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the regulatory guidance requires loans to be accounted for as collateral-dependent loans when borrowers have filed chapter 7 bankruptcy , the debt has been discharged and the borrower has not reaffirmed the debt , regardless of the delinquency status of the loan . the filing of bankruptcy by the borrower is story_separator_special_tag introduction – the company is a bank holding company with one subsidiary , monroe bank & trust ( “ bank ” ) . the bank is a commercial bank that operates 14 branch offices in monroe county , michigan and 6 branches in wayne county , michigan . the bank also operates a wealth management and loan origination office in lenawee county , michigan . the bank 's primary source of income is interest income on its loans and investments and its primary expense is interest expense on its deposits and borrowings . this discussion and analysis should be read in conjunction with the accompanying consolidated statements and footnotes . executive overview – the bank is operated as a community bank , primarily providing loan , deposit , and wealth management services to the people , businesses , and communities in its market area . in addition to our commitment to our mission of serving the needs of our local communities , we are focused on improving our asset quality , profitability , and shareholder value . the national economic recovery continued in 2015 , and due to improvement in the domestic auto industry , the recovery in economic conditions in southeast michigan was evident . local and state unemployment rates decreased , but real estate values and new construction and real estate development activity have not fully recovered . a significant objective again this year was improvement in our asset quality . the stronger economic environment benefited our loan customers , and also provided us with opportunities to upgrade or dispose of large amounts of problem assets . our total classified assets , which include non-accrual and internally classified problem loans , other real estate owned , and classified investment securities , decreased $ 23.7 million , or 43.5 % during 2015. the growth in retained earnings was the primary reason shareholders ' equity increased $ 12.8 million , or 9.5 % in 2015. the reduction in classified assets and the increase in equity caused the vitally important classified assets to capital ratio to improve dramatically , from 41.6 % at the end of 2014 to 20.1 % at the end of 2015. the significant improvement in our asset quality over the past year and the decrease in our net charge offs from $ 2.5 million in 2014 to a net recovery of $ 0.7 million in 2015 , allowed us to decrease our allowance for loan and lease losses ( alll ) from $ 13.2 million to $ 10.9 million in 2015. the portfolio of loans held for investment increased $ 7.0 million during the year , and the alll as a percent of loans decreased from 2.16 % to 1.77 % . local property values and the unemployment rate have improved over the past two years and the pace of the recovery in our local markets was good in 2015. we will continue our efforts on improving asset quality in 2016 , and we also plan to focus on growing our loan portfolio , improving our net interest margin , increasing revenue , and managing expenses . net interest income increased $ 2,274,000 in 2015 compared to 2014 as the average earning assets increased $ 74.8 million , or 6.7 % and the net interest margin was unchanged at 3.11 % . the provision for loan losses decreased from a reversal of $ 0.5 million in 2014 to a reversal of $ 3.0 million in 2015. decreases in the historical loss rates , improvements in the risk classifications of loans , and a reduction in the amount of specific allocations during 2015 decreased the amount of alll required . as a result , we reduced the alll by $ 2.3 million by recording a provision reversal of $ 3.0 million and net recoveries of $ 0.7 million . non-interest income increased $ 2.0 million or 14.8 % , primarily due to improvements in gains and losses on securities transactions and other real estate owned . excluding securities and oreo activity , non-interest income increased $ 0.3 million or 1.7 % . non-interest expenses decreased $ 0.5 million , or 1.2 % primarily due to higher equipment and marketing costs in 2015 , partially offset by lower fdic insurance assessments , which decreased due to a reduction in our assessment rate , and lower oreo expenses , which decreased due to the reduction in the amount of properties owned . we completed an efficiency initiative in the fourth quarter of 2015 , and we expect salaries , benefits , and occupancy expenses to improve in 2016. federal income tax expense increased $ 2.4 million in 2015 due to the $ 7.2 million increase in income before the provision for income taxes . critical accounting policies - the bank 's allowance for loan losses is a “ critical accounting estimate ” because it is an estimate that is based on assumptions that are highly uncertain , and if different assumptions were used or if any of the assumptions used were to change , there could be a material impact on the presentation of the corporation 's financial condition . these assumptions include , but are not limited to , collateral values and the effect of economic conditions on the financial condition of the bank 's borrowers . to determine the allowance for loan losses , the bank estimates losses on all loans that are not classified as non-accrual or renegotiated by applying historical loss rates , adjusted for environmental factors , to those loans . this portion of the analysis utilizes the loss history for the most recent twelve quarters , adjusted for qualitative factors including recent delinquency rates , real estate values , and economic conditions . story_separator_special_tag other expenses increased $ 601,000 , or 1.6 % in 2014 compared to 2013. salaries and benefits expense increased $ 1.7 million , or 8.0 % as salaries increased $ 1.0 million due to increases in salary rates and the number of employees and the increase in pretax profits caused an increase of $ 0.7 million in the officers ' incentive plan in 2014. occupancy expense decreased $ 317,000 or 10.4 % mainly due to a decrease in maintenance costs due to environmental cleanup costs at our temperance branch location in 2013. we have accrued the estimated expense to complete the cleanup project and perform the ongoing monitoring that is expected to be required . fdic insurance assessments decreased $ 824,000 , or 29.7 % as our assessment rate decreased in the second quarter of 2014 when our consent order with our regulators was terminated . the company 's net income for 2014 , before provision for income taxes , was $ 9.9 million , an increase of $ 2.5 million compared to the pretax income of $ 7.4 million in 2013. in 2014 we recorded a federal income tax expense of $ 2,572,000 , reflecting an effective tax rate of 26.0 % . in the third quarter of 2013 we recorded a tax benefit of $ 18.8 million to eliminate the remaining valuation allowance on our deferred tax asset , and we recorded a tax expense of $ 0.7 million for the tax expense on our fourth quarter 2013 income . the total tax recorded in 2013 was a benefit of $ 18.1 million , for an effective tax rate of ( 244 % ) . the net income in 2014 was $ 7.3 million , a decrease of $ 18.2 million compared to the net income of $ 25.5 million in 2013. interest rates and selected ratios - earnings for the bank are usually highly reflective of the net interest income . the federal open market committee ( fomc ) of the federal reserve maintained the fed funds rate target in the range of 0-0.25 % from 2008 until increasing it slightly , to 0.25-0.50 % in december , 2015. the yield curve shape became steeply , positively sloped in 2009 and through 2010. due to continued high unemployment and the absence of inflation , the fed extended its quantitative easing ( qe ) program through 2012 in an attempt to keep longer term market rates low and encourage borrowing , which reduced the slope from the yield curve . labor markets began to gain strength in 2012 , continuing through 2013 , and the fed began to taper its securities purchases in 2013 , which caused an increase in longer term market interest rates and an increase in the slope of the yield curve in the second half of 2013. although the fed concluded its qe purchases in 2014 , global economic uncertainty increased demand for us treasury securities , and longer term rates began to drop , flattening the yield curve throughout 2015 and into 2016. loan and investment yields follow long term market yields , and the yield on our loans decreased from 4.96 % in 2013 to 4.74 % in 2014 and 4.67 % in 2015. the yields on our investment securities increased from 1.76 % in 2013 to 1.96 % in 2014 , but decreased to 1.94 % in 2015. as a result of the low interest rate environment and increasing loan demand , we are maintaining our investment portfolio in shorter duration securities and cash reserves . this liquidity helped us fund loan growth and will benefit earnings when interest rates increase , but it is contributing to our low investment portfolio yield . funding costs are more closely tied to the short term rates , and the average cost of our deposits decreased from 0.41 % in 2013 to 0.29 % in 2014 and 0.21 % in 2015. the cost of borrowed funds was primarily based on the 3 month libor in 2013 , and our cost of borrowed funds was 2.73 % that year . the cost of borrowed funds increased to 3.56 % in 2014 as the last variable rate borrowing matured , leaving on remaining , higher cost , fixed rate debt on our balance sheet . the only remaining fixed rate borrowing carries a cost of 4.71 % and matures in june , 2016. the effect of these changes on our net interest margin was an increase from 2.98 % in 2013 to 3.11 % in 2014 , where it remained in 2015. the average cost of interest bearing deposits was 0.26 % , 0.36 % , and 0.50 % , for 2015 , 2014 , and 2013 , respectively . the following table shows selected financial ratios for the same three years . 28 replace_table_token_3_th balance sheet activity – compared to 2014 , the total assets of the company increased $ 63.7 million , or 5.0 % . the increase was funded by the growth of $ 53.6 million in deposit funding and the growth of $ 12.8 million in capital . loan demand continued to improve in 2015 , but it was mitigated by principal reductions of problem loans during the year , and total loans held for investment increased $ 7.0 million , or 1.1 % . we expect the loan portfolio to continue to increase slowly throughout 2016. deposit and capital funding increased more than loans , and even with the increase in the amount of cash and due from banks , investment securities increased . the investment portfolio primarily consists of mortgage backed securities issued by gnma , and debt securities issued by u.s government agencies and states and political subdivisions . due to the low interest rate environment and our anticipated cash needs for 2016 , we continue to hold a large amount of our excess funds in cash and cash equivalents instead of fully investing it in securities .
| results of operations comparison of 2015 to 2014 – the company reported a net profit of $ 12.1 million in 2015 , compared to the net profit of $ 7.3 million in 2014. the increase of $ 4.8 million was mainly due to the improvement of $ 2.5 million in the recovery of loan losses in 2015 which was the result of the net recovery of loan losses of $ 0.7 million in 2015 and the reduction in the amount of allowance for loan losses required as of december 31 , 2015 compared to december 31 , 2014. the income before provision for taxes increased $ 7.2 million , or 73.0 % , due to the increase in the net interest income , the decrease in the provision for loan losses , and the increase in non-interest income . the primary source of earnings for the bank is its net interest income , which increased $ 2.3 million , or 6.6 % compared to 2014. net interest income increased even though the net interest margin was unchanged at 3.11 % as the average earning assets increased $ 74.8 million , or 6.7 % . interest rates remained low throughout 2015 , which caused the yield on earning assets to decrease 10 basis points in 2015. the low rates caused a decrease in the cost of funds , as maturing high cost certificates of deposit funds moved into lower cost non-maturity deposits such as savings , demand , and money market deposit accounts . the bank also paid off maturing federal home loan bank advances in 2014 , contributing to the 9 basis point decrease in the cost of interest bearing liabilities . interest income increased $ 1.5 million during 2015 as the yield on earning assets decreased from 3.46 % to 3.36 % , while the amount of average earning assets increased from $ 1.115 billion to $ 1.190 billion .
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our instruments division designs , manufactures and markets quality control instruments and disposable products utilized in connection with the healthcare , pharmaceutical , food and beverage , medical device , industrial hygiene , environmental air sampling and semiconductor industries . our biological indicators division provides testing services , along with the manufacturing and marketing of biological indicators and distribution of chemical indicators used to assess the effectiveness of sterilization processes , including steam , hydrogen peroxide , ethylene oxide and radiation , in the hospital , dental , medical device and pharmaceutical industries . our cold chain monitoring division designs , develops and markets systems which are used to monitor various environmental parameters such as temperature , humidity and differential pressure to ensure that critical storage and processing conditions are maintained in hospitals , pharmaceutical and medical device manufacturers , blood banks , pharmacies and a number of other laboratory and industrial environments . our cold chain monitoring division also provides parameter ( primarily temperature ) monitoring of products during transport in a cold chain and consulting services such as compliance monitoring and validation or mapping of transport and storage containers . our cold chain packaging division provides packaging development consulting services and thermal packaging products such as coolers , boxes , insulation materials and phase-change products to control temperature during transport . our revenues come from two main sources – product sales and services . product sales are dependent on several factors , including general economic conditions , both domestic and international , customer capital spending trends , competition , introduction of new products and acquisitions . biological indicators and many of the packaging products of our cold chain packaging division are disposable and are used on a routine basis , thus product sales are less sensitive to general economic conditions . instrument products and cold chain monitoring systems and products have a longer life , and their purchase by our customers is somewhat discretionary , so sales are more sensitive to general economic conditions . service demand is driven by our customers ' quality control and regulatory environments , which require periodic repair and recalibration or certification of our instrument products and cold chain monitoring systems . we typically evaluate costs and pricing annually . our policy is to price our products competitively and , where possible , we pass along cost increases in order to maintain our margins . gross profit is affected by our product mix , manufacturing efficiencies and price competition . historically , as we have integrated our acquisitions and taken advantage of manufacturing efficiencies , our gross margins for some of the products have improved . there are , however , differences in gross margins between different product lines , and ultimately the mix of sales will continue to impact our overall gross margin . selling expense is driven primarily by labor costs , including salaries and commissions . accordingly , it may vary with sales levels . labor costs and amortization of intangible assets drive the substantial majority of general and administrative expense . research and development expense is predominantly comprised of labor costs and third party consultants . year ended march 31 , 2017 acquisitions during the year ended march 31 , 2017 , we completed the following six acquisitions ( the “ 2017 acquisitions ” ) : in november 2016 , we completed the mydent acquisition whereby we acquired substantially all of the assets ( other than cash and accounts receivable ) and certain liabilities of mydent international corp 's business segment associated with biological indicator mail-in testing services to the dental market in the united states ; in november 2016 , we completed the freshloc acquisition whereby we acquired substantially all of the assets ( other than cash and accounts receivable ) and certain liabilities of the cold chain monitoring business of freshloc technologies , inc. ; in august 2016 , we completed the rapid aid acquisition whereby we acquired certain assets ( consisting primarily of fixed assets ) and certain liabilities of rapid aid 's ” business segment associated with the manufacture and sale of cold chain packaging gel products ; page 20 in july 2016 , we completed the hansamed acquisition whereby we acquired substantially all of the assets ( other than cash and accounts receivable ) and certain liabilities of hansamed 's business segment associated with the distribution of our biological indicator products and mail-in testing services to the dental market in canada ; in april 2016 , we completed the ats acquisition whereby we acquired substantially all the assets ( other than cash and certain inventories and fixed assets ) and certain liabilities of ats . ats was in the business of supplying products and services for dental sterilizer testing in both the u.s. and canada ; and in april 2016 , we completed the pulse acquisition whereby we acquired substantially all of the assets ( other than cash and accounts receivable ) and certain liabilities of pulse 's business segment associated with the distribution of our biological indicator products . year ended march 31 , 2016 acquisitions during the year ended march 31 , 2016 , we completed the following ten acquisitions ( the “ 2016 acquisitions ” ) : in january 2016 , we completed the january 2016 european bi distributor acquisitions whereby we acquired substantially all of the assets ( other than cash and accounts receivable ) and certain liabilities of the business segment associated with the distribution of our biological indicator products from coachrom diagnostica gmbh of austria and biotrading benelux b.v of the netherlands ; in october 2015 , we completed the october 2015 european bi distributor acquisitions whereby we acquired substantially all of the assets ( other than cash and accounts receivable ) and certain liabilities of the business segment associated with the distribution of our biological indicator products from biologik s.r.l . ( italy ) , vwr international pbi s.r.l . ( italy ) , cruinn diagnostics ltd. ( ireland ) , mecolab ag ( switzerland ) , miclev medical products ab ( sweden ) and tiselab s.l . story_separator_special_tag year ended march 31 , 2016 versus march 31 , 2015 research and development expenses increased as a result of the addition of several new engineers to support existing and acquired businesses . other expense , net other expense , net for the year ended march 31 , 2017 is comprised primarily of interest expense associated with our credit facility and $ 450,000 related to an additional accrual for the pcd earn-out ( see liquidity and capital resources for additional discussion ) . other expense , net for the year ended march 31 , 2016 is comprised primarily of interest expense associated with our credit facility . other expense , net for the year ended march 31 , 2015 is comprised primarily of interest expense associated with our credit facility , partially offset by a $ 125,000 gain associated with the termination of a joint development project . net income our income tax rate varies based upon many factors but in general , we anticipate that on a go forward basis , our effective tax rate will approximate 33 to 35 percent , plus or minus the impact of excess tax benefits and deficiencies associated with share-based payment awards to employees . the excess tax benefits and deficiencies associated with share-based payment awards to our employees have and , in the future , may cause large fluctuations in our realized effective tax rate based on the timing , volume , and nature of stock options exercised under our share-based incentive program . net income for the year ended march 31 , 2017 was significantly impacted by $ 725,000 of relocation costs ( see liquidity and capital resources ) , $ 450,000 in pcd earn-out accruals and a $ 580,000 expense related to a reserve for slow moving inventory in our cold chain monitoring division . net income for the year ended march 31 , 2016 was significantly impacted by the $ 1,709,000 amato settlement . otherwise , net income for the years ended march 31 , 2017 , 2016 and 2015 varied with the changes in revenues , gross profit and operating expenses ( which includes $ 6,450,000 , $ 5,787,000 and $ 4,675,000 of non-cash amortization of intangible assets , respectively ) . page 27 liquidity and capital resources our sources of liquidity include cash generated from operations , working capital , capacity under our credit facility and potential equity and debt offerings . we believe that cash generated from these sources will be sufficient to meet our short-term and long-term needs . our more significant uses of resources include quarterly dividends to shareholders , payment of debt obligations , long-term capital equipment expenditures and potential acquisitions . due to continued organic and acquisition related growth , we have outgrown the capacity of our current building in bozeman , montana and as a result , we built a new facility in the same general area . construction began in july 2015 and we began to move employees into the facility beginning april 2017. we spent $ 6,711,000 on the development of the building and the related land prior to this year and spent $ 9,632,000 during the year ended march 31 , 2017 , which is included in property , plant and equipment , net on the accompanying consolidated balance sheets . while the building is now functional and in use , there are several items that still need to be completed . we estimate that this work ( estimated to cost $ 1,000,000 ) will be completed during the first two quarters of our year ending march 31 , 2018. in august 2016 , we announced that we plan to shut down both our omaha and traverse city biological indicator manufacturing facilities and relocate those operations to the new bozeman building . the move of these two facilities , along with the current bozeman operations , began in march 2017 and is estimated to be completed by the end of our year ending march 31 , 2018. we estimate that the total costs of the relocation will be $ 2,100,000 ( which is comprised primarily of facility moving expenses , retention bonuses for existing personnel and payroll costs for duplicative personnel during the transition period ) of which $ 725,000 was incurred during the year ended march 31 , 2017 and is reflected in cost of revenues in the accompanying consolidated statements of income ( other than $ 45,000 which is included in general and administrative ) . after the completion of the relocation of all three facilities , we estimate that the annual savings will be approximately $ 600,000. in addition , after completing the move of the old bozeman and the omaha facilities , we expect to be able to sell those buildings for approximately $ 3,000,000 to $ 4,000,000 to partially offset the cost of the new bozeman building . during the year ended march 31 , 2016 , we completed the implementation of a new erp system which required a significant amount of cash . we incurred approximately $ 2,100,000 of expense associated with this project of which approximately $ 1,400,000 was incurred during the year ended march 31 , 2016. on a go forward basis , we expect our annual operating costs for our erp system to be approximately $ 450,000 plus any costs necessary for additional projects and enhancements . working capital is the amount by which current assets exceed current liabilities . we had working capital of $ 19,218,000 and $ 13,215,000 , respectively , at march 31 , 2017 and 2016. on march 1 , 2017 , we entered into a five-year agreement ( the “ credit facility ” ) for a $ 80,000,000 revolving line of credit ( “ line of credit ” ) , a $ 20,000,000 term loan ( “ term loan ” ) and up to $ 2,500,000 of letters of credit with a banking syndicate comprised of four banks .
| results of operations as of march 31 , 2016 , our four operating segments were biological indicators , instruments , continuous monitoring and cold chain . effective april 1 , 2016 we renamed our continuous monitoring and cold chain operating segments to cold chain monitoring and cold chain packaging , respectively . in addition , we transferred certain of the cold chain monitoring and other services to our cold chain monitoring operating segment ( historically included in our cold chain operating segment ) to align with the information being used by the chief decision maker of the company . accordingly , all prior year segment information presented herein has been adjusted to reflect this change in our organizational structure . page 22 the following table sets forth , for the periods indicated , condensed consolidated statements of income data . the table and the discussion below should be read in conjunction with the accompanying consolidated financial statements and the notes thereto appearing elsewhere in “ item 8. financial statements and supplementary data ” ( in thousands , except percent data ) : replace_table_token_6_th revenues the following table summarizes our revenues by source ( in thousands , except percent data ) : replace_table_token_7_th page 23 year ended march 31 , 2017 versus march 31 , 2016 biological indicators revenues increased as a result of the north bay , october 2015 european bi distributor , january 2016 european bi distributor , pulse , ats , hansamed and mydent acquisitions , and organic growth of seven percent which was achieved through existing customers , expansion into new markets and price increases . instruments revenues decreased by four percent .
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the following discussion and analysis of our financial condition and results of operations for fiscal 2018 and 2017 includes information with respect to our plans and strategies for our business and should be read in conjunction with the consolidated financial statements and related notes , the risk factors and the cautionary statement regarding forward-looking information included elsewhere in this annual report on form 10-k. our fiscal year ends on the sunday nearest december 31. fiscal 2018 and 2017 each included 52 weeks . overview we are a leading sporting goods retailer in the western united states , operating 436 stores and an e-commerce platform under the name “ big 5 sporting goods ” as of december 30 , 2018. we provide a full-line product offering in a traditional sporting goods store format that averages approximately 11,000 square feet . through our e-commerce platform , we also offer selected products online . e-commerce sales for fiscal 2018 and 2017 were not material . our product mix includes athletic shoes , apparel and accessories , as well as a broad selection of outdoor and athletic equipment for team sports , fitness , camping , hunting , fishing , tennis , golf , winter and summer recreation and roller sports . we believe that over our 64-year history we have developed a reputation with the competitive and recreational sporting goods customer as a convenient neighborhood sporting goods retailer that consistently delivers value on quality merchandise . our stores carry a wide range of products at competitive prices from well-known brand name manufacturers , including adidas , coleman , columbia , everlast , new balance , nike , rawlings , skechers , spalding , under armour and wilson . we also offer brand name merchandise produced exclusively for us , private label merchandise and specials on quality items we purchase through opportunistic buys of vendor over-stock and close-out merchandise . we reinforce our value reputation through weekly print advertising in major and local newspapers , direct mailers and digital marketing designed to generate customer traffic , drive sales and build brand awareness . we also maintain social media sites to enhance distribution capabilities for our promotional offers and to enable communication with our customers . throughout our history , we have emphasized controlled growth . in fiscal 2018 , we opened four new stores and closed three stores , one of which was a relocation . in fiscal 2017 , we opened six new stores , two of which were relocations , and closed three stores , one of which was a relocation . the following table summarizes our store count for the periods presented : replace_table_token_5_th _ ( 1 ) stores that are relocated are classified as new stores . sales from the prior location are treated as sales from a closed store and thus are excluded from same store sales calculations . for fiscal 2019 , we anticipate opening five new stores and closing four stores . 22 story_separator_special_tag style= '' text-align : justify ; margin-top:6pt ; margin-bottom:0pt ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; font-family : 'times new roman ' ; font-size:10pt ; '' > same store sales decreased 2.7 % for fiscal 2018 versus fiscal 2017. same store sales comparisons to the prior year largely reflected lower demand for winter-related products during the first quarter of fiscal 2018 resulting from unseasonably dry and warm weather conditions in most of our major markets compared to the first quarter of fiscal 2017 , which experienced more favorable winter-weather conditions . generally cooler spring and summer weather conditions across many of our markets during key holiday selling periods contributed to lower sales of warm weather products in the second and third quarter of fiscal 2018. s trong demand for winter products following christmas resulting from favorable winter-weather conditions in many of our markets led to an increase in same store sales in the fourth quarter of fiscal 2018. same store sales in fiscal 2018 decreased in each of our major merchandise categories of hardgoods , footwear and apparel . lower sales in our hardgoods category primarily reflected reduced demand for firearms and related products . same store sales for a period reflect sales from stores that operated throughout the period as well as the full corresponding prior year period , and same store sales comparisons exclude sales from stores closed during the comparable periods . beginning in fiscal 2018 , we included sales from e-commerce in the same store sales calculation for both the current period and comparable prior year period . sales from e-commerce in fiscal 2018 and 2017 were not material and had an insignificant effect on the percentage change in same store sales for the periods reported . added sales from new stores that reflected the opening of 10 new stores since january 1 , 2017 were partially offset by a reduction in sales from closed stores . although we experienced decreased customer transactions in our retail stores , the average sale per transaction increased in fiscal 2018 compared to fiscal 2017 . 24 gross profit . gross profit decreased by $ 22.5 million to $ 300.8 million , or 30.5 % of net sales , in fiscal 2018 from $ 323.3 millio n , or 32.0 % of net sales , in fiscal 2017. the change in gross profit was primarily attributable to the following : net sales decreased by $ 22.0 million , or 2.2 % , in fiscal 2018 compared to the prior year . merchandise margins , which exclude buying , occupancy and distribution expense , decreased by an unfavorable 12 basis points compared with last year when merchandise margins increased by a favorable 47 basis points . this decrease primarily reflected increased promotional activities and a shift in our sales mix away from higher-margin winter products in the first quarter of fiscal 2018 , resulting from unseasonably dry and warm winter weather conditions . story_separator_special_tag for fiscal 2017 , we increased our purchases of merchandise inventory to support anticipated customer demand resulting from the closure of certain major competitors in our markets that concluded in the third quarter of fiscal 2016. the increased purchases of merchandise inventory , combined with lower-than-anticipated sales in the fourth quarter of fiscal 2017 resulting from unseasonably dry and warm weather conditions that had a significant negative effect on sales of our winter-related products , contributed to the net cash used in operating activities in fiscal 2017 and a higher debt balance at the end of fiscal 2017. operating activities . operating cash flows for fiscal 2018 and 2017 were a positive $ 24.5 million and a negative $ 4.4 million , respectively . the increase in cash flow from operating activities for fiscal 2018 compared to fiscal 2017 primarily reflects decreased funding for merchandise inventory and prepaid expense , largely related to rent , as well as a smaller decrease in accrued expense primarily related to lower income taxes . these favorable impacts were partially offset by the effect of a decrease in deferred income taxes in fiscal 2017 . 26 investing activities . net cash used in investing activities for fiscal 2018 and 2017 was $ 15.5 million and $ 16.5 million , respectively . our cap ital spending is primarily to fund the opening of new stores , store-related remodeling , distribution center equipment and computer hardware and software purchases . capital expenditures by category for each of the last two fiscal years are as follows : replace_table_token_8_th our capital expenditures included four new stores in fiscal 2018 and six new stores in fiscal 2017. capital expenditures in both fiscal years presented included increased investment in existing store remodeling to support our merchandising initiatives , enhanced information security measures to support our infrastructure and amounts related to the development of a new point-of-sale system . capital expenditures in fiscal 2018 also included the purchase of a parcel of land with an existing building adjacent to our corporate headquarters location , including a parking lot currently used by the company . financing activities . financing cash flows for fiscal 2018 and 2017 were a negative $ 9.5 million and a positive $ 20.1 million , respectively . for fiscal 2018 , net cash was used primarily for dividend payments and capital lease payments , partially offset by increased borrowings under our revolving credit facility . for fiscal 2017 , net cash was provided from borrowings under our revolving credit facility , partially offset by dividend payments , treasury stock repurchases and capital lease payments . as of december 30 , 2018 , we had revolving credit borrowings of $ 65.0 million and letter of credit commitments of $ 0.5 million outstanding . these balances compare to borrowings of $ 45.0 million and letter of credit commitments of $ 0.5 million outstanding as of december 31 , 2017. our revolving credit facility balances have historically increased from the end of the first quarter to the end of the second quarter and from the end of the third quarter to the week of thanksgiving . the historical increases in our revolving credit facility balances reflect the build-up of inventory in anticipation of our summer selling season and our winter and holiday selling seasons . revolving credit facility balances typically fall from the week of thanksgiving to the end of the fourth quarter , reflecting inventory sales during the holiday and winter selling season . the increase in our revolving credit borrowings at the end of fiscal 2018 compared to the end of fiscal 2017 primarily reflects lower-than-anticipated sales along with lower accounts payable year-over-year at the end of fiscal 2018 , due primarily to lower merchandise inventory purchases in the fourth quarter . in fiscal 2017 we paid quarterly cash dividends of $ 0.15 per share of outstanding common stock . in the first three quarters of fiscal 2018 we paid quarterly cash dividends of $ 0.15 per share of outstanding common stock , and in the fourth quarter of fiscal 2018 we paid a quarterly cash dividend of $ 0.05 per share of outstanding common stock . in the first quarter of fiscal 2019 , our board of directors declared a quarterly cash dividend of $ 0.05 per share of outstanding common stock , which will be paid on march 22 , 2019 to stockholders of record as of march 8 , 2019. periodically , we repurchase our common stock in the open market pursuant to programs approved by our board of directors . we may repurchase our common stock for a variety of reasons , including , among other things , our alternative cash requirements , existing business conditions and the current market price of our stock . in fiscal 2016 , our board of directors authorized a share repurchase program for the purchase of up to $ 25.0 million of our common stock . under the authorization , we may purchase shares from time to time in the open market or in privately negotiated transactions in compliance with the applicable rules and regulations of the securities and exchange commission . however , the timing and amount of such purchases , if any , would be at the discretion of our management and board of directors , and would depend on market conditions and other considerations . we repurchased 75,748 shares of common stock for $ 0.4 million in fiscal 2018 and we repurchased 795,718 shares of common stock for $ 7.7 million in fiscal 2017. since the inception of our initial share repurchase program in may 2006 through december 30 , 2018 , we have repurchased a total of 3,528,972 shares for $ 41.8 million . as of december 30 , 2018 , a total of $ 15.3 million remained available for share repurchases under our current share repurchase program . 27 credit agreement .
| executive summary our net loss for fiscal 2018 compared to net income for fiscal 2017 was mainly attributable to lower net sales in fiscal 2018. our lower net sales in fiscal 2018 primarily reflected lower demand for winter-related products during the first quarter of fiscal 2018 resulting from unseasonably dry and warm weather conditions in most of our major markets . generally cooler spring and summer weather conditions across many of our markets during key holiday selling periods contributed to lower sales of warm weather products in the second and third quarters of fiscal 2018. net sales for fiscal 2018 decreased 2.2 % to $ 987.6 million compared to fiscal 2017. the decrease in net sales was primarily attributable to a reduction in sales from same stores and closed stores , partially offset by added sales from new stores . our same store sales decreased 2.7 % for fiscal 2018 versus the comparable period in fiscal 2017. same store sales in fiscal 2018 decreased in each of our major merchandise categories of hardgoods , footwear and apparel . same store sales for a period reflect sales from stores that operated throughout the period as well as the full corresponding prior year period , and same store sales comparisons exclude sales from stores closed during the comparable periods . gross profit for fiscal 2018 represented 30.5 % of net sales , compared with 32.0 % in the prior year . merchandise margins were 12 basis points lower than the prior year while occupancy and distribution expense as a percentage of net sales in fiscal 2018 were higher compared with the prior year .
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for example , words such as “ may ” , “ will ” , “ should ” , “ estimates ” , “ predicts ” , “ potential ” , “ continue ” , “ strategy ” , “ believes ” , “ anticipates ” , “ plans ” , “ expects ” , “ intends ” , and similar expressions are intended to identify forward-looking statements . travelzoo 's actual results and the timing of certain events could differ significantly from those anticipated in such forward-looking statements . factors that might cause or contribute to such a discrepancy include , but are not limited to , those discussed elsewhere in this report in the section entitled “ risk factors ” and the risks discussed in our other sec filings . the forward-looking statements included in this report reflect the beliefs of our management on the date of this report . travelzoo undertakes no obligation to update publicly any forward-looking statements for any reason , even if new information becomes available or other circumstances occur in the future . 32 overview travelzoo® provides our 28 million members insider deals and one-of-a-kind experiences personally reviewed by one of our deal experts around the globe . with more than 25 offices worldwide , we have our finger on the pulse of outstanding travel , entertainment , and lifestyle experiences . for over 15 years we have worked in partnership with more than 2,000 top travel suppliers—our long-standing relationships give travelzoo members access to the very best deals . our publications and products include the travelzoo website ( travelzoo.com ) , the travelzoo iphone and android apps , the travelzoo top 20 e-mail newsletter , and the newsflash e-mail alert service . we operate the travelzoo network , a network of third-party websites that list deals published by travelzoo . the travelzoo website includes local deals and getaway listings that allow our members to purchase vouchers for deals from local businesses such as spas , hotels and restaurants . we receive a percentage of the face value of the voucher from the local businesses . more than 2,000 companies use our services , including air france , air new zealand , alaska airlines , british airways , cathay pacific airways , ctrip , emirates , etihad , fairmont hotels and resorts , hawaiian airlines , hilton hotels & resorts , hyatt corporation , intercontinental hotels group , lion world travel , lufthansa , nexus holidays , princess cruises , royal caribbean , singapore airlines , starwood hotels & resorts , tourism australia , tourism ireland , and united airlines . during the first quarter of 2017 , the company discontinued the operations of its supersearch and fly.com products to focus on its global travelzoo® brand and reflected the revenues and expenses for these products as discontinued operations , net of taxes , for the current and prior periods presented . see `` note 11 : discontinued operations '' to the accompanying consolidated financial statement for further information . in april 2018 , we entered into an agreement with weekengo , a start-up company in germany . weekengo uses new technology to promote vacation packages . we invested $ 3.0 million in weekengo for a 25 % ownership interest . see `` note 1 : summary of significant accounting policies '' to the accompanying consolidated financial statements for further information . we have three operating segments based on geographic regions : asia pacific , europe and north america . asia pacific consists of our operations in australia , china , hong kong , japan , taiwan , and southeast asia . europe consists of our operations in france , germany , spain , and the u.k. north america consists of our operations in canada and the u.s. for the year ended december 31 , 2018 , asia pacific operations were 7 % of revenues , european operations were 32 % of revenues and north american op erations were 61 % of our total revenues . financial information with respect to our business segments and certain financial information about geographic areas appears in note 10 to the accompanying consolidated financial statements . when evaluating the financial condition and operating performance of the company , management focuses on financial and non-financial indicators such as growth in the number of members to the company 's newsletters , operating margin , growth in revenues in the absolute and relative to the growth in reach of the company 's publications measured as revenue per member and revenue per employee as a measure of productivity . how we generate revenues our revenues are advertising revenues , consisting primarily of listing fees paid by travel , entertainment and local businesses to advertise their offers on travelzoo 's media properties . listing fees are based on audience reach , placement , number of listings , number of impressions , number of clicks , number of referrals , or percentage of the face value of vouchers sold . insertion orders are typically for periods between one month and twelve months and are not automatically renewed . merchant agreements for local deals and getaway advertisers are typically for twelve months and are not automatically renewed . we have two separate groups of our advertising products : travel and local . our travel category of revenue includes the publishing revenue for negotiated high-quality deals from travel companies , such as hotels , airlines , cruises or car rentals and includes products such as top 20 , the travelzoo website , newsflash , travelzoo network as well as getaway vouchers . the revenues generated from these products are based upon a fee for number of e-mails delivered to our audience , a fee for clicks delivered to the advertisers , a fee for placement of the advertising on our website or a fee based on a percentage of the face value of vouchers sold , hotel booking stays or other items sold . story_separator_special_tag our cost of revenues may increase if the face value of vouchers that we sell for local deals and getaway increases or the total number of vouchers sold increases because we have credit card fees based upon face value of vouchers sold , due to customer service costs related to vouchers sold and due to refunds to members on vouchers sold . our cost of revenues is also expected to increase due to our effort to develop our hotel booking platform . we expect fluctuations in cost of revenues as a percentage of revenues from quarter to quarter . some of the fluctuations may be significant and have a material impact on our results of operations . we do not know what our sales and marketing expenses as a percentage of revenue will be in future periods . increased competition in our industry may require us to increase advertising for our brand and for our products . in order to increase the reach of our publications , we have to acquire a significant number of new members in every quarter and continue to promote 34 our brand . one significant factor that impacts our advertising expenses is the average cost per acquisition of a new member . increases in the average cost of acquiring new members may result in an increase of sales and marketing expenses as a percentage of revenue . we believe that the average cost per acquisition depends mainly on the advertising rates which we pay for media buys , our ability to manage our member acquisition efforts successfully , the regions we choose to acquire new members and the relative costs for that region , and the degree of competition in our industry . we may decide to accelerate our member acquisition for various strategic and tactical reasons and , as a result , increase our marketing expenses . we expect the average cost per acquisition to increase with our increased expectations for the quality of the members we acquire . we may see a unique opportunity for a brand marketing campaign that will result in an increase of marketing expenses . in addition , there may be a significant number of members that cancel or we may cancel their subscription for various reasons , which may drive us to spend more on member acquisition in order to replace the lost members . further , we expect to continue our strategy over time to replicate our business model in selected foreign markets to result in a significant increase in our sales and marketing expenses and have a material adverse impact on our results of operations . for example , in august of 2015 we acquired our asia pacific business , which we intend on increasing our investment in audience in this region . due to the continued desire to grow our business in asia pacific , europe and north america , we expect relatively high level of sales and marketing expenses in the foreseeable future . we expect fluctuations in sales and marketing expenses as a percentage of revenue from year to year and from quarter to quarter . some of the fluctuations may be significant and have a material impact on our results of operations . we expect increased marketing expense to spur continued growth in members and revenue in future periods ; however , we can not be assured of this due to the many factors that impact our growth in members and revenue . we expect to adjust the level of such incremental spending during any given quarter based upon market conditions , as well as our performance in each quarter . we have increased and may continue to increase our spending on sales and marketing to increase the number of our members and address the growing audience from mobile and social media channels , as well as to increase our analytic capabilities to continuously improve the presentation of our offerings to our audience . we do not know what our product development expenses as a percentage of revenue will be in future periods . there may be fluctuations that have a material impact on our results of operations . product development changes may lead to reductions of revenue based on changes in presentation of our offerings to our audience . we expect our efforts on developing our product and services will continue to be a focus in the future , which may lead to increased product development expenses . this increase in expense may be the result of an increase in headcount , the compensation related to existing headcount and the increased use of professional services . we expect our continued expansion into foreign markets and development of new advertising formats to result in a significant additional increase in our product development expenses . we expect to incur additional costs related to the development of our hotel platform capabilities , which we are developing , in part , to address the shift to mobile devices . we also may increase our investment in product development to ensure our products are suited for different regions such as asia pacific . in addition , we expect to incur additional costs related to the development of our search capabilities of our website and mobile applications . we do not know what our general and administrative expenses as a percentage of revenue will be in future periods . there may be fluctuations that have a material impact on our results of operations . we expect our headcount to continue to increase in the future . the company 's headcount is one of the main drivers of general and administrative expenses . therefore , we expect our absolute general and administrative expenses to continue to increase . we expect our continued expansion into foreign markets to result in an increase in our general and administrative expenses . we expect an increase in professional fees for various initiatives . we do not know what our income taxes will be in future periods . there may be fluctuations that have a material impact on our results of operations .
| results of operations the following table sets forth , as a percentage of total revenues , the results from our operations for the periods indicated . replace_table_token_5_th 36 operating metrics the following table sets forth operating metrics in asia pacific , europe and north america : replace_table_token_6_th ( 1 ) members represent individuals who are signed up to receive one or more of our free email publications that present our travel , entertainment and local deals . ( 2 ) annual revenue divided by number of members at the beginning of the year . ( 3 ) annual revenue divided by number of employees at the end of the year ( in thousands ) . 37 revenues the following table sets forth the breakdown of revenues ( in thousands ) by category and segment . travel revenue includes travel publications ( top 20 , website , newsflash , travelzoo network ) , getaway vouchers and hotel platform . local revenue includes local deals vouchers and entertainment offers ( vouchers and direct bookings ) . replace_table_token_7_th asia pacific asia pacific revenues increased $ 340,000 or 5 % in 2018 compared to 2017. this increase was primarily due to the increase in travel revenues , the decrease in local revenues and a $ 24,000 negative impact from foreign currency movements relative to the u.s. dollar . the increase in travel revenues of $ 371,000 was primarily due to a $ 750,000 increase of advertisements placements on our website , offset partially by a $ 316,000 decrease of number of e-mails sent . the decrease in local revenues of $ 7,000 was primarily due to the decreased number of local deals vouchers sold .
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this md & a is provided as a supplement to , and should be read in conjunction with , our audited consolidated financial statements and the accompanying notes thereto included in item 8. in addition to historical financial information , the following discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . our results and the timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors , including those discussed under “ item 1a . risk factors ” and elsewhere in this annual report on form 10-k. see “ forward-looking statements. ” this section of this 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 form 10-k can be found in “ management 's discussion and analysis of financial condition and results of operations ” in part ii , item 7 of the company 's annual report on form 10-k for the year ended december 31 , 2019. overview we are a maryland corporation formed in april 2013 that invests primarily in high revenue per available room ( “ revpar ” ) , luxury hotels and resorts . high revpar , for purposes of our investment strategy , means revpar of at least twice the then-current u.s. national average revpar for all hotels as determined by smith travel research . two times the u.s. national average was $ 91 for the year ended december 31 , 2020. we have elected to be taxed as a reit under the code . we conduct our business and own substantially all of our assets through our operating partnership , braemar op . we operate in the direct hotel investment segment of the hotel lodging industry . as of december 31 , 2020 , we owned interests in thirteen hotel properties in six states , the district of columbia and st. thomas , u.s. virgin islands with 3,722 total rooms , or 3,487 net rooms , excluding those attributable to our joint venture partner . the hotel properties in our current portfolio are predominantly located in u.s. urban markets and resort locations with favorable growth characteristics resulting from multiple demand generators . we own eleven of our hotel properties directly , and the remaining two hotel properties through an investment in a majority-owned consolidated entity . we are advised by ashford llc , a subsidiary of ashford inc. , through an advisory agreement . all of the hotel properties in our portfolio are currently asset-managed by ashford llc . we do not have any employees . all of the services that might be provided by employees are provided to us by ashford llc . we do not operate any of our hotel properties directly ; instead we employ hotel management companies to operate them for us under management contracts . as of december 31 , 2020 , remington hotels , a subsidiary of ashford inc. , managed three of our thirteen hotel properties . third-party management companies managed the remaining hotel properties . ashford inc. also provides other products and services to us or our hotel properties through certain entities in which ashford inc. has an ownership interest . these products and services include , but are not limited to project management services , debt placement and related services , broker-dealer and distribution services , audio visual services , real estate advisory services , insurance claims services , hypoallergenic premium rooms , watersport activities , travel/transportation services and mobile key technology . pursuant to the provisions of the fifth amended and restated advisory agreement with ashford llc , as amended on january 15 , 2019 , the revenues and expenses used to calculate net earnings ( as defined ) for the twelve months ended december 31 , 2020 , are as follows ( in thousands ) : revenues $ 24,337 expenses 10,981 net earnings $ 13,556 covid-19 , management 's plans and liquidity in december 2019 , covid-19 was identified in wuhan , china , subsequently spread to other regions of the world , and has resulted in significant travel restrictions and extended shutdown of numerous businesses in every state in the united states . in march 2020 , the world health organization declared covid-19 to be a global pandemic . beginning in late february 2020 , we have experienced a significant decline in occupancy and revpar associated with covid-19 as we experienced significant reservation cancellations as well as a significant reduction in new reservations . the prolonged presence of the virus has resulted 91 in health and other government authorities imposing widespread restrictions on travel and other businesses . the hotel industry and our portfolio have experienced the postponement or cancellation of a significant number of business conferences and similar events . following the government mandates and health official orders in march 2020 , the company temporarily suspended operations at 11 of its 13 hotels and dramatically reduced staffing and expenses at its hotels that remained operational . covid-19 has had a significant negative impact on the company 's operations and financial results to date . the full financial impact of the reduction in hotel demand caused by the pandemic and suspension of operations at the company 's hotels can not be reasonably estimated at this time due to uncertainty as to its severity and duration . in addition , one or more possible recurrences of covid-19 cases could result in further reductions in business and personal travel and could cause state and local governments to reinstate travel restrictions . the company expects that the covid-19 pandemic will continue to have a negative impact on the company 's results of operations , financial position and cash flow in 2021 and potentially much longer . story_separator_special_tag we can not predict when hotel operating levels will return to normalized levels after the effects of the pandemic subside , whether our hotels will be forced to shut down operations or whether one or more governmental entities may impose additional travel restrictions due to a resurgence of covid-19 cases in the future . as a result of these factors resulting from the impact of the pandemic , we are unable to estimate future financial performance with certainty . however , based on our completed credit facility loan amendment and forbearance and other agreements , our current unrestricted and restricted cash on hand , our current cash utilization and forecast of future operating results for the next 12 months from the date of this report , and the actions we have taken to improve our liquidity , the company has concluded that management 's current plan alleviates the substantial doubt about its ability to continue as a going concern . facts and circumstances could change in the future that are outside of management 's control , such as additional government mandates , health official orders , travel restrictions and extended business shutdowns due to covid-19 . 2020 and recent developments pursuant to the terms of the letter agreement dated march 13 , 2020 ( the “ hotel management letter agreement ” ) , in order to allow remington hotels to better manage its corporate working capital and to ensure the continued efficient operation of our hotels , we agreed to pay the base fee and to reimburse all expenses on a weekly basis for the preceding week , rather than on a monthly basis . the hotel management letter agreement went into effect on march 13 , 2020 and will continue until terminated by us . on march 20 , 2020 , the company entered into an agreement with lismore capital ii llc ( “ lismore ” ) , a subsidiary of ashford inc. , to engage lismore to seek modifications , forbearances or refinancings of the company 's loans ( the “ lismore agreement ” ) . pursuant to the lismore agreement , lismore shall , during the agreement term , ( which commenced on march 20 , 2020 and shall end on the date that is 12 months following the commencement date , or upon it being terminated by the company on not less than 30 days ' written notice ) negotiate the refinancing , modification or forbearance of the existing mortgage and mezzanine debt on the company 's hotels and secured revolving credit facility . in connection with the services provided by lismore , lismore shall be paid an advisory fee ( the “ advisory fee ” ) of up to 50 basis points ( 0.50 % ) of the aggregate amount of the modifications , forbearances or refinancings of the company 's mortgage and mezzanine debt and its secured revolving credit facility ( the “ financing ” ) , calculated and payable as follows : ( i ) 12.5 basis points ( 0.125 % ) of the aggregate amount of potential financings upon execution of the lismore agreement ; ( ii ) 12.5 basis points ( 0.125 % ) payable in six equal installments beginning april 20 , 2020 and ending on september 20 , 2020 ; provided , however , in the event the company does not complete , for any reason , financings during the term of the lismore agreement equal to or greater than $ 1,091,250,000 , then the company shall offset , against any fees owed by the company or its affiliates pursuant to the advisory agreement , a portion of the fee paid by the company to lismore equal to the product of ( x ) the amount of financings completed during the term of the lismore agreement minus $ 1,091,250,000 multiplied by ( y ) 0.125 % ; and ( iii ) 25 basis points ( 0.25 % ) payable upon the acceptance by the applicable lender of any financing . upon entering into the agreement with lismore , the company made a payment of $ 1.4 million . no amount of this payment can be clawed back . as of december 31 , 2020 , the company has also paid $ 1.4 million related to periodic installments of which $ 683,000 has been expensed in accordance with the agreement and $ 681,000 may be offset against future fees under the agreement that are eligible for claw back under the agreement . further , the company has paid $ 1.4 million in success fees under the agreement in connection with each signed forbearance or other agreement , of which no amounts are available for claw back . as of december 31 , 2020 , the company has paid lismore approximately $ 4.1 million and held a deposit of $ 1.0 million , included in “ other assets. ” for the year ended december 31 , 2020 , the company has recognized expense of $ 3.1 million which is included in “ write-off of loan costs and exit fees. ” in april 2020 , certain subsidiaries of the company applied for and received loans from key bank , n.a . under the ppp , which was established under the cares act . all funds borrowed under the ppp were returned on or before may 7 , 2020. on june 8 , 2020 , the company entered into an amendment that converted its $ 75 million secured revolving credit facility into a $ 65 million secured term loan . the company had borrowed the full borrowing capacity of $ 75 million under the credit facility and repaid $ 10 million on june 8 , 2020 , in connection with the signing of the amendment . pursuant to the terms of the amendment , borrowings will bear interest at a rate of libor plus 3.50 % or base rate plus 2.50 % until june 30 , 2021. after such date , the pricing will revert to the original terms of the credit facility .
| results of operations year ended december 31 , 2020 compared to year ended december 31 , 2019 the following table summarizes changes in key line items from our consolidated statements of operations for the year ended december 31 , 2020 and 2019 ( in thousands except percentages ) : replace_table_token_34_th 97 all hotel properties owned for the year ended december 31 , 2020 and 2019 have been included in our results of operations during the respective periods in which they were owned . based on when a hotel property was acquired or disposed of , operating results for certain hotel properties are not comparable for the year ended december 31 , 2020 and 2019. the hotel property listed below is not a comparable hotel property for the periods indicated and all other hotel properties are considered comparable hotel properties . the following acquisition affects reporting comparability related to our consolidated financial statements : hotel property location type date the ritz-carlton lake tahoe ( 1 ) truckee , ca acquisition january 15 , 2019 ( 1 ) the operating results of this hotel property has been included in our results of operations as of its acquisition date . the following table illustrates the key performance indicators of all hotel properties for the periods indicated : replace_table_token_35_th the following table illustrates the key performance indicators of the twelve comparable hotel properties that were included for the full year ended december 31 , 2020 and 2019 : replace_table_token_36_th net income ( loss ) attributable to the company . net income ( loss ) attributable to the company changed $ 105.6 million , from net income of $ 371,000 for the year ended december 31 , 2019 ( “ 2019 ” ) , to net loss of $ 105.3 million for the year ended december 31 , 2020 ( “ 2020 ” ) , as a result of the factors discussed below . rooms revenue .
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in our opinion , the consolidated financial statements referred to above present fairly , in all material respects , the financial position of the company as of december 31 , 2019 and 2018 and the results of its operations and its cash flows for each of the years in the two-year period ended december 31 , 2019 , in conformity with accounting principles generally accepted in the united states of america . also , in our opinion , the company maintained , in all material respects , effective internal control over financial reporting as of december 31 , 2019 , based on criteria established in internal control—integrated framework ( 2013 ) issued by coso . basis for opinion the company 's management is responsible for these consolidated financial statements , for maintaining effective internal control over financial reporting , and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying management 's report on internal control over financial reporting . our responsibility is to express an opinion on the company 's consolidated financial statements and an opinion on the company 's internal control over financial reporting based on our audits . we are a public accounting firm registered with the public company accounting oversight board ( united states ) ( pcaob ) and are required to be independent with respect to the company in accordance with the u.s. federal securities laws and the applicable rules and regulations of the securities and exchange commission and the pcaob . we conducted our audits in accordance with the standards of the pcaob . those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement , whether due to error or fraud , and whether effective internal control over financial reporting was maintained in all material respects . our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements , whether due to error or fraud , and performing procedures that respond to those risks . such procedures included examining , on a test basis , evidence regarding the amounts and disclosures in the financial statements . our audits also included evaluating the accounting principles used and significant estimates made by management , as well as evaluating the overall presentation of the financial statements . our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting , assessing the risk that a material weakness exists , and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk . our audits also included performing such other procedures as we considered necessary in the circumstances . we believe that our audits provide a reasonable basis for our opinions . definition and limitations of internal control over financial reporting a company 's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles . a company 's internal control over financial reporting includes those policies and story_separator_special_tag you should read the following discussion in conjunction with the audited financial statements and the corresponding notes , the unaudited financial statements and the corresponding notes included elsewhere in this information statement . this item 7 contains forward-looking statements . the matters discussed in these forward-looking statements are subject to risk , uncertainties , and other factors that could cause actual results to differ materially from those made , projected or implied in the forward-looking statements . please refer to “ item 1a . risk factors ” for a discussion of the uncertainties , risks and assumptions associated with these statements . story_separator_special_tag based on a weighted average of 50,050,696 shares outstanding . 19 liquidity and capital resources as of december 31 , 2019 , and december 31 , 2018 , we had cash of approximately $ 23.1 million and $ 7.7 million , respectively and working capital of approximately $ 24.8 million and $ 19.6 million , respectively . cash provided by operations during the year ended december 31 , 2019 , totaled approximately $ 1.0 million reflecting the net adjusted economic profitability from operations of $ 3.7 million and an increase in accounts payable of $ 2.6 million which was partially offset by increases in accounts receivable , inventories , pre-paid expenses as well as decrease in other liabilities for a total use of cash in these areas of $ 5.3 million . cash used in operations for the year ended december 31 , 2018 was $ 11.6 million mainly related to increases in inventories on hand , pre-paid expenses , investments in sales and marketing programs as well as human resources initiatives . in addition to cash flow from operations , our primary sources of working capital in recent years have been private placements of our securities and our credit facilities with cd financial , llc ( “ cd financial ” ) , an affiliate of carl desantis , a principal shareholder of the company , as well as charmnew limited ( “ charmnew ” ) and grieg international limited ( “ grieg ” ) . on september 16 , 2019 , the company consummated a public offering of an aggregate of 7,986,110 shares , of its common stock at a public offering price of $ 3.60 , which included the exercise in full by the underwriters of their option to purchase an additional 1,041,666 shares . b. riley fbr , inc. acted as lead underwriter for the offering . the company received net proceeds from the offering of approximately $ 26.9 million , after deducting underwriting discounts and commissions and estimated offering expenses payable by the company . the company used a portion of the net proceeds of the offering to fund the cash needed to consummate the story_separator_special_tag in our opinion , the consolidated financial statements referred to above present fairly , in all material respects , the financial position of the company as of december 31 , 2019 and 2018 and the results of its operations and its cash flows for each of the years in the two-year period ended december 31 , 2019 , in conformity with accounting principles generally accepted in the united states of america . also , in our opinion , the company maintained , in all material respects , effective internal control over financial reporting as of december 31 , 2019 , based on criteria established in internal control—integrated framework ( 2013 ) issued by coso . basis for opinion the company 's management is responsible for these consolidated financial statements , for maintaining effective internal control over financial reporting , and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying management 's report on internal control over financial reporting . our responsibility is to express an opinion on the company 's consolidated financial statements and an opinion on the company 's internal control over financial reporting based on our audits . we are a public accounting firm registered with the public company accounting oversight board ( united states ) ( pcaob ) and are required to be independent with respect to the company in accordance with the u.s. federal securities laws and the applicable rules and regulations of the securities and exchange commission and the pcaob . we conducted our audits in accordance with the standards of the pcaob . those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement , whether due to error or fraud , and whether effective internal control over financial reporting was maintained in all material respects . our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements , whether due to error or fraud , and performing procedures that respond to those risks . such procedures included examining , on a test basis , evidence regarding the amounts and disclosures in the financial statements . our audits also included evaluating the accounting principles used and significant estimates made by management , as well as evaluating the overall presentation of the financial statements . our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting , assessing the risk that a material weakness exists , and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk . our audits also included performing such other procedures as we considered necessary in the circumstances . we believe that our audits provide a reasonable basis for our opinions . definition and limitations of internal control over financial reporting a company 's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles . a company 's internal control over financial reporting includes those policies and story_separator_special_tag you should read the following discussion in conjunction with the audited financial statements and the corresponding notes , the unaudited financial statements and the corresponding notes included elsewhere in this information statement . this item 7 contains forward-looking statements . the matters discussed in these forward-looking statements are subject to risk , uncertainties , and other factors that could cause actual results to differ materially from those made , projected or implied in the forward-looking statements . please refer to “ item 1a . risk factors ” for a discussion of the uncertainties , risks and assumptions associated with these statements . story_separator_special_tag based on a weighted average of 50,050,696 shares outstanding . 19 liquidity and capital resources as of december 31 , 2019 , and december 31 , 2018 , we had cash of approximately $ 23.1 million and $ 7.7 million , respectively and working capital of approximately $ 24.8 million and $ 19.6 million , respectively . cash provided by operations during the year ended december 31 , 2019 , totaled approximately $ 1.0 million reflecting the net adjusted economic profitability from operations of $ 3.7 million and an increase in accounts payable of $ 2.6 million which was partially offset by increases in accounts receivable , inventories , pre-paid expenses as well as decrease in other liabilities for a total use of cash in these areas of $ 5.3 million . cash used in operations for the year ended december 31 , 2018 was $ 11.6 million mainly related to increases in inventories on hand , pre-paid expenses , investments in sales and marketing programs as well as human resources initiatives . in addition to cash flow from operations , our primary sources of working capital in recent years have been private placements of our securities and our credit facilities with cd financial , llc ( “ cd financial ” ) , an affiliate of carl desantis , a principal shareholder of the company , as well as charmnew limited ( “ charmnew ” ) and grieg international limited ( “ grieg ” ) . on september 16 , 2019 , the company consummated a public offering of an aggregate of 7,986,110 shares , of its common stock at a public offering price of $ 3.60 , which included the exercise in full by the underwriters of their option to purchase an additional 1,041,666 shares . b. riley fbr , inc. acted as lead underwriter for the offering . the company received net proceeds from the offering of approximately $ 26.9 million , after deducting underwriting discounts and commissions and estimated offering expenses payable by the company . the company used a portion of the net proceeds of the offering to fund the cash needed to consummate the
| results of operations results of operations for the year ended december 31 , 2019 , include the operations for func food as of the date of acquisition on october 25 , 2019. year ended december 31 , 2019 compared to year ended december 31 , 2018 revenue for the year ended december 31 , 2019 , revenue was approximately $ 75.1 million , an increase of $ 22.5 million or 43 % from $ 52.6 million for the year ended december 31 , 2018. this revenue growth in 2019 was mainly associated with the results of the north american region which delivered an increase of $ 20.8 million over last year or 53 % increase from 2018. the european region provided $ 14.5 million , an increase of $ 5.2 million or 56 % from $ 9.3 million for the year ended december 31 , 2018. asian revenues for the year ended december 31 , 2019 reflect the change in our china business model from a distribution model to a royalty and license fee arrangement , effective january 1 , 2019. accordingly , asian revenue for 2019 related to product sales was $ 492,000 and asian revenue for 2019 related to royalties contributed an additional $ 349,000. revenues from all other regions in 2019 was $ 191,000 a 4 % increase from $ 183,000 in 2018. the total increase in revenues from the 2018 period to the 2019 period was primarily attributable to an increase in sales volume , as opposed to increases in product pricing .
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research and development costs research and development expenditures are expensed as incurred . research and development costs primarily consist of employee related expenses , including salaries and benefits , expenses incurred under agreements with contract research organizations , investigative sites and consultants that conduct the company 's clinical trials , the cost of acquiring and manufacturing clinical trial materials and other allocated expenses , license fees for and milestone payments related to in-licensed products and technologies , stock-based compensation expense , and costs associated with non-clinical activities and regulatory approvals . right-to-develop agreements may contain cost-sharing provisions whereby the company and the collaborator share the cost of research and development activities . reimbursement of research and development expenses received in connection with these agreements story_separator_special_tag the following discussion of our financial condition and results of operations should be read together with our selected consolidated financial data and the consolidated financial statements and related notes included elsewhere herein . this discussion contains forward-looking statements that involve risks and uncertainties . as a result of many factors , such as those set forth under the section entitled `` risk factors '' , `` forward-looking statements '' and elsewhere herein , our actual results may differ materially from those anticipated in these forward-looking statements . overview we are a biopharmaceutical company focused on discovering and developing innovative antibody-based therapeutics for the treatment of cancer as well as various autoimmune disorders and infectious diseases . we currently have a pipeline of product candidates in human clinical testing , primarily against different types of cancers , which have been created primarily using our proprietary technology platforms . we believe our programs have the potential to have a meaningful effect on treating patients ' unmet medical needs as monotherapy or , in some cases , in combination with other therapeutic agents . we commenced active operations in 2000 , and have since devoted substantially all of our resources to staffing our company , business planning , raising capital , developing our technology platforms , identifying potential product candidates , undertaking pre-clinical studies and conducting clinical trials . we have not generated any revenues from the sale of any products to date . we have financed our operations primarily through the public and private offerings of our securities , collaborations , government grants and government contracts . although it is difficult to predict our funding requirements , based upon our current operating plan , we anticipate that our cash , cash equivalents and investments as of december 31 , 2015 , combined with collaboration payments we anticipate receiving , will enable us to fund our operations into 2018 , assuming all of our collaboration programs advance as currently contemplated . through december 31 , 2015 , we had an accumulated deficit of $ 234.2 million . we expect that over the next several years this deficit will increase as we increase our expenditures in research and development in connection with our ongoing activities with several clinical trials . strategic collaborations and licenses we pursue a balanced approach between product candidates that we develop ourselves and those that we develop with our collaborators . under our current strategic collaborations , we have received significant non-dilutive funding to date and continue to have rights to additional funding upon completion of certain research , achievement of key product development milestones , or royalties and other payments upon the commercial sale of products . our most significant strategic collaborations include the following : janssen . in december 2014 , we entered into a collaboration and license agreement with janssen for the development and commercialization of mgd011 , a product candidate that incorporates our proprietary dart technology to simultaneously target cd19 and cd3 for the potential treatment of b-cell hematological malignancies . we contemporaneously entered into an agreement with johnson & johnson innovation – jjdc , inc. ( jjdc ) , an affiliate of janssen , under which jjdc agreed to purchase 1,923,077 new shares of our common stock for proceeds of $ 75.0 million . upon closing , we received a $ 50.0 million upfront payment from janssen as well as the $ 75.0 million investment in our common stock . janssen is leading the development of this product candidate , subject to our options to co-promote the product in the united states and canada and to invest in later-stage development in exchange for a united states and canada profit-share . janssen initiated a human clinical trial in 2015 for a variety of b-cell hematological malignancies , including diffuse-large b cell lymphoma , follicular lymphoma , mantle-cell lymphoma , chronic lymphocytic leukemia and acute lymphoblastic leukemia . the initiation of this trial triggered a $ 10.0 million milestone payment to us . assuming successful development and commercialization , we could receive up to an additional $ 565.0 million in clinical , regulatory and commercialization milestone payments . if commercialized , we would be eligible to receive low double-digit royalties on any global net sales . takeda . in may 2014 , we entered into a license and option agreement with takeda for the development and commercialization of mgd010 , a product candidate that incorporates our proprietary dart technology to simultaneously engage cd32b and cd79b , which are two b-cell surface proteins . upon execution of the agreement , takeda made a non-refundable payment of $ 15.0 million to us . takeda has an option to obtain an exclusive worldwide license for mgd010 following the completion of a pre-defined phase 1a study , which was initiated in march 2015. initiation of this study resulted in a $ 3.0 million milestone payment from takeda . if takeda exercises its option , it will assume responsibility for future development and pay us a license fee of $ 15.0 million . assuming successful development and commercialization of mgd010 , we are eligible to receive up to an additional $ 468.5 million in development , regulatory and sales milestone payments . story_separator_special_tag it is difficult to determine with certainty the duration and completion costs of our current or future pre-clinical programs and clinical trials of our product candidates , or if , when or to what extent we will generate revenues from the commercialization and sale of any of our product candidates that obtain regulatory approval . we may never succeed in achieving regulatory approval for any of our product candidates . the duration , costs and timing of clinical trials and development of our product candidates will depend on a variety of factors , including the uncertainties of future clinical trials and pre-clinical studies , uncertainties in clinical trial enrollment rate and significant and changing government regulation . in addition , the probability of success for each product candidate will depend on numerous factors , including competition , manufacturing capability and commercial viability . we will determine which programs to pursue and how much to fund each program in response to the scientific and clinical success of each product candidate , as well as an assessment of each product candidate 's commercial potential . general and administrative expense general and administrative expenses consist of salaries and related benefit costs for employees in our executive , finance , legal and intellectual property , business development , human resources and other support functions , travel expenses and other legal and professional fees . other income ( expense ) other income ( expense ) consists of interest income earned on our cash , cash equivalents and investments , offset by other expenses , including changes in the fair market value of the preferred stock warrant liability prior to our ipo in 2013. critical accounting policies and significant judgments and estimates our management 's discussion and analysis of financial conditions and results of operations is based on our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these consolidated financial statements requires us to make estimates , judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the balance sheets and the reported amount of the revenue and expenses recorded during the reporting period . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable . we review and evaluate these estimates on an on-going basis . these assumptions and estimates form the basis for making judgments about the carrying values of assets and liabilities and amounts that have been recorded as revenues and expenses . actual results and experiences may differ from these estimates . the results of any material revisions would be reflected in the consolidated financial statements prospectively from the date of the change in estimate . while a summary of significant accounting policies is described fully in note 2 in our consolidated financial statements , we believe that the following accounting policies are the most critical to assist you in fully understanding and evaluating our financial results and any affect the estimates and judgments we used in preparing our consolidated financial statements . revenue recognition we enter into collaboration and license agreements with collaborators for the development of monoclonal antibody-based therapeutics to treat cancer and other complex diseases . the terms of these agreements contain multiple deliverables which may include ( i ) licenses , or options to obtain licenses , to our technological platforms , such as our fc engineering and dart technologies , ( ii ) rights to future technological improvements , ( iii ) research and development activities to be performed on behalf of the collaborative partner or as part of the collaboration , and ( iv ) the manufacture of pre-clinical or clinical materials for the collaborative partner . payments to us under these agreements may include nonrefundable license fees , option fees , exercise fees , payments for research and development activities , payments for the manufacture of pre-clinical or clinical materials , license maintenance payments , payments based upon the achievement of certain milestones and royalties on product sales . other benefits to us from these agreements include the right to sell products resulting from the collaborative efforts of the parties in specific geographic territories . we follow the provisions of the financial accounting standards board ( fasb ) accounting standards codification ( asc ) topic 605-25 , revenue recognition–multiple-element arrangements , and asc topic 605-28 , revenue recognition–milestone method , in accounting for these agreements . in order to account for these agreements , we must identify the deliverables included within the agreement and evaluate which deliverables represent separate units of accounting based on the achievement of certain criteria , including whether the delivered element has stand-alone value to the collaborator . the consideration received is allocated among the separate units of accounting , and the applicable revenue recognition criteria are applied to each of the separate units . as of december 31 , 2015 , we had two types of agreements : 1 ) exclusive development and commercialization licenses to use our technology and or certain other intellectual property to develop compounds against specified targets , which we refer to as exclusive licenses ; and 2 ) option/research agreements to secure on established terms development and commercialization licenses to therapeutic product candidates to collaborator-selected targets developed by us during an option period , which we refer to as right-to-develop agreements . exclusive licenses the deliverables under an exclusive license agreement generally include the exclusive license to our technology with respect to a specified antigen target , and may also include deliverables related to rights to future technological improvements , research and pre-clinical development activities to be performed on behalf of the collaborator . in some cases we may have an option to participate in the co-development of product candidates that result from such agreements .
| general and administrative expense the following represents a comparison of our general and administrative expense for the years ended december 31 , 2015 and 2014 : replace_table_token_5_th general and administrative expense increased for the year ended december 31 , 2015 by $ 6.9 million compared to 2014 primarily due to an increase in labor-related costs , including stock-based compensation expense and information technology-related expenses . other income ( expense ) the increase in other income for the year ended december 31 , 2015 compared to 2014 is primarily due to interest income earned on investments . results of operations for the years ended december 31 , 2014 and 2013 revenue the following represents a comparison of our research and development revenue for the years ended december 31 , 2014 and 2013 : replace_table_token_6_th the decrease in collaboration revenue of $ 9.4 million for the year ended december 31 , 2014 compared to 2013 is primarily due to a decrease in revenue recognition related to the servier enoblituzumab agreement as the revenue related to the upfront fee was substantially recognized prior to 2014 and a decrease in revenue recognition related to the servier dart agreement as the estimated development period , and therefore the revenue recognition period of previously deferred revenues , was extended . additionally , we received less reimbursement under the gilead agreement as the research and development period ended in 2014 , and we recognized revenue under the pfizer agreement in 2013 , but the development period , and therefore the related revenue recognition period , was completed in january 2014. these decreases were partially offset by the addition of our collaborations with takeda , which resulted in $ 8.0 million in revenue recognized in 2014. revenue from government agreements decreased in the year ended december 31 , 2014 compared to 2013 due to less activity on the dengue virus grant .
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heavy civil construction projects include highways , roads , bridges , airfields , ports , light rail , water , wastewater and storm drainage systems , foundations for multi-family homes , commercial concrete projects and parking structures . residential construction projects include concrete foundations for single-family homes . on april 3 , 2017 , the company consummated the acquisition of 100 % of the outstanding stock of tealstone and entered into the oaktree facility providing for a term loan of $ 85 million with a maturity date of april 4 , 2022 , which replaced the then existing debt facility . we have determined that with the acquisition of tealstone there are two reportable segments : heavy civil construction and residential construction . refer to note 18 - segment information for a discussion of reportable segments and related financial information . use of estimates the preparation of financial statements in conformity with gaap requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities , the disclosure of contingent assets and liabilities at the date of the financial statements , and the reported amounts of revenues and expenses during the reporting period . certain of the company 's accounting policies require higher degrees of judgment than others in their application . these include the recognition of revenue and earnings from construction contracts earned over time , the valuation of long-lived assets , income taxes and purchase accounting . management continually evaluates all of its estimates and judgments based on available information and experience ; however , actual amounts could differ from those estimates . critical accounting policies on an ongoing basis , the company evaluates the critical accounting policies used to prepare its consolidated financial statements , including , but not limited to , those related to : revenue recognition valuation of long-lived assets and goodwill income taxes our significant accounting policies are described in note 1 - summary of business and significant accounting policies to the consolidated financial statements , and conform to the financial accounting standards board 's accounting standards codification ( or gaap or asc ) . revenue recognition heavy civil construction the company engages in various types of heavy civil construction projects principally for public ( government ) owners . credit risk is minimal with public owners since the company ascertains that funds have been appropriated by the governmental project owner prior to commencing work on such projects . the majority of our public contracts are fixed unit price contracts . under such contracts , we are committed to providing materials or services required by a contract at fixed unit prices ( for example , dollars per cubic yard of concrete poured or per cubic yard of earth excavated ) . while most public contracts are subject to termination at the election of the government entity , in the event of termination the company is entitled to receive the contract price for completed work and reimbursement of termination-related costs . credit risk with private owners is minimized because of statutory mechanic 's liens , which give the company high priority in the event of lien foreclosures following financial difficulties of private owners . our contracts generally take 12 to 36 months to complete . the company primarily provides a one-year warranty , two-year in rare cases , for workmanship under its contracts when completed . warranty claims historically have been insignificant . 28 revenues are recognized over time ( formerly known as percentage-of-completion method ) , using the ratio of costs incurred to estimated total costs for each contract . this cost to cost measure is used because management considers it to be the best available measure of progress on these contracts . contract costs include all direct material , labor , subcontract and other costs and those indirect costs related to contract performance , such as indirect salaries and wages , equipment repairs and depreciation , insurance and payroll taxes . administrative and general expenses are charged to expense as incurred . provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined . changes in job performance , job conditions and estimated profitability , including those changes arising from contract penalty provisions and final contract settlements may result in revisions to costs and income and are recognized in the period in which the revisions are determined . contracts receivable are generally based on amounts billed to the customer and currently due in accordance with our contracts . many of the contracts under which the company performs heavy civil construction work contain retainage provisions . retainage refers to that portion of billings made by the company , but held for payment by the customer pending satisfactory completion of the project . retainage is classified as a current asset regardless of the term of the contract and is generally collected within one year of the completion of a contract . at december 31 , 2018 and 2017 , contracts receivable included $ 47.4 million and $ 43.5 million of retainage , respectively , which is being contractually withheld by customers until milestones specified in the contract are complete . change orders are modifications of an original contract that effectively change the existing provisions of the contract without adding new provisions or terms . change orders may include changes in specifications or designs , manner of performance , facilities , equipment , materials , sites and period of completion of the work . either we or our customers may initiate change orders . the company considers unapproved change orders to be contract variations involving a change of scope for which we believe we are contractually entitled to additional revenue , but the change associated with the scope has not yet been agreed upon with the customer . costs associated with unapproved change orders are included in the estimated cost to complete the contracts and are treated as project costs as incurred . the company recognizes revenue equal to costs incurred on unapproved change orders when realization of price approval is probable . story_separator_special_tag see “ segment reporting ” below for further information regarding the determination of our reporting units . note 8 - goodwill and other intangibles discusses the valuation approach used by the company to determine the fair value of the company 's equity for purposes of evaluating whether there is an indication of goodwill impairment . during the 2018 and 2017 annual test , we used a qualitative assessment to determine if it is more likely than not that an impairment exists . factors considered include macroeconomic , industry and competitive conditions , financial performance and reporting unit specific events . these are discussed in a number of places including “ item 1a . risk factors. ” no impairments were recorded to our goodwill during the years ended december 31 , 2018 , 2017 and 2016 . at december 31 , 2018 and 2017 , we had goodwill with a carrying amount of $ 85.2 million . income taxes on december 22 , 2017 , the u.s. government enacted comprehensive tax legislation commonly referred to as the tax cuts and jobs act ( the `` tax act '' ) . the tax act makes broad and complex changes to the u.s. tax code , including , but not limited to , ( 1 ) reducing the u.s. federal corporate tax rate from 35 percent to 21 percent ; ( 2 ) eliminating the corporate alternative minimum tax ( amt ) and changing how existing amt credits can be realized ; ( 3 ) creating a new limitation on deductible interest expense ; and ( 4 ) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after december 31 , 2017 ; ( 5 ) expanding the limitation for executive compensation deductions ; and ( 6 ) implementing 100 % immediate expensing of qualified property . as a result of the reduced federal corporate tax rate under the tax act , the company has reduced the value of its net deferred tax assets $ 19.3 million to reflect the enacted rate . this reduction in 2017 was entirely offset with a corresponding reduction of our valuation allowance , which resulted in no charge to the tax provision for the year . the tax act also provides that existing amt credit carryforwards are refundable beginning in 2018. the company has approximately $ 0.2 million of amt credit carryforwards that are expected to be fully refunded by 2022. therefore , we have recorded a tax benefit and receivable for these credits in our december 31 , 2017 financial statements . 30 deferred tax assets and liabilities are recognized based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities . we regularly review our deferred tax assets for recoverability and , where necessary , establish a valuation allowance . deferred tax liabilities are a consideration in the analysis of whether to apply a valuation allowance because taxable temporary differences may be used as a source of taxable income to support the realization of deferred tax assets . a deferred tax liability that relates to an asset with an indefinite life , such as goodwill , may not be considered a source of income and should not be netted against deferred tax assets for valuation allowance purposes . the company has a deferred tax liability for the excess of book over tax basis difference in its goodwill . a $ 1.5 million deferred tax expense has been recorded to reflect this liability . valuation allowances are established to reduce deferred tax assets if we determine that it is more likely than not ( e.g. , a likelihood of more than 50 % ) that some or all of the deferred tax assets will not be realized in future periods . management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets . this assessment includes any impact from the newly enacted tax act . a significant piece of objective negative evidence evaluated was the recurring historical losses from 2013 to 2016 and the first quarter of 2017. such objective evidence limits the ability to consider other subjective evidence such as our projections for future growth . on the basis of this evaluation , as of december 31 , 2018 , the company continued to maintain a valuation allowance of $ 31.7 million on the net deferred tax assets including federal and state net operating losses as they are not likely to be realized . the amount of the deferred tax asset considered realizable , however , could be adjusted in the future if objective negative evidence or cumulative losses are no longer present and additional weight may be given to subjective evidence such as our projections for growth . deferred tax liabilities are a consideration in the analysis of whether to apply a valuation allowance because taxable temporary differences may be used as a source of taxable income to support the realization of deferred tax assets . if our estimates or assumptions regarding our current and deferred tax items are inaccurate or are modified , these changes could have potentially material impacts on our earnings . market outlook and trends heavy civil construction sterling 's heavy civil construction business is primarily driven by federal , state and municipal funding . federal funds , on average , provide 50 % of annual state department of transportation ( dot ) capital outlays for highway and bridge projects . several of the states in sterling 's key markets have instituted actions to further increase annual spending . in november 2018 , various state and local transportation measures were passed securing , and in some cases increasing , funding of $ 1.57 billion in california , $ 1.27 billion in texas , $ 528.5 million in arizona , $ 128.2 million in colorado and $ 87 million in utah . in october 2018 , the federal aviation administration reauthorized $ 3.35 billion annually for the next five years .
| segment results replace_table_token_7_th 37 heavy civil construction revenues heavy civil construction revenues were $ 850.0 million for the year ended december 31 , 2017 . this represented an increase in our heavy civil construction segment of $ 159.8 million , or 23 % compared to 2016. the increase was primarily attributable to the increased revenues of approximately $ 100 million related to large construction joint venture projects and other projects in the rocky mountain region . one of these joint venture contracts was substantially complete at the end of 2017 with the other expected to be complete near the end of 2018. additionally , included in our december 31 , 2017 unsigned low-bid awards is a $ 136 million project in utah with construction starting in late spring 2018. the acquired tealstone commercial business added approximately $ 30 million of revenue in 2017. the balance of the revenue growth was generated across the balance of our geographic operations reflecting the improving heavy civil construction market . operating income operating income was $ 10.8 million for the year ended december 31 , 2017 , an increase of $ 15.6 million , in our heavy civil construction segment compared to 2016. the improvement was primarily the result of higher gross margins driven by improved bid discipline , project management and project execution of $ 7.2 million , additional gross profit from the increased revenue of approximately $ 12.6 million and increased absorption of fixed costs totaling approximately $ 2.5 million . these increases were offset by increases in general and administrative expense of $ 3.0 million , primarily higher incentive based costs , including stock based compensation and higher personnel recruiting costs in the rocky mountain region .
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we are a public accounting firm registered with the pcaob and are required to be independent with respect to the company in accordance with the u.s. federal securities laws and the applicable rules and regulations of the securities and exchange commission and the pcaob . we conducted our audit in accordance with the standards of the pcaob . those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects . our audit included obtaining an understanding of internal control over financial reporting , assessing the risk that a material weakness exists , testing and evaluating the design and operating effectiveness of internal control based on the assessed risk , and performing such other procedures as we considered necessary in the circumstances . we believe that our audit provides a reasonable basis for our opinion . definition and limitations of internal control over financial reporting a company 's internal control over financial reporting is a process designed to story_separator_special_tag the following discussion of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes to those statements included in item 15 of this 2019 form 10-k. the discussion may contain certain forward-looking statements that involve risks and uncertainties . forward-looking statements are those that are not historical in nature . as a result of many factors , such as those set forth under “ risk factors ” in this 2019 form 10-k , our actual results may differ materially from those anticipated in such forward-looking statements . this section of this 2019 form 10-k generally discusses 2019 and 2018 items and year-to year comparisons between 2019 and 2018. discussions of 2017 items and year-to-year comparisons between 2018 and 2017 that are not included in this 2019 form 10-k can be found in “ management 's discussion and analysis of financial condition and results of operations ” in part ii , item 7 of our annual report on form 10-k for the fiscal year ended december 31 , 2018. executive summary we are a publicly traded reit that is primarily engaged in the business of investing in a diversified portfolio of mortgage assets , including residential mortgage loans , agency rmbs , non-agency rmbs , agency cmbs , and other real estate-related securities . we use leverage to increase returns while managing the difference or spread between longer duration assets and shorter duration financing . risks related to this investment strategy are discussed in the “ risk factors ” section of this 2019 form 10-k. our principal business objective is to deliver shareholder value through the generation of distributable income and through asset performance linked to residential mortgage credit fundamentals . we selectively invest in residential mortgage assets with a focus on credit analysis , projected prepayment rates , interest rate sensitivity and expected return . we currently focus our investment activities primarily on acquiring residential mortgage loans and non-agency and agency residential and commercial mortgage-backed securities , or mbs . at december 31 , 2019 , based on the amortized cost balance of our interest earning assets , approximately 55 % of our investment portfolio was residential mortgage loans , 26 % of our investment portfolio was agency rmbs , 11 % of our investment portfolio was agency cmbs , and 8 % of our investment portfolio was non-agency rmbs . at december 31 , 2018 , based on the amortized cost balance of our interest earning assets , approximately 47 % of our investment portfolio was residential mortgage loans , 35 % of our investment portfolio was agency rmbs , 12 % of our investment portfolio was agency cmbs , and 6 % of our investment portfolio was non-agency rmbs . we use leverage to increase returns and to finance the acquisition of our assets . we expect to finance our investments using a variety of financing sources including , when available , securitizations , warehouse facilities , repurchase agreements , structured asset financing and offerings of our securities . we may manage our debt and interest rate risk by utilizing interest rate hedges , such as interest rate swaps , caps , options , swaptions and futures to reduce the effect of interest rate fluctuations related to our financing sources . our investment strategy is intended to take advantage of opportunities in the current interest rate and credit environment . we expect to adjust our strategy to changing market conditions by shifting our asset allocations across these various asset classes as interest rate and credit cycles change over time . we believe that our strategy will enable us to pay dividends and preserve 32 capital throughout changing market cycles . we expect to take a long-term view of assets and liabilities , and our reported earnings and estimates of the fair value of our investments at the end of a financial reporting period will not significantly impact our objective of providing attractive risk-adjusted returns to our stockholders over the long-term . market conditions and our strategy there are several key factors that impact our financial results , including the interest rate environment and changes in libor rates , u.s. unemployment rates and residential home prices , as well as residential mortgage origination and refinance activity . the interest rate environment is sensitive to actual and anticipated u.s. federal reserve actions , availability of adequate and efficient financing sources , rate volatility and other market factors . as in recent periods , we continue to operate in a volatile interest rate environment . after increasing the fed funds target rate four times in 2018 , the federal reserve cut interest rates three times in 2019. the yield curve was inverted for most of the year , but started to steepen at year end with the short end of the curve falling below medium and long term rates . the repo markets experienced volatility beginning in september when overnight repo rates approached 10 % . story_separator_special_tag 38 replace_table_token_9_th the net gains and losses on our derivatives include both unrealized and realized gains and losses . realized gains and losses include the net cash paid and received on our interest rate swaps during the period as well as sales and settlements of our treasury futures and swaptions . unrealized gains and losses include the change in market value , period over period , on our derivatives portfolio . changes in market value are generally a result of changes in interest rates . we may or may not ultimately realize these unrealized derivative gains and losses depending on trade activity , changes in interest rates and the values of the underlying securities . during the year ended december 31 , 2019 , we recognized total net losses on derivatives of $ 500 million , compared to net losses on derivatives of $ 123 million during the same period of 2018 . this was primarily driven by realized losses on swap terminations and changes to the yield curve which resulted in realized and unrealized losses on interest rate swaps in 2019 , as compared to 2018 . we paid $ 360 million to terminate interest rate swaps with a notional value of $ 6.4 billion during the year ended december 31 , 2019 . the terminated swaps had original maturities of 2019 to 2029 . there were no swap terminations during the year ended december 31 , 2018 . our treasury futures positions remained unchanged at $ 620 million of notional value during the year ended december 31 , 2019 compared to the same period of 2018 . we closed our swaption position during the year ended december 31 , 2019. changes in our derivative positions were primarily a result of changes in our portfolio composition and changes in interest rates . we had net realized losses of $ 37 million and net realized gains of $ 21 million on our short treasury futures positions for the year ended december 31 , 2019 and 2018 , respectively . the realized gains and losses were driven primarily by changes in interest rates during these periods . treasury futures are not included in our economic interest expense and economic net interest income . net unrealized gains ( losses ) on financial instruments at fair value we have elected to account for certain non- agency rmbs investments acquired on or after january 1 , 2019 under the fair value option . under the fair value option , these investments are carried at fair value , with changes in fair value reported in earnings ( included as part of “ net unrealized gains ( losses ) on financial instruments at fair value ” ) . all non-agency rmbs investments owned prior to this date will continue to be carried at fair value with changes in fair value reported in other comprehensive income ( oci ) as available-for-sale investments . we have elected the fair value option with changes in fair value reflected in earnings for our io mbs securities , certain non-agency rmbs securities which receive residual cash flows , agency mbs , acquired after the second quarter of 2017 , loans held for investment , and the related financing for the loans consolidated as a vie in our consolidated statement of financial condition . 39 io mbs securities represent the right to receive the interest on a pool of mortgage backed securities , including both agency and non-agency mortgage pools . the fair values of io mbs securities are heavily impacted by changes in expected prepayment rates . when io securities prepay faster than expectations , the holder of the io security will receive less interest on the investment due to the reduced principal . the net unrealized gains on financial instruments at fair value for the year ended december 31 , 2019 and 2018 were $ 410 million and $ 47 million , respectively . the increase in the fair value of financial instruments was primarily driven by interest rate declines due to three fed funds target rate cuts during the year ended 2019. gains and losses on sales of assets and extinguishment of securitized debt for the years ended december 31 , 2019 and 2018 , we had net realized gains of $ 20 million and net realized losses of $ 3 million , respectively , on sales of investments . we do not forecast sales of investments as we generally expect to invest for long term gains . however , from time to time , we may sell assets to create liquidity necessary to pursue new opportunities , achieve targeted leverage ratios as well as for gains when prices indicate a sale is most beneficial to us , or is the most prudent course of action to maintain a targeted risk adjusted yield for our investors . when we acquire our outstanding securitized debt , we extinguish the outstanding debt and recognize a gain or loss based on the difference between the carrying value of the debt and the cost to acquire the debt which is reflected in the consolidated statements of operations as a gain or loss on extinguishment of debt . during the year ended december 31 , 2019 , we acquired securitized debt collateralized by non-agency rmbs with an amortized cost balance of $ 2.9 million for $ 3.5 million . this transaction resulted in a net loss on extinguishment of debt of $ 608 thousand , which is reflected in the earnings for the year ended december 31 , 2019 . we did no t acquire any securitized debt collateralized by non-agency rmbs during the year ended december 31 , 2018 . during the year ended december 31 , 2019 , we acquired securitized debt collateralized by loans with an amortized cost balance of $ 324 million for $ 314 million . this transaction resulted in a net gain on the extinguishment of debt of $ 10 million , which is reflected in earnings for the year ended december 31 , 2019 .
| net income summary the table below presents our net income on a gaap basis for the year ended december 31 , 2019 , 2018 and 2017 . 33 replace_table_token_4_th ( 1 ) includes interest income of consolidated vies of $ 780,746 , $ 904,830 and $ 914,022 for the years ended december 31 , 2019 , 2018 and 2017 , respectively . see note 8 to consolidated financial statements for further discussion . ( 2 ) includes interest expense of consolidated vies of $ 337,387 , $ 395,255 and $ 390,858 for the years ended december 31 , 2019 , 2018 and 2017 , respectively . see note 8 to consolidated financial statements for further discussion . 34 results of operations for the years ended december 31 , 2019 , 2018 and 2017 . our primary source of income is interest income earned on our assets , net of interest expense paid on our financing liabilities . for the year ended december 31 , 2019 , our net income available to common shareholders was $ 341 million , or $ 1.82 per average basic common share , which decreased by $ 28 million , or $ 0.15 , compared to the same period of 2018 . this decrease in net income available to common shareholders for the year ended december 31 , 2019 , compared to the same period of 2018 , was primarily due to the increase in dividends paid to preferred stockholders and an increase in total other expenses . interest income the changes in our interest income for the year ended december 31 , 2019 , as compared to the same period of 2018 , are primarily driven by the repositioning of our agency mbs and loans held for investments portfolios .
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actual results and the timing of events may differ materially from those stated in or implied by these forward-looking statements due to a number of factors , including those discussed in the sections entitled “ risk factors ” and “ cautionary statement regarding forward-looking statements ” contained in this annual report on form 10-k. 27 overview petros is a pharmaceutical company focused on men 's health therapeutics , consisting of wholly owned subsidiaries , metuchen pharmaceuticals , llc ( “ metuchen ” ) , timm medical , inc. ( “ timm medical ” ) , and pos-t-vac , llc ( “ ptv ” ) . on september 30 , 2016 , the company entered into a license and commercialization agreement ( the “ license agreement ” ) with vivus , inc ( “ vivus ” ) to purchase and receive the license for the commercialization and development of stendra® for a one-time fee of $ 70 million . the license agreement gives the company the right to sell stendra® in the u.s and its territories , canada , south america , and india . stendra® is a u.s. food and drug administration ( “ fda ” ) approved pde-5 inhibitor prescription medication for the treatment of erectile dysfunction ( “ ed ” ) and is the only patent protected pde-5 inhibitor on the market . stendra® offers the ed therapeutic landscape a valuable addition as an oral ed therapy that may be taken as early as approximately 15 minutes prior to sexual engagement , with or without food when using the 100mg or 200mg dosing ( does not apply to 50mg dosing ) . metuchen was founded by joseph j. krivulka , an experienced pharmaceutical executive who held several key leadership positions at leading pharmaceutical companies such as mylan laboratories inc. and its subsidiary bertek inc. , and was also the co-founder of reliant pharmaceuticals , which was sold to glaxosmithkline in 2007 for $ 1.65 billion . during the period from metuchen 's inception in 2016 through 2018 , the founder decided to outsource the sales and marketing function to an affiliated contractor . the level of performance expected from this affiliated contractor was not realized . in 2018 , the founder passed away which caused significant disruption to the business . in 2019 , metuchen terminated this affiliate contractor and established its own internal sales , marketing , and trade distribution functions for stendra® . also in 2019 , metuchen deployed a specialized key account sales model augmented by a national non-personal promotion campaign reaching nearly 30,000 healthcare professionals . metuchen also enhanced its digital campaigns designed to create awareness among patients and its partners . additionally , metuchen engaged in a wide array of specialty medical conferences including presentations at educational product theaters and launched a national savings coupon for enhanced product access . metuchen believes that these activities have established a framework for growth into 2021 and beyond . following a year of internal management of marketing , sales and trade distribution functions , we believe the company is well-positioned for a strong , multi-channel sales and marketing campaign in 2021 and beyond . in addition to ed products , petros is committed to identifying and developing other pharmaceuticals to advance men 's health . in march 2020 , petros acquired an exclusive global license ( the “ hybrid license ” ) for the development and commercialization of h100 from hybrid medical llc ( “ hybrid ” ) . h100 is a novel and patented topical formulation candidate for the treatment of acute peyronie 's disease . peyronie 's disease is a condition that occurs upon penile tissue disruption often caused by sexual activity or injury , healing into collagen-based scars that may ultimately harden and cause penile deformity . impact of covid-19 in january 2020 , the world health organization ( “ who ” ) announced a global health emergency because of a new strain of coronavirus originating in wuhan , china ( the “ covid-19 outbreak ” ) and the risks to the international community . in march 2020 , the who classified the covid-19 outbreak as a pandemic , based on the rapid increase in exposure globally . as a result of the covid-19 pandemic , which continues to rapidly evolve , “ shelter in place ” orders and other public health guidance measures were implemented across much of the united states , europe and asia , including in the locations of the company 's offices , key vendors and partners . the pandemic has significantly impacted the economic conditions in the u.s. and globally as federal , state and local governments react to the public health crisis , creating significant uncertainties in the economy . at this time , the future trajectory of the covid-19 outbreak remains uncertain , both in the united states and in other markets . while the company anticipates that the currently available vaccines will be widely distributed in the future , the timing and efficacy of such vaccines are uncertain . the company can not reasonably estimate the length or severity of the impact that the covid-19 outbreak will have on its financial results , and the company may experience a material adverse impact on its sales , results of operations , and cash flows in fiscal 2021. during 2020 , government regulations and the voluntary business practices of the company and prescribing physicians have prevented in-person visits by sales representatives to physicians ' offices . the company has taken steps to mitigate the negative impact on its businesses of such restrictions . in march 2020 , the company reduced our sales representative head count to reflect the lack of in-person visits . the company has maintained a core sales team which continues to contact physicians via telephone and videoconference as well as continuing to have webinars provided by the company 's key opinion leaders to other physicians and pharmacists . the company anticipates rehiring and or assigning representatives to cover sales territories as states reopen and physician access resumes new normal levels . story_separator_special_tag the license agreement gives the company the exclusive right to sell avanafil in the u.s. and its territories , as well as canada , south america , and india . in december 2000 , vivus originally was granted the license from mitsubishi tanabe pharma corporation ( “ mtpc ” ) to develop , market , and manufacture stendra® . stendra® was approved by the fda in april 2012 to treat male ed . the company will pay mtpc a royalty of 5 % on the first $ 500 million of net sales and 6 % of net sales thereafter until the expiration of the applicable patent in a particular country . the last scheduled patent expiration is in april 2025. in consideration for the trademark assignment and the use of the trademarks associated with stendra® and the vivus technology , the company shall ( a ) during the first , second , and third years following the expiration of the royalty period in a particular country in the company 's territory , pay to vivus a royalty equal to 2 % of the net sales of stendra® in such territory ; and ( b ) following the fourth and fifth years following the end of the royalty period in such territory , pay to vivus a royalty equal to 1 % of the net sales of stendra® in such territory . after the royalty period , no further royalties shall be owed with respect to net sales of stendra® in such territory . in addition , the company will be responsible for a pro-rata portion of a one-time $ 6 million milestone payment to be paid once $ 250 million in sales has been reached on the separate revenue stream of stendra® during any calendar year . in connection with the license agreement , the company and vivus also entered into the vivus supply agreement on the effective date of the license agreement . as part of the license agreement , the company also acquired vivus ' stendra® avanafil product and sample inventories as of september 30 , 2016 , for an additional $ 0.8 million . the vivus supply agreement provides that vivus will test , supply and provide the product to the company or its designee , directly or through one or more third parties until september 30 , 2021. during the term of the vivus supply agreement , the company is required to purchase minimum annual quantities from vivus . vivus , in turn , procures the product from a third-party manufacturer . in december of 2020 , vivus obtained approval of an in-court prepackaged plan of reorganization , under which ieh biopharma llc ( “ ieh ” ) obtained 100 % ownership of vivus ( the “ prepackaged plan ” ) , and ieh assumed vivus ' contractual obligations under the supply agreement . the license agreement between mtpc and vivus ( “ mtpc license ” ) contains certain termination rights that will allow mtpc to terminate the agreement if vivus were to breach any of the terms of the mtpc license or become insolvent or bankrupt . in the event that mtpc terminates the mtpc license with vivus because of any contractual breach the company has step-in rights with mtpc , which would allow the company to continue to sell stendra ® . on march 27 , 2018 , the company entered into a sublicense agreement with acerus pharmaceuticals corporation ( “ acerus ” ) whereby the company granted to acerus an exclusive sublicense in canada for , among other things , the development and commercialization of stendra® avanafil for a one-time fee of $ 100,000. the company is entitled to receive an additional fee of $ 400,000 if stendra® is approved by canadian regulators , as well as commercial milestone payments and royalty fees of 12 % of net sales . the agreement remains in effect . in august 2018 , the company entered into the acerus supply agreement , pursuant to which acerus will purchase the product from the company so long as the acerus sublicense agreement remains in effect . in march 2020 , we entered into the hybrid license for the development and commercialization of h100 from hybrid . h100 is a topical candidate with at least one active ingredient and potentially a combination of ingredients responsible for the improvement of penile curvature during the acute phase of peyronie 's disease . we paid an initial license fee of $ 100,000 and additional payments of $ 250,000 , with additional annual milestone payments of $ 125,000 , $ 150,000 and $ 200,000 on each of the first , second and third anniversaries of the entry into the hybrid license and $ 250,000 annual payments due thereafter . 30 critical accounting policies and estimates the preparation of the consolidated financial statements requires us to make assumptions , estimates and judgments that affect the reported amounts of assets and liabilities , the disclosures of contingent assets and liabilities as of the date of the consolidated financial statements , and the reported amounts of revenues and expenses during the reporting periods . certain of our more critical accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates . by their nature , these judgments are subject to an inherent degree of uncertainty . on an ongoing basis , we evaluate our judgments , including but not limited to those related to revenue recognition , collectability of accounts receivable , inventory valuation and obsolescence , intangibles , income taxes , litigation , and contingencies . we use historical experience and other assumptions as the basis for our judgments and making these estimates . because future events and their effects can not be determined with precision , actual results could differ significantly from these estimates . any changes in those estimates will be reflected in our consolidated financial statements as they occur .
| results of operations the impact on our results of covid-19 and related changes in economic conditions , including changes to consumer spending resulting from the rapid rise in local and national unemployment rates , are highly uncertain and , in many instances , outside of our control . the duration and severity of the direct and indirect effects of covid-19 continue to evolve and in ways that are difficult to anticipate . there are numerous uncertainties related to the covid-19 pandemic that have impacted our ability to forecast our future operations as a company . the extent to which covid-19 will affect our business , financial position and operating results in the future can not be predicted with certainty ; however , any such impact could be material . covid-19 could also increase the degree to which our results , including the results of our business segments , fluctuate in the future . 32 years ended december 31 , 2020 and december 31 , 2019 the following table sets forth a summary of our statements of operations for the years ended december 31 , 2020 and 2019 : replace_table_token_0_th net sales net sales for the year ended december 31 , 2020 were $ 9,559,469 , composed of $ 6,357,498 of net sales from prescription medicines and net sales of $ 3,201,971 from medical devices . net sales for the year ended december 31 , 2019 were $ 15,577,166 , composed of $ 11,110,660 of net sales from prescription medicines and net sales of $ 4,466,506 from medical devices . for the year ended december 31 , 2020 , gross sales to customers representing 10 % or more of the company 's total gross sales included one customer that represented approximately 85 % of total gross sales . for the year ended december 31 , 2019 , gross sales from customers representing 10 % or more of the company 's total gross sales included one customer that represented approximately 86 % of total gross sales .
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, a wholly-owned subsidiary of camden national corporation fhlbb : federal home loan bank of boston afs : available-for-sale frb : federal reserve bank alco : asset/liability committee freddie mac : federal home loan mortgage corporation all : allowance for loan losses gaap : generally accepted accounting principles in the united states aoci : accumulated other comprehensive income ( loss ) hpfc : healthcare professional funding corporation , a wholly-owned subsidiary of camden national bank asc : accounting standards codification htm : held-to-maturity asu : accounting standards update irs : internal revenue service bank : camden national bank , a wholly-owned subsidiary of camden national corporation libor : london interbank offered rate boli : bank-owned life insurance ltip : long-term performance share plan board alco : board of directors ' asset/liability committee management alco : management asset/liability committee branch acquisition : the acquisition of 14 branches from bank of america , n.a . in 2012 , after divesting of one branch as required by the department of justice mbs : mortgage-backed security branch divestiture : the divestiture of five franklin county branches in 2013 merger : on october 16 , 2015 , the two-step merger of camden national corporation , sbm financial , inc. and atlantic acquisitions , llc , a wholly-owned subsidiary of camden national corporation , was completed bsa : bank secrecy act merger agreement : plan of merger , dated as of march 29 , 2015 , by and among camden national corporation , sbm financial , inc. and atlantic acquisitions , llc , a wholly-owned subsidiary of the company ccta : camden capital trust a , an unconsolidated entity formed by camden national corporation msha : maine state housing authority cdars : certificate of deposit account registry system msrs : mortgage servicing rights cds : certificate of deposits mspp : management stock purchase plan company : camden national corporation otti : other-than-temporary impairment csv : cash surrender value nim : net interest margin on a fully-taxable basis cmo : collateralized mortgage obligation n.m. : not meaningful dcrp : defined contribution retirement plan non-agency : non-agency private issue collateralized mortgage obligation eps : earnings per share nrv : net realizable value fasb : financial accounting standards board occ : office of the comptroller of the currency fdic : federal deposit insurance corporation oci : other comprehensive income ( loss ) fhlb : federal home loan bank ofac : office of foreign assets control 21 oreo : other real estate owned u.s. : united states of america sbm : sbm financial , inc. , the parent company of the bank of maine 2003 plan : 2003 stock option and incentive plan serp : supplemental executive retirement plans 2012 plan : 2012 equity and incentive plan tdr : troubled-debt restructured loan 2013 repurchase program : 2013 common stock repurchase program , approved by the company 's board of directors ubct : union bankshares capital trust i , an unconsolidated entity formed by union bankshares company that was subsequently acquired by camden national corporation executive overview in 2015 , we achieved two significant milestones in the company 's long history with the acquisition of sbm , the parent company of the bank of maine , and reported record core operating earnings ( 1 ) ( which excludes the effect of certain one-time non-recurring transactions ) of $ 28.2 million . we announced on march 30 , 2015 the merger of the company and sbm , including their respective subsidiaries , and on october 16 , 2015 , the transaction was completed and all systems were converted and integrated shortly thereafter . as a combined organization , the company has 64 banking centers and 85 atms across maine and three lending offices in maine , new hampshire and massachusetts . total sbm assets , loans and deposits acquired as of the acquisition date ( october 16 , 2015 ) totaled $ 840.1 million , $ 615.2 million and $ 687.0 million , respectively . the merger of these two organizations expanded our footprint across new england , while providing an immediate larger presence in southern maine . as a combined organization , we will be able to achieve synergies through the operational efficiencies gained from systems integration , fewer employees , and other consolidations . in connection with the sbm acquisition , we incurred one-time acquisition costs of $ 10.4 million in 2015 and issued 2.7 million shares of company common stock . while the sbm acquisition resulted in lower net income and diluted eps ( as calculated under gaap ) for 2015 , our focus continues to be on creating long-term shareholder value and success for the company . we continue to remain committed on achieving our tangible book value dilution earn-back over a five-year period as originally planned and communicated . as part of the sbm acquisition , we acquired hpfc , which provides lending services to dentists , veterinarians , and optometrists across the u.s. after an extensive analysis we determined that at this time the capital and operational resources required to allow hpfc to reach its full potential did not align with our need to focus on ensuring we meet the profitability targets of the merger . operations at hpfc were closed on february 19 , 2016. we will continue to earn revenues from hpfc 's loan portfolio as it naturally runs off over the next five to ten years . the following provides financial highlights as of and for the year ended december 31 , 2015 compared to prior periods : operating results . story_separator_special_tag loans for which a specific loss allocation may be required are identified and assessed at least quarterly by reviewing individual loans with a principal balance of $ 250,000 or more that are risk rated as substandard or doubtful and are on non-accrual status in accordance with bank policy . we believe loans that meet the above criteria most often demonstrate the qualities and characteristics of an impaired loan and are individually significant enough to the company to warrant individual assessment . an allowance is established for each of these loans to reduce the net carrying value when the discounted cash flows ( or collateral value or observable market ) of the impaired loan is lower than the recorded investment of the loan . the remaining loan portfolio is separated into risk pools by portfolio segment and subject to a general reserve factor . at least annually , we reassess and revise the loss allocation factor used in constructing the reserve for each risk pool . the factors we consider in constructing each risk pool include : ( i ) risk rating ; ( ii ) historical losses ; ( iii ) market conditions ; and ( iv ) other environmental factors . in assessing the risk rating of a particular loan , we consider , among other factors , the obligor 's debt capacity , financial condition , the level of the obligor 's earnings , the amount and sources of repayment , the performance with respect to loan terms , the adequacy of collateral , the level and nature of contingent liabilities , management strength , and the industry in which the obligor operates . these factors are based on an evaluation of historical information , as well as a subjective assessment and interpretation of current conditions . emphasizing one factor over another , or considering additional factors that may be relevant in determining the risk rating of a particular loan but which are not currently an explicit part of our methodology , could impact the risk rating assigned to that loan . three times a year , management conducts a thorough review of adversely risk rated commercial and commercial real estate exposures exceeding certain thresholds to re-evaluate the risk rating and identify impaired loans . this extensive review takes into account the obligor 's repayment history and financial condition , collateral value , guarantor support , local economic and industry trends , and other factors relevant to the particular loan relationship . because the methodology is based upon historical experience and trends as well as management 's judgment , factors may arise that result in different estimations . significant factors that could give rise to changes in these estimates may include , but are not limited to , changes in economic conditions in our market area , concentration of risk , declines in local property values , and the results of regulatory examinations . while management 's evaluation of the all as of december 31 , 2015 determined it to be appropriate , under adversely different conditions or assumptions , we may need to increase the all . monthly , management reviews the all to assess recent asset quality trends and impact on the company 's financial condition . quarterly , the all is brought before the bank 's board of directors for discussion , review , and approval . 26 the adequacy of the reserve for unfunded commitments is determined in a similar manner as the all , with the exception that management must also estimate the likelihood of these commitments being funded and becoming loans . this is accomplished by evaluating the historical utilization of each type of unfunded commitment and estimating the likelihood that the historical utilization rates could change in the future . purchase price allocation and impairment of goodwill and identifiable intangible assets . we record all acquired assets and liabilities at fair value , which is an estimate determined by the use of internal valuation techniques . we also may engage external valuation services to assist with the valuation of material assets and liabilities acquired , including , but not limited to , loans , core deposit intangibles , real estate and time deposits . as part of purchase accounting , we typically acquire goodwill and other intangible assets as part of the purchase price . these assets are subject to ongoing periodic impairment tests under differing accounting models . on october 16 , 2015 , we completed the acquisition of sbm , the parent company of the bank of maine . we did not acquire any other company or assets in 2014. goodwill impairment evaluations are required to be performed at least annually , but may be required more frequently if certain conditions indicate a potential impairment may exist . our policy is to perform the goodwill impairment analysis annually as of november 30 th , or more frequently as warranted . the goodwill impairment evaluation is required to be performed at the reporting unit level - ( i ) banking and ( ii ) financial services - and is performed using the two-step process outlined in gaap . the banking reporting unit is representative of our core banking business line , while the financial services reporting unit is representative of our wealth management and trust services business line . for the years ended december 31 , 2015 and 2014 , we performed step one of the annual goodwill impairment test for each reporting unit and in doing so , we concluded that the estimated fair value of each reporting unit exceeded its respective carrying value . as such , we concluded that goodwill was not impaired as of november 30 , 2015 and 2014. furthermore , we are not aware of any indications and or triggers subsequent to our goodwill impairment analysis performed as of november 30 , 2015 that would lead us to believe there may be subsequent impairment of goodwill . core deposit intangible assets have a finite life and are amortized over their estimated useful lives .
| results of operations for the year ended december 31 , 2015 , we reported net income of $ 21.0 million compared to $ 24.6 million for the year ended december 31 , 2014 , and $ 22.8 million for the year ended december 31 , 2013. diluted eps for each of these years were $ 2.60 , $ 3.28 , and $ 2.97 , respectively . the major components of these results , which include net interest income , provision for credit losses , non-interest income , non-interest expense , and income tax expense , are discussed below . net interest income net interest income is interest earned on loans , securities , and other interest-earning assets , plus net loan fees , origination costs and fair value marks on loans and or time deposits created in purchase accounting , less the interest paid on interest-bearing deposits and borrowings . net interest income , which is our largest source of revenue accounting for approximately 76 % of total revenues , is affected by factors including , but not limited to : changes in interest rates , loan and deposit pricing strategies and competitive conditions , loan prepayment speeds , the volume and mix of interest-earning assets and interest-bearing liabilities , and the level of non-performing assets . net interest margin is calculated as net interest income on a fully-taxable equivalent basis as a percentage of average interest-earning assets . net interest margin for the years ended december 31 , 2015 , 2014 , and was 3.19 % , 3.11 % , and 3.20 % . 2015 vs. 2014 net interest income . net interest income was $ 88.2 million on a fully-taxable equivalent basis for 2015 , compared to $ 77.4 million for 2014 , representing an increase of $ 10.8 million , or 14 % . the increase was driven by higher average loan balance of $ 267.3 million , or 16 % , and lower funding costs of 3 basis points .
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the company 's operating strategy has involved producing innovative and proprietary products , including slenderwall , a patented , lightweight , energy efficient concrete and steel exterior wall panel for use in building construction ; j-j hooks® barrier , a positive-connected highway safety barrier ; sierra wall , a sound barrier primarily for roadside use ; transportable concrete buildings ; and softsound , a highway sound attenuation system . in addition , the company produces utility vaults ; farm products such as cattleguards , and water and food troughs ; and custom order precast concrete products with various architectural surfaces . overview overall , the company 's financial performance improved in 2013 as compared to 2012 . the company had net income in 2013 in the amount of $ 691,502 as compared to $ 376,691 for 2012 , or an increase of 83.6 % . the increase in net income for the year ended december 31 , 2013 was due primarily to management 's decision to emphasize the marketing of its proprietary product slenderwall . slenderwall sales increased almost $ 4.0 million over 2012 as approximately seven slenderwall jobs were in production during the year . as slenderwall is a proprietary product , gross margins are slightly higher than our other products . while slenderwall sales were up significantly , many of our other products continue to face stiff competition from our competitors forcing prices to remain relatively low and gross margins to be thinner . story_separator_special_tag and farm product sales increased by 8.5 % in 2013 compared to 2012 . utility and farm products are mainly underground utility vaults used in infrastructure construction and consequently , when construction is weak so are utility vault sales . the company continues to see more bidding opportunities for utility products and believes this activity will lead to increased sales in 2014. the recently funded major highway project discussed above also uses utility vaults for underground placement of utilities . miscellaneous product sales – miscellaneous products are products that are produced and sold that do not meet the criteria defined for other revenue categories . examples would include underground steam tunnels , highway slabs or bridge slabs . miscellaneous sales decreased significantly in 2013 as compared to 2012 . the decrease is due primarily to the lower number of miscellaneous jobs being bid as a result of the weakened construction economy . among other contracts in production during 2013 were shooting range baffle panels and precast veneer building panels . the company believes , but there can be no assurance , it will be awarded the bid for a large miscellaneous contract , to be awarded early in 2014 , for the production of trenching panels to begin in mid 2014. royalty income – royalty revenues increased slightly in 2013 , with barrier royalties being up significantly over 2012 and also making up the largest percent of total royalties . building royalties remained relatively flat for the period and slenderwall royalties were slightly lower for the period . the company signed two new licensees in 2013 , one softsound license and one slenderwall license . with both barrier royalties and barrier sales up for the year , the company believes this may be a sign of improvement in infrastructure spending by federal , state and local governments . 12 barrier rentals – barrier rentals increased by 9.5 % in 2013 compared to 2012 due mainly to the major highway project discussed above . management believes barrier rentals will continue to increase in 2014 due to increased activity in the company 's geographical area on several highway projects now underway . the company was once again awarded the contract to supply rental barrier for the presidential inauguration held in washington , d.c in january 2013. the company continues to pursue its rental barrier expansion plans for its local geographical sales area . shipping and installation – shipping revenue is earned when the product sold is physically shipped to the customer and in many instances , shipping does not occur until the customer is ready to begin installation . installation revenue is not earned until the wall panels , in the case of architectural or slenderwall contracts , are physically attached to the building ; and in the case of our easi-set buildings , until the building is assembled and on site . shipping and installation revenue decreased by 17.6 % in 2013 due mainly to production of soundwall and architectural panels in 2013 that are being held in our storage yard , under stored materials contracts , pending shipping and installation as required by the owners . because of the amount of product stored in our yard at december 31 , 2013 , management believes shipping and installation revenue will increase in 2014. cost of goods sold – total cost of goods sold for the year ended december 31 , 2013 was $ 21,138,628 an increase of $ 1,691,509 , or 9 % , from $ 19,447,119 for the year ended december 31 , 2012 . total cost of goods sold , as a percentage of total revenue , decreased to 76 % for the year ended december 31 , 2013 from 78 % for the year ended december 31 , 2012 . the reduction in the cost of sold as a percentage of total revenue was , in part , because of the increased sales for the period while fixed overhead costs remained relatively flat . raw material costs increased slightly in 2013 and 2012 with very little inflationary pressures for the company . story_separator_special_tag the company anticipates capital spending for 2014 to be approximately $ 750,000. the company 's cash flow from operations is affected by production schedules set by contractors , which generally provide for payment 45 to 75 days after the products are produced and with some architectural contracts , retainage may be held until the entire project is completed . this payment schedule could result in liquidity problems for the company because it must bear the cost of production for its products before it receives payment . the company 's days sales outstanding ( dso ) in 2013 was 91 days compared to 80 days in 2012 . the increase in the dso is due primarily to two larger customers who were paying steady but not within the terms of their agreement . additionally , they have made payments subsequent to the end of 2013. although no assurance can be given , the company believes that anticipated cash flow from operations with adequate project management on jobs will be sufficient to finance the company 's operations and necessary capital expenditures for at least the next 12 months . the company 's inventory at december 31 , 2013 was $ 1,939,478 and at december 31 , 2012 was $ 2,104,106 , or a decrease of $ 164,628. the annual inventory turns for december 31 , 2013 and 2012 were 7.9 and 7.8 , respectively . significant accounting policies and estimates the company 's significant accounting policies are more fully described in its summary of accounting policies to the company 's consolidated financial statements . the preparation of financial statements in conformity with accounting principles generally accepted within the united states requires management to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying financial statements and related notes . in preparing these financial statements , management has made its best estimates and judgments of certain amounts included in the financial statements , giving due consideration to materiality . the company does not believe there is a great likelihood that materially different amounts would be reported related to the accounting policies described below , however , application of these accounting policies involves the exercise of judgment and the use of assumptions as to future uncertainties and as a result , actual results could differ from these estimates . the company evaluates the adequacy of its allowance for doubtful accounts at the end of each quarter . in performing this evaluation , the company analyzes the payment history of its significant past due accounts , subsequent cash collections on these accounts and comparative accounts receivable aging statistics . based on this information , along with other related factors , the company develops what it considers to be a reasonable estimate of the uncollectible amounts included in accounts receivable . this estimate involves significant judgment by the management of the company . actual uncollectible amounts may differ from the company 's estimate . the company recognizes revenue on the sale of its standard precast concrete products at shipment date , including revenue derived from any projects to be completed under short-term contracts . installation services for precast concrete products , leasing and royalties are recognized as revenue as they are earned on an accrual basis . licensing fees are recognized under the accrual method unless collectability is in doubt , in which event revenue is recognized as cash is received . certain sales of soundwall , slenderwall , and other architectural concrete products are recognized upon completion of units produced under 14 long-term contracts . when necessary , provisions for estimated losses on these contracts are made in the period in which such losses are determined . changes in job performance , conditions and contract settlements that affect profit are recognized in the period in which the changes occur . unbilled trade accounts receivable represents revenue earned on units produced and not yet billed . seasonality the company services the construction industry primarily in areas of the united states where construction activity may be inhibited by adverse weather during the winter . as a result , the company may experience reduced revenues from december through february and realize the substantial part of its revenues during the other months of the year . the company may experience lower profits , or losses , during the winter months , and as such , must have sufficient working capital to fund its operations at a reduced level until the spring construction season . the failure to generate or obtain sufficient working capital during the winter may have a material adverse effect on the company . inflation management believes that the company 's operations were not significantly affected by inflation in 2013 and 2012 , particularly in the purchases of certain raw materials such as steel and fuel . the company believes that raw material pricing will see some modest increases in 2014 as the economy continues its slow recovery , although no assurance can be given regarding future pricing . other comments as of march 4 , 2014 the company 's sales backlog of inventoried products and unbilled construction contracts was approximately $ 10.6 million as compared to approximately $ 6.7 million at approximately the same time in 2013 . the increase in the backlog relates to the company 's emphasis on its proprietary product , slenderwall , which saw an increase of just under $ 4.0 million in sales and also represents a large part of the sales backlog . a substantial majority of the projects relating to the sales backlog as of march 4 , 2014 are scheduled to be shipped during 2014. the company also maintains a regularly occurring repeat customer business , which should be considered in addition to the orders in the sales backlog described above . these orders typically have a quick turn around and represent purchases of the company 's inventoried standard products , such as highway safety barrier , utility and easi-set building products . historically
| results of operations year ended december 31 , 2013 compared to the year ended december 31 , 2012 for the year ended december 31 , 2013 , the company had total revenue of $ 27,710,542 compared to total revenue of $ 24,893,613 for the year ended december 31 , 2012 , an increase of $ 2,816,929 , or 11.3 % . sales include revenues from product sales , royalty income , barrier rental income and shipping and installation income . product sales are further divided into wall panel sales , which include soundwall , architectural and slenderwall panels , highway barrier , beach prisms , easi-set® and easi-span® buildings , utility and farm products and miscellaneous precast products . the following table summarizes the sales by product type and a comparison for the years ended december 31 , 2013 and 2012 : replace_table_token_1_th 11 wall panel sales – wall panel sales are generally medium to large contracts issued by general contractors for production and delivery of a specific wall panel product for a specific construction project . changes in the mix of wall panel sales depend on what contracts are in production during the period . soundwall sales decreased moderately in 2013 due primarily to a large soundwall contract for a road project started in mid 2012 for which production was completed in the first quarter of 2013. the company is currently producing another large soundwall contract that should complete in late 2014. architectural sales remained relatively flat in 2013 as continued downward price pressure on architectural projects made it difficult for the company to bid competitively on these projects . management continues to believe that it will be at least another year before architectural projects will return to higher profit margin levels .
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the words “ anticipated , ” “ believe , ” “ expect , ” “ plan , ” “ intend , ” “ seek , ” “ estimate , ” “ project , ” “ will , ” “ could , ” “ may , ” and similar expressions are intended to identify forward-looking statements . these statements include , among others , information regarding future operations , future capital expenditures , and future net cash flow . such statements reflect the company 's current views with respect to future events and financial performance and involve risks and uncertainties , including , without limitation , general economic and business conditions , changes in foreign , political , social , and economic conditions , regulatory initiatives and compliance with governmental regulations , the ability to achieve further market penetration and additional customers , and various other matters , many of which are beyond the company 's control . should one or more of these risks or uncertainties occur , or should underlying assumptions prove to be incorrect , actual results may vary materially and adversely from those anticipated , believed , estimated , or otherwise indicated . consequently , all of the forward-looking statements made in this filing are qualified by these cautionary statements and there can be no assurance of the actual results or developments . the following discussion and analysis of our financial condition and plan of operations should be read in conjunction with our financial statements and related notes appearing elsewhere herein . this discussion and analysis contains forward-looking statements including information about possible or assumed results of our financial conditions , operations , plans , objectives and performance that involve risk , uncertainties and assumptions . the actual results may differ materially from those anticipated in such forward-looking statements . for example , when we indicate that we expect to increase our product sales and potentially establish additional license relationships , these are forward-looking statements . the words expect , anticipate , estimate or similar expressions are also used to indicate forward-looking statements . story_separator_special_tag 10pt '' > unless sooner terminated as provided in the u.s. license agreement , the term of the u.s. license agreement shall begin as of september 24 , 2019 and shall expire simultaneously with the expiration of earlier termination of the license term ( as such term is defined in the u.s. license agreement ) of the last remaining license granted under the u.s. license agreement . pursuant to the terms of the u.s. license agreement , the company agreed to execute that certain guaranty agreement ( the “ u.s . guaranty ” ) dated september 24 , 2019 by and between the company and la fitness u.s. pursuant to the terms of the u.s. guaranty , the company irrevocably guaranteed the full , unconditional and prompt payment and performance of all of novomerica 's obligations and liabilities under the u.s. license agreement . 59 canada la fitness license agreement & guaranty on september 24 , 2019 , nhl entered into a master facility license agreement ( “ canada license agreement ” ) with laf canada company ( “ la fitness canada ” ) . pursuant to the terms of the canada license agreement , the parties agreed that from time to time as set forth in the canada license agreement or as the parties otherwise agree , nhl may wish to identify sublicensees to provide certain services in facilities operated by la fitness canada , and la fitness canada may desire to grant to such sublicenses the right to do the same . upon execution of applicable documentation as may be required by the canada license agreement , the sublicensee ( which may be nhl , if nhl desires to provide services ( as hereinafter defined ) itself ) shall have the right , subject to the terms of the canada license agreement , to ( i ) occupy and use , on an exclusive basis , for the purposes of providing the services , with the applicable la fitness canada facility , and ( ii ) access and use , on a non-exclusive basis , for the purpose of providing the services , the applicable facility 's equipment and a pool lane , and ( iii ) use , on a non-exclusive basis , the applicable facility 's common areas solely as necessary to access the facility 's service area , equipment and a pool lane . pursuant to the terms of the canada license agreement , six separate initial licenses in ontario , canada and alberta , canada were granted . nhl agreed to develop and open for business ( a ) at least four of such facilities by december 31 , 2019 , and ( b ) beginning in january 2020 , at least two of such additional facilities per calendar month until all such facilities are opened for business . with respect to each license granted under the canada license agreement , for the period beginning as of the commencement date of each such license and continuing until the expiration or earlier termination of such license , nhl shall pay to la fitness canada a monthly payment in an agreed upon amount . unless sooner terminated as provided in the canada license agreement , the term of the canada license agreement shall begin as of september 24 , 2019 and shall expire simultaneously with the expiration of earlier termination of the license term ( as such term is defined in the canada license agreement ) of the last remaining license granted under the canada license agreement . pursuant to the terms of the canada license agreement , the company agreed to execute that certain guaranty agreement ( the “ canada guaranty ” ) dated september 24 , 2019 by and between the company and la fitness canada . pursuant to the terms of the canada guaranty , the company irrevocably guaranteed the full , unconditional and prompt payment and performance of all of nhl 's obligations and liabilities under the canada license agreement . story_separator_special_tag ended august 31 , 2019 compared to the same period in 2018 , and the cash paid for the acquisition of assets in 2019. during the year ended august 31 , 2019 , the company generated cash of $ 3,073,711 from financing activities compared to cash used in financing activities of $ 11,574 for the same period in 2018. the principal reason for the change is the sale of shares of common stock for $ 3,250,366 during the year ended august 31 , 2019 , offset by an increase of repayments of amounts due to related parties . during the year ended august 31 , 2018 there were only $ 15,564 of sales of shares of common stock . 61 on april 24 , 2018 , the company sold 25,104 restricted shares of common stock to a non-u.s. person . the shares were sold at a price of $ 0.62 per share , for an aggregate purchase price of $ 15,564 , which was provided to fund the company 's ongoing operational and product development expenses . the issuance of shares of common stock was exempt from the registration requirements of the securities act in reliance upon regulation s promulgated pursuant to the securities act . the issuances involved offers and sales of securities outside the united states . the offers and sales were made in offshore transactions and no directed selling efforts were made by the issuer , a distributor , their affiliates or any persons acting on their behalf . on november 16 , 2018 , the company accepted a $ 30,000 subscription agreement from an accredited investor residing outside the united states for the sale of 17,647 shares of restricted common stock , resulting in an effective price per share of $ 1.70. the shares were issued on november 20 , 2018. on november 16 , 2018 , the company accepted a $ 501,929 subscription agreement from an accredited investor residing outside the united states for the sale of 545,575 shares of restricted common stock , resulting in an effective price per share of $ 0.92. the shares were issued on november 20 , 2018. on december 18 , 2018 , the company accepted a $ 1,867,250 subscription agreement from an accredited investor residing outside the united states for the sale of 2,029,620 shares of restricted common stock , resulting in an effective price per share of $ 0.92. the shares were issued on december 20 , 2018. on january 15 , 2019 , the company accepted a $ 180,744 subscription agreement from an accredited investor residing outside the united states for the sale of 115,271 shares of restricted common stock , resulting in an effective price per share of $ 1.57. the shares were issued on january 18 , 2019. on april 3 , 2019 , the company accepted a $ 149,740 subscription agreement from an accredited investor residing outside the united states for the sale of 116,078 shares of restricted common stock , resulting in an effective price per share of $ 1.29. the shares were issued on april 5 , 2019. on april 19 , 2019 , the company accepted a $ 112,140 subscription agreement from an accredited investor residing outside the united states for the sale of 89,712 shares of restricted common stock , resulting in an effective price per share of $ 1.25. the shares were issued on april 24 , 2019. on april 30 , 2019 , the company accepted a $ 200,000 subscription agreement from an accredited investor residing outside the united states for the sale of 170,941 shares of restricted common stock , resulting in an effective price per share of $ 1.17. the shares were issued on may 7 , 2019. on may 1 , 2019 , the company accepted a $ 37,235 subscription agreement from an accredited investor residing outside the united states for the sale of 32,100 shares of restricted common stock , resulting in an effective price per share of $ 1.16. the shares were issued on may 3 , 2019. on may 3 , 2019 , the company accepted a $ 149,060 subscription agreement from an accredited investor residing outside the united states for the sale of 128,500 shares of restricted common stock , resulting in an effective price per share of $ 1.16. the shares were issued on may 3 , 2019. on june 4 , 2019 , the company accepted a $ 22,268 subscription agreement from an accredited investor residing outside the united states for the sale of 21,413 shares of restricted common stock , resulting in an effective price per share of $ 1.04. the shares were issued on june 6 , 2019. 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 . 62 critical accounting policies and estimates the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america ( “ u.s . gaap ” ) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . actual results could differ from those estimates . we believe that the following critical policies affect our more significant judgments and estimates used in preparation of our financial statements . use of estimates the preparation of consolidated financial statements in conformity with u.s. gaap requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period . the company regularly evaluates estimates and assumptions .
| business overview novo integrated sciences , inc. ( “ novo integrated ” ) was incorporated in delaware on november 27 , 2000 , under the name turbine truck engines , inc. on february 20 , 2008 , the company was re-domiciled to the state of nevada . effective july 12 , 2017 , the company 's name was changed to novo integrated sciences , inc. when used herein , the terms the “ company , ” “ we , ” “ us ” and “ our ” refer to novo integrated and its consolidated subsidiaries . through novo healthnet limited ( “ nhl ” ) , our wholly owned canadian subsidiary , we deliver multidisciplinary primary health care services and products to over 400,000 patients annually through our 16 corporate-owned clinics and a contracted network of 95 affiliate clinics and 225 eldercare centric homes located across canada . our team of multidisciplinary primary health care clinicians and practitioners provide assessment , diagnosis , treatment , pain management , rehabilitation , education and primary prevention for a wide array of orthopedic , musculoskeletal , sports injury , and neurological conditions across various demographics including pediatric , adult , and geriatric populations . our clinicians and practitioners provide certain multidisciplinary primary health care services , and related products , beyond the medical doctor first level contact identified as primary care . our clinicians and practitioners are not licensed medical doctors , physicians , specialist , nurses or nurse practitioners . our clinicians and practitioners are not authorized to practice primary care medicine and they are not medically licensed to prescribe pharmaceutical based product solutions .
