , order-in-store , find-in-store , and ship-from-store , as well as enhanced mobile-enabled experiences , are tailored uniquely across our collection of brands . most of the products sold under our brand names are designed by us and manufactured by independent sources . in march 2020 , the world health organization declared covid-19 a global pandemic and recommended containment and mitigation measures worldwide . as a result , we temporarily closed our north america retail stores and a large number of our stores globally . in may 2020 , we began to safely reopen our temporarily closed stores with industry-leading safety measures for customers and employees and continued to monitor regional mandates for additional temporary store closures as they arose . as covid-19 cases surged again in the fourth quarter of fiscal 2020 , there were additional mandated store closures in international markets and stay-at-home restrictions in certain domestic markets . although the pandemic has caused a significant reduction in store sales , our online sales have increased significantly and we have leveraged our omni fulfillment capabilities , including curbside pick-up and ship-from-store , to safely serve customer demand . with the shift from store sales to online sales , we have experienced increased shipping costs in order to meet customer demand . additionally , we invested in health and safety measures to protect employees and customers demonstrating our commitment to being a leader in safe retailing practices . we implemented several actions during fiscal 2020 to enhance our liquidity position in response to covid-19 . in may 2020 , the company issued senior secured notes for $ 2.25 billion due 2023 ( `` 2023 notes '' ) , 2025 ( `` 2025 notes '' ) , and 2027 ( `` 2027 notes '' ) ( collectively , the `` notes '' ) and entered into a third amended and restated senior secured asset-based revolving credit agreement ( the `` abl facility '' ) with an initial aggregate principal amount of up to $ 1.8675 billion . proceeds from the issuance of the notes were used to redeem our $ 1.25 billion aggregate principal amount of 5.95 percent notes due april 2021 ( the `` 2021 notes '' ) . we incurred a loss on extinguishment of debt of $ 58 million , primarily related to the make-whole premium , which was recorded on the consolidated statement of operations . see note 5 of notes to the consolidated financial statements included in item 8 , financial statements and supplementary data of this form 10-k for further details related to our debt and credit facilities . refer to the `` liquidity and capital resources '' section for further discussion related to the impacts of covid-19 on our operations and liquidity during fiscal 2020. as a result of covid-19 , we suspended rent payments for our temporarily closed stores . we are continuing to work through negotiations with our landlords relating to those leases and there was a rent abatement benefit of approximately $ 80 million recognized on the consolidated statement of operations . the company also expects substantial cash lease buyout amounts relating to a small population of stores we intend to close across multiple brands ; however , we expect these buyouts to have a minimal net impact to our consolidated statements of operations . for the fifty-two weeks ended january 30 , 2021 , the company executed several store buyout agreements . the net impact of these buyouts was not material to our consolidated statement of operations for the fifty-two weeks ended january 30 , 2021 . 26 in october 2020 , we shared plans to strategically review our operating model in europe , which includes 117 company-operated stores . as part of our review , we are considering options that are aligned with our asset-light growth strategies including the possibility of leveraging the strength of our franchise business model and transitioning elements of the business to interested partners . we are also reviewing the strategies of our warehouse and distribution model and our company-owned e-commerce sites for gap and banana republic in europe . while no decisions have been made , such plans could result in additional costs to the company including charges related to leases , inventory , and employee-related costs . story_separator_special_tag cost of goods sold and occupancy expenses increased 0.7 percentage points as a percentage of net sales in fiscal 2019 compared with fiscal 2018. cost of goods sold increased 0.6 percentage points as a percentage of net sales in fiscal 2019 compared with fiscal 2018 , primarily driven by higher promotional activity at old navy global . occupancy expenses increased 0.1 percentage points as a percentage of net sales in fiscal 2019 compared with fiscal 2018 , primarily driven by a decrease in net sales without a corresponding decrease in occupancy expenses . 31 operating expenses and operating margin replace_table_token_4_th operating expenses increased $ 8 million or 6.4 percentage points as a percentage of net sales in fiscal 2020 compared with fiscal 2019 primarily due to the following : impairment charges of $ 557 million incurred during fiscal 2020 primarily due to the impact of covid-19 and a strategic review of the intermix business compared with impairment charges of $ 337 million incurred during fiscal 2019 primarily related to global flagships ; a gain on the sale of a building that occurred during fiscal 2019 of $ 191 million ; an increase in advertising expenses due to higher investment in marketing support across all purpose-led lifestyle brands ; an increase in lease termination fees incurred in fiscal 2020 ; partially offset by separation-related and specialty fleet restructuring costs of $ 339 million incurred in fiscal 2019 ; a decrease in store payroll and benefits and other store operating expenses as a result of covid-19 temporary store closures across all brands which was partially offset by additional costs incurred to support health and safety measures as we reopened stores . operating expenses increased $ 599 million or 4.0 percentage points as a percentage of net sales in fiscal 2019 compared with fiscal 2018 primarily due to the following : an increase due to separation-related costs of $ 300 million , global flagship impairment charges of $ 296 million , operating expenses related to janie and jack , and specialty fleet restructuring costs of $ 39 million , incurred in fiscal 2019 and not present in fiscal 2018 ; an increase in expenses related to information technology ; an increase in bonus expense compared with a lower fiscal 2018 bonus expense ; an increase in advertising expenses due to increased spending at old navy global and athleta ; partially offset by a gain on the sale of a building that occurred during fiscal 2019 of $ 191 million . loss on extinguishment of debt we incurred a loss on extinguishment of debt of $ 58 million during fiscal 2020 which was recorded on the consolidated statement of operations . in may 2020 , the company completed the issuance of the notes for $ 2.25 billion and used the proceeds to redeem our 2021 notes . the loss on extinguishment of debt was primarily related to the make-whole premium . interest expense replace_table_token_5_th interest expense increased $ 116 million or 152.6 percent during fiscal 2020 compared with fiscal 2019 primarily due to higher total outstanding debt and higher interest rates as a result of the may 2020 issuance of the notes . the total outstanding principal related to our notes increased from $ 1.25 billion as of february 1 , 2020 , to $ 2.25 billion as of january 30 , 2021. additionally , the new notes bear interest at 8.375 percent , 8.625 percent , and 8.875 percent compared with our previous 5.95 percent 2021 notes . 32 income taxes replace_table_token_6_th the increase in the effective tax rate for fiscal 2020 compared with fiscal 2019 was primarily due to the benefit associated with the enactment of the coronavirus aid , relief , and economic security act ( `` cares act '' ) and the recognition of certain tax benefits associated with foreign entity structure changes , partially offset by the tax impact of foreign operations . during fiscal 2020 , we recorded a $ 122 million benefit related to the cares act carryback provisions and a $ 113 million benefit related to recognition of certain tax benefits associated with foreign entity structure changes . the increase in the effective tax rate for fiscal 2019 compared with fiscal 2018 was primarily due to impacts related to the tax cuts and jobs act of 2017 ( `` tcja '' ) . see note 7 of notes to consolidated financial statements included in item 8 , financial statements and supplementary data , of this form 10-k for further details . liquidity and capital resources we continue to manage through the impacts of covid-19 and the impact it has on our operations and liquidity . during fiscal 2020 , we took several actions to improve our financial profile and increase our liquidity , including entering into new debt financing , decreasing capital expenditures , and suspending quarterly cash dividends and share repurchases for the fiscal year . additionally , in march 2020 , we deferred the record and payment dates for our previously announced first quarter of fiscal 2020 dividend and drew down the entire amount under our previous unsecured revolving credit facility of $ 500 million . in may 2020 , we completed the issuance of our notes and received gross proceeds of $ 2.25 billion and repaid the $ 500 million that was outstanding under our previous unsecured revolving credit facility . concurrently with the issuance of the notes , the company entered into the abl facility with an initial aggregate principal amount of up to $ 1.8675 billion which is scheduled to expire in may 2023. we did not borrow any funds under the abl facility . in june 2020 , we redeemed our 2021 notes . the notes are guaranteed on a senior secured basis , jointly and severally , by our existing and future direct and indirect domestic subsidiaries that guarantee the abl facility .
| results of operations net sales see note 15 of notes to consolidated financial statements included in item 8 , financial statements and supplementary data , of this form 10-k for net sales by brand and region . comparable sales ( `` comp sales '' ) comp sales include the results of company-operated stores and sales through online channels . the calculation of gap inc. comp sales includes the results of intermix , janie and jack , and hill city , but excludes the results of our franchise business . a store is included in the comp sales calculations when it has been open and operated by the company for at least one year and the selling square footage has not changed by 15 percent or more within the past year . a store is included in the comp sales calculations on the first day it has comparable prior year sales . stores in which the selling square footage has changed by 15 percent or more as a result of a remodel , expansion , or reduction are excluded from the comp sales calculations until the first day they have comparable prior year sales . a store is considered non-comparable ( “ non-comp ” ) when it has been open and operated by the company for less than one year or has changed its selling square footage by 15 percent or more within the past year . 28 a store is considered “ closed ” if it is temporarily closed for three or more full consecutive days or it is permanently closed . when a temporarily closed store reopens , the store will be placed in the comp/non-comp status it was in prior to its closure . if a store was in closed status for three or more days in the prior year , the store will be in non-comp status for the same days the following year .
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this discussion contains forward-looking statements and involves numerous risks and uncertainties , including , but not limited to those described in item 1a . risk factors and below under the caption “ factors affecting our results of operations. ” actual results may differ materially from those contained in any forward-looking statements . overview we are a leading global specialty chemicals company that manufactures styrenic block copolymers ( “ sbcs ” ) and other engineered polymers . effective with the january 6 , 2016 acquisition of arizona chemical ( the “ arizona chemical acquisition ” ) , we are now also a leading global producer of value-added specialty products primarily derived from pine wood pulping co-products . commensurate with the arizona chemical acquisition , arizona chemical became a separate operating segment and since such date our operations have been managed through two operating segments : ( i ) polymer segment and ( ii ) chemical segment . operating results for the chemical segment are included in the accompanying consolidated financial statements since the date of acquisition . polymer segment sbcs are highly-engineered synthetic elastomers , which we invented and commercialized over 50 years ago . we developed the first unhydrogenated styrenic block copolymers ( “ usbc ” ) in 1964 and the first hydrogenated styrenic block copolymers ( “ hsbc ” ) in the late 1960s . our sbcs enhance the performance of numerous products by imparting greater flexibility , resilience , strength , durability , and processability , and are used in a wide range of applications , including adhesives , coatings , consumer and personal care products , sealants , lubricants , medical , packaging , automotive , paving , roofing , and footwear products . we also sell isoprene rubber ( “ ir ” ) and isoprene rubber latex ( “ irl ” ) , which are non-sbc products primarily used in applications such as medical products , personal care , adhesives , tackifiers , paints , and coatings . our polymers are typically formulated or compounded with other products to achieve improved , customer-specific performance characteristics in a variety of applications . we seek to maximize the value of our product portfolio by emphasizing complex or specialized polymers and innovations that yield higher margins than more commoditized products . we sometimes refer to these complex or specialized polymers or innovations as being more “ differentiated. ” our products are found in many everyday applications , including personal care products , such as disposable diapers , and in the rubberized grips of toothbrushes , razor blades , and power tools . our products are also used to impart tack and shear properties in a wide variety of adhesive products and to impart characteristics such as flexibility and durability in sealants and corrosion resistance in coatings . our paving and roofing applications provide durability , extending road and roof life . we also produce cariflex tm isoprene rubber and isoprene rubber latex . our cariflex products are based on synthetic polyisoprene polymer and do not contain natural rubber latex or other natural rubber products making them an ideal substitute for natural rubber latex , particularly in applications with high purity requirements such as medical , healthcare , personal care , and food contact . we believe the versatility of cariflex provides opportunities for new , differentiated applications . we have a portfolio of innovations at various stages of development and commercialization , including polyvinyl chloride alternatives for medical applications ; polymers for soft skin and coated fabric applications for transportation and consumer markets ; high melt flow polymers for compounding and adhesives formulation ; and synthetic cement formulations and polymers used for viscosity modification in oilfield applications . 34 chemical segment we manufacture and sell high value products primarily derived from pine wood pulping co-products . we refine and further upgrade two primary feedstocks , crude tall oil ( “ cto ” ) and crude sulfate turpentine ( “ cst ” ) , both of which are co-products of the wood pulping process , into value-added specialty chemicals . we refine cto through a distillation process into four primary constituent fractions : tall oil fatty acids ( “ tofa ” ) ; tall oil rosin ( “ tor ” ) ; distilled tall oil ( “ dto ” ) ; and tall oil pitch . we further upgrade tofa , tor , and dto into derivatives such as dimer acids , polyamide resins , rosin resins , dispersions , and disproportionated resins . we refine cst into terpene fractions , which can be further upgraded into terpene resins . the various fractions and derivatives resulting from our cto and cst refining process provide for distinct functionalities and properties , determining their respective applications and end markets . we focus our resources on four product groups : adhesives ; roads and construction ; tires ; and chemical intermediates . within our product groups , our products are sold into a diverse range of submarkets , including packaging , tapes and labels , pavement marking , high performance tires , fuel additives , oilfield and mining , coatings , metalworking fluids and lubricants , inks , and flavor and fragrances , among others . while this business is based predominantly on the refining and upgrading of cto and cst , we have the capacity to use both hydrocarbon-based raw materials , such as alpha-methyl-styrene , rosins , and gum rosins where appropriate and , accordingly , are able to offer tailored solutions for our customers . story_separator_special_tag 36 kraton corporation consolidated statements of operations ( in thousands , except per share data ) replace_table_token_19_th 37 consolidated results year ended december 31 , 2016 compared to year ended december 31 , 2015 our operating results for the year ended december 31 , 2016 include the operating results for arizona chemical since the acquisition date of january 6 , 2016 . revenue was $ 1,744.1 million for the year ended december 31 , 2016 compared to $ 1,034.6 million for the year ended december 31 , 2015 , an increase of $ 709.5 million , or 68.6 % , of which $ 719.4 million relates to our chemical segment . cost of goods sold was $ 1,265.1 million for the year ended december 31 , 2016 compared to $ 806.0 million for the year ended december 31 , 2015 , an increase of $ 459.1 million , or 57.0 % , of which $ 515.0 million relates to our chemical segment . our chemical segment results includes the negative effect of $ 24.7 million related to the full amortization of the fair value adjustment in purchase accounting for inventory , which was fully amortized during the year ended december 31 , 2016 . the polymer segment cost of goods sold decrease d $ 55.9 million , largely driven by a $ 67.9 million decrease in raw material costs and a $ 41.7 million reduction in other manufacturing costs ( including a $ 3.3 million decrease in turnaround costs ) , partially offset by a $ 43.6 million increase related to higher sales volumes and a $ 10.2 million negative effect from currency fluctuations . gross profit was $ 479.0 million for the year ended december 31 , 2016 compared to $ 228.7 million for the year ended december 31 , 2015 . the increase includes gross profit of $ 204.4 million from our chemical segment , which includes the negative effect of $ 24.7 million related to the full amortization of the fair value adjustment in purchase accounting for inventory . research and development expenses were $ 39.5 million for the year ended december 31 , 2016 compared to $ 31.0 million for the year ended december 31 , 2015 , an increase of $ 8.5 million , or 27.3 % , of which $ 11.2 million relates to our chemical segment . selling , general , and administrative expenses were $ 177.6 million for the year ended december 31 , 2016 compared to $ 117.3 million for the year ended december 31 , 2015 , an increase of $ 60.3 million , or 51.4 % , of which $ 69.1 million relates to our chemical segment . selling , general , and administrative expenses for our polymer segment decreased $ 8.8 million , primarily driven by lower staffing costs . depreciation and amortization was $ 125.7 million for the year ended december 31 , 2016 compared to $ 62.1 million for the year ended december 31 , 2015 , an increase of $ 63.6 million , or 102.4 % , of which $ 65.7 million relates to our chemical segment and includes the step up to fair value of the acquired long-lived assets . disposition and exit of business activities were $ 28.4 million for the year ended december 31 , 2016 , which resulted from the exit of our nexar tm and solution resinates product lines , the dissolution of our joint venture in paulinia , brazil , and the sale of the belpre , ohio , compounding unit ( the “ bcu ” ) . loss on extinguishment of debt was $ 13.4 million for the year ended december 31 , 2016 , of which $ 8.4 million was recognized to satisfy and cancel our 6.75 % senior notes due 2019 and $ 5.0 million was related to the write-off of previously capitalized debt issuance costs , following the arizona chemical acquisition . interest expense , net was $ 139.0 million for the year ended december 31 , 2016 compared to $ 24.2 million for the year ended december 31 , 2015 , an increase of $ 114.7 million . the increase is primarily due to additional indebtedness related to the arizona chemical acquisition . income tax benefit was $ 92.0 million and income tax expense was $ 6.9 million for the year ended december 31 , 2016 and 2015 , respectively . given the level of our pre-tax book income for the year ended december 31 , 2016 and the release of a significant portion of our valuation allowance ( as further discussed below ) , our effective tax rate for the year ended december 31 , 2016 is not meaningful . our effective tax rate for the year ended december 31 , 2015 was a 124.3 % expense . our effective tax rates differ from the u.s. corporate statutory tax rate of 35.0 % primarily due to the mix of our pretax income or loss generated in foreign jurisdictions , permanent items , uncertain tax positions , and changes in our valuation allowances . for the year ended december 31 , 2016 , our pretax earnings in the netherlands , sweden , and finland decreased our effective tax rate due to the local statutory rates of 25 % , 22 % , and 20 % , respectively . during the year ended december 31 , 2015 , our pretax earnings in the netherlands decreased our effective tax rate as the statutory rate is 25 % and losses generated in taiwan increased our effective tax rate as the statutory rate is 17 % . we record a valuation allowance when it is more likely than not that some portion , or all , of the deferred tax assets will not be realized . as of december 31 , 2016 and december 31 , 2015 , a valuation allowance of $ 44.7 million and $ 100.1 million , respectively , has been provided for net operating loss carryforwards and other deferred tax assets .
| segment results effective with the arizona chemical acquisition our operating segments are as follows : polymer segment . our polymer segment is comprised of our sbc 's and other engineered polymers business . chemical segment . our chemical segment is comprised of our pine-based specialty products business . polymer segment replace_table_token_20_th ( 1 ) see item 6. selected financial data for a reconciliation of u.s. gaap operating income to non-gaap adjusted ebitda . year ended december 31 , 2016 compared to year ended december 31 , 2015 revenue for the polymer segment was $ 1,024.7 million for the year ended december 31 , 2016 compared to $ 1,034.6 million for the year ended december 31 , 2015 . lower average selling prices amounting to $ 88.3 million , primarily driven by portfolio mix , lower average raw material costs , and lower prices for certain sis product grades , which was partially offset by an increase of $ 75.5 million due to higher sales volumes and changes in foreign currency exchange rates of $ 2.9 million . sales volumes were 324.2 kilotons for the year ended december 31 , 2016 , an increase of 17.7 kilotons , or 5.8 % . 40 with respect to revenue for the polymer segment product groups : cariflex revenue was $ 171.0 million for the year ended december 31 , 2016 compared to $ 142.9 million for the year ended december 31 , 2015 . the increase of $ 28.1 million was attributable to a 19.3 % increase in sales volumes , primarily due to higher sales into surgical glove applications , and changes in foreign currency of $ 5.3 million , partially offset by a $ 5.1 million decrease attributable to lower average selling prices resulting from lower raw material costs .
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45 director independence because our common stock is not currently listed on a national securities exchange , we have used the definition of “ independence ” of the nasdaq stock market to determine whether our current director or our new directors are independent . we have determined that as of the date of this annual report barry sherman would qualify as “ independent ” in accordance with the published listing requirements of the nasdaq stock market and for purposes of section 16 of the exchange act . nasdaq listing rule 5605 ( a ) ( 2 ) provides that an “ independent director ” is a person other than an officer or employee of the company or any other individual having a relationship which , in the opinion of our board , would interfere with the exercise of independent judgment in carrying out the responsibilities of a director . the nasdaq listing rules provide that a director can not be considered independent if : · the director is , or at any time during the past three years was , an employee of the company ; · the director or a family member of the director accepted any compensation from the company in excess of $ 120,000 during any period of twelve consecutive months within the three years preceding the independence determination ( subject to certain exclusions , including , among other things , compensation for board or board committee service ) ; · a family member of the director is , or at any time during the past three years was , an executive officer of the company ; · the director or a family member of the director is a partner in , controlling stockholder of , or an executive officer of an entity to which the company made , or from which the company received , payments in the current or any of the past three fiscal years that exceed 5 % of the recipient 's consolidated gross revenue for that year or $ 200,000 , whichever is greater ( subject to certain exclusions ) ; · the director or a family member of the director is employed as an executive officer of an entity where , at any time during the past three years , any of the executive officers of the company served on the compensation committee of such other entity ; or · the director or a family member of the director is a current partner of the company 's outside auditor , or at any time during the past three years was a partner or employee of the company 's outside auditor , and who worked on the company 's audit . 46 item 14. principal accounting fees and services . audit-related fees the aggregate fees billed by berman & company , p.a . for professional services rendered to us in connection with the audit of our annual financial statements for the years ended june 30 , 2014 and 2013 were zero and $ 14,309 , respectively . the aggregate fees billed by spectra financial services , llc for professional services rendered to us in connection with the audits of the annual financial statements of antria delaware for the years ended june 30 , 2014 and 2013 were $ 22,650 and $ 85,796 , respectively . the aggregate fees billed by eks & h lllp for professional services rendered to us in connection with the audit of our annual financial statements for the years ended june 30 , 2014 and 2013 were $ 126,884 and $ 67,020 , respectively . audit fees represent amounts billed for professional services rendered for the audit of our annual financial statements and the reviews of the financial statements included in our quarterly reports on form 10-q . our board of directors pre-approves all audit and non-audit services performed by our auditors and the fees to be paid in connection with such services in order to assure that the provision of such services does not impair the auditor 's independence . tax fees the aggregate fees billed by bkd for professional services rendered to us in connection with the completion of the tax returns for the years ended june 30 , 2014 and 2013 were $ 15,500 and $ 4,500 , respectively . all other fees none 47 part iv item 15. exhibits and financial statement schedules ( a ) ( 1 ) financial statements the following documents are filed as part of this form 10-k , as set forth on the index to financial statements found on page f-1 story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations of contain forward-looking statements which involve risks and uncertainties . our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors , including those set forth under “ risk factors ” and elsewhere in this annual report . we assume no obligation to update forward-looking statements or the risk factors . you should read the following discussion in conjunction with antria 's financial statements and related notes . our company we are a preclinical stage company that is developing novel , sustained release therapeutics based on our proprietary formulation and manufacturing platform . specifically , we apply our microsphere technology to well-characterized pharmaceuticals in order to improve significantly the existing standard of care . we believe that utilizing our platform with known and approved pharmaceutical agents increases the probability of technical success while reducing safety concerns , approval risks and development costs . we also believe that our approach may result in differentiated , patent-protected products which provide significant benefits to patients . our objective is to use our platform to create new drug candidates in multiple therapeutic areas that address large potential markets . story_separator_special_tag a key component of our development strategy is to potentially reduce the risks and time associated with drug development by capitalizing on the known safety and efficacy of approved drugs as well as established pharmacologic targets and drugs directed to those targets . we believe that the improved characteristics of our drug candidates will provide meaningful benefit to patients compared to the existing therapies . enter into strategic and high-value partnerships to bring certain of our drug candidates to market we decide on a drug candidate-by-drug candidate basis how far to advance clinical development ( e.g . phase 1 , 2 or 3 ) before seeking a partner where our strategy is to enter into collaborations with leading pharmaceutical and biotechnology companies to fund further clinical development , manage the global regulatory filing process , and market and sell drugs in one or more geographies . the options for future collaboration arrangements range from comprehensive licensing and commercialization arrangements to co-promotion and co-development agreements with the structure of the collaboration depending on factors such as the structure of economic risk sharing , the cost and complexity of development , marketing and commercialization needs , therapeutic area and geographic capabilities . continue to build a leading intellectual property estate in the field of sustained release therapeutics using microsphere technology we are committed to continuing to build on our intellectual property position in the field of specialized microsphere formulation and manufacturing . to that end , we have a comprehensive patent strategy with the objective of developing a patent estate covering a wide range of novel inventions including among others , polymer materials , conjugates , formulations , synthesis , therapeutic areas , methods of treatment and methods of manufacture . significant accounting policies and estimates our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting period . on an on-going basis , management evaluates its estimates and judgments , including those related to recoverability of long-lived assets , fair value of derivative instruments and stock-based compensation , allowances and contingencies . management bases its estimates and judgments on historical experience and on various factors that are believed to be reasonable under the circumstance , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . the methods , estimates , and judgments used by us in applying these most critical accounting policies have a significant impact on the results we report in our consolidated financial statements . patents costs of establishing patents consisting of legal fees paid to third parties and related costs are currently expensed as incurred . we will continue this practice unless we can demonstrate that such costs add economic value to our business , in which case we will capitalize such costs as part of intangible assets . the primary consideration in making this determination is whether or not we can demonstrate that such costs have , in fact , increased the economic value of our intellectual property . the $ 13,000 value of the patents acquired in connection with the asset acquisition from prp is being amortized over the remaining patent lives of approximately 11 years . 30 research and development research and development costs are expensed as incurred . these costs consist primarily of expenses for personnel engaged in the design and development of product candidates , the scientific research necessary to produce commercially viable applications of our proprietary drugs , early stage clinical testing of product candidates , and development equipment and supplies , facilities costs and other related overhead . stock-based compensation we account for stock-based payments by recognizing compensation expense based upon the estimated fair value of the awards on the date of grant . we determine the estimated grant date fair value of options using the black-scholes option pricing model and recognize compensation costs ratably over the vesting period using the straight-line method . common stock issued in exchange for services is recorded at fair value of the common stock at the date which we became obligated to issue the shares . the value of the shares is expensed over the requisite service period . derivatives we account for warrants that are liability classified by recording the fair value of the warrant derivative liability . the fair value of the warrants is calculated using either the black-scholes or lattice pricing model . we recorded the derivative expense at the inception of each instrument reflecting the difference between the fair value and the cash received . changes in the fair value in subsequent periods were recorded to derivative income or expense for the warrants . income taxes we use the liability method of accounting for income taxes . under this method , we recognize deferred assets and liabilities based on the differences between the tax basis of assets and liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future years . we establish a valuation allowance for all deferred tax assets for which there is uncertainty regarding realization . story_separator_special_tag 5,725,327 units , with each unit consisting of one share of common stock and a warrant to purchase one share of common stock . the company received net proceeds of approximately $ 7.6 million from the equity transaction . while we do have cash on hand , we anticipate that we will need an additional $ 10 million to cover operating and capital expenses through the calendar year end 2015. we are currently evaluating raising additional capital to fund our current and future
| results of operations the company recorded net losses of $ 9,730,454 and $ 6,727,457 for the years ended june 30 , 2014 and 2013 , respectively . revenues - we are a preclinical stage company and have not yet generated any revenues . expenses – operating expenses for the years ended june 30 , 2014 and 2013 , were $ 5,176,033 and $ 6,106,881 , respectively . the operating expenses represent expenses for getting the company fully operational . the main decrease in operating expenses is for payroll expenses for the year ended june 30 , 2014 which included $ 1,081,792 of stock-based compensation expense compared to $ 3,687,502 for the year ended june 30 , 2013. interest expense for the years ended june 30 , 2014 and 2013 , was $ 4,230,112 and $ 568,859 , respectively , which is interest on debt issued and the debt discount related to the beneficial conversion features recorded . the main increase in interest expense is related to the beneficial conversion feature of $ 2,922,938 that was recorded and amortized into interest expense during the year ended june 30 , 2014 . 31 factors impacting our results operations we have not generated any revenues since our inception in march 2010. since inception , we have engaged in organizational activities , conducted private placements which raised additional capital , began establishing our management team , entered into an asset purchase agreement to acquire all of prp 's operating and intellectual property assets , and leased our manufacturing and research facility . as we have now moved into our facility , hired additional employees , and placed in service the equipment we have acquired from prp , we expect our general and administrative expenses as well as our research and development expenses to increase substantially in the next fiscal year .
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the “ other ” business segment includes results of the stand-alone corporate operations of hei and asb hawaii , both holding companies ; hei properties , inc. , a company which held passive , venture capital investments ( all of which have been sold or abandoned prior to its dissolution in december of 2015 ) ; and the old oahu tug service , inc. , a maritime freight transportation company that ceased operations in 1999 ; as well as eliminations of intercompany transactions . hei corporate-level operating , general and administrative expenses were $ 34 million in 2015 compared to $ 21 million in 2014 and $ 16 million in 2013. in 2015 and 2014 , hei had approximately $ 17 million ( including $ 7 million of legal expenses and $ 5 million of investment banking fees ) and $ 5 million , respectively , of expenses related to the proposed merger . the “ other ” segment 's interest expenses were $ 11 million in 2015 , $ 12 million in 2014 and $ 16 million in 2013. in 2015 and 2014 , hei had lower average interest rates , partly offset by the impact of higher average borrowings , than 2013. in 2015 , hei had lower average borrowings than 2014 and a $ 125 million eurodollar term loan was amended at improved pricing . in 2014 , a 6.51 % medium-term note of $ 100 million was paid off and a $ 125 million eurodollar term loan ( at rates ranging from 1.12 % to 1.14 % through december 31 , 2014 ) was drawn . the “ other ” segment 's income tax benefits were $ 16 million in 2015 , $ 13 million in 2014 and $ 14 million in 2013. effects of inflation . u.s. inflation , as measured by the u.s. consumer price index ( cpi ) , averaged 0.1 % in 2015 , 1.6 % in 2014 and 1.5 % in 2013. hawaii inflation , as measured by the honolulu cpi , was 1.0 % in 2015 , 1.4 % in 2014 and 1.8 % in 2013. inflation continues to have an impact on hei 's operations . inflation increases operating costs and the replacement cost of assets . subsidiaries with significant physical assets , such as the electric utilities , replace assets at much higher costs and must 43 request and obtain rate increases to maintain adequate earnings . in the past , the puc has granted rate increases in part to cover increases in construction costs and operating expenses due to inflation . recent accounting pronouncements . see “ recent accounting pronouncements and interpretations ” in note 1 of the consolidated financial statements . liquidity and capital resources . the company believes that its ability to generate cash , both internally from electric utility and banking operations and externally from issuances of equity and debt securities , commercial paper and bank borrowings , is adequate to maintain sufficient liquidity to fund its contractual obligations and commercial commitments , its forecasted capital expenditures and investments , its expected retirement benefit plan contributions and other cash requirements for the foreseeable future . the company 's total assets were $ 11.8 billion as of december 31 , 2015 and $ 11.2 billion as of december 31 , 2014. the consolidated capital structure of hei ( excluding deposit liabilities and other bank borrowings ) was as follows : replace_table_token_25_th hei 's short-term borrowings and hei 's line of credit facility were as follows : replace_table_token_26_th 1 this table does not include hawaiian electric 's separate commercial paper issuances and line of credit facilities and draws , which are disclosed below under “ electric utility—financial condition—liquidity and capital resources. ” at february 12 , 2016 , hei 's outstanding commercial paper balance was $ 95 million and its line of credit facility was undrawn . the maximum amount of hei 's short-term borrowings in 2015 was $ 134 million . hei utilizes short-term debt , typically commercial paper , to support normal operations , to refinance commercial paper , to retire long-term debt , to pay dividends and for other temporary requirements . hei also periodically makes short-term loans to hawaiian electric to meet hawaiian electric 's cash requirements , including the funding of loans by hawaiian electric to hawaii electric light and maui electric , but no such short-term loans to hawaiian electric were outstanding as of december 31 , 2015. hei periodically utilizes long-term debt , historically consisting of medium-term notes and other unsecured indebtedness , to fund investments in and loans to its subsidiaries to support their capital improvement or other requirements , to repay long-term and short-term indebtedness and for other corporate purposes . in march 2013 , hei entered into equity forward transactions in which a forward counterparty borrowed 7 million shares of hei 's common stock from third parties and such borrowed shares were sold pursuant to an hei registered public offering . see note 9 of the consolidated financial statements . in march 2015 , hei issued the 4.7 million shares remaining under the equity forward transaction for proceeds of $ 104.5 million . in october 2015 , hei amended and extended a two-year $ 125 million term loan agreement that it entered into on may 2 , 2014. see note 8 of the consolidated financial statements for a brief description of the loan agreement . in december 2014 , hei filed an omnibus registration statement to register an indeterminate amount of debt and equity securities . hei has a line of credit facility , as amended and restated on april 2 , 2014 , of $ 150 million . story_separator_special_tag see note 7 of the consolidated financial statements . 44 the rating of hei 's commercial paper and debt securities could significantly impact the ability of hei to sell its commercial paper and issue debt securities and or the cost of such debt . the rating agencies use a combination of qualitative measures ( i.e. , assessment of business risk that incorporates an analysis of the qualitative factors such as management , competitive positioning , operations , markets and regulation ) as well as quantitative measures ( e.g. , cash flow , debt , interest coverage and liquidity ratios ) in determining the ratings of hei securities . in january 2015 , s & p reported the ratings of hei ( bbb-/watch positive/a-3 ) . s & p indicated that “ [ g ] iven the proposed funding for the transaction ( all equity and the assumption of existing debt ) , along with opportunities for growth for nextera energy , we expect to view hei as a core subsidiary of nextera energy and therefore to raise the issuer credit rating ( icr ) on hei to be in line with that of nextera energy. ” in august 2015 , moody 's changed hei 's rating outlook from stable to negative “ due to concerns about the execution risk inherent in transforming its oil-dominated generation base to renewables. ” moody 's stated that they could reevaluate hei 's rating or outlook upon the closing of the pending merger with nee . in december 2015 , fitch maintained hei 's issuer default rating ( idr ) at bbb on rating watch positive . “ fitch expects to resolve the rating watch on the conclusion of the merger transaction with nextera energy , inc. ( nee ) , which is expected in the first half of 2016. ” fitch stated that “ [ o ] nce the transaction is completed , hei ( or its successor within nee ) would become a first-tier holding company under nextera energy capital holdings , inc. fitch expects to equalize the idr of hei with that of heco once the bank is spun off and the acquisition with nee is completed . over the long term , fitch sees a bias toward positive rating actions for heco and hei under nee 's ownership . in the event that the merger is not completed ( not anticipated by fitch ) , fitch believes the credit profile of heco and hei remains robust. ” as of february 12 , 2016 , the fitch , moody 's and s & p ratings of hei were as follows : fitch moody 's s & p long-term issuer default and senior unsecured ; senior unsecured ; and corporate credit ; respectively bbb baa2 bbb- commercial paper f3 p-2 a-3 outlook watch-positive negative watch-positive the above ratings reflect only the view , at the time the ratings are issued , of the applicable rating agency , from whom an explanation of the significance of such ratings may be obtained . such ratings are not recommendations to buy , sell or hold any securities ; such ratings may be subject to revision or withdrawal at any time by the rating agencies ; and each rating should be evaluated independently of any other rating . management believes that , if hei 's commercial paper ratings were to be downgraded , or if credit markets for commercial paper with hei 's ratings or in general were to tighten , it could be more difficult and or expensive for hei to sell commercial paper or hei might not be able to sell commercial paper in the future . such limitations could cause hei to draw on its syndicated credit facility instead , and the costs of such borrowings could increase under the terms of the credit agreement as a result of any such ratings downgrades . similarly , if hei 's long-term debt ratings were to be downgraded , it could be more difficult and or expensive for hei to issue long-term debt . such limitations and or increased costs could materially adversely affect the results of operations , financial condition and liquidity of hei and its subsidiaries . issuances of common stock through the hawaiian electric industries , inc. dividend reinvestment and stock purchase plan ( drip ) , hawaiian electric industries retirement savings plan ( heirsp ) and the asb 401 ( k ) plan provided new capital of $ 3 million ( approximately 0.1 million shares ) in 2014 and $ 48 million ( approximately 1.8 million shares ) in 2013. from march 6 , 2014 through january 5 , 2016 , hei satisfied the share purchase requirements of the drip , heirsp and asb 401 ( k ) plan through open market purchases of its common stock rather than new issuances . operating activities provided net cash of $ 356 million in 2015 , $ 325 million in 2014 and $ 362 million in 2013. investing activities used net cash of $ 706 million in 2015 , $ 592 million in 2014 and $ 598 million in 2013. in 2015 , net cash used in investing activities was primarily due to a net increase in loans held for investment , hawaiian electric 's consolidated capital expenditures ( net of contributions in aid of construction ) and asb 's purchases of investment securities , partly offset by the repayments of investment securities , redemption of stock from federal home loan bank and sale of real estate held for sale . financing activities provided net cash of $ 475 million in 2015 , $ 223 million in 2014 and $ 237 million in 2013. in 2015 , net cash provided by financing activities included net increases in deposits , retail repurchase agreements and long-term debt and proceeds from the issuance of common stock , partly offset by a decrease in short-term borrowings and payment of common and preferred stock dividends . other than capital
| results of operations . 2015 vs. 2014 ( in millions ) 2015 2014 increase ( decrease ) primary reason ( s ) interest income $ 200 $ 191 $ 9 the impact of higher average earning asset balances was partly offset by lower yields on earning assets . asb 's average loan portfolio balance for 2015 was $ 213 million higher than 2014 as the average commercial real estate , residential , heloc and commercial loan balances increased by $ 111 million , $ 40 million , $ 37 million and $ 15 million , respectively . the growth in these loan portfolios was consistent with asb 's portfolio mix targets and loan growth strategy . the loan portfolio yield continued to be impacted by the interest rate environment as new loan production yields were lower than the average portfolio yield . the average investment and mortgage-related securities portfolio balance increased by $ 150 million as asb purchased investments with liquidity in excess of loan growth funding . noninterest income 67 61 6 higher noninterest income was due to an increase in gain on sale of loans as loan sales increased by $ 119 million as a result of asb 's decision to sell a larger portion of its low rate residential loan production , higher deposit related fee initiatives and gains on sales of real estate and mortgageservicing rights .
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these statements are often , but not always , made through the use of words or phrases such as “ may , ” “ should , ” “ could , ” “ predict , ” “ potential , ” “ believe , ” “ will likely result , ” “ expect , ” “ continue , ” “ will , ” “ anticipate , ” “ seek , ” “ estimate , ” “ intend , ” “ plan , ” “ projection , ” “ would ” and “ outlook , ” or the negative version of those words or other comparable of a future or forward-looking nature . these forward-looking statements are not historical facts , and are based on current expectations , estimates and projections about our industry , management 's beliefs and certain assumptions made by management , many of which , by their nature , are inherently uncertain and beyond our control . accordingly , we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks , assumptions and uncertainties that are difficult to predict . although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made , actual results may prove to be materially different from the results expressed or implied by the forward-looking statements . there are or will be important factors that could cause our actual results to differ materially from those indicated in these forward-looking statements , including , but not limited to , the following : deterioration of our asset quality ; our ability to prudently manage our growth and execute our strategy ; changes in the value of collateral securing our loans ; business and economic conditions generally and in the financial services industry , nationally and within our local market area ; changes in management personnel ; our ability to maintain important deposit customer relationships , our reputation and otherwise avoid liquidity risks ; our ability to provide investment management performance competitive with our peers and benchmarks ; operational risks associated with our business ; volatility and direction of market interest rates ; increased competition in the financial services industry , particularly from regional and national institutions ; changes in the laws , rules , regulations , interpretations or policies relating to financial institutions , accounting , tax , trade , monetary and fiscal matters ; further government intervention in the u.s. financial system ; natural disasters and adverse weather , acts of terrorism , an outbreak of hostilities or other international or domestic calamities , and other matters beyond our control ; and other factors that are discussed in the section entitled “ risk factors , ” in part i - item 1a . the foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this document . if one or more events related to these or other risks or uncertainties materialize , or if our underlying assumptions prove to be incorrect , actual results may differ materially from what we anticipate . accordingly , you should not place undue reliance on any such forward-looking statements . any forward-looking statement speaks only as of the date on which it is made , and we do not undertake any obligation to publicly update or review any forward-looking statement , whether as a result of new information , future developments or otherwise . new factors emerge from time to time , and it is not possible for us to predict which will arise . in addition , we can not assess the impact of each factor on our business or the extent to which any factor , or combination of factors , may cause actual results to differ materially from those contained in any forward-looking statements . 49 general we are a bank holding company that operates through two reporting segments : bank and investment management . the bank segment generates most of its revenue from interest on loans and investments , loan-related fees and deposit-related fees . its primary source of funding for loans is deposits . its largest expenses are interest on these deposits and salaries and related employee benefits . the investment management segment originated through the acquisition of substantially all of the assets of chartwell investment partners , lp which was consummated on march 5 , 2014 , and the recent formation of chartwell tsc securities corp. , which is applying to be registered as a broker/dealer with the sec and finra . the investment management segment generates most of its revenue from investment management fees earned on assets under management and its largest expenses are salaries and related employee benefits . the following discussion and analysis presents our financial condition and results of operations on a consolidated basis , except where significant segment disclosures are necessary to better explain the operations of each segment and related variances . in particular , the discussion and analysis of non-interest income and non-interest expense is reported by segment . we measure our performance primarily through our earnings per common share ; total revenue ; and pre-tax , pre-provision net revenue . other salient metrics include the ratio of allowance for loan losses to loans ; net interest margin ; the efficiency ratio of the bank segment ; assets under management ; return on average assets ; and return on average equity , while maintaining appropriate regulatory leverage and risk-based capital ratios . executive overview tristate capital holdings , inc. ( “ we ” , “ us ” , “ our ” or the “ company ” ) is a bank holding company headquartered in pittsburgh , pennsylvania . the company has three wholly owned subsidiaries : tristate capital bank ( “ the bank ” ) , a pennsylvania chartered bank ; chartwell investment partners , llc ( “ chartwell ” ) , a registered investment advisor ; and chartwell tsc securities corp. ( “ ctsc securities ” ) , which is applying to be registered as a broker/dealer with the sec and finra . story_separator_special_tag total deposits increased $ 352.9 million , or 15.1 % , to $ 2.7 billion as of december 31 , 2015 , from $ 2.3 billion , as of december 31 , 2014 . non-performing assets to total assets decreased to 0.56 % as of december 31 , 2015 , from 1.11 % as of december 31 , 2014 , due to $ 13.4 million in reductions related to paydowns , a sale , charge-offs and two payoffs on non-performing loans during the year partially offset by an addition of a $ 228,000 non-performing loan . net charge-offs to average loans for the year ended december 31 , 2015 , was 0.09 % , as compared to 0.41 % for the same period in 2014 . the allowance for loan losses to loans decreased to 0.63 % as of december 31 , 2015 , from 0.84 % as of december 31 , 2014 , which reflects the reduction in non-performing loans and the lower provision required for private banking loans secured by marketable securities . the allowance for loan losses to non-performing loans increased to 107.89 % as of december 31 , 2015 , from 67.06 % as of december 31 , 2014 . this change was primarily due to lower non-performing loan balances as of december 31 , 2015 . the provision for loan losses was $ 13,000 for the year ended december 31 , 2015 , as compared to $ 10.2 million for the year ended december 31 , 2014 . the trend of our recent credit provision reflects the change in composition of our loan portfolio over the past year with a decrease in adverse-rated credits and a much larger percentage of the portfolio in loans secured by marketable securities . our book value per common share increased $ 0.74 , or 6.8 % , to $ 11.62 as of december 31 , 2015 , from $ 10.88 as of december 31 , 2014 , largely as a result of an increase in our net income . 2014 compared to 2013 operating performance for the year ended december 31 , 2014 , our net income was $ 15.9 million compared to $ 12.9 million for the same period in 2013 , an increase of $ 3.1 million , or 23.8 % , primarily due to the results of our newly established investment management segment and growth of our loan portfolio . specifically the change resulted from ( 1 ) a $ 3.9 million , or 6.3 % , increase in our net interest income due largely to our continued loan growth ; ( 2 ) an increase in provision for loan losses of $ 2.0 million ; ( 3 ) an increase of $ 25.9 million in non-interest income largely related to investment management fees , higher net gain on the sale of investment securities available-for-sale , and higher bank owned life insurance income partially offset by unrealized losses on swaps ; ( 4 ) an increase of $ 23.5 million in our non-interest expense largely related to the addition of chartwell , including an incremental contingent earnout accrual related to the acquisition due to chartwell 's growth in profitability exceeding our estimates , and overall annual cost increases ; and ( 5 ) a $ 1.3 million increase in income taxes . net income , excluding the fourth quarter earnout expense related to the chartwell acquisition of $ 1.6 million , was $ 17.0 million for the year ended december 31 , 2014 . our diluted eps was $ 0.55 for the year ended december 31 , 2014 , compared to $ 0.48 for the same period in 2013. the increase is a result of an increase of $ 3.1 million , or 23.8 % , in our net income partially offset by the dilutive impact of the issuance and sale of 6,355,000 shares of our common stock in connection with our initial public offering . diluted eps , excluding the fourth quarter earnout expense related to the chartwell acquisition of $ 1.6 million , was $ 0.59 for the year ended december 31 , 2014 . our return on average assets was 0.61 % for the year ended december 31 , 2014 , as compared to 0.59 % for the same period in 2013. our return on average equity was 5.25 % , for the year ended december 31 , 2014 , as compared to 4.84 % for the same period in 2013. the increase in both ratios is the result of the higher net income for the year ended december 31 , 2014 , as discussed above . 51 for the year ended december 31 , 2014 , the bank 's efficiency ratio was 59.93 % as compared to 59.98 % for the same period in 2013 , ( adjusted for non-recurring acquisition costs ) , primarily as a result of higher compensation expense for the bank offset partially by higher total revenue for the year ended december 31 , 2014. our non-interest expense to average assets for the year ended december 31 , 2014 , was 2.44 % , compared to 1.88 % for the same period in 2013. the increase is due to the addition of chartwell operating expenses since the closing of the chartwell acquisition in march 2014. for the year ended december 31 , 2014 , total revenue increased $ 29.2 million , or 43.7 % , to $ 96.0 million from $ 66.8 million for the same period in 2013 , largely driven by investment management fees . pre-tax , pre-provision net revenue increased $ 5.7 million , or 21.8 % , to $ 31.6 million for the year ended december 31 , 2014 , from $ 26.0 million for the same period in 2013 , primarily resulting from growth of $ 29.2 million , or 43.7 % , in total revenue , partially offset by an increase of $ 23.5 million , or 57.6 % , in non-interest expense .
| results of operations net interest income net interest income represents the difference between the interest and fees earned on interest-earning assets and the interest paid on interest-bearing liabilities . net interest income is affected by changes in the volume of interest-earning assets and interest-bearing liabilities and changes in interest yields earned and rates paid . maintaining consistent spreads between earning assets and interest-bearing liabilities is significant to our financial performance because net interest income comprised 65.3 % , 68.4 % and 92.5 % of total revenue for the years ended december 31 , 2015 , 2014 and 2013 , respectively . the table below reflects an analysis of net interest income , on a fully taxable equivalent basis , for the periods indicated . the adjustment to convert certain income to a fully taxable equivalent basis consists of dividing tax exempt income by one minus the statutory federal income tax rate of 35.0 % . replace_table_token_14_th ( 1 ) net interest margin is calculated on a fully taxable equivalent basis . 53 the following table provides information regarding the average balances and yields earned on interest-earning assets and the average balances and rates paid on interest-bearing liabilities for the years ended december 31 , 2015 , 2014 and 2013 . non-accrual loans are included in the calculation of the average loan balances , while interest collected on non-accrual loans is recorded as a reduction to principal . where applicable , interest income and yield are reflected on a fully taxable equivalent basis , and have been adjusted based on the statutory federal income tax rate of 35.0 % . replace_table_token_15_th ( 1 ) net interest income and net interest margin are calculated on a fully taxable equivalent basis . net interest income for the years ended december 31 , 2015 and 2014 .
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common stock equivalents that were excluded from the computation of diluted net loss per share are presented as below : replace_table_token_18_th f-14 revance therapeutics , inc. notes to consolidated financial statements — ( continued ) recently adopted accounting pronouncements in february 2016 , the financial accounting standards board ( “ fasb ” ) issued asu 2016-02 , leases ( topic 842 ) which requires an entity to recognize right-of-use asset and lease liabilities arising from a lease for both financing and operating leases with terms greater than twelve months . in july 2018 , the fasb issued asu 2018-10 , leases ( topic 842 ) , codification improvements and asu 2018-11 , leases ( topic 842 ) , 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 our results of operations and financial condition . md & a is provided as a supplement to , and should be read in conjunction with , our audited consolidated financial statements and the accompanying notes to the consolidated financial statements and other disclosures included in this annual report on form 10-k ( including the disclosures under part i , item 1a . “ risk factors ” ) . our audited consolidated financial statements have been prepared in accordance with u.s. gaap and are presented in u.s. dollars . overview revance therapeutics is a biotechnology company , developing new innovations in neuromodulators for aesthetic and therapeutic indications . revance 's lead product candidate , daxibotulinumtoxina for injection ( daxi ) , combines a proprietary stabilizing peptide excipient with a highly purified botulinum toxin that does not contain human or animal-based components . we have successfully completed a phase 3 program for daxi in glabellar ( frown ) lines . in november 2019 , we submitted the bla to the u.s. fda for daxi in the treatment of moderate to severe glabellar ( frown ) lines . the fda accepted the bla on february 5 , 2020 , and the pdufa target action date is november 25 , 2020 . if the bla is approved on or by the target action date , we plan to initiate commercialization activities for daxi for the treatment of glabellar lines before the end of 2020. we are also evaluating daxi in upper facial lines - glabellar lines , forehead lines and crow 's feet combined - as well as in three therapeutic indications - cervical dystonia , adult upper limb spasticity and plantar fasciitis , with plans to study migraine . beyond daxi , revance has begun development of a biosimilar to botox® , which would compete in the existing short-acting neuromodulator marketplace . in january 2020 , we entered into the teoxane agreement with teoxane , pursuant to which teoxane granted revance with the exclusive right to import , market , promote , sell and distribute teoxane 's line of rha® dermal fillers . revance is dedicated to making a difference by transforming patient experiences . neuromodulator pipeline daxi aesthetics glabellar lines . in november 2019 , we submitted a bla to the fda for daxi in the treatment of moderate-to-severe glabellar ( frown ) lines . in the phase 3 pivotal program , the median time to loss of none or mild wrinkle severity was 24 weeks and the median time to return to baseline wrinkle severity was approximately 28 weeks . the fda accepted the bla on february 5 , 2020 . if the bla is approved on or by the pdufa target action date , we plan to initiate commercialization activities for daxi for the treatment of glabellar lines before the end of 2020. forehead lines . in january 2019 , we initiated a phase 2 multicenter , open-label , dose-escalation trial to evaluate treatment of moderate or severe dynamic forehead lines ( also known as “ frontalis ” ) in conjunction with treatment of the glabellar complex . the objective is to understand the potential dosing and injection patterns of daxi in other areas of the upper face in addition to the lead indication in glabellar lines . we completed enrollment for the study in july 2019 and we expect to release top-line results in the second quarter of 2020. lateral canthal lines . in march 2019 , we initiated a phase 2 multicenter , open-label , dose-escalation study to evaluate the treatment of moderate or severe lateral canthal lines ( also known as “ crow 's feet ” ) . the objective is to understand the potential dosing of daxi in the lateral canthal area . we completed enrollment for the study in august 2019 and we expect to release top-line results in second quarter of 2020. upper facial lines . in december 2019 , we initiated a new multicenter , open-label phase 2 trial for treatment of the upper facial lines -- glabellar ( frown ) , lateral canthal ( crow 's feet ) , and forehead lines combined -- to understand the safety and efficacy , including potential dosing and injection patterns , of daxi , covering the upper facial lines . we expect to complete enrollment in first quarter of 2020 , with topline results in fourth quarter of 2020. this trial is in addition to the existing open-label phase 2 clinical trials that the company has already fully enrolled in forehead lines and crow 's feet . 67 daxi therapeutics cervical dystonia . in 2018 , we initiated two phase 3 clinical trials for cervical dystonia . aspen-1 phase 3 is a 301-subject , randomized , double-blind , placebo-controlled trial comparing two doses of daxi ( 125 units and 250 units ) to placebo . we completed the aspen-1 phase 3 pivotal trial enrollment in october 2019 and expect to release top-line results in the third quarter of 2020. aspen-ols is a 350-subject , open-label study that includes subjects rolling over from aspen-1 , plus additional newly enrolled subjects . we expect to complete the aspen-ols trial enrollment in the second half of 2020. adult upper limb spasticity . story_separator_special_tag other research and development expenses for the year ended december 31 , 2019 decreased by 13 % , compared to the same period in 2018 , primarily due to the expenses related to the initial development activities from the mylan collaboration , which was completed in february 2019. the level of efforts related to the biosimilar development program in 2020 may depend on mylan 's continuation decision , expected by end of april 2020. stock-based compensation stock-based compensation included in research and development increased by $ 1.0 million , or 14 % , for the year ended december 31 , 2019 compared to the same period in 2018 , primarily due to an increase in employee headcount , offset by an average decrease in the fair value of stock option granted during those periods . general and administrative expenses general and administrative expenses consist primarily the following : pre-activities including market research , public relations , promotion and advertising ; personnel and service costs in our finance , information technology , commercial , investor relations , legal , human resources , and other administrative functions , including stock-based compensation ; and professional fees for accounting and legal services , including legal services associated with obtaining and maintaining patents and litigation . we expect that our general and administrative expenses will increase with the launch of the rha® dermal fillers and the continued development of , and if approved , the commercialization of daxi . 71 our general and administration expenses are summarized as follows : replace_table_token_5_th general and administrative expenses before stock-based compensation general and administrative expenses for the year ended december 31 , 2019 increased by 17 % , compared to the same period in 2018 , primarily due to ramp up in pre-commercial activities , increased personnel in commercial and administrative functions , and costs related to infrastructure build-out . stock-based compensation stock-based compensation included in general and administrative expenses for the year ended december 31 , 2019 increased by $ 0.6 million , or 7 % , compared to the same period in 2018 , primarily due to stock-based award modifications in connection with certain employees ' termination and increased employee headcount , offset by an average decrease in fair value of stock option granted during the period . net non-operating income and expense interest income interest income primarily consists of interest income earned on our deposit , money market fund , and investment balances . we expect interest income to vary each reporting period depending on our average deposit , money market fund , and investment balances during the period and market interest rates . interest expense interest expense primarily consists of the interest charges associated with our financing obligations and capitalized interest . interest expense includes cash and non-cash components with the non-cash components consisting of effective interest recognized on the financing obligations , and interest capitalized for assets constructed for use in operations . change in fair value of derivative liability the derivative liability on our consolidated balance sheet is remeasured to fair value at each balance sheet date with the corresponding gain or loss recorded . we will continue to record adjustments to the fair value of derivative liability until we make the payment . other expense , net other expense , net primarily consists of miscellaneous tax and other expense items . 72 our net non-operating income and expense are summarized as follows : replace_table_token_6_th our total net non-operating income for the year ended december 31 , 2019 increased by $ 2.0 million , compared to the same period in 2018 , primarily due to our higher cash balances available for investment activities and higher net interest rates in 2019. income tax provision since inception , we have incurred net losses and have not recorded any u.s. federal or state income tax and the tax benefits of our operating losses have been fully offset by valuation allowances . there was no provision or benefit from income taxes for the year ended december 31 , 2019 . the tax provision of $ 3.0 million for the year ended december 31 , 2018 was a foreign withholding tax associated with the fosun license agreement . liquidity and capital resources our financial condition is summarized as follows : replace_table_token_7_th sources and uses of cash we hold our cash , cash equivalents , and short-term investments in a variety of non-interest bearing bank accounts and interest-bearing instruments subject to investment guidelines allowing for certain lower-risk holdings such as , but not limited to , money market accounts , u.s. treasury securities , u.s. government and agency securities , overnight purchase agreements , and commercial paper . our investment portfolio is structured to provide for investment maturities and access to cash to fund our anticipated working capital needs . our cash , cash equivalents and short-term investments totaled $ 290.1 million as of december 31 , 2019 compared to $ 175.8 million as of december 31 , 2018 , representing an increase of $ 114.3 million , which was primarily due to the proceeds from issuance of common stock ( net of commissions and discount ) of $ 212.0 million in connection with the 2019 follow-on offerings , the proceeds from issuance of common stock in connection with at-the-market offerings , net of commissions of $ 10.9 million , and the upfront payment ( net of withholding tax ) received under the fosun license agreement of $ 27.0 million , and the incremental payment received from the mylan of $ 5 million . these increases were primarily offset by cash used in other operating activities of $ 138.2 million . 73 we derived the following summary of our consolidated statement of cash flows for the periods indicated from our audited consolidated financial statements included elsewhere in this form 10-k : replace_table_token_8_th cash flows from operating activities our cash used in operating activities is primarily driven by personnel , manufacturing and facility costs , clinical development , and pre-commercial activities .
| results of operations a discussion regarding our financial condition and results of operations for the year ended december 31 , 2019 compared to the same period in 2018 is presented below . for a discussion regarding our financial condition and results of operations for the year ended december 31 , 2018 compared to the same period in 2017 , see part ii , item 7 . “ management 's discussion and analysis of financial condition and results of operations—results of operations ” of our annual report on form 10-k for the year ended december 31 , 2018 , as filed with the sec on february 28 , 2019 ( file no . 001-36297 ) . revenue replace_table_token_3_th our total revenue for the year ended december 31 , 2019 decreased $ 3.3 million or 89 % compared to the same period in 2018 , primarily due to the timing of the initial development activities from the mylan collaboration which was completed in february 2019. operating expenses our operating expenses consist of research and development expenses and general and administrative expenses . the largest component of our operating expenses is our personnel costs including stock-based compensation . we expect our operating expenses to increase in the near term as we prepare to commercialize the teoxane rha® dermal fillers in the u.s. and , if the bla is approved on or before the pdufa target action date , daxi for treatment of glabellar lines , initiate and complete additional clinical trials and associated programs related to daxi for the treatment of facial wrinkles , cervical dystonia , plantar fasciitis , adult upper limb spasticity , and any future new indications , and our biosimilar product candidate . research and development expenses we recognize research and development expenses as they are incurred . since our inception , we have focused on our clinical development programs and the related research and development .
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long-term equity-based awards – performance-based restricted stock units ( “ rsus ” ) a story_separator_special_tag this section of this annual report on form 10-k generally discusses 2020 and 2019 items and year-to-year comparisons between 2020 and 2019. discussions of 2018 items and year-to-year comparisons between 2019 and 2018 that are not included in this annual report 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 fiscal year ended december 31 , 2019. overview capstead operates as a self-managed reit earning income from investing in a leveraged portfolio of residential mortgage pass-through securities primarily consisting of relatively short-duration arm agency securities , which reset to more current interest rates within a relatively short period of time and are considered to have limited , if any , credit risk . by investing primarily in arm agency securities , the company is positioned to benefit from future recoveries in financing spreads that typically contract during periods of rising interest rates and to experience smaller fluctuations in portfolio values compared to leveraged portfolios containing a significant amount of fixed-rate mortgage securities . capstead reported for gaap purposes a net loss of $ 130 million or $ ( 1.56 ) per diluted common share in 2020 , compared to a 2019 net loss of $ 35 million or $ ( 0.62 ) per diluted common share . the company reported core earnings of $ 81 million or $ 0.64 per diluted common share for the year ended december 31 , 2020 , compared to 2019 core earnings of $ 64 million or $ 0.50 per diluted common share . see “ reconciliation of gaap and non-gaap financial measures ” for more information on core earnings . the gaap net loss in 2020 includes $ 160 million in losses on hedging-related derivatives primarily related to declining interest rates and $ 68 million in losses on the sale of $ 2.62 billion ( basis ) in arm securities late in the first quarter . these sales , together with not fully replacing portfolio runoff during the year helped ensure the company had sufficient flexibility to meet projected liquidity requirements while maintaining portfolio leverage at comfortable levels given disruptions experienced in the fixed income markets brought on by the covid-19 pandemic . both gaap and core earnings in 2020 were positively impacted by lower secured borrowings rates primarily due to a total of 150 basis points in reductions in the fed funds rate in march and favorable terms on new interest rate swap agreements entered into throughout the year . however , historically low interest rates have led to exceedingly high prepayment speeds across all mortgage products which negatively impacted both gaap and core earnings in 2020. the company expects prepayment speeds will remain elevated in 2021. capstead finances its residential mortgage investments by leveraging its long-term investment capital with secured borrowings consisting primarily of borrowings under repurchase arrangements with commercial banks and other financial institutions . long-term investment capital totaled $ 1.01 billion at december 31 , 2020 , consisting of $ 659 million of common and $ 251 million of preferred stockholders ' equity together with $ 98 million of unsecured borrowings maturing in 2035 and 2036. capstead 's residential mortgage investments decreased $ 3.28 billion to $ 7.94 billion at december 31 , 2020. secured borrowings decreased $ 2.96 billion to $ 7.32 billion as a result of lower portfolio balances . portfolio leverage ( secured borrowings divided by long-term investment capital ) decreased to 7.26 to one at december 31 , 2020 from 8.77 to one at december 31 , 2019. management continuously evaluates portfolio leverage levels in light of changes to market conditions . 15 covid-19 pandemic an unprecedented , near-total shutdown of the u.s. economy beginning in march due to the covid-19 pandemic heightened fears of extremely high credit default levels and recession , leading to de-risking occurring at all levels of the fixed income markets . credit asset pricing came under severe pressure destabilizing fixed income markets and leading to lender margin calls , feeding additional selling as levered and even unlevered investors across the spectrum were forced to sell their most liquid positions to raise cash to meet additional margin calls and or fund redemptions . investors were already coming under stress due to declining treasury rates which led to losses on derivatives held for hedging purposes and variation ( valuation-based ) margin calls . as the crisis deepened this additional drain on liquidity became more pronounced and included increased initial ( base haircut ) margin requirements for derivatives due to heightened market volatility . the result was sharply falling asset prices even as market interest rates declined . during this period of extreme volatility , the company sold a portion of its portfolio late in march and reduced its swap positions in order to ensure it had sufficient flexibility to meet future projected liquidity requirements while maintaining portfolio leverage at comfortable levels . intervention by the federal reserve beginning in late march in the form of the buying of fixed-rate agency securities helped stabilize this key market sector leading to improved pricing levels for fixed-rate agency securities . while the federal reserve has not purchased arm agency securities specifically , these actions contributed to improved pricing levels for mortgage assets in general and a more stable operating environment for capstead . the company met all of its funding requirements during the year . at december 31 , 2020 , the company 's potential liquidity was $ 524 million and it believes it has ample access to necessary financing through its existing lending counterparties to meet its liquidity needs . see “ utilization of long-term investment capital and potential liquidity ” for further discussion . the company continues to operate portions of its business continuity plan in response to the pandemic and has not experienced any operational disruption due to its small number of employees who are all able to work remotely . story_separator_special_tag ( c ) gross wac is the weighted average interest rate of the mortgage loans underlying the indicated investments , including servicing and other fees paid by borrowers , as of the indicated date . arm securities held by capstead are backed by mortgage loans that have coupon interest rates that adjust at least annually to more current interest rates or begin doing so after an initial fixed-rate period . these coupon interest rate adjustments are usually subject to periodic and lifetime limits , or caps , on the amount of such adjustments during any single interest rate adjustment period and over the contractual term of the underlying loans . after the initial fixed-rate period , if applicable , the coupon interest rates of mortgage loans underlying the company 's arm securities typically adjust either ( a ) annually based on specified margins over the one-year london interbank offered rate ( “ libor ” ) or the one-year constant maturity u.s. treasury note rate ( “ cmt ” ) , ( b ) semiannually based on specified margins over six-month libor , or ( c ) monthly based on specified margins over indices such as one-month libor , the eleventh district federal reserve bank cost of funds index , or over a rolling twelve month average of the one-year cmt index . fannie mae and freddie mac began accepting arm loans based on the secured overnight financing rate ( “ sofr ” ) in august 2020 and stopped accepting libor-based arm loans after december 2020 due to the scheduled discontinuation of libor in december 2021. the company expects to continue investing in agency arm securities backed by a variety of indices including new sofr-based arm securities . 18 approximately 22 % of the company 's current-reset arm securities are scheduled to reset in rate within three months , 33 % are scheduled to reset in rate between four and six months , and 40 % are scheduled to reset in rate between seven and 12 months . approximately 1 8 % , or $ 490 million of the company 's current-reset arm securities with average net wacs of 2 . 7 2 % and fully-indexed wacs of 1.97 % will reset in rate for the first time in less than 18 months based on indices in effect at december 31 , 20 20 . after consideration of any applicable initial fixed-rate periods , at december 31 , 20 20 approximately 9 0 % , 5 % and 3 % of the company 's arm securities were backed by mortgage loans that reset annually , semi-annually and monthly , respectively , while approximately 2 % reset every five years . at december 31 , 20 20 approximately 2 % of the company 's portfolio w as backed by interest-only loans , with remaining interest-only payment periods averaging 11 months . all percentages are based on averages of the characteristics of mortgage loans underlying each security and calculated using unpaid principal balances as of the indicated date . secured borrowings and related derivatives capstead finances its residential mortgage investments by leveraging its long-term investment capital primarily with borrowings under repurchase arrangements with commercial banks and other financial institutions . the company maintains the beneficial interest in the specific securities pledged during the term of each repurchase arrangement and receives the related principal and interest payments . the terms and conditions of secured borrowings are negotiated on a transaction-by-transaction basis when each such borrowing is initiated or renewed . none of the company 's counterparties are obligated to renew or otherwise enter into new borrowings at the conclusion of existing borrowings . collateral requirements in excess of amounts borrowed ( referred to as “ haircuts ” ) averaged 4.4 percent of the fair value of pledged residential mortgage pass-through securities at december 31 , 2020. after considering haircuts and related interest receivable on the collateral , as well as interest payable on these borrowings , the company had $ 410 million of capital at risk with its lending counterparties at december 31 , 2020. the company did not have capital at risk with any single counterparty exceeding 6 % of total stockholders ' equity at december 31 , 2020. secured borrowing rates are generally fixed based on prevailing rates corresponding to the terms of the borrowings . interest may be paid monthly or at the termination of a borrowing at which time the company may enter into a new borrowing at prevailing haircuts and rates with the same counterparty or repay that counterparty and negotiate financing with a different counterparty . when the fair value of pledged securities declines due to changes in market conditions or the publishing of monthly security pay-down factors , lenders typically require the company to post additional securities as collateral , pay down borrowings or fund cash margin accounts with the counterparties in order to re-establish the agreed-upon collateral requirements , referred to as margin calls . conversely , if collateral fair values increase , lenders are required to release collateral back to the company pursuant to company-issued margin calls . as of december 31 , 2020 , the company 's secured borrowings totaled $ 7.32 billion with 19 counterparties at average rates of 0.21 % , before the effects of currently-paying interest rate swap agreements . the company typically uses two- and three-year term interest rate swap agreements with variable rate receipts primarily based on sofr ( previously libor ) or fed funds to help mitigate exposure to rising short-term interest rates . during 2020 , the company took advantage of declining market rates to replace $ 9.4 billion of longer-term swaps with new two- and three-year contracts at significantly lower rates to the benefit of future earnings . at year-end the company held $ 2.97 billion notional amount of portfolio financing-related interest rate swap agreements at fixed rates averaging 0.04 % , with contract expirations occurring at various dates through the fourth quarter of 2023 and a weighted average expiration of 22 months .
| results of operations replace_table_token_8_th ( a ) see “ reconciliation of gaap and non-gaap financial measures ” for a reconciliation of these financial measures and the company 's rationale for using these non-gaap financial measures . ( b ) to better compare the components of financing spreads on residential mortgage investments with prior periods , secured borrowing rates exclude the effects of amortization of the net unrealized gains and losses included in accumulated other comprehensive income ( loss ) upon de-designation on march 1 , 2019 of related derivatives held for hedging purpose of 0.00 % and ( 0.14 ) % , and include net interest cash flows from that date on non-designated derivatives of ( 0.20 ) % and 0.21 % during 2020 and 2019 , respectively . ( c ) calculated using core earnings less preferred dividends on an annualized basis over average common equity for the period . 24 20 20 compared to 201 9 capstead reported for gaap purposes a net loss of $ 130 million or $ ( 1.56 ) per diluted common share during 2020. this compares to a net loss of $ 35 million or $ ( 0.62 ) per diluted common share for 2019. gaap net loss was negatively affected during 2020 primarily by losses on hedging-related derivatives of $ 160 million due largely to lower prevailing interest rates and losses on sales of investments of $ 68 million due to covid-19 pandemic related disruptions to the fixed income markets . capstead 's core earnings , a non-gaap financial measure , totaled $ 81 million or $ 0.64 per diluted common share during 2020 , compared to core earnings of $ 64 million or $ 0.50 per diluted common share for 2019. core earnings in 2020 benefited from lower borrowing rates while being hampered by lower yields on residential mortgage investments and lower average portfolio balances following asset sales in response to the covid-19 pandemic in late march .
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in general , the continuing equity owners ' rights under the tax receivable agreement are assignable , including to transferees of common units in fah , llc ( other than the company as transferee pursuant to a redemption or exchange of common units in story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our audited consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. this discussion and analysis contains forward-looking statements based upon current plans , expectations and beliefs involving risks and uncertainties . our actual results may differ materially from those anticipated in these forward-looking statements as a result of various important factors , including those set forth under “ risk factors ” included in this annual report on form 10-k. our results of operations for the year ended december 31 , 2018 , including a discussion of the year ended december 31 , 2019 compared to the year ended december 31 , 2018 , have been reported previously under `` management 's discussion and analysis of financial condition and results of operations '' in our annual report on form 10-k for the year ended december 31 , 2019. overview we are a leading pop culture consumer products company . our business is built on the principle that almost everyone is a fan of something and the evolution of pop culture is leading to increasing opportunities for fan loyalty . we create whimsical , fun and unique products that enable fans to express their affinity for their favorite “ something ” —whether it is a movie , tv show , video game , musician or sports team . we infuse our distinct designs and aesthetic sensibility into one of the industry 's largest portfolios of licensed content over a wide variety of product categories , including figures , plush , accessories , apparel and homewares . key performance indicators we consider the following metrics to be key performance indicators to evaluate our business , develop financial forecasts , and make strategic decisions . replace_table_token_4_th ( 1 ) earnings before interest , taxes , depreciation and amortization ( “ ebitda ” ) and adjusted ebitda are financial measures not calculated in accordance with u.s. gaap . for a reconciliation of ebitda and adjusted ebitda to net income , the most closely comparable u.s. gaap financial measure , see “ non-gaap financial measures ” in this item . factors affecting our business growth in the market for pop culture consumer products our operating results and prospects will be impacted by developments in the market for pop culture consumer products . our business has benefitted from pop culture trends including ( 1 ) technological innovation that has facilitated content consumption and engagement , ( 2 ) creation of more quality content , ( 3 ) greater cultural prevalence and acceptance of pop culture fandom and ( 4 ) increased engagement by fans with pop culture content beyond mere consumption driven by social media and demonstrated by fan-centric experiences , such as comic-con events around the world . these trends have contributed to significant growth in the demand for pop culture products like ours in recent years ; however , consumer demand for pop culture products and pop culture trends can and does shift rapidly and without warning . to the extent we are unable to offer products that appeal to consumers , our operating results will be adversely affected . this is particularly true given the concentration of our sales of products under certain of our brands , particularly our pop ! brand , which represented approximately 76 % and 79 % of our sales for the years ended december 31 , 2020 and 2019 , respectively , and which is sold across multiple product categories . 58 relationships with content providers we generate a majority of our net sales from products based on intellectual property we license from others . we have strong relationships with many established content providers and seek to establish licensing relationships with newer content providers . our content provider relationships are highly diversified , allowing us to license a wide array of properties and thereby reduce our exposure to any individual property or license . we believe there is a trend of content providers consolidating their relationships to do more business with fewer licensees . we believe our ability to help maximize the value and extend the relevance of our content providers ' properties has allowed us to benefit from this trend . although we have a successful track record of renewing and extending the scope of licenses , our license agreements typically have short terms ( between two and three years ) , are not automatically renewable , and , in some cases , give the licensor the right to terminate the license agreement at will . in addition , the efforts of our senior management team have been integral to our relationships with our licensors . inability to license newer pop culture properties , the termination or lack of renewal of one or more of our license agreements , or the renewal of a license agreement on less favorable terms , could adversely affect our business . retail industry dynamics ; relationships with retail customers historically , substantially all of our sales have been derived from our retail customers and distributors , upon which we rely to reach the consumers who are the ultimate purchasers of our products . our top ten customers represented approximately 48 % and 44 % of our sales for the years ended december 31 , 2020 and 2019 , respectively . during the year ended december 31 , 2020 , we saw shifts in our client mix as a direct result of the covid-19 pandemic and the related retail shutdowns and limited store occupancy upon reopening . we depend on retailers to provide adequate and attractive space for our products and point of purchase displays in their stores . story_separator_special_tag in recent years , we have worked to improve the efficiency of our supply chain to improve our gross margins . our product costs and gross margins will be impacted from period to period based on the product mix in any given period . our loungefly branded products tend to have a higher product cost and higher duties as a percentage of sales and therefore lower gross margins than our pop ! branded products . our royalty costs and gross margins will also be impacted from period to period based on our mix of licensed products sold , as well as a variety of other factors including reserves for minimum guarantees and ongoing and future royalty audits . 60 our shipping costs , both inbound and outbound , will fluctuate from period to period based on customer mix due to varying shipping terms and other factors . selling , general and administrative expenses selling , general and administrative expenses are primarily driven by wages , commissions and benefits , warehouse , fulfillment ( internal and external ) , rent and facilities costs , infrastructure and technology costs , advertising and marketing expenses , including the costs to participate at specialty licensing and comic book conventions and exhibitions , as well as costs to develop promotional video and other online content created for advertising purposes . credit card fees , insurance , legal expenses , other professional expenses and other miscellaneous operating costs are also included in selling , general and administrative expenses . selling costs generally correlate to revenue timing and therefore experience similar moderate seasonal trends . we expect general and administrative costs to increase as our business evolves . we have invested considerably in general and administrative costs to support the growth and anticipated growth of our business and anticipate continuing to do so in the future . since our ipo , we have experienced a significant increase in accounting , legal and professional fees associated with being a public company as further described above under “ —factors affecting our business—taxation and expenses. ” depreciation and amortization depreciation expense is recognized on a straight-line basis over the estimated useful lives of our property and equipment . amortization relates to definite-lived intangible assets that are expensed on a straight-line basis over the estimated useful lives . our intangible assets , which are being amortized over a range of two to 20 years , are mainly comprised of trade names , customer relationships and intellectual property we recognized as part of the acon acquisition and , to a lesser extent , the 2017 acquisition of underground toys , the 2017 acquisition of loungefly and the 2019 acquisition of forrest-pruzan . interest expense , net interest expense , net includes the cost of our short-term borrowings and long-term debt , including the amortization of debt issuance costs and original issue discounts , net of any interest income earned . 61 story_separator_special_tag 63 non-gaap financial measures ebitda , adjusted ebitda , adjusted net income and adjusted earnings per diluted share ( collectively the “ non-gaap financial measures ” ) are supplemental measures of our performance that are not required by , or presented in accordance with , u.s. gaap . the non-gaap financial measures are not measurements of our financial performance under u.s. gaap and should not be considered as an alternative to net income , earnings per share or any other performance measure derived in accordance with u.s. gaap . we define ebitda as net income before interest expense , net , income tax expense , depreciation and amortization . we define adjusted ebitda as ebitda further adjusted for non-cash charges related to equity-based compensation programs , acquisition transaction costs and other expenses , customs investigation and related costs , certain severance , relocation and related costs , foreign currency transaction gains and losses , tax receivable agreement liability adjustments , the one-time inventory write-down and other unusual or one-time items . we define adjusted net income as net income attributable to funko , inc. adjusted for the reallocation of income attributable to non-controlling interests from the assumed exchange of all outstanding common units and options in fah , llc for newly issued-shares of class a common stock of funko , inc. and further adjusted for the impact of certain non-cash charges and other items that we do not consider in our evaluation of ongoing operating performance . these items include , among other things , reallocation of net income attributable to non-controlling interests , non-cash charges related to equity-based compensation programs , acquisition transaction costs and other expenses , customs investigation and related costs , certain severance , relocation and related costs , foreign currency transaction gains and losses , tax receivable agreement liability adjustments , the one-time inventory write-down and other unusual or one-time items , and the income tax expense effect of these adjustments . we define adjusted earnings per diluted share as adjusted net income divided by the weighted-average shares of class a common stock outstanding , assuming ( 1 ) the full exchange of all outstanding common units and options in fah , llc for newly issued-shares of class a common stock of funko , inc. and ( 2 ) the dilutive effect of stock options and unvested common units , if any . we caution investors that amounts presented in accordance with our definitions of the non-gaap financial measures may not be comparable to similar measures disclosed by our competitors , because not all companies and analysts calculate the non-gaap financial measures in the same manner . we present the non-gaap financial measures because we consider them to be important supplemental measures of our performance and believe they are frequently used by securities analysts , investors , and other interested parties in the evaluation of companies in our industry . management believes that investors ' understanding of our performance is enhanced by including these non-gaap financial measures as a reasonable basis for comparing our ongoing results of operations .
| results of operations year ended december 31 , 2020 compared to year ended december 31 , 2019 the following table sets forth information comparing the components of net income for the years ended december 31 , 2020 and 2019 : replace_table_token_5_th net sales net sales were $ 652.5 million for the year ended december 31 , 2020 , a decrease of 17.9 % compared to $ 795.1 million for the year ended december 31 , 2019. the decrease in net sales was due primarily to the impacts from the covid-19 pandemic , including reduced shipments to our specialty retailer and distributor customers as limited in-store occupancy and social distancing guidelines or non-essential business closures were in effect for a majority of the year ended december 31 , 2020. these decreases were partially offset by growth in our net sales to e-commerce sites and our own direct-to-consumer channels . in the year ended december 31 , 2020 , the number of active properties increased 6.2 % to 854 from 804 in the year ended december 31 , 2019 , and average net sales per active property decreased 22.7 % to $ 0.8 million in the year ended december 31 , 2020 from $ 1.0 million in the year ended december 31 , 2019. while we expect to see growth in the number of active properties over time , we expect that the average sales per active property will fluctuate from year to year or quarter to quarter based on what is relevant in pop culture at that time and the types of properties we are producing against .
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the notes bear an annual interest rate of 3.90 % and interest is payable semiannually on may 15 and november 15. the effective interest rate on these notes , including the amortization of debt issuance costs and discount , is 4.01 % . along with cash on hand , we used the proceeds to fund the early extinguishment of $ 750 million aggregate principal amount of 5.875 % notes whose original maturity date was may 1 , 2022 . during the year ended december 31 , 2017 , we recognized story_separator_special_tag the following discussion and analysis should be read in conjunction with our consolidated financial statements included in item 8 of this report and also with risk factors in item 1a of this report . this discussion also includes forward-looking statements . refer to cautionary information about forward-looking statements in part i of this report for important information about these types of statements . discussion and analysis regarding 2019 and 2018 is provided below . for discussion and analysis regarding 2017 , see management 's discussion and analysis of financial condition and results of operations in our annual report on form 10-k for the year ended december 31 , 2018 as previously filed with the sec . overview cimarex is an independent oil and gas exploration and production company . our operations are entirely located in the united states , mainly in texas , new mexico , and oklahoma . currently our operations are focused in two main areas : the permian basin and the mid-continent . our permian basin region encompasses west texas and southeast new mexico . our mid-continent region consists of oklahoma and the texas panhandle . our principal business objective is to increase shareholder value through the profitable long-term growth of our proved reserves and production while seeking to minimize our impact on the communities in which we operate for the long-term . our strategy centers on maximizing cash flow from producing properties so that we can reinvest in exploration and development opportunities and provide cash returns to shareholders through dividends . we consider merger and acquisition opportunities that enhance our competitive position and we occasionally divest non-strategic assets . on march 1 , 2019 , we completed the acquisition of resolute energy corporation ( “ resolute ” ) , an independent oil and gas company focused on the acquisition and development of unconventional oil and gas properties in the delaware basin area of the permian basin of west texas . the principal factors considered by management in making 38 this acquisition included : ( i ) our expectation that resolute 's assets ' attractive returns are competitive with those in our existing portfolio , ( ii ) the opportunity to apply our experience and learnings from already operating in this area to generating productivity gains from resolute 's properties , ( iii ) the ability to increase our acreage position in the delaware basin , and ( iv ) the expectation that the acquisition will be financially accretive . the acquisition date fair value of the consideration transferred totaled $ 820.3 million , which consisted of cash , common stock , and preferred stock ( see note 13 to the consolidated financial statements for more information on the acquisition ) . we believe that detailed technical analysis , operational focus , and a disciplined capital investment process mitigate risk and position us to continue to achieve profitable increases in proved reserves and production . our drilling inventory and limited long-term commitments provide the flexibility to respond quickly to industry volatility . our investments are generally funded with cash flow provided by operating activities together with cash on hand , bank borrowings , sales of non-strategic assets , and , from time to time , public financing based on our monitoring of capital markets and our balance sheet . market conditions the oil and gas industry is cyclical and commodity prices can fluctuate significantly . we expect this volatility to persist . commodity prices are affected by many factors outside of our control , including changes in market supply and demand , inventory storage levels , weather conditions , and other factors . local market prices for oil and gas can be impacted by pipeline capacity constraints limiting takeaway and increasing basis differentials . as demonstrated in the table below , our company-wide average realized prices for 2019 as compared to 2018 have declined for all products . in the case of oil sales , these decreases result from a combination of declining nymex prices , partially offset by improving differentials . in the case of gas sales , these decreases are driven by declining nymex prices and widening differentials . replace_table_token_16_th 39 the average price differentials that we realized in our two primary areas of operation are shown in the table below for the periods indicated . replace_table_token_17_th pipeline expansion projects in the permian basin are expected to ease capacity constraints as they come online over the next few years , which is reflected in the current futures markets that show narrowing differentials . however , if pipeline constraints remain because expansion projects are delayed or canceled , production increases faster than capacity increases , pipeline disruptions , or other reasons , higher differentials will persist or potentially worsen . our revenue , profitability , and future growth are highly dependent on the prices we receive for our oil and gas production and can be adversely affected by realized price decreases . see results of operations revenues below for further information regarding our realized commodity prices . 40 summary of operating and financial results for the year ended december 31 , 2019 as compared to the year ended december 31 , 2018 completed the acquisition of resolute energy corporation . resolute 's results are included in our financial statements since the march 1 , 2019 closing date . total daily production volumes increased 25 % to 278.5 mboe per day . oil volumes increased 27 % to 86.2 mbbls per day . gas volumes increased 22 % to 689.2 mmcf per day . story_separator_special_tag the following table shows our operating costs and expenses for the years indicated and a discussion of year-over-year differences follows . replace_table_token_23_th ( 1 ) in order to conform with the 2019 presentation , the 2018 amount presented reflects the reclassification of certain gas gathering and other expenses to transportation , processing , and other operating expenses and production expense . these reclassifications were made to reflect an allocation of the costs incurred to operate our gas gathering facilities as a cost to transport our equity share of gas produced and operate our wells . see note 1 to the consolidated financial statements for further information regarding these prior year reclassifications . 44 impairment of oil and gas properties we use the full cost method of accounting for our oil and gas operations . under this method , we are required to perform quarterly ceiling test calculations to test our oil and gas properties for possible impairment . if the net capitalized cost of our oil and gas properties , as adjusted for income taxes , exceeds the ceiling limitation , the excess is charged to expense . the ceiling limitation is equal to the sum of : ( i ) the present value discounted at 10 % of estimated future net revenues from proved reserves , ( ii ) the cost of properties not being amortized , and ( iii ) the lower of cost or estimated fair value of unproven properties included in the costs being amortized , as adjusted for income taxes . we currently do not have any unproven properties that are being amortized . estimated future net revenues are determined based on trailing twelve-month average commodity prices and estimated proved reserve quantities , operating costs , and capital expenditures . the quarterly ceiling test is primarily impacted by commodity prices , changes in estimated reserve quantities , reserves produced , overall exploration and development costs , depletion expense , and deferred taxes . if pricing conditions decline , or if there is a negative impact on one or more of the other components of the calculation , we may incur a full cost ceiling test impairment . the calculated ceiling limitation is not intended to be indicative of the fair market value of our proved reserves or future results . impairment charges do not affect cash flow from operating activities , but do adversely affect our net income and various components of our balance sheet . any impairment of oil and gas properties is not reversible at a later date . during 2019 , we recognized a ceiling test impairment of $ 618.7 million . the impairment resulted primarily from the impact of decreases in the 12-month average trailing prices for oil , natural gas , and ngls as well as significant basis differentials utilized in determining the estimated future net cash flows from proved reserves . it is likely that we will incur another ceiling test impairment in the first quarter 2020 and we may recognize additional ceiling test impairments in the future . depreciation , depletion , and amortization depletion of our producing properties is computed using the units-of-production method . the economic life of each producing well depends upon the estimated proved reserves for that well , which in turn depend upon the assumed realized sales price for future production . therefore , fluctuations in oil and gas prices will impact the level of proved reserves used in the calculation . higher prices generally have the effect of increasing reserves , which reduces depletion expense . conversely , lower prices generally have the effect of decreasing reserves , which increases depletion expense . the cost of replacing production also impacts our depletion expense . in addition , changes in estimates of reserve quantities , estimates of operating and future development costs , reclassifications of properties from unproved to proved , and impairments of oil and gas properties will also impact depletion expense . our net proved properties , production , and reserves have increased during 2019 as compared to 2018 due to our ongoing exploration and development activities as well as due to our acquisition of resolute . the increase in net properties and production resulted in an overall increase in depletion expense , while the increase in reserves partially offset the increased expense . 45 fixed assets consist primarily of gathering and plant facilities , vehicles , airplanes , office furniture , and computer equipment and software . these items are recorded at cost and are depreciated on the straight-line method based on expected lives of the individual assets , which range from 3 to 30 years . additionally , with the adoption of topic 842 , we depreciate our right-of-use assets , with the depreciation of our finance lease gathering system right-of-use asset being included in our depreciation expense . the increase in depreciation expense during 2019 as compared to 2018 is primarily due to : ( i ) increased depreciation on our gathering and plant facilities due to ongoing expenditures on this infrastructure and ( ii ) the depreciation on our gathering system right-of-use asset . depreciation , depletion , and amortization ( “ dd & a ” ) consisted of the following for the periods indicated : replace_table_token_24_th asset retirement obligation asset retirement obligation expense is typically primarily comprised of accretion expense . in periods subsequent to the initial measurement of an asset retirement obligation liability at present value , a period-to-period increase in the carrying amount of the liability is recognized as accretion expense , which represents the effect of the passage of time on the amount of the liability . an equivalent amount is added to the carrying amount of the liability . also included in asset retirement obligation expense are gains and losses recognized on the settlement of asset retirement obligation liabilities . production production expense generally consists of costs for labor , equipment , maintenance , saltwater disposal , compression , power , treating , and miscellaneous other costs ( lease operating expense ) .
| results of operations above for more information regarding the changes in revenue and operating expenses . net cash used by investing activities was $ 1.58 billion and $ 1.09 billion in 2019 and 2018 , respectively . the majority of our cash flows used by investing activities are for oil and gas capital expenditures , which , as reflected in the statements of cash flows , were $ 1.25 billion and $ 1.57 billion in 2019 and 2018 , respectively . net cash used by investing activities in 2019 included the $ 325.7 million cash portion of the consideration paid for the resolute acquisition , net of the $ 41.2 million in cash acquired with resolute . net cash used by investing activities in 2018 included $ 534.6 million in net cash proceeds from the sale of oil and gas properties principally located in ward county , texas . net cash proceeds from other asset sales in 2019 and 2018 totaled $ 30.0 million and $ 49.9 million , respectively . these asset sales are primarily for the divestiture of non-strategic oil and gas properties . our other capital expenditures , which are primarily for our midstream assets , were $ 73.7 million and $ 103.5 million in 2019 and 2018 , respectively . net cash used by financing activities was $ 472.0 million and $ 65.2 million in 2019 and 2018 , respectively . during 2019 , we issued $ 500 million aggregate principal amount of 4.375 % senior unsecured notes due march 15 , 2029 at 99.862 % of par for proceeds of $ 499.3 million , paying $ 4.6 million in underwriting fees and financing costs . additionally , we borrowed and repaid an aggregate of $ 2.12 billion on our credit facility during 2019 to assist in funding the resolute acquisition and thereafter to meet cash requirements as needed .