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you should read the following discussion and analysis of our financial condition and results of operations together with our audited financial statements and related notes appearing elsewhere in this annual report on form 10-k. in addition to historical information , this discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors . we discuss factors that we believe could cause or contribute to these differences below and elsewhere in this report , including those set forth under item 1a . “ risk factors ” in this annual report on form 10-k. overview we are a clinical-stage biopharmaceutical company that is focused on developing and commercializing a novel class of stabilized cell-permeating alpha-helical peptides to address intracellular targets in oncology and other therapeutic areas . our lead product candidate , alrn-6924 , is a cell-permeating peptide that disrupts the interaction of p53 suppressors mdm2 and mdmx with tumor suppressor p53 to reactivate tumor suppression in non-mutant , or wild-type , p53 cancers . based on preclinical data and preliminary evidence of safety and anti-tumor activity in our ongoing clinical trials , we believe that there may be a significant opportunity to develop alrn-6924 in combination with other drugs for a wide variety of cancers . our clinical development program for alrn-6924 is currently focused on our ongoing phase 2a clinical trial of the combination of alrn-6924 and palbociclib ( ibrance ) , marketed by pfizer , inc. , for the treatment of mdm2-amplified advanced solid tumors and our planned phase 1b/2 clinical trial to evaluate alrn-6924 as a myelopreservative agent , to protect against chemotherapy-induced bone marrow toxicity . our first planned clinical trial to assess the myelopreservation opportunity will be in small cell lung cancer patients who will be treated with the chemotherapy topotecan . we have conducted other clinical trials of alrn-6924 as a single agent and in combination with other therapies . for instance , we have conducted a single-agent phase 2a trial for the treatment of peripheral t-cell lymphoma , or ptcl , a single-agent phase 1 trial for the treatment of acute myeloid leukemia , or aml , and advanced high-risk myelodysplastic syndrome , or mds , and a phase 1b trial testing the combination of alrn-6924 and cytarabine , or ara-c , in patients with mds . we have observed anticancer activity with alrn-6924 in each of these trials . however , despite that activity , in light of our resources , and our assessment of the commercial opportunities in these indications , as well as the changed competitive landscape in myeloid cancers where seven drugs were approved for aml in the united states in the last two years , we have determined to cease enrollment in these trials and further clinical development for these indications at this time . we plan to present data from our aml/mds trials in the fourth quarter of 2019. we were incorporated in 2001 and commenced principal operations in 2006. we have substantially devoted all of our resources to developing our product candidates , including alrn-6924 , developing our proprietary stabilized cell-permeating peptide platform , building our intellectual property portfolio , business planning , raising capital and providing general and administrative support for these operations . on june 28 , 2017 , our registration statement on form s-1 relating to our initial public offering of our common stock , or ipo , was declared effective by the sec . the ipo closed on july 5 , 2017 and we issued and sold 3,750,000 shares of common stock at a public offering price of $ 15.00 per share for net proceeds of $ 50.0 million after deducting underwriting discounts and commissions of $ 3.9 million and offering expenses of $ 2.3 million . upon the closing of the ipo , all shares of redeemable convertible preferred stock then outstanding converted into an aggregate of 10,509,774 shares of common stock . prior to the ipo , we financed our operations through private placements of preferred stock and , to a lesser extent , from payments received under a collaboration agreement . from our inception through december 31 , 2018 , we had received $ 50.0 million in net proceeds from our ipo , $ 131.2 million from our sales of preferred stock and $ 34.9 million from the collaboration agreement . 100 since our inception , we have incurred significant losses on an aggregate basis . our net losses were $ 31.6 million and $ 22.6 million for the years ended december 31 , 2018 and 2017 , respectively . as of december 31 , 2018 , we had an accumulated deficit of $ 168.5 million . these losses have resulted primarily from costs incurred in connection with research and development activities , licensing and patent investment and general and administrative costs associated with our operations . we expect to continue to incur significant expenses and operating losses for at least the next several years . as a result , we will need additional financing to support our continuing operations . until such time as we can generate significant revenue from product sales , if ever , we expect to finance our operations through public or private equity offerings , collaborations and licensing arrangements , or other sources of capital . we do not have any committed external source of funds . adequate additional financing may not be available to us on acceptable terms , if at all . in addition , while we may seek one or more collaborators for future development of our product candidates for one or more indications , we may not be able to enter into a collaboration for any of our product candidate for such indications on suitable terms , on a timely basis or at all . our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy . story_separator_special_tag we track outsourced development costs and milestone payments made under our licensing arrangements by product candidate or development program , but we do not allocate personnel costs , license payments made under our licensing arrangements or other internal costs to specific development programs or product candidates . these costs are included in employee , facility and other development expenses in the table below . employee , facility and other expenses also includes internal research relating to non-clinical and pipeline compounds in oncology and non-oncology indications . the following table summarizes our research and development expenses by product candidate or development program : replace_table_token_1_th 102 research and development activities are central to our business model . product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development , primarily due to the increased size and duration of later-stage clinical trials . we expect to incur significant research and development expenses in the foreseeable future as we continue our non-clinical research testing a variety of approved drugs in combination with alrn-6924 , initiate additional clinical trials of alrn-6924 , pursue later stages of clinical development of alrn-6924 , initiate clinical trials for product candidates other than alrn-6924 and continue to discover and develop additional product candidates , including product candidates for targets in which we have made substantial investments in prior years for the treatment of a variety of disease indications . we can not determine with certainty the duration and costs of the current or future clinical trials of our product candidates or if , when , or to what extent we will generate revenue from the commercialization and sale of any of our product candidates for which we obtain marketing approval . we may never succeed in obtaining marketing approval for any of our product candidates . the duration , costs and timing of clinical trials and development of our product candidates will depend on a variety of factors , including : the scope , rate of progress , expense and results of our ongoing clinical trials of alrn-6924 , as well as of any future clinical trials of alrn-6924 or other product candidates and other research and development activities that we may conduct ; uncertainties in clinical trial design and patient enrollment rates ; significant and changing government regulation and regulatory guidance ; the timing and receipt of any marketing approvals ; and the expense of filing , prosecuting , defending and enforcing any patent claims and other intellectual property rights . a change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate . for example , if the u.s. food and drug administration , or the fda , or another regulatory authority were to require us to conduct clinical trials beyond those that we anticipate will be required for the completion of clinical development of a product candidate , or if we experience significant trial delays due to patient enrollment or other reasons , we would be required to expend significant additional financial resources and time on the completion of clinical development . we are currently conducting a phase 2a clinical trial of the combination of alrn-6924 and palbociclib ( ibrance ) , for the treatment of mdm2-amplified advanced solid tumors and expect to begin enrolling patients in a phase 1b/2 clinical trial to evaluate alrn-6924 as a myelopreservative agent in the third quarter of 2019. we have also determined to cease clinical development of alrn-6924 for the treatment of ptcl , aml and mds . at this time , we can not reasonably estimate the cost for initiating and completing these and other clinical trials of alrn-6924 and preclinical studies of alrn-6924 , as it will be highly dependent on the clinical data from ongoing clinical trials as well as any target disease subpopulations chosen for further evaluation . general and administrative expenses general and administrative expenses consist primarily of salaries and other related costs , including stock-based compensation , for personnel in our executive , finance , corporate and business development and administrative functions . general and administrative expenses are comprised of professional fees associated with being a public company including costs of accounting , auditing , legal , regulatory , tax and consulting services associated with maintaining compliance with exchange listing and sec requirements , director and officer insurance costs ; and both public and investor relations costs . general and administrative expenses also include legal fees relating to patent and corporate matters ; other insurance costs ; travel expenses ; and facility-related expenses , which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs . 103 subject to obtaining the necessary funding , we expect that our general and administrative expenses will increase in the future as we increase our general and administrative personnel headcount to support personnel in research and development and to support our operations generally as we increase our research and development activities and activities related to the potential commercialization of our product candidates . we also expect to incur increased expenses associated with operating as a public company , including costs of accounting , audit , legal , regulatory and tax-related services associated with maintaining compliance with exchange listing and sec requirements ; director and officer insurance costs ; and investor and public relations costs . interest income , net interest income consists of interest income earned on our cash , cash equivalents and investments . interest expense consists of imputed interest expense related to our construction financing liability associated with the build-out and tenant improvements to our leased office and laboratory facility . prior to the ipo , our interest income had not been significant due to low investment balances and low interest earned on those balances . our interest income increased following the ipo due to higher investment balances and interest carried on those balances .
| results of operations comparison of the years ended december 31 , 2018 and 2017 the following table summarizes our results of operations for the years ended december 31 , 2018 and 2017 : replace_table_token_2_th research and development expenses replace_table_token_3_th research and development expenses for the year ended december 31 , 2018 were $ 18.4 million , compared to $ 14.2 million for the year ended december 31 , 2017. the increase of $ 4.2 million was primarily due to an increase of $ 2.0 million in research and development expenses associated with our alrn-6924 and p53 program expenses and an increase of $ 2.1 million in employee , facility and other development expenses . the increase in our alrn-6924 and p53 program expenses was primarily due to a $ 1.8 million increase in expenses for non-clinical research for the year ended december 31 , 2018 associated with expanding our research to test a variety of approved drugs in combination with alrn-6924 , including cyclin-dependent kinase inhibitors , traditional chemotherapeutic agents and immuno-oncology agents . also contributing to the increase was a $ 1.4 million increase in clinical expenses associated with increased data management and patient monitoring expenses . these increases were offset by a $ 1.2 million decrease in expenses associated with our manufacturing of alrn-6924 for our clinical trials . this decrease resulted from the manufacture of sufficient quantities of alrn-6924 during 2017 to supply our clinical trial needs for 2018. we expect to have more alrn-6924 manufactured as our clinical trials advance . the increase in employees , facility and other development expenses was primarily due to increased wage and other personnel related costs resulting from personnel that we hired to support our ongoing trials .
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except as otherwise indicated by the context , the term `` union carbide '' means union carbide corporation , a wholly owned subsidiary of dow ; and , `` dow corning '' means dow corning corporation , a wholly owned subsidiary of dow . items affecting comparability of financial results due to the size of dow and dupont 's businesses prior to the merger , in this section certain supplemental unaudited pro forma financial information is provided that assumes the merger had been consummated on january 1 , 2016. for all periods presented in the unaudited pro forma financial information , adjustments have been made for ( 1 ) the preliminary purchase accounting impact , ( 2 ) accounting policy alignment , ( 3 ) the elimination of the effects of events that are directly attributable to the merger agreement ( e.g. , one-time transaction costs ) , ( 4 ) the elimination of the impact of transactions between dow and dupont , and ( 5 ) the elimination of the effect of consummated divestitures required as a condition of regulatory approval for the merger . events that are not expected to have a continuing impact on the combined results ( e.g. , inventory step-up costs ) are excluded . these adjustments impacted the consolidated results as well as the reportable segments . for additional information , see the supplemental unaudited pro forma combined financial information in this section . page about dowdupont inc. 34 overview 34 results of operations 35 supplemental unaudited pro forma combined financial information 42 story_separator_special_tag v > replace_table_token_6_th 1. portfolio & other reflects sales related to the step acquisition of univation ( packaging & specialty plastics ) and cooperativa central de pesquisa agrícola 's , acquired on february 1 , 2015 ( agriculture ) . portfolio & other also reflects the following divestitures : the chlorine value chain ( industrial intermediates & infrastructure and packaging & specialty plastics ) , angus chemical company and the global sodium borohydride business ( both included in industrial intermediates & infrastructure ) . 2017 versus 2016 the company reported net sales for 2017 of $ 62.5 billion , up 30 percent from $ 48.2 billion for 2016 , primarily reflecting the merger , the addition of dow corning 's silicones business , increased selling prices and demand growth . sales growth was broad-based with increases in all segments and geographic regions . portfolio & other changes contributed 19 percent of the sales increase and impacted all segments , except industrial intermediates & infrastructure , which was flat . local price was up 6 percent compared with the same period last year , with increases in all geographic regions , including a double-digit increase in emea ( up 10 percent ) , driven by broad-based pricing actions as well as higher feedstock and raw material prices . local price increased in industrial intermediates & infrastructure ( up 10 percent ) and packaging & specialty plastics and performance materials & coatings ( both up 8 percent ) and declined in agriculture and electronics & imaging ( both down 1 percent ) . local price was flat in nutrition & biosciences , transportation & advanced polymers and safety & construction . volume increased 5 percent compared with the same period last year , with increases in all segments , except agriculture ( down 2 percent ) , including a double-digit increase in nutrition & biosciences ( up 10 percent ) . volume increased in all geographic regions , except latin america ( down 1 percent ) . currency was flat compared with the same period last year . 2016 versus 2015 the company reported net sales for 2016 of $ 48.2 billion , down 1 percent from $ 48.8 billion for 2015. local price decreased 6 percent compared with the same period last year , with decreases in all segments , except agriculture ( up 1 percent ) , and all geographic regions , due to lower feedstock and raw material prices and competitive pricing pressures . volume increased 3 percent compared with the same period last year , as increases in packaging & specialty plastics ( up 9 percent ) , transportation & advanced polymers ( up 7 percent ) , electronics & imaging ( up 3 percent ) and industrial intermediates & infrastructure ( up 1 percent ) more than offset decreases in agriculture , performance materials & coatings , nutrition & biosciences and safety & construction ( all down 2 percent ) . volume increased in all geographic regions , except latin america , which remained flat . portfolio & other changes contributed 2 percent of the sales increase , primarily reflecting the addition of dow corning 's silicones business . see sales variances by segment and geographic region table on the previous page for additional information on portfolio changes . currency was flat compared with the same period last year . 36 replace_table_token_7_th 1. pro forma net sales for agriculture excludes sales related to the november 30 , 2017 , das divested ag business for the period january 1 , 2016 through august 31 , 2017 ; sales from september 1 , 2017 through november 30 , 2017 , are included in portfolio & other . pro forma net sales also excludes sales related to the september 1 , 2017 , divestiture of the eaa business for the period january 1 , 2016 through august 31 , 2017. portfolio & other includes sales for the acquisition of the h & n business acquired on november 1 , 2017 , impacting nutrition & biosciences . story_separator_special_tag sg & a expenses were essentially flat in 2016 compared with 2015 , as increased costs from the addition of dow corning 's silicones business were nearly offset by decreased spending due to divestitures and cost reduction initiatives as well as lower performance-based compensation costs . sg & a expenses as a percentage of net sales were 6.4 percent , 6.1 percent and 6.0 percent for 2017 , 2016 and 2015 , respectively . amortization of intangibles amortization of intangibles was $ 1,013 million in 2017 , $ 544 million in 2016 and $ 419 million in 2015 . the increase in amortization in 2017 was primarily due to an increase in intangible assets as a result of the merger and the addition of dow corning 's silicones business . the increase in amortization in 2016 was primarily due to an increase in intangible assets as a result of the addition of dow corning 's silicones business . see notes 3 and 13 to the consolidated financial statements for additional information on intangible assets . restructuring , goodwill impairment and asset related charges - net dowdupont cost synergy program in september and november 2017 , dowdupont approved post-merger restructuring actions under the dowdupont cost synergy program ( the “ synergy program ” ) , adopted by the dowdupont board of directors . the plan is designed to integrate and optimize the organization following the merger and in preparation for the intended business separations . based on all actions approved to date under the synergy program , the company expects to record total pretax restructuring charges of approximately $ 2 billion , comprised of approximately $ 845 million to $ 935 million of severance and related benefit costs ; $ 400 million to $ 540 million of asset write-downs and write-offs , and $ 400 million to $ 450 million of costs associated with exit and disposal activities . the synergy program includes certain asset actions , including strategic decisions regarding the cellulosic biofuel unit reflected in the preliminary fair value measurement of dupont 's assets as of the merger date . current estimated total pretax restructuring charges could be impacted by future adjustments to the preliminary fair value of dupont 's assets . as a result of these actions , the company recorded pretax restructuring charges of $ 874 million in 2017 , consisting of severance and related benefit costs of $ 510 million , asset write-downs and write-offs of $ 290 million and costs associated with exit and disposal activities of $ 74 million . the restructuring charges by segment are as follows : $ 134 million in agriculture , $ 11 million in performance materials & coatings , $ 12 million in industrial intermediates & infrastructure , $ 36 million in packaging & specialty plastics , $ 86 million in electronics & imaging , $ 1 million in nutrition & biosciences , $ 2 million in transportation & advanced polymers , $ 21 million in safety & construction and $ 571 million in corporate . the company expects to record the remaining restructuring charges over the next two years and expects the synergy program to be substantially completed by the end of 2019. dow 2016 restructuring plan on june 27 , 2016 , dow 's board of directors ( `` board '' ) approved a restructuring plan that incorporated actions related to the ownership restructure of dow corning . these actions , aligned with dow 's value growth and synergy targets , will result in a global workforce reduction of approximately 2,500 positions , with most of these positions resulting from synergies related to the 38 ownership restructure of dow corning . these actions are expected to be substantially completed by june 30 , 2018. as a result of these actions , dow recorded pretax restructuring charges of $ 449 million in the second quarter of 2016 , consisting of severance and related benefit costs of $ 268 million , asset write-downs and write-offs of $ 153 million and costs associated with exit and disposal activities of $ 28 million and related to the company 's segment results as follows : $ 42 million in performance materials & coatings , $ 83 million in industrial intermediates & infrastructure , $ 10 million in packaging & specialty plastics and $ 314 million in corporate . in 2017 , dow recorded a favorable adjustment to the 2016 restructuring charge related to costs associated with exit and disposal activities of $ 7 million , related to performance materials & coatings . dow 2015 restructuring plan on april 29 , 2015 , dow 's board approved actions to further streamline the organization and optimize dow 's footprint as a result of the separation of a significant portion of dow 's chlorine value chain . these actions , which further accelerated dow 's value growth and productivity targets , resulted in a reduction of approximately 1,750 positions across a number of businesses and functions and adjustments to dow 's asset footprint to enhance competitiveness . as a result of these actions , dow recorded pretax restructuring charges of $ 375 million in the second quarter of 2015 consisting of severance and related benefit costs of $ 196 million , asset write-downs and write-offs of $ 169 million and costs associated with exit and disposal activities of $ 10 million . in the fourth quarter of 2015 , dow recorded restructuring charge adjustments of $ 40 million , including severance and related benefit costs of $ 39 million for the separation of approximately 500 additional positions as part of dow 's efforts to further streamline the organization , and $ 1 million of costs associated with exit and disposal activities . the impact of these charges were related to the company 's segment results as follows : $ 15 million in agriculture , $ 10 million in performance materials & coatings , $ 12 million in packaging & specialty plastics , $ 51 million in electronics & imaging , $ 16 million in nutrition & biosciences , $ 17 million in safety & construction and $ 294 million in corporate .
| segment results 47 agriculture 47 performance materials & coatings 49 industrial intermediates & infrastructure 50 packaging & specialty plastics 51 electronics & imaging 53 nutrition & biosciences 54 transportation & advanced polymers 56 safety & construction 57 corporate 58 liquidity and capital resources 59 outlook 65 other matters 66 critical accounting estimates 66 environmental matters 70 asbestos-related matters of union carbide corporation 74 33 about dowdupont inc. dowdupont is a holding company comprised of dow and dupont with the intent to form strong , independent , publicly traded companies in the agriculture , materials science and specialty products sectors ( the `` intended business separations '' ) that will lead their respective industries through productive , science-based innovation to meet the needs of customers and help solve global challenges . in 2017 , 37 percent of the company 's net sales were to customers in the u.s. & canada ; 29 percent were in europe , middle east and africa ( `` emea '' ) ; 22 percent were in asia pacific ; and 12 percent were in latin america . on a pro forma basis , 39 percent of the company 's net sales were to customers in the u.s. & canada ; 28 percent were in emea ; 22 percent were in asia pacific ; and 11 percent were in latin america . in 2017 , the company and its consolidated subsidiaries did not operate in countries subject to u.s. economic sanctions and export controls as imposed by the u.s. state department or in countries designated by the u.s. state department as state sponsors of terrorism , including iran , sudan and syria . the company has policies and procedures in place designed to ensure that it and its consolidated subsidiaries remain in compliance with applicable u.s. laws and regulations . overview the following is a summary of the results from continuing operations for the year ended december 31 , 2017 : the company reported net sales for 2017 of $ 62.5 billion , up 30 percent from $ 48.2
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we may make additional alternative energy investments in the future . our ethanol operations are highly dependent on commodity prices , especially prices for corn , ethanol , distillers grains , non-food grade corn oil and natural gas . as a result of price volatility for these commodities , our operating results can fluctuate substantially . the price and availability of corn is subject to significant fluctuations depending upon a number of factors that affect commodity prices in general , including crop conditions , weather , federal policy and foreign trade . because the market price of ethanol is not always directly related to corn prices , at times ethanol prices may not follow movements in corn prices and , in an environment of higher corn prices or lower ethanol prices , reduce the overall margin structure at the plants . as a result , at times , we may operate our plants at negative or marginally positive operating margins . we expect our ethanol plants to produce approximately 2.8 gallons of denatured ethanol for each bushel of grain processed in the production cycle . we refer to the difference between the price per gallon of ethanol and the price per bushel of grain ( divided by 2.8 ) as the “ crush spread. ” should the crush spread decline , our ethanol plants are likely to generate operating results that do not provide adequate cash flows for sustained periods of time . in such cases , production at the ethanol plants may be reduced or stopped altogether in order to minimize variable costs at individual plants . we also expect our ethanol plants to produce approximately 15.5 pounds of distillers grains and 0.7 pounds of non-food grade corn oil for each bushel of grain processed . we attempt to manage the risk related to the volatility of commodity prices by utilizing forward grain purchase , forward ethanol , distillers grains and non-food grade corn oil sale contracts and commodity futures agreements as management deems appropriate . we attempt to match quantities of these sales contracts with an appropriate quantity of grain purchase contracts over a given period of time when we can obtain an adequate gross margin resulting from the crush spread inherent in the contracts we have executed . however , the market for future ethanol sales contracts generally lags the spot market with respect to ethanol price . consequently , we generally execute fixed price contracts for no more than four months into the future at any given time and we may lock in our corn or ethanol price without having a corresponding locked in ethanol or corn price for short durations of time . as a result of the relatively short period of time our fixed price contracts cover , we generally can not predict the future movements in the crush spread for more than four months ; thus , we are unable to predict the likelihood or amounts of future income or loss from the operations of our ethanol facilities . we utilize derivative financial instruments , primarily exchange traded commodity future contracts , in conjunction with certain of our grain procurement activities . 22 the crush spread realized in fiscal year 2016 was subject to significant volatility . for fiscal year 2016 , the average chicago board of trade ( “ cbot ” ) near-month corn price ranged from a low of approximately $ 3.01 per bushel in august 2016 to a high of approximately $ 4.38 per bushel in june 2016. corn prices benefitted throughout the year after four consecutive strong corn harvests between 2013 and 2016. ethanol prices had significant fluctuations ranging from approximately $ 1.37 per gallon in august 2016 to a high of approximately $ 1.75 per gallon in december 2016. ethanol prices were influenced by many factors throughout the year including low energy prices , varying levels of ethanol demand and increases in united states ethanol production . the cbot crush spread during fiscal year 2016 ranged from approximately $ 0.07 in march 2016 to approximately $ 0.47 in december 2016. net income attributable to rex common shareholders was approximately $ 32.3 million in fiscal year 2016 compared to approximately $ 31.4 million in fiscal year 2015. the current year benefitted from higher crush spreads and production levels which were partially offset by lower dried distillers grains pricing . during fiscal year 2015 , we recognized a pre-tax gain of approximately $ 10.4 million from the sale of our interest in patriot holdings , llc ( “ patriot ” ) . we expect that future operating results , from our consolidated plants , will be based upon combined annual production of between 240 and 270 million gallons of ethanol if the resulting crush spread is adequate . however , due to the inherent volatility of commodity prices within the ethanol industry , we can not predict the likelihood of future operating results being similar to the fiscal year 2016 results . the crush spread in the first quarter of fiscal year 2017 has been negatively impacted by lower ethanol pricing due to oversupply and lower distillers grains pricing . distillers grains pricing is being negatively impacted by the chinese government increasing the anti-dumping and countervailing duty on imports of u.s. dried distillers grains . the epa reduced the rfs required volume from conventional biofuels for 2014 , 2015 and 2016 from its originally mandated levels of 14.4 billion , 15.0 billion and 15.0 billion gallons to 13.6 billion , 14.1 billion and 14.5 billion gallons , respectively . in november 2016 , the epa announced the 2017 requirement of 15.0 billion gallons for conventional renewable fuels which equals the statutory requirement . in january 2017 , the trump administration imposed a government wide freeze on new and pending regulations , which includes the 2017 renewable fuel volume obligation . the freeze expired on march 21 , 2017 with no change to the previously announced requirement . the uncertainty regarding the required rfs volumes for future years could negatively impact ethanol pricing . story_separator_special_tag in connection with this transaction , we recognized a gain of approximately $ 10.4 million during fiscal year 2015. interest and other income – interest and other income of approximately $ 0.6 million for fiscal year 2016 was consistent with the fiscal year 2015 amount . gain ( loss ) on disposal of real estate and property and equipment , net – we recognized gains of approximately $ 0.3 million in fiscal year 2016 compared to $ 0.5 million in fiscal year 2015. we sold three real estate properties in each of fiscal years 2016 and 2015 . 27 provision for income taxes – our effective tax rate was 30.6 % and 27.4 % for fiscal years 2016 and 2015 , respectively . our effective rate is impacted by the noncontrolling interests of the companies we consolidate , as we recognize 100 % of their income or loss in continuing operations before income taxes and noncontrolling interests . however , we only provide an income tax provision or benefit for our portion of the subsidiaries ' income or loss with a noncontrolling interest . our effective rate increased as state and local taxes increased from a benefit of 1.3 % in fiscal year 2015 to expense of 2.3 % primarily as a result of the impact on deferred taxes of lower tax rates and apportionment in certain jurisdictions in fiscal year 2015. the domestic production activities deduction increased from 1.7 % in fiscal year 2015 to 2.9 % in fiscal year 2016 , primarily as a result of agricultural cooperative patronage . income from continuing operations – as a result of the foregoing , income from continuing operations was approximately $ 39.5 million for fiscal year 2016 versus approximately $ 37.4 million for fiscal year 2015. noncontrolling interests – income attributable to noncontrolling interests was approximately $ 7.2 million and $ 6.0 million during fiscal years 2016 and 2015 , respectively , and represents the owners ' ( other than us ) share of the income or loss of one earth , nugen and future energy . noncontrolling interests of one earth and nugen were approximately $ 7.1 million and $ 0.2 million , respectively , during fiscal year 2016. noncontrolling interests of one earth and nugen were approximately $ 6.0 million and $ 0.1 million , respectively , during fiscal year 2015. the loss related to noncontrolling interests of future energy was approximately $ 0.1 million during both fiscal years 2016 and 2015. net income attributable to rex common shareholders – as a result of the foregoing , net income attributable to rex common shareholders was approximately $ 32.3 million for fiscal year 2016 compared to $ 31.4 million for fiscal year 2015. comparison of fiscal years ended january 31 , 2016 and 2015 the following table summarizes selected operating data from our consolidated operations : replace_table_token_7_th 28 net sales and revenue – net sales and revenue in fiscal year 2015 were approximately $ 436.5 million , a 23.7 % decrease from approximately $ 572.2 million in fiscal year 2014. ethanol sales decreased from approximately $ 452.8 million in fiscal year 2014 to approximately $ 333.2 million in fiscal year 2015 , primarily a result of a $ 0.56 decline in the price per gallon sold . management believes the decline in the selling price results primarily from the historically low crude oil prices experienced in fiscal year 2015 and an oversupply of ethanol . dried distillers grains sales decreased from approximately $ 96.3 million in fiscal year 2014 to approximately $ 81.1 million in fiscal year 2015 , primarily a result of a $ 20.50 decrease in the price per ton sold . management believes the decline in the selling price results primarily from the lower grain prices experienced during fiscal year 2015. our non-food grade corn oil sales decreased from approximately $ 17.0 million in fiscal year 2014 to approximately $ 15.5 million in fiscal year 2015 , primarily a result of a $ 0.06 decline in the price per pound sold . our modified distillers grains sales increased from approximately $ 4.8 million in fiscal year 2014 to approximately $ 6.0 million in fiscal year 2015 , primarily a result of a 19.5 % increase in tons sold . gross profit – gross profit was approximately $ 50.8 million in fiscal year 2015 , or 11.6 % of net sales and revenue , versus approximately $ 141.9 million in fiscal year 2014 or 24.8 % of net sales and revenue . this represents a decrease of approximately $ 91.1 million . the crush spread for fiscal year 2015 was approximately $ 0.17 per gallon of ethanol sold compared to approximately $ 0.59 per gallon of ethanol sold during fiscal year 2014. grain accounted for approximately 76 % ( $ 293.0 million ) of our cost of sales during fiscal year 2015 compared to approximately 74 % ( $ 320.0 million ) during fiscal year 2014. natural gas accounted for approximately 6 % ( $ 22.7 million ) of our cost of sales during fiscal year 2015 compared to approximately 9 % ( $ 37.9 million ) during fiscal year 2014. the decrease in natural gas costs are primarily related to relatively mild winter weather conditions and generally large u.s. production volumes of natural gas . selling , general and administrative expenses – selling , general and administrative expenses for fiscal year 2015 were approximately $ 19.8 million ( 4.5 % of net sales and revenue ) , an increase of approximately $ 0.4 million or 2.0 % from approximately $ 19.4 million ( 3.4 % of net sales and revenue ) for fiscal year 2014. a majority of the dollar fluctuation results from increases in professional fees . gain on sale of investment – on june 1 , 2015 , patriot and chs completed a merger that resulted in chs acquiring 100 % of the ownership interest in patriot . we received a cash payment of approximately $ 45.5 million at the closing , representing our proportionate share of the merger proceeds .
| results of operations comparison of fiscal years ended january 31 , 2017 and 2016 the following table summarizes selected data from our consolidated operations : replace_table_token_5_th net sales and revenue – net sales and revenue in fiscal year 2016 were approximately $ 453.8 million , a 4.0 % increase from approximately $ 436.5 million in fiscal year 2015. the following table summarizes sales of our consolidated operations for each product and service group for the periods presented ( amounts in thousands ) : replace_table_token_6_th ethanol sales increased from approximately $ 333.2 million in the prior year to approximately $ 358.3 million in the current year , primarily a result of an increase of 14.8 million gallons ( 6.4 % ) sold during fiscal year 2016. the increase in gallons sold is attributable to the capacity expansion projects we have invested in over the last several years . dried distillers grains sales decreased from approximately $ 81.1 million in the prior year to approximately $ 71.2 million in the current year , primarily a result of a $ 21.53 decline in the price per ton sold . management believes the decline in the selling price results primarily from the ongoing uncertainty of chinese imports of domestic dried distillers grains as the china ministry of commerce had announced an anti-dumping and countervailing duty investigation in january 2016 and , in september 2016 , imposed an anti-dumping tariff and a countervailing duty on u.s. dried distillers grains exports to china that total approximately 45 % . in a final ruling in january 2017 , china increased the dried distillers grains anti-dumping duty to a range of 42.2 % up to 53.7 % and the dried distillers grains countervailing duty to a range of 11.2 % up to 12.0 % .
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2012-06 , business combinations ( topic 805 ) : subsequent accounting for an indemnification asset recognized at the acquisition date story_separator_special_tag the purpose of this analysis is to provide the reader with information relevant to understanding and assessing valley 's results of operations for each of the past three years and financial condition for each of the past two years . in order to fully appreciate this analysis the reader is encouraged to review the consolidated financial statements and accompanying notes thereto appearing under item 8 of this report , and statistical data presented in this document . cautionary statement concerning forward-looking statements this annual report on form 10-k , both in the md & a and elsewhere , contains forward-looking statements within the meaning of the private securities litigation reform act of 1995. such statements are not historical facts and include expressions about management 's confidence and strategies and management 's expectations about new and existing programs and products , acquisitions , relationships , opportunities , taxation , technology , market conditions and economic expectations . these statements may be identified by such forward-looking terminology as should , expect , believe , view , opportunity , allow , continues , reflects , typically , usually , anticipate , or similar statements or variations of such terms . such forward-looking statements involve certain risks and uncertainties and our actual results may differ materially from such forward-looking statements . factors that may cause actual results to differ materially from those contemplated by such forward-looking statements in addition to those risk factors listed under the risk factors section of this annual report on form 10-k include , but are not limited to : a severe decline in the general economic conditions of new jersey and the new york metropolitan area ; higher than expected loan delinquencies , loss of collateral , decreased service revenues , and other potential negative effects on our business from the recent damages to our primary markets by hurricane sandy ; declines in value in our investment portfolio , including additional other-than-temporary impairment charges on our investment securities ; unanticipated deterioration in our loan portfolio ; an unanticipated reduction in our originate and sell residential mortgage strategy or a slowdown in residential mortgage loan refinance activity ; valley 's inability to pay dividends at current levels , or at all , because of inadequate future earnings , regulatory restrictions or limitations , and changes in the composition of qualifying regulatory capital and minimum capital requirements ( including those resulting from the u.s. implementation of basel iii requirements ) ; higher than expected increases in our allowance for loan losses ; higher than expected increases in loan losses or in the level of nonperforming loans ; unexpected changes in market interest rates for interest earning assets and or interest bearing liabilities ; government intervention in the u.s. financial system and the effects of and changes in trade and monetary and fiscal policies and laws , including the interest rate policies of the federal reserve ; higher than expected tax rates , including increases resulting from changes in tax laws , regulations and case law ; an unexpected decline in real estate values within our market areas ; charges against earnings related to the change in fair value of our junior subordinated debentures ; 41 higher than expected fdic insurance assessments ; the failure of other financial institutions with whom we have trading , clearing , counterparty and other financial relationships ; lack of liquidity to fund our various cash obligations ; unanticipated reduction in our deposit base ; potential acquisitions that may disrupt our business ; legislative and regulatory actions ( including the impact of the dodd-frank wall street reform and consumer protection act and related regulations ) subject us to additional regulatory oversight which may result in higher compliance costs and or require us to change our business model ; changes in accounting policies or accounting standards ; our inability to promptly adapt to technological changes ; our internal controls and procedures may not be adequate to prevent losses ; claims and litigation pertaining to fiduciary responsibility , environmental laws and other matters ; the inability to realize expected revenue synergies from the merger of state bancorp with valley in the amounts or in the timeframe anticipated ; inability to retain state bancorp 's customers and employees ; lower than expected cash flows from purchased credit impaired loans ; and other unexpected material adverse changes in our operations or earnings . correction of an immaterial error our previously reported financial condition and results of operations at and for the years ended december 31 , 2011 and 2010 have been revised to reflect an adjustment for the straight-line recognition of rental expense and income on operating leases with scheduled rental increases in which valley is the lessor and lessee , respectively . the adjustment resulted in increases in accrued rent liability , deferred tax assets and net occupancy and equipment expense , as well as decreases in retained earnings , net income and earnings per common share . the effect of these revisions was immaterial to each of the interim and annual periods , including a one cent reduction in basic and diluted earnings per common share in both 2011 and 2010. see note 1 of the consolidated financial statements for more details . critical accounting policies and estimates our accounting and reporting policies conform , in all material respects , to u.s. gaap . in preparing the consolidated financial statements , management has made estimates , judgments and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated statements of financial condition and results of operations for the periods indicated . actual results could differ materially from those estimates . valley 's accounting policies are fundamental to understanding management 's discussion and analysis of its financial condition and results of operations . our significant accounting policies are presented in note 1 to the consolidated financial statements . story_separator_special_tag subsequent increases in the expected cash flows of the loans in that pool would first reduce any allowance for loan losses on covered loans ; and any excess will be accreted for prospectively as a yield adjustment . the portion of the additional estimated losses on covered loans that is reimbursable from the fdic under the loss-sharing agreements is recorded in non-interest income and increases the fdic loss-share receivable asset . note 1 to the consolidated financial statements describes the methodology used to determine the allowance for loan losses and a discussion of the factors driving changes in the amount of the allowance for loan losses is included in this md & a . changes in our allowance for loan losses valley considers it difficult to quantify the impact of changes in forecast on its allowance for loan losses . however , management believes the following discussion may enable investors to better understand the variables that drive the allowance for loan losses , which amounted to $ 130.2 million at december 31 , 2012. for impaired credits , if the present value of expected cash flows ( for other impaired loans ) were 10 percent higher or lower , the allowance would have decreased $ 8.2 million or increased $ 9.4 million , respectively , at december 31 , 2012. if the fair value of the collateral ( for collateral dependent loans ) was 10 percent higher or lower , the allowance would have not changed or increased $ 1.1 million , respectively at december 31 , 2012. if classified loan balances were 10 percent higher or lower , the allowance would have increased or decreased by approximately $ 2.1 million , respectively , at december 31 , 2012. the credit rating assigned to each non-classified credit is an important variable in determining the allowance . if each non-classified credit were rated one grade worse , the allowance would have increased by approximately $ 351 thousand , while if each non-classified credit were rated one grade better there would be no change in the level of the allowance as of december 31 , 2012. additionally , if the historical loss factors used to calculate the allowance for non-classified loans were 10 percent higher or lower , the allowance would have increased or decreased by approximately $ 6.5 million , respectively , at december 31 , 2012. a key variable in determining the allowance is management 's judgment in determining the size of the allowances attributable to general economic conditions and other qualitative risk factors . at december 31 , 2012 , such allowances were 5.1 percent of the total allowance . if such allowances were 10 percent higher or lower , the total allowance would have increased or decreased by $ 680 thousand , respectively , at december 31 , 2012. security valuations and impairments . management utilizes various inputs to determine the fair value of its investment portfolio . to the extent they exist , unadjusted quoted market prices in active markets ( level 1 ) or quoted prices on similar assets ( level 2 ) are utilized to determine the fair value of each investment in the portfolio . in the absence of quoted prices and liquid markets , valuation techniques would be used to determine 44 fair value of any investments that require inputs that are both significant to the fair value measurement and unobservable ( level 3 ) . valuation techniques are based on various assumptions , including , but not limited to , cash flows , discount rates , rate of return , adjustments for nonperformance and liquidity , and liquidation values . a significant degree of judgment is involved in valuing investments using level 3 inputs . the use of different assumptions could have a positive or negative effect on our consolidated financial condition or results of operations . see note 3 to the consolidated financial statements for more details on our security valuation techniques . management must periodically evaluate if unrealized losses ( as determined based on the securities valuation methodologies discussed above ) on individual securities classified as held to maturity or available for sale in the investment portfolio are considered to be other-than-temporary . the analysis of other-than-temporary impairment requires the use of various assumptions , including , but not limited to , the length of time an investment 's book value is greater than fair value , the severity of the investment 's decline , any credit deterioration of the investment , whether management intends to sell the security , and whether it is more likely than not that we will be required to sell the security prior to recovery of its amortized cost basis . debt investment securities deemed to be other-than-temporarily impaired are written down by the impairment related to the estimated credit loss and the non-credit related impairment is recognized in other comprehensive income or loss . other-than-temporarily impaired equity securities are written down to fair value and a non-cash impairment charge is recognized in the period of such evaluation . we recognized other-than-temporary impairment charges on securities of $ 5.2 million , $ 20.0 million and $ 4.6 million in 2012 , 2011 , and 2010 , respectively , as a reduction of non-interest income on the consolidated statements of income . see the investment securities section of this md & a and note 4 to the consolidated financial statements for additional analysis and discussion of our other-than-temporary impairment charges . goodwill and other intangible assets . we record all assets , liabilities , and non-controlling interests in the acquiree in purchase acquisitions , including goodwill and other intangible assets , at fair value as of the acquisition date , and expense all acquisition related costs as incurred as required by asc topic 805 , business combinations. goodwill totaling $ 428.2 million at december 31 , 2012 is not amortized but is subject to annual tests for impairment or more often , if events or circumstances indicate it may be impaired .
| executive summary company overview . at december 31 , 2012 , valley had consolidated total assets of $ 16.0 billion , total net loans of $ 10.9 billion , total deposits of $ 11.3 billion and total shareholders ' equity of $ 1.5 billion . our commercial bank operations include branch office locations in northern and central new jersey and the new york city boroughs of manhattan , brooklyn and queens , as well as long island , new york . of our current 210branch network , 79 percent and 21 percent of the branches are located in new jersey and new york , respectively . we have grown both in asset size and locations significantly over the past several years primarily through both bank acquisitions and de novo branch expansion , including our most recent bank transaction discussed below . see item 1 of this annual report for more details regarding our past merger activity . acquisition of state bancorp , inc. ( state bancorp ) . on january 1 , 2012 , valley acquired state bancorp , the holding company for state bank of long island , a commercial bank with $ 1.7 billion in assets , $ 1.1 billion in loans and $ 1.4 billion in deposits , after purchase accounting adjustments , and 16 branches in nassau , suffolk , queens , and manhattan . we believe our expansion into this attractive area of the long island market has already provided additional lending , retail , and wealth management service opportunities to further strengthen our new york metropolitan operations and will continue to grow valley brand recognition in these markets . during february 2012 , we integrated state bancorp 's systems into valley with minimal disruption to our customer service and operations . we continue to look for future opportunities to support our new efforts in the long island market both through gradual de novo branch expansion and other potential bank acquisitions .
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actual results and the timing of events may differ significantly from those expressed or implied in such forward‑looking statements due to a number of factors , including those set forth in the sections entitled “ risk factors ” and “ special note regarding forward‑looking statements ” and elsewhere in this form 10‑k . executive overview moelis & company is a leading global independent investment bank that provides innovative strategic advice and solutions to a diverse client base , including corporations , governments and financial sponsors . we assist our clients in achieving their strategic goals by offering comprehensive integrated financial advisory services across all major industry sectors . with 20 geographical locations in the americas , europe , the middle east , asia and australia , we advise clients around the world on their most critical decisions , including mergers and acquisitions , recapitalizations and restructurings , capital markets and other corporate finance matters . our ability to provide confidential , independent advisory services to our clients across sectors and regions and through all phases of the business cycle has led to long-term client relationships and a diversified revenue base . as of december 31 , 2019 , we served our clients globally with 609 advisory bankers . we continue to grow our firm organically through internal promotions and hiring highly talented managing directors who all help to expand our sector , regional and product expertise . we generate revenues primarily from providing advisory services on transactions that are subject to individually negotiated engagement letters which set forth our fees . we generally generate fees at key transaction milestones , such as closing , the timing of which is outside of our control . as a result , revenues and net income in any period may not be indicative of full year results or the results of any other period and may vary significantly from year to year and quarter to quarter . the performance of our business depends on the ability of our professionals to build relationships with clients over many years by providing trusted advice and exceptional transaction execution . business environment and outlook economic and global financial conditions can materially affect our operational and financial performance . see “ risk factors ” elsewhere in this form 10‑k for a discussion of some of the factors that can affect our performance . the m & a market data for announced and completed transactions in 2019 and 2018 referenced throughout this form 10-k was obtained from thomson financial as of january 3 , 2020 and january 4 , 2019 , respectively . for the year ended december 31 , 2019 , we earned revenues of $ 746.5 million , a decrease of 16 % from the $ 885.8 million earned during the same period in 2018. this compares with an 8 % decrease in the number of global completed m & a transactions greater than $ 100 million in the same period . the decrease in revenues was primarily driven by fewer transaction completions compared to the prior year period , partially offset by higher average fees earned per completed transaction . in the u.s. , which has been a particularly strong driver of our revenues , we are observing many companies pursue m & a as they seek to obtain a competitive advantage in their business models . in addition , based on historical experience , we believe the current economic backdrop ( technological disruption , shareholder activism , record pools of capital being deployed by private equity firms and sovereign wealth funds , high corporate cash balances , relatively low interest rates and availability of credit ) , provides a solid foundation for sustained m & a activity . however , the global m & a market slowed during 2019 with completions down 8 % versus the prior year period as equity market volatility and trade-war tensions impacted the deal-making environment . in addition , the number of u.s. financial sponsor m & a completions greater than $ 100 million declined 14 % versus the prior year , which also negatively impacted our 2019 results . in europe , we continue to see slower activity , partially attributable to geo-political issues such as the u.k. 's exit from the eu . lastly , restructuring activity continues to be a steady contributor to our business despite the low default environment . our team of investment banking professionals continues to gain traction and we expect global collaboration among them to deepen and the advice provided to resonate with clients . our current conversations with clients remain strong , and we continue to experience demand for independent advice as clients evaluate their strategic alternatives . 32 story_separator_special_tag required period of service ( “ contingent cash awards ” ) and amortization of equity‑based compensation awards . base salary and benefits are paid ratably throughout the year . equity awards are amortized into compensation expenses on a graded basis ( based upon the fair value of the award at the time of grant ) during the service period over which the award vests , which is typically four or five years . the awards are recorded within equity as they are expensed . contingent cash awards are amortized into compensation expenses over the required service period . cash bonuses , which are accrued throughout the year , are discretionary and dependent upon a number of factors including the performance of the company and are generally paid during the first two months of the year with respect to prior year performance . the equity component of the annual incentive award is determined with reference to the company 's estimate of grant date fair value , which in turn determines the number of equity awards granted subject to a vesting schedule . our compensation expenses are primarily based upon revenues , prevailing labor market conditions and other factors that can fluctuate , including headcount , and as a result , our compensation expenses may fluctuate materially in any particular period . story_separator_special_tag cash and cash equivalents include all short‑term highly liquid investments that are readily convertible to known amounts of cash and have original maturities of three months or less from the date of purchase . as of december 31 , 2019 and december 31 , 2018 , the company had cash equivalents of $ 96.0 million and $ 201.4 million , respectively , invested in u.s. treasury instruments and government securities money market . additionally , as of december 31 , 2019 and december 31 , 2018 , the company had cash of $ 71.8 million and $ 59.7 million , respectively , maintained in u.s. and non‑u.s . bank accounts , of which most bank account balances exceeded the u.s. federal deposit insurance corporation ( “ fdic ” ) and u.k. financial services compensation scheme ( “ fscs ” ) coverage limits . in addition to cash and cash equivalents , we hold various types of government debt securities that are classified as investments on our consolidated statements of financial condition as they have original maturities of three months or more from the date of purchase . the company held $ 174.0 million and $ 80.5 million of u.s. treasury instruments and government debt securities classified as investments as of december 31 , 2019 and 2018 , respectively . our liquidity is highly dependent upon cash receipts from clients which generally requires the successful completion of transactions . the timing of receivable collections typically occurs within 60 days of billing . as of december 31 , 2019 and 2018 accounts receivable were $ 45.1 million and $ 54.4 million , respectively , net of allowances of $ 4.1 million and $ 2.0 million , respectively . to provide for additional working capital and other general corporate purposes , we maintain a $ 65.0 million revolving credit facility that matures on june 30 , 2020. advances on the facility bear interest at the greater of a fixed rate of 3.50 % per annum or at the company 's option of ( i ) libor plus 1 % or ( ii ) prime minus 1.50 % . as of december 31 , 2019 , the company had no borrowings under the credit facility . as of december 31 , 2019 , the company 's available credit under this facility was $ 60.0 million as a result of the issuance of an aggregate amount of $ 5.0 million of various standby letters of credit , which were required in connection with certain office leases and other agreements . the company incurs a 1 % per annum fee on the outstanding balances of issued letters of credit . on february 4 , 2020 , the board of directors of moelis & company declared a special dividend of $ 0.75 per share in addition to a regular quarterly dividend of $ 0.51 per share . the $ 1.26 per share will be paid on march 27 , 2020 to class a common stockholders of record on february 18 , 2020. during the year ended december 31 , 2019 , the company paid aggregate dividends of $ 3.25 per share which included a special dividend of $ 1.25 per share and four regular quarterly dividends of $ 0.50 per share . in february 2019 , the board of directors authorized the repurchase of up to $ 100 million of shares of class a common stock and or class a partnership units of group lp with no expiration date . this new authorization replaced the former repurchase program and the remaining authorization under the program was eliminated . during the years ended december 31 , 2019 and 2018 , the company repurchased 1,331,443 and 718,699 shares , respectively , pursuant to the company 's share repurchase program and shares repurchased from its employees for the purpose of settling tax liabilities incurred upon delivery of equity-based compensation awards . the remaining balance of shares authorized for repurchase under the program was $ 86.4 million as of december 31 , 2019 . 36 regulatory capital we actively monitor our regulatory capital base . our principal subsidiaries are subject to regulatory requirements in their respective jurisdictions to ensure general financial soundness and liquidity . this requires , among other things , that we comply with certain minimum capital requirements , record‑keeping , reporting procedures , experience and training requirements for employees and certain other requirements and procedures . these regulatory requirements may restrict the flow of funds to and from affiliates . see note 12 of the consolidated financial statements as of december 31 , 2019 for further information . these regulations differ in the united states , united kingdom , hong kong and other countries in which we operate a registered broker‑dealer . the license under which we operate in each such country is meant to be appropriate to conduct an advisory business . we believe that we provide each of our subsidiaries with sufficient capital and liquidity , consistent with their business and regulatory requirements . tax receivable agreement in connection with the ipo in april 2014 , we entered into a tax receivable agreement with our eligible managing directors that provides for the payment to eligible managing directors of 85 % of the amount of cash savings , if any , in u.s. federal , state and local income tax or franchise tax that we realize as a result of ( a ) the increases in tax basis attributable to exchanges by our eligible managing directors and ( b ) tax benefits related to imputed interest deemed to be paid by us as a result of this tax receivable agreement . the company expects to benefit from the remaining 15 % of income tax cash savings , if any , that we realize .
| results of operations the following is a discussion of our results of operations for the years ended december 31 , 2019 and 2018. for a discussion of our results of operations for the year ended december 31 , 2017 , refer to “ item 7- management 's discussion and analysis of financial condition and results of operations ” of our annual report on form 10-k for the year ended december 31 , 2018. replace_table_token_2_th n/m = not meaningful revenues we operate in a highly competitive environment . each revenue‑generating engagement is separately solicited , awarded and negotiated , and there are usually no long‑term contracted sources of revenue . as a consequence , our fee‑paying client engagements are not predictable , and high levels of revenues in one period are not necessarily predictive of continued high levels of revenues in future periods . to develop new business , our professionals maintain an active dialogue with a large number of existing and potential clients . we add new clients each year as our bankers continue to expand their relationships , as we hire senior bankers who bring their client relationships and as we receive introductions from our relationship network of senior executives , board members , attorneys and other third parties . we also lose clients each year as a result of the sale or merger of clients , changes in clients ' senior management , competition from other financial services firms and other causes . we earn substantially all of our revenues from advisory engagements , and , in many cases , we are not paid until the completion of an underlying transaction . the vast majority of our advisory revenues are recognized over time , although the recognition of our transaction fees are constrained until the engagement is substantially complete .
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we operate in four reportable segments : beef , pork , chicken , and prepared foods . other primarily includes our foreign chicken production operations in china and india , third-party merger and integration costs and corporate overhead related to tyson new ventures , llc . on june 7 , 2017 , we acquired and consolidated advancepierre foods holdings , inc. ( `` advancepierre '' ) , a producer and distributor of value-added , convenient , ready-to-eat sandwiches , sandwich components and other entrées and snacks . advancepierre 's results from operations subsequent to the acquisition closing are included in the prepared foods and chicken segments . overview fiscal year – our accounting cycle resulted in a 52-week year for both fiscal 2017 and 2016 and a 53-week year for fiscal 2015. general – our fiscal 2017 operating income grew 3 % compared to fiscal 2016 to a record $ 2,931 million , which was led by record earnings in our beef and pork segments . the beef segment 's operating income improved $ 530 million and the pork segment improved $ 117 million in fiscal 2017 due to favorable market conditions and strong operational execution . our chicken segment 's lower operating income was impacted by increased operating costs and $ 56 million of restructuring and related charges . our prepared foods segment 's lower operating income was impacted by increased operating costs , impairments of $ 52 million related to our san diego prepared foods operation and $ 45 million related to the expected sale of a non-protein business and $ 82 million of restructuring and related charges . in addition , we incurred an incremental $ 95 million of compensation and benefit integration expense in fiscal 2017 , as we continued to integrate and make investments in our talent , and incurred $ 85 million of advancepierre purchase accounting and acquisition related operating costs . sales increased 4 % in fiscal 2017 over fiscal 2016 , primarily due to increased sales volumes and increased beef , pork and chicken prices , as well as the net incremental impact of advancepierre 's sales of $ 508 million . market environment – according to the united states department of agriculture ( usda ) , domestic protein production ( beef , pork , chicken and turkey ) increased approximately 3 % in fiscal 2017 compared to fiscal 2016. the beef segment experienced strong export demand and more favorable domestic market conditions associated with an increase in cattle supply . the pork segment had favorable market conditions associated with strong demand for our pork products and improved export markets . there was stronger demand for our chicken products and reduced feed ingredient costs of $ 80 million , which benefited the chicken segment . our prepared foods segment had improved demand for our retail products but experienced a decline in foodservice and higher input costs of $ 50 million . margins – our total operating margin was 7.7 % in fiscal 2017 . operating margins by segment were as follows : beef – 5.9 % pork – 12.3 % chicken – 9.2 % ( included $ 56 million of restructuring and related charges ) prepared foods – 5.9 % ( included $ 52 million impairment related to our san diego prepared foods operation , $ 45 million impairment related to the expected sale of a non-protein business , $ 82 million of restructuring and related charges and $ 34 million of purchase accounting and acquisition related costs from the acquisition of advancepierre . ) hillshire integration – the impact of the the hillshire brands company ( `` hillshire brands '' ) synergies , along with the profit improvement plan related to our legacy prepared foods business , had a positive incremental impact of approximately $ 90 million in fiscal 2017 above the $ 258 million captured in fiscal 2016 and $ 322 million captured in fiscal 2015 , for a total of $ 670 million of synergies realized . the majority of these benefits were realized in the prepared foods segment and were partially used to invest in innovation , new product launches and supporting the growth of our brands . liquidity – during fiscal 2017 , we generated $ 2.6 billion of operating cash flows . at september 30 , 2017 , we had $ 1.0 billion of liquidity , which included $ 318 million of cash and cash equivalents and the availability under our revolving credit facility after deducting amounts outstanding under our commercial paper program . 23 strategy - in fiscal 2017 , we announced our strategy to sustainably feed the world with the fastest growing portfolio of protein-packed brands . we intend to accomplish this by growing our portfolio of protein-packed brands and delivering food at scale , which will be enabled by driving profitable growth with and for our customers through differentiated capabilities and creating fuel for reinvestment through a disciplined financial fitness model . on june 7 , 2017 , we acquired all of the outstanding stock of advancepierre as part of our overall strategy . the purchase price was equal to $ 40.25 per share in cash for advancepierre 's outstanding common stock , or approximately $ 3.2 billion . we funded the acquisition with existing cash on hand , net proceeds from the issuance of new senior notes , as well as borrowings under our commercial paper program and new term loan facility . advancepierre 's results from operations subsequent to the acquisition closing are included in the prepared foods and chicken segments . for further description refer to part ii , item 8 , notes to the consolidated financial statements , note 3 : acquisition and dispositions . on april 24 , 2017 , we announced our intent to sell three non-protein businesses , sara lee® frozen bakery , kettle and van's® , which are all included in our prepared foods segment , as part of our strategic focus on protein-packed brands . story_separator_special_tag the $ 1.7 billion impact of lower sales volume was primarily due to the sale of our mexico chicken production operation in fiscal 2015 along with the additional week in fiscal 2015. replace_table_token_12_th 2017 vs 2016 increase of $ 288 million in selling , general and administrative was primarily driven by : increase of $ 124 million related to the advancepierre acquisition , which was composed of $ 49 million in acquisition related costs , $ 37 million in incremental amortization and $ 38 million from the inclusion of advancepierre results post-acquisition . increase of $ 115 million from restructuring and related charges . increase of $ 53 million in employee costs including $ 34 million in non-restructuring severance related expenses and $ 24 million compensation and benefit integration expense , which was partially offset by reduced incentive-based compensation . increase of $ 8 million due to an impairment related to our san diego prepared foods operation . remainder of net change was primarily related to professional fees . 2016 vs. 2015 – increase of $ 116 million in selling , general and administrative was primarily driven by : increase of $ 88 million related to marketing , advertising and promotion expense to drive sales growth . increase of $ 71 million of employee costs including payroll and stock-based and incentive-based compensation . increase of $ 11 million related to bad debt expense . increase of $ 17 million in all other primarily related to professional fees , information technology costs and rent . decrease of $ 26 million due to a reduction in amortization and other expense related to our intangible assets . decrease of $ 25 million related to fiscal 2015 sale of our chicken production operations in brazil and mexico . decrease of $ 20 million of merger and integration costs . 27 replace_table_token_13_th 2017/2016/2015 – interest income remained relatively flat due to continued low interest rates . replace_table_token_14_th 2017/2016/2015 – cash interest expense primarily included interest expense related to the coupon rates for senior notes and term loans and commitment/letter of credit fees incurred on our revolving credit facilities . the increase in cash interest expense in fiscal 2017 was primarily due to debt issued in connection with the advancepierre acquisition . the decrease in cash interest expense in fiscal 2016 was primarily due to a reduction of our debt . non-cash interest expense primarily included amounts related to the amortization of debt issuance costs and discounts/premiums on note issuances , offset by interest capitalized . replace_table_token_15_th 2017 – included $ 28 million of legal costs related to two former subsidiaries of hillshire brands , which were sold by hillshire brands in 1986 and 1994. also , included $ 18 million of bridge financing fees related to the advancepierre acquisition and $ 19 million of income from equity earnings in joint ventures . 2016 – included $ 12 million of equity earnings in joint ventures and $ 4 million in net foreign currency exchange losses . 2015 – included $ 12 million of equity earnings in joint ventures and $ 21 million of gains on the sale of equity securities . replace_table_token_16_th the effective tax rate on continuing operations was impacted by a number of items which result in a difference between our effective tax rate and the united states statutory rate of 35 % . the table below reflects significant items impacting the rate as indicated . 2017 – domestic production activity deduction reduced the rate 3.1 % . state income taxes increased the rate 2.3 % . 2016 – domestic production activity deduction reduced the rate 2.6 % . unrecognized tax benefits activity , mostly related to expiration of statutes of limitations and settlements with taxing authorities , reduced the rate 1.7 % . state income taxes increased the rate 2.7 % . 2015 – domestic production activity deduction reduced the rate 3.7 % . unrecognized tax benefits activity , mostly related to expiration of statutes of limitations , reduced the rate 1.8 % . state income taxes increased the rate 3.1 % . foreign rate differences and valuation allowances increased the rate 3.8 % . 28 segment results we operate in four reportable segments : beef , pork , chicken , and prepared foods . other primarily includes our foreign chicken production operations in china and india , third-party merger and integration costs and corporate overhead related to tyson new ventures , llc . on june 7 , 2017 , we acquired advancepierre , a producer and distributor of value-added , convenient , ready-to-eat sandwiches , sandwich components and other entrées and snacks . advancepierre 's results from operations subsequent to the acquisition closing are included in the prepared foods and chicken segments . the following table is a summary of segment sales and operating income ( loss ) , which is how we measure segment income ( loss ) . replace_table_token_17_th replace_table_token_18_th 2017 vs. 2016 – sales volume – sales volume increased due to improved availability of cattle supply , stronger domestic demand for our beef products and increased exports . average sales price – average sales price increased as demand for our beef products and strong exports outpaced the increase in live cattle supplies . operating income – operating income increased due to more favorable market conditions as we maximized our revenues relative to the decline in live fed cattle costs , partially offset by higher operating costs . 2016 vs. 2015 – sales volume – sales volume decreased due to the additional week in fiscal 2015. when excluding the additional week in fiscal 2015 , sales volume increased 0.8 % due to increased availability of cattle supply and better demand for our beef products despite a reduction in live cattle processing capacity due to the closure of our denison , iowa , facility in the fourth quarter of fiscal 2015. average sales price – average sales price decreased due to higher domestic availability of beef supplies and lower livestock cost .
| summary of results replace_table_token_10_th 2017 vs. 2016 – sales volume – sales were positively impacted by an increase in sales volume , which accounted for an increase of $ 477 million . each segment had an increase in sales volume with the beef and prepared foods segments contributing to the majority of the increase driven by better demand for our beef products and incremental volumes from the acquisition of advancepierre . average sales price – sales were positively impacted by higher average sales prices , which accounted for an increase of $ 902 million . each segment had an increase in average sales price with the pork , chicken and prepared foods segments contributing to the majority of the increase due to strong demand for our pork products , improved mix and higher chicken pricing in our chicken segment and better product mix in our prepared foods segment which was positively impacted by the acquisition of advancepierre . the above amounts include a net increase of $ 508 million related to the inclusion of advancepierre results post acquisition . 2016 vs. 2015 – sales volume – sales were negatively impacted by lower sales volume , which accounted for a decrease of $ 1.9 billion . each segment had a decline in sales volume primarily attributed to the additional week in fiscal 2015. the decrease in sales volume was also attributable to the divestitures of the mexico and brazil chicken production operations in fiscal 2015. when excluding these impacts along with the divestiture of our heinold hog markets business in the first quarter of fiscal 2015 , total company sales volume increased 0.1 % . average sales price – sales were negatively impacted by lower average sales prices , which accounted for a decrease of $ 2.6 billion .
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our core products consist of loans secured by real estate , commercial and consumer loans , as well as various deposit products to meet our customers ' needs . our primary source of income is generated from net interest margin , the difference between interest income received on our loans and securities and interest expense paid on deposits and borrowings . our income is also affected by our ability to price our products competitively and maximize the interest rate spread between the interest yield on loans and securities and the interest rate paid on deposits and borrowings . our products also generate other income through product related fees and commissions . we incur operating expenses consisting primarily of salaries and benefits , occupancy and equipment , technology and other professional and miscellaneous expenses . refer to item 1. business , of this annual report on form 10-k for a more detailed description of the business . recent events on march 8 , 2017 , the company completed the reverse stock split and the number of authorized shares of common stock was reduced from 80,000,000 to 16,000,000. no fractional shares were issued in connection with the reverse stock split , and any fractional shares resulting from the reverse stock split were rounded up to the nearest whole share . all share and share-related information presented in this annual report on form 10-k have been retroactively adjusted to reflect the decreased number of shares resulting from the reverse stock split . comparison of financial condition at december 31 , 2016 and 2015 overview total assets were $ 719.9 million at december 31 , 2016 compared to $ 691.4 million at december 31 , 2015 , an increase of $ 28.5 million or 4.1 % . cash and cash equivalents were $ 32.6 million at december 31 , 2016 compared to $ 26.8 million at december 31 , 2015. the investment portfolio decreased $ 26.3 million or 19.4 % during the twelve month period ended december 31 , 2016 , from $ 135.6 million at december 31 , 2015 , to $ 109.3 million at december 31 , 2016. strong loan demand offset the reductions in the investment portfolio resulting in growth of $ 48.7 million or 10.6 % as outstanding gross loans grew to $ 507.0 million at december 31 , 2016 compared to $ 458.3 million at december 31 , 2015. investments in life insurance totaled $ 20.0 million at december 31 , 2016 compared to $ 14.8 million at december 31 , 2015 , an increase of $ 5.2 million , which was primarily due to a $ 5.0 million additional investment in life insurance executed in the fourth quarter of 2016. total liabilities were $ 651.9 million at december 31 , 2016 , an increase of $ 20.9 million or 3.3 % , from $ 631.0 million at december 31 , 2015. total deposits increased $ 11.2 million or 2.1 % during the twelve month period ended december 31 , 2016 , from $ 542.3 million at december 31 , 2015 , to $ 553.5 million at december 31 , 2016. demand , savings , and money market deposit accounts increased $ 40.0 million or 12.8 % for the year ended december 31 , 2016 totaling $ 352.3 million compared to $ 312.3 million as of december 31 , 2015. this growth was offset by reductions in time deposits of $ 28.8 million or 12.5 % , which totaled $ 201.3 million as of december 31 , 2016 compared to $ 230.1 million at december 31 , 2015. long-term borrowings were $ 70.0 million at december 31 , 2016 compared to $ 60.0 million at december 31 , 2015. total shareholders ' equity increased $ 7.6 million or 12.6 % ending the year at $ 68.0 million . as of december 31 , 2016 , nonperforming assets had declined $ 2.4 million or 28.2 % when compared to december 31 , 2015 . the company 's ratio of nonperforming assets to regulatory tier 1 capital plus the allowance has also improved during the year falling from 12 % at december 31 , 2015 , to 7.9 % at december 31 , 2016 . prior to 2010 , for 73 consecutive years , we paid dividends ( prior to 1997 when we reorganized into a holding company , it was our wholly-owned subsidiary , four oaks bank & trust company , which paid dividends ) . we suspended dividends in the fourth quarter of 2010 due to losses for the year and continue to monitor our ability to pay dividends based on our risk profile , capital levels , and expected earnings . 25 the following table indicates the ratios for return on average assets and average equity , dividend payout , and average equity to average assets in addition to earnings ( loss ) per common share and book value per common share for the years ended december 31 , 2016 , 2015 , and 2014 : replace_table_token_3_th ( 1 ) per common share amounts used in the computation of basic and diluted earnings per common share , as well as book value per common share , were adjusted to reflect the reverse stock split . investment portfolio our investment portfolio as of december 31 , 2016 consists of primarily residential mortgage-backed securities ( `` mbss '' ) and taxable municipal securities . the mbss consist of fixed-rate mortgage securities underwritten and guaranteed by ginnie mae ( `` gnma '' ) , fannie mae ( `` fnma '' ) and freddie mac ( `` fhlmc '' ) with the u.s. department of the treasury . in addition to economic and market conditions , our overall management strategy for our investment portfolio is determined by , among other factors , loan demand , deposit mix , liquidity and collateral needs , our interest rate risk position and the overall structure of our balance sheet . available for sale securities are reported at fair value and consist of taxable municipal securities , mbss , and other debt securities . story_separator_special_tag non-construction real estate loans typically have a 15 to 20 year amortization with a five or seven year balloon payment . if appropriate , a loan may be set up as an interest only single payment if the identified repayment source coincides with the maturity . commercial construction projects generally require that an engineer or architect review the applicant 's cost figures for accuracy . in addition , all draw requests must be approved by either the engineer or architect for accuracy before payment is made . on-site progress inspections are completed to protect the bank . requests for residential construction loans are closely monitored at the contractor level and subdivision level for concentrations . a request is generally denied if either the predetermined builder 's concentration or bank 's concentration limit has been attained . real estate construction loans are made for terms not to exceed 12 to 18 months for residential construction and 18 to 24 months for commercial construction . collateral is investigated using current valuations and is supplemented by the loan officer 's knowledge of the local market . outside appraisals are completed by appraisers on the bank 's approved list . the appraisals on loans greater than $ 250,000 are reviewed to ensure they are compliant with uniform standards of professional appraisal practice . 29 residential real estate residential real estate makes up the second largest segment of our loan portfolio and outstanding balances have generally been very stable , as a percentage of loans outstanding . terms generally range up to 15 years with amortizations of up to 30 years . underwriting criteria and procedures for residential real estate mortgage loans generally include : monthly debt payments of the borrower to gross monthly income should not exceed 45 % with stable employment of two years . loan to value ratio limits of up to 90 % of the appraised value . a credit investigation , which includes an equifax credit report with a beacon score of at least 620. verification of income by various methods . appropriate insurance to protect the bank , typically in the amount of the loan . flood certifications are procured . collateral is investigated using current valuations and is supplemented by the loan officer 's knowledge of the local market . outside appraisals are completed by appraisers on the bank 's approved list . the appraisals on loans greater than $ 250,000 are reviewed to ensure they are compliant with uniform standards of professional appraisal practice . financial financial loans are secured by stocks , bonds , and mutual funds . underwriting procedures and criteria for financial loans generally include : stock loans should be structured to coincide with the identified source of repayment . the maximum loan to value ratio for stock listed for sale on the nyse , amex , or nasdaq is 85 % of its market value . generally , stock loans should not exceed 60 months . agricultural crop production lending presents many risks to the lender because of weather uncertainty and fluctuations in commodity prices . underwriting procedures and criteria for agricultural loans generally include : the farmer should have the financial capacity to withstand at least one bad crop year . the farmer must possess sufficient equity in equipment or farmland for the bank to term , within acceptable collateral margins ( ranging from 50 % to 80 % ) and cash flow debt service coverage requirements ( generally 1.25:1 ) , any line outstanding after the sale of crops . farmers should meet certain qualitative criteria with respect to the farmer 's knowledge and experience . for new customers , documentation on where the farmer previously banked and the circumstances underlying the new loan request . commercial inventory and accounts receivable underwriting procedures and loan to value ratios for commercial inventory loans and accounts receivable loans generally include : up to 80 % of eligible accounts receivable . up to 80 % of the individually assigned accounts receivable . the customer assigns individual invoices , sometimes with shipping documents attached . these may be stamped or marked to show that they have been assigned to the bank . the customer brings payments to the bank for processing against individual invoices . 50 % or less of the cost or market on materials and qualified finished goods , depending on their quality and stability . 0 % on work-in-progress . installment loans these loans are predominantly direct loans to established customers of the bank and primarily include the financing of automobiles , boats , and other consumer goods . the character , capacity , collateral , and conditions are evaluated using policy limitations . installment loans are typically made for terms that do not exceed 60 months with any exceptions being documented . installment loan underwriting criteria and procedures for such financing generally include : financial statements are generally required on all consumer loans secured by a primary residence , all unsecured loans of $ 10,000 or more , and all secured transactions of $ 50,000 or more . income verification is generally required on all consumer loans . past experience of the customer with the bank . 30 a debt to income ratio that does not exceed 45 % . stable employment record of two years . stable residency record of two years . a beacon score of at least 620. terms to match the usefulness or life of the security . if unsecured , the total unsecured loans of the applicant should not exceed 15 % of adjusted net worth or 20 % of the applicant 's gross annual income . interest only loans interest only loans are generally limited to construction lending , properties recently completed and undergoing occupancy stabilization period , and revolving lines of credit . any other loans made as interest only should have a reason and proper approval . bank policy generally prohibits underwriting negative amortization loans or hybrid loans .
| results of operations for the years ended december 31 , 2016 and 2015 overview pre-tax net income for the twelve months ended december 31 , 2016 was $ 5.3 million compared to $ 3.5 million for the same period in 2015 , an increase of $ 1.8 million or 50 % . net income for the twelve months ended december 31 , 2016 was $ 6.9 million , or $ 1.06 net income per basic and $ 1.04 per diluted share , as compared to net income of $ 20.0 million , or $ 3.12 net income per basic and $ 3.10 per diluted share , for the twelve months ended december 31 , 2016. for the twelve months ended december 31 , 2016 , the company reported an income tax benefit of $ 1.6 million compared to an income tax benefit of $ 16.5 million for the same period in 2015. the prior year income tax benefit resulted from the partial reversal of the valuation allowance against the company 's deferred tax assets executed in the second quarter of 2015. the current year income tax benefit was due to the reversal of substantially all of the remaining valuation allowance on the deferred tax assets executed in the fourth quarter of 2016. net interest income totaled $ 24.4 million for the twelve months ended december 31 , 2016 as compared to $ 22.6 million for the same period in 2015 , an increase of $ 1.8 million or 7.8 % .
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in the united states , via our u.s. based subsidiaries , we generate revenues from transactional services and value-added payment technologies for small and medium-sized businesses . through payonline , we provide transactional services , mobile payment transactions , online payment transactions and other payment technologies in selected international markets , the russian federation , eurasian economic community ( “ eaec ” ) , europe and asia . our transactional services business enables merchants to accept credit cards as well as other forms of payment , including debit cards , checks , gift cards , loyalty programs and alternative payment methods in traditional card-present or swipe transactions , as well as card-not-present transactions , such as those conducted over the phone or through the internet or a mobile device . we market and sell our services through both independent sales groups ( “ isgs ” ) , which are non-employee , external sales organizations and other third-party resellers of our products and services , and directly to merchants through electronic media , telemarketing and other programs , including utilizing partnerships with other companies that market products and services to local and international merchants . we have agreements with several banks that sponsor us for membership in the visa ® , mastercard ® , american express ® and discover ® card brands and settle card transactions for our merchants . these agreements allow us to use the banks ' identification numbers , referred to as bank identification numbers ( bin ) for visa® transactions and interbank card association ( ica ) number for mastercard® transactions . the principal sponsoring banks through which we process the majority of our transaction in the united states include citizens bank , esquire bank , n.a . and wells fargo bank , n.a . from time to time , we may enter into agreements with additional banks . we perform core functions for merchants such as application processing , underwriting , number account set-up , risk management , fraud detection , merchant assistance and support , equipment deployment , chargeback services and offer our own dedicated bin and ica for various types of specialty merchants . netevia , our future-ready payments and merchant management platform acts as a framework and core for a number of value-added services that connect merchants and consumers directly utilizing disruptive emerging technologies while increasing the economic efficiency of all transactions being made within the ecosystem . specifically , netevia delivers end-to-end payment processing through easy-to-use apis and complements the company 's ability to perform in a multi-channel environment , including point-of-sale ( pos ) , e-commerce and mobile devices and will enable the company to perform as a hub for disruptive emerging technology solutions . our mobile payments business , previously provided through digital provider , has been combined with payonline to provide contracts with mobile operators that give us the ability to offer our clients in-app , premium sms ( short message services , which is a text messaging service ) , wireless application protocol ( wap ) -click , one click and other carrier billing services . we have substantially reorganized this business , and currently we are not generating revenues from new mobile content . we have not yet been able to find or solidify an acceptable joint venture partner or other arrangement that provides sufficient profit potential and operating benefit for our mobile payments operations . payonline provides flexible , high-tech payment solutions to companies doing business on the internet or in the mobile environment . payonline specializes in integration and customization of payment solutions for websites and mobile apps . in particular , payonline arranges payment on the website of any commercial organization , which increases the convenience of using the website and helps maximize the number of successful transactions . in addition , payonline is focused on providing online and mobile payment acceptance services to the travel industry through direct integration with leading global distribution systems ( “ gds ” ) , which include amadeus® and sabre® . key geographic regions that payonline serves include eastern europe , central asia , western europe , north america and asia major sub regions . payonline offices are located in moscow , russia . aptito is a proprietary , cloud-based payments platform for the hospitality industry , which creates an online consumer experience in offline commerce environments via tablet , mobile and all other cloud-connected devices . aptito 's easy to use point-of-sale ( “ pos ” ) system makes things easier by providing a comprehensive solution to the hospitality industry to help streamline management and operations . orders placed tableside by customers directly speed up the ordering process and improve overall efficiency . aptito 's mobile pos system provides portability to the staff while performing all the same functions as a traditional pos system . recent developments the covid-19 pandemic is affecting businesses across the globe , in particular the service industry , which includes restaurants , a significant part of our business . over the last three weeks , we have taken initiatives to help minimize the risks to our business and protect our shareholders . our management team 's experience during the 2008 financial crisis is proving to be very valuable in dealing with the current crisis . our entire staff is fully committed and working diligently to support our merchants through these difficult times . most of our merchants have contactless payment acceptance capabilities through their pos solutions , as well as , e-commerce and mobile contactless payment acceptance capabilities to eliminate the need for physical payments to help reduce the spread of the virus . story_separator_special_tag argus merchant services , llc on december 26 , 2018 , unified portfolio acquisitions , llc ( the “ purchaser ” ) , a subsidiary of net element , inc. ( the “ company ” ) , entered into an advance and residual purchase agreement ( the “ agreement ” ) with argus merchant services , llc ( `` argus '' ) and treasury payments , llc ( `` treasury '' ) ; argus and treasury are collectively referred to herein as the ( “ seller ” ) . pursuant to the agreement , the purchaser acquired certain transactional services portfolios ( “ cash flow assets ” ) from the seller for a total purchase consideration of $ 1,426,000. the cash flow assets consist of residuals ( the “ residuals ” ) that the seller is entitled to receive pursuant to certain agreements ( including any amendments of such agreements , the “ combined marketing agreements ” ) with tot payments , llc ( doing business as unified payments , a subsidiary of the company ) . on december 27 , 2018 , the purchaser paid to seller $ 1,150,000 ( the “ advance amount ” ) . the advance amount and the balance of the purchase consideration is to be repaid to the purchaser from residuals due to the seller , whereby each and every month , commencing from january 2019 ( the “ effective date ” ) and for a period of 24 months ( the “ advance period ” ) , the purchaser will be entitled to a certain amount of the seller 's residuals . such residuals due to the purchaser are secured by certain of the seller 's property as collateral . at the end of the advance period ( the “ transfer date ” ) , the purchaser will receive an ownership interest in a portfolio of cash flow assets by creating with the seller , a new static portfolio pool of mutually agreed residual income from seller portfolios comprising merchant accounts boarded by the seller under the combined marketing agreements . operating segments our reportable segments are business units that offer different products and services in different geographies . the reportable segments are each managed separately because they offer distinct products , in distinct geographic locations , with different delivery and service processes . north american transaction solutions our north american transaction solutions business segment consists of the former unified payments business and aptito . this segment operates primarily in north america . in march 2013 , we acquired all of the business assets of unified payments , a provider of comprehensive turnkey , payment processing solutions to small and medium size business owners ( merchants ) and independent sales organizations across the united states . in april 2013 , we acquired 80 % of aptito , a cloud-based software-as-a-service ( “ saas ” ) restaurant management solution , which provides integrated pos , mpos , kiosk , digital menus functionality to drive consumer engagement via apple® ipad®-based pos , kiosk and all other cloud-connected devices . international transaction solutions our international transaction solutions segment consists of payonline , which also now includes our mobile payments operations , primarily located in russia . payonline provides a secure online payment processing system to accept bank card payments for goods and services . 37 critical accounting policies and estimates our significant accounting policies are described more fully in note 3 of the accompanying notes to our audited consolidated financial statements . the preparation of these consolidated financial statements requires the company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses for the reporting period . such estimates include , but are not limited to , the value of purchase consideration paid and identifiable assets acquired and assumed in acquisitions , goodwill and asset impairment review , valuation reserves for accounts receivable , valuation of acquired or current merchant portfolios , incurred but not reported claims , revenue recognition for multiple element arrangements , loss reserves , assumptions used in the calculation of equity-based compensation and in the calculation of income taxes , and certain tax assets and liabilities , as well as , the related valuation allowances . actual results could differ from those estimates . below is a summary of the company 's critical accounting policies and estimates for which the nature of management 's assumptions are material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change , and for which the impact of the estimates and assumptions on financial condition or operating performance is material . revenue we recognize revenue when all of the following criteria are met : ( 1 ) the parties to the contract have approved the contract and are committed to perform their respective obligations , ( 2 ) we can identify each party 's rights regarding the goods or services to be transferred , ( 3 ) we can identify the payment terms for the goods or services to be transferred , ( 4 ) the contract has commercial substance , and ( 5 ) it is probable that we will collect substantially all of the consideration to which we will be entitled in exchange for the goods or services that will be transferred to the customer . the company considers persuasive evidence of a sales arrangement to be the receipt of a billable transaction from aggregators , signed contract or the processing of a credit card transaction . collectability is assessed based on a number of factors , including transaction history with the customer and the credit worthiness of the customer . if it is determined that the collection is not reasonably assured , revenue is not recognized until collection becomes reasonably assured , which is generally upon receipt of cash . we record cash received in advance of revenue recognition as deferred revenue .
| results of operations for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 we reported a net loss attributable to common stockholders of approximately $ 6.5 million or ( $ 1.60 ) loss per share for the year ended december 31 , 2019 as compared to a net loss of approximately $ 4.9 million or ( $ 1.28 ) loss per share for the year ended december 31 , 2018. this resulted in a increase in net loss attributable to stockholders of approximately 31 % primarily due to an increase in non-cash compensation of approximately $ 1.9 million , an impairment of goodwill relating to our international transaction solutions segment of approximately $ 1.3 million as compared to $ 636,000 in the prior year , an increase in amortization expense of approximately $ 700,000 from the comparable prior period , and an increase in interest expense of approximately $ 300,000 from the comparable prior period , which was off-set by a decrease in bad debt expense of approximately $ 800,000 , and an increase in other income of approximately $ 700,000. the following table sets forth our sources of revenues , cost of revenues and gross margins for the years ended december 31 , 2019 and 2018. gross margin analysis : replace_table_token_3_th replace_table_token_4_th replace_table_token_5_th net revenues consist primarily of service fees from transaction processing . net revenues were approximately $ 65.0 million for the year ended december 31 , 2019 as compared to approximately $ 65.8 million for the year ended december 31 , 2018. the decrease in net revenues was primarily related to our international transaction solutions segment which experienced competition , certain economic challenges , and the loss of a major customer . in addition , growth in our north american transaction solutions segment was partially offset by the wind-down of certain merchant categories due to the industry-wide changes for enhanced card association and sponsoring compliance .
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our accounting policies have the potential to have a significant impact on our financial statements , either because of the significance of the financial statement item to which they relate , or because they require judgment and estimation due to the uncertainty involved in measuring , at a specific point in time , events which are continuous in nature . business overview , recent developments and outlook please see item 1 , above , of this report for an overview of the company 's business and recent developments . please see item 1a , above , for a discussion of the risk factors that may impact the company 's current and future operations , and financial condition . liquidity and capital resources liquidity at december 31 , 2011 the company 's working capital was $ 7,626 , as compared to $ 1,621 at december 31 , 2010. the primary contributors to the increase of $ 6,005 were an increase of $ 4,064 in cash , a decrease of $ 1,700 in accounts payable and accrued liabilities , and a decrease of $ 1,394 in debt payable to third parties , partially offset by a decrease of $ 1,581 in equipment inventory . during 2011 , the company 's primary source of cash , exclusive of borrowings under counsel rb 's revolving credit facility , was counsel rb 's gross profit of $ 9,655. cash disbursements , other than those related to repayment of debt , were primarily related to operating expenses of $ 5,070 and the reduction of $ 1,700 in accounts payable and accrued liabilities . it should be noted that accounting principles generally accepted in the united states of america ( “ gaap ” ) require the company to classify both real estate inventory and asset liquidation investments as non-current , although they are expected to be converted to cash within a year . if these assets were classified as current , the company would report working capital of $ 13,212 at december 31 , 2011 and working capital of $ 6,742 at december 31 , 2010. counsel rb has a revolving credit facility in the amount of up to $ 10,000 in place to finance its purchases of assets for resale . in march 2011 , the facility was increased from its original $ 7,500 , due to the expansion of counsel rb 's operations . it is discussed further in note 7 of the audited consolidated financial statements . the company is continuing to pursue licensing and royalty agreements with respect to its patents . even if the company does not enter into such agreements within the next twelve months , it expects to generate sufficient cash from counsel rb 's operations to meet its ongoing cash requirements for at least that period of time . the company 's portfolio investments are in companies that are not publicly traded , and therefore these investments are illiquid . although the company 's investments were made with the objective of recognizing long-term capital gains , neither the amount nor the timing of such gains can be predicted with any certainty . to date the company has realized capital gains on its investments in mytrade.com , limos.com and buddy media , inc. , and has not sold any investments at a loss . ownership structure and capital resources · at december 31 , 2011 the company had stockholders ' equity of $ 42,940 , as compared to $ 9,448 at december 31 , 2010 . · at december 31 , 2011 the company was 76.1 % owned by counsel , and therefore was controlled by counsel . the co-ceos of counsel rb each owned 5.98 % of the company . one million shares , or 3.7 % , were held by a single investor , who obtained the shares in a private placement on march 15 , 2011. the remaining 8.2 % was owned by public stockholders . on february 29 , 2012 , as discussed in note 16 of the audited consolidated financial statements , the company issued one million common shares as part of its acquisition of hgp , representing 3.69 % of the outstanding common shares . counsel 's ownership thereby decreased to 73.4 % , that of the co-ceos to 5.8 % each , that of the single investor referenced above to 3.6 % and that of the remaining public stockholders to 7.8 % . 13 · as discussed in note 2 of the audited consolidated financial statements , counsel rb was originally owned 75 % by the company and 25 % by counsel rb 's co-ceos , and at november 30 , 2010 the company acquired the 25 % interest in counsel rb in exchange for 3,242,000 common shares of crbci . the net result of this transaction was a transfer of $ 921 from the non-controlling interest to the company , $ 32 of which was allocated to common shares and $ 889 of which was allocated to additional paid-in capital . the remaining balance of the non-controlling interest was distributed to counsel rb 's co-ceos . cash position and cash flows cash at december 31 , 2011 was $ 6,672 compared to $ 2,608 at december 31 , 2010. cash provided by or used in operating activities . cash provided by operating activities during 2011 was $ 4,051 , as compared to cash provided of $ 4,555 in 2010. in 2011 the company had income of $ 30,713 from continuing operations , as compared to income of $ 6,214 in 2010. the increase of $ 24,499 was primarily due to a deferred tax recovery of $ 26,317 recognized in 2011 as compared to a recovery of $ 1,318 in 2010. in both 2011 and 2010 , the operations of counsel rb were the primary source of cash receipts and disbursements . story_separator_special_tag · related party interest expense was $ 0 in 2011 , as compared to $ 64 in 2010. during 2010 the company repaid the $ 1,564 that was owing to counsel at december 31 , 2009 , and at december 31 , 2011 and 2010 had a receivable from counsel of $ 595 and $ 392 , respectively . 16 · in 2011 , the company recorded $ 28 of earnings from its equity accounted investments , as compared to earnings of $ 30 in 2010. in 2011 , the earnings consisted of $ 23 from polaroid and $ 5 from knight 's bridge gp . in 2010 , the earnings consisted of $ 14 from polaroid and $ 16 from knight 's bridge gp . future accounting pronouncements in may 2011 , the fasb issued accounting standards update 2011-04 , amendments to achieve common fair value measurement and disclosure requirements in u.s. gaap and ifrss ( “ asu 2011-04 ” ) . asu 2011-04 results from joint efforts by the fasb and the international accounting standards board ( “ iasb ” ) to develop converged guidance on how to measure fair value and what disclosures to provide about fair value measurements . although asu 2011-04 is largely consistent with the existing us gaap fair value measurement principles , it expands existing disclosure requirements and makes other amendments . asu 2011-04 is effective for interim or annual reporting periods beginning after december 15 , 2011 , with early adoption not permitted . the company is currently evaluating the impact of adopting asu 2011-04 , but does not expect that it will have a material effect on the company 's financial statements . in june 2011 , the fasb issued accounting standards update 2011-05 , presentation of comprehensive income ( “ asu 2011-05 ” ) . asu 2011-05 revises the manner in which entities present comprehensive income in their financial statements , by removing the existing presentation options under us gaap and requiring entities to report components of comprehensive income in either ( 1 ) a continuous statement of comprehensive income or ( 2 ) two separate but consecutive statements . under the two-statement approach , the first statement would include components of net income , which is consistent with the income statement format used today , and the second statement would include components of other comprehensive income ( “ oci ” ) . asu 2011-05 does not change the items that must be reported in oci . asu 2011-05 is effective for interim or annual reporting periods beginning after december 15 , 2011 , with early adoption permitted . the guidance must be applied retrospectively for all periods presented in the financial statements . in december 2011 , the fasb issued accounting standards update 2011-12 , 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 ( “ asu 2011-12 ” ) . asu 2011-12 defers certain provisions of asu 2011-05 that relate to the presentation of reclassification adjustments out of accumulated oci . the effective date of asu 2011-12 is the same as the effective date of asu 2011-05. as at december 31 , 2011 , t he company has no accumulated oci , but will adopt the provisions of asu 2011-05 and asu 2011-12 for any transactions involving oci in 2012 and subsequent periods . in september 2011 , the fasb issued accounting standards update 2011-08 , testing goodwill for impairment ( “ asu 2011-08 ” ) . asu 2011-08 amends the goodwill impairment testing guidance in accounting standards codification ( “ asc ” ) 350-20 , by providing the option to perform a qualitative assessment before calculating the fair value of the reporting unit ( i.e . : before performing step 1 of the goodwill impairment test ) . if it is determined , on the basis of qualitative factors , that the fair value of the reporting unit is more likely than not less than the carrying amount , the existing two-step impairment test would be required . if it is determined that the fair value more likely than not exceeds the carrying value , further testing would not be required . asu 2011-08 does not change the calculation of goodwill or its assignment to reporting units . it also does not change the requirement to test goodwill annually for impairment , or to test for impairment between annual tests if warranted by events or circumstances . however , it does revise the examples of events and circumstances that should be considered . asu 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after december 15 , 2011 , with early adoption permitted . the company adopted asu 2011-08 in the fourth quarter of 2011. the fasb and the sec have issued other accounting pronouncements and regulations during 2011 that will become effective in subsequent periods . the company 's management does not believe that these pronouncements will have a significant impact on the company 's financial statements at the time they become effective . critical accounting policies use of estimates our audited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the united states ( “ gaap ” ) . this requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements , as well as the reported amounts of revenues and expenses during the reporting period .. management bases its estimates and judgments on historical experience and various other factors that are believed to be reasonable under the circumstances . actual results could differ from those estimates .
| consolidated results of operations key selected financial data for the years ended december 31 , 2011 and 2010 are as follows : replace_table_token_3_th asset liquidation revenue is earned from the acquisition and subsequent disposition of distressed and surplus assets , including industrial machinery and equipment , real estate , inventories , accounts receivable and distressed debt . it is also earned from more traditional asset disposition services , such as on-site and webcast auctions , liquidations and negotiated sales , and from fees earned for the management advisory services provided by equity partners , which business was acquired in june 2011. the company also earns income from its asset liquidation business through its earnings from equity accounted asset liquidation investments . the company began operating in the asset liquidation segment in the second quarter of 2009 when counsel rb , which was established in the first quarter of 2009 , commenced operations . 2011 compared to 2010 asset liquidation revenues were $ 17,238 in 2011 compared to $ 3,266 in 2010 , asset liquidation expense was $ 9,766 in 2011 compared to $ 2,062 in 2010 , and earnings of equity accounted asset liquidation investments were $ 2,183 in 2011 compared to $ 7,586 in 2010. the net earnings of these three items were $ 9,655 in 2011 compared to $ 8,790 in 2010. because counsel rb conducts its asset liquidation operations both independently and through partnerships , as discussed in note 2 of the audited consolidated financial statements , and the ratio of the two is unlikely to remain constant year over year , the operations must be considered as a whole rather than on a line-by-line basis . as counsel rb has become more established , its operations have expanded .
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in addition , forward-looking statements may be made orally or in press releases , conferences , reports , on the company 's worldwide web site , or otherwise , in the future by or on behalf of the company . when used by or on behalf of the company , the words expect , anticipate , estimate , believe , intend and similar expressions generally identify forward-looking statements . for these statements throughout the annual report on form 10-k , the company claims the protection of the safe harbor for forward-looking statements contained in the private securities litigation reform act of 1995. the entire sections entitled financial overview and outlook and risk factors should be considered forward-looking statements . forward-looking statements involve a number of risks and uncertainties , including but not limited to those discussed in the risk factors section contained in item 1a . readers should not place undue reliance on any forward-looking statement and should recognize that the statements are predictions of future results which may not occur as anticipated . actual results could differ materially from those anticipated in the forward-looking statements and from historical results , due to the risks and uncertainties described herein , as well as others not now anticipated . the risks and uncertainties described herein are not exclusive and further information concerning the company and its businesses , including factors that potentially could materially affect the company 's financial results , may emerge from time to time . except as required by law , the company assumes no obligation to update forward-looking statements to reflect actual results or changes in factors or assumptions affecting such forward-looking statements . 17 company overview the company manufactures and markets center pivot , lateral move , and hose reel irrigation systems . the company also produces and markets irrigation controls , chemical injection systems and remote monitoring and control systems . these products are used by farmers to increase or stabilize crop production while conserving water , energy , and labor . through its acquisitions , the company has been able to enhance its capabilities in providing innovative , turn-key solutions to customers through the integration of its proprietary pump stations , controls and designs . the company sells its irrigation products primarily to a world-wide independent dealer network , who resell to their customers , the farmers . the company 's primary production facilities are located in the united states . the company has smaller production and sales operations in brazil , france , china , turkey and south africa as well as distribution and sales operations in the netherlands , australia and new zealand . the company also manufactures and markets , through distributors and direct sales to customers , various infrastructure products , including moveable barriers for traffic lane management , crash cushions , preformed reflective pavement tapes and other road safety devices , through its production facilities in the united states and italy and has produced road safety products in irrigation manufacturing facilities in china and brazil . in addition , the company 's infrastructure segment produces large diameter steel tubing and railroad signals and structures , and provides outsourced manufacturing and production services for other companies . for the business overall , the global , long-term drivers of water conservation , population growth , increasing importance of biofuels , and the need for safer , more efficient transportation solutions remain positive . key factors which impact demand for the company 's irrigation products include agricultural commodity prices , net farm income , worldwide agricultural crop production , the profitability of agricultural crop production , availability of financing , governmental policies regarding the agricultural sector , water and energy conservation policies , the regularity of rainfall , regional climate change , and foreign currency exchange rates . a key factor which impacts demand for the company 's infrastructure products is the amount of spending authorized by governments to improve road and highway systems . much of the u.s. highway infrastructure market is driven by government spending programs . for example , the u.s. government funds highway and road improvements through the federal highway trust fund program . this program provides funding to improve the nation 's roadway system . in july 2015 , the u.s. government enacted an $ 8 billion temporary highway-funding bill to fund highway and bridge projects , the latest in a series of short term funding bills over the last several years . matching funding from the various states may be required as a condition of federal funding . the company continues to have an ongoing , structured , acquisition process that it expects to generate additional growth opportunities throughout the world in irrigation/water solutions . lindsay is committed to achieving earnings growth by global market expansion , improvements in margins , and strategic acquisitions . since 2001 , the company has utilized acquisitions and greenfield efforts to expand its product lines and add to its operations in europe , south america , south africa , the netherlands , australia , new zealand , china and turkey . the addition of those operations has allowed the company to strengthen its market position in those regions . new accounting standards issued but not yet adopted see note b , new accounting pronouncements , to the company 's consolidated financial statements for information regarding recently issued accounting pronouncements . critical accounting policies and estimates in preparing the consolidated financial statements in conformity with u.s. generally accepted accounting principles ( gaap ) , management must make a variety of decisions which impact the reported amounts and the related disclosures . such decisions include the selection of the appropriate accounting principles to be applied and the assumptions on which to base accounting estimates . in reaching such decisions , management applies judgment based on its understanding and analysis of the relevant facts and circumstances . certain of the company 's accounting policies are critical , as these policies are most important to the presentation of the company 's consolidated results of operations and financial condition . story_separator_special_tag although the company has accrued all reasonably estimable costs associated with remediation of the site , additional testing and environmental monitoring and remediation could be required in the future as part of the company 's ongoing discussions with the epa regarding the development and implementation of the remedial action plans . in addition , the current investigation has not yet been completed and does not include all potentially affected areas on the site . due to the current stage of discussions with the epa and the uncertainty of the remediation actions that may be required with respect to these potentially affected areas , the company believes that meaningful estimates of costs or range of costs can not currently be made and accordingly have not been accrued . trade receivables and allowances trade receivables are reported on the balance sheet net of any doubtful accounts . losses are recognized when it is probable that an asset has been impaired and the amount of the loss can be reasonably estimated . in estimating probable losses , the company reviews specific accounts that are significant and past due , in bankruptcy or otherwise identified at risk for potential credit loss . collectability of these specific accounts are assessed based on facts and circumstances of that customer , and an allowance for credit losses is established based on the probability of default . in assessing the likelihood of collection of receivable , the company considers , for example , the company 's history of collections , the current status of discussions and repayment plans , collateral received , and other evidence and information regarding collection or default risk that is available in the market place . the allowance for credit losses attributable to the remaining accounts is established using probabilities of default and an estimate of associated losses based upon the aging of receivable balances , collection experience , economic condition and credit risk quality . in evaluating the allowance expense as a percentage of sales , if the prior three year average rate were to double , the result on the fiscal 2015 consolidated statement of operations would be additional expense of approximately $ 2.8 million . as the company 's international business has grown , the exposure to potential losses in international markets has also increased . these exposures can be difficult to estimate , particularly in areas of political instability or with governments with which the company has limited experience or where there is a lack of transparency as to the current credit condition of governmental units . as of august 31 , 2015 the company had $ 6.9 million in delinquent accounts receivable related to our business unit in china , and $ 2.7 million of accounts receivable and $ 2.0 million in performance bonds related to its contract in iraq . the company 's allowance for all doubtful accounts related to both current and long-term receivables increased to $ 9.7 million at august 31 , 2015 from $ 4.8 million at august 31 , 2014. the company 's evaluation of the adequacy of the allowance for credit losses is based on facts and circumstances available to the company at the date the consolidated financial statements are issued and considers any significant changes in circumstances occurring through the date that the financial statements are issued . 20 valuation of goodwill and identifiable intangible assets the company 's accounting policy on valuation of goodwill and identifiable intangible assets is critical because it requires significant judgments and estimates by management and can significantly affect the company 's consolidated results of operations and financial condition . goodwill represents the excess of the purchase price over the fair value of net assets acquired in a business combination . acquired intangible assets are recognized separately from goodwill . goodwill and intangible assets with indefinite useful lives are tested for impairment at least annually at august 31 and whenever triggering events or changes in circumstances indicate its carrying value may not be recoverable . assessment of the potential impairment of goodwill and identifiable intangible assets is an integral part of the company 's normal ongoing review of operations . testing for potential impairment of these assets is significantly dependent on numerous assumptions and reflects management 's best estimates at a particular point in time . the dynamic economic environments in which the company 's businesses operate and key economic and business assumptions related to projected selling prices , market growth , inflation rates and operating expense ratios , can significantly affect the outcome of impairment tests . estimates based on these assumptions may differ significantly from actual results . changes in factors and assumptions used in assessing potential impairments can have a significant impact on the existence and magnitude of impairments , as well as the time in which such impairments are recognized . in testing goodwill for impairment , the company 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 ( more than 50 percent ) that the estimated fair value of a reporting unit is less than its carrying amount . a significant amount of judgment is involved in determining if an indicator of impairment has occurred . such indicators include deterioration in general economic conditions , adverse changes in the markets in which an entity operates , increases in input costs that have negative effects on earnings and cash flows , or a trend of negative or declining cash flows over multiple periods , among others . if the company elects to perform a qualitative assessment and determines that an impairment is more likely than not , the company is then required to perform a quantitative impairment test , otherwise no further analysis is required . the company also may elect not to perform the qualitative assessment and , instead , proceed directly to the quantitative impairment test .
| results of operations the following fiscal 2015 compared to fiscal 2014 and the fiscal 2014 compared to fiscal 2013 sections present an analysis of the company 's consolidated operating results displayed in the consolidated statements of operations and should be read together with the information in note q , industry segment information , to the consolidated financial statements . 23 fiscal 2015 compared to fiscal 2014 the following table provides highlights for fiscal 2015 compared with fiscal 2014 : replace_table_token_6_th ( 1 ) includes $ 20.1 million and $ 16.9 million of unallocated general and administrative expenses for fiscal 2015 and fiscal 2014 , respectively . ( 2 ) excludes unallocated corporate general and administrative expenses . revenues operating revenues in fiscal 2015 decreased by 9 percent to $ 560.2 million compared with $ 617.9 million in fiscal 2014. the decrease is attributable to an $ 88.7 million decrease in irrigation revenues offset in part by a $ 31.0 million increase in infrastructure revenues . the irrigation segment provided 81 percent of company revenue in fiscal 2015 as compared to 87 percent of the same prior year period . u.s. irrigation revenues in fiscal 2015 of $ 273.7 million , which include $ 17.7 million from the newly acquired elecsys corporation , decreased $ 57.8 million or 17 percent from $ 331.5 million in fiscal 2014. the decrease in u.s. irrigation revenues is primarily due to a decline in the number of irrigation systems sold as compared to the prior year . sustained low agricultural commodity prices , lower net farm income in 2015 and a lack of incremental storm damage compared to 2014 contributed to lower demand for u.s. irrigation equipment .
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in the future , our strategy is for our intellectual property to be embedded by partners in a semiconductor chip that could be sold to third party equipment manufacturers and inserted in their devices and to license our intellectual property to other customers in vertical markets worldwide . the implementation of our cognitive radio intellectual property is xmax® . we believe the xmax® system represents the only commercially available cognitive radio network system that is designed to include interference mitigation by spatial processing . xmax® implements our proprietary interference mitigation software that can increase capacity on already crowded airwaves by improving interference tolerance , enabling the delivery of a comparatively high quality of service where other technologies would not be able to cope with the interference . we believe that the xmax® system will also , when in a future development operating on more than one radio channel , deliver dynamic spectrum access by scanning and finding unused or underused frequencies ( unlicensed as well as licensed ) and dynamically tuning to them , significantly increasing their usable capacity . our system is frequency-agnostic although currently designed to operate within the 902 – 928 mhz license-free band . xmax® is intended to serve as a mobile voice over internet protocol ( “ voip ” ) and broadband data system that utilizes an end-to-end internet protocol ( “ ip ” ) system architecture . the xmax® product and service suite includes a line of access points , fixed and mobile dual-band hotspots , mobile switching centers , network management and deployment tools , and customer support . the xmax® system will allow mobile operators to utilize free , unlicensed 902 – 928 mhz ism band spectrum ( which spectrum is available in most of the americas ) instead of purchasing scarce , expensive licensed spectrum . our xmax® system will also enable enterprises to set up a mobile communications network in an expeditious and cost-effective manner . in addition , we believe that our xmax® cognitive radio technology can also be used to provide additional capacity to licensed spectrum by identifying and utilizing unused bandwidth within the licensed spectrum . 25 story_separator_special_tag the inducement expense represents the estimated fair value of warrants given to non-related parties in relation with the conversion of the $ 7.8 million promissory note issued by us to mbth pursuant to a subscription agreement dated january 16 , 2013 ( the “ bridge loan ” ) . interest expense for the year ended december 31 , 2014 was $ 0.2 million compared to $ 2.2 million for the year ended december 31 , 2013 , representing a decrease of $ 2.0 million or 92 % . the decrease was partially due to the interest and fees incurred on the bridge loan for 2013 ; $ 0.7 million from the six month minimum interest recorded in connection with the increase interest rate ; $ 0.4 million from the accretion of the debt discount recorded as interest expense ; and $ 0.6 million in interest expense resulted from the bridge loan being convertible into new shares at a price of $ 5.225 , 95 % of our 2013 initial public offering ( the “ ipo ” ) price of $ 5.50 , in 2013 . 27 impairment charges for the year ended december 31 , 2014 was $ 0 compared to $ 0.9 million for the year ended december 31 , 2013. for the year ended december 31 , 2013 , $ 896,000 of our impairment charge was related to property and equipment and $ 37,000 was related to intangible assets . net loss for the year ended december 31 , 2014 , the company had a net loss of $ 19.0 million , as compared to a net loss of $ 27.5 million for the year ended december 31 , 2013 , a decrease of $ 8.5 million or 31 % . the decrease in net loss is due mainly to the one-time agreement with mbth , increases of inducement expense and interest expenses for 2013 discussed above . liquidity and capital resources our operations primarily have been funded through cash generated by debt and equity financing . cash comprises cash in hand and demand deposits . our cash balances were as follows : replace_table_token_3_th during 2014 , the company relied upon additional investment through proceeds from a registered public offering in april 2014 and through the financings off of our shelf registration statement in the third and fourth fiscal quarters as further described below . during 2013 , the company relied upon additional investment through proceeds from the ipo , our 2013 public offering , bridge loan and convertible notes payable . the company will be dependent on new debt or equity financing to fund future operations . we have incurred net losses of $ 19.0 million and $ 27.5 million in the years ended december 31 , 2014 and 2013 , respectively . additionally , we have incurred negative operating cash flows including cash used in operations of $ 14.6 million and $ 14.4 million in the years ended december 31 , 2014 and 2013 , respectively . our future capital requirements may vary materially from those currently planned and will depend on many factors , including our rate of revenue growth , the timing and extent of spending to support development efforts , the timing of new product introductions , market acceptance of our products and overall economic conditions . the ability of the company to continue as a going concern is dependent upon its ability to raise additional capital , obtain other means of financing , and to fulfill purchase orders . the ability to recognize revenue and ultimately cash receipts , on purchase orders is contingent upon , but not limited to , acceptable performance of the delivered equipment and services . 28 cash flows the following table sets forth the major components of our statements of cash flows data for the periods presented . story_separator_special_tag per share , for net proceeds to the company , after deducting underwriter discounts and offering expenses , of $ 8,816,000. roth capital partners and feltl and company acted as underwriters for the offering . purchase agreements and registration rights agreement with lincoln park $ 1,000,000 purchase agreement on september 22 , 2014 , the company entered into a purchase agreement with lincoln park capital fund ( “ lincoln park ” ) , pursuant to which we offered 500,000 shares of our common stock to lincoln park at a price of $ 2.00 per share , for an aggregate purchase price of $ 961,000 net of expenses . the closing of the transaction occurred on september 24 , 2014. the company issued the 500,000 shares of common stock pursuant to the company 's registration statement on form s-3 that was declared effective on august 31 , 2014 ( the “ shelf registration statement ' ) . $ 15,000,000 purchase agreement on september 19 , 2014 , we entered into a purchase agreement ( the “ $ 15m purchase agreement ” ) and a registration rights agreement with lincoln park . in consideration for entering into the transaction , we issued 175,000 shares of our common stock to lincoln park as a commitment fee upon execution of the $ 15m purchase agreement . we recorded $ 346,000 as a prepaid expense based upon a stock price of $ 1.98 on the date of issuance . lincoln park also agreed to purchase up to $ 15,000,000 of our shares of common stock over the 24-month term of the $ 15m purchase agreement . the $ 15m purchase agreement provides that , from time to time over the term of the $ 15m purchase agreement , on any business day , as often as every other business day , and at our sole discretion , we may require lincoln park to purchase up to 100,000 shares of our common stock ( a “ regular purchase ” ) ; provided , however , that ( i ) a regular purchase may be increased to up to 150,000 shares of our common stock provided that the closing sale price of our common stock is not below $ 2.00 on the purchase date , ( ii ) a regular purchase may be increased to up to 200,000 shares of our common stock provided that the closing sale price of our common stock is not below $ 2.50 on the purchase date and ( iii ) a regular purchase may be increased to up to 250,000 shares of our common stock provided that the closing sale price of our common stock is not below $ 3.00 on the purchase date ; and provided , further , that the aggregate price of any regular purchase shall not exceed $ 1,000,000. we may not sell any shares of our common stock as a regular purchase on a date in which the closing sale price of our common stock is below $ 1.50. the purchase price for regular purchases shall be equal to the lesser of ( i ) the lowest sale price of our common stock on the purchase date and ( ii ) the average of the three ( 3 ) lowest closing sale prices of our common stock during the ten ( 10 ) business days prior to the purchase date , as reported on the nasdaq capital market . we also have the right , at our sole discretion , to require lincoln park to make an accelerated purchase on the business day following the purchase date of a regular purchase in an amount up to the lesser of ( i ) 200 % of the number of shares of common stock purchased as a regular purchase and ( ii ) 30 % of the trading volume of our common stock on such accelerated purchase date , provided that the closing price of our common stock equals or exceeds $ 1.50 on such accelerated purchase date , as reported on the nasdaq capital market . the purchase price per share of common stock for any accelerated purchase will be equal to the lesser of ( i ) the closing sale price of our common stock on the accelerated purchase date and ( ii ) 95 % of the volume weighted average price of our common stock on the accelerated purchase date . 31 on october 3 , 2014 , the company filed a registration statement on form s-1 with the sec to register 4,782,906 shares of the company 's common stock for sale to lincoln park under the $ 15m purchase agreement and the 175,000 shares of common stock issued to lincoln park as a commitment fee . on october 20 , 2014 , the sec declared this registration statement effective . as of december 31 , 2014 , the company has drawn down $ 145,000 and issued 100,000 shares of common stock under the $ 15m purchase agreement . the prepaid expense for this financing was $ 294,000 as of december 31 , 2014 , representing a decrease of $ 52,000 from the initial recording of $ 346,000. the company is amortizing the prepaid balance to additional paid in capital on a straight line basis over the term of the agreement . $ 1,331,500 purchase agreement on november 25 , 2014 , the company entered into a purchase agreement , pursuant to which the company sold to lincoln park , certain officers and directors of the company ( the “ affiliate purchasers ” ) and certain other investors ( the “ other investors ” ) an aggregate of $ 1,331,500 of the company 's common stock , . the company received net proceeds of $ 1,311,500 after deducting $ 20,000 in expenses associated with the purchase agreement .
| result of operations the following table sets forth the relationship to total revenues of principal items contained in the statement of operations of the financial statements included herewith for the fiscal years ending december 31 , 2014 and december 31 , 2013. xg technology , inc. statements of operations ( in thousands except net loss per share data ) replace_table_token_2_th * less than $ 1 revenue our revenues for the fiscal year ended december 31 , 2014 increased 55 % from $ 0.4 million in the year ended december 31 , 2013 to $ 0.6 million as a result of recognizing additional revenue during the fiscal year . revenue of $ 423,000 resulted from sales of equipment and $ 205,000 resulted from an engineering and consulting services agreement . cost of revenue and operating expenses cost of components and personnel cost of components and personnel was $ 0.2 million in the year ended december 31 , 2014 as compared to $ 0.1 million in fiscal 2013 . $ 130,000 of such costs is based on the cost of components and the time allocated to building the products sold and $ 26,000 is based on the cost of the time allocated towards the engineering and consulting services agreements . general and administrative expenses general and administrative expenses are the expenses of operating the business on a daily basis and include salary and benefit expenses and payroll taxes , as well as the costs of trade shows , marketing programs , promotional materials , professional services , facilities , general liability insurance , and travel .
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factors that could cause or contribute to such differences include , but are not limited to , those identified below and those discussed in the section entitled “ risk factors ” included in part i , item 1a of this annual report . you should also carefully read “ special note regarding forward-looking statements ” . overview we are a clinical stage biotechnology company developing first-in-class immunology therapeutic product candidates focused on emerging immune control mechanisms applicable to inflammation and immuno-oncology indications . we develop our product candidates using our proprietary antibody discovery technology platform , which is based upon a breakthrough understanding of the natural process of antibody generation , known as somatic hypermutation ( “ shm ” ) , and replicates this natural process of antibody generation in vitro . our strategy is to advance the development of our proprietary product candidates , and where applicable , establish partnerships with leading biopharmaceutical companies where we retain certain development and commercialization rights . our most advanced wholly-owned antibody programs , imsidolimab , anb030 and anb032 , are designed to modulate therapeutic targets that are genetically associated with human inflammatory disorders . imsidolimab , our il-36r antibody previously referred to as anb019 , inhibits the interleukin-36 receptor ( “ il-36r ” ) , and is being developed for the treatment of multiple dermatological inflammatory diseases . we completed a phase 1 clinical trial in healthy volunteers , which was presented at the european academy of allergy and clinical immunology in 2018 , where imsidolimab was well-tolerated by all subjects , no dose-limiting toxicities were observed , and no serious adverse events were reported among any subjects in the clinical trial . in july 2020 , the u.s. food and drug administration ( the “ fda ” ) granted orphan drug designation for imsidolimab for the treatment of patients with gpp . we are conducting an open-label , multi-dose , single-arm phase 2 clinical trial of imsidolimab in 8 gpp patients , also referred to as the gallop clinical trial , where we announced positive topline data in october 2020. six of 8 ( 75 % ) patients treated with imsidolimab monotherapy achieved the primary endpoint of improvement in the clinical global impression scale ( “ cgi ” ) on day 29. two of 8 ( 25 % ) patients were considered to have not met the primary endpoint because they dropped out of the clinical trial prior to day 29. the modified japanese dermatology association severity index ( “ mjda-si ” ) score , which incorporates both dermatological and systemic aspects of gpp , decreased on average by 29 % on day 8 and 54 % on day 29. erythema with skin pustules , which clinically defines gpp , decreased by 60 % on day 8 and 94 % on day 29. serum c-reactive protein ( “ crp ” ) , which is an indicator of systemic inflammation , was normal ( less than 5 mg/l ) for 5 of the 6 patients achieving the primary endpoint on day 29. genotypic testing indicated homozygous wild-type il-36rn , card14 and ap1s3 alleles for all 8 patients . we believe this suggests that imsidolimab may be broadly applicable to pustular diseases irrespective of genetic drivers . anti-drug antibodies were not detected as of day 29 in any patient . imsidolimab was generally well-tolerated , and most treatment-emergent adverse events were mild to moderate in severity and resolved without sequelae . no infusion or injection site reactions were observed . one patient dropped out of the clinical trial due to a diagnosis of staphylococcal aureus bacteremia in the first week , which was a serious adverse event deemed to be possibly drug-related . because the patient was symptomatic prior to dosing and had a prior medical history of bacteremia , a common comorbidity of gpp , we do not believe this event is likely attributable to imsidolimab . another patient dropped out of the study on day 22 due to investigator reported inadequate efficacy . one patient contracted covid-19 during the course of the clinical trial , which was mild , unrelated to imsidolimab , and did not lead to study discontinuation . data from the first two patients to have completed the day 113 treatment period under this clinical trial , which we announced in september 2019 , indicated sustained efficacy in these two patients through day 113. we plan to report full data from the gallop clinical trial at a medical conference in 2021. while initial gpp epidemiology studies suggested at least 3,000 patients in the united states , recent medical claims analyses suggest gpp prevalence in the united states of at least 10,000 patients . we met with the fda during the fourth quarter of 2020 to review an orphan disease registration plan for imsidolimab for the treatment of gpp and anticipate initiating a phase 3 clinical trial in mid-2021 following completion of protocol alignment and review of 16-week data from the gallop clinical trial by the fda . we are also conducting a randomized , double-blind , placebo-controlled 59-patient multi-dose clinical trial of imsidolimab in ppp , also referred to as the poplar clinical trial , where enrollment was completed in 2020 and top-line data are anticipated in the first quarter of 2021. the primary endpoint of this clinical trial is change in palmo-plantar pustulosis area severity index ( pppasi ) at week 16 relative to baseline . ppp is a non-fatal form of pustular psoriasis that we estimate affects approximately 150,000 patients in the united states alone . we have initiated a global registry of gpp and ppp patients , also referred to as the radiance study , which we anticipate will improve understanding of the patient journey in these two indications and assist in enrollment of future gpp and ppp clinical trials . 66 we have initiated clinical development of imsidolimab for the treatment of skin toxicities associated with treatments with inhibitors of epidermal growth factor ( “ egfri ” ) and mapk/erk kinase ( “ meki ” ) . story_separator_special_tag patients dosed with etokimab every four ( q4w ) or eight weeks ( q8w ) failed to achieve the co-primary endpoints of statistically significant improvement in their bilateral nasal polyps score ( “ nps ” ) , an endoscopic measure of nasal occlusion , and in their sino-nasal outcome test ( “ snot-22 ” ) , a patient reported quality-of-life assessment , versus placebo at the week 8 time point . both endpoints demonstrated statistically significant improvement over baseline levels of nps and snot-22 . blood eosinophil levels , which are a biomarker of etokimab 's mechanism , demonstrated statistically significant reduction relative to baseline in both etokimab treatment arms . following this data , we have decided to discontinue further development of etokimab . in addition to our wholly-owned antibody programs , multiple company-developed antibody programs have been advanced to preclinical and clinical milestones under our collaborations . we have received to date approximately $ 164.6 million in cash receipts from collaborations . our collaborations include an immuno-oncology-focused collaboration with glaxosmithkline , inc. ( “ gsk ” ) and an inflammation-focused collaboration with bristol-myers squibb ( “ bms ” ) . a biologics license application ( “ bla ” ) for our most advanced partnered program , which is an anti-pd-1 antagonist antibody called dostarlimab , was submitted by gsk and accepted by the fda for the treatment of advanced or recurrent deficient mismatch repair endometrial cancer ( “ dmmrec ” ) , and fda approval is anticipated in this indication during the first half of 2021. this fda approval is dependent on a pre-approval inspection of the dostarlimab manufacturing site by the fda and is therefore contingent on easing of the coronavirus ( “ covid-19 ” ) pandemic travel restrictions . in addition , the european medicines agency ( “ ema ” ) recently accepted gsk 's marketing authorization application ( “ maa ” ) for dostarlimab in the european union ( “ eu ” ) for dmmrec , and ema approval is anticipated in this indication during the first half of 2021. a second bla submitted by gsk was accepted by the fda during the first quarter of 2021 for dostarlimab in pan-deficient mismatch repair tumors ( “ pdmmrt ” ) . we received a $ 10.0 million cash milestone payment upon the fda acceptance of gsk 's first bla for dostarlimab and anticipate an additional $ 20.0 million cash milestone payment upon first fda approval of dostarlimab during the first half of 2021. we also received a $ 5.0 million milestone payment for the ema acceptance of gsk 's first maa for dostarlimab and anticipate an additional $ 10.0 million cash milestone payment upon first ema approval of dostarlimab during the first half of 2021. an additional $ 10.0 million cash milestone payment is anticipated by the end of the first quarter of 2021 for acceptance of the second fda bla referred to above . dostarlimab is currently in clinical development for various solid tumor indications , including dmmrec , pdmmrt , colorectal cancer , ovarian cancer , non-small cell lung cancer , cervical cancer , rectal cancer , clear cell sarcoma and head-and-neck squamous cell carcinoma . we anticipate receiving additional milestones from gsk , of equal magnitude to the milestone payments outlined above , upon approval of the bla and acceptance and approval of the ema filings of dostarlimab for the pdmmrt indication . depending upon the timing of the aforementioned dostarlimab regulatory acceptance and approval milestones , we anticipate a total of $ 75.0 million in such milestone payments over the upcoming 18 months . an additional $ 165.0 million in sales milestones is anticipated upon achievement of certain dostarlimab annual sales revenues . in october 2020 , we amended our gsk collaboration to increase royalties on global net sales of dostarlimab to 8-25 % , add 1 % royalty rate on gsk 's global net sales of zejula and received a one-time cash payment of $ 60.0 million . for more information about these collaborations , see “ — collaborations ” . as of december 31 , 2020 , we had an accumulated deficit of $ 264.0 million , primarily as a result of losses incurred since our inception in 2005. we expect to continue to incur net operating losses for at least the next several years as we advance our products through clinical development , seek regulatory approval , prepare for and , if approved , proceed to , commercialization , expand our operations and facilities and grow in new and existing markets , territories and industries . for our discussion related to the results of our operations and liquidity and capital resources for fiscal year ended december 31 , 2019 compared to the year ended december 31 , 2018 , please refer to part ii , item 7 , `` management 's discussion and analysis of financial condition and results of operations '' in our annual report on form 10-k for the year ended december 31 , 2019. covid-19 in december 2019 , a strain of coronavirus was reported in wuhan , china and began to spread globally , including to the united states and europe , in the following months . the world health organization has declared covid-19 to be a global pandemic . the full impact of the covid-19 pandemic is inherently uncertain at the time of this annual report . the covid-19 pandemic has resulted in travel restrictions and , in some cases , prohibitions of non-essential activities , disruption and shutdown of businesses , and greater uncertainty in global financial markets . as covid-19 has spread , it has significantly impacted the health and economic environment around the world , and many governments have closed most public establishments , including restaurants , workplaces , and schools . our ongoing clinical trials have been , and may continue to be , affected by the closure of offices , or country borders , among other measures being put in place around the world .
| results of operations collaboration revenue collaboration revenue was $ 75.0 million compared to $ 8.0 million for the years ended december 31 , 2020 and 2019 , respectively . a comparison of collaboration revenue is as follows : replace_table_token_2_th collaboration revenue during the year ended december 31 , 2020 increased $ 67.0 million compared to the year ended december 31 , 2019 primarily due to payment received related to an amendment to the gsk agreement during 2020 and the timing of milestones achieved . we expect that any collaboration revenue we generate will continue to fluctuate from period to period as a result of the timing and amount of milestones from our existing collaborations . research and development expenses research and development expenses were $ 80.0 million during the year ended december 31 , 2020 compared to $ 99.3 million during the year ended december 31 , 2019 , for a decrease of approximately $ 19.3 million . the decrease is primarily 73 attributable to a $ 14.1 million decrease in outside services for preclinical and manufacturing expenses , a $ 3.7 million decrease in clinical expenses , a $ 1.1 million decrease in salaries and related expenses , including stock compensation expense , and a $ 0.4 million decrease in other research and development expenses . we do not track fully burdened research and development costs separately for each of our product candidates . we review our research and development expenses by focusing on external development and internal development costs . external development expenses consist of costs associated with our external preclinical and clinical trials , including pharmaceutical development and manufacturing . included in preclinical and other unallocated costs are external corporate overhead costs that are not specific to any one program .
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in addition , md & a provides information about our business segments and how the results of those segments impact our results of operations and financial condition as a whole . executive overview we are an international manufacturer of international® brand commercial trucks , proprietary brand diesel engines , and ic bus® ( `` ic '' ) brand school and commercial buses , as well as a provider of service parts for trucks and diesel engines . our core business is conducted in the north american truck and parts markets , where we principally participate in the u.s. and canada school bus and class 6 through 8 medium and heavy truck markets . we also provide retail , wholesale , and lease financing services for our trucks and parts . executive summary during 2020 , we remained focused on navistar 4.0 , which is our enterprise-wide strategy with our customers at its core , supported by strategic initiatives that guide decision-making and investments . we define success as an unparalleled customer experience , mutually beneficial relationships with employees , dealers , partners , customers and suppliers , and improved financial returns . in january 2020 , we received an unsolicited proposal from our alliance partner traton se regarding a potential transaction to acquire the company . on september 10 , 2020 , we announced a revised proposal from traton se to acquire all the outstanding shares of the company that it did not already own ( the `` remaining shares '' ) for $ 43 per share in cash . on october 16 , 2020 our board of directors confirmed that it would be prepared to move forward with a transaction in which traton se would acquire the remaining shares for $ 44.50 per share in cash . on november 7 , 2020 , we entered into an agreement and plan of merger ( the “ merger agreement ” ) with traton se and dusk inc. , a delaware corporation and wholly owned indirect subsidiary of traton se ( “ merger subsidiary ” ) , pursuant to which merger subsidiary will be merged with and into the company ( the “ merger ” ) , with the company continuing as the surviving company in the merger as a wholly owned indirect subsidiary of traton se . we continue to monitor and address risks related to the covid-19 pandemic . in march 2020 , the world health organization ( `` who '' ) characterized covid-19 as a global pandemic and extraordinary actions have been taken by international , federal , state , and local public health and governmental authorities to contain and combat the outbreak and spread of covid-19 in regions throughout the world . navistar continues to operate as an essential business critical to supporting the world 's increasingly stressed supply chain . our cross-functional response team has been moderately successful in ensuring our business continuity and has constructed preparedness plans to address the constantly evolving situation . due to disruptions in the supply chain resulting from the covid-19 pandemic , our global manufacturing activities at certain of our production facilities were impacted . our assembly plants in the u.s. , mexico , and brazil temporarily ceased production for various periods during the second quarter of 2020. in the third and fourth quarters of 2020 , production disruptions decreased as compared to the second quarter . we expect to continue manufacturing operations at all plants subject to market conditions , component supplier disruptions , government regulations and the continued spread and impact of covid-19 . our parts organization is diligently tracking its parts supply base to minimize potential disruptions as a result of the covid-19 pandemic . currently all parts distribution centers ( `` pdcs '' ) are open and operational . we have prevention measures in place and transition plans for our packagers , carriers and pdcs if a situation causes us to implement our contingency plans . our pdcs and dealers have sufficient parts inventory to help the industry keep operating as effectively as possible during this time of uncertainty . our facilities are following strict safety measures to protect our employees , visitors and business operations , including increased frequency in cleaning and disinfecting , as well as hygiene and social distancing practices , among other actions , in alignment with guidance from the u.s. centers for disease control ( `` cdc '' ) and who regarding threat assessment protocols . additionally , many of our non-production employees continue to work remotely in order to reduce the spread of covid-19 . these working conditions allow for the continuation of key business-critical operations , including financial reporting and internal controls facilitated by the appropriate digital tools . 31 in april , we implemented a series of temporary cash conservation measures to preserve financial flexibility . these actions include the postponement of certain discretionary spending and capital expenditures , taking advantage of the broad based employer relief provided under the coronavirus aid , relief , and economic security act ( the `` cares act '' ) , a delay in certain 401 ( k ) company matching contributions until 2021 , and deferrals of a portion of the base salaries of certain current employees and executives . taken together , these measures conserved approximately $ 300 million in cash during our fiscal year ending october 31 , 2020. we terminated the deferral of a portion of base salaries as of september 1 , 2020 and repaid these amounts in november 2020. even though the economy has begun to recover , the severity and duration of the related global economic crisis is not fully known , and the covid-19 pandemic is expected to continue to have negative impacts on our operating results . in april 2020 , we issued $ 600 million of 9.5 % senior secured notes , due 2025 ( the `` 9.5 % senior secured notes '' ) . story_separator_special_tag business outlook and key trends we continually look for ways to improve the efficiency and performance of our operations , and our focus is on improving our core businesses . certain trends have affected our results of operations for 2020 as compared to 2019 . these trends , as well as the key trends that we expect will impact our future results of operations , are as follows : engine strategy and emissions standards compliance —we are focused on new product introductions , enhancements of current products , quality improvements and continuous material cost-reductions across our truck and bus product lines . we have shifted our investment focus to develop more driver-centric designs . we are also expanding our powertrain offerings with a mix of proprietary engines and cummins engines . we have incurred significant research and development and tooling costs to design and produce our product lines to meet the epa and carb on-highway hdd emissions standards , including obd requirements . ghg phase 2 regulations will further increase significant investments in product development by us and our competitors . carb also continues to advocate for stricter emission standards , obd requirements and in-use oversight . these emissions standards have and will continue to result in significant increases in the costs of our products . traton group alliance —we and traton group have a similar vision for the role of technology , including the importance of driver-focused open architecture solutions . we expect the alliance will be a source of powertrain options and other high-value technologies , including advanced driver assistance systems , connected vehicle solutions and autonomous technologies , electric vehicles , and cab and chassis subsystems . we expect to have a fully integrated proprietary powertrain and launch an electric medium-duty truck and electric school bus based on traton group 's technology . in addition , our procurement jv framework agreement with traton group will deliver further material cost savings in the years to come . core truck market —the core market in which we compete is cyclical in nature and strongly influenced by macroeconomic factors such as industrial production , consumer sentiment , demand for durable goods , construction spending , business investment , and state and local government spending . during the past year , truck customers in the u.s. and canada have been significantly impacted by the covid-19 pandemic as well as fundamental shifts in the economy . following on the heels of a record market in 2019 , 2020 has seen some segments of the core truck market prosper while others have stagnated . select private fleets and for hire carriers focused on both durable and non-durable goods have continued to perform at a high level while others engaged in select manufacturing areas or service-focused businesses , such as restaurant supply and hospitality have been adversely impacted . the general economy has been rebounding and may not fully recover until at least mid to late 2021. the heavy truck market has seen freight demand and rates remain healthy and is dealing with an increased level of driver retirement and shortages to some extent compounded by the covid-19 pandemic . the medium truck market declined in 2020 due to a significant decrease in leasing and rental activity and is also expected to begin to rebound in 2021. solid consumer spending and residential construction have buoyed the medium truck demand . the vocational truck market has been impacted by delayed or canceled government spending but benefited from the increased construction market as well . the school bus market is expected to be impacted by the covid-19 pandemic as both government and private expenditures have been deferred because of the number of idle buses in many areas of the country . used truck inventory —our gross used truck inventory decreased to approximately $ 135 million at october 31 , 2020 from $ 200 million at october 31 , 2019 , offset by reserves of $ 37 million at both periods . during 2020 , additions to our used truck inventories were lower than 2019 primarily due to the year over year decline in new truck sales . in response to the changes in the business environment presented by the covid-19 pandemic , higher reliance was placed on online auctions and wholesale channels to drive used truck sales . in 2020 , there was also a focus to sell through the older model year inventories through inventory reduction strategies and `` no haggle '' pricing . parts —the parts business remains a significant source of revenue and profit . we are focusing on retail customer segmentation and improving dealer-lead generation . our private label brands help provide all-make parts to customers , attract incremental price sensitive customers , and offset the decline in late-in-lifecycle products . we are leveraging technology such as ecommerce to attract and retain new customers , to expand our existing customers ' portfolio of products , and to improve our customers ' ease of doing business with us . we have embraced improving uptime via parts availability , dedicated same-day deliveries and expanded hours at our pdcs . 33 warranty costs —warranty expense continues to reflect our current product portfolio and our commitment to quality and customer uptime . warranty expense as a percentage of manufacturing revenue increased to 2.3 % from 1.4 % a year ago . we recognized net charges for adjustments to pre-existing warranties of $ 40 million and $ 3 million in 2020 and 2019 , respectively . pre-existing warranties during the period were driven by proactive campaign actions for certain components on units built in prior years and un-favorable warranty experience on trucks and engines sold prior to fiscal year 2020 . for more information , see note 1 , summary of significant accounting policies , to the accompanying consolidated financial statements . income taxes —at october 31 , 2020 , we had $ 2.3 billion of u.s. federal net operating loss carryforwards and $ 167 million of federal tax credit carryforwards .
| results of operations for the year ended october 31 , 2020 as compared to the year ended october 31 , 2019 . replace_table_token_4_th _ ( a ) amounts attributable to nic . sales and revenues , net our sales and revenues , net , are principally generated via sales of products and services . sales and revenues , net in our consolidated statements of operations , by reporting segment were as follows : replace_table_token_5_th in 2020 , our truck segment net sales decreased by $ 3,273 million or 38 % . the decrease was primarily due to a decrease in volumes in our core markets and mexico of $ 3,058 million and a decline in used truck sales of $ 69 million , due , in part , to the covid-19 pandemic . sales in 2020 were also lower than 2019 by $ 62 million due to the sale of a majority interest in navistar defense in 2019. chargeouts from our core markets decreased by 42 % , compared to 2019 , which is reflective of industry volumes and market share . the decrease represents a 59 % decrease in class 8 heavy trucks , a 47 % decrease in medium trucks , a 15 % decrease in school buses , and a 14 % decrease in class 8 severe service trucks . in 2020 , our parts segment net sales decreased by $ 399 million or 18 % . the decrease was primarily due to decreased north america volumes in the u.s. , canada , and from our blue diamond parts , llc ( `` bdp '' ) joint venture with ford motor company ( `` ford '' ) due , in part , to the covid-19 pandemic impact . in 2020 , our global operations segment net sales decreased by $ 90 million or 26 % .
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during the year ended december 31 , 2016 , we liquidated our long-term investment securities with a net carrying amount of approximately $ 12.6 million , realizing a gain of approximately $ 33,000 on the sale . the decision to sell our long-term securities was made due to market rate conditions on long-term securities coupled with the recognized gain we were able to yield on the sale of the securities . the following tables summarize our investment securities at december 31 , 2017 and 2016 : replace_table_token_16_th replace_table_token_17_th note 4 – fair value measurements we measure certain financial assets and liabilities at fair value on a recurring basis story_separator_special_tag the following discussion and analysis contains forward-looking statements about our plans and expectations of what may happen in the future . forward-looking statements are based on a number of assumptions and estimates that are inherently subject to significant risks and uncertainties , and our results could differ materially from the results anticipated by our forward-looking statements as a result of many known or unknown factors , including , but not limited to , those factors discussed in “ item 1a . risk factors. ” see also the “ special cautionary notice regarding forward-looking statements ” set forth at the beginning of this report . you should read the following discussion and analysis in conjunction with “ item 8. financial statements and supplementary data , ” and our consolidated financial statements beginning on page f-1 of this report . overview we are a biopharmaceutical company focused on the acquisition , development and commercialization of novel treatments for b-cell malignancies and autoimmune diseases . currently , the company is developing two therapies targeting hematological malignancies . tg-1101 ( ublituximab ) is a novel , glycoengineered monoclonal antibody that targets a unique epitope on the cd20 antigen found on mature b-lymphocytes . we are also developing tgr-1202 , an orally available pi3k delta inhibitor . the delta isoform of pi3k is strongly expressed in cells of hematopoietic origin and is believed to be important in the proliferation and survival of b-lymphocytes . both tg-1101 and tgr-1202 are in clinical development for patients with hematologic malignancies . we also have pre-clinical programs seeking to develop irak4 ( interleukin-1 receptor-associated kinase 4 ) inhibitors , bet ( bromodomain and extra terminal ) inhibitors , and anti-pd-l1 and anti-gitr antibodies . . we also actively evaluate complementary products , technologies and companies for in-licensing , partnership , acquisition and or investment opportunities . to date , we have not received approval for the sale of any of our drug candidates in any market and , therefore , have not generated any product sales from our drug candidates . our license revenues currently consist of license fees arising from our agreement with ildong . we recognize upfront license fee revenues ratably over the estimated period in which we will have certain significant ongoing responsibilities under the sublicense agreement , with unamortized amounts recorded as deferred revenue . we have not earned any revenues from the commercial sale of any of our drug candidates . our research and development expenses consist primarily of expenses related to in-licensing of new product candidates , fees paid to consultants and outside service providers for clinical and laboratory development , facilities-related and other expenses relating to the design , development , manufacture , testing and enhancement of our drug candidates and technologies . we expense our research and development costs as they are incurred . research and development expenses for the years ended december 31 , 2017 , 2016 and 2015 were approximately $ 96.9 million , $ 66.5 million and $ 43.4 million , respectively , excluding non-cash compensation expenses related to research and development . the following table sets forth the research and development expenses per project , exclusive of non-cash compensation expenses , for the periods presented . 57 replace_table_token_7_th our general and administrative expenses consist primarily of salaries and related expenses for executive , finance and other administrative personnel , recruitment expenses , professional fees and other corporate expenses , including investor relations , legal activities and facilities-related expenses such as rent expense and amortization of leasehold interest . our results of operations include non-cash compensation expenses as a result of the grants of stock options and restricted stock . compensation expense for awards of options and restricted stock granted to employees and directors represents the fair value of the award recorded over the respective vesting periods of the individual awards . the expense is included in the respective categories of expense in the consolidated statements of operations . we expect to continue to incur significant non-cash compensation expenses . for awards of options and restricted stock to consultants and other third-parties , compensation expense is determined at the “ measurement date. ” the expense is recognized over the vesting period of the award . until the measurement date is reached , the total amount of compensation expense remains uncertain . we record compensation expense based on the fair value of the award at the reporting date . the awards to consultants and other third-parties are then revalued , or the total compensation is recalculated based on the then current fair value , at each subsequent reporting date . this results in a change to the amount previously recorded in respect of the equity award grant , and additional expense or a reversal of expense may be recorded in subsequent periods based on changes in the assumptions used to calculate fair value , such as changes in market price , until the measurement date is reached and the compensation expense is finalized . in addition , certain restricted stock issued to employees vests upon the achievement of certain milestones ; therefore , the total expense is uncertain until the milestone is probable . our clinical trials will be lengthy and expensive . even if these trials show that our drug candidates are effective in treating certain indications , there is no guarantee that we will be able to record commercial sales of any of our drug candidates in the near future . story_separator_special_tag under the agreement we would pay mlv a commission rate of up to 3.0 % of the gross proceeds from the sale of any shares of common stock sold through mlv . during the year ended december 31 , 2014 , we sold a total of 4,850,055 shares of common stock under this arrangement for aggregate total gross proceeds of approximately $ 50.0 million at an average selling price of $ 10.31 per share . net proceeds were approximately $ 48.8 million after deducting commissions and other transaction costs . we have fully utilized the capacity under the 2013 atm and , accordingly , no further sales can be made under the 2013 atm . in december 2014 , we filed a shelf registration statement on form s-3 ( the `` 2015 s-3 '' ) , which was declared effective in january 2015. under the 2015 s-3 , the company may sell up to a total of $ 250 million of its securities . in connection with the 2015 s-3 , we amended our 2013 at-the-market issuance sales agreement with mlv ( the `` 2015 atm '' ) such that we may issue and sell additional shares of our common stock , having an aggregate offering price of up to $ 175.0 million , from time to time through mlv and fbr capital markets & co. ( `` fbr '' , each of mlv and fbr individually an `` agent '' and collectively the `` agents '' ) , acting as the sales agents . under the 2015 atm we pay the agents a commission rate of up to 3.0 % of the gross proceeds from the sale of any shares of common stock sold through the agents . during the year ended december 31 , 2015 , we sold a total of 4,094,498 shares of common stock under the 2015 atm for aggregate total gross proceeds of approximately $ 68.2 million at an average selling price of $ 16.66 per share , resulting in net proceeds of approximately $ 67.0 million after deducting commissions and other transaction costs . during the year ended december 31 , 2016 , we sold a total of 570,366 shares of common stock under the 2015 atm for aggregate total gross proceeds of approximately $ 4.5 million at an average selling price of $ 7.88 per share , resulting in net proceeds of approximately $ 4.4 million after deducting commissions and other transaction costs . during the year ended december 31 , 2017 , we sold a total of 3,104,253 shares of common stock under the 2015 atm for aggregate total gross proceeds of approximately $ 31.6 million at an average selling price of $ 10.18 per share , resulting in net proceeds of approximately $ 31.0 million after deducting commissions and other transaction costs . in may 2017 , we filed a shelf registration statement on form s-3 ( the `` 2017 s-3 '' ) , which was declared effective in june 2017 , replacing the 2015 s-3 . under the 2017 s-3 , the company may sell up to a total of $ 300 million of its securities . in connection with the 2017 s-3 , we entered into an at-the-market issuance sales agreement ( the `` 2017 atm '' ) with jefferies llc , cantor fitzgerald & co. , fbr capital markets & co. , suntrust robinson humphrey , inc. , raymond james & associates , inc. , ladenburg thalmann & co. inc. and h.c. wainwright & co. , llc ( each a `` 2017 agent '' and collectively , the `` 2017 agents '' ) , relating to the sale of shares of our common stock . under the 2017 atm we pay the 2017 agents a commission rate of up to 3.0 % of the gross proceeds from the sale of any shares of common stock . during the year ended december 31 , 2017 , we sold a total of 4,689,418 shares of common stock under the 2017 atm for aggregate total gross proceeds of approximately $ 47.7 million at an average selling price of $ 10.18 per share , resulting in net proceeds of approximately $ 46.9 million after deducting commissions and other transactions costs . 62 subsequent to december 31 , 2017 , we sold an aggregate of 2,889,344 shares of common stock pursuant to the 2017 atm for total gross proceeds of approximately $ 35.9 million at an average selling price of $ 12.42 per share , resulting in net proceeds of approximately $ 35.3 million after deducting commissions and other transactions costs . equity financings in march 2017 , we completed an underwritten public offering of 5,128,206 shares of our common stock ( plus a 30-day underwriter overallotment option to purchase up to an additional 769,230 shares of common stock , which was exercised ) at a price of $ 9.75 per share . net proceeds from this offering , including the overallotment option , were approximately $ 54 million , net of underwriting discounts and offering expenses of approximately $ 3.6 million . off-balance sheet arrangements we have not entered into any transactions with unconsolidated entities whereby we have financial guarantees , subordinated retained interests , derivative instruments or other contingent arrangements that expose us to material continuing risks , contingent liabilities , or any other obligations under a variable interest in an unconsolidated entity that provides us with financing , liquidity , market risk or credit risk support . obligations and commitments as of december 31 , 2017 , we have known contractual obligations , commitments and contingencies of $ 15.6 million related to our operating lease obligations . replace_table_token_9_th leases in october 2014 , we entered into an agreement ( the “ office agreement ” ) with fbio , to occupy approximately 45 % of the 24,000 square feet of new york city office space leased by fbio , which is now our corporate headquarters . the office agreement requires us to pay our respective share of the average annual rent and other costs of the 15-year lease .
| results of operations years ended december 31 , 2017 , 2016 and 2015 replace_table_token_8_th years ended december 31 , 2017 and 2016 license revenue . license revenue was approximately $ 152,000 for each of the years ended december 31 , 2017 and 2016. license revenue is related to the amortization of an upfront payment of $ 2.0 million associated with our license agreement with ildong . the upfront payment from ildong will be recognized as license revenue on a straight-line basis through december 2025 , which represents the estimated period over which the company will have certain ongoing responsibilities under the sublicense agreement . 59 noncash compensation expense ( research and development ) . noncash compensation expense ( research and development ) related to equity incentive grants totaled $ 5.6 million for the year ended december 31 , 2017 , as compared to $ 2.7 million during the comparable period in 2016. the increase in noncash compensation expense was primarily related to milestone-based vesting of restricted stock grants to personnel and an increase in the measurement date fair value of certain consultant restricted stock during the year ended december 31 , 2017. other research and development expenses . other research and development expenses increased by $ 30.4 million from $ 66.5 million for the year ended december 31 , 2016 to $ 96.9 million for the year ended december 31 , 2017. the increase in other research and development expenses was due primarily to new and ongoing clinical development programs and related manufacturing costs for tg-1101 and tgr-1202 during the year ended december 31 , 2017. we expect our other research and development costs to remain relatively consistent during 2018 as our unity-cll program winds down and our ms phase 3 program ramps up . noncash compensation expense ( general and administrative ) . noncash compensation expense ( general and administrative ) related to equity incentive grants increased by $ 5.5 million from $ 4.8
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because forward-looking statements relate to matters that have not yet occurred , these statements are inherently subject to risks and uncertainties that could cause our actual results to differ materially from any future results expressed or implied by the forward-looking statements . many factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements . these factors include those contained in item 1a risk factors of this annual report on form 10-k. we do not undertake any obligation to update forward-looking statements . we intend that all forward-looking statements be subject to the safe harbor provisions of pslra . these forward-looking statements are only predictions and reflect our views as of the date they are made with respect to future events and financial performance . overview we are a multi-national biopharmaceutical and diagnostics company that seeks to establish industry-leading positions in large and rapidly growing medical markets by leveraging our discovery , development and commercialization expertise and our novel and proprietary technologies . we are developing a range of solutions to diagnose , treat and prevent various conditions , including molecular diagnostics tests , laboratory developed tests ( ltds ) , point-of-care tests and proprietary pharmaceuticals and vaccines . we plan to commercialize these solutions on a global basis in large and high growth markets , including emerging markets . we own established pharmaceutical platforms in spain , chile and mexico , which are generating revenue and from which we expect to generate positive cash flow and facilitate future market entry for our products currently in development . we also recently established pharmaceutical operations in brazil . we operate a specialty active pharmaceutical ingredients ( apis ) manufacturer in israel , which we expect will facilitate the development of our pipeline of molecules and compounds for our proprietary molecular diagnostic and therapeutic products . we operate a clia-certified laboratory facility headquartered in nashville , tennessee that currently operates as a full-service medical laboratory specializing in urologic pathology , and will provide us with a platform to commercialize certain of our novel diagnostics tests currently in development . during the year ended december 31 , 2012 , we completed a number of strategic transactions including : in december 2012 , we entered into an agreement with bristol-myers squibb expanding our collaboration related to our molecular diagnostic test technology . in december 2012 , we completed the acquisition of prost-data , inc. ( ourlab ) , a nashville-based clia laboratory with 18 phlebotomy sites throughout the u.s. in october 2012 , we completed the acquisition of a forty-five percent stake in scigen ( i.l . ) ltd ( scigen ) , an israeli company that produces a third-generation hepatitis b vaccine in its biologics manufacturing facility in rehovot , israel . in august 2012 , we acquired all of the outstanding stock of farmadiet group holding , s.l . ( farmadiet ) , a spanish company engaged in the development , manufacture , marketing , and sale of pharmaceutical , nutraceutical , and veterinary products in europe . in april 2012 , we completed the acquisition of als distribuidora limitada ( als ) , a privately-held chilean pharmaceutical company , pursuant to a stock purchase agreement . in march 2012 , we announced a collaboration with laboratory corporation of america ( labcorp ) , an s & p 500 company and pioneer in commercializing new diagnostic technologies , for labcorp to complete the development of and later commercialize laboratory testing for alzheimer 's disease . 53 in february 2012 , we purchased from biozone pharmaceuticals , inc. ( bzne ) , a publicly-traded company that specializes in drug development , manufacturing , and marketing , $ 1.7 million of 10 % secured convertible promissory notes ( the bzne notes ) , and ten year warrants ( the bzne warrants ) to purchase 8.5 million shares of bzne common stock . in july 2012 , we exercised the bzne warrants using their cashless net exercise feature and received 7,650,000 shares of bzne common stock . we also entered into a license agreement pursuant to which we acquired a world-wide license for the development and commercialization of products utilizing bzne 's proprietary drug delivery technology , including a technology called qusomes , exclusively for opko in the field of ophthalmology and non-exclusive for all other therapeutic fields , subject in each case to certain excluded products . in february 2012 , we made a $ 1.0 million investment in chromadex corporation ( chromadex ) , a publicly-traded company and leading provider of proprietary ingredients and products for the dietary supplement , nutraceutical , food and beverage , functional food , pharmaceutical and cosmetic markets . we also entered into a license , supply and distribution agreement with chromadex pursuant to which we obtained exclusive distribution rights to certain of its products in latin america . recent developments on march 12 , 2013 , we completed the sale to rxi pharmaceuticals corporation ( rxi ) of substantially all of our assets in the field of rna interference ( the rnai assets ) ( collectively , the asset purchase agreement ) . as consideration for the rnai assets , at the closing of the asset purchase agreement , rxi issued to us 50 million shares of its common stock ( the apa shares ) . in addition , pursuant to the asset purchase agreement , rxi will be required to pay us up to $ 50 million in milestone payments upon the successful development and commercialization of each drug developed by rxi , certain of its affiliates or any of its or their licensees or sublicensees utilizing patents included within the rnai assets ( each , a qualified drug ) . story_separator_special_tag research and development expenses during the year december 31 , 2010 included activities related 57 to our rolapitant development program prior to its licensure to tesaro . included in research and development expense were $ 4.0 million and $ 1.7 million of equity based compensation expense for the years ended december 31 , 2011 and 2010 , respectively . during 2011 , we received $ 1.3 million in research and development grants from the mexican government and under the new qualifying therapeutic discovery project credit in the u.s. during 2010 , we received $ 0.3 million in research and development grants from the mexican government . these grants were recorded as an offset to research and development expenses during both years . amortization of intangible assets . amortization of intangible assets was $ 3.4 million for the year ended december 31 , 2011 , compared to $ 2.1 million for the year ended december 31 , 2010. amortization expense increased primarily due to our acquisitions of curna , opko diagnostics , and finetech . other income and ( expense ) , net . other expense net was $ 1.0 million for the year ended december 31 , 2011 , compared to $ 0.8 million for the year ended december 31 , 2010. other income and ( expense ) , net primarily consisted of interest expense on our chilean lines of credit and foreign currency expense for the year ended december 31 , 2011 , partially offset by interest earned on our cash and cash equivalents . for the year ended december 31 , 2010 , other expense , net primarily reflected the interest incurred on our line of credit with the frost group llc ( the frost group ) as well as interest expense incurred on our chilean lines of credit . in june 2010 , we repaid all amounts outstanding on the frost group line of credit including $ 12.0 million in principal and $ 4.1 million in interest . the frost group members include a trust controlled by dr. frost , who is the company 's chief executive officer and chairman of the board of directors , dr. jane h. hsiao , who is the vice chairman of the board of directors and chief technical officer and steven d. rubin who is executive vice president administration and a director of the company . loss from investment in investees . we have made investments in other early stage companies that we perceive to have valuable proprietary technology and significant potential to create value for us as a shareholder . in connection with our investments , we account for these investments under the equity method of accounting , resulting in our recording of our proportionate share of their losses until our share of their loss exceeds our investment . until the investee 's technologies are commercialized , if ever , we anticipate they will continue to report a net loss . during the year ended december 31 , 2011 the losses from our strategic investments increased to $ 1.6 million from $ 0.7 million . this increase is principally the result of increased losses at our investees . in addition to our losses from sorrento and cocrystal , we invested in neovasc during 2011 , and a full year of losses from fabrus , which we invested in november 2010. as of december 31 , 2011 we have $ 6.7 million , net , of strategic investments recorded on our balance sheet . discontinued operations . income from discontinued operations was $ 5.2 million for the year ended december 31 , 2011 compared to a loss of $ 6.3 million for the year ended december 31 , 2010. in september 2011 , we entered into an agreement with optos to sell our ophthalmic instrumentation business . upon closing in october 2011 , we received $ 17.5 million of cash and are eligible to receive royalties up to $ 22.5 million on future sales . in connection with the sale , we recorded a gain of $ 10.6 million reflecting the cash consideration received less the net assets transferred to optos . the loss incurred during the year ended december 31 , 2010 primarily reflected the operating results of our ophthalmic instrumentation business . income taxes . our income tax benefit from continuing operations for the year ended december 31 , 2011 was $ 19.4 million , compared to $ 18 thousand for the year ended december 31 , 2010. the increase in income tax benefit for the year ended december 31 , 2011 period was primarily the result of recording a deferred tax liability related to the amortizing intangible assets acquired as part of the opko diagnostics transaction . in connection with the recognition of the deferred tax liability , we reduced the amount of valuation allowance recorded against our deferred tax assets for the year ended december 31 , 2011. liquidity and capital resources at december 31 , 2012 , we had cash and cash equivalents of approximately $ 27.4 million , compared to $ 71.5 million on december 31 , 2011. cash used in operations during 2012 primarily reflects expenses related to selling , general and administrative activities related to our corporate operations , research and development activities and our operations in chile , spain , and mexico , partially offset by cash provided from our operations in israel . cash used in investing activities primarily reflects $ 22.4 million used to acquire als , farmadiet , and ourlab and to invest in bzne , chromadex and scigen . cash provided by financing activities primarily reflects $ 2.3 million received from common stock option and common stock warrant exercises . since our inception , we have not generated sufficient gross margins to offset our operating and other expenses and our primary source of cash has been from the public and private placement of stock and credit facilities available to us . 58 in connection with the acquisition of als , we paid ( i ) $ 2.4 million in cash at the closing , less certain liabilities , and ( ii ) $ 0.8
| results of operations for the years ended december 31 , 2012 and december 31 , 2011 revenues . revenues for the year ended december 31 , 2012 increased approximately 68 % to $ 47.0 million from $ 28.0 million for the year ended december 31 , 2011. the increase in revenues for the year ended december 31 , 2012 was primarily due to $ 7.1 million of revenue generated by finetech , which we acquired in december 2011 , $ 6.1 million of revenue generated by farmadiet , which we acquired in august 2012 , an increase of $ 5.0 million of revenue generated in chile primarily related to our acquisition of als in april 2012 and $ 0.6 million of revenue generated by scigen , a consolidated variable interest entity in which we have a forty-five percent stake . gross margin . gross margin for the year ended december 31 , 2012 was $ 19.2 million compared to $ 10.7 million for the year ended december 31 , 2011. gross margin for the year ended december 31 , 2012 increased from the comparable period of 2011 primarily as a result of $ 3.4 million of gross margin generated by farmadiet and $ 5.4 million of gross margin generated by finetech . the gross margin increase was partially offset by decreased gross margins in our chilean and mexican operations primarily as a result of product pricing pressures experienced in those markets . selling , general and administrative expenses .
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these interest rate story_separator_special_tag ( in thousands , except share data ) the following discussion and analysis of our financial condition and results of operations should be read together with the cautionary language regarding forward-looking statements at the beginning of part i of this annual report on form 10-k and our consolidated financial statements and related notes included under part ii , item 8 , financial statements and supplementary data , of this annual report on form 10-k , as well as part ii , item 7 , management 's discussion and analysis of financial condition and results of operations , of our annual report on form 10-k for the year ended december 31 , 2018 , which provides a discussion of 2017 items and year-to-year comparisons between 2018 and 2017 that are not included in this annual report on form 10-k. performance overview net income was $ 167,596 for 2019 compared to $ 146,920 for 2018 . basic and diluted earnings per share ( “ eps ” ) were $ 2.89 and $ 2.88 , respectively , for 2019 compared to $ 2.80 and $ 2.79 , respectively , for 2018 . at december 31 , 2019 , total assets increased to $ 13,400,618 from $ 12,934,878 at december 31 , 2018 . the comparability of our financial condition and results of operations from 2018 to 2019 has been influenced by a number of factors : acquisitions — effective september 1 , 2018 , the company completed its acquisition of brand group holdings , inc. ( “ brand ” ) in a transaction valued at $ 474,453. including the effect of purchase accounting adjustments , the company acquired assets with a fair value of $ 2,334,333 which included gross loans with a fair value of $ 1,580,339 , and assumed liabilities with a fair value of $ 1,859,880 , including deposits with a fair value of $ 1,714,177. the acquisition expanded the company 's footprint in the greater atlanta , georgia metropolitan area . financial highlights — net interest income increased 11.89 % to $ 443,657 for 2019 as compared to $ 396,525 for 2018. the increase from 2018 to 2019 was due primarily to the increase in average earnings assets from the acquisition of brand and organic growth in the company 's non purchased loan portfolio . yields on earning assets increased as we replaced maturing assets with assets earning similar or higher rates of interest . furthermore , the company capitalized on the rising rate environment over the last two years , ending in july 2019 , by replacing maturing loans with new or renewed loans at similar or higher rates . these efforts helped offset the negative impact to our net interest income and net interest margin from not only rising costs of our deposits and borrowings as competition increased in response to the aforementioned rate environment but also the impact of loan yields as rates decreased in the latter half of 2019 . — net charge-offs as a percentage of average loans decreased to 0.04 % in 2019 compared to 0.05 % in 2018. the provision for loan losses was $ 7,050 for 2019 compared to $ 6,810 for 2018 . — noninterest income was $ 153,254 for 2019 compared to $ 143,961 for 2018. the growth in noninterest income is primarily attributable to the brand acquisition and growth in our mortgage banking operations . effective july 1 , 2019 , we became subject to the limitations on interchange fees imposed pursuant to §1075 of the dodd-frank act ( this provision , commonly referred to as the “ durbin amendment , ” is discussed in more detail under the heading “ supervision and regulation ” in item 1 , business , in this report ) . the durbin amendment limitations reduced interchange fees by approximately $ 6,000 during the second half of 2019 . — noninterest expense was $ 374,174 and $ 345,029 for 2019 and 2018 , respectively . the increase in noninterest expense and its related components is primarily attributable to the brand acquisition as well as increases in salaries and employee benefits as the company engaged in above-average hiring of new production team members over the course of 2019 to support its long term growth strategy . the company recorded merger expense related to its recent acquisitions of $ 279 and $ 14,246 in 2019 and 2018 , respectively . merger expense did not impact diluted eps in 2019 , but decreased it by $ 0.21 in 2018 . — loans , net of unearned income , were $ 9,689,638 at december 31 , 2019 compared to $ 9,083,129 at december 31 , 2018 , which represents an increase of 6.68 % from the previous year . excluding purchased loans of $ 2,101,664 and $ 2,693,417 at december 31 , 2019 and 2018 , respectively , the portfolio increased by $ 1,198,262 , or 18.75 % , from december 31 , 2018 . — deposits totaled $ 10,213,168 at december 31 , 2019 compared to $ 10,128,557 at december 31 , 2018. noninterest bearing deposits averaged $ 2,463,436 , or 24.19 % of average deposits , for 2019 compared to $ 2,036,754 , or 22.83 % of average deposits , for 2018 . 37 a historical look at key performance indicators is presented below . replace_table_token_10_th ( 1 ) these performance indicators are non-gaap financial measures . a reconciliation of these financial measures from gaap to non-gaap as well as an explanation of why the company provides these non-gaap financial measures can be found under the “ non-gaap financial measures ” heading at the end of this item 7 , management 's discussion and analysis of financial condition and results of operations . critical accounting policies our financial statements are prepared using accounting estimates for various accounts . wherever feasible , we utilize third-party information to provide management with estimates . although independent third parties are engaged to assist us in the estimation process , management evaluates the results , challenges assumptions and considers other factors that could impact these estimates . story_separator_special_tag replace_table_token_11_th as part of the merger agreement , brand agreed to divest the operations of its subsidiary brand mortgage group , llc ( “ bmg ” ) , which transaction was completed as of october 31 , 2018. as a result , the balance sheet and results of operations of bmg , which the company considers to be immaterial to the overall results of the company , are included in the company 's results from september 1 , 2018 to october 31 , 2018. the following table summarizes the results of operations for bmg included in the company 's consolidated statements of income for the year ended december 31 , 2018 : interest income $ 357 interest expense 279 net interest income 78 noninterest income 4,043 noninterest expense 4,398 net income before taxes $ ( 277 ) the company 's financial condition and results of operations include the impact of brand 's operations since the september 1 , 2018 acquisition date . 39 see note 2 , “ mergers and acquisitions , ” in the notes to consolidated financial statements included in item 8 , financial statements and supplementary data , in this report , for details regarding the company 's recent mergers and acquisitions . assets total assets were $ 13,400,618 at december 31 , 2019 compared to $ 12,934,878 at december 31 , 2018 . the acquisition of brand increased total assets $ 2,334,333 at september 1 , 2018. investments the securities portfolio is used to provide a source for meeting liquidity needs and to supply securities to be used in collateralizing certain deposits and other types of borrowings . the following table shows the carrying value of our securities portfolio by investment type and the percentage of such investment type relative to the entire securities portfolio , at december 31 : replace_table_token_12_th during 2019 , we purchased $ 492,018 in investment securities . mortgage backed securities and collateralized mortgage obligations ( “ cmos ” ) , in the aggregate , comprised approximately 79 % of the purchases . cmos are included in the “ mortgage backed securities ” line item in the above table . the mortgage backed securities and cmos held in our investment portfolio are issued by government sponsored entities . obligations of state and political subdivisions comprised approximately 17 % of purchases made during 2019. other debt securities in our investment portfolio consist of corporate debt securities and issuances from the small business administration ( “ sba ” ) . the carrying value of securities sold during 2019 totaled $ 212,137 , resulting in a net gain of $ 348 , while proceeds from maturities and calls of securities during 2019 totaled $ 262,287 , which were primarily reinvested in the securities portfolio . the company successfully implemented several strategic initiatives , collectively referred to as our “ deleveraging strategy , ” to manage its consolidated assets below $ 10,000,000 at december 31 , 2017 in order to delay the impact of the durbin amendment . the deleveraging strategy involved the sale of certain investment securities and the shortening of the holding period of mortgage loans held for sale ; the proceeds from these sales were used to reduce certain wholesale funding sources . during 2018 , we purchased $ 686,887 in investment securities ; the majority of these purchases were made as part of the releveraging of the company 's balance sheet , which was completed in the second quarter of 2018 , with the remainder of our purchases being ordinary course purchases of investment securities . mortgage backed securities and cmos , in the aggregate , comprised approximately 97 % of the purchases . the carrying value of securities sold during 2018 totaled $ 2,403 resulting in a net loss of $ 16 . proceeds from maturities and calls of securities during 2018 totaled $ 160,703 , which were primarily reinvested in the securities portfolio . the brand acquisition in 2018 contributed $ 71,122 at the acquisition date to the securities portfolio . at december 31 , 2019 , unrealized losses of $ 4,878 were recorded on available for sale investment securities with a carrying value of $ 364,723 . at december 31 , 2018 , unrealized losses of $ 18,269 were recorded on available for sale securities with a carrying value of $ 822,506 . the company does not intend to sell any of the securities in an unrealized loss position , and it is not more likely than not that the company will be required to sell any such security prior to the recovery of its amortized cost basis , which may be maturity . furthermore , even though a number of these securities have been in a continuous unrealized loss position for a period greater than twelve months , the company is collecting principal and interest payments from the respective securities as scheduled . accordingly , the company did not record any other-than-temporary impairment for the years ended december 31 , 2019 and 2018 . for more information about the company 's trust preferred securities , see note 3 , “ securities , ” in the notes to consolidated financial statements in item 8 , financial statements and supplementary data , in this report . 40 loans held for sale loans held for sale were $ 318,272 at december 31 , 2019 compared to $ 411,427 at december 31 , 2018 . included in the balance at december 31 , 2018 is a portfolio of non-mortgage consumer loans of approximately $ 191,578 acquired from brand . in the third quarter of 2019 , the company reclassified this portfolio from loans held for sale to loans held for investment . at the time of transfer , the portfolio totaled approximately $ 134,335. aside from these loans , loans held for sale primarily consists of residential mortgage loans being held until they are sold on the secondary market . mortgage loans to be sold are sold either on a “ best efforts ” basis or under a “ mandatory delivery ” sales agreement .
| results of operations net income net income for the year ended december 31 , 2019 was $ 167,596 compared to net income of $ 146,920 for the year ended december 31 , 2018 . basic earnings per share for the year ended december 31 , 2019 was $ 2.89 as compared to $ 2.80 for the year ended december 31 , 2018 . diluted earnings per share for the year ended december 31 , 2019 was $ 2.88 as compared to $ 2.79 for the year ended december 31 , 2018 . in 2018 and 2019 , the company incurred expenses and charges in connection with certain transactions with respect to which management is unable to accurately predict when these expenses or charges will be incurred or , when incurred , the amount thereof . the following table presents the impact of these expenses and charges on reported earnings per share for the periods presented : replace_table_token_19_th net interest income net interest income , the difference between interest earned on assets and the cost of interest-bearing liabilities , is the largest component of our net income , comprising 74.59 % of total net revenue in 2019 . total net revenue consists of net interest income on a fully taxable equivalent basis and noninterest income . the primary concerns in managing net interest income are the volume , mix and repricing of assets and liabilities . net interest income increased 11.89 % to $ 443,657 for 2019 compared to $ 396,525 in 2018 . on a tax equivalent basis , net interest income increased $ 47,560 to $ 449,986 in 2019 as compared to $ 402,426 in 2018 . net interest margin was 4.08 % for 2019 as compared to 4.16 % for 2018 . net interest income and net interest margin are influenced by internal and external factors .
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the changes in net sales were comprised as follows : replace_table_token_4_th the decrease in net sales in fiscal year 2018 was attributable to lower unit sales volumes . weak customer demand in the retail distribution channel for rolls , monkey bread and certain other bread products resulted in a combined decrease of 24 % in volume . selling prices per pound decreased compared to the prior fiscal year . net sales-snack food products segment net sales in the snack food products segment in fiscal year 2018 increased $ 8,849 ( 7.5 % ) compared to the prior fiscal year . the changes in net sales were comprised as follows : replace_table_token_5_th the increase in net sales in fiscal year 2018 was attributable to a significant increase in unit volume in pounds in the beef products category compared to fiscal year 2017. the volume of pork-based products was also higher compared to fiscal year 2017. partially offsetting the volume increases , sales prices per pound declined due primarily to lower per pound selling prices for larger package sizes . returns activity was lower as a percent of sales than the prior fiscal year due to favorable return trends and superior product quality . promotional activity was slightly higher as a percent of sales due to timing of programs with significant customers compared to the prior fiscal year . cost of products sold and gross margin-consolidated cost of products sold from continuing operations increased by $ 12,114 ( 11.5 % ) compared to the prior fiscal year . higher unit sales volume in the snack food products segment was the primary contributing factor to the increase in cost of products sold . overhead spending increased due to significant increases in hourly wages , healthcare expenses and indirect operating supplies . costs related to an additional production facility currently under construction also increased overhead expenses . increases in meat commodity costs during fiscal year 2018 also contributed to the increase in cost of products sold as described in the segment analysis below . the gross margin decreased from 36.8 % to 32.4 % during fiscal year 2018 compared to the prior fiscal year . replace_table_token_6_th cost of products sold and gross margin–frozen food products segment cost of products sold in the frozen food products segment increased by $ 815 ( 2.7 % ) to $ 30,992 in fiscal year 2018 compared to the prior fiscal year . cost of products sold was higher due to higher commodity costs of approximately $ 96 and changes in product mix partially offset by lower sales volume . the gross margin percentage decreased from 38.5 % to 34.4 % during fiscal year 2018 compared to the prior fiscal year . cost of products sold and gross margin–snack food products segment cost of products sold in the snack food products segment increased by $ 11,299 ( 15.0 % ) compared to the prior fiscal year due primarily to higher sales volume and higher meat commodity costs . the cost of meat commodities increased approximately $ 1,845 during fiscal year 2018 compared to the prior fiscal year . the gross margin earned in this segment decreased from 36.1 % to 31.7 % during fiscal year 2018 primarily as a result of lower per pound selling prices , higher overhead spending and higher commodity costs . 12 selling , general and administrative expenses-consolidated selling , general and administrative expenses ( “ sg & a ” ) in fiscal year 2018 increased $ 1,113 ( 2.3 % ) when compared to the prior fiscal year . the increase in this category did not directly correspond to the change in sales . the table below summarizes the primary expense variances in this category : replace_table_token_7_th lower profits and profit-sharing accruals resulted in lower wages and bonus expense in fiscal year 2018 compared to the prior year . the decrease in pension costs was due to higher pension discount rates being used to compute future liability estimates . healthcare benefit expense has increased due to recent unfavorable claim activity compared to fiscal year 2017. repairs and maintenance expense increased as the company 's chicago production facility now complies with food safety certification requirements created and managed by the sqf institute . outside storage costs declined due to acquisition of a new facility currently being used to warehouse products prior to shipment . the gain on cash surrender value of life insurance policies was lower than fiscal year 2017 due to lower stock market gains . costs for product advertising increased mainly as a result of higher payments under brand licensing agreements in the snack food products segment during fiscal year 2018. insurance costs decreased due to very low claim activity and the settlement of older larger claims . travel expenses increased due to research related to construction of the new plant as well as increased travel by business development managers . vehicle repairs expenses increased on long haul trucks and direct store delivery vehicles due to an increase in miles traveled and aging vehicles . outside consultants expenses increased due to more frequent usda inspection fees due to increased hours of operation at the chicago location and increased inspection at the statesville , north carolina , location . the major components comprising the increase of “ other sg & a ” expenses were higher vacation expense and property taxes . selling , general and administrative expenses-frozen food products segment sg & a expenses in the frozen food products segment decreased by $ 508 ( 3.4 % ) to $ 14,226 during fiscal year 2018 compared to the prior fiscal year . story_separator_special_tag the overall decrease in sg & a expenses was due to lower unit sales volume in pounds partially offset by higher vehicle expenses for long-haul trucks and higher outside consulting fees for usda inspections at the statesville location . selling , general and administrative expenses-refrigerated and snack food products segment sg & a expenses in the snack food products segment increased by $ 1,621 ( 4.8 % ) to $ 35,703 during fiscal year 2018 compared to the prior fiscal year . most of the increase was due to higher unit sales volume in pounds . gain on sale of property , plant and equipment on march 7 , 2018 , the company sold a parcel of land in chicago , illinois for approximately $ 5,977 and recognized a non-recurring pre-tax gain in fiscal year 2018. the cost basis of the land was insignificant . story_separator_special_tag times new roman , times , serif ; font-size : 10pt '' > expenditures for additions to property , plant and equipment during the fifty-two weeks ended november 2 , 2018 include projects in process of $ 7,615 related to the new facility in chicago . replace_table_token_11_th our stock repurchase program was approved by the board of directors in november 1999 and was expanded in june 2005. under the stock repurchase program , we are authorized , at the discretion of management and the board of directors , to purchase up to an aggregate of 2,000,000 shares of our common stock on the open market . as of the end of fiscal year 2018 , 120,113 shares were still authorized for repurchase under the program . we invested in otr ( over-the-road ) tractors during fiscal year 2012 financed by a capital lease obligation in the amount of $ 1,848. the total capital lease obligation was settled as of november 2 , 2018 with no remaining lease liability . we bought several of the tractors and converted to month-to-month arrangements on other tractors as needed . we plan to invest in new capital lease arrangements in fiscal 2019. we maintain a line of credit with wells fargo bank , n.a . that expires on march 1 , 2020. the line of credit was expanded from $ 5,000 to $ 7,500 during the first quarter of fiscal 2017. under the terms of this line of credit , we may borrow up to $ 7,500 at an interest rate equal to the bank 's prime rate or libor plus 1.5 % . the borrowing agreement contains various covenants , the more significant of which require us to maintain a minimum tangible net worth , a minimum quick ratio , a minimum net income after tax and total capital expenditures less than $ 7,500. the company was in violation of the capital expenditure covenant which was subsequently waived by letter dated january 3 , 2019. the company was in compliance with all other covenants as of november 2 , 2018. there have been no borrowings under this line of credit during fiscal year 2018. on december 26 , 2018 , we entered into a master collateral loan and security agreement with wells fargo bank , n.a for up to $ 15,000 in equipment financing . pursuant to the loan agreement , we borrowed $ 7,500 to purchase specific equipment for our new chicago processing facility at a fixed rate of 4.13 % per annum . the loan term is seven years and is secured by the purchased equipment . the funds were received on december 28 , 2018. the master collateral loan and security agreement with wells fargo bank , n.a . contains various affirmative and negative covenants that limit the use of funds and define other provisions of the loan . the main financial covenants are listed below : ● total liabilities divided by tangible net worth not greater than 2.5 to 1.0 at each fiscal quarter , ● quick ratio not less than 1.0 to 1.0 at each fiscal quarter end , ● net income after taxes not less than one dollar on a quarterly basis , determined as of each fiscal quarter end . 15 impact of inflation our operating results are heavily dependent upon the prices paid for raw materials . the marketing of our value-added products does not lend itself to instantaneous changes in selling prices . changes in selling prices are relatively infrequent and do not compare with the volatility of commodity markets . while fluctuations in significant cost structure components , such as ingredient commodities and fuel prices , have had a significant impact on profitability over the last two fiscal years , the impact of general price inflation on our financial position and results of operations has not been significant . however , future volatility of general price inflation or deflation and raw material cost and availability could adversely affect our financial results . management is of the opinion that our strong financial position and our capital resources are sufficient to provide for our operating needs and capital expenditures for fiscal year 2019. off-balance sheet arrangements we do not currently have any off-balance sheet arrangements within the meaning of item 303 ( a ) ( 4 ) of regulation s-k. contractual obligations we have remained free of interest-bearing debt ( excluding capital leases ) for twenty-nine of the last thirty years ( with fiscal year 2014 being the only exception ) and had no other debt or other contractual obligations within the meaning of item 303 ( a ) ( 5 ) of regulation s-k , as of november 2 , 2018. our expected future liability related to construction of the new chicago processing facility for the purchase of smokehouses and chillers is approximately $ 14,600 as of november 30 , 2018. critical accounting policies the preparation of financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets
| income taxes the company 's effective income tax rate was 49.1 % and 31.6 % in fiscal years 2018 and 2017 , respectively . in fiscal year 2018 , the effective income tax rate differed from the applicable mixed statutory rate of approximately 23.1 % primarily due to tax reform adjustment of deferred income taxes , the domestic production activities deduction and a change in the liability on unrecognized benefits related to research and development tax credits ( refer to note 4 of notes to the consolidated financial statements for more information ) . 13 liquidity and capital resources ( in thousands except share amounts , percentages and ratios ) the principal source of our operating cash flow is cash receipts from the sale of our products , net of costs to manufacture , store , market and deliver to customers . the company did not borrow on the line of credit with wells fargo bank , n.a . during fiscal 2018. there were no borrowings outstanding under this line of credit as of november 2 , 2018. the company was in compliance with all loan covenants under its line of credit except the capital expenditure maximum which was subsequently waived in a letter dated january 3 , 2019. we typically fund our operations from cash balances and cash flow generated from operations . we normally expect positive operating cash flows in the first quarter of our fiscal year from the liquidation of inventory and accounts receivable balances related to holiday season sales . we typically build inventories in the third quarter for anticipated promotional sales that occur in the fourth and first quarters . anticipated commodity price trends may also affect cash balances . certain commodities may be purchased in advance of our immediate needs to lower the ultimate cost of processing or to meet customer demand .
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the board of directors has determined that , as defined in the marketplace rules of the nasdaq stock market , wayne jackson and michael haas are our independent directors . item 14. principal accountant fees and services . the audit committee pre-approves all auditing services and all permitted non-auditing services ( including the fees and terms thereof ) to be performed by our independent registered public accounting firm . audit fees audit fees consist of fees billed for services associated with the annual audit and reviews of the company 's quarterly reports on form 10-q and the company 's statutory and regulatory filings . for the year ended december 31 , 2015 , the fees for audit services totaled approximately $ 45,000 . for the year ended december 31 , 2014 , the fees for audit services totaled approximately $ 32,500 . audit-related fees we incurred fees to our independent auditors of $ 0 and $ 0 for audit-related fees during the fiscal years ended december 31 , 2015 and 2014 , respectively . tax fees we incurred fees to our independent auditors of $ 0 and $ 0 for tax fees during the fiscal years ended december 31 , 2015 and 2014 , respectively . all other fees we incurred no other fees to our independent auditors during the fiscal years ended december 31 , 2015 and 2014 , respectively . 26 part iv item 15. exhibits and financial statement schedules . ( a ) the following documents are filed as a part of this report or incorporated herein by reference : replace_table_token_6_th ( b ) exhibits : 2.01 agreement and plan of merger entered into by and between macrosolve , inc. and drone aviation holding corp. , dated april 30 , 2014 filed as an exhibit to the current report on form 8-k , filed with the securities and exchange commission ( the “ commission ” ) on may 5 , 2014 and incorporated herein by reference 2.02 articles of merger filed with the secretary of state of the state of nevada filed as an exhibit to the current report on form 8-k , filed with the commission on may 5 , 2014 and incorporated herein by reference 2.03 certificate of merger filed with the secretary of state of the state of oklahoma filed as an exhibit to the current report on form 8-k , filed with the commission on may 5 , 2014 and incorporated herein by reference 3.01 articles of incorporation , filed as an exhibit to the current report on form 8-k , filed with the commission on may 5 , 2014 and incorporated herein by reference . 3.02 bylaws , filed as an exhibit to the current report on form 8-k , filed with the commission on may 5 , 2014 and incorporated herein by reference . 3.03 certificate of designation of preferences , rights and limitations of series a convertible preferred stock filed as an exhibit to the current report on form 8-k , filed with the commission on may 5 , 2014 and incorporated herein by reference . 3.03 certificate of designation of preferences , rights and limitations of series b convertible preferred stock filed as an exhibit to the current report on form 8-k , filed with the commission on may 5 , 2014 and incorporated herein by reference . 3.04 certificate of designation of preferences , rights and limitations of series b-1 convertible preferred stock filed as an exhibit to the current report on form 8-k , filed with the commission on may 5 , 2014 and incorporated herein by reference 3.04 certificate of designation of preferences , rights and limitations of series c convertible preferred stock filed as an exhibit to the current report on form 8-k , filed with the commission on may 5 , 2014 and incorporated herein by reference 3.05 certificate of designation of preferences , rights and limitations of series d convertible preferred stock filed as an exhibit to the current report on form 8-k , filed with the commission on june 5 , 2014 and incorporated herein by reference 3.06 certificate of designation of preferences , rights and limitations of series e convertible preferred stock filed as an exhibit to the current report on form 8-k , filed with the commission on june 5 , 2014 and incorporated herein by reference 3.07 certificate of designation of preferences , rights and limitations of series f convertible preferred stock filed as an exhibit to the current report on form 8-k , filed with the commission on august 28 , 2014 and incorporated herein by reference 3.08 certificate of designation of preferences , rights and limitations of series g convertible preferred stock filed as an exhibit to the current report on form 8-k , filed with the commission on june 3 , 2015 and incorporated herein by reference 3.09 certificate of amendment to designation of preferences , rights and limitations of series g convertible preferred stock filed as an exhibit to the current report on form 8-k , filed with the commission on june 3 , 2015 and incorporated herein by reference 27 3.10 certificate of amendment to designation of preferences , rights and limitations of series e convertible preferred stock filed as an exhibit to the current report on form 8-k , filed with the commission on june 3 , 2015 and incorporated herein by reference 3.11 certificate of amendment to designation of preferences , rights and limitations of series f convertible preferred stock filed as an exhibit to the current report on form 8-k , filed with the commission on june 3 , 2015 and incorporated herein by reference 3.12 certificate of amendment to story_separator_special_tag 14 off-balance sheet arrangements we do not have any off balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition , revenues , and results of operations , liquidity or capital expenditures . critical accounting policies and estimates the company 's accounting policies are more fully described in note 1 of the financial statements . as disclosed in note 1 , the preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes . actual results could differ significantly from those estimates . the company believes that the following discussion addresses the company 's most critical accounting policies , which are those that are most important to the portrayal of the company 's financial condition and results of operations and require management 's most difficult , subjective and complex judgments . accounts receivable and credit policies : trade accounts receivable consist of amounts due from the sale of tethered aerostats , accessories , spare parts and delivery and installation of aerostats . accounts receivable are uncollateralized customer obligations due under normal trade terms requiring payment within 30 days of receipt of the invoice . the company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts based on historical collection experience and a review of the current status of trade accounts receivable . at december 31 , 2015 and 2014 , the company deems $ 0 and $ 0 as uncollectible , respectively . revenue recognition and unearned income : the company recognizes revenue when all four of the following criteria are met : 1 ) persuasive evidence of an arrangement exists ; 2 ) delivery has occurred and title has transferred or services have been rendered ; 3 ) our price to the buyer is fixed or determinable ; and 4 ) collectability is reasonably assured . we record unearned revenue as a liability and their associated costs of sales as work in process inventory . in 2015 , the company recognized $ 7,896 in revenue from a 2014 sale that was delivered in 2015. there is a balance of $ 83,288 in accounts receivable at december 31 , 2015 for sales on account . long-lived assets : the company accounts for long-lived assets in accordance with the provisions of asc 360-10-35 , “ impairment or disposal of long-lived assets ” . this statement requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable . recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset . if the carrying amount of an asset exceeds its estimated future cash flows , an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset . the company acquired the ltas customer list in 2014. the fair value of the customer list was determined by using a discounted cash flow model and $ 135,550 was recorded on the date of business combination the company recorded $ 31,941 of amortization expense for the year ended december 31 , 2014 leaving a remaining carrying amount of $ 103,609. the company recorded another $ 37,935 amortization expense for the year ended december 31 , 2015. after comparing the acquired customer list to the actual customers who placed orders following the acquisition of ltas , the company determined that the customer list was impaired at december 31 , 2015 and amortized the remaining balance of $ 65,674 in 2015. on july 20 , 2015 , the company , through its wholly-owned subsidiary drone afs corp. , a nevada corporation formed july 9 , 2015 , entered into an agreement to acquire exclusive commercial software licenses for the “ gust ” ( georgia tech uav simulation tool ) autopilot system from adaptive flight , inc. through the purchase of the assets of privately held adaptive flight inc. ( afi ) , the company is assuming the transferable licenses from the georgia tech research corporation which include flight simulation tools and fault tolerant flight control algorithms . in addition , the company acquired afi 's dedicated flight computer and additional related hardware and airframes . the company paid $ 100,000 in immediately available funds and $ 100,000 to be held in escrow . in addition , the company issued 150,000 shares of unregistered common stock valued at $ 8.40 per share , on a post-reverse split basis , on the date of agreement , to be held in escrow . the asset acquisition did not qualify as a business combination under asc 805-10 and has been accounted for as a regular asset purchase . the company accounts for goodwill and intangible assets in accordance with asc 350 `` intangibles goodwill and other '' . asc 350 requires that goodwill and other intangibles with indefinite lives be tested for impairment annually or on an interim basis if events or circumstances indicate that the fair value of an asset has decreased below its carrying value . derivative financial instruments : the company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives . for derivative financial instruments that are accounted for as liabilities , the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date , with changes in the fair value reported in the statements of operations . for stock-based derivative financial instruments , the company uses a black-scholes option pricing model , in accordance with asc 815-15 “ derivative and hedging ” to value the derivative instruments at inception and on subsequent valuation dates . the classification of derivative instruments , including whether
| results of operations year ended december 31 , 2015 compared to year ended december 31 , 2014 ( all references are to fiscal years ) . total net revenues : total net revenues decreased approximately $ 386,000 , or 45.0 % , to approximately $ 472,000 in 2015 from approximately $ 858,000 for 2014. sources of revenue in 2015 were derived primarily from small aerostat systems . sources of revenue in 2014 included several large aerostat systems , cameras and accessories . cost of revenues and gross profit : cost of revenues for 2015 decreased approximately $ 392,000 , or 58.1 % , from approximately $ 675,000 in 2014 to approximately $ 283,000 in 2015 , primarily consisting of materials , parts and labor associated with the sale of small aerostat systems . the resulting gross profit for 2015 of approximately $ 190,000 was a decrease of approximately $ 7,000 , or 3.6 % from the gross profit for 2014 of approximately $ 183,000 in line with the lower net revenue . gross profit margins were 40 % and 21 % for 2015 and 2014 , respectively . the cameras sold in 2014 were low margin which contributed to the lower gross profit margin in the prior year . general and administrative expenses : general and administrative expenses increased by approximately $ 7,259,000 , or 381 % , to approximately $ 9,164,000 in 2015 from approximately $ 1,905,000 in 2014. the company put an executive management team in place following the june 3 , 2014 business combination and reverse merger discussed above which represents approximately $ 766,000 of the 2015 expenses . management also received equity awards , including stock and options , valued at approximately $ 5,318,000 in non-cash expense .
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the precise and efficient control of energy , including motion , fluid , combustion and electrical energy , is a growing requirement in the markets we serve . our customers look to us to optimize the efficiency , emissions and operation of power equipment in both commercial and defense operations . our core technologies leverage well across our markets and customer applications , enabling us to develop and integrate cost-effective and state-of-the-art fuel , combustion , fluid , actuation and electronic systems . we focus primarily on serving oems and equipment packagers , partnering with them to bring superior component and system solutions to their demanding applications . we also provide aftermarket repair , maintenance , replacement and other service support for our installed products . our components and integrated systems optimize performance of commercial aircraft , defense aircraft , military ground vehicles and other equipment , gas and steam turbines , wind turbines , including converters and power grid related equipment , industrial diesel , gas , bio-diesel and dual-fuel reciprocating engines , and electrical power systems . our innovative motion , fluid , combustion and electrical energy control systems help our customers offer more cost-effective , cleaner , and more reliable equipment . management 's discussion and analysis should be read together with the consolidated financial statements and notes included in this report . dollar and number of share amounts contained in this discussion and elsewhere in this annual report on form 10-k are in thousands , except per share amounts . covid-19 pandemic in march 2020 , the world health organization ( “ who ” ) declared the covid-19 outbreak a pandemic . in an effort to contain covid-19 or slow its spread , governments and private industry around the world have also enacted various measures , including orders to close all businesses not deemed “ essential , ” isolate residents to their homes or places of residence , and practice social distancing when engaging in essential activities . in an effort to protect the health and safety of its employees , we have implemented enhanced cleaning protocols and adopted social distancing policies at all of our locations , including working from home , reducing the number of people working in locations at any one time , and suspending employee travel . we have taken steps to align our business with the unfavorable economic conditions , including the implementation of enhanced measures through our global supply chain and business unit management teams to ensure we are efficiently utilizing inventory on hand , as well as our internal processing capabilities . in addition , we have taken specific actions to reduce costs and implemented staff reductions , reduction in employee hours and or salaries , furloughs , temporary layoffs , or a combination of these actions , at many of our locations . the global health crisis caused by covid-19 and the related responses of governments and private industry have negatively impacted business activity across the globe . since the end of the second quarter of fiscal year 2020 , we have experienced declining demand and both our aerospace and industrial markets have been significantly impacted economically , which resulted in a rapid decline in orders from and shipments to customers . outbreaks in various regions also resulted in the extended shutdown of certain businesses in these regions , which has resulted in disruptions or delays to our supply chain . although we have experienced certain impacts from the global emergence of the covid-19 pandemic , the full extent it will have on our business is currently unknown . when covid-19 is demonstrably contained , we anticipate an improvement in economic activity ; however , the timing and degree of such improvement will depend on the rate and pace of reopening , and the effectiveness of the containment efforts deployed by various national , state , and local governments . we have generally been deemed an essential business and therefore have continued to operate during the pandemic . we will continue to actively monitor the situation and may take further actions altering our business operations that we determine are in the best interests of our employees , customers , communities , business partners , suppliers , and shareholders , or as required by federal , state , or local authorities . it is not clear what the potential effects any such alterations or modifications may have on our business , including the effects on the company 's customers , employees , and prospects , or on our financial results in future periods . 37 divestiture of the renewables business and related businesses in the first quarter of fiscal year 2020 , woodward 's board of directors approved a plan to divest our renewable power systems business , protective relay business , and other businesses within the industrial segment ( collectively , the “ disposal group ” ) . the assets of the disposal group were primarily located in germany , poland and bulgaria and accounted for approximately $ 88,000 of sales in fiscal year 2019. the transactions consummating the sale of the disposal group were completed on april 30 , 2020 ( the “ disposal group closing ” ) . financial information for the disposal group is reflected in our financial statements prior to the date of disposal group closing . termination of merger with hexcel corporation on january 12 , 2020 , woodward entered into an agreement and plan of merger ( the “ merger agreement ” ) with hexcel corporation ( “ hexcel ” ) and genesis merger sub , inc. , a wholly owned subsidiary of woodward ( “ merger sub ” ) . the merger agreement provided that , upon the terms and subject to the conditions set forth therein , merger sub would merge with and into hexcel , with hexcel surviving the merger as a wholly owned subsidiary of woodward . story_separator_special_tag aftermarket – the substantial reduction in global air passenger traffic due to the covid-19 pandemic , with corresponding reduction in required airliner capacity , significantly impacted our commercial aftermarket business in fiscal year 2020 , as airlines parked nearly two-thirds of the active fleet . airliner capacity is anticipated to remain below 2019 levels , even as it is improving , until approximately 2023 or later , with single aisle aircraft and domestic flights expected to return to normal volumes sooner than twin aisle and international flights . as airline revenues and profitability continue to be impacted , operators will elect to defer maintenance where possible , which will continue to pressure our aftermarket sales while capacity recovers . we anticipate newer aerospace platforms , which contain more of our products , will be preferred as aircrafts return to service , which will provide increased content across existing platforms . with the entry into service of the new single aisle aircraft ( boeing 737 max and airbus a320neo ) , notwithstanding the grounding of the boeing 737 max as described above , we have seen a significant increase in initial provisioning sales to the operators of these new aircraft . the boeing 787 has been a successful twin aisle aircraft as well , which would also result in stronger initial provision sales . among legacy aircraft , the a320 family and 737ng will continue to be in demand in current operating fleets , which will support demand for repairs and spare parts for older engine programs remaining in service . our defense aftermarket has also increased as the combat readiness of existing military programs on which we have content is prioritized by the u.s. government . global conflicts and growing international demand for various other military programs continue to drive demand for operations of defense aircraft , including fighter jets , transports and both utility and attack rotorcraft , supported by our products and systems . although we expect variability , which is generally attributable to the cycling of various maintenance and upgrade programs , as well as actual usage , our outlook for defense aftermarket is strong , as the service lives of existing military programs are extended and there is increased demand for repairs and spare parts for older military aircraft programs remaining in service . industrial markets our industrial products are used worldwide in various types of turbine- and reciprocating engine-powered equipment , including electric power generation and distribution systems , ships , locomotives , compressors , pumps , and other mobile and industrial machines . industrial turbines – the demand for industrial gas turbines for power generation , which consists mainly of heavy frames , aero derivatives and steam , stabilized in fiscal year 2020 with some industrial gas turbine sales growth compared to fiscal year 2019 , driven primarily by increased woodward content on certain newer industrial gas turbines . start reliability , fuel flexibility , safety , and part-load efficiency are all key drivers of the turbine market as the conversion from coal to natural gas usage continues , and we believe woodward continues to be well positioned to meet these market needs on the existing and next generation turbines . though the increasing global demand for energy supports long-term growth for industrial gas turbines , we project a short-term decline in demand due to the covid-19 pandemic on the global economy . this short-term decline is anticipated to be followed by a recovery and modest growth as demand for electricity is met through a balance of renewable power sources and newer industrial gas turbines for which woodward has been awarded increased content . 39 reciprocating engines – woodward 's key markets for engine control technologies are power generation , transportation ( including compressed natural gas ( “ cng ” ) trucks in asia , mining , and marine shipping ) , and oil and gas . we continue to expect the market demand for natural gas trucks to remain favorable as the chinese government continues to implement more stringent emissions standards and encourage natural gas usage under its initiative on air quality improvement . the demand for large reciprocating engines used in marine , oil and gas , and prime power generation applications was impacted by the covid-19 pandemic and the drop in oil prices in the second half of fiscal year 2020. the demand for internet traffic and data storage is also driving demand for data center power generation . we anticipate some softening and stabilization of the large reciprocating engine market in fiscal year 202 1 due to a more stable market environment . government emissions requirements across many regions and new engine applications are driving demand for more sophisticated control systems , as is customer demand for improved engine efficiencies and increased reliability . we expect share gains by our customers and increased scope on the latest generation reciprocating engines as energy policies in some countries encourage the use of natural gas and other alternative fuels over carbon-rich petroleum fuels , which we expect will drive increased demand for our alternative fuel clean engine control technologies . story_separator_special_tag style= '' margin-bottom:0pt ; margin-top:6pt ; text-indent:4.29 % ; font-size:10pt ; font-family : times new roman ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > details of the changes in consolidated net sales are as follows : replace_table_token_8_th the decrease in consolidated net sales for fiscal year 2020 is primarily attributable to the decline in sales volume related to the ongoing impact of the covid-19 pandemic and extended grounding of the boeing 737 max aircraft . in the aerospace segment , the decrease in net sales volumes is primarily attributable to lower commercial sales as a result of a secular decline in global passenger traffic and oem production rates , plant closures and furloughs , all as a result of the global covid-19 pandemic .
| results of operations operational highlights net sales for fiscal year 2020 were $ 2,495,665 , a decrease of $ 404,532 , or 13.9 % , from $ 2,900,197 for the prior fiscal year . foreign currency exchange rates had an unfavorable impact on net sales of $ 9,380 for fiscal year 2020 , as compared to the same period of the prior year . net sales excluding the disposal group for fiscal year 2020 were $ 2,428,002 , a decrease of 13.7 % from $ 2,812,200 for the prior fiscal year . aerospace segment net sales for the fiscal year 2020 were down 15.4 % to $ 1,590,963 , compared to $ 1,880,520 for the prior fiscal year . industrial segment net sales for fiscal year 2020 were down 11.3 % to $ 904,702 , compared to $ 1,019,677 for the prior fiscal year . industrial segment net sales excluding the disposal group for fiscal year 2020 were down 10.2 % to $ 837,040 , compared to $ 931,681 for the prior fiscal year . net earnings for the fiscal year 2020 were $ 240,395 , or $ 3.74 per diluted share , compared to $ 259,602 , or $ 4.02 per diluted share , for the prior fiscal year . net earnings excluding the disposal group for fiscal year 2020 were not materially different from reported net earnings for the same period . adjusted net earnings for the fiscal year 2020 were $ 254,037 , or adjusted earnings per share of $ 3.96 per diluted share , compared to $ 314,476 , or $ 4.88 per diluted share , for the prior fiscal year . the effective tax rate in fiscal year 2020 was 14.7 % , compared to 19.0 % for the prior fiscal year . the adjusted effective tax rate in fiscal year 2020 was 17.8 % , compared to 17.5 % for the prior fiscal year .
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the company is evaluating the impact of the adoption of asu 2016-16 on january 1 , 2018 to its consolidated financial position and results of operations . the company does not expect the adoption of asu 2016-16 to story_separator_special_tag financial condition and results of operations the following management 's discussion and analysis of financial condition and results of operations contains certain statements that are not strictly historical and are “ forward-looking ” statements within the meaning of the private securities litigation reform act of 1995 and involve a high degree of risk and uncertainty . actual results may differ materially from those projected in the forward-looking statements due to other risks and uncertainties . all forward-looking statements included in this section are based on information available to us as of the date hereof , and we assume no obligation to update any such forward-looking statement , except as required by law . company overview we are a clinical stage biopharmaceutical company focused on the development and commercialization of innovative therapeutics based upon tetracycline chemistry . we have used our expertise in biology and tetracycline chemistry to create chemically diverse and biologically distinct small molecules derived from the minocycline core structure . we have generated innovative small molecule therapeutic candidates based upon medicinal chemistry-based modifications , according to structure-based activity , of all positions of the core tetracycline molecule . these efforts have yielded molecules with broad-spectrum antibiotic properties and narrow-spectrum antibiotic properties , and molecules with potent anti-inflammatory properties to fit specific therapeutic applications . this proprietary chemistry platform has produced many compounds that have shown interesting characteristics in various in vitro and in vivo efficacy models . omadacycline and sarecycline are examples of molecules that were synthesized from this chemistry discovery platform . our two lead product candidates are the antibacterials omadacycline and sarecycline . if approved , omadacycline will be the first in a new class of aminomethylcycline antibiotics . omadacycline is a broad-spectrum , well-tolerated , once-daily oral and intravenous , or iv , antibiotic . we believe that omadacycline has the potential to become the primary antibiotic choice of physicians for use as a broad-spectrum monotherapy antibiotic for acute bacterial skin and skin structure infections , or absssi , community-acquired bacterial pneumonia , or cabp , urinary tract infection , or uti , and other serious community-acquired bacterial infections where resistance is of concern . we believe omadacycline , if approved , will be used in the emergency room , hospital and community care settings . we have designed omadacycline to provide potential advantages over existing antibiotics , including activity against resistant bacteria , broad-spectrum antibacterial activity , oral and iv formulations with once-daily dosing , no dosing adjustments for patients on concomitant medications , and a generally safe and well tolerated profile . in the fall of 2013 , the u.s. food and drug administration , or the fda , agreed to the design of our omadacycline phase 3 studies for absssi and cabp through the special protocol assessment , or spa , process . in addition , the fda confirmed that positive data from the individual studies for absssi and cabp would be sufficient to support approval of omadacycline for each indication and for both oral and iv formulations in the united states . in addition to qualified infectious disease product , or qidp , designation , on november 4 , 2015 , the fda granted fast track designation for the development of omadacycline in absssi , cabp , and complicated urinary tract infection , or complicated uti . fast track designation facilitates the development and expedites the review of drugs that treat serious or life-threatening conditions and that fill an unmet medical need . in february 2016 , we reached agreement with the fda on the terms of the omadacycline pediatric program associated with the pediatric research equity act . the fda has granted paratek a waiver for conducting studies with omadacycline in children less than eight years old due to the risk of teeth discoloration , a known class effect of tetracyclines . in addition , the fda has granted a deferral on conducting studies in children eight years and older until safety and efficacy is established in adults . in may 2016 , we received confirmation from the fda that the oral-only absssi study design was acceptable and consistent with the currently posted guidance for the industry . in september 2017 , both the oral and iv formations of omadacycline were granted an additional qidp designation by the fda for the treatment of uncomplicated urinary tract infection , or uncomplicated uti . scientific advice received through the centralized procedure in europe confirmed general agreement on the design and choice of comparators of the phase 3 clinical trials for absssi and cabp and noted that approval based on a single study in each indication could be possible but would be subject to more stringent statistical standards than market authorization applications , or maa , programs that conduct two pivotal phase 3 studies per indication . we believe that the inclusion of the second phase 3 oral-only study in absssi strengthens the data package for submission of an maa filing for approval in the european union , or the eu . to date , we have conducted more than 20 phase 1 studies of omadacycline to characterize the effects of the drug on humans including how it is absorbed , metabolized , and excreted . these phase 1 studies also included evaluation in special populations like hepatic and renal failure patients . we have also conducted and completed three successful phase 3 clinical studies . our first two phase 3 clinical studies were for the treatment of absssi ( oasis-1 ) and cabp ( optic ) . both studies utilized initiation of iv therapy with transitions to oral-based treatment on clinical response . our third phase 3 clinical study ( oasis-2 ) was an oral-only administration of omadacycline in absssi compared to oral-only linezolid . story_separator_special_tag we have not generated any revenue from product sales and to date have financed our operations primarily through sale of our common and convertible preferred stock , debt financings , strategic collaborations , and grant funding . 62 in april 2017 , paratek bermuda ltd. , a wholly-owned subsidiary of paratek pharmaceuticals , inc. , and zai lab ( shanghai ) co. , ltd. , or zai , entered into a license and collaboration agreement , or the zai collaboration agreement pursuant to which the company granted zai an exclusive license to develop , manufacture and commercialize omadacycline in the people 's republic of china , hong kong , macau and taiwan , or the zai territory , for all human therapeutic and preventative uses , other than biodefense . zai will be responsible for the development , manufacturing and commercialization of the licensed product in the zai territory , at its sole cost with certain assistance from the company . under the terms of the zai collaboration agreement , paratek bermuda ltd. earned an upfront , nonrefundable license payment of $ 7.5 million during the year ended december 31 , 2017. we have incurred significant losses since our inception in 1996. our accumulated deficit at december 31 , 2017 was $ 470.1 million and our net loss for the year ended december 31 , 2017 was $ 89.1 million . a substantial amount of our net losses resulted from costs incurred in connection with our research and development programs and general and administrative costs associated with our operations . the net losses and negative operating cash flows incurred to date , together with expected future losses , have had , and likely will continue to have , an adverse effect on our stockholders ' equity and working capital . the amount of future net losses will depend , in part , on the rate of future growth of our expenses and our ability to generate offsetting revenue , if any . we expect to continue to incur significant expenses and operating losses for the foreseeable future . we do not expect to generate revenue from product sales unless and until we or either of our partners , allergan or zai , successfully complete development and obtain marketing approval for one or more of our product candidates . accordingly , we anticipate that we will need to raise additional capital in order to complete the development and commercialization of omadacycline and to advance the development of our other product candidates . until we can generate a sufficient amount of product revenue to finance our cash requirements , we expect to finance our future cash needs primarily through a combination of public and private equity offerings , debt or other structured financings and strategic collaborations . we may be unable to raise capital when needed or on attractive terms , which would force us to delay , limit , reduce or terminate our development programs or commercialization efforts . we will need to generate significant revenue to achieve and sustain profitability , and we may never be able to do so . financial operations overview revenue we have not yet generated any revenue from product sales . all of our revenue to date has been derived from license fees , milestone payments , royalty income , reimbursements for research , development and manufacturing activities under licenses and collaborations , grant payments received from the national institute of health , or nih , and other non-profit organizations . if the fda approves our nda for omadacycline on the projected timeline , we intend to begin selling the product by the first quarter of 2019 collaboration revenue represents upfront fees and milestone payments received in connection with our collaboration agreements . royalty revenue represents fifty percent of intermezzo royalty income received pursuant to the royalty sharing agreement , or the royalty sharing agreement , entered into by us in october 2016 with the special committee of our board of directors . research and development expense research and development expenses consisted primarily of costs directly incurred by us for the development of our product candidates , which include : expenses incurred under agreements with clinical research organizations , or cros , and investigative sites that conduct our clinical trials ; the cost of acquiring and manufacturing preclinical and clinical study materials and developing manufacturing processes ; direct employee-related expenses , including salaries , benefits , travel and stock-based compensation expense of our research and development personnel ; allocated facilities , depreciation , and other expenses , which include rent and maintenance of facilities , insurance and other supplies ; and costs associated with preclinical activities and regulatory compliance . research and development costs are expensed as incurred . costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and our clinical sites . 63 we can not determine with certainty the duration and completion costs of the current or future clinical trials of our product candidates or if , when , or to what extent we will generate revenues from the commercialization and sale of any of our product candidates for which we or any partner obtain regulatory approval . we may never succeed in achieving regulatory approval for any of our product candidates . the duration , costs and timing of clinical trials and development of our product candidates will depend on a variety of factors , including : the scope , rate of progress , and expense of our ongoing , as well as any additional , clinical trials and other research and development activities ; future clinical trial results ; potential changes in government regulation ; and the timing and receipt of any regulatory approvals . a change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that therapeutic candidate .
| summary of significant accounting policies , to our consolidated financial statements included in part ii , item 8 , “ financial statements and supplementary data , ” of this annual report on form 10-k for a description of recent accounting pronouncements applicable to our business . 74 recent accounting standards from time to time , new accounting pronouncements are issued by the fasb or other standard setting bodies and adopted by us as of the specified effective date . unless otherwise discussed , we believe that the impact of recently issued standards that are not yet effective will not have a material impact on our financial position or results of operations upon adoption . between may 2014 and may 2016 , the fasb issued three asus changing the requirements for recognizing and reporting revenue , or together , herein referred to as the revenue asus : ( i ) asu no . 2014-09 , revenue from contracts with customers , or asu 2014-09 , ( ii ) asu no . 2016-08 , principal versus agent considerations ( reporting revenue gross versus net ) , or asu 2016-08 , and ( iii ) asu no . 2016-12 , narrow-scope improvements and practical expedients , or asu 2016-12. asu 2014-09 provides guidance for revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services . asu 2016-08 is intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations . asu 2016-12 provides practical expedients and improvements on the previously narrow scope of asu 2014-09. in august 2015 , the fasb issued asu no .
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our forward-looking statements and factors that might cause future actual results to differ materially from our recent results or those projected in the forward-looking statements include , but are not limited to , those discussed in the section titled “ cautionary note regarding forward-looking statements ” and “ risk factors ” of this annual report on form 10-k. except as required by law , we assume no obligation to update the forward-looking statements or our risk factors for any reason . management overview we are a leading manufacturer , remanufacturer , and distributor of aftermarket automotive and light truck applications . we also , to a lesser extent , are a manufacturer , remanufacturer , and distributor of heavy duty truck and industrial and agricultural application parts . these replacement parts are sold for use on vehicles after initial vehicle purchase . these automotive parts are sold to automotive retail chain stores and warehouse distributors throughout north america and to major automobile manufacturers for both their aftermarket programs and warranty replacement programs ( “ oes ” ) . we estimate the market size to be over $ 125 billion for each of the light duty and heavy duty markets in north america . we added turbochargers through an acquisition in july 2016. we began selling brake power boosters in august 2016. as a result of an acquisition in july 2017 , our business also now includes developing and selling diagnostic equipment for alternators , starters , belt-start generators ( stop start and hybrid technology ) , and electric power trains for electric vehicles . the current population of light duty vehicles in the u.s. is approximately 271 million and the average age of these vehicles is approximately 11.7 years . the aged vehicle population remains favorable . although miles driven fluctuate primarily based on fuel prices , it has steadily increased for the past year . we believe d emand for aftermarket automotive parts generally increases with the age of vehicles . in addition , increases in miles driven can accelerate replacement rates . the automotive and light truck parts aftermarket is divided into two markets . the first is the do-it-yourself ( “ diy ” ) market , which is generally serviced by the large retail chain outlets . consumers who purchase parts from the diy channel generally install parts into their vehicles themselves . in most cases , this is a less expensive alternative than having the repair performed by a professional installer . the second is the professional installer market , commonly known as the do-it-for-me ( “ difm ” ) market . the traditional warehouse distributors , the dealer networks , and the commercial divisions of retail chains service this market . generally , the consumer in this channel is a professional parts installer . our products are distributed to both the diy and difm markets . the heavy duty truck , industrial and agricultural aftermarket has some overlap with the automotive aftermarket as discussed above , but also has specialty distribution channels through the oes channel and auto-electric distributor channels . in addition , we are now in the business of diagnostic equipment for alternators , starters , belt-start generators ( stop start and hybrid technology ) , and electric power trains for electric vehicles . the global market for diagnostics is approximately $ 5 billion , with the smallest but fastest growing segment of this being in the electric vehicle market . segment reporting pursuant to the guidance provided under the fasb asc for segment reporting , we have identified our chief executive officer as codm , have reviewed the documents used by the codm , and understand how such documents are used by the codm to make financial and operating decisions . we have determined through this review process that our business comprises one reportable segment for purposes of recording and reporting our financial results . 21 critical accounting policies we prepare our consolidated financial statements in accordance with generally accepted accounting principles , or gaap , in the united states . our significant accounting policies are discussed in detail below and in note 2 of the notes to consolidated financial statements . in preparing our consolidated financial statements , we use estimates and assumptions for matters that are inherently uncertain . we base our estimates on historical experiences and reasonable assumptions . our use of estimates and assumptions affect the reported amounts of assets , liabilities and the amount and timing of revenues and expenses we recognize for and during the reporting period . actual results may differ from our estimates . our remanufacturing operations require that we acquire used cores , a necessary raw material , from our customers and offer our customers marketing and other allowances that impact revenue recognition . these elements of our business give rise to more complex accounting than many businesses our size or larger . new accounting pronouncements not yet adopted revenue recognition in may 2014 , the fasb issued asu 2014-09 , revenue from contracts with customers , codified in asc 606 , “ revenue recognition - revenue from contracts with customers ” ( “ asc 606 ” ) , which amends the guidance in the former asc 605 , “ revenue recognition ” . asc 606 as initially issued was effective for annual periods beginning after december 15 , 2016 , and interim periods within that reporting period for a public entity . we may elect either a full retrospective transition method , which requires the restatement of all periods presented , or a modified retrospective transition method , which requires a cumulative-effect adjustment as of the date of initial adoption . in august 2015 , the fasb delayed the effective date by one year to annual periods beginning after december 15 , 2017 , and interim periods within that reporting period for a public entity . earlier application is permitted only as of annual reporting periods beginning after december 15 , 2016 , including interim reporting periods within that reporting period . story_separator_special_tag asu 2014-09 also codified the guidance on other assets and deferred costs relating to contracts with customers with the addition of asc 340-40. this guidance relates to the accounting for costs of an entity to obtain and fulfill a contract to provide goods or services to the customer . under the new guidance , an entity shall recognize as an asset the incremental costs of obtaining a contract with a customer if the entity expects to recover those costs . in our review of the various costs to obtain contracts with our customers , we have preliminarily determined that currently no significant costs are incurred that meet the capitalization criteria . our primary cost to fulfill contracts , other than inventory related costs , relates to shipping and handling activities , which continue to be expensed as incurred consistent with historical accounting practices . the new guidance provides several practical expedients , which we anticipate adopting . the first of these practical expedients allows a company to expense incremental costs of obtaining a contract as incurred if the amortization period would have been one year or less . as noted above , we have preliminarily concluded that we do not have any such costs that qualify for capitalization but will apply the practical expedient to the extent that such costs incurred in prospective periods qualify . similarly , we plan to adopt guidance that allows for the effects of a significant financing component to be ignored if a company expects that the period between the transfer of the goods and services to the customer and payment will be one year or less . finally , we plan to adopt guidance that allows a company to account for shipping and handling activities that occur after control of the related good transfers as fulfillment activities instead of assessing such activities as performance obligations . 23 financial instruments in january 2016 , the fasb issued guidance that amends the classification and measurement of financial instruments . changes to the current guidance primarily affect the accounting for equity investments , financial liabilities under the fair value option , and the presentation and disclosure requirements for financial instruments . in addition , the asu clarifies guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities . the new standard is effective for fiscal years , and interim periods within those fiscal years , beginning after december 15 , 2017. we expect to apply the amendments in the new guidance by means of a cumulative-effect adjustment to the opening balance of retained earnings at the beginning of the first quarter of fiscal 2019. the adoption of the new guidance is not expected to have a material impact on our consolidated financial statements . leases in february 2016 , the fasb issued new guidance that requires balance sheet recognition of a right-of-use asset and lease liability by lessees for operating leases . the new guidance also requires new disclosures providing additional qualitative and quantitative information about the amounts recorded in the financial statements . the new guidance is effective for fiscal years beginning after december 15 , 2018 , including interim periods within those fiscal years . early adoption is permitted . the new guidance requires a modified retrospective approach with optional practical expedients . we will adopt this guidance in the first quarter of fiscal 2020. we are currently evaluating the impact the provisions of this guidance will have on our consolidated financial statements , but expect that it will result in a significant increase to our long-term assets and liabilities on the consolidated balance sheets . business combinations in january 2017 , the fasb issued guidance which clarifies the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions ( or disposals ) of assets or businesses . the new guidance is effective for fiscal years beginning after december 15 , 2017 , including interim periods within those fiscal years . a reporting entity should apply the amendment prospectively . the adoption of this guidance in the first quarter of fiscal 2019 is not expected to have any material impact on our consolidated financial statements . goodwill impairment in january 2017 , the fasb issued guidance which simplifies the test for goodwill impairment . this standard eliminates step 2 from the goodwill impairment test , instead requiring an entity to recognize a goodwill impairment charge for the amount by which the goodwill carrying amount exceeds the reporting unit 's fair value . this guidance is effective for interim and annual goodwill impairment tests in fiscal years beginning after december 15 , 2019 with early adoption permitted . this guidance must be applied on a prospective basis . we are currently evaluating the impact the provisions of this guidance will have on our consolidated financial statements . modifications to share-based payment awards in may 2017 , the fasb issued guidance to provide clarity and reduce ( i ) the diversity in practice and ( ii ) the cost and complexity when applying the accounting guidance for equity-based compensation to a change to the terms or conditions of a share-based payment award . this update provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting . this guidance is effective for annual periods , and interim periods within those annual periods , beginning after december 15 , 2017 with early adoption permitted . this guidance should be applied prospectively to an award modified on or after that adoption date . the adoption of this guidance in the first quarter of fiscal 2019 is not expected to have any material impact on our consolidated financial statements . 24 derivatives and hedging in august 2017 , the fasb issued guidance to improve the financial reporting of hedging relationships to better portray the economic results of an entity 's risk management activities in its financial statements .
| results of operations the following discussion and analysis should be read together with the financial statements and notes thereto appearing elsewhere herein . 31 the following summarizes certain key operating data for the periods indicated : replace_table_token_5_th ( 1 ) finished goods turnover is calculated by dividing the cost of goods sold for the year by the average between beginning and ending non-core finished goods inventory values , for each fiscal year . we believe that this provides a useful measure of our ability to turn our inventory into revenues . fiscal 2018 compared to fiscal 2017 net sales and gross profit the following summarizes net sales and gross profit : replace_table_token_6_th net sales . our net sales for fiscal 2018 increased by $ 6,819,000 , or 1.6 % , to $ 428,072,000 compared to net sales for fiscal 2017 of $ 421,253,000. o ur prior year net sales were positively impacted by $ 9,261,000 due to the change in our estimate for anticipated stock adjustment returns . the increase in our fiscal 2018 net sales was primarily due to growth in sales of our rotating electrical products and brake booster products , in addition to sales of diagnostic equipment as a result of our july 2017 acquisition . sales of rotating electrical products represented 78.0 % and 78.6 % , wheel hub products represented 16.9 % and 18.5 % , brake master cylinder products represented 2.3 % and 2.9 % , and other products represented 2.8 % and 0 % , of net sales for fiscal 2018 and 2017 , respectively . our net sales were further impacted by certain customer allowances as discussed below in gross profit paragraph . gross profit .
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once a contract becomes greater than 90 days delinquent , we do not recognize additional interest income until the obligor under the contract makes sufficient payments to be less than 90 days delinquent . any payments received on a contract that is greater than 90 days delinquent are first applied to accrued interest and then to principal reduction . f- 15 the following table presents the components of finance receivables , net of unearned interest : replace_table_token_41_th we consider an automobile contract delinquent when an obligor fails to make at least 90 % of a contractually due payment by the following due date , which date may have been extended within limits specified in the servicing agreements . the period of delinquency is based on the number of days payments are contractually past due , as extended where applicable . automobile contracts less than 31 days delinquent are not reported as delinquent . in certain circumstances we will grant obligors one-month payment extensions . the only modification of terms is to advance the obligor 's next due date by one month and extend the maturity date of the receivable by one month . in certain limited cases , a two-month extension may be granted . there are no other concessions , such as a reduction in interest rate , forgiveness of principal or of accrued interest . accordingly , we consider such extensions to be insignificant delays in payments rather than troubled debt restructurings . the following table summarizes the delinquency status of finance receivables as of december 31 , 2015 and 2014 : replace_table_token_42_th finance receivables totaling $ 43.5 million and $ 23.2 million at december 31 , 2015 and 2014 , respectively , have been placed on non-accrual status as a result of their delinquency status . f- 16 consumer portfolio services , inc. and subsidiaries notes to consolidated financial statements the following table presents a story_separator_special_tag the following discussion and analysis should be read in conjunction with our consolidated financial statements and notes thereto and other information included or incorporated by reference herein . overview we are a specialty finance company . our business is to purchase and service retail automobile contracts originated primarily by franchised automobile dealers and , to a lesser extent , by select independent dealers in the united states in the sale of new and used automobiles , light trucks and passenger vans . through our automobile contract purchases , we provide indirect financing to the customers of dealers who have limited credit histories , low incomes or past credit problems , who we refer to as sub-prime customers . we serve as an alternative source of financing for dealers , facilitating sales to customers who otherwise might not be able to obtain financing from traditional sources , such as commercial banks , credit unions and the captive finance companies affiliated with major automobile manufacturers . in addition to purchasing installment purchase contracts directly from dealers , we have also ( i ) acquired installment purchase contracts in four merger and acquisition transactions , ( ii ) purchased immaterial amounts of vehicle purchase money loans from non-affiliated lenders , and ( iii ) directly originated an immaterial amount of vehicle purchase money loans by lending money directly to consumers . in this report , we refer to all of such contracts and loans as `` automobile contracts . '' we were incorporated and began our operations in march 1991. from inception through december 31 , 2015 , we have purchased a total of approximately $ 12.4 billion of automobile contracts from dealers . in addition , we acquired a total of approximately $ 822.3 million of automobile contracts in mergers and acquisitions in 2002 , 2003 , 2004 and , most recently , in september 2011. the september 2011 acquisition consisted of approximately $ 217.8 million of automobile contracts that we purchased from fireside bank of pleasanton , california . in 2004 and 2009 , we were appointed as a third-party servicer for certain portfolios of automobile contracts originated and owned by non-affiliated entities . from 2008 through 2010 , our managed portfolio decreased each year due to our strategy of limiting contract purchases to conserve our liquidity during the financial crisis and resulting recession , as discussed further below . however , since october 2009 , we have gradually increased contract purchase which , in turn , has resulted in recent increases in our managed portfolio . recent contract purchase volumes and managed portfolio levels are shown in the table below : contract purchases and outstanding managed portfolio replace_table_token_16_th our principal executive offices are in las vegas , nevada . most of our operational and administrative functions take place in irvine , california . credit and underwriting functions are performed primarily in that california branch with certain of these functions also performed in our florida and nevada branches . we service our automobile contracts from our california , nevada , virginia , florida and illinois branches . the programs we offer to dealers are intended to serve a wide range of sub-prime customers , primarily through franchised new car dealers . we purchase automobile contracts with the intention of financing them on a long-term basis through securitizations . securitizations are transactions in which we sell a specified pool of contracts to a special purpose subsidiary of ours , which in turn issues asset-backed securities to fund the purchase of the pool of contracts from us . 31 securitization and warehouse credit facilities throughout the period for which information is presented in this report , we have purchased automobile contracts with the intention of financing them on a long-term basis through securitizations , and on an interim basis through warehouse credit facilities . all such financings have involved identification of specific automobile contracts , sale of those automobile contracts ( and associated rights ) to one of our special-purpose subsidiaries , and issuance of asset-backed securities to be purchased by institutional investors . story_separator_special_tag our managed portfolio as of december 31 , 2015 was approximately $ 2,031 million . critical accounting policies we believe that our accounting policies related to ( a ) allowance for finance credit losses , ( b ) amortization of deferred origination costs and acquisition fees , ( c ) term securitizations , ( d ) finance receivables and related debt measured at fair value ( e ) accrual for contingent liabilities and ( f ) income taxes are the most critical to understanding and evaluating our reported financial results . such policies are described below . allowance for finance credit losses in order to estimate an appropriate allowance for losses incurred on finance receivables , we use a loss allowance methodology commonly referred to as `` static pooling , `` which stratifies our finance receivable portfolio into separately identified pools based on the period of origination . using analytical and formula driven techniques , we estimate an allowance for finance credit losses , which we believe is adequate for probable incurred credit losses that can be reasonably estimated in our portfolio of automobile contracts . for each monthly pool of contracts that we purchase , we begin establishing the allowance in the month of acquisition and increase it over the subsequent 11 months , through a provision for credit losses charged to our consolidated statement of operations , with the goal of establishing an allowance that approximates the next 12 months of expected net losses . net losses incurred on finance receivables are charged to the allowance . we evaluate the adequacy of the allowance by examining current delinquencies , the characteristics of the portfolio , prospective liquidation values of the underlying collateral and general economic and market conditions . as circumstances change , our level of provisioning and or allowance may change as well . 33 broad economic factors such as recession and significant changes in unemployment levels influence the credit performance of our portfolio , as does the weighted average age of the receivables at any given time . our internal credit performance data consistently show that new receivables have lower levels of delinquency and losses early in their lives , with delinquencies increasing throughout their lives and losses gradually increasing to a peak between 36 and 42 months , after which they gradually decrease . the historical weighted average seasoning of our total owned portfolio excluding fireside , is summarized in the table below : replace_table_token_18_th the credit performance of our portfolio is also significantly influenced by our underwriting guidelines and credit criteria we use when evaluating contracts for purchase from dealers . we regularly evaluate our portfolio credit performance and modify our purchase criteria to maximize the credit performance of our portfolio , while maintaining competitive programs and levels of service for our dealers . amortization of deferred originations costs and acquisition fees upon purchase of a contract from a dealer , we generally either charge or advance the dealer an acquisition fee . in addition , we incur certain direct costs associated with originations of our contracts . all such acquisition fees and direct costs are applied to the carrying value of finance receivables and are accreted into earnings as an adjustment to the yield over the estimated life of the contract using the interest method . term securitizations our term securitization structure has generally been as follows : we sell automobile contracts we acquire to a wholly-owned special purpose subsidiary , which has been established for the limited purpose of buying and reselling our automobile contracts . the special-purpose subsidiary then transfers the same automobile contracts to another entity , typically a statutory trust . the trust issues interest-bearing asset-backed securities , in a principal amount equal to or less than the aggregate principal balance of the automobile contracts . we typically sell these automobile contracts to the trust at face value and without recourse , except that representations and warranties similar to those provided by the dealer to us are provided by us to the trust . one or more investors purchase the asset-backed securities issued by the trust ; the proceeds from the sale of the asset-backed securities are then used to purchase the automobile contracts from us . we may retain or sell subordinated asset-backed securities issued by the trust or by a related entity . through 2008 , we generally purchased external credit enhancement for most of our term securitizations in the form of a financial guaranty insurance policy , guaranteeing timely payment of interest and ultimate payment of principal on the senior asset-backed securities , from an insurance company . we did not execute any securitizations in 2009 due to our lack of warehouse lines of credit at that time . in our 19 most recent securitizations since 2010 , we have not purchased financial guaranty insurance policies and do not expect to do so in the near future . we structure our securitizations to include internal credit enhancement for the benefit the investors ( i ) in the form of an initial cash deposit to an account ( `` spread account `` ) held by the trust , ( ii ) in the form of overcollateralization of the senior asset-backed securities , where the principal balance of the senior asset-backed securities issued is less than the principal balance of the automobile contracts , ( iii ) in the form of subordinated asset-backed securities , or ( iv ) some combination of such internal credit enhancements . the agreements governing the securitization transactions require that the initial level of internal credit enhancement be supplemented by a portion of collections from the automobile contracts until the level of internal credit enhancement reaches specified levels , which are then maintained . the specified levels are generally computed as a percentage of the principal amount remaining unpaid under the related automobile contracts .
| results of operations comparison of operating results for the year ended december 31 , 2015 with the year ended december 31 , 2014 revenues . during the year ended december 31 , 2015 , our revenues were $ 363.7 million , an increase of $ 63.4 million , or 21.1 % , from the prior year revenues of $ 300.3 million . the primary reason for the increase in revenues is an increase in interest income . interest income for the year ended december 31 , 2015 increased $ 63.2 million , or 22.0 % , to $ 349.9 million from $ 286.7 million in the prior year . the primary reason for the increase in interest income is the increase in finance receivables held by consolidated subsidiaries , which increased from $ 1,642.2 million at december 31 , 2014 to $ 2,031.1 million at december 31 , 2015. the table below shows the average balances of our portfolio held by consolidated subsidiaries for the year ended december 31 , 2015 and 2014 : replace_table_token_19_th servicing fees totaling $ 319,000 in the year ended december 31 , 2015 decreased $ 1.1 million , or 76.8 % , from $ 1.4 million in the prior year . we earn base servicing fees on three portfolios that are decreasing in size as we receive customer payments and , consequently , base servicing fees are decreasing also . 37 at december 31 , 2015 , we were generating income and fees on a managed portfolio with an outstanding principal balance of $ 2,031.1 million ( this amount includes $ 345,000 of automobile contracts on which we earn servicing fees and own a residual interest , compared to a managed portfolio with an outstanding principal balance of $ 1,643.9 million as of december 31 , 2014 ) . at december 31 , 2015 and 2014 , the managed portfolio composition was as follows : replace_table_token_20_th ( 1 ) contractual balances .
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goodwill was $ 2.1 million as of august 28 , 2013 and story_separator_special_tag management 's discussion and analysis of the financial condition and results of operations should be read in conjunction with the consolidated financial statements and footnotes for the fiscal years ended august 28 , 2013 , ( “ fiscal year 2013 ” ) , august 29 , 2012 ( “ fiscal year 2012 ” ) , and august 31 , 2011 ( “ fiscal year 2011 ” ) included in item 8 of this report . overview in fiscal year 2013 , we generated revenues primarily by providing quality food to customers at our 93 luby 's cafeteria branded restaurants located primarily in texas , 62 fuddruckers restaurants located throughout the united states , 2 koo koo roo restaurants in california , 23 cheeseburger in paradise restaurants , and 116 fuddruckers franchises located primarily in the united states . on july 26 , 2010 , we became a multi-brand restaurant company with a national footprint through the acquisition of substantially all of the assets of fuddruckers . the fuddruckers acquisition added 59 company-operated restaurants and a franchise network of 130 franchisee-operated units . this acquisition further expanded our family-friendly , value-oriented portfolio of restaurants located in close proximity to retail centers , business developments and residential areas . on december 6 , 2012 , we further expanded our brand family with the addition of the cheeseburger in paradise brand . this added 23 full service restaurant and bar locations that complement our core family-friendly brands and provided an entry point to operate in 23 new locations at a cost of less than $ 0.5 million per restaurant . in addition to our restaurant business model , we also provide culinary contract services for organizations that offer on-site food service , such as health care facilities , colleges and universities , as well as businesses and institutions . in fiscal years 2013 and 2012 , we continued to operate our two core brands , luby 's cafeterias and fuddruckers , in the competitive fast casual segment of the restaurant industry . much of our strategic focus centered around refining our prototype restaurant designs , exploring new avenues for revenue growth , re-investing in our core restaurant models via remodel activity , and supporting our growth initiatives with various marketing techniques . we also integrated the 23 cheeseburger in paradise restaurants into our systems and processes . we streamlined the menu and upgraded the quality , including an improved burger and bun . as the integration progressed , we moved the cheeseburger in paradise locations into our consolidated purchasing network . we have elevated the operations to a higher level of service by installing the right people guided by the right culture . since the acquisition of fuddruckers , we have opened six fuddruckers franchise units , six new prototype company units and acquired four units from franchisees . we have grown sales at our fuddruckers restaurants in each of the three full fiscal years since the acquisition . we achieved this sales growth through a combination of local market outreach , upgrading the décor at selected locations , and training our restaurant management and crews to achieve the highest level of customer service . some specific local market outreach programs included partnering with local youth sporting teams , customer surveying , and further establishing relationships with other local businesses so that there is high awareness of the fuddruckers offerings among their employees and customers . at our luby 's cafeteria brand , we have been encouraged by the first two years of results of our newest location that opened at the end of fiscal year 2011. this was a location where we relocated from an in-line shopping center to a newly constructed luby 's prototype on a pad side in the parking lot . the sales at this unit give us further confidence that the luby 's cafeteria brand has broad appeal and generates solid cash flow returns with this prototype at the right location . we followed up that project with development of a side-by-side luby 's cafeteria and fuddruckers restaurant on a single parcel of land . this development opened on the first day of fiscal year 2013 and has also provided us additional confidence that we are able to leverage our investment costs , offer our guests a wider range of options at one location , and achieve superior cash flow returns from new models . this prototype is now a significant component of our near term growth strategy . beginning in fiscal year 2012 and continuing through fiscal year 2013 , the luby 's cafeteria brand also found solid success with growing the catering business , which includes large take-out orders as well as delivery to a customer 's location . these catering efforts were expanded into the fuddruckers brand in fiscal 2013 where our capability continues to grow . we continue menu development and innovation at both brands and rotate seasonal offerings throughout the year to generate interest and excitement at our restaurants . our all-you-can-eat breakfast buffet that we rolled out at a majority of our luby 's cafeteria locations in fiscal year 2011 continued to contribute to our sales volume in fiscal year 2013. store level profit margin declined to 12.8 % in fiscal year 2013 compared to 15.4 % in fiscal year 2012. the inclusion of cheeseburger in paradise in our results for the portion of the year that we operated such restaurants reflected 140 basis points of the decline in store level profit . excluding the impact of cheeseburger in paradise , store level profit margin was 14.2 % in fiscal year 2013 compared to 15.4 % in fiscal year 2012 , or a decline of 120 basis points . the decrease in store level profit margin resulted primarily from increases in expenses in the areas of food commodity costs , utility costs , and marketing investments and to a lesser degree from restaurant supplies and services . story_separator_special_tag % in fiscal year 2013 compared to 34.5 % in fiscal year 2012. payroll and related costs as a percentage of sales improved as crew labor costs decreased as result of better labor scheduling processes adopted during fiscal year 2012 and continued into fiscal year 2013 , including the ability to react more quickly to changes in customer traffic . 22 ● operating expenses , as percentage of restaurant sales , increased to 18.1 % in fiscal year 2013 compared to 16.6 % in fiscal year 2012. excluding the impact of cheeseburger in paradise , operating expenses , as a percentage of restaurant sales increased to 17.7 % in fiscal year 2013 compared to 16.7 % in fiscal year 2013. the increase was due to significant increase in utilities and increased marketing spend , as well as increases in restaurant supply and service costs , partially offset by reductions in repairs and maintenance expenses . ● occupancy costs as a percentage of restaurant sales increased to 5.9 % in fiscal year 2013 compared to 5.5 % in fiscal year 2012. excluding the impact of cheeseburger in paradise , occupancy costs as a percentage of restaurant sales increased to 5.7 % in fiscal year 2013 compared to 5.5 % in fiscal year 2012 . ● depreciation expense increased $ 0.6 million in fiscal year 2013 compared to fiscal year 2012 due primarily to the addition of cheeseburger in paradise assets to the depreciable base . the increase in depreciation due to investments made in new locations as well as the capital we have used for remodeling existing locations was mostly offset by certain existing assets reaching the end of their depreciable lives during fiscal year 2013 . ● general and administrative expenses increased by $ 1.4 million reflecting primarily the inclusion of cheeseburger in paradise into our operations . ● interest expense was unchanged at $ 0.9 million for both fiscal year 2013 and 2012 on similar average debt balances and interest rates . ● income taxes in fiscal year 2012 included a valuation allowance release of $ 2.6 million offset by an unrecognized tax benefit accrual of $ 0.9 million . our culinary contract services business generated $ 16.7 million in revenue during fiscal year 2013 compared to $ 17.7 million in revenue during fiscal year 2012. we view this area as a growth business that generally requires less capital investment and more favorable percentage returns on invested capital . our long-term plan continues to focus on expanding each of our brands , including the fuddruckers franchise network , as well as growing our culinary contract services business . we are also committed to making capital investments with suitable return characteristics . we plan to use cash generated from operations combined with our borrowing capacity when necessary in order to seize these capital investment opportunities . we believe our operational execution has improved through our commitment to higher operating standards , and we believe that we are well-positioned to enhance shareholder value over the long term . accounting periods our fiscal year ends on the last wednesday in august . accordingly , each fiscal year normally consists of 13 four-week periods , or accounting periods , accounting for 364 days in the aggregate . however , every fifth or sixth year , we have a fiscal year that consists of 53 weeks , accounting for 371 days in the aggregate ; fiscal year 2011 was such a year . each of the first three quarters of each fiscal year consists of three four-week periods , while the fourth quarter normally consists of four four-week periods . however , the fourth quarter of fiscal year 2011 , as a result of the additional week , consisted of three four week periods and one five-week period , accounting for 17 weeks , or 119 days , in the aggregate . fiscal years 2013 and 2012 both contained 52 weeks . comparability between quarters may be affected by the varying lengths of the quarters , as well as the seasonality associated with the restaurant business . same-store sales the restaurant business is highly competitive with respect to food quality , concept , location , price , and service , all of which may have an effect on same-store sales . our same-store sales calculation measures the relative performance of a certain group of restaurants . to qualify for inclusion in this group , a store must have been in operation for 18 consecutive accounting periods the fuddruckers units that were acquired in july 2010 were included in the same-store grouping beginning with the third quarter of fiscal year 2012. the cheeseburger in paradise stores that were acquired in december 2012 will be included in the same store metric beginning with the first quarter of fiscal year 2015. stores that close on a permanent basis are removed from the group in the fiscal quarter when operations cease at the restaurant , but remain in the same-store group for previously reported fiscal quarters . although management believes this approach leads to more effective year-over-year comparisons , neither the time frame nor the exact practice may be similar to those used by other restaurant companies . same-store sales at our restaurant units were unchanged for fiscal year 2013 , increased 2.2 % for fiscal year 2012 , and increased 2.5 % for fiscal year 2011 . 23 the following table shows the same-store sales change for comparative historical quarters : replace_table_token_5_th discontinued operations our cash flow improvement and capital redeployment plan approved in fiscal year 2010 called for the closure of 24 underperforming units . in accordance with the plan , the entire fiscal activity of the applicable stores closed after the inception of the plan has been classified as discontinued operations . results related to these same locations have also been classified as discontinued operations for all periods presented .
| results of operations fiscal year 2013 ( 52 weeks ) compared to fiscal year 2012 ( 52 weeks ) sales total company sales increased approximately $ 40.3 million , or 11.5 % , in fiscal year 2013 compared to fiscal year 2012 , consisting primarily of a $ 41.6 million increase in restaurant sales , offset by a $ 1.0 million decrease in culinary contract services sales , a $ 0.3 million decrease in franchise revenue , and a $ 0.1 million decrease in vending income . the company operates with three reportable operating segments : company owned restaurants , franchise operations , and culinary contract services . company owned restaurants restaurant sales restaurant sales increased approximately $ 41.6 million in fiscal year 2013 compared to fiscal year 2012. the increase in restaurant sales included a $ 35.7 million contribution from the 23 cheeseburger in paradise restaurants , a $ 3.8 million increase in sales at luby 's cafeteria branded restaurants and a $ 4.0 million increase in sales from fuddruckers branded restaurants offset by a $ 1.9 million decrease in koo koo roo branded restaurants . on a same store basis , restaurant sales were unchanged for fiscal year 2013 compared to fiscal year 2012. the unchanged same-store sales level is primarily due to a continued very competitive operating environment and greater levels of economic uncertainty . maintaining our level of same store sales was achieved by growth in certain areas of our business , such as catering orders , remodeled restaurants , and in certain geographical markets where we have been able to grow sales , as well as through sustained marketing efforts . these areas of sales growth were offset by other markets where sales growth proved more challenging .
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see “ forward-looking statements ” at the beginning of this annual report on form 10-k. 25 critical accounting policies and 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 . the preparation of these financial statements requires us to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes . note 1 to our consolidated financial statements contains a description of the accounting policies used in the preparation of our financial statements . we evaluate our estimates on an ongoing basis , including those related to revenue recognition ; property and equipment ; income taxes ; derivative instruments ; inventory ; allowance for doubtful accounts ; pension plan ; stock-based compensation ; long-lived assets ; and litigation , commitments and contingencies . we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances . actual amounts could differ significantly from these estimates under different assumptions and conditions . we define a critical accounting policy or estimate as one that is both important to our financial condition and results of operations and requires us to make difficult , subjective or complex judgments or estimates about matters that are uncertain . we believe that the following are the critical accounting policies and estimates used in the preparation of our consolidated financial statements . in addition , there are other items within our consolidated financial statements that require estimates but are not deemed critical as defined in this paragraph . revenue recognition our primary types of revenue include ( i ) service revenue from two-way voice communication and data transmissions and one-way data transmissions between a mobile or fixed device and ( ii ) subscriber equipment revenue from the sale of duplex two-way transmission products , spot consumer retail products , and simplex one-way transmission products . additionally , we generate revenue by providing engineering and support services to certain customers . we provide duplex , spot and simplex services directly to customers and through resellers and igos . duplex for our duplex customers and resellers , we recognize revenue for monthly access fees in the period services are rendered . access fees represent the minimum monthly charge for each line of service based on its associated rate plan . we also recognize revenue for airtime minutes in excess of the monthly access fees in the period such minutes are used . under certain annual plans where customers prepay for a predetermined amount of minutes , we defer revenue until the minutes are used or the prepaid time period expires . unused minutes accumulate until they expire , at which point revenue is recognized for any remaining unused minutes . for annual access fees charged for certain annual plans , revenue is recognized on a straight-line basis over the term of the plan . we expense or charge credits granted to customers against revenue or deferred revenue upon issuance . we expense certain subscriber acquisition costs , including such items as dealer commissions , internal sales commissions and equipment subsidies at the time of the related sale . spot and simplex we sell spot and simplex services as annual or multi-year plans and recognize revenue ratably over the service term or as service is used , beginning when the service is activated by the customer . we record amounts received in advance as deferred revenue . igo we earn a portion of our revenues through the sale of airtime minutes or data packages on a wholesale basis to igos . we recognize revenue from services provided to igos based upon airtime minutes or data packages used by their customers and in accordance with contractual fee arrangements . if collection is uncertain , we recognize revenue when cash payment is received . equipment subscriber equipment revenue represents the sale of fixed and mobile user terminals , accessories and our spot and simplex products . we recognize revenue upon shipment provided title and risk of loss have passed to the customer , persuasive evidence of an arrangement exists , the fee is fixed and determinable , and collection is probable . 26 other we also provide certain engineering services to assist customers in developing new technologies related to our system . we recognize the revenues associated with these services when the services are rendered , and we recognize the expenses when incurred . we recognize revenues and costs associated with long-term engineering contracts on the percentage-of-completion basis of accounting . property and equipment we capitalize costs associated with the design , manufacture , test and launch of our low earth orbit satellites . we track capitalized costs associated with our satellites by fixed asset category and allocate them to each asset as it comes into service . for assets that are sold or retired , including satellites that are de-orbited and no longer providing services , we remove the estimated cost and accumulated depreciation . we recognize a loss from an in-orbit failure of a satellite as an expense in the period it is determined that the satellite is not recoverable . we depreciate satellites over their estimated useful lives , beginning on the date each satellite is placed into service . we evaluate the appropriateness of estimated useful lives assigned to our property and equipment and revise such lives to the extent warranted by changing facts and circumstances . we review the carrying value of our assets for impairment whenever events or changes in circumstances indicate that the recorded value may not be recoverable . we look to current and future undiscounted cash flows , excluding financing costs , as primary indicators of recoverability . if we determine that impairment exists , we calculate any related impairment loss based on fair value . income taxes we use the asset and liability method of accounting for income taxes . story_separator_special_tag we based discount rates on moody 's and citigroup 's annualized yield curve index as of december 31 , 2012 and 2011. the discount rate used at the measurement date decreased to 3.75 % from 4.00 % in 2011. a 100 basis point increase in our discount rate would reduce our benefit obligation by $ 2.2 million . we determine expected long-term rates of return on plan assets based on an evaluation of our plan assets , historical trends and experience , taking into account current and expected market conditions . plan assets are comprised primarily of equity and debt securities . the rate of return on plan assets decreased to 7.12 % from 7.50 % in 2011. to determine the rates of return , we consider historical experience and expected future performance of plan assets . stock-based compensation to measure compensation expense , we use valuation models which require estimates such as , forfeitures , vesting terms ( calculated based on market conditions associated with a certain award ) , volatility , and risk free interest rates . additionally we recognize stock-based compensation expense over the requisite service periods of the awards on a straight-line basis , which is generally commensurate with the vesting term . long-lived assets we review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of any asset may not be recoverable . in the event of impairment , we write the asset down to its fair market value . litigation , commitments and contingencies we are subject to various claims and lawsuits that arise in the ordinary course of business . estimating liabilities and costs associated with these matters requires judgment and assessment based on professional knowledge and experience of our management and legal counsel . the ultimate resolution of any such exposure may vary from earlier estimates as further facts and circumstances become known . performance indicators our management reviews and analyzes several key performance indicators in order to manage our business and assess the quality of and potential variability of our earnings and cash flows . these key performance indicators include : total revenue , which is an indicator of our overall business growth ; subscriber growth and churn rate , which are both indicators of the satisfaction of our customers ; average monthly revenue per user , or arpu , which is an indicator of our pricing and ability to obtain effectively long-term , high-value customers . we calculate arpu separately for each type of our duplex , simplex , spot , and igo revenue ; 28 operating income and adjusted ebitda , which are both indicators of our financial performance ; and capital expenditures , which are an indicator of future revenue growth potential and cash requirements . comparison of the results of operations for the years ended december 31 , 2012 and 2011 revenue : total revenue increased by $ 3.5 million , or approximately 5 % , to $ 76.3 million for 2012 from $ 72.8 million in 2011. during the first quarter of 2011 , we recognized $ 2.0 million in nonrecurring revenue as a result of the termination of our open range partnership . excluding this revenue recognized , total revenue increased $ 5.5 million , or approximately 8 % . we attribute this increase to higher sales of simplex equipment and increased service revenue as a result of growth in our spot and simplex subscriber base . these increases were offset primarily by decreases in sales of spot equipment due to the introduction of new product offerings in early 2011. the majority of the subscribers we gained as a result of higher spot equipment sales in 2011 is in our current subscriber base and continues to generate service revenue . the following table sets forth amounts and percentages of our revenue by type of service for 2012 and 2011 ( in thousands ) : replace_table_token_3_th the following table sets forth amounts and percentages of our revenue for equipment sales for 2012 and 2011 ( in thousands ) . replace_table_token_4_th other equipment revenue includes sales of accessories to support our current lineup of duplex , spot and simplex products . the following table sets forth our average number of subscribers , arpu , and ending number of subscribers by type of revenue for 2012 and 2011. the following numbers are subject to immaterial rounding inherent in calculating averages . 29 replace_table_token_5_th other service revenue includes primarily revenue generated from engineering services and our former open range partnership , which is not subscriber driven . accordingly , we do not present average subscribers or arpu for other revenue in the above charts . service revenue duplex revenue decreased approximately 7 % in 2012 from 2011. our two-way communication issues continue to affect our duplex revenue . despite our efforts to maintain our duplex subscriber base by lowering prices for our duplex equipment , our subscriber base decreased by approximately 8 % during 2012. during 2012 , we began a process to convert certain duplex customers to higher rate plans commensurate with our improved service levels . as a result , we have experienced some additional churn in our subscriber base . as a result of launching and placing into service our second-generation satellites , we are experiencing increases in demand for our duplex two-way voice and data products . as these units are activated , we expect to see increases in the related duplex service in the future . spot revenue increased approximately 28 % in 2012. we generated increased service revenue from spot and added additional service revenue from the release of other spot consumer retail products sold during 2011 , which are reflected in our 2012 subscriber base . our spot subscriber base increased by approximately 19 % during 2012. our subscriber count includes suspended subscribers , who are subscribers who have activated their devices , have access , but no service revenue is being recognized for their fees while we are in the process of collecting payment .
| equipment revenue duplex equipment sales increased by approximately 45 % in 2012. as a result of launching and placing into service our second-generation satellites , we are experiencing increased demand for our duplex two-way voice and data products . as these units are activated , we expect to see increases in the related duplex service in the future . as we place into service the remaining second-generation satellites that we launched in february 2013 , our two-way communication reliability will continue to improve , and we expect duplex equipment revenue to increase . our inventory and advances for inventory balances were $ 42.2 million and $ 9.2 million , respectively , as of december 31 , 2012 , compared with subscriber equipment sales of $ 18.9 million for 2012. a significant portion of our inventory consists of duplex products which are designed to operate with both our first-generation and our second-generation satellites . our advances for inventory relate to our commitment with qualcomm to purchase additional duplex products . in may 2008 , we entered into an agreement with hughes under which hughes will design , supply and implement ( a ) ran ground network equipment and software upgrades for installation at a number of our satellite gateway ground stations and ( b ) satellite interface chips to be a part of the uts in various next-generation globalstar devices . 30 we sold a limited number of duplex products in 2012 and 2011 , compared to the high level of inventory on hand . however , we have several initiatives underway intended to increase future sales of duplex products , which depend upon successfully completing the deployment of our second-generation constellation . with the improvement of both coverage and quality for our duplex services resulting from the deployment of our second-generation constellation , we expect an increase in the sale of duplex products which would result in a reduction in the inventory currently on hand .