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( 3 ) rent figure is reflective of aggregate rent among all tenants occupying the building . ( 4 ) tenants occupying these properties are subject to a gross lease . the largest tenant in this property occupies 61,306 square feet . ( 5 ) the canton story_separator_special_tag the following analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the notes thereto contained elsewhere in this form 10-k. general we are an externally-advised real estate investment trust , or reit , that was incorporated under the general corporation law of the state of maryland on february 14 , 2003 , primarily for the purpose of investing in and owning net leased industrial , commercial and retail real property and selectively making long-term industrial and commercial mortgage loans . our portfolio of real estate is leased to a wide cross section of tenants ranging from small businesses to large public companies , many of which are corporations that do not have publicly-rated debt . we have historically entered into , and intend in the future to enter into , purchase agreements for real estate having triple net leases with terms of approximately 10 to 15 years and built in rental rate increases . under a triple net lease , the tenant is required to pay all operating , maintenance and insurance costs and real estate taxes with respect to the leased property . we actively communicate with buyout funds , real estate brokers and other third parties to locate properties for potential acquisition or to provide mortgage financing in an effort to build our portfolio . we currently own 96 properties totaling 10.6 million square feet , which have a total gross and net carrying value , including intangible assets , of $ 861.3 million and $ 729.2 million , respectively . we also currently have one mortgage loan receivable outstanding for $ 5.6 million . business environment the strength of the global economy and the u.s. economy in particular , continues to be uncertain and volatile , and we remain cautious about a long-term economic recovery . vacancy rates have decreased for both office and industrial properties in many markets as increased user demand with restrained new construction activity has led to improved conditions . however , vacancy rates in certain markets are still higher than pre-recessionary levels , as job growth has yet to return to all areas of the country even though the national unemployment rate has dropped over the past 12 months . interest rates have decreased since the beginning of the year , and remain at historic lows . this continued low interest rate environment is leading to increasing competition for new acquisitions . in addition , the uncertainty surrounding the ability of the federal government to address its fiscal condition in both the near and long term has increased domestic and global economic instability . these developments and the government 's credit concerns in general , could cause interest rates and borrowing costs to rise , which may negatively impact our ability to access both the debt and equity markets on favorable terms . in addition , a further decrease to the u.s. credit rating could create broader financial turmoil and uncertainty , which may weigh heavily on our stock price . continued adverse economic conditions could have a material adverse effect on one or more of our tenants , or our business , financial condition and results of operations . we continue to focus on re-leasing vacant space , renewing upcoming lease maturities and acquiring additional properties . we now only have one fully vacant building located in baytown , texas and one partially vacant building located in bolingbrook , illinois . our baytown , texas tenant vacated upon their lease termination in april 2013 , and our bolingbrook , illinois tenant vacated upon their lease termination in december 2014. we have identified a partial space user for our bolingbrook , illinois property , which took occupancy in december 2014. we originally had 12 leases expiring in 2015 , and we have successfully extended the leases for 7 of these tenants , one in negotiation with the tenant , and one in which we are negotiating to sell the property to a subtenant . we have been notified that 3 tenants will leave . we are aggressively pursuing new tenants for these properties . the 3 leases , where we know the tenants are vacating , comprise less than 3 % of our projected 2015 rental income , and 50 % of this income does not expire until december 2015. while we originally had 12 leases rolling in 2015 , we only have 4 leases expiring in 2016 , 4 in 2017 and 1 in 2018 , which are each less than 2 % of annualized rents for each respective year . our available vacant space at december 31 , 2014 comprises less than 1.0 % of our total square footage and the annual carrying costs are approximately $ 0.3 million . we continue to actively seek new tenants for these properties . 43 our ability to make new investments is highly dependent upon our ability to procure external financing . our principal sources of external financing generally include the issuance of equity securities , long-term mortgage loans secured by properties and borrowings under our line of credit , or the line of credit . the market for long-term mortgages continues to improve and long-term mortgages are readily obtainable . the collateralized mortgage backed securities , or cmbs , market remains active but it is more conservative and restrictive than it was prior to the recession and uncertainty with regard to interest rates has made the cmbs market less predictable . we continue to look to regional banks , insurance companies and other non-bank lenders , in addition to the cmbs market to issue mortgages to finance our real estate activities . story_separator_special_tag we funded this acquisition with existing cash on hand as well as the issuance of $ 6.1 million of mortgage debt on the property . there are 7 tenants in this property , the largest of which occupies 71 % of the space and has 11.5 years remaining on the lease . this tenant has 2 options to renew the lease for an additional 5 years each . the remaining tenants are occupying between 1,427 and 7,639 square feet in their respective suites , with lease terms expiring from december 2015 through october 2018. six out of seven leases provide for prescribed rent escalations over the life of the respective leases , with annualized straight line gross rents for all leases of $ 1.5 million . denver , colorado : on october 31 , 2014 , we acquired a 189,120 square foot building located in denver , colorado , for $ 10.0 million , excluding related acquisition expenses of $ 0.1 million . we funded this acquisition with existing cash on hand . the tenant has leased the property for 10 years and has 2 options to renew the lease for an additional 10 years each . the lease provides for prescribed rent escalations over the life of the lease , with annualized straight line rents of $ 0.9 million . monroe , michigan : on december 23 , 2014 , we acquired two industrial buildings , totaling 535,500 square feet , located in monroe , michigan for a total of $ 30.8 million , excluding related acquisition expenses of $ 0.07 million . we funded these acquisitions with existing cash on hand as well as the issuance of $ 18.5 million of mortgage debt on the properties . the same tenant has leased both properties for 8.5 years and has 2 options to renew the leases for additional periods of 5 years each . the leases provide for prescribed rent escalations over the life of the leases , with annualized straight line rents of $ 2.5 million . 2014 sale activity sterling heights , michigan : on june 6 , 2014 , we completed the sale of our sterling heights , michigan property for $ 11.4 million and recognized a gain on sale of $ 1.2 million . we considered this industrial asset to be non-core to our long term strategy , and we re-deployed the proceeds from this sale into new acquisitions described above . 2014 disposal activity roseville , minnesota : on november 12 , 2014 , we completed a deed-in-lieu transaction on our roseville , minnesota property , where we returned the property to the lender in exchange for cancellation of obligations under our debt agreement with the lender . we recorded an impairment charge on this property for $ 14.2 million reducing the fair value to $ 10.0 million . when the lender accepted the deed-in-lieu of the outstanding mortgage , and released us from our obligation , we recorded a gain on debt extinguishment of $ 5.3 million . 45 2014 financing activity the following is a summary of our recent financings : wells fargo : on march 27 , 2014 , through two wholly-owned subsidiaries , we assumed $ 6.3 million pursuant to a long-term note payable from wells fargo , which is collateralized by a security interest in two of our properties . the note accrues interest at a fixed rate of 5.583 % per year and the note has a maturity date of february 2016. we assumed the note in connection with the acquisition of the two properties located in allen and colleyville , texas . keybank line of credit : on march 28 , 2014 , we amended our line of credit to extend the maturity date one additional year to august 2017. we also modified certain terms under the line of credit , including the calculation of the total asset value and unencumbered asset value . the applicable london interbank offered rate , or libor , margins were also reduced by 25 basis points at each pricing level . as a result of these modifications , the availability under our line of credit increased by $ 1.3 million . in addition , on november 20 , 2014 , we expanded our line of credit from $ 60.0 million to $ 75.0 million and also increased the maximum commitment by $ 25.0 million to $ 100.0 million . keybank : on april 22 , 2014 , through a wholly-owned subsidiary , we borrowed $ 4.9 million pursuant to a long-term note payable from keybank national association , which is collateralized by a security interest in one of our properties . the note accrues interest at a fixed rate of 4.9 % per year and we may not repay this note prior to the last three months of the term , or we would be subject to a prepayment penalty . the note has a maturity date of may 1 , 2024. we used the proceeds from the note to acquire the property in rancho cordova , california on the same date . wells fargo : on may 8 , 2014 , through a wholly-owned subsidiary , we assumed $ 3.8 million pursuant to a long-term note payable from wells fargo , which is collateralized by a security interest in one of our properties . the note accrues interest at a fixed rate of 6.3 % per year and has a maturity date of june 2016. we assumed the note in connection with the acquisition of the property located in coppell , texas on the same date . prudential : on june 9 , 2014 , through a wholly-owned subsidiary , we borrowed $ 22.6 million pursuant to a long-term note payable from prudential mortgage capital company , which is collateralized by a security interest in one of our properties .
| results of operations the weighted-average yield on our total portfolio , which was 8.7 % as of december 31 , 2014 , is calculated by taking the annualized straight-line rents , reflected as rental income on our consolidated statements of operations , of each acquisition as a percentage of the acquisition cost . the weighted-average yield does not account for the interest expense incurred on the mortgages placed on our properties . 53 a comparison of our operating results for the years ended december 31 , 2014 and 2013 is below ( dollars in thousands , except per share amounts ) : replace_table_token_12_th nm = not meaningful operating revenues rental income increased for the year ended december 31 , 2014 , as compared to the year ended december 31 , 2013 , because of the 11 properties acquired during 2014 , partially offset by a loss of approximately $ 1.1 million of rental income due to vacancies and property sales in our portfolio during 2014. tenant recovery revenue increased for the year ended december 31 , 2014 , as compared to the year ended december 31 , 2013. this increase was primarily due to operating expense recoveries from nine tenants in properties acquired in 2014 that are subject to a base year or gross lease . interest income from mortgage note receivable increased for the year ended december 31 , 2014 , as compared to the year ended december 31 , 2013 , because of interest earned on the mortgage loan issued in july 2014 that was not outstanding during 2013. operating expenses depreciation and amortization expenses increased for the year ended december 31 , 2014 , as compared to the year ended december 31 , 2013 , because of the 11 properties acquired during 2014 and a full year of depreciation for properties acquired in 2013 .
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cumulative translation adjustments resulting from the translation of the financial statements are included as a separate component of stockholders ' equity . accumulated other comprehensive loss – our accumulated other comprehensive loss totaled approximately $ 25.9 million at december story_separator_special_tag overview cohu is a leading supplier of semiconductor test and inspection handlers , micro-electro mechanical system ( mems ) test modules , test contactors and thermal subsystems , semiconductor automated test equipment and bare-board printed circuit board test systems used by global semiconductor and electronics manufacturers and test subcontractors . we offer a wide range of products and services and our revenue from capital equipment products is driven by the capital expenditure budgets and spending patterns of our customers , who often delay or accelerate purchases in reaction to variations in their business . the level of capital expenditures by these companies depends on the current and anticipated market demand for semiconductor devices and pcbs and the products that incorporate them . our consumable products are driven by an increase in the number of semiconductor devices and printed circuit boards that are tested and by the continuous introduction of new products and new technologies by our customers . as a result , our consumable products provide a more stable recurring source of revenue and generally do not have the same degree of cyclicality as our capital equipment products . for the year ended december 29 , 2018 , our net sales increased 28.1 % year-over-year to $ 451.8 million . the increase in sales were primarily driven by the acquisition of xcerra corporation , completed on october 1 , 2018 , and our fourth quarter results included sales of $ 94.4 million contributed by this acquired business . customer test cell utilization has weakened in the second half of 2018 with softer demand for smartphones and increasing geopolitical uncertainties , particularly related to trade tensions between the u.s. and china . we are still optimistic about the long-term prospects for our business due to increasing ubiquity of semiconductors , the future rollout of 5g networks , diminishing impact of parallel test , increasing semiconductor complexity , increasing quality demands from semiconductor customers , and continued proliferation of electronics in a variety of products across the automotive , mobility and industrial markets . we are focused on growing our market share with semiconductor and electronics manufacturers and test subcontractors . application of critical accounting estimates and policies our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . we base our estimates on historical experience , forecasts and on various other assumptions that are believed to be reasonable under the circumstances , however actual results may differ from those estimates under different assumptions or conditions . the methods , estimates and judgments we use in applying our accounting policies have a significant impact on the results we report in our financial statements . some of our accounting policies require us to make difficult and subjective judgments , often as a result of the need to make estimates of matters that are inherently uncertain . our critical accounting estimates that we believe are the most important to investors ' understanding of our financial results and condition and require complex management judgment include : ● revenue recognition , including the deferral of revenue on sales to customers , which impacts our results of operations ; ● estimation of valuation allowances and accrued liabilities , specifically product warranty , inventory reserves and allowance for bad debts , which impact gross margin or operating expenses ; ● the recognition and measurement of current and deferred income tax assets and liabilities , unrecognized tax benefits , the valuation allowance on deferred tax assets and accounting for the impact of the recent change to u.s. tax law as described herein , which impact our tax provision ; ● the assessment of recoverability of long-lived assets including goodwill and other intangible assets , which primarily impacts gross margin or operating expenses if we are required to record impairments of assets or accelerate their depreciation ; and ● the valuation and recognition of share-based compensation , which impacts gross margin , research and development expense , and selling , general and administrative expense . below , we discuss these policies further , as well as the estimates and judgments involved . we also have other policies that we consider key accounting policies ; however , these policies typically do not require us to make estimates or judgments that are difficult or subjective . 24 revenue recognition : our net sales are derived from the sale of products and services and are adjusted for estimated returns and allowances , which historically have been insignificant . we recognize revenue when the obligations under the terms of a contract with our customers are satisfied ; generally , this occurs with the transfer of control of our systems , non-system products or services . in circumstances where control is not transferred until destination or acceptance , we defer revenue recognition until such events occur . revenue for established products that have previously satisfied a customer 's acceptance requirements is generally recognized upon shipment . in cases where a prior history of customer acceptance can not be demonstrated or from sales where customer payment dates are not determinable and in the case of new products , revenue and cost of sales are deferred until customer acceptance has been received . our post-shipment obligations typically include installation and standard warranties . the estimated fair value of installation related revenue is recognized in the period the installation is performed . story_separator_special_tag we must make significant judgments to determine the provision for income taxes , deferred tax assets and liabilities , unrecognized tax benefits and any valuation allowance to be recorded against deferred tax assets . our gross deferred tax asset balance as of december 29 , 2018 , was approximately $ 127.5 million , with a valuation allowance of approximately $ 84.7 million . our deferred tax assets consist primarily of reserves and accruals that are not yet deductible for tax and tax credit and net operating loss carry-forwards . our gross deferred tax assets and valuation allowance increased significantly in 2018 as a result of the xcerra acquisition . segment information : we applied the provisions of asc topic 280 , segment reporting , ( “ asc 280 ” ) , which sets forth a management approach to segment reporting and establishes requirements to report selected segment information quarterly and to report annually entity-wide disclosures about products , major customers and the geographies in which the entity holds material assets and reports revenue . an operating segment is defined as a component that engages in business activities whose operating results are reviewed by the chief operating decision maker and for which discrete financial information is available . after the acquisition of xcerra on october 1 , 2018 , we have determined that our four identified operating segments are : test handler group ( “ thg ” ) , semiconductor tester group ( “ stg ” ) , interface solutions group ( “ isg ” ) and pcb test group ( “ ptg ” ) . our thg , stg and isg operating segments qualify for aggregation under asc 280 due to similarities in their customers , their economic characteristics , and the nature of products and services provided . as a result , we report in two segments , semiconductor test & inspection and pcb test . goodwill , purchased intangible assets and other long-lived assets : we evaluate goodwill for impairment annually and when an event occurs or circumstances change that indicate that the carrying value may not be recoverable . we test goodwill for impairment by first comparing the book value of net assets to the fair value of the reporting units . if the fair value is determined to be less than the book value , a second step is performed to compute the amount of impairment as the difference between the estimated fair value of goodwill and the carrying value . we estimated the fair values of our reporting units primarily using the income approach valuation methodology that includes the discounted cash flow method , taking into consideration the market approach and certain market multiples as a validation of the values derived using the discounted cash flow methodology . forecasts of future cash flows are based on our best estimate of future net sales and operating expenses , based primarily on customer forecasts , industry trade organization data and general economic conditions . we conduct our annual impairment test as of october 1st of each year , and have determined there is no impairment as of october 1 , 2018 , as we determined that the estimated fair values of our reporting units exceeded their carrying values on that date . other events and changes in circumstances may also require goodwill to be tested for impairment between annual measurement dates . as of december 29 , 2018 , we do not believe there have been any events or circumstances that would require us to perform an interim goodwill impairment review . in the event we determine that an interim goodwill impairment review is required , in a future period , the review may result in an impairment charge , which would have a negative impact on our results of operations . 26 long-lived assets , other than goodwill , are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable . conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset , a significant change in the extent or manner in which an asset is used , or any other significant adverse change that would indicate that the carrying amount of an asset or group of assets may not be recoverable . for long-lived assets , impairment losses are only recorded if the asset 's carrying amount is not recoverable through its undiscounted , probability-weighted future cash flows . we measure the impairment loss based on the difference between the carrying amount and estimated fair value . warranty : we provide for the estimated costs of product warranties in the period sales are recognized . our warranty obligation estimates are affected by historical product shipment levels , product performance and material and labor costs incurred in correcting product performance problems . should product performance , material usage or labor repair costs differ from our estimates , revisions to the estimated warranty liability would be required . contingencies : we are subject to certain contingencies that arise in the ordinary course of our businesses which require us to assess the likelihood that future events will confirm the existence of a loss or an impairment of an asset . if a loss or asset impairment is probable and the amount of the loss or impairment is reasonably estimable , we accrue a charge to operations in the period such conditions become known . share-based compensation : share-based compensation expense related to restricted stock unit awards is calculated based on the market price of our common stock on the grant date , reduced by the present value of dividends expected to be paid on our common stock prior to vesting of the restricted stock unit . share-based compensation on performance stock units with market-based goals is calculated using a monte carlo simulation model on the date of the grant . share-based compensation expense related to stock options is recorded based on the fair value of the award on its grant date , which we estimate using the black-scholes valuation model .
| recent transactions impacting results of operations on october 1 , 2018 we completed the acquisition of xcerra corporation and the results of its operations have been included in our consolidated financial statements only since that date . management has determined that the fixtures services business , that was acquired as part of xcerra , does not align with cohu 's long-term strategic plan and management is in the process of divesting this portion of the business . as a result , the assets of our fixtures business are considered “ held for sale ” and the operations of our fixtures business are considered “ discontinued operations ” as of december 29 , 2018. unless otherwise indicated , the discussion below covers the comparative results from continuing operations . the following table summarizes certain operating data as a percentage of net sales : replace_table_token_7_th ( 1 ) in conjunction with the acquisition of xcerra the company assessed the need to realign its financial statement presentation and certain income statement classifications were adjusted with prior periods reclassified to conform with current period presentation . see note 1 , “ reclassifications ” in part iv , item 15 ( a ) of this form 10-k. 27 2018 compared to 2017 net sales cohu 's consolidated net sales increased 28.1 % from $ 352.7 million in 2017 to $ 451.8 million in 2018. on october 1 , 2018 , we completed the acquisition of xcerra and our net sales for the year include $ 94.4 million of net sales recognized by this business from that date and is the primary driver of the increase in our net sales . gross margin gross margin consists of net sales less cost of sales ( excluding the impact of amortization of developed technology and backlog ) . cost of sales consists primarily of the materials , assembly and test labor and overhead from operations .
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these adjustments require management to make reasonable estimates of the amount we expect to receive from the customer . we estimate sales adjustments by customer or by product category on the basis of our historical experience with similar contracts with customers , adjusted as necessary to reflect current facts and circumstances and our expectations for the future . sales taxes , firearms and ammunition excise tax and other similar taxes are excluded from revenue . 57 notes to the consolidated financial statements ( amounts in thousands except share and per share data and unless otherwise indicated ) incentives in the form of cash paid to the customer ( or a reduction of a customer cash payment to us ) typically are recognized as a reduction of sales unless the incentive is for a distinct benefit that we receive from the customer ( e.g . , advertising or marketing ) . we provide consumer 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 . this section and other sections of this annual report 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 '' included in this annual report . ( dollar amounts in thousands except share and per share data or unless otherwise indicated ) executive summary business overview we serve the outdoor sports and recreation markets through a diverse portfolio of nearly 40 well-recognized brands that provide consumers with a wide range of performance-driven , high-quality and innovative products , including sporting ammunition , golf rangefinders , hydration products , outdoor accessories , outdoor cooking solutions , and protective equipment for certain action sports . we serve a broad range of end consumers , including outdoor enthusiasts , hunters and recreational shooters , athletes , as well as law enforcement and military professionals . our products are sold through a wide variety of mass , specialty and independent retailers and distributors , such as academy , amazon , bass pro shops/cabela 's , big rock sports , sports south , sportsman 's warehouse , target , and walmart . we also sell certain of our products directly to consumers through the relevant brand 's website . we have a scalable , integrated portfolio of brands that allows us to leverage our deep customer knowledge , product development and innovation , supply chain and distribution , and sales and marketing functions across product categories to better serve our retail partners and end consumers . organizational structure we conduct our operations through two operating segments which are defined based on the reporting and review process used by the chief operating decision maker , our chief executive officer . as of march 31 , 2020 , vista outdoor 's two segments were outdoor products and shooting sports : shooting sports generated approximately 68 % of our sales in fiscal 2020 . shooting sports is comprised of ammunition and hunting shooting accessories product lines . ammunition products include centerfire ammunition , rimfire ammunition , shotshell ammunition and reloading components . hunting accessories products include high-performance hunting arrows , game calls , hunting blinds , game cameras , and decoys , and optics products such as binoculars , riflescopes and telescopes . shooting accessories products include reloading equipment , clay targets , and premium gun care products and tactical products such as holsters , duty gear , bags and packs . our firearms business was divested early in the second quarter ending september 29 , 2019. outdoor products , which generated approximately 32 % of our sales in fiscal 2020 . outdoor products is comprised of sports protection , outdoor cooking , golf , and hydration product lines . sports protection includes helmets , goggles , and accessories for cycling , snow sports , action sports and powersports . outdoor cooking includes grills and stoves . golf products include laser rangefinders and other golf technology products . hydration products include hydration packs and water bottles . our eyewear brands were divested during the second quarter of fiscal year 2019. business strategy in fiscal year 2019 , vista outdoor embarked on its multi-year strategic transformation plan to reposition the company to be the leading designer , manufacturer , and marketer of consumer products in the outdoor sports and recreation markets . the primary goal of the transformation plan is to drive profitable growth by delivering innovative products and industry leading customer and online customer experiences . cost savings are re-invested into improvements needed in capabilities , systems , innovation and growth opportunities . vista outdoor believes this plan will enable the company to deliver long-term sustainable and profitable growth and create value for shareholders . to achieve its multi-year strategic transformation goals , the company is relentlessly focused on the following five strategic pillars , which define key priorities and investment focus areas : 28 optimize our organizational structure : investing in talent while reducing costs and building a culture of agility , efficiency , and innovation . create leading centers of excellence in operational excellence and e-commerce : leveraging our shared resources , expertise and scale to : ◦ achieve operational excellence and improve margins across each of our brands ; and ◦ accelerate and enhance e-commerce , direct-to-consumer and digital marketing capabilities across all of our brands . reducing financial leverage : strengthening the company 's balance sheet , improving financial flexibility , and paying down debt though enhanced cash-flow generation and the divestiture of non-core businesses . story_separator_special_tag we believe that long-term trends support our expectation of increasing demand for hunting and shooting-sports related products . participation rates have remained strong and we expect them to increase during the global recovery from the covid-19 pandemic as consumers look to local outdoor activities as a substitute for travel and other competing pursuits . we believe we are well-positioned to succeed and capitalize on this long-term demand given our scale and global operating platform , which we believe is particularly difficult to replicate in the highly regulated and capital-intensive ammunition manufacturing sector . outdoor recreation industry the outdoor recreation industry represents a large and growing focus area of our business . we design , source , manufacture , and sell outdoor recreation products through our bell , giro , camelbak , camp chef and bushnell golf brands , among others . these brands operate in highly competitive and global markets serving cycling , snow sports , hiking , camping , outdoor cooking and golf enthusiasts . during fiscal year 2020 , our outdoor products brands experienced a challenging retail environment driven by a variety of factors , including the ongoing shift in consumer preferences to utilize online platforms , as well as other market pressures . many of our brands have been able to respond and capitalize on the shift in consumer preferences to utilize on-line shopping platforms , including our brands ' direct-to-consumer websites , but in some cases the shift away from traditional retail channels has resulted in a net decrease in sales . in our fiscal year 2021 , we expect that the impact of the ongoing covid-19 pandemic on general economic and retail conditions , including store closures , will continue to adversely affect the sales of the brands in our outdoor products segment . we believe that long-term trends support our expectation of increasing demand for the innovative outdoor recreation-related products produced by our outdoor products brands . participation rates have remained strong and we expect them to increase during the global recovery from the covid-19 pandemic as consumers look to local outdoor activities as a substitute for travel and other competing pursuits . our outdoor products brands hold a strong competitive position in the market-place , and we intend to further differentiate our brands through focused r & d and marketing investments including increased use of social media and other digital marketing . following significant investments in our brands ' e-commerce capabilities , both directly and through our e-commerce center of excellence , our brands are also well-positioned to benefit from the ongoing shift in consumer shopping behavior to utilize on-line channels . 30 critical accounting estimates our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . in preparing the consolidated financial statements , we make estimates and judgments that affect the reported amounts of assets , liabilities , sales , expenses , and related disclosure of contingent assets and liabilities . we re-evaluate our estimates on an on-going basis . our estimates are based on historical experience and on various other assumptions that we believe to be reasonable under the circumstances . actual results may differ from these estimates under different assumptions or conditions . we review our estimates on an ongoing basis to ensure the estimates appropriately reflect changes in our business and the most recent information available . we believe the critical accounting policies discussed below affect our most significant estimates and judgments used in the preparation of our consolidated financial statements . for a complete discussion of all our significant accounting policies , see note 1 , significant accounting policies , to the consolidated financial statements included in this annual report . revenue recognition the total amount of revenue we recognize for the sale of our products reflects various sales adjustments for discounts , returns , refunds , allowances , rebates , and other customer incentives . these sales adjustments can vary based on market conditions , customer preferences , timing of customer payments , volume of products sold , and timing of new product launches . these adjustments require management to make reasonable estimates of the amount we expect to receive from the customer . we estimate sales adjustments by customer or by product category on the basis of our historical experience with similar contracts with customers , adjusted as necessary to reflect current facts and circumstances and our expectations for the future . sales taxes , firearms and ammunition excise tax and other similar taxes are excluded from revenue . allowance for doubtful accounts we maintain an allowance for doubtful receivables for estimated losses resulting from the inability of our customers to make required payments . we provide an allowance for specific customer accounts where collection is doubtful and also provide an allowance for customer deductions based on historical collection and write-off experience . additional allowances would be required if the financial conditions of our customers deteriorated . inventories our inventories are valued at the lower of cost or net realizable value . we evaluate the quantities of inventory held against past and future demand and market conditions to determine excess or slow-moving inventory . for each product category , we estimate the market value of the inventory comprising that category based on current and projected selling prices . if the projected market value is less than cost , we provide an allowance to reflect the lower value of the inventory . this methodology recognizes projected inventory losses at the time such losses are evident rather than at the time goods are actually sold . the projected market value of the inventory may decrease due to consumer preferences , legislative changes , or loss of key contracts among other events . income taxes provisions for federal , state and foreign income taxes are calculated based on reported pre-tax earnings and current tax law .
| cash flow summary our cash flows from operating , investing and financing activities , as reflected in the consolidated statement of cash flows for the years ended march 31 , 2020 and 2019 are summarized as follows : replace_table_token_9_th operating activities net cash provided by operating activities decreased $ 20,730 , primarily as a result of decreased gross profit and less favorable changes in net working capital balances , partially offset by a decrease in selling , general administrative costs . the change in net working capital was driven primarily by the timing of interest payments , income taxes payments and payables , partially offset by the collection of customer receivables . investing activities net cash provided by investing activities increased $ 20,358 , which was driven by a decrease in capital expenditures in the current fiscal year . 38 financing activities net cash used for financing activities decreased by $ 11,052 . the improvements were primarily driven by reductions in both long-term debt payments and debt issuance costs , partially offset by a reduction in net advances from our line of credit , and a favorable settlement with our former parent in the prior year . liquidity in addition to our normal operating cash requirements , our principal future cash requirements will be to fund capital expenditures , debt repayments , employee benefit obligations , any share repurchases , and any strategic acquisitions . our short-term cash requirements for operations are expected to consist mainly of capital expenditures to maintain production facilities and working capital requirements . our debt service requirements over the next two years consist of required interest payments due under the new credit facilities and our 5.875 % notes , as discussed further below .
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we operate in three reportable business segments : cubic transportation systems ( cts ) , cubic mission solutions ( cms ) , and cubic global defense systems ( cgd ) . for more information on our business , see our discussion in item 1 of this form 10-k. fiscal 2019 results compared with fiscal 2018 results consolidated results replace_table_token_5_th note on non-gaap measures : throughout the following results of operations discussion , we disclose certain non-gaap financial measures , including adjusted ebitda , adjusted net income and adjusted eps . for an explanation and reconciliation of such measures , see the section titled ‘ non-gaap financial information ' below . note on comparability of fiscal 2019 and 2018 results : we adopted accounting standards update ( asu ) 2014-09 , revenue from contracts with customers ( commonly known as accounting standards codification ( asc ) 606 ) , effective october 1 , 2018 using the modified retrospective transition method . in accordance with the modified retrospective transition method , fiscal 2019 is presented under asc 606 , while fiscal 2018 is presented under asc 605 , revenue recognition , the accounting standard in effect for periods ending prior to october 1 , 2018. the cumulative effect of the change in accounting for periods prior to october 1 , 2018 was recognized through shareholders ' equity at the date of adoption . 42 the table below quantifies the impact of adopting asc 606 on sales , operating income , net income from continuing operations attributable to cubic , for the year ended september 30 , 2019 ( in millions ) : replace_table_token_6_th sales : our sales increased 24 % to $ 1.496 billion in fiscal year 2019 from $ 1.203 billion in 2018. the increases in sales for cts and cms of 27 % and 59 % , respectively , were partially offset by a decrease in cgd sales of 2 % . sales from businesses we acquired in 2019 and 2018 amounted to $ 83.3 million and $ 0.6 million for fiscal years 2019 and 2018 , respectively . the average exchange rates between the prevailing currencies in our foreign operations and the u.s. dollar between 2018 and 2019 had a negative impact on sales of $ 25.3 million , which was 2 % of 2019 sales . the impacts of changes in foreign currency exchange rates on sales from 2018 to 2019 predominantly affected our cts segment results . see the segment discussions below for further analysis of segment sales . gross margin : our gross margin percentage from product sales was 28 % in 2019 , compared to 33 % in 2018. the decrease in product sales gross margins was primarily due to sales mix . the gross margin on service sales was 31 % in 2019 compared to 27 % in 2018. the increase in service sales gross margins was primarily caused by an increase in service sales by cgd , which has a higher average margin percentage on services sales than our other business segments . selling , general , and administrative : sg & a expenses increased to $ 270.1 million in 2019 , compared to $ 258.6 million in 2018. however , as a percentage of sales sg & a decreased to 18 % in 2019 compared to 22 % in 2018. the increase in sg & a expense was primarily due to $ 29.2 million of sg & a expenses incurred by three businesses we acquired in fiscal 2019 including the impacts of business acquisition accounting which is further described in the segment discussions below . these increases in sg & a expenses were partially offset by the results of cost reduction activities undertaken in fiscal 2019 as well as reduced strategic and it system resource expenses which totaled $ 8.2 million in 2019 compared to $ 24.1 million in 2018 . amortization of purchased intangibles : amortization of purchased intangibles totaled $ 42.1 million in 2019 compared to $ 27.1 million in 2018. the increase is due to the amortization of purchased intangibles for companies acquired by cubic in fiscal year 2019 . gain on the sale of fixed assets : in line with our one cubic strategic objective , in fiscal 2019 , we entered into agreements related to the construction and leasing of two buildings on our existing corporate campus in san diego , california that will allow us to co-locate our san diego-based employees on a single modern campus to foster innovation and collaboration across our business . under these agreements , a financial institution will own the buildings , and we will lease the facilities for a term of five years commencing upon their completion . in the third quarter of fiscal 2019 , we sold land and buildings comprising our separate cts campus in san diego . we have entered into a lease with the buyer of this campus and cts employees will continue to occupy this separate campus until the new buildings on our corporate 43 campus are ready for occupancy in fiscal 2021. in the third quarter of fiscal 2019 , we also sold land and buildings in orlando , florida and we are entering a lease for new space with a smaller footprint in orlando to accommodate our employees and operations in orlando . in connection with the sale of these real estate campuses we received total net proceeds of $ 44.9 million and recognized net gains on the sales totaling $ 32.5 million within operating income . research & development : company-sponsored r & d spending totaled $ 50.1 million in 2019 compared to $ 52.4 million in 2018 . for fiscal 2019 there was a shift in the mix of r & d expenditures between our business segments with cms increasing its portion of our total r & d spend and cts and cgd decreasing . story_separator_special_tag until we re-establish a pattern of continuing profitability , in accordance with the applicable accounting guidance , u.s. income tax expense or benefit related to the recognition of deferred tax assets in the consolidated statement of operations for future periods will be offset by decreases or increases in the valuation allowance with no net effect on the consolidated statement of operations . our effective tax rate could be affected in future years by , among other factors , the mix of business between u.s. and foreign jurisdictions , fluctuations in the need for a valuation allowance against deferred tax assets , our ability to take advantage of available tax credits and audits of our records by taxing authorities . as of september 30 , 2019 , a total valuation allowance of $ 69.1 million has been established against u.s. deferred tax assets , certain foreign operating losses and other foreign assets . during fiscal 2019 , the valuation allowance decreased by $ 12.7 million , of which $ 10.0 million was recorded as a net tax benefit in our consolidated statement of operations , offset by amounts recorded through acquisition accounting , retained earnings and other components of income . we will continue to assess the need for a valuation allowance on deferred tax assets and should circumstances change it is possible the valuation allowance , or a portion thereof , will be reversed . net income from continuing operations attributable to cubic : our net income from continuing operations attributable to cubic was $ 51.1 million ( $ 1.67 per share ) in 2019 , compared to $ 8.1 million ( $ 0.29 per share ) in 2018. the increase in net income was primarily related to the increase in operating profits including the gain on the sale of fixed assets , partially offset by the increase in interest expense and the increase in our income tax provision , all of which are described above . net income ( loss ) from discontinued operations : our net loss from discontinued operations was $ 1.4 million in fiscal 2019 compared to net income from discontinued operations of $ 4.2 million in fiscal 2018. in fiscal 2018 , net income from discontinued operations included the results of the operations of cubic global defense services ( cgd services ) through the date of the sale as well as a loss on the sale of cgd services of $ 6.1 million , which was calculated as the excess of the carrying value of the net assets of cgd services at the sale date over the sales price , less estimated selling costs of $ 4.5 million . in fiscal 2019 , we revised certain estimates related to the working capital settlement and reduced the receivable from the purchaser of cgd services by $ 1.4 million and recognized a loss on the sale of cgd services in the second quarter of fiscal 2019 . adjusted ebitda : adjusted ebitda increased 40 % to $ 146.6 million in 2019 compared to $ 104.6 million in 2018 and included increases in adjusted ebitda for all three business segments as described in the segment disclosures below . the increase in adjusted ebitda was primarily due to the same factors that drove the increase in operating income described above , excluding the changes in amortization expense , acquisition transaction costs , and restructuring costs as such items are excluded from adjusted ebitda . in addition , adjusted ebitda increased by $ 5.9 million in 2019 as a result of the adoption of the new revenue recognition standard . adjusted ebitda is a non-gaap financial measure . adjusted net income : adjusted net income increased 59 % to $ 95.6 million in 2019 compared to $ 60.0 million in 2018. the increase in adjusted net income was primarily due to the same factors that drove the increase in net income from continuing operations attributable to cubic described above including margin growth on increased sales , but excludes the changes in amortization expense , the gain on sale of fixed assets , acquisition transaction costs , restructuring costs , acquisition related costs , and nonoperating losses as such items are excluded from adjusted net income . in addition , adjusted net income increased by $ 9.1 million in 2019 as a result of the adoption of the new revenue recognition standard . adjusted net income is a non-gaap financial measure . adjusted eps : adjusted eps increased 43 % to $ 3.13 in 2019 compared to $ 2.19 in 2018. the increase in adjusted eps was due to the same factors that impacted adjusted net income noted above . in addition , adjusted eps increased by 45 $ 0.30 in 2019 as a result of the adoption of the new revenue recognition standard . adjusted eps is a non-gaap financial measure . segment results cubic transportation systems replace_table_token_7_th sales : cts sales increased 27 % to $ 849.8 million in 2019 compared to $ 670.7 million in 2018 , including the impact of the adoption of asc 606. the increase in sales was primarily driven by growth in both organic and inorganic business in north america . sales in 2019 were higher in the u.s. primarily due to system development on contracts in new york , boston , and the san francisco bay area . businesses acquired by cts during fiscal year 2019 , whose operations are all located in the u.s. , had sales of $ 74.4 million in fiscal year 2019. sales increased slightly in australia between fiscal years 2018 and 2019 as increased system development work on a contract in brisbane was partially offset by the negative impact of foreign currency exchange rates as well as a decrease in service sales . sales were lower in the uk primarily due to a decrease in system development work in london and the negative impact of currency exchange rates . the average exchange rates between the prevailing currencies in our foreign operations and the u.s.
| consolidated results replace_table_token_10_th sales : our sales increased 9 % to $ 1.203 billion in fiscal year 2018 from $ 1.108 billion in 2017. the increases in sales for cts and cms of 16 % and 23 % , respectively , were partially offset by a decrease in cgd sales of 10 % . the average exchange rates between the prevailing currencies in our foreign operations and the u.s. dollar between 2017 and 2018 had a positive impact on sales of $ 11.9 million , which was 1 % of 2018 sales . the impacts of changes in foreign currency exchange rates on sales from 2017 to 2018 predominantly affected our cts segment results . see the segment discussions below for further analysis of segment sales . gross margin : our gross margin percentage from product sales was 33 % in 2018 , compared to 31 % in 2017. the increase in product sales gross margins was primarily due to supply chain cost savings and improved sales mix of higher-margin products including secure networks and expeditionary satellite communications products . in addition , we drove improved profitability on certain larger cts development contracts . the gross margin on service sales was 27 % in 2018 compared to 28 % in 2017. the slight decrease in gross margins on service sales was primarily driven by a change in mix in our service contracts . selling , general , and administrative : sg & a expenses increased to $ 258.6 million or 22 % of sales in 2018 , compared to $ 240.2 million or 22 % of sales in 2017. the increase in total sg & a expense was primarily due to increases in bid and proposal costs on new business pursuits and a $ 4.9 million increase in expense related to contingent consideration for recent business acquisitions between these periods .
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% ) . the availability under the revolver is based upon the borrower 's eligible accounts receivable and eligible inventory and is computed as of december 31 as follows ( in thousands ) : replace_table_token_17_th to secure repayment of the obligations of the borrowers , each borrower has granted to the lender , for the benefit of various secured parties , a first priority security interest in substantially all of the personal property assets of each of the borrowers . in addition , the company has pledged the shares of holdings and holdings has pledged the shares of each of isi and first biomedical and the equity interests of ifc llc to the lender , for the benefit of the secured parties , to further secure the obligations under the chase credit agreement . the chase credit agreement contains certain affirmative and negative covenants typical for credit facilities of this type . these covenants ( subject to certain agreed and customary exceptions set forth in the chase credit agreement ) restrict or limit subject to the lender 's prior consent , and in some cases prohibit , the borrowers from engaging in certain actions , including its ability to , among other things : ( i ) incur indebtedness ; ( ii ) create liens ; ( iii ) engage in mergers , consolidations , liquidations or dissolutions ; ( iv ) engage in acquisitions ; ( v ) dispose of assets ; ( vi ) pay dividends and distributions or repurchase capital stock or make other restricted payments ; ( vii ) make investments , loans , guarantees or advances ; ( viii ) engage in certain transactions with affiliates ; ( ix ) enter into sale and leaseback transactions ; ( x ) enter into hedging agreements ; ( xi ) enter into agreements that restrict distributions from subsidiaries ; and ( xii ) change their fiscal story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements and notes thereto included in this annual report on form 10-k. the forward-looking statements included in this discussion and elsewhere in this annual report on form 10-k involve risks and uncertainties , including those set forth under cautionary statement about forward-looking statements. actual results and experience could differ materially from the anticipated results and other expectations expressed in our forward-looking statements as a result of a number of factors , including but not limited to those discussed in this item and in item 1a risk factors. overview we are a leading provider of infusion pumps and related products and services for patients in the home , oncology clinics , ambulatory surgery centers , and other sites of care from five locations in the united states and canada . we provide our products and services to hospitals , oncology practices and facilities and other alternate site health care providers . headquartered in madison heights , michigan , we deliver local , field-based customer support , and also operate pump service and repair centers of excellence in michigan , kansas , california , texas , georgia and ontario , canada . isi is accredited by the chap while first biomedical is iso certified . our core service is to supply electronic ambulatory infusion pumps and associated disposable supply kits to oncology clinics , infusion clinics and hospital outpatient chemotherapy clinics to be utilized in the treatment of a variety of cancers including colorectal cancer and other disease states . colorectal cancer is the third most prevalent form of cancer in the united states , according to the american cancer society , and the standard of care for the treatment of colorectal cancer relies upon continuous chemotherapy infusions delivered via ambulatory infusion pumps . in addition , we sell or rent new and pre-owned pole mounted and ambulatory infusion pumps to , and provide biomedical recertification , maintenance and repair services for oncology practices as well as other alternate site settings including home care and home infusion providers , skilled nursing facilities , pain centers and others . we also provide these products and services to customers in the small-hospital market . we purchase new and pre-owned pole mounted and ambulatory infusion pumps from a variety of sources on a non-exclusive basis . we repair , refurbish and provide biomedical certification for the devices as needed . the pumps are then available for sale , rental or to be used within our ambulatory infusion pump management service . 25 we view our payor environment as changing . management is intent on extending its considerable breadth of payor contracts as patients move into different insurance coverages , including medicaid and insurance marketplace products . in some cases , this may slightly reduce our aggregate billed revenues payment rate but result in an overall increase in collected revenues , as shown by a reduction in bad debt expense . consequently , we are increasingly focused on net collected revenues less bad debt . in the midst of changes in the healthcare arena , we believe that we will support our overall business strategy discussed above by ( i ) focusing on supporting recurring revenues by increasing our pump fleet ; ( ii ) improving liquidity and strengthening the balance sheet by keeping debt levels comparable to our operations ; ( iii ) improving internal operational efficiencies , ; ( iv ) increasing our product and services offerings , ; ( v ) enhancing our technology offerings to the patients and providers of care ; and ( vi ) investigating synergistic acquisitions . for additional information pertaining to cms , refer to item 1 business significant customers and also recent events in our business . key business metrics our management monitors a number of financial and non-financial measures and ratios on a regular basis in order to track the progress of our business and make adjustments as necessary . story_separator_special_tag in addition , we have pledged the shares of holdings and holdings has pledged the shares of each of isi and first biomedical and the equity interests of ifc to the lender , for the benefit of the secured parties , to further secure the obligations under the credit agreement . the credit agreement contains certain affirmative and negative covenants typical for credit facilities of this type . these covenants ( subject to certain agreed and customary exceptions set forth in the credit agreement ) restrict or limit subject to the lender 's prior consent , and in some cases prohibit , the borrowers from engaging in certain actions , including its ability to , among other things : ( i ) incur indebtedness ; ( ii ) create liens ; ( iii ) engage in mergers , consolidations , liquidations or dissolutions ; ( iv ) engage in acquisitions ; ( v ) dispose of assets ; ( vi ) pay dividends and distributions or repurchase capital stock or make other restricted payments ; ( vii ) make investments , loans , guarantees or advances ; ( viii ) engage in certain transactions with affiliates ; ( ix ) enter into sale and leaseback transactions ; ( x ) enter into hedging agreements ; ( xi ) enter into agreements that restrict distributions from subsidiaries ; and ( xii ) change their fiscal year . in addition , the credit agreement requires us to maintain the following financial covenant obligations : ( i ) a minimum fixed charge coverage ratio of 1.25:1.00 ; ( ii ) a maximum total leverage ratio ranging from 3.00:1.00 to 2.25:1.00 during specified periods ; and ( iii ) a minimum net worth of $ 37.5 million . acquisition : on april 20 , 2015 , we acquired substantially all of the assets of ciscura holding company , inc. , and its subsidiaries ( ciscura ) for $ 6.2 million in cash and recorded approximately $ 0.7 million for integration , professional and other related expenses . see note 3 business combinations for additional information pertaining to this acquisition . 29 cash flows : net cash provided by operating activities for the year ended december 31 , 2015 was $ 7.1 million compared to $ 7.3 million for the year ended december 31 , 2014. the decrease was primarily attributable to the cash flow effects of the changes in accounts receivable and the impact of non-cash transactions , including loss on extinguishment of debt , depreciation and loss on disposal of medical equipment . net cash used in investing activities for the year ended december 31 , 2015 was $ 11.9 million compared to $ 2.8 million for the year ended december 31 , 2014. the increase was primarily related to our acquisition of ciscura for $ 6.2 million , a decrease of $ 1.7 million for the purchases of non-pump assets offset by an increase in the purchases of intangible assets of $ 2.2 million , and a decrease of $ 2.3 million in proceeds from the sale of medical equipment . net cash provided by financing activities for the year ended december 31 , 2015 was $ 5.2 million compared to cash used of $ 5.0 million for the year ended december 31 , 2014. this change is primarily attributable to the cash proceeds received as a result of our decision to refinance our debt in the first quarter of 2015 and drawdowns on our term loan b for the recent acquisition of ciscura for $ 6.2 million . we occasionally enter into capital leases to finance the purchase of ambulatory infusion pumps . the pumps are capitalized into medical equipment in rental service at their fair market value , which equals the value of the future minimum lease payments and are depreciated over the useful life of the pumps . the weighted average interest rate under capital leases was 4.8 % as of december 31 , 2015. contractual obligations infusystem is a smaller reporting company as defined by rule 12b-2 of the exchange act and is not required to provide this information . contingent liabilities we are not aware of any contingent liabilities . off-balance sheet arrangements we do not have any material off-balance sheet arrangements . critical accounting policies and estimates the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america requires management to make estimates , assumptions and judgments that affect the amounts reported in the financial statements , including the notes thereto . we consider critical accounting policies to be those that require more significant judgments and estimates in the preparation of our consolidated financial statements , including the following : revenue recognition , which includes contractual allowances ; accounts receivable and allowance for doubtful accounts ; sales return allowances ; inventory reserves ; long lived assets ; intangible assets valuations ; and income tax valuations . management relies on historical experience and other assumptions believed to be reasonable in making its judgment and estimates . actual results could differ materially from those estimates . management believes its application of accounting policies , and the estimates inherently required therein , are reasonable . these accounting policies and estimates are periodically reevaluated , and adjustments are made when facts and circumstances dictate a change . 30 our accounting policies are more fully described under the heading summary of significant accounting policies in note 2 to our consolidated financial statements included in this annual report on form 10-k. we believe the following critical accounting estimates are the most significant to the presentation of our financial statements and require the most difficult , subjective and complex judgments : revenue recognition we recognize revenue for selling , renting and servicing new and pre-owned infusion pumps and other medical equipment to oncology practices as well as other alternate site settings including home care and home infusion providers , skilled nursing
| general and administrative expenses general and administrative ( g & a ) expenses during 2015 and 2014 consisted primarily of accounting , administrative , third party payor billing and contract services , customer service , nurses on staff , new product services , and service center personnel salaries , fringe benefits and other payroll related items , professional fees , legal fees , stock-based compensation , insurance and other miscellaneous items . during the year ended december 31 , 2015 , our g & a expenses were $ 23.8 million , an increase of 19 % from $ 20.0 million for the year ended december 31 , 2014. the increase in g & a expenses versus the same prior year period was mainly attributable to increases in spending on it and pain management initiatives of $ 0.9 million , increases in compensation and employee personnel of $ 1.9 million , increases in stock-based compensation of $ 0.4 million and $ 0.7 million in expenses associated with the acquisition , transition and integration for ciscura . the company has brought in-house certain services previously performed by outside advisors and contractors , including tax , legal , information technology , internal audit and increased warehouse headcount in atlanta and houston over the prior year period . the following table includes additional details regarding our g & a expenses for the years ended december 31 : replace_table_token_2_th ( a ) strategic costs were attributable to the acquisition , transition and integration of ciscura . other income and expenses during the year ended december 31 , 2015 , we recorded interest expense of $ 1.7 million , compared to $ 3.1 million for the year ended december 31 , 2014. this is a direct result of the lower 27 interest rates with our new credit facility .
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the following is a summary of the compensation arrangements set forth in each employment agreement described above : replace_table_token_4_th as an incentive to commence employment with us , pursuant to such agreements , we story_separator_special_tag the following management discussion and analysis of financial condition and results of operations ( “ md & a ” ) should be read in conjunction with our consolidated financial statements and the related notes ( “ notes ” ) beginning on page f-1 of this annual report . except for the historical information contained therein , the discussions in this md & a contain “ forward-looking ” statements based upon current expectations that involve risks and uncertainties , such as plans , strategies , objectives , expectations and intentions . actual results and the timing of events could differ materially from those anticipated in these “ forward-looking ” statements that involve risks and uncertainties . factors that could cause or contribute to such differences include , but are not limited to , those identified below and those discussed under forward-looking statements at the beginning of this annual report and under item 1b , “ risk factors ” elsewhere in this annual report . business overview we are a provider of technologically-advanced telecom solutions to network operators , mobile device carriers , governmental units and other enterprises worldwide . we have assembled a portfolio and partnership of communications , power and niche technologies , capabilities and products that enable the upgrading of latent 3g networks to 4g and 4g-lte networks and will facilitate the rapid rollout of the 5g and “ next-generation ” ( “ ng ” ) networks of the future . we focus on special capabilities , including signal modulations , antennae , software , hardware and firmware technologies that enable increasingly efficient data transmission across the radio-frequency spectrum . our product solutions are complemented by a broad array of services including technical support , systems design and integration and sophisticated research and development programs . while we compete globally on the basis of our innovative technology , broad product offerings , high-quality and cost-effective customer solutions , as well as the scale of our global customer base and distribution , our primary focus is on the north american telecom infrastructure and service market . in addition , we believe we are in a unique position to rapidly increase our near-term domestic sales as we are among the few u.s.-based providers of telecommunications equipment and services . for additional information , see part i , item 1. , business of this annual report . corporate history we were incorporated in nevada on april 17 , 2014 , as a wholly owned subsidiary of macrosolve , inc. , an oklahoma corporation ( “ macrosolve ” ) , and effective april 30 , 2014 , in order to consolidate our operations into an entity incorporated in nevada , macrosolve merged with and into us . on june 3 , 2014 , we acquired drone aviation corp. through a share exchange transaction , and on march 26 , 2015 , drone aviation corp. merged with and into us . as a result of the share exchange and merger with drone aviation corp. , we acquired drone aviation corp. 's subsidiary , lighter than air systems corp. , which does business under the name drone aviation . on november 27 , 2019 , we completed the comsovereign acquisition in a stock-for-stock transaction with a total purchase price of approximately $ 75 million . the comsovereign acquisition was treated as a reverse merger for accounting purposes under u.s. gaap with comsovereign as the accounting acquirer and our company as the accounting acquiree . as a result , our consolidated financial statements included in this annual report are those of comsovereign from the date of its incorporation ( january 10 , 2019 ) through december 31 , 2019. the operations of our pre-acquisition business , which consisted primarily of the operations of drone aviation , are included in our consolidated operating results only from the date of acquisition of comsovereign , november 27 , 2019. comsovereign corp. was incorporated in the state of delaware on january 10 , 2019 and commenced operations through a series of acquisitions . on january 31 , 2019 , comsovereign acquired the capital stock of veo , a san diego , california-based research and development company innovating sip technologies for use in copper-to-fiber-to-copper switching , high-speed computing , high-speed ethernet , autonomous vehicle applications , mobile devices and 5g wireless equipment . on january 31 , 2019 , comsovereign acquired the capital stock of indurapower , a tucson , arizona-based developer and manufacturer of intelligent batteries and back-up power supplies for network systems and telecom nodes . it also provides power designs and batteries for the aerospace , marine and automotive industries . on march 4 , 2019 , comsovereign acquired the capital stock of silver bullet , a california-based engineering firm that designs and develops next generation network systems and components , including large scale network protocol development , software-defined radio systems and wireless network designs . 32 on april 1 , 2019 , comsovereign acquired the equity securities of dragonwave , a dallas-based manufacturer of high-capacity microwave and millimeter point-to-point telecom backhaul radio units . dragonwave and its predecessor have been selling telecom backhaul radios since 2012 and its microwave radios have been installed in over 330,000 locations in more than 100 countries worldwide . according to a report by the u.s. federal communications commission , as of december 2019 , dragonwave was the second largest provider of licensed point-to-point microwave backhaul radios in north america . on april 1 , 2019 , comsovereign acquired the capital stock of lextrum , a tucson , arizona-based developer of full-duplex wireless technologies and components , including multi-reconfigurable rf antennae and software programs . this technology enables the doubling of a given spectrum band by allowing simultaneous transmission and receipt of radio signals on the same frequencies . story_separator_special_tag cost of goods sold also includes costs associated with supply operations , including personnel-related costs , provision for excess and obsolete inventory , third-party license costs and third-party costs related to the services we provide . additionally , cost of goods sold does not include any depreciation and amortization expenses as we separate depreciation and amortization expense into its own category within operating expenses . gross profit has been and will continue to be affected by various factors , including changes in our supply chain and evolving product mix . the margin profile of our current products and future products will vary depending on operating performance , features , materials , manufacturer and supply chain . gross margin will vary as a function of changes in pricing due to competitive pressure , our third-party manufacturing , our production costs , costs of shipping and logistics , provision for excess and obsolete inventory and other factors . we expect our gross margins will fluctuate from period to period depending on the interplay of these various factors . operating expenses we classify our operating expense as research and development , sales and marketing , and general and administrative . personnel costs are the primary component of each of these operating expense categories , which consist of cash-based personnel costs , such as salaries , sales commissions , benefits and bonuses . additionally , we separate depreciation and amortization expense into its own category . research and development in addition to personnel-related costs , research and development expense consists of costs associated with the design and development of our products , product certification , travel and recruiting . we generally recognize research and development expense as incurred . development costs incurred prior to establishment of technological feasibility are expensed as incurred . we expect our research and development costs to continue to increase as we develop new products and modify existing products to meet the changes within the telecom landscape . sales and marketing in addition to personnel costs for sales , marketing , service and product management personnel , sales and marketing expense consists of the expenses associated with our training programs , trade shows , marketing programs , promotional materials , demonstration equipment , national and local regulatory approvals of our products , travel , entertainment and recruiting . we expect sales and marketing expense to continue to increase in absolute dollars as we increase the size of our sales , marketing , service and product management organization in support of our investment in our growth opportunities , whether through the development and rollout of new or modified products or through acquisitions . we expect our sales and marketing expense to increase materially in the year ending december 31 , 2020 as we ramp up our sales and marketing efforts in the third and fourth quarters to correspond to our increased production efforts relating to certain of our telecom products . general and administrative in addition to personnel costs , general and administrative expense consists of professional fees , such as legal , audit , accounting , information technology and consulting fees ; share-based compensation ; and facilities and other supporting overhead costs . we expect general and administrative expense to increase in absolute dollars as we continue to expand our product offerings and expand into new markets . during fiscal 2020 , we expect to incur increases in supporting overhead costs , professional fees , transfer agent fees and expenses ; development costs and other expenses related to operating as a public company . depreciation and amortization depreciation and amortization expense consists of depreciation related to fixed assets such as test equipment , research and development equipment , computer hardware , production fixtures and leasehold improvements , as well as amortization related to definite-lived intangibles . interest expense interest expense is comprised of interest expense associated with our secured notes payable , notes payable and senior convertible debentures . the amortization of debt discounts is also recorded as part of interest expense . as many of our debt instruments are currently past due and , as a result , are accruing interest at increased interest rates , if we are able to refinance our debt or issue equity to reduce our outstanding debt , our interest expense would decrease due to lower interest rates on our debt or lower debt balances . provision for income taxes current and deferred income tax expense or benefit in any given period will depend upon a number of events and circumstances , one of which is the income tax net income or loss from operations for the period which is usually different from the u.s. gaap net income from operations for the period due to differences in tax laws and timing differences . see note 16 – income taxes in the notes for a reconciliation on u.s. gaap income or loss and tax income or loss . management assesses our deferred tax assets in each reporting period , and if it is determined that it is not more likely than not to be realized , we will record a change in our valuation allowance in that period . 35 story_separator_special_tag spending . these capital expenditures will be primarily utilized for equipment needed to generate revenue and for office equipment . we expect to fund such capital expenditures out of our working capital . 38 line of credit and debt agreements line of credit in 2017 , we issued a promissory note ( the “ cnb note ” ) to city national bank of florida ( “ cnb ” ) in the principal amount of $ 2,000,000. through various amendments , the cnb note had a maturity date of august 2 , 2020 and allowed for a cnb line of credit with advances that could have been requested until the maturity date of august 2 , 2020 so long as no event of default existed under the cnb note or certain other events .
| results of operations replace_table_token_1_th ( 1 ) these are exclusive of depreciation and amortization for january 10 , 2019 ( inception ) to december 31 , 2019 total revenues total revenues were $ 4,712,212 for the period from january 10 , 2019 ( inception ) to december 31 , 2019 ( “ fiscal 2019 ” ) , which were derived primarily from mobile network backhaul products and to a lesser extent , from the sale of our aerostat products and accessories after november 27 , 2019 , the date of the comsovereign acquisition , and from the test-market sale of certain high-performance after-market models of our intelligent batteries . our fiscal 2019 revenues did not include 2019 revenues of drone aviation for the period prior to the comsovereign acquisition , which amounted to $ 5,783,956. cost of goods sold and gross profit cost of goods sold were $ 2,990,716 for fiscal 2019 , which primarily consisted of the payment to our contact manufacturer for the production of our mobile network backhaul products and the materials , parts and labor associated with the manufacturing of our aerostat products and accessories and our intelligent batteries . gross profit for the period was $ 1,721,496 with a gross profit margin of 37 % for the same period . our fiscal 2019 cost of goods sold did not include 2019 cost of goods sold of drone aviation for the period prior to the comsovereign acquisition which amounted to $ 2,388,193 . 36 research and development expense research and development expense was $ 174,257 for fiscal 2019 , which primarily consisted of payroll and related costs .
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gains on the sale of stores were $ 9.7 million and $ 15.1 million in 2019 and 2018 , respectively . on a same store basis and excluding non-core charges , adjusted sg & a as a percentage of gross profit was 69.8 % in 2019 compared to 70.5 % in 2018 . decreases were seen in advertising , rent , facility costs , and data processing , partially offset by increases in personnel costs . sg & a increased 19.4 % , or $ 203.9 million , in 2018 compared to 2017. overall increases in sg & a were primarily due to growth through acquisitions and increased allowance losses associated with auto loan receivables , offset by decreases in losses related to storm insurance reserve charges and acquisition expenses and an increase in gains on the disposal of stores . other expenses in 2018 included acquisition expenses of $ 4.3 million , compared to $ 6.0 million in 2017 ; $ 3.2 million of storm related insurance charges , compared to $ 5.6 million in 2017 ; and auto loan allowance losses of $ 4.2 million compared to $ 1.2 million in 2017. gains on the sale of stores were $ 15.1 million and $ 5.1 million in 2018 and 2017 , respectively . sg & a adjusted for non-core charges was as follows ( in millions ) : replace_table_token_18_th 32 replace_table_token_19_th see “ non-gaap reconciliations ” for more details . depreciation and amortization depreciation and amortization is comprised of depreciation expense related to buildings , significant remodels or improvements , furniture , tools , equipment and signage and amortization related to tradenames . replace_table_token_20_th acquisition activity contributed to the increases in depreciation and amortization in 2019 compared to 2018 and in 2018 compared to 2017 . we purchased approximately $ 63 million and $ 108 million of depreciable property as part of our 2019 and 2018 acquisitions , respectively . capital expenditures totaled $ 124.9 million and $ 158.0 million , respectively , in 2019 and 2018 . these investments increase the amount of depreciable assets . see the discussion under “ liquidity and capital resources ” for additional information . operating income operating income as a percentage of revenue , or operating margin , was as follows : replace_table_token_21_th ( 1 ) see “ non-gaap reconciliations ” for additional information . in 2019 , our operating margin increased 10 basis points compared to 2018 . adjusting for non-core charges , including storm related insurance charges and acquisition expenses , our operating margin increased 20 basis points in 2019 compared to 2018 . in 2019 , the increase in our operating margin was driven by a decrease in sg & a as a percentage of gross profit and increasing total gross margin . in 2018 , our operating margin decreased 30 basis points compared to 2017 . adjusting for non-core charges , including storm related insurance charges and acquisition expenses , our operating margin decreased 40 basis points in 2018 compared to 2017 . in 2018 , the decrease in our operating margin was driven by our sg & a expense outpacing increases in gross profit . adjusting for those non-core charges , our operating margin was 3.7 % in 2018 . acquired stores generally have a lower operating efficiency than our other stores and negatively impact our operating margin as we integrate them into our cost structure . floor plan interest expense and floor plan assistance floor plan interest expense increased $ 10.5 million in 2019 compared to 2018 , primarily due to changes in our interest rates . changes in the interest rates on our floor plan facilities increased expense $ 10.9 million , acquisition volume increased expense $ 1.4 million , and decreases in average outstanding balances on our floor plan facilities decreased the expense $ 1.8 million during 2019 compared to 2018 . floor plan interest expense increased $ 23.0 million in 2018 compared to 2017 , due to an increase in inventory levels related to acquisitions and increasing interest rates . increases in outstanding balances on our floor plan facilities related to acquisitions 33 increased the expense $ 8.8 million and changes in the interest rates on our floor plan facilities increased the expense $ 14.2 million during 2018 compared to 2017 . floor plan assistance is provided by manufacturers to support store financing of new vehicle inventory . under accounting standards , floor plan assistance is recorded as a component of new vehicle gross profit when the specific vehicle is sold . however , because manufacturers provide this assistance to offset inventory carrying costs , we believe a comparison of floor plan interest expense to floor plan assistance is a useful measure of the efficiency of our new vehicle sales relative to stocking levels . the following tables detail the carrying costs for new vehicles and include new vehicle floor plan interest net of floor plan assistance earned : replace_table_token_22_th other interest expense other interest expense includes interest on debt incurred related to acquisitions , real estate mortgages , our used and service loaner vehicle inventory financing commitments , our revolving lines of credit , and issued senior notes . replace_table_token_23_th the increase in other interest expense in 2019 compared to 2018 was due to increased average borrowings on our credit facility , the issuance of $ 400 million in aggregate principal amount of 4.625 % senior notes due 2027 in december 2019 , and increases in mortgage borrowings related to acquisitions . see also note 6 of notes to consolidated financial statements for additional information . the increase in other interest expense in 2018 compared to 2017 was primarily due to the issuance of our $ 300 million in aggregate principal amount of 5.250 % senior notes due 2025 in july 2017 and increases in mortgage borrowings related to acquisitions . income tax provision our effective income tax rate was as follows : replace_table_token_24_th ( 1 ) see “ non-gaap reconciliations story_separator_special_tag gains on the sale of stores were $ 9.7 million and $ 15.1 million in 2019 and 2018 , respectively . on a same store basis and excluding non-core charges , adjusted sg & a as a percentage of gross profit was 69.8 % in 2019 compared to 70.5 % in 2018 . decreases were seen in advertising , rent , facility costs , and data processing , partially offset by increases in personnel costs . sg & a increased 19.4 % , or $ 203.9 million , in 2018 compared to 2017. overall increases in sg & a were primarily due to growth through acquisitions and increased allowance losses associated with auto loan receivables , offset by decreases in losses related to storm insurance reserve charges and acquisition expenses and an increase in gains on the disposal of stores . other expenses in 2018 included acquisition expenses of $ 4.3 million , compared to $ 6.0 million in 2017 ; $ 3.2 million of storm related insurance charges , compared to $ 5.6 million in 2017 ; and auto loan allowance losses of $ 4.2 million compared to $ 1.2 million in 2017. gains on the sale of stores were $ 15.1 million and $ 5.1 million in 2018 and 2017 , respectively . sg & a adjusted for non-core charges was as follows ( in millions ) : replace_table_token_18_th 32 replace_table_token_19_th see “ non-gaap reconciliations ” for more details . depreciation and amortization depreciation and amortization is comprised of depreciation expense related to buildings , significant remodels or improvements , furniture , tools , equipment and signage and amortization related to tradenames . replace_table_token_20_th acquisition activity contributed to the increases in depreciation and amortization in 2019 compared to 2018 and in 2018 compared to 2017 . we purchased approximately $ 63 million and $ 108 million of depreciable property as part of our 2019 and 2018 acquisitions , respectively . capital expenditures totaled $ 124.9 million and $ 158.0 million , respectively , in 2019 and 2018 . these investments increase the amount of depreciable assets . see the discussion under “ liquidity and capital resources ” for additional information . operating income operating income as a percentage of revenue , or operating margin , was as follows : replace_table_token_21_th ( 1 ) see “ non-gaap reconciliations ” for additional information . in 2019 , our operating margin increased 10 basis points compared to 2018 . adjusting for non-core charges , including storm related insurance charges and acquisition expenses , our operating margin increased 20 basis points in 2019 compared to 2018 . in 2019 , the increase in our operating margin was driven by a decrease in sg & a as a percentage of gross profit and increasing total gross margin . in 2018 , our operating margin decreased 30 basis points compared to 2017 . adjusting for non-core charges , including storm related insurance charges and acquisition expenses , our operating margin decreased 40 basis points in 2018 compared to 2017 . in 2018 , the decrease in our operating margin was driven by our sg & a expense outpacing increases in gross profit . adjusting for those non-core charges , our operating margin was 3.7 % in 2018 . acquired stores generally have a lower operating efficiency than our other stores and negatively impact our operating margin as we integrate them into our cost structure . floor plan interest expense and floor plan assistance floor plan interest expense increased $ 10.5 million in 2019 compared to 2018 , primarily due to changes in our interest rates . changes in the interest rates on our floor plan facilities increased expense $ 10.9 million , acquisition volume increased expense $ 1.4 million , and decreases in average outstanding balances on our floor plan facilities decreased the expense $ 1.8 million during 2019 compared to 2018 . floor plan interest expense increased $ 23.0 million in 2018 compared to 2017 , due to an increase in inventory levels related to acquisitions and increasing interest rates . increases in outstanding balances on our floor plan facilities related to acquisitions 33 increased the expense $ 8.8 million and changes in the interest rates on our floor plan facilities increased the expense $ 14.2 million during 2018 compared to 2017 . floor plan assistance is provided by manufacturers to support store financing of new vehicle inventory . under accounting standards , floor plan assistance is recorded as a component of new vehicle gross profit when the specific vehicle is sold . however , because manufacturers provide this assistance to offset inventory carrying costs , we believe a comparison of floor plan interest expense to floor plan assistance is a useful measure of the efficiency of our new vehicle sales relative to stocking levels . the following tables detail the carrying costs for new vehicles and include new vehicle floor plan interest net of floor plan assistance earned : replace_table_token_22_th other interest expense other interest expense includes interest on debt incurred related to acquisitions , real estate mortgages , our used and service loaner vehicle inventory financing commitments , our revolving lines of credit , and issued senior notes . replace_table_token_23_th the increase in other interest expense in 2019 compared to 2018 was due to increased average borrowings on our credit facility , the issuance of $ 400 million in aggregate principal amount of 4.625 % senior notes due 2027 in december 2019 , and increases in mortgage borrowings related to acquisitions . see also note 6 of notes to consolidated financial statements for additional information . the increase in other interest expense in 2018 compared to 2017 was primarily due to the issuance of our $ 300 million in aggregate principal amount of 5.250 % senior notes due 2025 in july 2017 and increases in mortgage borrowings related to acquisitions . income tax provision our effective income tax rate was as follows : replace_table_token_24_th ( 1 ) see “ non-gaap reconciliations
| results of operations for the year ended december 31 , 2019 , we reported net income of $ 271.5 million , or $ 11.60 per diluted share . for the years ended december 31 , 2018 and 2017 , we reported net income of $ 265.7 million , or $ 10.86 per diluted share , and $ 245.2 million , or $ 9.75 per diluted share , respectively . replace_table_token_6_th 24 same store operating data we believe that same store comparisons are an important indicator of our financial performance . same store measures demonstrate our ability to grow operations in our existing locations . therefore , we have integrated same store measures into the discussion below . same store measures reflect results for stores that were operating in each comparison period , and only include the months when operations occurred in both periods . for example , a store acquired in november 2018 would be included in same store operating data beginning in december 2019 , after its first complete comparable month of operations . the fourth quarter operating results for the same store comparisons would include results for that store in only the period of december for both comparable periods . replace_table_token_7_th 25 new vehicles the increase in same store new vehicle revenues for 2019 compared to 2018 was driven by an increase in average selling prices of 5.0 % , partially offset by a decrease in unit volume of 3.3 % . as the national new vehicle market plateaus , our stores focus on improving gross profit per new vehicle sold . on a same store basis , gross profit per new vehicle increased 2.1 % during 2019 compared to 2018 . our recently acquired stores are also focused on improving gross profit per new vehicle as total company gross profit per unit increased 2.4 % during 2019 compared to 2018 .
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the sec defines critical accounting policies as those that are both most important to the portrayal of a company 's financial condition and results , and that 35 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 and may change materially in subsequent periods . the preparation of our consolidated financial statements requires estimates and assumptions that affect amounts reported and disclosed in the financial statements and related notes . significant estimates made by us include valuation of loans , equity investments , and investments in subsidiaries , evaluation of the recoverability of accounts receivable and income tax assets , and the assessment of litigation and other contingencies . the matters that give rise to such provisions are inherently uncertain and may require complex and subjective judgments . although we believe that estimates and assumptions used in determining the recorded amounts of net assets and liabilities at december 31 , 2011 are reasonable , actual results could differ materially from the estimated amounts recorded in our financial statements . general we are a specialty finance company that has a leading position in originating , acquiring , and servicing loans that finance taxicab medallions and various types of commercial businesses . a wholly-owned portfolio company of ours , medallion bank , also originates consumer loans for the purchase of recreational vehicles , boats , motorcycles , and trailers . since 1996 , the year in which we became a public company , we have increased our taxicab medallion loan portfolio at a compound annual growth rate of 6 % , and our commercial loan portfolio at a compound annual growth rate of 2 % ( 10 % and 8 % on a managed basis when combined with medallion bank ) . since medallion bank acquired a consumer loan portfolio and began originating consumer loans in 2004 , it has increased its consumer loan portfolio at a compound annual growth rate of 11 % . total assets under our management and the management of our unconsolidated wholly-owned subsidiaries , which also includes assets serviced for third party investors , were $ 1,141,806,000 as of december 31 , 2011 and $ 1,093,379,000 as of december 31 , 2010 , and have grown at a compound annual growth rate of 12 % from $ 215,000,000 at the end of 1996. our loan-related earnings depend primarily on our level of net interest income . net interest income is the difference between the total yield on our loan portfolio and the average cost of borrowed funds . we fund our operations through a wide variety of interest-bearing sources , such as revolving bank facilities , bank certificates of deposit issued to customers , debentures issued to and guaranteed by the sba , and bank term debt . net interest income fluctuates with changes in the yield on our loan portfolio and changes in the cost of borrowed funds , as well as changes in the amount of interest-bearing assets and interest-bearing liabilities held by us . net interest income is also affected by economic , regulatory , and competitive factors that influence interest rates , loan demand , and the availability of funding to finance our lending activities . we , like other financial institutions , are subject to interest rate risk to the degree that our interest-earning assets reprice on a different basis than our interest-bearing liabilities . we also provide debt , mezzanine , and equity investment capital to companies in a variety of industries , consistent with our investment objectives . these investments may be venture capital style investments which may not be fully collateralized . medallion capital 's investments are typically in the form of secured debt instruments with fixed interest rates accompanied by warrants to purchase an equity interest for a nominal exercise price ( such warrants are included in equity investments on the consolidated balance sheets ) . interest income is earned on the debt instruments . we are a closed-end , management investment company under the 1940 act . we have elected to be treated as a bdc under the 1940 act . we have also elected to be treated for federal income tax purposes as a ric under subchapter m of the code . as a ric , we generally do not have to pay corporate-level federal income taxes on any net ordinary income or capital gains that we distribute to our shareholders as dividends if we meet certain source-of-income and asset diversification requirements . medallion bank is not a ric and must pay corporate-level us federal and state income taxes . our wholly-owned portfolio company , medallion bank , is a bank regulated by the fdic and the utah department of financial institutions which originates taxicab medallion , commercial , and consumer loans , raises deposits , and conducts other banking activities . medallion bank generally provides us with our lowest cost of funds which it raises through bank certificates of deposit issued to its customers . to take advantage of this low cost of funds , we refer a portion of our taxicab medallion and commercial loans to medallion bank , which then originates these loans . however , the fdic restricts the amount of taxicab medallion loans that medallion bank may finance to three times tier 1 capital , or $ 321,027,000 as of december 31 , 2011. we earn referral fees for these activities . in december 2010 , all of these servicing activities were assigned to msc . as a non-investment company , medallion bank is not consolidated with the company . realized gains or losses on investments are recognized when the investments are sold or written off . the realized gains or losses represent the difference between the proceeds received from the disposition of portfolio assets , if any , and the cost of such portfolio assets . story_separator_special_tag 38 portfolio summary total portfolio yield the weighted average yield of the total portfolio at december 31 , 2011 was 6.36 % ( 6.38 % for the loan portfolio ) , a decrease of 53 basis points from 6.89 % at december 31 , 2010 , which was a decrease of 33 basis points from 7.22 % at december 31 , 2009. the weighted average yield of the total managed portfolio at december 31 , 2011 was 8.05 % ( 8.24 % for the loan portfolio ) , a decrease of 62 basis points from 8.67 % at december 31 , 2010 , which was a decrease of 68 basis points from 9.35 % at december 31 , 2009. the decreases from 2009 reflected the general market condition of falling interest rates , and the resultant repricing downwards of most asset categories . medallion loan portfolio our medallion loans comprised 68 % of the net portfolio of $ 451,835,000 at december 31 , 2011 , compared to 67 % of the net portfolio of $ 483,516,000 at december 31 , 2010 and 68 % of $ 475,133,000 at december 31 , 2009. our managed medallion loans of $ 600,667,000 comprised 63 % of the net managed portfolio of $ 956,626,000 at december 31 , 2011 , compared to 62 % the net managed portfolio of $ 946,343,000 at december 31 , 2010 , and 57 % of $ 846,542,000 at december 31 , 2009. the medallion loan portfolio decreased by $ 15,959,000 or 5 % in 2011 ( and increased by $ 17,074,000 or 3 % on a managed basis ) , primarily reflecting decreases in new york market , primarily reflecting the sale of participation interests to third parties . the increase in the managed portfolio was primarily driven by increases in the new york market ; partially offset by decreases in the other months . total medallion loans serviced for third parties were $ 75,866,000 , $ 63,933,000 , and $ 102,307,000 at december 31 , 2011 , 2010 , and 2009. the weighted average yield of the medallion loan portfolio at december 31 , 2011 was 5.11 % , a decrease of 79 basis points from 5.90 % at december 31 , 2010 , which was a decrease of 33 basis points from 6.23 % at december 31 , 2009. the weighted average yield of the managed medallion loan portfolio at december 31 , 2011 was 4.96 % , a decrease of 79 basis points from 5.75 % at december 31 , 2010 , which was a decrease of 45 basis points from 6.20 % at december 31 , 2009. the decreases in yield primarily reflected the impact of falling interest rates in the economy and the effects of borrower refinancings . at december 31 , 2011 , 26 % of the medallion loan portfolio represented loans outside new york , compared to 26 % and 24 % at year-end 2010 and 2009. at december 31 , 2011 , 22 % of the managed medallion loan portfolio represented loans outside new york , compared to 24 % and 25 % at year-end 2010 and 2009. we continue to focus our efforts on originating higher yielding medallion loans outside the new york market . commercial loan portfolio our commercial loans represented 12 % of the net investment portfolio as of december 31 , 2011 , compared to 16 % at december 31 , 2010 and 2009 , and were 13 % , 16 % , and 18 % on a managed basis . commercial loans decreased by $ 22,707,000 or 30 % during 2011 ( $ 19,897,000 or 13 % on a managed basis ) , primarily reflecting repayments and reserve increases in the high-yield mezzanine loan portfolio , and on a managed basis , partially offset by increases in the asset-based loan portfolio . net commercial loans serviced by third parties were $ 14,298,000 , $ 12,282,000 , and $ 13,376,000 at december 31 , 2011 , 2010 , and 2009. the weighted average yield of the commercial loan portfolio at december 31 , 2011 was 12.25 % , a decrease of 38 basis points from 12.63 % at december 31 , 2010 , which was down 8 basis points from 12.71 % at december 31 , 2009. the weighted average yield of the managed commercial loan portfolio at december 31 , 2011 was 8.76 % , a decrease of 68 basis points from 9.44 % at december 31 , 2010 , which was down 6 basis points from 9.50 % at december 31 , 2009. the decreases reflected the continued lowering of interest rates in the economy as loans repriced , and the lower proportion of higher-yielding mezzanine loans in the portfolio in 2011 , compared to 2010. we continue to originate adjustable-rate and floating-rate loans tied to the prime rate to help mitigate our interest rate risk in a rising interest rate environment . at december 31 , 2011 , variable-rate loans represented 14 % of the commercial portfolio , compared to 20 % and 17 % at december 31 , 2010 and 2009 , and were 57 % , 54 % , and 55 % on a managed basis . although this strategy initially produces a lower yield , we believe that this strategy mitigates interest rate risk by better matching our earning assets to their adjustable-rate funding sources . 39 consumer loan portfolio our managed consumer loans , all of which are held in the portfolio managed by medallion bank , represented 20 % of the managed net investment portfolio as of december 31 , 2011 , compared to 19 % and 22 % at december 31 , 2010 and 2009. medallion bank originates adjustable rate consumer loans secured by recreational vehicles , boats , motorcycles , and trailers located in all 50 states . the portfolio is serviced by a third party subsidiary of a major commercial bank .
| consolidated results of operations for the years ended december 31 , 2011 and 2010 net increase in net assets resulting from operations was $ 19,163,000 or $ 1.09 per diluted common share in 2011 , up $ 7,884,000 or 70 % from $ 11,279,000 or $ 0.64 per share in 2010 , primarily reflecting higher net realized/unrealized gains , lower operating expenses , and higher net interest income , partially offset by lower noninterest income . net investment income after taxes was $ 10,763,000 or $ 0.61 per share in 2011 , up $ 890,000 or 9 % from $ 9,873,000 or $ 0.56 in 2010. investment income was $ 37,227,000 in 2011 , down $ 26,000 from $ 37,253,000 a year ago , and included $ 4,070,000 from interest recoveries and bonuses on certain investments in 2011 , compared to $ 2,678,000 in 2010. also included in 2011 and 2010 were $ 5,500,000 and $ 4,000,000 in dividends from medallion bank , respectively . excluding those items , investment income decreased $ 2,918,000 or 10 % , primarily reflecting changes in the yields earned and the sourcing of a greater proportion of our business to medallion bank . the yield on the investment portfolio was 8.01 % in 2011 , up 1 % from 7.91 % in 2010. excluding the extra interest and dividends , the 2011 yield was down 8 % to 5.95 % from 6.49 % in 2010 , reflecting the general decrease in market interest rates and changes in the portfolio mix . average investments outstanding were $ 464,541,000 in 2011 , down 1 % from $ 471,105,000 a year ago , primarily reflecting portfolio growth , partially offset by loan participations sold and loan payments received .
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if certain conditions are met , a derivative may be specifically designated as ( 1 ) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment ( “ fair value hedge ” ) , ( 2 ) a hedge of the exposure to variable cash flows of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability ( “ cash flow hedge ” ) , or ( 3 ) an instrument with no hedging designation ( “ stand-alone derivative ” ) . for a fair value hedge , the gain or loss on the derivative , as well as the offsetting loss or gain on the hedged item , are recognized in current story_separator_special_tag this management 's discussion and analysis of financial condition and results of operations ( “ md & a ” ) primarily reviews the financial condition and results of operations of the company for the past two years , although in some circumstances a period longer than two years is covered in order to comply with sec disclosure requirements or to more fully explain long-term trends . the following discussion and analysis should be read in conjunction with the selected consolidated financial information beginning on page 26 and the company 's consolidated financial statements and related notes that appear on pages 60 through 109. all references in the discussion to the financial condition and results of operations refer to the consolidated position and results of the company and its subsidiaries taken as a whole . unless otherwise noted , all earnings per share ( “ eps ” ) figures disclosed in the md & a refer to diluted eps ; interest income , net interest income , and net interest margin are presented on a fully tax-equivalent ( “ fte ” ) basis , which is a non-gaap measure . the term “ this year ” and equivalent terms refer to results in calendar year 2018 , “ last year ” and equivalent terms refer to calendar year 2017 , and all references to income statement results correspond to full-year activity unless otherwise noted . this md & a contains certain forward-looking statements with respect to the financial condition , results of operations , and business of the company . these forward-looking statements involve certain risks and uncertainties . factors that may cause actual results to differ materially from those contemplated by such forward-looking statements are set herein under the caption “ forward-looking statements ” on page 54. critical accounting policies as a result of the complex and dynamic nature of the company 's business , management must exercise judgment in selecting and applying the most appropriate accounting policies for its various areas of operations . the policy decision process not only ensures compliance with the current accounting principles generally accepted in the united states of america ( “ gaap ” ) , but also reflects management 's discretion with regard to choosing the most suitable methodology for reporting the company 's financial performance . it is management 's opinion that the accounting estimates covering certain aspects of the business have more significance than others due to the relative importance of those areas to overall performance , or the level of subjectivity in the selection process . these estimates affect the reported amounts of assets and liabilities as well as disclosures of revenues and expenses during the reporting period . actual results could differ from these estimates . management believes that the critical accounting estimates include the allowance for loan losses , actuarial assumptions associated with the pension , post-retirement and other employee benefit plans , the provision for income taxes , investment valuation and other-than-temporary impairment , the carrying value of goodwill and other intangible assets , and acquired loan valuations . a summary of the accounting policies used by management is disclosed in note a , “ summary of significant accounting policies ” , starting on page 65. supplemental reporting of non-gaap results of operations the company also provides supplemental reporting of its results on an “ operating , ” “ net adjusted ” or “ tangible ” basis , from which it excludes the after-tax effect of amortization of core deposit and other intangible assets ( and the related goodwill , core deposit intangible and other intangible asset balances , net of applicable deferred tax amounts ) , accretion on non-impaired purchased loans , acquisition expenses , the unrealized gain ( loss ) on equity securities , loss on debt extinguishment and the one-time benefit from the revaluation of net deferred tax liabilities . although “ adjusted net income ” as defined by the company is a non-gaap measure , the company 's management believes this information helps investors understand the effect of acquisition and other non-recurring activity in its reported results . reconciliations of gaap amounts with corresponding non-gaap amounts are presented in table 20. story_separator_special_tag font-size : 8pt ; '' > net income for 2017 was $ 150.7 million , an increase of $ 46.9 million , or 45.2 % , from 2016 's earnings , while earnings per share for 2017 was $ 3.03 , up $ 0.71 , or 30.6 % , from 2016 's results due primarily to the merchants and nrs acquisitions , as well as the one-time impact of the tax cuts and jobs act . the 2017 results included the aforementioned acquisition expenses . table 1 : condensed income statements replace_table_token_4_th the company operates in three business segments : banking , employee benefit services and all other . the banking segment provides a wide array of lending and depository-related products and services to individuals , businesses and municipal enterprises . in addition to these general intermediation services , the banking segment provides treasury management solutions and payment processing services . story_separator_special_tag the increase was due to the additional customers generated by both organic and acquired growth sources , including the expansion of operations resulting from the penna , styles bridges , bas , dryfoos , gbr and necm acquisitions . · wealth management and insurance services noninterest expenses of $ 47.0 million increased $ 6.3 million from 2017 primarily due to increased personnel costs associated with the aforementioned organic and acquired growth . 30 selected profitability and other measures return on average assets , return on average equity , dividend payout and equity to asset ratios for the years indicated are as follows : table 2 : selected ratios replace_table_token_5_th as displayed in table 2 , the 2018 return on average assets ratio increased nine basis points , while the return on average equity ratio decreased one basis point as compared to 2017. the increase in return on average assets was primarily the result of an increase in net income , reflective of a full year of activities from the merchants and nrs transactions , which outpaced the increase in average assets . the return on average equity ratio decreased slightly in 2018 as the increase in average equity due primarily to the impact of the shares issued for the merchants and nrs acquisitions and earnings retention slightly outpaced the increase in net income . the return on average assets ratio and the return on average equity increased in 2017 , as compared to 2016. the increase in return on average assets and return on equity in 2017 was the result of an increase in net income , reflective of expanded activities from the merchants and nrs transactions and the impact of the one-time adjustment to net deferred tax liabilities in the fourth quarter of 2017 related to the tax cuts and jobs act , which outpaced the increase in average assets and average equity . the return on average assets adjusted to exclude acquisition expenses , the one-time impact of the tax cuts and jobs act , unrealized gain on equity securities , loss on debt extinguishment , amortization of intangibles , and acquired non-impaired loan accretion increased 27 basis points to 1.65 % in 2018 , as compared to 1.38 % in 2017. the return on average equity adjusted to exclude acquisition expenses , the one-time impact of the tax cuts and jobs act , amortization of intangibles , and acquired non-impaired loan accretion increased 123 basis points to 10.64 % in 2018 , from 9.41 % in 2017. see table 20 for reconciliation of gaap to non-gaap measures . the dividend payout ratio for 2018 increased 0.3 % from 2017 as the 12.7 % increase in dividends declared from 2017 was modestly higher than the 11.9 % increase in net income . the increase in dividends declared in 2018 was a result of a 9.1 % increase in the dividends declared per share and the issuance of shares in connection with the administration of the company 's 401 ( k ) plan and employee stock plan . the dividend payout ratio for 2017 decreased 10.2 % from 2016 as the 45.2 % increase in net income from 2016 outweighed the 17.6 % increase in dividends declared . the increase in dividends declared in 2017 was a result of a 4.8 % increase in the dividends declared per share , an increase in the shares outstanding due to the issuance of shares as partial consideration in the merchants , nrs and gbr transactions and the issuance of shares in connection with the administration of the company 's 401 ( k ) plan and employee stock plan . the average equity to average assets ratio continued to increase in 2018 as the growth in common shareholders ' equity outpaced the growth in assets . during 2018 , average equity increased 12.0 % while average assets increased at a rate of 5.7 % . in 2017 average equity rose 21.8 % and average assets grew 16.5 % in comparison to 2016. net interest income net interest income is the amount by which interest and fees on earning assets ( loans , investments and cash equivalents ) exceeds the cost of funds , which consists primarily of interest paid to the company 's depositors and interest on borrowings . net interest margin is the difference between the yield on interest earning assets and the cost of interest-bearing liabilities as a percentage of earning assets . as disclosed in table 3 , net interest income ( with nontaxable income converted to a fully tax-equivalent basis ) totaled $ 349.4 million in 2018 , an increase of $ 24.3 million , or 7.5 % , from the prior year . the increase is a result of a $ 553.7 million , or 6.3 % , increase in average interest-earning assets and an eight basis point increase in the average yield on interest-earning assets , partially offset by a $ 179.0 million increase in average interest-bearing liabilities and a five basis point increase in the average rate on interest-bearing liabilities . as reflected in table 4 , the favorable impact of the increase in interest-earning assets ( $ 21.6 million ) and increase in the yield ( $ 6.6 million ) was partially offset by the unfavorable impact of the increase in interest-bearing liabilities ( $ 0.4 million ) and the higher rate on interest-bearing liabilities ( $ 3.5 million ) . 31 the 2018 net interest margin increased four basis points to 3.73 % from 3.69 % reported in 2017. the increase was attributable to an eight basis point increase in the earning-asset yield , offset by a five basis point increase in the cost of interest-bearing liabilities . the 4.58 % yield on loans increased 19 basis points in 2018 as compared to 4.39 % in 2017 , including the impact of incremental acquired loan accretion on the merchants portfolio .
| executive summary the company 's business philosophy is to operate as a diversified financial services enterprise providing a broad array of banking and other financial services to retail , commercial and municipal customers . the company 's banking subsidiary is community bank , n.a . ( the “ bank ” or “ cbna ” ) . the company also provides employee benefit and trust related services via its benefit plans administrative services , inc. ( “ bpas ” ) subsidiary , and wealth management and insurance-related services . the company 's core operating objectives are : ( i ) grow the branch network , primarily through a disciplined acquisition strategy , and certain selective de novo expansions , ( ii ) build profitable loan and deposit volume using both organic and acquisition strategies , ( iii ) manage an investment securities portfolio to complement the company 's loan and deposit strategies and optimize interest rate risk , yield and liquidity , ( iv ) increase the noninterest component of total revenues through development of banking-related fee income , growth in existing financial services business units , and the acquisition of additional financial services and banking businesses , and ( v ) utilize technology to deliver customer-responsive products and services and improve efficiencies . 27 significant factors reviewed by management to evaluate achievement of the company 's operating objectives and its operating results and financial condition include , but are not limited to : net income and earnings per share ; return on assets and equity ; net interest margins ; noninterest revenues ; noninterest expenses ; asset quality ; loan and deposit growth ; capital management ; performance of individual banking and financial services units ; performance of specific product lines and customers ; liquidity and interest rate sensitivity ; enhancements to customer products and services and their underlying performance characteristics ; technology advancements ; market share ; peer comparisons ; and the performance of recently acquired businesses .
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actual results could differ from those estimates . significant estimates include valuation of short-term investments , the useful lives of property and equipment , accounting for potential liabilities , the valuation allowance associated with the company 's deferred tax assets , and the assumptions made in valuing stock instruments issued for services . f- 11 iovance biotherapeutics , inc. notes to consolidated financial statements principles of consolidation the accompanying consolidated financial statements include the accounts of iovance biotherapeutics , inc. and its wholly-owned subsidiary , iovance biotherapeutics gmbh ( formerly lion biotechnologies gmbh ) . all intercompany accounts and transactions have been eliminated . the u.s. dollar is the functional currency for all the company 's consolidated operations . stock-based compensation the company periodically grants stock options and warrants to employees and non-employees in non-capital raising transactions as compensation for services rendered . the company accounts for stock option grants to employees based on the authoritative guidance provided by the fasb where the value of the award is measured on the date of grant and recognized over the vesting period . the company accounts for stock option grants to non-employees in accordance with the authoritative guidance of the fasb where the value of the stock compensation is determined based upon the measurement date 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 grants is estimated using a 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 . during the years ended december 31 , 2016 and 2015 , the company estimated forfeitures at the time of grant and revised those estimates in subsequent periods if actual forfeitures differed from those estimates . effective january 1 , 2017 , the company adopted asu 2016-09 and elected to recognize forfeitures when they occur using a modified retrospective approach , which did not have a material impact on its consolidated financial statements . the company has in the past issued restricted shares of its common stock for share-based compensation programs . the company measures the compensation cost with respect to restricted shares issued to employees based upon the estimated fair value of the equity instruments at the date of the grant , which is recognized as an expense over the period during which an employee is required to provide services in exchange for the award . the fair value of restricted stock units is based on the closing price of the company 's common stock on the grant date . total stock-based compensation expense related to all of the company 's stock-based awards was recorded on the statements of operations as follows ( in thousands ) : replace_table_token_20_th total stock-based compensation broken down based on each individual instrument was as follows ( in thousands ) : replace_table_token_21_th f- 12 iovance biotherapeutics , inc. notes to consolidated financial statements research and development expenses research and development expenses include personnel and facility-related expenses , outside contracted services including clinical trial costs , manufacturing and process development costs , research costs and other consulting services . research and development costs are expensed as incurred . nonrefundable advance payments for goods or services that will be used or rendered for future research and development activities are deferred and amortized over the period that the goods are delivered , or the related services are performed , subject to an assessment of recoverability . clinical development costs are a significant component of research and development expenses . the company has a history of contracting with third parties that perform various clinical trial activities on its behalf in connection with the ongoing development of its product candidates . the financial terms of these contracts are subject to negotiations and may vary from contract to contract and may result in uneven payment flow . the company accrues and expenses costs for clinical trial activities performed by third parties based upon estimates of the percentage of work completed over the life of the individual study in accordance with agreements established with contract research organizations and clinical trial sites . the company determines its estimates through discussions with internal clinical personnel and outside service providers as to the progress or stage of completion of trials or services and the agreed upon fee to be paid for such services . general and administrative expenses general and story_separator_special_tag the following discussion and analysis of our results of operations and financial condition should be read in conjunction with our financial statements and the notes to those financial statements that are included elsewhere in this report . our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties , such as our plans , objectives , expectations and intentions . story_separator_special_tag the increase was primarily attributable to a $ 3.2 million increase in drug manufacturing costs , expenses incurred under the polybiocept agreement in the amount of $ 2.7 million , a $ 2.4 million increase in payroll and related expenses primarily due to an increase in headcount , an increase of $ 1.3 million related to consultants contracted with to perform research and development activities on our behalf , a $ 0.9 million increase in costs related to our clinical trials , and a $ 1.0 million increase in non-cash stock-based compensation expense . 67 general and administrative expense ( in thousands ) replace_table_token_9_th general and administrative expense for the year ended december 31 , 2016 increased by $ 14.3 million , or 115 % , compared to the year ended december 31 , 2015 , inclusive of stock-based compensation . the increase was primarily attributable to a $ 9.4 million increase in stock-based compensation expense primarily due to the accelerated vesting of equity awards upon the termination of employment of our former chief executive officer and our former chief financial officer , and the increase in the number of our employees , a $ 1.5 million increase in payroll and related expenses primarily due to the increase in headcount , a $ 0.9 million increase due to severance payments to our former chief executive officer and our former chief financial officer , and a $ 2.4 million increase in consulting and legal-related expenses . interest income ( in thousands ) replace_table_token_10_th interest income for the year ended december 31 , 2016 increased by $ 0.5 million , or 273 % , compared to the year ended december 31 , 2015 due to the higher cash balances in 2016 as a result of the proceeds received from our equity financings in 2015 and june 2016. net loss we had a net loss of $ 92.1 million , $ 52.9 million and $ 27.7 million for the years ended december 31 , 2017 , 2016 and 2015 , respectively . the increase in our net losses in 2017 , as compared to 2016 , was due to the continued expansion of our research and development activities , increased clinical trials and manufacturing activities , and the overall growth of our corporate infrastructure . we anticipate that we will continue to incur net losses in the future as we further invest in our research and development activities , including our clinical development . the increase in our net loss during 2016 , as compared to 2015 , was also due to the continued expansion of our research and development activities , increased clinical trials and manufacturing activities , and the overall growth of our corporate infrastructure . in addition , our general and administrative expenses increased in 2016 due to the increase in headcount and the acceleration of stock-based equity awards related to the termination of certain executives . liquidity and capital resources we have incurred losses and generated negative cash flows from operations since inception . we expect to continue to incur significant losses in 2018 and may incur significant losses and negative cash flows from operations for the foreseeable future . we have funded our operations primarily through issuance of equity securities . on december 28 , 2017 , we filed a shelf registration statement with the securities and exchange commission , or sec , for the issuance of common stock , preferred stock , warrants , rights , debt securities and units up to an aggregate amount of $ 250 million , of which $ 42.5 million consists of unsold securities previously registered under the 2016 shelf registration statement ( see below ) , and which we refer to as the 2017 shelf registration statement . the 2017 registration statement was declared effective on january 19 , 2018. we completed an offering of common stock in january 2018 utilizing the 2017 shelf registration statement ( see below ) . in the future , we may periodically offer one or more of these securities in amounts , prices and terms to be announced when and if the securities are offered . at the time , any of the securities covered by the 2017 shelf registration statement are offered for sale , a prospectus supplement will be prepared and filed with the sec containing specific information about the terms of any such offering . on december 23 , 2016 , we filed a shelf registration statement with the sec for the issuance of common stock , preferred stock , warrants , rights , debt securities and units up to an aggregate amount of $ 100 million , which we refer to as the 2016 shelf registration statement . on january 11 , 2017 , the 2016 shelf registration statement was declared effective by the sec . we completed an offering of common stock in september 2017 utilizing the 2016 shelf registration statement ( see below ) . 68 in september 2017 , we sold 8,846,154 shares of our common stock in an underwritten public offering at a public offering price of $ 6.50 per share , under the 2016 shelf registration statement . we received gross proceeds of approximately $ 57.5 million and net proceeds of approximately $ 53.7 million , after deducting underwriting discounts and offering expenses . in january 2018 , we announced the closing of our public offering of 15,000,000 shares of our common stock at a public offering price of $ 11.50 per share , before underwriting discounts , which included 1,956,521 shares issued upon the exercise in full by the underwriter of its option to purchase additional shares at the public offering price less the underwriting discount , under the 2017 shelf registration statement.
| overview we are a clinical-stage biopharmaceutical company focused on the development and commercialization of novel cancer immunotherapy products designed to harness the power of a patient 's own immune system to eradicate cancer cells . our lead product candidate , ln-144 for metastatic melanoma , is an autologous adoptive cell therapy utilizing tumor-infiltrating lymphocytes , or til , which are t cells derived from patients ' tumors . til therapy is a platform technology that has already been studied for the treatment of metastatic melanoma and metastatic cervical cancer by the national cancer institute , or nci . we are investigating the effectiveness and safety of til therapy for the treatment of metastatic melanoma , squamous cell carcinoma of the head and neck , cervical carcinoma , and metastatic non-small cell lung cancer , as well as other oncology indications . we have an on-going phase 2 clinical trial , c-144-01 , of our lead product candidate , ln-144 , til for the treatment of metastatic melanoma . this multicenter study is enrolling patients with melanoma whose disease has progressed following treatment with at least one systemic therapy , including anti-pd-1 and if braf mutated , a braf inhibitor . the trial is currently active at fourteen u.s. sites . we anticipate initiating patient dosing in europe during the first half of 2018. the purpose of the study is to evaluate the efficacy and safety of our autologous ln-144 .
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51 monro muffler brake , inc. and subsidiary notes to consolidated financial statements ( continued ) a summary of the status of and changes in nonvested stock options granted is as follows : replace_table_token_30_th the following table summarizes information about fixed stock options outstanding at march 31 , 2012 : replace_table_token_31_th during the fiscal years ended march 31 , 2012 , march 26 , 2011 and march 27 , 2010 , the fair value of awards vested under the company 's stock plans was $ 2.7 million , $ 2.4 million and $ 1.8 million , respectively . the aggregate intrinsic value in the preceding tables is based on the company 's closing stock price of $ 41.49 , $ 31.78 and $ 23.99 as of the last trading day of the periods ended march 31 , 2012 , march 26 , 2011 and march 27 , 2010 , respectively . the aggregate intrinsic value of options exercised during the fiscal years ended march 31 , 2012 , march 26 , 2011 and march 27 , 2010 was $ 17.6 million , $ 9.4 million and $ 10.1 million , respectively . as of march 31 , 2012 , march 26 , 2011 and march 27 , 2010 , there was $ 4.9 million , $ 6.4 million and $ 1.8 million , respectively story_separator_special_tag the following table sets forth income statement data of the company expressed as a percentage of sales for the fiscal years indicated : replace_table_token_5_th forward-looking statements the statements contained in this annual report on form 10-k that are not historical facts , including ( without limitation ) statements made in this item and in item 1 business , may contain statements of future expectations and other forward-looking statements made pursuant to the safe harbor provisions of the private securities litigation reform act of 1995. forward-looking statements are subject to risks , uncertainties and other important factors that could cause actual results to differ materially from those expressed . these factors include , but are not necessarily limited to , product demand , dependence on and competition within the primary markets in which the company 's stores are located , the need for and costs associated with store renovations and other capital expenditures , the effect of economic conditions , the impact of competitive services and pricing , product development , parts supply restraints or difficulties , industry regulation , risks relating to leverage and debt service ( including sensitivity to fluctuations in interest rates ) , continued availability of capital resources and financing , disruption or unauthorized access to our computer systems , risks relating to protection of customer and employee personal data , risks relating to litigation , risks relating to integration of acquired businesses and the risks set forth in item 1a . risk factors . except as required by law , the company does not undertake to update any forward-looking statement that may be made from time to time by or on behalf of the company . critical accounting policies the company believes that the accounting policies listed below are those that are most critical to the portrayal of the company 's financial condition and results of operations , and that required management 's most difficult , subjective and complex judgments in estimating the effect of inherent uncertainties . this section should be read in conjunction with note 1 to the consolidated financial statements which includes other significant accounting policies . inventory the company evaluates whether inventory is stated at the lower of cost or market based on historical experience with the carrying value and life of inventory . the assumptions used in this evaluation are based on current market conditions and the company believes inventory is stated at the lower of cost or market in the consolidated financial statements . in addition , historically the company has been able to return excess items to 20 vendors for credit or sell such inventory to wholesalers . future changes by vendors in their policies or willingness to accept returns of excess inventory could require a revision in the estimates . carrying values of goodwill and long-lived assets the company has a history of growth through acquisitions . assets and liabilities of acquired businesses are recorded at their estimated fair values as of the date of acquisition . goodwill represents costs in excess of fair values assigned to the underlying net assets of acquired businesses . other intangible assets primarily represent allocations of purchase price to identifiable intangible assets of acquired businesses . the carrying values of goodwill , customer list and trade name assets are subject to annual impairment reviews in accordance with accounting guidance on goodwill and other intangible assets , which the company typically performs in the third quarter of the fiscal year . impairment reviews may also be triggered by any significant events or changes in circumstances affecting the company 's business . the company has one reporting unit that is not at risk . the goodwill impairment test consists of a two-step process , if necessary . the company performs a qualitative assessment to determine if it is more likely than not that the fair value is less than the carrying value of goodwill . if the qualitative factors are triggered , the company performs the two-step process . the first step is to compare the fair value of the company 's invested capital to the book value of its invested capital . if the fair value is less than its carrying value , the second step of the impairment test must be performed in order to determine the amount of impairment loss , if any . the second step compares the implied fair value of goodwill with the carrying amount of that goodwill . if the carrying amount of goodwill exceeds its implied fair value , an impairment charge is recognized in an amount equal to that excess . the loss recognized can not exceed the carrying amount of goodwill . story_separator_special_tag additionally , there was an increase of $ 54.6 million related to new stores , of which $ 41.2 million and $ 10.3 million came from the fiscal 2010 and fiscal 2011 acquisitions , respectively . partially offsetting this was a decrease in sales from closed stores amounting to $ 3.5 million . there were 361 selling days in both fiscal 2011 and 2010. the company slightly modified its methodology for calculating the number of selling days in each month and quarter during fiscal 2011. previously , in computing its comparable store sales percentage increases ( adjusted for days ) , the company did not include sundays or open holidays in the number of selling days , but included all sales in each comparable period . this was because only a small number of stores were open sundays , and some were not open holidays . also , these days were generally much shorter selling days . now that over 50 % of the company 's stores are open sundays , almost all stores are open holidays , and the selling days are longer , the company concluded that counting sundays and open holidays as selling days is now appropriate . accordingly , selling days now include each day other than easter , thanksgiving and christmas . this change was made beginning in fiscal year 2011 ( april 2010 ) and retroactively applied to prior months and quarters . there is no impact on reported actual comparable store sales increases for any prior periods . nor will the change impact calculated comparable store sales increases in future periods . however , this change may result in a change in the calculated comparable store sales percent increase in certain prior periods when adjusted for days . 24 for the fiscal year 2010 fiscal quarters and full year , the results were as follows : replace_table_token_6_th ( 1 ) this adjustment for days relates to the fact that the easter holiday fell in april 2009 , reducing the number of selling days as compared to the prior year quarter . ( 2 ) this adjustment for days relates to the fact that the company was open for business for the first time on new year 's day on january 1 , 2010 , increasing the number of selling days as compared to the prior year quarter . during the year , 12 stores were added and eight were closed . at march 26 , 2011 , the company had 781 company-operated stores in operation . management believes that the improvement in comparable store sales resulted from several factors , including an increase in sales across most product categories . it is management 's belief that strong in-store sales execution , highly effective advertising campaigns and price increases in all product categories also contributed to the sales improvement in fiscal 2011. comparable store traffic as well as average ticket increased over the prior year as well . soft economic conditions and the related decrease in consumer spending and tightening of credit , resulting in declining automobile sales ( as compared to historical levels ) , helped to contribute to the improved sales . management believes that consumers are keeping their cars longer and repairing them instead of trading them in for new cars . additionally , while consumers can and often defer repairs when the economy is weak , most repairs can only be deferred for a period of time . when customers do come in to have their vehicles repaired , it is management 's belief that they spend more on average because the problem with their vehicle has worsened due to additional wear . management also believes that the closings of dealerships by chrysler and general motors are driving more business to the company 's stores as consumers look for alternative , proven , economical and more geographically convenient locations to service their automobiles . gross profit for fiscal 2011 was $ 257.5 million or 40.4 % of sales as compared with $ 231.2 million or 40.9 % of sales for fiscal 2010. the decline in gross profit as a percent of sales is largely due to the shift in mix to the lower margin tire sales category , resulting from a full year of sales from the fiscal 2010 acquired stores , including tire warehouse whose sales mix is almost 100 % tires . labor costs decreased slightly as a percentage of sales as compared to the prior year , largely due to a shift in mix to increased tire sales as well as improved labor efficiency as measured by sales per man hour . distribution and occupancy costs also decreased slightly as a percentage of sales from the prior year as the company , with improved sales , was able to better leverage these largely fixed costs . total material costs , including outside purchases , increased as a percentage of sales as compared to the prior fiscal year , largely due to the shift in mix to increased tire sales , as well as cost increases in various items such as oil and tires . these increases were partially offset by selling price increases across the chain and increased vendor rebates recognized as compared to the prior year . 25 operating expenses for fiscal 2011 were $ 179.1 million or 28.1 % of sales compared with $ 171.9 million or 30.5 % of sales for fiscal 2010. within operating expenses , selling , general and administrative ( sg & a ) expenses for fiscal 2011 increased by $ 7.1 million to $ 177.0 million from fiscal 2010 , and were 27.8 % of sales , compared with 30.1 % in the prior year . the company experienced meaningful leverage in this line through focused cost control on increased sales .
| results of operations fiscal 2012 as compared to fiscal 2011 sales for fiscal 2012 increased $ 49.9 million or 7.8 % to $ 686.6 million as compared to $ 636.7 million in fiscal 2011. the increase was partially due to a comparable store sales increase of 2.0 % . additionally , there was an increase of $ 38.4 million related to new stores , of which $ 3.1 million and $ 31.3 million came from the fiscal 2011 and fiscal 2012 acquisitions , respectively . partially offsetting this was a decrease in sales from closed stores amounting to $ 4.5 million . fiscal 2012 was a 53-week year , and therefore , there were 368 selling days as compared to 361 selling days in fiscal year 2011. adjusting for days , comparable store sales were flat . 22 as occurred in previous years , during fiscal 2012 , the company completed the bulk sale of approximately $ 3.2 million of slower moving inventory to icon international , a barter company , in exchange for barter credits . the margin recognized in these transactions is typically less than the company 's normal profit margin . however , the barter transactions for fiscal 2012 had no impact on gross profit , but decreased operating expenses by .2 % of sales as compared to fiscal 2011. there were no barter transactions in fiscal 2011. during the year , 36 stores were added and 14 were closed . at march 31 , 2012 , the company had 803 company-operated stores in operation . management believes that the flat comparable store sales for fiscal 2012 resulted mainly from the continued weak u.s. economy . with the continuation of higher gasoline prices and lack of consumer confidence , management believes that customers are continuing to defer tire purchases and service repairs , especially on higher ticket items .
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exchange act . we intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the private securities reform act of 1995 and included this statement for purposes of complying with these safe harbor provisions . forward-looking statements , which are based on certain assumptions and describe our future plans , strategies , beliefs and expectations , are generally identifiable by use of the words `` believe '' , `` expect '' , `` intend '' , `` anticipate '' , `` estimate '' , `` project '' , or similar expressions . such forward-looking statements include , but are not limited to , statements regarding our : ability to raise additional capital , including via future issuances of equity and debt , and the use of proceeds from such issuances ; results of operations and financial condition ; capital expenditure and working capital needs and the funding thereof ; repurchase of the company 's common shares , including the potential use of a 10b5-1 plan to facilitate repurchases ; the possibility of future asset impairments ; potential developments , expansions , renovations , acquisitions or dispositions of outlet centers ; compliance with debt covenants ; renewal and re - lease of leased space ; outlook for the retail environment , potential bankruptcies , and other store closings ; outcome of legal proceedings arising in the normal course of business ; and real estate joint ventures . you should not rely on forward-looking statements since they involve known and unknown risks , uncertainties and other important factors which are , in some cases , beyond our control and which could materially affect our actual results , performance or achievements . important factors which may cause actual results to differ materially from current expectations include , but are not limited to : our inability to develop new outlet centers or expand existing outlet centers successfully ; risks related to the economic performance and market value of our outlet centers ; the relative illiquidity of real property investments ; impairment charges affecting our properties ; our dispositions of assets may not achieve anticipated results ; competition for the acquisition and development of outlet centers , and our inability to complete outlet centers we have identified ; environmental regulations affecting our business ; risk associated with a possible terrorist activity or other acts or threats of violence , public health crises and threats to public safety ; our dependence on rental income from real property ; our dependence on the results of operations of our retailers ; the fact certain of our lease agreements include co-tenancy and or sales-based provisions that may allow a tenant to pay reduced rent and or terminate a lease prior to its natural expiration ; the fact that certain of our properties are subject to ownership interests held by third parties , whose interests may conflict with ours ; risks related to uninsured losses ; risks related to changes in consumer spending habits ; risks associated with our canadian investments ; risks associated with attracting and retaining key personnel ; risks associated with debt financing ; risk associated with our guarantees of debt for , or other support we may provide to , joint venture properties ; the effectiveness of our interest rate hedging arrangements ; uncertainty relating to the potential phasing out of libor ; risk associated with our interest rate hedging arrangements ; risk associated to uncertainty related to determination of libor ; our potential failure to qualify as a reit ; our legal obligation to make distributions to our shareholders ; legislative or regulatory actions that could adversely affect our shareholders ; our dependence on distributions from the operating partnership to meet our financial obligations , including dividends ; the risk of a cyber-attack or an act of cyber-terrorism and other important factors which may cause actual results to differ materially from current expectations include , but are not limited to , those set forth under item 1a - risk factors . we qualify all of our forward-looking statements by these cautionary statements . the forward-looking statements in this annual report on form 10-k are only predictions . we have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business , financial condition and results of operations . because forward-looking statements are inherently subject to risks and uncertainties , some of which can not be predicted or quantified , you should not rely on these forward-looking statements as predictions of future events . the events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements . except as required by applicable law , we do not plan to publicly update or revise any forward-looking statements contained herein , whether as a result of any new information , future events , changed circumstances or otherwise . for a further discussion of the risks relating to our business , see “ item 1a-risk factors ” in part i of this annual report on form 10-k. 34 the following discussion should be read in conjunction with the consolidated financial statements appearing elsewhere in this report . historical results and percentage relationships set forth in the consolidated statements of operations , including trends which might appear , are not necessarily indicative of future operations . general overview as of december 31 , 2019 , we had 32 consolidated outlet centers in 19 states totaling 12.0 million square feet . we also had 7 unconsolidated outlet centers totaling 2.2 million square feet , including 3 outlet centers in canada . story_separator_special_tag the operating partnership may use the proceeds to repay debt , including borrowings under its lines of credit , develop new or existing properties , make acquisitions of properties or portfolios of properties , invest in existing or newly created joint ventures , or for general corporate purposes . the liquidity of the company is dependent on the operating partnership 's ability to make sufficient distributions to the company . the operating partnership is a party to loan agreements with various bank lenders that require the operating partnership to comply with various financial and other covenants before it may make distributions to the company . the company also guarantees some of the operating partnership 's debt . if the operating partnership fails to fulfill its debt requirements , which trigger the company 's guarantee obligations , then the company may be required to fulfill its cash payment commitments under such guarantees . however , the company 's only material asset is its investment in the operating partnership . the company believes the operating partnership 's sources of working capital , specifically its cash flow from operations , and borrowings available under its unsecured credit facilities , are adequate for it to make its distribution payments to the company and , in turn , for the company to make its dividend payments to its shareholders and to finance its continued operations , growth strategy and additional expenses we expect to incur for at least the next twelve months . however , there can be no assurance that the operating partnership 's sources of capital will continue to be available at all or in amounts sufficient to meet its needs , including its ability to make distribution payments to the company . the unavailability of capital could adversely affect the operating partnership 's ability to pay its distributions to the company , which will in turn , adversely affect the company 's ability to pay cash dividends to its shareholders . we operate in a manner intended to enable us to qualify as a reit under the internal revenue code , or the code . for the company to maintain its qualification as a reit , it must pay dividends to its shareholders aggregating annually at least 90 % of its taxable income . while historically the company has satisfied this distribution requirement by making cash distributions to its shareholders , it may choose to satisfy this requirement by making distributions of cash or other property , including , in limited circumstances , the company 's own shares . based on our 2019 estimated taxable income , we were required to distribute approximately $ 105.3 million to our shareholders in order to maintain our reit status as described above . for tax reporting purposes , we distributed approximately $ 131.5 million during 2019 . if in any taxable year the company were to fail to qualify as a reit and certain statutory relief provisions were not applicable , we would not be allowed a deduction for distributions to shareholders in computing taxable income and would be subject to u.s. federal income tax ( including any applicable alternative minimum tax for tax years prior to 2018 ) on our taxable income at the regular corporate rate . 40 as a result of this distribution requirement , the operating partnership can not rely on retained earnings to fund its on-going operations to the same extent that other companies whose parent companies are not real estate investment trusts can . the company may need to continue to raise capital in the equity markets to fund the operating partnership 's working capital needs , as well as potential developments of new or existing properties , acquisitions or investments in existing or newly created joint ventures . the company currently consolidates the operating partnership because it has ( 1 ) the power to direct the activities of the operating partnership that most significantly impact the operating partnership 's economic performance and ( 2 ) the obligation to absorb losses and the right to receive the residual returns of the operating partnership that could be potentially significant . the company does not have significant assets other than its investment in the operating partnership . therefore , the assets and liabilities and the revenues and expenses of the company and the operating partnership are the same on their respective financial statements , except for immaterial differences related to cash , other assets and accrued liabilities that arise from public company expenses paid by the company . however , all debt is held directly or indirectly at the operating partnership level , and the company has guaranteed some of the operating partnership 's unsecured debt as discussed below . because the company consolidates the operating partnership , the section entitled `` liquidity and capital resources of the operating partnership '' should be read in conjunction with this section to understand the liquidity and capital resources of the company on a consolidated basis and how the company is operated as a whole . in may 2017 , we announced that our board of directors authorized the repurchase of up to $ 125 million of our outstanding common shares as market conditions warrant over a period commencing on may 19 , 2017 and expiring on may 18 , 2019. in february 2019 , the company 's board of directors authorized the repurchase of an additional $ 44.3 million of our outstanding common shares for an aggregate authorization of $ 169.3 million until may 2021. repurchases may be made from time to time through open market , privately-negotiated , structured or derivative transactions ( including accelerated share repurchase transactions ) , or other methods of acquiring shares . the company intends to structure open market purchases to occur within pricing and volume requirements of rule 10b-18 . the company may , from time to time , enter into rule 10b5-1 plans to facilitate the repurchase of its shares under this authorization .
| results of operations 2019 compared to 2018 net income net income increased $ 47.2 million in 2019 compared to 2018 . the increase in net income is partially due to : the $ 43.4 million gain recorded on the sale of the four outlet centers in march 2019 , and inclusion in the 2018 period a $ 49.7 million impairment charge related to our jeffersonville outlet center . the increase was partially offset by a decrease in net income due to : the sale of the four outlet centers in march 2019 discussed above , an additional impairment charge in the 2019 period related to our jeffersonville outlet center of $ 37.6 million . a $ 4.4 million charge in the 2019 period related to the accelerated recognition of compensation cost as a result of a transition agreement ( the “ coo transition agreement ” ) with the company 's former president and chief operating officer in connection with his retirement , and a $ 3.6 million foreign currency loss recorded in the 2019 period upon the sale of the bromont property by the riocan canada joint venture . in the tables below , information set forth for properties disposed includes the four outlet centers sold in late march 2019. see `` general overview '' in previous section for a list of properties sold during 2019. rental revenues rental revenues decreased $ 16.8 million in the 2019 period compared to the 2018 period . the following table sets forth the changes in various components of rental revenues ( in thousands ) : replace_table_token_18_th rental revenues from existing properties decreased primarily due to lower average occupancy and rent modifications for certain tenants , in large part as a result of a number of bankruptcy filings and other tenant closures during 2018 and 2019. the decreases were offset partially by higher percentage rental revenues and temporary tenant revenues .
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for financial instruments recognized at fair value , gaap requires the disclosure of their fair values by type of instrument , along with other information , including changes in the fair values of certain financial instruments recognized in income or other comprehensive income . for financial instruments not recognized at fair value , the disclosure of their fair values is provided below under “ financial instruments . ” nonfinancial assets , such as property , plant and equipment , and nonfinancial liabilities are recognized at their carrying story_separator_special_tag the following discussion and analysis should be read in conjunction with our financial statements and the related notes . our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties , such as our plans , objectives , expectations and intentions . actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors , including those set forth under the risk factors , forward-looking statements and business sections in this registration statement . we use words such as “ anticipate , ” “ estimate , ” “ plan , ” “ project , ” “ continuing , ” “ ongoing , ” “ expect , ” “ believe , ” “ intend , ” “ may , ” “ will , ” “ should , ” “ could , ” and similar expressions to identify forward-looking statements . overview water now , inc. was incorporated in texas on february 10 , 2016 to develop and commercialize a gas/diesel and electric powered , portable device that processes and purifies contaminated water . our water purification product lines consist of portable units capable of providing a cost-effective , safe and efficient method of water purification . we have also developed a flameless heating technology that allows us to manufacture an electronically powered portable heating platform . the platform uses no combustion or electronic heating elements . by avoiding traditional heating elements , the product is ideal for facilities that generate vapors or dust , such as paint and body shops , furniture manufacturers , fuel depots and grain elevators . our technology is anticipated to allow for the efficient heating of large spaces such as warehouses and garages . we anticipate introducing our initial product offering in august 2020. on october 23 , 2018 we formed hydraspin . hydraspin is engaged in the installation and operation of oil recovery machines deployed at salt water disposal wells associated with the oil industry . the utilized technology allows for the separation of oil from the water contained in the disposal sites so as to minimize environmental contamination from the fluids containing oil . we are currently in negotiations with potential third party manufactures of the product and hope to finalize an oem agreement in late q4 2020 or early q1 2021. thereafter , we will begin final testing of the retail product offering in hopes of making the product available to the public in q3 2021. financial overview revenue for fiscal 2019 , we generated revenues of approximately $ 234,000. our ability to increase revenues will depend on the successful manufacturing and commercialization of our water purification and heater units and the continued development of contracts with our hydraspin customers . 18 research and development expenses the company expenses r & d costs as incurred . the company 's r & d activities related to activities undertaken to commercialize our water purification and heater products . general and administrative expenses general and administrative ( “ g & a ” ) expenses consist primarily of salaries and related costs for personnel , including stock-based compensation expense . to date , we have estimated the fair value of stock-based awards issued to employees , directors and non-employees based on prices paid by unrelated third-parties for the purchases of our common stock . subsequent to the active trading date of our common stock on august 14 , 2018 , we have based the fair value of awards on the quoted closing bid price of our common stock on the otc markets on the date of grant . other g & a expenses include patent costs , and professional fees for legal , finance , accounting services , and a legal settlement in 2018. we anticipate that our g & a expenses will increase in future periods to support increases in our research and development activities and as a result of increased headcount , expanded infrastructure , increased legal , compliance , accounting and investor and public relations expenses associated with being a public company and increased insurance premiums , among other factors . interest expense interest expense consists of interest incurred on borrowings including amortization of beneficial conversation features and debt issue costs . story_separator_special_tag about our ability to continue as a going concern . we have financed our operations to date primarily through private placements of our common stock and borrowings . during the fiscal year ended december 31 , 2019 , we received approximately $ 300,000 in net proceeds from the issuance of our common stock . as of december 31 , 2019 , we had total liabilities of approximately $ 11 million . we expect to continue to utilize debt and equity to finance our operations until we become profitable . cash flows the following table sets forth the primary sources and uses of cash for the fiscal year ended december 31 , 2019 and 2018 , respectively . replace_table_token_6_th operating activities . our use of cash in operating activities resulted primarily from our net loss , as adjusted for certain non-cash items and changes in operating assets and liabilities . for the fiscal year ended december 31 , 2019 , non-cash items consisted of non-cash interest expense , common stock issued as payment for services and employee compensation , depreciation and amortization , loss on extinguishment of debt , and provision for bad debt expense and changes in operating assets and liabilities consisted of an increase in accounts receivable and an increase in accounts payable . story_separator_special_tag plant and machinery plant and machinery are stated at cost less accumulated depreciation and depreciated on a straight-line basis over the estimated useful lives of the assets . such lives vary from 4 to 7 years . expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized . repair and maintenance costs are expensed as incurred . depreciation expense totaled approximately $ 81,000 and $ 28,000 for the years ended december 31 , 2019 and 2018 , respectively . accumulated depreciation totaled approximately $ 91,000 and $ 34,000 as of december 31 , 2019 and 2018 , respectively . revenue recognition in may 2014 , the fasb issued accounting standards update ( “ asu ” ) no . 2014-09 , revenue from contracts with customers ( “ asu 2014-09 ” ) , which supersedes nearly all existing revenue recognition guidance under gaap . the core principle of asu 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services . asu 2014-09 defines a five-step process to achieve this core principle and , in doing so , more judgment and estimates may be required within the revenue recognition process than are required under existing gaap . the standard 's effective date has been deferred by the issuance of asu no . 2015-14 , and is effective for annual periods beginning after december 15 , 2017 , and interim periods therein . the guidance permits using either of the following transition methods : ( i ) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients , or ( ii ) a retrospective approach with the cumulative effect of initially adopting asu 2014-09 recognized at the date of adoption ( which includes additional footnote disclosures ) . early application is permitted but not before december 15 , 2016 , the asu 's original effective date . the company adopted the new revenue recognition standard as of january 1 , 2018 using the cumulative effect method , which did not have a material impact on its consolidated financial statements . the company recognizes revenue and related costs from the sale of its products at the time the products are shipped to the customer . provisions for returns are established in the same period the related product sales are recorded . water purification products that have been sold are not subject to returns unless the product is deemed defective . credits or refunds are recognized when they are probable and reasonably estimated . the company 's management reduces revenue to account for estimates of the company 's credits and refunds . 25 income taxes income taxes are accounted for under the asset and liability method . deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases . deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled . the effect on deferred tax assets and liabilities for a change in tax rate is recognized in income in the period that includes the enactment date . valuation allowances are established when necessary to reduce deferred tax assets to the amounts more likely than not to be realized . we account for uncertain tax positions in accordance with financial accounting standards board 's ( “ fasb ” ) accounting standards codification ( “ asc ” ) 740-10 , “ income taxes. ” asc 740-10 provides several clarifications related to uncertain tax positions . most notably , a “ more likely-than-not ” standard for initial recognition of tax positions , a presumption of audit detection and a measurement of recognized tax benefits based on the largest amount that has a greater than 50 percent likelihood of realization . asc 740-10 applies a two-step process to determine the amount of tax benefit to be recognized in the financial statements . first , we must determine whether any amount of the tax benefit may be recognized . second , we determine how much of the tax benefit should be recognized ( this would only apply to tax positions that qualify for recognition ) . no additional liabilities have been recognized as a result of the implementation . accordingly , we have not recognized any penalty , interest or tax impact related to uncertain tax positions . stock-based expenses we account for stock-based expenses under the provisions of asc 718 , “ compensation—stock compensation ” , which requires the measurement and recognition of expense for stock-based awards made to employees and directors based on estimated fair values on the grant date . the value of the portion of the award that is ultimately expected to vest is recognized as expense over the shorter of the period over which services are to be received or the vesting period . we account for stock-based expenses awards to non-employees in accordance with asc 505-50 , “ equity-based payments to non-employees . ” in accordance with asc 505-50 , we determine the fair value of stock-based expenses awards granted as either the fair value of the consideration received or the fair value of the equity instruments issued , whichever is more reliably measurable . we estimated the fair value of stock-based awards issued to employees , directors and non-employees based on prices paid by unrelated third-parties for the purchases of our common stock during the applicable period . subsequent to the active trading date of our common stock on august 14 , 2018 , we have based the fair value of awards from august 14 , 2018 through december 31 , 2019 on the quoted closing bid price of our common stock on the otc markets on the date of grant .
| results of operations for the years ended december 31 , 2019 and 2018 revenue and cost of sales we generated revenues of approximately $ 234,000 and $ 169,000 for the fiscal years ended december 31 , 2019 and 2018 , respectively . gross profit ( loss ) was ( 62.9 ) % and 37.9 % of sales for fiscal 2019 and 2018 , respectively . the decrease in gross profit in 2019 was due to an increase in tariffs in china . 19 research and development expenses below is a summary of our research and development expenses for the fiscal year ended december 31 , 2019 and 2018 , respectively : replace_table_token_2_th payroll expenses related to our r & d function decreased during the year ended december 31 , 2019 primarily related to decreases in the salaries , payroll taxes and benefits for our employees engaged in research and development . stock-based compensation expenses decreased during the year ended december 31 , 2019 due to granting more stock awards to our employees and advisors during 2018. operating expenses the following is a summary of our general and administrative expenses for the years ended december 31 , 2019 and 2018 , respectively : replace_table_token_3_th payroll expenses increased during the fiscal year ended december 31 , 2019 primarily related to increases in salaries , payroll taxes and benefits for our employees needed for the increased levels of operations and the ramp up of our hydraspin segment operations during 2019. professional fees decreased in 2019 primarily related to a decrease in consulting fees and a 2018 settlement of a lawsuit offset by an increase in audit fees . selling , general and administrative increased in 2019 primarily related to an increase in advertising and marketing , rent , shipping , and insurance offset by a decrease in supplies and parts . we recorded a gain on sale of assets in 2019 from the sale of our equipment .
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forward-looking statements made in this annual report on form 10-k include statements about : · our plans to identify and acquire products that we believe will be prospective for acquisition and development ; · concentration of our customer base and fulfillment of existing customer contracts ; · our ability to maintain pricing ; · the cyclical nature of the beverage industry , in particular the kombucha tea business ; · deterioration of the credit markets ; · our ability to raise additional capital to fund future capital and operational expenditures ; · increased vulnerability to adverse economic conditions due to indebtedness ; · our identifying , making and integrating acquisitions ; · our ability to obtain raw materials and specialized equipment ; · technological developments or enhancements ; · loss of key executives ; · the ability to employ skilled and qualified workers ; · costs and liabilities associated with environmental , health and safety laws , including any changes in the interpretation or enforcement thereof ; · our beliefs regarding the future of our competitors ; · our expectation that the demand for our products will eventually increase ; and · our expectation that we will be able to raise capital when we need it . these statements are only predictions and involve known and unknown risks , uncertainties and other factors , including the risks in the section entitled `` risk factors '' set forth in this annual report on form 10-k , any of which may cause our company 's or our industry 's actual results , levels of activity , performance or achievements to be materially different from any future results , levels of activity , performance or achievements expressed or implied by these forward-looking statements . readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the securities and exchange commission . the following md & a should be read in conjunction with the audited financial statements and notes related thereto included in this annual report on form 10-k. we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions , the occurrence of unanticipated events or changes in the future operating results over time except as required by law . we believe that our assumptions are based upon reasonable data derived from and known about our business and operations . no assurances are made that actual results of operations or the results of our future activities will not differ materially from our assumptions . as used in this annual report on form 10-k and unless otherwise indicated , the terms `` we , '' `` us , '' `` our , '' or the `` company '' refer to american brewing company , inc. - 24 - overview american brewing company , inc. was formed under the laws of the state of washington on april 26 , 2010. through december 31 , 2015 , we were a micro-brewing company and also manufactured and sold búcha® live kombucha , a gluten free , organic certified , sparkling kombucha tea . we acquired the búcha® live kombucha brand and the assets related to the production and sale of it on april 1 , 2015. see further discussion below under `` acquisition of assets related to the kombucha tea business . '' on october 1 , 2015 , we entered into an asset purchase agreement ( `` apa '' ) whereby we sold our assets and various liabilities related to our brewery and micro-brewing operations to ambrew , llc , a washington limited liability company ( `` ambrew '' ) . under the terms of the apa , the assets sold consisted of accounts receivable , inventories , prepaid assets and property and equipment . the liabilities consisted of brewing-related contracts , liabilities related to inventory and lease obligations . see further discussion below under `` discontinued operations related to our brewery and micro-brewing operations . '' since october 1 , 2015 , we have been focusing on integrating the búcha® live kombucha business , strengthening the businesses foundation and processes , and positioning the company as a standalone healthy functional beverage company . búcha® live kombucha is an organic certified , probiotic , sparkling kombucha tea . effective march 24 , 2016 , our chief executive officer and president , neil fallon , was promoted to serve as executive chairman of the board of directors . also on that same date , brent willis was appointed to serve as interim chief executive officer , interim chief financial officer , and director . on march 30 , 2016 , our board of directors recommended changing the company 's name from american brewing company , inc. to búcha , inc. , and to effect a change to our public stock symbol . the majority shareholders , acting by majority consent , approved the name change . we intend to file the necessary state and regulatory documents to effect the name change . successor and predecessor financial presentation throughout the audited financial statements and in this md & a , we refer to successor and predecessor . for periods after the acquisition of the búcha® live kombucha brand ( since april 1 , 2015 ) , our financial results are referred to as `` successor . '' for periods prior to the acquisition of the búcha® live kombucha brand , our financial results are referred to as `` predecessor . '' where tables are presented in this md & a , a black line separates the successor and predecessor financial information to highlight the lack of comparability between the periods . acquisition of assets related to the kombucha tea business as discussed above , on april 1 , 2015 , we acquired substantially all of the operating assets of b & r liquid adventure , llc , a california limited liability company ( `` b & r '' ) ( the `` acquisition '' ) . the operating assets of b & r acquired consisted of inventory , fixed assets and intellectual property . story_separator_special_tag during the three months ended march 31 , 2015 , the parties settled the case with the predecessor agreeing to pay $ 275,000 in full and final settlement of the case . - 29 - professional fees for the year ended december 31 , 2015 were $ 206,342 compared to $ 84,409 for the year ended december 31 , 2014 , an offsetting increase of $ 121,933. this is related primarily to audits , accounting and outside consulting services related to being a public reporting company , which also required an audit of the predecessor company for sec reporting purposes by the company . other expenses replace_table_token_6_th interest expense for the year ended december 31 , 2015 was $ 107,213 , as compared to $ 125,169 for the year ended december 31 , 2014 , a decrease of $ 17,956. included in interest expense for the year ended december 31 , 2014 is $ 120,000 related to the amortization of a debt discount . in september 2014 , in connection with new funding of $ 120,000 , the predecessor issued four promissory notes with equity participation . in accordance with accounting guidance for beneficial conversion features ( bcf ) , the predecessor recorded a debt discount of $ 120,000 representing the bcf intrinsic value . the entire debt discount was amortized to interest expense during the year ended december 31 , 2014. aggregate amortization of debt discounts on third party and related party debt was $ 68,466 for the year ended december 31 , 2015 related to four loans entered into in march 2015 : · we entered into two 60-day promissory notes for cash proceeds of $ 50,000 each . the notes included an equity payment totaling 30,000 shares of common stock that were issued with the debt . the relative fair value of the stock was determined to be $ 9,020 and was recorded as a debt discount . · we borrowed $ 200,000 used for the acquisition . the note was issued in conjunction with an equity payment totaling 176,734 shares of series b preferred stock that was issued with the debt . the relative fair value of the stock was determined to be $ 142,434 and was recorded as a debt discount . the discount will be amortized over the life of the loans to interest expense . · we entered into a 60 day-promissory note for cash proceeds of $ 50,000 with a member of management . the note also included an equity payment of 200,000 shares of common stock that were issued with the debt . the relative fair value of the stock was determined to be $ 29,420 and was recorded as a debt discount . · we borrowed $ 60,000 from a member of management used for the acquisition . the note was issued in conjunction with an equity payment totaling 53,073 shares of series b preferred stock that was issued with the debt . the relative fair value of the stock was determined to be $ 42,742 and was recorded as a debt discount . the discount will be amortized over the life of the loans to interest expense . - 30 - in april 2015 , we entered into a factoring agreement to sell , with recourse , certain receivables to an unrelated third-party financial institution . under the terms of the factoring agreement , we receive an advance of 80 % of qualified receivables and are subject to the requirement that the maximum amount of outstanding advances at any one time will not exceed $ 500,000. for the nine months ended december 31 , 2015 ( successor ) , we recognized factoring interest and fees of $ 34,069. we pay factoring fees associated with the sale of receivables at the rate of 0.67 % of the gross face value of the receivable for every ten-day period or fraction thereof from the date of the advance until the receivable is paid in full . liquidity and capital resources working capital replace_table_token_7_th current assets as of december 31 , 2015 ( successor ) and december 31 , 2014 ( predecessor ) primarily relate to $ 43,856 and $ 125,312 in cash , $ 259,619 and $ 254,705 in accounts receivable and $ 196,220 and $ 286,070 in inventory , respectively . current liabilities as of december 31 , 2015 ( successor ) and as of december 31 , 2014 ( predecessor ) primarily relate to $ 282,845 and $ 616,719 in accounts payable , $ -0- and $ 123,689 in notes payable and capital leases , $ 177,589 and $ 106,899 for accrued expenses and $ 110,663 and $ -0- for factoring payable , respectively . in addition , as of december 31 2014 ( predecessor ) , there were $ 342,924 in reserves for legal settlements as discussed previously under legal and professional fees . cash flows replace_table_token_8_th - 31 - operating activities net cash used in operating activities for the year ended december 31 , 2015 was $ 609,652 , as compared to $ 268,520 for the year ended december 31 , 2014. the increase in net cash used in operating activities is primarily attributable to non-cash items consisting of amortization of intangible assets ( $ 62,500 compared to $ -0- ) , common stock issued for services ( $ 311,080 compared to $ -0- ) , depreciation expense from discontinued operations ( $ 115,441 compared to $ -0- ) and loss on sale of the brewery assets ( $ 256,773 compared to $ -0- ) . the gain on forgiveness of accrued payroll offset this increase net cash used in operating activities ( $ 500,000 compared to $ -0- ) .
| results of operations the remainder of this md & a , unless otherwise indicated , discusses our continuing operations of the búcha® live kombucha tea business . as discussed previously , w here tables are presented , a black line separates the successor and predecessor financial information to highlight the lack of comparability between the periods . see further discussion above under `` successor and predecessor financial presentation . '' the following discussion represents a comparison of our results of operations for the year ended december 31 , 2015 , which includes the results of operations for the nine months ended december 31 , 2015 ( successor ) plus the three months ended march 31 , 2015 ( predecessor ) compared to the year ended december 31 , 2014 ( predecessor ) . the results of operations for the periods shown in our audited financial statements , including the periods shown as successor and predecessor , are not necessarily indicative of operating results for the entire period . in the opinion of management , the audited financial statements recognize all adjustments of a normal recurring nature considered necessary to fairly state our financial position , results of operations and cash flows for the periods presented . replace_table_token_3_th revenues net revenues from sales of our product for the year ended december 31 , 2015 were $ 2,421,752 , as compared to $ 2,789,936 for the year ended december 31 , 2014 , a decrease of $ 368,184 , or 13.2 % . the decrease in sales is primarily due to the discontinuation of costco business . due to the low margins of this business , we decided to discontinue selling to this customer .
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the computations of basic and diluted net income per share is as follows : replace_table_token_12_th 4. prepaid expenses and other current assets the major classes of prepaid expenses and other current assets at december 25 , 2016 and december 27 , 2015 are summarized as follows : replace_table_token_13_th f - 11 chuy 's holdings , inc. notes to consolidated financial statements ( continued ) ( tabular dollar amounts in thousands , except share and per share data ) 5. property and equipment the major classes of property and equipment as of december 25 , 2016 and december 27 , 2015 are summarized as follows : replace_table_token_14_th depreciation expense was $ 15.0 million , $ 12.7 million and $ 10.2 million for the years ended december 25 , 2016 december 27 , 2015 , and december 28 , 2014 , respectively . 6. other assets and intangible assets the major classes of other assets and intangibles assets along with related accumulated amortization at december 25 , 2016 and december 27 , 2015 are summarized as follows : replace_table_token_15_th amortization expense was $ 0.1 million for the years ended december 25 , 2016 , december 27 , 2015 and december 28 , 2014 . the following table represents the total estimated amortization of finite-lived intangible assets for the five succeeding fiscal years and thereafter : replace_table_token_16_th 7. long-term debt revolving credit facility on november 30 , 2012 , the company entered into a $ 25.0 million revolving credit facility with wells fargo bank , national association . on october 30 , 2015 , we entered into an story_separator_special_tag the following discussion should be read in conjunction with item 6 . “ selected financial data ” and our consolidated financial statements and the related notes to those statements included in item 8 . “ financial statements and supplementary data. ” the following discussion contains , in addition to historical information , forward-looking statements that include risks and uncertainties . our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors , including those set forth under the heading item 1a . “ risk factors ” and elsewhere in this report . although we believe that the expectations reflected in the forward-looking statements are reasonable based on our current knowledge of our business and operations , we can not guarantee future results , levels of activity , performance or achievements . we assume no obligation to provide revisions to any forward-looking statements should circumstances change , except as may be required by law . the following discussion summarizes the significant factors affecting the consolidated operating results , financial condition , liquidity and cash flows of our company as of and for the periods presented below . overview we are a fast-growing , full-service restaurant concept offering a distinct menu of authentic , freshly-prepared mexican and tex-mex inspired food . we were founded in austin , texas in 1982 by mike young and john zapp , and as of december 25 , 2016 , we operated 80 chuy 's restaurants across 16 states . we are committed to providing value to our customers through offering generous portions of made-from-scratch , flavorful mexican and tex-mex inspired dishes . we also offer a full-service bar in all of our restaurants providing our customers a wide variety of beverage offerings . we believe the chuy 's culture is one of our most valuable assets , and we are committed to preserving and continually investing in our culture and our customers ' restaurant experience . our restaurants have a common décor , but we believe each location is unique in format , offering an “ unchained ” look and feel , as expressed by our motto “ if you 've seen one chuy 's , you 've seen one chuy 's ! ” we believe our restaurants have an upbeat , funky , eclectic , somewhat irreverent atmosphere while still maintaining a family-friendly environment . our growth strategies and outlook our growth is based primarily on the following strategies : pursue new restaurant development in major markets ; backfill smaller existing markets to build brand awareness ; deliver consistent same store sales by providing high-quality food and service at a considerable value ; and leverage our infrastructure . we opened twelve restaurants in fiscal 2016 . during 2017 , we have opened two restaurant as of february 28 , 2017 , and plan to open a total of twelve to fourteen restaurants for the year . over the next three to five years , we expect to double our restaurant base . we have an established presence in texas , the southeast and the midwest , with restaurants in multiple large markets in these regions . our growth plan over the next five years focuses on developing additional locations in our existing core markets and major markets while continuing to `` backfill '' our smaller existing markets in order to build our brand awareness . for additional discussion of our growth strategies and outlook , see item 1 . “ business—our business strategies. ” newly opened restaurants typically experience normal inefficiencies in the form of higher cost of sales , labor and direct operating and occupancy costs for several months after their opening in both percentage and dollar terms when compared with our more mature , established restaurants . accordingly , the number and timing of newly opened restaurants has had , and is expected to continue to have , an impact on restaurant opening expenses , cost of sales , labor and occupancy and operating expenses . additionally , initial restaurant openings in new markets may experience even greater inefficiencies for several months , if not longer , due to lower initial sales volumes , which results from initially low consumer awareness levels , and a lack of operating cost leverage until additional restaurants can be opened in these markets and build the overall consumer awareness in the market . 31 performance indicators we use the following performance indicators in evaluating our performance : number of restaurant openings . story_separator_special_tag story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > year ended december 27 , 2015 compared to the year ended december 28 , 2014 the following table presents , for the periods indicated , the consolidated statement of operations ( in thousands ) : replace_table_token_5_th * not meaningful . revenue . revenue increased $ 42.0 million , or 17.1 % , to $ 287.1 million for the year ended december 27 , 2015 , as compared to $ 245.1 million for the year ended december 28 , 2014. this increase was primarily driven by $ 39.3 million in incremental revenue from an additional 484 operating weeks provided by 21 new restaurants opened during and subsequent to the year ended december 28 , 2014 and increased revenue at our comparable restaurants . these increases were partially offset by a decrease in revenue related to non-comparable restaurants that are not included in the incremental revenue discussed above . revenue related to non-comparable restaurants is historically lower as the stores transition out of the 'honeymoon ' period that follows a restaurant 's initial opening . the honeymoon period refers to the weeks following a restaurant 's initial opening , during which sales are typically higher than normal . comparable restaurant sales increased 3.1 % during the year ended december 27 , 2015 compared to the same period in 2014. the increase in comparable restaurant sales was driven primarily by a 3.7 % increase in average check , offset by a 0.6 % decrease in average weekly customers . our comparable sales were negatively impacted by higher than normal inclement weather throughout the southeast and texas during the first quarter of 2015 reducing comparable sales for 2015 by approximately $ 1.1 million . our revenue mix attributed to bar sales remained unchanged at 18.2 % during the year ended december 27 , 2015 compared to the same period in 2014. cost of sales . cost of sales as a percentage of revenue decreased to 26.4 % during the year ended december 27 , 2015 , from 28.2 % during the comparable period in 2014 , primarily as a result of decreases in grocery , dairy , produce and chicken costs , partially offset by increases in beef costs . labor costs . labor costs as a percentage of revenue decreased to 32.6 % during the year ended december 27 , 2015 , from 33.7 % during the comparable period in 2014 , primarily as a result of efficiencies gained from internal initiatives , including labor scheduling best practices and manager staffing based on volume as well as leverage from increased sales . the implementation of these initiatives started during the first quarter of 2015. operating costs . operating costs as a percentage of revenue increased to 13.9 % during the year ended december 27 , 2015 from 13.8 % during the comparable period in 2014. the increase was primarily a result of an increase in insurance costs of 20 basis points primarily related to certain provisions of the affordable care act which went into effect in the first quarter of 2015 partially offset by a decreases in liquor taxes and travel related expenses . occupancy costs . occupancy costs as a percentage of revenue increased to 6.6 % during the year ended december 27 , 2015 from 6.2 % during the comparable period in 2014 primarily as a result of higher rental expense and property taxes at certain of our newly opened restaurants as we continue our expansion into larger markets in the east and northeast . 35 general and administrative expenses . general and administrative expenses increased $ 4.5 million , or 38.3 % , to $ 16.2 million for the year ended december 27 , 2015 , as compared to $ 11.7 million during the comparable period in 2014. this increase was primarily driven by an increase in performance based bonuses of $ 2.3 million , an increase in stock-based compensation of $ 0.7 million associated with new grants under our long-term incentive program , an increase in salary expense of $ 0.8 million related to additional employees as we continue to strengthen our infrastructure for growth , legal and professional fees of $ 0.3 million and smaller increases in other categories of $ 0.4 million . marketing costs . marketing costs as a percentage of revenue remained relatively constant at 0.8 % during the year ended december 27 , 2015 , compared to 0.7 % during the same period in 2014. restaurant pre-opening costs . restaurant pre-opening costs decreased by $ 0.1 million , or 2.7 % , to $ 4.4 million for the year ended december 27 , 2015 , as compared to $ 4.5 million for the year ended december 28 , 2014. this decrease is primarily due to the opening of ten restaurants during the year ended december 27 , 2015 compared to eleven restaurants opened during the comparable period in 2014. loss on asset impairment . we review long-lived assets and intangibles subject to amortization for impairment when events or circumstances indicate the carrying value of the assets may not be recoverable . based upon our analysis performed in the fourth quarter of 2015 , we recognized a $ 4.4 million non-cash loss on asset impairment as a result of the performance at three of our locations . the charge was based on the difference between the carrying value of the restaurants assets and their estimated fair value . depreciation and amortization . depreciation and amortization costs increased $ 2.5 million to $ 12.8 million for the year ended december 27 , 2015 , as compared to $ 10.3 million during the comparable period in 2014 , primarily as the result of an increase in equipment and leasehold improvement costs associated with our new restaurants . income tax expense .
| results of operations year ended december 25 , 2016 compared to the year ended december 27 , 2015 the following table presents , for the periods indicated , the consolidated statement of operations ( in thousands ) : replace_table_token_4_th revenue . revenue increased $ 43.6 million , or 15.2 % , to $ 330.6 million for the year ended december 25 , 2016 , as compared to $ 287.1 million for the year ended december 27 , 2015 . this increase was primarily driven by $ 47.0 million in incremental revenue from an additional 596 operating weeks provided by 22 new restaurants opened during and subsequent to the year ended december 27 , 2015 and increased revenue at our comparable restaurants . these increases were partially offset by a decrease in revenue related to non-comparable restaurants that are not included in the incremental revenue discussed above . revenue related to non-comparable restaurants is historically lower as the stores transition out of the 'honeymoon ' period that follows a restaurant 's 33 initial opening . the honeymoon period refers to the weeks following a restaurant 's initial opening , during which sales are typically higher than normal . comparable restaurant sales increased 0.8 % during the year ended december 25 , 2016 compared to the same period in 2015 . the increase in comparable restaurant sales was driven primarily by a 1.5 % increase in average check , offset by a 0.7 % decrease in average weekly customers . our comparable restaurant sales and average weekly customers were negatively affected by approximately 20 to 40 basis points during fiscal 2016 primarily due to unfavorable weather and christmas shifting from friday to sunday . our revenue mix attributed to bar sales increased to 18.3 % during the year ended december 25 , 2016 compared to 18.2 % during the same period in 2015 . cost of sales .
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fair value estimates are also made using significant assumptions such as capitalization rates , discount rates , fair market lease rates , and land values per square foot . identifiable intangible assets include amounts allocated to acquire leases for above- and below-market lease rates , and the value of in-place leases , as applicable . above-market and below-market lease values for acquired properties are initially recorded based on the present value ( using a discount rate which reflects the risks associated with the leases acquired ) of the difference between ( i ) the contractual amounts to be paid pursuant to each in-place lease , and ( ii ) management 's estimate of fair market lease rates for each corresponding in-place lease , measured over a period equal to the remaining term of the lease for above-market leases and the remaining initial term plus the term of any below-market fixed rate renewal options for below-market leases . the principal considerations for our determination that performing procedures relating to purchase price allocations for property acquisitions is a critical audit matter are there was significant judgment by management to develop the fair value estimates of tangible and intangible assets and liabilities . this in turn led to a high degree of auditor judgment and subjectivity in applying procedures and evaluating audit evidence relating to these fair value estimates . in addition , significant audit effort was required story_separator_special_tag the following discussion and analysis should be read in conjunction with the accompanying financial statements . the following information contains forward-looking statements , which are subject to risks and uncertainties . should one or more of these risks or uncertainties materialize , actual results may differ materially from those expressed or implied by the forward-looking statements . please see “ forward-looking statements ” elsewhere in this report for a description of these risks and uncertainties . overview we were incorporated on july 13 , 2011 as a maryland corporation that elected to be taxed as a reit beginning with our taxable year ended december 31 , 2013. we completed our initial public offering on june 30 , 2014 , and , on june 2 , 2015 we listed our common stock on the nyse under the symbol “ gnl. ” our series a preferred stock and our series b preferred stock are both listed on the nyse under the symbols “ gnl pr a ” and “ gnl pr b , ” respectively . we invest in commercial properties , with an emphasis on sale-leaseback transactions and mission-critical single tenant net-leased commercial properties . substantially all of our business is conducted through the op . our properties are managed and leased to third parties by the property manager . pursuant to the advisory agreement , we have retained the advisor to manage our affairs on a day-to-day basis . the advisor and the property manager are under common control with ar global , and these related parties receive compensation and fees for various services provided to us . as of december 31 , 2019 , we owned 278 properties consisting of 31.6 million rentable square feet , which were 99.6 % leased with a weighted-average remaining lease term of 8.3 years . based on the percentage of annualized rental income on a straight-line basis as of december 31 , 2019 , 63.2 % of our properties are located in the u.s. , puerto rico and canada and 37 % are located in europe . we may also originate or acquire first mortgage loans , mezzanine loans , preferred equity or securitized loans secured by real estate . as of december 31 , 2019 , we did not own any first mortgage loans , mezzanine loans , preferred equity or securitized loans . significant accounting estimates and accounting policies set forth below is a summary of the significant accounting estimates and accounting policies that management believes are important to the preparation of our financial statements . certain of our accounting estimates are particularly important for an understanding of our financial position and results of operations , and require the application of significant judgment by our management . as a result , these estimates are subject to a degree of uncertainty . these significant accounting estimates and accounting policies include : revenue recognition our revenues , which are derived primarily from lease contracts , which include rents that each tenant pays in accordance with the terms of each lease agreement and are reported on a straight-line basis over the initial term of the lease . as of december 31 , 2019 , these leases had an average remaining lease term of 8.3 years . since many of our leases provide for rental increases at specified intervals , straight-line basis accounting requires us to record a receivable for , and include in revenues , unbilled rent receivables that we will only receive if the tenant makes all rent payments required through the expiration of the initial term of the lease . as of december 31 , 2019 and 2018 , our cumulative straight-line rents receivable in the consolidated balance sheets was $ 51.8 million and $ 47.2 million , respectively . for the years ended december 31 , 2019 , 2018 and 2017 , our revenue from tenants included impacts of unbilled rental revenue of $ 6.8 million , $ 6.3 million and $ 10.5 million , respectively , to adjust contractual rent to straight-line rent . for new leases after acquisition , the commencement date is considered to be the date the lease modification is executed . we defer the revenue related to lease payments received from tenants in advance of their due dates . when we acquire a property , the acquisition date is considered to be the commencement date for purposes of this calculation . in addition to base rent , our lease agreements generally require tenants to pay or reimburse us for all property operating expenses , which primarily reflect insurance costs and real estate taxes incurred by us and subsequently reimbursed by the tenant . story_separator_special_tag , equal to or greater than 90 % ) of the leased property 's fair value at lease inception , or if the asset so specialized in nature that it provides no alternative use to the lessor ( and therefore would not provide any future value to the lessor ) after the lease term . further , such new leases would be evaluated to consider whether they would be failed sale-leaseback transactions and accounted for as financing transactions by the lessor . as of december 31 , 2019 , we have no leases as a lessor that would be considered as sales-type leases or financings under sale-leaseback rules . we are also the lessee under certain land leases which were previously classified prior to adoption of lease accounting and will continue to be classified as operating leases under transition elections unless subsequently modified . these leases are reflected on the balance sheet and the rent expense is reflected on a straight line basis over the lease term . purchase price allocation in both a business combination and an asset acquisition , we allocate the purchase price of acquired properties to tangible and identifiable intangible assets or liabilities based on their respective fair values . tangible assets may include land , land improvements , buildings , fixtures and tenant improvements . intangible assets may include the value of in-place leases , and above- and below- market leases and other identifiable assets or liabilities based on lease or property specific characteristics . in addition , any assumed mortgages receivable or payable and any assumed or issued noncontrolling interests ( in a business combination ) are recorded at their estimated fair values . in allocating the fair value to assumed mortgages , amounts are recorded to debt premiums or discounts based on the present value of the estimated cash flows , which is calculated to account for either above- or below-market interest rates . in a business combination , the difference between the purchase price and the fair value of identifiable net assets acquired is either recorded as goodwill or as a bargain purchase gain . in an asset acquisition , the difference between the acquisition price ( including capitalized transaction costs ) and the fair value of identifiable net assets acquired is allocated to the non-current assets . all acquisitions during the years ended december 31 , 2019 and 2018 were asset acquisitions . during 2017 , prior to our adoption of asu no . 2017-01 , business combinations ( topic 805 ) ( see note 2 — summary of significant accounting policies to our 45 consolidated financial statements included in this annual report on form 10-k ) , all of our acquisitions were accounted for as business combinations . for acquired properties with leases classified as operating leases , we allocate the purchase price of acquired properties to tangible and identifiable intangible assets acquired and liabilities assumed , based on their respective fair values . in making estimates of fair values for purposes of allocating purchase price , we utilize a number of sources , including independent appraisals that may be obtained in connection with the acquisition or financing of the respective property and other market data . we also consider information obtained about each property as a result of our pre-acquisition due diligence in estimating the fair value of the tangible and intangible assets acquired and intangible liabilities assumed . tangible assets include land , land improvements , buildings , fixtures and tenant improvements on an as-if vacant basis . we utilize various estimates , processes and information to determine the as-if vacant property value . estimates of value are made using customary methods , including data from appraisals , comparable sales , discounted cash flow analysis and other methods . fair value estimates are also made using significant assumptions such as capitalization rates , discount rates , fair market lease rates , and land values per square foot . identifiable intangible assets include amounts allocated to acquire leases for above- and below-market lease rates , and the value of in-place leases , as applicable . factors considered in the analysis of the in-place lease intangibles include an estimate of carrying costs during the expected lease-up period for each property , taking into account current market conditions and costs to execute similar leases . in estimating carrying costs , we include real estate taxes , insurance and other operating expenses and estimates of lost rentals at contract rates during the expected lease-up period , which typically ranges from 12 to 18 months . we also estimate costs to execute similar leases including leasing commissions , legal and other related expenses . above-market and below-market lease values for acquired properties are initially recorded based on the present value ( using a discount rate which reflects the risks associated with the leases acquired ) of the difference between ( i ) the contractual amounts to be paid pursuant to each in-place lease , and ( ii ) management 's estimate of fair market lease rates for each corresponding in-place lease , measured over a period equal to the remaining initial term of the lease for above-market leases and the remaining term plus the term of any below-market fixed rate renewal options for below-market leases . the aggregate value of intangible assets related to customer relationships , as applicable , is measured based on our evaluation of the specific characteristics of each tenant 's lease and our overall relationship with the tenant . characteristics considered by us in determining these values include the nature and extent of its existing business relationships with the tenant , growth prospects for developing new business with the tenant , the tenant 's credit quality and expectations of lease renewals , among other factors . we did not record any intangible asset amounts related to customer relationships during the year ended december 31 , 2019 impairment of long-lived assets when circumstances indicate the carrying value of a property may not be recoverable , we review the asset for impairment .
| summary of significant accounting policies — recently issued accounting pronouncements to our consolidated financial statements included in this annual report on form 10-k for further discussion . results of operations below is a discussion of our results of operations for the years ended december 31 , 2019 and 2018 . please see the “ results of operations ” section located on page 50 under item 7 of our annual report on form 10-k for the year ended december 31 , 2018 for a comparison of our results of operations for the year ended december 31 , 2017. comparison of the year ended december 31 , 2019 to the year ended december 31 , 2018 net income attributable to common stockholders net income attributable to common stockholders was $ 34.5 million for the year ended december 31 , 2019 , as compared to net income attributable to common stockholders of $ 1.1 million for the year ended december 31 , 2018 . the change in net income attributable to common stockholders is discussed in detail for each line item of the consolidated statements of operations in the sections that follow . revenue from tenants in addition to base rent , our lease agreements generally require tenants to pay or reimburse us for all property operating expenses , which primarily reflect insurance costs and real estate taxes incurred by us and subsequently reimbursed by the tenant . however , some limited property operating expenses that are not the responsibility of the tenant are absorbed by us . revenue from tenants was $ 306.2 million and $ 282.2 million for the years ended december 31 , 2019 and 2018 , respectively . the increase was primarily driven by the impact of our property acquisitions , partially offset by the impact of our dispositions since december 31 , 2018 and the impact of foreign exchange rates .
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we commenced our principal operations on december 7 , 2011 , when we issued the initial $ 10.0 million in shares of our common stock in the offering and acquired our first real estate property . we have no paid employees and are externally advised and managed by cole income nav strategy advisors . on february 1 , 2018 , the transaction , discussed in part i , item 1 business — formation , was completed . immediately following the completion of the transaction , cim indirectly owns and or controls cole income nav strategy advisors ; our dealer manager , cco capital ; our property manager , crei advisors ; and our sponsor . in addition , as part of the transaction , pursuant to the services agreement , vereit op will continue to provide certain services to cco group and to us , including operational real estate support . vereit op will continue to provide such services through march 31 , 2019 ( or , if later , the date of the last government filing other than a tax filing made by any of the cole reits with respect to its 2018 fiscal year ) and will provide consulting and research services through december 31 , 2023 as requested by cco group , llc . despite the indirect change of ownership and control of our advisor , dealer manager , property manager and sponsor , we expect that , during the initial services term of the services agreement , the advisory , dealer manager and property management services we receive will continue without any material changes in personnel ( except as supplemented by the management oversight of cim personnel ) or material change in service procedures . during the initial services term of the services agreement , cco group , llc intends to evaluate and effectuate an appropriate transition of vereit op 's services under the services agreement to other cim affiliates or third parties with the goal of ensuring continuity and minimizing disruption . as we acquire additional commercial real estate , we will be subject to changes in real estate prices and changes in interest rates on any current variable rate debt , refinancings or new indebtedness used to acquire the properties . we may manage our risk of changes in real estate prices on future property acquisitions , when applicable , by entering into purchase agreements and loan commitments simultaneously , or through loan assumptions , so that our operating yield is determinable at the time we enter into a purchase agreement , by contracting with developers for future delivery of properties , or by entering into sale-leaseback transactions . we manage our interest rate risk by monitoring the interest rate environment in connection with our future property acquisitions , when applicable , or upcoming debt maturities to determine the appropriate financing or refinancing terms , which may include fixed rate loans , variable rate loans or interest rate hedges . if we are unable to acquire suitable properties or obtain suitable financing terms for future acquisitions or refinancing , our results of operations may be adversely affected . as of december 31 , 2017 , we owned 139 properties located in 36 states , comprising 4.4 million rentable square feet of commercial space , which includes the rentable square feet of buildings on land subject to ground leases . our operating results and cash flows are primarily influenced by rental income from our commercial properties and interest expense on our property indebtedness and acquisition and operating expenses . rental and other property income accounted for 91 % , 90 % , 91 % of our total revenue for the years ended december 31 , 2017 , 2016 , and 2015 , respectively . as 99.4 % of our rentable square feet was under lease as of december 31 , 2017 , with a weighted average remaining lease term of 10.8 years , we believe our exposure to changes in commercial rental rates on our portfolio is substantially mitigated , except for vacancies caused by tenant bankruptcies or other factors . cole income nav strategy advisors regularly monitors the creditworthiness of our tenants by reviewing each tenant 's financial results , credit rating agency reports , when available , on the tenant or guarantor , the operating history of the property with such tenant , the tenant 's market share and track record within its industry segment , the general health and outlook of the tenant 's industry segment , and other information for changes and possible trends . if our advisor identifies significant changes or trends that may adversely affect the creditworthiness of a tenant , it will gather a more in-depth knowledge of the tenant 's financial condition and , if necessary , attempt to mitigate the tenant credit risk by evaluating the possible sale of the property , or identifying a possible replacement tenant should the current tenant fail to perform on the lease . 60 our business environment and current outlook current conditions in the global capital markets remain volatile as the world 's economic growth has been affected by geopolitical and economic events . in the united states , the overall economic environment continued to improve in 2017. during 2017 , the u.s. real gross domestic product increased 2.3 % , the unemployment rate decreased 0.6 percentage points to 4.1 % , and core cpi , a measure of inflation which removes food and energy prices and is seasonally adjusted , increased 1.8 % , as compared to the same period a year earlier . economic trends and government policies affect global and regional commercial real estate markets as well as our operations directly . these include : overall economic activity and employment growth , interest rate levels , the cost and availability of credit and the impact of tax and regulatory policies . critical accounting policies and significant accounting estimates our accounting policies have been established to conform with gaap . story_separator_special_tag 62 portfolio information real estate portfolio as of december 31 , 2017 , we owned 139 commercial properties located in 36 states , comprising 4.4 million rentable square feet , which includes the rentable square feet of buildings on land subject to ground leases . as of december 31 , 2017 , these properties were 99.4 % leased ( including any month-to-month agreements ) with a weighted average remaining lease term of 10.8 years . during the year ended december 31 , 2015 , we disposed of five properties , for an aggregate gross sales price of $ 21.9 million . the following table shows the property statistics of our real estate assets as of december 31 , 2017 , 2016 and 2015 : replace_table_token_5_th ( 1 ) includes square feet of buildings on land that are subject to ground leases . ( 2 ) investment-grade tenants are those with a credit rating of bbb- or higher by standard & poor 's or a credit rating of baa3 or higher by moody 's . the ratings may reflect those assigned by standard & poor 's or moody 's to the lease guarantor or the parent company , as applicable . the weighted average credit rating is weighted based on annualized rental income , and is for only those tenants rated by standard & poor 's . the following table summarizes our real estate acquisition activity during the years ended december 31 , 2017 , 2016 and 2015 : replace_table_token_6_th ( 1 ) includes square feet of buildings on land that are subject to ground leases . 63 the following table shows the tenant diversification of our real estate portfolio , based on annualized rental income , as of december 31 , 2017 : replace_table_token_7_th ( 1 ) includes leases which are master lease agreements . ( 2 ) including square feet of buildings on land that is subject to ground leases . the following table shows the tenant industry diversification of our real estate portfolio , based on annualized rental income as of december 31 , 2017 : replace_table_token_8_th ( 1 ) includes leases which are master lease agreements . ( 2 ) including square feet of buildings on land that is subject to ground leases . 64 the following table shows the geographic diversification of our real estate portfolio , based on annualized rental income , as of december 31 , 2017 : replace_table_token_9_th ( 1 ) including square feet of buildings on land that is subject to ground leases . the following table shows the property type diversification of our real estate portfolio , based on annualized rental income , as of december 31 , 2017 : replace_table_token_10_th ( 1 ) includes square feet of buildings on land parcels subject to ground leases . leases although there are variations in the specific terms of the leases of our properties , the following is a summary of the general structure of our current leases . generally , the leases of the properties acquired provide for initial terms of ten or more years , and provide the tenant with one or more multi-year renewal options , subject to generally the same terms and conditions as the initial lease term . certain leases also provide that in the event we wish to sell the property subject to that lease , we first must offer the lessee the right to purchase the property on the same terms and conditions as any offer which we intend to accept for the sale of the property . the properties are generally leased under net leases pursuant to which the tenant bears responsibility for substantially all property costs and expenses associated with ongoing maintenance and operation , including utilities , property taxes and insurance , while certain of the leases require us to maintain the roof , structure and parking areas of the building . additionally , certain leases provide for increases in rent as a result of fixed increases , increases in the consumer price index , and or increases in the tenant 's sales volume . our leases , as of december 31 , 2017 , provided for annual base rental payments ( payable in monthly installments ) ranging from $ 15,000 to $ 1.9 million , and had an average annual base rental payment of $ 274,000 , with a weighted average remaining lease term of 10.8 years . 65 the following table shows lease expirations of our real estate portfolio as of december 31 , 2017 , during each of the next ten years and thereafter , assuming no exercise of renewal options : replace_table_token_11_th * represents less than 1 % of the total annual base rent . ( 1 ) includes leases which are master lease agreements . ( 2 ) including square feet of buildings on land that is subject to ground leases . the following table shows the economic metrics of our real estate assets as of and for the years ended december 31 , 2017 , 2016 and 2015 : replace_table_token_12_th ( 1 ) based on annualized rental income of our real estate portfolio as of the respective reporting date . ( 2 ) through the end of the next five years as of the respective reporting date . 66 story_separator_special_tag advisory fees and expenses the advisory fees and expenses that we pay to our advisor are based upon our nav . 2017 vs 2016 – advisory fees and expenses increased $ 2.2 million during the year ended december 31 , 2017 , as compared to the same period in 2016 , due to an increase in the nav for each class of common stock . the total nav for all share classes increased $ 149.5 million during the year ended december 31 , 2017 , which represented an increase of $ 1.4 million and $ 141,000 in advisory fees and advisor reimbursements over the prior year and a $ 647,000 increase in performance fees , as we did not hit the performance fee metrics in 2016 .
| results of operations our results of operations are influenced by the timing of acquisitions and the operating performance of our real estate assets . the following table provides summary information about our results of operations for the years ended december 31 , 2017 , 2016 and 2015 ( dollars in thousands ) : replace_table_token_13_th revenue our revenues consist primarily of rental and other property income from net leased commercial properties . we also incur certain operating expenses that are subject to reimbursement by our tenants , which results in tenant reimbursement income . additionally , our portfolio includes liquid assets in the form of marketable securities . these assets can result in revenue in the form of interest income . 2017 vs 2016 – the increase in revenue of $ 20.8 million during the year ended december 31 , 2017 , compared to the same period in 2016 , was primarily due to the acquisition of 31 rental income-producing properties subsequent to december 31 , 2016 as well as recognizing a full year of revenue on the 31 properties acquired in 2016 . rental and other property income from net leased commercial properties accounted for 91 % and 90 % of our total revenues during the years ended december 31 , 2017 and 2016 , respectively . we also incurred certain operating expenses subject to reimbursement by our tenants , which resulted in $ 4.4 million of tenant reimbursement income during the year ended december 31 , 2017 , compared to $ 2.6 million of tenant reimbursement income during the year ended december 31 , 2016 .
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“ risk factors ” of this annual report on form 10-k. use of constant currency revenue from our international operations has historically represented a substantial portion of our total revenue . as a result , our revenue results have been impacted , and we expect will continue to be impacted , by fluctuations in foreign currency exchange rates . for example , if the local currencies of our foreign subsidiaries strengthen , our consolidated results stated in u.s. dollars are positively impacted . as exchange rates are an important factor in understanding period to period comparisons , we believe the presentation of revenue growth rates on a constant currency basis enhances the understanding of our revenue results and evaluation of our performance in comparison to prior periods . the constant currency information presented is calculated by translating current period results using prior period weighted average foreign currency exchange rates . these results should be considered in addition to , not as a substitute for , results reported in accordance with gaap . overview progress software corporation ( `` progress , '' the `` company , '' `` we , '' `` us , '' or `` our '' ) offers the leading platform for developing and deploying strategic business applications . we enable customers and partners to deliver modern , high-impact digital experiences with a fraction of the effort , time and cost . progress offers powerful tools for easily building adaptive user experiences across any type of device or touchpoint , award-winning machine learning that enables cognitive capabilities to be a part of any application , the flexibility of a serverless cloud to deploy modern apps , business rules , web content management , plus leading data connectivity technology . over 1,700 isvs , 100,000 enterprise customers , and 2 million developers rely on progress to power their applications . we operate as three distinct segments : openedge , data connectivity and integration , and application development and deployment . the key tenets of our strategic plan and operating model are as follows : 20 align resources to drive profitability . our organizational philosophy and operating principles focus primarily on customer and partner retention and success for our core products and a streamlined operating approach in order to more efficiently drive revenue . protect and strengthen our core business . a key element of our strategy is centered on providing the platform and tools enterprises need to build “ cognitive applications , ” which we believe are the future of application development . we offer this platform to both new customers and partners as well as our existing partner and customer ecosystems . our platform for cognitive applications enables developers to build the most modern applications quickly and easily , and includes : our leading ui development tools , which enable organizations to easily build engaging user interfaces for any device or front end ; our nativescript offering , which allows developers to use javascript to build native applications across multiple mobile platforms ; our modern high productivity application development platform , progress kinvey , that is cloud-native , is secure , high-performing , and highly-scalable while supporting all modern user interfaces ; automated and intuitive machine learning capabilities for accelerating the creation and delivery of cognitive applications ; our data connectivity and integration capabilities ; our business logic and rules capabilities ; and web content management for delivering personalized and engaging digital experiences this strategy builds on our inherent dna and our vast experience in application development that we 've acquired over the past 35 years . holistic capital allocation approach . pursuant to our capital allocation strategy , we have targeted to return approximately 75-80 % of our annual cash flows from operations to stockholders in the form of share repurchases and through dividends . we have also adopted a disciplined approach to future mergers and acquisitions . by adopting strict financial criteria for future acquisitions , these acquisitions will enable us to drive significant stockholder returns by providing scale and increased cash flows . on march 1 , 2017 , we acquired datarpm for an aggregate sum of $ 30.0 million . datarpm is a leader in cognitive predictive maintenance for the industrial iot ( `` iiot '' ) market . this acquisition is a key part of the company 's strategy to provide the best platform to build and deliver cognitive applications . on june 1 , 2017 , we acquired kinvey for an aggregate sum of $ 49.2 million . kinvey allows developers to set up , use , and operate a cloud backend for any native , hybrid , web , or iot app built using any development tools . this acquisition , in combination with our existing technologies , enables us to offer the premier , high productivity platform for building and delivering cognitive applications . we expect to continue to evaluate possible acquisitions and other strategic transactions designed to expand our business . as a result , our expected uses of cash could change , our cash position could be reduced and we may incur additional debt obligations to the extent we complete additional acquisitions . however , we believe that existing cash balances , together with funds generated from operations and amounts available under our credit facility , will be sufficient to finance our operations and meet our foreseeable cash requirements , including quarterly cash dividends and stock repurchases to progress stockholders , through at least the next twelve months . we derive a significant portion of our revenue from international operations , which are primarily conducted in foreign currencies . as a result , changes in the value of these foreign currencies relative to the u.s. dollar have significantly impacted our results of operations and may impact our future results of operations . for example , in fiscal year 2016 , the value of the u.s. dollar strengthened in comparison to certain foreign currencies , including in europe , brazil and australia . story_separator_special_tag during the first quarter of fiscal year 2017 , there were significant forfeitures due to our restructuring action , which significantly reduced stock-based compensation expense in fiscal year 2017 as compared to fiscal year 2018. general and administrative fiscal year ended ( in thousands ) november 30 , 2018 november 30 , 2017 percentage change general and administrative $ 49,050 $ 45,739 7 % as a percentage of total revenue 12 % 12 % 25 general and administrative expenses include the costs of our finance , human resources , legal , information systems and administrative departments . general and administrative expenses increased in fiscal year 2018 as compared to fiscal year 2017 primarily due to increased stock-based compensation expense , as well as higher professional services expense , partially offset by lower compensation-related expenses . during the first quarter of fiscal year 2017 , there were significant forfeitures due to our restructuring action , which significantly reduced stock-based compensation expense in fiscal year 2017 as compared to fiscal year 2018. amortization of acquired intangibles fiscal year ended ( in thousands ) november 30 , 2018 november 30 , 2017 percentage change amortization of acquired intangibles $ 13,241 $ 13,039 2 % as a percentage of total revenue 3 % 3 % amortization of acquired intangibles included in operating expenses primarily represents the amortization of value assigned to intangible assets obtained in business combinations other than assets identified as purchased technology . amortization of acquired intangibles increased in fiscal year 2018 as compared to fiscal year 2017 due to the addition of intangible assets obtained in connection with the acquisitions of datarpm and kinvey , which occurred in the second and third quarters of fiscal year 2017 , respectively . loss on assets held for sale fiscal year ended ( in thousands ) november 30 , 2018 november 30 , 2017 percentage change loss on assets held for sale $ 5,147 $ — * as a percentage of total revenue 1 % — % in the fourth quarter of fiscal year 2018 , we reclassified certain corporate land and building assets previously reported as property and equipment to assets held for sale on our consolidated balance sheets as we are actively marketing them and expect to sell them within one year . as a result , we recognized an impairment charge of $ 5.1 million , which represents the difference between the fair value less cost to sell and the carrying value of the assets . the impairment charge was recorded to loss on assets held for sale within operating expenses on our fiscal year 2018 consolidated statement of operations . see note 5 to our consolidated financial statements in item 8 of this form 10-k for additional details . fees related to shareholder activist fiscal year ended ( in thousands ) november 30 , 2018 november 30 , 2017 percentage change fees related to shareholder activist $ 1,472 $ 2,020 ( 27 ) % as a percentage of total revenue — % 1 % in september 2017 , praesidium investment management , then one of our largest stockholders , publicly announced its disagreement with our strategy in a schedule 13d filed with the sec and stated that it was seeking changes in the composition of our board of directors . in fiscal years 2017 and 2018 , we incurred professional and other fees relating to praesidium 's actions . 26 restructuring expenses fiscal year ended ( in thousands ) november 30 , 2018 november 30 , 2017 percentage change restructuring expenses $ 2,251 $ 22,210 ( 90 ) % as a percentage of total revenue 1 % 6 % restructuring expenses recorded in fiscal year 2018 relate to the restructuring activities that occurred in fiscal year 2017. see note 13 to our consolidated financial statements in item 8 of this form 10-k for additional details , including types of expenses incurred and the timing of future expenses and cash payments . see also the liquidity and capital resources section of this item 2 , management 's discussion and analysis of financial condition and results of operations . acquisition-related expenses fiscal year ended ( in thousands ) november 30 , 2018 november 30 , 2017 percentage change acquisition-related expenses $ 258 $ 1,458 ( 82 ) % as a percentage of total revenue — % — % acquisition-related costs are expensed as incurred and include those costs incurred as a result of a business combination . these costs consist of professional services fees , including third-party legal and valuation-related fees , as well as retention fees , and earn-out payments treated as compensation expense . acquisition-related expenses in fiscal year 2018 were minimal . acquisition-related expenses in fiscal year 2017 resulted primarily from expense related to the acquisitions of datarpm and kinvey , which occurred in the second and third quarters of fiscal year 2017 , respectively . income from operations fiscal year ended ( in thousands ) november 30 , 2018 november 30 , 2017 percentage change income from operations $ 85,998 $ 70,614 22 % as a percentage of total revenue 22 % 18 % income from operations increased in fiscal year 2018 as compared to fiscal year 2017. as described above , the increase was primarily driven by lower restructuring expenses , sales and marketing expenses , and acquisition expenses as well as higher gross margin . this increase was partially offset by the loss on assets held for sale recorded in fiscal year 2018 , higher general and administrative expenses and higher product development expenses as described above . income from operations by segment replace_table_token_11_th 27 note that the following expenses are not allocated to our segments as we manage and report our business in these functional areas on a consolidated basis only : certain product development and corporate sales and marketing expenses , customer support , administration , amortization of acquired intangibles , loss on assets held for sale , stock-based compensation , fees related to shareholder activist , restructuring , and acquisition-related expenses .
| results of operations fiscal year 2018 compared to fiscal year 2017 revenue fiscal year ended percentage change ( in thousands ) november 30 , 2018 november 30 , 2017 as reported constant currency revenue $ 397,165 $ 397,572 — % ( 1 ) % total revenue decreased slightly in fiscal year 2018 as compared to fiscal year 2017 primarily due to a decline in license and professional services revenue , partially offset by an increase in maintenance revenue and a favorable impact from foreign currency exchange rates as further described below . changes in prices from fiscal year 2017 to 2018 did not have a significant impact on our revenue . license revenue replace_table_token_5_th software license revenue decreased in fiscal year 2018 as compared to fiscal year 2017 due to a decrease in software license revenue in our data connectivity and integration and application development and deployment segments . 22 maintenance and services revenue replace_table_token_6_th maintenance revenue increased in fiscal year 2018 as compared fiscal year 2017 due to a favorable impact from currency exchange rates and an increase in maintenance revenue in our application development and deployment segment , partially offset by a decline in our data connectivity and integration segment . professional services revenue decreased in fiscal year 2018 as compared to fiscal year 2017 primarily due to lower professional services revenue from our openedge and application development and deployment segments . revenue by region replace_table_token_7_th total revenue generated in north america decreased $ 4.0 million , and total revenue generated outside north america increased $ 3.6 million , in fiscal year 2018 as compared to fiscal year 2017. the decrease in north america was primarily due to a decrease in license revenue in our data connectivity and integration and application development and deployment segments and professional services revenue in our openedge segment .