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while reading the md & a , please refer to the accompanying consolidated financial statements of idacorp and idaho power . also refer to `` cautionary note regarding forward-looking statements '' and part 1 - item 1a - `` risk factors '' in this report for important information regarding forward-looking statements made in this md & a and elsewhere in this report . idacorp is a holding company formed in 1998 whose principal operating subsidiary is idaho power . idacorp 's common stock is listed and trades on the new york stock exchange under the trading symbol “ ida. ” idaho power is an electric utility with a service territory covering approximately 24,000 square miles in southern idaho and eastern oregon . idaho power provided electric service to approximately 501,000 general business customers as of december 31 , 2012 . as a regulated utility , many of idaho power 's fundamental business decisions are subject to the approval of governmental agencies . idaho power is under the retail jurisdiction ( as to rates , service , accounting , and other general matters of utility operation ) of the idaho public utilities commission ( ipuc ) and the oregon public utility commission ( opuc ) , which determine the rates that idaho power charges to its general business customers . also , as a public utility under the federal power act , idaho power has authority to charge market-based rates for wholesale energy sales under its federal energy regulatory commission ( ferc ) tariff and to provide transmission services under its ferc open access transmission tariff ( oatt ) . idaho power uses general rate cases , cost adjustment mechanisms , and subject-specific filings to recover its costs of providing service and the costs of its energy efficiency and demand-side resources programs , and to seek to earn a return on investment . idaho power generates revenues and cash flows primarily from the sale and distribution of electricity to customers in its idaho and oregon service territories , as well as from the wholesale sale and transmission of electricity . idaho power 's revenues and income from operations are subject to fluctuations during the year due to the impacts of seasonal weather conditions on demand for electricity , availability of water for hydroelectric generation , price changes , customer usage patterns ( which are affected in large part by the condition of the local economy ) , and the availability and price of purchased power and fuel . idaho power experiences its highest retail energy sales during the summer irrigation and cooling season , with a lower peak in the winter that generally results from heating demand . idacorp 's and idaho power 's financial condition are also affected by regulatory decisions through which idaho power seeks to recover its costs on a timely basis and earn an authorized return on investment , and by the ability to obtain financing through the issuance of debt and or equity securities . idacorp 's other subsidiaries include idacorp financial services , inc. ( ifs ) , an investor in affordable housing and other real estate investments ; ida-west energy company , an operator of small hydroelectric generation projects that satisfy the requirements of the public utility regulatory policies act of 1978 ( purpa ) ; and idacorp energy services co. , which is the former limited partner of , and successor by merger to , idacorp energy l.p. , a marketer of energy commodities that wound down operations in 2003. idaho power is the parent of idaho energy resources co. ( ierco ) , a joint venturer in bridger coal company ( bcc ) , which mines and supplies coal to the jim bridger generating plant owned in part by idaho power . 32 executive overview brief overview of 2012 results idacorp 's 2012 earnings per diluted share of $ 3.37 were one cent above its 2011 earnings per diluted share of $ 3.36 and reflect the impacts of general rate increases that went into effect during 2011 and 2012 and increased irrigation sales volumes . idaho power 's 2012 return on year-end equity in the idaho jurisdiction exceeded 10.5 percent , triggering the sharing mechanism in idaho power 's december 2011 settlement agreement , discussed below , and resulting in a $ 21.8 million reduction to operating income , reflecting earnings to be shared with idaho customers to reduce rates . for purposes of comparison , during 2011 idacorp 's earnings were significantly impacted by the recognition of $ 56.9 million in tax benefits relating to prior tax years . the 2011 tax benefit , combined with operating results , triggered a similar sharing mechanism in idaho during 2011 that reduced 2011 operating income by $ 47.4 million . a more specific discussion of the factors influencing idacorp 's and idaho power 's results for 2012 , including a quantification of their respective impacts , is included below in this md & a . 2012 accomplishments and 2013 initiatives idacorp 's business strategy emphasizes idaho power as idacorp 's core business . for the past several years , idaho power has been implementing its three-part strategy of responsible planning , responsible development and protection of resources , and responsible energy use to ensure adequate energy supplies . this strategy is described in part i , item 1 - `` business '' of this report . story_separator_special_tag particularly notable regulatory developments that have impacted or that idacorp and idaho power expect will impact results , each of which is discussed in more detail under `` regulatory matters '' in this md & a or in note 3 - `` regulatory matters '' to the consolidated financial statements included in this report , include the following : proceeding description amount and timing of rate increase/decrease idaho general rate case settlement general rate case , requesting an increase in idaho-jurisdiction base rates ipuc approved a $ 34.0 million increase in rates , effective january 1 , 2012 langley gulch power plant request for recovery of and return on idaho power 's investment in the langley gulch power plant , including operating costs ipuc approved a $ 58.1 million increase in rates , effective july 1 , 2012 ; opuc approved a $ 3.0 million increase in rates effective october 1 , 2012 revenue sharing rate adjustment pursuant to january 2010 and december 2011 settlement agreements ( 1 ) ipuc approved a $ 27.1 million decrease in rates , effective only for the period from june 1 , 2012 to may 31 , 2013 ( 1 ) oregon general rate case settlement general rate case , requesting an increase in oregon-jurisdiction base rates opuc approved a $ 1.8 million increase in rates , effective march 1 , 2012 ( 1 ) the rate change for the idaho pca was partially offset by the revenue-sharing order issued pursuant to the january 2010 and december 2011 settlement agreements . idaho power 's revenue-sharing arrangements had two components : ( a ) a pca mechanism component , which reduced net rates by $ 27.1 million , and ( b ) a pension balancing account component , which resulted in a $ 20.3 million net reduction to idaho power 's pension regulatory asset ( reducing idaho customers ' future obligation ) . idaho power recorded the $ 27.1 million revenue reduction and $ 20.3 million pension regulatory asset reduction in 2011. in addition to the rate changes listed in the table above , in december 2011 the ipuc approved a settlement stipulation , separate from the idaho general rate case settlement , that permits idaho power to amortize additional accumulated deferred investment tax credits ( aditc ) to help achieve a minimum 9.5 percent rate of return on year-end equity in the idaho jurisdiction ( idaho roe ) in 2012 , 2013 , and 2014 , subject to prescribed limits and conditions . the settlement stipulation also provides for the potential sharing between the company and customers of idaho-jurisdictional earnings in excess of specified levels of idaho roe . the specific terms of the settlement stipulation are described in `` regulatory matters '' in this md & a and in note 3 - `` regulatory matters '' to the consolidated financial statements included in this report . while providing no assurance that idaho power will obtain a 9.5 percent idaho roe in any of the years , idacorp and idaho power believe the ability to amortize additional aditc provides an element of earnings stability for 2013 and 2014. because its 2012 idaho roe exceeded 9.5 34 percent , idaho power did not amortize additional aditc in 2012 under the settlement stipulation . based on the terms of the december 2011 settlement stipulation , idaho power recorded during 2012 a $ 7.2 million provision against current revenues , as a benefit to idaho customers in the form of a future rate reduction , and an additional $ 14.6 million of pension expense , which will benefit idaho customers by reducing the amount of deferred pension expense that will be collected from customers in the future . idaho power recorded $ 47.4 million for the impact of similar sharing mechanisms in 2011. economic conditions and customer/load growth : when seeking to predict utility load changes for both short-term load forecasts and long-term infrastructure planning purposes , idaho power monitors a number of economic indicators , including employment rates , growth in customer numbers , and foreclosure rates and other housing-related data on both a national scale and within idaho power 's service territory . economic conditions can impact consumer demand for electricity , collectability of accounts , the volume of off-system sales , and the need to purchase power to meet demand . since 2008 , economic conditions in idaho power 's service territory have been relatively weak . however , a number of improvements in economic conditions have occurred over the last few months . after peaking at 10.0 percent in early 2011 , the service area unemployment rate fell to 8.4 percent by the end of 2011 and reached 6.2 percent by the end of 2012 , according to idaho department of labor data . the housing market in idaho power 's service territory has improved when measured by foreclosure rates and the available supply and pricing of housing . idaho power also continues to experience customer growth , and a number of businesses have constructed facilities in idaho power 's service territory . for the year ended december 31 , 2012 , the customer growth rate in idaho power 's service territory was approximately 1.1 percent—roughly twice the growth rate of the prior two years . however , by comparison , for the 20-year period ending in 2011 the average annual customer growth rate in idaho power 's service territory was 2.6 percent . idaho power predicts that customer growth within its service territory in the next few years will be positive , though at a rate below the 20-year historical annual average . in light of the uncertainty of the timing and pace of economic recovery in its service territory , and general underlying concerns remaining about the strength and pace of recovery of the economy and financial markets , idaho power continues to manage costs while executing its three-part strategy of responsible planning , responsible development and protection of resources , and responsible energy use .
| results of operations this section of the md & a takes a closer look at the significant factors that affected idacorp 's and idaho power 's earnings during the year ended december 31 , 2012 . in this analysis , the results for 2012 are compared to 2011 and the results for 2011 are compared to 2010 . megawatt-hours ( mwh ) and dollar amounts are in thousands unless otherwise indicated . utility operations the table below presents idaho power 's energy sales , in mwh , and supply for the last three years . replace_table_token_9_th 39 sales volume and generation : in 2012 , general business sales volume increased by 0.4 million mwh , mostly related to increased irrigation customer usage compared to the prior year . off-system sales volume decreased by 1.5 million mwh in 2012 as decreases in output from hydroelectric resources and a small increase in customer load decreased surplus power available for sale . hydroelectric generation comprised 57 percent of idaho power 's total system generation during 2012 . hydroelectric generation in 2012 was 93 percent of the annual median generation of 8.6 million mwh , which is based on hydrologic conditions for the period 1928 through 2011 and adjusted to reflect the current level of water resource development . the 3.0 million mwh decrease in hydroelectric generation in 2012 compared to 2011 was primarily due to lower than normal hydroelectric generating conditions . the 3.6 million mwh increase in hydroelectric generation in 2011 compared to 2010 was due largely to favorable hydroelectric generating conditions . the decrease in hydroelectric generation during 2012 led to an increased utilization of coal-fired and natural-gas fired generation . the commencement of operations of the langley gulch natural gas-fired power plant in the summer of 2012 allowed for less reliance on purchased power to replace the decreased hydroelectric generation . idaho power 's system is dual peaking , with the larger peak demand occurring in the summer .
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level 2 securities include certificates of deposit , commercial paper , corporate notes and asset-backed securities that use as their basis readily story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with part ii , item 6 , selected consolidated financial data , and our consolidated financial statements and related notes appearing in this annual report on form 10-k ( annual report ) . this discussion and analysis generally addresses 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 part ii , item 7 , management 's discussion and analysis of financial condition and results of operations , in our annual report on form 10-k for the fiscal year ended december 31 , 2019. some of the information contained in this discussion and analysis or set forth elsewhere in this annual report include historical information and other information with respect to our plans and strategy for our business and contain 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 part i , item 1a , risk factors , and elsewhere in this annual report . overview vanda pharmaceuticals inc. ( we , our or vanda ) is a leading global biopharmaceutical company focused on the development and commercialization of innovative therapies to address high unmet medical needs and improve the lives of patients . we strive to advance novel approaches to bring important , new medicines to market through responsible innovation . we are committed to the use of technologies that support sound science , including genetics and genomics , in drug discovery , clinical trials and the commercial positioning of our products . our commercial portfolio is currently comprised of two products , hetlioz ® for the treatment of non-24-hour sleep-wake disorder ( non-24 ) and nighttime sleep disturbances in smith-magenis syndrome ( sms ) and fanapt ® for the treatment of schizophrenia . hetlioz ® is the first treatment for patients with non-24 and sms approved by the u.s. food and drug administration ( fda ) . in addition , we have a number of drugs in development , including : hetlioz ® ( tasimelteon ) for the treatment of jet lag disorder , pediatric non-24 , delayed sleep phase disorder ( dspd ) and autism spectrum disorder ( asd ) ; fanapt ® ( iloperidone ) for the treatment of bipolar disorder and parkinson 's disease psychosis ( pdp ) and a long acting injectable ( lai ) formulation for the treatment of schizophrenia ; tradipitant ( vly-686 ) , a small molecule neurokinin-1 receptor ( nk-1r ) antagonist , for the treatment of gastroparesis , motion sickness , atopic dermatitis , and covid-19 pneumonia ; vtr-297 , a small molecule histone deacetylase ( hdac ) inhibitor for the treatment of hematologic malignancies and with potential use as a treatment for several oncology indications ; portfolio of cystic fibrosis transmembrane conductance regulator ( cftr ) activators and inhibitors , including vsj-110 for the treatment of dry eye and ocular inflammation and bpo-27 for the treatment of secretory diarrhea disorders , including cholera ; and vqw-765 , a small molecule nicotinic acetylcholine receptor partial agonist , with potential use for the treatment of psychiatric disorders . operational highlights products vanda is encouraged by the strength of its commercial performance during the fourth quarter of 2020. vanda continues to implement marketing and sales strategies aimed at supporting growth and minimizing the impact of disruptions caused by the covid-19 pandemic , including the fanapt ® for schizophrenia direct-to-consumer campaign , which was launched in 2020. vanda is continuing its activities to support and facilitate the treatment of individuals in the u.s. living with sms , and is committed to its awareness campaign and the support of patients suffering with non-24 . 58 table of c ontents pipeline tradipitant the gastroparesis phase iii clinical study ( vp-vly-686-3301 ) is ongoing . the study has a target enrollment of 200 randomized patients and is expected to complete enrollment in the first half of 2021 , with a new drug application ( nda ) filing projected in the second half of 2021. the covid-19 pneumonia phase iii clinical study ( odyssey vly-686-3501 ) is ongoing . hetlioz ® ( tasimelteon ) in december 2020 , the fda approved hetlioz ® capsule and liquid formulations for the treatment of adults and children , respectively , with nighttime sleep disturbances in sms . hetlioz ® capsules , for adults with sms , were immediately available after approval and hetlioz lq tm oral suspension , for children with sms , is expected to be available in the first quarter of 2021. sms is estimated to affect 1/15,000-25,000 births in the u.s. hetlioz ® is the first and only fda approved medication for patients with sms . a phase iii clinical study for hetlioz ® in dspd is expected to be initiated in the first quarter of 2021. a clinical development program for hetlioz ® in asd is expected to be initiated in the first quarter of 2021. fanapt ® ( iloperidone ) development of the lai formulation of fanapt ® is ongoing . a clinical program for fanapt ® in pdp is expected to begin in the first quarter of 2021. since we began operations , we have devoted substantially all of our resources to the in-licensing , clinical development and commercialization of our products . our ability to generate meaningful product sales and achieve profitability largely depends on our level of success in commercializing hetlioz ® and fanapt ® in the u.s. and europe , on our ability , alone or with others , to complete the development of our products , and to obtain the regulatory approvals for and to manufacture , market and sell our products . story_separator_special_tag the specialty pharmacy or wholesaler , in turn , charges back the difference between the price initially paid by the specialty pharmacy or wholesaler and the discounted price paid to the specialty pharmacy or wholesaler by the contracted customer . medicare part d coverage gap : the medicare part d prescription drug benefit requires manufacturers to fund approximately 70 % of the medicare part d insurance coverage gap for prescription drugs sold to eligible patients for applicable drugs . we account for the medicare part d coverage gap using a point of sale model . estimates for expected medicare part d coverage gap are based in part on historical activity and , where available , actual and pending prescriptions when we have validated the insurance benefits . service fees : we receive sales order management , data and distribution services from certain customers . these fees are based on contracted terms and are known amounts . we accrue service fees at the time of revenue recognition , resulting in a reduction of product sales and the recognition of an accrued liability , unless it is a payment for a distinct good or service from the customer in which case the fair value of those distinct goods or services are recorded as selling , general and administrative expense . co-payment assistance : patients who have commercial insurance and meet certain eligibility requirements may receive co-payment assistance . co-pay assistance utilization is based on information provided by our third-party administrator . product returns : we generally offer direct customers a limited right to return as contractually defined with our customers . we consider several factors in the estimation process , including expiration dates of product shipped to customers , inventory levels within the distribution channel , product shelf life , historical return activity , including activity for product sold for which the return period has past , prescription trends and other relevant factors . we do not expect returned goods to be resalable . there was no right of return asset as of december 31 , 2020 or 2019 . 60 table of c ontents the following table summarizes sales discounts and allowance activity as of and for the years ended december 31 , 2020 , 2019 and 2018 : replace_table_token_3_th the provision for rebates and chargebacks of $ 70.6 million and $ 59.4 million for the years ended december 31 , 2020 and 2019 , respectively , and their ending balances at december 31 , 2020 and 2019 , primarily represent medicaid rebates applicable to sales of fanapt ® and , to a lesser extent , medicaid rebates applicable to sales of hetlioz ® . the provision for discounts , returns and other of $ 28.0 million and $ 26.9 million for the years ended december 31 , 2020 and 2019 , primarily represents wholesaler distribution fees applicable to sales of fanapt ® and , to a lesser extent , estimated product returns of fanapt ® , and co-pay assistance costs and prompt pay discounts applicable to the sales of both hetlioz ® and fanapt ® . the ending balances of discounts , returns and other as of december 31 , 2020 and 2019 primarily represent estimated product returns of fanapt ® and wholesaler distribution fees applicable to sales of fanapt ® . stock-based compensation . compensation costs for all stock-based awards to employees and directors are measured based on the grant date fair value of those awards and recognized over the period during which the employee or director is required to perform service in exchange for the award . we use the black-scholes-merton option pricing model to determine the fair value of stock options . the determination of the fair value of stock options on the date of grant using an option pricing model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables . these variables include the expected stock price volatility over the expected term of the awards , actual and projected employee stock option exercise behaviors , risk-free interest rate and expected dividends . expected volatility rates are based on the historical volatility of our publicly traded common stock and other factors . the risk-free interest rates are based on the u.s. treasury yield for a period consistent with the expected term of the option in effect at the time of the grant . we have never paid cash dividends to our stockholders and do not plan to pay dividends in the foreseeable future . as stock-based compensation expense recognized in the consolidated statements of operations is based on awards ultimately expected to vest , it has been reduced for estimated forfeitures . forfeitures are estimated at the time of grant and revised , if necessary , in subsequent periods if actual forfeitures differ from those estimates . research and development expenses . research and development expenses consist primarily of fees for services provided by third parties in connection with the clinical trials , costs of contract manufacturing services for clinical trial use , milestone payments made under licensing agreements prior to regulatory approval , costs of materials used in clinical trials and research and development , costs for regulatory consultants and filings , depreciation of capital resources used to develop products , related facilities costs , and salaries , other employee-related costs and stock-based compensation for research and development personnel . we expense research and development costs as they are incurred for products in the development stage , including manufacturing costs and milestone payments made under license agreements prior to fda approval . upon and subsequent to fda approval , manufacturing and milestone payments made under license agreements are capitalized . milestone payments are accrued when it is deemed probable that the milestone event will be achieved . costs related to the acquisition of intellectual property are expensed as incurred if the underlying technology is developed in connection with our research and development efforts and has no alternative future use .
| results of operations we anticipate that our results of operations will fluctuate for the foreseeable future due to several factors , including our and our partners ' ability to continue to successfully commercialize our products , any possible payments made or received pursuant to license agreements , progress of our research and development efforts , the timing and outcome of clinical trials and related possible regulatory approvals , and the impact of the covid-19 pandemic . year ended december 31 , 2020 compared to year ended december 31 , 2019 revenues . total revenues increased by $ 21.0 million , or 9 % , to $ 248.2 million for the year ended december 31 , 2020 compared to $ 227.2 million for the year ended december 31 , 2019. revenues were as follows : replace_table_token_4_th 62 table of c ontents hetlioz ® net product sales increased by $ 17.7 million , or 12 % , to $ 160.7 million for the year ended december 31 , 2020 compared to $ 143.0 million for the year ended december 31 , 2019. the increase to net product sales was attributable to an increase in volume and an increase in price net of deductions . fanapt ® net product sales increased by $ 3.3 million , or 4 % , to $ 87.5 million for the year ended december 31 , 2020 compared to $ 84.2 million for the year ended december 31 , 2019. the increase to net product sales was attributable to an increase in price net of deductions partially offset by a decrease in volume . cost of goods sold . cost of goods sold decreased by $ 1.1 million , or 5 % , to $ 23.4 million for the year ended december 31 , 2020 compared to $ 24.5 million for the year ended december 31 , 2019. cost of goods sold includes third-party manufacturing costs of product sold , third-party royalty costs and distribution and other costs .
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our equipment leasing operations include all leasing activity , sales of lease pool equipment and certain other equipment sales and services related to those operations . this business is conducted from our huntsville , texas headquarters and from our locations in calgary , canada ; brisbane , australia ; lima , peru ; bogota , colombia ; budapest , hungary ; singapore and ufa , russia . this includes the operations of our mcl , mel , mml and mse , our branches in peru and colombia and the leasing operations conducted by sap . equipment manufacturing and sales includes sales of seamap equipment , sales of klein equipment and sales of oceanographic and hydrographic equipment by sap . this segment operates from locations near bristol , united kingdom , brisbane , australia , salem , new hampshire and in singapore . we acquired klein effective december 31 , 2015 and , accordingly our consolidated results of operations for the year ended january 31 , 2016 include only one month of operations from klein , which amounts were not material . prior to the acquisition of klein in december 2015 , sales of oceanographic and hydrographic equipment by sap were included in our leasing segment . segment operating results for all periods presented have been restated to reflect the revised segment structure . 31 management believes that the performance of our equipment leasing segment is indicated by revenues from equipment leasing and by the level of our investment in lease pool equipment . management further believes that the performance of our equipment manufacturing and sales segment is indicated by revenues from equipment sales and by gross profit from those sales . management monitors ebitda and adjusted ebitda , both as defined in the following table , as key indicators of our overall performance and liquidity . the following table presents certain operating information by operating segment : replace_table_token_6_th 32 replace_table_token_7_th ( 1 ) ebitda is defined as net income before ( a ) interest income and interest expense , ( b ) provision for ( or benefit from ) income taxes and ( c ) depreciation , amortization and impairment . adjusted ebitda excludes non-cash foreign exchange gains and losses , non-cash costs of lease pool equipment sales , certain non-recurring contract settlement costs and stock-based compensation . this definition of adjusted ebitda is consistent with the definition in the credit agreement . we consider ebitda and adjusted ebitda to be important indicators for the performance of our business , but not measures of performance or liquidity calculated in accordance with accounting principles generally accepted in the united states of america ( gaap ) . we have included these non-gaap financial measures because management utilizes this information for assessing our performance and liquidity , and as indicators of our ability to make capital expenditures , service debt and finance working capital requirements . the credit agreement contains financial covenants based on ebitda or adjusted ebitda . management believes that ebitda and adjusted ebitda are measurements that are commonly used by analysts and some investors in evaluating the performance and liquidity of companies such as us . in particular , we believe that it is useful to our analysts and investors to understand this relationship because it excludes transactions not related to our core cash operating activities . we believe that excluding these transactions allows investors to meaningfully trend and analyze the performance of our core cash operations . ebitda and adjusted ebitda are not measures of financial performance or liquidity under gaap and should not be considered in isolation or as alternatives to cash flow from operating activities or as alternatives to net income as indicators of operating performance or any other measures of performance derived in accordance with gaap . in evaluating our performance as measured by ebitda , management recognizes and considers the limitations of this measurement . ebitda and adjusted ebitda do not reflect our obligations for the payment of income taxes , interest expense or other obligations such as capital expenditures . accordingly , editda and adjusted ebitda are only two of the measurements that management utilizes . other companies in our industry may calculate ebitda or adjusted ebitda differently than we do and ebitda and adjusted ebitda may not be comparable with similarly titled measures reported by other companies . ( 2 ) non-recurring contract settlement costs of approximately $ 2.1 million include approximately $ 1.8 million of deferred cash payments and approximately $ 300,000 of stock based compensation . in our equipment leasing segment , we lease seismic data acquisition equipment primarily to seismic data acquisition companies conducting land , transition zone and marine seismic surveys worldwide . we provide short-term leasing of seismic equipment to meet a customer 's requirements . all active leases at january 31 , 2016 were for a term of less than one year . seismic equipment held for lease is carried at cost , net of accumulated depreciation . we acquire some marine lease pool equipment from our equipment manufacturing and sales 33 segment . these amounts are carried in our lease pool at the cost to our equipment manufacturing and sales segment , less accumulated depreciation . from time to time , we sell lease pool equipment to our customers . these sales are usually transacted when we have equipment for which we do not have near term needs in our leasing business . additionally , when equipment that has been leased to a customer is lost or destroyed , the customer is charged for such equipment at amounts specified in the underlying lease agreement . these charges are included in lease pool equipment sales in the accompanying financial statements . we occasionally sell new seismic equipment that we acquire from other manufacturers . we produce and sell , as well as lease , equipment used to deploy and retrieve seismic equipment with helicopters . within our equipment manufacturing and sales segment , seamap designs , manufactures and sells a variety of products used primarily in marine seismic applications . story_separator_special_tag we have provided an allowance for doubtful accounts for amounts we estimate to be uncollectable . however , further delays in customer payments could have a material adverse effect on our cash flows and financial position . north america , particularly canada , appears to be most affected by the recent decline in activity . industry sources estimate that approximately five land seismic crews operated in canada during the 2015-2016 winter season , as compared to approximately 15 crews during the 2014-2015 winter season and more than 40 crews during that period four years ago . this is expected to have a material negative effect on our revenues in the first quarter of fiscal 2017 as compared to the same period in fiscal 2016. we expect the level of activity in the united states to remain weak during fiscal 2017 , although we are aware of some planned projects which may contribute to our leasing revenues . however , there can be no certainty that these planned projects will proceed or that we will have the opportunity to provide equipment for any such projects . we expect land seismic exploration activity in latin america to remain subdued during fiscal 2017. we have bid projects scheduled for fiscal 2017 , but there is no certainty that those projects will proceed or proceed within the time frames currently anticipated . parts of latin america , such as colombia , continue to be difficult areas in which to operate for our customers due to logistical , regulatory and security issues . lower oil prices have introduced additional uncertainty regarding the economic viability of some projects , including those in mexico . we do not believe that any significant land seismic activity will commence in mexico during fiscal 2017. economic issues caused by the decline in oil prices and the devaluation of the ruble versus the u.s. dollar have created significant difficulties and uncertainty within the russian market . as a consequence , many seismic programs scheduled for the 2015-2016 winter season were cancelled . it is uncertain how these factors will impact our business in russia and the cis over the balance of fiscal 2017 and beyond . limitations on our ability to temporarily import equipment into russia due to the effect of sanctions imposed by the united states and european union , as well as restrictions under our credit agreement , could adversely impact our ability to satisfy the demands of our customers in this region . our land leasing activity in europe has been relatively constant over the past two years . however , overall exploration activity in this region has been impacted by the depressed market conditions within the oil and gas 35 industry . despite the overall decline in seismic exploration activity , we believe there are continued opportunities in europe for our services and equipment . we believe there are other areas of opportunity for our land leasing business , including the middle east , north africa , asia and the pacific rim . we have been active in each of these regions in recent years ; however , the level of activity has varied . based on discussion with our customers and other industry participants , we understand there are significant projects planned in these areas ; however , the timing of these projects is uncertain . in addition , there can be no assurance that those projects will proceed or that we will have the opportunity to participate in any such projects . marine leasing activity has declined significantly over the past three years . we believe this is due in large part to an excess of equipment in the marine seismic market . as marine contractors have sought to reduce costs by retiring older vessels an excess of used equipment has become available , thereby reducing the demand for rental equipment . we believe this excess of available equipment will continue into fiscal 2017. over the past several months we have seen a softening of demand for downhole seismic tools . this equipment is most often used in applications related to the development of oil and gas properties , such as frac monitoring or reservoir monitoring programs . accordingly , the degree to which current oil prices and exploration activity influence demand for these products can be different from that for our other equipment . the market for products sold by seamap is primarily dependent upon activity within the offshore , or marine , seismic industry , including the re-fitting of existing seismic vessels and the equipping of new vessels . however , these products are also utilized in some cases by hydrographic and geotechnical survey vessels whose activities are not limited to oil and gas related operations . our seamap business has benefited from equipping new-build vessels and from re-equipping older vessels with newer , more efficient technology . in addition , as seamap has expanded its installed base of products , including the product lines purchased in fiscal 2015 , our business for replacements , spare parts , repair and support services has expanded . the overall decline in seismic exploration activity has had , and can be expected to continue to have , an impact on the demand from seamap 's products and services . however , we believe the expansion of our product offerings and the desire for customers to upgrade to newer , more efficient technology will mitigate this impact to some extent . we also believe that seamap has been successful in penetrating new markets recently , partially due to the product lines purchased from ion in fiscal 2015 as evidenced by deliveries to new customers in china during fiscal 2016. we continue to have discussions with existing and potential customers regarding new products and enhancement to existing products in order to better meet the needs of the marine seismic , hydrographic and oceanographic industries . in june 2013 , we entered into a manufacturing arrangement with petroleum geo-services asa ( pgs ) , one of the largest marine seismic contractors in the world .
| results of operations for fiscal 2016 and 2015 , we recorded operating losses of approximately $ 26.8 million and $ 6.7 million , respectively , compared to operating income of approximately $ 5.8 million for fiscal 2014. the decrease in fiscal 37 2016 from fiscal 2015 relates to significantly lower leasing revenue , lower equipment sales , contract settlement costs and impairment of intangible assets . these factors were partially offset by lower lease pool depreciation and general and administrative expenses . the decrease in fiscal 2015 from fiscal 2014 relates primarily to lower equipment sales , higher depreciation expense and higher bad debt expense . revenues and cost of sales equipment leasing revenues and cost of sales from our equipment leasing segment were comprised of the following : replace_table_token_8_th equipment leasing revenues decreased approximately 51 % in fiscal 2016 as compared to fiscal 2015. this decrease was due primarily to lower leasing revenues in all geographic regions with the exception of europe , where revenues increased slightly . equipment leasing revenues increased approximately 3 % in fiscal 2015 as compared to fiscal 2014. this increase was due primarily to higher land leasing revenues in the united states , latin america , europe , the pacific rim , the middle east and higher downhole leasing revenues . these increases were partially offset by lower land leasing revenue in canada and russia and lower marine leasing revenues . as discussed previously , seismic exploration activity in the united states has been generally subdued . the decline in fiscal 2016 revenues reflects this decline in activity , particularly in the lower-48 states . land leasing activity in the united states in fiscal 2015 was significantly above that of fiscal 2014. our revenues in this region in fiscal 2015 were positively impacted by certain relatively large projects .
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the company 's oil and natural gas properties are located primarily in karnes county and the giddings area in south texas , where the company primarily targets the eagle ford shale and the austin chalk formations . magnolia 's objective is to generate stock market value over the long term through consistent organic production growth , high full cycle operating margins , an efficient capital program with short economic paybacks , significant free cash flow after capital expenditures , and effective reinvestment of free cash flow . magnolia 's business model prioritizes free cash flow , financial stability , and prudent capital allocation , and is designed to withstand challenging environments such as the one the company is currently experiencing . covid-19 pandemic and market conditions update in march 2020 , the world health organization declared the coronavirus disease 2019 ( “ covid-19 ” ) outbreak a pandemic . governments have tried to slow the spread of the virus by imposing social distancing guidelines , travel restrictions , and stay-at-home orders , which have caused a significant decrease in activity in the global economy and the demand for oil and natural gas . the implications of the decrease in global demand for oil , which , if coupled with the general oversupply , may have further negative effects on the company 's business , such as production curtailment and reductions to its operating plans as a result of decreased prices and reduced storage capacity , similar to the first half of 2020. demand and pricing may again decline if there is a resurgence of the outbreak across the u.s. and other locations across the world and the related social distancing guidelines , travel restrictions , and stay-at-home orders . the extent of the additional impact on the industry and magnolia 's business can not be reasonably predicted at this time . magnolia 's business , like many oil and natural gas producers , has been , and is expected to continue to be , negatively affected by the crisis described above , which is ongoing and evolving . magnolia 's revenues have significantly declined as a result of the sharp decline in commodity prices . the prices ultimately realized for oil , natural gas , and ngls are based on a number of variables , including prevailing index prices attributable to the company 's production and certain differentials to those index prices . magnolia is unable to reasonably predict when , or to what extent , commodity prices and the overall markets and global economy will stabilize , and the pace of any subsequent recovery for the oil and gas industry . further , the ultimate impact that these events will have on magnolia 's business , liquidity , financial condition , and results of operations is highly uncertain and dependent on numerous evolving factors that can not be predicted , including the duration of the pandemic . magnolia has taken steps and continues to actively work to mitigate the evolving challenges and growing impact of both the covid-19 pandemic and the industry downturn on its operations , financial condition , and people . magnolia 's business model prioritizes free cash flow , financial stability , and prudent capital allocation , and is designed to withstand challenging environments . the company 's ongoing plan is to spend within cash flow on drilling and completing wells while maintaining low leverage . in the fourth quarter of 2020 , magnolia operated one rig in the giddings area . the company is well positioned to reduce or increase operations given the significant flexibility within its capital program , as its operated drilling rig is on a short-term contract and the company has no long-term service obligations . moreover , magnolia does not have any contractual drilling obligations and nearly all of the company 's acreage is held by production . in response to the covid-19 pandemic and industry downturn , magnolia has initiated a corporate-wide cost reduction program to help decrease costs throughout every aspect of the company . the company has made reductions in general and administrative expense by reducing corporate salaries , renegotiating the fee under the services agreement , and working with many of its other vendors and suppliers to reduce the cost of their services . magnolia believes these measures , taken together with its significant liquidity and lack of near term debt maturities , will provide additional flexibility in navigating the current volatile environment ; however , given the tremendous uncertainty and turmoil , there is no certainty that the measures magnolia takes will be sufficient . 33 as a producer of oil and natural gas , magnolia is recognized as an essential business and has continued to operate while taking steps to protect the health and safety of its workers . magnolia and its contractors have implemented protocols to reduce the risk of an outbreak within its operations , and these protocols have not reduced production or efficiency in a significant manner . at the beginning of the pandemic , the company implemented remote working procedures for a significant portion of its workforce for health and safety reasons and or to comply with applicable national , state , and or local government requirements . as a result , the company relied on such persons having sufficient access to its information technology systems , including through telecommunication hardware , software , and networks . magnolia 's board of directors continues to monitor the unfolding covid-19 pandemic very closely , including the effect on internal controls over financial reporting and information technology security . magnolia has been able to maintain a consistent level of effectiveness through these arrangements , including maintaining day-to-day operations , financial reporting systems , and internal control over financial reporting . on october 1 , 2020 , the substantial majority of magnolia 's employees returned to the office . business overview as of december 31 , 2020 , magnolia 's assets in south texas included 42,972 gross ( 23,513 net ) acres in the karnes area and 634,861 gross ( 436,885 net ) acres in the giddings area . story_separator_special_tag for more information , please see note 5—fair value measurements in the company 's consolidated financial statements included in this annual report on form 10-k. depreciation , depletion and amortization ( “ dd & a ” ) during the year ended december 31 , 2020 was $ 240.2 million , or $ 8.95 per boe , lower than the year ended december 31 , 2019 primarily as a result of lower asset property balances associated with proved property impairments recorded in the first quarter of 2020. general and administrative ( “ g & a ” ) expenses during the year ended december 31 , 2020 were $ 0.5 million lower than the year ended december 31 , 2019 primarily driven by a decrease in professional service fees and a reduction in the fee under the services agreement as a result of corporate-wide cost cutting initiatives offset by costs associated with the termination of the services agreement . gain ( loss ) on derivatives , net was a $ 0.6 million gain related to the company 's natural gas costless collar entered into during the third quarter of 2020. there was no derivative activity in the corresponding 2019 period . other income ( expense ) , net during the year ended december 31 , 2020 was $ 3.4 million of income compared to $ 0.2 million of expense during the year ended december 31 , 2019. the income in 2020 was a primarily due to a $ 5.1 million gain on sale of the company 's 35 % membership interest in ironwood eagle ford midstream , llc , partially offset by a $ 1.4 million inventory write-down . liquidity and capital resources magnolia 's primary sources of liquidity and capital have been from cash flows from operations . the company 's primary uses of cash have been for acquisitions of oil and natural gas properties and related assets , development of the company 's oil and natural gas properties , share repurchases , and general working capital needs . the company may also utilize borrowings under other various financing sources available to magnolia , including its rbl facility and the issuance of equity or debt securities and the timing of these offerings will depend upon various factors , including prevailing market conditions and the company 's financial condition . material cash commitments include $ 24.0 million in interest payments paid each year through 2026. the company anticipates its current cash balance , cash flows from operations , and its available sources of liquidity to be sufficient to meet the company 's cash requirements . however , as the impact of recent declines in worldwide crude oil and natural gas prices and the impact of covid-19 on the economy evolves , the company will continue to assess its liquidity needs . in the event of a sustained market deterioration , magnolia may need additional liquidity , which would require the company to evaluate available alternatives and take appropriate actions . as of december 31 , 2020 , the company had $ 400.0 million of principal debt related to the 2026 senior notes outstanding and no outstanding borrowings related to the rbl facility . as of december 31 , 2020 , the company has $ 642.6 million of liquidity comprised of the $ 450.0 million of borrowing base capacity of the rbl facility , which was reaffirmed on october 15 , 2020 , and $ 192.6 million of cash and cash equivalents . as of december 31 , 2020 , the company 's adjusted consolidated net tangible asset , as calculated in accordance with the company 's indenture relating to its 2026 senior notes , was approximately $ 1.5 billion . 37 on august 1 , 2020 , the company provided written notice to evoc of its intent to terminate the services agreement . pursuant to the services agreement , evoc will continue to provide services during the transition , which magnolia expects to complete on or before august 1 , 2021. the company is still evaluating the impact to g & a associated with the termination of the services agreement . cash and cash equivalents at december 31 , 2020 , magnolia had $ 192.6 million of cash and cash equivalents . the company 's cash and cash equivalents are maintained with various financial institutions in the united states . deposits with these institutions may exceed the amount of insurance provided on such deposits . however , the company regularly monitors the financial stability of its financial institutions and believes that the company is not exposed to any significant default risk . sources and uses of cash and cash equivalents the following table presents the sources and uses of the company 's cash and cash equivalents for the periods presented : replace_table_token_7_th sources of cash and cash equivalents net cash provided by operating activities operating cash flows are the company 's primary source of liquidity and are impacted , in the short term and long term , by oil and natural gas prices . the factors that determine operating cash flows are largely the same as those that affect net earnings or net losses , with the exception of certain non-cash expenses such as dd & a , the non-cash portion of exploration expense , impairment of oil and natural gas properties , asset retirement obligation accretion , and deferred income tax expense . net cash provided by operating activities totaled $ 310.1 million and $ 647.6 million for the years ended december 31 , 2020 and 2019 , respectively . during the year ended december 31 , 2020 , cash provided by operating activities was negatively impacted by the sharp decline of oil and natural gas prices partially offset by a decrease in expenses associated with bringing fewer new wells online . uses of cash and cash equivalents acquisitions during the year ended december 31 , 2020 , the company completed various leasehold and property acquisitions , primarily comprised of a $ 69.7 million acquisition of certain non-operated oil and natural gas assets located in karnes and dewitt counties , texas .
| results of operations factors affecting the comparability of the historical financial results magnolia 's historical financial condition and results of operations for the periods presented may not be comparable , either from period to period or going forward , as a result of the following factors : 34 during the first quarter of 2020 , the company incurred impairments of $ 1.9 billion related to proved and unproved oil and natural gas properties as a result of the sharp decline in commodity prices ; on february 21 , 2020 , the company completed the acquisition of certain non-operated oil and natural gas assets located in karnes and dewitt counties , texas , for approximately $ 69.7 million in cash ; on may 31 , 2019 , the company completed the acquisition of certain oil and natural gas assets primarily located in karnes county for approximately $ 36.3 million in cash and approximately 3.1 million shares of the company 's class a common stock ; and as a result of the factors listed above , the combined historical results of operations and period-to-period comparisons of these results and certain financial data may not be comparable or indicative of future results . year ended december 31 , 2020 compared to the year ended december 31 , 2019 oil , natural gas and ngl sales revenues . the following table provides the components of magnolia 's revenues for the periods indicated , as well as each period 's respective average prices and production volumes . this table shows production on a boe basis in which natural gas is converted to an equivalent barrel of oil based on a ratio of six mcf to one barrel . this ratio may not be reflective of the current price ratio between the two products . replace_table_token_5_th oil revenues were 78 % and 82 % of the company 's total revenues for the years ended december 31 , 2020 and 2019 , respectively .
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factors that could cause or contribute to these differences include those discussed below and elsewhere in this annual report , particularly in risk factors under item ia . business overview emcore corporation and its subsidiaries ( the “ company ” , “ we ” , “ our ” , or “ emcore ” ) offers a broad portfolio of compound semiconductor-based products for the broadband , fiber optics , satellite , and solar power markets . we were established in 1984 as a new jersey corporation and we have two reporting segments : fiber optics and photovoltaics . emcore 's fiber optics business segment provides optical components , subsystems and systems for high-speed telecommunications , cable television ( catv ) and fiber-to-the-premise ( fttp ) networks , as well as products for satellite communications , video transport and specialty photonics technologies for defense and homeland security applications . solar photovoltaics business segment provides products for space power applications including high-efficiency multi-junction solar cells , covered interconnect cells ( cics ) and complete satellite solar panels , and terrestrial applications , including high-efficiency gaas solar cells for concentrating photovoltaic ( cpv ) power systems . our headquarters and principal executive offices are located at 10420 research road , se , albuquerque , new mexico , 87123 , and our main telephone number is ( 505 ) 332-5000. for specific information about us , our products , or the markets we serve , please visit our website at http : //www.emcore.com . the information contained in or linked to our website is not a part of , nor incorporated by reference into , this annual report on form 10-k or a part of any other report or filing with the securities and exchange commission ( sec ) . see note 18 - suncore joint venture in the notes to the consolidated financial statements for disclosures related to the definitive agreement which consolidated the company 's terrestrial cpv system engineering and development efforts into the company 's joint venture . impact from thailand flood in october 2011 , we announced that flood waters had severely impacted the inventory and production operations of our primary contract manufacturer in thailand . the impacted areas included certain product lines for the telecom and cable television ( catv ) market segments . this has had a significant impact on our operations and our ability to meet customer demand for certain of our fiber optics products in the near term . our photovoltaics segment was not affected by the thailand floods . since that announcement , we have developed and implemented a plan to rebuild the impacted production lines at other locations , including an alternate facility of our contract manufacturer in thailand , as well as our own manufacturing facilities in the united states and china . our production line for itlas ( integrable tunable laser assemblies ) for 40 and 100 gb/s ( gigabit per second ) coherent telecom applications has been up and running since april 2012 at our contract manufacturer in thailand . production line qualification has been completed and most customers have successfully completed full-line audits and started taking shipments in april . as of september 2012 , our itla line is operating at pre-flood capacity production levels . the catv laser module and transmitter production lines at our manufacturing facility in china reached pre-flood capacity production levels as of september 2012. see note 11 - impact from thailand flood in the notes to the consolidated financial statements for additional disclosures related to the impact of the thailand flood on our operations . 45 sale of fiber optics-related assets on march 27 , 2012 , we entered into a master purchase agreement with a subsidiary of sumitomo electric industries , ltd ( sei ) , pursuant to which we agreed to sell certain assets and transfer certain obligations associated with our fiber optics segment . on may 7 , 2012 , we completed the sale of these assets to sei and recorded a gain of approximately $ 2.8 million . the assets sold included inventory , fixed assets , and intellectual property which enabled approximately $ 9.2 million of revenue from sales of datacom , parallel optical devices and emcore connects cable products during the fiscal year ended september 30 , 2012 . under the terms of the master purchase agreement , we have agreed to indemnify sei for up to $ 3.4 million of potential claims and expenses for the two-year period following the sale , and we have recorded this amount as a deferred gain on our balance sheet as of september 30 , 2012 as a result of these contingencies . sei paid $ 13.1 million in cash and deposited approximately $ 2.6 million into escrow as security for indemnification obligations and any purchase price adjustments . payment of escrow amounts occurs over a two-year period and is subject to claim adjustments . in total , we have deferred approximately $ 4.9 million of the total paid by sei as a gain on sale until the indemnification obligation of $ 3.4 million and purchase price adjustment contingencies are resolved . see note 1 - description of business in the notes to the consolidated financial statements for additional disclosures related to this asset sale . critical accounting policies the preparation of consolidated financial statements in conformity with u.s. gaap requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities , as of the date of the financial statements , and the reported amounts of revenue and expenses during the reported period . story_separator_special_tag if it is assessed that the fair value is more likely than not less than the carrying value , we then determine the fair value of each reporting unit using a weighted combination of a market-based approach and a discounted cash flow ( dcf ) approach . the market-based approach relies on values based on market multiples derived from comparable public companies . in applying the dcf approach , management forecasts cash flows over the remaining useful life of its primary asset using assumptions of current economic conditions and future expectations of earnings . this analysis requires the exercise of significant judgment , including judgments about appropriate discount rates based on the assessment of risks inherent in the amount and timing of projected future cash flows . the derived discount rate may fluctuate from period to period as it is based on external market conditions . all of these assumptions are critical to the estimate and can change from period to period . updates to these assumptions in future periods , particularly changes in discount rates , could result in different results of goodwill impairment tests . see note 8 - goodwill in the notes to the consolidated financial statements for additional disclosures related to our goodwill . valuation of long-lived assets long-lived assets consist primarily of property , plant , and equipment and intangible assets . because most of our long-lived assets are subject to amortization , we review these assets for impairment in accordance with the provisions of asc 360 , property , plant , and equipment . we review long-lived assets for impairment whenever events or changes in circumstances indicate that its carrying amount may not be recoverable . our impairment testing of long-lived assets consists of determining whether the carrying amount of the long-lived asset ( asset group ) is recoverable , in other words , whether the sum of the future undiscounted cash flows expected to result from the use and eventual disposition of the asset ( asset group ) exceeds its carrying amount . the determination of the existence of impairment involves judgments that are subjective in nature and may require the use of estimates in forecasting future results and cash flows related to an asset or group of assets . in making this determination , we use certain assumptions , including estimates of future cash flows expected to be generated by these assets , which are based on additional assumptions such as asset utilization , the length of service that assets will be used in our operations , and estimated salvage values . see note 7 - property , plant , and equipment , net and note 9 - intangible assets in the notes to the consolidated financial statements for additional disclosures related to our long-lived assets . revenue recognition revenue is recognized upon shipment , provided persuasive evidence of a contract exists , the price is fixed , the product meets our customer 's specifications , title and ownership have transferred to the customer , and there is reasonable assurance of collection of the sales proceeds . the majority of our products have shipping terms that are free on board or free carrier alongside ( fca ) shipping point , which means that we fulfill our delivery obligation when the goods are handed over to the freight carrier at our shipping dock . this means the buyer typically bears all costs and risks of loss or damage to the goods from that point . in certain cases , we ship our products cost insurance and freight . under this arrangement , revenue is recognized under fca shipping point terms , but we pay ( and invoice the customer ) for the cost of shipping and insurance to the customer 's designated location . we account for shipping and related transportation costs by recording the charges that are invoiced to customers as revenue , with the corresponding cost recorded as cost of revenue . in those instances where inventory is maintained at a consigned location , revenue is recognized only when our customer pulls product for use and after title and ownership has transferred to the customer . revenue from time and material contracts is recognized at contractual rates as labor hours and direct expenses are incurred . any warranty cost and remaining obligations that are inconsequential or perfunctory are accrued when the corresponding revenue is recognized . distributors . we use a number of distributors around the world and recognize revenue upon shipment of product to these distributors . title and risk of loss pass to the distributors upon shipment , and our distributors are contractually obligated to pay us on standard commercial terms , just like our other direct customers . we do not sell to our distributors on consignment and , except in the event of product discontinuance , do not give distributors a right of return . solar panel contracts . pursuant to asc 605-35 , revenue recognition - construction-type and production , we record revenue on long-term solar panel contracts using either the percentage-of-completion method or the completed contract method . in general , the performance of these types of contracts involves the design , development , and manufacture of complex aerospace or electronic equipment to our customer 's specifications . the percentage-of-completion method is used in circumstances in which all the following conditions exist : 48 the contract includes enforceable rights regarding goods or services to be provided to the customer , the consideration to be exchanged , and the manner and terms of settlement ; both the company and the customer are expected to satisfy all of the contractual obligations ; and , reasonably reliable estimates of total revenue , total cost , and the progress towards completion can be made . the percentage-of-completion method recognizes estimates for contract revenue and costs in progress as work on the contract continues . estimates are revised as additional information becomes available .
| comparison of financial results : revenue : replace_table_token_6_th fiber optics revenue our fiber optics reporting segment provides optical components , subsystems , and systems for high-speed telecommunications , cable television ( catv ) , and fiber-to-the-premise ( fttp ) networks , as well as products for satellite communications , video transport , and specialty photonics technologies for defense and homeland security applications . our fiber optics segment is broken out into two distinct product lines : broadband products , which includes cable television products , fiber-to-the-premises products , satellite communication products , and defense and homeland security products ; and , digital products , which include telecom optical products . broadband product revenue : for the fiscal year ended september 30 , 2012 , revenue from broadband products decreased 27 % from the prior year which was primarily driven by decreased unit shipments of our catv-related products primarily due to the impact of the thailand flood . fiscal 2011 revenue from broadband products increased approximately 12 % from fiscal 2010 which was primarily driven by increased unit shipments of our catv and video transport products . the increase in catv unit shipments was primarily driven by our quadrature amplitude modulation ( qam ) transmitters and receivers . digital product revenue : fiscal 2012 revenue from digital products decreased 32 % from the prior year which was primarily due to the impact of the thailand flood on the telecom product lines . our enterprise digital product lines were sold to sei in may 2012. fiscal 2011 revenue from digital products decreased approximately 8 % from fiscal 2010 which was primarily due to a reduction of approximately $ 13.7 million of revenue associated with sales of parallel optics device products primarily as a result of the u.s. international trade commission ( itc ) ruling . see note 15 - commitments and contingencies in the notes to the consolidated financial statements for additional information related to the itc ruling .
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million and $ 77.7 million , respectively . amortization expense for the next five fiscal years is estimated to be $ 74.0 million , $ 73.5 million , $ 65.3 million , $ 63.8 million and $ 62.3 million . note 7. goodwill changes in the carrying amount of goodwill ( in thousands ) : page 85 darling ingredients inc. notes to consolidated financial statements ( continued ) replace_table_token_31_th the process of evaluating goodwill for impairment involves the determination of the fair value of the company 's reporting units . in fiscal 2018 , fiscal 2017 and fiscal 2016 , the fair values of the company 's reporting units containing goodwill exceeded the related carrying value pursuant to a quantitative assessment completed as of october 27 , 2018 , october 28 , 2017 and october 29 , 2016 , respectively . note 8. accrued expenses accrued expenses consist of the following ( in thousands ) : replace_table_token_32_th note 9. leases the company leases 12 processing plants and storage locations , land surrounding certain processing plants and office locations under operating leases and a portion of its transportation equipment under operating and capital leases . leases are noncancellable and expire at various times through the year 2066 . minimum rental commitments under noncancellable leases as of december 29 , 2018 , are as follows ( in thousands ) : page 86 darling ingredients inc. notes story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations contains forward-looking statements that involve risks and uncertainties . the company 's actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors , including those set forth below under the heading “ forward looking statements ” and in item 1a of this report under the heading “ risk factors. ” fiscal 2018 overview the company is a global developer and producer of sustainable natural ingredients from edible and inedible bio-nutrients , creating a wide range of ingredients and customized specialty solutions for customers in the pharmaceutical , food , pet food , feed , industrial , fuel , bioenergy and fertilizer industries . with operations on five continents , the company collects and transforms all aspects of animal by-product streams into useable and specialty ingredients , such as collagen , edible fats , feed-grade fats , animal proteins and meals , plasma , pet food ingredients , organic fertilizers , yellow grease , fuel feedstocks , green energy , natural casings and hides . the company also recovers and converts recycled oils ( used cooking oil and animal fats ) into valuable feed and fuel ingredients , and collects and processes residual bakery products into feed ingredients . in addition , the company provides environmental services , such as grease trap collection and disposal services to food service establishments . the company sells its products domestically and internationally and operates within three industry segments : feed ingredients , food ingredients and fuel ingredients . the feed ingredients operating segment includes the company 's global activities related to ( i ) the collection and processing of beef , poultry and pork animal by-products in north america and europe into non-food grade oils and protein meals , ( ii ) the collection and processing of bakery residuals in north america into cookie meal® , which is predominantly used in poultry and swine rations , ( iii ) the collection and processing of used cooking oil in north america into non-food grade fats , ( iv ) the collection and processing of porcine and bovine blood in china , europe , north america and australia into blood plasma powder and hemoglobin , ( v ) the processing of selected portions of slaughtered animals into a variety of meat products for use in pet food , ( vi ) the processing of cattle hides and hog skins in north america , ( vii ) the production of organic fertilizers using protein produced from the company 's animal by-products processing activities in north america and europe , and ( viii ) the provision of grease trap services to food service establishments . non-food grade oils and fats produced and marketed by the company are principally sold to third parties to be used as ingredients in animal feed and pet food , as an ingredient for the production of biodiesel and renewable diesel , or to the oleo-chemical industry to be used as an ingredient in a wide variety of industrial applications . protein meals , blood plasma powder and hemoglobin produced and marketed by the company are sold to third parties to be used as ingredients in animal feed , pet food and aquaculture . the food ingredients operating segment includes the company 's global activities related to ( i ) the purchase and processing of beef and pork bone chips , beef hides , pig skins , and fish skins into collagen in europe , china , south america and north america , ( ii ) the collection and processing of porcine and bovine intestines into natural casings in europe , china and north america , ( iii ) the extraction and processing of porcine mucosa into crude heparin in europe , ( iv ) the collection and refining of animal fat into food grade fat in europe , and ( v ) the processing of bones to bone chips for the collagen industry and bone ash . collagens and collagens produced and marketed by the company are sold to third parties to be used as ingredients in the pharmaceutical , nutraceutical , food , and technical ( e.g. , photographic ) industries . natural casings produced and marketed by the company are sold to third parties to be used as an ingredient in the production of sausages and other similar food products . story_separator_special_tag results of operations fiscal year ended december 29 , 2018 compared to fiscal year ended december 30 , 2017 operating performance metrics other operating performance metrics indicators which management routinely monitors as an indicator of operating performance include : finished product commodity prices segment results foreign currency corporate activities non-u.s. gaap measures page 46 these indicators and their importance are discussed below . finished product commodity prices prices for finished product commodities that the company produces in the feed ingredients segment are reported each business day on the jacobsen index ( the “ jacobsen ” ) , an established north american trading exchange price publisher . the jacobsen reports industry sales from the prior day 's activity by product . included on the jacobsen are reported prices for finished products such as mbm , pm and feather meal ( “ fm ” ) , hides , bft and yg and corn , which is a substitute commodity for the company 's bbp as well as a range of other branded and value-added products , which are products of the company 's feed ingredients segment . in the u.s. the company regularly monitors the jacobsen for mbm , pm , fm , bft , yg and corn because it provides a daily indication of the company 's u.s. revenue performance against business plan benchmarks . in europe , the company regularly monitors thomson reuters ( “ reuters ” ) to track the competing commodities palm oil and soy meal . although the jacobsen and reuters provide useful metrics of performance , the company 's finished products are commodities that compete with other commodities such as corn , soybean oil , palm oil complex , soybean meal and heating oil on nutritional and functional values . therefore , actual pricing for the company 's finished products , as well as competing products , can be quite volatile . in addition , neither the jacobsen nor reuters provides forward or future period pricing for the company 's commodities . the jacobsen and reuters prices quoted below are for delivery of the finished product at a specified location . although the company 's prices generally move in concert with reported jacobsen and reuters prices , the company 's actual sales prices for its finished products may vary significantly from the jacobsen and reuters because of production and delivery timing differences and because the company 's finished products are delivered to multiple locations in different geographic regions which utilize alternative price indexes . in addition , certain of the company 's premium branded finished products may sell at prices that may be higher than the closest product on the related jacobsen or reuters index . during fiscal 2018 , the company 's actual sales prices by product trended with the disclosed jacobsen and reuters prices . average jacobsen and reuters prices ( at the specified delivery point ) for fiscal 2018 , compared to average jacobsen and reuters prices for fiscal 2017 are : replace_table_token_4_th the following table shows the average jacobsen and reuters prices for the fourth quarter of fiscal 2018 , compared to the average jacobsen and reuters prices for the third quarter of fiscal 2018. page 47 replace_table_token_5_th segment results segment operating income for the fiscal year ended december 29 , 2018 was $ 95.2 million , which reflects a decrease of $ 46.0 million or ( 32.6 ) % as compared to the fiscal year ended december 30 , 2017. replace_table_token_6_th replace_table_token_7_th page 48 feed ingredients segment raw material volume . in fiscal year 2018 , the raw material processed by the company 's feed ingredients segment totaled 8.60 million metric tons . compared to fiscal year 2017 , overall raw material volume processed in the feed ingredients segment increased approximately 4.4 % . sales . during the year ended december 29 , 2018 , net sales for the feed ingredients segment were $ 1,952.6 million as compared to $ 2,239.5 million for the year ended december 30 , 2017 , a decrease of approximately $ 286.9 million . net sales for fats were approximately $ 564.7 million and $ 648.3 million for the years ended december 29 , 2018 and december 30 , 2017 , respectively . protein net sales were approximately $ 842.9 million and $ 816.1 million for the years ended december 29 , 2018 and december 30 , 2017 , respectively . other rendering net sales , which include hides , pet food , and service charges , were approximately $ 129.3 million and $ 286.2 million for the years ended december 29 , 2018 and december 30 , 2017 , respectively . total rendering net sales were approximately $ 1,536.9 million and $ 1,750.6 million for the years ended december 29 , 2018 and december 30 , 2017 , respectively . used cooking oil net sales were approximately $ 166.7 million and $ 185.5 million for the years ended december 29 , 2018 and december 30 , 2017 , respectively . bakery net sales were approximately $ 180.2 million and $ 209.8 million for the years ended december 29 , 2018 and december 30 , 2017 , respectively , and other net sales , which includes trap services , and for 2017 industrial residual services , were approximately $ 68.8 million and $ 93.6 million for the years ended december 29 , 2018 and december 30 , 2017 , respectively . the decrease in net sales for the feed ingredients segment was primarily due to the following ( in millions of dollars ) : replace_table_token_8_th ( 1 ) the decrease in freight revenue represents the impact from adoption of the new revenue standard on current year feed segment revenue as compared to the same period in fiscal 2017. see note 22 to the notes for impact on consolidated financial statements .
| segment results segment operating income for the fiscal year ended december 30 , 2017 was $ 141.2 million , which reflects a decrease of $ 13.5 million or ( 8.7 ) % as compared to the fiscal year ended december 31 , 2016. page 53 replace_table_token_12_th replace_table_token_13_th feed ingredients segment raw material volume . in fiscal year 2017 , the raw material processed by the company 's feed ingredients segment totaled 8.24 million metric tons . compared to the fiscal year 2016 overall raw material volume processed in the feed ingredients segment increased approximately 3.4 % . sales . during the year ended december 30 , 2017 , net sales for the feed ingredients segment were $ 2,239.5 million as compared to $ 2,089.1 million for the year ended december 31 , 2016 , an increase of approximately $ 150.4 million . net sales for fats were approximately $ 648.3 million and $ 574.6 million for the years ended december 30 , 2017 and december 31 , 2016 . protein net sales were approximately $ 816.1 million and $ 769.4 million for the years ended december 30 , 2017 and december 31 , 2016 . other rendering net sales , which include hides , pet food , and service charges , were approximately $ 286.2 million and $ 269.1 million for the years ended december 30 , 2017 and december 31 , 2016 . total rendering net sales were approximately $ 1,750.6 million and $ 1,613.1 million for the years ended december 30 , 2017 and december 31 , 2016 . used cooking oil net sales were approximately $ 185.5 million and $ 165.1 million for the years ended december 30 , 2017 and december 31 , 2016 .
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● achievement of various development goals for therapeutic applications of the company 's manocept platform , subject to a maximum 15 % reduction of bonus if not achieved , including : o complete a development plan for treating active m1-mediated inflammation , demonstration for potential partners for systemic applications ; o complete story_separator_special_tag the following discussion should be read together with our consolidated financial statements and the notes related to those statements , as well as the other financial information included in this form 10-k. some of our discussion is forward-looking and involves risks and uncertainties . for information regarding risk factors that could have a material adverse effect on our business , refer to item 1a of this form 10-k , “ risk factors. ” the company navidea biopharmaceuticals , inc. is a biopharmaceutical company focused on the development and commercialization of precision immunodiagnostic agents and immunotherapeutics . navidea is developing multiple precision-targeted products based on our manocept platform to enhance patient care by identifying the sites and pathways of undetected disease and enable better diagnostic accuracy , clinical decision-making and targeted treatment . navidea 's manocept platform is predicated on the ability to specifically target the cd206 mannose receptor expressed on activated macrophages . the manocept platform serves as the molecular backbone of tc99m tilmanocept , the first product developed by navidea based on the platform . on march 3 , 2017 , the company completed the asset sale to cardinal health 414 , as discussed previously under “ development of the business. ” pursuant to the purchase agreement , we sold all of our assets used , held for use , or intended to be used in operating the business , including lymphoseek , in canada , mexico and the united states . upon closing of the asset sale , the supply and distribution agreement between cardinal health 414 and the company was terminated and , as a result , the provisions thereof are of no further force or effect . other than tc99m tilmanocept , which the company has a license to distribute outside of canada , mexico and the united states , none of the company 's drug product candidates have been approved for sale in any market . we manage our business based on two primary types of drug products : ( i ) diagnostic substances , including tc99m tilmanocept and other diagnostic applications of our manocept platform and nav4694 ( through the date of sublicensing ) , and ( ii ) therapeutic development programs , including therapeutic applications of our manocept platform and all development programs undertaken by mt . see note 18 to the consolidated financial statements for more information about our business segments . in the near term , the company intends to continue to develop our additional imaging product candidates into advanced clinical testing with the goal of extending the regulatory approvals for use of the tc99m tilmanocept product . we will also be evaluating potential funding and other resources required for continued development , regulatory approval and commercialization of any manocept platform product candidates that we identify for further development , and potential options for advancing development . our outlook our operating expenses in recent years have been focused primarily on support of our manocept platform , tc99m tilmanocept , and nav4694 product development . we incurred approximately $ 4.2 million and $ 4.5 million in total on research and development activities during the years ended december 31 , 2018 and 2017 , respectively . of the total amounts we spent on research and development during those periods , excluding costs related to our internal research and development headcount and our general and administrative staff which we do not currently allocate among the various development programs that we have underway , we incurred out-of-pocket charges by program as follows : replace_table_token_1_th ( a ) certain development program expenditures were offset by grant reimbursement revenues totaling $ 761,000 and $ 1.7 million during the years ended december 31 , 2018 and 2017 , respectively . ( b ) certain 2017 amounts have been reclassified from manocept platform to macrophage therapeutics to conform to 2018 presentation . ( c ) changes in cost estimates resulted in the reversal of certain previously accrued expenses related to the nav4694 development program during the year ended december 31 , 2017. we expect to continue the advancement of our efforts with our manocept platform during 2019. the divestiture of nav4694 has decreased our development costs over the past year . we expect our total research and development expenses , including both out-of-pocket charges as well as internal headcount and support costs , to be higher in 2019 than in 2018 . 29 tc99m tilmanocept is approved by the ema for use in imaging and intraoperative detection of sentinel lymph nodes draining a primary tumor in adult patients with breast cancer , melanoma , or localized squamous cell carcinoma of the oral cavity in the eu . following the january 2017 transfer of the tc99m tilmanocept marketing authorization to spepharm , we transferred responsibility for manufacturing the reduced-mass vial for the eu market to spepharm . during the second quarter of 2017 , spepharm launched tc99m tilmanocept in select eu markets , providing a number of early adopters with sample doses to provide exposure to the product . eu sales commenced during the third quarter of 2017. we anticipate that we will incur costs related to supporting our product , regulatory , manufacturing and commercial activities related to the potential marketing registration and sale of tc99m tilmanocept in markets other than the eu . there can be no assurance that tc99m tilmanocept will achieve regulatory approval in any market other than the eu , or if approved in those markets , that it will achieve market acceptance in the eu or any other market . see item 1a - “ risk factors. story_separator_special_tag investing activities during 2017 included purchases of available-for-sale securities of $ 2.2 million and capital expenditures of $ 34,000 , primarily for computer equipment and leasehold improvements , offset by maturities of available-for-sale securities of $ 400,000. we expect our overall capital expenditures for 2019 will be higher than 2018 as we work to increase our manufacturing efficiency and maintain our technology infrastructure . financing activities . financing activities used $ 4.5 million during 2018 compared to $ 61.0 million during 2017. the $ 4.5 million used by financing activities during 2018 consisted primarily of crg 's draw on the letter of credit of $ 7.1 million and principal payments on financed insurance premiums of $ 396,000 , offset by proceeds from a private equity placement of $ 3.0 million . the $ 61.0 million used by financing activities in 2017 consisted primarily of principal payments on the crg , platinum and ipfs notes payable of $ 59.8 million and payment of debt-related costs of $ 1.3 million , offset by proceeds from issuance of common stock of $ 72,000. cardinal health 414 asset sale on march 3 , 2017 , pursuant to a purchase agreement dated november 23 , 2016 , the company completed its previously announced sale to cardinal health 414 of its assets used , held for use , or intended to be used in operating the business , including the product , in the territory ( giving effect to the license-back and excluding certain assets specifically retained by the company ) . such assets sold in the asset sale consist primarily of , without limitation , ( i ) intellectual property used in or reasonably necessary for the conduct of the business , ( ii ) inventory of , and customer , distribution , and product manufacturing agreements related to , the business , ( iii ) all product registrations related to the product , including the new drug application approved by the fda for the product and all regulatory submissions in the united states that have been made with respect to the product and all health canada regulatory submissions and , in each case , all files and records related thereto , ( iv ) all related clinical trials and clinical trial authorizations and all files and records related thereto , and ( v ) all right , title and interest in and to the product , as specified in the purchase agreement . upon closing of the asset sale , the supply and distribution agreement between cardinal health 414 and the company was terminated and , as a result , the provisions thereof are of no further force or effect . in exchange for the acquired assets , cardinal health 414 ( i ) made a cash payment to the company at closing of approximately $ 80.6 million after adjustments based on inventory being transferred and an advance of $ 3.0 million of guaranteed earnout payments as part of the crg settlement , ( ii ) assumed certain liabilities of the company associated with the product as specified in the purchase agreement , and ( iii ) agreed to make periodic earnout payments ( to consist of contingent payments and milestone payments which , if paid , will be treated as additional purchase price ) to the company based on net sales derived from the purchased product subject , in each case , to cardinal health 414 's right to off-set . in no event will the sum of all earnout payments , as further described in the purchase agreement , exceed $ 230 million over a period of ten years , of which $ 20.1 million are guaranteed payments for the three years immediately after closing of the asset sale . at the closing of the asset sale , $ 3.0 million of such earnout payments were advanced by cardinal health 414 to the company , and paid to crg . we recorded a net gain on the sale of the business of $ 89.2 million for the year ended december 31 , 2017 , including $ 16.5 in guaranteed consideration , which was discounted to the present value of future cash flows . the proceeds were offset by $ 3.3 million in estimated fair value of warrants issued to cardinal health 414 , $ 2.0 million in legal and other fees related to the sale , $ 800,000 in net balance sheet dispositions and write-offs , and $ 4.1 million in estimated taxes . the guaranteed consideration was recorded as a receivable , the balance of which was being reduced as quarterly payments were received . on april 2 , 2018 , the company entered into an amendment to the asset purchase agreement . pursuant to the amendment , cardinal health 414 paid the company approximately $ 6.0 million and agreed to pay the company an amount equal to the unused portion of the letter of credit ( not to exceed approximately $ 7.1 million ) promptly after the earlier of ( i ) the expiration of the letter of credit and ( ii ) the receipt by cardinal health 414 of evidence of the return and cancellation of the letter of credit . in exchange , the obligation of cardinal health 414 to make any further contingent payments has been eliminated . cardinal health 414 is still obligated to make the milestone payments in accordance with the terms of the earnout provisions of the purchase agreement . we recorded an additional gain related to the amendment to the asset purchase agreement of $ 43,000 for the year ended december 31 , 2018 , including $ 54,000 of additional consideration , offset by $ 11,000 in estimated taxes . on april 9 , 2018 , crg drew approximately $ 7.1 million on the letter of credit . see note 3 to the accompanying consolidated financial statements .
| results of operations this discussion of our results of operations focuses on describing results of our operations as if we had not operated the discontinued operations discussed above during the periods being disclosed . in addition , since our remaining pharmaceutical product candidates are not yet generating commercial revenue , the discussion of our revenue focuses on the grant and other revenue and our operating variances focus on our remaining product development programs and the supporting general and administrative expenses . 30 years ended december 31 , 201 8 and 201 7 royalty revenue . during 2018 and 2017 , we recognized royalty revenue of $ 15,000 and $ 9,000 , respectively , related to our license agreement with spepharm in europe . license revenue . during 2018 , we recognized license revenue of $ 307,000 , primarily for a non-refundable upfront payment related to the sublicense of nav4694 to meilleur and the sublicense of tc99m tilmanocept to sinotau in china . during 2017 , we recognized license revenue of $ 100,000 for a non-refundable upfront payment related to the tc99m tilmanocept license and distribution agreement with sayre therapeutics in india . grant and other revenue . during 2018 , we recognized $ 847,000 of grant and other revenue compared to $ 1.7 million in 2017. grant revenue during 2018 was primarily related to sbir grants from the nih supporting manocept development . grant revenue during 2017 was primarily related to sbir grants from the nih supporting manocept , therapeutic and tc99m tilmanocept development . other revenue for 2018 and 2017 included $ 85,000 and $ 31,000 , respectively , of revenue primarily from our marketing partners in europe and china related to development work performed at their request . research and development expenses .
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gross derivative assets and liabilities are recorded in other assets and other liabilities , respectively , on the consolidated balance sheets , with changes in fair values during the period recorded in mortgage banking income on the consolidated statements of income . interest rate swaps the corporation enters into interest rate swaps with certain qualifying commercial loan customers to meet their interest rate risk management needs . the corporation simultaneously enters into interest rate swaps with dealer counterparties , story_separator_special_tag this management 's discussion and analysis of financial condition and results of operations ( management 's discussion ) relates to fulton financial corporation ( the corporation ) , a financial holding company registered under the bank holding company act and incorporated under the laws of the commonwealth of pennsylvania in 1982 , and its wholly owned subsidiaries . management 's discussion should be read in conjunction with the consolidated financial statements and other financial information presented in this report . forward-looking statements the corporation has made , and may continue to make , certain forward-looking statements with respect to its financial condition and results of operations . do not unduly rely on forward-looking statements . forward-looking statements can be identified by the use of words such as `` may , '' `` should , '' `` will , '' `` could , '' `` estimates , '' `` predicts , '' `` potential , '' `` continue , '' `` anticipates , '' `` believes , '' `` plans , '' `` expects , '' `` future , '' `` intends '' and similar expressions which are intended to identify forward-looking statements . statements relating to the `` outlook '' or `` outlook for 2016 '' contained herein are forward-looking statements . these forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties , some of which are beyond the corporation 's control and ability to predict , that could cause actual results to differ materially from those expressed in the forward-looking statements . the corporation undertakes no obligation , other than as required by law , to update or revise any forward-looking statements , whether as a result of new information , future events or otherwise . many factors could affect future financial results including , without limitation : the impact of adverse conditions in the economy and capital markets on the performance of the corporation 's loan portfolio and demand for the corporation 's products and services ; increases in non-performing assets , which may require the corporation to increase the allowance for credit losses , charge off loans and incur elevated collection and carrying costs related to such non-performing assets ; investment securities gains and losses , including other-than-temporary declines in the value of securities which may result in charges to earnings ; the effects of market interest rates , and the relative balances of rate-sensitive assets to rate-sensitive liabilities , on net interest margin and net interest income ; the effects of changes in interest rates on demand for the corporation 's products and services ; the effects of changes in interest rates or disruptions in liquidity markets on the corporation 's sources of funding ; the corporation 's ability to manage liquidity , both at the holding company level and at its bank subsidiaries ; the impact of increased regulatory scrutiny of the banking industry ; the effects of the increasing amounts of time and expense associated with regulatory compliance and risk management ; the potential for negative consequences from regulatory violations , including potential supervisory actions and the assessment of fines and penalties ; the additional time , expense and investment required to comply with , and the restrictions on potential growth and investment activities resulting from , the existing enforcement orders applicable to the corporation and its bank subsidiaries by federal and state bank regulatory agencies requiring improvement in compliance functions and other remedial actions , or any future enforcement orders ; the corporation 's ability to manage the uncertainty associated with the delay in implementing many of the regulations mandated by the dodd-frank act ; the effects of negative publicity on the corporation 's reputation ; the effects of adverse outcomes in litigation and governmental or administrative proceedings ; the corporation 's ability to successfully transform its business model ; the corporation 's ability to achieve its growth plans ; the effects of competition on deposit rates and growth , loan rates and growth and net interest margin ; the corporation 's ability to manage the level of non-interest expenses , including salaries and employee benefits expenses , operating risk losses and goodwill impairment ; the impact of operational risks , including the risk of human error , inadequate or failed internal processes and systems , computer and telecommunications systems failures , faulty or incomplete data and an inadequate risk management framework ; the impact of failures of third parties upon which the corporation relies to perform in accordance with contractual arrangements ; the failure or circumvention of the corporation 's system of internal controls ; the loss of , or failure to safeguard , confidential or proprietary information ; 33 the corporation 's failure to identify and to address cyber-security risks ; the corporation 's ability to keep pace with technological changes ; the corporation 's ability to attract and retain talented personnel ; capital and liquidity strategies , including the corporation 's ability to comply with applicable capital and liquidity requirements , and the corporation 's ability to generate capital internally or raise capital on favorable terms ; the corporation 's reliance on its subsidiaries for substantially all of its revenues and its ability to pay dividends or other distributions ; and the effects of any downgrade in the corporation 's credit ratings on its borrowing costs or access to capital markets . overview and outlook fulton financial corporation is a financial holding company comprised of six wholly owned banking subsidiaries which provide a full range of retail and commercial financial services in pennsylvania , delaware , maryland , new jersey and virginia . story_separator_special_tag in 2014 , these initiatives included the consolidation of 13 branches , streamlining of subsidiary bank management structures and other employee compensation and benefit reductions . these actions resulted in implementation expenses of $ 1.0 million and reduced non-interest expenses by $ 7.0 million in 2014. annualized expense reductions from these 2014 initiatives were approximately $ 8.0 million . the following table presents a summary of the 2015 and 2014 cost savings initiatives : replace_table_token_10_th regulatory enforcement orders - the corporation and each of its bank subsidiaries are subject to regulatory enforcement orders issued during 2014 and 2015 by their respective federal and state bank regulatory agencies relating to identified deficiencies in the corporation 's centralized bank secrecy act and anti-money laundering compliance program ( the bsa/aml compliance program ) , which was designed to comply with the requirements of the bank secrecy act , the usa patriot act of 2001 and related anti-money laundering regulations ( collectively , the bsa/aml requirements ) . the regulatory enforcement orders , which are in the form of consent orders or orders to cease and desist issued upon consent ( consent orders ) , generally require , among other things , that the corporation and its bank subsidiaries undertake a number of required actions to strengthen and enhance the bsa/aml compliance program , and , in some cases , conduct retrospective reviews of past account activity and transactions , as well as certain reports filed in accordance with the 35 bsa/aml requirements , to determine whether suspicious activity and certain transactions in currency were properly identified and reported in accordance with the bsa/aml requirements . in addition to requiring strengthening and enhancement of the bsa/aml compliance program , while the consent orders remain in effect , the corporation is subject to certain restrictions on expansion activities of the corporation and its bank subsidiaries . further , any failure to comply with the requirements of any of the consent orders involving the corporation or its bank subsidiaries could result in further enforcement actions , the imposition of material restrictions on the activities of the corporation or its bank subsidiaries , or the assessment of fines or penalties . additional expenses and investments have been incurred as the corporation expanded its hiring of personnel and use of outside professionals , such as consulting and legal services , and capital investments in operating systems to strengthen and support the bsa/aml compliance program , as well as the corporation 's broader compliance and risk management infrastructures . the expense and capital investment associated with all of these efforts , including in connection with the consent orders , have had an adverse effect on the corporation 's results of operations in recent periods and could have a material adverse effect on the corporation 's results of operations in one or more future periods . 2016 outlook the corporation 's outlook for 2016 : annual mid- to high- single digit growth rate in average loans and deposits ; net interest margin expected to be stable on an annual basis ( based on current interest rate environment ) with modest quarterly volatility of plus or minus 0 to 3 basis points ; provision for credit losses driven primarily by loan growth ; annual mid- to high- single digit growth rate in non-interest income , excluding the impact of securities gains ; annual low- to mid- single digit growth rate in non-interest expense ( excluding loss on redemption of trups incurred in 2015 ) ; and focus on utilizing capital to support growth and provide appropriate returns to shareholders . critical accounting policies the following is a summary of those accounting policies that the corporation considers to be most important to the presentation of its financial condition and results of operations , as they require management 's most difficult judgments as a result of the need to make estimates about the effects of matters that are inherently uncertain . see additional information regarding these critical accounting policies in `` note 1 - summary of significant accounting policies , '' in the notes to the consolidated financial statements in item 8. financial statements and supplementary data . allowance for credit losses - the allowance for credit losses consists of the allowance for loan losses and the reserve for unfunded lending commitments . the allowance for loan losses represents management 's estimate of incurred losses in the loan portfolio as of the balance sheet date and is recorded as a reduction to loans . the reserve for unfunded lending commitments represents management 's estimate of losses inherent in its unfunded loan commitments and is recorded in other liabilities on the consolidated balance sheet . the corporation 's allowance for loan losses includes : 1 ) specific allowances allocated to loans evaluated for impairment under the financial accounting standards board 's accounting standards codification ( fasb asc ) section 310-10-35 ; and 2 ) allowances calculated for pools of loans evaluated for impairment under fasb asc subtopic 450-20. management 's estimate of incurred losses in the loan portfolio is based on a methodology that includes the following critical judgments : identification of potential problem loans in a timely manner . for commercial loans , commercial mortgages and construction loans to commercial borrowers , an internal risk rating process is used . the corporation believes that internal risk ratings are the most relevant credit quality indicator for these types of loans . the migration of loans through the various internal risk rating categories is a significant component of the allowance for credit loss methodology for these loans , which bases the probability of default on this migration . assigning risk ratings involves judgment . the corporation 's loan review officers provide an independent assessment of risk rating accuracy . ratings may be changed based on the ongoing monitoring procedures performed by loan officers or credit administration staff , or if specific loan review assessments identify a deterioration or an improvement in the loan .
| results of operations net interest income net interest income is the most significant component of the corporation 's net income . the corporation manages the risk associated with changes in interest rates through the techniques described within item 7a , `` quantitative and qualitative disclosures about market risk . '' the following table provides a comparative average balance sheet and net interest income analysis for 2015 compared to 2014 and 2013 . interest income and yields are presented on an fte basis , using a 35 % federal tax rate and statutory interest expense disallowances . the discussion following this table is based on these tax-equivalent amounts . replace_table_token_11_th ( 1 ) includes dividends earned on equity securities . ( 2 ) includes non-performing loans . ( 3 ) includes amortized historical cost for available for sale securities ; the related unrealized holding gains ( losses ) are included in other assets . 40 the following table summarizes the changes in fte interest income and expense resulting from changes in average balances ( volumes ) and changes in rates : replace_table_token_12_th note : changes which are partially attributable to both volume and rate are allocated to the volume and rate components presented above based on the percentage of the direct changes that are attributable to each component . comparison of 2015 to 2014 fte net interest income decreased $ 13.9 million , or 2.6 % , to $ 518.5 million in 2015 . net interest margin decreased 18 basis points , or 5.3 % , to 3.21 % in 2015 from 3.39 % in 2014 . fte interest income decreased $ 11.3 million , or 1.8 % , as average yields on interest earning assets decreased 18 basis points .
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if either of the following criteria is met , the integrated set of assets and activities acquired would not qualify as a story_separator_special_tag the following discussion should be read in conjunction with our consolidated financial statements and notes thereto under “ item 15. exhibits and financial statement schedules ” in this annual report on form 10-k. forward-looking statements involve inherent risks and uncertainties regarding events , conditions , and financial trends that may affect our future plans of operations , business strategy , results of operations , and financial position . a number of important factors could cause actual results to differ materially from those included within or contemplated by such forward-looking statements , including , but not limited to , those described under “ item 7. management 's discussion and analysis of financial condition and results of operations ” in this annual report on form 10-k. we do not undertake any responsibility to update any of these factors or to announce publicly any revisions to any of the forward-looking statements contained in this or any other document , whether as a result of new information , future events , or otherwise . as used in this annual report on form 10-k , references to the “ company , ” “ alexandria , ” “ we , ” “ us , ” and “ our ” refer to alexandria real estate equities , inc. and its consolidated subsidiaries . the covid-19 pandemic in december 2019 , a novel coronavirus , which causes respiratory illness and spreads from person to person ( covid-19 ) , was first identified during an investigation into an outbreak in wuhan , china . the first case of covid-19 in the u.s. was reported on january 20 , 2020. on march 11 , 2020 , the world health organization declared covid-19 a pandemic , and on march 13 , 2020 , the u.s. declared a national emergency with respect to covid-19 . as of january 29 , 2021 , according to the world health organization , over 101.0 million novel coronavirus cases have been reported worldwide . the u.s. has reported more than 25.3 million cases of covid-19 and over 425,670 deaths as of january 29 , 2021. covid-19 disease , treatment , and measures to combat the pandemic most patients with covid-19 have had mild to severe respiratory illness with symptoms of fever , chills , cough , shortness of breath , fatigue , and loss of taste . many individuals with covid-19 are asymptomatic and show limited to no symptoms , highlighting the ongoing challenge of containing the continued spread of covid-19 . some patients develop pneumonia in both lungs and or multi-organ failure , which in some cases leads to death . since scientists shared the virus 's genetic makeup in january 2020 , intense research has been underway around the world to develop treatments and vaccines for covid-19 . this has led to the fda issuing emergency use authorizations ( “ eua ” s ) for therapeutics to treat patients with covid-19 and , most recently , approving two vaccines for use in the prevention of coronavirus disease caused by covid-19 . the two approved vaccines were created by pfizer inc. ( in partnership with biontech ) and moderna , inc. ( in partnership with the national institutes of health ) , each a tenant of ours . the u.s. began a large-scale covid-19 vaccination campaign in december 2020. as of january 29 , 2021 , according to the u.s. centers for disease control and prevention , over 4.7 million individuals in the u.s. have been fully vaccinated for covid-19 , and the u.s. will continue to roll out vaccines across the nation , prioritizing frontline and essential workers , the elderly , and individuals considered high risk . although the u.s. fda has approved two vaccines and certain therapies for use as of the date of this report , the initial rollout of vaccine distribution has encountered significant delays , and uncertainties remain as to the amount of vaccine available for distribution , the logistics of implementing a national vaccine program , and the overall efficacy of the vaccines once widely administered , especially as new strains of covid-19 have been discovered , and the level of resistance these new strains have to the existing vaccines , if any , remains unknown . in response to the supply and distribution issues surrounding the vaccine , in january 2021 , president biden outlined a plan to create additional vaccination sites , increase the supply and distribution of vaccines , and increase the number of vaccinations administered to americans . the biden administration plans to utilize the defense production act to maximize the manufacturing and distribution of vaccines in order to administer 100 million vaccination shots within the first 100 days of holding office . in addition to the currently approved vaccines , as of january 29 , 2021 , there are over 60 other potential vaccines in clinical development that may contribute to increasing the supply of vaccines in 2021. the current vaccines in development use a myriad of different scientific approaches to attempt to provoke an immune response , including : genetic vaccines that use part of the coronavirus 's genetic code ; viral vector vaccines that use a virus to deliver coronavirus genes into cells ; protein-based vaccines that use a coronavirus protein or protein fragment to stimulate the immune system ; and whole-virus vaccines that use a weakened or inactivated version of the coronavirus . over 60 potential vaccines are currently in human clinical trials , with nearly a third of these in later stages of clinical development . phase i trials typically include a small number of participants to test safety and dosage as well as to confirm that the vaccine stimulates the immune system . phase ii trials involve hundreds of participants split into groups , such as children and the elderly , to determine whether the vaccine acts differently in each subpopulation . story_separator_special_tag on august 8 , 2020 , president trump signed four executive actions to provide additional covid-19 relief along with unemployment benefits of $ 400 weekly payment to those receiving more than $ 100 a week in state-funded unemployment benefits through december 6 , 2020. on december 27 , 2020 , a second stimulus package was passed to provide relief aid to americans during financial hardship , aggregating $ 900 billion in provisions , which included an additional $ 600 payment to eligible american adults and $ 600 for qualifying child dependents , a reinstatement of unemployment benefits of $ 300 per week through march 14 , 2021 , an additional $ 285 billion towards loan programs for small businesses , $ 82 billion towards education , and additional aid for hard-hit industries , including the airline industry . 81 on january 14 , 2020 , then president-elect biden unveiled a $ 1.9 trillion “ american rescue plan ” proposal to combat the pandemic and stimulate the economy . the proposal provides additional provisions for increased unemployment benefits , rental assistance , small businesses , state and local governments , educational institutions , and substantial funding towards accelerated distribution of vaccinations and for covid-19 testing , as well as direct payments of $ 1,400 to all eligible americans . the american rescue plan is the first of two major spending initiatives expected to be proposed by president biden in the coming weeks . potential ineffectiveness or delay of such relief measures could lead to further deterioration of economic conditions , higher unemployment rates , and prolonged recession , which in turn could materially affect our ( or our tenants ' or venture investment portfolio companies ' ) performance , financial condition , results of operations , and cash flows . see “ item 1a . risk factors ” within “ part i ” in this annual report on form 10-k for additional discussion of the risks posed by the covid-19 pandemic , and uncertainties we , our tenants , and the national and global economies face as a result . executive summary operating results replace_table_token_21_th the operating results shown above include certain items related to corporate-level investing and financing decisions . for additional information , refer to “ funds from operations and funds from operations , as adjusted , attributable to alexandria real estate equities , inc. 's common stockholders ” in the “ non-gaap measures and definitions ” section and to the tabular presentation of these items in the “ results of operations ” section within this item 7 in this annual report on form 10-k. alexandria and our tenants at the vanguard and heart of the life science ecosystem bringing together our unique and pioneering strategic vertical platforms of essential labspace ® real estate , strategic venture investments , impactful thought leadership , and purposeful corporate responsibility , alexandria is at the vanguard and heart of the vital life science ecosystem that is advancing solutions for covid-19 and other key challenges to human health . owing to the efforts of numerous alexandria tenants , including pfizer and moderna , in developing and delivering safe and effective vaccines and therapies to people around the world , the inherent value and critical need for the life science industry has been globally recognized . the essential r & d engine of the biopharma industry continued with productivity and resilience throughout this past year . by maintaining continuous operations across our campuses and facilities , alexandria has enabled our tenants to continue to pursue their essential , mission-critical research , development , manufacturing , and commercialization efforts to solve the most pressing current and future healthcare challenges . strong and flexible balance sheet with significant liquidity investment-grade credit ratings ranked in the top 10 % among all publicly traded reits as of december 31 , 2020. net debt and preferred stock to adjusted ebitda of 5.3x and fixed-charge coverage ratio of 4.6x represent the lowest and highest , respectively , in the past 10 years . $ 4.1 billion of liquidity as of december 31 , 2020. no debt maturing prior to 2024 . 10.6 years weighted-average remaining term of debt as of december 31 , 2020. continued dividend strategy to share growth in cash flows with stockholders common stock dividend declared for the three months ended december 31 , 2020 of $ 1.09 per common share , aggregating $ 4.24 per common share for the year ended december 31 , 2020 , up 24 cents , or 6 % , over the year ended december 31 , 2019. our ffo payout ratio of 60 % for the three months ended december 31 , 2020 , allows us to share growth in cash flows from operating activities with our stockholders while also retaining a significant portion for reinvestment . 82 a reit industry-leading , high-quality tenant roster 55 % of annual rental revenue from investment-grade or publicly traded large cap tenants . weighted-average remaining lease term of 7.6 years . key strategic transactions that generated capital for investment into our highly leased value-creation pipeline and strategic acquisitions during the three months ended december 31 , 2020 , we completed two strategic transactions that generated capital aggregating $ 874.6 million for investment into our highly leased development and redevelopment projects and strategic acquisitions : sale of 70 % ownership interest in our properties at 1201 and 1208 eastlake avenue east and 199 east blaine street in our lake union submarket for an aggregate sales price of $ 314.5 million , representing a capitalization rate of 4.2 % ( cash basis ) , and setting a new record in seattle of $ 1,399 per rsf ; and disposition of two tech office buildings at 510 townsend street and 505 brannan street in our soma submarket for an aggregate sales price of $ 560.2 million , or $ 1,263 per rsf , representing capitalization rates of 5.3 % and 5.0 % ( cash basis ) , and a gain on sale of $ 151.9 million .
| results of operations we present a tabular comparison of items , whether gain or loss , that may facilitate a high-level understanding of our results and provide context for the disclosures included in this annual report on form 10-k. we believe such tabular presentation promotes a better understanding for investors of the corporate-level decisions made and activities performed that significantly affect comparison of our operating results from period to period . we also believe this tabular presentation will supplement for investors an understanding of our disclosures and real estate operating results . gains or losses on sales of real estate and impairments of held for sale assets are related to corporate-level decisions to dispose of real estate . gains or losses on early extinguishment of debt , gains or losses on early termination of interest rate hedge agreements , and preferred stock redemption charges are related to corporate-level financing decisions focused on our capital structure strategy . significant realized and unrealized gains or losses on non-real estate investments , impairments of real estate and non-real estate investments , and significant termination fees are not related to the operating performance of our real estate assets as they result from strategic corporate-level decisions and external market conditions . impairments of non-real estate investments are not related to the operating performance of our real estate as they represent the write-down of non-real estate investments when their fair values decline below their respective carrying values due to changes in general market or other conditions outside of our control . significant items included in the tabular disclosure for current periods are described in further detail under this item 7 in this annual report on form 10-k. items included in net income attributable to alexandria 's common stockholders were as follows : replace_table_token_27_th ( 1 ) amount includes $ 7.6 million impairment of our investment in a recently developed retail property held by our unconsolidated real estate joint venture .
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overview liberty broadband corporation ( “ liberty broadband , ” “ the company , ” “ us , ” “ we , ” or “ our ” ) is comprised of two wholly owned subsidiaries , gci holdings , llc ( “ gci holdings ” ) ( as of december 18 , 2020 ) and skyhook holding , inc. ( “ skyhook ” ) , as well as an equity method investment in charter communications , inc. ( “ charter ” ) . during may 2014 , the board of directors of liberty media corporation and its subsidiaries ( “ liberty ” ) authorized management to pursue a plan to spin-off to its stockholders common stock of a wholly-owned subsidiary , liberty broadband , and to distribute subscription rights to acquire shares of liberty broadband 's common stock ( the “ broadband spin-off ” ) . on december 18 , 2020 , pursuant to the agreement and plan of merger , dated as of august 6 , 2020 , entered into by gci liberty , inc. ( “ gci liberty ” ) , liberty broadband , grizzly merger sub 1 , llc , a wholly owned subsidiary of liberty broadband ( “ merger llc ” ) , and grizzly merger sub 2 , inc. , a wholly owned subsidiary of merger llc ( “ merger sub ” ) , merger sub merged with and into gci liberty ( the “ first merger ” ) , with gci liberty surviving the first merger as an indirect wholly owned subsidiary of liberty broadband ( the “ surviving corporation ” ) , and immediately following the first merger , gci liberty ( as the surviving corporation in the first merger ) merged with and into merger llc ( the “ upstream merger ” , and together with the first merger , the “ combination ” ) , with merger llc surviving the upstream merger as a wholly owned subsidiary of liberty broadband . ii-2 as a result of the combination , each holder of a share of series a common stock and series b common stock of gci liberty received 0.58 of a share of series c common stock and series b common stock , respectively , of liberty broadband . additionally , each holder of a share of series a cumulative redeemable preferred stock of gci liberty received one share of newly issued liberty broadband series a cumulative redeemable preferred stock , which has substantially identical terms to gci liberty 's former series a cumulative redeemable preferred stock , including a mandatory redemption date of march 9 , 2039. cash was paid in lieu of issuing fractional shares of liberty broadband stock in the combination . no shares of liberty broadband stock were issued with respect to ( x ) shares of gci liberty capital stock held by ( i ) gci liberty as treasury stock , ( ii ) any of gci liberty 's wholly owned subsidiaries or ( iii ) liberty broadband or its wholly owned subsidiaries or ( y ) shares of gci liberty series b common stock held by any stockholders who perfected and did not waive , effectively withdraw or lost their appraisal rights pursuant to section 262 of the general corporation law of the state of delaware through a number of prior years ' transactions , including the combination , liberty broadband has acquired an interest in charter communications , inc. ( “ charter ” ) . pursuant to a proxy agreement with advance/newhouse partnership ( “ a/n ” ) , liberty broadband controls 25.01 % of the aggregate voting power of charter . strategies and challenges executive summary gci holdings , a wholly owned subsidiary of the company , provides a full range of wireless , data , video , voice , and managed services to residential customers , businesses , governmental entities , and educational and medical institutions primarily in alaska under the gci brand . skyhook , a wholly owned subsidiary of the company , markets and sells a location determination service called the precision location solution . skyhook also previously marketed and sold a location intelligence and data insights service called geospatial insights . in november 2020 , skyhook decided to wind down the geospatial insights business , which did not constitute a material portion of skyhook 's business . charter is a leading broadband connectivity company and cable operator serving more than 31 million customers in 41 states through its spectrum brand . over an advanced high-capacity , two-way telecommunications network , charter offers a full range of state-of-the-art residential and business services including spectrum internet , tv , mobile and voice . for small and medium-sized companies , spectrum business delivers the same suite of broadband products and services coupled with special features and applications to enhance productivity , while for larger businesses and government entities , spectrum enterprise provides highly customized , fiber-based solutions . spectrum reach delivers tailored advertising and production for the modern media landscape . charter also distributes award-winning news coverage , sports and high-quality original programming to its customers through spectrum networks and spectrum originals . at december 31 , 2020 , liberty broadband owned approximately 59.5 million shares of charter class a common stock , representing an approximate 30.7 % economic ownership interest in charter 's issued and outstanding shares . key drivers of revenue gci holdings earns revenue from the monthly fees customers pay for wireless , data , video , voice and managed services . through close coordination of its customer service and sales and marketing efforts , its customer service representatives suggest to its customers other services they can purchase or enhanced versions of services they already purchase to achieve increased revenue and penetration of its multiple service offerings . skyhook earns revenue from the sale and integration of its precision location solution ( including the licensing of software and data components that make up that solution ) . in addition , skyhook earns revenue from licensing its intellectual property ( including patents ) to other enterprises . story_separator_special_tag the following paragraphs describe certain separate matters related to the rhc program that impact or could impact the revenue earned and receivables recognized by the company . as of december 31 , 2020 , the company had net accounts receivable from the rhc program in the amount $ 237 million , which is included within trade and other receivables in the consolidated balance sheets . fcc rate reduction . in november 2017 , the universal service administrative company ( `` usac '' ) requested further information in support of the rural rates charged to a number of gci holdings ' rhc customers in connection with the funding requests for the year that runs july 1 , 2017 through june 30 , 2018. on october 10 , 2018 , gci holdings received a letter from the fcc 's wireline competition bureau ( “ bureau ” ) notifying it of the bureau 's decision to reduce the rural rates charged to rhc customers for the funding year that ended on june 30 , 2018 by approximately 26 % resulting in a reduction of total support payments of $ 27.8 million . the fcc also informed gci holdings that the same cost methodology used for the funding year that ended on june 30 , 2018 would be applied to rates charged to rhc customers in subsequent funding years . in response to the bureau 's letter , gci holdings filed an application for review with the fcc . on october 20 , 2020 , the wireline competition bureau of the fcc issued two separate letters approving the cost-based rural rates gci holdings historically applied when recognizing revenue for services provided to its rhc customers for the funding years that ended on june 30 , 2019 and june 30 , 2020. gci holdings collected $ 174 million in accounts receivable relating to these two funding years subsequent to december 31 , 2020. on june 25 , 2020 , gci holdings submitted cost studies with respect to a number of its rates for services provided to its rhc customers for the funding year ending june 30 , 2021 , which require approval by the bureau . gci holdings further updated those studies on november 12 , 2020 , to reflect the completion of the bidding season for that funding year . those studies remain pending before the bureau , and we can not predict when the bureau will act upon them . rhc program funding cap . the rhc program has a funding cap for each individual funding year that is annually adjusted for inflation , and which the fcc can increase by carrying forward unused funds from prior funding years . in recent years , including the current year , this funding cap has not limited the amount of funding received by participants ; however , management continues to monitor the funding cap and its potential impact on funding in future years . enforcement bureau and related inquiries . on march 23 , 2018 , gci holdings received a letter of inquiry and request for information from the enforcement bureau of the fcc relating to the period beginning january 1 , 2015 and including all future periods , to which it is in the process of responding . this includes inquiry into the rates charged by gci holdings , and presently it is unable to assess the ultimate outcome of this rate inquiry . other aspects related to the enforcement bureau 's review of gci holdings ' compliance with program rules are discussed separately below . the ongoing uncertainty in program funding , as well as the uncertainty associated with the rate review , could have an adverse effect on its business , financial position , results of operations or liquidity . in the fourth quarter of 2019 , gci holdings became aware of potential rhc program compliance issues related to certain of gci holdings ' currently active and expired contracts with certain of its rhc customers . the company and its external experts performed significant and extensive procedures to determine whether gci holdings ' currently active and expired contracts with its rhc customers would be deemed to be in compliance with the rhc program rules . gci holdings notified the fcc of our potential compliance issues in the fourth quarter of 2019. on may 28 , 2020 , gci holdings received a second letter of inquiry from the enforcement bureau in the same matter noted above . this second letter , which was in response to a voluntary disclosure made by gci holdings to the fcc , extended the scope of the original inquiry to also include various questions regarding compliance with the records retention requirements related to the ( i ) original inquiry and ( ii ) rhc program . ii-5 on december 17 , 2020 , gci holdings received a subpoena duces tecum from the fcc 's office of the inspector general requiring production of documents from january 1 , 2009 to the present related to a single rhc customer and related contracts , information regarding gci holdings ' determination of rural rates for a single customer , and to provide information regarding persons with knowledge of pricing practices generally . gci holdings continues to work with the fcc to resolve all enforcement inquiries discussed above . with respect to the ongoing inquiries from the fcc 's enforcement bureau and the fcc 's office of the inspector general , gci holdings recognized a liability of approximately $ 12.0 million for contracts that were deemed probable of not complying with the rhc program rules . the company also identified certain contracts where additional loss was reasonably possible and such loss could range from zero to $ 44.0 million . an accrual was not made for the amount of the reasonably possible loss in accordance with the applicable accounting guidance . gci holdings could also be assessed fines and penalties but such amounts could not be reasonably estimated . revision of support calculations .
| operating results replace_table_token_5_th revenue revenue increased $ 35.8 million and decreased $ 7.4 million for the years ended december 31 , 2020 and 2019 , respectively , as compared to the corresponding prior year periods . the increase in revenue in 2020 was primarily due to revenue from gci holdings from the date of the combination on december 18 , 2020 through december 31 , 2020. additionally , skyhook had increased revenue from existing customers . see “ results of operations – gci holdings , llc ” below for a more complete discussion of the results of operations of gci holdings . the decrease in revenue in 2019 was primarily due to a license agreement in the prior year , partially offset by increased net revenue from existing customers , coupled with new customer growth . operating income ( loss ) consolidated operating loss increased $ 30.4 million and $ 17.3 million for the years ended december 31 , 2020 and 2019 , respectively , as compared to the corresponding prior year periods . the increase in operating loss in 2020 is primarily driven by an increase in professional service fees mostly related to the combination and to a lesser extent corporate compensation expense . the increase in operating loss in 2019 is also due to increased professional service fees at the corporate level of $ 4.6 million and the decrease to skyhook 's revenue , as discussed above . operating income ( loss ) was also impacted by gci holdings from the date of the combination . see “ results of operations – gci holdings , llc ” below for a more complete discussion of the results of operations of gci holdings . ii-9 stock-based compensation stock-based compensation expense decreased $ 1.4 million and increased $ 4.8 million for the years ended december 31 , 2020 and 2019 , respectively , as compared to the corresponding prior year periods .
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the forward-looking statements in this section and other parts of this report involve assumptions , risks , uncertainties , and other factors , including statements regarding our plans , objectives , goals , strategies , and financial performance . our actual results could differ materially from the results anticipated in these forward-looking statements as a result of factors set forth under the caption “ forward-looking statements ” and those set forth in item 1a . executive overview 2019 story_separator_special_tag style= '' font-family : calibri , sans-serif ; font-size:11pt ; '' > business segment discussion . ” for a discussion of our results of operations for 2018 versus 2017 , see “ part ii , item 7 : management 's discussion and analysis of financial condition and results of operations ” discussion of results of operations included in our 2018 form 10-k , filed with the sec on february 15 , 2019. significant items earnings comparisons among the three years ended december 31 , 2019 , 2018 , and 2017 were impacted by a number of significant items summarized below . there were no significant items in 2019 or 2018. significant items included in 2017 were : 1. mergers and acquisitions . significant events relating to mergers and acquisitions , and the impacts of those events on our reported results , were as follows : during 2017 , $ 154 million of noninterest expense and $ 2 million of noninterest income was recorded related to the acquisition of firstmerit . this resulted in a negative impact of $ 0.09 per common share in 2017 . 2. federal tax reform-related tax benefit . significant events relating to federal tax reform-related tax benefits , and the impacts of those events on our reported results , were as follows : during 2017 , $ 123 million of federal tax reform-related tax benefit was recorded as provision for income taxes . this resulted in a positive impact of $ 0.11 per common share in 2017. the following table reflects the earnings impact of the above-mentioned significant items for periods affected by this results of operations discussion : replace_table_token_7_th ( 1 ) based upon the annual average outstanding diluted common shares . 44 huntington bancshares incorporated net interest income / average balance sheet our primary source of revenue is net interest income , which is the difference between interest income from earning assets ( primarily loans , securities , and direct financing leases ) , and interest expense of funding sources ( primarily interest-bearing deposits and borrowings ) . earning asset balances and related funding sources , as well as changes in the levels of interest rates , impact net interest income . the difference between the average yield on earning assets and the average rate paid for interest-bearing liabilities is the net interest spread . noninterest-bearing sources of funds , such as demand deposits and shareholders ' equity , also support earning assets . the impact of the noninterest-bearing sources of funds , often referred to as “ free ” funds , is captured in the net interest margin , which is calculated as net interest income divided by average earning assets . both the net interest margin and net interest spread are presented on a fully-taxable equivalent basis , which means that tax-free interest income has been adjusted to a pretax equivalent income , assuming a 21 % tax rate and 35 % tax rate for periods prior to january 1 , 2018. the following table shows changes in fully-taxable equivalent interest income , interest expense , and net interest income due to volume and rate variances for major categories of earning assets and interest-bearing liabilities : replace_table_token_8_th ( 1 ) the change in interest income or expense due to both rate and volume has been allocated between the factors in proportion to the relationship of the absolute dollar amounts of the change in each . ( 2 ) calculated assuming a 21 % tax rate . 2019 form 10-k 45 replace_table_token_9_th ( 1 ) fte yields are calculated assuming a 21 % tax rate and a 35 % tax rate for periods prior to january 1 , 2018 . ( 2 ) deposits in federal reserve bank were treated as non-earning assets prior to 4q 2018 . ( 3 ) for purposes of this analysis , nonaccrual loans are reflected in the average balances of loans . ( 4 ) includes consumer certificates of deposit of $ 250,000 or more . 46 huntington bancshares incorporated replace_table_token_10_th ( 1 ) fte yields are calculated assuming a 21 % tax rate and a 35 % tax rate for the period prior to january 1 , 2018 . ( 2 ) deposits in federal reserve bank were treated as non-earning assets prior to 4q 2018 and the associated interest income was not material . ( 3 ) for purposes of this analysis , nonaccrual loans are reflected in the average balances of loans . ( 4 ) includes consumer certificates of deposit of $ 250,000 or more . ( 5 ) rates and amounts include the effects of hedge and risk management activities associated with the respective asset and liability categories . 2019 form 10-k 47 2019 versus 2018 fully-taxable equivalent net interest income for 2019 increased $ 20 million , or 1 % , from 2018 . this reflected the impact of 3 % average earning asset growth and a 4 % growth in average interest-bearing liabilities . fte net interest margin decreased 7 basis points to 3.26 % . average earning asset growth reflects a $ 2.7 billion , or 4 % , increase in average loans and leases . the nim compression reflected a 28 basis point increase in funding costs , partially offset by a 13 basis point positive impact from earning asset yields and a 8 basis point increase in the benefit from noninterest-bearing funding . average earning assets for 2019 increased $ 3.0 billion , or 3 % , from the prior year , reflecting loan growth of $ 2.7 billion , or 4 % . story_separator_special_tag rather , the definition is intended to represent an aggregate view of where we want our overall risk to be managed . three board committees primarily oversee implementation of this desired risk appetite and monitoring of our risk profile : the audit committee oversees the integrity of the consolidated financial statements , including policies , procedures , and practices regarding the preparation of financial statements , the financial reporting process , disclosures , and internal control over financial reporting . the audit committee also provides assistance to the board in overseeing the internal audit division and the independent registered public accounting firm 's qualifications and independence ; compliance with our financial code of ethics for the chief executive officer and senior financial officers ; and compliance with corporate securities trading policies . the risk oversight committee ( roc ) assists the board of directors in overseeing management of material risks , the approval and monitoring of the company 's capital position and plan supporting our overall aggregate moderate-to-low risk profile , the risk governance structure , compliance with applicable laws and regulations , and determining adherence to the board 's stated risk appetite . the committee has oversight responsibility with respect to the full range of inherent risks : credit , market , liquidity , legal , compliance/regulatory , operational , strategic , and reputational . the roc provides assistance to the board in overseeing the credit review division . this committee also oversees our capital management and planning process , ensures that the amount and quality of capital are adequate in relation to expected and unexpected risks , and that our capital levels exceed “ well-capitalized ” requirements . the technology committee assists the board of directors in fulfilling its oversight responsibilities with respect to all technology , cyber security , and third-party risk management strategies and plans . the committee is charged with evaluating huntington 's capability to properly perform all technology functions necessary for its business plan , including projected growth , technology capacity , planning , operational execution , product development , and management capacity . the committee provides oversight of technology investments and plans to drive efficiency as well as to meet defined standards for risk , information security , and redundancy . the committee oversees the allocation of technology costs and ensures that they are understood by the board of directors . the technology committee monitors and evaluates innovation and technology trends that may affect the company 's strategic plans , including monitoring of overall industry trends . the technology committee reviews and provides oversight of the company 's continuity and disaster recovery planning and preparedness . the audit and risk oversight committees routinely hold executive sessions with our key officers engaged in accounting and risk management . on a periodic basis , the two committees meet in joint session to cover matters relevant to both , such as the construct and appropriateness of the acl , which is reviewed quarterly . all directors have access to information provided to each committee and all scheduled meetings are open to all directors . the risk oversight and technology committees routinely hold joint sessions to cover matters relevant to both such as cybersecurity and it risk and control projects and risk assessments . further , through its compensation committee , the board of directors seeks to ensure its system of rewards is risk-sensitive and aligns the interests of management , creditors , and shareholders . we utilize a variety of compensation-related tools to induce appropriate behavior , including common stock ownership thresholds for the chief executive officer and certain members of senior management , a requirement to hold until retirement or exit from the company , a portion of net shares received upon exercise of stock options or release of restricted stock awards ( 50 % for executive officers and 25 % for other award recipients ) , equity deferrals , recoupment provisions , and the right to terminate compensation plans at any time . 2019 form 10-k 51 management has implemented an enterprise risk management and risk appetite framework . critically important is our self-assessment process , in which each business segment produces an analysis of its risks and the strength of its risk controls . the segment analyses are combined with assessments by our risk management organization of major risk sectors ( e.g. , credit , market , liquidity , operational , compliance , strategic , and reputation ) to produce an overall enterprise risk assessment . outcomes of the process include a determination of the quality of the overall control process , the direction of risk , and our position compared to the defined risk appetite . management also utilizes a wide series of metrics ( key risk indicators ) to monitor risk positions throughout the company . in general , a range for each metric is established , which allows the company , in aggregate , to operate within an aggregate moderate-to-low risk profile . deviations from the range will indicate if the risk being measured exceeds desired tolerance , which may then necessitate corrective action . we also have four executive level committees to manage risk : alco , credit policy and strategy , risk management , and capital management . each committee focuses on specific categories of risk and is supported by a series of subcommittees that are tactical in nature . we believe this structure helps ensure appropriate escalation of issues and overall communication of strategies . huntington utilizes three lines of defense with regard to risk management : ( 1 ) business segments , ( 2 ) corporate risk management , and ( 3 ) internal audit and credit review . to induce greater ownership of risk within its business segments , segment risk officers have been embedded in the business to identify and monitor risk , elevate and remediate issues , establish controls , perform self-testing , and oversee the self-assessment process .
| financial performance review in 2019 , we reported net income of $ 1.4 billion , a 1 % increase from the prior year . earnings per common share on a diluted basis for the year were $ 1.27 , up 6 % from the prior year . fully-taxable equivalent net interest income for 2019 increased $ 20 million , or 1 % , from 2018 . this reflected the impact of 3 % average earning asset growth and a 4 % growth of average interest-bearing liabilities . fte net interest margin decreased 7 basis points to 3.26 % . average earning asset growth reflects a $ 2.7 billion , or 4 % , increase in average loans and leases . the nim compression reflected a 28 basis point increase in funding costs , partially offset by a 13 basis point positive impact from earning asset yields and a 8 basis point increase in the benefit from noninterest-bearing funding . the provision for credit losses was $ 287 million , up $ 52 million , or 22 % . the increase in provision expense over the prior year was primarily attributed to higher commercial losses . noninterest income was $ 1.5 billion , up $ 133 million , or 10 % , from the prior year . mortgage banking income increased $ 59 million or 55 % driven by increased volume and higher salable spreads . card and payment processing income increased $ 22 million , or 10 % , due to increased account activity . capital markets fees increased $ 15 million , or 14 % , driven by increased underwriting activity primarily associated with the hse acquisition . other noninterest income increased $ 20 million , or 12 % , as a result of the gain on the sale of the wisconsin retail branches and the impact of the new lease accounting standard with regard to the presentation of income for personal property tax on leased assets .
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this discussion should be read in conjunction with our historical financial statements and related notes thereto and the other disclosures contained elsewhere in this form 10-k. the results of operations for the periods reflected herein are not necessarily indicative of results that may be expected for future periods , and our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors , including but not limited to those listed under item 1a- risk factors and included elsewhere in this form 10-k. this md & a is a supplement to our financial statements and notes thereto included elsewhere in this form 10-k and is provided to enhance your understanding of our results of operations and financial condition . our discussion of results of operations is presented in millions throughout the md & a and due to rounding may not sum or calculate precisely to the totals and percentages provided in the tables . our md & a is organized as follows : overview and background . this section provides a general description of our company and operating segments , business and industry trends , our key business strategies and background information on other matters discussed in this md & a . consolidated results of operations and operating results by business segment . this section provides our analysis and outlook for the significant line items on our consolidated statements of operations , as well as other information that we deem meaningful to an understanding of our results of operations on both a consolidated basis and a business segment basis . liquidity and capital resources . this section contains an overview of our financing arrangements and provides an analysis of trends and uncertainties affecting liquidity , cash requirements for our business and sources and uses of our cash . critical accounting policies and estimates . this section discusses the accounting policies that we consider important to the evaluation and reporting of our financial condition and results of operations , and whose application requires significant judgments or a complex estimation process . overview and background we are one of the world 's largest door and window manufacturers , and we hold a leading position by net revenues in the majority of the countries and markets we serve . we design , produce , and distribute an extensive range of interior and exterior doors , wood , vinyl , and aluminum windows , and related products for use in the new construction , r & r of residential homes and , to a lesser extent , non-residential buildings . we operate 123 manufacturing facilities in 19 countries , located primarily in north america , europe , and australia . for many product lines , our manufacturing processes are vertically integrated , enhancing our range of capabilities , our ability to innovate , and our quality control as well as providing supply chain , transportation , and working capital savings . in october 2011 , onex acquired a majority of the combined voting power in the company through the acquisition of convertible debt and convertible preferred equity . in february 2017 , we closed on the offering of 28.75 million shares of our common stock at a public offering price of $ 23.00 , resulting in net proceeds of $ 472.4 million after deducting underwriters ' discounts and commissions and other offering expenses . we used a portion of the net proceeds from the offering to repay $ 375.0 million of indebtedness outstanding under our term loan facility , and used the remaining net proceeds for working capital and other general corporate purposes , including sales and marketing activities , general and administrative matters , capital expenditures , and to invest in or acquire complementary businesses , products , services , technologies , or other assets . in may 2017 , we completed a secondary public offering of 16.1 million shares of our common stock , substantially all of which were owned by onex , including the exercise of the over-allotment option . following the completion of the secondary offering , onex owned approximately 45 % of our common stock . in november 2017 , we completed a secondary public offering of 14.4 million shares of our common stock , substantially all of which were owned by onex , including the exercise of the over-allotment option . following the completion of the secondary offering , onex owned approximately 31.2 % of our common stock . 41 back to top business segments our business is organized in geographic regions to ensure integration across operations serving common end markets and customers . we have three reportable segments : north america ( which includes limited activity in chile and peru ) , europe , and australasia . financial information related to our business segments can be found in note 19 - segment information of our financial statements included elsewhere in this form 10-k. acquisitions in august 2015 , we acquired dooria , headquartered in oslo , norway . dooria offers a complete range of doors , including interior , exterior , and specialty rated doors , in a wide variety of styles and is known for its high quality and innovative door designs and options . dooria is now part of our europe segment . the acquisition of dooria expanded our production capabilities and product offering in the scandinavia region . in august 2015 , we acquired aneeta , headquartered in melbourne , australia . aneeta is an industry leading manufacturer and supplier of sashless windows in australia and is now part of our australasia segment . the acquisition of aneeta expanded our product portfolio to include innovative window system offerings to customers in australia as well as north america . in september 2015 , we acquired karona , headquartered in caledonia , michigan . karona offers a complete range of specialty stile and rail doors , including interior , exterior , and fire rated doors for both the residential and non-residential markets , and is known for its high quality and technical capabilities . karona is now part of our north america segment . story_separator_special_tag in particular , the following factors may have a direct impact on demand for our products in the countries and regions where our products are marketed and sold : the strength of the economy ; employment rates and consumer confidence and spending rates ; the availability and cost of credit ; the amount and type of residential and non-residential construction ; housing sales and home values ; the age of existing home stock , home vacancy rates , and foreclosures ; interest rate fluctuations for our customers and consumers ; increases in the cost of raw materials or any shortage in supplies or labor ; the effects of governmental regulation and initiatives to manage economic conditions ; geographical shifts in population and other changes in demographics ; and changes in weather patterns . in addition , we seek to drive demand for our products through the implementation of various strategies and initiatives . we believe we can enhance demand for our new and existing products by : innovating and developing new products and technologies ; investing in branding and marketing strategies , including marketing campaigns in both print and social media , as well as our investments in new training centers and mobile training facilities ; and implementing channel initiatives to enhance our relationships with key customers , including implementing the true blu dealer management program in north america . 43 back to top product pricing and volume/mix the price and mix of products that we sell are important drivers of our net revenues and net income . under the heading “ -results of operations ” references to ( i ) “ pricing ” refer to the impact of price increases or decreases , as applicable , for particular products between periods and ( ii ) “ volume/mix ” refer to the combined impact of both the number of products we sell in a particular period and the types of products sold , in each case , on net revenues and net income . while we operate in competitive markets , pricing discipline is an important element of our strategy to achieve profitable growth through improved margins . our strategies also include incentivizing our channel partners to sell our higher margin products , and we believe a renewed focus on innovation and the development of new technologies will increase our sales volumes and the overall profitability of our product mix . changes in pricing trends for our products can have a material impact on our operations . during and immediately after the global financial crisis , our net revenues were negatively impacted by decreased demand and an increasingly competitive environment , resulting in unfavorable pricing trends , particularly in the north american door market . furthermore , prior to our current senior executive team joining the company , we often pursued a strategy in north america of pricing our products on an incremental contribution margin basis in an effort to grow volumes and generate operating leverage , which often led to competing on price and an inadequate return on our invested capital . in early 2014 , our management team began to strategically change our pricing strategy in several key areas . first , we focused on making strategic pricing decisions based on analysis of customer and product level profitability to restore profitability to underperforming lines of business . second , we increased our emphasis on pricing optimization . as a result , our operations during 2014 and 2015 benefited from improved pricing , particularly in north america , where pricing returned to close to pre-crisis levels in some product lines across some market channels . going forward , if the housing market continues to grow and economic factors remain positive , we believe that we will continue to benefit from a positive pricing environment . however , we do not believe the future benefits will be as significant as the pricing improvements we experienced during the 2013 to 2015 period . cost reduction initiatives prior to the ongoing operational transformation being executed by our senior executive team , our operations were managed in a decentralized manner with varying degrees of emphasis on cost efficiency and limited focus on continuous improvement or strategic sourcing . our management team has a proven track record of implementing operational excellence programs at some of the world 's leading industrial manufacturing businesses , and we believe the same successes can be realized at jeld-wen . key areas of focus of our operational excellence program include : reducing labor , overtime , and waste costs by optimizing manufacturing processes ; reducing or minimizing increases in material costs through strategic global sourcing and value-added re-engineering of components , in part by leveraging our significant spend and the global nature of our purchases ; and reducing warranty costs by improving quality . we are in the early stages of implementing our strategic initiatives , including jem , to develop the culture and processes of operational excellence and continuous improvement . these cost reduction initiatives , as well as plant closures and consolidations , headcount reductions , and various initiatives aimed at lowering production and overhead costs , may not produce the intended results within the intended timeframe . raw material costs commodities such as vinyl extrusions , glass , aluminum , wood , steel , plastics , fiberglass , and other composites are major components in the production of our products . changes in the underlying prices of these commodities have a direct impact on the cost of products sold . while we attempt to pass on a substantial portion of such cost increases to our customers , we may not be successful in doing so . in addition , our results of operations for individual quarters may be negatively impacted by a delay between the time of raw material cost increases and a corresponding price increase . conversely , our results of operations for individual quarters may be positively impacted by a delay between the time of a raw material price decrease and a corresponding competitive pricing decrease .
| consolidated results net revenues —net revenues increased $ 285.7 million , or 8.5 % , to $ 3,666.8 million in the year ended december 31 , 2016 from $ 3,381.1 million in the year ended december 31 , 2015 . the increase in net revenues was primarily attributable to a 7 % increase associated with our recent acquisitions described under the heading “ acquisitions ” above . our core net revenues increased 3 % , comprised of an increase in pricing as a result of implementing our pricing optimization strategy and volume/mix . these increases were partially offset by an unfavorable foreign exchange impact of 1 % . gross margin —gross margin increased $ 114.8 million , or 17.4 % , to $ 774.6 million in the year ended december 31 , 2016 from $ 659.7 million in the year ended december 31 , 2015 . gross margin as a percentage of net revenues was 21.1 % in the year ended december 31 , 2016 and 19.5 % in the year ended december 31 , 2015 . the increases in gross margin and gross margin percentage were due to acquisitions , price increases , and cost out initiatives , partially offset by the weakening of the british pound , canadian dollar and the australian dollar in the current period which resulted in an unfavorable translation impact of $ 3.7 million . sg & a expense —sg & a expense increased $ 59.7 million , or 11.8 % , to $ 565.6 million in the year ended december 31 , 2016 from $ 505.9 million in the year ended december 31 , 2015 . sg & a expense as a percentage of net revenues was 15.4 % for the year ended december 31 , 2016 and 15.0 % for the year ended december 31 , 2015 .
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in 2020 and 2019 our r & d revenues exceeded funded r & d expenses by approximately $ 2.4 million and $ 0.8 million , respectively , and this increase aided our improved operating results in 2020 as compared to 2019. the decrease in license and royalty revenue in 2020 compared to 2019 is due to the one-time license of ip to realwear for $ 3.5 million in 2019 partially offset by royalties earned under ip license agreements . international sales represented approximately 20 % and 44 % of product revenues for 2020 and 2019 , respectively . our international sales are primarily denominated in u.s. dollars . consequently , a strengthening of the u.s. dollar could increase the price in local currencies of our products in foreign markets and make our products relatively more expensive than competitors ' products that are denominated in local currencies , which could result in a reduction in sales or profitability in those foreign markets . as a result , our financial position and results of operations are subject to exchange rate fluctuation in transactional and functional currency . we have not taken any protective measures against exchange rate fluctuations , such as purchasing hedging instruments with respect to such fluctuations , because of the historically stable exchange rate between the japanese yen , great britain pound and the u.s. dollar . foreign currency translation impact on our results , if material , is described in further detail under “ item 7a . quantitative and qualitative disclosures about market risk ” section below . fiscal year 2019 compared to fiscal year 2018 sales of our products for defense applications include systems used by the military both in the field and for training and simulation . sales of our products for defense applications may be for a one-time purchase order or for programs that run for several years . product sales to defense customers were essentially flat for 2019 and 2018. industrial applications revenues represent customers who purchase our display products for use in headsets used for manufacturing , distribution , public safety , 3d metrology equipment and other industrial applications . our 3d metrology customers are primarily located in asia and they sell to asian contract manufacturers who use the 3d metrology machines for quality control purposes . the increase in industrial applications in 2019 compared to 2018 was primarily due to an increase in sales to customers who use our display components in industrial headsets and safety applications . sales of our displays for consumer applications is primarily for the use in thermal imaging products , recreational rifle and hand-held scopes and drone racing headsets . the decrease in consumer applications in 2019 compared to 2018 was primarily due to decreased demand for displays and components used in drone racing headsets . research & development ( “ r & d ” ) revenues decreased in 2019 as compared to 2018 primarily due to due to the completion of performance obligations on funded u.s. defense programs partially offset by revenues from oled development contracts . the increase in license and royalty revenue in 2019 is due to the one-time license of ip to realwear for $ 3.5 million and royalties earned under ip license agreements . international sales represented approximately 44 % and 41 % of product revenues for 2019 and 2018 , respectively . our international sales are primarily denominated in u.s. currency . 33 cost of product revenues . cost of product revenues , which is comprised of materials , labor and manufacturing overhead related to the production of our products for fiscal years 2020 , 2019 and 2018 were as follows : replace_table_token_2_th fiscal year 2020 compared to fiscal year 2019 cost of product revenues decreased as a percentage of revenues in 2020 as compared to 2019 primarily due to improved yields from our manufacturing process . improved yields result in lower material cost per unit because we are scrapping less material to produce a unit . in addition , the labor cost per unit declined as employees are not reworking or performing the same manufacturing process multiple times to create a finished product . also , fixed overhead costs per unit decline because we are producing more units in the manufacturing facility but the cost to run the manufacturing facility does not significantly increase . we were able to improve yields because we have more experience manufacturing our two primary defense products and we are learning ways to improve our processes . in addition , we are working with our subcontractors to improve the quality and lower the cost of the raw materials we acquire . in 2021 we expect some products that are currently in r & d to go into production . we expect these new products to start at lower yields and for us to improve these yields over time . accordingly , we expect our 2021 cost of product revenues as a percentage of product revenues to be negatively affected by these new products . we are unable to forecast whether our continued yield improvement efforts on our existing products will offset the initial negative impact of the new products coming into production in 2021. fiscal year 2019 compared to fiscal year 2018 cost of product revenues increased as a percentage of revenues in 2019 as compared to 2018 primarily due to lower than historical yields from our manufacturing process as a result of initial production of our fws programs and a charge for inventory obsolescence that resulted from the discontinuance of certain products and the write-off of materials as we have found substitute materials that will provide for better long-term manufacturing yields . the fws program went into volume production in 2019 and our yields were lower than we historically have as our supply chain took time to consistently meet quality standards . research and development . r & d expenses are incurred in support of internal display development programs or programs funded by agencies story_separator_special_tag in 2020 and 2019 our r & d revenues exceeded funded r & d expenses by approximately $ 2.4 million and $ 0.8 million , respectively , and this increase aided our improved operating results in 2020 as compared to 2019. the decrease in license and royalty revenue in 2020 compared to 2019 is due to the one-time license of ip to realwear for $ 3.5 million in 2019 partially offset by royalties earned under ip license agreements . international sales represented approximately 20 % and 44 % of product revenues for 2020 and 2019 , respectively . our international sales are primarily denominated in u.s. dollars . consequently , a strengthening of the u.s. dollar could increase the price in local currencies of our products in foreign markets and make our products relatively more expensive than competitors ' products that are denominated in local currencies , which could result in a reduction in sales or profitability in those foreign markets . as a result , our financial position and results of operations are subject to exchange rate fluctuation in transactional and functional currency . we have not taken any protective measures against exchange rate fluctuations , such as purchasing hedging instruments with respect to such fluctuations , because of the historically stable exchange rate between the japanese yen , great britain pound and the u.s. dollar . foreign currency translation impact on our results , if material , is described in further detail under “ item 7a . quantitative and qualitative disclosures about market risk ” section below . fiscal year 2019 compared to fiscal year 2018 sales of our products for defense applications include systems used by the military both in the field and for training and simulation . sales of our products for defense applications may be for a one-time purchase order or for programs that run for several years . product sales to defense customers were essentially flat for 2019 and 2018. industrial applications revenues represent customers who purchase our display products for use in headsets used for manufacturing , distribution , public safety , 3d metrology equipment and other industrial applications . our 3d metrology customers are primarily located in asia and they sell to asian contract manufacturers who use the 3d metrology machines for quality control purposes . the increase in industrial applications in 2019 compared to 2018 was primarily due to an increase in sales to customers who use our display components in industrial headsets and safety applications . sales of our displays for consumer applications is primarily for the use in thermal imaging products , recreational rifle and hand-held scopes and drone racing headsets . the decrease in consumer applications in 2019 compared to 2018 was primarily due to decreased demand for displays and components used in drone racing headsets . research & development ( “ r & d ” ) revenues decreased in 2019 as compared to 2018 primarily due to due to the completion of performance obligations on funded u.s. defense programs partially offset by revenues from oled development contracts . the increase in license and royalty revenue in 2019 is due to the one-time license of ip to realwear for $ 3.5 million and royalties earned under ip license agreements . international sales represented approximately 44 % and 41 % of product revenues for 2019 and 2018 , respectively . our international sales are primarily denominated in u.s. currency . 33 cost of product revenues . cost of product revenues , which is comprised of materials , labor and manufacturing overhead related to the production of our products for fiscal years 2020 , 2019 and 2018 were as follows : replace_table_token_2_th fiscal year 2020 compared to fiscal year 2019 cost of product revenues decreased as a percentage of revenues in 2020 as compared to 2019 primarily due to improved yields from our manufacturing process . improved yields result in lower material cost per unit because we are scrapping less material to produce a unit . in addition , the labor cost per unit declined as employees are not reworking or performing the same manufacturing process multiple times to create a finished product . also , fixed overhead costs per unit decline because we are producing more units in the manufacturing facility but the cost to run the manufacturing facility does not significantly increase . we were able to improve yields because we have more experience manufacturing our two primary defense products and we are learning ways to improve our processes . in addition , we are working with our subcontractors to improve the quality and lower the cost of the raw materials we acquire . in 2021 we expect some products that are currently in r & d to go into production . we expect these new products to start at lower yields and for us to improve these yields over time . accordingly , we expect our 2021 cost of product revenues as a percentage of product revenues to be negatively affected by these new products . we are unable to forecast whether our continued yield improvement efforts on our existing products will offset the initial negative impact of the new products coming into production in 2021. fiscal year 2019 compared to fiscal year 2018 cost of product revenues increased as a percentage of revenues in 2019 as compared to 2018 primarily due to lower than historical yields from our manufacturing process as a result of initial production of our fws programs and a charge for inventory obsolescence that resulted from the discontinuance of certain products and the write-off of materials as we have found substitute materials that will provide for better long-term manufacturing yields . the fws program went into volume production in 2019 and our yields were lower than we historically have as our supply chain took time to consistently meet quality standards . research and development . r & d expenses are incurred in support of internal display development programs or programs funded by agencies
| results of operations we have two principal sources of revenues : product revenues and research and development ( “ r & d ” ) revenues . r & d revenues consist primarily of development contracts with agencies or prime contractors of the u.s. government and commercial enterprises . we manufacture transmissive microdisplays and reflective microdisplays . our commercial and defense transmissive display production is being performed entirely in our westborough , massachusetts facility . fdd , our wholly-owned subsidiary , manufactures our reflective microdisplays in its facility located in scotland . in 2017 , we commenced development of oled displays which are designed by us and manufactured by third parties for us . we are a display supplier for the u.s. army 's family of weapon sights individual program and are undergoing qualification for the fws - crew served variant . we are also in development for a new series of displays for armored vehicles under the m1a2 program . the fws , m1a2 and our existing production avionic programs are expected to increase production for the next several years . there are other firms offering products which compete against us in the defense programs and all of the programs we supply product to are subject to the u.s. government defense budget and procurement process . accordingly , there can be no assurances we will continue to ship under our defense contracts . 31 we offer microdisplays and optical lenses for use in consumer , enterprise and public safety products and systems which are targeted at ar and vr markets , among other areas . we refer to the sale of microdisplays and optical lenses as our component sales . we also offer head mounted , voice and gesture controlled , hands-free headset system designs that include our components and software for consumer and enterprise applications .