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the company paid approximately $ 0.3 million to the city for an option to purchase the property after it has been fully remediated to enable potential future expansion at the cincinnati brewery , which is included in property , plant story_separator_special_tag forward-looking statements in this form 10-k and in other documents incorporated herein , as well as in oral statements made by the company , statements that are prefaced with the words may , will , expect , anticipate , continue , estimate , project , intend , designed , and similar expressions , are intended to identify forward-looking statements regarding events , conditions , and financial trends that may affect the company 's future plans of operations , business strategy , results of operations , and financial position . these statements are based on the 24 company 's current expectations and estimates as to prospective events and circumstances about which the company can give no firm assurance . further , any forward-looking statement speaks only as of the date on which such statement is made , and the company undertakes no obligation to update any forward-looking statement to reflect future events or circumstances . forward-looking statements should not be relied upon as a prediction of actual future financial condition or results . these forward-looking statements , like any forward-looking statements , involve risks and uncertainties that could cause actual results to differ materially from those projected or anticipated . such risks and uncertainties include the factors set forth above and the other information set forth in this form 10-k. introduction the boston beer company is engaged in the business of producing and selling alcohol beverages primarily in the domestic market and , to a lesser extent , in selected international markets . the company 's revenues are derived by selling its beers and ciders to distributors , who in turn sell the products to retailers and drinkers . the company 's beers compete primarily in the better beer category , which includes imported beers and craft beers . this category has seen high single-digit compounded annual growth over the past ten years . defining factors for better beer include superior quality , image and taste , supported by appropriate pricing . the company believes that the better beer category is positioned to increase market share as drinkers continue to trade up in taste and quality . the company estimates that in 2012 the craft beer category grew approximately 11 % to 13 % , while the better beer category was up approximately 6 % to 7 % , while the total beer category was up approximately 1 % . the company believes that the better beer category is approximately 22 % of united states beer consumption by volume . the company believes that significant opportunity to gain market share continues to exist for the better beer category . depletions of the company 's beers and ciders , or distributor sales to retailers , increased approximately 12 % in 2012 from the comparable 52 week period in the prior year . outlook year-to-date depletions reported to the company for 6 weeks ended february 9 , 2013 are estimated by the company to be up approximately 15 % from the comparable period in 2012. the company is targeting earnings per diluted share for 2013 of between $ 4.70 and $ 5.10 , but actual results could vary significantly from this target . the company is currently planning that 2013 depletions and shipments growth will be approximately 10 % to 15 % . the company believes that the competitive pricing environment will be challenging and is planning pricing increases of approximately 1 % to 2 % to partially offset cost pressures . full-year 2013 gross margins are currently expected to be between 53 % and 55 % due to anticipated price increases not fully covering cost pressures and some product mix changes . the company intends to increase advertising , promotional and selling expenses of between $ 18 million and $ 26 million for the full year 2013 primarily due to planned increased investments behind our brands and these increases exclude increases in freight costs for the shipment of products to the company 's wholesalers . the company estimates increases of $ 2 million to $ 4 million for continued investment in existing brands developed by alchemy & science , which are included in our full year estimated increases in advertising , promotional and selling expenses . additional projects yet to be developed or acquired may significantly increase investments in alchemy & science and advertising , promotional and selling expenses . the company believes that its 2013 effective tax rate will be approximately 38 % . the company is continuing to evaluate 2013 capital expenditures and , based on current information , its initial estimates are between $ 70 million and $ 85 million , most of which relate to continued investments in its breweries , as well additional keg purchases . the company anticipates an annual capital investment level after 2013 to be between $ 30 million and $ 50 million , including capacity expansion initiatives to accommodate expected growth ; however , the actual amount spent may well be different from these estimates . based on information currently available , the company believes that its capacity requirements for 2013 can be covered by its company-owned breweries and existing contracted capacity at third-party brewers . 25 story_separator_special_tag contributions from wholesalers for advertising and promotional activities have amounted to between 2 % and 4 % of net sales . the company may adjust its promotional efforts in the wholesalers ' markets , if changes occur in these promotional contribution arrangements , depending on the industry and market conditions . general and administrative . general and administrative expenses increased by $ 6.7 million , or 15.4 % , to $ 50.2 million in 2012 as compared to 2011 , driven by increases in salary and benefit costs and alchemy & science startup costs . impairment of long-lived assets . story_separator_special_tag general and administrative . general and administrative expenses increased by $ 4.4 million , or 11.2 % , to $ 43.5 million in 2011 as compared to 2010 , driven by increases in salary and benefit costs and consulting expenses , and the fact that in the first quarter of 2010 there was a $ 0.9 million reversal of a 2009 expense for an option that did not vest . impairment of long-lived assets . during 2011 , the company incurred impairment charges of $ 666,000 based upon its review of the carrying values of its property , plant and equipment , primarily reflecting the effect of the general decline in economic conditions on the value of certain land owned by the company , compared to $ 300,000 of impairment charges in 2010. settlement proceeds . as noted in footnote k product recall of the accompanying consolidated financial statements , the company received proceeds of $ 20.5 million during the second quarter of 2011 , pursuant to an agreement to settle all claims regarding the 2008 product recall . stock-based compensation expense . for the year ended december 31 , 2011 , an aggregate of $ 6.2 million in stock-based compensation expense is included in advertising , promotional and selling expenses and general and administrative expenses . stock compensation increased by $ 3.1 million in 2011 compared to 2010 , primarily due to 2011 grants of long-term retention stock options , increased fair value of options and awards granted during 2011 , expense for the estimated achievement of performance-based options and the fact that in the first quarter of 2010 there was a $ 0.9 million reversal of a 2009 expense for a performance option that did not vest . provision for income taxes . the company 's effective income tax rate for the year ended december 31 , 2011 decreased to 36.2 % from the 2010 rate of 38.2 % . this decrease in the effective tax rate is a result of a favorable state tax settlement , as well as higher pretax income but with no corresponding increase in non-deductible expenses , partially offset by smaller research and development tax credits in 2011 as compared to 2010 . 29 liquidity and capital resources cash increased to $ 74.5 million as of december 29 , 2012 from $ 49.5 million as of december 31 , 2011 , primarily due to increased cash flows from operating activities , which was mostly offset by purchases of property plant and equipment totaling $ 66.0 million and stock repurchases of $ 18.0 million . cash provided by operating activities consist of net income , adjusted for certain non-cash items , such as depreciation and amortization , stock-based compensation expense and related excess tax benefit , and other non-cash items included in operating results . also affecting cash flows provided by operating activities are changes in operating assets and liabilities , such as accounts receivable , inventory , accounts payable and accrued expenses . cash provided by operating activities in 2012 totaled $ 95.3 million and primarily consisted of net income of $ 59.5 million , and non-cash items of $ 21.2 million , and a net decrease in operating assets and liabilities of $ 14.7 million . cash provided by operating activities in 2011 of $ 72.8 million and primarily consisted of net income of $ 66.1 million , which includes the $ 20.5 million in settlement proceeds noted in footnote k product recall , and non-cash items of $ 19.9 million , partially offset by a net increase in operating assets and liabilities of $ 13.2 million . the company used $ 67.3 million in investing activities during 2012 , as compared to $ 19.6 million during 2011. investing activities primarily consisted of discretionary equipment purchases to upgrade the company-owned breweries . cash used in financing activities was $ 3.0 million during 2012 , as compared to $ 52.7 million during 2011. the $ 49.7 million change in financing cash flow is primarily due to a decrease in stock repurchases under the company 's stock repurchase program . during the year ended december 29 , 2012 , the company repurchased approximately 165,000 shares of its class a common stock for a total cost of approximately $ 18.0 million . on october 1 , 2012 , the board of directors of the company increased the aggregate expenditure limit for the company 's stock repurchase program by $ 25.0 million , thereby increasing the limit from $ 275.0 million to $ 300.0 million . as of december 29 , 2012 , the company has repurchased a cumulative total of approximately 10.7 million shares of its class a common stock for an aggregate purchase price of approximately $ 269.9 million . from december 30 , 2012 to february 15 , 2013 , the company repurchased 82,000 additional shares of its class a common stock for a total cost of $ 11.5 million . as of february 15 , 2013 , the company has repurchased a cumulative total of approximately 10.8 million shares of its class a common stock for an aggregate purchase price of $ 281.5 million . the company has approximately $ 18.5 million remaining on the $ 300 million share buyback expenditure limit set by the board of directors . the company expects that its cash balances as of december 29 , 2012 of $ 74.5 million , along with future operating cash flow and the company 's unused line of credit of $ 50.0 million , will be sufficient to fund future cash requirements . the company 's $ 50.0 million credit facility has a term not scheduled to expire until march 31 , 2015. the company was not in violation of any of its covenants to the lender under the credit facility and there were no amounts outstanding under the credit facility as of the date of this filing .
| results of operations boston beer 's flagship product is samuel adams boston lager ® . for purposes of this discussion , boston beer 's core brands or core products include all products sold under the sam adams ® , twisted tea ® , angry orchard ® , house of shandy ® , and angel city brewery ® trademarks . core products do not include the products brewed or packaged at the company 's brewery in cincinnati , ohio ( the cincinnati brewery ) under a contract arrangement for a third party . sales of such products are not significant to the company 's net revenues . the following table sets forth certain items included in the company 's consolidated statements of income as a percentage of net revenue : replace_table_token_7_th year ended december 29 , 2012 ( 52 weeks ) compared to year ended december 31 , 2011 ( 53 weeks ) fiscal periods . the 2012 fiscal year consisted of 52 weeks as compared to 53 weeks in fiscal 2011 and 52 weeks in fiscal 2010. net revenue . net revenue increased by $ 67.2 million , or 13.1 % , to $ 580.2 million for the year ended december 29 , 2012 , from $ 513.0 million for the year ended december 31 , 2011. this increase was due primarily to an increase in core brand shipment volume and pricing gains . volume . total shipment volume increased by 10.6 % to 2,746,000 barrels for the year ended december 29 , 2012 , as compared to 2,484,000 barrels for the year ended december 31 , 2011 , due to an increase in core brand shipments . shipment volume for the core brands increased by 10.4 % to 2,727,000 barrels , due primarily to increases in angry orchard , , twisted tea and samuel adams seasonals , offset by declines in some other samuel adams styles .
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the company evaluates the need for an allowance for credit losses based on amounts advanced , expected forgiveness , consideration of historical experience , current conditions and forecasts of future story_separator_special_tag the following discussion of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and the accompanying notes thereto included elsewhere herein . the following discussion contains , in addition to historical information , forward-looking statements that include risks and uncertainties . our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors , including those factors set forth under item 1a – “ risk factors ” 35 and item 7 — “ management 's discussion and analysis of financial condition and results of operations – overview – factors affecting our business ” of this annual report on form 10-k. overview our business we are a leading national brokerage firm specializing in commercial real estate investment sales , financing , research and advisory services . we have been the top commercial real estate investment broker in the united states based on the number of investment transactions for more than 15 years . as of december 31 , 2020 , we had 2,097 investment sales and financing professionals that are primarily exclusive independent contractors operating in 84 offices , who provide real estate brokerage and financing services to sellers and buyers of commercial real estate . we also offer market research , consulting and advisory services to our clients . during the year ended december 31 , 2020 , we closed 8,954 investment sales , financing and other transactions with total sales volume of approximately $ 43.4 billion . during the year ended december 31 , 2019 , we closed 9,726 sales , financing and other transactions with total sales volume of approximately $ 49.7 billion . we generate revenues by collecting real estate brokerage commissions upon the sale , and fees upon the financing of commercial properties and by providing consulting , advisory and other real estate services . real estate brokerage commissions are typically based upon the value of the property , and financing fees are typically based upon the size of the loan . during the year ended december 31 , 2020 , approximately 88 % of our revenues were generated from real estate brokerage commissions , 10 % from financing fees and 2 % from other real estate related services . acquisitions we continue to increase our market presence through the execution of our growth strategies by targeting markets based on population , employment , level of commercial real estate sales , inventory and competitive opportunities where we believe the markets will benefit from our commercial real estate investment sales , financing , research and advisory services . during the year ended december 31 , 2020 , we completed four acquisitions that expanded our financing and real estate brokerage markets presence in the northeast , southwest and southeast . none of the acquisitions were individually material to the financial statements . covid-19 since march 2020 , the covid-19 pandemic has been and continues to be a prolonged widespread global health crisis that has affected and will continue to affect how we operate our business . the duration and extent to which it will continue to impact our business is unknown . many states , counties and cities where we conduct our business activities , have instituted quarantines , restrictions on travel , “ shelter in place ” rules , and restrictions on the types of business that may continue to operate , which has and may continue to limit the activity of our sales and financing professionals in engaging with our clients . these factors are also impacting the financial performance of real estate to varying degrees by property type , which in turn has and continues to create challenges in valuations and trading volumes . first and foremost , we have been and remain committed to protecting the health and safety of our employees , investment sales and financing professionals , clients and their families , while at the same time focusing on our clients ' success . we have implemented measures such as increased sanitizing , physical distancing and remote work arrangements , with the goal of protecting our employees , sales and financing professionals and clients . we continue to follow the local guidelines in cities where our offices are located , and all but a few of our offices have re-opened , and those that have not been able to re-open due to state and local restrictions are available to our employees and sales and financing professionals on an as-needed basis . we are closely monitoring the impact of covid-19 pandemic on all aspects of our business and in the regions we operate . since the start of the pandemic , we have taken multiple measures to support our investment 36 sales and financing professionals ' ability to generate and execute business remotely . such measures include multiple technological solutions , intensified internal training and education , as well as a significant increase in client outreach and investor education webcasts . our business was impacted during most of 2020 , with the total number of transactions and total revenues declining 7.9 % and 11.1 % in the year ended december 31 , 2020 , respectively , compared to the same period in 2019. the pandemic caused a major market disruption starting in the second quarter of 2020 as we saw a significant slowing of our real estate brokerage and financing transaction activity , difficulty in pricing assets and , in certain cases , restrictions on the ability of borrowers to access the capital markets and other sources of financing . during the second half of 2020 , we started to see recovery in transaction activity , in part , attributable to historically low interest rates , improved investor confidence due to the progress of vaccines and resurrected deals and cancelled listings continuing to come back . story_separator_special_tag the hotel sector and parts of the retail sector continue to face headwinds , although we believe segments of each of the sectors appear to have built some momentum . while large destination tourist hotels and those catering to conferences continue to face the severe impact of the pandemic , it appears smaller drivable vacation hotels have performed comparatively well . in the retail sector , older enclosed shopping malls , experiential retail , gyms , movie theaters and sit-down dining restaurants have faced extensive difficulties while restaurants with drive-thru facilities , necessity and discount retailers as well as pharmacies have in many cases maintained healthy performance . we believe suburban office and apartment properties have generally outperformed their urban counterparts as home offices and the need for more space outweighed the many closed amenities offered in the urban core . elevated new apartment deliveries , particularly in the urban core , is expected to weigh on class a apartment performance . industrial property fundamentals , meanwhile , have generally remained stable , bolstered by strong ecommerce as a primary consumption channel . rent collections for apartment , office and industrial properties remain above 90 percent , and the new round of stimulus measures , which includes expanded unemployment benefits , $ 25 billion for rental assistance and a renewed paycheck protection program should help support tenants . asset performance could continue to vary significantly by locality as cities across the country face wide-ranging economic and health-related fallout . capital markets credit and liquidity issues in the financial markets have a direct impact on the flow of capital to the commercial real estate market . real estate purchases are often financed with debt and , as a result , credit and 38 liquidity impact transaction activity and prices . changes in interest rates , as well as steady and protracted movements of interest rates in one direction , whether increases or decreases , could adversely or positively affect the operations and income potential of commercial real estate properties , as well as lender and equity underwriting for real estate investments . these changes influence the demand of investors for commercial real estate investments . lenders remain active and debt is available for most property types . led by local and regional banks , financing availability and terms have been sustained for most property types while interest rates remain near record lows . hotels and some retail centers , which are the property types grappling with the greatest levels of distress , still face limited access to debt capital . other property types , particularly those that have maintained strong rent collections , have financing options . speculative investment , including construction and value-add assets , face closer lender scrutiny , but private capital sources continue to offer a bridge for well-qualified borrowers . the increased debt liquidity and particularly low interest rates supported rising investor activity in the fourth quarter , but sales remained well below pre-crisis levels . although the federal reserve 's commitment to low interest rates could support the low interest rate climate for an extended period , the prospect of accelerated economic growth in the second half of the year could put some upward pressure on rates . we believe market liquidity should remain strong , barring a significant medical or financial market setback . investor sentiment and investment activity we rely on investors to buy and sell properties in order to generate commissions . investors ' desires to engage in real estate transactions are dependent on many factors that are beyond our control . the economy , supply and demand for properly positioned properties , available credit and market events impact investor sentiment and , therefore , transaction velocity . in addition , our private clients are often motivated to buy , sell and or refinance properties due to personal circumstances such as death , divorce , partnership breakups and estate planning . investor activity continued to accelerate in the fourth quarter as it appears investors began to focus more on upside opportunities and less on downside risk . based on informal surveys , many were motivated to transact ahead of the administration change and speculation about possible tax law changes . questions remain for substantially all facets of the near-term real estate sector outlook , but many investors are focusing more on the post-vaccine recovery . the most stable assets in stronger markets have demonstrated fully recovered pricing , while assets with considerable uncertainty continue to navigate the price discovery process . however , we believe low interest rates and generally broad capital availability have been positive forces supporting activity . we believe the many investors still on the sidelines have ample capital on-hand to spur transaction activity once uncertainties abate , particularly after vaccinations reach a critical mass . looking forward , tax policy could become a larger concern for investors , with potential proposals for changes to capital gains , estate taxes and 1031 tax deferred exchanges . any changes to the tax code could influence activity either to the upside or downside . nonetheless , we believe a medical solution to the health crisis and the eventual release of pent-up demand among consumers and real estate investors remain significant factors in determining investor decisions . seasonality our real estate brokerage commissions and financing fees have tended to be seasonal and , combined with other factors , can affect an investor 's ability to compare our financial condition and results of operations on a quarter-by-quarter basis . historically , this seasonality has generally caused our revenue , operating income , net income and cash flows from operating activities to be lower in the first half of the year and higher in the second half of the year , particularly in the fourth quarter . the concentration of earnings and cash flows in the last six months of the year , particularly in the fourth quarter , is due to an industry-wide focus of clients to complete transactions towards the end of the calendar year .
| results of operations following is a discussion of our results of operations for the years ended december 31 , 2020 , 2019 and 2018. the tables included in the period comparisons below provide summaries of our results of operations . the period-to-period comparisons of financial results are not necessarily indicative of future results . 42 key operating metrics we regularly review a number of key metrics to evaluate our business , measure our performance , identify trends affecting our business , formulate financial projections and make strategic decisions . we also believe these metrics are relevant to investors ' and others ' assessment of our financial condition and results of operations . during the years ended december 31 , 2020 , 2019 and 2018 , we closed more than 8,900 , 9,700 and 9,400 investment sales , financing and other transactions , respectively , with total sales volume of approximately $ 43.4 billion , $ 49.7 billion and $ 46.4 billion , respectively . such key metrics for real estate brokerage and financing activities ( excluding other transactions ) are as follows : replace_table_token_4_th ( 1 ) operating metrics calculated excluding certain financing fees not directly associated to transactions . 43 comparison of years ended december 31 , 2020 and 2019 below are key operating results for the year ended december 31 , 2020 compared to the results for the year ended december 31 , 2019 ( dollars in thousands ) : replace_table_token_5_th ( 1 ) adjusted ebitda is not a measurement of our financial performance under u.s. generally accepted accounting principles ( “ u.s . gaap ” ) and should not be considered as an alternative to net income , operating income or any other measures derived in accordance with u.s. gaap . for a definition of adjusted ebitda and a reconciliation of adjusted ebitda to net income , see “ non-gaap financial measure.
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effective january 1 , 2011 , for collaborations relating to research or development arrangements , the company will recognize revenue for a payment that is contingent upon the achievement of a substantive milestone in its entirety in story_separator_special_tag and results of operations the following discussion and analysis of our financial condition and results of operations should be read in conjunction with selected financial data and our consolidated financial statements and related notes appearing elsewhere in this annual report on form 10-k. in addition to historical information , this discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors , including , but not limited , to those set forth under item 1a risk factors and elsewhere in this annual report on form 10-k. overview background we are a pharmaceutical company commercializing and developing products for the treatment of central nervous system disorders and pain . our first commercial product , sumavel dosepro ( sumatriptan injection ) needle-free delivery system , offers fast-acting , easy-to-use , needle-free subcutaneous administration of sumatriptan for the acute treatment of migraine and cluster headache in a pre-filled , single-use delivery system . we launched the commercial sale of sumavel dosepro in the united states in january 2010 with our co-promotion partner , astellas pharma us , inc. , or astellas . our sales and marketing organization is comprised of approximately 116 professionals . our field sales force of approximately 95 representatives has historically promoted sumavel dosepro primarily to neurologists and other prescribers of migraine medications , including headache clinics and headache specialists . our promotional efforts have been complemented by our collaboration with astellas and approximately 400 of its sales representatives , who have promoted sumavel dosepro primarily to primary care physicians , ob/gyns , emergency medicine physicians and urologists in the united states . our collaboration with astellas will terminate on march 31 , 2012 , at which time we will assume full responsibility for the commercialization of sumavel dosepro . we have already begun to assume responsibility from astellas for marketing sumavel dosepro to selected high-prescribing primary care physicians and other astellas-targeted physicians and professionals within the astellas segment pursuant to a promotion transition plan . we are currently evaluating potential co-promotion partners who could complement our sales force efforts for the commercial sale of sumavel dosepro . we also have entered into a partnership for sumavel dosepro with desitin arzneimittel gmbh , or desitin , to accelerate development and regulatory approvals in europe and further enhance the global commercial potential of sumavel dosepro . our lead product candidate , zohydro ( hydrocodone bitartrate ) is a 12-hour extended-release formulation of hydrocodone without acetaminophen for the treatment of moderate to severe chronic pain requiring around-the-clock opioid therapy . we completed phase 3 development of zohydro in 2011 , and we expect to submit a new drug application , or nda , for zohydro to the u.s. food and drug administration , or fda , early in the second quarter of 2012. we in-licensed exclusive u.s. rights to zohydro from alkermes plc ( formerly elan pharma international limited ) in 2007. in july 2011 , we entered into a development and license agreement with durect corporation , or the relday license agreement , pursuant to which we will be responsible for the clinical development and commercialization of relday , a proprietary , long-acting injectable formulation of risperidone using durect 's saber controlled-release formulation technology in combination with our dosepro needle-free , subcutaneous drug delivery system . risperidone is used to treat the symptoms of schizophrenia and bipolar disorder in adults and teenagers 13 years of age and older . relday will be developed to address unmet clinical needs in this patient population and is being developed to be a once-monthly , subcutaneous antipsychotic product . we expect to initiate clinical studies for the new product candidate in patients with schizophrenia in 2012 following filing of an investigational new drug application . 101 we have experienced net losses and negative cash flow from operating activities since inception , and as of december 31 , 2011 , had an accumulated deficit of $ 282.0 million . we expect to continue to incur net losses and negative cash flow from operating activities for at least the next several years primarily as a result of the expenses incurred in connection with our regulatory filings for zohydro , any additional required clinical testing for zohydro , the initiation of clinical development for relday and the cost of the sales and marketing expense associated with sumavel dosepro , and , if approved , zohydro . as of december 31 , 2011 , we had cash and cash equivalents of $ 56.5 million . in addition , under the terms of our amended and restated loan and security agreement with oxford finance llc and silicon valley bank , or the amended oxford/svb loan agreement , we deferred principal repayment to february 1 , 2012. in july 2011 , we entered into a royalty financing transaction with cowen royalty , or the cowen financing agreement , resulting in net proceeds of $ 29.5 million to us . although it is difficult to predict future liquidity requirements , we believe that our cash and cash equivalents as of december 31 , 2011 , estimated future product revenues and borrowings available under our $ 10.0 million revolving credit facility , will be sufficient to fund our operations into the first quarter of 2013. we will need to obtain additional capital to finance our operations beyond that point . we intend to raise additional capital through debt or equity financings or through collaborations or partnerships with other companies . if we are not able to raise additional capital on terms acceptable to us , or at all , as and when needed , we may be required to reduce or curtail our operations and costs , and we may be unable to continue as a going concern . story_separator_special_tag however , in the event we are unsuccessful in transitioning the astellas segment to our sales force , our net product sales and financial results could be negatively impacted . durect license agreement in july 2011 , we paid a non-refundable upfront fee to durect of $ 2.25 million under the relday license agreement . we are obligated to pay durect up to $ 103.0 million in total future milestone payments with respect to relday subject to and upon the achievement of various development , regulatory and sales milestones . we are also required to pay a mid single-digit to low double-digit percentage patent royalty on annual net sales of the product determined on a jurisdiction-by-jurisdiction basis . further , until an nda for relday has been filed in the united states , we are obligated to spend no less than $ 1.0 million in external expenses on the development of relday in any trailing twelve month period beginning in july 2012. the patent royalty term in any jurisdiction is equal to the later of the expiration of all durect technology patents or joint patent rights in a particular jurisdiction , the expiration of marketing exclusivity rights in such jurisdiction , or 15 years from first commercial sale in such jurisdiction . after the patent royalty term , we will continue to pay royalties on annual net sales of the product at a reduced rate for so long as we continue to sell the product in the jurisdiction . we are also required to pay to durect a tiered percentage of fees received in connection with any sublicense of the licensed rights . we have incurred $ 2.7 million in research and development costs payable to durect , excluding the upfront fee of $ 2.25 million , for the twelve months ended december 31 , 2011. revenues through the year ended december 31 , 2009 , we did not generate any product revenues or recognize any contract revenues . during the year ended december 31 , 2010 , we began recognizing product revenues from sales 103 of sumavel dosepro and through sales by us to desitin under our licensing and distribution agreement . during this same period , we began recognizing contract revenues from license and milestone payments received under the astellas co-promotion agreement . for the years ended december 31 , 2011 and 2010 we recognized $ 30.4 million and $ 19.1 million , respectively , in net product revenues . for the years ended december 31 , 2011 and 2010 we recognized $ 7.2 million and $ 4.4 million , respectively , in contract revenues associated with license and milestone payments made to us by astellas under the co-promotion agreement . we sell sumavel dosepro product in the united states to wholesale pharmaceutical distributors and retail pharmacies , or collectively , our customers , subject to rights of return . prior to the third quarter of 2011 , sumavel dosepro had a limited sales history , and we could not reliably estimate expected returns of the product at the time of shipment . accordingly , we deferred recognition of revenue on product shipments of sumavel dosepro until the right of return no longer existed , which occurred at the earlier of the time sumavel dosepro units were dispensed through patient prescriptions or expiration of the right of return . units dispensed are generally not subject to return , except in the rare cases where the product malfunctions or the product is damaged in transit . we estimate patient prescriptions dispensed using an analysis of third-party information , including third-party market research data . beginning in the third quarter of 2011 , we began recognizing sumavel dosepro product sales at the time title transfers to our customer , and providing for an estimate of future product returns at that time . we believe that our estimated product return allowances for sumavel dosepro require a high degree of judgment and are subject to change based on our experience and certain quantitative and qualitative factors . sumavel dosepro currently has a shelf life of 24 months from the date of manufacture . we accept unused product from our customers that are within six months before and up to one year after its expiration date for a credit at the then-current whole acquisition cost , or wac , reduced by a nominal fee for processing the return . our initial product inventories reached expiration in 2011. we have monitored actual return history on an individual product lot basis since product launch . actual product return experience in 2011 included a disproportionately high amount of returns from a single retail chain . in addition , we have also experienced a high level of returned product from our initial launch stocking initiatives . we may experience higher levels of returns upon the termination of the co-promotion agreement with astellas on march 31 , 2012 due to fall-off of prescription demand in territories that may no longer be supported with direct promotional efforts . we considered these factors as well as the dating of our product at the time of shipment into the distribution channel , prescription trends and changes in the estimated levels of inventory within the distribution channel to estimate our exposure for returned product . based on our analysis , we increased the estimate for sumavel dosepro product returns , resulting in an adjustment of $ 2.2 million , which decreased net product sales in the fourth quarter of 2011. we recorded a total decrease to net product sales of $ 4.4 million related to actual product and estimated future product returns for the twelve months ended december 31 , 2011. because of the shelf life of sumavel dosepro and our return policy of issuing credits on returned product that is within six months before and up to one year after its product expiration date , there may be a significant period of time between when the product is shipped and when we issue credits on returned product .
| results of operations comparison of year ended december 31 , 2011 and 2010 revenue . revenue for the year ended december 31 , 2011 was $ 37.6 million and $ 23.4 million for the year ended december 31 , 2010. product revenue for the years ended december 31 , 2011 and 2010 was $ 30.4 million and $ 19.1 million , respectively . during the third quarter of 2011 , we began to recognize net product sales upon the shipment of product to wholesale pharmaceutical distributors and retail pharmacies because we had developed sufficient historical experience and data to reasonably estimate future returns of sumavel dosepro . prior to the third quarter of 2011 , we recognized product revenue based on product dispensed to patients as estimated by independent third party data providers , which amounts were recorded net of estimated wholesaler and retail pharmacy discounts , stocking allowances , prompt pay discounts , chargebacks , rebates and patient discount programs , as applicable . as a result , product revenue for the first six months of 2011 and for the twelve months ended 2010 represents product revenue based on product dispensed to patients net of product-related discounts and allowances , as applicable , with the six months ended december 31 , 2011 consisting of sumavel dosepro shipped to wholesale distributors and retail pharmacies , net of product-related discounts , allowances and product returns , as applicable . the aggregate $ 11.3 million , or 59 % , increase in net product revenue is primarily due to an increase in prescription demand from the initial launch of sumavel dosepro in late january 2010 , offset by the establishment of a product returns reserve . net product revenues are impacted by the volume of product sold to our customers and the average selling price of those sales .
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therefore , as a part of the process of preparing the consolidated financial statements , the company is required to estimate the income taxes in each of these jurisdictions . this process involves estimating the actual current tax exposure together with assessing temporary differences resulting from differing treatment of items , such as depreciation , amortization and certain accrued liabilities for tax and accounting purposes . the company 's effective tax rate for financial statement purposes will continue to fluctuate from story_separator_special_tag this discussion and other items in this annual report on form 10-k contain forward-looking statements and information that are based on management 's beliefs , as well as assumptions made by , and information currently available to , management . when used in this document , the words “ believe , ” “ anticipate , ” “ estimate , ” “ expect , ” “ intend , ” “ may , ” “ will , ” “ project , ” “ forecast , ” “ plan , ” and similar expressions are intended to identify forward-looking statements . although management believes that the expectations reflected in these forward-looking statements are reasonable , it can give no assurance that these expectations will prove to have been correct . these statements are subject to numerous risks , uncertainties and assumptions . see cautionary statement concerning forward-looking statements in this report . certain of these risks are summarized in this report under item 1a . risk factors , which you should read carefully in connection with our forward-looking statements . should one or more of these risks or uncertainties materialize , or should underlying assumptions prove incorrect , actual results may vary materially from those anticipated . we undertake no obligation to release publicly any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events . overview we are a growth-oriented independent oil and gas company engaged in the acquisition and development of oil and gas reserves through activities that include the acquisition , drilling and development of undeveloped leases , assets and corporate acquisitions and mergers and , to a lesser extent , exploration activities . our operations are all in the upstream segment of the oil and natural gas industry and all of our properties are onshore in the united states . at present , our primary assets are located in the midland basin of west texas and the eagle ford trend of south texas . earthstone is the sole managing member of earthstone energy holdings , llc , a delaware limited liability company ( together with its wholly-owned consolidated subsidiaries , “ eeh ” ) , with a controlling interest in eeh . earthstone , together with its wholly-owned subsidiary , lynden corp , and lynden corp 's wholly-owned consolidated subsidiary , lynden us and also a member of eeh , consolidates the financial results of eeh and records a noncontrolling interest in the consolidated financial statements representing the economic interests of eeh 's members other than earthstone and lynden us ( collectively , the “ company ” “ our , ” “ we , ” “ us , ” or similar terms ) . areas of operation our primary focus is concentrated in the midland basin of west texas , a high oil and liquids rich resource which provides us with multiple horizontal target horizons , extensive production histories , long-lived reserves and historically high drilling success rates . midland basin we believe that the midland basin continues to have attractive economics and we expect to continue to focus our attention on growing our footprint through development drilling , acreage trades , asset acquisitions , and corporate merger and acquisition opportunities . we are intensely focused on expansion in the midland basin and production results continue to be as good or better than we projected . we have been operating a one drilling rig program in the midland basin and plan to maintain a one rig program throughout 2018 , with a view toward adding a second rig at some point in 2018 predicated upon commodity prices , availability of quality services , our drilling results and liquidity . in february 2018 , we completed drilling our 11th midland basin well . we currently have a rig drilling the first well of a two-well pad in reagan county . at present we have five wells waiting on completion and expect to have an inventory of seven wells when we initiate completion operations in april 2018. we continue to be active in acreage trades and acquisitions in the midland basin which generally allow for longer laterals , increased operated inventory and greater operating efficiency . eagle ford trend we recently completed an 11 well drilling program in southern gonzales county , texas . completion operations on the 11 wells began in november 2017 and were concluded in january 2018. we currently expect our 2018 drilling program to be consistent with our 2017 program in this area . during each of the second and third quarters of 2017 , we entered into joint development agreements ( `` jda '' ) for these wells . in each of the two jda 's , the financial partner is obligated to pay a promoted ( higher ) share of the capital expenditures to earn 50 % of our interest in these units and adjacent acreage . the two jda 's reduced our overall capital expenditures 51 by approximately $ 17 million in 2017 , allowing us to shift capital resources from the eagle ford to the midland basin while still maintaining operating control over our eagle ford program . recent developments bold contribution agreement on may 9 , 2017 , earthstone completed the bold contribution agreement . the primary purpose of the bold contribution agreement was to provide for the business combination between earthstone and bold , which owned significant developed and undeveloped oil and natural gas properties in the midland basin of west texas ( the “ bold transaction ” ) . story_separator_special_tag principal amounts outstanding under the eeh credit agreement are due a nd payable in full at maturity on may 9 , 2022. all of the obligations under the eeh credit agreement , and the guarantees of those obligations , are secured by substantially all of eeh 's assets . additional payments due under the eeh credit agreement include paying a commitment fee of 0.50 % per year to the lenders in respect of the unutilized commitments thereunder , as well as certain other customary fees . the eeh credit agreement contains a number of covenants that , among other things , restrict , subject to certain exceptions , eeh 's ability to incur additional indebtedness , create liens on assets , make investments , enter into sale and leaseback transactions , pay dividends and make distributions or repurchase its limited liability interests , engage in mergers or consolidations , sell certain assets , sell or discount any notes receivable or accounts receivable and engage in certain transactions with affiliates . in addition , the eeh credit agreement requires eeh to maintain the following financial covenants : a current ratio of not less than 1.0 to 1.0 and a leverage ratio of not greater than 4.0 to 1.0. leverage ratio means the ratio of ( i ) the aggregate debt of eeh and its consolidated subsidiaries as at the last day of the fiscal quarter ( excluding any debt from obligations relating to non-cash losses under fasb asc 815 as a result of changes in the fair market value of derivatives ) to ( ii ) the product of ebitdax for such fiscal quarter multiplied by four . the term “ ebitdax ” means , for any period , the sum of consolidated net income for such period plus ( a ) the following expenses or charges to the extent deducted from consolidated net income in such period : ( i ) interest , ( ii ) taxes , ( iii ) depreciation , ( iv ) depletion , ( v ) amortization , ( vi ) non-cash losses under fasb asc 815 as a result of changes in the fair market value of derivatives , ( vii ) exploration expenses , ( viii ) impairment expenses , and ( ix ) non-cash compensation expenses and minus ( b ) to the extent included in consolidated net income in such period , non-cash gains under fasb asc 815 as a result of changes in the fair market value of derivatives . the eeh credit agreement contains customary affirmative covenants and defines events of default to include failure to pay principal or interest , breach of covenants , breach of representations and warranties , insolvency , judgment default , and if frank a. lodzinski ceases to serve and function as chief executive officer of eeh and the majority of the lenders do not approve of mr. lodzinski 's successor . upon the occurrence and continuance of an event of default , the lenders have the right to accelerate repayment of the loans and exercise their remedies with respect to the collateral . as of december 31 , 2017 , eeh was in compliance with these covenants under the eeh credit agreement . uplisting of class a common stock on may 8 , 2017 , the board approved ( i ) the transfer of the listing of the common stock from the nyse american to the nyse , and ( ii ) the voluntary delisting of the common stock from the nyse american . in connection with the closing of the bold transaction , all of the outstanding common stock was converted into class a common stock , on a one-for-one basis . the class a common stock began trading on the nyse on may 10 , 2017. the ticker symbol for the class a common stock is “ este. ” closing of denver office on july 31 , 2017 , we closed our denver office and provided severance to our employees working there . class a common stock offering in october 2017 , earthstone completed a public offering of 4,500,000 shares of class a common stock , at a public offering price of $ 9.25 per share , receiving net proceeds of $ 39.4 million , after deducting underwriters ' fees and offering expenses of $ 2.4 million . the net proceeds were used to repay outstanding indebtedness under the eeh credit agreement . bakken sale in december 2017 , we closed the bakken sale for a net cash consideration of approximately $ 26.4 million . the sale resulted in a net gain of approximately $ 3.0 million recorded in gain on sale of oil and gas properties in the consolidated statements of operations . the effective date of the sale was december 1 , 2017. the net proceeds were used to repay $ 25.0 million of outstanding borrowings under the eeh credit agreement and the remaining $ 1.4 million was retained in cash for current operating funds . divestiture of non-core assets during 2017 , we sold certain non-core properties for a total cash consideration of approximately $ 7.5 million , while eliminating approximately $ 4.0 million of future abandonment obligations . the sales resulted in a net gain of approximately $ 6.1 million recorded in gain on sale of oil and gas properties in the consolidated statements of operations . 53 story_separator_special_tag including net operating losses , of lynden us , nor can taxable income of lynden us be offset by tax attributes of earthstone . following the bold transaction , earthstone and lynden us record a tax provision , respectively , for their share of the book income or loss of eeh , net of the noncontrolling interest , as well as any standalone income or loss generated by each company . as eeh is treated as a partnership for u.s. federal income tax purposes , it is not subject to income tax at the federal level and only recognizes the texas margin tax .
| results of operations year ended december 31 , 2017 , compared to the year ended december 31 , 2016 replace_table_token_15_th ( 1 ) barrels of oil equivalent have been calculated on the basis of six thousand cubic feet ( mcf ) of natural gas equals one barrel of oil equivalent ( boe ) . ( 2 ) prices presented exclude any effects of oil and natural gas derivatives . nm – not meaningful oil revenues for the year ended december 31 , 2017 , oil revenues increased by approximately $ 54.2 million or 158 % relative to the comparable period in 2016. of the increase , approximately $ 8.2 million was attributable to an increase in our realized price and $ 46.0 million was attributable to increased volume . our average realized price per bbl increased from $ 39.13 for the year ended december 31 , 2016 to $ 48.43 or 24 % for the year ended december 31 , 2017. we had a net increase in the volume of oil sold of 950 mbbls or 108 % , primarily due to the midland basin properties we acquired in the bold transaction . natural gas revenues for the year ended december 31 , 2017 , natural gas revenues increased by $ 3.7 million or 74 % relative to the comparable period in 2016. of the increase , approximately $ 0.8 million was attributable to an increase in our realized price and $ 2.9 million was attributable to increased volume . our average realized price per mcf increased from $ 2.32 for the year ended december 31 , 2016 to $ 2.69 or 16 % for the year ended december 31 , 2017. the total volume of natural gas produced and sold increased 1,089 mmcf or 50 % primarily due to the midland basin properties we acquired in the bold transaction .
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on january story_separator_special_tag you should read the following discussion and analysis in conjunction with our consolidated financial statements and related notes thereto , included on pages f-1 through f-31 of this annual report on form 10-k , and risk factors , which are discussed in item 1a . the statements below contain forward-looking statements within the meaning of the private securities litigation reform act . see forward-looking statements on page i. story_separator_special_tag common stock in an underwritten public offering at a price of $ 5.45 per share for $ 21,800,000 in gross proceeds . net proceeds of the offering were approximately $ 20,200,000 after deducting underwriting discounts and expected offering expenses . on march 8 , 2011 , positive preliminary data from our collaboration with johns hopkins university school of medicine to identify biomarkers that improve on the specificity of ca125 for the identification of malignant ovarian tumors were presented at the 42nd annual meeting on women 's cancer of the society of gynecologic oncologists , march 6-9 , 2011 in orlando , florida . 40 on march 14 , 2011 , we announced the inclusion of ova1 as part of the recently published acog/sgo committee opinion . in the march edition of obstetrics and gynecology , the american college of obstetricians and gynecologists ( acog ) and society of gynecologic oncologists ( sgo ) published an update committee opinion on the role of the obstetrician-gynecologist in the early detection of epithelial ovarian cancer . this updates the original opinion , which was published in 2002. on april 4 , 2011 , we announced the signing of an agreement with quest diagnostics to make ova1 available in india . additionally , at the international gynecologic cancer society ( igcs ) regional meeting held in new delhi from april 2-3 , 2011 , dr. fred ueland , m.d. , associate professor of gynecologic oncology at the university of kentucky 's markey cancer center presented data demonstrating the high sensitivity for ovarian malignancy of ova1 combined with ultrasound . on may 17 , 2011 , we announced that the uspto has issued a notice of allowance to us for a patent entitled panel of biomarkers for peripheral artery disease . the patent covers biomarker panels for the diagnosis of peripheral artery disease . the data supporting the patent were published in an article titled , a biomarker panel for peripheral arterial disease , in vasc med . 2008 aug ; 13 ( 3 ) :217 24. this work was done in coordination with dr. john cooke at stanford university . dr. cooke is professor and associate director of the stanford cardiovascular institute at stanford university school of medicine . on may 19 , 2011 , we announced the appointment of bruce huebner to our board of directors . mr. huebner currently serves as managing director at lynxcom partners , llc a healthcare consulting firm . mr. huebner has over 35 years of experience in the diagnostic industry , and has been a key member of upper management in a number of clinical diagnostic companies including hybritech , inc. , gen-probe , inc. , nanogen , inc. and osmetech molecular diagnostics . on may 25 , 2011 , we announced that the uspto has issued a notice of allowance to us for a patent entitled saposin d and fam3c are biomarkers for alzheimer 's disease. the patent claims cover the biomarkers saposin d and fam3c as well as combinations that include these biomarkers . in the june 2011 edition of obstetrics & gynecology , two landmark papers were published on the clinical validation of ova1 , supporting fda clearance . the first , by ueland et al. , showed that ova1correctly identified 70 % and 95 % of malignancies missed by non-gynecologic oncologists and gynecologic oncologists , respectively . physician assessment plus the ova1 also detected 86 % of malignancies missed by ca125 , a biomarker commonly used off label in the screening and diagnosis of ovarian cancer . the second , by ware miller et al. , demonstrated that replacement of ca125 by ova1 in the american college of obstetricians and gynecologists ( acog ) guidelines for referral of a pelvic mass improves the sensitivity and negative predictive value of the guidelines . the high sensitivity is maintained even in premenopausal women and early-stage disease , two particularly challenging diagnostic groups . on june 24 , 2011 , we were added to the russell microcap index . membership in the russell microcap index , which remains in place for one year , means automatic inclusion in the appropriate growth and value style indexes . russell determines membership for its equity indexes primarily by objective , market-capitalization rankings and style attributes . on august 1 , 2011 , we announced that the uspto has issued a notice of allowance to us for a patent entitled biomarkers for peripheral artery disease. the patent claims cover the biomarker alpha1beta glycoprotein and biomarker combinations that include alpha1beta glycoprotein for the diagnosis of pad . on august 1 , 2011 , we entered into the pronto agreement with pronto diagnostics . pursuant to the pronto agreement , pronto diagnostics will have the exclusive right to distribute ova1 in israel and areas under palestinian control for a certain period of time as specified in the pronto agreement , provided that pronto diagnostics will sell certain minimum quantities of ova1 to maintain the exclusive distribution rights . the pronto agreement also establishes the amounts that pronto diagnostics will pay to us with respect of ova1 . this supports our goal of expanding ova1 into international markets . 41 on august 2 , 2011 , we announced that the uspto has issued a notice of allowance to us for a patent entitled beta-2 microglobulin as a biomarker for peripheral artery disease. the patent covers various potential permutations of candidate biomarkers and will therefore cover a broad range of possibilities in our intended use study . story_separator_special_tag on march 5 , 2012 we announced the receipt of a notice of allowance from the uspto for platelet biomarkers for cancer. the patent resulted from a collaboration with the late dr. judah folkman , a renowned cancer expert , and identifies three biomarkers that can be used to assess changes in endogenous angiogenesis in a subject . angiogenesis is commonly associated with cancer , and novel therapeutics such as bevacizumab ( avastin ® ) target angiogenesis to limit tumor recruitment of blood vessels . the patented biomarkers , which are associated with platelets , can be used to measure ongoing angiogenic activity . the patent covers the measurement of these biomarkers over time and correlating changes in expression with the changing level of endogenous angiogenic activity . consequently , this patent also enables the use of these biomarkers to monitor efficacy of therapy directed at angiogenic pathways . on march 6 , 2012 , the american medical association ( ama ) current procedural terminology ( cpt ® ) panel voted to approve an application for a category i cpt code for ova1 . the ama recently disclosed the new code on its website , which will become effective january 1 , 2013. critical accounting policies and estimates the notes to the consolidated financial statements contain a summary of the company 's significant accounting policies that are presented in part ii item 8 , financial statements and supplementary data , of this annual report on form 10-k. we believe that it is important to have an understanding of certain policies , along with the related estimates that we are required to make in recording the financial transactions of the company , in order to have a complete picture of the company 's financial condition . in addition , in arriving at these estimates , we are required to make complex and subjective judgments , many of which include a high degree of uncertainty . the following is a discussion of these critical accounting policies and significant estimates related to these policies . revenue recognition product revenue . we derive our product revenues from sales of ova1 through quest diagnostics . we recognize product revenues for tests performed when the following revenue recognition criteria are met : ( 1 ) persuasive evidence that an arrangement exists ; ( 2 ) delivery has occurred or services have been rendered ; ( 3 ) the fee is fixed or determinable ; and ( 4 ) collectability is reasonably assured . 43 license revenue . under the terms of the secured line of credit with quest diagnostics , portions of the borrowed principal amounts may be forgiven upon our achievement of certain milestones relating to the development , regulatory approval and commercialization of certain diagnostic tests . we account for forgiveness of principal debt balances as license revenues over the term of the exclusive sales period that quest diagnostics receives upon commercialization of an approved diagnostic test as we do not have a meaningful history of product sales that provides a reasonable basis for estimating future product sales . we recognize license revenue on a straight-line basis over the remaining period of quest diagnostics ' sales exclusivity ending in september 2015. fair value of warrants we classify certain of our outstanding warrants as liabilities on our balance sheet . in addition , we fair value these stock warrants at each reporting period , with the changes in fair value recognized in our consolidated statements of operations . we fair value the warrants using a black scholes valuation model . since the outstanding common stock warrants are fair valued at the end of each reporting period , any change in the underlying assumptions to the black scholes valuation model , including the volatility and price of our common stock , may have a significant impact on our consolidated financial statements . research and development costs research and development costs are expensed as incurred . research and development costs consist primarily of payroll and related costs , materials and supplies used in the development of new products , and fees paid to third parties that conduct certain research and development activities on behalf of the company . in addition , acquisitions of assets to be consumed in research and development , with no alternative future use , are expensed as incurred as research and development costs . software development costs incurred in the research and development of new products are expensed as incurred until technological feasibility is established . stock-based compensation we record the fair value of non-cash stock-based compensation costs for stock options and stock purchase rights related to our 2010 stock incentive plan ( the 2010 plan ) and 2000 stock plan ( the 2000 plan ) . we estimate the fair value of stock options using a black-scholes option valuation model . this model requires the input of subjective assumptions including expected stock price volatility , expected life and estimated forfeitures of each award . we use the straight-line method to amortize the fair value over the vesting period of the award . due to the limited amount of historical data available to us , particularly with respect to stock-price volatility , option exercise patterns and forfeitures , the actual value of stock options and stock purchase rights could differ from our estimates . we also record the fair value of non-cash stock-based compensation costs for equity instruments issued to non-employees . we recalculate costs for these options each reporting period using a black-scholes option valuation model . because we recalculate these costs each reporting period , changes in assumptions used in our calculations , including changes in the fair value of our common stock , can result in significant changes in the amounts we record from one reporting period to another . contingencies we account for contingencies in accordance with asc 450 contingencies ( asc 450 ) .
| overview vermillion was originally incorporated in california on december 9 , 1993 , under the name abiotic systems . in march 1995 , abiotic systems changed its corporate name to ciphergen biosystems , inc. , and subsequently on june 21 , 2000 , it reincorporated in delaware . under the name ciphergen biosystems , inc. , we had our initial public offering on september 28 , 2000. on november 13 , 2006 , we sold the assets and liabilities of our protein research products and collaborative services business to bio-rad , which allowed us to focus on the development of our diagnostics tests . on august 21 , 2007 , ciphergen biosystems , inc. changed its corporate name to vermillion , inc. we are dedicated to the discovery , development and commercialization of novel high-value diagnostic tests that help physicians diagnose , treat and improve outcomes for patients . our tests are intended to help guide decisions regarding patient treatment , which may include decisions to refer patients to specialists , to perform additional testing , or to assist in the selection of therapy . a distinctive feature of our approach is to combine multiple markers into a single , reportable index score that has higher diagnostic accuracy than its constituents . management ( we , us or our ) concentrate its development of novel diagnostic tests in the fields of oncology , cardiology and women 's health , with our initial focus on ovarian cancer . we also intend to address clinical questions related to early disease detection , treatment response , monitoring of disease progression , prognosis and others through collaborations with leading academic and research institutions . on march 30 , 2009 , we filed for relief under the chapter 11 of the bankruptcy code .
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we take a local approach - with local brands and local teams - to provide fully integrated , high-quality , and cost-effective services to government-sponsored and commercial healthcare programs , focusing on under-insured and uninsured individuals . results of operations depend on our ability to manage expenses associated with health benefits ( including estimated costs incurred ) and selling , general and administrative ( sg & a ) costs . we measure operating performance based upon two key ratios . the health benefits ratio ( hbr ) represents medical costs as a percentage of premium revenues , excluding premium tax and health insurer fee revenues that are separately billed , and reflects the direct relationship between the premiums received and the medical services provided . the sg & a expense ratio represents sg & a costs as a percentage of premium and service revenues , excluding premium tax and health insurer fee revenues that are separately billed . our insurance subsidiaries are subject to the affordable care act annual health insurer fee ( hif ) , absent a hif moratorium or repeal . we recognize revenue for reimbursement of the hif , including the `` gross-up '' to reflect the non-deductibility of the hif . collectively , this revenue is recorded as premium tax and health insurer fee revenue in the consolidated statements of operations . for certain products , premium taxes , state assessments and the hif are not pass-through payments and are recorded as premium revenue and premium tax expense or health insurer fee expense in the consolidated statements of operations . a moratorium suspended the hif for the 2019 calendar year . due to the size of the health insurer fee , one of the primary drivers of the year-over-year variances discussed throughout this section is related to the reinstatement of the hif in 2020. the hif has been repealed beginning in 2021. wellcare acquisition on january 23 , 2020 , we acquired all of the issued and outstanding shares of wellcare health plans , inc. ( wellcare ) ( the wellcare acquisition ) . the transaction was valued at $ 19.6 billion , including the assumption of $ 1.95 billion of outstanding debt . the wellcare acquisition brought a high-quality medicare platform and further extended our robust medicaid offerings . the combination enables us to provide access to more comprehensive and differentiated solutions across more markets with a continued focus on affordable , high-quality , culturally-sensitive healthcare services . due to the size of the acquisition , one of the primary drivers of the year-over-year variances discussed throughout this section is related to the acquisition of wellcare . magellan acquisition in january 2021 , we announced that we entered into a definitive merger agreement under which we will acquire magellan health for $ 95.00 per share in cash for a total enterprise value of approximately $ 2.2 billion . the transaction will broaden and deepen our whole health capabilities and establish a leading behavioral health platform . the transaction is subject to clearance under the hart-scott rodino act , receipt of required state regulatory approvals , the approval of the definitive merger agreement by magellan health 's stockholders and other customary closing conditions . the transaction is not contingent upon financing . we intend to fund the acquisition primarily through debt financing . the transaction is expected to close in the second half of 2021. acquisitions we continued to execute on our growth strategy through acquisitions during 2020. in the fourth quarter of 2020 , we acquired pantherx and apixio . pantherx is one of the largest and fastest-growing specialty pharmacies in the united states 42 table of contents specializing in orphan drugs and treating rare diseases . pantherx and its management team will continue to operate independently as part of our envolve pharmacy solutions business unit , a total drug management program that includes integrated pbm services and specialty pharmacy solutions to millions of members throughout the united states . apixio is a healthcare analytics company offering artificial intelligence technology solutions . with this transaction , we will continue to digitize the administration of healthcare and accelerate innovation and modernization across the enterprise . apixio will remain an operationally independent entity as part of our health care enterprises group to continue bringing value to its clients and the industry , while also realizing the benefits of enhanced scale . covid-19 trends and uncertainties the covid-19 outbreak has created unique and unprecedented challenges . to support our members , providers , employees and the communities we serve , we have taken several actions and made numerous investments related to the covid-19 crisis . we have extended coverage of covid-19 screening , testing and treatment services for medicaid , medicare and marketplace members and are waiving all associated member cost share amounts . we are delivering new critical support to safety net providers , including federally qualified healthcare centers ( fqhcs ) , behavioral health providers , and long-term service and support organizations . we continue to address social determinants of health for vulnerable populations during the covid-19 crisis with a commitment to research and investment in non-medical barriers to achieving quality health outcomes . we developed initiatives designed to support the disability community affected by the pandemic . we created a provider support program to assist our network providers who are seeking benefits from the small business administration ( sba ) through the cares act . we established a medical reserve leave policy to support clinical employees who want to join a medical reserve force and serve their communities during the covid-19 pandemic . we are providing additional employee benefits including waiving cost-sharing for covid-19 related treatment , emergency paid sick leave , and one-time payments to employees in a small number of critical office functions . we have taken significant steps to support our employees to protect their health and safety , while also ensuring that our business can continue to operate and that services continue without disruption . we have implemented our business continuity plans and have taken actions to support our workforce . story_separator_special_tag in february 2019 , centurion began operating under a new contract to provide comprehensive healthcare services to detainees of the metropolitan detention center located in albuquerque , new mexico . florida . in december 2018 , our florida subsidiary , sunshine health , began providing physical and behavioral healthcare services through florida 's statewide medicaid managed care program under its new five year contract which was implemented for all 11 regions by february 2019. health insurance marketplace . in january 2020 , we expanded our offerings in the 2020 health insurance marketplace in ten existing markets : arizona , florida , georgia , kansas , north carolina , ohio , south carolina , tennessee , texas , and washington . healthsmart . in may 2019 , we acquired healthsmart , a third party administrator providing customizable and scalable health plan solutions for self-funded employers , universities and colleges , and native american tribal enterprises . services include plan administration , care management and wellness programs , network , casualty claim , and pharmacy benefit solutions . illinois . in july 2020 , our illinois subsidiary , meridian health plan of illinois , inc. ( meridian ) , began serving medicaid members in cook county , illinois , as a result of a member transfer agreement under which meridian was assigned 100 % of nextlevel health partners , inc. 's approximately 54,000 members who access benefits from the illinois department of healthcare and family services ' healthchoice illinois program . in february 2020 , we began operating in illinois under an expanded contract for the medicaid managed care program . the expanded contract includes children who are in need through the department of children and family services/youth care by illinois department of healthcare and family services and foster care . iowa . in july 2019 , our iowa subsidiary , iowa total care , inc. , began operating under a new statewide contract for the ia health link program . louisiana . in january 2020 , our louisiana subsidiary , louisiana healthcare connections , began operating under an emergency contract extension in response to protested contract awards . louisiana 's state procurement officer overturned the louisiana department of health 's plan to award medicaid contracts to four health plans , excluding our louisiana subsidiary . according to the chief procurement officer , the state health department failed to follow state law or its own evaluation and bid guidelines in its award . medicare . in january 2020 , we expanded our medicare offerings . we entered nevada and expanded our footprint in twelve existing markets : arizona , arkansas , california , georgia , kansas , louisiana , missouri , new mexico , new york , ohio , pennsylvania , and texas . new hampshire . in september 2019 , our new hampshire subsidiary , nh healthy families , began operating under a new five-year contract to continue to provide service to medicaid enrollees statewide . pennsylvania . in january 2018 , our pennsylvania subsidiary , pennsylvania health and wellness , began serving enrollees in the community healthchoices program as part of the statewide contract that was fully implemented in january 2020. qualchoice . in april 2019 , we completed the acquisition of qca health plan , inc. and qualchoice life and health insurance company , inc. the acquisition expands our footprint in arkansas by adding additional members primarily through commercial products . spain . in december 2019 , our spanish subsidiary , ribera salud , acquired 93 % of hospital povisa , s.a. , a private hospital in the vigo region of spain . in june 2019 , primero salud , acquired additional ownership in ribera salud , increasing our ownership in the spanish healthcare company from 50 % to 90 % . washington . in january 2019 , our washington state subsidiary , coordinated care of washington , began providing managed care services to apple health 's fully integrated managed care beneficiaries in the greater columbia , king and pierce regions . this integration continued with the addition of the north sound region in july 2019 . 45 table of contents wellcare . on january 23 , 2020 , we completed the wellcare acquisition . the wellcare acquisition brought a high-quality medicare platform and further extended our robust medicaid offerings . the transaction was valued at $ 19.6 billion , including the assumption of $ 1.95 billion of outstanding debt . in addition , revenue and membership growth was significantly driven by the suspension of eligibility redeterminations and increased unemployment levels as a result of the covid-19 pandemic , as well as the reinstatement of the health insurer fee in 2020. the growth items listed above were partially offset by the following items : effective october 2020 , we no longer serve members under the correctional contract in mississippi . in september 2020 , our oregon subsidiary , trillium community health plan , began operating under an expanded contract serving as a coordinated care organization for six counties in the state ; however , an additional competitor was added to lane county . as a result , our membership decreased . effective august 2020 , we no longer serve members under the military & family life counseling program contract . effective july 2020 , we no longer serve members under the state-wide correctional contract in vermont . in january 2020 , in connection with the wellcare acquisition , we completed the divestiture of certain products in our illinois health plan , including the medicaid and medicare advantage lines of business . effective december 2019 , we no longer serve members under the state-wide correctional contract in new mexico . beginning in january 2019 , health net of arizona , inc. began discontinuing and non-renewing all of its employer group plans for small and large business groups in arizona .
| results of operations the following discussion and analysis is based on our consolidated statements of operations , which reflect our results of operations for years ended december 31 , 2020 , and 2019 , respectively , prepared in accordance with generally accepted accounting principles in the united states ( $ in millions , except per share data in dollars ) : replace_table_token_7_th n.m. : not meaningful 49 table of contents year ended december 31 , 2020 compared to year ended december 31 , 2019 total revenues the following table sets forth supplemental revenue information for the year ended december 31 , ( $ in millions ) : 2020 2019 % change 2019-2020 medicaid $ 74,785 $ 51,831 44 % commercial 17,071 14,747 16 % medicare ( 1 ) 11,976 4,248 182 % medicare pdp 2,403 — n.m. other 4,880 3,813 28 % total revenues $ 111,115 $ 74,639 49 % ( 1 ) medicare includes medicare advantage and medicare supplement n.m. : not meaningful total revenues increased 49 % in the year ended december 31 , 2020 , over the corresponding period in 2019 , primarily due to the acquisition of wellcare , growth in the medicaid and health insurance marketplace businesses , and the reinstatement of the health insurer fee in 2020. additionally , the net effect of the pandemic increased our revenues due to the suspension of medicaid eligibility redeterminations . the increase was partially offset by the divestiture of our illinois health plan . during the twelve months ended december 31 , 2020 , we received premium rate adjustments which yielded a net 1 % composite increase across all of our markets . operating expenses medical costs results of operations depend on our ability to manage expenses associated with health benefits and to accurately estimate costs incurred .
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please see “ forward-looking statements ” elsewhere in this report for a description of these risks and uncertainties . overview american finance trust , inc. ( the “ company , ” “ we ” “ our ” or “ us ” ) is a diversified reit with a retail focus . we own a diversified portfolio of commercial properties which are net leased primarily to investment grade and other creditworthy tenants and , as a result of the mergers ( as defined below ) , a portfolio of retail properties consisting primarily of power centers and lifestyle centers . prior to the mergers , we acquired a diversified portfolio of commercial properties comprised primarily of freestanding single-tenant properties that are net leased to investment grade and other creditworthy tenants . we intend to focus our future acquisitions primarily on net leased retail properties . as of december 31 , 2017 , we owned 540 properties with an aggregate purchase price of $ 3.4 billion , comprised of 19.4 million rentable square feet , which were 95.2 % leased , including 505 of net leased commercial properties ( 465 which are retail properties ) and 35 retail properties which were acquired in the mergers that are not net leased . incorporated on january 22 , 2013 , we are a maryland corporation that elected and qualified to be taxed as a real estate investment trust for u.s. federal income tax purposes ( “ reit ” ) beginning with the taxable year ended december 31 , 2013. substantially all of our business is conducted through american finance operating partnership , l.p. ( the “ op ” ) , a delaware limited partnership , and its wholly-owned subsidiaries . on april 4 , 2013 , we commenced our initial public offering ( the “ ipo ” ) on a “ reasonable best efforts ” basis of up to 68.0 million shares of common stock , $ 0.01 par value per share , at a price of $ 25.00 per share , subject to certain volume and other discounts . the ipo closed in october 2013. as of december 31 , 2017 , we had 105.2 million shares of common stock outstanding , including unvested restricted shares and shares issued pursuant to our distribution reinvestment plan ( the “ drip ” ) , and had received total proceeds from the ipo and the drip , net of share repurchases , of $ 1.7 billion . in 2017 , we issued approximately 38.2 million shares of common stock pursuant to the merger . on march 17 , 2017 , our board of directors approved an estimated per-share nav equal to $ 23.37 as of december 31 , 2016 , which was published on march 20 , 2017. we intend to publish an updated estimated per-share nav as of december 31 , 2017 shortly following the filing of this annual report on form 10-k and , thereafter , periodically at the discretion of the board , provided that such estimates will be made at least once annually . we have no employees . we have retained american finance advisors , llc ( our “ advisor ” ) to manage our affairs on a day-to-day basis . american finance properties , llc ( the “ property manager ” ) serves as our property manager . the advisor and the property manager are wholly owned subsidiaries of ar global investments , llc ( the successor business to ar capital , llc , “ ar global ” ) , as a result of which , they are related parties of ours , and each have received or may receive , as applicable , compensation , fees and expense reimbursements for services related to managing our business . lincoln retail reit services , llc ( “ lincoln ” ) and its affiliates provide services to the advisor in connection with our retail properties acquired in the mergers that are not net leased . on august 8 , 2017 , our application to list our common stock on the nasdaq global select market ( “ nasdaq ” ) under the symbol “ afin ” ( the “ listing ” ) , was approved by nasdaq , subject to our being in compliance with all applicable listing standards on the date our common stock begins trading on nasdaq . while we intend to list our common stock at a time yet to be determined by our board of directors , there can be no assurance as to when or if our common stock will commence trading or of the price at which our common stock may trade . 49 completed mergers american realty capital — retail centers of america , inc. merger on february 16 , 2017 , the company and the op completed ( a ) the merger of american realty capital — retail centers of america , inc. ( “ rca ” ) with and into a subsidiary of the company referred to as the “ merger sub , ” with the merger sub surviving as a wholly owned subsidiary of the company ( the “ merger ” ) and ( b ) the merger of american realty capital retail operating partnership , l.p. ( the “ rca op ” ) with and into the op , with the op as the surviving entity ( the “ partnership merger ” , and together with the merger , the “ mergers ” ) . story_separator_special_tag measurement period adjustments to the estimated fair value of identifiable assets and liabilities of rca , as well as adjustments to the total merger consideration may change the determination and amount of goodwill and or bargain purchase gain and may impact depreciation , amortization and accretion based on revised fair value of assets acquired and liabilities assumed . significant accounting estimates and critical accounting policies set forth below is a summary of the significant accounting estimates and critical accounting policies that management believes are important to the preparation of our consolidated financial statements . certain of our accounting estimates are particularly important for an understanding of our financial position and results of operations and require the application of significant judgment by our management . as a result , these estimates are subject to a degree of uncertainty . these significant accounting estimates and critical accounting policies include : revenue recognition our revenues , which are derived primarily from rental income , include rents that each tenant pays in accordance with the terms of each lease reported on a straight-line basis over the initial term of the lease . because many of our leases provide for rental increases at specified intervals , straight-line basis accounting requires us to record a receivable , and include in revenues , unbilled rents receivable that we will only receive if the tenant makes all rent payments required through the expiration of the initial term of the lease . when we acquire a property , the acquisition date is considered to be the commencement date for purposes of this calculation . for new leases after acquisition , the commencement date is considered to be the date the tenant takes control of the space . for lease modifications , the commencement date is considered to be the date the lease is executed . we defer the revenue related to lease payments received from tenants in advance of their due dates . we own certain properties with leases that include provisions for the tenant to pay contingent rental income based on a percent of the tenant 's sales upon the achievement of certain sales thresholds or other targets which may be monthly , quarterly or annual targets . as the lessor to the aforementioned leases , we defer the recognition of contingent rental income , until the specified target that triggered the contingent rental income is achieved , or until such sales upon which percentage rent is based are known . contingent rental income is included in rental income on the consolidated statements of operations and comprehensive loss . we continually review receivables related to rent and unbilled rents receivable and determine collectability by taking into consideration the tenant 's payment history , the financial condition of the tenant , business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located . in the event that the collectability of a receivable is in doubt , we record an increase in our allowance for uncollectible accounts or record a direct write-off of the receivable in our consolidated statements of operations and comprehensive loss . cost recoveries from tenants are included in operating expense reimbursements in our consolidated statements of operations and comprehensive loss in the period the related costs are incurred , as applicable . real estate investments investments in real estate are recorded at cost . improvements and replacements are capitalized when they extend the useful life of the asset . costs of repairs and maintenance are expensed as incurred . we evaluate the inputs , processes and outputs of each asset acquired to determine if the transaction is a business combination or asset acquisition . if an acquisition qualifies as a business combination , the related transaction costs are recorded as an expense in the consolidated statements of operations and comprehensive loss . if an acquisition qualifies as an asset acquisition , the related transaction costs are generally capitalized and subsequently amortized over the useful life of the acquired assets . in business combinations , we allocate the purchase price of acquired properties to tangible and identifiable intangible assets or liabilities based on their respective fair values . tangible assets may include land , land improvements , buildings , fixtures and tenant improvements . intangible assets may include the value of in-place leases and above- and below- market leases . in addition , any assumed mortgages receivable or payable and any assumed or issued noncontrolling interests are recorded at their estimated fair values . 51 the fair value of the tangible assets of an acquired property with an in-place operating lease is determined by valuing the property as if it were vacant , and the “ as-if-vacant ” value is then allocated to the tangible assets based on the fair value of the tangible assets . the fair value of in-place leases is determined by considering estimates of carrying costs during the expected lease-up periods , current market conditions , as well as costs to execute similar leases . the fair value of above- or below-market leases is recorded based on the present value of the difference between the contractual amount to be paid pursuant to the in-place lease and our estimate of the fair market lease rate for the corresponding in-place lease , measured over the remaining term of the lease , including any below-market fixed rate renewal options for below-market leases . in allocating the fair value to assumed mortgages , amounts are recorded to debt premiums or discounts based on the present value of the estimated cash flows , which is calculated to account for either above or below-market interest rates . in allocating non-controlling interests , amounts are recorded based on the fair value of units issued at the date of acquisition , as determined by the terms of the applicable agreement . in making estimates of fair values for purposes of allocating purchase price , we utilize a number of sources , including real estate valuations , prepared by independent valuation firms .
| results of operations we were incorporated on january 22 , 2013 and purchased our first property and commenced active operations on april 29 , 2013 . as of december 31 , 2017 , we owned 540 properties with an aggregate base purchase price of $ 3.4 billion , comprised of 19.4 million rentable square feet that were 95.2 % leased on a weighted-average basis . comparison of the year ended december 31 , 2017 to the year ended december 31 , 2016 there were 426 properties that we owned for the entirety of the years ended december 31 , 2017 and 2016 ( our “ 2016-2017 same store ” ) , comprised of 11.0 million rentable square feet that were 99.9 % leased . we acquired 35 retail properties in the merger ( the “ merger acquisitions ” ) , comprised of 7.5 million rentable square feet that were 87.6 % leased as of december 31 , 2017 . additionally , during 2016 and 2017 , excluding properties acquired in the merger , we acquired 79 properties ( our “ acquisitions since january 1 , 2016 ” ) , comprised of 0.9 million rentable square feet that were 100.0 % leased as of december 31 , 2017 . during 2016 and 2017 , we sold 37 properties ( our “ disposals since january 1 , 2016 ” ) , comprised of 2.1 million rentable square feet . 53 the following table summarizes our leasing activity during the year ended december 31 , 2017 : replace_table_token_14_th _ ( 1 ) straight-line rental income . ( 2 ) new leases reflect leases in which a new tenant took possession of the space during the year ended december 31 , 2017 , excluding new property acquisitions . lease renewals/amendments reflect leases in which an existing tenant executed terms to extend the term or change the rental terms of the lease during the year ended december 31 , 2017 .
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we have a portfolio of programs in pre-clinical and clinical stages , including a series of cpms in investigational new drug ( ind ) -enabling studies , a phase 3 ready hsp-based autologous vaccine for glioblastoma multiforme , or gbm , a form of brain cancer , and a number of advanced qs-21 stimulon-containing vaccine candidates in late stage development by our partner , glaxosmithkline ( gsk ) . we assess the development , commercialization and or partnering strategies with respect to each of our internal product candidates periodically based on several factors , including clinical trial results , competitive positioning and funding requirements and resources . for the treatment of cancer , our programs aim to stimulate the immune system to recognize and eradicate cancer cells and disable the mechanisms that cancer cells employ to evade detection and destruction by the immune system . because of the breadth of our portfolio , we have the ability to combine our proprietary vaccines with a portfolio of checkpoint modulating antibodies against major checkpoint targets to explore and optimize cancer treatments . our strategy is to develop these agents either alone or in combinations to yield best-in-class treatments . we assess the development , commercialization and or partnering strategies with respect to each of our internal product candidates periodically based on several factors , including clinical trial results , competitive positioning and funding requirements and resources . our retrocyte display platform has been applied to the discovery and development of cpms targeting significant checkpoint targets . through collaborative arrangements with our partners , agenus has preclinical programs targeting gitr , ox40 , ctla-4 , lag-3 , tim-3 and pd-1 . in february 2015 , we announced a broad , global alliance with incyte to pursue the discovery and development of cpms that initially target gitr , ox40 , tim-3 and lag-3 , and potentially other antibodies for the treatment of patients with cancer . agenus also began collaborating with merck sharpe & dohme ( merck ) in april 2014 to discover antibodies against two undisclosed checkpoint targets . we anticipate initiating clinical trials with the first of our cpm antibody candidates in 2016. our research and development expenses for the years ended december 31 , 2014 , 2013 , and 2012 , were $ 22.3 million , $ 13.0 million , and $ 10.6 million , respectively . we have incurred significant losses since our inception . as of december 31 , 2014 , we had an accumulated deficit of $ 691.3 million . we have financed our operations primarily through the sale of equity and debt securities . we believe that , based on our current plans and activities , our working capital resources at december 31 , 2014 , together with subsequently received aggregate proceeds of $ 25.0 million from the global alliance with incyte corporation , $ 35.0 million received from the sale of our common stock , and an aggregate of $ 9.0 million of new proceeds generated from our 2015 subordinated notes , will be sufficient to satisfy our liquidity requirements through the first half of 2016. we expect to attempt to raise additional funds in advance of depleting our current funds . we may attempt to raise funds by : ( 1 ) pursuing collaborative , out-licensing and or partnering opportunities for our portfolio programs and product candidates with one or more third parties , ( 2 ) renegotiating third party agreements , ( 3 ) selling assets , ( 4 ) securing additional debt financing and or ( 5 ) selling equity securities . satisfying long-term liquidity needs may require the successful commercialization and or substantial out-licensing or partnering arrangements for our retrocyte display technology platform , cpm antibody programs , herpv and the prophage series vaccines , and vaccines containing qs-21 stimulon under development by our licensees . our long term success will also be dependent on the successful identification , development and commercialization of potential other product candidates , each of which will require additional capital with no certainty of timing or probability of success . if we incur operating losses for longer than we expect and or we are unable to raise additional capital , we may become insolvent and be unable to continue our operations . our common stock is currently listed on the nasdaq capital market under the symbol “ agen ” . 41 story_separator_special_tag style= '' line-height:120 % ; font-size:10pt ; '' > replace_table_token_5_th _ * prior to 2000 , costs were incurred by aquila biopharmaceuticals , inc. , a company we acquired in november 2000 . * * prior to 2014 , costs were incurred by 4-ab which we acquired in february 2014. research and development program costs include compensation and other direct costs plus an allocation of indirect costs , based on certain assumptions and our review of the status of each program . our product candidates are in various stages of development and significant additional expenditures will be required if we start new clinical trials , encounter delays in our programs , apply for regulatory approvals , continue development of our technologies , expand our operations , and or bring our product candidates to market . the total cost of any particular clinical trial is dependent on a number of factors such as trial design , length of the trial , number of clinical sites , number of patients , and trial sponsorship . the process of obtaining and maintaining regulatory approvals for new therapeutic products is lengthy , expensive , and uncertain . because our cpm antibody programs are preclinical , and because further development of herpv and prophage are dependent on successful partnering or funding efforts , among other factors , we are unable to reliably estimate the cost of completing our research and development programs or , the timing for bringing such programs to various markets , or substantial partnering or out-licensing arrangements , and , therefore , when , if ever , material cash inflows are likely to commence . story_separator_special_tag assuming regulatory approval , the first products containing qs-21 stimulon are anticipated to be launched in 2016 , and we are generally entitled to royalties for at least 10 years after commercial launch , with some exceptions . however , there is no guarantee that we will be able to collect royalties in the future . we do not incur clinical development costs for these products of our licensees . for additional information regarding qs-21 stimulon , please read part i-item 1 . “ business ” of this annual report on form 10-k. liquidity and capital resources we have incurred annual operating losses since inception , and we had an accumulated deficit of $ 691.3 million as of december 31 , 2014 . we expect to incur significant losses over the next several years as we continue clinical trials , manage our regulatory processes , prepare for potential commercialization of products , and continue development of our technologies . we have financed our operations primarily through the sale of equity and debt , and interest income earned on cash , cash equivalents , and short-term investment balances . from our inception through december 31 , 2014 , we have raised aggregate net proceeds of $ 618.6 million through the sale of common and preferred stock , the exercise of stock options and warrants , proceeds from our employee stock purchase plan , and the issuance of convertible and other notes . during february 2015 , we raised aggregate proceeds of $ 60.0 million through our global alliance with incyte corporation and issued $ 9.0 million in subordinated notes . in january 2015 , we achieved the first contingent milestone pursuant to the terms of our share exchange agreement with the former shareholders of 4-ab and accordingly are obligated to pay $ 20.0 million to such shareholders of 4-ab . in october 2014 , we filed a registration statement on form s-3 ( sec file no . 333-100255 ) , declared effective by the securities and exchange commission on october 23 , 2014 ( the `` shelf registration statement '' ) , covering the offering of up to $ 150.0 million of common stock , preferred stock , warrants , debt securities and units . the shelf registration statement included a prospectus covering the offering , issuance and sale of up to ten million shares of our common stock from time to time in “ at the market offerings ” pursuant to an at market sales issuance agreement ( the “ sales agreement ” ) entered into with mlv & co. llc ( the “ sales agent ” ) on october 10 , 2014. pursuant to the sales agreement , sales will be made only upon instructions by us to the sales agent , and we can not provide any assurances that we will issue any shares pursuant to the sales agreement . also in october 2014 , we exercised our right under that certain amended and restated at market issuance sales agreement by and between us and mlv & co. llc dated as of december 21 , 2012 ( the “ prior sales agreement ” ) to terminate the prior sales agreement upon effectiveness of the shelf registration statement . as of december 31 , 2014 , we had debt outstanding of $ 6.3 million in principal . on april 15 , 2013 , we entered into a securities exchange agreement with the holders of our 2006 notes whereby we exchanged all of the 2006 notes , including accrued and unpaid interest , for $ 10.0 million in cash , 2,500,000 shares of our common stock , and a contractual right to the proceeds of 20 % of our revenue interests from certain qs-21 stimulon partnered programs and a 0.5 % royalty on net sales of herpv . to finance the cash portion of this exchange we entered into two new debt arrangements . we concurrently entered into a loan and security agreement with silicon valley bank for senior secured debt in the aggregate principal amount of $ 5.0 million ( the “ svb loan ” ) . the svb loan bears interest at a rate of 6.75 % per annum , payable in cash on the first day of each month with principal payments beginning november 2013 and ending with the final principal payment in april 2015. we also entered into a note purchase agreement with various investors for senior subordinated notes ( the “ 2013 notes ” ) in the aggregate principal amount of $ 5.0 million due in april 2015. the 2013 notes bear interest at a rate of 10 % per annum , payable in cash on the first day of each month in arrears . we also issued to the holders of the 2013 notes four year warrants to purchase 500,000 unregistered shares of our common stock at an exercise price of $ 4.41 per share . in february 2015 , we exchanged the 2013 notes for new senior subordinated notes in the aggregate principal amount of $ 5.0 million with annual interest at 8 % and also issued an additional $ 9.0 million principal amount of such notes due february 2018 ( the `` 2015 subordinated notes '' ) . in addition , we also issued to the holders of the 2015 subordinated notes , five year warrants to purchase 1.4 million unregistered shares of our common stock at an exercise price of $ 5.10 per share . our cash , cash equivalents and short-term investments at december 31 , 2014 were $ 40.2 million , an increase of $ 12.9 million from december 31 , 2013 .
| historical results of operations year ended december 31 , 2014 compared to the year ended december 31 , 2013 revenue : we generated revenue of $ 7.0 million and $ 3.0 million during the years ended december 31 , 2014 and 2013 , respectively . revenue primarily includes license fees earned , in 2014 , grant revenue , and in 2013 , service revenue . the increase in revenue for the year ended december 31 , 2014 is primarily attributable to ( i ) the amortization of deferred revenue associated with the acquisition of 4-ab and ( ii ) a milestone payment received . during the years ended december 31 , 2014 and 2013 , we recorded revenue of $ 3.5 million and $ 1.6 million , respectively , from the amortization of deferred revenue . research and development : research and development expenses include the costs associated with our internal research and development activities , including compensation and benefits , occupancy costs , clinical manufacturing costs , costs of consultants , and administrative costs . research and development expense increased 72 % to $ 22.3 million for the year ended december 31 , 2014 from $ 13.0 million for the year ended december 31 , 2013 . increased expenses in 2014 primarily relate to the increased research and development costs of the cpm antibody program and compensation expense related to our increased headcount , in each case as a result of the acquisition of 4-ab . general and administrative : general and administrative expenses consist primarily of personnel costs , facility expenses , and professional fees . general and administrative expenses increased 47 % to $ 21.2 million for the year ended december 31 , 2014 from $ 14.5 million for the year ended december 31 , 2013 . increased expenses in 2014 primarily related to increased professional fees related to our corporate activities and expenses of 4-ab as a result of the acquisition .
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many of these statements are macroeconomic in nature and are , therefore , beyond the control of management . see `` forward-looking statements '' below . forward-looking statements management 's discussion and analysis of financial condition and results of operations ( `` md & a '' ) and other parts of this annual report contain certain forward-looking statements and information relating to us that are based on the beliefs of our management as well as assumptions made by , and information currently available to , us . generally , words such as `` believe , '' `` expect , '' `` intend , '' `` estimate , '' `` anticipate , '' `` project , '' `` plan , '' `` may , '' `` can , '' `` could , '' `` might , '' and `` will , '' and similar expressions , as they relate to us are intended to identify forward-looking statements . these statements reflect our current views and beliefs with respect to future events at the time that the statements are made , are not historical facts or guarantees of future performance and involve risks and uncertainties that are difficult to predict and many of which are outside of our control . further , certain forward-looking statements are based upon assumptions as to future events that may not prove to be accurate . see `` special note regarding forward-looking statements `` at the beginning of this annual report for further discussion . risk factors item 1a . risk factors of this annual report also contains a description of certain risk factors that you should consider which could significantly affect our financial results . in addition , the following factors could cause our actual results to differ materially from those results , performance or achievements that may be expressed or implied by such forward-looking statements . these factors include , among other things : changes in general economic , business , political and regulatory conditions in the countries or regions in which we operate ; the length and depth of product and industry business cycles particularly in the automotive , electrical , textiles , electronics and construction industries ; changes in the price and availability of raw materials , particularly changes in the demand for , supply of , and market prices of ethylene , methanol , natural gas , wood pulp and fuel oil and the prices for electricity and other energy sources ; the ability to pass increases in raw material prices on to customers or otherwise improve margins through price increases ; the ability to maintain plant utilization rates and to implement planned capacity additions , expansions and maintenance ; the ability to reduce or maintain current levels of production costs and to improve productivity by implementing technological improvements to existing plants ; increased price competition and the introduction of competing products by other companies ; the ability to identify desirable potential acquisition targets and to consummate acquisition or investment transactions , including obtaining regulatory approvals , consistent with our strategy ; market acceptance of our technology ; the ability to obtain governmental approvals and to construct facilities on terms and schedules acceptable to us ; 32 changes in tax rates or legislation throughout the world including , but not limited to , adjustments , changes in estimates or interpretations that may impact recorded or future tax impacts associated with the tax cuts and jobs act ( the `` tcja '' ) enacted in december 2017 ; changes in the degree of intellectual property and other legal protection afforded to our products or technologies , or the theft of such intellectual property ; compliance and other costs and potential disruption or interruption of production or operations due to accidents , interruptions in sources of raw materials , cyber security incidents , terrorism or political unrest , or other unforeseen events or delays in construction or operation of facilities , including as a result of geopolitical conditions , the occurrence of acts of war or terrorist incidents or as a result of weather or natural disasters ; potential liability for remedial actions and increased costs under existing or future environmental regulations , including those relating to climate change ; potential liability resulting from pending or future claims or litigation , including investigations or enforcement actions , or from changes in the laws , regulations or policies of governments or other governmental activities , in the countries in which we operate ; changes in currency exchange rates and interest rates ; our level of indebtedness , which could diminish our ability to raise additional capital to fund operations or limit our ability to react to changes in the economy or the chemicals industry ; and various other factors , both referenced and not referenced in this annual report . many of these factors are macroeconomic in nature and are , therefore , beyond our control . should one or more of these risks or uncertainties materialize , or should underlying assumptions prove incorrect , our actual results , performance or achievements may vary materially from those described in this annual report as anticipated , believed , estimated , expected , intended , planned or projected . we neither intend nor assume any obligation to update these forward-looking statements , which speak only as of their dates . effective january 1 , 2018 , we adopted accounting standards update 2017-07 , improving the presentation of net periodic pension cost and net periodic postretirement benefit cost , which clarifies the presentation and classification of the components of net periodic benefit costs in the consolidated statements of operations . see note 3 - recent accounting pronouncements in the accompanying consolidated financial statements for further information . also during the year ended december 31 , 2018 , we reorganized our operating and reportable segments to align with recent structural and management reporting changes . story_separator_special_tag the 2017 effective tax rate was impacted by the enactment of the tcja in december 2017. we recognized net tax expense of $ 197 million in the fourth quarter of 2017 to reflect the deemed repatriation of foreign earnings accumulated offshore since 1986. this expense of $ 197 million was partially offset by a $ 107 million reduction of our deferred tax liabilities as a result of lowering the us tax rate from 35 % to 21 % and other technical provisions in the tcja . we also recognized a net tax benefit of $ 76 million related to foreign tax credits generated as a result of various reorganization transactions to separate certain acetate tow assets to reorganize the holdings of its various foreign subsidiaries . no material cash impact is expected from the deemed repatriation due to existing foreign tax credit carryforwards . the 2016 effective income tax rate was favorably impacted primarily due to settlement of uncertain tax positions and technical clarifications in germany and the us of $ 55 million . see note 19 - income taxes in the accompanying consolidated financial statements for further information . 38 business segments engineered materials replace_table_token_10_th year ended december 31 , 2018 compared to year ended december 31 , 2017 net sales increased for the year ended december 31 , 2018 compared to the same period in 2017 primarily due to : higher volume within our base business driven by new project launches and pipeline growth , and net sales generated from acquisitions ; higher pricing for most of our products , primarily due to pricing efforts to align with rising raw material and distribution costs ; and a favorable currency impact resulting from a strong euro relative to the us dollar . operating profit increased for the year ended december 31 , 2018 compared to the same period in 2017 primarily due to : higher net sales ; partially offset by : higher spending of $ 72 million , primarily related to our acquisitions of omni plastics , l.l.c . and its subsidiaries ( `` omni plastics '' ) and nilit , as these acquired businesses incur ongoing spending , as well as increased distribution costs driven by higher volume and expansion ; higher raw material costs , primarily for methanol and polymer ; and higher depreciation and amortization expense , primarily related to our acquired businesses . equity in net earnings ( loss ) of affiliates increased for the year ended december 31 , 2018 compared to the same period in 2017 primarily due to : an increase in equity investment in earnings of $ 38 million from our ibn sina strategic affiliate primarily as a result of an increase in our indirect economic ownership from 25 % to 32.5 % due to the startup of its pom production facility in saudi arabia during the three months ended december 31 , 2017 and an increase in methyl tertiary-butyl ether pricing , as well as $ 7 million from our polyplastics co. , ltd. strategic affiliate as a result of higher demand . 39 on january 2 , 2019 , we completed the acquisition of 100 % of the ownership interests of next polymers ltd. , an india-based engineering thermoplastics ( `` etp '' ) compounder . the acquisition strengthens our position in the indian etp market and further expands our global manufacturing footprint . see note 30 - subsequent events in the accompanying consolidated financial statements for further information . on february 1 , 2018 , we completed the acquisition of 100 % of the ownership interests of omni plastics . omni plastics specializes in custom compounding of various engineered thermoplastic materials . the acquisition further strengthens our global asset base by adding compounding capacity in the americas . see note 4 - acquisitions , dispositions and plant closures in the accompanying consolidated financial statements for further information . year ended december 31 , 2017 compared to year ended december 31 , 2016 net sales increased for the year ended december 31 , 2017 compared to the same period in 2016 primarily due to : higher volume primarily due to net sales generated from softer and from nilit , and within our base business driven by new project launches and pipeline growth globally ; slightly offset by : lower pricing for most of our products due to customer and regional mix . operating profit increased for the year ended december 31 , 2017 compared to the same period in 2016 primarily due to : higher net sales ; partially offset by : higher plant spending of $ 138 million , primarily related to our acquisitions of softer and nilit , as these acquired businesses incur ongoing plant spending ; higher energy and raw material costs , primarily related to methanol ; and higher depreciation and amortization expense , primarily related to our acquisitions of softer and nilit . equity in net earnings ( loss ) of affiliates increased for the year ended december 31 , 2017 compared to the same period in 2016 primarily due to : an increase in equity investment in earnings of $ 20 million from our ibn sina strategic affiliate as a result of higher pricing and timing of turnaround activity ; an increase in equity investment in earnings of $ 11 million from our infraserv gmbh & co. hoechst kg affiliate as a result of an ownership change between our engineered materials and other activities segments . see note 9 - investment in affiliates in the accompanying consolidated financial statements for further information ; and an increase in equity investment in earnings of $ 8 million and $ 7 million from our fortron industries llc ( `` fortron '' ) and polyplastics strategic affiliates , respectively , as a result of higher demand . in may 2017 , we acquired the nylon compounding division of nilit , an independent producer of high performance nylon resins , fibers and compounds . we acquired the nylon compounding product portfolio , customer agreements and manufacturing , technology and commercial facilities .
| financial highlights replace_table_token_4_th _ ( 1 ) defined as operating profit ( loss ) divided by net sales . 34 replace_table_token_5_th factors affecting business segment net sales the percentage increase ( decrease ) in net sales attributable to each of the factors indicated for each of our business segments is as follows : year ended december 31 , 2018 compared to year ended december 31 , 2017 replace_table_token_6_th year ended december 31 , 2017 compared to year ended december 31 , 2016 replace_table_token_7_th pension and postretirement benefit plan costs the increase ( decrease ) in pension and other postretirement plan net periodic benefit cost for each of our business segments is as follows : year ended december 31 , 2018 compared to year ended december 31 , 2017 replace_table_token_8_th 35 year ended december 31 , 2017 compared to year ended december 31 , 2016 replace_table_token_9_th see note 15 - benefit obligations in the accompanying consolidated financial statements for further information . consolidated results year ended december 31 , 2018 compared to year ended december 31 , 2017 net sales increased $ 1.0 billion , or 16.5 % , for the year ended december 31 , 2018 compared to the same period in 2017 primarily due to : higher pricing in our acetyl chain and engineered materials segments ; and higher volume in our engineered materials segment , primarily related to our base business driven by new project launches and pipeline growth , and net sales generated from acquisitions . see note 4 - acquisitions , dispositions and plant closures in the accompanying consolidated financial statements for further information . selling , general and administrative expenses increased $ 50 million , or 10.1 % for the year ended december 31 , 2018 compared to the same period in 2017 primarily due to : an increase in functional spending and incentive compensation costs of $ 42 million in other activities .
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management fees management fees , which consist of pool management fees , decreased by $ 1.0 million from $ 1.0 million for the year ended march 31 , 2018 to zero for the nine months ended december 31 , 2018. the decrease was due to the change in employment from pools in the year ended march 31 , 2018 to voyage charters in the nine months ended december 31 , 2018. loss on sale of assets in december 2018 , we sold two vessels , receiving total proceeds of $ 34.9 million and repaying debt of $ 24.7 million . the carrying value of the assets was $ 20.0 million above the sale price , which was recorded as a loss in the nine months ended december 31 , 2018. there were no vessel sales for the year ended march 31 , 2018 . 77 total other expense , net total other expense , net , which includes term loan interest , amortization of deferred financing charges and commitment fees , and is net of interest income , was $ 26.9 million for the nine months ended december 31 , 2018 compared to $ 32.4 million for the year ended march 31 , 2018. the decrease of $ 5.6 million was primarily a result of the decrease in the number of days of interest expense included in the nine months ended december 31 , 2018. net income ( loss ) attributable to noncontrolling interest the net income ( loss ) attributable to noncontrolling interest was a net loss of $ 0.1 million for the nine months ended december 31 , 2018 compared to a net loss of $ 0.8 million for the year ended march 31 , 2018. the net loss attributable to noncontrolling interest primarily represents a 49 % interest in nt suez holdco llc , which owns and operates two suezmax vessels and is 51 % owned by dss lp . the decreases in the net loss of $ 0.7 million was mainly attributable to higher charter rates achieved as a result of better fuel efficiencies from long haul voyages . liquidity and capital resources as of december 31 , 2019 and december 31 , 2018 , total cash , cash equivalents and restricted cash were $ 89.2 million and $ 88.2 million , including restricted cash of $ 5.6 million and $ 5.1 million , respectively . as of december 31 , 2019 and december 31 , 2018 , we had $ 15 million and $ 19.3 million available and undrawn under our credit facilities , respectively . generally , our primary sources of funds have been cash from operations , undrawn amounts under our credit facilities and vessel sales . we incurred indebtedness under a new term loan and revolving credit facility in connection with the merger and indebtedness under our previously existing credit facilities . refer to note 9 — long-term debt of our consolidated financial statements . in connection with the merger , we amended our debt covenants whereby consolidated cash is subject to a $ 50 million minimum above the restricted cash balance . on december 27 , 2019 , we refinanced ( i ) the $ 460 million facility , ( ii ) the $ 235 million facility , and ( iii ) the $ 75 million facility with the proceeds of the $ 525 million facility . at december 31 , 2019 , we were in compliance with all financial covenants under each of our credit facilities . passage of environmental legislation or other regulatory initiatives have in the past had , and may in the future may have , a significant impact on our operations . regulatory measures can increase required costs related to operating and maintaining our vessels and may require us to retrofit our vessels with new equipment to comply with new or existing regulations . among other capital expenditures , in connection with imo 2020 , we contracted for the purchase and installation of scrubbers on five of our suezmax vessels . two of these scrubbers have been installed and the remaining three are expected to be installed during the first half of 2020. the total aggregate capital expenditures for these five scrubbers is approximately $ 15.7 million , of which $ 6.9 million has been paid as of december 31 , 2019. we may , in the future , determine to purchase additional scrubbers for installation on other vessels that we own or operate . in addition , with respect to vessels that are not retrofitted with scrubbers , we expect to incur expenditures to ensure those vessels are capable of efficiently using low-sulfur fuel , which expenditures are not expected to be significant or which have not yet been determined . we entered into contracts to install ballast water treatment systems on 15 of our vessels for a total estimated cost of $ 16.9 million , of which $ 12.6 million has been paid as of december 31 , 2019. these vessels have compliance dates which require such installations to be completed in 2019 and 2020. we completed drydocking of eight vessels in 2019. the total cost of drydocking as of december 31 , 2019 was $ 11.8 million . in september 2019 , we sold two of our 2008-built mr product carriers , the atlantic aquarius and atlantic leo . the vessels were delivered to the purchaser in september 2019 , generating gross cash proceeds to us of $ 31.8 million before our repayment of the related debt of $ 20.4 million on the two vessels . 78 we believe that we have sufficient capital resources to fund our operations and anticipated capital requirements for the next twelve months . however , should market conditions deteriorate beyond third-party forecasts , we would consider a number of liquidity enhancing measures , which could include refinancing a portion of our senior debt , exploring unsecured debt instruments , asset sales and sale-leaseback transactions on certain of story_separator_special_tag management fees management fees , which consist of pool management fees , decreased by $ 1.0 million from $ 1.0 million for the year ended march 31 , 2018 to zero for the nine months ended december 31 , 2018. the decrease was due to the change in employment from pools in the year ended march 31 , 2018 to voyage charters in the nine months ended december 31 , 2018. loss on sale of assets in december 2018 , we sold two vessels , receiving total proceeds of $ 34.9 million and repaying debt of $ 24.7 million . the carrying value of the assets was $ 20.0 million above the sale price , which was recorded as a loss in the nine months ended december 31 , 2018. there were no vessel sales for the year ended march 31 , 2018 . 77 total other expense , net total other expense , net , which includes term loan interest , amortization of deferred financing charges and commitment fees , and is net of interest income , was $ 26.9 million for the nine months ended december 31 , 2018 compared to $ 32.4 million for the year ended march 31 , 2018. the decrease of $ 5.6 million was primarily a result of the decrease in the number of days of interest expense included in the nine months ended december 31 , 2018. net income ( loss ) attributable to noncontrolling interest the net income ( loss ) attributable to noncontrolling interest was a net loss of $ 0.1 million for the nine months ended december 31 , 2018 compared to a net loss of $ 0.8 million for the year ended march 31 , 2018. the net loss attributable to noncontrolling interest primarily represents a 49 % interest in nt suez holdco llc , which owns and operates two suezmax vessels and is 51 % owned by dss lp . the decreases in the net loss of $ 0.7 million was mainly attributable to higher charter rates achieved as a result of better fuel efficiencies from long haul voyages . liquidity and capital resources as of december 31 , 2019 and december 31 , 2018 , total cash , cash equivalents and restricted cash were $ 89.2 million and $ 88.2 million , including restricted cash of $ 5.6 million and $ 5.1 million , respectively . as of december 31 , 2019 and december 31 , 2018 , we had $ 15 million and $ 19.3 million available and undrawn under our credit facilities , respectively . generally , our primary sources of funds have been cash from operations , undrawn amounts under our credit facilities and vessel sales . we incurred indebtedness under a new term loan and revolving credit facility in connection with the merger and indebtedness under our previously existing credit facilities . refer to note 9 — long-term debt of our consolidated financial statements . in connection with the merger , we amended our debt covenants whereby consolidated cash is subject to a $ 50 million minimum above the restricted cash balance . on december 27 , 2019 , we refinanced ( i ) the $ 460 million facility , ( ii ) the $ 235 million facility , and ( iii ) the $ 75 million facility with the proceeds of the $ 525 million facility . at december 31 , 2019 , we were in compliance with all financial covenants under each of our credit facilities . passage of environmental legislation or other regulatory initiatives have in the past had , and may in the future may have , a significant impact on our operations . regulatory measures can increase required costs related to operating and maintaining our vessels and may require us to retrofit our vessels with new equipment to comply with new or existing regulations . among other capital expenditures , in connection with imo 2020 , we contracted for the purchase and installation of scrubbers on five of our suezmax vessels . two of these scrubbers have been installed and the remaining three are expected to be installed during the first half of 2020. the total aggregate capital expenditures for these five scrubbers is approximately $ 15.7 million , of which $ 6.9 million has been paid as of december 31 , 2019. we may , in the future , determine to purchase additional scrubbers for installation on other vessels that we own or operate . in addition , with respect to vessels that are not retrofitted with scrubbers , we expect to incur expenditures to ensure those vessels are capable of efficiently using low-sulfur fuel , which expenditures are not expected to be significant or which have not yet been determined . we entered into contracts to install ballast water treatment systems on 15 of our vessels for a total estimated cost of $ 16.9 million , of which $ 12.6 million has been paid as of december 31 , 2019. these vessels have compliance dates which require such installations to be completed in 2019 and 2020. we completed drydocking of eight vessels in 2019. the total cost of drydocking as of december 31 , 2019 was $ 11.8 million . in september 2019 , we sold two of our 2008-built mr product carriers , the atlantic aquarius and atlantic leo . the vessels were delivered to the purchaser in september 2019 , generating gross cash proceeds to us of $ 31.8 million before our repayment of the related debt of $ 20.4 million on the two vessels . 78 we believe that we have sufficient capital resources to fund our operations and anticipated capital requirements for the next twelve months . however , should market conditions deteriorate beyond third-party forecasts , we would consider a number of liquidity enhancing measures , which could include refinancing a portion of our senior debt , exploring unsecured debt instruments , asset sales and sale-leaseback transactions on certain of
| results of operations voyage revenue voyage revenue increased by $ 304.3 million to $ 579.8 million during the year ended december 31 , 2019 as compared to the nine months ended december 31 , 2018. the $ 304.3 million increase was principally driven by a 75.8 % increase in revenue days due to an additional 9,134 revenue days during the year ended december 31 , 2019 , primarily driven by the impact of the acquisition of the athena vessels and the additional fiscal quarter of data for the year ended december 31 , 2019 compared to the nine months ended december 31 , 2018 , which only includes three fiscal quarters . further , freight rates in the crude oil transportation market improved in the fourth quarter of 2019. voyage expenses voyage expenses increased by $ 92.9 million to $ 230.7 million during the year ended december 31 , 2019 as compared to $ 137.8 million for the nine months ended december 31 , 2018. the $ 92.9 million increase in voyage expenses was driven by a 52.5 % increase in spot revenue days due to the merger and change in year-end , offset by an increase in short-term time charter activity in the suezmax fleet during the year ended december 31 , 2019 , as the bunker and port costs were borne by the charterer .
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unless otherwise noted , all references to shares or per share amounts following the conversion refer to shares or per share amounts of common stock . all references to dividends prior to the conversion refer to distributions . see “ — organizational structure. ” 78 effective january 1 , 2020 , the credit segment was renamed credit & insurance . there was no change to the composition of the segment or historical results . effective february 26 , 2021 , blackstone effectuated changes to rename its class a common stock as “ common stock , ” and to reclassify its class b and class c common stock into a new “ series i preferred stock ” and “ series ii preferred stock , ” respectively . each new stock has the same rights and powers of its predecessor . see “ part ii . item 7. management 's discussion and analysis of financial condition and results of operations — organizational structure ” and “ part ii . item 9b . other information. ” our business blackstone is one of the world 's leading investment firms . our business is organized into four segments : real estate . our real estate business is a global leader in real estate investing . our real estate segment operates as one globally integrated business , with investments in the americas , europe and asia . our real estate investment teams seek to utilize our global expertise and presence to generate attractive risk-adjusted returns for our investors and to make a positive impact on the communities in which we invest . our blackstone real estate partners ( “ brep ” ) funds are geographically diversified and target a broad range of “ opportunistic ” real estate and real estate-related investments . the brep funds include global funds as well as funds focused specifically on europe or asia investments . brep seeks to invest thematically in high-quality assets , focusing where we see outsized growth potential driven by global economic and demographic trends . brep has made significant investments in logistics , office , rental housing , hospitality and retail properties around the world , as well as a variety of real estate operating companies . our blackstone real estate debt strategies ( “ breds ” ) vehicles primarily target real estate-related debt investment opportunities . breds ' scale and investment mandates enable it to provide a variety of lending and investment options including commercial real estate and mezzanine loans , residential mortgage loan pools and liquid real estate-related debt securities . the breds platform includes a number of high-yield real estate debt funds , liquid real estate debt funds and bxmt , a nyse-listed real estate investment trust ( “ reit ” ) . blackstone real estate began its core+ strategy in 2013. blackstone 's core+ strategy invests in substantially stabilized real estate globally through regional open-ended funds focused on high-quality assets , the blackstone property partners funds ( “ bpp ” ) , and blackstone real estate income trust , inc. ( “ breit ” ) , a non-listed reit which was launched in 2017 and invests in u.s. income-generating assets . in november 2020 , we launched blackstone biomed life science real estate l.p. ( “ bpp life sciences ” ) , a long-term , perpetual capital , core+ return fund that owns biomed realty and is focused on life science office investments primarily across the u.s. private equity . our private equity segment includes our corporate private equity business , which consists of ( a ) our flagship private equity funds ( blackstone capital partners ( “ bcp ” ) funds ) , ( b ) our sector-focused private equity funds , including our energy-focused funds ( blackstone energy partners ( “ bep ” ) funds ) , ( c ) our asia-focused fund ( blackstone capital partners asia ( “ bcp asia ” ) fund ) and ( d ) our core private equity funds , blackstone core equity partners ( “ bcep ” ) . in addition , our private equity segment includes ( a ) our opportunistic investment platform that invests globally across asset classes , industries and geographies , blackstone tactical opportunities ( “ tactical opportunities ” ) , ( b ) our secondary fund of funds business , strategic partners fund solutions ( “ strategic partners ” ) , ( c ) our infrastructure-focused funds , blackstone infrastructure partners ( “ bip ” ) , ( d ) our life sciences private investment platform , blackstone life sciences ( “ bxls ” ) , ( e ) our growth equity investment platform , blackstone growth ( “ bxg ” ) , ( f ) our multi-asset investment program for eligible high net worth investors offering exposure to certain of blackstone 's key illiquid investment strategies through a single commitment , blackstone total alternatives solution ( “ btas ” ) and ( g ) our capital markets services business , blackstone capital markets ( “ bxcm ” ) . 79 we are a global leader in private equity investing . our corporate private equity business , established in 1987 , pursues transactions across industries in both established and growth-oriented businesses across the globe . it strives to create value by investing in great businesses where our capital , strategic insight , global relationships and operational support can drive transformation . our core private equity funds target control-oriented investments in high-quality companies with durable businesses and seeks to offer a lower level of risk and a longer hold period than traditional private equity . tactical opportunities invests globally across asset classes , industries and geographies , seeking to identify and execute on attractive , differentiated investment opportunities , leveraging the intellectual capital across our various businesses while continuously optimizing its approach in the face of ever-changing market conditions . strategic partners is a total fund solutions provider that acquires interests in high-quality private funds from original holders seeking liquidity , makes primary investments and co-investments with financial sponsors and provides investment advisory services to clients investing in primary and secondary investments in private funds and co-investments . story_separator_special_tag investment committees continue to convene as needed , and the firm continues to operate across investment , asset management and corporate support functions . since july 2020 , employees in our u.s. and european offices began returning to the office on a voluntary basis , consistent with local government guidelines , with testing , contact-tracing and social distancing and other safety protocols in place . we continue to closely monitor applicable public health and government guidance . business environment blackstone 's businesses are materially affected by conditions in the financial markets and economic conditions in the u.s. , europe , asia and , to a lesser extent , elsewhere in the world . global economic conditions in 2020 were significantly impacted by the covid-19 pandemic . following dramatic declines in global equity and credit markets in the first quarter of the year coupled with certain liquidity issues , markets generally experienced sharp recoveries later in the year as governments around the world implemented fiscal and monetary stimulus to counter the economic impacts of the pandemic . the recovery has been more recently aided by progress on covid-19 vaccine production and distribution . the global economy has , with certain setbacks , begun reopening and wider distribution of vaccines will likely encourage greater economic activity . nonetheless , the recovery could remain uneven , particularly given uncertainty with respect to the distribution and acceptance of the vaccines . in the u.s. , the s & p 500 increased 18 % in 2020 , with positive returns across most sectors and particular strength in technology stocks , which were up 44 % . the s & p energy , real estate and financial sectors posted negative returns in 2020 , with energy in particular down 34 % as commodity prices remained suppressed . despite rising during the second half of 2020 , the price of west texas ended the year at $ 48.52 per barrel , 21 % below the 2019 year-end price of $ 61. the bloomberg commodity index finished the year down 4 % . 81 volatility increased sharply during the year , with the cboe volatility index averaging 29 in 2020 , up 89 % from the prior-year average of 15. global equity issuance increased 60 % in 2020. merger and acquisition activity decreased slightly in 2020 , with announced volumes down 4 % compared to 2019. debt markets largely retraced their declines from early in 2020 , with u.s. leveraged loans declining 0.5 % overall in 2020 and high yield bonds increasing 5.5 % . high yield spreads ended the year roughly in line with pre-covid levels and issuance increased 51 % year-over-year . the federal reserve maintained the federal funds target range at 0.0 % -0.25 % and expanded its balance sheet since mid-march 2020 by more than $ 3 trillion to support new credit and liquidity facilities . the federal reserve expects to maintain the current pace of purchasing in the coming months . three-month libor ended the year at 0.24 % , near historical lows . the u.s. treasury yield curve steepened towards the end of 2020 , with ten-year yields rising 41 basis points from their trough in august to 0.91 % by the end of 2020. two-year u.s. treasury yields remained relatively stable since their decline in the first quarter of 2020 , ending the year at 0.12 % . the u.s. unemployment rate was 6.7 % at the end of 2020 , representing a decline from 11.1 % at the end of june , although it remains at an elevated level . wages grew , with average hourly earnings increasing 5.1 % year-over-year based on the three-month average for production and nonsupervisory employees . new orders for durable goods in december increased for the eighth consecutive month , while u.s. retail sales increased 3.2 % in 2020 compared to 2019. the industrial sector continued to show mixed signals , as industrial production declined 3.6 % in the fourth quarter from the year-ago period . however , the institute for supply management purchasing managers ' index increased in the fourth quarter , rising to 60.7 from 55.4 in the third quarter , signaling moderate expansion in the u.s. manufacturing sector . countries around the world continue to grapple with the economic impacts of the covid-19 pandemic . although a recovery is partially underway , it continues to be gradual , uneven and characterized by meaningful dispersion across sectors and regions , and could be hindered by persistent or resurgent infection rates . a potential next round of u.s. fiscal stimulus could provide meaningful support , along with continued accommodative monetary policy and wider distribution of vaccines . issues with respect to the distribution and acceptance of vaccines or the spread of new variants of the virus could adversely impact the recovery . overall , there remains significant uncertainty regarding the timing and duration of the economic recovery , which precludes any prediction as to the ultimate adverse impact of covid-19 on economic and market conditions . notable transactions on september 29 , 2020 , blackstone issued $ 500 million aggregate principal amount of 1.600 % senior notes due march 30 , 2031 ( the “ 2031 notes ” ) and $ 400 million aggregate principal amount of 2.800 % senior notes due september 30 , 2050 ( the “ 2050 notes ” ) . on november 24 , 2020 , blackstone entered into an amended and restated $ 2.25 billion revolving credit facility . the amendment and restatement to the credit facility , among other things , increased the amount of available borrowings and extended the maturity date from september 21 , 2023 to november 24 , 2025. for additional information see note 13 . “ borrowings ” in the “ notes to consolidated financial statements ” in “ — item 8. financial statements and supplementary data. ” in december 2020 , blackstone acquired dci , a san francisco based systematic credit investment firm . as part of the transaction , dci will be integrated into bxc as systematic strategies within its liquid credit strategies unit .
| consolidated results of operations following is a discussion of our consolidated results of operations for each of the years in the three-year period ended december 31 , 2020. for a more detailed discussion of the factors that affected the results of our four business segments ( which are presented on a basis that deconsolidates the investment funds we manage ) in these periods , see “ —segment analysis ” below . 87 the following table sets forth information regarding our consolidated results of operations and certain key operating metrics for the years ended december 31 , 2020 , 2019 and 2018 : replace_table_token_2_th n/m not meaningful . year ended december 31 , 2020 compared to year ended december 31 , 2019 revenues revenues were $ 6.1 billion for the year ended december 31 , 2020 , a decrease of $ 1.2 billion compared to $ 7.3 billion for the year ended december 31 , 2019. the decrease in revenues was primarily attributable to decreases of $ 1.5 billion in investment income ( loss ) and $ 333.1 million in other revenue , partially offset by an increase of $ 620.4 million in management and advisory fees , net . 88 the decrease in investment income ( loss ) was primarily driven by the impacts of covid-19 . investment income ( loss ) in our real estate and credit & insurance segments decreased $ 1.7 billion and $ 287.7 million , respectively , partially offset by an increase in our private equity segment of $ 494.2 million .
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3. prepaid expenses prepaid expenses consisted of the following : replace_table_token_12_th 4. other non-current assets other non-current assets story_separator_special_tag the following discussion should be read in conjunction with our consolidated financial statements and the notes thereto included in part ii , item 8 of this report . this following discussion includes forward-looking statements . see “ part 1—cautionary note regarding forward-looking statements , ” above . forward-looking statements are not guarantees of future performance and our actual results may differ materially from those currently anticipated and from historical results depending upon a variety of factors , including , but not limited to , those discussed in part i , item 1a of this report under the heading “ risk factors , ” which are incorporated herein by reference . business overview we are a clinical-stage biopharmaceutical company committed to the acceleration of innovative products for women 's health . we are driven by a mission to identify , acquire and develop a diverse portfolio of differentiated therapies that expand treatment options , improve outcomes and facilitate convenience for women , primarily in the areas of contraception , fertility , and sexual and vaginal health . our business strategy is to in-license or otherwise acquire the rights to differentiated product candidates in our areas of focus , some of which have existing clinical proof-of-concept data , and to take those candidates through advanced stages of clinical development , and then out-license these products to companies with sales and distribution capabilities in women 's health to leverage their commercial capabilities . we and our wholly owned subsidiaries operate in one business segment . since july 2017 , we have assembled a portfolio of clinical-stage and pre-clinical-stage candidates . while we will continue to assess opportunities to expand our portfolio , our current focus is on advancing our existing product candidates through mid- and late stages of clinical development or approval . our global commercialization and development strategy involves partnering with pharmaceutical companies and regional distributors with established marketing and sales capabilities in women 's health , including through co-development and promotion agreements , once we have advanced a candidate through mid- to late-stage clinical development . 57 our portfolio includes three product candidates in advanced clinical development : dare-bv1 , a novel thermosetting bioadhesive hydrogel formulated with clindamycin phosphate 2 % to be administered in a single vaginally delivered application , as a first line treatment for bacterial vaginosis , or bv ; ovaprene® , a hormone-free , monthly vaginal contraceptive ; and sildenafil cream , 3.6 % , a proprietary cream formulation of sildenafil for topical administration to the vulva and vagina for treatment of female sexual arousal disorder , or fsad . our portfolio also includes three product candidates that we believe are phase 1-ready : dare-hrt1 , a combination bio-identical estradiol and progesterone intravaginal ring for the treatment of vasomotor symptoms ( vms ) as part of a hormone replacement therapy , or hrt , following menopause ; dare-vva1 , a vaginally delivered formulation of tamoxifen to treat vulvar vaginal atrophy , or vva , in patients with hormone- receptor positive breast cancer ; and dare-frt1 , an intravaginal ring containing bio-identical progesterone for the prevention of preterm birth and for fertility support as part of an in vitro fertilization treatment plan . see “ item 1. business-our clinical-stage product candidates and programs , ” in part i of this report for additional information regarding our product candidates . our primary operations have consisted of , and are expected to continue to consist of , product research and development and advancing our portfolio of product candidates through clinical development and regulatory approval . we expect that the majority of our development expenses over the next two years will support the advancement of dare-bv1 , ovaprene and sildenafil cream , 3.6 % . to date , we have not obtained any regulatory approvals for any of our product candidates , commercialized any of our product candidates or generated any revenue . we are subject to several risks common to clinical-stage biopharmaceutical companies , including dependence on key individuals , competition from other companies , the need to develop commercially viable products in a timely and cost-effective manner , and the need to obtain adequate additional capital to fund the development of product candidates . we are also subject to several risks common to other companies in the industry , including rapid technology change , regulatory approval of products , uncertainty of market acceptance of products , competition from substitute products and larger companies , compliance with government regulations , protection of proprietary technology , dependence on third parties , and product liability . in addition , the covid-19 pandemic continues to rapidly evolve . we do not yet know the full extent of its potential effects on our business , including the anticipated aggregate costs for development of our product candidates , on our anticipated timelines for the development of our product candidates , or on the supply chain for our clinical supplies . however , these effects could have a material adverse impact on our business and financial condition . recent events microchips acquisition on november 20 , 2019 , we acquired microchips biotech , inc. via a merger . we issued an aggregate of approximately 3.0 million shares of our common stock to the holders of shares of microchips ' capital stock outstanding immediately prior to the effective time of the merger and we agreed to pay them : ( 1 ) contingent consideration of up to $ 46.5 million upon the achievement of specified funding , product development and regulatory milestones ; ( 2 ) contingent consideration of up to $ 55 .0 million upon the achievement of specified amounts of aggregate net sales of products incorporating the intellectual property we acquired in the merger ; ( 3 ) tiered royalty payments based on annual net sales of such products ; and ( 4 ) a percentage of sublicense revenue related to such products . story_separator_special_tag we base our estimates on historical experience and on various assumptions we believe to be reasonable under the circumstances . these estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources . actual results may differ materially from these estimates . historically , revisions to our estimates have not resulted in a material change to the financial statements . the items in our financial statements requiring significant estimates and judgments are as follows : the fair value of stock-based compensation , goodwill impairment and purchase accounting . stock-based compensation the compensation cost for all stock-based awards is measured at the grant date , based on the fair value of the award ( determined using a black-scholes option pricing model ) , and is recognized as an expense over the requisite service period ( generally the vesting period of the equity award ) . determining the fair value of stock-based awards at the grant date requires significant estimates and judgments , including estimating the market price volatility of our common stock , future employee stock option exercise behavior and requisite service periods . due to our limited history of stock option exercises we applied the simplified method prescribed by sec staff accounting bulletin 110 , share-based payment : certain assumptions used in valuation methods - expected term , to estimate expected life . the fair value of non-employee stock options or stock awards are remeasured as the awards vest , and the resulting increase or decrease in fair value , if any , is recognized as an increase or decrease to compensation expense in the period the related services are rendered . stock options or stock awards issued to non-employees who are not directors with performance conditions are measured and recognized when the performance is complete or is expected to be met . refer to note 8 to our consolidated financial statements included in this report for more information . goodwill goodwill is recorded when the consideration paid for an acquisition exceeds the fair value of the identified net tangible and intangible assets of the acquired businesses . the allocation of purchase price for acquisitions require extensive use of accounting estimates and judgments to allocate the purchase price to the identifiable tangible and intangible assets acquired and liabilities assumed based on their respective fair values . additionally , we must determine whether an acquired entity is considered a business or a set of net assets as a portion of the purchase price can only be allocated to goodwill in a business combination . goodwill and intangible assets deemed to have indefinite lives are not amortized but are subject to annual impairment tests . the amounts and useful lives assigned to intangible assets that have finite useful lives require the use of estimates and the exercise of judgment . these judgments can significantly affect our net operating results . goodwill is considered to have an indefinite life and is carried at cost . we test goodwill at least annually , as of december 31 , and between annual tests if we become aware of an event or change in circumstance that would indicate the carrying value of our goodwill may be impaired . the impairment test is performed assuming that we operate in a single operating segment and reporting unit . a goodwill impairment is the amount by which a reporting unit 's carrying value exceeds its fair value , not to exceed the carrying 60 amount of goodwill . when impaired , the carrying value of goodwill is written down to fair value . any excess of the reporting unit goodwill carrying value over the fair value is recognized as impairment loss . we assessed goodwill at december 31 , 2017 , determined there was an impairment and recognized an impairment charge of approximately $ 7.5 million in the consolidated statement of operations and comprehensive loss for the year ended december 31 , 2017 , and reduced our goodwill carrying value from approximately $ 12.7 million to $ 5.2 million on our consolidated balance sheet as of december 31 , 2017 . see note 2 , “ acquisitions , ” of the notes to consolidated financial statements appearing in this report for a discussion of our goodwill analysis . we assessed goodwill at march 31 , 2018 , determined there was an impairment and recognized an impairment charge of approximately $ 5.2 million in the interim consolidated statement of operations and comprehensive loss for the three months ended march 31 , 2018. as of march 31 , 2018 , the goodwill carrying value on our consolidated balance sheet was written off in its entirety . business combinations assets acquired and liabilities assumed as part of a business acquisition are recorded at their estimated fair value at the date of acquisition . the excess of the total purchase consideration over the fair value of assets acquired and liabilities assumed is recorded as goodwill . determining fair value of identifiable assets , particularly intangibles , and liabilities acquired also requires management to make estimates , which are based on all available information and , in some cases , assumptions with respect to the timing and amount of future revenue and expenses associated with an asset . acquired in-process research and development expense we have acquired , and may continue to acquire , the rights to develop new product candidates . payments to acquire a new product candidate , as well as future milestone payments associated with asset acquisitions which are deemed probable of achievement , are immediately expensed as acquired in-process research and development provided that the product candidate has not achieved regulatory approval for marketing and , absent obtaining such approval , has no alternative future use . story_separator_special_tag at december 31 , 2019 , our accumulated deficit was approximately $ 44.0 million , our cash and cash equivalents were approximately $ 4.8 million , and our working capital was approximately $ 0.8 million .
| results of operations comparison of the years ended december 31 , 2019 and 2018 the following table summarizes our consolidated results of operations for the years ended december 31 , 2019 and 2018 , together with the changes in those items in dollars : replace_table_token_1_th revenues we did not recognize any revenue for the years ended december 31 , 2019 or 2018 . 61 general and administrative the increase of $ 609,601 in general and administrative expenses from 2018 to 2019 was primarily attributable to : ( i ) an increase in personnel costs of approximately $ 482,000 reflecting the hiring of additional employees which resulted in increased salary , benefit and bonus expenses , ( ii ) an increase in stock-based compensation expense of approximately $ 241,000 , ( iii ) an increase in insurance costs of approximately $ 102,000 , ( iv ) an increase in rent expense of approximately $ 79,000 due to the addition of two leases acquired in conjunction with the acquisition of microchips , ( v ) an increase of approximately $ 38,000 of advertising and marketing expenses , and ( vi ) an increase of approximately $ 48,000 in expense related to conferences and seminars . those increases were partially offset by a decrease of approximately $ 410,000 in expenses for accounting , legal , and professional services . research and development the increase of approximately $ 2.1 million in research and development expenses from 2018 to 2019 was primarily attributable to ( i ) an increase in costs related to development activities of approximately $ 2.3 million for dare-bv1 , ovaprene , dare-hrt1 , dare-frt1 and sildenafil cream , 3.6 % , ( ii ) an increase in personnel costs of approximately $ 875,000 reflecting the hiring of additional employees which resulted in increased salary , benefit and bonus expenses , and ( iii ) an increase in stock-based compensation expense of approximately $ 82,000 .
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if elected by an employee , the equity amount is equal in value on the date of grant to 50 % of his or her target incentive opportunity , based on the employee 's base salary . the number of rsus granted is determined by dividing 50 % of the employee 's target incentive opportunity by 85 % of the closing price of its common stock on the grant date , less the present value of expected dividends during the vesting period . if elected , the award vests 100 % on the cicp payout date of the following year for all participants . vesting is conditioned upon the performance conditions of the cicp and on continued employment ; if threshold funding does not occur , the rsus will not vest . the company considers vesting to be probable on the grant date and recognizes the associated stock-based compensation expense over the requisite service period beginning , on the grant date and ending on the vesting date . the company grants awards that allow for the settlement of vested stock options and rsus on a net share basis ( “ net settled awards ” ) . with net settled awards , the employee does not surrender any cash or shares upon exercise . rather , the company withholds the number of shares to cover the exercise price ( in the case of stock options ) and the minimum statutory tax withholding obligations ( in the case of stock options and rsus ) from the shares that would otherwise be issued upon exercise or settlement . the exercise of stock options and settlement of rsus on a net share basis results in fewer shares story_separator_special_tag business overview we develop , market , license , and support enterprise software applications that help organizations transform the way they engage with their customers and process and complete work across their enterprise . we license our no-code pega platform for rapid application development to clients that wish to build and extend their own business applications . our cloud-architected portfolio of customer engagement and digital process automation applications leverages artificial intelligence ( “ ai ” ) , case management , and robotic automation technology , built on our unified no-code pega platform , empowering businesses to quickly design , extend , and scale their enterprise applications to meet strategic business needs . our target clients are global 3000 organizations and government agencies that require applications to differentiate themselves in the markets they serve . our applications achieve and facilitate differentiation by increasing business agility , driving growth , improving productivity , attracting and retaining customers , and reducing risk . we deliver applications tailored to our clients ' specific industry needs . performance metrics replace_table_token_4_th ( 1 ) subscription revenue reflects client arrangements ( term license , cloud , and maintenance ) which are subject to renewal . annual contract value ( “ acv ” ) ( 1 ) the change in acv measures the growth and predictability of future cash flows from committed term , cloud , and maintenance arrangements as of the end of the particular reporting period . replace_table_token_5_th ( 1 ) acv , as of a given date , is the sum of the following two components : the sum of the annual value of each term and cloud contract in effect on such date , with the annual value of a term or cloud contract being equal to the total value of the contract divided by the total number of years of the contract ; and maintenance revenue reported for the quarter ended on such date , multiplied by four . 21 remaining performance obligations revenue for the remaining performance obligations on existing contracts is expected to be recognized as follows : replace_table_token_6_th story_separator_special_tag roman ; font-size:10pt ; color : # 000000 ; font-style : italic ; font-weight : bold ; text-decoration : none ; '' > research and development replace_table_token_12_th research and development expenses include compensation , benefits , contracted services , and other headcount-related expenses associated with the creation and development of our products as well as enhancements and engineering changes to existing products and integration of acquired technologies . 2018 compared to 2017 the increase was primarily due to a $ 12.4 million increase in compensation and benefits and an increase of $ 3.7 million in cloud hosting expense . the increase in compensation and benefits was attributable to increased headcount and the expansion of our application development team to support the continued development of our growing suite of software and increased incentive compensation . the increase in cloud hosting expenses was primarily due to additional cloud-focused research and development activities . 2017 compared to 2016 the increase was primarily due to a $ 16.5 million increase in compensation and benefit expenses associated with higher headcount , higher stock-based compensation expense primarily from the increased value of our annual periodic equity awards , and annual merit salary increases . general and administrative replace_table_token_13_th general and administrative expenses include compensation , benefits , and other headcount-related expenses associated with finance , legal , corporate governance , and other administrative headcount . they also include accounting , legal , and other professional services fees , and administrative fees . the general and administrative headcount includes some employees in human resources , information technology , and corporate services departments whose costs are partially allocated to our other functional departments . 2018 compared to 2017 the decrease was primarily due to a decrease of $ 3.5 million in compensation and benefits , due to decreased headcount reflecting the realignment of contract negotiation and product development resources to augment our selling and marketing and research and development functions , partially offset by an increase of $ 2.3 million in legal and tax services . story_separator_special_tag during 2017 , we purchased $ 27.7 million of investments , primarily marketable debt securities , and made investments of $ 13.7 million in property and equipment , partially offset by proceeds received from maturities of investments , including called investment securities of $ 27 million . during 2016 , we acquired openspan , inc. for $ 48.8 million , net of cash acquired , and invested $ 19.1 million primarily in internally developed software and leasehold improvements at our corporate headquarters and our office in hyderabad , india , partially offset by proceeds received from the sales of investments of $ 62.2 million . cash used in financing activities we used cash primarily for repurchases of our common stock under our stock repurchase programs , stock repurchases for tax withholdings for the net settlement of our equity awards , and the payment of our quarterly dividend . net cash used in financing activities during 2018 , 2017 , and 2016 was primarily for repurchases of our common stock and the payment of our quarterly dividend . dividends replace_table_token_20_th it is our current intention to pay a quarterly cash dividend of $ 0.03 per share , however , the board of directors may terminate or modify this dividend program at any time without prior notice . stock repurchase program ( 1 ) remaining authority under existing programs is : ( in thousands ) 2018 january 1 , $ 34,892 authorizations 27,003 repurchases ( 55,275 ) december 31 , $ 6,620 ( 1 ) purchases under these programs have been made on the open market . see `` 10. stockholders ' equity '' in item 8 of this annual report for additional information . common stock repurchases the following table is a summary of our repurchase activity : replace_table_token_21_th ( 1 ) represents activity under the company 's publicly announced stock repurchase program . ( 2 ) during 2018 , 2017 , and 2016 , instead of receiving cash from the equity holders , we withheld shares with a value of $ 29.5 million , $ 28.1 million , and $ 18.1 million , respectively , for the exercise price of options . these amounts have been excluded from the table above . 27 contractual obligations as of december 31 , 2018 , our contractual obligations were : replace_table_token_22_th ( 1 ) represents the fixed or minimum amounts due under purchase obligations for hosting services and sales and marketing programs . ( 2 ) represents the maximum funding that would be required under existing investment agreements with privately-held companies . the company 's investment agreements generally allow the company to withhold unpaid committed funds at its discretion . ( 3 ) we are unable to reasonably estimate the timing of the cash outflow due to uncertainties in the timing of the effective settlement of tax positions . ( 4 ) includes deferred rent of approximately $ 2.6 million included in accrued expenses and approximately $ 7.4 million in other long-term liabilities as of december 31 , 2018 in the consolidated balance sheet in item 8 of this annual report . ( 5 ) see `` item 2. properties '' of this annual report for additional information . critical accounting estimates and significant judgments management 's discussion and analysis of the financial condition and results of operations is based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the u.s. and the rules and regulations of the sec for annual financial reporting . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . we base our estimates and judgments on historical experience , knowledge of current conditions and beliefs of what could occur in the future given available information . we believe that , of our significant accounting policies , which are described in “ 2. significant accounting policies ” in item 8 of this annual report , the following accounting policies are most important to the portrayal of our financial condition and require the most subjective judgment . accordingly , these are the policies we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations . if actual results differ significantly from management 's estimates and projections , there could be a material effect on our financial statements . revenue recognition we account for revenue in accordance with asc 606. our revenue recognition policies require us to make significant judgments and estimates . our clients ' contracts with us typically contain promises by us to provide multiple products and services . specifically , contracts associated with sales of the company pega platform and other software applications , sold either as licenses to use functional intellectual property or as a cloud-based solution , typically include various forms of consulting . determining whether such products and services within a client contract are considered distinct performance obligations that should be accounted for separately requires significant judgment . we review client contracts to identify all separate promises to transfer goods and services that would be considered performance obligations . judgment is also required in determining whether an option to acquire additional products and services within a client contract represents a material right that the client would not receive without entering into the contract . we allocate the transaction price to the distinct performance obligations , including options in contracts that are determined to represent a material right , based on relative standalone selling price of each performance obligation . judgment is required in estimating standalone selling prices . we maximize the use of observable inputs by maintaining pricing analysis that includes our pricing policies , historical standalone sales when they exist , and historical renewal prices charged to clients .
| results of operations replace_table_token_7_th * not meaningful revenue replace_table_token_8_th ( 1 ) subscription revenue reflects client arrangements ( term license , cloud , and maintenance ) which are subject to renewal . we expect our revenue mix to continue to shift in favor of our cloud offerings , which could result in slower total revenue growth in the near term . revenue from cloud arrangements is generally recognized over the service period , while revenue from license arrangements is generally recognized upfront when the license rights become effective . subscription revenue the decrease in term license revenue in 2018 , and increase in 2017 , was primarily due to $ 35.3 million of revenue recognized in the three months ended march 31 , 2017 from a large term license renewal . the increases in cloud revenue in 2018 and 2017 reflect the shift in client preferences to cloud arrangements from other types of arrangements . the increase s in maintenance revenue in 2018 and 2017 were primarily due to the continued growth in the installed base of our software and strong renewal rates in excess of 90 % . perpetual license the decrease s in perpetual license revenue in 2018 and 2017 reflect the shift in client preferences in favor of our cloud offerings and away from perpetual license arrangements . 22 consulting consulting revenue is primarily related to new license implementations . see `` our consulting revenue is significantly dependent upon our consulting personnel implementing new license and cloud arrangements '' in item 1a of this annual report for additional information . consulting revenue was substantially consistent in 2018 with 2017 as a decrease in billable hours in 2018 from a large project which began in the second half of 2016 was offset by an increase in revenue from a large number of other projects .
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judgment is used to ascertain if a formerly active market has become inactive and in determining fair values when markets have become inactive . the company evaluates the carrying value of investments for impairment on a quarterly basis . in its impairment analysis , the company takes into consideration numerous criteria , including the duration and extent of any decline in fair value story_separator_special_tag results of operations executive overview the following executive overview summarizes the significant trends affecting our results of operations and financial condition for the periods presented . this overview and the remainder of this management 's discussion and analysis supplements and should be read in conjunction with the consolidated financial statements of invesco ltd. and its subsidiaries ( collectively , the “ company ” or “ invesco ” ) and the notes thereto contained elsewhere in this annual report on form 10-k. during 2013 , economies in the developed world continued to show improvement , resulting in strong equity market gains . equity markets such as the u.s. , japan and the u.k. produced positive returns , as evidenced by the s & p 500 index , which was up 29.6 % , the nikkei 225 index , which increased 56.7 % , and the ftse 100 , which rose 14.4 % . however , developing markets lagged in 2013 , as questions about the impact of slowing monetary stimulus on emerging economies weighed on equity prices , resulting in the msci emerging market index declining 5.0 % . bond markets declined in 2013 , as evidenced by the barclays u.s. aggregate bond index , driven in part by a change in the u.s. federal reserve 's monetary policy . the expectation of a tapering in the monthly bond purchases resulted in pressure on bond prices . this was confirmed in december 2013 when the federal reserve announced a reduction in the monthly purchases from $ 85 billion to $ 75 billion . the table below summarizes the year ended december 31 returns based on price appreciation/ ( depreciation ) of several major market indices for 2013 , 2012 , and 2011 : replace_table_token_5_th throughout 2013 , we continued to execute our long-term strategy , which further improved our ability to serve clients , strengthened our investment reputation , and helped to deliver competitive levels of operating income and margins . we also took advantage of opportunities in the market and continued to invest in our products and capabilities , our brand , our global platform and our people in ways that strengthened our business and competitive position for long-term success . in late 2013 , we launched the global targeted return product line , with strong flows to the new fund in the u.k. market in the fourth quarter . in addition , late in 2013 , we launched a number of new `` liquid alternative '' capabilities . these capabilities leverage the firm 's 25 years of experience managing alternative assets to bring existing institutional-quality alternative investment capabilities to our retail clients . the company launched more funds in the fourth quarter of 2013 than in any year within the last five years . as a global investment management firm dedicated to delivering investment excellence to our clients , invesco is committed to further strengthening and enhancing our risk management approach . we believe a key factor in invesco 's ability to manage through the economic uncertainty of the past three years was our integrated approach to risk management . invesco 's enterprise risk management approach is embedded in its management processes across the organization . broadly , our approach includes two governance structures - one for investments and another for business risk . investment risk oversight is supported by the global performance measurement and risk group , which provides senior management and the board with insight into core investment risks , and the investment teams . business risk oversight is supported by the corporate risk management committee , which facilitates a focus on strategic , operational and other key business risks , and related committees . further , functional and geographic risk management committees maintain an ongoing risk assessment process that provides a bottom-up perspective on the specific risk areas existing in various domains of our business . as a result of our efforts in this area , standard & poor 's ratings services has designated our enterprise risk management rating as `` strong . '' in addition , we benefited from our long-term efforts to ensure a diversified base of assets under management . one of invesco 's core strengths , and a key differentiator for the company within the industry , is our broad diversification across client domiciles , asset classes and distribution channels . our geographical diversification recognizes growth opportunities in different parts of the 26 world . this broad diversification mitigates the impact on invesco of different market cycles and enables the company to take advantage of growth opportunities in various markets and channels . on october 15 , 2013 , the company announced that the head of u.k. equities , neil woodford , will be leaving on april 29 , 2014. mark barnett will succeed mr. woodford as head of u.k. equities . as of december 31 , 2013 , mr. woodford was the named lead manager for u.k. equity aum totaling $ 46.6 billion . between october 15 , 2013 and december 31 , 2013 , u.k. equity income aum experienced net outflows of $ 4.8 billion . our total aum in emea at december 31 , 2013 is $ 171.9 billion . excluding the net outflows from u.k. equity income , emea long term net inflows for the fourth quarter of 2013 were $ 4.3 billion . on december 31 , 2013 , the sale of atlantic trust to cibc was completed . the results of atlantic trust , together with expenses associated with the sale and the gain on the sale , are reflected as discontinued operations in the consolidated statements of income and are therefore excluded from the continuing operations of invesco . story_separator_special_tag to further enhance the readability of the results of operations section , separate tables for each of the revenue , expense , and other income and expenses ( non-operating income/expense ) sections of the income statement introduce the narrative that follows , providing a section-by-section review of the company 's income statements for the periods presented . 28 summary operating information summary operating information for 2013 , 2012 and 2011 is presented in the table below . replace_table_token_6_th _ ( 1 ) the company has adopted a discontinued operations presentation for atlantic trust . amounts presented represent continuing operations and exclude atlantic trust , with the exception of net income attributable to common shareholders and diluted earnings per share . prior period amounts have been reclassified to conform with this presentation . ( 2 ) net revenues is a non-gaap financial measure . see item 6 , `` selected financial data , '' footnote 2 , for the definition of this measure and the related reconciliation reference . ( 3 ) adjusted operating income and adjusted operating margin are non-gaap financial measures . see item 6 , `` selected financial data , '' footnote 3 , for the definition of these measures and the related reconciliation reference . ( 4 ) adjusted net income attributable to common shareholders and adjusted diluted eps are non-gaap financial measures . see item 6 , `` selected financial data , '' footnote 4 , for the definition of these measures and the related reconciliation reference . ( 5 ) the debt-to-equity ratio excluding cip is a non-gaap financial measure . see the `` liquidity and capital resources '' section for a recalculation of this ratio and other important disclosures . 29 investment capabilities performance overview invesco 's first strategic priority is to achieve strong investment performance over the long-term for our clients . the table below presents the one- , three- and five-year performance of our actively managed investment products measured by the percentage of aum ahead of benchmark and aum in the top half of peer group . ( 1 ) replace_table_token_7_th _ ( 1 ) aum measured in the one- , three- , and five-year peer group rankings represents 61 % , 61 % , and 57 % of total invesco aum , respectively , and aum measured versus benchmark on a one- , three- , and five-year basis represents 72 % , 72 % , and 68 % of total invesco aum , respectively , as of december 31 , 2013 . peer group rankings are sourced from a widely-used third party ranking agency in each fund 's market ( lipper , morningstar , ima , russell , mercer , evestment alliance , sitca , value research ) and are asset-weighted in usd . rankings are as of prior quarter-end for most institutional products and preceding month-end for australian retail funds due to their late release by third parties . rankings for the most representative fund in each global investment performance standard ( gips ) composite are applied to all products within each gips composite . excludes passive products , closed-end funds , private equity limited partnerships , non-discretionary direct real estate , unit investment trusts fund-of-funds with component funds managed by invesco , stable value building block funds and clos . atlantic trust results are excluded due to its sale . certain funds and products were excluded from the analysis because of limited benchmark or peer group data . had these been available , results may have been different . these results are preliminary and subject to revision . performance assumes the reinvestment of dividends . past performance is not indicative of future results and may not reflect an investor 's experience . as of december 31 , 2013 , 72 % , 83 % and 62 % of ranked actively managed assets performed in the top half of peer groups on a one-year , three-year and five-year basis respectively . within our equity asset class , the performance of canadian equities continued to improve in both the benchmark and peer group comparisons . the u.k. , continental european and global ex u.s. and emerging markets equities have also had strong relative performance , with 86 % or more of assets beating their benchmark over three- and five-year periods . additionally , continental european and global ex u.s. and emerging markets reflect strong performance with 94 % and 97 % , respectively , of assets beating peers on a five-year basis . the u.k. shows solid improvement during the one- and three-year basis as a comparison to peer group from a brief period in which we trailed the market during 2009 in the five-year comparison . our balanced asset class reflects strong peer group comparison with 97 % in the top half on both the three- and five-year basis . within our fixed income asset class , stable value products have achieved excellent long-term performance with 100 % of aum ahead of benchmark on a one- , three- and five-year basis . 30 assets under management the following presentation and discussion of aum includes passive and active aum . passive aum includes etfs , uits , leveraged fund balances upon which we do not earn a fee , and other passive mandates . active aum is total aum less passive aum . the aum tables and the discussion below refer to aum as long-term and short-term . short-term aum includes institutional money market and invesco powershares qqq aum . long-term aum is total aum less short-term aum . long-term inflows and the underlying reasons for the movements in this line item include investments from new clients , existing clients adding new accounts/funds or contributions/subscriptions into existing accounts/funds , and new funding commitments into private equity funds . long-term outflows reflect client redemptions from accounts/funds and include the return of invested capital on the maturity or liquidation of private equity funds .
| results of operations for the years ended december 31 , 2013 compared to december 31 , 2012 compared to december 31 , 2011 to assist in the comparisons , the discussion that follows will separate the impact of cip from the overall consolidated results of operations . the impact is illustrated in the tables immediately below by a column which shows the dollar-value change in the consolidated figures , as caused by the consolidation of cip . for example , the impact of cip on total operating revenues for the year ended december 31 , 2013 was a reduction of $ 37.9 million . this indicates that the consolidation of cip reduced consolidated revenues by $ 37.9 million , reflecting the elimination upon consolidation of the operating revenues earned by invesco for managing these investment products . the discussion below includes the use of non-gaap financial measures . see “ schedule of non-gaap information ” for additional details and reconciliations of the most directly comparable u.s. gaap measures to the non-gaap measures . summary of income statement impact of cip replace_table_token_16_th 40 operating revenues and net revenues the main categories of revenues , and the dollar and percentage change between the periods , are as follows : replace_table_token_17_th operating revenues increased by 14.7 % in the year ended december 31 , 2013 to $ 4,644.6 million ( year ended december 31 , 2012 : $ 4,050.4 million ) . net revenues increased by 14.7 % in the year ended december 31 , 2013 to $ 3,252.0 million ( year ended december 31 , 2012 : $ 2,836.0 million ) . operating revenues increased by 1.7 % in the year ended december 31 , 2012 to $ 4,050.4 million ( year ended december 31 , 2011 : $ 3,982.3 million ) . net revenues increased by 1.6 % in the year ended december 31 , 2012 to $ 2,836.0 million ( year ended december 31 , 2011 : $ 2,791.6 million ) .
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the effect of temporary differences which gives rise to deferred income tax assets ( liabilities ) were as follows : replace_table_token_45_th accumulated other comprehensive loss is shown net of deferred tax assets and deferred tax liabilities , resulting in a deferred tax liability of $ 0.6 million and $ 1.7 million as of january 28 , 2017 and january 30 , 2016 story_separator_special_tag overview business summary the company is a specialty retailer who primarily sells its products through store and direct-to-consumer operations , as well as through various wholesale , franchise and licensing arrangements . the company offers a broad array of apparel products , including knit tops , woven shirts , graphic t-shirts , fleece , sweaters , jeans , woven pants , shorts , outerwear , dresses , intimates and swimwear ; and personal care products and accessories for men , women and kids under the abercrombie & fitch , abercrombie kids , hollister and gilly hicks brands . the company has operations in north america , europe , asia and the middle east . the company 's fiscal year ends on the saturday closest to january 31 , typically resulting in a fifty-two week year , but occasionally giving rise to an additional week , resulting in a fifty-three week year . for purposes of this “ item 7. management 's discussion and analysis of financial condition and results of operations , ” the fifty-two week period ended january 28 , 2017 is compared to the fifty-two week period ended january 30 , 2016 and the fifty-two week period ended january 30 , 2016 is compared to the fifty-two week period ended january 31 , 2015 . the company has two operating segments : abercrombie , which includes the company 's abercrombie & fitch and abercrombie kids brands ; and hollister . these operating segments have similar economic characteristics , classes of consumers , products , and production and distribution methods , and have been aggregated into one reportable segment . summary results of operations the table below summarizes the company 's results of operations and reconciles gaap financial measures to non-gaap financial measures for the fifty-two week periods ended january 28 , 2017 and january 30 , 2016 . additional discussion about why the company believes that these non-gaap financial measures are useful to investors is provided below under “ non-gaap financial measures. ” replace_table_token_6_th ( 1 ) refer to “ results of operations , ” in “ item 7. management 's discussion and analysis of financial condition and results of operations , ” for details on excluded items . ( 2 ) changes in comparable sales are calculated on a constant currency basis by converting prior year store and online sales at current year exchange rates . for inclusion in this calculation , a store must have been open as the same brand at least one year and its square footage must not have been expanded or reduced by more than 20 % within the past year . as of january 28 , 2017 , the company had $ 547.2 million in cash and equivalents , and $ 268.3 million in gross borrowings outstanding under its term loan facility . net cash provided by operating activities was $ 184.6 million for fiscal 2016 . the company also used cash of $ 140.8 million for capital expenditures , $ 54.1 million to pay dividends and $ 25.0 million to pay down debt during fiscal 2016 . 22 current trends and outlook despite a challenging retail environment in fiscal 2016 , the performance of our largest brand , hollister , demonstrates the potential for our brands when brand voice , product and brand experience are aligned and attuned to our customer . the abercrombie brand revitalization continues , with many of the lessons learned from hollister being applied to position abercrombie for future growth . overall we continue to make significant progress on our strategic initiatives . we stayed close to our customers and began to communicate evolved identities for each of our brands . in addition , we made improvements to the customer experience through the roll out of store remodels and a loyalty program for hollister and to the seamless shopping experience through investments in direct-to-consumer and omnichannel capabilities across both brands . we also continue to execute our store closure and right sizing program . while the environment is likely to remain challenging in fiscal 2017 , we continue to execute on our strategic priorities to position our business for sustainable growth . for fiscal 2017 , we expect : the comparable sales trend to improve for the full year , but to remain challenging for the first half ; with hollister comparable sales to maintain or grow and the abercrombie comparable sales trend to improve . continued adverse effects from foreign currency on sales and operating income . a gross margin rate flat to the fiscal 2016 adjusted non-gaap rate of 61.0 % , but to be pressured in the first quarter . actions already taken to reduce expense by approximately $ 100 million , enabling investments in revenue driving activities and resulting in net operating expense down approximately 3 % from fiscal 2016 adjusted non-gaap operating expense of $ 2.025 billion , with a commitment to pursue further expense reductions throughout the year . net income attributable to noncontrolling interests of approximately $ 4 million . a weighted average diluted share count of approximately 68 million shares , excluding the effect of potential share buybacks . we expect the core tax rate for the full year to be in the mid 30s and to remain highly sensitive to jurisdictional mix and at lower levels of pre-tax earnings . in addition , we also expect to incur a discrete non-cash income tax charge of approximately $ 9 million in the first quarter of fiscal 2017 as a result of a change in share-based compensation accounting standards , the adverse effect of which will be included in the effective tax rate . story_separator_special_tag ( 2 ) includes abercrombie & fitch and abercrombie kids brands . for fiscal 2016 , net sales decreased 5 % compared to fiscal 2015 , primarily attributable to a 5 % decrease in comparable sales , which was driven by the abercrombie brand . 25 cost of sales , exclusive of depreciation and amortization replace_table_token_8_th ( 1 ) inventory write-down charges related to a first quarter of fiscal 2015 decision to accelerate the disposition of certain aged merchandise , net of recoveries . for fiscal 2016 , cost of sales , exclusive of depreciation and amortization as a percentage of net sales increased by approximately 30 basis points for fiscal 2016 as compared to fiscal 2015 , which included a $ 20.6 million net inventory write-down . excluding the $ 20.6 million net inventory write-down , fiscal 2016 adjusted non-gaap cost of sales , exclusive of depreciation and amortization as a percentage of net sales increased by approximately 90 basis points as compared to fiscal 2015 , primarily due to the adverse effects from changes in foreign currency exchange rates of approximately 60 basis points and lower average unit retail . stores and distribution expense replace_table_token_9_th for fiscal 2016 , stores and distribution expense as a percentage of net sales increased by approximately 190 basis points as compared to fiscal 2015 , primarily due to the deleveraging effect from negative comparable sales , higher direct-to-consumer expense and a lease termination charge of $ 15.6 million related to the a & f flagship store in hong kong , partially offset by benefits from foreign currency exchange rates , the realization of savings on lower sales and expense reduction efforts . excluding certain items presented in the table above , fiscal 2016 adjusted non-gaap stores and distribution expense as a percent of net sales increased by approximately 200 basis points as compared to fiscal 2015 . for fiscal 2016 , shipping and handling costs , including costs incurred to store , move and prepare product for shipment and costs incurred to physically move product to the customer , associated with direct-to-consumer operations were $ 125.4 million as compared to $ 115.0 million for fiscal 2015 . for fiscal 2016 , handling costs , including costs incurred to store , move and prepare product for shipment to stores , were $ 41.5 million as compared to $ 44.5 million for fiscal 2015 . shipping and handling costs are included in stores and distribution expense on the consolidated statements of operations and comprehensive income ( loss ) . 26 marketing , general and administrative expense replace_table_token_10_th ( 1 ) includes benefits related to an indemnification recovery of certain legal settlements which were recognized in the second quarter of fiscal 2015 . ( 2 ) accrued expense for certain proposed legal settlements . for fiscal 2016 , marketing , general and administrative expense as a percentage of net sales increased by approximately 30 basis points as compared to fiscal 2015 , primarily due to the deleveraging effect from negative comparable sales and higher marketing expenses , partially offset by the net year-over-year impact of certain items presented in the table above , lower compensation expense and expense reduction efforts . excluding certain items presented in the table above , fiscal 2016 adjusted non-gaap marketing , general and administrative expense as a percentage of net sales increased by approximately 90 basis points as compared to fiscal 2015 . restructuring benefit for fiscal 2015 , benefits associated with the restructuring of the gilly hicks brand were $ 1.6 million . asset impairment for fiscal 2016 , the company incurred non-cash asset impairment charges of $ 7.9 million , primarily related to the company 's abercrombie kids flagship store in london , as compared to $ 18.2 million for fiscal 2015 , primarily related to the company 's abercrombie & fitch flagship store in hong kong and a decision to remove certain store fixtures in connection with changes to the abercrombie and hollister store experiences . other operating income , net replace_table_token_11_th ( 1 ) includes benefits related to a settlement of certain economic loss claims associated with the april 2010 deepwater horizon oil spill . ( 2 ) includes charges related to a release of cumulative translation adjustment as the company substantially completed the liquidation of its australian operations . for fiscal 2016 , other operating income , net was $ 26.2 million and included $ 12.3 million of claims settlement benefits , as compared to $ 6.4 million for fiscal 2015 . excluding certain items presented in the table above , fiscal 2016 adjusted other operating income , net as a percentage of net sales increased 20 basis points as compared to fiscal 2015 , primarily due to higher gift card breakage due to the initial recognition of international gift card breakage of $ 4.8 million and higher foreign currency related gains , partially offset by insurance recoveries last year of $ 2.2 million . 27 operating income replace_table_token_12_th ( 1 ) includes benefits related to an indemnification recovery of certain legal settlements which were recognized in the second quarter of fiscal 2015 . ( 2 ) includes benefits related to a settlement of certain economic loss claims associated with the april 2010 deepwater horizon oil spill . ( 3 ) includes inventory write-down charges related to a first quarter of fiscal 2015 decision to accelerate the disposition of certain aged merchandise , net of recoveries . ( 4 ) accrued expense for certain proposed legal settlements . for fiscal 2016 , operating income as a percentage of net sales decreased by approximately 160 basis points as compared to fiscal 2015 , primarily driven by the deleveraging effect from negative comparable sales , a reduction in the gross profit rate and higher marketing and direct-to-consumer expense , partially offset by the net year-over-year impact of certain items in the above table and expense reduction efforts .
| summary of significant accounting policies , ” of the notes to consolidated financial statements included in “ item 8. financial statements and supplementary data ” of this annual report on form 10-k for additional information . ( 2 ) includes estimated interest payments based on the interest rate as of january 28 , 2017 and assuming normally scheduled principal payments . long-term debt obligations consist of principal payments under the term loan agreement . refer to note 11 , “ borrowings , ” of the notes to consolidated financial statements included in “ item 8. financial statements and supplementary data ” of this annual report on form 10-k for additional information . operating lease obligations consist primarily of non-cancelable future minimum lease commitments related to store operating leases . see note 2 , “ summary of significant accounting policies -- leased facilities , ” of the notes to consolidated financial statements included in “ item 8. financial statements and supplementary data ” of this annual report on form 10-k , for further discussion . excluded from the obligations above are amounts related to portions of lease terms that are currently cancelable at the company 's discretion . while included in the obligations above , in many instances , the company has options to terminate certain leases if stated sales volume levels are not met or the company ceases operations in a given country . 35 operating lease obligations do not include common area maintenance ( “ cam ” ) , insurance , marketing or tax payments for which the company is also obligated . total expense related to cam , insurance , marketing and taxes was $ 164.0 million in fiscal 2016 . the purchase obligations category represents purchase orders for merchandise to be delivered during fiscal 2017 and commitments for fabric expected to be used during upcoming seasons . in addition , purchase obligations include agreements to purchase goods or services including information technology contracts and third-party distribution center service contracts .
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total consideration for a project is allocated to each performance obligation story_separator_special_tag this `` management 's discussion and analysis of financial condition and results of operations '' should be read in conjunction with the consolidated financial statements and related notes thereto included in part ii , item 8 of this annual report on form 10-k. the matters discussed in this `` management 's discussion and analysis of financial condition and results of operations '' contain certain forward-looking statements within the meaning of the private securities litigation reform act of 1995. forward-looking statements involve significant risks and uncertainties . see the `` cautionary note regarding forward-looking statements '' above and part 1 , item 1a , `` risk factors '' in this annual report on form 10-k for additional information regarding forward-looking statements and the factors that could cause actual results to differ materially from those anticipated in the forward-looking statements . overview avaya is a global leader in digital communications products , solutions and services for businesses of all sizes delivering most of its technology through software and services . we enable organizations around the globe to succeed by creating intelligent communications experiences for our clients , their employees and their customers . avaya builds open , converged and innovative solutions to enhance and simplify communications and collaboration in the cloud , on-premise or a hybrid of both . our global , experienced team of professionals delivers award-winning services from initial planning and design , to seamless implementation and integration , to ongoing managed operations , optimization , training and support . during fiscal 2020 , the company shifted its entire comprehensive portfolio of capabilities to avaya onecloud , which offers significant capabilities across contact center , unified communications and collaboration , and communications platform as a service . avaya onecloud provides the full spectrum of cloud and on-premise deployment options . this enables organizations to deploy the company 's solutions in the way that best serves their business requirements and complements their existing investments , while moving with the speed and agility they require . the company also offers one of the broadest portfolios of business devices in the industry , including handsets , video conferencing units and headsets to meet the needs of every type of worker across a customer 's organization and help them get the most out of their communications investments . avaya ip-enabled handsets , multimedia devices and conferencing systems enhance collaboration and productivity , and position organizations to incorporate future technological advancements . our business has two operating segments : products & solutions and services . products & solutions products & solutions encompasses our unified communications and contact center platforms , applications and devices . the company 's unified communications and collaboration ( `` ucc '' ) solutions enable organizations to reimagine collaborative work environments and help companies increase employee productivity , improve customer service and reduce costs . with avaya 's ucc solutions , organizations can provide their workers with a single app for all-channel calling , messaging , meetings and team collaboration with the same ease of use they receive from consumer apps . avaya embeds communications directly into the apps , browsers and devices employees use every day giving them a more natural , efficient and flexible way to connect , engage , respond and share - where and how they want . during fiscal 2020 , the company expanded its ucc portfolio to include cloud-based solutions . the company 's industry-leading digital contact center ( `` cc '' ) solutions enable the company 's clients to build a customized portfolio of applications , driving stronger customer engagement and higher customer lifetime value . our reliable , secure and scalable communications solutions include voice , email , chat , social media , video , performance management and third-party integration that can improve customer service and help companies compete more effectively . like the ucc business , the company is evolving cc solutions for cloud deployment and , in fiscal 2020 , the company expanded its cc portfolio to include cloud-based solutions . avaya also focuses on ensuring an outstanding experience for mobile callers by integrating transformative technologies , including artificial intelligence , mobility , big data analytics and cybersecurity into our cc solutions . as organizations use these solutions to gain a deeper understanding of their customer needs , we believe that their teams become more efficient and effective and , as a result , their customer loyalty grows . services services consists of a portfolio of offerings to help customers achieve better business outcomes , including global support services , enterprise cloud and managed services and professional services . we also classify customers who upgrade and acquire new technology through the company 's subscription offerings as part of our services segment . 43 the company 's global support services provide offerings that help businesses protect their technology investments and address the risk of system outages . we help our customers gain a competitive edge through proactive problem prevention , rapid resolution and continual solution optimization . most of our global support services revenue is recurring in nature . enterprise cloud and managed services enable customers to take advantage of our technology via the cloud , on-premise , or a hybrid of both , depending on the solution and the needs of the customer . most of our enterprise cloud and managed services revenue is recurring in nature and based on multi-year services contracts . the company 's professional services enable our customers to take full advantage of their it and communications solution investments to drive measurable business results . our experienced consultants and engineers partner with customers along each step of the solution lifecycle to deliver services that add value and drive business transformation . most of our professional services revenue is one-time in nature . together , these comprehensive services enable clients to leverage communications technology to help them maximize their business results . story_separator_special_tag the company has maintained its focus on profitability levels and investing in future results and has implemented programs designed to streamline its operations , generate cost savings and eliminate overlapping processes and resources . the company continues to evaluate opportunities to streamline its operations and identify cost savings globally in addition to those implemented in response to the covid-19 pandemic and may take additional restructuring actions in the future . the costs of those actions could be material . story_separator_special_tag increased from 59.3 % to 60.5 % in fiscal 2020 mainly due to the favorable impact of revenue from the company 's new subscription offerings . unallocated amounts for fiscal 2020 and 2019 include the amortization of technology intangibles ; fair value adjustments recognized upon emergence from bankruptcy and excluded from segment gross profit ; and costs that are not core to the measurement of segment performance , but rather are controlled at the corporate level . operating expenses the following table sets forth operating expenses and the percentage of operating expenses to total revenue for the periods indicated : replace_table_token_9_th selling , general and administrative expenses for fiscal 2020 were $ 1,013 million compared to $ 1,001 million for fiscal 2019. the increase was primarily attributable to higher incentive compensation ; higher advisory fees associated with executing the strategic partnership with ringcentral ; and higher channel compensation mainly driven by higher subscription revenue . the increases were partially offset by lower travel costs as a result of the covid-19 pandemic ; lower consulting costs ; the favorable impact of foreign currency exchange rates and lower headcount-related costs . research and development expenses for fiscal 2020 were $ 207 million compared to $ 204 million for fiscal 2019. the increase was primarily attributable to higher incentive compensation . amortization of intangible assets for fiscal 2020 was $ 161 million compared to $ 162 million for fiscal 2019. impairment charges for fiscal 2020 were $ 624 million . during fiscal 2020 , the company performed an interim impairment test of its goodwill and indefinite-lived intangible assets due to ( i ) the impact of the covid-19 pandemic on the macroeconomic environment which led to revisions to the company 's long-term forecast during the second quarter of fiscal 2020 and ( ii ) the sustained decrease in the company 's stock price since the advent of the pandemic which was caused by the resulting volatility in the financial markets . the results of the company 's interim goodwill impairment test as of march 31 , 2020 indicated that the estimated fair value of the company 's services reporting unit exceeded its carrying amount . the carrying amount of the company 's products & solutions reporting unit exceeded its estimated fair value primarily due to a reduction in the company 's 48 long-term forecast to reflect increased risk from higher market uncertainty and the accelerated reduction of product sales related to the company 's historical on-premise perpetual licenses . the company anticipates a continued shift and acceleration of customers upgrading and acquiring new technology innovation through the utilization of the company 's subscription offering , which is included in the services reporting unit . as a result , the company recorded a goodwill impairment charge of $ 624 million to write down the full carrying amount of the products & solutions goodwill . the results of the indefinite-lived intangible asset impairment test as of march 31 , 2020 indicated that no impairment existed . the company also performed its annual impairment test for goodwill and indefinite-lived intangible assets as of july 1 , 2020 and determined no impairment existed . the company determined that no events occurred or circumstances changed during the three months ended september 30 , 2020 that would indicate that it is more likely than not that its goodwill or indefinite-lived intangible asset was impaired . the company 's long-term forecast includes significant estimates and assumptions , including management 's estimate of the potential impact of the covid-19 pandemic on the company 's operating results . due to the uncertainty surrounding the impact of the covid-19 pandemic on the macroeconomic environment and , more specifically , the company 's future operating results , it is reasonably possible that the pandemic could have a more adverse impact than what is currently contemplated by the company 's long-term forecast . to the extent that business conditions deteriorate or if changes in key assumptions and estimates differ significantly from management 's expectations , it may be necessary to record additional impairment charges in the future . impairment charges for fiscal 2019 were $ 659 million . during fiscal 2019 , the company performed an interim impairment test of its goodwill and indefinite-lived intangible assets due to a sustained decrease in the company 's stock price and lower than planned financial results which led to revisions to the company 's long-term forecast during the third quarter . the results of the company 's interim goodwill impairment test as of june 30 , 2019 indicated that the carrying amount of the company 's contact center ( “ cc ” ) reporting unit , which was subsequently aggregated into the products & solutions reporting unit on october 1 , 2019 , exceeded its estimated fair value primarily due to a reduction in the company 's long-term forecast . as a result , the company recorded a goodwill impairment charge of $ 657 million , representing the amount by which the carrying amount of the cc reporting unit exceeded its fair value . during fiscal 2019 , the company also elected to abandon an in-process research and development project that no longer aligned with the company 's technology roadmap . as a result , the company recorded an impairment charge of $ 2 million to write down the full carrying amount of the acquired in-process research and development project .
| financial results summary fiscal year ended september 30 , 2020 results compared with fiscal year ended september 30 , 2019 the section below provides a comparative discussion of our consolidated results of operations between fiscal 2020 and 2019. see item 7 , `` management 's discussion and analysis of financial condition and results of operations '' in our annual report on form 10-k for the fiscal year ended september 30 , 2019 filed on november 29 , 2019 for comparative discussion of our consolidated results of operations between fiscal 2019 and 2018 ( combined ) . 45 the following table displays our consolidated net loss for the periods indicated : replace_table_token_4_th the following table displays the impact of the fair value adjustments resulting from the company 's application of fresh start accounting upon emergence from bankruptcy , excluding those related to the amortization of intangible assets , on the company 's operating loss for the periods indicated : replace_table_token_5_th 46 revenue revenue for fiscal 2020 was $ 2,873 million compared to $ 2,887 million for fiscal 2019. the decrease was primarily driven by lower demand for the company 's on-premise solutions , partially offset by revenue from the company 's new subscription offerings and revenue from the fulfillment of certain obligations related to a new government contract . the following table displays revenue and the percentage of revenue to total sales by operating segment for the periods indicated : replace_table_token_6_th ( 1 ) not meaningful products & solutions revenue for fiscal 2020 was $ 1,074 million compared to $ 1,228 million for fiscal 2019. the decrease was primarily attributable to lower demand for the company 's on-premise solutions , partially offset by revenue from the fulfillment of certain obligations related to a new government contract and higher demand for remote agent licenses for the company 's contact center solutions as a result of the covid-19 pandemic .
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subject to the terms and conditions of the merger agreement , at the effective time of the merger ( the “ effective time ” ) , ( a ) each outstanding share of neubase common stock , including shares of neubase capital stock issued in , or issued upon conversion , exercise or exchange of securities issued in , the neubase financing ( as defined below ) , will be converted into the right to receive the number of shares of the company 's common stock ( the “ company common stock ” ) equal to the exchange ratio described below ; ( b ) each outstanding neubase stock option that has not previously been exercised prior to the effective time will be assumed by the company ; and ( c ) the warrant to purchase shares of common stock of neubase will be converted into and become a warrant to purchase shares of company common stock . under the exchange ratio formula in the merger agreement , as of immediately after the merger , the former neubase securityholders are expected to own approximately 80 % ( the “ neubase allocation percentage ” ) of the aggregate number of shares of the company common stock issued and outstanding following the consummation of the merger ( the “ post-closing shares ” ) , and the stockholders of the company as of immediately prior to the merger are expected to own approximately 20 % ( the “ ohr allocation percentage ” ) of the aggregate number of post-closing shares . neubase anticipates that it will issue and sell not less than $ 4,000,000 ( the gross proceeds received by neubase , the “ neubase proceeds ” ) of its equity securities ( including securities convertible , exercisable or exchangeable into such equity securities ) prior to the effective time ( the “ neubase financing ” ) . the neubase allocation percentage will be increased by 0.1 % for every $ 100,000 that the neubase proceeds exceeds $ 4,000,000 , and the ohr allocation percentage will be decreased by 0.1 % for every $ 100,000 that the neubase proceeds exceeds $ 4,000,000 . immediately following the effective time , the name of the company will be changed from “ ohr pharmaceutical , inc. ” to “ neubase therapeutics , inc. ” the merger agreement contemplates that , immediately after the effective time , the board of directors of the company will consist of five members , all of which will be designated by neubase . the executive officers of the company immediately after the effective time will be designated by neubase with neubase 's chief executive officer , dietrich stephan , being the company 's chief executive officer . the merger agreement contains customary representations , warranties and covenants made by the company and neubase , including covenants relating to obtaining the requisite approvals of the stockholders of the company and neubase , indemnification of directors and officers , and the company and neubase signing the merger agreement and the closing of the merger . consummation of the merger is subject to certain closing conditions , including , among other things , approval by the stockholders of the company and neubase . the merger agreement contains certain termination rights for both the company and neubase , and further provides that , upon termination of the merger agreement under specified circumstances , the company may be required to pay neubase a termination fee of $ 250,000 or neubase may be required to pay the company a termination fee of $ 250,000 . in accordance with the terms of the merger agreement , ( i ) the officers and directors of the company have each entered into a support agreement with the company and neubase ( the “ ohr support agreements ” ) , and ( ii ) the officers , directors and certain affiliated stockholders of neubase have each entered into a support agreement with neubase and the company ( the “ neubase support agreements , ” together with the ohr support agreements , the “ support agreements ” ) . the support agreements place certain restrictions on the transfer of the shares of the company and neubase held by the respective signatories thereto and include covenants as to the voting of such shares in favor of approving the transactions contemplated by the merger agreement and against any actions that could adversely affect the consummation of the merger . concurrently with the execution of the merger agreement , the officers and directors of the company , and the officers , directors and certain stockholders of neubase , each entered into lock-up agreements ( the “ lock-up agreements ” ) pursuant to which they have agreed , among other things , not to sell or dispose of any shares of company common stock which are or will be beneficially owned by them at the closing of the merger until the date that is 90 days after the effective time . in connection with the merger , on january 2 , 2019 , ohr entered into a retention bonus agreement with dr. jason slakter , ohr 's chief executive officer ( the “ retention bonus agreement ” ) . under the retention bonus agreement , dr. slakter is eligible for story_separator_special_tag general ohr pharmaceutical , inc. ( “ we , ” “ us , ” “ our , ” “ ohr , ” or the “ company ” ) is a pharmaceutical company which has been focused on the development of novel therapeutics and delivery technologies for the treatment of ocular disease . the company will continue to incur ongoing operating losses . story_separator_special_tag the support agreements place certain restrictions on the transfer of the shares of the company and neubase held by the respective signatories thereto and include covenants as to the voting of such shares in favor of approving the transactions contemplated by the merger agreement and against any actions that could adversely affect the consummation of the merger . concurrently with the execution of the merger agreement , the officers and directors of the company , and the officers , directors and certain stockholders of neubase , each entered into lock-up agreements ( the “ lock-up agreements ” ) pursuant to which they have agreed , among other things , not to sell or dispose of any shares of company common stock which are or will be beneficially owned by them at the closing of the merger until the date that is 90 days after the effective time . in connection with the merger , on january 2 , 2019 , ohr entered into a retention bonus agreement with dr. jason slakter , ohr 's chief executive officer ( the “ retention bonus agreement ” ) . under the retention bonus agreement , dr. slakter is eligible for a retention bonus payment of $ 75,000 upon the earliest to occur of the following : ( i ) dr. slakter 's continued service with the company in his current position through and including the closing date of the merger , or ( ii ) dr. slakter is involuntarily separated from service without cause ( as such term is defined in the retention bonus agreement ) by the company prior to the closing date of the merger . in the event dr. slakter voluntarily separates from service with the company for any reason prior to the closing of the merger , dr. slakter will not receive any retention bonus payment and the company will have no further obligation to dr. slakter under the retention bonus agreement . 19 liquidity and capital resources the company has limited working capital reserves with which to continue operations . the company is reliant , at present , upon its capital reserves for ongoing operations and has no revenues . net working capital reserves decreased from end of fiscal 2017 to the end of fiscal 2018 by $ 4,817,015 ( to $ 3,273,436 from $ 8,090,451 ) primarily due to costs incurred from operations . at the end of fiscal 2018 , our quarterly cash burn decreased significantly compared to prior periods due to the discontinuation of the squalamine program . we expect our cash burn to be relatively stable , subject to the progress and outcome of the company 's previously announced plan to pursue strategic alternatives to maximize stockholder value . management has concluded that due to the conditions described above , there is substantial doubt about the entity 's ability to continue as a going concern . we have evaluated the significance of the conditions in relation to our ability to meet our obligations and believe that our current cash balance will provide sufficient capital to continue operations into the second half of calendar 2019. at present , the company has no bank line of credit or other fixed source of capital reserves . should the company need additional capital in the future , it will be primarily reliant upon private or public placement of its equity or debt securities , or a strategic transaction , for which there can be no warranty or assurance that the company may be successful in such efforts . story_separator_special_tag of $ 4,319,165 , and $ 17,406,869 , during the years ended september 30 , 2018 , and 2017 , respectively . share-based compensation the company follows the provisions of asc 718 , “ share-based payments ” which requires all share-based payments to employees , including grants of employee stock options , be recognized in the income statement based on their fair values . the company uses the black scholes pricing model for determining the fair value of stock options and the stock price on the date of the grant for the fair value of restricted stock awards . in accordance with asc 505 , equity instruments issued to non-employees for goods or services are accounted for at fair value and are marked to market until service is complete or a performance commitment date is reached , whichever is earlier . intangibles the company evaluates intangible assets in accordance with fasb asc topic 350 , “ intangibles — goodwill and other . ” goodwill is recorded at the time of an acquisition and is calculated as the difference between the total consideration paid for an acquisition and the fair value of the net tangible and intangible assets acquired . accounting for acquisitions requires extensive use of accounting estimates and judgments to allocate the purchase price to the fair value of the net tangible and intangible assets acquired , including in-process research and development ( “ ipr & d ” ) . significant management judgment is required in the forecasts of future operating results that are used in the evaluations . it is possible , however , that the plans and estimates used may be incorrect . if our actual results , or the plans and estimates used in future impairment analysis , are lower than the original estimates used to assess the recoverability of these assets , we could incur additional impairment charges in a future period . the company performs its annual impairment review of goodwill in september , and when a triggering event occurs between annual impairment tests for both goodwill and other finite-lived intangible assets . the company recorded no impairment loss for goodwill for the year ended september 30 , 2017 , however due to the significant decrease in stock value and the market capitalization of the company relative to the value of the intangible assets and goodwill in 2018 , the company performed an impairment test and concluded goodwill was impaired . a loss
| results of operations for the fiscal year ended september 30 , 2018 , the company had no revenues , and had operating expenses of $ 13,903,955. the loss from operations was comprised of $ 4,319,165 in research and development costs , $ 3,634,474 in general and administrative expenses , $ 1,124,569 in depreciation and amortization , $ 740,912 in loss on impairment of goodwill , $ 5,313,640 in loss on impairment of intangible assets and $ 1,228,805 in gain on settlement of liabilities . during the same period for the year ended september 30 , 2017 , the company reported no revenues , and had operating expenses of $ 23,780,073 which was comprised of $ 17,406,869 in research and development costs , $ 5,278,272 in general and administrative expenses , $ 1,165,689 in depreciation and amortization , and $ 70,757 in gain on settlement of liabilities . due to the significant decrease in stock value and the market capitalization of the company relative to the value of the intangible assets and goodwill in fiscal 2018 , the company performed an impairment test on the intangible assets and goodwill . the company concluded goodwill was impaired and recorded an impairment loss of $ 740,912 in fiscal 2018 compared to $ 0 in fiscal 2017. a third-party valuation on the company 's intangible assets was performed and determined an impairment loss of $ 5,313,640 in fiscal 2018 compared to $ 0 in fiscal 2017. for the fiscal year ended september 30 , 2018 , the company recorded other income , net items , totaling $ 667,055 as compared to $ ( 30,923 ) for the same period in fiscal 2017. this difference is primarily due to a gain from the sale of certain squalamine assets .
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the asset and liability story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements and notes thereto contained elsewhere herein . overview we are a major supplier to the aerospace industry and have four operating segments : ( i ) integrated systems , whose companies ' revenues are derived from integrated solutions including design , development and support of proprietary components , subsystems and systems , as well as production of complex assemblies using external designs ; ( ii ) aerospace structures , whose companies supply commercial , business , regional and military manufacturers with large metallic and composite structures ; ( iii ) precision components , whose companies produce close-tolerance parts primarily to customer designs and model based definition , including a wide range of aluminum , hard metal and composite structure capabilities ; and ( iv ) product support , whose companies provide full life cycle solutions for commercial , regional and military aircraft . in february 2017 , the company sold triumph air repair , the auxiliary power unit overhaul operations of triumph aviations services - asia , ltd. and triumph engines - tempe ( `` engines and apu '' ) for total cash proceeds of $ 60.4 million . as a result , the company recognized a loss of $ 14.3 million on the sale which is presented on the accompanying consolidated statements of operations as `` loss on divestitures '' and is included in corporate . for financial statement purposes , the assets and liabilities of these business have been segregated from those of the continuing operations and are presented on the accompanying consolidated balance sheets as `` assets held for sale '' and `` liabilities related to assets held for sale '' , respectively . the operating results of engines and apu will be included in product support through the date of disposal . the transaction is expected to close in stages by the end of the fiscal year ending march 31 , 2018. in september 2016 , the company sold all of the shares of triumph aerospace systems-newport news , inc. ( `` tas-newport news ) for total cash proceeds of $ 9.0 million . as a result of the sale of tas-newport news , the company recognized a loss of $ 4.9 million on the sale which is presented on the accompanying consolidated statements of operations as `` loss on divestitures '' and is included in corporate . the operating results of tas-newport news were included in integrated systems through the date of disposal . significant financial results for the fiscal year ended march 31 , 2017 include : net sales for fiscal 2017 decreased 9.1 % to $ 3.53 billion , including a 8.9 % decrease in organic sales . operating income for fiscal 2017 was $ 56.9 million . included in operating income for fiscal 2017 was a non-cash impairment charge of $ 266.3 million related to goodwill associated with the aerospace structures reporting unit and restructuring charges of $ 53.0 million , partially offset by the reduction to the previously recognized forward losses on the 747-8 program of $ 131.4 million . net loss for fiscal 2017 was $ 43.0 million . backlog decreased 4.2 % over the prior year to $ 3.98 billion . for the fiscal year ended march 31 , 2017 , net sales totaled $ 3.53 billion , a 9.1 % decrease from fiscal year 2016 net sales of $ 3.89 billion . the net loss for fiscal year 2017 decreased 95.9 % to $ 43.0 million , or $ 0.87 per diluted common share , versus the net loss of $ 1,048.0 million , or $ 21.29 per diluted common share , for fiscal year 2016 . our working capital needs are generally funded through cash flows from operations and borrowings under our credit arrangements . for the fiscal year ended march 31 , 2017 , we generated $ 281.5 million of cash flows from operating activities , received $ 34.4 million from investing activities and used $ 266.5 million from financing activities . cash flows from operating activities in fiscal year 2016 was $ 83.9 million . 23 the company has committed to several plans that incorporate the restructuring of certain its businesses as well as the consolidation of certain of its facilities . the company expects to reduce its footprint by approximately 4.5 million square feet and to reduce head count by 1,300 employees approximately 1,000 of which have exited as of march 31 , 2017. over the course of programs ( which were initiated in fiscal 2016 ) , the company estimates that it will record aggregate pre-tax charges of $ 195.0 million to $ 210.0 million related to these programs , which represent employee termination benefits , contract termination costs , accelerated depreciation and facility closure and other exit costs , and will result in future cash outlays . for the fiscal years ended march 31 , 2017 and 2016 , the company recorded charges of $ 53.0 million and $ 81.0 million , respectively , related to these programs . we are currently performing work on several new programs , which are in various stages of development . several of the these programs have entered flight testing , including the bombardier global 7000/8000 ( `` global 7000/8000 '' ) and embraer second generation e-jet ( `` e2-jets '' ) and we expect to deliver revenue generating production units for these programs in fiscal 2018. historically , low-rate production commences during flight testing , followed by an increase to full-rate production , assuming that successful testing and certification are achieved . story_separator_special_tag particularly , our ability to manage risks related to supplier performance , execution of cost reduction strategies , hiring and retaining skilled production and management personnel , quality and manufacturing execution , program schedule delays and many other risks , will determine the ultimate performance of these long-term programs . in the fourth quarter of the fiscal year ended march 31 , 2017 , consistent with the company 's policy described here within , the company performed its annual assessment of the fair value of goodwill . the company concluded that the goodwill related to the aerospace structures reporting unit was impaired as of the annual testing date . the company concluded that the reporting unit had a fair value that was lower than its carrying value by an amount that exceeded the remaining goodwill for the reporting unit . accordingly , the company recorded a non-cash impairment charge during the fourth quarter of the fiscal year ending march 31 , 2017 , of $ 266.3 million , which is presented on the accompanying consolidated statements of operations as `` impairment of intangible assets ” . the decline in fair value is the result of declining revenues from production rate reductions on sun-setting programs and the slower than previously projected ramp in our development programs and the timing of associated earnings and cash flows . ( see note 2 of our consolidated financial statements for definition of fair value levels ) . the company 's assessment of the precision components reporting unit concluded that the goodwill was not impaired as of the annual impairment assessment date . however , the excess of the fair value over the carrying value for the reporting unit was less than 5 % . the decline in fair value is the result of declining revenues from production rate reductions on sunsetting programs and the start-up costs related to new programs and the timing of associated earnings and cash flows . going forward , the company will continue to monitor the performance of this reporting unit in relation to the key assumptions in our analysis . in the event that market multiples for stock price to ebitda in the aerospace and defense markets decrease , or the expected ebitda and cash flows for our reporting units decreases , an additional goodwill impairment charge may be required , which would adversely affect our operating results and financial condition . if management determines that impairment exists , the impairment will be recognized in the period in which it is identified . during the fourth quarter of the fiscal year ended march 31 , 2016 , we performed our annual assessment of the fair value of our goodwill for each of our three reporting units . we concluded that the goodwill of our aerostructures reporting unit was impaired as of the annual testing date . we concluded that the goodwill had an implied fair value of $ 822.8 million ( level 3 ) compared to a carrying value of $ 1.42 billion . accordingly , we recorded a non-cash impairment charge during the fourth quarter of fiscal 2016 of $ 597.6 million , which is presented on the accompanying consolidated statements of operations as `` impairment of intangible assets '' . the decline in fair value is the result of continued declines in stock price and related market multiples for stock price to ebitda of both the company and our peer group . during the third quarter of the fiscal year ended march 31 , 2016 , we performed an interim assessment of fair value on our indefinite-lived intangible assets due to potential indicators of impairment related to the continued decline in our stock price during the fiscal third quarter . we estimated the fair value of the tradenames using the relief-from-royalty method , which uses several significant assumptions , including revenue projections that consider historical and estimated future results , general 25 economic and market conditions , as well as the impact of planned business and operational strategies . the following estimates and assumptions were also used in the relief-from-royalty method : royalty rates between 2 % and 4 % based on market observed royalty rates and profit split analysis ; and discount rates between 12 % and 13 % based on the required rate of return for the tradename assets . based on our evaluation , we concluded that the vought tradename had a fair value of $ 195.8 million ( level 3 ) compared to a carrying value of $ 425.0 million . accordingly , we recorded a non-cash impairment charge during the quarter ended december 31 , 2015 , of $ 229.2 million , which is presented on the accompanying consolidated statements of operations as `` impairment of intangible assets '' . the decline in fair value compared to carrying value of the vought tradename is the result of declining revenues from production rate reductions and the slower than previously projected ramp in bombardier global 7000/8000 and the timing of associated earnings . during the fourth quarter of the fiscal year ended march 31 , 2016 , we performed our annual assessment of fair value on our indefinite-lived intangible assets . we estimated the fair value of the tradenames using the relief-from-royalty method , which uses several significant assumptions , including revenue projections that consider historical and estimated future results , general economic and market conditions , as well as the impact of planned business and operational strategies . the following estimates and assumptions were also used in the relief-from-royalty method : royalty rates between 2 % and 4 % based on market observed royalty rates and profit split analysis ; and discount rate of 14 % based on the required rate of return for the tradename assets , which increased from our interim assessment driven by increased risk due to continued declines in stock price and related market multiples for stock price to ebitda of both the company and our peer group and increased interest rates .
| fiscal year ended march 31 , 2017 compared to fiscal year ended march 31 , 2016 replace_table_token_10_th net sales decreased by $ 353.3 million , or 9.1 % , to $ 3.5 billion for the fiscal year ended march 31 , 2017 , from $ 3.9 billion for the fiscal year ended march 31 , 2016 . organic sales decreased $ 359.9 million , or 8.9 % . the acquisition of fairchild offset by the divestitures of tas-newport news and engines and apu contributed $ 6.6 million to net sales . organic sales decreased due to production rate reductions by our customers on the 747-8 , gulfstream g450/g550 , c-17 and a330 programs . cost of sales decreased by $ 907.5 million , or 25.2 % , to $ 2.7 billion for the fiscal year ended march 31 , 2017 , from $ 3.6 billion for the fiscal year ended march 31 , 2016 . organic cost of sales decreased $ 916.6 million or 25.0 % . the acquisition of fairchild offset by the divestitures of tas-newport news and engines and apu contributed $ 9.1 million to cost of sales . organic gross margin for the fiscal year ended march 31 , 2017 , was 23.0 % compared with 6.5 % for the fiscal year ended march 31 , 2016 . the gross margin for the fiscal year ended march 31 , 2017 increased in part due to the aforementioned settlement with boeing , compared to the prior year which was impacted by provisions for forward losses of $ 561.2 million on the bombardier and 747-8 programs . gross margin included net favorable cumulative catch-up adjustments on long-term contracts and provisions for forward losses as noted above ( $ 57.2 million ) . the favorable cumulative catch-up adjustments to operating income included gross favorable adjustments of $ 163.3 million and gross unfavorable adjustments of $ 106.1 million , of which $ 131.4
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as of december 31 , 2015 , the company has not performed an internal revenue code section 382 limitation study . depending on the outcome of such a study , the gross amount of net operating losses recognizable in future tax periods could be limited . a limitation in the carryforwards would decrease the carrying amount of the gross amount of the net operating loss carryforwards , with a corresponding decrease in the valuation allowance recorded against these gross deferred tax assets . income tax benefit attributable to our loss from operations before income taxes differs from the amounts computed by applying the u.s. federal statutory income tax rate of 34 % for 2015 and 2014 , as a result of the following ( in thousands ) : replace_table_token_18_th without regard to the deferred tax liability on the impaired ipr & d , the company has had no provision for income taxes since inception due to its s-corporation status and its subsequent net operating losses . 58 deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting and the amounts used for income tax purposes , as well as operating loss and tax credit carryforwards . the company early-adopted asu 2015-17 as of december 31 , 2015 retrospectively and as a result , reclassified our december 31 , 2014 current deferred tax asset , and related valuation allowance , to noncurrent in the summary table below . the income tax effects of temporary differences and carryforwards that give rise to significant portions of the company 's net deferred tax assets consisted of the following ( in thousands ) : replace_table_token_19_th since the company is in a loss carryforward position , the company is generally subject to u.s. federal and state income tax examinations by tax authorities for all years for which a loss carryforward is available . thus , the company 's open tax years extend back to 2009. the company believes that its tax filing positions and deductions related to tax periods subject to examination will be sustained upon audit and does not anticipate any adjustment will result in a material adverse effect on the company 's financial condition , result of operations , or cash flow . for the years ended december 31 , 2015 and 2014 , the company has no reserve for uncertain tax positions . the company does not expect that the total amounts of unrecognized tax benefits will significantly increase or decrease within the subsequent twelve months . in the event the company concludes it is subject to interest or penalties arising from uncertain tax positions , the company will record interest and penalties as a component of other income and expense . no material amounts of interest or penalties were recognized in the financial statements for the years ended december 31 , 2015 and 2014. . 59 i tem 9. changes in and disagreements with accountants on accounting and financial disclosure not applicable . item 9a . controls and procedures evaluation of disclosure controls and procedures under the supervision and with the participation of management , including our chief executive officer and our principal financial officer , we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures . disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the exchange act is recorded , processed , summarized and reported within the time periods specified in the sec 's rules and forms . based on this evaluation , our chief executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this annual report . management 's report on internal control over financial reporting our management is responsible for establishing and maintaining adequate internal control over financial reporting ( as defined in rules 13a-15 ( f ) and 15 ( d ) -15 ( f ) under the exchange act ) . our internal control system was designed to provide reasonable assurance to management and our board of directors regarding the preparation and fair presentation of published financial statements . because of its inherent limitations , internal control over financial reporting may not prevent or detect misstatements . also , projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions , or that the degree of compliance with the policies or procedures may deteriorate . under the supervision and with the participation of management , including our chief executive officer and principal financial officer , we have assessed the effectiveness of story_separator_special_tag we have included or incorporated by reference into this management 's discussion and analysis of financial condition and results of operations and elsewhere in this annual report on form 10-k , and from time to time our management may make , statements that constitute “ forward-looking statements ” within the meaning of section 27a of the securities act and section 21e of the exchange act . forward-looking statements may be identified by words including “ anticipate , ” “ plan , ” “ believe , ” “ intend , ” “ estimate , ” “ expect , ” “ should , ” “ may , ” “ potential ” and similar expressions . these statements involve known and unknown risks , uncertainties and other factors that may cause our actual results , levels of activity , performance or achievements to be materially different from the 36 information expres sed or implied by these forward-looking statements . story_separator_special_tag an enrolled patient has evaluable endpoint data either when they experience their first endpoint event , or after they complete the 24-week follow up period . the dsmb interim analysis will focus on analyses of the af/afl endpoints in the trial using both clinical-based intermittent monitoring and device-based continuous monitoring techniques . should the dsmb interim analysis indicate that the data are consistent with pre-trial statistical assumptions and the potential for achieving statistical significance for the phase 3 endpoint , the 37 dsmb may recommend that the study proceed to phase 3. the dsmb may also halt the study for futility . based on the current enrollment rate , we expect to enroll at least 150 patients by the end of 2016. we expect the outcome of the dsmb interim analysis and recommendation regarding the potential transition to phase 3 in the first half of 2017. in february 2016 , we amended the trial protocol to allow for u p to 250 patients to be enrolled in the phase 2b portion of the trial , which is intended to enable the study to continue enrolling patients while the dsmb interim analysis is underway . should the dsmb recommend that the study proceed to phase 3 , the trial would continue enrolling to a total of approximately 620 patients ( i.e. , up to 250 patients in phase 2b and 370 patients in phase 3 ) , subject to our obtaining sufficient financing to fund the phase 3 portion of the trial . in march 2015 , the genetic-af protocol was revised to expand the target study population . previously , the protocol required patients to have persistent af at the time of screening to be eligible . under the revised protocol , patients in sinus rhythm who have experienced symptomatic af are eligible for inclusion in the trial , as are patients with paroxysmal af . we believe this expanded target population has improved trial screening and enrollment rates and could broaden the potential commercial market for gencaro , should it achieve regulatory approval in the future . in february 2016 , the genetic-af protocol was amended to simplify certain operational aspects of the trial . we believe these modifications will facilitate site recruitment and enrollment in existing trial sites and potential sites in european countries , where we anticipate expanding the study to support both the later portion of phase 2b , as well as the potential phase 3 portion of the trial . we believe inclusion of european investigative sites may support potential european regulatory submissions and partnering discussions . we received no objections from the united states food and drug administration , or the fda , and health canada on the protocol amendments prior to their implementation . as such , we believe that these changes do not fundamentally alter or impact previous regulatory agreements . we have been granted patents in the united states , europe , and other jurisdictions for methods of treating af and hf patients with gencaro based on genetic testing , which , if we are granted patent term extension , may provide market exclusivity for these uses of gencaro into approximately 2030 in the united states and europe . to support the continued development of gencaro , in june 2015 , we completed a private placement that raised approximately $ 34.2 million of net proceeds as additional funds for the phase 2b portion of the genetic-af trial and to support our ongoing operations . we are seeking to enroll up to 250 hfref patients in the phase 2b portion of the genetic-af trial , and we believe that our current cash and cash equivalents will be sufficient to fund our operations , at our projected cost structure , through at least the end of 2017. however , changing circumstances may cause us to consume capital significantly faster or slower than we currently anticipate . we have based these estimates on assumptions that may prove to be wrong , and we could exhaust our available financial resources sooner than we currently anticipate . if we proceed to the phase 3 portion of genetic-af , we will be required to raise additional funds . story_separator_special_tag roman ; font-weight : normal ; text-transform : none ; font-variant : normal ; '' > sources and uses of capital our primary sources of liquidity to date have been capital raised from issuances of shares of our preferred and common stock and funds provided by the merger with nuvelo . the primary uses of our capital resources to date have been to fund operating activities , including research , clinical development and drug manufacturing expenses , license payments , and spending on capital items . on june 10 , 2015 , we entered into a securities purchase agreement , or the purchase agreement , with a group of institutional investors in connection with a private placement of units made up of shares of our common stock and warrants to purchase shares of common stock . on june 16 , 2015 , pursuant to the purchase agreement , we sold 6,003,082 units at price of $ 6.1635 per unit , for aggregate net proceeds of approximately $ 34.2 million . the warrants issued in the private placement were first exercisable on december 13 , 2015 , expire on june 16 , 2022 and have an exercise price of $ 6.1012 per share .
| results of operations research and development expenses research and development , or r & d , expense is comprised of clinical , regulatory , and manufacturing process development activities and costs . our research and development expenses totaled $ 7.1 million for the year ended december 31 , 2015 as compared to $ 5.6 million for 2014. the $ 1.4 million increase in research and development expenses in 2015 as compared to 2014 was primarily due to the increased clinical expense of our genetic-af clinical trial . clinical expense increased approximately $ 0.5 million during the year ended december 31 , 2015. the increase in costs were related to our genetic-af clinical trial , including cro costs , clinical site initiation and monitoring activities , and patient visit costs . research and development personnel costs increased approximately $ 0.7 million during the year ended december 31 , 2015. during the third quarter of 2014 , we reduced the scope of work of our primary contract research organization , or cro , hired additional clinical personnel , and assumed greater managerial responsibility for certain aspects of the genetic-af clinical trial . these changes reduced the anticipated amounts paid to our primary cro , but increased our personnel and other costs as we perform those project responsibilities . we do not expect this reorganization of responsibilities to materially change the overall projected cost of the clinical trial . manufacturing process development costs increased approximately $ 170,000 for the year ended december 31 , 2015 compared to the corresponding period of 2014. the increase was a result of production of clinical trial materials to be used in our genetic-af clinical trial and related product testing . we expect r & d expense in 2016 to be higher than 2015 as we activate new clinical sites and enroll additional patients in our genetic-af clinical trial .