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was positively impacted by a $ 4.7 million increase in noninterest income , a $ 3.8 million increase in net interest income and a $ 3.2 million decrease in the provision for loan losses . offsetting these positive impacts was a $ 3.2 million increase in noninterest expense . net income in 2018 was positively impacted by a $ 15.4 million increase in net interest income and a $ 4.3 million increase in noninterest income . in addition , income tax expense decreased $ 13.8 million from 2017. the decrease was largely due to the tax cuts and jobs act which lowered the company 's federal tax rate to 21 % from 35 % . offsetting these positive impacts was a $ 6.9 million increase in noninterest expense and a $ 3.4 million increase in the provision for loan losses , respectively . total assets were $ 4.947 billion as of december 31 , 2019 versus $ 4.875 billion as of december 31 , 2018 , an increase of $ 71.5 million or 1.5 % . this increase was primarily due to a $ 148.9 million increase in total loans , and a $ 22.7 million increase in available-for-sale investment securities offset by a decrease in cash and cash equivalents of $ 117.5 million . total average assets increased $ 183.5 million primarily due to average loans increasing $ 130.6 million in 2019 , and a $ 41.2 million increase in available-for-sale investment securities . critical accounting policies certain of the company 's accounting policies are important to the portrayal of the company 's financial condition , since they require management to make difficult , complex or subjective judgments , some of which may relate to matters that are inherently uncertain . estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances . some of the facts and circumstances which could affect these judgments include changes in interest rates , in the performance of the economy or in the financial condition of borrowers . management believes that its critical accounting policies include determining the allowance for loan losses and the valuation and other-than-temporary impairment of investment securities . allowance for loan losses the company maintains an allowance for loan losses to provide for probable incurred credit losses . loan losses are charged against the allowance when management believes that the principal is uncollectable . subsequent recoveries , if any , are credited to the allowance . allocations of the allowance are made for specific loans and for pools of similar types of loans , although the entire allowance is available for any loan that , in management 's judgment , should be charged against the allowance . a provision for loan losses is taken based on management 's ongoing evaluation of the appropriate allowance balance . a formal evaluation of the adequacy of the loan loss allowance is conducted monthly . the ultimate recovery of all loans is susceptible to future market factors beyond the company 's control . the level of loan loss provision is influenced by growth in the overall loan portfolio , emerging market risk , emerging concentration risk , commercial loan focus and large credit concentration , new industry lending activity , general economic conditions and historical loss analysis . in addition , management gives consideration to changes in the allocation for specific watch list credits in determining the appropriate level of the loan loss provision . furthermore , management 's overall view on credit quality is a factor in the determination of the provision . the determination of the appropriate allowance is inherently subjective , as it requires significant estimates by management . the company has an established process to determine the adequacy of the allowance for loan losses that generally includes consideration of the following factors : changes in the nature and volume of the loan portfolio , overall portfolio quality and current economic conditions that may affect the borrowers ' ability to repay . consideration is not limited to these factors although they represent the most commonly cited factors . with respect to specific allocation levels for individual credits , management considers the current valuation of collateral and the amounts and timing of expected future cash flows as the primary measures . management also considers trends in adversely classified loans based upon an ongoing review of those credits . with respect to pools of similar loans , 28 allocations are assigned based upon historical experience subject to a floor , unless the rate of loss is expected to be greater than historical losses as noted below . a detailed analysis is performed on loans that are classified but determined not to be impaired which incorporates different scenarios where the risk that the borrower will be unable or unwilling to repay its debt in full or on time is combined with an estimate of loss in the event the borrower can not pay to develop non-specific allocations for such loan pools . these allocations may be adjusted based on the other factors cited above . an appropriate level of general allowance for pooled loans is determined by portfolio segment using historical loss percentages subject to a floor , supplemented with other environmental factors based on the risks present for each portfolio segment . these factors include consideration of the following : levels of , and trends in , delinquencies and impaired loans ; trends in volume and terms of loans ; effects of any changes in risk selection and underwriting standards ; other changes in lending policies , procedure , and practices ; experience , ability , and depth of lending management and other relevant staff ; national and local economic trends and conditions ; industry conditions ; and effects of changes in credit concentrations . it is also possible that the following could affect the overall process : social , political , economic and terrorist events or activities . all of these factors are susceptible to change , which may be significant . story_separator_special_tag the net interest margin increased to 3.43 % in 2018 versus 3.33 % in 2017 , due to higher yields on average earning assets , which more than offset an increase in the cost of interest bearing liabilities during 2018 . 32 growth in the commercial loan portfolio accounted for most of the growth in loans , as well as total earning assets , during both 2019 and 2018 and positively impacted total interest income . management believes that the growth in the loan portfolio will likely continue in a measured and prudent fashion as a result of our continued strategic focus on commercial and industrial lending , as well as commercial real estate lending . loan growth was slower in 2019 and 2018 as compared to prior years due to a slowdown in manufacturing and industrial loans . in addition , the utilization of commercial lines of credit has dropped in 2019 and 2018 due to softened loan demand . management believes its organic growth strategy of continued expansion in its current geographic footprint and in indianapolis will provide continued loan growth opportunities . during 2019 , growth in average loans of $ 130.6 million and growth in available-for-sale investment securities of $ 41.2 million was funded through an increase in deposits . average demand deposits increased $ 86.1 million in 2019 and average interest bearing deposit accounts increased $ 62.5 million . the increase in the company 's yields on average earning assets during 2019 and 2018 resulted from increases in market rates overall , including increases in loan portfolio yields during both years . in the third and fourth quarter of 2019 , market rates were impacted by three federal reserve bank decreases of 25 basis points each in the federal funds rate , which occurred in july 2019 , september 2019 , and october 2019. however , the impact of these decreases was not felt until later in the second half of 2019. during 2019 management continued to focus on growing the commercial portfolio in a prudent and responsible manner . the cost of funds was also impacted by the decreases in the federal funds rate during the second half of 2019. however , given the asset-sensitive nature of the company 's balance sheet , loan interest rates repriced quicker than deposit interest costs , resulting in margin compression in the second half of 2019. provision for loan losses in 2019 the company recorded provision for loan loss expense of $ 3.2 million primarily due to growth in the loan portfolio . the 2019 provision expense compares to $ 6.4 million of provision expense recorded in 2018 and $ 3.0 million of provision expense recorded in 2017. the allowance for loan losses at december 31 , 2019 was $ 50.7 million , and represented 1.25 % of the loan portfolio , versus an allowance for loan losses of $ 48.5 million at the end of 2018 , which represented 1.24 % of the loan portfolio . the allowance for loan losses was $ 47.1 million at the end of 2017 , which represented 1.23 % of the loan portfolio . the provision in 2018 and 2017 was attributable to the increasing size of the loan portfolio with consideration to the level of nonperforming loans and net charge-offs ( recoveries ) . net charge-offs of $ 1.0 million , or 0.03 % of average loans , and net charge-offs of $ 5.1 , or 0.13 % of average loans , were recorded in 2019 and 2018 , respectively . provision expense for 2019 , 2018 , and 2017 was attributable to a number of factors but was primarily determined based on key loan quality metrics , including the level of net charge-offs , strong reserve coverage of nonperforming loans , a decrease in historical loss percentages , stable economic conditions in the company 's markets and general signs of improvement in borrower performance . in addition , management gave consideration to changes in the allocation for specific watch list credits in determining the appropriate level of the loan loss provision . management 's overall view on current credit quality was also a factor in the determination of the provision for loan losses . the company 's management continues to monitor the adequacy of the provision based on loan levels , asset quality , economic conditions and other factors that may influence the assessment of the collectability of loans . 33 noninterest income the following table presents changes in the components of noninterest income for the years ended december 31 . replace_table_token_9_th noninterest income was $ 45.0 million in 2019 versus $ 40.3 million in 2018 , an increase of $ 4.7 million , or 11.6 % . the increase was primarily driven by a $ 2.0 million increase in other income related to $ 1.7 million of swap fees generated from commercial lending transactions , as well as life insurance proceeds on bank owned life insurance policies . noninterest income was also positively impacted by increases in bank owned life insurance income , loan and service fees , mortgage banking income , and wealth advisory and brokerage fees due to continued growth of client relationships . offsetting the increases was a decrease in service charges on deposit accounts driven by lower treasury management fees from a single commercial treasury management relationship . this relationship contributed $ 4.5 million to services charges on deposit accounts during 2019. the related treasury management activity was terminated and the revenue will not recur in future periods . noninterest income was $ 40.3 million in 2018 versus $ 36.0 million in 2017 , an increase of $ 4.3 million , or 11.8 % . the increase was primarily driven by a $ 2.1 million increase in service charges on deposit accounts driven by growth in fees from business accounts . in addition , wealth advisory fees increased $ 863,000 due to new business development , as well as growth in assets managed for existing clients .
| results of operations overview in 2019 and 2018 , the company continued to grow loans and deposits organically , in its geographic footprint of northern indiana and in central indiana in the indianapolis market . the company had 50 branches as of december 31 , 2019. the company 's profitability has been positively impacted by growth in loans and deposits . in addition , asset quality has remained stable . the core banking contributions to noninterest income of mortgage banking , loan and wealth management fee income increased in 2019. overall , expense growth has reflected our continued investment in people , technology and our branch infrastructure . the outlook for 2020 includes plans for continued organic loan and deposit growth , a disciplined credit philosophy , continued investment in the company in the form of staff additions , continued expansion in our geographic footprint , continued investments in customer facing technology and cybersecurity risk management tools . selected income statement information for the years ended december 31 , 2019 , 2018 and 2017 is presented in the following table . replace_table_token_6_th ( 1 ) noninterest expense/net interest income plus noninterest income . ( 2 ) tangible common equity , tangible assets , and the tangible capital ratio are non-gaap financial measures calculated using gaap amounts . tangible common equity is calculated by excluding the balance of goodwill and other intangible assets from the calculation of equity , net of deferred tax . tangible assets are calculated by excluding the balance of goodwill and other intangible assets from the calculation of total assets , net of deferred tax . the tangible capital ratio is calculated by dividing tangible common equity by tangible assets . net income net income was $ 87.0 million in 2019 , an increase of $ 6.6 million , or 8.3 % , versus net income of $ 80.4 million in 2018. the increase in net income from 2018 to 2019 was primarily due to the increase in noninterest income of $ 4.7
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the company 's devices protect products in virtually every market that uses electrical energy , from consumer electronics to automobiles to industrial equipment . the company conducts its business through three reportable segments , which are defined by markets and consist of electronics , automotive , and electrical . the company 's customer base includes original equipment manufacturers , tier one automotive suppliers and distributors . in addition to protecting and growing its core circuit protection business , littelfuse has been investing in power control and sensing technologies . these newer platforms , combined with the company 's strong balance sheet and operating cash flow , provide opportunities for increased organic and acquisition growth . the company has set a target to grow 15 % per year ; 5 % organically and 10 % through acquisitions . to maximize shareholder value , the company 's primary strategic goals are to : ● grow organically faster than its markets ; ● double the pace of acquisitions ; ● sustain high-teens operating margins ; ● improve return on investment ; and ● return excess cash to shareholders . 22 the company serves markets that are directly impacted by global economic trends with significant exposures to the consumer electronics , automotive , industrial and mining end markets . the company 's results will be impacted positively or negatively by changes in these end markets . electronics segment overview in our electronics segment ( which accounts for about half of total littelfuse sales ) , we experienced fourth quarter electronics sales of $ 95.2 million , an increase of 27 % over the prior year quarter . full year sales were $ 367.1 million , an 11 % increase . excluding acquisitions , fourth quarter electronic sales were down 7 % sequentially , but were up 13 % year-over-year . full year electronic sales , excluding acquisitions , increased 4 % . our fourth quarter sales are typically below third quarter levels as the christmas build-up slows down . this year , however , the slowdown was a bit less than normal . in addition to the relative stability in the markets , another factor relates to the early chinese new year . chinese factories shut down towards the end of january for the holiday and in anticipation , some factories placed orders earlier and some took shipments in december and january so they could be in full production when the holiday season ends . channel inventories at the end of the fourth quarter were stable and in line with expected market conditions . when channel partners are concerned about end markets , we generally expect them to reduce inventory levels , particularly toward the end of the year . we believe that the fact that these channel partners ' inventory levels have remained steady is an indication of their belief in a stable to growth mode in 2014. automotive segment overview in our automotive segment , which was the strongest performing business segment in both the fourth quarter and for the full year ( generating approximately a third of total littelfuse sales ) , fourth quarter automotive sales of $ 72.9 million were up 45 % from the same quarter last year . excluding acquisitions , year-over-year fourth quarter sales increased 21 % . for the full year , automotive sales of $ 267.2 million increased 30 % over the prior year . excluding acquisitions , 2013 sales were up 9 % . fourth quarter automotive sales increased in all three geographies : europe , asia and the u.s. sales of passenger car fuses and accel sensors have remained strong and we believe we are well positioned with high content on some of the best-selling models in today 's market . our fourth quarter results also benefited from an increase in commercial vehicle product sales compared to last year 's weak fourth quarter . story_separator_special_tag font-size : 10pt '' > gross profit was $ 296.2 million or 39.1 % of sales in 2013 , compared to $ 258.5 million or 38.7 % of sales in 2012. gross profit in both 2013 and 2012 were negatively impacted by purchase accounting adjustments in cost of sales of $ 1.5 million and $ 0.6 million , respectively . these charges were the additional cost of goods sold for hamlin , accel and selco inventories which had been stepped up to fair value at the acquisition dates as required by purchase accounting rules . excluding the impact of these charges , gross profit was $ 297.7 million or 39.3 % of sales as compared to $ 259.1 million or 38.8 % of sales in 2012. the increase in gross margin was primarily attributable to operating leverage on higher sales . 26 total operating expense was $ 166.4 million or 22.0 % of net sales for 2013 compared to $ 151.6 million or 22.7 % of net sales for 2012. the increase in operating expenses primarily reflects incremental operating expenses of $ 12.5 million from business acquisitions and the increased cost of company incentive programs driven by improved financial performance in 2013 . 2012 operating expense included $ 5.1 million of charges related to the settlement of pension liabilities for certain former employees . further information regarding the company 's pension settlement charge is provided in note 12 of the notes to consolidated financial statements included in this report . operating income was $ 129.9 million or 17.1 % of net sales in 2013 compared to $ 106.9 million or 16.0 % of net sales in the prior year . the increase in operating income in the current year was due primarily to the increased sales and resulting operating leverage . interest expense was $ 2.9 million in 2013 as compared to $ 1.7 million in 2012 and is primarily related to the company 's increased borrowing to fund acquisitions . story_separator_special_tag the americas region also experienced $ 0.9 million in unfavorable currency effects resulting from sales denominated in canadian dollars . 28 european sales decreased $ 7.4 million or 6 % in 2012 compared to 2011. this resulted from decreases in the company 's electronics and automotive business segments offset by an increase in the electrical business segment . automotive sales decreased $ 0.4 million or less than 1 % in 2012 primarily reflecting lower demand in the passenger vehicle markets . excluding the impact of incremental sales from acquisitions and unfavorable currency effects , primarily from a weaker euro , automotive sales declined $ 6.5 million or 10 % . electronics sales decreased $ 10.3 million or 24 % reflecting lower demand resulting from a weaker economy during 2012. electrical sales increased $ 3.3 million or 63 % primarily from the incremental sales of selco . excluding incremental sales and currency effects , electrical sales increased $ 0.1 million or 2 % year-over-year . overall european sales in 2012 included unfavorable currency effects of $ 8.6 million , resulting primarily from sales denominated in euros . asia-pacific sales decreased $ 4.7 million or 2 % in 2012 compared to 2011. this decrease resulted from a decrease in the electronics business segment offset by increases at the company 's automotive and electrical business segments . electronics sales decreased $ 12.5 million or 6 % reflecting slowing end-market demand and inventory de-stocking . automotive sales increased $ 7.4 million or 20 % reflecting continued increased demand for passenger vehicles in the developing asian markets as well as gains in market share . electrical sales increased $ 0.5 million or 9 % . current year results included favorable currency effects of $ 0.1 million resulting from sales denominated in chinese yuan partially offset by sales denominated in korean won and japanese yen . gross profit was $ 258.5 million or 38.7 % of sales in 2012 , compared to $ 256.7 million or 38.6 % of sales in 2011. gross profit in both 2012 and 2011 were negatively impacted by purchase accounting adjustments in cost of sales of $ 0.6 million and $ 4.1 million , respectively . these charges were the additional cost of goods sold for accel and selco inventory which had been stepped-up to fair value at the acquisition dates as required by purchase accounting rules . excluding the impact of these charges , gross profit was $ 259.1 million or 38.8 % of sales for 2012 as compared to $ 260.8 million or 39.2 % of sales in 2011. the decline in gross margin was primarily attributable to the unfavorable impact of currency effects on sales as described above . total operating expense was $ 151.6 million or 22.7 % of net sales for 2012 compared to $ 142.8 million or 21.5 % of net sales for 2011. the increase in operating expenses primarily reflects incremental operating expenses of $ 6.5 million from business acquisitions and $ 5.1 million in charges related to the settlement of pension liabilities for certain former employees . further information regarding the company 's pension settlement charge is provided in note 12 of the notes to consolidated financial statements included in this report . operating income was $ 106.9 million or 16.0 % of net sales in 2012 compared to $ 113.9 million or 17.1 % of net sales in the prior year . the decrease in operating income in the current year was due primarily to the limited sales growth and an increase in costs as described above . interest expense was unchanged at $ 1.7 million in both 2012 and 2011 and is primarily related to the company 's revolving credit facility . impairment and equity in net loss of unconsolidated affiliate was $ 7.3 million in 2012. during the fourth quarter , the company determined that it had the ability to exert significant influence over shocking and as a result began accounting for the investment using the equity method . in accordance with accounting standards codification ( ìascî ) 323 , the company retroactively recorded its proportional share of shocking 's operating losses , which amounted to approximately $ 4.0 million in 2012. the proportional amount of operating losses in 2011 was not material . in addition , the company concluded that there was an other-than-temporary impairment which existed for its remaining investment in shocking . the company engaged a third-party valuation firm to assist in developing the fair value of the investment in shocking . based on the then fair value , the company determined that there was an impairment of approximately $ 3.3 million which was recorded as a non-operating impairment and equity loss of unconsolidated affiliate in the consolidated statements of net income . see note 6 of the notes to consolidated financial statements included in this report . 29 other expense ( income ) , net , consisting of interest income , royalties , non-operating income and foreign currency items was $ 2.2 million of income in 2012 compared to $ 2.9 million of income in 2011 .the year-over-year decrease in income primarily reflects the impact of unfavorable currency translation effects ( primarily due to the weakening of the euro against the u.s. dollar ) in 2012. income before income taxes was $ 100.1 million in 2012 compared to $ 115.1 million in 2011. income tax expense was $ 24.7 million in 2012 compared to $ 28.1 million in 2011. the 2012 effective income tax rate was 24.7 % compared to 24.4 % in 2011. the 2012 effective tax rate is lower than the statutory tax rate primarily due to the result of more income earned in low tax jurisdictions . liquidity and capital resources as of december 28 , 2013 , $ 297.1 million of the $ 305.2 million of the company 's cash and cash equivalents was held by foreign subsidiaries . of the $ 297.1 million held by foreign subsidiaries , approximately $ 13.6 million could be repatriated with minimal tax consequences .
| electrical segment overview in our electrical segment , electrical fuse sales were up 9 % in the fourth quarter year over year due to continued growth in our focus areas of solar and hvac , as well as incremental sales from distributor conversions during the year . for the full year , sales into the solar and hvac markets increased more than $ 3.0 million over the prior year . the non-residential construction market appears to be showing signs of improvement and industrial production activity remains solid , such that we expect the market outlook for the electrical fuse business to remain positive . in contrast , the custom electrical products business continues to struggle . although fourth quarter sales increased from what was a weak third quarter , they were still down substantially year over year . 23 the primary market for these products is canadian potash mining , which has been severely impacted by declining margins and slower than expected demand growth . significant mine expansion projects that were expected to begin in 2013 and 2014 have been delayed . we do believe we are well positioned with canadian potash producers for when mine investments rebound . hamlin acquisition on may 31 , 2013 , the company acquired 100 % of hamlin , inc. ( ìhamlinî ) from key safety systems , for $ 144.4 million ( net of cash acquired ) . hamlin is a manufacturer of sensor technology providing standard products and custom solutions for leading global manufacturers in the automotive and electronic industries . the acquisition allows the company to expand its automotive and electronics product offerings in the global sensor market in both the automotive and electronics business segments . business segment information u.s. generally accepted accounting principles ( “ gaap ” ) dictates annual and interim reporting standards for an enterprise 's operating segments and related disclosures about its products , services , geographic areas and major customers .
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we also allocate any earnings in excess of distributions to our limited partners , our general partner and the holders of the idrs in accordance with the terms of our partnership agreement based on their respective proportionate ownership interests in us , after taking into account distributions to be paid with respect to the idrs , as set forth in our partnership agreement . replace_table_token_17_th we determined basic and diluted net income ( loss ) per limited partner unit as as set forth in the following tables : replace_table_token_18_th ( 1 ) represents the distributions that would have been paid during the year assuming the minimum quarterly distribution amount of $ 0.2875 per unit , or $ 1.15 per unit on an annualized basis , was distributed based on a retrospective basis as if the units issued to our general partner and usdg were outstanding the entire period and the common units issued to the public and class a units issued to certain members of management were were outstanding from october 15 , 2014 , the date of the ipo . ( 2 ) represents the weighted average units outstanding computed on a retrospective basis as if the units issued to our general partner and usdg in connection with the ipo were outstanding for the entire year and the common units issued to the public and class a units were outstanding from the october 15 , 2014 closing of the ipo transaction . ( 3 ) represents the total distributable story_separator_special_tag 49 the following discussion and analysis of our financial condition and results of operations is based on and should be read in conjunction with our consolidated financial statements and the accompanying notes beginning in item 8. financial statements and supplementary data of this annual report on form 10-k. unless the context otherwise requires , references in this discussion to usd partners , usdp , we , our , us or like terms used in the present tense or prospectively ( periods beginning on or after october 15 , 2014 ) refer to usd partners lp and its subsidiaries . references to the predecessor , we , our , us , or like terms , when used in a historical context ( periods prior to october 15 , 2014 ) , refer to the following subsidiaries , collectively , that were contributed to usd partners in connection with our initial public offering of 9,120,000 common units completed on october 15 , 2014 : san antonio rail terminal llc , usd logistics operations gp llc , usd logistics operations lp , usd rail lp , usd rail canada ulc , usd rail international , usd terminals canada ulc , usd terminals international and west colton rail terminal llc , collectively , the “ contributed subsidiaries . '' the predecessor also includes the membership interests in the following five subsidiaries of usd which operated crude oil rail terminals that were sold in december 2012 : bakersfield crude terminal llc , eagle ford crude terminal llc , niobrara crude terminal llc , st. james rail terminal llc , and van hook crude terminal llc , collectively known as the “ discontinued operations. ” this discussion contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those discussed below . factors that could cause or contribute to such differences include , but are not limited to , those identified below and those discussed in part i , item 1a “ risk factors ” included elsewhere in this report . overview and recent developments we are a fee-based , growth-oriented master limited partnership formed by usd to acquire , develop and operate energy-related rail terminals and other high-quality and complementary midstream infrastructure assets and businesses . our assets consist primarily of : ( i ) an origination crude-by-rail terminal in hardisty , alberta , canada , with capacity to load up to two 120-railcar unit trains per day and ( ii ) two destination unit train-capable ethanol rail terminals in san antonio , texas , and west colton , california , with a combined capacity of approximately 33,000 bpd . our rail terminals provide critical infrastructure allowing our customers to transport energy-related products from multiple supply regions to numerous demand markets that are dependent on these products . in addition , we provide railcar services through the management of a railcar fleet consisting of approximately 3,099 active railcars , as of december 31 , 2014 , that are committed to customers on a long-term basis , with an additional 650 railcars expected to be available for service during the first half of 2015. we generate substantially all of our operating cash flow by charging fixed fees for handling energy-related products and providing related services . we do not take ownership of the underlying commodities that we handle nor do we receive any payments from our customers based on the value of such commodities . rail transportation of energy-related products provides efficient and flexible access to key demand markets on a relatively low fixed-cost basis , and as a result has become an important part of north american midstream infrastructure . market update after reaching highs of over $ 100 per barrel during the first half of 2014 , crude oil prices underwent a rapid decline , with brent and west texas intermediate ( `` wti '' ) reaching prices below $ 50 early in the first quarter of 2015. over the same period , the spread between many benchmark crude oil prices narrowed . crude oil loaded at our hardisty rail terminal is priced off of the western canadian select benchmark ( `` wcs '' ) . demand for wcs is primarily influenced by its spread or discount to wti , brent or maya as heavy crude is consumed by refiners who may import other grades of foreign crude oil as input alternatives which are typically priced off of these benchmark crude oils . story_separator_special_tag we have entered into terminal services agreements with a subsidiary of an investment grade company for our san antonio rail terminal and our west colton rail terminal pursuant to which that customer pays us per gallon fees based on the amount of ethanol offloaded at the terminals . the san antonio terminal services agreement was originally scheduled to expire in august 2015. on january 22 , 2015 , the partnership entered into an amendment with our customer at our san antonio rail terminal whereby the service agreement will automatically extend for two additional 18 month terms unless the customer provides written notice six months prior to the end of a term . the customer did not provide notice to terminate the agreement , and the term of the agreement now extends to february 2017. the current agreement entitles the customer to 100 % of the terminal 's capacity , subject to our right to seek additional customers if minimum volume usage thresholds are not met . our san antonio rail terminal is located within five miles from san antonio 's gasoline blending terminals and is the only ethanol rail terminal in a 20-mile radius . the west colton terminal services agreement has been in place since july 2009 and is terminable at any time by either party . our west colton rail terminal is located less than one mile from gasoline blending terminals that supply the greater san bernardino and riverside county-inland empire region of southern california and is the only ethanol rail terminal in a ten-mile radius . we are currently in the process of seeking permits to construct an approximately one-mile pipeline directly from our west colton rail terminal to the kinder morgan inc. gasoline blending terminals , which , if approved and constructed , may result in additional long-term volume commitments and cash flows . fleet services we provide fleet services for a railcar fleet consisting of 3,099 active railcars as of december 31 , 2014 , with an additional 650 railcars expected to be available for service in the first half of 2015. we do not own any railcars . affiliates of usd lease 3,096 of the railcars in our fleet from third parties , including the additional 650 railcars expected to be available for service in the first half of 2015. we directly lease 653 railcars from third parties . we have entered into master fleet services agreements with a number of customers for the use of the 653 railcars in our fleet that we lease directly . we have also entered into services agreements with affiliates of usd for the provision of fleet services with respect to the 3,096 railcars which they lease from third parties . these agreements are on a take-or-pay basis for periods ranging from five to nine years with a weighted average remaining life of 6.5 years for agreements dedicated to customers of our hardisty rail terminal . in the aggregate , these master fleet services agreements have a weighted-average life of 5.2 years . under our master fleet services agreements with our customers and the services agreements with affiliates of usd , we provide customers with railcar-specific fleet services associated with the transportation of crude oil , which may include , among other things , the provision of relevant administrative and billing services , the maintenance of railcars in accordance with standard industry practice and applicable law , the management and tracking of the movement of railcars , the regulatory and administrative reporting and compliance as required in connection with the movement of railcars , and the negotiation for and sourcing of railcars . we typically charge our customers , including the affiliates of usd , monthly fees per railcar that include a component for railcar use ( in the case of our directly-leased railcar fleet ) and a component for fleet services . approximately 66 % of our current railcar fleet is dedicated to customers of our terminals . the remaining 34 % of the railcar fleet is dedicated to a customer of terminals belonging to subsidiaries we previously sold . we also contract with railroads on behalf of some of our customers to arrange for the movement of railcars from our hardisty rail terminal to the destinations selected by our customers . we are the contracting party with the railroads for these shipments , and are responsible to the railroads for the related fees charged by the railroads , for which we are reimbursed by our customers . both the fees charged by the railroads to us and the reimbursement of these fees by our customers are included in our consolidated statements of operations in the revenues and operating costs line items entitled “ freight and other reimbursables. ” 52 how we evaluate our operations our management uses a variety of financial and operating metrics to evaluate our performance . these metrics are significant factors in assessing our operating results and profitability and include : ( i ) volumes ; ( ii ) adjusted ebitda and dcf ; and ( iii ) operating and maintenance expenses . we define adjusted ebitda and dcf below . volumes the amount of terminalling services revenue we generate depends on both minimum customer commitment fees and the volumes of crude oil and biofuels that we handle at our rail terminals in excess of those minimum commitments . these volumes are primarily affected by the supply of and demand for crude oil , refined products and biofuels in the markets served directly or indirectly by our assets as well as the spreads between the benchmark prices for these products .
| summary analysis of operating results year ended december 31 , 2014 compared to the year ended december 31 , 2013 the change in our operating results for the year ended december 31 , 2014 , compared with our results for the same period of 2013 were largely driven by the commencement of operations at our hardisty rail terminal facility in june 2014. our hardisty rail terminal operations contributed approximately $ 2.2 million to the operating income of our terminalling services business , which was partially offset by lower operating income in our fleet services business and additional selling , general and administrative costs , primarily related to our omnibus agreement and public partnership expenses that we do not allocate to our segments . additionally our operating results for the year ended december 31 , 2014 were negatively affected by additional interest expense associated with amounts outstanding on the credit facility we entered into in connection with our ipo and foreign currency transaction losses related to our canadian operations , partially offset by gains on our derivative instruments . a more comprehensive discussion of our operating results by segment is presented below . year ended december 31 , 2013 compared to year ended december 31 , 2012 the change in our operating results for the year ended december 31 , 2013 , compared with the results we achieved for the same period of 2012 , primarily resulted from the impact of certain fixed overhead costs that were retained subsequent to the disposition of five terminals .
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pursuant to the stock option exchange program , 108 out of 132 eligible employees tendered options covering an aggregate of 2,685,396 shares of the company 's class a and class b common stock at a weighted average exercise price of $ 11.03 , in exchange for options to purchase 2,685,396 shares of story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes appearing at the end of this filing . some of the information contained in this discussion and analysis or set forth elsewhere in this filing , including information with respect to our plans and strategy for our business , includes forward-looking statements that involve risks and uncertainties . you should read the “ risk factors ” section of this filing for a discussion of important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by the forward-looking statements contained in the following discussion and analysis . overview castlight offers a health benefits platform that engages employees to make better health care decisions and enables employers to communicate and measure their benefit programs . we provide a simple , personalized , and powerful way for employees to shop for and manage their health care . at the same time , we enable employers to understand their employees ' needs and guide them to the right care , right providers and right programs at the right time . our comprehensive technology offering aggregates complex , large-scale data and applies sophisticated analytics to make health care data transparent and useful . our products are designed to deliver strong employee engagement and can be used to enable employers to integrate disparate benefit programs into a single platform available to employees and their families . ultimately , we help enable organizations and their employees to improve outcomes , lower health care costs , and increase benefits satisfaction . since our inception in 2008 , we have been committed to improving the efficiency of the u.s. health care industry . from 2008 to 2010 , we focused efforts on research and development to build our consumer health care database , our analytic capabilities and the initial version of our cloud-based product which constitutes our core castlight platform . after its release in 2010 , we have continued to enhance that product , as well as release new products , including castlight pharmacy , castlight dental , castlight action , castlight elevate , castlight protect , and castlight rewards . these products are delivered to our customers , and their employees and families , via our cloud-based offering and leverage consumer-oriented design principles that drive engagement and ease of use . 37 we market and sell our health benefits platform to self-insured companies in a broad range of industries and to governmental entities . we sell our offering solely in the united states , and we market to our customers and potential customers through our direct sales force , as well as through relationships with health plans , benefits consultants and other channel partners . we intend to continue to invest aggressively in the success of our customers , expand our commercial operations and further develop our offering . key factors affecting our performance sales of new and additional products . our revenue growth rate and long-term profitability are affected by our ability to sell new and additional products directly to our customer base and through our channel partners . additionally , we believe that there is a significant opportunity to sell subscriptions to other products as our customers become more familiar with our offering and seek to address additional needs . renewals of customer contracts . we believe that our ability to retain our customers and expand their subscription revenue growth over time will be an indicator of the stability of our revenue base and the long-term value of our customer relationships . implementation timelines . our ability to convert backlog into revenue and improve our gross margin depends on how quickly we complete customer implementations . our implementation timelines vary from customer to customer based on the source and condition of the data we receive from third parties , the configurations that we agree to provide and the size of the customer . our implementation timelines for our core castlight platform are typically three to nine months after entering into an agreement with a customer . our implementation timelines for our other products currently range from approximately three to twelve months . professional services model . we believe our professional services capabilities support the adoption of our subscription offerings . as a result , our sales efforts have been focused primarily on our subscription offering , rather than the profitability of our professional services business . our professional services are generally priced on a fixed-fee basis and the costs incurred to complete these services , which consist mainly of personnel-related costs , have been greater than the amount charged to the customer . we also do not have standalone value for our implementation services for accounting purposes . accordingly , we recognize implementation services revenue in the same manner as the associated subscription revenue . prior to launching an individual customer , we incur significant costs associated with implementation activities , which we record as cost of revenue . since we do not recognize significant revenues from an individual customer until it launches , we generate a negative gross margin at the customer level during the implementation period . seasonality . we have historically observed seasonality related to employee benefits cycles as a significantly higher proportion of our customers enter into new subscription agreements with us in the third and fourth quarters of the year , compared to the first and second quarters . as we continue to leverage our channel relationships and expand our business , there is no assurance this seasonality will continue . story_separator_special_tag we generally invoice our implementation services upon contract signing on a fixed-fee basis , which is generally when we commence work . as a result of variability in our billing terms , the deferred revenue balance does not represent the total value of our customer contracts , nor do changes in deferred revenue serve as a reliable indicator of our future subscription revenue in a given period . cost of revenue cost of revenue consists of the cost of subscription revenue and cost of professional services revenue . cost of subscription revenue primarily consists of data fees , employee-related expenses ( including salaries , benefits and stock-based compensation ) , hosting costs of our cloud-based service , cost of subcontractors , expenses for service delivery ( which includes call center support ) , allocated overhead , amortization of internal-use software and depreciation of owned computer equipment and software . cost of professional services revenue consists primarily of employee-related expenses ( including salaries , bonuses , benefits and stock-based compensation ) associated with these services , the cost of subcontractors and travel costs and allocated overhead . the time and costs of our customer implementations vary based on the source and condition of the data we receive from third parties , the configurations that we agree to provide and the size of the customer . our cost of revenue is expensed as we incur the costs . however , the related revenue is deferred until our products are ready for use by the customer and then recognized as revenue ratably over the related contract term . therefore , we expense the cost incurred to provide our products and services prior to the recognition of the corresponding revenue . operating expenses operating expenses consist of sales and marketing , research and development and general and administrative expenses . sales and marketing . sales and marketing expenses consist primarily of employee-related expenses ( including salaries , sales commissions and bonuses , benefits and stock-based compensation ) , travel-related expenses , marketing programs and allocated overhead . commissions earned by our sales force and broker fees that can be associated specifically with the noncancelable portion of a subscription contract are deferred and amortized over the noncancelable period . accordingly , commission expense can be materially impacted by changes in the termination provisions of customer contracts that we execute in a given period compared with previous periods . research and development . research and development expenses consist primarily of employee-related expenses ( including salaries , bonuses , benefits and stock-based compensation ) , costs associated with subcontractors and allocated overhead . general and administrative . general and administrative expenses consist primarily of employee-related expenses ( including salaries , bonuses , benefits and stock-based compensation ) for finance and accounting , legal , human resources and management information systems personnel , legal costs , professional fees , other corporate expenses and allocated overhead . overhead allocation . expenses associated with our facilities and it costs are allocated between cost of revenues and operating expenses based on employee headcount determined by the nature of work performed . 40 story_separator_special_tag contractors to assist in our development efforts , such as the releases of new features and functionality on existing products . 2015 compared to 2014 research and development expense increased $ 7.2 million or 31 % , primarily attributable to a $ 5.6 million increase in employee-related expenses as we continued to hire engineering talent to drive innovation and new products and a $ 1.3 million increase in expenses related to the use of sub-contractors to assist in our development efforts , such as our monthly releases of new features and functionality on existing products , development of implementation tools and portions of new products such as castlight action and castlight elevate . in addition , allocated overhead expenses accounted for $ 1.4 million of the increase , primarily related to an increase in headcount and rent expense attributable to new office spaces leased in the current year . also contributing to the increase was a $ 0.6 million reduction in the amount of research and development spend being allocated to launch activities , relative to 2014. these increases were offset by $ 2.3 million capitalized as internally developed software costs . general and administrative 43 replace_table_token_11_th 2016 compared to 2015 general and administrative expense increased $ 2.6 million or 11 % , primarily attributable to a $ 2.9 million increase in litigation expenses related to a litigation settlement in 2016 and $ 1.6 million increase for acquisition costs , related to the ongoing acquisition of jiff , inc. the increase was offset by a $ 1.1 million decrease in contractor expense as we gained the benefit of our systems and infrastructure investments and a $ 0.7 million decrease in recruiting expense as a result of a decrease in hiring efforts due to the reduction in workforce in the second quarter of 2016 . 2015 compared to 2014 general and administrative expense increased $ 5.3 million or 28 % , primarily attributable to a $ 3.2 million increase in employee-related expenses driven by an increase in headcount , a $ 2.6 million increase in facilities and it-related expenses , and a $ 1.8 million increase in recruiting , accounting , legal and other professional services to support the growth of our business and public company infrastructure . also contributing to the increase was $ 0.4 million in insurance fees , $ 0.3 million in travel and entertainment and $ 0.2 million in contractor expense . the increase was offset by $ 3.7 million in allocated overhead expenses , primarily related to an increase in headcount and rent expense attributable to new office spaces leased in the current year liquidity and capital resources replace_table_token_12_th as of december 31 , 2016 , our principal sources of liquidity were cash , cash equivalents and marketable securities totaling $ 114.6 million , which were held for working capital purposes .
| results of operations the following tables set forth selected consolidated statements of operations data and such data as a percentage of total revenue for each of the periods indicated : replace_table_token_6_th revenue replace_table_token_7_th 2016 compared to 2015 total revenue for the year ended december 31 , 2016 , increased $ 26.4 million , or 35 % , the increase in total revenue was primarily attributable to revenue from customers launched during 2016 and 2015 . full year revenue from customers launched in 2015 accounted for $ 10.0 million of the increase and new customer launches in 2016 accounted for $ 9.8 million of the increase . additionally , $ 4.6 million of the increase was attributable to higher user counts for existing customers and $ 2.3 million was attributable to launches of cross-sell products for existing customers . these increases were partially offset by customer terminations . our launched customer base grew more than 15 % year over year . 2015 compared to 2014 total revenue for the year ended december 31 , 2015 , increased $ 29.7 million , or 65 % . the increase in total revenue was primarily attributable to revenue from customers launched during 2015 as well as incremental revenue from customers launched in 2014 . new customer launches in 2015 accounted for $ 15.4 million of the increase and customers launched in 2014 accounted for $ 14.5 million of the increase in total revenue . our launched customer base grew more than 35 % year over year .
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in the event that a related party status changes , consolidation or deconsolidation of these securitization trusts could occur . for those trusts that farmer mac is the primary beneficiary , the assets and liabilities are presented on the consolidated balance sheets as `` loans held for investment in consolidated trusts , at amortized 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 . the accounts of contour valuation services , llc ( which began doing business as agvisory during first quarter 2016 ) ( `` agvisory '' ) , farmer mac 's former majority-owned subsidiary , are also included through may 1 , 2017 , at which time farmer mac redeemed its ownership interest . 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 , 2017 , 2016 , and 2015. overview farmer mac increased its outstanding business volume by $ 1.6 billion ( 9.2 percent ) to $ 19.0 billion during 2017. the primary drivers of the increase were net portfolio growth of $ 0.7 billion in farm & ranch loan 66 purchases and $ 0.6 billion in purchases of agvantage securities . farmer mac 's overall credit quality deteriorated modestly during 2017 , as the total allowance for losses , substandard assets , and 90-day delinquencies as of december 31 , 2017 all increased in terms of both dollars and as a percentage of the farm & ranch portfolio from their respective 2016 levels . substandard assets and 90-day delinquencies as a percentage of the farm & ranch portfolio remained below farmer mac 's historical average substandard assets rate and historical average 90-day delinquency rate , respectively . farmer mac also increased the quarterly dividend on all three classes of its common stock by 61 percent from $ 0.36 per share in each quarter of 2017 to $ 0.58 per share for first quarter 2018. farmer mac expects the new u.s. tax legislation enacted in december 2017 t o have a positive effect on core earnings because of the lower federal corporate income tax rate that will apply to farmer mac starting in 2018. this was an important factor in farmer mac 's decision to significantly increase the amount of its quarterly common stock dividend beginning in 2018 , consistent with its common stock dividend policy to target a core earnings payout ratio of approximately 30 percent . this represents the seventh consecutive year that farmer mac has increased its quarterly dividend from the prior year , and farmer mac believes that the most recent increase is supported by farmer mac 's earnings potential and overall capital position . the discussion below of farmer mac 's financial information includes certain `` non-gaap measures , '' which are measures of financial performance that are not presented in accordance with generally accepted accounting principles in the united states ( `` gaap '' ) . for more information about the non-gaap measures farmer mac uses , see `` management 's discussion and analysis of financial condition and results of operations—use of non-gaap measures . '' net income and core earnings farmer mac 's net income attributable to common stockholders for 2017 was $ 71.3 million , compared to $ 64.2 million for 2016 and $ 47.4 million for 2015. the $ 7.1 million increase in net income attributable to common stockholders for 2017 compared to 2016 was primarily driven by increases of $ 11.3 million after-tax in net interest income and a $ 1.1 million after-tax increase in net realized gains on the sale of real estate owned properties . the year-over-year increase was offset in part by ( 1 ) a $ 2.7 million after-tax decrease in gains in fair value of financial derivatives and hedged assets ; ( 2 ) a $ 1.6 million after-tax increase in non-interest expense in 2017 , primarily attributable to higher general and administrative ( `` g & a '' ) expenses and higher compensation and employee benefits expenses ; and ( 3 ) the re-measurement of net deferred tax asset due to the enactment of new federal tax legislation ( the tax cuts and jobs act ) , which resulted in a $ 1.4 million increase to income tax expense in 2017. the $ 16.8 million increase in net income attributable to common stockholders for 2016 compared to 2015 was driven by an increase of $ 9.4 million after-tax in net interest income and a $ 1.8 million after-tax increase in gains in fair value of financial derivatives and hedged assets . also contributing to the increase was the absence in 2016 of ( 1 ) an $ 8.1 million ( $ 6.2 million after-tax ) loss recorded in first quarter 2015 resulting from the write-off of deferred issuance costs upon the redemption of the farmer mac ii llc preferred stock on march 30 , 2015 ; and ( 2 ) $ 3.5 million after-tax in dividend expense recorded during first quarter 2015 on that preferred stock . the increase was offset in part by a $ 3.1 million after-tax increase in non-interest expense in 2016 primarily attributable to higher g & a expenses , higher compensation and employee benefits expenses , and a decrease in the release of reserve for losses . 67 farmer mac 's non-gaap core earnings for 2017 were $ 65.6 million , compared to $ 53.5 million in 2016 and $ 47.0 million in 2015. the $ 12.1 million increase in core earnings for 2017 compared to 2016 was primarily attributable to ( 1 ) a $ 11.9 million after-tax increase in net effective spread ; ( 2 ) a $ 1.1 million after-tax increase in net realized gains on the sale of real estate owned properties ; and ( 3 ) a $ 0.8 million after-tax increase in guarantee and commitment fee income . story_separator_special_tag the 2 basis point increase in net interest yield for 2016 compared to 2015 was primarily driven by a lower average balance in cash and cash equivalents primarily during the second half of 2016. net effective spread , a non-gaap measure , was $ 141.3 million for 2017 , compared to $ 123.1 million in 2016 and $ 117.4 million in 2015. in percentage terms , net effective spread for 2017 was 0.91 percent , compared to 0.84 percent in 2016 and 0.85 percent in 2015. farmer mac uses net effective spread as an alternative measure to net interest income because management believes it is a useful metric that reflects the economics of the net spread between all the assets owned by farmer mac and all related funding , including any associated derivatives , some of which may not be included in net interest income . for 2017 compared to 2016 , the $ 18.2 million increase in net effective spread in dollars was primarily attributable to ( 1 ) growth in on-balance sheet agvantage securities , farm & ranch loans , and other business volume , which increased net effective spread by approximately $ 15.1 million in 2017 ; and ( 2 ) changes in farmer mac 's funding strategies and improvements in libor-based short-term funding costs for floating rate assets indexed to libor , which added approximately $ 4.0 million in 2017. net effective spread in percentage terms increased 7 basis points in 2017 compared to 2016 primarily due to the decrease in the average balance of lower-earning cash and cash equivalents and investment securities , which added approximately 5 basis points to net effective spread . also contributing to the increase were the effects of changes in farmer mac 's funding strategy and a favorable libor-based funding market , which added approximately 3 basis points in 2017. for 2016 compared to 2015 , the $ 5.7 million increase in dollars was attributable to growth in outstanding business volume . the 1 basis point contraction in net effective spread in percentage terms was primarily attributable to a higher average balance in lower-earning investment securities in 2016 compared to 2015. for more information about farmer mac 's use of net effective spread as a financial measure , see `` management 's discussion and analysis of financial condition and results of operations—use of non- 69 gaap measures . '' for a reconciliation of net interest income to net effective spread , see table 7 in `` management 's discussion and analysis of financial condition and results of operations—results of operations—net interest income . '' business volume farmer mac added $ 4.7 billion of new business volume during 2017. the new business volume included purchases of $ 2.4 billion of agvantage securities , purchases of $ 1.1 billion of newly originated farm & ranch loans , farm & ranch loans added under ltspcs of $ 554.7 million , purchases of $ 369.8 million of usda securities , the issuance of $ 161.9 million of farmer mac guaranteed usda securities , and purchases of rural utilities loans of $ 137.3 million . also during 2017 , farmer mac fully refinanced a $ 1.0 billion agvantage security that matured in april 2017 into three new on-balance sheet agvantage securities . previously , $ 970.0 million of the $ 1.0 billion maturing agvantage security was reported as off-balance sheet business volume because it was owned by third-party investors . taking into account maturities and paydowns on existing assets , farmer mac 's outstanding business volume was $ 19.0 billion as of december 31 , 2017 , an increase of $ 1.6 billion from december 31 , 2016 . capital as of december 31 , 2017 , farmer mac 's core capital level was $ 657.1 million , which was $ 136.8 million above the minimum capital level required by farmer mac 's statutory charter . as of december 31 , 2016 , farmer mac 's core capital level was $ 609.7 million , which was $ 143.2 million above the minimum capital requirement . the decrease in capital in excess of the minimum capital level was due primarily to an increase in minimum capital required to support the growth of on-balance sheet assets during 2017. in particular , the refinancing of a $ 1.0 billion agvantage security that matured in april 2017 into three new on-balance sheet agvantage securities significantly increased farmer mac 's on-balance sheet assets because $ 970.0 million of the refinanced security was previously held by third party investors and reported as off-balance sheet business volume . in addition , farmer mac elected to adopt accounting standard update ( `` asu '' ) 2018-02 , `` reclassification of certain tax effects from accumulated other comprehensive income , '' for the year ended december 31 , 2017 , which resulted in an increase to `` accumulated other comprehensive income , net of tax `` and a corresponding decrease to `` retained earnings `` of $ 9.1 million . the decrease in capital in excess of the minimum capital level was offset in part by an increase in retained earnings during 2017 , excluding the effects of the adoption of asu 2018-02. see note 2 ( r ) to the consolidated financial statements for more information about the adoption of asu 2018-02 and the effect on farmer mac 's consolidated financial statements . in august 2017 , farmer mac 's board of directors approved the continuation of a share repurchase program on its existing terms through august 2019 and authorized farmer mac to repurchase up to $ 5.4 million of its outstanding class c non-voting common stock . this is the amount that was remaining under the share repurchase program that farmer mac 's board of directors originally authorized in third quarter 2015 for the repurchase of up to $ 25 million of outstanding class c non-voting common stock . farmer mac did not repurchase shares during 2017 under this program .
| balance sheet review assets . farmer mac 's total assets as of december 31 , 2017 were $ 17.8 billion , compared to $ 15.6 billion as of december 31 , 2016 . the increase in total assets was primarily attributable to an increase in total farmer mac guaranteed securities and total loans , net of allowance . as of december 31 , 2017 , farmer mac had $ 0.3 billion of cash and cash equivalents and $ 2.3 billion of investment securities compared to $ 0.3 billion of cash and cash equivalents and $ 2.5 billion of investment securities . as of december 31 , 2017 , farmer mac had $ 7.6 billion of farmer mac guaranteed securities , $ 5.3 billion of loans , net of allowance , and $ 2.1 billion of usda securities . this compares to $ 6.0 billion of farmer mac guaranteed securities , $ 4.5 billion of loans , net of allowance , and $ 2.0 billion of usda securities as of december 31 , 2016 . liabilities . farmer mac 's total liabilities were $ 17.1 billion as of december 31 , 2017 , compared to $ 15.0 billion as of december 31 , 2016. the increase in total liabilities was primarily attributable to an increase in total notes payable . equity . as of december 31 , 2017 , farmer mac had total equity of $ 708.1 million , which is comprised entirely of stockholders ' equity . as of december 31 , 2016 , farmer mac had total equity of $ 643.6 million , comprised of stockholders ' equity of $ 643.4 million and non-controlling interest of $ 0.2 million . as of may 1 , 2017 , farmer mac transferred its entire 65 % ownership interest in agvisory back to the limited liability company and recognized a loss of approximately $ 0.1 million , after-tax , upon the transfer .
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the present value at the beginning of the lease term of the minimum lease payments , excluding that portion of the payments representing executory costs such as insurance , maintenance , and taxes to be paid by the lessor , including any profit thereon , equals or exceeds 90 percent of the excess of the fair value of the leased property to the lessor at lease inception over any related investment tax credit retained by the lessor and expected to be realized by the lessor . in accordance with paragraphs 840-10- 25-29 and 840-10-25-30 , if at its inception a lease meets any of the four lease classification criteria in paragraph 840-10-25-1 , the lease shall be classified by the lessee as a capital lease ; and if none of the four criteria in paragraph 840-10-25-1 are met , the lease shall be classified by the lessee as an operating lease . pursuant to paragraph 840-10- 25-31 a lessee shall compute the present value of the minimum lease payments using the lessee 's incremental borrowing rate unless both of the following conditions are met , in which circumstance the lessee shall use the implicit rate : a . ) it is practicable for the lessee to learn the implicit rate computed by the lessor . b . ) the implicit rate computed by the lessor is less than the lessee 's incremental borrowing rate . capital lease assets are depreciated on a straight line method , over the capital lease assets estimated useful lives consistent with the company 's normal depreciation policy for tangible fixed assets . interest charges are expensed over the period of the lease in relation to the carrying value of the capital lease obligation . operating leases primarily relate to the company 's leases of office spaces . when the terms of an operating lease include tenant improvement allowances , periods of free rent , rent concessions , and or rent escalation amounts , the company establishes a deferred rent liability for the difference between the scheduled rent payment and the straight-line rent expense recognized , which is amortized over the underlying lease term on a straight-line basis as a reduction of rent expense . the company has adopted subtopic 350-30 of the fasb accounting standards codification for intangible assets other than goodwill . under the requirements , the company amortizes the acquisition costs of intangible assets other than goodwill on a straight-line basis over their estimated useful lives , the terms of the exclusive licenses and or agreements , or the terms of legal lives of the intangible assets , whichever is shorter . upon becoming fully amortized , the related cost and accumulated amortization are removed from the accounts . f- 13 related parties the company follows subtopic 850-10 of the fasb accounting standards codification for the identification of related parties and disclosure of related party transactions . pursuant to section 850-10-20 the related parties include a. affiliates of the company ; b. entities for which investments in their equity securities would be required , absent the election of the fair value option under the fair value option subsection of section 825–10–15 , to be accounted for by the equity method by the investing entity ; c. trusts for the benefit of employees , such as pension and profit-sharing trusts that are managed by or under the trusteeship of management ; d. principal owners of the company ; e. management of the company ; f. other parties with which the company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests ; and g. other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties story_separator_special_tag except for historical information contained in this report , the matters discussed are forward-looking statements that involve risks and uncertainties . when used in this report , words such as “ anticipates ” , “ believes ” , “ could ” , “ estimates ” , “ expects ” , “ may ” , “ plans ” , “ potential ” and “ intends ” and similar expressions , as they relate to the company or its management , identify forward-looking statements . such forward-looking statements are based on the beliefs of the company 's management , as well as assumptions made by and information currently available to the company 's management . among the factors that could cause actual results to differ materially are the following : the effect of business and economic conditions ; the impact of competitive products and their pricing ; unexpected manufacturing or supplier problems ; the company 's ability to maintain sufficient credit arrangements ; changes in governmental standards by which our environmental control products are evaluated and the risk factors reported from time to time in the company 's sec reports , including its recent report on form 10-k. the company undertakes no obligation to update forward-looking statements as a result of future events or developments . overview the company was incorporated on april 27 , 1998 , in the state of delaware under the name “ diversified american holdings , inc. ” the company subsequently changed its name to “ cemtrex inc. ” on december 16 , 2004. unless the context requires otherwise , all references to “ we ” , “ our ” , “ us ” , “ company ” , “ registrant ” , “ cemtrex ” or “ management ” refer to cemtrex , inc. and its subsidiaries . story_separator_special_tag cemtrex is a leading diversified technology company that operates in a wide array of business segments and provides solutions to meet today 's industrial and manufacturing challenges . the company provides manufacturing services of advanced electronic system assemblies , provides broad-based industrial services , instruments & emission monitors for industrial processes , and provides industrial air filtration & environmental control systems . through our electronics manufacturing services ( “ ems ” ) segment , we provide end to end electronic manufacturing services , which include product design and sustaining engineering services , printed circuit board assembly and production , cabling and wire harnessing , systems integration , comprehensive testing services and completely assembled electronic products . our ems segment offers fully integrated contract manufacturing services to global original equipment manufacturers ( oems ) and technology companies that operate primarily in the medical , industrial , automation , automotive , and renewable markets . through our industrial products and services ( “ ips ” ) segment , we provide a complete line of air filtration and environmental control products to a wide variety of industrial and manufacturing industries worldwide . the segment also manufactures , sells , and services monitoring instruments , software and systems for measurement of emissions of greenhouse gases , hazardous gases , particulate and other regulated pollutants used in emissions trading globally as well as for industrial processes . we also market monitoring and analysis equipment for gas and liquid measurement for various downstream oil & gas applications as well as various industrial process applications . in addition we , through our newly acquired business , offer one-source expertise and capabilities in plant and equipment erection , relocation , and disassembly in a wide variety of industrial markets like automotive , printing & graphics , industrial automation , packaging , and chemicals among others . critical accounting policies and estimates the following discussion and analysis is based upon our consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of our financial statements requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses , and assets and liabilities during the periods reported . estimates are used when accounting for certain items such as revenues , allowances for returns , early payment discounts , customer discounts , doubtful accounts , employee compensation programs , depreciation and amortization periods , taxes , inventory values , and valuations of investments , goodwill , other intangible assets and long-lived assets . we base our estimates on historical experience , where applicable and other assumptions that we believe are reasonable under the circumstances . actual results may differ from our estimates under different assumptions or conditions . we believe that the following critical accounting policies affect our more significant judgments and estimates used in preparation of our consolidated financial statements . 19 we maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments . we base our estimates on the aging of our accounts receivable balances and our historical write-off experience , net of recoveries . we value our inventories at the lower of cost or market . we write down inventory balances for estimated obsolescence or unmarketable inventory equal to the difference between the cost of the inventory and the estimated market value based upon assumptions about future demand and market conditions . goodwill is reviewed for possible impairment at least annually or more frequently upon the occurrence of an event or when circumstances indicate that the company 's carrying amount is greater than the fair value . in accordance with sfas 142 , the company examined goodwill for impairment and determined that the company 's carrying amount did not exceed the fair value , thus , there was no impairment . generally , sales are recognized when shipments are made to customers . rebates , allowances for damaged goods and other advertising and marketing program rebates are accrued pursuant to contractual provisions and included in accrued expenses . certain amount of our revenues fall under the percentage-of-completion method of accounting used for long-term contracts . under this method , sales and gross profit are recognized as work is performed based on the relationship between actual costs incurred and total estimated costs at completion . sales and gross profit are adjusted prospectively for revisions in estimated total contract costs and contract values . estimated losses are recorded when identified . in countries in which the company operates , and the functional currency is other than the u.s. dollar , assets and liabilities are translated using published exchange rates in effect at the consolidated balance sheet date . revenues and expenses and cash flows are translated using an approximate weighted average exchange rate for the period . resulting translation adjustments are recorded as a component of accumulated other comprehensive income on the accompanying consolidated balance sheet . results of operations - for the fiscal years ending september 30 , 2016 and 2015 total revenue for the years ended september 30 , 2016 and 2015 was $ 93,704,560 and $ 56,887,389 , respectively , an increase of $ 36,817,171 , or 65 % . net income for years ended september 30 , 2016 and 2015 was $ 4,994,045 and $ 2,838,116 , respectively , an increase of $ 2,155,929 , or 76 % . revenues and net income in this period as compared to the previous one was higher as a result of the acquisitions of ais and periscope . story_separator_special_tag roman , times , serif ; font-size : 10pt '' > we anticipate that the outlook for our products and services remains fairly strong and we are positioned well to take advantage of it . we believe there is currently a gradually increasing public awareness of the issues surrounding air quality and that this trend will continue for the next several years . we
| revenues our ips segment 's revenues for the year ended september 30 , 2016 increased by $ 17,621,667 or 56 % , to $ 49,224,011 from $ 31,622,344 for the year ended september 30 , 2015. the acquisition of ais on december 15 , 2015 , provided an additional $ 16,751,330 in revenues while existing companies had an increase in revenues of $ 870,337. our ems segment 's revenues for the year ended september 30 , 2016 increased by $ 19,195,504 or 76 % to $ 44,460,549 from $ 25,265,045 for the year ended september 30 , 2015. the acquisition of periscope on may 31 , 2016 , provided an additional $ 18,688,287 in revenues while existing companies had an increase in revenues of $ 507,217. gross profit gross profit for the year ended september 30 , 2016 was $ 29,213,670 or 31 % of revenues as compared to gross profit of $ 16,322,570 or 29 % of revenues for the year ended september 30 , 2015. the increase in gross profit percentage in the year ended september 30 , 2016 , as compared to the prior year , was a direct result of higher profit margin projects executed during this period as compared to the prior year . the higher dollar amount of gross profit during fiscal 2016 was due to higher overall revenue .
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” overview we are a leading designer and manufacturer of a wide range of generators and other engine powered products for the residential , light commercial , industrial and construction markets . as the only significant market participant focused predominantly on these products , we have one of the leading market positions in the power equipment market in the united states , canada and mexico . we design , manufacture , source and modify engines , alternators , transfer switches and other components necessary for our products . our products are fueled by natural gas , liquid propane , gasoline , diesel and bi-fuel and are available through a broad network of independent dealers , retailers , wholesalers and equipment rental companies . business drivers and measures in operating our business and monitoring its performance , we pay attention to a number of industry trends , performance measures and operational factors . the statements in this section are based on our current expectations . industry trends our performance is affected by the demand for reliable power solutions by our customer base . this demand is influenced by several important trends affecting our industry , including the following : increasing penetration opportunity . many potential customers are not aware of the costs and benefits of automatic backup power solutions . we estimate that penetration rates for residential products are approximately 2.5 % of u.s. single-family detached , owner-occupied households with a home value of over $ 100,000 , as defined by the u.s. census bureau 's 2009 american housing survey for the united states , and penetration rates of many light-commercial outlets such as restaurants , drug stores , and gas stations are significantly lower than penetration of hospitals and industrial locations . we believe by expanding our distribution network , continuing to develop our product line , and targeting our marketing efforts , we can continue to build awareness and increase penetration for our standby generators . impact of residential investment cycle . the market for residential generators is affected by the residential investment cycle and overall consumer sentiment . when homeowners are confident of their household income or net worth , they are more likely to invest in their home . these trends can have a material impact on demand for residential generators . trends in the new housing market can also impact demand for our residential products . 24 effect of large scale power disruptions . power disruptions are an important driver of consumer awareness and have historically influenced demand for generators . increased frequency and duration of major power outage events caused by the aging u.s. power grid increases product awareness and may drive consumers to accelerate their purchase of a standby or portable generator during the immediate and subsequent period , which we believe may last for six to twelve months for standby generators . for example , multiple major outage events that occurred over the last six quarters drove strong demand for portable and home standby generators , and the increased awareness of these products contributed to substantial revenue growth for us in 2012. as a result of recent major power outage activity in late october/early november 2012 affecting the east coast , we have seen increased demand for our home standby and portable generators . while the full impact is uncertain , we expect near term results of operations to be positively impacted by this outage activity . while there are power outages every day across all regions of the country , major outage activity is unpredictable by nature and , as a result , our sales levels and profitability may fluctuate from period to period . impact of business capital investment cycle . the market for commercial and industrial stationary and mobile generators and other power equipment is affected by the capital investment cycle and overall non-residential construction and durable goods spending , as businesses either add new locations or make investments to upgrade existing locations or equipment . these trends can have a material impact on demand for these products . the capital investment cycle may differ for the various industrial and commercial end markets that we serve ( industrial , telecommunications , distribution , retail , health care facilities , construction , energy and municipal infrastructure , among others ) . the market for these products is also affected by general economic conditions and credit availability in the geographic regions that we serve . operational factors we are subject to various factors that can affect our results of operations , which we attempt to mitigate through factors we can control , including continued product development , expanded distribution , pricing and cost control . certain operational factors that affect our business include the following : new product start-up costs . when we launch new products , we generally experience an increase in start-up costs , including engineering expenses , expediting costs , testing expenses , marketing expenses and warranty costs , resulting in lower gross margins after the initial launch of a new product . margins on new product introductions generally increase over the life of the product as these start-up costs decline and we focus our engineering efforts on product cost reduction . effect of commodity , currency and component price fluctuations . industry-wide price fluctuations of key commodities , such as steel , copper and aluminum and other components we use in our products , together with foreign currency fluctuations , can have a material impact on our results of operations . we have historically attempted to mitigate the impact of rising commodity , currency and component prices through improved product design and sourcing , manufacturing efficiencies , price increases and select hedging transactions . our results are also influenced by changes in fuel prices in the form of freight rates , which in some cases are borne by our customers and in other cases are paid by us . other factors other factors that affect our results of operations include the following : factors influencing interest expense . story_separator_special_tag in addition , in connection with such issuances of our series a preferred stock and the satisfaction of preemptive rights under the stockholders ' agreement that arose from such issuances , during 2009 , we issued 2,000 shares of series a preferred stock for an aggregate purchase price of $ 20.0 million in cash to an entity affiliated with ccmp and certain members of management and our board of directors , and affiliates of ccmp sold some of the shares of series a preferred stock they were issued to an entity affiliated with ccmp and a member of the board of directors at the same price . corporate reorganization our capitalization prior to the initial public offering consisted of series a preferred stock , class b common stock and class a common stock . our series a preferred stock was entitled to a priority return preference equal to a 14 % annual return on the amount originally paid for such shares and equity participation equal to 24.3 % of the remaining equity value of the company . our class b common stock was entitled to a priority return preference equal to a 10 % annual return on the amount originally paid for such shares . in connection with the initial public offering , we undertook a corporate reorganization which gave effect to the conversion of our series a preferred stock and class b common stock into the same class of our common stock that was sold in our initial public offering while taking into account the rights and preference of those shares , including the priority returns of our series a preferred stock and our class b common stock and the equity participation rights of the series a preferred stock . a reverse stock split was needed to reduce the number of shares to be issued to holders of our class a and class b common stock to the number that correctly reflected the proportionate interest of such stockholders in our company , taking into account the number of shares of common stock to be issued upon the conversion of our series a preferred stock and the number and value of shares of common stock to be issued and sold to new investors in the initial public offering . we refer to these transactions as the “ corporate reorganization. ” the specific steps in the corporate reorganization were as follows : treatment of class b common stock our certificate of incorporation prior to the offering provided for the mandatory conversion of our class b voting common stock to class a common stock in the event of an initial public offering , so that our class b common stock is converted into the same class of our common stock that is to be offered in an initial public offering taking into account of the value , rights and preferences of our class b common stock . in accordance with the terms of our certificate of incorporation prior to the offering , at the time we entered into an underwriting agreement with respect to the initial public offering , each share of our class b common stock automatically converted into a number of shares of our class a common stock equal to one plus the quotient obtained by dividing ( i ) ( x ) the amount paid for such share of class b common stock plus ( y ) an increase to such amount equal to 10 % per annum calculated and compounded quarterly on the basis of a 360-day year of twelve 30-day months and which increased amount shall be deemed to have accrued on a daily basis , by ( ii ) the public offering price ( net of underwriting discounts and commissions ) . we refer to this as the “ class b conversion. ” each share of our class b common stock converted into 1,118.440 shares of our class a common stock . as a result of the class b conversion , we issued an aggregate of 88,484,700 shares of our class a common stock . 26 reverse stock split immediately following the class b conversion , we effected a 3.294 for one reverse stock split of our then outstanding shares of class a common stock , including those shares of our class a common stock issued as part of the class b conversion , which decreased the number of shares of our class a common stock immediately after the class b conversion from 88,490,028 shares to 26,861,523 shares . we refer to this as the “ reverse stock split. ” treatment of series a preferred stock the certificate of designations for our series a preferred stock prior to our initial public offering provided for the mandatory conversion of the series a preferred stock to class a common stock in the event of an initial public offering , so that our series a preferred stock is converted into the same class of our common stock that is to be offered in an initial public offering taking into account of the value , rights and preferences of our series a preferred stock . in accordance with the terms of the certificate of designations to our series a preferred stock and our certificate of incorporation prior to the offering , promptly following the time we entered into an underwriting agreement with respect to the initial public offering , each share of our series a preferred stock automatically converted into a number of shares of our class a common stock equal to the sum of ( a ) the quotient obtained by dividing ( i ) ( w ) the amount paid for such share of series a preferred stock plus ( x ) an increase to such amount equal to 14 % per annum calculated and compounded quarterly on the basis of a 360-day year of twelve 30-day months and which increased amount shall be deemed to have accrued on a daily basis ( the “ series a preferred return ” ) , by ( ii ) the public offering price ( net of underwriting discounts and commissions ) , plus
| results of operations year ended december 31 , 2012 compared to year ended december 31 , 2011 the following table sets forth our consolidated statement of operations data for the periods indicated : replace_table_token_8_th replace_table_token_9_th 29 net sales . net sales increased $ 384.3 million , or 48.5 % , to $ 1,176.3 million for the year ended december 31 , 2012 from $ 792.0 million for the year ended december 31 , 2011. this increase was driven by a $ 214.4 million , or a 43.7 % increase in residential product sales largely driven by increased demand created by major power outages in recent quarters along with expanded distribution and new product offerings . commercial & industrial product sales increased $ 160.1million , or 64.0 % , driven primarily by the additional magnum products revenue , and to a lesser extent , increased shipments of natural gas backup generators . gross profit . gross profit increased $ 145.7 million , or 49.5 % , to $ 440.4 million for the year ended december 31 , 2012 from $ 294.7 million for the year ended december 31 , 2011. gross profit margin for the year ended december 31 , 2012 increased to 37.4 % from 37.2 % for the year ended december 31 , 2011. gross margin increased over the prior year primarily due to the positive impact from price increases , improved manufacturing overhead absorption and moderation in commodity costs relative to the prior year . these margin improvements were partially offset by the mix impact from the addition of magnum products sales . operating expenses .
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if the loan has been restructured , such as in the case of a troubled debt restructuring ( `` tdr `` ) , the loan story_separator_special_tag the following discussion and analysis provides information about the major components of our results of operations and financial condition , liquidity and capital resources and should be read in conjunction with our audited consolidated financial statements and notes thereto which are contained in this report . unless the context otherwise indicates , references in this report to `` we , '' `` us '' and `` our '' refer to the company and its subsidiaries . description of business as a community-focused commercial bank , our primary business consists of providing a full range of banking services to our customers with an emphasis on quality personal service . our core products consist of loans secured by real estate , commercial and consumer loans , as well as various deposit products to meet our customers ' needs . our primary source of income is generated from net interest income , the difference between interest income received on our loans and securities and interest expense paid on deposits and borrowings . our income is also affected by our ability to price our products competitively and maximize the interest rate spread between the interest yield on loans and securities and the interest rate paid on deposits and borrowings . our products also generate other income through product related fees and commissions . we incur operating expenses consisting primarily of salaries and benefits , occupancy and equipment and other professional and miscellaneous expenses . refer to item 1. business , of this annual report on form 10-k for a more detailed description of the business . 24 on march 24 , 2014 , the company entered into the securities purchase agreement with the standby investor and , on june 18 , 2014 , the company commenced the rights offering . on august 15 , 2014 , the company concluded the rights offering and the standby offering , in which the company issued an aggregate of 24,000,000 shares of common stock at $ 1.00 per share for aggregate gross proceeds of $ 24.0 million ( the maximum permissible pursuant to the terms of the rights offering and standby offering ) . the rights offering and the standby offering are referred to in this discussion as the “ capital raise ” . after deducting fees and costs related to the capital raise , the net proceeds available to the company totaled $ 22.2 million . the company retained $ 3.0 million of this amount and “ downstreamed ” the remaining $ 19.2 million to the bank . the proceeds from the capital raise allowed the company to fully adopt the asset resolution plan during the third quarter of 2014. this process , as required by and described in the securities purchase agreement , allowed the company to identify certain impaired assets and charge them down to a balance which would allow for their accelerated disposition . the total cost related to these charges was $ 9.5 million . this charge was recorded in the third quarter of 2014 and is the reason for the full year loss from operations . excluding this charge , which resulted from the asset resolution plan , the company 's earnings would have been positive for the year ended december 31 , 2014. the disposition of the impaired assets began during the fourth quarter of 2014. the total amount of impaired loans and real estate has been reduced significantly during 2014 , based on the continuing efforts of the special assets group and the adoption of the asset resolution plan . see additional discussion in the section entitled “ asset quality ” . comparison of financial condition at december 31 , 2014 and 2013 overview during 2014 , our total assets essentially remained flat from $ 821.5 million at december 31 , 2013 , to $ 820.8 million at december 31 , 2014 . cash and cash equivalents increased $ 25.8 million ending at $ 186.3 million for 2014 primarily due to the capital raise , results of operations , and the net paydowns in the loan portfolio . the investment portfolio increased $ 15.2 million or 12 % while net loans decreased $ 38.2 million or 8 % . deposits increased $ 3.6 million for the year 2014 . long term borrowings decreased $ 22 million or 20 % as the company was able to pay off expensive long-term debt . equity nearly doubled as a result of the capital raise increasing $ 19.1 million or 88 % and ending the year at $ 40.7 million . overall loan balances have decreased as payoffs , paydowns and maturities have outpaced advances on existing loans and new loan originations . additionally , the asset resolution plan resulted in a reduction of approximately $ 17 million in loan balances . new loan demand remains under pressure as customers are slowly returning to the credit market combined with significant competition for quality lending opportunities . although new loan volume has been down in recent periods , the increase in capital is allowing the bank to pursue additional lending opportunities in its markets . we remain committed to building and maintaining mutually beneficial relationships with our customers and improving the credit quality of our loan portfolio . the decrease in the loan portfolio was accompanied by a decrease in the allowance for loan losses from $ 11.6 million at december 31 , 2013 , to $ 9.4 million at december 31 , 2014. this decrease reflects not only a smaller loan portfolio , but also improving credit quality . the company has begun a plan to restructure its balance sheet to become more efficient and to better utilize the recently raised capital . the early parts of this plan included investing idle cash and paying down long term borrowings . story_separator_special_tag loan requests outside of standard policy or guidelines may be made on a case by case basis when justified , documented , and approved by the appropriate authority . underwriting criteria for all types of loans are prescribed within the lending policy . the following is a description of each loan type and related criteria . residential real estate residential real estate makes up the second largest segment of our loan portfolio and outstanding balances have generally been very stable . terms may range up to 15 years with amortizations of up to 30 years . underwriting criteria and procedures for residential real estate mortgage loans generally include : monthly debt payments of the borrower to gross monthly income should not exceed 42 % with stable employment of two years . loan to value ratio limits of up to 90 % of the appraised value ; however , these are generally booked at a loan to value of 85 % . 28 a credit investigation , which includes an equifax credit report with a beacon score of at least 680 for home equity lines of credit and 660 for other residential mortgage loans . verification of income by various methods . from january 1 , 2005 through june 1 , 2008 , the bank waived income verification and used stated income for residential lot applications in the wallace branch office when applicants had a beacon score of at least 679. appropriate insurance to protect the bank , typically in the amount of the loan . flood certifications are procured . collateral is investigated using current valuations and is supplemented by the loan officer 's knowledge of the local market . outside appraisals are completed by appraisers on the bank 's approved list . the appraisals on loans greater than $ 250,000 are reviewed by an outside source that certifies it is compliant with uniform standards of professional appraisal practice . commercial real estate commercial real estate and real estate construction makes up the largest segment of our loan portfolio . this segment is closely monitored at the staff and board level . our board of directors receives reports on a monthly basis detailing trends . underwriting criteria and procedures for commercial real estate loans generally include : procurement of federal income tax returns and financial statements , preferably for the past three years if available , and related supplemental information deemed relevant . the bank has a policy of requiring audited financial statements on certain loan requests based on size and complexity . rent rolls , tenant listings , and other similar documents are requested as needed . detailed financial and credit analysis related to cash flow , collateral , the borrower 's capital and character , and the operational environment is performed and presented to the appropriate officer or committee for approval . cash flows from the project financed and aggregate cash flows of the principals and their entities generally must produce a minimum debt service coverage ratio of 1.25:1. cash or collateral equity injection by the applicant , ranging from 15 % to 35 % based on regulatory loan to value ratio limits , in order to meet minimum federal guidelines for each loan category . past experience of the investor in commercial real estate . past experience of the customer with the bank . tangible net worth analysis of the borrower and any guarantors . general and local commercial real estate conditions are monitored and considered in the decision-making process . alternative uses of the security are considered in the event of default . credit enhancements are utilized when necessary and desirable , such as the use of guarantors and take out commitments . non-construction real estate loans typically have a 15 to 20 year amortization with a five or seven year balloon payment . if appropriate , a loan may be set up as an interest only single payment if the identified repayment source coincides with the maturity . commercial construction projects require that an engineer or architect review the applicant 's cost figures for accuracy . in addition , all draw requests must be approved by either the engineer or architect for accuracy before payment is made . on-site progress inspections are completed to protect the bank . requests for residential construction loans are closely monitored at the contractor level and subdivision level for concentrations . a request is denied if either the predetermined builder 's concentration or bank 's concentration limit has been attained . real estate construction loans are made for terms not to exceed 12 months for residential construction and 18 to 24 months for commercial construction . collateral is investigated using current valuations and is supplemented by the loan officer 's knowledge of the local market . outside appraisals are completed by appraisers on the bank 's approved list . the appraisals on loans greater than $ 250,000 are reviewed by an outside source that certifies it is compliant with uniform standards of professional appraisal practice . financial financial loans are secured by stocks , bonds , and mutual funds . underwriting procedures and criteria for financial loans generally include : stock loans should be structured to coincide with the identified source of repayment . the maximum loan to value ratio for stock listed for sale on the nyse , amex , or nasdaq is 60 % of its market value . generally , stock loans should not exceed 60 months . 29 agricultural crop production lending presents many risks to the lender because of weather uncertainty and fluctuations in commodity prices . underwriting procedures and criteria for agricultural loans generally include : the farmer should have the financial capacity to withstand at least one bad crop year . the farmer must possess sufficient equity in equipment or farmland for the bank to term , within acceptable collateral margins ( ranging from 50 % to 70 % ) and cash flow debt service coverage requirements ( generally 1.25:1 ) , any line outstanding after the sale of crops .
| results of operations for the years ended december 31 , 2014 and 2013 overview during 2014 , we had a net loss of $ 4.2 million or $ 0.24 basic and diluted net loss per share compared to a net loss of $ 350,000 , or $ 0.04 basic and diluted net loss per share . we began execution of the asset resolution plan during 2014 which accelerated the speed at which we disposed of our problem assets and necessitated $ 10.2 million in net charges offs compared to $ 5.0 million for the twelve months ended december 31 , 2013. in an attempt to ensure our allowance for loan and lease losses remained adequate to absorb additional losses in the portfolio we booked a provision expense of $ 8.0 million compared to $ 35,000 for the same period in 2013. net interest income before the provision for loan losses totaled $ 20.7 million for the twelve months ended december 31 , 2014 as compared to $ 20.3 million for the same period in 2013. net interest margin was 2.6 % for the twelve months ended december 31 , 2014 and 2013. although fairly constant , our net interest margin continues to be impacted for 2014 by elevated levels of nonperforming loans and lower rates on new and renewing loans in response to competitive pressures . cost of funds continues to improve as interest expense declined to $ 8.1 million for the twelve months ended december 31 , 2014 as compared to $ 8.8 million for the same period in 2013 , due to a shift in deposit mix from time deposits to demand deposits and lower rates on new and renewing deposits .
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revenues were generated from the following geographic regions ( in thousands ) : replace_table_token_21_th 49 aware , inc. story_separator_special_tag results of operations the following table sets forth , for the years indicated , certain line items from our consolidated statements of operations stated as a percentage of total revenue : replace_table_token_4_th summary of operations . we have been a supplier of signal processing and digital communications technology for imaging and telecommunications applications since the early 1990s . presently , our business operations are focused along three product lines : i ) biometrics and imaging ; ii ) dsl test and diagnostics ; and iii ) patent licensing . prior to november 2009 , we were also a supplier of dsl silicon intellectual property to the semiconductor industry . biometrics & imaging . our biometrics products consist of software and services used in biometric systems , and our imaging products consist of software used primarily in medical imaging applications . biometrics systems are used in applications such as criminal justice , border control , national defense , secure credentialing , access control and background checks . we typically sell our biometrics software and services to : i ) oems that incorporate our products into their biometrics hardware and software systems ; and ii ) government agencies that are deploying biometrics systems . our imaging software is primarily sold to oems that incorporate our software into their medical imaging products . dsl test & diagnostics . our test and diagnostics products consist of dsl hardware and software products that are used by telephone companies to improve the quality of their dsl service offerings . our test and diagnostics hardware products are typically sold to oems that incorporate our modules into their automated testhead and handheld test equipment . our oem customers sell their equipment to telephone companies . we sell our test and diagnostics software products through oems and directly to telephone companies . patent licensing . the objective of our patent licensing operations is to develop patents and to license or sell them to third parties interested in acquiring such patent rights . in september 2010 , we announced plans to pursue a spin-off of our patent licensing operations . the spin-off would allow the spun-off entity to focus on patent licensing operations and for aware to focus on being a supplier of biometrics and imaging software and dsl test and diagnostics products . as of the date of this report , our board is reviewing strategic options with respect to our patent licensing operations , including a potential spin-off . 23 dsl silicon intellectual property . in november 2009 , we completed a transaction in which we sold substantially all of the assets associated with our dsl silicon intellectual property product line to lantiq deutschland gmbh ( “ lantiq ” ) for $ 6.75 million . lantiq is a fabless semiconductor company that was spun out of infineon technologies ag ( “ infineon ” ) , our largest dsl silicon customer at that time . the sale included : i ) our dsl and home networking technology assets ; ii ) certain patents and patent applications related to those technology assets ; iii ) a group of 41 engineers ; and iv ) lab and computer equipment used by the transferred engineers . other significant terms of the sale were : i ) lantiq 's royalty obligations to aware continued after the sale ; ii ) we agreed not to offer dsl or home networking silicon ip products for the foreseeable future ; iii ) we subleased certain office and lab space to lantiq at our main facilities in bedford , massachusetts ; and iv ) aware and lantiq continued to cooperate with one another with respect to embedded wire line diagnostics technology and products . as a result of the lantiq sale , silicon ip development and licensing is no longer a material part of our business . however , we continue to provide a minor amount of engineering support services to ikanos and we continue to receive royalties from lantiq and ikanos for the use of our dsl silicon ip in their dsl chipsets . story_separator_special_tag font-size : 10pt ; font-family : times new roman '' > contract revenue decreased 69 % from $ 14.7 million in 2008 to $ 4.6 million in 2009. as a percentage of total revenue , contract revenue decreased from 48 % in 2008 to 21 % in 2009. the dollar decrease was primarily due to an $ 8.5 million sale of patents that occurred in 2008. there were no patent sales in 2009. also in 2009 , contract revenue decreased by $ 1.7 million for revenue from biometrics professional services contracts as a result of the completion of a significant project . 25 we expect that any contract revenue from dsl silicon contracts will be minimal in future periods as a result of the sale of our dsl silicon ip product line to lantiq . moreover , we will not be pursuing new silicon ip licensing customers for dsl or home networking applications in the foreseeable future . potential sources of future contract revenue include revenue from i ) biometrics professional services contracts ; ii ) dsl test and diagnostic professional services contracts ; and iii ) patent fees from the license or sale of patents . we have publicly announced that our board is reviewing strategic options with respect to our patent licensing operations , including a potential spin-off , which could minimize future patent fees . royalties royalties consist of royalty payments we receive under dsl silicon contracts . we receive royalties from dsl silicon customers for the right to incorporate our silicon ip in their dsl chipsets . royalties increased 29 % from $ 2.1 million in 2009 to $ 2.7 million in 2010. as a percentage of total revenue , royalties increased from 9 % in 2009 to 11 % in 2010. the dollar increase in royalties was due to a $ 0.6 million increase in dsl royalties from lantiq and ikanos . royalties increased 12 % from $ 1.8 story_separator_special_tag research and development expense decreased 9 % from $ 13.2 million in 2008 to $ 11.9 million in 2009. as a percentage of total revenue , research and development expense increased from 43 % in 2008 to 54 % in 2009. the dollar decrease in research and development expense was primarily due to : 1 ) lower engineering spending associated with our licensing product line in the last 1 ½ months of the year as a result of the transfer of 41 engineers to lantiq in mid-november 2009 , and 2 ) lower engineering spending on our licensing product line in the first 10 ½ months of 2009 as compared with the same 10 ½ month period in 2008. during the past year , our research and development activities have been focused primarily on developing biometrics and imaging software , and developing test and diagnostics hardware and software products . selling and marketing expense selling and marketing expense consists of costs for sales and marketing personnel , including salaries , sales commissions , stock-based compensation , fringe benefit , travel , advertising and promotion , and facilities expenses . selling and marketing expense decreased 9 % from $ 4.7 million in 2008 to $ 4.3 million in 2010. as a percentage of total revenue , selling and marketing expense decreased from 21 % in 2009 to 18 % in 2010. the dollar decrease in selling and marketing expense is primarily due to lower headcount in our sales and marketing organization as well as lower stock-based compensation expenses . lower spending attributable to these factors was partially offset by higher spending on tradeshows . selling and marketing expense was $ 4.7 million in 2008 and 2009. as a percentage of total revenue , selling and marketing expense increased from 16 % in 2008 to 21 % in 2009. level sales and marketing expenses in 2009 were the result of higher spending in our biometrics sales organization , which was offset by lower spending in our licensing sales organization . since the lantiq transaction did not involve any of our sales and marketing personnel , the transaction had a minimal impact on 2010 expenses and we expect that it will have a minimal impact on future selling and marketing expense . general and administrative expense general and administrative expense consists of costs for administrative personnel and activities , including administrative salaries , management bonuses , director compensation , stock-based compensation , fringe benefits , legal fees , audit fees , public company expenses , bad debt , insurance , and facilities . 27 general and administrative expense increased 26 % from $ 5.1 million in 2009 to $ 6.4 million in 2010. as a percentage of total revenue , general and administrative expense increased from 23 % in 2009 to 27 % in 2010. the dollar increase in general and administrative expense was mainly attributable to higher spending on : i ) legal fees related to patents of $ 0.8 million ; ii ) legal fees related to the proposed spin-off of our patent licensing operations of $ 0.5 million , and iii ) stock-based compensation of $ 0.2 million . general and administrative expense decreased 2 % from $ 5.2 million in 2008 to $ 5.1 million in 2009. as a percentage of total revenue , general and administrative expense increased from 17 % in 2008 to 23 % in 2009. the dollar decrease in general and administrative expense was mainly attributable to lower spending on legal fees for litigation and patent filings , which was partially offset by higher stock-based compensation expenses . since the lantiq transaction did not involve any of our administrative personnel , the transaction had a minimal impact on 2010 expenses and we expect that it will have a minimal impact on future general and administrative expense . gain on sale of assets in 2009 , we sold substantially all of the assets associated with our home networking and dsl technology to lantiq for $ 6.75 million . we recorded a gain on the sale of assets of $ 6.2 million in the year ended december 31 , 2009. the gain reflects $ 6.75 million of proceeds from lantiq less the following items : i ) the net book value of assets transferred to lantiq ; ii ) the write-off of certain prepaid assets that had no economic value after the sale ; and iii ) transaction costs . other income we recorded $ 425,000 of other income in the year ended december 31 , 2010. this amount represents proceeds from a legal settlement with a former customer . interest income interest income decreased 62 % , or $ 148,000 , from $ 238,000 in 2009 to $ 90,000 in 2010. the dollar decrease in interest income was primarily due to a continued decline in money market interest rates during 2010. interest income decreased 80 % , or $ 0.9 million , from $ 1.2 million in 2008 to $ 0.2 million in 2009. the dollar decrease in interest income was primarily due to a significant fall in money market interest rates during 2009. income taxes we are subject to income taxes in the united states and we use estimates in determining our provisions for income taxes . we account for income taxes using the asset and liability method for accounting and reporting income taxes . deferred tax assets and liabilities are recognized based on temporary differences between the financial reporting and income tax bases of assets and liabilities using statutory rates . we made no provision for income taxes in the years ended 2010 , 2009 and 2008 , except for $ 2,000 , $ 4,000 , and $ 16,000 of state excise taxes paid in each year , respectively .
| summary of financial results . for the year ended december 31 , 2010 , we had net income of $ 180,000 , or $ 0.01 per share , in accordance with generally accepted accounting principles ( “ gaap ” ) . gaap net income in 2010 compares to gaap net income of $ 982,000 , or $ 0.05 per share , for the year ended december 31 , 2009. annual results for 2010 and 2009 compare to net income of $ 1.8 million , or $ 0.07 per share , for the year ended december 31 , 2008. there was a significant improvement in operating earnings in 2010 compared to 2009 , although gaap net income declined . net income for the year ended december 31 , 2009 included a $ 6.2 million gain on the sale of assets , which was the primary reason for our profitability in 2009. however , on an operating basis , we lost $ 5.5 million in 2009 , which compares to an operating loss of $ 333,000 in 2010. the $ 5.1 million improvement was primarily attributable to : i ) the cessation of operating losses from our dsl silicon ip product line as a result of the sale to lantiq in 2009 , and ii ) improved profitability in our dsl test & diagnostic product line . these factors were partially offset by increased legal spending for patents and the proposed spin-off of our patent licensing operations . non-gaap information . the company also uses non-gaap information internally to evaluate its operating performance and believes these non-gaap measures are useful to investors as they provide additional insight into the underlying operating results . our non-gaap net income ( loss ) excludes the effect of stock-based compensation expense . non-gaap net income for the year ended december 31 , 2010 , excluding the effect of $ 1.5 million of stock-based compensation , was $ 1.7 million , or $ 0.08 per diluted share .
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we received a number of large orders in 2018 for refinery valves , however , it is uncertain whether this trend will continue in 2019. capital expenditures in the industrial end markets that we serve is expected to grow modestly , although there are some signs of a slowdown in europe . we expect to experience lower demand for our products that serve the power generation markets . aerospace and defense end markets are expected to grow as demand for commercial air travel continues to increase and funding on military programs in the u.s. improves in 2019. we do not expect an improvement in the commercial marine sector as global shipbuilding continues to be constrained . we continue to implement actions to mitigate the impact on our earnings with the lower demand and increasingly competitive environment . in addition , we are investing in products and technologies designed to help solve our customers ' most difficult problems . we expect to further simplify circor by standardizing technology , reducing facilities , consolidating suppliers and achieving world class operational excellence , including working capital management . we believe our cash flow from operations and financing capacity is adequate to support these activities . finally , continuing to attract and retain talented personnel , including the enhancement of our global sales , operations , product management and engineering organizations , remains an important part of our strategy during 2019. basis of presentation all significant intercompany balances and transactions have been eliminated in consolidation . effective january 1 , 2018 we reorganized our segments by end market : energy , aerospace & defense and industrial . prior year financial statements have been adjusted to reflect this new organization basis beginning in the first quarter of 2018. we operate and report financial information using a 52-week fiscal year ending december 31. the data periods contained within our quarterly reports on form 10-q reflect the results of operations for the 13-week , 26-week and 39-week periods which generally end on the sunday nearest the calendar quarter-end date . critical accounting policies the company 's discussion and analysis of its financial condition and results of operations is based upon its 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 management to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenue and expenses and related disclosure of contingent liabilities . on an on-going basis , management evaluates its significant estimates , including those related to contracts accounted for under the percentage of completion method , bad debts , inventories , intangible assets and goodwill , purchase accounting , delivery penalties , income taxes , and contingencies including litigation . management believes the most complex and sensitive judgments , because of their significance to the consolidated financial statements , result primarily from the need to make estimates about the effects of matters that are inherently uncertain . management bases its estimates on historical experience , current market and economic conditions and other assumptions that management believes are reasonable . the results of these estimates form the basis for judgments about the carrying value of assets and liabilities where the values are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . there have been no significant changes from the methodology applied by management for critical accounting estimates previously disclosed in our annual report on form 10-k for the fiscal year ended december 31 , 2017 . for information regarding our critical accounting policies , refer to note 2 , `` summary of significant accounting policies , '' to the consolidated financial statements included in this annual report , which disclosure is incorporated by reference herein . 22 for goodwill , we perform an impairment assessment at the reporting unit level on an annual basis as of our october month end or more frequently if circumstances warrant . in october 2018 when we performed our impairment assessment , the fair value of each of our reporting units exceeded the respective carrying amount , and no goodwill impairments were recorded . the fair values utilized for our 2018 goodwill assessment exceeded the carrying amounts by more than 20 % for our energy , aerospace & defense , and industrial reporting units , respectively . the growth rate assumptions utilized were consistent with growth rates within the markets that we serve . if our results significantly vary from our estimates , related projections , or business assumptions in the future due to change in industry or market conditions , we may be required to record impairment charges . results of operations 2018 compared with 2017 consolidated operations replace_table_token_3_th net revenues in 2018 were $ 1.2 billion , an increase of $ 514.1 million from 2017 primarily driven by our december 2017 acquisition of the fluid handling business of colfax corporation ( `` fh '' ) $ 448.7 million , along with operations increase of $ 58.5 million and favorable foreign exchange increase of $ 6.9 million . story_separator_special_tag style= '' vertical-align : bottom ; background-color : # cceeff ; padding-left:2px ; padding-top:2px ; padding-bottom:2px ; '' > 6,062 6,690 special charges , net 11,087 7,989 3,098 special and restructuring charges , net ( 1 ) 23,839 14,051 9,788 restructuring related inventory charges ( 1 ) 2,402 — 2,402 amortization of inventory step-up 6,600 4,300 2,300 acquisition amortization 47,310 12,542 34,768 acquisition depreciation 7,049 233 6,816 restructuring and other costs 63,361 17,075 46,286 consolidated operating income $ 9,384 $ 20,568 $ ( 11,184 ) consolidated operating margin 0.8 % 3.1 % ( 1 ) see note 5 `` special and restructuring charges , net '' of the consolidated financial statements included in this annual report , for additional details . story_separator_special_tag the change in interest expense was primarily due to higher outstanding debt balances as a result of our acquisition of fh during the fourth quarter of 2017. other expense ( income ) , net other expense , net , was $ 7.4 million for 2018 compared to other income , net of $ 3.7 million in 2017 . the difference of $ 11.1 million primarily relates to net pension income for the retirement plans we acquired as part of the fh acquisition . effective january 1 , 2018 all pension gains and losses are to be recorded in the other ( income ) expense , net caption on our condensed consolidated statement of ( loss ) income . in addition , we had gains related to changes in foreign currency in 2018 whereas in 2017 we had losses associated with foreign currency . comprehensive ( loss ) income comprehensive income decreased $ 123.7 million , from a comprehensive income position of $ 51.3 million for the year-ended december 31 , 2017 to a comprehensive loss position of $ 72.4 million for the year-ended december 31 , 2018 , primarily driven by $ 21.9 million in unfavorable foreign currency balance sheet remeasurements . these unfavorable foreign currency balance sheet remeasurements were driven by the euro ( $ 12.7 million ) . as of december 31 , 2018 , we had a cumulative currency translation adjustment of $ 18.1 million regarding our brazil entity . if we were to cease to have a controlling financial interest in the brazil entity , we would incur a non-cash charge of $ 18.1 million , which would be included as a special charge within the results of operations . ( benefit from ) provision for income taxes on december 22 , 2017 , the u.s. government enacted the tax cuts and jobs act ( the “ tax act ” ) . the tax act includes significant changes to the u.s. corporate income tax system including : a federal corporate rate reduction from 35 % to 21 % ; limitations on the deductibility of interest expense and executive compensation ; creation of the base erosion anti-abuse tax ( “ beat ” ) , a new minimum tax ; global intangible low-taxed income ( `` gilti '' ) ; and the transition of u.s. international taxation from a worldwide tax system to a modified territorial tax system . the change to a modified territorial tax system resulted in a one-time u.s. tax liability on those earnings which have not previously been repatriated to the u.s. ( the “ transition tax ” ) , with future distributions not subject to u.s. federal income tax when repatriated . a majority of the provisions in the tax act are effective january 1 , 2018 and have been reflected in our financial statements . with respect to gilti , the company has adopted a policy to account for this provision as a period cost . in response to the tax act , the sec staff issued guidance on accounting for the tax effects of the tax act . the guidance provided a one-year measurement period for companies to complete the accounting . in connection with our initial analysis of the impact of the tax act , we had recorded a provisional estimate of $ 0.5 million net tax benefit for the period ended december 31 , 2017. this benefit consists of provisional estimates of zero net expense for the transition tax liability , and $ 0.5 million benefit from the remeasurement of our deferred tax assets/liabilities due to the corporate rate reduction . on a provisional basis , the company did not expect to owe the one-time transition tax liability , based on foreign tax pools that are in excess of u.s. tax rates . we have now finalized our accounting and these estimates did not change . the impact of the tax act resulted in a valuation allowance on a portion of our u.s. foreign tax credit carryforwards ( deferred tax asset ) , in the amount of a $ 10.9 million expense , which was recorded in 2018 . 27 the table below outlines the change in effective tax rate for 2018 and 2017 ( in thousands , except percentages ) . replace_table_token_10_th restructuring actions during 2018 and 2017 , we initiated certain restructuring actions ( the `` 2018 actions '' and `` the 2017 actions '' ) , respectively . under these restructurings , we reduced costs , primarily through reductions in workforce and closing a number of smaller facilities . in the fourth quarter of 2018 , the company announced the closure and discontinuance of manufacturing operations at the energy group 's oklahoma city site ( `` okc closure '' ) , as manufacturing will move primarily to monterrey , mexico . the table below ( in millions ) outlines the cumulative effects on past and future earnings resulting from our announced restructuring plans . cumulative planned savings cumulative projected savings expected periods of savings realization okc closure ( note 1 ) $ 1.0 $ 1.0 q4 2018 - q4 2019 2018 actions 8.2 8.2 q2 2018 - q3 2019 2017 actions 6.9 6.9 q2 2017 - q4 2018 total savings $ 16.1 $ 16.1 note 1 - savings figures above represent only the structural savings as a result of the closure and exit of the manufacturing facility at the energy group 's oklahoma city site . as part of this action , we expect margin expansion within our energy group primarily due to the lower labor rates in mexico as we deliver on the volume . the savings amounts above do not include the benefit from the anticipated margin expansion . as shown in the table above , our projected cumulative restructuring savings are aligned with our cumulative planned savings amounts . the expected periods of realization of the restructuring savings are fairly consistent with our original plans . our restructuring actions are funded by cash generated by operations .
| segment results the chief operating decision maker ( `` codm '' ) is the function that allocates the resources of the enterprise and assesses the performance of the company 's reportable operating segments . circor has determined that the codm is solely comprised of its chief executive officer ( `` ceo '' ) , as the ceo has the ultimate responsibility for circor strategic decision-making and resource allocation . our codm evaluates segment operating performance using segment operating income . segment operating income is defined as generally accepted accounting principles ( `` gaap '' ) operating income excluding intangible amortization and amortization of fair value step-ups of inventory and fixed assets from acquisitions completed subsequent to december 31 , 2011 , the impact of restructuring related inventory write-offs , impairment charges and special charges or gains . the company also refers to this measure as adjusted operating income . the companyuses this measure because it helps management understand and evaluate the segments ' core operating results and facilitates a comparison of performance for determining incentive compensation achievement .
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the company engages in a broad range of activities in the securities industry , including retail securities brokerage , institutional sales and trading , investment banking ( both corporate and public finance ) , research , market-making , trust services and investment advisory and asset management services . its principal subsidiaries are oppenheimer & co. inc. ( `` oppenheimer '' ) and oppenheimer asset management inc. ( `` oam '' ) . as of december 31 , 2014 , the company provided its services from 92 offices in 24 states located throughout the united states , offices in tel aviv , israel , hong kong and beijing , china , london , england , st. helier , isle of jersey and geneva , switzerland . client assets administered by the company as of december 31 , 2014 totaled approximately $ 87.3 billion . the company provides investment advisory services through oam and oppenheimer investment management , llc ( `` oim '' ) and oppenheimer 's fahnestock asset management , alpha and omega group divisions . at december 31 , 2014 , client assets under management totaled approximately $ 25.9 billion . the company provides trust services and products through oppenheimer trust company . the company provides discount brokerage services through freedom investments , inc. ( `` freedom '' ) . through opy credit corp. , the company offers syndication as well as trading of issued corporate loans . oppenheimer multifamily housing & healthcare finance , inc. ( `` omhhf '' ) is engaged in commercial mortgage origination and servicing . at december 31 , 2014 , the company employed 3,434 employees ( 3,363 full-time and 71 part-time ) , of whom approximately 1,324 were financial advisers . critical accounting policies the company 's accounting policies are essential to understanding and interpreting the financial results reported in the consolidated financial statements . the significant accounting policies used in the preparation of the company 's consolidated financial statements are summarized in note 2 to those statements . certain of those policies are considered to be particularly important to the presentation of the company 's financial results because they require management to make difficult , complex or subjective judgments , often as a result of matters that are inherently uncertain . the following is a discussion of these policies : fair value measurements the company adopted the accounting guidance for the fair value measurement of financial assets , which defines fair value , establishes a framework for measuring fair value , establishes a fair value measurement hierarchy , and expands fair value measurement disclosures . fair value , as defined by the accounting guidance , is the price that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date . the fair value hierarchy established by this accounting guidance prioritizes the inputs used in valuation techniques into the following three categories ( highest to lowest priority ) : level 1 : observable inputs that reflect quoted prices ( unadjusted ) for identical assets or liabilities in active markets ; level 2 : inputs other than quoted prices included in level 1 that are observable for the asset or liability either directly or indirectly ; and level 3 : unobservable inputs that are significant to the overall fair value measurement . the company 's financial instruments that are recorded at fair value generally are classified within level 1 or level 2 within the fair value hierarchy using quoted market prices or quotes from market makers or broker-dealers . financial instruments classified within level 1 are valued based on quoted market prices in active markets and consist of u.s. government , federal agency , and sovereign government obligations , corporate equities , and certain money market instruments . level 2 financial instruments primarily consist of investment grade and high-yield corporate debt , convertible bonds , mortgage and asset-backed securities , municipal obligations , and certain money market instruments . financial instruments classified as level 2 are valued based on quoted prices for similar assets and liabilities in active markets and quoted prices for identical or similar assets and liabilities in markets that are not active . some financial instruments are classified within level 3 within the fair value hierarchy as observable pricing inputs are not available due to limited market activity for the asset or liability . such financial instruments include investments in hedge funds and private equity funds where the company , through its subsidiaries , is general partner ; less-liquid private label mortgage and asset-backed securities ; certain distressed municipal securities ; interest rate lock commitments where omhhf enters into contractual commitments to originate ( purchase ) and sell multifamily mortgage loans at fixed prices with fixed expiration dates ; and auction rate securities . 33 legal and regulatory reserves the company records reserves related to legal and regulatory proceedings in accounts payable and other liabilities . the determination of the amounts of these reserves requires significant judgment on the part of management . in accordance with applicable accounting guidance , the company establishes reserves for litigation and regulatory matters where available information indicates that it is probable a liability had been incurred at the date of the consolidated financial statements and the company can reasonably estimate the amount of that loss . when loss contingencies are not probable and can not be reasonably estimated , the company does not establish reserves . when determining whether to record a reserve , management considers many factors including , but not limited to , the amount of the claim ; the stage and forum of the proceeding , the sophistication of the claimant , the amount of the loss , if any , in the client 's account and the possibility of wrongdoing , if any , on the part of an employee of the company ; the basis and validity of the claim ; previous results in similar cases ; and applicable legal precedents and case law . story_separator_special_tag the company permanently reinvests eligible earnings of its foreign subsidiaries and , accordingly , does not accrue any u.s. income taxes that would arise if such earnings were repatriated . new accounting pronouncements recently adopted and recently issued accounting pronouncements are described in note 2 to the consolidated financial statements appearing in item 8. business environment the securities industry is directly affected by general economic and market conditions , including fluctuations in volume and price levels of securities and changes in interest rates , inflation , political events , investor confidence , investor participation levels , legal and regulatory , accounting , tax and compliance requirements and competition , all of which have an impact on commissions , firm trading , fees from accounts under investment management as well as fees for investment banking services , and investment and interest income as well as on liquidity . substantial fluctuations can occur in revenue and net income due to these and other factors . for a number of years , the company offered auction rate securities ( `` ars '' ) to its clients . a significant portion of the market in ars ‘ failed ' because , in the tight credit market in and subsequent to 2008 , dealers were no longer willing or able to purchase the imbalance between supply and demand for ars . these securities have auctions scheduled on either a 7 , 28 or 35 day cycle . clients of the company own ars in their individual accounts . the absence of a liquid market for these securities presents a significant problem to clients continuing to own ars and , as a result , to the company . it should be noted that this is a failure of liquidity and not a default . these securities in almost all cases have not failed to pay interest or principal when due . these securities are fully collateralized for the most part and , for the most part , remain good credits . the company did not act as an auction agent for ars . interest rates on ars typically reset through periodic auctions . due to the auction mechanism and generally liquid markets , ars historically were categorized as level 1 in the fair value hierarchy . beginning in february 2008 , uncertainties in the credit markets resulted in substantially all of the ars market experiencing failed auctions . once the auctions failed , the ars could no longer be valued using observable prices set in the auctions . the company has used less observable determinants of the fair value of ars , including the strength in the underlying credits , announced issuer redemptions , completed issuer redemptions , and announcements from issuers regarding their intentions with respect to their outstanding ars . the company has also developed an internal methodology to discount for the lack of liquidity and non-performance risk of the failed auctions . due to liquidity problems associated with the ars market , ars that lack liquidity are setting their interest rates according to a maximum rate formula . for fair value purposes , the company has determined that the maximum spread would be an adequate risk premium to account for illiquidity in the market . accordingly , the company applies a spread to the short-term index for each asset class to derive the discount rate . the company uses short-term u.s. treasury yields as its benchmark short-term index . the risk of non-performance is typically reflected in the prices of ars positions where the fair value is derived from recent trades in the secondary market . 35 the company has sought financing from a number of sources , without success , in order to try to find a means for all its clients to find liquidity from their ars holdings . it seems likely that liquidity will ultimately come from issuer redemptions which , to date , combined with purchases by the company have reduced client holdings by 92 % . there can be no assurance that the company will be successful in finding a liquidity solution for all its clients ' ars . see `` risk factors – the company may continue to be adversely affected by the failure of the auction rate securities market '' appearing in item 1a and `` factors affecting 'forward-looking statements ' '' herein . recent events have caused increased review and scrutiny of the methods utilized by financial service companies to finance their short term requirements for liquidity . the company utilizes commercial bank loans , securities lending , and repurchase agreements to finance its short term liquidity needs ( see `` liquidity '' ) . all repurchase agreements and reverse repurchase agreements are collateralized by short term u.s. government obligations and u.s. government agency obligations . the company is focused on growing its private client and asset management businesses through strategic additions of experienced financial advisers in its existing branch system and employment of experienced money management personnel in its asset management business . in addition , the company is committed to the improvement of its technology capability to support client service and the expansion of its capital markets capabilities while addressing the issue of managing its expenses . regulatory and legal environment the brokerage business is subject to regulation by , among others , the sec , the cftc , the nfa and the finra in the united states , the fca in the united kingdom , the jfsc in the isle of jersey , the sfc , and various state securities regulators in the united states . in addition , oppenheimer israel ( opco ) ltd. operates under the supervision of the israeli securities authority . past events surrounding corporate accounting and other activities leading to investor losses resulted in the enactment of the sarbanes-oxley act and have caused increased regulation of public companies . the financial crisis of 2008-9 accelerated this trend .
| results of operations the company reported net income attributable to oppenheimer holdings inc. of $ 8.8 million or $ 0.65 per share compared with net income of $ 25.1 million or $ 1.85 per share for the year ended december 31 , 2013 , a decrease of 64.8 % . revenue for the year ended december 31 , 2014 was $ 1.0 billion , a decrease of 1.5 % compared to the same period in 2013. the following table sets forth the amount and percentage of the company 's revenue from each principal source for each of the following years ended december 31 : replace_table_token_5_th the company derives most of its revenue from the operations of its principal subsidiaries , oppenheimer and oam . although maintained as separate entities , the operations of the company 's brokerage subsidiaries both in the u.s. and other countries are closely related because oppenheimer acts as clearing broker and omnibus clearing agent in transactions initiated by these subsidiaries . except as expressly otherwise stated , the discussion below pertains to the operations of oppenheimer . 41 the following table and discussion summarizes the changes in the major revenue and expense categories for the past two years : replace_table_token_6_th * not comparable fiscal 2014 compared to fiscal 2013 commission revenue was $ 469.8 million for the year ended december 31 , 2014 , a decrease of 3.5 % compared with $ 486.8 million in 2013 due to low transaction volumes from retail investors during the 2014 year . advisory fees were $ 281.7 million for the year ended december 31 , 2014 , an increase of 2.7 % compared with $ 274.2 million in 2013 due to increases in advisory fees on traditional managed products offset by decreases in incentive fees earned from the company 's participation in hedge funds in its asset management business .
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pnm evaluates these investment securities for impairment on an on-going basis . story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations for pnmr is presented on a combined basis , including certain information applicable to pnm and tnmp . the md & a for pnm and tnmp is presented as permitted by form 10-k general instruction i ( 2 ) . a reference to a “ note ” in this item 7 refers to the accompanying notes to consolidated financial statements included in part ii , item 8 , unless otherwise specified . certain of the tables below may not appear visually accurate due to rounding . md & a for pnmr executive summary overview and strategy pnmr is a holding company with two regulated utilities serving approximately 739,000 residential , commercial , and industrial customers and end-users of electricity in new mexico and texas . in the latter part of 2011 , pnmr exited both of its competitive businesses , first choice and optim energy , and repositioned itself as a holding company solely operating its electric utilities , pnm and tnmp . strategic goals pnmr is focused on achieving the following strategic goals : earning authorized returns on its regulated businesses continuing to improve credit ratings providing a top-quartile total return to investors in conjunction with these goals , pnm and tnmp are dedicated to : achieving industry-leading safety performance and customer satisfaction maintaining strong plant performance and reliability earning authorized returns on regulated businesses pnmr 's success in accomplishing its strategic goals is highly dependent on continued favorable regulatory treatment for its utilities . the company has multiple strategies to achieve favorable regulatory treatment , all of which have as their foundation a focus on the basics : managing the company 's business and serving our customers well , while engaging stakeholders to build productive relationships . both pnm and tnmp seek cost recovery for their investments through general rate cases and various rate riders . the puct has approved mechanisms that allow for recovery of capital invested in transmission and distribution projects without having to file a general rate case and allow for more timely recovery of amounts invested in tnmp 's systems . in 2011 , pnm made significant progress toward the goal of achieving authorized returns for its retail customers . in 2012 , pnm saw additional progress toward achieving authorized returns for its transmission and generation customers regulated by ferc . pnm and tnmp completed several rate proceedings before their state regulators in 2011 and 2012. pnm has two rate cases pending before ferc and one that was completed in early 2013. additional information about rate filings is provided in note 17. pnm previously announced that it intended to file a request for an increase in the rates charged to new mexico retail customers in mid-2013 , but is currently re-evaluating when this filing will occur , partially due to the lack of clarity around the timing and amount of capital that will be required for bart at sjgs , as discussed below , and improved operating results at pnm . fair and timely rate treatment from regulators is crucial to achieving pnmr 's strategic goals because it leads to pnm and tnmp earning their allowed returns . pnmr believes that if the utilities earn their allowed returns , it would be viewed positively by rating agencies and would further improve credit ratings , which could lower costs to customers . also , earning allowed returns should result in increased earnings for pnmr , which should lead to increased total returns to investors . pnm 's interest in pvngs unit 3 is excluded from nmprc jurisdictional rates . while pvngs unit 3 's financial contribution is not calculated in the authorized returns on its regulated business , it impacts pnm 's earnings and has demonstrated a- 26 to be a valuable asset . power generated from pnm 's 134 mw interest in pvngs unit 3 is currently sold into the wholesale market and any earnings or losses are attributable to shareholders . continuing to improve credit ratings pnm is committed to maintaining investment grade credit ratings . see the subheading liquidity included in the full discussion of liquidity and capital resources below for the specific credit ratings for pnmr , pnm , and tnmp . on april 13 , 2012 , s & p raised the corporate credit rating for pnmr as well as the senior debt ratings for pnmr and tnmp and the preferred stock rating for pnm . s & p changed the outlook to stable for all entities . providing top-quartile total returns to investors pnmr 's strategic goal to provide top quartile total return to investors is based on five-year ongoing eps growth along with five-year average dividend yield . top quartile total return currently is equal to an average annual rate of 10 percent to 13 percent . the annual common stock dividend was raised by 16 percent in february 2012 and 14 percent in february 2013. pnmr 's long-term target is a dividend payout ratio of 50 percent to 60 percent of its ongoing earnings . ongoing earnings , which is a non-gaap financial measure , excludes certain non-recurring , infrequent , and other items from earnings determined in accordance with gaap . pnmr expects to provide above-average dividend growth in the near-term and to manage the payout ratio to meet its long-term target . the pnmr board will continue to evaluate the dividend on an annual basis , considering sustainability and growth , capital planning , and industry standards . business focus in addition to its strategic goals , pnmr 's strategy and decision-making are focused on safely providing reliable , affordable , and environmentally responsible power to create enduring value for customers and communities . to accomplish this , pnmr works closely with customers , stakeholders , legislators , and regulators to ensure that our resource plans and infrastructure investments benefit from robust public dialogue and balance the diverse needs of our communities . story_separator_special_tag the terms of the non-binding agreement would result in the retirement of sjgs units 2 and 3 by the end of 2017 and the installation of sncrs on units 1 and 4 by the later of january 31 , 2016 or 15 months after epa approval of a revised sip . pnm would also build a natural gas plant in the four corners region to partially replace the capacity from the retired coal units . implementing this plan would include : nmed development of a revised sip approval of the revised sip by eib epa approval of the revised sip nmprc approval of the retirement of units 2 and 3 and plans to acquire replacement power the term sheet setting forth the non-binding agreement projects eib approval for october 2013 , with epa final action in late 2014. contemporaneously with the signing of the non-binding agreement , epa indicated in writing that if the above plan does not move forward due to circumstances outside of the control of pnm and nmed , epa will work with the state and pnm to create a reasonable fip compliance schedule to reflect the time used to develop the new state plan . pnm is also exploring potential additional areas of relief , including relief from the tenth circuit . in connection with the implementation of the plan , retirement of sjgs units 2 and 3 could result in shifts in ownership among sjgs owners as may be agreed upon by the owners of the affected units . owners of the affected units also may seek approvals of their utility commissions or governing boards . a- 28 on february 25 , 2013 , the parties filed their status reports with the tenth circuit . to demonstrate that progress has been made toward settling the tenth circuit litigation , information , including the non-binding agreement and its accompanying timeline , was submitted to the court . following the parties ' submission of their status reports , on february 28 , 2013 , the tenth circuit referred the litigation to the tenth circuit mediation office , which has authority to require the parties to attend mediation conferences to informally resolve issues in the pending appeals . this plan would achieve similar visibility improvements as the installation of scrs on all four units at sjgs . it has the added advantage of reducing other emissions beyond nox , including so 2 , particulate matter , co 2 , and mercury . detailed replacement power strategies also would be finalized . pnm believes adequate replacement power alternatives will be available to meet its generation needs and ensure reliability . pnm can provide no assurance that the requirements of this plan will be accomplished at all or within the required timeframes . in order to be able to install scrs on all four units of sjgs by the compliance deadline set forth in the fip , pnm entered into a contract in october 2012 with an engineering , procurement , and construction contractor to install scrs on behalf of the sjgs owners . the construction contract , which includes termination provisions in the event that scrs are determined in the future to be unnecessary , has been suspended through november 1 , 2014. in addition to the regional haze rule , sjgs is required to comply with other rules currently being developed or implemented that affect coal-fired generating units . because of $ 320 million in environmental upgrades completed in 2009 , sjgs is well positioned to outperform the mercury limit imposed by epa in the 2011 mercury and air toxics standards . the major environmental upgrades on each of the four units at sjgs have significantly reduced emissions of nox , so 2 , particulate matter , and mercury . pnm 's share of the costs of these upgrades was $ 161 million . since 2006 , sjgs has reduced nox emissions by 43 percent , so 2 by 69 percent , particulate matter by 64 percent , and mercury by 99 percent . energy efficiency energy efficiency also plays a significant role in helping to keep customers ' electricity costs low and meeting their energy needs . pnm 's and tnmp 's energy efficiency and load management portfolios continue to be robust . in 2012 , annual energy saved as a result of pnm 's portfolio of energy efficiency programs was approximately 71,000 mwh . this is equivalent to the consumption of approximately 9,600 homes in pnm 's service territory . pnm 's load management and energy efficiency programs also help lower peak demand requirements . tnmp 's energy efficiency programs in 2012 resulted in energy savings totaling an estimated 12,839 mwh . creating value for customers and communities through outreach , collaboration , and various community-oriented programs , pnmr has a demonstrated commitment to build productive relationships with stakeholders , including customers , regulators , legislators , and intervenors . building off work that began in 2008 , pnm has continued outreach efforts to connect low-income customers with nonprofit community service providers offering support and help with such needs as utility bills , food , clothing , medical programs , services for seniors , and weatherization . in 2012 , pnm hosted 23 community events throughout its service territory to assist low-income customers . furthermore , the pnm good neighbor fund provided $ 1.0 million of assistance with utility bills to 10,216 families in 2012. the pnm resources foundation helps nonprofits become more energy efficient through reduce your use grants . for 2012 , the foundation awarded $ 0.3 million to support 55 projects in new mexico to provide shade structure installations , window replacements , and efficient appliance purchases . since the program 's inception in 2008 , reduce your use grants have provided nonprofit agencies in new mexico with a total of $ 1.1 million of support . pnm also expanded its environmental stakeholder outreach in 2012 , piloting small environmental stakeholder dialogue groups on key issues such as renewable energy and energy efficiency planning .
| results of operations a summary of net earnings ( loss ) attributable to pnmr is as follows : replace_table_token_12_th the components of the changes in earnings ( loss ) from continuing operations attributable to pnmr by segment are : replace_table_token_13_th pnmr 's operational results were affected by the following : exit from unregulated businesses - as discussed above , pnmr sold first choice in 2011 , resulting in a pre-tax gain of $ 174.9 million , which was included in the corporate and other segment . additionally , pnmr wrote-off its investment in optim energy in 2010 , recognizing a pre-tax impairment loss of $ 188.2 million . in addition to the impacts of these transactions , results of operations only include optim energy through december 31 , 2010 and first choice through october 31 , 2011. rate increases for pnm and tnmp - additional information about these rate increases is provided in note 17 decrease in the number of common and common equivalent shares , primarily due to pnmr 's purchase of its equity as described in note 6 other factors impacting results of operation for each segment are discussed under results of operations below liquidity and capital resources the company has revolving credit facilities that provide capacities for short-term borrowing and letters of credit of $ 300.0 million for pnmr and $ 400.0 million for pnm , both of which expire in october 2017. in addition , tnmp has a $ 75.0 million revolving credit facility , which expires in december 2015. total availability for pnmr on a consolidated basis was $ 603.0 million at february 22 , 2013. the company utilizes these credit facilities and cash flows from operations to provide funds for both construction and operational expenditures . pnmr also has intercompany loan agreements with each of its subsidiaries .