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farmer mac 's involvement in vies classified as farmer mac or usda securities include securitization trusts under the usda guarantees line of business and certain trusts related to farm & ranch agvantage securities . in the case of usda guaranteed trusts , farmer mac is not determined to be the primary beneficiary because it does not have the decision-making power over default mitigation activities . based on the usda 's program authority over the servicing and default mitigation activities of the usda guaranteed portions of loans , farmer mac believes that the usda has the power to direct the activities that most significantly impact the trust 's economic performance . farmer mac does not have exposure to losses that could be significant to the trust and there are no triggers that would result in farmer mac superseding the usda 's authority with regard to directing the activities of the trust . for the agvantage trusts , farmer mac currently does not have the power to direct the activities that have the most significant economic impact to the trust story_separator_special_tag financial information included in this report is consolidated to include the accounts of farmer mac and its two subsidiaries – farmer mac mortgage securities corporation and farmer mac ii llc . farmer mac ii llc is a delaware limited liability company that operates substantially all of farmer mac 's usda guarantees line of business – primarily the acquisition of usda securities . the business operations of farmer mac ii llc began in january 2010. since then , farmer mac has operated only that part of the usda guarantees line of business that involves the issuance of farmer mac guaranteed securities backed by usda securities to investors other than farmer mac or farmer mac ii llc . although farmer mac ii llc may issue securities in these transactions , farmer mac ii llc does not guarantee any usda 62 securities it holds or any farmer mac guaranteed securities issued by farmer mac or farmer mac ii llc . this discussion and analysis of financial condition and results of operations should be read together with farmer mac 's consolidated financial statements and the related notes to the consolidated financial statements for the fiscal years ended december 31 , 2013 , 2012 , and 2011. overview at the end of 2013 , farmer mac 's outstanding program volume and core earnings reached record levels , and asset quality remained high . spread compression on new farm & ranch loan purchases , which has been continuing for the past several years , stabilized in the second half of 2013 and showed modest expansion in the fourth quarter . farmer mac also increased the amount of its tier 1 capital during 2013 and finished the year with a significant amount of total equity capital , aided by strong earnings and the issuance of $ 60.0 million of tier 1-eligible , non-cumulative perpetual preferred stock in january 2013. farmer mac is prepared to build on these positive results , while remaining committed to delivering stockholder value and fulfilling its mission . farmer mac believes that its financial condition and earnings outlook remain strong , as indicated by the recent increase in the quarterly dividend declared on all three classes of common stock . during the year , farmer mac added $ 3.1 billion of new business volume , which included purchases of agvantage securities in an aggregate amount of $ 1.3 billion under the farm & ranch and rural utilities lines of business and purchases of farm & ranch loans in an aggregate amount of $ 824.9 million . this amount of farm & ranch loan purchases is 45 percent higher than the $ 570.3 million purchased in 2012 and 66 percent higher than the $ 495.5 million purchased in 2011. taking into account maturities and paydowns on existing assets , this new business increased the aggregate outstanding amount of business volume to $ 14.0 billion as of december 31 , 2013 , compared to $ 13.0 billion as of december 31 , 2012 , and $ 11.9 billion as of december 31 , 2011 . farmer mac 's gaap net income attributable to common stockholders for 2013 was $ 71.8 million , compared to net income of $ 43.9 million and $ 13.8 million , respectively , for 2012 and 2011. while non-gaap core earnings grew steadily over these periods , the sharp increases in farmer mac 's gaap net income in each of these years were mostly due to the effects of fair value changes on financial derivatives and hedged assets . in 2013 , acceleration of the amortization of premiums for certain rural utilities loans that were consolidated at fair value and that were recast into new loan products in the fourth quarter of the year partially offset the increase in gaap net income . farmer mac 's non-gaap core earnings for 2013 were a record $ 54.9 million , compared to $ 49.6 million in 2012 and $ 42.9 million in 2011. farmer mac 's net effective spread was $ 105.3 million ( 86 basis points ) in 2013 , compared to $ 106.6 million ( 95 basis points ) in 2012 and $ 89.4 million ( 96 basis points ) in 2011. while the spreads on new farm & ranch loans added during the second half of 2013 stabilized and were at levels that met or exceeded current average net effective spreads as of december 31 , 2013 , repayments of existing farm & ranch loans with higher historical spreads relative to the new farm & ranch loans added in 2013 , combined with the effect of refinancing existing floating rate assets at higher costs , were the primary drivers of the decrease in net effective spread in 2013. reinvestment of maturing agvantage securities at lower market spreads also contributed to the decrease in net effective spread in 2013. for more information on farmer mac 's use of core earnings , a non-gaap measure , see `` — results of operations . '' story_separator_special_tag management evaluates this assumption by taking into consideration various factors , including : economic conditions ; geographic and agricultural commodity/product concentrations in the portfolio ; the credit profile of the portfolio ; delinquency trends of the portfolio ; historical charge-off and recovery activities of the portfolio ; and other factors to capture current portfolio trends and characteristics that differ from historical experience . management believes that this methodology produces a reasonable estimate of probable losses , as of the balance sheet date , for all loans included in the farm & ranch line of business , including loans held for investment and loans that underlie off-balance sheet farm & ranch guaranteed securities and ltspcs . rural utilities farmer mac separately evaluates the rural utilities loans it holds for investment to estimate any probable losses inherent in those assets . farmer mac has not provided an allowance for losses for the portfolio segment related to the rural utilities program based on the credit quality of the collateral supporting rural utilities assets . 65 specific allowance for impaired loans farmer mac individually analyzes certain loans in its portfolio for impairment . farmer mac 's individually impaired loans generally include loans 90 days or more past due , in foreclosure , restructured , in bankruptcy , and certain performing loans that have previously been delinquent or are secured by real estate that produces agricultural commodities or products that are currently under stress . for individually identified impaired loans with an updated appraisal , other updated collateral valuation , or management 's estimate of discounted collateral value , this analysis compares the measurement of the fair value of the collateral to the total recorded investment in the loan . the total recorded investment in the loan includes principal , interest , and advances , net of any charge-offs . in the event that an individually analyzed loan 's collateral value does not equal or exceed its total recorded investment , farmer mac provides a specific allowance for loss in the amount of the difference between the recorded investment and fair value , less estimated costs to liquidate the collateral . estimated selling costs are based on historical selling costs incurred by farmer mac or management 's best estimate of selling costs for a particular property . for individually identified impaired loans without updated valuations , this analysis is performed in the aggregate considering similar risk characteristics of the loans and historical statistics . farmer mac considers appraisals that are more than two years old as of the reporting date not to be updated for purposes of individually analyzing loans . farmer mac uses a risk-based approach in determining the necessity of obtaining updated appraisals on impaired loans . for example , larger exposures associated with highly improved and specialized collateral will generally receive updated appraisals once the loans are identified as impaired . in addition , updated appraisals are always obtained during the foreclosure process . depending on the risk factors associated with the loan and underlying collateral , which can vary widely depending on the circumstances of the loan and collateral , this can occur early in the foreclosure process , while in other instances this may occur just prior to the transfer of title . as part of its routine credit review process , farmer mac often will exercise judgment in discounting an appraised value due to local real estate trends or the condition of the property ( e.g. , following an inspection by farmer mac or the servicer ) . in addition , a property appraised value may be discounted based on the market 's reaction to farmer mac 's asking price for sale of the property . further information regarding the allowance for losses is included in `` —risk management—credit risk – loans and guarantees '' and note 2 ( j ) to the consolidated financial statements . fair value measurement a significant portion of farmer mac 's assets consists of financial instruments that are measured at fair value in the consolidated balance sheets . for financial instruments that are complex in nature or for which observable inputs are not available , the measurement of fair value requires management to make significant judgments and assumptions . these judgments and assumptions , as well as changes in market conditions , may have a material impact on the consolidated balance sheets and statements of operations . fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date ( also referred to as an exit price ) and establishes a hierarchy for ranking fair value measurements . in determining fair value , farmer mac uses various valuation approaches , including market and income approaches . the fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value . when available , the fair value of farmer mac 's financial instruments is based on 66 quoted market prices , valuation techniques that use observable market-based inputs , or unobservable inputs that are corroborated by market data . pricing information obtained from third parties is internally validated for reasonableness prior to use in the consolidated financial statements . when observable market prices are not readily available , farmer mac estimates fair value using techniques that rely on alternate market data or internally developed models using significant inputs that are generally less readily observable . market data includes prices of financial instruments with similar maturities and characteristics , interest rate yield curves , measures of volatility , and prepayment rates . if market data needed to estimate fair value is not available , farmer mac estimates fair value using internally-developed models that employ a discounted cash flow approach . even when market assumptions are not readily available , farmer mac 's assumptions reflect those that market participants would likely use in pricing the asset or liability at the measurement date .
| results of operations farmer mac 's gaap net income attributable to common stockholders for 2013 was $ 71.8 million or $ 6.41 per diluted common share , compared to $ 43.9 million or $ 3.98 per diluted common share for 2012 , and $ 13.8 million or $ 1.28 per diluted common share for 2011. farmer mac 's non-gaap core earnings were $ 54.9 million or $ 4.90 per diluted share in 2013 , compared to $ 49.6 million or $ 4.51 per diluted share in 2012 , and $ 42.9 million or $ 3.97 per diluted common share in 2011. farmer mac uses core earnings to measure corporate economic performance and develop financial plans because , in management 's view , core earnings is a useful alternative measure in understanding farmer mac 's economic performance , transaction economics , and business trends . core earnings principally differs from gaap net income by excluding the effects of fair value accounting guidance , which are not expected to have a cumulative net impact on gaap earnings if the related financial instruments are held to maturity , as is generally expected . core earnings also differs from gaap net income by excluding specified infrequent or unusual transactions that farmer mac believes are not indicative of future operating results and that may not reflect the trends and economic financial performance of farmer mac 's core business . this non-gaap financial measure may not be comparable to similarly labeled non-gaap financial measures disclosed by other companies . farmer mac 's disclosure of this non-gaap measure is intended to be supplemental in nature , and is not meant to be considered in isolation from , as a substitute for , or as more important than , the related financial information prepared in accordance with gaap .
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during fiscal year 2016 , the company increased the liability for a company-owned former operating site by $ 0.3 million . the liabilities recorded for environmental remediation costs at superfund sites , other third party-owned sites and carpenter-owned current or former operating facilities remaining at june 30 , 2018 and 2017 were $ 16.1 million and $ 16.1 million , respectively . 65 carpenter technology corporation notes to consolidated financial statements other the company is defending various routine claims and legal actions that are incidental to its business and common to its operations , including those pertaining to product claims , commercial disputes , patent infringement , employment actions , employee benefits , compliance with domestic and foreign laws , personal injury claims and tax issues . like many other manufacturing companies in recent years , the company , from time to time , has been named as a defendant in lawsuits alleging personal injury as a result of exposure to chemicals and substances in the workplace . the story_separator_special_tag background and general our discussions below in this item 7 should be read in conjunction with our consolidated financial statements , including the notes thereto , included in this annual report on form 10-k. we are a producer and distributor of premium specialty alloys , including titanium alloys , powder metals , stainless steels , alloy steels , and tool steels as well as drilling tools . we are a recognized leader in high-performance specialty alloy-based materials and process solutions for critical applications in the aerospace , defense , transportation , energy , medical , industrial , and consumer markets . we have evolved to become a pioneer in premium specialty alloys , including titanium , nickel , and cobalt , as well as alloys specifically engineered for additive manufacturing ( am ) processes and soft magnetics applications . we have expanded our am capabilities to provide a complete “ end-to-end ” solution to accelerate materials innovation and streamline parts production . we primarily process basic raw materials such as nickel , cobalt , titanium , manganese , chromium , molybdenum , iron scrap and other metal alloying elements through various melting , hot forming and cold working facilities to produce finished products in the form of billet , bar , rod , wire and narrow strip in many sizes and finishes . we also produce certain metal powders and parts . our sales are distributed directly from our production plants and distribution network as well as through independent distributors . unlike many other specialty steel producers , we operate our own worldwide network of service and distribution centers . these service centers , located in the united states , canada , mexico , europe and asia allow us to work more closely with customers and to offer various just-in-time stocking programs . as part of our overall business strategy , we have sought out and considered opportunities related to strategic acquisitions , divestitures and joint collaborations as well as possible business unit dispositions aimed at broadening our offering to the marketplace . we have participated with other companies to explore potential terms and structures of such opportunities and expect that we will continue to evaluate these opportunities . while we prepare our financial statements in accordance with u.s. generally accepted accounting principles ( “ u.s . gaap ” ) , we also utilize and present certain financial measures that are not based on or included in u.s. gaap ( we refer to these as “ non-gaap financial measures ” ) . please see the section “ non-gaap financial measures ” below for further discussion of these financial measures , including the reasons why we use such financial measures and reconciliations of such financial measures to the nearest u.s. gaap financial measures . 16 business trends selected financial results for the past three fiscal years are summarized below : replace_table_token_6_th ( 1 ) see the section “ non-gaap financial measures ” below for further discussion of these financial measures . ( 2 ) includes pounds from specialty alloys operations segment , and certain performance engineered products segment businesses namely dynamet and carpenter powder products . our sales are across a diversified list of end-use markets . the table below summarizes our sales by end-use market over the past three fiscal years : replace_table_token_7_th 17 impact of raw material prices and product mix we value most of our inventory utilizing lifo inventory costing methodology . under the lifo inventory costing method , changes in the cost of raw materials and production activities are recognized in cost of sales in the current period even though these materials may have been acquired at potentially significantly different values due to the length of time from the acquisition of the raw materials to the sale of the processed finished goods to the customers . in a period of rising raw material costs , the lifo inventory valuation normally results in higher cost of sales . conversely , in a period of decreasing raw material costs , the lifo inventory valuation normally results in lower cost of sales . the volatility of the costs of raw materials has impacted our operations over the past several years . we , and others in our industry , generally have been able to pass cost increases on major raw materials through to our customers using surcharges that are structured to recover increases in raw material costs . generally , the formula used to calculate a surcharge is based on published prices of the respective raw materials for the previous month which correlates to the prices we pay for our raw material purchases . however , a portion of our surcharges to customers may be calculated using a different surcharge formula or may be based on the raw material prices at the time of order , which creates a lag between surcharge revenue and corresponding raw material costs recognized in cost of sales . the surcharge mechanism protects our net income on such sales except for the lag effect discussed above . story_separator_special_tag 19 results of operations — fiscal year 2018 compared to fiscal year 2017 for fiscal year 2018 , we reported net income of $ 188.5 million , or $ 3.92 per diluted share . excluding special items , earnings per share would have been $ 2.50 per diluted share for fiscal year 2018. this compares with net income of $ 47.0 million , or $ 0.99 per diluted share , a year earlier . excluding special items , earnings per share would have been $ 1.08 per diluted share for fiscal year 2017. our fiscal year 2018 results reflect strong market conditions combined with our solutions focused approach that drove increasing sales in all of our end-use markets and further implementation of the carpenter operating model . net sales net sales for fiscal year 2018 were $ 2,157.7 million , which was a 20 percent increase from fiscal year 2017 . excluding surcharge revenue , sales were 15 percent higher than fiscal year 2017 on 12 percent higher volume . the results reflect stronger demand and improved product mix across certain end-use markets demonstrating our focus on high-value solutions and market share gain by deepening our existing relationships and adding new customers . geographically , sales outside the united states increased 22 percent from fiscal year 2017 to $ 728.3 million . the increase is primarily due to stronger product demand in the aerospace and defense , medical and industrial and consumer end-use markets in europe and asia pacific . in addition , the energy end-use market had stronger demand for oil and gas materials in asia pacific and canada partially offset by weaker demand in europe for power generation materials . a portion of our sales outside the united states are denominated in foreign currencies . the impact of fluctuations in foreign currency exchange rates resulted in a $ 9.3 million increase in sales during the fiscal year 2018 compared to fiscal year 2017. international sales as a percentage of our total net sales represented 34 percent and 33 percent for fiscal year 2018 and fiscal year 2017 , respectively . sales by end-use markets we sell to customers across diversified end-use markets . the following table includes comparative information for our net sales , which includes surcharge revenue , by principal end-use markets . we believe this is helpful supplemental information in analyzing the performance of the business from period to period . replace_table_token_10_th the following table includes comparative information for our net sales by the same principal end-use markets , but excluding surcharge revenue : replace_table_token_11_th 20 sales to the aerospace and defense market increased 21 percent from fiscal year 2017 to $ 1,182.3 million . excluding surcharge revenue , sales increased 17 percent on 18 percent higher shipment volume . the results reflect the impact of stronger demand for materials used in aerospace engine and structural applications , the distribution sub-market and defense applications driven by specific programs partially offset by lower fastener sales . sales to the energy market of $ 146.5 million reflected a 6 percent increase from fiscal year 2017 . excluding surcharge revenue , sales increased 6 percent . the results were driven by an increase in the oil and gas sub-market , particularly rental and replacement activity through our amega west services ( “ amega west ” ) business offset by weaker demand for materials used in power generation applications , which has been significantly impacted by depressed industrial gas turbine industry conditions . transportation market sales increased 9 percent from fiscal year 2017 to $ 157.0 million . excluding surcharge revenue , sales increased 4 percent on 1 percent higher shipment volume . the results reflect a strengthening mix of medium and heavy-duty truck applications , partially offset by softer demand in light duty vehicles applications . sales to the medical market increased 40 percent to $ 175.3 million from fiscal year 2017 . excluding surcharge revenue , sales increased 29 percent on 19 percent higher shipment volume . the results reflect improved product mix for higher value solutions , market share gains with key customers and the positive impact of supply chain inventory rebuilding for titanium materials within the orthopedic and cardiology sub-markets . industrial and consumer market sales increased 22 percent to $ 364.9 million for fiscal year 2018 . excluding surcharge revenue , sales increased 14 percent on 7 percent higher shipment volume . the results reflect the impact of stronger demand for materials used in industrial applications due in part to a moderate increase in recovery of oil and gas activity . gross profit gross profit in fiscal year 2018 increased to $ 382.2 million , or 17.7 percent of net sales from $ 284.3 million , or 15.8 percent of net sales for fiscal year 2017 . excluding the impact of the surcharge revenue , our gross margin in fiscal year 2018 was 21.3 percent compared to 18.2 percent in fiscal year 2017. the results reflect the impact of stronger demand and improved product mix coupled with operating cost improvements compared to the same period a year ago . our surcharge mechanism is structured to recover increases in raw material costs , although in certain cases with a lag effect as discussed above . while the surcharge generally protects the absolute gross profit dollars , it does have a dilutive effect on gross margin as a percent of sales . the following represents a summary of the dilutive impact of the surcharge on gross margin . we present and discuss these financial measures because management believes removing the impact of surcharge provides a more consistent and meaningful basis for comparing results of operations from period to period . see the section “ non-gaap financial measures ” below for further discussion of these financial measures . replace_table_token_12_th selling , general and administrative expenses selling , general and administrative expenses in fiscal year 2018 were $ 195.1 million , or 9.0 percent of net sales ( 10.9 percent of net sales excluding surcharge revenue ) , compared to $ 183.9 million , or 10.2
| business segment results summary information about our operating results on a segment basis is set forth below . for more detailed segment information , see note 19 to the consolidated financial statements included in item 8 , “ financial statements and supplementary data ” . 23 the following table includes comparative information for volumes by business segment : replace_table_token_14_th * pounds sold data for pep segment includes dynamet and carpenter powder products businesses only . the following table includes comparative information for net sales by business segment : replace_table_token_15_th the following table includes comparative information for our net sales by business segment , but excluding surcharge revenue : replace_table_token_16_th specialty alloys operations segment net sales in fiscal year 2018 for the sao segment increased 23 percent to $ 1,803.8 million , as compared with $ 1,461.6 million in fiscal year 2017 . excluding surcharge revenue , net sales increased 17 percent from a year ago . the fiscal year 2018 net sales reflected 13 percent higher shipment volume as compared to fiscal year 2017 . the results reflect the impact of stronger product demand driven by improving market conditions across our end-use markets compared to the prior year same period . operating income for the sao segment in fiscal year 2018 was $ 232.4 million , or 12.9 percent of net sales ( 16.2 percent of net sales excluding surcharge revenue ) , compared to $ 172.3 million , or 11.8 percent of net sales ( 14.1 percent of net sales excluding surcharge revenue ) , for fiscal year 2017 . the increase in operating income reflects the impact of higher product demand and stronger product mix driven by improving market conditions across our end-use markets compared to the prior year same period .
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we sell a wide range of security products and solutions for end-users in commercial , institutional and residential markets worldwide , including into the education , healthcare , government , commercial office and single and multi-family residential markets . our corporate brands include schlage , von duprin , lcn , cisa , interflex and simonsvoss . trends and economic events current market conditions , including challenges in international markets , continue to impact our financial results . uneven global commercial new construction activity is negatively impacting our results , however u.s. residential and consumer markets have begun to improve , and we are seeing improvements in the u.s. new builder and replacement markets . based on third party sources , we estimate that the size of the global markets we serve was approximately $ 30 billion in revenue in 2015 with compound annual growth of about 2 to 4 % per year over the past three years . we believe that the security products industry will benefit from several global macroeconomic and long-term demographic trends , which include heightened awareness of security requirements , increased global urbanization and the shift to a digital , interconnected environment.we believe slowly improving institutional and cautious growth in commercial industrial markets and continued recovery in residential markets in the united states and slight growth in europe will offset unfavorable foreign currency exchange rates overseas . additionally , we expect growth in the global electronic product categories we serve to outperform the security products industry as end-users adopt newer technologies in their facilities . two of our acquisitions in 2015 ( simonsvoss technologies gmbh and milre systek co. , ltd. ) were made to capitalize on this trend . the economic conditions discussed above and a number of other challenges and uncertainties that could affect our business are described under “ risk factors. ” 2015 significant events acquisitions during the year ended december 31 , 2015 , we completed six acquisitions or investments : business month primary business segment description of business idevices february americas a brand and development partner in the internet of things industry . the investment is accounted for using the equity method . zero april americas manufactures door and window products for commercial spaces and products include sealing systems , such as sound control , fire and smoke protection , threshold applications , lites , door louvers , intumescent products , photo-luminescent and flood barrier for doors . brio may asia-pacific designs and manufactures sliding and folding door hardware for commercial and residential spaces . milre july asia-pacific produces high-quality and innovative electronic door locks . simonsvoss september emeia designs and manufactures electronic locks . axa september emeia manufactures and sells a branded portfolio of portable locks and lights as well as a wide variety of window and door hardware . 25 total consideration paid for these acquisitions was $ 511.3 million ( net of cash acquired ) , paid through cash on hand and borrowings under our senior secured revolving credit facility ( `` revolver '' ) . for the year ended december 31 , 2015 , we incurred $ 17.9 million of costs related to these acquisitions . divestitures in the third quarter of 2015 , we sold our majority ownership in our venezuelan operation to venezuelan investors . as a result of the sale , we recorded a non-cash charge of $ 26.1 million , which primarily represents cumulative currency translation adjustments that were deferred in equity and were reclassified to a loss in our consolidated statement of comprehensive income . prior to the divestiture , we recorded charges totaling $ 7.0 million ( before tax and non-controlling interest ) in 2015 related to the devaluation of the venezuelan bolivar . the charges included remeasurement of net monetary assets ( $ 2.8 million ) and a non-cash impairment charge to adjust venezuelan inventory balances ( $ 4.2 million ) . as a result of the divestiture , we no longer have foreign currency exposures in venezuela . the assets and liabilities of the venezuela operation were reclassified to assets and liabilities held for sale within the consolidated balance sheets for prior periods . we completed the sale of our majority stake of bocom in the fourth quarter of 2015. bocom operates a security system integration business exclusively in china . under the terms of the transaction , we may receive up to $ 75 million based on future performance and additional payments of approximately $ 8.3 million related to working capital transferred with the sale . additionally , we will retain 15 % of the shares of bocom . we estimate the fair value of the consideration to be $ 75.3 million . we currently estimate payment to be completed in approximately 2 years ; however repayment may be delayed depending on the timing of future cash collections . we may incur additional charges if it is determined that future cash collections will no longer occur . as a result of the sale , the company recorded a pre-tax charge of $ 78.1 million ( $ 82.4 million after tax charges ) during the year ended december 31 , 2015 to write the carrying value of bocom 's assets and liabilities down to their estimated fair value less costs to complete the transaction . bocom 's assets and liabilities were reclassified to assets and liabilities held for sale within the consolidated balance sheets for prior periods . 2015 dividends we paid quarterly dividends of $ 0.10 per ordinary share to shareholders on march 31 , 2015 , june 30 , 2015 , september 30 , 2015 , and december 30 , 2015. we paid a total of $ 38.3 million in cash for dividends to ordinary shareholders during the year ended december 31 , 2015 . restructuring charges in the second quarter of 2015 , management committed to a restructuring plan in italy to improve our competitive position , ensure long-term viability and enhance customer experience . story_separator_special_tag for the year ended december 31 , 2014 , selling and administrative expenses as a percentage of revenue increased to 24.9 % from 23.3 % due to the following : restructuring / spin-off costs 1.4 % investment spending 1.0 % impact of consolidated asia joint venture order flow change 0.8 % productivity in excess of other inflation ( 0.8 ) % volume leverage ( 0.9 ) % currency exchange rates 0.1 % total 1.6 % selling and administrative expenses as a percentage of revenue for the year ended december 31 , 2014 was negatively impacted by increased restructuring charges , separation costs incurred in connection with the spin-off , increased investment spending and the impact of the change in the order flow through our consolidated joint venture in asia . these increases were partially offset by favorable leverage due to increased volume and productivity in excess of other inflation . operating income/margin operating income for the year ended december 31 , 2015 increased $ 32.3 million from the same period in 2014 and operating margin increased to 17.3 % from 15.4 % for the same period in 2014 due to the following : replace_table_token_7_th 29 operating income and operating margin increased primarily due to favorable volume/product mix primarily in our americas segment , lower inventory impairment charges in venezuela in the current year , pricing improvements and productivity in excess of inflation , the impact of acquisitions in the current year and spin-off related costs in the prior year that did not recur in the current year . these increases were partially offset by unfavorable foreign currency exchange rate movements , the divestitures of our venezuelan operations and bocom , increased investment spending primarily for new product development and channel development , higher restructuring costs compared to the prior year and costs incurred related to acquisitions in the current year . operating income for the year ended december 31 , 2014 increased $ 85.5 million and operating margin increased to 15.4 % from 11.6 % for the same period in 2013 due to the following : replace_table_token_8_th operating income and operating margin in 2013 included a $ 137.6 million goodwill impairment charge as well as a $ 21.5 million gain on the sale of property in china . neither of these items recurred in 2014. operating income in 2014 included a $ 33.3 million non-cash inventory impairment related to the devaluation of the venezuelan bolivar . the remaining increase in operating income and operating margin was primarily due to pricing improvements and productivity in excess of inflation and favorable volume/product mix . these increases were partially offset by increased restructuring charges and non-recurring separation costs incurred in connection with the spin-off and increased investments and other items . interest expense interest expense for the year ended december 31 , 2015 decreased $ 0.9 million compared to the same period in 2014 . interest expense in 2014 included a non-cash charge of approximately $ 4.5 million for the write-off of unamortized term loan b facility debt issuance costs . excluding this charge , interest expense increased primarily due to issuing the 2023 senior notes , partially offset by the impact of refinancing the senior secured credit facilities in the fourth quarter of 2014 and third quarter of 2015. interest expense for the year ended december 31 , 2014 increased $ 43.6 million compared with the same period of 2013 as a result of the full year impact resulting from entering into $ 1.0 billion senior secured credit facilities , issuing $ 300 million of senior notes in the fourth quarter of 2013 in conjunction with the spin-off a non-cash charge of approximately $ 4.5 million for the write-off of unamortized term loan b facility debt issuance costs . other ( income ) expense , net the components of other expense , net , for the year ended december 31 were as follows : replace_table_token_9_th for the year ended december 31 , 2015 , other ( income ) expense , net increased by $ 12.4 million compared to the same period in 2014 . during the year ended december 31 , 2015 we recorded gains from the sale of marketable securities of $ 11.0 million , which is included within other in the table above . these gains were partially offset by a $ 2.8 million loss related to the write down of our venezuelan bolivar-denominated net monetary assets to reflect the simadi rate recorded in the first quarter of 2015. this 30 loss is within exchange loss in the table above . the remaining decrease in other ( income ) expense , net was primarily due to unfavorable currency impacts . for the year ended december 31 , 2014 , other expense , net decreased by $ 2.6 million compared with the same period in 2013 . in the fourth quarter of 2014 , we recorded a $ 12.1 million loss related to write down our venezuelan bolivar-denominated net monetary assets . this loss is reflected as exchange loss in the table above . in the prior year , we recorded a $ 6.2 million loss resulting from the official devaluation of the bolivar from 4.3 bolivars per u.s. dollar to 6.3 bolivars per u.s. dollar . the remaining decrease in other expense , net for the year ended december 31 , 2014 was primarily due to other foreign currency gains in 2014. provision for income taxes for the year ended december 31 , 2015 , our effective tax rate decreased to 26.1 % from 31.4 % for the year ended december 31 , 2014 . the effective income tax rate for the year ended december 31 , 2015 was negatively impacted by $ 111.3 million ( $ 115.0 million after-tax ) of charges related to the divestiture of bocom , the divestiture of our business in venezuela and the devaluation of the venezuelan bolivar .
| review of business segments we operate in and report financial results for three segments : americas , emeia , and asia pacific . these segments represent the level at which our chief operating decision maker reviews company financial performance and makes operating decisions . 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 resource allocation , performance reviews , and compensation . for these reasons , we believe that segment operating income represents the most relevant measure of segment profit and loss . our chief operating decision maker may exclude certain charges or gains , such as corporate charges and other special charges , from operating income to arrive at a segment operating income that is a more meaningful measure of profit and loss upon which to base our operating decisions . we define segment operating margin as segment operating income as a percentage of net revenues . the segment discussions that follow describe the significant factors contributing to the changes in results for each segment included in continuing operations . segment results of operations - for the years ended december 31 replace_table_token_10_th americas our americas segment is a leading provider of security products and solutions in approximately 30 countries throughout north america and south america . the segment sells a broad range of products and solutions including , locks , locksets , key systems , door closers , exit devices , doors and door frames , electronic product and access control systems to end-users in commercial , institutional and residential facilities , including into the education , healthcare , government , commercial office and single and multi-family residential markets . this segment 's primary brands are schlage , von duprin and lcn .
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in addition , the company focuses on selling high-growth , high-margin products to its customers through the development of certified organic products , bakery departments and prepared foods including delicatessen sections . as of september 2 4 , 201 6 , the company operated 99 in-store pharmacies and 93 fuel centers . ingles also operates a fluid dairy and earns shopping center rentals . the fluid dairy sells approximately 25 % of its products to the retail grocery segment and approximately 75 % of its products to third parties . real estate ownership is an important component of the company 's operations , providing both operational and economic benefit . critical accounting policies critical accounting policies are those accounting policies that management believes are important to the portrayal of ingles ' financial condition and results of operations , and require management 's most difficult , subjective or complex judgments , often as a result of the need to make estimates about the effect of matters that are inherently uncertain . estimates are based on historical experience and other factors believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . management estimates , by their nature , involve judgments regarding future uncertainties , and actual results may therefore differ materially from these estimates . self-insurance the company is self-insured for workers ' compensation , general liability , and group medical and dental benefits . risks and uncertainties are associated with self-insurance ; however , the company has limited its exposure by maintaining excess liability coverage of $ 750,000 per occurrence for workers ' compensation , $ 500,000 for general liability , and $ 325,000 per covered person for medical care benefits for a policy year . self-insurance liabilities are established based on claims filed and estimates of claims incurred but not reported . the estimates are based on data provided by the respective claims administrators which is then applied to appropriate actuarial methods . these estimates can fluctuate if historical trends are not predictive of the future . the majority of the company 's properties are self-insured for casualty losses and business interruption ; however , liability coverage is m aintained . the company 's self- insurance reserves totaled $ 35.9 million and $ 36.3 million for employee group insurance , workers ' compensation insurance and general liability insurance at september 2 4 , 201 6 and september 2 6 , 201 5 , respectively . the se amount s are inclusive of expected recoveries from excess cost insurance or other sources that are recorded as receivable s of $ 4.8 million and $ 4.9 million at september 2 4 , 201 6 and september 26 , 2015 , respectively . asset impairments the company accounts for the impairment of long-lived assets in accordance with financial accounting standards board accounting standards codification ( “ fasb asc ” ) topic 360. asset groups are primarily comprised of our individual store and shopping center properties . for assets to be held and used , the company tests for impairment using undiscounted cash flows and calculates the amount of impairment using discounted cash flows . for assets held for sale , impairment is recognized based on the excess of remaining book value over expected recovery value . the recovery value is the fair value as determined by independent quotes or expected sales prices developed by internal associates , net of costs to sell . estimates of future cash flows and expected sales prices are judgments based upon the company 's experience and knowledge of local operations and cash flows that are projected for several years into the future . these estimates can fluctuate significantly due to changes in real estate market conditions , the economic environment , capital spending decisions and inflation . the company monitors the carrying value of long-lived assets for potential impairment each quarter based on whether any indicators of impairment have occurred . 17 vendor allowances the company receives funds for a variety of merchandising activities from the many vendors whose products the company buys for resale in its stores . these incentives and allowances are primarily comprised of volume or purchase based incentives , advertising allowances , slotting fees , and promotional discounts . the purpose of these incentives and allowances is generally to help defray the costs incurred by the company for stocking , advertising , promoting and selling the vendor 's products . these allowances generally relate to short term arrangements with vendors , often relating to a period of a month or less , and are negotiated on a purchase-by-purchase or transaction-by-transaction basis . whenever possible , vendor discounts and allowances that relate to buying and merchandising activities are recorded as a component of item cost in inventory and recognized in merchandise costs when the item is sold . due to system constraints and the nature of certain allowances , it is sometimes not practicable to apply allowances to the item cost of inventory . in those instances , the allowances are applied as a reduction of merchandise costs using a rational and systematic methodology , which results in the recognition of these incentives when the inventory related to the vendor consideration received is sold . vendor allowances applied as a reduction of merchandise costs totaled $ 115.8 mi llion , $ 115.8 million and $ 126.7 million for the fiscal years ended september 2 4 , 201 6 , september 2 6 , 201 5 and september 2 7 , 201 4 , respectively . vendor advertising allowances that represent a reimbursement of specific identifiable incremental costs of advertising the vendor 's specific products are recorded as a reduction to the related expense in the period that the related expense is incurred . vendor advertising allowances recorded as a reduction of advertising expense totaled $ 1 3 . 5 million , $ 1 4 . 3 million , and $ 14 . story_separator_special_tag fiscal year ended september 26 , 2015 compared to the fiscal year ended september 27 , 2014 the company achieved record non-gasoline sales for the fiscal year ended september 26 , 2015. comparable store non-gasoline sales also increased . retail gasoline and fluid dairy gallons sold both increased , but decreases in per gallon costs resulted in lower total dollar sales . net income for the fiscal year ended september 26 , 2015 was $ 59.4 million , an increase of 15.4 % over net income of $ 51.4 million for the fiscal year ended september 27 , 2014. fiscal 2015 net income is the highest in the company 's 51 year history . net sales . net sales for the fiscal year ended september 26 , 2015 totaled $ 3.78 billion , compared with $ 3.84 billion for the fiscal year ended september 27 , 2014. comparable store sales excluding gasoline increased 2.1 % . the number of customer transactions ( excluding gasoline ) increased 0.2 % , while the average transaction size ( excluding gasoline ) increased 2.6 % . comparing fiscal 2015 with fiscal 2014 , gasoline gallons sold increased , per gallon prices were down 27.9 % and gasoline gross profit was significantly higher . 21 sales by product category for the fiscal years ended september 26 , 2015 and september 27 , 2014 , respectively , were as follows : replace_table_token_14_th the grocery category includes grocery , dairy and frozen foods . the non-foods category includes alcoholic beverages , tobacco , pharmacy , health and video . the perishables category includes meat , produce , deli and bakery . changes in retail grocery sales for the fiscal year ended september 26 , 2015 are summarized as follows ( in thousands ) : replace_table_token_15_th during fiscal 2015 and 2014 , the company devoted the majority of its grocery segment capital expenditures to improvements in the configuration and appearance of a number of its stores . these improvements along with effective promotions and cost competitiveness drove increased non-gas sales in fiscal 2015. the ingles advantage savings and rewards card ( the “ ingles advantage card ” ) also contribute d to the increase in net sales and comparable store sales . information obtained from holders of the ingles advantage card assists the company in optimizing product offerings and promotions specific to customer shopping patterns . the company expects non-gasoline sales will be higher in the 2016 fiscal year compared with fiscal 2015. the company anticipates adding one or more new stores in fiscal 2016 and expects to benefit from recent interior improvements to a number of existing stores . fiscal 2016 sales growth will also be influenced by market fluctuations in the per gallon price of gasoline and milk , changes in commodity food prices and general economic conditions . gross profit . gross profit for the year ended september 26 , 2015 increased $ 48.1 million , or 5.7 % , to $ 893.3 million compared with $ 845.2 million for the year ended september 27 , 2014. as a percentage of sales , gross profit totaled 23.6 % for the year ended september 26 , 2015 and 22.0 % for the year ended september 27 , 2014 . the increase in grocery segment gross profit dollars was primarily due to the higher sales volume . grocery segment gross profit as a percentage of total sales ( excluding gasoline ) increased 18 basis points in fiscal 2015 compared with fiscal 2014. the gross margin increase was broad based across most products , except for gasoline . the mix of grocery sales in favor of higher margin products also has a positive impact on gross profit and gross margin . in addition to the direct product cost , the cost of goods sold line item for the grocery segment includes inbound freight charges and the costs related to the company 's distribution network . operating and administrative expenses . operating and administrative expenses increased $ 33.7 million , or 4.7 % , to $ 756.3 million for the year ended september 26 , 2015 , from $ 722.6 million for the year ended september 27 , 2014. as a percentage of sales , operating and administrative expenses were 20.0 % for the fiscal year ended september 26 , 2015 and 18.8 % for the fiscal year ended september 27 , 2014. excluding gasoline , which does not have significant direct operating expenses , the ratio of operating expenses to sales was 22.9 % for fiscal 2015 compared with 22.3 % for fiscal 2014 . 22 a breakdown of the major increases in operating and administrative expenses is as follows : replace_table_token_16_th salaries and wages increased due to the addition of labor hours required for the increased sales volume , including new stores opened during fiscal 2015 and 2014 . insurance expense increased due to unfavorable claims experience under the company 's self-insurance programs and due to higher medical insurance costs under recent regulatory requirements . depreciation and amortization increased as a result of the company 's capital expenditures programs , including smaller remodeling projects that contain capital assets with shorter useful lives-compared with real restate . repair and maintenance expenses increased due to increases in the amount and complexity of equipment in the company 's stores to support new products offered , increase energy efficiency and to improve the customer shopping experience . taxes and licenses increased due to increases in the value of the company 's real estate and for additional fees paid to municipalities to conduct business and offer certain products . gain from sale or disposal of assets . gain from sale or disposal of assets totaled $ 2.2 million for fiscal 2015 compared with gains of $ 0.8 million for fiscal 2014. during fiscal 2015 , the company sold outparcels and wrote off buildings demolished in advance of rebuilding new store buildings in a future period .
| results of operations ingles operates on a 52- or 53-week fiscal year ending on the last saturday in september . the consolidated statements of income for the fiscal years ended september 2 4 , 201 6 , september 2 6 , 201 5 and september 2 7 , 201 4 , each consisted of 52 weeks of operations , respectively . comparable store sales are defined as sales by grocery stores in operation for five full fiscal quarters . the company has an ongoing renovation and expansion plan to modernize the appearance and layout of its existing stores . sales from replacement stores , major remodels and the addition of fuel stations to existing stores are included in the comparable store sales calculation from the date of completion of the replacement , remodel or addition . a replacement store is a new store that is opened to replace an existing nearby store that is closed . a major remodel entails substantial remodeling of an existing store and may include additional retail square footage . for the fiscal years ended september 2 4 , 201 6 and september 2 6 , 201 5 comparable store sales include 199 stores each . weighted average retail square footage added to comparable stores due to replacement and remodeled stores was insignificant for the fiscal years ended september 2 4 , 201 6 and september 2 6 , 201 5 , respectively . 18 the following table sets forth , for the periods indicated , selected financial information as a percentage of net sales .
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the accounting standards update is effective for fiscal years , and interim periods within those years , beginning after december 15 , 2013. early adoption is permitted . the amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date . retrospective application is permitted . the company will adopt this new standard in 2014 , and it may have an effect on how unrecognized tax benefits are accounted for and presented in the company 's balance sheet . in july 2012 , the fasb issued accounting standards update no . 2012-02 , `` testing indefinite-lived intangible assets for impairment `` ( the revised standard ) . the revised standard is intended to reduce the cost and complexity of testing indefinite-lived intangible assets other than goodwill for impairment . it allows companies to perform a qualitative assessment to determine whether further impairment testing of indefinite-lived intangible assets is necessary , similar in approach to the goodwill impairment test . if story_separator_special_tag as used herein , the terms “ ebix , ” “ the company , ” “ we , ” “ our ” and “ us ” refer to ebix , inc. , a delaware corporation , and its consolidated subsidiaries as a combined entity . the information contained in this section has been derived from our historical financial statements and should be read together with our historical financial statements and related notes included elsewhere in this document . the discussion below contains forward-looking statements within the meaning of section 27a of the securities act of 1933 , as amended , and section 21e of the securities exchange act of 1934 , as amended . these forward-looking statements involve risks and uncertainties including , but not limited to : demand and acceptance of services offered by us , our ability to achieve and maintain acceptable cost levels , pricing levels and actions by competitors , regulatory matters , general economic conditions , and changing business strategies . forward-looking statements are subject to a number of factors that could cause actual results to differ materially from our expressed or implied expectations , including , but not limited to our performance in future periods , our ability to generate working capital from operations , the adequacy of our insurance coverage , and the results of litigation or investigations . our forward-looking statements can be identified by the use of terminology such as “ anticipates , ” “ expects , ” “ intends , ” “ believes , ” “ will ” or the negative thereof or variations thereon or comparable terminology . except as required by law , we undertake no obligation to publicly update or revise any forward-looking statement , whether as a result of new information , future events or otherwise . overview ebix is a leading international supplier of on-demand software and e-commerce solutions to the insurance industry . ebix provides various application software products for the insurance industry ranging from carrier systems , agency systems and exchanges to custom software development for the insurance industry . approximately 77 % of the company 's revenues are recurring . rather than license our products in perpetuity , we typically either license them for a few years with ongoing support revenues , or license them on a limited term basis using a subscription hosting or asp model . our goal is to be the leading powerhouse of back-end insurance transactions in the world . during 2013 , combined subscription-based and transaction-based revenues increased by $ 2.5 million to $ 158.0 million , while as a percentage of the company 's total revenues declined to 77 % in 2013 , as compared to 78 % in the year 2012. subscription based revenues increased by $ 6.6 million to $ 126.5 million , and as a percentage of the company 's total revenues increased to 62 % in 2013 , as compared to 60 % in the year 2012. the company 's technology vision is to focus on convergence of all insurance processes in a manner such that data can seamlessly flow from entity to entity once a data entry has been made . our customers include many of the top insurance and financial sector companies in the world . the insurance industry continues to undergo significant consolidation driven by the need for , and benefits from , economies of scale in providing insurance in a competitive environment . the insurance markets have continuously increased their demands for cutting edge solutions to reduce paper based processes and improve efficiency both at the back-end side and at the consumer end of their insurance transaction processing . such consolidation has involved both insurance carriers and insurance brokers and is directly impacting the manner in which insurance products are distributed . management believes the world-wide insurance industry will continue to experience significant change and the need for increased efficiencies through online exchanges and streamlined processes . the changes in the insurance industry will continue to create new growth opportunities for the company . management focuses on a variety of key indicators to monitor operating and financial performance . these performance indicators include measurements of revenue growth , operating income , operating margin , income from continuing operations , diluted earnings per share , and cash provided by operating activities . we monitor these indicators , in conjunction with our corporate governance practices , to ensure that our business is efficiently managed and that effective controls are maintained . the key performance indicators for the twelve months ended december 31 , 2013 , 2012 , and 2011 were as follows : replace_table_token_6_th 21 story_separator_special_tag style= '' line-height:120 % ; text-align : left ; text-indent:48px ; font-size:10pt ; '' > the impact from fluctuations of the exchange rates for the foreign currencies in the countries in which we conduct operations also partially affected reported revenues . during each of the years 2013 , 2012 , and 2011 the change in foreign currency exchange rates increased/ ( decreased ) reported consolidated operating revenues by $ ( 3.8 ) million , $ ( 1.2 story_separator_special_tag this contingent liability is reported in the current section of the enclosed consolidated balance sheet , and the charge against earnings is reported in the accompanying consolidated statement of income as of and for the twelve months ended december 31 , 2013. foreign exchange gain net foreign exchange loss of $ 262 thousand in 2013 consisted mostly of losses recognized upon the settlement of certain transactions within our foreign operations that were denominated in a currency other than the subsidiary 's functional currency . 24 income taxes the company recognized income tax expense of $ 10.9 million in 2013 compared the $ 7.5 million of income tax expense in 2012 , representing a $ 3.4 million , or a 46 % , increase . the primary factor contributing to the increase in recognized income tax expense in 2013 was $ 4.1 million of additional provisioning for the company 's reserve for uncertain income tax positions with $ 6.8 million of such expense recognized in 2013 as compared to $ 2.7 million of expense recognized in 2012. the company 's tax provision for 2013 reflects an effective tax rate of 15.5 % compared to the 9.6 % effective tax rate for the year 2012. the effective rate increased primarily due to the increase in the reserve for uncertain income tax positions . otherwise the company benefits from a relatively low consolidated world-wide effective tax rate as a result of conducting significant operating activities in certain foreign low tax jurisdictions . the pre-tax income from and the applicable statutory tax rates in each jurisdiction in which the company had operations for the year ending december 31 , 2013 are as follows : replace_table_token_9_th 25 twelve months ended december 31 , 2012 and 2011 operating revenue ebix 's revenue streams come from four product channels . presented in the table below is the breakout of our revenues for each of those product channels for the years ended december 31 , 2012 and 2011. replace_table_token_10_th during the twelve months ended december 31 , 2012 our total revenue increased $ 30.4 million or 18 % , to $ 199.4 million compared to $ 169.0 million in 2011. the increase in revenues is a summation of revenue from business acquisitions completed during 2012 and 2011 and the continued growth achieved in our exchange channel , partially offset in the aggregate by a reduction in bpo revenues which were affected by the downturn in the construction industry , and a reduction in health revenues due to uncertainty associated with the health reform movement . with respect to business acquisitions completed during the fiscal years 2012 and 2011 on a pro forma basis combined revenues increased 1.3 % to $ 212.4 million for the year 2012 from the $ 209.7 million of pro forma revenue for the year 2011 , whereas there was a 18.0 % increase in reported revenues for the same comparative periods . the cause for the difference between the 18.0 % increase in reported 2012 revenue versus 2011 revenue , as compared to the 1.3 % increase in 2012 pro forma versus 2011 pro forma revenue is due to the effect of combining the additional revenue derived from those businesses acquired during the years 2011 and 2012 , specifically adam , healthconnect , bsi , taimma , planetsoft , fintechnix , and trisystems , with the company 's pre-existing operations . the 2012 and 2011 pro forma financial information assumes that all such business acquisitions were made on january 1 , 2011 , whereas the company 's reported financial statements for 2012 only includes the revenues from the businesses since the effective date that they were acquired by ebix , and therefore includes five months of actual financial results for trisystems , seven months of planetsoft , seven months of fintechnix , and nine months of bsi and of taimma . similarly , the 2011 pro forma financial information includes a full year of results for planetsoft and adam as if they had been acquired on january 1 , 2011 , whereas the company 's reported financial statements for the year ended december 31 , 2011 only includes the actual financial results of adam since the effective date of its acquisition on february 7 , 2011 , only 1.5 months of healthconnect , and no revenue for planetsoft . supplemental pro forma information - the pro forma revenues of the company for 2012 included a drop of $ 5.63 million as compared to pro forma 2011 revenues , on account of uncertainty created by the health reform movement , decision to exit from certain unprofitable health insurance related activities , the de-emphasizing of certain customer channels in brazil , and the weakening of the brazilian currency by approximately 14 % year over year . excluding the decrease in revenue from these specific health insurance areas and brazil , the company 's then adjusted 2012 pro forma revenues increased 3.9 % as compared to 2011 pro forma revenues . the relative change in pro forma and actual revenues is based on the following premises : 2012 and 2011 pro forma revenue contains actual revenue of the acquired entities before acquisition date , as reported by the sellers , as well as actual revenue of the acquired entities after acquisition . growth in revenues of the acquired entities after acquisition date are only reflected for the period after their acquisition . revenue billed to existing clients from the cross selling of acquired products has been assigned to the acquired section of our business . any existing products sold to new customers acquired through the acquisition customer base , has also been assigned to the acquired section of our business . 2011 pro forma revenues include revenues from some product lines whose sale was discontinued after the acquisition date and revenues from some customers whose contracts were discontinued . this is typically done for efficiency and or competitive reasons .
| results of operations replace_table_token_7_th twelve months ended december 31 , 2013 and 2012 operating revenue the company derives its revenues primarily from professional and support services , which includes subscription and transaction fees pertaining to services delivered over our exchanges or from our asp platforms , revenue generated from software development projects and associated fees for consulting , implementation , training , and project management provided to customers using our systems , and business process outsourcing revenue . ebix 's revenue streams come from four product channels . presented in the table below is the breakout of our revenues for each of those product channels for the years ended december 31 , 2013 and 2012 . replace_table_token_8_th during the twelve months ended december 31 , 2013 our total revenue increased $ 5.3 million , or 3 % , to $ 204.7 million compared to $ 199.4 million in 2012 . the increase in revenues is a summation of revenue from business acquisitions completed during 2013 and 2012 , and the growth achieved in our carrier and exchange channels , somewhat partially offset in the aggregate by a reduction in bpo revenues which were affected by the depressed construction industry , and a small reduction in broker system revenues , mainly due to exchange rate fluctuations impacting international revenues . the company continues to immediately and efficiently leverage product cross-selling opportunities across all channels , as facilitated by our operating philosophy and business acquisition strategy . with respect to business acquisitions completed during the fiscal years 2013 and 2012 on a pro forma basis , as disclosed in the table in note 4 “ pro forma financial information ” to the enclosed consolidated 22 financial statements , combined pro forma revenues decreased 4.4 % to $ 205.6 million for the year 2013 from the $ 215.0 million of pro forma revenue for the year 2012 , whereas there was a 2.7 % increase in reported revenues for the same comparative periods .
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the esop contribution level for each employee depends upon date of hire , with those employees hired after april 1 , 2012 eligible to receive a contribution that is 50 % of the contribution made for employees hired on or before april 1 , 2012. our contribution to the esop for fiscal 2018 , fiscal 2017 and fiscal 2016 was 5 % of each employee 's eligible compensation for employees hired on or before april 1 , 2012. during fiscal 2017 , we established a nonqualified deferred compensation plan covering employees who are classified as “ highly compensated employees ” as determined by irs guidelines for the plan year and who story_separator_special_tag the following is a discussion and analysis of our financial condition and results of operations for fiscal 2018 , 2017 and 2016. fiscal 2016 was a 53-week year , whereas fiscal 2018 and 2017 were 52-week years . this discussion should be read in conjunction with the consolidated financial statements and notes to consolidated financial statements included in item 8 of this annual report on form 10-k. overview we derive substantially all of our revenues from the sale of chemicals and specialty ingredients to our customers in a wide variety of industries . we began our operations primarily as a distributor of bulk chemicals with a strong customer focus . over the years , we have maintained the strong customer focus and have expanded our business by increasing our sales of value-added chemical products and specialty ingredients , including manufacturing , blending and repackaging certain products . acquisitions and business expansion near the end of the third quarter of fiscal 2016 , we acquired stauber performance ingredients ( “ stauber ” ) for $ 157.0 million on a cash-free , debt-free basis , subject to a customary working capital adjustment . the total consideration for the acquisition was $ 158.2 million ( $ 156.7 million net of cash acquired ) . stauber operates out of facilities in new york and california and blends and distributes specialty products and ingredients to manufacturers of nutraceutical , functional food and beverage , personal care , dietary supplement , and other nutritional food , health and wellness products . the acquisition expanded our portfolio of value-added specialty products within new markets . the results of operations since the acquisition date , and the assets , including the goodwill associated with the acquisition , are reported in our health and nutrition operating segment that we established as a result of this acquisition , starting with our results for the fourth quarter of fiscal 2016. direct costs of $ 3.3 million related to this acquisition , 15 consisting mainly of professional and consulting fees , were expensed as incurred during fiscal 2016 , and were classified as selling , general and administrative expenses in our consolidated statement of income . in the second quarter of fiscal 2016 , we acquired substantially all the assets of davis supply , inc. ( “ davis ” ) for $ 4.5 million under the terms of an asset purchase agreement with davis and its shareholders . davis was a water treatment chemical distribution company operating in florida , and upon acquisition we integrated this business into our existing florida locations . the results of operations after the date of acquisition and the acquired assets are included in our water treatment segment . in addition to the acquisitions discussed above , we opened two new branches for our water treatment group in fiscal 2016. we expect to continue to invest in existing and new branches to expand our water treatment group 's geographic coverage . the cost of any one of these expansion branches is not expected to be material . in addition , during fiscal 2017 and 2016 , we proactively added route sales and other support personnel to water treatment group branch offices within our existing geographic coverage area . while these additions add costs in the near term , we expect these investments to better position us for future growth . goodwill impairment during the fourth quarter of fiscal 2018 , we recorded an impairment charge of $ 39.1 million in our health and nutrition operating segment . the impairment charge was a result of changes in expectations for future growth as part of our fourth quarter long-term strategic planning process to align with historical experience in recent periods and expected changes in future product mix . share repurchase program in fiscal 2015 , our board of directors authorized the repurchase of up to 300,000 shares of our outstanding common stock . the shares may be repurchased on the open market or in privately negotiated transactions subject to applicable securities laws and regulations . the primary objective of the share repurchase program is to offset the impact of dilution from issuances relating to employee and director equity grants and our employee stock purchase program . no shares were repurchased during fiscal 2018 or 2017. during fiscal 2016 , we repurchased 127,852 shares of common stock with an aggregate purchase price of $ 4.8 million . as of april 1 , 2018 , the remaining balance of shares available to be purchased under the share repurchase program was 112,546 shares . financial overview an overview of our financial performance in fiscal 2018 is provided below : sales of $ 504.2 million , a 4.3 % increase from fiscal 2017 ; gross profit of $ 86.8 million , a decrease of $ 11.3 million , or 11.5 % from fiscal 2017 ; selling , general and administrative ( “ sg & a ” ) expenses held flat year over year , and down 50 basis points as a percentage of sales from fiscal 2017 ; goodwill impairment charge of $ 39.1 million ; and net cash provided by operating activities of $ 27.3 million as compared to $ 44.9 million for fiscal 2017. we focus on total profitability dollars when evaluating our financial results as opposed to profitability as a percentage of sales , as sales dollars tend to fluctuate , particularly in our industrial and water treatment segments story_separator_special_tag despite lower sales volumes , driven largely by the 53rd week in the prior year , gross profit dollars increased due to improved per-unit margins from certain of our specialized products , and the year-over-year impact from lifo . gross profit as a percentage of sales improved over the prior year because of the same drivers noted above in addition to lower selling prices in the current year driven by lower raw material costs on certain products . water treatment segment . gross profit for the water treatment segment increased $ 0.5 million to $ 36.0 million , or 27.9 % of sales , for fiscal 2017 , as compared to $ 35.5 million , or 27.6 % of sales , for fiscal 2016. the lifo method of valuing inventory increased gross profit by $ 0.7 million in fiscal 2017 and $ 0.4 million in the prior year . we estimated the gross profit impact of the 53rd week in fiscal 2016 to be approximately $ 0.6 million of additional gross profit in that year . gross profit increased due to increased sales volumes of specialized products that have higher per-unit margins as well as profits from the business we acquired late in the second quarter of fiscal 2016. health and nutrition segment . gross profit for our health and nutrition segment was $ 23.2 million , or 20.0 % of sales , in fiscal 2017 , compared to $ 6.8 million , or 20.1 % of sales , for fiscal 2016 , as the prior year included only one quarter of activity due to the timing of the stauber acquisition . inventories in this segment are valued using the first-in , first-out ( “ fifo ” ) method . we estimated the gross profit impact of the 53rd week in fiscal 2016 to be approximately $ 0.5 million of additional gross profit in that year . 19 selling , general and administrative expenses selling , general and administrative ( “ sg & a ” ) expenses increased $ 10.3 million to $ 59.4 million , or 12.3 % of sales , for fiscal 2017 , as compared to $ 49.1 million , or 11.9 % of sales , for fiscal 2016. we estimated the total impact to sg & a expenses of the 53rd week in fiscal 2016 to be approximately $ 0.9 million of additional expense in that year . we allocate certain corporate expenses to our operating segments , and we began allocating a portion of these costs to the health and nutrition segment in fiscal 2017. corporate costs allocated to health and nutrition were $ 1.9 million for fiscal 2017 ; these costs would have been allocated to industrial ( approximately $ 1.2 million ) and water treatment ( approximately $ 0.7 million ) in past years . excluding the impact of corporate allocations , sg & a expenses in our health and nutrition segment increased by $ 8.1 million in fiscal 2017 as compared to fiscal 2016. fiscal 2016 included only one quarter of activity due to the timing of the stauber acquisition , and included $ 3.3 million of non-recurring costs directly related to the stauber acquisition . sg & a expenses in our health and nutrition segment include $ 4.8 million of amortization expense on acquired intangible assets in fiscal 2017 and $ 1.2 million in fiscal 2016. sg & a expenses incurred elsewhere in the company increased by $ 2.2 million compared to the prior year , largely due to the addition of sales and support personnel in our industrial and water treatment segments . operating income operating income was $ 38.7 million , or 8.0 % of sales , for fiscal 2017 , as compared to $ 31.2 million , or 7.5 % of sales , for fiscal 2016. operating income reported in our segments is impacted by corporate allocations of certain sg & a costs . after corporate allocations , operating income in our health and nutrition segment was $ 5.5 million for fiscal 2017 , compared to a loss of $ 0.9 million for fiscal 2016 , which included only one quarter of operations and included $ 3.3 million of expenses related to our acquisition of stauber . operating income in our industrial segment increased by $ 1.2 million primarily as a result of the gross profit improvement discussed above . operating income for the water treatment segment was flat compared to the prior year as the increase in gross profit was offset by increased sg & a expenses . interest ( expense ) income , net interest expense increased by $ 1.8 million for fiscal 2017 due to the interest costs on the debt added at the end of the third quarter of fiscal 2016 to partially fund the stauber acquisition . income tax provision our effective income tax rate was 37.4 % for fiscal 2017 compared to 40.2 % for fiscal 2016. our effective tax rate for fiscal 2016 was negatively impacted by income tax expense of approximately $ 0.5 million associated with $ 1.4 million of stauber acquisition related expenditures which were not deductible for tax purposes and were recorded as discrete items during fiscal 2016. our effective tax rate for 2016 was also negatively impacted by $ 0.2 million related to a preliminary audit finding by a state income tax jurisdiction covering multiple years . the effective tax rate is generally impacted by projected levels of taxable income , permanent items , and state taxes . liquidity and capital resources cash provided by operating activities in fiscal 2018 was $ 27.3 million compared to $ 44.9 million in fiscal 2017 and $ 36.3 million in fiscal 2016 .
| results of operations the following table sets forth certain items from our statement of income as a percentage of sales from period to period : replace_table_token_4_th fiscal 2018 compared to fiscal 2017 sales sales increased $ 20.6 million , or 4.3 % , to $ 504.2 million for fiscal 2018 , as compared to sales of $ 483.6 million for fiscal 2017 . sales increased year over year in all segments . industrial segment . industrial segment sales increased $ 8.8 million , or 3.7 % , to $ 247.4 million for fiscal 2018 . sales of bulk commodity products in the industrial segment were approximately 20 % of sales dollars in fiscal 2018 and 19 % in fiscal 2017. overall sales volumes decreased slightly , while sales dollars increased as a result of more sales of certain specialty products with higher per-unit selling prices , as well as higher selling prices on certain products resulting from increased costs on one of our major commodities . water treatment segment . water treatment segment sales increased $ 9.5 million , or 7.4 % , to $ 138.5 million for fiscal 2018 . sales of bulk commodity products in the water treatment segment were approximately 15 % of sales dollars in both fiscal 2018 and 2017. sales dollars increased as a result of increased sales across many product lines . health and nutrition segment . sales for our health and nutrition increased $ 2.2 million , or 1.9 % , to $ 118.3 million for fiscal 2018. increased sales of distributed products more than offset decreased sales of our manufactured products . the decline in sales of our manufactured products was due to reduced demand from certain customers and refocused efforts as we made investments to upgrade the facility . gross profit gross profit was $ 86.8 million , or 17.2 % of sales , for fiscal 2018 , a decrease of $ 11.3 million from $ 98.1
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similar appropriate benchmarks are used to 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 company 's results of operations and financial condition for the three years ended july 31 , 2017 . the md & a should be read in conjunction with the company 's consolidated financial statements and notes included in item 8 of this annual report . this discussion contains forward-looking statements that involve risks and uncertainties . the company 's actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors , including those discussed elsewhere in this annual report , particularly item 1a , `` risk factors '' and in the safe harbor statement under the securities reform act of 1995 below . throughout this md & a , the company refers to measures used by management to evaluate performance , including a number of financial measures that are not defined under accounting principles generally accepted in the united states of america ( gaap ) . excluding foreign currency translation from net sales and net earnings are not measures of financial performance under gaap ; however , the company believes they are useful in understanding its financial results and provide comparable measures for understanding the operating results of the company between different fiscal periods . reconciliations within this md & a provide more details on the use and derivation of these measures . overview donaldson is a worldwide manufacturer of filtration systems and replacement parts . the company 's core strengths are leading filtration technology , strong customer relationships and its global presence . the company operates through two reporting segments , engine products and industrial products , and offers replacement parts and systems for a variety of product lines including air filtration and purification , liquid filtration for hydraulics , fuel and lube applications , and exhaust and emission . as a worldwide business , the company 's results of operations are affected by conditions in the global economic environment . under most economic conditions , the company 's market diversification between its oem and replacement parts customers , its diesel engine and industrial end markets and its global end markets has helped to limit the impact of weakness in any one product line , market or geography on the consolidated operating results of the company . net sales for the year ended july 31 , 2017 were $ 2,371.9 million , as compared with $ 2,220.3 million for the year ended july 31 , 2016 , an increase of $ 151.6 million , or 6.8 % . net sales were negatively impacted by foreign currency translation , which decreased sales by $ 8.2 million . on a constant currency basis , net sales for the year ended july 31 , 2017 increased 7.2 % from the prior fiscal year . net earnings for the year ended july 31 , 2017 were $ 232.8 million , as compared with $ 190.8 million for the year ended july 31 , 2016 , an increase of $ 42.0 million , or 22.0 % . diluted earnings per share were $ 1.74 for the year ended july 31 , 2017 , as compared with $ 1.42 for the year ended july 31 , 2016 , an increase of 22.5 % . 11 consolidated results of operations the following table summarizes consolidated results of operations for each of the three fiscal years ended july 31 , 2017 , 2016 and 2015 ( in millions , except per share data ) : replace_table_token_8_th net sales consolidated net sales for the years ended july 31 , 2017 , 2016 and 2015 were $ 2,371.9 million , $ 2,220.3 million and $ 2,371.2 million , respectively . net sales by operating segment are as follows ( in millions ) : replace_table_token_9_th consolidated net sales by geographic region for the years ended july 31 , 2017 , 2016 and 2015 are as follows ( in millions ) : replace_table_token_10_th 12 although net sales excluding foreign currency translation is not a measure of financial performance under gaap , the company believes that it is useful in understanding its financial results and provides comparable measures for understanding the operating results of the company between different fiscal periods . the following is a reconciliation to the most comparable gaap financial measure of this non-gaap financial measure for the years ended july 31 , 2017 , 2016 and 2015 ( in millions ) : replace_table_token_11_th ( 1 ) the impact of foreign currency translation is calculated by translating current period foreign currency revenue into u.s. dollars using the average foreign currency exchange rates for the prior fiscal year period rather than actual current period foreign currency exchange rates . the fiscal 2017 sales increase of $ 151.6 million from fiscal 2016 was primarily driven by increases in the aftermarket and off-road business units within the engine products segment , partially offset by declining sales of gas turbine systems products and on-road . fiscal 2017 sales increased $ 162.0 million in the engine products segment and decreased $ 10.4 million in the industrial products segment . foreign currency exchange rate fluctuations increased sales of engine products by $ 0.6 million and decreased industrial products sales by $ 8.8 million . fiscal 2017 sales cadence reflected typical seasonality , with a larger percent of full-year revenue realized during the second half of the fiscal year . the company continues to face a mixed operating environment , with engine-related end markets , including global agriculture , mining and construction , exhibiting signs of stability and recovery , whereas industrial markets remain somewhat uncertain . backlog at august 31 , 2017 , the backlog of orders expected to be delivered within 90 days was $ 395.5 million . the 90-day backlog at august 31 , 2016 , was $ 323.0 million . story_separator_special_tag the decrease in other income , net for fiscal 2016 was primarily driven by $ 6.8 million of higher losses on foreign exchange compared with fiscal 2015. income taxes the effective tax rate for the year ended july 31 , 2017 was 27.7 % , as compared with 25.9 % for the year ended july 31 , 2016 . the year-over-year change was primarily driven by nonrecurring tax benefits recorded in fiscal 2016 from the favorable settlements of tax audits , which reduced the prior year effective tax rate by 1.7 percentage points . the effective tax rate for the year ended july 31 , 2016 was 25.9 % , as compared with 27.9 % for the year ended july 31 , 2015 . the year-over-year change was primarily driven by nonrecurring tax benefits recorded in fiscal 2016 from the favorable settlements of tax audits and the mix of earnings between tax jurisdictions . net earnings net earnings for the year ended july 31 , 2017 were $ 232.8 million , as compared with $ 190.8 million for the year ended july 31 , 2016 , an increase of $ 42.0 million , or 22.0 % . diluted earnings per share were $ 1.74 for the year ended july 31 , 2017 , as compared with $ 1.42 for the year ended july 31 , 2016 , an increase of 22.5 % . net earnings for the year ended july 31 , 2016 were $ 190.8 million , as compared with $ 208.1 million for the year ended july 31 , 2015 , a decrease of $ 17.3 million , or 8.3 % . diluted net earnings per share were $ 1.42 for the year ended july 31 , 2016 , as compared with $ 1.49 for the year ended july 31 , 2015 , a decrease of 4.7 % . 14 although net earnings excluding foreign currency translation is not a measure of financial performance under gaap , the company believes that it is useful in understanding its financial results and provides a comparable measure for understanding the operating results of the company between different fiscal periods . the following is a reconciliation to the most comparable gaap financial measure of this non-gaap financial measure for the years ended july 31 , 2017 , 2016 and 2015 ( in millions ) : replace_table_token_12_th ( 1 ) the impact of foreign currency translation is calculated by translating current period foreign currency net earnings into u.s. dollars using the average foreign currency exchange rates for the prior fiscal year period rather than actual current period foreign currency exchange rates . restructuring activities the company did not incur any restructuring or impairment charges during fiscal 2017 . the company incurred $ 16.1 million of restructuring changes in fiscal 2016 with $ 10.4 million recorded in operating expenses and the remaining $ 5.7 million recorded in cost of sales . the engine products segment incurred $ 8.8 million and the industrial products segment incurred $ 7.3 million of the restructuring charges for fiscal 2016 . the company incurred $ 16.9 million of restructuring and impairment charges in fiscal 2015 with $ 8.5 million recorded in operating expenses and the remaining $ 8.4 million recorded in cost of sales . the engine products segment incurred $ 9.2 million and the industrial products segment incurred $ 3.8 million of the restructuring and impairment charges for fiscal 2015 . the charges for fiscal 2016 and fiscal 2015 consisted of one-time termination benefits from restructuring salaried and production workforce in all geographic regions and closing a production facility in grinnell , iowa . in addition , in fiscal 2015 the company recorded the abandonment and write-off of a partially completed facility in xuzhou , china and a $ 3.9 million charge related to a lump-sum settlement of its u.s. pension plan . as the company 's restructuring actions were mainly incurred and paid in the same period , there was no material liability balance as of either of the periods presented . segment results of operation net sales and earnings before income taxes by operating segment for each of the three years ended july 31 , 2017 , 2016 and 2015 are summarized as follows ( in millions ) : replace_table_token_13_th ( 1 ) corporate and unallocated includes corporate expenses determined to be non-allocable to the segments , such as interest income and interest expense . the corporate and unallocated results were determined on a consistent basis for all periods presented . 15 engine products segment the following is a summary of net sales by product group within the company 's engine products segment for the years ended july 31 , 2017 , 2016 and 2015 ( in millions ) : replace_table_token_14_th the engine products segment sells to oems in the construction , mining , agriculture , aerospace , defense and truck end markets , and to independent distributors , oem dealer networks , private label accounts and large equipment fleets . products include replacement filters for both air and liquid filtration applications , air filtration systems , liquid filtration systems for fuel , lube and hydraulic applications , and exhaust and emissions systems . fiscal 2017 compared with fiscal 2016 net sales for the engine products segment for the year ended july 31 , 2017 were $ 1,553.3 million , as compared with $ 1,391.3 million for the year ended july 31 , 2016 , an increase of $ 162.0 million , or 11.6 % . sales in all product groups except on-road increased from the prior year , with increased sales in aftermarket and off-road driving nearly all of the segment-level improvement . the impact of foreign currency translation during fiscal 2017 increased engine products sales by $ 0.6 million . in constant currency , fiscal 2017 engine products sales increased $ 161.3 million , or 11.6 % . worldwide sales of off-road were $ 252.1 million , an increase of 16.4 % from fiscal 2016. in constant currency , sales increased $ 37.2 million , or 17.2 % .
| cash flow summary the company assesses its liquidity in terms of its ability to generate cash to fund its operating , investing and financing activities . significant factors affecting liquidity are : cash flows generated from operating activities , capital expenditures , acquisitions , dispositions , dividends , repurchase of outstanding shares , adequacy of available bank lines of credit and the ability to attract long-term capital with satisfactory terms . the company generates substantial cash from the operation of its businesses and remains in a strong financial position , with sufficient liquidity available for reinvestment in existing businesses and strategic acquisitions . cash flows for the years ended july 31 , 2017 , 2016 and 2015 are summarized as follows ( in millions ) : replace_table_token_17_th operating activities cash provided by operating activities for the year ended july 31 , 2017 was $ 310.3 million , as compared with $ 286.1 million for the year ended july 31 , 2016 , an increase of $ 24.2 million . the increase in cash generated by operating activities resulted from higher net earnings of $ 42.0 million , partially offset by several changes in working capital items that resulted in a net cash reduction . 19 accounts receivable at july 31 , 2017 was $ 497.7 million , as compared with $ 452.4 million at july 31 , 2016 , an increase of $ 45.3 million . the increase is due to increased sales in the fourth quarter of fiscal 2017 , slightly offset by an improvement in days sales outstanding . days sales outstanding was 67.2 days as of july 31 , 2017 , compared with 67.5 days as of july 31 , 2016. the company 's days sales outstanding is impacted by the mix of foreign sales , particularly in countries where longer payment terms are customary .
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the company releases cumulative translation adjustments from stockholders ' equity into earnings as a gain or loss only upon a complete or substantially complete liquidation of a controlling interest in a subsidiary or a group of assets within a foreign story_separator_special_tag general management 's discussion and analysis of financial condition and results of operations , referred to as the “ financial review , ” is intended to assist the reader in the understanding and assessment of significant changes and trends related to the results of operations and financial position of mckesson corporation together with its subsidiaries ( collectively , the “ company , ” “ we , ” “ our , ” or “ us ” and other similar pronouns ) . this discussion and analysis should be read in conjunction with the consolidated financial statements and accompanying financial notes in item 8 of part ii of this annual report on form 10-k. our fiscal year begins on april 1 and ends on march 31. unless otherwise noted , all references to a particular year shall mean our fiscal year . certain statements in this report constitute forward-looking statements . see item 1 - business - forward-looking statements in part i of this annual report on form 10-k for additional factors relating to these statements ; also see item 1a - risk factors in part i of this annual report on form 10-k for a list of certain risk factors applicable to our business , financial condition and results of operations . overview of our business : we are a global leader in healthcare supply chain management solutions , retail pharmacy , community oncology and specialty care , and healthcare technology . we partner with life sciences companies , manufacturers , providers , pharmacies , governments and other healthcare organizations to help provide the right medicines , medical products and healthcare services to the right patients at the right time , safely and cost-effectively . we conduct our business through three reportable segments : u.s. pharmaceutical and specialty solutions , european pharmaceutical solutions and medical-surgical solutions . all remaining operating segments and business activities that are not significant enough to require separate reportable segment disclosure are included in other , which primarily consists of mckesson canada , mckesson prescription technology solutions ( “ mrxts ” ) and our investment in change healthcare llc ( “ change healthcare jv ” ) , which was split-off from the company in the fourth quarter of 2020 as further discussed in this financial review . our organizational structure also includes corporate , which consists of income and expenses associated with administrative functions and projects , and the results of certain investments . the factors for determining the reportable segments include the manner in which management evaluates the performance of the company combined with the nature of the individual business activities . we evaluate the performance of our operating segments on a number of measures , including revenues and operating profit before interest expense and income taxes . refer to financial note 24 , “ segments of business , ” to the accompanying consolidated financial statements included in this annual report on form 10-k for a description of these segments . 25 mckesson corporation financial review ( continued ) story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; font-style : italic ; font-weight : bold ; '' > opioid-related litigation and claims we are a defendant in over 3,000 legal proceedings asserting claims related to distribution of controlled substances ( opioids ) in federal and state courts throughout the united states , and in puerto rico and canada . we are vigorously defending ourselves against such claims and proceedings and are a party to discussions with the objective of achieving broad resolution of the remaining claims . because of the large number of parties involved , together with the novelty and complexity of the issues , for which there may be different considerations among the parties , we can not predict the successful resolution through a negotiated settlement . an adverse judgment or negotiated resolution in any of these matters could have a material adverse impact on our financial position , cash flows or liquidity , or results of operations . refer to financial note 21 , “ commitments and contingent liabilities , ” to the accompanying consolidated financial statements included in this annual report on form 10‑k for more information . results of operations overview of consolidated results : replace_table_token_3_th bp - basis points nm - not meaningful 28 mckesson corporation financial review ( continued ) revenues revenues increased for the years ended march 31 , 2020 and 2019 compared to the respective prior years primarily due to market growth , including expanded business with existing customers within our u.s. pharmaceutical and specialty solutions segment . market growth includes growing drug utilization , price increases and newly launched products , partially offset by price deflation associated with brand to generic drug conversion . the increase in revenues for 2019 was also due to our 2019 first quarter acquisition of medical specialties distributors llc ( “ msd ” ) , partially offset by loss of customers within our u.s. pharmaceutical and specialty solutions segment . the impact from covid-19 increased revenues by less than 1 % for the year ended march 31 , 2020 and was primarily attributable to our u.s. pharmaceutical and specialty solutions and european pharmaceutical solutions segments . gross profit gross profit increased for the year ended march 31 , 2020 compared to the prior year primarily due to market growth in our medical-surgical solutions segment , partially offset by unfavorable effects of foreign currency exchange fluctuations . gross profit and gross profit margin for the year ended march 31 , 2020 compared to the prior year were unfavorably impacted by a decrease in net cash proceeds received of $ 22 million in 2020 compared to $ 202 million in 2019 representing our share of antitrust legal settlements , partially offset by higher last-in , first-out ( “ lifo ” ) credits in 2020 due to higher generic deflation . story_separator_special_tag at march 31 , 2018 , rexall health had no remaining goodwill related to our acquisition of rexall health ; 30 mckesson corporation financial review ( continued ) restructuring , impairment and related charges primarily includes long-lived asset impairment charges of $ 446 million due to the declines in estimated future cash flows in our european business including those declines in our u.k. retail business driven by government reimbursement reductions . in addition , we recorded employee severance and lease exit costs of $ 74 million for our 2018 restructuring plan in our mckesson europe business . the plan was substantially completed in 2020 ; sd & a includes a charitable contribution expense of $ 100 million to a public benefit california foundation ( the “ foundation ” ) ; sd & a includes increased expenses due to our business acquisitions , partially offset by a gain from sale of business of $ 109 million related to the sale of our eis business within other . goodwill impairments the impairment testing performed in 2020 did not indicate any material impairment of goodwill . as of the testing date , other risks , expenses and future developments , such as additional government actions , increased regulatory uncertainty and material changes in key market assumptions limit our ability to estimate projected cash flows , which could adversely affect the fair value of various reporting units in future periods , including our mckesson canada reporting unit in other where the risk of a material goodwill impairment is higher than other reporting units . refer to “ critical accounting policies and estimates ” included in this financial review for further information . on october 1 , 2019 , we voluntarily changed our annual goodwill impairment testing date from january 1 to october 1 to better align with the timing of our annual long-term planning process . this change was not material to our consolidated financial statements as it did not delay , accelerate , or avoid any potential goodwill impairment charge . refer to note 14 , “ goodwill and intangible assets , net , ” to the accompanying consolidated financial statements included in this annual report on form 10-k for further information . 2019 restructuring initiatives on april 25 , 2018 , we announced a strategic growth initiative intended to drive long-term incremental profit growth and increase operational efficiency . the initiative consists of multiple growth priorities and plans to optimize our operating models and cost structures primarily through the centralization , cost management and outsourcing of certain administrative functions . as part of the growth initiative , we committed to implement certain actions including a reduction in workforce , facility consolidation and store closures . this set of the initiatives was substantially complete by the end of 2020 and we recorded charges of $ 15 million and $ 135 million in 2020 and 2019 primarily representing employee severance , exit-related costs and asset impairment charges . any remaining charges primarily consist of exit-related costs . as previously announced on november 30 , 2018 , we relocated our corporate headquarters from san francisco , california to irving , texas to improve efficiency , collaboration and cost competitiveness , effective april 1 , 2019. we anticipate that the relocation will be complete by january 2021. we expect to incur total charges of approximately $ 80 million to $ 130 million , of which charges of $ 44 million and $ 33 million were recorded in 2020 and 2019 primarily representing employee retention expenses , asset impairments and accelerated depreciation . the estimated remaining charges primarily consist of lease and other exit-related costs , and employee-related expenses including retention . during the fourth quarter of 2019 , we committed to additional programs to continue our operating model and cost optimization efforts . we continue to implement centralization of certain functions and outsourcing through the expanded arrangement with a third-party vendor to achieve operational efficiency . the programs also include reorganization and consolidation of our business operations and related headcount reductions , closures of retail pharmacy stores in europe and closures of other facilities . we anticipate these additional programs will be substantially complete by the end of 2021. we expect to incur total charges of approximately $ 300 million to $ 350 million for these programs , of which charges of $ 72 million and $ 163 million were recorded in 2020 and 2019 primarily representing employee severance , accelerated depreciation expense and project consulting fees . the estimated remaining charges primarily consist of facility and other exit costs and employee-related costs . refer to financial note 4 , “ restructuring , impairment and related charges , ” to the accompanying consolidated financial statements included in this annual report on form 10-k for more information . 31 mckesson corporation financial review ( continued ) other income , net other income , net , for the year ended march 31 , 2020 decreased compared to the prior year primarily due to the 2020 pension settlement charges of $ 122 million related to our previously approved termination of the frozen u.s. defined benefit pension plan and higher gains recognized from the sale of investments in 2019 , partially offset by higher settlement gains in 2020 from our derivative contracts . in connection with the pension plan termination , we purchased annuity contracts from an insurer that will pay and administer the future pension benefits of the remaining participants . other income , net for the year ended march 31 , 2019 increased compared to the prior year primarily due to higher gains recognized from the sales of investments . equity earnings and charges from investment in change healthcare joint venture our investment in change healthcare jv is accounted for using the equity method of accounting .
| executive summary : the following executive summary provides highlights and key factors that impacted our business , operating results and liquidity for the year ended march 31 , 2020 . the coronavirus disease 2019 ( “ covid-19 ” ) did not significantly impact our financial condition , results of operations or liquidity in 2020. for a more in-depth discussion of how covid-19 impacted our business , operations , and outlook , see the covid-19 section of `` trends and uncertainties '' included below . revenues of $ 231.1 billion , reflecting an 8 % increase from the prior year driven primarily by market growth in our u.s. pharmaceutical and specialty solutions segment , including branded pharmaceutical price increases and higher volumes from retail national account customers ; gross profit increased 2 % from the prior year primarily driven by market growth in our medical-surgical solutions segment ; on october 21 , 2019 , we disclosed an opioid-related litigation settlement with two ohio counties and recorded a related charge of $ 82 million in total operating expenses ; on december 12 , 2019 , mckesson and walgreens boots alliance announced an agreement to create a joint venture that is expected to combine their respective pharmaceutical wholesale businesses in germany . as a result of this agreement , we recognized fair value remeasurement charges of $ 275 million in total operating expenses within our european pharmaceutical solutions segment ; on march 10 , 2020 , we completed the previously announced separation of our investment in change healthcare jv and recognized an estimated gain of $ 414 million related to this transaction . we no longer hold an interest in any securities of change healthcare jv or change healthcare , inc. ( “ change ” ) following the separation .