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interest expense on our obligations includes contractual interest , amortization of the debt discount and amortization of deferred financing costs . ta x expense provision for income taxes includes both domestic and foreign income taxes at the applicable tax rates adjusted for u.s. taxation of foreign earnings and other non-deductible expenses , research and development tax credits and other permanent differences . 47 resideo technologies , inc. results of operations for the years ended december 31 , 2019 , 2018 and 2017 the following table sets forth our selected consolidated and combined statement of operations for the periods presented : consolidated and combined statement of operations ( dollars in millions except share and per share data ) replace_table_token_2_th net revenue replace_table_token_3_th the change in net revenue compared to prior period is attributable to the following : replace_table_token_4_th a discussion of net revenue by segment can be found in the review of business segments section of this management 's discussion and analysis of financial condition and results of operations . cost of goods sold replace_table_token_5_th 48 resideo technologies , inc. 2019 compared with 2018 cost of goods sold for 2019 was $ 3,798 million , an increase of $ 337 million , or 10 % , from $ 3,461 million in 2018. this $ 337 million increase in cost of goods sold was primarily driven by higher revenue in the adi global distribution segment , material and labor inflation and increased production costs including inventory write-downs , changes in sales mix , headquarter allocations previously classified in selling , general and administrative expense in the period prior to the spin-off , restructuring costs and spin-off related costs totaling $ 416 million . the increased costs were partially offset by foreign currency translation and savings in other miscellaneous costs of goods sold totaling $ 79 million . the primary drivers to the decrease in gross profit percentage were a 200 basis points ( “ bps ” ) impact from changes in sales mix , 100 bps impact from material and labor inflation and fixed production costs , and 100 bps impact from headquarter allocations previously classified in selling , general and administrative expense in the period prior to the spin-off . 2018 compared with 2017 cost of goods sold for 2018 was $ 3,461 million , an increase of $ 258 million , or 8 % , from $ 3,203 million in 2017. this increase in cost of goods sold was primarily driven by higher revenue in both the adi global distribution and products & solutions segments , foreign currency translation , material and labor inflation , and changes in sales mix totaling $ 258 million . the decrease in gross profit percentage was primarily driven by a 200 bps impact of net direct material and labor inflation partially offset by 100 bps impact from higher sales prices . selling , general and administrative expense replace_table_token_6_th 2019 compared with 2018 selling , general and administrative expense for 2019 was $ 932 million , an increase of $ 59 million , from $ 873 million in 2018. the increase was driven by spin-off related costs , license fees associated with the trademark license agreement , restructuring costs , labor cost inflation , legal expenses , and impact of acquisitions totaling $ 146 million . these increases were partially offset by headquarter cost allocation now partially classified in cost of goods sold , foreign currency translation , and miscellaneous cost reductions totaling $ 87 million . 2018 compared with 2017 selling , general and administrative expense for 2018 was $ 873 million , essentially flat from $ 871 million in 2017. the increase was driven by the impact of foreign currency translation totaling $ 10 million and offset by savings attributed to restructuring actions taken and lower selling costs of $ 8 million . other expense , net replace_table_token_7_th 49 resideo technologies , inc. 2019 compared with 2018 other expense , net for 2019 was $ 118 million , a decrease of $ 251 million from $ 369 million in 2018. the decrease is mainly due to lower environmental remediation expense , now subject and presented as honeywell reimbursement agreement expense subsequent to the spin-off . 2018 compared with 2017 other expense , net for 2018 was $ 369 million , an increase of $ 90 million from $ 279 million in 2017. this increase mainly relates to the cost of certain environmental remediation expense . tax expense ( benefit ) replace_table_token_8_th 2019 compared with 2018 the effective tax rate increased in 2019 compared to 2018. the increase in effective tax rate was primarily attributable to tax benefits generated in 2018 related to the internal restructuring of resideo 's business in advance of its anticipated spin-off , currency impacts on withholding taxes on undistributed foreign earnings , and adjustments to the provisional tax amount related to u.s. tax reform , partially offset by decreases in tax expense related to global intangible low taxed income ( “ gilti ” ) and non-deductible expenses . non-deductible expenses had a material impact which increased the current effective tax rate by 31.5 % and management estimates non-deductible expenses will have a material impact on the future effective tax rate . 2018 compared with 2017 the effective tax rate decreased in 2018 compared to 2017. the decrease was primarily due to tax benefits attributable to the internal restructuring of our business in advance of its anticipated spin-off , adjustments to the provisional tax amount related to u.s. tax reform , adjustments to income tax reserves , partially offset by tax expense related to gilti . on december 22 , 2017 , the u.s. enacted h.r.1 , formerly known as the tax cuts and jobs act ( “ tcja ” ) , that instituted fundamental changes to the taxation of multinational corporations . story_separator_special_tag the tcja includes changes to the taxation of foreign earnings by implementing a dividend exemption system , expansion of the current anti-deferral rules , a minimum tax on low-taxed foreign earnings and new measures to deter base erosion . the tcja also imposed a one-time mandatory transition tax on the historical earnings of foreign affiliates and implemented a territorial-style tax system . changes to the tcja provisional charges recorded upon enactment were the primary driver of the decrease in the effective tax rate in 2018. non-deductible expenses had a material impact on the current effective tax rate and management estimates non-deductible expenses will have a material impact on the future effective tax rate . story_separator_special_tag funds effective rate and the overnight bank funding rate , plus 0.5 % and ( 3 ) the one month adjusted libor rate , plus 1.00 % per annum . if we choose to make a libor borrowing on a one , two , three or six-month basis , the interest rate will be based on an adjusted libor rate ( which shall not be less than zero ) based on the interest period for the borrowing . the applicable margin for the term b facility is currently 2.25 % per annum ( for libor loans ) and 1.25 % per annum ( for base rate loans ) . the applicable margin for each of the term a facility and the revolving credit facility varies from 2.25 % per annum to 1.75 % per annum ( for libor loans ) and 1.25 % to 0.75 % per annum ( for base rate loans ) based on our leverage ratio . accordingly , the interest rates for the senior credit facilities will fluctuate during the term of the credit agreement based on changes in the base rate , libor or future changes in our leverage ratio . interest payments with respect to the borrowings are required either on a quarterly basis ( for base rate loans ) or at the end of each interest period ( for libor loans ) or , if the duration of the applicable interest period exceeds three months , then every three months . the credit agreement contains certain affirmative and negative covenants customary for financings of this type that , among other things , limit our and our subsidiaries ' ability to incur additional indebtedness or liens , to dispose of assets , to make certain fundamental changes , enter into restrictive agreements , to make certain investments , loans , advances , guarantees and acquisitions , to prepay certain indebtedness and to pay dividends , to make other distributions or redemptions/repurchases , in respect of our and our subsidiaries ' equity interests , to engage in transactions with affiliates or amend certain material documents . in addition , the credit agreement also contains financial maintenance and coverage covenants . the credit agreement contains customary events of default , including with respect to a failure to make payments under the senior credit facilities , cross-default , certain bankruptcy and insolvency events and customary change of control events . all obligations under the senior credit facilities are or will be unconditionally guaranteed jointly and severally , by : ( a ) our company and ( b ) substantially all of the direct and indirect wholly owned subsidiaries of our company that are organized under the laws of the united states , any state thereof or the district of columbia ( collectively , the “ guarantors ” ) . the guarantors entered into a guarantee under the credit agreement concurrently with the effectiveness of the credit agreement . subject to certain limitations , the senior credit facilities are or will be secured on a first priority basis by : ( x ) a perfected security interest in the equity interests of each direct subsidiary of the company and each guarantor under the senior credit facilities ( subject to certain customary exceptions ) and ( y ) perfected , security interests in , and mortgages on , substantially all tangible and intangible personal property and material real property of the company and each of the guarantors under the senior credit facilities , subject , in each case , to certain exceptions . the company and the guarantors entered into security documents concurrently with effectiveness of the credit agreement . 53 resideo technologies , inc. in 2018 , w e incurred approximatel y $ 16 million in debt issuance costs related to the term loans and $ 5 million in costs related to the revolving credit facility . the debt issuance costs associated with the term loans were recorded as a reduction of the principal balance of the debt , and the revolving credit facility costs were capitalized in other assets . the issuance costs are being amortized through interest expense for the duration of each respective debt facility . on november 26 , 2019 , the company entered into a first amendment to the credit agreement ( the “ credit agreement amendment ” ) . the credit agreement amendment amended the credit agreement to , among other things : ( i ) increase the levels of the maximum consolidated total leverage ratio under the credit agreement , to not greater than 5.25 to 1.00 for the quarter ended december 31 , 2019 , with step-downs to 4.75 to 1.00 starting in the quarter ending december 31 , 2020 , 4.25 to 1.00 starting in the quarter ending december 31 , 2021 , and 3.75 to 1.00 starting in the quarter ending december 31 , 2022 ; ( ii ) increase each applicable interest rate margin on loans outstanding after the first amendment effective date by 25 basis points per annum , to 2.25 % per annum ( for libor loans ) and 1.25 % per annum ( for alternate base rate “ abr ” loans ) in respect of the term b loan facility , and based on our leverage ratio , from
| review of business segments products & solutions replace_table_token_9_th 50 resideo technologies , inc. replace_table_token_10_th 2019 compared with 2018 products & solutions revenue remained flat driven primarily by the security business and the first quarter launch of a new residential intrusion security platform , offset by softness in comfort and rts product lines . segment adjusted ebitda declined from $ 460 million to $ 314 million , or 32 % . segment adjusted ebitda was negatively impacted by $ 181 million from unfavorable product and channel mix , inventory variances , production cost increases including inventory write-downs , high product rebates from a contract entered into prior to the spin-off , license fee paid to honeywell associated with the trademark license agreement , and impact of acquisitions . these negative impacts were partially offset by $ 35 million of profit from increased selling prices , material productivity , and miscellaneous cost reductions . 2018 compared with 2017 products & solutions revenue increased by 6 % primarily due to an increase in external sales volume and higher prices in the comfort and rts product lines , and the impact of favorable currency translation . segment adjusted ebitda increased from $ 409 million to $ 460 million , or 12 % . segment adjusted ebitda was positively impacted $ 72 million by volume growth , higher prices , and favorable currency translation . these positive impacts were partially offset by $ 21 million of inflation net of productivity and adverse product mix . adi global distribution replace_table_token_11_th replace_table_token_12_th 51 resideo technologies , inc. 2019 compared with 2018 adi global distribution revenue increased 6 % on a reported basis , and 7 % on a constant currency basis . adi global distribution segment constant currency performance was driven by increased sales volume growth across all regions . segment adjusted ebitda increased from $ 164 million to $ 188 million , or 15 % .
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asu 2013-05 resolves diversity in practice regarding the release into net income of the cumulative translation adjustment upon derecognition of a subsidiary or a group of assets within a foreign entity . the new guidance is effective for fiscal years beginning january 1 , 2014. we do not expect the story_separator_special_tag operations forward-looking statements this management 's discussion and analysis of financial condition and results of operations contain statements that are forward-looking . we want to caution readers that any forward-looking statements within the meaning of section 27a of the securities act of 1933 and section 21e of the securities exchange act of 1934 in this form 10-k may change based on various factors . these forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties and actual results could differ materially . words such as `` estimate '' , `` target '' , `` project '' , `` plan '' , `` believe '' , `` expect '' , `` anticipate '' , `` intend '' , and similar expressions may identify such forward-looking statements . we undertake no obligation to publicly update or revise any forward-looking statements , whether as a result of new information , future events or otherwise . factors which could cause future financial performance to differ materially from the expectations as expressed in any forward-looking statement made by or on our behalf include , without limitation : declining physical mail volumes mailers ' utilization of alternative means of communication or competitors ' products access to capital at a reasonable cost to continue to fund various discretionary priorities , including business investments , acquisitions and dividend payments timely development and acceptance of new products and services successful entry into new markets success in gaining product approval in new markets where regulatory approval is required changes in postal or banking regulations interrupted use of key information systems our ability to successfully implement a new erp system and fully realize the related savings and efficiencies third-party suppliers ' ability to provide product components , assemblies or inventories our success at managing the relationships with our outsource providers , including the costs of outsourcing functions and operations not central to our business changes in privacy laws intellectual property infringement claims regulatory approvals and satisfaction of other conditions to consummate and integrate any acquisitions negative developments in economic conditions , including adverse impacts on customer demand our success at managing customer credit risk significant changes in pension , health care and retiree medical costs changes in interest rates , foreign currency fluctuations or credit ratings income tax adjustments or other regulatory levies for prior audit years and changes in tax laws , rulings or regulations impact on mail volume resulting from concerns over the use of the mail for transmitting harmful biological agents changes in international or national political conditions , including any terrorist attacks acts of nature the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements contained in this report . all table amounts are presented in millions of dollars , unless otherwise stated . overview during the year , we sold our global management services business ( pbms ) , nordic furniture business and international mail services business ( ims ) . further , we made certain organizational changes and realigned our business units and segment reporting to reflect the clients we serve , the solutions we offer , and how we manage , review , analyze and measure our operations . our historical results have been recast to present the operating results of divested businesses as discontinued operations and our segment results have been recast to conform to our new segment reporting . revenue for 2013 decreased 1 % to $ 3,869 million compared to $ 3,915 million in 2012 as growth in equipment sales , supplies sales and business services were offset by declines in rentals and financing revenue , software licensing revenue and support services . rentals and financing revenue decreased 5 % and 7 % , respectively , due to a decline in the number of installed meters worldwide and lower equipment sales in prior periods . support services revenue decreased 4 % due to fewer mailing machines in service and software revenue declined 3 % due to constrained public sector spending and lower north america licensing revenue . equipment sales grew 2 % driven by higher sales of production printers globally and sorting equipment in north america . supplies sales increased 2 % primarily due to the growing base of production print equipment installations and stabilization of supplies sales for our postage meter business . business services revenue increased 6 % primarily from increased demand and volumes from our e-commerce cross-border parcel management solutions . 15 net income from continuing operations and earnings per diluted share for 2013 were $ 302 million and $ 1.49 , respectively , compared to $ 396 million and $ 1.96 , respectively , in 2012. the decrease in 2013 was primarily due to higher restructuring charges and losses related to the early redemption of debt , as well declines in some of our high margin recurring revenue streams . for the year , we generated cash flow from operations of $ 625 million , received $ 390 million from the sale of businesses and issued $ 412 million of long-term debt . we used these proceeds to redeem long-term debt of $ 1,079 million , pay dividends of $ 207 million and fund capital investments of $ 138 million . at december 31 , 2013 , cash and cash equivalents and short-term investments were $ 939 million . outlook we continue to focus on three critical areas : stabilizing the mailing business , achieving operational excellence and driving growth in our digital commerce solutions segment . within the small & medium business solutions group , we expect revenue and profitability growth to continue to be challenged by the decline in physical mail volumes . story_separator_special_tag rentals revenue decreased 8 % to $ 552 million in 2012 compared to 2011 primarily due to declines in north america from fewer meters in service and lower rentals in france due to a customer-driven change in mix from rental to equipment sales . foreign currency translation had an unfavorable impact on revenue of 1 % . cost of rentals as a percentage of revenue improved to 20.9 % compared with 23.0 % in the prior year primarily due to lower depreciation expense . financing financing revenue decreased 7 % in 2013 compared to 2012 , and 10 % in 2012 compared to 2011 , primarily due to declining equipment sales in prior periods . financing interest expense as a percentage of revenue was 17.6 % , 16.4 % and 16.0 % in 2013 , 2012 and 2011 , respectively . the year-over-year increases were due to higher effective interest rates . financing interest expense represents our cost of borrowing associated with the generation of financing revenue . in computing financing interest expense , we assume a 10:1 leverage ratio of debt to equity and apply our overall effective interest rate to the average outstanding finance receivables . support services support services revenue decreased 4 % to $ 678 million in 2013 compared to 2012 , primarily due to a decline in equipment maintenance revenue resulting from fewer mailing and production machines in service . cost of support services as a percentage of revenue improved slightly to 61.9 % in 2013 compared with 62.2 % in 2012 . support services revenue decreased 2 % to $ 708 million in 2012 compared to 2011 , driven primarily by the impact of foreign currency translation . cost of support services as a percentage of revenue improved slightly to 62.2 % in 2012 compared with 62.5 % in 2011 . business services business services revenue increased 6 % to $ 631 million in 2013 compared to 2012 . revenue from our cross-border parcel management solutions increased revenue by 10 % , but lower marketing services fees resulting from certain contract renewals decreased revenue by 4 % . cost of business services as a percentage of revenue increased to 71.3 % in 2013 compared to 66.7 % in 2012 primarily due to continuing investment in our cross-border parcel management solutions and lower marketing services fees . business services revenue increased 2 % to $ 594 million in 2012 compared to 2011 . revenue in our presort services operation increased 8 % ; however , a fire in 2011 adversely impacted 2011 revenue by $ 20 million . excluding this impact , revenue in 2012 increased 2 % primarily due to higher standard mail volumes . cost of business services as a percentage of revenue improved to 66.7 % in 2012 compared to 68.9 % in 2011 primarily due to the impact of the fire in 2011. selling , general and administrative ( sg & a ) sg & a expense decreased 5 % in 2013 to $ 1,432 million compared to 2012 primarily driven by lower employee-related costs resulting from ongoing restructuring actions and productivity initiatives . sg & a expense decreased 5 % in 2012 to $ 1,503 million compared to 2011 primarily driven by lower employee-related costs resulting from ongoing restructuring actions and productivity initiatives , and to a lesser extent , lower intangible asset amortization expense and credit loss and bad debt provisions . 18 restructuring charges and asset impairments in 2013 , we initiated actions designed to enhance our responsiveness to changing market conditions , further streamline our business operations , reduce our cost structure and create long-term flexibility to invest in growth . we anticipate that these primarily cash related actions will result in restructuring charges in the range of $ 75 to $ 125 million , which will be recognized as specific initiatives are approved and implemented . we anticipate annualized pre-tax benefits of $ 100 to $ 125 million , net of investments , from these actions , and expect to reach this benefit run rate by 2015. these actions resulted in net restructuring charges of $ 60 million ( including $ 2 million related to discontinued operations ) . also during 2013 , we entered into an agreement to sell our corporate headquarters building and recorded a non-cash asset impairment charge of $ 26 million . we expect to close on this sale by mid-year 2014. in 2012 , we implemented actions to streamline our business operations and reduce our cost structure that resulted in net restructuring charges of $ 23 million ( including $ 6 million related to discontinued operations ) . in 2011 , restructuring charges represent charges taken in connection with a series of strategic transformation initiatives announced in 2009. these initiatives were designed to transform and enhance the way we operated as a global company , enhance our responsiveness to changing market conditions and create improved processes and systems and were implemented over a three year period through 2011. net restructuring charges were $ 135 million , including charges related to discontinued operations . other expense ( income ) , net other expense , net for 2013 of $ 33 million consists of the costs associated with the early redemption of debt during the year . see liquidity and capital resources - financings and capitalization for a detailed discussion . other expense , net in 2012 includes losses of $ 6 million on a forward rate swap agreement , $ 2 million on the early redemption of debt and $ 4 million on the sale of leveraged lease assets offset by income of $ 11 million from insurance proceeds received in connection with the 2011 presort facility fire . other income , net in 2011 includes income of $ 27 million from insurance proceeds received in connection with the presort facility fire offset by a loss of $ 7 million on the sale of leveraged lease assets . income taxes see note 8 to the consolidated financial statements .
| cash flow summary the change in cash and cash equivalents is as follows : replace_table_token_8_th net cash provided by operating activities was $ 625 million in 2013 compared to $ 660 million in 2012 . the decrease in cash flow from operations was due to lower income and cash payments related to debt extinguishments . these decreases were partially offset by lower pension contributions , restructuring payments and increased cash from working capital management . net cash provided by operating activities was $ 660 million in 2012 compared to $ 949 million in 2011 . the decrease in cash provided by operations was primarily due to higher tax payments in 2012 resulting from the sale of leveraged lease assets , the loss of bonus depreciation and higher income tax refunds received in 2011. the cash impact of finance and accounts receivables was also $ 105 million lower in 2012 compared to 2011. net cash provided by investing activities was $ 251 million in 2013 compared to net cash used of $ 87 million in 2012 . the improvement was mainly due to net proceeds of $ 390 million from the sale of businesses during 2013 and lower capital expenditures , partially offset by lower deposits at the bank . cash flow in 2012 included proceeds of $ 106 million from the sale of leveraged lease assets . net cash used in investing activities was $ 87 million in 2012 compared to $ 117 million in 2011 . the decrease in cash used in 2012 was due to lower net purchases of investment securities partially offset by higher capital expenditures and lower growth in customer deposits . net cash used in financing activities was $ 868 million in 2013 compared to $ 519 million in 2012 . the increase in cash used was due to higher net repayments of debt partially offset by lower dividend payments .
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we began 2012 with positive momentum for both demand and pricing for the products we sell . however , we saw consistent deterioration in overall metals pricing beginning in february that continued throughout 2012. demand also waned in most end markets we serve as the year progressed . we believe that u.s. , as well as global , political and economic uncertainty caused demand to subside . these same factors also contributed to increased imports of metal products into the u.s. and reductions in raw material costs that led to lower metals pricing . we did see continued strength in the aerospace , auto ( mainly through our toll processing businesses ) and energy ( oil and gas ) end markets during 2012 , even though growth in the energy market slowed from 2011 levels and sequentially in each of the quarters during the year . heavy industries such as mining equipment , barge and tank manufacturers , transmission towers and rail cars were also solid markets for us in 2012. our sales into the agricultural equipment end market were strong in the 1 st half of 2012 but slowed in the 2 nd half . our sales into the non-residential construction market improved somewhat over 2011 levels , primarily in the industrial construction market , but overall remain well below the peak levels in 2006. our 2012 sales of $ 8.44 billion were our second best ever , and our earnings per share were the third best ever . through the efforts of our employees , we increased our 2012 same-store tons sold 3.4 % over 2011 and increased our gross profit margin to 26.1 % in a challenging business environment . we ended 2012 in a strong financial position with our net debt-to-capital ratio at 23.8 % . during 2012 we completed six acquisitions , with combined pro-forma annual sales of approximately $ 225 million . these companies generally sell specialty products or provide high-value processing , leading to higher selling prices and gross profit margins than the company average . we also invested $ 214 million in capital expenditures , our highest ever . the majority of our capital expenditures related to growth activities , including the expansion and relocation of existing facilities , enhancing and adding processing capabilities , penetrating new geographic markets and expanding product offerings at existing locations . we believe we have significantly higher earnings capacity from our current levels with exposure to industries that are poised for growth in the years ahead along with our broad and diverse product base and wide geographic footprint that positions us well in our industry . however , until there is a significant improvement in demand , especially in the non-residential construction market , we expect our results to be below what we believe our earnings power is , given the current size and breadth of the company . we will continue to focus on maximizing the working capital management and profitability of our existing businesses and on profitable growth through both acquisitions and internal investment . we have also consistently returned capital to our shareholders through dividends , with substantial increases in our quarterly dividend rate over the past two years . looking forward , we expect that global economic uncertainty will continue to impact u.s. economic growth . however , we do expect pricing to improve from current levels and for volumes to steadily improve as we overcome the economic and political uncertainty and our customers gain more confidence . our strong balance sheet provides a solid foundation for our operating activities and our growth strategies , both organic and through acquisitions , which we expect to aggressively pursue . in february 2013 , we announced our agreement to acquire metals usa holdings corp. in an all cash transaction for approximately $ 1.2 billion . if completed , this would be our largest acquisition to date , adding 48 service center locations throughout the u.s. and further strengthen our broad range of products , significant customer diversification and wide geographic footprint . our operating and growth strategies 32 have helped us achieve industry-leading operating results on a consistent basis and we remain confident in our ability to continue this track record of success going forward . effect of demand and pricing changes on our operating results customer demand can have a significant impact on our results of operations . when volume increases our revenue dollars increase , which then contributes to increased gross profit dollars . variable costs may also increase with volume including increases in our warehouse , delivery , selling , general and administrative expenses . conversely , when volume declines , we typically produce fewer revenue dollars , which can reduce our gross profit dollars . we can reduce certain variable expenses when volumes decline , but we can not easily reduce our fixed costs . pricing for our products can have a more significant impact on our results of operations than customer demand levels . as pricing increases , so do our revenue dollars . our pricing usually increases when the cost of our materials increase . if prices increase and we maintain the same gross profit percentage , we generate higher levels of gross profit and pre-tax income dollars for the same operational efforts . conversely , if pricing declines , we will typically generate lower levels of gross profit and pre-tax income dollars . because changes in pricing do not require us to adjust our expense structure other than for profit-based compensation , the impact on our results of operations from changes in pricing is typically much greater than the effect of volume changes . in addition , when volume or pricing increases , our working capital requirements typically increase , which may require us to increase our outstanding debt . this usually increases our interest expense . when our customer demand falls , we typically generate stronger levels of cash flow from operations as our working capital needs decrease . story_separator_special_tag continental is a leading global materials management company focused on high-end steel and alloy pipe , tube and bar products and precision manufacturing of various tools designed for well completion programs of global energy service companies and has 12 locations in seven countries including canada , malaysia , mexico , singapore , the u.a.e. , the united kingdom , and the united states . this acquisition aligns well with our diversification strategy by increasing our exposure to the energy ( oil and gas ) market , including the addition of oil country tubular goods ( `` octg '' ) products , new processing capabilities , and entry into new international markets . continental and its affiliates had combined net sales of $ 442.4 million for the year ended december 31 , 2012 . 34 internal growth activities we continued to maintain our focus on organic growth by opening new facilities , building or expanding existing facilities and adding processing equipment with total capital expenditures of $ 214.0 million in 2012 , our highest to-date . this amount includes the purchase of six facilities that we previously leased , which will reduce our expenses . our 2012 capital expenditure budget was $ 250 million . during 2012 we also consolidated and closed a few small operations that did not impact our ability to service our customers . our 2013 capital expenditure budget is approximately $ 180 million with much of this related to internal growth activities comprised of purchases of equipment and new facilities along with expansions of existing facilities . we also plan to move out of various leased facilities and into newly built and or purchased ones . this reflects our confidence in our long-term prospects ; however , we will continue to evaluate and execute each growth project and consider the economic conditions and outlook at the time . we estimate our maintenance capital expenditures at about $ 60 to $ 70 million , which allows us to significantly reduce our capital expenditure spending if and when necessary . story_separator_special_tag gross profit margin was primarily due to our ability to effectively manage our selling prices in an environment of declining mill prices . see `` net sales `` and `` cost of sales `` for discussion on product pricing trends and our lifo valuation reserve adjustments , respectively . expenses replace_table_token_13_th the additional expenses of our 2012 and 2011 acquisitions along with increases in certain warehouse and delivery expenses resulting from increased staffing levels due to improved demand and increased fuel and healthcare costs accounted for most of the increase in s , g & a expense during 2012 compared to 2011. our s , g & a expense as a percent of net sales increased as compared to 2011 primarily due to the lower selling prices in 2012 compared to 2011 . 37 the increase in depreciation and amortization expense was mainly due to our 2012 and 2011 acquisitions and depreciation expense from our recent capital expenditures . additionally , we recognized an impairment loss of $ 2.5 million related to one of our trade name intangible assets for the year ended december 31 , 2012 , which is included in amortization expense . operating income replace_table_token_14_th the higher gross profit dollars generated on higher sales , offset by only moderate increases in s , g & a expenses and the contributions of our 2011 and 2012 acquisitions improved our operating income level in 2012. our operating income margin improved in 2012 mainly because of our improved gross profit margins and contributions from some of our 2012 and 2011 acquisitions , which produced higher operating returns due to the specialty nature of their products and processing services . other income and expense replace_table_token_15_th the change in other income ( expense ) , net in 2012 compared to 2011 was primarily due to higher foreign currency gains due to the weakening of the u.s. dollar in 2012 compared to 2011 and higher investment returns on our life insurance assets . income tax rate our effective income tax rate in 2012 was 33.0 % compared to our 2011 rate of 31.7 % . the increase in our income tax rate was mainly due to higher income levels in 2012 as permanent items that lowered our effective income tax rates from the federal statutory rate were not materially different in amounts during both years and relate mainly to company-owned life insurance policies , domestic production activities deductions and foreign income levels that are taxed at rates lower than the u.s. statutory rate of 35 % . net income replace_table_token_16_th the increase in our net income was primarily the result of higher gross profit dollars with relatively lower increases in our operating expenses , and contributions from our 2011 and 2012 acquisitions . 38 year ended december 31 , 2011 compared to year ended december 31 , 2010 net sales replace_table_token_17_th replace_table_token_18_th replace_table_token_19_th tons sold and average selling price per ton sold amounts exclude our toll processing sales . same-store amounts exclude the results of our 2011 and 2010 acquisitions . we saw steady improvement in our tons sold in 2011. in general , business activity in most all of our markets was better in 2011 than in 2010 , albeit overall demand remained well below what we consider normal levels . in 2011 , our strongest markets were energy ( oil and gas ) , aerospace , farm and heavy equipment , mining , general manufacturing and semiconductor and electronics . non-residential construction , our largest end market , continued to be our weakest , however , we saw some improvements in demand in 2011 for certain non-residential construction related products in certain areas around the country . as a result of increased mill prices , we were able to sell most products at higher average selling prices in 2011 compared to 2010 levels . our major commodity selling prices increased in 2011 from 2010 levels as follows : carbon steel up 18.1 % ; aluminum up 6.6 % ; stainless steel up 12.1 % ; and alloy up 12.8 % .
| results of operations the following table sets forth certain income statement data for each of the three years ended december 31 ( dollars are shown in millions and certain amounts may not calculate due to rounding ) : replace_table_token_7_th ( 1 ) gross profit , calculated as net sales less cost of sales , and gross profit margin , calculated as gross profit divided by net sales , are non-gaap financial measures as they exclude depreciation and amortization expense associated with the corresponding sales . the majority of our orders are basic distribution with no processing services performed . for the remainder of our sales orders , we perform `` first-stage '' processing , which is generally not labor intensive as we are simply cutting the metal to size . because of this , the amount of related labor and overhead , including depreciation and amortization , are not significant and are excluded from our cost of sales . therefore , our cost of sales is primarily comprised of the cost of the material we sell . we use gross profit and gross profit margin as shown above as measures of operating performance . gross profit and gross profit margin are important operating and financial measures , as fluctuations in our gross profit margin can have a significant impact on our earnings . gross profit and gross profit margin , as presented , are not necessarily comparable with similarly titled measures for other companies . 35 year ended december 31 , 2012 compared to year ended december 31 , 2011 net sales replace_table_token_8_th replace_table_token_9_th replace_table_token_10_th tons sold and average selling price per ton sold amounts exclude our toll processing sales . same-store amounts exclude the results of our 2012 and 2011 acquisitions .
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we are also involved in several other businesses , some of which are complementary to the distribution of natural gas along with other unregulated businesses . our operating segments consist of the following five operating and reporting segments – distribution operations , retail operations , wholesale services , midstream operations and cargo shipping and one non-operating segment - other . these segments are consistent with how management views and operates our business . the following table provides certain information on our segments . replace_table_token_10_th in 2013 , our net income attributable to agl resources inc. was $ 313 million an increase of $ 42 million compared to 2012 as we benefited from colder-than-normal weather as compared to the historically warm weather in 2012. excluding weather , we achieved growth in our operating margins during 2013 primarily as a result of contributions from our regulatory infrastructure programs in distribution operations , targeted acquisition growth in retail operations and significant improvement in commercial activity in our wholesale services , as well as the gain on the sale of compass energy , offset by mark-to-market accounting hedge losses recorded during the second half of 2013. these losses are temporary and expected to be recovered primarily in 2014. in 2014 , our priorities are consistent with the direction we have taken the company over the last three years . we will remain focused on efficient operations across all of our businesses , including offsetting inflationary pressures by aggressive cost controls , spreading costs across a broader customer base and sizing our operations to properly reflect market challenges . several of our specific business objectives are detailed as follows : · distribution operations : invest necessary capital to enhance and maintain safety and reliability ; remain a low-cost leader within the industry ; opportunistically expand the system and capitalize on potential customer conversions . we intend to continue investing in our regulatory infrastructure programs in georgia , virginia , new jersey and tennessee to minimize regulatory lag and the recovery cycle . during 2014 we intend to submit a regulatory infrastructure program in illinois , to become effective in january 2015. we continue to effectively manage costs and leverage our shared services model across our businesses to largely overcome inflationary effects . · retail operations : maintain operating margins in georgia and illinois while continuing to expand into other profitable retail markets ; integrate our warranty businesses and expand our overall market reach through partnership opportunities with our affiliates . we expect the georgia retail market to remain highly competitive ; however , our operating margins are forecasted to remain stable with modest growth from the acquisitions completed in 2013 and expansion into new markets . · wholesale services : maximize strong storage and transportation rollout value created in 2013 ; effectively perform on existing asset management agreements and expand customer base ; and maintain cost structure in line with market fundamentals . we anticipate low volatility in certain areas of our portfolio ; however , volatility is expected to increase in the supply-constrained northeast corridor . we further anticipate narrow seasonal storage spreads will continue to be challenges in 2014 . · midstream operations : optimize storage portfolio , including expiring contracts , pursue lng transportation opportunities and lower development expenses . · cargo shipping : improve profitability , continue increasing vessel utilization , improve margin per teu , prudently deploy capital investment and diligently manage operating costs . additionally , we will maintain our strong balance sheet and liquidity profile , solid investment grade ratings and our commitment to sustainable annual dividend growth . for additional information on our operating segments , see note 13 to our consolidated financial statements under item 8 herein and item 1 , “ business ” . story_separator_special_tag center ; width : 100 % '' > in 2013 our net income attributable to agl resources inc. increased by $ 42 million or 15 % compared to last year . · the overall increase was primarily the result of increased operating margin at distribution operations and retail operations due to weather that was both colder-than-normal and colder than the same period last year , increased regulatory infrastructure program revenues at atlanta gas light , the acquisition of service contracts and residential and commercial energy customer relationships in our retail operations segment , as well as lower depreciation expense at nicor gas . · the increase was unfavorably impacted by mark-to-market accounting hedge losses in our wholesale services segment during the second half of 2013 , offset by higher commercial activity and the $ 11 million pre-tax gain on the sale of compass energy . · our midstream operations segment was unfavorable compared to 2012 due to the $ 8 million loss associated with the termination of the sawgrass storage project , as well as lower contracted firm rates at jefferson island and higher operating expenses at golden triangle , central valley and pivotal lng resulting from full year operations in 2013 as compared to partial year operations in 2012 . · our cargo shipping segment added to the favorable variance due primarily to higher volumes , partially offset by decreased average teu rates . · favorability year-over-year also was partially offset by higher incentive compensation expenses in most of our businesses as our incentive compensation expense was above targeted levels in 2013 based on improved financial and operational performance compared to significantly below targeted annual levels in 2012 due to below target performance . in addition , our bad debt expense increased at distribution operations and retail operations primarily as a result of colder weather combined with natural gas prices that were higher than in the same period of the prior year . · in 2012 we recorded $ 20 million ( $ 13 million net of tax ) of nicor merger related expenses . story_separator_special_tag we also target customer conversions to natural gas from other energy sources emphasizing the pricing advantage of natural gas . these programs focus on premises that could be connected to our distribution system at little or no cost to the customer . in cases where conversion cost can be a disincentive , we may employ rebate programs and other assistance to address customer cost issues . retail operations ' market share in georgia has decreased slightly primarily as a result of a highly competitive marketing environment , which we expect will continue for the foreseeable future . in 2013 our retail operations segment expanded its energy customers and its service contracts through acquisitions and entering into new markets . we anticipate this expansion will provide growth opportunities in future years . glossary 31 volume our natural gas volume metrics for distribution operations and retail operations , present the effects of weather and customers ' demand for natural gas compared to prior year . wholesale services ' daily physical sales volumes represent the daily average natural gas volumes sold to its customers . within our midstream operations segment , our natural gas storage businesses seek to have a significant percentage of their working natural gas capacity under firm subscription , but also take into account current and expected market conditions . this allows our natural gas storage business to generate additional revenue during times of peak market demand for natural gas storage services , but retain some consistency with their earnings and maximize the value of the investments . additionally , our cargo shipping segment measures the volume of shipments during the period in teus . in 2013 we successfully increased our number of teus and therefore the utilization of our containers and vessels . our volume metrics are presented in the following table : replace_table_token_15_th ( 1 ) includes florida , maryland , new york and ohio . ( 2 ) the percentage of capacity under subscription does not include 3.5 bcf of capacity under contract with sequent at december 31 , 2013 , 3 bcf of capacity under contract with sequent at december 31 , 2012 and 4 bcf of capacity under contract with sequent at december 31 , 2011. segment information operating margin , operating expenses and ebit information for each of our segments are contained in the following tables for the last three years . replace_table_token_16_th ( 1 ) operating margin is a non-gaap measure . a reconciliation of operating revenue and operating margin to operating income and ebit to earnings before income taxes and net income is contained in “ results of operations . ” see note 13 to our consolidated financial statements under item 8 herein for additional segment information . ( 2 ) operating margin and expense are adjusted for revenue tax expense for nicor gas , which is passed directly through to customers . ( 3 ) includes $ 20 million and $ 57 million in nicor merger transaction expenses for 2012 and 2011 , respectively , and an $ 8 million accrual in 2012 for the nicor gas pbr issue . ( 4 ) the 2011 amounts only include 22 days of nicor activity from december 10 , 2011 through december 31 , 2011 . ( 5 ) ebit for 2013 includes $ 11 million pre-tax gain on sale of compass energy in our wholesale services segment and an $ 8 million pre-tax loss associated with the termination of the sawgrass storage project within our midstream operations segment . the ebit of our distribution operations , retail operations , wholesale services and cargo shipping segments are seasonal . during the heating season , natural gas usage and operating revenues are generally higher because more customers are connected to our distribution systems and natural gas usage is higher in periods of colder weather . occasionally in the summer , wholesale services operating revenues are impacted due to peak usage by power generators in response to summer energy demands . seasonality also affects the comparison of certain consolidated statements of financial position items across quarters , including receivables , unbilled revenue , inventories and short-term debt . however , these items are comparable when reviewing our annual results . additionally , the revenues of our cargo shipping business are generally higher in the fourth quarter , as our customers require more tourist-related shipments as the hotels , resorts , and cruise ships typically have increased occupancy rates commencing in the fourth quarter and increasing further into the first quarter as consumer spending increases during traditional holiday periods . revenues are impacted during the fourth quarter by peak season surcharges in effect from early october through december . approximately 66 % of these segments ' operating revenues and 69 % of these segments ' ebit for the year ended december 31 , 2013 were generated during the first and fourth quarters of 2013 , and are reflected in our consolidated statements of income for the quarters ended march 31 , 2013 and december 31 , 2013. our base operating expenses , excluding cost of goods sold , interest expense and certain incentive compensation costs , are incurred relatively equally over any given year . thus , our operating results can vary significantly from quarter to quarter as a result of seasonality . glossary 32 distribution operations our distribution operations segment is the largest component of our business and is subject to regulation and oversight by agencies in each of the seven states we serve . these agencies approve natural gas rates designed to provide us the opportunity to generate revenues to recover the cost of natural gas delivered to our customers and our fixed and variable costs such as depreciation , interest , maintenance and overhead costs , and to earn a reasonable return for our shareholders .
| results of operations we generate the majority of our operating revenues through the sale , distribution and storage of natural gas . we include in our consolidated revenues an estimate of revenues from natural gas distributed , but not yet billed , to residential , commercial and industrial customers from the date of the last bill to the end of the reporting period . no individual customer or industry accounts for a significant portion of our revenues . the following table provides more information regarding the components of our operating revenues . replace_table_token_11_th ( 1 ) our results of operations for the year ended december 31 , 2011 includes 22 days of activity from the subsidiaries acquired from nicor . glossary 28 we evaluate segment performance using the measures of ebit and operating margin . ebit includes operating income and other income and expenses . items that we do not include in ebit are financing costs , including interest expense and income taxes , each of which we evaluate on a consolidated basis . operating margin is a non-gaap measure that is calculated as operating revenues minus cost of goods sold and revenue tax expense in distribution operations . operating margin excludes operation and maintenance expense , depreciation and amortization , taxes other than income taxes , and the gain or loss on the sale of our assets . these items are included in our calculation of operating income as reflected in our consolidated statements of income . we believe operating margin is a better indicator than operating revenues for the contribution resulting from customer growth in our distribution operations segment since the cost of goods sold and revenue tax expenses can vary significantly and are generally billed directly to our customers .
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ladder capital corp was incorporated on may 21 , 2013 as a holding company for the purpose of facilitating an ipo of common equity . on february 5 , 2014 , a registration statement relating to shares of class a common stock of ladder capital corp was declared effective and the price of such shares was set at $ 17.00 per share . the ipo closed on february 11 , 2014 . 76 as a result of the ipo and certain other recapitalization transactions ( collectively , the “ ipo transactions ” ) , ladder capital corp became the sole general partner of lcfh and , as a result of the serialization of lcfh on december 31 , 2014 , became the sole general partner of series reit of lcfh . lc trs i llc , a wholly-owned subsidiary of series reit of lcfh , is the general partner of series trs of lcfh . ladder capital corp has a controlling interest in series reit of lcfh , and through such controlling interest , also has a controlling interest in series trs of lcfh . ladder capital corp 's only business is to act as the sole general partner of lcfh and series reit of lcfh , and , as a result of the foregoing , ladder capital corp directly and indirectly operates and controls all of the business and affairs of lcfh , and each series thereof , and consolidates the financial results of lcfh , and each series thereof , into ladder capital corp 's consolidated financial statements . results since inception consist of lcfh 's operations from october 2008 to february 10 , 2014 and ladder capital corp 's operations from february 11 , 2014 to december 31 , 2017 . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > $ 1.5 billion and loan investments averaged $ 3.0 billion . for the year ended december 31 , 2016 , securities investments averaged $ 2.5 billion and loan investments averaged $ 2.3 billion . there was a $ 774.1 million increase in loan investments , offset by a $ 1.0 billion decrease in securities investments , resulting in higher interest income due to the higher yield on loans versus securities . interest expense totaled $ 146.1 million for the year ended december 31 , 2017 , compared to $ 120.8 million for the year ended december 31 , 2016 . the $ 25.3 million increase in interest expense was primarily attributable to an increase in average debt obligations , the increase in libor rates throughout 2016 and 2017 and a shift away from borrowings from the fhlb and securities repurchase financing , a lower source of funding , to higher cost , loan repurchase financing and senior unsecured notes . our interest expense also includes interest expense related to mortgage loan financing against our real estate investments . our investment in real estate and related lease intangibles , net has continued to increase during 2016 and 2017 and our mortgage loan financing secured by such investments has also similarly increased . our interest expense related to mortgage loan financing increased by $ 3.4 million from $ 18.1 million for the year ended december 31 , 2016 to $ 21.5 million for the year ended december 31 , 2017 , primarily as a result of our increase in average outstanding mortgage loan financing of $ 635.2 million for the year ended december 31 , 2017 compared to $ 553.1 million for the year ended december 31 , 2016 . net interest income after provision for loan losses totaled $ 117.5 million for the year ended december 31 , 2017 , compared to $ 115.2 million for the year ended december 31 , 2016 . the $ 2.3 million increase in net interest income after provision for loan losses was primarily attributable to the increase in net interest income , increase in interest expense discussed above and increase in debt obligations . cost of funds , a non-gaap financial measure , totaled $ 161.4 million for the year ended december 31 , 2017 , compared to $ 150.7 million for the year ended december 31 , 2016 . the $ 10.7 million increase in cost of funds was primarily attributable to the increase in libor rates throughout 2016 and 2017 and a shift away from borrowings from the fhlb and securities repurchase financing , a lower cost source of funding , to higher cost loan repurchase financing and senior unsecured notes . we present cost of funds , which is a non-gaap financial measure , as a supplemental measure of the company 's cost of debt financing . we define cost of funds as interest expense as reported on our consolidated statements of income adjusted to exclude interest expense related to liabilities for transfers not considered sales and include the net interest expense component resulting from our hedging activities , which is currently included in net results from derivative transactions on our consolidated statements of income . see “ —reconciliation of non-gaap financial measures ” for our definition of cost of funds and a reconciliation to interest expense . interest spreads as of december 31 , 2017 , the weighted average yield on our mortgage loan receivables was 7.0 % , compared to 6.7 % as of december 31 , 2016 as the weighted average yield on new loans originated was higher than the weighted average yield on loans that were securitized or paid off . as of december 31 , 2017 , the weighted average interest rate on borrowings against our mortgage loan receivables was 3.1 % , compared to 2.3 % as of december 31 , 2016 . the increase in the rate on borrowings against our mortgage loan receivables from december 31 , 2016 to december 31 , 2017 was primarily due to higher prevailing market borrowing rates as of december 31 , 2017 compared to december 31 , 2016 . story_separator_special_tag income ( loss ) from sale of loans , net , represents gross proceeds received from the sale of loans , less the book value of those loans at the time they were sold , less any costs , such as legal and closing costs , associated with the sale . income from sales of securitized loans , net of hedging , a non-gaap financial measure , represents the portion of income ( loss ) from sale of loans , net related to the sale of loans into securitization trusts . see “ —reconciliation of non-gaap financial measures ” for our definition of income from sales of securitized loans , net of hedging and a reconciliation to income ( loss ) from sale of loans , net . 79 realized gain ( loss ) on securities realized gain ( loss ) on securities totaled $ 17.2 million for the year ended december 31 , 2017 , compared to $ 7.7 million for the year ended december 31 , 2016 , an increase of $ 9.5 million . other than temporary impairment on u.s. agency securities , which is included in realized gain ( loss ) on securities totaled $ ( 3.5 ) million for the year ended december 31 , 2017 , compared to $ ( 4.7 ) million for the year ended december 31 , 2016 , a reduction of $ 1.2 million . for the year ended december 31 , 2017 , we sold $ 1.0 billion of securities , comprised of $ 1.0 billion of cmbs and $ 7.6 million u.s. agency securities . for the year ended december 31 , 2016 , we sold $ 539.3 million of securities , comprised of $ 538.1 million of cmbs and $ 1.2 million u.s. agency securities . the increase in sales of securities reflects higher transaction volume in 2017 as compared to 2016 . unrealized gain ( loss ) on agency interest-only securities unrealized gain ( loss ) on agency interest-only securities represented a gain of $ 1.4 million for the year ended december 31 , 2017 , compared to a loss of $ 0.1 million for the year ended december 31 , 2016 . the positive change of $ 1.5 million in unrealized gain ( loss ) on agency interest-only securities was due to the increase in interest rates throughout 2016 and 2017 , partially offset by sales and amortization of the portfolio during the year ended december 31 , 2017 . agency interest-only securities are recorded at fair value with changes in fair value recorded in current period earnings . realized gain on sale of real estate , net for the year ended december 31 , 2017 , realized gain on sale of real estate , net totaled $ 11.4 million , compared to $ 20.6 million for the year ended december 31 , 2016 . the decrease of $ 9.2 million was a result of the commercial real estate and residential condominium sales discussed below . during the year ended december 31 , 2017 , we sold no single-tenant net lease properties . during the year ended december 31 , 2016 , we sold two single-tenant net lease properties resulting in a net gain on sale of $ 1.2 million . during the year ended december 31 , 2017 , income from sales of residential condominiums totaled $ 11.6 million . we sold 46 residential condominium units from veer towers in las vegas , nv , resulting in a net gain on sale of $ 9.3 million , and 40 residential condominium units from terrazas river park village in miami , fl , resulting in a net gain on sale of $ 2.3 million . we expect to substantially complete the sale of the remaining veer units in 2018 and the remaining terrazas units in less than 18 months which would result in reduced profit on condominium sales in future periods . during the year ended december 31 , 2016 , income from sales of residential condominiums totaled $ 19.4 million . we sold 73 residential condominium units from veer towers in las vegas , nv , resulting in a net gain on sale of $ 15.1 million , and 65 residential condominium units from terrazas river park village in miami , fl , resulting in a net gain on sale of $ 4.3 million . fee and other income fee and other income totaled $ 18.3 million for the year ended december 31 , 2017 , compared to $ 21.4 million for the year ended december 31 , 2016 . we generated fee income from origination fees , exit fees and other fees on the loans we originate and in which we invest , hoa fees , dividend income on our investment in fhlb stock and the management of our institutional partnership and our managed account , both of which were terminated during 2015. the $ 3.1 million decrease in fee and other income year-over-year was primarily due to $ 3.3 million receivable , which is more fully discussed in note 16 , income taxes , from an indemnity counterparty received during the year ended december 31 , 2016 . net result from derivative transactions net result from derivative transactions represented a loss of $ 12.6 million for the year ended december 31 , 2017 , which was comprised of an unrealized loss of $ 3.4 million and a realized loss of $ 9.2 million , compared to a loss of $ 1.4 million which was comprised of an unrealized gain of $ 4.2 million and a realized loss of $ 5.6 million , for the year ended december 31 , 2016 , a negative change of $ 11.2 million . the derivative positions that generated these results were a combination of interest rate swaps , and futures that we employed in an effort to hedge the interest rate risk on the financing of our fixed rate assets and the net interest income we earn against the impact of changes in interest rates .
| results of operations year ended december 31 , 2017 compared to the year ended december 31 , 2016 investment overview investment activity in the year ended december 31 , 2017 focused on loan and security activities . we originated and funded $ 2.9 billion in principal value of commercial mortgage loans , which was offset by $ 1.5 billion of sales and $ 386.9 million of principal repayments in the year ended december 31 , 2017 . we acquired $ 210.5 million of new securities , which was offset by $ 1.0 billion of sales and $ 138.4 million of amortization in the portfolio , which partially contributed to a net decrease in our securities portfolio of $ 1.0 billion . we also invested $ 236.9 million in real estate and received proceeds from the sale of real estate of $ 31.1 million . investment activity in the year ended december 31 , 2016 focused on loan and securities activities . we originated and funded $ 2.1 billion in principal value of commercial mortgage loans , which was offset by $ 1.4 billion of sales and $ 651.7 million of principal repayments in the year ended december 31 , 2016 . we acquired $ 977.5 million of new securities , which was offset by $ 539.3 million of sales and $ 684.1 million of amortization in the portfolio , which partially contributed to a net decrease in our securities portfolio of $ 306.3 million . we also invested $ 62.5 million in real estate and received proceeds from the sale of real estate of $ 66.5 million . operating overview net income ( loss ) attributable to class a common shareholders totaled $ 95.3 million for the year ended december 31 , 2017 , compared to $ 66.7 million for the year ended december 31 , 2016 .
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the following discussion and analysis should be read in conjunction with our financial statements , included herewith . this discussion should not be construed to imply that the results discussed herein will necessarily continue into the future , or that any conclusion reached herein will necessarily be indicative of actual operating results in the future . such discussion represents only the best present assessment of our management . general overview we operate two distinct business operations . these are : ● marine technology business ( “ also referred to as “ products segment ” ) ; and ● marine engineering business ( “ also referred to as “ services segment ” ) . our marine technology business is a technology solution provider to the subsea market . it has a long-established pedigree in this market , and it designs , develops and manufactures proprietary solutions for this market ( both for commercial and defense applications ) including our range of flagship volumetric real time sonar solutions . these solutions/products are used primarily in the underwater construction market , offshore oil and gas , offshore wind energy industry , and in the complex dredging , port security , mining and marine sciences sectors . our customers include service providers to major oil and gas ( “ o & g ” ) companies , law enforcement agencies , ports , mining companies , defense bodies , research institutes and universities . our marine engineering business is a supplier of engineering services and embedded solutions ( such as mission computers ) to prime defense contractors such as raytheon and northrop grumman . generally , the items supplied into the defense market are sub-systems in broader mission critical integrated systems and thus requires a high level of reliability , consistency in standards and robustness . we have long-standing relationships with prime defense contractors , and we use these credentials to secure more business . we support some significant defense programs by supplying and maintaining proprietary parts ( or parts for which we are preferred suppliers ) through obsolescence management programs . these services provide recurring stream of revenues for our services segment . 21 both business operations have established synergies in terms of customers and specialized engineering skill sets encompassing capturing , computing and displaying data in harsh environments . our business is affected by a number of factors including those set out below : a. united kingdom 's withdrawal from the european union ( “ brexit ” ) including the possibility that such withdrawal will take place without a deal on their future relationship ( “ no deal brexit issue ” ) following a national referendum and the recent elections in the united kingdom which saw a majority government , a bill has now been passed for the united kingdom to leave the european union on january 31 , 2020. a transitional period of 12 months is expected . during the transitional period , the united kingdom government and the european union will negotiate its future trade relationship . if no agreement is reached , the uk government which now has a majority for its actions , has stated that it will leave the european union without a deal on its future relationship , a no deal brexit could affect our uk operations which represents a significant part of our earnings ( coda octopus products limited ( edinburgh-based ) and coda octopus martech limited ( portland , england-based ) . the ongoing uncertainty also impacts the british pound ( which is the trading currency of our uk operations ) . although the appointment of a majority government on december 13 , 2019 saw a surge in the uk pound against all major currencies , it is expected that the ongoing uncertainty around the future relationship with the european union will cause the uk pound to continue to be volatile against major currencies , including the us dollar . since our reporting currency is the us dollar , depreciation of the uk pound has an adverse impact on revenues reported and devaluation of our consolidated balance sheet assets . because there is no precedent for a european union member state leaving the union , the full implications for the company are not clear . the outcome is dependent on the type of future relationship that is struck between the united kingdom and the european union . in a worst-case scenario , where no deal on the future of the uk relationship with the european union is struck , it is widely believed that the world trade organization ( wto ) rules will apply . operating on this basis would have far-reaching implications for our company particularly in the area of costs associated with import/export arrangements for our products including custom duties on purchases and sales and delays and increased compliance costs in the supply chain ( both purchasing and selling ) . we currently benefit from mutual recognition rules in a number of areas including export control requirements and quality standards which allow us to distribute our products freely in the european union . if these are removed it is likely to involve new qualifications requirements that we would need to meet with the attendant costs and delays involved . furthermore , if free movement is restricted this will also limit our ability to utilize our trained engineers and experts on customer projects in the european union . the company continues to make plans to mitigate the departure from the european union . the company established a company , coda octopus products a/s , in denmark to maintain a presence in the european union and to address some of the foreseeable issues . however , we can give no assurance that this in itself would be sufficient to address the impact of both a no deal brexit and a no deal brexit . 22 b. currency risks : the company 's operations are split between the united states , united kingdom , australia , and denmark . story_separator_special_tag the preparation of financial statements in conformity with us gaap requires our management to make estimates and assumptions that affect the reported values of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported levels of revenue and expenses during the reporting period . actual results could materially differ from those estimates . below is a discussion of accounting policies that we consider critical to an understanding of our financial condition and operating results and that may require complex judgment in their application or require estimates about matters which are inherently uncertain . a discussion of our significant accounting policies , including further discussion of the accounting policies described below , can be found in note 2 , “ summary of accounting policies ” of our consolidated financial statements . revenue recognition all of our revenues are earned under formal contracts with our customers and are derived from both sales and rental of underwater technologies and equipment for imaging , mapping , defense and survey applications and from the engineering services that we provide . our contracts do not include the possibility for additional contingent consideration so that our determination of the contract price does not involve having to consider potential variable additional consideration . our product sales do not include a right of return by the customer . with regard to our products segment , all of our products are sold on a stand-alone basis and those market prices are evidence of the value of the products . to the extent that we also provide services ( e.g. , installation , training , etc . ) , those services are either included as part of the product or are subject to written contracts based on the stand-alone value of those services . revenue from the sale of services is recognized when those services have been provided to the customer and evidence of the provision of those services exist . for further discussion of our revenue recognition accounting policies , refer to note 2 – “ revenue recognition ” in these financial statements 24 stock based compensation we recognize the expense related to the fair value of stock based compensation awards within the consolidated statements of income and comprehensive income . 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 periods in which the related services are rendered . income taxes the company accounts for income taxes in accordance with accounting standards codification topic 740 , income taxes ( asc 740 ) . under asc 740 , deferred income tax assets and liabilities are recorded for the income tax effects of differences between the bases of assets and liabilities for financial reporting purposes and their bases for income tax reporting . the company 's differences arise principally from the use of various accelerated and modified accelerated cost recovery system lives for income tax purposes versus straight line depreciation used for book purposes and from the utilization of net operating loss carry-forwards . deferred tax assets and liabilities are the amounts by which the company 's future income taxes are expected to be impacted by these differences as they reverse . deferred tax assets are based on differences that are expected to decrease future income taxes as they reverse . correspondingly , deferred tax liabilities are based on differences that are expected to increase future income taxes as they reverse . note 7 to the consolidated financial statements discusses the amounts of deferred tax assets and liabilities , and also presents the impact of significant differences between financial reporting income and taxable income . 25 for income tax purposes , the company uses the percentage of completion method of recognizing revenues on long-term contracts which is consistent with the company 's financial reporting under u.s. gaap . intangible assets intangible assets consist principally of the excess of cost over the fair value of net assets acquired ( i.e . goodwill ) , customer relationships , non-compete agreements and licenses . goodwill was allocated to our reporting units based on the original purchase price allocation . goodwill is not amortized and is evaluated for impairment annually or more often if circumstances indicate impairment may exist . customer relationships , non-compete agreements , patents and licenses are being amortized on a straight-line basis over periods of 2 to 15 years . the company amortizes its limited lived intangible assets using the straight-line method over their estimated period of benefit . we periodically evaluate the recoverability of intangible assets and take into account events or circumstances that warrant revised estimates of useful lives or that indicate that impairment exists . the first step of the goodwill impairment test used to identify potential impairment compares the fair value of the reporting unit with its ' carrying amount , including goodwill . if the fair value , which is based on future cash flows , exceeds the carrying amount , goodwill is not considered impaired . if the carrying amount exceeds the fair value , the second step must be performed to measure the amount of the impairment loss , if any . the company will early adopt accounting standards codification 2017 – 04 , simplifying the test for goodwill impairment , which permits the company to impair the difference between carrying amount in excess of the fair value of the reporting unit as the reduction in goodwill . asc 2017-04 eliminates the requirement in previous gaap to perform step 2 of the goodwill impairment test . at the end of each year , we evaluate goodwill on a separate reporting unit basis to assess recoverability , and impairments , if any , are recognized in earnings . an impairment loss would be recognized in an amount equal to the excess of the carrying amount of the goodwill over the fair value of the reporting unit .
| fiscal year 2019 consolidated results of operations during the fiscal year ended october 31 , 2019 , the marine technology business generated 52 % of our consolidated revenues compared to 64 % in the previous fiscal year and , similarly , the marine engineering business generated 48 % compared to 36 % in the previous fiscal year respectively . overall , consolidated revenues in the 2019 fiscal year were up by 39.1 % ; gross profit was up by 29.7 % ; total operating expenses was up by 7.0 % ; income from operations was up by 94.1 % ; net income before taxes was up by 106.5 % . there were no material exceptional costs or financial events in the 2019 fiscal year , except that in fiscal year 2019 , we recorded a tax expense of $ 1,007,354 compared to a tax benefit of $ 1,754,169 in the 2018 fiscal year . in the fiscal year 2019 , r & d expenditures increased by 8.9 % and sg & a by 8.8 % . we believe we have reached the pinnacle of our investments in r & d in our 4 th and 5 th generations of our products and as such in 2020 , we would expect to maintain r & d at approximately the same 2019 levels . the only exceptional expenses we anticipate will be in the investments we need to make to transition the production of the navy head up display ( hud ) product production to the orlando office and incubating our embedded solutions division which we see as an investment in future growth of the company . under the terms of the exclusive license which is being negotiated with naval surface warfare center panama division to practice the invention pertaining to the hud face plate , the company must transfer such manufacturing within 12 months of grant of the exclusive license . we anticipate an investment of around $ 500,000 in the 2020 period to achieve the transfer .
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the majority of the company 's contracts include multiple story_separator_special_tag story_separator_special_tag style= '' margin-bottom:0pt ; margin-top:0pt ; text-indent:0 % ; font-family : times new roman ; font-size:10pt ; '' > as part of the coca‑cola company 's plans to refranchise its north american bottling territories , the company completed a series of transactions from april 2013 to october 2017 with the coca‑cola company , coca‑cola refreshments usa , inc. ( “ ccr ” ) , a wholly-owned subsidiary of the coca‑cola company , and coca‑cola bottling company united , inc. ( “ united ” ) , an independent bottler that is unrelated to the company , to significantly expand the company 's distribution and manufacturing operations ( the “ system transformation ” ) . the system transformation included the acquisition and exchange of rights to serve distribution territories and related distribution assets , as well as the acquisition and exchange of regional manufacturing facilities and related manufacturing assets . a summary of the system transformation transactions ( the “ system transformation transactions ” ) completed by the company is included in the company 's annual report on form 10-k for 2017. the cash purchase prices or settlement amounts for all system transformation transactions have been resolved according to the terms of the applicable asset purchase agreement or asset exchange agreement for such transactions . the post-closing adjustments made during 2018 resulted in a $ 10.2 million net adjustment to the gain on exchange transactions in the consolidated statements of operations . the financial results of the system transformation transactions have been included in the company 's consolidated financial statements from their respective acquisition or exchange dates . net sales and income from operations for certain territories and regional manufacturing facilities acquired and divested by the company during 2017 are impracticable to separately calculate , as the operations were absorbed into territories and facilities owned by the company prior to the system transformation , and therefore have been omitted from the results below . omission of net sales and income from operations for such territories and facilities is not material to the results presented below . the remaining system transformation transactions that closed during 2017 ( the “ 2017 system transformation transactions ” ) contributed the following amounts to the company 's consolidated statements of operations : replace_table_token_5_th see note 4 to the consolidated financial statements for additional information on the october 2017 divestitures . net sales by product category the company 's net sales in the last three fiscal years by product category were as follows : replace_table_token_6_th the company has revised the presentation of net sales related to the consideration paid to customers under certain contractual arrangements for exclusive distribution rights and sponsorship privileges , which were historically presented as sd & a expense . 27 areas of emphasis key priorities for the company include acquisition synergies and cost optimization , revenue management , free cash flow generation and debt repayment , distribution network optimization and cost management . acquisition synergies and cost optimization : the company completed its final acquisitions of distribution territories and regional manufacturing facilities as part of the system transformation transactions in october 2017. as the company continues to integrate these new territories and facilities into its operations , the company remains focused on synergy and cost optimization opportunities across its business , including opportunities across its manufacturing network , distribution network and back office functions . the company anticipates identifying , investing against and executing these synergy and cost optimization opportunities will be a key driver of its results of operations . revenue management : revenue management requires a strategy that reflects consideration for pricing of brands and packages within product categories and channels , highly effective working relationships with customers and disciplined fact-based decision-making . pricing decisions are made considering a variety of factors , including brand strength , competitive environment , input costs and other market conditions . revenue management has been and continues to be a key driver which has a significant impact on the company 's results of operations . free cash flow generation and debt repayment : upon completion of the company 's system transformation , the company 's debt balance grew to over $ 1.1 billion . generating free cash flow and reducing its debt balance will be a key focus for the company . the company has several initiatives in place to optimize free cash flow , improve profitability and prudently manage its capital expenditures in order to generate strong free cash flow and reduce its financial leverage . distribution network optimization and cost management : distribution costs represent the costs of transporting finished goods from company locations to customer outlets . total distribution costs , including warehouse costs , were $ 610.7 million in 2018 , $ 550.9 million in 2017 and $ 395.4 million in 2016. management of these costs will continue to be a key area of emphasis for the company . the company believes that optimizing its expanded distribution footprint after the system transformation will be a key area of focus in the short-term in order to manage this significant cost to its business . items impacting operations and financial condition the following items affect the comparability of the financial results presented below : 2018 $ 1.19 billion in net sales and $ 25.5 million of income from operations related to the distribution territories and the regional manufacturing facilities acquired in 2017 ; $ 43.3 million of expenses related to the system transformation ; $ 28.8 million recorded in other expense , net as a result of an unfavorable fair value adjustment to the company 's contingent consideration liability related to the distribution territories acquired as part of the system transformation ; $ 14.7 million pretax unfavorable mark-to-market adjustments related to the company 's commodity hedging program; $ 10.2 million net adjustment to the gain on exchange transactions as a result of final post-closing adjustments for the 2017 system transformation transactions ; and $ 8.6 million recorded in sd & a expenses related to severance and outplacement expenses incurred to optimize labor expense . story_separator_special_tag 30 cost of sales increased $ 286.9 million , or 10.3 % , to $ 3.07 billion in 2018 , as compared to $ 2.78 billion in 2017. the increase in cost of sales was primarily attributable to the following ( in millions ) : 2018 attributable to : $ 153.4 increase in cost of sales primarily related to , in order of magnitude , increased commodities costs , a change in product mix to meet consumer preferences , higher costs in the territories acquired in the system transformation and higher transportation costs 100.5 increase in cost of sales related to increased volume , primarily related to the 2017 system transformation transactions 26.7 increase in costs related to increased volume of external freight revenue to external customers ( other than nonalcoholic beverages ) 6.3 increase in sales volume to other coca-cola bottlers $ 286.9 total increase in cost of sales the company relies extensively on advertising and sales promotion in the marketing of its products . the coca‑cola company and other beverage companies that supply concentrates , syrups and finished products to the company make substantial marketing and advertising expenditures to promote sales in the company 's territories . certain of the marketing expenditures by the coca‑cola company and other beverage companies are made pursuant to annual arrangements . the company also benefits from national advertising programs conducted by the coca‑cola company and other beverage companies . total marketing funding support from the coca‑cola company and other beverage companies , which includes both direct payments to the company and payments to customers for marketing programs , was $ 128.4 million in 2018 , as compared to $ 120.1 million in 2017. the company 's cost of sales may not be comparable to other peer companies , as some peer companies include all costs related to their distribution network in cost of sales . the company includes a portion of these costs in sd & a expenses , as described below . sd & a expenses sd & a expenses include the following : sales management labor costs , distribution costs resulting from transporting product from distribution centers to customer locations , distribution center overhead including depreciation expense , distribution center warehousing costs , delivery vehicles and cold drink equipment , point-of-sale expenses , advertising expenses , cold drink equipment repair costs , amortization of intangibles and administrative support labor and operating costs . sd & a expenses increased by $ 94.5 million , or 6.7 % , to $ 1.50 billion in 2018 , as compared to $ 1.40 billion in 2017. sd & a expenses as a percentage of sales decreased to 32.4 % in 2018 from 32.7 % in 2017. the increase in sd & a expenses was primarily attributable to the following ( in millions ) : 2018 attributable to : $ 35.1 increase in employee salaries including bonuses and incentives due to additional personnel added in the system transformation and normal salary increases 14.6 increase in software expenses primarily due to the implementation of the company 's integrated cona information systems platform 9.8 increase in fuel costs related to the movement of finished goods from distribution centers to customer locations primarily as a result of territories acquired in the system transformation 8.6 severance and outplacement expenses incurred to optimize labor expense in the nonalcoholic beverages segment 6.9 increase in depreciation and amortization of property , plant and equipment primarily due to depreciation for vending equipment , fleet , furniture and fixtures acquired in the system transformation 6.6 increase in employee benefit costs primarily due to additional group insurance expense , 401 ( k ) employer matching contributions and bargaining pension plan expense for employees added in the system transformation 12.9 other individually immaterial expense increases $ 94.5 total increase in sd & a expenses in 2018 , the company incurred $ 8.6 million for severance and outplacement expenses relating to the optimization of its labor expense . the company believes these expenses , which were recorded in the nonalcoholic beverages segment , will result in annual incremental cost savings of approximately $ 30 million to $ 37 million . the company has three primary delivery systems : ( i ) bulk delivery for large supermarkets , mass merchandisers and club stores , ( ii ) advanced sale delivery for convenience stores , drug stores , small supermarkets and on-premises accounts and ( iii ) full service delivery for its full-service vending customers . shipping and handling costs related to the movement of finished goods from manufacturing locations to distribution centers are included in cost of sales . shipping and handling costs related to the movement of 31 finished goods from distribution centers to customer locations , including distribution center warehousing costs , are included in sd & a expenses and totaled $ 610.7 million in 2018 and $ 550.9 million in 2017. as a result of the company adopting accounting standards update ( “ asu ” ) 2017-07 , “ improving the presentation of net periodic pension cost and net periodic postretirement benefit cost ” ( “ asu 2017-07 ” ) issued by the financial accounting standards board ( the “ fasb ” ) in march 2017 , the company reclassified $ 5.4 million from 2017 of non-service cost components of net periodic benefit cost from sd & a expenses to other expense , net . the non-service cost component of net periodic benefit cost is included in the nonalcoholic beverages segment . interest expense , net interest expense , net , increased $ 8.6 million , or 20.6 % , to $ 50.5 million in 2018 , as compared to $ 41.9 million in 2017. the increase was primarily a result of higher average debt in 2018 compared to 2017 due to additional borrowings throughout 2017 to finance system transformation transactions and rising interest rates .
| financial condition and results of operations the following management 's discussion and analysis of financial condition and results of operations of coca‑cola consolidated , inc. ( the “ company ” ) should be read in conjunction with the consolidated financial statements of the company and the accompanying notes to the consolidated financial statements . the company 's fiscal year generally ends on the sunday closest to december 31 of each year . the fiscal years presented are the 52‑week periods ended december 30 , 2018 ( “ 2018 ” ) , december 31 , 2017 ( “ 2017 ” ) and january 1 , 2017 ( “ 2016 ” ) . the consolidated financial statements include the consolidated operations of the company and its majority-owned subsidiaries including piedmont coca-cola bottling partnership ( “ piedmont ” ) , the company 's only subsidiary that has a significant noncontrolling interest . piedmont distributes and markets nonalcoholic beverages in portions of north carolina and south carolina . the company provides a portion of these nonalcoholic beverage products to piedmont at cost and receives a fee for managing the operations of piedmont pursuant to a management agreement . noncontrolling interest consists of the coca‑cola company 's interest in piedmont , which was 22.7 % for all periods presented . the company manages its business on the basis of four operating segments . nonalcoholic beverages represents the vast majority of the company 's consolidated revenues and income from operations . the additional three operating segments do not meet the quantitative thresholds for separate reporting , either individually or in the aggregate , and therefore have been combined into “ all other. ” executive summary net sales grew 1.7 % in the fourth quarter of 2018 versus the fourth quarter of 2017. net sales growth in 2018 was 7.9 % versus 2017 , reflecting full year physical case volume growth of 4.3 % .
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overview groupon operates online local commerce marketplaces throughout the world that connect merchants to consumers by offering goods and services at a discount . traditionally , local merchants have tried to reach consumers and generate sales through a variety of methods , including online advertising , the yellow pages , direct mail , newspaper , radio , television , and promotions . by bringing the brick and mortar world of local commerce onto the internet , groupon is helping local merchants to attract customers and sell goods and services . we provide consumers with savings and help them discover what to do , eat , see , buy and where to travel . current and potential customers are able to access our deal offerings directly through our websites and mobile applications . we also send emails to our subscribers each day with deal offerings that are targeted by location and personal preferences . we offer deals in three primary categories : local deals ( `` local '' ) , groupon goods ( `` goods '' ) and groupon getaways ( `` travel '' ) . in our goods category , through which we offer deals on merchandise , we often act as the merchant of record , particularly for deals in north america and for deals in emea beginning in september 2013. our revenue from deals where we act as the third party marketing agent is the purchase price paid by the customer for a groupon voucher ( `` groupon '' ) less an agreed upon portion of the purchase price paid to the featured merchants , excluding applicable taxes and net of estimated refunds for which the merchant 's share is recoverable . our direct revenue from deals where we act as the merchant of record is the purchase price paid by the customer excluding applicable taxes and net of estimated refunds . we generated revenue of $ 2,573.7 million during the year ended december 31 , 2013 , as compared to $ 2,334.5 million during the year ended december 31 , 2012. our operations are organized into three principal segments : north america , emea , which is comprised of europe , middle east and africa , and the remainder of the company 's international operations ( `` rest of world '' ) . during the second quarter of 2013 , the company changed the composition of its operating segments to separate its former international segment between emea and rest of world . see note 15 `` segment information `` for further information . for the year ended december 31 , 2013 , we derived 59.1 % of our revenue from our north america segment , 28.9 % of our revenue from our emea segment and 12.0 % of our revenue from our rest of world segment . we have an accumulated deficit of $ 848.9 million as of december 31 , 2013 . since our inception , we have driven our growth through substantial investments in infrastructure and marketing to increase subscriber acquisition . in particular , our significant net losses in previous years were driven in part by the rapid expansion of our emea and rest of world segments , which involved investing heavily in upfront marketing , sales and infrastructure related to the build out of our operations in early stage countries . on january 2 , 2014 , we acquired livingsocial korea , inc. , including its subsidiary ticket monster inc. ( `` ticket monster '' ) , for total consideration of $ 100.0 million cash and 13,825,283 shares of class a common stock with an acquisition date fair value of $ 162.9 million . ticket monster is an e-commerce company based in the republic of korea that connects merchants to consumers by offering goods and services at a discount . the operations of ticket monster will be reported within our rest of world segment beginning in 2014. on january 13 , 2014 , we acquired ideeli , inc. ( `` ideeli '' ) , a fashion flash site based in the united states . ideeli is focused on women 's fashion apparel , accessories and home décor , and the operations of ideeli will be reported within our north america segment beginning in 2014. we expect that these acquisitions will increase both our revenue and net loss in 2014. we expect to incur incremental costs related to the consolidation of our existing korean operations with ticket monster in the first quarter 2014. additionally , we plan to increase marketing expenditures in the near term for ticket monster and ideeli in connection with our efforts to drive growth in those operations . how we measure our business we measure our business with several financial and operating metrics . we use these metrics to assess the progress of our business , make decisions on where to allocate capital , time and technology investments and assess the long-term performance of our marketplaces . certain of the financial metrics are reported in accordance with u.s. generally accepted accounting principles 32 ( `` u.s. gaap '' ) and certain of these metrics are considered non-gaap financial measures . as our business evolves , we may make changes to our key financial and operating metrics used to measure our business in future periods . for further information and a reconciliation to the most applicable financial measure under u.s. gaap , refer to our discussion under non-gaap financial measures in the `` results of operations `` section . financial metrics gross billings . this metric represents the total dollar value of customer purchases of goods and services , excluding applicable taxes and net of estimated refunds . for third party revenue deals , gross billings differs from third party revenue reported in our consolidated statements of operations , which is presented net of the merchant 's share of the transaction price . for direct revenue deals , gross billings are equivalent to direct revenue reported in our consolidated statements of operations . story_separator_special_tag although we believe total gross billings , not trailing twelve months gross billings per average active customer , is a better indication of the overall growth of our marketplaces over time , trailing twelve months gross billings per average active customer provides an opportunity to evaluate whether our growth is primarily driven by growth in total customers or in spend per customer in any given period . units . this metric represents the number of vouchers and products purchased from us by our customers , before refunds and cancellations . we consider unit growth to be an important indicator of the total volume of business conducted through our marketplaces . our active customers and gross billings per average active customer for the trailing twelve months ( `` ttm '' ) ended december 31 , 2013 , 2012 and 2011 were as follows : replace_table_token_7_th our units for the years ended december 31 , 2013 , 2012 and 2011 were as follows : replace_table_token_8_th factors affecting our performance deal sourcing and quality . we consider our merchant relationships to be a vital part of our business model and have made significant investments in order to expand the variety of tools that we can provide to our merchants . we depend on our 34 ability to attract and retain merchants that are prepared to offer products or services on compelling terms , particularly as we attempt to expand our product and service offerings in order to create more complete online marketplaces for local commerce . in north america and many of our foreign markets , we offer deals in which the merchant has a continuous presence on our websites and mobile applications by offering vouchers on an ongoing basis for an extended period of time . currently , a substantial majority of our merchants in north america elect to offer deals in this manner , and we expect that trend to continue . these marketplaces , which we refer to as `` pull , '' enable customers to search for specific types of deals ( e.g. , steakhouse , pizza , massage , nail salon , golf lessons , yoga ) on our websites and mobile applications . however , merchants have the ability to withdraw their extended deal offerings and we generally do not have noncancelable long-term arrangements to guarantee availability of deals . in order to attract merchants that may not have run deals on our platform or would have run deals on a competing platform , we are periodically willing to accept lower deal margins across all three of our segments . this has contributed to lower deal margins during the year ended december 31 , 2013 , as compared to the prior year periods . if new merchants do not find our marketing and promotional services effective , or if our existing merchants do not believe that utilizing our services provides them with a long-term increase in customers , revenue or profit , they may stop making offers through our marketplaces or they may only continue offering deals if we accept lower margins . international operations . our international operations are critical to our revenue growth and our ability to achieve and maintain profitability . for the years ended december 31 , 2013 , 2012 and 2011 , 28.9 % , 34.5 % and 44.7 % of our revenue was generated from our emea segment , respectively , and 12.0 % , 15.6 % and 15.9 % of our revenue was generated from our rest of world segment , respectively . with the acquisition of ticket monster on january 2 , 2014 , we expect the percentage of revenue generated by our rest of world segment to increase in future periods . operating a global business requires management attention and resources and requires us to localize our services to conform to a wide variety of local cultures , business practices , laws and regulations . the different commercial and regulatory environments in other countries may make it more difficult for us to successfully operate our business . in addition , many of the automation tools that we have implemented in our north america segment are close to being fully implemented in most emea countries but have not yet been substantially rolled out to the countries in our rest of world segment . revenue declined in our emea and rest of world segments for the year ended december 31 , 2013 , as compared to the prior year , which contributed to the reductions in the percentage of our total revenue generated by those segments . additionally , the increase in direct revenue transactions from our groupon goods business in north america contributed to the increase in north america revenue as a percentage of our total revenue during the year ended december 31 , 2013 , as compared to the prior year periods , as direct revenue is presented on a gross basis in our consolidated statements of operations . marketing activities . we must continue to acquire and retain customers in order to increase revenue and achieve profitability . if consumers do not perceive our groupon offerings to be attractive , or if we fail to introduce new or more relevant deals , we may not be able to acquire or retain customers . in addition , as we build out more complete marketplaces , our success will depend on our ability to offer consumers the deals that they are most likely to purchase on our websites , through our mobile applications and through targeted emails . as discussed under `` components of results of operations , '' we consider order discounts , free shipping on merchandise sales and reducing margins on our deals to be marketing-related activities , even though these activities are not presented as marketing expenses in our consolidated statements of operations . we have , and expect to continue to , reduce our deal margins when we believe that by doing so we can offer our customers a product or service from a merchant who might not have otherwise been willing to conduct business through our marketplaces .
| results of operations comparison of the years ended december 31 , 2012 and 2011 : replace_table_token_26_th 55 classification of stock-based compensation within cost of revenue and operating expenses cost of revenue and operating expenses included stock-based compensation as follows : replace_table_token_27_th foreign exchange rate neutral operating results the effect on our gross billings , revenue , cost of revenue and operating expenses , and income from operations for the year ended december 31 , 2012 from changes in exchange rates versus the u.s. dollar was as follows : replace_table_token_28_th ( 1 ) represents the financial statement balances that would have resulted had exchange rates in the reporting period been the same as those in effect in the comparable prior year period . ( 2 ) represents the increase or decrease in reported amounts resulting from changes in exchange rates from those in effect in the comparable prior year period . gross billings gross billings represents the total dollar value of customer purchases of goods and services , excluding applicable taxes and net of estimated refunds . gross billings for the years ended december 31 , 2012 and 2011 were as follows : replace_table_token_29_th 56 for third party revenue deals , gross billings differs from third party revenue reported in our consolidated statements of operations , which is presented net of the merchant 's share of the transaction price . for direct revenue deals and other revenue , gross billings are equivalent to direct revenue and other revenue reported in our consolidated statements of operations .
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the percentage of the warrants exercisable upon full or partial redemption of the note is equal to a percentage of the original principal amount redeemed at such time . therefore , as the principal balance of the convertible note was fully converted during the year , the number of warrants exercisable as of december 31 , 2020 is zero . ppp term note december 31 , 2020 2019 long-term debt $ 1,411,000 $ — less : current portion ( 1,411,000 ) — long-term debt , net of current portion $ — $ — on april 14 , 2020 , the company entered into a paycheck protection program term note ( “ ppp note ” ) with pnc bank , n.a . under the paycheck protection program of the coronavirus aid , relief , and economic security act ( `` cares act `` ) . the company received total proceeds of $ 1.4 million from the ppp note , which was due on april 13 , 2022. in accordance with the requirements of the cares act , the company used the proceeds primarily for payroll costs . interest accrues on the ppp note at the rate of 1.0 % per annum . in october 2020 , the company applied for forgiveness of the amount due on the ppp note . on january 15 , 2021 , the outstanding principal and interest accrued on the note was fully forgiven and the full amount of the note is classified as current at december 31 , 2020 on the consolidated balance sheets . the company elected to account for the ppp term note as debt and will accrue interest over the term of the note . during the year ended december 31 , 2020 , the company did not make any repayments on any amount due on the note . 7. mandatorily redeemable series b preferred stock on june 5 , 2019 , the company closed agreements for the sale of 1,250,000 units consisting of one share of series b preferred stock ( the “ preferred stock ” ) , with a stated value of $ 20.00 per share ( the “ stated value ” ) and a common stock purchase warrant to purchase 7.41 shares of the common stock ( the “ warrants ” ) for an aggregate purchase price of $ 25.0 million . the preferred stock was not convertible and did not have voting rights . the preferred stock ranked senior to the company 's common stock with respect to dividend rights and rights upon liquidation , winding-up or dissolution . the preferred stock was entitled to annual dividends at a rate equal to 8.0 % per annum on the stated value . the warrants had an exercise price of $ 1.62 per share and expired seven years from the date of issuance . accrued dividends were payable quarterly in shares of common stock of the company based on a fixed share price of $ 1.62 . during the years ended december 31 , 2020 and december 31 , 2019 , the company issued 0.9 million and 0.7 million shares of common stock to the holders of the preferred stock , respectively . as the preferred stock was mandatorily redeemable , it was classified as a liability on the consolidated balance sheets . all dividends payable on the preferred stock were classified as interest expense . the preferred stock and warrants were considered freestanding financial instruments and were accounted for separately . the warrants were considered equity instruments and not marked-to-market at each reporting period . on the date of issuance , the value of the warrants was $ 6.7 million , which was determined using the black-scholes valuation model . the fair value of the warrants was recorded as an increase to additional paid-in capital and a discount of the preferred stock . the discount was amortized to interest expense using the effective interest method . amortization of the discount was $ 1.1 million and $ 0.9 million for the years ended december story_separator_special_tag the following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes that appear elsewhere in this annual report on form 10-k. story_separator_special_tag 9.99 % of diamondpeak following the closing of the merger . the agreement also defined the royalty advance as approximately $ 4.8 million , which is recorded in other income in the consolidated statements of operations for the year ended december 31 , 2020. on october 23 , 2020 , diamondpeak announced the completion of its merger with lmc and on october 26 , 2020 , the lmc shares of class a common stock began trading on the nasdaq global select market under the ticker symbol “ ride. ” the company obtained approximately 16.5 million shares of class a common stock in connection with the lmc merger , which were valued at $ 20.06 per share as of december 31 , 2020. the change in fair value of the investment is recorded in other income on the consolidated statements of operations for the year ended december 31 , 2020. the company will record an adjustment to the fair value of its investment in lmc each quarter based on the closing price per share as of the last day of each quarter . 26 results of operations our consolidated statements of operations financial information is as follows : replace_table_token_3_th revenue net sales for the years ended december 31 , 2020 and 2019 were $ 1.4 million and $ 0.4 million , respectively . the increase in net sales was primarily due to an increase in volume related to our initial production of the c-series electric delivery truck . cost of sales cost of sales for the years ended december 31 , 2020 and 2019 were $ 13.1 million and $ 5.8 million , respectively . story_separator_special_tag summary of cash flows replace_table_token_5_th cash flows from operating activities our cash flows from operating activities are affected by our cash investments to support the business in research and development , manufacturing , selling , general and administration . our operating cash flows are also affected by our working capital needs to support fluctuations in inventory , personnel expenses , accounts payable and other current assets and liabilities . during the years ended december 31 , 2020 and 2019 , cash used in operating activities was $ 70.3 million and $ 36.9 million , respectively . the increase in net cash used in operations in 2020 as compared to 2019 was primarily attributable to spend related to our ramp-up of the c-series , including contract labor , employee-related costs , and inventory build . cash flows from investing activities during the years ended december 31 , 2020 and 2019 , cash ( used in ) provided by investing activities was $ ( 5.7 ) million and $ 1.7 million , respectively . capital expenditures for the company increased by $ 3.7 million during the year , which was offset by net proceeds of approximately $ 3.7 million received in 2019 from the divestiture of surefly . cash flows from financing activities during the years ended december 31 , 2020 and 2019 , net cash provided by financing activities was $ 292.4 million and $ 58.6 million , respectively . the significant financing activities that occurred in 2020 and 2019 include : 2020 issuance of convertible notes with net proceeds of approximately $ 262.4 million . exercise of stock options and warrants with net proceeds of approximately $ 53.6 million . $ 1.4 million of net proceeds from the paycheck protection plan term note . 29 $ 25.0 million for the redemption of the mandatorily redeemable series b preferred stock . 2019 issuance of convertible note with net proceeds of $ 39.0 million . issuance of series b preferred stock with net proceeds of $ 25.0 million . sale of common stock with net proceeds of $ 5.9 million . $ 5.8 million drawn on the marathon tranche two loan , paid off at the end of 2019 . $ 10.0 million for the redemption of the marathon tranche one loan . the company may seek to raise additional capital through public or private debt or equity financings in order to fund its operations . off-balance sheet arrangements the company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the company 's financial condition , changes in financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources that are material to investors . critical accounting policies and estimates the following accounting principles and practices of the company are set forth to facilitate the understanding of data presented in the consolidated financial statements : use of estimates the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america requires management to make estimates and assumptions that affect certain reported amounts and disclosures . accordingly , actual results could differ from those estimates . warranty liability we generally offer warranty coverage for our products . we accrue warranty related costs under standard warranty terms and for certain claims outside the contractual obligation period that we choose to pay as accommodations to our customers . as of december 31 , 2020 and 2019 the warranty liability was $ 5.4 million and $ 6.0 million , respectively . provisions for estimated assurance warranties are recorded at the time of sale and are periodically adjusted to reflect actual experience . the amount of warranty liability accrued reflects management 's best estimate of the expected future cost of honoring company obligations under the warranty plans . historically , the cost of fulfilling the company 's warranty obligations has principally involved replacement parts , labor and sometimes travel for any field retrofit campaigns . the company 's estimates are based on historical experience , the extent of pre-production testing , the number of units involved and the extent of features/components included in product models . also , each quarter , the company reviews actual warranty claims experience to determine if there are systemic defects that would require a field campaign . although we believe that the estimates and judgments discussed herein are reasonable , actual results could differ and we may be exposed to increases or decreases in our warranty accrual that could be material . warrant liability we account for certain outstanding common stock warrants as liabilities recorded at fair value which are marked-to-market at the end of each reporting period . as of december 31 , 2020 , there were no outstanding common stock warrants that were required to be marked-to-market . as of december 31 , 2019 the warrant liability was $ 16.3 million . the warrant liability is remeasured at each balance sheet date until the warrants are exercised , expire or there is a change in their terms that changes their classification to an equity instrument . any change in fair value is recognized as an adjustment to current period interest expense . the fair value of the warrants is measured using a black-scholes valuation model which includes various inputs , including the market price of our common stock on the balance sheet date and estimated volatility of our common stock . if factors change and different assumptions are used , the warrant liability and the change in estimated fair value could be 30 materially different . generally , as the market price of our common stock increases , the fair value of the warrant increases , and conversely , as the market price of our common stock decreases , the fair value of the warrant decreases . also , a significant increase in the volatility of the market price of the company 's common stock
| overview and 2020 highlights we are a technology company focused on providing sustainable and cost-effective solutions to the commercial transportation sector . as an american manufacturer , we create all-electric delivery trucks and drone systems , including the technology that optimizes the way these mechanisms operate . we are last-mile delivery 's first purpose-built electric mobility solution and we are currently focused on our core competency of bringing the c-series electric delivery trucks to market and fulfilling our existing backlog of orders . workhorse electric delivery trucks are in use by our customers on daily routes across the united states . our delivery customers include companies such as alpha baking , fedex express , fluid market , inc. , pride group enterprises , pritchard , ryder , ups and w.b . mason . data from our in-house developed telematics system demonstrates our vehicles on the road are averaging approximately a 500 % increase in fuel economy as compared to conventional gasoline-based trucks of the same size and duty cycle . in addition to improved fuel economy , we anticipate the performance of our vehicles will reduce long-term vehicle maintenance expense by approximately 60 % as compared to fossil-fueled trucks . over a 20-year vehicle life , we estimate our c-series delivery trucks will save over $ 170,000 in fuel and maintenance savings . we expect fleet operators will be able to achieve a three-year or better total cost of ownership break-even without government incentives . our goal is to continue to increase sales and production , while executing on our cost-down strategy to a point that will enable us to achieve gross margin profitability of the last-mile delivery truck platform . as a key strategy , we have developed the workhorse c-series platform , which has been accelerated from our previous development efforts . in december 2019 , a novel coronavirus disease ( “ covid-19 ” ) was reported .
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the asu impacts the accounting for equity investments , financial liabilities under the fair value option , and the presentation and disclosure requirements for financial instruments . the company adopted this asu in its first quarter of 2018. the adoption of this asu did not have a material impact on the company 's consolidated financial statements . in august 2016 , the fasb issued asu 2016-15 , classification of certain cash receipts and cash payments ( a consensus of the emerging issues task force ) story_separator_special_tag you should read the following discussion in conjunction with the section titled `` selected consolidated financial data '' and our consolidated financial statements and the related notes included elsewhere in this annual report on form 10-k. in addition to historical information , this discussion contains forward-looking statements that involve risks and uncertainties that could cause our actual results to differ materially from our expectations , as discussed in `` forward-looking statements '' in part i of this annual report on form 10-k. factors that could cause such differences include , but are not limited to , those described in the section titled `` risk factors '' and elsewhere in this annual report on form 10-k. overview we are a pioneer and leading provider of a cloud-based platform delivering security and compliance solutions that enable organizations to identify security risks to their information technology ( it ) infrastructures , help protect their it systems and a pplications from ever-evolving cyber-attacks and achieve compliance with internal policies and external regulations . our cloud solutions address the growing security and compliance complexities and risks that are amplified by the dissolving boundaries between internal and external it infrastructures and web environments , the rapid adoption of cloud computing , containers and serverless it models , and the proliferation of geographically dispersed it assets . our integrated suite of security and compliance solutions delivered on our qualys cloud platform enables our customers to identify and manage their it assets , collect and analyze large amounts of it security data , discover and prioritize vulnerabilities , recommend remediation actions and verify the implementati on of such actions . organizations use our integrated suite of solutions delivered on our qualys cloud platform to cost-effectively obtain a unified view of their it asset inventory as well as security and compliance posture across globally-distributed it infrastructures as our solution offers a single platform for information technology , information security , application security , endpoint , developer security and cloud teams . we were founded and incorporated in december 1999 with a vision of transforming the way organizations secure and protect their it infrastructure and applications and initially launched our first cloud solution , vulnerability management ( vm ) , in 2000. as vm gained acceptance , we introduced additional solutions to help customers manage increasing it security and compliance requirements . today , the suite of solutions that we offer on our cloud platform and refer to as the qualys cloud apps helps our customers protect a range of on-premise assets , endpoints and cloud environments . these solutions and their cloud apps address and include : it security : vulnerability management ( vm ) , threat protection ( tp ) , continuous monitoring ( cm ) , indication of compromise ( ioc ) , certificate assessment ( cra ) ; compliance monitoring : policy compliance ( pc ) , pci compliance ( pci ) , file integrity monitoring ( fim ) , security configuration assessment ( sca ) , security assessment questionnaire ( saq ) ; web application security : web application scanning ( was ) , web application firewall ( waf ) ; global it asset management : asset inventory ( ai ) , cmdb sync ( syn ) , certificate inventory ( cri ) ; and cloud/container security : cloud inventory ( ci ) , cloud security assessment ( csa ) , container security ( cs ) . our vm solutions ( including vm , cm , tp , cloud agent for vm , allocated scanner revenue and qualys private cloud platform ) have provided a substantial majority of our revenues to date , representing 74 % , 74 % and 76 % of total revenues in 2018 , 2017 and 2016 , respectively . we provide our solutions through a software-as-a-service model , primarily with renewable annual subscriptions . these subscriptions require customers to pay a fee in order to access each of our cloud solutions . we generally invoice our customers for the entire subscription amount at the start of the subscription term , and the invoiced amounts are treated as deferred revenues and are recognized ratably over the term of each subscription . we continue to experience significant revenue growth from our existing customers as they renew and purchase additional subscriptions . 43 we market and sell our solutions to enterprises , government entities and small and medium-sized businesses across a broad range of industries , including education , financial services , government , healthcare , insurance , manufacturing , media , retail , technology and utilities . as of december 31 , 2018 , we had over 12,200 customers and active users in more than 130 countries , including a majority of each of the forbes global 100 and fortune 100. in 2018 , 2017 and 2016 , approximately 67 % , 70 % and 71 % , respectively , of our revenues were derived from customers in the united states . we sell our solutions to enterprises and government entities primarily through our field sales force and to small and medium-sized businesses through our inside sales force . we generate a significant portion of sales through our channel partners , including managed service providers , value-added resellers and consulting firms in the united states and internationally . we have had continued revenue growth over the past three years . story_separator_special_tag other expenses include depreciation of data center equipment and physical scanner appliances and computer hardware provided to certain customers as part of their subscriptions , expenses related to the use of third-party data centers , amortization of third-party technology licensing fees , amortization of intangibles related to acquisitions , maintenance support , fees paid to contractors who supplement or support our operations center personnel and overhead allocations . we expect to continue to make capital investments to expand and support our data center operations , which will increase the cost of revenues in absolute dollars . operating expenses research and development research and development expenses consist primarily of personnel expenses , comprised of salaries , benefits , performance-based compensation and stock-based compensation , for our research and development teams . other expenses include third-party contractor fees , amortization of intangibles related to acquisitions and overhead allocations . all research and development costs are expensed as incurred , except for capitalized costs related to new products ' internal-use software development . capitalized costs include salaries , benefits , and stock-based compensation charges for employees that are directly involved in developing its cloud security platform during the planning and post implementation phases of development . capitalized costs related to internally developed software under development are treated as construction in progress until the program , feature or functionality is ready for its intended use , at which time amortization commences . we expect to continue to devote substantial resources to research and development in an effort to continuously improve our existing solutions as well as develop new solutions and capabilities and expect that research and development expenses will increase in absolute dollars . sales and marketing sales and marketing expenses consist primarily of personnel expenses , comprised of salaries , benefits , sales commissions , performance-based compensation and stock-based compensation for our worldwide sales and marketing teams . other expenses include marketing and promotional events , lead-generation marketing programs , public relations , travel , software licenses and overhead allocations . sales commissions cost related to new business and upsells are capitalized as an asset . we amortize the capitalized commission cost as a selling expense on a straight-line basis over a period of five years . we expense sales commissions related to contract renewals . our new sales personnel are typically not immediately productive , and the resulting increase in sales and marketing expenses we incur when we add new personnel may not result in increased revenues if these new sales personnel fail to become productive . the timing of our hiring of sales personnel , or the participation in new marketing events or programs , and the rate at which these generate incremental revenues , may affect our future operating results . we expect to continue to significantly invest in additional sales personnel worldwide and also in more marketing programs to support new solutions on our platform , which will increase sales and marketing expenses in absolute dollars . general and administrative general and administrative expenses consist primarily of personnel expenses , comprised of salaries , benefits , performance-based compensation and stock-based compensation , for our executive , finance and accounting , legal and human resources teams , as well as professional services , insurance , fees , and software licenses . we expect that general and administrative expenses will increase in absolute dollars , as we continue to add personnel and incur professional services to support our growth and compliance with legal requirements . other income ( expense ) , net 46 our other income ( expense ) , net consists primarily of interest and investment income from our short-term and long-term investments ; foreign exchange gains and losses , the majority of which result from fluctuations between the u.s. dollar and the euro , british pound and indian rupee ; losses on disposal of property and equipment ; and impairment of long-lived assets . provision for income taxes we are subject to federal , state and foreign income taxes for jurisdictions in which we operate , and we use estimates in determining our provision for these income taxes and deferred tax assets . earnings from our non-u.s. activities are subject to income taxes in the local countries at rates which were generally similar to the u.s. statutory tax rate . our effective rate differs from the u.s. statutory rate primarily due to excess tax benefits related to stock-based compensation , u.s. federal research and development tax credits , u.s. foreign tax credits , and non-deductible compensation to certain employees . income taxes are accounted for under the asset and liability method . deferred tax assets and liabilities are recognized for the tax impact of timing differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards . deferred tax assets and liabilities are measured using statutory tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period when the statutory rate change is enacted into law . during 2017 , we recognized an expense of $ 10.4 million as a result of re-measuring deferred tax assets and liabilities using the reduced u.s. federal tax rate of 21 % which decreased from 35 % due to the enactment of the 2017 tax act . we assess the likelihood that deferred tax assets will be realized , and we recognize a valuation allowance if it is more likely than not that some portion of the deferred tax assets will not be recognized . this assessment requires judgment as to the likelihood and amounts of future taxable income . our benefit from income taxes in 2018 consists of a tax benefit from excess stock-based compensation deductions , as well as from u.s. federal research and development and foreign tax credits .
| results of operations the following tables set forth selected consolidated statements of operations data for each of the periods presented . replace_table_token_5_th ( 1 ) includes stock-based compensation as follows : 47 replace_table_token_6_th 48 the following table sets forth selected consolidated statements of operations data for each of the periods presented as a percentage of revenues . replace_table_token_7_th comparison of years ended december 31 , 2018 and 2017 revenues year ended december 31 , change 2018 2017 $ % ( in thousands , except percentages ) revenues $ 278,889 $ 230,828 $ 48,061 21 % revenues increased $ 48.1 million in 2018 compared to 2017 due to an increase in the subscriptions from existing customers and new customer subscriptions entered into in 2018. revenues from customers existing at or prior to december 31 , 2017 grew by $ 36.4 million to $ 267.2 million during 2018. subscriptions from new customers added in 2018 contributed $ 11.7 million to the increase in revenues . of the total increase of $ 48.1 million , $ 23.2 million was from customers in the united states and the remaining $ 24.9 million was from customers in foreign countries . we expect revenue growth from existing and new customers to continue . the growth in revenues reflects the continued demand for our solutions . there was no impact to our revenues as a result of adopting accounting standards codification ( `` asc '' ) 606. see in part ii , item 8 of this annual report on form 10-k note 4 , “ revenue from contracts with customers ” .
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the company currently matches the first 50 % of participant contributions limited to 6 % of a participant 's gross story_separator_special_tag the following discussion should be read in conjunction with our consolidated financial statements and related notes and other financial information appearing elsewhere in this form 10-k. in addition to historical information , the following discussion and other parts of this form 10-k contain forward-looking information that involves risks and uncertainties . our actual results could differ materially from those anticipated by this forward-looking information due to the factors discussed under `` risk factors , '' `` forward-looking statements '' and elsewhere in this form 10-k. certain tabular information will not foot due to rounding . overview we are one of the largest distributors of residential and non-residential roofing materials in the united states and canada . we are also a distributor of other building materials , including siding , windows , specialty lumber products and waterproofing systems for residential and nonresidential building exteriors . we purchase products from a large number of manufacturers and then distribute these goods to a customer base consisting of contractors and , to a lesser extent , general contractors , retailers and building material suppliers . we carry up to 10,000 skus through 179 branches in the united states and canada . in fiscal year 2010 , approximately 93 % of our net sales were in the united states . we stock one of the most extensive assortments of high-quality branded products in the industry , enabling us to deliver products to our customers on a timely basis . execution of the operating plan at each of our branches drives our financial results . revenues are impacted by the relative strength of the residential and non-residential roofing markets we serve . we strive for an appropriate mix of residential , non-residential and complementary product sales in all of our regions but allow each of our branches to influence its own marketing plan and mix of products based upon its local market . we differentiate ourselves from the competition by providing customer services , including job site delivery , tapered insulation layouts and design and metal fabrication , and by providing credit . we consider customer relations and our employees ' knowledge of roofing and exterior building materials to be important to our ability to increase customer loyalty and maintain customer satisfaction . we invest significant resources in training our employees in sales techniques , management skills and product knowledge . while we consider these attributes important drivers of our business , we continually pay close attention to controlling operating costs . our growth strategy includes both internal growth ( opening new branches , growing sales with existing customers , adding new customers and introducing new products ) and acquisition growth . our main acquisition strategy is to target market leaders in geographic areas that we presently do not serve . our april 2007 acquisition of north coast commercial roofing systems , inc is an example of this approach . north coast is a leading distributor of commercial roofing systems and related accessories , based in twinsburg , ohio , which had 16 locations in ohio , illinois , indiana , kentucky , michigan , new york , pennsylvania and west virginia at the time of the acquisition . there was minimal branch overlap with our existing operations . we also have acquired smaller companies to supplement branch openings within an existing region . our april 2010 acquisition of louisiana roofing supply , a single location distributor of residential and commercial roofing products located in baton rouge , louisiana , which we integrated into our west end roofing siding and windows region in the southwest , is an example of such an acquisition . general we sell all materials necessary to install , replace and repair residential and non-residential roofs , including : · shingles ; · single-ply roofing ; · metal roofing and accessories ; · modified bitumen ; · built up roofing ; · insulation ; · slate and tile ; · fasteners , coatings and cements ; and · other roofing accessories . we also sell complementary building products such as : · vinyl siding ; · doors , windows and millwork ; · wood and fiber cement siding ; · residential insulation ; and · waterproofing systems . 19 of 63 the following is a summary of our net sales by product group ( in thousands ) for the last three full fiscal years . percentages may not total due to rounding . replace_table_token_5_th we have approximately 40,000 customers , none of which represents more than 1.50 % of our net sales . many of our customers are small to mid-size contractors with relatively limited capital resources . we maintain strict credit approval and review policies , which has helped to keep losses from customer receivables within our expectations . for the seven years prior to 2008 , bad debts averaged approximately 0.3 % of net sales . in 2010 , bad debts were slightly lower than normal levels at 0.2 % of net sales after we experienced increases to 0.4 % and 0.6 % of net sales in 2009 and 2008 , respectively , which were still within our tolerances in consideration of the tougher economic and credit climate . our expenses consist primarily of the cost of products purchased for resale , labor , fleet , occupancy , and selling and administrative expenses . we compete for business and may respond to competitive pressures at times by lowering prices in order to maintain our market share . since 1997 , we have made twenty-two strategic and complementary acquisitions and opened 36 new branches . story_separator_special_tag operating expenses replace_table_token_13_th our operating expenses decreased by $ 23.4 million to $ 301.9 million in 2009 from $ 325.3 million in 2008. the following factors were the leading causes of our lower operating expenses : · savings of $ 7.8 million in payroll and related costs , primarily driven by a lower headcount , lower incentive-based pay , and reductions in overtime , partially offset by less favorable medical claims experience ; · savings of $ 6.9 million in selling expenses , primarily from lower transportation costs resulting from lower fuel prices and the lower sales volumes , partially offset by an increase in credit card fees ; · reductions of $ 2.9 million in various general & administrative expenses , mainly from decreases in workmen 's compensation and auto insurance costs ; · a reduction of $ 2.9 million in the provision for bad debts primarily due to collections of aged receivables ; and · reduced depreciation and amortization expense of $ 3.9 million due to lower amortization of intangible assets and the impact of very low capital expenditures in 2008 ; partially offset by : · an increase of $ 0.9 million in warehouse expenses , mostly due to costs associated with the closing of the six branches . in 2009 , we expensed a total of $ 12.2 million for the amortization of intangible assets recorded under purchase accounting compared to $ 15.0 million in 2008. our operating expenses as a percentage of net sales decreased to 17.4 % in 2009 from 18.2 % in 2008 as we were able to control our variable costs and reduce fixed costs . 24 of 63 interest expense interest expense decreased $ 3.0 million to $ 22.9 million in 2009 from $ 25.9 million in 2008. this decrease was primarily due to a continued pay down of debt and lower average interest rates , which affected the unhedged portion of our variable-rate debt . interest expense would have been $ 8.3 and $ 2.8 million less in 2009 and 2008 , respectively , without the impact of our derivatives . income taxes income tax expense increased to $ 33.9 million in 2009 from $ 28.5 million in 2008. our 2009 effective income tax rate was 39.3 % , compared to our 2008 effective income tax rate of 41.4 % . the rate decrease was primarily due to refunds for prior years ' tax credits and favorable state income tax audit results . we also experienced a reduction in our state income tax rate due to a higher apportionment in states with lower income tax rates . seasonality and quarterly fluctuations in general , sales and net income are highest during our first , third and fourth fiscal quarters , which represent the peak months of construction and reroofing , especially in our branches in the northeastern u.s. and in canada . our sales are substantially lower during the second quarter , when we historically have incurred low net income levels or net losses . we generally experience an increase in inventory , accounts receivable and accounts payable during the third and fourth quarters of the year as a result of the seasonality of our business . our peak borrowing level generally occurs during the third quarter , primarily because accounts payable terms offered by our suppliers typically have due dates in april , may and june , while our peak accounts receivable collections typically occur from june through november . we generally experience a slowing of collections of our accounts receivable during our second quarter , mainly due to the inability of some of our customers to conduct their businesses effectively in inclement weather in certain of our regions . we continue to attempt to collect those receivables , which require payment under our standard terms . we do not provide any concessions to our customers during this quarter of the year . our vendors are also affected by the seasonality in the industry and are more likely to provide seasonal incentives in our second quarter as a result of the lower level of roofing activity . also during the second quarter , we generally experience our lowest availability under our senior secured credit facilities , which are asset-based lending facilities . certain quarterly financial data the following table sets forth certain unaudited quarterly data for the fiscal years 2010 and 2009 which , in the opinion of management , reflect all adjustments ( consisting of normal recurring adjustments ) considered necessary for a fair presentation of this data . results of any one or more quarters are not necessarily indicative of results for an entire fiscal year or of continuing trends . totals may not total due to rounding . replace_table_token_14_th impact of inflation we believe that our results of operations are not materially impacted by moderate changes in the inflation rate . in general , we have been able to pass on price increases from our vendors to our customers in a timely manner . inflation and changing prices did not have a material impact on our operations in 2010 or 2009. however , during the fourth quarter of 2008 , we experienced unusual and frequent price increases in many our products that are derived from petroleum-based raw materials , especially asphalt shingles in our residential roofing products . we estimate that this unusual inflation increased our 2008 sales by approximately 2.1 % and our fourth quarter 2008 sales by approximately 7 % above historical annual inflation for our industry . we further estimate that this caused a temporary increase in our gross margin of approximately 60 basis points for the fourth quarter . we also estimate that this inflation increased our 2008 gross profit by approximately $ 11.5 million , net income by $ 4.7 million and fully diluted earnings per share by $ 0.11 .
| results of operations the following discussion compares our results of operations for 2010 , 2009 and 2008. the following table shows , for the periods indicated , information derived from our consolidated statements of operations expressed as a percentage of net sales for the periods presented . percentages may not total due to rounding . 20 of 63 replace_table_token_6_th 2010 compared to 2009 the following table shows a summary of our results of operations for 2010 and 2009 , broken down by existing markets and acquired markets . replace_table_token_7_th net sales consolidated net sales decreased $ 124.0 million , or 7.2 % , to $ 1,610.0 million in 2010 from $ 1,734.0 million in 2009. existing market sales decreased $ 150.3 million or 8.7 % , while acquired markets contributed $ 26.3 million . we attribute the existing market sales decline primarily to the following factors : · a decrease in re-roofing activity in the areas affected by hurricane ike in 2009 ; and · continued general weakness in residential roofing activities in certain other regions ; partially offset by : · recent growth in non-residential roofing activity in most regions ; and · a recent resurgence of growth in our complementary product sales . we acquired nine branches in 2010 and closed two . we estimate that inflation in our product costs had no material impact on product costs in 2010 compared to 2009 ; however average selling prices were generally lower . we had 253 business days in both 2010 and 2009. net sales by geographical region , excluding acquired branches , grew or ( declined ) as follows : northeast 2.8 % ; mid-atlantic 7.4 % ; southeast ( 10.4 % ) ; southwest ( 32.6 % ) ; midwest ( 9.2 % ) ; west ( 15.2 % ) ; and canada 10.3 % . these variations were primarily caused by short-term factors such as local economic conditions , weather conditions and storm activity .
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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 statements and supplementary data. ” overview we are a clinical-stage immunotherapy company focused on leveraging the power of the body 's innate and adaptive immune responses through toll-like receptor ( “ tlr ” ) stimulation . our current product candidates are being investigated for use in multiple cancer indications , as a vaccine for the prevention of hepatitis b and as a disease modifying therapy for asthma . our lead cancer immunotherapy candidate is sd-101 , a c class cpg tlr9 agonist that was selected for characteristics optimal for treatment of cancer , including high interferon induction . directly injecting sd-101 into a tumor site optimizes its effect by ensuring proximity to tumor-specific antigens . in animal models , sd-101 demonstrated significant anti-tumor effects at both the injected site and at distant sites . we are conducting a clinical program intended to assess potential efficacy of sd-101 in a range of tumors and in combination with a range of treatments , including checkpoint inhibitors and other therapies . heplisav-b tm is our investigational adult hepatitis b vaccine . in march 2016 , we resubmitted our application to market heplisav-b to the fda and in november 2016 the fda issued a complete response letter requesting information regarding several topics , including clarification of specific adverse events of special interest ( aesis ) , a numerical imbalance in a small number of cardiac events in a single study , new analyses of the integrated safety data base across different time periods , and post-marketing commitments . we resubmitted the application in february 2017 and the fda has established august 10 , 2017 as the prescription drug user fee act action date . in order to maintain the ability to pursue heplisav-b through the review period , in january 2017 we enacted a restructuring plan to suspend manufacturing activities , commercial preparations and other longer term investment related to heplisav-b . in addition , we reduced our global workforce by 38 percent and expect to incur restructuring costs related to one-time employee termination benefits , currently estimated to be $ 3.0 million , which will be primarily paid in cash in the first quarter of 2017. if heplisav-b is approved , we plan to use existing stockpiled inventory to support initial commercial demand . azd1419 is being developed by astrazeneca ab ( “ astrazeneca ” ) for the treatment of asthma pursuant to a collaboration and license agreement . astrazeneca initiated a phase 2a trial in 2016. our revenues consist of amounts earned from collaborations , grants and fees from services and licenses . product 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 $ 812.2 million as of december 31 , 2016. 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 , commercial , 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 . since our inception , we have relied primarily on the proceeds from public and private sales of our equity securities , government grants 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 sd-101 , our lead investigational cancer immunotherapeutic product candidate , human clinical trials for our other product candidates and additional applications and advancement of our technology . in order to continue our development activities and if heplisav-b is approved , we will need additional funding or a partnership to enable commercialization . this may occur through strategic alliance and licensing arrangements and or future public or private debt and equity financings . if adequate funds are not available in the future , we may need to delay , reduce the scope of or put on hold one or more development programs while we seek strategic alternatives . 29 critical accounting policies and the use of estimates the accompanying discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements and the related disclosures , which have been prepared in accordance with u.s. generally accepted accounting principles . the preparation of these financial statements requires us to make estimates , assumptions and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the balance sheet dates and the reported amounts of revenues and expenses for the periods presented . on an ongoing basis , we evaluate our estimates , assumptions and judgments described below that have the greatest potential impact on our consolidated financial statements , including those related to revenue recognition , research and development activities and stock-based compensation . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . story_separator_special_tag our determination of the fair value-based measurement of stock options on the date of grant using an option-pricing model is affected by our stock price , as well as assumptions regarding a number of subjective variables . we selected the black-scholes option pricing model as the most appropriate method for determining the estimated fair value-based measurement of our stock options . the black-scholes model requires the use of highly subjective assumptions which determine the fair value-based measurement of stock options . these assumptions include , but are not limited to , our expected stock price volatility over the term of the awards , and projected employee stock option exercise behaviors . in the future , as additional empirical evidence regarding these input estimates becomes available , we may change or refine our approach of deriving these input estimates . these changes could impact our fair value-based measurement of stock options granted in the future . changes in the fair value-based measurement of stock awards could materially impact our operating results . our current estimate of volatility is based on the historical volatility of our stock price . to the extent volatility in our stock price increases in the future , our estimates of the fair value of options granted in the future could increase , thereby increasing stock-based compensation cost recognized in future periods . we derive the expected term assumption primarily based on our historical settlement experience , while giving consideration to options that have not yet completed a full life cycle . stock-based compensation cost is recognized only for awards ultimately expected to vest . our estimate of the forfeiture rate is based primarily on our historical experience . to the extent we revise this estimate in the future , our share-based compensation cost could be materially impacted in the period of revision . recent accounting pronouncements accounting standards update ( “ asu ” ) 2014-09 in may 2014 , the financial accounting standards board ( “ fasb ” ) issued guidance codified in asc 606 , revenue recognition — revenue from contracts with customers , which amends the guidance in former asc 605 , revenue recognition , which provides a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will supersede most current revenue recognition guidance . in july 2015 , the fasb deferred the effective date for annual reporting periods beginning after december 15 , 2017 ( including interim periods within those periods ) , with early application permitted . the fasb issued supplemental adoption guidance and clarification to asu 2014-09 in march 2016 , april 2016 and may 2016 within asu 2016-08 `` revenue from contracts with customers : principal vs. agent considerations , '' asu 2016-10 `` revenue from contracts with customers : identifying performance obligations and licensing , '' and asu 2016-12 `` revenue from contracts with customers : narrow-scope improvements and practical expedients , '' respectively . we are currently evaluating the impact ( if any ) this guidance will have on our consolidated financial statements . we anticipate adoption of asc 606 using the modified retrospective method with a cumulative catch-up adjustment to the opening balance sheet of retained earnings at the effective date , during the first quarter of 2018. the company will continue to review variable consideration , potential disclosures , and the method of adoption in order to complete the evaluation of the impact on the consolidated financial statements . in addition , the company will continue to monitor additional changes , modifications , clarifications or interpretations undertaken by the fasb , which may impact the current conclusions . 31 story_separator_special_tag and related personnel costs increased due to an overall increase in employee headcount in preparation for the anticipated commercial launch of heplisav-b in the united states . outside services increased due to expenses related to sourcing of a debt financing commitment and retention of consultants for administrative and commercial development services for the anticipated commercial launch of heplisav-b . non-cash stock-based compensation increased due to increased annual stock option grants in 2016 and a full year of expense related to 2015 annual option grants recognized in 2016 . 2015 versus 2014 compensation and related personnel costs increased due to an overall increase in employee headcount in preparation for the anticipated commercial launch of heplisav-b in the united states . outside services increased due to the hiring of consultants for administrative and commercial development services . non-cash stock-based compensation increased due to increased annual stock option grants in 2015 and a full year of expense related to 2014 annual option grants recognized in 2015. legal costs decreased as certain ongoing litigation expenses incurred during 2015 were covered under our insurance . facility costs increased due to an increase in rent expense as the portion of our facility in berkeley , california , previously accounted for as a sublease , was occupied by us during 2015 . 33 in terest income , interest expense , other ( expense ) income , net and loss on extinguishment of debt interest income is reported net of amortization of premiums and discounts on marketable securities and realized gains and losses on investments . interest expense for the year ended december 31 , 2015 includes interest expense related to a loan agreement entered into in december 2014. in september 2015 , the debt was fully repaid . other ( expense ) income , net includes gains and losses on foreign currency transactions . in addition , other ( expense ) income , net for the year ended december 31 , 2016 includes expenses related to an unutilized note purchase agreement which was terminated in december 2016. the following is a summary of our interest income and expense , other ( expense ) income , net , and loss on extinguishment of debt ( in thousands , except for percentages ) : replace_table_token_7_th 2016 versus 2015 interest income increased due to a marketable security balance during the year containing higher yielding securities .
| results of operations revenues revenues consist of amounts earned from collaborations , grants and services and license fees . service and license fees include revenues related to research and development and contract manufacturing services , license fees and royalty payments . the following is a summary of our revenues ( in thousands , except for percentages ) : replace_table_token_4_th 2016 versus 2015 collaboration revenue increased due to recognition of $ 7.2 million under the research collaboration and license agreement with astrazeneca for the initiation of a phase 2a trial by astrazeneca in 2016. grant revenue decreased due to expiration of various contracts with the national institute of health in 2015. service and license revenue increased due to revenue received from manufacturing services performed on behalf of a third party . 2015 versus 2014 collaboration revenue decreased due to winding down of work performed for the phase 1 clinical trial for azd1419 , extension of the estimated performance period for the $ 5.4 million payment received from astrazeneca in march 2014 , and expiration of our collaboration agreement with gsk in 2014. grant revenue decreased due to expiration of our national institute of health 's national institute of allergy and infectious diseases ( “ niaid ” ) contracts for adjuvant development in 2014. the overall decrease was partially offset by an increase of service and license revenue due to revenue received from manufacturing services performed on behalf of a third party . we expect our collaboration revenue from existing collaboration agreements to decrease in 2017 as compared to 2016 , as milestones under our existing agreements , related mainly to development and regulatory objectives , are anticipated to occur subsequent to 2017. research and development research and development expense consists primarily of compensation and related personnel costs ( which include benefits , recruitment , travel and supply costs ) , outside services , allocated facility costs and non-cash stock-based compensation .
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words such as “ expects , ” “ anticipates , ” “ targets , ” “ goals , ” “ projects , ” “ would , ” “ could , ” “ intends , ” “ plans , ” “ believes , ” “ seeks , ” “ estimates , ” variations of such words , and similar expressions are intended to identify such forward-looking statements . these forward-looking statements are only predictions and are subject to risks , uncertainties , and assumptions that are difficult to predict . therefore , actual results may differ materially and adversely from those expressed in any forward-looking statements . factors that might cause or contribute to such differences include , but are not limited to , those discussed in this report under the section entitled “ risk factors ” in item 1a of part i and elsewhere , and in other reports we file with the sec , specifically our most recent reports on form 10-q . while forward-looking statements are based on reasonable expectations of our management at the time that they are made , you should not rely on them . we undertake no obligation to revise or update publicly any forward-looking statements for any reason . the following discussion is based upon our consolidated financial statements included elsewhere in this report , which have been prepared in accordance with u.s. generally accepted accounting principles ( “ u.s . gaap ” ) . in the course of operating our business , we routinely make decisions as to the timing of the payment of invoices , the collection of receivables , the manufacturing and shipment of products , the fulfillment of orders , the purchase of supplies , and the building of inventory and spare parts , among other matters . each of these decisions has some impact on the financial results for any given period . in making these decisions , we consider various factors including contractual obligations , customer satisfaction , competition , internal and external financial targets and expectations , and financial planning objectives . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues , expenses , and related disclosure of contingencies . on an ongoing basis , we evaluate our estimates , including those related to sales returns , pricing credits , warranty costs , allowance for doubtful accounts , impairment of long-term assets , especially goodwill and intangible assets , contract manufacturer exposures for carrying and obsolete material charges , assumptions used in the valuation of share-based compensation , and litigation . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . for further information about our critical accounting policies and estimates , see note 2 , summary of significant accounting policies , in notes to consolidated financial statements in item 1 of part i of this annual report on form 10-k , and our “ critical accounting policies and estimates ” section included in this “ management 's discussion and analysis of financial condition and results of operations. ” actual results may differ from these estimates under different assumptions or conditions . to aid in understanding our operating results for the periods covered by this report , we have provided an executive overview and a summary of the business and market environment . these sections should be read in conjunction with the more detailed discussion and analysis of our consolidated financial condition and results of operations in this item 7 , our “ risk factors ” section included in item 1a of part i , and our audited consolidated financial statements and notes included in item 8 of part ii of this report . 29 executive overview in 2010 , we experienced a year-over-year increase in net revenues across all regions and in both the enterprise and service provider markets . these increases reflect growing market demand for networking and security products as our customers expand their networks and the recovering global economy . additionally , while our net revenues grew , we continued to control costs as we invested in our innovation and customer satisfaction initiatives . the following table provides an overview of our key financial metrics for the years ended december 31 , 2010 , and 2009 ( in millions , except per share amounts and percentages ) : replace_table_token_5_th net revenues : our net revenues increased across all three regions , in both the service provider and enterprise markets , in 2010 compared to 2009. these increases were primarily due to increased demand for our most recent product lines , the mx series routers , ex series switches , and srx service gateways , and the improved macroeconomic environment . operating income : our operating income as well as operating margin increased in 2010 compared to 2009 . the increase was , in large part , due to the increase in sales , a change in customer demand that favored higher margin products , and our continued efforts to control expenses and improve efficiencies . additionally , 2009 was impacted by $ 182.3 million in litigation settlement charges . net income attributable to juniper networks and net income per share attributable to juniper networks common stock holders : the increase in net income attributable to juniper networks and net income per share attributable to juniper networks common stockholders in 2010 compared to 2009 is primarily due to the increase in operating income and a non-recurring income tax expense and benefit recorded in 2009 and 2010 , respectively , from changes in the estimate of unrecognized tax benefits related to share-based compensation . these changes were the result of decisions made by the u.s. court of appeals for the ninth circuit in xilinx inc. v. commissioner . story_separator_special_tag which expands our infrastructure product portfolio to include scalable , secure , and highly available wired and wireless infrastructure products . critical accounting policies and estimates the preparation of financial statements and related disclosures in conformity with u.s. gaap requires us to make judgments , assumptions , and estimates that affect the amounts reported in the consolidated financial statements and the accompanying notes . we base our estimates and assumptions on current facts , historical experience , and various other factors that we believe are reasonable under the circumstances , to determine the carrying values of assets and liabilities that are not readily apparent from other sources . note 2 , summary of significant accounting policies , in notes to consolidated financial statements in item 8 of part ii of this annual report on form 10-k , describes the significant accounting policies and methods used in the 31 preparation of the consolidated financial statements . the critical accounting policies described below are significantly affected by critical accounting estimates . such accounting policies require significant judgments , assumptions , and estimates used in the preparation of the consolidated financial statements and actual results could differ materially from the amounts reported based on these policies . to the extent there are material differences between our estimates and the actual results , our future consolidated results of operations may be affected . revenue recognition . revenue is recognized when all of the following criteria have been met : persuasive evidence of an arrangement exists . we generally rely upon sales contracts , or agreements and customer purchase orders , to determine the existence of an arrangement . delivery has occurred . we use shipping terms and related documents or written evidence of customer acceptance , when applicable , to verify delivery or performance . sales price is fixed or determinable . we assess whether the sales price is fixed or determinable based on the payment terms and whether the sales price is subject to refund or adjustment . collectability is reasonably assured . we assess collectability based on the creditworthiness of customer as determined by our credit checks and their payment histories . we record accounts receivable net of allowance for doubtful accounts , estimated customer returns , and pricing credits . we adopted accounting standards update ( “ asu ” ) no . 2009-13 , topic 605 - multiple-deliverable revenue arrangements ( “ asu 2009-13 ” ) and asu no . 2009-14 , topic 985 - certain revenue arrangements that include software elements ( “ asu 2009-14 ” ) on a prospective basis as of the beginning of fiscal 2010 for new and materially modified arrangements originating after december 31 , 2009. under the new standards , we allocate the total arrangement consideration to each separable element of an arrangement based on the relative selling price of each element . arrangement consideration allocated to undelivered elements is deferred until delivery . for fiscal 2010 and future periods , pursuant to the guidance of asu 2009-13 , when a sales arrangement contains multiple elements , and software and non-software components that function together to deliver the tangible products ' essential functionality , we allocate revenue to each element based on a selling price hierarchy . the selling price for a deliverable is based on our vendor-specific objective evidence ( “ vsoe ” ) if available , third-party evidence ( “ tpe ” ) if vsoe is not available , or estimated selling price ( “ esp ” ) if neither vsoe nor tpe is available . we then recognize revenue on each deliverable in accordance with our policies for product and service revenue recognition . vsoe is based on the price charged when the element is sold separately . in determining vsoe , we require that a substantial majority of the selling prices fall within a reasonable range based on historical discounting trends for specific products and services . tpe of selling price is established by evaluating largely interchangeable competitor products or services in stand-alone sales to similarly situated customers . however , as our products contain a significant element of proprietary technology and our solutions offer substantially different features and functionality , the comparable pricing of products with similar functionality typically can not be obtained . additionally , as we are unable to reliably determine what competitors products ' selling prices are on a stand-alone basis , we are not typically able to determine tpe . when determining the best estimate of selling price , we apply management judgment by considering multiple factors including , but not limited to , pricing practices in different geographies and through different sales channels , gross margin objectives , internal costs , competitor pricing strategies , and industry technology lifecycles . for transactions initiated prior to january 1 , 2010 , revenue for arrangements with multiple elements , such as sales of products that include services , is allocated to each element using the residual method based on the vsoe of fair value of the undelivered items pursuant to asc topic 985-605 - software - revenue recognition . under the residual method , the amount of revenue allocated to delivered elements equals the total arrangement consideration less the aggregate fair value of any undelivered elements . if vsoe of fair value of one or more undelivered items does not exist , revenue from the entire arrangement is deferred and recognized at the earlier of ( i ) delivery of those elements or ( ii ) when fair value can be established unless maintenance is the only undelivered element , in which case , the entire arrangement fee is recognized ratably over the contractual support period . as a result of the adoption of asu 2009-13 and asu 2009-14 , net revenue for the year ended december 31 , 2010 , was approximately $ 237 million higher than the net revenue that would have been recorded under the previous 32 accounting rules .
| summary of cash flows in the year ended december 31 , 2010 , cash and cash equivalents increased by $ 207.2 million . this increase was the result of cash generated from our operating activities of $ 812.3 million , partially offset by cash used in our investing and financing activities of $ 532.8 million and $ 72.4 million , respectively . operating activities net cash provided by operating activities was $ 812.3 million , $ 796.1 million , and $ 875.2 million for 2010 , 2009 , and 2008 , respectively . the increase of $ 16.2 million from fiscal 2009 to fiscal 2010 was primarily due to higher net income , partially offset by litigation settlement payments , prepaid taxes , and higher accounts receivable . operating cash flow decreased by $ 79.1 million from fiscal 2008 to fiscal 2009 , primarily due to lower net income , partially offset by increase in other accrued liabilities due to the litigation settlement reached in the fourth quarter of 2009. investing activities net cash used in investing activities was $ 532.8 million , $ 948.3 million , and $ 149.8 million in 2010 , 2009 , and 2008 , respectively . the change between periods was primarily due to the movement of cash between cash and cash equivalents and short- and long-term investments due to our investment strategy . the change from 2009 to 2010 was further impacted by net cash paid for acquisitions in 2010. financing activities net cash used in financing activities was $ 72.4 million , $ 262.2 million , and $ 422.4 million for 2010 , 2009 , and 2008 , respectively . the change between periods was due to an increase in cash used to repurchase our common stock through our stock repurchase programs , which was partially offset by greater cash proceeds from issuance of common stock to employees for each period as the result of the higher stock prices .