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forward-looking statements this annual report contains forward-looking statements and information relating to us that are based on the beliefs of our management as well as assumptions made by , and information currently available to , our management . when used in this report , the words “ believe , ” “ anticipate , ” “ expect , ” “ estimate , ” “ intend ” , “ plan ” and similar expressions , as they relate to us or our management , are intended to identify forward-looking statements . these statements reflect management 's current view of us concerning future events and are subject to certain risks , uncertainties and assumptions , including among many others : a general economic downturn ; a downturn in the securities markets ; federal or state laws or regulations having an adverse effect on proposed transactions that we desire to effect ; securities and exchange commission regulations which affect trading in the securities of “ penny stocks , ” ; and other risks and uncertainties . should any of these risks or uncertainties materialize , or should underlying assumptions prove incorrect , actual results may vary materially from those described in this report as anticipated , estimated or expected . all forward-looking statements attributable to us are expressly qualified in their entirety by the foregoing cautionary statement . 6 story_separator_special_tag accounting in interim periods , disclosure and transition . we have no material uncertain tax positions for any of the reporting periods presented . revenue recognition the company purchases calcium montmorillonite clay pursuant to an agreement with a related party , who owns the land and mine containing such clay , and resells the product for agricultural uses . revenue from the sale of product obtained from our mining contractor is recognized when ownership passes to the purchaser at which time the following conditions are met : i ) persuasive evidence that an agreement exists ; ii ) the risks and rewards of ownership pass to the purchaser including delivery of the product ; iii ) the selling price is fixed and determinable ; or , iv ) collectively is reasonably assured . stock based compensation stock based compensation is accounted for using the equity-based payments to non-employee topic of the fasb asc , which establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services . it also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity 's equity instruments or that may be settled by the issuance of those equity instruments . we determine the value of stock issued at the date of grant . we also determine at the date of grant the value of stock at fair market value or the value of services rendered ( based on contract or otherwise ) whichever is more readily determinable . stock based compensation for employees is account for using the stock based compensation topic of the fasb asc . we use the fair value method for equity instruments granted to employees and will use the black scholes model for measuring the fair value of options , if issued . the stock based fair value compensation is determined as of the date of the grant or the date at which the performance of the services is completed ( measurement date ) and is recognized over the vesting periods . going concern the company 's financial statements are prepared in accordance with generally accepted accounting principles applicable to a going concern . this contemplates the realization of assets and the liquidation of liabilities in the normal course of business . currently , the company does not have significant cash or other material assets , nor does it have operations or a source of revenues sufficient to cover its operational costs and allow it to continue as a going concern . the accompanying financial statements have been prepared in conformity with generally accepted accounting principles , which contemplate continuation of the company as a going concern . as of december 31 , 2017 , the company 's current liabilities exceeded its current assets by $ 139,781 and it has an accumulated deficit of $ 14,201,187. these factors raise substantial doubt about the company 's ability to continue as a going concern . these financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts , or amounts and classification of liabilities that might result from this uncertainty . we will need to raise funds or implement our business plan to continue operations . 9 in order to continue as a going concern , the company will need , among other things , additional capital resources . management 's plan is to obtain such resources for the company by obtaining capital from management and significant shareholders sufficient to meet its minimal operating expenses and seeking equity and or debt financing . however management can not provide any assurances that the company will be successful in accomplishing any of its plans . the ability of the company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations . the accompanying financial statements do not include any adjustments that might be necessary if the company is unable to continue as a going concern . balance sheet arrangements we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition , changes in financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources that is material to investors . contractual obligations the company has a contractual obligation pursuant to the m strata agreement . see item 5 above . story_separator_special_tag forward-looking statements this annual report contains forward-looking statements and information relating to us that are based on the beliefs of our management as well as assumptions made by , and information currently available to , our management . when used in this report , the words “ believe , ” “ anticipate , ” “ expect , ” “ estimate , ” “ intend ” , “ plan ” and similar expressions , as they relate to us or our management , are intended to identify forward-looking statements . these statements reflect management 's current view of us concerning future events and are subject to certain risks , uncertainties and assumptions , including among many others : a general economic downturn ; a downturn in the securities markets ; federal or state laws or regulations having an adverse effect on proposed transactions that we desire to effect ; securities and exchange commission regulations which affect trading in the securities of “ penny stocks , ” ; and other risks and uncertainties . should any of these risks or uncertainties materialize , or should underlying assumptions prove incorrect , actual results may vary materially from those described in this report as anticipated , estimated or expected . all forward-looking statements attributable to us are expressly qualified in their entirety by the foregoing cautionary statement . 6 story_separator_special_tag accounting in interim periods , disclosure and transition . we have no material uncertain tax positions for any of the reporting periods presented . revenue recognition the company purchases calcium montmorillonite clay pursuant to an agreement with a related party , who owns the land and mine containing such clay , and resells the product for agricultural uses . revenue from the sale of product obtained from our mining contractor is recognized when ownership passes to the purchaser at which time the following conditions are met : i ) persuasive evidence that an agreement exists ; ii ) the risks and rewards of ownership pass to the purchaser including delivery of the product ; iii ) the selling price is fixed and determinable ; or , iv ) collectively is reasonably assured . stock based compensation stock based compensation is accounted for using the equity-based payments to non-employee topic of the fasb asc , which establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services . it also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity 's equity instruments or that may be settled by the issuance of those equity instruments . we determine the value of stock issued at the date of grant . we also determine at the date of grant the value of stock at fair market value or the value of services rendered ( based on contract or otherwise ) whichever is more readily determinable . stock based compensation for employees is account for using the stock based compensation topic of the fasb asc . we use the fair value method for equity instruments granted to employees and will use the black scholes model for measuring the fair value of options , if issued . the stock based fair value compensation is determined as of the date of the grant or the date at which the performance of the services is completed ( measurement date ) and is recognized over the vesting periods . going concern the company 's financial statements are prepared in accordance with generally accepted accounting principles applicable to a going concern . this contemplates the realization of assets and the liquidation of liabilities in the normal course of business . currently , the company does not have significant cash or other material assets , nor does it have operations or a source of revenues sufficient to cover its operational costs and allow it to continue as a going concern . the accompanying financial statements have been prepared in conformity with generally accepted accounting principles , which contemplate continuation of the company as a going concern . as of december 31 , 2017 , the company 's current liabilities exceeded its current assets by $ 139,781 and it has an accumulated deficit of $ 14,201,187. these factors raise substantial doubt about the company 's ability to continue as a going concern . these financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts , or amounts and classification of liabilities that might result from this uncertainty . we will need to raise funds or implement our business plan to continue operations . 9 in order to continue as a going concern , the company will need , among other things , additional capital resources . management 's plan is to obtain such resources for the company by obtaining capital from management and significant shareholders sufficient to meet its minimal operating expenses and seeking equity and or debt financing . however management can not provide any assurances that the company will be successful in accomplishing any of its plans . the ability of the company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations . the accompanying financial statements do not include any adjustments that might be necessary if the company is unable to continue as a going concern . balance sheet arrangements we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition , changes in financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources that is material to investors . contractual obligations the company has a contractual obligation pursuant to the m strata agreement . see item 5 above .
| results of operations the following table shows the financial data of the statements of operations of the company for the year ended december 31 , 2017 and december 31 , 2016. the data should be read in conjunction with the audited consolidated financial statements of the company and related notes thereto . year ended december 31 , 2017 compared to year ended december 31 , 2016 replace_table_token_1_th during the year ended december 31 , 2017 , we decreased general and administrative expenses by $ 427,557 , a decrease of -52 % from the year ended december 31 , 2016. the decrease is attributable to fewer stock payments for services . stock payments for services for december 31 , 2017 and december 31 , 2016 were $ 222,000 and $ 509,700 respectively . liquidity and capital resources replace_table_token_2_th 7 as of december 31 , 2017 , cash totaled $ 15,274 and from the year ended december 31 , 2016 , cash increased by $ 4,182. this cash position was the result of net cash used in operating activities . as of december 31 , 2017 , accounts payable mainly decreased by $ 184,288 due to the debt settlement with m strata . we believe that the level of financial resources is a significant factor for our future development , and accordingly we may choose at any time to raise capital through private debt or equity financing to strengthen our financial position , facilitate growth and provide us with additional flexibility to take advantage of business opportunities . the company is in the process of an offering of shares of common and preferred stock to be designated by the company . there is no guarantee that this offering will be completed , and if completed , the specific terms and conditions .
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the federal tax credits are recorded as an offset to the income tax provision in the year that they are earned under federal income tax law – over 10 to 15 years beginning in the year in which rental activity commences . these credits , if not used in the tax return for the year of origination , can be carried forward for 20 years . the company invests in a tax credit entity , story_separator_special_tag the following discussion and analysis presents our financial condition and results of operations on a consolidated basis . however , we conduct all of our material business operations through our wholly owned bank subsidiary , origin bank , and the discussion and analysis that follows primarily relates to activities conducted at the bank level . the following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes contained in item 8 of this report . to the extent that this discussion describes prior performance , the descriptions relate only to the periods listed , which may not be indicative of our future financial outcomes . in addition to historical information , this discussion contains forward-looking statements that involve risks , uncertainties and assumptions that could cause results to differ materially from management 's expectations . factors that could cause such differences are discussed in the sections titled `` cautionary note regarding forward-looking statements '' and `` item 1a . risk factors . '' we assume no obligation to update any of these forward-looking statements . critical accounting policies and estimates our consolidated financial statements are prepared in accordance with u.s. gaap and with general practices within the financial services industry . application of these principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under current circumstances . these assumptions form the basis for our judgments about the carrying values of assets and liabilities that are not readily available from independent , objective sources . we evaluate our estimates on an ongoing basis . use of alternative assumptions may have resulted in significantly different estimates . actual results may differ from these estimates . please refer to note 1 - significant accounting policies to our consolidated financial statements contained in item 8 of this report for a full discussion of our accounting policies , including estimates . 41 we have identified the following accounting estimates that , due to the difficult , subjective or complex judgments and assumptions inherent in those estimates and the potential sensitivity of the financial statements to those judgments and assumptions , are critical to an understanding of our financial condition and results of operations . we believe that the judgments , estimates and assumptions used in the preparation of the financial statements are appropriate . allowance for loan losses . our allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings . subsequent recoveries , if any , are credited to the allowance . the allowance for loan losses is evaluated on a regular basis by management and is based upon management 's periodic review of the collectability of the loans in light of historical experience , the nature and volume of the loan portfolio , adverse situations that may affect the borrower 's ability to repay , estimated value of any underlying collateral , and prevailing economic conditions . this evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available . loan losses are charged against the allowance for loan losses when management believes the loss is confirmed . in addition , beginning january 1 , 2020 , our methodology for determining our allowance for loan losses changed due to the implementation of the cecl , accounting standard . as a result , we recognized a one-time , after tax cumulative effect adjustment of $ 760,000 to retained earnings at the beginning of the first quarter of 2020 , increasing the allowance for credit losses by approximately $ 1.3 million and decreasing the off-balance sheet reserve by $ 382,000 . our adjustment to the allowance for credit losses at the transition date may vary from our estimate due to refinements in the loss estimation models or factors . mortgage servicing rights . we recognize the rights to service mortgage loans based on the estimated fair value of the mortgage servicing right ( `` msr '' ) when loans are sold and the associated servicing rights are retained . we elected to account for the msr at fair value . the fair value of the msr is determined using a valuation model administered by a third party that calculates the present value of estimated future net servicing income . the model incorporates assumptions that market participants use in estimating future net servicing income , including estimates of prepayment speeds , discount rate , default rates , cost to service ( including delinquency and foreclosure costs ) , escrow account earnings , contractual servicing fee income and other ancillary income such as late fees . management reviews all significant assumptions quarterly . mortgage loan prepayment speeds , a key assumption in the model , is the annual rate at which borrowers are forecasted to repay their mortgage loan principal . the discount rate used to determine the present value of estimated future net servicing income , another key assumption in the model , is an estimate of the rate of return investors in the market would require for an asset with similar risk . both assumptions can , and generally will , change as market conditions and interest rates change . an increase in either the prepayment speed or discount rate assumption will result in a decrease in the fair value of the msr , while a decrease in these assumptions will result in an increase in the fair value of the msr . story_separator_special_tag increases in the yield earned on loans held for investment provided approximately $ 19.5 million of the increase in interest income , while average loans held for investment provided approximately $ 11.6 million of the increase . commercial and industrial and commercial real estate loans contributed a total of $ 20.0 million of the increase . these increases were partially offset by an increase in the cost of funding primarily driven by increases in market interest rates . the average cost of our interest-bearing liabilities increased for the year ended december 31 , 2018 , compared to 2017 , primarily due to higher average savings and interest-bearing transaction account rates . the average rate paid on interest-bearing deposits was 1.10 % for the year ended december 31 , 2018 , an increase of 36 basis points from 0.74 % for the year ended december 31 , 2017 . 43 the following table presents average balance sheet information , interest income , interest expense and the corresponding average yields earned and rates paid for the years ended december 31 , 2019 , 2018 and 2017 . replace_table_token_4_th 44 ( 1 ) nonaccrual loans are included in their respective loan category for the purpose of calculating the yield earned . all average balances are daily average balances . ( 2 ) includes government national mortgage association ( `` gnma '' ) repurchase average balances of $ 26.0 million , $ 30.1 million and $ 26.1 million for the years ended december 31 , 2019 , 2018 and 2017 , respectively . the gnma repurchase asset and liability are recorded as equal offsetting amounts in the consolidated balance sheets , with the asset included in loans held for sale and the liability included in fhlb advances and other borrowings . for more information on the gnma repurchase option , see note 9 - mortgage banking in the notes to our consolidated financial statements . ( 3 ) in order to present pre-tax income and resulting yields on tax-exempt investments comparable to those on taxable investments , a tax-equivalent adjustment has been computed . this adjustment also includes income tax credits received on qualified school construction bonds . income from tax-exempt investments and tax credits were computed using a federal income tax rate of 21 % for the years ended december 31 , 2019 and 2018 , and 35 % for the year ended december 31 , 2017. the tax-equivalent net interest margin would have been 3.49 % for the year ended december 31 , 2017 , if we had been subject to the 21 % federal income tax rate enacted for 2018 , in the tax cuts and jobs act . rate/volume analysis the following tables present the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities . it distinguishes between the changes related to outstanding balances and those due to changes in interest rates . the change in interest attributable to rate changes has been determined by applying the change in rate between periods to average balances outstanding in the earlier period . the change in interest due to volume has been determined by applying the rate from the earlier period to the change in average balances outstanding between periods . for purposes of this table , changes attributable to both rate and volume that can not be segregated have been allocated to rate . replace_table_token_5_th 45 replace_table_token_6_th provision for credit losses the provision for credit losses , which includes both the provision for loan losses and provision for off-balance sheet commitments , is based on management 's assessment of the adequacy of both our allowance for loan losses and our reserve for off-balance sheet lending commitments . factors impacting the provision include inherent risk characteristics in our loan portfolio , the level of nonperforming loans and net charge-offs , both current and historic , local economic and credit conditions , the direction of the change in collateral values , and the funding probability on unfunded lending commitments . the provision for credit losses is charged against earnings in order to maintain our allowance for loan losses , which reflects management 's best estimate of probable losses inherent in our loan portfolio at the balance sheet date , and our reserve for off-balance sheet lending commitments , which reflects management 's best estimate of probable losses inherent in our legally binding lending-related commitments . the allowance is increased by the provision for loan losses and decreased by charge-offs , net of recoveries . year ended december 31 , 2019 , compared to year ended december 31 , 2018 and 2017 we recorded provision expense of $ 9.6 million for the year ended december 31 , 2019 , compared to $ 1.0 million for the year ended december 31 , 2018 . we recorded provision expense of $ 1.0 million for the year ended december 31 , 2018 , a $ 7.3 million decrease from provision expense of $ 8.3 million for the year ended december 31 , 2017. see the section captioned “ allowance for loan losses ” elsewhere in this discussion for further analysis of the provision for loan losses . 46 noninterest income our primary sources of recurring noninterest income are service charges on deposit accounts , mortgage banking revenue , insurance commission and fee income , and other fee income . the table below presents the various components of and changes in our noninterest income for the periods indicated . replace_table_token_7_th n/m = not meaningful . year ended december 31 , 2019 , compared to year ended december 31 , 2018 noninterest income for the year ended december 31 , 2019 , increased by $ 5.2 million , or 12.7 % , to $ 46.5 million , compared to $ 41.2 million for the year ended december 31 , 2018 .
| general total assets increased by $ 503.1 million , or 10.4 % , to $ 5.32 billion at december 31 , 2019 , from $ 4.82 billion at december 31 , 2018 . the increase was primarily attributable to $ 354.1 million increase in loans held for investment and $ 183.7 million increase in interest-bearing deposits in banks partially offset by a decrease of $ 74.6 million in securities available for sale . loan portfolio our loan portfolio is our largest category of interest-earning assets and interest income earned on our loan portfolio is our primary source of income . at december 31 , 2019 , 70.4 % of the loan portfolio held for investment was comprised of commercial and industrial loans , mortgage warehouse lines of credit and commercial real estate loans , which were primarily originated within our market areas of north louisiana , texas and mississippi . 50 the following table presents the ending balance of our loan portfolio held for investment at the dates indicated . replace_table_token_9_th replace_table_token_10_th at december 31 , 2019 , total loans held for investment were $ 4.14 billion , an increase of $ 354.1 million , or 9.3 % , compared to $ 3.79 billion at december 31 , 2018 . the increase was driven by organic growth in all markets and led by increases in construction/land/land development and commercial and industrial loans . in 2018 , as a complement to our organic growth strategy , several lift-out teams were on-boarded in our houston market and seasoned lending professionals and relationship managers were recruited in our dallas and shreveport markets . our houston banking team was responsible for $ 259.8 million and $ 130.3 million in loan growth during 2019 and 2018 , respectively . 51 loan portfolio maturity analysis the table below presents the maturity distribution of our loans held for investment at december 31 , 2019 .
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readers should 17 also review and consider our disclosures under the heading `` special note regarding forward-looking statements '' describing various factors that could affect our business and the disclosures under the heading `` risk factors '' in this report . note that all dollar amounts in this item 7 are in thousands of u.s. dollars , except share and per share data . overview we are a premier infant and juvenile products company originally founded in 1985 and have publicly traded on the nasdaq stock market since 2007 under the symbol `` sumr . '' we create branded juvenile safety and infant care products ( targeted for ages 0-3 years ) that are intended to deliver a diverse range of parenting solutions to families . we focus on providing innovative products to meet the lifestyle and demands of families who seek more opportunities to connect with their children . we operate in one principal industry segment across geographically diverse marketplaces , selling our products globally to large , national retailers as well as independent retailers , and on the internet through third-party websites and our own corporate website . in north america , our customers include babies r us , wal-mart , amazon.com , target , buy buy baby , burlington coat factory , kmart , home depot , and lowe 's . our largest european-based customers are mothercare , toys r us , argos and tesco . we also sell through international distributors , representatives , and to select international retail customers in geographic locations where we do not have a direct sales presence . the juvenile products industry is estimated to be a $ 20 billion market worldwide , and consumer focus is on quality , safety , innovation , and style . due to the halo effect of baby products in retail stores , there is a strong retailer commitment to the juvenile category . we believe we are positioned to capitalize on positive market trends in the juvenile products industry , including a predicted increase in u.s. birth rates over the next several years . in fiscal 2015 , we continued to focus on our core product offerings , phasing out less profitable categories , liquidating related inventory , and improving our balance sheet and working capital positions . as we executed these initiatives , sales increased slightly for the year ended january 2 , 2016 ( `` fiscal 2015 '' ) while gross margins declined 7.5 % primarily due to the liquidation of closeout inventory combined with the unfavorable effect of currency exchange rates ( primarily on canadian sales ) , as compared to the year ended january 3 , 2015 ( `` fiscal 2014 '' ) . excluding $ 14,691 and $ 6,828 of sales related to non-core business in licensed , private label , and furniture sales for fiscal 2014 and fiscal 2015 , respectively , as well $ 3,281 of unfavorable foreign exchange impact on our international sales on a constant currency basis in 2015 , our core branded sales increased by 6.1 % . this increase in our core branded business , namely our summer® , swaddleme® , and bornfree® branded products , was primarily attributable to increased sales of our 3d lite convenience strollers , pop n play portable playards , gates and bath products . constant currency basis is determined by applying a fixed exchange rate , calculated as the 12-month average in fiscal 2014 , to the current local currency sales amounts , with the difference in reported sales being attributable to currency . general and administrative expenses increased by $ 5,859 in fiscal 2015 predominantly as a result of legal costs associated with a complaint that we filed on may 27 , 2015 as further described below under `` legal proceedings '' ( the `` complaint '' ) . depreciation and amortization increased by $ 1,232 primarily as a result of accelerated amortization on shortened estimated useful life of older technology as we move to our next generation of technology being developed in our product lines . as a result , we ended fiscal 2015 with a net loss of $ 0.47 per share . in july , we initiated cost reduction efforts to partially offset these losses . 18 as we continued to work to improve our balance sheet and improve working capital , we reduced excess inventory , which improved liquidity but negatively impacted our income statement and depressed margins in fiscal 2015. in fiscal 2016 , we expect to continue to focus on our core categories and , if necessary , phase out less profitable categories . although we reduced our fixed overhead in 2015 , we also expect to continue to incur legal expenses in connection with the complaint in fiscal 2016 , albeit at a lower level than in fiscal 2015 , and therefore our general and administrative expenses will remain higher than we would like for fiscal 2016. we can not predict the outcome of this lawsuit or for how long it will remain active . summary of critical accounting policies and estimates the following summary of our critical accounting policies is presented to assist in understanding our consolidated financial statements . the consolidated financial statements and notes are representations of our management , who are responsible for their integrity and objectivity . these accounting policies conform to accounting principles generally accepted in the united states of america and have been consistently applied in the preparation of the consolidated financial statements . additional information about our accounting policies and estimates may be found in note 1 to our consolidated financial statements included in this report . we make certain estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses . the accounting policies described below are those we consider critical in preparing our financial statements . some of these policies include significant estimates made by management using information available at the time the estimates were made . however , these estimates could change materially if different information or assumptions were used . story_separator_special_tag based primarily on the above factors , net cash decreased for fiscal year 2015 by $ 349 , resulting in a cash balance of approximately $ 923 at fiscal year end . the following table summarizes our significant contractual commitments at fiscal 2015 year end : replace_table_token_3_th estimated future interest payments on our line of credit are based upon the interest rates in effect at january 2 , 2016. capital resources in addition to operating cash flow , we also rely on our existing asset-based revolving credit facility with bank of america , n.a . to meet our financing requirements , which are subject to changes in our inventory and account receivable levels . we regularly evaluate market conditions , our liquidity profile , and various financing alternatives for opportunities to enhance our capital structure . if market conditions are favorable , we may refinance our existing debt or issue additional securities . based on past performance and current expectations , we believe that our anticipated cash flow from operations and availability under our existing credit facility are sufficient to fund our working capital , capital expenditures and debt service requirements for at least the next 12 months . 23 however , if we are unable to meet our current financial forecast , do not adequately control expenses , and can not raise additional funds or adjust our operations accordingly , we may not remain in compliance with the financial covenants required under our revolving credit facility . unforeseen circumstances , such as softness in the retail industry or deterioration in the business of a significant customer , could create a situation where we can not access all of our available lines of credit due to insufficient asset availability or an inability to meet the financial covenants as required under our credit facility . there is no assurance that we will meet all of our financial or other covenants in the future , or that our lenders will grant waivers if there are covenant violations . in addition , should we need to raise additional funds through additional debt or equity financings , any sale of additional debt or equity securities may cause dilution to existing stockholders . if sufficient funds are not available or are not available on acceptable terms , our ability to address any unexpected changes in our operations could be limited . furthermore , there can be no assurance that we will be able to raise such funds if and when they are required . failure to obtain future funding when needed or on acceptable terms could materially adversely affect our results of operations . credit facilities in april 2015 , we and our wholly owned subsidiary , summer infant ( usa ) , inc. , entered into an amended and restated loan and security agreement with bank of america , n.a. , as agent , providing for an asset-based credit facility . the credit facility replaced our prior credit facility with bank of america . on december 10 , 2015 , we amended the credit facility with respect to ( i ) the interest rate under each of revolving facility , the filo facility and the term loan facility ; ( ii ) to modify the maximum leverage ratio financial covenant ; ( iii ) to modify certain expenses and fees included within the definition of ebitda ; and ( iv ) to remove the occurrence of an event having a material adverse effect on the company as an event of default ( as amended , the `` credit facility '' ) . the credit facility consists of a $ 60,000 asset-based revolving credit facility , with a $ 10,000 letter of credit sub-line facility ( the `` revolving facility '' ) , a $ 5,000 `` first in last out '' ( filo ) revolving credit facility ( the `` filo facility '' ) and a $ 10,000 term loan facility ( the `` term loan facility '' ) . pursuant to an accordion feature , the credit facility includes the ability to increase the revolving facility by an additional $ 15,000 upon the company 's request and the agreement of the lenders participating in the increase . the total borrowing capacity under the revolving facility is based on a borrowing base , generally defined as 85 % of the value of eligible accounts plus the lesser of ( i ) 70 % of the value of eligible inventory or ( ii ) 85 % of the net orderly liquidation value of eligible inventory , less reserves . the total borrowing capacity under the filo facility is based on a borrowing base , generally defined as a specified percentage of the value of eligible accounts that steps down over time , plus a specified percentage of the value of eligible inventory that steps down over time . the scheduled maturity date of the loans under the revolving facility and the term loan facility is april 21 , 2020 , and loans under the filo facility terminate april 21 , 2018 , subject in each case to customary early termination provisions . any termination of the revolving facility would require termination of the term loan facility and the filo facility . all obligations under the credit facility are secured by substantially all our assets . in addition , our subsidiaries , summer infant canada limited and summer infant europe limited , are guarantors under the credit facility . proceeds from the loans were used to ( i ) repay our outstanding term loan , ( ii ) pay fees and transaction expenses associated with the closing of the credit facility , ( iii ) pay obligations under the credit facility , and ( iv ) pay for lawful corporate purposes , including working capital . borrowings under the revolving facility will bear interest , at our option , at a base rate or at libor , plus applicable margins based on average quarterly availability and ranging between 2.0 % and 2.5 % on libor borrowings and 0.5 % and 1.0 % on base rate borrowings .
| results of operations the following table presents selected condensed consolidated financial information for our company for the fiscal years ended january 2 , 2016 ( `` fiscal 2015 '' ) and january 3 , 2015 ( `` fiscal 2014 '' ) . replace_table_token_2_th fiscal 2015 compared with fiscal 2014 net sales increased slightly from $ 205,359 for fiscal 2014 to $ 205,804 for fiscal 2015. net sales were impacted by our focus on our core branded business and exiting non-core business in licensing , private label , and furniture categories , as well as the unfavorable effect of a strengthening u.s. dollar . excluding $ 14,691 and $ 6,825 of sales related to non-core business in licensed , private label , and furniture sales in fiscal 2014 and 2015 , respectively , as well as $ 3,281 unfavorable foreign exchange effect on a constant currency basis , our core branded sales increased by 6.1 % in fiscal 2015. this increase in our core branded business , namely our summer® , swaddleme® , and bornfree® branded products , was primarily attributable to increased sales of our 3d lite convenience strollers , pop n play portable playards , gates and bath products . cost of goods sold included the cost of the finished product from suppliers , duties on certain imported items , freight-in from suppliers , and miscellaneous charges .
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the comparison of our financial results for the year ended december 31 , 2019 to those for the year ended december 31 , 2018 is included in our management 's discussion and analysis of financial condition and results of operations in our annual report on form 10-k for the fiscal year ended december 31 , 2019 , filed with the sec as exhibit 99.2 to the company 's amendment no . 1 to form s-4 filed on september 25 , 2020. in addition to historical information , this discussion includes certain forward-looking statements regarding business matters and events and trends that may affect our future results . comments regarding our business that are not historical facts are considered forward-looking statements that involve inherent risks and uncertainties . actual results may differ materially from those contained in these forward-looking statements . for additional information regarding our cautionary disclosures , see the “ cautionary statement regarding forward-looking statements ” beginning on page 1 of this report . overview our business the bank was formed in 1923 as amalgamated bank of new york by the amalgamated clothing workers of america , one of the country 's oldest labor unions . although we are no longer majority union-owned , the amalgamated clothing workers of america 's successor , workers united , an affiliate of the service employees international union that represents workers in the textile , distribution , food service and gaming industries , remains a significant stockholder , holding approximately 41 % of our equity as of december 31 , 2020. as of december 31 , 2020 , our total assets were $ 6.0 billion , our total loans , net of deferred fees and allowance were $ 3.4 billion , our total deposits were $ 5.3 billion , and our stockholders ' equity was $ 535.8 million . as of december 31 , 2020 , our trust business held $ 36.8 billion in assets under custody and $ 15.4 billion in assets under management . we offer a complete suite of commercial and retail banking , investment management and trust and custody services . our commercial banking and trust businesses are national in scope and we also offer a full range of products and services to both commercial and retail customers through our three branch offices across new york city , one branch office in washington , d.c. , one branch office in san francisco , one commercial office in boston and our digital banking platform . our corporate divisions include commercial banking , trust and investment management and consumer banking . our product line includes residential mortgage loans , c & i loans , cre loans , multifamily mortgages , and a variety of commercial and consumer deposit products , including non-interest bearing accounts , interest-bearing demand products , savings accounts , money market accounts and certificates of deposit . we also offer online banking and bill payment services , online cash management , safe deposit box rentals , debit card and atm card services and the availability of a nationwide network of atms for our customers . 65 we currently offer a wide range of trust , custody and investment management services , including asset safekeeping , corporate actions , income collections , proxy services , account transition , asset transfers , and conversion management . we also offer a broad range of investment products , including both index and actively-managed funds spanning equity , fixed-income , real estate and alternative investment strategies to meet the needs of our clients . our products and services are tailored to our target customer base that prefers a financial partner that is socially responsible , values-oriented and committed to creating positive change in the world . these customers include advocacy-based non-profits , social welfare organizations , national labor unions , political organizations , foundations , socially responsible businesses , and other for-profit companies that seek to balance their profit-making activities with activities that benefit their other stakeholders , as well as the members and stakeholders of these commercial customers . our goal is to be the go-to financial partner for people and organizations who strive to make a meaningful impact in our society and who care about their communities , the environment , and social justice . we have obtained b corporation tm certification , a distinction we earned after being evaluated under rigorous standards of social and environmental performance , accountability , and transparency . we are also the largest of ten commercial financial institutions in the united states that are members of the global alliance for banking on values , a network of banking leaders from around the world committed to advancing positive change in the banking sector . covid-19 pandemic the covid-19 pandemic continues to create extensive disruptions to the global economy and financial markets and to businesses and the lives of individuals throughout the world . in particular , the covid-19 pandemic has severely restricted the level of economic activity in our markets . federal and state governments have taken , and may continue to take , unprecedented actions to contain the spread of the disease , including quarantines , travel bans , shelter-in-place orders , closures of businesses and schools , fiscal stimulus , and legislation designed to deliver monetary aid and other relief to businesses and individuals impacted by the pandemic . although in various locations certain activity restrictions have been relaxed and businesses and schools have reopened with some level of success , in many states and localities the number of individuals diagnosed with covid-19 has increased significantly , which may cause a freezing or , in certain cases , a reversal of previously announced relaxation of activity restrictions and may prompt the need for additional aid and other forms of relief . the impact of the covid-19 pandemic is fluid and continues to evolve , adversely affecting many of our clients . story_separator_special_tag impact on our investment portfolio we are also monitoring the impact of the covid-19 pandemic on the value of our investments . we mark to market our publicly traded investments and we review our investment portfolio for impairment at each period end . while the value of our portfolio has substantially recovered since the pandemic began , market conditions could continue to be volatile . although we have not 67 recognized any impairments in our portfolio since the pandemic began , it is possible that impairments may occur in the future if economic conditions deteriorate further . impact on our capital as of december 31 , 2020 , all of our capital ratios are in excess of all regulatory requirements . while we believe that we have sufficient capital to withstand an extended economic recession brought about by the covid-19 pandemic , our reported and regulatory capital ratios could be adversely impacted by credit losses . other impacts on our results of operation and financial condition in addition to the factors above , we believe the following factors may impact our earnings , though we are unable to quantify the impacts at this time : increased allowance related to loans that continue to be impacted by the economy after the payment deferral periods end lower net interest margin due to the federal reserves ' decision to lower rates to “ near zero ” at the end of march lower loan originations as the credit worthiness of borrowers may be impacted by the current economic environment as of december 31 , 2020 , we had $ 12.9 million of goodwill . during the second quarter of 2020 , we performed our annual impairment analysis and determined no goodwill impairment was required . however , changes in certain assumptions used in the bank 's calculations could result in significant differences in the results of the impairment test . should market conditions or management 's assumptions change significantly in the future , an impairment to goodwill is possible . we will continue to monitor the covid-19 pandemic and the related economic fallout , including changes in our stock price , the federal reserve 's significant reduction in interest rates and other business and market considerations , which may require us to reevaluate our goodwill impairment analysis . any goodwill impairment charges we incur could have a material adverse effect on our earnings for one reporting period , but would not impact the cash flow or regulatory capital levels of the bank . these factors , together or in combination with other events or occurrences that may not yet be known or anticipated , may materially and adversely affect our business , financial condition and results of operations . critical accounting policies and estimates our consolidated financial statements are prepared based on the application of accounting policies generally accepted in the united states , or gaap , the most significant of which are described in note 1 of our audited consolidated financial statements , starting on page 99 of this report . to prepare financial statements in conformity with gaap , management makes estimates , assumptions and judgments based on available information . these estimates , assumptions and judgments affect the amounts reported in the financial statements and accompanying notes . these estimates , assumptions and judgments are based on information available as of the date of the financial statements and , as this information changes , actual results could differ from the estimates , assumptions and judgments reflected in the financial statements . in particular , management has identified accounting policies that , due to the estimates , assumptions and judgments inherent in those policies , are critical in understanding our financial statements . management has presented the application of these policies to the audit committee of our board of directors . the following is a discussion of the critical accounting policies and significant estimates that require us to make complex and subjective judgments . additional information about these policies can be found in note 1 of our consolidated financial statements , which begin on page 99 of this report . additional information about our significant accounting policies and estimates can be found in note 1 of our consolidated financial statements , starting on page 99 of this report . allowance for loan losses we maintain an allowance for loan and lease losses ( “ allowance ” ) at a level we believe is sufficient to absorb probable incurred losses in our loan portfolio . management determines the adequacy of the allowance based on periodic evaluations of the loan portfolio and other factors , including past loss experience , the results of our ongoing loan grading process , the amount of past due and nonperforming loans , legal requirements , recommendations or requirements of regulatory authorities , and current economic conditions . these evaluations are inherently subjective as they require management to make material estimates , all of which may be susceptible to significant change . actual losses in any year may exceed allowance amounts . the allowance is increased by 68 provisions charged to expense and decreased by provisions released from expense or by actual charge-offs , net of recoveries or previous amounts charged-off . in accordance with the accounting guidance for business combinations , there was no allowance brought forward on any of the loans we acquired in our acquisition of nrb . for purchased non-credit impaired loans , credit and interest rate discounts representing the principal losses expected over the life of the loan are a component of the initial fair value and the total combined discount is accreted to interest income over the life of the loan . subsequent to the acquisition date , the method used to evaluate the sufficiency of the discount is similar to organic loans , and if necessary , additional reserves are recognized in the allowance . our allowance consists of specific and general components . the specific components relate to loans that are individually classified as impaired .
| results of operations general our results of operations depend substantially on net interest income , which is the difference between interest income on interest-earning assets , consisting primarily of interest income on loans , investment securities and other short-term investments and interest expense on interest-bearing liabilities , consisting primarily of interest expense on deposits and borrowings . our results of operations are also dependent on non-interest income , consisting primarily of income from trust department fees , service charges on deposit accounts , net gains on sales of investment securities and loans , income from equity investments in solar projects and income from bank-owned life insurance . other factors contributing to our results of operations include our provisions for loan losses , income taxes , and non-interest expenses , such as salaries and employee benefits , occupancy and depreciation expenses , professional fees , data processing fees and other miscellaneous operating costs . we had net income for the year ended 2020 of $ 46.2 million , or $ 1.48 per diluted common share , compared to $ 47.2 million , or $ 1.47 per diluted common share , for the year ended 2019. the $ 1.0 million decrease in net income for the year ended 2020 , compared to the year ended 2019 , was primarily due to a $ 21.0 million increase in the provision for loan losses and a $ 6.1 million 71 increase in non-interest expense , partially offset by a $ 13.4 million increase in net interest income and an $ 11.4 million increase in non-interest income . net interest income net interest income , representing interest income less interest expense , is a significant contributor to our revenues and earnings . we generate interest income from interest , dividends and prepayment fees on interest-earning assets , including loans , investment securities and other short-term investments . we incur interest expense from interest paid on interest-bearing liabilities , including interest-bearing deposits , fhlb advances and other borrowings .
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on september 26 , 2019 , the company entered into the a & r credit agreement resulting in the payoff of the real estate term loan and the term a loan through the a & r story_separator_special_tag financial condition and results of operations . management 's discussion and analysis of financial condition and results of operations is intended to assist in the understanding and assessing the trends and significant changes in our results of operations and financial condition . historical results may not be indicative of future performance . this discussion includes forward-looking statements that reflect our plans , estimates and beliefs . such statements involve risks and uncertainties . our actual results may differ materially from those contemplated by these forward-looking statements as a result of various factors , including those set forth in “ risk factors ” in part i , item 1a and “ cautionary statement regarding forward-looking statements ” of this annual report on form 10-k. this discussion should be read in conjunction with our audited consolidated financial statements and the notes thereto included in part ii , item 8 of this annual report on form 10-k. in this discussion , we use certain non-gaap financial measures . explanation of these non-gaap financial measures and reconciliation to the most directly comparable gaap financial measures are included in this management 's discussion and analysis of financial condition and results of operations . investors should not consider non-gaap financial measures in isolation or as substitutes for financial information presented in compliance with gaap . critical accounting policies and estimates critical accounting policies are those policies that , in management 's view , are most important in the portrayal of our financial condition and results of operations . the notes to the consolidated financial statements include full disclosure of significant accounting policies . the methods , estimates and judgments that we use in applying our accounting policies have a significant impact on the results that we report in our financial statements . these critical accounting policies require us to make difficult and subjective judgments , often as a result of the need to make estimates regarding matters that are inherently uncertain . those critical accounting policies and estimates that require the most significant judgment are discussed further below . see note 1 – nature of business and summary of significant accounting policies , in the notes to the consolidated financial statements in part ii , item 8 of this annual report on form 10-k for more specifics . goodwill , other intangibles and other long-lived assets our long-lived assets consist primarily of property , equipment , purchased intangible assets and goodwill . the valuation and the impairment testing of these long-lived assets involve significant judgments and assumptions , particularly as they relate to the identification of reporting units , asset groups and the determination of fair market value . we test our tangible and intangible long-lived assets subject to amortization for impairment whenever facts and circumstances indicate that the carrying amount of an asset may not be recoverable . we test goodwill and indefinite lived intangible assets for impairment annually , or more frequently if triggering events occur indicating that there may be impairment . we have recorded goodwill and perform testing for potential goodwill impairment at a reporting unit level . a reporting unit is an operating segment , or a business unit one level below an operating segment for which discrete financial information is available , and for which management regularly reviews the operating results . additionally , components within an operating segment can be aggregated as a single reporting unit if they have similar economic characteristics . we have performed testing on each of our reporting units which contain goodwill . we determine the fair value of our reporting units using multiple valuation methodologies , relying largely on an income approach but also incorporating value indicators from a market approach . under the income approach , we calculate the fair value of a reporting unit based on the present value of estimated future cash flows . the income approach is dependent on several key management assumptions , including estimates of future sales , gross margins , operating costs , interest expense , income tax rates , capital expenditures , changes in working capital requirements and the weighted average cost of capital or the discount rate . discount rate assumptions include an assessment of the risk inherent in the future cash flows of the reporting unit . expected cash flows used under the income approach are developed in conjunction with our budgeting and forecasting process . under the market approach , we estimate fair value of the reporting units using ebitda multiples . the multiples are derived from comparable publicly traded companies with similar operating and investment characteristics as the respective reporting units . during the fourth fiscal quarters of 2019 and 2018 , we performed our annual impairment assessments of goodwill , which did not indicate an impairment existed . for the twelve months ended december 31 , 2018 we had two reporting units , dmp and mec . the dmp reporting unit was acquired on december 14 , 2018 and had preliminarily estimated goodwill of $ 29.2 million as of december 31 , 2018. for the 18-day period from december 14 through december 31 , 2018 , dmp 's actual results of operations were above estimates utilized to determine the preliminary purchase price allocation . as a result , the fair value of the dmp reporting unit at december 31 , 2018 is nominally above its carrying value . at december 31 , 2018 , the mec reporting unit had goodwill with a carrying amount of approximately $ 40.2 million . the fair value of the mec reporting unit substantially exceeded carrying value for 2018. for the twelve months ended december 31 , 2019 , we concluded that the dmp and mec reporting units were integrated into one reporting unit . at december 31 , 2019 , the reporting unit had goodwill with a carrying amount of approximately $ 71.5 million . story_separator_special_tag under the current terms of the esop , we a re obligated to redeem eligible participant account balances for cash ( in accordance with the redemption schedule and subject to the limitations set forth in the esop ) . prior to this offering , we present all shares held by the esop as temporary equity on t he consolidated balance sheet at their maximum redemption value . following this offering , ( i ) we no longer redeem participants ' esop interests , as distributions from the esop made to a participant following retirement , death or termination of employment , o r the exercise of diversification rights under the traditional esop , will be made in our common stock , and upon receiving a distribution of our common stock from the esop a participant will be able to sell such shares of common stock in the market , subject to any requirements of federal securities law ; and ( ii ) with respect to any participant who exercises statutory diversification rights under the 401 ( k ) esop , the esop trustee will sell , on behalf of the participant , the shares that the participant has ele cted to diversify and reinvest the sale proceeds in an alternate investment option as directed by the participant . emerging growth company the jobs act permits an “ emerging growth company ” like us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies . we are choosing to use this provision and , as a result , we will comply with new or revised accounting standards as required for private companies . internal controls and procedures our management is responsible for establishing and maintaining adequate internal control over financial reporting for our company . internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with gaap . internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions ; providing reasonable assurance that transactions are recorded as necessary for preparation of our financial statements ; providing reasonable assurance that receipts and expenditures of our assets are made in accordance with management 's authorization ; and providing reasonable assurance that unauthorized acquisition , use or disposition of our assets that could have a material effect on the financial statements would be prevented or detected on a timely basis . because of its inherent limitations , internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected . furthermore , our controls and procedures can be circumvented by the individual acts of some persons , by collusion of two or more people or by management override of the control , and misstatements due to error or fraud may occur and not be detected on a timely basis . during the course of the quarterly and year-end close processes in 2019 , we identified a material weakness in the design and operation of our internal control over financial reporting . the material weakness relates to a lack of consistently documented accounting policies and procedures and a lack of formalized controls over the accounting and recording of complex and significant unusual transactions which , in the aggregate , constitute a material weakness . we have taken numerous steps to enhance our internal control environment during 2019. while preparing for our initial public offering , as of december 31 , 2018 , we had identified two material weaknesses in the design and operation of our internal control over financial reporting . as of december 31 , 2019 , we have concluded that one of the previously identified material weaknesses has been remediated and the other has been partially remediated . the previously identified deficiencies , that represented the two material weaknesses , included the preparation and review of journal entries , a limited number of personnel with a level of gaap accounting knowledge commensurate with our financial reporting requirements and certain information technology general controls specific to segregation of duties , systems access and change management processes . however , deficiencies in our control environment , specifically deficiencies related to a lack of consistently documented accounting policies and procedures and a lack of formalized controls over the accounting and recording of complex and significant unusual transactions , which we have collectively determined aggregate to a material weakness , remained as of december 31 , 2019. we are currently evaluating a number of steps to enhance our control over financial reporting and address this material weakness , including : enhancing our internal review procedures during the financial statement close process , and designing and implementing consistent policies throughout the company ; however , our current efforts to design and implement effective controls may not be sufficient to remediate the material weakness described above or prevent future material weaknesses or other deficiencies from occurring . despite these actions , we may identify additional material weaknesses in our internal control over financial reporting in the future . if we fail to effectively remediate this material weakness in our internal control over financial reporting , if we identify future material weaknesses in our internal control over financial reporting or if we are unable to comply with the demands that will be placed upon us as a public company , including the requirements of section 404 of the sarbanes-oxley act , in a timely manner , we may be unable to accurately report our financial results , or report them within the timeframes required by the sec .
| consolidated results of operations twelve months ended december 31 , 2019 compared to twelve months ended december 31 , 2018 replace_table_token_5_th net sales . net sales were $ 519,704 for the twelve months ended december 31 , 2019 as compared to $ 354,526 for the twelve months ended december 31 , 2018 for an increase of $ 165,178 , or 46.6 % , which was driven by approximately $ 189,000 of net 33 contributions from the former dmp locations slightly offset by mode st declines within our legacy business . both the legacy mec and former dmp businesses were adversely impacted by sudden declines in market demand that began late in the third quarter and continued through the fourth quarter , particularly in the commercial vehicle ( cv ) , agricultural and construction end markets served . these market demand changes drove destocking act ivities which had a more pronounced impact on the legacy mec business , especially in the fourth quarter . destocking stems from lower retail sales resulting in customer decisions to reduce dealer inventory levels by reducing and curtailing near-term product ion schedules . in addition , several key customers in the cv market experienced labor union issues in the third and fourth quarter s of 2019 , which negatively impacted production schedules for both the legacy mec and former dmp business es . manufacturing margins . manufacturing margins were $ 58,718 for the twelve months ended december 31 , 2019 as compared to $ 50,578 for the twelve months ended december 31 , 2018 , an increase of $ 8,141 , or 16.1 % . the increase was driven by approximately $ 21,000 of contributions from the former dmp locations slightly offset by modest declines at the legacy mec locations . the declines in market demand , destocking , and impact of customer labor issues adversely impacted volumes and the labor absorption associated with it .
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however , given the full valuation allowance placed on the additional $ 325.6 million of deferred tax assets , the recognition upon adoption had no impact to our accumulated story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with “ selected consolidated financial data ” and the consolidated financial statements and related notes included elsewhere in this report . overview incyte is a biopharmaceutical company focused on the discovery , development and commercialization of proprietary therapeutics . our global headquarters is located in wilmington , delaware and we conduct our european clinical development operations from our offices in geneva , switzerland and lausanne , switzerland . jakafi ( ruxolitinib ) is our first product to be approved for sale in the united states . it is an oral jak1 and jak2 inhibitor and was approved by the u.s. food and drug administration ( fda ) in november 2011 for the treatment of patients with intermediate or high‑risk myelofibrosis and in december 2014 for the treatment of patients with polycythemia vera who have had an inadequate response to or are intolerant of hydroxyurea . myelofibrosis and polycythemia vera are both rare blood cancers . under our collaboration agreement with novartis international pharmaceutical ltd. , novartis received exclusive development and commercialization rights to ruxolitinib outside of the united states for all hematologic and oncologic indications and sells ruxolitinib outside of the united states under the name jakavi . in april 2016 , we amended this agreement to provide that novartis has exclusive research , development and commercialization rights outside of the united states to ruxolitinib ( excluding topical formulations ) in the graft-versus-host-disease field . we have a second oral jak1 and jak2 inhibitor , baricitinib , which is subject to a collaboration agreement with eli lilly and company in which lilly received exclusive worldwide development and commercialization rights for the compound for inflammatory and autoimmune diseases . in january 2016 , lilly submitted a new drug application ( nda ) to the fda and a marketing authorization application ( maa ) to the european medicines agency for baricitinib as treatment for mild-to-moderately severe rheumatoid arthritis . in march 2016 , we entered into an amendment to the agreement with lilly that amended the non-compete provision of the agreement to allow us to engage in the development and commercialization of ruxolitinib in the graft-versus-host-disease field . in january 2017 , the fda extended the review period for the new drug application ( nda ) for baricitinib by three months . in february 2017 , the european commission approved baricitinib , which will be marketed as olumiant® , for the treatment of moderate to severe active rheumatoid arthritis in adult patients who have responded inadequately to , or who are intolerant to , one or more disease-modifying antirheumatic drugs . in june 2016 , we acquired ( the “ acquisition ” ) from ariad pharmaceuticals , inc. all of the outstanding shares of ariad pharmaceuticals ( luxembourg ) s.a.r.l. , the parent company of ariad 's european subsidiaries responsible for the development and commercialization of iclusig in the european union and other countries , including switzerland , norway , turkey , israel and russia . we obtained an exclusive license to develop and commercialize iclusig in those countries . iclusig is approved in the european union for the treatment of patients with chronic myeloid leukemia and 54 philadelphia-positive acute lymphoblastic leukemia who are resistant to or intolerant of certain second generation bcr-abl inhibitors and all patients who have the t3151 mutation . since we began our drug-discovery and development activities in early 2002 , we have filed investigational new drug ( ind ) applications and progressed multiple internally developed proprietary compounds into clinical development . as of february 14 , 2017 , our development portfolio , including ruxolitinib , was comprised of 17 candidates against 13 molecular targets . license agreements and business relationships as part of our business strategy , we establish business relationships , including collaborative arrangements with other companies and medical research institutions to assist in the clinical development and or commercialization of certain of our drugs and drug candidates and to provide support for our research programs . we also evaluate opportunities for acquiring products or rights to products and technologies that are complementary to our business from other companies and medical research institutions . below is a brief description of our significant business relationships and collaborations and related license agreements that expand our pipeline and provide us with certain rights to existing and potential new products and technologies . novartis in november 2009 , we entered into a collaboration and license agreement with novartis . under the terms of the agreement , novartis received exclusive development and commercialization rights outside of the united states to our jak inhibitor ruxolitinib and certain back‑up compounds for hematologic and oncology indications , including all hematological malignancies , solid tumors and myeloproliferative diseases . we retained exclusive development and commercialization rights to jakafi ( ruxolitinib ) in the united states and in certain other indications . novartis also received worldwide exclusive development and commercialization rights to our c‑met inhibitor compound capmatinib and certain back‑up compounds in all indications . we retained options to co‑develop and to co‑promote capmatinib in the united states . under this agreement , we received an upfront payment and immediate milestone payment totaling $ 210.0 million and were initially eligible to receive additional payments of up to approximately $ 1.2 billion if defined development and commercialization milestones are achieved . in 2016 , 2015 , and 2014 , we received $ 45.0 million , $ 65.0 million , and $ 92.0 million , respectively , in milestone payments under this agreement . we are also eligible to receive tiered , double‑digit royalties ranging from the upper‑teens to the mid‑twenties on future ruxolitinib net sales outside of the united states , and tiered , worldwide royalties on future capmatinib net sales that range from 12 % to 14 % . story_separator_special_tag royalties are payable by lilly on a product‑by‑product and country‑by‑country basis until the latest to occur of ( 1 ) the expiration of the last valid claim of the licensed patent rights covering the licensed product in the relevant country , ( 2 ) the expiration of regulatory exclusivity for the licensed product in such country and ( 3 ) a specified period from first commercial sale in such country of the licensed product by lilly or its affiliates or sublicensees . the agreement may be terminated by lilly for convenience , and may also be terminated under certain other circumstances , including material breach . 56 agenus in january 2015 , we entered into a license , development and commercialization agreement with agenus inc. and its wholly-owned subsidiary , 4-antibody ag ( now known as agenus switzerland inc. ) , which we collectively refer to as agenus . under this agreement , the parties have agreed to collaborate on the discovery of novel immuno-therapeutics using agenus ' antibody discovery platforms . in february 2017 , we and agenus amended this agreement . under the terms of this agreement , as amended , we received exclusive worldwide development and commercialization rights to four checkpoint modulators directed against gitr , ox40 , lag-3 and tim-3 . in addition to the initial four program targets , we and agenus have the option to jointly nominate and pursue additional targets within the framework of the collaboration , and in november 2015 , three more targets were added . targets may be designated profit-share programs , where all costs and profits are shared equally by us and agenus , or royalty-bearing programs , where we are responsible for all costs associated with discovery , preclinical , clinical development and commercialization activities . the programs relating to gitr and ox40 and two of the undisclosed targets were profit-share programs until february 2017 , while the other targets currently under collaboration are royalty-bearing programs . the february 2017 amendment converted the programs relating to gitr and ox40 to royalty-bearing programs and removed from the collaboration the profit-share programs relating to the two undisclosed targets , with one reverting to us and one reverting to agenus . should any of those removed programs be successfully developed by a party , the other party will be eligible to receive the same milestone payments as the royalty-bearing programs and royalties at a 15 % rate on global net sales . there are currently no profit-share programs . for each royalty-bearing product other than gitr and ox40 , agenus will be eligible to receive tiered royalties on global net sales ranging from 6 % to 12 % . for gitr and ox40 , agenus will be eligible to receive 15 % royalties on global net sales . under the february 2017 amendment , we paid agenus $ 20 million in accelerated milestones relating to the clinical development of the gitr and ox40 programs . agenus is eligible to receive up to an additional $ 510 million in future contingent development , regulatory and commercialization milestones across all programs in the collaboration . the agreement may be terminated by us for convenience upon 12 months ' notice and may also be terminated under certain other circumstances , including material breach . in connection with entering into the agenus agreement , in january 2015 , we purchased approximately 7.76 million shares of agenus inc. common stock for an aggregate purchase price of $ 35.0 million in cash , or approximately $ 4.51 per share . we agreed to certain standstill provisions under the license agreement as described in note 6 of notes to consolidated financial statements . in february 2017 , in connection with amending the agenus agreement , we purchased 10.0 million shares of agenus inc. common stock for an aggregate purchase price of $ 60.0 million in cash , or $ 6.00 per share . hengrui in september 2015 , we entered into a license and collaboration agreement with jiangsu hengrui medicine co. , ltd. under the terms of this agreement , we received exclusive development and commercialization rights worldwide , with the exception of mainland china , hong kong , macau and taiwan , to incshr1210 , an investigational pd-1 monoclonal antibody , and certain back-up compounds . we paid to hengrui an upfront payment of $ 25.0 million . hengrui is also eligible to receive potential milestone payments of up to $ 770.0 million , consisting of $ 90.0 million for regulatory approval milestones , $ 530.0 million for commercial performance milestones , and $ 150.0 million for a clinical superiority milestone . also , hengrui may be eligible to receive tiered royalties in the high-single digits to mid-double digits based on net sales in our territories . each company will be responsible for costs relating to the development and commercialization of the pd-1 monoclonal antibody in its respective territories . the dose-escalation portion of the proof-of-concept clinical trial of incshr1210 in patients with advanced solid tumors has been completed . enrollment of new subjects into the trial has been suspended in order to perform a thorough assessment of the compound 's profile before proceeding to enroll any additional subjects . the agreement will continue on a country-by-country basis until we have no royalty payment obligations with respect to such country or , if earlier , the termination of the agreement in accordance with its terms . the agreement may be terminated in its entirety by us for convenience , and may also be terminated under certain other circumstances , including material breach . 57 merus in december 2016 , we entered into a collaboration and license agreement with merus n.v. under this agreement , which became effective in january 2017 , the parties have agreed to collaborate with respect to the research , discovery and development of bispecific antibodies utilizing merus ' technology platform . the collaboration encompasses up to eleven independent programs , including two of merus ' current preclinical immuno-oncology discovery programs .
| results of operations years ended december 31 , 2016 and 2015 we recorded net income for the year ended december 31 , 2016 of $ 104.2 million and net income for the year ended december 31 , 2015 of $ 6.5 million . on a per share basis , basic net income was $ 0.55 and diluted net income was $ 0.54 for the year ended december 31 , 2016. on a per share basis , basic net income was $ 0.04 and diluted net income was $ 0.03 for the year ended december 31 , 2015. revenues replace_table_token_3_th our product revenues , net for the years ended december 31 , 2016 and 2015 , were $ 882.4 million and $ 601.0 million , respectively . the increase in jakafi product revenues was comprised of a volume increase of $ 195.5 million and a price increase of $ 56.3 million . iclusig product revenues commenced in june 2016 following the acquisition . product revenues are recorded net of estimated product returns , pricing discounts including rebates offered pursuant to mandatory federal and state government programs and chargebacks , prompt pay discounts and distribution fees and co‑pay assistance . our revenue recognition policies require estimates of the aforementioned sales allowances each period . 67 the following table provides a summary of activity with respect to our sales allowances and accruals for the year ended december 31 , 2016 : replace_table_token_4_th government rebates and chargebacks are the most significant component of our sales allowances . increases in certain government reimbursement rates are limited to a measure of inflation , and when the price of a drug increases faster than this measure of inflation it will result in a penalty adjustment factor that causes a larger sales allowance to those government related entities .
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the offering resulted in gross proceeds of $ 4,438 million story_separator_special_tag ( dollars in millions , except per share amounts ) the following management 's discussion and analysis of financial condition and results of operations is intended to help the reader understand the results of operations and financial condition of honeywell international inc. and its consolidated subsidiaries ( honeywell or the company ) for the three years ended december 31 , 2017. all references to notes relate to notes to consolidated financial statements in item 8. financial statements and supplementary data . in october 2017 , the company announced the results of a comprehensive portfolio review which included the announcement of our intent to spin-off our homes and global distribution business , as well as our transportation systems business , into two stand-alone , publicly traded companies . effective october 2017 , we realigned the smart energy business , previously part of the home and building technologies segment , into the process solutions business within the performance materials and technologies segment . effective july 2016 , the company realigned the business units comprising its automation and control solutions segment by forming two new segments : home and building technologies and safety and productivity solutions . these realignments have no impact on the company 's historical consolidated financial position , results of operations or cash flows . prior period amounts have been reclassified to conform to current period segment presentation . on october 1 , 2016 , the company completed the tax-free spin-off of its resins and chemicals business , part of performance materials and technologies , into a standalone , publicly-traded company ( named advansix inc. ( advansix ) ) to honeywell shareowners . the assets and liabilities associated with advansix have been removed from the company 's consolidated balance sheet as of the effective date of the spin-off . the results of operations for advansix are included in the consolidated statement of operations through the effective date of the spin-off . on september 16 , 2016 , the company completed the sale of the aerospace government services business , honeywell technology solutions inc ( htsi or government services business ) . the assets and liabilities associated with htsi have been removed from the company 's consolidated balance sheet as of the effective date of the sale . the results of operations for htsi are included in the consolidated statement of operations through the effective date of the sale . executive summary during 2017 , honeywell continued to successfully deliver on its financial commitments while still creating long-term value for our shareowners . we grew net sales 3 % to $ 40,534 million and grew income before taxes 7 % to $ 6,902 million . the improvement in year over year income before taxes was attributable to both organic sales growth as well as operational improvements that increased operating margins . we believe our ability to consistently grow earnings derives from the consistent , rigorous deployment of the honeywell operating system as well as a long history of identifying and investing in productivity initiatives . we have made concerted efforts to revitalize our commercial excellence processes , such as velocity product development ( vpd ) , which enables higher organic revenue at better margins . we are careful to not allow the attainment of short-term financial results imperil the creation of long-term , sustainable shareowner value . hence , as part of the announcement in october 2017 of the results of our portfolio review , we affirmed our commitment to a strategy and investments that are intended to enable us to become one of the world 's leading software industrial companies . our refocused strategy and investments are intended to take better advantage of our core technological and software strengths in high growth businesses that participate in six attractive industrial end markets . each of these end markets is characterized by favorable global mega-trends including energy efficiency , infrastructure investment , urbanization and safety . 17 in 2017 we deployed capital of over $ 6 billion , including the following : share repurchases we continue to repurchase our shares with the goal of keeping share count flat by offsetting the dilutive impact of employee stock based compensation and savings plans . additionally , we seek to reduce share count via share repurchases as and when attractive opportunities arise . in 2017 , we repurchased 20.5 million shares for $ 2.9 billion . dividend in 2017 , we paid cash dividends of $ 2.1 billion and increased our annual dividend rate by 12 % , as we seek to continue to grow the dividend faster than earnings . since 2010 , we have increased the dividend rate by 10 % or more eight times . capital investment in facilities we invested over $ 1 billion in capital expenditures focused on high return projects . consolidated results of operations net sales replace_table_token_4_th the change in net sales is attributable to the following : replace_table_token_5_th a discussion of net sales by segment can be found in the review of business segments section of this md & a . the foreign currency translation impact in 2017 compared with 2016 was flat . the strengthening of the euro was offset by the weakening of the british pound against the u.s. dollar . the foreign currency translation impact in 2016 compared with 2015 is principally driven by the weakening of the british pound , chinese renminbi and canadian dollar , partially offset by the strengthening of the japanese yen against the u.s. dollar . story_separator_special_tag business overview our consolidated results are principally impacted by : changes in global economic growth rates and industry conditions and demand in our key end markets ; the impact of fluctuations in foreign currency exchange rates ( in particular the euro ) , relative to the u.s. dollar ; the extent to which cost savings from productivity actions are able to offset or exceed the impact of material and non-material inflation ; the impact of the pension discount rate and asset returns on pension expense , including mark-to-market adjustments , and funding requirements ; and the impact from the tax act . our 2018 areas of focus , most of which are applicable to each of our segments include : driving profitable organic growth through r & d and technological excellence to deliver innovative products that customers value and expansion and localization of our footprint in high growth regions ; executing on our strategy to become a software-industrial company , which for us means products and services that facilitate the connected plane , home , building and factory ; expanding margins by maintaining and improving the company 's cost structure through manufacturing and administrative process improvements , repositioning , and other productivity actions ; executing disciplined , rigorous m & a and integration processes to deliver growth through acquisitions ; ensuring the successful completion of the proposed spin-offs of our homes and global distribution business , as well as our transportation systems business , into two stand-alone , publicly traded companies ; controlling corporate costs , including costs incurred for asbestos and environmental matters , pension and other post-retirement benefits ; increasing availability of capital through strong cash flow conversion from effective working capital management and proactively managing debt levels to enable the company to smartly 20 deploy capital for strategic acquisitions , dividends , share repurchases and capital expenditures ; and aligning our operating structure to benefit from the territorial tax system being implemented by the tax act . story_separator_special_tag style= '' text-indent:7mm ; margin:2.1mm 0 0 ; `` > safety and productivity solutions sales increased primarily due to acquisitions and organic sales volume . sales in safety increased by 5 % ( increased 4 % organic ) due to increased sales volume in the industrial safety business , higher distribution in the retail business , and the favorable impact of foreign currency translation . sales in productivity solutions increased by 36 % ( increased 6 % organic ) principally due to growth from acquisitions ( intelligrated was acquired in august 2016 ) . safety and productivity solutions segment profit increased due to an increase from operational segment profit and acquisitions . the increase in operational segment profit is driven by higher productivity , net of inflation , and sales volume . cost of products and services increased primarily due to acquisitions and higher sales volume offset by productivity , net of inflation . 2016 compared with 2015 safety and productivity solutions sales decreased primarily due to decreased sales volumes and the unfavorable impact of foreign currency translation , partially offset by growth from acquisitions . sales in safety decreased by 3 % ( decreased 2 % organic ) due to decreased sales volume in the industrial safety business , lower distribution in the retail business , and the unfavorable impact of foreign currency translation . sales in productivity solutions decreased by 1 % ( decreased 11 % organic ) principally due to declines in the productivity products business , partially offset by growth from acquisitions . safety and productivity solutions segment profit decreased due to a decrease in operational segment profit and the unfavorable impact of foreign currency translation , partially offset by growth from acquisitions . the decrease in operational segment profit is due to decreased sales volumes , partially offset by price and productivity , net of inflation , and growth from acquisitions . cost of products and services decreased primarily due to productivity , net of inflation , decreased sales volumes , and the favorable impact of foreign currency translation partially offset by growth from acquisitions . repositioning charges see note 3 repositioning and other charges of notes to consolidated financial statements for a discussion of our repositioning actions and related charges incurred in 2017 , 2016 and 2015. these repositioning actions are expected to generate incremental pre-tax savings of $ 300 million in 2018 compared with 2017 principally from planned workforce reductions . cash spending related to our repositioning actions was $ 177 million , $ 228 million and $ 118 million in 2017 , 2016 and 2015 , and was funded through operating cash flows . in 2018 , we expect cash spending for repositioning actions to be approximately $ 250 million and to be funded through operating cash flows . 25 liquidity and capital resources the company continues to manage its businesses to maximize operating cash flows as the primary source of liquidity . in addition to our available cash and operating cash flows , additional sources of liquidity include committed credit lines , short-term debt from the commercial paper market , long-term borrowings , access to the public debt and equity markets and the ability to access non-u.s. cash as a result of the tax act . we continue to balance our cash and financing uses through investment in our existing core businesses , acquisition activity , share repurchases and dividends . cash flow summary our cash flows from operating , investing and financing activities , as reflected in the consolidated statement of cash flows , are summarized as follows : replace_table_token_19_th 2017 compared with 2016 cash provided by operating activities increased by $ 468 million primarily due to a $ 504 million increase in segment profit and a $ 294 million favorable impact from working capital ( favorable accounts payable partially offset by inventory and accounts receivable ) , partially offset by higher cash tax payments of $ 609 million .
| review of business segments replace_table_token_10_th aerospace replace_table_token_11_th replace_table_token_12_th 21 2017 compared with 2016 aerospace sales were flat due to organic sales growth , offset by the government services business divestiture . commercial original equipment sales decreased 2 % ( decreased 2 % organic ) primarily due to lower shipments to business jet oems , partially offset by lower air transport and regional oem incentives . commercial aftermarket sales increased 6 % ( increased 6 % organic ) primarily driven by higher repair and overhaul activities and increased spares shipments . defense and space sales decreased 7 % ( increased 1 % organic ) primarily due to the government services business divestiture and lower space sales , partially offset by growth in u.s. defense . transportation systems sales increased 3 % ( increased 2 % organic ) primarily driven by higher commercial vehicle volumes , gas turbo penetration and the favorable impact from foreign currency translation , partially offset by lower diesel turbo volumes . aerospace segment profit increased due to an increase in operational segment profit , partially offset by the government services business divestiture . the increase in operational segment profit was driven primarily by productivity , net of inflation , including restructuring benefits , lower oem incentives and higher organic sales volume , partially offset by the government services business divestiture . cost of products and services sold decreased primarily driven by the government services business divestiture and productivity , net of inflation , partially offset by higher organic sales volume . 2016 compared with 2015 aerospace sales decreased primarily due to higher oem incentives , a decrease in organic sales volumes and the government services business divestiture , which was partially offset by growth from acquisitions . commercial original equipment sales decreased by 13 % ( decreased 12 % organic ) primarily due to higher oem incentives and decreased demand from business and general aviation original equipment manufacturers , partially offset by higher shipments to air transport oems .
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the company has one of the world 's broadest portfolios of product offerings available from leading electronic components and enterprise computing solutions suppliers , coupled with a range of services , solutions and tools that help industrial and commercial customers introduce innovative products , reduce their time to market , and enhance their overall competitiveness . the company has two business segments , the global components business segment and the global ecs business segment . the company distributes electronic components to oems and cms through its global components business segment and provides enterprise computing solutions to vars and msps through its global ecs business segment . for 2017 , approximately 68 % of the company 's sales were from the global components business segment and approximately 32 % of the company 's sales were from the global ecs business segment . the company 's financial objectives are to grow sales faster than the market , increase the markets served , grow profits faster than sales , and increase return on invested capital . to achieve its objectives , the company seeks to capture significant opportunities to grow across products , markets , and geographies . to supplement its organic growth strategy , the company continually evaluates strategic acquisitions to broaden its product and value-added service offerings , increase its market penetration , and or expand its geographic reach . story_separator_special_tag half of the year . adjusted for the impact of changes in foreign currencies and acquisitions , the company 's global ecs business segment sales decrease d by 0.3 % in 2017 , compared with the year-earlier period . 20 following is an analysis of net sales by business segment for the years ended december 31 ( in millions ) : replace_table_token_7_th * the sum of the components for sales , as adjusted , may not agree to totals , as presented , due to rounding . consolidated sales for 2016 increase d by $ 543.2 million , or 2.3 % , compared with the year-earlier period . the increase in 2016 was driven by an increase in global components business segment sales of $ 1.0 billion , or 7.0 % , offset partially by a decrease in global ecs business segment sales of $ 459.8 million , or 5.2 % , compared with the year-earlier period . adjusted for the impact of changes in foreign currencies and acquisitions , the company 's consolidated sales increased by 0.5 % in 2016 , compared with the year-earlier period . in the global components business segment , sales for 2016 increase d 7.0 % compared with the year-earlier period , primarily driven by increased demand in the asia regions and the impact of recently acquired businesses . adjusted for the impact of changes in foreign currencies and acquisitions , the company 's global components business segment sales increased by 5.1 % in 2016 , compared with the year-earlier period . in the global ecs business segment , sales for 2016 decrease d 5.2 % compared with the year-earlier period , primarily driven by a decrease in hardware sales offset by an increase in software sales , a significant portion of which are recognized on a net basis , and the impact of change in foreign currencies . adjusted for the impact of changes in foreign currencies and acquisitions , the company 's global ecs business segment sales decreased by 7.0 % in 2016 , compared with the year-earlier period . gross profit following is an analysis of gross profit for the years ended december 31 ( in millions ) : replace_table_token_8_th 21 the company recorded gross profit of $ 3.36 billion and $ 3.14 billion for 2017 and 2016 , respectively . the increase in gross profit was primarily due to increased demand and supplier awards in the components business . gross profit margins for 2017 decreased by approximately 70 basis points , compared with the year-earlier period , primarily due to an increase in lower margin distribution services in the americas and emea components businesses . the increase in supplier awards initially drive lower margin fulfillment volume . following is an analysis of gross profit for the years ended december 31 ( in millions ) : replace_table_token_9_th the company recorded gross profit of $ 3.14 billion and $ 3.04 billion for 2016 and 2015 , respectively . the increase in gross profit was primarily due to increased demand for the asia/pacific and europe regions of the components business , offset partially by a shift in the overall percentage of sales attributable to the asia/pacific region . the company 's gross margins in the components business in the asia/pacific region tend to be lower than those in the other markets in which the company sells products and services . gross profit margins for 2016 increase d by approximately 20 basis points , compared with the year-earlier period , primarily due to a more favorable product mix in the global ecs business . adjusted for the impact of changes in foreign currencies and acquisitions , the company 's consolidated gross profit margin increase d approximately 10 basis points in 2016 , compared with the year-earlier period . selling , general , and administrative expenses and depreciation and amortization following is an analysis of operating expenses for the years ended december 31 ( in millions ) : replace_table_token_10_th selling , general , and administrative expenses increase d by $ 110.1 million , or 5.4 % , in 2017 , on a sales increase of 12.5 % , compared with the year-earlier period . selling , general , and administrative expenses , as a percentage of sales , was 8.1 % and 8.6 % for 2017 and 2016 , respectively . depreciation and amortization expense as a percentage of operating expenses was 6.6 % for 2017 compared with 7.2 % in the year-earlier period . included in depreciation and amortization expense is identifiable intangible asset amortization of $ 50.1 million for 2017 compared to $ 54.9 million for 2016 . story_separator_special_tag refer to note 9 , `` restructuring , integration , and other charges '' of the notes to the consolidated financial statements for further discussion of the company 's restructuring and integration activities . operating income following is an analysis of operating income for the years ended december 31 ( in millions ) : replace_table_token_12_th * the sum of the components for consolidated operating income , as adjusted , may not agree to totals , as presented , due to rounding . the company recorded operating income of $ 928.5 million , or 3.5 % of sales , in 2017 compared with operating income of $ 858.5 million , or 3.6 % of sales , in 2016 . included in operating income for 2017 and 2016 were the previously discussed identifiable intangible asset amortization of $ 50.1 million and $ 54.9 million , respectively , and restructuring , integration , and other charges of $ 91.3 million and $ 73.6 million , respectively . included in operating income for 2017 is an impairment of assets held for sale of $ 21.0 million . excluding these items , operating income , as adjusted , was $ 1.1 billion , or 4.1 % of sales , in 2017 compared with operating income , as adjusted , of $ 987.0 million , or 4.1 % of sales , in 2016 . operating margins , as adjusted , were unchanged compared with the year-earlier period , despite a 70 basis point decrease in gross margins due to the company 's ability to efficiently manage operating costs . 24 following is an analysis of operating income for the years ended december 31 ( in millions ) : replace_table_token_13_th * the sum of the components for consolidated operating income , as adjusted , may not agree to totals , as presented , due to rounding . the company recorded operating income of $ 858.5 million , or 3.6 % of sales , in 2016 compared with operating income of $ 824.5 million , or 3.5 % of sales , in 2015 . included in operating income for 2016 and 2015 were the previously discussed identifiable intangible asset amortization of $ 54.9 million and $ 51.0 million , respectively , and restructuring , integration , and other charges of $ 73.6 million and $ 68.8 million , respectively . excluding these items , operating income , as adjusted , was $ 987.0 million , or 4.1 % of sales , in 2016 compared with operating income , as adjusted , of $ 944.3 million , or 4.1 % of sales , in 2015 . loss on investment during 2017 , the company recorded a loss on investment of $ 15.0 million related to a full impairment of a cost method investment . during 2015 , the company recorded a loss on investment of $ 3.0 million , partially offset by a gain on sale of investment of $ 2.0 million . loss on extinguishment of debt during 2017 , the company recorded a loss on extinguishment of debt of $ 59.5 million related to the redemption of the company 's 6.875 % senior debenture due 2018 and refinance of a portion of the company 's 6.00 % notes due april 2020 , 5.125 % notes due march 2021 , and 7.50 % notes due january 2027. during 2015 , the company recorded a loss on extinguishment of debt of $ 2.9 million related to the redemption of $ 250.0 million principal amount of its 3.375 % notes due november 2015. interest and other financing expense , net net interest and other financing expense increased 8.7 % in 2017 to $ 163.8 million , compared with $ 150.7 million in 2016 , primarily due to higher average debt outstanding . net interest and other financing expense increased by 11.3 % in 2016 to $ 150.7 million , compared with $ 135.4 million in 2015 , primarily due to higher average debt outstanding and an increase in variable interest rates . income taxes for the year ended december 31 , 2017 , the company recorded provision for income taxes of $ 287.1 million , equivalent to an effective tax rate of 41.4 % . the company 's provision for income taxes and effective tax rates are impacted by such costs as restructuring , integration , and other charges , identifiable intangible asset amortization , loss on extinguishment of debt , impairment of assets held for sale , loss on investment , and tax law changes . excluding the impact of the aforementioned items , the company 's effective tax rate for 2017 was 26.4 % . for the years ended december 31 , 2016 and 2015 , the company reported provision for income taxes of $ 190.7 million ( an effective tax rate of 26.7 % ) and $ 191.7 million ( an effective tax rate of 27.7 % ) , respectively . excluding restructuring , integration and other charges , identifiable intangible asset amortization , loss on extinguishment of debt , impairment of assets held for sale , and loss on investment , the company 's effective tax rates for 2016 and 2015 would have been 27.4 % and 27.1 % , respectively . the company 's effective tax rate deviates from the statutory u.s. federal income tax rate mainly due to the mix of foreign taxing jurisdictions in which the company operates and where its foreign subsidiaries generate taxable income . in 2017 , the effective tax 25 rate increased significantly primarily due to the change in the u.s. tax law . specifically , on december 22 , 2017 , the u.s. federal government enacted comprehensive tax legislation ( the “ tax act ” ) , which significantly revises the u.s. corporate income tax law by , among other things , lowering the u.s. federal corporate income tax rate from 35 % to 21 % , implementing a territorial tax system , imposing a one-time transition tax on foreign unremitted earnings , and setting limitations on deductibility of certain costs ( e.g. , interest expense ) . the lower u.s.
| executive summary consolidated sales for 2017 increase d by 12.5 % , compared with the year-earlier period , due to a 19.0 % increase in global components business segment sales and a 0.8 % increase in global ecs business segment sales . adjusted for the change in foreign currencies and acquisitions , consolidated sales increase d 11.6 % compared with the year-earlier period . net income attributable to shareholders decrease d to $ 402.0 million in 2017 compared with net income attributable to shareholders of $ 522.8 million in the year-earlier period . the following items impacted the comparability of the company 's results for the years ended december 31 , 2017 and 2016 : a loss on extinguishment of debt of $ 59.5 million in 2017 ; restructuring , integration , and other charges of $ 91.3 million in 2017 and $ 73.6 million in 2016 ; impairment of assets held for sale of $ 21.0 million in 2017 ; identifiable intangible asset amortization of $ 50.1 million in 2017 and $ 54.9 million in 2016 ; a loss on investment of $ 14.2 million in 2017 ; and impact of the u.s. federal government enacted tax legislation ( `` tax act '' ) of $ 124.7 million . excluding the aforementioned items , net income attributable to shareholders increase d to $ 679.0 million in 2017 compared with $ 609.8 million in the year-earlier period .
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these transactions may include the provision of services , sales and purchases story_separator_special_tag cautionary note regarding forward-looking statements this annual report on form 10-k , including the documents incorporated by reference herein , contains , and from time to time our management may make , forward-looking statements within the meaning of the private securities litigation reform act of 1995. these forward-looking statements reflect our current views with respect to , among other things , future events and our financial performance . these statements are often , but not always , made through the use of words or phrases such as “ may , ” “ might , ” “ should , ” “ could , ” “ predict , ” “ potential , ” “ believe , ” “ expect , ” “ continue , ” “ will , ” “ anticipate , ” “ seek , ” “ estimate , ” “ intend , ” “ plan , ” “ projection , ” “ would , ” “ annualized ” and “ outlook , ” or the negative version of those words or other comparable words or phrases of a future or forward-looking nature . these forward-looking statements are not historical facts , and are based on current expectations , estimates and projections about our industry , management 's beliefs and certain assumptions made by management , many of which , by their nature , are inherently uncertain and beyond our control . accordingly , we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks , assumptions , estimates and uncertainties that are difficult to predict . although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made , actual results may prove to be materially different from the results expressed or implied by the forward-looking statements . a number of important factors could cause our actual results to differ materially from those indicated in these forward-looking statements , including the following : the geographic concentration of our business ; current and future economic and market conditions in the united states generally or in hawaii , guam and saipan in particular ; the effect of the current low interest rate environment or changes in interest rates on our net interest income , net interest margin , the fair value of our investment securities , and our mortgage loan originations , mortgage servicing rights and mortgage loans held for sale ; our inability to receive dividends from our bank , pay dividends to our common stockholders and satisfy obligations as they become due ; the effects of geopolitical instability , including war , terrorist attacks , pandemics and man-made and natural disasters ; our ability to maintain our bank 's reputation ; our ability to attract and retain skilled employees or changes in our management personnel ; our ability to effectively compete with other financial services companies and the effects of competition in the financial services industry on our business ; our ability to successfully develop and commercialize new or enhanced products and services ; changes in the demand for our products and services ; the effectiveness of our risk management and internal disclosure controls and procedures ; any failure or interruption of our information and communications systems ; our ability to identify and address cybersecurity risks ; our ability to keep pace with technological changes ; our ability to attract and retain customer deposits ; the effects of problems encountered by other financial institutions ; our access to sources of liquidity and capital to address our liquidity needs ; fluctuations in the fair value of our assets and liabilities and off-balance sheet exposures ; the effects of the failure of any component of our business infrastructure provided by a third party ; the impact of , and changes in , applicable laws , regulations and accounting standards and policies ; possible changes in trade , monetary and fiscal policies of , and other activities undertaken by , governments , agencies , central banks and similar organizations ; our likelihood of success in , and the impact of , litigation or regulatory actions ; market perceptions associated with our separation from bnpp and other aspects of our business ; contingent liabilities and unexpected tax liabilities that may be applicable to us as a result of the reorganization transactions ; the effect of bnpp 's beneficial ownership of our outstanding common stock and the control it retains over our business ; our ability to retain service providers to perform oversight or control functions or services that have otherwise been performed in the past by affiliates of bnpp ; the one-time and incremental costs of operating as a stand-alone public company ; our ability to meet our obligations as a public company , including our obligations under section 404 of the sarbanes-oxley act of 2002 ; and damage to our reputation from any of the factors described above . the foregoing factors should not be considered an exhaustive list and should be read together with the other cautionary statements set forth under “ item 1a . risk factors ” in this annual report on form 10-k. if one or more events related to these or other risks or uncertainties materialize , or if our underlying assumptions prove to be incorrect , actual results may differ materially from what we anticipate . accordingly , you should not place undue reliance on any such forward-looking statements . any forward-looking statement speaks only as of the date on which it is made , and we do not undertake any obligation to update or review any forward-looking statement , whether as a result of new information , future developments or otherwise , except as required by applicable law . 56 company overview fhi is a majority‑owned , indirect subsidiary of bnpp , a financial institution based in france . fhb was founded in 1858 under the name bishop & company and was the first successful banking partnership in the kingdom of hawaii and the second oldest bank formed west of the mississippi river . story_separator_special_tag the accompanying consolidated financial statements include allocations of certain assets of bancwest as agreed to by the parties and also certain expenses amounting to approximately $ 5.8 million , $ 18.8 million and $ 8.7 million for the years ended december 31 , 2016 , 2015 and 2014 , respectively , specifically applicable to the operations of bancwest related to fhb through the date of the reorganization transactions . management believes these allocations are reasonable . prior to april 1 , 2016 , the residual revenues and expenses not included in our consolidated financial statements represent those directly related to bwhi and bow . the allocated expenses included in our consolidated financial statements , residual revenues and expenses are not necessarily indicative of the financial position or results of operations of our company if we had operated as a stand‑alone public entity during the reporting periods prior to april 1 , 2016 and may not be indicative of our company 's future results of operations and financial condition . upon completion of the reorganization transactions on april 1 , 2016 , the consolidated financial statements of the company reflected the results of operations , financial position and cash flows of fhi and its wholly‑owned subsidiary , fhb . all significant intercompany account balances and transactions have been eliminated in consolidation . the consolidated financial statements do not reflect any changes that may occur in our operations and expenses as a result of the reorganization transactions or our ipo . hawaii economy hawaii 's economy continued to perform well during the year ended december 31 , 2016 , led in large part by strong tourism and construction industries , labor market conditions and growth in personal income and tax revenues . hawaii 's tourism industry set new records in 2016 for visitor arrivals and spending . visitor arrivals for the year ended december 31 , 2016 increased by 3.0 % compared to 2015 , and total visitor spending for the year ended december 31 , 2016 increased by 4.2 % compared to 2015 according to the hawaii tourism authority . visitor arrivals and spending increased , in particular , from u.s. mainland visitors , which offset a decline in visitor arrivals and spending from canadian visitors . construction activity in hawaii remained strong for the year ended december 31 , 2016. an increase in construction sector jobs and government contracts awarded in 2016 were partially offset by lower levels of private building permits issued in 2016 according to the hawaii state department of labor & industrial relations and the honolulu department of planning and permitting . the statewide seasonally-adjusted unemployment rate was 2.9 % in december 2016 compared to 3.3 % in december 2015 according to the hawaii state department of labor & industrial relations . the national seasonally-adjusted unemployment rate was 4.7 % in december 2016 compared to 5.0 % in december 2015. with regards to housing , the volume of single-family home sales on oahu increased by 6.5 % for the year ended december 31 , 2016 compared to 2015 , while the volume of condominium sales on oahu increased by 8.4 % for the year ended december 31 , 2016 compared to 2015 according to the honolulu board of realtors . likewise , the median price of single-family home sales and condominium sales on oahu increased by 5.0 % and 8.3 % , respectively , for the year ended december 31 , 2016 compared to 2015. as of december 31 , 2016 , months of inventory of single family homes and condominiums on oahu remained low at approximately 2.5 months and 2.6 months , respectively . lastly , state general fund tax revenues increased by 3.6 % for the year ended december 31 , 2016 compared to 2015 , reflective of higher personal income and sales of goods and services subject to the general excise tax according to the hawaii department of taxation . hawaii 's economy continued to grow during 2016 , but is significantly dependent on u.s. mainland economic conditions as well as key international economies , particularly japan . we continue to monitor construction activity in hawaii and the local economy 's ability to absorb further planned expansion given deteriorating home affordability , tourism in hawaii , the movement of interest rates in the u.s. , the agenda of the new u.s. administration and its impact on existing banking regulations , changes in japan 's economic conditions including the exchange rate of its currency , and the economic and regulatory conditions of the european union , as such factors could impact our profitability in future reporting periods . 58 financial highlights net income was $ 230.2 million for the year ended december 31 , 2016 , an increase of $ 16.4 million or 8 % as compared to the same period in 2015. basic and diluted earnings per share were $ 1.65 for the year ended december 31 , 2016 , an increase of $ 0.12 or 8 % as compared to the same period in 2015. the increase was primarily due to an increase in net interest income , an increase in noninterest income and a decrease in the provision . this was partially offset by an increase in both the provision for income taxes and noninterest expense for the year ended december 31 , 2016 as compared to the same period in 2015. our return on average total assets was 1.19 % for the year ended december 31 , 2016 , an increase of five basis points as compared to the same period in 2015 , and our return on average total stockholders ' equity was 8.96 % for the year ended december 31 , 2016 , an increase of 115 basis points as compared to the same period in 2015. our return on average tangible assets was 1.26 % for the year ended december 31 , 2016 , an increase of six basis points as compared to the same period in 2015 , and our return on average tangible stockholders ' equity was 14.64 % for the year ended december 31 , 2016 , an increase
| analysis of results of operations net interest income for the years ended december 31 , 2016 , 2015 and 2014 , average balances , related income and expenses , on a fully taxable-equivalent basis , and resulting yields and rates are presented in table 1. an analysis of the change in net interest income , on a fully taxable-equivalent basis , is presented in table 2. replace_table_token_7_th 60 ( 1 ) non-performing loans and leases are included in the respective average loan and lease balances . income , if any , on such loans and leases is recognized on a cash basis . ( 2 ) for the years ended december 31 , 2016 , 2015 and 2014 , the taxable-equivalent basis adjustments made to the table above were not material . replace_table_token_8_th ( 1 ) the change in interest income and expense not solely due to changes in volume or rate has been allocated on a pro-rata basis to the volume and rate columns . net interest income , on a fully taxable equivalent basis , was $ 491.7 million for the year ended december 31 , 2016 , an increase of $ 30.3 million or 7 % as compared to the same period in 2015. our net interest margin was 2.88 % for the year ended december 31 , 2016 , an increase of ten basis points as compared to the same period in 2015. the increase in net interest income , on a fully taxable-equivalent basis , was primarily due to higher average balances in all loan categories and higher yields in our investment securities portfolio . this was partially offset by lower average balances in investment securities , lower yields on our loans and higher deposit funding costs .