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as a result of the decline in 2016 sales as well as our expectation of limited sales of our military intellitube ® product going forward due to new competition for retrofit products for the u.s. navy , coupled with the current cost of procuring components from our suppliers for such products , versus manufacturing them at a low volume , at december 31 , 2016 , we re-evaluated the economics of manufacturing versus purchasing such components from our suppliers . we concluded that we would no longer use the equipment and software previously purchased to conduct this manufacturing and evaluated the carrying value of the equipment and software compared to its fair value and determined that the equipment and software were impaired . accordingly story_separator_special_tag operations the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements ( “ financial statements ” ) and related notes thereto , included in item 8 of this annual report . overview energy focus , inc. and its subsidiary engage in the design , development , manufacturing , marketing , and sale of energy-efficient lighting systems . we operate in a single industry segment , developing and selling our energy-efficient light-emitting diode ( “ led ” ) lighting products into the general commercial , industrial and military maritime markets . our goal is to become a trusted leader in the led lighting retrofit market by replacing fluorescent lamps in institutional buildings and high-intensity discharge ( “ hid ” ) lighting in low-bay and high-bay applications with our innovative , high-quality commercial and military tubular led ( “ tled ” ) products . the led lighting industry has changed dramatically over the past several years due to increasing commoditization and price erosion . we experienced this in our navy business in late 2016 and early 2017 and in our commercial segment , where we once enjoyed significant price premiums for our flicker-free tleds with 10-year warranties , we now have a number of competitors offering similar capabilities at much lower prices . during the year , we reduced the costs of eight legacy product families in order to price our products more competitively . despite these efforts , the pricing of our legacy products remains at the high end of the competitive range and we expect aggressive price erosion and commoditization to continue to be a headwind until our more innovative and differentiated new products ramp in volume . these trends are not unique to energy focus as evidenced by the increasing number of industry peers facing challenges , exiting led lighting , selling assets and even going out of business . in addition to continuous , scheduled cost reductions , our strategy to combat these trends it to move up the value chain , with more differentiated products and solutions , such as our smart lighting roadmap , that offer greater value to our customers . in light of these factors , over this period we have evaluated the continued value of equipment and inventory and implemented restructuring and product development initiatives to reduce costs and streamline operations while continuing to pursue our new product pipeline and revenue growth . during 2016 , the slowdown in demand from u.s. navy resulted in a year-over-year decrease in military maritime sales of 67.7 percent from 2015 to 2016. as a result , we re-evaluated the economics of manufacturing components versus purchasing them for the manufacture of our military intellitube ® product and recorded an impairment loss at year-end for the related equipment and software , and in accordance with accounting principles generally accepted in the united states ( “ u.s . gaap ” ) , we evaluated our 2016 year-end inventory quantities for excess levels and potential obsolescence and charged $ 3.3 million to cost of sales from continuing operations for excess and obsolete inventories . the restructuring initiative implemented in the first quarter of 2017 included a new management team , an organizational consolidation of management functions and a hybrid sales model , combining our existing historical direct sales model with sales agencies to expand our market presence throughout the u.s. we closed our new york , new york , arlington , virginia and rochester , minnesota offices , reduced full-time equivalent headcount by 51 percent and significantly decreased operating expenses from 2016 levels ( a net reduction of $ 8.4 million , which includes $ 1.8 million in offsetting restructuring and impairment charges ) . as of december 31 , 2018 , we expanded our sales coverage to the entire u.s. through six geographic regions and now have 50 sales agencies , each of which has , on average , 10 agents representing energy focus products . during 2017 , we also implemented a strategic sales initiative to sell certain excess inventory that had previously been written-down , as required by u.s. gaap . this initiative resulted in a net reduction of our excess inventory reserves of $ 1.4 million in 2017. in 2018 , we made significant strides in expanding and diversifying our new product portfolio . we introduced six new product families , including our commercial fixture family , our double-ended ballast bypass t8 and t5 high-output tleds , our navy retrofit kit , the invisitube ultra-low emi tled and our dimmable industrial downlight . our new products , including the redcap emergency battery backup tube , introduced in q4 2017 , have gained traction , with sales of new products introduced in the past two years growing from less than one percent of total revenue in q4 2017 to 17 percent in the fourth quarter of 2018 , the highest new product revenue in the last two years . our legacy luminaire product line , including our floods , waterline security lights , globes and berth lights , grew by over 90 percent from 2017 to 2018 and we saw some return of our military intellitube ® sales as we achieved more competitive pricing through our cost reductions . story_separator_special_tag these actions impacted an additional 17 production and administrative employees in our solon location . during 2017 , we recorded restructuring charges totaling approximately $ 1.7 million consisting of approximately $ 0.8 million in severance and related benefits , approximately $ 0.7 million in facilities costs related to the termination of the rochester lease obligations and the remaining lease obligations for the former new york and arlington offices , and $ 0.2 million in other restructuring costs primarily related to fixed asset and prepaid expenses write-offs . during 2018 , we recorded restructuring charges totaling approximately $ 0.1 million , related to the revision of our initial estimates of the costs and offsetting sublease income and accretion expense for the remaining lease obligation for our former new york , new york and arlington , virginia offices . as of december 31 , 2018 , we estimated that we would receive a total of approximately $ 0.7 million in sublease payments to offset our remaining lease obligations , which extend until june 2021 , of approximately $ 1.1 million . we expect to incur insignificant additional costs over the remaining life of our lease obligations . please refer to note 3 , “ restructuring , ” included in item 8 for further information . other expenses interest expense we incurred $ 8 thousand in interest expense in 2018 , primarily related to borrowings under the revolving credit facility we entered into on december 11 , 2018. we incurred $ 2 thousand in interest expense in 2017 related to an insurance premium financing agreement . as a result of settling our long-term debt obligations during the fourth quarter of 2015 , we incurred no interest expense for the year ended december 31 , 2016. other expenses we recognized other expenses of $ 7 thousand in 2018 , compared to other expense of $ 99 thousand in 2017 and other income of $ 18 thousand in 2016 . the expenses in 2018 primarily consisted of the non-cash amortization of fees related to the revolving credit facility we entered into on december 11 , 2018 , partially offset by a net gain on the sale and disposal of fixed assets . the expenses in 2017 and 2016 primarily consisted of losses on the disposal of fixed assets partially offset by interest income on our cash balances . income taxes for the years ended december 31 , 2018 , 2017 , and 2016 , our effective tax rate was ( 0.1 ) percent , 1.0 percent , and ( 0.2 ) percent , respectively . in 2018 , our effective tax rate was lower than the statutory rate due to an increase in the valuation allowance as a result of the $ 8.7 million additional federal net operating loss we recognized for the year . in 2017 , our effective tax rate was lower than the statutory rate due to the remeasurement of our deferred tax assets resulting from the tax cuts and jobs act of 2017 ( the “ act ” ) and a decrease in the valuation allowance . in 2016 , our effective tax rate was lower than the statutory tax rate due primarily due to an increase in the valuation allowance as a result of $ 10.6 million of additional net operating loss we recognized for that year . 29 on december 22 , 2017 , the act was signed into law making significant changes to the internal revenue code . changes include , but are not limited to , a corporate tax rate decrease from 35 percent to 21 percent effective for tax years beginning after december 31 , 2017 , repeal of the corporate alternative minimum tax , elimination of certain deductions , and changes to the carryforward period and utilization of net operating losses generated after december 31 , 2017. we have calculated the impact of the act in our year end income tax provision in accordance with our understanding of the act and guidance available as of the date of this filing . as a result of the act , we have recorded $ 0.1 million as additional income tax benefit in the fourth quarter of 2017 , the period in which the legislation was enacted . this amount related to the release of the valuation allowance on our alternative minimum tax credit carry forward , which is expected to be fully refunded by 2021. we remeasured our deferred tax assets and liabilities , based on the rates at which they are expected to reverse in the future . the impact of the remeasurement was $ 5.9 million of additional tax expense , which was offset by a $ 5.9 million valuation allowance reduction resulting in no net impact to the financial statements . the u.s. treasury department , the internal revenue service , and other standard-setting bodies could interpret or issue guidance on how provisions of the act will be applied or otherwise administered that is different from our interpretation . we may make adjustments to amounts that we have recorded that may materially impact our provision for income taxes in the period in which the adjustments are made . deferred income tax assets are reduced by a valuation allowance when it is more likely than not that some portion of the deferred income tax assets will not be realized . in considering the need for a valuation allowance , we assess all evidence , both positive and negative , available to determine whether all or some portion of the deferred tax assets will not be realized . such evidence includes , but is not limited to , recent earnings history , projections of future income or loss , reversal patterns of existing taxable and deductible temporary differences , and tax planning strategies . we have recorded a full valuation allowance against our deferred tax assets at december 31 , 2018 and 2017 , respectively . we had no net deferred liabilities at december 31 , 2018 or 2017. we will continue to evaluate the need for a valuation allowance on a quarterly basis .
| results of operations the following table sets forth the percentage of net sales represented by certain items reflected on our consolidated statements of operations for the following periods : 25 replace_table_token_3_th net sales a further breakdown of our net sales by product line is as follows ( in thousands ) : replace_table_token_4_th while our net sales of $ 18.1 million in 2018 decreased 8.8 percent compared to 2017 , our military maritime sales increased 104.0 percent in 2018 as compared to 2017 , driven by higher sales of our military globe , flood light , fixture , and intellitube ® product lines . net sales of our commercial products decreased 43.1 percent in 2018 as compared to 2017 , reflecting fluctuations in the timing , pace , and size of commercial projects , including the implications of the long sales cycle in our industry , up to 18 months in many cases , contributing to a lengthy period of time between investment in expanded agency sales channels , development of a new pipeline of opportunities , and translation of a portion of those opportunities into revenues while facing significant price competition . 26 net sales of $ 19.8 million in 2017 decreased 36.0 percent in comparison to $ 31.0 million in 2016 , primarily due to a $ 11.6 million decrease in military maritime sales . overall demand for our military maritime products increased in 2017 as compared to 2016 , but our distributor for the u.s. navy had the ability to satisfy much of that demand with product purchased in 2016 under an exclusive distribution agreement that ended on march 31 , 2017. as a result , our 2017 military maritime sales decreased 71.4 percent as compared to 2016. our commercial sales increased 2.8 percent in 2017 as compared to 2016 , as we continued our efforts to diversify and expand our targeted vertical markets .
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the cost of investments story_separator_special_tag results of operations you should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes appearing at the end of this annual report on form 10-k. some of the information contained in this discussion and analysis or set forth elsewhere in this annual report on form 10-k , including information with respect to our plans and strategy for our business and related financing , includes forward-looking statements that involve risks and uncertainties . you should read the “ risk factors ” section of this report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview we are a biopharmaceutical company focused on acquiring , developing and commercializing innovative anti-cancer agents in the united states , europe and additional international markets . we target our development programs for the treatment of specific subsets of cancer populations , and simultaneously develop , with partners , for those indications that require them , diagnostic tools intended to direct a compound in development to the population that is most likely to benefit from its use . our marketed product rubraca® ( rucaparib ) , an oral small molecule inhibitor of poly adp-ribose polymerase ( “ parp ” ) , is marketed in the united states for two indications specific to recurrent epithelial ovarian , fallopian tube or primary peritoneal cancer . the initial indication received approval from the fda in december 2016 and covers the treatment of adult patients with deleterious brca ( human genes associated with the repair of damaged dna ) mutation ( germline and or somatic ) -associated epithelial ovarian , fallopian tube , or primary peritoneal cancer who have been treated with two or more chemotherapies and selected for therapy based on an fda-approved companion diagnostic for rubraca . in april 2018 , the fda also approved rubraca for the maintenance treatment of adult patients with recurrent epithelial ovarian , fallopian tube , or primary peritoneal cancer who are in a complete or partial response to platinum-based chemotherapy . the approval in this second , broader and earlier-line indication on a priority review timeline was based on positive data from the phase 3 ariel3 clinical trial . diagnostic testing is not required for patients to be prescribed rubraca in this maintenance treatment indication . in may 2018 , the european commission granted a conditional marketing authorization for rubraca as monotherapy treatment of adult patients with platinum-sensitive , relapsed or progressive , brca mutated ( germline and or somatic ) , high-grade epithelial ovarian , fallopian tube , or primary peritoneal cancer , who have been treated with two or more prior lines of platinum-based chemotherapy , and who are unable to tolerate further platinum-based chemotherapy . this conditional approval requires the completion of certain confirmatory post marketing commitments . in january 2019 , the european commission granted a variation to the marketing authorization to include the maintenance treatment of adult patients with recurrent epithelial ovarian , fallopian tube , or primary peritoneal cancer who are in a complete or partial response to platinum-based chemotherapy . with this approval , rubraca is now authorized in the eu for certain patients in the recurrent ovarian cancer maintenance setting regardless of their brca mutation status . following successful reimbursement negotiations in each country , commercial launches of rubraca are underway in each of germany , england , italy and france and planned in spain shortly . additional 2019 rubraca key regulatory and clinical developments include the following : ● in november 2019 , we submitted the supplemental new drug application ( “ snda ” ) for rubraca as a monotherapy treatment of adult patients with brca1/2-mutant recurrent , metastatic castrate-resistant prostate cancer . on january 15 , 2020 , we announced that the fda accepted the snda and granted priority review status to the application with a prescription drug user fee act ( “ pdufa ” ) date of may 15 , 2020. we are actively preparing for the launch of rubraca in prostate cancer in the u.s. , which we will commence upon receipt of fda approval . ● we initiated the phase 2 lodestar study in december 2019 to evaluate rubraca in homologous recombination repair genes across tumor types . the study will evaluate rucaparib as monotherapy treatment in patients with recurrent solid tumors associated with a deleterious mutation in homologous recombination repair ( “ hrr ” ) genes . based on our interactions with the fda , this study may be registration-enabling for a targeted gene- and tumor-agnostic label , if data from the trial support an accelerated approval . 66 beyond our initial labeled indication , we have a clinical development program underway to further evaluate rubraca in a variety of solid tumor types , either as monotherapy or in combination with other agents , including several studies as part of our ongoing clinical collaboration with bristol-myers squibb company to evaluate its immunotherapy opdivo® ( nivolumab ) in combination with rubraca . we hold worldwide rights for rubraca . in addition to rubraca , we have a second product candidate currently in clinical development . lucitanib is an investigational , oral , potent inhibitor of the tyrosine kinase activity of vascular endothelial growth factor receptors 1 through 3 ( “ vegfr1-3 ” ) , platelet-derived growth factor receptors alpha and beta ( “ pdgfr α/β ” ) and fibroblast growth factor receptors 1 through 3 ( “ fgfr1-3 ” ) . we believe that data for a drug similar to lucitanib that inhibits these same pathways – when combined with a pd-1 inhibitor – represent a scientific rationale for development of lucitanib in combination with a pd-1 inhibitor , and in february 2019 , lucitanib was added to our clinical collaboration with bms . story_separator_special_tag we used the proceeds of the offering to repurchase from such holders an aggregate of $ 123.4 million principal amount of 2024 notes in privately negotiated transactions . in addition , we paid customary fees and expenses in connection with the transactions . based on our current estimates , we believe that our cash , cash equivalents and available-for-sale securities will allow us to fund activities through at least the next 12 months . until we can generate a sufficient amount of revenue from rubraca , we expect to finance our operations in part through additional public or private equity or debt offerings and may seek additional capital through arrangements with strategic partners or from other sources . adequate additional financing may not be available to us on acceptable terms , or at all . our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy . we will need to generate significant revenues to achieve profitability , and we may never do so . product license agreements for a discussion of our product license agreements , see note 14 , license agreements , in the notes to consolidated financial statements included in part ii , item 8 , financial statements and supplementary data , of this annual report on form 10-k. financial operations overview revenue during 2019 , we recorded $ 143.0 million in revenue related to sales of rubraca . for further discussion of our revenue recognition policy , see “ critical accounting policies and significant judgments and estimates ” below . our ability to generate revenue and become profitable depends upon our ability to successfully commercialize products . any inability on our part to successfully commercialize rubraca in the united states , europe and any foreign territories where it may be approved , or any significant delay in such approvals , could have a material adverse impact on our ability to execute upon our business strategy and , ultimately , to generate sufficient revenues from rubraca to reach or maintain profitability or sustain our anticipated levels of operations . we supply commercially labeled rubraca free of charge to eligible patients who qualify due to financial need through our patient assistance program and the majority of these patients are on medicare . this product is distributed through a separate vendor who administers the program on our behalf . it is not distributed through our specialty distributor and specialty pharmacy network . this product is neither included in the transaction price nor the variable considerations to arrive at product revenue . manufacturing costs associated with this free product is included in selling , general and administrative expenses . for the year ended december 31 , 2019 and december 31 , 2018 , the supply of this free drug was approximately 20 % and 26 % , respectively , of the overall commercial supply or the equivalent of $ 34.8 million and $ 33.4 million , respectively , in commercial value . 68 research and development expenses research and development expenses consist of costs incurred for the development of our product candidates and companion diagnostics , which include : ● license fees and milestone payments related to the acquisition of in-licensed products , which are reported on our consolidated statements of operations and comprehensive loss as acquired in-process research and development ; ● employee-related expenses , including salaries , benefits , travel and share-based compensation expense ; ● expenses incurred under agreements with cros and investigative sites that conduct our clinical trials ; ● the cost of acquiring , developing and manufacturing clinical trial materials ; ● costs associated with non-clinical activities and regulatory operations ; ● market research , disease education and other commercial product planning activities , including the hiring of a sales and marketing and medical affairs organization in preparation for commercial launch of rubraca ; and ● activities associated with the development of companion diagnostics for our product candidates . research and development costs are expensed as incurred . license fees and milestone payments related to in-licensed products and technology are expensed if it is determined that they have no alternative future use . costs for certain development activities , such as clinical trials and manufacturing of clinical supply , are recognized based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment , clinical site activations or information provided to us by our vendors . our research and development expenses increased for 2019 compared to 2018. beginning with 2020 , we expect research and development costs to flatten , and then trend lower in the following years , as the largest of our sponsored clinical trials near completion . the following table identifies research and development and acquired in-process research and development costs on a program-specific basis for our products under development . personnel-related costs , depreciation and share-based compensation are not allocated to specific programs , as they are deployed across multiple projects under development and , as such , are separately classified as personnel and other expenses in the table below . replace_table_token_3_th selling , general and administrative expenses selling , general and administrative expenses consist principally of salaries and related costs for personnel in executive , commercial , finance , legal , investor relations , human resources and information technology functions . other general and administrative expenses include facilities expenses , communication expenses , information technology costs , corporate insurance and professional fees for legal , consulting and accounting services . with the fda approval of rubraca on december 19 , 2016 , all sales and marketing expenses associated with rubraca are included in selling , general and administrative expenses . we anticipate that our selling , general and administrative expenses will continue to increase in the future in support of our commercial activities related to rubraca in the u.s. and europe .
| results of operations comparison of the year ended december 31 , 2019 to the year ended december 31 , 2018 ( in thousands ) replace_table_token_5_th product revenue . product revenue for the year ended december 31 , 2019 increased primarily due to continued growth in sales of rubraca , which is approved for sale in the united states and eu markets . we completed our launch of rubraca as maintenance therapy in germany and the uk in march 2019. product revenue is recorded net of variable considerations comprised of rebates , chargebacks and other discounts . product revenue for the year ended december 31 , 73 2019 was $ 137.2 million in the united states and $ 5.8 million outside of the united states . variable considerations represented 15.0 % and 10.4 % of the transaction price recognized in the year ended december 31 , 2019 and 2018 , respectively . this increase is primarily due to government and group purchasing organization rebates ; in addition , our launch in germany and the uk in march 2019 contributed to the increase . amounts are summarized as follows : replace_table_token_6_th cost of sales - product . product cost of sales for the year ended december 31 , 2019 increased due to the increase in product revenue . product cost of sales primarily relate to manufacturing , freight and royalties costs associated with rubraca sales in the period . cost of sales – intangible asset amortization . for the year ended december 31 , 2019 and 2018 , we recognized cost of sales of $ 4.8 million and $ 2.6 million , respectively , associated with the amortization of capitalized milestone payments related to the approvals of rubraca by the fda and the european commission . research and development expenses . research and development expenses increased during the year ended december 31 , 2019 due to higher research and development costs for rubraca .
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the group records equity method adjustments in f-13 zai lab limited notes to the consolidated financial statements for the story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with “ part ii—item 6—selected consolidated financial data ” and our consolidated financial -135- statements and related notes appearing elsewhere in this annual report . in addition to historical information , this discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors . we discuss factors that we believe could cause or contribute to these differences below and elsewhere in this annual report , including those set forth under “ part i—item 1a—risk factors ” and under “ forward-looking statements and market data ” in this annual report . a. operating results . overview we are a commercial stage , biopharmaceutical company with a substantial presence in both greater china and the united states . we are developing and commercializing innovative products that target medical conditions with unmet needs affecting patients in china and worldwide , particularly in the areas of oncology , autoimmune disorders , and infectious diseases . as described in “ part i—item 1—business , ” we currently have two commercialized products that have received marketing approval and eleven programs in late-stage product development . refer to “ part i—item 1— “ business ” for a summary of our clinical programs . since our inception , we have incurred net losses and negative cash flows from our operations . substantially all of our losses have resulted from funding our research and development programs and general and administrative costs associated with our operations . developing high quality product candidates requires a significant investment related to our research and development activities over a prolonged period of time , and a core part of our strategy is to continue making sustained investments in this area . our ability to generate profits and to generate positive cash flow from operations over the next several years depends upon our ability to successfully market our current two commercial products zejula and optune and our other product candidates that we are able to successfully commercialize . we expect to continue to incur substantial expenses related to our research and development activities . in particular , our licensing and collaboration agreements require us to make upfront payments upon our entry into such agreements and milestone payments upon the achievement of certain development , regulatory and commercial milestones as well as tiered royalties based on the net sales of the licensed products . these upfront payments and milestone payments upon the achievement of certain development and regulatory milestones are recorded in research and development expense in our consolidated financial statements and totaled $ 59.2 million , $ 58.7 million and $ 108.2 million for the years ended december 31 , 2018 , 2019 and 2020 , respectively . accordingly , we expect to incur substantial costs related to the commercialization of our product candidates . furthermore , as we pursue our strategy of growth and development , we anticipate that our financial results will fluctuate from quarter to quarter based upon the balance between the successful marketing of our commercial products and our significant research and development expenses . we can not predict whether or when new products or new indications for marketed products will receive regulatory approval or , if any such approval is received , whether we will be able to successfully commercialize such product ( s ) and whether or when they may become profitable . recent business developments in january 2021 , we entered into an exclusive development and commercialization agreement with argenx , a global immunology company , for efgartigimod in greater china . pursuant to the terms of the agreement , we have agreed to fund and undertake all clinical development and regulatory submissions in the territories , and plan to launch and commercialize both products once approved . argenx received a $ 75.0 million upfront payment in the form of 568,182 newly issued zai lab shares calculated at a price of $ 132.00 per share , and will receive $ 75.0 million as a guaranteed non-creditable , non-refundable development cost-sharing payment , and an additional $ 25.0 million milestone payment upon approval of efgartigimod in the united states . argenx is also eligible to receive tiered royalties ( mid-teen to low-twenties on a percentage basis ) based on annual net sales of -136- efgartigimod in the licensed territories . in addition , in january 2021 , we entered into an exclusive development and commercialization agreement with turning point for tpx-0022 , its met , src and csf1r inhibitor , in greater china . turning point received a $ 25.0 million upfront payment , and will receive with up to approximately $ 336.0 million in potential development , regulatory and sales-based milestone payments . turning point will also be eligible to receive mid-teen- to low-twenty-percent royalties based on annual net sales of tpx-0022 in the licensed territories . basis of presentation our consolidated statement of operations data for the years ended december 31 , 2018 , 2019 and 2020 and our consolidated statement of financial position data as of december 31 , 2019 and 2020 have been derived from our audited consolidated financial statements included elsewhere in this annual report . our consolidated financial statements appearing elsewhere in this annual report have been prepared in accordance with u.s. gaap . factors affecting our results of operations innovation platform research and development expenses we believe our ability to successfully develop product candidates will be the primary factor affecting our long-term competitiveness , as well as our future growth and development . developing high quality product candidates requires a significant investment of resources over a prolonged period of time , and a core part of our strategy is to continue making sustained investments in this area . story_separator_special_tag interest income interest income decreased by $ 3.1 million for year ended december 31 , 2020 primary due to the decrease interest rate for short-term investments in 2020. interest expenses interest expenses decreased by $ 0.1 million for year ended december 31 , 2020 primary attributable to less short-term borrowings balance in 2020. share of loss from equity method investment in june 2017 , we entered into an agreement with three third-parties to launch jing medicine technology ( shanghai ) ltd. , or jing , an entity that will provide services for drug discovery and development , consultation and transfer of pharmaceutical technology . we account for our investment using the equity method of accounting because we do not control the investee but have the ability to exercise significant influence over the operating and financial policies of the investee . an investment loss of $ 1.1 million and $ 0.8 million related to this investment was recorded for the year ended december 31 , 2020 and 2019 , respectively . other income , net other income , net increased by $ 28.1 million for year ended december 31 , 2020 primarily as a result of an increase in governmental subsidies and foreign exchange gain . net loss attributable to ordinary shareholders as a result of the foregoing , we had net loss attributable to ordinary shareholders of $ 268.9 million for the year ended december 31 , 2020 compared to net loss attributable to ordinary shareholders of $ 195.1 million for the year ended december 31 , 2019. year ended december 31 , 2019 compared to year ended december 31 , 2018 research and development expenses the following table sets forth the components of our research and development expenses for the years indicated . replace_table_token_6_th research and development expenses increased by $ 21.9 million to $ 142.2 million for year ended december 31 , 2019 from $ 120.3 million for year ended december 31 , 2018. the increase in research and development expenses included the following : $ 14.1 million for increased personnel compensation and related costs which was primarily attributable to increased employee compensation costs , due to hiring of more personnel during the year ended -142- december 31 , 2019 and the grants of new share options and vesting of restricted shares to certain employees ; $ 4.5 million for increased payment to cros/cmos/investigators in fiscal year 2019 as we advanced our drug candidate pipeline ; and $ 3.8 million for increased lab consumables and professional service expenses . the following table summarizes our research and development expenses by program for the years ended december 31 , 2019 and 2018 , respectively : replace_table_token_7_th during the year ended december 31 , 2019 , 67.8 % and 5.8 % of our total research and development expenses were attributable to clinical programs and pre-clinical programs , respectively . during the year ended december 31 , 2018 , 74.5 % and 6.7 % of our total research and development expenses were attributable to clinical programs and pre-clinical programs , respectively . zejula represented approximately 17 % and 13 % of our external research and development expense , which includes payments to cros , cmos and investigators , for the year ended december 31 , 2019 and 2018 , respectively . omadacycline ( zl-2401 ) represented approximately 7 % and 12 % of our external research and development expense , which includes licensing fees and payment to cros , cmos and investigators , for the year ended december 31 , 2019 and 2018 ; bemarituzumab ( fpa144 ) represented approximately 5 % and 12 % , of our external research and development expense , which includes licensing fees and payment to cros , cmos and investigators , for the year ended december 31 , 2019 and 2018 ; zl-1306 and zl-2307 represented approximately 17 % and 25 % of our external research and development expense , which includes licensing fees and payment to cros , cmos and investigators , for the year ended december 31 , 2019 , respectively . no other programs represented a significant amount of research and development expense for the years ended december 31 , 2019 or 2018. though we manage our external research and development expenses by program we do not allocate our internal research and development expenses by program because our employees and internal resources may be engaged in projects for multiple programs at any time . selling , general and administrative expenses the following table sets forth the components of our selling , general and administrative expenses for the years indicated . replace_table_token_8_th -143- selling , general and administrative expenses increased by $ 48.6 million to $ 70.2 million for year ended december 31 , 2019 from $ 21.6 million for year ended december 31 , 2018. the increase in general and administrative expenses included the following : $ 30.2 million for increased personnel compensation and related costs which was primarily attributable to increased commercial and administrative personnel costs , due to hiring of more personnel during year ended december 31 , 2019 and the grants of new share options and vesting of restricted shares to certain employees ; and $ 18.9 million for increased selling , rental , and travel expenses primary attributable to the commercial operation in hong kong and prc for the year ended december 31 , 2019. interest income interest income increased by $ 5.0 million for year ended december 31 , 2019 primary attributable to interest income on higher cash and short-term investments balance in 2019. interest expenses interest expenses increased by $ 0.3 million for year ended december 31 , 2019 primary attributable to more short-term borrowings balance in 2019. share of loss from equity method investment in june 2017 , we entered into an agreement with three third-parties to launch jing medicine technology ( shanghai ) ltd. , or jing , an entity that will provide services for drug discovery and development , consultation and transfer of pharmaceutical technology .
| key components of results of operations taxation cayman islands zai lab limited is incorporated in the cayman islands . the cayman islands currently levies no taxes on profits , income , gains or appreciation earned by individuals or corporations . in addition , our payment of dividends , if any , is not subject to withholding tax in the cayman islands . for more information , see “ taxation—material cayman islands taxation. ” -138- people 's republic of china our subsidiaries incorporated in china are governed by the eit law and regulations . under the eit law , the standard eit rate is 25 % on taxable profits as reduced by available tax losses . tax losses may be carried forward to offset any taxable profits for up to following five years . for more information , see “ taxation—material people 's republic of china taxation. ” hong kong our subsidiaries incorporated in hong kong are subject to two-tiered tax rates for the years ended december 31 , 2020 , 2019 and 2018 on assessable profits earned in hong kong where the profits tax rate for the first hk $ 2 million of assessable profits is subject to profits tax rate of 8.25 % and the assessable profits above hk $ 2 million is subject to profits tax rate of 16.5 % . our subsidiaries incorporated in hong kong did not have assessable profit for the years ended december 31 , 2020 , 2019 and 2018. results of operations the following table sets forth a summary of our consolidated results of operations for the periods indicated . this information should be read together with our consolidated financial statements and related notes included elsewhere in this annual report . our operating results in any period are not necessarily indicative of the results that may be expected for any future period .
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to promote and sell a wide range of products and services , we use printed and electronic marketing ; a direct sales force ; referrals from financial institutions , telecommunication clients and other partners ; purchased search results from online search engines ; and independent distributors and dealers . over the past 24 months , our small business services segment has provided products and services to 4.5 million small business customers and our direct checks segment has provided products and services to more than six million consumers . through our financial services segment , we provide products and services to approximately 5,100 financial institution clients . we operate primarily in the united states . small business services also has operations in canada and portions of europe . our product and service offerings are comprised of the following : checks – we remain one of the largest providers of checks in the united states . during 2015 , checks represented 40.1 % of our small business services segment 's revenue , 59.7 % of our financial services segment 's revenue and 84.6 % of our direct checks segment 's revenue . marketing solutions and other services – we offer products and services that help small businesses and or financial institutions promote their businesses and acquire customers , as well as various other service offerings . our small business services segment offers services designed to fulfill the marketing and sales needs of small businesses , including logo and web design , hosting and other web services ; search engine optimization ; marketing programs , including email , mobile , social media and other self-service marketing solutions ; and digital printing services . in addition , small business services offers specialized services , including fraud protection and security , payroll services and electronic checks , as well as promotional solutions such as postcards , brochures , retail packaging supplies , apparel , greeting cards and business cards . financial services offers a suite of financial technology ( `` fintech '' ) solutions focused on enabling financial institutions to better manage the customer life cycle for their retail and commercial customers . these fintech offerings include outsourced marketing campaign targeting and execution , digital channel onboarding , loyalty and rewards , technology-enabled treasury services , financial performance management , and fraud protection and security services . our direct checks segment provides fraud protection and security services , as well as package insert programs under which third parties ' marketing materials are included in our check packages . forms – our small business services segment is a leading provider of printed forms to small businesses , including deposit tickets , billing forms , work orders , job proposals , purchase orders , invoices and personnel forms . this segment also offers computer forms compatible with accounting software packages commonly used by small businesses . forms sold by our financial services and direct checks segments include deposit tickets and check registers . accessories and other products – small business services offers products designed to provide small business owners with the customized documents necessary to efficiently manage their business including envelopes , office supplies , stamps and labels . our financial services and direct checks segments offer checkbook covers and stamps . throughout the past several years , we have focused on opportunities to increase revenue and operating income , while maintaining strong operating margins . these opportunities have included new product and service offerings , brand awareness and positioning initiatives , investing in technology for our service offerings , enhancing our internet capabilities , improving customer segmentation , adding new small business customers , and reducing costs . in addition , we invested in various acquisitions that extend the range of products and services we offer to our customers , primarily marketing solutions and other services offerings . information about our acquisitions can be found under the caption `` note 5 : acquisitions '' of the notes to consolidated financial statements appearing in item 8 of this report . during 2016 , we plan to continue our focus in these areas , with an emphasis on profitable revenue growth and increasing the mix of marketing solutions and other services revenue . we also plan to continue to assess small to medium-sized acquisitions that complement our large customer bases , with a focus on marketing solutions and other services . earnings for 2015 , as compared to 2014 , benefited from price increases in all three segments and continuing initiatives to reduce our cost structure , primarily within our sales , marketing and fulfillment organizations . these increases in earnings were partially offset by volume reductions for both personal and business checks , due primarily to the continuing decline in check usage , as well as increased investments in revenue growth opportunities . our strategies a discussion of our business strategies can be found under the caption `` business segments '' appearing in item 1 of this report . cost reduction initiatives for several years , we have been pursuing cost reduction and business simplification initiatives , including : reducing shared services infrastructure costs ; streamlining our call center and fulfillment activities ; eliminating system and work stream 24 redundancies ; and strengthening our ability to quickly develop new products and services and bring them to market . we have also standardized products and services and improved the sourcing of third-party goods and services . as a result of all of these efforts , we realized net cost savings of approximately $ 50 million during 2015 , as compared to our 2014 results of operations , generated primarily by our sales , marketing and fulfillment organizations . approximately 60 % of these savings impacted selling , general and administrative ( sg & a ) expense , with the remaining 40 % affecting total cost of revenue . story_separator_special_tag these factors could cause our actual results to differ materially from the statements we make from time to time regarding our expected future results , including , but not limited to , forecasts regarding estimated total revenue , marketing solutions and other services revenue , earnings per share , cash provided by operating activities and expected cost savings . story_separator_special_tag within our sales and marketing organizations . the increase in sg & a expense for 2014 , as compared to 2013 , was driven primarily by incremental operating expenses of the businesses we acquired in 2014 and 2013 in our financial services segment and the acquisitions of verticalresponse and gift box corporation of america in our small business services segment of approximately $ 42 million . additionally , we invested in revenue growth opportunities , including investments to expand our distributor channel , performance-based compensation expense increased approximately $ 6 million as compared to 2013 , and small business services commission expense increased $ 6 million due primarily to increased financial institution commission rates . these increases were partially offset by various expense reduction initiatives of approximately $ 42 million within sales , marketing and our shared services organizations , including improved labor efficiency and reduced expenses for information technology infrastructure . net restructuring charges replace_table_token_9_th we recorded restructuring charges and reversals related to the cost reduction initiatives discussed under executive overview . the charges and reversals for each period primarily relate to costs of our restructuring activities such as employee severance benefits , information technology costs , employee and equipment moves , training and travel . in addition to the restructuring charges shown here , restructuring charges of $ 1.8 million in 2015 , $ 0.9 million in 2014 and $ 1.5 million in 2013 27 were included within total cost of revenue in our consolidated statements of income . further information can be found under restructuring costs . asset impairment charges replace_table_token_10_th during the third quarter of 2014 , we performed an impairment analysis related to our small business services search engine marketing and optimization business . revenue and the related cash flows from this business had been lower than previously projected , and as a result of our annual planning process completed during the third quarter of 2014 , we decided to reduce the revenue base of this business in order to improve its financial performance . as such , we revised our estimates of future revenues and cash flows to reflect these decisions during the third quarter of 2014. we calculated the estimated fair values of the assets as the net present value of estimated future cash flows . our analysis resulted in a non-cash , pre-tax impairment charge of $ 6.5 million during 2014 , which reflects writing down the net book value of the related intangible assets to zero . during the fourth quarter of 2013 , we performed an impairment analysis of a customer relationship intangible asset within our small business services segment . the impairment analysis was performed because revenue from the applicable group of customers was lower than previously projected . we calculated the the estimated fair value of the asset as the net present value of estimated future cash flows . this analysis resulted in a non-cash , pre-tax impairment charge of $ 5.0 million during 2013. loss on early debt extinguishment change ( in thousands ) 2015 2014 2013 2015 vs. 2014 2014 vs. 2013 loss on early debt extinguishment $ 8,917 $ — $ — $ 8,917 $ — during the first quarter of 2015 , we retired all $ 200.0 million of our 7.0 % senior notes due in march 2019 , realizing a pre-tax loss of $ 8.9 million , consisting of a contractual call premium and the write-off of related debt issuance costs . we funded the retirement utilizing our credit facility and a short-term bank loan . we may also , from time to time , consider retiring additional outstanding debt through open market purchases , privately negotiated transactions or other means . any such purchases or exchanges would depend upon prevailing market conditions , our liquidity requirements and other potential uses of cash , including acquisitions and share repurchases . interest expense replace_table_token_11_th the decrease in interest expense for 2015 , as compared to 2014 , was driven by changes in our debt structure and the decrease in our weighted-average debt outstanding . in october 2014 , long-term notes of $ 253.5 million matured . these notes had a weighted-average interest rate of 4.3 % during 2014 , including the impact of hedging activities . we utilized cash on hand and an initial borrowing of $ 135.0 million under our credit facility to meet this debt obligation . in addition , in march 2015 , we retired $ 200.0 million of long-term debt with an interest rate of 7.0 % . we utilized our credit facility and a short-term bank loan to fund this redemption . amounts outstanding under our short-term borrowings carried a weighted-average interest rate of 1.7 % during 2015. the decrease in interest expense for 2014 , as compared to 2013 , was due to the october 2014 maturity of $ 253.5 million of long-term debt with a weighted-average interest rate of 4.3 % during 2014 , including the impact of hedging activities . we used cash on hand and an initial borrowing of $ 135.0 million under our credit facility to meet this debt obligation . amounts outstanding under our credit facility during 2014 carried a weighted-average interest rate of 1.6 % . 28 income tax provision replace_table_token_12_th the increase in our effective tax rate for 2015 , as compared to 2014 , was primarily due to to a number of minor discrete credits to income tax expense in 2014 , which collectively decreased our 2014 effective tax rate 0.9 points and which related primarily to state income tax credits .
| consolidated results of operations consolidated revenue replace_table_token_5_th the increase in total revenue for 2015 , as compared to 2014 , was primarily due to growth in marketing solutions and other services revenue of $ 105 million , including incremental revenue from businesses acquired during 2015 and 2014. further information regarding our acquisitions can be found under the caption `` note 5 : acquisitions '' of the notes to consolidated financial statements appearing in item 8 of this report . in addition , revenue benefited from price increases in all three segments , and investments to expand our small business services distributor channel contributed revenue growth in other product categories of approximately $ 11 million . these revenue increases were partially offset by lower order volume for both personal and business checks , contract renewal allowances within financial services and an unfavorable currency exchange rate impact of $ 11 million . the increase in total revenue for 2014 , as compared to 2013 , was primarily due to growth in marketing solutions and other services revenue of $ 84 million , including incremental revenue from businesses acquired during 2014 and 2013. in addition , revenue benefited from price increases in all three segments , and investments to expand our small business services distributor channel contributed revenue growth in other product categories of approximately $ 18 million . these revenue increases were partially offset by lower order volume for our personal check businesses and contract renewal allowances within financial services . service revenue represented 18.1 % of total revenue in 2015 , 15.7 % in 2014 and 13.6 % in 2013 . as such , the majority of our revenue is generated by product sales . we do not manage our business based on product versus service revenue .
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with the completion of the company 's initial public offering in 2012 , management believes the company is positioned to take advantage of the business opportunities that may exist in its market area . as of december 31 , 2013 , the company assets totaled $ 419.2 million , and operations are conducted through seven locations , along with the mountlake terrace headquarters . beginning in 2007 , adverse economic conditions , including increased levels of unemployment , depressed real estate values and the loss of major employers in our market area , such as washington mutual , reduced our rate of growth , affected customers ' ability to repay loans and adversely impacted the bank 's financial condition and earnings . as a result of the foregoing , during 2008 and 2009 , like many financial institutions , the bank was faced with large loan loss provisions and charge-offs to address asset quality issues associated with the adverse economic conditions . during the years ended december 31 , 2009 and 2008 , the bank experienced net losses of $ 4.6 million , and $ 3.8 million before returning to profitability in 2010 . 1st security bank of washington is a relationship-driven community bank . the bank delivers banking and financial services to local families , local and regional businesses and industry niches within distinct puget sound area communities . the bank emphasizes long-term relationships with families and businesses within the communities served , working with them to meet their financial needs . the bank is also actively involved in community activities and events within these market areas , which further strengthens relationships within these markets . the company is a diversified lender with a focus on the origination of home improvement loans , commercial real estate mortgage loans , commercial business loans and second mortgage/home equity loan products . consumer loans , in particular indirect home improvement loans to finance window replacement , gutter replacement , siding replacement , and other improvement renovations , represent the largest portion of the loan portfolio and have traditionally been the mainstay of the company 's lending strategy . as of december 31 , 2013 , consumer loans represented 42.7 % of the total portfolio , with indirect home improvement and solar loans representing 88.0 % of the total consumer loan portfolio . indirect home improvement lending is reliant on the company 's relationships with home improvement contractors and dealers . the company 's indirect home improvement contractor/dealer network is currently comprised of approximately 131 active contractors and dealers with businesses located throughout washington , oregon and california , with approximately three contractors/dealers responsible for a majority or 58.2 % of this loan volume . the company began originating consumer indirect loans in the state of california in 2012 with $ 2.5 million in these loans originated during 2012. in 2013 , the company originated $ 22.2 million in the state of california and held $ 16.8 million in california originated consumer loans as of december 31 , 2013. management has established a limit of no more than 20 % of the total consumer loan portfolio for loans in california . as of december 31 , 2013 , the limit would be $ 24.5 million . see item 1a. , “ risk factors – our business could suffer if we are unsuccessful in making , continuing and growing relationships with home improvement contractors and dealers '' of this form 10-k. in 2012 , an emphasis was placed on diversifying lending products by expanding commercial real estate , commercial business and residential construction lending , while maintaining the current size of the consumer loan portfolio . the company 's lending strategies are intended to take advantage of : ( 1 ) historical strength in indirect consumer lending , ( 2 ) recent market dislocation that has created new lending opportunities and the availability of experienced bankers , and ( 3 ) strength in relationship lending . retail deposits will continue to serve as an important funding source . see item 1a. , “ risk factors – risks related to our business ” in this form 10-k. 55 1st security bank of washington is significantly affected by prevailing economic conditions , as well as government policies and regulations concerning , among other things , monetary and fiscal affairs . deposit flows are influenced by a number of factors , including interest rates paid on time deposits , other investments , account maturities , and the overall level of personal income and savings . lending activities are influenced by the demand for funds , the number and quality of lenders , and regional economic cycles . sources of funds for lending activities of 1st security bank of washington include primarily deposits , including brokered deposits , borrowings , payments on loans and income provided from operations . the company 's earnings are primarily dependent upon net interest income , the difference between interest income and interest expense . interest income is a function of the balances of loans and investments outstanding during a given period and the yield earned on these loans and investments . interest expense is a function of the amount of deposits and borrowings outstanding during the same period and interest rates paid on these deposits and borrowings . earnings are also affected by the company 's provision for loan losses , service charges and fees , gains from sales of assets , operating expenses and income taxes . critical accounting policies and estimates certain of the company 's accounting policies are important to the portrayal of the company 's financial condition , since they require management to make difficult , complex or subjective judgments , some of which may relate to matters that are inherently uncertain . estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances . facts and circumstances which could affect these judgments include , but are not limited to , changes in interest rates , changes in the performance of the economy and changes in the financial condition of borrowers . story_separator_special_tag services are currently provided to communities through the main office and six full-service banking centers . these banking centers are supported with 24/7 access to on-line banking and participation in a worldwide atm network . the board of directors has sought to accomplish the company 's objective through the adoption of a strategy designed to improve profitability , a strong capital position and high asset quality . this strategy primarily involves : growing and diversifying the loan portfolio and revenue streams . the company intends to transition lending activities from a predominantly consumer-driven model to a more diversified consumer and business model by emphasizing three key lending initiatives : expansion of commercial business lending programs , including the warehouse lending program , through which the company funds third party mortgage bankers ; reintroduction of in-house originations of residential mortgage loans , primarily for sale into the secondary market , through a mortgage banking program ; and commercial real estate lending . additionally , the company will seek to diversify the loan portfolio by increasing lending to small businesses in the market area , as well as residential construction lending . maintaining and improving asset quality . the company believes that strong asset quality is a key to long-term financial success . the percentage of non-performing loans to total loans was 0.4 % at december 31 , 2013 , down from 0.7 % at december 31 , 2012 , and 1.0 % at december 31 , 2011. the company 's percentage of non-performing assets to total assets was 0.8 % at december 31 , 2013 , down from 1.1 % at december 31 , 2012 and 2.4 % at december 31 , 2011. the company has actively managed the delinquent loans and non-performing assets by aggressively pursuing the collection of consumer debts and marketing saleable properties upon which were foreclosed or repossessed , work-outs of classified assets and loan charge-offs . in the past several years , the company also began emphasizing consumer loan originations to borrowers with higher credit scores , generally credit scores over 720 ( although the policy allows us to go lower ) , which has led to lower charge-offs in recent periods . although the company intends to grow the loan portfolio by expanding 57 commercial real estate and commercial business lending , the company intends to manage credit exposures through the use of experienced bankers in this area and a conservative approach to lending . emphasizing lower cost core deposits to reduce the costs of funding loan growth . the company offers personal and business checking accounts , now accounts and savings and money market accounts , which generally are lower-cost sources of funds than certificates of deposit , and are less sensitive to withdrawal when interest rates fluctuate . in order to build a core deposit base , the company is pursuing a number of strategies . first , a diligent attempt to recruit all commercial loan customers to maintain a deposit relationship with the company , generally a business checking account relationship to the extent practicable , for the term of their loan . second , interest rate promotions are provided on savings and checking accounts from time to time to encourage the growth of these types of deposits . capturing customers ' full relationship . the company offers a wide range of products and services that provide diversification of revenue sources and solidify the relationship with the bank 's customers . the company focuses on core retail and business deposits , including savings and checking accounts , that lead to long-term customer retention . as part of the commercial lending process cross-selling the entire business banking relationship , including deposit relationships and business banking products , such as online cash management , treasury management , wires , direct deposit , payment processing and remote deposit capture . the company 's mortgage banking program also will provide opportunities to cross-sell products to new customers . expanding the company 's markets . in addition to deepening relationships with existing customers , the company intends to expand business to new customers by leveraging the company 's well-established involvement in the community and by selectively emphasizing products and services designed to meet their banking needs . the company also intends to pursue expansion in market areas through selective growth of the branch network . in 2013 , the company opened a de novo branch in the capitol hill market of seattle . the company may also consider the acquisition of other financial institutions or branches of other banks in the puget sound market area although currently no specific transactions are planned . comparison of financial condition at december 31 , 2013 and december 31 , 2012 assets . total assets increased $ 60.2 million , or 16.8 % , to $ 419.2 million at december 31 , 2013 from $ 359.0 million at december 31 , 2012. the increase in assets was primarily the result of an increase in total cash and cash equivalents of $ 31.7 million , securities available-for-sale of $ 12.9 million , bank owned life insurance of $ 6.4 million , loans receivable , net of $ 6.1 million and loans held for sale of $ 2.3 million . loans receivable , net , increased $ 6.2 million , or 2.2 % , to $ 281.1 million at december 31 , 2013 from $ 274.9 million at december 31 , 2012. the increase in loans receivable , net was primarily a result of an increase in real estate loans of $ 17.5 million , consumer loans of $ 14.0 million , partially offset by a $ 24.2 million decrease in commercial business loans . commercial business loans decreased $ 24.2 million , or 33.0 % , to $ 49.2 million at december 31 , 2013 from $ 73.5 million at december 31 , 2012 , as a result of reductions in the utilization of warehouse lending lines of credit .
| general . net income for the year ended december 31 , 2013 decreased $ 1.4 million to $ 3.9 million , compared to $ 5.3 million for the year ended december 31 , 2012. net income for 2012 included a $ 2.3 million reversal of substantially all the valuation allowance for deferred tax assets while there was no similar reversal in 2013. the provision for loan losses decreased $ 743,000 , or 25.5 % , during the year ended december 31 , 2013 compared to the year ended december 31 , 2012. net interest income . net interest income before the provision for loan losses increased $ 3.1 million to $ 19.5 million for the year ended december 31 , 2013 compared to $ 16.4 million for the year ended december 31 , 2012. the increase in net interest income was attributable to a $ 2.9 million increases in interest income resulting from an increase 61 in average loans receivable over the last year and a reduction in deposit interest expense of $ 230,000 , primarily due to a reduction in overall cost of funds . the company 's net interest margin decreased 10 basis points to 5.33 % for the year ended december 31 , 2013 , from 5.43 % for the prior year . the decrease reflects the increase in average interest earning assets during the period , including increased lower yielding cash and cash equivalents and investment securities available to fund projected loan growth . diversified loan growth continues to pressure the net interest margin as real estate and business loans have a lower yield than consumer loan products . the cost of average interest-bearing liabilities decreased 17 basis points to 0.77 % for the year ended december 31 , 2013 compared to 0.94 % for the prior year primarily due to a reduction in deposit rates .
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2016-18 , statement of cash flows : restricted cash . this asu requires that a statement of cash flows explain the change during the period in the total of cash , cash equivalents , and amounts generally described as restricted cash or restricted cash equivalents . therefore , amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning of period and end of period total amounts shown story_separator_special_tag you should read the following discussion and analysis of financial condition and results of operations in conjunction with the consolidated financial statements , and the notes thereto , included in item 8 of this annual report on form 10-k. the statements of consolidated operations and consolidated balance sheets of equitrans midstream are reflected as discontinued operations for all periods presented . prior periods have been recast to reflect this presentation . this recast also includes presenting certain transportation and processing expenses in continuing operations for all periods presented which were previously eliminated in consolidation prior to the separation and distribution . the cash flows related to equitrans midstream have not been segregated and are included within the statements of consolidated cash flows for all periods presented . see note 2 to the consolidated financial statements for amounts of the discontinued operations related to equitrans midstream which are included in the statements of consolidated cash flows . story_separator_special_tag ( c ) for the year ended december 31 , 2018 , results include operations acquired in the rice merger ( defined in note 3 to the consolidated financial statements ) . for the year ended december 31 , 2017 , results include operations acquired in the rice merger for the period of november 13 , 2017 through december 31 , 2017. total operating revenues were $ 4,557.9 million for 2018 compared to $ 3,091.0 million for 2017 . sales of natural gas , oil and ngls increased as a result of a 68 % increase in sales volumes in 2018 , which was primarily a result of the rice merger and increased production from the 2016 and 2017 drilling programs , partly offset by the 2018 divestitures and the normal production decline in the company 's producing wells . the average realized price decreased in 2018 compared to 2017 due to a decrease in the average nymex natural gas price net of cash settled derivatives and a decrease in higher priced liquids sales as a result of the 2018 divestitures partly offset by an increase in the average natural gas differential . the company paid $ 225.3 million and received $ 40.7 million of net cash settlements for derivatives not designated as hedges for the years ended december 31 , 2018 and 2017 , respectively , that are included in the average realized price but are not in gaap operating revenues . changes in fair market value of derivative instruments prior to settlement are recognized in ( loss ) gain on derivatives not designated as hedges . the increase in the average differential primarily related to higher prices during the first quarter of 2018 at sales points in the united states northeast where colder weather led to increased demand , higher appalachian basin basis as well as increased sales volumes at higher priced gulf coast and midwest markets accessible through the company 's increased transportation portfolio following the rice merger . total operating revenues for 2018 included a $ 178.6 million loss on derivatives not designated as hedges compared to a $ 390.0 million gain on derivatives not designated as hedges in 2017 . the loss in 2018 primarily related to decreases in the fair market value of the company 's 2018 nymex swaps and options and basis swaps from december 31 , 2017 through the date of settlement as a result of increases in the underlying prices throughout this period . these losses were partly offset by increases in the fair market value of the company 's open nymex positions at december 31 , 2018 due to a decrease in forward nymex during 2018. total operating revenues were $ 3,091.0 million for 2017 compared to $ 1,387.1 million for 2016 . sales of natural gas , oil and ngls increased as a result of higher average realized price and a 17 % increase in sales volumes in 2017 . eqt received $ 40.7 million and $ 279.4 million of net cash settlements for derivatives not designated as hedges for the years ended december 31 , 2017 and 2016 , respectively , that are included in the average realized price but are not in gaap operating revenues . the increase in sales volumes was primarily the result of acquisition activity , including the rice merger , as well as increased production from the 2015 and 2016 drilling programs , primarily in the marcellus play , partially offset by the normal production decline in the company 's producing wells in 2017. the $ 0.57 per mcfe increase in the average realized price for the year ended december 31 , 2017 was primarily due to the increase in the average nymex natural gas price net of cash settled derivatives of $ 0.29 per mcf , an increase in the average natural gas differential of $ 0.19 per mcf and an increase in liquids prices . the improvement in the average differential primarily 47 related to more favorable basis partly offset by unfavorable cash settled basis swaps . during 2017 , basis improved in the appalachian basin and at sales points reached through the company 's transportation portfolio , particularly in the united states northeast . story_separator_special_tag sg & a expense decreased on an absolute basis in 2017 compared 2016 , primarily due to lower pension expense related to the termination of the eqt corporation retirement plan for employees in the second quarter of 2016 , lower legal reserves in 2017 , a reduction to the reserve for uncollectible accounts , and the absence of costs related to the consolidation of the company 's huron operations in 2016. this was partly offset by higher costs associated with acquisitions . sg & a expense per mcfe decreased in 2018 compared to 2017 and in 2017 compared 2016 due to an increase in sales volumes for each respective period . depreciation and depletion . depreciation and depletion increased as a result of higher produced volumes in 2018 , partly offset by lower depreciation as a result of the 2018 divestitures . depreciation and depletion increased as a result of higher produced volumes partly offset by a lower overall depletion rate in 2017 compared to 2016. replace_table_token_16_th impairment of long-lived assets . impairment of long-lived assets increased $ 2,710.0 million in 2018 compared 2017 , related to the 2018 divestitures . see note 8 to the consolidated financial statements for a discussion of the asset impairment . impairment of goodwill . impairment of goodwill was $ 530.8 million in 2018. as a result of the company 's single reporting unit 's fair value falling below its carrying value , the full carrying value of goodwill was written off and recorded as impairment of goodwill . see note 1 to the consolidated financial statements for a discussion of the goodwill impairment . lease impairments and expirations . lease impairments and expirations increased in 2018 compared to 2017 , primarily due to an increase in the amount of leases that expired during 2018 that were primarily located in non-contiguous or non-core development areas and for impairments of leases not yet expired that are not expected to be drilled or extended prior to expiration during 2019. the increase in the number of leases expiring in 2018 and 2019 is primarily due to acquisition activity completed by the company throughout 2016 and 2017 in addition to the rice merger . lease impairments and expirations decreased in 2017 compared to 2016 , primarily due to a decrease in the number of leases that expired in 2017 and impairments recorded in 2016 for leases not yet expired that would not be drilled prior to expiration . 49 transaction costs . transaction costs in 2018 and 2017 were primarily legal and banking fees related to the rice merger . transaction costs associated with the separation and distribution and a proportionate share of the transaction costs associated with the rice merger were allocated to discontinued operations as described in note 2 to the company 's consolidated financial statements . amortization of intangible assets . in connection with the rice merger , the company obtained intangible assets composed of non-compete agreements with former rice executives . amortization expense for 2018 and 2017 was $ 41.4 million and $ 5.4 million , respectively , for these non-compete agreements , which are being amortized over three years . other income statement items other expense . other expense increased in 2018 as compared to 2017 , primarily due to changes in the fair market value of the company 's investment in equitrans midstream which generated an unrealized loss of $ 72.4 million . the company initiated its investments in trading securities in 2016 to enhance returns on a portion of its significant cash balance at that time . for the years ended december 31 , 2017 and 2016 the company recorded realized losses of $ 2.6 million and unrealized gains of $ 1.5 million , respectively , on these debt securities . as of march 31 , 2017 , the company closed its positions on all trading securities . loss on debt extinguishment . in 2017 , the company recorded loss on debt extinguishment of $ 12.6 million in connection with the early extinguishment on november 3 , 2017 of the $ 200 million aggregate principal amount 5.15 % senior notes due 2018 and $ 500 million aggregate principal amount 6.50 % senior notes due 2018. the loss consists of $ 12.2 million paid in excess of par in order to extinguish the debt prior to maturity and $ 0.4 million in non-cash expenses related to the write-off of unamortized financing costs and discounts . interest expense . interest expense increased $ 61.0 million in 2018 compared to 2017 primarily driven by an additional $ 74.3 million of interest incurred on senior notes issued in october 2017 and an additional $ 24.0 million of interest incurred on credit facility borrowings partly offset by a $ 35.9 million decrease due to the early extinguishment of certain senior notes and a decrease of $ 5.1 million related to expense incurred in 2017 on the company 's senior unsecured bridge loans . interest expense increased $ 36.8 million for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 primarily driven by $ 23.6 million of interest incurred on senior notes issued in october 2017 , $ 5.1 million of expense related to the bridge financing commitment for the rice merger and $ 5.5 million of interest incurred on credit facility borrowings partly offset by a $ 7.0 million decrease due to the early extinguishment of senior notes . see note 10 to the consolidated financial statements for discussion of the borrowings and weighted average interest rates for the company 's credit facility . income tax ( benefit ) .
| consolidated results of operations key events in 2018 : completed the separation and distribution on november 12 , 2018 completed the 2018 divestitures achieved annual sales volumes of 1,488 bcfe and average daily sales volumes of 4,076 mmcfe/d . adjusted for the impact of the 2018 divestitures , total annual sales volumes were 1,447 bcfe or 3,964 mmcfe/d . see further discussion of the separation , distribution and the 2018 divestitures as discussed in the `` key events in 2018 `` section of item 1 , `` business . '' loss from continuing operations for 2018 was $ 2.4 billion , a loss of $ 9.12 per diluted share , compared with income from continuing operations of $ 1.4 billion , $ 7.39 per diluted share , in 2017 . the $ 3.8 billion decrease was primarily attributable to $ 3.5 billion of impairments and losses on the sale of long-lived assets including : $ 2.7 billion associated with the 2018 divestitures , goodwill impairment and higher lease impairments . excluding these items , a $ 1.5 billion increase in operating revenues was offset by higher operating expenses including depreciation and depletion and transportation and processing expenses and higher interest expense as well as a lower tax benefit . income from continuing operations for 2017 was $ 1.4 billion , $ 7.39 per diluted share , compared with a loss from continuing operations of $ 0.5 billion , a loss of $ 3.18 per diluted share , in 2016 .
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the aro represents the estimated amount the company will incur to plug , abandon and remediate the properties at the end of their productive lives , in accordance with applicable state laws . the liability is accreted to its present value each period and the capitalized costs are amortized using the unit-of-production method . the accretion expense is recorded as a component of depreciation , depletion and amortization in the company 's consolidated statements of operations . some of the company 's midstream assets , including certain pipelines and the natural gas processing plants , have contractual or regulatory obligations to perform remediation and , in some instances , dismantlement and removal activities , when the assets are abandoned . the company is not story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this annual report on form 10-k. the following discussion contains “ forward-looking statements ” that reflect our future plans , estimates , beliefs and expected performance . we caution that assumptions , expectations , projections , intentions or beliefs about future events may , and often do , vary from actual results , and the differences can be material . some of the key factors which could cause actual results to vary from our expectations include changes in oil and natural gas prices , weather and environmental conditions , the timing of planned capital expenditures , availability of acquisitions , uncertainties in estimating proved reserves and forecasting production results , operational factors affecting the commencement or maintenance of producing wells , the condition of the capital markets generally , as well as our ability to access them , the proximity to and capacity of transportation facilities , and uncertainties regarding environmental regulations or litigation and other legal or regulatory developments affecting our business , as well as those factors discussed below and elsewhere in this annual report on form 10-k , all of which are difficult to predict . in light of these risks , uncertainties and assumptions , the forward-looking events discussed may not occur . see “ cautionary note regarding forward-looking statements. ” overview we are an independent e & p company focused on the acquisition and development of onshore , unconventional oil and natural gas resources in the united states . since our inception , we have acquired properties that provide current production and significant upside potential through further development . our drilling activity has primarily been directed toward projects that we believe can provide us with repeatable successes in the bakken and three forks formations . on february 14 , 2018 , we acquired approximately 22,000 net acres in the delaware basin from forge energy , llc , representing our initial entry into the delaware basin ( the “ permian basin acquisition ” ) . the permian basin acquisition more than doubled our core net inventory and allows us to further capitalize on our operational strengths . oasis petroleum north america llc ( “ opna ” ) and oasis petroleum permian llc ( “ op permian ” ) c onduct our domestic oil and natural gas e & p activities and own our proved and unproved oil and natural gas properties located in the north dakota and montana regions of the williston basin and the texas regions of the delaware basin , respectively . in 2019 , we will continue our drilling and completion activities in the williston and delaware basins . we also operate a midstream services business through oms holdings llc ( “ oms ” ) and a well services business through oasis well services llc ( “ ows ” ) , both of which are separate reportable business segments that are complementary to our primary development and production activities . the midstream services business is conducted by oasis midstream partners lp ( “ omp ” or “ oasis midstream ” ) , which completed an initial public offering in september 2017. we own the general partner and a majority of the outstanding units of omp . the revenues and expenses related to work performed by oms and ows for opna 's working interests are eliminated in consolidation and , therefore , do not directly contribute to our consolidated results of operations . our use of capital for acquisitions and development allows us to direct our capital resources to what we believe to be the most attractive opportunities as market conditions evolve . we have historically acquired properties that we believe will meet or exceed our rate of return criteria . we built our williston basin assets through acquisitions and development activities , which were financed with a combination of capital from private investors , borrowings under a $ 1,600.0 million senior secured revolving credit facility among opna , as borrower , wells fargo bank , n.a. , as administrative agent and the lenders party thereto ( the “ oasis credit facility ” ) and a $ 400.0 million senior secured revolving credit facility among omp , as parent , omp operating llc , a subsidiary of omp , as borrower , wells fargo bank , n.a. , as administrative agent and the lenders party thereto ( the “ omp credit facility , ” and , together with the oasis credit facility , our “ revolving credit facilities ” ) , cash flows provided by operating activities , proceeds from our senior unsecured notes , proceeds from our public equity offerings , the sale of certain non-strategic oil and gas properties and cash settlements of derivative contracts . for acquisitions of properties with additional development , exploitation and exploration potential , we have focused on acquiring properties that we expect to operate so that we can control the timing and implementation of capital spending . in some instances , we have acquired non-operated property interests at what we believe to be attractive rates of return either because they provided an entry into a new area of interest or complemented our existing operations . story_separator_special_tag in the delaware basin , we are planning a slight increase in well completions from 7 gross ( 6.3 net ) operated wells in 2018 to approximately 9 to 11 gross operated wells in 2019 . additionally , we have the ability to control the pace of completions to allow for additional financial flexibility . in 2018 , we wrote off $ 0.9 million of leases that we did not expect to develop before their 2019 contract expirations , as we continue to focus our 2019 drilling activities in our core acreage in the williston basin and the delaware basin . our 2018 , 2017 and 2016 activities included development and exploration drilling in the williston basin . our current activities are focused on evaluating and developing our asset ba ses in the williston basin and the delaware basin a nd optimizing our operations . based on the reserve reports prepared by our independent reserve engineers , we had 320.5 mmboe of estimated net proved reserves with a pv-10 of $ 4,674.3 million an d a standardized measure of $ 4,050.3 million at december 31 , 2018 , 312.2 mmboe of estimated net proved reserves with a pv-10 of $ 3,683.7 million and a standardized measure of $ 3,300.7 million at december 31 , 2017 and 305.1 mmboe of estimated net proved reserves with a pv-10 of $ 2,627.8 million and a standardized measure of $ 2,483.1 million at december 31 , 2016 . our estimated net proved reserves and related future net revenues , pv-10 and standardized measure were determined using index prices for oil and natural gas , without giving effect to derivative transactions , and were held constant throughout the life of the properties . the unweighted arithmetic av erage first-day-of-the-month prices for the prior twelve months for the years ended december 31 , 2018 , 2017 and 2016 were $ 65.66 per bbl for oil and $ 3.16 per m mbtu for natural gas , $ 51.34 per bbl for oil and $ 2.99 per mmbtu for natural gas and $ 42.60 per bbl for oil and $ 2.47 per mmbtu fo r natural gas , respectively . these prices were adjusted by lease for quality , transportation fees , geographical differentials , marketing bonuses or deductions and other factors affecting the price received at the wellhead . future operating costs , production taxes and capital costs were based on current costs as of each year-end . changes in commodity prices and future operating costs may significantly affect the economic viability of drilling projects as well as the economic valuation and economic recovery of oil and gas reserves . a substantial or extended decline in oil prices could result in a significant decrease in our estimated net proved reserves and related future net revenues , pv-10 and standardized measure in the future . forward commodity prices and estimates of future production also play a significant role in determining impairment . as a result of lower commodity prices and their impact on our estimated future cash flows , we have continued to review our proved oil and natural gas properties for impairment . in 2018 and 2016 , we recorded impairment charges of $ 134.8 million and $ 1.1 million , respectively , to write down our proved properties hel d for sale to their estimated fair value , less costs to sell . no proved impairment charges were recorded during the year ended december 31 , 2017 . the excess of our expected undiscounted future cash flows over the carrying value of our proved oil and natural gas properties in the williston basin has decreased slightly to $ 2,672.8 million as of december 31 , 2018 as compared to an excess of $ 2,697.2 million at december 31 , 2017 . the excess of our expected undiscounted future cash flows over the carrying value of our proved oil and gas reserves in the delaware basin was $ 491.0 million as of december 31 , 2018 . the underlying commodity prices embedded in our expected undiscounted cash flows were determined using nymex forward strip prices for five years , escalating 3 % per year thereafter . our expected undiscounted estimated cash flows also included a 3 % inflation factor applied to the future operating and development costs after five years . in connection with the preparation of the our consolidated financial statements for the year ended december 31 , 2018 , we identified errors in our previously issued 2017 consolidated financial statements related to the presentation of certain crude oil purchase and sale arrangements . specifically , although we previously presented the transactions on a net basis in oil and gas revenues , we were required to present these purchase and sale arrangements on a gross basis in purchased oil and gas expenses and purchased oil and gas sales . we have revised the 2017 annual consolidated financial statements to reflect the correction of errors , which had no effect on our net income . management 's discussion and analysis of financial condition and results of operations set forth below reflects the effects of the revision . please see note 2 of our consolidated financial statements in “ item 8 — financial statements and supplementary data `` for more information related to the revision . story_separator_special_tag roman ; font-size:10pt ; '' > increased $ 555.4 million , or 54 % , to $ 1,590.0 million during the year ended december 31 , 2018 as compared to the year ended december 31 , 2017 . the higher oil and n atural gas production amounts sold increased revenues by $ 302.4 million , coupled with a $ 253.0 million increase due to higher oil and natural gas sales prices year over year .
| highlights we increased our production guidance twice in 2018 , which was adjusted for divestitures . our production volumes averaged 88,288 barrels of oil equivalent per day ( “ boepd ” ) ( 76.2 % oil ) in the fourth quarter of 2018 , in-line with midpoint guidance . our production volumes averaged 82,525 boepd ( 76.5 % oil ) for the year ended december 31 , 2018 ; we lowered our lease operating expenses ( “ loe ” ) per barrels of oil equivalent ( “ boe ” ) by over 12 % year over year to $ 6.44 per boe for the year ended december 31 , 2018 ; 62 we completed and placed on production 121 gross ( 85.3 net ) operated wells , including 114 gross ( 79.0 net ) operated wells in the williston basin and 7 gross ( 6.3 net ) operated wells in the delaware basin , while investing $ 942.2 million of exploration and production capital expenditures , which excludes acquisitions , other capital and midstream capital , during 2018 ; we closed and integrated the permian basin acquisition of approximately 22,000 net core acres in the over-pressured oil window of the delaware basin .
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overview the md & a is based on our 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 certain estimates and judgments that affect the reported amounts of assets , liabilities and expenses and related disclosure of contingent assets and liabilities . management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions and conditions . our business we create and distribute products which we believe are entertaining , educational and beneficial to the well-being of infants and young children under our brands . we create , market and sell children 's videos , music , books and other . we license the use of our intellectual property , both domestically and internationally , to others to manufacture , market and sell products based on our characters and brand . we own , control , distribute and seek to build animated content and brands aimed at kids , and then license the brands and characters onto various products , including toys , publishing video games , music , apparel and soft goods . in most cases , we create our own original content . in other cases , we partner with existing rights holders to develop an idea or an existing brand . on november 15 , 2013 , we entered into an agreement and plan of reorganization ( the “ merger agreement ” ) with a squared entertainment llc , a delaware limited liability company ( “ a squared ” ) , a squared holdings llc , a california limited liability company and sole member of a squared ( the “ parent member ” ) and a2e acquisition llc , our newly formed , wholly-owned delaware subsidiary ( “ acquisition sub ” ) . upon closing of the transactions contemplated under the merger agreement ( the “ merger ” ) , which occurred concurrently with entering into the merger agreement , our acquisition sub merged with and into a squared , and a squared , as the surviving entity , became a wholly-owned subsidiary of the company . as a result of the merger , the company acquired the business and operations of a squared . a squared is a children 's entertainment production company that produces original content for children and families that provide entertaining and educational media experiences . a squared also creates comprehensive consumer product programs in the forms of toys , books and electronics . a squared works with broadcasters , digital and online distributors and retailers worldwide as well as major toy companies , video game companies and top licensees in the kids and family arena . on april 2 , 2014 , we filed a certificate of amendment to our articles of incorporation to affect a reverse split of our issued and outstanding common stock on a one-for-one hundred basis . the reverse stock split was effective with finra ( financial industry regulatory authority ) on april 7 , 2014. all common stock share and per share information in this annual report , including the accompanying consolidated financial statements and notes thereto , has been adjusted to reflect retrospective application of the reverse split , unless otherwise indicated . in november 2009 , a squared entertainment llc ( “ a squared ” ) formed a joint venture , stan lee comics , llc , with pow entertainment inc. ( “ pow ” ) , a california corporation , and archie comic publications , inc. ( “ archie ” ) , a new york corporation , to create , distribute , and exploit comic books and other intellectual property based on exclusive properties created by stan lee and owned by pow entertainment , inc. each of a squared , pow , and archie own one-third of stan lee comics , llc . upon formation , the parties agreed that pow would contribute certain properties to stan lee comics , llc as consideration for its ownership interest . similarly , a squared would contribute certain creative development functions and be entitled to the exercise of all audio-visual development , production and distribution rights in all media , as well as all merchandising rights , in and to the contributed properties as consideration for its ownership interest . finally , archie would be entitled to all comic book publication and distribution rights in and to the contributed properties as consideration for its ownership interest . each party would be entitled to one-third of any net proceeds derived from the contributed properties or their derivative works after recoupment of production cost and fees . stan lee comics , llc is the owner of the stan lee and the mighty 7 property . upon closing of the merger , the company assumed the rights to stan lee comics , llc held by a squared entertainment , llc . 13 story_separator_special_tag 27 , 2012 , the company entered into a securities purchase agreement whereby the company issued and sold ( i ) a $ 1,000,000 16 % senior secured convertible debenture due june 27 , 2014 ( the “ debenture ” ) , and ( ii ) a common stock purchase warrant ( the “ debenture warrant ” ) to purchase up to 50,000 shares of the company 's common stock . the initial closing of the debenture and warrant transaction occurred on june 27 , 2012 ( “ original issue date ” ) . the company issued the debenture and the debenture warrant for the purchase price of $ 1,000,000. the debenture is convertible , in whole or in part , into shares of common stock upon notice by the holder to the company , subject to certain conversion limitations set forth in the debenture . story_separator_special_tag in february 2011 , as a result of an agreement by each of the four officers to retroactively decrease the amount of the annual salary for 2010 from $ 125,000 per annum per officer to $ 80,000 , the amount of the subordinated officer loans was reduced to an aggregate of $ 1,620,137. in march 2012 , the officers agreed to convert the aggregate sum of $ 1,572,161 to shares of common stock of the company . the remaining note , with a principal balance of $ 159,753 , has a maturity of january 15 , 2015 and a stated interest rate of six percent ( 6 % ) per annum . on october 31 , 2013 , 43,207 shares of restricted common stock were issued in full payment of the remaining subordinated officer loan with a principal amount of $ 159,753 and accrued but unpaid interest in the amount of $ 56,278. the company recognized a gain on the settlement of debt of $ 90,733. for the years ended december 31 , 2013 and 2012 , the interest recorded for these subordinated officer loans was $ 11,390 and $ 33,565 , respectively . on august 30 , 2013 , the company issued 12 % convertible notes to several parties with a maturity date of october 21 , 2013 for an aggregate of $ 530,000 ( “ bridge notes ” ) . the bridge notes have a stated conversion rate of $ 1.212 and can be voluntarily converted at any time by the holder and mandatorily by the company upon certain conditions . cash was received in the aggregate of $ 309,000 from certain non-related parties . four officers and directors of the company , related parties , converted outstanding salaries payable to the new notes in the aggregate of $ 221,000. at issuance , a debt discount of $ 530,000 was recorded . costs related to the issuance of the bridge notes were recognized in 2013 totaling $ 30,715. on november 15 , 2013 , the company issued an aggregate of 448,613 shares of common stock to both non-related and related party holders of the company 's 12 % convertible promissory notes in aggregate principal amount of $ 530,000 and accrued , but unpaid , interest of $ 13,719 in connection with the automatic conversion of the bridge notes upon consummation of the merger . additional expense related to the issuance costs associated with the bridge notes was recognized in 2013 totaling $ 30,715. during 2013 , total accretion of the debt discount was $ 530,000 resulting in a debt discount balance of $ 0. during 2013 , interest expense associated with the related-party holders of these notes totaled $ 5,720. on february 1 , 2008 , isabel moeller , sister of our former chief executive officer , klaus moeller , loaned $ 310,000 to the company at an interest rate equal to 8 % per annum . the funds were borrowed from ms. moeller in order to reduce outstanding obligations due to genius products , inc. at that time . subsequent agreements extended the maturity date to january 15 , 2015 and reduced the stated interest rate to six ( 6 % ) percent per annum . repayments on the principle balance were made in the aggregate of $ 24,000 during february and april 2011. on april 1 , 2011 , ms. moeller agreed to convert $ 200,000 of the outstanding balance to shares of common stock of the company . on march 31 2012 , ms. moeller agreed to convert the remaining balance of outstanding principal and interest , in the amount of $ 173,385 , to shares of common stock of the company . interest expense for the twelve months ended december 31 , 2013 and 2012 was $ 0 and $ 2,562 , respectively , as the note was paid in full in 2012 . 17 liquidity fiscal year ended december 31 , 2013 compared to december 31 , 2012 cash totaled $ 527,110 and $ 447,548 at december 31 , 2013 and 2012 , respectively . the change in cash is as follows : replace_table_token_6_th during our fiscal years ended december 31 , 2013 and 2012 , our primary sources of cash were from investing and financing activities . during 2013 , our investing activities related primarily to cash provided by and assumed in the merger . during the comparable period in 2012 , our investing activities related to investment in intangible assets and purchases of other fixed assets . during 2013 , our financing activities related primarily to the sale of common stock as well as the issuance of short term debt . during the comparable period in 2012 , our financing activities related to the sale of common stock as well as the issuance of a certain debenture . during both periods , these funds were primarily used to fund operations . operating activities cash used by operations in the twelve months ended december 31 , 2013 was $ 1,120,317 as compared to a use of $ 935,323 during the same period of 2012 , representing an increase in cash used in operations of $ 184,994 based on the operating results discussed above . investing activities cash provided by investing activities for the twelve months ended december 31 , 2013 of $ 212,913 as compared to a use of funds of $ 59,637 for the comparable period in 2012 is the result of the assumption of $ 283,199 in cash from the merger . this source of cash was offset by additional uses of cash from investments in intangible assets of $ 67,461 and $ 2,825 from the acquisitions of certain fixed assets . financing activities cash generated from financing activities during the twelve months ended december 31 , 2013 was $ 986,966 as compared to $ 1,037,167 generated in the prior period . this relates to the sale of common stock as well as the issuance of short term debt .
| results of operations fiscal year ended december 31 , 2013 compared to december 31 , 2012 our summary results are presented below : replace_table_token_1_th 14 revenues . revenues by product segment and for the company as a whole were as follows : replace_table_token_2_th product sales represent physical products in which the company holds intellectual property rights such as trademarks and copyrights , whether registered or unregistered , to the characters and which are manufactured and sold by the company either directly at wholesale to retail stores or direct to consumers through daily deal sites and our website . product sales decreased by $ 4,594,883 due in part to a general decline in market demand for cds and dvds . tv & home entertainment revenue totaled $ 505,552 during the twelve months ended 2013 , with no comparable amounts in 2012 due to the merger . tv & home entertainment revenue is generated from distribution of our properties for broadcast on tv in domestic and foreign markets and the sale of dvds for home entertainment . licensing and royalty revenue includes items for which we license the rights from other companies to copyrights and trademarks of select brands we feel will do well within our distribution channels as well as for our brands licensed to others to manufacture and or market , both internationally and domestically . during the twelve month period ended december 31 , 2013 compared to december 31 , 2012 , this category had increased from $ 292,536 to $ 368,206 , or $ 75,670 ( 26 % ) . this increase is due to a general increase in the demand for our merchandising products and the revenue generated from the licensing income realized by those sales . the 2014 economic outlook is uncertain and although we can not guarantee , we anticipate continued growth in all areas of revenue . the company has retained new foreign sales agents to expand the foreign markets for tv distribution and licensing .
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past due status is based on contractual terms of the loan . in all cases , loans are placed on nonaccrual or charged off if collection of principal or interest is considered doubtful . all interest accrued , but not collected for loans that are placed on nonaccrual or charged off , is reversed against interest income , unless management believes that the accrued interest is recoverable through the liquidation of story_separator_special_tag overview during 2012 , the company reported net income available to common shareholders of approximately $ 10.9 million , or $ 0.46 per share , compared to $ 17.9 million , or $ 0.76 per share , in 2011. the company 's net income as a percentage of average assets for 2012 and 2011 was 0.49 % and 0.71 % , respectively , while the company 's net income as a percentage of average shareholders ' equity was 6.00 % and 8.52 % , respectively . highlights of the company 's performance in 2012 include the following : the company participated in two fdic-assisted acquisitions during 2012. these transactions resulted in after-tax gains of $ 13.0 million , representing the difference between the fair values of the assets acquired and the liabilities assumed . the company received cash payments of $ 31.9 million and $ 138.7 million from the fdic to settle the acquisitions . nonperforming assets decreased approximately $ 38.8 million , or 33.0 % , to $ 78.7 million during 2012. non-accrual legacy loans declined approximately $ 31.9 million and legacy oreo decreased $ 6.8 million . the company 's bulk sale of nonperforming assets in the first quarter of 2012 reduced nonperforming loans by approximately $ 16.1 million , oreo by $ 13.3 million and classified accruing loans by $ 1.8 million . total credit costs for the year ended december 31 , 2012 decreased approximately $ 3.9 million , or 6.6 % , compared to 2011. credit costs include the loan loss provision , losses on the sale of problem loans or oreo and legal costs associated with problem loans or oreo . provision for loan loss expense for the full year 2012 amounted to approximately $ 31.1 million , compared to $ 32.7 million for 2011. tangible common equity to tangible assets increased from 7.99 % at december 31 , 2011 to 8.20 % at december 31 , 2012. tangible common book value per share increased 3.0 % from $ 10.06 at december 31 , 2011 to $ 10.39 at december 31 , 2012. total assets were relatively unchanged during 2012 , ending the year at $ 3.0 billion . during 2012 , cash flows from covered assets ( including loans , oreo and the indemnification asset from fdic-assisted acquisitions ) were used to grow traditional earning assets . as such , the company reduced covered assets by approximately $ 136.8 million and grew legacy loans and investment securities by $ 159.7 million during 2012. the company 's net interest margin increased slightly to 4.60 % in 2012 , from 4.57 % in 2011. lower yields on most earning asset classes were offset by lower funding costs . deposit costs , the company 's largest funding expense , declined from 0.98 % in 2011 to 0.51 % in 2012 , due to shifts in the deposit mix . the company repurchased 24,000 of the 52,000 preferred shares originally issued to the treasury under tarp in november 2008. the reduction in the number of preferred shares outstanding will reduce the preferred stock dividends payable by the company , positively impacting future financial results . critical accounting policies ameris has established certain accounting and financial reporting policies to govern the application of accounting principles generally accepted in the united states of america ( gaap ) in the preparation of our financial statements . our significant accounting policies are described in note 1 to the consolidated financial statements . certain accounting policies involve significant judgments and assumptions by management which have a material impact on the carrying value of certain assets and liabilities ; management considers these accounting policies to be critical accounting policies . the judgments and assumptions used by management are based on historical experience and other factors which are believed to be reasonable under the circumstances . because of the nature of the judgments and assumptions made by management , actual results could differ from the judgments and estimates adopted by management which could have a material impact on the carrying values of assets and liabilities and the results of our operations . we believe the following accounting policies applied by ameris represent critical accounting policies . allowance for loan losses we believe the allowance for loan losses is a critical accounting policy that requires the most significant judgments and estimates used in the preparation of our consolidated financial statements . the allowance for loan losses represents management 's estimate of probable loan losses inherent in the company 's loan portfolio . calculation of the allowance for loan losses represents a critical accounting estimate due to the significant judgment , assumptions and estimates related to the amount and timing of estimated losses , consideration of subjective environmental factors and the amount and timing of cash flows related to impaired loans . 30 index to financial statements management believes that the allowance for loan losses is adequate . while management uses available information to recognize losses on loans , future additions to the allowance for loan losses may be necessary based on changes in economic conditions . in addition , various regulatory agencies , as an integral part of their examination processes , periodically review the company 's allowance for loan losses . such agencies may require the company to recognize additions to the allowance for loan losses based on their judgments about information available to them at the time of their examination . story_separator_special_tag income taxes gaap requires the asset and liability approach for financial accounting and reporting for deferred income taxes . we use the asset and liability method of accounting for deferred income taxes and provide deferred income taxes for all significant income tax temporary differences . see note 13 , income taxes , in the notes to consolidated financial statements for additional details . as part of the process of preparing our consolidated financial statements we are required to estimate our income taxes in each of the jurisdictions in which we operate . this process involves estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items , such as gains on fdic-assisted transactions and the provision for loan losses , for tax and financial reporting purposes . these differences result in deferred tax assets and liabilities that are included in our consolidated balance sheet . we must also assess the likelihood that our deferred tax assets will be recovered from future taxable income , and to the extent we believe that recovery is not likely , we must establish a valuation allowance . significant management judgment is required in determining our provision for income taxes , our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets . to the extent we establish a valuation allowance or adjust this allowance in a period , we must include an expense within the tax provisions in the statement of income . we have recorded on our consolidated balance sheet net deferred tax liabilities of $ 9.5 million as of december 31 , 2012. deferred gains on fdic-assisted transactions represent the company 's largest deferred tax liability , totaling $ 17.3 million . allowances for loan losses associated with loans where no loss has yet been recorded for tax purposes represent the company 's largest deferred tax asset , totaling $ 8.3 million . long-lived assets , including intangibles during 2010 , the bank recorded new goodwill totaling $ 956,000 related to the acquisition of tbc . no goodwill was expensed or amortized during 2012 or 2011 in accordance with gaap . at december 31 , 2012 , the company 's balance of intangible assets totaled $ 3.0 million and is being amortized over its previously determined useful life . during 2012 , the bank recorded new core deposit intangibles totaling $ 1.1 million in the acquisition of cbg . the bank recorded new core deposit intangibles totaling $ 1.7 million related to the acquisitions of scb , fbj , tbc and dbt during 2010. net income/ ( loss ) and earnings per share the company 's net income available to common shareholders during 2012 was approximately $ 10.9 million , or $ 0.46 per diluted share , compared to $ 17.9 million , or $ 0.76 per diluted share , in 2011 , and compared to a net loss available to common shareholders during 2010 of $ 7.2 million , or $ 0.35 per diluted share . for the fourth quarter of 2012 , the company recorded net income available to common shareholders of approximately $ 3.6 million , or $ 0.15 per diluted share , compared to $ 322,000 , or $ 0.01 per diluted share , for the quarter ended december 31 , 2011 , and $ 1.1 million , or $ 0.04 per diluted share , for the quarter ended december 31 , 2010 . 32 index to financial statements earning assets and liabilities average earning assets in 2012 were almost unchanged at approximately $ 2.50 billion . the earning asset and interest-bearing liability mix is regularly monitored to maximize the net interest margin and , therefore , increase return on assets and shareholders ' equity . the following statistical information should be read in conjunction with the remainder of management 's discussion and analysis of financial condition and results of operation and the consolidated financial statements and related notes included elsewhere in this annual report and in the documents incorporated herein by reference . the following tables set forth the amount of our interest income or interest expense for each category of interest-earning assets and interest-bearing liabilities and the average interest rate for total interest-earning assets and total interest-bearing liabilities , net interest spread and net interest margin on average interest-earning assets . federally tax-exempt income is presented on a taxable-equivalent basis assuming a 35 % federal tax rate . replace_table_token_4_th 33 index to financial statements story_separator_special_tag growth in mortgage banking revenues due to recent recruiting efforts and further implementation of new services within the mortgage banking industry . service charges on deposit accounts increased 8.3 % in 2012 , from $ 18.1 million in 2011 , to $ 19.6 million in 2012. this growth is the result of deposit growth from fdic-assisted acquisitions , as well as strong internal growth in transaction accounts . 2011 compared to 2010. total non-interest income in 2011 was $ 52.8 million compared to $ 35.2 million in 2010 , an increase of $ 17.6 million . the majority of the increase in non-interest income is the $ 12.2 million increase in gains realized on the fdic-assisted transactions . in determining the gain from these transactions , the company evaluated the fair value of the assets acquired and the liabilities assumed . because the company 's bid to acquire the assets included discounts totaling $ 56.0 million in 2011 and because the anticipated losses were covered by loss-sharing agreements with the fdic , ameris determined that the fair value of the assets acquired exceeded the liabilities assumed . service charges on deposit accounts represent the largest component of recurring non-interest income . in 2011 , excluding gains on securities and on acquisitions , service charges were 70 % of total non-interest income , compared to 74 % in 2010. the increase in service charges was due to the increased number of deposit accounts as a result of the fdic-assisted transactions . mortgage banking activities increased as the company hired new mortgage producers to expand its mortgage banking business .
| results of operations net interest income net interest income represents the amount by which interest income on interest-earning assets exceeds interest expense incurred on interest-bearing liabilities . net interest income is the largest component of our income and is affected by the interest rate environment and the volume and composition of interest-earning assets and interest-bearing liabilities . our interest-earning assets include loans , investment securities , interest-bearing deposits in banks and federal funds sold . our interest-bearing liabilities include deposits , other short-term borrowings , fhlb advances and subordinated debentures . 2012 compared to 2011. for the year ended december 31 , 2012 , interest income was $ 129.5 million , a decrease of $ 11.6 million , or 8.2 % , compared to the same period in 2011. average earning assets of $ 2.50 billion for the year ended december 31 , 2012 were relatively unchanged from december 31 , 2011. yield on average earning assets on a taxable equivalent basis decreased during 2012 to 5.20 % , compared to 5.68 % for the year ended december 31 , 2011. however , lower yields on most earning assets have been offset by lower funding costs . interest expense on deposits and other borrowings for the year ended december 31 , 2012 was $ 15.1 million , compared to $ 27.5 million for the year ended december 31 , 2011. the company 's funding mix continued to improve during 2012 , leading to significant savings in cost of funds .
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the investments we have made in both productivity and cost savings resulted in a business model that is more efficient and effective , enabling us to deliver predictable , consistent and achievable marketplace and financial performance . we continue to generate strong cash flow from operations and our financial position remains solid . adjusted non-gaap financial measures our “ management 's discussion and analysis of financial condition and results of operations ” section includes certain measures of financial performance that are not defined by u.s. generally accepted accounting principles ( “ gaap ” ) . for each of these non-gaap financial measures , we are providing below ( 1 ) the most directly comparable gaap measure ; ( 2 ) a reconciliation of the differences between the non-gaap measure and the most directly comparable gaap measure ; ( 3 ) an explanation of why our management believes these non-gaap measures provide useful information to investors ; and ( 4 ) additional purposes for which we use these non-gaap measures . we believe that the disclosure of these non-gaap measures provides investors with a better comparison of our year-to-year operating results . we exclude the effects of certain items from income before interest and income taxes ( “ ebit ” ) , ebit margin , net income and income per share-diluted-common stock ( “ eps ” ) when we evaluate key measures of our performance internally , and in assessing the impact of known trends and uncertainties on our business . we also believe that excluding the effects of these items provides a more balanced view of the underlying dynamics of our business . adjusted non-gaap financial measures exclude the impacts of charges or credits recorded during the last four years associated with our business realignment initiatives and impairment charges . non-service-related pension expenses also are excluded for each of the last four years , along with acquisition closing , integration and transaction costs , and a gain on the sale of certain non-core trademark licensing rights in 2011. non-service-related pension expenses include interest costs , the expected return on pension plan assets , the amortization of actuarial gains and losses , and certain curtailment and settlement losses or credits . non-service-related pension expenses may be very volatile from year-to-year as a result of changes in interest rates and market returns on pension plan assets . therefore , we have excluded non-service-related pension expense from our results in accordance with gaap . we believe that non-gaap financial results excluding non-service-related pension expenses will provide investors with a better understanding of the underlying profitability of our ongoing business . we believe that the service cost component of our total pension benefit costs closely reflects the operating costs of our business and provides for a better comparison of our operating results from year-to-year . our most significant defined benefit pension plans were closed to most new participants after 2007 , resulting in ongoing service costs that are stable and predictable . 18 replace_table_token_1_th replace_table_token_2_th 19 replace_table_token_3_th story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > selling , marketing and administrative expenses increased $ 218.7 million or 12.8 % in 2013. contributing to the overall increase was a 19.7 % increase in advertising , consumer promotions and other marketing expenses to support core brands and the introduction of new products in the u.s. and international markets . advertising expenses increased 21.3 % compared with 2012. additionally , selling and administrative expenses increased 8.8 % primarily as a result of higher employee-related expenses , increased incentive compensation costs , legal fees and increased marketing research expenses , along with the write-off of certain assets associated with the remodeling of increased office space . there were minimal business realignment charges included in sm & a in 2013 compared with $ 2.5 million in 2012 . 2012 compared with 2011 selling , marketing and administrative expenses increased $ 226.0 million or 15.3 % in 2012. the increase was primarily a result of increased advertising , marketing research and consumer promotion expenses , higher employee-related expenses , increased incentive compensation costs and expenses associated with the brookside acquisition . in addition , selling , marketing and administrative costs were reduced in 2011 by a $ 17.0 million gain on the sale of non-core trademark licensing rights . advertising expense increased approximately 15.9 % compared with 2011. business realignment charges of $ 2.5 million were included in selling , marketing and administrative expenses in 2012 compared with $ 5.0 million in 2011. business realignment and impairment charges in june 2010 , we announced project next century ( the “ next century program ” ) as part of our ongoing efforts to create an advantaged supply chain and competitive cost structure . as part of the program , production was transitioned from the company 's century-old facility at 19 east chocolate avenue in hershey , pennsylvania , to an expanded west hershey facility , which was built in 1992. production from the 19 east chocolate avenue plant , as well as a portion of the workforce , was fully transitioned to the west hershey facility during 2012. we estimate that the next century program will incur total pre-tax charges and non-recurring project implementation costs of $ 190 million to $ 200 million . as of december 31 , 2013 , total costs of $ 190.4 million have been recorded over the last four years for the next century program . total costs of $ 16.8 million were recorded during 2013. total costs of $ 76.3 million were recorded in 2012 , total costs of $ 43.4 million were recorded in 2011 and total costs of $ 53.9 million were recorded in 2010. during 2009 , we completed our comprehensive , supply chain transformation program initiated in 2006 ( the “ global supply chain transformation program ” ) . story_separator_special_tag 2012 compared with 2011 net interest expense in 2012 was higher than in 2011 primarily as a result of higher short-term borrowings and a decrease in capitalized interest , partially offset by lower interest expense on long-term debt . 24 income taxes and effective tax rate 2013 compared with 2012 our effective income tax rate was 34.4 % for 2013 compared with 34.9 % for 2012. the decrease in the effective income tax rate in 2013 reflected lower state income taxes , which were higher in 2012 as a result of the impact of certain state tax legislation , and an increase in deductions associated with certain foreign tax jurisdictions , partially offset by a higher benefit in 2012 resulting from the completion of tax audits . 2012 compared with 2011 our effective income tax rate was 34.9 % for 2012 compared with 34.7 % for 2011. the effective income tax rate was slightly higher in 2012 primarily reflecting the impact of tax rates associated with business realignment and impairment charges recorded in 2012 compared with 2011 and the mix of the company 's income among various tax jurisdictions . net income and net income per share 2013 compared with 2012 earnings per share-diluted increased $ 0.72 , or 24.9 % in 2013 compared with 2012. net income in 2013 was reduced by $ 11.8 million , or $ 0.05 per share-diluted , as a result of net business realignment and impairment charges and , in 2012 , was reduced by $ 57.2 million , or $ 0.25 per share-diluted . in 2013 , net income was reduced by $ 6.6 million , or $ 0.03 per share-diluted , as a result of non-service-related pension expenses . non-service-related pension expenses reduced net income by $ 12.7 million , or $ 0.06 per share-diluted in 2012. excluding the impact of business realignment and impairment charges and non-service-related pension expenses from both periods and the acquisition closing , integration and transaction costs of $ 5.4 million , or $ 0.03 per share-diluted , in 2013 , and $ 9.2 million , or $ 0.04 per share-diluted , in 2012 , adjusted earnings per share-diluted increased $ 0.48 per share , or 14.8 % in 2013 compared with 2012 . 2012 compared with 2011 earnings per share-diluted increased $ 0.15 , or 5.5 % in 2012 compared with 2011. net income in 2012 was reduced by $ 57.2 million , or $ 0.25 per share-diluted , as a result of net business realignment and impairment charges . net income was reduced by $ 9.2 million , or $ 0.04 per share-diluted , in 2012 as a result of closing and integration costs for the brookside acquisition and by $ 12.7 million or $ 0.06 per share-diluted related to non-service-related pension expenses in 2012. in 2011 , net income was increased by $ 11.1 million , or $ 0.05 per share-diluted , as a result of the gain on sale of trademark licensing rights and reduced by $ 30.9 million , or $ 0.13 per share-diluted , as a result of net business realignment and impairment charges . non-service-related pension expenses reduced net income by $ 2.0 million , or $ 0.01 per share-diluted in 2011. excluding the impact of business realignment and impairment charges and non-service-related pension expenses from both periods , the acquisition closing and integration costs in 2012 and the gain on the sale of trademark licensing rights in 2011 , adjusted earnings per share-diluted increased $ 0.41 per share , or 14.5 % in 2012 compared with 2011. financial condition our financial condition remained strong during 2013 reflecting strong cash flow from operations . business acquisitions acquisitions of businesses are accounted for as purchases and , accordingly , their results of operations have been included in the consolidated financial statements since the respective dates of the acquisitions . the purchase price for each acquisition is allocated to the assets acquired and liabilities assumed . in january 2012 , we acquired all of the outstanding stock of brookside foods ltd. ( “ brookside ” ) , a privately held confectionery company based in abbottsford , british columbia , canada . as part of this transaction , we acquired two production facilities located in british columbia and quebec . the brookside product line is primarily sold in the u.s. and canada in a take-home re-sealable pack type . 25 our financial statements reflect the final accounting for the brookside acquisition . the purchase price for the acquisition was approximately $ 172.9 million . the purchase price allocation of the brookside acquisition is as follows : replace_table_token_7_th ( 1 ) includes customer relationships , patents and covenants not to compete . the excess purchase price over the estimated value of the net tangible and identifiable intangible assets was recorded to goodwill . the goodwill is not expected to be deductible for tax purposes . we included results subsequent to the acquisition date in the consolidated financial statements . if we had included the results of the acquisition in the consolidated financial statements for each of the periods presented , the effect would not have been material . assets a summary of our assets is as follows : replace_table_token_8_th 26 l the change in current assets from 2012 to 2013 was primarily due to the following : higher cash and cash equivalents in 2013 reflecting strong cash flow from operations ; an increase in accounts receivable reflecting higher sales in december 2013 compared with december 2012 ; an increase in total inventories primarily reflecting higher finished goods inventories necessary to support anticipated sales levels of everyday items and the introduction of new products ; and a decrease in current deferred income tax assets primarily reflecting the impact of the change in value of derivative instruments , particularly interest rate swap agreements . l higher property , plant and equipment in 2013 , reflecting capital additions of $ 323.6 million , partly offset by depreciation expense of $ 166.5 million .
| summary of operating results analysis of selected items from our gaap income statement replace_table_token_4_th net sales 2013 compared with 2012 net sales increased 7.6 % in 2013 compared with 2012 due primarily to sales volume increases . sales volume increases of 7.8 % reflected core brand sales increases and incremental sales of new products in the u.s. and our international businesses . higher sales of brookside products contributed approximately 1.3 % to the net sales increase . these increases were partially offset by the unfavorable impact of foreign currency exchange rates which reduced net sales by approximately 0.3 % . net sales in u.s. dollars for our businesses outside of the u.s. and canada increased approximately 15.7 % in 2013 compared with 2012 , reflecting sales volume increases primarily in our focus markets of china , mexico and brazil . net sales increases for our international businesses were offset somewhat by the impact of unfavorable foreign currency exchange rates . 20 2012 compared with 2011 net sales increased 9.3 % in 2012 compared with 2011 due to net price realization and sales volume increases in the u.s. and for our international businesses . net price realization contributed approximately 5.7 % to the net sales increase . sales volume increased net sales by approximately 2.2 % due primarily to sales of new products in the u.s. the brookside acquisition contributed approximately 1.9 % to the net sales increase . these increases were partially offset by the unfavorable impact of foreign currency exchange rates which reduced net sales by approximately 0.5 % . excluding incremental sales from the brookside acquisition , net sales in the u.s. increased approximately 7.1 % compared with 2011 , primarily reflecting net price realization , along with sales volume increases from the introduction of new products . net sales in u.s. dollars for our businesses outside of the u.s. increased approximately 9.1 % in 2012 compared with 2011 , reflecting sales volume increases and net price realization .
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☐ net earnings or loss per share the company calculates net earnings or loss per share in accordance with asc topic 260 “ earnings per share ” . basic earnings or loss per share is computed by dividing the net earnings or loss by the weighted average number of common shares outstanding during the period . diluted earnings or loss per share is computed similar to basic earnings or loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common stock equivalents had been issued and if the additional common shares were dilutive . ☐ foreign currencies translation transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction . monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates . the resulting exchange differences are recorded in the statement of operations . the functional currency of the company is the united states dollars ( “ us $ ” ) and the accompanying financial statements have been expressed in us $ as being the primary currency of the economic environment in which the company operates . the functional currency of the subsidiaries is malaysian ringgit ( “ myr ” ) as being the primary currency of the economic environment in which the subsidiaries operate . in general , for consolidation purposes , assets and liabilities of its subsidiaries whose functional currency is not us $ are translated into us $ , in accordance with asc topic 830-30 , “ translation of financial statement ” , using the exchange rate on the balance sheet date . story_separator_special_tag general . our company was incorporated on april 5 , 2017 and operations of our malaysian company began operations in july 2017. consequently , the following discussion and analysis of the results of operations and financial condition of the company is for fiscal years ended december 31 , 2020 and december 31 , 2019 , respectively . this information should be read in conjunction with the notes to the financial statements that are included elsewhere herein . the consolidated financial statements presented herein ( and to which this discussion relates ) reflect the results of operations of the company and its malaysian subsidiaries . 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 . 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 . we undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this report , except as required by law . readers are urged to carefully review and consider the various disclosures made throughout the entirety of this quarterly report , which are designed to advise interested parties of the risks and factors that may affect our business , financial condition , results of operations and prospects . company overview our financial statements are prepared in us dollars and in accordance with accounting principles generally accepted in the united states . see information immediately below for information concerning the exchange rates at the malaysian translated into us dollars ( “ usd ” ) at various pertinent dates and for pertinent periods . translation of amounts from the local currency of the company into us $ 1 has been made at the following exchange rates for the respective years : replace_table_token_2_th 26 summary of business we have two operating subsidiaries located in malaysia , bionexus gene lab sdn . bhd . ( “ bionexus malaysia ” ) and chemrex corporation sdn . bhd . ( “ chemrex ” ) . bionexus malaysia is an emerging molecular diagnostics company focused on the application of functional genomics to enable early diagnosis and personalized health management . it was incorporated in the state of wyoming on may 12 , 2017. on august 23 , 2017 , we acquired all of the outstanding capital stock of bionexus malaysia , which was incorporated in malaysia on april 7 , 2015. bionexus malaysia owns algorithm software , technology and know-how related to the detection of common diseases through blood analysis which we use in our business . our principal office address is unit 02 , level 10 , tower b , avenue 3 , the vertical business suite ii , bangar south , no . 8 jalan kerinchi , kuala lumpur , malaysia. , our lab is located at lab 353 , chemical science centre , university science malaysia , george town , penang , malaysia . we also have a blood collection center located at 1 st floor , lifecare medical centre , kuala lumpur , malaysia . our telephone number is ( +60 ) 122126512 and web-site is www.bionexusgenelab.com . chemrex is a wholesaler of industrial chemicals for the manufacture of industrial , medical , appliance , aero , automotive , mechanical and electronic industries in asia pacific region . on december 31 , 2020 , we acquired all of the outstanding capital stock of chemrex , which was incorporated in malaysia on september chemrex 's corporate offices and distribution and storage center is located at 4 jalan cj 1/6 kawasan perusahaan cheras jaya , selangor , malaysia . story_separator_special_tag leases in february 2016 , the financial accounting standards board ( fasb ) issued accounting standards update ( asu ) no . 2016-02 , leases , which was subsequently amended in 2018 by asu 2018-10 , asu 2018-11 and asu 2018-20 ( collectively , topic 842 ) . topic 842 will require the recognition of a right-of-use asset and a corresponding lease liability , initially measured at the present value of the lease payments , for all leases with terms longer than 12 months . for operating leases , the asset and liability will be expensed over the lease term on a straight-line basis , with all cash flows included in the operating section of the statement of cash flows . for finance leases , interest on the lease liability will be recognized separately from the amortization of the right-of-use asset in the statement of comprehensive income and the repayment of the principal portion of the lease liability will be classified as a financing activity while the interest component will be included in the operating section of the statement of cash flows . topic 842 is effective for annual and interim reporting periods beginning after december 15 , 2018. early adoption is permitted . upon adoption , leases will be recognized and measured at the beginning of the earliest period presented using a modified retrospective approach . topic 842 allows for a cumulative-effect adjustment in the period the new lease standard is adopted and will not require restatement of prior periods . prior to january 1 , 2019 , the company accounted for leases under asc 840 , accounting for leases . effective january 1 , 2019 , the company adopted the guidance of asc 842 , leases , which requires an entity to recognize a right-of-use asset and a lease liability for virtually all leases . the company adopted asc 842 using a modified retrospective approach . as a result , the comparative financial information has not been updated and the required disclosures prior to the date of adoption have not been updated and continue to be reported under the accounting standards in effect for those periods . 31 property , plant and equipment property , plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses , if any . depreciation is calculated on the straight-line basis to write off the cost over the following expected useful lives of the assets concerned . the principal annual rates used are as follows : replace_table_token_4_th leasehold lands are depreciated over the period of lease term . leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the company will obtain ownership by the end of the lease term . freehold land is not depreciated . property , plant and equipment under construction are not depreciated until the assets are ready for their intended use maintenance and repairs are charged to operations as incurred . expenditures which substantially increase the useful lives of the related assets are capitalized . when properties are disposed of , the related costs and accumulated depreciation are removed from the accounts and any gain or loss is reported in the period the transaction takes place . impairment of long-lived assets long-lived assets primarily include goodwill , intangible assets and property , plant and equipment . in accordance with the provision of asc topic 360 , “ impairment or disposal of long-lived assets ” , the company generally conducts its annual impairment evaluation to its long-lived assets , usually in the fourth quarter of each fiscal year , or more frequently if indicators of impairment exist , such as a significant sustained change in the business climate . the recoverability of long-lived assets is measured at the lowest level group . if the total of the expected undiscounted future net cash flows is less than the carrying amount of the asset , a loss is recognized for the difference between the fair value and carrying amount of the asset . there has been no impairment charge for the years presented . 32 finance lease leases that transfer substantially all the rewards and risks of ownership to the lessee , other than legal title , are accounted for as finance leases . substantially all of the risks or benefits of ownership are deemed to have been transferred if any one of the four criteria is met : ( i ) transfer of ownership to the lessee at the end of the lease term , ( ii ) the lease containing a bargain purchase option , ( iii ) the lease term exceeding 75 % of the estimated economic life of the leased asset , ( iv ) the present value of the minimum lease payments exceeding 90 % of the fair value . at the inception of a finance lease , the company as the lessee records an asset and an obligation at an amount equal to the present value of the minimum lease payments . the leased asset is amortized over the shorter of the lease term or its estimated useful life if title does not transfer to the company , while the leased asset is depreciated in accordance with the company 's depreciation policy if the title is to eventually transfer to the company . the periodic rent payments made during the lease term are allocated between a reduction in the obligation and interest element using the effective interest method in accordance with the provisions of asc topic 835-30 , “ imputation of interest ” . revenue recognition revenue recognized when it is probable that the economic benefits associated with the transaction will flow to the enterprise and the amount of the revenue can be measured reliably . revenue is measured at the fair value of consideration received or receivable .
| results of operations results of operations for the year ended december 31 , 2020 compared to the year ended december 31 , 2019 ( audited ) . the following table sets forth key components of the results of operations for fiscal year ended december 31 , 2020 and 2019 , respectively . as stated herein , on december 31 , 2020 , the company consummated its acquisition of chemrex corporation sdn . bhd . ( “ chemrex ” ) , pursuant to a share exchange agreement by and among the company and chemrex and the chemrex shareholders . accordingly , the audited financial information for the period ended december 31 , 2020 includes the accounts of chemrex and bionexus malaysia and the ( audited ) financial information for the period ended december 31 , 2019 only includes the accounts of bionexus malaysia . 28 the discussion following the table addresses these results . replace_table_token_3_th revenues . for the annual period ended december 31 , 2020 , we had revenues of $ 11,390,440 as compared to revenues of $ 126,955 for the annual period ended december 31 , 2019. the revenues for the current period reflect the acquisition of chemrex and includes the revenues of chemrex . thus , a year to year revenue comparison is not relevant at this time . please refer to note 14. to our audited financial statements for segmented financial information . cost of revenues . for the annual period ended december 31 , 2020 we had cost of revenues of $ 9,670,617 as compared to cost of revenues of $ 71,067 for the annual period ended december 31 , 2019. as stated herein , the higher cost of revenues for the current year end period reflect the acquisition of chemrex . cost of revenues includes other income .
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risk factors in this form 10-k and from time to time in the company 's reports on file at the securities and exchange commission , that could cause neogen corporation 's results to differ materially from those indicated by such forward-looking statements , including those detailed in this management 's discussion and analysis of financial condition and results of operations. in addition , any forward-looking statements represent management 's views only as of the day this form 10-k was first filed with the securities and exchange commission and should not be relied upon as representing management 's views as of any subsequent date . while we may elect to update forward-looking statements at some point in the future , we specifically disclaim any obligation to do so , even if our views change . critical accounting policies and estimates the discussion and analysis of our financial condition and results of operations are based on the consolidated financial statements that have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires that management make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . on an ongoing basis , management evaluates the estimates , including but not limited to , those related to receivable allowances , inventories and intangible assets . these estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . the following critical accounting policies reflect management 's more significant judgments and estimates used in the preparation of the consolidated financial statements . revenue recognition in may 2014 , the fasb issued asu no . 2014-09revenue from contracts with customers ( topic 606 ) . the new standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance , including industry-specific guidance . the core principle of the revenue model is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services . the standard is designed to create greater comparability for financial statement users across industries and jurisdictions and also requires enhanced disclosures . in april 2016 , the fasb issued accounting standards update no . 2016-10 revenue from contracts with customers ( topic 606 ) , which amends and adds clarity to certain aspects of the guidance set forth in asu 2014-09 related to identifying performance obligations and licensing . the guidance became effective for the company on june 1 , 2018. we adopted this standard using the full retrospective approach . this approach was chosen to provide appropriate comparisons against our prior year financial statements ; accordingly , historical information for the years ended may 31 , 2018 and 2017 has been adjusted to conform to the new standard . see revenue recognition section of note 1 to the consolidated financial statements for further discussion . 23 accounts receivable allowance management attempts to minimize credit risk by reviewing customers ' credit history before extending credit and by monitoring credit exposure on a regular basis . an allowance for doubtful accounts receivable is established based upon factors surrounding the credit risk of specific customers , historical trends and other information . collateral or other security is generally not required for accounts receivable . once a receivable balance has been determined to be uncollectible , that amount is charged against the allowance for doubtful accounts . inventory a reserve for obsolete and slow-moving inventory has been established and is reviewed at least quarterly based on an analysis of the inventory , considering the current condition of the asset as well as other known facts and future plans . the reserve required to record inventory at lower of cost or net realizable value may be adjusted as conditions change . product obsolescence may be caused by shelf-life expiration , discontinuance of a product line , replacement products in the marketplace or other competitive situations . goodwill and other intangible assets goodwill represents the excess purchase price over fair value of tangible net assets of acquired businesses after amounts are allocated to other identifiable intangible assets . other intangible assets include customer relationships , trademarks , licenses , trade names , covenants not-to-compete and patents . customer relationship intangibles are amortized on either an accelerated or straight-line basis , reflecting the pattern in which the economic benefits are consumed , while all other amortizable intangibles are amortized on a straight-line basis ; intangibles are generally amortized over 5 to 25 years . we review the carrying amounts of goodwill and other non-amortizable intangible assets annually , or when indications of impairment exist , to determine if such assets may be impaired by performing a quantitative assessment . if the carrying amounts of these assets are deemed to be less than fair value based upon a discounted cash flow analysis and comparison to comparable ebitda multiples of peer companies , such assets are reduced to their estimated fair value and a charge is made to operations . long-lived assets management reviews the carrying values of its long-lived assets to be held and used , including definite-lived intangible assets , for possible impairment whenever events or changes in business conditions warrant such a review . the carrying value of a long-lived asset is considered impaired when the anticipated separately identifiable undiscounted cash flows over the remaining useful life of the asset indicate that the carrying amount of the asset may not be recoverable . story_separator_special_tag we were also negatively impacted by inventory destocking at our largest distributor partners . life sciences sales in this category decreased 25 % in fiscal 2019 compared to the same period in the prior year , as approximately $ 2.4 million of forensic test kit revenues shifted to our operations in brazil , which are reported in the food safety segment . this testing was performed by commercial labs in the u.s. in the prior fiscal year , but has since moved to commercial labs located in brazil . veterinary instruments & disposables revenues in this category decreased 7 % in fiscal 2019 compared to fiscal 2018. protective wear and consumables decreased 17 % , resulting from poor economic conditions in the commercial dairy production market . veterinary instruments sales were down 4 % for the year , however , this product line had a very strong increase in fiscal 2018 , with sales up 23 % in that period compared to the prior year . a 19 % decline in detectable needles was partially offset by strong increases in disposable syringes and aluminum and poly hub needles . animal care & other sales of these products decreased 3 % in fiscal 2019. wound care and injectable vitamin products were down 13 % and 6 % , respectively , due to inventory destocking at distributors ; dairy supplies that we distribute were down 5 % , due to poor economic conditions in the commercial dairy production market . additionally , we spent more on promotional programs and rebates with distributors , which are recorded as contra revenues within this category , in fiscal 2019 than in the prior year . partially offsetting these losses were a 12 % increase in sales of our biologics product line , and a 7 % increase in supplements and other care products , both due to increased demand from end customers in the companion animal and equine markets . rodenticides , insecticides & disinfectants sales in this category decreased 2 % in fiscal 2019 , compared to the same period in the prior year . the decrease was due primarily to the full year impact of toll manufacturing business lost in the third quarter of fiscal year 2018. additionally , rodenticide sales declined due to poor weather conditions causing lower demand and a weak u.s. animal protein market partially caused by tariff issues . genomics services sales in this category increased 11 % in fiscal 2019 , aided by the acquisitions of neogen australasia ( september 2017 ) , livestock genetics ( september 2018 ) and delta genomics ( january 2019 ) ; organic growth in this category was 7 % . strong growth in the beef cattle and companion animal markets was partially offset by revenue decreases in u.s. poultry and porcine markets , despite increases in sample volumes , resulting from a shift to lower priced chips and services . additionally , poor economic conditions in the u. s. commercial dairy production market resulted in lower revenues from that market . year ended may 31 , 2018 compared to year ended may 31 , 2017 food safety : natural toxins , allergens & drug residues sales in this category increased 3 % in fiscal 2018 compared to the prior year . for the allergens and dairy drug residues product lines , test kit sales increased 12 % and 13 % , respectively , for the year . these increases were partially offset by a 26 % decrease in sales of deoxynivalenol ( don ) test kits , as prior year outbreaks of don in corn crops in the u.s. , canada and europe did not recur in fiscal 2018. bacterial & general sanitation sales in this category increased 10 % in fiscal 2018 , led by strong sales of our accupoint sanitation monitoring product line which increased 18 % on strength in both reader equipment and consumable supplies . sales of test kits to detect pathogens increased 16 % , led by growth in listeria products , including our new listeria right now test kit that launched earlier in the fiscal year . additionally , sales of our product line to detect spoilage organisms in processed foods increased 2 % . culture media & other sales in this category increased 12 % in fiscal 2018 compared to fiscal 2017. sales of neogen culture media , formerly marketed as the acumedia and lab m brands , increased 19 % , due to continued strength in products manufactured at lab m in the u.k. and a large non-recurring order from a u.s. customer . this category also includes sales of forensic test kits sold through our brazilian subsidiary , which decreased by 39 % in fiscal 2018. demand in fiscal 2017 was extremely high , due to a new requirement for drug testing of commercial truck drivers , however , sales of these kits in brazil have decreased in fiscal 2018 due to increased competition and customer losses caused by conversion to different testing methods . 28 rodenticides , insecticides & disinfectants sales of products in this category sold through our food safety operations increased 75 % in fiscal 2018 ; excluding the december 2016 acquisitions of quat-chem and rogama , organic growth was 2 % . the increase was primarily due to a nonrecurring large sale of insecticides by rogama to a government health organization . cleaner and disinfectants sold through food safety operations were negatively impacted by termination of a distribution agreement in january 2017 , which resulted in a decline in sales for those distributed products of $ 859,000 in fiscal 2018. genomics services sales of genomics services sold through our food safety operations increased 34 % in fiscal 2018 compared to the same period in the prior year , primarily due to market share increases , particularly in the beef and dairy cattle markets , and incremental business with a large poultry producer , in europe .
| results of operations executive overview consolidated revenues were $ 414.2 million in fiscal 2019 , an increase of 4 % compared to $ 397.9 million in fiscal 2018. organic sales increased 3 % . food safety segment sales were $ 213.5 million in fiscal 2019 , an increase of 10 % compared to $ 194.5 million in fiscal 2018. organic sales increased 9 % , with the acquisition of clarus labs , in august 2018 , contributing the remainder of the growth . animal safety segment sales were $ 200.7 million in fiscal 2019 , a decrease of 1 % compared to $ 203.5 million in fiscal 2018. organic sales decreased 2 % , with the acquisitions of neogen australasia ( september 2017 ) , livestock genetic services ( september 2018 ) and delta genomics ( january 2019 ) partially offsetting the decrease . international sales were 40.1 % of total sales in fiscal 2019 compared to 37.6 % of total sales in fiscal 2018. our effective tax rate was 17.5 % in fiscal 2019 compared to an effective tax rate of 14.0 % in fiscal 2018. net income was $ 60.2 million , or $ 1.15 per diluted share , a decrease of 5 % compared to $ 63.1 million , or $ 1.21 per share , in the prior year . cash generated from operating activities in fiscal 2019 was $ 63.8 million , compared to $ 69.1 million in fiscal 2018. neogen 's results reflect an 11 % increase in international sales in fiscal 2019 compared to the prior year . we continue to focus on increasing our presence and market share throughout the world , while also integrating recent international acquisitions into our product portfolio .
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the partnership has also elected the fair value option for clo vehicles consolidated as a result of the acquisitions of clo management contracts as described in note 3 . acquisitions , goodwill and story_separator_special_tag the following discussion and analysis should be read in conjunction with the blackstone group l.p. 's consolidated financial statements and the related notes included within this annual report on form 10-k. our business blackstone is one of the largest independent managers of private capital in the world . we also provide a wide range of financial advisory services , including financial advisory , restructuring and reorganization advisory and fund placement services . in january 2011 , blackstone separated its credit and marketable alternatives segment into two new segments : hedge fund solutions and credit businesses . please see note 2 . summary of significant accounting policiesbasis of presentation in the notes to consolidated financial statements in part ii . item 8. financial statements and supplementary data . our business is organized into five business segments : private equity . we are a world leader in private equity investing , having managed five general private equity funds , as well as two sector focused funds and a regionally focused fund , since we established this business in 1987. in january 2011 , we commenced the investment period on our sixth general private equity fund . through our private equity funds we pursue transactions throughout the world , including leveraged buyout acquisitions of seasoned companies , transactions involving growth equity or start-up businesses in established industries , minority investments , corporate partnerships , distressed debt , structured securities and industry consolidations , in all cases in strictly friendly transactions . real estate . we are a world leader in real estate investing with an assortment of real estate funds that are diversified geographically and across a variety of sectors . we launched our first real estate fund in 1994 and have managed six opportunistic real estate funds , three european focused real estate funds , and a number of real estate debt investment funds . in addition , in november 2010 , we commenced our management of the bank of america merrill lynch asia real estate platform and during the second half of 2011 , we held our initial closing of our next opportunistic real estate fund . our real estate funds have made significant investments in lodging , major urban office buildings , shopping centers and a variety of real estate operating companies . in addition , our debt investment funds target high yield real estate debt related investment opportunities in the public and private markets , primarily in the united states and europe . hedge fund solutions . blackstone 's hedge fund solutions segment is comprised principally of blackstone alternative asset management ( baam ) . baam was organized in 1990 and has developed into a leading institutional solutions provider utilizing hedge funds across a wide variety of strategies . baam is the world 's largest discretionary allocator to hedge funds . blackstone exited the business of managing publicly listed closed-end investment companies focused on asian equity markets as of december 31 , 2011. the indian-focused and asian-focused closed-end mutual funds are no longer a component of hedge fund solutions . credit businesses . our credit businesses segment is comprised principally of gso capital partners lp ( gso ) . gso manages a variety of credit-oriented funds including senior credit-oriented funds , distressed debt funds , mezzanine funds and general credit-oriented funds . gso is a world leader in credit-oriented products . financial advisory . our financial advisory segment serves a diverse and global group of clients with financial advisory services , restructuring and reorganization advisory services and fund placement services for alternative investment funds . 67 we generate our revenue from fees earned pursuant to contractual arrangements with funds , fund investors and fund portfolio companies ( including management , transaction and monitoring fees ) , and from financial advisory services , restructuring and reorganization advisory services and fund placement services for alternative investment funds . we invest in the funds we manage and , in most cases , receive a preferred allocation of income ( i.e. , a carried interest ) or an incentive fee from an investment fund in the event that specified cumulative investment returns are achieved . the composition of our revenues will vary based on market conditions and the cyclicality of the different businesses in which we operate . net investment gains and investment income generated by the blackstone funds , principally private equity and real estate funds , are driven by value created by our operating and strategic initiatives as well as overall market conditions . our funds initially record fund investments at cost and then such investments are subsequently recorded at fair value . fair values are affected by changes in the fundamentals of the portfolio company , the portfolio company 's industry , the overall economy and other market conditions . business environment world equity and debt markets were mixed in 2011 , characterized by high levels of volatility resulting from macroeconomic , political and regulatory uncertainty . in equities , the msci world index declined 8 % , with developed markets such as the u.s. and europe generally outperforming developing markets in asia and elsewhere . credit indices rose in 2011 , benefiting from strong corporate earnings and higher demand . benchmark rates remained at historic lows although high yield spreads widened 150 basis points , with a sharp increase in investor caution in the second half of the year . average leveraged loan prices declined modestly from 94 % of par at the end of 2010 to 92 % at year-end 2011. monetary policy throughout the world was mixed , but in the u.s. , the federal reserve has remained committed to accommodative policy and inflation has tracked at low levels . corporate earnings were generally better than expected for most of 2011 , and cash flows and balance sheets remained very healthy , although companies have remained cautious in hiring . story_separator_special_tag as the fair value of underlying investments varies between reporting periods , it is necessary to make adjustments to amounts recorded as carried interest to reflect either ( a ) positive performance resulting in an increase in the carried interest allocated to the general partner or ( b ) negative performance that would cause the amount due to the partnership to be less than the amount previously recognized as revenue , resulting in a negative adjustment to carried interest allocated to the general partner . in each scenario , it is necessary to calculate the carried interest on cumulative results compared to the carried interest recorded to date and make the required positive or negative adjustments . the partnership ceases to record negative carried interest allocations once previously recognized carried interest allocations for such fund have been fully reversed . the partnership is not obligated to pay guaranteed returns or hurdles , and therefore , can not have negative carried interest over the life of a fund . accrued but unpaid carried interest as of the reporting date is reflected in investments in the consolidated statements of financial condition . carried interest is realized when an underlying investment is profitably disposed of and the fund 's cumulative returns are in excess of the preferred return . performance fees earned on hedge fund structures are realized at the end of each fund 's measurement period . carried interest is subject to clawback to the extent that the carried interest actually distributed to date exceeds the amount due to blackstone based on cumulative results . as such , the accrual for potential repayment of previously received performance fees , which is a component of due to affiliates , represents all amounts previously distributed to blackstone holdings and non-controlling interest holders that would need to be repaid to the blackstone funds if the blackstone carry funds were to be liquidated based on the current fair value of the underlying funds ' investments as of the reporting date . generally , the actual clawback liability does not become realized until the end of a fund 's life or one year after a realized loss is incurred , depending on the fund . investment income ( loss ) investment income ( loss ) represents the unrealized and realized gains and losses on the partnership 's principal investments , including its investments in blackstone funds that are not consolidated , its equity method investments , and other principal investments . investment income ( loss ) is realized when the partnership redeems all or a portion of its investment or when the partnership receives cash income , such as dividends or distributions , from its non-consolidated funds . unrealized investment income ( loss ) results from changes in the fair value of the underlying investment as well as the reversal of unrealized gain ( loss ) at the time an investment is realized . interest and dividend revenue interest and dividend revenue comprises primarily interest and dividend income earned on principal investments held by blackstone . other revenue other revenue consists of foreign exchange gains and losses arising on transactions denominated in currencies other than u.s. dollars and other revenues . expenses compensation and benefitscompensation compensation and benefits consists of ( a ) employee compensation , comprising salary and bonus , and benefits paid and payable to employees , including senior managing directors and ( b ) equity-based compensation associated with the grants of equity-based awards to employees , including senior managing directors . equity-based compensation compensation cost relating to the issuance of share-based awards to senior managing directors and employees is measured at fair value at the grant date , taking into consideration expected forfeitures , and expensed over the vesting period on a straight line basis . equity-based awards that do not require future service are expensed immediately . cash settled equity-based awards are classified as liabilities and are re-measured at the end of each reporting period . 70 compensation and benefitsperformance fee performance fee compensation and benefits consists of carried interest and performance fee allocations to employees , including senior managing directors , participating in certain profit sharing initiatives . such compensation expense is subject to both positive and negative adjustments . unlike carried interest and performance fees , compensation expense is based on the performance of individual investments held by a fund rather than on a fund by fund basis . other operating expenses other operating expenses represent general and administrative expenses including interest expense , occupancy and equipment expenses and other expenses , which consist principally of professional fees , public company costs , travel and related expenses , communications and information services and depreciation and amortization . fund expenses the expenses of our consolidated blackstone funds consist primarily of interest expense , professional fees and other third-party expenses . non-controlling interests in consolidated entities non-controlling interests in consolidated entities represent the component of partners ' capital in consolidated entities held by third party investors . such interests are adjusted for general partner allocations and by subscriptions and redemptions in funds of hedge funds and certain credit-oriented funds which occur during the reporting period . non-controlling interests related to funds of hedge funds and certain other credit-oriented funds are subject to annual , semi-annual or quarterly redemption by investors in these funds following the expiration of a specified period of time ( typically between one and three years ) , or may be withdrawn subject to a redemption fee in the funds of hedge funds and certain credit-oriented funds during the period when capital may not be withdrawn . as limited partners in these types of funds have been granted redemption rights , amounts relating to third party interests in such consolidated funds are presented as redeemable non-controlling interests in consolidated entities within the consolidated statements of financial condition . when redeemable amounts become legally payable to investors , they are classified as a liability and included in accounts payable , accrued expenses and other liabilities in the consolidated statements of financial condition .
| 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 , 2011. for a more detailed discussion of the factors that affected the results of our five business segments ( which are presented on a basis that deconsolidates the investment funds we manage ) in these periods , see segment analysis below . the following table sets forth information regarding our consolidated results of operations and certain key operating metrics for the years ended december 31 , 2011 , 2010 , and 2009 : replace_table_token_5_th n/m not meaningful . ( a ) the amounts reported for the year ended december 31 , 2011 reflect an adjustment from those reported in our earnings release dated february 2 , 2012 . 77 revenues total revenues were $ 3.3 billion for the year ended december 31 , 2011 , an increase of $ 133.2 million compared to $ 3.1 billion for the year ended december 31 , 2010. the increase in revenues was primarily driven by an increase of $ 227.0 million in management and advisory fees and an increase in performance fees of $ 244.8 million , partially offset by a decrease of $ 347.8 million in investment income ( loss ) .
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in addition , please refer to the risks set forth under the caption “ risk factors ” included in this annual report for a further description of risks and uncertainties affecting our business and financial results . historical trends should not be taken as indicative of future operations and financial results . other than as required under the u.s. federal securities laws or the canadian securities laws , we do not assume a duty to update these forward-looking statements , whether as a result of new information , subsequent events or circumstances , changes in expectations or otherwise . we prepare our financial statements in accordance with accounting principles generally accepted in the united states ( “ u.s . gaap ” or “ gaap ” ) . however , this management 's discussion and analysis of financial condition and results of operations also contains certain non-gaap financial measures to assist readers in understanding our performance . non-gaap financial measures either exclude or include amounts that are not reflected in the most directly comparable measure calculated and presented in accordance with gaap . where non-gaap financial measures are used , we have provided the most directly comparable measures calculated and presented in accordance with u.s. gaap , a reconciliation to gaap measures and a discussion of the reasons why management believes this information is useful to it and may be useful to investors . unless the context otherwise requires , all references in this section to the “ company , ” “ we , ” “ us , ” or “ our ” are to restaurant brands international inc. and its subsidiaries , collectively . overview we are a canadian corporation that serves as the indirect holding company for tim hortons , burger king and popeyes and their consolidated subsidiaries . we are one of the world 's largest quick service restaurant ( “ qsr ” ) companies with approximately $ 31 billion in system-wide sales and approximately 27,000 restaurants in more than 100 countries as of december 31 , 2020. our tim hortons ® , burger king ® , and popeyes ® brands have similar franchise business models with complementary daypart mixes and product platforms . our three iconic brands are managed independently while benefiting from global scale and sharing of best practices . tim hortons restaurants are quick service restaurants with a menu that includes premium blend coffee , tea , espresso-based hot and cold specialty drinks , fresh baked goods , including donuts , timbits ® , bagels , muffins , cookies and pastries , grilled paninis , classic sandwiches , wraps , soups and more . burger king restaurants are quick service restaurants that feature flame-grilled hamburgers , chicken and other specialty sandwiches , french fries , soft drinks and other affordably-priced food items . popeyes restaurants are quick service restaurants featuring a unique “ louisiana ” style menu that includes fried chicken , chicken tenders , fried shrimp and other seafood , red beans and rice , and other regional items . we have three operating and reportable segments : ( 1 ) tim hortons ( “ th ” ) ; ( 2 ) burger king ( “ bk ” ) ; and ( 3 ) popeyes louisiana kitchen ( “ plk ” ) . our business generates revenue from the following sources : ( i ) franchise revenues , consisting primarily of royalties based on a percentage of sales reported by franchise restaurants and franchise fees paid by franchisees ; ( ii ) property revenues from properties we lease or sublease to franchisees ; and ( iii ) sales at restaurants owned by us ( “ company restaurants ” ) . in addition , our tim hortons business generates revenue from sales to franchisees related to our supply chain operations , including manufacturing , procurement , warehousing and distribution , as well as sales to retailers . covid-19 the global crisis resulting from the spread of coronavirus ( “ covid-19 ” ) had a substantial impact on our global restaurant operations in 2020. system-wide sales growth , system-wide sales , comparable sales and net restaurant growth were also negatively impacted for 2020 as a result of the impact of covid-19 . during 2020 , substantially all th , bk and plk restaurants remained open in north america with limited operations , such as drive-thru , takeout and delivery ( where applicable ) and that currently remains the case . while certain markets have opened for dine-in guests , the capacity may be limited , and local conditions may lead to closures or increased limitations . some international markets temporarily closed most 29 or all restaurants and the restaurants that remained open or have reopened may have limited operations . as of the end of december 2020 , over 96 % of our restaurants were open worldwide , including substantially all of our restaurants in north america and asia pacific and approximately 94 % of our restaurants were open in europe , middle east and africa . our operating results substantially depend upon our franchisees ' sales volumes , restaurant profitability , and financial stability . the financial impact of covid-19 has had , and is expected to continue to have , an adverse effect on many of our franchisees ' liquidity and we have worked closely with our franchisees around the world to monitor and assist them with access to appropriate sources of liquidity in order to sustain their businesses throughout this crisis . during 2020 , we offered rent relief programs to eligible th franchisees in canada and eligible bk franchisees in the u.s. and canada who lease property from us . the rent relief program offered to eligible bk franchisees concluded during the third quarter of 2020 and the rent relief program offered to eligible th franchisees was extended through the end of 2021. while in effect , these programs provided working capital support to franchisees and resulted in a reduction in our property revenues . see note 9 , leases , to the accompanying audited consolidated financial statements . story_separator_special_tag the increase in our plk segment was primarily driven by an increase in royalties as a result of an increase in system-wide sales . during 2019 , the increase in franchise and property revenues was driven by an increase of $ 155 million in our bk segment , an increase of $ 71 million in our th segment , and an increase of $ 66 million in our plk segment , partially offset by a $ 52 million unfavorable fx impact . the increases in our bk and plk segments were primarily driven by increases in royalties as a result of system-wide sales growth . additionally , the increase in franchise and property revenues in all of our segments during 2019 reflected the gross recognition of property income from lessee reimbursements of costs such as property taxes and maintenance when we are the lessor in the lease as a result of the application of asc 842 beginning january 1 , 2019. during 2020 , the decrease in franchise and property expenses was driven by a decrease of $ 14 million in our th segment , a decrease of $ 3 million in our plk segment and a $ 3 million favorable fx impact , partially offset by an increase of $ 8 million in our bk segment . overall , the decrease was driven by a decrease in property expenses partially offset by an increase in bad debt expense . during 2019 , the increase in franchise and property expenses was driven by an increase of $ 85 million in our th segment , an increase of $ 38 million in our bk segment , and an increase of $ 2 million in our plk segment , partially offset by a 34 $ 7 million favorable fx impact . the increase in all of our segments during 2019 was driven by the gross recognition of property expenses for costs such as property taxes and maintenance paid by us and reimbursed by lessees when we are the lessor in the lease as a result of the application of asc 842 beginning january 1 , 2019. selling , general and administrative expenses our selling , general and administrative expenses were comprised of the following : replace_table_token_11_th segment selling , general and administrative expenses ( “ segment sg & a ” ) include segment selling expenses , which consist primarily of advertising fund expenses , and segment general and administrative expenses , which are comprised primarily of salary and employee-related costs for non-restaurant employees , professional fees , information technology systems , and general overhead for our corporate offices . segment sg & a excludes share-based compensation and non-cash incentive compensation expense , depreciation and amortization , plk transaction costs , corporate restructuring and tax advisory fees , and office centralization and relocation costs . during 2020 , the decrease in segment sg & a in our th and bk segments was primarily due to a decrease in advertising fund expenses . during 2020 , the increase in segment sg & a in our plk segment was primarily due to an increase in advertising fund expenses resulting from an increase in advertising fund revenue . during 2019 , the increase in segment sg & a in our bk and plk segments is primarily due to an increase in advertising fund expenses . during 2020 and 2019 , the increases in share-based compensation and non-cash incentive compensation expense was primarily due to increases in the number of equity awards granted during 2020 and 2019 , respectively . ( income ) loss from equity method investments ( income ) loss from equity method investments reflects our share of investee net income or loss , non-cash dilution gains or losses from changes in our ownership interests in equity method investees , and basis difference amortization . the change in ( income ) loss from equity method investments during 2020 was primarily driven by an increase in equity method investment net losses that we recognized during the current year , driven by the negative impact of the covid-19 pandemic , and the non-recurrence of an $ 11 million non-cash dilution gain during 2019 from the issuance of additional shares in connection with a merger by one of our equity method investees . the change in ( income ) loss from equity method investments during 2019 was primarily driven by the recognition of a $ 20 million non-cash dilution gain during 2018 on the initial public offering by one of our equity method investees , partially offset by an $ 11 million non-cash dilution gain during 2019 from the issuance of additional shares in connection with a merger by one of our equity method investees . 35 other operating expenses ( income ) , net our other operating expenses ( income ) , net were comprised of the following : replace_table_token_12_th net losses ( gains ) on disposal of assets , restaurant closures , and refranchisings represent sales of properties and other costs related to restaurant closures and refranchisings . gains and losses recognized in the current period may reflect certain costs related to closures and refranchisings that occurred in previous periods . litigation settlements and reserves , net primarily reflects accruals and proceeds received in connection with litigation matters . net losses ( gains ) on foreign exchange is primarily related to revaluation of foreign denominated assets and liabilities . interest expense , net replace_table_token_13_th during 2020 , interest expense , net decreased primarily due to a decrease in the weighted average interest rate in the current year driven by the decrease in interest rates , the 2019 refinancing of our senior secured debt and the 2020 refinancing of a portion of our senior notes , partially offset by an increase in long-term debt .
| results of operations tabular amounts in millions of u.s. dollars unless noted otherwise . segment income may not calculate exactly due to rounding . replace_table_token_7_th ( a ) we calculate the fx impact by translating prior year results at current year monthly average exchange rates . we analyze these results on a constant currency basis as this helps identify underlying business trends , without distortion from the effects of currency movements . replace_table_token_8_th ( b ) segment depreciation and amortization consists of depreciation and amortization included in cost of sales and franchise and property expenses . ( c ) th segment income includes $ 9 million , $ 16 million and $ 15 million of cash distributions received from equity method investments for 2020 , 2019 and 2018 , respectively . 32 replace_table_token_9_th ( d ) bk segment income includes $ 6 million and $ 5 million of cash distributions received from equity method investments for 2019 and 2018 , respectively . no significant cash distributions were received from equity method investments in 2020. replace_table_token_10_th comparable sales th comparable sales were ( 15.7 ) % during 2020 , including canada comparable sales of ( 16.5 ) % . bk comparable sales were ( 7.9 ) % during 2020 , including u.s. comparable sales of ( 5.6 ) % . plk comparable sales were 13.8 % during 2020 , including u.s. comparable sales of 15.7 % . 33 sales and cost of sales sales include th supply chain sales and sales from company restaurants . th supply chain sales represent sales of products , supplies and restaurant equipment , as well as sales to retailers . sales from company restaurants , including sales by our consolidated th restaurant vies , represent restaurant-level sales to our guests . cost of sales includes costs associated with the management of our th supply chain , including cost of goods , direct labor and depreciation , as well as the cost of products sold to retailers .
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( 10 ) property , plant and equipment property , plant and equipment consists of the following ( in thousands ) : replace_table_token_14_th depreciation expense , including amortization of assets recorded under capital leases , totaled approximately $ 3,884,000 and $ 5,199,000 for the years ended december 31 , 2017 and 2016 , respectively . capital expenditures included story_separator_special_tag the following discussion of our consolidated results of operations and financial condition should be read together with the other financial information and consolidated financial statements included in this annual report on form 10-k. this discussion contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from the results anticipated in the forward-looking statements as a result of a variety of factors , including those discussed in “ item 1a . risk factors ” and elsewhere in this annual report on form 10-k. overview w e are a diversified provider of truck components , oil and gas pipeline components and aerospace and defense electronics . we offer a wide range of manufactured products , often under multi-year sole-source contracts with corporations and government agencies . we are organized into two business segments , sypris technologies and sypris electronics . sypris technologies , which is comprised of sypris technologies , inc. and its subsidiaries , generates revenue primarily from the sale of forged , machined , welded and heat-treated steel components and subassemblies including commercial vehicle component parts , high-pressure closures and other fabricated products . sypris electronics , which is primarily comprised of sypris electronics , llc , generates revenue primarily through circuit card and full box build manufacturing , high reliability manufacturing , systems assembly and integration , design for manufacturability and design to specification work . additionally , prior to august 16 , 2016 , sypris electronics included the css product lines ( see note 4 to the consolidated financial statements in this form 10-k ) . we target those markets where we have the expertise , qualifications and leadership position to sustain a competitive advantage . we focus our resources to support the needs of industry leaders that embrace technological innovation and flexibility , coupled with multi-year contractual relationships where possible , as a strategic component of their supply chain management . our leading-edge processes and technologies help our customers remain competitive , and the resulting productivity and flexibility offer an important opportunity for differentiating ourselves from our competitors when it comes to cost , quality , reliability and customer service . sypris technologies outlook in north america , production levels for light , medium and heavy duty trucks steadily increased from a low in the depressed economic environment of 2008 and 2009 through 2015. however , demand in the u.s. commercial vehicle ind ustry softened beginning in the fourth quarter of 2015 along with other durable and non-durable goods sectors in the north american economy and remained soft through most of 2017. the continued strength of the u.s. dollar , the tightening of margins in certain sectors of the commercial vehicle markets and the generally softening markets led the company to reevaluate the strategic importance of each of its customers to the company 's long-term success . in connection with this reevaluation process , the company and meritor determined not to renew their supply agreement for certain of meritor 's domestic , forged axle shafts beginning in 2017. however , the company continues to supply significant volumes of component parts to sistemas automotrices de mexico , s.a de c.v. ( “ sistemas ” ) , meritor 's joint venture in mexico , and continues to supply axle shafts to meritor 's brazilian subsidiary . the company has had a similar reduction in its business with eaton . the oil and gas markets , served by our tube turns® brand of engineered product lines , were also impacted during 2015 and 2016 , as some of our customers ' revenues and capital expenditures declined following the decline in oil prices that began in 2014 and the subsequent price volatility for oil and natural gas . however , oil prices seem to be stabilizing and the oil and gas outlook appears to be improving as domestic pipeline projects continue to be active with u.s. domestic gas and oil production increasing in 2017 and are expected to increase in 2018 . we are pursuing new business in the automotive , light truck , heavy truck , all terrain and off highway markets to achieve a more balanced portfolio across our customers , markets and products . we have recently announced new program awards in each of these markets that are expected to contribute to revenue growth for sypris technologies in 2018 and 2019. in certain instances , these awards remain subject to final contract negotiations , however we believe these opportunities provide a solid multi-year foundation for growth and that additional prospective business is available to further increase revenue in 2018 and 2019 . 18 sypris electronics outlook we have faced challenges within sypris electronics , such as the uncertainty in the worldwide macroeconomic climate and its impact on aerospace and defense spending patterns globally over the last several years , the emergence of new competitors to our manufacturing capabilities , as well as federal government spending uncertainties in the u.s. and the allocation of funds by the u.s. department of defense . despite the uncertainty , revenues for our electronic manufacturing business increased in 2016 and 2017 , as we have begun to generate revenue from the ramp-up of new electronic manufacturing programs . we have recently anno unced new program awards for sypris electronics that contributed to the revenue growth in 2017 , with certain programs continuing into 2018 and 2019. in addition to program awards related to weapons systems , electronic warfare and infrared countermeasures in our traditional aerospace and defense markets , we have also been awarded programs related to the communication and navigation markets which align with our unique capabilities for delivering products for complex , high cost of failure platforms . story_separator_special_tag on february 21 , 2017 , with the benefit of management 's analysis , the board of directors approved a modified exit or disposal plan with respect to the broadway plant , which was substantially complete as of december 31 , 2017. the company has relocated certain assets from the broadway plant to other manufacturing facilities as needed to serve its existing and target customer base and identified underutilized or non-core assets for disposal . management expects to use a portion of the proceeds from the sale of any underutilized or non-core assets to fund costs incurred on the transfer of equipment from the broadway plant in 2018. management will evaluate options for the real estate and any remaining assets in the broadway plant in 2018 . o ur failure or inability to realize our key financial objectives could materially and adversely impair the company 's ability to operate , its cash flows , financial condition and ongoing results . see “ risk factors – we have experienced recent operating losses , and anticipate further operating losses in the near term , as we seek to generate new business revenues to replace the nonrenewal of several large customer contracts ” in part i , item 1a of this annual report on form 10-k. see also note 2 to the consolidated financial statements in this form 10-k. c ritical accounting policies and estimates the preparation of the consolidated financial statements and accompanying notes in conformity with u.s. generally accepted accounting principles requires that we make estimates and assumptions that affect the amounts reported . changes in facts and circumstances could have a significant impact on the resulting estimated amounts included in our consolidated financial statements . we believe the following critical accounting policies affect our more complex judgments and estimates . we also have other policies that we consider to be key accounting policies , such as our policies for revenue recognition for sypris technologies , including cost of sales ; however , these policies do not meet the definition of critical accounting policies because they do not generally require us to make estimates or judgments that are difficult or subjective . allowance for doubtful accounts . we establish reserves for uncollectible accounts receivable based on overall receivable aging levels , a specific evaluation of accounts for customers with known financial difficulties and evaluation of customer chargebacks , if any . these reserves and corresponding write-offs could significantly increase if our customers experience deteriorating financial results or in the event we receive a significant chargeback , which is deemed uncollectible . net revenue and cost of sales . the company recognizes manufacturing revenue when goods have been shipped to our customer , title has passed , the price to the buyer is fixed or determinable and recoverability is reasonably assured . generally , there are no formal substantive customer acceptance requirements or further obligations . if such requirements or obligations exist , then the company recognizes the related revenues at the time when such requirements are completed and the obligations are fulfilled . amounts representing contract change orders or claims are included in net revenue when such costs are invoiced to the customer . shipping and handling costs charged to our customers are included in net revenue , while the corresponding shipping expenses are included in costs of sales . 20 the company also provides engineering design services and repair or inspection services , which are separate from the manufacturing of a product . revenue for services is generally recognized when the services are rendered . additionally , in 2016 and in prior years , the company provided engineering and cyber analytic services through its css business , which was sold on august 16 , 2016 ( see note 4 ) . revenue for engineering and cyber analytic services was generally recognized upon completion of the engineering process or in accordance with milestone billings . net revenue from services , including those provided through the company 's css business prior to its sale in august 2016 , were less than 10 % of our total revenue for all periods presented , and accordingly , are included in net revenue in the consolidated statements of operations . the company previously separately reported revenue as either products revenue for company designed products or as outsourced services revenue , primarily when the design specifications for the manufactured products were provided by our customers . net revenue and cost of sales in the 2016 consolidated statement of operations have been reclassified to conform to the 2017 presentation . there is no impact on net income or stockholders ' equity as a result of these reclassifications . long-lived asset impairment . we perform periodic impairment analysis on our long-lived amortizable assets whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable . when indicators are present , we compare the estimated future undiscounted net cash flows of the operations to which the assets relate to their carrying amount . if the operations are unable to recover the carrying amount of their assets , the long-lived assets are written down to their estimated fair value . fair value is determined based on discounted cash flows , third party appraisals or other methods that provide appropriate estimates of value . a considerable amount of management judgment and assumptions are required in performing the impairment test , principally in determining whether an adverse event or circumstance has triggered the need for an impairment review . pension plan funded status . our u.s. defined benefit pension plans are closed to new entrants and only $ 6 ,000 of service-related costs was recorded in 2017 related to a small number of participants who are still accruing benefits in the louisville hourly and salaried plans . changes in our net obligations are principally attributable to changing discount rates and the performance of plan assets .
| quarterly results the following table presents our unaudited condensed consolidated statements of operations data for each of the eight quarters in the two-year period ended december 31 , 2017. the quarterly results are presented on a 13-week period basis . we have prepared this data on the same basis as our audited consolidated financial statements and , in our opinion , have included all normal recurring adjustments necessary for a fair presentation of this information . you should read these unaudited quarterly results in conjunction with our consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. the consolidated results of operations for any quarter are not necessarily indicative of the results to be expected for any subsequent period . the sum of quarterly earnings per share may differ from the full-year amounts due to rounding . replace_table_token_2_th liquidity and capital resources as a result of sypris technologies ' nonrenewal of certain supply agreements , the company experienced substantially reduced levels of revenue and cash flows beginning in 2015. additionally , softness in the commercial vehicle market , which began in the fourth quarter of 2015 and continued through 2016. these developments prompted us to re-examine our strategies , develop recovery plans and cut our costs significantly . reductions in our available liquidity have also required closer monitoring of the timing of our capital expenditures and cash flows in order to manage our business operations . in response to the events described above , we took significant actions during 2015 and 2016 to identify alternative uses for certain related assets and other contingency plans , including the sale of the company 's manufacturing facility in morganton , north carolina within the sypris technologies segment .
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executive overview our business performance in 2012 was against a background of continued weakness in european demand due to the on-going economic difficulties , especially in southern european countries . demand in other developed markets continued to show slow growth , while enhanced demand for fuel and personal care products in emerging markets boosted prospects in south america and asia-pacific . although global fuel demand was relatively weak , the major weakness was in gasoline demand in the developed markets of europe and north america , driven mainly by a significant improvement in vehicle fuel economy . diesel demand , however , was stronger , supported by global commercial fleet demand , and passenger car demand in europe . there was limited new legislation in the developed markets , with a slow roll out of sulfur and biofuel legislation in other markets . strong demand from the oil and gas sector , notably in north america , provided a positive environment for our nascent oilfield specialties business , while consumer demand for contaminant-free and natural/renewable cosmetic ingredients provides a driver for new technology in personal care . economic difficulties in the european markets have driven softer demand for our polymers business . we have managed our investments in capital equipment , working capital and recruitment of additional skilled personnel in line with these market factors . our capital program and expenses during 2012 included investment in a new information system platform , which we expect to add value to our business in 2014. during 2012 , we completed the acquisition of strata control services , inc. ( strata ) to help build-out our presence in oilfield specialties , and we continue to seek further opportunities for this area in 2013. we also made a non-binding offer for the tpc group , and later withdrew this offer as we felt that we could not derive sufficient shareholder value from the deal . this aborted transaction resulted in a $ 2.1 million charge for acquisition-related costs in the fourth quarter . we also instituted a one-time special dividend of $ 2.00 per share , which was paid on december 21 , 2012 to shareholders of record on december 14 , 2012. critical accounting estimates note 2 of the notes to the consolidated financial statements includes a summary of the significant accounting policies and methods used in the preparation of the consolidated financial statements . contingencies we are subject to legal , regulatory and other proceedings and claims . the company discloses information concerning contingent liabilities in respect of these claims and proceedings for which an unfavorable outcome is more than remote and the potential loss could materially 26 impact our results of operations , financial position and cash flows . we recognize within selling , general and administrative expenses liabilities for these claims and proceedings when it is probable that the company has incurred a loss based on an unfavorable outcome and the amount of the loss can be reasonably estimated and we endeavor to fairly present , in conjunction with the disclosures of these matters in our consolidated financial statements , management 's view of our exposure . we review outstanding claims and proceedings with external counsel as appropriate to assess probability and estimates of loss . when the reasonable estimate is a range , the recognized liability will be the best estimate within the range . if no amount in the range is a better estimate than any other amount then the minimum amount of the range will be recognized . we re-evaluate our assessments each quarter or as new and significant information becomes available . the actual cost of ultimately resolving a claim or proceeding may be significantly different from the amount of the recognized liability . in addition , because it is not permissible to recognize a liability until the loss is both probable and estimable , in some cases there may be insufficient time to recognize a liability prior to the actual incurrence of the loss ( upon verdict and judgment at trial , for example , or in the case of a quickly negotiated settlement ) . environmental liabilities remediation provisions at december 31 , 2012 amounted to $ 29.3 million and relate principally to our ellesmere port site in the united kingdom . we recognize environmental liabilities when they are probable and costs can be reasonably estimated , and asset retirement obligations when there is a legal obligation and costs can be reasonably estimated . the company has to anticipate the program of work required and the associated future expected costs , and comply with environmental legislation in the countries in which it operates or has operated in . the company views the costs of vacating our ellesmere port site as contingent upon if and when it vacates the site because there is no present intention to do so . the company has further determined that , due to the uncertain product life of tel particularly in the market for aviation gasoline and other products being manufactured on site , there are uncertainties as to the probability and timing of the expected costs . such uncertainties have been considered in estimating the provision . pensions the company maintains a defined benefit pension plan covering a number of its current and former employees in the united kingdom . the company also has other much smaller pension arrangements in the u.s. and overseas , but the obligations under those plans are not material . the united kingdom plan is closed to future service accrual , but has a large number of deferred and current pensioners . movements in the underlying plan asset value and projected benefit obligation ( pbo ) are dependent on actual return on investments as well as our assumptions in respect of the discount rate , annual member mortality rates , future return on assets and future inflation . a 27 change in any one of these assumptions could impact the plan asset value , pbo and pension charge recognized in the income statement . story_separator_special_tag given the amount and predictability of the remaining future cash flows from the octane additives segment the company expects goodwill impairment charges to be recognized in the income statement on an approximate straight-line basis to december 31 , 2013. however , since the remaining sales of the octane additives segment are concentrated around a relatively small number of customers , there is a risk that they could dramatically decline resulting in an accelerated impairment of the octane additives segment goodwill as the forecast discounted cash flows from that segment would be reduced . while we believe our assumptions for impairment tests are reasonable , they are subjective judgments , and it is possible that variations in any of the assumptions may result in materially different calculations of impairment charges , if any . 29 other intangible assets ( net of amortization ) and property , plant and equipment at december 31 , 2012 we had $ 68.6 million of other intangible assets ( net of amortization ) , and $ 49.8 million of property , plant and equipment , that are discussed in notes 7 and 5 of the notes to the consolidated financial statements , respectively . these long-lived assets relate to all of our reporting segments and are being amortized or depreciated straight-line over periods of up to 13 years in respect of the other intangible assets and up to 25 years in respect of the property , plant and equipment . we continually assess the markets and products related to these long-lived assets , as well as their specific carrying values , and have concluded that these carrying values , and amortization and depreciation periods , remain appropriate . we also test these long-lived assets for any potential impairment when events occur or circumstances change which suggest that an impairment may have occurred . these types of events or changes in circumstances could include , but are not limited to : introduction of new products with enhanced features by our competitors ; loss of , material reduction in purchases by , or non-renewal of a contract by , a significant customer ; prolonged decline in business or consumer spending ; sharp and unexpected rise in raw material , chemical or energy costs ; and new laws or regulations inhibiting the development , manufacture , distribution or sale of our products . in order to facilitate this testing the company groups together assets at the lowest possible level for which cash flow information is available . undiscounted future cash flows expected to result from the asset groups are compared with the carrying value of the assets and , if such cash flows are lower , an impairment loss may be recognized . the amount of the impairment loss is the difference between the fair value and the carrying value of the assets . fair values are determined using post-tax cash flows discounted at the company 's weighted average cost of capital . if events occur or circumstances change it may cause a reduction in periods over which these long-lived assets are amortized or depreciated , or result in a non-cash impairment of a portion of their carrying value . a reduction in amortization or depreciation periods would have no effect on cash flows . we are continuing with the implementation of a new , company-wide , information system platform . the platform provider is well established in the market . the implementation will be a phased , risk-managed , site deployment and follow a multistage user acceptance program with the existing platform providing a fallback position . internally developed software and other costs capitalized at december 31 , 2012 were $ 10.1 million ( 2011 $ 3.1 million ) . no amortization was recognized in 2012 ( 2011 $ 0.0 million ) . 30 story_separator_special_tag of the increase was due to $ 2.7 million higher legal and other professional expenses and $ 2.1 million higher information technology service platform costs . acquisition-related costs were $ 2.8 million and $ 3.0 million in 2012 and 2011 , respectively . restructuring charge : comprised the following : replace_table_token_11_th impairment of octane additives segment goodwill : was $ 1.2 million and $ 2.0 million in 2012 and 2011 , respectively . effective october 1 , 2011 , we updated the estimates used in the detailed forecast model to calculate impairment charges to reflect the company 's extended estimate for the future life of our octane additives segment from december 31 , 2012 to december 31 , 2013 , resulting in a lower charge . we expect the impairment of octane additives segment goodwill charge for the year ending december 31 , 2013 to be approximately $ 1.3 million . 34 profit on disposal , net : in 2012 the company recognized $ 0.1 million profit following the disposal of surplus real estate . other net income/ ( expense ) : other net expense of $ 2.0 million primarily related to losses on translation of net assets denominated in non-functional currencies in our european businesses offset by net foreign exchange gains on foreign currency forward exchange contracts . in 2011 , other net income of $ 6.3 million was comprised of $ 6.5 million of net foreign currency exchange gains and gains on translation of net assets denominated in non-functional currencies in our european businesses , and $ 0.2 million sundry other expenses . interest expense , net : decreased from $ 3.3 million to $ 1.2 million due to the lower average level of debt in 2012 and losses on interest rate swaps in 2011. income taxes : the effective tax rate was 28.3 % and 7.0 % in 2012 and 2011 , respectively .
| results of operations the following table provides operating income by reporting segment : replace_table_token_7_th 31 results of operations fiscal 2012 compared to fiscal 2011 : replace_table_token_8_th fuel specialties net sales : the table below details the components which comprise the year on year change in net sales spread across the markets in which we operate : replace_table_token_9_th sales volumes in both the americas and aspac declined for the second year running primarily due to lower sales of high volume but low margin products , offset by higher sales of more added value products , resulting in an improved price and product mix in both these markets . sales volumes , and price and product mix , in emea continued to benefit in 2012 from new contracts and contract amendments entered into in 2011 , partially offset by a 32 weakening of the european union euro and british pound sterling against the u.s. dollar . avtel volumes declined 24 % in 2012 , compared to a 13 % increase in 2011 , due to the timing of shipments to customers as opposed to any change in the long-term outlook for that market . this avtel sales volume decline was partially offset by an improved customer mix .
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as a result of many factors , including those factors set forth in the “ risk factors ” section of this annual report , our actual results could differ materially from the results described in or implied by the forward-looking statements contained in this annual report . 32 company overview greenpro capital corp. ( the “ company ” or “ greenpro ” ) , was incorporated in the state of nevada on july 19 , 2013. we provide cross-border business solutions and accounting outsourcing services to small and medium-size businesses located in asia , with an initial focus on hong kong , malaysia and china . greenpro provides a range of services as a package solution ( the “ package solution ” ) to our clients and we believe that our clients can reduce their business costs and improve their revenues . in addition to our business solution services , we also operate a venture capital business through greenpro venture capital limited , an anguilla corporation . one of our venture capital business segments focuses on ( 1 ) establishing a business incubator for start-up and high growth companies to support such companies during critical growth periods , which will include education and support services , and ( 2 ) searching the investment opportunities in selected start-up and high growth companies , which may generate significant returns to the company . our venture capital business focuses on companies located in asia and southeast asia , including hong kong , malaysia , china , thailand and singapore . another venture capital business segment focuses on rental activities of commercial properties and the sale of investment properties . story_separator_special_tag receivable was impaired and has made provision for impairment loss of $ 77,088 for the year ended december 31 , 2018. no impairment was recorded in 2017. impairment of other investments as of december 31 , 2018 , the company determined that its investments in acorn group holdings limited and greenpro ksp holding group limited were impaired and recorded an impairment of unconsolidated investments of $ 618,265. during 2018 , the company made a deposit on a potential real estate acquisition that was subsequently cancelled . as of december 31 , 2018 , the deposit was not returned , and the company determined that the deposit was impaired and recorded an impairment of the deposit of $ 371,932. as a result , total impairment loss of other investments of $ 990,197 was recorded for the year ended december 31 , 2018 and no impairment was recorded in 2017. fair value of common stock issued in connection with financing transaction on july 18 , 2018 , the company sold 906,666 shares of the company 's common stock in a private placement to v1 group limited ( “ v1 group ” ) . the company determined the fair value of the 906,666 shares issued to v1 group was $ 6 per share based on the company 's contemporaneous public offering price , or $ 5,440,000. the company received a net of $ 800,000 from v1 group 's investment . the difference of $ 4,640,000 was recorded as an expense of the transaction . attributable to noncontrolling interest the company recorded income attributable to noncontrolling interest in the consolidated statements of operations for any noncontrolling interest of consolidated subsidiaries . 36 at december 31 , 2018 , the company holds 80 % shareholding of greenpro international limited , and 60 % shareholdings of forward win international limited and yabez ( hong kong ) company limited , respectively . at december 31 , 2018 , the company holds 51 % shareholding of greenpro capital village sdn . bhd . the company recorded net income attributable to noncontrolling interest of $ 224,604 for the year ended december 31 , 2018 and net loss attributable to noncontrolling interest of $ 832,350 for the year ended december 31 , 2017. in 2017 , net loss attributable to noncontrolling interest was mainly due to impairment of goodwill of $ 551,222 allocated to noncontrolling interests in billion sino holdings limited . there was no impairment recorded in 2018. in 2018 , net income attributable to noncontrolling interests was primarily due to a net profit of $ 360,591 generated from forward win international limited and the share of profit to noncontrolling interests was $ 144,237. net loss net losses were $ 8,325,163 and $ 3,116,909 for the year ended december 31 , 2018 and 2017 , respectively . the increase in net loss was mainly due to the fair value of common stock issued in connection with financing transaction expense of $ 4,640,000 in 2018. there were no seasonal aspects that had a material effect on the financial condition or results of operations of the company . other than as disclosed elsewhere in this annual report , we are not aware of any trends , uncertainties , demands , commitments or events for the year ended december 31 , 2018 that are reasonably likely to have a material adverse effect on our financial condition , changes in our financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources , or that would cause the disclosed financial information to be not necessarily indicative of future operating results or financial conditions . off-balance sheet arrangements we have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition , changes in our financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources that are material to our stockholders as of december 31 , 2018. contractual obligations as of december 31 , 2018 , the company 's subsidiary leased an office in hong kong under a non-cancellable operating lease that would have expired in april 2018. in january 2018 , the tenancy agreement had been renewed for three years commencing from may 1 , 2018 and expiring on april 30 , 2021 . story_separator_special_tag in accordance with the provision of asc 360 , the company generally conducts its annual impairment evaluation to its long-lived assets , usually in the fourth quarter of each year , or more frequently if indicators of impairment exist , such as a significant sustained change in the business climate . the recoverability of long-lived assets is measured at the reporting unit level . if the total of the expected undiscounted future net cash flows is less than the carrying amount of the asset , a loss is recognized for the difference between the fair value and carrying amount of the asset . revenue recognition prior to january 1 , 2018 , the company recognized its revenue in accordance with accounting standards codification ( asc ) 605 revenue recognition , upon the delivery of its services or products when : ( 1 ) delivery had occurred or services rendered ; ( 2 ) persuasive evidence of an arrangement existed ; ( 3 ) there are no continuing obligations to the customer ; and ( 4 ) the collection of related accounts receivable was probable . effective january 1 , 2018 , the company adopted the guidance of asc 606 , revenue from contracts . the implementation of asc 606 did not have a material impact on the company 's consolidated financial statements . asc 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contracts , which includes ( 1 ) identifying the contracts or agreements with a customer , ( 2 ) identifying our performance obligations in the contract or agreement , ( 3 ) determining the transaction price , ( 4 ) allocating the transaction price to the separate performance obligations , and ( 5 ) recognizing revenue as each performance obligation is satisfied . the company only applies the five-step model to contracts when it is probable that the company will collect the consideration it is entitled to in exchange for the services it transfers to its clients . the adoption of asc 606 had no effect on previously reported balances . 39 service revenue revenue from the provision of ( i ) business consulting and advisory services and ( ii ) company secretarial , accounting and financial review services are recognized when there is ( i ) an existence of contract or an arrangement ( ii ) services are rendered , ( iii ) the service price is fixed or determinable , and ( iv ) collectability is reasonable assured . for certain service contracts , the completed performance method is applied . revenue , expenses and gross profit are deferred until the performance obligation is complete and collectability is reasonably assured . for contracts where performance is not completed , deferred costs related to revenue are recorded as incurred and deferred revenue is recorded for any payments received on such yet to be completed performance obligations . when all contractual performance obligations have been met , revenue and expenses will be recorded . on an ongoing basis , management monitors these contracts for profitability and when needed may record a liability if a determination is made that costs will exceed revenue . for other service contracts such as company secretarial , accounting and financial review services , revenue is recognized as services are rendered . rental revenue revenues from rental of leasehold land and buildings are recognized on a straight-line basis over the lease term when collectability is reasonably assured and the tenant has taken possession or controls the physical use of the leased assets . sale of properties revenue from the sale of properties is recognized at the time each unit is delivered and title and possession are transferred to the buyer . specifically , the company utilizes the full accrual method where recognition occurs when ( i ) the collectability of the sales price is reasonably assured , ( ii ) the seller is not obligated to perform significant activities after the sale , ( iii ) the initial investment from the buyer is sufficient , and ( iv ) the company recognizes revenue when it satisfies a performance obligation by transferring control of a promised property to a customer . recent accounting pronouncements refer to note 1 in the accompanying financial statements . liquidity and capital resources as of december 31 , 2018 , we had working capital deficiency of $ 541,221 as compared to working capital deficiency of $ 2,070,201 as of december 31 , 2017. the decrease of deficiency amount was mainly due to an increase of cash and cash equivalents , prepaids and other current assets and deferred costs of revenue . we had total current assets of $ 3,176,197 consisting of cash and cash equivalents of $ 2,172,048 , accounts receivable of $ 188,054 , prepaids and other current assets of $ 397,427 , and deferred costs of revenue of $ 418,668 , compared to total current assets of $ 1,853,878 as of december 31 , 2017. the increase was mainly due to the increase of cash and cash equivalents , prepaids and other current assets and deferred costs of revenue . we had current liabilities of $ 3,717,418 mainly consisting of amounts due to related parties of $ 862,532 , accounts payable and accrued liabilities of $ 575,594 and deferred revenue of $ 1,816,358. the company 's net losses were $ 8,325,163 and $ 3,116,909 for the year ended december 31 , 2018 and 2017 , respectively . the increase in net loss was mainly due to fair value of common stock issued in connection with financing transaction of $ 4,640,000 in 2018. for the year ended december 31 , 2018 , the company incurred a net loss of $ 8,325,163 and used cash in operating activities of $ 1,001,421 , and at december 31 , 2018 , the company had a working capital deficiency of $ 541,221. these factors raise substantial doubt about the company 's ability to continue as a going concern within one year of the date that the financial statements are issued .
| results of operations for information regarding our controls and procedures , see part ii , item 9a - controls and procedures , of this annual report . during the years ended december 31 , 2018 and 2017 , we operated in three regions : hong kong , malaysia and china . we derived revenue from rental activities of our commercial properties , sale of properties , and the provision of services . a table further describing our revenue and cost of revenues is set forth below : replace_table_token_2_th 33 comparison of the years ended december 31 , 2018 and 2017 total revenues total revenue was $ 4,213,360 and $ 3,916,372 for the years ended december 31 , 2018 and 2017 , respectively . the increased amount of $ 296,988 was due to the broadening of the range of business services offered and the increase in our client base . we expect revenue from our business services segment to increase as we continue to grow our business and expand into new territories . service revenue revenue from the provision of business services was $ 2,680,748 and $ 3,313,819 for the years ended december 31 , 2018 and 2017 , respectively . it was derived principally from the provision of business consulting and advisory services as well as company secretarial , accounting and financial review services . we experienced a decrease in service income but expect revenue from our business consulting and advisory services will have a steady growth in the following years . rental revenue revenue from rentals was $ 164,392 and $ 178,682 for the years ended december 31 , 2018 and 2017 , respectively . it was derived principally from leasing properties in malaysia and hong kong . we believe our rental income will be stable in the near future .
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cautionary statement regarding forward looking statements the private securities litigation reform act of 1995 provides a safe harbor for certain forward-looking statements . we have made statements in this item 7 and elsewhere in this 2015 annual report that may constitute forward-looking statements. the words believe , expect , anticipate , plan , intend , foresee , should , would , could , or other similar expressions are intended to identify forward-looking statements . these forward-looking statements are based on our current expectations and beliefs concerning future developments and their potential effects on us . there can be no assurance that future developments affecting us will be those that we anticipate . all comments concerning our expectations for future revenues and operating results are based on our forecasts for our existing operations and do not include the potential impact of any future acquisitions . our forward-looking statements , by their nature , involve significant risks and uncertainties ( some of which are beyond our control ) and assumptions . they are subject to change based upon various factors including , but not limited to , the risks and uncertainties described in item 1a of this 2015 annual report . should one or more of these risks or uncertainties materialize , or should any of our assumptions prove incorrect , actual results may vary in material respects from those projected in the forward-looking statements . we undertake no obligation to publicly update or revise any forward-looking statements , whether as a result of new information , future events or otherwise . business description argan , inc. ( the company , we , us , or our ) conducts operations through its wholly owned subsidiaries , gemma power systems , llc and affiliates ( gps ) and southern maryland cable , inc. ( smc ) . through gps , we provide a full range of development , consulting , engineering , procurement , construction , commissioning , operations and maintenance services to the power generation and renewable energy markets for a wide range of customers including independent power project owners , public utilities , municipalities , public institutions and private industry . including its consolidated joint ventures and variable interest entities ( when and where applicable ) , gps represents our power industry services business segment . through smc , we provide telecommunications infrastructure services including project management , construction and maintenance to local governments , the federal government , telecommunications and broadband service providers as well as electric utilities . argan , inc. is a holding company with no operations other than its investments in gps and smc . at january 31 , 2015 , there were no restrictions with respect to inter-company payments from gps or smc to the holding company . the amount of cash and cash equivalents in the consolidated balance sheets included cash held within consolidated joint venture entities . the combined balance of cash and cash equivalents for the joint ventures was approximately $ 123.6 million as of january 31 , 2015. it will be used to cover the future construction costs of the joint ventures . - 23 - story_separator_special_tag the dla , gpi has been provided a first priority lien and security interest in all of the assets of moxie freedom and a first priority lien on moxie 's membership interest in the project entity . moxie freedom reimburses gps for certain project development support costs though additions to each monthly loan draw . at the time that moxie freedom secures construction and working capital financing and repays all development loans and any outstanding obligations related to letters of credit , it shall pay , or cause to be paid , a development success fee to gpi that may be as much as $ 6 million . as additional consideration for the financial commitments made by gpi under the dla , gps was granted the exclusive rights to provide epc contract services for the project in accordance with basic terms that are outlined in the dla . gpi has entered into a participation agreement with an equipment supplier to moxie freedom for this power plant . the supplier agreed to provide gpi with 40 % of the funding for the development loans to moxie freedom ; gpi has received cash from the supplier of approximately $ 755,000 in connection with this agreement as of january 31 , 2015. the supplier received an undivided fractional interest in all present and future loans from gpi . accordingly , it will earn interest on the cash provided to gpi based on an annual rate of 20 % and it will be entitled to receive from gpi 40 % of any of the development success fee earned by gpi in connection with the permanent financing and or sale of the corresponding project . moxie freedom represents a variable interest entity due to the current lack of sufficient equity capital for it to complete the contemplated project development activities . the development loans being made by gpi to moxie freedom represent variable interests in the entity . the consolidated financial statements for the year ended january 31 , 2015 include the accounts of moxie freedom as our variable interests currently provide us with financial control of the vie . through the current arrangements with moxie freedom , gps is deemed to have the power to direct the activities of the vie that most significantly affect its economic performance , and it possesses the rights to receive benefits that could be significant to the vie . - 25 - outlook economic conditions in the united states appear to be improving gradually . however , the progress of the recovery is sluggish , particularly in the construction sectors . the severe impacts of the recession of 2008 including high unemployment , the depressed state of the housing industry , reduced state and local government budgets and unsteady manufacturing activity all contributed to significant reductions in construction spending in the united states from pre-recession levels . story_separator_special_tag in summary , the development of renewable and natural gas-fired power generation facilities should result in new construction opportunities for us . during this difficult time for the construction industry , particularly in our sector , we have been successful in the effective and efficient completion of our epc projects and the control of costs while we pursue new construction business opportunities . despite the intensely competitive business environment , we are committed to the rational pursuit of new construction projects which may result in our decision to make investments in the ownership of new projects , at least during the corresponding development phase . because we believe in the strength of our balance sheet , we are willing to consider certain opportunities that include reasonable and manageable risks in order to assure the award of the related epc contract to us . accordingly , our involvement with the development of the projects sponsored by moxie has reflected careful evaluation of the opportunities and risks . we structured the terms of our involvement with each of these projects in order to minimize the financial risks and to benefit from the successful development of the projects . we remain cautiously optimistic about our long-term growth opportunities despite the lack of a robust economic recovery in our sector of the construction industry . we are focused on expanding our position in the growing power markets where we expect investments to be made based on forecasts of increasing electricity demand covering decades into the future . we believe that our expectations are reasonable and that our future plans are based on reasonable assumptions . our performance on current projects should provide a stable base of business activity for the next year with steady gross margins . should the moxie freedom project be successfully developed , we may earn a success fee that would be smaller than the sizable development success fees earned during the year ended january 31 , 2014 and that would be shared as discussed above . comparison of the results of operations for the years ended january 31 , 2015 and 2014 the following schedule compares our operating results for the years ended january 31 , 2015 and 2014. except where noted , the percentage amounts represent the percentage of revenues for the corresponding year . we reported net income attributable to our stockholders of $ 30,445,000 , or $ 2.05 per diluted share , for the fiscal year ended january 31 , 2015. for the fiscal year ended january 31 , 2014 , we reported a comparable net income amount of $ 40,125,000 , or $ 2.78 per diluted share . replace_table_token_6_th * the cost of revenues percentage amounts represents the percentage of net revenues of the applicable segment . - 27 - revenues power industry services the revenues of the power industry services business increased by $ 158.1 million to $ 376.7 million for the year ended january 31 , 2015 compared with revenues of $ 218.6 million for the year ended january 31 , 2014. the revenues of this business represented approximately 98 % of consolidated revenues for the year ended january 31 , 2015 , and approximately 96 % of consolidated revenues for the year ended january 31 , 2014. the significant current year increase in revenues for the power industry services segment reflected the increased construction activity of the two natural gas-fired , combined cycle power plant projects . the combined revenues related to these two projects represented approximately 88 % of this segment 's revenues for the year ended january 31 , 2015. maintaining the current year level of annual revenues for the year ending january 31 , 2016 may depend on our obtaining new contracts . for the year ended january 31 , 2014 , the revenues of this segment reflected primarily the construction activity on a biomass-fired power plant that was completed during the year ended january 31 , 2015 and on a natural gas-fired peaking plant that was completed last year . the combined revenues of these two projects represented approximately 58 % of the revenues of this segment for the year ended january 31 , 2014. in addition , revenues recognized in connection with the initial construction activity for panda liberty and panda patriot plus the development success fees earned on the purchases of the projects by panda represented approximately 35 % of the revenues of this business segment for the year ended january 31 , 2014. telecommunications infrastructure services most significantly , the 27 % decline in the business of the telecommunications infrastructure services segment for the year ended january 31 , 2015 from the amount of revenues for this segment reported for the year ended january 31 , 2014 reflected the completion last year of a project supporting the state of maryland in its efforts to provide a statewide communications network . our largest customer in this program was howard county , maryland , a key partner with the state representing a collaborative inter-government consortium of local maryland governments that was deploying a state-wide , high-speed , fiber optic network . for the year ended january 31 , 2014 , revenues associated with this project represented approximately 32 % of this segment 's total revenues for the year . partially offsetting this decline , revenues associated with smc 's other customers receiving outside plant services increased by 25 % between the years , and represented approximately 56 % of this segment 's total revenues for the year ended january 31 , 2015. cost of revenues due primarily to the increase in consolidated revenues for the year ended january 31 , 2015 compared with consolidated revenues for the year ended january 31 , 2014 , the corresponding consolidated cost of revenues also increased . these costs were $ 299.5 million and $ 148.6 million for the years ended january 31 , 2015 and 2014 , respectively . gross profit amounts for the years ended january 31 , 2015 and 2014 were $ 83.6 million and $ 78.8 million , respectively .
| overview consolidated revenues increased by $ 155.7 million to $ 383.1 million for the year ended january 31 , 2015 , compared with consolidated revenues of $ 227.4 million for the year ended january 31 , 2014 due to the increased revenues of our power industry services business . the revenues of this group rose by $ 158.1 million to $ 376.7 million for the current year compared with revenues of $ 218.6 million for the year ended january 31 , 2014. the revenues of the telecommunications infrastructure services business segment for the year ended january 31 , 2015 and 2014 were $ 6.4 million and $ 8.8 million , respectively . the current year increase in revenues for the power industry services segment reflected the heightened levels of construction activity on two natural gas-fired , combined cycle power plant projects , the panda liberty and panda patriot power plants . as discussed below , both of these projects are located in the marcellus shale natural gas region of pennsylvania . the combined revenues related to these two projects represented approximately 86 % of consolidated revenues for the year ended january 31 , 2015. gross profit increased to $ 83.6 million for the year ended january 31 , 2015 from $ 78.8 million for the year ended january 31 , 2014 reflecting the increase in the revenues of the power industry services business during the current year while maintaining the gross profit percentages expected for the panda liberty and panda patriot power plant projects . the gross profit results for both years also reflected the effects of completing the final phases of significant power plant projects ahead of schedule which resulted in improvements in the gross profit amounts of these jobs which were recognized near the ends of the jobs .
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foreign currency translation and transactions — the financial position of foreign subsidiaries is translated at the exchange rates in effect at the end of the period , while revenues and expenses are translated at average rates of exchange during the period . gains or losses from translation of foreign operations where the local currency is the functional currency are included as components of accumulated other comprehensive income . gains and losses arising from foreign currency transactions are recorded in `` story_separator_special_tag this annual report on form 10-k and the documents incorporated by reference herein contain forward-looking statements regarding future events and results that are subject to the `` safe harbor '' provisions of the private securities litigation reform act of 1995. all statements , other than statements of historical facts , are statements that could be deemed forward-looking statements . see `` private securities litigation reform act of 1995 safe harbor cautionary statement '' for further information on forward-looking statements . 29 form 10-k part ii cincinnati bell inc. executive summary segment results described in the executive summary and consolidated results of operations section are net of intercompany and intersegment eliminations . on july 2 , 2018 , the company acquired hawaiian telcom holdco , inc. ( `` hawaiian telcom '' ) . the unified communications as a service ( `` ucaas '' ) , hardware , and enterprise long distance products and services provided by the hawaiian telcom business are included within the it services and hardware segment . the entertainment and communications segment includes products delivered by hawaiian telcom such as high-speed internet access , digital subscriber lines , ethernet , dedicated internet access , iru , video , voice lines , consumer long distance and digital trunking . consolidated revenue totaled $ 1,378.2 million for the year ended december 31 , 2018 an increase of $ 312.5 million compared to the same period in 2017 , primarily due to the acquisitions completed in 2018 and 2017. the acquisition of hawaiian telcom contributed $ 175.0 million of revenue in 2018. the acquisition of onx holdings llc ( `` onx '' ) completed in the fourth quarter of 2017 contributed $ 199.0 million of revenue in 2018 , an increase of approximately $ 146.0 million as compared to 2017. in addition to revenue growth from these acquisitions , the increase in revenue due to the demand for our fiber offerings was offset by a decline in legacy revenue . fioptics revenue in cincinnati increased $ 31.3 million for 2018 compared to the same period in 2017. legacy revenue in cincinnati decreased $ 41.4 million for 2018 , compared to the same period in 2017. the increases in cost of services and products , selling , general and administrative , and depreciation and amortization expenses are primarily related to the acquisitions of onx and hawaiian telcom . operating income in 2018 was $ 83.3 million , up $ 27.9 million from the prior year primarily due to a reduction in restructuring and severance related charges of $ 24.4 million as compared to 2017. loss before income taxes totaled $ 60.4 million for the year ended december 31 , 2018 , down $ 127.1 million from 2017. the loss before income taxes is primarily due to increased interest expense of $ 46.3 million due to additional debt acquired to fund the acquisitions of onx in october 2017 and hawaiian telcom in july 2018. in addition , the company recognized a gain on sale of cyrusone investment of $ 117.7 million in 2017 . 30 form 10-k part ii cincinnati bell inc. consolidated results of operations revenue replace_table_token_4_th entertainment and communications revenue increased in 2018 compared to 2017 primarily due to the acquisition of hawaiian telcom , which contributed $ 155.1 million in 2018. in cincinnati , the growth in fioptics partially mitigated the decline in legacy revenue . revenue increased $ 14.6 million in 2017 compared to 2016 primarily due to growth in fioptics in cincinnati . fioptics revenue in cincinnati totaled $ 341.2 million , $ 309.9 million and $ 254.1 million for the years ended december 31 , 2018 , 2017 and 2016 , respectively , up 10 % in 2018 and up 22 % in 2017 from the comparable prior year . it services and hardware revenue increased in 2018 compared to 2017 primarily due to the acquisition of onx that closed in the fourth quarter of 2017 , and to a lesser extent , the acquisition of hawaiian telcom . revenue increased $ 33.5 million in 2017 compared to 2016 due to the acquisition of onx in the fourth quarter of 2017 , which was offset by declines in revenue related to decreased billable headcount as a key customer pursued cost saving initiatives by in-sourcing it professionals . operating costs replace_table_token_5_th entertainment and communications costs increased in 2018 compared to 2017 as a result of the acquisition of hawaiian telcom as well as increases in video content costs due to higher rates charged by our content providers . increases were partially offset by lower payroll and benefits costs related to cincinnati-based operations . lower payroll and benefits costs were related to headcount reductions made during restructuring initiatives that were executed in 2017. costs increased in 2017 compared to 2016 primarily due to increased programming costs associated with the increased video subscriber base in 2017 compared to 2016 as well as rising programming rates . it services and hardware costs increased in 2018 compared to the prior year comparable period primarily due to expense associated with headcount in place for twelve months in 2018 versus three months in 2017 as a result of the acquisition of onx , and to a lesser extent , the acquisition of hawaiian telcom . costs increased in 2017 compared to 2016 due to the acquisition of onx and primarily included payroll and contractor expense supporting consulting services . story_separator_special_tag non-deductible expenses related to the acquisitions of hawaiian telcom and onx were incurred during 2018 and 2017 in the amount of $ 9.0 million and $ 10.4 million , respectively . in addition , changes in the valuation allowance impact income tax expense . in 2018 the company recorded a valuation against non-deductible interest in the amount of $ 15.3 million and increased valuation allowances on state nols by $ 5.9 million . the company uses federal and state net operating loss carryforwards to defray payment of federal and state tax liabilities . the company also had significant alternative minimum tax ( “ amt ” ) refundable tax credit carryforwards available to offset future income tax liabilities . the company made an election on the 2016 income tax return to claim the available portion of these credits in lieu of claiming bonus depreciation and as a result had cash income tax refunds ( net of payments ) totaling $ 12.9m in 2017. the same election was made on the 2017 income tax return and as a result , the company had cash income tax refunds ( net of payments ) , totaling $ 13.8 million in 2018 . 34 form 10-k part ii cincinnati bell inc. story_separator_special_tag style= '' overflow : hidden ; font-size:10pt ; '' > cincinnati bell inc. entertainment and communications , continued replace_table_token_13_th cincinnati fioptics and hawaii consumer/smb fiber ( collectively , `` consumer/smb fiber '' ) consumer/smb fiber revenue increased by $ 73.6 million in 2018 compared to the same period in 2017 primarily due to revenue contributed by hawaiian telcom of $ 42.3 million . hawaiian telcom adds 48,800 video subscribers , 65,900 internet subscribers and 30,300 voice subscribers to the existing base of subscribers . the remaining revenue increase is due to increases in the subscriber base for internet and voice , as well as rate favorability across all products in cincinnati . the internet subscriber base in cincinnati increased by 5 % and the voice subscriber base increased by 2 % . the video subscriber base decreased by 5 % ; however , rate increases mitigated the impact of this decline on revenue . the average revenue per user ( `` arpu '' ) on a year to date basis increased for internet , voice , and video by 3 % , 6 % and 6 % , respectively , compared to the prior year . arpu increases are related to price increases for internet , voice , and video , as well as the change in the mix of subscribers for video . consumer/smb fiber revenue increased in 2017 compared to 2016 due to both rate and volume favorability in cincinnati across all products . our fioptics internet subscriber base increased by 15 % and arpu was up 4 % compared to 2016. fioptics video subscribers increased 6 % in 2017 in addition to a 5 % increase in arpu . fioptics voice subscribers increased by 10 % in 2017 and arpu increased 1 % . enterprise fiber enterprise fiber revenue increased year over year primarily due to incremental revenue of $ 17.7 million from hawaiian telcom , which includes revenue from the sea-us cable , metro-ethernet and dedicated internet access . in addition , revenue increased due to enterprise customers migrating from legacy product offerings to higher bandwidth fiber solutions , as evidenced by the 16 % increase in ethernet bandwidth in cincinnati in both 2018 and 2017 compared to the comparable period in the prior years . the increase in revenue in 2018 contributed by hawaiian telcom and migration of customers was partially offset due to a one-time project that was completed in the second quarter of 2017 in the amount of $ 5.4 million . the one-time project completed in 2017 combined with enterprise customers migrating to higher bandwidth fiber solutions both contributed to the increase of revenue in 2017 compared to 2016 . 39 form 10-k part ii cincinnati bell inc. entertainment and communications , continued legacy legacy revenue increased in 2018 compared to 2017 due to incremental revenue from hawaiian telcom of $ 99.2 million . hawaiian telcom adds 48,700 dsl subscribers and 197,800 voice subscribers to the existing base of subscribers . increased revenue generated by hawaiian telcom was partially offset due to declines in both voice lines and dsl subscribers in cincinnati . declines in voice lines and dsl subscribers in 2018 and 2017 have contributed to the declining revenue in both of those years . voice lines in cincinnati declined 14 % in 2018 compared to 2017 , and 15 % in 2017 compared to 2016 , as the traditional voice lines become less relevant . dsl subscribers in cincinnati decreased by 12 % in 2018 compared to 2017 , and 22 % in 2017 compared to 2016 , as subscribers demand the higher speeds that can be provided by fiber . in addition , declines in ds0 , ds1 , ds3 and digital trunking have contributed to the revenue decline in both 2018 and 2017 compared to the same periods in the prior year as customers migrate away from these solutions to fiber-based solutions . operating costs and expenses cost of services and products increased in 2018 compared to 2017 primarily due to the acquisition of hawaiian telcom . hawaiian telcom contributed $ 80.2 million to cost of services and products in 2018. after considering the impact of the acquisition , costs of services and products decreased by $ 0.6 million . this decrease in 2018 compared to 2017 is primarily due to lower payroll costs due to reduced headcount . payroll related costs are down due to reduced headcount as a result of the restructuring that took place in the first quarter of 2017. network costs are also down due to a large one-time project recognized in the second quarter of 2017. these decreases were partially offset by higher programming costs . higher programming costs are the result of higher rates charged by content providers .
| discussion of operating segment results the company manages its business based upon product and service offerings . for the years ended december 31 , 2018 , 2017 , and 2016 , we operated two business segments : entertainment and communications and it services and hardware . certain corporate administrative expenses have been allocated to our business segments based upon the nature of the expense and the relative size of the segment . intercompany transactions between segments have been eliminated . 35 form 10-k part ii cincinnati bell inc. entertainment and communications the entertainment and communications segment provides products and services that can be categorized as either fioptics in cincinnati or consumer/smb fiber in hawaii ( collectively , `` consumer/smb fiber '' ) , enterprise fiber or legacy . cincinnati bell telephone company llc ( `` cbt '' ) , a subsidiary of the company , is the incumbent local exchange carrier ( `` ilec '' ) for a geography that covers a radius of approximately 25 miles around cincinnati , ohio , and includes parts of northern kentucky and southeastern indiana . cbt has operated in this territory for over 145 years . voice and data services in the enterprise fiber and legacy categories that are delivered beyond the company 's ilec territory , particularly in dayton and mason , ohio , are provided through the operations of cincinnati bell extended territories llc ( `` cbet '' ) , a subsidiary of cbt . on july 2 , 2018 , the company acquired hawaiian telcom . hawaiian telcom is the ilec for the state of hawaii and the largest full service provider of communications services and products in the state . originally incorporated in hawaii in 1883 as mutual telephone company , hawaiian telcom has a strong heritage of over 135 years as hawaii 's communications carrier .
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86 magellan midstream partners , l.p. notes to consolidated financial statements—continued 10. employee benefit plans our pension and postretirement benefit liabilities represent the funded status of the present value of benefit obligations of our employee benefit plans . we develop pension , postretirement medical and life benefit costs from actuarial valuations . we establish actuarial assumptions to anticipate future events and use those assumptions when calculating the expense and liabilities related to these plans . these factors include assumptions management makes concerning expected investment return on plan assets , discount rates , health care costs trend rates , turnover rates and rates story_separator_special_tag introduction we are a publicly traded limited partnership principally engaged in the transportation , storage and distribution of refined petroleum products and crude oil . our three operating segments including the assets of our joint ventures include : our refined products segment , comprised of our 9,700 -mile refined products pipeline system with 53 terminals as well as 26 independent terminals not connected to our pipeline system and our 1,100 -mile ammonia pipeline system ; our crude oil segment , comprised of approximately 2,200 miles of crude oil pipelines , our condensate splitter and storage facilities with an aggregate capacity of approximately 28 million barrels , of which 17 million are used for contract storage ; and our marine storage segment , consisting of five marine terminals located along coastal waterways with an aggregate storage capacity of approximately 26 million barrels . the following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes included in this annual report on form 10-k for the year ended december 31 , 2017. see item 1. business for a detailed description of our business . overview our assets are an integral part of our nation 's energy infrastructure , and we provide essential services to the markets we serve . our straight-forward business model is primarily focused on fee-based transportation and terminal services , moving the fuel that moves america . demand for our services remains strong . in fact , we delivered record volumes on our refined products pipeline system during the year , with an 8 % increase in shipments . this impressive growth was due to record demand for gasoline and diesel fuel in the markets we serve as well as the full-year benefit of our recently-built little rock pipeline , which began operations in mid-2016 . our crude oil pipelines continue to provide important take-away capacity to deliver domestic crude oil to strategic locations in cushing , oklahoma and the texas gulf coast region . we began operations in 2017 of our newly constructed condensate splitter in corpus christi , texas , which is supported by a long-term customer commitment . further , our marine terminals are in high demand as the industry seeks more infrastructure solutions to meet the growing need for storage and export capabilities . the year 2017 was not without its challenges , especially in light of hurricane harvey which hit the texas gulf coast during the third quarter , negatively impacting a number of our facilities . overall , we made it through the storm well , with operations affected for a limited period of time due to the hard work of our dedicated employees , who in many cases were dealing with personal hardships of their own . we are very thankful for their service and diligence to restore our operations as soon and as safely as possible . although a few tanks are still under repair at our galena park facility , the remainder of our impacted assets are back to full strength following the storm . growth projects customer demand to utilize our texas refined products pipeline system exceeds our current capacity . in response , we are building a new 135-mile pipeline segment from our east houston terminal to hearne , texas . this expansion will provide us the ability to deliver nearly 50 % more product originating from the houston area to our texas and midcontinent markets , beginning in mid-2019 . we are pleased to meet the industry 's need for more 46 pipeline capacity serving the dallas market and other important demand centers along our refined products pipeline system with an attractive investment supported by long-term commitments . we increased the capacity of the bridgetex pipeline during the year from 300,000 barrels per day ( “ bpd ” ) to 400,000 bpd to deliver more permian basin production to the houston gulf coast . due to increased demand for take-away capabilities from this region , we are increasing this pipeline system further to 440,000 bpd by early 2019. we also launched a project to construct a 60-mile crude oil and condensate pipeline from the delaware basin to crane , texas , which essentially extends the reach of our longhorn pipeline system and will provide our customers an additional outlet to move volume from this rapidly growing basin to the houston gulf coast refining region . this project is driven by strong customer interest to source volumes directly to longhorn from the delaware basin instead of routing the volumes through midland . this new delaware basin pipeline , which is expected to be operational in mid-2019 , strengthens the supply options to our longhorn pipeline and serves as a logical next step in a broader strategy to expand our service offerings in the permian basin . significant progress has been made to build out our seabrook logistics joint venture , which provides an export solution for crude oil . the first phase of this facility became operational during 2017 , with the second phase on-target for a mid-2018 start-up , including connectivity to our houston crude oil distribution system . to further expand our marine strategy , we announced plans to join forces with valero energy to invest in and expand the pasadena marine terminal that is currently under construction in texas . the initial phase of this new facility is expected to be operational in early 2019 , with the second phase expected to come online in early 2020. story_separator_special_tag a reconciliation of dcf and adjusted ebitda for the years ended december 31 , 2015 , 2016 and 2017 to net income , which is the nearest comparable gaap financial measure , is as follows ( in millions ) : replace_table_token_11_th ( 1 ) because we intend to satisfy vesting of unit awards under our equity-based incentive compensation plan with the issuance of limited partner units , expenses related to this plan generally are deemed non-cash and added back for dcf purposes . the equity-based compensation adjustment for the years ended december 31 , 2015 , 2016 and 2017 was $ 24.3 million , $ 19.4 million and $ 20.6 million , respectively . however , the figures above include adjustments of $ 17.8 million , $ 14.4 million and $ 13.9 million , respectively , for cash payments associated with our equity-based incentive compensation plan , which primarily include tax withholdings . ( 2 ) in september 2017 , we recognized an $ 18.5 million gain in connection with the sale of an inactive terminal in chicago , illinois , which has been deducted from the calculation of dcf because it is not related to our ongoing operations . ( 3 ) in february 2016 , we transferred our 50 % membership interest in osage to an affiliate of hollyfrontier corporation ( “ hfc ” ) . in conjunction with this transaction , we entered into several commercial agreements with affiliates of hfc , which were recorded as intangible assets and other receivables on our consolidated balance sheets . we recorded a $ 28.1 million non-cash gain in relation to this transaction . ( 4 ) in conjunction with the february 2016 osage transaction , hfc agreed to make certain payments to us until hfc completes a connection to our el paso terminal . we recorded a receivable in relation to this transaction , which was fully collected as of september 30 , 2017. the purpose of these payments was to replace distributions we would have received had the osage transaction not occurred and , therefore , these payments are included in our calculation of dcf . ( 5 ) certain derivatives we use as economic hedges have not been designated as hedges for accounting purposes and the mark-to-market changes of these derivatives are recognized currently in earnings . in addition , we have designated certain derivatives we use to hedge our crude oil tank bottoms as fair value hedges and the change in the differential between the current spot price and forward price on these hedges is recognized currently in earnings . we exclude the net impact of both of these adjustments from our determination of dcf until the hedged products are physically sold . in the period in which these hedged products are physically sold , the net impact of the associated hedges is included in our determination of dcf . ( 6 ) we adjust dcf for lower of cost or net realizable value adjustments related to inventory and firm purchase commitments as well as market valuations of short positions recognized each period as these are non-cash items . in subsequent periods when we physically sell or purchase the related products , we adjust dcf for the valuation adjustments previously recognized . 54 ( 7 ) the cash distributions received from non-controlled entities in excess of earnings only include cash flows from ongoing operations of those entities . see note 4 – investments in non-controlled entities in item 1 of part i of this report for more detailed information . ( 8 ) maintenance capital expenditures maintain our existing assets and do not generate incremental dcf ( i.e . incremental returns to our unitholders ) . for this reason , we deduct maintenance capital expenditures to determine dcf . liquidity and capital resources cash flows and capital expenditures operating activities . net cash provided by operating activities was $ 1,069.7 million , $ 964.0 million and $ 1,108.7 million for the years ended december 31 , 2015 , 2016 and 2017 , respectively . the $ 144.7 million increase from 2016 to 2017 was due to higher net income as previously described , adjustments to non-cash items and changes in our working capital . the $ 105.7 million decrease from 2015 to 2016 was due to changes in our working capital , adjustments to non-cash items and lower net income as previously described . investing activities . net cash used by investing activities for the years ended december 31 , 2015 , 2016 and 2017 was $ 810.8 million , $ 857.4 million and $ 570.6 million , respectively . during 2017 , we incurred $ 572.7 million for capital expenditures , which included $ 91.2 million for maintenance capital and $ 481.6 million for expansion capital . also during 2017 , we contributed capital of $ 134.8 million in conjunction with our joint venture capital projects , which we account for as investments in non-controlled entities . during 2016 , we incurred $ 653.5 million for capital expenditures , which included $ 103.5 million for maintenance capital and $ 550.0 million for expansion capital . also during 2016 , we contributed capital of $ 200.0 million in conjunction with our joint venture capital projects . during 2015 , we incurred $ 623.3 million for capital expenditures , which included $ 88.7 million for maintenance capital and $ 534.6 million for expansion capital . also during 2015 , we acquired a refined products terminal in the atlanta , georgia market for $ 54.7 million and we contributed capital of $ 152.5 million in conjunction with our joint venture capital projects . financing activities . net cash used by financing activities for the years ended december 31 , 2015 , 2016 and 2017 was $ 247.3 million , $ 120.7 million and $ 376.7 million , respectively . during 2017 , we paid cash distributions of $ 803.2 million to our unitholders .
| results of operations we believe that investors benefit from having access to the same financial measures utilized by management . operating margin , which is presented in the following tables , is an important measure used by management to evaluate the economic performance of our core operations . operating margin is a non-generally accepted accounting principles ( “ gaap ” ) measure , but the components of operating margin are computed using amounts that are determined in accordance with gaap . a reconciliation of operating margin to operating profit , which is its nearest comparable gaap financial measure , is included in the following tables . operating profit includes expense items , such as depreciation and amortization expense and general and administrative ( “ g & a ” ) expenses , which management does not focus on when evaluating the core profitability of our separate operating segments . additionally , product margin , which management primarily uses to evaluate the profitability of our commodity-related activities , is provided in these tables . product margin is a non-gaap measure ; however , its components of product sales and cost of product sales are determined in accordance with gaap . our butane blending , fractionation and other commodity-related activities generate significant revenue . we believe the product margin from these activities , which takes into account the related cost of product sales , better represents its importance to our results of operations . 47 year ended december 31 , 2016 compared to year ended december 31 , 2017 replace_table_token_9_th ( a ) these volumes reflect the total shipments for the bridgetex pipeline , which is owned 50 % by us . ( b ) these volumes reflect the total shipments for the saddlehorn pipeline , which began operations in september 2016 and is owned 40 % by us . 48 transportation and terminals revenue increased by $ 140.7 million , resulting from : an increase in refined products revenue of $ 93.6 million .
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the shares directly held by ven 2006 are indirectly held by karen p. welsh , the general partner of ven 2006. nea partners 12 , nea 12 llc and the managers share voting and dispositive power with regard to the shares of the securities directly held by nea 12. m. james barrett has neither voting nor dispositive power with respect to the shares held by ven 2006. m. james barrett and all other indirect holders of these shares have disclaimed his beneficial ownership in these shares except to the extent of their pecuniary interest therein , if any . ( 4 ) includes options to purchase 100,233 shares of our common stock that may be exercised 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 notes to those statements included elsewhere in this annual report on form 10-k. in addition to historical financial information , this discussion and analysis contains forward-looking statements that that reflect our plans , estimates and beliefs . you should not place undue reliance on these forward-looking statements , which involve risks and uncertainties . as a result of many factors , including but not limited to those set forth under risk factors , '' our actual results may differ materially from those anticipated in these forward-looking statements . see cautionary note regarding forward-looking statements. overview we are a clinical stage specialty pharmaceutical company that has developed a proprietary transdermal microneedle patch system to deliver our proprietary formulations of existing drugs through the skin for the treatment of a variety of indications . our microneedle patch system offers rapid onset , consistent drug delivery , improved ease of use and room-temperature stability , benefits that we believe often are unavailable using oral formulations or injections . our microneedle patch system has the potential to deliver numerous medications for a wide variety of indications in commercially attractive markets . by focusing our development efforts on the delivery of established molecules with known safety and efficacy and premium pricing , we plan to reduce our clinical and regulatory risk and development costs and accelerate our time to commercialization . in october 2006 , our business , originally named the macroflux corporation , was spun out of alza corporation , a subsidiary of johnson & johnson . since inception , we have devoted substantially all of our resources to the development and commercialization of our microneedle patch system . our lead product candidates are daily zp-pth , for the treatment of severe osteoporosis , zp-glucagon , for the treatment of severe hypoglycemia and zp-triptan , for the treatment of migraine . these lead product candidates are generic drugs specifically formulated to be administered by our microneedle patch system , and are proposed treatments for indications in which we believe rapid onset , ease of use and stability offer particularly important therapeutic and practical advantages , and have patient populations that we believe will provide us with an attractive commercial opportunity . we are actively engaged in research and preclinical and clinical development for these lead product candidates . of these product candidates , the most advanced is our daily zp-pth , for which we have completed a phase 2 clinical trial in the united states , mexico and argentina in 2008. for zp-glucagon , we have completed a phase 1 clinical trial designed to assess relative bioavailability ( which is the degree and rate at which an administered dose of unchanged drug is absorbed into the body and reaches the blood ) with our microneedle patch system compared to a currently available form of glucagon administered by intramuscular injection . we commenced , or treated the first patient in , a phase 2 clinical trial to evaluate the performance of zp-glucagon in january 2015 and expect to complete the trial in the third quarter of 2015. in the fourth quarter of 2013 , we completed a preclinical animal study of zp-triptan , our proprietary formulation of zolmitriptan , one of a class of serotonin receptor agonists known as triptans used for the treatment of migraine . in 2014 , we continued further confirmatory development of zp-triptan with additional preclinical studies . we intend to complete a phase 1 clinical trial by the end of the fourth quarter of 2015 to evaluate the pharmacokinetic and safety/tolerability profiles of escalated patch doses of zolmitriptan in healthy volunteers . we have no product sales to date , and we will not have product sales unless and until we receive approval from the united states food and drug administration , or fda , or equivalent foreign regulatory bodies , to market and sell one or more of our product candidates . accordingly , our success depends not only on the development , but also on our ability to finance the development , of these products . we will require substantial additional funding to complete development and seek regulatory approval for these products . additionally , we currently have no sales , marketing or distribution capabilities and thus our ability to market our products in the future will depend in part on our ability to develop such capabilities either alone or with collaboration partners . 62 index to financial statements in addition to developing our lead product candidates , we are actively seeking opportunities to collaborate with biopharmaceutical companies to explore other therapeutic uses for our microneedle patch system . during 2011 , 2012 and 2013 , we were a party to a strategic partnership and license agreement with asahi kasei pharma corporation , or asahi , to develop and commercialize our microneedle patch system for delivery of asahi 's teribone product for the treatment of severe osteoporosis in japan , china , taiwan and south korea . this partnership and related license agreement was terminated in january 2014 and as a result , we recaptured global commercialization rights on our microneedle patch system for the delivery of parathyroid hormone . story_separator_special_tag our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results could differ from these estimates under different assumptions or conditions . while our significant accounting policies are described in more detail in note 2 to our consolidated financial statements included elsewhere in this annual report on form 10-k , we believe that the accounting policies discussed below are those that are most critical to understanding our historical and future performance , as these policies relate to the more significant areas involving management 's judgments and estimates . we are an emerging growth company as defined in the jumpstart our business startups act of 2012 , or the jobs act . emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies . we have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards , and , therefore , will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies . revenue recognition to date , we have generated revenue from collaboration and license agreements for the development of our technology for proposed indications utilizing our microneedle patch system . collaboration and license agreements may include non-refundable upfront payments , partial or complete reimbursement of research and development costs , contingent payments based on the occurrence of specified events under our collaboration arrangements and royalties on sales of product candidates if they are successfully approved and commercialized . our performance obligations under the collaborations may include the transfer or license of intellectual property rights , provision of research and development services and related materials , and participation on development and or commercialization committees with the collaboration partners . we make judgments that affect the periods over which we recognize revenue . we periodically review our estimated periods of performance based on the progress under each arrangement and account for the impact of any changes in estimated periods of performance on a prospective basis . we adopted an accounting standard that provides guidance on revenue recognition using the milestone method . payments that are contingent upon achievement of a substantive milestone are recognized in their entirety in the period in which the milestone is achieved . milestones are defined as events that can only be achieved based on our partner 's performance and there is substantive uncertainty about whether the event will be achieved at the inception of the arrangement . events that are contingent only on the passage of time or only on counterparty performance are not considered milestones subject to this guidance . accordingly , we have not recorded any milestone revenue on our consolidated financial statements as the contingent payments received did not meet the definition of milestone revenue . 64 index to financial statements amounts related to research and development services are recognized as the related services or activities are performed , in accordance with the contract terms . payments to us are typically based on the number of full-time equivalent personnel assigned to the collaboration project and the related research and development expenditures incurred . accrued research and development and manufacturing expenses as part of the process of preparing financial statements , we are required to estimate and accrue expenses , the largest of which are research and development expenses . this process involves : communicating with our applicable 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 ; estimating and accruing expenses in our financial statements as of each balance sheet date based on facts and circumstances known to us at the time ; and periodically confirming the accuracy of our estimates with selected service providers and making adjustments , if necessary . examples of estimated research and development and manufacturing expenses that we accrue include : fees paid to contract research organizations , or cros , and other service providers in connection with nonclinical studies and clinical trials ; fees paid to investigative sites in connection with clinical trials ; fees paid to contract manufacturing organizations , or cmos , in connection with the production of nonclinical study and clinical trial materials ; and professional service fees for consulting and related services . we base our expense accruals related to clinical trials on our estimates of the services received and efforts expended pursuant to contracts with research institutions and cros that conduct and manage nonclinical and clinical trials on our behalf . the financial terms of these agreements vary from contract to contract and may result in uneven payment flows . payments under these contracts often depend on factors such as the successful enrollment of patients and the completion of certain clinical trial milestones . our service providers invoice us in arrears for services performed . in accruing clinical costs , we estimate the time period over which patient enrollment will be completed and the progress of patient enrollment through completion in each period . if we do not identify costs that we have begun to incur or if we underestimate or overestimate the number of patients enrolled or the costs of patient enrollment , our actual expenses could differ from our estimates . to date , we have not experienced significant changes in our estimates of accrued clinical trial expenses after a reporting period . however , due to the nature of the estimates , we can not assure you that we will not make changes to our estimates in the future as we become aware of additional information about the status or conduct of our clinical trials and other research activities .
| results of operations comparison of the year ended december 31 , 2014 and 2013 revenue replace_table_token_4_th total revenue decreased $ 1.4 million , or 33 % , for the year ended december 31 , 2014 as compared to the year ended december 31 , 2013. the decrease was primarily due to the $ 3.1 million of contract revenue we earned under our license and collaboration agreement with asahi in 2013 that did not recur in 2014 as a result of the termination of our license and collaboration agreement with asahi , partially offset by approximately $ 0.8 million of license fee revenue earned under our collaboration and license agreement with novo nordisk in 2014 and approximately $ 0.9 million of related development support service revenue . 70 index to financial statements cost of license fees revenue year ended december 31 , change 2014 2013 amount % ( in thousands ) cost of license fees revenue $ 100 $ - $ 100 n/a cost of license fees revenue represents our payment obligations under our intellectual property license agreement with alza . cost of license fees revenue was $ 0.1 million for the year ended december 31 , 2014 as compared to the zero in 2013 due to the royalty attributable to our receipt of a $ 1.0 million license fee from novo nordisk upon execution of our collaboration and license agreement with novo nordisk in 2014. research and development expenses year ended december 31 , change 2014 2013 amount % ( in thousands ) research and development $ 10,953 $ 7,637 $ 3,316 43 % research and development expenses increased $ 3.3 million , or 43 % , for the year ended december 31 , 2014 as compared to the year ended december 31 , 2013. of this increase , approximately $ 2.8 million was due to an increase in equipment depreciation expense following the return of equipment to us and approximately $ 0.8 million
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we compete through a balance of product innovation , category management , a low-cost operating model and an efficient supply chain . we sell our products to consumers and commercial end-users primarily through resellers , including traditional office supply resellers , wholesalers and retailers , including on-line retailers . our products are sold primarily to markets located in the u.s. , northern europe , brazil , canada , australia and mexico . for the year ended december 31 , 2015 , approximately 40 % of our sales were outside the u.s. down from 45 % in 2014. the majority of our revenue is concentrated in geographies where demand for our product categories is in mature stages , but we see opportunities to grow sales through share gains , channel expansion and new products . over the long-term we expect to derive growth in faster growing emerging geographies where demand in the product categories in which we compete is strong , such as in latin america and parts of asia , the middle east and eastern europe . we plan to grow organically supplemented by strategic acquisitions in both existing and adjacent categories . historically , key drivers of demand for office and school products have included trends in white-collar employment levels , education enrollment levels , gross domestic product ( gdp ) , growth in the number of small businesses and home offices , as well as consumer usage trends for our product categories . we believe our leading product positions provide the scale to enable us to invest in product innovation and drive growth across our product categories . we currently manufacture approximately half of our products locally where we operate , and source approximately half of our products , primarily from china . reportable segments acco brands north america and acco brands international acco brands north america and acco brands international manufacture , source and sell traditional office products , school supplies and calendar products . acco brands north america comprises the u.s. and canada , and acco brands international comprises the rest of the world , primarily northern europe , brazil , australia and mexico . our office , school and calendar product lines use name brands such as at-a-glance ® , day-timer ® , five star ® , gbc ® , hilroy , marbig , mead ® , nobo , quartet ® , rexel , swingline ® , tilibra , wilson jones ® and many others . products and brands are not confined to one channel or product category and are sold based on end-user preference in each geographic location . the majority of our office products , such as stapling , binding and laminating equipment and related consumable supplies , shredders and whiteboards , are used by businesses . most of these end-users purchase their products from our customers , which include traditional office supply resellers , wholesalers and other retailers , including on-line retailers . we also supply some of our products directly to large commercial and industrial end-users , and provide business machine maintenance and certain repair services . additionally , we also supply private label products within the office products sector . our school products include notebooks , folders , decorative calendars and stationery products . we distribute our school products primarily through mass merchandisers , and other retailers , such as grocery , drug and office superstores as well as on-line retailers . we also supply private label products within the school products sector . our calendar products are sold through all the same channels where we sell office or school products , as well as directly to consumers both on-line and through direct mail . our customers are primarily large global and regional resellers of our products including traditional office supply resellers , wholesalers and other retailers , including on-line retailers . mass merchandisers and retail channels primarily sell to individual 23 consumers but also to small businesses . we also sell to commercial contract dealers , wholesalers , distributors and independent dealers who primarily serve business end-users . over half of our product sales by our customers are to business end-users , who generally seek premium products that have added value or ease-of-use features and a reputation for reliability , performance and professional appearance . some of our binding and laminating equipment products are sold directly to high-volume end-users and commercial reprographic centers . we also sell calendar and computer products directly to consumers . computer products group our computer products group designs , sources , distributes , markets and sells accessories for laptop and desktop computers and tablets . these accessories primarily include security products , input devices such as presenters , mice and trackballs , ergonomic aids such as foot and wrist rests , docking stations , and other pc and tablet accessories . we sell these products mostly under the kensington ® , microsaver ® and clicksafe ® brand names , with the majority of revenue coming from the u.s. and northern europe . our computer products are manufactured by third-party suppliers , principally in asia , and are distributed from our regional facilities . our computer products are sold primarily to consumer electronics retailers , information technology value-added resellers , original equipment manufacturers , and office products retailers , as well as directly to consumers on-line . in 2014 we repositioned the computer products group by shifting our focus away from certain commoditized low margin tablet accessories . this decision has continued to impact 2015 resulting in lower sales . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > december 31 , 2015 , there were no borrowings under the restated revolving facility . the amount available for borrowings was $ 291.1 million ( allowing for $ 8.9 million of letters of credit outstanding on that date ) . for further information on our refinancing and amendments see also `` note 3. long-term debt and short-term borrowings `` to the consolidated financial statements contained in item 8. of this report . story_separator_special_tag see `` note 15. information on business segments `` to the consolidated financial statements contained in item 8. of this report for a reconciliation of total `` segment operating income `` to `` income from continuing operations before income tax . '' acco brands north america acco brands north america net sales decreased $ 42.7 million , or 4 % , to $ 963.3 million from $ 1,006.0 million in the prior-year period . foreign currency translation reduced sales by $ 18.3 million , or 2 % . the underlying sales decline was primarily due to lower sales to office depot , where 2015 global sales declined $ 38 million , the vast majority of which impacted north america . the decline with office depot was largely related to its merger with officemax , which has adversely impacted our sales primarily through lost placement and inventory reductions ( including the effects of distribution center and store closures ) . we expect inventory reductions due to the merger to continue to adversely impact our sales in 2016 , although to a lesser degree than in 2015. partially offsetting the decline in the office superstore channel were increased sales in the e-commerce and mass-retailer channels . acco brands north america operating income increased $ 6.9 million , or 5 % , to $ 147.6 million from $ 140.7 million in the prior-year period , and operating income margin increased to 15.3 % from 14.0 % . foreign currency translation reduced operating income by $ 1.9 million , or 1 % . the underlying improvement was due to a reduction in restructuring charges of $ 3.3 million as well as cost savings from prior-year restructuring initiatives , productivity improvements and lower pension expenses . the improvements were partially offset by lower sales volume . acco brands international acco brands international net sales decreased $ 120.0 million , or 22 % , to $ 426.9 million from $ 546.9 million in the prior-year period . foreign currency translation reduced sales by $ 94.3 million , or 17 % , with all regions experiencing currency depreciation , but most notably brazil , which accounted for $ 40.1 million of the reduction . the underlying sales decline was primarily driven $ 21.6 million of lower sales volume in brazil , which declined due to the adverse economic conditions . sales in europe also declined , primarily due to lost placement . these declines were partially offset by increased pricing of 7 % as we sought to recover foreign-exchange-related increases in our cost of products sold . acco brands international operating income decreased $ 22.1 million , or 35 % , to $ 40.8 million from $ 62.9 million in the prior-year period , and operating income margin decreased to 9.6 % from 11.5 % . foreign currency translation reduced operating income by $ 12.4 million , or 20 % . the underlying decline in operating income and margin was primarily due to brazil where we 28 have experienced both lower sales volume and an unfavorable product mix as customers traded down to lower-price-point items . the decline was partially offset by price increases and a one-time $ 2.3 million recovery of an indirect tax in brazil . computer products group computer products group net sales decreased $ 16.1 million , or 12 % , to $ 120.2 million from $ 136.3 million in the prior-year period . foreign currency translation reduced sales by $ 11.3 million , or 8 % . the underlying sales decline was due to a $ 10 million reduction in our sales of tablet accessories , primarily resulting from our strategic decision to shift focus away from certain commoditized low margin products in this category . sales of our security and laptop and desktop accessory products that collectively account for approximately 90 % of our sales were up 5 % compared to the prior year . computer products group operating income increased $ 2.1 million , or 26 % , to $ 10.3 million from $ 8.2 million in the prior-year period , and operating margin increased to 8.6 % from 6.0 % . foreign currency translation reduced operating income by $ 2.9 million , or 35 % . the underlying operating income and margin increased as the cost associated with moving our business away from commoditized low margin tablet accessories was significantly lower and improved operational execution on our security and laptop accessory products resulted in a favorable product mix . fiscal 2014 versus fiscal 2013 the following table presents the company 's results for the years ended december 31 , 2014 and 2013 . replace_table_token_11_th net sales net sales decreased $ 75.9 million , or 4 % , to $ 1,689.2 million from $ 1,765.1 million in the prior-year period . foreign currency translation reduced sales by $ 35.2 million , or 2 % . the underlying sales decline was principally in the north america segment , which experienced a significant reduction in sales to office depot following the merger with officemax , and in the computer products group segment as result of our strategic decision to shift focus away from commoditized tablet accessories . cost of products sold cost of products sold decreased $ 57.9 million , or 5 % , to $ 1,159.3 million , from $ 1,217.2 million in the prior-year period . foreign currency translation reduced cost of products sold by $ 25.6 million . costs of products sold also decreased due to cost savings and productivity improvements , mostly in the north america segment , and lower sales volume . 29 gross profit gross profit decreased $ 18.0 million , or 3 % , to $ 529.9 million , from $ 547.9 million in the prior-year period . foreign currency translation reduced gross profit by $ 9.6 million . the underlying decrease was due to lower sales and higher costs , which was partially offset by cost savings , productivity improvements and higher pricing . gross profit margin increased to 31.4 % from 31.0 % .
| overview of 2015 company performance to appreciate the overall company performance for 2015 it is important to focus upon four factors : the impact of foreign exchange , as approximately 40 % of our net sales for the fiscal year ended december 31 , 2015 are from foreign operations . our major foreign currencies have declined between 7 % and 28 % relative to the u.s. dollar in 2015 ; the decline in sales in the international segment due to foreign currency translation and lower sales in brazil where the economy is in a deep recession ; the decline in sales in the north america segment related to the consolidation of office depot and office max ; and the significant cash flow generated in 2015. as a result , we reduced our debt by $ 70.1 million and used $ 65.9 million to repurchase our common stock and for payments related to tax withholding for share-based compensation . foreign currency foreign exchange rate averages for 2015 deteriorated against the u.s. dollar in comparison to 2014 average rates . this materially impacted our reported sales , earnings , cash flow and comparative balance sheet . the weakening of currencies relative to the u.s. dollar has negatively impacted our 2015 results from both a translation and transaction perspective reducing the foreign currency denominated portion of our sales to approximately 40 % in comparison to 2014 when approximately 45 % of our consolidated sales were denominated in currencies other than the u.s. dollar . additionally , approximately half of the products we sell are sourced from china and other far eastern countries . the prices for these sourced products are denominated in u.s. dollars . accordingly , movements in the value of local currencies relative to the u.s. dollar affect the cost of goods sold by our non-u.s. business when they source products from asia .
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after the completion of the offering , apollo owned approximately 9.2 million shares of evertec 's common stock , or 11.2 % , story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations ( md & a ) covers : ( i ) the results of operations for the years ended december 31 , 2013 , 2012 and 2011 ; and ( ii ) the financial condition as of december 31 , 2013 and 2012. see note 1 of the notes to audited consolidated financial statements for additional information about the company and the basis of presentation of our financial statements . you should read the following discussion and analysis in conjunction with the financial statements and related notes appearing elsewhere herein . this md & a contains forward-looking statements that involve risks and uncertainties . our actual results may differ from those indicated in the forward-looking statements . see forward-looking statements for a discussion of the risks , uncertainties and assumptions associated with these statements . overview evertec is the leading full-service transaction processing business in latin america and the caribbean , providing a broad range of merchant acquiring , payment processing and business process management services . according to the july 2013 nilson report we are the largest merchant acquirer in the caribbean and central america and the seventh largest in latin america . we serve 19 countries in the region from our base in puerto rico . we manage a system of electronic payment networks that process more than 2.1 billion transactions annually , and offer a comprehensive suite of services for core bank processing , cash processing and technology outsourcing . in addition , we own and operate the ath network , one of the leading personal identification number ( pin ) debit networks in latin america . we serve a diversified customer base of leading financial institutions , merchants , corporations and government agencies with mission-critical technology solutions that enable them to issue , process and accept transactions securely . we believe our business is well-positioned to continue to expand across the fast-growing latin american region . we are differentiated , in part , by our diversified business model , which enables us to provide our varied customer base with a broad range of transaction-processing services from a single source across numerous channels and geographic markets . we believe this single-source capability provides several competitive advantages that will enable us to continue to penetrate our existing customer base with new , complementary services ; win new customers ; develop new sales channels and enter new markets . we believe these competitive advantages include : our ability to provide in one package a range of services that traditionally had to be sourced from different vendors ; our ability to serve customers with disparate operations in several geographies with a single integrated technology solution that enables them to manage their business as one enterprise ; and our ability to capture and analyze data across the transaction-processing value chain and use that data to provide value-added services that are differentiated from those offered by pure-play vendors that only have the technology , capabilities and products to serve only one portion of the transaction-processing value chain ( such as only merchant acquiring or payment processing ) . our broad suite of services spans the entire transaction-processing value chain and includes a range of front-end customer-facing solutions such as the electronic capture and authorization of transactions at the point-of-sale , as well as back-end support services such as the clearing and settlement of transactions and account reconciliation for card issuers . these include : ( i ) merchant acquiring services , which enable pos and e-commerce merchants to accept and process electronic methods of payment such as debit , credit , prepaid and ebt cards ; ( ii ) payment processing services , which enable financial institutions and other issuers to manage , support and facilitate the processing for credit , debit , prepaid , atm and ebt card programs ; and ( iii ) business process management solutions , which provide mission-critical technology solutions such as core bank processing , as well as it outsourcing and cash management services to financial institutions , corporations and governments . we provide these services through a highly scalable , end-to-end technology platform that we manage and operate in-house and that generates significant operating efficiencies that enable us to maximize profitability . 45 we sell and distribute our services primarily through a proprietary direct sales force with strong customer relationships . we are also building a variety of indirect sales channels that enable us to leverage the distribution capabilities of partners in adjacent markets , including value-added resellers . and we continue to pursue joint ventures and merchant acquiring alliances . we benefit from an attractive business model , the hallmarks of which are recurring revenue , scalability , significant operating margins and low capital expenditure requirements . our revenues are recurring in nature because of the mission-critical and embedded nature of the services we provide , the high switching costs associated with these services and the multi-year contracts we negotiate with our customers . our business model enables us to continue to grow our business organically without significant additional capital expenditures . separation from and key relationship with popular prior to the merger on september 30 , 2010 , evertec group was 100 % owned by popular , the largest financial institution in the caribbean , and operated substantially as an independent entity within popular . after the consummation of the merger , popular retained an approximately 49 % indirect ownership interest in evertec group and is our largest customer . in connection with , and upon consummation of , the merger , evertec group entered into a 15-year master services agreement , and several related agreements with popular . story_separator_special_tag in connection with the preparation of our financial statements , we are required to make estimates and assumptions about future events , and apply judgments that affect the reported amounts of certain assets and liabilities , and in some instances , the reported amounts of revenues and expenses during the period . we base our assumptions , estimates , and judgments on historical experience , current events and other factors that management believes to be relevant at the time our consolidated financial statements are prepared . however , because future events are inherently uncertain and their effects can not be determined with certainty , actual results could differ from our assumptions and estimates , and such differences could be material . a summary of significant accounting policies is included in note 1 of the notes to audited consolidated financial statements appearing elsewhere in this annual report on form 10-k. we believe that the following accounting estimates are the most critical ; require the most difficult , subjective or complex judgments ; and thus result in estimates that are inherently uncertain . 47 revenue recognition our revenue recognition policy follows the guidance from accounting standards codification ( asc ) 605 revenue recognition ; asc 605-25 , revenue recognition-multiple element arrangements ; accounting standard update ( asu ) 2009-13 , multiple-deliverable revenue arrangements , and ; asc 985 , software , which provided guidance on the recognition , presentation , and disclosure of revenue in financial statements . we recognize revenue when the following four criteria are met : ( i ) persuasive evidence of an agreement exists , ( ii ) delivery and acceptance has occurred or services have been rendered , ( iii ) the selling price is fixed or determinable , and ( iv ) collection of the selling price is reasonably assured or probable , as applicable . for multiple deliverable arrangements , we evaluate each arrangement to determine if the elements or deliverables within the arrangement represent separate units of accounting pursuant to asc 605-25. if the deliverables are determined to be separate units of accounting , revenues are recognized as units of accounting are delivered and the revenue recognition criteria are met . if the deliverables are not determined to be separate units of accounting , revenues for the delivered services are combined into one unit of accounting and recognized ( i ) over the life of the arrangement if all services are consistently delivered over such term , or if otherwise , ( ii ) at the time that all services and deliverables have been delivered . the selling price for each deliverable is based on vendor specific objective evidence ( vsoe ) if available , third party evidence ( tpe ) if vsoe is not available , or management best estimate of selling price ( besp ) if neither vsoe nor tpe is available . for software arrangements under asc 985 the selling price is based on vsoe . we establish vsoe of selling price using the price charged when the same element is sold separately . we bifurcate or allocate the arrangement consideration to each of the deliverables based on the relative selling price of each unit of accounting . we have two main categories of revenues according to the type of transactions we enter into with our customers : ( a ) transaction-based fees and ( b ) fixed fees and time and material . transaction-based fees we provide services that generate transaction-based fees . typically transaction-based fees depend on factors such as number of accounts or transactions processed . these factors typically consist of a fee per transaction or item processed , a percentage of dollar volume processed or a fee per account on file , or some combination thereof . revenues derived from the transaction-based fee contracts are recognized when the underlying transaction is processed , which constitutes delivery of service . revenues from business contracts in our merchant acquiring segment are primarily comprised of discount fees charged to the merchants based on the sales amount of transactions processed . revenues include a discount fee and annual membership fees charged to merchants and debit network fees as well as point-of-sale ( pos ) rental fees . pursuant to the guidance from asc 605-45-45 , revenue recognitionprincipal agent considerations , we record merchant acquiring revenues net of interchange and assessments charged by the credit and debit card network associations and recognized such revenues at the time of the sale ( when a transaction is processed ) . payment processing revenues are comprised of revenues related to providing access to the ath network and other card networks to financial institutions , and related services . payment processing revenues also include revenues from card issuer processing services ( such as credit and debit card processing , authorization and settlement , and fraud monitoring and control to debit or credit card issuers ) , payment processing services ( such as payment and billing products for merchants , businesses and financial institutions ) and ebt ( which principally consists of services to the puerto rico government for the delivery of government benefits to participants ) . revenues in our payment processing segment mostly comprise fees per transaction processed or per account on file , or a combination of both , and are recognized at the time transactions are processed or on a monthly basis for accounts on file . transaction-based fees within our business solutions segment consist of revenues from business process management solutions including core bank processing , business process outsourcing , item and cash processing , and fulfillment . transaction-based fee revenues generated by our core bank processing services are derived from 48 fees based on various factors such as the number of accounts on file ( e.g. , savings or checking accounts , loans , etc . ) , and the number of transactions processed or registered users ( e.g. , for online banking services ) . for services dependent on the number of transactions processed , revenues are recognized as the underlying transactions are processed .
| results of operations the following tables set forth certain consolidated financial information for the years ended december 31 , 2013 , 2012 and 2011. these tables and the related discussion should be read in conjunction with the information contained in our audited consolidated financial statements and the notes thereto included elsewhere in this annual report on form 10-k. certain prior period balances have been reclassified to conform to the current presentation format which did not have any impact on net income . comparison of the years ended december 31 , 2013 and 2012 the following tables present the components of our audited consolidated statements of ( loss ) income and comprehensive ( loss ) income by business segment and the change in those amounts for the years ended december 31 , 2013 and 2012. revenues replace_table_token_3_th total revenues for the year ended december 31 , 2013 were $ 357.2 million , an increase of $ 15.6 million or 5 % compared with 2012 . 53 merchant acquiring revenues increased $ 4.0 million or 6 % compared with 2012 due to an increase in the number of transactions of 14.3 million and an increase in sales volume of $ 450.2 million .
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these variables include expected stock price volatility over the requisite performance term of awards , the performance of the company 's stock price , annual dividends story_separator_special_tag forward-looking statements when the company uses any words such as anticipate , assume , believe , estimate , expect , intend , or similar expressions , the company is making forward-looking statements . although management believes that the expectations reflected in such forward-looking statements are based upon present expectations and reasonable assumptions , the company 's actual results could differ materially from those set forth in the forward-looking statements . certain factors or risks that could cause actual results or events to differ materially from those the company anticipates or projects are described in item 1a . risk factors of this annual report on form 10-k. given these uncertainties , readers are cautioned not to place undue reliance on such statements , which speak only as of the date of this annual report on form 10-k or any document incorporated herein by reference . the company undertakes no obligation to publicly release any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date of this annual report on form 10-k. story_separator_special_tag and local economies and the real estate markets in general . over the last several years , roads and interstate overpasses have been constructed , extended , or improved in the daytona beach area , which we believe will benefit company owned land and may have a positive impact on future activity of our land assets . in the second quarter of 2012 , we completed the sale of 16.6 acres of industrial land west of interstate 95 at a price of approximately $ 618,000 or $ 37,000 per acre . the gain on the sale of this land totaled approximately $ 573,000. in 2013 , we completed three land transactions of approximately 11.66 acres for total proceeds of approximately $ 3.0 million or approximately $ 257,000 per acre , of which two parcels totaling approximately 5.43 acres were east and 6.23 acres were west of interstate 95. the total loss on these sales equaled approximately $ 679,000 , with two transactions totaling approximately 9.6 acres resulting in an aggregate loss of approximately $ 1.3 million and the third transaction for approximately 2.02 acres resulting in a gain of approximately $ 581,000. in 2014 , we completed three land transactions of approximately 99.66 acres for total proceeds of approximately $ 8.8 million . the total gain on these transactions was approximately $ 4.8 million . the company owns impact fee and mitigation credits with a combined total of approximately $ 5.2 million and $ 6.1 million as of december 31 , 2014 and 2013 , respectively . during the years ended december 31 , 2014 and 2013 , the company received cash payments of approximately $ 537,000 and $ 232,000 , respectively , for impact fees with a basis generally of equal value . during the year ended december 31 , 2014 , the company received cash of $ 389,000 for the sale of mitigation credits in conjunction with the land sale to victor indigo lakes , l.l.c . with a basis of approximately $ 176,000. in addition , mitigation credits were utilized related to the 75.6 acre land sale with a basis of approximately $ 127,000. historical revenues and income from our sale of land are not indicative of future results because of the unique nature of land transactions and variations in the cost basis of the owned land . a significant portion of the company 's revenue and income in any given year may be generated through relatively few land transactions . the timing for these land transactions , from the time of preliminary discussions through contract negotiations , due diligence periods , and the closing , can last from several months to several years . although we believe there have been recent indications of improvement in the overall economy and credit markets , we expect the overall real estate market , particularly home building , to remain inconsistent in the near term , and as a result we believe our ability to enter into land transactions will remain challenging . real estate impairments . during the year ended december 31 , 2014 , the company did not recognize any impairment of its land holdings . during the year ended december 31 , 2013 , the company conducted an impairment analysis on 6.23 acres of land in daytona beach , florida , which had been reacquired through a foreclosure in 2009. approximately 3.21 of these acres were subject to a sales contract that was executed during the second quarter of 2013 which we deemed highly probable of closing . although the transaction was subsequently terminated prior to closing , the analysis resulted in an impairment charge of approximately $ 616,000 , representing the portion of the cost basis of the property that management considered to be un-recoverable based on the land under contract and other current market prices . the 6.23 acres of land were sold under a new sales contract on december 20 , 2013 , resulting in an additional loss of approximately $ 416,000 , as more fully described in note 5 land and subsurface interests. 24 subsurface interests . the company owns full or fractional subsurface oil , gas , and mineral interests in approximately 490,000 surface acres of land owned by others in 20 counties in florida . the company leases its interests to mineral exploration firms for exploration . our subsurface operations consist of revenue from the leasing of exploration rights and in some instances revenues from royalties applicable to production from the leased acreage . during 2011 , an eight-year oil exploration lease covering approximately 136,000 net mineral acres primarily located in lee county and hendry county , florida was executed and an approximate $ 914,000 first year rental payment was received . story_separator_special_tag under the amendment , the base rent payment , which was scheduled to increase from $ 250,000 to $ 500,000 as of september 1 , 2012 , would remain at $ 250,000 for the remainder of the lease term and any extensions would be subject to an annual rate increase of 1.75 % beginning september 1 , 2013. the company also agreed to invest $ 200,000 prior to september 1 , 2015 for certain improvements to the facilities . in addition , pursuant to the lease amendment , beginning september 1 , 2012 , and continuing throughout the initial lease term and any extension option , the company will pay additional rent to the city equal to 5.0 % of gross revenues exceeding $ 5,500,000 and 7.0 % of gross revenues exceeding $ 6,500,000. since the inception of the lease , the company has recognized the rent expense on a straight-line basis resulting in an estimated accrual for deferred rent . upon the effective date of the lease amendment , the company 's straight-line rent was revised to reflect the lower rent levels through expiration of the lease . as a result , approximately $ 3.0 million of the rent previously deferred will not be due to the city , and will be recognized into income over the remaining lease term . as of december 31 , 2014 , approximately $ 2.1 million of the rent , previously deferred that will not be due to the city , remained to be amortized through september 2022. commercial loan investments . our investment in commercial loans or similar structured finance investments , such as mezzanine loans or other subordinated debt , have been and expect to continue to be secured by commercial or residential real estate or land or a borrower 's pledge of its ownership interest in the entity that owns the real estate . the first mortgage loans we typically invest in or originate are for commercial real estate , located in the united states and that are current or performing with either a fixed or floating rate . some of these loans may be syndicated in either a pari passu or senior/subordinated structure . commercial first mortgage loans generally provide for a higher recovery rate due to their senior position in the underlying collateral . commercial mezzanine loans are typically secured by a pledge of the borrower 's equity ownership in the underlying commercial real estate . unlike a mortgage a mezzanine loan does not represent a lien on the property . investor 's rights in a mezzanine loan are usually governed by an intercreditor agreement that provides holders with the rights to cure defaults and exercise control on certain decisions of any senior debt secured by the same commercial property . on august 7 , 2013 , the company acquired a $ 19.6 million first mortgage loan secured by an upper upscale hotel in atlanta , georgia , for approximately $ 17.5 million , a discount of approximately $ 2.05 million . the discount was being accreted into income ratably through the contractual maturity date in march 2014 , which was included in interest income from commercial loan investments in the consolidated financial statements . on january 6 , 2014 , the commercial mortgage loan principal of $ 19.5 million was paid in full . the total revenue recognized in january 2014 is approximately $ 844,000 including the remaining accretion of the purchase discount of approximately $ 650,000 , interest income of approximately $ 36,000 , and an exit fee of approximately $ 195,000 , offset by the remaining amortization of fees of approximately $ 37,000. on january 31 , 2014 , the company acquired a mezzanine loan secured by the borrower 's equity interest in an upper upscale hotel in atlanta , georgia , that was previously subject to the company 's first commercial loan investment . the company purchased the $ 5.0 million performing loan at par . the loan matures in february 2019 , bears a fixed interest rate of 12.00 % per annum , and requires payments of interest only prior to maturity . interest revenue recognized during the year end december 31 , 2014 was approximately $ 558,000. on may 16 , 2014 , the company funded approximately $ 3.1 million of a $ 6.3 million first mortgage commitment for the redevelopment of an existing vacant retail property into a container store located in glendale , arizona , which opened on february 7 , 2015. as of december 31 , 2014 , approximately $ 5.3 million in draws were funded by the company , leaving a remaining commitment of approximately $ 1.0 million , which may be drawn by the borrower as construction costs are incurred . construction was substantially complete as of december 31 , 2014 and the company expects to fund the remaining commitment in the first quarter of 2015. the loan matures in november 2015 , includes one nine-month extension option , bears a fixed interest rate of 6.00 % per annum prior to the commencement of rent on the container store lease , and requires payments of interest only prior to maturity . at closing , a loan origination fee of approximately $ 79,000 was received by the company and is being accreted ratably into income through the contractual maturity date in november 2015. total interest revenue recognized during the year ended december 31 , 2014 was approximately $ 161,000. subsequent to the commencement of rent , the interest rate on our loan will be 30-day london interbank offer rate ( libor ) plus 800 basis points . rent commenced on february 7 , 2015. on may 20 , 2014 , the company acquired an approximate $ 9.0 million b-note secured by a retail shopping center located in sarasota , florida . the loan matures in june 2015 , includes three one-year extension options , bears a floating interest rate of 30-day libor plus 725 basis points , and requires payments of interest only prior to maturity .
| overview we are a diversified real estate operating company . we own and manage forty-three commercial real estate properties in ten states in the u.s. as of december 31 , 2014 , we owned thirty-six single-tenant and seven multi-tenant income-producing properties with over 1,100,000 square feet of gross leasable space . we also own and manage a land portfolio of over 10,500 acres . as of december 31 , 2014 , we had five commercial loan investments including a fixed-rate mezzanine commercial mortgage loan , a fixed-rate first mortgage , a variable-rate b-note , a variable-rate mezzanine commercial mortgage loan , and a variable-rate first mortgage loan . our golf operations consist of the lpga international golf club , which is managed by a third party . we also lease property for twenty-one billboards , have agricultural operations that are managed by a third party , which consists of leasing land for hay and sod production , timber harvesting , and hunting leases , and own and manage subsurface interests . the results of our agricultural and subsurface leasing operations are included in agriculture and other income and real estate operations , respectively , in our consolidated statements of operations . income property operations . we have pursued a strategy of investing in income-producing properties , when possible , by utilizing the proceeds from real estate transactions qualifying for income tax deferral through like-kind exchange treatment for tax purposes . during the year ended december 31 , 2014 , we acquired the following four income properties , two single-tenant and two multi-tenant , at a total acquisition cost of approximately $ 42.2 million : on april 22 , 2014 , the company acquired a 131,644 square-foot free-standing building , situated on 15.48 acres in katy , texas , which is leased to lowe 's home improvement .
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we make forward-looking statements , as defined by the “ safe harbor ” provisions of the private securities litigation reform act of 1995 , and in some cases , you can identify these statements by forward-looking words such as “ if , ” “ will , ” “ may , ” “ might , ” “ will likely result , ” “ should , ” “ expect , ” “ plan , ” “ anticipate , ” “ believe , ” “ estimate , ” “ project , ” “ intend , ” “ goal , ” “ objective , ” “ predict , ” “ potential ” or “ continue , ” or the negative of these terms and other comparable terminology . these forward-looking statements are based on various underlying assumptions and expectations and are subject to risks , uncertainties and other unknown factors , may include projections of our future financial performance based on our growth strategies and anticipated trends in our business and include risks and uncertainties relating to arch 's current cash position and its need to raise additional capital in order to be able to continue to fund its operations ; the stockholder dilution that may result from future capital raising efforts and the exercise or conversion , as applicable of arch 's outstanding options and warrants ; arch 's limited operating history which may make it difficult to evaluate arch 's business and future viability ; arch 's ability to timely commercialize and generate revenues or profits from our anticipated products ; arch 's ability to achieve the desired regulatory approvals in the united states or elsewhere ; arch 's ability to retain its managerial personnel and to attract additional personnel ; the strength of arch 's intellectual property , the intellectual property of others and any asserted claims of infringement ; and other risk factors identified under the caption “ risk factors ” in this form 10-k and in the documents arch has filed , or will file with the sec . we undertake no duty to update any of these forward-looking statements after the date of filing of this form 10-k to conform such forward-looking statements to actual results or revised expectations , except as otherwise required by law . - 33 - corporate overview arch therapeutics , inc. , ( together with its subsidiary , the “ company ” or “ arch ” ) was incorporated under the laws of the state of nevada on september 16 , 2009 , under the name almah , inc. to pursue the business of distributing automobile spare parts online . effective june 26 , 2013 , the company completed a merger ( “ merger ” ) with arch biosurgery , inc. ( formerly known as arch therapeutics , inc. ) , a massachusetts corporation ( “ abs ” ) , and arch acquisition corporation ( “ merger sub ” ) , the company 's wholly owned subsidiary formed for the purpose of the transaction , pursuant to which merger sub merged with and into abs and abs thereby became the wholly owned subsidiary of the company . as a result of the acquisition of abs , the company abandoned its prior business plan and changed its operations to the business of a biotechnology company . our principal offices are located in framingham , massachusetts . for financial reporting purposes , the merger represented a “ reverse merger ” . abs was deemed to be the accounting acquirer in the transaction and the predecessor of arch . consequently , the accumulated deficit and the historical operations that are reflected in the company 's consolidated financial statements prior to the merger are those of abs . all share information has been restated to reflect the effects of the merger . the company 's financial information has been consolidated with that of abs after consummation of the merger on june 26 , 2013 , and the historical financial statements of the company before the merger have been replaced with the historical financial statements of abs before the merger in this report . abs was incorporated under the laws of the commonwealth of massachusetts on march 6 , 2006 as clear nano solutions , inc. on april 7 , 2008 , abs changed its name from clear nano solutions , inc. to arch therapeutics , inc. effective upon the closing of the merger , abs changed its name from arch therapeutics , inc. to arch biosurgery , inc. liquidity we are in the development stage and have generated no operating revenues to date and do not expect to do so in the foreseeable future due to the early stage nature of our current product candidates . we currently do not have any products that have obtained marketing approval in any jurisdiction . we devote a significant amount of our efforts on fundraising , planning and conducting clinical trials , activities in connection with obtaining regulatory approval , and product research . for the year ended september 30 , 2018 , we had a net loss of $ 4,814,032 versus a net loss of $ 7,788,856 in the comparable period in the prior year . the losses for each of the years ended september 30 , 2018 and 2017 can be attributable to research and development expenses , including regulatory approval and product research , general and administrative costs , primarily relating to legal costs associated with intellectual property and patent application costs , general corporate legal expenses all of which were partially offset by adjustments to the derivative liabilities . cash used in operating activities increased $ 297,315 during the year ended september 30 , 2018 to $ 5,913,563 , compared to $ 5,616,248 for the year ended september 30 , 2017. cash at september 30 , 2018 decreased by $ 1,326,642 to $ 4,667,410 compared to $ 5,994,052 as of september 30 , 2017. business overview we are a biotechnology company in the development stage . we have generated no revenues to date and are devoting substantially all of our operational efforts to the development of our core technology . story_separator_special_tag which activities will be ongoing as we seek to expand our product candidate portfolio ; · obtain regulatory input into subsequent clinical trial designs ; · assess our self-assembling peptide platforms in order to identify and select product candidates for advancement into development . we believe that the company has cash on hand to meet its anticipated cash requirements into the third quarter of fiscal 2019. notwithstanding this , depending upon additional input from eu and us regulatory authorities , we may need to raise additional capital prior to the third quarter of fiscal 2019. in addition to the foregoing , our estimated capital requirements potentially could increase significantly if a number of risks relating to conducting these activities were to occur , including without limitation those set forth under the heading “ risk factors ” in this filing . - 35 - merger with abs and related activities as noted earlier in this document , on june 26 , 2013 , the company completed the merger with abs , pursuant to which abs became a wholly owned subsidiary of the company . in contemplation of the merger , effective may 24 , 2013 , the company increased its authorized common stock , par value $ 0.001 per share ( “ common stock ” ) , from 75,000,000 shares to 300,000,000 shares and effected a forward stock split , by way of a stock dividend , of its issued and outstanding shares of common stock at a ratio of 11 shares to each one issued and outstanding share . also in contemplation of the merger , effective june 5 , 2013 , the company changed its name from almah , inc. to arch therapeutics , inc. and changed the ticker symbol under which its common stock trades on the otc bulletin board from “ aach ” to “ arth ” . recent developments on july 17 , 2017 , we filed a 510 ( k ) notification with the fda for our ac5 topical gel . as previously announced on december 18 , 2017 , we voluntarily withdrew the submission after receiving a communication from fda near the end of the agency 's 90-day review period for a final decision on 510 ( k ) notifications . the communication contained questions for which a comprehensive response could not be provided in the limited review time remaining on the submission . given that it was not possible to respond in the time available , the company made the decision to withdraw the 510 ( k ) notification , but noted at the time that it remained committed to continued collaboration with fda to appropriately address the outstanding questions and planed to submit a new 510 ( k ) notification as soon as possible following further discussion with the agency . on march 12 , 2018 , we announced that we were utilizing the fda 's pre-submission process to submit a proposed development strategy to the fda to address the agency 's comments on our 510 ( k ) notification . as indicated in that march 12 , 2018 announcement , we determined that providing additional data to the fda would be the most expeditious path forward for addressing the fda 's comments , subject to any further comments that we may receive from the fda . on may 8 , 2018 , the company announced that it would initiate the previously disclosed study designed to address fda comments on arch 's previous 510 ( k ) notification for its ac5 topical gel . the agency provided feedback via the pre-submission process and indicated that the proposed study design was acceptable to support the company 's future marketing application . on october 1 , 2018 the company announced that it submitted a 510 ( k ) notification to the u.s. food and drug administration ( fda or “ the agency ” ) for its ac5 topical gel ( ac5 ) and has received acknowledgement from the agency that the submission has been received . on december 17 , 2018 , we announced that the 510 ( k ) premarket notification for ac5 topical gel has been reviewed and cleared by the fda , allowing for the product to be marketed . on july 2 , 2018 , the company closed on a registered direct offering of 9,070,000 units , each unit consisting of a share of the company 's common stock , and a series g warrant ( “ series g warrant ” ) to purchase 0.75 of a share of our common stock for the combined purchase price of $ 0.50 per unit . the series g warrants have an exercise price of $ 0.70 per share and are exercisable for a period of five years . the gross proceeds to arch from the 2018 financing , were approximately $ 4.5 million before deducting financing costs of approximately $ 74,000. story_separator_special_tag to purchase 227,273 shares of our common stock ; ( iii ) $ 6,570 in proceeds received from the exercise of the series e warrants to purchase 15,000 shares of our common stock ; and ( iv ) $ 77,700 in proceeds received from the exercise of stock options for 210,000 shares of our common stock . for the year ended september 30 , 2017 , the cash provided by financing resulted from ( 1 ) net proceeds received of $ 5,987,122 from 2017 financing to purchase 10,166,664 shares of our common stock and series f warrants to purchase 5,591,664 shares of common stock ; ( 2 ) $ 220,000 in proceeds received from the exercise of series a warrants to purchase 1,100,000 shares of our common stock ; ( 3 ) $ 437,500 in proceeds received from the exercise of the series d warrants to purchase 1,750,001 shares of our common stock ; ( 4 ) $ 932,388 in proceeds received from the exercise of the series e warrants to purchase 2,128,741 shares of our common stock ; and ( 5 ) $ 5,500 in proceeds received from the exercise of stock options for 15,000 shares of our common stock .
| results of operations the following discussion of our results of operations should be read together with the consolidated financial statements included in this annual report and the notes thereto . our historical results of operations and the period-to-period comparisons of our results of operations that follow are not necessarily indicative of future results . year ended september 30 , 2018 compared to year ended september 30 , 2017 replace_table_token_2_th revenue we did not generate any revenue in either of the years ended september 30 , 2018 or 2017 . - 36 - general and administrative expense general and administrative expenses during the fiscal year ended september 30 , 2018 were $ 4,565,522 a decrease of $ 642,231 compared to $ 5,207,753 for the fiscal year ended september 30 , 2017. the decrease in general and administrative expense is primarily attributable to a decrease in stock based compensation , and by reduced defense of patent and patent prosecution costs . general and administrative expenses are generally expected to increase as a result of the establishment and execution of commercialization efforts , additional staffing , increased stock based compensation as well as increased costs associated with the company 's continued fundraising efforts . research and development expense research and development expense during the fiscal year ended september 30 , 2018 was $ 2,884,245 , an increase of $ 789,450 compared to $ 2,094,795 for the fiscal year ended september 30 , 2017. the increase in research and development expense is primarily attributable to an increase in product and development costs , preparation of regulatory filings and new hires and advisors to support these efforts . research and development expenses are expected to increase as a result of our plans for additional product development , clinical and regulatory programs .
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