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the fair value of share-based awards is recognized as compensation expense on a straight-line basis over story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with the section entitled “ selected financial data ” in this report and our consolidated financial statements and related notes to this report . this discussion and analysis contains forward-looking statements based on our current expectations , assumptions , estimates and projections . these forward-looking statements involve risks and uncertainties . our actual results could differ materially from those indicated in these forward-looking statements as a result of certain factors , as more fully discussed in item 1a of this report , entitled “ risk factors. ” 30 overview we are a leader in the research , development and commercialization of organic light emitting diode , or oled , technologies and materials for use in displays for smartphones , tablets and televisions as well as solid-state lighting applications . since 1994 , we have been exclusively engaged , and expect to continue to be primarily engaged , in funding and performing research and development activities relating to oled technologies and materials , and commercializing these technologies and materials . we derive our revenue from the following : sales of oled materials for evaluation , development and commercial manufacturing ; intellectual property and technology licensing ; and technology development and support , including government contract work and support provided to third parties for commercialization of their oled products . material sales relate to our sale of oled materials for incorporation into our customers ' commercial oled products or for their oled development and evaluation activities . material sales are recognized at the time of shipment or at time of delivery , and passage of title , depending upon the contractual agreement between the parties . we receive license and royalty payments under certain commercial , development and technology evaluation agreements , some of which are non-refundable advances . these payments may include royalty and license fees made pursuant to license agreements and also license fees included as part of certain commercial supply agreements . certain of the payments under development and technology evaluation agreements are creditable against future amounts payable under commercial license agreements that the parties may subsequently enter into and , as such , are deferred until such commercial license agreements are executed or negotiations have ceased and our management determines that there is no appreciable likelihood of executing a commercial license agreement with the other party . revenue would then be recognized over the term of the agreement or the expected useful life of the relevant licensed technology , for perpetual licenses , if there is an effective commercial license agreement or amounts are not creditable against future commercial license fees , or at the time our management determines that there is no appreciable likelihood of an executable commercial license agreement . for arrangements with extended payment terms where the fee is not fixed and determinable , we recognize revenue when the payment is due and payable . royalty revenue and license fees included as part of commercial supply agreements are recognized when earned and the amount is fixed and determinable . currently , our most significant commercial license agreement , which runs through the end of 2017 , is with sdc and covers the manufacture and sale of specified oled display products . under this agreement , we are being paid a license fee , payable in semi-annual installments over the agreement term of 6.4 years . the installments , which are due in the second and fourth quarter of each year , increase on an annual basis over the term of the agreement . the agreement conveys to sdc the non-exclusive right to use certain of our intellectual property assets for a limited period of time that is less than the estimated life of the assets . ratable recognition of revenue is impacted by the agreement 's extended increasing payment terms in light of our limited history with similar agreements . as a result revenue is recognized at the lesser of the proportional performance approach ( ratable ) and the amount of due and payable fees from sdc . given the increasing contractual payment schedule , license fees under the agreement are recognized as revenue when they become due and payable , which is currently scheduled to be in the second and fourth quarter of each year . at the same time we entered into the current patent license agreement with sdc , we also entered into a new supplemental material purchase agreement with sdc . under the current supplemental material purchase agreement , sdc agrees to purchase from us a minimum dollar amount of phosphorescent emitter materials for use in the manufacture of licensed products . this minimum purchase commitment is subject to sdc 's requirements for phosphorescent emitter materials and our ability to meet these requirements over the term of the supplemental agreement . the minimum purchase amounts increase on an annual basis over the term of the supplemental agreement . these amounts were determined through negotiation based on a number of factors , including , without limitation , estimates of sdc 's oled business growth as a percentage of published oled market forecasts and sdc 's projected minimum usage of red and green phosphorescent emitter materials over the term of the agreement . technology development and support revenue is revenue earned from government contracts , development and technology evaluation agreements and commercialization assistance fees , which includes reimbursements by government entities for all or a portion of the research and development costs we incur in relation to our government contracts . revenues are recognized proportionally as research and development costs are incurred , or as defined milestones are achieved . story_separator_special_tag the fair value of our convertible promissory note investments is determined through the consideration of whether the investee is experiencing financial difficulty , overall trends in interest rates and other factors . management also performs an evaluation of the probability that the borrower will be in payment default on any of its debt in the foreseeable future . the evaluation requires significant judgment and includes quantitative and qualitative analysis of identified events or circumstances affecting the investee , which may impact the fair value of the investment , such as : the investee 's revenue and earnings trends relative to pre-defined milestones and overall business prospects ; the technological feasibility of the investee 's products and technologies ; the general market conditions in the investee 's industry or geographic area , including adverse regulatory or economic changes ; factors related to the investee 's ability to remain in business , such as the investee 's liquidity , debt ratios , and the rate at which the investee is using its cash ; and the investee 's receipt of additional funding at a lower valuation . changes in fair value of the investments are recorded as unrealized gains and losses in other comprehensive income ( loss ) . if a decline in fair value of a convertible promissory note investment below our carrying value is deemed to be other than temporary , the amortized cost basis of our investment will be written down by the amount of the other-than-temporary impairment with a resulting charge to net income . there were no other-than-temporary impairments of convertible promissory note investments as of december 31 , 2013 . on january 16 , 2014 , one of the companies that issued us a convertible promissory note , for an original principal amount of $ 4.0 million , filed a voluntary petition for relief under chapter 11 of the bankruptcy code in the united states bankruptcy court of the district of delaware ( bankruptcy court ) . the debtor company is seeking an order authorizing the sale of substantially all of its assets . on february 14 , 2014 , the bankruptcy court approved the bidding procedures in connection with the sale of substantially all of the debtor company 's assets , including approval of a minimum stalking horse bid under which our investment would be satisfied in full . if any qualified bids are received under the approved bidding procedures , which are required to be superior to the current stalking horse bid , then on march 5 , 2014 , an auction for the sale of the debtor 's assets is scheduled to be held . a sale hearing is currently scheduled for march 6 , 2014. based upon our expectation of full payment resulting from the sale of the debtor company 's assets and the bankruptcy process , no impairment has been recorded as of december 31 , 2013. if the sale and bankruptcy process does not occur as expected , a full or partial impairment of the investment may be necessary . valuation and recoverability of acquired technology during the year ended december 31 , 2012 , we acquired a portfolio of patent and patent applications for $ 109.1 million including related costs and expenses . for additional information , see note 5 in the notes to consolidated financial statements . the net book value of all our acquired technology was $ 94.0 million as of december 31 , 2013 . acquired technology assets are subject to amortization . these assets are currently being amortized on a straight-line basis over a period of 7.5 to 10 years which are their estimated economic lives . changes in technology or in our intended use of these assets , as well as changes in economic or industry factors or in our business or prospects , may cause the estimated period of use or the value of these assets to change . we periodically review our acquired technology assets to confirm the appropriateness of the lives . our assessment takes into account actual usage , our anticipated future use of the technology , and assumptions about technology evolution . if these factors indicate that the useful life is different from the previous assessment , we would amortize the remaining net book values prospectively over the adjusted remaining estimated useful life . we also regularly review our acquired oled technologies for events or changes in circumstances that might indicate the value of these technologies is impaired . factors considered that could cause impairment include , among others , significant changes in our anticipated future use of these technologies , expected revenue streams resulting from the technologies , and our overall business strategy as it pertains to these technologies , particularly in light of patents owned by others in the same field of use . when factors indicate that long-lived assets should be evaluated for possible impairment , we use an estimate of the related undiscounted cash flows in measuring whether the long-lived asset should be written down to fair value as well as if the remaining useful life is still appropriate . measurement of the amount of impairment would be based on generally accepted valuation methodologies , as deemed appropriate . 33 valuation of stock-based compensation we recognize in the statement of income the grant-date fair value of equity-based compensation issued to employees and directors ( see notes 2 and 11 of the notes to consolidated financial statements ) . we also record an expense for equity-based compensation grants to non-employees , in exchange for goods or services , and stock appreciation rights ( sars ) issued to employees , based on the fair value , which is remeasured over the vesting period of such awards . the performance unit awards we grant are subject to either a performance-based or market-based vesting requirement .
| results of operations year ended december 31 , 2013 compared to year ended december 31 , 2012 we had operating income of $ 38.2 million for the year ended december 31 , 2013 , compared to operating income of $ 13.7 million for the year ended december 31 , 2012 . the increase in operating income was due to the following : an increase in revenue of $ 63.4 million , which includes increases in both material sales and royalty and license fees , partially offset by a $ 3.2 million decrease in technology development and support revenue ; offset by an increase in operating expenses of $ 38.8 million , which includes a $ 24.4 million increase in the cost of material sales , a $ 3.9 million increase in patent costs and amortization of acquired technology , a $ 5.2 million increase in selling , general and administrative expenses and a $ 4.2 million increase in research and development expenses , all of which are described below . we had net income of $ 74.1 million ( or $ 1.61 per basic share and $ 1.59 per diluted share ) for the year ended december 31 , 2013 , compared to net income of $ 9.7 million ( or $ 0.21 per basic and diluted share ) for the year ended december 31 , 2012 . the increase in net income was primarily due to : the increase in operating income of $ 24.6 million ; and a tax benefit of $ 35.0 million resulting primarily from the release of income tax valuation allowances . we had adjusted net income of $ 32.6 million ( or $ 0.71 per adjusted basic share and $ 0.70 per adjusted diluted share ) for the year ended december 31 , 2013 . this non-gaap measure excludes the effect of the tax valuation allowance releases .
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axos nevada holding wholly owns it 's subsidiary axos securities , llc , which indirectly wholly owns subsidiaries axos clearing , llc , a clearing broker dealer , axos invest , inc. ( doing business as “ wisebanyan ” ) , a registered investment advisor , and wisebanyan securities llc , an introducing broker dealer . with approximately $ 10.6 billion in assets , axos bank provides consumer and business banking products through its low-cost distribution channels and affinity partners . axos clearing llc and wisebanyan , provide comprehensive securities clearing services to introducing broker-dealers and registered investment advisor correspondents and digital investment advisory services to retail investors , respectively . axos financial , inc. 's common stock is listed on the nyse under the symbol “ ax ” and is a component of the russell 2000 ® index and the s & p smallcap 600 ® index . for more information on axos bank , please visit axosbank.com . net income for the fiscal year ended june 30 , 2019 was $ 155.1 million compared to $ 152.4 million and $ 134.7 million for the fiscal years ended june 30 , 2018 and 2017 , respectively . net income attributable to common stockholders for the fiscal year ended june 30 , 2019 was $ 154.8 million , or $ 2.48 per diluted share compared to $ 152.1 million , or $ 2.37 per diluted share and $ 134.4 million , or $ 2.10 per diluted share for the years ended june 30 , 2018 and 2017 , respectively . growth in our interest earning assets , particularly the loan and lease portfolio , and a reduced income tax rate were the primary reasons for the increase in our net income from fiscal 2017 to fiscal 2019 . net interest income increased $ 40.1 million for the year ended june 30 , 2019 compared to the year ended june 30 , 2018 . net interest income for the year ended june 30 , 2019 was $ 408.6 million compared to $ 368.5 million and $ 313.2 million for the years ended june 30 , 2018 and 2017 , respectively . the growth of net interest income from fiscal year 2017 through 2019 is primarily due to net loan and lease portfolio growth and deposit growth . provision for loan and lease losses for the year ended june 30 , 2019 was $ 27.4 million , compared to $ 25.8 million and $ 11.1 million for the years ended june 30 , 2018 and 2017 , respectively . the increase of $ 1.6 million for fiscal year 2019 is the result of growth and changes in loan and lease mix in the portfolio . the increase of $ 14.7 million for fiscal year 2018 is the result of an increase in refund advance loan fundings from $ 0.3 billion to $ 1.1 billion from 2017 to 2018 , respectively , combined with growth and changes in the loan and lease mix of the portfolio . non-interest income was $ 82.8 million compared to non-interest income of $ 70.9 million and $ 68.1 million for the fiscal years ended june 30 , 2019 , 2018 and 2017 . the increase from fiscal year 2018 to fiscal year 2019 was primarily the result of an increase of $ 11.7 million in broker-dealer fees and $ 6.1 million in banking and service fees due to increased fees from our trustee and fiduciary services , increased levels of prepayment penalty fee income of $ 2.0 million , partially offset by a mortgage banking income decrease of $ 8.5 million . the increase from 2017 to 2018 was primarily due to increased banking and service fees due to increased fees from our trustee and fiduciary services , increase in gain on sale-other primarily from sales of structured settlements , decreased unrealized loss on securities partially offset by a decrease in realized gain from sale of securities , decreased levels of prepayment penalty fee income , and decreased mortgage banking income . non-interest expense for the fiscal year ended june 30 , 2019 was $ 251.2 million compared to $ 173.9 million and $ 137.6 million for the years ended june 30 , 2018 and 2017 , respectively . the increase was primarily due to an increase of $ 26.5 million in staffing for lending , information technology infrastructure development , clearing services , trustee and fiduciary services and regulatory compliance , an increase in depreciation and amortization of $ 7.9 million , an increase in data processing and internet of $ 6.8 million , and an increase in other general and administrative costs of $ 20.2 million . our staffing rose to 1007 full-time equivalents compared to 801 and 681 at june 30 , 2019 , 2018 and 2017 , respectively . total assets were $ 11,220.2 million at june 30 , 2019 compared to $ 9,539.5 million at june 30 , 2018 . assets grew $ 1,680.7 million or 17.6 % during the last fiscal year , primarily due to an increase in the loan originations c & i and income property lending and the acquisition of axos clearing llc . the loan growth was funded primarily with growth in deposits . 39 our future performance will depend on many factors : changes in interest rates , competition for deposits and quality loans , the credit performance of our assets , regulatory actions , strategic transactions , and our ability to improve operating efficiencies . see “ item 1a . risk factors. ” mergers and acquisitions from time to time we undertake acquisitions or similar transactions consistent with our company 's operating and growth strategies . we completed two business acquisitions and two asset acquisitions during the fiscal year ended june 30 , 2019 and one business acquisition during the fiscal year ended june 30 , 2018 . mwabank deposit acquisition . story_separator_special_tag on an ongoing basis , we evaluate our estimates and assumptions based upon historical experience and various factors and circumstances . we believe that our estimates and assumptions are reasonable under the circumstances . however , actual results may differ significantly from these estimates and assumptions that could have a material effect on the carrying value of assets and liabilities at the balance sheet dates and our results of operations for the reporting periods . securities . we classify securities as either trading , available-for-sale or held-to-maturity . trading securities are those securities for which we have elected fair value accounting . trading securities are recorded at fair value with changes in fair value recorded in earnings each period . securities available-for-sale are reported at estimated fair value , with unrealized gains and losses , net of the related tax effects , excluded from operations and reported as a separate component of accumulated other comprehensive income or loss . the fair values of securities traded in active markets are obtained from market quotes . if quoted prices in active markets are not available , we determine the fair values by utilizing industry-standard tools to calculate the net present value of the expected cash flows available to the securities . for securities other than non-agency rmbs , we use observable market participant inputs and categorize these securities as level ii in determining fair value . for non-agency rmbs securities , we use a level iii fair value model approach . to determine the performance of the underlying mortgage loan pools , we consider where appropriate borrower prepayments , defaults , and loss severities based on a number of macroeconomic factors , including housing price changes , unemployment rates , interest rates and borrower attributes such as credit score and loan documentation at the time of origination . we input for each security our projections of monthly default rates , loss severity rates and voluntary prepayment rates for the underlying mortgages for the remaining life of the security to determine the expected cash flows . the projections of default rates are derived by the company from the historic default rate observed in the pool of loans collateralizing the security , increased by ( or decreased by ) the forecasted increase or decrease in the national unemployment rate as well as the forecasted increase or decrease in the national home price appreciation ( hpa ) index . the projections of loss severity rates are derived by the company from the historic loss severity rate observed in the pool of loans , increased by ( or decreased by ) the forecasted decrease or increase in the hpa index . to determine the discount rates used to compute the present value of the expected cash flows for these non-agency rmbs securities , we separate the securities by the borrower characteristics in the underlying pool . for example , non-agency rmbs “ prime ” securities generally have borrowers with higher fico scores and better documentation of income . “ alt-a ” securities generally have borrowers with lower fico and less documentation of income . “ pay-option arms ” are alt-a securities with borrowers that tend to pay the least amount of principal ( or increase their loan balance through negative amortization ) . separate discount rates are calculated for prime , alt-a and pay-option arm non-agency rmbs securities using market-participant assumptions for risk , capital and return on equity . at each reporting date , we monitor our available-for-sale and held-to-maturity securities for other-than-temporary impairment . the company measures its debt securities in an unrealized loss position at the end of the reporting period for other-than-temporary impairment by comparing the present value of the cash flows currently expected to be collected from the security with its amortized cost basis . if the calculated present value is lower than the amortized cost , the difference is the credit component of an other-than-temporary impairment of its debt securities . the excess of the present value over the fair value of the security ( if any ) is the noncredit component of the impairment , only if the company does not intend to sell the security and will not be required to sell the security before recovery of its amortized cost basis . the credit component of the other-than-temporary-impairment is recorded as a loss in earnings and the noncredit component is recorded as a charge to other comprehensive income , net of the related income tax benefit . for non-agency rmbs we determine the cash flow expected to be collected and calculate the present value for purposes of testing for other-than-temporary impairment , by utilizing the same industry-standard tool and the same cash flows as those calculated for fair values ( discussed above ) . we compute cash flows based upon the underlying mortgage loan pools and our estimates of prepayments , defaults , and loss severities . we input our projections for the underlying mortgages for the remaining life of the security to determine the expected cash flows . the discount rates used to compute the present value of the expected cash flows for purposes of testing for the credit component of the other-than-temporary impairment are different from those used to calculate fair value and are either the implicit rate calculated in each of our securities at acquisition or the last accounting yield ( asc topic 325-40-35 ) . we calculate the implicit rate at acquisition based on the contractual terms of the security , considering scheduled payments ( and minimum payments in the case of pay-option arms ) without prepayment assumptions . we use this discount rate in the industry-standard model to calculate the present value of the cash flows for purposes of measuring the credit component of an other-than-temporary impairment of our debt securities . allowance for loan and lease losses . the allowance for loan and lease losses is maintained at a level estimated to provide for probable incurred losses in the loan and lease portfolio .
| segment results the company determines reportable segments based on the services offered , the significance of the services offered , the significance of those services to the company 's financial condition and operating results and management 's regular review of the operating results of those services . the company operates through two operating segments : banking business and securities business . in order to reconcile the two segments to the consolidated totals , the company includes parent-only activities and intercompany eliminations . the following tables present the operating results of the segments : replace_table_token_21_th replace_table_token_22_th banking business for the fiscal year ended june 30 , 2019 , we had pre-tax income of $ 255.5 million compared to pre-tax income of $ 263.8 million for the fiscal year ended june 30 , 2018 . for the fiscal year ended june 30 , 2019 , the decrease in pre-tax income was primarily related to increased operating costs . 47 we consider the ratios shown in the table below to be key indicators of the performance of our banking business segment : replace_table_token_23_th our banking segment 's net interest margin exceeds our consolidated net interest margin . our consolidated net interest margin includes certain items that are not reflected in the calculation of our net interest margin within our banking business and reduce our consolidated net interest margin , such as the borrowing costs at our holding company and the yields and costs associated with certain items within interest-earning assets and interest-bearing liabilities in our securities business , including items related to securities financing operations that particularly decrease net interest margin .
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story_separator_special_tag for business overview and developments during the year ended december 31 , 2020 , refer to part i , item 1 of this annual report on form 10-k. overview and outlook our key financial and operating metrics are home deliveries , home closings revenue , average sales price of homes delivered , and net new home orders , which refers to sales contracts executed reduced by the number of sales contracts canceled during the relevant period . our results for each key financial and operating metric , as compared to the year ended december 31 , 2019 , are provided below : year ended december 31 , 2020 home deliveries increased by 28.4 % home closings revenue increased by 22.8 % average sales price of homes delivered decreased by 4.4 % net new home orders increased by 50.0 % the united states has been impacted by the coronavirus ( “ covid-19 ” ) pandemic . while response to the covid-19 outbreak continues to rapidly evolve , during march and the second quarter of 2020 these steps included stay-at-home orders and social distancing guidelines that have seriously disrupted activities in many other segments of the economy . however , throughout the pandemic , we have continued to build , close and sell homes in our markets . while uncertainty caused by covid-19 dramatically slowed net new home orders in late march and april 2020 , during may and june 2020 , our sales rebounded . our rate of sales accelerated in the third and fourth quarters with an increase in net sales of 88.8. % and 43.7 % over the corresponding periods in the prior year , respectively . the initial recovery and expansion of our sales activity since may is attributable to the steady growth and strong performance of our new trophy brand division , an increase in average selling communities as well as the impact of macroeconomic factors such as low interest rates , an influx of millennial first-time home buyers and demand for suburban homes from apartment dwellers in response to covid-19 . 2020 developments from october 2019 to october 2020 , homes in the dfw and atlanta markets appreciated by 6.5 % and 6.8 % , respectively ( source : s & p dow jones indices & corelogic , december 2020 ) . we believe that we operate in two of the most desirable housing markets in the nation and that increasing demand and supply constraints in our target markets create favorable conditions for our future growth . story_separator_special_tag style= '' margin-bottom:6pt '' > replace_table_token_6_th the 42.9 % increase in lots revenue was driven by the 77.7 % increase in the number of lots closed , partially offset by the 19.6 % decrease in the average lot price . the average lot price decreased by 19.6 % due to a higher number of entry level lots sold . selling , general and administrative expenses the table below represents the components of selling , general and administrative expense ( dollars in thousands ) : replace_table_token_7_th the 0.9 % decrease of total selling , general and administrative expense as a percentage of revenue was driven driven by headcount reductions and higher revenues partially offset by an increase in commission expenses . 23 builder operations selling , general and administrative expense as a percentage of revenue for builder operations decreased by 0.7 % . due to a higher degree of operating leverage driven by increased sales volume . builder operations expenditures include salary expenses , sales commissions , and community costs such as advertising and marketing expenses , rent , professional fees , and non-capitalized property taxes . land development the 2.3 % decrease in selling , general and administrative expense as a percentage of revenue for land development was primarily attributable to an increase in land development segment revenues . corporate , other and unallocated selling , general and administrative expense for the corporate , other and unallocated non-operating segment for the year ended december 31 , 2020 was $ 2.3 million , compared to $ 2.4 million for the year ended december 31 , 2019. equity in income of unconsolidated entities equity in income of unconsolidated entities increased to $ 16.7 million , or 69.8 % , for the year ended december 31 , 2020 , compared to $ 9.8 million for the year ended december 31 , 2019 , primarily due to an increase in earnings from gb challenger , llc and green brick mortgage , llc . other income , net other income , net , decreased to $ 4.1 million for the year ended december 31 , 2020 , compared to $ 8.1 million for the year ended december 31 , 2019. the decrease is primarily due to $ 1.5 million of allowances for option deposits and pre-acquisition costs caused by covid-19 pandemic considerations , and the impact of customer earnest money deposit of $ 5.0 million on the sale of finished lots forfeited during the year ended december 31 , 2019 , which were partially offset by an increase in title closing and settlement services of $ 2.6 million arising from higher volume of closings during the period . income tax expense income tax expense increased to $ 25.0 million for the year ended december 31 , 2020 from $ 20.0 million for the year ended december 31 , 2019. the increase was due to a higher taxable income substantially offset by a lower effective tax rate due to estimated savings from federal energy efficient homes tax credits for the 2020 tax year and for ameding prior year tax returns for federal energy efficient homes tax credits . story_separator_special_tag the following table represents a reconciliation of the net debt to total capitalization ratio to the closest gaap financial measure as of december 31 , 2020. replace_table_token_11_th 26 key sources of liquidity the company 's key sources of liquidity were funds generated by operations and provided by lines of credit and issuance of senior unsecured notes during the year ended december 31 , 2020. borrowings on lines of credit outstanding , net of debt issuance costs , as of december 31 , 2020 and december 31 , 2019 consisted of the following ( in thousands ) : replace_table_token_12_th as of december 31 , 2020 , we had $ 7.0 million outstanding under our secured revolving credit facility , down from $ 38.0 million as of december 31 , 2019. borrowings under the secured revolving credit facility have a maturity date of may 1 , 2022 and bear interest at a floating rate per annum equal to the rate announced by bank of america , n.a . as its “ prime rate ” less 0.25 % . notwithstanding the foregoing , the interest may not , at any time , be less than 4 % per annum or more than the lesser amount of 18 % and the highest maximum rate allowed by applicable law . as of december 31 , 2020 , the interest rate on outstanding borrowings under the secured revolving credit facility was 4.00 % per annum . as of december 31 , 2020 , we had $ 101.0 million outstanding under our unsecured revolving credit facility , down from $ 128 million as of december 31 , 2019. based on the unprecedented disruptions to the credit and economic markets arising from the covid-19 pandemic , we drew the unutilized portion of our unsecured revolving credit facility during the three months ended march 31 , 2020. however , these amounts were repaid in june 2020 once it was apparent that our access to liquidity in the financial markets was not compromised . borrowings on the unsecured revolving credit facility have a maturity date of december 14 , 2021 for $ 11.4 million , december 14 , 2022 for $ 28.6 million , and december 14 , 2023 for $ 61.0 million , respectively , and bear interest at a floating rate equal to either ( a ) for base rate advances , the highest of ( 1 ) the lender 's base rate , ( 2 ) the federal funds rate plus 0.5 % and ( 3 ) the one-month libor plus 1.0 % , in each case plus 1.5 % ; or ( b ) in the case of eurodollar rate advances , the reserve adjusted libor plus 2.5 % . as of december 31 , 2020 , the interest rates on outstanding borrowings under the unsecured revolving credit facility ranged from 2.64 % to 2.65 % per annum . during the three months ended september 30 , 2020 , we issued $ 37.5 million in senior unsecured notes pursuant to a note purchase agreement with the prudential insurance company of america and prudential universal reinsurance company . the company received net proceeds of $ 37.4 million and incurred debt issuance costs of approximately $ 0.1 million that were deferred and reduced the amount of debt on our consolidated balance sheet . the company used the net proceeds from the issuance of the notes to repay borrowings under the company 's existing revolving credit facilities and for general corporate purposes . we had an aggregate $ 111.1 million and $ 73.4 million in senior unsecured notes as of december 31 , 2020 and december 31 , 2019 , respectively . principal of $ 75.0 million of the senior unsecured notes is required to be paid in increments of $ 12.5 million on august 8 , 2024 and $ 12.5 million on august 8 , 2025. the final principal payment of $ 50.0 million is due on august 8 , 2026. optional prepayment is allowed with payment of a “ make-whole ” premium which fluctuates depending on market interest rates . interest , which accrues at a fixed rate of 4.00 % per annum , is payable quarterly in arrears commencing november 8 , 2019. principal of $ 37.5 million of the senior unsecured notes is due on august 26 , 2027. interest , which accrues at a fixed rate of 3.35 % per annum is payable quarterly in arrears commencing on november 26 , 2020. our debt instruments require us to maintain specific financial covenants , each of which we were in compliance with as of december 31 , 2020. specifically , under the most restrictive covenants , we are required to maintain ( 1 ) a minimum interest coverage ( consolidated ebitda to interest incurred ) of no less than 2.0 to 1.0 and , as of december 31 , 2020 , our interest coverage on a last 12 months ' basis was 15.60 to 1.0 , ( 2 ) a consolidated tangible net worth of no less than approximately $ 412.5 million and , as of december 31 , 2020 , we had $ 638.3 million and ( 3 ) maximum debt to total capitalization rolling average ratio of no more than 40.0 % and , as of december 31 , 2020 , we had a rolling average ratio of 26.8 % . as of december 31 , 2020 , we believe that our cash on hand , capacity available under our lines of credit and cash flows from operations for the next twelve months will be sufficient to service our outstanding debt during the next twelve months .
| results of operations year ended december 31 , 2020 compared to the year ended december 31 , 2019 residential units revenue and new homes delivered the table below represents residential units revenue and new homes delivered for the years ended december 31 , 2020 and december 31 , 2019 ( dollars in thousands ) : replace_table_token_3_th the $ 170.3 million increase in residential units revenue was driven by the 28.4 % increase in the number of homes delivered , which was primarily due to an organic increase in the number of active selling communities and an increase in our absorption rate for net new home orders per average active selling community during the year ended december 31 , 2020. the 21 4.4 % decline in the average sales price of homes delivered for the year ended december 31 , 2020 was attributable to our growth in revenues which was substantially from trophy signature homes and cb jeni homes—townhome division , that both sell homes at average sales prices that are below the average sales price for the company . new home orders and backlog the table below represents new home orders and backlog related to our builder operations segments , excluding mechanic 's liens contracts ( dollars in thousands ) : replace_table_token_4_th net new home orders increased by 50.0 % over the prior year period . the increase reflects the strong performance of our new trophy brand division , an 11.6 % increase in average selling communities as well as the impact of macroeconomic factors such as low interest rates , an influx of millennial first-time buyers and demand for suburban homes from apartment dwellers in response to covid-19 . our absorption rate per average active selling community increased 33.9 % year over year . while uncertainty caused by covid-19 dramatically slowed net new home orders in late march and april 2020 , during may and june 2020 , our sales rebounded .
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forward-looking statements are estimates based upon current information and involve a number of risks and uncertainties . actual events or results may differ materially from the results anticipated in these forward-looking statements as a result of a variety of factors . you should read “ part 1 , item 1a . risk factors ” and “ cautionary statement on forward-looking statements ” elsewhere in this annual report on form 10-k ( “ annual report ” ) for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . the comparison of the years ended december 31 , 2018 and 2017 can be found in our annual report on form 10‑k for the year ended december 31 , 2018 located within “ part ii , item 7. management 's discussion and analysis of financial condition and results of operations. ” the following information should be read in conjunction with our audited consolidated financial statements and accompanying notes included elsewhere in this annual report . our financial statements have been prepared in accordance with gaap . this information is intended to provide investors with an understanding of our past performance and our current financial condition and is not necessarily indicative of our future performance . please refer to “ —factors impacting comparability of our financial results ” for further discussion . unless otherwise indicated , dollar amounts are presented in thousands . unless the context otherwise requires , references to “ company , ” “ nfe , ” “ we , ” “ our , ” “ us ” or like terms refer to new fortress energy llc and its subsidiaries . when used in a historical context that is prior to the completion of nfe 's initial public offering ( “ ipo ” ) , “ company , ” “ we , ” “ our , ” “ us ” or like terms refer to new fortress energy holdings llc , a delaware limited liability company ( “ new fortress energy holdings ” ) , our predecessor for financial reporting purposes . overview we are a global integrated gas-to-power infrastructure company that seeks to use natural gas to satisfy the world 's large and growing power needs . we deliver targeted energy solutions to customers around the world , thereby reducing their energy costs and diversifying their energy resources , while also reducing pollution and generating compelling margins . our near-term mission is to provide modern infrastructure solutions to create cleaner , reliable energy while generating a positive economic impact worldwide . our long-term mission is to become one of the world 's leading carbon emission-free independent power providing companies . we discuss this important goal in more detail in “ items 1 and 2 : business and properties ” under “ toward a carbon-free future ” . as an integrated gas-to-power energy infrastructure company , our business model spans the entire production and delivery chain from natural gas procurement and liquefaction to logistics , shipping , terminals and conversion or development of natural gas-fired generation . we currently source lng from long-term supply agreements with third party suppliers and from our own liquefaction facility in miami , florida . we expect that control of our vertical supply chain , from procurement to delivery of lng , will help to reduce our exposure to future lng price variations and enable us to supply our existing and future customers with lng at a price that reinforces our competitive standing in the lng market . our strategy is simple : we seek to procure lng at attractive prices using long-term agreements and through our own production , and we seek to sell natural gas ( delivered through lng infrastructure ) or gas-fired power to customers that sign long-term , take-or-pay contracts . our current operations our management team has successfully employed our strategy to secure long-term contracts with significant customers in jamaica and puerto rico , including jamaica public service company limited ( “ jps ” ) , the sole public utility in jamaica , south jamaica power company limited ( “ jpc ” ) , an affiliate of jps , jamalco , a bauxite mining and alumina production in jamaica , and the puerto rico electric power authority ( “ prepa ” ) , each of which is described in more detail below . our assets built to service these significant customers have been designed with capacity to service other customers . we currently procure our lng either by purchasing it under a contract from a supplier or by manufacturing it in our natural gas liquefaction and storage facility located in miami-dade county , florida ( the “ miami facility ” ) . our long-term goal is to develop the infrastructure necessary to supply our existing and future customers with lng produced primarily at our own facilities , including our expanded delivery logistics chain in northern pennsylvania ( the “ pennsylvania facility ” ) . 49 montego bay terminal our storage and regasification terminal in montego bay , jamaica ( the “ montego bay terminal ” ) serves as our supply hub for the north side of jamaica , providing natural gas to jps to fuel the 145mw bogue power plant in montego bay , jamaica . our montego bay terminal commenced commercial operations in october 2016 and is capable of processing up to 740,000 lng gallons ( 61,000 mmbtu ) per day and features approximately 7,000 cubic meters of onsite storage . the montego bay terminal also consists of an iso loading facility that can transport lng to numerous on-island industrial users . old harbour terminal our marine lng storage and regasification terminal in old harbour , jamaica ( the “ old harbour terminal ” ) commenced commercial operations in june 2019 and is capable of processing approximately six million gallons of lng ( 500,000 mmbtu ) per day . story_separator_special_tag 51 cost of sales for the year ended december 31 , 2019 was $ 183,359 which increased $ 87,617 from $ 95,742 for the year ended december 31 , 2018. the increase in cost of sales was primarily attributable to increased costs to purchase lng from third parties , costs associated with development services , and increased charter costs ; costs to produce lng at our miami facility were substantially consistent with the prior year . the weighted-average cost of lng purchased from third parties increased from $ 0.64 per gallon ( $ 7.72 per mmbtu ) in 2018 to $ 0.73 per gallon ( $ 8.81 per mmbtu ) in 2019 , which is inclusive of boil-off gas . the weighted-average cost of our inventory balance as of december 31 , 2019 and 2018 was $ 0.64 per gallon ( $ 7.69 per mmbtu ) and $ 0.73 per gallon ( $ 8.84 per mmbtu ) , respectively . the increase was also attributable to the increase in volumes delivered of 32 % compared to the year ended december 31 , 2018. the costs recognized associated with development services were $ 24,228 for the year ended december 31 , 2019 ; these costs included $ 10,541 of costs associated with the completion of infrastructure projects for customers of the chp plant and $ 13,687 of costs associated with the conversion of our customer 's infrastructure in puerto rico . we did not have any such costs during the year ended december 31 , 2018. the company also incurred an increase in charter costs associated with our expanded charter fleet . such charter costs increased cost of sales by $ 14,328 for the year ended december 31 , 2019 as compared with the year ended december 31 , 2018. operations and maintenance operations and maintenance relates to costs of operating our montego bay terminal , as well as our miami facility and old harbour terminal , exclusive of costs to convert that are reflected in cost of sales . operations and maintenance for the year ended december 31 , 2019 was $ 26,899 , which increased $ 17,310 from $ 9,589 for the year ended december 31 , 2018. the increase was primarily a result of higher costs associated with the operations of charter vessels , including a storage vessel for puerto rico , of $ 9,612 in the year ended december 31 , 2019 , as well as increased operating costs , including higher payroll and insurance expenses , as we continue to expand our operations . selling , general and administrative selling , general and administrative includes employee travel costs , insurance , and costs associated with development activities for projects that are in initial stages and development is not yet probable . selling , general and administrative also includes compensation expenses for our corporate employees as well as professional fees for our advisors . selling , general and administrative for the year ended december 31 , 2019 , was $ 152,922 which increased $ 90,785 from $ 62,137 for the year ended december 31 , 2018. the increase was primarily attributable to share-based compensation expense of $ 40,594 , as well as increased headcount as compared to the prior year . the increase was also due to development costs incurred at the pennsylvania facility of approximately $ 19,500 , as well as other development projects that currently do not qualify for capitalization . such costs incurred in connection with the pennsylvania facility may be capitalizable in future periods once we issue a final notice to proceed to our engineering , procurement , and construction contractors . costs incurred in future periods for other such projects may be capitalizable once we determine that we are fully committed to complete these projects . the remaining change was primarily due to increases in professional fees , payroll , and travel expenses . loss on mitigation sales loss on mitigation sales for the year ended december 31 , 2019 was $ 5,280 which was attributable to losses incurred associated with undelivered quantities of lng under firm purchase commitments due to storage capacity constraints . in these situations , our supplier will attempt to sell the undelivered quantity through a mitigation sale , and the losses incurred under the firm purchases are partially offset by this sale of the undelivered amount to third parties for amounts lower than the contracted price , which resulted in a loss of $ 5,280. we did not have such transactions during the year ended december 31 , 2018. depreciation and amortization depreciation and amortization for the year ended december 31 , 2019 was $ 7,940 , which increased $ 4,619 from $ 3,321 for the year ended december 31 , 2018. the increase is primarily a result of the depreciation of the old harbour terminal which was placed in service in the second quarter of 2019 , as well as a full year of amortization of intangible assets from the acquisition of shannon lng in november 2018 . 52 interest expense interest expense for the year ended december 31 , 2019 was $ 19,412 , which increased $ 8,164 from $ 11,248 for the year ended december 31 , 2018 , primarily as a result of the additional principal balance outstanding since march 2019 under the term loan facility ( as defined below ) . the increase in interest expense was partially offset by an increase in capitalized interest in the amount of $ 23,440 for the year ended december 31 , 2019 as compared to the year ended december 31 , 2018. all additional interest expense incurred in 2019 due to issuance of the senior secured bonds and the senior unsecured bonds ( both defined below ) was capitalized as part of our construction projects .
| factors impacting comparability of our financial results our historical results of operations and cash flows are not indicative of results of operations and cash flows to be expected in the future , principally for the following reasons : our historical financial results do not include significant projects that are near completion . our historical financial statements only include our montego bay terminal , miami facility , and certain industrial end-users . the old harbour terminal commenced commercial operations during 2019 , and a significant downstream customer of the old harbour terminal , the old harbour power plant , is expected to be fully operational in 2020. as such , we expect this customer to purchase significant volumes on a take-or-pay basis from the old harbour terminal throughout 2020 and future years . we also expect that the chp plant and the san juan facility will be fully operational beginning in 2020 , and we expect to generate significant revenue from customers of these facilities under long-term contracts beginning in 2020. our current results also do not include revenue and operating results from other projects under development including the la paz terminal , the lng regasification terminal and power plant in puerto sandino , nicaragua ( the “ puerto sandino terminal ” ) , the lng terminal in angola ( the “ angola terminal ” ) , and the lng terminal on the shannon estuary near ballylongford , ireland ( the “ ireland terminal ” ) . our historical financial results do not reflect the long term lng supply agreement that will lower the cost of our lng supply from 2022 to 2030. we currently purchase the majority of our supply of lng from third parties . for the years ended december 31 , 2019 and 2018 , we sourced 93 % and 91 % , respectively , of our lng volumes from third parties .
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the disclosures set forth in this item are qualified by important factors detailed in part i captioned forward-looking statements and item 1a captioned risk factors of this report and other cautionary statements set forth elsewhere in the report . story_separator_special_tag these committees review reports from management , the company 's auditors , and other outside sources . on the basis of materials that are available to them and on which they rely , the committees review the performance of the company 's management and personnel , and establish policies , but neither the committees nor their individual members ( in their capacities as members of the board of directors ) are responsible for daily operations of the company . in particular , risk management activities relating to individual loans are undertaken by company personnel in accordance with the policies established by the committees of the board of directors . senior leadership committees to ensure that our risk management goals and objectives are accomplished , oversight of our risk taking and risk management activities are conducted through five senior leadership committees comprised of members of management : the senior leadership committee establishes short and long-term strategies and operating plans . the committee establishes performance measures and reviews performance to plan on a monthly basis : the technology steering committee establishes technological strategies , makes technology investment decisions , and manages the implementation process : the alco round table committee establishes and monitors liquidity ranges , pricing , maturities , investment goals , and interest spread on balance sheet accounts : and the sox 404 compliance committee has established the master plan for full documentation of the company 's internal controls and compliance with section 404 of the sarbanes-oxley act of 2002 . 37 risk management controls we use various controls to manage risk exposure within the company . budgeting and planning processes provide for early indication of unplanned results or risk levels . models are used to estimate market risk and net interest income sensitivity . segmentation analysis is used to estimate expected and unexpected credit losses . compliance with regulatory guidelines plays a significant role in risk management as well as corporate culture and the actions of management . our code of ethics provides the guidelines for all employees to conduct themselves with the highest integrity in the delivery of service to our clients . liquidity risk management liquidity risk liquidity risk is the inability to meet liability maturities and withdrawals , fund asset growth and otherwise meet contractual obligations at reasonable market rates . liquidity management involves maintaining ample and diverse funding capacity , liquid assets and other sources of cash to accommodate fluctuations in asset and liability levels due to business shocks or unanticipated events . alco is responsible for establishing our liquidity policy and the accounting department is responsible for planning and executing the funding activities and strategies . sources of liquid assets consist of the repayments and maturities of loans , selling of loans , short-term money market investments , and cash flows from maturities and sales of available-for-sale securities . increased liquidity from net loan repayments and increased deposits , were completely offset by pay downs of fhlb advances . increases in available-for-sale security balances were responsible for the major use of liquidity . the weighted-average life of the available-for-sale security portfolio is 5.18 years . liquidity is generated from liabilities through deposit growth and fhlb borrowings . we emphasize preserving and maximizing customer deposits and other customer-based funding sources . deposit marketing strategies are reviewed for consistency with liquidity policy objectives . we have available correspondent banking lines of credit through correspondent relationships totaling approximately $ 30.0 million and available secured borrowing lines of approximately $ 85.5 million with the fhlb . in addition , we have a secured borrowing line with the federal reserve bank ( frb ) , and had $ 46.1 million in available credit at the frb . while these sources are expected to continue to provide significant amounts of liquidity in the future , their mix , as well as the possible use of other sources , will depend on future economic and market conditions . liquidity is also provided through cash flows generated through our operations . our liquid assets ( cash and amounts due from banks , interest bearing deposits held at other banks , and available-for-sale securities ) totaled $ 251.6 million or 27 % of total assets at december 31 , 2011 , $ 252.5 million or 27 % of total assets at december 31 , 2010 , and $ 148.3 million or 18.2 % of total assets at december 31 , 2009. the holding company could potentially receive dividends from the bank in 2012. see note 21 of the consolidated financial statements in this document for a discussion of the restrictions on the bank 's ability to pay dividends . to accommodate future growth and business needs , we develop an annual capital expenditure budget during strategic planning sessions . we expect that our earnings , acquisition of core deposits and wholesale borrowing arrangements will be sufficient to support liquidity needs in 2012. other borrowings we actively use fhlb advances as a source of wholesale funding to provide liquidity and to implement leverage strategies . at december 31 , 2011 , the company had one overnight advance , four advances maturing in less than 1 year , and two longer term advances maturing within three to five years . five of the advances were fixed rate , 38 and one floated to three month libor plus one basis point . the advances did not contain call or put features . as of december 31 , 2011 , the company had $ 109.0 million in fhlb advances outstanding compared to $ 141 million at december 31 , 2010 and $ 70.0 million at december 31 , 2009. replace_table_token_4_th credit risk management credit risk arises from the inability of a customer to meet its repayment obligations . credit risk exists in our outstanding loans , letters of credit and unfunded loan commitments . story_separator_special_tag at the time of foreclosure , oreo is recorded at the lower of the carrying amount of the loan or fair value less costs to sell , which becomes the property 's new basis . any write-downs based on the asset 's fair value at the date of 40 acquisition are charged to the alll . after foreclosure , management periodically performs valuations such that the real estate is carried at the lower of its new cost basis or fair value , net of estimated costs to sell . subsequent valuation adjustments are recognized within net loss oreo . revenue and expenses from operations and subsequent adjustments to the carrying amount of the property are included in other non interest income and non interest expense in the consolidated statements of operations . allowance for loan and lease losses the alll represents management 's best estimate of probable losses in the loans and leases portfolio . within the allowance , reserves are allocated to segments of the portfolio based on specific formula components . changes to the allowance for credit losses are reported in the consolidated statements of operations in the provision for loan and lease losses . we perform periodic and systematic detailed evaluations of our lending portfolio to identify and estimate the inherent risks and assess the overall collectability . we evaluate general conditions such as the portfolio composition , size and maturities of various segmented portions of the portfolio such as secured , unsecured , construction , and small business administration ( sba ) . we also evaluate concentrations of borrowers , industries , geographical sectors , loan product , loan classes and collateral types , volume and trends of loan delinquencies and nonaccrual ; criticized and classified assets and trends in the aggregate in significant credits identified as watch list items . our alll is the accumulation of various components that are calculated based upon independent methodologies . all components of the alll represent an estimation based on certain observable data that management believes most reflects the underlying credit losses being estimated . changes in the amount of each component of the alll are directionally consistent with changes in the observable data , taking into account the interaction of the components over time . an essential element of the methodology for determining the alll is our credit risk evaluation process , which includes credit risk grading of individual , commercial , construction , commercial real estate , and consumer loans . loans are assigned credit risk grades based on our assessment of conditions that affect the borrower 's ability to meet its contractual obligations under the loan agreement . that process includes reviewing borrower 's current financial information , historical payment experience , credit documentation , public information , and other information specific to each individual borrower . loans are reviewed on an annual or rotational basis or as management become aware of information affecting the borrower 's ability to fulfill its obligations . credit risk grades carry a dollar weighted risk percentage . for individually impaired loans , we measure impairment based on the present value of expected future principal and interest cash flows discounted at the loan 's effective interest rate , except that as a practical expedient , a creditor may measure impairment based on a loan 's observable market price or the fair value of collateral , if the loan is collateral dependent . when developing the estimate of future cash flows for a loan , we consider all available information reflecting past events and current conditions , including the effect of existing environmental factors . in addition to the alll , an allowance for unfunded loan commitments and letters of credit is determined using estimates of the probability of funding and the associated inherent credit risk . this reserve is carried as a liability on the consolidated balance sheets . we make provisions to the alll on a regular basis through charges to operations that are reflected in our consolidated statements of operations as provision expense for loan losses . when a loan is deemed uncollectible , it is charged against the allowance . any recoveries of previously charged off loans are credited back to the allowance . there is no precise method of predicting specific losses or amounts that ultimately may be charged off on particular categories of the loan portfolio . various regulatory agencies periodically review our alll as an integral part of their examination process . such agencies may require us to provide additions to the allowance based on their judgment of information available 41 to them at the time of their examination . there is uncertainty concerning future economic trends . accordingly , it is not possible to predict the effect future economic trends may have on the level of the provisions for possible loan losses in future periods . the alll should not be interpreted as an indication that charge offs in future periods will occur in the stated amounts or proportions . market risk management general market risk is the potential loss due to adverse changes in market prices and interest rates . market risk is inherent in our operating positions and activities including customers ' loans , deposit accounts , securities and long-term debt . loans and deposits generate income and expense , respectively , and the value of cash flows changes based on general economic levels , and most importantly , the level of interest rates . the goal for managing our assets and liabilities is to maximize shareholder value and earnings while maintaining a high quality balance sheet without exposing the company to undue interest rate risk . the absolute level and volatility of interest rates can have a significant impact on our profitability . market risk arises from exposure to changes in interest rates , exchange rates , commodity prices , and other relevant market rate or price risk . we do not operate a trading account , and do not hold a position with exposure to foreign currency exchange . we face market risk through interest rate volatility .
| executive overview significant items for the year ended december 31 , 2011 were as follows : capital redeemed all of the outstanding preferred stock issued to the u.s. treasury under tarp cpp for an aggregate purchase price of $ 17.0 million . also , repurchased the common stock warrant issued to the u.s. treasury for $ 125 thousand . this represents full repayment of all tarp obligations . issued and sold to the treasury 20,000 shares of its senior non-cumulative perpetual preferred stock , series b , having a liquidation preference of $ 1,000 per share , for aggregate proceeds net of issuance costs of $ 19.9 million . the issuance was pursuant to the u.s. treasury 's small business lending fund program . increased our total risk based capital ratio to 15.70 % as of december 31 , 2011 , compared to 15.00 % as of december 31 , 2010 , due to the issuance of series b preferred stock , and moderate earnings . declared cash dividends of $ 0.03 per share for each quarter in 2011. in determining the amount of dividends to be paid , we consider capital preservation , expected asset growth , projected earnings and our overall dividend pay-out ratio . paid preferred stock dividends of $ 997.8 thousand in 2011 compared to $ 850.0 thousand in 2010. financial performance net earnings per diluted common share were $ 0.37 in 2011 , as compared to $ 0.35 per diluted common share earned in 2010. the increase in net earnings per diluted common share is principally attributed to reduced provision for loan and lease losses in 2011 , partially offset by increased basic and dilutive weighted average shares .
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there is no sinking fund and no scheduled amortization of the notes prior to maturity . the notes are subject to redemption and the holders may require the company to repurchase the notes upon a change of control . all domestic restricted subsidiaries that guarantee other debt of the company or of another guarantor of the senior notes in excess of $ 5,000 are guarantors of the 6 5 / 8 % senior notes . the indentures governing the senior notes contain customary covenants and events of default . accordingly , these agreements generally impose significant operating and financial restrictions on the company . these restrictions , among other things , provide limitations on incurrence of additional indebtedness , the payment story_separator_special_tag overview we are a vertically integrated manufacturer and marketer of petrochemicals , polymers and fabricated building products . our two principal business segments are olefins and vinyls . we use the majority of our internally-produced basic chemicals to produce higher value-added chemicals and building products . consumption of the basic chemicals that we manufacture in the commodity portions of our olefins and vinyls processes has increased significantly over the past 25 years . our olefins and vinyls products are some of the most widely used chemicals in the world and are upgraded into a wide variety of higher value-added chemical products used in many end-markets . petrochemicals are typically manufactured in large volume by a number of different producers using widely available technologies . the petrochemical industry exhibits cyclical commodity characteristics , and margins are influenced by changes in the balance between supply and demand and the resulting operating rates , the level of general economic activity and the price of raw materials . the cycle is generally characterized by periods of tight supply , leading to high operating rates and margins , followed by a decline in operating rates and margins primarily as a result of significant capacity additions . due to the significant size of new plants , capacity additions are built in large increments and typically require several years of demand growth to be absorbed . beginning in 2009 and continuing through 2011 , a cost advantage for natural gas-based ethylene producers over naphtha-based ethylene producers allowed a strong export market and higher margins for north american chemical producers , including westlake . increased global demand for polyethylene in 2010 and 2011 resulted in increased sales volumes and improved operating margins and cash flow for our olefins segment . however , some olefins industry consultants predict that significant increases in worldwide ethylene and ethylene derivative capacity , which have occurred over the past four years , primarily in the middle east and asia , may continue for the next several years . as a result , our olefins segment operating margins may be negatively impacted . weakness in the u.s. construction markets , which began in the third quarter of 2006 , and the subsequent budgetary constraints in municipal spending , have contributed to lower domestic demand for our vinyls products . in addition , increases in feedstock costs , combined with the industry 's inability to sufficiently raise domestic prices for pvc resin and building products in order to offset cost increases , significantly impacted our vinyls segment 's operating results in 2010 and 2011. since late 2010 , the pvc industry has experienced an increase in pvc resin export demand , driven largely by more competitive ethylene and energy cost positions in north america . in addition , pvc resin capacity in japan was negatively impacted for a period following the tsunami in early 2011 , which tightened global pvc resin availability . as a consequence , prices and margins for domestic pvc resin and building products improved in 2011. looking forward , our vinyls segment operating rates and margins may continue to be negatively impacted by the slow recovery of u.s. construction markets and north american pvc capacity additions . while the economic environment continues to be challenging for our customers , we believe our customer base remains generally healthy . as we continue to manage our business in this environment , including the slowdown in construction activity , we have taken steps designed to address the changes in demand and margins in our vinyls segment and its resulting impact on our operations by matching production with sales demand and continuing to operate our plants in an efficient manner . we continue to monitor our cost management programs and discretionary capital spending . the impact of the global economic environment has been challenging to our business and , depending on the performance of the economy in 2012 and beyond , could have a negative effect on our financial condition , results of operations or cash flows . we purchase significant amounts of ethane and propane feedstock , natural gas , ethylene , chlorine and salt from external suppliers for use in production of basic chemicals in the olefins and vinyls chains . we also purchase significant amounts of electricity to supply the energy required in our production processes . while we have agreements providing for the supply of ethane and propane feedstocks , natural gas , ethylene , chlorine , salt and electricity , the contractual prices for these raw materials and energy vary with market conditions and may be highly volatile . factors that have caused volatility in our raw material prices in the past and which may do so in the future include : shortages of raw materials due to increasing demand ; 30 capacity constraints due to construction delays , strike action or involuntary shutdowns ; the general level of business and economic activity ; and the direct or indirect effect of governmental regulation . significant volatility in raw material costs tends to put pressure on product margins as sales price increases could lag behind raw material cost increases . conversely , when raw material costs decrease , customers may seek immediate relief in the form of lower sales prices . story_separator_special_tag in august 2010 , we announced that we intend to proceed with the previously announced construction of a new chlor-alkali plant to be located at our vinyls manufacturing complex in geismar . in december 2011 , we announced that we were increasing the planned capacity of the chlor-alkali plant . the new chlor-alkali unit is designed to produce up to 350,000 ecus annually upon completion , bringing our total ecu capacity to 625,000 per year . the new plant will improve the vertical integration of our vinyls business from chlorine downstream into vcm and pvc and increase caustic soda sales . the project is currently targeted for start-up in the second half of 2013. we expect this project will be funded with cash on hand , cash flow from operations , the net proceeds from the revenue bonds of the authority , and if necessary , our revolving credit facility and other external financing . 32 results of operations segment data replace_table_token_5_th replace_table_token_6_th replace_table_token_7_th ( 1 ) industry pricing data was obtained through ihs chemical . we have not independently verified the data . 33 ( 2 ) represents average north american contract prices of ethylene over the period as reported by ihs chemical . ( 3 ) represents average north american contract prices of polyethylene low density film over the period as reported by ihs chemical . ( 4 ) represents average north american contract prices of styrene over the period as reported by ihs chemical . ( 5 ) represents average north american acquisition prices of caustic soda ( diaphragm grade ) over the period as reported by ihs chemical . ( 6 ) represents average north american contract prices of chlorine ( into chemicals ) over the period as reported by ihs chemical . ( 7 ) represents average north american contract prices of pvc over the period as reported by ihs chemical . story_separator_special_tag e= '' 1 '' > 35 gross profit . gross profit margin percentage increased to 15.2 % in 2010 from 8.4 % in 2009. the improvement in gross profit percentage was primarily due to improved olefins segment integrated product margins resulting from higher sales prices , higher polyethylene sales volumes and higher production rates for most of our major products , partially offset by higher feedstock and energy costs . in addition , the 2010 gross profit percentage was impacted by the lost ethylene production , repair costs and unabsorbed fixed manufacturing costs incurred due to the lake charles outage in the first quarter of 2010 and a negative change of $ 5.2 million in trading activity . our raw material costs in both segments normally track industry prices , which experienced an increase of 24.7 % for ethane and 38.7 % for propane in 2010 as compared to 2009. average sales prices for 2010 increased by 29.8 % as compared to 2009. selling , general and administrative expenses . selling , general and administrative expenses increased $ 16.4 million , or 18.7 % , in 2010 as compared to 2009. the increase was mainly attributable to an increase in payroll and related labor costs and higher legal and professional fees . interest expense . interest expense increased by $ 4.9 million to $ 39.9 million in 2010 from $ 35.0 million in 2009 , primarily due to higher average debt outstanding for the period as a result of the issuance of our senior notes in july 2010 and december 2010. other income , net . other income , net decreased by $ 2.0 million to $ 4.5 million in 2010 from $ 6.5 million in 2009 primarily due to lower equity in income from our joint venture in china . income taxes . the effective income tax rate was 35.4 % in 2010 as compared to 32.7 % in 2009. the effective income tax rate for 2010 was above the statutory rate of 35.0 % primarily due to state income taxes , offset by state tax credits and the domestic manufacturing deduction . the effective income tax rate for 2009 was below the statutory rate of 35.0 % primarily due to state tax credits , a lower foreign tax rate and a reduction of gross unrecognized tax benefits , partially offset by state income taxes . olefins segment net sales . net sales increased by $ 649.7 million , or 40.3 % , to $ 2,261.2 million in 2010 from $ 1,611.5 million in 2009. this increase was primarily due to an increase in sales prices for all major products and higher polyethylene sales volume . average sales prices for the olefins segment increased by 34.7 % in 2010 as compared to 2009 , while average sales volumes increased by 5.6 % in 2010 as compared to 2009. income from operations . income from operations increased by $ 282.9 million to $ 460.0 million in 2010 from $ 177.1 million in 2009. this increase was mainly attributable to improved olefins segment integrated product margins due to higher sales prices , increased polyethylene sales volume and higher operating rates . the increase was partially offset by higher feedstock costs and the unscheduled outage at one of our ethylene units in lake charles during the first quarter of 2010. in addition , trading activity for 2010 resulted in a gain of $ 0.1 million as compared to a gain of $ 5.3 million for 2009. results for 2009 were negatively impacted by the turnaround at one of our ethylene units in lake charles . vinyls segment net sales . net sales increased by $ 196.3 million , or 27.5 % , to $ 910.6 million in 2010 from $ 714.3 million in 2009. this increase was primarily driven by higher sales prices for most of our major vinyls products and higher pvc resin sales volume . average sales prices for the vinyls segment increased by 18.7 % in 2010 as compared to 2009 , while average sales volumes increased by 8.8 % in 2010 as compared to 2009. loss from operations .
| summary for the year ended december 31 , 2011 , we had net income of $ 259.0 million , or $ 3.87 per diluted share , on net sales of $ 3,619.8 million . this represents an increase in net income of $ 37.6 million , or $ 0.53 per diluted share , from 2010 net income of $ 221.4 million , or $ 3.34 per diluted share , on net sales of $ 3,171.8 million . net sales for the year ended december 31 , 2011 increased $ 448.0 million to $ 3,619.8 million compared to net sales for 2010 of $ 3,171.8 million , primarily due to higher sales prices for all our major products and higher sales volume for pvc resin , partially offset by lower building products sales volume . income from operations was $ 446.8 million for the year ended december 31 , 2011 as compared to $ 378.4 million for 2010. income from operations benefited primarily from improved caustic margins , higher pvc resin and building products sales prices and higher pvc resin sales volume as compared to the year ended december 31 , 2010 , partially offset by higher feedstock costs . the 2011 income from operations was negatively impacted by the lost production , lost sales and higher operating costs associated with four separate events : an unscheduled outage at one of our ethylene units in lake charles , the turnaround of our calvert city facility , a fire at a third-party storage facility in mont belvieu and the closure of our springfield pvc pipe production facility . the 2010 results were negatively impacted by an unscheduled outage at one of our ethylene units in lake charles caused by severe weather . 2011 compared with 2010 net sales .
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our purpose is to inspire and empower youth culture around the world , by fueling a shared passion for self-expression and creating unrivaled experiences at the heart of the global sneaker community . foot locker , inc. uses its omni-channel capabilities to bridge the digital world and physical stores , including order-in-store , buy online and pickup-in-store , and buy online and ship-from-store , as well as e-commerce . we operate websites and mobile apps aligned with the brand names of our store banners ( including footlocker.com , ladyfootlocker.com , kidsfootlocker.com , champssports.com , footaction.com , footlocker.ca , footlocker.eu ( and related e-commerce sites in the various european countries that we operate ) footlocker.com.au , footlocker.com.nz , sidestep-shoes.de , sidestep-shoes.nl , footlocker.mo , footlocker.hk , footlocker.sg , and footlocker.my ) . these sites offer some of the largest online product selections and provide a seamless link between e-commerce and physical stores . we also operate the websites for eastbay.com , final-score.com , and eastbayteamsales.com . segment reporting our operating segments are identified according to how our business activities are managed and evaluated by our chief operating decision maker , our ceo . we have three operating segments , north america , europe , middle east , and africa ( “ emea ” ) , and asia pacific . our north america operating segment includes the results of the following banners operating in the u.s. and canada : foot locker , kids foot locker , lady foot locker , champs sports , and footaction , including each of their related e-commerce businesses , as well as our eastbay business that includes internet , catalog , and team sales . our emea operating segment includes the results of the following banners operating in europe : foot locker , sidestep , and kids foot locker , including each of their related e-commerce businesses . our asia pacific operating segment includes the results of foot locker and kids foot locker operating in australia , new zealand , and asia as well as the related e-commerce businesses . we have further aggregated these operating segments into one reportable segment based upon their shared customer base and similar economic characteristics . covid-19 covid-19 had a significant effect on overall economic conditions in the various geographic areas in which we have operations . our top priority is to protect our team members and their families , our customers , and our operations . we have taken all precautionary measures as directed by health authorities and local , state , and national governments . in response to the covid-19 pandemic , we temporarily closed our stores across all of our brands in north america , emea , and asia pacific throughout the year . the following represents a summary of the percentage of time that our stores were open , although there were significant regional variances by quarter and other restrictions that reduced operating hours as well : period open days first quarter 48 percent second quarter 70 percent third quarter 93 percent fourth quarter 87 percent full year 75 percent we continue to monitor the outbreak of covid-19 and other closures , or closures for a longer period of time , reduced operating hours , capacity limitations , and social distancing may be required to help ensure the health and safety of our team members and our customers . covid-19 has and may continue to have an effect on ports and trade , as well as global travel . 2020 form 10-k page 18 we have set up a special covid-19 task force which is overseeing the necessary precautionary measures to protect the health and safety of our team members as well as following the guidance provided by local health authorities . given the dynamic nature of these circumstances , the duration of business disruption , and reduced customer traffic , the related financial affect can not be reasonably estimated at this time but may materially affect our business for the full year of 2021. reconciliation of non-gaap measures in addition to reporting our financial results in accordance with generally accepted accounting principles ( “ gaap ” ) , we report certain financial results that differ from what is reported under gaap . in the following tables , we have presented certain financial measures and ratios identified as non-gaap such as earnings before interest and taxes ( “ ebit ” ) , adjusted ebit , adjusted ebit margin , adjusted income before income taxes , adjusted net income , adjusted net income margin , adjusted diluted earnings per share , return on invested capital ( “ roic ” ) , and free cash flow . we present these non-gaap measures because we believe they assist investors in comparing our performance across reporting periods on a consistent basis by excluding items that are not indicative of our core business or which affect comparability . these non-gaap measures are also useful in assessing our progress in achieving our long-term financial objectives . additionally , we present certain amounts as excluding the effects of foreign currency fluctuations , which are also considered non-gaap measures . throughout the following discussions , where amounts are expressed as excluding the effects of foreign currency fluctuations , such changes are determined by translating all amounts in both years using the prior-year average foreign exchange rates . presenting amounts on a constant currency basis is useful to investors because it enables them to better understand the changes in our businesses that are not related to currency movements . we estimate the tax effect of the non-gaap adjustments by applying a marginal rate to each of the respective items . the income tax items represent the discrete amount that affected the period . the non-gaap financial information is provided in addition to , and not as an alternative to , our reported results prepared in accordance with gaap . presented below is a reconciliation of gaap and non-gaap results discussed throughout this annual report on form 10-k. please see the non-gaap reconciliations for free cash flow in the “ liquidity and capital resources ” section . story_separator_special_tag ( 2 ) represents the add-back to operating income driven by the hypothetical interest expense we would incur if the property under our operating leases were owned or accounted for as finance leases . calculated using the discount rate for each operating lease recorded as a component of rent expense . operating lease interest is added back to adjusted net operating profit in the roic calculation to account for differences in capital structure between us and our competitors . ( 3 ) the adjusted income tax expense represents the marginal tax rate applied to adjusted net operating profit for each of the periods presented . ( 4 ) for 2019 , the amount represents the average total assets for 2019 and 2018 , excluding the 2019 right-of-use assets of $ 2,899 million for comparability to prior periods . ( 5 ) for 2019 , the amount represents the average of the right-of-use assets as of february 1 , 2020 and february 3 , 2019 ( the date of the adoption of the new lease standard ) of $ 2,899 million and $ 3,148 million , respectively . 2020 form 10-k page 21 story_separator_special_tag style= '' font-family : 'arial ' , 'helvetica ' , 'sans-serif ' ; font-size:10pt ; margin:0pt 0pt 6pt 0pt ; '' > our emea and north america operating segments had comparable sales declines , while our asia pacific operating segment generated an increase . the decline in emea and north america primarily came from the stores channel as a result of the temporary closures of our stores across all of our banners at various times during the year due to the pandemic . within north america , our kids foot locker and footaction business generated increases and our champs sports business was essentially flat with all other banners being negative . emea 's temporary store closures were for longer periods of time and therefore all banners operating in emea declined . our asia pacific operating segment increases were led by strong sales in our australia e-commerce business . from a product perspective , we experienced a decline across all product categories ( footwear , apparel , and accessories ) primarily due to closures necessitated by covid-19 . sales of men 's basketball and women 's footwear were positive for the year . additionally , our women 's apparel sales also generated an increase for the year . gross margin replace_table_token_11_th gross margin is calculated as sales minus cost of sales . cost of sales includes the cost of merchandise , freight , distribution costs including related depreciation expense , shipping and handling , occupancy and buyers ' compensation . occupancy costs include rent ( including fixed common area maintenance charges and other fixed non-lease components ) , real estate taxes , general maintenance , and utilities . overall , the gross margin rate decreased to 28.9 percent as compared with the prior year rate of 31.8 percent . the decline in the gross margin rate was due to increased promotions to remain competitive in the marketplace and to clear inventory , as well as the higher portion of direct-to-customer sales , which bear higher freight costs . the promotional stance was partially necessitated by covid-19 related store closures and our inability to return slow-moving inventory to our suppliers . offsetting , in part , the higher promotional markdowns taken was increased supplier support , which positively affected the gross margin rate by 80 basis points as compared with the prior year . the occupancy rate was positively affected by covid-19 related rent abatements . due to completed lease negotiations , we were able to record $ 67 million of rent savings due primarily to rent abatements during the year . we record rent abatements in rent expense when the negotiations are completed and the leases are modified . selling , general and administrative expenses ( sg & a ) replace_table_token_12_th sg & a decreased by $ 63 million , or 3.8 percent , in 2020 , as compared with the prior year . as a percentage of sales , the sg & a rate increased by 40 basis points as compared with 2019. excluding the effect of foreign currency fluctuations , sg & a decreased by $ 78 million , or 4.7 percent , as compared with the prior year . sg & a included cares act retention credits and similar governmental subsidies of $ 71 million , as we continued to pay our employees throughout most of the first quarter despite the temporary store closures . we also incurred incremental expenses of $ 14 million for personal protective equipment . we carefully managed expenses by reducing spending in all areas of the business , including marketing and travel , among other categories . depreciation and amortization replace_table_token_13_th 2020 form 10-k page 24 capital expenditures were reduced at the onset of the covid-19 pandemic and this contributed to the $ 3 million reduction in depreciation and amortization in 2020 as compared with 2019. excluding the effect of foreign currency fluctuations , depreciation and amortization decreased by $ 5 million as compared with the prior year . operating results division profit was $ 491 million , or 6.5 percent of sales in 2020. this compares with $ 788 million , or 9.8 percent of sales , for the prior year . the decline was from our stores channel and was partially offset by an increase in our direct-to-customers channel . our direct-to-customers channel improved its gross margins and both channels significantly reduced operating costs as mitigation for the loss of sales caused by the covid-19 pandemic . impairment and other charges due to covid-19 and its effect on our actual and projected results , during the first quarter of 2020 we determined that a triggering event occurred for certain underperforming stores operating in europe and , therefore , we conducted an impairment review .
| overview of consolidated results replace_table_token_8_th highlights of our 2020 financial performance include : ● covid-19 had a significant effect on overall economic conditions in the various geographic areas in which we have operations . in response to the covid-19 pandemic , stores across all of our brands in north america , emea , and asia pacific were temporarily closed for various periods during the year . as a result of covid-19 , our stores were open for approximately 75 percent of operating days within 2020. while we attempted to mitigate the loss of sales by employing strategies such as buy on-line and pick-up in store or other curbside services , it was not enough to offset the decrease . social unrest in the united states and canada also affected our sales performance and affected our results due to the losses that were sustained . ● footwear sales increased to 84 percent of total sales for 2020 , as compared with 83 percent in the prior year . ● our stores channel experienced decreases in sales due to the previously mentioned store closures and resulting reduced customer traffic to shopping centers and malls . ● sales per square foot decreased to $ 417 reflecting store closures and related reduced customer traffic . ● our direct-to-customers sales channel represented 27.8 percent of total sales in 2020 , an increase from 16.1 percent in the prior year . our ongoing investments in our omnichannel ecosystem , including supply chain capabilities , have been instrumental in delivering a seamless customer experience . ● as noted in the table below , sales and comparable sales both decreased due to closures of our stores throughout the year as a result of covid-19 . our direct-to-customers channel generated significant increases which partially offset the sales declines in the stores channel .
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as of december 31 , 2019 , the company did no t have an outstanding balance on the abl revolving credit facility and no borrowings on the prior abl facility as of december 31 , 2018. during the year ended december 31 , 2019 , the highest daily borrowing under either abl facility was $ 39.7 million and the story_separator_special_tag the following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes appearing in part ii , item 8 of this annual report on form 10-k. overview : manitowoc is a leading provider of engineered lifting solutions , including lattice-boom cranes , tower cranes , mobile telescopic cranes and boom trucks . the company has three reportable segments , the americas segment , euraf segment , and meap segment . the segments were identified using the “ management approach , ” which designates the internal organization that is used by the ceo , who is also the company 's chief operating decision maker , for making decisions about the allocation of resources and assessing performance . in management 's discussion and analysis , unless otherwise indicated , references to “ manitowoc ” and “ the company ” refer to the manitowoc company , inc. and its consolidated subsidiaries . all dollar amounts are in millions throughout the tables included in management 's discussion and analysis of financial conditions and results of operations unless otherwise indicated . segment operating performance the company manages its business primarily on a geographic basis . the company 's reportable segments consist of americas , euraf , and meap . further information regarding the company 's reportable segments can be found in note 17 , “ segments , ” to the consolidated financial statements included in part ii , item 8 of this annual report on form 10-k. americas replace_table_token_5_th americas net sales increased 9.9 % in 2019 to $ 969.7 million from $ 882.7 million in 2018. this increase was primarily driven by market expansion in petrochemical and utility segments along with fleet replenishment . share gains were also realized in several product lines , aided by positive market acceptance of new product introductions . americas operating income increased 92.9 % in 2019 to $ 113.4 million from $ 58.8 million in 2018. this change was primarily due to increased revenues as discussed above , price realization , $ 8.3 million of lower engineering , selling and administrative costs due primarily to cost reduction actions , $ 3.3 million of lower restructuring expenses and better utilization of the u.s. manufacturing facilities . americas net sales increased 27.3 % in 2018 to $ 882.7 million from $ 693.6 million in 2017. this change was primarily due to increased crane shipments to the commercial construction and energy end markets . americas operating income increased 764.7 % in 2018 to $ 58.8 million from $ 6.8 million in 2017. this change was primarily due to $ 14.3 million of lower restructuring expenses , $ 2.0 million of lower engineering , selling and administrative costs , better utilization of the u.s. manufacturing facilities and increased revenues as discussed above . this was partially offset by increased raw material costs of $ 4.5 million . euraf replace_table_token_6_th * measure not meaningful euraf net sales decreased 5.2 % in 2019 to $ 644.9 million from $ 680.6 million in 2018. this decrease was primarily due to $ 34.7 million of unfavorable changes in foreign currency exchange rates . euraf operating income increased in 2019 to income of $ 3.8 million from a loss of $ 68.2 million in 2018. this change was mainly due to a goodwill asset impairment charge of $ 82.2 million recorded in 2018. excluding this item , operating income 23 decreased $ 10.2 million . this decrease was primarily due to a $ 2.0 million increase in restructuring expense and $ 2.3 million of incremental trade show costs in 2019 . this was also impacted unfavorably by $ 4.3 million of changes in foreign currency exchange rates . euraf net sales increased 8.2 % in 2018 to $ 680.6 million from $ 628.9 million in 2017. this change was primarily due to higher demand for cranes in the commercial construction end market . euraf net sales were also favorably impacted by approximately $ 24.0 million from changes in foreign currency exchange rates . euraf operating income decreased in 2018 to a loss of $ 68.2 million from income of $ 5.1 million in 2017. this change was mainly due to a goodwill asset impairment charge of $ 82.2 million . excluding this item , operating income increased $ 8.9 million or 174.5 % . this increase was primarily due to increased revenues as discussed above , strategic pricing actions on crane sales and $ 5.5 million from favorable changes in foreign currency exchange rates . this was partially offset by $ 2.0 million of increased engineering , selling and administrative costs due to trade shows in 2018 that did not occur in 2017 and increased raw material input costs of $ 8.0 million . meap replace_table_token_7_th meap net sales decreased 22.6 % in 2019 to $ 219.5 million from $ 283.5 million in 2018. the decrease was primarily due to lower shipments of cranes for the energy end markets . meap net sales were also unfavorably impacted by approximately $ 9.2 million from changes in foreign currency exchange rates . meap operating income decreased 28.3 % in 2019 to $ 22.6 million from $ 31.5 million in 2018. the decrease was primarily due to lower shipments of cranes as discussed above and a $ 2.1 million increase in restructuring expenses compared to 2018. this was partially offset by $ 4.2 million of lower engineering , selling and administrative costs primarily due to cost reduction actions . meap net sales increased 9.5 % in 2018 to $ 283.5 million from $ 258.8 million in 2017. this change was primarily due to shipments of cranes for the commercial construction and energy end markets . story_separator_special_tag cash flows provided by investing activities were $ 534.4 million in 2018. cash provided by investing activities in 2018 primarily consisted of $ 553.1 million of cash collections on accounts receivable sold to the company 's securitization program and $ 13.0 million of cash proceeds on the sale of property , plant and equipment . this was partially offset by capital expenditures of $ 31.7 million . cash flows provided by investing activities were $ 381.3 million in 2017. cash provided by investing activities in 2017 primarily consisted of $ 402.8 million of cash collections on accounts receivable sold to the company 's securitization program and $ 7.0 million of cash proceeds on the sale of property , plant and equipment . this was partially offset by capital expenditures of $ 28.9 million . cash flows from financing activities cash flows provided by financing activities during 2019 totaled $ 3.7 million and consisted primarily of $ 300.0 million of proceeds from the issuance of new high-yield notes ( i.e. , the 2026 notes ) , partially offset by payments of $ 276.6 million to terminate the prior high-yield notes , $ 8.3 million of debt issuance costs on the abl revolving credit facility and 2026 notes , $ 7.4 million from the repurchase of the company 's common stock and $ 4.4 million of payments on other debt . cash flows used for financing activities during 2018 totaled $ 1.3 million and consisted of payments on debt of $ 3.8 million , partially offset by the exercise of stock options of $ 2.5 million . cash flows used for financing activities during 2017 totaled $ 9.7 million and consisted primarily of $ 15.6 million of long-term debt payments partially offset by $ 5.7 million of proceeds from stock option exercises . debt on march 25 , 2019 , the company and certain of its subsidiaries entered into an indenture with u.s. bank national association as trustee and notes collateral agent , pursuant to which the company issued $ 300.0 million aggregate principal amount of senior secured second lien notes due on april 1 , 2026 with an annual coupon rate of 9.000 % ( the “ 2026 notes ” ) . interest on the 2026 notes is payable in cash semi-annually in arrears on april 1 and october 1 of each year . the 2026 notes are fully and unconditionally guaranteed on a senior secured second lien basis , jointly and severally , by each of the company 's existing and future domestic subsidiaries that is either a guarantor or a borrower under the abl revolving credit facility or that guarantees certain other debt of the company or a guarantor . the 2026 notes and the related guarantees are secured on a second-priority basis , subject to certain exceptions and permitted liens , by pledges of capital stock and other equity interests and other security interests in substantially all of the personal property and fee-owned real property of the company and of the guarantors that secure obligations under the abl revolving credit facility . the 2026 notes were sold pursuant to exemptions from registration under the securities act of 1933. additionally , on march 25 , 2019 , the company and certain subsidiaries of the company ( the “ loan parties ” ) entered into a credit agreement ( the “ abl credit agreement ” ) with jp morgan chase bank , n.a as administrative and collateral agent , and certain financial institutions party thereto as lenders , providing for a senior secured asset-based revolving credit facility ( the “ abl revolving credit facility ” ) of up to $ 275.0 million . the borrowing capacity under the abl revolving credit facility is based on the value of inventory , accounts receivable and fixed assets of the loan parties . the loan parties ' obligations under the abl revolving credit facility are secured on a first-priority basis , subject to certain exceptions and permitted liens , by substantially all of the personal property and fee-owned real property of the loan parties . the liens securing the abl revolving credit facility are senior in priority to the second-priority liens securing the obligations under the 2026 notes and the related guarantees . the abl revolving credit facility has a term of 5 years and includes a $ 75.0 million letter of credit sub-facility , $ 10.0 million of which is available to the company 's german subsidiary that is a borrower under the abl revolving credit facility . borrowings under the abl revolving credit facility bear interest at a variable rate using either the alternative base rate or the eurodollar and overnight london interbank offer rate ( “ libor ” ) . the variable interest rate is based upon the average quarterly availability as of the most recent determination date as follows : 29 replace_table_token_12_th the company used the initial extension of credit under the abl revolving credit facility , together with the net proceeds from the offering of the 2026 notes , to ( i ) redeem all of the company 's $ 260.0 million in outstanding 12.750 % senior secured second lien notes due 2021 ( the “ prior 2021 notes ” ) ; ( ii ) repay all obligations outstanding , and terminate all commitments , under ( x ) the company 's previous $ 225.0 million abl revolving credit facility ( “ prior abl facility ” ) and ( y ) $ 75.0 million ar securitization facility ; and ( iii ) pay related fees and expenses , including $ 16.6 million of call premium on the prior 2021 notes , $ 5.0 million of closing costs and $ 4.6 million of accrued interest . during the year ended december 31 , 2019 , the company recorded a $ 25.0 million charge in the consolidated statement of operations associated with the company 's refinancing of the abl revolving credit facility and 2026 notes .
| results of operations for the year s ended december 31 , 2019 , 2018 and 2017 replace_table_token_8_th net sales consolidated net sales decreased 0.7 % in 2019 compared to 2018. the decrease was primarily due to $ 44.3 million of unfavorable changes in foreign currency exchange rates and lower shipments of cranes for the energy end market in the meap segment . this was partially offset by an increase in crane shipments primarily in north america . consolidated net sales increased 16.8 % in 2018 compared to 2017. the increase was primarily due to higher crane shipments across all regions . consolidated net sales were also favorably impacted by approximately $ 27.0 million from changes in foreign currency exchange rates . gross profit gross profit for the year ended december 31 , 2019 increased 4.9 % to $ 344.1 million compared to $ 328.1 million for the year ended december 31 , 2018. this increase was mainly due to favorable price realization and mix . this was partially offset by $ 10.8 million of unfavorable changes in foreign currency exchange rates . as a result of favorable price realization and mix , gross profit percentage increased in 2019 to 18.8 % from 17.8 % in 2018. gross profit for the year ended december 31 , 2018 increased by 16.4 % to $ 328.1 million compared to $ 281.9 million for the year ended december 31 , 2017. this change was due to increased net sales as discussed above . gross profit percentage remained flat year over year due to increased raw material input costs that were offset by strategic price increases . engineering , selling and administrative expenses engineering , selling and administrative expenses for the year ended december 31 , 2019 decreased $ 26.0 million to $ 225.6 million .
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this discussion includes forward-looking statements that are subject to risks , uncertainties and other factors described under the captions risk factors and cautionary statement concerning forward-looking statements. these factors could cause our actual results to differ materially from those expressed in , or implied by , those forward-looking statements . overview historically , we have been engaged in the development and sale of wireless communications applications , including at times the sale and installation of equipment used to run these applications . we currently offer our proprietary , cloud-based pdvconnect mobile resource management solution to dispatch-centric business . we market pdvconnect through our direct sales force and indirectly through two tier 1 carriers in the united states . our carrier partners market pdvconnect as an available application to complement their wireless service offerings . generally , pdvconnect has been offered at a monthly unit price of up to $ 19.99. we also have historically offered pdvconnect indirectly through an international carrier located in mexico . our agreement with this international carrier will end during the first quarter of fiscal 2016. we maintain offices in woodland park , new jersey , reston , virginia and san diego , california . on september 15 , 2014 , we completed an acquisition from sprint corporation of ( i ) fcc licenses sufficient to operate a nationwide dispatch network in the 900 mhz band and ( ii ) certain 900 mhz equipment . we are now focused on deploying a dedicated , wide-area , two-way radio network . over the next two years , we intend to deploy our network in 20 major metropolitan areas throughout the united states , with our first markets to be located in the south and northeast regions , with additional markets to be located in the midwest , southwest and west coast regions . we intend to focus on serving dispatch-centric , small and medium-sized businesses . for this targeted set of customers , we intend to offer our dispatchplus communication solution . dispatchplus will combine motorola 's state-of-the-art digital radio technology with pdvconnect . built with the commercial dispatch user in mind , the motorola digital technology architecture will allow us to provide a highly reliable , instant and wide-area ptt communication solution . also developed for dispatch-centric businesses , pdvconnect is an easy to use and efficient workforce management solution that enables businesses to locate and communicate with field workers and improve documentation of work events and job status . we believe a high quality , dedicated and reliable ptt solution with regional calling areas will be attractive to a significant portion of our targeted customers who are currently using cellular or local two-way radio networks . further , when bundled with pdvconnect , we believe our service should provide significant value to our customers by making their work force more efficient and effective . we intend to have sites in service in our first four markets by the end of june 2015. basis of presentation our financial statements for the fiscal year ended march 31 , 2015 and our financial condition and results of operations reflect the following corporate events that have occurred during the periods presented below . sprint apa . on may 13 , 2014 , we entered into the sprint apa to acquire the spectrum assets from sprint for a total of $ 100 million , including $ 90 million in cash and $ 10 million paid in 500,000 shares of our common stock ( at a price equal to $ 20.00 per share ) . pursuant to the terms of the sprint apa , we delivered $ 13.5 million to sprint as a deposit against our purchase of the spectrum assets following the close of our june 2014 private placement . on september 15 , 2014 , we completed the spectrum closing , issued 500,000 shares of our common stock , and delivered the balance of the $ 90 million purchase price to sprint . june 2014 private placement . on june 10 , 2014 , we completed the june 2014 private placement in which we sold 10,925,000 shares of common stock at a purchase price of $ 20.00 per share in transaction exempt from page 36 registration under the securities act . fbr capital markets & co. acted as the initial purchaser/placement agent for the june 2014 private placement . the net proceeds from the june 2014 private placement , after deducting our offering expenses and the payment of initial purchaser/placement agent discount or placement fees , were approximately $ 202 million . at the closing of the june 2014 private placement , we placed approximately 96 % of the proceeds from the june 2014 private placement ( net of any initial purchaser's/placement agent 's discount and placement fees ) in the pdv investor trust , a delaware statutory trust pending the spectrum closing . on september 15 , 2014 , we completed the spectrum closing and the proceeds held in the pdv investor trust were distributed to the company . reincorporation and recapitalization . in connection with the june 2014 private placement we completed a number of actions , including : ( i ) the reincorporation of our company from california to delaware , which was effected on may 30 , 2014 ; ( ii ) the adoption of an amended and restated certificate of incorporation and amended and restated bylaws , which became effective immediately prior to the completion of the june 2014 private placement ; ( iii ) the conversion of all outstanding shares of our series aa preferred stock ( the only outstanding class of preferred stock ) into shares of our common stock on a one-for-one basis , and the conversion of our remaining options to purchase shares of our series aa preferred stock into options to purchase shares of our common stock and the conversion of restricted stock units for shares of our series aa preferred stock into restricted stock units for shares of our common stock , each on a one-for-one basis ; ( iv ) a 33.11451201-for-1 reverse stock split of all of our story_separator_special_tag the fee is amortized straight line over the lease term which is approximately ten years and which represents the time period in which the benefits of the leased property are expected to be depleted . we have not yet generated revenues from our planned principal operations of providing dedicated , wide-area , two-way radio network solutions to dispatch-centric , small and medium-sized businesses . we intend to market and sell our network solutions directly and indirectly through motorola 's dealer network . we will enter directly into contracts with customers , including those introduced to us through motorola 's dealer network . cost of revenue . our cost of revenue includes the portion of service revenue charged by our domestic carrier partners to us pursuant to our agreements with these parties , which may include network services , connectivity , sms service and special equipment expenses , sales , marketing , billing and other ancillary services . we also include the costs associated with the operation of our cloud-based solutions and dispatch network . shipping and handling costs . costs associated to shipping and handling of two-way radios to dealers or end-user customers are recognized as incurred and included in cost of revenue in the statements of operations . page 38 general and administrative expenses . general and administrative expenses consist primarily of personnel costs for our executive , finance and administrative personnel , legal , audit and other professional services and corporate expenses . sales and support expenses . we currently maintain a small direct sales force for sales of our pdvconnect mobile resource management solution , and have established a standard sales commission program for our direct sales force . this sales commission program provides a percentage-based commission for each sale of our pdvconnect solution . indirect sales commissions . for our business going forward , cash consideration given to an indirect sales representative is presumed to be a reduction of revenue unless we receive , or will receive , an identifiable benefit in exchange for the consideration , and the fair value of such benefit can be reasonably estimated , in which case the consideration will be recorded as a selling expense . we will compensate our indirect sales representatives with an upfront commission and residual fees based on an end-user customer 's continued use of our network solutions . when a commission is earned solely due to the selling activity relating to our network solution , the cost is recorded as a selling expense . estimated incentives payable to the indirect sales representatives will be regularly reviewed and recorded as accrued expenses on a monthly basis . advertising and promotional expense . we expense advertising and promotional costs as incurred . cooperative advertising reimbursements from our vendors are recorded net of advertising and promotional expense in the period in which the related advertising and promotional expense is incurred . in 2015 , 2014 , and 2013 no advertising costs were incurred . product development expenses . we charge all product development expenses to expense as incurred . types of expenses incurred in product development expenses include employee compensation , consulting , travel , facility costs along with equipment and technology costs . stock compensation . we account for stock options in accordance with us gaap , which requires the measurement and recognition of compensation expense , based on the estimated fair value of awards granted to employees and directors , which requires companies to estimate the fair value of share-based awards on the date of grant using an option-pricing model . the value of the portion of the award that is ultimately expected to vest is recognized as expense in our statements of operations over the requisite service periods . to calculate option-based compensation , we use a black-scholes option-pricing model . our determination of fair value of option-based awards on the date of grant using the black-scholes model is affected by our stock price as well as assumptions regarding a number of subjective variables . we have not attributed tax benefits to the share-based compensation expense because we maintain a full valuation allowance for all net deferred tax assets . cash and cash equivalents . all highly liquid investments with maturities of three months or less of the time of purchase are considered cash equivalents . cash equivalents are stated at cost , which approximates quoted market value and include amounts held in money market funds . allowance for uncollectible receivables . an allowance for uncollectible receivables is estimated based on a combination of write-off history , aging analysis and any specific known troubled accounts . at march 31 , 2015 and march 31 , 2014 , management provided an allowance of $ 7,977 and $ 12,619 , respectively , for certain slow paying accounts . furniture , fixture and equipment . furniture , fixture and equipment is stated at cost . depreciation is computed using the straight-line method over the estimated useful lives of the assets . 39 page intangible assets . intangible assets are wireless licenses that will be used to provide the exclusive right to utilize designated radio frequency spectrum to provide wireless communication services . while licenses are issued for only a fixed time , generally ten years , such licenses are subject to renewal by the fcc . license renewals have occurred routinely and at nominal cost . there are currently no legal , regulatory , contractual , competitive , economic or other factors that limit the useful life of the company 's wireless licenses . as a result , the wireless licenses are treated as an indefinite-lived intangible asset . the company evaluates the useful life determination for wireless licenses each year to determine whether events and circumstances continue to support an indefinite useful life . the licenses are tested for impairment on an aggregate basis , as the company will be utilizing the wireless licenses on an integrated basis as a part of developing our nationwide network . the company performs the test of the fair values of wireless licenses annually using a discounted cash flow approach .
| results of operations comparison of the years ended march 31 , 2015 and 2014 the following table sets forth our results of operations for the fiscal years ended march 31 , 2015 and 2014. the period to period comparison of financial results is not necessarily indicative of financial results to be achieved in future periods . replace_table_token_3_th operating revenues . service revenue decreased $ 0.76 million , or 21.5 % , to $ 2.78 million for fiscal 2015 from $ 3.54 million for the fiscal year ended march 31 , 2014 ( fiscal 2014 ) . the decrease can be attributed to declines in our lower margin international business of $ 0.12 million or 59.6 % . our u.s. business has been our primary focus over the last several years as we have significantly expanded the functionality of our solutions . our u.s. operations revenue declined over the prior year which is attributable to higher customer churn . for fiscal 2015 , approximately 97 % and 3 % of our revenues were from domestic and international operations , respectively , with 100 % of our revenues from international operations coming from mexico . the decline in our operating revenues was partially offset by the spectrum lease to motorola that began on september 15 , 2014. for fiscal 2015 , service revenues from domestic operations decreased $ 0.64 million , or 19.3 % , to approximately $ 2.70 million from $ 3.34 million for the year ended march 31 , 2014. the decrease can be attributed to higher customer churn . for fiscal 2015 , revenues from international operations decreased $ 0.12 million , or 59.6 % , to $ 0.08 million from $ 0.20 million for fiscal 2014. the decline can be attributed to a decreased focus on our international operations . subsequent to the quarter , we received notification from our international carrier that they would be terminating our service in the first quarter of fiscal 2016. cost of revenue .
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